<PAGE>
As filed with the Securities and Exchange Commission on April 30, 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. 56
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31
______________________________
ACORN INVESTMENT TRUST
(Registrant)
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone number: 312/634-9200
______________________________
Ralph Wanger Janet D. Olsen
Acorn Investment Trust Bell, Boyd & Lloyd
227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
_____________________________
Amending Parts A, B, and C, and filing exhibits
_____________________________
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[X] on April 30, 1997 pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[ ] on ___________ pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on ___________ pursuant to rule 485(a)(2).
- --------------------------------------------------------------------------------
Registrant has previously elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of its series designated
Acorn Fund, Acorn International and Acorn USA. On February 26, 1997, Registrant
filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
<PAGE>
ACORN INVESTMENT TRUST
Cross-reference sheet pursuant to rule 495(a) of Regulation C
Item Location or caption*
- ---- --------------------------------
Part A (prospectus) - Acorn Fund, Acorn International and Acorn USA
-------------------------------------------------------------------
1(a)&(b) Front cover
2(a) Expenses and Performance - Expenses
(b)&(c) Contents; The Funds at a Glance
3(a) Financial History
(b) Not applicable
(c) Performance
(d) Performance
4(a)(i) Organization
(ii) The Funds at a Glance; The Acorn Philosophy; Securities,
Investment Practices, and Risks
(b) Securities, Investment Practices, and Risks
(c) The Funds at a Glance - Who May Want to Invest; The Acorn
Philosophy; Securities, Investment Practices, and Risks
5(a) Organization
(b) Organization; Management; The Funds in Detail - Expenses;
Expenses and Performance - Expenses; How to Contact Us
(c) Organization; Management
(d) Not applicable
(e) How to Buy Shares; How to Sell Shares; How to Contact Us
(f) Expenses and Performance - Expenses; The Funds in Detail -
Expenses
(g) Not applicable
5A The information called for is contained in the annual 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.
i
<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>
<TABLE>
<CAPTION>
Item Location or caption*
- ---- --------------------
Part B (Statement of Additional Information) - Acorn Fund,
----------------------------------------------------------
Acorn International and Acorn USA
---------------------------------
<S> <C>
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
</TABLE>
- -----------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
iii
<PAGE>
<TABLE>
<CAPTION>
Item Location or caption*
- ---- --------------------
Part C (Other Information)
--------------------------
<S> <C>
24 Financial statements and exhibits
25 Persons controlled by or under common control with registrant
26 Number of holders of securities
27 Indemnification
28 Business and other connections of investment adviser
29 Principal underwriters
30 Location of accounts and records
31 Management services
32 Undertakings
</TABLE>
- ----------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
iv
<PAGE>
Ralph Wanger's book A Zebra in Lion Country: Ralph Wanger's Investment Survival
Guide (Simon & Schuster, 1997) describes the investment philosophies and
techniques that have guided Mr. Wanger's management of the Acorn funds. He has
been portfolio manager of Acorn Fund since it was founded by Irving Harris in
1970. Shareholders of Acorn Fund, Acorn International or Acorn USA may purchase
a copy of A Zebra in Lion Country directly from the publisher at a reduced price
of $18.00, including tax, shipping and handling. Wanger Asset Management, L.P.
("WAM") is supplying these books to shareholders at WAM's cost.
Through July 31, 1997, WAM will send, at its expense, one copy of A Zebra in
Lion Country to each investor making a new investment of $5,000 or more in Acorn
Fund, Acorn International or Acorn USA. An investment in any of the funds by
the exchange privilege does not qualify to receive a copy of the book. A single
investor may acquire multiple copies of the book by making multiple investments,
each of $5,000 or more, in any of the Acorn funds on different days.
Supplement dated April 30, 1997 to the
Prospectus of Acorn Fund, Acorn International
and Acorn USA dated April 30, 1997
<PAGE>
[PHOTO OF ACORNS]
prospectus
1997
-------------------------
The Acorn Family of Funds
Prospectus and Application
April 30, 1997
Managed by Wanger Asset Management, L.P.
<PAGE>
Dear Investor:
Thank you for your interest in the Acorn Family of Funds. This prospectus
outlines the funds' policies and procedures, and contains quick-reference pages
for buying or selling shares, fund contacts and more on pages 38-43. Please
take the time to read it carefully.
The Acorn funds are growth funds managed by Wanger Asset Management, L.P. The
flagship, Acorn Fund, is a global fund investing in small to mid-size companies
in the U.S. and abroad, and has helped investors reach their long-term goals for
more than 26 years. Acorn International, the second fund in the series, invests
in small to mid-size companies in about 40 markets overseas. The newest fund,
Acorn USA, was launched in September 1996, and invests in small to mid-size
companies in the U.S. With the Acorn Family of Funds, investors have the
flexibility to balance their weightings of domestic and foreign stocks. Whether
you invest in one or all of our funds, each fund is highly diversified, helping
to reduce return volatility.
At Wanger Asset Management, L.P. (WAM), we employ a team investment approach.
The investment team is comprised of the lead portfolio manager, co-portfolio
managers, and research analysts. Team members share responsibility for providing
ideas, information, and knowledge in managing each of the Acorn funds. We are
very proud of our outstanding investment team, which has over 130 years of
combined investment experience. We invite you to learn more about some of our
distinguished team members on pages 24-25.
Investing with the Acorn funds helps you save money. How? All three funds
are 100% no-load, which means that all of your money goes to work for you
immediately. There are no sales charges, 12b-1 fees or back-end load fees, so
all of your dollars are invested at net asset value.
Providing quality service is a source of pride for us. We strive daily to make
doing business with the Acorn funds as trouble-free as possible. We hope you'll
find our fund literature and account forms easy to understand and complete. If
you ever need help or have any questions, a friendly shareholder services
representative can help. Simply call our toll-free number, 1-800-9-ACORN-9 (1-
800-922-6769) during regular business hours.
We invite you to squirrel away your acorns for a day when you really need
them, and we look forward to a long and mutually rewarding relationship with
you.
Happy investing,
[sig logo]
Ralph Wanger
President
(Not part of the prospectus.)
<PAGE>
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the funds invest
and the services available to shareholders.
A Statement of Additional Information ("SAI") dated April 30, 1997 has
been filed with the Securities and Exchange Commission ("SEC"), and is
incorporated herein by reference (is legally considered a part of this
prospectus). The SAI is available free upon request by calling Acorn at
1-800-9-ACORN-9 (1-800-922-6769).
You may also obtain the SAI, as well as other information that has been
electronically filed, from the SEC's web site (www.sec.gov).
Acorn Fund, Acorn International and Acorn USA invest for long-term capital
growth. Each fund invests mostly in stocks of small and medium-size companies.
Acorn Fund invests mostly in U.S. companies, but also has significant foreign
investments. Acorn International invests in overseas companies. Acorn USA
invests in U.S. companies.
.LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Acorn Family of Funds
. Acorn Fund
. Acorn International
. Acorn USA
No-Load Funds
Prospectus and Application
April 30, 1997
Acorn Investment Trust 227 West Monroe Street Suite 3000 Chicago, Illinois
60606
<PAGE>
<TABLE>
Contents
<S> <C> <C>
The Funds at a Glance 3
>Goal
>Strategy
>Management
>Who May Want to Invest 4
Expenses and Performance 5
>Expenses
>Financial History 6
>Performance 10
Your Account 11
>Doing Business with Acorn
>How to Buy Shares
>How to Sell Shares 12
>Selling Shares in Writing
>Redemption Price 13
Choices for Your Account
Registration 14
Shareholder and Account
Policies 16
>Statements and Reports
>Share Price
>Purchases
>Redemptions 18
>Address Changes
>Telephone Transactions 19
>Telephone Exchange Plan 20
>Exchange Plan Restrictions
Dividends, Capital Gains,
and Taxes 22
>Distribution Options
>Taxes
>Foreign Income Taxes 23
Meet the Team 24
The Funds in Detail 26
>Organization
>Management
>Distributor 27
>Expenses 28
>The Acorn Philosophy
>Securities, Investment
Practices, and Risks 30
>Foreign Securities 31
>Managing Investment
Exposure 32
>Illiquid and Restricted
Securities 35
>Diversification
>Other Investment
Companies
>Lending and Repurchase
Agreements 36
Highlights 37
>Doing Business with Acorn
>How to Buy Shares 38
>How to Sell Shares 40
>How to Contact Us 42
</TABLE>
2
<PAGE>
Acorn Family of Funds
>At a Glance
Goal
Acorn Fund, Acorn International and Acorn USA invest for long-term growth of
capital.
Strategy
The Acorn funds are small to mid-cap growth funds. The funds look for
attractively-priced companies that Wanger Asset Management, investment advisor
to the funds, thinks will benefit from favorable long-term social, economic, or
political trends. The areas of emphasis may change from time to time. Acorn
Fund is a global fund investing in the U.S. and abroad. Acorn International
concentrates its investments in overseas companies, while Acorn USA invests in
U.S. companies.
Management
Wanger Asset Management, L.P. (WAM) employs a team approach to management of the
funds. The management team is comprised of the lead portfolio manager, other WAM
portfolio managers and research analysts. Each team member has one or more areas
of expertise, and shares responsibility for providing ideas, information, and
knowledge in managing the funds. Daily decisions on portfolio selection rest
with the lead portfolio manager who utilizes the input and advice of the
management team in making purchase and sale determinations. Ralph Wanger is the
lead portfolio manager, and Charles P. McQuaid and Terence M. Hogan are the co-
portfolio managers of Acorn Fund. Leah J. Zell is the lead portfolio manager of
Acorn International and Robert A. Mohn is the lead portfolio manager of Acorn
USA.
3
<PAGE>
>At a Glance, continued
Who May Want to Invest
The Acorn funds are designed for investors who want long-term growth of capital
rather than income and who have the long-term investment outlook needed for
investing in the stocks of small and medium-size companies in the U.S. and
overseas. The return generated by each fund's portfolio securities varies from
day to day. Performance depends on WAM's skills in identifying the trends that
are the basis for the funds' stock selections, and in picking individual stocks,
as well as general market and economic conditions. When you sell your shares,
they may be worth more or less than you paid for them. The stocks of smaller
companies often involve more risk than the stocks of larger companies. Over
time, stocks have shown greater growth potential than other types of securities.
In the short term, however, stock prices may fluctuate widely in response to
company, market, or economic news. The funds are not by themselves a balanced
investment plan.
To invest you must be a U.S. citizen (or a non-citizen residing in the U.S.)
with a social security or tax identification number.
See "Your Account" for how to buy and redeem shares.
Did You
Know?
The Funds' 16 member investment team reflects four different nationalities and
18 graduate degrees, including two Ph.D's, a CPA, a statistician, and an
attorney.
4
<PAGE>
>Expenses and Performance
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Transaction Expenses
- ---------------------------------------------
Maximum sales charge on purchases
and reinvested dividends None
Deferred sales charge on redemptions None
Exchange fee None
Wire transaction fee None
Annual fund operating expenses. Each fund pays its own operating expenses,
including the management fee to WAM. Expenses are factored into a fund's
price or dividends, and are subtracted from the share price daily. They are
not charged directly to shareholder accounts.
The following are projections based on historical expenses for Acorn Fund
and Acorn International; expenses for Acorn USA are estimated. All expenses are
calculated as a percentage of average net assets.
Acorn Fund
- ---------------------------------------------
Management fee .46%
12b-1 fee None
Other expenses .11%
----
Total fund operating expenses .57%
Acorn International
- ---------------------------------------------
Management fee .85%
12b-1 fee None
Other expenses .32%
----
Total fund operating expenses 1.17%
Acorn USA
- ---------------------------------------------
Management fee 1.00%
12b-1 fee None
Other expenses (estimated) .85%
----
Total fund operating expenses 1.85%
>Example: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as shown above and to the left. For
every $1,000 you invested, here's how much you would have paid in total
expenses if you closed your account after the number of years indicated:
Acorn Fund
- ---------------------------------------------
After 1 year $ 6
After 3 years $ 18
After 5 years $ 32
After 10 years $ 71
Acorn International
- ---------------------------------------------
After 1 year $ 12
After 3 years $ 37
After 5 years $ 64
After 10 years $142
Acorn USA
- ---------------------------------------------
After 1 year $ 19
After 3 years $ 58
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
5
<PAGE>
>Expenses and Performance
Financial History
The financial history of each fund has been audited by Ernst & Young LLP,
independent auditors. Their unqualified report is included in Acorn's Annual
Report. The financial statements of each fund and the auditors' report are
incorporated by reference into the SAI.
<TABLE>
<CAPTION>
Acorn Fund Years ended 12/31,
- --------------------------------------------------------------------------------
For a share outstanding throughout each year 1996 1995
<S> <C> <C>
Net Asset Value, beginning of year $13.60 $12.24
Income From Investment Operations
Net investment income .09 .11
Net gain (loss) on investments, foreign currency and
futures (both realized and unrealized) 2.93 2.42
- --------------------------------------------------------------------------------
Total from investment operations 3.02 2.53
Less Distributions
Dividends from net investment income (.11) (.09)
Distributions from net realized and unrealized gains
reportable for federal income taxes (1.47) (1.08)
- --------------------------------------------------------------------------------
Total distributions (1.58) (1.17)
- --------------------------------------------------------------------------------
Net Asset Value, end of year $15.04 $13.60
- --------------------------------------------------------------------------------
Total Return 22.6% 20.8%
Ratios/Supplemental Data
Ratio of expenses to average net assets .57% .57%
Ratio of net investment income to average net assets .53% .89%
Portfolio turnover rate 33% 29%
Net assets at end of year (in millions) $2,842 $2,399
</TABLE>
The average commission rate paid per share by Acorn Fund on stock transactions
during 1996 was $.0194.
Financial Highlights Terms
Net Asset Value ("NAV") is the value of a single share of a fund. It is computed
by adding the value of all of a fund's investments, cash and other assets,
subtracting any liabilities and dividing the result by the number of shares
outstanding.
Net Investment Income (loss) is the per share amount of dividends, interest, and
other income earned on securities held by a fund, less fund expenses.
Net gain (loss) on investments, foreign currency and futures is the per share
increase or decrease in value of the securities, foreign currencies and futures
a fund holds. A gain (loss) is realized when securities, foreign currencies
and/or futures are sold. A gain (loss) is unrealized when securities, foreign
currencies and/or futures increase or decrease in value but are not sold.
Dividends from net investment income are the per share amount that a fund paid
to shareholders from net investment income.
Distributions from net realized and unrealized gains are the per share amount
that a fund paid to shareholders from net realized gains on investments and any
unrealized gains, resulting from holding passive foreign investment companies
("pfics").
6
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C>
$13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $7.27 $6.48 $ 7.45
.06 .04 .07 .11 .12 .13 .12 .14
(1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47 .12
- -------------------------------------------------------------------------------
(1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59 .26
(.11) (.06) (.08) (.10) (.13) (.11) (.16) (.15)
(.56) (.59) (.41) (.15) (.44) (.36) (.64) (1.08)
- -------------------------------------------------------------------------------
(.67) (.65) (.49) (.25) (.57) (.47) (.80) (1.23)
- -------------------------------------------------------------------------------
$12.24 $13.95 $11.06 $ 9.32 $ 6.51 $8.58 $7.27 $ 6.48
- -------------------------------------------------------------------------------
(7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% 24.8% 4.4%
.62% .65% .67% .72% .82% .73% .80% .82%
.55% .30% .72% 1.30% 1.60% 1.59% 1.52% 1.85%
18% 20% 25% 25% 36% 26% 36% 52%
$1,983 $2,035 $1,449 $1,150 $ 767 $ 855 $ 563 $ 418
</TABLE>
Total Return is the percentage increase or decrease in the value of an
investment over a stated period of time. Total Return includes both changes in
NAV and income. For the purpose of calculating Total Return, it is assumed that
dividends and distributions are reinvested at the NAV on the day after the
record date.
Ratio of expenses to average net assets is the total of a fund's operating
expenses divided by its average net assets for the stated period. It does not
reflect reductions in expenses through uninvested cash balances earning interest
with a fund's custodian.
Ratio of net investment income (loss) to average net assets is a fund's net
investment income divided by its average net assets for the stated period.
Portfolio turnover rate is a measure of the amount of a fund's buying and
selling activity. It is computed by dividing total purchases or sales, whichever
is less, by the average monthly market value of a fund's portfolio securities.
7
<PAGE>
<TABLE>
<CAPTION>
Expenses and Performance, continued
Acorn International Years ended 12/31,
- -------------------------------------------------------------------------------
<S> <C> <C>
For a share outstanding throughout each period 1996 1995
Net Asset Value, beginning of period $16.59 $15.24
Income From Investment Operations
Net investment income (loss) .13 .16
Net gain (loss) on investments and foreign currency
(both realized and unrealized) 3.29 1.20
- -------------------------------------------------------------------------------
Total from investment operations 3.42 1.36
Less Distributions
Dividends from net investment income (.12) --
Distributions from net realized and unrealized gains
reportable for federal income taxes (.28) (.01)
- -------------------------------------------------------------------------------
Total distributions (.40) (.01)
- -------------------------------------------------------------------------------
Net Asset Value, end of period $19.61 $16.59
===============================================================================
Total Return 20.7% 8.9%
Ratios/Supplemental Data
Ratio of expenses to average net assets 1.17% 1.22%
Ratio of net investment income (loss) to average net assets .51% .90%
Portfolio turnover rate 34% 26%
Net assets at end of period (in millions) $1,773 $1,276
Inception 9/4
Acorn USA through 12/31,
- -------------------------------------------------------------------------------
For a share outstanding throughout each period 1996
Net Asset Value, beginning of period $10.00
Income From Investment Operations
Net investment loss (.02)
Net gain (loss) on investments
(both realized and unrealized) 1.67
- -------------------------------------------------------------------------------
Total from investment operations 1.65
- -------------------------------------------------------------------------------
Net Asset Value, end of period $11.65
===============================================================================
Total Return 16.5%
Ratios/Supplemental Data
Ratio of expenses to average net assets** 1.85% *
Ratio of net investment loss to average net assets (.99%)*
Portfolio turnover rate 20% *
Net assets at end of period (in millions) $53
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Inception
9/23
through
12/31,
- ----------------------------
<S> <C> <C>
1994 1993 1992
$15.94 $ 10.69 $ 10.00
.07 .00 (.03)
(.67) 5.25 .72
- ----------------------------
(.60) 5.25 .69
-- -- --
(.10) -- --
- ----------------------------
(.10) -- --
- ----------------------------
$15.24 $ 15.94 $ 10.69
============================
(3.8%) 49.1% 6.9%
1.24% 1.21% 2.35%*
.48% .06% (1.37%)*
20% 19% 20%*
$1,363 $ 907 $ 30
</TABLE>
* Annualized
** The ratio of expenses to average net assets for Acorn USA reflects gross
custodian fees. This ratio net of custodian fees paid indirectly would have
been 1.79%.
The average commission rate paid per share by Acorn International on stock
transactions during 1996 was $.0008; for Acorn USA, it was $.0567.
9
<PAGE>
. Expenses and Performance, continued
Performance
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment in a fund over a given period, assuming
reinvestment of any dividends and capital gains. Total return reflects actual
performance over a stated period of time. Average annual total return is a
hypothetical rate of return that, if achieved annually, would have produced the
same total return if performance had been constant over the entire period.
Average annual total returns smooth out variations in performance; they are not
the same as actual year-by-year results.
Total returns are based on past results and are not a prediction of future
performance. They do not include the effect of income taxes.
The funds sometimes show their performance compared to stock indexes (described
in the SAI [Statement of Additional Information]), or give their ratings or
rankings determined by an unrelated organization.
Information about the performance of the funds is contained in Acorn's Annual
Report which may be obtained free of charge by calling the Acorn funds at
1-800-9-ACORN-9 (1-800-922-6769).
No-Load
- --------------------------------------------------------------------------------
Advantage
Acorn Fund, Acorn International and Acorn USA are 100% no-load, which means that
all of your money goes to work for you immediately. There are no sales charges,
12b-1 fees or back-end load fees, so all of your dollars are invested at net
asset value. The Acorn funds invest in companies for the long-term (usually 2-5
years), so our turnover rate is low. This minimizes both trading costs and
shareholders' taxes. All these factors add up to greater value for our
shareholders.
10
<PAGE>
. Your Account
Doing Business with Acorn
Acorn provides customers with service Monday through Friday, except holidays,
from 8:00 a.m. to 4:30 p.m. Central time.
To reach Acorn, call:
. For fund information, prices, or literature--1-800-9-ACORN-9 (1-800-922-6769)
(from outside the U.S. 1-312-634-9240)
. To add to your existing account, redeem shares, or exchange shares by
telephone--call our transfer agent by 3:00 p.m. Central time at 1-800-962-1585
(outside the U.S. 1-617-774-5000 ext. 6457)
. For help in setting up your account or for IRA assistance--call our transfer
agent at 1-800-962-1585 (outside the U.S. 1-617-774-5000 ext. 6457)
. For 24-hour account balances, 7 days a week -- 1-800-962-1585.
How to Buy Shares
You can open a new account by:
. mailing in an application with your check or money order payable to Acorn
Fund, Acorn International or Acorn USA for $1,000 or more (the Acorn funds do
not accept third party checks), or
. using the exchange plan to move $1,000 or more from an account with Acorn
Fund, Acorn International, Acorn USA or one of the Reich & Tang Funds into a
new identically-registered account within the Acorn family.
. wire-call 1-800-962-1585 to set up your account and to arrange a wire
transaction. Not available for IRA accounts.
After your account is open, you may add to it by:
. wiring money from your bank;
. moving money from your bank account by telephone if you participate in the
telephone purchase plan;
. using the telephone exchange plan to move your investment from one Acorn fund
to another, or from one of the Reich & Tang Funds; or
. mailing your check or money order payable to Acorn Fund, Acorn International
or Acorn USA for $100 or more with the stub from one of your account
statements, with a slip from the investment booklet provided by Acorn or with
a letter of instruction. (The Acorn funds do not accept third party checks.)
You must make your telephone purchases or exchanges from the Acorn funds by 3:00
p.m. Central time. To exchange out of the Reich & Tang Funds, you must call by
11:00 a.m. Central time. See "Telephone Exchange Plan."
Your wire purchase money and your application must both be received by Acorn's
transfer agent by Closing Time (usually 3:00 p.m. Central time) for you to
receive that day's price. If the proceeds of your wire order are received, but
your application has not been received by the transfer agent, you will receive
the price for the day on which your application is received by the transfer
agent. Your application must be received no later than 12:00 p.m. Central time
the day after your wire is received, or your wire will be returned to you.
11
<PAGE>
>Your Account, continued
See "Shareholder and Account Policies" for more exchange plan information.
If you are investing through an Acorn IRA or SIMPLE IRA for the first time
you will need a special application. Call 1-800-962-1585. For both initial and
subsequent IRA investments, please indicate the year for which the investment is
being made.
Minimum Investments
- -------------------------------------
To open an account $1,000
To open an IRA $1,000
To add to an account $ 100
If you sign up for the Automatic Investment Plan and later wish to change the
amount or frequency of your automatic investments, or stop future investments,
you may do so by simply calling us at 1-800-962-1585 at least one week prior to
your next scheduled investment date.
How to Sell Shares
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next NAV
(share price) calculated after your order is received and accepted. See
"Shareholder and Account Policies" for more information about share price. To
sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an Acorn IRA, your request must be made in
writing, except for exchanges between the Acorn funds or to the Reich & Tang
Short Term Income Money Market Portfolio, which can be requested before 3:00
p.m. Central time by calling 1-800-962-1585. If you need an IRA Withdrawal
Request form, call us at 1-800-9-ACORN-9 (1-800-922-6769).
The Telephone Redemption Plan lets you redeem $100 to $50,000 per day by
phone. You must make your telephone redemptions by 3:00 p.m. Central time. You
automatically have the telephone redemption plan unless you decline it on your
application. If you have changed the address on your account by telephone
within 60 days of the telephone redemption request, this service is not
available. Instead, you must send a letter of instruction signature guaranteed
by all account owners.
The Systematic Withdrawal Plan lets you set up automatic monthly or quarterly
redemptions from your account in specified dollar amounts if you have a $25,000
minimum Acorn account balance. Call 1-800-9-ACORN-9 (1-800-922-6769) for a Doing
Business with Acorn form.
Selling Shares in Writing
Write a "letter of instruction" with:
> your name,
> the fund's name,
> your fund account number,
> the dollar amount or number of shares to be redeemed,
> the stock certificates representing your shares to be redeemed, if you
hold certificates for your shares, and
> any other applicable requirements listed in the table on pages 40-41.
12
<PAGE>
Mail your letter to:
State Street Bank and Trust Co.
Attn: Acorn funds
P.O. Box 8502
Boston, MA 02266-8502
If you are using overnight mail:
Boston Financial Data Services
Attn: Acorn funds
2 Heritage Drive, 6th Floor
N. Quincy, MA 02171
1-617-774-5000 ext. 6457
Do not sign your stock certificates. Send them by registered or certified
mail so that you may receive a confirmation of delivery.
Certain requests must include a signature guarantee, designed to protect you
and Acorn from fraudulent activities. Your request must be made in writing and
include a signature guarantee if any of the following situations applies:
> you wish to redeem more than $50,000 worth of shares;
> your name has changed by marriage or divorce (send a letter indicating
your account number(s) and old and new names, signing the letter in both the
old and new names and having both signatures guaranteed)
> your address has changed within the last 60 days and you would like to
redeem shares;
> the check is being mailed to an address different from the one on your
account (address of record);
> the check is being made payable to someone other than the account owner;
> you are instructing us to wire the proceeds to a bank or brokerage account
and have not signed up for the telephone redemption by wire plan.
You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency, or savings association. A notary
public cannot provide a signature guarantee.
Redemption Price
The price at which your shares will be redeemed is determined by the time of day
our transfer agent receives your redemption request. The price per share is
always the next net asset value (NAV) per share calculated after your redemption
request, including any required signature guarantee or supporting documents, is
received. The funds calculate the NAV as of Closing Time on each day the New
York Stock Exchange (NYSE) is open for trading.
Closing Time is the close of NYSE regular session trading, which is usually
3:00 p.m. Central time but is sometimes earlier.
To get today's price--
> Use the telephone redemption plan to call your redemption request in
before Closing Time (note that the Closing Time to exchange out of the Reich &
Tang Funds is 11:00 a.m. Central time).
> Have your written redemption request, with a signature guarantee, if
required, and any supporting documents, delivered to our transfer agent before
Closing Time.
13
<PAGE>
. Choices for your Account Registration
Individual or Joint Ownership
- --------------------------------------------------------------------------------
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners.
Gift or Transfer to a Minor (UGMA, UTMA)
- --------------------------------------------------------------------------------
To invest for a minor's education or other future needs
These custodial accounts provide a way to give money to a minor. The account
application must include the minor's social security number.
Trust or Established Employee Benefit or Profit-Sharing Plan
- --------------------------------------------------------------------------------
For money being invested by a trust, employee benefit plan, or
profit-sharing plan
The trust or plan must be established before an account can be opened.
Corporation or Other Entity
- --------------------------------------------------------------------------------
For investment needs of corporations, associations, partnerships,
institutions, or other groups
You will need to send a certified corporate resolution with your application.
Retirement
- --------------------------------------------------------------------------------
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. Contributions to these accounts may be
tax-deductible. IRAs require a special application (call 1-800-9-ACORN-9).
. Acorn Individual Retirement Accounts (IRAs) allow anyone of legal age and
under 70-1/2 with earned income to save up to $2,000 per tax year. If
your spouse has less than $2,000 in earned income, he or she may still
contribute up to $2,000 to an IRA, so long as you and your spouse's
combined earned income is at least $4,000.
. Rollover IRAs retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
14
<PAGE>
. Simplified Employee Pension Plans (SEP-IRAs) allow small business owners
or those with self-employment income to make tax-deductible contributions of up
to 15% of the first $160,000 of compensation per year for themselves and any
eligible employees.
. SIMPLE IRAs must be established by an employer (including a self-employed
person), and enable all employees of the employer to elect to have up to $6,000
per year deducted from their paychecks on a before-tax basis and deposited
directly into an account maintained for the individual employee. The employer
is also generally required to make a contribution for each employee who elects
to contribute. SIMPLE IRAs require a special application (call 1-800-962-1585).
. Other retirement plans--The fund may be used as an investment in other
kinds of retirement plans, including Keogh or corporate profit-sharing and
money purchase plans, 403(b) plans, and 401(k) plans. All of these accounts
need to be established by the trustee of the plan. Acorn does not offer
prototypes of these plans.
Acorn
-------------------------------------------------------------------------------
facts
. Acorn Fund commenced operations in 1970; Acorn International opened to
investors in 1992, followed by Acorn USA in 1996.
. Number of shareholder accounts: more than 140,000
. Number of portfolio managers and analysts working for the funds: 16
. Wanger Asset Management, the advisor to the Acorn funds, specializes in
finding small, niche companies for shareholders.
15
<PAGE>
Shareholder and Account Policies
Statements and Reports
Statements and reports that Acorn sends to you include:
Confirmation statements (after every transaction in your account or change
in your account registration)
Quarterly and year-end account statements
Shareholder reports
If you would like us to send duplicate statements to someone, simply call us
at 1-800-962-1585, and we can take your request over the telephone. Average
cost statements for shares redeemed are available upon request for most
accounts.
If you need copies of your historical account information, please call
1-800-962-1585. There is a small charge for historical account information
for prior years.
Share Price
The funds are open for business each day the New York Stock Exchange (NYSE)
is open. The offering price (price to buy one share) and redemption price
(price to sell one share) are the fund's net asset value ("NAV") calculated at
the next Closing Time after receipt of your order. Closing Time is the time of
the close of regular session trading on the NYSE, which is usually 3:00 p.m.
Central time but is sometimes earlier.
A fund's NAV is the value of a single share. The NAV is computed by adding
up the value of the fund's investments, cash, and other assets, subtracting its
liabilities, and then dividing the result by the number of shares outstanding.
Each fund's portfolio securities and assets are valued primarily on the
basis of market quotations from the primary market in which they are traded or,
if quotations are not readily available, by a method that the board of trustees
believes accurately reflects a fair value. Values of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
Your purchase or redemption of fund shares will be priced at the next NAV
calculated after your investment (including the application, if for a new
account, and the money) or redemption request is received and accepted by
Acorn's transfer agent, or by certain other agents and dealers authorized to
accept purchase and redemption requests on Acorn's behalf. An order received
before Closing Time will get that day's price. No telephone orders will be
accepted after Closing Time.
Purchases
All of your purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. The Acorn funds do not accept third party checks.
Acorn does not accept cash or credit cards.
16
<PAGE>
> If payment for your check or telephone purchase order does not clear, your
purchase will be canceled and you will be liable for any losses or fees the
fund or its transfer agent incurs.
> Your Automatic Investment Plan and Telephone Purchase Plan may be immediately
terminated in the event that any item is unpaid by your financial institution.
> When you make a purchase by telephone, the money is ordinarily drawn from your
bank account the day after you call. The Acorn shares are purchased at the NAV
calculated the day after you call.
Each fund reserves the right to reject any specific purchase order,
including certain purchases through the exchange plan. See "Exchange Plan
Restrictions." Purchases may be refused if, in WAM's opinion, they are of a
size that would disrupt management of the fund.
You may purchase or redeem shares of the funds through investment dealers,
banks, or other financial institutions. Certain financial institutions that
have entered into sales agreements with the Acorn funds may enter confirmed
purchase orders or redemption requests on behalf of customers on an expedited
basis, including orders by phone, with payment to follow no later than the time
when the fund is priced on the following business day. If payment is not
received by that time, the financial institution could be held liable for
resulting fees or losses. These institutions may charge for their services or
place limitations on the extent to which you may use the services offered by
Acorn. Any such charges could constitute a substantial portion of a smaller
account and may not be in your best interest. There are no charges or
limitations imposed by Acorn other than those described in this prospectus if
shares are purchased (or redeemed) directly from Acorn.
