WILLIAM BLAIR MUTUAL FUNDS INC, 485APOS, 1998-02-27

WILLIAM BLAIR MUTUAL FUNDS INC
485APOS, 1998-02-27

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<PAGE> 1

REGISTRATION NOS. 33-17463
811-5344

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON OR ABOUT FEBRUARY 27, 1998

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 17 [X]

AND/OR

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 18 [X]

WILLIAM BLAIR MUTUAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

222 WEST ADAMS STREET
CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 364-8000

Copy to:

ROCKY BARBER CHARLES F. CUSTER, ESQUIRE
222 WEST ADAMS STREET VEDDER, PRICE, KAUFMAN & KAMMHOLZ
CHICAGO, ILLINOIS 60606 222 NORTH LASALLE STREET
(NAME AND ADDRESS OF AGENT FOR SERVICE) CHICAGO, ILLINOIS 60601

It is proposed that this filing will become effective (check
appropriate box)

[ ] immediately upon filing pursuant to paragraph (b); or
[ ] on (date) pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on May 1, 1997 pursuant to paragraph (a)(1); or
[X] 75 days after filing pursuant to paragraph (a)(2); or
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

<PAGE> 2

WILLIAM BLAIR MUTUAL FUNDS, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NO. OF FORM N-1A CAPTION

PART A PROSPECTUS
- ------ ----------

<S> <C> <C>
1 Cover Page Cover page
2 Synopsis Fund Expenses
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Growth Fund; Value Discovery Fund; International Growth
Fund; Income Fund; Ready Reserves Fund
5 Management of the Fund Management of the Fund; Growth Fund; Value Discovery
Fund; International Growth Fund; Income Fund; Ready
Reserves Fund
5A Management's Discussion of Fund Inapplicable
Performance
6 Capital Stock and Other Securities Shareholder Services and Rights; Dividend and
Distribution Policy; Other Important Information; Taxes;
back cover
7 Purchase of Securities Being Offered How to Buy; How to Sell; Exchanges; Shareholder Services
and Rights; Determination of Net Asset Value
8 Redemption or Repurchase How to Sell; Exchanges; Shareholder Services and Rights;
Other Important Information
9 Pending Legal Proceedings Inapplicable
</TABLE>

<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
- ------ -----------------------------------
<S> <C> <C>
10 Cover Page Cover page
11 Table of Contents Table of Contents
12 General Information and History Inapplicable
13 Investment Objectives and Policies Investment Policies and Restrictions; Investment
Practices; Appendix A; Appendix B
14 Management of the Fund Management of the Fund
15 Control Persons and Principal Holders of Management of the Fund
Securities
16 Investment Advisory and Other Services Management of the Fund; General Fund Information
17 Brokerage Allocation and Other Practices Management of the Fund
18 Capital Stock and Other Securities Shareholder Rights
19 Purchase, Redemption and Pricing of General Fund Information
Securities Being Offered
20 Tax Status General Fund Information
21 Underwriters Management of the Fund
22 Calculation of Performance General Fund Information
23 Financial Statements Financial Information of the Fund

PART C OTHER INFORMATION
- ------ -----------------
</TABLE>

Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.

<PAGE> 3

Prospectus / May 1, 1998

WILLIAM BLAIR MUTUAL FUNDS, INC.

GROWTH FUND

VALUE DISCOVERY FUND

INTERNATIONAL GROWTH FUND

EMERGING MARKETS GROWTH FUND

INCOME FUND

READY RESERVES FUND

This prospectus contains important information about the individual portfolios,
including their investment objectives. For your benefit and protection, please
read it before you invest, and keep it for future reference.

An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Ready Reserves Fund will be
able to maintain a stable $1.00 share price.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

William Blair Mutual Funds, Inc.
222 West Adams Street
Chicago, Illinois 60606

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<S> <C>
OVERVIEW .................................................................1
FUND EXPENSES.............................................................2
FINANCIAL HIGHLIGHTS......................................................3
Growth Fund .....................................................3
Value Discovery Fund ............................................4
International Growth Fund .......................................5
Income Fund .....................................................6
Ready Reserves Fund .............................................7
GROWTH FUND...............................................................8

VALUE DISCOVERY FUND.....................................................10
INTERNATIONAL GROWTH FUND................................................12
EMERGING MARKETS GROWTH FUND.............................................15
INCOME FUND..............................................................18
READY RESERVES FUND......................................................20
YOUR ACCOUNT.............................................................21
How to Buy .....................................................21
How to Sell ....................................................22
Exchanges ......................................................24
Shareholder Services and Rights ................................25
Shareholder Rights .............................................26
Dividend and Distribution Policy ...............................26
When Dividends Are Paid for Each Portfolio .....................26
Taxes ..........................................................27
Determination of Net Asset Value ...............................27
How the Market Value of Portfolio Securities Is Determined .....28
Other Important Information ....................................28
MANAGEMENT OF THE FUND...................................................29
PERFORMANCE..............................................................30
INVESTMENT GLOSSARY......................................................31
FOR MORE INFORMATION.....................................................35

</TABLE>

<PAGE> 5

OVERVIEW

William Blair Mutual Funds, Inc. (the "Fund") is a no-load, open-end diversified
mutual fund consisting of six portfolios, each with its own investment objective
and policies. Each portfolio is managed by the investment professionals of
William Blair & Company, L.L.C. (the "Adviser"), an investment adviser with over
$9.3 billion in assets under management.

For most purposes, each portfolio operates like a separate mutual fund. Each
portfolio has its own goal, strategy and risk/reward profile. The Growth Fund,
the Value Discovery Fund, the International Growth Fund and the Emerging Markets
Growth Fund each invest primarily in equity securities for long-term capital
appreciation. Therefore, they may be more appropriate investments for
individuals with longer time horizons and who are willing to accept higher
short-term risk along with higher potential long-term returns. The Income Fund
invests primarily in bonds and may be more appropriate for individuals with a
shorter time horizon and who are seeking income. The Ready Reserves Fund invests
in money market securities, which are short-term instruments and generally
provide a lower level of income than bonds, but also provide a low degree of
volatility.

There can be no assurance that a portfolio will meet its investment objective.
Like all investments, each portfolio is subject to market fluctuations and
financial risks. Because you could lose money by investing in these portfolios,
be sure to read all the information carefully before investing.

The next several pages contain information on the expenses associated with an
investment in each portfolio, as well as financial highlights for all
portfolios. Following the discussion of Fund expenses is concise information on
each of the portfolios, as follows:

GOAL AND STRATEGY: the portfolio's investment objective and the method by which
it will pursue its goal;

PORTFOLIO SECURITIES: the primary types of securities in which the portfolio
invests; (Certain investments, policies and techniques are described more fully
in the "Investment Glossary" at the end of the prospectus.)

RISK FACTORS: the major risks associated with investing in the portfolio; and

PORTFOLIO MANAGEMENT: the individuals assigned by the investment adviser to
handle the day-to-day management of the portfolio.

William Blair Mutual Funds, Inc. May 1, 1998

<PAGE> 6

FUND EXPENSES

William Blair Mutual Funds are no-load, which means you do not pay a sales
charge.
Shareholder transaction expenses for William Blair Mutual Funds

<TABLE>
<S> <C>
Maximum sales load imposed on purchases NONE
Maximum sales load imposed on reinvested dividends NONE
Deferred sales load NONE
Redemption fee NONE
Exchange fee NONE
</TABLE>

ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)

SIDEBAR [Fund investors pay various expenses, either directly or indirectly.
This table shows the expenses for the past year, adjusted to reflect any
reimbursements. Future expenses may be greater or less.]

