-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ehmgpoa8tO2ZFzXtJKX8Uih36H4x3tBXTf1V0/uKYj09+OJh/kSR/n9e8QNOBymc fVXX+KiaejYSOpF1/xdUjw== 0000950131-96-002833.txt : 19960619 0000950131-96-002833.hdr.sgml : 19960619 ACCESSION NUMBER: 0000950131-96-002833 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960618 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN INVESTMENT TRUST CENTRAL INDEX KEY: 0000002110 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-34223 FILM NUMBER: 96582229 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE ST STE 3000 STREET 2: ATTN: BRUCE LAUER CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 485APOS 1 ACORN INVESTMENT TRUST As filed with the Securities and Exchange Commission on June 18, 1996 Securities Act registration no. 2-34223 Investment Company Act file no. 811-1829 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A ------------------------------ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 54 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 29 ------------------------------ ACORN INVESTMENT TRUST (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ------------------------------ Ralph Wanger Janet D. Olsen Acorn Investment Trust Bell, Boyd & Lloyd 227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300 Chicago, Illinois 60606 Chicago, Illinois 60602 (Agents for service) ------------------------------ Amending Parts A, B, and C, and filing exhibits ------------------------------ It is proposed that this filing will become effective: [_] immediately upon filing pursuant to rule 485(b) [_] on _________________ pursuant to rule 485(b) [_] 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) [X] on September 3, 1996 pursuant to rule 485(a)(2). - ------------------------------------------------------------------------------- Registrant has previously elected to register pursuant to Rule 24f-2 an indefinite number of shares of beneficial interest of its series designated Acorn Fund and Acorn International. By this amendment, Registrant elects to register an indefinite number of shares of beneficial interest, without par value, for the series Acorn USA. On February 28, 1996, Registrant filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995. - ------------------------------------------------------------------------------- ACORN INVESTMENT TRUST Cross-reference sheet pursuant to rule 495(a) of Regulation C
ITEM LOCATION OR CAPTION* - ---- -------------------------------- Part A (prospectus) - Acorn Fund and Acorn International -------------------------------------------------------- 1 (a) & (b) Front cover 2 (a) Expenses and Performance - Expenses (b) & (c) Contents; The Funds at a Glance 3 (a) Financial History (b) Not applicable (c) Performance (d) Performance 4 (a)(i) Organization (ii) The Funds at a Glance; The Acorn Philosophy; Securities, Investment Practices, and Risks (b) Securities, Investment Practices, and Risks (c) The Funds at a Glance - Who May Want to Invest; The Acorn Philosophy; Securities, Investment Practices, and Risks 5 (a) Organization (b) Organization; Management; The Funds in Detail - Expenses; Expenses and Performance - Expenses; How to Contact Us (c) Organization; Management (d) Not applicable (e) How to Buy Shares; How to Sell Shares; How to Contact Us (f) Expenses and Performance - Expenses; The Funds in Detail - Expenses (g) Not applicable 5A The information called for is contained in the annual reports of Acorn Fund and Acorn International 6(a) Organization; How to Buy Shares; How to Sell Shares; Exchange Plan Restrictions (b) Not applicable (c) Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Redemptions; Exchange Plan Restrictions (d) Not applicable (e) Doing Business With Acorn; How to Buy Shares; How to Sell Shares; Shareholder and Account Policies - Statements and Reports; How to Contact Us (f) & (g) Dividends, Capital Gains, and Taxes 7 Doing Business with Acorn; How to Buy Shares; Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Telephone Exchange Plan (a) Not applicable
- ---------------- * References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. i
ITEM LOCATION OR CAPTION* - ---- -------------------------------- (b) How to Buy Shares; Shareholder and Account Policies - Share Price; Shareholder and Account Policies - Telephone Exchange Plan (c) Not applicable (d) How to Buy Shares; Exchange Plan Restrictions (e) & (f) Not applicable 8(a) Doing Business with Acorn; How to Sell Shares; Shareholder and Account Policies - Redemptions; Shareholder and Account Policies - Telephone Exchange Plan; Exchange Plan Restrictions (b) Shareholder and Account Policies - Purchases (c) & (d) Shareholder and Account Policies - Redemptions 9 Not applicable Part A (prospectus) - Acorn USA ------------------------------- 1(a) & (b) Front cover 2(a) Expenses and Performance - Expenses (b) & (c) Contents; The Fund at a Glance 3(a) Not applicable (b) Not applicable (c) Performance (d) Performance 4(a)(i) Organization (ii) The Fund at a Glance; The Acorn Philosophy; Securities, Investment Practices, and Risks (b) Securities, Investment Practices, and Risks (c) The Fund at a Glance - Who May Want to Invest; The Acorn Philosophy; Securities, Investment Practices, and Risks 5(a) Organization (b) Organization; Management; The Fund in Detail - Expenses; Expenses and Performance - Expenses (c) Organization; Management (d) Not applicable (e) How to Buy Shares; How to Sell Shares (f) Expenses and Performance - Expenses; The Funds in Detail - Expenses (g) Not applicable 5A Not applicable - The information called for is contained in the annual reports of Acorn Fund and Acorn International 6(a) Organization; How to Buy Shares; How to Sell Shares; Exchange Plan Restrictions (b) Not applicable (c) Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Redemptions; Exchange Plan Restrictions (d) Not applicable
- ---------------- * References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. ii
ITEM LOCATION OR CAPTION* - ---- -------------------------------- (e) Doing Business With Acorn; How to Buy Shares; How to Sell Shares; Shareholder and Account Policies - Statements and Reports (f) & (g) Dividends, Capital Gains, and Taxes 7 Doing Business with Acorn; How to Buy Shares; Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Telephone Transactions (a) Not applicable (b) How to Buy Shares; Shareholder and Account Policies - Share Price; Shareholder and Account Policies - Telephone Exchange Plan (c) Not applicable (d) How to Buy Shares; Exchange Plan Restrictions (e) & (f) Not applicable 8(a) Doing Business with Acorn; How to Sell Shares; Shareholder and Account Policies - Redemptions; Shareholder and Account Policies - Telephone Transactions; Exchange Plan Restrictions (b) Shareholder and Account Policies - Purchases (c) & (d) Shareholder and Account Policies - Redemptions 9 Not applicable Part B (Statement of additional information) - Acorn Fund and ------------------------------------------------------------- Acorn International ------------------- 10 Front cover 11 Front cover 12 Part A - Organization 13(a)-(c) Investment Objectives and Policies; Investment Techniques and Risks; Investment Restrictions (d) Investment Techniques and Risks 14(a)-(b) Trustees and Officers (c) Not applicable 15(a) & (b) Not applicable (c) Trustees and Officers 16(a)(i) Investment Adviser (ii) Trustees and Officers (iii) Investment Adviser (b) Investment Adviser (c)-(g) Not applicable (h) Custodian; Independent Auditors (i) Not applicable 17(a) Portfolio Transactions (b) Not applicable (c) & (d) Portfolio Transactions (e) Not applicable
- ---------------- * References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. iii
ITEM LOCATION OR CAPTION* - ---- -------------------------------- 18(a) The Trust (b) Not applicable 19(a)-(c) Purchasing and Redeeming Shares 20 Additional Tax Information 21(a)-(b) Distributor 21(c) Not Applicable 22 Performance Information 23 Information About the Funds Part B (Statement of additional information) - Acorn USA -------------------------------------------------------- 10 Front cover 11 Front cover 12 Part A - Organization 13(a)-(c) Investment Objectives and Policies; Investment Techniques and Risks; Investment Restrictions (d) Investment Techniques and Risks 14(a)-(b) Trustees and Officers (c) Not applicable 15(a) & (b) Not applicable (c) Trustees and Officers 16(a)(i) Investment Adviser (ii) Trustees and Officers (iii) Investment Adviser (b) Investment Adviser (c)-(g) Not applicable (h) Custodian; Independent Auditors (i) Not applicable 17(a) Portfolio Transactions (b) Not applicable (c) & (d) Portfolio Transactions (e) Not applicable 18(a) The Trust (b) Not applicable 19(a)-(c) Purchasing and Redeeming Shares 20 Additional Tax Information 21(a)-(b) Distributor 21(c) Not Applicable
- ---------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. iv
ITEM LOCATION OR CAPTION* - ---- -------------------------------- 22 Performance Information 23 Information About the Fund
- ---------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. v THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATING TO ACORN FUND AND ACORN INTERNATIONAL, EACH A SERIES OF ACORN INVESTMENT TRUST, ARE NOT AFFECTED BY THE FILING OF THIS POST-EFFECTIVE AMENDMENT NO. 54. vi
ITEM LOCATION OR CAPTION* - ---- -------------------------------- Part C (Other Information) -------------------------- 24 Financial statements and exhibits 25 Persons controlled by or under common control with registrant 26 Number of holders of securities 27 Indemnification 28 Business and other connections of investment adviser 29 Principal underwriters 30 Location of accounts and records 31 Management services 32 Undertakings
- ---------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. vii ACORN USA A NO-LOAD FUND ACORN USA invests for long-term capital growth. The Fund invests mostly in stocks of small and medium-size U.S. companies. Please read this prospectus before investing, and keep it on file for future reference. It contains important information, including how the funds invest and the services available to shareholders. A Statement of Additional Information ("SAI") dated September 3, 1996 has been filed with the Securities and Exchange Commission, and is incorporated herein by reference (is legally considered a part of this prospectus). The SAI is available free upon request by calling Acorn at 1-800-9-ACORN-9 (1-800-922- 6769). LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS SEPTEMBER 3, 1996 ACORN INVESTMENT TRUST 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 TABLE OF CONTENTS
Page ---- THE FUND AT A GLANCE.................................................. 1 Goal................................................................. 1 Strategy............................................................. 1 Management........................................................... 1 Who May Want to Invest............................................... 1 EXPENSES AND PERFORMANCE.............................................. 2 Expenses............................................................. 2 Performance.......................................................... 3 YOUR ACCOUNT.......................................................... 4 Doing Business with Acorn............................................ 4 CHOICES FOR YOUR ACCOUNT REGISTRATION................................. 5 Highlights - How to Buy Shares....................................... 7 Highlights - How to Sell Shares...................................... 10 SHAREHOLDER AND ACCOUNT POLICIES...................................... 12 Statements and reports............................................... 12 Share Price.......................................................... 12 Purchases............................................................ 12 Redemptions.......................................................... 13 Address Changes...................................................... 14 Telephone Transactions............................................... 14 Exchange Plan Restrictions........................................... 16 DIVIDENDS, CAPITAL GAINS, AND TAXES................................... 18 Distribution Options................................................. 18 Taxes................................................................ 18 THE FUND IN DETAIL.................................................... 20 Organization......................................................... 20 Management........................................................... 20 Distributor.......................................................... 21 Expenses............................................................. 21 The Acorn Philosophy................................................. 21 Securities, Investment Practices, and Risks.......................... 23 Illiquid and Restricted Securities................................... 24 Diversification...................................................... 24 Lending and Repurchase Agreements.................................... 25 Other Investment Companies........................................... 25 Foreign Securities................................................... 25 Managing Investment Exposure......................................... 26
- ------------------------------------------------------------------------------- THE FUND AT A GLANCE - ------------------------------------------------------------------------------- GOAL Acorn USA invests for long-term growth of capital. STRATEGY Acorn USA invests primarily in stocks of small and medium-size U.S. companies. The Fund looks for attractively-priced companies that Wanger Asset Management, L.P., investment adviser to the Fund, thinks will benefit from favorable long- term social, economic, or political trends. The areas of emphasis change from time to time. MANAGEMENT Wanger Asset Management, L.P. (WAM) chooses investments for the Fund. WAM employs a team approach to management of the Fund. The management team is comprised of the lead portfolio manager, other WAM portfolio managers and research analysts. Team members share responsibility for providing ideas, information, knowledge and expertise in managing the Fund. Each team member has one or more areas of expertise that is applied to the management of the Fund. Daily decisions on portfolio selection rest with the lead portfolio manager who utilizes the input and advice of the management team in making purchase and sale determinations. ROBERT MOHN is the Fund's lead portfolio manager. There is no limit on the assets of the Fund. However, WAM will monitor Fund size and its impact on portfolio management and the Fund may be closed to new investors if the board of trustees of Acorn, based on WAM's recommendation, believes closing the Fund would be in the best interests of the Fund's shareholders. If and when the Fund is closed to new investors, it is expected that persons who are shareholders of the Fund on the date of closing would be permitted to continue to make investments, but that new investors would not be permitted to open accounts. WHO MAY WANT TO INVEST Acorn USA is designed for investors who want long-term growth of capital rather than income and who have the long-term investment outlook needed for investing in the stocks of small and medium-size U.S. companies. The value of the Fund's investments and the return it generates vary from day- to-day. Performance depends on WAM's skill in identifying the trends that are the basis for the Fund's stock selections, and in picking individual stocks, as well as general market and economic conditions. When you sell your shares, they may be worth more or less than the amount you paid for them. The stocks of smaller companies often involve more risk than the stocks of larger companies. Over time, stocks have shown greater growth potential than other types of securities. In the short term, however, stock prices may fluctuate widely in response to company, market or economic news. The Fund does not pursue income, and is not by itself a balanced investment plan. See "Your Account" for information on how to buy and redeem shares. - ------------------------------------------------------------------------------- EXPENSES AND PERFORMANCE - ------------------------------------------------------------------------------- EXPENSES SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares of the Fund. TRANSACTION EXPENSES Maximum sales charge on purchases and reinvested dividends.................... NONE Deferred sales charge on redemptions.... NONE Exchange fee............................ NONE Wire transaction fee.................... NONE ANNUAL FUND OPERATING EXPENSES. The Fund pays its own operating expenses including the management fee to WAM. Expenses are factored into the Fund's price or dividends, and are subtracted from the share price daily. Expenses are not charged directly to shareholder accounts. The Fund expects to incur the following expenses (calculated as a percentage of average net assets): Management fee........................ 1.00% 12b-1 fee............................. NONE Other expenses (after reimbursement).. 1.00% ----- Total fund operating expenses (after reimbursement)........................ 2.00% ===== WAM has undertaken to reimburse the Fund for any ordinary operating expenses, with certain exceptions, in excess of 2.00% of the Fund's average daily net assets annually. The estimates of "Other Expenses" and "Total Operating Expenses" are estimates based on the expenses the Fund expects to incur during its initial partial fiscal year. EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and that its operating expenses are exactly as shown above. For every $1,000 you invested, here's how much you would have paid in total expenses if you closed your account after the number of years indicated: After 1 year $20 After 3 years $63 These examples illustrate the effect of expenses, but are not meant to suggest actual or expected costs or returns, all of which may vary. They are intended to help you understand the costs and expenses associated with investing in the Fund. 2 PERFORMANCE Mutual fund performance is commonly measured as total return. Total return is the change in value of an investment in a fund over a given period, assuming reinvestment of any dividends and capital gains. TOTAL RETURN reflects actual performance over a stated period of time. AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if achieved annually, would have produced the same total return if performance had been constant over the entire period. Average annual total returns smooth out variations in performance; they are not the same as actual year-by-year results. Total returns are based on past results and are not a prediction of future performance. They do not include the effect of income taxes. The Fund sometimes shows its performance compared to stock indexes (described in the statement of additional information), or gives its ratings or rankings determined by an unrelated organization. Information about the performance of the Fund is contained in the Fund's annual report which may be obtained free of charge by calling Acorn at 1-800-9-ACORN-9 (1-800-922-6769). - ------------------------------------------------------------------------------- THE NO-LOAD ADVANTAGE Acorn USA is 100% no-load, which means that all of your money goes to work for you immediately. There are no sales charges, and no 12b-1 fees or back-end load fees, so all of your dollars are invested at the net asset value. Acorn USA invests in companies for the long-term (usually 3-5 years), so our turnover rate is low. This reduces both trading costs and shareholders' taxes. - ------------------------------------------------------------------------------- 3 YOUR ACCOUNT - ------------------------------------------------------------------------------- DOING BUSINESS WITH ACORN Acorn provides customers with service Monday through Friday, except holidays, from 8:00 a.m. to 4:30 p.m. Chicago (central) time. To reach Acorn, call: . For help in setting up your account, prices, literature, or fund information--1-800-9-ACORN-9 (1-800-922-6769) (from outside the U.S. 1-312- 634-9240) . For existing IRAs -- call our transfer agent at 1-800-962-1585 (outside the U.S. 1-617-774-5000 ext. 6457) . To add to your existing account, to redeem shares, or to exchange shares by phone--call our transfer agent by 3:00 p.m. Chicago (central) time at 1-800-962-1585 (outside the U.S. 1-617-774-5000 ext. 6457) HOW TO BUY SHARES YOU CAN OPEN A NEW ACCOUNT BY: . mailing in an application with your check or a money order for $1,000 or more, or . using the exchange plan to move $1,000 or more from your account with Acorn Fund, Acorn International, or one of the Reich & Tang Money Funds into new identically registered account for Acorn USA. AFTER YOUR ACCOUNT IS OPEN, YOU MAY ADD TO IT BY: . wiring money from your bank; . moving money from your bank account by telephone if you participate in the telephone purchase plan; . using the telephone exchange plan to move your investment from one of your Acorn accounts to another account within the Acorn family, or from one of the Reich & Tang Money Funds; or . mailing a check or money order with the stub from one of your account statements, a slip from your Acorn Investment Booklet or a letter. You must make your telephone purchases or exchanges from Acorn USA by 3:00 p.m. Chicago (central) time. To exchange out of the Reich & Tang Money Funds, you must call by 11:00 a.m. (Central time). See "Telephone Exchange Plan." See "Shareholder and Account Policies" for more information about the exchange plan. 4 CHOICES FOR YOUR ACCOUNT REGISTRATION - ------------------------------------------------------------------------------- INDIVIDUAL OR JOINT OWNERSHIP For your general investment needs Individual accounts are owned by one person. Joint accounts can have two or more owners. - ------------------------------------------------------------------------------- GIFT OR TRANSFER TO A MINOR (UGMA, UTMA) To invest for a minor's education or other future needs These custodial accounts provide a way to give money to a minor. The account application must include the minor's social security number. - ------------------------------------------------------------------------------- TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN For money being invested by a trust, employee benefit plan, or profit-sharing plan The trust or plan must be established before an account may be opened. - ------------------------------------------------------------------------------- CORPORATION OR OTHER ENTITY For investment needs of corporations, associations, partnerships, institutions, or other groups You will need to send a certified corporate resolution with your application. - ------------------------------------------------------------------------------- RETIREMENT To shelter your retirement savings from taxes Retirement plans allow individuals to shelter investment income and capital gains from current taxes. Contributions to these accounts may be tax deductible. IRAs require a special application (call 1 800 9-ACORN-9); lower minimum investments apply. . ACORN INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under 70. with earned income to save up to $2,000 per tax year. If your spouse has (or elects to be treated as having) earned income of less than $250 your spouse may invest in a "Spousal IRA." Each account is subject to the $2,000 maximum; the maximum for your combined accounts is $2,250. . ROLLOVER IRAS retain special tax advantages for certain distributions from employer-sponsored retirement plans. . SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or those with self-employment income to make tax-deductible contributions of up to $30,000 per year for themselves and any eligible employees. . OTHER RETIREMENT PLANS--The 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. - ------------------------------------------------------------------------------- 5 IF YOU ARE INVESTING THROUGH AN ACORN IRA for the first time you will need a special application. Call 1-800-9-ACORN-9 (1-800-922-6769) or complete and return the enclosed card to receive information and an application for an Acorn IRA. For both initial and subsequent IRA investments, please indicate the year for which the investment is being made. MINIMUM INVESTMENTS To open an account $1,000 To open an IRA $ 200 To add to an account $ 100 If you sign up for the Automatic Investment Plan and later wish to change the amount or frequency of your automatic investments, or stop future investments, you may do so by calling us at 1-800-962-1585 at least one week prior to your next scheduled investment date. HOW TO SELL SHARES You can arrange to take money out of your Fund account at any time by selling (redeeming) some or all of your shares. Your shares will be sold at the next NAV (share price) calculated after your order is received and accepted. See "Shareholder and Account Policies" for more information about share price. To sell shares in a regular (non-IRA) account, you may use any of the methods described here. To sell shares in an Acorn IRA, your request must be made in writing, except for exchanges between the Fund and another of the Acorn Funds or to one of the Reich & Tang Money Funds, which can be requested before 3:00 p.m. Chicago (central) time by phone or in writing. If you need an IRA Withdrawal Request form, call us at 1-800-9-ACORN-9 (1-800-922-6769). THE TELEPHONE REDEMPTION PLAN lets you redeem $100 to $50,000 per day by phone. You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. You automatically have the telephone redemption plan unless you decline it on your application. If you have changed the address on your account by telephone within 60 days of the telephone redemption request, this service is not available. You must designate an account on your purchase application, or in writing with a signature guarantee, to have proceeds of a telephone redemption wired to your bank account. 6 HIGHLIGHTS - HOW TO BUY SHARES - ------------------------------------------------------------------------------- PHONE 1-800-962-1585 LOGO - ------------------------------------------------------------------------------- TO OPEN AN ACCOUNT: . Exchange between Acorn USA and another of the Acorn Funds, or from a money fund account with the same registration, including name, address, and taxpayer ID number. TO ADD TO AN ACCOUNT: . Exchange between accounts with the same registration, including name, address, and taxpayer ID number. . Use the telephone purchase plan to transfer $100 to $50,000 from your bank account. Call first to verify that this service is in place on your account. (This service is not available for IRAs.) You must make your telephone purchases or exchanges from any of the Acorn Funds by 3:00 p.m. Chicago (central) time. - ------------------------------------------------------------------------------- MAIL LOGO - ------------------------------------------------------------------------------- TO OPEN AN ACCOUNT: . Complete and sign the application. Make your check payable to "Acorn USA". Mail: Overnight delivery: State Street Bank & Trust Co. Boston Financial Data Services Attn: Acorn Funds Attn: Acorn Funds P.O. Box 8502 2 Heritage Drive, 6th Floor Boston, MA 02266-8502 N. Quincy, MA 02171 1-617-774-5000 ext. 6457 TO ADD TO AN ACCOUNT: . Make your check payable to "Acorn USA". Put your fund account number on your check. . Use the return envelope that comes with your statements, or mail to the address shown above. - ------------------------------------------------------------------------------- WIRE LOGO - ------------------------------------------------------------------------------- TO OPEN AN ACCOUNT: . You may not open a NEW account by wire. TO ADD TO AN ACCOUNT: . Wire to: State Street Bank & Trust Co. Attn: Mutual Funds Boston, MA 02110 Routing #0110-0002-8 Deposit DDA 9902-990-2 Specify the name of the fund and the name and the number of your account. - ------------------------------------------------------------------------------- AUTOMATIC INVESTMENT PLAN LOGO - ------------------------------------------------------------------------------- TO OPEN AN ACCOUNT: . You may not open a NEW account automatically. TO ADD TO AN ACCOUNT: . Sign up on the purchase application for monthly or quarterly transfers of $100 to $50,000 from your bank account, or call 1-800-9-ACORN-9 (1-800-922- 6769) for a Doing Business with Acorn form. If you already have this service, you can easily change the frequency or amount of your automatic investments over the phone by calling 1-800-962-1585. - ------------------------------------------------------------------------------- TDD--Service for the deaf and hearing-impaired: 1-800-306-4567 This Highlights page answers the most common questions about How to Buy Shares. See "Your Account" for more information. 7 THE SYSTEMATIC WITHDRAWAL PLAN lets you set up automatic monthly or quarterly redemptions from your account in specified dollar amounts if you have a $25,000 minimum Acorn account balance. Call 1-800-9-ACORN-9 (1-800-922-6769) for a Doing Business with Acorn form. SELLING SHARES IN WRITING Write a "letter of instruction" with: . your name, . the fund's name, . your fund account number, . the dollar amount or number of shares to be redeemed, and . any other applicable requirements listed in the table on the next page. Mail your letter to: State Street Bank and Trust Co. Attn: Acorn Funds P.O. Box 8502 Boston, MA 02266-8502 If you are using overnight mail: Boston Financial Data Service Attn: Acorn Funds 2 Heritage Drive, 5th Floor N. Quincy, MA 02171 1-617-774-5000 ext. 6457 CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to protect you and Acorn from fraud. Your request must be made in writing and include a signature guarantee if one of the following situations applies: . you wish to redeem more than $50,000 worth of shares; . your name has changed by marriage or divorce (send a letter indicating your account number(s) and old and new names, signing the letter in both the old and new names and having both signatures guaranteed) . your address has changed within the last 60 days and you would like to redeem shares; . the check is being mailed to an address different from the one on your account (address of record); 8 . 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. 9 HIGHLIGHTS - HOW TO SELL SHARES - ------------------------------------------------------------------------------- PHONE 1-800-962-1585 LOGO - ------------------------------------------------------------------------------- All accounts, except IRAs . To verify that the telephone redemption plan is in place, call 1-800-9-ACORN-9 (1-800-922-6769). You automatically have this feature on your new account unless you tell us that you do not want it. . Maximum--$50,000; minimum--$100 All account types . To exchange between identically-registered accounts You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. - ------------------------------------------------------------------------------- MAIL LOGO - ------------------------------------------------------------------------------- Individuals, Joint Owners, . The letter of instruction must be signed by all Sole Proprietorships, persons required to sign for transactions UGMA, UTMA (usually, all owners of the account), exactly as their names appear on the account. IRAs . The account owner should complete an IRA Withdrawal Request form. Call 1-800-9-ACORN-9 (1-800-922-6769) to request one. Trust . The trustee must sign the letter indicating capacity as trustee. If the account registration does not include the trustee's name, provide a copy of the trust document certified within the last 60 days. Business or Organization . The person(s) authorized by the corporate resolution to act on the account must sign, in that person's official capacity, and the redemption request must be on corporate letterhead. . Include a corporate resolution certified within 60 days if the amount to be redeemed exceeds $50,000. Executor, Administrator, . Call 1-800-962-1585 for instructions. Conservator, Guardian - ------------------------------------------------------------------------------- WIRE LOGO - ------------------------------------------------------------------------------- All account types, except . You must sign up for payment of redemptions by IRAs wire before using this feature. Call to verify that this service is in place--1-800-9-ACORN-9 (1-800-922-6769) . Minimum wire: $1,000; maximum: $50,000. You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. - ------------------------------------------------------------------------------- AUTOMATIC EXCHANGE LOGO - ------------------------------------------------------------------------------- All account types . Call 1-800-962-1585 to set up monthly or quarterly automatic exchanges of $100 to $50,000 between identically-registered accounts. TDD service for the deaf and hearing-impaired: 1-800-306-4567 NOTE: Some redemptions require signature guarantees and must be done by mail. Please see page __. This Highlights page answers the most common questions about How to Sell Shares. See "Your Account" for more information. 10 You should be able to obtain a signature guarantee from a bank, broker dealer, credit union (if authorized under state law), securities exchange or association, clearing agency, or savings association. A notary public cannot provide a signature guarantee. The price at which your shares will be redeemed is determined by the time of day our transfer agent receives your redemption request. The price per share is always the next net asset value (NAV) per share calculated after your redemption request, including any required signature guarantee or supporting documents, is received. The Fund's calculate NAV as of Closing Time on each day the New York Stock Exchange (NYSE) is open for trading. Closing Time is the close of regular session trading on the NYSE, which is usually 3:00 p.m. Chicago (central) time but is sometimes earlier. To get today's price -- . Use the telephone redemption plan to call your redemption request in before Closing Time (note that the Closing Time to exchange out of the Reich & Tang Money Funds is 11:00 a.m. Chicago (central) time). . Have your written redemption request, with a signature guarantee if required and any supporting documents, delivered to our transfer agent before Closing Time. 11 - ------------------------------------------------------------------------------- SHAREHOLDER AND ACCOUNT POLICIES - ------------------------------------------------------------------------------- STATEMENTS AND REPORTS that Acorn sends to you include: . Confirmation statements (after every transaction in your account or change in your account registration) . Year-end account statements . Shareholder reports If you would like us to send duplicate statements to someone, simply call us at 1-800-962-1585, and we can take your request over the phone. We have average cost basis information for shares purchased in 1990 or later. If you redeem shares purchased in 1990 or later and would like an average cost statement, call us at 1-800-962-1585. 