<PAGE> 1
ANNUAL REPROT/ DECEMBER, 1996
WILLIAM BLAIR MUTUAL FUNDS, INC.
GROWTH FUND
VALUE DISCOVERY FUND
INTERNATIONAL GROWTH FUND
INCOME FUND
READY RESERVES FUND
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.
<PAGE> 2
TABLE OF CONTENTS
Overview 3
A Letter from the President 3
Growth Fund 5
A Letter from the Portfolio Managers 5
Portfolio of Investments 8
Value Discovery Fund 10
A Letter from the Portfolio Managers 10
Portfolio of Investments 11
International Growth Fund 12
A Letter from the Portfolio Manager 12
Portfolio of Investments 15
Income Fund 18
A Letter from the Portfolio Manager 18
Portfolio of Investments 20
Ready Reserves Fund 22
A Letter from the Portfolio Manager 22
Portfolio of Investments 23
Notes to Financial Statements 30
Board of Directors 40
Officers 40
2
<PAGE> 3
BLAIR MUTUAL OVERVIEW LOGO
- --------------------------------------------------------------------------------
Performance Highlights
<TABLE>
<CAPTION>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Growth Fund 18.0% 29.1% 6.5% 15.5%
S&P 500 Index 23.3 37.5 1.3 10.0
Russell 2000 Index 16.5 28.4 (1.8) 18.9
Value Discovery Fund (Inception 12/23/96)
International Growth Fund 10.2 7.2 (0.04) 33.6
Lipper International Index 14.4 10.0 (0.7) 39.2
MSCI AC WLD ex US Index* 6.7 9.9 6.6 34.9
Income Fund 3.0 14.4 (0.7) 7.8
Lehman Intermediate Govt./Corp.
Index 4.1 15.3 (1.9) 8.8
Ready Reserves Fund 4.8 5.5 3.7 2.6
S&P-rated AAA Money Market Funds 4.8 5.4 3.6 2.0
</TABLE>
- --------------------------------------------------------------------------------
Investor Information
For the Period Ended December 31, 1996
<TABLE>
<CAPTION>
Value International Ready
Growth Discovery Growth Income Reserves
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $502 $2 $105 $150 $761
Portfolio Turnover Rate (%) 43 -- 89 66 --
Expense Ratio (%) .79 -- 1.44 .70 .71
Sales Load None None None None None
Redemption Fees None None None None None
Exchange Fees None None None None None
12b-1 Fees None None None None None
</TABLE>
- --------------------------------------------------------------------------------
* Morgan Stanley Capital International All Country World Free except U.S. Index
A LETTER FROM THE PRESIDENT
[PHOTO ROCKY BARBER]
Dear Shareholders:
William Blair Mutual Funds experienced a dynamic year in 1996. While it was a
difficult year to outperform the indices, all of our funds had good results.
The Growth Fund's return of 18%, while weak in comparison to the very large
capitalization S&P 500, was competitive with the returns posted by other mutual
funds in its peer group. On a relative basis, our other funds fared better,
with returns that were generally in line with their benchmarks.
During the year, we made several changes that will affect the future
performance of the funds. First, after many months of consideration and
planning, we decided to move the management of the International Growth Fund to
a dedicated team of in-house portfolio managers/analysts. We believe this will
increase the focus on individual companies in the portfolio and renew the
emphasis on small and mid-sized (capitalization) growth issues outside of the
United States. George Greig and his team of three assumed management
responsibility in the fourth quarter, and we look forward to a good 1997. I
urge you to read his report and consider adding to and diversifying your
portfolio with this fund.
(continued)
3
<PAGE> 4
Just before year end we introduced a new portfolio, the Value Discovery
Fund, which invests in small emerging companies with inexpensive valuations
that do not adequately reflect their growth potential. This portfolio is run
by a trio of experienced portfolio managers/analysts headed by Glen Kleczka. We
think that smaller cap value is an under-researched area with substantial
capital gains potential for investors.
Our administrative and client services areas have been revamped in
order to improve customer service and to maintain a low expense structure. We
remain very proud of our relatively low expense ratios that allow more of the
portfolio return to flow to shareholders. As we look to years ahead when
portfolio returns may not be double digits as has been the case in the equity
markets over the past two years, lower expenses will be a significant component
in delivering superior returns.
We are very excited about the growth and opportunities within William
Blair Mutual Funds and look forward to serving your investment needs for many
years to come.
Rocky Barber
4
<PAGE> 5
BLAIR MUTUAL GROWTH FUND LOGO
Performance Highlights
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Growth Fund 18.0% 29.1% 6.5% 15.5% 7.6%
S&P 500 Index 23.3 37.5 1.3 10.0 7.7
Russell 2000 Index 16.5 28.4 (1.8) 18.9 18.4
</TABLE>
- --------------------------------------------------------------------------------
Investor Information
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $502 $363 $218 $150 $111
Portfolio Turnover Rate (%) 43 32 46 55 27
Expense Ratio (%) .79 .65 .71 .78 .83
</TABLE>
- --------------------------------------------------------------------------------
[A LETTER FROM THE PORTFOLIO MANAGERS]
[PHOTO ROCKY BARBER]
[PHOTO MARK A. FULLER III]
Dear Shareholders:
For the second year in a row the equity market has registered a strong
gain, with the S&P 500 up 23%. However, the strength was again concentrated in
the very largest capitalization issues, and most mid-sized to smaller companies
settled for more modest returns. These trends can be seen clearly in the
tables highlighted above and below.
1996 1995 1994
- -----------------------------------------------------------------------------
WILLIAM BLAIR GROWTH FUND 18.0% 29.1% 6.5%
Lipper Growth Fund Average 17.5 31.2 -1.6
- -----------------------------------------------------------------------------
Stronger than expected economic growth coupled with a substantial increase in
the value of the U.S. dollar provided the underpinnings of investor fervor for
large cap stocks. As we look to 1997 we expect domestic growth to moderate and
dollar appreciation to subside. Inflation and interest rates are likely to
remain well behaved, so while equity prices in general are historically high,
we do not fear a major sell-off in the market. Indeed, we expect that slower
GNP growth in 1997 will increase the attractiveness of smaller stocks as many
of our companies are less dependent on a strong economy to support their
growth. If, as we expect, larger companies only grow 5-10% in 1997, then
smaller companies in our portfolio growing 15-20+% will look relatively more
attractive than the past two years when almost all companies, whether large or
small, were 15-20% gains.
Our larger cap stocks performed well in 1996, although much of the
strength was concentrated in the financial services sector and in "Wintel"
(short for Microsoft WINdows and InTEL)-the dynamic duo that have a dominant
position in PCs. While the fund's exposure to smaller and medium sized
companies has been more limited over the past 18 months (currently about 20% in
the under $1 billion, or small, capitalization sector), even this more modest
allocation to an underperforming area has caused the fund as a whole to lag the
S&P 500 in 1995 and 1996.
The final quarter of 1996 saw small cap stock performance shift away
from the quality growth franchise that we covet. Our emphasis on companies
with more predictable growth has a defensive nature to it that serves us well
in most markets. However,
5
<PAGE> 6
domestic economic data suggesting stronger growth helped boost more economically
sensitive sectors such as energy, capital goods and technology while more
defensive growth sectors such as health care, distribution and business services
lagged.
Small cap holdings that performed particularly well in 1996 often were
driven by strong earnings trends that exceeded expectations. Good examples of
this include HEARTLAND EXPRESS, ACXIOM, CATALINA MARKETING AND QUINTILES
TRANSNATIONAL. Conversely, disappointments were treated very harshly, and single
day drops of 25% or more in the stock price were not unusual. As a result,
stocks such as DIGI INTERNATIONAL, SUNGLASS HUT AND PEAK TECHNOLOGIES failed to
sustain their growth trendlines and represented setbacks for the portfolio.
The outlook for 1997 is quite dependent upon the level of economic growth
and the behavior of interest rates and inflation. While we can't predict the
future, after two years of strong gains it is prudent to lower our expectations
for the near term. We expect further slowing in corporate earnings growth this
year, primarily due to tough earnings comparisons against a surprisingly strong
1996. If the economy begins to slow in the second half of 1997, the relative
earnings growth of the Growth Fund will look very attractive against the market
and should improve our performance. In the meantime, while we recognize that the
use of small and large growth companies has hindered our performance for the
past two years, we remain committed to the investment philosophy and disciplines
that have served us well over the long term.
