<PAGE> 1
Semi-Annual Report/June 30, 1997
WILLIAM BLAIR MUTUAL FUNDS, INC.
[WILLIAM BLAIR MUTUAL FUNDS, INC. LOGO]
GROWTH FUND
VALUE DISCOVERY FUND
INTERNATIONAL GROWTH FUND
INCOME FUND
READY RESERVES FUND
THIS REPORT HAS BEEN PREPARED FOR THE INFORMATION OF THE SHAREHOLDERS OF
WILLIAM BLAIR MUTUAL FUNDS, INC. IT IS NOT TO BE CONSTRUED AS AN OFFERING TO
SELL OR BUY ANY SECURITIES OF THE FUND. SUCH OFFERING IS MADE ONLY BY THE
PROSPECTUS.
William Blair Mutual Funds, Inc.
222 West Adams Street
Chicago, Illinois 60606
<PAGE> 2
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
OVERVIEW
---------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
---------------------------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993
------------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Growth Fund 10.2% 18.0% 29.1% 6.5% 15.5%
S&P 500 Index 20.6 23.3 37.5 1.3 10.0
Value Discovery Fund 11.0 - - - -
Russell 2000 Index 10.2 16.5 28.4 (1.8) 18.9
International Growth Fund 15.5 10.2 7.2 (0.04) 33.6
MSCI AC WLD ex US Index* 11.6 6.7 9.9 6.6 34.9
Lipper International Index 14.0 14.4 10.0 (0.7) 39.2
Income Fund 3.1 3.0 14.4 (0.7) 7.8
Lehman Intermediate Govt./
Corp. Index 2.8 4.1 15.3 (1.9) 8.8
Ready Reserves Fund 4.9(a) 4.8 5.5 3.7 2.6
S&P-rated AAA
Money Market Funds 4.8(a) 4.8 5.4 3.6 2.0
<CAPTION>
---------------------------------------------------------------------------------
INVESTOR INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
---------------------------------------------------------------------------------
VALUE INTERNATIONAL READY
GROWTH DISCOVERY GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND
-------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $555 $20 $131 $151 $895
Portfolio Turnover Rate (%) (a) 49 28 99 86 -
Expense Ratio (%) (a) .83 1.50(b) 1.40 .68 .69
Sales Load None None None None None
Redemption Fees None None None None None
Exchange Fees None None None None None
12b-1 Fees None None None None None
----------------------------------------------------------------------------------
* Morgan Stanley Capital International All Country World Free except U.S. Index.
(a) Rates are annualized.
(b) Without the waiver of expenses the expense ratio would have been 1.84%.
2 William Blair Mutual Funds, Inc. June 30, 1997
</TABLE>
<PAGE> 3
- -------------------------------------------------------------------------------
A LETTER FROM THE PRESIDENT
- -------------------------------------------------------------------------------
[ROCKY BARBER PHOTO]
Dear Shareholders:
The first half of 1997 has been a very nervous, but rewarding, period with
strong returns for both domestic and international equities. Our bond and money
market funds had solid returns as interest rates remained stable.
The U.S. economy has continued to grow above expectations, leading to strong
corporate earnings. At the same time, inflation has remained subdued. For
investors Camelot seems right around the corner, with concerns about economic
cycles and a recession nowhere in sight.
The reengineering of U.S. manufacturing and service capability has led to a
seven year domestic bull market. Indeed, U.S. leadership is helping companies
and countries around the world, and we look for our prosperity to spread in the
years ahead, benefiting all free markets.
Getting back to the current situation, all of our funds are above their
benchmarks year-to-date except for the Growth Fund, where our ownership of
smaller/mid-cap stocks has continued to hinder our relative performance. The
International Growth Fund was our top performer and our new Value Discovery
Fund is off to an excellent start. Please spend a couple of minutes and take a
closer look at the diversification that these funds offer.
Rocky Barber
June 30, 1997 Semi-Annual Report 3
<PAGE> 4
<TABLE>
<CAPTION>
--------------------------------------------------------------
GROWTH FUND
--------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Growth Fund 10.2% 18.0% 29.1% 6.5% 15.5%
S&P 500 Index 20.6 23.3 37.5 1.3 10.0
Russell 2000 Index 10.2 16.5 28.4 (1.8) 18.9
<CAPTION>
--------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------
JUNE 30, 1997(a) 1996 1995 1994 1993
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $555 $502 $363 $218 $150
Portfolio Turnover Rate (%) 49 43 32 46 55
Expense Ratio (%) .83 .79 .65 .71 .78
-------------------------------------------------------------
(a) Rates are annualized.
</TABLE>
-----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
-----------------------------------------------
[ROCKY BARBER PHOTO]
[MARK A. FULLER III PHOTO]
Dear Shareholders:
A near idyllic economic environment recharged
investor enthusiasm in the second quarter. After
two years of very strong returns, we have been
as surprised as most market observers at the
durability of this market. But the market has a
practice of doing the unexpected, and the mid
year scorecard is impressive. Indeed the large
cap dominated S&P 500 Index is up more than 17%
for the quarter and 20.6% for the year to date.
Smaller stocks, after stumbling badly in the
first quarter with negative returns, recovered
quite nicely and showed gains comparable to
larger stocks in the quarter, but remain well
behind for the year. In fact, most stocks have
gained well less than 20% this year, but the
largest 50 companies by market capitalization,
have increased 26% on average and have strongly
influenced the total return of the index.
S&P 500 earnings now have increased for 22
consecutive quarters, reflecting the unusual
durability of this economic expansion. Despite
the advancing age of this cycle, earnings growth
for many of the larger cap stocks have remained
remarkably robust, averaging about 12-13% in the
first quarter. Unfortunately, as we discussed
last quarter, smaller cap earnings in general
have not grown as rapidly, and have therefore
been relatively less attractive to investors.
The concentration of investor enthusiasm for the
large cap global franchise company does give us
some pause for the future. If there is any
segment of the market that looks quite expensive
relative to historical norms, it is the blue
chips. We would much prefer to see the market's
advance broaden out to include more companies,
as it would likely signal improving health of
the overall economy. Meanwhile, our valuation
disciplines have caused us to reduce our largest
cap holdings in recent months and recycle those
funds to faster growing companies that can be
bought at much more reasonable prices. We feel
confident that the higher growth rate of the
Fund's portfolio will look increasingly
attractive relative to the S&P 500 index and
many of the largest cap stocks as the pace of
growth in the economy begins to wane, and blue
chip earnings increases fall back into the
single digit range.
4 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 5
In conclusion, we are excited to participate in this most exhilarating of times
in the equity market, but are also balancing the market's current enthusiasm
with well-grounded historical perspective. We believe that consistent attention
to company fundamentals, coupled with sensitivity to valuation and risk, will
produce outstanding results over time.
Rocky Barber Mark A. Fuller III
--------------------------------------------------------------
GROWTH FUND
--------------------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GROWTH FUND LINE GRAPH]
<TABLE>
<CAPTION>
Growth S&P
Fund 500
Index
<S> <C> <C>
1/87 $ 10,000 $ 10,000
12/87 10,800 10,500
12/88 11,600 12,300
12/89 15,100 16,200
12/90 14,800 15,700
12/91 21,300 20,400
12/92 23,000 22,000
12/93 26,500 24,200
12/94 28,200 24,500
12/95 36,500 33,700
12/96 43,000 41,500
12/97 47,400 50,000
</TABLE>
June 30, 1997 Semi-Annual Report 5
<PAGE> 6
................................................................................
GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS
APPLIED TECHNOLOGY--21.0%
537 *Acxiom Corporation...................... $ 11,006
470 *Airtouch Communications, Inc............ 12,866
202 *American Management Systems............. 5,391
330 Automatic Data Processing, Inc........... 15,510
78 *Catalina Marketing Corporation.......... 3,739
382 Cognizant Corporation.................... 15,471
500 First Data Corporation................... 21,969
204 *NFO Research, Inc....................... 5,059
288 *Paging Network, Inc..................... 2,530
82 Reuters Holdings PLC (ADR)............... 5,142
174 Shared Medical Systems Corporation....... 9,407
537 *Sterling Commerce, Inc.................. 8,301
--------
116,391
--------
HEALTHCARE-RELATED SPECIALTIES--18.4%
204 *Amgen, Inc.............................. 11,834
103 Dentsply International, Inc.............. 5,037
288 *Elan Corporation PLC (ADR).............. 13,036
274 *Health Care & Retirement Corporation.... 9,159
384 *Healthsouth Rehabilitation
Corporation.............................. 9,579
250 Medtronic, Inc........................... 20,250
314 Omnicare, Inc............................ 9,856
82 *Quintiles Transnational Corporation..... 5,693
110 *R. P. Scherer Corporation............... 5,679
130 Smithkline Beecham PLC (ADR)............. 11,911
--------
102,034
--------
TECHNOLOGY--13.3%
320 *Electronic Arts, Inc.................... 10,760
70 Intel Corporation........................ 9,927
150 Linear Technology Corporation............ 7,763
120 *Microsoft Corporation................... 15,165
117 Molex Inc................................ 4,279
190 Molex, Inc., Class "A"................... 6,639
95 *Oracle Corporation...................... 4,786
138 *Xilinx, Inc............................. 6,754
280 *Zebra Technologies Corporation, Class
"A"...................................... 7,800
--------
73,873
--------
CONSUMER RETAIL--12.2%
180 CVS Corporation.......................... 9,225
200 Home Depot, Inc.......................... 13,788
150 Lowes Companies, Inc..................... 5,569
307 *Office Depot, Inc....................... 5,973
405 *PetSmart, Inc........................... 4,662
236 *Staples, Inc............................ 5,481
72 *Starbucks Corporation................... 2,785
370 *Viking Office Products, Inc............. 7,030
130 Walgreen Company......................... 6,971
181 *Whole Foods Market, Inc................. 6,002
--------
67,486
--------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES--10.9%
180 Associates First Capital Corp., Class
"A"...................................... $ 9,990
446 *Credit Acceptance Corporation........... 5,747
280 Federal Home Loan Mortgage Corporation... 9,625
90 Household International, Inc............. 10,569
260 MBNA Corporation......................... 9,522
240 State Street Boston Corporation.......... 11,100
100 Travelers Property and Casualty, Class
"A"...................................... 3,987
--------
60,540
--------
BUSINESS SERVICES--8.0%
170 *C K S Group, Inc........................ 5,748
106 Cintas Corporation....................... 7,262
316 *Heartland Express, Inc.................. 7,426
203 *Knight Transportation, Inc.............. 5,143
125 *Robert Half International, Inc.......... 5,893
140 *Rural/Metro Corporation................. 4,076
303 Wallace Computer Services, Inc........... 9,121
--------
44,669
--------
DISTRIBUTION--7.7%
407 *Airgas, Inc............................. 8,069
196 *Black Box Corporation................... 7,909
100 Cardinal Health, Inc..................... 5,725
213 *Gulf South Medical Medical Supply,
Inc...................................... 4,163
299 *JP Foodservice, Inc..................... 8,565
201 *MSC Industrial Direct Co., Class "A".... 8,053
--------
42,484
--------
INDUSTRIAL PRODUCTS--4.6%
142 Danaher Corporation...................... 7,216
245 M.A. Hanna Company....................... 7,068
300 Minerals Technologies, Inc............... 11,232
--------
25,516
--------
SPECIALTY CONSUMER SERVICES AND PRODUCTS--0.9%
200 *CUC International, Inc.................. 5,162
--------
TOTAL COMMON STOCK--97.0%
(cost $364,041)................................... 538,155
--------
CONVERTIBLE BOND--.5%
$3,000 Sports Authority 5.25% Subordinated
Debenture, due 9/15/01 (cost $2,731)... 2,798
--------
SHORT-TERM INVESTMENTS
4,139 Associates Corp. of North America Demand
Note, 5.49%, due 7/1/97................ 4,139
4,500 Ford Motor Credit Corporation, 5.54%,
due 7/11/97............................ 4,500
4,500 General Motors Acceptance Corporation,
5.57%, due 7/18/97................... 4,500
2,417 General Electric Capital Corporation,
5.56% due 7/25/97.................... 2,417
--------
TOTAL SHORT-TERM INVESTMENTS--2.8%
(cost $15,556).................................... 15,556
--------
TOTAL INVESTMENTS--100.3%........................... 556,509
LIABILITIES, PLUS CASH AND OTHER ASSETS--(0.3%)..... (1,695)
--------
NET ASSETS--100.0%.................................. $554,814
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
6 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 7
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
VALUE DISCOVERY FUND
------------------------------------------------------------------------
------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
------------------------------------------------------------------------
JUNE 30, 1997 1996
------------------ --------
<S> <C> <C>
Value Discovery Fund (a) 11.0% -
Russell 2000 Index 10.2 16.5
<CAPTION>
------------------------------------------------------------------------
INVESTOR INFORMATION
------------------------------------------------------------------------
JUNE 30, 1997(b) 1996
-------------------- --------
<S> <C> <C>
Ending Net Assets (in millions) $20 $2
Portfolio Turnover Rate (%) 28 -
Expense Ratio (%) 1.50(c) -
-------------------------------------------------------------------------
(a) Commencement of Operations - December 23, 1996.
(b) Rates are annualized.
(c) Without the waiver of expenses the expense ratio would have been 1.84%.
</TABLE>
--------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------
[GLEN KLECZKA PHOTO]
[DAVID MITCHELL PHOTO]
Dear Shareholders:
We are pleased to report to you that the
performance of the Value Discovery Fund for
the first half of 1997 was up 11.0%. This
compares favorably to a variety of
benchmarks, including the Russell 2000 (up
10.2%) and the Lipper Small Company Index
(up 6.0%). The Russell 2000 is our primary
performance benchmark, as it is composed
entirely of small companies. The Lipper
Small Company Index is a performance
composite of mutual funds that focus on
small company investments. It is our
intention to be fully invested at all times.
At June 30, the Fund's assets were 90%
invested versus 65% at March 31, 1997 due to
the Fund's startup. Fund performance gained
in strength throughout the second quarter as
greater proportions of assets were invested
- the Value Discovery Fund was up 13.9% in
the quarter. On a stocks-only basis, after
removing the dampening effect of cash, the
Fund returned 18.5% in the quarter. This
also compares favorably with the Russell
2000 and Lipper Small Company Index.
Typically we will have three categories of
investments, approximately equal in
representation - the "undiscovered" on which
we are still early, those beginning to
exhibit improving fundamentals that create
discovery and those which have been
discovered and are approaching valuations
which would warrant sale. The Fund's strong
performance, particularly during the second
quarter, can be partially attributed to many
of our holdings having graduated from the
undiscovered camp. We expect this maturation
process to continue for the balance of the
year given that the portfolio building
process is largely complete. Our process is
value additive at the individual stock level
not the economic sector level. As such, your
assets were well-diversified across sectors
and industries, with no significant weight
variances versus the Russell 2000. Net
assets totaled $20.1 million at the end of
the quarter, and were invested in 45
securities. The projected earnings growth
rate of Fund holdings outstripped that of
the Russell 2000 at 16% versus 9%,
respectively. Of particular note, the
weighted price to earnings (1997 projected)
ratio for your Fund stood at 13 times versus
22 times for the Russell 2000 and is
reflective of our value philos-
June 30, 1997 Semi-Annual Report 7
<PAGE> 8
[CAPPY PRICE PHOTO]
ophy which seeks to buy companies trading at material
discounts from our estimates of intrinsic value. Finally,
the Fund's portfolio had a 5-year historical average ROE
identical to that of the Russell 2000.
The portfolio is currently invested in the stocks of small
companies along the following lines: Micro-cap stocks (less
than $300 million in market capitalization) comprised 62%,
small-cap ($300 million to $1.5 billion) comprised 28% and
cash comprised roughly 10%. The weighted average market
capitalization of the Fund at quarter's end was $278 million,
up from $207 million at March 31, 1997. We are pleased with
the Fund's strong start, particularly in light of the recent
challenging environment for small capitalization stocks, and
remain committed to the discovery of companies whose
prospects are underestimated by the market.
Glen Kleczka David Mitchell Cappy Price
------------------------------------------------------------
VALUE DISCOVERY FUND
------------------------------------------------------------
[VALUE DISCOVERY FUND LINE GRAPH]
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
Value Russell
Discovery 2000
Fund
12/31/96 $10,000 $10,000
1/97 10,200 10,200
2/97 10,000 10,000
3/97 9,700 9,500
4/97 9,500 9,500
5/97 10,600 10,600
6/97 11,100 11,000
8 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 9
................................................................................
VALUE DISCOVERY FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- -------
SHARES VALUE
- ---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS
FINANCIAL SERVICES--28.7%
67 *ARM Financial Group, Inc................ $ 1,340
18 Amcore Financial, Inc. .................. 491
13 Amerus Life Holdings, Inc. Class 'A'..... 360
18 C U Bancorp.............................. 282
17 Excel Realty Trust, Inc. ................ 446
17 Franklin Bank National Association....... 242
41 *National Auto Finance Company, Inc. .... 277
20 SCPIE Holdings, Inc. .................... 542
17 Statewide Financial Corporation.......... 306
33 *Summit Holding Southeast, Inc. ......... 561
16 United Companies Financial Corporation... 460
30 Winston Hotels, Inc. .................... 446
-------
5,753
-------
CONSUMER DISCRETIONARY--14.5%
15 Arctic Cat, Inc. ........................ 156
33 Cadmus Communications Corporation........ 516
27 M/A/R/C, Inc. ........................... 531
24 *Michaels Stores, Inc. .................. 509
35 *Prosource, Inc. ........................ 252
32 *Rare Hospitality International, Inc. ... 397
54 *Shoe Carnival, Inc. .................... 540
-------
2,901
-------
HEALTHCARE-RELATED SPECIALTIES--13.2%
16 *ClinTrials Research, Inc. .............. 192
113 *IBAH, Inc. ............................. 403
6 *KOS Pharmaceuticals Inc. ............... 153
19 *Maxim Medical, Inc. .................... 327
24 *Nitinol Medical Technologies, Inc. ..... 355
42 *Physician Reliance Network, Inc. ....... 394
94 *Procyte Corporation..................... 105
43 *Safeguard Health Enterprises, Inc....... 460
8 *Sierra Health Services, Inc. ........... 253
-------
2,642
-------
MATERIALS--8.9%
10 *Citation Corporation.................... 173
78 Easco, Inc. ............................. 760
12 *N C I Building Systems, Inc. ........... 401
19 Steel Technologies, Inc. ................ 201
7 *USG Corporation......................... 245
-------
1,780
-------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- -------
SHARES VALUE
- ---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY--8.5%
56 *Digital Lightwave, Inc. ................ $ 490
19 *Integrated Circuit Systems, Inc. ....... 431
55 *Overland Data, Inc. .................... 296
44 *Trident Microsystems, Inc. ............. 495
-------
1,712
-------
PRODUCER DURABLES--8.0%
11 *Doncasters PLC (ADR).................... 259
40 LSI Industries, Inc. .................... 539
27 *Omniquip International, Inc............. 624
Penn Engineering & Manufacturing
10 Corp. ................................... 186
-------
1,608
-------
TRANSPORTATION--3.8%
13 *Landstar System, Inc. .................. 380
*Safety Components International,
38 Inc. .................................... 380
-------
760
-------
UTILITIES--2.4%
22 Illinova Corporation..................... 488
-------
CONSUMER STAPLES--1.9%
55 *Pete's Brewing Company.................. 378
-------
TOTAL COMMON STOCK--89.9%
(cost $16,080).................................... 18,022
-------
SHORT-TERM INVESTMENTS--4.9%
$995 Investors Bank & Trust Company
Repurchase Agreement, due 7/1/97
(cost $995).............................. 995
TOTAL INVESTMENTS--94.8%............................ 19,017
CASH AND OTHER ASSETS, LESS LIABILITIES--5.2%....... 1,033
-------
NET ASSETS--100.0%.................................. $20,050
=======
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
June 30, 1997 Semi-Annual Report 9
<PAGE> 10
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
-----------------------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
International Growth Fund 15.5% 10.2% 7.2% (0.0)% 33.6%
MSCI AC WLD ex US Index* 11.6 6.7 9.9 6.6 34.9
Lipper International 14.0 14.4 10.0 (0.7) 39.2
<CAPTION>
------------------------------------------------------------------------------
INVESTOR INFORMATION
------------------------------------------------------------------------------
JUNE 30, 1997(a) 1996 1995 1994 1993
---------------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $131 $105 $90 $70 $40
Portfolio Turnover Rate (%) 99 89 77 40 83
Expense Ratio (%) 1.40 1.44 1.48 1.51 1.71
-------------------------------------------------------------------------------
*Morgan Stanley Capital International All Country World Free except U.S. Index.
