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[William Blair Logo] William Blair Funds
SEMI-ANNUAL REPORT
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JUNE 30, 2000
<PAGE> 2
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
A Letter from the President............................... 2
GROWTH FUND
A Letter from the Portfolio Managers...................... 4
Portfolio of Investments.................................. 6
TAX-MANAGED GROWTH FUND
A Letter from the Portfolio Managers...................... 7
Portfolio of Investments.................................. 9
LARGE CAP GROWTH FUND
A Letter from the Portfolio Managers...................... 10
Portfolio of Investments.................................. 12
SMALL CAP GROWTH FUND
A Letter from the Portfolio Managers...................... 13
Portfolio of Investments.................................. 16
INTERNATIONAL GROWTH FUND
A Letter from the Portfolio Manager....................... 17
Portfolio of Investments.................................. 19
EMERGING MARKETS GROWTH FUND
A Letter from the Portfolio Managers...................... 22
Portfolio of Investments.................................. 24
DISCIPLINED LARGE CAP FUND
A Letter from the Portfolio Manager....................... 25
Portfolio of Investments.................................. 27
VALUE DISCOVERY FUND
A Letter from the Portfolio Managers...................... 29
Portfolio of Investments.................................. 32
INCOME FUND
A Letter from the Portfolio Managers...................... 33
Portfolio of Investments.................................. 35
READY RESERVES FUND
A Letter from the Portfolio Managers...................... 37
Portfolio of Investments.................................. 38
FINANCIAL STATEMENTS........................................ 40
NOTES TO FINANCIAL STATEMENTS............................... 47
BOARD OF TRUSTEES........................................... 64
OFFICERS.................................................... 64
</TABLE>
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
WILLIAM BLAIR FUNDS. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY A PROSPECTUS OF THE WILLIAM BLAIR
FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
June 30, 2000 William Blair Funds 1
<PAGE> 3
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A LETTER FROM THE PRESIDENT
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[PHOTO]
Marco Hanig
Dear Shareholders:
After several years of sharply increasing stock prices, the first half of the
year 2000 saw the market move mostly sideways--with significant volatility along
the way. Sandwiched between positive returns in the first and last two months of
the semi-annual period was a significant market correction in March and April,
particularly in the technology sector.
Year-to-date, large cap stocks were flat (S&P 500: -0.4%), small cap stocks were
up slightly (Russell 2000: +3.0%), and international equity markets declined
slightly (MSCI All Country Ex-US: -3.3%). Among different asset classes, on
average growth stocks outperformed value stocks, and small cap stocks beat large
cap stocks. According to Morningstar, the best performing group of diversified
mutual funds was Small Cap Growth (+10.1%), while the worst was Large Value
(-1.9%).
The table on the opposite page gives an overview of the performance of each
fund.*
Some of the most notable highlights are:
- The SMALL CAP GROWTH FUND was up 46.4% in the semi-annual period, compared to
10.1% for the Morningstar Small Cap Growth category average. This new Fund is
only six months old and is off to a great start. The Fund benefited from some
excellent stock picks, such as Biosite Diagnostics, Tessco Technologies, and
Dallas Semiconductor, which are discussed in the Fund managers' letter. The
Fund has also participated in a number of initial public offerings (IPOs) that
made significant contributions to the Fund's performance. As the Fund grows,
there can be no assurance that such contributions will continue.
- The INTERNATIONAL GROWTH FUND was up 2.0% versus a 4.0% decline for the
average foreign stock fund tracked by Morningstar. As of June 30, 2000, its 1,
3 and 5-year returns place it among the top 7%/6%/5% of foreign stock funds in
the Morningstar universe(1).
Thanks to this outstanding performance, the Fund has received quite a bit of
attention from the media. George Greig, the Fund's manager, made several
appearances on CNBC, and the Fund was featured in the Financial Times,
Investors' Business Daily, and the New York Post.
- The VALUE DISCOVERY FUND, our small cap value fund, continued to perform quite
well relative to its peers, with a return of 11.8% versus 5.3% for the average
fund in the Morningstar small cap value category.
As of June 30, 2000, this Fund's 1 and 3 year performance ranks it among the
top 16% and 9% of small cap value mutual funds(2). The media is also noticing
this Fund, with The New York Times and Mutual Funds Magazine writing feature
articles about the Fund.
Thank you for investing with us!
/s/ MARCO HANIG
Marco Hanig
---------------
* All William Blair Fund performance information refers to Class N shares.
Additional information regarding the Funds' performance is provided in the
accompanying performance summary table.
1 The International Growth Fund's 1, 3 and 5 year return ranking is 47 among
678; 26 among 477; and 15 among 287 foreign stock funds, respectively.
2 The Value Discovery Fund's 1 and 3 year return ranking is 35 among 215 and 12
among 137 small value funds, respectively.
2 Semi-Annual Report June 30, 2000
<PAGE> 4
PERFORMANCE SUMMARY
CLASS N SHARES AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN % 10 YR
----------------------------- (OR SINCE INCEPTION
YTD 1 YR 3 YR 5 YR INCEPTION) DATE MORNINGSTAR RATING
----- ----- ----- ----- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND 5.37 18.06 20.55 20.11 17.71 3/20/96 ****
Morningstar LargeCap Growth 3.10 27.20 27.00 24.90 17.90 Among 3,642 domestic equity funds
Russell Mid Cap Growth 12.15 48.60 30.40 26.37 19.77
TAX-MANAGED GROWTH FUND 1.87 3.70 12/27/99
Morningstar LargeCap Growth 3.10 --
Russell 3000 Growth 4.04 4.86
LARGE CAP GROWTH FUND -0.20 1.20 12/27/99
Morningstar LargeCap Growth 3.10 --
Russell 1000 Growth 4.23 4.72
SMALL CAP GROWTH FUND 46.42 49.20 12/27/99
Morningstar SmallCap Growth 10.10 --
Russell 2000 Growth 1.22 6.51
IPOs have made significant contributions to the recent performance of the Fund. There can be no assurance that such contributions
will continue.
INTERNATIONAL GROWTH FUND 2.04 58.51 27.96 23.74 19.09 10/1/92 *****
Morningstar Foreign Stock -4.00 27.10 12.40 13.50 -- Among 1,148 international funds
MSCI World Free Ex-US -3.33 18.10 9.46 11.12 12.06
The Fund's 1-year performance was attributable to unusually favorable market conditions. Investors should maintain realistic
expectations for future performance.
EMERGING MARKETS GROWTH FUND -6.89 17.96 11.83 5/1/98
Morningstar Emerging Markets -8.80 16.40 --
MSCI Emerging Markets Free -7.99 9.47 3.98
DISCIPLINED LARGE CAP FUND 0.20 1.40 12/27/99
Morningstar Large Cap Blend 0.50 --
S&P 500 Index -0.42 0.43
VALUE DISCOVERY FUND 11.79 13.27 12.80 14.24 12/23/96 ****
Morningstar SmallCap Value 5.30 3.30 3.50 -- Among 3,642 domestic equity funds
Russell 2000 Value 5.85 -0.94 3.84 8.88
INCOME FUND 3.37 4.14 5.20 5.42 7.05 10/1/90 ****
Morningstar Short-term Bond 2.90 4.30 5.00 5.20 -- Among 1,684 fixed income funds
Lehman Intermediate Govt./Corp
Index 3.22 4.23 5.63 5.82 7.28
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or a
loss when you sell shares. Investing in smaller companies involves special
risks, including higher volatility and lower liquidity. International and
emerging markets investing involves special risk considerations, including
currency fluctuations, lower liquidity, economic and political risk. From time
to time, the investment adviser may waive fees or reimburse expenses for certain
Funds. Without these waivers, performance would be lower. Class N shares are
available to the general public without a sales load.
Morningstar proprietary ratings reflect risk-adjusted performance as of June 30,
2000. The ratings are subject to change every month. Ratings are calculated from
a fund's three-, five, and ten-year returns in excess of 90-day T-bill returns
compared to comparable funds. The top 10% of funds in a rating category receive
a star rating of 5 stars, the next 22.5 receive 4 stars, the middle 35% receive
3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The
3/5/10 year Morningstar ratings were as follows: Growth Fund ****/***/**** and
Value Discovery Fund ***/--/-- out of 3,642/2,328/783 domestic equity funds;
International Growth Fund *****/*****/-- out of 1,148/701/141 international
equity funds; Income Fund ****/****/-- out of 1,684/1,287/381 fixed income
funds.
June 30, 2000 William Blair Funds 3
<PAGE> 5
...............................................................................
GROWTH FUND
...............................................................................
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A LETTER FROM THE PORTFOLIO MANAGERS
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[PHOTO]
Rocky Barber
[PHOTO]
Mark A. Fuller III
[PHOTO]
Gretchen S. Lash
Dear Shareholders:
For the six months ended June 30, 2000, the William Blair Growth Fund (Class N
Shares) increased 5.37% on a total return basis. This compared with a negative
0.42% return by the Standard & Poor's 500 Stock Index (the S&P 500) during the
same six-month period.
The second quarter was a difficult one for the market in general with the S&P
500 down 2.66% and the various growth indices down even more. During the period
the Growth Fund was up .14%.
During the second quarter investors became far more cautious on both the economy
and, especially, the Internet sector. Investors began to worry that the Fed
would raise rates too much and drive the U.S. into a recession or a significant
slowdown in growth. As a result, money came out of the more economically
sensitive stocks such as retailers or capital goods manufacturers, and moved
into more defensive names such as pharmaceuticals, foods and beverages. At the
same time, investors began to question the business models of many Internet
related companies, especially when some analysts questioned the ability of some
of these companies to survive without additional equity funding. We believe the
resulting correction in the Internet sector was overdue and quite necessary for
a healthy market. In our view, Internet investing had become a veritable feeding
frenzy during the first quarter that had created a speculative bubble that often
had no basis in the companies' fundamentals.
These two trends in the market helped the relative performance of the Growth
Fund as we focus on higher quality growth companies that tend to have more
proven and/or defensive business models. Moreover, earlier in the year, we had
reduced our exposure to the economically sensitive consumer stocks by almost
half and had increased our holdings in the pharmaceutical companies. We still
have a major position in the technology group, but our holdings tend to be in
the more established players that have leading market shares and positive cash
flows.
Going forward, we do not believe the U.S. economy is going to slip into a
recession, although the Fed may do one more tightening (probably .25%) at its
August meeting. We do expect economic growth to slow to a still-respectable 3%
range by the end of the year, and we expect interest rates to be flattish for
the period. Given such an economic scenario, we expect investors to continue to
prefer the higher quality names but to become a bit less defensive. Valuations
do not look extended in most sectors, with the possible exception of a few
technology companies. The market is apt to remain volatile through the August
Fed meeting and then will go on "election watch". However, the likelihood of
another correction of the magnitude of mid-March through May appears low. We are
therefore cautiously optimistic about the balance of the year for the market as
a whole, and believe the high quality orientation and somewhat defensive current
stature of the Fund positions it well for this economic and market environment.
<TABLE>
<S> <C> <C>
/s/ ROCKY BARBER /s/ MARK A. FULLER III /s/ GRETCHEN S. LASH
</TABLE>
4 Semi-Annual Report June 30, 2000
<PAGE> 6
...............................................................................
GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
6/30/00 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund (Class N).......... 5.37% 19.98% 27.15% 20.07% 17.99% 29.07%
S&P 500 Index.................. (.42) 21.04 28.57 33.36 22.96 37.58
</TABLE>
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INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
6/30/00(A) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $714 $818 $742 $591 $502 $363
Portfolio Turnover Rate (%).... 79 52 37 34 43 32
Expense Ratio (%).............. 1.11 .86 .84 .84 .79 .65
</TABLE>
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(a) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF CAPITAL
GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPHIC IMAGE]
<TABLE>
<CAPTION>
GROWTH FUND S&P 500 INDEX
----------- -------------
<S> <C> <C>
1/90 10000 10000
12/90 9800 9700
12/91 14100 12600
12/92 15200 13600
12/93 17600 15000
12/94 18700 15200
12/95 24200 20900
12/96 28500 25700
12/97 34200 34200
12/98 43500 44000
12/99 52200 53300
6/00 55000 53000
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. Class N shares are available to the general public without
a sales load.
The S&P 500 Index indicates broad larger capitalization equity market
performance.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
June 30, 2000 William Blair Funds 5
<PAGE> 7
...............................................................................
GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS
TECHNOLOGY--42.9%
325,400 *ADC Telecommunications, Inc........... $ 27,293
271,800 *Andrew Corporation.................... 9,122
442,000 Automatic Data Processing, Inc......... 23,675
247,300 *BMC Software, Inc..................... 9,023
235,000 *Cisco Systems, Inc.................... 14,937
249,800 *Computer Sciences Corporation......... 18,657
841,300 Concord EFS, Inc....................... 21,874
110,000 *eBay, Inc............................. 5,974
193,400 *Galileo Technology, Inc............... 4,158
85,420 *i2 Technologies, Inc.................. 8,906
132,000 Intel Corporation...................... 17,647
191,600 *Internet Commerce Corporation, Class
"A".................................. 2,778
339,800 Linear Technology Corporation.......... 21,726
169,500 *Manugistics, Inc...................... 7,924
149,772 *MarchFirst, Inc....................... 2,733
143,600 *Microsoft Corporation................. 11,488
82,600 Nortel Networks Corporation............ 5,637
244,700 *Oracle Corporation.................... 20,570
111,700 *PRI Automation........................ 7,304
271,000 *Tellabs, Inc.......................... 18,547
372,000 Texas Instruments...................... 25,552
32,900 *Veritas Software...................... 3,718
205,144 *Xilinx, Inc........................... 16,937
--------
306,180
--------
HEALTHCARE--15.0%
183,100 *Amgen, Inc............................ 12,863
410,800 *Biosite Diagnostics, Inc.............. 19,795
69,300 *Genentech, Inc........................ 11,920
220,900 Eli Lilly & Company.................... 22,062
275,600 Medtronic, Inc......................... 13,728
278,000 Pfizer, Inc............................ 13,344
266,441 Pharmacia Corporation.................. 13,772
--------
107,484
--------
CONSUMER CYCLICALS--10.6%
455,891 *Acxiom Corporation.................... 12,423
296,700 *Bed, Bath & Beyond, Inc............... 10,755
174,000 *C D W Computer Center................. 10,875
345,600 *DeVry, Inc............................ 9,137
139,600 Home Depot, Inc........................ 6,971
138,000 *Kohl's Corporation.................... 7,676
123,700 Omnicom Group.......................... 11,017
135,800 *StarTek, Inc.......................... 6,841
--------
75,695
--------
CONSUMER STAPLES--10.3%
596,600 *AT&T Liberty Media Group, Class "A"... 14,468
372,500 *Cinar Corporation..................... 1,118
164,000 *Clear Channel Communications, Inc..... 12,300
302,800 *Cox Communications, Class "A"......... 13,796
219,600 CVS Corporation........................ 8,784
412,600 Walgreen Company....................... 13,281
234,887 *Whole Foods Market, Inc............... 9,704
--------
73,451
--------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
CAPITAL GOODS--5.3%
225,248 Danaher Corporation.................... $ 11,136
64,900 Illinois Tool Works, Inc............... 3,699
372,810 Molex, Inc., Class "A"................. 13,048
234,100 *Solectron Corporation................. 9,803
--------
37,686
--------
FINANCIAL SERVICES--5.0%
80,775 American International Group........... 9,491
224,000 Household International................ 9,310
629,700 MBNA Corporation....................... 17,081
--------
35,882
--------
COMMUNICATION SERVICES--2.8%
130,000 *Powertel, Inc......................... 9,222
257,150 Vodafone Airtouch plc ADR.............. 10,656
--------
19,878
--------
TRANSPORTATION--1.6%
339,700 *Iron Mountain, Inc.................... 11,550
--------
TOTAL COMMON STOCK--93.5%
(cost $427,329)................................... 667,806
--------
CONVERTIBLE BOND--0.5%
$ 4,612 The Sports Authority, Inc., 5.25%
Subordinated Debentures, due 9/15/01
(cost $4,186)........................ 3,298
--------
CONVERTIBLE PREFERRED STOCK--1.3%
553,900 Innkeepers USA Trust 8.625%, Series A
Cumulative Convertible Preferred
Shares of Beneficial Interest, due
9/15/01 (cost $13,848)............... 9,139
--------
SHORT-TERM INVESTMENTS
$ 28,181 Associates Corp. of North America
Demand Note, 6.01%, due 7/3/00....... 28,181
--------
TOTAL SHORT-TERM INVESTMENTS--3.9%
(cost $28,181).................................... 28,181
--------
TOTAL INVESTMENTS--99.2%
(cost $473,544)................................... 708,424
CASH AND OTHER ASSETS, LESS LIABILITIES--0.8%....... 5,759
--------
NET ASSETS--100.0%.................................. $714,183
========
</TABLE>
---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
6 Semi-Annual Report June 30, 2000
<PAGE> 8
...............................................................................
TAX-MANAGED GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
John F. Jostrand
[PHOTO]
Gregory J. Pusinelli
[PHOTO]
Michelle R. Seitz
Dear Shareholders:
The William Blair Tax-Managed Growth Fund (Class N Shares) gained 1.87% on a
total return basis for the six months ended June 30, 2000. This compared with a
negative 0.42% return by the S&P 500 index, and a positive 4.04% return by the
Russell 3000 Growth Index during the same period.
Fund performance was ahead of the S&P 500 for the first quarter -- but lagged
the Russell 3000 Growth Index. The first quarter was a period marked with
significant volatility and cross currents. Many days the Dow was down
significantly while the Nasdaq was up an equal amount.
The Fund's performance was ahead of the Standard & Poor's 500 (-2.66%) and
Russell 3000 Growth indices (-3.03%) for the second quarter. The second quarter
was marked by extreme volatility (the CBOE volatility index hit its highest
level since October 1998) and a May 24 retest of the April 17 market lows. The
Federal Reserve also raised rates for the sixth time in twelve months on May 16
in its quest to slow economic growth. The month of June provided evidence that
the Federal Reserve's efforts may have begun to work. This anecdotal evidence
helped end the second quarter on a positive note.
The market turned cautious on Internet, technology, and very high P/E stocks in
the second quarter. On May 24, the Nasdaq was down 38% from its March 10 peak.
This drop was as severe as the drop in the 1987 market crash for the NYSE.
Defensive sectors outperformed for most of the quarter as a result. Healthcare
was up 22.8% and Consumer Staples were up 6.0% for the Standard & Poor's 500.
The second quarter again was a "stock picker's" quarter as evidenced by the
dramatic moves in selected names.
Our concentration on quality growth companies is designed to perform well in
thorny market conditions, and this was certainly the case in the second quarter.
The retest of the April lows during May tested investor resolve and moved many
to the sidelines. The Fund (Class N Shares) outperformed the Standard & Poor's
500 in the month of April by .62% (-2.46% vs. -3.08%). The month of May was even
more dramatic, with outperformance reaching 1.22% (-0.97% vs. -2.19%). The Fund
trailed during the rebound month of June, underperforming by 1.02% (1.37% vs.
2.39%).
We believe the Fund's continuing concentration on thorough fundamental analysis
and long-term investments in companies with sustainable business models will
serve us well going forward. We also believe the added emphasis of carefully
managing the tax impact of our investments rewards our investors with a higher
retention of the hard fought gains.
<TABLE>
<S> <C> <C>
/s/ J.F. JOSTRAND /s/ GREGORY J. PUSINELLI /s/ MICHELE R. SEITZ
</TABLE>
June 30, 2000 William Blair Funds 7
<PAGE> 9
...............................................................................
TAX-MANAGED GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00 1999 (A)(B)
------------ ------------
<S> <C> <C> <C>
Tax-Managed Growth Fund (Class
N)........................... 1.87% 1.80%
Russell 3000 Growth Index...... 4.04 .79
S&P 500 Index.................. (.42) .85
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00 (C) 1999 (C)
------------ ------------
<S> <C> <C> <C>
Ending Net Assets (in
millions).................... $2 $1
Portfolio Turnover Rate (%).... 46 --
Expense Ratio (%).............. 1.36 1.36
</TABLE>
--------------------------------------------------------------------------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than one year.
(c) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
[GRAPHIC IMAGE]
<TABLE>
<S> <C> <C>
Tax-Managed Growth Fund S&P 500 Index
12/99 10000.00 10000.00
1/00 9600.00 9500.00
2/00 9500.00 9300.00
3/00 10400.00 10200.00
4/00 10100.00 9900.00
5/00 10000.00 9700.00
6/00 10200.00 10000.00
<S> <C>
Russell 2000 Index
12/99 10100.00
1/00 9700.00
2/00 9800.00
3/00 10600.00
4/00 10200.00
5/00 9900.00
6/00 10200.00
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. From time to time, the investment adviser may waive fees
or reimburse expenses for the Fund. Without these waivers, performance would be
lower. Class N shares are available to the general public without a sales load.
The Russell 3000(R) Growth Index consists large, medium, and
small-capitalization companies with above average price-to-book ratios and
forecasted growth rates. The index is weighted by market capitalization and
large/medium/small companies make up approximately 80%/15%/5% of the index.
The S&P 500 Index indicates broad larger capitalization equity market
performance.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
8 Semi-Annual Report June 30, 2000
<PAGE> 10
...............................................................................
TAX-MANAGED GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------- ------
SHARES VALUE
----------------------------------------------------- ------
<C> <S> <C>
COMMON STOCKS
TECHNOLOGY--27.3%
900 Automatic Data Processing, Inc.............. $ 48
800 *BISYS Group................................ 49
400 *BMC Software, Inc.......................... 15
500 *Cisco Systems, Inc......................... 32
500 *Computer Sciences Corporation.............. 37
1,500 *Concord E F S, Inc......................... 39
300 *eBay, Inc.................................. 16
400 Intel Corporation........................... 54
900 *Intuit, Inc................................ 37
250 *Microsoft Corporation...................... 20
600 *Oracle Corporation......................... 51
500 Texas Instruments........................... 34
------
432
------
HEALTHCARE--13.7%
600 *Amgen, Inc................................. 42
350 Baxter International, Inc................... 24
50 *Edwards Lifesciences Corporation........... 1
150 *Genentech, Inc............................. 26
350 Eli Lilly & Company......................... 35
900 Medtronic, Inc.............................. 45
250 Merck & Co., Inc............................ 19
500 Pfizer, Inc................................. 24
------
216
------
FINANCIAL SERVICES--12.4%
400 American International Group................ 47
500 Federal Home Loan Mortgage Corporation...... 20
800 Household International..................... 33
1,200 MBNA Corporation............................ 33
600 State Street Corporation.................... 64
------
197
------
CONSUMER STAPLES--10.3%
1,100 *AT&T Liberty Media Group, Class "A"........ 27
450 *Clear Channel Communications, Inc.......... 34
650 *Cox Communications, Class "A".............. 29
700 CVS Corporation............................. 28
1,000 Walgreen Company............................ 32
300 *Whole Foods Market, Inc.................... 12
------
162
------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------- ------
SHARES OR PRINCIPAL AMOUNT VALUE
----------------------------------------------------- ------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
CONSUMER CYCLICALS--9.1%
500 *Bed, Bath & Beyond, Inc.................... $ 18
841 Carnival Corporation........................ 16
350 *Catalina Marketing Corporation............. 36
450 Cintas Corporation.......................... 17
400 Lowes Companies............................. 16
200 Omnicom Group............................... 18
700 *Williams-Sonoma, Inc....................... 23
------
144
------
CAPITAL GOODS--7.3%
600 Danaher Corporation......................... 30
500 Illinois Tool Works, Inc.................... 29
750 Molex, Inc., Class "A"...................... 26
725 *Solectron Corporation...................... 30
------
115
------
COMMUNICATION SERVICES--2.8%
500 Vodafone Airtouch, plc ADR.................. 21
500 *Worldcom, Inc.............................. 23
------
44
------
TOTAL COMMON STOCK--82.9%
(cost $1,221)...................................... 1,310
------
SHORT-TERM INVESTMENTS
$145 Associates Corp. of North America Demand
Note, 6.01%, due 7/3/2000................. 145
55 Investors Bank & Trust Company Repurchase
Agreement 6.03%, dated 6/30/00
collateralized by U.S. Government agency
security with a market value of $58, due
7/3/00.................................... 55
------
TOTAL SHORT-TERM INVESTMENTS--12.7%
(cost $200)........................................ 200
------
TOTAL INVESTMENTS--95.6%
(cost $1,421)...................................... 1,510
CASH AND OTHER ASSETS, LESS LIABILITIES--4.4%........ 70
------
NET ASSETS--100.0%................................... $1,580
======
</TABLE>
---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 9
<PAGE> 11
...............................................................................
