<PAGE> 1
Semi-Annual Report / June 30, 1998
--------------------------------------------------------------
WILLIAM BLAIR MUTUAL FUNDS, INC
--------------------------------------------------------------
--------------------------------------------------------------
GROWTH FUND
VALUE DISCOVERY FUND
INTERNATIONAL GROWTH FUND
EMERGING MARKETS 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 an 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
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
6/30/98 1997 1996 1995 1994 1993
--------------- -------------- ----------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund..................... 17.5% 20.1% 18.0% 29.1% 6.5% 15.5%
S&P500 Index.................. 17.7 33.4 23.3 37.5 1.3 10.0
Value Discovery Fund............ 9.6 33.5 - - - -
Russell 2000 Index............ 4.9 22.4 16.5 28.4 (1.8) 18.9
International Growth Fund....... 14.8 8.4 10.2 7.2 (0.04) 33.6
MSCI AC WLD ex US Index*...... 12.0 2.0 6.7 9.9 6.6 34.9
Lipper International Index.... 15.9 7.3 14.4 10.0 (0.7) 39.2
Emerging Markets Growth Fund (a) (13.0) - - - - -
MSCI EM Free Index**(a)....... (22.3) - - - - -
Income Fund..................... 3.3 8.0 3.1 14.4 (0.7) 7.8
Lehman Intermediate Govt./
Corp. Index................. 3.5 7.9 4.1 15.3 (1.9) 8.8
Ready Reserves Fund............. 5.0 (b) 5.0 4.8 5.5 3.7 2.6
S&P-rated AAA
Money Market Funds.......... 5.0 (b) 5.0 4.8 5.4 3.6 2.0
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
INVESTOR INFORMATION FOR THE PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------------------------------------------
EMERGING
VALUE INTERNATIONAL MARKETS READY
GROWTH DISCOVERY GROWTH GROWTH INCOME RESERVES
FUND FUND FUND FUND (a) FUND FUND
---------- ------------ ---------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $696 $42 $153 $4 $177 $964
Portfolio Turnover Rate (%) (b) 40 64 75 71 93 -
Expense Ratio (b)............... .83 1.50 1.33 2.25(c) .71 .69
Sales Load...................... None None None None None None
Redemption Fees................. None None None None None None
Exchange Fees................... None None None None None None
12b-1 Fees...................... None None None None None None
--------------------------------------------------------------------------------------------------
* Morgan Stanley Capital International All Country World Free except U.S. Index.
** Morgan Stanley Capital International Emerging Markets Free Index.
(a) For the period May 1, 1998 (Commencement of Operations) to June 30, 1998.
(b) Rates are annualized.
(c) Without the waiver of expenses, the expense ratio would have been 5.22%.
</TABLE>
2 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 3
- --------------------------------------------------------------------------------
A LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholders:
The extraordinary run of the U.S. markets continued during
the first six months of 1998. Once again large cap stocks
[photo of led the way with the S&P 500 up 17.7%. Smaller cap stocks
Rocky Barber] had more normal returns with the Russell 2000 up 4.9%.
While this combination restrained the performance of both
of our equity funds, a shift of investor sentiment back
towards growth meant that the Growth Fund produced our
leading return at 17.5%. The Value Discovery Fund returned
9.6% and easily outdistanced most of its small cap
competitors.
The International Growth Fund weathered some difficult
markets especially in the Far East and produced a 14.8%
return. Finally the Income Fund and Ready Reserve Fund
produced their usual, consistent and competitive returns,
3.3% and 2.5% respectively. All of our funds closely
matched or exceeded their benchmarks for the six months.
As George Greig describes more fully in his International
Growth Fund letter, the emerging foreign markets suffered
another sizable setback. Dropping to the current depressed
level has hurt, but it presents a real opportunity going
forward as we expect these markets to recover over the next
couple of years. In order to capitalize on this more fully,
we have opened a new portfolio, the Emerging Markets Growth
Fund. Led by Jeff Urbina, who is the emerging markets
specialist on George Greig's international team, the
Emerging Markets Growth Fund will be a pure play on some of
the most volatile but fastest growing countries in the
world. In the last several months Jeff has visited a dozen
countries in order to sort through the damage and identify
some of the extremely attractive opportunities in these
less established equity markets. While it may take time for
these economies to reestablish growth, we have high
expectations for the long term developments of these
economies.
Back in the U.S., larger cap stocks fully reflect a lot of
good news, but small cap stocks have lagged for nearly
three years. Both the Growth Fund and the Value Discovery
Fund are positioned to benefit from the eventual turn
towards faster growing small companies. We remain committed
to a fundamental, company specific approach to research and
portfolio management. We appreciate your business and your
confidence in us.
/s/ Rocky Barber
June 30, 1998 Semi-Annual Report 3
<PAGE> 4
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
GROWTH FUND
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
6/30/98 1997 1996 1995 1994 1993
________________ ________________ ________________ __________ ____________ ________________
<S> <C> <C> <C> <C> <C> <C>
Growth Fund.................... 17.52% 20.07% 17.99% 29.07% 6.45% 15.51%
S&P 500 Index................ 17.71 33.36 22.96 37.58 1.32 10.08
Russell 2000 Index........... 4.93 22.36 16.49 28.44 (1.82) 18.91
-------------------------------------------------------------------------------------------------
INVESTOR INFORMATION
-------------------------------------------------------------------------------------------------
6/30/98 (a) 1997 1996 1995 1994 1993
________________ ________________ ________________ __________ ___________ ________________
Ending Net Assets (in millions). $696 $591 $502 $363 $218 $150
Portfolio Turnover Rate (%)..... 40 34 43 32 46 55
Expense Ratio (%)............... .83 .84 .79 .65 .71 .78
-------------------------------------------------------------------------------------------------
(a) Rates are annualized.
</TABLE>
-----------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
-----------------------------------------------
Dear Shareholders:
The U.S. economic boom continues, and the U.S.
stock market followed right along. As shown
above, large cap stocks (S&P 500) continue to
[photo of lead the charge. Even the growing Asian crisis
Rocky Barber] has had only a modest impact on profits thus
far, and domestic growth remains strong enough
to offset much of the difficulty. Record low
interest rates have provided a lot of the
recent economic stimulus. However, we have
difficulty seeing what new stimulus will keep
real GDP growing 3% or more as it has over the
last three years. We expect profit growth to
slow, especially for larger companies most of
which have exposure to Asia. Cyclical companies
could be especially vulnerable, with raw
material producers (energy, metals,
agricultural products, etc.) having the
toughest time. As investors grow more concerned
with earnings vulnerability, our portfolio
focus on quality and consistent growth is
beginning to stage a comeback after languishing
for almost three years.
We would highlight three key factors that give
us confidence in our portfolio mix today: 1)
[photo of The relative earnings growth rate of large
Mark A. Fuller III] companies has fallen quite sharply in the past
three quarters, and is now running well below
that of smaller growth stocks; 2) There are
very low relative valuations for smaller/mid
sized stocks as compared to larger cap
investments; and 3) Our portfolioOs companies
are more domestically focused and are less
exposed to the vagaries of international
economic turmoil.
We see all three keys of our
philosophy--growth, valuation and
predictability, pointing towards
smaller/mid-sized companies. We intend to
increase our exposure to this area in the
coming months. In summary, we are very
encouraged about the performance trends for the
Growth Fund.
4 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 5
----------------------------------------------------------------------
Growth Fund
----------------------------------------------------------------------
ILLUSTRATION OF AM ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF
CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund ===== $10,000 10,700 14,000 13,700 19,800 21,300 24,600 26,200 33,800 39,800 47,800 56,600
S&P 500 Index ----- $10,000 11,700 15,400 14,900 19,400 21,100 23,000 23,300 32,100 39,400 52,600 61,900
</TABLE>
June 30, 1998 Semi-Annual Report 5
<PAGE> 6
................................................................................
GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS
<C> <S> <C>
HEALTHCARE--16.2%
300 Amgen, Inc............................. $ 19,613
210 *Boston Scientific Corporation......... 15,041
446 *Covance, Inc.......................... 10,028
244 *Elan Corporation plc ADR.............. 15,679
215 *Health Care & Retirement
Corporation............................ 8,469
374 *Healthsouth Rehabilitation
Corporation............................ 9,984
200 Medtronic, Inc......................... 12,750
389 Omnicare, Inc.......................... 14,843
135 *Quintiles Transnational Corporation... 6,657
--------
113,064
--------
TECHNOLOGY--14.8%
199 *Aspen Technology, Inc................. 10,044
320 *Electronic Arts, Inc.................. 17,280
100 Hewlett Packard Company................ 5,988
80 Intel Corporation...................... 5,945
80 Linear Technology Corporation.......... 4,801
220 *Microsoft Corporation................. 23,843
146 Molex, Inc............................. 3,663
216 Molex, Inc., Class "A"................. 5,048
142 Texas Instruments, Inc................. 8,275
185 *Xilinx, Inc........................... 6,289
280 *Zebra Technologies Corporation, Class
"A".................................... 11,962
--------
103,138
--------
CONSUMER RETAIL--14.6%
340 CVS Corporation........................ 13,239
163 Home Depot, Inc........................ 13,547
190 Lowes Companies, Inc................... 7,715
266 Mattel, Inc............................ 11,251
500 Pep Boys-Manny, Moe & Jack............. 9,469
354 *Staples, Inc.......................... 10,231
600 *Viking Office Products, Inc........... 18,825
211 Walgreen Company....................... 8,721
138 *Whole Foods Market, Inc............... 8,342
--------
101,340
--------
FINANCIAL SERVICES--13.0%
150 Associates First Capital Corp., Class
"A".................................... 11,501
458 *B A Merchant Services, Inc............ 9,256
607 *Concord EFS, Inc...................... 15,871
446 *Credit Acceptance Corporation......... 3,795
160 Federal Home Loan Mortgage
Corporation............................ 7,530
255 Household International, Inc........... 12,686
291 MBNA Corporation....................... 9,593
150 State Street Boston Corporation........ 10,425
225 Travelers/Aetna Property and Casualty
Corp., Class "A"....................... 9,647
--------
90,304
--------
TECHNOLOGY SERVICES--12.5%
537 *Acxiom Corporation.................... 13,389
380 Automatic Data Processing, Inc......... 27,693
150 Cognizant Corporation.................. 9,450
192 First Data Corporation................. 6,399
247 *Gartner Group, Inc.................... 8,647
174 Shared Medical Systems Corporation..... 12,794
186 *Sterling Commerce, Inc................ 9,016
--------
87,388
--------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
- ---------------------------------------------------- --------
SHARES OR PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
BUSINESS SERVICES--9.3%
170 *C K S Group, Inc...................... $ 3,065
300 *Cendant Corporation................... 6,263
130 Cintas Corporation..................... 6,630
244 *Core Laboratories NV.................. 5,270
175 R.R. Donnelly & Sons Company........... 7,997
316 *Heartland Express, Inc................ 6,399
304 *Knight Transportation, Inc............ 5,814
307 *NFO Worldwide, Inc.................... 5,461
188 *Robert Half International, Inc........ 10,495
253 *Rural/Metro Corporation............... 3,286
96 U.S. Freightways Corporation........... 3,166
35 Wallace Computer Services, Inc......... 836
--------
64,682
--------
MEDIA AND COMMUNICATIONS--5.6%
300 Airtouch Communications, Inc........... 17,532
316 *A D C Telecommunications, Inc......... 11,533
89 *Clear Channel Communications, Inc..... 9,690
--------
38,755
--------
DISTRIBUTION--4.1%
100 Cardinal Health, Inc................... 9,375
314 *MSC Industrial Direct Co., Class
"A".................................... 8,949
298 *U. S. Foodservice..................... 10,468
--------
28,792
--------
INDUSTRIAL PRODUCTS--3.0%
284 Danaher Corporation.................... 10,421
200 Minerals Technologies, Inc............. 10,175
--------
20,596
--------
TOTAL COMMON STOCK--93.1%
(cost $382,931)................................... 648,059
--------
CONVERTIBLE PREFERRED STOCK--2.0%
600 Innkeepers USA Trust,
8.625%, Series A Cumulative
Convertible Preferred Shares of
Beneficial Interest (cost $15,000)... 13,650
--------
CONVERTIBLE BOND--0.7%
$ 5,000 The Sports Authority, Inc.,
5.25% Subordinated Debentures,
due 9/15/01 (cost $4,623)............ 4,750
--------
SHORT-TERM INVESTMENTS
$ 9,605 Associates Corp. of North America
Demand Note, 5.49%, due 7/1/98....... 9,605
10,740 Household Finance Corporation,
5.52%, due 7/10/98................... 10,740
1,463 General Electric Capital Corporation,
5.51%, due 7/13/98................... 1,463
4,000 Ford Motor Credit Corporation,
5.50% - 5.54%, due 7/17/98 -
7/24/98.............................. 4,000
--------
TOTAL SHORT-TERM INVESTMENTS--3.7%
(cost $25,808).................................... 25,808
--------
TOTAL INVESTMENTS--99.5%............................ 692,267
CASH AND OTHER ASSETS, LESS LIABILITIES--0.5%....... 3,707
--------
NET ASSETS--100.0%.................................. $695,974
========
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
6 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 7
-----------------------------------------------
VALUE DISCOVERY FUND
-----------------------------------------------
...............................................