(a) Rates are annualized.
</TABLE>
-----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
-----------------------------------------------
[W. GEORGE GREIG PHOTO]
Dear Shareholders:
The global backdrop of moderate, inflation-free
growth and abundant capital flows continued in
the first half of 1997, supporting stronger
equity markets virtually worldwide.
Policymakers, central bankers and corporate
managers have turned unmistakably towards
U.S.-based examples of deregulation and enhanced
competitiveness in economic performance.
Measures of corporate profitability, while still
lower in Europe and Japan than the extraordinary
levels of corporate America, are continuing to
improve as growth slowly accelerates and
shareholder value becomes a higher management
priority. In emerging markets, stable and
orthodox policy direction continues to mobilize
both domestic and foreign capital, even in
relatively disorganized economies such as Russia
and China.
Although major issues remain unresolved nearly
everywhere outside the U.S., the overall sense
of the world's economic direction seems fairly
clear. Europe's movement toward a broad single
currency, to be implemented in 1999, still faces
significant political challenges in light of
conflicts between domestic constituencies and
Europe-wide economic policy imperatives. It
would not be surprising to see the markets'
smooth-convergence scenario challenged by
political backtracking over the next twelve
months - but ultimately, monetary union seems
unlikely to be abandoned. In Japan as well, the
movement toward deregulation and a more open
economy seems to be an irreversible structural
change, in spite of inevitable resistance from
entrenched bureaucratic interests. In India,
Turkey, Mexico, Pakistan, Indonesia, Brazil,
Taiwan and elsewhere, we continue to see the
same pattern: political turbulence does not
alter the course of economic reform.
10 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 11
In this setting, investment strategy defaults toward those
companies, sectors and markets that benefit from - and
work toward - the forces of change. We believe these
forces favor growing companies with a strong commitment to
enhancing returns at both the corporate and shareholder
level.
W. George Greig
-----------------------------------------------
INTERNATIONAL GROWTH FUND
-----------------------------------------------
[INTERNATIONAL GROWTH FUND LINE GRAPH]
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME
DIVIDENDS
International MSCI All Lipper
Growth Country World International
Fund Free Ex US Index
10/92 $10,000 $10,000 10,000
12/92 10,100 9,700 9,900
6/93 11,400 11,900 11,300
12/93 13,500 13,100 13,700
6/94 14,000 11,400 13,700
12/94 13,500 13,900 13,600
6/95 13,300 14,300 14,000
12/95 14,500 15,300 15,000
6/96 15,700 16,100 16,300
12/96 16,000 16,400 17,200
6/97 18,500 18,400 19,600
June 30, 1997 Semi-Annual Report 11
<PAGE> 12
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EUROPE--20.5%
AUSTRIA--1.4%
10 VA Technologie AG (Industrial
engineering)........................ $ 1,830
--------
DENMARK--0.3%
5 Martin Gruppen (Professional lighting
systems)............................ 388
--------
FINLAND--2.0%
25 Nokia (AB) OY (Telecommunications
equipment).......................... 1,886
9 TT Tieto OY "B" shares
(Consultants)....................... 780
--------
2,666
--------
FRANCE--4.4%
39 AXA Company (Multi-line insurance).... 2,424
5 Le Carbone Lorraine (Specialty
chemicals).......................... 1,216
38 Lagardere Groupe (Industrial holding
company)............................ 1,103
4 L.D.C. (Poultry processing)........... 696
10 Louis Dreyfus Citrus (Food
processing)......................... 373
--------
5,812
--------
GERMANY--2.9%
14 Adidas AG (Sporting goods)............ 1,527
19 *Leica Camera AG (Cameras)............ 456
10 Moebel Walther (Furniture stores)..... 584
9 SGL Carbon AG (Carbide/graphite
specialities)....................... 1,232
--------
3,799
--------
ITALY--2.6%
200 Banca Popolare di Milano (Banking).... 1,198
57 Carraro SpA (Auto components
producer)........................... 291
500 Euromobiliare S.I.M. SpA (Investment
banking)............................ 681
400 Telecom Italia Mobile (Mobile
telecommunications services)........ 1,284
--------
3,454
--------
NETHERLANDS--1.7%
31 Phillips Electronics NV (Diversified
electronic products)................ 2,219
--------
NORWAY--1.5%
85 Saga Petroleum ASA (Integrated oil)... 1,484
66 *Tandberg Television ASA (Digital
broadcast equipment)................ 491
--------
1,975
--------
SPAIN--0.1%
4 SolMelia S.A. (Hotel management)...... 157
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EUROPE--(CONTINUED)
SWEDEN--1.8%
50 Ericsson AB-B (Telecommunication
equipment).......................... $ 1,967
30 *Prosolvia AB-B (Computer software)... 461
--------
2,428
--------
SWITZERLAND--1.8%
1 Holderbank Finan Glaris "B" shares
(Building materials)................ 943
3 S.M.H. AG (Timepieces)................ 1,426
--------
2,369
--------
COMMON STOCKS--UNITED KINGDOM--12.5%
53 Abbott Mead Vickers PLC (Advertising
and marketing services)............. 575
116 Capita Group PLC (Commercial
services)........................... 455
100 Compass Group (Food services) 1,122
70 DFS Furniture Company (Furniture
manufacturer/retailer).............. 655
100 Emap PLC (Communications/media)....... 1,238
250 Firstbus PLC (Transportation
services)........................... 866
35 Games Workshop Group PLC (Toys)....... 396
150 Harvey Nichols Group PLC
(Retail/department stores).......... 707
240 Hays PLC (Distribution/personnel
services)........................... 2,282
200 Kwik-Fit Holdings PLC
(Retail/automotive)................. 899
60 Misys PLC (Computer systems).......... 1,362
125 Next PLC (Retail/apparel)............. 1,413
420 Rolls Royce PLC (Engineering)......... 1,606
100 Smith (W.H.) Group PLC
(Retail/specialty).................. 599
106 Standard Chartered PLC (Banking)...... 1,614
25 Wetherspoon (J.D.) PLC
(Restaurants)....................... 571
--------
16,360
--------
COMMON STOCKS--CANADA--4.2%
45 *ATI Technologies (Computer
accessories)........................ 609
45 *Anderson Exploration Ltd. (Oil and
gas)................................ 578
25 *Imax Corp (Cinema equipment and
operations)......................... 621
27 Newcourt Credit Group Inc. (Commercial
finance)............................ 727
28 Northern Telecom (Telecommunications
equipment).......................... 2,524
70 *Synsorb Biotech (Pharmaceuticals).... 446
--------
5,505
--------
COMMON STOCKS--JAPAN--32.6%
25 Aderans Company, Ltd (Wigs)........... 711
15 Arrk Corporation (Testing products)... 321
77 Anritsu Corporation (Electrical
machinery).......................... 1,156
5 Bellsystem24, Incorporated
(Telemarketing)..................... 742
</TABLE>
12 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 13
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--JAPAN--(CONTINUED)
Canon, Incorporated (Computer and
95 office equipment)................... $ 2,587
51 Credit Saison (Credit cards).......... 1,237
0.2 DDI Corporation (Telecom services).... 1,477
75 Dai Nippon Screen (Precision machinery
manufacturer)....................... 707
30 Fuji Photo Film (Photosensitive
materials manufacturer)............. 1,207
15 Fuji Machine Manufacturing (Automated
assembly machinery)................. 543
17 Hirose Electronics Company, Ltd
(Connectors)........................ 1,166
30 Hoya Corporation (Specialty glass).... 1,335
22 Ito En Ltd (Soft drinks).............. 497
8 Keyence Corporation (Electronics)..... 1,143
26 Meiwa Estate Corporation, Ltd
(Residential real estate)........... 567
20 Meitec (Software engineering)......... 595
120 Minebea Company, Ltd (Miniature
bearings)........................... 1,278
40 NAC Company, Ltd (Commercial
services)........................... 566
10 Nichii Gakkan Company (Medical
recordkeeping)...................... 559
16 Nichiei Company, Ltd (Commercial
finance)............................ 1,857
20 Nintendo Company, Ltd (Video games)... 1,676
10 Nissei ASB Machine Company, Ltd
(Molding machinery)................. 135
100 Nomura Securities Company Ltd.
(Investment banking)................ 1,379
18 Noritsu Koki Company, Ltd (Photo
processing equipment)............... 888
34 Oiles Corporation (Machinery)......... 1,100
20 Rohm Company (Electronic
components)......................... 2,025
15 Ryohin Keikaku Company, Ltd
(Retail/specialty).................. 1,184
10 SMC Corporation (Machinery)........... 845
20 Sakai Moving Service (Residential
moving)............................. 422
14 Secom Company, Ltd (Services)......... 1,028
50 Shin-Etsu Chemical (Semiconductor
silicon and PVC producer)........... 1,327
3 Shohkoh Fund (Commercial finance)..... 909
30 Softbank Corporation (Software/IT
distribution)....................... 1,919
41 Sony Corporation (Consumer
electronics)........................ 3,575
95 Takeda Chemical Industries, Ltd
(Pharmaceuticals)................... 2,670
8 Tiemco Company, Ltd (Sporting
goods).............................. 347
15 World Company, Ltd (Apparel).......... 659
20 Yamada Denki (Retailer/electronics)... 475
--------
42,814
--------
COMMON STOCKS--ASIA--4.4%
AUSTRALIA--0.9%
202 QBE Insurance Group Ltd
(Property-casualty insurers)........ 1,219
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--ASIA--(CONTINUED)