LARGE CAP GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
John F. Jostrand
[PHOTO]
Gretchen S. Lash
Dear Shareholders:
For the six months ended June 30, 2000, the William Blair Large Cap Growth Fund
(Class N Shares) decreased 0.20% on a total return basis. This compared with a
negative 0.42% return by the S&P 500 Index and a 4.23% increase by the Russell
Large Cap Growth Index (known as the Russell 1000 Growth) for the same period.
The second quarter was a difficult one for the market in general with the S&P
500 and the Russell 1000 both down 2.7%. During this period the Large Cap Growth
Fund was down 2.41%. The Fund out-performed the Large Cap Growth Index by 4.8%
during the market and technology corrections in April and May, but gave it back
in the June rally. We deliberately positioned the portfolio to be somewhat
defensive early this year as we expected the Fed to continue to raise rates
until the economy slowed substantially. We felt that the valuations of the
technology and retail stocks did not reflect this slowdown and therefore we
underweighted those two sectors and overweighted staples and pharmaceuticals.
The moves in retail and pharmaceuticals served the Fund well, but the bounce
back in technology during June hurt the relative performance. We are still
cautious about technology valuations and believe we are starting to see
slowdowns in many European and Asian economies as well as in the U.S. Therefore,
we remain cautious and defensively positioned with regards to that sector.
During the first two months of the second quarter investors became far more
cautious on both the economy and, especially, the Internet sector. Investors
began to worry that the Fed would raise rates too much and drive the U.S. into a
recession or a significant slowdown in growth. As a result, money came out of
the more economically sensitive stocks such as retailers or capital goods
manufacturers, and moved into more defensive names such as pharmaceuticals,
foods and beverages. At the same time, investors began to question the business
models of many Internet related companies, especially when some analysts
questioned the ability of some of these companies to survive without additional
equity funding. We believe the resulting correction in the Internet sector was
overdue and quite necessary for a healthy market. In our view, Internet
investing had become a veritable feeding frenzy that had created a speculative
bubble that often had no basis in the companies' fundamentals.
In June, investors rushed back into many technology stocks partly because the
outlook for second quarter earnings remained bright. However, performance was
also significantly affected by the annual rebalancing of the Russell index funds
that is done every June 30. The rebalancing of the Russell Large Cap Index, in
particular, affected the technology group as the weighting in that sector jumped
from 43% to almost 53%. Consequently, funds that emulate the indices had to
increase their holdings in technology stocks and that definitely skewed
performance for the month. Investors did continue to re-evaluate their
assumptions about Internet stocks, and the performance of the names in that
group was mixed.
Going forward, we do not believe the U.S. economy is going to slip into a
recession, although the Fed may do one more tightening (probably .25%) at its
August meeting. We do expect economic growth to slow to a still-respectable 3%
range by the end of the year, and we expect interest rates to be flattish for
the period. Given such an economic scenario, we expect investors to continue to
prefer the higher quality names but to become a bit less defensive. Valuations
do not look extended in most sectors, with the possible exception of technology.
The market is apt to remain volatile through the August Fed meeting and then
will go on "election watch".
<TABLE>
<S> <C> <C>
/s/ JOHN F. JOSTRAND /s/ GRETCHEN S. LASH
</TABLE>
10 Semi-Annual Report June 30, 2000
<PAGE> 12
...............................................................................
LARGE CAP GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00 1999 (A)(B)
------------ ------------
<S> <C> <C> <C>
Large Cap Growth Fund (Class
N)........................... (.20)% 1.40%
S&P 500 Index.................. (.42) .85
Russell 1000 Growth Index...... 4.23 .46
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
6/30/00(C) 1999 (C)
------------ ------------
<S> <C> <C> <C>
Ending Net Assets (in
millions).................... $13 $1
Portfolio Turnover Rate (%).... 94 --
Expense Ratio (%).............. 1.36 1.36
</TABLE>
--------------------------------------------------------------------------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
(c) Rates are annualized
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
AVERAGE ANNUAL TOTAL RETURN
CLASS N SHARES
(PERIOD ENDING 6/30/00)
Since Inception (12/27/99) 1.20%
[GRAPHIC IMAGE]
<TABLE>
<CAPTION>
RUSSELL 1000 GROWTH
LARGE CAP GROWTH FUND S&P 500 INDEX INDEX
--------------------- ------------- -------------------
<S> <C> <C> <C>
12/99 10000.00 10000.00 10000.00
1/00 9600.00 9500.00 9600.00
2/00 9600.00 9300.00 10000.00
3/00 10200.00 10200.00 10800.00
4/00 9800.00 9900.00 10200.00
5/00 9800.00 9700.00 9700.00
6/00 10000.00 10000.00 10500.00
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. From time to time, the investment adviser may waive fees
or reimburse expenses for the Fund. Without these waivers, performance would be
lower. Class N shares are available to the general public without a sales load.
The S&P 500 Index indicates broad larger capitalization equity market
performance.
The Russell 1000(R) Growth Index consists of large-capitalization companies with
above average price-to-book ratios and forecasted growth rates.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
June 30, 2000 William Blair Funds 11
<PAGE> 13
...............................................................................
LARGE CAP GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS
TECHNOLOGY--40.1%
12,400 Automatic Data Processing, Inc............ $ 664
5,440 *BMC Software, Inc........................ 198
6,600 *Cisco Systems, Inc....................... 420
6,000 *Computer Sciences Corporation............ 448
2,480 *eBay, Inc................................ 135
700 *i2 Technologies.......................... 73
3,540 Intel Corporation......................... 473
10,400 Linear Technology Corporation............. 665
3,200 *Microsoft Corporation.................... 256
1,840 Nortel Networks........................... 126
6,500 *Oracle Corporation....................... 546
7,600 *Tellabs, Inc............................. 520
8,200 Texas Instruments......................... 563
700 *Veritas Software......................... 80
-------
5,167
-------
HEALTHCARE--14.8%
4,200 *Amgen, Inc............................... 295
2,000 *Genentech, Inc........................... 344
5,500 Eli Lilly & Company....................... 549
7,300 Medtronic, Inc............................ 364
7,400 Pfizer, Inc............................... 355
-------
1,907
-------
CONSUMER STAPLES--11.9%
15,400 *AT&T Liberty Media Group, Class "A"...... 373
3,600 *Clear Channel Communications, Inc........ 270
6,200 *Cox Communications, Class "A"............ 282
5,900 CVS Corporation........................... 236
11,500 Walgreen Company.......................... 371
-------
1,532
-------
FINANCIAL SERVICES--7.7%
2,200 American International Group.............. 259
6,300 Household International................... 262
17,600 MBNA Corporation.......................... 477
-------
998
-------
CONSUMER CYCLICALS--7.7%
8,000 *Bed, Bath & Beyond, Inc.................. 290
3,900 Home Depot, Inc........................... 195
3,900 *Kohl's Corporation....................... 217
3,300 Omnicom Group............................. 294
-------
996
-------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
CAPITAL GOODS--5.4%
1,500 Illinois Tool Works, Inc.................. $ 86
10,150 Molex, Inc., Class "A".................... 355
6,100 *Solectron Corporation.................... 255
-------
696
-------
BASIC MATERIALS--2.9%
7,140 Pharmacia Corporation..................... 369
-------
COMMUNICATION SERVICES--2.2%
7,000 Vodaphone Airtouch plc ADR................ 290
-------
TOTAL COMMON STOCK--92.7%
(cost $11,827).................................... 11,955
-------
SHORT-TERM INVESTMENTS
$ 633 Investors Bank & Trust Company Repurchase
Agreement 6.03%, dated 6/3/00
collateralized by U.S. Government agency
security with a market value of $666,
due 7/3/00.............................. 633
111 American Express Credit
7.30%, due 7/7/00....................... 111
-------
TOTAL SHORT-TERM INVESTMENTS--5.8%
(cost $744)....................................... 744
-------
TOTAL INVESTMENTS--98.5%
(cost $12,571).................................... 12,699
CASH AND OTHER ASSETS, LESS LIABILITIES--1.5%....... 197
-------
NET ASSETS--100.0%.................................. $12,896
=======
</TABLE>
---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
12 Semi-Annual Report June 30, 2000
<PAGE> 14
...............................................................................
SMALL CAP GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
Michael P. Balkin
[PHOTO]
Karl W. Brewer
[PHOTO]
Mark A. Fuller III
Dear Shareholders:
The William Blair Small Cap Growth Fund (Class N Shares) posted a 46.42%
increase on a total return basis for the six months ended June 30. This compared
with a 1.22% gain for the Fund's benchmark Russell 2000 Growth Index for the
same period.
The second quarter of 2000 was a difficult period for small cap growth stocks,
with the Russell 2000 Growth Index declining by 7.37%. Over the same period, the
Fund's Class N Shares declined by only 2.16%. The Fund was up 49.66% in the
first quarter, while the Russell 2000 Growth Index increased by 9.28%
Perhaps the most important trend of the second quarter was renewed investor
interest in fundamentals. For most of the first quarter, many small stocks rose
dramatically based on an exciting concept or "story". Beginning late in the
first quarter and continuing into the second quarter, investor focus shifted to
profitability, cash flow, sustainability of growth and valuation. As a result,
we have seen money flow toward the more stable, higher-quality companies across
many industry sectors.
Late in the first quarter, we began to reposition the Fund toward more
established growth companies with lower risk business models. This worked to our
advantage as technology stocks (and particularly speculative technology stocks)
struggled during the quarter. Health-care, energy and consumer staples were
strong as investors looked for safe havens outside of technology.
Consistent with our investment philosophy, our investments are focused on
high-quality growth companies. Examples of securities that helped the Fund's
performance included the following:
- BIOSITE DIAGNOSTICS--Biosite is a leading manufacturer of point-of-care
diagnostic tests that allow doctors to rapidly diagnose patients.
- TESSCO TECHNOLOGIES--Tessco is a distributor of wireless communications
products, offering 20,000 different products from 350 manufacturers.
- DALLAS SEMICONDUCTOR--Dallas manufactures semiconductors for communications,
computing, industrial and other applications.
June 30, 2000 William Blair Funds 13
<PAGE> 15
Not all of our investments work out as planned. TUESDAY MORNING CORPORATION, the
leading closeout retailer of upscale home furnishings in the United States was
down 27% in the second quarter. Despite better than expected earnings growth,
the stock has struggled due to investor concerns over the impact of an economic
slowdown on sales and a general lack of investor interest in the retail sector.
We continue to believe that the company represents an attractive investment
opportunity and have added to our position at prices significantly below our
initial purchase price.
In the first quarter of the year, we were fortunate to be able to participate in
some very attractive initial public offerings (IPOs). Investors are often unable
to get as many shares of small company IPOs as they want. Since the Small Cap
Growth Fund is still relatively small in size, the allocations we were able to
obtain were meaningful relative to the size of the Fund, and thus had a
substantial impact on the Fund's returns. Investors should be aware that, as the
Fund grows, the impact of IPOs is likely to diminish, and there can be no
assurance that they will continue to make positive contributions to the Fund's
returns.
Looking forward, our greatest challenge is to balance our enthusiasm for some of
the more exciting growth areas of the economy with an appropriate dose of
conservatism. While the market is becoming more rational with respect to the
valuations it awards to emerging growth companies, we are still in the early
stages of a transition to the "new economy", which creates compelling investment
opportunities. We are continuing to find attractive investments in exciting
growth industries such as the Internet, satellite communications,
semiconductors, biotechnology and telecommunications.
<TABLE>
<S> <C> <C>
/s/ MICHAEL P. BALKIN /s/ KARL W. BREWER /s/ MARK A. FULLER III
</TABLE>
14 Semi-Annual Report June 30, 2000
<PAGE> 16
...............................................................................
SMALL CAP GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00 1999(A)(B)
------------ ------------
<S> <C> <C> <C>
Small Cap Growth Fund (Class
N)........................... 46.42% 1.90%
Russell 2000 Index............. 3.04 4.26
Russell 2000 Growth Index...... 1.22 5.22
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00(C) 1999(C)
------------ ------------
<S> <C> <C> <C>
Ending Net Assets (in
millions).................... $29 $6
Portfolio Turnover Rate (%).... 525 --
Expense Ratio (%).............. 1.60 1.60
</TABLE>
--------------------------------------------------------------------------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
(c) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
[GRAPHIC IMAGE]
<TABLE>
<S> <C> <C>
Small Cap Growth Fund Russell 2000 Index
12/99 10000.00 10000.00
1/00 10400.00 9800.00
2/00 15100.00 11500.00
3/00 15000.00 10700.00
4/00 13100.00 10100.00
5/00 12000.00 9500.00
6/00 14600.00 10300.00
<S> <C>
Russell 2000 Growth Index
12/99 10000.00
1/00 9900.00
2/00 12200.00
3/00 10900.00
4/00 9800.00
5/00 9000.00
6/00 10100.00
</TABLE>
INITIAL PUBLIC OFFERINGS (IPOS) HAVE MADE SIGNIFICANT CONTRIBUTIONS TO THE
RECENT PERFORMANCE OF THE FUND. THERE CAN BE NO ASSURANCE THAT SUCH
CONTRIBUTIONS WILL CONTINUE. RECENT MARKET VOLATILITY HAS SIGNIFICANTLY IMPACTED
PERFORMANCE AND THE FUND'S CURRENT PERFORMANCE MAY BE MORE OR LESS THAN THAT
SHOWN.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. Investing in smaller companies involves special risks,
including higher volatility and lower liquidity. From tine to time, the
investment adviser may waive fees or reimburse expenses for the Fund. Without
these waivers, performance would be lower. Class N shares are available to the
general public without a sales load.
The Russell 2000 Index is a composite of the smallest 2,000 stocks of the
Russell 3000 Index (which consists of the largest 3,000 stocks in the U.S. is
determined by market capitalization). The Russell 2000(R) Growth Index consists
of small-capitalization companies with above average price-to-book ratios and
forecasted growth rates.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
June 30, 2000 William Blair Funds 15
<PAGE> 17
...............................................................................
SMALL CAP GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS
TECHNOLOGY--33.8%
17,000 *Andrew Corporation...................... $ 571
2,100 *Aurora Biosciences Corporation.......... 143
17,000 *Broadbase Software, Inc................. 521
8,400 *Commtouch Software, Ltd................. 273
9,500 Dallas Semiconductor Corporation......... 387
52,400 *Deltek Systems, Inc..................... 309
17,800 *Dendrite International, Inc............. 593
30,000 *eFunds Corporation...................... 349
4,700 *Entrust Technologies.................... 389
125,000 *Etinuum, Inc............................ 703
1,000 *EXFO Electro-Optical Engineering,
Inc.................................... 44
10,000 *Handspring, Inc......................... 270
21,100 Harris Corporation....................... 691
10,000 *HomeStore.com, Inc...................... 292
45,000 *Integrated Information Systems, Inc..... 368
15,000 *Internet.com Corporation................ 295
40,300 *Internet Commerce Corporation, Class
"A".................................... 584
2,500 *Marvell Technology Group, Ltd........... 143
10,000 *Motient Corporation..................... 157
16,600 *Photronics, Inc......................... 471
13,000 *Scansource, Inc......................... 505
1,000 *Silicon Labratories, Inc................ 53
2,000 *StorageNetworks, Inc.................... 181
28,600 *Tessco Technologies..................... 801
2,500 *Virage, Inc............................. 45
41,800 *Westell Technologies, Inc............... 627
-------
9,765
-------
CONSUMER CYCLICALS--27.9%
800 The Ackerley Group, Inc.................. 9
21,600 *Acxiom Corporation...................... 589
69,500 *Aftermarket Technology Corporation...... 591
24,800 *Ameripath, Inc.......................... 220
28,900 *Apac Customer Services, Inc............. 320
5,600 *Career Education Corporation............ 272
5,000 *DigitalThink, Inc....................... 179
45,200 *FirstService Corporation................ 542
45,600 *Guitar Center........................... 479
8,000 *Insight Enterprises, Inc................ 474
130,314 *Leapnet, Inc............................ 407
6,500 *Michaels Stores......................... 298
16,700 *NCO Group, Inc.......................... 386
19,100 *Prosoft Training.com, Inc............... 321
54,900 Regis Corporation........................ 686
28,000 *School Specialty, Inc................... 520
36,200 *SkillSoft Corporation................... 511
4,900 *StarTek, Inc............................ 247
2,500 *Steiner Leisure, Ltd.................... 57
60,000 *Tuesday Morning Corporation............. 630
31,900 *ValueClick, Inc......................... 327
-------
8,065
-------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
CONSUMER STAPLES--11.8%
61,600 *ARTISTdirect, Inc....................... $ 192
23,900 *Cinar Corporation....................... 72
12,000 *Emmis Communications.................... 496
17,200 *O Charleys, Inc......................... 234
10,800 *RARE Hospitality International, Inc..... 305
21,400 Ruby Tuesday, Inc........................ 269
7,000 *Sirus Satellite Radio, Inc.............. 310
4,500 *Sonic Corporation....................... 132
27,700 *TCI Satellite Entertainment, Inc., Class
"A".................................... 241
15,000 *Whole Foods Market, Inc................. 620
14,600 *XM Satellite Radio Holdings, Class
"A".................................... 547
-------
3,418
-------
HEALTH CARE--7.0%
3,000 *Aclara Biosciences, Inc................. 153
9,400 *Biosite Diagnostics, Inc................ 453
12,500 *Charles River Laboratories
International.......................... 277
28,200 *HEALTHSOUTH Corporation................. 203
20,000 *Intuitive Surgical, Inc................. 189
10,000 *Sangamo Biosciences, Inc................ 276
5,000 *Universal Health Services............... 330
5,600 *VISX, Inc............................... 157
-------
2,038
-------
FINANCIAL SERVICES--3.9%
28,650 Metris Companies, Inc.................... 720
16,100 National Commerce Bancorp................ 258
7,000 *S1 Corporation.......................... 163
-------
1,141
-------
TRANSPORTATION--2.8%
23,900 *Iron Mountain, Inc...................... 813
-------
COMMUNICATION SERVICES--2.2%
3,000 *Airgate PCS, Inc........................ 158
51,500 *UbiquiTel, Inc.......................... 486
-------
644
-------
BASIC MATERIALS--0.8%
5,000 *Cabot Microelectronics Corporation...... 229
-------
TOTAL COMMON STOCK--90.2%
(cost $26,254).................................... 26,113
-------
SHORT-TERM INVESTMENTS
$ 771 Associates Corp. of North America Demand
Note, 6.01%, due 7/3/00................ 771
672 Investors Bank & Trust Company Repurchase
Agreement 6.03%, dated 6/30/00
collateralized by U.S. Government
agency with a market value of $706, due
7/3/00................................. 672
-------
TOTAL SHORT-TERM INVESTMENTS--5.0%
(cost $1,443)..................................... 1,443
-------
TOTAL INVESTMENTS--95.2%
(cost $27,697).................................... 27,556
CASH AND OTHER ASSETS, LESS LIABILITIES--4.8%....... 1,377
-------
NET ASSETS--100.0%.................................. $28,933
=======
</TABLE>
---------------
* Non-income producing securities
See accompanying Notes to Financial Statements.
16 Semi-Annual Report June 30, 2000
<PAGE> 18
...............................................................................
INTERNATIONAL GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
--------------------------------------------------------------------------------
[PHOTO]
W. George Greig
Dear Shareholders:
In another reminder of how the stock market never takes economic inputs in
expected ways, the first half of 2000 saw amazingly strong earnings momentum and
robust bond markets virtually worldwide, but global equity markets were volatile
and basically directionless. The reasons: short-term inflation and interest rate
anxiety, concerns about a US-led economic slowdown, and disconcertingly rapid
changes in technology trends.
For the six months ended June 30, 2000, the William Blair International Growth
Fund (Class N Shares) increased 2.04% on a total return basis. This compared
with a decline of 3.33% in the Morgan Stanley Capital International (MSCI) All
Country World Free ex-U.S. Index for the comparable period.
The debate at the top of the headlines has been about the Federal Reserve's
'management' of the US economy--toward a hard landing, an ongoing bubble or
(just right) a 1995-style slowdown. The characterization of Alan Greenspan as
the deus ex machina of the economy, pulling levers and turning valves with
precise timing and sensitivity, is at best a substantial exaggeration.
Nevertheless, the effect of higher rates on the interest-sensitive portions of
the economy, combined with the quasi-fiscal drag of higher energy prices and the
growing linkage between personal consumption and the stock market, has thus far
given the US a reasonable facsimile of a soft landing.
A moderate slowdown is unequivocally a good thing if it reduces employment cost
pressure, because wage costs are the real core of core inflation. That is why
stocks and bonds rallied strongly in June when US employment growth and retail
sales slowed dramatically. Even in Europe, where some measures of economic
activity are still accelerating, the tantalizing prospect of the 'last rate
increase' from the Fed has tended to dictate the tone of financial markets.
While signs of a soft landing may be welcome, it's more difficult to know where
we go next. For one thing, as economist Ed Hyman from the firm of ISI has
observed, today 'the stock market is the economy' because of the close
relationship between consumer and business confidence and the market. That is, a
strong economy requires a strong stock market. The problem is that a strong
stock market requires a weak economy . . . with strong earnings. Where is the
equilibrium point in this linkage?
Further complicating the picture is the fragmentation of growth trends in
technology, the real growth engine of the global economy. Rotation of investor
interest and fund flows within the technology sector has become much more
pronounced, with entire subsectors going from boom to bust seemingly overnight.
E-tailing gave way to b2b and incubators, which in turn collapsed and were
replaced by m-commerce and optical networking. Even more confounding is the fact
that all of these trends are at different stages of evolution in different parts
of the world. In terms of sentiment, the new economy is perceived to be a much
riskier place to invest than it was a year ago.
From a macroeconomic point of view, investors can see favorable growth trends,
apparently minimal and transitory inflation risk, and a sound policy framework
around the world. Europe and many emerging markets are on sounder economic
footing than they have been in decades. But at a micro level, investors are
caught in a dilemma--the old economy has no upside but the new economy has all
the risk.
/s/ W. GEORGE GREIG
June 30, 2000 William Blair Funds 17
<PAGE> 19
...............................................................................
INTERNATIONAL GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
6/30/00 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
International Growth Fund
(Class N).................... 2.04% 96.25% 11.46% 8.39% 10.20% 7.22%
Morgan Stanley Capital
International (MSCI) All
Country World Free Ex-U.S.
Index........................ (3.33) 30.91 14.46 2.04 6.68 9.94
Lipper International Index..... (4.10) 37.83 12.66 7.27 14.43 10.02
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
6/30/00(A) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $349 $302 $140 $129 $105 $90
Portfolio Turnover Rate (%).... 124 122 98 102 89 77
Expense Ratio (%).............. 1.61 1.35 1.36 1.43 1.44 1.48
</TABLE>
--------------------------------------------------------------------------------
(a) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF CAPITAL
GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPHIC DATA]
<TABLE>
<CAPTION>
MSCI AC WLD FEX US
INT'L GROWTH FUND INDEX LIPPER INT'L INDEX
----------------- ------------------ ------------------
<S> <C> <C> <C>
10/92 10000.00 10000.00 10000.00
12/92 10100.00 9700.00 9900.00
6/93 11400.00 11900.00 11300.00
12/93 13500.00 13100.00 13700.00
6/94 14000.00 14000.00 13700.00
12/94 13500.00 13900.00 13600.00
6/95 13300.00 14300.00 14000.00
12/95 14500.00 15300.00 15000.00
6/96 15700.00 16100.00 16300.00
12/96 16000.00 16400.00 17200.00
6/97 18500.00 18400.00 19600.00
12/97 17300.00 16700.00 18400.00
6/98 19900.00 18700.00 21300.00
12/98 19300.00 19100.00 20800.00
6/99 24400.00 20500.00 22200.00
12/99 37900.00 25000.00 28600.00
6/00 37700.00 24200.00 27400.00
</TABLE>
THE FUND'S 1999 PERFORMANCE WAS ATTRIBUTABLE TO UNUSUALLY FAVORABLE MARKET
CONDITIONS. INVESTORS SHOULD MAINTAIN REALISTIC EXPECTATIONS FOR FUTURE
PERFORMANCE. SUCH PERFORMANCE MAY NOT BE SUSTAINABLE.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. International investing involves special risk
considerations, including currency fluctuations, lower liquidity, economic and
political risk. Class N shares are available to the general public without a
sales load.
The Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S.
Index is an unmanaged index that includes developed and emerging markets.
The Lipper International Index is a composite of international growth mutual
funds.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
18 Semi-Annual Report June 30, 2000
<PAGE> 20
...............................................................................
INTERNATIONAL GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EUROPE--37.7%
AUSTRIA--0.3%
25,000 *Sanochemia Pharmazeutika AG
(Biotechnology).................... $ 1,322
--------
BELGIUM--0.8%
60,000 *Lemout & Hauspie N.V.
(Software/services)................ 2,644
--------
DENMARK--4.2%
20,000 *Dansk Data Elektronik A/S (System
integration)....................... 1,315
36,800 Group 4 Falck A/S (Safety and
security services)................. 5,893
50,000 Lundbeck A/S (Pharmaceuticals)....... 2,470
30,000 Novo Nordisk A/S (Pharmaceuticals)... 5,094
--------
14,772
--------
FINLAND--5.8%
135,000 *Comptel Oyj (Software).............. 2,715
250,000 JOT Automation Group Oyj (Specialty
engineering)....................... 1,665
60,000 KCI Konecranes Intl (Overhead
cranes)............................ 2,002
200,000 Nokia Oyj (Telecommunications
equipment)......................... 10,189
50,000 Sonera Grp Oyj (Telecommunications
services).......................... 2,275
92,000 *Stonesoft Oyj (Software)............ 1,456
--------
20,302
--------
FRANCE--8.4%
8,500 Altran Technologies (Engineering
services).......................... 1,662
15,747 April SA (Non-life insurance)........ 3,114
20,000 Cegedim (Healthcare database
service)........................... 1,615
30,000 *Genset--ADR (Biotechnology)......... 694
60,000 Groupe Danone (Packaged foods and
beverages)......................... 7,949
20,000 Hermes International (Luxury
goods)............................. 2,697
60,000 STMicroelectronics
(Semiconductors)................... 3,774
50,000 Total Fina Elf (Oil and Gas)......... 7,653
--------
29,158
--------
GERMANY--2.6%
41,000 Altana AG (Pharmaceuticals).......... 3,243
18,000 *Muehlbauer Holding AG (Specialty
engineering)....................... 1,287
70,000 Rhoen-Klinikum AG (Health care
operator).......................... 2,769
18,000 *Thiel Logistik AG (Logistic
services).......................... 1,685
--------
8,984
--------
IRELAND--1.7%
182,191 CRH PLC (Building products).......... 3,291
75,000 *Ryanair Holdings plc--ADR (Air
transport)......................... 2,738
--------
6,029
--------
ITALY--1.5%
250,000 Autogrill SpA (Restaurants).......... 2,635
1,800,000 Parmalat Finanziaria SpA (Food and
beverage).......................... 2,505
--------
5,140
--------
NETHERLANDS--5.0%
35,000 Draka Holding NV (Wire and cable
manufacturer)...................... 2,285
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EUROPE--(CONTINUED)
252,000 Philips Electronics NV
(Electronics)...................... $ 11,865
133,611 Unique International NV (Temporary
staffing).......................... 3,196
--------
17,346
--------
SPAIN--2.7%
75,000 Cortefiel SA (Apparel retailer)...... 1,624
425,000 *Mecalux SA (Specialty
engineering)....................... 3,342
150,000 Sol Melia SA (Hotel management)...... 1,673
180,000 *Superdiplo SA (Food retailer)....... 2,770
--------
9,409
--------
SWEDEN--0.6%
200,000 HiQ International AB (IT
consultants)....................... 1,924
--------
SWITZERLAND--4.1%
4,000 Adecco SA (Temporary staffing)....... 3,389
3,000 Belimo Automation AG (Ventilation
controls).......................... 1,247
10,000 Charles Voegele Holding AG (apparel
retailer).......................... 1,963
6,000 Geberit Intl AG (Building
products).......................... 1,999
10,000 Gretag Imaging Group (Image
processing equip).................. 1,920
5,000 Swisslog Holdings AG (Specialty
engineering)....................... 2,445
1,500 Tecan AG (Specialty engineering)..... 1,432
--------
14,395
--------
COMMON STOCKS--UNITED KINGDOM--11.5%
190,000 3i Group PLC (Venture capital)....... 3,905
650,000 Anite Group PLC (IT services)........ 1,548
190,000 Capita Group PLC (Commercial
services).......................... 4,646
165,000 *Celltech Group PLC
(Pharmaceuticals).................. 3,194
69,000 Energis PLC (Telecommunications
Services).......................... 2,586
500,000 Hays PLC (Commercial services)....... 2,787
170,000 Logica PLC (Software/services)....... 4,021
165,000 Luminar PLC (Restaurants)............ 1,716
125,000 *Powderject Pharmaceuticals (Drug
delivery technology)............... 766
350,000 Reckitt Benckiser PLC (Household
products).......................... 3,917
850,000 Rolls-Royce PLC (Aerospace).......... 3,015
290,000 *Shire Pharmaceuticals Group PLC
(Pharmaceuticals).................. 5,044
1,000,000 Tesco PLC (Food retailer)............ 3,108
--------
40,253
--------
COMMON STOCKS--CANADA--4.6%
240,000 *Anderson Exploration (Oil and
gas)............................... 4,363
245,000 *Canadian Hunter Exploration (Oil and
gas)............................... 5,207
50,000 Four Seasons Hotels Inc. (Hotels and
resorts)........................... 3,132
175,000 Intrawest Corp. (Hotels and
resorts)........................... 3,335
--------
16,037
--------
COMMON STOCKS--BAHAMAS--0.8%
100,000 Ace Limited (Property and casualty
insurer)........................... 2,800
--------
</TABLE>
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 19
<PAGE> 21
...............................................................................
INTERNATIONAL GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--JAPAN--12.1%
11,000 Alpha Systems Inc. (Software)........ $ 1,445
600,000 Bank of Fukuoka Ltd. (Banking)....... 4,079
7,500 Fast Retailing Co., Ltd. (Apparel
retailer).......................... 3,135
150,000 Kirin Beverage Corp (Packaged food
and beverages)..................... 3,983
43,600 Kyocera Corp. (Electronics).......... 7,385
23,000 Murata Manufacturing Co., Ltd.
(Electronics)...................... 3,296
175,000 Nomura Securities Co. (Financial
services).......................... 4,276
36,000 Orix Corporation (Financial
services).......................... 5,304
29,040 People Company, Ltd (Recreation)..... 2,324
30,000 Sazaby Inc. (Apparel retailer)....... 1,587
210,000 Suruga Bank Ltd. (Banking)........... 3,472
24,000 Yamada Denki (Cons electronic
retailer).......................... 2,149
--------
42,435
--------
COMMON STOCKS--ASIA--7.5%
AUSTRALIA--2.9%
1,500,410 Harvey Norman Holdings (Cons
electronic retailer)............... 3,370
200,000 Macquarie Bank Ltd. (Financial
services).......................... 3,113
450,000 Publishing and Broadcasting
(Media)............................ 3,451
--------
9,934
--------
HONG KONG--2.5%
4,172,366 CDL Hotels Intl (Hotel and
resorts)........................... 1,820
2,000,000 Esprit Holdings Ltd. (Apparel
retailer).......................... 2,078
500,000 Li & Fung Limited (Commercial
services).......................... 2,501
1,000,000 Yue Yuen Industrial Hldgs.
(Footwear)......................... 2,219
--------
8,618
--------
NEW ZEALAND--0.8%
1,200,000 Warehouse Group Limited (Retail)..... 2,907
--------
SINGAPORE--1.3%
350,000 Avimo Group Limited (Specialty
engineering)....................... 660
450,000 ST Assembly Ltd. (Semiconductor test
and assembly services)............. 1,156
1,900,000 ST Engineering (Specialty
engineering)....................... 2,793
--------
4,609
--------
COMMON STOCKS--EMERGING ASIA--8.5%
CHINA--1.0%
5,400,000 China Resources Beijing (Property)... 720
1,000,000 Legend Holdings Ltd (Computer
systems)........................... 969
3,999,910 Shenzhen Chiwan Wharf Holdings Ltd.
(Commercial transportation)........ 1,385
3,141,800 TPV Holdings Ltd. (Electronics)...... 435
--------
3,509
--------
INDIA--2.4%
60,000 Britannia Industries (Packaged food
and beverage)...................... 853
40,000 Hero Honda Motors Ltd.
(Motorcycles)...................... 886
180,000 Hindustan Lever (Household
products).......................... 2,003
180,000 Housing Dev Finance Corp. (Financial
services).......................... 2,256
70,000 *ICICI Bank Ltd.--ADR (Local
banking)........................... 1,015
51,000 *Rediff.com India Ltd.--ADR (Internet
service)........................... 714
40,000 Sri Adhikari Bros Tele Networks
(Media)............................ 516
--------
8,243
--------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--EMERGING ASIA--(CONTINUED)
MALAYSIA--0.2%
100,000 Unisem (M) Berhad (Semiconductors)... $ 711
--------
SOUTH KOREA--2.9%
31,600 Cheil Communications (Media)......... 881
31,600 Cheil Jedang Corp. (Packaged food and
beverage).......................... 1,448
45,000 Hite Brewery Co., Ltd. (Packaged food
and beverage)...................... 1,977
18,000 Halle Climten Control (Capital good
manufacturer)...................... 595
15,000 *Korea Telecom Freetel
(Telecommunication services)....... 999
91,000 LG Chemical (Petrochemicals)......... 1,820
7,500 Samsung Electronics (Electronics).... 2,482
--------
10,202
--------
TAIWAN--2.0%
294,000 Acer Peripherals (Electronics)....... 830
55,550 Ambit Microsystems Corp.
(Electronics)...................... 550
60,000 *GigaMedia Ltd--ADR (Internet
service)........................... 728
266,000 President Chain Store Corp. (Food
retailer).......................... 993
445,000 *Siliconware Precision Inds.
(Semiconductors)................... 997
449,568 *TSMC (Semiconductors)............... 2,131
54,000 *Via Technologies Inc.
(Semiconductors)................... 833
--------
7,062
--------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--1.8%
EGYPT--0.3%
65,000 *Al-Ahram Beverages Co.--GDR
(Packaged food and beverage)....... 1,116
--------
HUNGARY--0.5%
235,000 Matav Rt. (Telecommunication
services).......................... 1,629
--------
ISRAEL--0.2%
50,000 *Electric Fuel Corp--ADR
(Batteries)........................ 766
--------
POLAND--.4%
28,000 Softbank Corp. (System
integration)....................... 1,455
--------
TURKEY--0.4%
39,000,000 *Dogan Yayin Holdings (Media)........ 660
54,000,000 Haci Omer Sabanci Holdings (Financial
services).......................... 635
--------
1,295
--------
COMMON STOCKS--LATIN AMERICA--2.5%
BRAZIL--0.2%
188,800 Confeccoes Guararapes S.A. (Textiles
and retail)........................ 523
--------
MEXICO--2.3%
1,300,000 *Consorcio ARA S.A. (Housing)........ 1,531
30,000 Fomento Econ Mexico--ADR (Packaged
food and beverage)................. 1,292
325,000 *Grupo Financiero Banamex (Financial
services).......................... 1,366
7,500 *Grupo Televisa S.A.--ADR (Media).... 517
</TABLE>
See accompanying Notes to Financial Statements.
20 Semi-Annual Report June 30, 2000
<PAGE> 22
...............................................................................
INTERNATIONAL GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- --------
SHARES VALUE
---------------------------------------------------- --------
<C> <S> <C>
COMMON STOCKS--LATIN AMERICA--(CONTINUED)
30,000 Telefonos de Mexico--ADR (Telecom
service)........................... $ 1,714
700,000 *Walmart de Mexico (Retailer)........ 1,613
--------
8,033
--------
TOTAL COMMON STOCK--87.0%
(cost $246,909)................................... 303,562
--------
PREFERRED STOCKS--4.1%
BRAZIL--3.3%
19,500,000 Banco Itau S.A. (Banking)............ 1,713
395,000 EMBRAER--PN (Aerospace).............. 2,257
140,000 Petroleo Brasileiro S.A. (Oil and
gas)............................... 4,230
30,000 Tele Celular Sul Part--ADR
(Telecommunication services)....... 1,358
42,174,000 Votorantim Celulose y Papel (Pulp and
Paper)............................. 1,554
26,400 Votorantim Celulose y Papel--ADR
(Pulp and paper)................... 485
--------
11,597
--------
GERMANY--0.8%
15,600 SA AG (Software/services)............ 2,880
--------
TOTAL PREFERRED STOCK--4.1%
(cost $11,393).................................... 14,477
--------
<CAPTION>
---------------------------------------------------- --------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- --------
<C> <S> <C>
WARRANTS, RIGHTS, AND OTHER ISSUES--0.01%
UNITED KINGDOM--0.01%
7,500 *Luminar plc (Theme pubs and
restaurants)....................... 31
--------
TOTAL WARRANTS, RIGHTS, AND OTHER ISSUES--0.01%
(cost $0)......................................... 31
--------
SHORT-TERM INVESTMENTS
$ 16,500 Associates Corp. of North America
Demand Note, 6.01%, due 7/3/00..... 16,500
15,012 Investors Bank & Trust Company Euro
denominated time deposit, 4.03%,
due 7/5/00......................... 15,012
2,559 Investors Bank & Trust Company
Repurchase Agreement 6.03%, dated
6/30/00 collateralized by U.S.
Government agency security with a
market value of $2,687, due 7/3/00
repurchase date.................... 2,559
--------
TOTAL SHORT-TERM INVESTMENTS--9.8%
(cost $34,071).................................... 34,071
--------
TOTAL INVESTMENTS--100.9%
(cost $292,373)................................... 352,141
LIABILITIES, PLUS CASH AND OTHER ASSETS--(.9)%...... (3,020)
--------
NET ASSETS--100.0%.................................. $349,121
========
</TABLE>
---------------
* Non-income producing securities
GDR = Global Depository Receipt
ADR = American Depository Receipt
At June 30, 2000 the Fund's Portfolio of Investments includes the following
categories:
Commercial Services--8.0%; Consumer Durables--0.3%; Consumer
Non-Durables--10.3%; Consumer Services--7.0%; Electronic Technology--19.9%;
Energy Minerals--6.8%; Finance--12.5%; Health Services--1.4%; Health
Technology--7.0%; Non-Energy Minerals--1.0%; Process Industries--1.2%; Producer
Manufacturing--4.3%; Retail Trade--8.7%; Technology Services--7.0%;
Transportation--1.3%; and Utilities--3.3%.
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 21
<PAGE> 23
...............................................................................
EMERGING MARKETS GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
W. George Greig
[PHOTO]
Jeffrey A. Urbina
Dear Shareholders:
For the six months ended June 30, 2000, the William Blair Emerging Markets
Growth Fund (Class N Shares) declined 6.89% on a total return basis. This
compared with a decline of 7.99% in the Morgan Stanley Capital International
(MSCI) Emerging Markets (Free) Index during the same period. During the first
quarter, the Fund's total return was up 5.06%, compared with a rise of 2.42% in
the MSCI Emerging Markets Free Index.
Emerging markets were volatile during the second quarter, seeming to follow the
lead of Nasdaq, both up and down. There are several reasons for the increasing
correlation, at least for the moment. First, many emerging market investors have
increased their exposure to local technology, media and telecommunications
stocks (referred to by Wall Street as "TMT" stocks), which can logically be
connected to Nasdaq valuations and volatility. The second reason is that
emerging markets are simply viewed as a high-risk asset class, which performs
poorly when global investors flee from risk, as happened in April-May. Emerging
markets have also been historically viewed as a leveraged play on global growth
and have recently reacted negatively to the potential for a hard landing in the
United States.
Our standing overweight in the technology and telecom sectors worked against us
during the second quarter. For the period, the MSCI Emerging Markets Free Index
registered a loss of 10.16% while the Emerging Markets Growth Fund (Class N
Shares) lost 11.37%. The underperformance for the quarter was primarily due to
losses in technology stocks in both Korea and India.
Although the correlation with developed markets has risen in the past year, the
risk profile in most of the major emerging markets continues to decline. During
the past two years, we have witnessed the peaceful transition of power to newly
elected governments in Korea, Indonesia, India, Turkey, Taiwan, Chile,
Argentina, Russia, and most recently, Mexico. Many of these countries had this
experience for the first time in their history. While the banking systems in
many countries remain sick, the problems have been identified and are not
getting any worse. Often times, the local economy has recovered in spite of the
banking system.
The major risk for emerging markets for the remainder of 2000 remains the US
economy. If a soft landing is actually achieved, emerging markets will be able
to continue the rally started in 1999, given that there are few macro economic
imbalances. While there are nascent signs of a recovery in Japan and
accelerating growth in China, it is unlikely that this would offset any hard
landing in the US.
We believe the outlook for emerging markets in 2000 is the most positive in
years. In general, previous macro economic imbalances have been rectified and
domestic demand in all of the emerging economies is showing a steady recovery.
The reversal of the global deflationary trend experienced in 1998 is also highly
beneficial to many emerging economies. Barring a downturn in the US economy, we
believe that emerging market equities should continue to provide acceptable
returns to investors throughout 2000. Our portfolio strategy will continue to
emphasize globally competitive companies in the telecommunications and
technology sectors as well as domestic consumption themes.
<TABLE>
<S> <C>
/s/ W. GEORGE GREIG /s/ JEFFREY A. URBINA
</TABLE>
22 Semi-Annual Report June 30, 2000
<PAGE> 24
...............................................................................
EMERGING MARKETS GROWTH FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
6/30/00 1999 12/31/98(A)(B)
------------ ------------ ----------------
<S> <C> <C> <C> <C>
Emerging Markets Growth Fund
(Class N).................... (6.89)% 79.31% (23.70)%
Morgan Stanley Capital
International Emerging
Markets (Free) Index......... (7.99) 66.41 (28.92)
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------
6/30/00(C) 1999 12/31/98(C)
------------ ------------ --------------
<S> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $7 $6 $4
Portfolio Turnover Rate (%).... 160 201 226
Expense Ratio (%).............. 2.06 2.06 2.25
</TABLE>
--------------------------------------------------------------------------------
(a) For the period May 1, 1998 (Commencement of Operations) to December 31,
1998.
(b) Total return is not annualized for periods that are less than a full year.
(c) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
[GRAPHIC IMAGE]
<TABLE>
<S> <C> <C>
Emerging Markets Growth Fund MSCI EMF Index
5/98 10000.00 10000.00
6/98 8700.00 7700.00
9/98 6600.00 6000.00
12/98 7600.00 7100.00
6/99 10800.00 9900.00
9/99 10300.00 9400.00
12/99 13700.00 11800.00
6/00 12700.00 10900.00
</TABLE>
THE FUND'S 1999 PERFORMANCE WAS ATTRIBUTABLE TO UNUSUALLY FAVORABLE MARKET
CONDITIONS. INVESTORS SHOULD MAINTAIN REALISTIC EXPECTATIONS FOR FUTURE
PERFORMANCE. SUCH PERFORMANCE MAY NOT BE SUSTAINABLE.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. Emerging markets investing involves special risk
considerations, including currency fluctuations, lower liquidity, economic and
political risk. From time to time, the Adviser may waive fees or reimburse
expenses for the Fund. Without these waivers, performance would be lower. Class
N shares are available to the general public without a sales load.
The Morgan Stanley Capital International Emerging Markets (Free) Index is an
index that includes emerging markets around the world.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
June 30, 2000 William Blair Funds 23
<PAGE> 25
...............................................................................
EMERGING MARKETS GROWTH FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------ ------
SHARES VALUE
------------------------------------------------------ ------
<C> <S> <C>
COMMON STOCKS--EMERGING ASIA--55.7%
INDIA--16.7%
10,000 Britannia Industries (Packaged food and
beverage)............................. $ 142
8,000 Hero Honda Motors Ltd. (Motorcycles).... 177
2,500 Hindustan Lever (Household products).... 159
15,000 Housing Dev Finance Corp. (Financial
services)............................. 188
12,000 *ICICI Bank Ltd.--ADR (Local banking)... 174
8,500 *Rediff.com India Ltd.--ADR (Internet
service).............................. 119
10,000 Sri Adhikari Bros Tele Networks
(Media)............................... 129
------
1,088
------
SOUTH KOREA--16.0%
650 Cheil Communications (Media)............ 85
3,400 Cheil Jedang Corp. (Packaged food and
beverage)............................. 156
2,000 Halls Climate Control (Auto Parts and
equipment)............................ 66
7,000 Hite Brewery Co., Ltd. (Packaged food
and beverage)......................... 308
2,000 *Korea Telecom Freetel
(Telecommunication services).......... 133
6,500 LG Chemical (Petrochemicals)............ 130
500 Samsung Electronics (Electronics)....... 165
------
1,043
------
TAIWAN--14.0%
48,000 Acer Peripherals (Electronics).......... 136
7,450 Ambit Microsystems Corp.
(Electronics)......................... 74
8,000 *GigaMedia Ltd--ADR (Internet
service).............................. 97
39,000 President Chain Store Corp. (Food
retailer)............................. 146
45,000 *Siliconware Precision Inds.
(Semiconductors)...................... 101
50,732 *TSMC (Semiconductors).................. 240
8,000 *Via Technologies Inc.
(Semiconductors)...................... 123
------
917
------
CHINA--7.4%
1,000,000 China Resources Beijing (Property)...... 133
150,000 Legend Holdings Ltd. (Computer
systems).............................. 145
600,000 Shenzhen Chiwan Wharf Holdings Ltd.
(Commercial transportation)........... 208
------
486
------
MALAYSIA--1.6%
15,000 Unisem (M) Berhad (Semiconductors)...... 107
------
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--11.5%
EGYPT--2.1%
8,000 *Al-Ahram Beverages Co--GDR (Packaged
food and beverage).................... 137
------
HUNGARY--1.9%
17,500 Matav Rt. (Telecommunication
services)............................. 121
------
ISRAEL--0.9%
4,000 *Electric Fuel Corp--ADR (Batteries).... 61
------
TURKEY--3.8%
7,250,000 *Dogan Yayin Holdings (Media)........... $ 123
10,800,000 Haci Omar Babanci Holdings (Financial
services)............................. 127
------
250
------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------ ------
SHARES OR PRINCIPAL AMOUNT VALUE
------------------------------------------------------ ------
<C> <S> <C>
COMMON STOCKS--EMERGING EUROPE, MID-EAST,
AFRICA--(CONTINUED)
POLAND--2.8%
3,500 Softbank Corp. (System integration)..... $ 182
------
COMMON STOCKS--LATIN AMERICA--14.2%
MEXICO--13.3%
150,000 *Consorcio ARA S.A. (Housing)........... 177
3,000 Fomento Econ Mexico--ADR (Packaged food
and beverage)......................... 129
35,000 *Grupo Financiero Banamex (Financial
services)............................. 147
1,500 *Grupo Televisa S.A.--ADR (Media)....... 104
3,000 Telefonos de Mexico--ADR (Telecom
service).............................. 171
60,000 *Walmart de Mexico (Retailer)........... 138
------
866
------
BRAZIL--0.9%
20,700 Confeccoes Guararapes S.A. (Apparel
retailer)............................. 57
------
TOTAL COMMON STOCK--81.4%
(cost $5,261)....................................... 5,315
------
PREFERRED STOCKS--16.6%
BRAZIL--16.6%
2,250,000 Banco Itau S.A. (Banking)............... 198
50,000 EMBRAER--PN (Aerospace)................. 286
6,500 Petroleo Brasileiro S.A. (Oil and
gas).................................. 196
4,000 Tele Celular Sul Part--ADR
(Telecommunication services).......... 181
4,826,000 Votorantim Celulose y Papel (Pulp and
paper)................................ 178
2,600 Votorantim Celulose y Papel--ADR (Pulp
and paper)............................ 48
------
1,087
------
TOTAL PREFERRED STOCK--16.6%
(cost $675)......................................... 1,087
------
SHORT-TERM INVESTMENTS--4.4%
$ 290 Investors Bank & Trust Company
Repurchase Agreement 6.03%, dated
6/30/00 collateralized by U.S.
