<PAGE>
February 2, 1996
Dear Shareholders:
1995 WAS GREAT.
<TABLE>
<CAPTION>
INTERNATIONAL LIMITED TERM READY
GROWTH INCOME TAX-FREE RESERVES
William Blair Funds: GROWTH FUND FUND FUND FUND FUND
----------------------- ------------- --------- --------------- --------
<S> <C> <C> <C> <C> <C>
1995................. 29.1% 7.2% 14.4% 10.0% 5.5%
1994................. 6.5% (0.04%) (0.7%) (1.6%)* 3.7%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
LIPPER INTERMED. MERRILL LYNCH T-BILLS
Benchmarks: S&P 500 RUSSELL 2000 INTERNATIONAL BOND INTERMED. MUNI. (90 DAY)
------- ------------ ------------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
1995................. 37.5% 28.4% 9.3% 15.3% 10.6% 5.2%
1994................. 1.3% (1.8%) (0.9%) (1.9%) (2.7%) 3.7%
</TABLE>
- - ---------------
* Inception date 1/24/94.
At the beginning of the year, investors did not have high expectations for
1995. The prior year had been difficult. Interest rates rose dramatically, and
the stock market struggled all year. While the larger company S&P 500 Index rose
slightly, almost all of the mid/smaller company indices declined. A "wall of
worry" set the stage for positive surprises, and there were many. Inflation did
not rise at all and, as a result, interest rates declined substantially.
Corporate earnings were good (up an estimated 17%), driven by both increased
productivity and lower cost orientation that has spread across all sectors of
the economy. Even political/government developments held some promise of less
drag (regulation and taxes) on the economy. All in all, 1995 was a banner year.
Unfortunately we can not expect things to get much better. Corporate
earnings will likely be up less than 10% in 1996. Additional significant
interest rate declines (to under 5%), while good for bonds, would only be the
result of economic weakness, causing corporate earnings disappointments and
leading to a difficult stock market. Unlike 1995 when all financial assets
performed well, we are not likely to have both stocks and bonds moving up
together. However we see no major signs, other than a "technology" euphoria that
is now abating, that the stock market has a significant problem. By
"significant" we mean more than the normal 10% correction which one should
always expect could happen at any time.
In 1994 and 1995, interest rate movements had a major impact on investment
returns. 1996 is likely to be much more stable. At least in the near term we see
little upward rate pressure. While the Fed is likely to ease a little more, we
don't think the economy is slipping into a recession which would force
significant action. We expect modest 4-7% returns for fixed-income securities.
Although absolute returns for the Growth Fund were excellent, and it is
difficult to be too disappointed with a near 30% return, we did underperform the
S&P 500. We deliberately did not
<PAGE>
shift into the kind of technology stocks that were the top performers, fearing
that they will have a hard landing in the not-too-distant future (which actually
may already be upon us). Compared to the U.S., International markets had a more
subdued year, with Japan essentially flat and many of the emerging markets with
negative returns. Smaller company stocks underperformed worldwide in 1995. The
International Growth Fund lagged on a relative basis because of our strategic
bias towards faster growing, somewhat smaller companies in Europe and Japan and
our 10% exposure to emerging markets. Both our equity funds remain well
positioned for the long-term and we look for better relative performance in
1996.
Our fixed-income and short-term reserve funds had predictably good years
with solid returns. Despite good performance, the growth in assets for the bond
funds has been almost non-existent, especially in the Limited Term Tax-Free
Fund. Talk in Washington of a flat tax, with no income tax on any interest
income regardless of source, has caused tax-exempt bond's performance to lag,
and their yields relative to taxable bonds are now more attractive than any time
in almost ten years.
We are looking forward to serving your investment needs throughout the
coming year.
Rocky Barber
President
2
<PAGE>
February 2, 1996
Dear Shareholders:
The U.S. financial markets enjoyed an extraordinary advance in 1995. A
powerful combination of strong corporate profit growth and lower interest rates
drove stocks to record levels. Despite a backdrop of moderating economic growth
during the year, corporate profits increased an estimated 17% as profit margins
benefitted from productivity gains and other factors. As a result, quarterly
earnings reports generally exceeded consensus Wall Street expectations and drove
analysts' profit forecasts upward through most of the year. More surprising,
however, was the sharp decline in interest rates where long term Treasury yields
declined to the 6% level by year end versus consensus expectations of over 8% a
year ago. In a nutshell, the positive trends for both earnings and interest
rates against a rather pessimistic forecast a year ago was the near ideal
environment for upside surprise and return.
A closer analysis of the stock market in 1995 reveals that small cap stock
returns trailed behind large cap stocks for the second consecutive year.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
WILLIAM BLAIR GROWTH FUND 29.1% 6.5%
S & P 500 37.5 1.3
Russell 2000 28.4 -1.8
Lipper Growth 31.5 -1.6
</TABLE>
The Russell 2000 Index of smaller companies gained ONLY 28% compared with
the 38% return for the S&P 500 index. In addition to the aforementioned
productivity gains, many large company earnings results were enhanced by
corporate restructuring, cost reduction programs and foreign currency gains from
overseas subsidiaries. As a result earning increases have been very strong and
profit margins are at record levels. However, many of these factors are
non-recurring, and will not drive sustainable growth. We expect the historically
faster growth rates of smaller company stocks to become more evident in 1996.
Consensus expectations for growth in S&P 500 earnings in 1996 are less than 10%,
which is well below the growth rate seen in the past two years. With this in
mind, the relative valuation of smaller company stocks currently stands near the
midpoint of historic ranges and supports a more positive view towards future
performance.
Technology was the strongest performing sector in the market by a
relatively wide margin with gains of about 45% versus about 33% for the rest of
the market. Our investment philosophy has a strong bias towards business
franchises that we believe have above average predictability and consistency to
their financial results. For that reason we have historically had less emphasis
on the more volatile, pure technology product companies and 1995 was no
exception. We prefer to own applied technology companies which sell products or
services based on new technological advancements available in the market or
which use them to lower their costs or improve their productivity. This past
year was difficult for us in that small and large cap portfolios alike were
strongly rewarded for taking more risk than we prefer. We strive to outperform
by focusing on high quality companies with excellent growth prospects, yet below
average business volatility. Our superior long term performance supports this
approach. On the other hand, a concentrated sector oriented strategy, especially
one tilted towards technology, would clearly not be consistent with our
philosophy.
3
<PAGE>
Looking ahead to 1996, we see a much more modest, but still positive,
return environment. Interest rates are still somewhat high in real (inflation
adjusted) terms and should not be trending higher. The political climate is
unclear, but, generally moving in the right direction (balanced budget
amendment, lower capital gains taxes, less regulation) and the aging baby
boomers are just beginning to realize the necessity of saving and investing for
their longer term needs. Offsetting these positive forces are the slowing rate
of earnings growth and a strapped U.S. consumer. The risk of a 1997 U.S.
recession, while not highly probable, will still cause some investor caution in
1996.
Ultimately, our challenge in 1996 will be to focus on companies that can
achieve reasonably good earnings growth in an environment of low inflation,
sluggish economies worldwide and ever increasing competition. We are also
focusing on the market valuation excesses that have shown up in some specific
stocks and are making adjustments as necessary.
Rocky Barber Mark A. Fuller, III
President Senior Vice President
Growth Fund Portfolio Manager Growth Fund Portfolio Manager
4
<PAGE>
- - --------------------------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) GROWTH FUND S&P 500
<S> <C> <C>
1/86 10000 10000
12/86 10979 11821
12/87 11856 12433
12/88 12700 14484
12/89 16567 19038
12/90 16233 18429
12/91 23435 24059
12/92 25219 25907
12/93 29131 28498
12/94 31011 28876
12/95 40026 39706
</TABLE>
- - --------------------------------------------------------------------------------
5
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
GROWTH FUND
Portfolio of Investments December 31, 1995
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- -------- --------
<S> <C> <C> <C> <C>
COMMON STOCKS
APPLIED TECHNOLOGY -- 20.4%
205 * Acxiom Corporation $ 2,164 $ 5,598
300 * Airtouch Communications, Inc. 8,099 8,475
198 * American Management Systems 4,702 5,940
115 Automatic Data Processing, Inc. 6,141 8,539
79 * Catalina Marketing Corporation 3,691 4,957
177 First Data Corporation 6,966 11,852
236 * International Imaging Materials Inc. 5,642 5,964
150 * NFO Research, Inc. 1,870 3,975
60 * Paging Network, Inc. 970 1,463
120 Reuters Holdings PLC (ADR) 4,568 6,615
115 Shared Medical Systems Corporation 3,448 6,237
100 * Solectron Corporation 3,678 4,412
-------- --------
51,939 74,027
-------- --------
CONSUMER RETAIL -- 17.2%
120 Albertson's, Inc. 3,487 3,945
200 * Eckerd Corporation 6,508 8,925
165 Heilig-Meyers Company 4,213 3,032
250 Home Depot, Inc. 10,975 11,969
79 * Kohl's Corporation 3,777 4,158
120 * Micro Warehouse, Inc. 3,295 5,190
100 * Office Depot, Inc. 1,372 1,962
100 The Pep Boys -- Manny, Moe & Jack 2,479 2,563
164 * Staples, Inc. 1,792 3,989
127 * Viking Office Products, Inc. 2,351 5,887
300 Wal-Mart Stores 7,484 6,675
136 Walgreen Company 3,257 4,063
-------- --------
50,990 62,358
-------- --------
FINANCIAL SERVICES -- 9.8%
100 Advanta Corporation, Class "A" 3,108 3,825
20 Advanta Corporation, Class "B" 535 728
174 * Credit Acceptance Corporation 3,691 3,602
100 Federal Home Loan Mortgage Corporation 5,282 8,350
100 Household International, Inc. 3,396 5,912
185 MBNA Corporation 5,710 6,822
140 State Street Boston Corporation 5,180 6,300
-------- --------
26,902 35,539
-------- --------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- -------- --------
<S> <C> <C> <C> <C>
MEDICAL-RELATED SPECIALTIES -- 9.8%
150 * Elan PLC (ADR) $ 4,708 $ 7,294
106 * Health Care & Retirement Corporation 3,336 3,707
200 * Healthsouth Rehabilitation Corporation 2,871 5,825
195 * Medaphis Corporation 4,214 7,200
100 Omnicare, Inc. 1,465 4,457
81 * Quintiles Transnational Corporation 1,400 3,313
77 * R.P. Scherer Corporation 2,716 3,783
-------- --------
20,710 35,579
-------- --------
TECHNOLOGY -- 8.3%
113 * Digi International, Inc. 2,000 2,137
80 Linear Technology Corporation 2,202 3,140
100 * Microsoft Corporation 5,443 8,775
98 Molex Incorporated 1,041 3,101
159 Molex Incorporated, Class "A" 2,751 4,857
80 * Xilinx, Inc. 3,523 2,434
165 * Zebra Technologies Corporation, Class "A" 2,900 5,603
-------- --------
19,860 30,047
-------- --------
DISTRIBUTION -- 7.8%
220 Alco Standard Corporation 5,900 10,037
60 Cardinal Health, Inc. 2,626 3,285
157 * Gulf South Medical Medical Supply, Inc. 3,580 4,752
151 * Peak Technologies Group, Inc. 3,950 4,734
80 Sysco Corporation 583 2,600
209 * Thompson PBE, Inc. 3,482 2,933
-------- --------
20,121 28,341
-------- --------
INDUSTRIAL PRODUCTS -- 7.7%
160 Air Products & Chemicals, Inc. 7,456 8,440
110 Danaher Corporation 1,274 3,492
170 M.A. Hanna Company 3,940 4,768
196 Minerals Technologies, Inc. 5,250 7,158
137 OEA, Inc. 3,973 4,084
-------- --------
21,893 27,942
-------- --------
SPECIALTY CONSUMER SERVICES AND PRODUCTS -- 6.1%
225 * CUC International, Inc. 3,470 7,678
173 * Day Runner, Inc. 2,792 5,979
135 * Department 56, Inc. 3,596 5,177
130 The Loewen Group, Inc. 2,308 3,291
-------- --------
12,166 22,125
-------- --------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Shares or Amount (all amounts in thousands) Cost Value
- - ---------------- -------- --------
<S> <C> <C> <C> <C>
BUSINESS SERVICES -- 4.3%
125 Cintas Corporation $ 3,828 $ 5,571
219 * Heartland Express, Inc. 3,877 4,333
224 * Knight Transportation, Inc. 3,423 3,077
120 * Rural/Metro Corporation 2,278 2,715
-------- --------
13,406 15,696
-------- --------
FOOD RETAIL/PROCESSING -- 3.0%
60 Pepsico, Inc. 3,501 3,353
285 Wendy's International, Inc. 4,985 6,056
106 * Whole Foods Market, Inc. 1,540 1,471
-------- --------
10,026 10,880
-------- --------
TOTAL COMMON STOCK -- 94.4% 248,013 342,534
-------- --------
SHORT-TERM INVESTMENTS
$3,559 Associates Corp. of North America Demand Note,
5.444%, due 1/2/96 3,559 3,559
2,987 Household Finance Corporation, 5.75%, due 1/5/96 2,987 2,987
2,253 Chevron Oil Finance Company, 5.65%, due 1/12/96 2,253 2,253
2,671 Chevron Oil Finance Company, 5.72%, due 1/12/96 2,671 2,671
1,774 General Electric Capital Corporation, 5.74%, due 1/19/96 1,774 1,774
3,000 Chevron Oil Finance Company, 5.65%, due 1/19/96 3,000 3,000
3,200 GMAC Corporation, 5.69%, due 1/26/96 3,200 3,200
3,500 Ford Motor Credit Company, 5.60%, due 2/2/96 3,500 3,500
-------- --------
Total Short-term Investments -- 6.3% 22,944 22,944
-------- --------
TOTAL INVESTMENTS -- 100.7% $270,957 365,478
========
LIABILITIES, PLUS CASH AND OTHER ASSETS -- (.7)% (2,442)
--------
NET ASSETS -- 100.0% $363,036
========
</TABLE>
- - ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
8
<PAGE>
February 2, 1996
Dear Shareholders:
With the United States 1995's second best performing world stock market
(only Switzerland was up more), United States investors in international
portfolios were modestly rewarded. The EAFE Index returned 11.6% and the Lipper
International Index returned 9.3% as the large Japanese market was essentially
flat and the emerging markets actually declined nearly 10%. Offsetting these
drags were gains of nearly 10% in non-Japan Far East and about 15-18% in
Europe/UK. Clearly, the major investment action in 1995 was here in the U.S.