HONG KONG--1.4%
240 Asia Satellite Telecom Holdings
(Satellite operations).............. $ 736
250 Television Broadcasts Ltd.
(Broadcasting)...................... 1,123
--------
1,859
--------
MALAYSIA--1.2%
90 Commerce Asset Holdings Berhad (Retail
bank)............................... 237
132 Malaysia Assurance Alliance
(Insurance)......................... 769
158 YTL Corporation Berhad (Civil
engineering and construction)....... 487
16 *YTL Power International Berhad (Power
generation)......................... 20
--------
1,513
--------
SINGAPORE--0.9%
115 City Developments (Property developers
and owners)......................... 1,126
--------
COMMON STOCKS--EMERGING ASIA--5.4%
CHINA--1.2%
600 *First Tractor Company-H (Agricultural
equipment mfg)...................... 395
1,200 Founder (Hong Kong) Ltd (Publishing
software)........................... 813
270 Shenzhen Fangda Company Ltd (Building
materials).......................... 392
--------
1,600
--------
INDONESIA--2.8%
195(a) PT Bank Bali (Banking)................ 521
350 PT Daya Guna Samudera (Fishery
products)........................... 630
300 PT Kawasan Industrial Jababeka
(Industrial estates development).... 401
60 *PT Lauten Luas (Specialty
chemicals).......................... 73
150(a) PT Ramayana Lestari Sentosa (Retail
department store)................... 432
375(a) PT Steady Safe (Public
transportation)..................... 439
325(a) PT Telecomunikasion
(Telecommunications)................ 531
160 PT United Tractors (Heavy equipment
sales).............................. 592
--------
3,619
--------
PHILIPPINES--0.4%
1,000 C & P Homes (Housing development)..... 375
770 Davao Union Cement Corp. (Cement)..... 90
--------
465
--------
SOUTH KOREA--1.0%
7 Dae Duck Electronics (Electronics).... 410
6 Samsung Electronics (Electronics)..... 472
3 Sungmi Telecom Co. (Telecommunication
equipment).......................... 372
--------
1,254
--------
</TABLE>
June 30, 1997 Semi-Annual Report 13
<PAGE> 14
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EMERGING EUROPE/AFRICA--6.1%
EGYPT--0.3%
20 *MISR International Bank ADR
(Banking)........................... $ 338
--------
GREECE--0.6%
18 Goody S.A. (Retail restaurants)....... 492
27 Sarantis (Cosmetics distribution)..... 325
--------
817
--------
HUNGARY--0.7%
6 Gedeon Richter RT (Pharmaceuticals)... 552
8 Pannonplast Plastics Industries (PVC
manufacturing)...................... 401
--------
953
--------
ISRAEL--0.3%
13 *Orbotech Limited (Computer testing
equipment).......................... 398
--------
PAKISTAN--0.3%
188 *Adamjee Insurance Co. (Insurance).... 422
--------
POLAND--0.6%
14 *Agros Holdings, "C" Shares (Food).... 384
44 Electrim S.A. (Telecommunication/wire
manufacturing)...................... 383
--------
767
--------
SOUTH AFRICA--2.7%
75 Ellerine Holdings, Limited
(Retail/Specialty).................. 534
200 General Mining Union Corp. (Mining)... 921
47 Liberty Life Association of Africa
(Life/health insurance)............. 1,274
400 Macmed Health Care, Limited (Medical
products and equipment)............. 357
506 Metro Cash & Carry, Limited (Food
wholesale/retail)................... 446
--------
3,532
--------
TURKEY--0.6%
3,000 Akcansa Cimento (Cement).............. 415
7,200 Vestel Electronic Sanayi (Audio/visual
electronics manufacturing).......... 403
--------
818
--------
COMMON STOCKS--LATIN AMERICA--6.8%
ARGENTINA--0.5%
22 Banco Frances Rio Plata ADR
(Banking)........................... 710
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------- --------
SHARES OR AMOUNT VALUE
- --------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--LATIN AMERICA--(CONTINUED)
BRAZIL--3.6%
10,700 Duratex (Wood products mfg)........... $ 567
26,700 *Embraer Empresa Bras Aero (Aircraft
manufacturing)...................... 546
9,500 Ericsson Telecomunicacoes
(Telecomunicacones equipment)....... 557
63 *Latas de Aluminio (Aluminum cans and
paper production)................... 477
12,000 Telebras S.A. (Telecommunication
service)............................ 1,629
1,067 Telecomunicacoes de Brazil S.A........ 466
15,000 Votorantim Celulose Papel
(Telecommunication service)......... 432
--------
4,674
--------
CHILE--0.7%
17 Laboratorio Chile S.A. ADR (Generic
drugs).............................. 482
6 Quimica y Minera Chile ADR (Mining)... 382
--------
864
--------
MEXICO--1.5%
130 *Acer Computec Latino America
(Personal computers)................ 452
70 Corporacion Industrial San Luis (Auto
parts).............................. 518
50 Grupo Elektra S.A.
(Retail/specialty).................. 547
175 Soriana S.A. (Retail/specialty)....... 438
--------
1,955
--------
PERU--0.5%
253 Telefonica de Peru
(Telecommunication)................. 663
--------
TOTAL COMMON STOCK--92.4%
(cost $101,923)................................ 121,342
--------
SHORT TERM INVESTMENTS--5.0%
$6,543 Investors Bank & Trust Company........ 6,543
--------
Repurchase Agreement
(cost $6,543)
TOTAL INVESTMENTS--97.4%........................... 127,885
CASH AND OTHER ASSETS, LESS LIABILITIES--2.6%...... 3,470
--------
NET ASSETS--100.0%........................... $131,355
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
(a) Foreign registered securities (Alien Market)
At June 30, 1997, the Fund's Portfolio of Investments includes the following
categories: Electronic Technology - 17%; Finance - 16%; Producer Manufacturing -
9%; Consumer Durables - 9%; Retail - 8%; Commercial Services - 7%; Utilities -
5%; Consumer Services - 5%; Health - 5%; Process Industries - 5%; Consumer
Non-durables - 4%; Technology Services - 3%; Industrial Services - 2%; Metals
and Mining - 2%; Energy - 2%; and Transportation - 1%.
14 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 15
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
INCOME FUND
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
-----------------------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993
------------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Income Fund 3.1% 3.1% 14.4% (0.7)% 7.8%
Lehman Intermediate Govt./
Corp. Index 2.8 4.1 15.3 (1.9) 8.8
<CAPTION>
-----------------------------------------------------------------------------
INVESTOR INFORMATION
-----------------------------------------------------------------------------
JUNE 30, 1997(a) 1996 1995 1994 1993
---------------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $151 $150 $147 $144 $204
Portfolio Turnover Rate (%) 86 66 54 63 114
Expense Ratio (%) .68 .70 .68 .68 .70
------------------------------------------------------------------------------
(a) Rates are annualized.
</TABLE>
-------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
-------------------------------------------
[BENTLEY M. MYER PHOTO]
Dear Shareholders:
There was a big shift in expectations
during the first half of 1997. In the
fourth quarter of 1996, Real Gross Domestic
Product grew at the fairly healthy rate of
3.8%. However, growth in the first quarter
of 1997 accelerated further to 5.9% and the
Federal Reserve Board responded by raising
short-term interest rates for the first
time in nearly two years. There are likely
to be more increases unless the economy
starts to show signs of slowing on a more
consistent basis.
Intermediate and long-term interest rates
responded after the Fed's change in
mid-March. Rates increased by about 75 basis
points fairly quickly but have since
retraced some of that move. We held on to
our increased cash position until May and
then took advantage of the higher yields by
buying U.S. Treasury notes. The portfolio
mix continues to be U.S. Treasury notes and
more conservative mortgage-backed
securities.
We paid our increased monthly dividend of
$.0525 per share during the first half of
1997 and are now in the process of reviewing
that rate to see if it can be increased.
However, our more conservative policy will
be continued so that we do not pay out more
than we are earning on a current basis.
June 30, 1997 Semi-Annual Report 15
<PAGE> 16
--------------------------------------------------
INCOME FUND
--------------------------------------------------
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
WITH REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS
AND INCOME DIVIDENDS
<TABLE>
<CAPTION>
Income Lehman
Fund Intermediate
Govt./Corp. Index
<S> <C> <C>
9/90 $10,000 $10,000
12/90 10,300 10,400
6/91 10,800 10,900
12/91 12,000 11,900
6/92 12,400 12,300
12/92 12,800 12,800
6/93 13,600 13,600
12/93 13,800 13,900
6/94 13,600 13,500
12/94 13,700 13,600
6/95 14,900 15,000
12/95 15,700 15,700
6/96 15,700 15,700
12/96 16,200 16,400
6/97 16,700 16,800
</TABLE>
16 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 17
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- -------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- -------
<C> <S> <C>
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY
GUARANTEED OBLIGATIONS--65.8%
U.S. TREASURY--32.9%
$10,322 U.S. Treasury Note, 5.750%, due
8/15/03............................... $ 9,972
15,500 U.S. Treasury Note, 7.250%, due
5/15/04............................... 16,164
5,000 U.S. Treasury Note, 7.250%, due
8/15/04............................... 5,216
12,650 U.S. Treasury Note, 7.875%, due
11/15/04.............................. 13,654
4,500 U.S. Treasury Note, 7.000%, due
7/15/06............................... 4,633
- ------- -------
47,972 Total U.S. Treasury Obligations....... 49,639
- ------- -------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS--10.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
ADJUSTABLE RATE MORTGAGE--5.9%
4,336 7.125%, due 9/20/21................... 4,447
4,356 7.000%, due 2/20/22................... 4,463
- ------- -------
8,692 Total Government National Mortgage
- ------- Association Adjustable Rate
Mortgages...........................
8,910
-------
FEDERAL HOUSING AUTHORITY--2.8%
4,106 9.680%, due 3/1/25.................... 4,259
- ------- -------
SMALL BUSINESS ADMINISTRATION--1.1%
-- Receipt for Multiple Originator Fees,
#3 0.785%, due 11/8/08 (Interest
Only) WAC........................... 1,372
335 Loan #100023, 9.375%, due 11/25/14.... 349
- ------- -------
335 Total Small Business Administration
- ------- Obligations......................... 1,721
-------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--0.9%
16 12.000%, due 2/20/00.................. 17
21 12.500%, due 2/20/15.................. 24
570 11.000%, due 3/20/16.................. 638
16 10.500%, due 6/20/19.................. 17
428 11.000%, due 8/20/19.................. 479
62 10.500%, due 8/20/20.................. 68
73 10.500%, due 9/20/20.................. 79
-------
- -------
1,186 Total Government National Mortgage
- ------- Association Obligations............. 1,322
-------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--0.0%
10 12.500%, due 4/15/14.................. 12
42 13.000%, due 11/15/14................. 47
-------
- -------
52 Total Government National Mortgage
- ------- Association Obligations.............