Government security with a market
value of $304, due 7/3/00 repurchase
date (cost $290)...................... 290
------
TOTAL INVESTMENTS--102.4%
(cost $6,226)....................................... 6,692
LIABILITIES, PLUS CASH AND OTHER ASSETS--(2.4)%....... (155)
------
NET ASSETS--100.0%.................................... $6,537
======
</TABLE>
---------------
* Non-income producing securities
GDR = Global Depository Receipt
ADR = American Depository Receipt
At June 30, 2000 the Fund's Portfolio of Investments includes the following
categories:
Commercial Services--1.3%; Consumer Durables--2.8%; Consumer
Non-Durables--17.1%; Consumer Services--5.6%; Electronic Technology--21.9%;
Energy Minerals--3.1%; Finance--18.1%; Process Industries--5.6%; Producer
Manufacturing--0.9%; Retail Trade--4.4%; Technology Services--6.3%;
Transportation--3.3%; and Utilities--9.6%
See accompanying Notes to Financial Statements.
24 Semi-Annual Report June 30, 2000
<PAGE> 26
...............................................................................
DISCIPLINED LARGE CAP FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGER
--------------------------------------------------------------------------------
[PHOTO]
Stan Kirtman
Dear Shareholders:
For the six months ended June 30, 2000, the William Blair Disciplined Large Cap
Growth Fund (Class N Shares) increased 0.20% on a total return basis. This
compared with a negative 0.42% return by the S&P 500 during the same period.
The Federal Reserve is finally achieving its goal with regard to its desire to
wring out the speculative excesses from the market as the new economy stocks
received their just desserts in the second quarter. While the S&P 500, a less
technology sensitive index, fell by only 2.66% in the April-June period by
comparison the Nasdaq Composite index fell 13.27% in the second quarter while
the Nasdaq 100, containing a larger proportion of S&P names declined slightly
more, lopping off 14.41% of its value over the same period. In a more dramatic
indication of the slide the Nasdaq Composite after reaching its high on March 10
of 5048.62 fell 37.3% to 3164.55 on May 23. Thus far the May 23 figure has
turned out to be the low for the current move.
In other words, volatility continues to be a big part of the market's landscape
and is likely to persist in view of the Fed's stance. The Fed's stance is one of
keeping a watchful eye on inflation and while they held short-term interest
rates steady at the last meeting most observers believe that another hike is a
good bet in August, when they next meet.
The Fund underperformed its benchmark, the S&P 500 Index during the second
quarter by 1.23%. The S&P 500 showed a negative return of 2.66% while the Fund
(Class N Shares) was down 3.89%. Looking at performance attribution the three
worst performing sectors during the period, in order, were consumer cyclical,
capital goods and healthcare. On the plus side contributions came from
communications, financials and energy. Companies with disappointing
announcements where treated harshly by the market. Example in our portfolio such
as Costco, Electronic Data Systems, Xerox Corp. and Honeywell International all
fell in excess of 20% as a result of their negative surprises. On the positive
side ADC Telecommunication, Coastal Corp., Cigna and US West each recorded gains
in excess of 20% through June 30.
As mentioned above the volatility is likely to continue as long as it is thought
that the Fed has not won its war against inflation and further increases in
short-term interest rates are on the horizon. With the Fed's aim of lowering
economic activity it would be a reasonable assumption that growth stocks should
do well. However, the valuations of these stocks are high and so disappointment
coming as a result of an economic slowdown will not insulate these issues from
sharp declines much like that which occurred in the names mentioned above. Under
the circumstances, we believe a portfolio that is well diversified is an
appropriate strategy at this juncture.
/s/ STAN KIRKMAN
June 30, 2000 William Blair Funds 25
<PAGE> 27
...............................................................................
DISCIPLINED LARGE CAP FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00 1999(A)(B)
------------ ------------
<S> <C> <C> <C>
Disciplined Large Cap Fund
(Class N).................... .20% 1.20%
S&P 500 Index.................. (.42) .85
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
6/30/00(C) 1999(C)
------------ ------------
<S> <C> <C> <C>
Ending Net Assets (in
millions).................... $4 $2
Portfolio Turnover Rate (%).... 48 --
Expense Ratio (%).............. 1.25 1.25
</TABLE>
--------------------------------------------------------------------------------
(a) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(b) Total return is not annualized for periods that are less than a full year.
(c) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
[GRAPHIC IMAGE]
<TABLE>
<CAPTION>
DISCIPLINED LARGE CAP GROWTH
FUND S&P 500 INDEX
---------------------------- -------------
<S> <C> <C>
12/99 10000.00 10000.00
1/00 9500.00 9500.00
2/00 9600.00 9300.00
3/00 10400.00 10200.00
4/00 10100.00 9900.00
5/00 9600.00 9700.00
6/00 10000.00 10000.00
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. From time to time, the Adviser may waive fees or reimburse
expenses for the Fund. Without these waivers, performance would be lower. Class
N shares are available to the general public without a sales load.
The S&P 500 Index indicates broad larger capitalization equity market
performance.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
26 Semi-Annual Report June 30, 2000
<PAGE> 28
...............................................................................
DISCIPLINED LARGE CAP FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------- -------
SHARES VALUE
--------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS
TECHNOLOGY--35.1%
530 *ADC Telecommunications, Inc............. $ 45
80 Adobe Systems, Inc....................... 10
80 *Altera Corporation...................... 8
280 *Analog Devices.......................... 21
430 *Apple Computer, Inc..................... 23
330 *Applied Materials, Inc.................. 30
3,760 *Cisco Systems, Inc...................... 239
100 *Comverse Technology, Inc................ 9
1,440 *EMC Corporation......................... 111
330 First Data Corporation................... 16
1,370 Intel Corporation........................ 183
720 International Business Machines.......... 79
230 *KLA-Tencor Corporation.................. 14
320 Linear Technology Corporation............ 20
130 *Maxim Integrated Products............... 9
230 *Micron Technology, Inc.................. 20
1,100 *Microsoft Corporation................... 88
330 *NCR Corporation......................... 13
160 *Network Appliance, Inc.................. 13
1,920 *Oracle Corporation...................... 161
350 Perkinelmer, Inc......................... 23
330 *QUALCOM, Inc............................ 20
120 *Sapient Corporation..................... 13
800 Scientific Atlanta, Inc.................. 60
1,540 *Sun Microsystems, Inc................... 140
280 Tektronix, Inc........................... 21
1,290 Texas Instruments........................ 89
230 *3Com Corporation........................ 13
220 *Yahoo, Inc.............................. 27
-------
1,518
-------
FINANCIAL SERVICES--10.7%
1,120 American Express Company................. 58
940 American International Group............. 110
430 Bank of New York......................... 20
220 Bear Stearns Companies, Inc.............. 9
1,180 Chase Manhattan Corporation.............. 54
620 CIGNA Corporation........................ 58
280 Hartford Financial Services Group........ 16
150 J.P. Morgan & Company.................... 17
220 Keycorp.................................. 4
320 Lehman Brothers Holdings................. 30
370 Marsh & McLennan Companies, Inc.......... 39
170 PNC Financial Services Group............. 8
400 St. Paul Companies, Inc.................. 14
630 Wells Fargo & Company.................... 24
-------
461
-------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------- -------
SHARES VALUE
--------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
HEALTHCARE--10.4%
180 Allergan, Inc............................ $ 13
480 American Home Products................... 28
570 *Amgen, Inc.............................. 40
150 *Biogen, Inc............................. 10
350 Biomet, Inc.............................. 14
500 Bristol-Meyers Squibb Company............ 29
370 HCA -- The Healthcare Company............ 11
470 Johnson & Johnson........................ 48
130 *MedImmune, Inc.......................... 10
320 Medtronic, Inc........................... 16
970 Merck & Co., Inc......................... 74
1,870 Pfizer, Inc.............................. 90
370 *Tenet Healthcare Corporation............ 10
320 United Healthcare Corporation............ 27
580 *Watson Pharmaceuticals.................. 31
-------
451
-------
CAPITAL GOODS--7.9%
330 *American Power Conversion Corporation... 13
370 Dover Corporation........................ 15
170 Eaton Corporation........................ 11
250 General Dynamics Corporation............. 13
2,160 General Electric Company................. 115
480 Honeywell International.................. 16
130 Johnson Controls, Inc.................... 7
170 Minnesota Mining and Manufacturing....... 14
200 Molex, Inc............................... 10
130 Parker-Hannifin Corporation.............. 4
120 *Sealed Air Corporation.................. 6
1,020 *Solectron Corporation................... 43
1,220 Tyco International, Ltd.................. 58
300 United Technologies...................... 18
-------
343
-------
CONSUMER CYCLICALS--7.3%
840 *Costco Wholesale Corporation............ 28
90 Dow Jones & Co., Inc..................... 7
250 Ford Motor Company....................... 11
630 General Motors Corporation............... 37
1,000 Home Depot, Inc.......................... 50
620 *Kohl's Corporation...................... 34
620 Limited, Inc............................. 13
250 Lowes Companies.......................... 10
100 Maytag Corporation....................... 4
90 Omnicom Group............................ 8
370 Target Corporation....................... 21
1,550 Wal-Mart Stores, Inc..................... 89
70 Whirlpool Corporation.................... 3
-------
315
-------
COMMUNICATION SERVICES--7.2%
220 Alltel Corporation....................... 14
620 Bell Atlantic Corporation................ 32
370 GTE Corporation.......................... 23
1,070 *NEXTEL Communications................... 65
1,200 SBC Communications, Inc.................. 52
320 Sprint Corporation....................... 16
370 U S West, Inc............................ 32
1,685 *Worldcom, Inc........................... 77
-------
311
-------
</TABLE>
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 27
<PAGE> 29
...............................................................................
DISCIPLINED LARGE CAP FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------- -------
SHARES VALUE
--------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
ENERGY--7.0%
200 Anadarko Petroleum Corporation........... $ 10
170 Apache Corporation....................... 10
370 Chevron Corporation...................... 31
1,720 Exxon Mobil Corporation.................. 135
230 Phillips Petroleum Company............... 12
300 *Rowan Companies......................... 9
1,040 Royal Dutch Petroleum Company............ 64
250 Schlumberger, Ltd........................ 19
225 Transocean Sedco Forex, Inc.............. 12
-------
302
-------
CONSUMER STAPLES--6.8%
330 Anheuser Busch Companies, Inc............ 25
230 Avon Products............................ 10
230 *Clear Channel Communications, Inc....... 17
550 Colgate Palmolive Company................ 33
230 CVS Corporation.......................... 9
370 Darden Restaurants, Inc.................. 6
320 General Mills, Inc....................... 12
450 Kimberly-Clark Corporation............... 26
520 *Safeway, Inc............................ 23
750 Sysco Corporation........................ 32
767 *Viacom, Inc. Class "B".................. 52
480 Walgreen Company......................... 16
800 Walt Disney Company...................... 31
-------
292
-------
UTILITIES--3.4%
630 *AES Corporation......................... 29
720 Coastal Corporation...................... 44
320 El Paso Energy........................... 16
870 Enron Corporation........................ 56
-------
145
-------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------- -------
SHARES VALUE
--------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
BASIC MATERIALS--2.0%
230 Air Products & Chemicals................. $ 7
432 Alcoa, Inc............................... 12
650 Dow Chemical Company..................... 20
170 Georgia-Pacific Group.................... 4
150 Nucor Corporation........................ 5
450 Praxair, Inc............................. 17
270 Rohm & Haas Company...................... 9
180 Vulcan Materials Company................. 8
130 Willamette Industries, Inc............... 4
-------
86
-------
TRANSPORTATION--.5%
200 *AMR Corporation......................... 5
7 Delta Air Lines.......................... 4
350 Southwest Airlines....................... 7
170 Union Pacific Corporation................ 6
-------
22
-------
TOTAL COMMON STOCK--98.3%
(cost $4,151).................................... 4,246
-------
SHORT-TERM INVESTMENTS
$ 142 Investors Bank & Trust Company
Repurchase Agreement 6.03%, dated
6/30/00 collateralized by U.S.
Government agency security with a
market value of $58, due 7/3/00
repurchase date........................ 142
-------
TOTAL SHORT-TERM INVESTMENTS--3.3%
(cost $142)...................................... 142
-------
TOTAL INVESTMENTS--101.6%
(cost $4,293).................................... 4,388
-------
LIABILITIES, PLUS CASH AND OTHER ASSETS--(1.6)%.... (68)
-------
NET ASSETS--100%................................... $4,320
=======
</TABLE>
See accompanying Notes to Financial Statements.
28 Semi-Annual Report June 30, 2000
<PAGE> 30
...............................................................................
VALUE DISCOVERY FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
Glen A. Kleczka
[PHOTO]
David Mitchell
[PHOTO]
Cappy Price
Dear Shareholders:
The first half of 2000 encompassed two radically different market environments.
The first two months of the year were a continuation of the technology-driven
markets of 1999 subsequently punctuated by a significant market break in early
March. The Russell 2000 was up approximately 20% at the peak on March 9. The
rest of the first half proved to be a difficult climate for technology
speculators and more conducive to value investors. The result was a Value
Discovery Fund return of 11.79% (Class N Shares) in the first half of 2000 vs. a
3.04% gain for the Russell 2000 and 5.85% for the Russell 2000 Value indices. We
thank our shareholders for sticking with us when Value-investing was out of
favor. Your patience was rewarded during the second quarter. The resolute
execution of our investment disciplines in an exuberant market climate enabled
us to protect and grow your capital when conditions turned extremely volatile.
We continue to seek meaningful price discounts to intrinsic value while
protecting portfolio capital through broad diversification.
We are increasingly confident that Value investments are now on a more level
playing field with the types of investments that have been successful in recent
years. In a normalized investment environment, the market value of an investment
as measured by stock price generally reflects intrinsic value as measured by
business fundamentals and future prospects. However, markets efficiently price,
in addition to business fundamentals, sentiment-fear and greed. An increasingly
speculative market psychology developed from the depths of the Asian financial
crisis in late 1998 through the first quarter of 2000. New Economy companies
lacking cash flow or earnings were rewarded with market values at many multiples
to those of Old Economy companies that had significant cash flow and earnings.
In essence, psychology came to dominate fundamentals in market pricing. The
result was an unprecedented break in the linkage of market value and intrinsic
value.
The month of March may have marked an important inflection point in market
psychology leveling the future potential returns of New Economy and Old Economy
investments. In the past four months the markets began to rationalize the
significant valuation disparity between the New Economy and Old Economy. If our
assessment is correct, many of the recent best performing technology and
biotechnology stocks will provide only nominal relative returns in the future as
this process continues. That is, we believe returns will mean revert resulting
in more level returns across the market. We anticipate reversals from time to
time as a battle of sentiment between New Economy and Old Economy takes its
course. We will most certainly lag during those periods when New Economy stocks
are rallying back. However, the New Economy correction in March was so sharp
that we are confident it will stand as a point of demarcation in market pricing.
The markets now are witnessing an ongoing rationalization of weak and expensive
companies. The most important conclusion is that Value portfolios have an
excellent chance of generating attractive relative performance under this
scenario. Funds focused primarily on technology and biotechnology endured the
brunt of the damage when the market corrected. The Value Discovery Fund remains
well diversified across all economic sectors with a continuing underweight in
technology.
June 30, 2000 William Blair Funds 29
<PAGE> 31
Relative portfolio performance in the first half was primarily driven by
superior stock selection in four sectors: Consumer Discretionary, Consumer
Staples, Utilities, and Technology in that order. Consumer Discretionary
performance was driven by Michael's Stores (+60.6%) Pier 1 Imports (+53.9%) and
Braun's Fashions (+74.7%). We have scaled Michael's and Braun's back in the
portfolio and continue to evaluate their future prospects. We see new
opportunities in Retail and look to a more conducive environment for the
industry when Fed interest rate hikes peak. We will ultimately replace our
winners with new quality retail companies, as Retail has tended historically to
outperform in falling interest rate environments. Celestial Seasonings (+106.8%)
drove Consumer Staples performance with improved fundamentals capped off with an
acquisition by Hain Foods. The Fund's Consumer Staple stocks were up 59.5% vs.
down (3.3%) for the Consumer Staples portion of the Russell 2000 providing the
most significant positive performance variance. Utility performance was driven
primarily by the completion of the Illinova acquisition by Dynegy. Finally, the
Technology results are particularly noteworthy as our significant underweight
protected portfolio performance through the crash in the Russell 2000 Technology
sector. In addition, the Fund's tech stocks were up 44.3% in the first half vs.
up 4.6% for the Technology portion of the Russell 2000. This resulted from
having a much lower portfolio weight in the losers, including Informix (-56.1%)
and Mapics (-63.9%), relative to our big winner, Overland Data (+85.0%).
The weakest performance was experienced in the Health Care and Financial
sectors, which subtracted 3.3% combined from portfolio return. We continue to
believe both sectors offer meaningful opportunity. We are actually quite
satisfied with our Health Care performance considering value funds, including
ours, typically do not invest in biotechnology stocks. Nine of the top 15
contributors to the total Russell 2000 second quarter return were Health Care
stocks, with four of the nine being biotech. Despite not owning biotech, our
returns during the six-month period were a little over 29% in Health Care
relative to a 37% return for the benchmark. We subtracted a little over 1.0%
from total portfolio performance due primarily to our underweight in Health
Care, which was the best performing Russell sector. This underweight reflects an
avoidance of biotech stocks, as they do not fit into our value-style of
management. Likewise, Financial stocks were weak, as a few earnings
disappointments and rising interest rates cast a shadow over our holdings. We
continue to like the group as it historically has begun to outperform the
broader market up to one quarter before the Fed stops raising rates. We feel we
are closer to the end of Fed increases, which sets up a potential performance
opportunity in the second half of this year.
The Fund's portfolio remains quite attractive from a valuation perspective at a
P/E on next twelve month projected earnings of a little over 10x vs. a P/E of
20x projected earnings for the Russell 2000. Meanwhile, the three-year projected
earnings growth for securities in the Fund's portfolio of 13.5% is comparable to
the 13% projected growth for the Russell 2000. Overall, we are very pleased with
performance in the first half as it served to validate our philosophy and
process in one of the most volatile markets of the past few years.
<TABLE>
<S> <C> <C>
/s/ GLEN A. KLECZKA /s/ DAVID MITCHELL /s/ CAPPY PRICE
</TABLE>
30 Semi-Annual Report June 30, 2000
<PAGE> 32
...............................................................................
VALUE DISCOVERY FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------
6/30/00 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Value Discovery Fund (Class
N)........................... 11.79% 6.10% 66% 33.46%
Russell 2000 Index............. 3.04 21.26 (2.55) 22.36
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------
6/30/00(A) 1999 1998 1997 1996(B)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $61 $48 $45 $30 $2
Portfolio Turnover Rate (%).... 62 65 78 69 --
Expense Ratio (%).............. 1.64 1.35(b) 1.52 1.50(c) --
</TABLE>
--------------------------------------------------------------------------------
(a) Rates are annualized.
(b) For the period December 23, 1996 (Commencement of Operations) to December
31, 1996.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF CAPITAL
GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPHIC IMAGE]
<TABLE>
<S> <C> <C>
Value Discovery Fund Russell 2000 Index
12/96 10000.00 10000.00
3/97 9700.00 9500.00
6/97 11100.00 11000.00
9/97 14000.00 12700.00
12/97 13300.00 12200.00
3/98 15000.00 13500.00
6/98 14600.00 12800.00
9/98 12000.00 10300.00
12/98 13400.00 11900.00
3/99 12000.00 11300.00
6/99 14100.00 13000.00
9/99 12900.00 12200.00
12/99 14300.00 14500.00
6/00 15900.00 14900.00
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. Investing in smaller companies involves special risks,
including higher volatility and lower liquidity. From time to time, the
investment adviser may waive fees or reimburse expenses for the Fund. Without
these waivers, performance would be lower. Class N shares are available to the
general public without a sales load.
The Russell 2000(R) Index is an unmanaged composite of the smallest 2000 stocks
of the Russell 3000 Index (which consists of the largest 3000 stocks in the U.S.
market as determined by market capitalization).
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all stocks in the Fund performed as well, nor is
there any guarantee that these stocks will perform as well in the future. Market
forecasts provided in this report may not necessarily come to pass.
June 30, 2000 William Blair Funds 31
<PAGE> 33
...............................................................................
VALUE DISCOVERY FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS
CONSUMER DISCRETIONARY--22.3%
26,250 *Brauns Fashion Corporation.............. $ 963
45,500 Ethan Allen Interiors.................... 1,092
82,100 Hollinger International, Inc............. 1,119
28,300 *Michaels Stores, Inc.................... 1,297
72,200 *NCI Building Systems.................... 1,462
191,900 Pier 1 Imports, Inc...................... 1,871
66,100 *Prime Hospitality Corporation........... 624
45,900 Snap-On Incorporated..................... 1,222
43,600 *Sunglass Hut International, Inc......... 358
319,000 *Telespectrum Worldwide, Inc............. 1,455
66,500 *United Stationers, Inc.................. 2,153
-------
13,616
-------
FINANCIAL SERVICES--18.7%
34,100 Amerus Life Holdings, Inc., Class "A".... 703
98,300 *Annuity & Life Re Holdings, plc ADR..... 2,408
39,300 Astoria Financial Corporation............ 1,012
105,100 Brandywine Realty Trust.................. 2,010
59,100 First Industrial Realty Trust............ 1,743
94,600 *Matrix Bancorp, Inc..................... 639
42,400 MONY Group, Inc.......................... 1,434
17,300 SCPIE Holdings, Inc...................... 355
121,900 *Seacoast Financial Services
Corporation............................ 1,158
-------
11,462
-------
PRODUCER DURABLES--13.2%
85,600 *Denison International plc ADR........... 1,081
136,000 *Flowserve Corporation................... 2,049
30,400 *Gardner Denver, Inc..................... 543
100,500 LSI Incorporated......................... 1,526
109,200 Milacron, Inc............................ 1,583
87,400 *Newpark Resources....................... 825
55,400 *Stoneridge, Inc......................... 485
-------
8,092
-------
MATERIALS--9.8%
168,500 Arch Chemicals, Inc...................... 3,686
55,500 Cleveland-Cliffs, Inc.................... 1,432
29,600 USG Corporation.......................... 899
-------
6,017
-------
TECHNOLOGY--7.1%
65,400 *Informix Corporation.................... 487
33,900 *Kent Electronic Corporation............. 1,011
205,500 *Overland Data, Inc...................... 2,844
-------
4,342
-------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- -------
SHARES OR PRINCIPAL AMOUNT VALUE
---------------------------------------------------- -------
<C> <S> <C>
COMMON STOCKS--(CONTINUED)
AUTOS AND TRANSPORTATION--5.5%
56,300 *Landstar System, Inc.................... $ 3,353
-------
HEALTHCARE-RELATED SPECIALTIES--7.0%
31,600 *First Health Group Corporation.......... 1,037
110,100 *Pediatrix Medical Group................. 1,280
192,300 *Quorum Health Group..................... 1,983
-------
4,300
-------
CONSUMER STAPLES--4.6%
105,000 *Cadmus Communications................... 1,024
36,500 *Suiza Foods Corporation................. 1,784
-------
2,808
-------
ENERGY--2.7%
63,000 *Veritas DGC, Inc........................ 1,638
-------
UTILITIES--1.1%
39,200 Atmos Energy Corporation................. 686
-------
TOTAL COMMON STOCK--92.0%
(cost $46,231).................................... 56,314
-------
SHORT-TERM INVESTMENTS
$ 2,697 Investors Bank & Trust Company
Repurchase Agreement 6.03%, dated
6/30/00 collateralized by U.S.
Government agency security with a
market value of $2,832 due 7/3/00
repurchase date........................ 2,697
2,608 Associates Corp. of North America Demand
Note, 6.01%, due 7/3/00................ 2,608
-------
TOTAL SHORT-TERM INVESTMENTS--8.7%
(cost $5,305)..................................... 5,305
-------
TOTAL INVESTMENTS--100.7%
(cost $51,536).................................... 61,619
LIABILITIES, LESS CASH AND OTHER ASSETS--(.7)%...... (444)
-------
NET ASSETS--100.0%.................................. $61,175
=======
</TABLE>
---------------
* Non-income producing securities
ADR = American Depository Receipt
See accompanying Notes to Financial Statements.
32 Semi-Annual Report June 30, 2000
<PAGE> 34
...............................................................................
INCOME FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
James S. Kaplan
[PHOTO]
Bentley M. Myer
Dear Shareholders:
The William Blair Income Fund (Class N Shares) posted a 3.37% gain on total
return basis for the six months ended June 30, 2000. The Fund's return of 3.37%
for the six-month period exceeded the return of the Lehman Intermediate Index
3.22% during the same period. In the first quarter of the year, the Fund was up,
1.74%, while the Lehman Index was up 1.50%.