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 FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE) is open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to sell one share) are the fund's net asset value ("NAV") calculated at the next Closing Time after receipt of your order. Closing Time is the time of the close of regular session trading on the NYSE, which is usually 3:00 p.m. Chicago (central) time but is sometimes earlier. THE FUND'S NAV is the value of a single share. The NAV is computed by adding up the value of the Fund's investments, cash, and other assets, subtracting its liabilities, and then dividing the result by the number of shares outstanding. The Fund's portfolio securities and assets are valued primarily on the basis of market quotations from the primary market in which they are traded or, if quotations are not readily available, by a method that the board of trustees believes accurately reflects a fair value. Your purchase or redemption of Fund shares will be priced at the next NAV calculated after your investment (including the application, if for a new account, and the money) or redemption request is received and accepted. An order received before Closing Time will get that day's price. No telephone orders will be accepted after Closing Time. PURCHASES . All of your purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. You may not open an account with a third party check. . Acorn does not accept cash or credit cards. 12 . If payment for your check or telephone order does not clear, your purchase will be canceled and you will be liable for any losses or fees the Fund or its transfer agent incurs. . Your Automatic Investment Plan and Telephone Purchase Plan may be immediately terminated if any item is unpaid by your financial institution. . When you make a purchase by telephone, the money is ordinarily drawn from your bank account the day after you call and the Acorn shares purchased are at the NAV calculated after the money is transferred. THE FUND RESERVES THE RIGHT TO reject any specific purchase order, including certain purchases through the exchange plan. See "Exchange Plan Restrictions." Purchase orders may be refused if, in WAM's opinion, they are of a size that would disrupt management of the Fund. REDEMPTIONS . Normally, redemption proceeds will be mailed within seven days after State Street Bank receives a request for redemption. . The Fund may hold payment on redemptions until it is reasonably satisfied that it has received payment for a recent purchase made by check, by the Automatic Investment Plan, or by the Telephone Purchase Plan, which can take up to fifteen days. . If you elected to participate in the Telephone Redemption by Wire plan, Acorn will send payment for your redemption to your bank account by wire transfer. Your bank may impose a fee for the incoming wire. Payment by wire is usually credited to your bank account on the next business day after your call. . Redemptions may be suspended or payment dates postponed on days when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted, or as permitted by the SEC. . Certain accounts (such as trust accounts, corporate accounts and custodial accounts) may require documentation in addition to the redemption request. Call 1-800-962-1585 for more information. If the value of your account (except an IRA account) falls below $1,000, Acorn reserves the right to close your account and send the proceeds to you. Your shares will be redeemed at the NAV calculated on the day your account is closed. If checks representing (1) redemption proceeds, (2) withdrawals under a systematic withdrawal plan, or (3) dividend and capital gains distributions are returned ''undeliverable'' or remain uncashed for six months, the checks will be canceled and the proceeds will be reinvested in the Fund at the per share net asset value on the date of cancellation. In addition, after that six-month period, (1) your systematic withdrawal plan will automatically be canceled and future withdrawals will occur only when requested, or (2) your cash election will automatically be 13 changed and future dividends and distributions will be reinvested in the Fund at the per share net asset value determined on the date of payment of such distributions. ADDRESS CHANGES You may change your address over a recorded line by calling 1-800-962-1585. Acorn will send a written confirmation of the change to both your old and new addresses. No telephone redemptions may be made for 60 days after a change of address by phone. During those 60 days, all redemption requests must be in writing with a signature guarantee. If you send us your change of address in writing with a signature guarantee, your telephone redemption privilege will continue without interruption. TELEPHONE TRANSACTIONS YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OVER A RECORDED LINE: . Change your address; . Request duplicate statements to be sent to someone you designate; . Request an average cost statement for redeemed shares that were purchased in 1990 or later; . Request a current account statement; . Purchase shares through the telephone purchase plan (after you have signed up for the plan); . Redeem $50,000 or less and have it wired to a bank checking account (after you have signed up for the wire-redemption plan; not available for IRA accounts); . Change the frequency or amount, or discontinue the Automatic Investment Plan on your account(s); . Add or discontinue the telephone exchange privilege on your account; . Add or discontinue the telephone redemption by check privilege on your account; . Add automatic exchange (from Acorn USA to Acorn Fund or Acorn International, or vice versa, each month) to your account; . Change your distribution option (does not apply to IRA accounts); 14 . Redeem $50,000 or less, with a check sent to the address of record (does not apply to IRA accounts, or to accounts for which the address of record was changed by telephone in the last 60 days); . Exchange money from an individual account to an existing IRA account with an identical registration; . Exchange money between identically-registered accounts in Acorn USA or another of the Acorn Funds or certain Reich & Tang Money Funds, or exchange money from one fund to establish an identically-registered account in another fund; and . Change the contribution year on an IRA account to the previous year up until April 15 of the following year. Acorn will not be responsible for any losses resulting from unauthorized telephone 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 initiate purchase or redemption transactions by telephone, decline these privileges on your account application or call Acorn for instructions at 1-800- 962-1585. IF YOU ARE UNABLE TO REACH ACORN BY PHONE (for example, during periods of unusual market activity), consider placing your order by mail. TELEPHONE EXCHANGE PLAN. Acorn's telephone exchange plan permits you to exchange your investment between Acorn USA and another of the Acorn Funds (Acorn Fund and Acorn International), into one of the money market mutual funds participating in the plan (Reich & Tang Money Funds) upon telephone instructions, or from one of the Reich & Tang Money Funds in which you had invested by exchanging from one of the Acorn Funds. The REICH & TANG MONEY FUNDS are: Short Term Income Fund , Money Market Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily Tax Free Income Fund; California Daily Tax Free Income Fund; Connecticut Daily Tax Free Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax Free Income Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax Free Income Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania Daily Municipal Income Fund. Each of the Reich & Tang Money Funds is a no-load fund managed by Reich & Tang Asset Management L.P. and offers check-writing privileges (for accounts other than IRAs) in addition to the exchange plan. Only the Short Term Income Fund, Money Market Portfolio is available for IRA accounts. 15 THE PRICE AT WHICH SHARES ARE EXCHANGED is determined by the time of day we receive your request. TO GET TODAY'S PRICE: . For an IRA account, call Acorn at 1-800-962-1585 before Closing Time. . If you are exchanging FROM ONE OF THE ACORN FUNDS (Acorn USA, Acorn Fund or Acorn International) into another of the Acorn Funds or one of the Reich & Tang Money Funds, call Acorn at 1-800-962-1585 before Closing Time. . If you are exchanging FROM ONE OF THE REICH & TANG MONEY FUNDS to one of the Acorn Funds, CALL REICH & TANG AT 1-800-221-3079 BEFORE 11:00 A.M. CHICAGO (CENTRAL) TIME. Because of the time needed to transfer money between the Funds and the Reich & Tang Money Funds, you may not exchange into and out of a money fund on the same or successive days; there must be at least one day between exchanges. EXCHANGE PLAN RESTRICTIONS . The fund you are exchanging into must be registered for sale in your state. . You may only exchange between accounts that are registered in the same name, address, and taxpayer identification number. . If you are opening a new account by exchange, your exchange must be at least $1,000 or $200 for an IRA account. . If your account is subject to backup withholding, you may not use the exchange plan. . Generally, you will be limited to 4 round-trip exchanges per year (a round- trip being the exchange out of one fund into another fund, and then back). . Because excessive trading can hurt Fund performance and shareholders, Acorn reserves the right to temporarily or permanently terminate the exchange privilege of any investor who makes excessive use of the exchange plan. . Acorn also reserves the right to refuse exchange purchases by any person or group, if Acorn believes the purchase will be harmful to existing shareholders. . Before exchanging into a fund, you should read its prospectus. . Exchanges may have tax consequences for you. Acorn reserves the right to terminate or modify the exchange plan at any time, but will try to give you prior notice if it can reasonably do so. 16 - ------------------------------------------------------------------------------- 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 privileges . Doing Business with Acorn For reregistering your current account . Changing Your Account Registration For re-registering your Acorn shares . Broker-Dealer Transfer Form held by a broker to an account with Acorn For changes to your IRA beneficiary . Change of Beneficiary designations For transferring money from an IRA . IRA Transfer Form account with another institution to Acorn For redeeming shares from your IRA . IRA Withdrawal Form account 17 - ------------------------------------------------------------------------------- DIVIDENDS, CAPITAL GAINS, AND TAXES - ------------------------------------------------------------------------------- The Fund distributes substantially all of its net income and capital gains to shareholders each year, usually in December. DISTRIBUTION OPTIONS When you open an account, specify on your application how you want to receive your distributions. If you later want to change your distribution option, call us at 1-800-962-1585. The Fund offers three options: . REINVESTMENT OPTION. Your dividends and capital gain distributions will be automatically reinvested in additional shares of the Fund. If you do not indicate a choice on your application, you will be assigned this option. . INCOME-ONLY OPTION. Your capital gain distributions will be automatically reinvested, but you will be sent a check for each dividend. . CASH OPTION. You will be sent a check for each dividend and capital gain distribution. FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment of distributions in cash would be a taxable distribution from your IRA, and might be subject to income tax penalties if you are under 59 1/2 years old. After you are 59 1/2, you may request payment of distributions in cash. When you reinvest, the reinvestment price is the fund's NAV at the close of business on the reinvestment date. The mailing of distribution checks will usually begin on the payment date, which is usually one week after the ex- dividend date. TAXES As with any investment, you should consider how your investment in the Fund will be taxed. If your account is a tax-deferred account (for example, an IRA or an employee benefit plan account), the following tax discussion does not apply. If your account is not a tax-deferred account, however, you should be aware of the following tax rules: TAXES ON DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions are subject to federal income tax, and may also be subject to state or local taxes. If you live outside the United States, your distributions could also be taxed by the country in which you reside. Your dividends and distributions are taxable when they are paid, whether you take them in cash or reinvest them in additional shares. However, dividends and distributions declared in December and paid in January are taxable as if they were paid on December 31. 18 For federal tax purposes, the Fund's income and short-term capital gain distributions are taxed as dividends; long-term capital gain distributions are taxed as long-term capital gains. Every January, Acorn will send you and the IRS a statement, called a Form 1099, showing the amount of each taxable distribution you received in the previous year. You may not receive a Form 1099 if total distributions for the year are less than $10. TAXES ON TRANSACTIONS. Your redemptions--including exchanges between funds or into a money fund--are subject to capital gains tax. A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell (redeem) them. Whenever you sell shares of the Fund, Acorn will send you a confirmation statement showing how many shares you sold and at what price. You will also receive a year-end statement every January. It is up to you or your tax preparer to determine whether any given sale resulted in a capital gain and, if so, the amount of tax to be paid. Be sure to keep your regular account statements; the information they contain will be essential in calculating the amount of your capital gains. We have average cost basis information for shares purchased in 1990 or later. If you redeem shares purchased in 1990 or later and would like an average cost statement, call 1-800-962-1585. WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that your Social Security or taxpayer identification number is correct and that you are not subject to 31% backup withholding for failing to report income to the IRS. If you violate IRS regulations, the IRS can require Acorn to withhold 31% of your taxable distributions and redemptions. - ------------------------------------------------------------------------------- UNDERSTANDING DISTRIBUTIONS As a Fund shareholder, you are entitled to your share of the Fund's net income and any net gains realized on its investments. The Fund's income from dividends and interest, and any net realized short-term capital gain, are paid to you as DIVIDENDS. The Fund realizes capital gains whenever it sells securities for a higher price than it paid for them. Net realized long-term gains are paid to you as CAPITAL GAIN DISTRIBUTIONS. - ------------------------------------------------------------------------------- 19 - ------------------------------------------------------------------------------- THE FUND IN DETAIL - ------------------------------------------------------------------------------- ORGANIZATION Acorn USA is a series of Acorn Investment Trust ("Acorn" or the "Trust"), an open-end, management investment company. The Acorn Fund, Inc. began operations in 1970, and was reorganized as the Acorn Fund series of the Trust on June 30, 1992. The Trust is a Massachusetts business trust organized on April 21, 1992. Acorn USA began operations in September 1996. Each share of the Fund is entitled to participate pro rata in any dividends and other distributions declared by the board of trustees with respect to the Fund, and all shares of the Fund have equal rights in the event of liquidation of the Fund. THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for protecting the interests of the shareholders of the Fund and the other Acorn Funds. The trustees are experienced executives and professionals who meet at regular intervals to oversee the activities of the Trust and the funds. A majority of trustees are not otherwise affiliated with Acorn or WAM. ACORN MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS to elect or remove trustees, change fundamental policies, approve a management contract, or for other purposes. Acorn will mail proxy materials in advance, including a voting card and information about the proposals to be voted on. You are entitled to one vote for each share of Acorn USA that you own. Shareholders not attending these meetings are encouraged to vote by proxy. MANAGEMENT The Fund is managed by Wanger Asset Management, L.P. (WAM), 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606-5016. WAM chooses the Fund's investments and handles its business affairs, under the direction of the board of trustees. WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd., which is controlled by Ralph Wanger. WAM manages more than $4.5 billion in assets. WAM employs a team approach to management of the Fund. The management team is comprised of the lead portfolio manager, other WAM portfolio managers and research analysts. Team members share responsibility for providing ideas, information, knowledge and expertise in managing the Fund. Each team member has one or more areas of expertise that is applied to the management of the Fund. Daily decisions on portfolio selection rest with the lead portfolio manager who utilizes the input and advice of the management team in making purchase and sale determinations. ROBERT MOHN is the Fund's lead portfolio manager. Mr. Mohn has been a key member of WAM's domestic analytical team since August 1992, and a principal of WAM since July 1995. Prior to his position at WAM, he worked as an analyst for Ariel Capital Management (June to August 1991). His formal education includes a B.S. from Stanford University (1983) and an M.B.A. from the University of Chicago (1992). 20 State Street Bank and Trust Company is the Fund's transfer agent and custodian. DISTRIBUTOR Shares of Acorn USA are offered for sale through WAM Brokerage Services, L.L.C. ("WAM BD") without any sales commission or charges to the Fund or its shareholders. WAM BD is wholly-owned by WAM and WAM's general partner, Wanger Asset Management, Ltd. WAM BD's address is 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606-5016. All distribution and promotional expenses relating to the Fund are paid by WAM, including the payment or reimbursement of any expenses incurred by WAM BD. EXPENSES Like all mutual funds, Acorn USA pays expenses related to its daily operations. Expenses paid out of the Fund's assets are reflected in its share price or dividends. The Fund pays a MANAGEMENT FEE to WAM for managing its investments and business affairs. For services provided by WAM, the Fund pays an annual fee of (i) 1.00% of the Fund's average daily net assets up to $200 million, and (ii) .95% of average daily net assets in excess of $200 million. While the management fee is a significant component of the Fund's annual operating costs, the Fund has other expenses, too. The Fund pays the fees of its custodian, transfer agent, auditors, and lawyers. It also pays other expenses such as the cost of compliance with federal and state laws, proxy solicitations, shareholder reports, taxes, insurance premiums, and the fees of trustees who are not otherwise affiliated with Acorn or WAM. THE ACORN PHILOSOPHY ACORN USA seeks long-term capital growth. THE FUND PREFERS SMALL COMPANIES. Since large institutions seek highly marketable stocks, the stocks of large companies are studied in detail by security analysts, with the result that all investors know much the same thing about large companies. WAM prefers to work with stocks where values are more attractive because the facts about the companies are not universally known. The Fund thus generally concentrates purchases on that segment of the market where the competition is less intense -- companies with a total common stock market capitalization of less than $1 billion. WAM wants to be able to understand any company in which the Fund invests, and smaller companies are easier to comprehend than large firms or conglomerates. When a company develops into a multi-industry giant, it is difficult for even the top management of the company to understand its own business and even harder for an outsider to follow such widespread activities. Since WAM places a premium on understanding the Fund's investments, when possible WAM talks to top management directly. That is easier to do with smaller firms. 21 LOOKING FOR HIGH QUALITY COMPANIES. The Fund looks for quality businesses, with each investment ideally resting on a solid tripod of growth potential, financial strength, and fundamental value. Not all of the companies in which the Fund invests necessarily have all of these characteristics. The sources of growth are a growing marketplace for the company's product, good design, efficient manufacturing, sound marketing, and good profit margins. Financial strength means low debt, adequate working capital, and conservative accounting principles. Strong capitalization gives management the stability and flexibility to reach strategic objectives. In economies with less well- developed capital markets than those of the U.S., a strong balance sheet is an essential component of competitive advantage. Fundamental value means low relative price. The existence of a good company does not necessarily make its stock a good buy. The price of a stock determines value as measured relative to dividends, earnings, cash flow, growth rate, book value, and economic replacement value of assets. The emphasis on fundamentals in relation to price sets the Fund apart from pure "growth" or "value" funds. WAM also believes that finding and understanding high quality companies is important because investing in smaller companies involves relatively higher investment costs. One way to reduce these costs is to invest with a long-term time horizon (at least 3-5 years) and to avoid frequent turnover of the stocks held by the Fund. Occasionally, however, securities purchased on a long-term basis may be sold within 12 months after purchase in light of a change in the circumstances of a particular company or industry, or in general market or economic conditions. INVESTMENT THEMES. To find long-term investments and reduce its rate of turnover, the Fund seeks out areas of the economy that it believes will benefit from favorable long-term economic and political trends. These areas of emphasis may change from time to time, and are usually related to identified investment themes or market niches. A small company frequently can carve out a specialized niche for itself. The niche can be geographic, like that of a regional bank, utility, or railroad. It can be technological, based on patents and know-how. Sometimes the niche is a marketing technique. The Fund invests primarily in equity securities, including common and preferred stocks, warrants or other similar rights, and convertible securities of U.S. companies. The Fund may also invest in any other type of security, including debt securities, and may invest up to 10% of its total assets in foreign securities. The Fund may invest without limit in corporate or government obligations or hold cash or cash equivalents if WAM determines that a temporary defensive position is advisable. The Fund uses various techniques to increase or decrease its exposure to the effects of possible changes in security prices, currency exchange rates, or other factors that affect the value of the Fund's portfolio. These techniques include buying and selling options, futures contracts, or options on futures contracts, or entering into currency exchange contracts or swap agreements. The investment objective of the Fund may be changed by the board of trustees without shareholder approval. If there were such a change, you should consider whether the Fund would remain an appropriate investment in light of your then current financial position and needs. The Fund alone is not intended to present a balanced investment program. 22 SECURITIES, INVESTMENT PRACTICES, AND RISKS The following pages contain more detailed information about types of investments the Fund may make, and strategies WAM may employ in pursuit of the Fund's investment objective, including information about the associated risks and restrictions. All policies stated throughout this prospectus, other than those identified as fundamental, can be changed without shareholder approval. A complete statement of the Fund's investment restrictions is included in the SAI. Compliance with these policies and limitations is determined at the time of purchase; the sale of an investment is not required because of a subsequent change in circumstances. WAM may not buy all of these instruments or use all of these techniques to the full extent permitted unless it believes that doing so will help the Fund achieve its goal. COMMON STOCKS. Common stocks represent an equity (ownership) interest in a corporation. This ownership interest often gives the Fund the right to vote on measures affecting the company's organization and operations. Although common stocks have a history of long-term growth in value, their prices tend to fluctuate in the short term. Acorn USA invests mostly in the securities of smaller companies, that is, companies with a total market capitalization of less than $1 billion. During some periods, the securities of small companies, as a class, have performed better than the securities of large companies, and in some periods they have performed worse. Stocks of small companies tend to be more volatile and less liquid than stocks of large companies. Small companies, as compared to larger companies, may have a shorter history of operations, may not have as great an ability to raise additional capital, may have a less diversified product line making them susceptible to market pressure, and may have a smaller public market for their shares. Restrictions: The Fund may not acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer.* DEBT SECURITIES. Bonds and other debt instruments are methods for an issuer to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. - ---------------- * These restrictions are "fundamental," which means that they cannot be changed without shareholder approval. 23 "Investment grade" debt securities are those rated within the four highest ratings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of comparable quality. Securities rated BBB or Baa are considered to be medium-grade and to have speculative characteristics. Investment in non-investment grade debt securities is speculative and involves a high degree of risk. Lower-rated debt securities (commonly called "junk bonds") are often considered speculative and involve greater risk of default or price changes due to changes in the issuer's credit-worthiness. The market prices of these securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty. Money market instruments are high-quality, short-term debt securities that present minimal credit risk. These instruments may carry fixed or variable interest rates. The Fund may invest without limit in corporate or government obligations, or hold cash or cash equivalents if WAM determines that a temporary defensive position is advisable. To meet liquidity needs (which, under normal market conditions, are not expected to exceed 25% of its total assets) or for temporary defensive purposes, the Fund may hold cash and may invest in domestic and foreign money market securities. Restrictions: There are no restrictions on the ratings of debt securities in which the Fund may invest. However, Acorn USA does not intend to invest more than 20% of its total assets in debt securities, nor more than 5% of its total assets in debt securities rated at or lower than the lowest investment grade. ILLIQUID AND RESTRICTED SECURITIES Some investments may be determined by WAM to be illiquid, which means that they may be difficult to sell promptly at an acceptable price. Other securities, such as securities acquired in private placements, may be subject to certain legal restrictions on sale. Difficulty in selling securities may result in delays or a loss, or may be costly to the Fund. Restrictions: Acorn USA may not purchase a security if, as a result, more than 15% of its total assets would be invested in illiquid or restricted securities. DIVERSIFICATION Diversifying the Fund's investment portfolio can reduce the risks of investing. This may include limiting the amount of money invested in any one company or, on a broader scale, limiting the amount invested in any one industry. 24 Restrictions: Acorn USA may not invest more than 5% of its total assets in the securities of any one issuer. This restriction applies to only 75% of Acorn USA's total assets, leaving a "basket" of 25% of total assets in which investments may exceed the 5% limit. The Fund may not invest more than 25% of its total assets in any one industry. These limitations do not apply to U.S. government securities.* LENDING AND REPURCHASE AGREEMENTS The Fund generally may not make loans, but will invest in repurchase agreements (generally as a cash management technique). A repurchase agreement involves a sale of securities to the Fund in which the seller agrees to repurchase the securities at a higher price, which includes an amount representing interest on the purchase price, within a specified time. In the event of bankruptcy of the seller, the Fund could experience both losses and delays in liquidating its collateral. Restrictions: The Fund may not generally make loans, but may (a) invest in debt securities within the limits described in the prospectus and SAI, (b) invest in repurchase agreements, or (c) lend up to 33% of its portfolio securities.* OTHER INVESTMENT COMPANIES The Fund may invest in other investment companies, which may involve the payment of a premium above the value of the issuer's portfolio securities, and is subject to market availability. In the case of a purchase of shares of such a company in a public offering, the purchase price may include an underwriting spread. As a shareholder in an investment company, the Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time, the Fund would continue to pay its own management fees and other expenses. The Fund does not intend to invest in such circumstances unless, in the judgment of WAM, the potential benefits of such investment justify the payment of any applicable premium or sales charge and the additional layer of expense. Restrictions: Acorn USA generally may invest up to 10% of its assets in shares of other investment companies and up to 5% of its assets in any one investment company (in each case measured at the time of investment). No investment in another investment company may represent more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. FOREIGN SECURITIES The Fund invests mostly in stocks of U.S. companies, but has the flexibility to invest up to 10% of its total assets in foreign securities. Investment in a foreign security may be appropriate if the foreign company has significant U.S. operations, or occasionally if WAM believes it is an exceptional investment opportunity. - ---------------- * These restrictions are fundamental. 25 Investments in foreign securities provide opportunities different from those available in the U.S., and risks which in some ways may be greater than in U.S. investments, including: fluctuations in exchange rates of foreign currencies; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing, and financial reporting standards; different settlement periods and trading practices; less liquidity, frequently greater price volatility, and higher transaction costs in foreign markets than in the United States; imposition of foreign taxes; and political risk, including expropriation or nationalization. The Fund may invest in American Depositary Receipts (ADRs) that are not sponsored by the issuer of the underlying security. To the extent the Fund does so, it would probably bear its proportionate share of the expenses of the depository and might have greater difficulty in receiving copies of the issuer's shareholder communications than would be the case with a sponsored ADR. The Fund may invest in securities purchased on a when-issued and delayed delivery basis. Although the payment terms of such a security are established at the time a fund enters into the commitment, the security may be delivered and paid for a month or more after the date of purchase, when its value may have changed. The Fund will make such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if WAM considers it advisable for investment reasons. Restrictions. Acorn USA's investments in foreign securities, including ADRs, are limited to not more than 10% of its total assets. MANAGING INVESTMENT EXPOSURE The Fund uses various techniques to increase or decrease its exposure to the effects of possible changes in security prices, currency exchange rates or other factors that affect the value of the Fund's portfolio. These techniques include buying and selling options, futures contracts, or options on futures contracts, or entering into currency exchange contracts or swap agreements. These techniques are used by WAM to adjust the risk and return characteristics of the Fund's portfolio. If WAM judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's investments, or if the counterparty to the transaction does not perform as promised, the transaction could result in a loss. Use of these techniques may increase the volatility of the Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. These techniques are used by the Fund for hedging, risk management or portfolio management purposes and not for speculation. OPTIONS AND FUTURES. The Fund may enter into stock index or currency futures contracts (or options thereon) to hedge a portion of the Fund's portfolio, to provide an efficient means of regulating the Fund's exposure to the equity markets, or as a hedge against changes in prevailing levels of currency exchange rates. The Fund may write covered call options and purchase put and call options on foreign currencies, securities, and stock indices. Futures contracts and options can be highly volatile. The Fund's attempt to use such investments for hedging purposes may not be successful and could result in reduction of the Fund's total return. 