The International Growth Fund lagged behind both international indices with
a 7.2% return for the year. We emphasize investment in growth stocks which
results in an overweight position in somewhat smaller companies. As shown in the
table below, larger cap stocks outperformed in all major geographic markets in
1995. History clearly demonstrates that this is quite unusual and indeed recent
evidence shows that smaller companies are starting to again perform better in
some markets.
PERFORMANCE OF SMALL CAP VS LARGE CAP*
<TABLE>
<CAPTION>
1994 1995
------------ --------------------------------------
REPRESENTATIVE INDICES Q3 Q4 Q1 Q2 Q3 Q4 YEAR
- - -------------------------------------- ---- ---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Morgan Stanley Capital International
UK (large)*......................... 5.4% 0.5% 5.6% 3.0% 5.4% 2.3% 17.2%
Financial Times Stock Exchange Small
Cap UK, ex Investment Trust
(small)............................. 3.7 -4.7 2.9 4.5 7.2 -3.7 10.9
Morgan Stanley Capital International
EUROPE, ex UK (large)............... 2.8 0.3 5.5 7.1 2.7 3.1 19.7
James Capel Small Cap EUROPE, ex UK
(small)............................. 2.3 -1.9 2.6 5.3 -1.2 -4.1 2.3
Morgan Stanley Capital International
JAPAN (large)....................... -5.5 -1.5 -2.3 -6.5 4.3 4.9 0.0
James Capel Small Cap JAPAN (small)... -8.1 -2.4 -6.8 -10.7 0.4 7.2 -10.3
</TABLE>
- - ---------------
* US Dollar adjusted Capital Change
9
<PAGE>
Looking ahead to 1996, we can summarize our investment outlook by the
following:
OVERVIEW
- Economic growth remains below trend in the industrial world
- Short-term rates have further to fall in the United States and
Continental Europe
- World growth will accelerate in 1997
- The dollar should strengthen over the year but may be vulnerable short
term
JAPAN
- Economic growth is picking up
- Monetary policy may be tightened earlier than expected
- The equity market has seen the best of its rally
EUROPE
- Growth is slowing and may move to negative levels in the first half of
1996
- Inflation remains very low in core ERM countries
- Short-term interest rates have further to fall
- Overweight classic growth and interest rate sensitive stocks
UK
- The economy is set to grow around 2.5% in 1996
- Headline inflation will fall to 1-2% mid-year
- Long gilt yields should trade in a range of 7-8%
- Growth may be uncomfortably strong by 1997
EMERGING MARKETS
- Economic performance is still deteriorating in some Asian markets
- Latin American growth should accelerate in 1996
- East European markets look set for good performance in 1996
- Represent good value at current levels and should outperform in 1996
The portfolio remains overweighted in Japan, core Europe and emerging
markets. In Japan, we are seeing the beginning of better performance among the
medium and smaller sized stocks and we expect this to continue as the economic
environment improves in 1996. We see some risk of Yen weakness, after an
unprecedented period of strength, and have continued to hedge approximately one
third of our exposure. In core Europe, we see continued benefits from declining
interest rates led by Germany. Smaller company shares throughout Europe have
been in a prolonged bear market and some outstanding values are available;
however, it will require greater optimism on European growth prospects before
they start to outperform. Finally, we see interest returning to many of the
emerging markets as valuations have become more compelling given recent years
declines.
Norbert W. Truderung
Senior Vice President
William Blair Mutual Funds, Inc.
10
<PAGE>
- - --------------------------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INT'L GROWTH LIPPER INT'L
(FISCAL YEAR COVERED) FUND INDEX
<S> <C> <C>
10/92 10000 10000
12/92 10130 09875
6/93 11390 11310
12/93 13534 13744
6/94 13985 13718
12/94 13528 13622
6/95 13332 13962
12/95 14505 14886
</TABLE>
- - --------------------------------------------------------------------------------
11
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
Portfolio of Investments December 31, 1995
Shares (all amounts in thousands) Cost Value
- - ------------- ------- -------
<S> <C> <C> <C> <C>
COMMON STOCKS -- EUROPE -- 43.8%
AUSTRIA -- .8%
10 Flughafen Wien AG (Vienna Airport) $ 484 $ 675
------- -------
BELGIUM -- .8%
3 Kredietbank (Bank) 607 684
------- -------
DENMARK -- .5%
4 Novo Nordisk AS (Pharmaceutical) 427 479
------- -------
FINLAND -- .5%
11 Nokia (AB) OY (Telecommunications equipment) 732 432
------- -------
FRANCE -- 6.6%
4 Air Liquide (Industrial gases) 577 662
7 Alcatel-Alsthom SA (Telecommunication/
transportation equipment) 710 604
8 Banque Nationale De Paris (Bank) 392 361
4 Cie De St. Gobain (Building materials) 416 382
6 Crometal (Metal, plastic and construction) 509 398
9 Gascogne (Packaging paper and printing) 794 793
7 Interbail (Societe Financiere) (Property leasing and
rental) 592 377
12 * SGS Thomson Micro (Electronic semiconductors) 563 459
4 Societe Bic (Consumer goods) 400 437
7 Societe Generale (Bank) 750 865
2 Sodexho (Contract catering) 305 588
------- -------
6,008 5,926
------- -------
GERMANY -- 5.9%
3 Bayer AG (Chemicals) 696 792
3 Durr Beteil AG (Capital goods and spray paint machinery) 894 749
5 * Ex Cello O Holdings AG (Machine tools) 848 537
1 Linde AG (Engineering) 709 729
2 Mannesmann AG (Engineering-general) 364 509
0.11 Munchener Ruckvers AG (Reinsurance) 182 244
6 Praktiker Bau Und Heimninerker AG (Retailing) 208 191
2 Siemens AG (Electrical engineering) 666 821
2 Simona AG (Plastics processing) 302 305
3 * Varta AG (Batteries) 530 479
------- -------
5,399 5,356
------- -------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- ------- -------
<S> <C> <C> <C> <C>
ITALY -- 1.7%
404 BCA Fideuram SPA (Fund management) $ 483 $ 467
150 La Rinascente (Retailing) 393 390
400 Telecom Italia Mobile (Mobile telephones) 513 704
------- -------
1,389 1,561
------- -------
LUXEMBOURG -- .7%
20 Millicom International Cellular S A (Communications) 521 610
------- -------
NETHERLANDS -- 4.1%
9 Crown V Gelder G B (Specialists -- paper products) 707 721
17 * Frans Maas Group (Transport services) 502 566
6 Heineken NV (Brewer) 961 1,064
9 Kon Ten Cate NV (Chemicals) 454 380
20 Koninklijke Van Ommeren CVA (Specialty chemicals) 539 623
8 Philips Electronics NV (Consumer electronics) 391 289
------- -------
3,554 3,643
------- -------
PORTUGAL -- .1%
5 Filmes Lusomundo (Media) 61 53
------- -------
SPAIN -- 2.0%
20 Aguas De Barcelona (Water utility) 526 597
25 Centros Com Pryca (Supermarkets) 501 524
15 Hidroel Cantabrico (Electric utility) 483 519
10 Unipapel S A (Office stationery) 268 188
------- -------
1,778 1,828
------- -------
SWEDEN -- 2.9%
7 Autoliv AB (Airbag manufacturers) 392 409
15 Astra AB (Pharmaceutical) 502 599
28 Ericcson (LM) Telefon (Telecommunication equipment) 539 538
50 Munksjo AB (Pulp and paper) 480 328
55 Sparbanken Sverige (Bank) 483 700
------- -------
2,396 2,574
------- -------
SWITZERLAND -- 5.3%
0.25 Baloise Holdings (Insurance) 577 520
0.25 Bobst AG (Printing machines) 377 390
10 CS Holdings (Banking) 1,011 1,025
0.80 Nestle SA (Food) 820 885
0.13 Roche Holdings AG (Pharmaceuticals) 789 989
1 Sandoz AG (Pharmaceuticals) 739 915
------- -------
4,313 4,724
------- -------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- ------- -------
<S> <C> <C> <C> <C>
TURKEY -- .1%
1,546 Sifas (Textiles) $ 250 $ 83
------- -------
UNITED KINGDOM -- 11.8%
19 Abacus Group (Distributors) 83 82
125 Bank of Scotland (Bank) 358 546
175 Bullough (Engineering) 391 277
125 Chubb Security (Securities firm) 618 618
75 DFS Furniture Company (Furniture
manufacturer and retailer) 315 460
19 Domestic & General Group (Insurance) 386 449
85 Eurotherm (Instruments and controls) 404 722
125 First Leisure Corporation (Entertainment) 599 740
75 Frost Group (Retailers) 247 224
233 Halma (Industrial safety and environmental equipment) 543 634
100 Hays (Bulk distribution, personnel services) 435 584
175 Hogg Robinson (Travel, transport and financial services) 572 620
150 Kwik Fit Holdings (Distributors) 422 396
100 London Forfaiting (Commercial asset-based finance) 235 340
20 Mercury Assets Management Group (Banks/Merchant) 331 276
35 RTZ Corp. (Mining and finance) 381 509
100 S I G (Building material distributor) 371 300
65 Shell Transport & Trading (Oil-Integrated) 753 860
100 Standard Chartered (Retail banks) 621 851