PERFORMANCE HIGHLIGHTS
...............................................
<TABLE>
<CAPTION>
-----------------------------------------------
6/30/98 1997 1996(a)
---------- --------- --------
<S> <C> <C> <C>
Value Discovery Fund................ 9.56% 33.46% -
Russell 2000 Index................ 4.93 22.36 16.49
</TABLE>
...............................................
INVESTOR INFORMATION
...............................................
<TABLE>
<CAPTION>
-----------------------------------------------
6/30/98 (b) 1997 1996(a)
----------- -------- --------
<S> <C> <C> <C>
Ending Net Assets (in millions).... $42 $30 $2
Portfolio Turnover Rate (%)........ 64 69 -
Expense Ratio (%).................. 1.50 1.50(c) -
-----------------------------------------------
</TABLE>
(a) For the period December 23, 1996 (Commencement of
Operations) to December 31, 1996.
(b) Rates are annualized.
(c) Without the waiver of expenses, the expense ratio would
have been 1.78%.
------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
------------------------------------------------------------
Dear Shareholders:
We are pleased to report the Value Discovery Fund returned
[photo of 9.56% year-to-date in 1998 vs. 4.93% for the Russell 2000
Glen Kleczka] benchmark. For the last twelve months, the Value Discovery
Fund returned 31.73% vs. 16.50% for the Russell 2000. We
are pleased so far with the FundOs relative performance
year-to-date and since the Fund's inception even though the
absolute performance of small capitalization stocks and the
Fund has generally been well below large capitalization S &
P 500 stocks in 1998. However, the Fund has been a
consistent performer through numerous challenging
environments, including the Asian crisis, the technology
correction, the crash in energy prices and the substantial
outperformance of large cap stocks.
During 1998 there continued to be a significant valuation
disparity between large and small capitalization stocks.
What is striking about 1998 is its similarity to the
seven-year period ending in 1990 when small stocks
[photo of underperformed large. This was followed by two years of
David Mitchell] superior earnings growth for small stocks relative to
large, which resulted in three years of superior
performance for small stocks. Small stocks again have been
lagging large stocks since March 1994. However, they have
exhibited superior relative earnings growth in each of the
last four quarters. Meanwhile, small stocks currently trade
at the steepest relative valuation discount to large stocks
in the last 20 years. They have cheaper relative P/E,
Price/Book and P/E to Growth ratios than the trough year of
1990. While the past might not repeat itself, we expect
small stock performance to ultimately reflect continuing
superior growth in earnings as in the last cycle.
June 30, 1998 Semi-Annual Report 7
<PAGE> 8
[photo of We believe the Fund is well positioned to take advantage of
Cappy Price] any upturn in small stock performance. The Fund is trading
at a meaningful discount to the marketOs valuation at
roughly 16x calendar 1998 estimated earnings vs. 20x for
the Russell 2000 and 12x calendar 1999 estimated earnings
vs. 18x for the Russell 2000 based on consensus earnings
estimates. In addition, based on our own proprietary
rolling one-year estimates, the Fund is trading at only 13x
next-twelve-month earnings and 10x the year after. The
earnings growth rate of the Fund is projected to be 15%
over the next three years vs. 10% for the Russell 2000 and
8% at best for the S & P 500. Therefore, the Value
Discovery Fund has been trading at a discount valuation
with a superior growth outlook.
The Russell 2000 benchmark was reconstituted on June 30
with minor sector weighting changes. The five most
important sectors by weight continue to be Finance (24%),
Consumer Discretionary (18%), Technology (12%), Materials
(10%) and Healthcare (9%). Our goal is to earn the majority
of our returns through superior stock selection. Therefore,
we do not, unlike many small cap funds, make major sector
bets. The Fund is generally well diversified across all
sectors with ongoing portfolio sector weights generally no
more than a relative +/- 25% difference from Russell 2000
sector weights. In the long run, this is designed to help
dampen volatility in the Fund and enable more consistent
performance. In 1998, technology was the sole exception to
this approach. However, our current technology weight at
1.8% is well below the RussellOs 12%. We consciously
dampened the FundOs technology weighting at the beginning
of the year to await first quarter earnings results and
determine the real outlook for this sector. We continue to
preserve capital in light of the extremely poor business
results anticipated for 1998 in the technology sector and
look for better opportunities to make commitments. We
ultimately anticipate bringing our technology sector weight
in-line with the Russell 2000 benchmark as we identify
companies with stable operating performance and long-term
growth opportunities.
Year-to-date Fund performance has been positively
influenced by good earnings and acquisitions. Matrix
Capital, Farah, Ibah and Summit Southeast Holdings have all
been or are in the process of being acquired. Offsetting
these positive influences were disappointing results at
Easco, International Total Services and Illinova.
In summary, the Value Discovery Fund is off to a great
start. We believe the current environment offers an
attractive opportunity to invest in small stocks. We look
forward to your continued support.
/s/ Glen Kleczka /s/ David Mitchell /s/ Cappy Price
8 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 9
..........................................................................
VALUE DISCOVERY FUND
..........................................................................
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF
CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[PLOT POINTS APPEAR HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value Discovery Fund === $10,000 10,200 9,700 11,100 14,000 13,300 14,300
Russell 2000 --- $10,000 10,200 9,500 10,000 12,700 12,200 12,800
</TABLE>
June 30, 1998 Semi-Annual Report 9
<PAGE> 10
................................................................................
VALUE DISCOVERY FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------
SHARES VALUE
- ----------------------------------------------------- -------
COMMON STOCKS
<C> <S> <C>
FINANCIAL SERVICES--24.4%
49 A R M Financial Group, Inc. ............. $ 1,091
19 Amerus Life Holdings, Inc., Class "A".... 628
20 *Annuity & Life Re Holdings plc ADR...... 442
29 *CCA Prison Realty Trust................. 891
90 *Equity One, Inc......................... 922
19 *Excel Legacy Corp....................... 84
19 Excel Realty Trust, Inc.................. 550
18 Franklin Bank National Association
Southfield............................... 286
47 *Matrix Capital Corporation.............. 1,269
24 SCPIE Holdings, Inc...................... 813
3 Southwest Bancorp, Inc................... 73
19 Statewide Financial Corporation.......... 397
36 *Summit Holding Southeast, Inc........... 1,138
45 Walden Residential Properties, Inc....... 1,090
55 Winston Hotels, Inc...................... 689
-------
10,363
-------
CONSUMER DISCRETIONARY--17.1%
69 *Braun's Fashions Corporation............ 768
40 Cadmus Communications Corporation........ 977
86 Cooker Restaurant Corporation............ 842
77 *Happy Kids, Inc......................... 1,059
3 Heilig-Meyers Co......................... 42
79 *Homebase, Inc........................... 627
16 *Michaels Stores, Inc.................... 565
154 *Pizza Inn, Inc. ........................ 854
72 *Shoe Carnival, Inc. .................... 999
47 *Sunglass Hut International, Inc. ....... 520
-------
7,253
-------
PRODUCER DURABLES--9.4%
54 *Browne & Sharpe Manufacturing Company... 647
60 *Denison International plc ADR........... 1,175
15 *Doncasters plc ADR...................... 426
55 LSI Industries, Inc...................... 1,108
33 Omniquip International, Inc.............. 616
-------
3,972
-------
HEALTHCARE-RELATED SPECIALTIES--9.3%
33 *Ameripath, Inc. ........................ 390
16 *ClinTrials Research, Inc................ 78
131 *Gensia Sicor, Inc. ..................... 524
20 *Maxim Medical, Inc...................... 592
48 *Nitinol Medical Technologies, Inc....... 357
22 Omnicare, Inc. .......................... 827
112 *Response Oncology, Inc.................. 732
75 *Safeguard Health Enterprises, Inc....... 469
-------
3,969
-------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
- ----------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------- -------
<C> <S> <C>
MATERIALS--9.3%
73 Birmingham Steel Corporation............. $ 908
83 Easco, Inc............................... 835
36 *Hawk Corporation........................ 635
12 *N C I Building Systems, Inc............. 716
15 *USG Corporation......................... 834
-------
3,928
-------
UTILITIES--4.4%
34 Illinova Corporation..................... 1,032
27 T N P Enterprises, Inc................... 818
-------
1,850
-------
ENERGY--3.0%
20 *Cal Dive International, Inc............. 551
44 *Unifab International, Inc............... 713
-------
1,264
-------
AUTOS AND TRANSPORTATION--2.2%
22 *Landstar System, Inc. .................. 755
10 *Stoneridge, Inc. ....................... 182
-------
937
-------
MULTI-INDUSTRY--1.5%
44 *Global Industrial Technologies Inc...... 632
-------
CONSUMER STAPLES--1.5%
43 Sanderson Farms, Inc..................... 627
-------
TECHNOLOGY--1.4%
122 *Overland Data, Inc. .................... 620
-------
TOTAL COMMON STOCK--83.5%
(cost $30,102)..................................... 35,415
-------
SHORT-TERM INVESTMENTS
$ 247 U.S. Treasury Bill, 5.02%,
due 9/17/98............................ 247
8,032 Investors Bank & Trust Company
Repurchase Agreement, 5.20%, dated
6/30/98,
collateralized by U.S. Government
Security with market value of
$8,434 with 7/1/98 repurchase date..... 8,032
TOTAL SHORT-TERM INVESTMENTS--19.5%
(cost $8,279)...................................... 8,279
-------
TOTAL INVESTMENTS--103.0%............................ 43,694
LIABILITIES, PLUS CASH AND OTHER ASSETS--(3.0%)...... (1,267)
-------
NET ASSETS--100.0%................................... $42,427
=======
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
10 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 11
-----------------------------------------------
INTERNATIONAL GROWTH FUND
-----------------------------------------------
...............................................
PERFORMANCE HIGHLIGHTS
...............................................
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
6/30/98 1997 1996 1995 1994 1993
______________ ______________ ______________ ______________ ______________ _______________
<S> <C> <C> <C> <C> <C> <C>
International Growth Fund...... 14.84% 8.39% 10.20% 7.22% (.04)% 33.60%
MCI AC WLD ex US Index*...... 11.98 2.04 6.68 9.94 6.63 34.90
Lipper International......... 15.87 7.27 14.43 10.02 (.74) 39.20
</TABLE>
...............................................
INVESTOR INFORMATION
...............................................
