<PAGE> PAGE 1
000 B000000 12/31/97
000 C000000 0000822632
000 D000000 N
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001 A000000 WILLIAM BLAIR MUTUAL FUNDS, INC.
001 B000000 811-5344
001 C000000 3123648000
002 A000000 222 WEST ADAMS STREET
002 B000000 CHICAGO
002 C000000 IL
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020 A000001 MERRILL LYNCH & COMPANY, INTERNATIONAL
020 C000001 54
020 A000002 JARDINE, FLEMING SECURITIES INTERNATIONAL
020 C000002 60
020 A000003 MORGAN STANLEY & COMPANY, INC.
020 B000003 13-2655889
020 C000003 54
<PAGE> PAGE 2
020 A000004 LEHMAN BROTHERS, INC.
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020 C000004 48
020 A000005 ING, BARING SECURITIES
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020 A000008 SANFORD, BERNSTEIN & COMPANY, INC.
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020 C000008 34
020 A000009 SMITH, BARNEY SECURITIES INC.
020 B000009 13-912900
020 C000009 32
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020 B000010 13-3604093
020 C000010 31
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022 B000001 94-3242202
022 C000001 3103693
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022 B000002 13-3160926
022 C000002 966994
022 D000002 2463
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022 C000003 684826
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<PAGE> PAGE 3
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SIGNATURE TERENCE M. SULLIVAN
TITLE TREASURER
EXHIBIT 77.B
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
William Blair Mutual Funds, Inc.
In planning and performing our audits of the financial statements of William
Blair Mutual Funds, Inc. consisting of the Growth Fund, Value Discovery Fund,
International Growth Fund, Income Fund and Ready Reserves Fund and for the year
ended December 31, 1997, we considered their internal control, including
control activities for safeguarding securities, in order to determine our
auditing procedures for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form N-SAR, not to provide
assurance on internal control.
The management of William Blair Mutual Funds, Inc. is responsible for
establishing and maintaining internal control. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of controls. Generally, controls that
are relevant to an audit pertain to the entity's objective of preparing
financial statements for external purposes that are fairly presented in
conformity with generally accepted accounting principles. Those controls
include the safeguarding of assets against unauthorized acquisition, use or
disposition.
Because of inherent limitations in internal control, errors or fraud may occur
and not be detected. Also, projection of any evaluation of internal control
to future periods is subject to the risk that it may become inadequate because
of changes in conditions or that the effectiveness of the design and operation
may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or
more of specific internal control components does not reduce to a relatively
low level the risk that errors or fraud in amounts that would be material in
relation to the financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
internal control, including controls for safeguarding securities, that we
consider to be material weaknesses as defined above at December 31, 1997.
This report is intended solely for the information and use of the Board of
Directors and management of William Blair Mutual Funds, Inc. and the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
February 3, 1998
EXHIBIT 77.O
WILLIAM BLAIR MUTUAL FUNDS, INC.
Rule 10f-3 Procedures
The Board of Directors of William Blair Mutual Funds, Inc. (the
"Fund") has approved the following procedures to permit the Portfolios of the
Fund to purchase securities from underwriting and selling syndicates in which
William Blair & Company, L.L.C. (the "Adviser") participates as a syndicate
member in compliance with the provisions of Rule 10f-3 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Adviser is directed to
comply with these procedures in effecting any such purchase of securities for
the Fund.
Definitions
For the purpose of these procedures and the attached Form 10f-3, the
following definitions shall apply:
Domestic Issuer means any issuer other than a foreign government, a
national of any foreign country, or a corporation or other organization
incorporated or organized under the laws of any foreign country.
Eligible Foreign Offering means a public offering of securities,
conducted under the laws of a country other than the United States, that
meets the following conditions:
(i) The offering is subject to regulation by a "foreign
financial regulatory authority," as defined in Section 2(a)(50) of the
1940 Act, in such country;
(ii) The securities are offered at a fixed price to all
purchasers in the offering (except for any rights to purchase
securities that are required by law to be granted to existing
security holders of the issuer);
(iii) Financial statements, prepared and audited in
accordance with standards required or permitted by the appropriate
foreign financial regulatory authority in such country, for the two
years prior to the offering, are made available to the public and
prospective purchasers in connection with the offering; and
(iv) If the issuer is a Domestic Issuer, it meets the
following conditions:
(A) It has a class of securities
registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 (the "1934 Act") or is
required to file reports pursuant to Section 15(d) or
the 1934 Act; and
(B) It has filed all the material required
to be filed pursuant to Section 13(a) or 15(d) of the
1934 Act for a period of at least 12 months
immediately preceding the sale of securities made in
reliance upon Rule 10f-3 (or for such shorter period
that the issuer was required to file such material).