<TABLE>
<CAPTION>
EMERGING
VALUE INTERNATIONAL MARKETS READY
GROWTH DISCOVERY GROWTH GROWTH INCOME RESERVES
FUND FUND FUND FUND FUND FUND
------ --------- ------------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Management fee.......................... .75% 1.15% 1.10% 1.40% .61% .60%
Other expenses.......................... .09 .63* .33 .85** .10 .10
12b-1 fee............................... None None None None None None
Total Fund operating expenses........... .84% 1.78%* 1.43% 2.25%** .71% .70%
</TABLE>

- --------------------------------------------------------------------------------
*For the Value Discovery Fund, the Adviser voluntarily absorbed operating
expenses that exceeded 1.50% of the portfolio's average daily net assets from
December 23, 1996 (Commencement of Operations) to December 31, 1997. During that
period, the portfolio's other expenses and total operating expenses were .35%
and 1.50%, respectively.

**After expense reimbursement. The Emerging Markets Growth Fund commenced
operations on May 1, 1998; therefore, "other expenses" are based upon the
annualized estimates for the current fiscal year, after reimbursement. During
the portfolio's first year of operations, the Adviser has agreed to voluntarily
absorb total operating expenses that exceed 2.25% of the portfolio's average
daily net assets.

Example: The purpose of this example is to assist you in understanding the
various costs and expenses that an investor in a portfolio may bear directly or
indirectly.

SIDEBAR [This table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.]

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund................................................ $ 9 $27 $47 $104
Value Discovery Fund....................................... $18 $56 $97 $211
International Growth Fund.................................. $15 $46 $79 $172
Emerging Markets Growth Fund............................... $23 $71 $-- $ --
Income Fund................................................ $ 7 $23 $40 $ 88
Ready Reserves Fund........................................ $ 7 $22 $39 $ 87
</TABLE>

The example is for comparison purposes only and is not a representation of a
portfolio's actual expenses and returns, either past or future. It is based upon
the Annual Fund Operating Expenses shown above. Figures are shown for the
Emerging Markets Growth Fund for the one- and three-year periods only because it
is a new portfolio.

William Blair Mutual Funds, Inc. May 1, 1998
2

<PAGE> 7

FINANCIAL HIGHLIGHTS

The figures below for the periods ended December 31, which is each
portfolio's year end, were audited by the Fund's independent auditors.

GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .... $ 13.480 $ 11.900 $ 9.600 $ 9.730 $ 9.390
Income from investment operations:
Net investment income (loss) .......... (.023) (.010) .034 .027 .035
Net realized and unrealized gain (loss)
on investments ....................... 2.694 2.144 2.750 .581 1.389
------------- ------------- ------------- ------------- -------------
Total from investment operations ...... 2.671 2.134 2.784 .608 1.424
Less distributions from:
Net investment income ................ -- .010 .030 .025 .035
Net realized gain on investments ..... .801 .544 .454 .713 1.049
------------- ------------- ------------- ------------- -------------
Total distributions ................... .801 .544 .484 .738 1.084
------------- ------------- ------------- ------------- -------------
Net asset value, end of year .......... $ 15.350 $ 13.480 $ 11.900 $ 9.600 $ 9.730
============= ============= ============= ============= =============
Total return (%) ...................... 20.07 17.99 29.07 6.45 15.51
Ratios to average net assets (%):
Expenses ............................. .84 .79 .65 .71 .78
Net investment income (loss) ......... (.16) (.08) .34 .32 .38
Supplemental data:
Net assets at end of year (000s) ..... $ 591,353 $ 501,774 $ 363,036 $ 217,560 $ 150,046
Portfolio turnover rate (%) .......... 34 43 32 46 55
Average commission rate .............. $ .0598 $ .0621

<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .... $ 9.490 $ 6.970 $ 7.840 $ 7.810 $ 8.210
Income from investment operations:
Net investment income (loss) .......... .045 .070 .131 .125 .126
Net realized and unrealized gain (loss)
on investments ....................... .671 2.970 (.287) 2.178 .433
------------- ------------- ------------- ------------- -------------
Total from investment operations ...... .716 3.040 (.156) 2.303 .559
Less distributions from:
Net investment income ................ .047 .070 .130 .130 .160
Net realized gain on investments ..... .769 .450 .584 2.143 .799
------------- ------------- ------------- ------------- -------------
Total distributions ................... .816 .520 .714 2.273 .959
------------- ------------- ------------- ------------- -------------
Net asset value, end of year .......... $ 9.390 $ 9.490 $ 6.970 $ 7.840 $ 7.810
============= ============= ============= ============= =============
Total return (%) ...................... 7.61 44.37 (2.02) 30.45 7.12
Ratios to average net assets (%):
Expenses ............................. .83 .90 .87 .91 .92
Net investment income (loss) ......... 1.34 .83 1.70 1.36 1.46
Supplemental data:
Net assets at end of year (000s) ..... $ 111,082 $ 91,433 $ 62,898 $ 67,421 $ 59,767
Portfolio turnover rate (%) .......... 27 33 34 34 18
Average commission rate ..............
</TABLE>

William Blair Mutual Funds, Inc. May 1, 1998
3

<PAGE> 8

VALUE DISCOVERY FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1997 1996(a)
------------ ------------
<S> <C> <C>
Net asset value, beginning of period ............... $ 10.000 $ 10.000
Income from investment operations:
Net investment income ............................. .029 --
Net realized and unrealized gain on investments ... 3.305 --
Total from investment operations ................... 3.334 --
Less distributions from:
Net investment income ............................. .020 --
Net realized gain on investments .................. .344 --
------------
Total distributions ................................ .364 --
------------
Net asset value, end of period ..................... $ 12.970 $ 10.000
============ ============

Total return (%) ................................... 33.46 --
Ratios to average net assets (%):
Expenses(b) ....................................... 1.50 --
Net investment income(b) .......................... .29 --
Supplemental data:
Net assets at end of period (000s) ................ $ 30,354 $ 2
Portfolio turnover rate (%) ....................... 69 --
Average commission rate ........................... $ .0616 --
</TABLE>

- --------------------------------------------------------------------------------

(a) For the period December 23, 1996 (Commencement of Operations) to December
31, 1996.

(b) 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%.

William Blair Mutual Funds, Inc. May 1, 1998
4

<PAGE> 9

INTERNATIONAL GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)(b)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ...................... $ 13.950 $ 13.120 $ 12.360 $ 13.180 $ 10.130 $ 10.000
Income from investment
operations:
Net investment income (loss) .... .072 .029 .105 0.016 0.008 (0.011)
Net realized and unrealized
gain (loss) on investments,
foreign currency and other
assets and liabilities ......... 1.056 1.299 .758 (0.025) 3.401 0.141
------------- ------------- ------------- ------------- ------------- -------------
Total from investment
operations ..................... 1.128 1.328 .890 (0.009) 3.409 0.130
Less distributions from:
Net investment income .......... .078(c) .068(c) .130(c) 0.024 -- --
Net realized gain on
investments .................... 1.860 .430 -- 0.714 0.359 --
Tax return of capital ........... -- -- -- 0.073(d) -- --
------------- ------------- ------------- ------------- ------------- -------------
Total distributions ............. 1.938 .498 .130 0.811 0.359 --
------------- ------------- ------------- ------------- ------------- -------------
Net asset value, end of period .. $ 13.140 $ 13.950 $ 13.120 $ 12.360 $ 13.180 $ 10.130
============= ============= ============= ============= ============= =============
Total return (%) ................ 8.39 10.20 7.22 (.04) 33.65 1.30
Ratios to average net assets (%)
Expenses (e) ................... 1.43 1.44 1.48 1.51 1.71 1.88
Net investment income
(loss) (e) .................. .01 .19 .87 .15 .11 (.56)
Supplemental data:
Net assets at end of period
(000s) ...................... $ 128,747 $ 105,148 $ 89,762 $ 70,403 $ 40,298 $ 10,767
Portfolio turnover rate (%) .... 102 89 77 40 83 5
Average commission rate(f) ..... $ .0038 $ .0051
</TABLE>

- --------------------------------------------------------------------------------
(a) Ratios are annualized except total return for period less than one year.

