<PAGE> 1
As filed with the Securities and Exchange Registration Nos. 33-17463
Commission on or about November 5, 1996 811-5344
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 15 X
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and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 16 X
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WILLIAM BLAIR MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
222 West Adams Street
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 364-8000
Copy to:
James L. Barber, Jr. Charles F. Custer, Esquire
222 West Adams Street Vedder, Price, Kaufman & Kammholz
Chicago, Illinois 60606 222 North LaSalle Street
(Name and Address of Agent for Service) Chicago, Illinois
-----------------------------
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of capital stock under the Securities Act
of 1933. The Rule 24f-2 Notice for the fiscal year ended December 31, 1995 was
filed on or about February 22, 1996.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b); or
/ / on (date) pursuant to paragraph (b); or
/ / 60 days after filing pursuant to paragraph (a)(1); or
/ / on May 1, 1996 pursuant to paragraph (a)(1); or
/X/ 75 days after filing pursuant to paragraph (a)(2); or
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
WILLIAM BLAIR MUTUAL FUNDS, INC.
VALUE DISCOVERY FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. of Form N-1A Caption
Part A . . . . . . . . . . . . . . . . . . . . . . . . Prospectus
- ------ ----------
<S> <C> <C>
1 . . . . . . . . . . . . . . . . . . . . . . . . Cover page
2 . . . . . . . . . . . . . . . . . . . . . . . . Summary of Fund Expenses
3 . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
4 . . . . . . . . . . . . . . . . . . . . . . . . The Fund; Investment Objective and Policies
5 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
5A . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
6 . . . . . . . . . . . . . . . . . . . . . . . . The Fund; Dividend and Distribution Policy;
Federal Income Taxation; Shareholder Services and Rights
7 . . . . . . . . . . . . . . . . . . . . . . . . The Fund; Management of the Fund; Determination of Net
Asset Value; How to Purchase; Exchanges
8 . . . . . . . . . . . . . . . . . . . . . . . . The Fund; How to Redeem
9 . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
Statement of
Part B Additional Information
- ------ ----------------------
10 . . . . . . . . . . . . . . . . . . . . . . . . Cover page
11 . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
12 . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. of Form N-1A Caption
<S> <C>
13 . . . . . . . . . . . . . . . . . . . . . . . . Investment Policies and Restrictions; Investment Practices;
Appendix A
14 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
15 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
16 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund; General Fund Information
17 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
18 . . . . . . . . . . . . . . . . . . . . . . . . General Fund Information
19 . . . . . . . . . . . . . . . . . . . . . . . . General Fund Information
20 . . . . . . . . . . . . . . . . . . . . . . . . Federal Income Taxation (in the Prospectus)
21 . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
22 . . . . . . . . . . . . . . . . . . . . . . . . General Fund Information
23 . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
Part C . . . . . . . . . . . . . . . Other Information
- ------ -----------------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 4
NOTE
This Post-Effective Amendment is being filed to register shares of a
newly created portfolio of William Blair Mutual Funds, Inc., the Value
Discovery Fund. Shares of the Value Discovery Fund are offered by a separate
prospectus and statement of additional information. This post-effective
amendment incorporates by reference the prospectuses and statements of
additional information for the Growth Fund, International Growth Fund, Ready
Reserves Fund, and Income Fund, other series of the Registrant, filed in
Post-Effective Amendment No. 13 under the Securities Act of 1933 to the
registration statement for William Blair Mutual Fund, Inc. (File No. 33-17463).
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
WILLIAM BLAIR & COMPANY
LIMITED LIABILITY
COMPANY
SUBJECT TO COMPLETION
NOVEMBER 13, 1996
PROSPECTUS / DECEMBER , 1996
WILLIAM BLAIR
MUTUAL FUNDS, INC.
- --------------------------------------------------------------------------------
William Blair Mutual Funds, Inc. (the "Fund") is a no-load, open-end diversified
mutual fund consisting of five portfolios, each with its own investment
objective and policies. For most purposes, each portfolio operates like a
separate mutual fund. One of the portfolios, the Value Discovery Fund, is
offered by this Prospectus.
The Value Discovery Fund's investment objective is to seek long-term capital
appreciation. The Fund pursues its objective by investing with a value
discipline primarily in the securities of small companies.
This Prospectus contains a concise statement of information about the Value
Discovery Fund that a prospective investor should know before investing and
should be retained for future reference. A Statement of Additional Information
for the portfolio, dated December , 1996, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. The Statement
of Additional Information is available upon request and without charge by
calling or writing the Fund.
<TABLE>
<S> <C>
WILLIAM BLAIR MUTUAL FUNDS, INC. TRANSFER AGENT
222 West Adams Street State Street Bank and Trust Company
Chicago, Illinois 60606 P.O. Box 9104
(312) 364-8000 Boston, MA 02266-9104
1-800-635-2886
(Massachusetts 1-800-635-2840)
</TABLE>
INVESTMENT ADVISER
William Blair & Company, L.L.C.
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.
<PAGE> 6
CONTENTS OF PROSPECTUS -
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES...................................... 1
THE FUND...................................................... 2
INVESTMENT OBJECTIVES AND POLICIES............................ 2
DETERMINATION OF NET ASSET VALUE.............................. 5
PERFORMANCE................................................... 6
DIVIDEND AND DISTRIBUTION POLICY.............................. 6
MANAGEMENT OF THE FUND........................................ 6
HOW TO PURCHASE............................................... 8
HOW TO REDEEM................................................. 11
EXCHANGES..................................................... 12
FEDERAL INCOME TAXATION....................................... 13
SHAREHOLDER SERVICES AND RIGHTS............................... 14
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Fund or its distributor. The Prospectus does not constitute
an offering by the Fund or its distributor in any jurisdiction in which such
offering may not lawfully be made.
<PAGE> 7
SUMMARY OF FUND EXPENSES -
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
- -------------------------------------
Maximum sales load imposed on purchases............................................ None
Maximum sales load imposed on reinvestments........................................ None
Deferred sales load................................................................ None
Redemption fee..................................................................... None
ANNUAL FUND OPERATING EXPENSES:
- ------------------------------------
(as a percentage of average daily net assets)
Management advisory fee............................................................ 1.15%
Other expenses..................................................................... .35
12b-1 fee.......................................................................... None
Total operating expenses (after expense reimbursement)............................. 1.50%*
</TABLE>
*During the portfolio's first year of operation, the Fund's Adviser has agreed
to voluntarily absorb other operating expenses if total operating expenses
exceed 1.50% of the portfolio's average daily net assets.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS
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<S> <C> <C>
A shareholder would incur the following
expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of
each time period. $ 15 $48
</TABLE>
The purpose of this example is to assist the shareholder in understanding the
various costs and expenses that an investor in the portfolio may bear directly
or indirectly. The example should not be considered to be a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The portfolio commenced operation on or about December , 1996; thus,
"Other expenses" shown above are based on the annualized estimates for the
current fiscal year. Without the Adviser's voluntary absorption of expenses, the
portfolio's total operating expenses are estimated to be 1.95%. The example
assumes a 5% annual rate of return pursuant to requirements of the Securities
and Exchange Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of the portfolio.
1
<PAGE> 8
THE FUND -
William Blair Mutual Funds William Blair Mutual Funds, Inc. (the "Fund") is a
are no-load, which means no-load, open-end diversified mutual fund
you don't pay a sales consisting of five portfolios, each with its own
charge. investment objective and policies. The Fund, which
was established as a Maryland corporation on
September 22, 1987, is managed by the investment
professionals of William Blair & Company, L.L.C.
(the "Adviser"). For most purposes, each portfolio
operates like a separate mutual fund. One of the
portfolios, the Value Discovery Fund, is described
in this prospectus.
For information about how to purchase and redeem
shares, see "How To Purchase" and "How To Redeem."
The investment objective and policies for the
portfolio are set forth in detail below. In
addition, the Fund has adopted certain investment
restrictions for the portfolio that are presented
in the portfolio's Statement of Additional
Information. The investment objective, together
with the fundamental investment restrictions cannot
be changed without approval by holders of a
majority of the portfolio's outstanding voting
shares. As defined in the Investment Company Act of
1940 (the "1940 Act"), this means the lesser of the
vote of (a) 67% of the shares of the portfolio at a
meeting where more than 50% of the outstanding
voting shares are present in person or by proxy; or
(b) more than 50% of the outstanding voting shares
of the portfolio. Investment techniques and
investment policies described below or in the
Statement of Additional Information that are not
fundamental may be changed by the Board of
Directors without shareholder approval.
INVESTMENT OBJECTIVES AND POLICIES -
VALUE DISCOVERY FUND
The portfolio's objective The Value Discovery Fund's investment objective is
is long-term capital to seek long-term capital appreciation. The
appreciation. portfolio pursues its objective by investing with a
value discipline primarily in the equity securities
of small companies. In selecting companies for
investment, the Adviser considers the extent to
which a company meets the investment criteria set
forth below. The weight given to particular
investment criteria will depend on the
circumstances, and some portfolio holdings may not
meet all these criteria. The Adviser will evaluate
companies generally based upon the following
criteria:
- MATERIAL PRICE/VALUE DISPARITY. The Adviser will
evaluate whether the company's current market value
reflects a material discount from the Adviser's
estimate of the company's market value. This
discount is considered material when it provides an
adequate return opportunity compared to alternative
small company investments. The Adviser believes
that the short-term market assessment of a
company's value can differ materially from a
long-term perspective. Therefore, Price/Value
disparities can result from particular industries
and companies currently being in disfavor in the
market. As the reasons for market disfavor
dissipate, a market reassessment can result in
price appreciation. However, there is no guarantee
that this will result in market appreciation for a
company. Generally, the Adviser will assess whether
a company's share
2
<PAGE> 9
price appears to be inexpensive relative to any of
the following: sales, projected earnings, projected
cash flow, discounted cash flow, asset values and
liquidation value.
- PROBABLE EXPANSION IN PROFITABILITY. The Adviser
will determine whether the company has a reasonable
expectation of improving its level of profitability
over a three year investment horizon. The Adviser
believes an expansion in profit margins generally
results in appreciation of the company's market
valuation. Therefore, the Adviser will look for
companies that it believes have the potential for
normal, sustainable levels of profitability greater
than their current levels. Factors used to assess
the normal level of future profitability for a
company include industry profit levels and
competitiveness, the company's competitive
advantages and its business strategy.
- SKILLED AND COMMITTED MANAGEMENT. The Adviser
will evaluate whether the company has a capable and
skilled management team, and a clearly articulated
and logical business strategy with a reasonable
probability of successful execution. Generally,
this determination will be made through due
diligence with management, which often includes on-
site meetings. Factors used to assess management's
ability to execute its business strategy include
tangible evidence of prior business success and
management's level of financial commitment to the
company through equity ownership.
- STRONG CAPITAL STRUCTURE. The Adviser will
evaluate whether the company has a relatively
simple, clean financial structure without excessive
use of financial leverage. In addition, the company
should adhere to conservative and straightforward
accounting practices.
- POSITIVE CATALYST. The Adviser will evaluate the
likelihood that the company will undergo a positive
corporate change within a three-year investment
horizon. Examples of positive corporate changes may
include: successful execution of the business plan,
acquisitions, mergers, spin-offs, divestitures, new
products and management additions or changes. The
portfolio seeks to invest in companies before a
positive catalyst becomes apparent to the market.
INVESTMENT RISKS. All investments are subject to
market fluctuations and financial risks. Small
company investments, which have less liquidity and
potentially experience greater market volatility
and financial risk than larger company investments,
tend to involve greater than average risk and
potential reward. In general, the prices of small
cap companies may be more volatile than those of
larger companies; the securities of smaller
companies may have less market liquidity, and
smaller companies may be more likely to be
adversely affected by poor economic or market
conditions. From time to time, the portfolio may
invest in the equity securities of very small
companies, often referred to as "micro cap"
companies. The considerations noted above are
generally intensified for these investments.
Generally, most of the portfolio will be invested
in common stocks, but debentures and preferred
stocks may be held if convertible into common
stocks that meet the investment criteria of the
portfolio. Such debentures are likely to be
lower-rated or non-rated securities, which
generally involve more credit risk than debentures
in the higher rating categories,
3
<PAGE> 10
and generally include some speculative
characteristics. If significant adverse market
action is anticipated, investment grade debt
securities may be held without limit as a temporary
defensive measure. Normally, the portfolio does not
purchase securities with a view to quick turnover
for capital gains.
ADDITIONAL INVESTMENT INFORMATION. The portfolio's
turnover rate may vary significantly from year to
year. Although the portfolio does not intend to
trade securities for short-term profit, there is no
limitation on the length of time securities must be
held by the portfolio prior to being sold. A higher
portfolio turnover rate would involve
correspondingly higher transaction costs, which
would be borne directly by the portfolio. Although
the portfolio cannot accurately predict its annual
portfolio turnover rate, under normal circumstances
it is not expected to exceed 100%.
