<PAGE> 1
[LOGO] WILLIAM BLAIR FUNDS
ANNUAL REPORT
------------------------------
DECEMBER 31, 1999
<PAGE> 2
-----------------------------------------------------------
TABLE OF CONTENTS
-----------------------------------------------------------
A Letter from the President............................... 2
GROWTH FUND................................................. 4
A Letter from the Portfolio Managers...................... 4
Portfolio of Investments.................................. 6
TAX-MANAGED GROWTH FUND..................................... 7
A Letter from the Portfolio Managers...................... 7
Portfolio of Investments.................................. 9
LARGE CAP GROWTH FUND....................................... 10
A Letter from the Portfolio Managers...................... 10
Portfolio of Investments.................................. 11
SMALL CAP GROWTH FUND....................................... 12
A Letter from the Portfolio Managers...................... 12
Portfolio of Investments.................................. 14
INTERNATIONAL GROWTH FUND................................... 15
A Letter from the Portfolio Manager....................... 15
Portfolio of Investments.................................. 17
EMERGING MARKETS GROWTH FUND................................ 20
A Letter from the Portfolio Managers...................... 20
Portfolio of Investments.................................. 22
DISCIPLINED LARGE CAP FUND.................................. 23
A Letter from the Portfolio Manager....................... 23
Portfolio of Investments.................................. 24
VALUE DISCOVERY FUND........................................ 26
A Letter from the Portfolio Managers...................... 26
Portfolio of Investments.................................. 30
INCOME FUND................................................. 31
A Letter from the Portfolio Managers...................... 31
Portfolio of Investments.................................. 33
READY RESERVES FUND......................................... 35
A Letter from the Portfolio Managers...................... 35
Portfolio of Investments.................................. 36
NOTES TO FINANCIAL STATEMENTS............................... 45
REPORT OF INDEPENDENT AUDITORS.............................. 60
SPECIAL MEETING OF SHAREHOLDERS............................. 61
BOARD OF DIRECTORS.......................................... 64
OFFICERS.................................................... 64
<PAGE> 3
-----------------------------------------------------------------
A LETTER FROM THE PRESIDENT
-----------------------------------------------------------------
Marco Hanig Dear Shareholders:
[Photo]
Market Environment
1999 can be summarized quite simply: it was a year of strong
global economic growth, a good year for stock investors
worldwide, and a mediocre year for bond investors. In the U.S.,
the economy continued to grow strongly, and corporate earnings
beat expectations more often than not. Thus, after a dip in the
3rd quarter, the S&P 500 Index rebounded strongly in the 4th
quarter to close the year up 21%. International markets had their
best year in recent memory, with the MSCI All Country World ex-US
Index up 31% for the year, as Japan's restructuring efforts began
to revitalize this important economy, and Europe benefited from
rising employment and consumer confidence. Against this backdrop
of strong global economic growth, the Federal Reserve continued
to act preemptively to nip any potential inflationary pressures
in the bud, raising the Fed Funds rate three times over the
course of the year. The corresponding drop in bond prices
resulted in flat or negative total returns for bonds, with the
Lehman Government/Corporate Index increasing .4%.
Fund Performance
Our star performers for the year were the International Growth
Fund (up 96%) and the Emerging Markets Growth Fund (up 79%).
While some of their outstanding performance can be attributed to
the rising tide of their respective markets, both funds benefited
from excellent stock and sector picks, and the portfolio managers
are to be congratulated for handily outperforming their
benchmarks. Our Value Discovery Fund (up 6%) also had a very good
year in relative performance, beating the Russell 2000 Value
Index by 7%. Unfortunately, the small cap value sector overall
continued to be out of favor. The Income Fund (up 0.34%)
performed in line with its benchmark, but along with all bond
investinents its overall return suffered in the rising interest
rate environment.
Finally, the Growth Fund (up 20%) had a pretty good year-compared
to the overall market, but not when compared to the Russell
Midcap Growth Index, which was up 51%. The explanation for this
divergence is that our investment philosophy has always been to
invest in high quality, solid growth companies with proven
business models. And indeed, a 20% return would normally be a
source of pride for our Growth Fund. However, our philosophy of
investing in companies with proven business models kept us from
participating in the ".com" frenzy of 1999, which fueled the
spectacular returns of the Index.
We continue to believe that many stocks in this sector are wildly
overpriced and highly speculative, and we continue to be
confident in the soundness of our "high quality growth" approach.
Nonetheless, the potential promise of the "new economy" is
sufficiently strong that we are adding to our technology research
effort and will invest in companies in this sector that appear to
be viable.
Fund Family Expansion and Restructuring
Last year the William Blair Funds undertook a massive
restructuring, which included the creation of new share classes,
and culminated in the introduction of four new funds in December.
To implement these changes, we had to ask you, our shareholders,
for your approval. I am happy to report that all the proposals on
which you were asked to vote were approved by the required
majorities, and thus have been implemented.
I know that the proxy solicitation process took many of you by
surprise: we inundated you with mailings, and in many cases our
proxy solicitors called you by phone as well. Please accept my
sincere thanks for voting your proxies and also my apology for
any inconvenience that the solicitation process may have caused
you.
We introduced multiple share classes in recognition of the fact
that there are two kinds of mutual fund investors. Traditionally,
our funds have been no-load funds, which appeal to investors who
make their own investment decisions. We will continue to offer
no-load shares classes, and expect to offer our no-load
shareholders a broader range of services in the near future.
2 Annual Report December 31, 1999
<PAGE> 4
However, the majority of investors seek the advice of an
investment professionalNand these professionals need to be
compensated for their services. By offering our mutual funds with
a sales load, we make it possible for advisers to recommend our
funds where appropriate, and be paid a standard commission (the
sales load) for their services. Thus, the introduction of
multiple share classes has opened up a completely new market for
our funds.
The other exciting development is the introduction of four new
funds this last December. William Blair & Company has a long
tradition of growth investing, and has offered many different
OflavorsO of growth to its institutional clients. We are now
making some of these investment styles available to mutual fund
investors through the creation of the Small Cap Growth Fund, the
Large Cap Growth Fund, and the
Tax-Managed Growth Fund.
Shareholders of the Growth Fund probably recall that the Fund has
been run as an "all-capitalization" portfolio, with two portfolio
managers responsible for the small-mid and mid-large portions
respectively. The new Small Cap Growth Fund and Large Cap Growth
Fund will in essence provide an opportunity to buy the two pieces
separatelyNfor those investors who want to be able to choose
their own allocation between small and large cap growth stocks.
The Tax-Managed Growth Fund is a fund designed specifically to
minimize the negative impact of taxes on a fundOs after-tax
performance. The Fund employs a number of techniques to manage
the Fund in a particularly tax-sensitive manner, such as
attempting to avoid net realized short-term gains, keeping
turnover low, and selecting the most tax-favored share lots when
selling a stock. This fund should have particular appeal to
investors seeking exposure to growth stocks in their taxable
accounts.
The other new fund is the Disciplined Large Cap Fund, which is
managed by a seasoned portfolio managerNStan KirtmanNwho recently
joined our firm. This is a fund that seeks to outperform the S&P
500 Index while maintaining similar market risk. The Fund will
generally hold 90-140 of the 500 companies in the Index, chosen
through a disciplined process which combines bottom-up stock
picking with quantitative measures to create a portfolio with
better value and better earnings momentum than the Index.
We hope that you will consider these new funds for your
investment portfolios, and would be delighted to send you
additional information about them.
/s/ Marco Hanig
December 31, 1999 William Blair Funds 3
<PAGE> 5
-------------------------------------------------------
GROWTH FUND
-------------------------------------------------------
-------------------------------------------------------
Performance Highlights
-------------------------------------------------------
-------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- ---------
Growth Fund (Class N) 19.98% 27.15% 20.07% 17.99% 29.07%
S&P 500 Index (1) 21.04 28.57 33.36 22.96 37.58
Russell 2000 Index (2) 21.26 (2.55) 22.36 16.49 (28.44)
Past performance does not predict future performance.
-------------------------------------------------------
(1) The S&P 500 Index indicates broad larger
capitalization equity market performance.
(2) The Russell 2000 Index is a composite of the
smallest 2,000 stocks of the Russell 3000 Index
(which consists of the largest 3,000 stocks in the
U.S. market as determined by market
capitalization).
<TABLE>
<CAPTION>
----------------------------------------------------
INVESTOR INFORMATION
----------------------------------------------------
----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions)... $818 $742 $591 $502 $363
Portfolio Turnover Rate (%)....... 52 37 34 43 32
Expense Ratio (%)................. .86 .84 .84 .79 .65
</TABLE>
-------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
-------------------------------------------------------
Dear Shareholders:
Rocky Barber 1999 was the fifth year in a row in which the S&P 500
[Photo] generated returns of 20% or above. Historically, such
performance has never been sustained for more than two
years.
However, the source of the market's return was unusual
during 1999 because it relied so heavily on the
performance of just one part of the economy -
technology and Internet-related companies. Indeed, one
could say the fourth quarter was a feeding frenzy on
technology and ".com" stocks. These stocks accounted
for more than 80% of the return of the S&P 500 for the
year and more than 60% for the fourth quarter. The
small cap- technology sector was up an amazing 65% in
the fourth quarter alone. Clearly market performance
was concentrated in a very narrow band of stocks;
stocks generally characterized as very risky
investments by a number of measures. It is our view
that the current valuations enjoyed by a number of
these entities are at unrealistic and/or unsustainable
levels.
In 1999, the rest of the market, ex-technology, was up
about 4%, a not altogether disappointing performance
Mark A. Fuller III when considered within the context of the economic
[Photo] backdrop. Yes, the U.S. enjoyed an inordinately strong
economy with low unemployment, 3% productivity gains, a
robust consumer and low inflation. Moreover, global
economies accelerated during the year and the
combination generated near-record corporate profit
growth of 15%. However, the flip side to this wonderful
economic picture was a rising concern that such growth
would inevitably lead to a pickup in inflation. Because
of this concern, the Fed took back its three rate
easings of 1998, and long bond yields rose from 5% to
6.4%. As a result, the multiple on most stocks actually
came down slightly in 1999 while those of a few very
large cap stocks and technology issues soared.
The Growth Fund's mandate is to invest across many
economic sectors and in higher quality, more consistent
growth companies. As a result, while we do not look to
chase the Internet craze and do not expect to have
significant portfolio exposure to the higher risk,
smaller cap tech names that drove fourth quarter and
year returns, going forward we are
4 Annual Report December 31, 1999
<PAGE> 6
likely to invest in some of the more viable Internet
Gretchen S. Lash stocks, especially those serving the
[Photo] business-to-business market. The Internet is certainly
changing the way all industries function and compete
and is creating some terrific opportunities. As a
result, we are aggressively adding to our technology
research effort.
Looking forward, we are very encouraged by some of the
investment opportunities we see. The bifurcated return
in the market over the past year or so has created a
scenario in which we are finding many quality companies
trading at very reasonable and inviting multiples. As
we believe investors will inevitably return to a focus
on earnings and positive cash flows, the currently
bifurcated market should offer us some very good
investment opportunities.
In 2000, we believe the Federal Reserve Board will have
to raise rates another .50 -1% and that this will
continue to pressure stock multiples. However,
continued strong corporate profit growth, perhaps in
the 10% to 12% range, should offset these pressures. We
expect to remain cautious on the healthcare group for
the first part of the year until we can better assess
the potential impact of election-year rhetoric. We
expect to keep the Fund's position in financial stocks
fairly light for the foreseeable future because of our
interest rate outlook. Finally, as mentioned above, we
will be aggressively reviewing our technology holdings
and will be looking for companies that can benefit from
both the Internet and the global telecommunications
boom.
We continue to believe that thorough fundamental
analysis and long-term investments in those companies
with durable business franchises and superior growth
opportunities will prove rewarding to investors. We
appreciate our shareholders who share this commitment.
/s/ Rocky Barber /s/Mark A. Fuller III /s/Gretchen S. Lash
-------------------------------------------------------
GROWTH FUND
-------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME
DIVIDENDS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1/90 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund $10,000 9,800 14,100 15,200 17,600 18,700 24,200 28,500 34,200 43,500 52,200
S&P 500 Index $10,000 9,700 12,600 13,600 15,000 15,200 20,900 25,700 34,200 44,000 53,300
</TABLE>
December 31, 1999 William Blair Funds 5
<PAGE> 7
................................................................................
GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS
<C> <S> <C>
TECHNOLOGY--33.5%
256,900 *A D C Telecommunications, Inc...... $ 18,641
150,000 *America Online, Inc................ 11,316
212,900 *BMC Software, Inc.................. 17,019
206,400 *Cisco Systems, Inc................. 22,111
152,000 *Computer Sciences Corporation...... 14,383
264,100 *Electronic Arts, Inc............... 22,184
169,400 Intel Corporation................... 13,944
244,800 Linear Technology Corporation....... 17,518
279,000 *Microsoft Corporation.............. 32,572
223,500 *Oracle Corporation................. 25,046
428,289 *Tellabs, Inc....................... 27,491
306,800 Texas Instruments................... 29,721
176,500 *USWeb Corporation.................. 7,843
311,044 *Xilinx, Inc........................ 14,143
--------
273,932
--------
CONSUMER CYCLICALS--14.6%
464,591 *Acxiom Corporation................. 11,150
302,400 *Bed, Bath & Beyond, Inc............ 10,508
170,300 *C D W Computer Center.............. 13,390
281,400 Home Depot, Inc..................... 19,293
216,600 International Speedway
Corporation....................... 10,911
149,100 *Kohl's Corporation................. 10,763
187,300 Lowes Companies, Inc................ 11,191
1,337,900 *Office Depot....................... 14,633
124,700 Royal Caribbean Cruises, Ltd........ 6,149
244,900 *Williams-Sonoma, Inc............... 11,265
--------
119,253
--------
CONSUMER STAPLES--12.7%
304,000 *AT&T Liberty Media Group A......... 17,252
167,100 *Clear Channel Communications,
Inc............................... 14,914
217,000 *Cox Communications Class "A"....... 11,176
449,300 CVS Corporation..................... 17,944
264,200 Tribune Company..................... 14,548
340,800 *U. S. Foodservice.................. 5,708
397,200 Walgreen Company.................... 11,618
239,387 *Whole Foods Market, Inc............ 11,102
--------
104,262
--------
APPLIED TECHNOLOGY--8.9%
702,700 Automatic Data Processing, Inc...... 37,858
857,400 *Concord E F S, Inc................. 22,078
109,900 *Transaction Systems Architects..... 3,077
203,550 Vodafone Airtouch plc (ADR)......... 10,076
--------
73,089
--------
HEALTHCARE--8.5%
237,800 *Amgen, Inc......................... 14,283
164,000 *Genentech, Inc..................... 22,058
536,200 Medtronic, Inc...................... 19,538
119,800 Merck & Co., Inc.................... 8,034
122,000 Pharmacia & Upjohn, Inc............. 5,490
--------
69,403
--------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES OR PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
CAPITAL GOODS--7.7%
229,548 Danaher Corporation................. $ 11,076
78,300 Illinois Tool Works, Inc............ 5,290
137,825 Molex, Inc.......................... 7,813
380,168 Molex, Inc., Class "A".............. 17,203
189,500 Pentair, Inc........................ 7,296
244,322 *Zebra Technologies Corporation,
Class "A"......................... 14,293
--------
62,971
--------
FINANCIAL SERVICES--7.3%
105,875 American International Group........ 11,448
281,500 Associates First Capital Corp.,
Class "A"......................... 7,724
150,500 Federal Home Loan Mortgage
Corporation....................... 7,083
551,350 MBNA Corporation.................... 15,024
226,400 Mellon Bank Corporation............. 7,712
141,100 State Street Corporation............ 10,309
--------
59,300
--------
TRANSPORTATION--2.4%
297,310 *Heartland Express, Inc............. 4,683
232,100 *Iron Mountain, Inc................. 9,124
354,194 *Knight Transportation, Inc......... 6,066
--------
19,873
--------
TOTAL COMMON STOCK--95.6%
(cost $403,814)................................... 782,083
--------
CONVERTIBLE BOND--.3%
$ 4,700 The Sports Authority, Inc., 5.25%
Subordinated Debentures, due
9/15/01 (cost $4,502)............. 2,632
--------
CONVERTIBLE PREFERRED STOCK--1.2%
564,500 Innkeepers USA Trust 8.625% , Series
A Cumulative Convertible Preferred
Shares of Beneficial Interest,
(cost $14,112).................... 9,949
--------
SHORT-TERM INVESTMENTS
$ 520 Associates Corp. of North America
Demand Note, 5.07%, due 1/3/00.... 520
1,000 General Motors Acceptance
Corporation 6.02%, due 1/14/00.... 1,000
4,000 Household Finance Corporation,
6.00%, due 1/21/00................ 4,000
8,000 General Motors Acceptance
Corporation 6.25%, due 1/28/00.... 8,000
10,000 General Electric Capital Corporation
6.32%, due 2/4/00................. 10,000
--------
TOTAL SHORT-TERM INVESTMENTS--2.9%
(cost $23,520).................................... 23,520
--------
TOTAL INVESTMENTS--100.0%
(cost $445,948)................................... 818,184
CASH AND OTHER ASSETS, LESS LIABILITIES............. 259
--------
NET ASSETS--100.0%.................................. $818,443
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
6 Annual Report December 31, 1999
<PAGE> 8
----------------------------------------------
TAX-MANAGED GROWTH FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
----------------------------------------------
1999 (a)
--------------------
Tax-Managed Growth Fund (Class N) ..... 1.80%(b)
S&P500 Index (1) .................... 21.04
Russell 2000 Index (2) .............. 21.26
Past performance does not predict future performance
----------------------------------------------
(1)The S&P 500 Index indicates broad larger
capitalization equity market performance.
(2)The Russell 2000 Index is a composite of
the smallest 2,000 stocks of the Russell
3000 Index (which consists of the largest
3,000 stocks in the U.S. market as
determined by market capitalization).
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
----------------------------------------------
1999 (a)
----------------
Ending Net Assets (in millions) .... $ 1
Portfolio Turnover Rate (%) ......... --
Expense Ratio (%) ................... 1.36(c)
----------------------------------------------
(a) For the period December 27, 1999
(Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods
that are less than one year.
(c) Rate is annualized.
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
John F. Jostrand One could say that the appropriate slogan for
[Photo] the new Tax-Managed Growth Fund, giving birth
in the year 2000, should be the `oft cited
beginning to the Dickens' novel, A Tale of Two
Cities: "It was the Best of Times, It was the
Worst of Times." The stock market has just
finished an unprecedented fifth year of 20%
plus returns. The S&P 500 annualized returns
for the past twenty years have been above 17%
and the undeniable investment style leader has
been growth for several years running. The
question is what can we possibly expect for an
encore? In our opinion, the answer is still
plenty. We firmly believe that the long-term
direction for growth equity investing is
positive, the slope may just not be as
dramatic as it has been in the past.
Gregory J. Pusinelli We head into 2000 with a mixed economic
[Photo] environment. The positive is that domestic
growth is still solidly on track but
inflationary signals are starting to creep
into the picture. Chairman Greenspan, set on
the path of an inflationary hawk, raising
interest rates three times in the last nine
months. Early indications are that this stance
will likely continue going into 2000. While
the healthy worldwide economic activity is
good for corporate earnings, higher interest
rates do not combine well with highly valued
securities markets.
Given this potentially volatile combination,
we are adhering stringently to our investment
philosophy of buying high quality growth
companies while being mindful of relative
valuation. Technology and related fields are
an important consideration for the portfolio
with 27% invested in those sectors. However,
we have been careful to avoid the speculative
fervor placed upon most ".com" stocks, a
phenomenon that drove much of the S&P 500 and
Nasdaq performance in 1999. We have been
successful in finding many quality companies
trading at reasonable multiples in other
sectors to offset some of our more highly
valued technology holdings.
December 31, 1999 William Blair Funds 7
<PAGE> 9
Michelle R. Seitz In the midst of some arguably speculative
[Photo] investor activity, we believe that now is the
perfect time to begin a fund that focuses on
thorough fundamental analysis and long-term
investments in those companies we deem to have
durable business franchises. Our added
emphasis on managing the portfolio is to keep
as much as possible of the resultant
investment rewards from this philosophy in our
shareholder's pockets.
/s/ JOHN F. JOSTRAND /s/ GREGORY J. PUSINELLI /s/ MICHELLE R. SEITZ
8 Annual Report December 31, 1999
<PAGE> 10
................................................................................