Rocky Barber Mark A. Fuller III
6
<PAGE> 7
[GROWTH FUND WILLIAM BLAIR MUTUAL FUNDS, INC. LOGO]
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
[GRAPH]
MEASUREMENT PERIOD GROWTH
(FISCAL YEAR COVERED) FUND S&P 500
<S> <C> <C>
1/87 10000 10000
12/87 10799 10517
12/88 11567 12253
12/89 15090 16104
12/90 14785 15590
12/91 21345 20352
12/92 22969 21916
12/93 26532 24107
12/94 28245 24427
12/95 36456 33588
12/96 43013 41396
</TABLE>
7
<PAGE> 8
(BLAIR MUTUAL GROWTH FUND LOGO)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
Shares Value
- ------ -----
<S> <C> <C> <C>
COMMON STOCKS
APPLIED TECHNOLOGY -- 18.6%
285 * Acxiom Corporation $ 6,849
432 * Airtouch Communications, Inc. 10,911
187 * American Management Systems 4,588
250 Automatic Data Processing, Inc. 10,705
142 * B A Merchant Services, Inc., Class
"A" 2,536
115 * BISYS Group, Inc. 4,267
140 * Catalina Marketing Corporation 7,718
222 Cognizant Corporation 7,320
100 * Desktop Data 1,930
340 First Data Corporation 12,423
204 * NFO Research, Inc. 4,497
288 * Paging Network, Inc. 4,393
82 Reuters Holdings PLC (ADR) 6,244
123 Shared Medical Systems Corporation 6,058
83 * Sterling Commerce, Inc. 2,912
--------
93,351
--------
TECHNOLOGY -- 14.6%
172 * Broderbund Software, Inc. 5,131
72 * Electronic Arts 2,156
96 Intel Corporation 12,574
144 * Intuit, Inc. 4,540
150 Linear Technology Corporation 6,581
154 * Microsoft Corporation 12,695
94 Molex Incorporated 3,669
152 Molex Incorporated, Class "A" 5,426
115 * Oracle Corporation 4,811
48 * Solectron Corporation 2,563
177 * Xilinx, Inc. 6,529
280 * Zebra Technologies Corporation,
Class "A" 6,541
--------
73,216
--------
HEALTHCARE-RELATED SPECIALTIES -- 13.5%
48 * Amgen, Inc. 2,611
288 * Elan PLC (ADR) 9,579
274 * Health Care & Retirement
Corporation 7,856
192 * Healthsouth Rehabilitation
Corporation 7,418
190 Medtronic, Inc. 12,920
224 Omnicare, Inc. 7,206
66 * Quintiles Transnational
Corporation 4,371
96 * R. P. Scherer Corporation 4,825
160 Smithkline Beecham PLC (ADR) 10,880
--------
67,666
--------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- ------ -----
<S> <C>
CONSUMER RETAIL -- 13.4%
144 Albertson's, Inc. $ 5,131
240 CVS Corporation 9,933
188 * Eckerd Corporation 6,019
230 Home Depot, Inc. 11,552
86 * Kohl's Corporation 3,392
307 * Office Depot, Inc. 5,454
155 * PetSmart, Inc. 3,384
236 * Staples, Inc. 4,258
118 * Starbucks Corporation 3,381
209 * Viking Office Products, Inc. 5,571
154 Walgreen Company 6,146
133 Whole Foods Market, Inc. 2,992
--------
67,213
--------
FINANCIAL SERVICES -- 11.1%
204 Associates First Capital Corp.,
Class "A" 9,016
304 * Credit Acceptance Corporation 7,144
76 Federal Home Loan Mortgage
Corporation 8,416
96 Household International, Inc. 8,858
266 MBNA Corporation 11,059
173 State Street Boston Corporation 11,149
--------
55,642
--------
DISTRIBUTION -- 9.0%
217 * Airgas, Inc. 4,778
154 Alco Standard Corporation 7,932
128 * Black Box Corporation 5,292
144 Cardinal Health, Inc. 8,390
123 * Gulf South Medical Supply, Inc. 3,164
299 * JP Foodservice, Inc. 8,322
201 * MSC Industrial Direct Co., Class
"A" 7,426
--------
45,304
--------
BUSINESS SERVICES -- 9.0%
106 Cintas Corporation 6,206
316 * Heartland Express, Inc. 7,703
126 * Interim Services, Inc. 4,490
228 * Knight Transportation, Inc. 4,333
145 * Patterson Dental Co. 4,083
154 Reynolds & Reynolds, Inc., Class
"A" 3,995
125 * Robert Half International, Inc. 4,304
140 * Rural/Metro Corporation 5,054
141 Wallace Computer Services, Inc. 4,877
--------
45,045
--------
INDUSTRIAL PRODUCTS -- 4.3%
142 Danaher Corporation 6,622
245 M.A. Hanna Company 5,366
229 Minerals Technologies, Inc. 9,394
--------
21,382
--------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------- --------
COMMON STOCKS (CONTINUED)
SPECIALTY CONSUMER SERVICES
AND PRODUCTS -- 4.1%
<S> <C> <C> <C>
54 * Blyth Industries, Inc. $ 2,453
134 * Boston Chicken, Inc. 4,802
250 * CUC International, Inc. 5,937
147 * Day Runner, Inc. 2,872
180 * Department 56, Inc. 4,463
--------
20,527
--------
FOOD-RELATED COMPANIES -- .8%
144 Pepsico, Inc. 4,214
--------
TOTAL COMMON STOCK -- 98.4% 493,560
--------
(cost $355,663)
<CAPTION>
Principal Amount Value
- ----------------------------------------------- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
$ 322 Associates Corp. of North America
Demand Note, 5.23%, due 1/2/97 $ 322
2,000 Ford Motor Credit Corp., 5.42%,
due 1/17/97 2,000
2,707 General Motors Acceptance
Corporation 5.39%, due 1/24/97 2,707
1,995 GE Capital Corp., 5.40%, due
1/31/97 1,995
--------
TOTAL SHORT-TERM
INVESTMENTS -- 1.4% 7,024
--------
(cost $7,024)
TOTAL INVESTMENTS -- 99.8% 500,584
(COST $362,687)
CASH AND OTHER ASSETS, LESS
LIABILITIES -- .2% 1,190
--------
NET ASSETS -- 100.0% $501,774
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
9
<PAGE> 10
VALUE DISCOVERY FUND (BLAIR MUTUAL GROWTH FUND LOGO)
A Letter from the
Portolio Managers
[Photo Glen Kleczka]
[Photo Cappy Price]
[Photo David Mitchell]
Dear Shareholders:
We are pleased to announce the addition of the Value Discovery Fund to
the William Blair Mutual Funds family. The fund was officially launched
December 23, 1996 and is currently accepting capital contributions.
The name "Value Discovery" was chosen for our fund because we will
invest using a value investment discipline. Value investing can be likened to
a process of discovery. Your investment team will discover companies whose
future growth prospects are underestimated by the market. We will focus on
companies that possess excellent emerging growth characteristics but may not
yet have an established, historical growth record. We believe these companies
are often overlooked as investors extrapolate past performance in formulating a
future outlook. Emerging growth companies often trade like value stocks
because they lack an established record of growth. Investors tend to assume
that a lack of historical growth portends diminished emerging growth
opportunities. We believe otherwise.
Success in investment management means producing returns above and
beyond a market benchmark on a consistent basis. Our goal is to consistently
outperform the Russell 2000 Index which tracks the performance of small
companies. Value Discovery invests in companies with market capitalizations
from $20 million to $1.5 billion. Of the over 20,000 publicly-traded
companies in the U.S., approximately 70% have market capitalizations of less
than $300 million, and 90% have less than $1.5 billion. We will concentrate on
this universe of small companies to produce superior returns. These companies,
we believe, are growing aster than larger companies and have less research
coverage by investment firms.
The Value Discovery Fund will seek for purchase companies exhibiting
four distinct characteristics. First, they will be financially strong, often
with substantial liquidity and no debt. Second, they will be trading at
material discounts to our estimate of intrinsic value with meaningful stock
price support to reduce downside risk. Third, they will have good secular
growth prospects and be well-positioned within growing industries. Finally,
the Value Discovery Fund will identify investments with catalysts that can
result in earnings acceleration through faster growth or improving
profitability.
We are proud to be a part of the William Blair Mutual Funds family, and
we welcome your investment.
Glen Kleczka Cappy Price David Mitchell
10
<PAGE> 11
VALUE DISCOVERY FUND * WILLIAM BLAIR MUTUAL GROWTH FUND LOGO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<S> <C>
CASH AND OTHER ASSETS, LESS LIABILITIES $2,175
------
NET ASSETS -- 100.0% $2,175
======
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
INTERNATIONAL GROWTH FUND - WILLIAM BLAIR MUTUAL FUNDS, INC.
<TABLE>
<CAPTION>
- --------------------------------------Performance Highlights----------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
International Growth Fund 10.2% 7.2% (0.0)% 33.6%
Lipper International 14.4 10.0 (0.7) 39.2
MSCI AC WLD ex US Index* 6.7 9.9 6.6 34.9
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------Investor Information----------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Ending Net Assets (in millions) $105 $90 $70 $40
Portfolio Turnover Rate (%) 89 77 40 83
Expense Ratio (%) 1.44 1.48 1.51 1.71
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Morgan Stanley Capital International All Country World Free except U.S. Index
A LETTER FROM THE Dear Shareholders:
PORTFOLIO MANAGER The year 1996 brought in a bumper crop of good economic
and political news.
[GEORGE GREIG PHOTO] - Economic growth, while improving from 1995's
sluggish pace, remained moderate. Only two major
economies--Australia and Japan--grew at a rate
above 3%; only Italy and Switzerland fell below 1%
growth.
- Inflation trended below its long term average level
in every major economy worldwide, and fell below 4%
in every European country with the exception of
Greece. By the end of 1996, even China and Brazil
had experienced single-digit inflation. In spite of
generally improving economic growth, interest rates
fell everywhere except in the UK and the US.
- Central bankers achieved their collective goal of
steadily strengthening the dollar without causing
undue market volatility.
- Elections in the US and Japan came off exactly as
forecast: opinion polls in Britain remained
unchanged all year long; even the Prodi government
in Italy was viewed as stable. Something like a
political consensus for the European monetary union
and its fiscal preconditions seemed to be in place
by year-end. No significant new trade disputes
arose anywhere.
- Among the 25 emerging marker economies we follow,
none suffered a decline in real GDP during 1996,
none underwent an involuntary change in government,
only one experienced a significant real
devaluation, and all but three showed rising
foreign exchange reserves.
If this seems like the ideal environment for financial markets, it was.
Twenty-percent or better market returns were commonplace in Europe, developed
Asia, and many emerging markets. The exceptions were few but significant: South
Africa, Chile, and Thailand all fell by more than 15% in dollar terms, as did
Japan, where investor confidence seemed to erode as they year wore on. We
continue to believe in corporate performance as the key driver of international
equity investment decision in 1997 and beyond. For many years, returns on
capital and returns to shareholders have been downplayed or ignored in Europe
and Japan. We believe that over the next several years these same criteria,
which have dominated the U.S. market, will begin to rise to the top of the
corporate agenda abroad.
As you know, we implemented a management change within the fund during
1996, creating an in-house research and portfolio team to take charge of the
fund's day-to-day
(continued)
12
<PAGE> 13
INTERNATIONAL GROWTH FUND - WILLIAM BLAIR MUTUAL FUNDS, INC.
management. The team is now in place, and the composition of the portfolio has
been changed to reflect a strengthened commitment to both above-average
fundamental characteristics and the long-term quality growth approach for which
William Blair is known.
The International Growth Fund will now be compared to the new Morgan
Stanley All County World Free except the U.S. Index. Unlike the Morgan Stanley
Europe-Australia-Far East Index, this new benchmark includes emerging markets
and reduces the Japanese portion to approximately 30%, making it more
comparable to our fund in terms of investment approach.
George Greig
13
<PAGE> 14
INTERNATIONAL GROWTH FUND-WILLIAM BLAIR MUTUAL FUNDS, INC.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPH]
<TABLE>
<CAPTION>
10/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95 6/96 12/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Int'l Growth Fund $10,000 10,130 11,390 13,534 13,985 13,528 13,332 14,505 15,687 15,687
MSCI All Country $10,000 9,694 11,885 13,078 13,960 13,945 14,269 15,331 16,148 16,355
World Free Ex-U.S.*
Lipper Inter- $10,000 9,876 11,311 13,745 13,717 13,644 13,983 15,012 16,316 17,178
national Index
MSCI EAFE** $10,000 9,623 11,879 12,793 13,935 13,825 14,206 15,422 16,142 16,403
</TABLE>
* MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY WORLD FREE EXCEPT U.S.