The portfolio may not borrow money, except it may
borrow up to 10% of the value of its total assets
as a temporary measure for extraordinary or
emergency purposes, such as in order to help meet
redemption requests, but not for leverage purposes.
As a matter of fundamental policy, the portfolio
will not purchase the securities of any issuer if,
as a result: (i) with respect to 75% of the Fund's
total assets, more than 5% of its total assets
would be invested in such issuer or the Fund would
own more than 10% of the outstanding voting
securities of such issuer; or (ii) more than 25% of
its assets would be concentrated in any one
industry. These limitations do not apply to U.S.
government securities.
This section describes the types of investments
which the portfolio may use in an effort to achieve
its investment objective and also describes the
risks associated with such investment techniques.
In addition, the portfolio may invest to a limited
extent in futures, repurchase agreements and
warrants. These and other techniques and
investments and their related risks are described
in more detail in the Statement of Additional
Information.
REAL ESTATE INVESTMENT TRUSTS. The portfolio may
invest up to 15% of its total assets in real estate
investment trusts ("REITs"). REITs are subject to
volatility from risks associated with investments
in real estate and investments dependent on income
from real estate, such as fluctuating demand for
real estate and sensitivity to adverse economic
conditions. In addition, the failure of a REIT in
which the portfolio has invested to continue to
qualify as a REIT for tax purposes would have an
adverse effect upon on the value of the Fund's
investment.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From
time to time, in the ordinary course of business,
the portfolio may purchase newly-issued securities
appropriate for the portfolio on a "when-issued"
basis and may purchase or sell securities
appropriate for the portfolio on a "delayed
delivery" basis. When-issued or delayed delivery
transactions involve a commitment by the portfolio
to purchase or sell particular securities with
payment and delivery to take place at a future
date. These transactions allow the portfolio to
lock in an attractive purchase price or yield on a
security the portfolio intends to purchase.
Normally, settlement occurs within one month of the
purchase or sale. During the period between
4
<PAGE> 11
purchase and settlement, no payment is made or
received by the portfolio and, for delayed delivery
purchases no interest accrues to the portfolio.
Because the portfolio is required to set aside
liquid securities at least equal in value to its
commitments to purchase when-issued or delayed
delivery securities, the Adviser's ability to
manage the portfolio's assets may be affected by
such commitments. The portfolio will only make
commitments to purchase securities on a when-issued
or delayed delivery basis with the intention of
actually acquiring the securities, but it reserves
the right to sell them before the settlement date
if deemed advisable.
ILLIQUID SECURITIES. The portfolio may invest up to
15% of its net assets in illiquid securities.
Illiquid securities are those securities that are
not readily marketable, including restricted
securities and repurchase obligations maturing in
more than seven days.
FOREIGN SECURITIES. The portfolio may invest up to
5% of its net assets in foreign securities,
including American Depository Receipts. Such
securities may entail risks not associated with
domestic securities. The prices of such securities
may be more volatile, there may be less publicly
available information about foreign issuers and
many foreign issuers are not subject to uniform
accounting, auditing and financial reporting
standards comparable to those applicable to
domestic issuers.
DETERMINATION OF NET ASSET VALUE -
How the daily price of the
portfolio is calculated. Net asset value per share for the portfolio will be
determined as of the earlier of 3:00 p.m., Chicago
time, or the close of business on the New York
Stock Exchange on each day on which that Exchange
is open and on each other day on which there is
sufficient trading in the portfolio's investments
that it might materially affect the net asset
value, except that the net asset value will not be
computed on a day on which no orders to purchase
shares were received and no shares were tendered
for redemption. As of such time, quotations of
foreign securities in foreign currencies are
converted into the U.S. dollar equivalents at the
prevailing market rates as computed by Investors
Bank & Trust Company, custodian of the portfolio's
assets. The per share net asset value is determined
by dividing the value of the portfolio's assets,
less its liabilities, by the number of its shares
outstanding.
The market value of portfolio securities is
determined by valuing securities traded on national
securities markets at the last sale price or, in
the absence of a recent sale on the date of
determination, at the latest bid price. Securities
for which market quotations are not available, and
all other assets, are appraised at fair value as
determined in good faith by the Board of Directors.
Fixed-income securities are valued by using market
quotations, independent pricing services that use
prices provided by market makers or matrixes
producing estimates of market values obtained from
yield data relating to instruments or securities
with similar characteristics. Other securities, and
all other assets, are appraised at a fair value as
determined in good faith by or under the direction
of the Board of Directors. Short-term securities
are valued at their amortized cost, which means
their acquisition cost adjusted for the
amortization of the premium or discount.
5
<PAGE> 12
PERFORMANCE -
How the portfolio measures
its total return. From time to time, the portfolio may advertise
several types of performance information, including
"average annual total return" and "total return."
Each of these figures is based upon historical
results and is not necessarily representative of
the future performance of the portfolio.
Average annual total return and total return
figures measure both the net investment income
generated by, and the effect of any realized or
unrealized appreciation or depreciation of, the
underlying investments in the portfolio for the
period in question, assuming the reinvestment of
all dividends during the period. Thus, these
figures reflect the change in the value of an
investment in the portfolio during a specified
period. Average annual total return will be quoted
for at least the one-, five-, ten-year or since
inception periods, as applicable ending on the most
recent calendar quarter. Average annual total
return figures are annualized and, therefore,
represent the average annual percentage change over
the period in question. Total return figures are
not annualized and represent the aggregate
percentage or dollar value change over the period
in question.
The portfolio's returns and net asset value will
fluctuate. More information concerning the
portfolio's performance appears in the Statement of
Additional Information.
DIVIDEND AND DISTRIBUTION POLICY -
The Fund's policy is to distribute substantially
all net investment income and all net realized
capital gain, if any. Normally, all distributions
of income and capital gains, if any, will be paid
in December.
All distributions of income and capital gain have
the effect of immediately thereafter decreasing the
net asset value per share. Income dividends and
capital gain distributions will be automatically
reinvested in additional shares of the portfolio at
net asset value on the reinvestment date, unless
the shareholder specifically requests otherwise.
The shareholder can ask that income dividends or
capital gain distributions or both be paid in cash.
Cash payments are made by the Fund's Dividend
Paying Agent, State Street Bank and Trust Company,
shortly following the reinvestment date.
The Fund may vary these dividend practices at any
time. Income dividends and any capital gain
distributions will vary from year to year.
Dividends and distributions may be subject to
withholding as required by the Internal Revenue
Service. (See "Federal Income Taxation").
MANAGEMENT OF THE FUND -
BOARD OF DIRECTORS
Responsibility for overall management of the Fund
rests with its directors and officers, and their
duties include supervising the business affairs of
the Fund, monitoring investment activities and
practices, and considering and acting upon future
plans for the Fund. The business affairs and
investments of the Fund are managed on a day-to-day
basis by the Fund's Adviser.
6
<PAGE> 13
THE ADVISER
William Blair & Company, L.L.C., the Adviser, 222
West Adams Street, Chicago, Illinois 60606, is the
investment adviser and manager of the Fund and
provides the Fund with continuous professional
investment supervision. The Adviser is also the
principal underwriter and distributor
("Distributor") of the Fund and acts as agent of
the Fund in the sale of its shares. William Blair &
Company, L.L.C. was founded over 60 years ago by
William McCormick Blair. Today the firm has more
than 120 principals and 600 employees. The main
office in Chicago houses all research and
investment management services.
The Investment Management Department oversees the
assets of the five William Blair mutual funds,
along with corporate pension plans, endowments and
foundations, and individual accounts. The
department currently manages over $7 billion in
equities, fixed-income securities and cash
equivalents.
Clients are best served when portfolio managers are
encouraged to draw on their experience and develop
new ideas. This philosophy has helped build a
hard-working, results-oriented team of 23 portfolio
managers, supported by 25 analysts, with an
exceptionally low turnover rate. William Blair
portfolio managers average more than ten years with
William Blair and more than two decades experience
in the investment industry. The Adviser is
registered as an investment adviser under the
Investment Advisers Act of 1940.
Pursuant to its management agreement, the Adviser
directs the investment of the assets of the Fund,
and is responsible for the overall management of
the business affairs of the portfolios, subject to
the supervision of the Fund's Board of Directors.
The Adviser's duties include responsibility for
determining which investments to buy and sell,
placing brokerage and negotiating the terms of
securities transactions on behalf of the Fund. It
also provides various other services and
facilities.
THE PORTFOLIO'S MANAGEMENT TEAM
The portfolio is managed by Mr. Glen Kleczka, Ms.
Capucine Price and Mr. David Mitchell.
Glen Kleczka joined the Adviser in 1996 as
portfolio manager of the Value Discovery Fund. From
1989 to 1996 he was a partner in the Private
Markets and U.S. Equity groups of Brinson Partners,
Inc. His primary responsibility was the day-to-day
management of the firm's Post-Venture Fund, a
microcap stock fund that, using a value discipline,
emphasized companies previously backed by
professional venture capitalists. In addition, he
was a member of the firm's Private Markets
Committee which approved all investments in venture
capital deals and partnerships. Prior to joining
Brinson Partners, Inc. he spent two years at CNA
Financial Corp. as a co-manager of their Variable
Annuity Trust's $60 million equity allocation. His
educational background includes a B.S. in Finance
from Marquette University and an M.S. in Finance,
Investments and Banking from the University of
Wisconsin-Madison where he was a participant in the
Applied Securities Analysis and Investment
Management Program. He is a Chartered Financial
Analyst.
7
<PAGE> 14
Capucine "Cappy" Price joined the Adviser in 1996
as portfolio manager of the Value Discovery Fund.
From 1993 to 1996 she was a partner in the Private
Markets and U.S. Equity groups of Brinson Partners,
Inc. Her primary responsibility was investment
analysis for the firm's Post-Venture Fund, a
microcap stock fund that, using a value discipline,
emphasized companies previously backed by
professional venture capitalists. In addition, she
was a member of the firm's Private Markets
Committee which approved all investments in venture
capital deals and partnerships. Prior to joining
Brinson Partners, Inc., Ms. Price was associated
with the First National Bank of Chicago, initially
as a First Scholar, and subsequently as an equity
analyst covering the health care and media
industries. Her educational background includes a
B.A. in Economics from the University of Michigan,
an M.A. in Social Science from the University of
Chicago, and an M.M. in Finance from Northwestern
University Kellogg Graduate School of Management.
David Mitchell joined the Adviser in 1996 as
portfolio manager of the Value Discovery Fund.
Previously, he was a partner with Brinson Partners,
Inc. in the firm's U.S. Equity group assigned to
its Post-Venture Fund, a microcap stock fund that,
using a value discipline, emphasized companies
previously backed by professional venture
capitalists. Prior to joining Brinson Partners,
Inc. in the first half of 1996, he spent four years
as co-manager of Thomas Paine Investors, L.P., a
limited partnership invested in entrepreneurial
companies. His educational background includes a
B.A. in Economics from Knox College and an M.M. in
Finance and Accounting from Northwestern University
Kellogg Graduate School of Management. He is a
Chartered Financial Analyst.
(See the Statement of Additional Information for
additional information on the Adviser.)
MANAGEMENT FEE
The Fund pays the Adviser a monthly management
advisory fee at an annual rate equal to 1.15% of
the average daily net assets of the portfolio.
EXPENSES
The Fund's expenses include: the management
advisory fees; transaction costs; interest; taxes;
legal, accounting, auditing, transfer agency and
custodial fees; and certain other operational
expenses. During the portfolio's first year of
operation, the Fund's Adviser has agreed to
voluntarily absorb any of the portfolio's expenses
that exceed 1.50% of the portfolio's average daily
net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
The Fund's Custodian is Investors Bank and Trust
Company, 89 South Street, Boston, Massachusetts
02205. The Fund's Transfer Agent and Dividend
Paying Agent is State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts
02110.
HOW TO PURCHASE -
How to buy shares of the
portfolio. An investor may make an initial purchase by
completing the "Application" form included with
this Prospectus, and sending it to the Distributor
or to the Fund's transfer agent, State Street Bank
and Trust
8
<PAGE> 15
Company ("State Street"), P.O. Box 9104, Boston,
Massachusetts 02266-9104, together with a check for
the amount of the investment made payable to
William Blair Mutual Funds, Inc. Subsequent orders
should also be sent to State Street or to the
Distributor.
All purchases are made at a price based on the net
asset value per share that is next computed after
receipt of the order in proper form by the
Distributor, the Transfer Agent or a designated
agent thereof. The Distributor or the Transfer
Agent may in certain cases make advance
arrangements with shareholders for telephone
processing of purchase orders with the payment made
by wire transfer of Federal Funds. If an order is
not paid for, the purchaser will be liable for any
loss to the Fund and, if the purchaser is a
shareholder, the Fund may redeem shares to pay such
loss.
The Fund's shares are sold continuously without a
sales load at a public offering price equal to the
net asset value next determined. The minimum
initial investment is $5,000 ($2,000 for IRAs). The
minimum for any subsequent investment is generally
$1,000. The portfolio may accept smaller amounts
under a group payroll deduction or similar plan.