Shares of one or more of the Acorn funds may be purchased through certain
financial service companies, without incurring any transaction fee. In
addition, certain financial institutions that have entered into agreements with
Acorn act as Acorn's agent for the limited purpose of receiving purchase,
redemption and exchange requests from their clients on behalf of whom the
institution holds shares of one or more of the Acorn funds. Some financial
institutions that act as Acorn's agent for those purposes or that otherwise
maintain nominee accounts with one of the Acorn funds for their clients for
whom they hold fund shares charge an annual fee of up to 0.35% of the average
net assets held in such accounts for accounting, shareholder servicing, and
distribution services the institution provides with respect to the underlying
fund shares. WAM pays any such fees.
17
<PAGE>
>Shareholder and Account Policies, continued
Redemptions
> Normally, redemption proceeds will be mailed within seven days after State
Street Bank receives a request for redemption.
> Redemption checks are made payable to the record shareholder or shareholders;
if you wish for the check to be made payable to someone other than the account
owners, you must submit your request in writing, and the signatures of all
record shareholders must be guaranteed. See "Selling Shares in Writing."
> A fund may hold payment on redemptions until it is reasonably satisfied that
it has received payment for a recent purchase made by check, by the Automatic
Investment Plan, or by the Telephone Purchase Plan, which can take up to
fifteen days.
> If you elected to participate in the Telephone Redemption by Wire Plan, Acorn
will send payment for your redemption to your bank account by wire transfer.
Your bank may impose a fee for the incoming wire. Payment by wire is usually
credited to your bank account on the next business day after your call.
> Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
> Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request.
Call 1-800-962-1585 for more information.
If the value of your account falls below $1,000, Acorn reserves the right to
close your account and send the proceeds to you. Your shares will be redeemed
at the NAV calculated on the day your account is closed.
If checks representing (1) redemption proceeds, (2) withdrawals under a
systematic withdrawal plan, or (3) dividend and capital gains distributions are
returned "undeliverable" or remain uncashed for six months, the checks will be
canceled and the proceeds will be reinvested in the fund issuing the check at
NAV on the date of cancellation. In addition, after such six-month period, (1)
your systematic withdrawal plan will automatically be canceled and future
withdrawals will occur only when requested, or (2) your cash election will
automatically be changed and future dividends and distributions will be
reinvested in your fund.
Address Changes
You may change your address over a recorded line by calling 1-800-962-1585.
Acorn will send a written confirmation of the change to both your old and new
addresses. No telephone redemptions may be made for 60 days after a change of
address by phone. During those
18
<PAGE>
60 days, a signature guarantee will be required for any written redemption
request unless your change of address was made in writing with a signature
guarantee.
Telephone Transactions
You may initiate many transactions by telephone.
Transactions over a recorded line:
> Change your address;
> Request duplicate statements to be sent to someone you designate;
> Request an average cost statement for shares redeemed (available for most
accounts);
> Request a current account statement;
> Purchase shares through the telephone purchase plan (plan must be
pre-established);
> Redeem $50,000 or less and have it wired (bank wire-redemption plan must
be pre-established; not available for IRA accounts);
> Change the frequency or amount, or discontinue the Automatic Investment
Plan on your account(s);
> Add or discontinue the telephone exchange privilege to your account;
> Add or discontinue the telephone redemption by check privilege to your
account;
> Add automatic exchange (from one Acorn fund to another each month) to your
account;
> Change your distribution option (does not apply to IRA accounts);
> Redeem $50,000 or less, with a check mailed to the address of record (does
not apply to IRA accounts, and your address of record must not have changed
within the last 60 days);
> Exchange money from an individual account to an existing IRA account with
an identical registration;
> Exchange money between identically-registered accounts in Acorn Fund, Acorn
International, Acorn USA or certain Reich & Tang Funds, or exchange money from
one fund to establish an identically-registered account in another fund; and
> Change the contribution year on an IRA account to the previous year up
until April 15 of the following year.
Acorn will not be responsible for any losses resulting from unauthorized
transactions if it follows reasonable procedures designed to verify the identity
of the caller. Those procedures may include recording the call, requesting
additional information, and sending written confirmation of telephone
transactions.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement.
19
<PAGE>
>Shareholder and Account Policies, continued
If you do not want to be able to initiate purchase or redemption
transactions by telephone, decline these privileges on your account application
or call Acorn for instructions at 1-800-962-1585.
If you are unable to reach Acorn by phone (for example, during periods of
unusual market activity), consider placing your order by mail.
Telephone Exchange Plan
Acorn's telephone exchange plan permits you to exchange your investment between
one Acorn fund and another, or between an Acorn Fund and one of the money market
mutual funds participating in the plan (Reich & Tang Funds) upon telephone
instructions. The Reich & Tang Funds are: Short Term Income Fund, Money Market
Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily Tax Free
Income Fund; California Daily Tax Free Income Fund; Connecticut Daily Tax Free
Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax Free Income
Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax Free Income
Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania Daily
Municipal Income Fund.
Each of the Reich & Tang Funds is a no-load fund managed by Reich & Tang Asset
Management, L.P. and offers check-writing privileges (for accounts other than
IRAs) in addition to the exchange plan. Only Short Term Income Fund, Money
Market Portfolio is available for IRA accounts.
The price at which shares are exchanged is determined by the time of day we
receive your request. To get today's price:
> For an IRA account, call us at 1-800-962-1585 before Closing Time.
> If you are exchanging from one Acorn fund into another, or into one of the
Reich & Tang Funds, call us at 1-800-962-1585 before Closing Time.
> If you are exchanging from one of the Reich & Tang Funds to one of the Acorn
funds, call Reich & Tang at 1-800-221-3079 before 11:00 a.m. Central time.
Because of the time needed to transfer money between the Acorn funds and the
Reich & Tang Funds, you may not exchange into and out of a Reich & Tang Fund on
the same or successive days; there must be at least one day between exchanges.
Exchange Plan Restrictions
> Generally, you will be limited to 4 round-trip exchanges per year (a round-
trip being the exchange out of one fund into another fund, and then back
again).
> The fund you are exchanging into must be qualified for sale in your state.
20
<PAGE>
> You may only exchange between accounts that are registered in the same name,
address, and taxpayer identification number.
> If you are opening a new account by exchange, your exchange must be at least
$1,000.
> The exchange plan is not available for shares of a fund for which you have
been issued certificates. (If you want to exchange shares between funds, call
1-800-962-1585 to get instructions for returning your certificates.)
> If your account is subject to backup withholding, you may not use the exchange
plan.
> Because excessive trading can hurt fund performance and shareholders, the
funds reserve the right to temporarily or permanently terminate the exchange
privilege of any investor who makes excessive use of the exchange plan.
> The funds also reserve the right to refuse exchange purchases by any person or
group, if Acorn believes the purchase will be harmful to existing
shareholders.
> Before exchanging into a fund, you should read its prospectus.
> Exchanges may have tax consequences for you.
The funds reserve the right to terminate or modify the exchange plan at any
time, but will try to give you prior notice whenever they are able to reasonably
do so.
21
<PAGE>
. Dividends, Capital Gains, and Taxes
Each fund distributes substantially all of its net income and capital gains to
shareholders each year. Normally, dividends are paid in July and December, and
capital gains are distributed in December.
Distribution Options
When you open an account, specify on your application how you would like to
receive your distributions. If you later want to change your distribution
option, call us at 1-800-962-1585. The funds offer three options:
. Reinvestment Option. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
. Income-Only Option. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend.
. Cash Option. You will be sent a check for each dividend and capital gain
distribution.
For IRA accounts, all distributions are automatically reinvested because payment
of distributions in cash would be a taxable distribution from your IRA, and
might be subject to income tax penalties if you are under 59-1/2 years old.
After you are 59-1/2, you may request payment of distributions in cash.
When you reinvest, the reinvestment price is the fund's NAV at the close of
business on the reinvestment date. The mailing of distribution checks will
usually begin on the payment date, which is usually one week after the ex-
dividend date. The ex-dividend date is the day after the record date.
Taxes
As with any investment, you should consider how your investment in a fund will
be taxed. If your account is a tax-deferred account (for example, an IRA or an
employee benefit plan account), the following tax discussion does not apply. If
your account is not a tax-deferred account, however, you should be aware of the
following tax rules:
Taxes on distributions. Distributions are subject to federal income tax, and may
also be subject to state or local taxes. If you live outside the United States,
your distributions could also be taxed by the country in which you reside.
Your distributions are taxable when they are paid, whether you take them in cash
or reinvest them in additional shares. However, distributions declared in
December and paid in January are taxable as if they were paid on December 31.
For federal tax purposes, each fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, Acorn will send you and the IRS
a statement, called a Form 1099-DIV, showing the amount of each taxable
distribution you received in the previous
22
<PAGE>
year. You may not receive a Form 1099 if total distributions for the year are
less than $10.00.
Taxes on transactions. Your redemptions--including exchanges between funds or
into a money fund--are subject to capital gains tax. A capital gain or loss is
the difference between the cost of your shares and the price you receive when
you sell them.
Whenever you sell shares of any of the Acorn funds, Acorn will send you a
confirmation statement showing how many shares you sold and at what price. You
will also receive a year-end statement every January. It is up to you or your
tax preparer to determine whether any given sale resulted in a capital gain and,
if so, the amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
Foreign Income Taxes
Investment income received by any of the Acorn funds from sources within foreign
countries may be subject to foreign income taxes withheld at the source. If a
fund pays nonrefundable taxes to foreign governments during the year, the taxes
will reduce that fund's dividends but will still be included in your taxable
income. You may be able to claim an offsetting credit or deduction on your tax
return for your share of foreign taxes paid by Acorn International (but not by
Acorn Fund because not enough of Acorn Fund's assets are invested in foreign
securities for Acorn Fund to be able to pass through the foreign tax credit).
Acorn International will send you this information as part of your annual Form
1099-DIV.
When you sign your account application, you will be asked to certify that your
social security or taxpayer identification number is correct and that you are
not subject to 31% backup withholding for failing to report income to the IRS.
If you violate IRS regulations, the IRS can require Acorn to withhold 31% of
your taxable distributions and redemptions.
Understanding
- --------------------------------------------------------------------------------
Distributions
As a fund shareholder, you are entitled to your share of a fund's net income and
any net gains realized on its investments.
The funds' income from dividends and interest, and any net realized short-term
capital gain, are paid to you as dividends. A fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. Net
realized long-term gains are paid to you as capital gain distributions.
23
<PAGE>
.Meet the Managers
- --------------------------------------------------------------------------------
Ralph Wanger
president, chief strategist--Acorn Fund, Acorn International and Acorn USA and
lead portfolio manager--Acorn Fund. Mr. Wanger has been involved in managing
each of the Acorn funds since each fund began. Mr. Wanger is president of Acorn
Investment Trust and has been a member of the board of Acorn and its predecessor
since 1970. Mr. Wanger is a principal of Wanger Asset Management, L.P. (WAM). He
is a Chartered Financial Analyst (CFA) and received his B.S. and M.S. degrees in
Industrial Management from the Massachusetts Institute of Technology.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Charles P. McQuaid
co-portfolio manager--Acorn Fund. Mr. McQuaid has contributed to Acorn
Fund's growth since 1978. He is senior vice president of Acorn Investment Trust
and a member of its board of trustees. Mr. McQuaid is a principal and the
Director of Research at WAM. A CFA, he earned a B.B.A. from the University of
Massachusetts and M.B.A. from the University of Chicago. Mr. McQuaid focuses on
the areas of communications and media.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Terence M. Hogan
co-portfolio manager--Acorn Fund. Mr. Hogan is a vice president of Acorn
Investment Trust and has been a member of Acorn Fund's management team since
1986. He has been a principal of WAM since 1992. Mr. Hogan is also a CFA, who
earned his degrees from Knox College (B.A.) and the Johnson Graduate School at
Cornell University (M.B.A.). His investment specialization is consumer goods and
services.
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
Leah J. Zell
lead portfolio manager--Acorn International. Ms. Zell is a vice president of
Acorn who has been working with Acorn Fund's international securities since 1984
and has been a part of Acorn International's management team since it began. Ms.
Zell earned her undergraduate degree from Radcliffe College and holds a Ph.D.
from Harvard University. She is also a Chartered Financial Analyst (CFA). Ms.
Zell visits over 100 companies worldwide each year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Robert A. Mohn
lead portfolio manager--Acorn USA. Mr. Mohn is a vice president of Acorn and
a principal of WAM. In addition to being lead manager of Acorn USA, Mr. Mohn is
also a member of WAM's management team for Acorn Fund, which he joined in 1992.
He is a CFA and received his undergraduate degree from Stanford University and
his M.B.A. from the University of Chicago.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Marcel P. Houtzager
investment analyst--Acorn Fund and Acorn International. Mr. Houtzager, a
vice president of Acorn, has been a member of WAM's investment management team
for Acorn Fund and Acorn International since 1992. Mr. Houtzager, who is a
principal of WAM, is a CFA and a Certified Public Accountant. He received his
B.A. from Pomona College and his M.B.A. from the University of California at
Berkeley.
- --------------------------------------------------------------------------------
25
<PAGE>
.The Funds in Detail
Organization
Acorn Fund, Acorn International and Acorn USA are series of Acorn Investment
Trust ("Acorn" or the "Trust"), an open-end, management investment company. The
Acorn Fund, Inc. began operations in 1970, and was reorganized as the Acorn
Fund series of the Trust on June 30, 1992. The Trust is a Massachusetts
business trust organized on April 21, 1992. Acorn International began
operations on September 23, 1992. Acorn USA began operations on September 4,
1996.
Each share of a fund is entitled to participate pro rata in any dividends
and other distributions declared by the board of trustees with respect to that
fund, and all shares of a fund have equal rights in the event of liquidation of
that fund.
The Trust is governed by a board of trustees, which is responsible for
protecting the interests of the shareholders of the funds. The trustees are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Trust and the funds. A majority of trustees are
not otherwise affiliated with Acorn or WAM.
Acorn may hold special meetings of shareholders to elect or remove trustees,
change fundamental policies, approve a management contract, or for other
purposes. Acorn will mail proxy materials in advance, including a voting card
and information about the proposals to be voted on. You are entitled to one vote
for each share of a fund that you own. Shareholders not attending these meetings
are encouraged to vote by proxy.
Management
The Acorn funds are managed by Wanger Asset Management, L.P. (WAM), 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606; WAM chooses the funds'
investments and handles their business affairs, under the direction of the
board of trustees.. WAM is a limited partnership managed by its general
partner, Wanger Asset Management, Ltd., which is controlled by Ralph Wanger.
WAM manages more than $5.6 billion in assets.
WAM employs a team approach to management of the Acorn funds. The management
teams are comprised of a lead portfolio manager, other WAM portfolio managers
and research analysts. Team members share responsibility for providing ideas,
information and knowledge in managing the funds, with each team member having
one or more particular areas of expertise applicable to the management of the
funds. Daily decisions on portfolio selection rest with the lead portfolio
manager who utilizes the input and advice of the management team in making
purchase and sale determinations.
Ralph Wanger is the president and chief strategist of the funds and has been
involved in managing all of the Acorn
26
<PAGE>
funds since each fund began (June 1970 for Acorn Fund, September 1992 for Acorn
International, and September 1996 for Acorn USA). Mr. Wanger has been president
and a member of the board of Acorn (and its predecessor, The Acorn Fund, Inc.)
since 1970. He is a principal of WAM and was a principal of the Fund's prior
advisor until July 1992. Mr. Wanger is primarily responsible for development of
the funds' investment strategies and is the lead portfolio manager of Acorn
Fund.
Charles P. McQuaid and Terence M. Hogan are co-portfolio managers of Acorn Fund.
Mr. McQuaid is a senior vice president and a trustee of the Trust. Mr. Hogan is
a vice president of the Trust. Mr. McQuaid and Mr. Hogan have been principals of
WAM since July 1992. Before that date, Mr. McQuaid was a principal and Mr. Hogan
was an analyst with the Trust's prior investment advisor. Mr. McQuaid and Mr.
Hogan have been working with Mr. Wanger for 19 and 11 years, respectively.
Leah J. Zell is the lead portfolio manager of Acorn International and is a vice
president of the Trust. She has been a principal of WAM since July 1992 and was
an analyst with the Trust's previous investment advisor. Ms. Zell has been
working with Mr. Wanger for 13 years.
Robert A. Mohn is a vice president of the Trust and has been the lead portfolio
manager of Acorn USA since it began operations in September 1996. Mr. Mohn has
been a key member of WAM's domestic analytical team since August 1992, and a
principal of WAM since July 1995.
Marcel P. Houtzager is a vice president of the Trust, and is a key member of the
international investment team. Mr. Houtzager joined WAM as an investment analyst
in April 1992, and became a principal in 1995. A specialist in foreign equities,
he concentrates his efforts on European stocks, for both the Acorn Fund and
Acorn International portfolios.
The other executive officers are Merrillyn J. Kosier, vice president and
secretary, and Bruce H. Lauer, vice president and treasurer.
State Street Bank and Trust Company is each fund's transfer agent and custodian.
Distributor
Shares of the Acorn funds are offered for sale through WAM Brokerage Services,
L.L.C. ("WAM BD") without any sales commission or charges to the funds or their
shareholders. WAM BD is wholly-owned by WAM, the funds' investment advisor, and
the investment advisor's general partner, Wanger Asset Management, Ltd. WAM BD's
address is 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. All
distribution expenses relating to the funds are paid by WAM, including the
payment or reimbursement of any expenses incurred by WAM BD.
27
<PAGE>
.The Funds in Detail, continued
Expenses
Like all mutual funds, the Acorn funds pay expenses related to their daily
operations. Expenses paid out of each fund's assets are reflected in its share
price or dividends.
The Fund pays a management fee to WAM for managing its investments and business
affairs. See "Expenses and Performance." Each fund also pays the fees of its
custodian, transfer agent, auditors, and lawyers, and other expenses such as the
cost of compliance with federal and state laws, proxy solicitations, shareholder
reports, taxes, insurance premiums, and the fees of trustees who are not
otherwise affiliated with Acorn or WAM.
The Acorn Philosophy
Acorn Fund, Acorn International and Acorn USA seek long-term growth of capital.
Although income is considered in the selection of securities for the Acorn
funds, the funds are not designed for investors seeking primarily income rather
than capital appreciation.
Acorn prefers small companies. Since large institutions seek highly marketable
stocks, the stocks of large companies are studied in detail by security
analysts, with the result that all investors know much the same thing about
large companies. WAM prefers to work with stocks where values are more
attractive because the facts about the companies are not universally known.
Thus, the Acorn funds generally concentrate purchases on that segment of the
market where the competition is less intense--in companies with a total common
stock market capitalization of less than $1 billion. WAM wants to be able to
understand any company in which Acorn invests, and smaller companies are easier
to comprehend than large firms or conglomerates. When a company develops into a
multi-industry giant, it is difficult for even the top management of the company
to understand its own business and even harder for an outsider to follow such
widespread activities. Since WAM places a premium on understanding Acorn's
investments, WAM talks to top management directly whenever possible. This is
easier to do with smaller firms.
Looking for high quality companies. The funds look for quality businesses, with
each investment ideally resting on a solid tripod of growth potential, financial
strength, and fundamental value. Not all of the companies in which the funds
invest necessarily have all of these characteristics.
The sources of growth are a growing marketplace for the company's product, good
design, efficient manufacturing, sound marketing, and good profit margins.
Financial strength means low debt, adequate working capital, and conservative
accounting principles. Strong capitalization gives management the stability and
flexibility to reach strategic
28
<PAGE>
objectives. In economies with less well-developed capital markets than those of
the U.S., a strong balance sheet is an essential component of competitive
advantage. Fundamental value means low relative price. The existence of a good
company does not necessarily make its stock a good buy. The price of the stock
determines value as measured relative to dividends, earnings, cash flow, growth
rate, book value, and economic replacement value of assets. The emphasis on
fundamentals in relation to price sets the Acorn funds apart from pure "growth"
or "value" funds.
WAM also believes that finding and understanding high quality companies is
important because investing in smaller companies involves relatively higher
investment costs. One way to reduce these costs is to invest with a long-term
time horizon (at least 2-5 years) and to avoid frequent turnover of the stocks
held by the funds. Occasionally, however, securities purchased on a long-term
basis may be sold within 12 months after purchase in light of a change in the
circumstances of a particular company or industry, or in general market or
economic conditions.
Investment themes. To find long-term investments and reduce portfolio turnover,
the funds seek out areas of the economy that they believe will benefit from
favorable long-term economic and political trends. These areas of emphasis may
change from time to time, and are usually related to identified investment
themes or market niches. A small company can frequently carve out a specialized
niche for itself. The niche can be geographic, like that of a regional bank or a
community newspaper. It can be technological, based on patents and know-how.
Sometimes the niche is a marketing technique. In international investing, the
niche can be participation in a fast-growth economy. A well-run business in a
growing country has an easier path to a high growth rate.
The funds invest primarily in equity securities, including common and preferred
stocks, warrants or other similar rights, and convertible securities. The funds
may purchase foreign securities in the form of American Depository Receipts
(ADRs), European Depository Receipts (EDRs), or other securities representing
underlying shares of foreign issuers. The funds may also invest in any other
type of security, including debt securities.
Under normal market conditions, Acorn International invests at least 75% of its
total assets, taken at market value, in foreign securities. Acorn USA may invest
up to 10% of its total assets in foreign securities. Acorn Fund's investments in
foreign securities are limited to no more than one-third of its total assets.
The foreign securities in which the funds invest may be traded in mature markets
(for example, Japan, Canada, and the United Kingdom) and in developing
29
<PAGE>
.The Funds in Detail, continued
markets (Mexico and Indonesia, for example), examples of which are included in
the SAI under "Investment Techniques and Risks--Foreign Securities." There are
no limits on the funds' geographic asset distribution; at December 31, 1996,
Acorn International had investments in 41 countries and Acorn Fund had
investments in 34 countries. Acorn USA had no investment in foreign securities
at that date. The funds may invest without limit in corporate or government
obligations or hold cash or cash equivalents if WAM determines that a temporary
defensive position is advisable. If investments in foreign securities appear to
be relatively unattractive because of current or anticipated adverse political
or economic conditions, Acorn International may hold cash or invest any portion
of its assets in securities of the U.S. government and equity and debt
securities of U.S. companies, as a temporary defensive strategy. The funds use
various techniques to increase or decrease their exposure to the effects of
possible changes in security prices, currency exchange rates, or other factors
that affect the value of a fund's portfolio. These techniques include buying and
selling options, futures contracts, or options on futures contracts, or entering
into currency exchange contracts or swap agreements.
The investment objective of each Acorn fund is not fundamental and may be
changed by the board of trustees without shareholder approval. If there were
such a change, you should consider whether your fund would remain an appropriate
investment in light of your then current financial position and needs. The funds
are not intended, alone or together, to present a balanced investment program.
Securities, Investment Practices, and Risks
The following pages contain more detailed information about types of investments
the funds may make, and strategies WAM may employ in pursuit of each fund's
investment objective, including information about the associated risks and
restrictions. All policies stated throughout this prospectus, other than those
identified as fundamental, can be changed without shareholder approval. A
complete statement of each fund's investment restrictions is included in the
SAI. Policies and limitations are considered at the time of purchase; the sale
of an investment is not required because of a subsequent change in
circumstances.
WAM may not buy all of these instruments or use all of these techniques to the
fullest extent permitted, unless it believes that doing so will help a fund
achieve its goal.
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives a fund the right to vote on measures affecting
the company's organization and
30
<PAGE>
operations. Although common stocks have a history of long-term growth in value,
their prices tend to fluctuate in the short term.
The Acorn funds invest mostly in the securities of smaller companies, that is,
companies with a total market capitalization of less than $1 billion. During
some periods, the securities of small companies, as a class, have performed
better than the securities of large companies, and in some periods they have
performed worse. Stocks of small companies tend to be more volatile and less
liquid than stocks of large companies. Small companies, as compared to larger
companies, may have a shorter history of operations, may not have as great an
ability to raise additional capital, may have a less diversified product line
making them susceptible to market pressure, and may have a smaller public market
for their shares.
Restrictions: A fund may not acquire securities of any one issuer, which at the
time of investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the outstanding
securities of the issuer.*
Foreign Securities
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of similar U.S.
investments, although there can be no assurance that these conditions will
continue.
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks which in some ways may be greater than in U.S.
investments, including: fluctuations in exchange rates of foreign currencies;
imposition of exchange control regulations or currency restrictions that would
prevent cash from being brought 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, frequently greater
price volatility, and higher transaction costs in foreign markets than in the
United States; possible imposition of foreign taxes; possible investments in
securities of developing as well as developed countries; and sometimes less
advantageous legal, operational, and financial protections applicable to foreign
sub-custodial arrangements. Investing in countries outside the U.S. also
involves political risk. A foreign government might restrict investments by
foreigners, expropriate assets, seize or nationalize foreign
- --------------------------------------------------------------------------------
*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
31
<PAGE>
.The Funds in Detail, continued
bank deposits or other assets, establish exchange controls, or enact other
policies that could affect investment in these nations. Economies in individual
markets may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rates of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Many emerging market countries have experienced extremely
high rates of inflation for many years. That has had and may continue to have
very negative effects on the economies and securities markets of those
countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. There also may be
a lower level of monitoring and regulation in emerging markets of traders,
insiders, and investors. Enforcement of existing regulations has been extremely
limited.
The funds may invest in ADRs that are not sponsored by the issuer of the
underlying security. To the extent a fund does so, it would probably bear its
proportionate share of the expenses of the depository and might have greater
difficulty in receiving copies of the issuer's shareholder communications than
would be the case with a sponsored ADR.
The funds may invest in securities purchased on a when-issued and delayed
delivery basis. Although the payment terms of such a security are established at
the time a fund enters into the commitment, the security may be delivered and
paid for a month or more after the date of purchase, when its value may have
changed. A fund will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before settlement date if
WAM considers it advisable for investment reasons.
Restrictions: Under normal market conditions, Acorn International invests at
least 75% of its total assets in foreign securities. Acorn Fund's investments in
foreign securities are limited to not more than 33% of its total assets. Acorn
USA may invest up to 10% of its total assets in foreign securities, including
ADRs.
Managing Investment Exposure
The funds use various techniques to increase or decrease their exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of the funds' portfolios. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts or swap agreements.
These techniques are used by WAM to adjust the risk and return characteristics
of the funds' portfolios. If WAM judges market conditions incorrectly or employs
32
<PAGE>
a strategy that does not correlate well with a fund's investments, or if the
counterparty to the transaction does not perform as promised, the transaction
could result in a loss. Use of these techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the magnitude of the
risk assumed. These techniques are used by the funds for hedging, risk
management or portfolio management purposes and are not used for speculation.
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 foreign
currency 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.
Currency exchange 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 actual or anticipated portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to a specific
receivable or payable of a fund accruing in connection with the purchase or sale
of portfolio securities. Portfolio hedging is the use of a forward contract with
respect to an actual or anticipated portfolio security position denominated or
quoted in a particular currency. The funds may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating actual
or anticipated positions in securities denominated in that currency. When a fund
owns or anticipates owning securities in countries whose currencies are linked,
WAM may aggregate those positions as to the currency hedged. Although forward
contracts may be used to protect a fund from adverse currency movements, the use
of such hedges may reduce or eliminate the potentially positive effect of
currency revaluations on that fund's total return.
Options and futures. Each fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of that fund's portfolio, to
provide an efficient means of regulating the fund's exposure to the equity
markets, or as a hedge against changes in prevailing levels of currency exchange
rates. Each fund may write covered call options and purchase put and call
options on foreign currencies, securities, and stock indices. Futures contracts
and options can be
33
<PAGE>
.The Funds in Detail, continued
highly volatile. A fund's attempt to use such investments for hedging purposes
may not be successful and could result in reduction of that fund's total return.
Restrictions: A fund will not use futures contracts for speculation, and will
limit its use of futures contracts so that no more than 5% of that fund's total
assets would be committed to initial margin deposits or premiums on such
contracts. The aggregate market value of each fund's currencies or portfolio
securities covering call or put options will not exceed 10% of that fund's net
assets.
Debt Securities. Bonds and other debt instruments are methods for an issuer to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Debt
securities have varying degrees of quality and varying levels of sensitivity to
changes in interest rates.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of comparable
quality. Securities rated BBB or Baa are considered to be medium-grade and to
have speculative characteristics. Investment in non-investment grade debt
securities is speculative and involves a high degree of risk.
Lower-rated debt securities (commonly called "junk bonds") are often considered
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty.
Money market instruments are high-quality, short-term debt securities that
present minimal credit risk. These instruments may carry fixed or variable
interest rates.
Restrictions: There are no restrictions on the ratings of debt securities in
which a fund may invest. Acorn Fund does not intend to invest more than 5% of
its net assets in securities rated at or lower than the lowest investment grade.
Acorn International will not invest more than 20% of its total assets in debt
securities that are below investment grade quality. Acorn USA does not intend to
invest more than 20% of its total assets in debt securities, nor more than 5% of
its total assets in debt securities rated at or lower than the lowest investment
grade.
Acorn Fund and Acorn USA may invest without limit in corporate or government
obligations, or hold cash or cash equivalents if WAM determines that a temporary
defensive position is advisable. If investments in foreign securities appear to
be relatively unattractive because of current or anticipated adverse political
or
34
<PAGE>
economic conditions, Acorn International may hold cash or invest any portion of
its assets in securities of the U.S. government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet liquidity needs
(which, under normal market conditions, are not expected to exceed 25% of total
assets) or for temporary defensive purposes, each fund may hold cash in domestic
and foreign currencies and may invest in domestic and foreign money market
securities.
Illiquid and Restricted Securities
Some investments may be determined by WAM to be illiquid, which means that they
may be difficult to sell promptly at an acceptable price. Other securities, such
as securities acquired in private placements, may be sold only pursuant to
certain legal restrictions. Difficulty in selling securities may result in
delays or a loss, or may be costly to the fund.
Restrictions: Acorn Fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid or restricted securities. Acorn
International and Acorn USA are similarly restricted with respect to 15% of
their assets.*
Diversification
Diversifying the funds' investment portfolios can reduce the risks of investing.
This may include limiting the amount of money invested in any one company or, on
a broader scale, limiting the amount invested in any one industry or country.
Restrictions: Acorn Fund may not invest more than 5% of its total assets in the
securities of any one issuer. Acorn International and Acorn USA are similarly
limited with respect to 75% of their total assets, leaving a "basket" of 25% of
total assets in which investments may exceed the 5% limit. No fund may invest
more than 25% of its total assets in any one industry. These limitations do not
apply to U.S. government securities.*
Other Investment Companies
Certain markets are closed in whole or in part to equity investments by
foreigners. The funds may be able to invest in such markets solely or primarily
through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a premium
above the value of the issuer's portfolio securities, and is subject to market
availability. In the case of a purchase of shares of such a company in a public
offering, the purchase price may include an underwriting spread. As a
shareholder in an investment company, a fund would bear its ratable share of
that investment company's expenses, including its advisory and administration
fees. At the same time, the fund would continue to pay its own management fees
and other expenses. The funds do not intend to invest in such circumstances
unless, in the judgment of WAM, the
- --------------------------------------------------------------------------------
*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
35
<PAGE>
.The Funds in Detail, continued
potential benefits of such investment justify the payment of any applicable
premium or sales charge, and the additional layer of expense.
Restrictions: A fund generally may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in
another investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.
Lending and Repurchase Agreements
The funds generally may not make loans, but have the power to invest in
repurchase agreements and reverse repurchase agreements (generally as a cash
management technique). A repurchase agreement involves a sale of securities to a
fund in which the seller agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase price, within a
specified time. In the event of a bankruptcy of the seller, a fund could
experience both losses and delays in liquidating its collateral.
Restrictions: A fund may not generally make loans, but may (a) invest in debt
securities within the limits described in the prospectus and SAI, (b) invest in
repurchase agreements or (c) lend up to 33% of its portfolio securities.*
Fund
- --------------------------------------------------------------------------------
Facts
Remember, you can use your touch-tone telephone to obtain your fund account
balance(s) 24 hours a day. Simply call 1-800-962-1585 and follow the automated
instructions.