INDEX
** MORGAN STANLEY EUROPE-AUSTRALIA-FAR EAST INDEX
14
<PAGE> 15
INTERNATIONAL GROWTH FUND - BLAIR MUTUAL INTERNATIONAL
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <C> <S> <C>
COMMON STOCKS -- EUROPE 43.6%
AUSTRIA -- 1.5%
10 VA Technologie AG (Industrial
engineering) $ 1,570
--------
DENMARK -- 1.3%
7 Novo Nordisk AS (Pharmaceutical) 1,318
--------
FINLAND -- 2.3%
19 Nokia (AB) OY
(Telecommunications equipment) 1,103
9 Raision Tehtaat OY (Food) 535
9 TT Tieto OY, "B" Shares
(Consultants) 746
--------
2,384
--------
FRANCE -- 5.6%
6 Canal Plus (Media/television) 1,369
38 Lagardere Groupe (Industrial
holding company) 1,043
10 Louis Dreyfus Citrus (Food
processing) 328
29 * SGS Thomson Microelectronics
(Semiconductors) 2,051
2 Sodexho (Contract catering) 1,114
--------
5,905
--------
GERMANY -- 5.6%
1 Altana Industrie -- Aktiem Und
Anlagen DM50 (Pharmaceuticals) 739
11 Adidas AG ORD (Sporting goods) 950
15 * Leica Camera AG (Cameras) 468
3 * Mannesmann AG (General
engineering) 1,083
8 Moebel Walther (Furniture
stores) 442
9 SGL Carbon AG (Chemicals) 1,134
18 Veba AG (Utility) 1,040
--------
5,856
--------
ITALY -- 2.0%
502 Banca Fideuram SPA (Fund
management) 1,102
400 Telecom Italia Mobile (Cellular
service) 1,013
--------
2,115
--------
NETHERLANDS -- 3.1%
20 ABN AMRO Holdings (Banks) 1,301
26 Philips Electronics NV (Consumer
electronics) 1,053
20 Van Ommeren (Specialty
chemicals) 903
--------
3,257
--------
Shares Value
------ -----
<C> <C> <S> <C>
NORWAY -- 1.7%
58 * Tandberg (Digital television
systems) $ 1,811
--------
SWEDEN -- 5.7%
28 Autoliv AB (Airbag
manufacturers) 1,224
45 Astra AB (Pharmaceuticals) 2,217
50 Ericsson AB Telecom
(Telecommunication services) 1,542
22 Kinnevik AB "B" Free Shares
(Industrial holding company) 618
22 Netcom Systems AB "B" Shares
(Telecommunications) 363
--------
5,964
--------
SWITZERLAND -- 1.8%
0.43 Baloise Holdings (Insurance) 853
10 CS Holdings (Banking) 1,026
--------
1,879
--------
UNITED KINGDOM -- 13.0%
40 Abbott Mead Vickers PLC
(Advertising agency) 442
75 Cairn Energy (Energy utility) 538
50 DFS Furniture Company (Furniture
manufacturer/retailer) 514
125 First Leisure Corporation PLC
(Entertainment) 721
250 Firstbus PLC (Transportation
services) 871
70 Games Workshop (Toys) 647
135 Grand Metropolitan PLC
(Breweries) 1,064
100 Harvey Nichols Group PLC
(Department stores) 596
240 Hays PLC (Bulk
distribution/personnel
services) 2,310
200 Kwik Fit Holdings ORD PLC
(Distributors) 745
60 Mercury Assets Management Group
(Banks/Merchant) 1,278
125 Next PLC (Retail apparel) 1,215
60 Page (Michael) Group PLC
(Recruitment) 426
50 Rolls Royce PLC (Engineering) 220
65 Standard Chartered PLC (Retail
banks) 803
126 Tesco PLC (Food Retailer) 768
25 Wetherspoon (J.D.) PLC (Retail
pubs) 505
--------
13,663
--------
COMMON STOCKS -- ASIA -- 36.7%
AUSTRALIA -- .6%
125 QBE Insurance Group Limited
(General insurer) 659
--------
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
HONG KONG -- 6.4%
2,200 Cafe de Coral Holdings, Limited
(Fast food) $ 590
2,200 * Founder Hong Kong, Limited
(Electronic publishing) 846
1,000 * Glorious Sun Enterprises,
Limited (Textile products) 417
600 * Guang Nan Holdings, Limited
(Miscellaneous distribution) 516
84 HSBC Holdings (Bank) 1,802
250 * New World Infrastructure
(Construction) 730
200 Shanghai Industrial Holdings,
Limited (Tobacco/
pharmaceutical holdings) 729
185 Television Broadcasts, Limited
(Broadcasting) 739
1,550 Tingyi (Cayman Island) Holdings
(Food manufacturing) 406
--------
6,775
--------
JAPAN -- 26.9%
25 Aderans Company, Limited (Wigs) 611
77 Anritsu Corporation (Electrical
machinery) 831
95 Canon, Incorporated (Computer
and office equipment) 2,099
16 Chodai Company, Limited
(Consulting services) 404
44 Credit Saison (Credit cards) 984
0.20 DDI Corporation (Telecom service
provider) 1,322
25 Enix Corporation (Entertainment
software) 563
15 Fuji Machine Manufacturing
(Automated assembly machine) 397
21 Giken Seisakusho Company,
Limited (Machinery) 281
17 Hirose Electronics Company,
Limited (Connectors) 985
30 Hoya Corporation (Specialty
glass) 1,178
6 Imagineer Company, Limited (Game
software) 363
60 Jaccs Company (Consumer finance) 466
7 Keyence Corporation
(Electronics) 864
20 Meiwa Estate Corporation,
Limited (Condominiums) 501
120 Minebea Company, Limited
(Miniature bearings) 1,003
16 Nichiei Company, Limited
(Finance company) 1,181
10 Nichii Gakkan Company (Medical
recordkeeping) 499
15 Noritsu Kohki Company, Limited
(Photo processing equipment) 706
21 Oiles Corporation (Machinery) 638
<CAPTION>
Shares Value
- ------------ JAPAN (CONTINUED) --------
<S> <C> <C>
87 Ricoh Corporation, Limited
(Color copier manufacturer) $ 999
20 Rohm Company (Electronics) 1,314
15 Ryohin Keikaku Company, Limited
(Home furnishing/
apparel stores) 1,114
10 SMC Corporation (Machinery) 672
10 Sakai Moving Service
(Residential moving) 251
36 Santen Pharmaceutical Company
(Opthalmic pharmaceuticals) 746
14 Secom Company, Limited
(Services) 847
23 Sho Bond Construction
Corporation (Construction) 630
51 Sodick Company, Limited
(Electronics) 423
41 Sony Corporation (Consumer
electronics) 2,686
95 Takeda Chemical Industries,
Limited (Pharmaceuticals) 1,993
6 Tiemco Company, Limited (Sport
fishing equipment) 384
9 World Company, Limited
(Wholesale apparel) 373
--------
28,308
--------
MALAYSIA -- 2.0%
90 Commerce Asset Holdings Berhad
(Retail bank) 677
120 Malaysia Assurance Alliance
(Insurance) 585
158 YTL Corporation Berhad (Holding
company/power generation) 848
--------
2,110
--------
SINGAPORE -- .8%
95 City Developments (Real estate) 855
--------
COMMON STOCKS -- EMERGING MARKETS -- 14.9%
ARGENTINA -- .6%
22 Banco Frances Rio Plata ADR
(Bank) 606
--------
BRAZIL -- 3.4%
30,000 Lojas Arapua PN (Retail) 554
16,000 Telebras S.A.
(Telecommunications) 1,147
8 Telecommunicacoes Brasilera, ADR
(Telecommunications) 612
3,200 Telecommunicacoes de Sao Paolo
(Telecommunications) 693
17,230 Uniao de Bancos Brasilera (Bank) 562
--------
3,568
--------
CHILE -- .9%
17 Laboratorio Chile S.A. (Generic
drugs) 280
6 Quimica Y Minera Chile ADR
(Mining) 313
19 Santa Isabel S.A. GDR (Food
retailer) 428
--------
1,021
--------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Shares Value
- ------------ CHILE (CONTINUED) --------
<S> <C> <C>
CHINA -- .6%
751 * Huangshan Tourism Development
Co. (Tourism) $ 331
300 * Wuxi Little Swan (Appliance
manufacturing) 303
--------
634
--------
GREECE -- .4%
13 Goody S.A. (Retail restaurants) 224
20 Sarantis (Cosmetics) 216
--------
440
--------
HUNGARY -- .6%
6 Gedeon Richter RT
(Pharmaceuticals) 351
8 Pannonplast Plastic Industries
(Plastic pipe manufacturing) 294
--------
645
--------
INDIA -- .4%
50 Gujarat Ambuja Cements (Building
products) 413
--------
INDONESIA -- 1.3%
150 PT Ramayana Lestari Sentosa
(Retail department store) 324
650 PT Telecomunikasion
(Telecommunications) 1,087
--------
1,411
--------
ISRAEL -- .4%
24 Koor Industries, Limited
(Fertilizer) 411
--------
KOREA -- 1.6%
49 Korea Electric Power Corporation
ADR (Electric utility) 1,015
6 Samsung Display Devices, Limited
(Electronic displays) 330
2 Sungmi Telecom Company
(Telecommunication equipment) 298
--------
1,643
--------
PERU -- 1.2%
17 Corporation Banco Credito del
Peru (Bank) 306
505 Telefonica Del Peru S.A. CPT "B"
Shares (Telephone company) 940
--------
1,246
--------
<CAPTION>
<S> <C> <C>
PHILIPPINES -- .8%
1,000 C & P Homes (Housing
development) $ 513
1,250 Davao Union Cement Corporation,
Class "B" (Cement) 352
--------
865
--------
POLAND -- .6%
12 Agros Holdings, Class "C" (Food) 315
34 Electrim S.A. (Telecommunication
wire manufacturing) 308
--------
623
--------
SOUTH AFRICA -- 1.3%
30 Liberty Life Association of
Africa (Life/health insurance) 752
100 Metropolitan Cash & Carry,
Limited (Food retail) 331
30 Nasionale Pers Beperk
(Publishing) 277
--------
1,360
--------
THAILAND -- .5%
200 (a) Industrial Finance Corporation
of Thailand (Bank) 534
54 Thai Farmers Bank Warrants
(Bank) --
--------
534
--------
TURKEY -- .3%
2,000 Ardem Pisirici (Stove
manufacturing) 296
--------
TOTAL COMMON STOCKS 95.2%
(COST $86,980) 100,145
--------
SHORT-TERM INVESTMENTS -- 4.3%
$4,485 Investors Bank & Trust Company
Repurchase Agreement,
5.91% ,dated 12/31/96
Collateralized by U.S.