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
6/30/98 (a) 1997 1996 1995 1994 1993
______________ ______________ ______________ _______________ _____________ _______________
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $153 $129 $105 $90 $70 $40
Portfolio Turnover Rate (%).... 75 102 89 77 40 83
Expense Ratio (%).............. 1.33 1.43 1.44 1.48 1.51 1.71
</TABLE>
------------------------------------------------------------
*Morgan Stanley Capital International All Country World
Free except US Index.
(a) Rates are annualized.
------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
------------------------------------------------------------
Dear Shareholders:
[photo of Euphoria in Europe, cynicism in Japan, and panic in
W. George Greig] emerging markets: as the aftershocks of the Asian financial
crisis continued to reverberate through the medium of
global liquidity during the first half of 1998, investors
sought safety and reward in disinflation-driven themes.
European stocks found the perfect environment for valuation
(lower interest rates), earnings (economic recovery and
margin improvement), and confidence (successful steps
toward monetary union). The result was a 25% gain in the
Morgan Stanley Capital International Europe 15 index, by
far the strongest performance of any region in the world.
EuropeOs equity markets have more than doubled in the last
three years and have outperformed the S&P 500 over five
years--even allowing for the rise in the dollar. In our
view, there are two powerful reasons for this trend: a 200+
basis point decline in ECU bond yields and a pervasive
change in corporate management attitudes toward competition
and shareholder value. European markets now seem fairly
valued either by interest rate/inflation benchmarks or by
comparison to the U.S. Earnings expectations have been the
key driver of individual stock performance in Europe, and
we would expect that to continue even in a more normal
total return environment.
Expectations of all kinds have been shattered in Asia over
the last twelve months as the virulent devaluation/debt
deflation cycle has intensified. Early in 1998, the promise
of IMF-led restructuring packages caused Asian markets to
rally, but the daunting scale of the regionOs financial
problems soon made recovery seem a distant prospect.
Pessimism over economic deceleration in Japan and China led
investors to worry about a vicious circle of devaluation
and depression in the region. Capital flight and risk
aversion spread to emerging markets worldwide in the second
quarter, prompting a 24% drop in the MSCI Emerging Markets
Index in the second quarter--the worst three month return
in the index's history.
At midyear, the prospects for Asian economies and
currencies seem mixed. The stance of governments in China,
Japan, South Korea and Thailand seems increasingly
proactive in facing the crisis. IMF policy
June 30, 1998 Semi-Annual Report 11
<PAGE> 12
prescriptions are becoming more realistic, and US intervention and
guidance has been constructive. The situation remains precarious,
however, as growth rates have gone sharply negative in many
countries and the capital allocation process has become virtually
chaotic at times in emerging markets. Our overall view is that while
extraordinary long term value is being created in Asia and emerging
markets, the recovery process will be erratic and cyclical,
particularly over the next 6-18 months.
/s/ W. George Greig
....................................................................
INTERNATIONAL GROWTH FUND
....................................................................
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT
OF CAPITAL GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[PLOT POINTS APPEAR HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
International Growth Fund $10,000 10,100 11,400 13,500 14,000 13,500 13,300 14,500 15,700 16,000 18,500 17,300 19,900
MSCI All Country World ex-US $10,000 9,700 11,900 13,100 11,400 13,900 14,300 15,300 16,100 16,400 18,400 16,700 19,500
Lipper International Index $10,000 9,900 11,300 13,700 13,700 13,600 14,000 15,000 16,300 17,200 19,600 18,400 12,000
</TABLE>
12 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 13
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES
- ---------------------------------------------------- VALUE
COMMON STOCKS--EUROPE--36.0% --------
<C> <S> <C>
AUSTRIA--1.0%
12 VA Technologie AG (Industrial
engineering)........................ $ 1,494
--------
BELGIUM--0.6%
4 Barco Industries NV (Visualisation
systems)............................ 978
--------
DENMARK--0.6%
11 Carli Gry International (Apparel
design)............................. 888
--------
FINLAND--3.7%
5 Fiskars AB - A (Home wares
producer)........................... 711
40 Nokia AB - A (Telecommunications
equipment).......................... 2,955
27 TT Tieto OY - B (Consultants)......... 2,053
--------
5,719
--------
FRANCE--6.0%
2 Altran Technologies (Aerospace
technology)......................... 568
20 AXA Company (Multi-line insurance).... 2,249
2 Belvedere (Luxury bottles)............ 407
20 Le Carbone Lorraine (Specialty
chemicals).......................... 1,773
7 Cie Fen de Geophysique (Geophysical
services)........................... 954
12 Cegedim (Healthcare database
service)............................ 417
3 Promodes (Food distribution).......... 1,662
10 Royal Canin (Pet food
manufacturing)...................... 572
30 *Transgene - ADR (Gene therapy
products)........................... 521
--------
9,123
--------
GERMANY--1.0%
1 Wella AG (Health and personal
products)........................... 1,679
--------
IRELAND--.9%
100 CRH plc (Building materials).......... 1,417
--------
ITALY--6.1%
400 Credito Emiliano (Investment
banking)............................ 1,139
300 Banca Comerciale Italiana (Banking)... 1,796
1,000 Benetton Group SpA (Fashion
apparel)............................ 2,077
143 Cararro SpA (Auto components
producer)........................... 1,026
35 Gewiss SpA (Electrical
systems/devices).................... 732
150 Gildemeister Italiana (Industrial
machinery).......................... 652
100 Saipem SpA (Offshore oil and gas
exploration)........................ 515
15 Ericsson SpA (Telecommunication
equipment).......................... 891
100 Pagnossin SpA (Ceramics).............. 529
--------
9,357
--------
NETHERLANDS--3.8%
25 Brunel International (Employment
agency)............................. 1,038
80 Computer Management Group (IT
services)........................... 2,466
10 Draka Holding (Cable & wire
producer)........................... 407
50 Heineken NV (Alcoholic beverages)..... 1,963
--------
5,874
--------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--EUROPE--(CONTINUED)
<C> <S> <C>
NORWAY--.2%
33 *Tandberg Television ASA (Digital
broadcast equipment)................ $ 277
--------
SPAIN--2.9%
80 Banco Santander (Banking)............. 2,052
10 Campofrio Alimentacion SA (Meat
products manufacture and sale)...... 826
40 Cortefiel SA (Apparel design and
sale)............................... 875
15 Sol Melia SA (Hotel management)....... 715
--------
4,468
--------
SWEDEN--1.4%
50 Ericsson AB - B (Telecommunication
equipment).......................... 1,460
30 Hoganas AB - B (Metallic powder)...... 669
--------
2,129
--------
SWITZERLAND--7.8%
2 Belimo Automation AG (Ventilation
controls)........................... 831
20 Credit Suisse Group (Investment
banking)............................ 4,450
2 Holderbank Finan Glarus - B (Building
materials).......................... 2,545
1 Nestle AG (Food products)............. 3,210
0.2 Disetronic AG (Medical equipment)..... 454
4 Swisslog Holdings AG (Logistics
systems)............................ 461
--------
11,951
--------
COMMON STOCKS--UNITED KINGDOM--16.4%
106 Abott Mead Vickers plc (Advertising
and marketing services)............. 768
200 Bank of Scotland (Banking)............ 2,240
800 *Billiton plc (Non-energy mining)..... 1,589
100 Capita Group plc (Commercial
services)........................... 861
220 Compass Group (Food services)......... 2,534
100 Emap plc (Communications/media)....... 2,052
250 Firstgroup plc (Transportation
services)........................... 1,711
200 Hays plc (Distribution/personnel
services)........................... 3,356
140 Kwik-Fit Holdings plc
(Retail/automotive)................. 1,136
30 *Matalan plc (Retailer)............... 147
60 Misys plc (Computer systems).......... 3,411
100 Northern Leisure plc (Nightclubs)..... 290
428 Rolls Royce plc (Engineering)......... 1,765
100 Siebe plc (Electronic control
devices)............................ 1,998
135 WH Smith Group plc
(Retail/specialty).................. 1,196
150 *WH Smith Group - B plc
(Retail/specialty).................. 130
--------
25,184
--------
COMMON STOCKS--CANADA--8.3%
125 *ATI Technologies (Computer
accessories)........................ 1,641
125 *Berkely Petroleum Corporation (Oil
and gas)............................ 969
40 *Biochem Pharma Inc - ADR
(Preventative pharmaceuticals)...... 1,060
150 Biomira (Cancer diagnostics and
therapeutics)....................... 342
20 *Certicom Corporation
(Cryptographics).................... 282
1 *Clinichem Development (Therapeutic
and vaccine products)............... 6
</TABLE>
June 30, 1998 Semi-Annual Report 13
<PAGE> 14
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--CANADA--(CONTINUED)
<C> <S> <C>
20 *Four Seasons Hotels, Inc. (Hotels)... $ 704
25 *IMAX Corporation (Cinema equipment
and operations)..................... 578
50 Intrawest Corp. (Ski and resort
operations)......................... 995
60 JDS Fitel (Fibreoptic components)..... 1,000
20 Magna International, Inc. (Automotive
components producer)................ 1,370
40 Newcourt Credit Group (Financial
services)........................... 1,966
80 *Synsorb Biotech (Pharmaceuticals).... 389
15 *TeleSystems International Wireless
(Wireless telecommunications
networks)........................... 291
50 Trizec Hahn Corp. (Real estate)....... 1,088
--------
12,681
--------
COMMON STOCKS--JAPAN--11.1%
25 Aderans Company, Ltd. (Wigs).......... 548
9 Bellsystem24 Incorporated
(Telemarketing)..................... 1,349
10 Don Quijote Company (Retailer)........ 461
30 Fuji Soft ABC Inc. (Software
developer).......................... 1,020
15 Hokuto Corporation (Mushroom
producer)........................... 422
30 Ito-En Ltd. (Soft drinks)............. 929
30 Kawasumi Labs (Medical equipment
maker).............................. 523
37 Meiwa Estate Corporation, Ltd.
(Residential real estate)........... 324
20 Matsumotokiyoshi (Supermarket
operators).......................... 703
20 Meitec (Software engineering)......... 692
15 Nichii Gakkan Company (Medical record
keeping)............................ 498
18 Nichiei Company, Ltd. (Commercial
finance)............................ 1,197
15 Nintendo Company, Ltd. (Video
games).............................. 1,389
120 Minebea Company, Ltd. (Miniature
bearings)........................... 1,194
60 Nissei ASB Machine Company, Ltd.
(Molding machinery)................. 463
25 Orix Company (Leasing company)........ 1,688
24 People Company, Ltd. (Fitness
clubs).............................. 571
50 Ralse Company, Ltd. (Supermarket
chain).............................. 594
15 Ryohin Keikaku Company, Ltd.
(Retail/specialty).................. 1,437
28 Softbank Corporation (Software
distribution)....................... 1,078
--------
17,080
--------
COMMON STOCKS--ASIA--3.0%
AUSTRALIA--1.8%
100 Brambles Industries Ltd.
(Transport)......................... 1,963
485 Hoyt's Cinemas Group (Cinemas)........ 631
--------
2,594
--------
HONG KONG--.5%
500 Li & Fung Limited (Investment holding
company)............................ 807
--------
MALAYSIA--.2%
250 Berjaya Sports Toto Bhd (Lottery
operations)......................... 371
--------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--ASIA--(CONTINUED)