35 Tate & Lyle (Food Producers) 247 257
90 Vero Group (Electronics) 387 380
75 Watmoughs Holdings (Printer) 460 530
------- -------
9,159 10,655
------- -------
COMMON STOCKS -- ASIA -- 41.5%
AUSTRALIA -- 2.5%
45 Broken Hill Proprietary (Mining) 620 635
200 John Fairfax (Newspaper publishing) 346 416
300 Stanilite Pacific (Manufacturer
of emergency lighting systems) 397 137
125 Stanilite Pacific Ltd (Electronic/communication
equipment) 150 57
160 Western Mining Corporation (Mines) 971 1,027
------- -------
2,484 2,272
------- -------
JAPAN -- 32.0%
77 Anritsu Corporation (Electrical machinery) 888 835
75 Asahi Tec Corporation (Automobile parts) 702 498
41 Bank of Tokyo (Bank) 699 719
0.10 DDI Corporation (Cellular telecom service provider) 573 775
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- ------- -------
<S> <C> <C> <C> <C>
25 Enix Corporation (Entertainment software) $ 842 $ 953
60 Exedy Corporation (Automobile parts) 993 953
15 Fuji Machine Manufacturing (Automated
assembly machinery) 481 538
50 Hitachi Metals (Specialty steel maker) 611 625
13 Ito Yokado Company (Food retailer) 552 801
60 Jaccs Company (Consumer finance) 619 622
93 Kamigumi Company (Harbor transport & equipment) 900 893
20 Kato Denki Company (Electrical retailer) 451 519
7 Keyence Corporation (Electronics) 574 807
10 Melco Incorporated (Electronics) 353 527
47 Mitsubishi Trust & Banking (Banking) 749 783
70 Mitsui Fudosan Company (Real estate) 878 861
55 Namco (Commercial use videogame hardware) 1,473 1,832
68 Neturen Company (Metal products) 551 539
50 New Oji Paper Company (Pulp and paper) 461 452
9 Nichiei Company (Finance company) 617 671
90 Nikko Securities (Securities firm) 839 1,159
300 * NKK Corporation (Steel producer) 790 808
90 NTN Corporation (Bearings producer) 598 601
70 Obayashi Corporation (Construction) 558 556
87 Ricoh Company (Color copier manufacturer) 885 952
30 Rinnai Corporation (Metal products) 680 700
8 Riso Kagaku Corporation (Printing machine producer) 660 675
20 Rohm & Co. (Electronics) 595 1,129
21 Ryosan Electro Corporation (Semiconductors/workstations) 465 578
10 SMC Corporation (Machinery) 573 723
33 Santen Pharm Company (Opthalmic pharmaceuticals) 740 748
34 Sanwa Bank (Bank) 655 692
14 Secom Company (Services) 847 974
23 Sho Bond Corporation (Construction) 763 786
30 Sumitumo Bank (Bank) 557 636
55 Sumitumo Trust & Banking (Bank) 786 778
60 Topre Corporation (Automobile pressed parts) 525 477
18 Tostem Corporation (Metal products) 648 598
------- -------
26,131 28,773
------- -------
HONG KONG -- 4.6%
100 China Light & Power (Electric utility) 448 460
59 HSBC Holdings (Bank) 638 896
1,480 Inner Mongolia Erdos Cashmere (Wool producer) 701 555
750 National Mutual Asia (Finance) 471 679
70 Sun Hung Kai Properties (Real estate management) 419 568
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Shares (all amounts in thousands) Cost Value
- - ------------- ------- -------
<S> <C> <C> <C> <C>
65 Swire Pacific (Airline, general trading
and real estate conglomerate) $ 415 $ 504
1,960 Yizheng Chemical Fibre Company (Chemicals) 555 441
------- -------
3,647 4,103
------- -------
SINGAPORE -- 2.4%
45 City Developments (Real estate company) 275 328
50 Fraser & Neave (Diversified conglomerate) 468 639
3 Fraser & Neave, warrants (expire 5/27/98) 3 20
80 Keppel Corp. (Diversified conglomerate) 490 713
199 Singapore Technologies Industries
(Infrastructure/industrial development projects) 304 450
------- -------
1,540 2,150
------- -------
COMMON STOCKS -- EMERGING MARKETS -- 9.8%
ARGENTINA -- 1.2%
43 Irsa Inversiones Y Representaciones GDR (Property) 878 1,094
------- -------
BRAZIL -- 1.6%
40 (a) Rhodia Ster S A (Packaging) (Rule 144A) 579 410
16 Telecommunicacoes Brasilera, ADR (Telecommunication) 532 741
40 (a) Usinas Siderurgicas De Minas Gerais S.A.,
ADR (Rule 144A) (Steel) 623 325
------- -------
1,734 1,476
------- -------
INDONESIA -- 1.0%
96 (b) Astra International (Assembler/distributor of
automobiles/motorcycles) 139 199
90 (b) Indosat (Telecommunications service provider) 346 335
139 (b) Mulia Industrindo (Glass and ceramic manufacturer) 235 391
------- -------
720 925
------- -------
KOREA -- .4%
15 Korea Electric Power Corporation ADR (Electric utility) 315 401
------- -------
MALAYSIA -- 1.4%
58 Resorts World Berhad (Manages hotel
and gaming operations) 244 311
108 Leader Universal Holdings (Cable manufacturer) 305 247
105 YTL Corporation (Holding company-property/
power generating) 354 662
------- -------
903 1,220
------- -------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares or Amount (all amounts in thousands) Cost Value
- - ---------------- ------- -------
<S> <C> <C> <C> <C>
PERU -- 1.2%
505 Telefonica Del Peru SA CPT 'B' Shares
(Telephone company) $ 878 $ 1,082
------- -------
SOUTH AFRICA -- 1.0%
115 Free State Consolidated Gold Mines (Mining) 1,249 860
------- -------
THAILAND -- 2.0%
0.05 Formosa Fund (Mutual fund) 351 380
200 (b) Industrial Finance Corporation of Thailand (Bank) 373 679
18 (b) Regional Continental Line (Transportation containers) 207 225
69 Thai Farmers Bank (Bank) 236 471
------- -------
1,167 1,755
------- -------
TOTAL COMMON STOCKS -- 95.1% 78,724 85,394
------- -------
CONVERTIBLE BONDS -- 1.9%
$ 200 Tata Iron & Steel Company, 2.25%
due 4/1/99 (Construction materials) 200 178
550 U Ming Marine Holdings, 1.5%, due 2/7/01 (Shipping) 558 491
500 United Micro Electric, 1.25%, due 6/8/04 (Technology) 855 666
35,000Y Sankyo Frontier Company, 3.00% due 9/29/00 (Licensing) 459 343
------- -------
TOTAL CONVERTIBLE BONDS 2,072 1,678
------- -------
SHORT-TERM INVESTMENTS -- 2.8%
$2,505 State Street Bank Euro-Dollar Time Deposit,
4.75%, due 1/2/96 2,505 2,505
------- -------
TOTAL INVESTMENTS -- 99.8% $83,301 89,577
=======
CASH AND OTHER ASSETS, LESS LIABILITIES -- .2% 185
-------
NET ASSETS -- 100.0% $89,762
=======
</TABLE>
- - ---------------
* Non-income producing securities
ADR = American Depository Receipt
(a) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At December 31, 1995, the value of these
securities was 0.8% of net assets.
(b) Foreign registered securities (Alien Market).
At December 31, 1995 the Fund's Portfolio of Investments includes the
following categories: Capital Equipment -- 23%; Services -- 23%; Finance --
22%; Materials -- 15%; Consumer Goods -- 11%; Energy -- 4%; and
Multi-Industry -- 2%.
See accompanying Notes to Financial Statements.
17
<PAGE>
February 2, 1996
Dear Shareholders:
Unlike the prior year, 1995 was one that bond investors will savor. Double
digit returns were the norm for all but the shortest maturity issues. Economic
growth slowed during the year and inflation remained subdued. The Federal
Reserve Board responded by twice lowering short-term interest rates. This
steadily declining interest rate environment led to a 14.4% return with
dividends reinvested for the Income Fund. While this return exceeded the 10.9%
return of our relevant Lipper peer group, it trailed the 15.3% return of the
Lehman Intermediate Government/Corporate Bond Index.
We maintained our modestly defensive position throughout the second half of
1995 and we expect to continue to do so as we move into 1996. The returns
generated within the bond market last year represent one of the best single-year
performances in bond market history. A great year like 1995 is generally not
followed by another one and this simple recognition is the main reason for
maintaining our position. We continue to emphasize U.S. Treasury notes and more
conservatively structured mortgage-backed bonds as there still does not seem to
be much value in the corporate bond area.
Assets remained very stable in the $150 million range. Additionally, we
changed the monthly dividend on two occasions this year. This basically
reflected the volatility of interest rates that has developed more recently. As
a result, we are modifying our dividend policy very slightly. We will determine
a dividend level at the beginning of each year and will review that level every
quarter to see if an adjustment is necessary. Our philosophy continues to be one
of paying out only income earned and trying to avoid any return of principal. We
look forward to serving your fixed-income needs in 1996.
Bentley M. Myer
Senior Vice President
Income Fund Portfolio Manager
18
<PAGE>
- - --------------------------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
LEHMAN IN-
TERMED.