These minimum amounts may be changed at any time
and may be waived for directors, principals,
officers or employees of the Fund or Adviser. In
addition, the Fund reserves the right to withdraw
all or any part of the offering made by this
Prospectus and the Fund or the Distributor may
reject purchase orders. Also, from time to time,
the Fund may temporarily suspend the offering of
its shares to new investors. During the period of
such suspension, persons who are already
shareholders of a portfolio would normally be
permitted to continue to purchase additional shares
of the portfolio, to have dividends reinvested and
to make redemptions. Fund shares are usually held
in open accounts, but the Fund will issue a
certificate for full shares on written request by a
shareholder. Unless payment for shares is made by
certified or cashier's check, a share certificate
will not be issued until 30 days after the purchase
is completed. In the interest of safekeeping and
expediting transfers and redemptions, most
shareholders prefer not to receive certificates.
If an investor purchases or redeems shares of the
Fund through an investment dealer, bank or other
institution, that institution may impose charges
for its services; these charges would reduce the
investor's yield or return. An investor may
purchase or redeem shares of the Fund directly from
or with the Fund's Distributor or its transfer
agent, State Street, without any such charges.
DIVIDEND REINVESTMENT PLAN. The Fund automatically
reinvests all income dividends and capital gain
distributions in additional shares of a portfolio's
stock at net asset value on the reinvestment date
(see "Dividend and Distribution Policy"). The
minimum initial investment under this plan is
$5,000 but the Fund may accept smaller amounts
under a group payroll-deduction or similar plan.
The minimum for IRAs is $2,000. The current minimum
amount for subsequent investments is $1,000. These
minimums are subject to change at any time.
CASH-DIVIDEND PLAN. All income dividends are paid
in cash, while all capital gain distributions are
automatically reinvested in additional shares at
net asset value on the reinvestment date. Upon
written
9
<PAGE> 16
instructions, the Fund will pay both income
dividends and capital gain distributions, if any,
in cash. The minimum initial investment under this
plan is the same as the Dividend Reinvestment Plan.
AUTOMATIC DEPOSIT OF DIVIDENDS. An investor may
elect to have all income dividends or capital gain
distributions automatically deposited in a
previously established bank account.
PRE-AUTHORIZED CHECK PLAN. An investor may specify
an amount (a minimum of $250) that is to be
invested on the 5th and/or 20th of each month, and
instruct State Street to send pre-authorized checks
for that amount to the investor's bank
automatically. In all other respects this plan is
the same as the Dividend Reinvestment Plan.
SYSTEMATIC WITHDRAWAL PLAN. Under this plan, which
may be established with shares presently held or
through a new investment (which the Fund suggests
be at least $5,000), a shareholder specifies a
dollar amount to be paid monthly, quarterly or
annually. Shares corresponding to the specified
dollar amount are automatically redeemed from the
account on the fifth business day preceding the end
of the month, quarter or the year. Such redemptions
are treated as sales for Federal income tax
purposes. While this plan is in effect, all income
dividends and capital gain distributions on shares
in the account will be reinvested at net asset
value in additional shares. There is no charge for
withdrawals, but the minimum withdrawal is $250 per
month. Depending on the size of payments requested,
and fluctuations in the net asset value of the
shares redeemed, redemptions under this plan may
reduce or even exhaust the shareholder's account.
RETIREMENT PLANS. The Fund has available Individual
Retirement Accounts ("IRAs"), under prototypes
approved by the Internal Revenue Service, which
invest in shares of the portfolios. Contributions
to IRAs are fully deductible only to (1) taxpayers
who are not active participants in an
employer-sponsored retirement plan, and (2)
taxpayers who are active participants in an
employer-sponsored plan but have adjusted gross
income below a specified level. Non-deductible
contributions are permitted.
The portfolio's shares also may be used with
respect to a Simplified Employee Pension Plan
("SEP"), under which an employer makes
contributions to all eligible employees' IRAs, or
with respect to qualified money purchase pension
and/or profit sharing plans.
Prototype forms of an IRA and qualified retirement
plans and a form of SEP, and additional information
concerning such plans, are available from the Fund.
State Street may act as custodian for the
portfolio's IRA and certain qualified retirement
plans. State Street charges a $5 plan establishment
fee, and there is also an annual $15 custodial fee,
and a $10 fee for each lump sum distribution from a
plan. These fees may be waived under certain
circumstances. Consultation with a professional tax
adviser is recommended both because of the
complexity of Federal tax law and because various
tax penalties are imposed for excess contributions
to, and late or premature distributions from, IRAs
or qualified retirement plans. Termination of a
plan shortly after its adoption may have adverse
tax consequences.
10
<PAGE> 17
With respect to these plans:
1. participation in all plans is voluntary;
2. the shareholder may terminate or change a plan
at any time without penalty or charge from the
Fund;
3. the Fund will pay any additional expenses that
it incurs in connection with such plans;
4. new applicants may select a plan or plans by
completing the application form included with
this Prospectus;
5. additional forms and further information may be
obtained by writing or calling the Fund;
6. the Fund reserves the right to change the
minimum amounts for initial and subsequent
investments or to terminate any of the above
plans;
7. the Fund reserves the right to waive investment
minimums at the discretion of the Distributor;
and
8. the Fund requires a copy of the trust agreement
when shares are to be held in trust.
HOW TO REDEEM -
How to sell your shares of
the portfolio. Redemption requests should be signed by all owners
and sent to State Street Bank and Trust Company,
P.O. Box 9104, Boston, Massachusetts 02266-9104 or,
for the Ready Reserves Fund only, to the
Distributor. Redemptions of the portfolio's shares
are made at the net asset value per share next
computed after State Street (or the Distributor)
receives in good order the redemption request, any
stock certificates (endorsed, or accompanied by an
endorsed stock power, to the order of the Fund) and
any necessary documents, such as an inheritance tax
consent or evidence of authority (such as letters
testamentary), dated not more than 60 days prior to
receipt thereof. ANY SINGLE REDEMPTION OF SHARES
HAVING A VALUE OF $5,000 OR MORE REQUIRES THAT
SIGNATURE(S) BE GUARANTEED BY A BANK THAT IS A
MEMBER OF THE FDIC, BY A BROKERAGE FIRM THAT IS A
MEMBER OF THE NASD OR AN ELIGIBLE GUARANTOR WHO IS
A MEMBER OF, OR A PARTICIPANT IN, A SIGNATURE
GUARANTEE PROGRAM. Signature guarantee(s), if
required, must appear on the written redemption
request and any endorsed stock certificate or stock
power.
Payment normally will be mailed by the third
business day after the receipt by State Street of a
redemption request and any required documentation
(and after any checks in payment for the shares
have cleared). A redeeming shareholder may arrange
with State Street to wire redemption proceeds.
Redemption requests should not be sent to the Fund
or to the Distributor, and doing so will delay
their receipt by State Street; a shareholder who
sends a redemption request to the Fund or to the
Distributor takes the risk of any decrease in net
asset value per share during the delay. State
Street may in certain cases make advance
arrangements for telephone processing of redemption
requests.
11
<PAGE> 18
The price received by a shareholder on redemption
may be more or less than cost, depending on the net
asset value at the time of redemption. Redemptions
will be treated for Federal income tax purposes as
sales, and a gain (or loss) will be recognized if
the redemption proceeds are more (or less) than the
adjusted basis (usually the cost) of the redeemed
shares.
Fund shares may be transferred by a written request
addressed to the Fund and delivered to State Street
giving the name and social security or taxpayer
identification number of the transferee, and
accompanied by the same signature guarantees and
documents as would be required for a redemption,
together with specimen signatures of all
transferees.
REQUESTS FOR CHANGES IN REGISTRATION OR FOR
REDEMPTION OR DIVIDEND CHECKS TO BE SENT TO A PLACE
OTHER THAN THE ADDRESS OF RECORD, REGARDLESS OF
AMOUNT, MUST CONTAIN A SIGNATURE GUARANTEE BY A
BANK THAT IS A MEMBER OF THE FDIC, BY A BROKERAGE
FIRM THAT IS A MEMBER OF THE NASD, OR BY AN
ELIGIBLE GUARANTOR WHO IS A MEMBER OF, OR A
PARTICIPANT IN, A SIGNATURE GUARANTEE PROGRAM.
Redemption requests for shares held in a retirement
plan established under the Fund's prototype forms
should be processed through the plan's custodian.
Such requests are effective at the net asset value
per share that is next computed after the custodian
receives the request and any necessary
documentation.
AUTOMATIC REDEMPTION OF SMALL ACCOUNTS. Due to the
relatively high cost of maintaining small accounts,
the Fund reserves the right to redeem the shares in
any account that, following a redemption, is below
a specified amount. Currently, the minimum is
$5,000. Shareholders will be notified that the
values of their accounts have fallen below the
minimum and allowed two months to make an
additional investment before the redemption will be
processed.
EXCHANGES -
William Blair Mutual Funds
may be exchanged at no charge:
- - Growth Fund Subject to the following limitations, shares of the
William Blair Mutual Funds may be exchanged for
- - Value Discovery Fund each other at their relative net asset values so
long as the portfolio to be acquired is registered
- - International Growth Fund in the shareholder's state of residence. There is
no service fee for an exchange; however, only four
- - Income Fund (4) exchanges from a portfolio are allowed within
any 12-month period. Exchanges will be effected by
- - Ready Reserves Fund redemption of shares of the portfolio held and
purchase of shares of the other portfolio or
portfolios requested. Investors should have the
current prospectus for the portfolio into which
they wish to exchange. For Federal income tax
purposes, any such exchange constitutes a sale upon
which a gain or loss will be realized, depending
upon whether the value of the shares being
exchanged is more or less than the shareholder's
adjusted cost basis.
Exchanges may be made by a written request to
William Blair Mutual Funds, Inc., Attention:
Exchange Department, P.O. Box 9104, Boston, MA
02266-9104, or by telephone if an exchange
authorization as provided on the account
application is on file with State Street. Once the
telephone authorization is on file, State Street
Bank will honor requests by any person by telephone
at 1-800-635-2886 (in Massachusetts call
12
<PAGE> 19
1-800-635-2840). Any certificates for shares must
be deposited prior to any exchange of such shares.
Neither the Fund nor its transfer agent will be
liable for any loss, expense or cost arising out of
any telephone request pursuant to the telephone
exchange privilege, including any fraudulent or
unauthorized request, and the shareholder will bear
the risk of loss, so long as the portfolio or its
transfer agent reasonably believes, based upon
reasonable verification procedures, that the
telephonic instructions are genuine. The
verification procedures include recording
instructions, requiring certain identifying
information before acting upon instructions and
sending written confirmations.
FEDERAL INCOME TAXATION -
How your income and
distributions are taxed. The portfolio intends to qualify as a regulated
investment company under Subchapter M of the
Internal Revenue Code and, if so qualified, will
not be liable for Federal income taxes to the
extent its earnings are distributed. Dividends
derived from taxable net investment income and net
short-term capital gains are taxable to
shareholders as ordinary income, and long-term
capital gain distributions are taxable to
shareholders as long-term capital gains regardless
of how long the shares have been held and whether
received in cash or shares. Long-term capital gain
dividends received by individual shareholders
generally are taxed at a maximum rate of 28%.
Long-term capital gain dividends received by
corporate shareholders are taxed at the same rates
as ordinary income. Dividends declared by the Fund
in October, November or December to shareholders of
record as of a date in one of those months and paid
before the following February 1 are treated as
having been paid on December 31 of the calendar
year declared for Federal income tax purposes.
The portfolio intends to declare and make
distributions during the calendar year of an amount
sufficient to prevent imposition of a 4% non-
deductible federal excise tax. The required
distribution generally is the sum of 98% of the
portfolio's net investment income for the calendar
year plus 98% of its capital gain net income for
the one-year period ending October 31 plus the sum
of any undistributed net investment income and
capital gain net income from the prior year less
any over-distribution from the prior year.
A dividend or distribution received shortly after
the purchase of shares reduces the net asset value
of the shares by the amount of the dividend or
distribution and, although in effect a return of
capital, will be subject to income taxes. If the
net asset value of shares were reduced below the
shareholder's cost by dividends representing gains
realized on sales of securities, such dividends
would be a return of investment though taxable as
stated above.
A shareholder who redeems shares of the Fund will
recognize capital gain or loss for Federal income
tax purposes measured by the difference between the
value of the shares redeemed and the basis of the
shares. Any loss recognized on the redemption of
Fund shares held six months or less will be treated
as long-term capital loss to the extent the
shareholder has received any long-term capital gain
dividends on such shares. It is anticipated that a
portion of the ordinary income dividends
13
<PAGE> 20
for the portfolio will be eligible for the
dividends-received deduction available for
corporate shareholders.
The Fund is required to withhold Federal income tax
at the rate of 31% (commonly called "backup
withholding") from taxable distributions to
shareholders who do not furnish the Fund with a
taxpayer identification number (in the case of
individuals, their social security number) or in
other circumstances where shareholders have not
complied with Internal Revenue Service regulations.
Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold
20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20%
withholding requirement does not apply to
distributions from Individual Retirement Accounts
or any part of a distribution that is transferred
directly to another qualified retirement plan,
403(b)(7) account, or IRA. Shareholders should
consult their tax advisers regarding the 20%
withholding requirement.
SHAREHOLDER SERVICES AND RIGHTS -
CONFIRMATIONS. Each purchase or redemption
transaction is confirmed to the shareholder, giving
details of the purchase or redemption, with the
number of shares computed to the third decimal
place.
FISCAL YEAR. The Fund's fiscal year is the calendar
year.
REPORTS. Each shareholder receives an audited
annual report and an unaudited semi-annual report.
SHAREHOLDER RIGHTS. All shares of the portfolio
have equal noncumulative voting rights and equal
rights with respect to dividends, assets and
liquidation of the portfolio. Shares of the
portfolio have equal noncumulative voting rights
and will be voted in the aggregate, except when a
separate vote by portfolio is required under the
1940 Act.
Shares are fully paid and nonassessable when
issued, are transferable without restriction and
have no preemptive or conversion rights. Under
Maryland law, the Fund is not required to hold
shareholder meetings on an annual basis. It will,
however, hold shareholder meetings as required by
law, when a sufficient number of shareholders
request a meeting or as deemed desirable by the
Board of Directors, for such purposes as electing
or removing directors, changing fundamental
policies or approving an investment management
agreement. Additional information about shareholder
voting rights is contained in the Statement of
Additional Information.
SHAREHOLDER INQUIRIES. Shareholders may make
inquiries by writing or calling State Street or the
Distributor, as shown on the cover.
14
<PAGE> 21
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES
NOT CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION
NOVEMBER 13, 1996
WILLIAM BLAIR & COMPANY, L.L.C.
WILLIAM BLAIR MUTUAL FUNDS, INC.
VALUE DISCOVERY FUND
222 WEST ADAMS STREET
CHICAGO, ILLINOIS 60606
(312) 364-8000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of William Blair Mutual Funds, Inc. (the
"Fund") - Value Discovery Fund (the "portfolio") dated December , 1996. The
Prospectus may be obtained without charge by writing or calling the Fund.
-------------------------
<TABLE>
<S> <C>
MANAGEMENT OF THE FUND................................................................ 2
Investment Adviser and Distributor............................................... 2
Directors and Officers........................................................... 3
Brokerage and Portfolio Transactions............................................. 4
Investment Policies and Restrictions............................................. 5
INVESTMENT PRACTICES.................................................................. 7
Borrowing........................................................................ 7
Foreign Securities............................................................... 7
Futures.......................................................................... 8
Illiquid Securities.............................................................. 8
Repurchase Agreements............................................................ 9
Restricted Securities............................................................ 9
Small Companies.................................................................. 10
Warrants......................................................................... 10
When-Issued or Delayed Delivery Transactions..................................... 10
GENERAL FUND INFORMATION.............................................................. 11
Redemptions...................................................................... 11
Determination of Net Asset Value................................................. 11
Performance...................................................................... 11
Taxes............................................................................ 12
Independent Auditors And Reports To Shareholders................................. 12
Custodian And Shareholder Services............................................... 12
Retirement Plans................................................................. 13
SHAREHOLDER RIGHTS.................................................................... 13
FUND HISTORY.......................................................................... 14
APPENDIX A............................................................................ A-1
</TABLE>
-------------------------
December , 1996
<PAGE> 22
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND DISTRIBUTOR
As stated in the Prospectus, William Blair & Company, L.L.C. ("Adviser") is the
Fund's investment adviser and manager. Pursuant to an investment advisory and
management agreement, the Adviser acts as the Fund's adviser, manages its
investments, administers its business affairs, furnishes office facilities and
equipment, provides clerical, bookkeeping and administrative services, provides
shareholder and information services and permits any of its principals or
employees to serve without compensation as directors or officers of the Fund if
elected to such positions. In addition to the management advisory fee, each
portfolio pays the expenses of its operations, including a portion of the Fund's
general administrative expenses, allocated on the basis of the portfolio's net
asset value. Expenses that will be borne directly by the portfolios include, but
are not limited to, the following: the fees and expenses of independent
auditors, counsel, custodian and transfer agent, costs of reports and notices to
shareholders, stationery, printing, postage, costs of calculating net asset
value, brokerage commissions or transaction costs, taxes, registration fees, the
fees and expenses of qualifying the Fund and its shares for distribution under
Federal and state securities laws and membership dues in the Investment Company
Institute or any similar organization.
The advisory agreement for a portfolio continues in effect from year to year for
so long as its continuation is approved at least annually (a) by a majority of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund and (b) by the
shareholders of the portfolio or the Board of Directors. The agreement may be
terminated at any time upon 60 days notice by either party; the Fund may so
terminate the agreement either by vote of the Board of Directors or by majority
vote of the outstanding shares of the affected portfolio. The agreement may also
be terminated at any time either by vote of the Board of Directors or by
majority vote of the outstanding voting shares of the subject portfolio if the
Adviser were determined to have breached the agreement. The agreement would
terminate automatically upon assignment. The agreement provides that the Adviser
shall not be liable for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.
Upon termination of the agreement, and when so requested by the Adviser, the
Fund will refrain from using the name "William Blair" in its name or in its
business in any form or combination.
For the services and facilities furnished to the Value Discovery Fund, the Fund
pays a monthly management advisory fee at an annual rate of 1.15% of the
portfolio's average daily net assets. The advisory fee is accrued daily and paid
monthly on the first business day of the following month.
The Adviser voluntarily has agreed to reimburse the portfolio during its first
year of operation should all operating expenses, including the compensation of
the Adviser but excluding taxes, interest, extraordinary expenses and brokerage
commissions or transaction costs, exceed 1.50% of average daily net assets of
the portfolio.
William Blair & Company, L.L.C. also is the principal underwriter and
distributor ("Distributor") for shares of the Fund and acts as agent of the Fund
in the sale of its shares. The offering of shares is continuous, although the
Distributor and the Fund reserve the right to cease the offer of shares at any
time. The Distributor pays for the printing and distribution of copies of the
prospectus and shareholder reports used in connection with the offering of
shares to prospective investors. The Distributor also pays for supplementary
sales literature and advertising costs. Terms of continuation, termination and
assignment under the underwriting agreement are substantially the same as those
described above with regard to the advisory agreement, except that termination
other than upon assignment or upon determination of breach requires six months'
notice.
2
<PAGE> 23
Messrs. Barber, Fischer, Fuller, and Ms. Gassmann, Messrs. Greig, Kaplan,
Kayser, McMullan, Myer, Rucinski, Sullivan, Truderung and Truettner, who are
directors or officers of the Fund, are also principals or employees of the
Adviser/Distributor as indicated under "Directors and Officers."
The Adviser/Distributor is a limited liability company, the affairs of which are
controlled by all its principals, none of whom owns more than 25% of the firm.
The Chief Executive Officer of the firm is E. David Coolidge, III and the
Executive Committee is comprised of Harvey Bundy, III, E. David Coolidge, III,
Conrad Fischer, Edgar D. Jannotta, John P. Kayser, Richard P. Kiphart, Albert J.
Lacher, James D. McKinney and James M. McMullan.
DIRECTORS AND OFFICERS
The directors and officers of the Fund, their ages, their principal occupations
during the last five years, their affiliations, if any, with William Blair &
Company, L.L.C. and other significant affiliations are set forth below. Unless
otherwise noted, the address of each officer and director is 222 West Adams
Street, Chicago, Illinois 60606.
CONRAD FISCHER (62),* (2) Chairman of the Board and Director; Principal, William
Blair & Company, L.L.C.; and Trustee Emeritus, Chicago Child Care Society, a
non-profit organization.
VERNON ARMOUR (69), (1) (2) (3) Director; 135 South LaSalle St., Suite 1117,
Chicago, Illinois 60603; Private investor; Trustee, Illinois Institute of
Technology and Northwestern Memorial Hospital; Director and President, OTHO S.A.
Sprague Memorial Institute; Life Trustee, Illinois Institute of Technology; and
Life Trustee, Northwestern Memorial Hospital.
GEORGE KELM (68), (1) (3) Director; Three First National Plaza, Suite 2000,
Chicago, Illinois 60602; Retired Chairman of the Board and Director, Sahara Coal
Company, Inc., and Sahara Enterprises, Inc.; Director, Rolf Jensen & Associates,
Inc.; Trustee, Lawrence University, Newberry Library and McCormick Theological
Seminary; President and Director, Woods Fund of Chicago; and Member of the
Visiting Committee, University of Chicago Graduate School of Social Service
Administration.
ANN P. McDERMOTT (57), (3) Director; Trustee, Rush Presbyterian St. Luke's
Medical Center; Women's Board, Rush Presbyterian St. Luke's Medical Center;
Honorary Director, Visiting Nurse Association; Director, Presbyterian Homes;
Northwestern University, Women's Board; University of Chicago, Women's Board;
Director, Washington State University Foundation.
JAMES M. McMULLAN (62),* Director; Principal, William Blair & Company, L.L.C.,
Director of Securities Industry Association.
JOHN B. SCHWEMM (62), (1) (3) Director; 2 Turvey Lane, Downers Grove, Illinois
60515; Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons
Company, printer; and Director, USG Corp., a building material product company
and Walgreen Co., a drug store chain.
W. JAMES TRUETTNER, JR. (65),* Director and Senior Vice President; Principal,
William Blair & Company, L.L.C.; and Director of the Glenview Foundation,
International Travel Services and Roberts Industries, Inc.
JAMES L. BARBER, JR. (45), President of the Fund and Chief Operating Officer of
the Growth Fund, Income Fund and Value Discovery Fund; Principal, William Blair
& Company, L.L.C.; Vice President and Secretary, LaRabida Hospital Foundation;
and President, Stanford Associates.
MARK A. FULLER, III (39), Senior Vice President; Principal, William Blair &
Company, L.L.C..
W. GEORGE GREIG (44), Senior Vice President; Portfolio Manager, William Blair &
Co., L.L.C.; formerly Portfolio Manager, Provident Capital Management; Manager
of Akamai, a partnership affiliated with Framlington Investment Management
Limited; and Partner, Pilgrim, Baxter & Greig.
BENTLEY M. MYER (50), Senior Vice President and Chief Operating Officer, Ready
Reserves Fund; Principal, William Blair & Company, L.L.C.; formerly Vice
President, LaSalle National Trust Co.
3
<PAGE> 24
NORBERT W. TRUDERUNG (44), Senior Vice President; Principal, William Blair &
Company, L.L.C.
JAMES S. KAPLAN (36), Vice President; Associate, William Blair & Company,
L.L.C.; formerly Vice President, First Union Bank.
JOHN P. KAYSER (47), Vice President; Principal, William Blair & Company, L.L.C.,
Director, DuPage Children's Museum.
TERENCE M. SULLIVAN (52), Vice President; Associate, William Blair & Company,
L.L.C..
WALTER RUCINSKI (52), Treasurer; Controller, William Blair & Company, L.L.C.;
and Treasurer, Foundation for Special Athletics; and Vice President of Koocanusa
Marina, Inc.
JANET V. GASSMANN (29), Secretary; Administrative Assistant, William Blair &
Company, L.L.C.; formerly, Administrative Assistant, Shearson Lehman Brothers,
Inc.
- --------------------------------------------------------------------------------
* Directors who are interested persons as defined in the Investment Company
Act of 1940.
(1) Member of the Standing Audit Committee.
(2) Member of Interim Valuation Committee. This committee handles any questions
regarding the valuation of portfolio securities that may arise between
meetings of the Board of Directors.
(3) Mr. Armour and Mr. Kelm maintain brokerage accounts with the Adviser and Ms.
McDermott and Mr. Schwemm employ the Adviser to manage assets that they
control. Mr. Kelm also serves as president and director of Woods Fund of
Chicago, a nonprofit organization for which William Blair & Company, L.L.C.
serves as investment adviser. In addition, as a result of his former
affiliation with the Adviser as a partner of William Blair & Company, L.L.C.
from 1973 to 1982, Mr. Armour has a beneficial interest in a Deferred Profit
Sharing Plan which is managed by the Adviser.
The directors and officers affiliated with the Adviser receive no compensation
from the Fund. Directors who are not affiliated with the Adviser currently
receive an annual fee of $4,000 plus $2,000 for each meeting attended in person
plus expenses.
The following table sets forth the compensation earned from the Fund for the
fiscal year ended December 31, 1995 by directors who are not affiliated with the
Adviser:
<TABLE>
<CAPTION>
PENSIONS OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL
COMPENSATION ACCRUED AS PART OF BENEFITS UPON TOTAL
FROM THE FUND FUND EXPENSES RETIREMENT COMPENSATION
------------- ------------------- ---------------- ------------
<S> <C> <C> <C> <C>
Vernon Armour....................... $ 9,000 0 0 $9,000
C. Mathews Dick, Jr.*............... $ 9,000 0 0 $9,000
George Kelm......................... $ 9,000 0 0 $9,000
John H. Olwin, M.D.*................ $ 8,500 0 0 $8,500
John B. Schwemm..................... $ 9,000 0 0 $9,000
John W. Straub...................... $ 9,000 0 0 $9,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Resigned as director effective as of May 1, 1996.
