<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
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. 61
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
______________________________
ACORN INVESTMENT TRUST
(Registrant)
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone number: 312/634-9200
______________________________
Ralph Wanger Janet D. Olsen
Acorn Investment Trust Bell, Boyd & Lloyd
227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
_____________________________
Amending Parts A, B, and C, and filing exhibits
______________________________
It is proposed that this filing will become effective:
[x] immediately upon filing pursuant to rule 485(b)
[ ] on __________ 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).
- --------------------------------------------------------------------------------
<PAGE>
ACORN INVESTMENT TRUST
Cross-reference sheet pursuant to rule 495(a) of Regulation C
Item Location or caption*
---- ------------------------------
Part A (prospectus)
-------------------
1 (a) & (b) Cover Page
2 Expenses and Performance - Expenses
3 (a) Financial Highlights
(b) Not applicable
(c) & (d) Expenses and Performance - Performance
4 (a)(i) The Funds in Detail - Organization
(ii) The Funds at a Glance; The Funds in Detail - The Acorn
Philosophy; The Funds in Detail - Securities, Investment
Practices, and Risks; Foreign Securities; Managing
Investment Exposure; Illiquid and Restricted Securities;
Diversification; Other Investment Companies; Lending and
Repurchase Agreements
(b) The Funds in Detail - Securities, Investment Practices, and
Risks; Foreign Securities; Managing Investment Exposure;
Illiquid and Restricted Securities; Diversification; Other
Investment Companies; Lending and Repurchase Agreements
(c) The Funds at a Glance - Who May Want to Invest; The Acorn
Philosophy; Securities, Investment Practices, and Risks
5 (a) The Funds in Detail - Organization
(b) The Funds at a Glance; The Funds in Detail - Organization;
Management; Expenses and Performance - Expenses;
Highlights--How to Contact Us
(c) The Funds in Detail - Organization; Management
(d) Not applicable
(e) Your Account - How to Buy Shares; How to Sell Shares;
Highlights - How to Contact Us; The Funds in Detail -
Transfer Agent and Custodian
(f) Expenses and Performance - Expenses
(g) Not applicable
5A The information called for is contained in the annual report
6 (a) The Funds in Detail - Organization; Your Account - How to
Buy Shares; How to Sell Shares; Shareholder and Account
Policies
(b) Not applicable
(c) Shareholder and Account Policies; The Funds in Detail -
Organization; Securities, Investment Practices and Risks
(d) Not applicable
(e) Your Account - Doing Business With Acorn; How to Buy Shares;
How to Sell Shares; Shareholder and Account Policies -
Statements and Reports; Highlights - How to Contact Us
(f) & (g) Dividends, Capital Gains, and Taxes
(h) Not applicable
7 Your Account; Shareholder and Account Policies; Highlights
(a) The Funds in Detail - Distributor
- ------------------
* References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
2
<PAGE>
Item Location or caption*
---- ------------------------------
(b) Expenses and Performance - Expenses; Shareholder and
Account Policies - Share Price
(c) Not applicable
(d) Your Account - How to Buy Shares; Shareholder and Account
Policies - Exchange Plan Restrictions
(e) & (f) Not applicable
8 (a) Your Account - Doing Business with Acorn; How to Sell
Shares; Shareholder and Account Policies - Redemptions;
Telephone Exchange Plan; Exchange Plan Restrictions
(b) Shareholder and Account Policies - Purchases; Transactions
with Dealers
(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.
3
<PAGE>
<TABLE>
<CAPTION>
Item Location or caption*
- ---- --------------------------
<S> <C>
Part B (Statement of Additional Information)
- --------------------------------------------------------------------------------
10 Cover Page
11 Cover Page
12 Not applicable
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.
4
<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.
5
<PAGE>
[PICTURE OF ACORNS APPEARS HERE]
prospectus
May 1, 1998
-------------------------
The Acorn Family of Funds
Prospectus and Application
[_] Managed by Wanger Asset Management, L.P.
<PAGE>
Dear Investor:
Thank you for your interest in the Acorn Family of Funds. This prospectus tells
you how to invest in the Acorn funds. It includes historical financial
information (pp. 5-8) and short biographies of the funds' portfolio managers
(pp. 24-25). Instructions for buying and selling shares are on pages 38-41.
Please take the time to read it carefully, and keep it with your other Acorn
records for future reference.
The Acorn Family of Funds is managed by Chicago-based Wanger Asset Management,
L.P. and consists of three 100% no-load mutual funds -- Acorn Fund, Acorn
International and Acorn USA. Our flagship, Acorn Fund, was founded in 1970 as a
small-cap U.S.-only mutual fund. In the mid-1980s, we studied the risk/reward
benefits of diversifying internationally and decided to invest a portion of the
Fund's portfolio overseas. Today, Acorn Fund is a global fund with investments
both in U.S. and foreign companies. Building on our small-cap international
experience, Acorn International was first offered to investors in 1992. The fund
has grown rapidly over the past 5 years, and now includes nearly 200 positions
in over 40 countries worldwide. The newest family member, Acorn USA, was
launched in 1996 and invests in small and mid-cap stocks in the U.S. Whether you
invest in one or all of the funds, each is highly diversified to help reduce
return volatility. And remember, the Acorn funds are 100% no-load which means
you pay no sales charges or 12b-1 fees.
If you have any questions about the contents of this prospectus, call us toll-
free at 1-800-9-ACORN-9 (1-800-922-6769) for assistance. Our knowledgeable
shareholder services team is dedicated to providing you with high quality
service. We are happy to help answer general questions about investing or
specific questions about the Acorn funds.
We hope the Acorn funds will become your favorite mutual fund investments.
Best wishes,
/s/ Ralph Wanger
Ralph Wanger
Lead portfolio manager, Acorn Fund
Chief Investment Officer, Wanger Asset Management, L.P.
(Not part of the prospectus.)
<PAGE>
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.
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 the date of this prospectus
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).
.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
100% No-Load Funds
Prospectus and Application
May 1, 1998
Acorn Investment Trust 227 West Monroe Street Suite 3000 Chicago, Illinois
60606
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
The Funds at a Glance 3
.Goal
.Strategy
.Management
.Who May Want to Invest
Expenses and Performance 4
.Expenses
.Financial Highlights 5
.Performance 8
Your Account 9
.Doing Business with Acorn
.How to Buy Shares
.Choices for Your Account
Registration 11
.How to Sell Shares 13
.Selling Shares by Telephone
.Selling Shares in Writing
.Signature Guarantee 14
.Redemption Price
Shareholder and Account
Policies 15
.Statements and Reports
.Share Price
.Purchases 16
.Transactions with Dealers
.Redemptions 17
.Address Changes 18
.Telephone Transactions
.Telephone Exchange Plan
and Money Market Funds 19
.Exchange Plan Restrictions 20
Doing Business with Acorn 21
Dividends, Capital Gains,
and Taxes 22
.Distribution Options
.Taxes
.Foreign Income Taxes 23
Meet the Team 24
The Funds in Detail 26
.Organization
.Management
.Transfer Agent and Custodian 27
.Distributor 28
.Expenses
.The Acorn Philosophy
.Securities, Investment
Practices, and Risks 31
.Foreign Securities 32
.Managing Investment
Exposure 33
.Illiquid and Restricted
Securities 35
.Diversification 36
.Other Investment
Companies
.Lending and Repurchase
Agreements 37
Highlights 38
.How to Buy Shares
.How to Sell Shares 40
.How to Contact Us 42
</TABLE>
Fund Ticker Symbol CUSIPNumber
Acorn Fund ACRNX 004851101
Acorn International ACINX 004851200
Acorn USA AUSAX 004851309
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 comprises 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 is the co-portfolio manager 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.
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 value of each fund's investments and the return it generates vary
from day to day. Performance depends on WAM's skills in identifying the trends
that are the basis for the fund's stock selections, and in picking individual
stocks, as well as general market and economic conditions. When you sell your
shares, they may be worth more or less than 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. resident with a social security or tax
identification number.
See "Your Account" for how to buy and redeem shares.
3
<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
Redemption 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 share
price daily, and are not charged directly to shareholder accounts.
The following are projections based on historical expenses. All expenses are
calculated as a percentage of average net assets and have been restated to
reflect the advisory and administration agreements that were effective January
1, 1998.
Acorn Fund
- -------------------------------------------------------
Management fee .69%
Administration fee .05%
12b-1 fee None
Other expenses .12%
----
Total fund operating expenses .86%
Acorn International
- -------------------------------------------------------
Management fee .82%
Administration fee .05%
12b-1 fee None
Other expenses .32%
-----
Total fund operating expenses 1.19%
Acorn USA
- -------------------------------------------------------
Management fee .95%
Administration fee .05%
12b-1 fee None
Other expenses .35%
-----
Total fund operating expenses 1.35%
.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 $ 9
After 3 years $ 27
After 5 years $ 48
After 10 years $106
Acorn International
- -------------------------------------------------------
After 1 year $ 12
After 3 years $ 38
After 5 years $ 65
After 10 years $144
Acorn USA
- -------------------------------------------------------
After 1 year $ 13
After 3 years $ 43
After 5 years $ 74
After 10 years $162
These examples illustrate the effect of expenses, but are not meant to suggest
actual or expected costs or returns, all of which may vary.
4
<PAGE>
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").
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.
The information contained in the following tables has been derived from
financial statements included in the Acorn Family of Funds' December 31, 1997
Annual Report. The Annual Report contains audited financial statements, notes
thereto, supplementary information entitled "Financial Highlights" and a report
of Ernst & Young LLP, the Trust's independent auditors, all of which (but no
other part of the Annual Report) are incorporated by reference into the SAI.
Copies of the report may be obtained without charge by writing to us or by
calling us toll-free at 1-800-9-ACORN-9 (1-800-922-6769).
5
<PAGE>
.Expenses and Performance, continued
<TABLE>
<CAPTION>
Acorn Fund Years ended 12/31,
- -------------------------------------------------------------------------------------------------
For a share outstanding throughout each year 1997 1996 1995
<S> <C> <C> <C>
Net Asset Value, beginning of year $15.04 $13.60 $12.24
Income From Investment Operations
Net investment income .15 .09 .11
Net realized and unrealized gain (loss) on
investments, foreign currency and futures 3.57 2.93 2.42
- -------------------------------------------------------------------------------------------------
Total from investment operations 3.72 3.02 2.53
Less Distributions
Dividends from net investment income (0.16) (.11) (.09)
Distributions from net realized and unrealized
gains reportable for federal income taxes (1.61) (1.47) (1.08)
- -------------------------------------------------------------------------------------------------
Total distributions (1.77) (1.58) (1.17)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of year $16.99 $15.04 $13.60
=================================================================================================
Total Return 25.0% 22.6% 20.8%
Ratios/Supplemental Data
Ratio of expenses to average net assets .56% .57% .57%
Ratio of net investment income to average
net assets .75% .53% .89%
Portfolio turnover rate 32% 33% 29%
Net assets at end of year (in millions) $3,681 $2,842 $2,399
Acorn International Years ended 12/31,
- -------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1997 1996 1995
Net Asset Value, beginning of period $19.61 $16.59 $15.24
Income From Investment Operations
Net investment income (loss) .40 .13 .16
Net realized and unrealized gain (loss) on
investments, foreign currency and futures (.34) 3.29 1.20
- -------------------------------------------------------------------------------------------------
Total from investment operations .06 3.42 1.36
Less Distributions
Dividends from net investment income (.38) (.12) --
Distributions from net realized and unrealized
gains reportable for federal income taxes (.90) (.28) (.01)
- -------------------------------------------------------------------------------------------------
Total distributions (1.28) (.40) (.01)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $18.39 $19.61 $16.59
=================================================================================================
Total Return 0.2% 20.7% 8.9%
Ratios/Supplemental Data
Ratio of expenses to average net assets 1.19% 1.17% 1.22%
Ratio of net investment income (loss) to
average net assets .58% .51% .90%
Portfolio turnover rate 39% 34% 26%
Net assets at end of period (in millions) $1,623 $1,773 $1,276
</TABLE>
* Annualized
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
$13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $7.27 $6.48
.06 .04 .07 .11 .12 .13 .12
(1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47
- --------------------------------------------------------------------------------
(1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59
(.11) (.06) (.08) (.10) (.13) (.11) (.16)
(.56) (.59) (.41) (.15) (.44) (.36) (.64)
- --------------------------------------------------------------------------------
(.67) (.65) (.49) (.25) (.57) (.47) (.80)
- --------------------------------------------------------------------------------
$12.24 $13.95 $11.06 $ 9.32 $ 6.51 $8.58 $7.27
================================================================================
(7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% 24.8%
.62% .65% .67% .72% .82% .73% .80%
.55% .30% .72% 1.30% 1.60% 1.59% 1.52%
18% 20% 25% 25% 36% 26% 36%
$1,983 $2,035 $1,449 $1,150 $ 767 $ 855 $ 563
Inception
9/23
through
12/31,
- -----------------------------------
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>
7
<PAGE>
>Expenses and Performance, continued
<TABLE>
<CAPTION>
<S> <C> <C>
Inception
9/4
through
Acorn USA Year ended 12/31, 12/31,
- ----------------------------------------------------------------------------------
For a share outstanding throughout each period 1997 1996
Net Asset Value, beginning of period $11.65 $10.00
Income From Investment Operations
Net investment loss** (.07) (.02)
Net realized and unrealized gain (loss)
on investments 3.83 1.67
- ----------------------------------------------------------------------------------
Total from investment operations 3.76 1.65
Less Distributions
Dividends from net investment income -- --
Distributions from net realized and unrealized
gains reportable for federal income taxes (.29) --
- ----------------------------------------------------------------------------------
Total distributions (.29) --
- ----------------------------------------------------------------------------------
Net Asset Value, end of period $15.12 $11.65
==================================================================================
Total Return 32.3% 16.5%
Ratios/Supplemental Data
Ratio of expenses to average net assets*** 1.35% 1.85%*
Ratio of net investment loss to average
net assets (.49%) (.99%)*
Portfolio turnover rate 33% 20%*
Net assets at end of period (in millions) $185 $53
</TABLE>
* Annualized
** Net investment loss per share was based upon the average shares outstanding
during that period.
*** 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% for the period ended December 31, 1996.
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), or give their ratings or rankings determined by an unrelated
organization.
Information about the performance of the funds is contained in The Acorn Family
of Funds' Annual Report which may be obtained free of charge by calling the
Acorn funds at 1-800-9-ACORN-9 (1-800-922-6769).
8
<PAGE>
>Your Account
Doing Business with Acorn
Acorn provides customers with service Monday through Friday, except holidays,
from 8:00 a.m. to 4:30 p.m. 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 at 1-800-962-1585 (outside the U.S.
1-617-328-5000 ext. 6457). Your transaction request must be received by
3:00 p.m. Central time (Closing Time) to receive that day's price. Transaction
requests received after Closing Time will receive the price next calculated
after receipt of the request. See "Shareholder and Account Policies--Share
Price."
> For help in setting up your account or for IRA assistance--call our transfer
agent at 1-800-962-1585 (outside the U.S. 1-617-328-5000 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, except for IRA rollover checks that are
properly endorsed), 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. See "Shareholder
and Account Policies" for more exchange plan information.
> wire by calling 1-800-962-1585 to set up your account and to arrange a wire
transaction. Note: You may not need to submit a new application if you are a
current Acorn shareholder. When you call, a representative will assist you.
Not available for IRA accounts.