Eligible Municipal Securities means "municipal securities," as defined
in Section 3(a)(29) of the 1934 Act, that have received an investment grade
rating from at least one nationally recognized statistical rating organization
("NRSRO"); provided, that if the issuer of the municipal securities, or the
entity supplying the revenues or other payments from which the issue is to be
paid, has been in continuous operation for less than three years, including
the operation of any predecessors, the securities shall have received one of
the three highest ratings from a NRSRO.
Eligible Rule 144A Offering means an offering of securities that meets
the following conditions:
(i) The securities are offered or sold in transactions
exempt from registration under Section 4(2) of the Securities Act of
1933, Rule 144A under Section 4(2) or Rules 501-508 under Section 4(2);
(ii) The securities are sold to persons that the seller and
any person acting on behalf of the seller reasonably believe to include
"qualified institutional buyers," as defined in Rule 144A(a)(1)
("QIBs"); and
(iii) The seller and any person acting on behalf of the
seller reasonably believe that the securities are eligible for resale
to other QIBs pursuant to Rule 144A.
NRSRO has the same meaning as that set forth in Rule 2a-7(a)(14) under
the 1940 Act.
Conditions
Before making a purchase for a Portfolio of securities from an
underwriting or selling syndicate, the Adviser shall determine whether it is a
manager or participant in the underwriting or selling syndicate, and, if it is,
the Adviser may purchase securities for the Portfolios provided that all the
conditions set forth below (the "Rule 10f-3 Procedures") are met:
1. The securities to be purchased (i) are part of an issue registered
under the Securities Act of 1933 that is being offered to the public;
(ii) Eligible Municipal Securities; (iii) securities sold in an
Eligible Foreign Offering; or (iv) securities sold in an Eligible Rule
144A Offering.
2. The securities are purchased prior to the end of the first day on
which any sales are made, if not offered for subscription upon
exercise of rights, or are purchased on or
-2-
before the fourth day preceding the day on which the rights offering
terminates at a price that is not more than the price paid by each
other purchaser of securities in that offering or in any concurrent
offering of the securities (except, in the case of an Eligible Foreign
Offering, for any rights to purchase that are required by law to be
granted to existing security holders of the issuer). For purposes of
determining whether the securities are being sold in an Eligible Rule
144A Offering and of determining compliance with this Paragraph 2, the
Fund may reasonably rely upon written statements made by the issuer or
a syndicate manager, or by an underwriter or seller of the securities
through which the Portfolios purchase the securities.
3. With respect to an issue registered under the Securities Act of 1933
that is offered to the public or are purchased pursuant to an Eligible
Foreign Offering or an Eligible Rule 144A Offering, the issuer of the
securities to be purchased shall have been in continuous operation for
not less than three years, including the operations of any
predecessors.
4. The securities are offered in a firm commitment underwriting pursuant to
an underwriting or similar agreement under which the underwriters are
committed to purchase all of the securities being offered, except
those purchased by others pursuant to a rights offering, if the
underwriters purchase any of the securities.
5. The commission, spread or profit received or to be received by the
principal underwriters is reasonable and fair compared to the
commission, spread or profit received by other such persons in
connection with the underwriting of similar securities being sold
during a comparable period of time.
6. The amount of securities of any class of such issue to be purchased by
a Portfolio or by, in the aggregate, any two or more investment
companies managed by the Adviser, shall not exceed (i) 25% of the
principal amount of the offering of such class if purchased in an
offering other than an Eligible Rule 144A Offering; or (ii) if
purchased in an Eligible Rule 144A Offering, 25% of the total of (A)
the principal amount of the offering of such class sold by
underwriters or members of the selling syndicate to qualified
institutional buyers, plus (B) the principal amount of the offering of
such class in any concurrent public offering.
7. No Portfolio purchases securities offered directly or indirectly from
an officer, director, member of an advisory board, the Adviser, an
employee of such Portfolio or from a person of which any such officer,
director, member of an advisory board, the Adviser or employee is an
affiliated person; provided that a purchase from a syndicate manager
shall not be deemed to be a purchase from a specific underwriter if
(i) such underwriter does not benefit directly or indirectly from the
transaction; or (ii) in respect to the purchase of Eligible Municipal
Securities, such purchase is not designated as a group sale or
otherwise allocated to the account of any person from whom this
section prohibits purchase.
- 3 -
8. The Adviser shall (i) maintain a record of each purchase effected
pursuant to the Fund's Rule 10f-3 Procedures on a Form 10f-3 in the
form attached hereto as Exhibit A and (ii) shall present a written
report to the Board of Directors, in the form attached hereto as
Exhibit B, no less frequently than quarterly, summarizing such
information for each purchase during the preceding quarter and
attaching to such report all copies of Form 10f-3 completed during
the quarter.