Government Agency Security
with market value of $4,710
with 1/2/97 repurchase date
(cost $4,485) 4,485
--------
TOTAL INVESTMENTS -- 99.5% 104,630
(cost $91,465)
OTHER ASSETS, LESS
LIABILITIES -- .5% 518
--------
NET ASSETS -- 100.0% $105,148
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
GDR = Global Depository Receipt
(a) Foreign registered securities (Alien Market)
At December 31, 1996, the Fund's Portfolio of Investments includes the following
categories: Technology -- 22%; Services -- 18%; Finance -- 17%; Manufacturing --
12%; Consumer Goods -- 9%; Utilities -- 8%; Retail -- 7%; Processing -- 3%;
Transportation -- 2%; and Other -- 2%
See accompanying Notes to Financial Statements.
17
<PAGE> 18
INCOME FUND-WILLIAM BLAIR MUTUAL FUNDS, INC.
Performance Highlights
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income Fund 3.0% 14.4% (0.7)% 7.8% 7.2%
Lehman Intermediate Govt./Corp. Index 4.1 15.3 (1.9) 8.8 7.2
</TABLE>
Investor Information
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $150 $147 $144 $204 $137
Portfolio Turnover Rate (%) 66 54 63 114 47
Expense Ratio (%) .70 .68 .68 .70 .88
</TABLE>
A LETTER FROM THE PORTFOLIO MANAGER
[BENTLEY MYER PHOTO]
Dear Shareholders:
The big story in the bond market for the second half of 1996 was the
slowdown in the economy during the third quarter. Real Gross Domestic Product
grew at a very robust rate of 4.7% during the second quarter, but slipped to
just 2.1% during the third quarter. Early reports for the fourth quarter
suggest that the growth rate picked up, but not in any significant way.
The bond market tracked these changes very closely with prices rising
strongly in the third quarter, only to reverse course later in the fourth
quarter. Looking ahead, it appears that the economy will continue to grow at a
moderate rate into the first half of 1997. There do not appear to be many
excesses that would lead the Federal Reserve Board to change their more neutral
policy and start raising short-term interest rates. One exception is the
continuing upward movement in stock prices; a large correction could dampen
consumer confidence.
Our strategy continued to run counter to market sentiment as we
started raising cash reserves during the third quarter rally. This move hurt
our relative performance early on, but we have benefitted more recently as
interest rates moved back up. U.S. Treasury notes and more conservative
mortgage-backed securities continue to be our preferred sector choices. This
again runs against popular thinking which favors corporate bonds. We continue
to have concerns in the corporate sector, as the risk and return
characteristics for most issues do not look attractive.
Finally, in November we raised the monthly dividend from $.05 per share
to $.0525. We waited until later in the year to raise this rate because we
wanted to make sure we could sustain the increased payment for some period of
time. This more conservative approach will continue to be our policy in 1997
and beyond.
Bentley Myer
18
<PAGE> 19
INCOME FUND - WILLIAM BLAIR MUTUAL FUNDS, INC.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
LEHMAN IN-
TERMEDIATE
GOVERN-
MEASUREMENT PERIOD INCOME MENT/CORPORATE
(FISCAL YEAR COVERED) FUND INDEX
- --------------------- ------ ----------------
<S> <C> <C>
9/90 10,000 10,000
12/90 10,291 10,490
6/91 10,781 10,946
12/91 11,966 12,024
6/92 12,390 12,387
12/92 12,845 12,887
6/93 13,565 13,687
12/93 13,849 13,955
6/94 13,555 13,652
12/94 13,746 13,748
6/95 14,935 15,069
12/95 15,722 15,857
6/96 15,670 15,823
12/96 16,189 16,498
</TABLE>
19
<PAGE> 20
INCOME FUND WILLIAM BLAIR MUTUAL FUNDS, INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
Principal
Amount Issue Value
- --------- ----- --------
<C> <S> <C>
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY GUARANTEED
OBLIGATIONS -- 65.0%
U.S. TREASURY NOTES -- 30.3%
$ 10,322 5.750%, due 8/15/03 $ 10,019
15,500 7.250%, due 5/15/04 16,324
5,000 7.250%, due 8/15/04 5,267
12,650 7.875%, due 11/15/04 13,816
-------- --------
43,472 Total U.S. Treasury Obligations 45,426
-------- --------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS -- 9.1%
U.S. DEPARTMENT OF VETERANS
AFFAIRS -- 3.3%
5,000 Mortgage Trust 1992-2, 5,019
-------- Tranche 2-D, 7.000%, due --------
9/15/15
FEDERAL HOUSING AUTHORITY -- 2.9%
4,120 9.680%, due 3/1/25 4,282
-------- --------
SMALL BUSINESS ADMINISTRATION -- 1.2%
-- Receipt for Multiple
Originator Fees, #3
0.785%, due 11/8/08 1,503
(Interest Only) WAC
339 Loan #100023, 9.375%, due 352
-------- 11/25/14 --------
339 Total Small Business 1,855
-------- Administration --------
Obligations
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II -- 1.0%
20 12.000%, due 2/20/00 21
21 12.500%, due 2/20/15 24
659 11.000%, due 3/20/16 738
17 10.500%, due 6/20/19 18
440 11.000%, due 8/20/19 492
69 10.500%, due 8/20/20 75
87 10.500%, due 9/20/20 95
-------- --------
1,313 Total Government National 1,463
-------- Mortgage Association --------
Obligations II
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 0.7%
11 12.500%, due 4/15/14 12
54 13.000%, due 11/15/14 60
909 8.500%, due 12/15/21 953
-------- --------
974 Total Government National 1,025
-------- Mortgage Association --------
Obligations
<CAPTION>
Principal
Amount Issue Value
- --------- ----- --------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION MOBILE HOME -- 0.0%
$ 35 9.750%, due 3/15/98 $ 36
17 9.750%, due 1/15/99 18
-------- --------
52 Total Government National 54
-------- Mortgage Association --------
Mobile Home Obligations
U.S. GOVERNMENT AGENCY GUARANTEED
OBLIGATIONS -- 25.6%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) -- 10.6%
746 1991-79, Tranche S, 16.596%
FR, due 7/25/98 799
1,123 8.500%, due 7/1/99 1,145
567 11.250%, due 12/15/11 624
569 12.250%, due 12/15/11 641
53 13.250%, due 8/1/14 53
2,640 1992-200, Tranche SE,
11.500%, due 11/25/22 2,653
266 1993-19, Tranche SH,
11.234%, due 4/25/23 259
4,842 5.724% FR, due 9/1/26 4,949
4,701 5.900% FR, due 10/1/26 4,801
-------- --------
15,507 Total FNMA Mortgage 15,924
-------- Obligations --------
FEDERAL HOME LOAN MORTGAGE
CORP. (FHLMC) -- 8.7%
403 #1475, Tranche SC, 9.457% 386
FR, due 2/15/08
1,092 #1693, Tranche S+, 5.725%, 893
due 9/15/08
166 #1214, Tranche EB, 9.900% 166
FR, due 2/15/15
3,445 #555280, Pass Through, 3,579
8.500% , due 9/1/17
2,000 #1289, Tranche PK, 7.500%, 2,019
due 5/15/18
3,390 #1166, Tranche PG, 8.000%, 3,439
due 2/15/20
603 #1492, Tranche SE, 10.133%, 529
due 3/15/23
2,017 #1542, Tranche S, 14.346%, 2,060
-------- due 7/15/23 --------
13,116 Total FHLMC Mortgage 13,071
-------- Obligations --------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Principal S & P
Amount Issue Rating Value
- --------- ----- ----------- --------
(Unaudited)
<S> <C> <C> <C>
FEDERAL HOME LOAN BANKS
(FHLB) -- 6.3%
4,000 #AI-03, Tranche 1, 6.953%,
due 4/25/03 $ 4,005
5,500 #BJ-03, Tranche 1, 6.750%, 5,503
-------- due 10/24/03 --------
9,500 Total FHLB Mortgage Obli- 9,508
-------- gations --------
$ 93,393 Total U.S. Government and 97,627
-------- U.S. Government Agency --------
Guaranteed Obligations
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 20.3%
3,256 Prudential Home Mortgage
Securities Corp.,
1992-45, Tranche A-8, AAA 3,158
6.370% FR, due 1/25/00
1,418 Polk Co. HFA, 1991-1,
Tranche A-2, 9.550%, due AAA 1,471
1/15/11
12,452 Morgan Keegan Funding I, AA- 12,701
L.P., 8.000%, due 4/25/11
416 Mortgage Obligation Struc-
tured Trust, 1993-1,
Tranche A-1, 6.350%, due AAA 414
10/25/18
5,385 Citicorp, 1993-2, Tranche AAA 5,430
A-4, 7.500%, due 7/25/21
5,000 Prudential Home Mortgage
Securities Corp., 1993-8,
Tranche A-10, 7.350%, due AAA 5,023
3/25/23
174 Residential Finance Corp.,
1991-11, Tranche A-2, AA 175
10.000%, due 4/01/21
944 Residential Trust Corp.,
1992-2, Tranche A, AA 958
7.943%, due 8/25/21
212 Resolution Trust Corp.,
1991-3, Tranche A-2, AAA 224
10.372%, due 8/25/21
862 Resolution Trust Corp.,
-------- 1992-5, Tranche 5-C,
8.621%, due 1/25/26 886
AA --------
30,119 Total Collateralized Mort- 30,440
-------- gage Obligations --------
<CAPTION>
Principal S & P
Amount Issue Rating Value
- --------- ----- ----------- --------
(Unaudited)
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 2.1%
$ 1,250 Sears, Roebuck Corp. Me-
dium Term Note, 9.75%,
due 3/21/00 A- $ 1,374
1,500 Household Finance Corp.
-------- Medium Term Note, 10.38%,
due 12/15/00 1,705
A --------
2,750 Total Corporate Obligations 3,079
-------- --------
126,262 TOTAL LONG-TERM IN- 131,146
-------- VESTMENTS -- 87.4% --------
(cost $130,611)
SHORT-TERM INVESTMENTS -- 11.5%
1,456 Associates Corp. of North
America Demand Note, 1,456
5.233%, due 1/1/97 A-1+
3,250 Sears Commercial Paper, 3,250
5.408%, due 1/13/97 A-2
4,000 General Motors Acceptance
Corp., 5.300%, due 4,000
1/16/97 A-2
1,750 Sears Commercial Paper, 1,750
5.551%, due 1/23/97 A-2
2,500 Sears Commercial Paper, 2,500
5.452%, due 1/24/97 A-2
1,750 Ford Motor Credit Company, 1,750
5.300%, due 2/7/97 A-1
2,500 General Motors Acceptance
-------- Corp., 5.300%, due 3/3/97 2,500
A-2 --------
17,206 TOTAL SHORT-TERM IN-
-------- VESTMENTS -- 11.5% 17,206
--------
(cost $17,206)
$143,468 TOTAL INVESTMENTS -- 98.9%
======== 148,352
(cost $147,817)
OTHER ASSETS, LESS
LIABILITIES -- 1.1% 1,654
--------
NET ASSETS -- 100.0% $150,006
========
</TABLE>
- ---------------
WAC = Weighted Average Coupon
FR = Floating Rate
See accompanying Notes to Financial Statements.