<C> <S> <C>
NEW ZEALAND--.2%
200 Warehouse Group Limited (Retail)...... $ 353
--------
SINGAPORE--.3%
350 Avimo Group Limited (Precision
optics)............................. 485
--------
COMMON STOCKS--EMERGING ASIA--3.7%
CHINA--.6%
996 Founder (Hong Kong) Ltd. (Publishing
software)........................... 424
2,160 Shenyin Wanguo (H.K.) Ltd. (Brokerage
services)........................... 148
397 Shenzhen Fangda - B (Building
materials).......................... 293
--------
865
--------
INDIA--1.9%
6 Housing Dev. Finance Corp. (Housing
finance)............................ 459
15 Infosys Technologies Ltd.
(Software).......................... 786
110 MTNL (Telecommunication services)..... 463
25 NIIT Ltd. (Software).................. 838
20 Punjab Tractors Ltd. (Tractors)....... 381
--------
2,927
--------
INDONESIA--.3%
681 PT Daya Guna Sumadera (Fishing)....... 415
--------
SOUTH KOREA--.3%
60 Madison Company Ltd. (Medical
equipment).......................... 529
--------
TAIWAN--.3%
175 Compal Electronics (PC Notebooks)..... 471
--------
THAILAND--.3%
150 Thai Union Frozen Products (Frozen
seafood)............................ 461
--------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--4.6%
GREECE--.3%
17 Chipita (Snacks and bakery
products)........................... 448
--------
HUNGARY--.5%
6 Gedeon Richter RT (Pharmaceuticals)... 483
6 Pick Szeged (Meat processor).......... 351
--------
834
--------
ISRAEL--.6%
15 Nice Systems Ltd. - ADR (Computer
telephony).......................... 563
10 Tadiran Ltd. - ADR (Telecommunication
equipment).......................... 331
--------
894
--------
</TABLE>
14 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 15
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
SHARES VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--4.6%--(CONTINUED)
<C> <S> <C>
POLAND--.5%
14 Agros Holdings - C (Food)............. $ 209
44 Elektrim SA (Telecommunication/wire
manufacturer)....................... 531
--------
740
--------
BOTSWANA--.5%
60 *Barclays Bank of Botswana
(Banking)........................... 273
350 Sechaba Brewery Holdings
(Beverages)......................... 464
--------
737
--------
SOUTH AFRICA--1.6%
75 Ellerine Holdings Ltd.
(Retail/specialty).................. 412
650 MACMED Healthcare Ltd. (Medical
products and equipment)............. 494
818 Metro Cash & Carry (Food
wholesaler)......................... 519
175 Sasol Beperk Ltd. (Energy/minerals)... 1,017
--------
2,442
--------
TURKEY--.6%
14,286 Akbank A.S. (Commercial banking)...... 461
11,000 Arcelik A.S. (Household appliances)... 516
--------
977
--------
COMMON STOCKS--LATIN AMERICA--3.6%
ARGENTINA--1.1%
25 Import Export Patagonia - B
(Retail)............................ 371
17 IRSA - GDR (Real estate).............. 485
27 YPF Sociedad Anonima - ADR
(Oil and gas)....................... 812
--------
1,668
--------
CHILE--.5%
25 Distribucion y Servicio - ADR
(Supermarket operators)............. 373
15 Vina Concha y Toro - ADR (Winery)..... 428
--------
801
--------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS--LATIN AMERICA--(CONTINUED)
- ---------------------------------------------------- --------
SHARES OR PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------- --------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--4.6%--(CONTINUED)
<C> <S> <C>
MEXICO--2.0%
100 Corporacion Geo (Real estate)......... $ 555
20 FEMSA - UBD (Beverages)............... 623
150 San Luis Corporacion (Auto parts)..... 584
480 Grupo Financiero Banorte - B
(Banking)........................... 534
425 Grupo Elektra S.A.
(Retail/specialty).................. 423
25 T V Azteca - ADR (Televised media).... 270
--------
2,989
--------
TOTAL COMMON STOCK--86.7%
(cost $110,549)................................... 133,049
--------
PREFERRED STOCKS
BRAZIL--1.7%
9,700 Duratex - PN (Wood products
manufacturer)....................... 377
35,600 EMBRAER - PN (Aircraft
manufacturer)....................... 631
3,263 TELESP - PN (Telecommunication)....... 767
6,600 *TELERJ Cellular - PN (Cellular
service)............................ 393
6,000 *TELESP Cellular - PN (Cellular
service)............................ 498
--------
2,666
--------
GERMANY--1.8%
1 Jil Sander AG (Fashion accessories)... 438
12 Mobel Walther AG (Furniture stores)... 561
1 Wella AG (Health and personal
products)........................... 1,679
--------
2,678
--------
TOTAL PREFERRED STOCK--3.5%
(cost $4,744)..................................... 5,344
--------
SHORT-TERM INVESTMENT--10.5%
$ 16,051 Investors Bank & Trust Company
Repurchase Agreement, 5.20%, dated
6/30/98, collateralized by U.S.
Government Security with market
value of $16,854 with 7/1/98
repurchase date (cost $16,051)...... 16,051
--------
TOTAL INVESTMENTS--100.7%........................... 154,444
LIABILITIES, PLUS CASH AND OTHER ASSETS--(.7%)...... (995)
--------
NET ASSETS--100.0%.................................. $153,449
========
</TABLE>
- ---------------
* Non-income producing securities
GDR = Global Depository Receipt
ADR = American Depository Receipt
At June 30, 1998 the Fund's Portfolio of Investments includes the following
categories:
Finance - 16.1%; Consumer Non-Durables - 11.0%; Producer Manufacturing - 10.7%;
Commercial Services - 10.1%; Electronic Technology - 9.8%; Retail Trade - 9.1%;
Consumer Services - 6.7%; Technology Services - 5.8%; Health Technology - 3.5%;
Industrial Services - 3.3%; Non-Energy Minerals - 3.1%; Energy Minerals -2.8%;
Process Industries - 2.8%; Utilities - 1.7%; Consumer Durables - 1.6%;
Transportation -1.2%; and Health Services - 0.7%
June 30, 1998 Semi-Annual Report 15
<PAGE> 16
----------------------------------------------------------
EMERGING MARKETS GROWTH FUND
----------------------------------------------------------
..........................................................
PERFORMANCE HIGHLIGHTS
..........................................................
----------------------------------------------------------
June 30, 1998(a)
_______________
<TABLE>
<S> <C>
Emerging Markets Growth Fund........ (13.00)%
Morgan Stanley Capital
International Emerging Markets
Free Index...................... (22.31)
</TABLE>
..........................................................
INVESTOR INFORMATION
..........................................................
June 30, 1998(b)
________________
<TABLE>
<S> <C>
Ending Net Assets (in millions)... $ 4
Portfolio Turnover Rate (%)....... 71
Expense Ratio (%)................. 2.25(c)
</TABLE>
----------------------------------------------------------
(a) For the period May 1, 1998 (Commencement of Operations)
to June 30, 1998.
(b) Rates are annualized.
(c) Without the waiver of expenses the expense ratio would
have been 5.22%.
----------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
----------------------------------------------------------
Dear Shareholders:
[PHOTO OF] Launched on May 1, 1998, the William Blair Emerging Markets
W. George Greig Growth Fund returned -13% for the two months ended June 30
vs a decline of 23% for its benchmark, the Morgan Stanley
Capital International Emerging Markets (Free) Index. As
with our other growth-oriented funds, our philosophy in
emerging markets is to invest in companies with proprietary
market position, asset quality and financial strength,
shareholder-oriented management and above-average growth
potential.
The second quarter of 1998 was the worst three month period
in emerging market equities in the last ten years, easily
surpassing the quarters that included the so-called tequila
crisis (1995) and the Gulf War (1990). Reversing a rally
that began with the Chinese New Year in January, most
markets went back down to--and in a few cases below--the
previous lows of October and January. In addition, the
majority of emerging market currencies, including several
unaffected by the Asian crisis, lost significant value
against the U.S. dollar.
[PHOTO OF] The principal cause of the second quarter panic was fear
Jeffrey A. Urbina that declining growth rates in Japan and China would prompt
competitive devaluations in their currencies, and that no
policy response could arrest the implosion of aggregate
demand and debt deflation that threatened the region. This
apprehension fed on events, such as Suharto's overthrow and
the India/Pakistan nuclear tests, that aggravated risk
aversion and sent short-term capital costs through the roof.
In turn, high real interest rates seemed to scare off more
capital than they attracted, not least because of their
impact on corporate and sovereign borrowers. And as an added
complication, commodity deflation (partially caused by the
collapse in Asian demand) significantly undermined growth
prospects in economies such as Mexico, Russia and South
Africa.
16 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 17
At this point, twelve months into the Asian crisis, we are
probably past the worst in terms of adjusting growth
expectations, but there is still little visibility of
recovery. Crisis management on the part of the affected
governments, the IMF, and the G7 seems to be competent and
improving, although the right mix of monetary policy and
financial regulation is a trial and error process. On
balance, the outlook for emerging markets seem to be
stabilizing, but a smooth workout is not yet assured.
In the context of the long term growth outlook of developing
economies, however, the values available to emerging market
investors are exceptional, perhaps comparable to the values
in developed markets 25 years ago. Most emerging markets, on
most valuation measures, sell for 40-70% of developed market
norms, with real growth prospects two to three times those
of mature economies.
/s/ W. George Grieg /s/ Jeffrey A. Urbina
..........................................................
EMERGING MARKETS GROWTH FUND
..........................................................
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
[GRAPH]
<TABLE>
<CAPTION>
5/1/98 5/31/98 6/30/98
------- ------- -------
<S> <C> <C> <C>
Emerging Markets Growth Fund $10,000 9,700 8,700
MSCI EM Free Index $10,000 8,600 7,700
</TABLE>
June 30, 1998 Semi-Annual Report 17
<PAGE> 18
................................................................................
EMERGING MARKETS GROWTH FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------
SHARES VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--ASIA--13.8%
<C> <S> <C>
CHINA--1.5%
132 Founder (Hong Kong) Ltd. (Publishing
software)................................ $ 56
------
INDIA--7.0%
30 MTNL (Telecommunication services).......... 126
4 NIIT Ltd. (Software)....................... 134
------
260
------
INDONESIA--2.0%
120 PT Daya Guna Sumadera (Fishing)............ 73
------
THAILAND--3.3%
40 Thai Union Frozen Products (Frozen
seafood)................................. 123
------
COMMON STOCKS--EUROPE, MID-EAST, AFRICA--27.1%
GREECE--2.5%
3 Chipita (Snacks and bakery products)....... 95
------
HUNGARY--4.4%
2 Gedeon Richter RT (Pharmaceuticals)........ 161
------
ISRAEL--3.1%
3 Nice Systems Ltd.--ADR (Computer
telephony)............................... 113
------
POLAND--3.3%
10 Elektrim SA (Telecommunication/ wire
manufacturer)............................ 121
------
BOTSWANA--2.2%
60 Sechaba Brewery Holdings (Beverages)....... 80
------
SOUTH AFRICA--9.1%
15 Ellerine Holdings Ltd.
(Retail/specialty)......................... 82
125 Metro Cash & Carry (Food wholesale)........ 79
30 Sasol Beperk Ltd. (Energy/minerals)........ 174
------
335
------
TURKEY--2.5%
2,000 Arcelik A.S. (Household appliances)........ 94
------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS--LATIN AMERICA--19.0%
- ------------------------------------------------------ ------
SHARES OR PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------ ------
COMMON STOCKS--ASIA--13.8%
<C> <S> <C>
ARGENTINA--2.4%
3 YPF Sociedad Anonima--ADR (Oil and gas).... $ 90
------
CHILE--3.9%
5 Vina Concha y Toro--ADR (Winery)........... 143
------
MEXICO--12.7%
25 Corporacion Geo (Real estate).............. 139
30 San Luis Corporacion (Auto parts).......... 117
100 Grupo Financiero Banorte--B (Banking)...... 111
100 Grupo Elektra S.A. (Retail/specialty)...... 99
------
466
------
TOTAL COMMON STOCK--59.9%
(cost $2,603)....................................... 2,210
PREFERRED STOCKS
BRAZIL--12.9%
9,000 EMBRAER--PN (Aircraft manufacturer)........ 159
497 TELESP--PN (Telecommunication)............. 117
2,000 *TELERJ Cellular--PN (Cellular service).... 119
1,000 *TELESP Cellular--PN (Cellular service).... 83
------
TOTAL PREFERRED STOCK--12.9%
(cost $513)......................................... 478
------
SHORT-TERM INVESTMENT--27.1%
$999 Investors Bank & Trust Company Repurchase
Agreement, 5.20%, dated 6/30/98,
collateralized by U.S. Government
Security with market value of $1,050 with
7/1/98 repurchase date (cost $999)....... 999
------
TOTAL INVESTMENTS--99.9%.............................. 3,687
CASH AND OTHER ASSETS, LESS LIABILITIES--.1%.......... 5
------
NET ASSETS--100.0%.................................... $3,692
======
</TABLE>
- ---------------
* Non-income producing securities
ADR = American Depository Receipt
At June 30, 1998 the Fund's Portfolio of Investments includes the following
categories:
Consumer Non-Durables--17.8%; Utilities--16.0%; Finance--12.5%; Producer
Manufacturing--10.0%; Energy Minerals--9.6%; Retail Trade--9.5%; Technology
Services--6.9%; Health Technology--5.8%; Commercial Services--4.4%; Electronic
Technology--4.1%; and Consumer Durables--3.4%
18 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 19
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
INCOME FUND
---------------------------------------------------------------------------------------------------
...................................................................................................