59
-------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- -------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- -------
<C> <S> <C>
U.S. GOVERNMENT GUARANTEED
OBLIGATIONS--(CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MOBILE HOME--0.0%
$ 9 9.750%, due 3/15/98................... $ 9
12 9.750%, due 1/15/99................... 13
- ------- -------
21 Total Government National Mortgage
- ------- Association Mobile Home
Obligations......................... 22
-------
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS--22.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--10.8%
650 1991-79, Tranche S, 16.596% FR, due
7/25/98............................. 686
491 11.250%, due 12/15/11................. 543
484 12.250%, due 12/15/11................. 549
53 13.250%, due 8/1/14................... 53
493 12.000%, due 4/25/17.................. 559
1,444 12.000%, due 5/1/17................... 1,639
3,901 9.500%, due 5/1/17.................... 4,155
1,013 8.500%, due 2/1/22.................... 1,054
2,640 1992-200, Tranche SE, 11.500%, due
11/23/22............................ 2,650
266 1993-19, Tranche SH, 11.234%, due
4/25/23............................... 271
3,831 9.500%, due 2/1/25.................... 4,097
- ------- -------
15,266 Total FNMA Mortgage Obligations....... 16,256
- ------- -------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)--7.8%
403 #1475, Tranche SC, 9.457% FR, due
2/15/08............................... 378
4,657 #1544, Tranche TM, 9.3028%, due
7/1/08................................ 4,692
1,092 #1693, Tranche S +, 5.725%, due
9/15/08............................... 902
3,108 #555280, Pass Through, 8.500% , due
9/1/17................................ 3,233
603 #1492, Tranche SE, 10.133%, due
3/15/23............................... 555
2,017 #1542, Tranche S, 14.346%, due
- ------- 7/15/23............................... 2,056
-------
11,880 Total FHLMC Mortgage Obligations...... 11,816
- ------- -------
FEDERAL HOME LOAN BANKS (FHLB)--3.6%
5,500 #BJ-03, Tranche 1, 6.750%, due
10/24/03.............................. 5,497
-------
- -------
95,010 Total U.S. Government and U.S.
- ------- Government Agency Guaranteed
Obligations......................... 99,501
-------
</TABLE>
June 30, 1997 Semi-Annual Report 17
<PAGE> 18
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
- ------------------------------------------- ------ --------
PRINCIPAL S&P
AMOUNT RATING VALUE
- ------------------------------------------- ------ --------
[C] [S] [C] [C]
COLLATERALIZED MORTGAGE OBLIGATIONS--22.2%
$ 3,256 Prudential Home Mortgage
Securities Corp., 1992-45,
Tranche A-8, 6.370% FR,
due 1/25/00............... AAA $ 3,133
1,244 Polk Co. HFA, 1991-1,
Tranche A-2, 9.550%, due
1/15/11................... AAA 1,289
12,955 Morgan Keegan Funding I,
L.P., 8.000%, due
4/25/11................... AA- 13,097
162 Mortgage Obligation
Structured Trust, 1993-1,
Tranche A-1, 6.350%, due
10/25/18.................. AAA 162
5,385 Citicorp, 1993-2, Tranche
A-4, 7.500%, due
7/25/21................... AAA 5,416
159 Residential Finance Corp.,
1991-11, Tranche A-2,
10.000%, due 4/01/21...... AA 161
848 Residential Trust Corp.,
1992-2, Tranche A, 7.943%,
due 8/25/21............... AA 862
191 Resolution Trust Corp.,
1991-3, Tranche A-2,
10.372%, due 8/25/21...... AAA 199
3,298 Bear Stearns, 1992-3B1,
7.577%, due 5/25/23....... AA 3,430
764 Resolution Trust Corp.,
1992-5, Tranche 5-C,
8.621%, due 1/25/26....... AA 784
4,978 Independent National
- -------- Mortgage Corp., 1996-D
A-2, 7.000%, due
5/25/26................... AAA 4,953
--------
33,240 Total Collateralized
- -------- Mortgage Obligations......
33,486
--------
- ------------------------------------------- ------ --------
PRINCIPAL S&P
AMOUNT RATING VALUE
- ------------------------------------------- ------ --------
[C] [S] [C] [C]
CORPORATE OBLIGATIONS--2.0%
1,250 Sears, Roebuck Corp. Medium
Term Note, 9.75%, due
3/21/00................... A- 1,353
1,500 Household Finance Corp.
Medium Term Note, 10.38%,
due 12/15/00.............. A 1,675
--------
- --------
2,750 Total Corporate
Obligations............... 3,028
--------
- --------
131,000 TOTAL LONG-TERM
- -------- INVESTMENTS--90.0%
(Cost $136,233)........... 136,015
--------
SHORT TERM INVESTMENTS--8.9%
$ 3,453 Associates Corp. of North
America Demand Note,
5.497%, due 7/1/97........ A-1+ $ 3,453
3,000 General Motors Acceptance
Corp., 5.640%, due
7/7/97.................... A-2 3,000
2,475 General Motors Acceptance
Corp., 5.600%, due
8/1/97.................... A-2 2,475
1,500 General Motors Acceptance
Corp., 5.570%, due
8/25/97................... A-2 1,500
3,000 Merrill Lynch Commercial
Paper, 5.580%, due
9/16/97................... A-1+ 3,000
- -------- --------
13,428 TOTAL SHORT-TERM
- -------- INVESTMENTS--8.9%
(Cost $13,428)............ 13,428
--------
149,443
$144,428 TOTAL INVESTMENTS--98.9%....
========
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.1%......... 1,675
--------
NET ASSETS--100.0%.......... $151,118
========
- ---------------
WAC= Weighted Average Coupon
FR= Floating Rate
See accompanying Notes to Financial Statements.
18 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 19
<TABLE>
<CAPTION>
-----------------------------------------------------------
READY RESERVES FUND
-----------------------------------------------------------
-----------------------------------------------------------
PERFORMANCE HIGHLIGHTS
-----------------------------------------------------------
JUNE 30, 1997(a) 1996 1995 1994 1993
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ready Reserves Fund 4.9% 4.8% 5.5% 3.7% 2.6%
S&P-rated AAA Money
Market Funds 4.8 4.8 5.4 3.6 2.0
<CAPTION>
------------------------------------------------------------
INVESTOR INFORMATION
------------------------------------------------------------
JUNE 30, 1997(a) 1996 1995 1994 1993
----------------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $895 $761 $704 $521 $477
Expense Ratio (%) .69 .71 .72 .71 .71
-------------------------------------------------------------
(a) Rates are annualized.
</TABLE>
-------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
-------------------------------------
[BENTLEY M. MYER PHOTO]
Dear Shareholders:
The change in Federal Reserve Board
policy was the big story in the first
half of 1997. Short-term rates were
raised after the March meeting and
expectations for more increases
quickly developed with longer maturity
money market rates moving well above
overnight rates. With this move to
higher rates, we began the process of
extending our maturities. We started
the year with an average maturity of
37 days and by the end of the first
half it was up to 44 days. We did
this by purchasing some longer
maturity commercial paper and, more
recently, some longer maturity
fixed-rate government agency notes.
Assets grew quite a bit early in the
period reaching a peak of $975 million
in May. There have been some
withdrawals since then and assets are
currently about $895 million.
There were some problems recently with
a commercial paper issuer whose notes
were held by several, more
aggressively managed money market
funds. There was no impact on
shareholders in this case, as the
advisors contributed capital to insure
that the $1.00 net asset value was
maintained. We did not own any of this
paper but the problems moved us to
re-double our efforts to maintain a
very high quality profile in our fund.
We continue to believe that safety of
principal is our most important
objective and we will continue to
manage the fund with that foremost in
our minds.
June 30, 1997 Semi-Annual Report 19
<PAGE> 20
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------
AMORTIZED
COST
- ----------------------------------------------- ---------
<S> <C>
U.S. GOVERNMENT AGENCY GUARANTEED--4.9%
Agency for International Development,
VRN--Peru
5.828%, 7/1/97............................. $ 2,333
Federal Home Loan Mortgage Corp., VRN
6.50%-7.00%, 7/1/97-2/1/98................. 26,099
Student Loan Marketing Association, VRN
5.555%, 7/1/97............................. 15,000
--------
43,432
--------
DEMAND NOTE--0.0%
Associates Corporation of North America, VRN
5.497%, 7/1/97............................. 73
--------
COMMERCIAL PAPER--95.1%
INSURANCE--24.2%
A. I. Credit Corporation
5.64%, 9/2/97.............................. 2,651
American General Finance Corporation
5.59%-5.63%, 7/15/97-9/16/97............... 29,322
Aon Corporation
5.67%-5.70%, 7/7/97-7/30/97................ 31,437
Marsh & McLennan Companies
5.70%, 9/5/97.............................. 4,856
Met Life Funding, Inc.
5.53%-5.62%, 7/8/97-8/28/97................ 28,846
Prudential Funding Corporation
5.59%-5.64%, 7/16/97-10/8/97............... 45,432
SAFECO Credit Corporation
5.54%-5.63%, 7/11/97-9/12/97............... 43,756
USAA Capital Corporation
5.54%-5.67%, 7/24/97-10/7/97............... 29,522
--------
215,822
--------
FINANCE--18.8%
Associates Corporation of North America
5.55%-5.61%, 7/3/97-10/10/97............... 41,564
Associates First Capital Corporation
5.59%-5.60%, 7/10/97-8/28/97............... 9,661
AVCO Financial Services, Inc.
5.66%, 8/1/97.............................. 7,961
Block Financial Corporation
5.63%-5.65%, 8/4/97-8/5/97................. 4,473
CIT Group Holdings
5.59%-5.65%, 8/14/97-9/3/97................ 26,308
Household Finance Corp.
5.58%-5.64%, 7/2/97-7/30/97................ 38,921
Norwest Financial, Inc.