TAX-MANAGED GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS
<C> <S> <C>
FINANCIAL SERVICES--32.6%
300 American International Group.............. $ 32
400 Federal Home Loan Mortgage Corporation.... 19
900 MBNA Corporation.......................... 24
400 Mellon Financial Corporation.............. 14
1,400 S&P Depository Receipts................... 206
500 State Street Corporation.................. 37
------
332
------
TECHNOLOGY--26.3%
700 Automatic Data Processing, Inc............ 38
300 *BMC Software, Inc........................ 24
150 *Cisco Systems, Inc....................... 16
300 *Computer Sciences Corporation............ 28
1,100 *Concord E F S, Inc....................... 28
150 *eBay, Inc................................ 19
400 Intel Corporation......................... 33
250 *Microsoft Corporation.................... 29
300 *Oracle Corporation....................... 34
200 Texas Instruments......................... 19
------
268
------
HEALTHCARE--12.9%
600 *Amgen, Inc............................... 36
250 Baxter International, Inc................. 16
250 Eli Lilly & Company....................... 17
150 *Genentech, Inc........................... 20
700 Medtronic, Inc............................ 25
250 Merck & Co., Inc.......................... 17
------
131
------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
CONSUMER CYCLICALS--8.9%
500 *Bed, Bath & Beyond, Inc.................. $ 17
300 Cintas Corporation........................ 16
600 Royal Caribbean Cruises, Ltd.............. 29
600 *Williams-Sonoma, Inc..................... 28
------
90
------
CAPITAL GOODS--7.7%
500 Danaher Corporation....................... 24
400 Illinois Tool Works, Inc.................. 27
600 Molex, Inc., Class "A".................... 27
------
78
------
COMMUNICATION SERVICES--4.0%
300 *MCI Worldcom, Inc........................ 16
500 Vodafone Airtouch plc ADR................. 25
------
41
------
CONSUMER STAPLES--3.7%
400 *AT&T Liberty Media Group, Class "A"...... 23
300 *Cox Communications, Class "A"............ 15
------
38
------
TOTAL INVESTMENTS--96.1%
(cost $960)......................................... 978
CASH AND OTHER ASSETS, LESS LIABILITIES--3.9%......... 40
------
NET ASSETS--100.0%.................................... $1,018
======
</TABLE>
- ---------------
* Non-income producing securities
ADR -- American Depository Receipt
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 9
<PAGE> 11
----------------------------------------------
LARGE CAP GROWTH FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
1999 (a)
---------------
Large Cap Growth Fund (Class N) 1.40%(b)
S&P500 Index (1) 21.04
Russell 2000 Index (2) 21.26
Past performance does not predict future performance.
----------------------------------------------
(1) The S&P 500 Index indicates broad larger
capitalization equity market performance.
(2) The Russell 2000 Index is a composite of
the smallest 2,000 stocks of the Russell 3000
Index (which consists of the largest 3,000
stocks in the U.S. market as determined by
market capitalization).
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
1999 (a)
----------------
Ending Net Assets (in millions). $1
Portfolio Turnover Rate (%)..... -----
Expense Ratio (%)............... 1.36(c)
----------------------------------------------
(a) For the period December 27, 1999
(Commencement of Operations) to December 31,
1999.
(b) Total return is not annualized for periods
that are less than a full year.
(c) Rate is annualized
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
John F. Jostrand We are pleased to have launched our new Large
[Photo] Cap Growth Fund. In the Fund we will invest in
the stocks of established, larger growth
companies that have proven and durable
business franchises. We are very optimistic
about the prospects for this sector of the
market. Although the large cap stocks have
outperformed the broader market for the past
few years, they have also produced higher
earnings growth and, consequently, have
deserved much of the superior returns. Going
forward, we believe larger companies do indeed
have strategic and competitive advantages over
their smaller brethren in many industries. As
a result, we look for them to continue to
produce both superior earnings growth and
investment returns.
1999 was the fifth year in a row in which the
S&P 500 generated returns of 20% or above.
Historically, such performance has never been
sustained for more than two years. However,
for the past few years the U.S. has enjoyed an
inordinately strong economy with low
unemployment, 3% productivity gains, a robust
consumer and low inflation. Moreover, in
1999, global economies re-accelerated and the
combination generated John F. Jostrand
unusually strong corporate profit growth of
15%.
Gretchen S. Lash However, the source of the market's return was
[Photo] unusual during 1999 because it relied so
heavily on the performance of just one part
of the economy - technology and
Internet-related companies. This was
especially true in the large cap growth
indices, such as the Russell 1000 Growth
Index. Within this index, the large cap
technology group was up an amazing 107% for
the year and accounted for more than 97% of
the composite's return. The remainder of the
index, ex-technology, was up about 1%, a very
disappointing performance when considered
within the context of the economic backdrop
mentioned above. Part of this lackluster
performance was due to concerns that the flip
side to our wonderful economic picture was
going to be a pickup in inflation.
Consequently, the Federal Reserve Board took
back its three rate easings of 1998, long bond
yields rose from 5% to 6.4%, and most stocks
actually declined for the year.
Looking forward, we are very encouraged by
some of the investment opportunities we see.
The narrowness of the return in the market
over the past year or so has created a
scenario in which we are finding many quality
companies trading at very reasonable and
inviting multiples. In 2000, we believe the
Fed will have to raise rates another .50% to
1% and that this will continue to pressure
stock multiples. However, continued strong
corporate profit growth, perhaps in the 10% to
12% range, should offset these pressures.
/s/ JOHN F. JOSTRAND /s/ GRETCHEN S. LASH
10 Annual Report December 31, 1999
<PAGE> 12
................................................................................
LARGE CAP GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS
<C> <S> <C>
TECHNOLOGY--37.2%
300 *America Online, Inc...................... $ 23
1,200 Automatic Data Processing, Inc............ 64
400 *BMC Software, Inc........................ 32
300 *Cisco Systems, Inc....................... 32
300 *Computer Sciences Corporation............ 28
300 Intel Corporation......................... 25
400 Linear Technology Corporation............. 29
500 *Microsoft Corporation.................... 58
400 *Oracle Corporation....................... 45
700 *Tellabs, Inc............................. 45
500 Texas Instruments......................... 48
------
429
------
CONSUMER CYCLICALS--16.8%
500 *Bed, Bath & Beyond, Inc.................. 17
600 Carnival Corporation...................... 29
450 Home Depot, Inc........................... 31
300 *Kohl's Corporation....................... 22
400 Lowes Companies........................... 24
2,200 *Office Depot............................. 24
500 Royal Caribbean Cruises, Ltd.............. 25
400 Tribune Company........................... 22
------
194
------
CONSUMER STAPLES--10.5%
500 *AT&T Liberty Media Group, Class "A"...... 28
300 *Clear Channel Communications, Inc........ 27
400 *Cox Communications, Class "A"............ 21
700 CVS Corporation........................... 28
600 Walgreen Company.......................... 17
------
121
------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
FINANCIAL SERVICES--9.0%
200 American International Group.............. $ 22
500 Associates First Capital Corporation...... 14
300 Federal Home Loan Mortgage Corporation.... 14
900 MBNA Corporation.......................... 24
400 Mellon Financial Corporation.............. 14
200 State Street Corporation.................. 14
------
102
------
HEALTHCARE--8.4%
400 *Amgen, Inc............................... 24
200 *Genentech, Inc........................... 27
900 Medtronic, Inc............................ 33
200 Merck & Co., Inc.......................... 13
------
97
------
CAPITAL GOODS--2.9%
100 Illinois Tool Works, Inc.................. 7
600 Molex, Inc., Class "A".................... 27
------
34
------
COMMUNICATION SERVICES--1.3%
300 Vodafone Airtouch plc ADR................. 15
------
TOTAL INVESTMENTS--86.1%
(cost $976)......................................... 992
CASH AND OTHER ASSETS, LESS LIABILITIES--13.9%........ 161
------
NET ASSETS--100.0%.................................... $1,153
======
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 11
<PAGE> 13
----------------------------------------------
SMALL CAP GROWTH FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
1999 (a)
----------------
Small Cap Growth Fund (Class N)... 1.90%(b)
Russell 2000 Index (1).......... 21.26
Russell 2000 Growth Index (2)... 43.09
Past performance does not predict future performance.
----------------------------------------------
(1) Russell 2000 Index is a composite of the
smallest 2,000 stocks of the Russell 3000
Index (which consists of the largest 3,000
stocks in the U.S. market as determined by
market capitalization).
(2) The Russell 2000 Growth Index is a
composite of the smallest 1,000 growth stocks
of the Russell 2000 Index (which consists of
the largest 2,000 stocks in the U.S. market as
determined by market capitalization).
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
1999 (a)
----------------
Ending Net Assets (in millions).. $6
Portfolio Turnover Rate (%)...... -----
Expense Ratio (%)................ 1.60(c)
----------------------------------------------
(a) For the period December 27, 1999
(Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods
that are less than a full year.
(c) Rate is annualized.
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
We are pleased to communicate with you for the
Michael P. Balkin first time as portfolio managers of the new
[Photo] Small Cap Growth Fund. With one full week of
activity behind us as 1999 draws to a close,
we are very excited about the timing of and
prospects for our new fund. We plan to harness
the considerable research resources at William
Blair which focus on many of the best and
brightest young growth companies in building
the Fund. Our firm has been researching and
investing in smaller growth stocks for
decades, and the Fund seeks to benefit from
that knowledge and experience.
After four consecutive years of being the
Mark A. Fuller III bridesmaid, small cap stocks rallied strongly
[Photo] in the fourth quarter, such that the Russell
2000 Growth Index outperformed the large cap
S&P 500 Index for the full year. We believe
this could be indicative of more favorable
performance pattern by small cap stocks in the
future, as it has been over different periods
of history. This more optimistic view is
bolstered by a healthy domestic economy,
benign inflation and generally lower
valuation, which have supported strong
relative performance in the past.
As was the case throughout the market,
technology stocks dominated the top performers
in small cap stocks in 1999. Buoyed by strong
secular growth trends in semiconductors,
telecommunications and Internet technology,
investors gravitated to tech stocks with a
fervor that we have not witnessed previously.
By our calculation, technology stocks, on
average, appreciated by more than 100% in the
Russell 2000 Growth Index! While this is
highly unlikely to be a sustainable trend, the
importance of technology investing was
underscored with emphasis in 1999. This caused
growth stock investing to be particularly
fruitful, as technology stocks carry
considerably more weight in the growth stock
benchmarks than in value stock benchmarks.
12 Annual Report December 31, 1999
<PAGE> 14
Karl W. Brewer As fund managers, we will be combining key
[Photo] investment themes with bottom-up stock
research and selection in managing the Fund.
Hallmarks in our portfolio will include
businesses with strong market positions and
substantial growth opportunities, superior
financial performance and superb, experienced
management teams.
Despite lofty stock market valuation, we
believe technology will drive most of the
growth themes in the new millennium. We
anticipate a strong Y2K dividend for many
software and services businesses, now that the
dreaded date has come and gone. Our research
shows a large backlog of technology projects
to be started or restarted in the new year. A
reshaping of the semiconductor industry will
continue, away from the personal computer as
the center of the universe, and towards a
myriad of communication applications. While
the markets are currently receptive to a host
of Internet start-up ventures, we believe the
coming quarters will show increased respect
for leading manufacturing, distribution and
consumer companies who respond quickly with
well crafted, complementary online strategies.
This so-called "clicks and mortar" capability
will be critical to prevail in the long run.
While the considerable run up in the market at
year end has created a sense of euphoria and
confidence that will likely need to be worked
off at some point this year, we remain
optimistic about the long term prospects for
the small cap market. Bright economic health
and relatively attractive valuation for small
stocks bode well for the future and we are
looking to capitalize on these prospects.
/s/ MICHAEL P. BALKIN /s/ MARK A. FULLER III /s/ KARL W. BREWER
December 31, 1999 William Blair Funds 13
<PAGE> 15
................................................................................
SMALL CAP GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS
<C> <S> <C>
CONSUMER CYCLICALS--10.7%
13,200 *Aftermarket Technology Corporation....... $ 158
22,600 *Alterra Healthcare Corporation........... 188
7,800 Callaway Golf Company..................... 138
1,000 *CDW Computer Centers, Inc................ 79
20,400 *Petsmart, Inc............................ 117
------
680
------
TECHNOLOGY--6.0%
3,000 *American Management Systems, Inc......... 94
2,300 *Dendrite International, Inc.............. 78
2,700 *Internet Commerce Corporation, Class
"A"..................................... 84
4,200 *Teltrend, Inc............................ 127
------
383
------
CONSUMER STAPLES--3.8%
3,200 *Cinar Corporation........................ 78
2,900 *Interim Services, Inc.................... 72
2,000 *Whole Foods Market, Inc.................. 93
------
243
------
FINANCIAL SERVICES--3.1%
1,200 Investors Financial Services
Corporation............................. 55
3,900 Metris Companies, Inc..................... 139
------
194
------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS-(CONTINUED)
<C> <S> <C>
CAPITAL GOODS--3.0%
3,300 *Zebra Technologies Corporation, Class
"A"..................................... $ 193
------
193
------
TRANSPORTATION--2.6%
1,800 C.H. Robinson Worldwide, Inc.............. 72
2,400 *Iron Mountain, Inc....................... 94
------
166
------
HEALTH CARE--1.7%
6,700 *Biosite Diagnostics, Inc................. 107
------
COMMUNICATION SERVICES--1.2%
1,400 *Airgate PCS, Inc......................... 74
------
TOTAL INVESTMENTS--32.1%
(cost $1,923)....................................... 2,040
CASH AND OTHER ASSETS, LESS LIABILITIES--67.9%........ 4,306
------
NET ASSETS--100.0%.................................... $6,346
======
</TABLE>
- ---------------
* Non-income producing securities
See accompanying Notes to Financial Statements.
14 Annual Report December 31, 1999
<PAGE> 16
----------------------------------------------
INTERNATIONAL GROWTH FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
International Growth Fund (Class N) ........ 96.25% 11.46% 8.39% 10.20% 7.22%
Morgan Stanley Capital International
All Country World (Free) except
US Index(1).......................... 30.91 14.46 2.04 6.68 9.94
Lipper International Index (2) .......... 37.83 12.66 7.27 14.43 10.02
Past performance does not predict future performance
</TABLE>
----------------------------------------------
(1) The Morgan Stanley Capital International
All Country World (Free) except U.S. Index
is an index that includes developed and
emerging markets and reduces the Japanese
portion, making it more comparable to the
International Growth Fund in terms of
investment approach.
(2) The Lipper International Index is a
composite of international growth mutual
funds.
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Ending Net Assets (in millions) ... $302 $140 $129 $105 $ 90
Portfolio Turnover Rate (%) ....... 122 98 102 89 77
Expense Ratio (%) ................. 1.35 1.36 1.43 1.44 1.48
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
----------------------------------------------
Dear Shareholders:
International financial markets decisively
W. George Greig shifted their focus toward growth in
[Photo] 1999--both in the sense of welcoming renewed
economic growth outside the US, and more
particularly in the process of seeking out new
growth opportunities in the global information
economy. Asia's recovery boosted trade
volumes; Japan felt the stimulus of a housing
and inventory cycle; Europe benefited from
rising employment and consumer confidence; and
North America continued to trade demand (for
imports) for supply (of capital).
Bond markets suffered from the drag of
accelerating credit demand, but global equity
markets generally powered ahead, driven by
strong earnings trends and the promise of
robust future growth. Annual total returns for
the principal regional indices are shown
below:
Index Returns, 1999
MSCI All Country World ex US 30.9%
MSCI Europe 16.2
MSCI Pacific 57.0
MSCI Emerging Markets 66.4
MSCI North America 23.5
Relative performance for the International
Growth Fund remained strong, with a total
return of 96.3% for the year.
The dominant global stock market theme,
particularly in the second half of the year,
was telecommunications and technology.
Information technology (IT) service companies,
semiconductor producers, electronic
manufacturing service providers, internet
service and commerce companies,
telecommunications
December 31, 1999 William Blair Funds 15
<PAGE> 17
operators, wireless operators, communications
and networking equipment companies all
benefited from strong fundamental growth as
well as a substantial upward revaluation in
the market. Some 35-40 of the Fund's holdings
(depending on exact classification)
representing over 40% of total Fund assets
fell into technology-related sectors as of
year-end.
After the unusual market and sector returns of
the fourth quarter, a note of caution is in
order. We remain convinced that Information
Technology investment, adoption of the
Internet, and broadband and wireless
communications will continue to grow
substantially in both developed and emerging
economies over the coming five to ten years.
But the extraordinary returns shown by many
stocks in these areas over the course of 1999
may have implicitly built unrealistic growth
expectations into share prices. Rising global
interest rates may also contribute to a more
subdued short term investment environment in
the months to come.
/s/ W. GEORGE GREIG
..............................................
INTERNATIONAL GROWTH FUND
..............................................
ILLUSTRATION OF AN ASSUMED INVESTMENT OF
$10,000 WITH REINVESTMENT OF CAPITAL GAIN
DISTRIBUTIONS AND INCOME DIVIDENDS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
10/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Int'l Growth Fund $10,000 10,100 11,400 13,500 14,000 13,500 13,300 14,500
MSCA AC WLD
FEX US Index $10,000 9,700 11,900 13,100 14,000 13,900 14,300 15,300
Lipper Int'l Index $10,000 9,700 11,900 13,700 13,700 13,600 14,000 15,000
<CAPTION>
6/96 12/96 6/97 12/97 6/98 12/98 6/99 12/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Int'l Growth Fund 15,700 16,000 18,500 17,300 19,900 19,300 24,400 37,900
MSCA AC WLD
FEX US Index 16,100 16,400 18,400 16,700 18,700 18,700 20,500 25,000
Lipper Int'l Index 15,700 17,200 19,600 18,400 21,300 21,300 22,200 28,600
</TABLE>
16 Annual Report December 31, 1999
<PAGE> 18
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES VALUE
- ------------------------------------------------------ --------
COMMON STOCKS--EUROPE--39.1%
<C> <S> <C>
AUSTRIA--0.3%
60,000 *Sanochemia Pharmazeutika AG
(Biotechnology)....................... $ 1,024
--------
DENMARK--1.6%
23,500 Falck A/S (Safety and security
services)............................. 2,463
60,000 *Lundbeck A/S (Neurological
pharmaceuticals)...................... 2,393
--------
4,856
--------
FINLAND--9.7%
22,000 *Comptel Oyj (Telecommunications
software)............................. 1,547
400,000 JOT Automation Group Oyj (Automated
production systems)................... 3,726
60,000 Nokia Oyj (Telecommunications
equipment)............................ 10,877
300,000 PMJ Automec Oyj (Automated production
systems).............................. 3,526
140,000 Sonera Grp Oyj (Telecommunications
services)............................. 9,595
--------
29,271
--------
FRANCE--7.6%
5,500 Altran Technologies (Aerospace
technology)........................... 3,323
15,747 April SA (Non-life insurance)........... 1,878
34,000 Cegedim (Healthcare database service)... 2,397
95,000 *Genset ADR (Gene therapy products)..... 1,811
17,500 Groupe Danone (Packaged foods and
beverages)............................ 4,124
20,000 Hermes International (Fashion
apparel).............................. 3,017
1,549 M6--Metropole TV (Pay television)....... 768
33,000 STMicroelectronics (Semi-conductors).... 5,078
41,500 *Transgene ADR (Gene therapy
products)............................. 415
--------
22,811
--------
GERMANY--4.8%
70,000 EM.TV & Merchandising AG (Media)........ 4,399
35,000 *Evotec Biosystems AG (Life sciences)... 1,242
45,000 *Infonet Services Corp ADR (Managed data
communications services).............. 1,181
40,000 Kamps AG (Baked goods and frozen food
items)................................ 2,759
14,000 *Kamps AG-new (Baked goods and frozen
food items)........................... 933
30,000 *Qiagen NV (Biotechnology equipment).... 2,266
45,000 Rhoen-Klinikum AG (Health care
operator)............................. 1,654
--------
14,434
--------
IRELAND--1.4%
101,091 CRH PLC (Building materials)............ 2,184
35,000 *Ryanair Holdings plc ADR (Passenger
airline services)..................... 1,929
--------
4,113
--------
ITALY--1.5%
250,000 Autogrill SpA (Restaurant operator)..... 3,214
1,050,000 Parmalat Finanziaria SpA (Services and
industrial investments)............... 1,347
--------
4,561
--------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES VALUE
- ------------------------------------------------------ --------
COMMON STOCKS--EUROPE--(CONTINUED)
<C> <S> <C>
NETHERLANDS--4.3%
80,000 Computer Management Group (IT
services)............................. $ 5,954
35,000 Draka Holding NV (Wire and cable
manufacturer)......................... 1,738
80,000 Unique International NV (Temporary
staffing)............................. 1,652
100,000 *Versatel Telecom NV (Telecommunications
services)............................. 3,525
--------
12,869
--------
NORWAY--0.8%
180,000 *Tandberg Television ASA (Digital
broadcast equipment).................. 2,493
--------
SPAIN--2.9%
75,000 Cortefiel SA (Apparel design and
sale)................................. 1,964
325,000 *Mecalux SA (Materials handling and
storage).............................. 2,177
150,000 Sol Melia SA (Hotel management)......... 1,699
120,000 *Superdiplo SA (Supermarket chain)...... 2,296
10,000 *Terra Networks SA (Internet access
services)............................. 546
--------
8,682
--------
SWEDEN--1.1%
75,000 BT Industries AB (Materials handling
equipment)............................ 1,515
35,000 *Modern Times Group (Publishing)........ 1,735
--------
3,250
--------
SWITZERLAND--3.1%
3,000 *Adecco SA (Personnel employment
company).............................. 2,335
3,000 Belimo Automation AG (Ventilation
controls)............................. 1,149
11,500 *Fantastic Corporation (Broadband
multimedia solutions)................. 2,201
10,000 Gretag Imaging Group (Image processing
equipment)............................ 1,449
8,000 Swisslog Holdings AG (Logistics
systems).............................. 2,335
--------
9,469
--------
COMMON STOCKS--UNITED KINGDOM--14.0%
200,000 Bank of Scotland (Banking).............. 2,323
190,000 Capita Group plc (Commercial
services)............................. 3,469
60,000 *Colt Telecom plc
(Telecommunications).................. 3,072
69,000 *Energis plc (Business
Communications)....................... 3,315
60,000 Filtronic plc (Cellular telecom
equipment)............................ 2,045
250,000 Hays plc (Distribution/personnel
services)............................. 3,982
650,000 Invesys plc (Automation engineering).... 3,539
395,000 Lloyds TSB Group (Banking services)..... 4,943
250,000 Logica plc (Computer software and
service).............................. 6,450
90,000 Luminar plc (Theme pubs and
restaurants).......................... 1,280
110,000 *Powderject Pharmaceuticals (Drug
delivery technology).................. 1,462
200,000 Reckitt Benckiser plc (Household
products)............................. 1,876
250,000 *Shire Pharmaceuticals Group plc
(Pharmaceuticals)..................... 2,498
300,000 *Thus plc (Communications services)..... 1,881
--------
42,135
--------
</TABLE>
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 17
<PAGE> 19
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES VALUE
- ------------------------------------------------------ --------
<C> <S> <C>
COMMON STOCKS--CANADA--5.5%
140,000 *Anderson Exploration (Petroleum and
natural gas).......................... $ 1,671
341,000 *Berkely Petroleum Corporation (Oil and
gas).................................. 2,984
55,000 *Biochem Pharma Inc--ADR (Preventative
pharmaceuticals)...................... 1,196
50,000 Four Seasons Hotels Inc. (Hotels)....... 2,656
175,000 Intrawest Corp. (Ski and resort
operations)........................... 3,026
31,024 *JDS Fitel (Fibreoptic components)...... 5,005
--------
16,538
--------
COMMON STOCKS--JAPAN--21.9%
250,000 *77 Bank, Ltd. (Regional banking
service).............................. 2,619
600,000 Bank of Fukuoka Ltd. (Regional banking
service).............................. 4,161
32,640 Coca Cola West Japan (Beverage
bottling)............................. 1,373
5,000 Fast Retailing Co., Ltd.