21
<PAGE> 22
Blair Mutual Ready Reserves Fund Logo
Performance Highlights
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Ready Reserves Fund 4.8% 5.5% 3.7% 2.6% 3.3%
S&P-rated AAA Money Market Funds 4.8 5.4 3.6 2.0 3.2
</TABLE>
Investor Information
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $761 $704 $521 $477 $449
Expense Ratio (%) .71 .72 .71 .71 .71
</TABLE>
A LETTER FROM THE PORTFOLIO MANAGER
[BENTLEY MYER PHOTO]
Dear Shareholders:
The sentiment regarding changes in Federal Reserve Board policy swung
over a fairly wide range during the second half of 1996. Short-term interest
rates were expected to be increased early in the he period in response to signs
that the economy was expanding at a very rapid rate. As subsequent signs emerged
indicating a slowing in the growth rate of the economy, expectations changed to
an actual lowering in short rates. When the dust had settled at year end, the
federal funds rate stood at 5.25%, or exactly where it began the period. The
current forecast is for a continuation at this level, but, with the increased
amount of speculation in the money markets, there will probably be a change in
sentiment in the very near future.
With the fairly narrow spread between shorter-and longer-maturity money
market rates, we have allowed our average maturity to drift down to a current
level of 37 days. This is at the lower end of our normal maturity range of 35 to
60 days. We are likely to maintain this average until we feel that we are
adequately compensated for extending our maturities. From a sector standpoint,
we sold some floating rate notes and reinvested the proceeds in highly rated,
fixed rate commercial paper. With Federal Reserve Board policy unlikely to
change in the near term, we felt more comfortable with a fixed rate option.
Assets continued to grow and have reached the $750 million level recently.
We look forward to serving your money market needs in 1997.
Bentley M. Myer
22
<PAGE> 23
READY RESERVES FUND - WILLIAM BLAIR MUTUAL FUNDS, INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY GUARANTEED -- 2.2%
$ 2,200 Agency for
International
Development
VRN -- Peru 5.778% 1/1/97 $ 2,200
366 Agency for
International
Development
VRN -- Zimbabwe 5.778% 1/1/97 366
9,000 Student Loan
Marketing
Association VRN 5.645% 1/1/97 9,000
5,000 Student Loan
Marketing
Association VRN 5.545% 1/1/97 5,000
- -------- --------
16,566 16,566
- -------- --------
DEMAND NOTE-- 0.0%
103 Associates
Corporation of
North America
Demand Note VRN 5.233% 1/2/97 103
--------
FIXED RATE NOTES -- 0.3%
2,000
- --------
National Rural
Utilities
Cooperative
Finance
Corporation 8.160% 1/15/97 2,002
--------
COMMERCIAL PAPER -- 96.6%
INSURANCE -- 20.6%
8,000
A. I. Credit
Corporation 5.280% 2/14/97 7,948
2,858
American General
Finance
Corporation 5.310% 1/22/97 2,849
6,500
American General
Finance
Corporation 5.300% 1/30/97 6,472
1,707
American General
Finance
Corporation 5.320% 1/30/97 1,700
8,117
American General
Finance
Corporation 5.370% 4/4/97 8,004
6,000
Aon Corporation 5.300% 1/21/97 5,982
2,254
Metlife Funding
Incorporated 5.300% 1/23/97 2,247
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<S> <C> <C> <C> <C>
$ 3,483 Metlife Funding
Incorporated 5.300% 1/23/97 $ 3,472
10,673 Metlife Funding
Incorporated 5.290% 2/12/97 10,607
7,000 Metlife Funding
Incorporated 5.280% 2/13/97 6,956
3,300 Metlife Funding
Incorporated 5.330% 2/13/97 3,279
3,846 Metlife Funding
Incorporated 5.300% 3/6/97 3,810
7,350 Metlife Funding
Incorporated 5.300% 3/13/97 7,273
10,643 Prudential Funding
Corporation 5.520% 1/14/97 10,622
6,640 Prudential Funding
Corporation 5.320% 1/24/97 6,617
7,263 Prudential Funding
Corporation 5.330% 2/6/97 7,224
8,000 Prudential Funding
Corporation 5.410% 2/19/97 7,941
5,000 SAFECO Credit
Corporation 5.380% 1/3/97 4,999
3,500 SAFECO Credit
Corporation 5.320% 2/4/97 3,482
6,500 SAFECO Credit
Corporation 5.280% 2/6/97 6,466
3,000 SAFECO Credit
Corporation 5.280% 2/7/97 2,984
2,577 USAA Capital
Corporation 5.470% 1/2/97 2,577
2,740 USAA Capital
Corporation 5.410% 1/13/97 2,735
10,000 USAA Capital
Corporation 5.450% 1/16/97 9,977
5,118 USAA Capital
Corporation 5.290% 1/24/97 5,101
8,000 USAA Capital
Corporation 5.300% 2/13/97 7,949
3,115 USAA Capital
Corporation 5.300% 2/27/97 3,089
5,000 USAA Capital
Corporation 5.300% 3/17/97 4,945
- -------- --------
158,184 157,307
- -------- --------
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<C> <S> <C> <C> <C>
FINANCE -- 20.2%
$ 3,745 Associates
Corporation of
North America 5.310% 1/27/97 $ 3,731
6,436 Associates
Corporation of
North America 5.310% 1/28/97 6,410
6,974 Associates
Corporation of
North America 5.320% 1/31/97 6,943
3,000 Associates
Corporation of
North America 5.390% 2/4/97 2,985
4,431 Associates
Corporation of
North America 5.300% 3/11/97 4,386
3,608 Associates
Corporation of
North America 5.370% 3/18/97 3,567
4,500 Associates First
Capital
Corporation 5.310% 2/11/97 4,473
5,414 Avco Financial
Services
Incorporated 5.470% 1/15/97 5,402
10,116 Beneficial
Corporation 5.380% 2/5/97 10,063
6,865 Beneficial
Corporation 5.320% 2/10/97 6,824
6,000 Block Financial
Corporation 5.350% 1/27/97 5,977
5,725 Block Financial
Corporation 5.350% 3/12/97 5,665
4,751 Block Financial
Corporation 5.330% 3/14/97 4,700
4,909 CIT Group Holdings 5.410% 3/17/97 4,854
2,462 Household Finance
Corporation 5.520% 1/10/97 2,459
5,000 Household Finance
Corporation 5.320% 1/10/97 4,993
4,237 Norwest Financial,
Inc. 5.300% 1/29/97 4,220
8,000 Norwest Financial,
Inc. 5.300% 1/31/97 7,965
8,000 Norwest Financial,
Inc. 5.290% 2/18/97 7,944
8,000 Norwest Financial,
Inc. 5.290% 2/19/97 7,942
6,000 Norwest Financial,
Inc. 5.310% 2/21/97 5,955
8,000 PHH Corporation 5.370% 1/29/97 7,967
8,500 PHH Corporation 5.370% 1/30/97 8,463
5,000 PHH Corporation 5.460% 2/4/97 4,974
5,000 PHH Corporation 5.480% 2/5/97 4,973
3,677 PHH Corporation 5.380% 2/7/97 3,657
3,000 PHH Corporation 5.420% 2/12/97 2,981
3,361 PHH Corporation 5.450% 2/14/97 3,339
- -------- --------
154,711 153,812
- -------- --------
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<C> <S> <C> <C> <C>
MANUFACTURING -- 14.0%
$ 8,000 Dover Corporation 5.470% 2/7/97 $ 7,955
6,582 John Deere Capital
Corporation 5.390% 1/31/97 6,553
841 Ford Motor Credit
Company 5.310% 1/8/97 840
2,976 Ford Motor Credit
Company 5.550% 1/9/97 2,972
3,071 Ford Motor Credit
Company 5.300% 1/24/97 3,061
7,678 Ford Motor Credit
Company 5.330% 2/5/97 7,638
3,520 General Electric
Capital
Corporation 5.370% 1/13/97 3,514
6,293 General Electric
Capital
Corporation 5.500% 1/22/97 6,273
4,500 General Electric
Capital
Corporation 5.310% 1/23/97 4,485
5,800 General Electric
Capital
Corporation 5.320% 1/27/97 5,778
5,981 General Electric
Capital
Corporation 5.410% 1/29/97 5,956
3,000 General Electric
Capital
Corporation 5.410% 1/30/97 2,987
3,436 General Electric
Capital
Corporation 5.560% 2/3/97 3,419
3,110 General Electric
Capital
Corporation 5.310% 3/5/97 3,081
2,100 General Electric
Capital Services,
Inc. 5.370% 3/14/97 2,077
8,946 General Electric
Company 5.280% 2/14/97 8,888
8,100 General Electric
Company 5.300% 2/20/97 8,040
3,102 General Electric
Company 5.310% 2/24/97 3,077
4,500 Minnesota Mining &
Manufacturing Co. 5.290% 2/21/97 4,466
3,000 Paccar Financial
Corporation 5.300% 1/28/97 2,988
6,000 Paccar Financial
Corporation 5.280% 2/25/97 5,952
6,000 Paccar Financial
Corporation 5.280% 2/26/97 5,951
1,050 Paccar Financial
Corporation 5.300% 2/28/97 1,041
- -------- --------
107,586 106,992
- -------- --------
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<S> <C> <C> <C> <C>
BROKERAGE -- 7.8%
$ 8,000 Merrill Lynch &
Company, Inc. 5.330% 1/14/97 $ 7,985
6,100 Merrill Lynch &
Company, Inc. 5.330% 1/24/97 6,079
5,000 Merrill Lynch &
Company, Inc. 5.350% 1/31/97 4,978
2,300 Merrill Lynch &
Company, Inc. 5.390% 2/18/97 2,284
8,600 Merrill Lynch &
Company, Inc.