MEASUREMENT PERIOD GOVT/CORP
(FISCAL YEAR COVERED) INCOME FUND INDEX
<S> <C> <C>
9/90 10000 10000
12/90 10291 10410
6/91 10781 10862
12/91 11986 11932
6/92 12390 12292
12/92 12845 12788
6/93 13565 13582
12/93 13849 13912
6/94 13555 13548
12/94 13746 13643
6/95 14935 14953
12/95 15722 15735
</TABLE>
- - --------------------------------------------------------------------------------
19
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
INCOME FUND
Portfolio of Investments December 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - -------- ---------------------------------------------------- --------
<S> <C> <C>
(all amounts in thousands)
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY
GUARANTEED OBLIGATIONS -- 66.5%
U.S. TREASURY -- 26.2%
$ 14,700 U.S. Treasury Note 7.50%, due 11/15/01 $ 16,191
10,322 U.S. Treasury Note 5.75%, due 8/15/03 10,446
10,750 U.S. Treasury Note 7.25%, due 5/15/04 11,929
- - -------- --------
35,772 Total U.S. Treasury Obligations 38,566
- - -------- --------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS -- 18.5%
SMALL BUSINESS ADMINISTRATION -- 8.9%
-- Receipt for Multiple Originator Fees, #3, 0.786%,
due 11/08/08 (Interest only) WAC 2,225
378 Loan #100023, 9.375%, due 11/25/14 397
-- Receipt for Multiple Originator Fees, #146, 3.021%,
due 6/03/15 (Interest only) WAC 1,858
-- Receipt for Multiple Originator Fees, #156, 3.323%,
due 7/20/15 (Interest only) WAC 1,904
-- Receipt for Multiple Originator Fees, #215, 3.311%,
due 9/03/15 (Interest only) WAC 4,506
-- Receipt for Multiple Originator Fees, #149, 3.082%,
due 10/01/15 (Interest only) WAC 2,308
- - -------- --------
378 Total Small Business Administration Obligations 13,198
- - -------- --------
U.S. DEPARTMENT OF VETERANS AFFAIRS -- 4.9%
2,060 Mortgage Trust 1992-1, Tranche 2-B,
7.75%, due 9/15/10 2,098
5,000 Mortgage Trust 1992-2, Tranche 2-D,
7.00%, due 9/15/15 5,096
- - -------- --------
7,060 Total U.S. Department of Veteran Affairs
- - -------- Guaranteed Pass-Through Certificates 7,194
--------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - -------- ---------------------------------------------------- --------
<S> <C> <C>
(all amounts in thousands)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.5%
$ 26 12.50%, due 4/15/14 $ 30
54 13.00%, due 11/15/14 60
2,277 8.50%, due 11/15/21 2,401
1,063 8.50%, due 12/15/21 1,120
1,501 8.50%, due 1/15/22 1,583
- - -------- --------
4,921 Total Government National Mortgage
- - -------- Association Obligations 5,194
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II -- 0.8%
28 12.00%, due 2/20/20 30
21 12.50%, due 2/20/15 24
777 11.00%, due 3/20/16 861
24 10.50%, due 6/20/19 26
97 10.50%, due 8/20/20 107
120 10.50%, due 9/20/20 132
- - -------- --------
1,067 Total Government National Mortgage
- - -------- Association II Obligations 1,180
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MOBILE HOME -- 0.4%
114 9.75%, due 3/15/98 118
54 9.75%, due 1/15/99 57
427 9.50%, due 12/15/10 456
- - -------- --------
595 Total Government National Mortgage
- - -------- Association Mobile Home Obligations 631
--------
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS -- 21.8%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) -- 14.7%
403 #1475, Tranche SC, 8.107% FR, due 2/15/08 391
1,092 #1693, Tranche S, 5.225%, due 9/15/08 931
2,214 #1214, Tranche EB, 9.095% FR, due 2/15/15 2,220
2,500 #77, Tranche F, 8.500%, due 6/15/17 2,514
4,395 #845059, Debenture, 7.460% FR, due 5/01/18 4,507
2,000 #1289, Tranche PK, 7.500%, due 5/15/18 2,028
4,846 #1081, Tranche IC, 6.500%, due 12/15/19 4,847
676 #1077, Tranche G, 7.500%, due 5/15/21 678
2,818 #C00137, Debenture, 9.000%, due 5/01/22 2,990
603 #1492, Tranche SE, 10.133%, due 3/15/23 552
- - -------- --------
21,547 Total FHLMC Collateralized
- - -------- Mortgage Obligations 21,658
--------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - -------- ---------------------------------------------------- --------
<S> <C> <C> <C>
(all amounts in thousands)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 7.1%
$ 2,900 1993-47, Tranche B, 6.650%, due 3/25/06 $ 2,906
54 13.250%, due 8/01/14 54
4,584 7.623%, due 12/01/2018 4,713
282 1992-105, Tranche A, 7.000%, due 1/25/21 284
276 1991-141, Tranche SB, 12.170% FR, due 10/25/21 276
1,890 1992-200, Tranche SE, 11.500%, due 11/25/22 1,896
266 1993-19, Tranche SH, 11.234%, due 4/25/23 266
- - -------- --------
10,252 Total FNMA Collateralized
- - -------- Mortgage Obligations 10,395
--------
81,592 Total U.S. Government and U.S. Government
- - -------- Agency Guaranteed Obligations 98,016
--------
<CAPTION>
S&P
Rating
-----------
(unaudited)
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 20.9%
3,255 Prudential Home Mortgage Securities Corp., 1992-45,
Tranche A-8, 6.045%, due 1/25/00 AAA 3,158
1,600 Polk Co. HFA, 1991-1, Tranche A-2, 9.550%,
due 1/15/11 AAA 1,708
11,503 Morgan Keegan Funding I, L.P., 8.000%, due 4/25/11 AA- 11,734
212 Clay Co. HFA, 1990, Tranche A-1, 9.500%, due
10/10/12 AAA 226
1,000 Mortgage Obligation Structured Trust, 1993-1,
Tranche A-1, 6.350%, due 10/25/18 AAA 993
5,000 Prudential Home Mortgage Securities Corp., 1993-8,
Tranche A-10, 7.350%, due 3/25/23 AAA 5,018
5,000 Prudential Home Mortgage Securities Corp., 1993-40,
Tranche A-2, 6.500%, due 10/25/23 AAA 5,017
392 Residential Finance Corp., 1991-11,
Tranche A-2, 10.000%, due 4/01/21 AA 393
1,219 Residential Finance Corp., 1991-11, Tranche A-2,
10.000%, due 4/01/21 AA 1,243
263 Resolution Trust Corp., 1991-3, Tranche A-2,
10.385%, due 8/25/21 AAA 274
1,052 Resolution Trust Corp., 1992-5, Tranche 5-C,
8.628%, due 1/25/26 AA 1,081
- - -------- --------
30,496 Total Collateralized Mortgage Obligations 30,845
- - -------- --------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal S&P
Amount Issue Rating Value
- - -------- ---------------------------------------------------- ----------- --------
<S> <C> <C> <C>
(all amounts in thousands) (unaudited)
CORPORATE OBLIGATIONS -- 2.2%
$ 1,250 Sears, Roebuck Corp. Medium Term Note, 9.75%,
due 3/21/00 BBB $ 1,424
1,500 Household Finance Corp. Medium Term Note, 10.38%,
due 12/15/00 A 1,778
- - -------- --------
2,750 Total Corporate Obligations 3,202
- - -------- --------
114,838 TOTAL LONG-TERM INVESTMENTS -- 89.6% 132,063
- - -------- --------
SHORT-TERM INVESTMENTS -- 8.8%
1,573 Associates Corp. of North America
Demand Note, 5.444%, due 1/2/96 A-1+ 1,573
3,200 General Motors Acceptance Corp., 5.730%,
due 2/2/96 A-2 3,200
3,000 IBM Credit Corporation, 5.700%,
due 2/2/96 A-1 3,000
2,226 General Motors Acceptance Corp., 5.720%,
2/16/96 A-2 2,226
3,000 American Express Credit Corp., 5.640%,
due 2/16/96 A-1 3,000
- - -------- --------
12,999 TOTAL SHORT-TERM INVESTMENTS -- 8.8% 12,999
- - -------- --------
$127,837 TOTAL INVESTMENTS (COST $142,123) -- 98.4% 145,062
========
CASH AND OTHER ASSETS, LESS LIABILITIES -- 1.6% 2,308
--------
NET ASSETS -- 100.0% $147,370
========
</TABLE>
- - ---------------
WAC = Weighted Average Coupon
FR = Floating Rate
See accompanying Notes to Financial Statements.
23
<PAGE>
February 2, 1996
Dear Shareholders:
The discussion of a flat tax and the possible elimination of taxation on all
interest and dividends plagued the municipal market for most of 1995. The ratio
of tax-exempt yields to taxable yields rose to the 80% to 90% level early in the
year and then remained there as the various tax proposals were discussed. The
ongoing budget discussions have recently taken precedence so a consensus
approach to tax reform has not yet developed. It still appears to us that some
reduction in tax rates is possible but that something more severe, like
eliminating deductions and not grandfathering current municipal bond issues is
unlikely.
The Limited Term Tax-Free Fund had a return of 10.0% with dividends
reinvested for the year, which exceeded the 9.0% return of the Lipper Municipal
Short-Term Index but trailed the 10.6% return of the Merrill Lynch Intermediate
Municipal Bond Index. We continued to maintain our moderately defensive position
throughout the second half of the year. While returns in the tax-exempt market
trailed those in the taxable market, the absolute returns were still at the high
end of the historical range. We therefore feel more comfortable recognizing this
fact and keeping a little more cash equivalents than usual. Assets continue to
grow slowly with the total reaching almost $20 million by year end.
Bentley M. Myer
Senior Vice President
Limited Term Tax-Free Fund Portfolio
Manager
- - --------------------------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
MERRILL LYNCH
LIMITED TERM INTERMEDIATE
MEASUREMENT PERIOD TAX- FREE MUN. BOND
(FISCAL YEAR COVERED) FUND INDEX
<S> <C> <C>
1/94 10000 10000
3/94 9649 9333
6/94 9760 9307
9/94 9872 9387
12/94 9840 9290
3/95 10156 09922
6/95 10401 10131
9/95 10627 10409
12/95 10820 10932
</TABLE>
- - --------------------------------------------------------------------------------
24
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
LIMITED TERM TAX-FREE FUND
Portfolio of Investments December 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - ------- -------------------------------------------------------- -------
<S> <C> <C>
(all amounts in thousands)
REVENUE BONDS -- 47.2%
$ 250 State of Illinois Toll Highway Authority
6.550%, 1/1/96 $ 250
400 Atlanta, Georgia Water and Sewer Revenue
6.000%, 1/1/96 400
450 South Dakota Housing Development Authority
4.500%, 5/1/96 454
400 DuPage County, Illinois Water Commission
6.000%, 5/1/97 411
500 Ball State University, Indiana Student Revenue
4.900%, 7/1/97 508
235 Nevada Housing Division -- Single Family
4.750%, 10/1/97 234
210 Nevada Housing Division -- Single Family
4.950%, 4/1/98 208
500 New Jersey State Transportation Authority
4.500%, 6/15/00 504
500 Massachusetts Municipal Wholesale Electric Commission
4.100%, 7/1/00 496
250 Chicago, Illinois Waterworks Revenue
6.750%, 11/1/00 259
700 Indiana Municipal Power Agency
5.125%, 1/1/01 725
440 New Hampshire Higher Education and Health, University of
New Hampshire, 5.600%, 7/1/02 468
500 Tippecanoe County, Indiana School Building Corporation
5.500%, 7/15/02 528
300 Virginia Public School Authority
6.000%, 8/1/02 327
500 Michigan State Building Authority Series 1
5.100%, 10/1/02 513
500 Indiana Bond Bank Revenue
5.375%, 2/1/03 511
500 Philadelphia, Pennsylvania Gas Works Revenue
4.600%, 8/1/03 503
500 Wenatchee, Washington Water and Sewer Revenue
4.700%, 12/1/03 496
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - ------- -------------------------------------------------------- -------
<S> <C> <C>
(all amounts in thousands)
$ 260 Princeton, Indiana Pollution Control Revenue
5.750%, 12/15/03 $ 262
500 Northern Cook County, Illinois Solid Waste Agency
Contract Revenue, 6.300%, 5/1/04 552
500 Chicago, Illinois Motor Fuel Tax Revenue
5.125%, 1/1/06 512
- - ------- -------
8,895 Total Revenue Bonds 9,121
- - ------- -------
GENERAL OBLIGATION BONDS -- 32.4%
125 Arlington, Texas
6.800%, 5/1/96 126
300 State of Texas
6.700%, 12/1/96 308
250 Spokane County, Washington
6.650%, 9/1/98 255
250 West Allis Milwaukee, Wisconsin School District
6.300%, 4/1/00 258
530 Wisconsin State Veterans Housing Authority
5.000%, 5/1/00 547
500 Cook County, Illinois
5.500%, 11/15/01 528
250 State of New Jersey
5.400%, 2/15/03 265
500 Kane County, Illinois School District #304
5.900%, 6/1/03 542
500 State of Washington
5.300%, 9/1/03 526
240 New Richmond, Wisconsin School District
4.800%, 10/1/03 244
500 Newport News, Virginia
4.700%, 1/1/04 505
500 Florida State Board of Education Series A
5.000%, 6/1/04 517
515 Flat Rock, Michigan Community School District
5.250%, 5/1/05 534
500 Clark County, Nevada School District
7.000%, 6/1/05 567
500 Naperville, Illinois
6.000%, 12/1/05 544
- - ------- -------
5,960 Total General Obligation Bonds 6,266
- - ------- -------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- - ------- -------------------------------------------------------- -------
<S> <C> <C>
(all amounts in thousands)
CASH EQUIVALENT BONDS* -- 19.2%
$ 500 State of Massachusetts
5.900%, 12/1/97 $ 500
400 Louisiana State Recovery District Sales Tax Revenue
6.000%, 7/1/98 400
800 Southern California Edison Pollution Control Authority
5.400%, 2/28/08 800
100 Lone Star Texas Airport Improvement Authority
6.000%, 12/1/14 100
500 Delaware County, Pennsylvania
5.900%, 12/1/15 500
300 City of New York, New York
5.000%, 10/1/21 300
100 City of New York, New York
5.000%, 10/1/22 100
100 Columbia, Alabama Pollution Control Revenue
6.000%, 10/1/22 100
900 Burke County, Georgia Pollution Control Revenue
6.000%, 7/1/24 900
- - ------- -------
3,700 Total Cash Equivalent Bonds 3,700
- - ------- -------
$18,555 TOTAL INVESTMENTS (COST $18,793) -- 98.8% 19,087
=======
CASH AND OTHER ASSETS, LESS LIABILITIES -- 1.2% 233
-------
NET ASSETS -- 100.0% $19,320
=======
</TABLE>
- - ---------------
* These securities have maturities of more than one year but have variable rates
and demand features which qualify them as short-term securities. The rate
disclosed is that currently in effect. This rate changes periodically based on
market conditions.