5.55%-5.65%, 7/11/97-10/14/97.............. 38,624
--------
167,512
--------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------
AMORTIZED
COST
- ----------------------------------------------- ---------
<S> <C>
COMMERCIAL PAPER--(CONTINUED)
MANUFACTURING--15.3%
John Deere Capital Corporation
5.60%, 8/6/97.............................. $ 8,950
Ford Motor Credit Company of Puerto Rico,
Inc.
5.61%-5.63%, 7/14/97-7/31/97............... 22,869
General Electric Capital Corporation
5.59%, 9/8/97.............................. 4,792
General Electric Capital Services of Puerto
Rico, Inc.
5.61%-5.64%, 7/9/97-10/6/97................ 38,927
General Electric Company
5.57%-5.65%, 7/1/97-8/1/97................. 47,581
Paccar Financial Corporation
5.57%, 8/26/97-9/5/97...................... 13,337
--------
136,456
--------
BROKERAGE--7.7%
Merrill Lynch & Company, Inc.
5.57%-5.63%, 7/14/97-9/2/97................ 31,184
Morgan Stanley Group, Inc.
5.60%-5.62%, 7/9/97-7/22/97................ 37,907
--------
69,091
--------
ENERGY--7.6%
Chevron U.K. Investment PLC
5.48%-5.68%, 7/17/97-8/26/97............... 48,363
Mobil Australia Finance Corporation
5.60%-5.62%, 8/11/97....................... 19,872
--------
68,235
--------
CHEMICAL/FOREST--7.0%
DuPont (E.I.) De Nemours & Co.
5.33%-5.54%, 7/8/97-10/30/97............... 21,075
Great Lakes Chemical Corporation
5.55%-5.60%, 7/11/97-9/11/97............... 24,930
Monsanto Co.
5.62%-5.65%, 7/9/97-8/14/97................ 16,623
--------
62,628
--------
UTILITIES--ENERGY & GAS--5.0%
National Rural Utilities Cooperative Finance
Corporation
5.53%-5.64%, 8/8/97-9/29/97................ 44,572
--------
ELECTRONIC/TECHNOLOGY--3.1%
Pitney Bowes Credit Corporation
5.55%-5.66%, 8/18/97-11/17/97.............. 28,094
--------
</TABLE>
20 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 21
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------
AMORTIZED
COST
- ----------------------------------------------- ---------
<S> <C>
COMMERCIAL PAPER--(CONTINUED)
MEDIA/ENTERTAINMENT--2.6%
Dun & Bradstreet Corporation
5.60%-5.63%, 8/13/97-9/9/97................ $ 18,844
McGraw-Hill Companies, Inc.
5.55%, 7/11/97............................. 4,698
--------
23,542
--------
DRUGS/HEALTH--1.5%
Schering-Plough Corporation
5.62%-5.67%, 8/19/97-10/14/97.............. 13,726
--------
UTILITIES--TELEPHONE--1.5%
Ameritech Capital Funding Corporation
5.53%, 9/25/97............................. 2,269
Bell South Capital Funding Corporation
5.52%, 9/18/97............................. 11,138
--------
13,407
--------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------
AMORTIZED
COST
- ----------------------------------------------- ---------
<S> <C>
COMMERCIAL PAPER--(CONTINUED)
BANKING--0.5%
Morgan (J.P.) & Company, Inc.
5.54%, 10/1/97............................. $ 4,539
--------
FOOD/BEVERAGE/TOBACCO--0.3%
Campbell Soup Company
5.60%, 7/14/97............................. 3,099
--------
TOTAL COMMERCIAL PAPER......................... 850,723
--------
TOTAL INVESTMENTS--100.0%...................... 894,228
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.0%............................ 290
--------
NET ASSETS--100.0%............................. $894,518
========
PORTFOLIO WEIGHTED AVERAGE MATURITY............ 44 Days
</TABLE>
- ---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
June 30, 1997 Semi-Annual Report 21
<PAGE> 22
................................................................................
STATEMENTS OF ASSETS AND LIABILITIES
................................................................................
JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------
VALUE INTERNATIONAL READY
GROWTH DISCOVERY GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND
-------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at market (cost
$382,328; $17,075; $108,466;
$149,661;and $894,229,
respectively)................... $556,509 $19,017 $127,885 $149,443 $894,229
Cash.............................. -- 1,070 10,180 99 1
Receivable for:
Fund shares sold................ 414 17 890 75 9,909
Investments sold................ -- 80 47 111 --
Interest and dividends.......... 343 13 146 1,619 325
Foreign currency sold........... -- -- 2,064 -- --
Foreign withholding tax......... 3 -- 139 -- --
Deferred organization costs....... -- 37 5 -- --
Other assets...................... 12 -- -- 1 5
-------- ------- -------- -------- --------
Total assets................ 557,281 20,234 141,356 151,348 904,469
LIABILITIES
Payable for:
Fund shares redeemed............ 560 33 51 141 7,687
Investments purchased........... 1,491 -- 7,767 -- --
Foreign currency purchased...... -- -- 2,046 --
Dividends....................... -- -- -- -- 1,735
Management fee and organization
costs (Notes 1 and 2)......... 335 99 120 76 453
Other............................. 81 52 17 13 76
-------- ------- -------- -------- --------
Total liabilities........... 2,467 184 10,001 230 9,951
-------- ------- -------- -------- --------
Net assets............... $554,814 $20,050 $131,355 $151,118 $894,518
======== ======= ======== ======== ========
CAPITAL
Capital stock ($0.001 par value
37,374; 1,806; 8,152; 14,692;
and 894,623 shares issued and
outstanding, respectively)...... $ 37 $ 2 $ 8 $ 15 $ 894
Paid-in-surplus................... 366,376 18,212 102,085 156,354 893,729
Net unrealized appreciation
(depreciation) on investments
and foreign currency
transactions.................... 174,181 1,942 19,419 (218) --
Accumulated undistributed net
realized gain (loss) on
investments and foreign currency
transactions.................... 14,431 (189) 9,632 (5,833) (108)
Undistributed net investment
income (loss)................... (211) 83 211 800 3
-------- ------- -------- -------- --------
Net assets............... $554,814 $20,050 $131,355 $151,118 $894,518
======== ======= ======== ======== ========
Net asset value per share......... $ 14.85 $ 11.10 $ 16.11 $ 10.29 $ 1.00
======== ======= ======== ======== ========
</TABLE>
22 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 23
................................................................................
STATEMENTS OF OPERATIONS
................................................................................
JUNE 30, 1997 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------
VALUE INTERNATIONAL READY
GROWTH DISCOVERY GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND
------ --------- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest........................ $ 850 $ 150 $ 160 $5,383 $24,408
Dividends....................... 1,111 49 880 -- --
Less foreign tax withheld....... (9) -- (103) -- --
------- ------ ------- ------ -------
1,952 199 937 5,383 24,408
EXPENSES
Investment advisory fees........ 1,912 89 603 450 2,641
Custodian fees.................. 60 4 106 18 102
Transfer agent fees............. 59 6 9 12 168
Professional fees............... 26 21 27 22 27
Registration fees............... 8 6 9 5 45
Organization costs.............. -- 4 5 -- --
Miscellaneous................... 98 12 18 1 70
------- ------ ------- ------ -------
Total expenses before waiver.. 2,163 142 777 508 3,053
Less expenses waived and
absorbed by Company...... -- (26) -- -- --
------- ------ ------- ------ -------
Net investment income
(loss)...................... (211) 83 160 4,875 21,355
Net realized and unrealized gain
(loss) on investments, foreign
currency transactions and other
assets and liabilities.......... 13,754 (189) 10,167 286 (1)
------- ------ ------- ------ -------
Total net realized gain
(loss)........................ 13,754 (189) 10,167 286 (1)
Change in net unrealized
appreciation/(depreciation) on
investments, and other assets
and liabilities................. 36,284 1,942 6,248 (753) (1)
------- ------ ------- ------ -------
Net increase in net assets
resulting from operations....... $49,827 $1,836 $16,575 $4,408 $21,354
======= ====== ======= ====== =======
</TABLE>
June 30, 1997 Semi-Annual Report 23
<PAGE> 24
................................................................................