With all of the many recent media reports regarding higher interest rates that
have developed from a more restrictive Federal Reserve Board policy, it is very
interesting to note that the yield of the ten year U.S. Treasury note is lower
today than at the beginning of the year (6.0% at June 30, compared to 6.6% on
January 3). Additionally, the yield of a ten year corporate note is about equal
to the rate at the beginning of the year. In our view, this means that there is
currently much less restriction being placed on the U.S. economy from higher
mortgage and other lending rates than is more widely assumed. In fact, if
interest rates continue their more recent downward trend, the effect on the
economy could turn more stimulative than the Fed seems to want at this stage of
an economic cycle.
Strategically, this translates into caution on our part. The average maturity
and duration of the Income Fund's portfolio were extended slightly during the
first quarter but both have been reduced somewhat more recently. If the bond
market continues to rally, we expect to continue to reduce the risk in the Fund.
This means some continued reduction in the average maturity/ duration and a
continuation in the reduction of credit risk. There were no significant sector
changes during the second quarter other than a slight increase in the corporate
exposure. The Fund is still underweighted in the corporate sector and that is
likely to be maintained until there are sufficient risk premiums to warrant more
market weighting.
<TABLE>
<S> <C>
/s/ JAMES S. KAPLAN /s/ BENTLEY M. MYER
</TABLE>
June 30, 2000 William Blair Funds 33
<PAGE> 35
...............................................................................
INCOME FUND
...............................................................................
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
6/30/00 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income Fund (Class N).......... 3.37% .34% 7.07% 8.03% 3.07% 14.37%
Lehman Intermediate
Government/Corporate Index... 3.22 .39 8.44 7.87 4.05 15.33
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
6/30/00(A) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $164 $173 $188 $160 $150 $147
Portfolio Turnover Rate (%).... 72 66 96 83 66 54
Expense Ratio (%).............. .89 .70 .71 .71 .70 .68
</TABLE>
(a) Rates are annualized.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 WITH REINVESTMENT OF CAPITAL
GAIN DISTRIBUTIONS AND INCOME DIVIDENDS
[GRAPHIC IMAGE]
<TABLE>
<S> <C> <C>
Income Fund Lehman Intermediate Gov/Corp
9/90 10000.00 10000.00
12/90 10300.00 10400.00
12/91 12000.00 11900.00
12/92 12800.00 12800.00
12/93 13800.00 13900.00
12/94 13700.00 13600.00
12/95 15700.00 15700.00
12/96 16200.00 16400.00
12/97 17500.00 17700.00
12/98 18700.00 19200.00
12/99 18800.00 19200.00
6/00 19400.00 19800.00
</TABLE>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns shown are average
annual total returns, which assume reinvestment of dividends and capital gains.
Investment returns and principal will fluctuate and you may have a gain or loss
when you sell shares. Class N shares are available to the general public without
a sales load.
The Lehman Intermediate Government/Corporate Index indicates broad intermediate
government/corporate bond market performance.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all fixed-income securities in the Fund performed as
well, nor is there any guarantee that these fixed-income securities will perform
as well in the future. Market forecasts provided in this report may not
necessarily come to pass.
34 Semi-Annual Report June 30, 2000
<PAGE> 36
...............................................................................
INCOME FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY
GUARANTEED OBLIGATIONS--49.7%
U.S. TREASURY--21.3%
$ 3,500 U.S. Treasury Note, 7.875%, due
11/15/04............................. $ 3,705
8,500 U.S. Treasury Note, 6.500%, due
8/15/05.............................. 8,590
5,000 U.S. Treasury Note, 6.875%, due
5/15/06.............................. 5,145
7,300 U.S. Treasury Note, 7.000%, due
7/15/06.............................. 7,562
10,000 U.S. Treasury Note, 6.500%, due
10/15/06............................. 10,113
-------- --------
34,300 Total U.S. Treasury Obligations........ 35,115
-------- --------
U.S. GOVERNMENT GUARANTEED OBLIGATIONS--4.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)--3.3%
2,363 #255840, 10.000%, due 10/15/09......... 2,421
2,917 #309232, 8.750%, due 9/15/31........... 2,940
-------- --------
5,280 Total GNMA Obligations................. 5,361
-------- --------
SMALL BUSINESS ADMINISTRATION--0.5%
-- Receipt for Multiple Originator Fees,
#3
0.845%, due 11/8/08 (Interest Only)
WAC.................................. 429
309 Loan #100023, 9.375%, due 11/25/14..... 315
-------- --------
309
--------
Total Small Business Administration
Obligations..........................
744
--------
DEPARTMENT OF VETERAN AFFAIRS ADMINISTRATION--0.6%
1,067
--------
American Housing Trust, XI, 3D
8.05%, due 9/25/17...................
1,063
--------
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGATIONS--24.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC)--13.7%
576
#1429, Tranche K, FR, 6.335%, due 542
11/15/07.............................
1,610
#1544, Tranche TM, FR, 8.637%, due 1,607
7/15/08..............................
612
#1600, Tranche SE, FR, 8.450%, due 617
10/15/08.............................
4,712
#1612, Tranche SE, FR, 8.100%, due 4,732
11/15/08.............................
2,003
#1655, Tranche SC, FR, 7.089%, due 1,906
12/15/08.............................
273
#1625, Tranche SB, FR, 6.982%, due 273
12/15/08.............................
301
#1662, Tranche T, FR, 7.945%, due 301
1/15/09..............................
3,734
#1259, Tranche Z, 8.000%, due 3,746
9/15/20..............................
5,570
#1462, Tranche PK, 7.500%, due 5,568
7/15/21..............................
2,286
#1608, Tranche SE, 8.959%, due 2,336
6/15/23..............................
136
#1542, Tranche S, 13.509%, due 143
7/15/23..............................
851
#1611, Tranche MB, FR, 5.892%, due 791
11/15/23.............................
--------
--------
22,664 22,562
Total FHLMC Mortgage Obligations.......
--------
--------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- --------
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------- --------
<C> <S> <C>
U.S. GOVERNMENT AGENCY GUARANTEED OBLIGA-
TIONS--(CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--10.3%
$ 5,500 Note, 6.000%, due 5/15/08.............. $ 5,119
806 1993-212, Tranche SG, 8.000%, due
11/25/08............................. 807
1,583 10.500%, #415841, due 1/1/13........... 1,691
974 11.500%, #415843, due 1/1/13........... 1,062
3,385 1993-2, Tranche PH, 7.350%, due
3/25/21.............................. 3,375
4,750 1992-28, Tranche SB, 5.002%, due
5/25/21.............................. 4,595
11 1993-19, Tranche SH, 11.234%, due
4/25/23.............................. 11
315 1994-72, Tranche SA, 9.750%, due
4/25/24.............................. 301
-------- --------
17,324 Total FNMA Mortgage Obligations........ 16,961
-------- --------
80,944
--------
Total U.S. Government and U.S.
Government Agency Guaranteed
Obligations..........................
81,806
--------
</TABLE>
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 35
<PAGE> 37
...............................................................................
INCOME FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
---------------------------------------- ------------ --------
S&P
PRINCIPAL RATING
AMOUNT (unaudited) VALUE
---------------------------------------- ------------ --------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--22.0%
$ 3,157 SASCO 2000-C2, Tranche J, BBB
8.274%, due 3/20/03....... $ 3,157
1,364 Prudential Home Securities, A
1992-13 Tranche B2 7.500%,
due 6/25/07............... 1,349
162 Polk Co. HFA, 1991-1, AAA
Tranche A-2, 9.550%, due
1/15/11................... 164
7,178 Morgan Keegan Funding I, AA-
L.P., 8.000%, due
4/25/11................... 7,226
1,000 LTC 1993-1, Tranche D, BBB+
9.200%, due 11/28/12...... 1,005
544 DBL T 3, 8.450%, due AAA
1/20/19................... 544
339 Resolution Trust Corp., AA
1992-2, Tranche A, 7.922%,
due 8/25/21............... 338
67 Resolution Trust Corp., AAA
1991-3, Tranche A-2,
10.372%, due 8/25/21...... 66
3,298 Bear, Stearns & Co., AA
1992-3B1, 7.080%, due
5/25/23................... 3,345
3,024 Security National Mortgage A
Loan Trust, 2000-1,
Tranche B, 9.25%, due
2/25/25................... 2,951
294 Resolution Trust Corp., AA
1992-5, Tranche C, 8.621%,
due 1/25/26............... 293
4,000 LTC 1994-1, Tranche C, A
9.500%, due 6/15/26....... 4,052
4,225 Green Tree Home Equity, A
1998-E, Tranche HEM2,
7.270%, due 6/15/28....... 4,001
2,067 Country Wide Funding A
Corporation, 1995-2,
Tranche B2, 8.500%, due
6/25/25................... 2,057
5,886 A
--------
Merit Securities Corporation
13, Tranche M2, 7.880%,
due 1/28/30...............
5,575
--------
36,605
--------
Total Collateralized
Mortgage Obligations......
36,123
--------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------- ------------ --------
S&P
PRINCIPAL RATING
AMOUNT (unaudited) VALUE
---------------------------------------- ------------ --------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS--20.8%
$ 1,500 Household Finance Corp. A
Medium Term Note, 10.380%,
due 12/15/00.............. $ 1,520
5,625 WorldCom, Inc., 8.000%, due A-
5/15/06................... 5,687
3,325 Block Financial, 8.500%, due A
4/15/07................... 3,357
4,000 Mellon Bank, 7.375%, due A+
5/15/07................... 3,944
3,350 First Data Corporation, A
6.375%, due 12/15/07...... 3,170
4,700 Cardinal Health Note, A
6.250%, due 6/1/08........ 4,284
4,000 Merrill Lynch Note, 6.000%, AA-
due 2/17/09............... 3,539
2,150 Wal-Mart Stores Note, AA
6.875%, due 8/10/09....... 2,102
3,100 Province of Manitoba, AA-
7.500%, due 2/22/10....... 3,143
3,425 A
--------
Ford Motor Credit Company
Note, 7.875%, due
6/15/10...................
3,420
--------
35,175
--------
Total Corporate
Obligations...............
34,166
--------
152,724
--------
TOTAL LONG TERM
INVESTMENTS--92.5%
(cost $156,019)...........
152,095
--------
SHORT-TERM INVESTMENTS--6.3%
457 A-1
Associates Corp. of North
America Demand Note, 457
6.01%, due 7/1/00.........
4,200 A-2
Sears, Roebuck Acceptance
Corp., 6.20%, due 4,200
8/15/00...................
2,000 A-1
CIT Group Holdings 6.46%, 2,000
due 9/15/00...............
2,000 A-2
Sears, Roebuck Acceptance
Corp., 6.50%, due 2,000
9/15/00...................
1,750 A-1+
--------
American General Corporation
6.70%, due 10/16/00.......
1,750
--------
10,407
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $10,407)............
10,407
--------
$163,131
========
TOTAL INVESTMENTS--98.8%
(cost $166,426)...........
162,502
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.2%......... 1,949
--------
$164,451
NET ASSETS--100.0%..........
========
</TABLE>
---------------
WAC = Weighted Average Coupon
FR = Floating Rate
See accompanying Notes to Financial Statements.
36 Semi-Annual Report June 30, 2000
<PAGE> 38
...............................................................................
READY RESERVES FUND
...............................................................................
--------------------------------------------------------------------------------
A LETTER FROM THE PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO]
James S. Kaplan
[PHOTO]
Bentley M. Myer
Dear Shareholders:
The William Blair Ready Reserves Fund (Class N Shares) posted a 2.79% increase
on a total return basis for the six months ended June 30, 2000 rising 1.3% in
the first quarter of the year, and 1.43% in the second quarter. Total assets in
the Fund increased early in the second quarter and then stabilized at $1.16
billion at June 30, 2000.
Money market interest rates continued to increase during the second quarter. The
Federal Reserve Board raised the target federal funds rate by another one-half
percentage point at their May meeting. The Fed has now raised the funds rate 1%
so far this year and 1.75% since the middle of last year. With the economy
showing some early signs of slowing, it is now unclear whether the Fed will need
to raise rates again at the meeting in August. A factor in that decision is
likely to be the presidential elections. The average maturity of the Fund's
portfolio shortened modestly to forty seven days. If the Fed raises rates again
in August, it is likely that the average maturity will be extended toward the
fifty to fifty five day range. Conversely, if the Fed leaves rates unchanged in
August, the average maturity will likely be maintained in the forty five day
area. Additionally, the floating rate note position of the Fund's portfolio held
at approximately 13%. These notes have continued to benefit the Fund during this
recent period of rising rates.
<TABLE>
<S> <C>
/s/ JAMES S. KAPLAN /s/ BENTLEY M. MYER
</TABLE>
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
Average Annual Total Returns -- Class N Shares
(period ending 6/30/00)
<TABLE>
<CAPTION>
---------------------------------------------------------
6 MONTH 1 YEAR 5 YEARS 10 YEARS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ready Reserves Fund............ 2.79% 5.24% 4.99% 4.67%
AAA Rated Money Market Funds... 2.69 5.03 4.86 --(a)
S&P-rated AAA Money Market
Funds........................ 2.78 5.22 4.97 4.65
</TABLE>
--------------------------------------------------------------------------------
INVESTOR INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
6/30/00(B) 1999 1998 1997 1996 1995
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ending Net Assets (in
millions).................... $1,164 $1,053 $1,189 $905 $761 $704
Expense Ratio (%).............. .69 .72 .69 .70 .71 .72
</TABLE>
(a) Index data is unavailable for this time period.
(b) Rates are annualized
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. TOTAL RETURN INCLUDES
REINVESTMENT OF INCOME. YIELDS FLUCTUATE AND ARE NOT GUARANTEED. An investment
in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance
Corp. (FDIC) or any government agency. Although the fund seeks to preserve the
value of your investment at $1 per share, it is possible to lose money by
investing in the Fund.
The AAA Rated Money Markets Funds Average represents the average annual
composite performance of all AAA rated First Tier Retail Money Market Funds
listed by IBC Financial Data.
The S&P rated AAA Money Market Funds is an index of money market mutual funds
rated AAA by Standard & Poor's.
This report identifies the Fund's investments on June 30, 2000. These holdings
are subject to change. Not all fixed-income securities in the Fund performed as
well, nor is there any guarantee that these fixed-income securities will perform
as well in the future. Market forecasts provided in this report may not
necessarily come to pass.
June 30, 2000 William Blair Funds 37
<PAGE> 39
...............................................................................
READY RESERVES FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY GUARANTEED--5.4%
$ 933 Agency for International
Development, VRN--Peru, 6.45%,
8/1/00........................... $ 933
13,000 Agency for International
Development, VRN--India 6.29%,
7/5/00........................... 12,943
25,000 Federal Home Loan Mortgage Corp.,
VRN, 6.25%, 7/5/00............... 25,000
6,407 Federal National Mortgage
Association 5.50%, 2/1/01........ 6,435
17,991
----------
Student Loan Marketing Association
6.54%, 7/5/00....................
17,999
----------
63,310
63,331
----------
----------
VARIABLE RATE NOTES--10.0%
19,992
AT&T Corporation, VRN 6.24%, 20,000
7/13/00..........................
15,018
Associates Corporation 6.91%, 15,016
9/14/00..........................
11,261
CIT Group Holdings 6.44%-6.97%, 11,255
7/7/00-7/10/00...................
12,012 12,009
Ford Motor Credit 6.42%, 7/31/00...
8,020
General Motors Acceptance Corp.,
VRN 6.37%-7.25%, 8,018
7/31/00-9/1/00...................
40,039
Household Finance Corp., VRN 40,026
6.89%-6.97%, 8/21/00-9/21/00.....
10,000
----------
SBC Communications, VRN 6.68%,
8/15/00..........................
10,000
----------
116,324
116,342
----------
----------
FIXED RATE NOTES--5.1%
1,702
American Express Credit Company 1,700
6.50%, 8/1/00....................
2,999
Associates Corporation of North
America 6.25%-6.37%, 2,999
8/15/00-9/15/00..................
14,231
Associates First Capital 14,239
Corporation 6.35%, 9/15/00.......
4,788
British Petroleum Amoco, PLC 9.37%, 4,743
11/1/00..........................
11,178
CIT Group Holdings 5.85%-7.50%, 11,179
11/15/00-2/5/01..................
7,184
Daimler Chrysler AG 5.87%-6.63%, 7,202
8/15/00-2/7/01...................
1,122
Ford Motor Credit Company 6.25%, 1,122
11/8/00..........................
4,018
Household Finance Corporation 4,006
7.10%, 9/5/00....................
6,589
IBM Corporation 5.12%-5.76%, 6,596
7/10/00-2/12/01..................
998
National Rural Utility Cooperative
Finance Corporation 6.21%, 998
12/1/00..........................
5,020
SBC Communications 6.50%, 5,020
8/15/00..........................
----------
----------
59,804
59,829
----------
----------
DEMAND NOTE--0.1%
1,039
----------
Associates Corporation of North
America, VRN 6.01%, 7/3/00.......
1,039
----------
240,477
240,541
----------
----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER--78.9%
MANUFACTURING--18.9%
$ 38,460 Daimler Chrysler Finance
Corporation, NA 6.33%-6.62%,
7/31/00-9/20/00.................. $ 38,174
10,000 Ford Motor Credit Company 6.56%,
8/24/00.......................... 9,902
60,428 General Electric Capital Services
of Puerto Rico, Inc. 6.11%-6.71%,
7/11/00-9/12/00.................. 59,849
43,029 General Electric Capital Services
Corporation 6.17%-6.68%,
7/7/00-10/12/00.................. 42,636
42,437 General Motors Acceptance
Corporation 6.12%-6.60%,
7/11/00-8/23/00.................. 42,269
3,000 John Deere Capital Corporation
6.56%, 7/26/00................... 2,986
23,825
----------
Paccar Financial Corporation
6.25%-6.60%, 7/28/00-9/21/00.....
23,615
----------
219,431
221,179
----------
----------
INSURANCE--17.3%
33,993
American General Corporation 33,556
6.53%-6.68%, 8/28/00-10/5/00.....
34,839
American General Finance
Corporation 6.15%-6.68%, 34,638
7/24/00-9/5/00...................
30,000
Aon Corporation 6.62%-6.65%, 29,775
7/5/00-8/30/00...................
31,000
Marsh USA, Inc. 6.10%-6.62%, 30,821
7/20/00-11/14/00.................
24,074
Metlife Funding 6.61%-6.63%, 23,883
8/10/00-8/14/00..................
34,909
Prudential Funding Corporation 34,578
6.13%-6.71%, 7/7/00-9/13/00......
14,000
----------
USAA Capital Corporation 6.58%,
8/9/00-8/15/00...................
13,896
----------
201,147
202,815
----------
----------
FINANCE--9.3%
1,400
American Express Credit Corporation 1,374
6.62%, 10/12/00..................
21,141
Associates Corporation of North
America 6.33%-6.56%, 21,033
7/12/00-8/23/00..................
43,737
Associates First Capital
Corporation 6.36%-6.59%, 43,299
7/26/00-9/28/00..................
27,577
CIT Group Holdings 6.15%-6.65%, 27,343
7/14/00-10/25/00.................
15,635
----------
Household Finance Corporation
6.15%-6.65%, 8/3/00-8/4/00.......
15,544
----------
108,593
109,490
----------
----------
ELECTRONIC/TECHNOLOGY--7.6%
53,209
Motorola Credit, Inc. 6.13%-6.60%, 52,517
7/17/00-11/16/00.................
36,453
----------
Xerox Corporation 6.17%-6.64%,
7/14/00-8/11/00..................
36,277
----------
88,794
89,662
----------
----------
</TABLE>
See accompanying Notes to Financial Statements.
38 Semi-Annual Report June 30, 2000
<PAGE> 40
...............................................................................
READY RESERVES FUND
...............................................................................
PORTFOLIO OF INVESTMENTS, JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER--(CONTINUED)
ENERGY--4.9%
$ 47,500 Chevron U.K. Investment, plc
6.16%-6.66%, 7/21/00-10/6/00..... $ 47,014
10,000 Halliburton Company 6.67%,
8/30/00.......................... 9,889
---------- ----------
57,500 56,903
---------- ----------
UTILITIES--TELEPHONE--4.4%
18,764 AT&T Corporation 6.61%, 8/1/00..... 18,657
32,991
----------
SBC Communications 6.12%-6.76%,
7/6/00-10/4/00...................
32,763
----------
51,420
51,755
----------
----------
BROKERAGE--4.2%
49,140
----------
Merrill Lynch, Inc. 6.17%-6.65%,
7/11/00-9/18/00..................
48,818
----------
UTILITIES--ENERGY & GAS--4.2%
48,755
----------
National Rural Utilities
Cooperative Finance Corporation
5.95%-6.58%, 7/5/00-8/10/00......
48,632
----------
CHEMICAL/FOREST--3.4%
39,214
----------
E. I. Dupont de Nemours
6.48%-6.54%, 8/17/00.............
38,879
----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------- ----------
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------------------------- ----------
<C> <S> <C>
COMMERCIAL PAPER--(CONTINUED)
DRUGS/HEALTH--2.9%
$ 34,430
----------
Schering-Plough Corporation
5.98%-6.19%, 7/25/00-9/6/00......
$ 34,218
----------
FOOD/BEVERAGE/TOBACCO--1.8%
5,000
Anheuser-Busch Companies 6.59%, 4,887
11/2/00..........................
16,500
----------
Brown-Forman Corporation
6.50%-6.63% 8/2/00-8/16/00.......
16,387
----------
21,274
21,500
----------
----------
925,440 918,109
TOTAL COMMERCIAL PAPER.............
----------
----------
$1,165,981 1,158,586
TOTAL INVESTMENTS--99.5%...........
==========
CASH AND OTHER ASSETS, LESS 5,678
LIABILITIES--0.5%................
----------
$1,164,264
NET ASSETS--100.0%.................
==========
PORTFOLIO WEIGHTED AVERAGE 47 Days
MATURITY.........................
</TABLE>
---------------
VRN = Variable Rate Note
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 39
<PAGE> 41
...............................................................................
STATEMENTS OF ASSETS AND LIABILITIES
...............................................................................
JUNE 30, 2000 (all dollar amounts in thousands except share data) (unaudited)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
-------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at cost........... $473,544 $1,421 $12,571 $27,697 $292,373
-------- ------ ------- ------- --------
Investments in securities, at market value... $708,424 $1,510 $12,699 $27,556 $352,141
Cash......................................... 26 18 28 36 --
Foreign currency, at value................... -- -- -- -- 1,772
Receivable for fund shares sold.............. 213 -- 1 519 2,046
Receivable for investment securities sold.... 5,938 -- 147 1,698 --
Receivable for Adviser....................... -- 68 67 69 --
Dividend and interest receivable............. 733 1 7 3 333
Prepaid insurance............................ 22 -- -- -- 5
Deferred organization costs.................. -- -- -- -- --
-------- ------ ------- ------- --------
Total assets........................... 715,356 1,597 12,949 29,881 356,297
LIABILITIES
Payable for investment securities
purchased.................................. -- -- -- 794 5,081
Payable for fund shares redeemed............. 710 -- 4 13 1,525
Management fee payable....................... 446 5 33 127 337
Distribution and shareholder services fee
payable.................................... (14) -- -- 1 8
Dividend payable............................. -- -- -- -- --
Other accrued expenses....................... 31 12 16 13 225
-------- ------ ------- ------- --------
Total liabilities...................... 1,173 17 53 948 7,176
-------- ------ ------- ------- --------
Net Assets.......................... $714,183 $1,580 $12,896 $28,933 $349,121
======== ====== ======= ======= ========
CAPITAL
Composition of Net Assets
Par value of shares of beneficial
interest................................. $ 7,249 $ 1 $ 1 $ 1 $ 14
Capital paid in excess of par value........ 304,509 1,533 12,659 26,039 224,099
Accumulated net investment income (loss)... (935) (3) (10) (110) 250
Accumulated realized gain (loss)........... 168,480 (40) 118 3,144 66,472
Net unrealized appreciation (depreciation)
of investments and foreign currencies.... 234,880 89 128 (141) 58,286
-------- ------ ------- ------- --------
Net Assets.......................... $714,183 $1,580 $12,896 $28,933 $349,121
======== ====== ======= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
40 Semi-Annual Report June 30, 2000
<PAGE> 42
...............................................................................
STATEMENTS OF ASSETS AND LIABILITIES
...............................................................................