9. All such transactions shall be reported on the Portfolios' semi-annual
reports on Form N-SAR and a written record of each such transaction,
setting forth (1) from whom the securities were acquired, (2) the
identity of the underwriting syndicate's members, (3) the terms of the
transaction and (4) the information or materials upon which the Board
of Directors based its quarterly determination that all purchases made
during the preceding quarter were effected in compliance with the
Fund's Rule 10f-3 Procedures shall be attached as an exhibit to Form
N-SAR. The information regarding the terms of the transaction shall
include the date of purchase, the maturity date and interest rate of
the securities purchased, the number and value of securities purchased
(specific as to each series if applicable) and the aggregate number
and value of securities offered through the underwriting or selling
syndicate.
10. The Adviser shall maintain and preserve on behalf of the Portfolios
written records in accordance with the provisions of Rule 10f-3(b)(11),
which records shall contain a copy of the Fund's Rule 10f-3 Procedures,
as they may be modified from time to time, and all copies of Form
l0f-3 reviewed by the Board of Directors
11. On an annual basis, the Adviser shall provide a report to the Board
regarding the securities purchased pursuant to these Rule 10f-3
Procedures analyzing the performance of such securities.
Date: October 21, 1997
- 4 -
EXHIBIT A
FORM 10f-3
WILLIAM BLAIR MUTUAL FUNDS, INC.
(the "Fund")
Record of Securities Purchased
Under the Fund's Rule 10f-3 Procedures
Issuer: LaSalle Partners Inc.
Date offering commenced: 07/16/97
Aggregate number and value of securities offered through underwriting or
selling syndicate:
4 million shares offered at $23.00 per share, total $92 million
Offering price at close of first day on which any sales were made: $28.813
Underwriting syndicate's members:
Morgan Stanley, William Blair, Montgomery Securities
Date of purchase: 7/16/97
Number and value of securities purchased (specific as to each series if
applicable):
3,800 shares purchased @ $23.00 per share = $87,400
Purchase price (net of fees and expenses): $87,400 total
Maturity date and interest rate (if applicable):
Underwriter from whom purchased: Morgan Stanley
Commission, spread or profit: Gross Spread $1.61 per share
Comparative information regarding commission, spread or profit for similar
underwritings during the same period:
Issuer Price Per Share Underwriting Discount Gross Spread
Conditions Yes No
(1) The securities are either (i) part of an
issue registered under the Securities Act of
1933 that is being offered to the public or
(ii) Eligible Municipal Securities, (iii)
securities sold in an Eligible Foreign
Offering or (iv) securities sold in an
Eligible Rule 144A Offering. _X_ ___
(2) The purchase price paid did not exceed the
price paid by each other purchaser of
securities in that offering or in any
concurrent offering of the securities at
the close of the first day on which any
sales are made (except, in the case of an
Eligible Foreign Offering, for any rights
to purchase that are required by law to be
granted to existing security holders of the
issuer), or, if a rights offering, the
securities were purchased on or before the
fourth day preceding the day on which the
offering terminated. _X_ ___
(3) In respect of securities other than Eligible
Municipal Securities, the issuer of the
securities has been in continuous operation
for not less than three years, including the
operations of any predecessors. _X_ ___
(4) The underwriting was a firm commitment underwriting. _X_ ___
(5) The commission, spread or profit was reasonable and
fair in relation to that being received by others
for underwriting similar securities during the
same period. _X_ ___
(6) The amount of such securities purchased by all of the
investment companies managed by the Adviser did not
exceed 25% of the principal amount of an offering
other than an Eligible Rule 144A Offering, or, in an
Eligible Rule 144A Offering, 25% of the total of (1)
the principal amount of the offering sold by
underwriters or members of the selling syndicate to
QIBs, plus (2) the principal amount in any concurrent
public offering. _X_ ___
(7) The Adviser was not a direct or indirect participant
in the sale. _X_ ___
Approved: yes Date: 10/21/97
Board of Directors Review Date: 10/21/97
- 3 -
EXHIBIT A
FORM 10f-3
WILLIAM BLAIR MUTUAL FUNDS, INC.