(Retail/apparel)...................... 2,035
5,000 Fujitsu Service & Support (IT
services)............................. 2,450
10,000 *Internet Initiative Japan--ADR
(Internet services)................... 972
30,000 Kyocera Corp. (Electronic equipment
manufacturer)......................... 7,777
30,000 Murata Manufacturing Co., Ltd. (Ceramic
applied electronic components)........ 7,043
2,500 NTT Mobile Communications (Mobile
telecommunications services).......... 9,611
20,000 Orix Corporation (Financial leasing
services)............................. 4,504
26,400 People Company, Ltd (Fitness clubs)..... 2,066
26,000 Rohm Co., Ltd. (Semi-conductor
devices).............................. 10,682
27,000 Sony Corp ADR (Consumer electronics).... 7,688
150,000 Suruga Bank Ltd. (Regional banking
service).............................. 2,091
13,000 Yamada Denki (Large scale retail
stores)............................... 1,412
--------
66,484
--------
COMMON STOCKS--ASIA--5.9%
AUSTRALIA--0.7%
900,410 Harvey Norman Holdings (Discount
retailer)............................. 1,715
338,500 *Southern Pacific Petroleum (Oil
exploration).......................... 510
--------
2,225
--------
HONG KONG--3.7%
4,053,156 CDL Hotels Intl. (Hotel owner and
operator)............................. 1,616
2,750,000 Esprit Holdings Ltd. (Apparel
manufacturer)......................... 2,971
1,000,000 Li & Fung Limited (Investment holding
company).............................. 2,508
600,000 Smartone Telecommunications (Mobile
telecommunications services).......... 2,894
450,000 Yue Yuen Industrial Hldgs. (Active
footwear)............................. 1,077
--------
11,066
--------
NEW ZEALAND--0.6%
400,000 Warehouse Group Limited (Retail)........ 1,796
--------
SINGAPORE--0.9%
350,000 Avimo Group Limited (Precision
optics)............................... 634
20,000 Pacific Internet (Internet access
services)............................. 939
700,000 ST Engineering (Engineering/ (research
and development)...................... 1,083
--------
2,656
--------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES VALUE
- ------------------------------------------------------ --------
<C> <S> <C>
COMMON STOCKS--EMERGING ASIA--5.9%
CHINA--1.2%
1,780,800 China Pharmaceutical Ent.
(Pharmaceuticals)..................... $ 224
200,000 *China Telecom (Cellular telecom
services)............................. 1,250
425,000 Pacific Century Cyberworks Ltd.
(Internet services)................... 990
2,184,914 Shenzhen Chiwan Wharf Holdings Ltd.
(Commercial transportation)........... 675
3,250,000 *TPV Holdings Ltd. (Computer monitor
manufacturer)......................... 543
--------
3,682
--------
INDIA--0.7%
21,000 Cipla Limited (Chemicals and
pharmaceuticals)...................... 671
20,000 Hero Honda Motors Ltd. (Motorcycles).... 519
9,500 Sri Adhikari Bros Tele Networks
(Television).......................... 282
32,500 Punjab Tractors Ltd. (Tractors)......... 776
--------
2,248
--------
MALAYSIA--1.2%
260,000 Commerce Asset Holdings (Banking)....... 667
280,000 Unisem (M) Berhad (Semi-conductors)..... 1,798
210,000 Star Publications (Newspaper
publisher)............................ 591
497,700 Sime UEP Properties Berhad (Property
developer)............................ 701
--------
3,757
--------
PHILIPPINES--0.3%
4,000,000 SM Prime Holdings (Shopping mall
operator)............................. 752
--------
SOUTH KOREA--1.4%
20,000 *Hanaro Telecom (Local telecommunication
service).............................. 346
6,000 Cheil Jedang Corp. (Food producer)...... 692
26,000 Hite Brewery Co., Ltd. (Brewery and
bottler).............................. 890
3,862 Samsung Securities Co (Investment
banking).............................. 117
4,000 Samsung Electronics (Consumer
electronics).......................... 937
15,000 Shinsegae Department Stores
(Retailer)............................ 758
9,000 *Korea Thrunet Co., Ltd ADR (Internet
services)............................. 611
--------
4,351
--------
TAIWAN--0.9%
200,000 Acer Peripherals (Consumer
electronics).......................... 828
351,225 TSMC (Semiconductors)................... 1,869
--------
2,697
--------
THAILAND--0.2%
250,000 Pizza Co., Ltd. (Restaurant operator)... 482
--------
COMMON STOCKS--EMERGING EUROPE, MID-EAST, AFRICA--2.0%
EGYPT--0.6%
30,000 *MobiNil (Cellular telecom services).... 1,373
30,000 Al-Ahram Beverages Co. GDR (Brewery and
bottler).............................. 593
--------
1,966
--------
ISRAEL--0.2%
3,500 *Check Point Software Tech (Internet
security)............................. 696
--------
</TABLE>
See accompanying Notes to Financial Statements.
18 Annual Report December 31, 1999
<PAGE> 20
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES VALUE
- ------------------------------------------------------ --------
<C> <S> <C>
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--(CONTINUED)
POLAND--0.3%
25,000 Softbank Corp. (System integration)..... $ 835
--------
SOUTH AFRICA--0.3%
74,352 Imperial Holdings Ltd. (Auto rental and
leasing).............................. 812
--------
TURKEY--0.6%
69,000,000 *Dogan Yayin Holdings (Media)........... 1,018
15,000,000 Haci Omer Sabanci Holdings (Financial
services)............................. 872
--------
1,890
--------
COMMON STOCKS--LATIN AMERICA--2.2%
BRAZIL--0.3%
92,700 Confeccoes Guararapes S.A. (Textiles and
retail)............................... 277
40,000 Globo Cabo S.A. ADR (Cable
television)........................... 720
--------
997
--------
MEXICO--1.9%
1,000,000 *Consorcio ARA S.A. (Housing
developers)........................... 1,654
30,000 Fomento Econ Mexico ADR (Brewery and
bottler).............................. 1,335
15,000 Grupo Televisa S.A. ADR (Television).... 1,024
15,000 Telefonos de Mexico ADR (Telecom
service).............................. 1,688
--------
5,701
--------
TOTAL COMMON STOCK--96.5%
(cost $175,709)................................... 291,599
--------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ --------
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------ --------
<C> <S> <C>
PREFERRED STOCKS--2.1%
BRAZIL--1.7%
440,033 EMBRAER PN (Aircraft manufacturer)...... $ 1,982
35,000,000 Gerdau S.A. (Specialty steel)........... 929
3,250,000 Petroleo Brasileiro S.A. (Oil and
gas).................................. 826
27,500,000 Votorantim Celulose y Papel (Paper)..... 1,262
--------
4,999
--------
GERMANY--0.3%
30,000 Fielmann AG (Optical retailer).......... 897
--------
SOUTH KOREA--0.1%
2,619 *Shinsegae Department Stores
(Retailer)............................ 137
--------
TOTAL PREFERRED STOCK--2.1%
(cost $3,423)..................................... 6,033
--------
WARRANTS, RIGHTS, AND OTHER ISSUES--0.01%
UNITED KINGDOM--0.01%
7,500 *Luminar plc (Theme pubs and
restaurants).......................... 35
--------
TOTAL WARRANTS, RIGHTS, AND OTHER ISSUES--0.01%
(cost $0)......................................... 35
--------
SHORT-TERM INVESTMENTS--0.6%
$1,840 Investors Bank & Trust Company
Repurchase Agreement 3.06%, dated
12/31/99 collateralized by U.S.
Government agency with a market value
of $1,932, due 1/3/00 repurchase
date.................................. 1,840
--------
TOTAL SHORT-TERM INVESTMENTS--.6%
(cost $1,840)..................................... 1,840
--------
TOTAL INVESTMENTS--99.2%
(cost $180,972)................................... 299,507
CASH AND OTHER ASSETS, LESS LIABILITIES--.8%.......... 2,582
--------
NET ASSETS--100.0%.................................... $302,089
========
</TABLE>
- ---------------
* Non-income producing securities
GDR = Global Depository Receipt
ADR = American Depository Receipt
At December 31, 1999 the Fund's Portfolio of Investments includes the following
categories:
Commercial Services--7.0%; Consumer Durables--3.0%; Consumer Non-Durables--7.5%;
Consumer Services--8.9%; Electronic Technology--22.5%; Energy Minerals--2.0%;
Finance--8.9%; Health Services--1.4%; Health Technology--4.7%; Industrial
Services--1.1%; Non-Energy Minerals--1.0%; Process Industries--0.4%; Producer
Manufacturing--5.0%; Retail Trade--5.0%; Technology Services--8.1%;
Transportation--0.9%; and Utilities--12.6%.
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 19
<PAGE> 21
----------------------------------------------
EMERGING MARKETS GROWTH FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
1999 12/31/98(a)
----------------- -----------------
Emerging Markets Growth Fund (Class N) ... 79.31% (23.70)%
Morgan Stanley Capital
International Emerging
Markets (Free) Index (1) ............. 66.41 (28.92)
Past performance does not predict future performance.
(1) The Morgan Stanley Capital International
Emerging Markets (Free) Index is an index
that includes emerging markets around the
world.
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
1999 12/31/98(a)
----------------- -----------------
Ending Net Assets (in millions) ....... $ 6 $ 4
Portfolio Turnover Rate (%) ............ 201 226(b)
Expense Ratio (%) ...................... 2.06(d) 2.25(b)(c)
(a) For the period May 1, 1998 (Commencement
of Operations) to December 31, 1998.
(b) Rates are annualized.
(c) Without the waiver of expenses in 1998,
the expense ratio would have been 6.35%.
(d) Without the waiver of expenses in 1999,
the expense ratio would have been 4.53%.
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
Emerging market economies and stock markets
W. George Greig continued to rebound in the fourth quarter
[Photo] with the MSCI Emerging Markets Free Index (the
"Index") returning 25.1% for the quarter. For
the first time since the Asian financial
crisis began in 1997, emerging markets
produced a positive return for 1999, with the
Index up 66.4% for the year. Reform programs
initiated early in the year were generally
progressing well, particularly in Korea where
corporate governance is rapidly improving. All
of the emerging economies were exhibiting
positive GDP growth in the second half of the
year and we anticipate that this trend will
continue through the new year.
Significantly, numerous companies in emerging
Jeffrey A. Urbina markets are becoming beneficiaries in the "new
[Photo] economy". Trends seen in developed countries
during the last few years in the
telecommunications and information technology
sectors are rapidly spreading to emerging
markets. Countries such as India, Korea and
Taiwan all have globally competitive companies
exhibiting strong growth due to both domestic
and foreign demand for services and hardware.
With some exceptions, valuations for these
companies remain at realistic levels and we
currently anticipate retaining a significant
weighting in "new economy" stocks in 2000.
20 Annual Report December 31, 1999
<PAGE> 22
The Emerging Markets Growth Fund outperformed
the Index in both the fourth quarter and for
the year as a whole returning 32.6% for the
quarter and 79.3% for the year. The Fund's
positive performance for the year was due to a
variety of factors including a 10.8% and 6.4%
weighting in Malaysia and Egypt (non-Index
countries), respectively and stock selection
in China, South Korea, Israel and Brazil.
We believe the outlook for emerging markets in
2000 is the most positive in years. In
general, previous macro economic imbalances
have been rectified and domestic demand in all
of the emerging economies is showing a steady
recovery. The reversal of the global
deflationary trend experienced in 1998 is also
highly beneficial to many emerging economies.
Barring a downturn in the US economy, we
believe that emerging market equities should
continue to provide acceptable returns to
investors throughout 2000. Our portfolio
strategy will continue to emphasize globally
competitive companies in the
telecommunications and technology sectors as
well as domestic consumption themes.
----------------------------------------------
EMERGING MARKETS GROWTH FUND
----------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF
$10,000
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
5/98 6/98 9/98 12/98 6/99 9/99 12/99
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets
Growth Fund $10,000 8,700 6,600 7,600 10,800 10,300 13,700
MSCI EMF Index $10,000 7,700 6,000 7,100 9,900 9,400 11,800
</TABLE>
December 31, 1999 William Blair Funds 21
<PAGE> 23
................................................................................
EMERGING MARKETS GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--EMERGING ASIA--55.7%
<C> <S> <C>
CHINA--11.1%
40,000 *China Telecom (Cellular telecom
services)............................. $ 250
75,000 Pacific Century Cyberworks Ltd.
(Internet services)................... 175
395,000 Shenzhen Chiwan Wharf Holdings Ltd.
(Commercial transportation)........... 122
750,000 *TPV Holdings Ltd. (Computer monitor
manufacturer)......................... 125
------
672
------
INDIA--11.8%
6,000 Cipla Limited (Chemicals and
pharmaceuticals)...................... 192
5,000 Hero Honda Motors Ltd. (Motorcycles).... 130
4,000 Punjab Tractors Ltd. (Tractors)......... 96
10,000 Sri Adhikari Bros Tele Networks
(Television).......................... 296
------
714
------
MALAYSIA--10.8%
55,000 Commerce Asset Holdings Berhad
(Banking)............................. 141
98,300 Sime UEP Properties Berhad (Property
developer)............................ 138
42,000 Star Publications (Newspaper
publisher)............................ 118
40,000 Unisem (M) Berhad (Semiconductors)...... 257
------
654
------
PHILIPPINES--1.6%
500,000 SM Prime Holdings (Shopping mall
operator)............................. 94
------
SOUTH KOREA--12.1%
1,000 Cheil Jedang Corp. (Food producer)...... 115
3,000 *Hanaro Telecom (Local telecommunication
service).............................. 52
4,000 Hite Brewery Co., Ltd. (Brewery and
bottler).............................. 137
1,000 *Korea Thrunet Co., Ltd ADR (Internet
services)............................. 68
1,000 Samsung Electronics (Consumer
electronics).......................... 234
784 Samsung Securities Co. (Investment
banking).............................. 24
2,000 Shinsegae Department Stores
(Retailer)............................ 101
------
731
------
TAIWAN--8.0%
37,000 Acer Peripherals (Consumer
electronics).......................... 153
61,635 TSMC (Semi-conductors).................. 328
------
481
------
THAILAND--0.3%
10,000 Pizza Co., Ltd. (Restaurant operator)... 19
------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--18.9%
EGYPT--6.4%
8,000 Al-Ahram Beverages Co. GDR (Brewery and
bottler).............................. 158
5,000 *MobiNil (Cellular telecom services).... 229
------
387
------
ISRAEL--1.7%
500 *Check Point Software Tech (Internet
security)............................. 99
------
POLAND--2.2%
4,000 Softbank Corp. (System integration)..... 134
------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--(CONTINUED)
<C> <S> <C>
SOUTH AFRICA--2.7%
14,668 Imperial Holdings Ltd. (Auto rental and
leasing).............................. $ 160
------
TURKEY--5.9%
12,250,000 *Dogan Yayin Holdings (Media)........... 181
3,000,000 Haci Omer Sabanci Holdings (Financial
services)............................. 174
------
355
------
COMMON STOCKS--LATIN AMERICA--14.3%
BRAZIL--3.4%
20,700 Confeccoes Guararapes S.A. (Textiles and
retail)............................... 62
8,000 Globo Cabo S.A. ADR (Cable
television)........................... 144
------
206
------
MEXICO--10.9%
90,000 *Consorcio ARA S.A. (Housing
developers)........................... 149
3,000 Fomento Econ Mexico ADR (Brewery and
bottler).............................. 134
3,000 Grupo Televisa S.A. GDR (Television).... 205
1,500 Telefonos de Mexico ADR (Telecom
service).............................. 169
------
657
------
TOTAL COMMON STOCK--88.9%
(cost $3,983)....................................... 5,363
------
PREFERRED STOCKS--12.8%
BRAZIL--12.5%
50,000 EMBRAER PN (Aircraft manufacturer)...... 225
7,000,000 Gerdau S.A. (Specialty steel)........... 186
450,000 Petroleo Brasileiro S.A. (Oil and
gas).................................. 115
5,000,000 Votorantim Celulose y Papel (Paper)..... 229
------
755
------
SOUTH KOREA--0.3%
349 *Shinsegae Department Stores
(Retailer)............................ 18
------
TOTAL PREFERRED STOCK--12.8%
(cost $342)......................................... 773
------
SHORT-TERM INVESTMENTS--2.5%
$ 93 Investors Bank & Trust Company
Repurchase Agreement 3.06%, dated
12/31/99 collateralized by U.S.
Government agency with a market value
of $98, due 1/3/00 repurchase date.... 93
55 Associates Corp. of North America
Demand Note, 5.07%, due 1/3/00........ 55
------
TOTAL SHORT-TERM INVESTMENTS
(cost $148)......................................... 148
------
TOTAL INVESTMENTS--104.2%
(cost $4,473)....................................... 6,284
LIABILITIES, LESS CASH AND OTHER ASSETS--(4.2)%....... (256)
------
NET ASSETS--100.0%.................................... $6,028
======
</TABLE>
- ---------------
* Non-income producing securities
GDR = Global Depository Receipt
ADR = American Depository Receipt
At December 31, 1999 the Fund's Portfolio of Investments includes the following
categories:
Consumer Durables -- 4.4%; Consumer Non-Durables -- 9.9%; Consumer
Services -- 15.7%; Electronic Technology -- 21.5%; Energy Minerals -- 1.9%;
Finance -- 9.5%; Health Technology -- 3.1%; Non-Energy Minerals -- 3.0%; Process
Industries -- 3.7%; Producer Manufacturing -- 1.6%; Retail Trade -- 4.5%;
Technology Services -- 4.9%; Transportation -- 2.0%; and Utilities -- 14.3%.
See accompanying Notes to Financial Statements.
22 Annual Report December 31, 1999
<PAGE> 24
----------------------------------------------
DISCIPLINED LARGE CAP FUND
----------------------------------------------
----------------------------------------------
Performance Highlights
----------------------------------------------
1999(a)
---------------------
Disciplined Large Cap Fund (Class N) .... 1.20%(b)
S&P500 Index (1) ..................... 21.04
Past performance does not predict future performance
(1) The S&P 500 Index indicates broad larger
capitalization equity market performance.
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
1999(a)
-------------------
Ending Net Assets (in millions) ........... $ 2
Portfolio Turnover Rate (%) ................ --
Expense Ratio (%) ......................... 1.25(c)
----------------------------------------------
(a) For the period December 27, 1999
(Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods
that are less than a full year.
(c) Rate is annualized.
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
The Disciplined Large Cap Fund's investment
Stan Kirkman strategy revolves around the fact that the S&P
[Photo] 500 is difficult to outperform over time. In
attempting to accomplish the goal of
outperforming the index, we have developed a
process whereby we strive to create a
portfolio that has similar risk
characteristics to the benchmark but owns
"better" stocks. In our case, we define better
stocks as those having better value and better
earnings growth momentum. In order to
determine better value and growth we use
quantitative models that, using consensus
earnings estimates and growth rates, arrive at
numerical values for each of these factors.
The numerical values can then be measured and
compared against the benchmark. In our view,
it is these comparisons to the benchmark that
account for consistency of performance over
time.
Among other criteria used in the Fund's
investment process are that we only purchase
stocks represented in the S&P 500. The
portfolio will generally have representation
in all eleven sectors as defined by Standard &
Poor's, the index's creator. The sector
weights will generally vary plus or minus 20%
from the benchmark i.e., if the index's sector
weight is 10% the portfolio's sector weight
will be, for the most part, between 8% and
10%. To further diversify the portfolio we
intend to restrict the percentage of a group's
representation within the sector. For example,
we would not want bank stocks to makeup all of
the finance sector so we might have
representation from insurance stocks,
brokerage firms, savings and loans,
miscellaneous finance and the like. The number
of issues in the portfolio will vary between
90 and 140 securities.