BROKERAGE AND PORTFOLIO TRANSACTIONS
Decisions on portfolio transactions (including the decision to buy or sell, the
appropriate price, allocation of brokerage, use of a broker as agent or dealer
as principal, and negotiation of commissions) are normally made by the Adviser.
In purchasing and selling portfolio securities, the Fund seeks to obtain the
most favorable overall result, taking into account the net price, the method of
execution and research services provided by the broker. Such research services
include economic forecasts and analytical, narrative and statistical reports on
industries and companies for consideration by the Fund and the Adviser's other
clients.
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<PAGE> 25
Portfolio transactions may increase or decrease the return of a portfolio
depending upon the Adviser's ability to correctly time and execute such
transactions. A portfolio turnover rate for any year is determined by dividing
the lesser of sales or purchases (excluding in either case cash equivalents,
such as short-term corporate notes) by the portfolio's monthly average net
assets, and multiplying by 100 (with all securities with maturities and
expirations of one year or less excluded from the computation). The portfolio's
turnover rate will also vary from year to year depending on market conditions.
Selection of a broker for a particular portfolio transaction depends on many
factors, some of which are subjective and which include the net price, the
confidentiality, reliability, integrity, the size and nature of the transaction
and the market in which it is to occur, and any research or other services that
the broker has provided. The Adviser determines the overall reasonableness of
brokerage commissions, and of premiums and discounts on principal transactions
(which do not involve commissions), by review of comparable trades for the
Adviser's other clients and in the market generally. If more than one broker is
believed to be equally qualified to effect a portfolio transaction, the Adviser
may assign the transaction to a broker that has furnished research services, but
the Adviser has no agreement, formula or policy as to allocation of brokerage.
The Fund does not ordinarily market its shares through brokers, and any sales of
the Fund's shares by a broker would be neither a qualifying nor disqualifying
factor in allocating brokerage.
The Fund may pay to brokers that provide research services to the Adviser a
commission higher than another broker might have charged if it is determined
that the commission is reasonable in relation to the value of the brokerage and
research services that are provided, viewed in terms of either the particular
transaction or the Adviser's overall responsibility to its advisory accounts.
The extent to which such commissions exceed commissions solely for execution
cannot be determined, but such research services, which are involved in
portfolio transactions for the Fund and for the Adviser's other advisory
accounts, can be of benefit to both the Fund and such other accounts. The value
of research services that are provided by brokers who handle portfolio
transactions for the Fund cannot be precisely determined, and such services are
supplemental to the Adviser's own efforts, which are undiminished thereby. The
Adviser does not believe that their expenses are reduced by reason of such
services, which benefit the Fund and the Adviser's other clients. Transactions
in over-the-counter securities are generally executed as principal trades with
primary market makers, except where it is believed that a better combination of
price and execution could otherwise be obtained.
The investment decisions for the Fund are reached independently from those for
other accounts managed by the Adviser. Such other accounts also may make
investments in the same type of instruments or securities as the Fund at the
same time as the Fund. When two or more accounts have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases this
procedure may affect the size or price of the position obtainable for the Fund.
However, it is the opinion of the Board of Directors that the benefits available
because of the Adviser's organization outweigh any disadvantages that may arise
from exposure to simultaneous transactions.
No portfolio transactions are executed for the Fund with or through the Adviser
or any affiliated broker-dealer of the Adviser. The Fund may purchase securities
from other members of an underwriting syndicate of which the Adviser or an
affiliated broker-dealer is a participant, but only under conditions set forth
in applicable rules of the Securities and Exchange Commission and in accordance
with procedures adopted and reviewed periodically by the Board of Directors.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions for the
Value Discovery Fund which, together with the portfolio's investment objective,
cannot be changed without the approval of a "majority of the outstanding voting
securities" of the portfolio, which is defined in the Investment Company Act of
1940 (the "1940 Act") to mean the lesser of (a) 67% of the shares of the
portfolio present at a meeting where more than 50% of the outstanding voting
shares are present in person or by proxy, or (b) more than 50% of the
outstanding voting shares of the portfolio. All percentage restrictions on
investments apply at the time the investment is made and shall not be considered
to violate the limitations unless, immediately after or as a result of the
investment, a violation of the restrictions occurs.
5
<PAGE> 26
The Value Discovery Fund:
1. May not with respect to 75% of its total assets, purchase the securities of
any issuer (except securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities) if, as a result, (i) more than 5% of the
portfolio's total assets would be invested in the securities of that issuer, or
(ii) the portfolio would hold more than 10% of the outstanding voting securities
of that issuer.
2. May (i) borrow money from banks and (ii) make other investments or engage in
other transactions permissible under the Investment Company Act of 1940 (the
"1940 Act") which may involve a borrowing, provided that the combination of (i)
and (ii) shall not exceed 33 1/3% of the value of the portfolio's total assets
(including the amount borrowed), less the portfolio's liabilities (other than
borrowings), or such other percentage permitted by law, except that the
portfolio may borrow up to an additional 5% of its total assets (not including
the amount borrowed) from a bank for temporary or emergency purposes (but not
for leverage or the purchase of investments).
3. May not issue senior securities, except as permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's securities, except to the
extent that the portfolio may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities.
5. May not purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
portfolio from purchasing or selling options, futures contracts, or other
derivative instruments, or from investing in securities or other instruments
backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the portfolio's
total assets would be lent to other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii) engaging in repurchase
agreements.
7. May not purchase the securities of any issuer if, as a result, 25% or more of
the portfolio's total assets would be invested in the securities of issuers, the
principal business activities of which are in the same industry.
8. May not purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prohibit the portfolio
from purchasing or selling securities or other instruments backed by real estate
or of issuers engaged in real estate activities).
The following are the portfolio's non-fundamental operating policies, which
may be changed by the Fund's Board of Directors without shareholder approval.
The Fund may not:
9. Sell securities short, unless the portfolio owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or unless
it covers such short sale as required by the current rules and positions of the
Securities and Exchange Commission or its staff, and provided that transactions
in futures contracts or other derivative instruments are not deemed to
constitute selling securities short.
10. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts or other
derivative instruments shall not constitute purchasing securities on margin.
11. Invest in illiquid securities if, as a result of such investment, more than
15% of its net assets would be invested in illiquid securities.
12. Purchase except for securities acquired as part of a merger, consolidation
or acquisition of assets, more than 3% of the stock of another investment
company.
13. Engage in futures transactions which are impermissible pursuant to Rule 4.5
under the Commodity Exchange Act and, in accordance with Rule 4.5, will use
futures transactions solely for bona fide hedging transactions (within the
meaning of the Commodity Exchange Act), provided, however, that the portfolio
6
<PAGE> 27
may, in addition to bona fide hedging transactions, use futures transactions if
the aggregate initial margin and premiums required to establish such positions
do not exceed 5% of the portfolio's net assets. In addition, the aggregate
margin deposits required on all futures transactions being held will not exceed
5% of the portfolio's total assets.
14. Pledge, mortgage or hypothecate any assets owned by the portfolio except as
may be necessary in connection with permissible borrowings or investments and
then such pledging, mortgaging, or hypothecating may not exceed 33 1/3% of the
portfolio's total assets at the time of the borrowing or investment.
INVESTMENT PRACTICES
BORROWING. Presently, the portfolio only intends to borrow from banks for
temporary or emergency purposes. However, the portfolio may borrow money from
banks and make other investments or engage in other transactions permissible
under the 1940 Act which may be considered a borrowing (such as mortgage dollar
rolls and reverse repurchase agreements) as discussed under "Investment
Restrictions."
FOREIGN SECURITIES. Investing in foreign securities involves a series of risks
not present in investing in U.S. securities. Many of the foreign securities held
by the portfolio will not be registered with the Securities and Exchange
Commission (the "SEC"), nor will the foreign issuers be subject to SEC reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the portfolio than is available
concerning U.S. companies. Disclosure and regulatory standards in many respects
are less stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign companies,
and in particular, companies in smaller and emerging capital markets are not
generally subject to uniform accounting, auditing and financial reporting
standards, or to other regulatory requirements comparable to those applicable to
U.S. companies. The portfolio's net investment income and capital gains from its
foreign investment activities may be subject to non-U.S. withholding taxes.
The costs attributable to foreign investing that the portfolio must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
costs of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the portfolio may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the
portfolio would be subject.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the portfolio are uninvested and no return is earned thereon. The inability
of the portfolio to make intended security purchases due to settlement problems
could cause the portfolio to miss investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the portfolio due to subsequent declines in the value of such portfolio
security or, if the portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.
The portfolio may invest in foreign securities by purchasing depository
receipts, including American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"), or other securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are denominated in U.S. dollars and are designed for use in the
U.S. securities markets, while EDRs, in bearer form, may be denominated in other
currencies and are designed for use in the European securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities.
7
<PAGE> 28
EDRs are European receipts evidencing a similar arrangement. For purposes of the
portfolio's investment policies, ADRs and EDRs are deemed to have the same
classification as the underlying securities they represent, except that ADRs and
EDRs shall be treated as indirect foreign investments. Thus, an ADR or EDR
representing ownership of common stock will be treated as common stock. ADR and
EDR depositary receipts do not eliminate all of the risks associated with
directly investing in the securities of foreign issuers.
ADR facilities may be established as either "unsponsored" or "sponsored." While
ADRs issued under these two types of facilities are in some respects similar,
there are distinctions between them relating to the rights and obligations of
ADR holders and the practices of market participants.
A depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to pass through voting rights to ADR holders
in respect of the deposited securities. In addition, an unsponsored facility is
generally not obligated to distribute communications received from the issuer of
the deposited securities or to disclose material information about such issuer
in the U.S. and thus there may not be a correlation between such information and
the market value of the depositary receipts.
Sponsored ADR facilities are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited securities enters into a
deposit agreements with the depository. The deposit agreement sets out the
rights and responsibilities of the issuer, the depository, and the ADR holders.
With sponsored facilities, the issuer of the deposited securities generally will
bear some of the costs relating to the facility (such as dividend payment fees
of the depository), although ADR holders continue to bear certain other costs
(such as deposit and withdrawal fees). Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities.
FUTURES. The portfolio may purchase and sell futures contracts on domestic stock
indexes in order to facilitate exposure to the market or in order to help meet
redemption requests. The portfolio may purchase and sell futures contracts on
stock indexes, such as the S&P 500 Index, as a substitute for purchasing or
selling the underlying securities. The portfolio may not purchase or sell a
futures contract unless, immediately after any such transaction, the sum of the
aggregate amount of initial margin deposits on its existing futures positions is
5% or less of its total assets (after taking into account certain technical
adjustments).
The portfolio may be subject to additional risks associated with futures
contracts, such as the possibility that the Adviser's forecasts of market values
and other factors are not correct, imperfect correlation between the hedging
instrument and the asset or liability being hedged, default by the other party
to the transaction, and inability to close out a position because of the lack of
a liquid market. In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in a futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. As a result of these factors, a correct forecast of general market
trends or interest rate movements by the Adviser may still not result in a
successful hedging transaction over a short time frame.
The transactions described above are frequently referred to as derivative
transactions. In general, derivatives are instruments whose value is based upon,
or derived from, some underlying index, reference rate (e.g., interest rates or
currency exchange rates), security, commodity or other asset.
ILLIQUID SECURITIES. The portfolio may invest in illiquid securities (i.e.,
securities that are not readily marketable). However, the portfolio will not
acquire illiquid securities if, as a result, they would comprise more than 15%
of the value of the portfolio's net assets (or such other amounts as may be
permitted under the 1940 Act). The Board of Directors of the Fund, or its
delegate, has the ultimate authority to determine, to the extent permissible
under the federal securities laws, which securities are illiquid for purposes of
this limitation.
8
<PAGE> 29
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.
The Board of Directors has delegated to the Adviser the day-to-day determination
of the liquidity of a security, although it has retained oversight and ultimate
responsibility for such determinations. The Board of Directors has directed the
Adviser to look to such factors as (i) the frequency of trades or quotes for a
security, (ii) the number of dealers willing to purchase or sell the security
and number of dealers willing to purchase or sell the security and number of
potential buyers, (iii) the willingness of dealers to undertake to make a market
in the security, (iv) the nature of the security and nature of the marketplace
trades, such as the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer, (v) the likelihood that the
security's marketability will be maintained throughout the anticipated holding
period, and (vi) any other relevant factors. The Adviser may determine 4(2)
commercial paper to be liquid if (i) the 4(2) commercial paper is not traded
flat or in default as to principal and interest, (ii) the 4(2) commercial paper
is rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations ("NRSRO"), or if only one NRSRO
rates the security, by that NRSRO, or is determined by the Advisor to be of
equivalent quality, and (iii) the Adviser considers the trading market for the
specific security taking into account relevant factors. With respect to the
portfolio's foreign holdings, a foreign security may be considered liquid by the
Adviser (despite its restricted nature under the Securities Act) if the security
can be freely traded in a foreign securities market and the facts and
circumstances support a finding of liquidity.