PERFORMANCE HIGHLIGHTS
...................................................................................................
---------------------------------------------------------------------------------------------------
6/30/98 1997 1996 1995 1994 1993
________________ _____________ _____________ ______________ ______________ _____________
<S> <C> <C> <C> <C> <C> <C>
Income Fund..................... 3.29% 8.03% 3.07% 14.37% (0.74)% 7.82%
Lehman Intermediate Govt./
Corp. Index................ 3.49 7.87 4.05 15.33 (1.93) 8.79
...................................................................................................
INVESTOR INFORMATION
...................................................................................................
---------------------------------------------------------------------------------------------------
6/30/98 (a) 1997 1996 1995 1994 1993
________________ _____________ _____________ ______________ ______________ _____________
Ending Net Assets (in millions). $177 $160 $150 $147 $144 $204
Portfolio Turnover Rate (%)..... 93 83 66 54 63 114
Expense Ratio (%)............... .71 .71 .70 .68 .68 .70
---------------------------------------------------------------------------------------------------
(a) Rates are annualized.
---------------------------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
---------------------------------------------------------------------------------------------------
</TABLE>
Dear Shareholders:
[ PHOTO OF There were many crosscurrents that affected the bond market
BENTLEY in the first half of 1998 but perhaps the least discussed
M. MYER ] was the reduced level of volatility. The ten-year U.S.
Treasury note's yield was 5.68% at the beginning of the
year and that yield fluctuated within a range of forty
basis points for the entire period (with an ending yield of
5.48%). This reduced volatility is unusual for today's more
global bond market, as there have been several periods in
the past when the volatility of the bond market matched
that of the stock market.
Another result of the reduced volatility was a narrowing of
return differences. Almost all of the returns in the
investment grade bond market were within a range of 2.5% to
4.5% during the first six months of 1998. The Income Fund's
return of 3.3% trailed the 3.5% return of the Lehman
Intermediate Government / Corporate Index but was well
ahead of the 2.8% return of the Lipper Short Term Mutual
Fund Index. The monthly dividend of $.0525 per share was
maintained and, barring some unforeseen event, it is
expected to be held at this level throughout the balance of
1998.
Another of the crosscurrents that had influence throughout
the first half was the ongoing problems in Asia. This crisis
began almost one year ago and despite the continuing reports
in the media to the contrary, the economic repercussions in
the U.S. are probably nearing an end. The U.S. economy has
shown signs of slowing but the more specific problem with
the bond market is that there is a much slower economic
environment already factored into the current level of
interest rates. Given this somewhat overvalued environment,
the Income Fund is positioned in a little more "defensive"
position with slightly shorter maturities and a slightly
higher cash level.
/s/ Bentley M. Myer
June 30, 1998 Semi-Annual Report 19
<PAGE> 20
............................................................
INCOME FUND
............................................................
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH
REINVESTMENT OF CAPITAL GAIN DISTRIBUTIONS AND INCOME
DIVIDENDS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
9/90 12/90 6/91 12/91 6/92 12/92 6/93 12/93 6/94 12/94 6/95 12/95
------- ------- ------ ------- ------- ------- ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund $10,000 10,300 10,800 12,400 12,800 13,600 13,800 13,600 13,700 14,900 15,700 15,700
6/96 12/96 6/97 12/97 6/98
------ ------- ------ ------- ------
<C> <C> <C> <C> <C>
15,700 16,200 16,700 17,500 18,000
Lehman Intermed
Govt./Corp. Index $10,000 10,400 10,900 11,900 12,300 12,800 13,600 13,900 13,500 13,600 15,000 15,700
15,700 16,400 16,800 17,700 18,300
</TABLE>
20 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 21
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY
GUARANTEED OBLIGATIONS--55.4%
U.S. TREASURY--23.4%
$ 7,500 U.S. Treasury Note, 6.25%, due
1/31/02................................. $ 7,665
5,875 U.S. Treasury Note, 6.625%, due
3/31/02................................. 6,083
9,500 U.S. Treasury Note, 7.250%, due
5/15/04................................. 10,306
3,000 U.S. Treasury Note, 7.250%, due
8/15/04................................. 3,264
11,650 U.S. Treasury Note, 7.875%, due
11/15/04................................ 13,083
1,050 U.S. Treasury Note, 6.875%, due
5/15/06................................. 1,137
- -------- --------
38,575 Total U.S. Treasury Obligations......... 41,538
- -------- --------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS--4.0%
SMALL BUSINESS ADMINISTRATION--0.7%
-- Receipt for Multiple Originator Fees, #3
0.8110%, due 11/8/08 (Interest Only)
WAC................................... 1,001
326 Loan #100023, 9.375%, due 11/25/14...... 348
- -------- --------
326 Total Small Business Administration
Obligations............................. 1,349
- -------- --------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--3.3%
5 12.000%, due 2/20/00.................... 5
21 12.500%, due 2/20/15.................... 24
377 11.000%, due 3/20/16.................... 423
12 10.500%, due 6/20/19.................... 13
310 11.000%, due 8/20/19.................... 348
48 10.500%, due 8/20/20.................... 54
48 10.500%, due 9/20/20.................... 54
4,895 5.50%, due 11/20/27..................... 4,953
- -------- --------
5,716 Total Government National Mortgage
- -------- Association Obligations...............
5,874
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--0.0%
11
10 12.500%, due 4/15/14....................
36
31 13.000%, due 11/15/14...................
--------
- --------
41 Total Government National Mortgage
- -------- Association Obligations...............
47
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MOBILE HOME--0.0%
2
1 9.750%, due 1/15/99.....................
--------
- --------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS--28.0%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)--16.1%
$ 1,781 #1296, Tranche J, 11.623%, due
7/15/99................................. $ 1,852
403 #1475, Tranche SC, 9.09% FR, due
2/15/08................................. 407
4,268 #1544, Tranche TM, 9.06%, due 7/15/08... 4,402
1,150 #1561, Tranche SC, 7.802%, due
8/15/08................................. 1,132
1,092 #1693, Tranche S, 5.85%, due 9/15/08.... 1,021
939 #1600, Tranche SE, 8.4500% , due
10/15/08................................ 966
2,003 #1655, Tranche SC, 7.438%, due
12/15/08................................ 1999
652 #1662, Tranche T, 7.2570% , due
1/15/09................................. 656
5,000 #21, Tranche G, 5.60% , due 12/15/16.... 4,968
6,250 #117, Tranche G, 8.50%, due 1/15/21..... 6,716
637 #1500, Tranche SJ, 7.011%, due
12/15/22................................ 627
466 #1492, Tranche SE, 10.133%, due
3/15/23................................. 468
2,286 #1608, Tranche SE, 8.959%, due
6/15/23................................. 2,459
813 #1542, Tranche S, 14.346%, due
7/15/23................................. 827
- -------- --------
27,740 Total FHLMC Mortgage Obligations........ 28,500
- -------- --------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--11.9%
149 1991-79, Tranche S, 16.809% FR, due
7/25/98................................. 150
747 8.543%, due 11/25/07.................... 755
1,838 8.00%, due 11/25/08..................... 1,872
3,228 10.00%, due 9/1/09...................... 3,421
2,477 10.50%, due 3/1/10...................... 2,649
2,947 10.50%, due 1/1/13...................... 3,208
2,263 11.500%, due 1/1/13..................... 2,521
4,803 8.50%, due 5/1/13....................... 5,029
52 13.25%, due 8/1/14...................... 61
1,100 1990-114, Tranche D, 9.00%, due
5/25/16................................. 1,116
266 1993-19, Tranche SH, 11.2339%, due
4/25/23................................. 293
- -------- --------
19,870 Total FNMA Mortgage Obligations......... 21,075
- -------- --------
92,269 Total U.S. Government and U.S.
- -------- Government Agency Guaranteed
Obligations...........................
98,385
--------
</TABLE>
June 30, 1998 Semi-Annual Report 21
<PAGE> 22
................................................................................
INCOME FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- -------------------------------------- ----------- --------
PRINCIPAL S&P RATING
Amount (UNAUDITED) VALUE
- -------------------------------------- ----------- --------
COLLATERALIZED MORTGAGE OBLIGATIONS--23.3%
<C> <S> <C> <C>
$ 796 Polk Co. HFA, 1991-1,
Tranche A-2, 9.550%, due
1/15/11................. AAA $ 832
12,464 Morgan Keegan Funding I,
L.P., 8.000%, due
4/25/11................. AA- 12,757
95 Residential Finance Corp.,
1991-11, Tranche A-2,
10.000%, due 4/01/21.... AA- 95
628 Resolution Trust Corp.,
1992-2, Tranche A,
7.9221%, due 8/25/21.... AA- 639
148 Resolution Trust Corp.,
1991-3, Tranche A-2,
10.372%, due 8/25/21.... AAA- 154
3,298 Bear, Stearns & Co.,
1992-3B1 7.548%, due
5/25/23................. AA 3,397
5,873 Prudential Home Mortgage,
1993-62 6.75%, due
12/26/23................ AAA 5,908
1,117 Goldman Sachs Mortgage
Security, 98 8.00%, due
6/19/24................. A+ 1,157
563 Resolution Trust Corp.,
1992-5, Tranche 5-C,
8.621%, due 1/25/26..... AA 578
5,500 Headlands Mortgage Corp.,
1997-1 AI7, 7.25%, due
3/25/27................. AAA 5,573
5,000 Residential Asset
Securities, 7.125%, due
7/25/27................. AAA 5,048
5,102 Residential Asset
- -------- Securities, 98, Tranche
A 6.75%, due 7/25/28....
AAA 5,123
--------
40,584 Total Collateralized
- -------- Mortgage Obligations....
41,261
--------
CORPORATE OBLIGATIONS--12.6%
1,250 Sears, Roebuck Corp.
Medium Term Note, 9.75%, 1,327
due 3/21/00............. A-
1,500 Household Finance Corp.
Medium Term Note, 1,653
10.38%, due 12/15/00.... A
</TABLE>
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS--(CONTINUED)
- -------------------------------------- ----------- --------
PRINCIPAL S&P RATING
Amount (unaudited) Value
- -------------------------------------- ----------- --------
<C> <S> <C> <C>
$ 3,900 Salomon Smith Barney Note,
6.375% due 10/1/04...... A+ $ 3,913
4,044 Society National Bank
Subordinated Note,
7.25%, due 6/1/05....... A- 4,266
3,000 Merrill Lynch & Company,
Inc. Note, 7.00%, due
1/15/07................. AA- 3,146
3,350 Applied Materials Inc.