Australia 5.420% 2/18/97 8,538
6,702 Morgan Stanley
Group Incorporated 5.320% 1/13/97 6,690
5,216 Morgan Stanley
Group Incorporated 5.320% 1/15/97 5,205
5,000 Morgan Stanley
Group Incorporated 5.320% 1/16/97 4,989
2,500 Morgan Stanley
Group Incorporated 5.550% 1/27/97 2,490
4,226 Morgan Stanley
Group Incorporated 5.320% 2/10/97 4,201
5,700 Morgan Stanley
Group Incorporated 5.320% 2/11/97 5,665
- -------- --------
59,344 59,104
- -------- --------
CHEMICAL / FOREST -- 6.4%
3,500 DuPont (E.I.) De
Nemours & Co. 5.280% 2/11/97 3,479
8,456 DuPont (E.I.) De
Nemours & Co. 5.260% 2/12/97 8,404
4,921 DuPont (E.I.) De
Nemours & Co. 5.290% 2/27/97 4,880
2,000 Great Lakes
Chemical
Corporation 5.370% 1/21/97 1,994
5,325 Great Lakes
Chemical
Corporation 5.400% 3/7/97 5,273
4,241 Great Lakes
Chemical
Corporation 5.380% 3/18/97 4,193
2,500 Great Lakes
Chemical
Corporation 5.370% 3/28/97 2,468
1,559 Great Lakes
Chemical
Corporation 5.450% 4/9/97 1,536
11,400 Monsanto Co. 5.320% 1/15/97 11,376
5,000 Monsanto Co. 5.300% 2/6/97 4,973
- -------- --------
48,902 48,576
- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<S> <C> <C> <C> <C>
ENERGY -- 5.5%
$ 4,909 Chevron U.K.
Investment PLC 5.320% 1/6/97 $ 4,905
3,400 Chevron U.K.
Investment PLC 5.510% 1/7/97 3,397
6,100 Chevron U.K.
Investment PLC 5.320% 1/13/97 6,089
8,000 Chevron U.K.
Investment PLC 5.430% 1/17/97 7,981
3,500 Chevron U.K.
Investment PLC 5.470% 1/23/97 3,488
6,000 Chevron U.K.
Investment PLC 5.310% 2/7/97 5,967
5,150 Chevron U.K.
Investment PLC 5.310% 3/20/97 5,091
4,999 Mobil Finance
Corporation
(Australia) 5.310% 1/24/97 4,982
- -------- --------
42,058 41,900
- -------- --------
MEDIA / ENTERTAINMENT -- 4.9%
2,725 Knight Ridder
Incorporated 5.300% 1/10/97 2,721
7,500 Knight Ridder
Incorporated 5.300% 1/14/97 7,486
4,000 Knight Ridder
Incorporated 5.300% 1/16/97 3,991
4,000 Knight Ridder
Incorporated 5.300% 1/17/97 3,991
5,000 Knight Ridder
Incorporated 5.300% 1/28/97 4,980
10,000 Knight Ridder
Incorporated 5.320% 2/20/97 9,926
4,500 Knight Ridder
Incorporated 5.300% 3/21/97 4,448
- -------- --------
37,725 37,543
- -------- --------
UTILITIES - TELEPHONE -- 4.4%
6,000 American Telephone
& Telegraph Corp. 5.370% 3/6/97 5,943
5,000 American Telephone
& Telegraph Corp. 5.370% 3/7/96 4,951
4,470 BellSouth Capital
Funding
Corporation 5.360% 1/21/97 4,456
5,000 BellSouth Capital
Funding
Corporation 5.300% 2/3/97 4,976
2,970 BellSouth Capital
Funding
Corporation 5.300% 2/4/97 2,955
10,000 BellSouth
Telecommunications
Inc. 5.300% 2/13/97 9,937
- -------- --------
33,440 33,218
- -------- --------
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<C> <S> <C> <C> <C>
UTILITIES -- ENERGY & GAS -- 3.4%
$ 6,000 National Rural
Utilities
Cooperative
Finance
Corporation 5.320% 1/9/97 $ 5,993
4,000 National Rural
Utilities
Cooperative
Finance
Corporation 5.300% 1/13/97 3,993
4,000 National Rural
Utilities
Cooperative
Finance
Corporation 5.300% 1/17/97 3,991
5,101 National Rural
Utilities
Cooperative
Finance
Corporation 5.310% 1/22/97 5,085
4,500 National Rural
Utilities
Cooperative
Finance
Corporation 5.290% 2/3/97 4,478
2,000 National Rural
Utilities
Cooperative
Finance
Corporation 5.290% 2/3/97 1,990
- -------- --------
25,601 25,530
- -------- --------
TRANSPORTATION -- 2.4%
18,239 Norfolk Southern
Corporation 5.350% 3/13/97 18,046
- -------- --------
MERCHANDISING -- 2.3%
4,303 Winn-Dixie Stores
Inc. 5.300% 1/28/97 4,286
12,950 Winn-Dixie Stores
Inc. 5.380% 1/28/97 12,898
- -------- --------
17,253 17,184
- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Amortized
Amount Issue Rate Maturity Cost
- --------- ----- -------- -------- ---------
<C> <S> <C> <C> <C>
ELECTRONIC / TECHNOLOGY -- 2.0%
$ 12,000 Pitney Bowes
Credit Corporation 5.300% 3/10/97 $ 11,880
3,000 Xerox Corporation 5.350% 1/6/97 2,998
- -------- --------
15,000 14,878
- -------- --------
DRUGS / HEALTH -- 1.2%
4,500 Pfizer
Incorporated 5.280% 3/19/97 4,449
5,000 Warner - Lambert
Company 5.300% 1/8/97 4,995
- -------- --------
9,500 9,444
- -------- --------
OTHER CONSUMER -- 1.0%
5,000 Proctor & Gamble
Company 5.270% 2/6/97 4,974
2,500 Proctor & Gamble
Company 5.300% 2/19/97 2,482
- -------- --------
7,500 7,456
- -------- --------
FOOD / BEVERAGE / TOBACCO -- 0.5%
4,000 Campbell Soup
Company 5.300% 1/17/97 3,991
- -------- --------
739,043 Total Commercial
Paper 734,981
--------
PORTFOLIO WEIGHTED
AVERAGE MATURITY 37 Days
$757,712 TOTAL INVESTMENTS -- 99.1% 753,652
CASH AND OTHER ASSETS, LESS
LIABILITIES -- .9% 7,156
--------
NET ASSETS -- 100.0% $760,808
========
</TABLE>
- ---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
26
<PAGE> 27
[WILLILAM BLAIR MUTUAL FUNDS, INC. LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
VALUE INTERNATIONAL READY
GROWTH DISCOVERY GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND
-------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at market (cost $362,687; $--; $91,465;
$147,817; and $753,652, respectively) $500,584 $ -- $104,630 $148,352 $753,652
Cash -- 1,174 -- -- --
Receivable for:
Fund shares sold 1,708 1,004 481 280 17,830
Investments sold -- -- 3,254 87 --
Interest and dividends 328 -- 60 1,546 251
Foreign withholding tax -- -- 128 -- --
Deferred organization costs -- 13 10 -- --
Other assets 23 -- -- -- 1
-------- ------ -------- -------- --------
Total assets 502,643 2,191 108,563 150,265 771,734
LIABILITIES
Cash overdraft -- -- 2,487 52 --
Payable for:
Fund shares redeemed 436 -- 17 69 10,350
Investments purchased -- -- 768 -- --
Dividends -- -- -- -- 86
Management fee and organization
costs (Notes 1 and 2) 318 14 103 76 373
Other 115 2 40 62 117
-------- ------ -------- -------- --------
Total liabilities 869 16 3,415 259 10,926
-------- ------ -------- -------- --------
Net assets $501,774 $2,175 $105,148 $150,006 $760,808
======== ====== ======== ======== ========
CAPITAL
Capital stock ($0.001 par value; 37,209; 218; 7,540;
14,602; and 760,912 shares issued and outstanding,
respectively) $ 37 $ -- $ 8 $ 15 $ 761
Paid-in-surplus 363,163 2,175 92,434 155,462 760,151
Net unrealized appreciation (depreciation) on
investments and foreign currency transactions
(net of unrealized PFIC gain distribution of $442 for
International Growth Fund only) 137,897 -- 12,723 535 --
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions 677 -- -- (6,119) (107)
Undistributed net investment income (loss) -- -- (17) 113 3
-------- ------ -------- -------- --------
Net assets $501,774 $2,175 $105,148 $150,006 $760,808
======== ====== ======== ======== ========
Net asset value per share $13.48 $10.00 $13.95 $10.27 $1.00
====== ====== ====== ====== =====
</TABLE>
See accompanying Notes to Financial Statements.
27
<PAGE> 28
[WILLIAM BLAIR MUTUAL FUNDS, INC. LOGO]
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(all amounts in thousands)
<TABLE>
<CAPTION>
VALUE INTERNATIONAL READY
GROWTH DISCOVERY GROWTH INCOME RESERVES
FUND FUND(a) FUND FUND FUND
------- --------- ------------- ------- --------
<S> <C> <C> <C> <C> <C>
Investment income
Interest $ 1,167 $ -- $ 177 $10,173 $39,282
Dividends 2,020 -- 1,724 -- --
Less foreign tax withheld (15) -- (217) -- --
------- ----- ------- ------- -------
Total investment income 3,172 -- 1,684 10,173 39,282
Expenses
Investment advisory fees (Note 2) 3,019 -- 1,131 881 4,283
Custodian fees 119 -- 204 48 174
Transfer agent fees 113 1 17 25 325
Professional fees 51 4 51 46 50
Registration fees 51 1 28 17 51
Organization costs -- -- 10 -- --
Miscellaneous 155 1 46 50 226
------- ----- ------- ------- -------
Total expenses before waiver 3,508 7 1,487 1,067 5,109
Less expenses waived and
absorbed by Company (Note 2) -- (7) -- -- --
------- ----- ------- ------- -------
Net investment income (loss) (336) -- 197 9,106 34,173
------- ----- ------- ------- -------
Net realized and unrealized gain (loss)
on investments, foreign currency transactions
and other assets and liabilities
Net realized gain (loss) on investments 27,804 -- 3,025 (2,156) (107)
Net realized gain on foreign currency transactions
and other assets and liabilities -- -- 514 -- --
------- ----- ------- ------- -------
Total net realized gain (loss) 27,804 -- 3,539 (2,156) (107)
Change in net unrealized appreciation/
depreciation on investments, and
other assets and liabilities (Note 1) 43,376 -- 6,539 (2,404) --
------- ----- ------- ------- -------
Net realized and unrealized gain (loss)
on investments, foreign currency and
other assets and liabilities 71,180 -- 10,078 (4,560) (107)
------- ----- ------- ------- -------
Net increase in net
assets resulting from operations $70,844 $ -- $10,275 $ 4,546 $34,066
======= ===== ======= ======= =======
</TABLE>
- -------------------------
(a) For the period from December 23, 1996 (Commencement of Operations) to
December 31, 1996.
See accompanying Notes to Financial Statements.