26 CURRENCY EXCHANGE TRANSACTIONS. The Fund may use forward foreign currency contracts to "lock-in" an exchange rate between the U.S. dollar and the foreign currency or currencies involved in a particular transaction or in which portfolio securities are denominated. A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Although forward contracts may be used to protect the Fund from adverse currency movements, the use of such hedges may reduce or eliminate the potentially positive effect of currency revaluations on the Fund's total return. See the SAI for more information. Restrictions: The Fund will not use futures contracts for speculation, and will limit its use of futures contracts so that no more than 5% of its total assets would be committed to initial margin deposits or premiums on such contracts. The aggregate market value of the Fund's portfolio securities covering call or put options will not exceed 10% of the Fund's net assets. 27 - ------------------------------------------------------------------------------- HOW TO CONTACT US - ------------------------------------------------------------------------------- MAIL LOGO - ------------------------------------------------------------------------------- State Street Bank & Trust Co. . for regular mail delivery, including Attn: Acorn Funds purchases, written exchanges, P. O. Box 8502 redemptions, and IRA contributions Boston, MA 02266-8502 Boston Financial Data Service . for overnight deliveries of purchases, Attn: Acorn Funds written exchanges, redemptions, or IRA 2 Heritage Drive, 6th Floor contributions N. Quincy, MA 02171 Wanger Asset Management, L.P. . the Fund's adviser 227 W. Monroe St., Suite 3000 Chicago, IL 60606-5016 WAM Brokerage Services, L.L.C. . the Fund's distributor 227 W. Monroe St., Suite 3000 Chicago, IL 60606-5016 - ------------------------------------------------------------------------------- PHONE LOGO - ------------------------------------------------------------------------------- 1-800-9-ACORN-9 . for Fund information, account balances, (1-800-922-6769) literature, prices, and performance information (from outside the U.S. 1-312- 634-9240) 1-800-962-1585 . for telephone purchases, exchanges and redemptions, and for IRA information (from outside the U.S. 1-617-774-5000 ext. 6457) 1-800-221-3079 . to exchange out of a money fund 1-800-306-4567 . TDD service for the deaf and hearing impaired Customer service is available on business days from 8:00 a.m. to 4:30 p.m. Chicago (central) time. Telephone requests for purchases, redemptions or exchanges from any of the Acorn Funds must be made by 3:00 p.m. Chicago (central) time. Telephone requests for purchases, redemptions or exchanges from the Reich & Tang Money Funds must be made by 11:00 a.m. Chicago (central) time. - ------------------------------------------------------------------------------- WIRE LOGO - ------------------------------------------------------------------------------- State Street Bank & Trust Co. . to wire money from your bank to add to an Attn: Mutual Funds 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 on your account 28 29 Acorn Investment Trust P.O. Box 8502 [ACORN LOGO] Boston, MA 02266-8502 Application - Acorn USA It takes only a few moments to fill out this simple step-by-step application. If you have questions, call us at 1-800-9-ACORN-9, (1-800-922-6769), weekdays, 8:00am-4:30pm, Chicago (central) time. Please be sure to print your information on this application, then simply sign and return it to us in the postage-paid envelope we've provided. (Please do not use this form if you are opening an IRA.) YOUR ACCOUNT REGISTRATION [][][] [][] [][][][] Social Security Number (Use minor's social security number for gifts/transfers to minors) or [][] [][][][][][][] Taxpayer ID Number _____________________________________________________________ [] Individual or Joint* Account _____________________________________________________________ Owner's name: first, middle initial, last _____________________________________________________________ Joint owner's name: first, middle initial, last *Joint tenants with right of survivorship, unless you indicate otherwise. _____________________________________________________________ [] Gift/Transfer to a Minor (ugma/utma) _____________________________________________as custodian for Custodian's name: first, middle initial, last ____________________________________________________under the Minor's name: first, middle initial, last _________________________Uniform Gifts/Transfers to Minors Act. State _______________________________________________________________ Minor's date of birth _______________________________________________________________ [] Trust or Established Employee Benefit or Profit-Sharing Plan ___________________________________________________as trustee of Trustee('s) name(s) _______________________________________________________________ Name of Trust Agreement _______________________________________________________________ Date of Trust Agreement Please include copy of first page and last page of trust agreement. _______________________________________________________________ [] Corporation or Other Entity _______________________________________________________________ Name of corporation or other entity _______________________________________________________________ Type of entity (for example, corporation, partnership, non-profit) Please attach a certified copy of your corporate resolution showing the person(s) authorized to act on this account. YOUR ADDRESS _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code _______________________________________________________________ Daytime phone, including area code [] U.S. Citizen [] Non-citizen residing in U.S. To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.) with a social security or tax identification number. CHOOSE YOUR INVESTMENTS There is an initial investment minimum of $1,000 per Fund. [] Acorn Fund $___________________ [] Acorn International $___________________ [] Acorn USA $___________________ [] Total Investment $___________________ Make check(s) payable to Acorn Fund and/or Acorn International. DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS Please choose how you want to receive your income dividends and capital gains. If no option is checked, all dividends and capital gains will be reinvested automatically. (Check one box.) [] Reinvest dividends and capital gains to help keep my account growing. [] Pay dividends and capital gains in cash. [] Pay dividends in cash; reinvest capital gains. DUPLICATE STATEMENTS _______________________________________________________________ [] Send duplicate statements for my account to: _______________________________________________________________ Name _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code MORE ON THE BACK. Acorn Investment Trust FIRST CLASS WAM Brokerage Services, L.L.C. U.S. POSTAGE P.O. Box 8502 PAID Boston, MA 02266-8502 CHICAGO, IL PERMIT NO. 1200 AUTOMATIC INVESTMENT PLAN To keep building your investments, you can easily add to your fund accounts by joining the automatic investment plan: [_] Automatic Investment Plan: to add to your Acorn USA account automatically [_] monthly [_] quarterly (check only one box) The minimum automatic investment is $100; the maximum is $50,000. Your automatic investment will be drawn from your bank account on or about the 15th of the month. Attach a voided check from the bank account you will be using. BANK TRANSFER OPTIONS To make transactions fast and easy, choose the Telephone Purchase Plan, Telephone Redemption by Wire Plan, or both. It takes about 10 days to set up these plans. [_] Telephone Purchase Plan: to add to your Acorn USA account or by transferring money from your bank checking account ($100 minimum, $50,000 maximum per transfer.) [_] Telephone Redemptions by wire: to redeem shares and transfer the money to your bank checking account ($1,000 minimum, $50,000 maximum per transaction.) Telephone requests for purchases or redemptions must be made by 3:00 p.m. Chicago (central) time. Attach a voided check from the bank account you will be using. TELEPHONE PLANS You automatically have the ability to exchange and redeem shares by telephone unless you check the boxes below. Proceeds of telephone redemption requests are paid by check mailed to the address of record may not be more than $50,000. Exchanges must be between identically-registered accounts and requested by 3:00 p.m. Chicago (central) time. See the prospectus for details. I do NOT want: [_] telephone exchanges --- [_] telephone redemptions AGREEMENT By signing this form, I certify that: I am of legal age, have received and read the Prospectus, and agree to its terms. I understand that each of the account services, including the telephone exchange plan, may be terminated or modified by Acorn in the future. If I fail to give the correct number or sign this form, Acorn 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 they will not be liable for any resulting loss or expense. I certify that I have read the explanation and agree to the terms and provisions for the services I have elected as set forth in the current prospectus of Acorn Fund and Acorn International, as amended from time to time. (If you have elected the Automatic Investment Plan or any Bank Transfer Option) I authorize Acorn and its affiliates and agents to initiate (1) credit entries (deposits) (if I have elected the telephone redemption bank transfer option), (2) debit entries (withdrawals) (if I have elected to participate in the Automatic Investment Plan or telephone purchase Bank Transfer Option), and (3) debit or credit entries and adjustments for any entries made in error to my bank account, for which I have attached a voided check. This authorization will remain effective until I notify Acorn in writing or by telephone at 1-800-962-1585 of its termination and until Acorn has a reasonable time to act on that termination. YOUR SIGNATURE Under penalty, I certify that (i) the Social Security or Tax Identification Number given is correct and (ii) I am NOT currently subject to IRS backup withholding for failure to report dividend or interest income to the IRS. (Please cross out "NOT" if you are currently subject to withholding.) The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date Joint accounts require both signatures. ACORN INVESTMENT TRUST STATEMENT OF ADDITIONAL INFORMATION September 3, 1996 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 1-800-922-6769 ACORN USA No-Load Fund - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- Information About the Fund................................................. 2 Investment Objectives and Policies......................................... 2 Investment Techniques and Risks............................................ 2 Investment Restrictions.................................................... 14 Performance Information.................................................... 17 Investment Adviser......................................................... 17 Distributor................................................................ 19 The Trust.................................................................. 19 Trustees and Officers...................................................... 20 Purchasing and Redeeming Shares............................................ 22 Additional Tax Information................................................. 24 Portfolio Transactions..................................................... 25 Custodian.................................................................. 26 Independent Auditors....................................................... 26 Appendix - Description of Bond Ratings..................................... 26 - -------------------------------------------------------------------------------- This Statement of Additional Information ("SAI") is not a prospectus but provides information that should be read in conjunction with the prospectus of ACORN USA dated September 3, 1996 and any supplement thereto, which may be obtained from Acorn at no charge by writing or telephoning Acorn at its address or telephone number shown above. INFORMATION ABOUT THE FUND ACORN USA is a series of Acorn Investment Trust ("Acorn" or the "Trust"). The discussion below supplements the description in the prospectus of the Fund's investment objectives, policies, and restrictions. INVESTMENT OBJECTIVES AND POLICIES ACORN USA invests with the objective of long-term growth of capital. Although income is considered by ACORN USA in the selection of securities, the Fund is not designed for investors seeking primarily income rather than capital appreciation. The Fund uses the techniques and invests in the types of securities described below and in the prospectus. INVESTMENT TECHNIQUES AND RISKS DEBT SECURITIES The Fund may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds"), and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by the Fund or the portion of the Fund's assets that may be invested in debt securities in a particular ratings category. The Fund does not intend to invest more than 20% of its total assets in debt securities nor more than 5% of its total assets in securities rated at or lower than the lowest investment grade. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher- quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, the junk bond market may be severely disrupted, and issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling 2 its portfolio securities. See "Net Asset Value." The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A more complete description of the characteristics of bonds in each ratings category is included in the appendix to this SAI. OPTIONS AND FUTURES The Fund may purchase and write both call options and put options on securities and on indexes, and enter into interest rate and index futures contracts, and may purchase or sell options on such futures contracts ("futures options") in order to provide additional revenue, or to hedge against changes in security prices or interest rates. The Fund may also use other types of options, futures contracts and futures options currently traded or subsequently developed and traded, provided the board of trustees determines that their use is consistent with the Fund's investment objective. OPTIONS. An option on a security (or index) is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option (normally not exceeding nine months). The writer of an option on an individual security or on a foreign currency has the obligation upon exercise of the option to deliver the underlying security or foreign currency upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security or foreign currency. Upon exercise, the writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. (An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities, or certain economic indicators.) The Fund will write call options and put options only if they are "covered." For example, in the case of a call option on a security, the option is "covered" if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount are held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. If an option written by the Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by the Fund expires, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires. 3 The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by the Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by the Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. OTC DERIVATIVES. The Fund may buy and sell over-the-counter ("OTC") derivatives. Unlike exchange-traded derivatives, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC derivatives (derivatives not traded on exchanges) generally are established through negotiation with the other party to the contract. While this type of arrangement allows the Fund greater flexibility to tailor an instrument to its needs, OTC derivatives generally involve greater credit risk than exchange-traded derivatives, which are guaranteed by the clearing organization of the exchanges where they are traded. The Fund will limit its investments so that no more than 5% of its total assets will be placed at risk in the use of OTC derivatives. RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets, the currency markets, and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well- conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. If the Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, the Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, the Fund foregoes, during the option's life, the opportunity to profit from currency appreciation. 4 If trading were suspended in an option purchased or written by the Fund, the Fund would not able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it has purchased. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may use interest rate futures contracts and index futures contracts. An interest rate or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index /1/ at a specified price and time. A public market exists in futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index; the Value Line Composite Index; and the New York Stock Exchange Composite Index) as well as financial instruments (including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes; Eurodollar certificates of deposit; and foreign currencies). Other index and financial instrument futures contracts are available and it is expected that additional futures contracts will be developed and traded. The Fund may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities and indexes (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. To the extent required by regulatory authorities having jurisdiction over the Fund, the Fund will limit its use of futures contracts and futures options to hedging transactions. For example, the Fund might use futures contracts to hedge against fluctuations in the general level of stock prices, anticipated changes in interest rates, or currency fluctuations that might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. The Fund's hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the Fund's exposure to stock price, interest rate, and currency fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on WAM correctly predicting changes in the level and direction of stock prices, interest rates, currency exchange rates, and other factors. - ---------------- /1/ A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. 5 Should those predictions be incorrect, the Fund's return might have been better had hedging not been attempted; however, in the absence of the ability to hedge, WAM might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. When a purchase or sale of a futures contract is made by the Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Fund expects to earn interest income on its initial margin deposits. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by the Fund does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. In computing daily net asset value, the Fund will mark-to-market its open futures positions. The Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts it writes. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs must also be included in these calculations. RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the use of futures contracts and futures options as hedging techniques. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures options, and the related securities, including technical influences in futures and futures options trading and differences between the Fund's investments being hedged and the securities underlying the standard contracts available for trading. For example, in the case of 6 index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of the Fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in the Fund's portfolio. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. LIMITATIONS ON OPTIONS AND FUTURES. The Fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by the Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," /2/ would exceed 5% of the Fund's total assets. When purchasing a futures contract or writing a put option on a futures contract, the Fund must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) equal to the market value of such contract. When writing a call option on a futures contract, the Fund similarly will maintain with its custodian cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. - ---------------- /2/ A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. 7 The Fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent the Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the "underlying commodity value" of each long position in a commodity contract in which the Fund invests will not at any time exceed the sum of: (1) The value of short-term U.S. debt obligations or other U.S. dollar denominated high-quality short-term money market instruments and cash set aside in an identifiable manner, plus any funds deposited as margin on the contract; (2) Unrealized appreciation on the contract held by the broker; and (3) Cash proceeds from existing investments due in not more than 30 days. "Underlying commodity value" means the size of the contract multiplied by the daily settlement price of the contract. As long as the Fund continues to sell its shares in certain states, the Fund's options and futures transactions will also be subject to certain non- fundamental investment restrictions set forth under "Investment Restrictions" in this SAI. Moreover, the Fund will not purchase puts, calls, straddles, spreads, or any combination thereof if by reason of such purchase more than 10% of the Fund's total assets would be invested in such securities. SWAP AGREEMENTS. A swap agreement is generally individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease the Fund's exposure to changes in the value of an index of securities in which the Fund might invest, the value of a particular security or group of securities, or foreign currency values. Swap agreements can take many different forms and are known by a variety of names. The Fund may enter into any form of swap agreement if WAM determines it is consistent with the Fund's investment objective and policies, but the Fund will limit its use of swap agreements so that no more than 5% of its total assets will be placed at risk. A swap agreement tends to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase the Fund's exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap 8 agreement may increase or decrease the overall volatility of the Fund's investments and its net asset value. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. If the counterparty's creditworthiness declines, the value of a swap agreement would be likely to decline, potentially resulting in a loss. The Fund expects to be able to eliminate its exposure under any swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. The Fund will segregate liquid assets (such as cash, U.S. government securities, or other liquid high grade debt obligations) of the Fund to cover its current obligations under swap agreements. If the Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the Fund's accumulated obligations under the swap agreement over the accumulated amount the Fund is entitled to receive under the agreement. If the Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the Fund's accumulated obligations under the agreement. ILLIQUID SECURITIES The Fund may not invest in illiquid securities, if as a result they would comprise more than 15% of the value of the net assets of ACORN USA./3/ Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the board of trustees. If through the appreciation of illiquid securities or the depreciation of liquid securities, ACORN USA should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Notwithstanding the above, the Fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule - ---------------- /3/ In addition, the Fund must comply with certain state regulations that may impose additional restrictions. Arkansas regulations currently prohibit investment of more than 10% of a fund's assets in restricted securities. 9 permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. WAM, under the supervision of the board of trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination WAM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, WAM could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and if, as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. REPURCHASE AGREEMENTS Repurchase agreements are transactions in which the Fund purchases a security from a bank or recognized securities dealer and simultaneously commits to resell that security to the bank or dealer at an agreed-upon price, date, and market rate of interest unrelated to the coupon rate or maturity of the purchased security. Although repurchase agreements carry certain risks not associated with direct investments in securities, the Fund will enter into repurchase agreements only with banks and dealers believed by WAM to present minimum credit risks in accordance with guidelines approved by the board of trustees. WAM will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, WAM's prior dealings with the institution, any rating of the institution's senior long-term debt by independent rating agencies, and other relevant factors. The Fund will invest only in repurchase agreements collateralized at all times in an amount at least equal to the repurchase price plus accrued interest. To the extent that the proceeds from any sale of such collateral upon a default in the obligation to repurchase were less than the repurchase price, the Fund would suffer a loss. If the financial institution which is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings there may be restrictions on the Fund's ability to sell the collateral and the Fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply with provisions under such Code that would allow it immediately to resell such collateral. 10 WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS The Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time the Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before the settlement date if WAM deems it advisable for investment reasons. The Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed- delivery basis. The Fund may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs. At the time the Fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by the Fund, may increase net asset value fluctuation. The Fund has no present intention of investing in reverse repurchase agreements. FOREIGN SECURITIES The Fund may invest up to 10% of its total assets in foreign securities (including American Depository Receipts ("ADRs")), which may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. The Fund may invest in sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the Fund is likely to bear its proportionate share of the expenses of the depository and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored ADR. The Fund does not intend to invest more than 5% of its net assets in unsponsored ADRs. With respect to portfolio securities that are issued by foreign issuers or denominated in foreign currencies, the Fund's investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative 11 to the yen, the dollar value of the yen-denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions.") Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing, and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; possible investment in securities of companies in developing as well as developed countries; and sometimes less advantageous legal, operational, and financial protections applicable to foreign sub-custodial arrangements. Although the Fund will try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations. CURRENCY EXCHANGE TRANSACTIONS. The Fund may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange-traded, and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which the Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The Fund's currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific payables or receivables of the Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to a portfolio security position denominated or quoted in a particular currency. The Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in that currency. When the Fund owns or anticipates owning 12 securities in countries whose currencies are linked, WAM may aggregate such positions as to the currency hedged. If the Fund enters into a forward contract hedging an anticipated purchase of portfolio securities, liquid assets of the Fund, such as cash, U.S. government securities, or other liquid high grade debt obligations, having a value at least as great as the Fund's commitment under such forward contract will be segregated on the books of the Fund and held by the custodian while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, the Fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for the Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency that the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. 13 TEMPORARY STRATEGIES The Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, WAM may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, the Fund temporarily may hold cash (U.S. dollars, foreign currencies, multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. issuers, and most or all of the Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when, or for how long the Fund might employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, the Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and may invest any portion of its assets in money market instruments. PORTFOLIO TURNOVER Although the Fund does not purchase securities with a view to rapid turnover, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons such as general conditions in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. A high rate of portfolio turnover, if it should occur, would result in increased transaction expenses which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. INVESTMENT RESTRICTIONS In pursuing its investment objective ACORN USA will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government securities; 4. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from 14 investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 6. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Restrictions 1 through 10 above are "fundamental," which means that they cannot be changed without the approval of the lesser of (i) 67% of ACORN USA'S shares present at a meeting if more than 50% of the shares outstanding are present or (ii) more than 50% of ACORN USA'S outstanding shares. For the Fund has no present intention of investing in repurchase agreements or lending its portfolio securities. In addition, ACORN USA is subject to a number of restrictions that may be changed by the board of trustees without shareholder approval. Under those nonfundamental restrictions, ACORN USA will not: (a) Invest in companies for the purpose of management or the exercise of control; (b) Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration; 15 (c) Invest more than 2% of its net assets (valued at the time of investment) in warrants not listed on the New York or American stock exchanges, nor more than 5% of its net assets (valued at the time of investment) in all warrants, in each case valued at the lower of cost or market; provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; (d) Invest more than 5% of its total assets (valued at time of investment) in securities of issuers (other than issuers of federal agency obligations or securities issued or guaranteed by any foreign country or asset-backed securities) that, together with any predecessors or unconditional guarantors, have been in continuous operation for less than three years ("unseasoned issuers") or (b) more than 15% of its total assets (valued at the time of investment) in restricted securities and securities of unseasoned issuers; (e) Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940 and applicable state law; (f) Invest more than 15% of its net assets (valued at time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; (g) Purchase or retain securities of a company if all of the trustees, directors and officers of the Trust and of its investment adviser who individually own beneficially more than 1/2% of the securities of the company collectively own beneficially more than 5% of such securities; (h) Pledge, mortgage or hypothecate its assets, except as may be necessary in connection with permitted borrowings or in connection with short sales, options, futures and options on futures; (i) Purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; (j) Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities; (k) Invest more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including securities represented by American Depository Receipts. Notwithstanding the foregoing investment restrictions, the Fund may purchase securities pursuant to the exercise of subscription rights, provided that such purchase will not result in the Fund's ceasing to be a diversified investment company. 16 PERFORMANCE INFORMATION From time to time the Fund may quote total return figures. "Total Return" for a period is the percentage change in value during the period of an investment in shares of the Fund, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return is computed as follows: n ERV = P(1+T) Where: P = the amount of an assumed initial investment in shares of the Fund T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period The Fund imposes no sales charges and pays no distribution expenses. Income taxes are not taken into account. Performance figures quoted by the Fund are not necessarily indicative of future results. The Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. Although information about past performance is useful in reviewing the Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, the Fund's performance may be compared with those of market indexes and other mutual funds. In addition to the performance information described above, the Fund might use comparative performance as computed in a ranking or rating determined by Lipper Analytical Services, Inc., an independent service that monitors the performance of over 1,000 mutual funds, Morningstar, Inc., or another service. The Fund may note its mention or recognition in newsletters, newspapers, magazines, or other media. The Fund may similarly note mention or recognition of WAM, or appearances of principals of WAM, in the media. INVESTMENT ADVISER The Fund's investment adviser, Wanger Asset Management, L.P. ("WAM"), furnishes continuing investment supervision to the Fund and is responsible for overall management of the Fund's business affairs. It furnishes office space, equipment, and personnel to the funds; it assumes substantially all expenses for bookkeeping, and assumes the expenses of printing and distributing the Fund's prospectus and reports to prospective investors. For its services to ACORN USA WAM receives a fee (calculated daily and paid monthly) at the annual rate of 1.00% of the net asset value of the Fund up to $200 million and .95% of the net asset value in excess of $200 million. 