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996 (all
amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
VALUE INTERNATIONAL
GROWTH DISCOVERY GROWTH INCOME
FUND FUND FUND FUND
------------------- ------------------- ------------------------ -------------------
1997 1996 1997 1996(A) 1997 1996 1997 1996
---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)..... $ (211) $ (336) $ 83 -- $ 160 $ 197 $ 4,875 $ 9,106
Net realized gain (loss) on
investments and foreign
currency transactions and
other assets and
liabilities................... 13,754 27,804 (189) -- 10,167 3,539 286 (2,156)
Change in net unrealized
appreciation (depreciation) on
investments and other assets
and liabilities............... 36,284 43,376 1,942 -- 6,248 6,539 (753) (2,404)
-------- -------- ------- ------ -------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations.................... 49,827 70,844 1,836 -- 16,575 10,275 4,408 4,546
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income............ 10 (343) -- -- 1 (491)(b) (4,187) (8,980)
Net realized gain............... -- (19,503) -- -- -- (3,125) -- --
-------- -------- ------- ------ -------- -------- -------- --------
10 (19,846) -- -- 1 (3,616) (4,187) (8,980)
CAPITAL STOCK TRANSACTIONS
Shares sold...................... 72,544 165,769 16,404 2,175 21,768 29,640 8,840 28,857
Shares issued in reinvestment of
income dividends and capital
gain distributions............ (5) 18,035 -- -- (2) 3,461 3,003 6,494
Less shares redeemed............ (69,336) (96,064) (365) -- (12,135) (24,374) (10,952) (28,281)
-------- -------- ------- ------ -------- -------- -------- --------
Change from capital stock
transactions.................... 3,203 87,740 16,039 2,175 9,631 8,727 891 7,070
-------- -------- ------- ------ -------- -------- -------- --------
Change in net assets............ 53,040 138,738 17,875 2,175 26,207 15,386 1,112 2,636
Net assets
Beginning of period............. 501,774 363,036 2,175 -- 105,148 89,762 150,006 147,370
-------- -------- ------- ------ -------- -------- -------- --------
End of period................... $554,814 $501,774 $20,050 $2,175 $131,355 $105,148 $151,118 $150,006
======== ======== ======= ====== ======== ======== ======== ========
Undistributed net investment
income (loss) at the end of the
period.......................... $ (211) -- $ 83 -- $ 211 -- $ 800 $ 113
======== ======== ======= ====== ======== ======== ======== ========
CAPITAL STOCK TRANSACTIONS
Shares sold...................... 5,405 12,563 1,624 218 1,440 2,196 865 2,771
Shares issued in reinvestment of
income dividends and capital
gain distributions............ -- 1,351 -- -- -- 253 294 630
Less shares redeemed............ (5,240) (7,220) (36) -- (828) (1,751) (1,069) (2,735)
-------- -------- ------- ------ -------- -------- -------- --------
Change from capital stock
transactions.................... 165 6,694 1,588 218 612 698 90 666
======== ======== ======= ====== ======== ======== ======== ========
<CAPTION>
-----------------------
READY
RESERVES
FUND
-----------------------
1997 1996
---- ----
<S> <C> <C>
OPERATIONS
Net investment income (loss)..... $ 21,355 $ 34,173
Net realized gain (loss) on
investments and foreign
currency transactions and
other assets and
liabilities................... (1) (107)
Change in net unrealized
appreciation (depreciation) on
investments and other assets
and liabilities............... -- --
---------- ----------
Net increase (decrease) in net
assets resulting from
operations.................... 21,354 34,066
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income............ (21,355) (34,170)
Net realized gain............... -- --
---------- ----------
(21,355) (34,170)
CAPITAL STOCK TRANSACTIONS
Shares sold...................... 1,685,982 2,994,231
Shares issued in reinvestment of
income dividends and capital
gain distributions............ 19,197 33,371
Less shares redeemed............ (1,571,468) (2,970,683)
---------- ----------
Change from capital stock
transactions.................... 133,711 56,919
---------- ----------
Change in net assets............ 133,710 56,815
Net assets
Beginning of period............. 760,808 703,993
---------- ----------
End of period................... $894,518 $760,808
========== ==========
Undistributed net investment
income (loss) at the end of the
period.......................... $ 3 $ 3
========== ==========
CAPITAL STOCK TRANSACTIONS
Shares sold...................... 1,685,982 2,994,231
Shares issued in reinvestment of
income dividends and capital
gain distributions............ 19,197 33,371
Less shares redeemed............ (1,571,468) (2,970,683)
---------- ----------
Change from capital stock
transactions.................... 133,711 56,919
========== ==========
</TABLE>
- ---------------
(a) For the period from December 23, 1996 (Commencement of Operations) to
December 31, 1996.
(b) Includes $160 relating to PFIC transactions which are treated as ordinary
income for Federal income tax purposes.
24 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 25
................................................................................
NOTES TO FINANCIAL STATEMENTS
................................................................................
(unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Fund
William Blair Mutual Funds, Inc. (the "Fund") is a no-load, open-end diversified
mutual fund currently consisting of five portfolios, each with its own
investment objective and policies.
The Growth Fund is a portfolio whose principal objective is to provide long-term
appreciation of capital by investing in well-managed companies in growing
industries.
The Value Discovery Fund, which commenced operations on December 23, 1996, is a
portfolio whose principal objective is to seek long-term capital appreciation by
investing with a value discipline primarily in the securities of small
companies.
The International Growth Fund is a portfolio which invests primarily in common
stocks issued by companies domiciled outside the United States and securities
convertible into, exchangeable for, or having the right to buy such common
stocks. The investment objective of the portfolio is long-term capital
appreciation through investment in well-managed, quality, growth companies.
The Income Fund is a portfolio designed to provide investors with as high a
level of current income as is consistent with preservation of capital.
The Ready Reserves Fund is a money market portfolio designed for investors who
are looking for professional management of their reserve assets. The Ready
Reserves Fund portfolio seeks to obtain maximum current income consistent with
preservation of capital and invests exclusively in high quality money market
instruments.
All of the portfolio's investments are subject to market fluctuations.
(b) Investment Securities
Equity securities traded on national securities markets are valued at the last
sale price or, in the absence of a sale on the date of valuation, at the latest
bid price. Long-term fixed-income securities are valued by using market
quotations or independent services that use prices provided by market makers or
estimates of market values obtained from yield data relating to instruments or
securities with similar characteristics. The value of a foreign security is
determined based upon its sale price on the foreign exchange or market on which
it is primarily traded as of the close of the appropriate exchange or, if there
have been no sales on the date of valuation at the latest bid price. Other
securities are valued at fair value as determined in good faith by the Board of
Directors. Short-term securities in all Funds except Ready Reserves Fund are
valued at cost which approximates market value. Securities in Ready Reserves
Fund are valued on the amortized cost method. Under this method, any premium or
discount, as of the date an investment security is acquired, is amortized on a
straight-line basis to maturity.
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premium or discount. Dividend income is recorded on the
ex-dividend date, except that certain dividends from foreign securities are
recorded as soon as the information is available. Securities transactions are
recorded on the trade date. Realized gains and losses from securities
transactions are reported on an identified cost basis.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Variable rate bonds and floating rate notes earn interest at
a coupon rate which fluctuates at specific time intervals. The interest rates
shown in the Income Fund and Ready Reserves Fund Portfolios of Investments are
the rates in effect at June 30, 1997.
(c) Share Valuation and Dividends to Shareholders
Shares are sold and redeemed on a continuous basis at net asset value. Each Fund
determines net asset value per share by dividing the value of its assets, less
liabilities, by the number of shares outstanding as of the earlier of 3:00 p.m.
or the daily close of business of the New York Stock Exchange for Growth Fund,
Value Discovery Fund and International Growth Fund or on each day when New York
banks are open for business (except Good Friday) for Income Fund and Ready
Reserves Fund. Dividends from net investment income of the Growth Fund, Value
Discovery Fund and International Growth Fund are declared at least annually.
Dividends from the Income Fund and Ready Reserves Fund are declared monthly and
daily, respectively. Capital gain distributions, if any, are declared annually
in December. Dividends payable to shareholders are recorded on the ex-dividend
date. Dividends are determined in accordance with Federal income tax principles
which may treat certain transactions differently from generally accepted
accounting principles.
(d) Repurchase Agreements
The Fund may enter into repurchase agreements with its custodian, whereby the
Fund acquires ownership of a debt security and the custodian agrees, at the time
of the sale, to repurchase the debt security from the Fund at a mutually agreed
upon time and price. The
June 30, 1997 Semi-Annual Report 25
<PAGE> 26
Fund's policy is to take possession of securities under repurchase agreements.
The Fund minimizes credit risk by (i) monitoring credit exposure of the
custodian and (ii) monitoring collateral value on a daily basis.
(e) Foreign Currency Translation and Forward Foreign Currency Contracts
All assets and liabilities of the International Growth Fund denominated in
foreign currencies are translated into U.S. dollar amounts at the current
exchange rate at the day of valuation. The International Growth Fund may enter
into forward foreign currency contracts as a means of managing the risks
associated with changes in exchange rates for the purchase or sale of a specific
amount of a particular foreign currency. Additionally, from time to time, the
Fund may enter into contracts to hedge the value, in U.S. dollars, of securities
it currently owns. Forward foreign currency contracts and foreign currencies are
valued at the forward and current exchange rates, respectively, prevailing on
the day of valuation. Gains and losses from foreign currency transactions
associated with purchases and sales of investments are included with the net
realized or unrealized gain or loss on investments.
(f) Income Taxes
Each Fund intends to comply with the special provisions of the Internal Revenue
Code available to regulated investment companies and, therefore, no provision
for Federal income taxes has been made in the accompanying financial statements
since the Funds intend to distribute their taxable income to their shareholders
and be relieved of all Federal income taxes. At December 31, 1996, the Fund's
most recent tax year-end, the Income Fund and the Ready Reserves Fund have
capital loss carryforwards of $6,121,000 and $107,000, respectively. These loss
carryforwards, which expire in 2004, can be used to offset net capital gains.
A reclassification of $7,737,000 was made in 1996 in the capital accounts of the
Growth Fund from accumulated undistributed net realized gain on investments into
paid-in surplus to reflect a difference between financial and income tax basis
reporting resulting from an in-kind redemption of fund shares.
The International Growth Fund has elected to mark-to-market its investment in
Passive Foreign Investment Companies ("PFIC's") for Federal income tax purposes.
In accordance with this election, the fund recognized unrealized appreciation of
$133,000 and $414,000 in 1996 and 1995, respectively. In addition, the fund
recorded net realized gains of $132,000 on sales of PFIC's during 1996, of which
$105,000 had been recognized in prior years. Dividends to shareholders from net
investment income included $160,000 and $414,000 relating to PFIC's during 1996
and 1995, which are treated as ordinary income from Federal income tax purposes.
(g) Organization Costs
The initial organization costs of the Value Discovery Fund and International
Growth Fund have been paid by William Blair & Company L.L.C. (the "Company").
The Funds will reimburse the Company for the amount of such expenses not
exceeding $50,000. The deferred organization costs are being amortized on the
straight-line method and repaid to the Company over a five year period.
(2) INVESTMENT ADVISORY, TRANSACTIONS WITH AFFILIATES AND DIRECTOR'S FEES
The Company provides investment advisory and other administrative and accounting
services to the Funds under terms of the Management Agreement. The Funds pay the
Company a monthly fee determined as a specified percentage of average daily net
assets. A summary of the annual rates expressed as a percentage of average daily
net assets, are as follows:
<TABLE>
<S> <C>
Growth Fund 0.75%
Value Discovery Fund 1.15%
International Growth Fund 1.10% of the first $250 million
1.00% in excess of $250 million
Income Fund 0.25% of the first $250 million
0.20% in excess of $250 million
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 Value Discovery Fund's advisory
fee and to absorb other operating expenses if total expenses exceed 1.50% of
average daily net assets.
The Funds paid fees of $26,000 to non-affiliated directors of the Funds for the
period ended June 30, 1997.