At December 31, 1995 the Fund's Portfolio of Investments includes the
following categories: Education -- 23%; Water and Sewer -- 16%; State
Government -- 13%; Pollution Control -- 11%; Housing -- 10%; Utilities -- 9%;
County Government -- 7%; City Government -- 6%; State Transit -- 4%; and
Airport -- 1%.
See accompanying Notes to Financial Statements.
27
<PAGE>
February 2, 1996
Dear Shareholders:
The story in the short end of the bond market in 1995 was the lowering of
interest rates by the Federal Reserve Board. Their initial move took place in
July and they responded again in December. Current levels of interest rates are
implying an additional 50 to 100 basis point downward move in short-term rates.
We do not agree with this consensus as it does not appear that current economic
conditions warrant such a big adjustment.
With this decline in short-term rates, we have been reducing our average
maturity. We lowered the average to about 40 days at mid-year and it is
currently about 32 days. We are at the lower end of our normal range and we
expect to stay here unless economic conditions change. If the economy begins to
show further signs of more significant weakness, we may extend in expectation of
more aggressive moves by the Fed to lower rates.
The return of the Ready Reserves Fund for the year was 5.45%, which
exceeded the 5.38% return of our peer group of S&P rated AAA money market funds.
Assets grew quite a bit during the year and now exceed $700 million. With our
yield still in excess of 5%, we feel that we are maintaining a competitive
return.
Bentley M. Myer
Senior Vice President
Ready Reserves Fund Portfolio Manager
28
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
READY RESERVES FUND
<TABLE>
<CAPTION>
Portfolio of Investments December 31, 1995
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- - --------- ----------------------------------------------- -------- -------- ---------
<S> <C> <C> <C> <C>
(All amounts in thousands)
U.S. GOVERNMENT AGENCY GUARANTEED -- 3.9%
$ 3,033 Agency for International Development
VRN -- Peru 6.060% 2/01/96 $ 3,033
8,000 Agency for International Development
VRN -- Zimbabwe 6.106% 1/01/96 8,000
6,009 National Oceanic and Atmospheric
Administration VRN 6.258% 1/01/96 6,009
1,103 National Oceanic and Atmospheric
Administration VRN 6.288% 1/01/96 1,103
9,000 Student Loan Marketing Association VRN 5.475% 1/02/96 9,000
- - --------- ---------
27,145 27,145
DEMAND NOTE -- 0.2%
1,739 Associates Corp. of North America
- - --------- Demand Note VRN 5.444% 1/02/96 1,739
---------
COMMERCIAL PAPER -- 98.1%
FINANCE -- 20.8%
8,317 American Express Credit Corporation 5.650% 1/16/96 8,297
6,644 American Express Credit Corporation 5.690% 1/17/96 6,627
4,000 Associates Corporation of North America 5.670% 1/19/96 3,989
6,178 Associates Corporation of North America 5.650% 2/16/96 6,133
4,137 Associates Corporation of North America 5.670% 2/21/96 4,104
5,160 Associates Corporation of North America 5.450% 3/26/96 5,094
3,000 Avco Financial Services, Incorporated 5.700% 1/22/96 2,990
9,956 Avco Financial Services, Incorporated 5.700% 1/22/96 9,923
6,000 Avco Financial Services, Incorporated 5.700% 1/25/96 5,977
3,361 Avco Financial Services, Incorporated 5.700% 1/31/96 3,345
4,000 Avco Financial Services, Incorporated 5.640% 2/26/96 3,965
4,541 Avco Financial Services, Incorporated 5.700% 2/26/96 4,501
4,205 CIT Group Holdings, Incorporated 5.650% 1/24/96 4,190
9,000 Household Finance Corporation 5.670% 2/07/96 8,947
5,000 John Deere Capital Corporation 5.680% 2/02/96 4,975
3,918 John Deere Capital Corporation 5.690% 2/09/96 3,894
6,000 John Deere Capital Corporation 5.690% 2/13/96 5,959
1,300 John Deere Capital Corporation 5.560% 2/23/96 1,289
6,287 Norwest Financial, Inc. 5.680% 1/25/96 6,263
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- - --------- ----------------------------------------------- -------- -------- ---------
<S> <C> <C> <C> <C>
(All amounts in thousands)
$ 8,289 Norwest Financial, Inc. 5.720% 1/29/96 $ 8,252
4,725 Norwest Financial, Inc. 5.650% 1/30/96 4,703
6,690 Norwest Financial, Inc. 5.630% 2/15/96 6,643
4,000 Norwest Financial, Inc. 5.650% 2/23/96 3,967
7,564 PHH Corporation 5.680% 1/18/96 7,544
8,000 PHH Corporation 5.680% 1/19/96 7,977
6,847 PHH Corporation 5.680% 1/19/96 6,828
- - --------- ---------
147,119 146,376
- - --------- ---------
INSURANCE -- 19.3%
11,000 American General Finance Corporation 5.700% 1/09/96 10,986
4,200 American General Finance Corporation 5.700% 1/23/96 4,185
6,621 American General Finance Corporation 5.660% 2/08/96 6,582
6,000 American General Finance Corporation 5.560% 2/23/96 5,951
3,757 Aon Corporation 5.500% 2/16/96 3,731
2,563 Metlife Funding Incorporated 5.680% 1/18/96 2,556
5,000 Metlife Funding Incorporated 5.670% 2/01/96 4,976
8,000 Metlife Funding Incorporated 5.640% 2/02/96 7,960
4,820 Metlife Funding Incorporated 5.650% 2/02/96 4,796
4,000 Metlife Funding Incorporated 5.630% 2/05/96 3,978
2,850 Metlife Funding Incorporated 5.630% 2/06/96 2,834
4,310 Metlife Funding Incorporated 5.630% 2/07/96 4,285
3,500 Metlife Funding Incorporated 5.630% 2/21/96 3,472
4,068 Prudential Funding Corporation 5.640% 2/12/96 4,041
5,000 SAFECO Credit Corporation 5.680% 1/12/96 4,991
8,000 SAFECO Credit Corporation 5.680% 2/05/96 7,956
2,500 SAFECO Credit Corporation 5.650% 2/07/96 2,485
9,000 SAFECO Credit Corporation 5.650% 2/16/96 8,935
8,000 SAFECO Credit Corporation 5.630% 2/16/96 7,942
1,000 SAFECO Credit Corporation 5.630% 2/16/96 993
2,000 SAFECO Credit Corporation 5.400% 4/12/96 1,969
3,912 USAA Capital Corporation 5.670% 1/04/96 3,910
4,000 USAA Capital Corporation 5.670% 1/17/96 3,990
7,000 USAA Capital Corporation 5.680% 1/18/96 6,981
5,000 USAA Capital Corporation 5.660% 1/23/96 4,983
4,500 USAA Capital Corporation 5.680% 1/23/96 4,484
6,000 USAA Capital Corporation 5.650% 1/31/96 5,972
- - --------- ---------
136,601 135,924
- - --------- ---------
MANUFACTURING -- 15.1%
8,923 Ford Motor Credit Company 5.700% 1/08/96 8,913
2,323 Ford Motor Credit Company 5.700% 1/19/96 2,317
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- - --------- ----------------------------------------------- -------- -------- ---------
<S> <C> <C> <C> <C>
(All amounts in thousands)
$ 1,600 Ford Motor Credit Company 5.670% 1/25/96 $ 1,594
3,942 Ford Motor Credit Company 5.700% 2/07/96 3,919
6,500 Ford Motor Credit Company 5.620% 2/13/96 6,456
5,157 Ford Motor Credit Company 5.690% 2/23/96 5,114
4,300 Ford Motor Credit Company 5.500% 3/01/96 4,261
3,112 Ford Motor Credit Company 5.460% 3/29/96 3,071
2,011 General Electric Capital Corporation 5.680% 1/12/96 2,008
7,000 General Electric Capital Corporation 5.690% 1/22/96 6,977
7,173 General Electric Capital Corporation 5.680% 1/26/96 7,145
3,500 General Electric Capital Corporation 5.690% 1/30/96 3,484
4,500 General Electric Capital Corporation 5.680% 2/01/96 4,478
4,364 General Electric Capital Corporation 5.640% 2/09/96 4,337
7,000 General Electric Capital Corporation 5.500% 2/26/96 6,940
5,569 General Electric Company 5.670% 2/05/96 5,538
5,000 Paccar Financial Corporation 5.670% 1/25/96 4,981
5,000 Paccar Financial Corporation 5.660% 2/08/96 4,970
5,000 Paccar Financial Corporation 5.660% 2/09/96 4,969
5,000 Paccar Financial Corporation 5.630% 2/28/96 4,955
5,000 Paccar Financial Corporation 5.600% 3/01/96 4,953
5,000 Paccar Financial Corporation 5.560% 3/14/96 4,944
- - --------- ---------
106,974 106,324
- - --------- ---------
UTILITIES -- TELEPHONE -- 10.3%
12,000 American Telephone & Telegraph Corporation 5.670% 1/26/96 11,953
3,512 American Telephone & Telegraph Corporation 5.650% 2/12/96 3,489
5,000 American Telephone & Telegraph Corporation 5.610% 2/14/96 4,966
2,750 American Telephone & Telegraph Corporation 5.600% 2/20/96 2,729
2,276 American Telephone & Telegraph Corporation 5.570% 2/23/96 2,257
5,178 American Telephone & Telegraph Corporation 5.590% 2/27/96 5,132
5,000 American Telephone & Telegraph Corporation 5.490% 3/12/96 4,946
2,605 Ameritech Capital Funding Corporation 5.700% 1/16/96 2,599
7,000 Ameritech Capital Funding Corporation 5.590% 2/12/96 6,954
8,000 Bellsouth Capital Funding Corporation 5.660% 1/11/96 7,987
7,000 Bellsouth Capital Funding Corporation 5.630% 1/29/96 6,969
4,880 GTE California, Incorporated 5.630% 2/22/96 4,840
5,000 GTE California, Incorporated 5.560% 3/29/96 4,932
3,000 Pacific Bell 5.650% 1/31/96 2,986
- - --------- ---------
73,201 72,739
- - --------- ---------
UTILITIES -- ENERGY & GAS -- 6.1%
5,010 Consolidated Natural Gas Company 5.620% 2/06/96 4,982
3,210 Consolidated Natural Gas Company 5.630% 2/07/96 3,192
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- - --------- ----------------------------------------------- -------- -------- ---------
<S> <C> <C> <C> <C>
(All amounts in thousands)
$ 4,000 National Rural Utilities Cooperative Finance
Corp. 5.690% 1/12/96 $ 3,993
17,000 National Rural Utilities Cooperative Finance
Corp. 5.680% 1/24/96 16,938
6,500 National Rural Utilities Cooperative Finance
Corp. 5.650% 2/15/96 6,454
3,100 National Rural Utilities Cooperative Finance
Corp. 5.620% 2/21/96 3,075
4,500 National Rural Utilities Cooperative Finance
Corp. 5.550% 3/06/96 4,455
- - --------- ---------
43,320 43,089
- - --------- ---------
FOOD/BEVERAGE/TOBACCO -- 4.9%
10,000 Anheuser Busch Companies, Incorporated 5.650% 1/10/96 9,986
8,000 Brown - Forman Corporation 5.680% 1/04/96 7,996
3,473 Brown - Forman Corporation 5.700% 1/16/96 3,465
4,945 Campbell Soup Company 5.670% 2/06/96 4,917
8,000 Campbell Soup Company 5.670% 2/06/96 7,954
- - --------- ---------
34,418 34,318
- - --------- ---------
BROKERAGE -- 4.8%
5,200 Merrill Lynch & Company, Inc. 5.800% 1/03/96 5,198
9,000 Merrill Lynch & Company, Inc. 5.760% 1/18/96 8,975