17 The staff of the Securities and Exchange Commission has advised Acorn that the annual advisory fees paid by most mutual funds are less than .75% of average net assets. The Fund pays the cost of custodial, stock transfer, dividend disbursing, audit and legal services and membership in trade organizations. It also pays other expenses such as the cost of maintaining the registration of its shares under federal and state securities laws and of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, and the fees of trustees not affiliated with WAM. The investment advisory agreement provides that the total annual expenses of the Fund, exclusive of taxes, interest, and extraordinary litigation expenses, but including fees paid to WAM, shall not exceed the limits prescribed by any state in which the Fund's shares are being offered for sale. Acorn believes that currently the most restrictive limits are 2.5% of the first $30 million of the average net asset value, 2% of the next $70 million, and 1.5% of the average net asset value in excess of $100 million. WAM has voluntarily undertaken to reimburse the Fund for any ordinary operating expenses, with certain exceptions, in excess of 2.0% of the Fund's average daily net assets annually. Brokers' commissions and other charges relating to the purchase and sale of securities are not regarded as expenses for this purpose. Moreover, for purposes of calculating the expenses subject to this limitation, the excess custodian costs attributable to investments in foreign securities compared to the custodian costs which would have been incurred had the investments been in domestic securities are excluded. For the purpose of determining whether the Fund is entitled to any reduction in advisory fee or expense reimbursement, the Fund's expenses are calculated daily and any reduction in fee or reimbursement is made monthly. WAM advanced all of ACORN USA'S organizational expenses, which are being amortized and reimbursed to WAM through September 2001. WAM employs a team approach to management of the Fund. The management team is comprised of the lead portfolio manager, other WAM portfolio managers and research analysts. Team members share responsibility for providing ideas, information, knowledge and expertise in managing the Fund. Each team member has one or more areas of expertise that is applied to the management of the Fund. Daily decisions on portfolio selection rest with the lead portfolio manager who utilizes the input and advice of the management team in making purchase and sale determinations. ROBERT MOHN is the Fund's lead portfolio manager. Mr. Mohn has been a key member of WAM's domestic analytical team since August 1992, and a principal of WAM since July 1995. Prior to his position at WAM, he worked as an analyst for Ariel Capital Management (June to August 1991). His formal education includes a B.S. from Stanford University (1983) and an M.B.A. from the University of Chicago (1992). WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd., which is controlled by Ralph Wanger. WAM commenced operations in 18 1992. Ralph Wanger, Charles P. McQuaid, Terence M. Hogan, and Leah J. Zell, who are officers of the Trust, are limited partners of WAM. WAM has approximately $4.5 billion under management. DISTRIBUTOR Shares of the Fund are distributed by WAM Brokerage Services, L.L.C. ("WAM BD") under a Distribution Agreement as described in the prospectus dated September 3, 1996, which is incorporated herein by reference. The Distribution Agreement continues in effect from year to year, provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Trust, and (ii) by a majority of the trustees who are not parties to the Agreement or interested persons of any such party. The Trust has agreed to pay all expenses in connection with registration of its shares with the Securities and Exchange Commission and auditing and filing fees in connection with registration of its shares under the various state blue sky laws. WAM bears all sales and promotional expenses, including the cost of prospectuses and other materials used for sales and promotional purposes by WAM BD. As agent, WAM BD offers shares of the Fund to investors in states where the shares are qualified for sale, at net asset value without sales commissions or other sales loads to the investor. In addition, no sales commission or "12b-1" payment is paid by the Fund. WAM BD offers the Fund's shares only on a best efforts basis. THE TRUST The Declaration of Trust may be amended by a vote of either the Trust's shareholders or its trustees. The Trust may issue an unlimited number of shares, in one or more series as the board of trustees may authorize. Any such series of shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights or privileges as the trustees may determine. The shares of the Fund are not currently divided into classes. Acorn Fund, Acorn International and Acorn USA are the only series of the Trust currently being offered. The board of trustees may authorize the issuance of additional series if deemed advisable, each with its own investment objective, policies, and restrictions. All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. The Declaration of Trust disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable for obligations of the Trust. Thus, although shareholders of a business trust may, under certain circumstances, be held personally liable under Massachusetts law for the obligations of the Trust, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote because it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. The risk to any one series of sustaining a loss on account of liabilities incurred by another series is also believed to be remote. On any matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series except that shares are voted by individual series when required by the Investment Company Act of 1940 or other applicable law, or when the board of trustees determines that the matter affects only the interests of one series, in which case shareholders of the unaffected series are not entitled to vote on such matters. All shares of the Trust are voted together in the election of trustees. 19 TRUSTEES AND OFFICERS The trustees and officers of the Trust and their ages and principal business activities during the past five years are: Irving B. Harris, trustee and chairman Two North LaSalle Street, Chicago, Illinois 60602; age 86; chairman of the executive committee and director, Pittway Corporation (multi-product manufacturer and publisher); chairman, William Harris Investors, Inc. (investment adviser); chairman, The Harris Foundation (charitable foundation); director, Teva Pharmaceutical Industries, Inc. (pharmaceutical manufacturer) Ralph Wanger, trustee and president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 62; trustee and president, Wanger Advisors Trust; principal, Wanger Asset Management, L.P. since July 1992; prior thereto, principal, Harris Associates L.P. James H. Lorie, trustee and vice chairman 1101 East 58th Street, Chicago, Illinois 60637; age 74; retired; Eli B. and Harriet B. Williams Professor of Business Administration Emeritus, University of Chicago Graduate School of Business; director, Ardco, Inc. (refrigeration equipment manufacturer); director, Thornburg Mortgage Asset Corp. (REIT) Leo A. Guthart, trustee 165 Eileen Way, Syosset, New York 11791; age 58; vice chairman, Pittway Corporation (multi-product manufacturer and publisher); chief executive officer, Pittway Corporation's Security Group of Companies which include ADEMCO (manufacturer of alarm equipment), ADI (distributor of security equipment), Fire Burglary Instruments (supplier of security control panels), First Alert Professional (alarm dealers), Cylink Corporation (supplier of encryption equipment), and Alarm Net (cellular radio service); director, AptarGroup, Inc. (producer of dispensing valves, pumps and closures); director, Cylink Corporation; chairman of the board of trustees, Hofstra University; chairman, Tech Transfer Island Corp. (private investment partnership); director, Long Island Research Institute. Jerome Kahn, Jr., trustee Two North LaSalle Street, Suite 505, Chicago, Illinois 60602; age 62; vice president, William Harris Investors, Inc. (investment adviser); director, Pittway Corporation (multi-product manufacturer and publisher) David C. Kleinman, trustee 1101 East 58th Street, Chicago, Illinois 60637; age 60; senior lecturer in business administration, University of Chicago Graduate School of Business; business consultant; director, Irex Corporation (insulation contractor) Charles P. McQuaid, trustee and senior vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 43; trustee and senior vice president, Wanger Advisors Trust; principal, Wanger Asset Management, L.P. since July 1992; prior thereto, principal, Harris Associates L.P. 20 Roger S. Meier, trustee 1211 S. W. Fifth Avenue, Portland, Oregon 97204; age 70; president, AMCO, Inc. (investment and real estate management); director, Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited Partnership (hotel chain); director, Key Bank of Oregon (banking) Adolph Meyer, Jr., trustee 1511 West Webster Avenue, Chicago, Illinois 60614; age 72; president, Gulco Corp. (leather manufacturer) Malcolm N. Smith, trustee 309 Maple Avenue, Highland Park, Illinois 60035; age 75; president, Newmac, Inc. (importers of Sheffield cutlery); prior thereto, president, Macromatic Division, Milwaukee Electronics Corporation (electronic timing devices manufacturer) Terence M. Hogan, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 34; trustee and vice president, Wanger Advisors Trust; principal, analyst, and portfolio manager, Wanger Asset Management, L.P., since July 1992; prior thereto, analyst, Harris Associates L.P. Leah J. Zell, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47; trustee and vice president, Wanger Advisors Trust; principal, analyst, and portfolio manager, Wanger Asset Management, L.P., since July 1992; prior thereto, analyst, Harris Associates L.P. Merrillyn J. Kosier, vice president and secretary 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 36; vice president and secretary, Wanger Advisors Trust; director of marketing and shareholder services, Wanger Asset Management, L.P., since September 1993; prior thereto, vice president of marketing, Kemper Financial Services, Inc. Bruce H. Lauer, vice president and treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 39; vice president and treasurer, Wanger Advisors Trust; chief administrative officer, Wanger Asset Management, L.P. since April 1995; prior thereto, first vice president, investment accounting, Kemper Financial Services, Inc. Kenneth A. Kalina, assistant treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; age 37; assistant treasurer, Wanger Advisors Trust; Fund controller, Wanger Asset Management, L.P., since September 1995; prior thereto, treasurer of the Stein Roe Mutual Funds Messrs. McQuaid and Wanger are trustees who are interested persons of Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs. Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member, of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. No shares of the Fund were outstanding on the date of this Statement of Additional Information. However, prior to the commencement of public offering of shares of the Fund, 21 WAM or one or more of its principals, will purchase shares of the Fund at an initial price of $10.00 per share. The following table sets forth the total compensation expected to be paid by the Trust during the fiscal year ending December 31, 1996 to each of the trustees of the Trust based on the Trust's current compensation schedule. The Trust has no retirement or pension plan. The officers and trustees affiliated with WAM serve without any compensation from the Trust. TOTAL AGGREGATE COMPENSATION COMPENSATION FROM NAME OF TRUSTEES FROM ACORN USA FUND COMPLEX - ----------------------------------------------------------------- Irving B. Harris $ 9,333 $ 81,000 Leo A. Guthart 2,333 18,000 Jerome Kahn, Jr. 2,333 19,500 David C. Kleinman 2,333 19,500 James H. Lorie 2,333 18,000 Charles P. McQuaid 0 0 Roger S. Meier 2,333 18,000 Adolph Meyer, Jr. 2,333 18,000 Malcolm N. Smith 2,333 19,500 Ralph Wanger 0 0 - ----------------------------------------------------------------- Total $25,664 $212,000 PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Fund's prospectus under the headings "How to Buy Shares," "How to Sell Shares," and "Transaction Services." All of that information is incorporated herein by reference. In particular, a minimum investment of $200 is required to open an IRA account. For purposes of computing the net asset value of a share of the Fund, a security traded on a securities exchange, or in an over-the-counter market in which transaction prices are reported, is valued at the last sales price at the time of valuation. A security for which there is no reported sale on the valuation date is valued at the mean of the latest bid and ask quotations or, if there is no ask quotation, at the most recent bid quotation. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by the board of trustees. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. All assets and liabilities initially expressed in foreign 22 currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the board of trustees. The Fund's net asset values is determined only on days on which the New York Stock Exchange ("NYSE") is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of the Fund may take place in various foreign markets on certain days (such as Saturday) when the Fund is not open for business and do not calculate their net asset values. Conversely, trading in the Fund's portfolio securities may not occur on days when the Fund is open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the Fund's portfolio securities and the value of the Fund's portfolios may be significantly affected on days when shares of the Fund may not be purchased or redeemed. Computation of net asset value (and the sale and redemption of Fund shares) may be suspended or postponed during any period when (a) trading on the NYSE is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of the Fund not reasonably practicable. Acorn has elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day period for any one shareholder. Redemptions in excess of the above amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of securities. If a redemption is made in kind, the redeeming shareholder would bear any transaction costs incurred in selling the securities received. Due to the relatively high cost of maintaining smaller accounts, Acorn reserves the right to redeem shares in any account for their then-current value (which will be promptly paid to the investor) if at any time the shares in the account do not have a value of at least $1,000. An investor will be notified that the value of his account is less than that minimum and allowed at least 30 days to bring the value of the account up to at least $1,000 before the redemption is processed. The Agreement and Declaration of Trust also authorizes Acorn to redeem shares under certain other circumstances as may be specified by the board of trustees. In connection with the Switch Plan, WAM acts as a shareholder servicing agent for the Money Funds. For its services it receives a fee at the rate of 0.35% of the average annual net 23 assets of each account in a Money Fund established through the Switch Plan, pursuant to a 12b-1 plan adopted by the Money Funds. ADDITIONAL TAX INFORMATION The Fund intends to qualify and to continue to qualify to be taxed as a regulated investment company under the Internal Revenue Code so as to be relieved of federal income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, the Fund's net asset value may reflect undistributed income, capital gains, or net unrealized appreciation of securities held by the Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as a dividend or capital gain distribution. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the income dividend paid by the Fund will be increased; if the result is a loss, the income dividend paid by the Fund will be decreased. A portion of the dividends paid by ACORN USA is expected to be eligible for the dividends-received deduction. Capital gain distributions paid from the Fund are never eligible for this deduction. Income received by the Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Internal Revenue Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprises securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to its shareholders the amount of foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. ACORN USA does not expect to be able to "pass through" foreign tax credits. PORTFOLIO TRANSACTIONS Portfolio transactions of the Fund are placed with those securities brokers and dealers that WAM believes will provide the best value in transaction and research services for the Fund, either in a particular transaction or over a period of time. Although some transactions involve only brokerage services, many involve research services as well. In valuing brokerage services, WAM makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best 24 execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. In valuing research services, WAM makes a judgment of the usefulness of research and other information provided to WAM by a broker in managing the Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy, and economic, financial, and political conditions and prospects, useful to WAM in advising the Fund. The reasonableness of brokerage commissions paid by the Fund in relation to transaction and research services received is evaluated by WAM's staff on an ongoing basis. The general level of brokerage charges and other aspects of the Fund's portfolio transactions are reviewed periodically by the board of trustees and its committee on portfolio transactions. WAM is the principal source of information and advice to the Fund, and is responsible for making and initiating the execution of investment decisions by the Fund. However, the board of trustees recognizes that it is important for WAM, in performing its responsibilities to the Fund, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Fund to take into account the value of the information received for use in advising the Fund. The extent, if any, to which the obtaining of such information may reduce WAM's expenses in providing management services to the Fund is not determinable. In addition, the board of trustees understands that other clients of WAM might benefit from the information obtained for the Funds, in the same manner that the Fund might benefit from information obtained by WAM in performing services to others. Transactions of the Fund in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Although investment decisions for the Fund are made independently from those for other investment advisory clients of WAM, it may develop that the same investment decision is made for the Fund and one or more other advisory clients. If the Fund and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each. CUSTODIAN State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts 02266-8502, is the custodian for the Fund. It is responsible for holding all securities and cash of the Fund, receiving and paying for securities purchased, delivering against payment securities sold, 25 receiving and collecting income from investments, making all payments covering expenses of the Fund, and performing other administrative duties, all as directed by authorized persons of the Fund. The custodian does not exercise any supervisory function in such matters as purchase and sale of portfolio securities, payment of dividends, or payment of expenses of the Fund. The Fund has authorized the custodian to deposit certain portfolio securities of the Fund in central depository systems as permitted under federal law. The Fund may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. INDEPENDENT AUDITORS Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606 audits and reports on the Fund's annual financial statements, reviews certain regulatory reports and the Fund's tax returns, and performs other professional accounting, auditing, tax, and advisory services when engaged to do so by Acorn. APPENDIX - DESCRIPTION OF BOND RATINGS A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, WAM believes that the quality of debt securities in which the Fund invests should be continuously reviewed. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the ratings services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). MOODY'S RATINGS Aaa--Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa--Bonds rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa bonds or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risk appear somewhat larger than in Aaa bonds. 26 A--Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds rated Ca represent obligations which are speculative in a high degree. Such bonds are often in default or have other marked shortcomings. S&P RATINGS AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and interest is extremely strong. AA--Bonds rated AA have a very strong capacity to pay principal and interest and differ from AAA bonds only in small degree. A--Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB--Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this capacity than for bonds in higher rated categories. BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation 27 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. 28 PART C OTHER INFORMATION ITEM 24. Financial Statements and Exhibits --------------------------------- (a) Financial statements: -------------------- (1) Financial statements included in Part A of this amendment: None (2) Financial statements included in Part B of this amendment: (i) Acorn Fund (incorporated by reference to the following portions of Registrant's 1995 Acorn Fund Annual Report; a copy of the annual report is attached to this amendment, but, except for those portions incorporated by reference, is furnished for the information of the Commission and is not deemed to be filed as part of this amendment): Report of independent auditors Statement of assets and liabilities at December 31, 1995 Statement of operations for each of the two years in the period ended December 31, 1995 Statement of changes in net assets for each of the two years in the period ended December 31, 1995 Statement of investments at December 31, 1995 Notes to financial statements (ii) Acorn International (incorporated by reference to the following portions of Registrant's 1995 Acorn International Annual Report; a copy of the annual report is attached to this amendment, but, except for those portions incorporated by reference, is furnished for the information of the Commission and is not deemed to be filed as part of this amendment): Report of independent auditors Statement of assets and liabilities at December 31, 1995 Statement of operations for each of the two years in the period ended December 31, 1995. Statement of changes in net assets for each of the two years in the period ended December 31, 1995. Statement of investments at December 31, 1995 Notes to financial statements C-1 (2) Financial statements included in Part C of this amendment: None Note: The following schedules have been omitted for the following reasons: Schedules I and III - The required information is presented in the statements of investments at December 31, 1995. Schedules II, IV, V, VI and VII - The required information is not present. (b) Exhibits: -------- 1. Agreement and declaration of trust (exhibit 1 to Post-effective Amendment No. 53*) 2.1 Bylaws, as amended September 15, 1992 (exhibit 2 to Post-effective Amendment No. 53*) 2.2 Bylaw amendment adopted February 2, 1993 (exhibit 3 to Post-effective Amendment No. 53*) 3. None 4.1 Specimen share certificate - Acorn Fund 4.2 Specimen share certificate - Acorn International 5.1 Investment advisory agreement - Acorn Fund (exhibit 5.1 to Post- effective Amendment No. 53*) 5.2 Investment advisory agreement - Acorn International (exhibit 5.2 to Post-effective Amendment No. 53*) 5.3 Investment advisory agreement - Acorn USA 5.4 Form of Organizational Expenses Agreement between Acorn Investment Trust and Wanger Asset Management, L.P. dated as of September __, 1996. 6.1 Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated as of May 1, 1996 (exhibit 6 to Post-effective Amendment No. 53*) 6.2 Form of Amendment to Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated as of September __, 1996. 7. None 8.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992 (exhibit 8.1 to Post-effective Amendment No. 53*) - ---------------- *Incorporated by reference. C-2 8.2 Letter agreement applying custodian contract (exhibit 8.1) to Acorn International (exhibit 8.2 to Post-effective Amendment No. 53*) 8.3 Form of letter agreement applying custodian contract (exhibit 8.1) to Acorn USA 9. None 10.1 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn Fund (exhibit 10.1 to Post-Effective Amendment No. 49*) 10.2 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn International (exhibit 10.2 to Post-Effective Amendment No. 49*) 10.3 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn USA 11. Consent of independent auditors 12. None 13. None 14. IRA plan booklet dated September 1, 1996 including general information, individual retirement plan and custodial agreement and individual retirement account disclosure statement, Internal Revenue Service determination letter, transfer form, application form, and designation of beneficiary form 15. None 16.1 Computation of performance information - Acorn Fund (exhibit 16.1 to Post-effective Amendment No 53*) 16.2 Computation of performance information - Acorn International (exhibit 16.2 to Post-effective Amendment No. 53*) 17.1 Financial data schedule - Acorn Fund 17.2 Financial data schedule - Acorn International *Incorporated by reference. ITEM 25. Persons Controlled By or Under Common Control with Registrant ------------------------------------------------------------- The Registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with the Registrant within the meaning of this item. The information in the prospectus for Acorn Fund and Acorn International under the caption "The Funds in Detail - Organization - Management" and in the prospectus for Acorn USA under the caption "The Fund in Detail - Organization - Management" and in the statement of additional information for Acorn Fund and Acorn International in the eighth paragraph under the caption "Investment Adviser" and in the statement of additional information for Acorn USA in the tenth paragraph under the caption "Investment Adviser" is incorporated by reference. C-3 ITEM 26. Number of Holders of Securities ------------------------------- At May 31, 1996, there were 44,968 record holders of Registrant's shares of beneficial interest of the series designated Acorn Fund, 76,822 record holders of Registrant's shares of beneficial interest of the series designated Acorn International and no record holders of Registrant's shares of beneficial interest of the series designated Acorn USA. ITEM 27. Indemnification --------------- Article VIII of the agreement and declaration of trust of Registrant (exhibit 1) provides in effect that Registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Registrant, its trustees and officers, its investment adviser and persons affiliated with them are insured under a policy of insurance maintained by Registrant and its investment adviser, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. ITEM 28. Business and Other Connections of Investment Adviser ---------------------------------------------------- The information in the prospectus for Acorn Fund and Acorn International in the second paragraph under the caption "The Funds in Detail - Organization - Management" and in the prospectus for Acorn USA in the second paragraph under the caption "The Fund in Detail - Organization - Management", respectively is incorporated by reference. Neither Wanger Asset Management, L.P. nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee. C-4 ITEM 29. Principal Underwriters ---------------------- WAM Brokerage Services, L.L.C. also acts as principal underwriter for Wanger Advisors Trust. NAME POSITIONS AND OFFICES POSITIONS AND OFFICES WITH UNDERWRITERS WITH REGISTRANT Terence M. Hogan President Vice President and Trustee Merrillyn J. Kosier Vice President and Vice President and Secretary Secretary The principal business of each officer of WAM Brokerage L.L.C. is 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. ITEM 30. Location of Accounts and Records -------------------------------- Bruce H. Lauer, Vice President and Treasurer Acorn Investment Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 ITEM 31. Management Services ------------------- None ITEM 32. Undertakings ------------ (a) Not applicable. (b) Registrant undertakes to file a post-effective amendment, using financial statements of the series designated Acorn USA, that need not be certified, no later than 60 days after the end of the four to six month period after effectiveness of this Registration Statement. (c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on June 18, 1996. ACORN INVESTMENT TRUST By /s/Ralph Wanger -------------------------------- Ralph Wanger, President Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated. Name Title Date ---- ------ ---- /s/Irving B. Harris Trustee and chairman ) - ----------------------- ) Irving B. Harris ) ) /s/Leo A. Guthart Trustee ) - ----------------------- ) Leo A. Guthart ) ) /s/Jerome Kahn, Jr. Trustee ) - ----------------------- ) Jerome Kahn, Jr. ) ) /s/David C. Kleinman Trustee ) - ----------------------- ) David C. Kleinman ) ) /s/James H. Lorie Trustee ) - ----------------------- ) James H. Lorie ) ) /s/Charles P. McQuaid Trustee ) June 18, 1996 - ----------------------- ) Charles P. McQuaid ) ) /s/Roger S. Meier Trustee ) - ----------------------- ) Roger S. Meier ) ) /s/Adolph Meyer, Jr. Trustee ) - ----------------------- ) Adolph Meyer, Jr. ) ) /s/Malcolm N. Smith Trustee ) - ----------------------- ) Malcolm N. Smith ) ) /s/Ralph Wanger Trustee and President ) - ----------------------- (principal executive ) Ralph Wanger officer) ) ) /s/Bruce H. Lauer Treasurer (principal ) - ----------------------- financial and accounting ) Bruce H. Lauer officer) ) INDEX OF EXHIBITS FILED WITH THIS AMENDMENT ------------------------------------------- EXHIBIT SEQUENTIAL NUMBER EXHIBIT PAGE - ------- ------- ---------- 4.1 Specimen share certificate - Acorn Fund 4.2 Specimen share certificate - Acorn International 5.3 Investment advisory agreement - Acorn USA 5.4 Form of Organizational Expenses Agreement between Acorn Investment Trust and Wanger Asset Management, L.P. dated as of September __, 1996 6.2 Form of Amendment to Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated as of September __, 1996 8.3 Form of Letter agreement applying custodian contract 10.3 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn USA 11 Consent of independent auditors 14 IRA plan booklet dated September 1, 1996 including general information, individual retirement plan and custodial agreement and individual retirement account disclosure statement, Internal Revenue Service determination letter, transfer form, application form, and designation of beneficiary form 17.1 Financial data schedule - Acorn Fund 17.2 Financial data schedule - Acorn International EX-4.1 2 CERTIFICATE - ACORN FUND KC 0001804 ***1*** SEE REVERSE FOR CERTAIN DEFINITIONS [ACORN LOGO] ACORN INVESTMENT TRUST A MASSACHUSETTS BUSINESS TRUST THIS CERTIFIES that BOSTON FINANCIAL DATA SERVICES CUSIP 004851 10 1 CORP ACTIONS AUDIT ACCT #1 ACORN FUND 2 HERITAGE DR QUINCY MA 02171-2138 is the owner of ***ONE*** FULLY PAID AND NONASSESSABLE SHARES (WITHOUT PAR VALUE) OF ACORN FUND A Series of Shares ("Shares") established and designated under the Agreement and Declaration of Trust of Acorn Investment Trust, a Massachusetts business trust (the "Trust"), dated April 21, 1992, as amended from time to time (the "Declaration of Trust"). The terms of the Declaration of Trust, a copy of which is on file with the Secretary of the Commonwealth of Massachusetts, are hereby incorporated by reference as fully as if set forth herein in their entirety, to all of which provisions the holder of Shares represented by this certificate and every transferee or assignee thereof, by accepting or holding the Shares, agrees to be bound. As provided in the Declaration of Trust, the beneficial interest in the Trust shall be divided from time to time into shares of such series as may be established and designated from time to time, and the Shares evidenced hereby represent a beneficial interest in an undivided proportionate part of the assets belonging to the above designated Series, subject to the liabilities of such Series. Such Series and other Series have the relative rights and preferences set forth in the Declaration of Trust, and the Trust will furnish to the holder of this certificate upon written request and without charge a statement of such relative rights and preferences. The Shares evidenced hereby are subject to redemption by the Trust pursuant to the procedures that may be determined by the Trustees in accordance with the Declaration of Trust. This certificate is issued by the Trustees of Acorn Investment Trust, not individually but as Trustees under the Declaration of Trust, and represents Shares of the above-designated Series and is binding on the assets of the above-designated Series of the Trust but does not bind any of the Trustees, officers, shareholders, employees or agents of the Trust personally. Subject to the provisions of the Declaration of Trust, the Shares represented by this certificate are transferable on the books of the Trust by the holder hereof in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate is not valid until countersigned by the Transfer Agent. Witness the facsimile seal of the Trust and the facsimile signatures of its duly authorized officers. Dated 06/10/96 /s/ Merrilyn Kosir [SEAL] /s/ Terry M. Harris VICE-PRESIDENT AND SECRETARY CHAIRMAN COUNTERSIGNED STATE STREET BANK AND TRUST COMPANY TRANSFER AGENT BY /s/ David W. Barry AUTHORIZED SIGNATURE The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ________Custodian__________ (Cust) (Minor) under Uniform Gifts to Minors Act_________ (State) Additional abbreviations may also be used though not in the above list TRANSFER FORM COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON For value