The above criteria or constraints are combined
with the use of an optimizer to create a
portfolio that gives us the characteristics we
desire, namely a portfolio that tracks the S&P
with better value and earnings momentum. Aside
from better value and momentum, both of which
are measured, our objective is for the
portfolio to typically have an R square of .98
and a tracking error of 2%-3%. R-Squared
equals the percentage of a portfolio's
performance explained by the behavior of the
appropriate market benchmark (the S&P 500
Index). The higher the R-squared number, the
closer the correlation of the portfolio's
performance pattern to that of the appropriate
market benchmark. The tracking error means
that if the portfolio were unmanaged it would,
statistically, track the return of the S&P 500
within a band of 2% to 3% two-thirds of the
time. In other words, we seek to build a
portfolio that correlates well with the
benchmark index and has those qualities we
identify as being desirable.
/s/ STAN KIRKMAN
December 31, 1999 William Blair Funds 23
<PAGE> 25
................................................................................
DISCIPLINED LARGE CAP FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS
<C> <S> <C>
TECHNOLOGY--33.5%
40 *ADC Telecommunications, Inc.............. $ 3
420 *America Online, Inc...................... 32
30 *Apple Computer, Inc...................... 3
60 *Applied Materials, Inc................... 8
220 *BMC Software, Inc........................ 17
690 *Cisco Systems, Inc....................... 74
430 *Compuware Corporation.................... 16
50 *Comverse Technology, Inc................. 7
420 *Dell Computer Corporation................ 21
40 Eastman Kodak Company..................... 3
250 *EMC Corporation.......................... 27
80 *Gateway, Inc............................. 6
520 Intel Corporation......................... 43
250 International Business Machines........... 27
40 *KLA-Tencor Corporation................... 4
50 *Lexmark International Group, Inc......... 5
380 *Microsoft Corporation.................... 44
290 *Oracle Corporation....................... 32
300 Perkinelmer, Inc.......................... 13
120 *QUALCOMM, Inc............................ 21
200 Scientific Atlanta, Inc................... 11
570 *Sun Microsystems, Inc.................... 44
90 Tektronix, Inc............................ 3
220 Texas Instruments......................... 21
160 3Com Corporation.......................... 8
35 *Yahoo, Inc............................... 15
------
508
------
FINANCIAL SERVICES--10.7%
130 American Express Company.................. 22
160 American General Corporation.............. 12
320 American International Group.............. 35
70 Bear Stearns Companies, Inc............... 3
60 Capital One Financial Corporation......... 3
190 Chase Manhattan Corporation............... 15
160 CIGNA Corporation......................... 13
90 Hartford Financial Services Group......... 4
50 J.P. Morgan & Company..................... 6
80 KeyCorp................................... 2
110 Lehman Brothers Holdings.................. 9
70 Lincoln National Corporation.............. 3
100 Marsh & McLennan Companies, Inc........... 10
60 PNC Bank Corporation...................... 3
70 SLM Holding Corporation................... 3
150 St. Paul Companies, Inc................... 5
15 Transocean Sedco Forex, Inc............... 1
330 Wells Fargo & Company..................... 13
------
162
------
CONSUMER CYCLICALS--10.0%
140 *Costco Wholesale Corporation............. 13
170 Dayton Hudson Corporation................. 12
150 *Federated Department Stores.............. 8
170 Ford Motor Company........................ 9
70 Gannett Company........................... 6
170 Gap, Inc.................................. 8
170 General Motors Corporation................ 12
450 Home Depot, Inc........................... 31
30 Knight-Ridder, Inc........................ 2
30 Limited, Inc.............................. 1
80 Lowes Companies........................... 5
60 Tribune Company........................... 3
570 Wal-Mart Stores, Inc...................... 39
50 Whirlpool Corporation..................... 3
------
152
------
</TABLE>
<TABLE>
COMMON STOCKS--(CONTINUED)
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
<C> <S> <C>
HEALTHCARE--8.8%
360 *Amgen, Inc............................... $ 22
80 Bard (C.R.), Inc.......................... 4
120 Biomet, Inc............................... 5
410 Bristol-Meyers Squibb Company............. 26
140 Columbia/HCA Healthcare Corporation....... 4
200 Johnson & Johnson......................... 19
140 Medtronic, Inc............................ 5
300 Merck & Co., Inc.......................... 20
640 Pfizer, Inc............................... 21
120 *Tenet Healthcare Corporation............. 3
100 United Healthcare Corporation............. 5
------
134
------
COMMUNICATION SERVICES--7.8%
120 Alltel Corporation........................ 10
300 Bell Atlantic Corporation................. 18
190 GTE Corporation........................... 13
465 *MCI Worldcom, Inc........................ 25
170 *NEXTEL Communications.................... 18
560 SBC Communications, Inc................... 27
100 Sprint Corporation........................ 7
------
118
------
CONSUMER STAPLES--6.7%
190 Anheuser Busch Companies, Inc............. 13
80 *Clear Channel Communications, Inc........ 7
240 Colgate Palmolive Company................. 16
40 CVS Corporation........................... 2
140 Darden Restaurants, Inc................... 3
30 Deluxe Corporation........................ 1
110 General Mills, Inc........................ 4
180 Kimberly-Clark Corporation................ 12
150 Phillip Morris Companies.................. 3
220 Procter & Gamble Company.................. 24
380 Sysco Corporation......................... 15
80 Tupperware Corporation.................... 1
------
101
------
ENERGY--6.6%
130 Chevron Corporation....................... 11
590 Exxon Mobil Corporation................... 48
100 Halliburton Company....................... 4
80 Phillips Petroleum Company................ 4
370 Royal Dutch Petroleum Company............. 22
80 Schlumberger, Ltd......................... 4
120 Texaco, Inc............................... 7
------
100
------
CAPITAL GOODS--6.4%
30 Avery Dennison Corporation................ 2
60 Caterpillar, Inc.......................... 3
140 Dover Corporation......................... 6
250 General Electric Company.................. 39
40 Johnson Controls, Inc..................... 2
120 Minnesota Mining and Manufacturing........ 12
130 *Navistar International Corporation....... 6
150 *Solectron Corporation.................... 14
230 Tyco International, Ltd................... 9
70 United Technologies....................... 5
------
98
------
</TABLE>
See accompanying Notes to Financial Statements.
24 Annual Report December 31, 1999
<PAGE> 26
................................................................................
DISCIPLINED LARGE CAP FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1998 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--(CONTINUED)
<C> <S> <C>
BASIC MATERIALS--3.4%
150 Alcoa, Inc................................ $ 12
90 Dow Chemical Company...................... 12
60 Georgia-Pacific Group..................... 3
60 Nucor Corporation......................... 3
170 Praxair, Inc.............................. 9
70 Reynolds Metals Company................... 5
80 Weyerhaeuser Company...................... 6
40 Willamette Industries, Inc................ 2
------
52
------
UTILITIES--1.7%
250 Coastal Corporation....................... 9
100 El Paso Energy............................ 4
290 Enron Corporation......................... 13
------
26
------
</TABLE>
<TABLE>
COMMON STOCKS--(CONTINUED)
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
<C> <S> <C>
TRANSPORTATION--.5%
30 Delta Air Lines........................... $ 2
60 *FDX Corporation.......................... 2
120 Southwest Airlines........................ 2
50 Union Pacific Corporation................. 2
------
8
------
TOTAL INVESTMENTS--96.1%
(cost $1,441)....................................... 1,459
CASH AND OTHER ASSETS, LESS LIABILITIES--3.9%......... 59
------
NET ASSETS--100.0%.................................... $1,518
======
</TABLE>
- ---------------
* Non-income producing securities
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 25
<PAGE> 27
----------------------------------------------
VALUE DISCOVERY FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
1999 1998 1997
------- ------- -------
Value Discovery Fund (Class N) ........ 6.10% .66% 33.46%
Russell 2000 Index (1) ............. 21.26 (2.55) 22.36
Past performance does not predict future performance
(1) Russell 2000 Index is a composite of the
smallest 2000 stocks of the Russell 2000
Index (which consists of the largest 3,000
stocks in the U.S. market as determined by
market capitalization).
----------------------------------------------
INVESTOR INFORMATION
----------------------------------------------
1999 1998 1997 1996 (a)
------- ------ ------- --------
Ending Net Assets (in millions) $48 $45 $30 $ 2
Portfolio Turnover Rate (%) .... 65 78 69 --
Expense Ratio (%) .............. 1.35(b) 1.52 1.50(c) --
----------------------------------------------
(a) For the period December 23, 1996
(Commencement of Operations) to December
31, 1996.
(b) Without the waiver of expenses in 1999,
the expense ratio would have been 1.38%.
(c) Without the waiver of expenses, the
expense ratio would have been 1.78%.
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
The Value Discovery Fund reached a number of
Glen A. Kleczka important milestones in 1999. Most
[Photo} significantly, the Fund is now three years old
providing a performance track record to assess
the effectiveness of our investment
disciplines. The past three-year period
represented a full investment cycle for small
value stocks from in-favor (1997) to
out-of-favor (1998 and 1999). We are pleased
our investment disciplines facilitated very
competitive investment performance relative to
our small value peers through the full cycle.
In addition, our performance each year was
consistently in the top third of all small
value funds. Returns to shareholders were
again further enhanced through the elimination
of capital gain distributions in 1999. We will
attempt to continue minimizing capital gains
taxes in this modest return environment for
small value stocks.
The Russell 2000 Index of small stocks was up
David Mitchell 21.26% in 1999 while the Russell 2000 Value
[Photo] Index of small value stocks declined (1.49)%.
The Russell 2000 Index received a considerable
boost in performance from small growth stocks
as measured by the Russell 2000 Growth Index,
which was up 43.1%. This is the largest
performance spread between value and growth
stocks since the style indices were
constituted in 1979. The Value Discovery Fund
returned 6.1% in 1999, significantly
outperforming the value benchmark, although
failing to keep pace with the Russell 2000
Index.
The investment climate of 1999 was
significantly improved and in some ways the
mirror image of 1998 although domestically
large growth and technology stocks performed
best in both years. The Asian crisis of 1998
became the Asian opportunity in 1999 as their
economic recovery resulted in substantial
investment gains for international and
emerging markets investors. The Federal
Reserve Board's accommodative monetary policy
of 1998, which helped avert an impending
global liquidity crisis, tightened in 1999, as
concerns of potential inflation supplanted
those of potential deflation. Most
commodities, including oil, saw significant
recovery in 1999 after reaching historic lows
in 1998. A risk averse market
26 Annual Report December 31, 1999
<PAGE> 28
psychology in 1998 resulting in a "flight to
Cappy Price quality" turned into a risk loving psychology
[Photo] in 1999 and a "flight to technology". Global
markets bid up technology companies to
unprecedented valuations reflecting the notion
of a new paradigm; new technologies are
generating meaningful productivity gains in
the economy allowing above-average economic
growth with low unemployment and mild
inflation to co-exist. According to the Lipper
Analytical Service, a mutual fund tracking
firm, the average technology mutual fund was
up 135% in 1999. The Russell 2000 Index would
have been up only approximately 6.82% without
technology rather than 21.26%. Internet stocks
contributed 7.65% to the Russell 2000 Index
and 13.47% to the Russell 2000 Growth Index
returns.
The markets of 1999 can be summed up as a Tale
of Two Cities. The old city is governed by the
Cappy Price traditional paradigm that now seems to be a
[Photo] relic in the investment world: Selectively
purchase at attractive valuations well-run,
well-financed businesses that can consistently
grow earnings in the future. These companies
will provide attractive long-term investment
returns. The new city espouses the new
paradigm that is currently the fashion of the
investment world: Selectively purchase,
whatever the current valuations and future
capital requirements, promising e-businesses
that could have earnings in the future. These
companies will provide immediate investment
gratification. These companies' stock prices
were immune to the negative forces that
impacted more traditional stocks in 1999
including rising interest rates, earnings
disappointments, excessive valuations and
voracious capital needs. The grass still
looked greener in the new city and many
investors moved in.
To illuminate this market bifurcation we had
Prudential Securities compute the actual
returns for quintiles of equal numbers of
Russell 2000 Index stocks with positive
earnings by valuation and for Russell 2000
Index stocks without earnings for 1999.
<TABLE>
<CAPTION>
QUINTILE MEDIAN P/E 1999 RETURN CURRENT WEIGHT
-------- ---------- --------------------------
<S> <C> <C> <C> <C>
1 7.5 x -10.59 % 11.7 %
2 10.8 - 8.95 14.3
3 14.3 - 7.64 15.7
4 20.4 10.87 18.2
5 51.6 68.03 23.6
No Earnings - 85.34 16.5
</TABLE>
Clearly, the investment principles of a
generation were stood on their head last year
as the cheapest stocks in the Russell 2000
Index (Quintiles 1 through 3) generated the
worst investment performance (all down for the
year) while stocks without earnings or with
high valuations generated explosive
performance. It is also evident that stocks
with no earnings or with high valuations now
comprise the same 40% proportion of the
Russell 2000 Index as the cheapest companies
although they contributed over 100% of the
index's performance last year. These
observations embody the extent to which new
paradigm thinking drove investor behavior in
1999. As a result, many professional investors
felt enormous performance pressure and
compromised long-term investment principle to
chase short-term returns. We saw many of our
fellow value managers redefining their
investment philosophy as "New Value" enabling
them to explain their ownership of companies
like AOL, Yahoo! and Amazon in their "value"
portfolios. We believe the "Old Value"
philosophy of investing will be a rewarding
contrarian investment strategy in the future
given the long-term risk of investing in
stocks without earnings or with expensive
valuations.
Looking forward, we are increasingly confident
in our strategy which emphasizes capital
preservation by avoiding the speculative
excesses prevalent in today's market. Rather,
the portfolio is positioned to exploit less
uncertain opportunities we believe are about
to pay off for patient shareholders. The
portfolio will most likely continue to have
half or less of the Russell 2000 Index
technology exposure as long as valuations
remain extended. We are well positioned to
protect the portfolio from any significant
pullback in technology stocks and an
anticipated shakeout in the Internet sector.
The portfolio is structured to capture the
benefits of the Internet and new technology
within existing, well-financed businesses that
December 31, 1999 William Blair Funds 27
<PAGE> 29
have customers, revenues and profits rather
than through extremely volatile "pure play"
investments. Some portfolio holdings own
Internet companies and plan to unlock their
value for shareholders. Some are seeing
accelerating demand from Internet companies
for core expertise required in providing
service to their customers. United Stationers,
for example, with over 65 warehouses
nationwide and next-day shipment to every
major domestic city, provides fulfillment to
Internet companies. Likewise, Telespectrum
Worldwide is providing customer relationship
management via Channelcare.com and its call
centers. Other portfolio holdings are direct
beneficiaries of the Internet. Landstar
System's drivers and agents post and select
over 50% of all available truck loads at this
transportation carrier's website leading to
reduced dispatching and telecommunications
costs. Milacron enhances customer service
through its website by enabling its cutting
tool customers to input job specifications and
to receive output indicating the proper
cutting tool and fluid for the job. Finally,
our more traditional and conservative
technology stocks are positioned to trade to
higher valuations as they are cheaper than the
overall sector's valuation level and, in most
instances, are beginning to experience
accelerated earnings growth. Overland Data is
ramping up Compaq as a major new OEM (Original
Equipment Manufacturer) for enterprise-wide
data storage solutions. Informix is seeing
accelerating demand for core database products
before the contribution of newly announced web
database products. Mapics has a good
opportunity to accelerate revenue and profits
in 2000 as their traditional ERP (Enterprise
Resource Planning) market recovers from the
Y2K slowdown and migrates to an Internet-based
business-to-business e-commerce platform.
The Fund has meaningful exposure to important
sectors neglected by money managers last year
that we believe stand ready to benefit from
continued economic expansion and money
outflows from technology. We have a 20%
portfolio exposure to capital goods stocks and
anticipate benefits from an accelerating
recovery in the industrial economy. Asian
economic recovery, industrial company cost
cutting and bottoming industrial distributor
inventory from a long decline in
inventory-to-sales ratios bode well for future
demand and profits in this sector. We believe
that the 27% portfolio exposure emphasizing
insurance and REIT stocks positions the Fund
for any rebound in the beaten down finance
sector. Rising interest rates fears and the
ability to earn easy profits in technology
stocks resulted in money outflows from finance
in 1999. Life insurance stocks were down 15%
on average despite 15% earnings growth. REITs
were down as well despite a healthy real
estate market exemplified by consistent rental
increases, strong fund flows from operations
and strong occupancy. This disparity has
created compelling valuations and has even
attracted the legendary investor Warren
Buffett to First Industrial, one of the
portfolio's largest holdings. Hotel REITs, the
only fundamentally weak sector, have been
avoided. Likewise, our limited exposure to
banks continues to protect portfolio
performance as lending quality concerns and an
increasing frequency in earnings shortfalls
hurt bank stock prices. We anticipate the
markets will begin to reward finance companies
that have been unnecessarily tarnished in a
rising interest rate environment yet have
exhibited consistently strong fundamentals.
Be assured that even though our style of
management was decidedly unfashionable in the
past year, we remain committed to proven
disciplines that have sustained great
investors over a lifetime of investing. We
have consistently performed well through
remarkably volatile and challenging markets.
The Fund currently demonstrates exceptional
value relative to its anticipated growth. We
believe the old maxims are about to reassert
themselves in a more rational market. We thank
you for your patience and support.
/s/ GLEN A. KLECZKA /s/ DAVID MITCHELL /s/ CAPPY PRICE
28 Annual Report December 31, 1999
<PAGE> 30
----------------------------------------------
VALUE DISCOVERY FUND
----------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF
$10,000 WITH REINVESTMENT OF CAPITAL GAIN
DISTRIBUTIONS AND INCOME DIVIDENDS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/96 3/97 6/97 9/97 12/97 3/98 6/98
<S> <C> <C> <C> <C> <C> <C> <C>
Value Discovery
Fund $10,000 9,700 11,100 14,000 13,300 15,000 14,600
Russell 2000 Index $10,000 9,500 11,000 12,700 12,200 13,500 12,800
<CAPTION>
9/98 12/98 3/99 6/99 9/99 12/99
<S> <C> <C> <C> <C> <C> <C>
Value Discovery
Fund 12,000 13,400 12,000 14,100 12,900 14,300
Russell 2000 Index 10,300 11,900 11,300 13,000 12,200 14,500
</TABLE>
December 31, 1999 William Blair Funds 29
<PAGE> 31
................................................................................
VALUE DISCOVERY FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all dollar amounts in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------
SHARES VALUE
- ----------------------------------------------------- -------
COMMON STOCKS
<C> <S> <C>
FINANCIAL SERVICES--26.8%
59,900 Amerus Life Holdings, Inc., Class
"A".................................... $ 1,378
77,700 Annuity & Life Re Holdings, plc ADR.... 2,030
31,400 Astoria Financial Corporation.......... 956
96,100 Brandywine Realty Trust................ 1,574
77,700 Equity One, Inc........................ 811
55,500 First Industrial Realty Trust.......... 1,523
93,300 *Matrix Bancorp, Inc................... 1,120
48,400 *MIIX Group, Inc....................... 708
39,200 MONY Group, Inc........................ 1,144
20,000 SCPIE Holdings, Inc.................... 642
108,500 *Seacoast Financial Services
Corporation............................ 1,105
-------
12,991
-------
CONSUMER DISCRETIONARY--18.4%
58,650 *Brauns Fashion Corporation............ 1,232
99,200 Cadmus Communications Corporation...... 843
67,100 Hollinger International, Inc........... 868
41,300 *Michaels Stores, Inc.................. 1,177
115,700 Pier 1 Imports, Inc.................... 738
37,000 Russ Berrie & Co., Inc................. 971
38,800 *Sunglass Hut International, Inc....... 437
152,100 *Telespectrum Worldwide, Inc........... 1,084
54,600 *United Stationers, Inc................ 1,559
-------
8,909
-------
MATERIALS--11.5%
75,600 Arch Chemicals, Inc.................... 1,583
26,100 Cleveland-Cliffs, Inc.................. 812
76,100 *N C I Building Systems, Inc........... 1,408
20,400 USG Corporation........................ 961
47,900 Worthington Industries, Inc............ 793
-------
5,557
-------
PRODUCER DURABLES--10.0%
76,300 *Denison International plc (ADR)....... 782
49,200 *Doncasters plc (ADR).................. 443
28,100 Flowserve Corporation.................. 478
30,600 *Kent Electronics Corporation.......... 696
78,400 LSI Incorporated....................... 1,695
49,000 Milacron, Inc.......................... 753
-------
4,847
-------
TECHNOLOGY--7.4%
82,100 *EMS Technologies, Inc................. $ 965
83,300 *Informix Corporation.................. 953
27,300 *Mapics, Inc........................... 345
177,800 *Overland Data, Inc.................... 1,333
-------
3,596
-------
</TABLE>
<TABLE>
COMMON STOCKS--(CONTINUED)
<CAPTION>
- ----------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------- -------
<C> <S> <C>
AUTOS AND TRANSPORTATION--6.5%
50,500 *Landstar System, Inc.................. $ 2,162
63,900 *Stoneridge, Inc....................... 986
-------
3,148
-------
HEALTHCARE-RELATED SPECIALTIES--6.3%
55,200 *First Health Group Corporation........ 1,483
169,000 *Quorum Health Group................... 1,574
-------
3,057
-------
UTILITIES--4.7%
44,800 Illinova Corporation................... 1,557
16,900 T N P Enterprises, Inc................. 697
-------
2,254
-------
CONSUMER STAPLES--3.8%
52,100 *Celestial Seasonings.................. 970
22,200 *Suiza Foods Corporation............... 880
-------
1,850
-------
TOTAL COMMON STOCK--95.4%
(cost $39,083)..................................... 46,209
-------
SHORT-TERM INVESTMENTS--3.8%
$1,366 Investors Bank & Trust Company
Repurchase Agreement 3.06%, dated
12/31/99 collateralized by U.S.