(b) For the period from October 1, 1992 (Commencement of Operations) to
December 31, 1992.

(c) Includes $.078, $.022 and $.061 in passive foreign investment company
transactions which are treated as ordinary income for Federal income tax
purposes for 1997, 1996 and 1995, respectively.

(d) Includes $431 relating to a tax return of capital.

(e) Without the waiver of expenses in 1993 and 1992, the expense ratios would
have been 2.08% and 2.55% and the net investment ratios would have been
(.25)% and (1.22)%, respectively.

(f) Foreign commissions usually are lower than U.S. commissions when expressed
as cents per share due to the lower per share prices of many non-U.S.
securities.

William Blair Mutual Funds, Inc. May 1, 1998
5

<PAGE> 10

INCOME FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period ....................... $ 10.270 $ 10.570 $ 9.850 $ 10.580
Income from investment
operations:
Net investment income ......... .659 .619 .646 .661
Net realized and unrealized
gain (loss) on investments ... .140 (.309) .732 (.741)
------------ ------------ ------------ ------------
Total from investment
operations ................... .799 .310 1.378 (.080)
Less distributions from:
Net investment income ......... .659 .610 .658 .646
Net realized gain on
investments .................. -- -- -- .004
------------ ------------ ------------ ------------
Total distributions ........... .659 .610 .658 .650
------------ ------------ ------------ ------------
Net asset value, end of
period ....................... $ 10.410 $ 10.270 $ 10.570 $ 9.850
============ ============ ============ ============
Total return (%) .............. 8.03 3.07 14.37 (.74)
Ratios to average net
assets (%):
Expenses (c) ................. .71 .70 .68 .68
Net investment income (c) .... 6.40 5.97 6.24 6.33
Supplemental data:
Net assets at end of period
(000s) ..................... $ 160,055 $ 150,006 $ 147,370 $ 143,790
Portfolio turnover rate (%) ... 83 66 54 63

<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1993 1990 1991 1990(a)(b)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period ....................... $ 10.600 $ 10.770 $ 10.200 $ 10.000
Income from investment
operations:
Net investment income ......... .651 .832 .95 .164
Net realized and unrealized
gain (loss) on investments ... .159 (.089) .638 .126
------------ ------------ ------------ ------------
Total from investment
operations ................... .810 .743 1.583 .290
Less distributions from:
Net investment income ......... .651 .827 .870 .090
Net realized gain on
investments .................. .179 .086 .143 --
------------ ------------ ------------ ------------
Total distributions ........... .830 .913 1.013 .090
------------ ------------ ------------ ------------
Net asset value, end of
period ....................... $ 10.580 $ 10.600 $ 10.770 $ 10.200
============ ============ ============ ============
Total return (%) .............. 7.82 7.17 16.47 2.91
Ratios to average net
assets (%):
Expenses (c) ................. .70 .88 .92 .74
Net investment income (c) .... 5.96 7.69 8.33 8.39
Supplemental data:
Net assets at end of period
(000s) ..................... $ 204,381 $ 136,896 $ 83,041 $ 22,899
Portfolio turnover rate (%) ... 114 47 64 159
</TABLE>

- --------------------------------------------------------------------------------

(a) Ratios are annualized except total return for period less than one year.

(b) For the period from September 25, 1990 (Commencement of Operations) to
December 31, 1990.

(c) Without the waiver of expenses in 1991 and 1990, the expense ratios would
have been 1.06% and 1.22% and the net investment income ratios would have
been 8.19% and 7.67%, respectively.

William Blair Mutual Funds, Inc. May 1, 1998
6

<PAGE> 11

READY RESERVES FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .................... .05 .05 .05 .04 .03
Net realized and unrealized gain
(loss) on investments ................... -- -- (.0026)
------------- ------------- ------------- ------------- -------------
Total from investment
operations .............................. .05 .05 .05 .04 .03
Less distributions from:
Net investment income .................... .05 .05 .05 .04 .03
------------- ------------- ------------- ------------- -------------
Total distributions ...................... .05 .05 .05 .04 .03
------------- ------------- ------------- ------------- -------------
Capital contribution ..................... -- -- -- .04 --
------------- ------------- ------------- ------------- -------------
Net asset value, end of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= =============
Total return (%) ......................... 5.04 4.81 5.45 3.67(c) 2.64
Ratios to average daily net assets (%):
Expenses ................................ .70 .71 .72 .71 .71
Net investment income ................... 4.92 4.78 5.30 3.61 2.61
Supplemental data:
Net assets at end of period (000s) ...... $ 904,569 $ 760,808 $ 703,993 $ 521,277 $ 477,268

<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1992 1991 1990 1989 1988(A)(B)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income .................... .03 .06 .08 .08 .04
Net realized and unrealized gain
(loss) on investments....................
------------- ------------- ------------- ------------- -------------
Total from investment
operations .............................. .04 .06 .08 .08 .04
Less distributions from:
Net investment income .................... .04 .06 .08 .08 .04
------------- ------------- ------------- ------------- -------------
Total distributions ...................... .04 .06 .08 .08 .04
------------- ------------- ------------- ------------- -------------
Capital contribution ..................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net asset value, end of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= =============
Total return (%) ......................... 3.32 5.64 7.81 8.86 7.79(b)
Ratios to average daily net assets (%):
Expenses ................................ .71 .71 .75 .80 .81
Net investment income ................... 3.27 5.51 7.56 8.47 7.54
Supplemental data:
Net assets at end of period (000s) ...... $ 448,797 $ 402,978 $ 415,292 $ 342,245 $ 203,704
</TABLE>

- --------------------------------------------------------------------------------
(a) Ratios are annualized.

(b) For the period from June 22, 1988 (Commencement of Operations) to December
31, 1988.

(c) The total return includes the effect of the investment adviser's capital
contribution. Without the investment adviser's capital contribution, the
total return would have been 3.40%.

William Blair Mutual Funds, Inc. May 1, 1998
7

<PAGE> 12

GROWTH FUND

GOAL AND STRATEGY

SIDEBAR [The portfolio seeks long-term appreciation of capital by investing in
well-managed companies in growing industries.]

The Growth Fund seeks long-term appreciation of capital by investing in
well-managed companies in growing industries. The Adviser researches the market
for companies that have grown more rapidly than the gross national product from
one business cycle to the next. The portfolio may invest in cyclical industries
when the Adviser deems them to be at or near the bottom of their business cycle
and expects a multi-year period of sustained growth.

The Adviser intends to seek growth opportunities by investing in each of the
following classes of companies in varying proportions:

LARGE, high quality, seasoned growth companies that have demonstrated
sustained growth over a long period of time;

MEDIUM sized companies of emerging investment quality whose records of
sales and earnings growth are not as well established; and

SMALL, rapid growth companies that have had especially vigorous growth
in revenues and earnings.

The Adviser will invest in companies that it believes are well managed
considering some or all of the following investment criteria:

A leader in the field. The company should be, or clearly have the expectation of
becoming, a significant provider in the primary markets it serves.

Unique or specialty company. The company should have some distinctive attribute
that cannot easily be duplicated by present or potential competitors. This may
take the form of proprietary products or processes, a unique distribution
system, an entrenched brand name or an especially strong financial position.

Quality products or services. The company's products or services should be
regarded as being of superior quality, which should enable the company to obtain
a premium price and to command greater customer loyalty.

Marketing capability. The company should have a distinctive capability in sales,
service or distribution.

Value to customer. The prices of the company's products or services should be
based upon their value to the customer, rather than their production cost.