After your account is open, you may add to it by:
> wiring money from your bank;
> moving money via ACH transfer from your bank account by telephone if you
participate in the telephone purchase plan (select this option on the
Application or request a Doing Business with Acorn form to establish);
> using the telephone exchange plan to move your investment from one Acorn fund
to another, or from one of the Reich & Tang Funds;
> using the Automatic Investment Plan to move money from your financial
institution via ACH transfer to your fund account on a monthly or quarterly
basis; 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
9
<PAGE>
>Your Account, continued
with a letter of instruction. The Acorn funds do not accept third party
checks, except for IRA rollover checks that are properly endorsed.
The Acorn funds use the Automated Clearing House (ACH) to transfer money to and
from your fund accounts and participating financial institutions. ACH
participants include banks, savings banks, brokerage houses, money market funds
and credit unions which electronically process transactions primarily through
the Federal Reserve System.
Your purchase money and your application must both be received by Closing Time
(usually 3:00 p.m. Central time) for you to receive that day's price. An order
is considered received when the application (for a new account) or information
identifying the account and the money are received and accepted by Acorn's
transfer agent, or by certain authorized agents, some of which may charge a fee
for their services. (See "Shareholder and Account Policies--Share Price" for
information about share price and transactions with certain financial services
companies and broker-dealers.) If the proceeds of your wire order are received,
but your application has not been received, you will receive the price for the
day on which your application is received. Your application must be received no
later than 12:00 noon Central time the day after your wire is received, or your
wire will be returned to you.
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 a Traditional
or Roth IRA $ 1,000
To open an Education IRA $ 500
To add to an account $ 100
The Automatic Investment Plan allows you to request a transfer of money (minimum
$100; maximum $50,000) from your pre-designated bank account to your fund
account on a monthly or quarterly basis. Quarterly investments will be made in
January, April, July and October. The money will be transferred on or about the
15th of the month unless you designate a different day. If the day you selected
falls on a Saturday, Sunday, holiday or any other day on which the NYSE is
closed for trading, the transaction will be processed on the next business day.
To participate in the Automatic Investment Plan, complete the information on the
Application or request a Doing Business with Acorn form.
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.
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<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.
Accounts for Minors
- --------------------------------------------------------------------------------
To invest for a minor's education or other future needs
. Gift or Transfer to Minor (UGMA / UTMA) custodial accounts provide a way to
give money to a minor. The account application must include the minor's
social security number.
. Education IRAs may be established on behalf of a beneficiary under age 18
to save for his or her education. Distributions from an Education IRA are
tax-free as long as the proceeds are used to pay for "qualified higher
education expenses." Single taxpayers with income up to $95,000 per year,
and married couples with income up to $150,000 per year, are allowed to
contribute up to $500 per year per beneficiary. The $500 annual maximum
contribution is subject to reduction if the contributor's income exceeds
those amounts.
Transfer on Death (TOD)
- --------------------------------------------------------------------------------
To designate a beneficiary for your non-retirement account
TOD registration enables you to designate an individual or entity to receive the
proceeds of your fund account upon your death. TOD registration differs from a
joint account--with TOD registration, the account owner retains full control
over the disposition of shares held in the account during his or her lifetime,
and may change or remove the beneficiary at any time without the consent of the
beneficiary. TOD Registration may not be available to residents of certain
states. Call 1-800-962-1585 for more information.
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.
11
<PAGE>
. Your Account, continued
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 1-800-962-1585).
. Traditional 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, as 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.
. Roth IRAs allow single taxpayers with income up to $95,000 per year, and
married couples with income up to $150,000 per year, to contribute up to
$2,000, or $4,000, respectively, per year. Contributions to Roth IRAs are
not tax-deductible, but withdrawals are not taxable if the Roth IRA has
been held at least five years, and you are at least 59 1/2 or use the
proceeds to purchase a first home.
. 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. For more information about the tax advantages
and consequences of investing in any of these plans, please consult your
tax advisor.
12
<PAGE>
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 NAV
(share price) next calculated after your order is received and accepted. (See
"Shareholder and Account Policies--Share Price" for more information about
share price and transactions with certain financial services companies and
broker-dealers.) 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 Fund, Money Market Portfolio, which can be requested 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).
Selling Shares by Telephone
The Telephone Redemption Plan lets you redeem $100 to $50,000 per day by phone.
You must make your telephone redemptions by Closing Time to receive that day's
price. 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 signed by all
account owners with the signatures guaranteed.
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. To establish, 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 including:
. 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 under "Highlights--How to Sell
Shares."
Mail your letter to:
State Street Bank and Trust Co.
Attn: Acorn Family of Funds
P.O. Box 8502
Boston, MA 02266-8502
If you are using overnight mail:
Boston Financial Data Services
Attn: Acorn Family of Funds
66 Brooks Drive
Braintree, MA 02184
1-617-328-5000 ext. 6457
Do not sign your stock certificates. Send them by registered or certified mail
so that you may receive a confirmation of delivery.
13
<PAGE>
.Your Account, continued
Signature Guarantee
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 court order (complete a Changing Your
Account Registration form or 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);
. you wish to establish TOD registration on an existing account or change a TOD
beneficiary (see "Choices for Your Account Registration");
. 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; or
. you are instructing us to wire the proceeds to a bank or brokerage account and
have not signed up for the telephone redemption by wire plan.
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
Acorn's transfer agent, or another authorized agent, receives your redemption
request. (See "Shareholder and Account Policies--Share Price" for more
information.)
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 Acorn's transfer agent, or another
authorized agent, before Closing Time.
14
<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), excluding automatic investment plan purchases,
which are confirmed on a quarterly consolidated account statement. Automatic
Investment Plan accounts using the 15th of each month (or the 15th of the
first month of each quarter) as the investment date may also have purchases
confirmed monthly instead of just quarterly. Call 1-800-962-1585 to request
this service.
. Quarterly and year-end consolidated 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 purchase or redemption order by Acorn or by a
broker-dealer or financial services company authorized by Acorn to accept
purchase and redemption orders on its behalf. 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. Because of the different trading hours in various foreign markets, the
calculation of NAV does not take place at the same time as the determination of
the prices of many foreign securities held by the funds. These timing
differences may have a significant effect on a fund's NAV.
Your purchase or redemption of fund shares will be priced at the NAV next
calculated after your investment (including the application, if for a new
account, and the money) or redemption request is received and
15
<PAGE>
.Shareholder and Account Policies, continued
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. Telephone orders
received after Closing Time will be processed at the NAV next calculated after
receipt of the order.
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, except for IRA
rollover checks that are properly endorsed.
. Acorn does not accept cash, credit cards, or credit card checks.
. 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 if 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." A
purchase may be refused if, in WAM's opinion, it would disrupt management of the
fund or would not be in the best interests of the fund's existing shareholders.
Transactions with Dealers
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.
16
<PAGE>
Acorn may from time to time authorize certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept purchase,
redemption and exchange requests from their clients on whose behalf the
authorized agent holds shares of one or more of the Acorn funds. For purchase
orders placed through an authorized agent, a shareholder will pay the fund's net
asset value per share next computed after the receipt by the authorized agent of
such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the net asset value per share
next computed after the receipt by the authorized agent of the redemption order,
less any redemption fees imposed by the agent. Some financial institutions that
act as Acorn's agent or that otherwise maintain nominee accounts with one of the
Acorn funds for their clients for whom they hold fund shares might not charge
any transaction fees directly to investors in the funds. However, such companies
may charge an annual fee (usually a percentage 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.
Redemptions
. Normally, redemption proceeds will be mailed within seven days after your
redemption request is received by Acorn's transfer agent or another authorized
agent.
. Redemption checks are made payable to the shareholder(s) of record; 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
shareholders of record must be guaranteed. See "Signature Guarantee."
. 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/ACH Plan,
Acorn will send payment for your redemption to your bank account by wire or
ACH transfer. Your bank may impose a fee for the incoming wire. Payment by
wire or ACH 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.
17
<PAGE>
. Shareholder and Account Policies, continued
. 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 because of redemptions, 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
the 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 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 (1-800-962-1585):
. 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 request a wire or ACH transfer to your bank account
(bank account information must be pre-designated on your fund account
registration; 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 or quarter)
to your account;
. Change your distribution option, not including the cash payment via ACH option
(does not apply to IRA accounts);
18
<PAGE>
. 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 a non-IRA 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;
. Change the contribution year on an IRA account to the previous year up until
April 15 of the following year; and
. Copy the account options on your account to other identically registered
accounts.
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. If you do not want to be able to
purchase or redeem shares 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 and Money Market Funds
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.
19
<PAGE>
. Shareholder and Account Policies, continued
The price at which shares are exchanged is determined by the time of day your
request is received. 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.
If your call is received after the times noted above, your exchange will be
processed at the NAV next calculated after receipt of your call.
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 is an exchange out of one fund into another fund, and then back
again).
. Shares of the fund you are exchanging into must be available for sale in
your state.
. You may only exchange between accounts that are registered in the same name,
address, and taxpayer identification number.
. If you are opening a new account by exchange, your exchange must be at least
$1,000.
. 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. Call 1-800-922-
6769 for a prospectus for any of the Acorn funds or the Reich & Tang
funds.
. Exchanges may have tax consequences for you.
The funds reserve the right to terminate or modify the exchange plan at any
time, but will try to give you prior notice whenever they are reasonably able to
do so.
20
<PAGE>
.Doing Business with Acorn
From time to time you may find it necessary to make changes to your account
privileges or registration. The following easy-to-use shareholder forms are
available upon request by calling 1-800-9-ACORN-9 (1-800-922-6769):
- --------------------------------------------------------------------------------
To accomplish this: Please request this form:
For changes to account 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 Request Form
IRA account
For redeeming shares from your .Education IRA Withdrawal Request
Education IRA account Form
For adding or deleting accounts .Consolidated Account Statement
to/from your Consolidated Maintenance Form
Account Statement
21
<PAGE>
. Dividends, Capital Gains, and Taxes
Each fund distributes substantially all of its net income and net realized
capital gains to shareholders each year. Normally, dividends are paid in June
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. With the exception of the cash/ACH transfer option,
you may change your dividend options over the phone by calling 1-800-962-1585.
The funds offer three options:
. Reinvestment Option. Both 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 may receive a check for each dividend, or have the
proceeds sent to your pre-designated financial institution account via ACH
transfer.
. Cash Option. You will be sent a check for each dividend and capital gain
distribution, or you may have the proceeds sent to your pre-designated
financial institution account via ACH transfer.
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 or tax-exempt account (for example,
an IRA or an employee benefit plan account), the following tax discussion does
not apply. If your account is not tax-deferred or tax-exempt, 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. 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; mid-term capital gain distributions are
taxed as mid-term capital gains (currently at a maximum tax rate of 28%); and
long-term capital gain distributions are taxed as long-term capital gains
(currently at a maximum of 20%). Classification as mid-term or long-term gain
depends on how long the security sold had been held by the fund. Long-term gains
are
22
<PAGE>
those from securities held more than 18 months; mid-term gains are from
securities held 12 to 18 months. 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 year. A year-end tax guide will
accompany your Form 1099. You may not receive a Form 1099 if the total
distributions you received 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. For most accounts, Acorn
will send an average cost statement for shares redeemed to assist you or your
tax preparer. 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 along with your annual Form
1099-DIV and year-end tax guide.
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 gains, 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 mid-term and long-term gains are paid to you
as capital gain distributions.
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. Meet the Team
[PHOTO OF RALPH WANGER APPEARS HERE]
- --------------------------------------------------------------------------------
Ralph Wanger
president, chief strategist--Acorn Investment Trust 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. Mr. Wanger has been
featured in Forbes, Money, The New York Times, USA Today, Worth Magazine, The
Wall Street Journal, The Chicago Tribune, Newsweek, The L.A. Times, Smart Money,
Chicago Sun-Times and Barron's. He has appeared on Wall Street Week with Louis
Rukeyser, CNBC's Your Portfolio with Bill Griffeth and Jim Rogers, and is among
the top managers featured in Bill Griffeth's 1994 book, The Mutual Fund Masters.
In 1997, Simon & Schuster published Mr. Wanger's book, A Zebra in Lion Country:
Ralph Wanger's Investment Survival Guide.
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[PHOTO OF CHARLES P. McQUAID APPEARS HERE]
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Charles P. McQuaid
co-portfolio manager--Acorn Fund. Mr. McQuaid has contributed to Acorn Fund's
growth since 1978. He is a 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 his B.B.A. from the University of
Massachusetts and his M.B.A. from the University of Chicago. Mr. McQuaid focuses
on the areas of communications and media.
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<PAGE>
[PHOTO OF LEAH J. ZELL APPEARS HERE]
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Leah J. Zell
lead portfolio manager--Acorn International. Ms. Zell is a vice president of
Acorn Investment Trust 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. A principal of WAM, Ms. Zell earned her undergraduate
degree from Radcliffe College and holds a Ph.D. from Harvard University. She is
also a CFA. Ms. Zell visits more than 100 companies worldwide each year.
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[PHOTO OF ROBERT A. MOHN APPEARS HERE]
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Robert A. Mohn
lead portfolio manager--Acorn USA. Mr. Mohn is a vice president of Acorn
Investment Trust 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.
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[PHOTO OF MARCEL P. HOUTZAGER APPEARS HERE]
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Marcel P. Houtzager
investment analyst--Acorn Fund and Acorn International. Mr. Houtzager, a vice
president of Acorn Investment Trust, 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.
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[PHOTO OF JOHN H. PARK APPEARS HERE]
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John H. Park
investment analyst--Acorn Fund and Acorn USA. Mr. Park is a vice president of
Acorn Investment Trust and a principal of WAM. He has been a member of WAM's
investment management team since 1993. Mr. Park is a CFA and received both his
undergraduate and M.B.A. degrees from the University of Chicago.
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 Family of 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. WAM manages more than $7 billion in
assets.
WAM employs a team approach to management of the Acorn funds. The management
teams comprise 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 funds since each fund began (June 1970 for
Acorn Fund, September 1992 for Acorn
26
<PAGE>
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, and is a principal of WAM. Mr. Wanger is primarily responsible for
development of the funds' investment strategies and is the lead portfolio
manager of Acorn Fund.
Charles P. McQuaid is co-portfolio manager of Acorn Fund. Mr. McQuaid is a
senior vice president and a trustee of the Trust, and is a principal and
director of research of WAM. Mr. McQuaid has been working with Acorn and its
predecessor, The Acorn Fund, Inc., since 1978.
Leah J. Zell is the lead portfolio manager of Acorn International and is a vice
president of the Trust. She is a principal of WAM and has been working with
Acorn and its predecessor, The Acorn Fund, Inc., since 1984.
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 1992, and a principal
of WAM since 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 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.
John H. Park is a vice president of the Trust and a principal of WAM. Mr. Park
joined WAM's investment management team in July 1993 as a domestic analyst, and
was an analyst with Ariel Capital Management prior thereto.
Merrillyn J. Kosier, senior vice president and secretary, and Bruce H. Lauer,
vice president and treasurer, are the other executive officers. Ms. Kosier is
the Director of Marketing and Shareholder Services at WAM and was Vice President
of Marketing for Kemper Financial Services prior thereto. Mr. Lauer is Chief
Administrative Officer of WAM and was First Vice President of Investment
Accounting for Kemper Financial Services prior thereto.
Transfer Agent and Custodian
State Street Bank and Trust Company ("State Street") is each fund's transfer
agent and custodian. Some computer systems used today are unable to process
date-related information because they are not programmed to distinguish between
the year 2000 and the year 1900. WAM, like many other businesses, is taking
steps to ensure that the computer systems on which the smooth operation of the
Acorn funds depends will continue to function properly. WAM is working with the
service providers to the Acorn funds,
27
<PAGE>
.The Funds in Detail, continued
such as State Street and various broker-dealers through which portfolio
securities of the funds are traded, to arrange for testing of internal and
external systems. Based on the information currently available, WAM does not
anticipate any material impact on the delivery of services currently provided.