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. Where registration is required, the portfolio 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
portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the portfolio might obtain a less favorable price than prevailed when it decided
to sell. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the portfolio should be in a position
where more than 15% of the value of its net assets are invested in illiquid
securities, including restricted securities which are not readily marketable
(except for 144A Securities and 4(2) commercial paper deemed to be liquid by the
Adviser), the Fund will take such steps as is deemed advisable, if any, to
protect liquidity.
REPURCHASE AGREEMENTS. The portfolio may enter into repurchase agreements with
certain banks or non-bank dealers. In a repurchase agreement, the portfolio buys
a security at one price, and at the time of sale, the seller agrees to
repurchase the obligation at a mutually agreed upon time and price (usually
within seven days). The repurchase agreement, thereby, determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. The Adviser will
monitor, on an ongoing basis, the value of the underlying securities to ensure
that the value always equals or exceeds the repurchase price plus accrued
interest. Repurchase agreements could involve certain risks in the event of a
default or insolvency of the other party to the agreement, including possible
delays or restrictions upon the portfolio's ability to dispose of the underlying
securities. Although no definitive creditworthiness criteria are used, the
Adviser reviews the creditworthiness of the banks and non-bank dealers with
which the portfolio enters into repurchase agreements to evaluate those risks.
The portfolio may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.
RESTRICTED SECURITIES. Restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the portfolio may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time it
decides to seek registration and the time the portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the portfolio might obtain a less
favorable price than prevailed when it decided to seek registration of the
security. The portfolio may invest without limitation in restricted securities
9
<PAGE> 30
that are eligible for resale to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, provided that such securities have been
determined to be liquid pursuant to the guidelines adopted by the Board of
Directors. The portfolio currently intends to invest no more than 5% of its net
assets in restricted securities during the next fiscal year.
SMALL COMPANIES. The portfolio may invest a large portion of its assets in small
companies. While smaller companies generally have the potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies may
lack the management experience, financial resources, product diversification,
and competitive strengths of larger companies. In addition, in many instances
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to greater and more abrupt price
fluctuations. When making large sales, the portfolio may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time due to the trading volume of smaller
company securities. Investors should be aware that, based on the foregoing
factors, an investment in the portfolio may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger, more
established companies. The Adviser's research efforts may also play a greater
role in selecting securities for the portfolio than in a fund that invests in
larger, more established companies.
WARRANTS. The portfolio may acquire warrants. Warrants are securities giving the
holder the right, but not the obligation, to buy the stock of an issuer at a
given price (generally higher than the value of the stock at the time of
issuance) during a specified period or perpetually. Warrants may be acquired
separately or in connection with the acquisition of securities. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, warrants may be considered
to have more speculative characteristics than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The portfolio may purchase newly
issued securities on a when-issued basis and may purchase or sell portfolio
securities on a delayed delivery basis. When a portfolio purchases securities on
a when-issued or a delayed delivery basis, it becomes obligated to purchase the
securities and it has all the rights and risks attendant to ownership of the
securities, although delivery and payment occur at a later date. The portfolio
will record the transaction and reflect the liability for the purchase and the
value of the security in determining its net asset value. The value of
fixed-income securities to be delivered in the future will fluctuate as interest
rates vary. The portfolio generally has the ability to close out a purchase
obligation on or before the settlement date, rather than take delivery of the
security.
At the time the portfolio makes the commitment to sell a security on a delayed
delivery basis, it will record the transaction and include the proceeds to be
received in determining its net asset value; accordingly, any fluctuations in
the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. Normally, settlement occurs within one month of the purchase or sale.
To the extent the portfolio engages in when-issued or delayed delivery
purchases, it will do so for the purpose of acquiring securities consistent with
the portfolio's investment objective and policies and not for the purpose of
investment leverage or to speculate on interest rate changes; but the portfolio
reserves the right to sell these securities before the settlement date if deemed
advisable. To the extent required to comply with Securities and Exchange
Commission Release No. IC-10666, when purchasing securities on a when-issued or
delayed delivery basis, the portfolio will maintain in a segregated account cash
or liquid high-grade securities equal to the value of such contracts.
10
<PAGE> 31
GENERAL FUND INFORMATION
REDEMPTIONS. The portfolio may not suspend the right of redemption or delay
payment on its shares more than seven days except (a) during any period when the
New York Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the portfolio normally utilizes is
restricted, or any emergency exists as determined by the Securities and Exchange
Commission so that disposal of the portfolio's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other periods
as the Securities and Exchange Commission by order may permit for protection of
the portfolio's shareholders.
A shareholder who redeems shares of the portfolio will recognize capital gain or
loss for Federal income tax purposes. If a shareholder realizes a loss on the
redemption of portfolio shares and reinvests in portfolio shares within 30 days
before or after redemption, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for Federal
income tax purposes.
DETERMINATION OF NET ASSET VALUE. Net asset value per share of the portfolio
will be determined as of the earlier of 3:00 p.m., Chicago time, or the close of
business on the New York Stock Exchange on each day on which that Exchange is
open and on each other day on which there is sufficient trading in the
portfolio's investments that it might materially affect the net asset value,
except that the net asset value will not be computed on a day in which no orders
to purchase shares were received and no shares were tendered for redemption. The
New York Stock Exchange is closed for the observance of New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The per share net asset value is determined
by dividing the value of the portfolio's assets, less its liabilities, by the
number of its shares outstanding. The market value of the portfolio securities
is determined by valuing securities traded on national securities markets at the
last sale price or, in the absence of a sale on the date of determination, at
the latest bid price. Securities for which market quotations are not readily
available, and all other assets, are appraised at fair value as determined in
good faith by the board of directors.
PERFORMANCE. The portfolio's historical performance or return may be shown in
the form of "average annual total return" and "total return" figures. These
various measures of performance are described below. Average annual total return
and total return measure both the net investment income generated by, and the
effect of any realized and unrealized appreciation or depreciation of, the
underlying investments of the portfolio.
The average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a specific period is found by
first taking a hypothetical $1,000 investment ("initial investment") in the
portfolio's shares on the first day of the period and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is then
divided by the initial investment, and this quotient is taken to the nth root (n
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. The calculation assumes that
all income dividends and capital gains distributions by the portfolio have been
reinvested at the net asset value on the reinvestment dates during the period.
Calculation of total return is not subject to a standardized formula. Total
return performance for a specific period is calculated by first taking an
investment (assumed below to be $10,000) ("initial investment") in the
portfolio's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return percentage
is then determined by subtracting the initial investment from the ending value
and dividing the remainder by the initial investment and expressing the result
as a percentage. The calculation assumes that all income and capital gains
dividends by the portfolio have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period.
From time to time, the portfolio's performance may be compared to that of
various, unmanaged stock indices such as the Standard & Poor's 500 Stock Index,
NASDAQ, Value Line, and Russell 1,000, 2,000 and 3,000, and may also be compared
to the performance of other growth mutual funds or mutual fund indices as
reported by CDA Investment Technologies, Inc. ("CDA"), Lipper Analytical
Services, Inc. ("Lipper") or
11
<PAGE> 32
Morningstar, Inc. ("Morningstar"). CDA, Lipper and Morningstar are widely
recognized independent mutual fund reporting services.
The portfolio may quote information from industry or financial publications of
general U.S. or international interest, such as information from publications
such as Morningstar, The Wall Street Journal, Money Magazine, Forbes, Barron's,
Fortune, The Chicago Tribune, USA Today, Institutional Investor and Registered
Representative. Also, investors may want to compare the historical returns of
various investments, performance indexes of those investments or economic
indicators, including but not limited to stocks, bonds, certificates of deposit,
money market funds and U.S. Treasury obligations. Bank product performance may
be based upon, among other things, the Bank Rate Monitor National Index or
various certificates of deposit indexes, money market fund performance may be
based upon, among other things, the IBC/Donoghue's Money Fund Average (All
Taxable). Performance of U.S. Treasury obligations may be based upon, among
other things, various U.S. treasury bill indexes. Certain of these alternative
investments may offer fixed rates of return, and guaranteed principal and may be
insured.
Performance quotations are based upon historical results and are not necessarily
representative of future performance. Returns and net asset value will
fluctuate. The portfolio's performance includes general market conditions,
operating expenses and investment management. Any additional fees charged by a
dealer or other financial services firm would reduce the returns described in
this section. Shares of the portfolio are redeemable at net asset value, which
may be more or less than original cost.
TAXES. The portfolio's futures transactions are subject to special tax
provisions that may accelerate or defer recognition of certain gains or losses,
change the character of certain gains or losses, or alter the holding periods of
certain of the portfolio's securities.
The mark-to-market rules of the Internal Revenue Code (the "Code") may require
the portfolio to recognize unrealized gains and losses on certain futures held
by the portfolio at the end of the fiscal year. Under these provisions, 60% of
any capital gain net income or loss recognized will generally be treated as
long-term and 40% as short-term. In addition, the straddle rules of the Code
would require deferral of certain losses realized on positions of a straddle to
the extent that the portfolio had unrealized gains in offsetting positions at
year end. The portfolio has elected to mark-to-market its investments in passive
foreign investment companies for Federal income tax purposes.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if the portfolio sold a foreign stock and part of the
gain or loss on the sale was attributable to an increase or decrease in the
value of a foreign currency, then the currency gain or loss may be treated as
ordinary income or loss. If such transactions result in greater net ordinary
income, the dividends paid by the portfolio will be increased; if the result of
such transactions is lower net ordinary income, a portion of dividends paid
could be classified as a return of capital.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by an applicable tax treaty.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors are Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago,
Illinois 60606, who audit and report upon the Fund's annual financial
statements, review certain regulatory reports and the Fund's Federal tax
returns, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial statements.
CUSTODIAN AND SHAREHOLDER SERVICES. Investors Bank and Trust Company ("Investors
Bank"), 89 South Street, Boston, Massachusetts 02111, as custodian, has custody
of all securities and cash of the Fund; and it attends to the collection of
principal and income, and payment for and collection of proceeds of securities
bought and sold by the Fund. State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Fund's transfer
agent and dividend-paying agent. State Street Bank, as the shareholder service
agent, provides certain bookkeeping, data processing and administrative services
pertaining to the maintenance of shareholder accounts.
12
<PAGE> 33
RETIREMENT PLANS. The Fund offers a variety of retirement investment programs
whereby contributions are invested in shares of the portfolio, and any income
dividends (and capital gain distributions, if any) are reinvested in additional
full and fractional shares of the portfolio.
- - Individual Retirement Accounts. The Fund has available Individual Retirement
Accounts (IRAs) under IRS approved prototypes. IRA contributions are fully
deductible only to (1) taxpayers who are not active participants in an
employer-sponsored retirement plan and (2) taxpayers who are active participants
in an employer-sponsored plan but who have adjusted gross income below a
specified level. For these purposes, a taxpayer will be deemed to be an active
participant in an employer-sponsored retirement plan if for any part of the plan
year either he or his spouse is an active participant under a qualified pension
plan, a qualified profit sharing or money purchase plan, a 403(a) annuity plan,
a 403(b) annuity program, a Simplified Employee Pension plan or a government
plan (other than a plan maintained for state and local employees under Section
457 of the Internal Revenue Code). Married taxpayers filing a joint return who
are active participants in an employer-sponsored plan may make a tax deductible
IRA contribution up to $2,000 ($2,250 spousal) if their adjusted gross income
("AGI") is $40,000 or less. Between AGI of $40,000 to $50,000 the IRA deduction
is gradually phased-out. For single taxpayers who are active participants in an
employer-sponsored plan, the $2,000 deductible IRA contribution is similarly
phased-out between $25,000 and $35,000 of adjusted gross income. To the extent
that the IRA deduction is reduced or eliminated by the phase-out rule, an
individual may elect to make nondeductible IRA contributions which, when
combined with any deductible contributions, may not exceed $2,000 ($2,250 for a
spousal IRA). The income on the IRA contribution will not be taxed until
withdrawn.
Under the Internal Revenue Code, an investor has at least seven days in which to
revoke an IRA after receiving certain explanatory information about the plan.
Individuals who have received distributions from certain qualified plans may
roll over all or part of such distributions into an IRA and defer taxes on the
distributions and shelter investment earnings.
- - Simplified Employee Pension. An employer may establish a Simplified Employee
Pension (SEP) Plan under which the employer makes contributions to all eligible
employees' IRAs. A portfolio's shares may be used for this purpose.
- - Qualified Retirement Plans. A corporation, partnership or sole proprietorship
may establish qualified money purchase pension and profit sharing plans, and
contribute for each participant up to the lesser of 25% of each participant's
compensation (20% of gross compensation for self-employed persons) or $30,000.
Such contributions may be made by the employer and, if certain conditions are
met, participants may also make nondeductible voluntary contributions.