Government agency with a market value
of $1,433 due 1/3/00 repurchase
date................................. 1,366
477 Associates Corp. of North America
Demand Note, 5.07%, due 1/3/00......... 477
TOTAL SHORT-TERM INVESTMENTS
(cost $1,843)...................................... 1,843
-------
TOTAL INVESTMENTS--99.2%
(cost $40,926)..................................... 48,052
CASH AND OTHER ASSETS, LESS LIABILITIES--.8%......... 371
-------
NET ASSETS--100.0%................................... $48,423
=======
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
30 Annual Report December 31, 1999
<PAGE> 32
----------------------------------------------
INCOME FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Income Fund (Class N) ............... .34% 7.07% 8.03% 3.07% 14.37%
Lehman Intermediate Govt./
Corp. Index .................... .39 8.44 7.87 4.05 15.33
Past performance does not predict future performance
(1) The Lehman Intermediate Govt./Corp. Index
indicates broad intermediate
government/corporate bond
marketperformance.
----------------------------------------------
Investor Information
----------------------------------------------
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ -----
Ending Net Assets (in millions) ....... $173 $188 $160 $150 $147
Portfolio Turnover Rate (%) ............ 66 96 83 66 54
Expense Ratio (%) ...................... .70 .71 .71 .70 .68
----------------------------------------------
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
Bentley M. Myer 1999 turned out to be a horrible year for bond
[Photo] investors. Economic growth remained strong,
inflation picked up but the real cause was the
change in policy of the Federal Reserve Board.
The Fed raised short-term interest rates three
times during 1999 and only concerns about Y2K
kept them from raising them a fourth time in
December. Looking ahead, it seems very likely
that there will be another rate increase in
February. Additionally, all the increases in
1999 were increments of .25% but there
continues to be strong economic news in late
January, the next upward move may be .50%.
The Income Fund's average maturity and
James S. Kaplan duration were both less than those of the
[Photo] Lehman Intermediate Government/Corporate Index
at the beginning of 1999. They remained that
way throughout the year as caution seemed in
order with the Fed moving aggressively. We
expect to keep this more defensive position
until it becomes clearer that the Fed has
moved to a more neutral position. U.S.
Treasuries continue to be underweighted with
more conservative, shorter-term mortgages
being overweighted.
With the year-long rise in rates, it was very
difficult to produce a positive return but we
did manage to do so with one of 0.34%. That
return about matched the 0.39% return of the
Lehman Index. However, the Income Fund's
return did trail that of the Lipper Short-Term
Mutual Fund Index but virtually all of the
difference can be explained by the shorter
average maturity/duration of that Index ( 4.0
years / 2.8 years) compared to the Fund which
was 4.5 years and 3.2 years.
/s/ BENTLEY M. MYER /S/ JAMES S. KAPLAN
December 31, 1999 William Blair Funds 31
<PAGE> 33
----------------------------------------------
INCOME FUND
----------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF
$10,000 WITH REINVESTMENT OF CAPITAL GAIN
DISTRIBUTIONS AND INCOME DIVIDENDS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
9/90 12/90 12/91 1/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund $10,000 10,300 12,000 12,800 13,800 13,700 15,700 16,200 17,500 18,700 18,800
Lehmen Intermediate
Gov/Corp $10,400 10,400 11,900 12,800 13,900 13,600 15,700 16,400 17,700 19,200 19,200
</TABLE>
32 Annual Report December 31, 1999
<PAGE> 34
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY
GUARANTEED OBLIGATIONS--59.3%
U.S. TREASURY--24.2%
$ 3,150 U.S. Treasury Note, 6.625%, due
3/31/02................................ $ 3,172
5,950 U.S. Treasury Note, 7.875%, due
11/15/04............................... 6,294
8,500 U.S. Treasury Note, 6.500%, due
8/15/05................................ 8,500
4,550 U.S. Treasury Note, 6.875%, due
5/15/06................................ 4,630
7,300 U.S. Treasury Note, 7.000%, due
7/15/06................................ 7,478
10,000 U.S. Treasury Note, 6.500%, due
10/15/06............................... 9,972
1,850 U.S. Treasury Note, 6.625%, due
5/15/07................................ 1,857
- --------- --------
41,300 Total U.S. Treasury Obligations........ 41,903
- --------- --------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS--3.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)--3.2%
2,437 #255840, 10.000%, due 10/15/09......... 2,524
2,925 #309232, 8.750%, due 9/15/31........... 2,972
- --------- --------
5,362 Total GNMA Obligations................. 5,496
- --------- --------
SMALL BUSINESS ADMINISTRATION--0.5%
-- Receipt for Multiple Originator Fees,
#3
0.847%, due 11/8/08 (Interest Only)
WAC.................................... 520
314 Loan #100023, 9.375%, due 11/25/14..... 322
- --------- --------
314 Total Small Business Administration
- --------- Obligations..........................
842
--------
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS--31.4%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)--16.6%
576 #1429, Tranche K, FR, 6.860%, due 535
1/15/00................................
2,293
2,500 Note, 5.750% , due 4/15/08.............
1,957 #1544, Tranche TM, 9.403%, due 1,980
1/15/00................................
612 #1600, Tranche SE, 8.450% , due 615
1/15/00................................
2,003 #1655, Tranche SC, FR, 7.750%, due 1921
1/15/00................................
273 #1625, Tranche SB, 9.500%, due 275
1/15/00................................
309 #1662, Tranche T, FR, 7.918%, due 309
1/15/00................................
5,570 #1462, Tranche PK, 7.500%, due 5,595
7/15/21................................
7,000 #1723, Tranche PG, 7.000%, due 6,926
3/15/22................................
2,286 #1608, Tranche SE, 8.959%, due 2,374
1/15/00................................
136 #1542, Tranche S, 14.56%, due 145
7/15/23................................
933 #1611, Tranche MB, FR, 6.767%, due 928
1/15/00................................
5,000 #1904, Tranche C, 7.250%, due 4,969
8/15/24................................
--------
- ---------
28,865
29,155 Total FHLMC Mortgage Obligations.......
--------
- ---------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- --------
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS--(CONTINUED)
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--14.8%
$ 5,500 Note, 6.000%,due 5/15/08............... $ 5,140
806 1993-212, Tranche SG, 8.000%, due
12/25/08............................... 804
1,836 10.500%, due 1/1/13.................... 1,934
1,193 11.500%, due 1/1/13.................... 1,276
3,307 9.000%, due 8/1/14..................... 3,425
2,959 11.000%, due 10/1/14................... 3,169
3,385 1993-2, Tranche PH, 7.350%, due
3/25/21................................ 3,383
4,750 1992-28, Tranche SB, 9.012%, due
5/25/21................................ 4,600
11 1993-19, Tranche SH, 11.234%, due
4/25/23................................ 9
316 1994-72, Tranche SA, 9.750%, due
4/25/24................................ 296
1,616 1997-42, Tranche EA, 7.250%, due
3/18/26................................ 1,608
- --------- --------
25,679 Total FNMA Mortgage Obligations........ 25,644
- --------- --------
101,810 Total U.S. Government and U.S.
- --------- Government Agency Guaranteed
Obligations..........................
102,750
--------
</TABLE>
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 33
<PAGE> 35
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------- ----------- --------
S&P
PRINCIPAL RATING
AMOUNT (UNAUDITED) VALUE
- ---------------------------------------- ----------- --------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--23.1%
$ 1,546 Prudential Home Securities,
1992-13 Tranche B2 7.500%,
due 6/25/07............... AAA $ 1,538
285 Polk Co. HFA, 1991-1,
Tranche A-2, 9.550%, due
1/15/11................... AAA 288
8,063 Morgan Keegan Funding I,
L.P., 8.000%, due
4/25/11................... AA- 8,112
4,978 Empire Funding, 1999-1,
Tranche A2, 6.290%, due
9/25/11................... AAA 4,916
1,007 DBL T 3 8.450%, due
1/20/19................... AAA 1,011
402 Resolution Trust Corp.,
1992-2, Tranche A, 7.892%,
due 8/25/21............... AA 400
76 Resolution Trust Corp.,
1991-3, Tranche A-2,
10.287%, due 8/25/21...... AAA 76
3,297 Bear, Stearns & Co.,
1992-3B1 7.080%, due
5/25/23................... AA 3,326
2,097 Countrywide Funding 8.500%,
due 6/25/25............... A 2,102
333 Resolution Trust Corp.,
1992-5, Tranche 5-C,
8.595%, due 1/25/26....... AA 331
4,225 Green Tree Home Improvement,
7.270%, due 6/15/28....... A 3,996
5,300 Country Wide Alt Loan,
1999-1, Tranche A9 6.750%,
due 6/25/29............... AAA 4,948
5,886 Merit Securities Corporation
7.880%, due 1/28/33....... AAA 5,389
1,793 Goldman Sachs Mortgage
Security, 99-1 B2 7.500%,
due 1/19/29............... A 1,695
2,049 Goldman Sachs Mortgage
- -------- Security, 99-1 B1 7.500%,
due 1/19/29...............
AA 1,970
--------
41,378 Total Collateralized
- -------- Mortgage Obligations......
40,098
--------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------- ----------- --------
S&P
PRINCIPAL RATING
AMOUNT (UNAUDITED) VALUE
- ---------------------------------------- ----------- --------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS--14.3%
$ 1,250 Sears, Roebuck Corp. Medium
Term Note, 9.750%, due
3/21/00................... A- $ 1,258
1,500 Household Finance Corp.
Medium Term Note, 10.380%,
due 12/15/00.............. A 1,545
5,675 Xerox Capital Europe Note,
5.750%, due 5/15/02....... A 5,474
3,600 Applied Materials Inc. Note,
6.750%, due 10/15/07...... BBB+ 3,411
4,700 Cardinal Health Note,
6.250%, due 7/15/08....... A+ 4,274
4,000 Merrill Lynch Note, 6.000%,
due 2/17/09............... A+ 3,585
2,150 Wal-Mart Stores Note,
6.875%, due 8/10/09....... AA 2,093
3,150 Ford Motor Credit Company
- -------- Note, 7.375%, due
10/28/09..................
AA 3,110
--------
26,025 Total Corporate
- -------- Obligations...............
24,750
--------
169,213 TOTAL LONG TERM
- -------- INVESTMENTS--96.7%
(cost $174,543)...........
167,598
--------
SHORT-TERM INVESTMENTS--2.3%
25 Associates Corp. of North
America Demand Note, 25
5.07%, due 1/3/00......... A-1+
2,000 Sears, Roebuck Corp. 6.30%, 2,000
due 1/18/00............... A-1+
2,000 General Electric Corporation
- -------- 6.07%, due 2/15/00........
A-1+ 2,000
--------
4,025 TOTAL SHORT-TERM INVESTMENTS
- -------- (cost $4,025).............
4,025
--------
$173,238 TOTAL INVESTMENTS--99.0%
======== (cost $178,568)...........
171,623
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.0%......... 1,752
--------
$173,375
NET ASSETS--100.0%..........
========
</TABLE>
- ---------------
WAC = Weighted Average Coupon
FR = Floating Rate
See accompanying Notes to Financial Statements.
34 Annual Report December 31, 1999
<PAGE> 36
----------------------------------------------
READY RESERVES FUND
----------------------------------------------
----------------------------------------------
PERFORMANCE HIGHLIGHTS
----------------------------------------------
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Ready Reserves Fund (Class N) ........ 4.63% 4.98% 5.04% 4.81% 5.45%
S&P-rated AAA Money
Market Funds(1) ................ 4.59 4.95 5.01 4.80 5.43
Past performance does not predict future performance
(1) The S&P rated AAA Money Market Funds is an
index of money market mutual funds rated
AAA by Standard and Poor's
----------------------------------------------
Investor Information
----------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
1999 1998 1997 1996 1995
------- --------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) .... $ 1,053 $ 1,189 $ 905 $ 761 $ 704
Expense Ratio (%) ................... .72 .69 .70 .71 .72
</TABLE>
----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------
Dear Shareholders:
Bentley M. Myer
[Photo] Money market interest rates declined slightly
in the first quarter of 1999 but then started
to move higher with the changes in Federal
Reserve Board policy. The total increase in
rates for the year was about 1.25%, which is a
pretty dramatic relative change in rates based
on historical data. Current rates indicate
another .25% increase in the federal funds
rate in February but rates are not yet to a
level that reflect a bigger increase.
With this increase in rates, we continued to
James S. Kaplan extend the average maturity of the Ready
[Photo] Reserves Fund to approximately 47 days by late
in the fourth quarter. That process will
continue if the Fed continues to raise rates
during the balance of 2000. We continue to
maintain our 10% position in high quality,
floating rate notes. That strategy helped our
returns in 1999 as these notes add yield more
quickly during a period of rising interest
rates.
The return for the year was 4.63%, which gave
us another year ahead of the 4.59% return of
our peer group, the S&P rated money market
funds' average. Assets declined slightly to
about $1.06 billion at year-end.
/s/ BENTLEY M. MYER /s/ JAMES S. KAPLAN
December 31, 1999 William Blair Funds 35
<PAGE> 37
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY GUARANTEED--10.2%
$ 1,167 Agency for International
Development, VRN--Peru 5.450%,
2/1/00........................... $ 1,167
13,000 Agency for International
Development, VRN--India 5.913%,
1/4/00........................... 12,943
15,000 Federal Home Loan Bank 5.000%,
1/11/00.......................... 15,000
15,000 Federal Home Loan Bank VRN 5.913%,
3/24/00.......................... 15,000
1,500 Federal Home Loan Mortgage Corp.,
VRN 6.550%, 1/14/00.............. 1,500
1,667 Federal Home Loan Mortgage Corp.
7.00%, 2/1/00.................... 1,673
15,000 Federal Home Loan Mortgage Corp.,
VRN 5.963%, 1/4/00............... 15,004
25,000 Federal Home Loan Mortgage Corp.,
VRN 5.883%, 1/4/00............... 25,000
2,095 Federal National Mortgage
Association 7.00%, 2/1/00........ 2,097
18,000 Student Loan Marketing Association
- ---------- 6.163%, 1/4/00................... 17,994
----------
107,429 107,378
- ---------- ----------
DEMAND NOTE--0.4%
4,188 Associates Corporation of North
- ---------- America, VRN 5.07%, 1/3/00....... 4,189
----------
VARIABLE RATE NOTES--5.2%
20,000 AT&T Corporation, VRN 6.136%,
1/13/00.......................... 19,996
8,000 General Motors Acceptance Corp, VRN
6.072%-6.211%, 1/31/00-2/23/00... 7,998
27,000 Household Finance Corp, VRN
- ---------- 6.18%-6.23%, 2/17/00-3/6/00...... 27,010
----------
55,000 55,004
- ---------- ----------
FIXED RATE NOTES--3.1%
3,100 American Home Products 7.70%,
2/15/00.......................... 3,105
2,000 AT&T Corporation 7.375%, 2/15/00... 2,003
2,500 Chrysler Financial Corporation
6.190%, 1/4/00................... 2,500
9,065 General Motors Acceptance Corp
5.70%-5.75%, 1/5/00-2/23/00...... 9,063
950 Bellsouth Telecommunications 6.50%,
2/1/00........................... 950
3,000 Associates Corporation 7.78%,
3/1/00........................... 3,008
5,900 CIT Group Holdings 6.70%-6.80%,
4/17/00-5/2/00................... 5,910
6,000 John Deere Capital Corporation
- ---------- 5.68%-5.75%, 3/20/00-4/10/00..... 5,990
----------
32,515 32,529
- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER--81.4%
INSURANCE--21.0%
$ 1,600 AIG Funding 5.98%, 3/31/00......... $ 1,576
26,237 American General Corporation
5.90%-5.91%, 2/1/00-3/17/00...... 25,963
48,183 American General Finance
Corporation 5.88%-6.05%,
1/18/00-2/15/00.................. 47,989
55,203 Aon Corporation 5.80%-6.10%,
1/26/00-2/11/00.................. 54,914
54,917 Metlife Funding 5.97%-6.10%,
2/1/00-3/14/00................... 54,417
32,973 Prudential Funding Corporation
5.73%-6.06%, 1/12/00-2/14/00..... 32,876
3,393 USAA Capital Corporation 5.76%,
- ---------- 1/18/00.......................... 3,384
----------
222,506 221,119
- ---------- ----------
MANUFACTURING--18.7%
37,998 DaimlerChrysler Finance
Corporation, NA 5.85%-5.99%,
2/14/00-3/16/00.................. 37,635
4,000 General Electric Capital
Corporation 6.01%, 3/22/00....... 3,946
55,192 General Electric Capital Services
of Puerto Rico, Inc. 5.83%-6.00%,
1/31/00-4/12/00.................. 54,615
47,150 General Electric Capital Services
Corp. 5.84%-6.06%,
1/21/00-3/10/00.................. 46,857
38,084 General Motors Acceptance
Corporation 5.82%-6.06%,
1/31/00-3/8/00................... 37,737
5,000 John Deere Capital Corporation
6.08%, 3/8/00.................... 4,943
10,803 Paccar Financial Corporation 5.98%,
- ---------- 3/23/00.......................... 10,656
----------
198,227 196,389
- ---------- ----------
FINANCE--16.1%
9,102 American Express Credit Company
5.95%-5.98%, 1/19/00-2/2/00...... 9,061
26,641 Associates Corporation of North
America 5.70%-5.95%,
1/10/00-3/30/00.................. 26,451
52,275 Associates First Capital
Corporation 5.74%-6.02%,
1/10/00-3/28/00.................. 51,903
49,795 Block Financial Corporation
5.92%-6.00%, 1/26/00-2/18/00..... 49,511
17,327 CIT Group Holdings 5.78%-5.81%,
2/22/00-2/29/00.................. 17,171
15,084 Household Finance Corporation
- ---------- 5.73%-5.94%, 1/12/00-2/4/00...... 15,026
----------
170,224 169,123
- ---------- ----------
</TABLE>
See accompanying Notes to Financial Statements.
36 Annual Report December 31, 1999
<PAGE> 38
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER--(CONTINUED)
UTILITIES--ENERGY & GAS--5.2%
$ 55,200 National Rural Utilities
- ---------- Cooperative Finance Corporation
5.78%-5.90%, 1/18/00-3/21/00....... $ 54,881
----------
CHEMICAL/FOREST--5.1%
54,636 Monsanto Company 5.60%-5.92%,
- ---------- 1/6/00-4/12/00................... 54,204
----------
ENERGY--3.7%
39,000 Chevron U.K. Investment, plc
- ---------- 5.82%-5.95%, 2/9/00-4/18/00...... 38,664
----------
BROKERAGE-3.6%
38,161 Merrill Lynch, Inc. 5.86%-5.95%,
- ---------- 1/26/00-3/6/00................... 37,893
----------
DRUGS/HEALTH--2.6%
13,430 American Home Products 5.77%-6.04%,
1/13/00-2/7/00................... 13,362
13,805 Glaxo-Wellcome plc 5.87%-5.95%,
- ---------- 2/3/00-2/15/00................... 13,729
----------
27,235 27,091
- ---------- ----------
</TABLE>
<TABLE>
COMMERCIAL PAPER--(CONTINUED)
<CAPTION>
- ------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ----------
<C> <S> <C>
MEDIA/ENTERTAINMENT--2.4%
$ 26,051 Dun & Bradstreet, Inc. 5.90%-5.93%,
- ---------- 1/18/00-2/9/00................... $ 25,889
----------
ELECTRONIC/TECHNOLOGY--2.3%
8,105 IBM Credit Corporation 5.75%,
1/19/00.......................... 8,082
6,542 Motorola Credit, Inc. 5.60%,
3/31/00.......................... 6,450
10,000 Motorola, Inc. 6.05%,
3/28/00-3/30/00.................. 9,852
- ---------- ----------
24,647 24,384
- ---------- ----------
OTHER CONSUMER--0.4%
4,189 Procter & Gamble Inc. 5.85%,
2/28/00.......................... 4,150
- ---------- ----------
FOOD/BEVERAGE/TOBACCO--0.3%
3,000 Campbell Soup Inc. 6.00%,
3/29/00.......................... 2,956
- ---------- ----------
863,076 TOTAL COMMERCIAL PAPER............. 856,743
- ---------- ----------
$1,062,208 TOTAL INVESTMENTS--100.3%.......... 1,055,843
==========
LIABILITIES, LESS CASH AND OTHER
ASSETS--(0.3)%................... (3,040)
----------
NET ASSETS--100.0%................. $1,052,803
==========
PORTFOLIO WEIGHTED AVERAGE
MATURITY......................... 41 Days
</TABLE>
- ---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 37
<PAGE> 39
................................................................................
STATEMENTS OF ASSETS AND LIABILITIES
................................................................................
DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
-------- ------- -------- ------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at market (cost $445,948;
$960; $976; $1,923; and $180,972,
respectively)........................ $818,184 $ 978 $ 992 $2,040 $299,507
Cash................................... -- 29 120 3,635 1,461
Receivable for:
Fund shares sold..................... 809 10 40 671 1,363
Investments sold..................... -- -- -- -- 3,422
Interest and dividends............... 711 -- -- -- 51
Foreign withholding tax.............. -- -- -- -- 84
Deferred organization costs............ -- -- -- -- --
Other assets........................... 54 1 1 -- 28
-------- ------- -------- ------ --------
Total assets..................... 819,758 1,018 1,153 6,346 305,916
LIABILITIES
Payable for:
Fund shares redeemed................. 633 -- -- -- 1,877
Investments purchased................ -- -- -- -- 1,622
Dividends............................ -- -- -- -- --
Investment advisory fees,
organization and other costs....... 505 -- -- -- 254
Other.................................. 177 -- -- -- 74
-------- ------- -------- ------ --------
Total liabilities................ 1,315 -- -- -- 3,827
-------- ------- -------- ------ --------
Net Assets.................... $818,443 $1,018 $ 1,153 $6,346 $302,089
======== ======= ======== ====== ========
CAPITAL
Capital stock ($0.001 par value 40,727;
100; 114; 623; and 12,570, shares
issued and outstanding,
respectively)........................ $ 41 $ 1 $ 1 $ 1 $ 13
Paid-in-surplus........................ 446,112 999 1,136 6,228 183,876
Net unrealized appreciation/
(depreciation) on investments and
foreign currency transactions........ 372,236 18 16 117 117,297
(includes $1,227 PFIC net unrealized
gain distribution for International
Growth Fund only)
Accumulated undistributed net realized
gain on investments and foreign
currency transactions................ 54 -- -- -- 559
Undistributed net investment income.... -- -- -- -- 344
-------- ------- -------- ------ --------
Net Assets.................... $818,443 $1,018 $ 1,153 $6,346 $302,089
======== ======= ======== ====== ========
</TABLE>
See accompanying Notes to Financial Statements.
38 Annual Report December 31, 1999
<PAGE> 40
................................................................................
STATEMENTS OF ASSETS AND LIABILITIES
................................................................................
DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND FUND FUND FUND
-------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at market (cost $4,473;
$1,441; $40,926; $178,568; and
$1,055,843, respectively)............ $6,284 $1,459 $48,052 $171,623 $1,055,843
Cash................................... -- 20 -- -- --
Receivable for:
Fund shares sold..................... -- 104 38 1 15,564
Investments sold..................... 119 7 439 164 --
Interest and dividends............... 4 -- 88 2,032 2,735
Foreign withholding tax.............. -- -- -- -- --
Deferred organization costs............ 22 -- 17 -- --
Other assets........................... -- -- 2 9 65
------ ------ ------- -------- ----------
Total assets..................... 6,429 1,590 48,636 173,829 1,074,207
LIABILITIES
Payable for:
Fund shares redeemed................. 30 -- 87 176 20,134
Investments purchased................ 182 72 59 -- --
Dividends............................ -- -- -- -- 264
Investment advisory fees,
organization and other costs....... 66 -- 42 92 528
Other.................................. 123 -- 25 186 478
------ ------ ------- -------- ----------
Total liabilities................ 401 72 213 454 21,404
------ ------ ------- -------- ----------
Net Assets.................... $6,028 $1,518 $48,423 $173,375 $1,052,803
====== ====== ======= ======== ==========
CAPITAL
Capital stock ($0.001 par value 442;
150; 3,549; 17,495; and 1,052,907
shares issued and outstanding,
respectively)........................ $ 1 $ 1 $ 3 $ 17 $ 1,053
Paid-in-surplus........................ 4,210 1,499 41,513 185,923 1,051,854
Net unrealized appreciation/
(depreciation) on investments and
foreign currency transactions........ 1,812 18 7,126 (6,945) --
Accumulated undistributed net realized
gain (loss) on investments and
foreign currency transactions........ 5 -- (240) (5,870) (161)
Undistributed net investment income.... -- -- 21 250 57
------ ------ ------- -------- ----------
Net Assets.................... $6,028 $1,518 $48,423 $173,375 $1,052,803
====== ====== ======= ======== ==========
</TABLE>
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 39
<PAGE> 41
................................................................................
PRICING OF SHARES
................................................................................
DECEMBER 31, 1999
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
------ ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value and redemption price per share $475;
$10; $50; $50; and $113, respectively............... $20.09 $10.18 $10.14 $10.19 $24.01
====== ====== ====== ====== ======
Maximum offering price per share (net asset value,
plus 6.10% of net asset value or 5.75% of the
offering pricing price)............................. $21.32 $10.80 $10.76 $10.81 $25.47
====== ====== ====== ====== ======
Class B
Net asset value and redemption price per share
(subject to contingent deferred sales charge) $88;
$10; $10; $10 and $97, respectively................. $20.07 $10.18 $10.14 $10.19 $23.98
====== ====== ====== ====== ======
Class C
Net asset value and redemption price per share
(subject to contingent deferred sales charge) $70;
$10; $10; $10; and $119, respectively............... $20.06 $10.18 $10.14 $10.19 $23.98
====== ====== ====== ====== ======
Class I
Net asset value and redemption price per share
$597,763; $978; $1,073; $6,266 and $262,835,
respectively........................................ $20.10 $10.18 $10.14 $10.19 $24.03
====== ====== ====== ====== ======
Class N
Net asset value and redemption price per share
$220,047; $10; $10; $10; and $38,925,
respectively........................................ $20.10 $10.18 $10.14 $10.19 $24.03
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND FUND FUND FUND
-------- ----------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value and redemption price per share $1;
$71; $22; and $16, respectively..................... $13.62 $10.12 $13.72 $9.94
====== ====== ====== ======
Maximum offering price per share (net asset value,
plus 6.10% [2.04% of the Income Fund] of net asset
value or 5.75% [2% for the Income Fund] of the
offering price)..................................... $14.45 $10.74 $14.58 $10.14
====== ====== ====== ======
Class B
Net asset value and redemption price per share
(subject to contingent deferred sales charge) $1;
$10; $1 and $14, respectively....................... $13.61 $10.12 $13.72 $9.94
====== ====== ====== ======
Class C
Net asset value and redemption price per share
(subject to contingent deferred sales charge) $23;
$10; $21; and $1, respectively...................... $13.62 $10.12 $13.72 $9.93
====== ====== ====== ======
Class I
Net asset value and redemption price per share $6,002;
$1,417; $45,619; and $157,838, respectively......... $13.63 $10.12 $13.64 $9.91
====== ====== ====== ======
Class N
Net asset value and redemption price per share $1;
$10; $2,760; $15,506 and $1,052,803, respectively... $13.64 $10.12 $13.66 $9.92 $ 1.00
====== ====== ====== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
40 Annual Report December 31, 1999
<PAGE> 42
................................................................................
STATEMENTS OF OPERATIONS
................................................................................
FOR THE YEAR ENDED DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND(A) FUND(A) FUND(A) FUND
------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest.............................. $ 1,860 $ -- $ -- $ -- $ 345
Dividends............................. 3,760 -- -- -- 1,526
Less foreign tax withheld............. (2) -- -- -- (132)
-------- --------- ------------- -------- -------------
5,618 -- -- -- 1,739
EXPENSES
Investment advisory fees.............. 5,617 -- -- -- 2,068
Custodian fees........................ 158 -- -- -- 294
Transfer agent fees................... 139 -- -- -- 20
Professional fees..................... 179 -- -- -- 72
Registration fees..................... 35 -- -- -- 26
Miscellaneous......................... 328 -- -- -- 65
-------- --------- ------------- -------- -------------
Total expenses before waiver........ 6,456 -- -- -- 2,545
Less expenses waived and absorbed
by the Company................. -- -- -- -- --
-------- --------- ------------- -------- -------------
Net investment income (loss)........ (838) -- -- -- (806)
Net realized and unrealized gain (loss)
on investments, foreign currency
transactions and other assets and
liabilities
Net realized gain (loss) on
investments....................... 55,266 -- -- -- 57,525
Net realized gain on foreign
currency transactions and other
assets and liabilities............ -- -- -- -- 194
-------- --------- ------------- -------- -------------
Total net realized gain (loss)...... 55,266 -- -- -- 57,719
Change in net unrealized appreciation on
investments, foreign currency
transactions, and other assets and
liabilities........................... 60,757 18 16 117 90,067
-------- --------- ------------- -------- -------------
Net increase in net assets resulting
from operations....................... $115,185 $ 18 $ 16 $ 117 $ 146,980
======== ========= ============= ======== =============
</TABLE>
- ---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 41
<PAGE> 43
................................................................................
STATEMENTS OF OPERATIONS
................................................................................
FOR THE YEAR ENDED DECEMBER 31, 1999 (all amounts in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND(A) FUND FUND FUND
-------- ----------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................... $ 19 $ -- $ 168 $12,427 $ 58,062
Dividends.................................. 54 -- 809 -- --
Less foreign tax withheld.................. (5) -- -- -- --
-------- ----------- --------- ------ --------
68 -- 977 12,427 58,062
EXPENSES
Investment advisory fees................... 66 -- 527 1,082 6,565
Custodian fees............................. 72 -- 27 48 220
Transfer agent fees........................ 14 -- 17 20 376
Professional fees.......................... 22 -- 34 82 269
Registration fees.......................... 24 -- 21 27 56
Organization costs......................... 7 -- 9 -- --
Miscellaneous.............................. 9 -- -- 35 464
-------- ----------- --------- ------ --------
Total expenses before waiver............. 214 -- 635 1,294 7,950
Less expenses waived and absorbed by
the Company......................... (116) -- (14) -- --
-------- ----------- --------- ------ --------
Net investment income (loss)............. (30) -- 356 11,133 50,112
Net realized and unrealized gain (loss) on
investments, foreign currency transactions
and other assets and liabilities
Net realized gain (loss) on
investments............................ 1,168 -- (166) (1,502) (52)
Change in net unrealized appreciation
(depreciation) on investments, foreign
currency transactions, and other assets and
liabilities................................ 1,690 18 2,564 (9,127) --
-------- ----------- --------- ------ --------
Net increase in net assets resulting from
operations................................. $ 2,828 $ 18 $ 2,754 $ 504 $ 50,060
======== =========== ========= ====== ========
</TABLE>
- ---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
See accompanying Notes to Financial Statements.
42 Annual Report December 31, 1999
<PAGE> 44
................................................................................
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (all amounts in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND(A) FUND(A) FUND(A) FUND
--------------------- ------- ------- ------- --------------------
1999 1998 1999 1999 1999 1999 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)........................ $ (838) $ (107) $ -- $ -- $ -- $ (806) $ 130
Net realized gain (loss) on investments, foreign
currency transactions and other assets and
liabilities....................................... 55,266 57,805 -- -- -- 57,719 (8,159)
Change in net unrealized appreciation on
investments, foreign currency transactions and
other assets and liabilities...................... 60,757 102,789 18 16 117 90,067 23,550
--------- --------- ------- ------- ------- --------- --------
Net increase (decrease) in net assets resulting from
operations........................................ 115,185 160,487 18 16 117 146,980 15,521
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income............................... -- -- -- -- -- -- (238)
Net realized capital gains.......................... (55,329) (57,744) -- -- -- (48,415) (11)
--------- --------- ------- ------- ------- --------- --------
(55,329) (57,744) -- -- -- (48,415) (249)
CAPITAL STOCK TRANSACTIONS
Shares sold......................................... 294,188 173,606 1,000 1,137 6,229 386,956 84,365
Shares issued in reinvestment of income dividends
and capital gain distributions.................... 51,574 51,776 -- -- -- 45,344 227
Less shares redeemed................................ (329,231) (177,422) -- -- -- (368,522) (88,865)
--------- --------- ------- ------- ------- --------- --------
Change from capital stock transactions............... 16,531 47,960 1,000 1,137 6,229 63,778 (4,273)
--------- --------- ------- ------- ------- --------- --------
Change in net assets................................ 76,387 150,703 1,018 1,153 6,346 162,343 10,999
Net assets
Beginning of period................................. 742,056 591,353 -- -- -- 139,746 129,747
--------- --------- ------- ------- ------- --------- --------
End of period....................................... $ 818,443 $ 742,056 $ 1,018 $ 1,153 $ 6,346 $ 302,089 $139,746
========= ========= ======= ======= ======= ========= ========
Undistributed net investment income at the end of the
period.............................................. -- -- -- -- -- $ 344 --
========= ========= ======= ======= ======= ========= ========
CAPITAL STOCK TRANSACTIONS
Shares sold......................................... 16,028 10,367 100 114 623 20,256 5,983
Shares issued in reinvestment of income dividends
and capital gain distributions.................... 2,609 2,974 -- -- -- 1,958 16
Less shares redeemed................................ (19,205) (10,559) -- -- -- (19,201) (6,240)
--------- --------- ------- ------- ------- --------- --------
Change from capital stock transactions............... (568) 2,782 100 114 623 3,013 (241)
========= ========= ======= ======= ======= ========= ========
</TABLE>
- ---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
See accompanying Notes to Financial Statements.
December 31, 1999 William Blair Funds 43
<PAGE> 45
................................................................................
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (all amounts in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND(A) FUND FUND FUND
----------------- ----------- ----------------- ------------------- -------------------------
1999 1998(B) 1999 1999 1998 1999 1998 1999 1998
---- ------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)................. $ (30) $ 1 $ -- $ 356 $ 293 $ 11,133 $ 10,792 $ 50,112 $ 51,039
Net realized gain (loss)
on investments, foreign
currency transactions
and other assets and
liabilities............ 1,168 (1,145) -- (166) (75) (1,502) 693 (52) (1)
Change in net unrealized
appreciation
(depreciation) on
investments, foreign
currency transactions
and other assets and
liabilities............ 1,690 122 18 2,564 (612) (9,127) 675 -- --
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations........ 2,828 (1,022) 18 2,754 (394) 504 12,160 50,060 51,038
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income.... -- -- -- (344) (302) (10,995) (10,795) (50,060) (51,038)
Net realized capital
gains.................. (18) -- -- -- -- -- -- -- --
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
(18) -- -- (344) (302) (10,995) (10,795) (50,060) (51,038)
CAPITAL STOCK TRANSACTIONS
Shares sold.............. 841 5,662 1,500 10,567 23,035 51,259 53,183 3,961,669 3,808,318
Shares issued in
reinvestment of income
dividends and capital
gain distributions..... 16 -- -- 330 286 8,044 7,837 48,807 50,013
Less shares redeemed..... (1,393) (886) -- (9,559) (8,304) (63,488) (34,389) (4,146,724) (3,573,849)
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
Change from capital stock
transactions............. (536) 4,776 1,500 1,338 15,017 (4,185) 26,631 (136,248) 284,482
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
Change in net assets..... 2,274 3,754 1,518 3,748 14,321 (14,676) 27,996 (136,248) 284,482
Net assets
Beginning of period...... 3,754 -- -- 44,675 30,354 188,051 160,055 1,189,051 904,569
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
End of period............ $ 6,028 $ 3,754 $ 1,518 $48,423 $44,675 $173,375 $188,051 $ 1,052,803 $ 1,189,051
======= ======= =========== ======= ======= ======== ======== =========== ===========
Undistributed net
investment income at the
end of the period........ $ -- $ 1 $ -- $ 21 $ 9 $ 250 $ 112 $ 57 $ 5
======= ======= =========== ======= ======= ======== ======== =========== ===========
CAPITAL STOCK TRANSACTIONS
Shares sold.............. 83 606 150 829 1,726 5,057 5,069 3,961,669 3,808,318
Shares issued in
reinvestment of income
dividends and capital
gain distributions..... 1 -- -- 25 23 792 748 48,807 50,013
Less shares redeemed..... (134) (114) -- (751) (643) (6,275) (3,272) (4,146,724) (3,573,849)
------- ------- ----------- ------- ------- -------- -------- ----------- -----------
Change from capital stock
transactions............. (50) 492 150 103 1,106 (426) 2,545 (136,248) 284,482
======= ======= =========== ======= ======= ======== ======== =========== ===========
</TABLE>
- ---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
(b) For the period from May 1, 1998 (Commencement of Operations) to December 31,
1998
See accompanying Notes to Financial Statements.
44 Annual Report December 31, 1999
<PAGE> 46
................................................................................
NOTES TO FINANCIAL STATEMENTS
................................................................................
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Fund
William Blair Funds (the "Funds") is an open-end diversified mutual fund
currently consisting of ten portfolios (each the "Fund"), each with its own
investment objectives and policies.
The Growth Fund is a portfolio whose principal objective is to seek long-term
capital appreciation by investing in the common stocks of large, medium, and
small domestic companies in varying proportions.
The Tax-Managed Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing in a diversified portfolio of common
stocks of domestic growth companies. The Fund employs a number of techniques to
enhance the long-term, after-tax returns for its shareholders.
The Large Cap Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing primarily in a diversified portfolio
of common stocks issued by large domestic companies.
The Small Cap Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing primarily in a diversified portfolio
of common stocks of small emerging, rapid growth domestic companies that are of
a high quality and that have had especially vigorous growth in revenues and
earnings.
The International Growth Fund is a portfolio whose principal objective is to
seek that seeks long-term capital appreciation by investing primarily in common
stocks issued by companies of all sizes domiciled outside the United States and
securities convertible into, exchangeable for, or having the right to buy, such
common stocks.
The Emerging Markets Growth Fund is a portfolio whose principal objective is to
seek long-term capital appreciation by investing in well-managed quality growth
companies in emerging markets.
The Disciplined Large Cap Fund is a portfolio whose principal objective is to
seek long-term capital appreciation by investing primarily in a diversified
portfolio of large capitalization domestic companies. The Fund's portfolio
investments are primarily chosen from 90 to 140 of the Standard & Poor's 500
Stock companies.
The Value Discovery Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing with a value discipline primarily in
the equity securities of small companies.
The Income Fund is a portfolio whose principal objective is to seek a high level
of current income relative to stability of principal by investing primarily in a
diversified portfolio of high-grade, intermediate-term income-producing
securities.
The Ready Reserves Fund is a portfolio whose principal objective is to seek
current income, a stable share price and daily liquidity by investing primarily
in short-term U.S. dollar denominated domestic money market instruments.
(b) Share Classes
Prior to September 30, 1999 the William Blair Funds only offered what is now
known as Class N shares.
Effective September 30, 1999, the William Blair Funds began offering five
classes of shares. The Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold without an initial sales charge
but are subject to higher ongoing expenses than Class A shares and a contingent
deferred sales charge payable upon certain redemptions. Class B shares
automatically convert to Class A shares seven years after issuance. Class C
shares are sold without an initial sales charge but are subject to higher
ongoing expenses than Class A shares and a contingent deferred sales charge
payable upon certain redemptions within one year of purchase. Class C shares do
not convert into another class. Class I shares are sold to a limited group of
investors, are not subject to an initial or contingent deferred sales charge and
generally have lower ongoing expenses than the other classes. Class N shares are
sold only to investors who acquire the shares directly through the Fund's
distributor or a select number of financial intermediaries. Class N shares are
sold without an initial sales charge but are subject to higher ongoing expenses
than Class A shares. Differences in class expenses will result in the payment of
different per share income dividends by class. All shares of the Fund have equal
rights with respect to voting, dividends and assets, subject to class specific
preferences. Expenses are allocated pro rata on the basis of each share classes
net assets except to the extent that an expense is unique to a specific class.
(c) Investment Securities
Equity securities traded on a national securities exchange or market are valued
at the last sale price or, in the absence of a sale on the date of valuation, at
the latest bid price. The value of foreign securities are determined based upon
the last sale price on the foreign exchange or market on which it is primarily
traded or, if there has been no sale on the date of valuation, at the latest bid
price. Long-
December 31, 1999 William Blair Funds 45
<PAGE> 47
term fixed-income securities are valued based on market quotations or
independent services that use prices provided by market makers or by estimates
of market values obtained from yield data relating to instruments or securities
with similar characteristics. 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 the Ready Reserves Fund are valued using 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 dividends from certain 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's and the Ready Reserves Fund's Portfolio of
Investments were the rates in effect on December 31, 1999.
(d) Share Valuation and Dividends to Shareholders
Shares are sold and redeemed on a continuous basis at net asset value (plus an
initial sales charge on most Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the amount of any applicable
contingent deferred sales charge. The net asset value per share is determined
separately for each class by dividing the Fund's net assets attributable to that
class by the number of shares of the class outstanding as of the close of
trading on the New York Stock Exchange, which is generally 3:00 p.m. Chicago
time (4:00 p.m. Eastern time), on each day the Exchange is open. In addition,
the Ready Reserves Fund does not price its shares on the observance of Columbus
Day and Veterans Day. Dividends from net investment income, if any, of the
Growth Fund, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth
Fund, International Growth Fund, Emerging Markets Growth Fund, Disciplined Large
Cap Fund, and Value Discovery 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.
(e) 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 the debt
security as collateral under the repurchase agreements. The Fund minimizes
credit risk by monitoring credit exposure to the custodian and by monitoring the
collateral value on a daily basis.
(f) Foreign Currency Translation and Foreign Currency Contracts
Assets and liabilities of the International Growth Fund and the Emerging Markets
Growth Fund denominated in foreign currencies are translated into U.S. dollar
amounts at the current exchange rate on the date of valuation. The International
Growth Fund and the Emerging Markets Growth Fund may enter into foreign currency
forward contracts as a means of managing the risks associated with changes in
the exchange rates for the purchase or sale of a specific amount of a particular
foreign currency. Additionally, the Funds may enter into contracts to hedge the
value, in U.S. dollars, of securities it currently owns. Foreign currency
forward contracts and foreign currencies are valued at the forward and current
exchange rates, respectively, prevailing on the date of valuation. Gains and
losses from foreign currency transactions associated with purchases and sales of
investments and foreign currency forward contracts are included with the net
realized and unrealized gain or loss on investments.
(g) 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 each Fund intends to distribute their taxable income to their shareholders
and be relieved of all Federal income taxes. At December 31, 1999, the Value
Discovery Fund, Income Fund and Ready Reserves Fund had capital loss
carryforwards (in thousands) of $233, $5,616 and $161, respectively. These loss
carryforwards, which will expire in 2007 ( 2006 for the Income Fund), can be
used to offset future net realized capital gains.