received, _______________________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (please typewrite name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- Shares represented by the within certificate and do hereby irrevocably constitute and appoint - ---------------------------------------------------------------------- attorney, to transfer the same on the books of the Trust, with full power of substitution in the premises. Dated _____________________________ SIGNATURE GUARANTEED BY ___________________________________ ________________________________________ SIGNATURE(S) NOTICE: The signature(s) to this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. --------------------- REDEMPTION FORM COMPLETE THIS FORM ONLY WHEN REDEEMING SHARES The undersigned hereby tenders the within certificate properly endorsed in blank or in favor of the Trust with any requisite guarantee of signature and supporting papers and requests the redemption of ___________________________________________________________(____________) Shares (Indicate the number of shares to be redeemed. A new certificate will be issued for any unredeemed balance.) represented by the within certificate in accordance with the terms of the Declaration of Trust of the Trust. Dated _______________________________ SIGNATURE GUARANTEED BY _____________________________________ ______________________________________ SIGNATURE(S) NOTICE: The signature(s) to this redemption form must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. ______________________________________ ______________________________________ Address EX-4.2 3 CERTIFICATE - ACORN INTERNATIONAL KC 0002238 ***1*** SEE REVERSE FOR CERTAIN DEFINITIONS [LOGO OF ACORN INTERNATIONAL] ACORN INTERNATIONAL a series of ACORN INVESTMENT TRUST, a Massachusetts business trust THIS CERTIFIES that BOSTON FINANCIAL DATA SERVICES CUSIP 004851 20 0 CORP ACTIONS AUDIT ACCT #1 ACORN INTERNATIONAL 2 HERITAGE DRIVE 8TH FLOOR N QUINCY MA 02171-2144 is the owner of ***ONE*** FULLY PAID AND NONASSESSABLE SHARES (WITHOUT PAR VALUE) OF ACORN INTERNATIONAL A Series of Shares ("Shares") established and designated under the Agreement and Declaration of Trust of Acorn Investment Trust, a Massachusetts business trust (the "Trust"), dated April 21, 1992, as amended from time to time (the "Declaration of Trust"). The terms of the Declaration of Trust, a copy of which is on file with the Secretary of the Commonwealth of Massachusetts, are hereby incorporated by reference as fully as if set forth herein in their entirety, to all of which provisions the holder of Shares represented by this certificate and every transferee or assignee thereof, by accepting or holding the Shares, agrees to be bound. As provided in the Declaration of Trust, the beneficial interest in the Trust shall be divided from time to time into shares of such series as may be established and designated from time to time, and the Shares evidenced hereby represent a beneficial interest in an undivided proportionate part of the assets belonging to the above-designated Series, subject to the liabilities of such Series. Such Series and other Series have the relative rights and preferences set forth in the Declaration of Trust, and the Trust will furnish to the holder of this certificate upon written request and without charge a statement of such relative rights and preferences. The Shares evidenced hereby are subject to redemption by the Trust pursuant to the procedures that may be determined by the Trustees in accordance with the Declaration of Trust. This certificate is issued by the Trustees of Acorn Investment Trust, not individually but as Trustees under the Declaration of Trust, and represents Shares of the above-designated Series and is binding on the assets of the above-designated Series of the Trust but does not bind any of the Trustees, officers, shareholders, employees or agents of the Trust personally. Subject to the provisions of the Declaration of Trust, the Shares represented by this certificate are transferable on the books of the Trust by the holder hereof in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate is not valid until countersigned by the Transfer Agent. Witness the facsimile seal of the Trust and the facsimile signatures of its duly authorized officers. Dated 06/10/96 /s/ Merrilyn Kosir [SEAL] /s/ Terry M. Harris VICE-PRESIDENT AND SECRETARY CHAIRMAN COUNTERSIGNED STATE STREET BANK AND TRUST COMPANY TRANSFER AGENT BY /s/ David W. Barry AUTHORIZED SIGNATURE The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ________Custodian__________ (Cust) (Minor) under Uniform Gifts to Minors Act_________ (State) Additional abbreviations may also be used though not in the above list. TRANSFER FORM COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON For value received, _______________________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (please typewrite name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- Shares represented by the within certificate and do hereby irrevocably constitute and appoint - ---------------------------------------------------------------------- attorney, to transfer the same on the books of the Trust, with full power of substitution in the premises. Dated _____________________________ SIGNATURE GUARANTEED BY ___________________________________ ________________________________________ SIGNATURE(S) NOTICE: The signature(s) to this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. --------------------- REDEMPTION FORM COMPLETE THIS FORM ONLY WHEN REDEEMING SHARES The undersigned hereby tenders the within certificate properly endorsed in blank or in favor of the Trust with any requisite guarantee of signature and supporting papers and requests the redemption of ___________________________________________________________(____________) Shares (Indicate the number of shares to be redeemed. A new certificate will be issued for any unredeemed balance.) represented by the within certificate in accordance with the terms of the Declaration of Trust of the Trust. Dated _______________________________ SIGNATURE GUARANTEED BY _____________________________________ ______________________________________ SIGNATURE(S) NOTICE: The signature(s) to this redemption form must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. ______________________________________ ______________________________________ Address EX-5.3 4 INVESTMENT ADVISORY AGREEMENT - ACORN USA EXHIBIT 5.3 INVESTMENT ADVISORY AGREEMENT ACORN USA 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 (the "Trust"), 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. WAM shall manage the investment and reinvestment of the assets of Acorn USA, a series of the Trust (the "Fund"), subject to the supervision of the board of trustees of Trust, for the period and on the terms set forth in this agreement. WAM shall give due consideration to the investment policies and restrictions and the other statements concerning the Fund in the Trust's agreement and declaration of trust, bylaws, and registration statements under the 1940 Act and the Securities Act of 1933 (1933 Act), and to the provisions of the Internal Revenue Code applicable to the Fund as a regulated investment company. WAM shall be deemed for all purposes to be an independent contractor and not an agent of the Trust or the Fund, and unless otherwise expressly provided or authorized, shall have no authority to act or represent the Trust or the Fund in any way. WAM is authorized to make the decisions to buy and sell securities, options and futures contracts for the Fund, to place the Fund's portfolio transactions with broker-dealers, and to negotiate the terms of such transactions including brokerage commissions on brokerage transactions, on behalf of the Fund. WAM is authorized to exercise discretion with the Fund's policy concerning allocation of its portfolio brokerage, as permitted by law, including but not limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not be required to make any reduction in its investment advisory fees. 2. EXPENSES TO BE PAID BY WAM. WAM shall furnish to the Trust, at WAM's own expense, office space and all necessary office facilities, equipment and personnel for managing that portion of the Trust's business relating to the Fund. WAM shall also assume and pay all other expenses incurred by it in connection with managing the assets of the Fund, all expenses of marketing shares of the Fund, all expenses of maintaining the registration of shares of the Fund under the 1933 Act (not including typesetting and printing expenses referred to in section 3), all expenses in determination of daily price computations, and placement of securities orders and related bookkeeping. 3. EXPENSES TO BE PAID BY TRUST. The Trust shall pay all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities and 1 other property and of its transfer agents and registrars and its dividend disbursing and redemption agents, if any; all charges of legal counsel and of independent auditors; all compensation of trustees other than those affiliated with WAM and all expenses incurred in connection with their services to the Trust; all costs of borrowing money; all expenses of publication of notices and reports to its shareholders and to governmental bodies or regulatory agencies; all expenses of proxy solicitations of the Fund or of the board of trustees of the Trust; all expenses of shareholder meetings; all expenses of typesetting of the Fund's prospectus and of printing and mailing copies of the prospectus furnished to each then-existing shareholder or beneficial owner; all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign, all stamp or other taxes; all expenses of printing and mailing certificates for shares of the Fund; all expenses of bond and insurance coverage required by law or deemed advisable by the Trust's board of trustees; all expenses of qualifying and maintaining qualification of shares of the Fund under the securities laws of such United States jurisdictions as the Trust may from time to time reasonably designate and all expenses of maintaining the registration of the Trust under the 1940 Act and the portion allocable to the Fund of all fees, dues and other expenses related to membership of the Trust in any trade association or other investment company organization. In addition to the payment of expenses, the Trust shall also pay all brokers' commissions and other charges relative to the purchase and sale of portfolio securities for the Fund. Any expenses borne by the Trust that are attributable solely to the organization, operation or business of the Fund shall be paid solely out of Fund assets. Any expense borne by the Trust that is not solely attributable to the Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as WAM determines is fair and appropriate, or as otherwise specified by the board of trustees of the Trust. 4. COMPENSATION OF WAM. For the services to be rendered and the charges and expenses to be assumed and to be paid by WAM hereunder, the Trust shall pay to WAM solely out of assets of the Fund a fee accrued daily and paid monthly at the annual rate of 1.00% of the average daily net asset value of the Fund up to and including $200 million, and .95% of the average daily net asset value of the Fund in excess of $200 million. 5. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund, exclusive of taxes, of interest and of extraordinary litigation expenses, but including fees paid to WAM, shall not in any fiscal year of the Fund exceed the most restrictive limits prescribed by any state in which the Fund's shares are then being offered for sale, and WAM agrees to reimburse the Fund for any sums expended for such expenses in excess of that amount. Brokers' commissions and other charges relating to the purchase and sale of portfolio securities shall not be regarded as expenses. 2 6. SERVICES OF WAM NOT EXCLUSIVE. The services of WAM to the Fund hereunder are not to be deemed 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. 7. SERVICES OTHER THAN AS ADVISER. WAM (or an affiliate of WAM) may act as broker for the Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. Such brokerage services are not within the scope of the duties of WAM under this agreement, and, within the limits permitted by law and the board of trustees of the Trust, WAM (or an affiliate of WAM) may receive brokerage commissions, fees or other remuneration from the Fund for such services in addition to its fee for services as WAM. Within the limits permitted by law WAM may receive compensation from the Fund for other services performed by it for the Fund which are not within the scope of the duties of WAM under this agreement. 8. LIMITATION OF LIABILITY OF WAM. WAM shall not be liable to the Trust or its shareholders for any loss suffered by the Trust or its shareholders from or as a consequence of any act or omission of WAM, or of any of the partners, employees or agents of WAM, in connection with or pursuant to this agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of WAM in the performance of its duties or by reason of reckless disregard by WAM of its obligations and duties under this agreement. 9. DURATION AND RENEWAL. Unless terminated as provided in Section 10, this agreement shall continue in effect until June 30, 1998, 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 the Trust or of WAM, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the board of trustees of the Trust or vote of the holders of a "majority of the outstanding shares of the Fund" (which term as used throughout this agreement shall be construed in accordance with the definition of "vote of a majority of the outstanding voting securities of a company" in section 2(a)(42) of the 1940 Act). 10. TERMINATION. This agreement may be terminated at any time, without payment of any penalty, by the board of trustees of the Trust, or by a vote of the holders of a majority of the outstanding shares of the Fund, upon 60 days' written notice to WAM. This agreement may be terminated by WAM at any time upon 60 days' written notice to the Trust. This agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). 11. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of the Trust. Neither the authorization of any action by the trustees or shareholders of the Trust 3 nor the execution of this agreement on behalf of the Trust shall impose any liability upon any trustee, officer or shareholder of the Trust. 12. AMENDMENT. This agreement may not be amended without the affirmative vote (a) of a majority of those trustees who are not "interested persons" (as defined in section 2(a)(19) of the 1940 Act) of the Trust 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 the Fund. Dated: September __, 1996 ACORN INVESTMENT TRUST By __________________________________ WANGER ASSET MANAGEMENT, L.P. By Wanger Asset Management, Ltd., Its General Partner By __________________________________ 4 EX-5.4 5 ORGANIZATIONAL EXPENSE AGREE - ACORN USA EXHIBIT 5.4 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 __, 1996 WANGER ASSET MANAGEMENT, L.P., by WANGER ASSET MANAGEMENT, LTD., ACORN INVESTMENT TRUST its General Partner By: ____________________________ By: ____________________________ Ralph Wanger, President Ralph Wanger, President EX-6.2 6 AMEND TO DIST. AGREE BETWEEN ACORN AND WAM EXHIBIT 6.2 AMENDMENT TO DISTRIBUTION AGREEMENT between ACORN INVESTMENT TRUST and WAM BROKERAGE SERVICES, L.L.C. This Amendment to the Distribution Agreement is made this ___ day of September, 1996 by and between ACORN INVESTMENT TRUST, a business trust organized 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 Acorn and WAM BD entered into a Distribution Agreement (the "Agreement") dated February 27, 1996 by which Acorn appointed WAM BD as principal underwriter of its Shares. The Agreement defines Shares as the "shares of beneficial interest [of Acorn] which are divided into two series, Acorn Fund and Acorn International". Acorn has designated and wishes to offer for sale to the public shares of an additional series, Acorn USA, and may from time to time hereafter wish to offer for sale to the public shares of yet additional series. Acorn has entered into investment advisory agreements with Wanger Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which WAM has agreed to pay all expenses incurred in the sale and promotion of shares of Acorn. THEREFORE, Acorn and WAM BD agree: 1. ACORN USA. As used in the Distribution Agreement, "Shares" shall include the shares of beneficial interest of the series of Acorn designated Acorn USA. 2. ADDITIONAL FUNDS. 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. ATTEST: WAM BROKERAGE SERVICES, L.L.C. _____________________________ By: _________________________________ Secretary Terence M. Hogan, President ATTEST: ACORN INVESTMENT TRUST _____________________________ By: _________________________________ Secretary Ralph Wanger, President ACKNOWLEDGED: WANGER ASSET MANAGEMENT, L.P. By: _________________________ Ralph Wanger ATTEST: _____________________________ Secretary EX-8.3 7 LETTER AGREEMENT APPLYING CUSTODIAN CONTRACT EXHIBIT 8.3 [Acorn Investment Trust letterhead] August __, 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: ___________________________ [name] [title] Agreed to this _____ day of August, 1996. STATE STREET BANK AND TRUST COMPANY By: _______________________________ [name] [title] EX-10.3 8 OPINION AND CONSENT OF BELL, BOYD AND LLOYD [LETTERHEAD OF BELL, BOYD & LLOYD] Exhibit 10.3 June 18, 1996 Acorn Investment Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Ladies and Gentlemen: ACORN INVESTMENT TRUST ACORN USA 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 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 deemed 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 upon the issuance and delivery of the Shares of each Fund in accordance with the Trust Agreement and the actions of the board of trustees authorizing the issuance of the Shares, and the receipt by the Trust of the authorized consideration therefor, the Shares so issued will be validly issued, fully paid and nonassessable (although shareholders of the Fund may be subject to liability under certain circumstances as described in the statement or additional information of the Trust included as Part B of the Registration Statement under the caption "The Trust"). In giving this opinion we have relied upon the opinion of Ropes & Gray to us dated June 18, 1996, and have made no independent inquiry with respect to any matter covered by such opinion. Acorn Investment Trust June 18, 1996 Page 2 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 [LETTERHEAD OF ROPES & GRAY] June 18, 1996 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, a Series of Acorn Investment Trust (the "Trust") of an indefinite number of shares of beneficial interest, without par value (the "Shares"), pursuant 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 the Registration Statement has been declared 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, bond, contract, instrument, certificate or undertaking issued by or on behalf of the Ropes & Gray Bell, Boyd & Lloyd -2- June 18, 1996 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 the filing of this opinion as an exhibit to the aforesaid Registration Statement. Very truly yours, /s/ Ropes & Gray Ropes & Gray EX-11 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 11 Consent of Independent Auditors We consent to the incorporation by reference of our reports with respect to Acorn Fund and Acorn International dated January 31, 1996 in the Registration Statement of Acorn Investment Trust on Form N-1A filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 54 to the Registration Statement under the Securities Act of 1933 (Registration No. 2-34223) and in this Amendment No. 29 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-1829). Ernst & Young LLP Chicago, Illinois June 17, 1996 EX-14 10 IRA PLAN BOOKLET DTD 09/1/96 EXHIBIT 14 Dear Investor: Thank you for your interest in the Acorn Funds. We hope you find our IRA booklet informative and helpful. We understand how important it is to plan for your future. Starting to invest for your retirement today will give your savings as much time as possible to grow and will let you take advantage of the power of compounding over the long haul. Investing with the Acorn Funds helps you save money. How? The Acorn Funds are 100% no-load, which means that all of your money goes to work for you immediately. There are no sales charges, and no 12b-1 fees or back-end load fees, so all of your dollars are invested at net asset value. Acorn invests in companies for the long-term (usually 3-5 years), so our turnover rate is low. This minimizes both trading costs and shareholders' taxes. All these factors add up to greater value for our shareholders. An IRA provides the special advantage of tax-deferred compounding. Your investment grows year after year with no annual tax payments on the earnings in your account until you begin to withdraw from your IRA. This means that you can save more with an IRA than with a comparable taxable investment. What's more, all or part of your contribution may be deductible from your current taxes, providing additional tax savings. Whether you are opening a new IRA, making your annual IRA contribution, moving an existing IRA from another institution, or rolling over money from an employer-sponsored retirement plan, Acorn can help you save for your retirement. This booklet contains everything you need to open an IRA at Acorn. Please take a moment to read it carefully. If you have any questions or need help with any of the forms, please call us at 1-800-9-ACORN-9 (1-800-922-6769). We invite you to squirrel away your acorns for a day when you really need them, and look forward to a long and mutually rewarding relationship with you. Very truly yours, Ralph Wanger President GENERAL INFORMATION ABOUT THE INDIVIDUAL RETIREMENT ACCOUNT PLAN CAN ANYONE OPEN AN ACORN IRA? Once you have reached legal age, you may open or contribute to an Acorn IRA in any year before the year in which you reach age 70 1/2 and in which you have earnings from employment or self-employment. You may make your contribution for any year until April 15 of the following year. HOW MUCH CAN I CONTRIBUTE? The annual contribution limit for an IRA is the lesser of $2,000 or 100% of compensation (including alimony and separate maintenance payments) for the year. You may contribute the maximum amount to your IRA even if you and/or your spouse participate in an employer-sponsored retirement program or a Keogh plan (although some or all of your contribution may not be tax-deductible, as explained below). WHY USE AN IRA? One of the keys to successful retirement planning is effectively using the time you have until you actually retire. This means saving regularly and starting now. An IRA is an exceptional way to save for retirement because it offers the opportunity for long-term growth and the benefit of tax-deferred compounding. This means that your earnings, both dividends and capital gains, grow free of current taxes. You pay no taxes on the growth of your IRA until you withdraw from it. The following table shows the effects of tax-deferred compounding of earnings compared to a similar taxable investment. This is a hypothetical example for illustrative purposes only and does not represent the performance of any mutual fund. ADVANTAGES OF TAX-DEFERRED COMPOUNDING [insert table] This chart shows the value of your IRA's tax-deferred advantage. Our example assumes a $2,000 contribution at the beginning of each year for 10, 20, and 30 years, a 31% tax bracket, and a constant earnings rate of 10% annually. In addition to the benefits of tax-deferred compounding, you may be able to reduce your current income taxes by taking a tax deduction for a part or all of your contributions in the years you add to your IRA. Whether all or part of your annual contribution is deductible depends upon the amount of your income for the year and whether you or your spouse participate in an employer's qualified retirement plan. Even if your contribution for a given year is non-deductible, you may contribute the maximum amount to your IRA for that year. (Please see your tax adviser for additional information and reporting requirements.) The following chart shows the extent of your contribution's deductibility under current IRS regulations.
ADJUSTED GROSS INCOME (BEFORE IRA DEDUCTION) RETIREMENT PLAN DEDUCTIBILITY OF A JOINT FILING SINGLE FILING* PARTICIPATION** $2,000 CONTRIBUTION Under $40,000 Under $25,000 Yes or No Full $40,000 - $50,000 $25,000 - $35,000 No Full Yes Partial Over $50,000 Over $35,000 No Full Yes No Deduction
* Applies to married persons filing separate returns only if they lived apart for the entire year. ** "Yes" refers to either you or your spouse. "No" refers to both you and your spouse. If you don't know your participation status, refer to the pension plan box on your W-2 form. If your IRA contribution is partially deductible, you can calculate the deductible portion of your contribution amount from the following formula:
FORMULA EXAMPLE YOUR CONTRIBUTION JOINT SINGLE 1. Subtract Adjusted Joint AGI=$43,500 AGI = $______ AGI = $______ Gross Income (AGI) $50,000 - $______ $35,000 - $______ from $50,000 (joint) or $50,000-$43,500=$6,500 = $______ = $______ $35,000 (single) $ 6,500 / 5 = $1,300 / 5 $______ / $______ 2. Divide by 5 to get deductible amount*
* If the deductible amount is not a multiple of $10, round up to the next highest $10. If it is $1-199, deduct $200. To calculate combined deduction for regular and Spousal IRA, multiply by .225 (instead of dividing by 5). You may contribute only this deductible amount or, if you wish, you may contribute up to the $2,000 annual limit with the excess amount being non- deductible. If you make a non-deductible contribution, you need to file Form 8606 with your tax return. If your spouse does not work and if you and your spouse file a joint tax return, you may be able to deduct up to $2,250 rather than $2,000 by opening a "Spousal IRA" for your non-working spouse. The total of contributions to your IRA and the Spousal IRA cannot exceed $2,250, but that amount may be divided between the two accounts in whatever proportion you and your spouse decide, up to $2,000 for either account. See your tax adviser for more information. 2 OPENING A NEW ACORN IRA Investing in an Acorn IRA gives you the opportunity to save for your retirement using four different mutual funds: Acorn Fund, Acorn International, Acorn USA, and Short Term Income Fund Money Market Portfolio. You may invest all of your contributions in one fund or you may divide your contributions among the funds as you choose. To open a new Acorn IRA, complete the application included with this booklet. On the application, check the box for a regular IRA contribution and indicate the tax year for which you are making your IRA contribution. Select the fund(s) in which you want to invest and indicate the amount to be invested in each fund. Tell us whether you want to make regular investments into your Acorn IRA by using the Automatic Investment Plan, and provide us with the beneficiary information requested on the back of the application. Then write a check payable to "State Street Bank" for the total amount you wish to invest (including the $5 set-up fee for each fund in which you are investing) and mail your check with the completed application to Acorn in the pre-addressed envelope provided or to the address shown on the application. MOVING FUNDS FROM ANOTHER IRA OR A QUALIFIED PLAN TO AN ACORN IRA Acorn can help you to move funds from other IRA custodians or qualified plans. This can be done in three ways: a custodian to custodian (or trustee to trustee) transfer (also known as a direct transfer); a 60-day rollover of a distribution you have received from a qualified plan or money you have withdrawn from another IRA; or a direct rollover of a distribution from your employer's qualified retirement plan. Each method is explained below. Direct Transfer Acorn will arrange a direct transfer of assets from your current IRA custodian or trustee directly to Acorn. In a direct transfer you do not receive the account proceeds during the transfer process. Your money goes directly from your old IRA custodian to Acorn. You may make direct transfers between IRAs as often as you choose. If you would like the transferred money to go into a new Acorn IRA, complete both the transfer form, checking the box for a new Acorn IRA, and the application, checking the box for a Direct Transfer. If the transferred money is to be invested in an existing Acorn IRA, complete only the transfer form. The transfer form tells us about the IRA assets you are transferring and provides information about your current custodian. This information should be on your most recent account statement. Complete the instructions authorizing your current custodian to transfer your account to Acorn and sign the transfer form. Please check with your present custodian to find out whether you will need to obtain a signature guarantee. Send the completed form(s) to Acorn in the envelope provided or to the address shown on the application. Acorn will arrange for the transfer of assets from your present custodian. 3 60-day Rollover from an IRA If you physically receive money that was held in your IRA with another custodian, you must deposit the money into an IRA within 60 days to avoid paying income tax. If this is not done within the 60-day time limit, you will have to pay income tax on the amount you have received, as well as possible penalties if you are under the age of 59 1/2 when you receive the money. You may make only one 60-day rollover per IRA in any twelve-month period. To establish a rollover account with money you have withdrawn from another IRA, complete the Acorn IRA application, checking the box for a 60-day rollover of an existing IRA. Indicate whether the rollover is from a Regular IRA or a Rollover IRA. Be sure that you forward your check in time for the funds to be received by State Street Bank no later than 60 days from the date on which the distribution from your IRA was made. ROLLOVERS FROM AN EMPLOYER'S QUALIFIED PLAN TO AN ACORN IRA If you have been participating in your employer's qualified retirement plan and are eligible for a distribution from the plan because of a job change, a lay- off, disability, retirement, or termination of the plan, you need to decide what you will do with your retirement plan money before you receive the distribution. Unless you are eligible to leave your money in the plan and want to do so, you have two main alternatives: (1) rollover the amount distributed and keep your money working for you tax-deferred, or (2) take the distribution now--subject to the applicable taxes and penalties. If you take your distribution now (even if you are planning to do a 60-day rollover), your employer must withhold 20% of the distribution for federal income taxes, so you'll receive only 80% of the money to be distributed. You may also be responsible for (a) additional federal income tax (depending on your tax bracket), (b) a penalty tax of 10% for an early withdrawal if you are not yet 59 1/2 (subject to exceptions if you are disabled, spend the distribution on medical expenses, or have separated from service and are at least age 55), and (c) state and local income taxes on your distribution. If you choose to reinvest the amount distributed, you have three options: (1) use a direct rollover to invest the money in an IRA; (2) use a 60-day rollover to invest the money in an IRA; or (3) roll over the distribution into a qualified plan sponsored by a new employer (if the plan accepts rollovers). If you are reinvesting the money in an IRA, a direct rollover is usually better than a 60-day rollover. In a direct rollover, you never receive the distribution (it is sent directly from the plan to the IRA custodian, or the plan gives you a check payable to the IRA custodian). Because a direct rollover is not treated as a distribution to you, no tax is withheld. Direct Rollover To set up your Acorn IRA by making a direct rollover you should complete the enclosed application, check the box for a Rollover IRA from an employer- sponsored plan, and check the appropriate box to tell us whether you are enclosing a check payable to State Street Bank or your employer will be sending the check directly to the bank. If your plan administrator gives you a 4 check payable to State Street Bank, send that check along with the completed application in the pre-addressed envelope provided or to the address on the application. If your plan administrator is going to send a check directly to State Street, send the completed application without the check. We will open the account and have it ready to receive your distribution check. You may call us at 1-800-922-6769 to request your account number if your plan administrator needs it to send the distribution check. 60-Day Rollover from a Qualified Plan If you have already received a distribution directly, you will have had 20% withheld for taxes, but you can still make a 60-day rollover. You will avoid income tax and possible penalties on the amount you deposit in your IRA, up to the entire amount of your distribution (before deduction of the 20% for income tax withholding). You can rollover part of your distribution and keep part, paying income tax and any applicable penalties on the part you keep. If you rollover only the amount of your distribution check (the 80% that was left after the 20% income tax withholding), you will be treated as having kept the 20%, which will be subject to income taxes and any applicable penalties. You can avoid taxes and penalties entirely when you make the 60-day rollover by making up from other funds the 20% that was withheld for tax. The 20% that was withheld is treated like any other withheld income tax -- to the extent the total amount of tax withheld (including the 20% and tax withheld from your compensation) from you plus estimated income tax payments you make exceeds your tax liability when you file your return, you will receive a refund of the excess. If you receive a distribution of property (such as shares of stock) from your employer's plan, you can make a 60-day rollover by selling the property and depositing the sales proceeds within the 60-day period. If you had borrowed against your account in the plan from which you receive the distribution, the taxable amount of your distribution may be more than the amount of cash you receive because it will include the unpaid loan balance. In this case, you can avoid paying tax on the unpaid loan balance by using other funds to complete rollover, in the same way you can make up the 20% tax withholding. 5 The following chart summarizes the key features of your alternatives for reinvesting a distribution from your employer's plan and may help you decide how to keep your money working for your retirement.