Prototype forms of an IRA and qualified retirement plans and a form of SEP, and
additional information concerning such plans, are available from the Fund. State
Street Bank may act as a custodian for the Fund's IRA and certain qualified
retirement plans. State Street Bank charges a $5 plan establishment fee. There
is also an annual $15 custodial fee and a $10 fee for each lump sum distribution
from a plan. These fees may be waived under certain circumstances. Consultation
with a professional tax adviser is recommended both because of the complexity of
Federal tax law and because various tax penalties are imposed for excess
contributions to, and late or premature distributions from, IRAs or qualified
retirement plans. Termination of a plan shortly after its adoption may have
adverse tax consequences.
SHAREHOLDER RIGHTS
The Fund generally is not required to hold meetings of its shareholders.
However, shareholder meetings will be held in connection with the following
matters: (1) the election or removal of directors, if a meeting is called for
such purpose; (2) the adoption of any contract for which shareholder approval is
required by the Act; (3) any termination of the Fund; (4) any amendment of the
Articles of Incorporation; and (5) such additional matters as may be required by
law, the Articles of Incorporation, the By-laws of the Fund, or any registration
of the Fund with the Securities and Exchange Commission or any state, or as the
directors may
13
<PAGE> 34
consider necessary or desirable. The shareholders also would vote upon changes
in fundamental investment objectives, policies or restrictions.
Each director serves until the next meeting of shareholders, if any, called for
the purpose of electing directors and until the election and qualification of
his successor or until such director sooner dies, resigns, retires or is removed
by a majority vote of the shares entitled to vote (as described below) or a
majority of the directors. In accordance with the Act (i) the Fund will hold a
shareholder meeting for the election of directors at such time as less than a
majority of the directors has been elected by shareholders, and (ii) if, as a
result of a vacancy in the Board of Directors, less than two-thirds of the
directors have been elected by the shareholders, that vacancy will be filled
only by a vote of the shareholders.
All shares have equal voting rights and may be voted in the election of
directors and upon other matters submitted to a vote of the shareholders. Shares
of all portfolios of the Fund will be voted in the aggregate unless the Act
requires them to be voted separately. The shares do not have cumulative voting
rights, which means that the holders of a majority of the shares, voting
together for the election of directors, can elect all the directors. The Fund
will hold meetings of shareholders when requested to do so in writing by one or
more shareholders who collectively hold at least 10% of the shares entitled to
vote or when so determined by the Board of Directors in their discretion. At
such a meeting, a director may be removed from office by a vote of the holders
of a majority of the outstanding shares entitled to vote. Upon the written
request of ten or more shareholders who have been such for at least six months
and who hold shares constituting the lesser of 1% of the outstanding shares or
$25,000, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of a director, the Fund has undertaken either to
disseminate appropriate materials (at the expense of the requesting
shareholders) or to provide such shareholders access to a list of names and
addresses of all shareholders of record.
FUND HISTORY
The Fund was organized as a Maryland corporation on September 22, 1987 under the
name of William Blair Ready Reserves, Inc. On April 30, 1991 a reorganization of
the Fund and Growth Industry Shares, Inc., a Maryland corporation, was adopted
such that Growth Industry Shares, Inc. was reorganized into a separate portfolio
of the Fund, now the Growth Fund portfolio, and the Fund changed its name to
William Blair Mutual Funds, Inc. On February 13, 1996, the Fund's Board of
Directors determined that it was in the best interests of the Fund's
shareholders to terminate the Limited Term Tax-Free Fund; and it was terminated
on April 23, 1996. While shares of only five portfolios are presently being
offered, the Board of Directors of the Fund may establish additional portfolios,
with different investment objectives, policies and restrictions, in the future.
14
<PAGE> 35
APPENDIX A
SHORT-TERM RATINGS (COMMERCIAL PAPER)
DUFF & PHELPS INC. Duff & Phelps Inc. rating system for "Top Grade" commercial
paper incorporates three gradations to recognize quality differences within its
highest grade. Lower grades (Duff - 2 and Duff - 3) do not distinguish between
such quality differences within the grade.
<TABLE>
<S> <C>
Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources
of funds, is clearly outstanding and safety is just below risk-free
U.S. Treasury short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1 minus: High certainty of timely payment. Liquidity factors are strong and
supported by fundamental protection factors. Risk factors are very
small.
Category 2: Good Grade
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may
enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
</TABLE>
FITCH INVESTORS SERVICE, INC. Fitch Investors Service, Inc. commercial paper
ratings are grouped into four categories: Fitch-1 (Strong Credit Quality);
Fitch-2 (Good Credit Quality); Fitch-3 (Fair Credit Quality); and Fitch-4 (Weak
Credit Quality).
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
Fitch-2 (Good Credit Quality) Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is
not as great as the F-1+ and F-1 categories.
</TABLE>
MOODY'S INVESTORS SERVICE, INC. The ratings Prime-1 and Prime-2 are the two
highest commercial paper ratings assigned by Moody's Investors Service, Inc.
Among the factors considered by it in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1, 2 or 3.
STANDARD & POOR'S CORPORATION. The ratings A-1+, A-1 and A-2 are the three
highest commercial paper ratings assigned by Standard & Poor's Corporation.
Commercial paper so rated by Standard & Poor's Corporation has the following
characteristics. Liquidity ratios are adequate to meet cash requirements. Long-
term senior debt is rated "A" or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within the
industry. The reliability and quality of management are unquestioned. Relative
strength or weakness of the above factors determine whether the issuer's
commercial paper is rated A-1+, A-1, A-2 or A-3.
A-1
<PAGE> 36
LONG-TERM RATINGS (BONDS)
DUFF & PHELPS INC. BOND RATINGS
<TABLE>
<S> <C> <C>
General
Category Rating
- --------------------- -------
Triple A 1 Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
Double A High credit quality. Protection factors are strong.
High 2 Risk is modest but may vary slightly from time to
Middle 3 time because of economic conditions.
Low 4
Single A Protection factors are average but adequate. However,
High 5 risk factors are more variable and greater in periods
Medium 6 of economic stress.
Low 7
</TABLE>
FITCH INVESTORS SERVICE INC. BOND RATINGS
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
PLUS (+) OR MINUS (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of 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. While 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 issues.
AA Bonds which are rated Aa are judged to be of 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 securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A Bonds which are 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.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in its generic rating
classification in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
A-2
<PAGE> 37
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA This is the highest rating assigned by Standard & Poor's Corporation to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
A-3
<PAGE> 38
WILLIAM BLAIR MUTUAL FUNDS, INC.
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
(i) Financial Statements included in Part A
of the Registration Statement:
Not applicable.
(ii) Financial Statements included in Part B of the
Registration Statement:
The following information contained in
Registrant's Annual Report for William Blair
Mutual Funds, Inc., including the Growth
Fund, the International Growth Fund, the
Income Fund, the Limited Term Tax-Free Fund
and the Ready Reserves Fund, for the fiscal
year ended December 31, 1995, is incorporated
by reference into Part A.
William Blair Mutual Funds, Inc.
Growth Fund, International Growth Fund,
Income Fund, Limited Term Tax-Free
Fund and Ready Reserves Fund
Statements of Assets and Liabilities
at December 31, 1995
Statements of Operations for the year
ended December 31, 1995
Statements of Changes in Net Assets for
the years ended December 31,
1995 and 1994 (for the period from
January 24, 1994 (Commencement of
Operations) to December 31, 1995 for the
Limited Term Tax-Free Fund)
Notes to Financial Statements
C-1
<PAGE> 39
Growth Fund, International Growth Fund,
Income Fund, Limited Term Tax-Free
Fund and Ready Reserves Fund
Schedules II, III, IV, V, VI
and VII are omitted as the required
information is not present
Schedule I has been omitted as
the required information is
presented in the Schedules of
Investments at December 31, 1995
(b) Exhibits
1a. Articles of Incorporation.
1b. Form of Amendment to Articles of Incorporation.
2. By-laws, as amended.
3. Inapplicable.
4. See items 1 and 2 above.
5a. Form of Management Agreement.
5b. Form of Management Agreement dated May 1, 1996.
6. Underwriting Agreement.
7. Inapplicable.
8. Custodian Agreement.
9. Inapplicable.
10. Opinion and Consent of Vedder, Price, Kaufman
& Kammholz.
11. Inapplicable.
12. Inapplicable.
13. Subscription Agreement.
14. Inapplicable.
15. Inapplicable.
16. Schedule for calculation of performance
quotation.
ITEM 25. Persons Controlled by or under Common Control with Registrant
Inapplicable.
ITEM 26. Number of Holders of Securities
Number of holders of securities as of October 31, 1996:
Number of
Title of Class Record Holders
Shares of common stock of:
Growth Fund 9,609
Value Discovery Fund 0
International Growth Fund 1,249
Income Fund 2,150
Ready Reserves Fund 20,313
C-2
<PAGE> 40
Income Fund
Ready Reserves Fund
ITEM 27. Indemnification
The Maryland Code, Corporations and Associations, Section
2-418, provides for indemnification of directors, officers, employees and
agents.
Article VII of the Registrant's Articles of Incorporation provides for
indemnification of directors or officers under certain circumstances but does
not allow such indemnification in cases of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
The Investment Management Agreement between the Registrant and William
Blair & Company, L.L.C. (the "Adviser") provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties thereunder on the part of the Adviser, the Adviser shall
not be liable for any error of judgment or mistake of law, or for any loss
suffered by the Fund in connection with the matters to which such Agreement
relates.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "1933 Act") may be permitted to directors, 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 1933 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 director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, 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 1933 Act and will be governed by the final adjudication of
such issue.
ITEM 28. Business and Other Connections of Investment Adviser
Registrant's investment manager is William Blair & Company,
L.L.C., a limited liability company. In addition to its services to Registrant
as investment manager as set forth in Parts A and B of this Registration
Statement on Form N-1A, William Blair & Company, L.L.C. is a registered
broker-dealer and investment adviser and engages in investment banking.
The principal occupations of the principals and primary officers of
William Blair & Company, L.L.C. are their services as principals and officers
of that Company. The address of William Blair & Company, L.L.C. and Registrant
is 222 West Adams Street, Chicago, Illinois 60606.
Set forth below is information as to any other business, profession,
vocation or employment of a substantial nature in which each principal of
William Blair & Company, L.L.C.
C-3
<PAGE> 41
is, or at any time during the last two fiscal years has been, engaged for his
own account or in the capacity of director, officer, employee, partner or
trustee:
<TABLE>
<CAPTION>
Name and Position with Name of Company and/or
William Blair & Company, L.L.C. Principal Business Capacity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rocky Barber LaRabida Hospital Foundation Vice President and Secretary
Principal of the Board of Directors
Stanford Associates President
William Blair Mutual Funds, Inc. President
Bowen Blair, The Art Institute of Chicago Trustee
Senior Principal
Chicago Historical Society Trustee
Field Museum of Natural History Trustee
Edward McC. Blair, Sr., The Art Institute of Chicago Life Trustee
Senior Principal
College of The Atlantic Trustee
Pullman Educational Foundation Life Trustee
Rush Presbyterian-St. Luke's Life Trustee
Medical Center
University of Chicago Life Trustee
Edward McC. Blair, Jr. Chicago Dock and Canal Trust Trustee
Principal
Chicago Zoological Society Deputy Chairman
Research Industries, Inc. Director
University of Chicago Hospital Trustee
Kurt Beuchel, Social Security Fund of the Member
Principal Principality of Liechtenstein Investment Advisory Board
David G. Chandler, The Bruss Company Director
Principal
Encore Paper Company Director
Gibraltar Packaging Group Director
International Jensen Incorporated Director
Morton Grove Pharmaceuticals, Inc. Director
Predelivery Service Corporation Director
Sherwood Enterprises, Inc. Director
E. David Coolidge, III, Pittway Corporation Director
Chief Executive Officer
Conrad Fischer APM Limited Partnership General Partner
Chief Executive Officer
</TABLE>
C-4
<PAGE> 42
<TABLE>
<CAPTION>
Name and Position with Name of Company and/or
William Blair & Company, L.L.C. Principal Business Capacity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chicago Child Care Trustee Emeritus
William Blair Mutual Funds, Inc. Chairman and Director
Thomas A. FitzSimmons Credit Acceptance Corporation Director
Principal
Paul W. Franke, Music City Bagels, Inc. Director
Principal
Mark A. Fuller, III, Fuller Investment Company President
Principal
William Blair Mutual Funds, Inc. Senior Vice President
John K. Greene, Chicago Horticultural Society Trustee
Principal
Children's Home & Aid Society Trustee
of Illinois, Inc.