Note, 6.75%, due
10/15/07................ BBB+ 3,406
2,500 Amgen, Inc. Note, 6.50%,
due 12/1/07............. A 2,554
2,100 Dover Corp, Note 6.25%,
- -------- due 6/1/08..............
A+ 2,109
--------
21,644 Total Corporate 22,374
Obligations.............
--------
- --------
154,497 TOTAL LONG TERM
- -------- INVESTMENTS--91.3%
(cost $160,330).........
162,020
--------
SHORT-TERM INVESTMENTS--7.6%
2,006 Associates Corp. of North
America Demand Note, 2,006
5.497%, due 7/1/98...... A-1+
1,500 Ford Motor Credit Corp. 1,500
5.52% due 7/24/98....... A-2
3,000 Beneficial Corporation 3,000
5.52%, due 8/14/98...... A-2
7,000 General Electric
- -------- Corporation, Puerto Rico
5.52%-5.54%, due
7/8/98-8/26/98..........
A-1+ 7,000
--------
13,506 Total Short-Term
Investments 13,506
(cost $13,506)..........
--------
- --------
$168,003 TOTAL 175,526
INVESTMENTS--98.9%......
========
CASH AND OTHER ASSETS,
LESS 1,905
LIABILITIES--1.1%.......
--------
$177,431
NET ASSETS--100.0%........
========
</TABLE>
- ---------------
WAC = Weighted Average Coupon
FR = Floating Rate
See accompanying Notes to Financial Statements.
22 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 23
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
READY RESERVES FUND
---------------------------------------------------------------------------------------------------
...................................................................................................
PERFORMANCE HIGHLIGHTS
...................................................................................................
---------------------------------------------------------------------------------------------------
6/30/98 (a) 1997 1996 1995 1994 1993
---------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ready Reserves Fund 4.96% 5.01% 4.88% 5.46% 3.70% 2.6%
S&P-rated AAA Money
Market Funds 4.95 5.00 4.87 5.45 3.64 2.0
...................................................................................................
INVESTOR INFORMATION
...................................................................................................
---------------------------------------------------------------------------------------------------
6/30/98 (a) 1997 1996 1995 1994 1993
---------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in millions) $964 $905 $761 $704 $521 $477
Expense Ratio (%) .69 .70 .71 .72 .71 .71
---------------------------------------------------------------------------------------------------
(a) Rates are annualized.
</TABLE>
------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
------------------------------------------------------------
Dear Shareholders:
[PHOTO OF There was very little movement in the short end of the
Bentley M. fixed-income market in the first half of 1998. Yields
Myer] varied within a range of fifteen basis points during the
period as the Federal Reserve Board did not make any
changes in its policy. However, there were several times
when the Fed looked like they would move to raise rates but
the continuing problems in Asia probably convinced them
that the timing was not right.
Despite these signals, the money market area is currently
discounting not a rise in short-term rates but almost a
decline in rates. The difference in yield from overnight
commercial paper to 270-day commercial paper is less than
10 basis points. There is little incentive therefore to
extend maturities and the Ready Reserves FundOs average
maturity reflects this. That average was 42 days at the end
of the first half, which is at the shorter end of the
standard range of 35 to 60 days. In addition, the quality
profile is still very high as there is also very little
yield difference between top rated commercial paper and the
other tiers of commercial paper.
The return for the Fund was 4.96% for the first six months,
which about matched the 4.95% return of the S & P rated AAA
average. Assets grew quite a bit,particularly during the
first part of the year. Assets were $905 million at the
start of the year and reached a peak of about $1.075
billion before declining recently. This growth probably
reflects both changes in asset mix as well as a continuing
flight to safety.
/s/ Bentley M. Myer
June 30, 1998 Semi-Annual Report 23
<PAGE> 24
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ---------
U.S. GOVERNMENT AGENCY GUARANTEED--7.7%
<C> <S> <C>
$ 1,867 Agency for International
Development, Peru VRN 5.85%,
8/1/98............................ $ 1,867
24,270 Federal Home Loan Bank VRN
5.72-5.75%, 11/12/98-4/23/99...... 24,270
20,000 Federal Home Loan Bank VRN
5.472%, 3/10/99................... 19,983
2,951 Federal Home Loan Mortgage Corp.,
VRN 7.75%, 10/15/98............... 2,964
10,000 Federal National Mortgage
Association, VRN 5.558%, 7/5/98... 9,998
15,000 Student Loan Marketing Association,
- -------- VRN 5.378%, 7/7/98................
14,999
--------
74,081
74,088
--------
- --------
DEMAND NOTE--0.1%
1,258 Associates Corporation of North
- -------- America, VRN 5.50%, 7/1/98........
1,258
--------
COMMERCIAL PAPER--92.6%
MANUFACTURING--21.3%
29,930 Chrysler Finance Corporation 29,786
5.50%-5.75%, 7/6/98-8/17/98.......
7,500 Dover Corporation 7,467
5.53%, 7/30/98....................
19,608 Ford Motor Credit Company of Puerto 19,542
Rico, Inc. 5.50%, 7/23/98.........
8,709 Ford Motor Credit Company 8,661
5.51%, 8/6/98.....................
20,756 General Electric Capital Corporation 20,716
5.49%, 7/13/98-7/14/98............
29,045 General Electric Capital Services of
Puerto Rico, Inc. 28,804
5.50%-5.54%, 7/24/98-9/10/98......
43,826 General Electric Capital Services
Corp. 43,435
5.50%-5.53%, 7/20/98-9/17/98......
2,260 General Electric Company 2,251
5.50%, 7/27/98....................
31,237 General Motors Acceptance Corp. 31,072
5.50%-5.53%, 7/27/98-9/4/98.......
13,500 Paccar Financial Corporation
- -------- 5.48%, 7/22/98-8/3/98.............
13,448
--------
205,182
206,371
--------
- --------
INSURANCE--19.9%
49,761 American General Corporation 49,283
5.48%-5.53%, 7/27/98-9/18/98......
30,712 American General Finance Corporation 30,460
5.49%-5.53%, 7/21/98-9/9/98.......
17,058 Aon Corporation 16,984
5.53%-5.54%, 7/24/98-8/6/98.......
42,520 General Re Corporation 42,145
5.49%-5.52%, 7/24/98-8/31/98......
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ---------
COMMERCIAL PAPER--(CONTINUED)
<C> <S> <C>
$ 26,188 Met Life Funding, Inc.
5.53%-5.54%, 7/27/98-9/8/98....... $ 25,951
27,225 Prudential Funding Corporation
- -------- 5.51%-5.52%, 8/12/98-8/21/98......
27,027
--------
191,850
193,464
--------
- --------
FINANCE--19.5%
4,500 American Express Credit Company 4,475
5.50%, 8/7/98.....................
44,536 Associates Corporation of North
America 44,258
5.49%-5.52%, 7/6/98-9/9/98........
37,895 Associates First Capital Corporation 37,697
5.48%-5.53%, 7/8/98-8/31/98.......
23,311 AVCO Financial Services, Inc. 23,275
5.49%-5.53%, 7/1/98-7/29/98.......
48,725 Block Financial Corporation 48,324
5.49%-5.56%, 7/7/98-9/28/98.......
13,386 CIT Group Holdings 13,270
5.51%, 8/26/98-8/27/98............
17,325 Norwest Financial, Inc.
- -------- 5.51%, 8/18/98-8/20/98............
17,195
--------
188,494
189,678
--------
- --------
BROKERAGE--12.4%
40,085 Goldman, Sachs & Company 39,786
5.51%-5.52%, 8/10/98-8/28/98......
39,640 Merrill Lynch & Company, Inc. 39,320
5.51%-5.54%, 7/17/98-9/9/98.......
40,656 Morgan Stanley Dean Witter Group,
- -------- Inc.
5.50%-5.52%, 7/6/98-7/28/98.......
40,559
--------
119,665
120,381
--------
- --------
ENERGY--6.0%
13,812 Atlantic Richfield & Company 13,695
5.53%, 8/25/98....................
44,300 Chevron U.K. Investment plc
- -------- 5.48%-5.53%, 7/7/98-9/10/98.......
44,058
--------
57,753
58,112
--------
- --------
CHEMICAL/FOREST--4.7%
27,750 DuPont (E.I.) De Nemours & Co. 27,679
5.49%-5.53%, 7/15/98-8/13/98......
17,235 Monsanto Co.
- -------- 5.51%-5.52%, 7/27/98-8/28/98......
17,123
--------
44,802
44,985
--------
- --------
MERCHANDISING--3.6%
35,009 Winn Dixie Stores Inc.
- -------- 5.51%-5.53%, 7/7/98-9/22/98.......
34,890
--------
DRUGS/HEALTH--2.1%
20,000 Glaxo Wellcome plc
- -------- 5.47%-5.51%, 7/9/98-7/31/98.......
19,953
--------
</TABLE>
24 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 25
................................................................................
READY RESERVES FUND
................................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ---------
COMMERCIAL PAPER--(CONTINUED)
<C> <S> <C>
UTILITIES--ENERGY & GAS--1.5%
$ 14,643 National Rural Utilities Cooperative
- -------- Finance Corporation
5.45%-5.47%, 7/9/98-7/22/98.......
$ 14,615
--------
BANKING--0.8%
8,000 J.P. Morgan & Company, Inc.
- -------- 5.48%, 7/17/98....................
7,981
--------
FOOD/BEVERAGE/TOBACCO--0.8%
7,350 Unilever NV, plc
- -------- 5.50%, 7/29/98....................
7,320
--------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------
PRINCIPAL AMORTIZED
AMOUNT COST
- ------------------------------------------------- ---------
COMMERCIAL PAPER--(CONTINUED)
<C> <S> <C>
$897,993 TOTAL COMMERCIAL PAPER.............. $892,505
--------
- --------
$973,339 TOTAL INVESTMENTS--100.4%
======== (cost $967,844)...................
967,844
LIABILITIES, PLUS CASH AND OTHER
NET ASSETS--(0.4%).................. (3,783)
--------
$964,061
NET ASSETS--100.0%..................
========
PORTFOLIO WEIGHTED AVERAGE 42 Days
MATURITY............................
</TABLE>
- ---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
June 30, 1998 Semi-Annual Report 25
<PAGE> 26
................................................................................
STATEMENTS OF ASSETS AND LIABILITIES
................................................................................
JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
EMERGING
VALUE INTERNATIONAL MARKETS READY
GROWTH DISCOVERY GROWTH GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND FUND
-------- --------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at market (cost $428,362;
$38,381; $131,344; $4,115; $173,797;
and $967,844, respectively).......... $692,267 $43,694 $154,444 $3,687 $175,526 $967,844
Cash................................... -- -- 1,210 2 -- --
Receivable for:
Fund shares sold..................... 3,504 71 1,424 38 487 12,538
Investments sold..................... 996 381 1,152 211 -- --
Interest and dividends............... 772 48 123 5 1,728 1,015
Foreign withholding tax.............. -- -- 145 -- -- --
Deferred organization costs............ -- 32 32 -- --
Other assets........................... 15 -- 1 -- 1 4
-------- --------- ------------- -------- -------- --------
Total assets..................... 697,554 44,226 158,499 3,975 177,742 981,401
LIABILITIES
Payable for:
Fund shares redeemed................. 1,086 1 562 -- -- 14,636
Investments purchased................ -- 1,409 4,247 238 173 --
Dividends............................ -- -- -- -- 1,999
Management fee and organization costs
(Notes 1 and 2).................... 409 246 139 40 89 494
Unrealized depreciation on futures
and foreign currency forward
contracts.......................... -- 32 47 -- -- --
Other.................................. 85 111 55 5 49 211
-------- --------- ------------- -------- -------- --------
Total liabilities................ 1,580 1,799 5,050 283 311 17,340
-------- --------- ------------- -------- -------- --------
Net Assets.................... $695,974 $42,427 $153,449 $3,692 $177,431 $964,061
======== ========= ============= ======== ======== ========
CAPITAL
Capital stock ($0.001 par value 38,589;
2,985; 10,172; 425; 16,966; and
964,166 shares issued and
outstanding, respectively)........... $ 39 $ 3 $ 10 $ 1 $ 17 $ 964
Paid-in-surplus........................ 384,430 34,169 128,952 4,239 180,099 963,202
Net unrealized appreciation
(depreciation) on investments,
futures and foreign currency
transactions......................... 263,905 5,401 23,040 (428) 1,729 --
Accumulated undistributed net realized
gain (loss) on investments, futures
and foreign currency transactions.... 47,431 2,783 1,120 (128) (5,090) (109)
Undistributed net investment income
(loss)............................... 169 71 327 8 676 4
-------- --------- ------------- -------- -------- --------
Net Assets.................... $695,974 $42,427 $153,449 $3,692 $177,431 $964,061
======== ========= ============= ======== ======== ========
Net asset value per share.............. $ 18.04 $ 14.21 $ 15.09 $ 8.70 $ 10.46 $ 1.00
======== ========= ============= ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
26 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 27
................................................................................