JUNE 30, 2000 (all dollar amounts in thousands except share data) (unaudited)
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND FUND FUND FUND
-------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at cost........... $6,226 $4,293 $51,536 $166,426 $1,158,586
------ ------ ------- -------- ----------
Investments in securities, at market value... $6,692 $4,388 $61,619 $162,502 $1,158,586
Cash......................................... -- 28 22 62 40
Foreign currency, at value................... 17 -- -- -- --
Receivable for fund shares sold.............. 1 2 12 126 15,931
Receivable for investment securities sold.... -- -- -- -- --
Receivable from Adviser...................... 93 92 61 -- --
Dividend and interest receivable............. 2 3 60 1,883 2,890
Prepaid insurance............................ -- -- -- 4 79
Deferred organization costs.................. 19 -- 13 -- --
------ ------ ------- -------- ----------
Total assets........................... 6,824 4,513 61,787 164,577 1,177,526
LIABILITIES
Payable for investment securities
purchased.................................. 121 162 456 -- 1,138
Payable for fund shares redeemed............. 10 -- 78 57 10,887
Management fee payable....................... 104 12 55 66 206
Distribution and shareholder services fee
payable.................................... -- -- 1 1 345
Dividend payable............................. -- -- -- -- 357
Other accrued expenses....................... 52 19 22 2 329
------ ------ ------- -------- ----------
Total liabilities...................... 287 193 612 126 13,262
------ ------ ------- -------- ----------
Net Assets.......................... $6,537 $4,320 $61,175 $164,451 $1,164,264
====== ====== ======= ======== ==========
CAPITAL
Composition of Net Assets
Par value of shares of beneficial
interest................................. $ 1 $ 1 $ 4 $ 16 $ 1,165
Capital paid in excess of par value........ 5,320 4,346 48,148 176,209 1,163,203
Accumulated net investment income (loss)... (10) (1) 127 765 79
Accumulated realized gain (loss)........... 766 (121) 2,813 (8,615) (183)
Net unrealized appreciation (depreciation)
of investment and foreign currencies..... 460 95 10,083 (3,924) --
------ ------ ------- -------- ----------
Net Assets.......................... $6,537 $4,320 $61,175 $164,451 $1,164,264
====== ====== ======= ======== ==========
</TABLE>
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 41
<PAGE> 43
...............................................................................
STATEMENTS OF ASSETS AND LIABILITIES
...............................................................................
JUNE 30, 2000 (all dollar amounts in thousands except share data) (unaudited)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares
Net Assets................................. $ 1,118 $ 10 $ 40 $ 216 $ 629
=========== ======== ========== =========== ===========
Shares Outstanding......................... 52,800 942 3,964 14,458 25,662
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 21.18 $ 10.37 $ 10.12 $ 14.92 $ 24.51
=========== ======== ========== =========== ===========
Maximum Public Offering Price.............. $ 22.47 $ 11.00 $ 10.74 $ 15.83 $ 26.00
=========== ======== ========== =========== ===========
Class B Shares
Net Assets................................. $ 143 $ 10 $ 10 $ 15 $ 169
=========== ======== ========== =========== ===========
Shares Outstanding......................... 6,776 1,000 1,000 1,000 6,924
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 21.07 $ 10.33 $ 10.08 $ 14.86 $ 24.38
=========== ======== ========== =========== ===========
Class C Shares
Net Assets................................. $ 326 $ 14 $ 16 $ 1,225 $ 553
=========== ======== ========== =========== ===========
Shares Outstanding......................... 15,516 1,343 1,561 82,422 22,673
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 21.03 $ 10.33 $ 10.08 $ 14.87 $ 24.38
=========== ======== ========== =========== ===========
Class I Shares
Net Assets................................. $ 575,880 $ 1,368 $ 12,769 $ 27,218 $ 257,979
=========== ======== ========== =========== ===========
Shares Outstanding......................... 27,159,924 131,678 1,259,753 1,822,208 10,505,684
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 21.20 $ 10.39 $ 10.14 $ 14.94 $ 24.56
=========== ======== ========== =========== ===========
Class N Shares
Net Assets................................. $ 136,716 $ 178 $ 61 $ 259 $ 89,791
=========== ======== ========== =========== ===========
Shares Outstanding......................... 6,455,598 17,146 5,985 17,372 3,660,163
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 21.18 $ 10.37 $ 10.12 $ 14.92 $ 24.53
=========== ======== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND FUND FUND FUND
----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares
Net Assets................................. $ 68 $ 220 $ 47 $ 196
=========== ======== ========== ===========
Shares Outstanding......................... 5,386 21,714 3,043 19,560
=========== ======== ========== ===========
Net Asset Value Per Share.................. $ 12.69 $ 10.13 $ 15.34 $ 10.03
=========== ======== ========== ===========
Maximum Public Offering Price.............. $ 13.46 $ 10.75 $ 16.28 $ 10.23
=========== ======== ========== ===========
Class B Shares
Net Assets................................. $ 1 $ 10 $ 188 $ 65
=========== ======== ========== ===========
Shares Outstanding......................... 106 1,000 12,338 6,508
=========== ======== ========== ===========
Net Asset Value Per Share.................. $ 12.63 $ 10.10 $ 15.28 $ 10.01
=========== ======== ========== ===========
Class C Shares
Net Assets................................. $ 68 $ 12 $ 46 $ 1
=========== ======== ========== ===========
Shares Outstanding......................... 5,409 1,155 2,998 118
=========== ======== ========== ===========
Net Asset Value Per Share.................. $ 12.63 $ 10.10 $ 15.28 $ 9.98
=========== ======== ========== ===========
Class I Shares
Net Assets................................. $ 6,302 $ 3,838 $ 55,801 $ 153,229
=========== ======== ========== ===========
Shares Outstanding......................... 496,145 378,214 3,653,758 15,386,333
=========== ======== ========== ===========
Net Asset Value Per Share.................. $ 12.70 $ 10.15 $ 15.27 $ 9.96
=========== ======== ========== ===========
Class N Shares
Net Assets................................. $ 98 $ 240 $ 5,093 $ 10,960 $ 1,164,264
=========== ======== ========== =========== ===========
Shares Outstanding......................... 7,679 23,734 333,608 1,100,860 1,164,367
=========== ======== ========== =========== ===========
Net Asset Value Per Share.................. $ 12.70 $ 10.14 $ 15.27 $ 9.96 $ 1.00
=========== ======== ========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
42 Semi-Annual Report June 30, 2000
<PAGE> 44
...............................................................................
STATEMENTS OF OPERATIONS
...............................................................................
FOR THE PERIOD ENDED JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
--------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................... $ 919 $ 2 $ 16 $ 43 $ 378
Dividends.................................. 1,525 2 21 6 2,021
Less foreign tax withheld.................. (1) -- -- -- (241)
--------- ------- ------- ------- -------------
Total Income............................... 2,443 4 37 49 2,158
EXPENSES
Investment advisory fees................... 2,760 5 34 126 1,771
Distribution fees.......................... 213 -- -- 3 71
Shareholder services fees.................. 2 -- -- 1 2
Custodian fees............................. 91 25 25 25 270
Transfer agent fees........................ 77 22 22 23 34
Professional fees.......................... 94 3 4 8 44
Registration fees.......................... 29 18 27 39 27
Organization costs......................... -- -- -- -- --
Other expenses............................. 112 2 2 3 33
--------- ------- ------- ------- -------------
Total expenses before waiver............. 3,378 75 114 228 2,252
Less expenses waived and absorbed by
the Company......................... -- (68) (67) (69) --
--------- ------- ------- ------- -------------
Net investment income (loss)............. (935) (3) (10) (110) (94)
Net realized and unrealized gain (loss) on
investments, futures, foreign currency
transactions and other assets and
liabilities
Net realized gain (loss) on
investments............................ 168,426 (40) 118 3,144 65,936
Net realized gain (loss) on foreign
currency transactions and other assets
and liabilities........................ -- -- -- -- (23)
--------- ------- ------- ------- -------------
Total net realized gain (loss)........... 168,426 (40) 118 3,144 65,913
Change in net unrealized appreciation
(depreciation) on investments and other
assets and liabilities..................... (137,356) 71 112 (258) (59,011)
--------- ------- ------- ------- -------------
Net increase (decrease) in net assets
resulting from operations.................. $ 30,135 $ 28 $ 220 $ 2,776 $ 6,808
========= ======= ======= ======= =============
</TABLE>
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 43
<PAGE> 45
...............................................................................
STATEMENTS OF OPERATIONS
...............................................................................
FOR THE PERIOD ENDED JUNE 30, 2000 (all amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE READY
GROWTH CAP DISCOVERY INCOME RESERVES
FUND FUND FUND FUND FUND
-------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................... $ 9 $ 2 $ 80 $ 5,982 $35,056
Dividends.................................. 43 12 404 -- --
Less foreign tax withheld.................. (3) -- -- -- --
------- ----- ------ ------- -------
Total Income............................. 49 14 484 5,982 35,056
EXPENSES
Investment advisory fees................... 46 11 309 490 1,352
Distribution fees.......................... -- -- 5 9 1,972
Shareholder services fees.................. -- -- -- -- --
Custodian fees............................. 56 38 32 34 108
Transfer agent fees........................ 17 22 27 34 227
Professional fees.......................... 1 6 7 24 129
Registration fees.......................... 23 28 22 28 22
Organization costs......................... 4 -- 4 -- --
Other expenses............................. 5 2 33 6 105
------- ----- ------ ------- -------
Total expenses before waiver............. 152 107 439 625 3,915
Less expenses waived and absorbed by
the Company......................... (93) (92) (61) -- --
------- ----- ------ ------- -------
Net investment income (loss)............. (10) (1) 106 5,357 31,141
Net realized and unrealized gain (loss) on
investments, futures, foreign currency
transactions and other assets and
liabilities
Net realized gain (loss) on
investments............................ 762 (121) 3,053 (2,745) (22)
Net realized (gain) loss on foreign
currency transactions and other assets
and liabilities........................ (1) -- -- -- --
------- ----- ------ ------- -------
Total net realized gain (loss)............. 761 (121) 3,053 (2,745) (22)
Change in net unrealized appreciation
(depreciation) on investments and other
assets and liabilities..................... (1,352) 77 2,957 3,021 --
------- ----- ------ ------- -------
Net increase (decrease) in net assets
resulting from operations.................. $ (601) $ (45) $6,116 $ 5,633 $31,119
======= ===== ====== ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
44 Semi-Annual Report June 30, 2000
<PAGE> 46
...............................................................................
STATEMENTS OF CHANGES IN NET ASSETS
...............................................................................
FOR THE PERIOD ENDED JUNE 30, 2000 AND THE YEAR ENDED DECEMBER 31, 1999 (all
amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND(A) FUND(A) FUND(A) FUND
-----------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)................ $ (935) $ (838) $ (3) -- $ (10) -- $ (110) -- $ (94) $ (806)
Net realized gain (loss)
on investments,
futures, foreign
currency transactions
and other assets and
liabilities........... 168,426 55,266 (40) -- 118 -- 3,144 -- 65,913 57,719
Change in net unrealized
appreciation
(depreciation) on
investments, foreign
currency transactions
and other assets and
liabilities........... (137,356) 60,757 71 18 112 16 (258) 117 (59,011) 90,067
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
Net increase (decrease)
in net assets
resulting from
operations............ 30,135 115,185 28 18 220 16 2,776 117 6,808 146,980
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income... -- -- -- -- -- -- -- -- -- --
Net realized gain....... -- (55,329) -- -- -- -- -- -- -- (48,415)
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
-- (55,329) -- -- -- -- -- -- -- (48,415)
CAPITAL STOCK TRANSACTIONS
Net proceeds from sale
of shares............. 88,662 294,188 534 1,000 13,423 1,137 27,372 6,229 252,927 386,956
Shares issued in
reinvestment of income
dividends and capital
gain distributions.... -- 51,574 -- -- -- -- -- -- (61) 45,344
Other capital
contributions......... 7,175 -- -- -- -- -- -- -- -- --
Less cost of shares
redeemed.............. (230,232) (329,231) -- -- (1,900) -- (7,561) -- (212,642) (368,522)
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
Net increase
(decrease) in net
assets from capital
share
transactions........ (134,395) 16,531 534 1,000 11,523 1,137 19,811 6,229 40,224 63,778
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
Increase (decrease) in
net assets.......... (104,260) 76,387 562 1,018 11,743 1,153 22,587 6,346 47,032 162,343
Net assets
Beginning of period..... 818,443 742,056 1,018 -- 1,153 -- 6,346 -- 302,089 139,746
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
End of period........... $ 714,183 $ 818,443 $1,580 $1,018 $12,896 $1,153 $28,933 $6,346 $ 349,121 $ 302,089
========= ========= ====== ====== ======= ====== ======= ====== ========= =========
Undistributed net
investment income (loss)
at the end of the
period.................. $ (935) -- $ (3) -- $ (10) -- $ (110) -- $ 250 $ 344
========= ========= ====== ====== ======= ====== ======= ====== ========= =========
CAPITAL STOCK TRANSACTIONS
Shares sold............. 4,439 16,028 52 100 1,352 114 1,904 623 10,382 20,256
Shares issued in
reinvestment of income
dividends and capital
gain distributions.... -- 2,609 -- -- -- -- -- -- (3) 1,958
Less shares redeemed.... (11,475) (19,205) -- -- (194) -- (590) -- (8,728) (19,201)
--------- --------- ------ ------ ------- ------ ------- ------ --------- ---------
Change from capital stock
transactions............ (7,036) (568) 52 100 1,158 114 1,314 623 1,651 3,013
========= ========= ====== ====== ======= ====== ======= ====== ========= =========
</TABLE>
---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
See accompanying Notes to Financial Statements.
June 30, 2000 William Blair Funds 45
<PAGE> 47
...............................................................................
STATEMENTS OF CHANGES IN NET ASSETS
...............................................................................
FOR THE PERIOD ENDED JUNE 30, 2000 AND THE YEAR ENDED DECEMBER 31, 1999 (all
amounts in thousands) (unaudited)
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE VALUE
GROWTH CAP DISCOVERY INCOME
FUND FUND(A) FUND FUND
-----------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss).... $ (10) $ (30) $ (1) -- $ 106 $ 356 $ 5,357 $ 11,133
Net realized gain (loss) on
investments, futures, foreign
currency transactions and
other assets and
liabilities................... 761 1,168 (121) -- 3,053 (166) (2,745) (1,502)
Change in net unrealized
appreciation (depreciation) on
investments, foreign currency
transactions and other assets
and liabilities............... (1,352) 1,690 77 18 2,957 2,564 3,021 (9,127)
------- ------- ------ ------ ------- ------- -------- --------
Net increase (decrease) in net
assets resulting from
operations.................... (601) 2,828 (45) 18 6,116 2,754 5,633 504
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........... -- -- -- -- -- (344) (4,842) (10,995)
Net realized gain............... -- (18) -- -- -- -- -- --
------- ------- ------ ------ ------- ------- -------- --------
-- (18) -- -- -- (344) (4,842) (10,955)
CAPITAL STOCK TRANSACTIONS
Shares sold..................... 1,529 841 2,940 1,500 11,424 10,567 26,994 51,529
Shares issued in reinvestment of
income dividends and capital
gain distributions............ -- 16 -- -- -- 330 3,553 8,044
Other capital transactions...... -- -- -- -- -- -- -- --
Less cost of shares redeemed.... (419) (1,393) (93) -- (4,788) (9,559) (40,262) (63,488)
------- ------- ------ ------ ------- ------- -------- --------
Net increase (decrease) in net
assets from capital stock
transactions.................. 1,110 (536) 2,847 1,500 6,636 1,338 (9,715) (4,185)
------- ------- ------ ------ ------- ------- -------- --------
Increase (decrease) in net
assets........................ 509 2,274 2,802 1,518 12,752 3,748 (8,924) (14,676)
Net assets
Beginning of period............. 6,028 3,754 1,518 -- 48,423 44,675 173,375 188,051
------- ------- ------ ------ ------- ------- -------- --------
End of period................... $ 6,537 $ 6,028 $4,320 $1,518 $61,175 $48,423 $164,451 $173,375
======= ======= ====== ====== ======= ======= ======== ========
Undistributed net investment
income (loss) at the end of the
period.......................... $ (10) $ -- $ (1) $ -- $ 127 $ 21 $ 765 $ 250
======= ======= ====== ====== ======= ======= ======== ========
CAPITAL STOCK TRANSACTIONS
Shares sold..................... 105 83 285 150 793 829 2,731 5,057
Shares issued in reinvestment of
income dividends and capital
gain distributions............ -- 1 -- -- -- 25 360 792
Less shares redeemed............ (32) (134) (9) -- (336) (751) (4,073) (6,275)
------- ------- ------ ------ ------- ------- -------- --------
Change from capital stock
transactions.................... 73 (50) 276 150 457 103 (982) (426)
======= ======= ====== ====== ======= ======= ======== ========
<CAPTION>
READY
RESERVES
FUND
-------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATIONS
Net investment income (loss).... $ 31,141 $ 50,112
Net realized gain (loss) on
investments, futures, foreign
currency transactions and
other assets and
liabilities................... (22) (52)
Change in net unrealized
appreciation (depreciation) on
investments, foreign currency
transactions and other assets
and liabilities............... -- --
----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................... 31,119 50,060
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........... (31,119) (50,060)
Net realized gain............... -- --
----------- -----------
(31,119) (50,060)
CAPITAL STOCK TRANSACTIONS
Shares sold..................... 2,718,834 3,961,669
Shares issued in reinvestment of
income dividends and capital
gain distributions............ 30,596 48,807
Other capital transactions...... -- --
Less cost of shares redeemed.... (2,637,969) (4,146,724)
----------- -----------
Net increase (decrease) in net
assets from capital stock
transactions.................. 111,461 (136,248)
----------- -----------
Increase (decrease) in net
assets........................ 111,461 (136,248)
Net assets
Beginning of period............. 1,052,803 1,189,051
----------- -----------
End of period................... $ 1,164,264 $ 1,052,803
=========== ===========
Undistributed net investment
income (loss) at the end of the
period.......................... $ 79 $ 57
=========== ===========
CAPITAL STOCK TRANSACTIONS
Shares sold..................... 2,718,834 3,961,669
Shares issued in reinvestment of
income dividends and capital
gain distributions............ 30,596 48,807
Less shares redeemed............ (2,637,969) (4,146,724)
----------- -----------
Change from capital stock
transactions.................... 111,461 (136,248)
=========== ===========
</TABLE>
---------------
(a) For the period from December 27, 1999 (Commencement of Operations) to
December 31, 1999
See accompanying Notes to Financial Statements.
46 Semi-Annual Report June 30, 2000
<PAGE> 48
...............................................................................
NOTES TO FINANCIAL STATEMENTS (unaudited)
...............................................................................
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Fund
William Blair Funds (the "Funds") is an open-end diversified mutual fund
currently consisting of ten portfolios (each the "Fund"), each with its own
investment objectives and policies.
The Growth Fund is a portfolio whose principal objective is to seek long-term
capital appreciation by investing in the common stocks of large, medium and
small domestic companies in varying proportions.
The Tax-Managed Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing in a diversified portfolio of common
stocks of domestic growth companies. The Fund employs a number of techniques to
enhance the long-term, after-tax returns for its shareholders.
The Large Cap Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing primarily in a diversified portfolio
of common stocks issued by large domestic companies.
The Small Cap Growth Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing primarily in a diversified portfolio
of common stocks of small emerging, rapid growth domestic companies that are of
a high quality and that have had especially vigorous growth in revenues and
earnings.
The International Growth Fund is a portfolio whose principal objective is to
seek long-term capital appreciation by investing primarily in common stocks
issued by companies of all sizes domiciled outside the United States and
securities convertible into, exchangeable for, or having the right to buy, such
common stocks.
The Emerging Markets Growth Fund is a portfolio whose principal objective is to
seek long-term capital appreciation by investing in well-managed quality growth
companies in emerging markets.
The Disciplined Large Cap Fund is a portfolio whose principal objective is to
seek long-term capital appreciation by investing primarily in a diversified
portfolio of large capitalization domestic companies. The Fund's portfolio
investments are primarily chosen from 90 to 140 of the Standard & Poor's 500
Stock companies.
The Value Discovery Fund is a portfolio whose principal objective is to seek
long-term capital appreciation by investing with a value discipline primarily in
the equity securities of small companies.
The Income Fund is a portfolio whose principal objective is to seek a high level
of current income relative to stability of principal by investing primarily in a
diversified portfolio of intermediate-term income-producing securities.
The Ready Reserves Fund is a portfolio whose principal objective is to seek
current income, a stable share price and daily liquidity by investing primarily
in short-term U.S. dollar denominated domestic money market instruments.
(b) Share Classes
Effective September 30, 1999, the William Blair Funds offer five classes of
shares. Prior to September 30, 1999, the William Blair Funds only offered what
is now known as Class N shares. The Class A shares are sold to investors subject
to an initial sales charge. Class B shares are sold without an initial sales
charge but are subject to higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares seven years after issuance (three
years for the Income Fund). Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses than class A shares and a
contingent deferred sales charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert into another class. Class I
shares are sold to a limited group of investors, are not subject to an initial
or contingent deferred sales charge and generally have lower ongoing expenses
than the other classes. Class N shares are sold only to investors who acquire
the shares directly through the Fund's distributor or a select number of
financial intermediaries, without an initial sales charge but are subject to
higher ongoing expenses than Class A shares. Differences in class expenses will
result in the payment of different per share income dividends by class. All
shares of the Fund have equal rights with respect to voting, dividends and
assets, subject to class specific preferences. Expenses are allocated pro rata
on the basis of the net assets of each class of shares, except to the extent
that an expense is unique to a specific class.
June 30, 2000 William Blair Funds 47
<PAGE> 49
(c) Investment Securities
Equity securities traded on a national securities exchange or market are valued
at the last sale price or, in the absence of a sale on the date of valuation, at
the latest bid price. The value of foreign securities are determined based upon
the last sale price on the foreign exchange or market on which it is primarily
traded or, if there has been no sale on the date of valuation, at the latest bid
price. Long-term fixed-income securities are valued based on market quotations
or independent services that use prices provided by market makers or by
estimates of market values obtained from yield data relating to instruments or
securities with similar characteristics. Other securities are valued at fair
value as determined in good faith by the Board of Trustees. Short-term
securities in all Funds except Ready Reserves Fund are valued at a cost that
approximates market value. Securities in the Ready Reserves Fund are valued
using the amortized cost method. Under this method, any premium or discount as
of the date an investment security is acquired is amortized on a straight line
basis to maturity.
Interest income is determined on the basis of the interest accrued, adjusted for
amortization of premium or discount. Dividend income is recorded on the
ex-dividend date, except that dividends from certain foreign securities are
recorded as soon as the information is available. Securities transactions are
recorded on the trade date. Realized gains and losses from securities
transactions are reported on an identified cost basis.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Variable rate bonds and floating rate notes earn interest at
a coupon rate that fluctuates at specific time intervals. The interest rates
shown in the Income Fund's and the Ready Reserves Fund's Portfolio of
Investments were the rates in effect on June 30, 2000.
(d) Share Valuation and Dividends to Shareholders
Shares are sold and redeemed on a continuous basis at net asset value (plus an
initial sales charge on most Class A shares). Proceeds payable on redemptions of
Class B and Class C shares will be reduced by the amount of any applicable
contingent deferred sales charge. The net asset value per share is determined
separately for each class by dividing the Fund's net assets attributable to that
class by the number of shares of the class outstanding as of the close of
trading on the New York Stock Exchange, which is generally 3:00 p.m. Chicago
time (4:00 p.m. Eastern time), on each day the Exchange is open. In addition,
the Ready Reserves Fund does not price its shares on the observance of Columbus
Day and Veterans Day. Dividends from net investment income, if any, of the
Growth Fund, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth
Fund, International Growth Fund, Emerging Markets Growth Fund, Disciplined Large
Cap Fund, and Value Discovery Fund are declared at least annually. Dividends
from the Income Fund and Ready Reserves Fund are declared monthly and daily,
respectively. Capital gain distributions, if any, are declared annually in
December. Dividends payable to shareholders are recorded on the ex-dividend
date. Dividends are determined in accordance with Federal income tax principles
which may treat certain transactions differently from generally accepted
accounting principles.
(e) Repurchase Agreements
The Fund may enter into repurchase agreements with its custodian, whereby the
Fund acquires ownership of a debt security and the custodian agrees, at the time
of the sale, to repurchase the debt security from the Fund at a mutually agreed
upon time and price. The Fund's policy is to take possession of the debt
security as collateral under the repurchase agreements. The Fund minimizes
credit risk by monitoring credit exposure to the custodian and by monitoring the
collateral value on a daily basis.