There can be no assurance, however, that the steps taken by WAM in preparation
for the year 2000 will be sufficient to avoid any adverse impact on the Acorn
funds.
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.
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 management and administration fees 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
28
<PAGE>
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.
The Acorn funds are long-term investors--ideally buying small companies and
holding them as they grow to become mid- and large-size companies. Our new
investments are generally made in smaller companies, but the fund portfolios
hold larger companies--the success stories.
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 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
29
<PAGE>
. The Funds in Detail, continued
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 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, 1997, Acorn
International had investments in 36 countries and Acorn Fund had investments in
24 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
30
<PAGE>
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. The Acorn funds invest mostly in common stocks, which represent
an equity (ownership) interest in a corporation. This ownership interest often
gives a fund the right to vote on measures affecting the company's organization
and operations. Over time, common stocks have historically provided superior
long-term capital growth potential. However, stock prices may decline over short
or even extended periods. Stock markets tend to move in cycles, with periods of
rising stock prices and periods of falling stock prices. As a result, the funds
should be considered long-term investments, designed to provide the best results
when held for several years or more. The funds may not be suitable investments
if you have a short-term investment horizon or are unwilling to accept
fluctuations in share price, including significant declines over a given period.
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
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<PAGE>
.The Funds in Detail, continued
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 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
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*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
32
<PAGE>
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
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
speci-
33
<PAGE>
.The Funds in Detail, continued
fied 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 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
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<PAGE>
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 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
35
<PAGE>
. The Funds in Detail, continued
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 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.
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*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
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<PAGE>
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.*
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*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
37
<PAGE>
Highlights
. How to Buy Shares
Mail [LOGO OF ENVELOPE]
- --------------------------------------------------------------------------------
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 Family of Funds
66 Brooks Drive
Braintree, MA 02184
1-617-328-5000 ext. 6457 or 1-800-962-1585
. Acorn does not accept third party checks, except properly endorsed IRA
rollover 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, except properly endorsed IRA
rollover checks.
Wire [LOGO OF DOTTED CIRCLE]
- --------------------------------------------------------------------------------
To open an account:
. Call 1-800-962-1585 to set up your account and to arrange a wire
transaction. Note: you may not need to submit a new application if you are
a current Acorn shareholder. When you call, a representative will assist
you. 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.
. Minimum: $100
38
<PAGE>
Telephone: 1-800-962-1585 [LOGO OF TELEPHONE]
- --------------------------------------------------------------------------------
TDD service for the deaf and hearing-impaired: 1-800-306-4567
---------------------------------------------------------------------------
To open an account:
. You generally may not open a new account by telephone; however, you may
open a new account by faxing your application to us and wiring your
purchase money. Note: you may not need to submit a new application if you
are a current Acorn shareholder. When you call, a representative will
assist you. See "How to Buy Shares."
. 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
Closing Time (usually 3:00 p.m. Central time) to receive that day's price.
Automatic Investment Plan [LOGO OF CALENDAR]
- ---------------------------------------------------------------------------
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 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 to establish this on your account. If
you already have this service, you can change the frequency or amount of
your automatic investments over the telephone by calling 1-800-962-1585.
39
<PAGE>
Highlights
>How to Sell Shares
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 1-800-962-1585 to request this form.
- --------------------------------------------------------------------------------
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.
> If redeeming more than $50,000, include a corporate resolution certified
within 60 days and a letter of instruction with the signature
guaranteed.
- --------------------------------------------------------------------------------
Executor, Administrator, Conservator, Guardian
> Call 1-800-962-1585 for instructions.
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) to receive that day's price.
40
<PAGE>
Telephone 1-800-962-1585 [LOGO]
- --------------------------------------------------------------------------------
TDD service for the deaf and hearing-impaired: 1-800-306-4567
- --------------------------------------------------------------------------------
All account types, except IRAs:
. To verify that the telephone redemption plan (by check or ACH) is in place,
call 1-800-962-1585. You automatically have the telephone redemption by
check feature on your new account unless you tell us that you do not want
it. To receive redemption proceeds via ACH transfer, complete the
information on the Application or request a Doing Business with Acorn form
to establish this on your account.
. Minimum: $100; maximum: $50,000
- --------------------------------------------------------------------------------
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) to receive that day's price.
- --------------------------------------------------------------------------------
TDD service for the deaf and hearing-impaired: 1-800-306-4567
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. Your automatic
exchange will occur on or about the 15th day of each month (if quarterly,
in January, April, July and October) unless you designate a different day
of the month.
Note: Some redemptions require signature guarantees. Please see the information
under "Signature Guarantee."
41
<PAGE>
Highlights
>How to Contact Us
Mail [LOGO]
- --------------------------------------------------------------------------------
State Street Bank & Trust Co. > for regular mail delivery, including Attn:
Acorn Family of 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 Family of Funds written exchanges, redemptions, or
66 Brooks Drive IRA contributions
Braintree, MA 02184
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
Telephone [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.
1-617-328-5000 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) to receive that
day's price.
42
<PAGE>
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.
Internet [LOGO]
- --------------------------------------------------------------------------------
Web site: www.wanger.com
E-mail: [email protected]
43
<PAGE>
>The Acorn Family of Funds
>Trustees
Irving B. Harris
Chairman
James H. Lorie
Vice Chairman
Leo A. Guthart
Jerome Kahn, Jr.
David C. Kleinman
Charles P. McQuaid
Roger S. Meier
Adolph Meyer, Jr.
Ralph Wanger
>Officers
Ralph Wanger
President
Marcel P. Houtzager
Vice President
Kenneth A. Kalina
Assistant Treasurer
Merrillyn J. Kosier
Senior Vice President and Secretary
Bruce H. Lauer
Vice President and Treasurer
Charles P. McQuaid
Senior Vice President
Robert A. Mohn
Vice President
John H. Park
Vice President
Leah J. Zell
Vice President
>Investment Advisor
Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-800-9-ACORN-9
(1-800-922-6769)
e-mail: [email protected]
web site: www.wanger.com
>Distributor
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, Massachusetts 02266-8502
>Transfer Agent, Dividend Disbursing Agent and Custodian
State Street Bank and Trust Company
Attention: Acorn Family of Funds
P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-962-1585
>Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
>Independent Auditors
Ernst & Young LLP
Chicago, Illinois
44
<PAGE>
Acorn Family of Funds P.O. Box 8502
Boston, MA 02266-8502 [ACORN LOGO APPEARS HERE]
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.
________________________________________________________________________________
[_] Transfer on Death (TOD)
________________________________________________________________________________
Beneficiary's name: first, middle initial, last (Attach additional instructions
to designate more beneficiaries than space allows.)
TO CONFIRM AVAILABILITY OF TOD REGISTRATION IN YOUR STATE,
CALL 1-800-962-1585.
________________________________________________________________________________
[_] 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
________________________________________________________________________________
e-mail address
[_] U.S. Citizen [_] Non-citizen residing in U.S.
To invest, you must be a U.S. resident with a social security or tax
identification number.
Choose Your Investments
________________________________________________________________________________
There is an initial investment minimum of $1,000 per Fund.
[_] Acorn Fund (90) $
______________
[_] Acorn International (100) $
______________
[_] Acorn USA (820) $
______________
Total Investment $
______________
Make check(s) payable to Acorn Fund, Acorn International, and/or Acorn USA. 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 by check.
[_] Pay dividends and capital gains in cash via ACH transfer.*
[_] Pay dividends in cash by check; reinvest capital gains.
[_] Pay dividends in cash via ACH transfer; reinvest capital gains.*
*You must attach a voided check from the bank account to which your distribution
should be transferred.
Duplicate Statements
________________________________________________________________________________
[_] Please also send statements 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 Fund $_______________________________
[_] monthly, on the [_] quarterly, on the
_______ (day) _______ (day) (check only one box)
[_] Acorn International $_______________________________
[_] monthly, on the [_] quarterly, on the
_______ (day) _______ (day) (check only one box)
[_] Acorn USA $_______________________________
[_] monthly, on the [_] quarterly, on the
_______ (day) _______ (day) (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, unless you designate another day; 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/ACH 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) to receive that day's price.
[_] Telephone Purchase Plan: to add to your Acorn Fund, Acorn International or
Acorn USA account by transferring money from your bank checking account
($100 minimum, $50,000 maximum per transfer.)
[_] Telephone Redemptions by Wire or ACH transfer: to redeem shares and
transfer the money to your bank checking account ($1,000 wire minimum, $100
ACH 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) to receive that day's price. 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 may reject, restrict, or redeem my investment.
I authorize Acorn and its 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 Acorn 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, ACH payment of dividends or
capital gains or any Bank Transfer Option) I authorize Acorn and its affiliates
and agents to initiate (1) credit entries (deposits) (if I have elected ACH
payment of dividends or capital gains, or 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
- ------------------------------
Family of Funds
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502
- ---------------
FIRST CLASS
PRE-SORT
U.S. POSTAGE
PAID
CHICAGO, IL
PERMIT NO. 1200
- ---------------
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1998
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>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
Information About the Funds 2
Investment Objectives and Policies 2
Investment Techniques and Risks 2
Investment Restrictions 18
Performance Information 23
Investment Adviser 24
Distributor 26
The Trust 26
Trustees and Officers 27
Purchasing and Redeeming Shares 30
Additional Tax Information 32
Taxation of Foreign Shareholders 34
Portfolio Transactions 34
Custodian 35
Independent Auditors 36
Appendix - Description of Bond Ratings 37
- --------------------------------------------------------------------------------
</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 the date of this SAI and any
supplement thereto, which may be obtained from Acorn at no charge by writing or
telephoning Acorn at its address or telephone number shown above.
<PAGE>
Information About the Funds
Acorn Fund, 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 the board of trustees of Acorn determines that
additional cash flow would be detrimental to the management of the funds.
A copy of the 1997 Annual Report of the Acorn funds accompanies this SAI.
The Annual Report contains audited financial statements, notes thereto,
supplementary information entitled "Financial Highlights," and a report of
independent auditors, all of which (but no other part of the report) are
incorporated herein by reference. Additional copies of the 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. 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
2
<PAGE>
provide its regular shareholder communications to ADR holders. An unsponsored
ADR is created independently of the issuer of the underlying security. The ADR
holders generally pay the expenses of the depository and do not have an
undertaking from the issuer of the underlying security to furnish shareholder
communications. Therefore, in the case of an unsponsored ADR, a fund is likely
to bear its proportionate share of the expenses of the depository and it may
have greater difficulty in receiving shareholder communications than it would
have with a sponsored ADR. None of the funds expects to invest 5% or more of
its total assets in unsponsored ADRs.
The funds' investment performance is affected by the strength or weakness
of the U.S. dollar against the currencies of the foreign markets in which its
securities trade or in which they are denominated. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve risks and opportunities not typically
associated with investing in U.S. securities. These considerations include:
fluctuations in exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public information with
respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign subcustodial
arrangements. In addition, the costs of investing in foreign securities are
higher than the costs of investing in U.S. securities.
Although the funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
The countries in which the funds invest include those listed below. A fund
may not invest in all the countries listed, and it may invest in other countries
as well, when such investments are consistent with that fund's investment
objective and policies.
3
<PAGE>
<TABLE>
<CAPTION>
Mature Markets Developing Markets Emerging Markets
- -------------- ------------------ ----------------
<S> <C> <C> <C>
Australia Argentina Bangladesh Morocco
Austria Chile Botswana Pakistan
Belgium Greece Brazil Peru
Canada Hong Kong China Philippines
Denmark Indonesia Colombia Poland
Finland Israel Cyprus Sri Lanka
France Korea Czech Republic Swaziland
Germany Malaysia Ecuador Turkey
Ireland Mexico Egypt Uruguay
Italy Portugal Ghana Venezuela
Japan Singapore Hungary Zambia
Luxembourg Taiwan India Zimbabwe
Netherlands Thailand Jordan
New Zealand Kenya
Norway
South Africa
Spain
Sweden
Switzerland
United Kingdom
United States
</TABLE>
It may not be feasible for the funds currently to invest in all of these
countries due to restricted access to their securities markets or inability to
implement satisfactory custodial arrangements.
Currency Exchange Transactions
The funds may enter into currency exchange transactions. A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks,
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
4
<PAGE>
positions in securities denominated in that currency. When a fund owns or
anticipates owning securities in countries whose currencies are linked, Wanger
Asset Management, L.P. ("WAM"), the funds' investment adviser, 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.
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Synthetic Foreign Money Market Positions. The funds may invest in money
market instruments denominated in foreign currencies. In addition to, or in
lieu of, such direct investment, the funds may construct a synthetic foreign
money market position by (a) purchasing a money market instrument denominated in
one currency (generally U.S. dollars) and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that currency in exchange
for a different currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen could be
constructed by purchasing a U.S. dollar money market instrument, and entering
concurrently into a forward contract to deliver a corresponding amount of U.S.
dollars in exchange for Japanese yen on a specified date and at a specified rate
of exchange. Because of the availability of a variety of highly liquid short-
term U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign money market instruments. The results of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policies that, under normal conditions,
(a) Acorn Fund will not invest more than 33% of its total assets in foreign
securities; (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.)
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The funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if a fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional 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
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whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a fund seeks
to close out an option position. If a fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
a fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call. As the writer of a covered call option on a
foreign currency, a fund foregoes, during the option's life, the opportunity to
profit from currency appreciation.
If trading were suspended in an option purchased or written by one of the
funds, that fund would not able to close out the option. If restrictions on
exercise were imposed, the fund might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts. The funds may use
interest rate futures contracts and index futures contracts. An interest rate
or index futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; 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.
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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's ability to correctly
predict changes in the level and direction of stock prices, interest rates,
currency exchange rates, and other factors. Should those predictions be
incorrect, a fund's return might have been better had hedging not been
attempted; however, in the absence of the ability to hedge, WAM might have taken
portfolio actions in anticipation of the same market movements with similar
investment results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a fund, that fund
is required to deposit with its custodian or broker a specified amount of cash
or U.S. government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is generally set
by the exchange on which the contract is traded; however, the margin requirement
may be modified during the term of the contract, and the fund's broker may
require margin deposits in excess of the minimum required by the exchange. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract, which is returned to the fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The funds
expect to earn interest income on their initial margin deposits. A futures
contract held by a fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking-to-market." Variation margin paid or received
by a fund does not represent a borrowing or loan by the fund but is instead
settlement between that fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the previous day. In
computing daily net asset value, the funds will mark-to-market their open
futures positions.
The funds are also required to deposit and maintain margin with respect to
put and call options on futures contracts they write. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the funds.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery
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<PAGE>
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 readily-marketable
securities having a fair market value (including any margin) at least equal to
the market value of such contract. When writing a call option on a futures
contract, a fund similarly will maintain with its custodian readily-marketable
securities having a fair market value (including any margin) at least equal to
the amount by which such option is in-the-money until the option expires or is
closed out by the fund.
A fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent a fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which a fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by
the daily settlement price of the contract.
- ------------------------
/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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No fund will purchase puts, calls, straddles, spreads, or any combination
thereof if by reason of such purchase more than 10% of that fund's total assets
would be invested in such securities.
Taxation of Options and Futures. If a fund exercises a call or put option
that it holds, the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the security sold
(put). For cash settlement options and futures options exercised by a fund, the
difference between the cash received at exercise and the premium paid is a
capital gain or loss.
If a call or put option written by a fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by a fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by a fund is in-the-money at the time it was written
and the security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding period of the
securities covering an in-the-money option will not include the period of time
the option is outstanding.
If a fund writes an equity call option/3/ other than a "qualified covered
call option," as defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a fund delivers securities under a futures contract, the
fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, a fund generally is required to recognize
for each taxable year its net unrealized gains and losses as of the end of the
year on futures, futures options and non-equity options positions ("year-end
mark-to-market"). Generally, any gain or loss recognized with respect to such
positions (either by year-end mark-to-market or by actual
___________________________
/3/ An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel-casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
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<PAGE>
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by a fund may
affect the holding period of the hedged securities.