Return on equity. The company should have achieved, or have the potential to
achieve, an above average return on equity through efficient use of assets and
adequate margins, rather than excessive financial leverage. Such companies
should be able to finance most or all of their growth internally and translate
revenue and income growth into rising per share earnings and dividends.

Conservative financial policies and accounting practices. The company should
have a relatively simple, clean financial structure and adhere to conservative
and straightforward accounting practices.

PORTFOLIO SECURITIES

SIDEBAR [The portfolio invests primarily in common stocks.]

The portfolio invests primarily in common stocks. The portfolio may, however,
hold convertible debentures and preferred stocks that meet its investment
criteria. To a limited extent, the portfolio may also invest in certain types of
securities and use certain investment techniques that are more fully described
in the Investment Glossary at the end of this prospectus. These include
depository receipts, illiquid securities, investment companies, when-issued and
delayed delivery securities and repurchase agreements. The Investment Glossary
also describes the portfolio's policies with regard to borrowing, concentration,
diversification and portfolio turnover, along with the risks associated with the
portfolio's investments and policies. Types of investments and investment
techniques that the portfolio intends to use only to a very limited extent, such
as warrants, are described in the Statement of Additional Information.

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<PAGE> 13

Generally the portfolio will remain fully invested, and the Adviser will not
attempt to time the market. However, if a significant adverse market action is
anticipated, investment-grade debt securities may be held without limit as a
temporary defensive measure. Normally, the portfolio does not purchase any
stocks with a view to quick turnover for capital gains.

INVESTMENT RISKS

SIDEBAR [All investments are subject to market fluctuations and financial risks.
The value of your investment will fluctuate in response to stock market
movements.]

To the extent that the portfolio invests in small companies, it takes on
additional risks. This is because small companies may be in earlier stages of
development, may be dependent upon a small number of products or services, may
lack substantial capital reserves and/or do not have proven track records.
Smaller companies may be more adversely affected by poor economic or market
conditions. In addition, small companies may be traded in low volumes, which can
increase volatility and liquidity risks. Any convertible debentures issued by
small companies are likely to be lower-rated or non-rated securities, which
generally involve more credit risk than debentures in the higher rating
categories and generally include some speculative characteristics.

PORTFOLIO MANAGEMENT

The Growth Fund is co-managed by Rocky Barber and Mark A. Fuller, III.

Rocky Barber is a principal of William Blair & Company, L.L.C. He joined William
Blair in 1986 as a portfolio manager and manager of the Investment Management
Department. Besides his management responsibilities, he co-manages the Growth
Fund and is a member of the department's Growth team. Previously, he was an
equity manager with Alliance Capital Management for nine years and president of
the Alliance Capital Bond Fund, a group of fixed-income mutual funds. Prior to
that, Rocky was a financial analyst with the Stanford University Endowment.
Rocky is president of William Blair Mutual Funds, Inc., a past president of the
Board of Commissioners of the Winnetka Park District and a past Chairman of the
Board of Trustees of the Stanford Business School Trust. He currently serves on
the Board of the LaRabida Children's Hospital Foundation and is a member of the
Investment Analysts Society. Education: B.A., M.S. and M.B.A., Stanford
University; CFA.

Mark A. Fuller, III is a principal of William Blair & Company, L.L.C. He has
been with William Blair since 1983. He began his career in Institutional Sales,
developing long-standing relationships with each of the firm's research
analysts. Today he is a portfolio manager for numerous accounts, co-manages the
firm's Growth Fund and is a member of the department's Small Cap and Aggressive
Growth teams. Prior to joining William Blair, he was a sales representative with
IBM Corporation. Education: B.A., Northwestern University; M.B.A., Northwestern
University Kellogg Graduate School of Management.

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9

<PAGE> 14

VALUE DISCOVERY FUND

GOAL AND STRATEGY

SIDEBAR [The portfolio's objective is long-term capital appreciation. Using a
value discipline, the portfolio invests primarily in the equity securities of
small companies.]

The Value Discovery Fund's investment objective is to seek long-term capital
appreciation. The portfolio pursues its objective by investing with a value
discipline primarily in the equity securities of small companies. In selecting
companies for investment, the Adviser evaluates the extent to which a company
meets the investment criteria set forth below. The weight given to a particular
investment criterion will depend upon the circumstances, and some portfolio
holdings may not meet all of the following criteria:

Material Price/Value Disparity--whether the company's current market
value reflects a material discount from the Adviser's estimate of the
company's intrinsic value. In determining a company's intrinsic value,
the Adviser generally will assess whether a company's share price
appears to be inexpensive relative to any of the following: sales,
projected earnings, projected cash flow, discounted cash flow, asset
values and liquidation value. The discount of the market value from the
intrinsic value is considered material when it provides an adequate
return opportunity compared to alternative small company investments.
The Adviser believes that the short-term market assessment of a
company's value can differ materially from a long-term perspective.
Therefore, price/value disparities can result from particular
industries and companies currently being in disfavor in the market. As
the reasons for market disfavor dissipate, a market reassessment can
result in price appreciation. However, there is no guarantee that this
will result in market appreciation for a company.

Probable Expansion in Profitability--whether the company has a
reasonable expectation of improving its level of profitability over a
three year investment horizon. The Adviser believes an expansion in
profit margins generally results in improved market valuation.
Therefore, the Adviser will look for companies that it believes have
the potential for normal, sustainable levels of profitability greater
than their current levels. Factors used to assess the normal level of
future profitability for a company include industry profit levels and
competitiveness and the company's competitive advantages and business
strategy.

Skilled and Committed Management--whether the company has a capable and
skilled management team and a clearly articulated and logical business
strategy with a reasonable probability of successful execution.
Generally, this determination will be made through due diligence with
management, which often includes on-site meetings. Factors used to
assess management's ability to execute its business strategy include
tangible evidence of prior business success and management's level of
financial commitment to the company through equity ownership.

Strong Capital Structure--whether the company has a relatively simple,
clean financial structure without excessive use of financial leverage.
In addition, the company should adhere to conservative and
straightforward accounting practices.

Positive Catalyst--the likelihood that the company will undergo a
positive corporate change within a three-year investment horizon.
Examples of positive corporate changes may include: successful
execution of its business plan, acquisitions, mergers, spin-offs,
divestitures, new products and management additions or changes. The
portfolio seeks to invest in companies before a positive catalyst
becomes apparent to the market.

PORTFOLIO SECURITIES

SIDEBAR [The portfolio will invest in common stocks of small companies.]

Generally, most of the portfolio will be invested in the common stocks of small
companies. Debentures and preferred stocks may be held, however, if convertible
into common stocks that meet the investment criteria of the portfolio. The
portfolio may invest up to 5% of its net assets in foreign securities, which
includes depository receipts. To a limited extent, the portfolio may also invest
in certain types of securities and use certain investment techniques that are
more fully described in the Investment Glossary at the end of this prospectus.
These include depository receipts, foreign securities, illiquid securities,
investment companies, real estate investment trusts, repurchase agreements and
when-issued and delayed delivery securities. The Investment Glossary also
describes the portfolio's policies with regard to borrowing, concentration,
diversification and portfolio turnover, along with the risks associated with the
portfolio's investments and policies. Types of investments and investment
techniques that the portfolio

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<PAGE> 15

intends to use only to a very limited extent, such as warrants and futures, are
described in more detail in the Statement of Additional Information.

Generally the portfolio will remain fully invested, and the Adviser will not
attempt to time the market. However, if a significant adverse market action is
anticipated, investment-grade debt securities may be held without limit as a
temporary defensive measure. Normally, the portfolio does not purchase
securities with a view to quick turnover for capital gains.

INVESTMENT RISKS

SIDEBAR [All investments are subject to market fluctuations and financial risks.
The value of your investment will fluctuate in response to stock market
movements.]