(f) Foreign Currency Translation and Foreign Currency Contracts
Assets and liabilities of the International Growth Fund and the Emerging Markets
Growth Fund denominated in foreign currencies are translated into U.S. dollar
amounts at the current exchange rate on the date of valuation. The International
Growth Fund and the Emerging Markets Growth Fund may enter into foreign currency
forward contracts as a means of managing the risks associated with changes in
the exchange rates for the purchase or sale of a specific amount of a particular
foreign currency. Additionally, the Funds may enter into contracts to hedge the
value, in U.S. dollars, of securities it currently owns. Foreign currency
forward contracts and foreign currencies are valued at the forward and current
exchange rates, respectively, prevailing on the date of valuation. Gains and
losses from foreign currency transactions associated with purchases and sales of
investments and foreign currency forward contracts are included with the net
realized and unrealized gain or loss on investments.
52 Semi-Annual Report June 30, 2000
<PAGE> 50
(g) Income Taxes
Each Fund intends to comply with the special provisions of the Internal Revenue
Code available to regulated investment companies and, therefore, no provision
for Federal income taxes has been made in the accompanying financial statements
since each Fund intends to distribute their taxable income to their shareholders
and be relieved of all Federal income taxes. At December 31, 1999, the Value
Discovery Fund, Income Fund and Ready Reserves Fund had capital loss
carryforwards (in thousands) of $233, $5,616, and $161, respectively. These loss
carryforwards, which will expire in 2007 (2006 for the Income Fund), can be used
to offset net realized capital gains.
The International Growth Fund has elected to mark-to-market its investment in
Passive Foreign Investment Companies ("PFICs") for Federal income tax purposes.
In accordance with this election, the Fund recognized net unrealized
appreciation (in thousands) of $1,227 in 1999, all of which has been
reclassified from unrealized gain on investments to undistributed net investment
income. In addition, the Fund recorded net realized losses of $176 on sales of
PFICs during 1999, of which $74 had been recognized as income in prior years.
(h) Organization Costs
The initial organization costs of the Emerging Markets Growth Fund and the Value
Discovery Fund have been paid by William Blair & Company L.L.C. (the "Company").
The Funds will reimburse the Company for the amount of such expenses. The
deferred organization costs are being amortized on the straight-line method and
repaid to the Company over a five year period.
(i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates.
(2) INVESTMENT ADVISORY, TRANSACTIONS WITH AFFILIATES AND TRUSTEES' FEES
(a) Management Agreement
The Company provides investment advisory and other administrative and accounting
services to the Fund under terms of the Management Agreement. Each Fund pays the
Company a monthly fee determined as a specified percentage of average daily net
assets. A summary of the annual rates expressed as a percentage of average daily
net assets of each Fund, are as follows:
<TABLE>
<S> <C>
Growth Fund.............................................. 0.75%
Tax-Managed Growth Fund.................................. 0.80%
Large Cap Growth Fund.................................... 0.80%
Small Cap Growth Fund.................................... 1.10%
International Growth Fund................................ 1.10% of the first $250 million
1.00% in excess of $250 million
Emerging Markets Growth Fund............................. 1.40%
Disciplined Large Cap Fund............................... 0.80%
Value Discovery Fund..................................... 1.15%
Income Fund.............................................. 5.00% of gross income plus
0.25% of the first $250 million
0.20% in excess of $250 million
Ready Reserves Fund...................................... 0.275% of the first $250 million
0.250% of the next $250 million
0.225% of the next $2 billion
0.200% in excess of $2.5 billion
</TABLE>
Effective January 1, 2000 the investment advisory fee that the Ready Reserves
Fund receives was reduced by .35% and a .35% distribution fee was implemented.
June 30, 2000 William Blair Funds 53
<PAGE> 51
For the period ended June 30, 2000, the Company was entitled to and voluntarily
waived investment advisory fees as indicated below (in thousands):
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT
ADVISORY FEE ADVISORY FEE
FUND NAME ENTITLED WAIVED
--------- ------------ ------------
<S> <C> <C>
Growth Fund................................................. $2,760 $ --
Tax-Managed Growth Fund..................................... 5 5
Large Cap Growth Fund....................................... 34 34
Small Cap Growth Fund....................................... 126 126
International Growth Fund................................... 1,771 --
Emerging Markets Growth Fund................................ 46 46
Disciplined Large Cap Fund.................................. 11 11
Value Discovery Fund........................................ 309 --
Income Fund................................................. 490 --
Ready Reserves Fund......................................... 1,352 --
------ ----
$6,904 $222
</TABLE>
The Company has voluntarily agreed to waive the Tax-Managed Growth Fund's and
the Large Cap Growth Fund's investment advisory fee and to absorb other
operating expenses through April 30, 2001, if total expenses exceed 1.11% of
average daily net assets for the Fund's Class I shares. For the Fund's Class A,
B, C and N shares, the expenses will be capped at 1.11% plus any
distribution/shareholder services fees.
The Company has voluntarily agreed to waive the Small Cap Growth Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2001, if total expenses exceed 1.35% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.35% plus any distribution/shareholder services fees.
The Company has voluntarily agreed to waive the Emerging Markets Growth Fund's
investment advisory fee and to absorb other operating expenses if total expenses
exceed 1.81% of average daily net assets through April 30, 2001 for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.81% plus any distribution/shareholder services fees.
The Company has voluntarily agreed to waive the Disciplined Large Cap Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2001, if total expenses exceed 1.00% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
capped at 1.00% plus any distribution/shareholder services fees.
The Company has voluntarily agreed to waive the Value Discovery Fund's
investment advisory fee and to absorb other operating expenses through April 30,
2001, if total expenses exceed 1.39% of average daily net assets for the Fund's
Class I shares. For the Fund's Class A, B, C and N shares, the expenses will be
will be capped at 1.39% plus any distribution/shareholder services fees.
Subsequent to April 30, 2001 overall operating expenses for Tax-Managed Growth
Fund, Large Cap Growth Fund, Small Cap Growth Fund and Disciplined Large Cap
Fund will not fall below the applicable percentage limitation until the Company
has been fully reimbursed for fees foregone and expenses paid under the expense
limitation agreement, as each Fund will reimburse the Company for a period of
five years in subsequent years if operating expenses (before reimbursement) are
less than the applicable percentage limitation.
(b) Underwriting, Distribution Services and Shareholder Services Agreement
The Fund has an underwriting and distribution services agreement with the
Company. For services under the distribution services agreement, the Funds pay
the Company a fee of .75% of average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for the Class B and Class C shares.
Effective January 1, 2000, for services under the distribution services
agreement, the Funds pay the Company a fee of .25% of average daily net assets
of the Class N shares (.15% of average daily net assets for Income Fund, and
.35% of average daily net assets for Ready Reserves Fund) pursuant to a separate
Rule 12b-1 plans for the Class N shares. Pursuant to the agreement, the Company
enters into related selling group agreements with various firms at various rates
for sales of Class B, Class C and Class N shares. In addition, the Company
receives any contingent deferred sales charges (CDSC) from redemptions of Class
B and Class C shares.
50 Semi-Annual Report June 30, 2000
<PAGE> 52
The Fund has a shareholder servicing agreement with the Company. For providing
information and shareholder services to Class A, Class B and Class C
shareholders, the Funds pay the Company a fee at an annual rate of up to .25% of
average daily net assets of each class. The Company in turn has various
agreements with financial services firms that provide these services and pays
these firms based on assets of fund accounts the firms service.
Distribution and shareholder service fees paid by the Funds to the Company for
the period ended June 30, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER
FUND NAME DISTRIBUTION FEES SERVICE FEES
--------- ----------------- ------------
<S> <C> <C>
Growth Fund............................................... $ 213 $ 2
Tax-Managed Growth Fund................................... -- --
Large Cap Growth Fund..................................... -- --
Small Cap Growth Fund..................................... 3 1
International Growth Fund................................. 71 2
Emerging Markets Growth Fund.............................. -- --
Disciplined Large Cap Fund................................ -- --
Value Discovery Fund...................................... 5 --
Income Fund............................................... 9 --
Ready Reserves Fund....................................... 1,972 --
------ ---
$2,273 $ 5
</TABLE>
In addition, the Company collects sales charges imposed on sales of each Fund's
Class A shares and reallows a portion of such charges to dealers through which
sales are made. There is also a contingent deferred sales charge ("CDSC") on
Class B and Class C shares, which applies if redemption occurs within 6 years of
purchase on Class B shares (2 years of purchase for the Income Fund) and 1 year
of purchase on Class C shares. Class A share purchases equal to or exceeding $1
million in aggregate, which did not incur an initial sales charge, are subject
to a 1.00% CDSC if redeemed within one year of purchase. There was no CDSC
retained by the Company for the period ended June 30, 2000. The Class A Shares
sales charges retained by the Company are as follows (in thousands):
<TABLE>
<CAPTION>
CLASS A SHARES
FUND NAME SALES CHARGES
--------- --------------
<S> <C>
Growth Fund................................................. $--
Tax-Managed Growth Fund..................................... --
Large Cap Growth Fund....................................... --
Small Cap Growth Fund....................................... 1
International Growth Fund................................... 1
Emerging Markets Growth Fund................................ --
Disciplined Large Cap Fund.................................. --
Value Discovery Fund........................................ --
Income Fund................................................. --
---
$ 2
</TABLE>
(c) Trustees.
The Funds paid fees of $102,000 to non-affiliated trustees of the Fund for the
period ended June 30, 2000.
June 30, 2000 William Blair Funds 51
<PAGE> 53
(3) INVESTMENT TRANSACTIONS
Investment transactions, excluding money market instruments, for the period
ended June 30, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
TAX- LARGE SMALL
MANAGED CAP CAP INTERNATIONAL
GROWTH GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
-------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Purchases................................................... $288,710 $573 $14,284 $75,004 $204,297
Proceeds from Sales and maturities.......................... 434,256 272 3,552 53,817 191,063
Gross unrealized appreciation/depreciation at June 30, 2000
was as follows:
Unrealized appreciation................................... $275,369 $161 $ 1,117 $ 3,630 $ 75,334
Unrealized depreciation................................... 40,489 72 989 3,771 15,566
-------- ---- ------- ------- --------
Net unrealized appreciation/depreciation.................... $234,880 $ 89 $ 128 $ (141) $ 59,768
</TABLE>
<TABLE>
<CAPTION>
EMERGING DISCIPLINED
MARKETS LARGE CAP VALUE
GROWTH GROWTH DISCOVERY INCOME
FUND FUND FUND FUND
-------- ----------- --------- -------
<S> <C> <C> <C> <C>
Purchases................................................... $5,838 $3,502 $20,068 $55,815
Proceeds from Sales and maturities.......................... 4,989 670 15,974 71,594
Gross unrealized appreciation/depreciation at June 30, 2000
was as follows:
Unrealized appreciation................................... $1,168 $ 364 $12,491 $ 657
Unrealized depreciation................................... 702 269 2,408 4,581
------ ------ ------- -------
Net unrealized appreciation/depreciation.................... $ 466 $ 95 $10,083 $(3,924)
</TABLE>
(4) FOREIGN CURRENCY FORWARD CONTRACTS
To protect itself against a decline in the value of foreign currency against the
U.S. dollar, the International Growth Fund and the Emerging Markets Growth Fund
enter into foreign currency forward contracts with its custodian and others. The
Funds bear the market risk that arises from changes in foreign currency rates
and bear the credit risk if the counterparty fails to perform under the
contract. The net realized and unrealized gains and losses associated with
forward contracts are reflected in the accompanying financial statements.
(5) FUTURES CONTRACTS
During 2000 the Small Cap Growth Fund purchased exchange-traded index futures
contracts, which are contracts that obligate the Fund to make or take delivery
of the cash value of a securities index at a specified future date at a
specified price. The Fund entered such contracts to hedge a portion of its
portfolio. Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin). Subsequent payments
(variation margin) are made or received by the Fund, generally on a daily basis.
The variation margin payments are equal to the daily changes in the contract
value and are recorded as unrealized gains or losses. The Fund recognizes a
realized gain or loss when the contract is closed or expires. The statement of
operations reflects the net realized gains and losses on these contracts. There
were no outstanding contracts at June 30, 2000.
52 Semi-Annual Report June 30, 2000
<PAGE> 54
(6) CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
TAX-MANAGED LARGE CAP SMALL CAP INTERNATIONAL
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
------------------- --------------- ---------------- ---------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
Class A................... 32 $ 624 -- $ -- -- $ -- 11 $ 127 21 $ 519
Class B................... 2 49 -- -- -- -- -- -- 3 79
Class C................... 13 258 -- 3 1 16 83 1,079 19 480
Class I................... 1,245 25,030 36 364 1,345 13,349 1,780 25,758 1,317 32,137
Class N................... 3,147 62,701 16 167 6 58 30 408 9,022 219,712
Shares issued in
reinvestment of income
dividends and capital gain
distributions
Class A................... -- -- -- -- -- -- -- -- -- --
Class B................... -- -- -- -- -- -- -- -- -- --
Class C................... -- -- -- -- -- -- -- -- -- --
Class I................... -- -- -- -- -- -- -- -- (3) (61)
Class N................... -- -- -- -- -- -- -- -- -- --
Shares redeemed
Class A................... 3 56 -- -- 1 9 1 14 -- 1
Class B................... -- -- -- -- -- -- -- -- -- 9
Class C................... 1 21 -- -- 1 9 1 17 2 36
Class I................... 3,830 77,169 -- -- 191 1,872 574 7,317 1,745 41,754
Class N................... 7,641 152,986 -- -- 1 10 14 213 6,981 170,842
Other capital
transactions............ -- 7,175 -- -- -- -- -- -- -- --
------- --------- -- ---- ----- ------- ----- ------- ------ --------
Net increase (decrease)
from capital share
transactions.............. (7,036) $(134,395) 52 $534 1,158 $11,523 1,314 $19,811 1,651 $ 40,224
======= ========= == ==== ===== ======= ===== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
EMERGING
MARKETS DISCIPLINED VALUE DISCOVERY INCOME READY
GROWTH FUND LARGE CAP FUND FUND FUND RESERVES FUND
--------------- --------------- --------------- ---------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
Class A................... 5 $ 79 15 $ 152 1 $ 21 17 $ 174 -- $ --
Class B................... -- -- -- -- 12 181 5 50 -- --
Class C................... 4 55 -- 1 2 21 -- -- -- --
Class I................... 88 1,295 247 2,556 596 8,538 1,361 13,472 -- --
Class N................... 8 100 23 231 182 2,663 1,348 13,298 2,718,834 2,718,834
Shares issued in
reinvestment of income
dividends and capital gain
distributions
Class A................... -- -- -- -- -- -- -- 4 -- --
Class B................... -- -- -- -- -- -- -- 1 -- --
Class C................... -- -- -- -- -- -- -- -- -- --
Class I................... -- -- -- -- -- -- 330 3,249 -- --
Class N................... -- -- -- -- -- -- 30 299 30,596 30,596
Shares redeemed
Class A................... -- -- -- -- -- -- -- -- -- --
Class B................... -- -- -- -- -- -- -- -- -- --
Class C................... -- -- -- -- -- -- -- -- -- --
Class I................... 32 419 9 93 286 4,077 2,232 22,052 -- --
Class N................... -- -- -- -- 50 711 1,841 18,210 2,637,969 2,637,969
Other capital
transactions............ -- -- -- -- -- -- -- -- -- --
-- ------ --- ------ --- ------ ----- ------- --------- ----------
Net increase (decrease)
from capital share
transactions.............. 73 $1,110 276 $2,847 457 $6,636 (982) $(9,715) 111,461 $ 111,461
== ====== === ====== === ====== ===== ======= ========= ==========
</TABLE>
June 30, 2000 William Blair Funds 53
<PAGE> 55
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
GROWTH FUND
<TABLE>
<CAPTION>
CLASS N
---------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $20.10 $17.97 $15.35 $13.48 $11.90 $ 9.60
Income from investment operations:
Net investment income (loss).............................. (0.06) (0.01) -- (0.02) (0.01) 0.03
Net realized and unrealized gain (loss) on investments.... 1.14 3.58 4.12 2.69 2.14 2.75
------ ------ ------ ------ ------ ------
Total from investment operations............................ 1.08 3.57 4.12 2.67 2.13 2.78
Less distributions from:
Net investment income..................................... -- -- -- -- 0.01 0.03
Net realized gain......................................... -- 1.44 1.50 0.80 0.54 0.45
------ ------ ------ ------ ------ ------
Total distributions......................................... -- 1.44 1.50 0.80 0.55 0.48
------ ------ ------ ------ ------ ------
Net asset value, end of period.............................. $21.18 $20.10 $17.97 $15.35 $13.48 $11.90
====== ====== ====== ====== ====== ======
Total return (%)............................................ 5.37 19.98 27.15 20.07 17.99 29.07
Ratios to average daily net assets (%):
Expenses (a).............................................. 1.11 0.86 0.84 0.84 0.79 0.65
Net investment income (loss) (a).......................... (0.46) (0.11) (0.02) (0.16) (0.08) 0.34
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(C) 6/30/2000 12/31/1999(C)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $20.09 $17.48 $20.07 $19.15 $20.06 $19.15
Income from investment operations:
Net investment income (loss)...... (0.03) -- (0.10) (0.02) (0.08) (0.03)
Net realized and unrealized gain
(loss) on investments........... 1.12 4.05 1.10 2.38 1.05 2.38
------ ------ ------ ------ ------ ------
Total from investment operations... 1.09 4.05 1.00 2.36 0.97 2.35
Less distributions from:
Net investment income............. -- -- -- -- -- --
Net realized gain................. -- 1.44 -- 1.44 -- 1.44
------ ------ ------ ------ ------ ------
Total distributions................ -- 1.44 -- 1.44 -- 1.44
------ ------ ------ ------ ------ ------
Net asset value, end of period..... $21.18 $20.09 $21.07 $20.07 $21.03 $20.06
====== ====== ====== ====== ====== ======
Total return (%)................... 5.43 23.29 4.98 12.43 4.84 12.38
Ratios to average daily net assets
(%):
Expenses (a)...................... 1.11 1.31 1.86 2.03 1.86 2.01
Net investment loss (a)........... (0.41) (0.23) (1.16) (1.00) (1.12) (1.06)
<CAPTION>
CLASS I
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999(D)
--------- -------------
<S> <C> <C>
Net asset value, beginning of
period............................ $20.10 $17.98
Income from investment operations:
Net investment income (loss)...... (0.02) (0.01)
Net realized and unrealized gain
(loss) on investments........... 1.12 3.57
------ ------
Total from investment operations... 1.10 3.56
Less distributions from:
Net investment income............. -- --
Net realized gain................. -- 1.44
------ ------
Total distributions................ -- 1.44
------ ------
Net asset value, end of period..... $21.20 $20.10
====== ======
Total return (%)................... 5.47 19.91
Ratios to average daily net assets
(%):
Expenses (a)...................... 0.86 0.86
Net investment loss (a)........... (0.19) (0.11)
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ----------------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $714,183 $818,443 $742,056 $591,353 $501,774 $363,036
Portfolio turnover rate (%) (a)........................... 79 52 37 34 43 32
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period October 19, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
54 Semi-Annual Report June 30, 2000
<PAGE> 56
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
TAX-MANAGED GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.18 $10.00 $10.18 $10.00 $10.18 10.00
Income from investment operations:
Net investment income (loss).......... (0.04) -- (0.08) -- (0.07) --
Net realized and unrealized gain
(loss) on investments............... 0.23 0.18 0.23 0.18 0.22 0.18
------ ------ ------ ------ ------ ------
Total from investment operations........ 0.19 0.18 0.15 0.18 0.15 0.18
Less distributions from:
Net investment income................. -- -- -- -- -- --
Net realized gain..................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions..................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $10.37 $10.18 $10.33 $10.18 $10.33 $10.18
====== ====== ====== ====== ====== ======
Total return (%)........................ 1.87 1.80 1.47 1.80 1.47 1.80
Ratios to average daily net assets (%):
Expenses (a)(c)....................... 1.36 1.36 2.11 2.11 2.11 2.11
Net investment income (loss) (a)(c)... (0.76) 0.73 (1.52) (0.01) (1.50) (0.01)
</TABLE>
<TABLE>
<CAPTION>
CLASS I CLASS N
------------------------- -------------------------
PERIOD ENDED PERIOD ENDED
------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.18 $10.00 $10.18 $10.00
Income from investment operations:
Net investment income (loss).............................. (0.02) -- (0.01) --
Net realized and unrealized gain (loss)
on investments.......................................... 0.23 0.18 0.20 0.18
------ ------ ------ ------
Total from investment operations............................ 0.21 0.18 0.19 0.18
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized gain......................................... -- -- -- --
------ ------ ------ ------
Total distributions......................................... -- -- -- --
------ ------ ------ ------
Net asset value, end of period.............................. $10.39 $10.18 $10.37 $10.18
====== ====== ====== ======
Total return (%)............................................ 2.06 1.80 1.87 1.80
Ratios to average daily net assets (%):
Expenses (a) (c).......................................... 1.11 1.11 1.36 1.36
Net investment income (loss) (a) (c)...................... (0.49) .99 (0.34) 0.75
</TABLE>
<TABLE>
<CAPTION>
----------------------
PERIOD ENDED
----------------------
6/30/2000 12/31/1999
--------- ----------
<S> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $1,580 $1,018
Portfolio turnover rate(%)(a)............................. 46 --
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
11.72%, 12.47%, 12.47%, 11.47% and 11.72% for Classes A, B, C, I and N,
respectively. The net investment loss ratio would have been (11.12)%,
(11.88)%, (11.86)%, (10.85)% and (10.70)% for Classes A, B, C, I and N,
respectively.
June 30, 2000 William Blair Funds 55
<PAGE> 57
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $10.14 $10.00 $10.14 $10.00 $10.14 $10.00
Income from investment operations:
Net investment income (loss)........... (0.04) -- (0.07) -- (0.09) --
Net realized and unrealized gain (loss)
on investments....................... 0.02 0.14 0.01 0.14 0.03 0.14
------ ------ ------ ------ ------ ------
Total from investment operations......... (0.02) 0.14 (0.06) 0.14 (0.06) 0.14
Less distributions from:
Net investment income.................. -- -- -- -- -- --
Net realized gain...................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions...................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period........... $10.12 $10.14 $10.08 $10.14 $10.08 $10.14
====== ====== ====== ====== ====== ======
Total return (%)......................... (0.20) 1.40 (0.59) 1.40 (0.59) 1.40
Ratios to average daily net assets (%):
Expenses(a)(c)......................... 1.36 1.36 2.11 2.11 2.11 2.11
Net investment income (loss)(a)(c)..... (0.70) (0.48) (1.44) (1.41) (1.40) (1.41)
</TABLE>
<TABLE>
<CAPTION>
CLASS I CLASS N
------------------------- -------------------------
PERIOD ENDED PERIOD ENDED
------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.14 $10.00 $10.14 $10.00
Income from investment operations:
Net investment income (loss).............................. (0.01) -- (0.02) --
Net realized and unrealized gain (loss)
on investments.......................................... 0.01 0.14 -- 0.14
------ ------ ------ ------
Total from investment operations............................ -- 0.14 (0.02) 0.14
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized gain......................................... -- -- -- --
------ ------ ------ ------
Total distributions......................................... -- -- -- --
------ ------ ------ ------
Net asset value, end of period.............................. $10.14 $10.14 $10.12 $10.14
====== ====== ====== ======
Total return (%)............................................ -- 1.40 (0.20) 1.40
Ratios to average daily net assets (%):
Expenses(a)(c)............................................ 1.11 1.11 1.36 1.36
Net investment income (loss)(a)(c)........................ (0.28) (0.40) (0.50) (0.66)
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------
6/30/2000 12/31/1999
--------- ----------
<S> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $12,896 $1,153
Portfolio turnover rate (%)(a)............................ 94 --
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
2.97%, 3.72%, 3.72%, 2.72% and 2.97% for Classes A, B, C, I and N,
respectively. The net investment loss would have been (2.31)%, (3.05)%,
(3.01)%, (1.89)% and (2.11)% for Classes A, B, C, I and N, respectively.