STATEMENTS OF OPERATIONS
................................................................................
JUNE 30, 1998 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
EMERGING
VALUE INTERNATIONAL MARKETS READY
GROWTH DISCOVERY GROWTH GROWTH INCOME RESERVES
FUND FUND FUND FUND(A) FUND FUND
-------- --------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................... $ 992 $ 168 $ 301 $ 14 $ 5,823 $ 27,753
Dividends.................. 1,831 166 1,163 7 -- --
Less foreign tax
withheld................. -- -- (135) -- -- --
-------- --------- ------------- ----- ------- --------
2,823 334 1,329 21 5,823 27,753
EXPENSES
Investment advisory fees... 2,387 214 802 8 499 2,944
Custodian fees............. 68 7 106 2 19 107
Transfer agent fees........ 59 8 10 2 12 166
Professional fees.......... 23 18 22 8 22 26
Registration fees.......... 8 6 6 1 8 41
Organization costs......... -- 4 -- 1 -- --
Miscellaneous.............. 109 24 56 8 24 159
-------- --------- ------------- ----- ------- --------
Total expenses before
waiver................. 2,654 281 1,002 30 584 3,443
Less expenses waived
and absorbed by
Company............. -- -- -- (17) -- --
-------- --------- ------------- ----- ------- --------
Net investment income.... 169 53 327 8 5,239 3,443
Net realized and unrealized
gain (loss) on investments,
foreign currency
transactions and other
assets and liabilities
Net realized gain (loss)
on investments......... 47,375 2,276 781 (128) 9 --
Net realized gain on
futures................ 506
Net realized loss on
foreign currency
transactions and other
assets and
liabilities............ (25)
-------- --------- ------------- ----- ------- --------
Total net realized gain
(loss)................. 47,375 2,782 756 (128) 9 --
Change in net unrealized
appreciation (depreciation)
on investments and other
assets and liabilities..... 55,215 227 18,129 (428) 183 --
-------- --------- ------------- ----- ------- --------
Net increase (decrease) in
net assets resulting from
operations................. $102,759 $3,062 $19,212 $(548) $ 5,431 $ 24,310
======== ========= ============= ===== ======= ========
</TABLE>
- ---------------
(a) For the period May 1, 1998 (Commencement of Operations) to June 30, 1998
See accompanying Notes to Financial Statements.
June 30, 1998 Semi-Annual Report 27
<PAGE> 28
................................................................................
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
FOR THE PERIOD ENDED JUNE 30, 1998 AND THE YEAR ENDED DECEMBER 31, 1997 (all
amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
EMERGING
VALUE INTERNATIONAL MARKETS
GROWTH DISCOVERY GROWTH GROWTH INCOME
FUND FUND FUND FUND FUND
-------------------- ----------------- ------------------- -------- -------------------
1998 1997 1998 1997 1998 1997 1998(A) 1998 1997
---- ---- ---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss).................... $ 169 $ (892) $ 53 $ 61 $ 327 $ 12 $ 8 $ 5,239 $ 9,707
Net realized gain (loss) on
investments, futures and
foreign currency
transactions and other
assets and liabilities... 47,375 29,286 2,782 747 756 17,013 (128) 9 1,058
Change in net unrealized
appreciation
(depreciation) on
investments, futures and
other assets and
liabilities.............. 55,215 70,793 227 5,174 18,129 (9,021) (428) 183 973
-------- --------- ------- ------- -------- -------- ------ -------- --------
Net increase (decrease) in
net assets resulting from
operations............... 102,759 99,187 3,062 5,982 19,212 8,004 (548) 5,431 11,738
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income....... -- -- -- (43) -- (664)(b) -- (4,678) (9,704)
Net realized gain.......... -- (29,286) -- (746) -- (15,931) -- -- --
-------- --------- ------- ------- -------- -------- ------ -------- --------
-- (29,286) -- (789) -- (16,595) -- (4,678) (9,704)
CAPITAL STOCK TRANSACTIONS
Shares sold................. 69,974 118,126 11,822 23,070 34,451 45,557 4,240 27,677 21,930
Shares issued in
reinvestment of income
dividends and capital
gain distributions....... -- 26,500 -- 752 -- 15,576 -- 3,388 6,970
Less shares redeemed....... (68,112) (124,958) (2,811) (836) (28,961) (28,943) -- (14,442) (20,885)
-------- --------- ------- ------- -------- -------- ------ -------- --------
Change from capital stock
transactions............... 1,862 19,668 9,011 22,986 5,490 32,190 4,240 16,623 8,015
-------- --------- ------- ------- -------- -------- ------ -------- --------
Change in net assets....... 104,621 89,569 12,073 28,179 24,702 23,599 3,692 17,376 10,049
Net assets
Beginning of period........ 591,353 501,784 30,354 2,175 128,747 105,148 -- 160,055 150,006
-------- --------- ------- ------- -------- -------- ------ -------- --------
End of period.............. $695,974 $ 591,353 $42,427 $30,354 $153,449 $128,747 $3,692 $177,431 $160,055
======== ========= ======= ======= ======== ======== ====== ======== ========
Undistributed net investment
income at the end of the
period..................... $ 169 -- $ 71 $ 17 $ 327 -- $ 8 $ 676 $ 115
======== ========= ======= ======= ======== ======== ====== ======== ========
CAPITAL STOCK TRANSACTIONS
Shares sold................. 4,142 8,330 845 2,133 2,303 2,935 425 2,647 2,123
Shares issued in
reinvestment of income
dividends and capital
gain distributions....... -- 1,803 -- 60 -- 1,211 -- 325 676
Less shares redeemed....... (4,066) (8,829) (200) (71) (1,929) (1,888) -- (1,382) (2,025)
-------- --------- ------- ------- -------- -------- ------ -------- --------
Change from capital stock
transactions............... 76 1,304 645 2,122 374 2,258 425 1,590 774
======== ========= ======= ======= ======== ======== ====== ======== ========
<CAPTION>
------------------------
READY
RESERVES
FUND
------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATIONS
Net investment income
(loss).................... $ 24,310 $ 43,151
Net realized gain (loss) on
investments, futures and
foreign currency
transactions and other
assets and liabilities... -- (1)
Change in net unrealized
appreciation
(depreciation) on
investments, futures and
other assets and
liabilities.............. -- --
----------- ----------
Net increase (decrease) in
net assets resulting from
operations............... 24,310 43,150
DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income....... (24,310) (43,150)
Net realized gain.......... -- --
----------- ----------
(24,310) (43,150)
CAPITAL STOCK TRANSACTIONS
Shares sold................. 1,832,785 3,202,303
Shares issued in
reinvestment of income
dividends and capital
gain distributions....... 21,806 42,208
Less shares redeemed....... (1,795,099) (3,100,750)
----------- ----------
Change from capital stock
transactions............... 59,492 143,761
----------- ----------
Change in net assets....... 59,492 143,761
Net assets
Beginning of period........ 904,569 760,808
----------- ----------
End of period.............. $ 964,061 $ 904,569
=========== ==========
Undistributed net investment
income at the end of the
period..................... $ 4 $ 4
=========== ==========
CAPITAL STOCK TRANSACTIONS
Shares sold................. 1,832,785 3,202,303
Shares issued in
reinvestment of income
dividends and capital
gain distributions....... 21,806 42,208
Less shares redeemed....... (1,795,099) (3,100,750)
----------- ----------
Change from capital stock
transactions............... 59,492 143,761
=========== ==========
</TABLE>
(a) For the period May 1, 1998 (Commencement of Operations) to June 30, 1998.
(b) Includes $664 relating to PFIC transactions which are treated as ordinary
income for Federal income tax purposes in 1997.
See accompanying Notes to Financial Statements.
28 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 29
................................................................................
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 six 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 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 Emerging Markets Growth Fund is a portfolio whose principal objective is to
provide long-term appreciation by investing in well-managed quality growth
companies in emerging economies worldwide.
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.
(b) Investment Securities
Equity securities traded on a national securities exchange or market are valued
at the last sale price or, in the absence of a sale on the date of valuation, at
the latest bid price. Long-term fixed-income securities are valued based on
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 market 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, 1998.
(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 close of trading on
the New York Stock Exchange which is generally 3:00 p.m. Chicago time (4:00 p.m.
Eastern time), on each day when the Exchange is open. In addition, the Ready
Reserves Fund does not sell its shares on Columbus Day or Veterans Day.
Dividends from net investment income of the Growth Fund, Value Discovery Fund,
International Growth Fund and Emerging Markets 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
June 30, 1998 Semi-Annual Report 29
<PAGE> 30
The Fund may enter into repurchase agreements with its custodian, whereby the
Fund acquires ownership of a debt security and the custodian agrees, at the time
of the sale, to repurchase the debt security from the Fund at a mutually agreed
upon time and price. The Fund's policy is to take possession of securities under
repurchase agreements. The Fund minimizes credit risk by (i) monitoring credit
exposure of the custodian and (ii) monitoring collateral value on a daily basis.
(e) Foreign Currency Translation and Forward Foreign Currency Contracts
All assets and liabilities of the International Growth Fund and the Emerging
Markets Growth Fund are denominated in foreign currencies and are translated
into U.S. dollar amounts at the current exchange rate at the date of valuation.
The International Growth Fund and the Emerging Markets 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
Funds 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 date of valuation. Gains and losses from foreign currency
transactions associated with purchases and sales of investments and forward
foreign currency contracts are included with the net realized and 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 June 30, 1998, the Income Fund
and the Ready Reserves Fund have capital loss carryforwards of $5,048,000 and
$109,000, respectively. These loss carryforwards, which expire in 2005, can be
used to offset net capital gains.
The International Growth Fund has elected to mark-to-market its investment in
Passive Foreign Investment Companies ("PFIC's") for Federal income tax purposes.
In accordance with this election, the Fund recognized unrealized appreciation of
$916,000 in 1997. In addition, the Fund recorded net realized losses of $400,000
on sales of PFIC's during 1997, of which $309,000 had been recognized as income
in prior years. Dividends to shareholders from net investment income included
$664,000 relating to PFIC's during 1997, which are treated as ordinary income
from Federal income tax purposes.
(g) Organization Costs
The initial organization costs of the Value Discovery Fund and the Emerging
Markets 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 DIRECTORS' 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
Emerging Markets Growth Fund 1.40%
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 Emerging Markets Growth Fund's
advisory fee and to absorb other operating expenses if total expenses exceed
2.25% of average daily net assets.
The Funds paid fees of $67,500 to non-affiliated directors of the Funds for the
period ended June 30, 1998.