Stocks of small companies carry higher risks that those of larger companies.
This is because small companies may be in an earlier stage of development, may
be dependent on a small number of products or services, may lack substantial
capital reserves and/or do not have proven track records. Smaller companies may
be more adversely affected by poor economic or market conditions. In addition,
small companies may be traded in low volumes, which can increase volatility and
liquidity risks. From time to time, the portfolio may invest in the equity
securities of very small companies, often referred to as "micro cap" companies.
The considerations noted above are generally intensified for these investments.
Any convertible debentures issued by small companies are likely to be
lower-rated or non-rated securities, which generally involve more credit risk
than debentures in the higher rating categories and generally include some
speculative characteristics.

PORTFOLIO MANAGEMENT

The portfolio is co-managed by Mr. Glen Kleczka, Mr. David Mitchell and Ms.
Capucine Price.

Glen Kleczka joined William Blair & Company, L.L.C. in 1996 and leads the Value
Discovery Fund portfolio management team. Since 1989, he was a partner in the
Private Markets and U.S. Equity groups of Brinson Partners, Inc., managing the
firm's Post-Venture Fund. This $900 million fund invested in small
capitalization companies, many of which were previously backed by venture
capitalists. Glen was a member of the firm's Private Markets Committee, which
approved all investments in venture capital deals and partnership investments.
Previously, he spent two years at CNA Financial Corp. as a co-manager of their
Variable Annuity Trust's $60 million equity allocation. Glen is a member of the
Investment Analysts Society of Chicago. Education: B.S., Finance, Marquette
University; M.S. Finance & Investment Banking, University of Wisconsin-Madison;
and CFA.

David Mitchell joined William Blair & Company, L.L.C. in 1996 as portfolio
manager of the Value Discovery Fund. Previously, he was a partner in the U.S.
Equity group at Brinson Partners, Inc. At Brinson, he was a member of a
four-person team that managed a $900 million institutional micro-cap value
product. Before that, he was co-manager of Thomas Paine Investors, L.P., a
limited partnership invested in entrepreneurial companies. Education: B.A.,
Economics, Knox College; M.B.A., Northwestern University Kellogg Graduate School
of Management; and CFA.

Capucine "Cappy" Price joined William Blair & Company, L.L.C. in 1996 as
portfolio manager of the Value Discovery Fund. From 1993 to 1996, she was a
partner in the Private Markets and U.S. Equity groups of Brinson Partners, Inc.
Her primary responsibility was investment analysis for the firm's Post-Venture
Fund, a micro-cap, value-oriented stock fund. Prior to joining Brinson Partners,
Inc., Cappy was an equity analyst and First Scholar with the First National Bank
of Chicago. Education: B.A., Economics, University of Michigan; M.A., Social
Science, University of Chicago; M.B.A., Northwestern University Kellogg Graduate
School of Management.

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<PAGE> 16

INTERNATIONAL GROWTH FUND

GOAL AND STRATEGY

SIDEBAR [The portfolio seeks long-term capital appreciation through investment
in well-managed, quality, growth companies.]

The investment objective of the International Growth Fund is long-term capital
appreciation through investment in well-managed, quality growth companies. Such
companies would include companies that historically have had superior growth,
profitability and quality relative to local markets and relative to companies
within the same industry worldwide and that are expected to continue such
performance. Such companies also generally will exhibit superior business
fundamentals, including leadership in their field, quality products or services,
distinctive marketing and distribution, pricing flexibility and revenue from
products or services consumed on a steady recurring basis. These business
characteristics should be accompanied by management that is shareholder return
oriented and uses conservative accounting policies. Companies with above average
returns on equity, strong balance sheets and consistent, above average earnings
growth at reasonable valuation levels will be the primary focus. Stock selection
will take into account both local and global comparisons. Current income is not
an investment objective, although it is anticipated that capital appreciation
will normally be accompanied by modest investment income, which may vary
depending on the allocation of the investments.

SIDEBAR [Securities markets in different countries may offer enhanced
diversification of investors' portfolios because of differences in economic,
financial, political and social factors.]

SIDEBAR [The portfolio allows investors to diversify their portfolios by
investing in various companies and economies outside the U.S., thereby taking
advantage of these differences.]

In pursuing its investment objective, the portfolio will vary the geographic
diversification and types of securities in which it invests based upon
continuous evaluation by the Adviser of economic, market and political trends
throughout the world. The investment of the portfolio's assets in various
international securities markets tends to decrease the degree to which events in
any one country can affect the entire portfolio. In making decisions regarding
the country allocation, the Adviser will consider such factors as the conditions
and growth potential of various economies and securities markets, currency
exchange rates, technological developments in the various countries and other
pertinent financial, social, national and political factors. It is anticipated
that the majority of the portfolio's investments normally will be divided among
Continental Europe, the United Kingdom, Japan and the markets of the Pacific
Basin (including Australia and New Zealand). Selective investments may also be
made in Canada and Latin America and in emerging markets worldwide. While the
portfolio normally will invest around 18% of its assets in emerging markets,
from time to time, it may invest as little as 5% and as much as 30% of its
assets in such markets. The portfolio will invest in companies at different
stages of development ranging from large, well-established companies to smaller
companies at an earlier stage of development. Fundamental company analysis and
stock selection will be the most important investment criteria.

The portfolio normally will allocate its investments among not less than six
different countries and will not concentrate investments in any particular
industry. However, the portfolio may have more than 25% of its assets invested
in any major industrial or developed country. No more than 50% of the
portfolio's equity securities may be invested in securities of issuers of any
one country at any given time.

PORTFOLIO SECURITIES

SIDEBAR [The portfolio primarily invests in common stocks issued by foreign
companies.]

The portfolio ordinarily will invest at least 80% of its total assets in a
diversified portfolio of common stocks with above average growth, profitability
and quality characteristics, issued by companies domiciled outside the U.S. and
in securities convertible into, exchangeable for, or having the right to buy
such common stocks. For liquidity purposes, up to 20% of the portfolio may be
held in cash (U.S. dollars and foreign currencies) or in short-term securities,
such as repurchase agreements and domestic and foreign money market instruments,
such as government obligations, certificates of deposit, bankers' acceptances,
time deposits, commercial paper and short-term corporate debt securities. The
portfolio does not have any specific rating requirements for its portfolio
securities.

The portfolio may enter into forward foreign currency transactions in an effort
to protect against changes in foreign exchange rates. To a limited extent, the
portfolio may also invest in types of securities and use certain investment
techniques that are more fully described in the Investment Glossary at the end
of this prospectus. These include depository receipts, foreign currency futures,
forward foreign currency transactions, illiquid securities, investment
companies, repurchase agreements and when-issued and delayed delivery
securities. The Investment Glossary also describes the portfolio's policies with
regard to borrowing, concentration, diversification, and portfolio turnover,
along with the risks associated with such investments and policies. Types

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<PAGE> 17

of investments and investment techniques that the portfolio intends to use only
to a very limited extent, such as warrants, are described in more detail in the
Statement of Additional Information.

INVESTMENT RISKS

SIDEBAR [Investments in foreign equity securities present opportunities for both
increased benefits and increased risks as compared to investments in the U.S.
securities market.]

SIDEBAR [The value of your investment will fluctuate in response to the movement
of stock markets in various countries.]

Although the Fund will try to invest in companies and governments of countries
having stable or improving political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions and other adverse political, social or
diplomatic developments that could affect investment in these nations.

The risks of investing in securities of foreign issuers may include less
publicly available information, less governmental regulation and supervision of
foreign stock exchanges, brokers and issuers, a lack of uniform accounting,
auditing and financial reporting standards, practices and requirements, the
possibility of expropriation, nationalization, confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability,
restrictions on the flow of international capital and difficulty in obtaining
and enforcing judgments against foreign entities. Securities of some foreign
issuers are less liquid and their prices more volatile than the securities of
U.S. companies. In addition, the time period for settlement of transactions in
foreign securities generally is longer than for domestic securities. The
portfolio may invest a portion of its assets in emerging markets, which may
include developing countries or countries with new or developing capital
markets.