- --------------------------------------------------------------------------------
*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
36
<PAGE>
Highlights
.Doing Business with Acorn
From time to time you may find it necessary to make changes to your account
privileges or registration. The following easy-to-use shareholder forms are
available upon request by calling 1-800-9-ACORN-9 (1-800-922-6769):
- --------------------------------------------------------------------------------
To accomplish this: Please request this form:
For changes to account services . Doing Business with Acorn
For re-registering your current . Changing Your Account Registration
account
For re-registering your Acorn . Broker-Dealer Transfer Form
shares held by a broker to an
account with Acorn
For changes to your IRA . Change of Beneficiary
beneficiary designations
For transferring money from . IRA Transfer Form
an IRA account with another
institution to Acorn
For redeeming shares from your . IRA Withdrawal Form
IRA account
37
<PAGE>
Highlights
.How to Buy Shares
Mail [LOGO]
- --------------------------------------------------------------------------------
To open an account:
. Complete and sign the application. Make your check payable to "Acorn
Fund," "Acorn International," or "Acorn USA."
Mail to the address on the application, or for overnight delivery:
Boston Financial Data Services
Attn: Acorn Funds
2 Heritage Drive, 6th Floor
N. Quincy, MA 02171
1-617-774-5000 ext. 6457
. Acorn does not accept third party checks.
- --------------------------------------------------------------------------------
To add to an account:
. Make your check payable to "Acorn Fund," "Acorn International," or
"Acorn USA." Put your fund account number on your check.
Use the return envelope that comes with your statements, or mail to the
address on your statement.
. Acorn does not accept third party checks.
Telephone: 1-800-962-1585 [LOGO]
- --------------------------------------------------------------------------------
To open an account:
. You may not open a new account by telephone.
. Exchange between the Acorn funds, or from a Reich & Tang Fund account
with the same registration, including name, address, and taxpayer ID
number.
- --------------------------------------------------------------------------------
To add to an account:
. Exchange between accounts with the same registration, including name,
address, and taxpayer ID number.
. Use the telephone purchase plan to transfer $100 to $50,000 from your
bank account. Call first to verify that this service is in place on your
account. (This service is not available for IRAs.)
You must make your telephone purchases or exchanges from the Acorn funds by
3:00 p.m. Central time.
38
<PAGE>
Wire [logo]
- --------------------------------------------------------------------------------
To open an account:
. Call 1-800-962-1585 to set up your account and to arrange a wire
transaction. This is not available for IRA accounts.
- --------------------------------------------------------------------------------
To add to an account:
. Wire to:
State Street Bank & Trust Co.
Attn: Mutual Funds
Boston, MA 02110
Routing #0110-0002-8
Deposit DDA 9902-990-2
Specify the name of the fund, the account name and the account number.
Automatic Investment Plan [logo]
- --------------------------------------------------------------------------------
To open an account:
. You may not open a new account through the Automatic Investment Plan.
- --------------------------------------------------------------------------------
To add to an account:
. Sign up on the purchase application for monthly or quarterly transfers
of $100 to $50,000 from your bank account, or call 1-800-9-ACORN-9 (1-
800-922-6769) for a Doing Business with Acorn form. If you already have
this service, you can easily change the frequency or amount of your
automatic investments over the telephone by calling 1-800-962-1585.
- --------------------------------------------------------------------------------
TDD service for the deaf and hearing-impaired: 1-800-306-4567
39
<PAGE>
Highlights
.How to Sell Shares
Telephone 1-800-962-1585 [LOGO]
- --------------------------------------------------------------------------------
All accounts types, except IRAs:
. To verify that the telephone redemption plan is in place, call 1-800-
962-1585. You automatically have this feature on your new account unless
you tell us that you do not want it.
. Maximum: $50,000; minimum: $100
All account types:
. To exchange between identically-registered accounts
You must make your telephone redemptions by Closing Time (usually 3:00 p.m.
Central time).
Mail [LOGO]
- --------------------------------------------------------------------------------
Individuals, Joint Owners, Sole Proprietorships, UGMA, UTMA
. The letter of instruction must be signed by all persons required to sign
for transactions (usually, all owners of the account), exactly as their
names appear on the account.
- --------------------------------------------------------------------------------
IRAs
. The account owner should complete an IRA Withdrawal Request form. Call
1-800-9-ACORN-9 (1-800-922-6769) to request one.
- --------------------------------------------------------------------------------
Trust
. The trustee(s) must sign the letter indicating capacity as trustee(s).
If the account registration does not include the name of the trustee(s),
provide a copy of the trust document certified within the last 60 days.
- --------------------------------------------------------------------------------
Business or Organization
. The person(s) authorized by the corporate resolution to act on the
account must sign, in that person's official capacity, and the
redemption request must be on corporate letterhead.
. Include a corporate resolution certified within 60 days if the amount to
be redeemed exceeds $50,000.
- --------------------------------------------------------------------------------
Executor, Administrator, Conservator, Guardian
. Call 1-800-962-1585 for instructions.
40
<PAGE>
Wire [LOGO]
- --------------------------------------------------------------------------------
All account types, except IRAs
. You must sign up for payment of redemptions by wire before
using this feature. Call to verify that this service is in place--
1-800-962-1585.
. Minimum wire: $1,000; maximum: $50,000.
You must make your telephone redemptions by Closing time (usually 3:00 p.m.
Central time).
Automatic Exchange [LOGO]
- --------------------------------------------------------------------------------
All account types
. Call 1-800-962-1585 to set up monthly or quarterly automatic exchanges
of $100 to $50,000 between identically-registered accounts.
- --------------------------------------------------------------------------------
TDD service for the deaf and hearing-impaired: 1-800-306-4567
Note: Some redemptions require signature guarantees. Please see page 13.
41
<PAGE>
Highlights
.How to Contact Us
Mail [LOGO]
- --------------------------------------------------------------------------------
State Street Bank & Trust Co. . for regular mail delivery, including
Attn: Acorn funds purchases, written exchanges,
P. O. Box 8502 redemptions, and IRA contributions
Boston, MA 02266-8502
Boston Financial Data Services . for overnight deliveries of purchases,
Attn: Acorn funds written exchanges, redemptions, or
2 Heritage Drive, 6th Floor IRA contributions
N. Quincy, MA 02171
Wanger Asset Management, L.P. . the funds' advisor
227 W. Monroe St., Suite 3000
Chicago, IL 60606-5016
WAM Brokerage Services, L.L.C. . the funds' distributor
227 W. Monroe St., Suite 3000
Chicago, IL 60606-5016
Phone [LOGO]
- --------------------------------------------------------------------------------
1-800-9-ACORN-9 . for fund information, literature,
(1-800-922-6769) prices, and performance information
(from outside the U.S. 1-312-634-9240)
1-800-962-1585 . for account balances, telephone
purchases, exchanges and
redemptions, and for IRA informa-
tion (from outside the U.S.
1-617-774-5000 ext. 6457)
1-800-221-3079 . to exchange out of a money fund
1-800-306-4567 . TDD service for the deaf and
hearing impaired
Customer service is available on business days from 8:00 a.m. to 4:30 p.m.
Central time.
Telephone requests for purchases, redemptions or exchanges from the Acorn funds
must be made by Closing Time (usually 3:00 p.m. Central time).
42
<PAGE>
Internet [LOGO]
- --------------------------------------------------------------------------------
Web site: www.wanger.com
E-mail: [email protected]
Wire [LOGO]
- --------------------------------------------------------------------------------
State Street Bank & Trust Co. . to wire money from your bank to
Attn: Mutual Funds add to an existing account
Boston, MA 02110
Routing #0110-0002-8
Deposit DDA 9902-990-2
Specify the name of the fund and
the name and the number of
your account.
43
<PAGE>
[LOGO OF ACORN FAMILY OF FUNDS]
P.O. Box 8502
Boston, MA 02266-8502
Application
It takes only a few moments to fill out this simple step-by-step application. If
you have questions, call us at 1-800-9-ACORN-9, (1-800-922-6769), weekdays,
8:00am--4:30pm, Central time. Please be sure to print your information on this
application, then simply sign and return it to us in the postage-paid envelope
we've provided or to the address above. (Please do not use this form if you are
opening an IRA. Please call us at the telephone number above for an IRA
application.)
Your Account Registration
[_][_][_] [_][_] [_][_][_][_]
Social Security Number Use minor's social security number for gifts/transfers to
minors or
[_][_] [_][_][_][_][_][_][_]
Taxpayer ID Number
- --------------------------------------------------------------------------------
[_] Individual or Joint* Account
- --------------------------------------------------------------------------------
Owner's name: first, middle initial, last
- --------------------------------------------------------------------------------
Joint owner's name: first, middle initial, last
*Joint tenants with right of survivorship, unless you indicate otherwise.
- --------------------------------------------------------------------------------
[_] Gift/Transfer to a Minor (UGMA/UTMA)
as custodian for
- --------------------------------------------------------------
Custodian's name (one name only): first, middle initial, last
under the
- --------------------------------------------------------------
Minor's name: first, middle initial, last
Uniform Gifts/Transfers to Minors Act.
- ------------------------------------------
State
- --------------------------------------------------------------------------------
Minor's date of birth
- --------------------------------------------------------------------------------
[_] Trust or Established Employee Benefit or Profit-Sharing Plan
- --------------------------------------------------------------------------------
Trustee(s') name(s)
as trustee(s) of
- -------------------------------------------------------
Trustee(s') name(s)
- --------------------------------------------------------------------------------
Name of Trust or Plan
- --------------------------------------------------------------------------------
Date of Trust or Plan
PLEASE INCLUDE A COPY OF FIRST PAGE AND LAST PAGES OF THE TRUST OR PLAN
AGREEMENT.
- --------------------------------------------------------------------------------
[_] Corporation or Other Entity
- --------------------------------------------------------------------------------
Name of corporation or other entity
- --------------------------------------------------------------------------------
Type of entity (for example, corporation, partnership, non-profit)
PLEASE ATTACH A CERTIFIED COPY OF YOUR CORPORATE RESOLUTION SHOWING THE
PERSON(S) AUTHORIZED TO ACT ON THIS ACCOUNT.
Institutional Accounts Only
- --------------------------------------------------------------------------------
Please complete the following:
[_] Defined Benefit [_] Foundation
[_] Defined Contribution [_] Endowment
[_] 401(k)
[_] 403(b)
[_] 457 (b)
Investment Consulting firm name:
------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Street or P.O. Box
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Daytime phone, including area code
[_] U.S. Citizen [_] Non-citizen residing in U.S.
To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.)
with a social security or tax identification number.
Choose Your Investments
- --------------------------------------------------------------------------------
There is an initial investment minimum of $1,000 per Fund.
[_] Acorn USA $
--------------------------------------------
[_] Acorn International $
--------------------------------------------
[_] Acorn Fund $
--------------------------------------------
Total Investment $
--------------------------------------------
Make check(s) payable to Acorn USA, Acorn International, and/or Acorn Fund. The
Acorn funds do not accept third party checks.
Dividend/Capital Gains Payment Options
- --------------------------------------------------------------------------------
Please choose how you want to receive your income dividends and capital gains.
If no option is checked, all dividends and capital gains will be reinvested
automatically. (Check one box.)
[_] Reinvest dividends and capital gains to help keep my account growing.
[_] Pay dividends and capital gains in cash.
[_] Pay dividends in cash; reinvest capital gains.
Duplicate Statements
- --------------------------------------------------------------------------------
[_] Please also send statments on my account to:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Street or P.O. Box
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
City State Zip Code
How Did You Hear About Us?
- --------------------------------------------------------------------------------
[_] press mention (specify) [_] advertising (specify)
----------------------- --------------------
[_] I am a current Acorn [_] Ralph Wanger's book:
shareholder A Zebra in Lion Country
[_] referred by friend/advisor [_] Other
(More on the back.)
<PAGE>
Automatic Investment Plan
- --------------------------------------------------------------------------------
To keep building your investments, you can easily add to your fund accounts
by joining the automatic investment plan:
[_] Automatic Investment Plan: to add to your Acorn account automatically
[_] Acorn USA $
------------------------------
[_] monthly [_] quarterly (check only one box)
[_] Acorn International $
------------------------------
[_] monthly [_] quarterly (check only one box)
[_] Acorn Fund $
[_] ------------------------------
[_] monthly quarterly (check only one box)
The minimum automatic investment is $100; the maximum is $50,000. Your automatic
investment will be drawn from your bank account on or about the 15th of the
month; quarterly investments are made in January, April, July and October.
Attach a voided check from the bank account you will be using.
Bank Transfer Options
- --------------------------------------------------------------------------------
To make transactions fast and easy, choose the Telephone Purchase Plan,
Telephone Redemption by Wire Plan, or both. It takes about 10 days to set up
these plans. Telephone requests for purchases or redemptions must be made by
Closing Time (usually 3:00 p.m. Central time).
[_] Telephone Purchase Plan: to add to your Acorn Fund account, Acorn
International account or Acorn USA account by transferring money from your
bank checking account ($100 minimum, $50,000 maximum per transfer.)
[_] Telephone Redemptions by Wire: to redeem shares and transfer the money to
your bank checking account ($1,000 minimum, $50,000 maximum per
transaction.)
Attach a voided check from the bank account you will be using.
Telephone Plans
- --------------------------------------------------------------------------------
You automatically have the ability to exchange and redeem shares by telephone
unless you check the boxes below. Proceeds of telephone redemption requests are
paid by check, mailed to the address of record and may not be more than $50,000.
Exchanges must be between identically-registered accounts and requested by
Closing Time (usually 3:00 p.m. Central time). See the prospectus for details.
I do not want
---
[_] telephone exchanges [_] telephone redemptions
Agreement
- --------------------------------------------------------------------------------
By signing this form, I certify that:
I am of legal age, have received and read the prospectus, and agree to its
terms. I understand that each of the account services, including the telephone
exchange plan, may be terminated or modified by Acorn in the future.
If I fail to give the correct social security or taxpayer identification number
or to sign this form, Acorn Fund, Acorn International, or Acorn USA may reject,
restrict, or redeem my investment.
I authorize Acorn Fund, Acorn International, Acorn USA, and their affiliates and
agents to act on any instructions reasonably believed to be genuine for any
service authorized on this form (including telephone transactions). I agree that
they will not be liable for any resulting loss or expense. I certify that I have
read the explanation and agree to the terms and provisions for the services I
have elected as set forth in the current prospectus of Acorn Fund, Acorn
International, and Acorn USA, as amended from time to time.
(If you have elected the Automatic Investment Plan or any Bank Transfer Option)
I authorize Acorn Fund, Acorn International, Acorn USA, and their affiliates and
agents to initiate (1) credit entries (deposits) (if I have elected the
Telephone Redemption Bank Transfer Option), (2) debit entries (withdrawals) (if
I have elected to participate in the Automatic Investment Plan or Telephone
Purchase Bank Transfer Option), and (3) debit or credit entries and adjustments
for any entries made in error to my bank account, for which I have attached a
voided check. This authorization will remain effective until I notify Acorn in
writing or by telephone at 1-800-962-1585 of its termination and until Acorn has
a reasonable time to act on that termination.
Under penalty, I certify that (i) the Social Security or Tax Identification
Number given is correct and (ii) I am NOT currently subject to IRS backup
withholding for failure to report dividend or interest income to the IRS.
(Please cross out "NOT" if you are currently subject to withholding.) The IRS
does not require your consent to any provision of this document, other than the
certifications in this paragraph required to avoid backup withholding.
Signature(s)
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
Signature (Sign exactly as name appears in Account Registration) Date
X
- --------------------------------------------------------------------------------
Signature (Sign exactly as name appears in Account Registration) Date
Joint accounts require both signatures.
Trust accounts require the signatures of all trustees.
<PAGE>
Acorn FIRST CLASS
- -------------------- U.S. POSTAGE
Family of Funds PAID
CHICAGO, IL
PERMIT NO. 1200
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
April 30, 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
----
<TABLE>
<CAPTION>
<S> <C>
Information About the Funds............................. 2
Investment Objectives and Policies...................... 2
Investment Techniques and Risks......................... 2
Investment Restrictions.................................16
Performance Information.................................23
Investment Adviser......................................24
Distributor.............................................25
The Trust...............................................26
Trustees and Officers...................................26
Purchasing and Redeeming Shares.........................29
Additional Tax Information..............................31
Taxation of Foreign Shareholders........................32
Portfolio Transactions..................................32
Custodian...............................................33
Independent Auditors....................................34
Appendix - Description of Bond Ratings..................35
</TABLE>
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
Acorn Fund, 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
<PAGE>
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.
The 1996 Annual Report of the Acorn funds, a copy of which accompanies this
SAI, contains financial statements, notes thereto, supplementary information
entitled "Financial Highlights," and a report of independent auditors, all of
which (but no other part of the Annual Report) are incorporated herein by
reference. Additional copies of the Annual Report 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 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
2
<PAGE>
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
-------------- ------------------ ----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Australia Argentina Bangladesh Morocco
Austria Chile Botswana Pakistan
Belgium Greece Brazil Peru
Canada Hong Kong China Philippines
Denmark Indonesia Colombia Poland
Finland Israel Cyprus Sri Lanka
France Korea Czech Republic Swaziland
Germany Malaysia Ecuador Turkey
Ireland Mexico Egypt Uruguay
Italy Portugal Ghana Venezuela
Japan Singapore Hungary Zambia
Luxembourg Taiwan India Zimbabwe
Netherlands Thailand Jordan
New Zealand Kenya
Norway
South Africa
Spain
Sweden
Switzerland
United Kingdom
United States
</TABLE>
It may not be feasible for the funds currently to invest in all of these
countries due to restricted access to their securities markets or inability to
implement satisfactory custodial arrangements.
Currency Exchange Transactions
The funds may enter into currency exchange transactions. A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks,
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 position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
/1/ A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those securities is made.
8
<PAGE>
To the extent required by regulatory authorities having jurisdiction over
the funds, the funds will limit their use of futures contracts and futures
options to hedging transactions. For example, the funds might use futures
contracts to hedge against fluctuations in the general level of stock prices,
anticipated changes in interest rates, or currency fluctuations that might
adversely affect either the value of a fund's securities or the price of the
securities that a fund intends to purchase. The funds' hedging may include sales
of futures contracts as an offset against the effect of expected declines in
stock prices or currency exchange rates or increases in interest rates and
purchases of futures contracts as an offset against the effect of expected
increases in stock prices or currency exchange rates or declines in interest
rates. Although other techniques could be used to reduce the funds' exposure to
stock price, interest rate, and currency fluctuations, the funds may be able to
hedge their exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The success of any hedging technique depends on WAM correctly predicting
changes in the level and direction of stock prices, interest rates, currency
exchange rates, and other factors. Should those predictions be incorrect, a
fund's return might have been better had hedging not been attempted; however, in
the absence of the ability to hedge, WAM might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a fund, that fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is 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.
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
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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 above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
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Limitations on Options and Futures. A fund will not enter into a futures
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that fund plus premiums paid by it
for open futures option positions, less the amount by which any such positions
are "in-the-money," /2/ would exceed 5% of the fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, a fund
similarly will maintain with its custodian cash or cash equivalents (including
any margin) equal to the amount by which such option is in-the-money until the
option expires or is closed out by the fund.
A fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent a fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which a fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by
the daily settlement price of the contract.
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.
/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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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 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
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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, 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.
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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
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.
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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.
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.
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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.
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 issuer or (b) have
a value greater than 10% of the outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Invest more than 5% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
5. Purchase or retain securities of a company if all of the trustees and
officers of the Trust and of its investment adviser who individually own
beneficially more than 1/2% of the securities of the company collectively
own beneficially more than 5% of such securities;
6. Borrow money except (a) from banks for temporary or emergency purposes
at fixed rates of interest in amounts not exceeding 10% of the value of the
fund's assets at the time of borrowing, and (b) in connection with
transactions in options and in securities index futures [the fund will not
purchase additional securities when its borrowings, less amounts receivable
on sales of portfolio securities, exceed 5% of total assets];
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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 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;
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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;
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
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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 1993 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 of (ii) more than 50% of the
shares outstanding are present or (ii) more than 50% of Acorn International's
outstanding shares.
In addition, Acorn International is subject to a number of restrictions
that may be changed by the board of trustees without shareholder approval. Under
those non-fundamental restrictions, Acorn International will not:
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;
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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.
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;
20
<PAGE>
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry, except that 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;
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;
21
<PAGE>
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;/3/
f. Invest more than 15% of its net assets (valued at time of investment)
in illiquid securities, including repurchase agreements maturing in more than
seven days;
g. Purchase or retain securities of a company if all of the trustees,
directors and officers of the Trust and of its investment adviser who
individually own beneficially more than 1/2% of the securities of the company
collectively own beneficially more than 5% of such securities;
h. Pledge, mortgage or hypothecate its assets, except as may be necessary
in connection with permitted borrowings or in connection with short sales,
options, futures and options on futures;
i. Purchase a put or call option if the aggregate premiums paid for all
put and call options exceed 20% of its net assets (less the amount by which any
such positions are in-the-money), excluding put and call options purchased as
closing transactions;
j. Make short sales of securities unless the Fund owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into at least an equal
amount of such securities;
k. Invest more than 10% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers, including securities represented
by American Depository Receipts.
22
<PAGE>
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
ACORN INTERNATIONAL
-------------------
Average Annual
Total Return Total Return
------------ --------------
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>
23
<PAGE>
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"),
furnishes continuing investment supervision to the funds and is responsible for
overall management of the funds' business affairs. It furnishes office space,
equipment, and personnel to the funds; it assumes substantially all expenses for
bookkeeping, and assumes the expenses of printing and distributing the funds'
prospectus and reports to prospective investors.
For its services to Acorn Fund WAM receives a quarterly fee (paid in three
monthly installments) at the annual rate of .75% of the net asset value of the
fund up to $100 million, .50% of the net asset value in excess of $100 million
and up to $1.5 billion, and .40% of the net asset value in excess of $1.5
billion, as determined as of the beginning of each calendar quarter. The
investment advisory fees of the fund for 1996, 1995, and 1994, were $12,437,000,
$10,429,000 and $9,750,000, respectively.
For its services to Acorn International, WAM receives a fee paid monthly at
the annual rate of 1.25% of the net asset value of the fund up to $100 million,
1% of the net asset value in excess of $100 million and up to $500 million, and
.80% of the net asset value in excess of $500 million, as determined as of the
beginning of each calendar quarter, reduced by any amount necessary to cause the
fund's expenses to be within the limitation described below. The investment
advisory fees of Acorn International for 1996, 1995 and 1994 were $13,255,000,
$11,667,000 and $11,561,000, respectively.
For its services to Acorn USA, WAM receives a fee (calculated daily and
paid monthly) at the annual rate of 1.00% of the net asset value of the fund up
to $200 million and .95% of the net asset value in excess of $200 million, 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.
24
<PAGE>
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.
The investment advisory agreement provides that the total annual expenses
of each fund, exclusive of taxes, interest, and extraordinary litigation
expenses, but including fees paid to WAM, shall not exceed the limits prescribed
by any state in which that fund's shares are being offered for sale. Acorn
believes that currently the most restrictive limits are 2.5% of the first $30
million of the average net asset value, 2% of the next $70 million, and 1.5% of
the average net asset value in excess of $100 million. Brokers' commissions and
other charges relating to the purchase and sale of securities are not regarded
as expenses for this purpose. Moreover, for purposes of calculating the
expenses subject to this limitation, the excess custodian costs attributable to
investments in foreign securities compared to the custodian costs which would
have been incurred had the investments been in domestic securities are excluded.
For the purpose of determining whether the fund is entitled to any reduction in
advisory fee or expense reimbursement, the fund's expenses are calculated
monthly and any reduction in fee or reimbursement is made monthly. Each fund's
operating expenses have been well below those limitations.
WAM advanced all of Acorn International's organizational expenses, which
are being amortized and reimbursed to WAM through September, 1997. WAM also
advanced all of Acorn USA's organizational expenses, which are being amortized
and reimbursed to WAM through September 2001.
WAM is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., which is controlled by Ralph Wanger. WAM commenced operations
in 1992. Ralph Wanger, Charles P. McQuaid, Terence M. Hogan, Leah J. Zell,
Marcel P. Houtzager and Robert A. Mohn, who are officers of the Trust, are
principals of WAM. WAM has approximately $5.6 billion under management.
Distributor
Shares of each fund are distributed by WAM Brokerage Services, L.L.C. ("WAM
BD") under a Distribution Agreement as described in the prospectus dated 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.
25
<PAGE>
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.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the board of trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of trustees.
Trustees and Officers
The trustees and officers of the Trust and their ages and principal
business activities during the past five years are:
Irving B. Harris, trustee and chairman
Two North LaSalle Street, Chicago, Illinois 60602; age 86; chairman of the
executive committee and director, Pittway Corporation (multi-product
manufacturer and publisher); chairman, William Harris Investors, Inc.
(investment adviser); chairman, The Harris Foundation (charitable
foundation); director, Teva Pharmaceutical Industries, Inc. (pharmaceutical
manufacturer)
Ralph Wanger, trustee and president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 62;
trustee and president, Wanger Advisors Trust; principal, Wanger Asset
Management, L.P. since July 1992; prior thereto, principal, Harris
Associates L.P.
James H. Lorie, trustee and vice chairman
1101 East 58th Street, Chicago, Illinois 60637; age 74; retired; Eli B. and
Harriet B. Williams Professor of Business Administration Emeritus,
University of Chicago Graduate School of Business; director, Ardco, Inc.
(refrigeration equipment
26
<PAGE>
manufacturer); director, Thornburg Mortgage Asset Corp. (REIT) and Santa Fe
Natural Tabacco
Leo A. Guthart, trustee
165 Eileen Way, Syosset, New York 11791; age 58; vice chairman, Pittway
Corporation (multi-product manufacturer and publisher); chief executive
officer, Pittway Corporation's Security Group of Companies which include
ADEMCO (manufacturer of alarm equipment), ADI (distributor of security
equipment), Fire Burglary Instruments (supplier of security control
panels), First Alert Professional (alarm dealers), Cylink Corporation
(supplier of encryption equipment), and Alarm Net (cellular radio service);
director, AptarGroup, Inc. (producer of dispensing valves, pumps and
closures); director, Cylink Corporation; chairman of the board of trustees,
Hofstra University; chairman, Tech Transfer Island Corp. (private
investment partnership); director, Long Island Research Institute
Jerome Kahn, Jr., trustee
Two North LaSalle Street, Suite 400, Chicago, Illinois 60602; age 62; vice
president, William Harris Investors, Inc. (investment adviser); director,
Pittway Corporation (multi-product manufacturer and publisher)
David C. Kleinman, trustee
1101 East 58th Street, Chicago, Illinois 60637; age 60; senior lecturer in
business administration, University of Chicago Graduate School of Business;
business consultant; director, Irex Corporation (insulation contractor)
Charles P. McQuaid, trustee and senior vice president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 43;
trustee and senior vice president, Wanger Advisors Trust; principal, Wanger
Asset Management, L.P. since July 1992; prior thereto, principal, Harris
Associates L.P.
Roger S. Meier, trustee
1211 S. W. Fifth Avenue, Portland, Oregon 97204; age 70; president, AMCO,
Inc. (investment and real estate management); director, Fred Meyer, Inc.
(retail chain); director, Red Lion Inns Limited Partnership (hotel chain);
director, Key Bank of Oregon (banking); 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; age 72; president, Gulco
Corp. (leather manufacturer)
Malcolm N. Smith, trustee (resigned during 1996)
309 Maple Avenue, Highland Park, Illinois 60035; age 75; president, Newmac,
Inc. (importers of Sheffield cutlery); prior thereto, president, Macromatic
Division, Milwaukee Electronics Corporation (electronic timing devices
manufacturer)
Terence M. Hogan, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 34; vice
president,
27
<PAGE>
Leah J. Zell, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47; vice
president, Wanger Advisors Trust; principal, analyst, and portfolio
manager, Wanger Asset Management, L.P., since July 1992; prior thereto,
analyst, Harris Associates L.P.
Marcel P. Houtzager, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 36;
principal and investment analyst, Wanger Asset Management, L.P. since April
1992
Robert A. Mohn, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 35;
principal, analyst and portfolio manager, Wanger Asset Management, L.P.
since August 1992
Merrillyn J. Kosier, vice president and secretary
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 36; vice
president and secretary, Wanger Advisors Trust; director of marketing and
shareholder services, Wanger Asset Management, L.P., since September 1993;
prior thereto, vice president of marketing, Kemper Financial Services, Inc.
Bruce H. Lauer, vice president and treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 39; vice
president and treasurer, Wanger Advisors Trust; chief administrative
officer, Wanger Asset Management, L.P. since April 1995; prior thereto,
first vice president, investment accounting, Kemper Financial Services,
Inc.
Kenneth A. Kalina, assistant treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; age 37;
assistant treasurer, Wanger Advisors Trust; Fund controller, Wanger Asset
Management, L.P., since September 1995; prior thereto, treasurer of the
Stein Roe Mutual Funds
*Messrs. McQuaid and Wanger are trustees who are interested persons of
Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs.
Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member,
of the executive committee, which has authority during intervals between
meetings of the board of trustees to exercise the powers of the board, with
certain exceptions.
At 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.
28
<PAGE>
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
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," "How to Sell Shares," and "Transaction Services."
All of that information is incorporated herein by reference.
For purposes of computing the net asset value of a share of either fund, a
security traded on a securities exchange, or in an over-the-counter market in
which transaction prices are reported, is valued at the last sales price at the
time of valuation. A security for which there is no reported sale on the
valuation date is valued at the mean of the latest bid and ask quotations or, if
there is no ask quotation, at the most recent bid quotation. Securities for
which quotations are not available and any other assets are valued at a fair
value as determined in good faith by the
/4/ At December 31, 1996, Mr. Smith had resigned his position as a trustee.
29
<PAGE>
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.
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.
30
<PAGE>
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.
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
31
<PAGE>
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.
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
32
<PAGE>
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 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.
Brokerage commissions incurred by Acorn International for 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 in 1996 totalled $88,900,
not including the gross underwriting spread on securities purchased in
underwritten public offerings. In 1996 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
33
<PAGE>
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.
34
<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.
35
<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.
36
<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 annual report is attached to this amendment, but, except for
those portions incorporated by reference, is furnished for the
information of the Commission and is not deemed to be filed as part
of this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 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
(ii) Acorn International (incorporated by reference to the following
portions of Registrant's 1996 Acorn Investment Trust Annual Report;
a copy of the annual report is attached to this amendment, but,
except for those portions incorporated by reference, is furnished
for the information of the Commission and is not deemed to be filed
as part of this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 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
1
<PAGE>
(iii) Acorn USA (incorporated by reference to the following portions of
Registrant's 1996 Acorn Investment Trust Annual Report; a copy of
the annual report is attached to this amendment, but, except for
those portions incorporated by reference, is furnished for the
information of the Commission and is not deemed to be filed as
part of this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 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
(2) Financial statements included in Part C of this amendment:
None
Note: The following schedules have been omitted for the following reasons:
Schedules I and III - The required information is presented in the
statements of investments at December 31, 1996.
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 ***
2
<PAGE>
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***
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**
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
3
<PAGE>
- ----------------------------------------
*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 Registrant's 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 Registrant's 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 Registrant's Registration
Statement, filed on September 3, 1996.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with the
Registrant within the meaning of this item. The information in the prospectus
for Acorn Fund, Acorn International and Acorn USA under the caption "The Funds
in Detail - Organization - Management" and in the statement of additional
information for Acorn Fund, Acorn International and Acorn USA under the caption
"Investment Adviser" is incorporated by reference.
Item 26. Number of Holders of Securities
-------------------------------
At January 31, 1997, there were 49,777 record holders of Registrant's
shares of beneficial interest of the series designated Acorn Fund; 77,115 record
holders of Registrant's shares of beneficial interest of the series designated
Acorn International; and 4,260 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
4
<PAGE>
(other than the payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Registrant, its trustees and officers, its investment adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The information in the prospectus for Acorn Fund, Acorn International and
Acorn USA 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.