If a fund were to enter into a short index future, short index futures
option or short index option position and the fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
In order for the funds to continue to qualify for federal income tax
treatment as regulated investment companies, at least 90% of each fund's gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or foreign currencies, or other income (including but not
limited to gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for purposes of
the 90% requirement.
The funds intend to distribute to shareholders annually any capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the funds. Shareholders will be
advised of the nature of such capital gain distributions.
Swap Agreements. A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of investments or
market factors. Depending on its structure, a swap agreement may increase or
decrease a fund's exposure to changes in the value of an index of securities in
which the fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take
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<PAGE>
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. WAM expects to be
able to eliminate a fund's 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 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 a
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
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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.
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
15
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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 WAM believes 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.
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.
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<PAGE>
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.
17
<PAGE>
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 for the 1997 and 1996 fiscal years, respectively, were as follows: Acorn
Fund, 32% and 33%; Acorn International, 39% and 34%; and Acorn USA, 33% and 20%
(annualized). A high rate of portfolio turnover, if it should occur, would
result in increased transaction expenses which must be borne by each fund. High
portfolio turnover may also result in the realization of capital gains or losses
and, to the extent net short-term capital gains are realized, any distributions
resulting from such gains will be considered ordinary income for federal income
tax purposes.
Line of Credit
Acorn maintains a line of credit with a bank in order to permit borrowing
on a temporary basis to meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of portfolio securities.
Any borrowings under that line of credit by the funds would be subject to each
fund's restrictions on borrowing under "Investment Restrictions," below.
Investment Restrictions
Acorn Fund
In pursuing its investment objective Acorn Fund will not:
1. Invest more than 5% of its assets (valued at time of investment) in
securities of any one issuer, except in government obligations;
2. Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b)
have a value greater than 10% of the value of the outstanding securities of
the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Invest more than 5% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
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;
18
<PAGE>
6. Borrow money except (a) from banks for temporary or emergency purposes
at fixed rates of interest in amounts not exceeding 10% of the value of the
fund's assets at the time of borrowing, and (b) in connection with
transactions in options and in securities index futures [the fund will not
purchase additional securities when its borrowings, less amounts receivable
on sales of portfolio securities, exceed 5% of total assets];
7. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and than 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.
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
19
<PAGE>
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 futures. [The fund will not purchase additional securities when its
borrowings, less amounts receivable on sales of portfolio securities, exceed 5%
of total assets.];
6. Underwrite the distribution of securities of other issuers; however the
fund may acquire "restricted" securities which, in the event of a resale, might
be required to be registered under the Securities Act of 1933 on the ground that
the fund could be regarded as an underwriter as defined by that act with respect
to such resale; but the fund will limit its total investment in restricted
securities and in other securities for which there is no ready market, including
repurchase agreements maturing in more than seven days, to not more than 15% of
its total assets at the time of acquisition;
7. Purchase and sell real estate or interests in real estate, although it may
invest in marketable securities of enterprises that invest in real estate or
interests in real estate;
8. Purchase and sell commodity 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.
20
<PAGE>
11. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Acorn USA
In pursuing its investment objective Acorn USA will not:
1. With respect to 75% of the value of the Fund's total assets, invest
more than 5% of its total assets (valued at time of investment) in
securities of a single issuer, except securities issued or guaranteed by
the government of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b)
have a value greater than 10% of the value of the outstanding securities of
the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry, except that this restriction
does not apply to investments in U.S. government securities;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures;
6. Underwrite the distribution of securities of other issuers; however,
the Fund may acquire "restricted" securities which, in the event of a
resale, might be required to be registered under the Securities Act of 1933
on the ground that the Fund could be regarded as an underwriter as defined
by that act with respect to such resale;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it
may enter into (a) futures and options on futures and (b) foreign currency
contracts;
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<PAGE>
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
10. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
The above restrictions (except the bracketed language) for each fund are
"fundamental," which means that they cannot be changed without the approval of
the lesser of (i) 67% of each fund's shares present at a meeting if more than
50% of the shares outstanding are present or (ii) more than 50% of each fund's
outstanding shares.
In addition, Acorn Fund, Acorn International and Acorn USA are subject to a
number of restrictions that may be changed by the board of trustees without
shareholder approval. Under those non-fundamental restrictions, the funds will
not:
a. Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940;
b. Invest more than 33% of its total assets (valued at time of
investment) in securities of foreign issuers [this restriction applies only
to Acorn Fund];
c. Invest more than 10% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers, not including securities
represented by American Depository Receipts [this restriction applies only
to Acorn USA].
d. Invest in companies for the purpose of management or the exercise of
control;
e. 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;
f. Invest more than 10% of its total assets (valued at the time of
investment) in restricted securities;
g. Invest more than 15% of its net assets (valued at time of investment)
in illiquid securities, including repurchase agreements in maturing in more
than seven days; and
h. 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.
Notwithstanding the foregoing investment restrictions, Acorn International
and Acorn USA may purchase securities pursuant to the exercise of subscription
rights, provided that such purchase will not result in either 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
22
<PAGE>
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.
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, 1997 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.............................. 24.98% 24.98%
5 years............................. 126.60% 17.77%
10 years............................ 433.05% 18.20%
Life of Fund (inception 6/10/70).... 7518.52% 17.01%
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
ACORN INTERNATIONAL Average Annual
------------------- Total Return Total Return
------------ --------------
<S> <C> <C>
1 year.............................. 0.19% 0.19%
3 years............................. 31.67% 9.60%
5 years............................. 88.87% 13.56%
Life of Fund (inception 9/23/92).... 101.70% 14.24%
ACORN USA Average Annual
--------- Total Return Total Return
------------ --------------
1 Year.............................. 32.30% 32.30%
Life of Fund (inception 9/4/96)..... 54.13% 38.78%
</TABLE>
The funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the funds are
not necessarily indicative of future results. Each fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, each fund's performance may be
compared with those of market indexes and other mutual funds. In addition to the
performance information described above, a fund might use comparative
performance as computed in a ranking or rating determined by Lipper Analytical
Services, Inc., an independent service that monitors the performance of over
1,000 mutual funds, Morningstar, Inc., or another service.
The funds may note their mention or recognition in newsletters, newspapers,
magazines, or other media. The funds may similarly note mention or recognition
of WAM, or appearances of principals of WAM, in the media.
Investment Adviser
Wanger Asset Management, L.P. ("WAM"), serves as the investment adviser for
the funds and for other institutional accounts. As of the date of this SAI, WAM
has approximately $7.4 billion under management, including the funds. WAM is a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd. ("WAM Ltd."), whose stockholders are Ralph Wanger, Charles P. McQuaid, Leah
J. Zell, Marcel P. Houtzager, Robert A. Mohn and John H. Park. Ralph Wanger is
the president and Howard L. Kastel is the chief executive officer of WAM Ltd. On
matters submitted to the shareholders of WAM Ltd., each shareholder has one vote
(or a lesser vote in the case of new shareholders). With certain exceptions
(including for extraordinary transactions, for which Mr. Wanger's consent is
required), decisions are made by majority vote. WAM commenced operations in
1992.
24
<PAGE>
WAM furnishes continuing investment supervision to the funds under an
investment advisory agreement (the "Agreement") 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. The Agreement will continue in
effect as to each fund through June 30, 1999, and thereafter from year to year
so long as its continuance as to each fund is approved at least annually by (i)
the board of trustees of Acorn or by the holders of a majority of that fund's
outstanding voting securities as defined by the Investment Company Act of 1940
and (ii) a majority of the members of Acorn's board of trustees who are not
otherwise affiliated with Acorn or WAM, cast in person at a meeting called for
that purpose. Any amendment to the Agreement must be approved in the same
manner. The Agreement may be terminated as to a fund without penalty by the vote
of the board of trustees of Acorn or the shareholders of that fund (by a
majority as defined in the 1940 Act) on sixty days' written notice to WAM or by
WAM on sixty days' notice to the fund, and will terminate automatically in the
event of its assignment. The fees payable by a fund under the Agreement are the
obligation only of that fund and impose no liability on the other funds.
The advisory fees the funds pay to WAM are calculated daily and paid
monthly, at the annual rates shown below, which were effective January 1,
1998:
Acorn Fund
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
Acorn USA
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
The advisory fees paid by Acorn Fund for 1997, 1996 and 1995, respectively,
were $14,349,000, $12,437,000 and $10,429,000. The investment advisory fees paid
by Acorn International for 1997, 1996 and 1995 were $16,235,000, $13,255,000 and
$11,667,000. For the year ended December 31, 1997 and from its inception on
September 4, 1996 to December 31, 1996, Acorn USA paid investment advisory fees
of $1,199,000 and $101,000. All advisory fees for periods before January 1, 1998
were paid at the rates in effect at that time, which, for Acorn
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<PAGE>
Fund were lower than the rates of fee shown. WAM advanced all of Acorn USA's
organizational expenses, which are being amortized and reimbursed to WAM through
September 2001.
Acorn has a separate administrative services agreement with WAM under
which, effective January 1, 1998, WAM receives a fee, calculated daily and paid
monthly, at the annual rate of 0.05 of 1% of each fund's average daily net
assets. 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.
Distributor
Shares of each fund are offered for sale by WAM Brokerage Services, L.L.C.
("WAM BD") without any sales commissions, 12b-1 fees or other charges to the
funds or their shareholders. WAM BD is wholly-owned by WAM and WAM Ltd. All
distribution expenses relating to the funds are paid by WAM, including the
payment or reimbursement of any expenses incurred by WAM BD. The Distribution
Agreement will continue in effect through December 31, 1999 and thereafter 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. WAM BD offers the
funds' shares only on a best efforts basis. WAM BD is located at 227 West Monroe
Street, Suite 3000, Chicago, Illinois 60606.
The Trust
The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust dated April 21, 1992 (the "Declaration of 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.
26
<PAGE>
Under Massachusetts law, the shareholders of the Trust may, under certain
circumstances believed to be remote, be held personally liable for the Trust's
obligations. However, the Declaration of Trust disclaims liability of
shareholders and the Trust's trustees and officers for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or contract entered into or executed by the Trust or the
board of trustees. The Declaration of Trust provides for indemnification out of
the assets of the Trust of all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
remote, since it is limited to circumstances in which the disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the board of trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of trustees.
Trustees and Officers
The trustees and officers of the Trust, their dates of birth and their
principal business activities during the past five years are:
Irving B. Harris, trustee and chairman
Two North LaSalle Street, Suite 400 Chicago, Illinois 60602; date of birth
8/4/1910; chairman of the executive committee and director, Pittway
Corporation (multi-product manufacturer and publisher); chairman, William
Harris Investors, Inc. (investment adviser); chairman, The Harris
Foundation (charitable foundation); director, Teva Pharmaceutical
Industries, Inc. (pharmaceutical manufacturer)
Ralph Wanger, trustee and president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
6/21/1934; trustee and president, Wanger Advisors Trust; principal, Wanger
Asset Management, L.P.
James H. Lorie, trustee and vice chairman
1101 East 58th Street, Chicago, Illinois 60637; date of birth 2/23/1922;
retired; Eli B. and Harriet B. Williams Professor of Business
Administration Emeritus, University of Chicago Graduate School of Business;
director, Thornburg Mortgage Asset Corp. (REIT) and Santa Fe Natural
Tobacco
Leo A. Guthart, trustee
165 Eileen Way, Syosset, New York 11791; date of birth 9/26/1937; vice
chairman, Pittway Corporation (multi-product manufacturer and publisher);
chief executive officer, Pittway Corporation's Security Group of Companies
which include ADEMCO (manufacturer of alarm equipment), ADI (distributor of
security equipment), Fire Burglary Instruments (supplier of security
control panels), First Alert Professional (alarm dealers), Alarm Net
(cellular radio service) and Cylink Corporation (supplier of encryption
equipment)(chairman); director, AptarGroup, Inc. (producer of dispensing
valves, pumps and closures); chairman of the board of trustees, Hofstra
University;
27
<PAGE>
chairman, Tech Transfer Island Corp. (private investment partnership);
director, Long Island Research Institute.
Jerome Kahn, Jr., trustee
Two North LaSalle Street, Suite 400, Chicago, Illinois 60602; date of birth
4/13/1934; 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; date of birth 10/12/1935;
senior lecturer in business administration, University of Chicago Graduate
School of Business; business consultant; director, Irex Corporation
(insulation contractor).
Charles P. McQuaid, trustee and senior vice president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
8/27/1953; trustee and senior vice president, Wanger Advisors Trust;
principal and director of research, Wanger Asset Management, L.P.
Roger S. Meier, trustee
1211 S. W. Fifth Avenue, Portland, Oregon 97204; date of birth 1/18/1926;
president, AMCO, Inc. (investment and real estate management); director,
Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited
Partnership (hotel chain); director and advisory board member, Key Bank of
Oregon (banking); chairman of Investment Council and member of Committee of
Legacy Systems (hospital); executive director and chairman of investment
committee, Portland Art Museum.
Adolph Meyer, Jr., trustee
1511 West Webster Avenue, Chicago, Illinois 60614; date of birth
11/26/1923; president, Gulco Corp. (leather manufacturer).
Marcel P. Houtzager, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
10/26/1960; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Kenneth A. Kalina, assistant treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; date of birth
8/4/1959; assistant treasurer, Wanger Advisors Trust; Fund controller,
Wanger Asset Management, L.P., since September 1995; prior thereto,
treasurer of the Stein Roe Mutual Funds.
Merrillyn J. Kosier, senior vice president and secretary
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
12/10/1959; senior vice president and secretary, Wanger Advisors Trust;
director of marketing and shareholder services, Wanger Asset Management,
L.P., since September 1993; prior thereto, vice president of marketing,
Kemper Financial Services, Inc.
Bruce H. Lauer, vice president and treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
7/22/1957; vice president and treasurer, Wanger Advisors Trust; chief
administrative officer, Wanger Asset Management, L.P. since April 1995;
director, Wanger Investment Company plc; prior thereto, first vice
president, investment accounting, Kemper Financial Services, Inc.
28
<PAGE>
Robert A. Mohn, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
9/13/1961; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
John H. Park, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
5/30/1967; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management. L.P. (since 1993); analyst,
Ariel Capital Management, Inc., prior thereto.
Leah J. Zell, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
5/23/1949; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
*Messrs. McQuaid and Wanger are trustees who are interested persons of
Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs.
Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member,
of the executive committee, which has authority during intervals between
meetings of the board of trustees to exercise the powers of the board, with
certain exceptions. As of December 1, 1997, the trustees and officers of Acorn
as a group owned beneficially less than 1% of the outstanding shares of the
funds.
At March 31, 1998, The State of Illinois Deferred Compensation Plan held
19,141,517 shares, and Charles Schwab & Co., Inc. ("Schwab") held 10,704,590
shares of Acorn Fund as owners of record, but not beneficially (9.05% and 5.06%
of the outstanding shares, respectively). Schwab held 11,597,442 shares of Acorn
International (13.87% of the outstanding shares) as owner of record, but not
beneficially. Schwab held 1,153,211 shares, and National Financial Services
Corporation and Firstcinco Reinvest held 1,032,419 and 1,103,447 shares, of
Acorn USA (7.84%, 7.02% and 7.54% of the outstanding shares, respectively) as
owners of record, but not beneficially.