3,500 Merrill Lynch & Company, Inc. 5.770% 1/26/96 3,486
7,000 Morgan Stanley Group, Incorporated 5.730% 1/05/96 6,996
3,000 Morgan Stanley Group, Incorporated 5.720% 1/10/96 2,996
6,432 Morgan Stanley Group, Incorporated 5.450% 3/22/96 6,353
- - --------- ---------
34,132 34,004
- - --------- ---------
CHEMICAL/FOREST -- 3.6%
4,305 DuPont (E.I.) de Nemours & Company 5.650% 1/19/96 4,293
4,773 DuPont (E.I.) de Nemours & Company 5.670% 1/26/96 4,754
8,265 Great Lakes Chemical Corporation 5.700% 1/22/96 8,238
8,000 Great Lakes Chemical Corporation 5.650% 2/01/96 7,961
- - --------- ---------
25,343 25,246
- - --------- ---------
DRUGS/HEALTH -- 3.2%
6,500 Schering Corporation 5.680% 1/16/96 6,485
8,000 Schering Corporation 5.560% 1/17/96 7,980
8,000 Warner - Lambert Company 5.580% 2/23/96 7,934
- - --------- ---------
22,500 22,399
- - --------- ---------
ENERGY -- 3.1%
4,000 Chevron Oil Finance Company 5.680% 1/29/96 3,982
7,160 Chevron Oil Finance Company 5.700% 2/12/96 7,113
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- - --------- ----------------------------------------------- -------- -------- ---------
<C> <S> <C> <C> <C>
(All amounts in thousands)
$ 5,000 Chevron U.K. Investment PLC 5.700% 2/05/96 $ 4,972
5,796 Mobil Finance Corporation (Australia) 5.640% 2/02/96 5,767
- - --------- ---------
21,956 21,834
- - --------- ---------
MEDIA/ENTERTAINMENT -- 3.0%
6,000 Dun and Bradstreet Corporation 5.580% 1/16/96 5,986
8,000 Knight Ridder, Incorporated 5.640% 2/14/96 7,945
7,500 McGraw Hill, Incorporated 5.680% 2/02/96 7,462
- - --------- ---------
21,500 21,393
- - --------- ---------
ELECTRONIC/TECHNOLOGY -- 2.5%
3,048 IBM Corporation 5.690% 2/01/96 3,033
3,798 IBM Corporation 5.700% 2/02/96 3,779
5,500 IBM Credit Corporation 5.700% 1/30/96 5,475
5,000 Pitney Bowes Credit Corporation 5.640% 1/31/96 4,976
- - --------- ---------
17,346 17,263
- - --------- ---------
MERCHANDISING -- 1.4%
7,000 Winn - Dixie Stores, Incorporated 5.660% 2/08/96 6,958
2,716 Winn - Dixie Stores, Incorporated 5.650% 2/23/96 2,694
- - --------- ---------
9,716 9,652
694,126 Total Commercial Paper 690,561
- - --------- ---------
PORTFOLIO WEIGHTED AVERAGE MATURITY 32 Days
$ 723,010 TOTAL INVESTMENTS -- 102.2% 719,445
========
LIABILITIES, PLUS CASH AND OTHER
ASSETS -- (2.2%) (15,452)
---------
NET ASSETS -- 100.0% $ 703,993
========
</TABLE>
- - ---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
33
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(all amounts in thousands)
<TABLE>
<CAPTION>
INTERNATIONAL
GROWTH GROWTH
FUND FUND
-------- -------------
<S> <C> <C>
ASSETS
Investments at market (cost $270,957 and $83,301) $365,478 $89,577
Cash -- 4
Receivable for:
Fund shares sold 926 270
Interest and dividends 316 52
Foreign withholding tax -- 149
Unrealized appreciation on foreign currency forward contracts -- 343
Deferred organization costs -- 20
Other assets 1 3
-------- -------------
Total assets 366,721 90,418
LIABILITIES
Payable for:
Fund shares redeemed 111 26
Investments purchased 3,297 462
Management fee and organization costs (Notes 1 and 2) 154 103
Other 123 65
-------- -------------
Total liabilities 3,685 656
-------- -------------
Net assets $363,036 $89,762
========= =============
CAPITAL
Capital stock $0.001 par value; 30,515; and 6,842
shares issued and outstanding $ 30 $ 7
Paid-in-surplus 268,053 83,708
Net unrealized appreciation on investments
and foreign currency transactions (net of unrealized
PFIC gain distribution of $0 and $414) 94,521 6,212
Accumulated undistributed net realized gain (loss)
on investments and foreign currency transactions 113 (452)
Undistributed net investment income 319 287
-------- -------------
Net assets $363,036 $89,762
========= =============
Net asset value per share $ 11.90 $ 13.12
========= =============
</TABLE>
34
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(all amounts in thousands)
<TABLE>
<CAPTION>
LIMITED TERM
INCOME TAX-FREE READY RESERVES
FUND FUND FUND
-------- ------------ --------------
<S> <C> <C> <C>
ASSETS
Investments (Cost $142,123; $18,793; and $719,445,
respectively) $145,062 $19,087 $719,445
Cash -- 55 --
Receivable for:
Fund shares sold 1,246 -- 8,500
Investments sold 1 -- --
Interest 1,475 234 507
Deferred organization costs -- 20 --
Other assets 2 -- 22
-------- ------------ --------------
Total assets 147,786 19,396 728,474
LIABILITIES
Payable for:
Fund shares redeemed 276 50 23,829
Management fee and organization costs
(Notes 1 and 2) 75 20 360
Dividends -- -- 121
Other 65 6 171
-------- ------------ --------------
Total liabilities 416 76 24,481
-------- ------------ --------------
Net assets $147,370 $19,320 $703,993
========= ============= ===============
CAPITAL
Capital stock ($0.001 par value; and 13,936; 1,941;
and 703,993 shares issued and outstanding,
respectively) $ 14 $ 2 $ 704
Paid-in-surplus 148,393 19,050 703,289
Net unrealized appreciation
on investments 2,939 294 --
Accumulated undistributed net realized
(loss) on investments (3,963) (30) --
Undistributed net investment income (13) 4 --
-------- ------------ --------------
Net assets $147,370 $19,320 $703,993
========= ============= ===============
Net asset value per share $ 10.57 $ 9.96 $ 1.00
========= ============= ===============
</TABLE>
35
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(all amounts in thousands)
<TABLE>
<CAPTION>
INTERNATIONAL
GROWTH GROWTH
FUND FUND
------- -------------
<S> <C> <C>
Investment income
Dividends $ 1,621 $ 1,917
Interest 1,297 178
------- ------
2,918 2,095
Less foreign tax withheld (6) (194)
------- ------
Total investment income 2,912 1,901
------- ------
Expenses
Investment advisory fees (Note 2) 1,561 887
Custodian fees 77 190
Professional fees 41 37
Transfer agent fees 95 15
Registration fees 45 31
Organization costs -- 10
Miscellaneous 100 27
------- ------
Total expenses 1,919 1,197
------- ------
Net investment income 993 704
Net realized and unrealized gain (loss) on investments,
foreign currency and other assets and liabilities
Net realized gain (loss) on investments 13,274 (904)
Less foreign tax withheld on investments sold -- (18)
Net realized gain on foreign currency transactions -- 519
------- ------
Total net realized gain (loss) 13,274 (403)
Change in net unrealized appreciation on investments,
and other assets and liabilities (Note 1) 58,269 5,958
------- ------
Net realized and unrealized gain on investments,
foreign currency and other assets and liabilities 71,543 5,555
------- ------
Net increase in net assets resulting from operations $72,536 $ 6,259
======= ======
</TABLE>
36
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(all amounts in thousands)
<TABLE>
<CAPTION>
LIMITED TERM READY
INCOME TAX-FREE RESERVES
FUND FUND FUND
------- ------------ --------
<S> <C> <C> <C>
Investment income
Interest $10,278 $ 763 $36,158
------- ------------ --------
Total investment income 10,278 763 36,158
------- ------------ --------
Expenses
Investment advisory fees (Note 2) 868 94 3,613
Custodian fees 57 41 115
Professional fees 33 29 38
Transfer agent fees 29 6 288
Registration fees 14 15 96
Organization costs 9 6 --
Miscellaneous 3 29 162
------- ------------ --------
Total expenses before waiver 1,013 220 4,312
Less waiver of expenses (Note 2) -- (214) --
------- ------------ --------
Net investment income 9,265 757 31,846
Net realized and unrealized gain (loss) on investments
Net realized loss on investments (955) (22) --
Change in net unrealized appreciation on investments 11,783 764 --
------- ------------ --------
Net realized and unrealized gain on investments 10,828 742 --
------- ------------ --------
Net increase in net assets resulting from operations $20,093 $1,499 $31,846
======= =========== =======
</TABLE>
37
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(all amounts in thousands)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH
GROWTH FUND FUND
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 993 $ 496 $ 704 $ 91
Net realized gain (loss) on investments and foreign currency transactions 13,274 12,614 (403) 3,093
Change in net unrealized appreciation on investments and other assets and
liabilities 58,269 (2,378) 5,958 (4,427)
-------- -------- ------- -------
Net increase (decrease) in net assets resulting from operations 72,536 10,732 6,259 (1,243)
Distributions to shareholders from
Net investment income (817) (423) (880)(a) (114)
Net realized gain (13,275) (12,616) -- (3,679)
Tax return of capital -- -- -- (431)
-------- -------- ------- -------
(14,092) (13,039) (880) (4,224)
Capital stock transactions
Shares sold 106,709 78,439 20,612 34,962
Shares issued in reinvestment of income
dividends and capital gain distributions 12,714 11,700 717 3,571
Less shares redeemed (32,391) (20,318) (7,349) (2,961)
-------- -------- ------- -------
Change from capital stock transactions 87,032 69,821 13,980 35,572
-------- -------- ------- -------
Change in net assets 145,476 67,514 19,359 30,105
Net assets
Beginning of period 217,560 150,046 70,403 40,298
-------- -------- ------- -------
End of period $363,036 $217,560 $89,762 $70,403
======== ======== ======= =======
- - -------------------------
Undistributed net investment income at the
end of the period $ 319 $ 143 $ 343 $ --
======== ======== ======= =======
- - -------------------------
Capital stock transactions
Shares sold 9,647 8,055 1,688 2,571
Shares issued in reinvestment of income
dividends and capital gain distributions 1,092 1,251 55 289
Less shares redeemed (2,875) (2,072) (595) (224)
-------- -------- ------- -------
Change from capital stock transactions 7,864 7,234 1,148 2,636
======== ======== ======= =======
</TABLE>
- - ---------------
(a) Includes $414 relating to PFIC transactions which are treated as ordinary
income for Federal income tax purposes.