The risks described above, including the risks of nationalization and
expropriation of assets, are typically increased to the extent that the Fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to special risks. Political and economic structure in many of these countries
may be in their infancy and developing rapidly. Such countries may also lack the
social, political and economic characteristics of more developed countries.
Certain of these countries have in the past failed to recognize private property
rights and have at times nationalized and expropriated the assets of private
companies.

The currencies of certain emerging market countries have experienced a steady
devaluation relative to the U.S. dollar, and continued devaluations may
adversely affect the value of a fund's assets denominated in such currencies.
Many emerging market countries have experienced substantial rates of inflation
for many years, and continued inflation may adversely affect the economies and
securities markets of such countries.

In addition, unanticipated political or social developments may affect the
values of the Fund's investments in these countries and the availability to the
Fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.

The securities held by the portfolio will usually be denominated in currencies
other than the U.S. dollar. Therefore, changes in foreign exchange rates will
affect the value of the securities held in the portfolio either beneficially or
adversely. Fluctuations in foreign currency exchange rates will also affect the
dollar value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, available for
distribution to shareholders.

The portfolio is expected to incur operating expenses that are higher than those
of mutual funds investing exclusively in U.S. equity securities, since expenses
such as custodial fees related to foreign investments are usually higher than
those associated with investments in U.S. securities. Similarly, brokerage
commissions on purchases and sales of foreign securities are generally higher
than on domestic securities. In addition, dividends and interest from foreign
securities may be subject to foreign withholding taxes. (For more information,
see "Your Account - Dividends, Distributions and Taxes".)

Although the portfolio will normally invest at least 80% of its assets in the
equity securities of companies domiciled outside of the U.S., the portfolio may
significantly alter its make-up as a temporary defensive strategy. A defensive
strategy would only be employed if, in the judgment of the Adviser, investments
in international equity securities became decidedly unattractive because of
current or anticipated adverse economic, financial, political and social
factors. The types of securities that might be
acquired and held for defensive purposes could include non-convertible preferred
stock, investment-grade debt securities,

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<PAGE> 18

fixed-income securities and securities issued by the U.S. or foreign governments
as well as domestic or foreign money market instruments. At such time as the
Adviser determines that the portfolio's defensive strategy is no longer
warranted, the portfolio will adjust its portfolio back to its normal complement
of international equity securities as soon as practicable.

PORTFOLIO MANAGEMENT

The portfolio is co-managed by Norbert W. Truderung and W. George Greig.

Norbert W. Truderung, a principal of William Blair & Company, L.L.C. joined the
firm in 1986. He is a member of the Investment Management Department's research
committee and a senior vice president of William Blair Mutual Funds, Inc.
Norbert is also a member of the department's Small and Aggressive Growth teams.
Previously, Norbert spent eight years at The Northern Trust Company as a senior
investment research analyst and as portfolio manager for the bank's
international investment funds. He was responsible for managing their
international research effort and served as a member of the bank's investment
policy committee. From 1974-78, Norbert was an investment analyst at National
City Corporation (Cleveland). He is a member of the Investment Analysts Society
of Chicago. Education: B.A., Baldwin-Wallace College; CFA.

W. George Greig joined William Blair & Company, L.L.C.'s Investment Management
Department in 1996 as an international portfolio manager. He previously headed
international equities for PNC Bank in Philadelphia. George was a founding
partner of Pilgrim Baxter & Associates, where he was an analyst, research
director and portfolio manager for over ten years. He also served as chief
investment officer of Framlington Group plc during its association with Pilgrim
Baxter and founded and managed a joint venture between the two firms. Education:
B.S., Massachusetts Institute of Technology; M.B.A., Wharton School of the
University of Pennsylvania.

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<PAGE> 19

EMERGING MARKETS GROWTH FUND

GOAL AND STRATEGY

SIDEBAR [The portfolio seeks long-term capital appreciation. The portfolio
pursues its objective by investing in well-managed, quality, growth companies in
emerging economies worldwide.]

The investment objective of the Emerging Markets Growth Fund is long term
capital appreciation. The portfolio pursues its objective by investing in
well-managed, high quality growth companies. Such companies will generally
exhibit superior business fundamentals, including one or more of the following
characteristics:

* Globally competitive product position and/or cost position in tradeable
goods or services;

* Dominant or improving market position, generally associated with a
competitive advantage in distribution, pricing, or business franchise,
within a growing local or regional economy;

* Sustainable above average and/or increasing returns on invested capital
generated from the efficient utilization of assets, increasing profit
margins or sound financial management, including improvements that may
arise from the process of privatization or restructuring of corporate
assets.

The research approach used in stock selection will focus intensively on the
soundness of corporate management, taking into account management's orientation
toward outside shareholders, incentives and ability to execute successful
strategies, commitment to transparent and conservative financial reporting
policies, and general integrity. Current income is not an investment objective,
although it is anticipated that capital appreciation will normally be
accompanied by modest investment income, which may vary depending upon the
allocation of the investments.

SIDEBAR [Securities markets in emerging markets may offer enhanced
diversification of investors' portfolios because of differences in economic,
financial, political and social factors.]

The portfolio pursues its objective by investing primarily in equity securities
issued by emerging market companies. Emerging market companies are (i) companies
organized under the laws of an emerging market country or having securities
which are traded principally on an exchange or over-the-counter in an emerging
market country; or (ii) companies which, regardless of where organized or
traded, have a significant amount of assets located in and/or derive a
significant amount of their revenues from goods purchased or sold, investments
made or services performed in or with emerging market countries. Currently,
emerging markets include every country in the world other than the United
States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and most
Western European Countries.

The portfolio normally will allocate its investments among not less than six
different countries and will not concentrate investments in any particular
industry. No more than 50% of the portfolio's equity securities will be invested
in securities of issuers in of any one country at any given time.

PORTFOLIO SECURITIES

SIDEBAR [The portfolio primarily invests in common stocks issued by emerging
market companies.]

The portfolio ordinarily will invest at least 65% of its total assets in equity
securities issued by emerging market companies. Equity securities include
securities convertible into, exchangeable for, or having the right to buy common
stocks. For liquidity purposes, up to 35% of the portfolio may be held in cash
(U.S. dollars and foreign currencies) or in short-term securities, such as
repurchase agreements and domestic and foreign money market instruments, such as
government obligations, certificates of deposit, bankers' acceptances, time
deposits, commercial paper and short-term corporate debt securities. The
portfolio does not have any specific rating requirements for its portfolio
securities.

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<PAGE> 20

The portfolio may enter into forward foreign currency transactions in an effort
to protect against changes in foreign exchange rates. To a limited extent, the
portfolio may also invest in types of securities and use certain investment
techniques that are more fully described in the Investment Glossary at the end
of this prospectus. These include depository receipts, foreign currency futures,
illiquid securities, investment companies, repurchase agreements and when-issued
and delayed delivery securities. The Investment Glossary also describes the
portfolio's policies with regard to borrowing, concentration, diversification,
and portfolio turnover, along with the risks associated with these portfolio
investments and policies. Types of investments and investment techniques that
the portfolio intends to use only to a very limited extent, such as warrants,
are described in more detail in the Statement of Additional Information.

INVESTMENT RISKS

SIDEBAR [Investments in foreign markets present opportunities for both increased
benefits and increased risks as compared to investments in the U.S. securities
market.]

SIDEBAR [The value of your investment will fluctuate in response to the movement
of stock markets in various countries.]