28
<PAGE> 29
WILLIAM BLAIR MUTUAL FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(all amounts in thousands)
<TABLE>
<CAPTION>
VALUE
DISCOVERY INTERNATIONAL
GROWTH FUND FUND GROWTH FUND INCOME FUND
------------------- --------- --------------------- -------------------
1996 1995 1996(A) 1996 1995 1996 1995
-------- -------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ (336) $ 993 $ -- $ 197 $ 704 $ 9,106 $ 9,265
Net realized gain (loss) on
investments, foreign currency
transactions and
other assets and liabilities 27,804 13,274 -- 3,539 (403) (2,156) (955)
Change in net unrealized
appreciation/depreciation
on investments and other assets
and liabilities 43,376 58,269 -- 6,539 5,958 (2,404) 11,783
-------- -------- --------- -------- ------- -------- --------
Net increase in net assets
resulting from operations 70,844 72,536 -- 10,275 6,259 4,546 20,093
Distributions to shareholders from
Net investment income (343) (817) -- (491)(b) (880)(b) (8,980) (9,438)
Net realized gain (19,503) (13,275) -- (3,125) -- -- --
-------- -------- --------- -------- ------- -------- --------
(19,846) (14,092) -- (3,616) (880) (8,980) (9,438)
Capital stock transactions
Shares sold 165,769 106,709 2,175 29,640 20,612 28,857 23,930
Shares issued in reinvestment of
income dividends and capital
gain distributions 18,035 12,714 -- 3,461 717 6,494 6,875
Less shares redeemed (96,064) (32,391) -- (24,374) (7,349) (28,281) (37,880)
-------- -------- --------- -------- ------- -------- --------
Change from capital stock
transactions 87,740 87,032 2,175 8,727 13,980 7,070 (7,075)
-------- -------- --------- -------- ------- -------- --------
Change in net assets 138,738 145,476 2,175 15,386 19,359 2,636 3,580
Net assets
Beginning of period 363,036 217,560 -- 89,762 70,403 147,370 143,790
-------- -------- --------- -------- ------- -------- --------
End of period $501,774 $363,036 $ 2,175 $105,148 $89,762 $150,006 $147,370
======== ======== ========= ======== ======= ======== ========
- -------------------------
Undistributed net investment
income (loss) at the end of the
period $ -- $ 319 $ -- $ 257 $ 343 $ 113 $ (13)
======== ======== ========= ======== ======= ======== ========
- -------------------------
Capital stock transactions
Shares sold 12,563 9,647 218 2,196 1,688 2,771 2,337
Shares issued in reinvestment of
income dividends and capital
gain distributions 1,351 1,092 -- 253 55 630 668
Less shares redeemed (7,220) (2,875) -- (1,751) (595) (2,735) (3,670)
-------- -------- --------- -------- ------- -------- --------
Change from capital stock
transactions 6,694 7,864 218 698 1,148 666 (665)
======== ======== ========= ======== ======= ======== ========
<CAPTION>
READY RESERVES FUND
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operations
Net investment income (loss) $ 34,173 $ 31,846
Net realized gain (loss) on
investments,
foreign currency transactions
and
other assets and liabilities (107) --
Change in net unrealized
appreciation/depreciation
on investments and other assets
and liabilities -- --
---------- ----------
Net increase in net assets
resulting from operations 34,066 31,846
Distributions to shareholders from
Net investment income (34,170) (31,846)
Net realized gain -- --
---------- ----------
(34,170) (31,846)
Capital stock transactions
Shares sold 2,994,231 2,514,548
Shares issued in reinvestment of
income dividends and capital
gain distributions 33,371 31,117
Less shares redeemed (2,970,683) (2,362,949)
---------- ----------
Change from capital stock
transactions 56,919 182,716
---------- ----------
Change in net assets 56,815 182,716
Net assets
Beginning of period 703,993 521,277
---------- ----------
End of period $ 760,808 $ 703,993
========== ==========
- -------------------------
Undistributed net investment
income (loss) at the end of the
period $ 3 $ --
========== ==========
- -------------------------
Capital stock transactions
Shares sold 2,994,231 2,514,548
Shares issued in reinvestment of
income dividends and capital
gain distributions 33,371 31,117
Less shares redeemed (2,970,683) (2,362,949)
---------- ----------
Change from capital stock
transactions 56,919 182,716
========== ==========
</TABLE>
- ---------------
(a) For the period from December 23, 1996 (Commencement of Operations) to
December 31, 1996.
(b) Includes $160 and $414 relating to PFIC transactions which are treated as
ordinary income for Federal income tax purposes in 1996 and 1995, respectively.
See accompanying Notes to Financial Statements.
29
<PAGE> 30
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 currently 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 Value Discovery Fund, which commenced operations on December 23, 1996,
is a portfolio whose principal objective is to seek long-term capital
appreciation by investing with a value discipline primarily in the securities of
small companies.
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, exchangeable 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 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.
(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 valuation, 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 is
determined based upon its sale price on the foreign exchange or market on which
it is primarily traded as of the close of the appropriate exchange or, if there
have been no sales on the date of valuation 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 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 and Ready Reserves Fund Portfolios of
Investments are the rates in effect at December 31, 1996.
30
<PAGE> 31
(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 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, Value Discovery Fund and International Growth Fund or on each day when New
York banks are open for business (except Good Friday) for Income Fund and Ready
Reserves Fund. Dividends from net investment income of the Growth Fund, Value
Discovery Fund and International Growth Fund are declared at least annually.
Dividends from the Income Fund and Ready Reserves Fund are declared monthly and
daily, respectively. Capital gain distributions, if any, are declared annually
in December. 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.
(d) Repurchase Agreements
The Fund may enter into repurchase agreements with 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.
(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, respectively, prevailing on
the day of valuation. Gains and losses from foreign currency transactions
associated with purchases and sales of investments are included with the net
realized or unrealized gain or loss on 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, 1996,
the Fund's most recent tax year-end, the Income Fund and the Ready Reserves Fund
have capital loss carryforwards of $6,121,000 and $107,000, respectively. These
loss carryforwards, which expire in 2004, can be used to offset net capital
gains.
A reclassification of $7,737,000 has been made in 1996 in the capital
accounts of the Growth Fund from accumulated undistributed net realized gain on
investments into paid-in surplus to reflect a difference between financial and
income tax basis reporting resulting from an in-kind redemption of fund shares.
The International Growth Fund has elected to mark-to-market its investment
in Passive Foreign Investment Companies ("PFIC's) for Federal income tax
purposes. In accordance with this election, the fund recognized unrealized
appreciation of $133,000 and $414,000 in 1996 and 1995, respectively. In
addition, the fund recorded net realized gains of $132,000 on sales of PFIC's
during 1996, of which $105,000 had been recognized in prior years. Dividends to
shareholders from net investment income included $160,000 and $414,000 relating
to PFIC's during 1996 and 1995, which are treated as ordinary income for Federal
income tax purposes.
31
<PAGE> 32
(g) Organization Costs
The initial organization costs of the Value Discovery Fund and
International Growth Fund have been paid by William Blair & Company L.L.C. (the
"Company"). 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 provides investment advisory and other administrative and
accounting services to the Funds under terms of the Management Agreement. The
Funds pay the Company a monthly fee determined as a specified percentage of
average daily net assets. The rates for the Growth Fund, International Growth
Fund, Income Fund and Ready Reserves Fund were modified effective May 1, 1996. A
summary of the annual rates expressed as a percentage of average daily net
assets, are as follows:
<TABLE>
<CAPTION>
PRIOR TO MAY 1, 1996 AFTER MAY 1, 1996
-------------------------------- --------------------------------
<S> <C> <C>
Growth Fund 0.625% of the first $75 million 0.75%
0.500%, in excess of $75 million
International Growth Fund 1.10% of the first $100 million 1.10% of the first $250 million
.95%, in excess of $100 million 1.00%, in excess of $250 million
Income Fund
Management Fee 0.25% of the first $100 million 0.25% of the first $250 million
0.20%, in excess of $150 million 0.20%, in excess of $250 million
0.15%, in excess of $250 million
5.00% of gross income 5.00% of gross income
Ready Reserves Fund 0.625% of the first $250 million 0.625% of the first $250 million
0.600%, of the next $250 million 0.600%, of the next $250 million
0.550%, of the next $500 million 0.575%, of the next $2 billion
0.500%, of the next $2 billion 0.550%, in excess of $2.5 billion
0.450%, of the next $2 billion
0.400%, in excess of $5 billion
</TABLE>
The advisory fee for the Value Discovery Fund is equal to 1.15% of average
daily net assets. The Company has voluntarily agreed to waive the advisory fee
and to absorb other operating expenses if total expenses exceed 1.50% of average
daily net assets.
Prior to September 30, 1996, the Company had a sub-advisory agreement with
Framlington Overseas Investment Management Ltd. (UK) for the International
Growth Fund whereby the Company paid a monthly fee at an annual rate equal to
0.40% of the first $100 million in average daily net assets and 0.275% of
average daily net assets in excess of $100 million. On October 1, 1996 the
Company began to directly manage the International Growth Fund.
The Funds paid fees of $64,000 to non-affiliated directors of the Funds for
the period ended December 31, 1996.
32
<PAGE> 33
(3) INVESTMENT TRANSACTIONS
Investment transactions, excluding money market instruments, for the period
ended December 31, 1996, are as follows:
<TABLE>
<CAPTION>
INTERNATIONAL
GROWTH GROWTH INCOME
FUND FUND FUND
-------- ------------- -------
(all amounts in thousands)
<S> <C> <C> <C>
Purchases $269,794 $91,070 $89,218
Proceeds from sales and maturities 182,189 87,977 85,575
Gross unrealized appreciation (depreciation) at
December 31, 1996 is as follows:
Unrealized appreciation $147,017 $15,125 $ 1,603
Unrealized depreciation (9,120) (2,402) (1,068)
-------- ---------- -------
Net unrealized appreciation $137,897 $12,723 $ 535
======== ========== =======
</TABLE>
Cost of investments is the same for financial statement and Federal income
tax purposes except for International Growth Fund where the cost is $91,907.
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
GROWTH FUND 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.900 $ 9.600 $ 9.730 $ 9.390 $ 9.490
Income from investment operations:
Net investment income (loss) (.010) .034 .027 .035 .045
Net realized and unrealized gain on investments 2.144 2.750 .581 1.389 .671
------- ------- ------- ------- -------
Total from investment operations 2.134 2.784 .608 1.424 .716
Less distributions from:
Net investment income .010 .030 .025 .035 .047
Net realized gain .544 .454 .713 1.049 .769
------- ------- ------- ------- -------
Total distributions .554 .484 .738 1.084 .816
------- ------- ------- ------- -------
Net asset value, end of period $ 13.480 $ 11.900 $ 9.600 $ 9.730 $ 9.390
======= ======= ======= ======= =======
Total return (%) 17.99 29.07 6.45 15.51 7.61
Ratios to average daily net assets (%):
Expenses .79 .65 .71 .78 .83
Net investment income (loss) (.08) .34 .32 .38 1.34
Supplemental data:
Net assets at end of period (in thousands) $501,774 $363,036 $217,560 $150,046 $111,082
Portfolio turnover rate (%) 43 32 46 55 27
Average commission rate $ .0621
<CAPTION>
VALUE DISCOVERY FUND 1996(A)
-------------------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.000
Income from investment operations:
Net investment income (loss) --
Net realized and unrealized gain on investments --
-------
Total from investment operations --
Less distributions from:
Net investment income --
Net realized gain --
-------
Total distributions --
Net asset value, end of period $10.000
=======
Total return (%) --
Ratios to average daily net assets (%):
Expenses --
Net investment income --
Supplemental data:
Net assets at end of period (in thousands) $ 2
Portfolio turnover rate (%) --
</TABLE>
- ---------------
(a) For the period December 23, 1996 (Commencement of Operations) to December
31, 1996.