- ------------------------------------------------------------------------------------------------------------------- Rollover IRA New Employer's Plan - ------------------------------------------------------------------------------------------------------------------- TAX CONSIDERATIONS . avoids current taxes . avoids current taxes . money grows tax-deferred . money grows tax-deferred (but you may have to wait to transfer money into plan) - ------------------------------------------------------------------------------------------------------------------- INVESTMENT OPTIONS . a range of investment choices . options vary among plans - ------------------------------------------------------------------------------------------------------------------- WITHDRAWAL OPTIONS . can take all or part of your money . choices vary from plan to plan; out at any time check with your new employer . earnings taxed when withdrawn; . earnings taxed when withdrawn; 10% penalty applies if younger than 10% penalty applies if younger 59 1/2, unless disabled than 59 1/2 or separated from service before age 55, with some exceptions . no mandatory 20% withholding for . 20% withholding for federal income federal income taxes on withdrawals taxes if withdrawal of eligible rollover distributions not rolled over into another plan - ------------------------------------------------------------------------------------------------------------------- OTHER FEATURES . very easy to set up . can add future contributions to your . can switch between your Acorn plan investments tax-free as your needs . enables you to consolidate your and the market changes retirement plan money . offers you easy access to your . may be able to borrow from your investments account . borrowing not permitted - -------------------------------------------------------------------------------------------------------------------
If you put your plan distribution into the same IRA with regular IRA (annual contributions) money, you forfeit the right to reinvest your plan distribution in another employer's qualified plan in the future. Because combining regular IRA and Rollover IRA funds may also have tax implications when you begin withdrawals from your IRA, you should consult your tax adviser before deciding to commingle your plan distribution with your regular IRA investments. SEP-IRAS An IRA under a Simplified Employee Pension Plan (SEP-IRA) may be an attractive way to save for retirement if you have any income from self-employment, and may also be a way to offer an important benefit to your employees if you are a small business owner. You may open and contribute to a SEP-IRA as a self-employed individual if you provide any service from which you earn income, even if you have a full-time occupation in which you participate in an employer's retirement plan. If you own a small business as a sole proprietor, a partnership, or a corporation (including a Subchapter-S corporation), you can establish a SEP-IRA for yourself and your eligible employees. A SEP-IRA offers the advantage of tax-deferred compounding that is available in a regular IRA, while allowing annual contributions of up to 15% of earned income within the limits imposed by the IRS. We have included with this booklet a worksheet to help in calculating SEP-IRA contributions. 6 In addition to tax-deferred compounding, a SEP-IRA provides full deductibility of each annual contribution from current taxable income. This means that, if your business is incorporated, you can deduct SEP-IRA contributions for yourself and any eligible employees as a business expense, or, if your business is not incorporated, you can (a) deduct contributions for any eligible employees as a business expense and (b) deduct contributions for yourself from your personal income. Setting up a SEP-IRA is simple and flexible. Only a simple information form (Form 5305-SEP, available from the IRS) must be completed and given to eligible employees. The IRS regulations for SEP-IRAs require that all eligible employees (other than union members and non-resident aliens) must be covered; eligible employees are all those who (a) are at least 21 years old, (b) have worked for your business for three of the last five years, and (c) have earned at least $400 in 1996 (an amount adjusted periodically for changes in the cost-of- living). You may establish more liberal requirements to include more of your employees, but you may not impose more restrictive conditions. You must generally contribute the same percentage of earned income (based on W-2 wages) for each eligible employee, but that contribution percentage may vary between 0% and 15% of earned income each year at your discretion. You may be able to contribute a higher percentage for employees (including yourself) who earn more than the Social Security wage base. You may also, if you have no more than 25 eligible employees (including yourself), make contributions only for employees who elect to reduce their current compensation (a SAR-SEP). If your business has other employees, you should consult a qualified tax adviser as to the best contribution formula to use. If you are self-employed, a new SEP-IRA for a given year must be established by April 15 of the following year, with each subsequent year's contribution also due by April 15 of the following year. If you are a business owner establishing SEP-IRAs for yourself and your employees, you must open the accounts by the due date of your business's federal tax return for the tax year for which the contribution will be made. In addition to your SEP-IRA, you may also be able to contribute to a regular IRA, but you should consult your tax adviser about the deductibility of your contributions and about the tax consequences of excess contributions to either account. To open a new SEP-IRA at Acorn, complete the enclosed application. If you have employees for whom you are establishing SEP-IRA accounts, please write a separate check for your contribution for each employee. You should also complete IRS Form 5305-SEP (available from the IRS), keep the original for your records, and give a copy to each eligible employee. Do not send Form 5305-SEP to Acorn or file it with the IRS. In addition, if your business has other employees, you may be required to furnish them with certain information to avoid being required to file annual tax returns for the SEP-IRA. To transfer your SEP-IRA to Acorn from another custodian, complete the transfer form, checking the box for a SEP-IRA Transfer. If this is a new Acorn SEP-IRA, you will also need to complete the application, checking the SEP-IRA and Direct Transfer boxes. If you have received SEP-IRA funds from another custodian and are moving your money to Acorn within 60 days of that distribution, complete the application and check the SEP-IRA and 60-Day Rollover boxes. 7 MAKING WITHDRAWALS FROM YOUR ACORN IRA You must begin withdrawing money from your IRA by April 1 of the year after the year in which you reach age 70 1/2. You may start to withdraw funds from your account without penalty when you reach age 59 1/2 or if you are disabled or meet certain other conditions. Any withdrawals you make before you reach age 59 1/2, unless you are disabled or meet certain other IRS qualifications, are subject to tax penalties. Call Acorn at 1-800-962-1585 for an Acorn IRA withdrawal service form to make a withdrawal from your IRA or to set up a regular withdrawal plan. State Street Bank can help you in completing this form if you have any questions. If you wish to withdraw only the minimum required distribution for each year after you reach age 70 1/2, State Street Bank can help you make the necessary calculations and set up a periodic withdrawal plan for your distributions. Simply check box C of the Withdrawal Instructions on the Acorn withdrawal service form, provide the other requested information for that section, and complete the remainder of the form. Certain tax penalties may also apply if you withdraw too much money from an IRA in a given year. You should consult your tax adviser concerning the differences among the tax effects which may result from taking the minimum required distribution and those involved in the other available withdrawal options. ACCOUNT FEES State Street Bank, as custodian, charges the following fees for an Acorn IRA, per fund account: Initial set-up fee $ 5.00 Annual maintenance fee $10.00 Disbursement fee $10.00 (per withdrawal, except for automatic installment payments) The $5.00 per fund set-up fee will be deducted from your initial IRA contribution; to maximize the contribution that goes to work for you, add $5.00 for each fund in which your initial contribution will be invested to your contribution (or send us a separate check for the set-up fee). Acorn will also withdraw the annual maintenance fee(s) from your account(s) unless you send a check for those fee(s) when you receive Acorn's annual fee statement in November. If the disbursement fee applies, Acorn will deduct the $10.00 from each withdrawal. - -------------------------------------------------------------------- Minimum Investments through 4/30/97 beginning 5/1/97 - -------------------------------------------------------------------- To open an IRA $200 $1,000 To add to an IRA account 100 100 - -------------------------------------------------------------------- Making an active and worry-free retirement possible means taking the time now to plan for your financial future. We hope that this booklet has been helpful and that you will make an Acorn IRA part of your retirement plan. 8 ACORN INVESTMENT TRUST INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT We are required to give you this Disclosure Statement for the purpose of assuring that you are informed and understand the nature of an Individual Retirement Account ("IRA"). This disclosure statement explains the rules governing IRAs. Your Right to Revoke this IRA. You may revoke this IRA at any time within seven days after the later of the date you received this Disclosure Statement or the day you established this IRA. For purposes of revocation, it will be assumed that you received the Disclosure Statement no later than the date of your check or transfer direction with which you opened your IRA. If you did not receive the Disclosure Statement until a later date, your notice of revocation should state the date on which the Disclosure Statement was received. To revoke the IRA, you must either mail or deliver a notice of revocation to the following address: State Street Bank and Trust Company Attention: Acorn Investment Trust P.O. Box 8502 Boston, MA 02266-8502 If a notice of revocation is mailed, it will be deemed mailed on the date of the postmark (or if sent by certified or registered mail, the date of certification or registration) if it is deposited in the mail in the United States, first class postage prepaid and properly addressed. If you revoke your IRA, you are entitled to a return of the entire amount contributed. (1) TYPES OF IRAS; ELIGIBILITY IN GENERAL. An IRA is a trust or custodial account established in the United States for the exclusive benefit of an individual and his or her beneficiaries and which, under Section 408(a) of the Internal Revenue Code, meets the following requirements: annual contributions are limited as described below; the trustee or custodian is a bank or other approved financial institution; no part of the IRA can be invested in life insurance contracts; the individual's interest in the IRA is nonforfeitable; the IRA's assets cannot be commingled with other property except for certain permitted common funds; and minimum distributions are required as described below. There are several types of IRAs. For example, there is a "Regular IRA" to which you may make contributions for yourself. There is a "Spousal IRA" which you may be able to set up for your spouse. There is also a "Rollover IRA" which you can set up to receive assets from a qualified plan, annuity or another IRA. Finally, there is a SEP-IRA (which is also known as a Simplified Employee Pension Plan) which your employer can establish for you. Following is a general description of the rules which apply to each of these types of IRAs and who is eligible to establish them. 9 A. REGULAR IRA. You may contribute up to the lesser of $2,000 or 100% of your compensation if you have not reached age 70 1/2 during the taxable year. You may make this contribution even if you or your spouse is an active participant in a qualified employer plan. However, as explained below, the amount of the contribution which is deductible for federal income tax purposes may be limited. Compensation includes wages, salary, commissions, bonuses, tips, etc., and also includes taxable alimony or separate maintenance payments. Compensation does not include income from interest, dividends or other earnings or profits from property, or amounts not includible in your gross income. B. SPOUSAL IRA. You may contribute to your IRA and an IRA for your non-working spouse if: (1) you have received compensation during the taxable year and (2) you file a joint income tax return for the year with your spouse. Under such an arrangement, you may qualify for a total deduction equal to the lesser of $2,250 or 100% of your compensation for the taxable year. You can determine how to divide the contribution between the two accounts but you cannot contribute more than $2,000 annually into either one. While you cannot contribute to your IRA in the taxable year in which you reach 70 1/2, you can still contribute to your spouse's IRA if he or she has not reached 70. A Spousal IRA does not involve the creation of a joint account. The account of each spouse is separately owned and treated independently from the account of the other spouse. A "non-working spouse" is one who had no compensation for the year, or elects to be treated as having no compensation for this purpose. Your spouse's election is made by claiming a spousal IRA deduction on your joint tax return. C. ROLLOVER IRAS. All or a portion of certain distributions from qualified retirement plans, annuities and other IRAs may be "rolled over" tax-free within 60 days after receipt of the distribution without regard to the limits on deductible contributions, but no deduction is allowed with respect to such a contribution. In general, you can roll over any distribution from a qualified plan unless it is either (1) one of a series of substantially equal periodic payments (such as an annuity or certain types of installment payments) or (2) a minimum distribution required to be made after you reach the age of 70 1/2. You can generally roll over any distribution from an IRA to another IRA except a minimum distribution required after you reach 70 1/2. The amount rolled over cannot exceed the taxable portion of the distribution, including any portion withheld for payment of taxes. If property, rather than cash, is distributed, you may either roll over the property distributed (although Acorn does not accept non-cash contributions), or sell the property within the 60-day period and roll over all or part of the proceeds. If you make a rollover from a qualified employer plan to an IRA, you may in turn under certain circumstances make a later rollover from the IRA into another qualified plan of a subsequent employer. To preserve that right, however, you must keep the rollover IRA separate from any other IRA you may have, since you cannot make a rollover to an employer plan from an IRA to which you have made yearly contributions. 10 You can also transfer assets you hold in one IRA to another IRA by directing the current trustee or custodian to transfer those assets directly to the new IRA. You can direct such a so-called "trustee-to-trustee transfer" at any time. However, you may make a rollover from one IRA to another IRA only once during a one-year period. You can also direct the trustee or custodian of a qualified retirement plan to transfer a distribution from the plan directly to an IRA. This is called a "direct rollover." A direct rollover is generally preferable to a distribution followed by a 60-day rollover, because a distribution to you from a qualified plan is subject to 20% income tax withholding. This means that, if you want to roll over the full amount of your distribution, you will have to replace the 20% that was withheld with other funds. A direct rollover is not subject to tax withholding. Rollover amounts you receive may not be deposited in your spouse's IRA. However, if your surviving spouse receives a distribution from a qualified plan or IRA as your beneficiary, he or she can generally roll over the distribution to an IRA (but not to a qualified plan) to the same extent that you could have. This rollover right does not apply to beneficiaries other than your surviving spouse. The amount of the death payout rolled over by a spouse into an IRA may not subsequently be rolled over into another employer's qualified plan or annuity. The term "qualified plan" includes tax-qualified pension or profit-sharing plans (including 401(k) plans) maintained by your employer, and Keogh plans for self- employed persons and partners. Except for purposes of a surviving spouse's right to rollover distributions received as a beneficiary, it also includes qualified annuity plans, tax-sheltered annuities, and custodial accounts maintained by tax-exempt employers. Strict requirements must be met to qualify for tax-free rollover treatment. You should consult your personal tax advisor in connection with rollovers to and from your IRA. D. SIMPLIFIED EMPLOYEE PENSION (SEP-IRA). An employer may adopt a SEP-IRA and contribute to your SEP-IRA even if you are covered by another retirement plan. The maximum contribution is 15% of your compensation (computed without regard to the contribution) or $30,000 (or such other amount as may be prescribed by the Secretary of the Treasury), whichever is less. The contributions are deductible by the employer and are generally not includible in your income until you receive distributions. If your employer chooses and if certain conditions are satisfied, you can elect to have your salary reduced by up to $7,000 (or such higher amount as is specified from time to time by the Secretary of the Treasury) and to contribute the reduction to your SEP-IRA. This type of SEP-IRA is called an SAR-SEP. If you reduce your salary under a salary reduction agreement, your salary subject to federal income tax is reduced. To establish a SEP-IRA, your employer must sign a SEP-IRA plan agreement and provide you with a copy of the agreement as well as certain information concerning the rules applicable to such plans. Your employer can satisfy these requirements by using Form 5305-SEP, which is issued by the Internal Revenue Service. If you are self- employed, you may establish a SEP-IRA for your own benefit, but you may also have to cover any other employees you have. 11 II. CONTRIBUTIONS IN GENERAL. As explained in this part, the amount of your IRA contributions which you can deduct is subject to limits. All contributions and transfers to your Acorn IRA must be in cash. Contributions to your Regular IRA or Spousal IRA may be made up to the due date for filing your tax return for the taxable year (excluding extensions thereof) even if you file before the due date. In making contributions, you must indicate the tax year to which the contribution applies. If no tax year is designated, the custodian will assume that the contribution is intended to apply to the calendar year in which it is received. The time limit for designating the applicable tax year is April 15. Contributions made by an employer to your SEP-IRA for a calendar year may be made no later than the due date of your employer's tax return (including extensions). In making a SEP-IRA contribution, the tax year to which the contribution relates must also be specified or it will be deemed to relate to the calendar year in which it is received. In a SEP-IRA, this designation of the tax year of a contribution must be made by the due date for contributions described above. DEDUCTIBLE CONTRIBUTIONS. If you are single and are not an "active participant" in a retirement plan maintained by your employer, you can deduct the full amount of your IRA contribution up to the lesser of $2,000 or 100% of your compensation for the year. If you are married, you can deduct the full amount of your IRA contribution so long as neither you nor your spouse is an "active participant" in a retirement plan maintained by your respective employers. These plans include qualified pension, profit-sharing, stock bonus or money purchase plans, 401(k) plans, SEP-IRAs, qualified annuity plans, tax-sheltered annuities and custodial accounts and governmental retirement plans (other than certain plans for reserve members of the armed forces and volunteer firemen, and certain deferred compensation plans). In general, you are considered to be an active participant in a plan if an employer contribution or forfeiture was credited to your account during the year in the case of a defined contribution plan or if you have met the minimum age and service requirements, in the case of a defined benefit plan (even if you don't actually accrue a benefit during the year). You are considered to be an active participant in a plan if you make a contribution to the plan during a year even if your employer does not. For active participation, it does not matter whether any interest you have in a plan is vested or unvested. If you or your spouse is an active participant in a plan, the amount of the deduction you can claim for an IRA contribution is reduced or totally denied depending upon the amount by which your adjusted gross income for the year exceeds the "applicable dollar amount." The applicable dollar amount is $25,000 for single people and $40,000 for married individuals filing a joint tax return. If you are married but are filing separate tax returns, your applicable dollar amount is $0. If your adjusted gross income exceeds your applicable dollar amount by more than $10,000, you may not deduct any portion of your IRA contribution. However, if it is between $0 and $10,000 more than your applicable dollar amount, you can claim a tax deduction for part of your contribution. To determine the amount of the deduction, follow these steps. First, determine the amount of the contribution you can make. If, for example, you have compensation in excess of $2,000 you could make a $2,000 contribution to your Regular IRA. Next, subtract the applicable 12 dollar amount from your adjusted gross income. If you are single and your adjusted gross income is $30,000, the difference would be $5,000. Next, divide this difference by $10,000. In the example $5,000/$10,000 equals 50%. Accordingly, the maximum contribution to a Regular IRA you can deduct is 50% of $2,000, or $1,000. If the deduction limitation is not a multiple of $10, round the deduction to the next higher $10. If your adjusted gross income does not exceed $35,000 and you are single or $50,000 and you are married, you can deduct $200 regardless of how the computation comes out. Married persons who file separate returns are treated as unmarried for purposes of these rules if they did not live together at any time during the year. NONDEDUCTIBLE CONTRIBUTIONS. Even though you may not be entitled to claim a deduction for contributions to your IRA, you are still allowed to make the contributions to the extent described in "Types of IRAs" above. To the extent that the amount of your contribution exceeds the deduction limit, it is considered a nondeductible contribution. Earnings on these contributions are not taxed until distributed, just like the earnings on deductible contributions. It may therefore be worthwhile making nondeductible contributions. You are required to report the amount of your nondeductible contributions on Form 8606 and attach it to your income tax return. You may be liable for a tax penalty of $50 if you fail to file the form, or $100 if you overstate the amount of your nondeductible contributions. III. INVESTMENT AND HOLDING OF CONTRIBUTIONS Contributions to your IRA, and the earnings thereon, are invested at your election in shares of Acorn Fund, Acorn International or Acorn USA, each a series of Acorn Investment Trust, a no-load mutual fund managed by Wanger Asset Management, L.P., or in Short Term Income Fund, Inc. -- Money Market Portfolio, a no-load money market fund managed by New England Investment Companies, L.P. Acorn Fund, Acorn International and Acorn USA are collectively called the "Acorn Funds." The money market fund is available in a telephone exchange plan with the Acorn Funds. If you elect to use this program, you will be able to exchange investments among any of the Acorn Funds and the money fund. In order to enroll in the exchange plan, indicate your election on the IRA application. When your exchange plan is established, you can request a prospectus for the money fund and you will then be able to exchange by telephoning State Street Bank and Trust Company. IRA planholders may not use the check-writing redemption privileges offered by the money fund. If you wish to add to your IRA plan by putting money into the money fund instead of one of the Acorn Funds, please call Acorn for instructions. The assets in your account are held in a custodial account exclusively for your benefit and the benefit of such beneficiaries as you may designate in writing delivered to the Custodian. The balance in your IRA represents a separate account which is clearly identified as your property and generally may not be combined for investment with the property of another individual. Your 13 right to the entire balance in your account is nonforfeitable. No part of the assets of your account may be invested in life insurance contracts or in collectibles such as works of art, antiques, coins, stamps, etc. IV. DISTRIBUTIONS FROM YOUR IRA DISTRIBUTION DURING YOUR LIFE. The law permits distributions to be made from an IRA without penalty at any time after you attain age 59 1/2, and requires that distributions commence no later than April 1 following the calendar year in which you attain age 70 1/2. Distributions may be in the form of a single payment or, in accordance with regulations, in substantially equal monthly, quarterly or annual payments over your life or the joint lives of you and your designated beneficiary, or over a period certain not extending beyond your life expectancy or the joint and last survivor life expectancy of you and your designated beneficiary. However, if your beneficiary is not your spouse, the law imposes an additional requirement called the minimum distribution incidental benefit requirement. In general, this requirement puts a further limit on the maximum payout period. This further limit is based on a table in the income tax regulations, and if this limit applies to you, you should consult your tax advisor to determine your minimum distribution. In general, your life expectancy, your surviving spouse's life expectancy after your death, and your and your spouse's joint and last survivor life expectancies will all be recalculated each year based upon your (and your spouse's, if applicable) age attained during that year. However, you can also elect to have your (and your spouse's) life expectancies fixed in the year in which distributions are required to begin, which may be advantageous in some circumstances. On the other hand, if your beneficiary is someone other than your surviving spouse, your and your beneficiary's joint and last survivor life expectancy will ordinarily not be recalculated each year, although you may elect to have it recalculated. Each of the elections described above must be made before the date on which distributions are required to commence, and will be irrevocable after that date. You should consult an qualified tax advisor to determine whether you should make any of these elections. If you direct distributions over your life or the joint lives of you and your designated beneficiary, the Custodian will purchase an immediate annuity contract from an insurance company you choose with your IRA and your payments will be made under the annuity. You must provide a completed annuity application from the insurance company of your choosing. Any distribution instruction must specify the reason for the distribution. Examples of such reasons are: premature distributions (i.e. distributions before age 59 1/2), rollovers, disability, death, normal (59 1/2 or over), excess contribution returns and other. DISTRIBUTIONS AFTER YOUR DEATH. If you die on or after the April following the year in which you reach age 70 1/2, the balance of your IRA must be distributed to your designated beneficiary at least as rapidly as under the method of distribution in effect before your death. 