5
<PAGE>
<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>
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 April 30, 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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Irving B. Harris Trustee and chairman )
- ----------------------- )
Irving B. Harris )
)
/s/Leo A. Guthart Trustee )
- ----------------------- )
Leo A. Guthart )
)
/s/Jerome Kahn, Jr. Trustee )
- ----------------------- )
Jerome Kahn, Jr. )
)
/s/David C. Kleinman Trustee )
- ----------------------- )
David C. Kleinman )
)
/s/James H. Lorie Trustee )
- ----------------------- )
James H. Lorie )
)
/s/Charles P. McQuaid Trustee ) April 30, 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 )
- ----------------------- )
Ralph Wanger (principal executive )
officer) )
)
/s/Bruce H. Lauer Treasurer (principal )
- ----------------------- )
Bruce H. Lauer financial and accounting )
officer) )
</TABLE>
<PAGE>
Index of Exhibits Filed with this Amendment
-------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<C> <S>
11 Consent of independent auditors
14.1 IRA plan booklet dated January 1997
14.2 Form of SIMPLE-IRA plan and application
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
</TABLE>
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and to the incorporation by reference of our report dated January 31, 1997 in
the Registration Statement (Form N-1A) of Acorn Investment Trust, filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 56 to
the Registration Statement under the Securities Act of 1933 (File No. 2-34223)
and in the Amendment No. 31 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-1829).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
April 30, 1997
<PAGE>
Exhibit 14.1
Acorn IRA plan
Acorn Fund
Acorn International
Acorn USA
No-Load Funds
IRA and SEP-IRA Plan
and Applications
Managed by
Wanger Asset Management, L.P.
<PAGE>
Dear Investor:
Thank you for your interest in the Acorn family of funds. We hope you find this
IRA booklet informative and helpful. At Acorn, we understand how important it is
to plan for your future. Investing for your retirement today will give your
savings the advantage of time and the power of compounding over the long haul.
How? An IRA provides the special advantage of tax-deferred compounding. Your
investment grows year after year with no annual tax payments of the earnings in
your account until you begin to withdraw from your IRA. This means that you can
save more with an IRA than with a comparable taxable investment. What's more,
all or part of your contribution may be deductible from your current taxes,
providing additional tax savings.
Investing with the Acorn funds helps you save money. The Acorn funds are 100%
no-load, which means that all of your money goes to work for you immediately.
What's more, there are no sales charges, and no 12b-1 fees or back-end load
fees, so all of your dollars are invested at net asset value. Acorn invests in
companies for the long-term (usually 3-5 years), so our turnover rate is low.
This minimizes both trading costs and shareholders' taxes. All these factors
add up to greater value for our shareholders.
Whether you are opening a new IRA, making your annual IRA contribution, moving
an existing IRA from another institution, or rolling over money from an
employer-sponsored retirement plan, Acorn can help you save for your retirement.
This booklet contains everything you need to open an IRA at Acorn. Please take
a moment to read it carefully. If you have any questions or need help with any
of the forms, please call us at 1-800-962-1585.
We invite you to squirrel away your acorns for a day when you really need them,
and look forward to a long and mutually rewarding relationship with you.
Happy investing,
/s/ Ralph Wanger
Ralph Wanger
President
WAM Brokerage Services, L.L.C., Distributor. Member, NASD
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606
<PAGE>
General Information about the Individual Retirement Account Plan
Can anyone open an Acorn IRA?
Once you have reached legal age, you may open or contribute to an Acorn IRA in
any year before the year in which you reach age 70 1/2 and in which you have
earnings from employment or self-employment. You may make your contribution for
any year until April 15 of the following year.
How much can I contribute?
The annual contribution limit for an IRA is the lesser of $2,000 or 100% of
compensation (including alimony and separate maintenance payments) for the year.
You may contribute the maximum amount to your IRA even if you and/or your spouse
participate in an employer-sponsored retirement program or a Keogh plan
(although some or all of your contribution may not be tax-deductible, as
explained below).
Why use an IRA?
One of the keys to successful retirement planning is effectively using the time
you have until you actually retire. This means saving regularly and starting
now. An IRA is an exceptional way to save for retirement because it offers the
opportunity for long-term growth and the benefit of tax-deferred compounding.
This means that your earnings, both dividends and capital gains, grow free of
current taxes. You pay no taxes on the growth of your IRA until you withdraw
from it.
The following table shows the effects of tax-deferred compounding of earnings
Advantages of Tax-Deferred Compounding
[CHART APPEARS HERE]
TAXABLE INVESTMENT
10 YEARS 20 YEARS 30 YEARS
- -------- -------- --------
$29,400 $86,697 $198,360
TAX-DEFERRED IRA
10 YEARS 20 YEARS 30 YEARS
- -------- -------- --------
$35,062 $126,005 $361,887
This chart shows the value of your IRA's tax-deferred advantage. Our example
assumes a $2,000 contribution at the beginning of each year for 10, 20, and 30
years, a 31% tax bracket, and a constant earnings rate of 10% annually.
- -------------------------------------------------------------------------------
compared to a similar taxable investment. This is a hypothetical example for
illustrative purposes only and does not represent the performance of any mutual
fund.
In addition to the benefits of tax-deferred compounding, you may be able to
reduce your current income taxes by taking a tax deduction for a part or all of
your contributions in the years in which you add to your IRA. Whether all or
part of your annual contribution is deductible depends upon the amount of your
income for the year and whether you or your spouse participate in an employer's
qualified retirement plan. Even if your contribution for a given year is non-
deductible, you may contribute the maximum amount to your IRA for that year.
(Please see your tax adviser for additional information and reporting
requirements.)
<PAGE>
General Information about the Individual Retirement Account Plan
The following chart shows the extent of your contribution's deductibility under
current IRS regulations.
<TABLE>
<CAPTION>
====================================================================================================================================
Adjusted Gross Income (Before IRA Deduction) Retirement Plan Deductibility of a
- --------------------------------------------
Joint Filing Single Filing* Participation** $2,000 Contribution
====================================================================================================================================
<S> <C> <C> <C>
Under $40,000 Under $25,000 Yes or No Full
- -----------------------------------------------------------------------------------------------------------------------------------
$40,000 - $50,000 $25,000 - $35,000 No Full
-------------------------------------------------------------
Yes Partial
- -----------------------------------------------------------------------------------------------------------------------------------
Over $50,000 Over $35,000 No Full
-------------------------------------------------------------
Yes No Deduction
====================================================================================================================================
</TABLE>
* Applies to married persons filing separate returns only if they lived
apart for the entire year.
** "Yes" refers to either you or your spouse. "No" refers to both you and your
spouse. If you don't know your participation status, refer to the pension
plan box on your W-2 Form.
If your IRA contribution is partially deductible, you can calculate the
deductible portion of your contribution amount from the following formula:
<TABLE>
<CAPTION>
==============================================================================================================
Formula Example Your Contribution
==============================================================================================================
<S> <C> <C> <C>
Joint Single
1. Subtract Adjusted Joint AGI = $43,500 AGI = $________ AGI = $________
Gross Income (AGI) $50,000 - $________ #35,000 - $________
from $50,000 (joint) or $50,000-$43,500 = $6,500 = $________ = $________
$35,000 (single)
$6,500/5=1,300 / 5 = $________ / = $________
2. Divide by 5 to get deductible amount*
==============================================================================================================
</TABLE>
*If the deductible amount is not a multiple of $10, round up to the next highest
$10. If it is $1-199, deduct $200. To calculate combined deduction for you and
your spouse's IRA, multiply by 0.4 instead of dividing by 5 (for 1996,
multiply by .225).
You may contribute only this deductible amount or, if you wish, you may
contribute up to the $2,000 annual limit with the excess amount being non-
deductible. If you make a non-deductible contribution, you need to file Form
8606 with your tax return.
Beginning in 1997, if you and your spouse file a joint tax return, you may each
open an IRA and the two of you may contribute a total of $4,000, even if one of
you has less than $2,000 in compensation for the year, so long as your combined
compensation is at least $4,000. The total contribution may be divided between
the two accounts in whatever proportion you and your spouse decide, up to $2,000
for either account. (For 1996, the maximum combined contribution for your IRA
and your spouse's IRA was $2,250 if your spouse had no compensation.) See your
tax adviser for more information.
Opening a new Acorn IRA
Investing in an Acorn IRA gives you the opportunity to save for your
<PAGE>
retirement using four different mutual funds: Acorn Fund, Acorn International,
Acorn USA, and Short Term Income Fund Money Market Portfolio. You may invest
all of your contributions in one fund or you may divide your contributions among
the funds as you choose.
To open a new Acorn IRA, complete the application included with this booklet. On
the application, check the box for a regular IRA contribution and indicate the
tax year for which you are making your IRA contribution. Select the fund(s) in
which you want to invest and indicate the amount to be invested in each fund.
Tell us whether you want to make regular investments into your Acorn IRA by
using the Automatic Investment Plan, and provide us with the beneficiary
information requested on the back of the application. Then write a check payable
to "State Street Bank" for the total amount you wish to invest (including the $5
set-up fee for each fund in which you are investing) and mail your check with
the completed application to Acorn in the pre-addressed envelope provided or to
the address shown on the application.
Moving funds from another IRA or a qualified plan to an Acorn IRA
We can help you move funds from your other IRA custodians or qualified plans to
Acorn. This can be done in three ways: a custodian to custodian (or trustee to
trustee) transfer (also known as a direct transfer); a 60-day rollover of a
distribution you have received from a qualified plan or money you have withdrawn
from another IRA; or a direct rollover of a distribution from your employer's
qualified retirement plan. Each method is explained below.
Direct Transfer
Acorn will arrange a direct transfer of assets from your current IRA custodian
or trustee directly to Acorn. In a direct transfer, you do not receive the
account proceeds during the transfer process. Your money goes directly from your
old IRA custodian to Acorn. You may make direct transfers between IRAs as often
as you choose.
If you would like the transferred money to go into a new Acorn IRA, complete
both the transfer form, checking the box for a new Acorn IRA, and the
application, checking the box for a Direct Transfer. If the transferred money is
to be invested in an existing Acorn IRA, complete only the transfer form.
The transfer form tells us about the IRA assets you are transferring and
provides information about your current custodian. This information should be on
your most recent account statement. Complete the instructions authorizing your
current custodian to transfer your account to Acorn and sign the transfer form.
Please check with your present custodian to find out whether you will need to
obtain a signature guarantee.
Send the completed form(s) to Acorn in the envelope provided or to the address
shown on the application.
<PAGE>
General Information about the Individual Retirement Account Plan
Acorn will arrange for the transfer of assets from your present custodian.
60-day Rollover from an IRA
If you physically receive money that was held in your IRA with another
custodian, you must deposit the money into an IRA within 60 days to avoid paying
income tax. If this is not done within the 60-day time limit, you will have to
pay income tax on the amount you have received, as well as possible penalties if
you are under the age of 59-1/2 when you receive the money. You may make only
one 60-day rollover per IRA in any twelve-month period.
To establish a rollover account with money you have withdrawn from another IRA,
complete the Acorn IRA application, checking the box for a 60-day rollover of an
existing IRA. Indicate whether the rollover is from a Regular IRA or a Rollover
IRA. Be sure that you forward your check in time for the funds to be received by
State Street Bank no later than 60 days from the date on which the distribution
from your IRA was made.
Rollovers from an employer's qualified plan to an Acorn IRA
If you have been participating in your employer's qualified retirement plan and
are eligible for a distribution from the plan because of a job change, a lay-
off, disability, retirement, or termination of the plan, you need to decide what
you will do with your retirement plan money before you receive the distribution.
Unless you are eligible to leave your money in the plan and want to do so, you
have two main alternatives: (1) rollover the amount distributed and keep your
money working for you tax-deferred, or (2) take the distribution now--subject to
the applicable taxes and penalties.
If you take your distribution now (even if you are planning to do a 60-day
rollover), your employer must withhold 20% of the distribution for federal
income taxes, so you'll receive only 80% of the money to be distributed. You may
also be responsible for (a) additional federal income tax (depending on your tax
bracket), (b) a penalty tax of 10% for an early withdrawal if you are not yet
59-1/2 (subject to exceptions if you are disabled, spend the distribution on
medical expenses, or have separated from service and are at least age 55), and
(c) state and local income taxes on your distribution.
If you choose to reinvest the amount distributed, you have three options:
(1) use a direct rollover to invest the money in an IRA; (2) use a 60-day
rollover to invest the money in an IRA; or (3) roll over the distribution into a
qualified plan sponsored by a new employer (if the plan accepts rollovers). If
you are reinvesting the money in an IRA, a direct rollover is usually better
than a 60-day rollover. In a direct rollover, you never receive the distribution
(it is sent directly from the plan to the IRA custodian, or the plan gives you a
check payable to the IRA custodian). Because a direct
<PAGE>
rollover is not treated as a distribution to you, no tax is withheld.
Direct Rollover
To set up your Acorn IRA by making a direct rollover you should complete the
enclosed application, check the box for a Rollover IRA from an employer-
sponsored plan, and check the appropriate box to tell us whether you are
enclosing a check payable to State Street Bank or your employer will be sending
the check directly to the bank. If your plan administrator gives you a check
payable to State Street Bank, send that check along with the completed
application in the pre-addressed envelope provided or to the address on the
application. If your plan administrator is going to send a check directly to
State Street Bank, send the completed application without the check. We will
open the account and have it ready to receive your distribution check. You may
call us at 1-800-922-6769 to request your account number if your plan
administrator needs it to send the distribution check.
60-Day Rollover from a Qualified Plan
If you have already received a distribution directly, you will have had 20%
withheld for taxes, but you can still make a 60-day rollover.
You will avoid income tax and possible penalties on the amount you deposit in
your IRA, up to the entire amount of your distribution (before deduction of the
20% for income tax withholding). You can rollover part of your distribution and
keep part, paying income tax and any applicable penalties on the part you keep.
If you rollover only the amount of your distribution check (the 80% that was
left after the 20% income tax withholding), you will be treated as having kept
the 20%, which will be subject to income taxes and any applicable penalties. You
can avoid taxes and penalties entirely when you make the 60-day rollover by
making up from other funds the 20% that was withheld for tax. The 20% that was
withheld is treated just like the income tax that is withheld from your regular
paycheck. You include it on your income tax return as tax that has already been
paid by you. If all the income tax you have paid (including the 20%, the tax
withheld from your pay and any income tax payments you made) is more than the
tax you owe, the IRS will send you a refund.
If you receive a distribution of property (such as shares of stock) from your
employer's plan, you can make a 60-day rollover by selling the property and
depositing the sales proceeds within the 60-day period. If you had borrowed
against your account in the plan from which you received the distribution, the
taxable amount of your distribution may be more than the amount of cash you
receive because it will include the unpaid loan balance. In this case, you can
avoid paying tax on the unpaid loan balance by using other funds to complete the
rollover, in the same way you can make up the 20% tax withholding.
<PAGE>
General Information about the Individual Retirement Account Plan
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Rollover IRA New Employer's Plan
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax Considerations * avoids current taxes * avoids current taxes
* money grows tax-deferred * money grows tax-deferred
(but you may have to wait
to transfer money into
plan)
- -------------------------------------------------------------------------------------------------------------
Investment Options * a range of investment choices * options vary among plans
- -------------------------------------------------------------------------------------------------------------
Withdrawal Options * can take all or part of your * choices vary from plan to plan;
money out at any time check with your new employer
* earnings taxed when withdrawn; * earnings taxed when withdrawn; 10%
10% penalty applies if younger penalty applies if younger than 591/2 or
than 591/2, unless disabled separated from service before age 55,
with some exceptions
* no mandatory 20% withholding for * 20% withholding for federal income
federal income taxes on withdrawals taxes if withdrawal of eligible rollover
distributions not rolled over into another
plan
- -------------------------------------------------------------------------------------------------------------
Other Features * very easy to set up * can add future contributions to
* can switch between your Acorn your plan
investments tax-free as your * enables you to consolidate your
needs and the market changes retirement plan money
* offers you easy access to your * may be able to borrow from your
investments account
* borrowing not permitted
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The chart above summarizes the key features of your alternatives for
reinvesting a distribution from your employer's plan and may help you decide how
to keep your money working for your retirement.
If you put your plan distribution into the same IRA with regular IRA (annual
contributions) money, you forfeit the right to reinvest your plan distribution
in another employer's qualified plan in the future. Because combining regular
IRA and Rollover IRA funds may also have tax implications when you begin
withdrawals from your IRA, you should consult your tax adviser before deciding
to commingle your plan distribution with your regular IRA investments.
SEP-IRAs
An IRA under a Simplified Employee Pension Plan (SEP-IRA) may be an attractive
way to save for retirement if you have any income from self-employment, and may
also be a way to offer an important benefit to your employees if you are a small
business owner. You may open and contribute to a SEP-IRA as a self-employed
individual if you provide any service from which you earn income, even if you
have a full-time occupation in which you participate in an employer's retirement
plan. If you own a small business as a sole proprietor, a partnership, or a
corporation (including a Subchapter-S corporation), you can establish a SEP-IRA
for yourself and your eligible employees.
<PAGE>
A SEP-IRA offers the advantage of tax-deferred compounding that is available in
a regular IRA, while allowing annual contributions of up to 15% of earned income
within the limits imposed by the IRS.
In addition to tax-deferred compounding, a SEP-IRA provides full deductibility
of each annual contribution from current taxable income. This means that, if
your business is incorporated, you can deduct SEP-IRA contributions for yourself
and any eligible employees as a business expense, or, if your business is not
incorporated, you can (a) deduct contributions for any eligible employees as a
business expense and (b) deduct contributions for yourself from your personal
income.
Setting up a SEP-IRA is simple and flexible. Only a simple information form
(Form 5305-SEP, available from the IRS) must be completed and given to eligible
employees. The IRS regulations for SEP-IRAs require that all eligible employees
(other than union members and non-resident aliens) must be covered; eligible
employees are all those who (a) are at least 21 years old, (b) have worked for
your business for three of the last five years, and (c) have earned at least
$400 in 1996 (an amount adjusted periodically for changes in the cost-of-
living). You may establish more liberal requirements to include more of your
employees, but you may not impose more restrictive conditions. You must
generally contribute the same percentage of earned income (based on W-2 wages)
for each eligible employee, but that contribution percentage may vary between 0%
and 15% of earned income each year at your discretion. You may be able to
contribute a higher percentage for employees (including yourself) who earn more
than the Social Security wage base. If your business has other employees, you
should consult a qualified tax adviser as to the best contribution formula to
use.
If you are self-employed, a new SEP-IRA for a given year must be established by
April 15 of the following year, with each subsequent year's contribution also
due by April 15 of the following year. If you are a business owner establishing
SEP-IRAs for yourself and your employees, you must open the accounts by the due
date of your business's federal tax return for the tax year for which the
contribution will be made. In addition to your SEP-IRA, you may also be able to
contribute to a regular IRA, but you should consult your tax adviser about the
deductibility of your contributions and about the tax consequences of excess
contributions to either account.
<PAGE>
General Information about the Individual Retirement Account Plan
To open a new SEP-IRA at Acorn, complete the enclosed application. If you have
employees for whom you are establishing SEP-IRA accounts, please write a
separate check for your contribution for each employee. You should also complete
IRS Form 5305-SEP (available from the IRS), keep the original for your records,
and give a copy to each eligible employee. Do not send Form 5305-SEP to Acorn or
file it with the IRS.
In addition, if your business has other employees, you may be required to
furnish them with certain information to avoid being required to file annual tax
returns for the SEP-IRA.
To transfer your SEP-IRA to Acorn from another custodian, complete the transfer
form, checking the box for a SEP-IRA Transfer. If this is a new Acorn SEP-IRA,
you will also need to complete the application, checking the SEP-IRA and Direct
Transfer boxes. If you have received SEP-IRA funds from another custodian and
are moving your money to Acorn within 60 days of that distribution, complete the
application and check the SEP-IRA and 60-Day Rollover boxes.
SIMPLE-IRAs
SIMPLE-IRAs are a new type of IRA that became available for the first time in
1997. A SIMPLE-IRA is very similar to a SEP-IRA in that it is established by an
employer for the benefit of employees. In a SIMPLE-IRA, each eligible employee
can generally elect to have up to $6,000 per year of his or her compensation
contributed by the employer directly to an IRA on a pre-tax basis. The employer
must generally make a matching contribution to the IRA equal to the amount that
the employee elects to defer, up to a maximum of 3% of compensation, although
there are exceptions to this rule. In general, any employer with not more than
100 eligible employees can establish SIMPLE-IRAs beginning in 1997. The Acorn
IRA application and transfer forms cannot be used to open a SIMPLE-IRA. If you
are interested in establishing a SIMPLE-IRA, call 1-800-962-1585 for the
necessary forms.
Making Withdrawals from your Acorn IRA
You must begin withdrawing money from your IRA by April 1 of the year after the
year in which you reach age 70-1/2. You may start to withdraw funds from your
account without penalty when you reach age 59-1/2 or if you are disabled or
meet certain other conditions. Any withdrawals you make before you reach age
59-1/2, unless you are disabled or meet certain other IRS qualifications, are
subject to tax penalties. Call State Street Bank at 1-800-962-1585 for an Acorn
IRA withdrawal request form to make a withdrawal from your IRA or to set up a
regular withdrawal plan. State Street Bank can help you in completing this form
if you have any questions.
If you wish to withdraw only the minimum required distribution for each year
after you reach age 70-1/2, State Street Bank can help you make the necessary
calculations and set up a periodic withdrawal plan for your distributions.
Simply check box C under the Withdrawal Instructions on the Acorn withdrawal
request form, provide the other requested information for that section, and
complete the remainder of the form. Certain tax penalties may also apply if you
withdraw too much money from an IRA in a given year. You should consult your tax
adviser concerning the differences among the tax effects which may result from
taking the minimum required distribution and those involved in the other
available withdrawal options.
Account Fees
State Street Bank, as custodian, charges the following fees for an Acorn IRA,
per fund account:
<TABLE>
<S> <C>
Initial set-up fee........................................... $ 5.00
Annual maintenance fee....................................... $10.00
Disbursement fee............................................. $10.00
(per withdrawal, except for automatic installment payments)
</TABLE>
<PAGE>
The $5.00 per fund set-up fee will be deducted from your initial IRA
contribution; to maximize the contribution that goes to work for you, add $5.00
for each fund in which your initial contribution will be invested (or send us a
separate check for the set-up fee). Acorn will also withdraw the annual
maintenance fee(s) from your account(s) unless you send a check for those fee(s)
when you receive Acorn's annual fee statement at the end of the year. If the
disbursement fee applies, Acorn will deduct the $10.00 from each withdrawal.
<TABLE>
<CAPTION>
=========================================================
Minimum through beginning
Investments 4/30/97 5/1/97
=========================================================
<S> <C> <C>
To open an IRA $ 200 $ 1,000
To add to an IRA account $ 100 $ 100
</TABLE>
Making an active and worry-free retirement possible means taking the time now to
plan for your financial future. We hope that this booklet has been helpful and
that you will make an Acorn IRA part of your retirement plan. If you have any
questions regarding IRA accounts, please call our transfer agent at
1-800-962-1585.
Acorn IRA plan 11
<PAGE>
Acorn Investment Trust
Individual Retirement Account Disclosure Statement
We are required to give you this Disclosure Statement for the purpose of
assuring that you are informed and understand the nature of an Individual
Retirement Account ("IRA"). This disclosure statement explains the rules
governing IRAs.
Your Right to Revoke this IRA. You may revoke this IRA at any time within seven
days after the later of the date you received this Disclosure Statement or the
day you established this IRA. For purposes of revocation, it will be assumed
that you received the Disclosure Statement no later than the date of your check
or transfer direction with which you opened your IRA. If you did not receive the
Disclosure Statement until a later date, your notice of revocation should state
the date on which the Disclosure Statement was received. To revoke the IRA, you
must either mail or deliver a notice of revocation to the following address:
State Street Bank and Trust Company
Attention: Acorn Investment Trust
P.O. Box 8502
Boston, MA 02266-8502
If a notice of revocation is mailed, it will be deemed mailed on the date of the
postmark (or if sent by certified or registered mail, the date of certification
or registration) if it is deposited in the mail in the United States, first
class postage prepaid and properly addressed. If you revoke your IRA, you are
entitled to a return of the entire amount contributed.
I. Types of IRAs; Eligibility
In General. An IRA is a trust or custodial account established in the United
States for the exclusive benefit of an individual and his or her beneficiaries
and which, under Section 408(a) of the Internal Revenue Code, meets the
following requirements: annual contributions are limited as described below; the
trustee or custodian is a bank or other approved financial institution; no part
of the IRA can be invested in life insurance contracts; the individual's
interest in the IRA is nonforfeitable; the IRA's assets cannot be commingled
with other property except for certain permitted common funds; and minimum
distributions are required as described below. There are several types of IRAs.
For example, there is a "Regular IRA" to which you may make contributions for
yourself or for your spouse. There is a "Spousal IRA" which you may be able to
set up for your spouse. There is also a "Rollover IRA" which you can set up to
receive assets from a qualified plan, annuity or another IRA. There is a SEP-IRA
(which is also known as a Simplified Employee Pension Plan) which your employer
can establish for you. Finally, there is a SIMPLE-IRA (also known as a Salary
Incentive Match Plan IRA) which an employer can use for a salary reduction plan.
Following is a general description of the rules which apply to each of these
types of IRAs and who is eligible to establish them.
A. Regular IRA. You may contribute up to the lesser of $2,000 or 100% of your
compensation if you have not reached age 70 1/2 during the taxable year. You
may make this contribution even if you or your spouse is an active participant
in a qualified employer plan. However, as explained below, the amount of the
contribution which is deductible for federal income tax purposes may be limited.
Compensation includes wages, salary, commissions, bonuses, tips, etc., and also
includes taxable alimony or separate maintenance payments. Compensation does not
include income from interest, dividends or other earnings or profits from
property, or amounts not includible in your gross income.
Your spouse may also establish and contribute to an IRA, even if he or she has
less than $2,000 in compensation for the year, provided that you and your spouse
file a joint income tax return for the year. Under such an arrangement, you and
your spouse may qualify for a total deduction equal to the lesser of $4,000 or
100% of you and your spouse's combined compensation for the taxable year. You
can determine how to divide the contribution between the two accounts but you
cannot contribute more than $2,000 annually into either one. Beginning in 1997,
you may contribute up to $2,000 for each of you and your spouse, provided the
combined contributions do not exceed your combined compensation. While you
cannot contribute to your IRA in the taxable year in which you reach 70 1/2 you
can still contribute to your spouse's IRA if he or she has not reached 70. A
Spousal IRA does not involve the creation of a joint account. The account of
each spouse is separately owned and treated independently from the account of
the other spouse.
B. Rollover IRAs. All or a portion of certain distributions from qualified
retirement plans, annuities and other IRAs may be "rolled over" tax-free without
regard to the limits on annual contributions to a Regular IRA, but no deduction
is allowed with respect to such a contribution. There are three basic types of
rollovers: rollovers from a qualified pension or profit-sharing plan, rollovers
from another IRA, and rollovers from a tax-sheltered annuity. All distributions
must be rolled over within 60 days after you receive the distribution to receive
tax-free treatment.
<PAGE>
From a Qualified Plan. In general, you may roll over any portion of a
distribution that you receive from a qualified employer-sponsored pension or
profit-sharing plan (including a 401(k) plan), except that you cannot roll over
(1) one of a series of substantially equal periodic payments (such as an
annuity), (2) a minimum distribution required to be made after you reach the age
of 70 1/2, or (3) the portion of a distribution that represents the return of
your own after-tax contributions. If you receive a distribution of property
rather than cash, you can sell the property and roll over the sale proceeds, as
long as you complete the rollover within 60 days from the original date of
distribution.
If you make a rollover from a qualified employer plan to an IRA, you may in
turn, under certain circumstances, make a rollover from the IRA into the
qualified plan of a subsequent employer. To preserve that right, however, you
must keep the rollover IRA separate from any other IRA you may have, since you
cannot make a rollover to an employer plan from an IRA to which you have made
yearly contributions.
Instead of receiving a distribution from a qualified plan and rolling it over,
you may also direct the trustee or custodian of any qualified retirement plan to
transfer a distribution from the plan directly to an IRA. If a distribution
from a plan can be rolled over, the plan is required by law to transfer the
distribution directly to an IRA, or another employer's plan, if you so direct.
If you do not direct the distribution to be transferred directly to an IRA or
another plan, the plan making the distribution will be required to withhold 20%
of the distribution for the payment of income taxes, even if you subsequently
roll over the distribution.
Rollover amounts you receive from a qualified employer plan may not be deposited
in your spouse's IRA, but if you should die while still a participant in a
qualified plan, in certain cases your spouse may be allowed to make a tax-free
rollover to an IRA. The amount of the death payout rolled over by a spouse into
an IRA may subsequently be rolled over into another employer's qualified plan or
annuity. Beneficiaries other than your spouse are not allowed to roll over
distributions they receive after your death. From Another IRA. In general, any
distribution or withdrawal that you receive from an IRA can be rolled over into
another IRA within 60 days, except that (1) you cannot roll over the minimum
distributions you are required to receive after age 70 1/2, (2) you can only
make a rollover from one IRA to another once in any twelve-month period, and (3)
a distribution from a SIMPLE-IRA that is made within the first two years after
you first begin to participate in the SIMPLE-IRA can only be rolled over to
another SIMPLE-IRA. You may also request the trustee or custodian of an IRA to
make a direct transfer to the trustee or custodian of another IRA. Such direct
transfers are not limited to one in a twelve month period. Unlike the trustees
of qualified retirement plans, trustees or IRAs are not legally required to make
direct transfers, but most of them do. Your spouse may generally roll over
distributions that he or she receives from your IRA after your death, but no
beneficiaries other than your spouse may do so.
Tax Sheltered Annuities. Tax-sheltered annuity plans, sometimes called "403(b)
plans", are a retirement benefit offered by certain governmental and not-for-
profit employers, such as schools and hospitals. If you receive a distribution
from a tax sheltered annuity plan other than in the form of an annuity, it may
generally be rolled over to an IRA under rules similar to those that apply to
distributions from qualified employer plans, as described above. As with a
rollover distribution from an employer plan, you should keep a rollover from a
tax sheltered annuity plan in a separate IRA account and not make any other
contributions to it (including rollovers from other types of plans) if you with
to preserve the right to roll over to another tax sheltered annuity plan in the
future. Distributions from other types of governmental retirement plans may or
may not be eligible for a rollover depending on whether the employer has chosen
to comply with IRS guidelines. Distributions from voluntary deferred
compensation plans maintained by government and not-for-profit employers,
sometimes known as "Section 457 plans", are not eligible for a rollover to an
IRA.
Strict requirements must be met to qualify for a tax-free rollover treatment.
You should consult your personal tax advisor in connection with rollovers to and
from your IRA.
C. Simplified Employee Pension (SEP-IRA). An employer may adopt a SEP-IRA and
contribute to your SEP-IRA even if you are covered by another retirement plan.
The maximum contribution is 15% of your compensation (computed without regard to
the contribution) or $30,000 (or such other amount as may be prescribed by the
Secretary of the Treasury), whichever is less. The contributions are deductible
by the employer and are generally not includible in your income until you
receive distributions. You may also be able to elect to have your salary
reduced by up to $9,500 (or such higher amount as is specified from time to time
by the Secretary of the Treasury) and to contribute the reduction to your SEP-
IRA, but only if prior to 1997 your employer had established a special type of
SEP-IRA (called a SAR-SEP) that permitted such elections. Beginning in 1997,
SAR-SEPs have been replaced by SIMPLE-IRAs (discussed below), and new SAR-SEPs
are not permitted. To establish a SEP-IRA, your employer must sign a SEP-IRA
plan agreement and provide you with a copy of the agreement as well as certain
information concerning the rules applicable to such plans. Your employer can
satisfy these requirements by using Form 5205-SEP, which is issued by the
Internal Revenue Service. If you are self-employed, you may establish a SEP-IRA
for your own benefit, but you may also have to cover any other employees you
have.