30 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 31
(3) INVESTMENT TRANSACTIONS
Investment transactions, excluding money market instruments, for the period
ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
EMERGING
VALUE INTERNATIONAL MARKETS
GROWTH DISCOVERY GROWTH GROWTH INCOME
FUND FUND FUND FUND FUND
-------- --------- ------------- -------- --------
(all amounts in thousands)
<S> <C> <C> <C> <C> <C>
Purchases........................................ $128,831 $ 16,181 $ 51,289 $ 3,530 $ 88,645
Proceeds from sales and maturities............... 121,818 10,084 50,401 286 70,866
Gross unrealized appreciation/depreciation
at June 30, 1998 was as follows:
Unrealized appreciation........................ $281,165 $ 7,167 $ 31,660 $ 19 $ 2,252
Unrealized depreciation........................ 17,260 1,854 8,560 447 523
-------- --------- ------------- -------- --------
Net unrealized appreciation (depreciation)....... $263,905 $ 5,313 $ 23,100 $ (428) $ 1,729
======== ========= ============= ======== ========
</TABLE>
Cost of investments is the same for financial statement and Federal income tax
purposes, except for International Growth Fund where the cost was $130,295 at
June 30, 1998.
(4) FORWARD FOREIGN CURRENCY CONTRACTS
In order to protect itself against a decline in the value of foreign currency
against the U.S. dollar, the International Growth Fund enters into forward
foreign currency contracts with its custodian. International Growth Fund bears
the market risk that arises from changes in foreign exchange rates and bears the
credit risk if the counterparty fails to perform under the contract. The net
realized and unrealized gains and losses associated with forward contracts are
reflected in the accompanying financial statements. At June 30, 1998, the
International Growth Fund had the following forward foreign currency contracts
outstanding:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACTS UNREALIZED
TO BE DELIVERED AMOUNT IN SETTLEMENT LOSS
(PURCHASED) U.S. DOLLARS DATE AT 6/30/98
---------------- ------------ ---------- ----------
(all amounts in thousands)
<S> <C> <C> <C>
695,550 Japanese Yen........................................ $ 5,000 July 9, 1998 $69
(696,000) Japanese Yen...................................... $(5,000) July 9, 1998 --
</TABLE>
................................................................................
FINANCIAL HIGHLIGHTS
................................................................................
GROWTH FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
1998(a) 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 15.350 $ 13.480 $ 11.900 $ 9.600 $ 9.730 $ 9.390
Income from investment operations:
Net investment income (loss).............................. .004 (.023) (.010) .034 .027 .035
Net realized and unrealized gain on investments........... 2.686 2.694 2.144 2.750 .581 1.389
-------- -------- -------- -------- -------- --------
Total from investment operations............................ 2.690 2.671 2.134 2.784 .608 1.424
Less distributions from:
Net investment income..................................... -- -- .010 .030 .025 .035
Net realized gain......................................... -- .801 .544 .454 .713 1.049
-------- -------- -------- -------- -------- --------
Total distributions......................................... -- .801 .554 .484 .738 1.084
-------- -------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 18.040 $ 15.350 $ 13.480 $ 11.900 $ 9.600 $ 9.730
======== ======== ======== ======== ======== ========
Total return (%)............................................ 17.52 20.07 17.99 29.07 6.45 15.51
Ratios to average daily net assets (%):
Expenses.................................................. .83 .84 .79 .65 .71 .78
Net investment income (loss).............................. .06 (.16) (.08) .34 .32 .38
Supplemental data:
Net assets at end of period (in thousands)................ $695,974 $591,353 $501,774 $363,036 $217,560 $150,046
Portfolio turnover rate (%)............................... 40 34 43 32 46 55
Average commission rate................................... $ .0598 $ .0598 $ .0621
</TABLE>
- ---------------
(a) Rates are annualized, except for total return for periods less than one
year.
June 30, 1998 Semi-Annual Report 31
<PAGE> 32
................................................................................
VALUE DISCOVERY FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
JUNE 30, ------------------
1998(a) 1997 1996(b)
-------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $12.970 $10.000 $ 10.000
Income from investment operations:
Net investment income................ .016 .029 --
Net realized and unrealized gain on
investments and futures............ 1.224 3.305 --
------- ------- --------
Total from investment operations....... 1.240 3.334 --
Less distributions from:
Net investment income................ -- .020 --
Net realized gain.................... -- .344 --
------- ------- --------
Total distributions.................... -- .364 --
------- ------- --------
Net asset value, end of period......... $14.210 $12.970 $ 10.000
======= ======= ========
Total return (%)....................... 9.56 33.46 --
Ratios to average daily net assets (%):
Expenses(c).......................... 1.50 1.50 --
Net investment income(c)............. .52 .29 --
Supplemental data:
Net assets at end of period (in
thousands)......................... $42.427 $30,354 $ 2
Portfolio turnover rate (%).......... 64 69 --
Average commission rate.............. $ .0611 $ .0616 --
</TABLE>
- ---------------
(a) Rates are annualized, except total returns for periods 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
1.78% and the net investment income ratio would have been .016%.
32 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 33
................................................................................
INTERNATIONAL GROWTH FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------------------------
1998(a) 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $ 13.140 $ 13.950 $ 13.120 $12.360 $13.180 $10.130
Income from investment operations:
Net investment income.............. .006 .072 .029 .105 .016 .008
Net realized and unrealized gain
(loss) on investments, futures,
foreign currency and other assets
and liabilities.................. 1.944 1.056 1.299 .785 (.025) 3.401
-------- -------- -------- ------- ------- -------
Total from investment operations..... 1.950 1.128 1.328 .890 (.009) 3.409
Less distributions from:
Net investment income.............. -- .078(b) .068(b) .130 .024 --
Net realized gain.................. -- 1.860 .430 -- .714 .359
Tax return of capital.............. -- -- -- -- .073(c) --
-------- -------- -------- ------- ------- -------
Total distributions.................. -- 1.938 .498 .130 .811 .359
-------- -------- -------- ------- ------- -------
Net asset value, end of period....... $ 15.090 $ 13.140 $ 13.950 $13.120 $12.360 $13.180
======== ======== ======== ======= ======= =======
Total return (%)..................... 14.84 8.39 10.20 7.22 (.04) 33.65
Ratios to average daily net assets
(%):
Expenses(d)........................ 1.33 1.43 1.44 1.48 1.51 1.71
Net investment income(d)........... .44 .01 .19 .87 .15 .11
Supplemental data:
Net assets at end of period (in
thousands)....................... $153,449 $128,747 $105,148 $89,762 $70,403 $40,298
Portfolio turnover rate (%)........ 75 102 89 77 40 83
Average commission rate............ $.0059 $.0038 $.0051
</TABLE>
- ---------------
(a) Rates are annualized, except total returns for periods less than one year.
(b) Includes $.078 and $.022 in PFIC transactions which are treated as ordinary
income for Federal income tax purposes for 1997 and 1996, respectively.
(c) Includes $431 relating to a tax return of capital.
(d) Without the waiver of expenses in 1993, the expense ratio would have been
2.08% and the net investment loss ratio would have been (.25)%.
June 30, 1998 Semi-Annual Report 33
<PAGE> 34
................................................................................
EMERGING MARKETS GROWTH FUND
................................................................................
<TABLE>
<CAPTION>
JUNE 30,
1998(a)(b)
----------
<S> <C>
Net asset value, beginning of period... $10.000
Income from investment operations:
Net investment income................ .019
Net realized and unrealized gain
(loss) on investments, foreign
currency and other assets and
liabilities........................ (1.319)
-------
Total from investment operations....... (1.300)
Less distributions from:
Net investment income................ --
Net realized gain.................... --
-------
Total distributions.................... --
-------
Net asset value, end of period......... $ 8.700
=======
Total return (%)....................... (13.00)
Ratios to average daily net assets (%):
Expenses(c).......................... 2.25
Net investment income(c)............. 1.38
Supplemental data:
Net assets at end of period (in
thousands)......................... $ 3,692
Portfolio turnover rate (%).......... 71
Average commission rate.............. $.00154
</TABLE>
- ---------------
(a) Rates are annualized, except total returns for periods less than one year.
(b) For the period May 1, 1998 (Commencement of Operations) to June 30, 1998.
(c) Without the waiver of expenses in 1998, the expense ratio would have been
5.22% and the net investment loss ratio would have been (1.59)%.
34 William Blair Mutual Funds, Inc. June 30, 1998
<PAGE> 35
................................................................................
INCOME FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
1998(a) 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year......................... $ 10.410 $ 10.270 $ 10.570 $ 9.850 $ 10.580 $ 10.600
Income from investment operations:
Net investment income.................................... .321 .659 .619 .646 .661 .651
Net realized and unrealized gain (loss) on investments... .018 .140 (.309) .732 (.741) .159
-------- -------- -------- -------- -------- --------
Total from investment operations........................... .339 .799 .310 1.378 (.080) .810
Less distributions:
Net investment income.................................... .289 .659 .610 .658 .646 .651
Net realized gain........................................ -- -- -- -- .004 .179
-------- -------- -------- -------- -------- --------
Total distributions........................................ .289 .659 .610 .658 .650 .830
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................. $ 10.460 $ 10.410 $ 10.270 $ 10.570 $ 9.850 $ 10.580
======== ======== ======== ======== ======== ========
Total return (%)........................................... 3.29 8.03 3.07 14.37 (.74) 7.82
Ratios to average daily net assets (%):
Expenses................................................. .71 .71 .70 .68 .68 .70
Net investment income.................................... 6.90 6.40 5.97 6.24 6.33 5.96
Supplemental data:
Net assets at end of period (in thousands)............... $177,431 $160,055 $150,006 $147,370 $143,790 $204,381
Portfolio turnover rate (%).............................. 93 83 66 54 63 114
</TABLE>
................................................................................
READY RESERVES FUND
................................................................................
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
1998(a) 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year......................... $ 1.0000 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income.................................... .0245 .05 .05 .05 .04 .03
Net realized loss on investments......................... -- -- -- -- (.01) --
-------- -------- -------- -------- -------- --------
Total from investment operations........................... .0245 .05 .05 .05 .03 .03
Less distributions:
Net investment income.................................... .0245 .05 .05 .05 .04 .03
-------- -------- -------- -------- -------- --------
Total distributions........................................ .0245 .05 .05 .05 .04 .03
-------- -------- -------- -------- -------- --------
Capital contribution....................................... -- -- -- -- .01 --
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................. $ 1.0000 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return (%)........................................... 2.481 5.04 4.81 5.45 3.67(b) 2.64
Ratios to average daily net assets (%):
Expenses................................................. .69 .70 .71 .72 .71 .71
Net investment income.................................... 4.901 4.92 4.78 5.30 3.61 2.61
Supplemental data:
Net assets at end of period (in thousands)............... $964,061 $904,569 $760,808 $703,993 $521,277 $477,268
</TABLE>
- ---------------
(a) Rates are annualized, except for total return for periods 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, 1998 Semi-Annual Report 35
<PAGE> 36
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BOARD OF DIRECTORS
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CONRAD FISCHER, CHAIRMAN
Principal, William Blair & Company, L.L.C.
VERNON ARMOUR
Private Investor
J. GRANT BEADLE
Retired Chairman and CEO, Union Special Corporation
THEODORE A. BOSLER
Retired Principal and Vice President, Lincoln Capital
Management Company
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.
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OFFICERS
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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
Jeffrey A. Urbina, Vice President
Sheila M. Johnson, Secretary
INVESTMENT ADVISER
William Blair & Company, L.L.C.
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 9104
Boston, MA 02266-9104
For customer assistance, call 1-800-635-2886
(Massachusetts 1-800-635-2840)
William Blair Mutual Funds, Inc.
222 West Adams Street
Chicago, Illinois 60606
June 30, 1998