34
<PAGE> 35
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD ENDED
-------------------------------------- DECEMBER 31,
INTERNATIONAL GROWTH FUND 1996 1995 1994 1993 1992(A)(B)
------------------------- -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.120 $12.360 $13.180 $10.130 $10.000
Income from investment operations:
Net investment income (loss) .029 .105 .016 .008 (.011)
Net realized and unrealized gain (loss) on investments,
foreign currency and other assets and liabilities 1.299 .785 (.025) 3.401 .141
-------- -------- ------- ------- -------
Total from investment operations 1.328 .890 (.009) 3.409 .130
Less distributions from:
Net investment income .068(c) .130(c) .024 -- --
Net realized gain .430 -- .714 .359 --
Tax return of capital -- -- .073(d) -- --
-------- -------- ------- ------- -------
Total distributions .498 .130 .811 .359 --
-------- -------- ------- ------- -------
Net asset value, end of period $ 13.95 $13.120 $12.360 $13.180 $10.130
======== ======== ======== ======== =======
Total return (%) 10.20 7.22 (.04) 33.65 1.30
Ratios to average daily net assets (%):
Expenses(e) 1.44 1.48 1.51 1.71 1.88
Net investment income (loss)(e) .19 .87 .15 .11 (.56)
Supplemental data:
Net assets at end of period (in thousands) $105,148 $89,762 $70,403 $40,298 $10,767
Portfolio turnover rate (%) 89 77 40 83 5
Average commission rate $.0051
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
INCOME FUND 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.570 $ 9.850 $ 10.580 $ 10.600 $ 10.770
Income from investment operations:
Net investment income .619 .646 .661 .651 .832
Net realized and unrealized gain (loss) on investments (.309) .732 (.741) .159 (.089)
-------- --------- -------- ------- -------
Total from investment operations .310 1.378 (.080) .810 .743
Less distributions:
Net investment income .610 .658 .646 .651 .827
Net realized gain -- -- .004 .179 .086
-------- --------- -------- ------- -------
Total distributions .610 .658 .650 .830 .913
-------- --------- -------- ------- -------
Net asset value, end of period $ 10.270 $ 10.570 $ 9.850 $ 10.580 $ 10.600
======== ========= ======== ======== ========
Total return (%) 3.07 14.37 (.74) 7.82 7.17
Ratios to average daily net assets (%):
Expenses .70 .68 .68 .70 .88
Net investment income 5.97 6.24 6.33 5.96 7.69
Supplemental data:
Net assets at end of period (in thousands) $150,006 $147,370 $143,790 $204,381 $136,896
Portfolio turnover rate (%) 66 54 63 114 47
</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 $.022 and $.061 in PFIC transactions which are treated as ordinary
income for Federal income tax purposes for 1996 and 1995, respectively.
(d) Includes $431 relating to a tax return of capital.
(e) 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 (loss) ratios would
have been (.25)% and (1.22)%, respectively.
35
<PAGE> 36
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
READY RESERVES FUND 1996 1995 1994 1993 1992
------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .05 .05 .04 .03 .03
Net realized loss on investments -- -- (.01) -- --
-------- -------- -------- -------- --------
Total from investment operations .05 .05 .03 .03 .03
Less distributions:
Net investment income .05 .05 .04 .03 .03
-------- -------- -------- -------- --------
Total distributions .05 .05 .04 .03 .03
-------- -------- -------- -------- --------
Capital contribution -- -- .01 -- --
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return (%) 4.81 5.45 3.67(a) 2.64 3.32
Ratios to average daily net assets (%):
Expenses .71 .72 .71 .71 .71
Net investment income 4.78 5.30 3.61 2.61 3.27
Supplemental data:
Net assets at end of period (in thousands) $760,808 $703,993 $521,277 $477,268 $448,797
</TABLE>
- ---------------
(a) 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%.
36
<PAGE> 37
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, Value Discovery Fund, International Growth Fund,
Income Fund and Ready Reserves Fund) (collectively, the "Funds") as of December
31, 1996, 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,
except for the Value Discovery Fund for which the period is December 23, 1996
(Commencement of Operations) to December 31, 1996, and the financial highlights
for the periods indicated therein. 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, 1996, 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, 1996, and the results of their
operations, the changes in their net assets and the financial highlights for the
periods indicated therein, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
February 3, 1997
37
<PAGE> 38
SPECIAL MEETINGS OF SHAREHOLDERS
A Special Meeting of Shareholders was held on March 7, 1996. At the
meeting, shareholders of the Fund were asked to consider and act upon six
issues: the election of the seven nominees for director; the approval of an
amendment to the Fund's Articles of Incorporation authorizing the establishment
of separate classes of shares; approval of an amendment to the Fund's Articles
of Incorporation to permit the redemption of series of shares; ratification of
the selection of Ernst & Young LLP as the Fund's independent auditors; approval
of the new management agreement; and approval of an amendment to the Growth
Fund's investment objective. The results of all matters voted on by shareholders
of the Funds at the Special Meeting were as follows:
A. ELECTION OF THE SEVEN NOMINEES FOR DIRECTOR:
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ----------
<S> <C> <C> <C>
Growth Fund Conrad Fischer 25,290,662 291,076
Vernon Armour 25,281,674 300,064
George Kelm 25,282,580 299,158
Ann P. McDermott 25,239,304 342,434
James M. McMullan 25,289,797 290,941
John B. Schwemm 25,288,928 292,810
W. James Truettner, Jr. 25,290,636 291,102
International Growth Fund Conrad Fischer 7,468,902 7,388
Vernon Armour 7,468,902 7,388
George Kelm 7,468,902 7,388
Ann P. McDermott 7,469,739 6,551
James M. McMullan 7,468,902 7,388
John B. Schwemm 7,468,902 7,388
W. James Truettner, Jr. 7,468,902 7,388
Income Fund Conrad Fischer 14,003,865 18,594
Vernon Armour 14,002,528 19,931
George Kelm 14,002,528 19,931
Ann P. McDermott 14,002,528 19,931
James M. McMullan 14,003,865 18,594
John B. Schwemm 14,002,528 19,931
W. James Truettner, Jr. 14,003,865 18,594
Ready Reserves Fund Conrad Fischer 697,546,412 13,663,682
Vernon Armour 697,546,412 13,663,682
George Kelm 697,546,412 13,663,682
Ann P. McDermott 697,546,412 13,663,682
James M. McMullan 697,546,412 13,663,682
John B. Schwemm 697,546,412 13,663,682
W. James Truettner, Jr. 697,546,412 13,663,682
</TABLE>
B. APPROVAL OF AN AMENDMENT TO THE FUND'S ARTICLES OF INCORPORATION AUTHORIZING
THE ESTABLISHMENT OF SEPARATE CLASSES OF SHARES:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund 16,414,473 7,774,224 1,392,442
International Growth Fund 6,089,506 1,359,521 27,263
Income Fund 13,266,777 651,876 103,805
Ready Reserves Fund 678,899,931 23,022,369 9,287,794
</TABLE>
38
<PAGE> 39
C. APPROVAL OF AN AMENDMENT TO THE FUND'S ARTICLES OF INCORPORATION TO PERMIT
THE REDEMPTION, BY BOARD ACTION, OF SERIES OF SHARES:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund 19,070,938 638,950 2,028,043
International Growth Fund 7,392,951 55,406 27,933
Income Fund 8,879,866 62,738 59,115
Ready Reserve Fund 396,287,229 19,043,815 8,847,982
</TABLE>
D. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE FUND'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund 25,241,034 149,453 191,251
International Growth Fund 7,469,995 837,686 5,458
Income Fund 13,969,024 16,354 37,081
Ready Reserves Fund 693,504,783 12,871,620 4,833,691
</TABLE>
E. APPROVAL OF THE NEW MANAGEMENT AGREEMENT:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund 17,620,139 3,680,445 437,348
International Growth Fund 7,316,082 105,284 54,924
Income Fund 8,764,699 136,333 100,687
Ready Reserves Fund 391,001,236 21,852,722 11,325,068
</TABLE>
F. APPROVAL OF AN AMENDMENT TO THE GROWTH FUND PORTFOLIO'S INVESTMENT OBJECTIVE:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund 20,154,604 1,256,369 326,958
</TABLE>
Another Special Meeting of Stockholders of the International Growth Fund of
William Blair Mutual Funds, Inc. was held on December 17, 1996. At the meeting,
shareholders were asked to consider and act upon one issue:
A. APPROVAL OR DISAPPROVAL OF AMENDMENTS TO REFORM THE PRIOR AND CURRENT
MANAGEMENT AGREEMENTS, RATIFYING PRIOR AND CURRENT PAYMENTS MADE UNDER THE
AGREEMENTS AS REFORMED:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
International Growth Fund 6,465,834 11,541 6,223
</TABLE>
39
<PAGE> 40
BOARD OF DIRECTORS
CONRAD FISCHER, CHAIRMAN
Principal, William Blair & Company, L.L.C.
VERNON ARMOUR
Private Investor
GEORGE KELM
Retired Chairman of the Board, Sahara Coal Company, Inc.
JAMES M. MCMULLAN
Principal, William Blair & Company, L.L.C.
ANN P. MCDERMOTT
Director and Trustee
Profit and not-for-profit organizations
JOHN B. SCHWEMM
Retired Chairman and CEO, R.R. Donnelley & Sons Company
W. JAMES TRUETTNER, JR., SENIOR VICE PRESIDENT
Principal, William Blair & Company, L.L.C.
OFFICERS
Rocky Barber, President
Mark A. Fuller, III, Senior Vice President
George Greig, 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
Janet V. Gassmann, Secretary
INVESTMENT ADVISER
William Blair & Company, L.L.C.
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 9104
Boston, MA 02266-9104
800-635-2840
(Massachusetts 800-635-2840)
WILLIAM BLAIR MUTUAL FUNDS, INC.
222 West Adams Street
Chicago, IL 60606