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 net unrealized
appreciation (in thousands) of $1,227 and $74 in 1999 and 1998, respectively. In
addition, the Fund recorded net realized losses of $176 on sales of PFIC's
during 1999, of which $74 had been recognized as income in prior years.
Dividends to shareholders from net investment income in 1998
46 Annual Report December 31, 1999
<PAGE> 48
included $238 relating to PFIC's which are treated as ordinary income for
Federal tax purposes and in 1999 $1,227 has been reclassified to undistributed
net investment income.
(h) Organization Costs
The initial organization costs of the Emerging Markets Growth Fund and the Value
Discovery 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.
(i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates.
(2) INVESTMENT ADVISORY, TRANSACTIONS WITH AFFILIATES AND TRUSTEES' FEES
(a) Management Agreement
The Company provides investment advisory and other administrative and accounting
services to the Fund under terms of the Management Agreement. Each Fund pays the
Company a monthly fee determined as a specified percentage of average daily net
assets. A summary of the annual rates expressed as a percentage of average daily
net assets of each Fund, are as follows:
<TABLE>
<S> <C>
Growth Fund 0.75%
Tax-Managed Growth Fund 0.80%
Large Cap Growth Fund 0.80%
Small Cap Growth Fund 1.10%
International Growth Fund 1.10% of the first $250 million
1.00% in excess of $250 million
Emerging Markets Growth Fund 1.40%
Disciplined Large Cap Fund 0.80%
Value Discovery Fund 1.15%
Income Fund 0.25% of the first $250 million
0.20% in excess of $250 million
plus 5.00% of gross income
Ready Reserves Fund 0.625% of the first $250 million
0.600% of the next $250 million
0.575% of the next $2 billion
0.550% in excess of $2.5 billion
</TABLE>
The Company has voluntarily agreed to waive the Tax-Managed Growth Fund's and
the Large Cap Growth Fund's investment advisory fee and to absorb other
operating expenses through April 30, 2000, if total expenses exceed 1.11% of
average daily net assets for the Fund's Class I shares. For the Fund's Class A,
B, C and N shares, the expenses will be capped at 1.11% plus any distribution
and/or shareholder service fees.
The Company has voluntarily agreed to waive the Small Cap Growth Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2000, if total expenses exceed 1.35% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.35% plus any distribution and/or shareholder service fees.
The Company has voluntarily agreed to waive the Emerging Markets Growth Fund's
investment advisory fee and to absorb other operating expenses if total expenses
exceeded 2.25% of average daily net assets through August 31, 1999 and exceed
1.75% of average daily net assets through April 30, 2000 for the Fund's Class I
shares. For the Fund's Class A, B, C and N shares, the expenses will be capped
at 1.75% plus any distribution and/or shareholder service fees.
The Company has voluntarily agreed to waive the Disciplined Large Cap Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2000, if total expenses exceed 1.00% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.00% plus any distribution and/or shareholder service fees.
The Company has voluntarily agreed to waive the Value Discovery Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2000, if total expenses exceed 1.39% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.39% plus any distribution and/or shareholder service fees.
December 31, 1999 William Blair Funds 47
<PAGE> 49
Subsequent to 1999, overall operating expenses for Tax-Managed Growth Fund,
Large Cap Growth Fund, Small Cap Growth Fund and Disciplined Large Cap Fund will
not fall below the applicable percentage limitation until the Investment Adviser
has been fully reimbursed for fees foregone and expenses paid under the expense
limitation agreement, as each Fund will reimburse the Investment Adviser for a
period of five years in subsequent years if operating expenses (before
reimbursement) are less than the applicable percentage limitation.
(b) Underwriting and Distribution Services Agreement
The Fund has an underwriting and distribution services agreement with William
Blair & Co. L.L.C. (the "Company"). For services under the distribution services
agreement, the Funds pay the Company a fee of .75% of average daily net assets
of the Class B and Class C shares pursuant to separate Rule 12b-1 plans for the
Class B and Class C shares. Pursuant to the agreement, the Company enters into
related selling group agreements with various firms at various rates for sales
of Class B and Class C shares. In addition, the Company receives any contingent
deferred sales charges (CDSC) from redemptions of Class B and Class C shares.
(c) Shareholder Services Agreement
The Fund has a shareholder servicing agreement with the Distributor. For
providing information and shareholder services to Class A, Class B and Class C
shareholders, the Funds pay the Distributor a fee at an annual rate of .25% of
average daily net assets of each class. The Distributor in turn has various
agreements with financial services firms that provide these services and pays
these firms based on assets of fund accounts the firms service.
(d) Trustees
The Funds paid fees of $122,500 to non-affiliated trustees of the Funds for the
year ended December 31, 1999.
(3) INVESTMENT TRANSACTIONS
Investment transactions, excluding money market instruments, for the period
ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED APPRECIATION/DEPRECIATION
AT DECEMBER 31, 1999
--------------------------------------------
NET UNREALIZED
PROCEEDS FROM UNREALIZED UNREALIZED APPRECIATION/
PURCHASES SALES AND MATURITIES APPRECIATION DEPRECIATION DEPRECIATION
--------- -------------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Growth Fund............................. $370,442 $373,465 $383,575 $11,339 $372,236
Tax-Managed Growth Fund................. 960 -- 26 8 18
Large Cap Growth Fund................... 976 -- 26 10 16
Small Cap Growth Fund................... 1,923 -- 131 14 117
International Growth Fund............... 236,527 221,785 124,252 5,723 118,529
Emerging Markets Growth Fund............ 8,691 8,565 1,924 113 1,811
Disciplined Large Cap Fund.............. 1,448 7 35 17 18
Value Discovery Fund.................... 31,160 27,840 8,772 1,646 7,126
Income Fund............................. 147,792 112,596 108 7,053 (6,945)
</TABLE>
- ---------------
Cost of investments is the same for financial statement and Federal income tax
purposes except for Value Discovery Fund and the Income Fund where the cost for
Federal income tax purposes was $40,933 and $178,822, respectively.
(4) FOREIGN CURRENCY FORWARD CONTRACTS
To protect itself against a decline in the value of foreign currency against the
U.S. dollar, the International Growth Fund and the Emerging Markets Growth Fund
enter into foreign currency forward contracts with its custodian and other
brokers. The Funds bear the market risk that arises from changes in foreign
currency rates and bear the credit risk if the counterparty fails to perform
under the contract. The net realized and unrealized gains and losses associated
with forward contracts are reflected in the accompanying financial statements.
There were no open foreign currency forward contracts for hedging purposes at
December 31, 1999.
48 Annual Report December 31, 1999
<PAGE> 50
(5) CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
TAX-MANAGED LARGE CAP SMALL CAP INTERNATIONAL
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
------------------- --------------- --------------- --------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- --------- ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
- ------------------------
Class A................. 22 $ 451 1 $ 10 5 $ 50 5 $ 49 7 $ 157
Class B................. 4 81 1 10 1 10 1 10 3 81
Class C................. 3 65 1 10 1 10 1 10 4 102
Class I................. 704 13,461 96 960 106 1,057 615 6,150 240 6,392
Class N................. 15,295 280,130 1 10 1 10 1 10 20,002 380,224
Shares issued in
reinvestment of income
dividends and capital
gain distributions
- ------------------------
Class A................. 1 27 -- -- -- -- -- -- 1 12
Class B................. -- 6 -- -- -- -- -- -- 1 15
Class C................. -- 5 -- -- -- -- -- -- 1 18
Class I................. 1,849 36,553 -- -- -- -- -- -- 1,680 38,921
Class N................. 758 14,983 -- -- -- -- -- -- 275 6,378
Shares redeemed
- ------------------------
Class A................. -- -- -- -- -- -- -- -- 2 61
Class B................. -- -- -- -- -- -- -- -- -- --
Class C................. -- -- -- -- -- -- -- -- -- --
Class I................. 1,333 25,968 -- -- -- -- -- -- 429 10,104
Class N................. 17,871 303,263 -- -- -- -- -- -- 18,770 358,357
Conversion of shares
- ------------------------
Class I................. 28,525 300,924 -- -- -- -- -- -- 9,445 121,852
Class N................. (28,525) (300,924) -- -- -- -- -- -- (9,445) (121,852)
------- --------- --- ------ --- ------ --- ------ ------ ---------
Net increase (decrease)
from capital share
transactions............ (568) $ 16,531 100 $1,000 114 $1,137 623 $6,229 3,013 $ 63,778
======= ========= === ====== === ====== === ====== ====== =========
</TABLE>
<TABLE>
<CAPTION>
EMERGING
MARKETS DISCIPLINED VALUE DISCOVERY INCOME
GROWTH FUND LARGE CAP FUND FUND FUND
---------------- --------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------- ------ ------ ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
- ---------------------------------------
Class A................................ -- $ 1 7 $ 70 2 $ 21 2 $ 16
Class B................................ -- 1 1 10 -- 1 1 14
Class C................................ 2 21 1 10 2 20 -- 1
Class I................................ 33 363 140 1,400 57 730 578 5,791
Class N................................ 48 455 1 10 768 9,795 4,476 45,437
Shares issued in reinvestment of income
dividends and capital gain
distributions
- ---------------------------------------
Class A................................ -- -- -- -- -- -- -- --
Class B................................ -- -- -- -- -- -- -- --
Class C................................ -- -- -- -- -- -- -- --
Class I................................ 1 16 -- -- 24 313 190 1,894
Class N................................ -- -- -- -- 1 17 602 6,150
Shares redeemed
- ---------------------------------------
Class A................................ -- -- -- -- -- -- -- --
Class B................................ -- -- -- -- -- -- -- --
Class C................................ -- -- -- -- -- -- -- --
Class I................................ 90 982 -- -- 220 2,866 1,480 14,799
Class N................................ 44 411 -- -- 531 6,693 4,795 48,689
Conversion of shares
- ---------------------------------------
Class I................................ 496 4,823 -- -- 3,483 40,922 16,640 176,475
Class N................................ (496) (4,823) -- -- (3,483) (40,922) (16,640) (176,475)
---- ------- --- ------ ------ -------- ------- ---------
Net increase (decrease) from capital
share transactions..................... (50) $ (536) 150 $1,500 103 $ 1,338 (426) $ (4,185)
==== ======= === ====== ====== ======== ======= =========
</TABLE>
December 31, 1999 William Blair Funds 49
<PAGE> 51
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
GROWTH FUND
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS N FOR YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $17.970 $15.350 $13.480 $11.900 $ 9.600
Income from investment operations:
Net investment income (loss).............................. (0.013) (0.003) (0.023) (0.010) 0.034
Net realized and unrealized gain on investments........... 3.574 4.123 2.694 2.144 2.750
------- ------- ------- ------- -------
Total from investment operations............................ 3.561 4.120 2.671 2.134 2.784
Less distributions from:
Net investment income..................................... -- -- -- 0.010 0.030
Net realized capital gains................................ 1.436 1.500 0.801 0.544 0.454
------- ------- ------- ------- -------
Total distributions......................................... 1.436 1.500 0.801 0.554 0.484
------- ------- ------- ------- -------
Net asset value, end of year................................ $20.095 $17.970 $15.350 $13.480 $11.900
======= ======= ======= ======= =======
Total return (%)............................................ 19.98 27.15 20.07 17.99 29.07
Ratios to average daily net assets (%):
Expenses.................................................. 0.86 0.84 0.84 0.79 0.65
Net investment loss....................................... (0.11) (0.02) (0.16) (0.08) 0.34
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1999
-------------------------------------------------
CLASS A(A) CLASS B(B) CLASS C(B) CLASS I(C)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $17.480 $19.150 $19.150 $17.980
Income from investment operations:
Net investment (loss)..................................... (0.004) (0.021) (0.026) (0.013)
Net realized and unrealized gain on investments........... 4.050 2.372 2.370 3.568
------- ------- ------- -------
Total from investment operations............................ 4.047 2.351 2.344 3.555
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized capital gains................................ 1.436 1.436 1.436 1.436
------- ------- ------- -------
Total distributions......................................... 1.436 1.436 1.436 1.436
------- ------- ------- -------
Net asset value, end of period.............................. $20.090 $20.065 $20.058 $20.099
======= ======= ======= =======
Total return (%) (d)........................................ 23.29 12.43 12.38 19.91
Ratios to average daily net assets (%):
Expenses.................................................. 1.31 2.03 2.01 0.86
Net investment loss....................................... (0.23) (1.00) (1.06) (0.11)
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED DECEMBER 31, 1999
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of year (in thousands).................. $818,443 $742,056 $591,353 $501,774 $363,036
Portfolio turnover rate (%)............................... 52 37 34 43 32
</TABLE>
- ---------------
(a) For the period October 19, 1999 (Commencement of the Class) to December 31,
1999.
(b) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
(d) Total return is not annualized for periods that are less than a full year.
50 Annual Report December 31, 1999
<PAGE> 52
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
TAX-MANAGED GROWTH FUND
<TABLE>
<CAPTION>
-----------------------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS N
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations:
Net investment income..................................... 0.001 -- -- 0.001 0.001
Net realized and unrealized gain on investments........... 0.180 0.180 0.180 0.180 0.180
------- ------- ------- ------- -------
Total from investment operations............................ 0.181 0.180 0.180 0.181 0.181
Less distributions from:
Net investment income..................................... -- -- -- -- --
Net realized capital gains................................ -- -- -- -- --
Total distributions......................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $10.181 $10.180 $10.180 $10.181 $10.181
======= ======= ======= ======= =======
Total return (%) (b)........................................ 1.80 1.80 1.80 1.80 1.80
Ratios to average daily net assets (%):
Expenses.................................................. 1.36 2.11 2.11 1.11 1.36
Net investment income (loss).............................. 0.73 (0.01) (0.01) 0.99 0.75
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
---------------------------------
<S> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $1,018
Portfolio turnover rate (%)............................... --
</TABLE>
- ---------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
December 31, 1999 William Blair Funds 51
<PAGE> 53
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
-----------------------------------------------
PERIOD ENDED DECEMBER 31,1999(A)
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS N
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations:
Net investment loss....................................... -- (0.001) (0.001) -- (0.001)
Net realized and unrealized gain on investments........... 0.143 0.141 0.141 0.141 0.142
------- ------- ------- ------- -------
Total from investment operations............................ 0.143 0.140 0.140 0.141 0.141
Less distributions from:
Net investment income..................................... -- -- -- -- --
Net realized capital gains................................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions......................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $10.143 $10.140 $10.140 $10.141 $10.141
======= ======= ======= ======= =======
Total return(%) (b)......................................... 1.40 1.40 1.40 1.40 1.40
Ratios to average daily net assets(%):
Expenses.................................................. 1.36 2.11 2.11 1.11 1.36
Net investment loss....................................... (0.48) (1.41) (1.41) (0.40) (0.66)
</TABLE>
<TABLE>
<CAPTION>
--------------------
PERIOD ENDED
DECEMBER 31, 1999(A)
--------------------
<S> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $1,153
Portfolio turnover rate (%)............................... --
</TABLE>
- ---------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
52 Annual Report December 31, 1999
<PAGE> 54
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
-----------------------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS N
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations:
Net investment loss....................................... -- (0.002) (0.002) (0.001) (0.001)
Net realized and unrealized gain on investments........... 0.192 0.192 0.192 0.192 0.192
------- ------- ------- ------- -------
Total from investment operations............................ 0.192 0.190 0.190 0.191 0.190
Less distributions from:
Net investment income..................................... -- -- -- -- --
Net realized capital gains................................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions......................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $10.192 $10.190 $10.190 $10.191 $10.190
======= ======= ======= ======= =======
Total return (%) (b)........................................ 1.90 1.90 1.90 1.90 1.90
Ratios to average daily net assets (%):
Expenses.................................................. 1.60 2.35 2.35 1.35 1.60
Net investment loss....................................... (1.60) (2.35) (2.35) (1.35) (1.60)
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
---------------------------------
<S> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $6,346
Portfolio turnover rate (%)............................... --
</TABLE>
- ---------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
December 31, 1999 William Blair Funds 53
<PAGE> 55
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
---------------------------------------------------------------
CLASS N FOR YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $14.620 $13.140 $13.950 $13.120 $12.360
Income from investment operations:
Net investment income (loss)............................ (0.035) 0.074 0.072 0.029 0.105
Net realized and unrealized gain on investments
foreign currencies and other assets and liabilities... 13.939 1.431 1.056 1.299 0.785
------- ------- ------- ------- -------
Total from investment operations.......................... 13.904 1.505 1.128 1.328 0.890
Less distributions from:
Net investment income................................... 0.000 0.024(a) 0.078(a) 0.068(a) 0.130
Net realized capital gains.............................. 4.494 0.001 1.860 0.430 --
------- ------- ------- ------- -------
Total distributions....................................... 4.494 0.025 1.938 0.498 0.130
------- ------- ------- ------- -------
Net asset value, end of period............................ $24.030 $14.620 $13.140 $13.950 $13.120
======= ======= ======= ======= =======
Total return (%).......................................... 96.25 11.46 8.39 10.20 7.22
Ratios to average daily net assets (%):
Expenses................................................ 1.35 1.36 1.43 1.44 1.48
Net investment income (loss)............................ (0.43) 0.09 .01 .19 .87
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1999
----------------------------------------------------------
CLASS A(B) CLASS B(C) CLASS C(C) CLASS I(D)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 20.610 $ 21.330 $ 21.330 $ 20.250
Income from investment operations:
Net investment loss....................................... (0.025) (0.039) (0.036) (0.037)
Net realized and unrealized gain on investments........... 7.919 7.185 7.180 8.312
---------- ---------- ---------- ----------
Total from investment operations............................ 7.894 7.146 7.144 8.275
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized capital gains................................ 4.494 4.494 4.494 4.494
---------- ---------- ---------- ----------
Total distributions......................................... 4.494 4.494 4.494 4.494
---------- ---------- ---------- ----------
Net asset value, end of period.............................. $ 24.010 $ 23.982 $ 23.980 $ 24.031
========== ========== ========== ==========
Total return (%) (e)........................................ 39.12 34.28 34.28 41.71
Ratios to average daily net assets (%):
Expenses.................................................. 1.60 2.35 2.35 1.35
Net investment loss....................................... (1.25) (1.93) (1.93) (0.43)
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of year (in thousands).................. $302,089 $139,746 $128,747 $105,148 $89,762
Portfolio turnover rate (%)............................... 122 98 102 89 77
</TABLE>
- ---------------
(a) Includes $.024, $.078, and $.220 in PFIC transactions which are treated as
ordinary income for Federal income tax purposes for 1998, 1997 and 1996,
respectively.
(b) For the period October 21, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
(e) Total return is not annualized for periods that are less than a full year.
54 Annual Report December 31, 1999
<PAGE> 56
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
EMERGING MARKETS GROWTH FUND
<TABLE>
<CAPTION>
-----------------------
CLASS N FOR PERIOD
ENDED DECEMBER 31,
-----------------------
1999 1998(A)
---- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 7.630 $10.000
Income from investment operations:
Net investment income (loss).............................. (1.117) 0.002
Net realized and unrealized gain (loss) on investments
foreign currency and other assets and liabilities....... 7.169 (2.372)
---------- ----------
Total from investment operations............................ 6.052 (2.370)
Less distributions from:
Net investment income..................................... -- --
Net realized gain......................................... 0.039 --
---------- ----------
Total distributions......................................... 0.039 --
---------- ----------
Net asset value, end of period.............................. $13.643 $ 7.630
========== ==========
Total return (%)............................................ 79.31 (23.70)
Ratios to average daily net assets (%):
Expenses (b).............................................. 2.06 2.25
Net investment income (loss) (b).......................... (0.63) 0.04
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1999
-------------------------------------------------
CLASS A(C) CLASS B(C) CLASS C(C) CLASS I(D)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.850 $10.850 $10.850 $10.300
Income from investment operations:
Net investment income (loss).............................. 0.031 0.019 (0.011) (0.067)
Net realized and unrealized gain on investments........... 2.782 2.784 2.817 3.438
---------- ---------- ---------- ----------
Total from investment operations............................ 2.815 2.803 2.806 3.371
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized gain......................................... 0.039 0.039 0.039 0.039
---------- ---------- ---------- ----------
Total distributions......................................... 0.039 0.039 0.039 0.039
---------- ---------- ---------- ----------
Net asset value, end of period.............................. $13.624 $13.614 $13.617 $13.632
========== ========== ========== ==========
Total return (%) (e)........................................ 25.91 25.82 25.91 32.73
Ratios to average daily net assets (%):
Expenses (b).............................................. 2.00 2.75 2.75 2.06
Net investment income (loss) (b).......................... .52 (.21) (1.53) (0.63)
</TABLE>
<TABLE>
<CAPTION>
----------------------------
PERIODS ENDED DECEMBER 31,
----------------------------
1999 1998(A)
---- -------
<S> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $6,028 $3,754
Portfolio turnover rate (%)............................... 201 226
</TABLE>
- ---------------
(a) For the period May 1, 1998 (Commencement of Operations) to December 31,
1998.
(b) Without the waiver of expenses in 1999, the expense ratio would have been
4.53%, 4.46%, 5.21%, 5.21% and 4.53% for Class N, A, B, C and I,
respectively. The net investment loss ratio would have been (1.83)%,
(3.03)%, (3.78)%, (3.78)%, (1.83)% for Classes N, A, B, C and I,
respectively. Without the waiver of expenses in 1998, the expense ratio
would have been 6.35% and the net investment loss ratio would have been
4.06%.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
(e) Total return is not annualized for periods that are less than a full year.