Hazelden Chairman Illinois Advisory
Committee
Vulcan Materials Co. Director
Thomas L. Greene, Tyler School of Secretarial 25% Owner
Principal Science
Samuel B. Guren, Falcon First Communications, L.P. Board of Advisors
Principal
Four M Corporation Director
Marks Brothers Jewelers, Inc. Director
Prime Cable of Alaska Board of Advisors
Technetics Director
James P. Hickey, Eagle Point Software Director
Principal
Edgar D. Jannotta, Sr., AAR Corporation Director
Senior Principal
AON Corporation Director
Bandag, Incorporated Director
Molex, Incorporated Director
New York Stock Exchange, Inc. Director
Oil-Dri Corporation of America Director
Safety-Kleen Corporation Director
Sloan Value Company Director
Unicom Corporation Director
</TABLE>
C-5
<PAGE> 43
<TABLE>
<CAPTION>
Name and Position with Name of Company and/or
William Blair & Company, L.L.C. Principal Business Capacity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edgar D. Jannotta, Jr., Big Sky Joint Venture General Partner
Principal
The Bruss Company Director
Daiseytek International Director
Gibraltar Packaging Director
Greater Chicago Food Depository Co-Chairman Finance
Steering Committee
Mid-south Building Supplies Director
Towne Holdings, Inc. Director
Western Fidelity Holdings, Inc. Director
Richard P. Kiphart, McCormick Theological Seminary Board of Directors
Principal
Woodlands Academy of the Trustee
Sacred Heart
Robert Lanphier, IV, Ag. Med, Inc. (Private) Chairman
Principal
James McMullan, Security Industry Association Director
Principal
William Blair Mutual Funds, Inc. Director
Timothy M. Murray, AGI, Inc. Director
Principal
The Bruss Company Director
Card Establishment Services Director
Daiseytek, Incorporated Director
Mede America, Inc. Director
Mid-south Building Supply Company Director
Portland Food Products Director
Sherwood Enterprises, Incorporated Director
Technetics Corporation Director
Towne Holdings, Inc. Director
Bentley M. Myer, Delnor Community Hospital Director
Principal Foundation
William Blair Mutual Funds, Inc. Senior Vice President
</TABLE>
C-6
<PAGE> 44
<TABLE>
<CAPTION>
Name and Position with Name of Company and/or
William Blair & Company, L.L.C. Principal Business Capacity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Neal L. Seltzer, Scholarship and Guidance Foundation Director
Principal
Ronald B. Stansell, AFO Limited Partnership Limited Partner
Principal
Thomas H. Story, Security APL, Inc. Member, Advisory Council
Principal
Mark Timmerman, DIY Home Warehouse, Incorporated Director
Principal
Prophet 21, Incorporated Director
Norbert W. Truderung, William Blair Mutual Funds, Inc. Senior Vice President
Principal
W. James Truettner, Glenview Foundation Director
Principal
International Travel Services Director
Roberts Industries Director
William Blair Mutual Funds, Inc. Senior Vice President and
Director
</TABLE>
ITEM 29. Principal Underwriters
(a) Inapplicable.
(b) The principal business address of each principal and
officer of William Blair & Company, L.L.C., principal
underwriter for Registrant, is 222 West Adams Street,
Chicago, Illinois 60606. See Item 28 for
information with respect to officers and principals
of William Blair & Company, L.L.C..
(c) Inapplicable.
ITEM 30. Location of Accounts and Records
All such accounts, books and other documents are maintained by
the Registrant's officers at the offices of the Registrant and the offices of
the Investment Adviser, William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois, and also shareholder account information and original
shareholder correspondence is available at the offices of the Transfer Agent
and Dividend Paying Agent, Investors Bank and Trust Company, P.O. Box 9104,
Boston, Massachusetts 02266-9104.
C-7
<PAGE> 45
ITEM 31. Management Services
Inapplicable.
ITEM 32. Undertakings
Inapplicable.
C-8
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant has duly caused this amended registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, and State of Illinois, on the 12th day of
November, 1996.
WILLIAM BLAIR MUTUAL FUNDS, INC.
By:/s/James L. Barber, Jr.
-------------------------------
James L. Barber, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment to the registration statement has been signed below by the following
persons in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Vernon Armour Director November 12, 1996
- --------------------------------
Vernon Armour
/s/Ann P. McDermott Director November 12, 1996
- --------------------------------
Ann P. McDermott
/s/Conrad Fischer Director (Chairman November 12, 1996
- -------------------------------- of the Board
Conrad Fischer
/s/George Kelm Director November 12, 1996
- --------------------------------
George Kelm
/s/James M. McMullan Director November 12, 1996
- --------------------------------
James M. McMullan
/s/John B. Schwemm Director November 12, 1996
- --------------------------------
John B. Schwemm
/s/W. James Truettner, Jr. Director November 12, 1996
- --------------------------------
W. James Truettner, Jr.
/s/James L. Barber, Jr. President (Principal November 12, 1996
- -------------------------------- Executive Officer)
James L. Barber, Jr.
/s/Walter Rucinski Treasurer (Principal November 12, 1996
- -------------------------------- Financial Officer
Walter Rucinski Principal Accounting
Officer)
</TABLE>
C-9
<PAGE> 47
EXHIBIT INDEX
1a. Articles of Incorporation.1/
1b. Form of Amendment to Articles of Incorporation.1/
2. By-laws, as amended.1/
3. Inapplicable.
4. See items 1 and 2 above.
5a. Form of Management Agreement.
5b. Form of Management Agreement dated May 1, 1996.1/
6. Underwriting Agreement.1/
7. Inapplicable.
8. Custodian Agreement.1/
9. Inapplicable.
10. Opinion of Vedder, Price, Kaufman & Kammholz.
11. Inapplicable.
12. Inapplicable.
13. Subscription Agreement.1/
14. Inapplicable.
15. Inapplicable.
16. Schedule for calculation of performance quotation.1/
- ------------------
1/ Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A as filed on or about
March 1, 1996.
C-10
<PAGE> 1
EXHIBIT 5a
MANAGEMENT AGREEMENT
AGREEMENT made as of this ____ day of ____________ 1996, by and
between WILLIAM BLAIR MUTUAL FUNDS, INC., a Maryland corporation (the "Fund"),
and WILLIAM BLAIR & COMPANY, L.L.C., an Illinois limited liability company (the
"Manager").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, the shares of
common stock, $.001 par value per share ("Shares"), of which are registered or
are to be registered under the Securities Act of 1933; and
WHEREAS, the Fund is authorized to issue Shares in separate series
with each such series representing the interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers Shares in four portfolios,
designated the Growth Fund, the International Growth Fund, the Income Fund and
the Ready Reserves Fund; and
WHEREAS, the Fund wants at this time to retain the Manager to render
investment advisory and management services to a newly established portfolio,
designated the Value Discovery Fund (the "Portfolio") and the Manager wants to
render such services;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. Employment; Services. The Fund hereby employs the Manager to
act as the adviser for the Value Discovery Fund and to manage the investment
and reinvestment of the assets of such Portfolio in accordance with applicable
investment objectives, policies and restrictions, and to administer its affairs
to the extent requested by and subject to the supervision
<PAGE> 2
of the Board of Directors of the Fund for the period and upon the terms herein
set forth. The investment of funds shall be subject to all applicable
restrictions of the Articles of Incorporation and By-Laws of the Fund as may
from time to time be in force.
The Manager accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
principals or employees to serve without compensation as directors or officers
of the Fund if elected to such positions, and to assume the obligations herein
set forth for the compensation herein provided. The Manager shall for all
purposes herein provided be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
It is understood and agreed that the Manager, by separate agreements with the
Fund, may also serve other Fund portfolios and serve the Fund in other
capacities.
2. Management Fee. For the services and facilities described in
Section 1, the Fund will pay to the Manager an annual management fee of 1.25%
of the average daily net assets of the Portfolio.
The fee payable under this Agreement shall be calculated and accrued for each
business day by applying the appropriate annual rates to the net assets of the
Portfolio as of the close of the preceding business day, and dividing the sum
so computed by the number of business days in the fiscal year. The fee for a
given month shall be paid on the first business day of the following month.
For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the
-2-
<PAGE> 3
Agreement is in effect during the month and year, respectively. The services
of the Manager to the Fund under this Agreement are not to be deemed exclusive,
and the Manager shall be free to render similar services or other services to
others so long as its services hereunder are not impaired thereby.
3. Expenses. In addition to the fee of the Manager, the Fund
shall assume and pay expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books
for account, for any other charges of the custodian, and for calculating the
net asset value of the Fund as provided in the prospectus of the Fund. The
Manager shall not be required to pay and the Fund shall assume and pay the
charges and expenses of its operations, including but not limited to
compensation of the directors (other than those affiliated with the Manager),
charges and expenses of independent auditors, of legal counsel, of any transfer
or dividend disbursement agent, any registrar of the Fund, costs of acquiring
and disposing of portfolio securities, interest, if any, on obligations
incurred by the Fund, costs of share certificates and of reports, membership
dues in the Investment Company Institute or any similar organization, reports
and notices to shareholders, stationery, printing, postage, other like
miscellaneous expenses and all taxes and fees payable to federal, state or
other government agencies on account of the registration of securities issued
by the Fund, filing of corporate documents or otherwise. The Fund shall not
pay or incur any obligation for any expenses for which the Fund intends to seek
reimbursement from the Manager as herein provided without first obtaining the
written approval of the Manager. The Manager shall arrange, if desired by the
Fund, for principals or employees of the Manager to serve, without compensation
from the Fund, as directors, officers or agents of the Fund if duly elected or
-3-
<PAGE> 4
appointed to such positions and subject to their individual consent and
to any limitations imposed by law.
The net asset value for the Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or at such other time or times as
the directors may determine in accordance with the provisions of the Investment
Company Act of 1940. On each day when the net asset value is not calculated,
the net asset value of a share of the Portfolio shall be deemed to be the net
asset value of such a share as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computations.
4. Affiliations. Subject to applicable statutes and regulation,
it is understood that directors, officers or agents of the Fund are or may be
interested in the Manager as principals, agents or otherwise, and that the
principals and agents of the Manager may be interested in the Fund otherwise
than as a director, officer or agent.
5. Limitation of Liability of Manager. The Manager shall not be
liable for any error of judgment or of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of the Manager in the performance of its obligations and duties or by reason of
its reckless disregard of its obligations and duties under this Agreement.
6. Term; Termination; Amendment. This Agreement shall become
effective on the date hereof and shall remain in full force until April 30,
1998, unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter but only so long as such
continuance is specifically approved for the Portfolio at least annually in the
manner required by the Investment Company Act of 1940 and the rules and
regulations
-4-
<PAGE> 5
thereunder; provided, however, that if the continuation of this Agreement is
not approved for the Portfolio, the Manager may continue to serve in such
capacity for the Portfolio in the manner and to the extent permitted by the
Investment Company Act of 1940 and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Manager on sixty (60) days written notice to the other
party. The Fund may effect termination by action of the Board of Directors or
by vote of a majority of the outstanding voting securities of the Portfolio.
This Agreement may also be terminated at any time, without the payment
of any penalty, by the Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio, in the event that it shall have
been established by a court of competent jurisdiction that the Manager or any
officer or principal of the Manager has taken any action which results in a
breach of the covenants of the Manager set forth herein.
The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the
Manager to receive payments on any unpaid balance of the compensation described
in Section 3 earned prior to such termination.
This Agreement may be amended only by an instrument in writing signed
by the party against which enforcement of the amendment is sought. An
amendment of this Agreement shall
-5-
<PAGE> 6
not be effective until approved by (i) vote of the holders of a majority of the
outstanding voting securities of the Portfolio; and (ii) a majority of those
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940) of any party to
this Agreement, cast in person at a meeting called for the purpose of voting on
such approval.
7. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder shall not be thereby affected.
8. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
-6-
<PAGE> 7
9. Applicable Law. This Agreement shall be construed in
accordance with applicable federal law and the laws of the State of Illinois.
IN WITNESS WHEREOF, the Fund and the Manager have caused this
Agreement to be executed as of the day and year first above written.
WILLIAM BLAIR MUTUAL FUNDS, INC.
VALUE DISCOVERY FUND
By:
------------------------------------
ATTEST:
- ---------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
By:
------------------------------------
ATTEST:
- ---------------------------------
-7-
<PAGE> 1
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
November 12, 1996
William Blair Mutual Funds, Inc.
135 South LaSalle Street
Chicago, Illinois 60603
Gentlemen:
Reference is made to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being
filed by William Blair Mutual Funds, Inc. (the "Fund") in connection with the
proposed public offering of any or all of 500 million (500,000,000) shares of
stock, $.001 par value per share (the "Shares"), of the Value Discovery Fund
portfolio (the "Portfolio").
We have acted as counsel for the Fund since its inception and in such
capacity have assisted in supervising its organization and have counseled the
Fund regarding all subsequent legal matters.
It is our opinion that the Fund is a corporation existing under the
laws of the State of Maryland and is authorized to issue the Shares of the
Portfolio. It is our further opinion that when the provisions of any
securities laws as may be applicable have been complied with and such Shares
have been duly delivered against payment therefor as contemplated by the
Registration Statement, such Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion in connection with said
Registration Statement as amended and the prospectus and statement of
additional information relating to said Shares.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
By: /s/ Cathy G. O'Kelly
-------------------------
Cathy G. O'Kelly