Although the portfolio will try to invest in companies operating in countries
having stable or improving political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions and other adverse political, social or
diplomatic developments that could affect investment in these nations. The risks
of investing in foreign companies also may include less publicly available
information, less governmental regulation and supervision of foreign stock
exchanges, brokers and issuers, a lack of uniform accounting, auditing and
financial reporting standards, practices and requirements, adverse changes in
investment regulations, restrictions on the flow of international capital and
difficulty in obtaining and enforcing judgments against foreign entities.
Securities of some foreign issuers are less liquid and their prices more
volatile than the securities of U.S. companies. In addition, the time period for
settlement of transactions in foreign securities generally is longer than for
domestic securities. These risks are typically intensified in emerging markets,
which are the less developed and developing nations. Certain of these countries
have in the past failed to recognize private property rights and have at times
nationalized and expropriated the assets of private companies.

SIDEBAR [Investments in securities located in emerging market countries are
subject to special risks]

Investments in emerging markets companies are speculative and subject to special
risks. Political and economic structures in many of these countries may be in
their infancy and developing rapidly. Such countries may also lack the social,
political and economic characteristics of more developed countries. The
currencies of certain emerging market countries have experienced a steady
devaluation relative to the U.S. dollar, and continued devaluations may
adversely affect the value of a fund's assets denominated in such currencies.
Many emerging market countries have experienced substantial rates of inflation
for many years, and continued inflation may adversely affect the economies and
securities markets of such countries.

In addition, unanticipated political or social developments may affect the
values of the portfolio's investments in emerging market countries and the
availability to the portfolio of additional investments in these countries. The
small size, limited trading volume and relative inexperience of the securities
markets in these countries may make the portfolio's investments in such
countries illiquid and more volatile than investments in more developed
countries, and the portfolio may be required to establish special custodial or
other arrangements before making investments in these countries. There may be
little financial or accounting information available with respect to issuers
located in these countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.

In many foreign countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. There is an increased risk, therefore, of uninsured loss due to
lost, stolen, or counterfeit stock certificates. Prior governmental approval of
non-domestic investments may be required under certain circumstances in some
developing countries, and the extent of foreign investment in domestic companies
may be subject to limitation in other developing countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
developing countries to prevent, among other concerns, violation of foreign
investment limitations. Repatriation of investment income, capital and proceeds
of sales by foreign investors may require governmental registration and/or
approval in some developing countries. The portfolio could be adversely affected
by delays in or a refusal to grant any required governmental registration or
approval for such repatriation.

Further, the economies of certain developing countries may be dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have and may continue to
be adversely affected by economic conditions in the countries with which they
trade.

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<PAGE> 21

The portfolio may invest in Russian securities. Russian securities involve
additional significant risks, including political and social uncertainty (for
example, regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic, social and legal
systems, delays in settling portfolio transactions and risk of loss arising out
of Russia's system of share registration and custody. Russia's system of share
registration and custody creates certain risks of loss (including the risk of
total loss) that are not normally associated with investments in other
securities markets.

The portfolio may invest in small companies. Stocks of small companies carry
higher risks than those of larger companies. This is because small companies may
be in an earlier stage of development, may be dependent on a small number of
products or services, may lack substantial capital reserves and/or do not have
proven track records. Smaller companies may be more adversely affected by poor
economic or market conditions. In addition, small companies may be traded in low
volumes, which can increase volatility and liquidity risks. Historically,
smaller capitalization stocks have been more volatile in price than larger
capitalization stocks. Among the reasons for the greater price volatility of
these securities are the less certain growth prospects of smaller firms, the
lower degree of liquidity in the markets for these stocks, and the greater
sensitivity of small companies to changing economic conditions. From time to
time, the portfolio may invest in the equity securities of very small companies,
often referred to as "micro-cap" companies. The risk considerations noted above
are generally intensified for these investments.

Although the portfolio will normally invest at least 65% of its assets in the
equity securities of emerging market companies, the portfolio may significantly
alter its make-up as a temporary defensive strategy. A defensive strategy would
only be employed if, in the judgment of the Adviser, investments in emerging
market equity securities became decidedly unattractive because of current or
anticipated adverse economic, financial, political and social factors. The types
of securities that might be acquired and held for defensive purposes could
include non-convertible preferred stock, investment-grade debt securities,
fixed-income securities and securities issued by the U.S. or foreign governments
as well as domestic or foreign money market instruments. At such time as the
Adviser determines that the portfolio's defensive strategy is no longer
warranted, the portfolio will adjust its portfolio back to its normal complement
of emerging market equity securities as soon as practicable.

PORTFOLIO MANAGEMENT

The portfolio is co-managed by W. George Greig and Jeffrey A. Urbina.

Jeffrey A. Urbina joined William Blair & Company, L.L.C. in 1996. In addition to
the Emerging Market Growth Fund, he is responsible for emerging market research
for the William Blair International Growth Fund. Previously, Mr. Urbina was
Senior Vice President/Director of Emerging Market Research and a Portfolio
Manager for the Van Kampen American Capital Navigator Fund, an emerging market
equity fund listed in Luxembourg. During his five years at Van Kampen American
Capital, he also served as Director of Fixed Income Research and was a member of
the Investment Policy Committee. Before joining Van Kampen American Capital, Mr.
Urbina spent ten years at Citicorp in various capacities, including as a Vice
President in the commercial real estate group in Chicago and as a commercial
lending officer in the bank's Denver office. Mr. Urbina began his banking career
at Harris Bank in Chicago, where he was an International Banking Officer.
Education: B.A., Northwestern University; M.B.A., Northwestern's J.L. Kellogg
Graduate School of Management.

William Blair Mutual Funds, Inc. May 1, 1998
17

<PAGE> 22

INCOME FUND

GOAL AND STRATEGY

SIDEBAR [The Income Fund's objective is to provide investors with as high a
level of current income as is consistent with the preservation of capital by
investing primarily in a diversified portfolio of high grade intermediate-term
debt securities.]

The Income Fund pursues its investment objective of providing investors with as
high a level of current income as is consistent with preservation of capital by
investing primarily in a diversified portfolio of high grade, intermediate-term
debt securities.

The anticipated dollar weighted average maturity of the portfolio is three to
seven years. The anticipated weighted average modified duration for the
portfolio is two to five years, with a maximum duration on any instrument of
eight years. The Adviser will not continue to hold a security whose duration has
moved above eight years.

PORTFOLIO SECURITIES

As a matter of fundamental policy, under normal conditions at least 90% of the
portfolio's assets will be invested in the following:

U.S. DOLLAR DENOMINATED DEBT SECURITIES (domestic or foreign) with long-term
ratings of "A-" or better, or an equivalent rating, by at least one of the
following four nationally recognized statistical rating organizations ("Rating
Organizations"): Duff & Phelps, Inc., Fitch Investors Service, Inc., Moody's
Investors Service, Inc. and Standard & Poor's Corporation;

OBLIGATIONS OF OR GUARANTEED BY THE UNITED STATES GOVERNMENT, its agencies or
instrumentalities. These securities include direct obligations of the U.S.
Treasury, which differ only in their interest rates, maturities and time of
issuance and obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, which differ in the degree of support provided by the U.S.
Government. Although these securities are subject to the market risks resulting
from fluctuation in interest rates, they will be paid in full if held to
maturity;

COLLATERALIZED OBLIGATIONS, which are debt securities issued by a corporation,
trust or custodian, or by a U.S. Government agency or instrumentality, that are
collateralized by a portfolio or pool of assets, such as mortgages,
mortgage-backed securities, debit balances on credit card accounts or U.S.
Government securities. The issuer's obligation to make interest and/or principal
payments is secured by the underlying pool or portfolio of securities. The
Income Fund may invest in collateralized obligations that are not guaranteed by
a U.S. Government agency or instrumentality only if the collateralized
obligations are rated A- or better, or an equivalent rating, by one of the
Rating Organizations; and

COMMERCIAL PAPER obligations rated within the highest grade by one of the four
Rating Organizations.