56 Semi-Annual Report June 30, 2000
<PAGE> 58
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 10.19 $ 10.00 $ 10.19 $ 10.00 $ 10.19 $ 10.00
Income from investment operations:
Net investment income (loss)..... (0.07) -- (0.13) -- (0.09) --
Net realized and unrealized gain
(loss) on investments.......... 4.80 0.19 4.80 0.19 4.77 0.19
------- --------- ------- --------- ------- ---------
Total from investment operations... 4.73 0.19 4.67 0.19 4.68 0.19
Less distributions from:
Net investment income............ -- -- -- -- -- --
Net realized gain................ -- -- -- -- -- --
------- --------- ------- --------- ------- ---------
Total distributions................ -- -- -- -- -- --
------- --------- ------- --------- ------- ---------
Net asset value, end of period..... $ 14.92 $ 10.19 $ 14.86 $ 10.19 $ 14.87 $ 10.19
======= ========= ======= ========= ======= =========
Total return (%)................... 46.42 1.90 45.83 1.90 45.93 1.90
Ratios to average daily net assets
(%):
Expenses(a)(c)................... 1.60 1.60 2.35 2.35 2.35 2.35
Net investment income
(loss)(a)(c)................... (1.19) (1.60) (1.98) (2.35) (1.90) (2.35)
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------
CLASS I CLASS N
------------------------- -------------------------
PERIOD ENDED PERIOD ENDED
------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.19 $ 10.00 $ 10.19 $ 10.00
Income from investment operations:
Net investment income (loss).............................. (0.06) -- (0.03) --
Net realized and unrealized gain (loss)
on investments.......................................... 4.81 0.19 4.76 0.19
------- --------- ------- ---------
Total from investment operations............................ 4.75 0.19 4.73 0.19
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized gain......................................... -- -- -- --
------- --------- ------- ---------
Total distributions......................................... -- -- -- --
------- --------- ------- ---------
Net asset value, end of period.............................. $ 14.94 $ 10.19 $ 14.92 $ 10.19
======= ========= ======= =========
Total return (%)............................................ 46.61 1.90 46.42 1.90
Ratios to average daily net assets (%):
Expenses(a)(c)............................................ 1.35 1.35 1.60 1.60
Net investment income (loss)(a)(c)........................ (0.92) (1.35) (1.12) (1.60)
</TABLE>
<TABLE>
<CAPTION>
----------------------
PERIOD ENDED
----------------------
6/30/2000 12/31/1999
--------- ----------
<S> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $28,933 $6,346
Portfolio turnover rate (%)(a)............................ 525 --
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
2.20%, 2.95%, 2.95%, 1.95% and 2.20% for Classes A, B, C, I and N,
respectively. The net investment loss would have been (1.80)%, (2.58)%,
(2.50)%, (1.52)% and (1.72)% for Classes A, B, C, I and N, respectively.
June 30, 2000 William Blair Funds 57
<PAGE> 59
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS N
-----------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ----------------------------------------------------------
-----------------------------------------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $24.03 $14.62 $13.14 $13.95 $13.12 $12.36
Income from investment operations:
Net investment income (loss).................... (0.01) (0.04) 0.08 0.07 0.03 0.10
Net realized and unrealized gain (loss) on
investments................................... 0.51 13.94 1.43 1.06 1.30 0.79
------ ------ ------ ------ ------ ------
Total from investment operations.................. 0.50 13.90 1.51 1.13 1.33 0.89
Less distributions from:
Net investment income........................... -- -- 0.03 0.08 0.07 0.13
Net realized gain............................... -- 4.49 -- 1.86 0.43 --
------ ------ ------ ------ ------ ------
Total distributions............................... -- 4.49 0.03 1.94 0.50 0.13
------ ------ ------ ------ ------ ------
Net asset value, end of period.................... $24.53 $24.03 $14.62 $13.14 $13.95 $13.12
====== ====== ====== ====== ====== ======
Total return (%).................................. 2.04 96.25 11.46 8.39 10.20 7.22
Ratios to average daily net assets (%):
Expenses(a)..................................... 1.61 1.35 1.36 1.43 1.44 1.48
Net investment income (loss)(a)................. (0.18) (0.43) 0.09 0.01 0.19 0.87
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- PERIOD ENDED
----------------------------------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(C) 6/30/2000 12/31/1999(C)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $24.01 $20.61 $23.98 $21.33 $23.98 $21.33
Income from investment
operations:
Net investment income
(loss)..................... (0.01) (0.03) (0.11) (0.04) (0.08) (0.04)
Net realized and unrealized
gain (loss) on
investments................ 0.51 7.92 0.51 7.18 0.48 7.18
------ ------ ------ ------ ------ ------
Total from investment
operations................... 0.50 7.89 0.40 7.14 0.40 7.14
Less distributions from:
Net investment income........ -- -- -- -- -- --
Net realized gain............ -- 4.49 -- 4.49 -- 4.49
------ ------ ------ ------ ------ ------
Total distributions............ -- 4.49 -- 4.49 -- 4.49
------ ------ ------ ------ ------ ------
Net asset value, end of
period....................... $24.51 $24.01 $24.38 $23.98 $24.38 $23.98
====== ====== ====== ====== ====== ======
Total return (%)............... 2.00 39.12 1.63 34.28 1.63 34.28
Ratios to average daily net
assets (%):
Expenses(a).................. 1.61 1.60 2.36 2.35 2.36 2.35
Net investment income
(loss)(a).................. (0.14) (1.25) (0.99) (1.93) (0.86) (1.93)
<CAPTION>
CLASS I
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999(D)
--------- -------------
<S> <C> <C>
Net asset value, beginning of
period....................... $24.03 $20.25
Income from investment
operations:
Net investment income
(loss)..................... -- (0.04)
Net realized and unrealized
gain (loss) on
investments................ 0.53 8.31
------ ------
Total from investment
operations................... 0.53 8.27
Less distributions from:
Net investment income........ -- --
Net realized gain............ -- 4.49
------ ------
Total distributions............ -- 4.49
------ ------
Net asset value, end of
period....................... $24.56 $24.03
====== ======
Total return (%)............... 2.12 41.71
Ratios to average daily net
assets (%):
Expenses(a).................. 1.36 1.35
Net investment income
(loss)(a).................. (0.31) (0.43)
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ -------------------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)............ $349,121 $302,089 $139,746 $128,747 $105,148 $89,762
Portfolio turnover rate (%)(a)........................ 124 122 98 102 89 77
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period October 21, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
58 Semi-Annual Report June 30, 2000
<PAGE> 60
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
EMERGING MARKETS GROWTH FUND
<TABLE>
<CAPTION>
CLASS N
----------------------------------
PERIOD ENDED PERIOD ENDED
------------ -------------------
6/30/2000 1999 1998(A)(B)
--------- ---- ----------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $13.64 $ 7.63 $ 10.00
Income from investment operations:
Net investment income (loss).............................. (0.02) (1.12) --
Net realized and unrealized gain (loss) on investments
foreign currency and other assets and liabilities....... (0.92) 7.17 (2.37)
------ ------ -------
Total from investment operations............................ (0.94) 6.05 (2.37)
Less distributions from:
Net investment income..................................... -- -- --
Net realized gain......................................... -- 0.04 --
------ ------ -------
Total distributions......................................... -- 0.04 --
------ ------ -------
Net asset value, end of period.............................. $12.70 $13.64 $ 7.63
====== ====== =======
Total return (%)............................................ (6.89) 79.31 (23.70)
Ratios to average daily net assets (%):
Expenses(a)(c)............................................ 2.06 2.06 2.25
Net investment income (loss)(a)(c)........................ (0.79) (0.63) 0.04
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(D) 6/30/2000 12/31/1999(D) 6/30/2000 12/31/1999(D)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $13.62 $10.85 $13.61 $10.85 $13.62 $10.85
Income from investment
operations:
Net investment income
(loss)..................... (0.02) 0.03 (0.09) 0.02 (0.09) (0.01)
Net realized and unrealized
gain (loss) on
investments................ (0.91) 2.78 (0.89) 2.78 (0.90) 2.82
------ ------ ------ ------ ------ ------
Total from investment
operations................... (0.93) 2.81 (0.98) 2.80 (0.99) 2.81
Less distributions from:
Net investment income........ -- -- -- -- -- --
Net realized gain............ -- 0.04 -- 0.04 -- 0.04
------ ------ ------ ------ ------ ------
Total distributions............ -- 0.04 -- 0.04 -- 0.04
------ ------ ------ ------ ------ ------
Net asset value, end of
period....................... $12.69 $13.62 $12.63 $13.61 $12.63 $13.62
====== ====== ====== ====== ====== ======
Total return (%)............... (6.83) 25.91 (7.20) 25.82 (7.20) 25.91
Ratios to average daily net
assets (%):
Expenses(a)(c)............... 2.06 2.00 2.81 2.75 2.81 2.75
Net investment income
(loss)(a)(c)............... (0.51) (0.52) (1.36) (0.21) (1.27) (1.53)
<CAPTION>
CLASS I
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999(E)
--------- -------------
<S> <C> <C>
Net asset value, beginning of
period....................... $13.63 $10.30
Income from investment
operations:
Net investment income
(loss)..................... (0.02) (0.07)
Net realized and unrealized
gain (loss) on
investments................ (0.91) 3.44
------ ------
Total from investment
operations................... (0.93) 3.37
Less distributions from:
Net investment income........ -- --
Net realized gain............ -- 0.04
------ ------
Total distributions............ -- 0.04
------ ------
Net asset value, end of
period....................... $12.70 $13.63
====== ======
Total return (%)............... (6.75) 32.73
Ratios to average daily net
assets (%):
Expenses(a)(c)............... 1.81 2.06
Net investment income
(loss)(a)(c)............... (0.33) (0.63)
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
PERIOD ENDED DECEMBER 31, 1999
------------ ------------------
6/30/2000 1999 1998
--------- ---- ----
<S> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $6,537 $6,028 $3,754
Portfolio turnover rate (%)(a)............................ 160 201 226
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period May 1, 1998 (Commencement of Operations) to December 31,
1998.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
4.80%, 4.80%, 5.55%, 5.55% and 4.55% for Classes N, A, B, C and I,
respectively. The net investment loss ratio would have been (3.53)%,
(3.25)%, (4.10)%, (4.01)% and (3.07)% for Classes N, A, B, C and I,
respectively.
Without the waiver of expenses in 1999, the expense ratio would have been
4.53%, 4.46%, 5.21%, 5.21% and 4.53% for Classes N, A, B, C and I,
respectively. The net investment loss ratio would have been (1.83)%,
(3.03)%, (3.78)%, (3.78)% and (1.83)% for Classes N, A, B, C and I,
respectively.
Without the waiver of expenses in 1998, the expense ratio would have been
6.35% and the net investment loss ratio would have been 4.06%.
(d) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(e) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
June 30, 2000 William Blair Funds 59
<PAGE> 61
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
DISCIPLINED LARGE CAP FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $10.12 $10.00 $10.12 $10.00 $10.12 $10.00
Income from investment operations:
Net investment income (loss)........... (0.01) -- (0.05) -- (0.05) --
Net realized and unrealized gain (loss)
on investments....................... 0.02 0.12 0.03 0.12 0.03 0.12
------ ------ ------ ------ ------ ------
Total from investment operations......... 0.01 0.12 (0.02) 0.12 (0.02) 0.12
Less distributions from:
Net investment income.................. -- -- -- -- -- --
Net realized gain...................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions...................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period........... $10.13 $10.12 $10.10 $10.12 $10.10 $10.12
====== ====== ====== ====== ====== ======
Total return (%)......................... 0.10 1.20 (0.20) 1.20 (0.20) 1.20
Ratios to average daily net assets (%):
Expenses(a)(c)......................... 1.25 1.25 2.00 2.00 2.00 2.00
Net investment income (loss)(a)(c)..... (0.28) (0.27) (1.04) (0.96) (1.05) (0.96)
</TABLE>
<TABLE>
<CAPTION>
CLASS I CLASS N
------------------------- -------------------------
PERIOD ENDED PERIOD ENDED
------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(B)
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.12 $10.00 $10.12 $10.00
Income from investment operations:
Net investment income (loss).............................. -- -- (0.01) --
Net realized and unrealized gain (loss) on investments.... 0.03 0.12 0.03 0.12
------ ------ ------ ------
Total from investment operations............................ 0.03 0.12 0.02 0.12
Less distributions from:
Net investment income..................................... -- -- -- --
Net realized gain......................................... -- -- -- --
------ ------ ------ ------
Total distributions......................................... -- -- -- --
------ ------ ------ ------
Net asset value, end of period.............................. $10.15 $10.12 $10.14 $10.12
====== ====== ====== ======
Total return (%)............................................ 0.30 1.20 0.20 1.20
Ratios to average daily net assets (%):
Expenses(a)(c)............................................ 1.00 1.00 1.25 1.25
Net investment income (loss)(a)(c)........................ (0.04) 0.04 (1.06) (0.21)
</TABLE>
<TABLE>
<CAPTION>
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999
--------- ----------
<S> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $4,320 $1,518
Portfolio turnover rate (%)(a)............................ 48 0.5
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period December 27, 1999 (Commencement of Operations) to December
31, 1999.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
7.64%, 8.39%, 8.39%, 7.39% and 7.64% for Classes A, B, C, I and N,
respectively. The net investment loss ratio would have been (6.67)%,
(7.44)%, (7.44)%, (6.43)% and (7.46)% for Classes A, B, C, I and N,
respectively.
60 Semi-Annual Report June 30, 2000
<PAGE> 62
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
VALUE DISCOVERY FUND
<TABLE>
<CAPTION>
CLASS N
---------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ----------------------------------------
06/30/2000 1999 1998 1997 1996(B)
---------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $13.66 $12.96 $12.97 $10.00 $10.00
Income from investment operations:
Net investment income (loss)............................ 0.06 0.10 0.09 0.03 --
Net realized and unrealized gain (loss) on
investments........................................... 1.55 0.69 (0.01) 3.31 --
------ ------ ------ ------ ------
Total from investment operations.......................... 1.61 0.79 0.08 3.33 --
Less distributions from:
Net investment income................................... -- 0.09 0.09 0.02 --
Net realized gain....................................... -- -- -- 0.34 --
------ ------ ------ ------ ------
Total distributions....................................... -- 0.09 0.09 0.36 --
------ ------ ------ ------ ------
Net asset value, end of period............................ $15.27 $13.66 $12.96 $12.97 $10.00
====== ====== ====== ====== ======
Total return (%).......................................... 11.79 6.10 0.66 33.46 --
Ratios to average daily net assets (%):
Expenses(a)(c).......................................... 1.64 1.35 1.52 1.50 --
Net investment income (loss)(a)(c)...................... 0.14 0.78 0.76 0.29 --
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(D) 6/30/2000 12/31/1999(D) 6/30/2000 12/31/1999(E)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $13.72 $12.60 $13.72 $12.60 $13.72 $12.67
Income from investment
operations:
Net investment income
(loss).................... 0.01 0.02 (0.01) 0.02 (0.03) 0.02
Net realized and unrealized
gain (loss) on
investments............... 1.61 1.12 1.57 1.11 1.59 1.04
------ ------ ------ ------ ------ ------
Total from investment
operations.................. 1.62 1.14 1.56 1.13 1.56 1.06
Less distributions from:
Net investment income....... -- 0.02 -- 0.01 -- 0.01
Net realized gain........... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions........... -- 0.02 -- 0.01 -- 0.01
------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $15.34 $13.72 $15.28 $13.72 $15.28 $13.72
====== ====== ====== ====== ====== ======
Total return (%).............. 11.81 9.01 11.37 8.95 11.37 8.37
Ratios to average daily net
assets (%):
Expenses(a)(c).............. 1.64 1.64 2.39 2.39 2.39 2.39
Net investment income
(loss)(a)(c).............. 0.18 1.28 (0.38) 0.31 (0.54) 1.53
<CAPTION>
CLASS I
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999(F)
--------- -------------
<S> <C> <C>
Net asset value, beginning of
period...................... $13.64 $12.36
Income from investment
operations:
Net investment income
(loss).................... 0.03 0.10
Net realized and unrealized
gain (loss) on
investments............... 1.60 1.28
------ ------
Total from investment
operations.................. 1.63 1.38
Less distributions from:
Net investment income....... -- 0.10
Net realized gain........... -- --
------ ------
Total distributions........... -- 0.10
------ ------
Net asset value, end of
period...................... $15.27 $13.64
====== ======
Total return (%).............. 11.95 11.18
Ratios to average daily net
assets (%):
Expenses(a)(c).............. 1.39 1.35
Net investment income
(loss)(a)(c).............. 0.41 0.78
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ----------------------------------------
06/30/2000 1999 1998 1997 1996
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)............... $61,175 $48,423 $44,675 $30,354 $2
Portfolio turnover rate (%)(a)........................... 62 65 78 49 --
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period December 23, 1996 (Commencement of Operations) to December
31, 1996.
(c) Without the waiver of expenses in 2000, the expense ratio would have been
1.87%, 1.87%, 2.62%, 2.62%, and 1.62% for Classes N, A, B, C, and I,
respectively. The net investment income (loss) ratio would have been (.09)%,
(.05)%, (.61)%, (.77)% and .18% for Classes N, A, B, C, and I, respectively.
Without the waiver of expenses in 1999, the expense ratio would have been
1.38%, 1.67%, 2.42%, 2.42% and 1.38% for Classes N, A, B, C and I,
respectively. The net investment income ratio would have been .75%, 1.25%,
.28%, 1.50% and .75% for Classes N, A, B, C and I, respectively.
Without the waiver of expenses in 1998, the expense ratio would have been
6.35% and the net investment loss ratio would have been 4.06%. 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%.
(d) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(e) For the period November 3, 1999 (Commencement of the Class) to December 31,
1999.
(f) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
June 30, 2000 William Blair Funds 61
<PAGE> 63
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
INCOME FUND
<TABLE>
<CAPTION>
CLASS N
---------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31,
------------ ------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.92 $10.49 $10.41 $10.27 $10.57 $ 9.85
Income from investment operations:
Net investment income (loss).............................. 0.39 0.62 0.64 0.66 0.62 0.65
Net realized and unrealized gain (loss) on investments.... (0.01) (0.59) 0.08 0.14 (0.31) 0.73
------ ------ ------ ------ ------ ------
Total from investment operations............................ 0.38 0.03 0.72 0.80 0.31 1.38
Less distributions from:
Net investment income..................................... 0.34 0.60 0.64 0.66 0.61 0.66
Net realized capital gain................................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions......................................... 0.34 0.60 0.64 0.66 0.61 0.66
------ ------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 9.96 $ 9.92 $10.49 $10.41 $10.27 $10.57
====== ====== ====== ====== ====== ======
Total return (%)............................................ 3.37 0.34 7.07 8.03 3.07 14.37
Ratios to average daily net assets (%):
Expenses(a)............................................... 0.89 0.70 0.71 0.71 0.70 0.68
Net investment income (loss)(a)........................... 6.28 6.03 6.81 6.40 5.97 6.24
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------------------- ------------------------- -------------------------
6/30/2000 12/31/1999(B) 6/30/2000 12/31/1999(C) 6/30/2000 12/31/1999(D)
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $9.94 $9.95 $9.94 $10.05 $9.93 $10.06
Income from investment operations:
Net investment income (loss).... 0.37 0.07 0.29 0.06 0.32 0.08
Net realized and unrealized gain
(loss) on investments......... 0.02 (0.01) 0.05 (0.11) 0.02 (0.13)
------ ------ ------ ------ ----- ------
Total from investment
operations...................... 0.39 0.06 0.34 (0.05) 0.34 (0.05)
Less distributions from:
Net investment income........... 0.30 0.07 0.27 0.06 0.29 0.08
Net realized gain............... -- -- -- -- -- --
------ ------ ------ ------ ----- ------
Total distributions............... 0.30 0.07 0.27 0.06 0.29 0.08
------ ------ ------ ------ ----- ------
Net asset value, end of period.... $10.03 $9.94 $10.01 $9.94 $9.98 $9.93
====== ====== ====== ====== ===== ======
Total return (%).................. 3.42 0.63 3.01 (0.51) 2.92 (0.53)
Ratios to average daily net assets
(%):
Expenses (a).................... 0.99 0.99 1.74 1.77 1.74 1.71
Net investment income (loss)
(a)........................... 6.26 5.78 5.56 4.91 5.48 5.11
<CAPTION>
CLASS I
-------------------------
PERIOD ENDED
-------------------------
6/30/2000 12/31/1999(E)
--------- -------------
<S> <C> <C>
Net asset value, beginning of
period.......................... $9.91 $10.05
Income from investment operations:
Net investment income (loss).... 0.39 0.62
Net realized and unrealized gain
(loss) on investments......... -- (0.15)
----- ------
Total from investment
operations...................... 0.39 0.47
Less distributions from:
Net investment income........... 0.34 0.61
Net realized gain............... -- --
----- ------
Total distributions............... 0.34 0.61
----- ------
Net asset value, end of period.... $9.96 $9.91
===== ======
Total return (%).................. 3.48 0.30
Ratios to average daily net assets
(%):
Expenses (a).................... 0.74 0.70
Net investment income (loss)
(a)........................... 6.46 6.03
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED DECEMBER 31, 2000
------------ ----------------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Supplemental data for all classes:
Net assets at end of period (in thousands)................ $164,451 $173,375 $188,051 $160,055 $150,006 $147,370
Portfolio turnover rate (%)(a)............................ 72 66 96 83 66 54
</TABLE>
---------------
(a) Rates are annualized.
(b) For the period October 25, 1999 (Commencement of the Class) to December 31,
1999.
(c) For the period November 2, 1999 (Commencement of the Class) to December 31,
1999.
(d) For the period November 3, 1999 (Commencement of the Class) to December 31,
1999.
(e) For the period October 1, 1999 (Commencement of the Class) to December 31,
1999.
62 Semi-Annual Report June 30, 2000
<PAGE> 64
...............................................................................
FINANCIAL HIGHLIGHTS
...............................................................................
READY RESERVES FUND
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
PERIOD ENDED CLASS N FOR YEARS ENDED DECEMBER 31,
------------ --------------------------------------------------------
6/30/2000 1999 1998 1997 1996 1995
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (loss)................ 0.03 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- -------- -------- --------
Total from investment operations..... 0.03 0.05 0.05 0.05 0.05 0.05
Less distributions from:
Net investment income....................... 0.03 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- -------- -------- --------
Total distributions.................. 0.03 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ======== ======== ========
Total return (%)..................... 2.79 4.63 4.98 5.04 4.81 5.45
Ratios to average daily net assets (%):
Expenses(a)................................. 0.69 0.72 0.69 0.70 0.71 0.72
Net investment income (loss)(a)............. 5.52 4.52 4.87 4.92 4.78 5.30
Supplemental data:
Net assets at end of period (in
thousands)................................ $1,164,264 $1,052,803 $1,189,051 $904,569 $760,808 $703,993
</TABLE>
---------------
(a) Rates are annualized.
June 30, 2000 William Blair Funds 63
<PAGE> 65
...............................................................................
BOARD OF TRUSTEES
...............................................................................
CONRAD FISCHER, CHAIRMAN
Principal, William Blair & Company, L.L.C.
J. GRANT BEADLE
Retired Chairman and CEO, Union Special Corporation
THEODORE A. BOSLER
Retired Principal and Vice President, Lincoln Capital Management Company
JOHN P. KAYSER
Principal, William Blair & Company, L.L.C.
ANN P. MCDERMOTT
Director and Trustee
Profit and not-for-profit organizations
JOHN B. SCHWEMM
Retired Chairman and CEO, R.R. Donnelley & Sons Company
ROBERT E. WOOD II
Retired Executive Vice President, Morgan Stanley Dean Witter
--------------------------------------------------------------------------------
OFFICERS
--------------------------------------------------------------------------------
Rocky Barber, Chief Executive Officer
Marco Hanig, President
Michael P. Balkin, Senior Vice President
Mark A. Fuller, III, Senior Vice President
W. George Greig, Senior Vice President
John F. Jostrand, Senior Vice President
Stan Kirtman, Senior Vice President
Glen A. Kleczka, Senior Vice President
Gretchen S. Lash, Senior Vice President
Bentley M. Myer, Senior Vice President
Gregory J. Pusinelli, Senior Vice President
Michelle R. Seitz, Senior Vice President
Karl W. Brewer, Vice President
Michael A. Jancosek, Vice President
James S. Kaplan, Vice President
Terence M. Sullivan, Vice President and Treasurer
Jeffrey A. Urbina, Vice President
Colette M. Garavalia, Secretary
Janet V. Gassmann, Assistant Secretary
INVESTMENT ADVISER
William Blair & Company, L.L.C.
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 9104
Boston, MA02266-9104
For customer assistance, call 1-800-635-2886
(Massachusetts 1-800-635-2840)
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz
64 Date of First Use - August, 2000.
<PAGE> 66
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-------------------
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