14 If you die before the April following the year in which you reach age 70 1/2, the entire balance of the account must be distributed by December 31 of the year in which the 5th anniversary of your death occurs. However, distribution need not be made within this 5-year period if your beneficiary receives payments over a period measured by his or her life or life expectancy beginning no later than December 31 of the year following the year in which you die. If the beneficiary is your spouse, those installment payments don't have to begin until the later of December 31 of the year following the year in which you die or December 31 of the year in which you would have reached age 70 1/2. In addition, a distribution need not be made within 5 years of your death if your spouse is your beneficiary and he or she elects to treat the entire interest in the IRA (or the remaining part of such interest, if distribution has already begun) as his or her own IRA subject to the regular IRA distribution requirements. In such a case, your spouse will be considered to be the covered individual under the IRA. If you die before the entire IRA has been distributed to you and your spouse is not your beneficiary, no additional cash contributions or rollover contributions may be accepted by the IRA. V. INCOME AND PENALTY TAXES INCOME TAX TREATMENT. Income tax on deductible IRA contributions and earnings on both deductible and nondeductible IRA contributions is generally deferred until you receive distributions. If you have made both deductible and nondeductible contributions to IRAs you maintain, a portion of each distribution you receive from any IRA (whether or not it is the one to which you made nondeductible contributions) will be considered to be a return of nondeductible contributions and therefore not included in your income for tax purposes. The balance of each distribution will be taxed as ordinary income regardless of its original source. The amount of any distribution which is considered to be a return of nondeductible contributions (and therefore not taxed) is determined by multiplying the amount of the distribution by a fraction. The numerator of the fraction is the aggregate amount of nondeductible contributions you have made to all of your IRAs over the years and the denominator is the balance in all your IRAs at the end of the year (after adding back any distributions you received during the year). The aggregate amount which can be excluded from income for all years cannot exceed the amount of nondeductible contributions that you made in those years. You must attach Form 8606 to your tax return for any year in which you receive distributions if you have made any nondeductible contributions to an IRA. Taxable distributions from your account are taxed as ordinary income regardless of their original source. They are not eligible for special tax treatment that may apply to lump sum distributions from qualified employer plans. PENALTY TAX FOR PREMATURE DISTRIBUTIONS. Your IRA is intended to provide income for you upon retirement. Accordingly, the law generally imposes a penalty on premature distributions. If you receive a taxable distribution from the IRA before reaching age 59 1/2, a nondeductible 10% penalty will be imposed on the portion of the distribution which is included in your gross income. This penalty is in addition to any income tax you must pay on the distribution itself. The penalty does not apply to the extent that the distribution is considered a return of nondeductible contributions or a return of an excess contribution which is permitted tax-free (see below). The 15 penalty also will not apply if the distribution is made due to your permanent disability or death or if the distribution is one of a series of substantially equal periodic payments made over your life (or life expectancy) or over the joint lives (or life expectancies) of you and your beneficiary. Further, the penalty does not apply to the extent the distribution is rolled over to another IRA or (if permitted) qualified plan. PENALTY TAX FOR EXCESS CONTRIBUTIONS. Contributions to an IRA above the permissible limits are nondeductible and are subject to an annual nondeductible excise tax of 6% of the amount of such excess contributions for each year that the excess is not withdrawn or eliminated. The tax is paid by the person for whose benefit the IRA is established. If the person who contributed the excess takes no deduction for it and withdraws the excess amount plus the net earnings attributable to such excess on or before the due date (including extensions) for filing the Federal income tax return for the year for which the contribution was made, the 6% excise tax will not be applied but the 10% tax on premature distributions will be applied to the amount of net earnings. Generally, if the excess is withdrawn after the due date (including extensions) for filing the tax return for the year for which the contribution was made, not only will the excess contribution be subject to the 6% excise tax, but the amount of such excess and the net income attributable to it will also be includible in income; and if you have not attained the age of 59 1/2, or are not disabled, you will also be subject to the previously mentioned 10% penalty tax on premature distributions. The law provides, however, that if an individual has made a contribution to an IRA for a year which does not exceed $2,250 (excluding rollover amounts), all or part of which is an excess contribution for which he did not claim a deduction, and he does not correct the excess contribution before the due date (including extensions) for filing his tax return for the year, he nevertheless may withdraw the excess amount contributed (without the net income attributable thereto) at any time without incurring the 10% penalty tax on premature distributions or being required to include the amount withdrawn in income. The 6% excise tax will be imposed even in this special situation for the year of the excess contribution and each subsequent year until the excess is withdrawn or eliminated. The rules discussed above generally apply to SEP-IRAs as well. The law also allows you to withdraw tax-free and without penalty an excess contribution, regardless of the amount, made with respect to a rollover contribution (including an attempted rollover contribution), if the excess contribution occurred because you reasonably relied on erroneous information required to be supplied by the plan, trust or institution making the distribution that was the subject of the rollover. As an alternative to withdrawing excess contributions made to an IRA, such amounts may be eliminated by making reduced contributions for subsequent years; however, you will be required to pay the 6% excise tax on the amount of the excess for the year of the contribution and for each subsequent year until the amount of the excess is deducted in a later year for which you have not contributed the maximum deductible amount. If a contribution is made to your account in an amount less than the permissible limit in order to correct an excess contribution for a previous year for which you did not claim a deduction, you may under certain circumstances, taking into 16 account the limits on contributions, be allowed to treat the amount of the reduction in the current year's contribution as an additional contribution for the current taxable year. PENALTY TAX FOR UNDER-DISTRIBUTION. If after April 1 following the year in which you attain age 70 1/2, the amount distributed is less than the minimum amount required by law to be distributed, a 50% excise tax may be imposed on any such deficiency. The minimum amount required by law to be distributed is generally based on your life expectancy or the joint and survivor life expectancy of you and your beneficiary. However, if your beneficiary is not your spouse, the law imposes an additional requirement which is called the minimum distribution incidental benefit requirement. In general, this requirement is designed to prevent you from naming a beneficiary who is much younger than yourself in order to extend your payout period. You should consult your tax advisor to determine your minimum distribution. This excise tax may also apply if your beneficiary fails to take the minimum required distribution in any year after your death, as described above. The Internal Revenue Service may waive the penalty tax for under-distribution if the deficiency was due to reasonable error and reasonable steps are being taken to correct the deficiency. PENALTY TAX FOR EXCESS DISTRIBUTIONS AND ACCUMULATIONS. A 15% penalty tax is imposed on annual distributions from retirement arrangements (including IRAs) to the extent that such distributions in a year are considered "excess distributions." A distribution is an "excess distribution" if it exceeds $155,000 (or such higher amount as may be specified by the IRS) during any calendar year. In addition, a 15% penalty tax will be imposed on your estate to the extent that at the time of your death the total balance to your account in all retirement arrangements exceeds the present value of a life annuity of $155,000 (or such higher amount as the IRS may specify) per year. The rules governing the 15% penalty tax are very complex, and may be affected by certain elections which you may have made in prior years. If you have a substantial balance to your account in IRAs and qualified retirement plans, you should consult a qualified tax advisor as to the possible application of this penalty tax. PROHIBITED TRANSACTIONS AND PLEDGING ACCOUNT ASSETS. If during any taxable year you engage in a so-called "prohibited transaction" with respect to your IRA, the account will lose its tax-exempt status. In this event, the fair market value of all account assets, valued as of the first day of such taxable year, will be deemed distributed to you and the taxable portion will be includible in your gross income for the year. If you are under age 59 1/2, the 10% penalty for premature distributions may also apply. These prohibited transactions generally include any type of financial transaction between the IRA and you or your beneficiary, including borrowing or lending money, buying, selling, or renting property, paying compensation, or a transaction that indirectly benefits you or your beneficiary personally. Prohibited transactions may also involve members of your family, companies in which you have an interest, the sponsoring employer in the case of a SEP-IRA, any person who provides services to the IRA, and certain affiliates of such persons. However, prohibited transactions involving persons other than you or your beneficiary result in penalty taxes on the person involved, rather than disqualification of the IRA. 17 If you pledge your account or any portion thereof as security for a loan, such pledged portion will be deemed distributed to you and, to the extent that it does not represent a return of nondeductible contributions, includible in your gross income. If you have not yet attained age 59 1/2, an additional tax equal to 10% of the amount pledged will be imposed on such funds includible in gross income. If your spouse engages in a prohibited transaction with respect to his or her account, the results will be the same. Any portion of an IRA used to purchase an endowment contract or collectible is also treated as distributed. VI. MISCELLANEOUS FEDERAL INCOME TAX WITHHOLDING. Distributions from an IRA to the covered individual or to a beneficiary are subject to Federal income tax withholding unless the covered individual or beneficiary elects to have no withholding apply. The current withholding rate required by the Internal Revenue Code is 10% for lump sum payments, and regular wage withholding rates for annuities or other periodic payments. Additional information concerning withholding and election forms will be available no later than at the time a distribution is requested. FEDERAL ESTATE AND GIFT TAXES. Generally, your IRA will be included in your estate for Federal estate tax purposes. If your spouse is your beneficiary, your IRA may qualify for a deduction for purposes of that tax. An election under an IRA to have a distribution payable to a beneficiary on the death of the covered individual will not be treated as a gift subject to Federal gift tax. REPORTS TO THE INTERNAL REVENUE SERVICE. As described above, you are required to attach Form 8606 to your return for any year in which you made nondeductible contributions, or receive distributions after making nondeductible contributions. You are required to file Form 5329 with the IRS if you owe one of the IRA penalty taxes. These are the taxes on excess contributions, premature distributions, prohibited transactions and under distributions after age 70 1/2, as described above. SOCIAL SECURITY AND SELF-EMPLOYMENT TAXES. Contributions to a Regular or Spousal IRA are not deductible for purposes of the social security (FICA) and self- employment taxes. Contributions to a SEP-IRA by your employer are not subject to social security tax unless you elected to reduce your current compensation to receive the contributions (a SAR-SEP). FINANCIAL INFORMATION. The growth in value of the mutual fund shares held in your account can neither be guaranteed nor projected. CUSTODIAN FEES. State Street Bank and Trust Company as the Custodian of your IRA currently charges an acceptance fee of $5.00 per IRA application, and an annual maintenance fee of $10.00 per account, PER FUND IN WHICH YOU HAVE AN INVESTMENT. An additional $10.00 fee is charged for each disbursement, other than an automatic installment payout. Note that Spousal IRAs require separate accounts. Each spouse's account is subject to the above fees. If you do not add the $5.00 acceptance fee to your initial contribution, it will be deducted from your account. The $10.00 annual maintenance fee will be deducted from your account, unless paid separately when billed in December. 18 The Custodian may change any of the above fees from time to time. IRS APPROVAL STATUS. The Internal Revenue Service has determined that the form of Acorn Investment Trust Individual Retirement Plan and Custodial Agreement, as revised June 30, 1992, is acceptable under the Internal Revenue Code. This determination by the IRS relates only to form and not to the merits of your account. Further information concerning IRAs can be obtained from any district office of the IRS. September 1, 1996 19 ACORN INVESTMENT TRUST INDIVIDUAL RETIREMENT PLAN AND CUSTODIAL AGREEMENT (June 30, 1992 Revision) The Acorn Fund, Inc. (the "Fund"), a regulated investment company, has heretofore established The Acorn Fund, Inc. Individual Retirement Plan (the "Plan"). Effective June 30, 1992, The Acorn Fund, Inc. was reorganized as Acorn Investment Trust, a Massachusetts business trust (the "Trust"), and the Trust thereby assumed and succeeded to all of The Acorn Fund, Inc.'s rights and obligations under the Plan, including the power reserved in Section VIII of the Plan to amend the Plan. Pursuant thereto, the Trust hereby amends and restates the Plan in its entirety to read as follows, effective as of June 30, 1992. The Plan is intended to meet the requirements of section 408 of the Internal Revenue Code of 1986, as amended. Some words and phrases used herein have a technical meaning and are defined in Article VIII. I. ELIGIBILITY Any person who receives Compensation (including Earned Income of a self-employed individual and alimony or separate maintenance payments of a divorced person) during a taxable year is eligible to adopt this Plan for such year. In addition, any person making a Rollover Contribution or a trustee-to-trustee transfer may adopt the Plan. II. PARTICIPATION A. REGULAR IRA. An individual may contribute to his Custodial Account for any taxable year an amount not in excess of the lesser of (1) $2,000 or (2) 100 percent of the Individual's Compensation includible in his gross income for such taxable year. The Fund and the Custodian are not responsible for determining the amount an Individual may contribute. B. SPOUSAL IRA. (1) In addition to the contributions permitted under paragraph A, an Individual who files a joint federal income tax return for any taxable year and whose spouse has no Compensation for that year (or elects to be treated as having no compensation for the year) may contribute an amount to a separate Custodial Account for the benefit of the Individual's spouse. The aggregate amounts contributed to the Custodial Accounts of the Individual and the Individual's spouse for any taxable year may not exceed the lesser of (a) $2,250 or (b) 100 percent of the Compensation includible in the Individual's gross income for that year, but in no event shall the amount contributed to either Custodial Account exceed $2,000. 20 (2) In determining marital status the following shall apply: (a) the determination of whether the Individual is married shall be made as of the close of the taxable year, except that if the Individual's spouse dies during the taxable year such determination shall be made as of the time of such death; and (b) if the Individual is legally separated from his/her spouse under a decree of divorce or of separate maintenance they shall not be considered as married. C. CONTRIBUTIONS AFTER AGE 70 1/2. The Individual may not make a contribution under paragraph A for any taxable year if he has attained age 70 1/2 before the close of that year, nor under paragraph B if the spouse has attained age 70 1/2 before the close of that year. D. REFUND OF EXCESS CONTRIBUTION. If for any taxable year the Individual contributes an amount for the Individual or the Individual's spouse under paragraph A or B which exceeds the maximum limits permitted by those paragraphs, such excess contribution shall upon the written request of the Individual (or the spouse in the case of a Spousal Account) be paid to the Individual (or the spouse in the case of a Spousal Account) by the Custodian. If the refund is made before the due date of the Individual's federal income tax return for that year (including extensions), the refund shall include any income attributable to the excess contribution. E. ROLLOVER CONTRIBUTIONS AND TRANSFERS. (1) The Individual may also make a Rollover Contribution as defined in Article IX of the Plan. Any Rollover Contribution and the earnings thereon may be held by the Custodian in a separate account for the Individual. (2) In addition, notwithstanding any other provisions hereof, the Individual may cause the custodian or trustee under any other individual retirement account established and maintained by the Individual to transfer all or any part of the funds in such account directly to the Custodian to be held under this Plan. Effective January 1, 1993, the Individual may also cause the trustee of any plan to which Section 401(a)(31) of the Code applies to transfer all or any part of the benefits payable under such plan directly to the Custodian to be held under this Plan. (3) In the case of a Rollover Contribution, the Individual shall certify to the Custodian that the contribution qualifies as such. F. SIMPLIFIED EMPLOYEE PENSION (SEP-IRA). In the case of an employer contribution on behalf of the Individual to a Simplified Employee Pension, notwithstanding the limitations stated in paragraph A, the contribution for any taxable year shall not exceed the lesser of (1) 15 percent of the Compensation from the employer includible in the Individual's gross income for the year (determined without regard to the employer contribution to the Simplified Employee Pension), or (2) the amount contributed by the employer to the Simplified Employee Pension and included in gross income (but not in excess of $30,000). 21 Employer contributions to a SEP-IRA may be made on behalf of the Individual after the Individual reaches age 70 1/2. G. MINIMUM CONTRIBUTIONS. A contribution is not required for any year. Each contribution must meet the minimum investment limitations stated from time to time in the prospectus relating to the Fund Shares in which the contribution is to be made. H. NONFORFEITABILITY. The interests of the Individual and the Individual's spouse in their respective Custodial Accounts shall be nonforfeitable at all times . I. FORM OF CONTRIBUTIONS. All contributions and transfers shall be made only in cash. III. INVESTMENT OF CONTRIBUTIONS A. As directed by the Individual in writing, all contributions shall be used by the Custodian to purchase Fund Shares. All income dividends and capital gains distributions shall be reinvested in shares of the Fund which declared such dividends or distributions unless the Individual (or spouse in the case of a Spousal Account) elects in writing, in accordance with an opportunity to do so provided by the Fund declaring the dividend or distribution, to apply such dividend or distribution to purchase other Fund Shares available under the Plan. B. A telephonic Switch Plan ("Switch Plan"), as described in the prospectus(es) of the Funds is available hereunder. After the Custodian receives a Switch Plan authorization deemed by the Custodian to be in proper form, the Custodian, upon receipt of telephonic instructions from any person representing himself to be the Individual, may redeem any Fund Shares held by the Custodian on behalf of the Individual and apply the proceeds toward the purchase of any other Fund Shares available hereunder, subject to and in accordance with the terms and conditions of the Switch Plan. The Custodian shall be entitled to rely and act upon such telephonic instructions, and neither the Custodian, the Trust, any other Fund whose shares are available hereunder nor their officers, trustees, directors, employees or agents shall be liable for any liability, cost or expense for acting on any such instructions. In directing any switch pursuant to the Switch Plan, the Individual represents that he has obtained a current prospectus of the Fund into which the switch is to be made. The Individual authorizes and directs the Custodian to respond to any telephonic inquiries relating to the status of shares owned, including but not limited to the number of shares held. The Individual agrees that the authorizations, directions and restrictions contained herein will continue until the Custodian receives written notice of any change or revocation. The Individual agrees and understands that the Funds and the Custodian reserve the right to refuse any telephonic instructions. C. All Fund Shares acquired by the Custodian shall be registered in the name of the Custodian or its nominee. 22 D. No part of the custodial funds shall be invested in life insurance contracts nor in collectibles (within the meaning of section 408(m) of the Code); nor may the assets of the Custodial Account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5) of the Code). E. All assets in the Custodial Account shall be held by the Custodian for the exclusive benefit of the Individual and the Individual's designated beneficiary or beneficiaries. IV. DISTRIBUTIONS A. As directed in writing by the Individual, the entire interest of the Individual in the Custodial Account shall be distributed, or commence to be distributed, no later than April 1 following the calendar year in which the Individual attains age 70 1/2 (the "required beginning date"). Not later than the required beginning date, the Individual shall elect, in such form and at such time as is acceptable to the Custodian, to have the balance in the Custodial Account distributed: (1) In a single sum payment in cash or Fund Shares; (2) In equal or substantially equal annual installments in cash commencing not later than the required beginning date and over a specified period certain not extending beyond the life expectancy of the Individual, or the joint and last survivor life expectancy of the Individual and his designated beneficiary; or (3) By the purchase of an annuity contract issued by an insurance company selected by the Individual and providing equal or substantially equal monthly, quarterly or annual payments commencing not later than the required beginning date, for the life of the Individual, or, if he so elects, for the lives of the Individual and his designated beneficiary, with any period certain limited to the life expectancy of the Individual or the joint and last survivor life expectancy of the Individual and his designated beneficiary. Even though distributions may have commenced pursuant to option (2) the individual may receive a distribution of any part or all of the balance in the Custodial Account, either in cash or in Fund Shares, at any time upon written notice to the Custodian. If the Individual fails to elect any of the methods of distribution described above before the required beginning date, distribution to the Individual shall be made on or before the required beginning date in a single distribution in Fund Shares. If the Individual elects option (2) as the mode of distribution, the annual payment required to be made by the Individual's required beginning date is for the calendar year the Individual reached age 70 1/2. The annual payment for each subsequent year, including the year in which the Individual's required beginning date occurs, must be made by December 31 of that year. If the Individual elects option (3) as the mode of distribution, the annuity contract must satisfy the requirements of section 408(b)(1), (3) and (4) of the Code. 23 B. If the Individual dies before his or her entire interest in the Custodial Account is distributed, the entire remaining interest shall be distributed as directed in writing by the beneficiary as follows: (1) If the Individual dies on or after the Individual's required beginning date, distribution must continue to be made in accordance with paragraph A. (2) If the Individual dies before the Individual's required beginning date, the entire remaining interest shall, at the election of the beneficiary or beneficiaries, either (a) Be distributed by December 31 of the year containing the fifth anniversary of the Individual's death, or (b) Be distributed in equal or substantially equal annual payments over a specified period not extending beyond the life expectancy of the designated beneficiary or beneficiaries. The election of either (a) or (b) must be made by December 31 of the year following the year of the Individual's death. If the beneficiary or beneficiaries do not elect either of the distribution options described in (a) or (b), distribution shall be made in accordance with (b) if the beneficiary is the Individual's surviving spouse and in accordance with (a) if the beneficiary or beneficiaries are or include anyone other than the surviving spouse. In the case of distributions under (b), distributions must commence by December 31 of the year following the year of the Individual's death. However, if the Individual's spouse is the beneficiary, distributions need not commence until December 31 of the year the Individual would have attained age 70 1/2, if later. (3) If the designated beneficiary is the Individual's surviving spouse, the spouse may treat the Custodial Account as his or her own individual retirement arrangement (IRA). Such an election shall be deemed to have been made if such surviving spouse makes a regular IRA contribution to the Custodial Account, makes a rollover to or from the Custodial Account or fails to elect any of the preceding provisions. If the Individual dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash contributions or rollover contributions may be accepted in the Custodial Account. C. In the case of distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment for each year, divide the Individual's entire interest in the Custodial Account as of the close of business on December 31 of the preceding year by the life expectancy of the Individual (or the joint and last survivor life expectancy of the Individual and the Individual's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). For this purpose, however, in the case of the year ("second distribution year") following the year in which the Individual reached age 70 1/2, the balance in the Custodial Account as of the close of business on December 31 of the preceding year shall be reduced by any distribution made during the second distribution year on or before April 1 to satisfy the minimum distribution requirement for the year the Individual reached age 70 1/2, as determined in accordance with paragraph J below. 24 D. Effective for distributions after December 31, 1988 and before the Participant's death, notwithstanding any other provisions in this Plan, if the distribution period is longer than the Individual's life expectancy and the Individual's spouse is not the designated beneficiary, the minimum amount required to be distributed each year, beginning with the year the Individual reaches age 70 1/2, shall be determined by dividing the balance in the Custodial Account as of the close of business on December 31 of the preceding year by the lesser of (1) the joint and last survivor life expectancy of the Individual and his designated beneficiary determined as provided in paragraph C or (2) the applicable divisor determined from the table set forth in Q&A-4 of Proposed Treasury Regulation Section 1.401(a)(9)-2. For this purpose, however, in the case of the year ("second distribution year") following the year in which the Participant reached 70 1/2, balance in the Custodial Account as of the close of business on December 31 of the preceding year shall be reduced by any distribution made during the second distribution year on or before April 1 to satisfy the minimum distribution requirement for the year the Individual reached age 70 1/2. E. The minimum annual payment may be made in a series of installments (e.g., monthly, quarterly, etc.) as long as the total payments for the year made by the date required are not less than the minimum amounts required. F. Any annuity contract purchased for the Individual pursuant to the Plan shall be immediately distributed to the Individual, and the custodial relationship shall terminate upon such distribution. G. Except in the case of the Individual's death or Disability or attainment of age 59 1/2, no distribution shall be made to the Individual of his interest in the Custodial Account unless the Individual gives the Custodian a statement explaining how he or she intends to dispose of the amount to be distributed. H. An Individual shall have the right by written notice to the Custodian to designate one or more beneficiaries to receive any amount to which the Individual may be entitled in the event of his death before the complete distribution of his interest, and to change any such beneficiary. Such designation or change shall be on the Beneficiary Form provided by the Trust, and shall be effective only when filed with the Custodian before the death of the Individual. Such designation may include contingent or successive beneficiaries. If no such designation is in effect on an Individual's death, or if no designated beneficiary is living on the date any payment becomes due after the Individual's death, such payment shall be made to the executor or administrator of the Individual's estate. However, if after the Individual's death, his surviving spouse is receiving payments over a specified period, the surviving spouse may designate a beneficiary to receive the balance of the Custodial Account, if any, on his or her death in accordance with the foregoing rules . I. If any person to whom all or a portion of the Individual's interest is payable is a minor, payment of the minor's interest shall be made on behalf of the minor to the person designated by the Individual in the Beneficiary Form to receive the minor's interest as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute. If any person to whom all or a 25 portion of the Individual's interest is payable is a minor and if either (a) the Individual has not so designated a person to receive the minor's interest as such custodian, or (b) the person so designated is unable to act (because of incapacity, failing or declining to act, death or otherwise), the Custodian shall: (i) Distribute the interest to the legal guardian of such minor; or (ii) If no guardian has been appointed, designate an adult member of the minor's family, a guardian or a trust company (including the Custodian), as those terms are defined in the Massachusetts Uniform Transfers to Minors Act or similar statute, as custodian for such minor under the Massachusetts Uniform Transfers to Minors Act or similar statute and distribute such minor's interest to the person so designated. The person designated as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute shall hold, manage and distribute such property in accordance with the provisions of such statute including, if such statute so requires, a total distribution prior to age 21. The distribution of the Individual's interest to the guardian or the person designated as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute shall be a full discharge of the Custodian to the extent of the distribution so made. J. For purposes of determining the minimum distribution required for any year pursuant to paragraph C, if the applicable life expectancy is the life expectancy of the Individual, the life expectancy of the Individual's surviving spouse, or the joint and last survivor life expectancy of the Individual and his spouse, then, unless the Individual or his surviving spouse otherwise elects as hereinafter provided, such life expectancy shall be determined on the basis of the age attained by the Individual, his or her spouse, or both of them, on their birthdays occurring during the year for which the minimum distribution is calculated (which, in the case of a distribution under paragraph A made in the year which includes the required beginning date for the year in which the Individual attains age 70 1/2, shall be the year in which the Individual attains age 70 1/2). If the applicable life expectancy is that of a beneficiary other than the Individual's surviving spouse, or the joint and last survivor life expectancy of the Individual and a beneficiary other than his surviving spouse, the life expectancy for the first year for which a distribution is required to be made (the "initial life expectancy") shall be determined on the basis of the age attained by the Individual, such beneficiary, or both of them on their birthdays occurring during such year, and the life expectancies for each subsequent year shall be determined by subtracting from the initial life expectancies the number of years that have elapsed since such initial year. Notwithstanding the foregoing, the Individual or, if applicable, the Individual's surviving spouse may elect to have any of the life expectancies described in the first sentence of this Paragraph J determined in the manner described in the second sentence, and the Individual may elect to have the joint and last survivor life expectancy of the Individual and a beneficiary other than his surviving spouse redetermined each year in accordance with section 1.401(a)(9)-1, Q&A E-8(b) of the proposed regulations (or any successor thereto). Any such election shall be made prior to the Individual's required beginning date (or, in the case of an election by a surviving spouse after the Individual's 26 death, prior to the date on which distributions are required to commence under paragraph B) and, after such date, shall be irrevocable. All life expectancies shall be determined in accordance with tables contained or referenced in regulations promulgated under section 401(a)(9) of the Code. K. The provisions of this Article V shall determine the minimum distributions required to be made from the Custodial Account. Nothing contained herein shall be construed to limit the right of the Individual, or of his or her beneficiaries, to withdraw a larger amount from the Custodial Account than the minimum distribution required hereunder but amounts withdrawn in any year in excess of the minimum distribution required for such year shall not reduce the minimum amount required to be distributed in any subsequent year (except that any amount distributed in the year in which an Individual attains the age of 70 1/2 shall reduce the amount required to be distributed by April 1 of the subsequent year under paragraph A). L. Notwithstanding any provision of this Plan to the contrary, the distribution of an Individual's interest in the Custodial Account shall be made in accordance with the minimum distribution requirements of section 408(b)(6) or section 408(b)(3) of the Code and the regulations thereunder, including the incidental death benefit provisions of section 1.401(a)(9)-2 of the proposed regulations, all of which are incorporated herein by reference (the "minimum distribution requirements"). Any ambiguity in the provisions of this Article 5 shall be resolved in a manner consistent with the minimum distribution requirements, and, if any provision of this Article 5 is inconsistent with the minimum distribution requirements, the minimum distribution requirements shall control. M. If distributions from the Custodial Account are to be made to the Individual's surviving spouse, or to a trust of which the Individual's surviving spouse is the income beneficiary, the amount which the surviving spouse (or such trust) is entitled to receive in each year shall not be less than the income of the Custodial Account (or of the portion of the Custodial Account with respect to which the surviving spouse or such trust is the beneficiary) for such year, as determined under section 2056(b)(7) of the Code. N. Whenever distributions after the death of the Individual are to be made to the Individual's surviving spouse and to one or more beneficiaries other than the surviving spouse, and any provision of this Article 5 or the minimum distribution requirements provides different treatment for the portion of the Custodial Account to be distributed to the surviving spouse, then such portion, and the income earned thereon, shall be separated and treated as a separate Custodial Account with respect to such surviving spouse. O. Notwithstanding anything herein to the contrary, all distributions shall be made by the Custodian in such manner and in such amounts as may be specified in written instructions received from time to time by the Individual or the beneficiary, as the case may be and all such instructions shall be deemed to constitute a certification by the Individual or beneficiary that the distribution so directed is one that the Individual or beneficiary is permitted to receive. In addition, the Custodian shall have no liability with respect to any distribution from the Account in accordance with