D. Salary Incentive Match Plan (SIMPLE-IRAs). Before 1997, employers with up
to 25 eligible employees could allow employees to elect to have a portion of
their pay withheld and contributed to a special type of SEP-IRA, called a
"salary reduction SEP", or SAR-SEP. Beginning in 1997, SAR-SEPs have been
abolished, and a new type of IRA, called a SIMPLE-IRA, has been established
instead. Although new SAR-SEPs cannot be established after 1996, SAR-SEPs that
were in existence on December 31, 1996, can remain in existence and continue to
receive contributions in future years, including contributions for new
employees. Beginning in 1997, employers with up to 100 eligible employees can
establish SIMPLE-IRAs. In a SIMPLE-IRA, you can elect to have up to $6,000 of
your compensation in any year withheld and deposited in an IRA, and your
employer must generally make an additional contribution to match the amount that
you have withheld, up to a maximum of 3% of your compensation. The employer may
elect to lower the maximum matching contribution to as low as 1% in some years,
but may not lower the maximum match in more than two years out of every five.
The employer may also elect to make a contribution equal to 2% of compensation
for all eligible employees in any year instead of making matching contributions.
All employees who have been paid at least $5,000 in two prior years and expect
to be paid $5,000 in the current year are eligible to participate (excluding
nonresident aliens and union workers whose collective bargaining agreement does
not provide for them to participate). SIMPLE-IRAs are otherwise very similar to
SEP-IRAs.
If you wish to establish a SIMPLE-IRA for your employees, you must give all
eligible employees notice of their right to elect to defer part of their
compensation, and comply with certain other notice requirements. The Acorn IRA
application and transfer forms cannot be used to establish a SIMPLE-IRA. Call
1-800-962-1585 to request the necessary forms.
II. Contributions
In General. As explained in this part, the amount of your IRA contributions
which you can deduct is subject to limits. All contributions and transfers to
your Acorn IRA must be in cash. Contributions to your Regular IRA may be made up
to the due date for filing your tax return for the taxable year
<PAGE>
Individual Retirement Account Disclosure Statement
(excluding extensions thereof) even if you file before the due date. In making
contributions, you must indicate the tax year to which the contribution applies.
If no tax year is designated, the custodian will assume that the contribution is
intended to apply to the calendar year in which it is received. The time limit
for designating the applicable tax year is April 15.
Contributions made by an employer to your SEP-IRA or SIMPLE-IRA for a calendar
year may be made no later than the due date of your employer's tax return
(including extensions). In making a SEP-IRA or SIMPLE-IRA contribution, the tax
year to which the contribution relates must also be specified or it will be
deemed to relate to the calendar year in which it is received. In a SEP-IRA or
SIMPLE-IRA, this designation of the tax year of a contribution must be made by
the due date for contributions described above.
Deductible Contributions. If you are single and are not an "active participant"
in a retirement plan maintained by your employer, you can deduct the full amount
of your IRA contribution up to the lesser of $2,000 or 100% of your compensation
for the year. If you are married, you can deduct the full amount of your IRA
contribution so long as neither you nor your spouse is an "active participant"
in a retirement plan maintained by your respective employers. These plans
include qualified pension, profit-sharing, stock bonus or money purchase plans,
401(k) plans, SEP-IRAs and SIMPLE-IRAs, qualified annuity plans, tax-sheltered
annuities and custodial accounts and governmental retirement plans (other than
certain plans for reserve members of the armed forces and volunteer firemen, and
certain deferred compensation plans commonly known as "Section 457 plans"). In
general, you are considered to be an active participant in a plan if an employer
contribution or forfeiture was credited to your account during the year in the
case of a defined contribution plan or if you have met the minimum age and
service requirements, in the case of a defined benefit plan (even if you don't
actually accrue a benefit during the year). You are considered to be an active
participant in a plan if you make a contribution to the plan during a year even
if your employer does not. For active participation, it does not matter whether
any interest you have in a plan is vested or unvested.
If you or your spouse is an active participant in a plan, the amount of the
deduction you can claim for an IRA contribution is reduced or totally denied
depending upon the amount by which your adjusted gross income for the year
exceeds the "applicable dollar amount." The applicable dollar amount is $25,000
for single people and $40,000 for married individuals filing a joint tax return.
If you are married but are filing separate tax returns, your applicable dollar
amount is $0.
If your adjusted gross income exceeds your applicable dollar amount by more than
$10,000, you may not deduct any portion of your IRA contribution. However, if it
is between $0 and $10,000 more than your applicable dollar amount, you can claim
a tax deduction for part of your contribution. To determine the amount of the
deduction, follow these steps. First, determine the amount of the contribution
you can make. If, for example, you have compensation in excess of $2,000 you
could make a $2,000 contribution to your Regular IRA. Next, subtract the
applicable dollar amount from your adjusted gross income. If you are single and
your adjusted gross income is $30,000, the difference would be $5,000. Next,
divide this difference by $10,000. In the example $5,000/$10,000 equals 50%.
Accordingly, the maximum contribution to a Regular IRA you can deduct is 50% of
$2,000, or $1,000. If the deduction limitation is not a multiple of $10, round
the deduction to the next higher $10. If your adjusted gross income does not
exceed $35,000 and you are single or $50,000 and you are married, you can deduct
regardless of how the computation comes out.
Married persons who file separate returns are treated as unmarried for purposes
of these rules if they did not live together at any time during the year.
Nonduductible Contributions. Even though you may not be entitled to claim a
deduction for contributions to your IRA, you are still allowed to make the
contributions to the extent described in "Types of IRAs" above. To the extent
that the amount of your contribution exceeds the deduction limit, it is
considered a nondeductible contribution. Earnings on these contributions are not
taxed until distributed, just like the earnings on deductible contributions. It
may, therefore, be worthwhile to make nondeductible contributions.
You are required to report the amount of your nondeductible contributions on
Form 8606 and attach it to your income tax return. You may be liable for a tax
penalty of $50 if you fail to file the form, or $100 if you overstate the amount
of your nondeductible contributions.
III. Investment and Holding of Contributions
Contributions to your IRA, and the earnings thereon, are invested at your
election in shares of Acorn Fund, Acorn International or Acorn USA, each a
series of Acorn Investment Trust, a no-load mutual fund managed by Wanger Asset
Management, L.P., or in Short Term Income Fund, Inc. Money Market Portfolio, a
no-load money market fund managed by Reich & Tang Asset Management, L.P., Acorn
Fund,
<PAGE>
Acorn International and Acorn USA are collectively called the "Acorn Funds."
The money market fund is available in a telephone exchange plan with the Acorn
Funds. You will be able to exchange investments among any of the Acorn Funds and
the money fund. In order to place an exchange, you would need to telephone State
Street Bank at 1-800-962-1585. IRA planholders may not use the check-writing
redemption privileges offered by the money fund.
If you wish to add to your IRA plan by putting money into the money fund instead
of one of the Acorn Funds, please call State Street Bank for instructions.
The assets in your IRA are held in a custodial account exclusively for your
benefit and the benefit of such beneficiaries as you may designate in writing
delivered to the Custodian. The balance in your IRA represents a separate
account which is clearly identified as your property and generally may not be
combined for investment with the property of another individual. Your right to
the entire balance in your account is nonforfeitable. No part of the assets of
your account may be invested in life insurance contracts or in collectibles such
as works of art, antiques, coins, stamps, etc.
IV. Distributions From Your IRA
Distribution During Your Life. The law permits distributions to be made from an
IRA without penalty at any time after you attain age 59 1/2, and requires that
distributions commence no later than April 1 following the calendar year in
which you attain age 70 1/2. Distributions may be in the form of a single
payment or, in accordance with regulations, in substantially equal monthly,
quarterly or annual payments over your life or the joint lives of you and your
designated beneficiary, or over a period certain not extending beyond your life
expectancy or the joint and last survivor life expectancy of you and your
designated beneficiary. However, if your beneficiary is not your spouse, the law
imposes an additional requirement called the minimum distribution incidental
benefit requirement. In general, this requirement puts a further limit on the
maximum payout period. This further limit is based on a table in the income tax
regulations, and if this limit applies to you, you should consult your tax
adviser to determine your minimum distribution.
In general, your life expectancy, your surviving spouse's life expectancy after
your death, and you and your spouse's joint and last survivor life expectancies
will all be recalculated each year based upon your (and your spouse's, if
applicable) age attained during that year. However, you can also elect to have
your (and your spouse's) life expectancies fixed in the year in which
distributions are required to begin, which may be advantageous in some
circumstances. On the other hand, if your beneficiary is someone other than your
surviving spouse, you and your beneficiary's joint and last survivor life
expectancy will ordinarily not be recalculated each year, although you may elect
to have it recalculated. Each of the elections described above must be made
before the date on which distributions are required to commence, and will be
irrevocable after that date. You should consult a qualified tax adviser to
determine whether you should make any of these elections.
If you direct distributions over your life or the joint lives of you and your
designated beneficiary, the Custodian will purchase an immediate annuity
contract from an insurance company you choose with your IRA and your payments
will be made under the annuity. You must provide a completed annuity application
from the insurance company of your choosing.
Any distribution instruction must specify the reason for the distribution.
Examples of such reasons are: premature distributions (i.e. distributions before
age 59 1/2), rollovers, disability, death, normal (59 1/2 or over), excess
contribution returns and other.
Distributions After Your Death. If you die on or after the April following the
year in which you reach age 70 1/2, the balance of your IRA must be distributed
to your designated beneficiary at least as rapidly as under the method of
distribution in effect before your death.
If you die before the April following the year in which you reach age 70 1/2,
the entire balance of the account must be distributed by December 31 of the year
in which the 5th anniversary of your death occurs. However, distribution need
not be made within this 5-year period if your beneficiary receives payments over
a period measured by his or her life or life expectancy beginning no later than
December 31 of the year following the year in which you die. If the beneficiary
is your spouse, those installment payments don't have to begin until the later
of December 31 of the year following the year in which you die or December 31 of
the year in which you would have reached age 70 1/2. In addition, a distribution
need not be made within 5 years of your death if your spouse is your beneficiary
and he or she elects to treat the entire interest in the IRA (or the remaining
part of such interest, if distribution has already begun) as his or her own IRA
subject to the regular
<PAGE>
Individual Retirement Account Disclosure Statement
IRA distribution requirements. In such a case, your spouse will be considered to
be the covered individual under the IRA. If you die before the entire IRA has
been distributed to you and your spouse is not your beneficiary, no additional
cash contributions or rollover contributions may be accepted by the IRA.
V. Income and Penalty Taxes
Income Tax Treatment. Income tax on deductible IRA contributions and earnings on
both deductible and nondeductible IRA contributions is generally deferred until
you receive distributions. If you have made both deductible and nondeductible
contributions to IRAs you maintain, a portion of each distribution you receive
from any IRA (whether or not it is the one to which you made nondeductible
contributions) will be considered to be a return of nondeductible contributions
and therefore not included in your income for tax purposes. The balance of each
distribution will be taxed as ordinary income regardless of its original source.
The amount of any distribution which is considered to be a return of
nondeductible contributions (and, therefore, not taxed) is determined by
multiplying the amount of the distribution by a fraction. The numerator of the
fraction is the aggregate amount of nondeductible contributions you have made to
all of your IRAs over the years and the denominator is the balance in all your
IRAs at the end of the year (after adding back any distributions you received
during the year). The aggregate amount which can be excluded from income for all
years cannot exceed the amount of nondeductible contributions that you made in
those years. You must attach Form 8606 to your tax return for any year in which
you receive distributions if you have made any nondeductible contributions to an
IRA.
Taxable distributions from your account are taxed as ordinary income regardless
of their original source. They are not eligible for special tax treatment that
may apply to lump sum distributions from qualified employer plans.
Penalty Tax for Premature Distributions. Your IRA is intended to provide income
for you upon retirement. Accordingly, the law generally imposes a penalty on
premature distributions. If you receive a taxable distribution from the IRA
before reaching age 59-1/2, a nondeductible 10% penalty will be imposed on the
portion of the distribution which is included in your gross income. This penalty
is in addition to any income tax you must pay on the distribution itself. If you
receive a distribution from a SIMPLE-IRA during the first two years after you
begin to participate, the penalty tax is 25% rather than 10%. The penalty does
not apply to the extent that the distribution is considered a return of
nondeductible contributions or a return of an excess contribution which is
permitted tax-free (see below). The penalty also will not apply if the
distribution is made due to your permanent disability or death or if the
distribution is one of a series of substantially equal periodic payments made
over your life (or life expectancy) or over the joint lives (or life
expectancies) of you and your beneficiary. Beginning in 1997, there are two
additional exceptions to the penalty: the penalty does not apply to
distributions that do not exceed the amount of tax-deductible medical expenses
you incur during the year (or the amount that you could deduct if you itemized
your deductions), or that do not exceed the amount of medical insurance premiums
that you pay after you have been receiving unemployment compensation for at
least 12 weeks, provided that you don't receive the distribution after you have
been re-employed for at least 60 days. Finally, the penalty does not apply to
the extent the distribution is rolled over to another IRA or (if permitted)
qualified plan.
Penalty Tax for Excess Contributions. Contributions to an IRA above the
permissible limits are nondeductible and are subject to an annual non-deductible
excise tax of 6% of the amount of such excess contributions for each year that
the excess is not withdrawn or eliminated. The tax is paid by the person for
whose benefit the IRA is established. If the person who contributed the excess
takes no deduction for it and withdraws the excess amount plus the net earnings
attributable to such excess on or before the due date (including extensions) for
filing the Federal income tax return for the year for which the contribution was
made, the 6% excise tax will not be applied but the 10% tax on premature
distributions will be applied to the amount of net earnings.
Generally, if the excess is withdrawn after the due date (including extensions)
for filing the tax return for the year for which the contribution was made, not
only will the excess contribution be subject to the 6% excise tax, but the
amount of such excess and the net income attributable to it will also be
includible in income; and if you have not attained the age of 59-1/2, or are not
disabled, you will also be subject to the previously mentioned 10% penalty tax
on premature distributions. The law provides, however, that if an individual has
made a contribution (excluding rollover amounts) to an IRA for a year which does
not exceed the maximum deductible limit for the year, all or part of which is an
excess contribution for which he did not claim a deduction, and he does not
correct the excess contribution before the due date (including extensions) for
filing his tax return for the year, he, nevertheless, may withdraw the excess
amount contributed (without the net income attributable thereto) at any time
without incurring the 10% penalty tax on premature distributions or being
required to include the amount withdrawn in income. The 6% excise tax will be
imposed even in this special situation for the year of the excess contribution
and each subsequent year until the excess is withdrawn or eliminated.
The rules discussed above generally apply to SEP-IRAs and SIMPLE-IRAs as well.
The law also allows you to withdraw tax-free and without penalty an excess
contribution, regardless of the amount, made with respect to a rollover
contribution (including an attempted rollover contribution), if the excess
contribution occurred because you rea-
<PAGE>
sonably relied on erroneous information required to be supplied by the plan,
trust or institution making the distribution that was the subject of the
rollover.
As an alternative to withdrawing excess contributions made to an IRA, such
amounts may be eliminated by making reduced contributions for subsequent years;
however, you will be required to pay the 6% excise tax on the amount of the
excess for the year of the contribution and for each subsequent year until the
amount of the excess is deducted in a later year for which you have not
contributed the maximum deductible amount. If a contribution is made to your
account in an amount less than the permissible limit in order to correct an
excess contribution for a pre-vious year for which you did not claim a
deduction, you may under certain circumstances, taking into account the limits
on contributions, be allowed to treat the amount of the reduction in the current
year's contribution as an additional contribution for the current taxable year.
Penalty Tax for Under-Distribution. If after April 1 following the year in which
you attain age 70-1/2, the amount distributed is less than the minimum amount
required by law to be distributed, a 50% excise tax may be imposed on any such
deficiency. The minimum amount required by law to be distributed is generally
based on your life expectancy or the joint and survivor life expectancy of you
and your beneficiary. However, if your beneficiary is not your spouse, the law
imposes an additional requirement which is called the minimum distribution
incidental benefit requirement. In general, this requirement is designed to
prevent you from naming a beneficiary who is much younger than yourself in order
to extend your payout period. You should consult your tax adviser to determine
your minimum distribution. This excise tax may also apply if your beneficiary
fails to take the minimum required distribution in any year after your death, as
described above.
The Internal Revenue Service may waive the penalty tax for under-distribution if
the deficiency was due to reasonable error and reasonable steps are being taken
to correct the deficiency.
Penalty Tax for Excess Distributions and Accumulations. A 15% penalty tax is
imposed on annual distributions from retirement arrangements (including IRAs) to
the extent that such distributions in a year are considered "excess
distributions." A distribution is an "Excess distribution" if it exceeds
$160,000 (or such higher amount as may be specified by the IRS) during any
calendar year.
In addition, a 15% penalty tax will be imposed on your estate to the extent that
at the time of your death the total balance to your account in all retirement
arrangements exceeds the present value of a life annuity of $160,000 (or such
higher amount as the IRS may specify) per year.
The 15% penalty tax on excess distributions (but not the additional estate tax
on excess accumulations) has been suspended for distributions received during
1997, 1998 and 1999. The rules governing the 15% penalty tax are very complex,
and may be affected by certain elections which you may have made in prior years.
If you have substantial balances in your IRAs and qualified retirement plans,
you should consult a qualified tax adviser as to the possible application of
this penalty tax.
Prohibited Transactions and Pledging Account Assets. If during any taxable year
you engage in a so-called "prohibited transaction" with respect to your IRA, the
account will lose its tax-exempt status. In this event, the fair market value of
all account assets, valued as of the first day of such taxable year, will be
deemed distributed to you and the taxable portion will be includible in your
gross income for the year. If you are under age 59-1/2, the 10% (or 25%) penalty
for premature distributions may also apply. These prohibited transactions
generally include any type of financial transaction between the IRA and you or
your beneficiary, including borrowing or lending money, buying, selling, or
renting property, paying compensation, or a transaction that indirectly benefits
you or your bene-ficiary personally. Prohibited transactions may also involve
members of your family, companies in which you have an interest, the sponsoring
employer in the case of a SEP-IRA or SIMPLE-IRA, any person who provides
services to the IRA, and certain affiliates of such persons. However, prohibited
transactions involving persons other than you or your beneficiary result in
penalty taxes on the person involved, rather than disqualification of the IRA.
If you pledge your account or any portion thereof as security for a loan, such
pledged portion will be deemed distributed to you and, to the extent that it
does not represent a return of nondeductible contributions, includible in your
gross income. If you have not yet attained age 59-1/2, an additional tax equal
to 10% of the amount pledged will be imposed on such funds includible in gross
income. If your spouse engages in a prohibited transaction with respect to his
or her account, the results will be the same. Any portion of an IRA used to
purchase an
<PAGE>
Individual Retirement Account Disclosure Statement
endowment contract or collectible is also treated as distributed.
VI. Miscellaneous
Federal Income Tax Withholding. Distributions from an IRA to the covered
individual or to a beneficiary are subject to Federal income tax withholding
unless the covered individual or beneficiary elects to have no withholding
apply. The current withholding rate required by the Internal Revenue Code is 10%
for lump sum payments, and regular wage withholding rates for annuities or other
periodic payments. Additional information concerning withholding and election
forms will be available no later than at the time a distribution is requested.
Federal Estate and Gift Taxes. Generally, your IRA will be included in your
estate for Federal estate tax purposes. If your spouse is your beneficiary, your
IRA may qualify for a deduction for purposes of that tax. An election under an
IRA to have a distribution payable to a beneficiary on the death of the covered
individual will not be treated as a gift subject to Federal gift tax.
Reports to the Internal Revenue Service. As described above, you are required to
attach Form 8606 to your return for any year in which you made nondeductible
contributions, or receive distributions after making nondeductible
contributions. You are required to file Form 5329 with the IRS if you owe one of
the IRA penalty taxes. These are the taxes on excess contributions, premature
distributions, prohibited transactions and under distributions after age 70-1/2,
as described above.
Social Security and Self-Employment Taxes. Contributions to a Regular IRA are
not deductible for purposes of the social security (FICA) and self-employment
taxes. Contributions to a SEP-IRA by your employer are not subject to social
security tax unless you elected to reduce your current compensation to receive
the contributions under a SAR-SEP established prior to 1997. The amount that
you elect to defer under a SIMPLE-IRA is subject to social security tax, but the
contributions made by your employer are not.
Financial Information. The growth in value of the mutual fund shares held in
your account can neither be guaranteed nor projected.
Custodian Fees. State Street Bank and Trust Company as the Custodian of your IRA
currently charges an acceptance fee of $5.00 per IRA application, and an annual
maintenance fee of $10.00 per account, per fund in which you have an investment.
An additional $10.00 fee is charged for each disbursement, other than an
automatic installment payout. Note that Spousal IRAs require separate accounts.
Each spouse's account is subject to the above fees.
If you do not add the $5.00 per fund acceptance fee to your initial
contribution, it will be deducted from your account. The $10.00 per fund annual
maintenance fee will be deducted from your account, unless paid separately when
billed in at the end of the year.
The Custodian may change any of the above fees from time to time.
IRS Approval Status. The Internal Revenue Service has determined that the form
of Acorn Investment Trust Individual Retirement Plan and Custodial Agreement, as
revised June 30, 1992, is acceptable under the Internal Revenue Code. This
determination by the IRS relates only to form and not to the merits of your
account. Further information concerning IRAs can be obtained from any district
office of the IRS.
January 1, 1997
<PAGE>
Acorn Investment Trust
Individual Retirement Plan and Custodial Agreement
(June 30, 1992 Revision)
The Acorn Fund, Inc. (the "Fund"), a regulated investment company, has
heretofore established The Acorn Fund, Inc. Individual Retirement Plan (the
"Plan"). Effective June 30, 1992, The Acorn Fund, Inc. was reorganized as Acorn
Investment Trust, a Massachusetts business trust (the "Trust"), and the Trust
thereby assumed and succeeded to all of The Acorn Fund, Inc.'s rights and
obligations under the Plan, including the power reserved in Section VIII of the
Plan to amend the Plan. Pursuant thereto, the Trust hereby amends and restates
the Plan in its entirety to read as follows, effective as of June 30, 1992.
The Plan is intended to meet the requirements of section 408 of the Internal
Revenue Code of 1986, as amended. Some words and phrases used herein have a
technical meaning and are defined in Article VIII.
I. Eligibility
Any person who receives Compensation (including Earned Income of a self-employed
individual and alimony or separate maintenance payments of a divorced person)
during a taxable year is eligible to adopt this Plan for such year. In addition,
any person making a Rollover Contribution or a trustee-to-trustee transfer may
adopt the Plan.
II. Participation
A. Regular IRA. An individual may contribute to his Custodial Account for any
taxable year an amount not in excess of the lesser of (1) $2,000 or (2) 100
percent of the Individual's Compensation includible in his gross income for such
taxable year. The Fund and the Custodian are not responsible for determining the
amount an Individual may contribute.
B. Spousal IRA.
(1) In addition to the contributions permitted under paragraph A, an Individual
who files a joint federal income tax return for any taxable year and whose
spouse has no Compensation for that year (or elects to be treated as having no
compensation for the year) may contribute an amount to a separate Custodial
Account for the benefit of the Individual's spouse.
The aggregate amounts contributed to the Custodial Accounts of the Individual
and the Individual's spouse for any taxable year may not exceed the lesser of
(a) $2,250 or (b) 100 percent of the Compensation includible in the Individual's
gross income for that year, but in no event shall the amount contributed to
either Custodial Account exceed $2,000.
Commencing with the contributions for 1997, an Individual's spouse may establish
or contribute to a Custodial Account pursuant to this paragraph B regardless of
whether such spouse has Compensation for the year, and the limit set forth in
the preceding sentence shall be equal to the lesser or $4,000 or the combined
Compensation of the Individual and the Individual's spouse. Either the
Individual or the Individual's spouse may make contributions to such Custodial
Account, and there shall be no distinction between such Custodial Account and a
regular Custodial Account established pursuant to paragraph A.
(2) In determining marital status the following shall apply:
(a) the determination of whether the Individual is married shall be made as of
the close of the taxable year, except that if the Individual's spouse dies
during the taxable year such determination shall be made as of the time of such
death; and
(b) if the Individual is legally separated from his/her spouse under a decree of
divorce or of separate maintenance they shall not be considered as married.
C. Contributions After Age 70-1/2. The Individual may not make a contribution
under paragraph A for any taxable year if he has attained age 70-1/2 before the
close of that year, nor under paragraph B if the spouse has attained age 70-1/2
before the close of that year.
D. Refund of Excess Contribution. If for any taxable year, the Individual
contributes an amount for the Individual or the Individual's spouse under
paragraph A or B which exceeds the maximum limits permitted by those paragraphs,
such excess contribution shall, upon the written request of the Individual (or
the spouse in the case of a Spousal Account), be paid to the Individual (or the
spouse in the case of a Spousal Account) by the Custodian. If the refund is made
before the due date of the Individual's federal income tax return for that year
(including extensions), the refund shall include any income attributable to the
excess contribution.
E. Rollover Contributions and Transfers.
(1) The Individual may also make a Rollover Contribution as defined in Article
IX of the Plan. Any Rollover Contribution and the earnings thereon may be held
by the Custodian in a separate account for the Individual.
(2) In addition, notwithstanding any other provisions hereof, the Individual may
cause the custodian or trustee under any other individual retirement account
established and maintained by the Individual to transfer all or any part of the
funds in such account directly to the Custodian to be held under this Plan.
Effective January 1, 1993, the Individual may also cause the trustee of any plan
to which Section 401(a)(31) of the Code applies to transfer all or any part of
the benefits payable under such plan directly to the Custodian to be held under
this Plan.
(3) In the case of a Rollover Contribution, the Individual shall certify to the
Custodian that the contribution qualifies as such.
<PAGE>
F. Simplified Employee Pension (SEP-IRA). In the case of an employer
contribution on behalf of the Individual to a Simplified Employee Pension,
notwithstanding the limitations stated in paragraph A, the contribution for any
taxable year shall not exceed the lesser of
(1) 15% of the Compensation from the employer includible in the Individual's
gross income for the year (determined without regard to the employer
contribution to the Simplified Employee Pension), or
(2) the amount contributed by the employer to the Simplified Employee Pension
and included in gross income (but not in excess of $30,000).
Employer contributions to a SEP-IRA may be made on behalf of the Individual
after the Individual reaches age 70 1/2.
G. Minimum Contributions. A contribution is not required for any year. Each
contribution must meet the minimum investment limitations stated from time to
time in the prospectus relating to the Fund Shares in which the contribution is
to be made.
H. Nonforfeitability. The interests of the Individual and the Individual's
spouse in their respective Custodial Accounts shall be nonforfeitable at all
times.
I. Form of Contributions. All contributions and transfers shall be made only in
cash.
III. Investment of Contributions
A. As directed by the Individual in writing, all contributions shall be used by
the Custodian to purchase Fund Shares. All income dividends and capital gains
distributions shall be reinvested in shares of the Fund which declared such
dividends or distributions unless the Individual (or spouse in the case of a
Spousal Account) elects in writing, in accordance with an opportunity to do so
provided by the Fund declaring the dividend or distribution, to apply such
dividend or distribution to purchase other Fund Shares available under the Plan.
B. A Telephone Exchange Plan ("Exchange Plan"), as described in the
prospectus(es) of the Funds is available hereunder. The Custodian, upon receipt
of telephonic instructions from any person representing himself to be the
Individual, may redeem any Fund Shares held by the Custodian on behalf of the
Individual and apply the proceeds toward the purchase of any other Fund Shares
available hereunder, subject to and in accordance with the terms and conditions
of the Exchange Plan. The Custodian shall be entitled to rely and act upon such
telephonic instructions, and neither the Custodian, the Trust, any other Fund
whose shares are available hereunder nor their officers, trustees, directors,
employees or agents shall be liable for any liability, cost or expense for
acting on any such instructions. In directing any exchange pursuant to the
Exchange Plan, the Individual represents that he has obtained a current
prospectus of the Fund into which the switch is to be made. The Individual
authorizes and directs the Custodian to respond to any telephonic inquiries
relating to the status of shares owned, including, but not limited to, the
number of shares held. The Individual agrees that the authorizations, directions
and restrictions contained herein will continue until the Custodian receives
written notice of any change or revocation. The Individual agrees and
understands that the Funds and the Custodian reserve the right to refuse any
telephonic instructions.
C. All Fund Shares acquired by the Custodian shall be registered in the name of
the Custodian or its nominee.
D. No part of the custodial funds shall be invested in life insurance contracts
nor in collectibles (within the meaning of section 408(m) of the Code); nor may
the assets of the Custodial Account be commingled with other property except in
a common trust fund or common investment fund (within the meaning of section
408(a)(5) of the Code).
E. All assets in the Custodial Account shall be held by the Custodian for the
exclusive benefit of the Individual and the Individual's designated beneficiary
or beneficiaries.
IV. Distributions
A. As directed in writing by the Individual, the entire interest of the
Individual in the Custodial Account shall be distributed, or commence to be
distributed, no later than April 1 following the calendar year in which the
Individual attains age 70 1/2 (the "required beginning date"). Not later than
the required beginning date, the Individual shall elect, in such form and at
such time as is acceptable to the Custodian, to have the balance in the
Custodial Account distributed:
(1) In a single sum payment in cash or Fund Shares;
<PAGE>
(2) In equal or substantially equal annual installments in cash commencing not
later than the required beginning date and over a specified period certain not
extending beyond the life expectancy of the Individual, or the joint and last
survivor life expectancy of the Individual and his designated beneficiary; or
(3) By the purchase of an annuity contract issued by an insurance company
selected by the Individual and providing equal or substantially equal monthly,
quarterly
<PAGE>
or annual payments commencing not later than the required beginning date, for
the life of the Individual, or, if he so elects, for the lives of the Individual
and his designated beneficiary, with any period certain limited to the life
expectancy of the Individual or the joint and last survivor life expectancy of
the Individual and his designated beneficiary.
Even though distributions may have commenced pursuant to option (2) the
Individual may receive a distribution of any part or all of the balance in the
Custodial Account, either in cash or in Fund Shares, at any time upon written
notice to the Custodian. If the Individual fails to elect any of the methods of
distribution described above before the required beginning date, distribution to
the Individual shall be made on or before the required beginning date in a
single distribution in Fund Shares.
If the Individual elects option (2) as the mode of distribution, the annual
payment required to be made by the Individual's required beginning date is for
the calendar year the Individual reached age 70 1/2. The annual payment for each
subsequent year, including the year in which the Individual's required beginning
date occurs, must be made by December 31 of that year. If the Individual elects
option (3) as the mode of distribution, the annuity contract must satisfy the
requirements of section 408(b)(1), (3) and (4) of the Code.
B. If the Individual dies before his or her entire interest in the Custodial
Account is distributed, the entire remaining interest shall be distributed as
directed in writing by the beneficiary as follows:
(1) If the Individual dies on or after the Individual's required beginning date,
distribution must continue to be made in accordance with paragraph A.
(2) If the Individual dies before the Individual's required beginning date, the
entire remaining interest shall, at the election of the beneficiary or
beneficiaries, either
(a) Be distributed by December 31 of the year containing the fifth anniversary
of the Individual's death, or
(b) Be distributed in equal or substantially equal annual payments over a
specified period not extending beyond the life expectancy of the designated
beneficiary or beneficiaries.
The election of either (a) or (b) must be made by December 31 of the year
following the year of the Individual's death. If the beneficiary or
beneficiaries do not elect either of the distribution options described in (a)
or (b), distribution shall be made in accordance with (b) if the beneficiary is
the Individual's surviving spouse and in accordance with (a) if the beneficiary
or beneficiaries are or include anyone other than the surviving spouse. In the
case of distributions under (b), distributions must commence by December 31 of
the year following the year of the Individual's death. However, if the
Individual's spouse is the beneficiary, distributions need not commence until
December 31 of the year the Individual would have attained age 70 1/2, if later.
(3) If the designated beneficiary is the Individual's surviving spouse, the
spouse may treat the Custodial Account as his or her own individual retirement
arrangement (IRA). Such an election shall be deemed to have been made if such
surviving spouse makes a regular IRA contribution to the Custodial Account,
makes a rollover to or from the Custodial Account or fails to elect any of the
preceding provisions. If the Individual dies before his or her entire interest
has been distributed and if the beneficiary is other than the surviving spouse,
no additional cash contributions or rollover contributions may be accepted in
the Custodial Account.
C. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Individual's entire interest in the Custodial Account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Individual (or the joint and last survivor life expectancy of the Individual and
the Individual's designated beneficiary, or the life expectancy of the
designated beneficiary, whichever applies). For this purpose, however, in the
case of the year ("second distribution year") following the year in which the
Individual reached age 70 1/2, the balance in the Custodial Account as of the
close of business on December 31 of the preceding year shall be reduced by any
distribution made during the second distribution year on or before April 1 to
satisfy the minimum distribution requirement for the year the Individual reached
age 70 1/2, as determined in accordance with paragraph J below.
D. Effective for distributions after December 31, 1988 and before the
Participant's death, notwithstanding any other provisions in this Plan, if the
distribution period is longer than the Individual's life expectancy and the
Individual's spouse is not the designated beneficiary, the minimum amount
required to be distributed each year, beginning with the year the Individual
reaches age 70 1/2, shall be determined by dividing the balance in the Custodial
Account as of
<PAGE>
Individual Retirement Plan and Custodial Agreement
the close of business on December 31 of the preceding year by the lesser of (1)
the joint and last survivor life expectancy of the Individual and his designated
beneficiary determined as provided in paragraph C or (2) the applicable divisor
determined from the table set forth in Q&A-4 of Proposed Treasury Regulation
Section 1.401(a)(9)-2. For this purpose, however, in the case of the year
("second distribution year") following the year in which the Participant reached
70 1/2, balance in the Custodial Account as of the close of business on December
31 of the preceding year shall be reduced by any distribution made during the
second distribution year on or before April 1 to satisfy the minimum
distribution requirement for the year the Individual reached age 70 1/2.
E. The minimum annual payment may be made in a series of installments (e.g.,
monthly, quarterly, etc.) as long as the total payments for the year made by the
date required are not less than the minimum amounts required.
F. Any annuity contract purchased for the Individual pursuant to the Plan shall
be immediately distributed to the Individual, and the custodial relationship
shall terminate upon such distribution.
G. Except in the case of the Individual's death or Disability or attainment of
age 59 1/2, no distribution shall be made to the Individual of his interest in
the Custodial Account unless the Individual gives the Custodian a statement
explaining how he or she intends to dispose of the amount to be distributed.
H. An Individual shall have the right by written notice to the Custodian to
designate one or more beneficiaries to receive any amount to which the
Individual may be entitled in the event of his death before the complete
distribution of his interest, and to change any such beneficiary. Such
designation or change shall be on the Beneficiary Form provided by the Trust,
and shall be effective only when filed with the Custodian before the death of
the Individual. Such designation may include contingent or successive
beneficiaries. If no such designation is in effect on an Individual's death, or
if no designated beneficiary is living on the date any payment becomes due after
the Individual's death, such payment shall be made to the executor or
administrator of the Individual's estate. However, if after the Individual's
death, his surviving spouse is receiving payments over a specified period, the
surviving spouse may designate a beneficiary to receive the balance of the
Custodial Account, if any, on his or her death in accordance with the foregoing
rules.
I. If any person to whom all or a portion of the Individual's interest is
payable is a minor, payment of the minor's interest shall be made on behalf of
the minor to the person designated by the Individual in the Beneficiary Form to
receive the minor's interest as custodian under the Massachusetts Uniform
Transfers to Minors Act or similar statute. If any person to whom all or a
portion of the Individual's interest is payable is a minor and if either (a) the
Individual has not so designated a person to receive the minor's interest as
such custodian, or (b) the person so designated is unable to act (because of
incapacity, failing or declining to act, death or otherwise), the Custodian
shall:
(i) Distribute the interest to the legal guardian of such minor; or
(ii) If no guardian has been appointed, designate an adult member of the minor's
family, a guardian or a trust company (including the Custodian), as those terms
are defined in the Massachusetts Uniform Transfers to Minors Act or similar
statute, as custodian for such minor under the Massachusetts Uniform Transfers
to Minors Act or similar statute and distribute such minor's interest to the
person so designated. The person designated as custodian under the Massachusetts
Uniform Transfers to Minors Act or similar statute shall hold, manage and
distribute such property in accordance with the provisions of such statute
including, if such statute so requires, a total distribution prior to age 21.
The distribution of the Individual's interest to the guardian or the person
designated as custodian under the Massachusetts Uniform Transfers to Minors Act
or similar statute shall be a full discharge of the Custodian to the extent of
the distribution so made.
J. For purposes of determining the minimum distribution required for any year
pursuant to paragraph C, if the applicable life expectancy is the life
expectancy of the Individual, the life expectancy of the Individual's surviving
spouse, or the joint and last survivor life expectancy of the Individual and his
spouse, then, unless the Individual or his surviving spouse otherwise elects as
hereinafter provided, such life expectancy shall be determined on the basis of
the age attained by the Individual, his or her spouse, or both of them, on their
birthdays occurring during the year for which the minimum distribution is
calculated (which, in the case of a distribution under paragraph A made in the
year which includes the required beginning date for the year in which the
<PAGE>
Individual attains age 70 1/2, shall be the year in which the Individual attains
age 70 1/2). If the applicable life expectancy is that of a beneficiary other
than the Individual's surviving spouse, or the joint and last survivor life
expectancy of the Individual and a beneficiary other than his surviving spouse,
the life expectancy for the first year for which a distribution is required to
be made (the "initial life expectancy") shall be determined on the basis of the
age attained by the Individual, such beneficiary, or both of them on their
birthdays occurring during such year, and the life expectancies for each
subsequent year shall be determined by subtracting from the initial life
expectancies the number of years that have elapsed since such initial year.
Notwithstanding the foregoing, the Individual or, if applicable, the
Individual's surviving spouse may elect to have any of the life expectancies
described in the first sentence of this Paragraph J determined in the manner
described in the second sentence, and the Individual may elect to have the joint
and last survivor life expectancy of the Individual and a beneficiary other than
his surviving spouse redetermined each year in accordance with section
1.401(a)(9)-1, Q&A E-8(b) of the proposed regulations (or any successor
thereto). Any such election shall be made prior to the Individual's required
beginning date (or, in the case of an election by a surviving spouse after the
Individual's death, prior to the date on which distributions are required to
commence under paragraph B) and, after such date, shall be irrevocable. All life
expectancies shall be determined in accordance with tables contained or
referenced in regulations promulgated under section 401(a)(9) of the Code.
K. The provisions of this Article IV shall determine the minimum distributions
required to be made from the Custodial Account. Nothing contained herein shall
be construed to limit the right of the Individual, or of his or her
beneficiaries, to withdraw a larger amount from the Custodial Account than the
minimum distribution required hereunder but amounts withdrawn in any year in
excess of the minimum distribution required for such year shall not reduce the
minimum amount required to be distributed in any subsequent year (except that
any amount distributed in the year in which an Individual attains the age of 70
1/2 shall reduce the amount required to be distributed by April 1 of the
subsequent year under paragraph A).
L. Notwithstanding any provision of this Plan to the contrary, the distribution
of an Individual's interest in the Custodial Account shall be made in accordance
with the minimum distribution requirements of section 408(b)(6) or section
408(b)(3) of the Code and the regulations thereunder, including the incidental
death benefit provisions of section 1.401(a)(9)-2 of the proposed regulations,
all of which are incorporated herein by reference (the "minimum distribution
requirements"). Any ambiguity in the provisions of this Article IV shall be
resolved in a manner consistent with the minimum distribution requirements, and,
if any provision of this Article IV is inconsistent with the minimum
distribution requirements, the minimum distribution requirements shall control.
M. If distributions from the Custodial Account are to be made to the
Individual's surviving spouse, or to a trust of which the Individual's surviving
spouse is the income beneficiary, the amount which the surviving spouse (or such
trust) is entitled to receive in each year shall not be less than the income of
the Custodial Account (or of the portion of the Custodial Account with respect
to which the surviving spouse or such trust is the beneficiary) for such year,
as determined under section 2056(b)(7) of the Code.
N. Whenever distributions after the death of the Individual are to be made to
the Individual's surviving spouse and to one or more beneficiaries other than
the surviving spouse, and any provision of this Article IV or the minimum
distribution requirements provides different treatment for the portion of the
Custodial Account to be distributed to the surviving spouse, then such portion,
and the income earned thereon, shall be separated and treated as a separate
Custodial Account with respect to such surviving spouse.
O. Notwithstanding anything herein to the contrary, all distributions shall be
made by the Custodian in such manner and in such amounts as may be specified in
written instructions received from time to time by the Individual or the
beneficiary, as the case may be and all such instructions shall be deemed to
constitute a certification by the Individual or beneficiary that the
distribution so directed is one that the Individual or beneficiary is permitted
to receive. In addition, the Custodian shall have no liability with respect to
any distribution from the Account in accordance with the directions of the
Individual or beneficiary or the failure to make a distribution in the absence
of such instructions or any consequences thereof including, but not limited to,
excise and other taxes and penalties which might accrue or be assessed, nor
shall the Custodian be under any duty to make any inquiry or investigation with
respect thereto.
<PAGE>
Individual Retirement Plan and Custodial Agreement
V. Administration
Except as otherwise provided in the Plan, the Custodian shall, as directed in
writing, on behalf of the Individual:
(1) Receive contributions pursuant to the provisions of the Plan;
(2) Hold, invest and reinvest the contributions in Fund Shares;
(3) Register any property in the Custodial Account in the name of the custodian
or its nominee; and
(4) Make distributions from the Custodial Account in cash or in Fund Shares
pursuant to the provisions of the Plan.
The Custodian shall deliver or cause to be executed and delivered to the
Individual all notices, prospectuses, financial statements, proxies and proxy
soliciting material relating to assets credited to the custodial account. No
Fund Shares shall be voted, and no other action shall be taken pursuant to such
documents, except upon receipt of adequate written instructions from the
Individual.
The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after the end of each
calendar year, and whenever required by regulations adopted under the Act or the
Code, the Custodian shall file with the Individual a written report of the
Custodian's transactions relating to the Custodial Account during the period
from the last previous accounting, and shall file such other reports with the
Internal Revenue Service as may be required of the Custodian by regulation.
Unless the Individual sends the Custodian written objection to a report within
60 days after its receipt, the Individual shall be deemed to have approved such
report, and in such case the Custodian shall be forever released and discharged
with respect to all matters and things included therein. The Custodian may seek
a judicial settlement of its accounts. In any such proceeding the only necessary
party thereto in addition to the Custodian shall be the Individual unless
otherwise required by law.
The Custodian shall have no duties whatsoever except such duties as are
specifically provided for herein, and no implied covenant or obligation shall be
read into this Agreement against the Custodian. The Custodian shall not be
liable for a mistake in judgment, for any action taken, or any failure to act,
in good faith, or for any loss that is not a result of its gross negligence,
except as expressly required by the Act and regulations promulgated thereunder.
In performing its duties under this Agreement, the Custodian may hire agents,
experts and attorneys and may delegate discretionary powers to, and rely upon
information and advice furnished by, such agents, experts and attorneys.
The Individual agrees to indemnify and hold the Custodian harmless from and
against any liability that the Custodian may incur in the administration of the
Custodial Account, unless arising from the Custodian's own gross negligence or
willful misconduct.
The Custodian shall be under no duty to question any direction of the Individual
with respect to the investment of contributions, or to make suggestions to the
Individual with respect to the investment, retention or disposition of any
contributions or assets held in the Custodial Account.
The Custodian shall pay out of the Custodial Account expenses of administration,
including the fees of counsel employed by the Custodian, taxes, if any, and its
fees for maintaining the Custodial Account, which are set forth in the
Disclosure Statement but may be revised from time to time by the Custodian and
the Trust. The Custodian may sell Fund Shares and use the proceeds of sale to
pay the foregoing fees and expenses.
The Custodian may resign as Custodian of any Individual's Custodial Account or
as Custodian of all accounts adopted under the provisions of this Plan, in
either case upon 30 days' prior notice to the Trust and 30 days' prior notice to
each Individual who will be affected by such resignation. If the Trust or the
Individual does not appoint a successor custodian within 30 days after the
mailing of such notice, the Custodian will terminate the Custodial Account.
The Individual shall be solely and fully responsible for all taxes and penalties
which might accrue or be assessed with respect to any excess contributions,
premature distributions or distributions which are below the annual minimum
distribution required.
The Custodian shall be entitled to receive and may charge against the
Individual's Custodial Account such reasonable compensation for its services in
accordance with its fee schedule as from time to time in effect, and shall also
be entitled to reimbursement of its expenses as Custodian under this Agreement.
The Custodian will notify the Individual in writing of any change in its fee
schedule.
This Agreement and the Custodial Account created hereby shall be subject to the
applicable laws, rules and regulations, as the same may from time to time
<PAGE>
be amended, of the Federal government and the Commonwealth of Massachusetts and
the agencies and instrumentalities of each having jurisdiction thereof, and
shall be governed by and construed, administered and enforced according to the
law of the Commonwealth of Massachusetts. All contributions to the Custodial
Account shall be deemed to take place in the Commonwealth of Massachusetts.
The Custodian and Individual hereby waive and agree to waive right to trial by
jury in an action or proceeding instituted in respect to this Custodial Account.
The Individual further agrees that the venue of any litigation between him and
the Custodian with respect to the Custodial Account shall be in the County of
Suffolk, Commonwealth of Massachusetts.
VI. The Trust
The Individual delegates to the Trust the following powers with respect to the
Plan: (1) to remove the Custodian and select a successor Custodian; and (2) to
amend the Plan with the Custodian's consent as provided in Section VII.
The powers herein delegated to the Trust shall be exercised by such officer
thereof as the Trust may designate from time to time, and shall be exercised
only when similarly exercised with respect to all other Individuals adopting the
Plan.
Neither the Trust nor any officer director, trustee, board, committee, employee
or member of the Trust shall incur any liability of any nature to the Individual
or beneficiary or other person in connection with any act done or omitted to be
done in good faith in the exercise of any power or authority herein delegated to
the Trust.
If the Trust shall hereafter determine that it is no longer desirable for the
Trust to continue to exercise any of the powers hereby delegated to the Trust,
it may relieve itself of any further responsibilities hereunder by notice in
writing to the Individual and the Custodian at least 60 days before the date on
which the Trust proposes to discontinue the exercise of the powers delegated to
it.
VII. Amendment; Termination
The Individual delegates to the Trust and the Custodian the power to amend the
Plan (including retroactive amendment).
The Individual may amend his/her Application (including retroactive amendment)
by submitting to the Custodian (1) a copy of such amended Application, and (2)
evidence satisfactory to the Custodian that the Plan as amended by such amended
Application will continue to qualify as an Individual Retirement Account under
the provisions of section 408 of the Code.
No amendment shall be effective if it would cause or permit (a) any part of the
Custodial Account to be diverted to any purpose that is not for the exclusive
benefit of the Individual and his/her beneficiaries; (b) the Individual to be
deprived of any portion of his/her interest in the Custodial Account, unless
such action is taken in order to satisfy qualification requirements under the
Code; or (c) the imposition of an additional duty on the Custodian without its
written consent.
The Individual reserves the right to terminate his/her adoption of this Plan by
instrument in writing signed by him/her and filed with the Custodian.
VIII. Definitions
Whenever used in this Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided herein:
A. Act. The Employee Retirement Income Security Act of 1974, as amended from
time to time.
B. Application. The Individual Retirement Account Application, constituting an
agreement between the Individual and the Custodian, by which the Individual
adopts the Plan.
C. Code. The Internal Revenue Code of 1986, as amended from time to time.
Reference to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements or
supersedes that section.
D. Compensation. The total compensation received by an Individual during a
period, including wages, salaries, professional fees, or other amounts derived
from or received for personal service actually rendered (including, but not
limited to, commissions paid salesmen, compensation for services on the basis of
a percentage of profits, commissions on insurance premiums, tips and bonuses)
and including earned income, as defined in section 401(c) of the Code (reduced,
in the case of a self-employed individual, by any federal income tax deduction
taken for contributions to a qualified retirement (Keogh) plan). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
"compensation" shall also
<PAGE>
include any amount includible in the Individual's gross income under section 71
of the Code with respect to a divorce or separation instrument described in
section 71(b)(2)(A) of the Code.
E. Custodial Account. The account established for an Individual under the Plan.
F. Custodian. The bank named in the Application.
G. Disability. The inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long continued and indefinite duration.
H. Trust. Acorn Investment Trust, a regulated investment company.
I. Fund Shares. Shares issued by the Trust or shares of any other regulated
investment company for which the Custodian acts as transfer agent and which may
be available hereunder from time to time pursuant to an agreement between the
Custodian and the Trust. No Fund shall be available for investment under the
Plan (i) before the date the prospectus for that Fund discloses its
availability, (ii) with respect to any Participant who resides in any state or
other jurisdiction in which shares of the Fund are not available for sale, or
(iii) with respect to any Participant not eligible to purchase Fund shares
directly, when sales of Fund shares are restricted.
J. Individual. An individual who adopts the Plan as provided therein.
K. Rollover Contribution. A rollover amount or rollover contribution as
described in section 402(a)(5) or 402(a)(7) (as in effect prior to January 1,
1993), 402(c) (effective January 1, 1993), 403(a)(4), 403(b)(8), or 408(d)(3) of
the Code, and regulations promulgated thereunder.
L. Simplified Employee Pension. An Individual Retirement Account with respect to
which the requirements of section 408(k) of the Code are met.
The foregoing Individual Retirement Plan and Custodial Agreement of Acorn
Investment Trust is adopted by the Individual by signing the Individual
Retirement Account Application, which is incorporated herein and made a part
hereof.
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Name: IRA Custodial Account Washington D.C. 20224
FFN: 50127960000-001 Case: 9270228 EIN: 36-7008880
Letter Serial No: D113156a PERSON TO CONTACT:
Mr. Welty
ACORN INVESTMENT TRUST Telephone Number:
(202) 622-8380
227 WEST MONROE STREET
Refer Reply to: E:EP:Q:2
CHICAGO IL 60606
Date: 10/30/92
Dear Applicant:
In our opinion, the form of the prototype trust, custodial account or annuity
contract identified above is acceptable under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408(e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to
the applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter. Please provide those
adopting this plan with your phone number, and advise them to contact your
office if they have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
John Swieca
Chief, Employee Plans
Qualifications Branch
<PAGE>
Acorn Investment Trust
P.O. Box 8502
Boston, MA 02266-8502
IRA/SEP-IRA Application
All sections must be completed. Please type or print clearly.
Use this application to open an Acorn IRA or a SEP-IRA. To transfer your IRA
directly to Acorn from another custodian, you must also complete the Acorn
Investment Trust IRA Transfer Form. There is an acceptance fee of $5.00 per IRA
account. If you have any questions, please call one of our friendly customer
service representatives at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:00 am
to 4:30 pm, Chicago (central) time.
YOUR ACCOUNT REGISTRATION
Social Security Number: [ _ ][ _ ][ _ ][ _ ][ _ ][ _ ][ _ ][ _ ]
(used for tax reporting)
Date of Birth: [ _ ][ _ ][ _ ][ _ ][ _ ][ _ ]
month, day, year
- ---------------------------------------------------
Name (first, middle initial, last)
- ---------------------------------------------------
Street Address and Apartment or P.O. Box
- ---------------------------------------------------
City State Zip Code
( )
- ---------------------------------------------------
Daytime phone, including area code
[_] U.S. Citizen [_] Resident Alien
To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.)
with a social security or tax identification number.
We are required by the National Association of Securities Dealers (NASD) to ask
for the following information:
- ---------------------------------------------------
Your Occupation
- ---------------------------------------------------
Employer
- ---------------------------------------------------
Employer's Address
[_] I am affiliated with or work for a member of the NASD.
CHOOSE YOUR INVESTMENTS
A separate IRA account will be established for each box you check below.
[_] Acorn USA (820) $
----------------
[_] Acorn Fund (90) $
----------------
[_] Acorn International (100) $
----------------
[_] Short Term Income
Money Market Portfolio (104) $
----------------
Acceptance Fee ($5 per fund) $
----------------
TOTAL AMOUNT $
----------------
Make check(s) payable to State Street Bank and Trust Company and write the
appropriate fund name on the check. Please indicate on your check the year for
which the contribution is made.
DUPLICATE STATEMENTS
[_] Send duplicate statements for my account to:
- ---------------------------------------------------
Name (first, middle initial, last)
- ---------------------------------------------------
Street Address and Apartment or P.O. Box
- ---------------------------------------------------
City State Zip Code
TYPE OF IRA SELECT ONLY ONE CATEGORY
[_] Regular IRA Contribution for Tax Year 199_
Check this box if your IRA will be used to make annual contributions up to a
maximum of $2,000 per tax year.
[_] Direct transfer of an existing IRA
Check this box if you wish to authorize Acorn to transfer your existing IRA from
another custodian to Acorn. You must also complete the enclosed IRA Transfer
Form. Check type of IRA:
[_] Regular IRA funded with annual contributions
[_] Rollover IRA originally funded with a distribution from
an employer-sponsored plan
[_] 60-day rollover of an existing IRA
Check this box if you are funding this IRA with money you have withdrawn from an
IRA at another custodian and are reinvesting it at Acorn. Check type of IRA:
[_] Regular IRA funded with annual contributions
[_] Rollover IRA originally funded with a distribution from
an employer-sponsored plan
[_] Rollover IRA from an employer-sponsored
plan
Check this box only if you are funding this IRA with money you accumulated in an
employer's retirement plan which is eligible for rollover. If you combine
Rollover IRA and regular IRA funds in the same account, you will forfeit the
right to reinvest your Rollover IRA funds in another employer's qualified plan
in the future. Combining IRA funds may also have tax implications at
distribution. Check method of funding:
[_] A check payable to State Street Bank is enclosed.
[_] My employer will send a check directly to State Street Bank.
[_] SEP-IRA
Please see your tax advisor for the maximum contribution limits on your
SEP-IRA or SARSEP-IRA.
[_] Regular SEP-IRA Contribution for 199___
[_] Regular Salary Reduction SEP-IRA (SARSEP) Contribution for 199___
[_] 60-Day Rollover
Check this box if you have withdrawn funds from a SEP-IRA at another
custodian and are reinvesting them at Acorn.
[_] Direct Transfer
Check this box to authorize Acorn to transfer your existing SEP-IRA
directly from another custodian. Please complete both this application
and an IRA Transfer Form. Be sure to notify your employer.
(More on the back.)
<PAGE>
IRA/SEP-IRA Application, continued
AUTOMATIC INVESTMENT PLAN
To keep building your investments, you can easily add to your Acorn retirement
accounts by joining the automatic investment plan:
[_] Automatic Investment Plan: to add to your Acorn IRA or
SEP-IRA automatically.
[_] Acorn USA $
--------------------------------
[_] monthly [_] quarterly (check only one box)
[_] Acorn Fund $
--------------------------------
[_] monthly [_] quarterly (check only one box)
[_] Acorn International $
--------------------------------
[_] monthly [_] quarterly (check only one box)
[_] Short Term Income
Money Market Portfolio $
--------------------------------
[_] monthly [_] quarterly (check only one box)
The minimum automatic investment is $100; the annual maximum investment for an
IRA is $2,000. Your automatic investment will be drawn from your bank account on
or about the 15th of the month; quarterly investments are made in January,
April, July, and October. Attach a voided check from your bank checking account
that you will be using.
IRA BENEFICIARY DESIGNATION
Please indicate your beneficiaries here. If you wish to designate additional
beneficiaries, please attach additional instructions providing the necessary
beneficiary information.
- --------------------------------------------------------------------------------
Your Primary Beneficiaries
I hereby designate the person(s) named below as primary beneficiary(ies) to
receive payment of the value of my IRA account upon my death. If any beneficiary
is a trust, please indicate the trust's name and address, the date of the trust,
and the trustee's name.
1
- ----------------------------------------------------------------
Name (first, middle, last):
2
- ---------- ----------------------------------------------------
Share %:* Relationship Date of Birth (month, day, year)
- ----------------------------------------------------------------
Name (first, middle, last):
- ---------- ----------------------------------------------------
Share %:* Relationship Date of Birth (month, day, year)
- --------------------------------------------------------------------------------
Your Contingent Beneficiaries
If no primary beneficiary is living at the time of my death, I hereby specify
that the balance be distributed to my contingent beneficiary(ies) named below.
1
- ----------------------------------------------------------------
Name (first, middle, last):
2
- ---------- ----------------------------------------------------
Share %:* Relationship Date of Birth (month, day, year)
- ----------------------------------------------------------------
Name (first, middle, last):
- ---------- ----------------------------------------------------
Share %:* Relationship Date of Birth (month, day, year)
*Share percentages must be whole, not fractional, numbers, and must add up to
100%. Payment to primary and contingent beneficiaries will be made according to
the rules of succession described in the signature section.
SIGNATURE
Please sign at the end of this section. We must have a signature to open the
account.
By signing this application I certify that:
. I understand that the annual IRA maintenance fee of $10 per fund account will
be separately billed or collected by redeeming sufficient shares from each
fund account balance.
. A $10 fee will apply for each disbursement other than an automatic
installment payment.
. Acorn may change the fee schedule from time to time, as provided in the
Custodial Agreement. Acceptance will be evidenced by a Letter of Acceptance
sent by or on behalf of Acorn and State Street Bank and Trust Company.
. I understand that if more than one beneficiary is named and no percentages
are indicated, payment shall be made in equal shares to my primary
beneficiary(ies) who survives me. If a percentage is indicated and a primary
beneficiary(ies) does not survive me, the percentage of that beneficiary's
designated share shall be divided equally among the surviving primary
beneficiary(ies).
. I understand that if I choose not to designate any beneficiary(ies), my
beneficiary will be my estate (unless state law requires otherwise). I am
aware that my beneficiary designation becomes effective when delivered to
Acorn and will remain in effect until I deliver to Acorn another beneficiary
designation with a later date.
. I understand that the beneficiary information provided herein will apply to
all Acorn IRAs for which State Street Bank and Trust Company (SSB&T) (or its
affiliate and/or any successor custodian appointed pursuant to the terms of
such IRAs) acts as custodian, including regular IRAs, SEP-IRAs, and Rollover
IRAs, and will replace all previous designation(s) I have made on any of my
Acorn IRA accounts.
. I hereby adopt the Acorn IRA, appointing SSB&T as Custodian and as agent to
perform administrative services. Although SSB&T is a bank, I recognize that
neither Acorn Investment Trust nor any mutual fund in which this IRA may be
invested is a bank, and that mutual fund shares are not backed or guaranteed
by any bank or insured by the FDIC. This agreement shall be construed,
administered and enforced according to the laws of the Commonwealth of
Massachusetts, except as superseded by federal law or statute.
. I further certify that I have, or my employer has, completed and executed
Form 5305-SEP or Form 5305A-SEP and furnished to employees all materials
required by applicable Department of Labor regulations. I further certify if
my employer has adopted a Salary Reduction SEP, that I have entered into a
salary reduction agreement.
. I have received and read the prospectus for the fund(s) in which I am making
a contribution, and have read and understand the IRA Custodial Agreement and
Disclosure Statement. I hereby certify under penalties of perjury that my
Social Security Number is correct and that I am of legal age to enter into
this agreement.
. By signing below, I hereby consent to the terms of the Acorn IRA and name the
beneficiary(ies) I have designated in the application.
X
- ------------------------------------ --------------------
Signature Date
HOW DID YOU HEAR ABOUT US?
[_] press mention (specify) [_] advertising (specify)
----------------------- ----------------------
[_] referred by friend/adviser [_] other ________________
[_] I am a current Acorn shareholder
Send this form to State Street Bank and Trust Company in the enclosed postage-
paid envelope or to the address on the reverse side.
<PAGE>
Acorn Investment Trust
P.O. Box 8502
Boston, MA 02266-8502
IRA/SEP-IRA Transfer Form
All sections must be completed. Please type or print clearly.
Use this form to authorize Acorn to transfer your IRA or SEP-IRA directly from
another IRA Custodian and invest it at Acorn. Please read the instructions on
the back of this form before completing the Transfer Form. If you have any
questions, please call one of our friendly customer service representatives at
1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:00 am to 4:30 pm, Chicago
(central) time.
ACCOUNT OWNERSHIP
Social Security Number: [_][_][_] [_][_] [_][_][_][_]
(used for tax reporting)
Date of Birth:
month, day, year [_][_] [_][_] [_][_]
__________________________________________________________
Name (first, middle initial, last)
__________________________________________________________
Street Address and Apartment or P.O. Box
__________________________________________________________
City State Zip Code
(_____)___________________________________________________
Daytime phone, including area code
TYPE OF IRA ACCOUNT
[_] REGULAR IRA [_] SEP-IRA
[_] ROLLOVER IRA*
*Check this box ONLY if you are transferring an IRA representing a previous
rollover from an employer-sponsored retirement plan. (See explanation on the
other side, "IRA Transfer Checklist".)
CURRENT IRA CUSTODIAN/TRUSTEE
MY IRA IS CURRENTLY INVESTED IN:
[_] Mutual fund name
[_] CD/Date of Maturity (month-day-year)
[_] Transfer the proceeds to my Acorn IRA at maturity. (Send us this
Transfer Form at least three weeks prior to maturity. If the CD matures
in less than three weeks, call 1-800-9-ACORN-9 (1-800-922-6769) for our
overnight delivery address.)
[_] Liquidate the CD immediately and transfer the proceeds to my Acorn IRA.
(If you liquidate a CD prior to maturity, you may incur a penalty.)
[_] Other (Specify) _____________________
MY IRA IS CURRENTLY HELD AT: (Please call your current custodian for the correct
address. If this information is not provided, it could significantly delay your
transfer.)
__________________________________________________________
Name of Present Custodian
__________________________________________________________
Name of individual or department responsible for transfers
__________________________________________________________
Address of Present Custodian
__________________________________________________________
City State Zip Code
__________________________________________________________
Telephone Number Account Number
of Transferor Custodian (Please attach a copy of
your most recent statement)
INVESTING YOUR IRA TRANSFER
A. Please check one of the following:
[_] I am opening a new Acorn IRA and am attaching my
completed IRA application.
[_] I already own an Acorn IRA into which I am making this transfer.
B. Please list the name(s) of the fund(s) into which the transfer proceeds are
to be deposited.
[_] ACORN USA $__________________
Fund Account # (if existing) __________________
[_] ACORN FUND $__________________
Fund Account # (if existing) __________________
[_] ACORN INTERNATIONAL $__________________
Fund Account # (if existing) __________________
[_] SHORT TERM INCOME
Money Market Portfolio $__________________
Fund Account # (if existing) __________________
TOTAL INVESTMENT $__________________
If you do not indicate a fund choice, your transfer proceeds will be invested in
the Short Term Income Fund, a money market fund.
AUTHORIZATION TO TRANSFER YOUR IRA
Check only one of the following:
[_] Please liquidate and transfer in cash the IRA account listed
at left.
[_] Please liquidate and transfer $________ of the assets in the IRA account
listed at left to my IRA.
[_] Please transfer in-kind my ____Acorn Fund ____Acorn USA ____Acorn
International shares listed at left to an IRA with Acorn (see explanation on
other side, "IRA Transfer Checklist")
AND:
[_] liquidate and transfer in cash all other assets in the IRA account
listed at left that are not currently invested in the Acorn funds.
[_] liquidate and transfer $________ of the other assets in the IRA account
listed at left.
[_] do not liquidate or transfer any assets in the IRA account listed at
left other than those invested in the Acorn funds.
(More on the back.)
<PAGE>
Acorn Investment Trust
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502
IRA (9/96)
IRA/SEP-IRA Transfer Form, continued
YOUR SIGNATURE
I have received and read the prospectus for the fund(s) in which I am making my
investment. If I am over 70 1/2, I attest that none of the amount to be
transferred will include the required minimum distribution for the current year
pursuant to Section 401(a)(9) of the Internal Revenue Code. If I have indicated
an IRA Transfer which is different from the IRA I currently maintain (e.g.,
Regular IRA versus Rollover IRA), I hereby establish a new IRA, the terms of
which shall be identical with the terms of the agreement for the Acorn IRA
previously established.