26 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 27
(3) INVESTMENT TRANSACTIONS
Investment transactions, excluding money market instruments, for the period
ended June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Value International
Growth Discovery Growth Income
Fund Fund Fund Fund
-------- --------- ------------- --------
(all amounts in thousands)
<S> <C> <C> <C> <C>
Purchases.................................................. $117,579 $ 17,437 $ 57,518 $ 61,454
Proceeds from sales and maturities......................... 120,224 1,168 52,063 53,676
Gross unrealized appreciation (depreciation) at June 30,
1997 is as follows:
Unrealized appreciation.................................. $185,247 $ 2,965 $ 22,034 $ 1,287
Unrealized depreciation.................................. 11,066 1,023 2,615 1,505
-------- -------- -------- --------
Net unrealized appreciation (depreciation)................. $174,181 $ 1,942 $ 19,419 $ (218)
======== ======== ======== ========
</TABLE>
Cost of investments is the same for financial statement and Federal income tax
purposes except for International Growth Fund where the cost is $109,562.
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
GROWTH FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------------------------
JUNE 30, 1997(A) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 13,480 $ 11.900 $ 9.600 $ 9.730 $ 9.390 $ 9.490
Income from investment operations:
Net investment income (loss).... (.005) (.010) .034 .027 .035 .045
Net realized and unrealized gain
on investments................ 1.375 2.144 2.750 .581 1.389 .671
-------- -------- -------- -------- -------- --------
Total from investment
operations...................... 1.370 2.134 2.784 .608 1.424 .716
Less distributions from:
Net investment income........... -- .010 .030 .025 .035 .047
Net realized gain............... -- .544 .454 .713 1.049 .769
-------- -------- -------- -------- -------- --------
Total distributions............... -- .554 .484 .738 1.084 .816
-------- -------- -------- -------- -------- --------
Net asset value, end of period.... $ 14.850 $ 13.480 $ 11.900 $ 9.600 $ 9.730 $ 9.390
======== ======== ======== ======== ======== ========
Total return (%).................. 10.16 17.99 29.07 6.45 15.51 7.61
Ratios to average daily net assets
(%):
Expenses........................ .83 .79 .65 .71 .78 .83
Net investment income (loss).... (.01) (.08) .34 .32 .38 1.34
Supplemental data:
Net assets at end of period (in
thousands).................... $554,814 $501,774 $363,036 $217,560 $150,046 $111,082
Portfolio turnover rate (%)..... 49 43 32 46 55 27
Average commission rate......... $ .0599 $ .0621
</TABLE>
- ---------------
(a) Rates are annualized.
June 30, 1997 Semi-Annual Report 27
<PAGE> 28
................................................................................
VALUE DISCOVERY FUND
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997(A) 1996(B)
---------------- -------
<S> <C> <C>
Net asset value, beginning of
period.......................... $10.000 $10.000
Income from investment operations:
Net investment income (loss).... .046 --
Net realized and unrealized gain
on investments................ 1.054 --
-------- -------
Total from investment
operations...................... 1.100 --
Less distributions from:
Net investment income........... -- --
Net realized gain............... -- --
-------- -------
Total distributions............... -- --
-------- -------
Net asset value, end of period.... $11.100 $10.000
======== =======
Total return (%).................. 11.00 --
Ratios to average daily net assets
(%):
Expenses(c)..................... 1.50 --
Net investment income(c)........ 1.08 --
Supplemental data:
Net assets at end of period (in
thousands).................... $20,050 $ 2
Portfolio turnover rate (%)..... 28 --
Average commission rate......... $ .0600
</TABLE>
- ---------------
(a) Ratios are annualized except total returns for periods of less than one
year.
(b) For the period December 23, 1996 (Commencement of Operations) to December
31, 1996.
(c) Without the waiver of expenses in 1997, the expense ratio would have been
1.84% and the net investment income ratio would have been .74%.
28 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 29
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------- PERIOD ENDED
JUNE 30, 1997(A) 1996 1995 1994 1993 DECEMBER 31, 1992(A)(B)
---------------- -------- ------- ------- ------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 13.950 $ 13.120 $12.360 $13.180 $10.130 $10.000
Income from investment operations:
Net investment income (loss).... .019 .029 .105 .016 .008 (.011)
Net realized and unrealized gain
(loss) on investments,
foreign currency and other
assets and liabilities........ 2.141 1.299 .785 (.025) 3.401 .141
-------- -------- ------- ------- ------- --------
Total from investment
operations...................... 2.160 1.328 .890 (.009) 3.409 .130
Less distributions from:
Net investment income........... -- .068(c) .130(c) .024 -- --
Net realized gain............... -- .430 -- .714 .359 --
Tax return of capital........... -- -- -- .073(d) -- --
-------- -------- ------- ------- ------- --------
Total distributions............... -- .498 .130 .811 .359 --
-------- -------- ------- ------- ------- --------
Net asset value, end of period.... $ 16.110 $ 13.950 $13.120 $12.360 $13.180 $10.130
======== ======== ======= ======= ======= ========
Total return (%).................. 15.48 10.20 7.22 (.04) 33.65 1.30
Ratios to average daily net assets
(%):
Expenses(e)..................... 1.40 1.44 1.48 1.51 1.71 1.88
Net investment income
(loss)(e)..................... .14 .19 .87 .15 .11 (.56)
Supplemental data:
Net assets at end of period (in
thousands).................... $131,355 $105,148 $89,762 $70,403 $40,298 $10,767
Portfolio turnover rate (%)..... 99 89 77 40 83 5
Average commission rate......... $.0027 $.0051
</TABLE>
- ---------------
(a) Ratios are annualized except total returns for periods less than one year.
(b) For the period October 1, 1992 (Commencement of Operations) to December 31,
1992.
(c) Includes $.022 and $.061 in PFIC transactions which are treated as ordinary
income for Federal income tax purposes for 1996 and 1995, respectively.
(d) Includes $431 relating to a tax return of capital.
(e) Without the waiver of expenses in 1993 and 1992, the expense ratios would
have been 2.08% and 2.55% and the net investment income (loss) ratios would
have been (.25)% and (1.22)%, respectively.
June 30, 1997 Semi-Annual Report 29
<PAGE> 30
................................................................................
INCOME FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------------------------
JUNE 30, 1997(A) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 10.270 $ 10.570 $ 9.850 $ 10.580 $ 10.600 $ 10.770
Income from investment operations:
Net investment income........... .336 .619 .646 .661 .651 .832
Net realized and unrealized gain
(loss) on investments......... (.027) (.309) .732 (.741) .159 (.089)
-------- -------- -------- -------- -------- --------
Total from investment
operations...................... .309 .310 1.378 (.080) .810 .743
Less distributions:
Net investment income........... .289 .610 .658 .646 .651 .827
Net realized gain............... -- -- -- .004 .179 .086
-------- -------- -------- -------- -------- --------
Total distributions............... .289 .610 .658 .650 .830 .913
-------- -------- -------- -------- -------- --------
Net asset value, end of period.... $ 10.290 $ 10.270 $ 10.570 $ 9.850 $ 10.580 $ 10.600
======== ======== ======== ======== ======== ========
Total return (%).................. 3.06 3.07 14.37 (.74) 7.82 7.17
Ratios to average daily net assets
(%):
Expenses........................ .68 .70 .68 .68 .70 .88
Net investment income........... 3.28 5.97 6.24 6.33 5.96 7.69
Supplemental data:
Net assets at end of period (in
thousands).................... $151,118 $150,006 $147,370 $143,790 $204,381 $136,896
Portfolio turnover rate (%)..... 86 66 54 63 114 47
</TABLE>
- ---------------
(a) Ratios are annualized except total returns for periods less than one year.
30 William Blair Mutual Funds, Inc. June 30, 1997
<PAGE> 31
................................................................................
READY RESERVES FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------------------------
JUNE 30, 1997(A) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income........... .03 .05 .05 .04 .03 .03
Net realized loss on
investments................... -- -- -- (.01) -- --
-------- -------- -------- -------- -------- --------
Total from investment
operations...................... .03 .05 .05 .03 .03 .03
Less distributions:
Net investment income........... .03 .05 .05 .04 .03 .03
-------- -------- -------- -------- -------- --------
Total distributions............... .03 .05 .05 .04 .03 .03
-------- -------- -------- -------- -------- --------
Capital contribution.............. -- -- -- .01 -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return (%).................. 2.43 4.81 5.45 3.67(b) 2.64 3.32
Ratios to average daily net assets
(%):
Expenses........................ .69 .71 .72 .71 .71 .71
Net investment income........... 2.41 4.78 5.30 3.61 2.61 3.27
Supplemental data:
Net assets at end of period (in
thousands).................... $894,518 $760,808 $703,993 $521,277 $477,268 $448,797
</TABLE>
- ---------------
(a) Ratios are annualized except total returns for periods of less than one
year.
(b) The total return includes the impact of the Company's capital contribution.
Without the Company's capital contribution, the total return would have been
3.40%.
June 30, 1997 Semi-Annual Report 31
<PAGE> 32
------------------------------------------------
BOARD OF DIRECTORS
------------------------------------------------
CONRAD FISCHER, CHAIRMAN
Principal, William Blair & Company, L.L.C.
VERNON ARMOUR
Private Investor
GEORGE KELM
Retired Chairman of the Board, Sahara Coal
Company, Inc.
JAMES M. MCMULLAN
Principal, William Blair & Company, L.L.C.
ANN P. MCDERMOTT
Director and Trustee
Profit and not-for-profit organizations
JOHN B. SCHWEMM
Retired Chairman and CEO, R.R. Donnelley &
Sons Company
W. JAMES TRUETTNER, JR.
Principal, William Blair & Company, L.L.C.
-------------------------------------------------
OFFICERS
-------------------------------------------------
Rocky Barber, President
Mark A. Fuller, III, Senior Vice President
W. George Greig, Senior Vice President
Glen A. Kleczka, Senior Vice President
Bentley M. Myer, Senior Vice President
Norbert W. Truderung, Senior Vice President
James S. Kaplan, Vice President
John P. Kayser, Vice President
Terence M. Sullivan, Vice President and Treasurer
Janet V. Gassmann, Secretary
INVESTMENT ADVISER
William Blair & Company, L.L.C.
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 9104
Boston, MA 02266-9104
1-800-635-2886
(Massachusetts 1-800-635-2840)
William Blair Mutual Funds, Inc.
222 West Adams Street
Chicago, Illinois 60606