38
<PAGE>
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(all amounts in thousands)
<TABLE>
<CAPTION>
LIMITED TERM
INCOME FUND TAX-FREE FUND READY RESERVES FUND
1995 1994 1995 1994(A) 1995 1994
-------- -------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 9,265 $ 10,929 $ 757 $ 477 $ 31,846 $ 17,669
Net realized (loss) on investments (955) (3,010) (22) (8) -- (1,268)
Change in net unrealized appreciation (depreciation)
on investments 11,783 (9,564) 764 (470) -- --
-------- -------- ------- ------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 20,093 (1,645) 1,499 (1) 31,846 16,401
-------- -------- ------- ------- ----------- -----------
Distributions to shareholders from
Net investment income (9,438) (10,769) (759) (471) (31,846) (17,669)
Net realized gain -- (68) -- -- -- --
-------- -------- ------- ------- ----------- -----------
(9,438) (10,837) (759) (471) (31,846) (17,669)
Capital contribution -- -- -- -- -- 1,268
Capital stock transactions
Shares sold 23,930 16,905 7,367 15,809 2,514,548 1,950,105
Shares issued in reinvestment of income
dividends and capital gain distributions 6,875 7,707 430 280 31,117 17,119
Less shares redeemed (37,880) (72,721) (3,333) (1,501) (2,362,949) (1,923,215)
-------- -------- ------- ------- ----------- -----------
Change from capital stock transactions (7,075) (48,109) 4,464 14,588 182,716 44,009
-------- -------- ------- ------- ----------- -----------
Change in net assets 3,580 (60,591) 5,204 14,116 182,716 44,009
Net assets
Beginning of period 143,790 204,381 14,116 -- 521,277 477,268
-------- -------- ------- ------- ----------- -----------
End of period $147,370 $143,790 $19,320 $14,116 $ 703,993 $ 521,277
======== ======== ======= ======= ========== ==========
- - -------------------------
Undistributed net investment income at the
end of the period $ (13) $ 160 $ 4 $ 6 $ -- $ --
======== ======== ======= ======= ========== ==========
- - -------------------------
Capital stock transactions
Shares sold 2,337 1,646 750 1,617 2,514,548 1,950,105
Shares issued in reinvestment of income
dividends and capital gain distributions 668 760 44 29 31,117 17,119
Less shares redeemed (3,670) (7,126) (342) (157) (2,362,949) (1,923,215)
-------- -------- ------- ------- ----------- -----------
Change from capital stock transactions (665) (4,720) 452 1,489 182,716 44,009
======== ======== ======= ======= ========== ==========
</TABLE>
- - ---------------
(a) For the period from January 24, 1994 (Commencement of Operations) to
December 31, 1994.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Fund
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.
The Growth Fund is a portfolio whose principal objective is to provide
long-term appreciation of capital by investing in well-managed companies in
growing industries.
The International Growth Fund is a portfolio which invests primarily in
common stocks issued by companies domiciled outside the United States and
securities convertible into, ex-changeable for, or having the right to buy such
common stocks. The investment objective of the portfolio is long-term capital
appreciation through investment in well-managed, quality, growth companies.
The Income Fund is a portfolio designed to provide investors with as high a
level of current income as is consistent with preservation of capital.
The Limited Term Tax-Free Fund is a portfolio designed to provide investors
with as high a level of current income exempt from Federal income tax as is
consistent with preservation of capital.
The Ready Reserves Fund is a money market portfolio designed for investors
who are looking for professional management of their reserve assets. The Ready
Reserves Fund portfolio seeks to obtain maximum current income consistent with
preservation of capital and invests exclusively in high quality money market
instruments.
All of the portfolio's investments are subject to market fluctuations and
fiscal risks.
(b) Investment Securities
Equity securities traded on national securities markets are valued at the
last sale price or, in the absence of a sale on the date of determination, at
the latest bid price. Long-term fixed-income securities are valued by using
market quotations or independent services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. The value of a foreign
security held is determined based upon its sale price on the foreign exchange or
market on which it is traded as of the close of the appropriate exchange or, if
there have been no sales during the day, at the latest bid price. Other
securities are valued at fair value as determined in good faith by the Board of
Directors. Short-term securities in all Funds except Ready Reserves Fund are
valued at cost which approximates market value. Securities in Ready Reserves
Fund are valued on the amortized cost method. Under this method, any premium or
discount, as of the date an investment security is acquired, is amortized on a
straight-line basis to maturity.
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premium or discount. Dividend income is recorded on the
ex-dividend date, except that certain
40
<PAGE>
dividends from foreign securities are recorded as soon as the information is
available. Securities transactions are recorded on the trade date. Realized
gains and losses from securities transactions are reported on an identified cost
basis.
Put bonds may be redeemed at the discretion of the holder on specified
dates prior to maturity. Variable rate bonds and floating rate notes earn
interest at a coupon rate which fluctuates at specific time intervals. The
interest rates shown in the Income Fund, Limited Term Tax-Free Fund and Ready
Reserves Fund Portfolios of Investments are the coupon rates in effect at
December 31, 1995.
(c) Share Valuation and Dividends to Shareholders
Shares are sold and redeemed on a continuous basis at net asset value. Each
Fund determines net asset value per share by dividing the value of its Fund
assets, less liabilities, by the number of shares outstanding as of the earlier
of 3:00 p.m. or the daily close of business of the New York Stock Exchange for
Growth Fund and International Growth Fund, 2:00 p.m. for Income Fund and Limited
Term Tax-Free Fund and at 3:00 p.m. for Ready Reserves Fund. Dividends from net
investment income of the Growth Fund, International Growth Fund, Income Fund,
Limited Term Tax-Free Fund and Ready Reserves Fund are declared at least
semi-annually, annually, monthly, monthly and daily, respectively. Dividends
payable to shareholders are recorded on the ex-dividend date. Dividends are
determined in accordance with Federal income tax principles which may treat
certain transactions differently from generally accepted accounting principles.
The International Growth Fund has elected to mark-to-market its investments in
Passive Foreign Investment Companies ("PFIC") for Federal income tax purposes.
In accordance with this election, $414,000 in unrealized appreciation was
recognized in 1995. The International Growth Fund's distribution for 1994
included $431,097 relating to a tax return of capital. The permanent book and
tax difference relating to this distribution resulted in a reduction to
Paid-in-Surplus.
(d) Repurchase Agreements
The Fund may enter into repurchase agreements through its custodian,
whereby the Fund acquires ownership of a debt security and the custodian agrees,
at the time of the sale, to repurchase the debt security from the Fund at a
mutually agreed upon time and price. The Fund's policy is to take possession of
securities under repurchase agreements. The Fund minimizes credit risk by (i)
monitoring credit exposure of the custodian and (ii) monitoring collateral value
on a daily basis and requiring additional collateral to be deposited with or
returned to the Fund when deemed necessary.
(e) Foreign Currency Translation and Forward Foreign Currency Contracts
All assets and liabilities of the International Growth Fund denominated in
foreign currencies are translated into U.S. dollar amounts at the current
exchange rate at the day of valuation. The International Growth Fund may enter
into forward foreign currency contracts as a means of managing the risks
associated with changes in exchange rates for the purchase or sale of a specific
amount of a particular foreign currency. Additionally, from time to time, the
Fund may enter into contracts to hedge the value, in U.S. dollars, of securities
it currently owns. Forward foreign currency contracts and foreign currencies are
valued at the forward and current exchange rates,
41
<PAGE>
respectively, prevailing on the day of valuation. Realized gains and losses from
foreign currency transactions associated with purchases and sales of investments
are included in the cost or proceeds. All other foreign currency transactions
are included in net realized gain or loss from investments.
(f) Income Taxes
Each Fund intends to comply with the special provisions of the Internal
Revenue Code available to regulated investment companies and, therefore, no
provision for Federal income taxes has been made in the accompanying financial
statements since the Funds intend to distribute their taxable income to their
shareholders and be relieved of all Federal income taxes. At December 31, 1995
the International Growth Fund, the Income Fund and the Limited Term Tax-Free
Fund have capital loss carryforwards of $118,000, $3,965,000 and $30,000,
respectively. These loss carryforwards, which expire in 2003, 2002 and 2003,
respectively, can be used to offset capital gains.
(g) Organization Costs
The initial organization costs of the International Growth Fund, Income
Fund and the Limited Term Tax-Free Fund have been paid or accrued by William
Blair & Company (the "Company") and the Funds will reimburse the Company for the
amount of such expenses not exceeding $50,000. The deferred organization costs
are being amortized on the straight-line method and repaid to the Company over a
five year period.
(2) INVESTMENT ADVISORY, TRANSACTIONS WITH AFFILIATES AND DIRECTOR'S FEES
The Company serves as the Funds' Investment Adviser (the "Adviser") and
provides administrative services to the Funds under a Management Agreement.
Growth Fund pays the Company an advisory fee monthly at an annual rate of
.625% of the first $75 million of average daily net assets of the Fund and .50%
of the average daily net assets in excess of $75 million. The Fund may from time
to time own portfolio securities with respect to which the Adviser makes a
market and/or takes a position.
International Growth Fund pays the Company an advisory fee monthly at an
annual rate of 1.10% of the first $100 million of average daily net assets and
.95% of average daily net assets in excess of $100 million. The Company has a
sub-investment management agreement with Framlington Overseas Investment
Management Limited (U.K.) and pays the sub-adviser a monthly fee at an annual
rate equal to 0.40% of the first $100 million of average daily net assets and
0.275% of average daily assets in excess of $100 million.
Income Fund pays the Company an advisory fee monthly at an annual rate of
.25% of the first $100 million of average daily net assets of the Fund, .20% of
the next $150 million and .15% in excess of $250 million of average daily net
assets, plus 5.0% of the gross income earned.
Limited Term Tax-Free Fund pays the Company an advisory fee monthly at an
annual rate of .25% of the first $250 million of average daily net assets of the
Fund and .20% in excess of $250 million, plus 7.0% of the gross income earned.
The Company has voluntarily agreed to waive its management fee and has paid all
other operating expenses of the Fund, except for the amortization of
organization costs.
42
<PAGE>
Ready Reserves Fund pays the Company an advisory fee monthly at an annual
rate of .625% of the first $250 million of average daily net assets of the Fund,
.60% of the next $250 million, .55% of the next $500 million, .50% of the next
$2 billion, .45% of the next $2 billion, and .40% of average daily net assets in
excess of $5 billion.
The Company purchased U.S. Government guaranteed obligations at amortized
cost from the Ready Reserves Fund in 1994. The excess of the purchase price
(amortized cost) over the fair market value at the date of purchase was
reflected as a capital contribution to the Fund.