________________________________________________________________________________
Your Signature Date (month, day, year)
Signature Guarantee: Please call the custodian or other institution you are
transferring from to see if a signature guarantee or other documentation is
required.
________________________________________________________________________________
Name of Bank or Firm Providing Signature Guarantee Signature of Officer and
Title (Be sure to
stamp Signature
Guarantee)
HOW TO TRANSFER YOUR IRA FROM ANOTHER INSTITUTION TO ACORN
1. Carefully read the prospectus of the Acorn fund you have selected.
2. Complete this Transfer Form to authorize Acorn to request your IRA funds
directly from another institution. You can make an unlimited number of direct
transfers without any tax implications.
3. If you do not already own an Acorn IRA, you must also complete the Acorn IRA
Application and check the "Direct Transfer" box.
4. Mail your Transfer Form and Application (if you are opening a new Acorn IRA)
in the enclosed postage-paid envelope or to State Street Bank and Trust
Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-
8502.
IRA TRANSFER CHECKLIST
X If you combine Rollover IRA and regular IRA funds in the same account, you
will forfeit the right to reinvest your Rollover IRA funds in another
employer's qualified plan in the future. Combining IRA funds may also have
tax implications at distribution.
X This Transfer Form cannot be used to transfer individual stocks (except
shares of one of the Acorn funds) or bonds in kind. Instead, you must check
the box for liquidation and cash transfer of those investments.
X If you currently hold Acorn shares in an IRA with another custodian, and you
wish to transfer those shares directly to Acorn and avoid liquidating the
shares prior to transfer, please check the box for a transfer "in-kind."
X Be sure you check with your present IRA custodian to see if a signature
guarantee or other documentation is required.
X If possible, identify the individual or department responsible for transfers
at your present IRA custodian and provide this information where requested on
this form. This can help speed up the transfer process.
X If you are DIRECTLY rolling over a distribution from an employer-sponsored
retirement plan into an Acorn Rollover IRA, please do not use this form.
Simply check the correct box on the IRA APPLICATION and send it to State
Street Bank and Trust Company at the indicated address.
ACORN WILL COMPLETE THIS SECTION
LETTER OF ACCEPTANCE AND INSTRUCTIONS FOR TRANSFER
TO AN ACORN IRA ACCOUNT
To Transferor Custodian: State Street Bank and Trust Company (and/or any
successor custodian appointed pursuant to the terms of the Acorn IRA) will
accept the transfer described above. Please transfer on a fiduciary-to-fiduciary
basis all or part of the designated account as instructed on the other side, and
make check payable and mail to the custodian, State Street Bank and Trust
Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-
8502.
ALSO INCLUDE THE FOLLOWING INFORMATION ON THE CHECK:
________________ _____________
Reference Number FBO
___________________________________ _____________
Authorized Acorn Signature Date
SEND THIS FORM TO STATE STREET BANK AND TRUST COMPANY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE OR TO THE ADDRESS ON THE REVERSE SIDE.
<PAGE>
Exhibit 14.2
Dear Investor:
Thank you for your interest in the Acorn Funds. The documents contained in this
packet may be used to establish a Salary Incentive Match Plan IRA, also known as
a SIMPLE-IRA. SIMPLE-IRAs are a new type of individual retirement account that
became available for the first time in 1997. A SIMPLE-IRA plan must be
established by an employer (including a self-employed person), and it enables
all eligible employees of the employer to elect to have up to $6,000 per year
deducted from their paychecks on a before-tax basis and deposited directly into
a SIMPLE-IRA maintained for the individual employee. The employer is also
generally required to make contributions, as described in more detail below.
Because of the differences between a SIMPLE-IRA and other types of IRAs, the
forms contained in the regular Acorn Funds IRA booklet cannot be used to
establish a SIMPLE-IRA. Instead, you must use the forms contained in this
packet. However, the Disclosure Statement contained in the regular IRA booklet
includes important information that also applies to a SIMPLE-IRA. You should
carefully review the Disclosure Statement included in the Acorn Funds IRA
Booklet, before using the forms in this booklet to establish a SIMPLE-IRA.
Whether you are opening a new SIMPLE-IRA, making your annual SIMPLE-IRA
contribution, or moving an existing SIMPLE-IRA from another institution, Acorn
can help you save for your retirement. This booklet (plus the Disclosure
Statement in the regular IRA booklet) contains everything you need to open a
SIMPLE-IRA at Acorn. Please take a moment to read it carefully. If you have any
questions or need help with any of the forms, please call us at 1-800-962-1585.
We invite you to squirrel away your acorns for a day when you really need them,
and look forward to a long and mutually rewarding relationship with you.
Very truly yours,
Ralph Wanger
President
<PAGE>
General Information about SIMPLE-Individual Retirement Accounts
What is a SIMPLE-IRA?
SIMPLE-IRAs are a new type of individual retirement account that became
available for the first time in 1997. A SIMPLE-IRA is a special type of IRA,
and is generally subject to the same rules that apply to all IRAs. However, as
an individual you cannot make contributions directly to a SIMPLE-IRA (except for
rollovers as described below). Instead, your employer must establish a SIMPLE-
IRA plan, and make contributions to your SIMPLE-IRA on your behalf. As
discussed below, an employer can generally establish a SIMPLE-IRA plan in any
year in which it has no more than 100 eligible employees and does not maintain
any other tax-qualified pension or profit-sharing plan (other than a frozen
plan).
If your employer establishes a SIMPLE-IRA plan and you are an eligible
employee, you can elect to have up to $6,000 of your compensation in any year
withheld and deposited in a SIMPLE-IRA on your behalf. Amounts that you elect
to have deposited in your SIMPLE-IRA are not subject to federal income tax until
you withdraw them (although they are subject to Social Security tax). In
addition to the amount that you elect to have deposited in your SIMPLE-IRA, your
employer must generally make an additional contribution to match the amount that
you have withheld, up to a maximum of 3% of your compensation. The employer may
elect to lower the maximum matching contribution to as low as 1% in some years,
but may not lower the maximum match in more than two years out of every five.
The employer may also elect to make a contribution equal to 2% of compensation
for all eligible employees in any year instead of making matching contributions.
All employees who have been paid at least $5,000 in two prior years and expect
to be paid $5,000 in the current year must be eligible to participate (excluding
nonresident aliens and union workers whose collective bargaining agreement does
not provide for them to participate). The employer may also allow other
employees to participate.
Although SIMPLE-IRAs can only be established under a plan set up by an
employer, each participating employee is the owner of his or her own SIMPLE-IRA
account. All amounts deposited in your SIMPLE-IRA account are fully vested, and
can be withdrawn at any time, as with any other type of IRA. However, amounts
withdrawn are subject to tax, and tax penalties may also apply to amounts
withdrawn before you reach the age of 59 1/2, as described in the Disclosure
Statement.
SIMPLE-IRA plans can generally be set up by an employer in any year in
which it has not more than 100 employees who earned at least $5,000 in
compensation in the prior year. However, in order to maintain a SIMPLE-IRA
plan, the employer must not make any contributions to, or accrue any additional
benefits under, any other tax qualified plan, including SEP-IRAs, tax sheltered
annuities (403(b) plans), and governmental plans. In addition to traditional
employers, self-employed persons and sole proprietors, nonprofit organizations,
and government agencies, may establish SIMPLE-IRA plans if they otherwise
qualify. In determining whether an employer has more than 100 employees, the
employees of certain employers under common ownership must be combined. An
employer that establishes a
<PAGE>
SIMPLE-IRA plan when it has no more than 100 employees can continue to maintain
it for two years after the number of its employees increases to more than 100.
Setting Up a SIMPLE-IRA Plan
It is important to keep in mind the distinction between a SIMPLE-IRA plan
and SIMPLE-IRA accounts. A SIMPLE-IRA plan is a written document established by
an employer that specifies which employees are eligible to make contributions to
SIMPLE-IRAs. SIMPLE-IRA accounts are the separate accounts established by each
participating employee to hold and invest the contributions made on their
behalf. An employer that wishes to establish a SIMPLE-IRA plan can use Form
5304-SIMPLE, which has been issued by the IRS for this purpose. Use of this
forms is not mandatory, and an employer can also use a customized plan document.
(The IRS has also issued Form 5305-SIMPLE, but this form can only be used if all
employees are required to initially deposit their SIMPLE-IRA contributions with
the same designated financial institution.)
This booklet includes a Form 5304-SIMPLE that can be used by an employer
that wishes to establish a SIMPLE-IRA plan. The employer will need to complete
this Form to determine which employees will be eligible to participate, and how
often employees will be able to make and change withholding elections. After
completing the Form 5304-SIMPLE, the employer should execute the Form and retain
it in its files. In addition, as discussed below, copies must be furnished to
each eligible employee. Do not file Form 5304-SIMPLE with the IRS.
Once the employer has established a SIMPLE-IRA plan, it must notify all
eligible employees of their right to elect to have a portion of their
compensation deferred under the plan. Each employee must be permitted to make a
deferral election at least during the 60 day period immediately preceding the
first day of the year (i.e., during the period from November 2 through December
31 of the preceding year.) However, if the employer establishes the plan later
in the year, the 60 day period can precede the effective date of the plan. The
employer may permit longer or more frequent election periods if it wishes to do
so, but the 60 day election period prior to the beginning of the year is
required.
The employer must notify each employee of his or her right to make a
deferral election immediately prior to the beginning of the required 60 day
election period, and must also given each eligible employee a summary
description of the plan. A model notice that can be given to each eligible
employee is included with the materials immediately following Form 5304-SIMPLE,
and the summary description requirement can be satisfied by attaching a copy of
the completed Form 5304-SIMPLE to the notice. This notice and summary
description must be given each year, NOT just in the first year in which the
plan is established.
In addition, an employer that establishes a SIMPLE-IRA plan must also
furnish all participating employees with information regarding the procedures
for withdrawing funds from their SIMPLE-IRA accounts, and the consequences of
such withdrawals. Acorn will furnish this information directly to the
participating employees who establish their SIMPLE-IRA accounts with Acorn.
2
<PAGE>
Establishing a SIMPLE-IRA Account
Although the employer establishes the SIMPLE-IRA plan, each participating
employee must establish his or her own SIMPLE-IRA account to hold the
contributions under the plan. Each employee is the absolute owner of his or her
own account, and has the right to make withdrawals at any time. Enclosed with
these materials are a copy of the Acorn Funds SIMPLE-IRA Account Agreement,
which is used to establish an Acorn Funds SIMPLE-IRA. The Acorn Funds SIMPLE-
IRA Account Agreement is in the form of IRS Form 5305-SA, which is automatically
deemed acceptable by the Internal Revenue Service. The approval by the IRS
relates only to the form of the account and not to the merits of using the
account as a retirement plan.
In order to establish an Acorn Funds SIMPLE-IRA, a participant must
complete the Acorn Funds SIMPLE-IRA Application Form, which is included with
these materials, and forward it to Acorn. The Application Form must also be
signed by the employer who establishes the SIMPLE-IRA plan. The employer also
must be notified to send all contributions made on behalf of the participant to
Acorn. The employer should furnish the employee with the necessary forms to
accomplish this notification.
Moving funds from another SIMPLE-IRA to an Acorn SIMPLE-IRA
Acorn can help you to move funds from other SIMPLE-IRA custodians. This
can be done in two ways: a custodian to custodian (or trustee to trustee)
transfer (also known as a direct transfer), or a 60-day rollover of money you
have withdrawn from another SIMPLE-IRA. Each method is explained below.
Only funds from another SIMPLE-IRA can be transferred to an Acorn SIMPLE-
IRA. Rollovers and direct transfers can NOT be made from any type of IRA other
than another SIMPLE-IRA, or from a qualified plan or tax-deferred annuity.
However, if you have funds in another SIMPLE-IRA and have participated in
the SIMPLE-IRA plan for at least two years, you can roll those funds over into a
regular IRA, and don't have to roll them into a SIMPLE-IRA (unless you plan to
make additional SIMPLE-IRA contributions in the future.) For more information
on permissible rollovers and direct transfers, see the Disclosure Statement.
Direct Transfer
Acorn will arrange a direct transfer of assets from your current SIMPLE-IRA
custodian or trustee directly to Acorn. In a direct transfer you do not receive
the account proceeds during the transfer process. Your money goes directly from
your old SIMPLE-IRA custodian to Acorn. You may make direct transfers between
SIMPLE-IRAs as often as you choose.
If you would like the transferred money to go into a new Acorn SIMPLE-IRA,
complete both the transfer form, checking the box for a new Acorn SIMPLE-IRA,
and the application,
3
<PAGE>
checking the box for a Direct Transfer. If the transferred money is to be
invested in an existing Acorn SIMPLE-IRA, complete only the transfer form.
The transfer form tells us about the SIMPLE-IRA assets you are transferring
and provides information about your current custodian. This information should
be on your most recent account statement. Complete the instructions authorizing
your current custodian to transfer your account to Acorn and sign the transfer
form. Please check with your present custodian to find out whether you will need
to obtain a signature guarantee.
Send the completed form(s) to Acorn in the envelope provided or to the
address shown on the application. Acorn will arrange for the transfer of assets
from your present custodian.
60-day Rollover from another SIMPLE-IRA
If you physically receive money that was held in your SIMPLE-IRA with
another custodian, you must deposit the money into an IRA within 60 days to
avoid paying income tax. If this is not done within the 60-day time limit, you
will have to pay income tax on the amount you have received, as well as possible
penalties if you are under the age of 59 when you receive the money. You may
make only one 60-day rollover per IRA in any twelve-month period.
To establish a rollover account with money you have withdrawn from another
SIMPLE-IRA, complete the Acorn SIMPLE-IRA application, checking the box for a
60-day rollover of an existing SIMPLE-IRA. Be sure that you forward your check
in time for the funds to be received by State Street Bank no later than 60 days
from the date on which the distribution from your SIMPLE-IRA was made.
Account Fees
State Street Bank, as custodian, charges the following fees for an Acorn
SIMPLE-IRA, per fund account:
<TABLE>
<S> <C>
Initial set-up fee $ 5.00
Annual maintenance fee $10.00
Disbursement fee $10.00
(per withdrawal, except for automatic installment payments)
</TABLE>
The $5.00 per fund set-up fee will be deducted from your initial IRA
contribution; to maximize the contribution that goes to work for you, add $5.00
for each fund in which your initial contribution will be invested to your
contribution (or send us a separate check for the set-up fee). Acorn will also
withdraw the annual maintenance fee(s) from your account(s) unless you send a
check for those fee(s) when you receive Acorn's annual fee statement in
November. If the disbursement fee applies, Acorn will deduct the $10.00 from
each withdrawal.
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Minimum Investments through 4/30/97 beginning 5/1/97
<S> <C> <C>
To open an IRA $200 $1,000
To add to an IRA account 100 100
- --------------------------------------------------------------------------------
</TABLE>
Making an active and worry-free retirement possible means taking the time
now to plan for your financial future. We hope that this booklet has been
helpful and that you will make an Acorn SIMPLE-IRA part of your retirement plan.
5
<PAGE>
Form 5305-SA
(December 1996)
Department of the Treasury
Internal Revenue Service
Acorn Investment Trust
Custodial Agreement for a SIMPLE-IRA Account
(Under Sections 408(a) and 408(p) of the Internal Revenue Code)
(January 1, 1997)
Article I
The Custodian will accept cash contributions on behalf of the Participant
by the Participant's employer under the terms of a SIMPLE plan described in
408(p). In addition, the Custodian will accept transfers or rollovers from
other SIMPLE IRAs of the Participant. No other contributions will be accepted
by the Custodian.
Article II
The Participant's interest in the balance in the Custodial Account is
nonforfeitable.
Article III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the Custodial Account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold and silver coins and
coins issued under the laws of any state.
Article IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Participant's interest in the Custodial Account shall be
made in accordance with the following requirements and shall otherwise comply
with section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section 1.401(a)(9)-
2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Participant under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the
Participant and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
6
<PAGE>
3. The Participant's entire interest in the Custodial Account must be, or
begin to be, distributed by the Participant's required beginning date (April 1
following the calendar year end in which the Participant reaches age 70 1/2).
By that date, the Participant may elect, in a manner acceptable to the
Custodian, to have the balance in the Custodial Account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Participant.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last survivor lives of
the Participant and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Participant's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy of the
Participant and his or her designated beneficiary.
4. If the Participant dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be distributed as
follows:
(a) If the Participant dies on or after distribution of his or her
interest has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Participant dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the Participant
or, if the Participant has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by December 31 of the year containing the fifth
anniversary of the Participant's death, or
(ii) Be distributed in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Participant's death. If, however, the beneficiary is the
Participant's surviving spouse, then this distribution is not required
to begin before December 31 of the year in which the Participant would
have reached age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Participant's
required beginning date, even though payments may actually have been made before
that date.
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(d) If the Participant dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in the
account.
5. In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Participant's entire Interest in the Custodial Account as
of the close of business on December 31 of the preceding year by the life
expectancy of the Participant (or the joint life and last survivor expectancy of
the Participant and the Participant's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies). In the case of
distributions under paragraph 3, determine the initial life expectancy (or joint
life and last survivor expectancy) using the attained ages of the Participant
and designated beneficiary as of their birthdays in the year the Participant
reaches age 70 1/2. In the case of a distribution in accordance with paragraph
4(b)(ii), determine life expectancy using the attained age of the designated
beneficiary as of the beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
Article V
1. The Participant agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under sections
408(i) and 408(l)(2) and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Participant prescribed by the Internal Revenue Service.
3. The Custodian also agrees to provide the Participant's employer the
summary description described in section 408(l)(2) unless this SIMPLE IRA is a
transfer SIMPLE IRA.
Article VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and 408(p) and
related regulations will be invalid.
Article VII
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear below.
8
<PAGE>
Article VIII
1. Form of Contributions. All contributions and transfers shall be made
only in cash.
2. Investment of Contributions.
(a) As directed by the Participant in writing, all contributions shall be
used by the Custodian to purchase Fund Shares. All income dividends and capital
gains distributions shall be reinvested in shares of the Fund which declared
such dividends or distributions unless the Participant elects in writing, in
accordance with an opportunity to do so provided by the Fund declaring the
dividend or distribution, to apply such dividend or distribution to purchase
other Fund Shares available under this Agreement.
(b) A Telephone Exchange Plan ("Exchange Plan"), as described in the
prospectus(es) of the Funds is available hereunder. After the Custodian receives
an Exchange Plan authorization deemed by the Custodian to be in proper form, the
Custodian, upon receipt of telephonic instructions from any person representing
himself to be the Participant, may redeem any Fund Shares held by the Custodian
on behalf of the Participant and apply the proceeds toward the purchase of any
other Fund Shares available hereunder, subject to and in accordance with the
terms and conditions of the Exchange Plan. The Custodian shall be entitled to
rely and act upon such telephonic instructions, and neither the Custodian, the
Trust, any other Fund whose shares are available hereunder nor their officers,
trustees, directors, employees or agents shall be liable for any liability, cost
or expense for acting on any such instructions. In directing any exchange
pursuant to the Exchange Plan, the Participant represents that he has obtained a
current prospectus of the Fund into which the switch is to be made. The
Participant authorizes and directs the Custodian to respond to any telephonic
inquiries relating to the status of shares owned, including but not limited to
the number of shares held. The Participant agrees that the authorizations,
directions and restrictions contained herein will continue until the Custodian
receives written notice of any change or revocation. The Participant agrees and
understands that the Funds and the Custodian reserve the right to refuse any
telephonic instructions.
(c) All Fund Shares acquired by the Custodian shall be registered in the
name of the Custodian or its nominee.
3. Beneficiaries; Distributions to Minors.
(a) A Participant shall have the right by written notice to the Custodian
to designate one or more beneficiaries to receive any amount to which the
Participant may be entitled in the event of his death before the complete
distribution of his interest, and to change any such beneficiary. Such
designation or change shall be on the Beneficiary Form provided by the Trust,
and shall be effective only when filed with the Custodian before the death of
the Participant. Such designation may include contingent or successive
beneficiaries. If no such designation is in effect on a Participant's death, or
if no designated beneficiary is living on the date any payment becomes due after
the Participant's death, such payment shall be made to the executor or
administrator of the Participant's estate. However, if after the Participant's
death, his surviving
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<PAGE>
spouse is receiving payments over a specified period, the surviving spouse may
designate a beneficiary to receive the balance of the Custodial Account, if any,
on his or her death in accordance with the foregoing rules.
(b) If any person to whom all or a portion of the Participant's interest
is payable is a minor, payment of the minor's interest shall be made on behalf
of the minor to the person designated by the Participant in the Beneficiary Form
to receive the minor's interest as custodian under the Massachusetts Uniform
Transfers to Minors Act or similar statute. If any person to whom all or a
portion of the Participant's interest is payable is a minor and if either the
Participant has not so designated a person to receive the minor's interest as
such custodian, or the person so designated is unable to act (because of
incapacity, failing or declining to act, death or otherwise), the Custodian
shall:
(i) Distribute the interest to the legal guardian of such minor; or
(ii) If no guardian has been appointed, designate an adult member of the
minor's family, a guardian or a trust company (including the
Custodian), as those terms are defined in the Massachusetts Uniform
Transfers to Minors Act or similar statute, as custodian for such
minor under the Massachusetts Uniform Transfers to Minors Act or
similar statute and distribute such minor's interest to the person so
designated. The person designated as custodian under the Massachusetts
Uniform Transfers to Minors Act or similar statute shall hold, manage
and distribute such property in accordance with the provisions of such
statute including, if such statute so requires, a total distribution
prior to age 21. The distribution of the Participant's interest to
the guardian or the person designated as custodian under the
Massachusetts Uniform Transfers to Minors Act or similar statute shall
be a full discharge of the Custodian to the extent of the distribution
so made.
(c) The determination of the Custodian as to the person entitled to
receive any distribution from the Custodial Account following the death of the
Participant, if made in good faith, shall be conclusive and binding on all
persons claiming an interest in the Participant Account; provided that nothing
provided herein shall be construed to preclude the Custodian from filing an
action in the nature of interpleader or other appropriate proceeding in a court
of competent jurisdiction to determine the person entitled to receive such
distribution. Any expenses incurred by the Custodian in determining the person
entitled to receive a distribution from the Custodial Account, including without
limitation attorneys fees in any such action, shall be reimbursed from the
Custodial Account.
4. Inalienability of Benefits. The benefits provided hereunder shall not
be subject to alienation, assignment, garnishment, attachment, execution or levy
of any kind of any attempt to cause such benefits to be so subjected shall not
be recognized except to the extent as may be required by law.
5. Distributions to Surviving Spouse. If distributions from the Custodial
Account are to be made to the Participant's surviving spouse, or to a trust of
which the Participant's surviving spouse is the income beneficiary, the amount
which the surviving spouse (or such
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<PAGE>
trust) is entitled to receive in each year shall not be less than the income of
the Custodial Account (or of the portion of the Custodial Account with respect
to which the surviving spouse or such trust is the beneficiary) for such year,
as determined under section 2056(b)(7) of the Code.
6. Minimum Distributions; Election not to Recalculate Life Expectancies.
The following provisions supplement the provisions of Article IV with respect to
minimum required distributions, and shall control over the provisions of Article
IV in the event of any inconsistency. All paragraph references in this
paragraph 6 are to paragraphs of Article IV unless otherwise provided.
(a) If the Participant fails to withdraw the entire balance in the
Custodial Account by the April 1 of the year following the year in which he
attains age 70 1/2, he shall be deemed to have elected to receive payments under
paragraph 3(d) or, if he has a designated beneficiary (as determined under Part
D of Proposed Regulations section 1.401(a)(9)-1) under paragraph 3(e). A
beneficiary shall be deemed to have elected the method described in paragraph
4(b)(ii) if either he withdraws the minimum amount required for the first year
under the method described in paragraph 4(b)(ii) and does not specifically elect
the method described in paragraph 4(b)(i) by the end of such year, or if the
date specified in paragraph 4(b)(i) occurs first and he has not withdrawn the
entire balance in the Custodial Account by that time; otherwise, the beneficiary
shall be deemed to have elected the method described in paragraph 4(b)(i).
(b) If there is more than one beneficiary entitled to receive
distributions on equal priority upon the death of the Participant or a prior
beneficiary then, to the extent permitted by Proposed Regulations section
1.401(a)(9)-1, Q&A H-2, and subject to such requirements and limitations as the
Custodian may establish, the Custodial Account may be divided into separate
accounts for purposes of Article IV and this paragraph. Whenever distributions
after the death of the Participant are to be made to the Participant's surviving
spouse and to one or more beneficiaries other than the surviving spouse, and any
provision of Article IV, this paragraph 6, or the minimum distribution
requirements provides different treatment for the portion of the Custodial
Account to be distributed to the surviving spouse, then such portion, and the
income earned thereon, shall be separated and treated as a separate Custodial
Account with respect to such surviving spouse.
(c) Notwithstanding the references to "equal or substantially equal"
payments, if the Participant or a beneficiary is receiving distributions under
paragraph 3(d), 3(e), or 4(b)(ii), he may withdraw amounts that exceed the
minimum amount required by paragraph 5 in any year, provided that any excess
shall not be credited against the minimum amount required to be withdrawn in
subsequent years. Withdrawals may also be made at irregular intervals, provided
that the minimum amount required for each year shall be withdrawn by the last
day of such year, except that the minimum amount for the year in which the
Participant attains age 70 1/2, but no subsequent year, may be withdrawn by
April 1 of the following year.
(d) In lieu of the methods of recalculating life expectancies annually as
specified in paragraph 2, the Participant may elect for purposes of paragraph
3(c) or 3(d), and the Participant's surviving spouse may elect for purposes of
paragraph 4(b)(ii), to have his life
11
<PAGE>
expectancy, or his and his designated beneficiary's joint and last survivor life
expectancy, or the surviving spouse's life expectancy, initially calculated in
the year specified in paragraph 5 and thereafter reduced by one year in each
subsequent year. All elections described in this paragraph 6(d) shall be made in
writing in accordance with procedures established by the Custodian and the
Proposed Regulations or successors thereto. Such elections must be made and, if
made, shall be irrevocable after the date upon which distributions are required
to commence under paragraph 3 or 4(b)(ii).
(e) All references to the Proposed Regulations section 1.401(a)(9)-1 and
1.401(a)(9)-2 contained in Article IV and this paragraph 6 include the
applicable provisions of Proposed Regulations section 1.408-8 applying such
Proposed Regulations to individual retirement accounts, any subsequent
amendments to any such Proposed Regulations, and the applicable provisions of
the permanent Regulations, when issued, all of which are incorporated by
reference and shall control over any contrary provision of this Agreement.
Reference to specific provisions of the Proposed Regulations shall not be
construed to limit reference to other provisions where appropriate in the
interpretation of Article IV and this paragraph 6.
(f) For all purposes of Article IV and this paragraph 6, life expectancy
and joint-life and last-survivor expectancy are calculated based on information
provided by the Participant (or the Participant's authorized agent, beneficiary,
executor, or administrator) using the expected return multiples under Treasury
Regulations Section 1.72-9. The Custodian will not be liable for errors in such
calculations resulting from its reliance on such information.
(g) Notwithstanding anything herein to the contrary, all distributions
shall be made by the Custodian in such manner and in such amounts as may be
specified in written instructions received from time to time by the Participant
or the beneficiary, as the case may be and all such instructions shall be deemed
to constitute a certification by the Participant or beneficiary that the
distribution so directed is one that the Participant or beneficiary is permitted
to receive. In addition, the Custodian shall have no liability with respect to
any distribution from the Account in accordance with the directions of the
Participant or beneficiary or the failure to make a distribution in the absence
of such instructions or any consequences thereof including, but not limited to,
excise and other taxes and penalties which might accrue or be assessed, nor
shall the Custodian be under any duty to make any inquiry or investigation with
respect thereto. If any assets held on the Participant's behalf in a Custodial
Account are transferred directly to a trustee or Custodian of another individual
retirement account described in Code Section 408(a) established for the
Participant, it shall be the Participant's responsibility to ensure that any
requested minimum distribution required by Article IV is made prior to giving
the Custodian such transfer instructions.
(h) Any annuity contract purchased for the Participant pursuant to this
Agreement shall be immediately distributed to the Participant, and the custodial
relationship shall terminate upon such distribution.
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<PAGE>
7. Administration.
(a) Except as otherwise provided in this Agreement, the Custodian shall,
as directed in writing, on behalf of the Participant:
(i) Receive contributions pursuant to the provisions of the Agreement;
(ii) Hold, invest and reinvest the contributions in Fund Shares;
(iii)Register any property in the Custodial Account in the name of the
custodian or its nominee; and
(iv) Make distributions from the Custodial Account in cash or in Fund
Shares pursuant to the provisions of this Agreement.
(b) In addition to the provisions of Article V, the Custodian shall
deliver or cause to be executed and delivered to the Participant all notices,
prospectuses, financial statements, proxies and proxy soliciting material
relating to assets credited to the custodial account. No Fund Shares shall be
voted, and no other action shall be taken pursuant to such documents, except
upon receipt of adequate written instructions from the Participant.
(c) The Custodian shall keep accurate and detailed account of its
receipts, investments and disbursements. As soon as practicable after the end of
each calendar year, and whenever required by regulations adopted under the Act
or the Code, the Custodian shall file with the Participant a written report of
the Custodian's transactions relating to the Custodial Account during the period
from the last previous accounting, and shall file such other reports with the
Internal Revenue Service as may be required of the Custodian by regulation.
(d) Unless the Participant sends the Custodian written objection to a
report within 60 days after its receipt, the Participant shall be deemed to have
approved such report, and in such case the Custodian shall be forever released
and discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such proceeding
the only necessary party thereto in addition to the Custodian shall be the
Participant unless otherwise required by law.
(e) The Custodian shall have no duties whatsoever except such duties as
are specifically provided for herein, and no implied covenant or obligation
shall be read into this Agreement against the Custodian. The Custodian shall not
be liable for a mistake in judgment, for any action taken, or any failure to
act, in good faith, or for any loss that is not a result of its gross
negligence, except as expressly required by the Act and regulations promulgated
thereunder. In performing its duties under this Agreement, the Custodian may
hire agents, experts and attorneys and may delegate discretionary powers to, and
rely upon information and advice furnished by, such agents, experts and
attorneys.
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<PAGE>
(f) The Participant agrees to indemnify and hold the Custodian harmless
from and against any liability that the Custodian may incur in the
administration of the Custodial Account, unless arising from the Custodian's own
gross negligence or willful misconduct.
(g) The Custodian shall be under no duty to question any direction of the
Participant with respect to the investment of contributions, or to make
suggestions to the Participant with respect to the investment, retention or
disposition of any contributions or assets held in the Custodial Account.
(h) The Custodian shall pay out of the Custodial Account expenses of
administration, including the fees of counsel employed by the Custodian, taxes,
if any, and its fees for maintaining the Custodial Account, which are set forth
in the Disclosure Statement but may be revised from time to time by the
Custodian and the Trust. The Custodian may sell Fund Shares and use the proceeds
of sale to pay the foregoing fees and expenses.
(i) The Custodian may resign as Custodian of any Participant's Custodial
Account or as Custodian of all accounts adopted under the provisions of this
Plan, in either case upon 30 days' prior notice to the Trust and 30 days' prior
notice to each Participant who will be affected by such resignation. If the
Trust or the Participant does not appoint a successor custodian within 30 days
after the mailing of such notice, the Custodian will terminate the Custodial
Account.
(j) The Participant shall be solely and fully responsible for all taxes
and penalties which might accrue or be assessed with respect to any excess
contributions, premature distributions or distributions which are below the
annual minimum distribution required.
(k) The Custodian shall be entitled to receive and may charge against the
Participant's Custodial Account such reasonable compensation for its services in
accordance with its fee schedule as from time to time in effect, and shall also
be entitled to reimbursement of its expenses as Custodian under this Agreement.
The Custodian will notify the Participant in writing of any change in its fee
schedule.