(the "Fund")
Record of Securities Purchased
Under the Fund's Rule 10f-3 Procedures
Issuer: CCA Prison Realty Trust
Date offering commenced: 07/15/97
Aggregate number and value of securities offered through underwriting or
selling syndicate:
17 million shares @ $21.00 per share, total $357 million
Offering price at close of first day on which any sales were made: $28.875
Underwriting syndicate's members: JC Bradford, AG Edwards, Wm. Blair
Date of purchase: 7/15/97
Number and value of securities purchased (specific as to each series if
applicable):
19,500 shares @ $21.00 per share = $409,500
Purchase price (net of fees and expenses): $409,500 total
Maturity date and interest rate (if applicable):
Underwriter from whom purchased: JC Bradford
Commission, spread or profit: Gross Spread = $1.365 per share
Comparative information regarding commission, spread or profit for similar
underwritings during the same period:
Issuer Price Per Share Underwriting Discount Gross Spread
Conditions Yes No
(1) The securities are either (i) part of an issue registered
under the Securities Act of 1933 that is being offered
to the public or (ii) Eligible Municipal Securities,
(iii) securities sold in an Eligible Foreign Offering
or (iv) securities sold in an Eligible Rule 144A
Offering. _X_ ___
(2) The purchase price paid did not exceed the price paid by
each other purchaser of securities in that offering or
in any concurrent offering of the securities at the
close of the first day on which any sales are made
(except, in the case of an Eligible Foreign Offering,
for any rights to purchase that are required by law to
be granted to existing security holders of the issuer),
or, if a rights offering, the securities were purchased
on or before the fourth day preceding the day on which
the offering terminated. _X_ ___
(3) In respect of securities other than Eligible Municipal
Securities, the issuer of the securities has been in
continuous operation for not less than three years,
including the operations of any predecessors. _X_ ___
(4) The underwriting was a firm commitment underwriting. _X_ ___
(5) The commission, spread or profit was reasonable and
fair in relation to that being received by others for
underwriting similar securities during the same period. _X_ ___
(6) The amount of such securities purchased by all of the
investment companies managed by the Adviser did not
exceed 25% of the principal amount of an offering
other than an Eligible Rule 144A Offering, or, in an
Eligible Rule 144A Offering, 25% of the total of (1)
the principal amount of the offering sold by
underwriters or members of the selling syndicate to
QIBs, plus (2) the principal amount in any concurrent
public offering. _X_ ___
(7) The Adviser was not a direct or indirect participant in
the sale. _X_ ___
- 3 -
Approved: yes Date: 10/21/97
Board of Directors Review Date: 10/21/97
- 4 -
EXHIBIT B
WILLIAM BLAIR MUTUAL FUNDS, INC.
____________________ FUND
FORM OF QUARTERLY REPORT ON RULE 10F-3 PURCHASES
During the 3rd quarter of 1997, William Blair Mutual Funds, Inc. Value
Discovery Fund (the "Fund"), made the following Rule 10f-3 purchases:
ISSUER DATE OF PURCHASE AMOUNT OF PURCHASE
CCA Prison Realty Trust 7/15/97 $409,500
LaSalle Partners 7/16/97 $87,400
PURCHASE PRICE BROKER/DEALER
$21.00 JC Bradford
$23.00 Morgan Stanley
The above purchase [purchases] was [were] made from an underwriting syndicate
of which William Blair & Company, a broker-dealer, was a participating member.
The Fund did not purchase the shares directly or indirectly from William Blair
& Company. All shares were acquired from an outside firm and no credit was
received by William Blair & Company. According to Rule 10f-3, all purchases
of securities made pursuant to the rule must be reported to the appropriate
and required parties. Accordingly, we are advising the directors of the Fund
of this [these] purchase [purchases] with this statement and the following
disclosure:
1. The securities are either (i) part of an issue registered under the
Securities Act of 1933 that is being offered to the public or (ii)
Eligible Municipal Securities, (iii) securities sold in an Eligible
Foreign Offering or (iv) securities sold in an Eligible Rule 144A
Offering.
2. The purchase price paid did not exceed the price paid by each other
purchaser of securities in that offering or in any concurrent
offering of the securities at the close of the first day on which any
sales are made (except, in the case of an Eligible Foreign Offering,
for any rights to purchase that are required by law to be granted to
existing security holders of the issuer), or, if a rights offering,
the securities were purchased on or before the fourth day preceding
the day on which the offering terminated.
3. In respect of securities other than Eligible Municipal Securities,
the issuer of the securities has been in continuous operation for not
less than three years, including the operations of any predecessors.
4. The underwriting was a firm commitment underwriting.
5. The commission, spread or profit was reasonable and fair in relation
to that being received by others for underwriting similar securities
during the same period.
6. The amount of such securities purchased by all of the investment
companies managed by the Adviser did not exceed 25% of the principal
amount of an offering other than an Eligible Rule 144A Offering, or,
in an Eligible Rule 144A Offering, 25% of the total of (1) the
principal amount of the offering sold by underwriters or members
of the selling syndicate to QIBs, plus (2) the principal amount
in any concurrent public offering.