During 1997 the funds paid fees aggregating $302,000 to board members who
were not affiliated with WAM. The following table sets forth the total
compensation paid by the Trust during the fiscal year ended December 31, 1997 to
each of the trustees of the Trust:
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation from Compensation
Name of Trustee from Acorn from Acorn Acorn from
Fund International USA Fund Complex(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irving B. Harris $53,900 $33,340 $1,760 $89,000
Leo A. Guthart 21,665 13,605 730 36,000
Jerome Kahn, Jr. 24,085 14,625 790 39,500
David C. Kleinman 24,085 14,625 790 39,500
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
James H. Lorie 18,775 11,100 625 30,500
Charles P. McQuaid 0 0 0 0
Roger S. Meier 21,665 13,105 730 35,500
Adolph Meyer, Jr. 19,600 11,740 660 32,000
Ralph Wanger 0 0 0 0
- -------------------------------------------------------------------------------------
</TABLE>
The officers and trustees affiliated with WAM serve without any
compensation from the Trust. Acorn has adopted a deferred compensation plan
(the "Plan") for its non-interested trustees. Under the Plan, the trustees who
are not "interested persons" of Acorn or WAM ("participating trustees") may
defer receipt of all or a portion of their compensation from the Trust in order
to defer payment of income taxes or for other reasons. The deferred
compensation payable to a participating trustee is credited to a book reserve
account as of the business day such compensation would have been paid to such
trustee. The deferred compensation accrues income from the date of credit in an
amount equal to the amount that would have been earned had such deferred
compensation (and all income earned thereon) been invested and reinvested in
shares of one or more of the funds. If a participating trustee retires, such
trustee may elect to receive payments under the plan in a lump sum or in equal
annual installments over a period of five years. If a participating trustee
dies, any amount payable under the Plan will be paid to that trustee's
beneficiaries. Each fund's obligation to make payments under the Plan is a
general obligation of that fund. No fund is liable for any other fund's
obligations to make payments under the Plan.
Purchasing and Redeeming Shares
Purchases and redemptions are discussed in the funds' prospectus under the
headings "How to Buy Shares" and "How to Sell Shares." All of that information
is incorporated herein by reference.
Acorn may from time to time authorize certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share purchase
and redemption orders on behalf of the funds. Some of those authorized agents
may charge transaction fees for their services. For purchase orders placed
through an authorized agent, a shareholder will pay the fund's NAV per share
(see "Net Asset Value," below) next computed after the receipt by the authorized
agent of such purchase order, plus any applicable transaction charge imposed by
the agent. For redemption orders placed through an authorized agent, a
shareholder will receive redemption proceeds which reflect the NAV per share
next computed after the receipt by the authorized agent of the redemption order,
less any redemption fees imposed by the agent.
In some instances, an authorized agent will not charge any transaction fees
directly to investors in a fund. However, for accounting and shareholder
servicing services provided by such agent with respect to fund share accounts
held on behalf of its customers, the agent may
30
<PAGE>
charge a fee, generally a percentage of the annual average value of those
accounts. WAM pays any such fees.
Net Asset Value
Share purchase and redemption orders will be priced at a fund's net asset
value next computed after such orders are received and accepted by: (i) Acorn's
transfer agent; (ii) a broker-dealer or other financial services company
authorized by Acorn to accept purchase and redemption orders on the fund's
behalf; or (iii) such authorized broker-dealer's designee. 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 January, the third Monday in February,
Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving,
and Christmas. If one of those holidays falls on a Saturday or Sunday, the NYSE
will be closed on the preceding Friday or the following Monday, respectively.
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.
For purposes of computing the net asset value of a fund share, a security
traded on a securities exchange, or in an over-the-counter market in which
transaction prices are reported, is generally valued at the last sale price at
the time of valuation. A security for which there is no reported sale on the
valuation date is generally 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, or for which the market
quotation is determined not to represent a fair value, and any other assets are
valued at a fair value as determined in good faith by the board of trustees.
Money market instruments having a maturity of 60 days or less from the valuation
date are valued on an amortized cost basis. All assets and liabilities
initially expressed in foreign currencies are converted into U.S. dollars at the
mean of the bid and offer prices of such currencies against U.S. dollars quoted
by any major bank or dealer. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established in good
faith by the board of trustees.
Trading in the foreign securities of the funds' portfolios may take place
in various foreign markets at certain times and on certain days (such as
Saturday) when the NYSE is not open for business and the funds do not calculate
their net asset values. Conversely, trading in the funds' foreign securities
may not occur at times and on days when the NYSE is open. Because of the
different trading hours in various foreign markets, the calculation of net asset
value does not take place contemporaneously with the determinations of the
prices of many of the funds' foreign securities. Those timing differences may
have a significant effect on a fund's net asset value.
31
<PAGE>
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 account value
falls below $1,000 because of share redemptions. 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.
WAM acts as a shareholder servicing agent for the Reich & Tang Money Funds
(the "Money Funds") in connection with an exchange plan between the Acorn funds
and the Money Funds (the "Switch Plan"). 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 avoid payment 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, will be taxable either as a
dividend or capital gain distribution, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any distribution that is
paid in January but was declared in the prior calendar year is deemed paid in
the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gains. Distributions of net mid-term
capital gains are taxable to you as mid-term capital gains (currently taxed at a
maximum rate of 28%); distributions of net long-term capital gains are taxable
to you as long-term capital gains (currently taxed at a maximum rate of 20%).
Classification as mid-term or long-term gains depends on how long the security
sold had been held by the fund. Long-term gains are those from securities held
more than 18 months; mid-term gains are from securities held more than one year
but not more than 18 months.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts. If you
32
<PAGE>
realize a loss on the sale of fund shares held for six months or less, your
short-term loss is recharacterized as long-term to the extent of any long-term
capital gain distributions you have received with respect to those shares.
Under certain circumstances, Acorn may be required to withhold 31% federal
income tax ("backup withholding") from dividend, capital gain and redemption
payments to you. Backup withholding may be required if: (a) you fail to furnish
your social security or other tax identification number; (b) you fail to certify
that your social security or tax identification number is correct and that you
are not subject to backup withholding due to the underreporting of certain
income; or (c) the IRS informs Acorn that your tax identification number is
incorrect. These certifications are contained in the application that you
complete when you open your fund account. Acorn must promptly pay the IRS all
amounts withheld. Therefore, it is usually not possible for Acorn to reimburse
you for amounts withheld. You may, however, claim the amount withheld as a
credit on your federal income tax return.
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 IRS 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. Shareholders who are not liable for federal income taxes, including
retirement plans qualified under Section 401 of
33
<PAGE>
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 information that many
securities brokers have customarily furnished in connection with
34
<PAGE>
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 the funds during the last three fiscal
years, not including the gross underwriting spread on securities purchased in
underwritten public offerings, were as follows:
<TABLE>
<CAPTION>
Fund 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C>
Acorn Fund $2,952,000 $3,440,000 $2,565,000
Acorn International 5,350,000 3,929,000 3,113,000
Acorn USA 216,000 88,900* --
</TABLE>
*From commencement of operations on September 4, 1996.
During 1997, the funds paid brokerage commissions in connection with
portfolio transactions involving purchases and sales to brokers who furnished
investment research services to the funds, as follows: Acorn Fund paid
approximately $1,549,000 in brokerage commissions on purchases and sales
aggregating approximately $479 million; Acorn International paid approximately
$4,755,000 in brokerage commissions on purchases and sales aggregating
approximately $1,204 million; and Acorn USA paid approximately $71,000 in
brokerage commissions on purchases and sales aggregating approximately $28
million.
Acorn and WAM each have adopted a code of ethics that, among other things,
regulates the personal transactions in securities of certain officers,
directors, partners and employees of Acorn and WAM. 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 more of the funds and one or more other advisory clients. If
any 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 ("State Street") 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
35
<PAGE>
expenses of the funds, and performing other administrative duties, all as
directed by authorized persons of the funds. State Street 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 State Street to deposit certain portfolio securities of the
funds in central depository systems as permitted under federal law. The funds
may invest in obligations of State Street and may purchase or sell securities
from or to State Street.
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.
36
<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.
37
<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.
38
<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 1997 Annual Report; a copy of the report was filed
with the Commission on February 24, 1998 and is not included in
this amendment):
Statement of Investments at December 31, 1997
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets at December 31, 1997
Notes to financial statements
(ii) Acorn International (incorporated by reference to the following
portions of Registrant's 1997 Annual Report; a copy of the report
was filed with the Commission on February 24, 1998 and is not
included in this amendment):
Statement of Investments at December 31, 1997
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets at December 31, 1997
Notes to financial statements
(iii) Acorn USA (incorporated by reference to the following portions of
Registrant's 1997 Annual Report; a copy of the report was filed
with the Commission on February 24, 1998 and is not included in
this amendment):
Statement of Investments at December 31, 1997
1
<PAGE>
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets at December 31, 1997
Notes to financial statements
(3) 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, 1997.
Schedules II, IV and V - The required information is not present.
(b) Exhibits:
1. Agreement and declaration of trust(1)
2. Bylaws, as amended October 24, 1997 (exhibit 2.3 to post-effective
amendment no. 60)(6)
3. None
4.1 Specimen share certificate - Acorn Fund(2)
4.2 Specimen share certificate - Acorn International(2)
4.3 Specimen share certificate - Acorn USA(3)
5.1 Investment Advisory Agreement among Acorn Fund, Acorn International,
Acorn USA and Wanger Asset Management, L.P., dated January 1, 1998
5.2 Administration Agreement among Acorn Fund, Acorn International,
Acorn USA and Wanger Asset Management, L.P., dated January 1, 1998
5.3 Organizational Expenses Agreement between Acorn Investment Trust and
Wanger Asset Management, L.P. dated September 3, 1996
6. Distribution Agreement between Acorn Investment Trust and WAM
Brokerage Services, L.L.C. dated January 1, 1998
7. None
8.1 Custodian contract between the Registrant and State Street Bank and
Trust Company dated July 1, 1992(1)
2
<PAGE>
8.2 Letter agreement applying custodian contract (exhibit 8.1)(1)
8.3 Letter agreement applying custodian contract (exhibit 8.1) to Acorn
USA
9. None
10. Opinion and consent of Bell, Boyd & Lloyd
11. Consent of Ernst & Young LLP
12. None
13. None
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(4)
14.2 SIMPLE-IRA plan and application(4)
15. None
16.1 Computation of performance information - Acorn Fund(1)
16.2 Computation of performance information - Acorn International(1)
16.3 Computation of performance information - Acorn USA(5)
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
- ----------------------------
(1) 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, Securities Act file number 2-34223 (the "Registration Statement"),
filed on April 30, 1996.
(2) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 54 to the Registration Statement,
filed on June 18, 1996.
(3) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 55 to the Registration Statement,
filed on September 3, 1996.
(4) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 56 to the Registration Statement,
filed on April 30, 1997.
(5) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 59 to the Registration Statement,
filed on November 25, 1997.
(6) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 60 to the Registration Statement,
filed on December 30, 1997.
3
<PAGE>
Item 25. Persons Controlled By or Under Common Control with Registrant
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with the
Registrant within the meaning of this item. The information in the prospectus
under the captions "The Funds in Detail - Organization" and "The Funds in
Detail - Management" and in the Statement of Additional Information under the
caption "Investment Adviser" is incorporated by reference.
Item 26. Number of Holders of Securities
At March 31, 1998, there were 56,590 record holders of Registrant's shares
of beneficial interest of the series designated Acorn Fund; 61,540 record
holders of Registrant's shares of beneficial interest of the series designated
Acorn International; and 8,529 record holders of Registrant's shares of
beneficial interest of the series designated Acorn USA.
Item 27. Indemnification
Article VIII of the Agreement and Declaration of Trust of the Registrant
(exhibit 1) provides in effect that Registrant shall provide certain
indemnification of its trustees and officers. In accordance with Section 17(h)
of the Investment Company Act, that provision shall not protect any person
against any liability to the Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Registrant, its trustees and officers, its investment adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
Item 28. Business and Other Connections of Investment Adviser
The information in the prospectus under the caption "The Funds in Detail -
Management" and in the Statement of Additional Information under the caption
"Investment Adviser" 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,
4
<PAGE>
profession, vocation or employment of a substantial nature either for its own
account or in the capacity of director, officer, employee, partner or trustee.
Item 29. Principal Underwriters
----------------------
WAM Brokerage Services, L.L.C. also acts as principal underwriter for
Wanger Advisors Trust.
<TABLE>
<CAPTION>
Name Positions and Offices with Positions and Offices with
Underwriters Registrant
<S> <C> <C>
Bruce H. Lauer President Vice President and Treasurer
Merrillyn J. Kosier Vice President and Secretary Senior 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.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chicago, Illinois on April 30, 1998.
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, 1998
- ----------------------- )
Charles P. McQuaid )
)
)
/s/Roger S. Meier Trustee )
- ----------------------- )
Roger S. Meier )
)
/s/Adolph Meyer, Jr. Trustee )
- ----------------------- )
Adolph Meyer, Jr. )
)
/s/Ralph Wanger Trustee and President )
- ----------------------- (principal executive )
Ralph Wanger officer) )
)
/s/Bruce H. Lauer Treasurer (principal )
- ----------------------- financial and accounting )
Bruce H. Lauer officer) )
</TABLE>
6
<PAGE>
Index of Exhibits Filed with this Amendment
-------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<C> <S>
5.1 Investment Advisory Agreement among Acorn Fund, Acorn
International, Acorn USA and Wanger Asset Management,
L.P., dated January 1, 1998
5.2 Administration Agreement among Acorn Fund, Acorn
International, Acorn USA and Wanger Asset Management,
L.P., dated January 1, 1998
5.3 Organizational Expenses Agreement between Acorn
Investment Trust and Wanger Asset Management, L.P. dated
September 3, 1996
6 Distribution Agreement between Acorn Investment Trust
and WAM Brokerage Services, L.L.C., dated January 1,
1998
8.3 Letter agreement applying custodian contract (exhibit
8.1) to Acorn USA
10 Opinion and Consent of Bell, Boyd & Lloyd
11 Consent of Ernst & Young LLP
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
</TABLE>
<PAGE>
Exhibit 5.1
INVESTMENT ADVISORY AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company ("Acorn"), and Wanger Asset Management, L.P., a
Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser ("WAM"), agree that:
1. Engagement of WAM. Acorn appoints WAM to furnish investment advisory
and other services to Acorn for its series designated Acorn Fund, Acorn
International and Acorn USA (each, a "Fund"), and WAM accepts that appointment,
for the period and on the terms set forth in this agreement.
If Acorn establishes one or more series in addition to the Funds named
above with respect to which it desires to retain WAM as investment adviser
hereunder, and if WAM is willing to provide such services under this agreement,
Acorn and WAM may add such new series to this agreement, by written supplement
to this agreement. Such supplement shall include a schedule of compensation to
be paid to WAM by Acorn with respect to such series and such other modifications
of the terms of this agreement with respect to such series as Acorn and WAM may
agree. Upon execution of such a supplement by Acorn and WAM, that series will
become a Fund hereunder and shall be subject to the provisions of this agreement
to the same extent as the Funds named above, except as modified by the
supplement.
2. Services of WAM.
(a) Investment Management. Subject to the overall supervision and control
of Acorn's board of trustees (the "Board"), WAM shall have supervisory
responsibility for the general management and investment of the Funds' assets.
WAM shall comply with the 1940 Act and with all applicable rules and regulations
of the Securities and Exchange Commission, the provisions of the Internal
Revenue Code applicable to the Funds as regulated investment companies, the
investment policies and restrictions, portfolio transaction policies and the
other statements concerning the Funds in Acorn's agreement and declaration of
trust, bylaws, and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and policy decisions and procedures adopted by the
Board from time to time.