the directions of the Individual or beneficiary or the failure to make a 27 distribution in the absence of such instructions or any consequences thereof including, but not limited to, excise and other taxes and penalties which might accrue or be assessed, nor shall the Custodian be under any duty to make any inquiry or investigation with respect thereto. V. ADMINISTRATION Except as otherwise provided in the Plan, the Custodian shall, as directed in writing, on behalf of the Individual: (1) Receive contributions pursuant to the provisions of the Plan; (2) Hold, invest and reinvest the contributions in Fund Shares; (3) Register any property in the Custodial Account in the name of the custodian or its nominee; and (4) Make distributions from the Custodial Account in cash or in Fund Shares pursuant to the provisions of the Plan. The Custodian shall deliver or cause to be executed and delivered to the Individual all notices, prospectuses, financial statements, proxies and proxy soliciting material relating to assets credited to the custodial account. No Fund Shares shall be voted, and no other action shall be taken pursuant to such documents, except upon receipt of adequate written instructions from the Individual. The Custodian shall keep accurate and detailed account of its receipts, investments and disbursements. As soon as practicable after the end of each calendar year, and whenever required by regulations adopted under the Act or the Code, the Custodian shall file with the Individual a written report of the Custodian's transactions relating to the Custodial Account during the period from the last previous accounting, and shall file such other reports with the Internal Revenue Service as may be required of the Custodian by regulation. Unless the Individual sends the Custodian written objection to a report within 60 days after its receipt, the Individual shall be deemed to have approved such report, and in such case the Custodian shall be forever released and discharged with respect to all matters and things included therein. The Custodian may seek a judicial settlement of its accounts. In any such proceeding the only necessary party thereto in addition to the Custodian shall be the Individual unless otherwise required by law. The Custodian shall have no duties whatsoever except such duties as are specifically provided for herein, and no implied covenant or obligation shall be read into this Agreement against the Custodian. The Custodian shall not be liable for a mistake in judgment, for any action taken, or any failure to act, in good faith, or for any loss that is not a result of its gross negligence, except as expressly required by the Act and regulations promulgated thereunder. In performing its duties 28 under this Agreement, the Custodian may hire agents, experts and attorneys and may delegate discretionary powers to, and rely upon information and advice furnished by, such agents, experts and attorneys. The Individual agrees to indemnify and hold the Custodian harmless from and against any liability that the Custodian may incur in the administration of the Custodial Account, unless arising from the Custodian's own gross negligence or willful misconduct. The Custodian shall be under no duty to question any direction of the Individual with respect to the investment of contributions, or to make suggestions to the Individual with respect to the investment, retention or disposition of any contributions or assets held in the Custodial Account. The Custodian shall pay out of the Custodial Account expenses of administration, including the fees of counsel employed by the Custodian, taxes, if any, and its fees for maintaining the Custodial Account, which are set forth in the Disclosure Statement but may be revised from time to time by the Custodian and the Trust. The Custodian may sell Fund Shares and use the proceeds of sale to pay the foregoing fees and expenses. The Custodian may resign as Custodian of any Individual's Custodial Account or as Custodian of all accounts adopted under the provisions of this Plan, in either case upon 30 days' prior notice to the Trust and 30 days' prior notice to each Individual who will be affected by such resignation. If the Trust or the Individual does not appoint a successor custodian within 30 days after the mailing of such notice, the Custodian will terminate the Custodial Account. The Individual shall be solely and fully responsible for all taxes and penalties which might accrue or be assessed with respect to any excess contributions, premature distributions or distributions which are below the annual minimum distribution required. The Custodian shall be entitled to receive and may charge against the Individual's Custodial Account such reasonable compensation for its services in accordance with its fee schedule as from time to time in effect, and shall also be entitled to reimbursement of its expenses as Custodian under this Agreement. The Custodian will notify the Individual in writing of any change in its fee schedule. This Agreement and the Custodial Account created hereby shall be subject to the applicable laws, rules and regulations, as the same may from time to time be amended, of the Federal government and the Commonwealth of Massachusetts and the agencies and instrumentalities of each having jurisdiction thereof, and shall be governed by and construed, administered and enforced according to the law of the Commonwealth of Massachusetts. All contributions to the Custodial Account shall be deemed to take place in the Commonwealth of Massachusetts. The Custodian and Individual hereby waive and agree to waive right to trial by jury in an action or proceeding instituted in respect to this Custodial Account. The Individual further agrees that the venue of any litigation between him and the Custodian with respect to the Custodial Account shall be in the County of Suffolk, Commonwealth of Massachusetts. 29 VI. THE TRUST The Individual delegates to the Trust the following powers with respect to the Plan: (1) to remove the Custodian and select a successor Custodian; and (2) to amend the Plan with the Custodian's consent as provided in Section VII. The powers herein delegated to the Trust shall be exercised by such officer thereof as the Trust may designate from time to time, and shall be exercised only when similarly exercised with respect to all other Individuals adopting the Plan. Neither the Trust nor any officer director, trustee, board, committee, employee or member of the Trust shall incur any liability of any nature to the Individual or beneficiary or other person in connection with any act done or omitted to be done in good faith in the exercise of any power or authority herein delegated to the Trust. If the Trust shall hereafter determine that it is no longer desirable for the Trust to continue to exercise any of the powers hereby delegated to the Trust, it may relieve itself of any further responsibilities hereunder by notice in writing to the Individual and the Custodian at least 60 days before the date on which the Trust proposes to discontinue the exercise of the powers delegated to it. VII. AMENDMENT TERMINATION The Individual delegates to the Trust and the Custodian the power to amend the Plan (including retroactive amendment). The Individual may amend his/her Application (including retroactive amendment) by submitting to the Custodian (1) a copy of such amended Application, and (2) evidence satisfactory to the Custodian that the Plan as amended by such amended Application will continue to qualify as an Individual Retirement Account under the provisions of section 408 of the Code. No amendment shall be effective if it would cause or permit (a) any part of the Custodial Account to be diverted to any purpose that is not for the exclusive benefit of the Individual and his beneficiaries; (b) the Individual to be deprived of any portion of his interest in the Custodial Account, unless such action is taken in order to satisfy qualification requirements under the Code; or (c) the imposition of an additional duty on the Custodian without its written consent. The Individual reserves the right to terminate his adoption of this Plan by instrument in writing signed by him and filed with the Custodian. 30 VIII. DEFINITIONS Whenever used in this Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided herein: A. ACT. The Employee Retirement Income Security Act of 1974, as amended from time to time. B. APPLICATION. The Individual Retirement Account Application, constituting an agreement between the Individual and the Custodian, by which the Individual adopts the Plan. C. CODE. The Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes that section. D. COMPENSATION. The total compensation received by an Individual during a period, including wages, salaries, professional fees, or other amounts derived from or received for personal service actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses) and including earned income, as defined in section 401(c) of the Code (reduced, in the case of a self-employed individual, by any federal income tax deduction taken for contributions to a qualified retirement (Keogh) plan). Compensation does not include amounts derived from or received as earnings or profits from property (including, but not limited to, interest and dividends) or amounts not includible in gross income. Compensation also does not include any amount received as a pension or annuity or as deferred compensation. The term "compensation" shall also include any amount includible in the Individual's gross income under section 71 of the Code with respect to a divorce or separation instrument described in section 71(b)(2)(A) of the Code. E. CUSTODIAL ACCOUNT. The account established for an Individual under the Plan. F. CUSTODIAN. The bank named in the Application. G. DISABILITY. The inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration. H. TRUST. Acorn Investment Trust, a regulated investment company. I. FUND SHARES. Shares issued by the Trust or shares of any other regulated investment company for which the Custodian acts as transfer agent and which may be available hereunder from time to time pursuant to an agreement between the Custodian and the Trust. No Fund shall be available for investment under the Plan (i) before the date the prospectus for that Fund discloses its availability, (ii) with respect to any Participant who resides in any state or other 31 jurisdiction in which shares of the Fund are not available for sale, or (iii) with respect to any Participant not eligible to purchase Fund shares directly, when sales of Fund shares are restricted. J. INDIVIDUAL. An individual who adopts the Plan as provided therein. K. ROLLOVER CONTRIBUTION. A rollover amount or rollover contribution as described in section 402(a)(5) or 402(a)(7) (as in effect prior to January 1, 1993), 402(c) (effective January 1, 1993), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code, and regulations promulgated thereunder. L. SIMPLIFIED EMPLOYEE PENSION. An Individual Retirement Account with respect to which the requirements of section 408(k) of the Code are met. The foregoing Individual Retirement Plan and Custodial Agreement of Acorn Investment Trust is adopted by the Individual by signing the Individual Retirement Account Application, which is incorporated herein and made a part hereof. 32
INTERNAL REVENUE SERVICE Department of the Treasury Plan Name: IRA Custodial Account FFN: 50127960000-001 Case: 9270228 EIN: 36-7008880 Washington, DC 20224 ACORN INVESTMENT TRUST Person to Contact: Mr. Welty 227 WEST MONROE STREET Telephone Number: (202) 622-8380 CHICAGO, IL 60606 Refer Reply to: E:EP:Q-2 Date: 10/30/92
Dear Applicant: In our opinion, the form of the prototype trust, custodial account or annuity contract identified above is acceptable under section 408 of the Internal Revenue Code, as amended by the Tax Reform Act of 1986. Each individual who adopts this approved plan will be considered to have a retirement savings program that satisfies the requirements of Code section 408, provided they follow the terms of the program and do not engage in certain transactions specified in Code section 408(e). Please provide a copy of this letter to each person affected. The Internal Revenue Service has not evaluated the merits of this savings program and does not guarantee contributions or investments made under the savings program. Furthermore, this letter does not express any opinion as to the applicability of Code section 4975, regarding prohibited transactions. Code section 408(i) and related regulations require that the trustee, custodian or issuer of a contract provide a disclosure statement to each participant in this program as specified in the regulations. Publication 590, Tax Information on Individual Retirement Arrangements, gives information about the items to be disclosed. The trustee, custodian or issuer of a contract is also required to provide each adopting individual with annual reports of savings program transactions. Your program may have to be amended to include or revise provisions in order to comply with further changes in the law or regulations. If you have any questions concerning IRS processing of this case, call us at the above telephone number. Please refer to the Letter Serial Number and File Folder Number shown in the heading of this letter. Please provide those adopting this plan with your phone number, and advise them to contact your office if they have any questions about the operation of this plan. You should keep this letter as a permanent record. Please notify us if you terminate the form of this plan. Sincerely yours, John Swieca Chief, Employee Plans Qualifications Branch 33 Acorn Investment Trust P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 IRA/SEP-IRA Application All sections must be completed. Please type or print clearly. Use this application to open an Acorn IRA or a SEP-IRA. To transfer your IRA directly to Acorn from another custodian, you must also complete the Acorn Investment Trust IRA Transfer Form. There is an acceptance fee of $5.00 per IRA account. If you have questions, call our friendly customer service representatives at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:00 am to 4:30 pm, Chicago (central) time. YOUR ACCOUNT REGISTRATION Social Security Number: (used for tax reporting) [ | | ] [ | ] [ | | | ] Date of Birth: month, day, year [ | ] [ | ] [ | ] - ----------------------------------------------------------- Owner's Name: - ----------------------------------------------------------- Street Address and Apartment or Box Number - ----------------------------------------------------------- City, State, Zip Code - ----------------------------------------------------------- Daytime phone, including area code - ----------------------------------------------------------- Existing Acorn or Acorn International account number [ ] U.S. Citizen [ ] Resident Alien To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.) with a social security or tax identification number. We are required by the National Association of Securities Dealers (NASD) to ask for the following information: - ----------------------------------------------------------- Your Occupation - ----------------------------------------------------------- Employer - ----------------------------------------------------------- Employer's Address - ----------------------------------------------------------- [ ] I am affiliated with or work for a member of the NASD. CHOOSE YOUR INVESTMENTS A separate IRA account will be established for each box you check below. [ ] Acorn Fund (90) $______________________ [ ] Acorn International (100) $______________________ [ ] Acorn USA ( ) $______________________ [ ] Short Term Income Money Market Portfolio (104) $______________________ Acceptance Fee ($5 per fund) $______________________ Total Amount $______________________ Make check(s) payable to State Street Bank and Trust Company and write the appropriate fund name on the check. Please indicate on your check the year for which the contribution is made. TYPE OF IRA SELECT ONLY ONE CATEGORY [ ] Regular IRA Contribution for Tax Year 199_ Check this box if your IRA will be used to make annual contributions up to a maximum of $2,000 per tax year. (A separate Spousal IRA can be opened for a spouse earning less than $250 per year. Your spouse must complete a separate application form.) ================================================================================ [ ] Direct transfer of an existing IRA Check this box if you wish to authorize Acorn to transfer your existing IRA from another custodian to Acorn. You must also complete the enclosed IRA Transfer Form. Check type of IRA: [ ] Regular IRA funded with annual contributions [ ] Rollover IRA originally funded with a distribution from an employer-sponsored plan ================================================================================ [ ] 60-day rollover of an existing IRA Check this box if you are funding this IRA with money you have withdrawn from an IRA at another custodian and are reinvesting at Acorn. Check type of IRA: [ ] Regular IRA funded with annual contributions [ ] Rollover IRA originally funded with a distribution from an employer-sponsored plan ================================================================================ [ ] Rollover IRA from an employer-sponsored plan Check this box only if you are funding this IRA with money you accumulated in an employer's retirement plan which is eligible for rollover. If you combine Rollover IRA and regular IRA funds in the same account, you will forfeit the right to reinvest your Rollover IRA funds in another employer's qualified plan in the future. Combining IRA funds may also have tax implications at distribution. Check method of funding: [ ] A check payable to State Street Bank is enclosed. [ ] My employer will send a check directly to Acorn. ================================================================================ [ ] SEP-IRA Please see your tax advisor for the maximum contribution limits on your SEP-IRA or SARSEP-IRA. [ ] Regular SEP-IRA Contribution for 199___ [ ] Regular Salary Reduction SEP-IRA (SARSEP) Contribution for 199___ [ ] 60-Day Rollover Check this box if you have withdrawn funds from a SEP-IRA at another custodian and are reinvesting them at Acorn. [ ] Direct Transfer Check this box to authorize Acorn to transfer your existing SEP-IRA directly from another custodian. Please complete both this application and an IRA Transfer Form. Be sure to notify your employer. - -------------------------------------------------------------------------------- IRA/SEP-IRA Application, continued AUTOMATIC INVESTMENT PLAN To keep building your investments, you can easily add to your Acorn retirement accounts by joining the automatic investment plan: [ ] Automatic Investment Plan: to add to your Acorn IRA or SEP-IRA automatically. [ ] Acorn Fund $_______________________________ [ ] monthly [ ] quarterly (check only one box) [ ] Acorn International $_______________________________ [ ] monthly [ ] quarterly (check only one box) [ ] Acorn USA $_______________________________ [ ] monthly [ ] quarterly (check only one box) The minimum automatic investment is $100; the annual maximum investment for an IRA is $2,000. Your automatic investment will be drawn from your bank account on or about the 15th of the month; quarterly investments are made in January, April, July, and October. Attach a voided check from the bank account you will be using. IRA BENEFICIARY DESIGNATION Please indicate your beneficiaries here. If you wish to designate additional beneficiaries, please attach additional instructions providing the necessary beneficiary information. ================================================================================ Your Primary Beneficiaries I hereby designate the person(s) named below as primary beneficiary(ies) to receive payment of the value of my IRA account upon my death. If any beneficiary is a trust, please indicate the trust's name and address, the date of the trust, and the trustee's name. 1 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------- --------------- -------------------------------- Share %:* Relationship Date of Birth (month, day, year) 2 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------- --------------- -------------------------------- Share %:* Relationship Date of Birth (month, day, year) ================================================================================ Your Contingent Beneficiaries If no primary beneficiary is living at the time of my death, I hereby specify that the balance be distributed to my contingent beneficiary(ies) named below. 1 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------- --------------- -------------------------------- Share %:* Relationship Date of Birth (month, day, year) 2 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------- --------------- -------------------------------- Share %:* Relationship Date of Birth (month, day, year) *Share percentages must be whole, not fractional, numbers, and must add up to 100%. Payment to primary and contingent beneficiaries will be made according to the rules of succession described in the signature section. SIGNATURE Please sign at the end of this section. We must have a signature to open the account. By signing this application I certify that: . I understand that the annual IRA maintenance fee of $10 per fund account will be separately billed or collected by redeeming sufficient shares from each fund account balance. . A $10 fee will apply for each disbursement other than an automatic installment payment. . Acorn may change the fee schedule from time to time, as provided in the Custodial Agreement. Acceptance will be evidenced by a Letter of Acceptance sent by or on behalf of Acorn and State Street Bank and Trust Company. . I understand that if more than one beneficiary is named and no percentages are indicated, payment shall be made in equal shares to my primary beneficiary(ies) who survives me. If a percentage is indicated and a primary beneficiary(ies) does not survive me, the percentage of that beneficiary's designated share shall be divided equally among the surviving primary beneficiary(ies). . I understand that if I choose not to designate any beneficiary(ies), my beneficiary will be my estate (unless state law requires otherwise). I am aware that my beneficiary designation becomes effective when delivered to Acorn and will remain in effect until I deliver to Acorn another beneficiary designation with a later date. . I understand that the beneficiary information provided herein will apply to all Acorn IRAs for which State Street Bank and Trust Company (SSB&T) (or its affiliate and/or any successor custodian appointed pursuant to the terms of such IRAs) acts as custodian, including regular IRAs, SEP-IRAs, and Rollover IRAs, and will replace all previous designation(s) I have made on any of my Acorn IRA accounts. . I hereby adopt the Acorn IRA, appointing SSB&T as Custodian and as agent to perform administrative services. Although SSB&T is a bank, I recognize that neither Acorn Investment Trust nor any mutual fund in which this IRA may be invested is a bank, and that mutual fund shares are not backed or guaranteed by any bank or insured by the FDIC. This agreement shall be construed, administered and enforced according to the laws of the Commonwealth of Massachusetts, except as superseded by federal law or statute. . I have received and read the prospectus for the fund(s) in which I am making a contribution, and have read and understand the IRA Custodial Agreement and Disclosure Statement. I hereby certify under penalties of perjury that my Social Security Number (above) is correct and that I am of legal age to enter into this agreement. . By signing below, I hereby consent to the terms of the Acorn IRA and name the beneficiary(ies) I have designated in the application. X - ------------------------------------------------ ---------------------------- Signature Date Send this form to State Street Bank in the enclosed postage-paid envelope or to the address below. - -------------------------------------------------------------------------------- Acorn Investment Trust P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 Acorn Investment Trust P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 IRA/SEP-IRA Transfer Form All sections must be completed. Please type or print clearly. Use this form to authorize Acorn to transfer your IRA or SEP-IRA directly from another IRA Custodian and invest it at Acorn. Please read the instructions on the back of this form before completing the Transfer Form. If you have questions, call us at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:30 am to 4:30 pm, Chicago (Central) time. ACCOUNT OWNERSHIP Social Security Number: (used for tax reporting) [ | | ] [ | ] [ | | | ] Date of Birth: month, day, year [ | ] [ | ] [ | ] - ----------------------------------------------------------- Name (first, middle initial, last) - ----------------------------------------------------------- Street Address and Apartment or Box Number - ----------------------------------------------------------- City, State, Zip Code - ----------------------------------------------------------- Daytime phone, including area code TYPE OF IRA ACCOUNT [ ] Regular IRA [ ] SEP-IRA [ ] Rollover IRA* *Check this box only if you are transferring an IRA representing a previous rollover from an employer-sponsored retirement plan. (See explanation on the other side--"IRA Transfer Checklist".) CURRENT IRA CUSTODIAN/TRUSTEE My IRA is currently invested in: [ ] Mutual fund name _____________________________________ [ ] CD/Date of Maturity (month-day-year) _________________ [ ] Transfer the proceeds to my Acorn IRA at maturity. (Send us this Transfer Form at least three weeks prior to maturity. If the CD matures in less than three weeks, call 1-800-9-ACORN-9 (1-800-922-6769) for procedures.) [ ] Liquidate the CD immediately and transfer the proceeds to my Acorn IRA. (If you liquidate a CD prior to maturity, you may incur a penalty.) [ ] Other (Specify): _____________________________________ My IRA is currently held at: (Please call your current custodian for the correct address. If this information is not provided, it could significantly delay your transfer.) - ----------------------------------------------------------- Name of Present Custodian - ----------------------------------------------------------- Name of individual or department responsible for transfers - ----------------------------------------------------------- Address of Present Custodian - ----------------------------------------------------------- City, State, Zip Code - ---------------------------- ----------------------------- Telephone Number Account Number of Transferor Custodian (Please attach a copy of your most recent statement) INVESTING YOUR IRA TRANSFER A. Please check one of the following: [ ] I am opening a new Acorn IRA and am attaching my completed IRA application. [ ] I already own an Acorn IRA into which I am making this transfer. B. Please list the name(s) of the fund(s) into which the transfer proceeds are to be deposited. [ ] Acorn Fund $____________________ Fund Account # (if existing) ____________________ [ ] Acorn International $____________________ Fund Account # (if existing) ____________________ [ ] Acorn USA $____________________ Fund Account # (if existing) ____________________ [ ] Short Term Income Money Market Portfolio $____________________ Fund Account # (if existing) ____________________ Total Investment $____________________ If you do not indicate a fund choice, your transfer proceeds will be invested in Short Term Income Fund, a money market fund. AUTHORIZATION TO TRANSFER YOUR IRA Check only one of the following: [ ] Please liquidate and transfer in cash the IRA account listed at left. [ ] Please liquidate and transfer $________ of the assets in the IRA account listed at left to my IRA. [ ] Please transfer in-kind my [ ] Acorn Fund [ ] Acorn International shares listed at left to an IRA with Acorn (see explanation on other side--"IRA Transfer Checklist") and-- [ ] liquidate and transfer in cash all other assets in the IRA account listed at left that are not currently invested in the Acorn Funds. [ ] liquidate and transfer $________ of the other assets in the IRA account listed at left. [ ] do not liquidate or transfer any assets in the IRA account listed at left other than those invested in the Acorn Funds. I have received and read the prospectus for the fund(s) in which I am making my investment. If I am over 70 1/2, I attest that none of the amount to be transferred will include the required minimum distribution for the current year pursuant to Section 401(a)(9) of the Internal Revenue Code. If I have indicated an IRA Transfer which is different from the IRA I currently maintain (e.g., Regular IRA versus Rollover IRA), I hereby establish a new IRA, the terms of which shall be identical with the terms of the agreement for the Acorn IRA previously established. - -------------------------------------------------------------------------------- Your Signature Date (month, day, year) Signature Guarantee: Please call the custodian or other institution you are transferring from to see if a signature guarantee or other documentation is required. - -------------------------------------------------------------------------------- Name of Bank or Firm Providing Signature Guarantee - -------------------------------------------------------------------------------- Signature of Officer and Title (Be sure to stamp Signature Guarantee) Acorn Investment Trust WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, MA 02266-8502 IRA (11/94) IRA/SEP-IRA Transfer Form, continued HOW TO TRANSFER YOUR IRA FROM ANOTHER INSTITUTION TO ACORN 1. Carefully read the prospectus of the Acorn fund you have selected. 2. Complete this Transfer Form to authorize Acorn to request your IRA funds directly from another institution. You can make an unlimited number of direct transfers without any tax implications. 3. If you do not already own an Acorn IRA, you must also complete the Acorn IRA Application and check the "Direct Transfer" box. 4. Mail your Transfer Form and Application (if you are opening a new Acorn IRA) in the enclosed postage-paid envelope or to State Street Bank and Trust Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-8502. IRA TRANSFER CHECKLIST X If you combine Rollover IRA and regular IRA funds in the same account, you will forfeit the right to reinvest your Rollover IRA funds in another employer's qualified plan in the future. Combining IRA funds may also have tax implications at distribution. X This Transfer Form cannot be used to transfer individual stocks (except shares of one of the Acorn Funds) or bonds in kind. Instead, you must check the box for liquidation and cash transfer of those investments. X If you currently hold Acorn shares in an IRA with another custodian, and you wish to transfer those shares directly to Acorn and avoid liquidating the shares prior to transfer, please check the box for a transfer "in-kind." X Be sure you check with your present IRA custodian to see if a signature guarantee or other documentation is required. X If possible, identify the individual or department responsible for transfers at your present IRA custodian and provide this information where requested on this form. This can help speed up the transfer process. X If you are directly rolling over a distribution from an employer-sponsored retirement plan into an Acorn Rollover IRA, please do not use this form. Simply check the correct box on the IRA Application and send it to State Street Bank at the indicated address. ACORN WILL COMPLETE THIS SECTION Letter of Acceptance and Instructions for Transfer to an Acorn IRA Account To Transferor Custodian: State Street Bank and Trust company (and/or any successor custodian appointed pursuant to the terms of the Acorn IRA) will accept the transfer described above. Please transfer on a fiduciary-to-fiduciary basis all or part of the designated account as instructed above, and make check payable to the custodian, State Street and Trust Company. Please mail check to State Street Bank and Trust Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-8502. Also include the following information on the check: - --------------------------- ------------------------------------------------- Reference Number FBO - ---------------------------------------------------------- ------------------ Authorized Acorn Signature Date Send this form to State Street Bank in the enclosed postage-paid envelope or to the address below. - -------------------------------------------------------------------------------- Acorn Investment Trust P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 EX-27.1 11 FINANCIAL DATA SCHEDULE - ACORN FUND
6 01 Acorn Fund 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,521,023 2,403,326 8,975 1,351 0 2,413,652 12,187 0 2,870 15,057 0 1,498,780 176,315 161,989 5,288 0 24,722 0 869,805 2,398,595 22,948 9,264 0 12,613 19,599 185,690 211,069 416,358 0 14,810 177,941 0 21,831 20,322 12,817 415,519 8,696 27,222 0 0 10,429 0 12,613 2,201,203 12.24 .11 2.42 0 1.17 0 13.60 .57 0 0
EX-27.2 12 FINANCIAL DATA SCHEDULE - ACORN INTERNATIONAL
6 02 Acorn International Fund 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,077,676 1,269,204 11,373 15,376 0 1,295,953 16,735 0 2,974 19,709 0 1,103,312 76,912 89,381 693 0 (7,197) 0 179,436 1,276,244 23,529 3,969 0 15,856 11,642 (18,896) 114,583 107,329 0 0 1,050 0 9,482 22,013 62 (86,286) 6,572 (16,892) 0 0 11,667 0 15,856 1,292,747 15.24 .16 1.20 0 (.01) 0 16.59 1.2 0 0
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