(l) This Agreement and the Custodial Account created hereby shall be
subject to the applicable laws, rules and regulations, as the same may from time
to time be amended, of the Federal government and the Commonwealth of
Massachusetts and the agencies and instrumentalities of each having jurisdiction
thereof, and shall be governed by and construed, administered and enforced
according to the law of the Commonwealth of Massachusetts. All contributions to
the Custodial Account shall be deemed to take place in the Commonwealth of
Massachusetts.
(m) The Custodian and Participant hereby waive and agree to waive right to
trial by jury in an action or proceeding instituted in respect to this Custodial
Account. The Participant further agrees that the venue of any litigation between
him and the Custodian with respect to the Custodial Account shall be in the
County of Suffolk, Commonwealth of Massachusetts.
(n) All communications or notices required or permitted to be given herein
shall be deemed to be given upon receipt by the Custodian at P. O. Box 8502,
Boston, MA 02266-8502,
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by the Trust at 227 W. Monroe St., #3000, Chicago, IL, 60606, or the Participant
at his most recent address shown in the Custodian's records. The Participant
agrees to advise the Custodian promptly, in writing, of any change of address.
8. The Trust
(a) The Participant delegates to the Trust the power with respect to this
Agreement: (i) to remove the Custodian and select a successor Custodian; and
(ii) to amend this Agreement as provided in paragraph 9.
(b) The powers herein delegated to the Trust shall be exercised by such
officer thereof as the Trust may designate from time to time, and shall be
exercised only when similarly exercised with respect to all other Participants
establishing SIMPLE-IRA accounts.
(c) Neither the Trust nor any officer director, trustee, board, committee,
employee or member of the Trust shall incur any liability of any nature to the
Participant or beneficiary or other person in connection with any act done or
omitted to be done in good faith in the exercise of any power or authority
herein delegated to the Trust.
(d) If the Trust shall hereafter determine that it is no longer desirable
for the Trust to continue to exercise any of the powers hereby delegated to the
Trust, it may relieve itself of any further responsibilities hereunder by notice
in writing to the Participant and the Custodian at least 60 days before the date
on which the Trust proposes to discontinue the exercise of the powers delegated
to it.
9. Amendment and Termination.
(a) The Participant delegates to the Trust the power to amend this
Agreement (including retroactive amendment). A copy of any such amendment shall
be furnished to the Custodian, and no such amendment shall have the effect of
increasing the duties or obligations of the Custodian until it has been approved
by the Custodian. A copy of any such amendment shall also be furnished to the
Participant, but no delay in furnishing such copy shall affect the effectiveness
of such amendment.
(b) The Participant may amend his/her Application (including retroactive
amendment) by submitting to the Custodian (i) a copy of such amended
Application, and (ii) evidence satisfactory to the Custodian that the Agreement
as amended by such amended Application will continue to qualify as a SIMPLE-
Individual Retirement Account under the provisions of section 408 of the Code.
(b) No amendment shall be effective if it would cause or permit (i) any
part of the Custodial Account to be diverted to any purpose that is not for the
exclusive benefit of the Participant and his beneficiaries; (ii) the Participant
to be deprived of any portion of his interest in the Custodial Account, unless
such action is taken in order to satisfy qualification requirements under the
Code; or (iii) the imposition of an additional duty on the Custodian without its
written consent.
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<PAGE>
(c) The Participant reserves the right to terminate his adoption of this
Agreement by instrument in writing signed by him and filed with the Custodian.
(d) In the event that the assets of any investment company (including any
series of the Trust) in which the Custodial Account is invested are transferred
to or acquired by any other investment company or other commingled investment
fund which is a permissible investment for an individual retirement account, by
merger or otherwise, the Trust may make such amendments to this Agreement, or
take such other action, as it may determined to be necessary or appropriate to
accomplish such transaction and the exchange of Fund Shares for shares or other
appropriate units of ownership in such successor fund. The consent of the
Participant shall not be required for any such amendment or action, but the
Participant shall be promptly notified thereof, and shall have the right to
withdraw the funds in the Custodial Account without fee, charge, load or penalty
of any kind.
10. Definitions.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below unless otherwise expressly provided herein:
(a) Act. The Employee Retirement Income Security Act of 1974, as amended
from time to time.
(b) Agreement. This Custodial Agreement for a SIMPLE-IRA Account,
including the Application, as amended from time to time.
(c) Application. The SIMPLE-Individual Retirement Account Application,
constituting an agreement between the Participant and the Custodian, by which
the Participant adopts this Agreement
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
Reference to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements or
supersedes that section.
(e) Custodial Account. The account established for the Participant
pursuant to this Agreement.
(f) Custodian. The bank named in the Application.
(g) Fund Shares. Shares issued by the Trust or shares of any other
regulated investment company for which the Custodian acts as transfer agent and
which may be available hereunder from time to time pursuant to an agreement
between the Custodian and the Trust. No Fund shall be available for investment
under this Agreement (i) before the date the prospectus for that Fund discloses
its availability, (ii) with respect to any Participant who resides in any state
or other jurisdiction in which shares of the Fund are not available for sale, or
(iii) with respect to any Participant not eligible to purchase Fund shares
directly, when sales of Fund shares are restricted.
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<PAGE>
(h) Participant. The individual who adopts this Agreement as provided
therein.
(i) Trust. Acorn Investment Trust, a regulated investment company.
11. Conflict in Provisions. To the extent that any of the provisions of
Article VIII shall conflict with the provisions of Articles IV, V, or VII, the
provisions of Article VIII shall prevail.
12. Loss of Exemption. If the Custodian receives notice that the
Participant's Account has lost its tax-exempt status under section 408 of the
Code for any reason, including by reason of a transaction prohibited by section
4975 of the Code, the Custodian shall distribute to the Participant the entire
balance in the Account, in cash or in kind, in the sole discretion of the
Custodian no later than 90 days after the date the Custodian receives such
notice.
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<PAGE>
FORMS THAT MAY BE USED BY AN EMPLOYER
TO ESTABLISH A SIMPLE-IRA PLAN
In order to establish a SIMPLE-IRA plan, an employer may complete the
blanks in Form 5304-SIMPLE contained in the following pages, and execute the
Form. This form should be kept with the employer's records. Do not file Form
5304-SIMPLE with the Internal Revenue Service. Form 5304-SIMPLE is a form
issued by the Internal Revenue Service, not by Acorn.
You must also notify each eligible employee of his or her right to elect to
make contributions to a SIMPLE-IRA. This notice must be given to each employee
EACH YEAR prior to the beginning of the period during which he or she may elect
to make such contributions, which must be at least 60 days in length. A copy of
a model notice that can be used for this purpose is enclosed, and immediately
follows Form 5304-SIMPLE. A copy of the completed Form 5304-SIMPLE must be
attached to this notice.
Each employee who wishes to participate must elect to have a portion of his
or her compensation withheld and deposited into a SIMPLE-IRA account. A written
election form that can be used for this purpose is also enclosed. You can also
use any other election form that provides the same information.
Finally, each employee who elects to participate must open an Acorn Funds
SIMPLE-IRA account. A copy of the SIMPLE-IRA application form should also be
furnished to each eligible employee. If the employer makes contributions to all
eligible employees, rather than just the employees who elect to participate, and
any employee fails to complete a SIMPLE-IRA application, the employer may
complete the application for the employee.
Form 5304-SIMPLE and the attached notification and election forms are
promulgated by the Internal Revenue Service, not by Acorn. Copies of these
forms are provided solely as a convenience, and Acorn has no responsibility for
these forms or the manner in which they are prepared or utilized by the
employer. Each employer may also use individually drafted documents for to
establish a SIMPLE-IRA plan, or to notify employees or allow them to elect
deferrals. Consult your own tax and legal advisors before using these forms.
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Form 5304-SIMPLE Savings Incentive Match Plan OMB No. 1545-1502
(December 1996) for Employees of Small -----------------
Employers (SIMPLE) DO NOT File with
Department of the Treasury (Not Subject to the Designated the Internal
Internal Revenue Service Financial Institution Rules) Revenue Service
- --------------------------------------------------------------------------------
_______________________________________establishes the following SIMPLE
Name of Employer
plan under section 408(p) of the Internal Revenue Code and pursuant to the
instructions contained in this form.
- --------------------------------------------------------------------------------
Article I--Employee Eligibility Requirements (Complete appropriate box(es) and
blanks--see instructions.)
- --------------------------------------------------------------------------------
1 General Eligibility Requirements. The Employer agrees to permit salary
reduction contributions to be made in each calendar year to the SIMPLE IRA
established by each employee who meets the following requirements (select
either 1a or 1b):
a[_] Full Eligibility. All employees are eligible.
b[_] Limited Eligibility. Eligibility is limited to employees who are
described in both (i) and (ii) below:
(i) Current compensation. Employees who are reasonably expected to
receive at least $_______________in compensation (not to exceed
$5,000) for the calendar year.
(ii) Prior compensation. Employees who have received at least
$__________ in compensation (not to exceed $5,000) during any
__________ calendar year(s) (insert 0, 1, or 2) preceding the
calendar year.
2 Excludable Employees (OPTIONAL)
[_] The Employer elects to exclude employees covered under a collective
bargaining agreement for which retirement benefits were the subject of
good faith bargaining.
- --------------------------------------------------------------------------------
Article II--Salary Reduction Agreements (Complete the box and blank, if
appropriate--see instructions.)
- --------------------------------------------------------------------------------
1 Salary Reduction Election. An eligible employee may make a salary reduction
election to have his or her compensation for each pay period reduced by a
percentage. The total amount of the reduction in the employee's
compensation cannot exceed $6,000* for any calendar year.
2 Timing of Salary Reduction Elections
a For a calendar year, an eligible employee may make or modify a salary
reduction election during the 60-day period immediately preceding January 1
of that year. However, for the year in which the employee becomes eligible
to make salary reduction contributions, the period during which the
employee may make or modify the election is a 60-day period that includes
either the date the employee becomes eligible or the day before.
b In addition to the election periods in 2a, eligible employees may make
salary reduction elections or modify prior elections_______________________
__________________________________________________(If the Employer chooses
this option, insert a period or periods (e.g. semi-annually, quarterly,
monthly, or daily) that will apply uniformly to all eligible employees.)
c No salary reduction election may apply to compensation that an employee
received, or had a right to immediately receive, before execution of the
salary reduction election.
d An employee may terminate a salary reduction election at any time during
the calendar year. [_] If this box is checked, an employee who terminates a
salary reduction election not in accordance with 2b may not resume salary
reduction contributions during the calendar year.
- --------------------------------------------------------------------------------
Article III--Contributions (Complete the blank, if appropriate--see
instructions.)
- --------------------------------------------------------------------------------
1 Salary Reduction Contributions. The amount by which the employee agrees to
reduce his or her compensation will be contributed by the Employer to the
employee's SIMPLE IRA.
2 Other Contributions
a Matching Contributions
(i) For each calendar year, the Employer will contribute a matching
contribution to each eligible employee's SIMPLE IRA equal to the
employee's salary reduction contributions up to a limit of 3% of the
employee's compensation for the calendar year.
(ii) The Employer may reduce the 3% limit for the calendar year in (i) only
if:
(1) The limit is not reduced below 1%; (2) The limit is not reduced
for more than 2 calendar years during the 5-year period ending with
the calendar year the reduction is effective; and (3) Each employee is
notified of the reduced limit within a reasonable period of time
before the employees' 60-day election period for the calendar year
(described in Article II, item 2a).
b Nonelective Contributions
(i) For any calendar year, instead of making matching contributions, the
Employer may make nonelective contributions equal to 2% of
compensation for the calendar year to the SIMPLE IRA of each eligible
employee who has at least $___________________ (not more than $5,000)
in compensation for the calendar year. No more than $160,000* in
compensation can be taken into account in determining the nonelective
contribution for each eligible employee.
(ii) For any calendar year, the Employer may make 2% nonelective
contributions instead of matching contributions only if:
(1) Each eligible employee is notified that a 2% nonelective
contribution will be made instead of a matching contribution; and
(2) This notification is provided within a reasonable period of time
before the employees' 60-day election period for the calendar year
(described in Article II, item 2a).
3 Time and Manner of Contributions
a The Employer will make the salary reduction contributions (described in 1
above) for each eligible employee to the SIMPLE IRA established at the
financial institution selected by that employee no later than 30 days after
the end of the month in which the money is withheld from the employee's
pay. See instructions.
b The Employer will make the matching or nonelective contributions (described
in 2a and 2b above) for each eligible employee to the SIMPLE IRA
established at the financial institution selected by that employee no later
than the due date for filing the Employer's tax return, including
extensions, for the taxable year that includes the last day of the calendar
year for which the contributions are made.
- --------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see Instructions. Cat No. 23377W
Form 5304-SIMPLE (12-96)
<PAGE>
Form 5304-SIMPLE (12-96) Page 2
- --------------------------------------------------------------------------------
Article IV--Other Requirements and Provisions
- --------------------------------------------------------------------------------
1 Contributions in General. The Employer will make no contributions to the
SIMPLE IRAs other than salary reduction contributions (described in Article
III, item 1) and matching or nonelective contributions (described in Article
III, items 2a and 2b).
2 Vesting Requirements. All contributions made under this SIMPLE plan are fully
vested and nonforfeitable.
3 No Withdrawal Restrictions. The Employer may not require the employee to
retain any portion of the contributions in his or her SIMPLE IRA or otherwise
impose any withdrawal restrictions.
4 Selection of IRA Trustee. The employer must permit each eligible employee to
select the financial institution that will serve as the trustee, custodian, or
issuer of the SIMPLE IRA to which the employer will make all contributions on
behalf of that employee.
5 Amendments To This SIMPLE Plan. This SIMPLE plan may not be amended except to
modify the entries inserted in the blanks or boxes provided in Articles I, II,
III, VI, and VII
6 Effects Of Withdrawals and Rollovers
a An amount withdrawn from the SIMPLE IRA is generally includible in gross
income. However, a SIMPLE IRA balance may be rolled over or transferred on
a tax-free basis to another IRA designed solely to hold funds under a
SIMPLE plan. In addition, an individual may roll over or transfer his or
her SIMPLE IRA balance to any IRA on a tax-free basis after a 2-year period
has expired since the individual first participated in a SIMPLE plan. Any
rollover or transfer must comply with the requirements under section 408.
b If an individual withdraws an amount from a SIMPLE IRA during the 2-year
period beginning when the individual first participated in a SIMPLE plan
and the amount is subject to the additional tax on early distributions
under section 72(t), this additional tax is increased from 10% to 25%.
- --------------------------------------------------------------------------------
Article V--Definitions
- --------------------------------------------------------------------------------
1 Compensation
a General Definition of Compensation. Compensation means the sum of the
wages, tips, and other compensation from the Employer subject to federal
income tax withholding (as described in section 6051(a)(3)) and the
employee's salary reduction contributions made under this plan, and, if
applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a
section 403(b) annuity contract and compensation deferred under a section
457 plan required to be reported by the Employer on Form W-2 (as described
in section 6058(a)(8)).
b Compensation for Self-Employed Individuals. For self-employed individuals,
compensation means the net earnings from self-employment determined under
section 1402(a) prior to subtracting any contributions made pursuant to
this plan on behalf of the individual.
2 Employee. Employee means a common-law employee of the Employer. The term
employee also includes a self-employed individual and a leased employee
described in section 414(n) but does not include a nonresident alien who
received no earned income from the Employer that constitutes income from
sources within the United States.
3 Eligible Employee. An eligible employee means an employee who satisfies the
conditions in Article I, item 1 and is not excluded under Article 1, item
2.
4 SIMPLE IRA. A SIMPLE IRA is an individual retirement account described in
section 408(a), or an individual retirement annuity described in section
408(b), to which the only contributions that can be made are contributions
under a SIMPLE plan and rollovers or transfers from another SIMPLE IRA.
- --------------------------------------------------------------------------------
Article VI--Procedures for Withdrawal. (The employer will provide each employee
with the procedures for withdrawals of contributions received by the financial
institution selected by that employee, and that financial institution's name and
address (by attaching that information or inserting it in the space below)
unless: (1) that financial institution's procedures are unavailable. or (2) that
financial institution provides the procedures directly to the employee. See
Employee Notification section in the instructions.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Article VII--Effective Date
- --------------------------------------------------------------------------------
This SIMPLE plan is effective______________________________. (See instructions.)
* * * * *
- --------------------------------- --------------------------------------
Name of Employer By: Signature Date
- --------------------------------- --------------------------------------
Address of Employer Name and title
*This amount will be adjusted to reflect any annual cost-of-living increases
announced by the IRS.
- --------------------------------------------------------------------------------
<PAGE>
Form 5304-SIMPLE (12-96) Page 3
- --------------------------------------------------------------------------------
Model Notification to Eligible Employees
I. Opportunity to Participate in the SIMPLE Plan
You are eligible to make salary reduction contributions to the ___________
SIMPLE plan. This notice and the attached summary description provide you with
information that you should consider before you decide whether to start,
continue, or change your salary reduction agreement.
II. Employer Contribution Election
For the ___________calendar year, the employer elects to contribute to your
SIMPLE IRA (employer must select either (1), (2), or (3)):
[_] (1) A matching contribution equal to your salary reduction
contributions up to a limit of 3% of your compensation for the year;
[_] (2) A matching contribution equal to your salary reduction
contributions up to a limit of ____% (employer must insert a number
from 1 to 3 and is subject to certain restrictions) of your
compensation for the year; or
[_] (3) A nonelective contribution equal to 2% of your compensation for
the year (limited to $160,000*) if you are an employee who makes at
least $___________(employer must insert an amount that is $5,000 or
less) in compensation for the year.
III. Administrative Procedures
If you decide to start or change your salary reduction agreement, you must
complete the salary reduction agreement and return it to_______________________
_________________________________________________(employer should designate a
place or individual) by__________________________ (employer should insert a date
that is not less than 60 days after notice is given).
IV. Employee Selection of Financial Institution
You must select the financial institution that will serve as the trustee,
custodian, or issuer of your SIMPLE IRA and notify your employer of
your selection.
- --------------------------------------------------------------------------------
Model Salary Reduction Agreement
I. Salary Reduction Election
Subject to the requirements of the SIMPLE plan of_________________________
_______________(name of employer) I authorize____% or $_______________ (which
equals____% of my current rate of pay) to be withheld from my pay for each pay
period and contributed to my SIMPLE IRA as a salary contribution.
II. Maximum Salary Reduction
I understand that the total amount of my salary reduction contributions in
any calendar year cannot exceed $6,000.*
III. Date Salary Reduction Begins
I understand that my salary reduction contributions will start as soon as
permitted under the SIMPLE plan and as soon as administratively feasible or, if
later,_________________________________(Fill in the date you want the salary
reduction contributions to begin. The date must be after you sign this
agreement.)
IV. Employee Selection of Financial Institution
I select the following financial institution to serve as the trustee,
custodian, or issuer of my SIMPLE IRA.
----------------------------------------------------------------------
Name of financial institution
----------------------------------------------------------------------
Address of financial institution
----------------------------------------------------------------------
SIMPLE IRA account name and number
I understand that I must establish a SIMPLE IRA to receive any
contributions made on my behalf under this SIMPLE plan. If the information
regarding my SIMPLE IRA is incomplete when I first submit my salary reduction
agreement, I realize that it must be completed by the date contributions must be
made under the SIMPLE plan. If fail to update my agreement to provide this
information by that date, I understand that my employer may select a financial
institution for my SIMPLE IRA.
V. Duration of Election
This salary reduction agreement replaces any earlier agreement and will
remain in effect as long as I remain an eligible employee under the SIMPLE plan
or until I provide my employer with a request to end my salary reduction
contributions or provide a new salary reduction agreement as permitted under
this SIMPLE plan.
Signature of employee
------------------------------------------------------
Date
------------------------------------------------------
*This amount will be adjusted to reflect any annual cost-of-living increases
announced by the IRS.
- --------------------------------------------------------------------------------
<PAGE>
Form 5304-SIMPLE (12-96) Page 4
- --------------------------------------------------------------------------------
Paperwork Reduction
Act Notice
You are not required to provide the information requested on a form that is
subject to the Paperwork Reduction Act unless the form displays a valid OMB
control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of
any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete this form will vary depending on individual
circumstances. The estimated average time is:
Recordkeeping..........................3 hr., 38 min.
Learning about the law or the form.....2 hr., 26 min.
Preparing the form............................47 min.
If you have comments concerning the accuracy of these time estimates or
suggestions for making this form simpler, we would be happy to hear from you.
You can write to the Tax Forms Committee, Western Area Distribution Center,
Rancho Cordova, CA 95743-00001. DO NOT send this form to this address.
Instead, keep it for your records.
General Instructions
Section references are to the Internal Revenue Code unless otherwise noted.
Note: The instructions for this form are designed to assist in the
establishment and administration of the SIMPLE plan; they are not intended to
supersede any provisions in the SIMPLE plan.
Purpose of Form
Form 5304-SIMPLE is a model Savings Incentive Match Plan for Employees of Small
Employers (SIMPLE) plan document that an employer may use to establish a SIMPLE
plan described in section 408(p), under which each eligible employee is
permitted to select the financial institution for his or her SIMPLE IRA. It is
important that you keep this form for your records. DO NOT file this form with
the IRS. For more information, see Pub. 560, Retirement Plans for the Self-
Employed, and Pub. 590, individual Retirement Arrangements (IRAs).
Instructions for the Employer
Which Employers May Establish and Maintain a SIMPLE Plan?
You are eligible to establish and maintain a SIMPLE plan only if you meet both
of the following requirements:
1. Last calendar year, you had no more than 100 employees (including self-
employed individuals) who earned $5,000 or more in compensation from you during
the year. If you have a SIMPLE plan but later exceed this 100-employee limit,
you will be treated as meeting the limit for the two years following the
calendar year in which you last satisfied the limit. If the failure to continue
to satisfy the 100-employee limit is due to an acquisition or similar
transaction involving your business, special rules apply. Consult your tax
advisor to find out if you can still maintain the plan after the transaction.
2. You do not maintain during any part of the calendar year another qualified
plan with respect to which contributions are made, or benefits are accrued, for
service in the calendar year. For this purpose, a qualified plan (defined in
section 219(g)(5)) includes a qualified pension plan, a profit-sharing plan, a
stock bonus plan, a qualified annuity plan, a tax-sheltered annuity plan, and a
simplified employee pension (SEP) plan.
Certain related employers (trades or businesses under common control) must be
treated as a single employer for purposes of the SIMPLE requirements. These
are: (1) a controlled group of corporations under section 414(b); (2) a
partnership or sole proprietorship under common control under section 414(c); or
(3) an affiliated service group under section 414(m). In addition, if you have
leased employees required to be treated as your own employees under the rules of
section 414(n), then you must count all such leased employees for the
requirements listed above.
What is a SIMPLE Plan?
A SIMPLE plan is a written arrangement that provides you and your employees with
a simplified way to make contributions to provide retirement income for your
employees. Under a SIMPLE plan, employees may choose whether to make salary
reduction contributions to the SIMPLE plan rather than receiving these amounts
as part of their regular compensation. In addition, you will contribute
matching or nonelective contributions on behalf of eligible employees (see
Employee Eligibility Requirements below and Contributions on page 5). All
contributions under this plan will be deposited into a SIMPLE individual
retirement account or annuity established for each eligible employee with the
financial institution selected by each eligible employee (SIMPLE IRA).
The information provided below is intended to help you understand and
administer the rules of your SIMPLE plan.
When to Use Form
5304-SIMPLE
A SIMPLE plan may be established by using this Model Form or any other document
that satisfies the statutory requirements. Thus, you are not required go use
Form 5304-SIMPLE to establish and maintain a SIMPLE plan. Further do not use
Form 5304-SIMPLE if:
1. You want to require that all SIMPLE plan contributions initially go to a
financial institution designated by you. (i.e., you do not want to permit each
of your eligible employees to choose a financial institution that will initially
receive contributions.) However, Form 5305-SIMPLE, Savings Incentive Match Plan
for Employees of Small Employers (SIMPLE) (for Use With a Designated Financial
Institution), may be used in such a case;
2. You want employees who are nonresident aliens receiving no earned income
from you that constitutes income from sources within the United States to be
eligible under this plan; or
3. You want to establish a SIMPLE 401(k) plan.
Completing Form
5304-SIMPLE
Page 1 and 2 of Form 5304-SIMPLE contain the operative provisions of your SIMPLE
plan. This SIMPLE plan is considered adopted when you have completed all
appropriate
<PAGE>
Form 5304-Simple (12-96) Page 5
- --------------------------------------------------------------------------------
boxes and blanks and it has been executed by you.
The SIMPLE plan is a legal document with important tax consequences
for you and your employees. You may want to consult with your attorney or tax
advisor before adopting this plan.
Employee Eligibility
Requirements (Article 1)
Each year for which this SIMPLE plan is effective, you must permit salary
reduction contributions to be made by all of your employees who are reasonably
expected to receive at least $5,000 in compensation from you during the year,
and who received at least $5,000 in compensation from you in any 2 preceding
years. However, you can expand the group of employees who are eligible to
participate in the SIMPLE plan by completing the options provided in Article I,
items 1a and 1b. To choose full eligibility, check the box in Article I, item
1a. Alternatively, to choose limited eligibility, check the box in Article I,
item 1b, and then insert $5,000 or a lower compensation amount (including zero)
and 2 or a lower number of years of service in the blanks in (i) and (ii) of
Article I, item 1b.
In addition, you can exclude from participation those employees
covered under a collective bargaining agreement for which retirement benefits
were the subject of good faith bargaining. You may do this by checking the box
in Article I, item 2.
Salary Reduction
Agreements (Article II)
As indicated in Article II, item 1, a salary reduction agreement permits an
eligible employee to make a salary reduction election to have his or her
compensation for each pay period reduced by a percentage (expressed as a
percentage or dollar amount). The total amount of the reduction in the
employee's compensation cannot exceed $6,000* for any calendar year.
Timing of Salary Reduction Elections
For a calendar year, an eligible employee may make or modify a salary reduction
election during the 60-day period immediately preceding January 1 of that year.
However, for the year in which the employee becomes eligible to make salary
reduction contributions, the period during which the employee may make or modify
the election is a 60-day period that includes either the date the employee
becomes eligible or the day before.
You can extend the 60-day election periods to provide additional
opportunities for eligible employees to make or modify salary reduction
elections using the blank in Article II, item 2b. For example, you can provide
that eligible employees may make new salary reduction elections or modify prior
elections for any calendar quarter during the 30 days before that quarter.
You may use (but are not required to) the Model Salary Reduction Agreement
on page 3 to enable eligible employees to make or modify salary reduction
elections.
Employees must be permitted to terminate their salary reduction elections
at anytime. They may resume salary reduction contributions if permitted under
Article II, item 2b. However, by checking the box in Article II, item 2d, you
may prohibit an employee who terminates a salary reduction election outside the
normal election cycle from resuming salary reduction contributions during the
remainder of the calendar year.
Contributions (Article III)
Only contributions described below may be made to this SIMPLE plan. No
additional contributions may be made.
Salary Reduction Contributions
As indicated in Article III, item 1, salary reduction contributions consist of
the amount by which the employee agrees to reduce his or her compensation. You
must contribute the salary reduction contributions to the financial institution
selected by each eligible employee.
Other Contributions
Matching Contributions
In general, you must contribute a matching contribution to each eligible
employee's SIMPLE IRA equal to the employee's salary reduction contributions.
This matching contribution cannot exceed 3% of the employee's compensation. See
Definition of Compensation, below.
You may reduce this 3% limit to a lower percentage, but not lower than 1%.
You cannot lower the 3% limit for more than 2 calendar years out of the 5-year
period ending with the calendar year the reduction is effective.
Note: If any year in the 5-year period described above is a year before you
first established any SIMPLE plan, you will be treated as making a 3% matching
contribution for that year for purposes of determining when you may reduce the
employer matching contribution.
In order to elect this option, you must notify the employees of the reduced
limit within a reasonable period of time before the applicable 60-day election
periods for the year. See Timing of Salary Reduction Elections above.
Nonelective contributions.--Instead of making a matching contribution, you may,
for any year, make a nonelective contribution equal to 2% of compensation for
each eligible employee who has at least $5,000 in compensation for the year.
Nonelective contributions may not be based on more than $160,000* of
compensation.
In order to elect to make nonelective contributions, you must notify
employees within a reasonable period of time before the applicable 60-day
election periods for such year. See Timing of Salary Reduction Elections above.
Note: Insert $5,000 in Article III, item 2b(i) to impose the $5,000
compensation requirement. You may expand the group of employees who are
eligible for nonelective contributions by inserting a compensation amount lower
than $5,000.
Effective Date (Article VII)
Insert in Article VII, the date you want the provisions of the SIMPLE plan to
become effective. You must insert January 1 of the applicable year unless this
is the first year for which you are adopting any SIMPLE plan. If this is the
first year for which you are adopting a SIMPLE plan, you may insert any date
between January 1 and October 1, inclusive of the applicable year. Do not
insert any date before January 1, 1997.
*This amount will be adjusted to reflect any annual cost-of-living increases
announced by the IRS.
<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 December 31, 1996 and
the audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> ACORN FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> DEC-31-1996
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<INVESTMENTS-AT-VALUE> 2852932
<RECEIVABLES> 11705
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2864663
<PAYABLE-FOR-SECURITIES> 6620
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<TOTAL-LIABILITIES> 22611
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1681710
<SHARES-COMMON-STOCK> 188918
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<ACCUMULATED-NII-CURRENT> 2578
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<ACCUMULATED-NET-GAINS> 32756
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 2842052
<DIVIDEND-INCOME> 22198
<INTEREST-INCOME> 7662
<OTHER-INCOME> 0
<EXPENSES-NET> 15554
<NET-INVESTMENT-INCOME> 14306
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<APPREC-INCREASE-CURRENT> 250750
<NET-CHANGE-FROM-OPS> 541668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19687
<DISTRIBUTIONS-OF-GAINS> 261454
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23744
<NUMBER-OF-SHARES-REDEEMED> 28523
<SHARES-REINVESTED> 17382
<NET-CHANGE-IN-ASSETS> 443457
<ACCUMULATED-NII-PRIOR> 5288
<ACCUMULATED-GAINS-PRIOR> 24722
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 15554
<AVERAGE-NET-ASSETS> 2709089
<PER-SHARE-NAV-BEGIN> 13.60
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> .11
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<PER-SHARE-NAV-END> 15.04
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
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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 December 31, 1996 and
the audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> ACORN INTERNATIONAL
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1365182
<INVESTMENTS-AT-VALUE> 1778684
<RECEIVABLES> 9536
<ASSETS-OTHER> 1683
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1789903
<PAYABLE-FOR-SECURITIES> 15290
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<OTHER-ITEMS-LIABILITIES> 2070
<TOTAL-LIABILITIES> 17360
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<PAID-IN-CAPITAL-COMMON> 1355220
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<SHARES-COMMON-PRIOR> 76912
<ACCUMULATED-NII-CURRENT> 2144
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12674
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 402505
<NET-ASSETS> 1772543
<DIVIDEND-INCOME> 22196
<INTEREST-INCOME> 4023
<OTHER-INCOME> 0
<EXPENSES-NET> 18213
<NET-INVESTMENT-INCOME> 8006
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<APPREC-INCREASE-CURRENT> 221576
<NET-CHANGE-FROM-OPS> 279439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10368
<DISTRIBUTIONS-OF-GAINS> 24680
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20757
<NUMBER-OF-SHARES-REDEEMED> 8994
<SHARES-REINVESTED> 1708
<NET-CHANGE-IN-ASSETS> 496299
<ACCUMULATED-NII-PRIOR> 693
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7197
<GROSS-ADVISORY-FEES> 13255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18213
<AVERAGE-NET-ASSETS> 1559824
<PER-SHARE-NAV-BEGIN> 16.59
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 3.29
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> .28
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.61
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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 December 31, 1996 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> ACORN USA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 49628
<INVESTMENTS-AT-VALUE> 53796
<RECEIVABLES> 709
<ASSETS-OTHER> 128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54633
<PAYABLE-FOR-SECURITIES> 1392
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<OTHER-ITEMS-LIABILITIES> 156
<TOTAL-LIABILITIES> 1548
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48898
<SHARES-COMMON-STOCK> 4556
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19
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</TABLE>