WAM is authorized to make the decisions to buy and sell securities and
other assets for the Funds, to place the Funds' portfolio transactions with
broker-dealers, and to negotiate the terms of such transactions including
brokerage commissions on brokerage transactions, on behalf of the Funds. WAM is
authorized to exercise discretion within the Funds' policy concerning allocation
of its portfolio brokerage, as permitted by law, including but not limited to
section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not
be required to make any reduction in its investment advisory fees.
<PAGE>
(b) Reports and Information. WAM shall furnish to the Board periodic
reports on the investment strategy and performance of the Funds and such
additional reports and information as the Board or the officers of Acorn may
reasonably request.
(c) Customers of Financial Institutions. It is understood that WAM may,
but shall not be obligated to, make payments from its own resources to financial
institutions (which may include banks, broker-dealers, recordkeepers,
administrators and others) that provide, either directly or through agents,
administrative and other services with respect to shareholders who are customers
of such institutions, including establishing shareholder accounts, assisting
Acorn's transfer agent with respect to recording purchase and redemption
transactions, advising shareholders about the status of their accounts, current
yield and dividends declared and such related services as the shareholders or
the Funds may request.
(d) Confidentiality. WAM shall treat confidentially and as proprietary
information of Acorn all records and other information relating to Acorn or to
prior, present or potential shareholders of Acorn, and will not use such records
or information for any purpose other than in the performance of its
responsibilities and duties hereunder, except (i) after prior notification to
and approval by Acorn, (ii) when so requested by Acorn, or (iii) as required by
applicable law or regulation, provided that, in the case of any disclosure
pursuant to applicable law or regulation, WAM shall, to the extent it is
reasonably able to do so, provide Acorn with prior notice in order to allow
Acorn to contest such request, requirement or order.
(e) Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, WAM agrees to maintain records relating to its services
under this agreement, and further agrees that all records that it maintains for
Acorn are the property of Acorn and to surrender promptly to Acorn any of such
records upon Acorn's request. WAM further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 3la-1 under the 1940 Act.
(f) Status of WAM. WAM shall for all purposes herein be deemed to be an
independent contractor and not an agent of Acorn and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent
Acorn in any way. WAM agrees to notify the Trust promptly of any change in the
identity of WAM's general partner.
3. Expenses to be Paid by Trust. Except as otherwise provided in this
agreement or any other contract to which Acorn is a party, Acorn shall pay all
expenses incidental to its organization, operations and business, including,
without limitation:
(a) all charges of depositories, custodians, sub-custodians and other
agencies for the safekeeping and servicing of its cash, securities and
other property and of its transfer agents and registrars and its
dividend disbursing and redemption agents, if any;
(b) all charges of its administrator, if any;
(c) all charges of legal counsel and of independent auditors;
2
<PAGE>
(d) all compensation of trustees other than those affiliated with WAM or
Acorn's administrator, if any, and all expenses incurred in connection
with their services to Acorn;
(e) all expenses of preparing, printing and distributing notices, proxy
solicitation materials and reports to shareholders of the Funds;
(f) all expenses of meetings of shareholders of the Funds;
(g) all expenses of registering and maintaining the registration of Acorn
under the 1940 Act and of shares of the Funds under the 1933 Act,
including all expenses of preparation, filing and printing of annual
or more frequent revisions of the Funds' registration statements under
the 1940 Act and 1933 Act, and of supplying each then existing
shareholder or beneficial owner of shares of the Funds of a copy of
each revised prospectus or supplement thereto, and of supplying a copy
of the statement of additional information upon request to any then
existing shareholder;
(h) all costs of borrowing money;
(i) all expenses of publication of notices and reports to shareholders and
to governmental bodies or regulatory agencies;
(j) all taxes and fees payable to federal, state or other governmental
agencies, domestic or foreign, and all stamp or other taxes;
(k) all expenses of printing and mailing certificates for shares of a
Fund;
(l) all expenses of bond and insurance coverage required by law or deemed
advisable by the Board;
(m) all expenses of qualifying and maintaining qualification of, or
providing appropriate notification of intention to sell relating to,
shares of the Funds under the securities laws of the various states
and other jurisdictions, and of registration and qualification of
Acorn under any other laws applicable to Acorn or its business
activities;
(n) all fees, dues and other expenses related to membership of Acorn in
any trade association or other investment company organization; and
(o) any extraordinary expenses.
In addition to the payment of expenses, Acorn shall also pay all brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities for each Fund.
4. Allocation of Expenses Paid by Acorn. Any expenses paid by Acorn that
are attributable solely to the organization, operation or business of a Fund or
Funds shall be paid solely out of the assets of that Fund or Funds. Any expense
paid by Acorn that is not solely attributable to a Fund or Funds, nor solely to
any other series of Acorn, shall be apportioned in such manner as Acorn or
Acorn's administrator determines is fair and appropriate, or as otherwise
specified by the Board.
3
<PAGE>
5. Expenses to be Paid by WAM. WAM shall furnish to Acorn, at WAM's own
expense, office space and all necessary office facilities, equipment and
personnel required to provide its services pursuant to this agreement. WAM shall
also assume and pay all expenses of marketing shares of the Funds and all
expenses of placement of securities orders and related bookkeeping.
6. Compensation of WAM. For the services to be rendered and the expenses
to be assumed and to be paid by WAM under this agreement, Acorn shall pay to WAM
fees accrued daily and paid monthly at the annual rates shown below:
Acorn Fund
Assets Rate of Fee
------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Assets Rate of Fee
------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
Acorn USA
Assets Rate of Fee
------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
The fees attributable to each Fund shall be a separate charge to such Fund and
shall be the several (and not joint or joint and several) obligation of each
such Fund.
7. Services of WAM Not Exclusive. The services of WAM to Acorn under
this agreement are not exclusive, and WAM shall be free to render similar
services to others so long as its services under this agreement are not impaired
by such other activities.
8. Services Other Than as Adviser. Within the limits permitted by law,
WAM may receive compensation from Acorn for other services performed by it for
Acorn which are not within the scope of the duties of WAM under this agreement,
including the provision of brokerage services.
4
<PAGE>
9. Standard of Care. To the extent permitted by applicable law, neither
WAM nor any of its partners, officers, agents or employees shall be liable to
Acorn or its shareholders for any loss suffered by Acorn or its shareholders as
a result of any error of judgment, or any loss arising out of any investment, or
as a consequence of any other act or omission of WAM in the performance of its
duties under this agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the part of WAM, or by reason of
reckless disregard by WAM of its obligations and duties under this agreement.
10. Effective Date, Duration and Renewal. This agreement shall become
effective on January 1, 1998. Unless terminated as provided in Section 11, this
agreement shall continue in effect as to a Fund until June 30, 1999 and
thereafter from year to year only so long as such continuance is specifically
approved at least annually (a) by a majority of those trustees who are not
interested persons of Acorn or of WAM, voting in person at a meeting called for
the purpose of voting on such approval, and (b) by either the Board or vote of
the holders of a "majority of the outstanding shares" of that Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
11. Termination. This agreement may be terminated as to a Fund at any
time, without payment of any penalty, by the Board, or by a vote of the holders
of a majority of the outstanding shares of that Fund, upon 60 days' written
notice to WAM. This agreement may be terminated by WAM at any time upon 60
days' written notice to Acorn. This agreement shall terminate automatically in
the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act).
12. Amendment. This agreement may not be amended as to a Fund without the
affirmative vote (a) of a majority of those trustees who are not "interested
persons" (as defined in section 2(a)(19) of the 1940 Act) of Acorn or of WAM,
voting in person at a meeting called for the purpose of voting on such approval,
and (b) of the holders of a majority of the outstanding shares of that Fund.
13. Non-Liability of Trustees and Shareholders. All obligations of Acorn
hereunder shall be binding only upon the assets of Acorn (or the appropriate
Fund) and shall not be binding upon any trustee, officer, employee, agent or
shareholder of Acorn. Neither the authorization of any action by the Trustees
or shareholders of Acorn nor the execution of this agreement on behalf of Acorn
shall impose any liability upon any trustee, officer or shareholder of Acorn.
14. Notices. Any notice, demand, change of address or other communication
to be given in connection with this agreement shall be given in writing and
shall be given by personal delivery, by registered or certified mail or by
transmittal by facsimile or other electronic medium addressed to the recipient
as follows:
5
<PAGE>
If to WAM: Wanger Asset Management, L.P.
Attention: Ralph Wanger
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-0016
If to Acorn: Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-1919
with a copy to:
Bell, Boyd & Lloyd
Attention: Janet D. Olsen
Three First National Plaza, Suite 3300
Chicago, Illinois 60602
Telephone: 312/372-1121
Facsimile: 312/372-2098
All notices shall be conclusively deemed to have been given on the day of
actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
15. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By /s/ Merrillyn J. Kosier
-----------------------------------
Merrillyn J. Kosier,
Senior Vice President and Secretary
6
<PAGE>
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By /s/ Robert A. Mohn
--------------------------
Robert A. Mohn, Principal
7
<PAGE>
Exhibit 5.2
ADMINISTRATION AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company ("Acorn"), on its own behalf and on behalf of each
of the Funds listed on Schedule A, as such Schedule shall be amended from time
to time (each, a "Fund," together, the "Funds"), and Wanger Asset Management,
L.P., a Delaware limited partnership ("WAM"), agree that:
1. Appointment and Acceptance. Acorn hereby appoints WAM to act as
Administrator of the Funds, subject to the supervision and direction of the
Board of Trustees of Acorn (the "Board"), as hereinafter set forth. WAM hereby
accepts such appointment and agrees to furnish or cause to be furnished the
services contemplated by this Agreement.
2. Duties of WAM.
(a) WAM shall perform or arrange for the performance of the following
administrative and clerical services:
1) maintain and preserve the books and records, including financial and
corporate records, of Acorn as required by law or otherwise for the
proper operation of Acorn;
2) supervise the preparation and, subject to approval by Acorn, filing of
registration statements and amendments thereto, notices, reports, tax
returns and other documents required by U.S. Federal, state and other
applicable laws and regulations (other than state "blue sky" laws),
including proxy materials and periodic reports to Fund shareholders;
3) oversee the preparation and filing of registration statements, notices,
reports and other documents required by state "blue sky" laws, and
oversee the monitoring of sales of shares of the Funds for compliance
with state securities laws;
4) calculate and publish the net asset value of each Fund's shares,
including provision of and payment for any third party pricing
services;
5) calculate dividends and distributions and performance data for each
Fund, and prepare other financial information regarding Acorn;
6) oversee and assist in the coordination of, and, as the Board may
reasonably request or deem appropriate, make reports and
recommendations to the Board on, the performance of administrative and
professional services rendered to the Funds by others, including the
custodian, registrar, transfer agent and dividend disbursing agent,
shareholder servicing agents, accountants, attorneys, underwriters,
brokers and
<PAGE>
dealers, corporate fiduciaries, insurers, banks and such other persons
in any such other capacity deemed to be necessary or desirable;
7) furnish corporate secretarial services to Acorn, including, without
limitation, preparation or supervision of the preparation by Acorn's
counsel, of materials necessary in connection with meetings of the
Board, including minutes, notices of meetings, agendas and other Board
materials;
8) provide Acorn with the services of an adequate number of persons
competent to perform the administrative and clerical functions
described herein;
9) provide Acorn with administrative office and data processing
facilities;
10) arrange for payment of each Fund's expenses;
11) provide routine accounting services to the Funds, and consult with
Acorn's officers, independent accountants, legal counsel, custodian,
and transfer and dividend disbursing agent in establishing the
accounting policies of Acorn;
12) prepare such financial information and reports as may be required by
any banks from which Acorn borrows funds;
13) develop and implement procedures to monitor each Fund's compliance with
regulatory requirements and with each Fund's investment policies and
restrictions as set forth in each Fund's currently effective Prospectus
and Statement of Additional Information filed under the Securities Act
of 1933, as amended;
14) provide for the services of principals and employees of WAM who may be
appointed as officers of Acorn, including the President, Vice
Presidents, Treasurer, Secretary and one or more assistant officers;
15) provide services to shareholders of the Funds, including responding to
shareholder inquiries regarding, among other things, share prices,
account balances, dividend amounts and payment dates, and changes in
account registrations or options, to the extent not provided by a
Fund's transfer agent; and
16) provide such assistance to the Investment Adviser, the custodian, other
Trust service providers and Acorn's counsel and auditors as generally
may be required to carry on properly the business and operations of
Acorn.
Acorn agrees to deliver, or cause to be delivered, to WAM, on a timely
basis, such information as may be necessary or appropriate for WAM's performance
of its duties and responsibilities hereunder, including but not limited to,
shareholder reports, records of transactions, valuations of investments and
records of expenses borne by each Fund, and WAM shall be entitled to rely on the
accuracy and completeness of such information in performing its duties
hereunder.
2
<PAGE>
(b) In providing for any or all of the services listed in section 2(a)
hereof, and in satisfaction of its obligations to provide such services, WAM may
enter into agreements with one or more other persons to provide such services to
Acorn, provided that any such agreement shall have been approved by the Board,
and provided further that WAM shall be as fully responsible to Acorn and the
Funds for the acts and omissions of any such service providers as it would be
for its own acts or omissions hereunder.
(c) All activities of WAM shall be conducted in accordance with Acorn's
agreement and declaration of trust, bylaws and registration statement, under the
supervision and direction of the Board, and in conformity with the 1940 Act and
other applicable federal and state laws and regulations.
3. Expenses of WAM. WAM assumes the expenses of and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this agreement, and shall at its own expense provide office space, facilities,
equipment and the necessary personnel which it is obligated to provide under
section 2(a) hereof, except that Acorn shall pay the fees and expenses of its
legal counsel, auditors and any blue sky service providers. In addition, WAM
shall be responsible for the payment of any persons engaged pursuant to section
2(b) hereof. Acorn shall assume and pay or cause to be paid all other expenses
of the Funds.
4. Compensation of WAM. For the services provided to Acorn and each Fund
by WAM pursuant to this Agreement, each Fund shall pay WAM for its services, a
fee accrued daily and paid monthly at the annual rate of 0.05% of such Fund's
average daily net assets.
5. Limitation of Liability of WAM. WAM shall not be liable to Acorn or
any Fund for any error of judgment or mistake of law or for any loss arising out
of any act or omission by WAM, including officers, agents and employees of WAM
and its affiliates, or any persons engaged pursuant to section 2(b) hereof, in
the performance of its duties hereunder, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties hereunder.
6. Activities of WAM. The services of WAM under this Agreement are not
exclusive, and WAM and its affiliates shall be free to render similar services
to others and services to Acorn in other capacities.
7. Duration and Termination of this Agreement.
(a) This Agreement shall become effective on January 1, 1998 and shall
continue in effect with respect to each Fund until June 30, 1999, and thereafter
from year to year so long as such continuation is specifically approved at least
annually by the Board, including a majority of the members of the Board who are
not "interested persons" of Acorn within the meaning of the 1940 Act and who
have no direct or indirect interest in this agreement; provided, however, that
this agreement may be terminated at any time without the payment of any penalty,
on behalf of any or all of the Funds, by Acorn, by the Board or, with respect to
any Fund, by "vote of a majority of the outstanding voting securities" (as
defined in the 1940 Act) of that Fund, or by
3
<PAGE>
WAM, in each case on not less than 60 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its "assignment" as
defined in the 1940 Act.
(b) WAM hereby agrees that the books and records prepared hereunder with
respect to Acorn are the property of Acorn and further agrees that upon the
termination of this agreement or otherwise upon request WAM will surrender
promptly to Acorn copies of the books and records maintained or required to be
maintained hereunder, including in such machine-readable form as agreed upon by
the parties, in accordance with industry practice, where applicable.
8. Amendment. This Agreement may be amended by the parties hereto only if
such amendment is specifically approved by the Board and such amendment is set
forth in a written instrument executed by each of the parties hereto.
9. Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Illinois as at the time
in effect and the applicable provisions of the 1940 Act. To the extent that the
applicable law of the State of Illinois, or any provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
10. Counterparts. This Agreement may be executed by the parties hereto in
counterparts and if so executed, the separate instruments shall constitute one
agreement.
11. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed to be received on the earlier date
of the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed:
If to WAM: Wanger Asset Management, L.P.
Attention: Ralph Wanger
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-1919
If to Acorn: Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-0016
with a copy to:
Bell, Boyd & Lloyd
Attention: Janet D. Olsen
Three First National Plaza, Suite 3300
Chicago, Illinois 60602
4
<PAGE>
Telephone: 312 372-1121
Facsimile: 312 372-2098
or at such other address as either party may designate by written notice to
the other. Notice shall also be deemed sufficient if given by telex, telecopier,
telegram or similar means of same day delivery (with a confirming copy by mail
as provided herein).
12. Separate Funds. This Agreement shall be construed to be made by Acorn
as a separate agreement with respect to each Fund, and under no circumstances
shall the rights, obligations or remedies with respect to a particular Fund be
deemed to constitute a right, obligation or remedy applicable to any other Fund.
13. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes any prior
arrangements, agreements or understandings.
14. Non-Liability of Trustees and Shareholders. All obligation of Acorn
hereunder shall be binding only upon the assets of Acorn (or the appropriate
Fund) and shall not be binding upon any trustee, officer, employee, agent or
shareholder of Acorn. Neither the authorization of any action by the Trustees or
shareholders of Acorn nor the execution of this agreement on behalf of Acorn
shall impose any liability upon any trustee, officer or shareholder of Acorn.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By /s/ Merrillyn J. Kosier
-------------------------------------
Merrillyn J. Kosier,
Senior Vice President and Secretary
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By /s/ Robert A. Mohn
-------------------------------------
Robert A. Mohn, Principal
5
<PAGE>
SCHEDULE A
to the Administration Agreement
between
Acorn Investment Trust
and
Wanger Asset Management, L.P.
Funds to which the Administration Agreement is Applicable
---------------------------------------------------------
Acorn Fund
Acorn International
Acorn USA
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By /s/ Merrillyn J. Kosier
-------------------------------------
Merrillyn J. Kosier,
Senior Vice President and Secretary
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By /s/ Robert A. Mohn
-------------------------------------
Robert A. Mohn, Principal
6
<PAGE>
Exhibit 5.3
ACORN USA
ORGANIZATIONAL EXPENSES AGREEMENT
ACORN INVESTMENT TRUST, a Massachusetts business trust (the "Trust") and
WANGER ASSET MANAGEMENT, L.P., a Delaware limited partnership ("WAM"), in
consideration for the engagement by the Trust of WAM as the investment advisor
for the series of the Trust designated Acorn USA (the "Fund") pursuant to a
separate agreement, hereby agree as follows:
1. Advancement of Expenses. WAM shall pay all of the organizational
expenses of the Fund, including but not limited to initial franchise taxes,
registration fees and fees for services rendered prior to the commencement of
the initial public offering of shares of the Fund, subject to the right to be
reimbursed pursuant to paragraph 2.
2. Reimbursement and Amortization of Expenses. The Fund shall amortize
the organizational expenses over a period of 60 months from the commencement of
the initial public offering of shares of the Fund, and the Fund shall reimburse
WAM during the period of such amortization by paying to WAM on the last business
day of each month an amount equal to the organizational expenses amortized by
the Fund during that month.
3. Limitation on Reimbursement. If the Fund should be liquidated during
such five-year period prior to the complete amortization of all organizational
expenses, neither the Fund nor the Trust shall have any duty to reimburse WAM
for organizational expenses unamortized as of the time of liquidation.
4. Obligation of the Trust. This agreement is executed by an officer of
the Trust on behalf of the Trust and not individually. The obligations of this
agreement are binding only upon the assets and property of the Fund and the
Trust and not upon the trustees, officers or shareholders of the Trust
individually, nor upon the assets of any other series of the Trust. The
Agreement and Declaration of Trust under which the Trust was organized and
operates is on file with the Secretary of the Commonwealth of Massachusetts.
Dated: September 3, 1996
WANGER ASSET MANAGEMENT, L.P.,
by WANGER ASSET MANAGEMENT,
ACORN INVESTMENT TRUST LTD., its General Partner
By: /s/ Ralph Wanger By: /s/ Ralph Wanger
----------------------------- ---------------------------
Ralph Wanger, President Ralph Wanger, President
<PAGE>
Exhibit 6
DISTRIBUTION AGREEMENT
BETWEEN
ACORN INVESTMENT TRUST
AND
WAM BROKERAGE SERVICES, L.L.C.
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of this 1st day of
January, 1998 by and between ACORN INVESTMENT TRUST, a business trust organized
and existing under the laws of the Commonwealth of Massachusetts ("Acorn"), and
WAM BROKERAGE SERVICES, L.L.C., a limited liability company organized and
existing under the laws of the State of Illinois ("WAM BD").
RECITALS:
WHEREAS, Acorn is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act");
WHEREAS, WAM BD is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and the laws of each state
(including the District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of the National
Association of Securities Dealers ("NASD") (such registrations and membership
are referred to collectively as the "Registrations");
WHEREAS, Acorn desires WAM BD to act as the distributor in the public
offering of its shares of beneficial interest (hereinafter called "Shares")
which currently are divided into three series, Acorn Fund, Acorn International
and Acorn USA, and including shares of any additional series which may from time
to time be offered for sale to the public (hereinafter called, collectively, the
"Funds" and, individually, the "Fund");
WHEREAS, Acorn has entered into an investment advisory agreement with
Wanger Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which
WAM has agreed to pay all expenses incurred in the sale and promotion of shares
of Acorn;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. Acorn appoints WAM BD to act as principal underwriter
(as such term is defined in Section 2(a)(29) of the 1940 Act of its Shares.
2. Delivery of Acorn Documents. Acorn has furnished WAM BD with properly
certified or authenticated copies of each of the following in effect on the date
hereof and shall furnish WAM BD from time to time properly certified or
authenticated copies of all amendments or supplements thereto:
<PAGE>
(a) Agreement and Declaration of Trust;
(b) By-Laws;
(c) Resolutions of its Board of Trustees (hereinafter referred to as
the "Board") selecting WAM BD as distributor and approving this
form of agreement and authorizing its execution.
Acorn shall furnish WAM BD promptly with copies of any registration
statements filed by it with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (the "1933 Act") or the 1940 Act, together with any
financial statements and exhibits included therein, and all amendments or
supplements thereto hereafter filed.
Acorn also shall furnish WAM BD such other certificates or documents which
WAM BD may from time to time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
---------------------------------------------
(a) Subject to the provisions of Paragraphs 5, 6 and 8 hereof, and to such
minimum purchase requirements as may from time to time be indicated in Acorn's
Prospectus, WAM BD is authorized to solicit, as agent on behalf of Acorn,
unconditional orders for purchases of Acorn's Shares authorized for issuance and
registered under the 1933 Act, provided that:
(1) WAM BD shall act solely as a disclosed agent on behalf of and for
the account of Acorn;
(2) Acorn's transfer agent shall receive directly from investors all
payments for the purchase of Acorn's Shares and also shall pay
directly to shareholders amounts due to them for the redemption
or repurchase of all Acorn's Shares, with WAM BD having no rights
or duties to accept such payment or to effect such redemptions or
repurchases; if a payment for the purchase of Acorn's Shares be
delivered to WAM BD, such payment shall not be negotiated by WAM
BD but shall be delivered as soon as reasonably practicable to
Acorn's transfer agent;
(3) WAM BD shall confirm all orders received for purchase of Acorn's
Shares which confirmation shall clearly state (i) that WAM BD is
acting as agent of Acorn in the transaction, (ii) that all
certificates for redemption, remittances and registration
instructions should be sent directly to Acorn and (iii) Acorn's
mailing address;
(4) WAM BD shall have no liability for payment for purchases of
Acorn's Shares it sells as agent; and
2
<PAGE>
(5) Each order to purchase Shares of Acorn received by WAM BD shall
be subject to acceptance by an officer of Acorn in Chicago and
entry of the order on Acorn's records or shareholder accounts and
is not binding until so accepted and entered.
The purchase price to the public of Acorn's Shares shall be the public
offering price as defined in Paragraph 7 hereof.
(b) In consideration of the rights granted to WAM BD under this Agreement,
WAM BD will use its best efforts (but only in states in which WAM BD may
lawfully do so) to solicit from investors unconditional orders to purchase
Shares of Acorn. Acorn shall make available to WAM BD, at WAM BD's cost, such
number of copies of Acorn's currently effective Prospectus and Statement of
Additional Information and copies of all information, financial statements and
other papers which WAM BD may reasonably request for use in connection with the
distribution of Shares.
4. Selling Agreements. WAM BD is authorized, as agent on behalf of Acorn,
to enter into agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of Acorn's Shares authorized
for issuance and registered under the 1933 Act. All such agreements shall be
either in the form of agreement attached hereto or in such other form as may be
approved by the officers of Acorn ("Selling Agreement"). All solicitations made
by other broker-dealers pursuant to a Selling Agreement shall be subject to the
same terms as are applied by this Agreement to solicitations made by WAM BD.
5. Solicitation of Orders to Purchase Shares by Acorn. The rights granted
to WAM BD shall be non-exclusive in that Acorn reserves the right to solicit
purchases from, and sell its Shares to, investors. Further, Acorn reserves the
right to issue Shares in connection with the merger or consolidation of any
other investment company, trust or personal holding company with Acorn, or
Acorn's acquisition, by the purchase or otherwise, of all or substantially all
of the assets of an investment company, trust or personal holding company, or
substantially all of the outstanding shares or interests of any such entity. Any
right granted to WAM BD to solicit purchases of Shares will not apply to Shares
that may be offered by Acorn to shareholders by virtue of their being
shareholders of Acorn.
6. Shares Covered by this Agreement. This Agreement relates to the
solicitation of orders to purchase Shares that are duly authorized and
registered and available for sale by Acorn, including redeemed or repurchased
Shares if and to the extent that they may be legally sold and if, but only if,
Acorn authorizes WAM BD to sell them. If Acorn establishes one or more series
in addition to Acorn Fund, Acorn International and Acorn USA and wishes to
appoint WAM BD as principal underwriter of the shares of beneficial interest of
such series, Acorn shall so notify WAM BD in writing, and if WAM BD agrees in
writing to provide such services and WAM acknowledges that agreement by WAM BD,
the shares of beneficial interest of such series shall become Shares under the
Agreement.
7. Public Offering Price. All solicitations by WAM BD pursuant to this
Agreement shall be for orders to purchase Shares of Acorn at the public offering
price. The public offering
3
<PAGE>
price for each accepted subscription for Acorn's Shares will be the net asset
value per share of the particular Fund subscribed for next determined by Acorn
after such subscription is accepted by Acorn or by a person authorized by Acorn
to accept such subscriptions. The net asset value per share shall be determined
in the manner provided in Acorn's Agreement and Declaration of Trust as now in
effect or as they may be amended, and as reflected in Acorn's then current
Prospectus and Statement of Additional Information.
8. Suspension of Sales. If and whenever the determination of a Fund's net
asset value is suspended and until such suspension is terminated, no further
orders for Shares of such Fund shall be accepted by Acorn except such
unconditional orders placed with Acorn and accepted by it before the suspension.
In addition, Acorn reserves the right to suspend sales of Shares if, in the
judgment of the Board of Acorn, it is in the best interest of Acorn to do so,
such suspension to continue for such period as may be determined by Acorn's
Board; and in that event, (i) at the direction of Acorn, WAM BD shall suspend
its solicitation of orders to purchase Shares of Acorn until otherwise
instructed by Acorn and (ii) no orders to purchase Shares shall be accepted by
Acorn while such suspension remains in effect unless otherwise directed by its
Board.
9. Authorized Representations. Acorn is not authorized by WAM BD to give
on behalf of WAM BD any information or to make any representations other than
the information and representations contained in Acorn's registration statement
filed with the SEC under the 1933 Act and/or the 1940 Act as it may be amended
from time to time.
WAM BD is not authorized by Acorn to give on behalf of Acorn or any Fund
any information or to make any representations in connection with the sale of
Shares other than the information and representations contained in Acorn's
registration statement filed with the SEC under the 1933 Act and/or the 1940
Act, covering Shares, as such registration statement or Acorn's prospectus may
be amended or supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on behalf of Acorn or
approved by Acorn for WAM BD's use. No person other than WAM BD is authorized to
act as principal underwriter (as such term is defined in the 1940 Act, as
amended) for Acorn.
10. Registration of Additional Shares. Acorn hereby agrees to register an
indefinite number of Shares pursuant to Rule 24f-2 under the 1940 Act, as
amended. Acorn will, in cooperation with WAM BD, take such action as may be
necessary from time to time to permit such Shares (so registered or otherwise
qualified for sale under the 1933 Act) to be sold in any state mutually
agreeable to WAM BD and Acorn, and to maintain such qualification; provided,
however, that nothing herein shall be deemed to prevent Acorn from taking
action, without approval of WAM BD, to permit its Shares to be sold in any state
it deems appropriate.
11. Conformity With Law. WAM BD agrees that in soliciting orders to
purchase Shares it shall duly conform in all respects with applicable federal
and state laws and the rules and regulations of the NASD. WAM BD will use its
best efforts to maintain its Registrations in good standing during the term of
this Agreement and will promptly notify Acorn and WAM, in the event of the
suspension or termination of any of the Registrations.
4
<PAGE>
12. Independent Contractor. WAM BD shall be an independent contractor and
neither WAM BD, nor any of its members, managers, officers, directors, employees
or representatives is or shall be an employee of Acorn in the performance of WAM
BD's duties hereunder. WAM BD shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and employees and
agrees to pay all employee taxes thereunder.
13. Indemnification. WAM BD agrees to indemnify and hold harmless Acorn
and each of the members of its Board and its officers, employees and
representatives and each person, if any, who controls Acorn within the meaning
of Section 15 of the 1933 Act against any and all losses, liabilities, damages,
claims and expenses (including the reasonable costs of investigating or
defending any alleged loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to which Acorn or such of
the members of its Board and of its officers, employees, representatives, or
controlling person or persons may become subject under the 1933 Act, under any
other statute, at common law, or otherwise, arising out of the acquisition or
sale of any Shares of Acorn by any person which (i) may be based upon any
wrongful act by WAM BD or any of WAM BD's members, managers, directors,
officers, employees or representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, Prospectus, Statement of Additional Information,
shareholder report or other information covering Shares of Acorn filed or made
public by Acorn or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to Acorn
by WAM BD in writing. In no case (i) is WAM BD's indemnity in favor of Acorn, or
any person indemnified, to be deemed to protect Acorn or such indemnified person
against any liability to which Acorn or such person would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
its or his duties or by reason of its or his reckless disregard of its or his
obligations and duties under this Agreement, or (ii) is WAM BD to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against Acorn or any person indemnified unless Acorn or such person,
as the case may be, shall have notified WAM BD in writing of the claim within a
reasonable time after the summons, or other first written notification, giving
information of the nature of the claim served upon Acorn or upon such person (or
after Acorn or such person shall have received notice of such service on any
designated agent). However, failure to notify WAM BD of any such claim shall not
relieve WAM BD from any liability which WAM BD may have to Acorn or any person
against whom such action is brought otherwise than on account of WAM BD's
indemnity agreement contained in this Paragraph.