December 31, 1999 William Blair Funds 55
<PAGE> 57
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
DISCIPLINED LARGE CAP FUND
<TABLE>
<CAPTION>
-----------------------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS N
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations:
Net investment loss....................................... -- (0.001) (0.001) -- --
Net realized and unrealized gain on investments........... 0.119 0.123 0.123 0.123 0.123
------- ------- ------- ------- -------
Total from investment operations............................ 0.119 0.122 0.122 0.123 0.123
Less distributions from:
Net investment income..................................... -- -- -- -- --
Net realized capital gains................................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions......................................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $10.119 $10.122 $10.122 $10.123 $10.123
======= ======= ======= ======= =======
Total return (%) (b)........................................ 1.20 1.20 1.20 1.20 1.20
Ratios to average daily net assets (%):
Expenses.................................................. 1.25 2.00 2.00 1.00 1.25
Net investment loss....................................... (0.27) (0.96) (0.96) 0.04 (0.21)
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
PERIOD ENDED DECEMBER 31, 1999(A)
---------------------------------
<S> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $1,518
Portfolio turnover rate (%)............................... 0.5
</TABLE>
- ---------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return not annualized for periods that are less than a full year.
56 Annual Report December 31, 1999
<PAGE> 58
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
VALUE DISCOVERY FUND
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS N FOR PERIODS ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996(A)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.960 $ 12.970 $ 10.000 $ 10.000
Income from investment operations:
Net investment income..................................... 0.095 0.088 0.029 --
Net realized and unrealized gain on investments........... 0.689 (0.005) 3.305 --
---------- ---------- ---------- ----------
Total from investment operations............................ 0.784 0.083 3.334 --
Less distributions from:
Net investment income..................................... 0.087 0.093 0.020 --
Net realized capital gains................................ -- -- 0.344 --
---------- ---------- ---------- ----------
Total distributions......................................... 0.087 0.093 0.364 --
---------- ---------- ---------- ----------
Net asset value, end of period.............................. $ 13.657 $ 12.960 $ 12.970 $ 10.000
========== ========== ========== ==========
Total return (%)............................................ 6.10 0.66 33.46 --
Ratios to average daily net assets (%):
Expenses (b).............................................. 1.35 1.52 1.50 --
Net investment income (b)................................. 0.78 0.76 0.29 --
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1999
-------------------------------------------------------
CLASS A(C) CLASS B(C) CLASS C(D) CLASS I(E)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.600 $ 12.600 $ 12.670 $ 12.360
Income from investment operations:
Net investment income..................................... 0.017 0.007 0.016 0.104
Net realized and unrealized gain on investments........... 1.119 1.115 1.044 1.278
---------- ---------- ---------- ----------
Total from investment operations............................ 1.136 1.122 1.060 1.382
Less distributions from:
Net investment income..................................... 0.014 0.007 0.010 0.098
Net realized capital gains................................ -- -- -- --
---------- ---------- ---------- ----------
Total distributions......................................... 0.014 0.007 0.010 0.098
---------- ---------- ---------- ----------
Net asset value, end of period.............................. $ 13.722 $ 13.715 $ 13.720 $ 13.644
========== ========== ========== ==========
Total return (%) (f)........................................ 9.01 8.95 8.37 11.18
Ratios to average daily net assets (%):
Expenses (b).............................................. 1.64 2.39 2.39 1.35
Net investment income (b)................................. 1.28 0.31 1.53 0.78
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PERIODS ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of year (in thousands).................... $ 48,423 $ 44,675 $ 30,354 $ 2
Portfolio turnover rate (%)................................. 65 78 49 --
</TABLE>
- ---------------
(a) For the period December 26, 1996 (Commencement of Operations) to December
31, 1996.
(b) Without the waiver of expenses in 1999, the expense ratio would have been
1.38%, 1.67%, 2.42%, 2.42%, and 1.38% for Classes N, A, B, C, and I,
respectively. The net investment income ratio would have been .75%, 1.25%,
.28%, 1.50% and .75% for Classes N, A, B, C, and I, respectively. Without
the waiver of expenses in 1997, the expense ratio would have been 1.78% and
the net investment income ratio would have been .016%.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period November 3, 1999 (Commencement of the Class) to December 31,
1999.
(e) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
(f) Total return is not annualized for periods that are less than a full year.
December 31, 1999 William Blair Funds 57
<PAGE> 59
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
INCOME FUND
<TABLE>
<CAPTION>
---------------------------------------------------------
CLASS N FOR YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 10.490 $ 10.410 $ 10.270 $ 10.570 $ 9.850
Income from investment operations:
Net investment income..................................... 0.618 0.640 0.659 0.619 0.646
Net realized and unrealized gain (loss) on investments.... (0.588) 0.076 0.140 (0.309) 0.732
--------- --------- --------- --------- ---------
Total from investment operations............................ 0.030 0.716 0.799 0.310 1.378
Less distributions from:
Net investment income..................................... 0.604 0.636 0.659 0.610 0.658
Net realized capital gains................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total distributions......................................... 0.604 0.636 0.659 0.610 0.658
--------- --------- --------- --------- ---------
Net asset value, end of period.............................. $ 9.916 $ 10.490 $ 10.410 $ 10.270 $ 10.570
========= ========= ========= ========= =========
Total return (%)............................................ .34 7.07 8.03 3.07 14.37
Ratios to average daily net assets (%):
Expenses.................................................. 0.70 0.71 0.71 0.70 0.68
Net investment income..................................... 6.03 6.81 6.40 5.97 6.24
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1999
--------------------------------------
CLASS A(A) CLASS B(B) CLASS C(C) CLASS I(D)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.950 $ 10.050 $ 10.060 $ 10.050
Income from investment operations:
Net investment income..................................... 0.075 0.060 0.079 0.623
Net realized and unrealized loss on investments........... (0.009) (0.108) (0.135) (0.155)
--------- --------- --------- ---------
Total from investment operations............................ 0.066 (0.048) (0.056) 0.468
Less distributions from:
Net investment income..................................... 0.073 0.059 0.077 0.609
Net realized capital gains................................ -- -- -- --
--------- --------- --------- ---------
Total distributions......................................... 0.073 0.059 0.077 0.609
--------- --------- --------- ---------
Net asset value, end of period.............................. $ 9.943 $ 9.943 $ 9.926 $ 9.909
========= ========= ========= =========
Total return (%) (e)........................................ 0.63 (0.51) (0.53) 0.30
Ratios to average daily net assets (%):
Expenses.................................................. 0.99 1.77 1.71 0.70
Net investment income..................................... 5.78 4.91 5.11 6.03
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of year (in thousands).................. $ 173,375 $ 188,051 $ 160,055 $ 150,006 $ 147,370
Portfolio turnover rate (%)............................... 66 96 83 66 54
</TABLE>
- ---------------
(a) For the period October 25, 1999 (Commencement of the Class) to December 31,
1999.
(b) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period November 3, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
(e) Total return is not annualized for periods that are less than a full year.
58 Annual Report December 31, 1999
<PAGE> 60
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
READY RESERVES FUND
<TABLE>
<CAPTION>
--------------------------------------------------------
CLASS N FOR YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations:
Net investment income................................... 0.045 0.050 0.050 0.050 0.050
Net realized and unrealized gain on investments......... -- -- -- -- --
---------- ---------- -------- -------- --------
Total from investment operations................. 0.045 0.050 0.050 0.050 0.050
Less distributions from:
Net investment income................................... 0.045 0.050 0.050 0.050 0.050
Net realized capital gains.............................. -- -- -- -- --
---------- ---------- -------- -------- --------
Total distributions.............................. 0.045 0.050 0.050 0.050 0.050
---------- ---------- -------- -------- --------
Net asset value, end of period............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ======== ======== ========
Total return (%)................................. 4.63 4.98 5.04 4.81 5.45
Ratios to average daily net assets (%):
Expenses................................................ 0.72 0.69 0.70 0.71 0.72
Net investment income................................... 4.52 4.87 4.92 4.78 5.30
Supplemental data:
Net assets at end of year (in thousands)................ $1,052,803 $1,189,051 $904,569 $760,808 $703,993
</TABLE>
December 31, 1999 William Blair Funds 59
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
WILLIAM BLAIR FUNDS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of William Blair Funds (comprised of Growth Fund,
Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund,
International Growth Fund, Emerging Markets Growth Fund, Disciplined Large Cap
Fund, Value Discovery Fund, Income Fund and Ready Reserves Fund) (collectively,
the "Funds") as of December 31, 1999, and the related statements of operations,
changes in net assets 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 auditing standards generally accepted
in the United States. 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, 1999, 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 Funds at December 31, 1999, and the results of their operations,
the changes in their net assets and the financial highlights for the periods
indicated therein in conformity with accounting principles generally accepted in
the United States.
[ERNST & YOUNG LLP SIG]
Chicago, Illinois
February 4, 2000
60 Annual Report December 31, 1999
<PAGE> 62
................................................................................
SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)
................................................................................
A Special Meeting of Shareholders was held on November 30, 1999, postponed and
reconvened December 8, 1999. At the meeting, shareholders of the Fund were asked
to consider and act upon seven issues: the election of the seven nominees for
trustee; ratification of the selection of Ernst & Young LLP as the Fund's
independent auditors; the approval of a proposal to reorganize the Fund into a
Delaware business trust; the approval of new investment objectives for several
funds; the approval of standardized fundamental investment restrictions; the
approval of a Rule 12b-1 distribution plan for Class N of each Fund; the
approval of an Amended Management Agreement. The results of all matters voted on
by shareholders of the Funds at the Special Meeting were as follows:
1) TO ELECT SEVEN (7) TRUSTEES TO THE FUND'S BOARD OF TRUSTEES.
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ---------
<S> <C> <C>
GROWTH FUND
Conrad Fischer.............................................. 24,059,037 529,181
Grant Beadle................................................ 24,050,245 537,973
Theodore Bosler............................................. 24,050,665 537,553
John P. Kayser.............................................. 24,059,458 528,760
Ann P. McDermott............................................ 24,036,471 551,747
John B. Schwemm............................................. 24,057,406 530,812
Robert E. Wood II........................................... 24,051,268 537,050
INTERNATIONAL GROWTH FUND
Conrad Fischer.............................................. 10,034,251 27,428
Grant Beadle................................................ 10,034,251 27,428
Theodore Bosler............................................. 10,034,251 27,428
John P. Kayser.............................................. 10,034,251 27,428
Ann P. McDermott............................................ 10,034,251 27,428
John B. Schwemm............................................. 10,034,251 27,428
Robert E. Wood II........................................... 10,034,251 27,428
EMERGING MARKETS GROWTH FUND
Conrad Fischer.............................................. 255,464 5,013
Grant Beadle................................................ 255,464 5,013
Theodore Bosler............................................. 255,464 5,013
John P. Kayser.............................................. 255,464 5,013
Ann P. McDermott............................................ 255,464 5,013
John B. Schwemm............................................. 255,464 5,013
Robert E. Wood II........................................... 255,464 5,013
VALUE DISCOVERY FUND
Conrad Fischer.............................................. 2,131,919 3,381
Grant Beadle................................................ 2,131,919 3,381
Theodore Bosler............................................. 2,131,919 3,381
John P. Kayser.............................................. 2,131,919 3,381
Ann P. McDermott............................................ 2,131,919 3,381
John B. Schwemm............................................. 2,131,919 3,381
Robert E. Wood II........................................... 2,131,919 3,381
INCOME FUND
Conrad Fischer.............................................. 12,167,511 218,950
Grant Beadle................................................ 12,167,511 218,950
Theodore Bosler............................................. 12,167,511 218,950
John P. Kayser.............................................. 12,167,511 218,950
Ann P. McDermott............................................ 12,167,511 218,950
John B. Schwemm............................................. 12,167,511 218,950
Robert E. Wood II........................................... 12,167,511 218,950
READY RESERVES FUND
Conrad Fischer.............................................. 624,895,175 9,820,656
Grant Beadle................................................ 624,934,068 9,781,763
Theodore Bosler............................................. 624,946,331 9,769,500
John P. Kayser.............................................. 624,860,184 9,855,647
Ann P. McDermott............................................ 624,765,727 9,950,104
John B. Schwemm............................................. 624,840,038 9,875,792
Robert E. Wood II........................................... 624,908,173 9,807,658
</TABLE>
December 31, 1999 William Blair Funds 61
<PAGE> 63
2) TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE
FUND FOR THE CURRENT FISCAL YEAR.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 24,036,096 275,440 276,682
International Growth Fund................................... 10,029,692 22,234 9,242
Emerging Markets Growth Fund................................ 259,226 1,251 0
Value Discovery Fund........................................ 2,132,360 650 2,290
Income Fund................................................. 12,110,401 137,653 138,408
Ready Reserves Fund......................................... 622,980,379 2,236,920 9,498,531
</TABLE>
3) TO APPROVE A PROPOSAL TO REORGANIZE THE FUND INTO A DELAWARE BUSINESS TRUST.
A) TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE COMPANY TO
PERMIT ACTIONS, INCLUDING THE REORGANIZATION, TO BE APPROVED BY THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 21,141,341 618,456 344,322
International Growth Fund................................... 6,320,886 123,788 19,122
Emerging Markets Growth Fund................................ 255,925 3,651 0
Value Discovery Fund........................................ 2,109,212 8,445 2,552
Income Fund................................................. 12,013,443 143,088 183,384
Ready Reserve Fund.......................................... 615,581,226 8,735,993 10,398,612
</TABLE>
B) TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION PURSUANT TO WHICH THE FUND
WILL BE REORGANIZED INTO A DELAWARE BUSINESS TRUST.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,612,888 1,090,246 400,986
International Growth Fund................................... 6,145,576 303,553 14,667
Emerging Markets Growth Fund................................ 256,025 2,751 800
Value Discovery Fund........................................ 2,117,607 468 2,134
Income Fund................................................. 11,990,443 165,659 183,813
Ready Reserve Fund.......................................... 615,102,176 7,487,427 12,126,228
</TABLE>
4) TO APPROVE NEW INVESTMENT OBJECTIVES FOR THE WILLIAM BLAIR GROWTH FUND, THE
WILLIAM BLAIR INTERNATIONAL GROWTH FUND, THE WILLIAM BLAIR INCOME FUND, AND
THE WILLIAM BLAIR READY RESERVES FUND.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,472,994 1,022,561 608,565
International Growth Fund................................... 6,311,124 131,164 21,507
Income Fund................................................. 11,756,353 356,527 227,036
Ready Reserves Fund......................................... 590,154,733 26,605,199 17,955,899
</TABLE>
5) TO APPROVE STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS FOR EACH OF THE
WILLIAM BLAIR GROWTH FUND, WILLIAM BLAIR INTERNATIONAL GROWTH FUND, WILLIAM
BLAIR EMERGING MARKETS GROWTH FUND, WILLIAM BLAIR VALUE DISCOVERY FUND,
WILLIAM BLAIR INCOME FUND, AND WILLIAM BLAIR READY RESERVES FUND AND TO
RECLASSIFYING THE REMAINING FUNDAMENTAL RESTRICTIONS AS NONFUNDAMENTAL.
A) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING THE
CONCENTRATION OF THE FUND'S INVESTMENTS IN THE SAME INDUSTRY.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,507,056 1,150,073 446,990
International Growth Fund................................... 6,389,670 53,602 20,496
Emerging Markets Growth Fund................................ 258,676 900 0
Value Discovery Fund........................................ 2,083,947 32,544 3,718
Income Fund................................................. 11,754,543 359,428 225,943
Ready Reserves Fund......................................... 599,892,932 16,315,541 18,507,359
</TABLE>
B) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING BORROWING MONEY
AND ISSUING SENIOR SECURITIES.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,427,475 1,229,605 447,039
International Growth Fund................................... 6,367,085 78,398 18,313
Emerging Markets Growth Fund................................ 257,225 2,351 0
Value Discovery Fund........................................ 2,066,691 49,538 3,980
Income Fund................................................. 11,802,212 337,820 199,882
Ready Reserves Fund......................................... 583,740,969 32,742,768 18,232,094
</TABLE>
62 Annual Report December 31, 1999
<PAGE> 64
C) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING UNDERWRITING
SECURITIES.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,506,514 1,151,380 446,226
International Growth Fund................................... 6,367,020 77,974 18,803
Emerging Markets Growth Fund................................ 257,725 1,851 0
Value Discovery Fund........................................ 2,084,947 31,700 3,562
Income Fund................................................. 11,808,814 336,041 195,059
Ready Reserves Fund......................................... 585,817,858 30,900,684 17,997,289
</TABLE>
D) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING INVESTMENTS IN
REAL ESTATE.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,359,934 1,304,892 439,294
International Growth Fund................................... 6,388,432 57,075 18,289
Emerging Markets Growth Fund................................ 257,925 1,651 0
Value Discovery Fund........................................ 2,084,098 32,549 3,562
Income Fund................................................. 11,754,383 381,653 203,878
Ready Reserves Fund......................................... 582,894,096 33,769,018 18,052,716
</TABLE>
E) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING INVESTMENTS IN
COMMODITIES.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,245,583 1,413,743 444,794
International Growth Fund................................... 6,350,660 95,283 17,852
Emerging Markets Growth Fund................................ 257,225 2,351 0
Value Discovery Fund........................................ 2,075,038 41,453 3,718
Income Fund................................................. 11,736,672 400,028 203,215
Ready Reserves Fund......................................... 584,007,963 32,762,728 17,945,140
</TABLE>
F) TO ADOPT A NEW FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING LENDING BY THE
FUND.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 20,333,671 1,331,146 439,301
International Growth Fund................................... 6,363,418 82,134 18,244
Emerging Markets Growth Fund................................ 257,725 1,851 0
Value Discovery Fund........................................ 2,084,674 31,973 3,562
Income Fund................................................. 11,741,948 389,529 208,437
Ready Reserves Fund......................................... 588,327,475 31,577,843 14,810,513
</TABLE>
G) TO RECLASSIFY ALL REMAINING FUNDAMENTAL INVESTMENT RESTRICTIONS AS
NONFUNDAMENTAL.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 18,873,544 2,717,217 513,360
International Growth Fund................................... 6,361,738 82,429 19,629
Emerging Markets Fund....................................... 257,125 1,651 800
Value Discovery............................................. 2,083,503 32,806 3,900
Income Fund................................................. 11,737,312 344,560 258,044
Ready Reserve Fund.......................................... 586,355,602 32,905,027 15,455,202
</TABLE>
6) TO APPROVE A RULE 12B-1 DISTRIBUTION PLAN WITH WILLIAM BLAIR & COMPANY,
L.L.C. FOR CLASS N SHARES FOR EACH FUND.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 4,154,327 637,800 62,966
International Growth........................................ 821,771 69,756 8,487
Emerging Markets Fund....................................... 3,966 0 0
Value Discovery............................................. 142,462 11,560 593
Income Fund................................................. 782,073 127,195 112,163
Ready Reserves Fund......................................... 606,035,409 15,812,676 12,867,746
</TABLE>
7) TO APPROVE AN AMENDED MANAGEMENT AGREEMENT FOR THE GROWTH FUND, INCOME FUND
AND READY RESERVES FUND.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ---------- ----------
<S> <C> <C> <C>
Growth Fund................................................. 23,234,070 917,398 436,750
Income Fund................................................. 11,996,168 183,627 206,667
Ready Reserves Fund......................................... 611,176,761 10,874,775 12,664,295
</TABLE>
December 31, 1999 William Blair Funds 63
<PAGE> 65
BOARD OF DIRECTORS
Conrad Fischer, Chairman Principal, William
Blair & Company, L.L.C.
Vernon Armour
Private Investor
J. Grant Beadle
Retired Chairman and CEO, Union Special
Corporation
Theodore A. Bosler
Retired Principal and Vice President,
Lincoln Capital Management Company
John P. Kayser
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
Robert E. Wood II
Retired Executive Vice President,
Morgan Stanley Dean Witter
OFFICERS
Rocky Barber, Chief Executive Officer
Marco Hanig, President
Michael P. Balkin, Senior Vice President
Mark A.Fuller,III, Senior Vice President
W.George Greig, Senior Vice President
John F. Jostrand, Senior Vice President
Stan Kirtman, Senior Vice President
Glen A. Kleczka, Senior Vice President
Gretchan S. Lash, Senior Vice President
Bentley M. Myer, Senior Vice President
Gregory J. Pusinelli, Senior Vice President
Michelle R. Seitz, Senior Vice President
Karl W. Brewer, Vice President
Michael A. Jancosek, Vice President
James S. Kaplan, Vice President
Terence M. Sullivan, Vice President and
Treasurer
Jeffrey A. Urbina, Vice President
Sheila M. Johnson, Secretary
Janet V. Gassmann, Assistant 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
For customer assistance,call 1-800-635-2886
(Massachusetts)1-800-635-2840)
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz
December 31, 1999
<PAGE> 66
[LOGO] William Blair Funds
--------------------------------------------------------
A TRADITION OF GROWTH
GROWTH FUNDS
Growth Fund
Tax-Managed Growth Fund
Large Cap Growth Fund
Small Cap Growth Fund
Internatinal Growth Fund
Emerging Markets Growth Fund
OTHER FUNDS
Disciplined Large Cap Fund
Value Discovery Fund
Income Fund
Ready Reserves Fund
222 West Adams Street Chicago, Illinois 60606 800.742.7272 www. wmblair.com
William Blair & Company, L.L.C., Distributors