The Funds paid fees of $53,500 to non-affiliated directors of the Funds for
the period ended December 31, 1995.
(3) INVESTMENT TRANSACTIONS (000 OMITTED)
Investment transactions, excluding money market instruments, for the period
ended December 31, 1995, are as follows:
<TABLE>
<CAPTION>
INTERNATIONAL LIMITED TERM
GROWTH GROWTH INCOME TAX-FREE
FUND FUND FUND FUND
-------- ------------- ------- ------------
<S> <C> <C> <C> <C>
Purchases $162,814 $73,889 $70,669 $ 4,563
Proceeds from sales and maturities 87,922 59,521 75,728 3,794
Gross unrealized appreciation
(depreciation) at December 31, 1995
is as follows:
Unrealized appreciation $ 98,802 $11,041 $ 3,275 $ 311
Unrealized depreciation (4,281) (4,765) (336) (17)
-------- ------- ------- -------
Net unrealized appreciation $ 94,521 $ 6,276 $ 2,939 $ 294
======== ======= ======= =======
</TABLE>
Cost of investments is the same for financial statement and federal income
tax purposes.
(4) FORWARD FOREIGN CURRENCY CONTRACTS (000 OMITTED)
In order to protect itself against a decline in the value of the Japanese
yen against the U.S. dollar, the International Growth Fund entered into a
forward contract with its custodian to deliver Japanese Yen in exchange for U.S.
dollars as described below. International Growth Fund bears the market risk that
arises from changes in foreign exchange rates and bears the credit risk if the
counterparty fails to perform under the contract. The unrealized gain associated
with this forward contract is reflected in the accompanying financial
statements. At December 31, 1995, the International Growth Fund had the
following forward foreign currency contract outstanding:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN SETTLEMENT GAIN
TO BE DELIVERED U.S. DOLLARS DATE AT 12/31/95
- - --------------------- ------------ ------------------ -----------
<S> <C> <C> <C>
900,000 Japanese Yen $9,086 January 19, 1996 $ 343
</TABLE>
43
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
GROWTH FUND 1995 1994 1993 1992 1991
- - -------------------------------------------------------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.600 $ 9.730 $ 9.390 $ 9.490 $ 6.970
Income from investment operations:
Net investment income .034 .027 .035 .045 .070
Net realized and unrealized gain on investments 2.750 .581 1.389 .671 2.970
-------- -------- -------- -------- -------
Total from investment operations 2.784 .608 1.424 .716 3.040
Less distributions from:
Net investment income .030 .025 .035 .047 .070
Net realized gain .454 .713 1.049 .769 .450
-------- -------- -------- -------- -------
Total distributions .484 .738 1.084 .816 .520
-------- -------- -------- -------- -------
Net asset value, end of period $ 11.900 $ 9.600 $ 9.730 $ 9.390 $ 9.490
======== ======== ======== ======== =======
Total return (%) 29.07 6.45 15.51 7.61 44.37
Ratios to average daily net assets (%):
Expenses .65 .71 .78 .83 .90
Net investment income .34 .32 .38 1.34 .83
Supplemental data:
Net assets at end of period (in thousands) $363,036 $217,560 $150,046 $111,082 $91,433
Portfolio turnover rate (%) 32 46 55 27 33
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD ENDED
------------------------------- DECEMBER 31,
INTERNATIONAL GROWTH FUND 1995 1994 1993 1992(a)(b)
- - ----------------------------------------------------------------- ------- ------- ------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.360 $13.180 $10.130 $10.000
Income from investment operations:
Net investment income (loss) .105 0.016 0.008 (0.011)
Net realized and unrealized gain (loss) on investments
and foreign currency and other assets and liabilities .785 (0.025) 3.401 0.141
------- ------- ------- -------
Total from investment operations .890 (0.009) 3.409 0.130
Less distributions from:
Net investment income .130(c) 0.024 -- --
Net realized gain -- 0.714 0.359 --
Tax return of capital -- 0.073 -- --
------- ------- ------- -------
Total distributions .130 0.811 0.359 --
------- ------- ------- -------
Net asset value, end of period $13.120 $12.360 $13.180 $10.130
======= ======= ======= =======
Total return (%) 7.22 (0.040) 33.6 1.3
Ratios to average daily net assets (%):
Expenses(d) 1.48 1.51 1.71 1.88
Net investment income(d) .87 .15 .11 (.56)
Supplemental data:
Net assets at end of period (in thousands) $89,762 $70,403 $40,298 $10,767
Portfolio turnover rate (%) 77 40 83 5
</TABLE>
- - ---------------
(a) Ratios are annualized except total returns for periods less than one year.
(b) For the period October 1, 1992 (Commencement of Operations) to December 31,
1992.
(c) Includes $.061 in PFIC transactions which are treated as ordinary income for
Federal income tax purposes.
(d) Without the waiver of expenses in 1993 and 1992, the expense ratios would
have been 2.08% and 2.55% and the net investment income ratios would have
been (.25)% and (1.22)%, respectively.
44
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
INCOME FUND 1995 1994 1993 1992 1991
- - --------------------------------------------------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.850 $ 10.580 $ 10.600 $ 10.770 $10.200
Income from investment operations:
Net investment income .646 .661 .651 .832 .945
Net realized and unrealized gain (loss) on investments .732 (.741) .159 (.089) .638
-------- -------- -------- -------- -------
Total from investment operations 1.378 (.080) .810 .743 1.583
Less distributions:
Net investment income .658 .646 .651 .827 .870
Net realized gain -- .004 .179 .086 .143
-------- -------- -------- -------- -------
Total distributions .658 .650 .830 .913 1.013
-------- -------- -------- -------- -------
Net asset value, end of period $ 10.570 $ 9.850 $ 10.580 $ 10.600 $10.770
======== ======== ======== ======== =======
Total return (%) 14.37 (.74) 7.82 7.17 16.47
Ratios to average daily net assets (%):
Expenses(a) .68 .68 .70 .88 .92
Net investment income(a) 6.24 6.33 5.96 7.69 8.33
Supplemental data:
Net assets at end of period (in thousands) $147,370 $143,790 $204,381 $136,896 $83,041
Portfolio turnover rate (%) 54 63 114 47 64
</TABLE>
- - ---------------
(a) Without the waiver of expenses in 1991, the expense ratio would have been
1.06% and the net investment income ratio would have been 8.19%.
45
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
LIMITED TERM TAX-FREE FUND 1995 1994(a)(b)
- - ------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Net asset value, beginning of period $ 9.480 $ 10.000
Income from investment operations:
Net investment income .446 .362
Net realized and unrealized gain (loss) on investments .482 (.524)
------------ ------------
Total from investment operations .928 (.162)
Less distributions
Net investment income .448 .358
------------ ------------
Total distributions .448 .358
------------ ------------
Net asset value, end of period $ 9.960 $ 9.480
============= =============
Total return (%) 9.96 (1.60)
Ratios to average daily net assets (%):
Expenses (c) .04 .11
Net investment income(c) 4.61 4.06
Supplemental data:
Net assets at end of period (in thousands) $ 19,320 $ 14,116
Portfolio turnover rate (%) 77 121
</TABLE>
(a) Ratios are annualized except for total returns for periods of less than a
year.
(b) For the period from January 24, 1994 (Commencement of Operations) to
December 31, 1994.
(c) Without the waiver of expenses in 1995 and 1994, the expense ratios would
have been 1.34% and 1.35% and net investment income ratios would have been
3.31% and 2.82%, respectively.
FEDERAL TAX STATUS OF DIVIDENDS
All of the dividends paid from net investment income by the Fund constitute
tax-exempt interest that is not taxable for Federal income tax purposes;
however, a portion of the dividends paid may be includable in the alternative
minimum tax calculation.
- - ---------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
READY RESERVES FUND 1995 1994 1993 1992 1991
- - -------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
Income from investment operations:
Net investment income .0530 .0361 .0261 .0327 .0551
Net realized loss on investments -- (.0026) -- -- --
-------- -------- -------- -------- --------
Total from investment operations .0530 .0335 .0261 .0327 .0551
Less distributions from:
Net investment income .0530 .0361 .0261 .0327 .0551
-------- -------- -------- -------- --------
Total distributions .0530 .0361 .0261 .0327 .0551
-------- -------- -------- -------- --------
Capital contribution -- .0026 -- -- --
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total return (%) 5.45 3.67(d) 2.64 3.32 5.64
Ratios to average daily net assets (%):
Expenses .72 .71 .71 .71 .71
Net investment income 5.30 3.61 2.61 3.27 5.51
Supplemental data:
Net assets at end of period (in thousands) $703,993 $521,277 $477,268 $448,797 $402,978
</TABLE>
- - ---------------
(d) The total return includes the impact of the Company's capital contribution.
Without the Company's capital contribution, the total return would have been
3.40%.
46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
WILLIAM BLAIR MUTUAL FUNDS, INC.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of William Blair Mutual Funds, Inc.
(comprised of Growth Fund, International Growth Fund, Income Fund, Limited Term
Tax-Free Fund and Ready Reserves Fund) (together the "Funds") as of December 31,
1995, and the related statements of operations for the year then ended and
changes in net assets for each of the two fiscal years in the period then ended,
and the financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
William Blair Mutual Funds, Inc. at December 31, 1995, and the results of their
operations, the changes in their net assets and the financial highlights for the
periods indicated thereon, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 2, 1996
47
<PAGE>
THE BOARD OF DIRECTORS
CONRAD FISCHER, CHAIRMAN
Principal, William Blair & Company, L.L.C.
VERNON ARMOUR
Private Investor
C. MATHEWS DICK, JR.
Chairman, Intelligent Office Corp.
EDWARD M. HOBAN
Retired Principal,
William Blair & Company, L.L.C.
GEORGE KELM
Retired Chairman of the Board,
Sahara Coal Company, Inc.
JAMES M. MCMULLAN
Principal, William Blair & Company, L.L.C.
JOHN H. OLWIN, MD
Emeritus Attending Surgeon, Presbyterian-
St. Luke's Hospital and Emeritus
Professor of General Surgery,
Rush Medical College
JOHN B. SCHWEMM
Retired Chairman and
Chief Executive Officer,
R.R. Donnelley & Sons Company
JOHN W. STRAUB
Chairman and President,
W.F. Straub & Company
W. JAMES TRUETTNER, JR., SENIOR VICE PRESIDENT
Principal, William Blair & Company, L.L.C.
- - ---------------------------------------------------------
Rocky Barber, President
Mark A. Fuller, III, Senior Vice President
Bentley M. Myer, Senior Vice President
Norbert W. Truderung, Senior Vice President
James S. Kaplan, Vice President
John P. Kayser, Vice President
Terence M. Sullivan, Vice President
Walter Rucinski, Treasurer
Sheila M. Johnson, Secretary
- - ---------------------------------------------------------
(WM BLAIR LOGO)
222 West Adams Street
Chicago, Illinois 60606
312-364-8000
INVESTMENT ADVISER
(WM BLAIR LOGO)
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 9104
Boston, MA 02266-9104
800-635-2886
(Massachusetts 800-635-2840)
(COPYWHITE)
GROWTH FUND
INTERNATIONAL
GROWTH FUND
INCOME FUND
LIMITED TERM
TAX-FREE FUND
READY RESERVES
FUND
DECEMBER 31, 1995
ANNUAL REPORT
This report has been prepared for the information of the shareholders of William
Blair Mutual Funds, Inc. It is not to be construed as an offering to sell or buy
any securities of the Fund. Such offering is made only by the Prospectus.