WAM BD shall be entitled to participate, at its own expense, in the
defense, or, if WAM BD so elects, to assume the defense of any suit brought to
enforce any such claim but, if WAM BD elects to assume that defense, such
defense shall be conducted by legal counsel chosen by WAM BD and satisfactory to
the persons indemnified who are defendants in the suit. In the event that WAM BD
elects to assume the defense of any such suit and retain such legal counsel,
persons indemnified who are defendants in the suit shall bear the fees and
expenses of any additional legal counsel retained by them. If WAM BD does not
elect to assume the defense of
5
<PAGE>
any such suit, WAM BD will reimburse persons indemnified who are defendants in
such suit for the reasonable fees of any legal counsel retained by them in such
litigation.
Acorn agrees to indemnify and hold harmless WAM BD and each of its members,
managers, directors, officers, employees, and representatives and each person,
if any, who controls WAM BD within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses (including
the damage, claim or expense and reasonable legal counsel fees incurred in
connection therewith) to which WAM BD or such of its members, managers,
directors, officers, employees, representatives or controlling person or persons
may otherwise become subject under the 1933 Act, under any other statute, at
common law, or otherwise arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by Acorn or any of the
members of Acorn's Board, or Acorn's officers, employees or representatives
other than WAM BD, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
Prospectus, Statement of Additional Information, shareholder report or other
information covering Shares filed or made public by Acorn or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading unless such statement or omission was made in
reliance upon information furnished by WAM BD to Acorn. In no case (i) is
Acorn's indemnity in favor of WAM BD or any person indemnified to be deemed to
protect WAM BD or such indemnified person against any liability to which WAM BD
or such indemnified person would otherwise be subject by reason of willful
misfeasance, bad faith, or negligence in the performance of its or his duties or
by reason of its or his reckless disregard of its or his obligations and duties
under this Agreement, or (ii) is Acorn to be liable under its indemnity
agreement contained in this Paragraph with respect to any claim made against WAM
BD or any person indemnified unless WAM BD, or such person, as the case may be,
shall have notified Acorn in writing of the claim within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim served upon WAM BD or upon such person (or after WAM BD or
such person shall have received notice of such service on any designated agent).
However, failure to notify Acorn of any such claim shall not relieve Acorn from
any liability which Acorn may have to WAM BD or any person against whom such
action is brought otherwise than on account of Acorn's indemnity agreement
contained in this Paragraph.
Acorn shall be entitled to participate, at its own expense, in the defense
or, if Acorn so elects, to assume the defense of any suit brought to enforce
such claim but, if Acorn elects to assume the defense, such defense shall be
conducted by legal counsel chosen by Acorn and satisfactory to the persons
indemnified who are defendants in the suit. In the event that Acorn elects to
assume the defense of any such suit and retain such legal counsel, the persons
indemnified who are defendants in the suit shall bear the fees and expenses of
any additional legal counsel retained by them. If Acorn does not elect to assume
the defense of any such suit, Acorn will reimburse the persons indemnified who
are defendants in such suit for the reasonable fees and expenses of any legal
counsel retained by them in such litigation.
6
<PAGE>
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon its execution ("Effective Date") and unless terminated as
provided herein, shall remain in effect through December 31, 1999, and from year
to year thereafter, but only so long as such continuance is specifically
approved at least annually by (a) a vote of majority of the members of the Board
of Acorn who are not interested persons of WAM BD or Acorn, voting in person at
a meeting called for the purpose of voting on such approval, and (b) the vote of
either the Board of Acorn or a majority of the outstanding Shares of Acorn. This
Agreement may be terminated at any time, without the payment or any penalty (a)
on 60 days' written notice, by the Board of Acorn or by or by a vote of a
majority of the outstanding Shares of Acorn, or by WAM BD, or (b) immediately,
on written notice by the Board of Acorn, in the event of termination or
suspension of any of the Registrations. This Agreement will automatically
terminate in the event of its assignment. In interpreting the provisions of this
Paragraph 14, the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment" and "majority
of the outstanding shares") shall be applied.
15. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by each party against which enforcement of the change, waiver,
discharge or termination is sought. If Acorn should at any time deem it
necessary or advisable in the best interests of Acorn that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or any other governmental authority or to obtain any advantage under
state or federal tax laws and notifies WAM BD of the form of such amendment and
the reasons therefore, and if WAM BD should decline to assent to such amendment,
Acorn may terminate this Agreement forthwith. If WAM BD should at any time
request that a change be made in Acorn's Agreement and Declaration of Trust, By-
Laws or its methods of doing business, in order to comply with any requirements
of Federal law or regulations of the SEC, or of a national securities
association of which WAM BD is or may be a member, relating to the sale of
Shares, and Acorn should not make such necessary changes within a reasonable
time, WAM BD may terminate this Agreement forthwith.
16. Liability. It is understood and expressly stipulated that neither the
shareholders of Acorn nor the members of the Board of Acorn shall be personally
liable hereunder. The obligations of Acorn are not personally binding upon, nor
shall resort to the private property of, any of the members of the Board of
Acorn nor of the shareholders, officers, employees or agents of Acorn, but only
Acorn's property shall be bound.
17. Miscellaneous. The captions in this Agreement are included for
convenience or reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18. Notice. Any notice required or permitted to be given by a party to
this Agreement or to any other party hereunder shall be deemed sufficient if
delivered in person or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such
7
<PAGE>
other party at the address provided below or to the last address furnished by
each such other party to the party giving notice.
If to Acorn: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
If to WAM BD: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Merrillyn J. Kosier
If to WAM: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
WAM BROKERAGE SERVICES, L.L.C.
By: /s/ Merrillyn J. Kosier
------------------------------------
Merrillyn J. Kosier, Vice President
ACORN INVESTMENT TRUST
By: /s/ Merrillyn J. Kosier
------------------------------------
Merrillyn J. Kosier, Senior Vice
President and Secretary
ACKNOWLEDGED:
WANGER ASSET MANAGEMENT, L.P.
By: /s/ Robert A. Mohn
--------------------------
Robert A. Mohn, Principal
8
<PAGE>
Exhibit 8.3
Acorn Investment Trust
227 West Monroe
Suite 3000
Chicago, Illinois 60606-5016
1-800-9-ACORN-9
(1-800-922-6769)
August 29, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Ladies and Gentlemen:
This is to advise you that Acorn Investment Trust has established a new
series of shares to be known as Acorn USA. In accordance with the Additional
Funds provision in Section 17 of the Custodian Contract dated July 1, 1992 and
in Article 10 of the Transfer Agency and Service Agreement dated July 1, 1992
between Acorn Investment Trust and State Street Bank and Trust Company, Acorn
Investment Trust hereby requests that you act as Custodian and Transfer Agent
for the new series under the terms of the respective contracts.
Please indicate your acceptance of this appointment as Custodian and
Transfer Agent by executing three copies of this Letter Agreement, returning two
copies to us and retaining one copy for your records.
ACORN INVESTMENT TRUST
By: /s/ Merrillyn J. Kosier
--------------------------------
Merrillyn J. Kosier
Vice President
Agreed to this 3rd day of September, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
-------------------------------------
Name: Ronald E. Logue
------------------------------
Title: Executive Vice President
-----------------------------
<PAGE>
Exhibit 10
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-5046
312 372-1121
Fax 312 372-2098
April 30, 1998
Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Ladies and Gentlemen:
Acorn Investment Trust
----------------------
We have acted as counsel for Acorn Investment Trust (the "Trust") in
connection with the registration under the Securities Act of 1933 (the "Act") of
an indefinite number of shares of beneficial interest of the series of the Trust
designated Acorn Fund, Acorn International and Acorn USA (the "Shares") in
registration statement no. 2-34223 on form N-1A (the "Registration Statement").
In this connection we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate and other
records, certificates and other papers as we deem it necessary to examine for
the purpose of this opinion, including the agreement and declaration of trust
(the "Trust Agreement") and bylaws (the "Bylaws") of the Trust, actions of the
board of trustees of the Trust authorizing the issuance of shares of the Funds
and the Registration Statement.
Based on the foregoing examination, we are of the opinion that:
1. The Trust is authorized to issue an unlimited number of Shares of each
series; that the presently outstanding Shares (the "Outstanding Shares") and the
Shares to be offered for sale by the Registration Statement (the "Additional
Shares") have been duly and validly authorized by all requisite action of the
board of trustees, and no action of the shareholders of the Trust or of any
series thereof is required in such connection;
2. The Outstanding Shares are validly issued, fully paid and
nonassessable (although shareholders of the Trust may be subject to liability
under certain circumstances as described in the statement of additional
information of the Trust included as Part B of the Registration Statement under
the caption "The Trust"); and
3. When the Additional Shares have been duly sold, issued and paid for in
accordance with the Trust Agreement and the actions of the board of trustees
authorizing the issuance of the Additional Shares, and upon the receipt by the
Trust of the authorized consideration therefor, the Additional Shares so issued
will be validly issued, fully paid and nonassessable by the Trust.
<PAGE>
In giving this opinion we have relied upon the opinion of Ropes & Gray to
us dated April 30, 1998, and have made no independent inquiry with respect to
any matter covered by such opinion.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under section 7 of the Act.
Very truly yours,
/s/ BELL, BOYD & LLOYD
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE ONE FRANKLIN SQUARE
BOSTON, MASSACHUSETTS 02110-2624 1301 K STREET, N.W.
30 KENNEDY PLAZA (617) 951-7000 SUITE 800 EAST
PROVIDENCE, RI 02903-2328 FAX: (617) 951-7050 WASHINGTON, DC 20005-3333
(401) 455-4400 (202) 626-3900
FAX: (401) 455-4401 FAX: (202) 626-3961
April 30, 1998
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, IL 60602
Ladies and Gentlemen:
We are furnishing this opinion in connection with the proposed offer and
sale from time to time by Acorn USA, Acorn International and Acorn Fund (each, a
"Fund", and collectively, the "Funds"), each a series of Acorn Investment Trust
(the "Trust") of an indefinite number of shares of beneficial interest, without
par value of the Funds (the "Shares"), pursuant to a post-effective amendment to
the Trust's Registration Statement on Form N-1A (No. 2-34223) under the
Securities Act of 1933, as amended.
We are familiar with the action taken by the Trustees of the Trust to
authorize the issuance of the Shares. We have examined the Trust's records of
Trustee action, its By-Laws and its Agreement and Declaration of Trust, as
amended to date. We have examined such other documents as we deem necessary
for the purposes of this opinion.
We assume that, upon sale of the Shares, the Trust will receive the net
asset value thereof.
Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that, when the Shares are
issued and sold after a post-effective amendment to the Registration Statement
has become effective and the authorized consideration therefor is received by
the Trust, they will be validly issued, fully paid and nonassessable by the
Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust or any
series of the Trust (a "Series"). However, the Agreement and Declaration of
Trust disclaims shareholder liability for acts or obligations of the Trust or
any Series and requires that notice of such disclaimer be given in every note,
<PAGE>
ROPES & GRAY
Bell, Boyd & Lloyd -2- April 30, 1998
bond, contract, instrument, certificate or undertaking issued by or on behalf of
the Trust. The Agreement and Declaration of Trust provides for indemnification
out of property of a particular Series for all loss and expense of any
shareholder held personally liable solely by reason of his or her having been a
record owner of the Shares. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust or the particular Series itself would be unable to meet its
obligations.
We consent to he filing of this opinion as an exhibit to the aforesaid
post-effective amendment to the Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 4, 1998 for Acorn Investment Trust (comprised of the Acorn Fund, Acorn
International and Acorn USA) in the Registration Statement (Form N-1A) and its
incorporation by reference in the related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange Commission in this Post-
Effective Amendment No. 61 to the Registration Statement under the Securities
Act of 1933 (Registration No. 2-34223) and in the Amendment No. 36 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-1829).
ERNST & YOUNG LLP
Chicago, Illinois
April 28, 1998
<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, 1997 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> ACORN FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2181507
<INVESTMENTS-AT-VALUE> 3670886
<RECEIVABLES> 23109
<ASSETS-OTHER> 220
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3694215
<PAYABLE-FOR-SECURITIES> 3720
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9038
<TOTAL-LIABILITIES> 12758
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2146869
<SHARES-COMMON-STOCK> 216645
<SHARES-COMMON-PRIOR> 188918
<ACCUMULATED-NII-CURRENT> 498
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 47522
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1486568
<NET-ASSETS> 3681457
<DIVIDEND-INCOME> 27215
<INTEREST-INCOME> 15566
<OTHER-INCOME> 0
<EXPENSES-NET> 18276
<NET-INVESTMENT-INCOME> 24505
<REALIZED-GAINS-CURRENT> 345404
<APPREC-INCREASE-CURRENT> 356307
<NET-CHANGE-FROM-OPS> 726216
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31681
<DISTRIBUTIONS-OF-GAINS> 320289
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 42779
<NUMBER-OF-SHARES-REDEEMED> 34056
<SHARES-REINVESTED> 19004
<NET-CHANGE-IN-ASSETS> 839405
<ACCUMULATED-NII-PRIOR> 2578
<ACCUMULATED-GAINS-PRIOR> 32756
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14349
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18276
<AVERAGE-NET-ASSETS> 3238157
<PER-SHARE-NAV-BEGIN> 15.04
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> 3.57
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> 1.61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.99
<EXPENSE-RATIO> .56
<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, 1997 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> ACORN INTERNATIONAL
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1306891
<INVESTMENTS-AT-VALUE> 1614235
<RECEIVABLES> 13170
<ASSETS-OTHER> 450
<OTHER-ITEMS-ASSETS> 6117
<TOTAL-ASSETS> 1633972
<PAYABLE-FOR-SECURITIES> 4000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7033
<TOTAL-LIABILITIES> 11033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1306205
<SHARES-COMMON-STOCK> 88273
<SHARES-COMMON-PRIOR> 90383
<ACCUMULATED-NII-CURRENT> 3986
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15568
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 297180
<NET-ASSETS> 1622939
<DIVIDEND-INCOME> 24755
<INTEREST-INCOME> 8098
<OTHER-INCOME> 0
<EXPENSES-NET> 22105
<NET-INVESTMENT-INCOME> 10748
<REALIZED-GAINS-CURRENT> 99464
<APPREC-INCREASE-CURRENT> (99759)
<NET-CHANGE-FROM-OPS> 10453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33072
<DISTRIBUTIONS-OF-GAINS> 77970
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23235
<NUMBER-OF-SHARES-REDEEMED> 30846
<SHARES-REINVESTED> 5501
<NET-CHANGE-IN-ASSETS> (149604)
<ACCUMULATED-NII-PRIOR> 2144
<ACCUMULATED-GAINS-PRIOR> 12674
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16235
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22105
<AVERAGE-NET-ASSETS> 1835981
<PER-SHARE-NAV-BEGIN> 19.61
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> (.34)
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> .90
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.39
<EXPENSE-RATIO> 1.19
<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, 1997 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> ACORN USA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 156426
<INVESTMENTS-AT-VALUE> 187792
<RECEIVABLES> 508
<ASSETS-OTHER> 80
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 188380
<PAYABLE-FOR-SECURITIES> 3537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219
<TOTAL-LIABILITIES> 3756
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151677
<SHARES-COMMON-STOCK> 12212
<SHARES-COMMON-PRIOR> 4556
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1581
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31366
<NET-ASSETS> 184624
<DIVIDEND-INCOME> 568
<INTEREST-INCOME> 470
<OTHER-INCOME> 0
<EXPENSES-NET> 1627
<NET-INVESTMENT-INCOME> (589)
<REALIZED-GAINS-CURRENT> 5521
<APPREC-INCREASE-CURRENT> 27198
<NET-CHANGE-FROM-OPS> 32130
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3351
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9880
<NUMBER-OF-SHARES-REDEEMED> 2436
<SHARES-REINVESTED> 212
<NET-CHANGE-IN-ASSETS> 131539
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1199
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1629
<AVERAGE-NET-ASSETS> 119292
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 3.83
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.12
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