Up to 10% of the portfolio's total assets may be invested in unrated debt
securities, provided that the Adviser deems such securities to be of at least
"A-" quality and provided that the comparable debt of the issuer has a rating of
at least "A-" or its equivalent by one of the four Rating Organizations.

Generally the portfolio will remain fully invested, and the Adviser will not
attempt to time the market. However, the portfolio for temporary defensive
purposes may invest up to 100% of its assets in other types of securities,
including high quality commercial paper, obligations of banks and savings
institutions, U.S. Government securities, government agency securities and
repurchase agreements, or it may retain funds in cash. The portfolio does not
invest in equity securities.

To a limited extent, the portfolio may invest in certain types of securities and
use certain investment techniques, such as illiquid securities, repurchase
agreements and when-issued and delayed delivery securities, which are more fully
described in the Investment Glossary at the end of this Prospectus. The
Investment Glossary also describes the portfolio's policies with regard to
borrowing, concentration, diversification, duration and portfolio turnover,
along with the risks associated with such investments and policies. In addition,
the portfolio's policy regarding lending portfolio securities is described in
more detail in the Statement of Additional Information.

INVESTMENT RISKS

The portfolio's investments are subject to financial risks. However, in the
opinion of the Adviser, the risk of loss of principal should be reduced due to
the relatively high quality of the investments in which the portfolio will
primarily invest. Obligations that are unrated are not necessarily of lower
quality than those that are rated, but may be less marketable and, consequently,
provide higher yields. The portfolio's investments are subject to price
fluctuations resulting from various factors, including rising or declining
interest rates (market risks). The value of the portfolio's investments (other
than an interest-only class of a

William Blair Mutual Funds, Inc. May 1, 1998
18

<PAGE> 23

collateralized obligation) tends to decrease when interest rates rise and tends
to increase when interest rates fall. The value of the portfolio's securities
also is subject to the ability of the issuers of such securities to make payment
at maturity (financial risks). For example, not all securities issued or
guaranteed by agencies or instrumentalities of the U.S. Government are backed by
the full faith and credit of the United States. Such securities involve
different degrees of government backing. Some obligations issued or guaranteed
by U.S. Government agencies or instrumentalities in which the portfolio may
invest are backed by the full faith and credit of the United States, such as
modified pass-through certificates issued by the Government National Mortgage
Association, while others are backed exclusively by the agency or
instrumentality with limited rights of the issuer to borrow from the U.S.
Treasury (such as obligations of the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation). Others are backed only by the
credit of the issuer itself (such as obligations of the Student Loan Marketing
Association). In addition, investments with longer maturities, which typically
provide better yields, may subject the portfolio to increased price changes
resulting from market yield fluctuations.

For a description of ratings, see Appendix B in the Statement of Additional
Information.

PORTFOLIO MANAGEMENT

The portfolio is managed by Bentley Myer, a principal of William Blair &
Company, L.L.C. Bentley joined the firm in 1991 as a fixed-income portfolio
manager. From 1983 to 1991 he was associated with LaSalle National Trust, first
as head of fixed-income investments and later as chief investment officer. Prior
to that, Bentley was head of the municipal investment section of the trust
department of Harris Trust and Savings Bank. He is currently a Trustee of Delnor
Community Hospital as well as a member of the Investment Analysts Society of
Chicago. Education: B.A., Middlebury College; M.B.A., Wharton School of the
University of Pennsylvania.

William Blair Mutual Funds, Inc. May 1, 1998
19

<PAGE> 24

READY RESERVES FUND

GOAL AND STRATEGY

SIDEBAR [The Ready Reserves Fund's investment objective is to obtain the maximum
current income consistent with preservation of capital by investing exclusively
in high quality money market instruments.]

The Ready Reserves Fund pursues its investment objective of obtaining the
maximum current income consistent with preservation of capital by investing
exclusively in high quality money market instruments. These instruments are
considered to be among the safest investments available because of their short
maturities, liquidity and high quality ratings. The portfolio seeks to maintain
a net asset value of $1.00 per share. Nevertheless, there is no guarantee that
the objective of the portfolio will be achieved or that the net asset value of
$1.00 per share of the portfolio will be maintained.

PORTFOLIO SECURITIES

SIDEBAR [The portfolio will invest exclusively in short-term, high quality U.S.
dollar denominated domestic and foreign money market instruments.]

The portfolio will invest exclusively in U.S. dollar denominated money market
instruments, including, but not limited to, those issued by:

- -- the U.S. Government, its agencies and instrumentalities;
- -- U.S. and foreign banks;

- -- Corporations

- -- Municipalities;
- -- Foreign governments; and
- -- Multinational organizations, such as the World Bank.

No more than 5% of the portfolio's assets may be invested in securities rated in
the second-highest short-term category (or unrated equivalents). The rest of the
portfolio's investments must be in the highest short-term rating category. No
more than 25% of the portfolio's assets may be invested in obligations that are
issued either by foreign banks or by foreign branches of U.S. banks, unless
these obligations are backed by the U.S. parent bank. The portfolio maintains an
average maturity of 90 days or less and does not invest in securities with
maturities of more than 13 months.

To a limited extent, the portfolio may also invest in certain types of
securities and use certain investment techniques, such as repurchase agreements,
Section 4(2) commercial paper, when-issued and delayed delivery securities and
variable rate securities, which are more fully described in the Investment
Glossary at the end of this Prospectus. The Investment Glossary also describes
the portfolio's policies with regard to borrowing, concentration,
diversification and ratings, along with the risks associated with such
investments and policies. Types of investments and investment techniques that
the portfolio intends to use only to a very limited extent are described in the
Statement of Additional Information.

INVESTMENT RISKS

The yield paid by the portfolio will vary with changes in interest rates. While
the portfolio seeks to maintain its $1.00 share price, there is no guarantee
that it will be able to do so.

PORTFOLIO MANAGEMENT

The portfolio is managed by Bentley Myer, a principal with William Blair &
Company, L.L.C. Bentley joined the firm in 1991 as a fixed-income portfolio
manager. From 1983 to 1991 he was associated with LaSalle National Trust, first
as head of fixed-income investments and later as chief investment officer. Prior
to that, Bentley was head of the municipal investment section of the trust
department of Harris Trust and Savings Bank. He is currently a Trustee of Delnor
Community Hospital as well as a member of the Investment Analysts Society of
Chicago. Education: B.A., Middlebury College; M.B.A., Wharton School of the
University of Pennsylvania.

William Blair Mutual Funds, Inc. May 1, 1998
20

<PAGE> 25

YOUR ACCOUNT

HOW TO BUY

MINIMUM INVESTMENTS

OPENING ACCOUNT
<S> <C>
Regular Accounts.................... $5,000
IRAs................................ $2,000

ADDING TO AN ACCOUNT
Ready Reserves Fund................. $ 1
All Other Portfolios................ $1,000
</TABLE>

BY MAIL

OPENING AN ACCOUNT. To open a new account by mail, make out a check for the
amount of your investment, payable to "William Blair Mutual Funds, Inc." (the
"Fund"). Complete the account application included with this Prospectus, and
mail the completed application and the check to the Fund's Transfer Agent, State
Street Bank and Trust Company ("State Street"), P.O. Box 9104, Boston,
Massachusetts 02266-9104.

For the Ready Reserves Fund, send your check and completed application to the
Distributor, William Blair Mutual Funds, Inc., 222 West Adams Street, Chicago,
Illinois 60606.

ADDING TO AN ACCOUNT. To purchase additional shares of the Fund, make out a
check for the amount of your investment, payable to "William Blair Mutual Funds,
Inc." Mail the check, together with a letter that specifies the portfolio name,
the account number and the name(s) in which the account is registered, to State
Street Bank and Trust Company, P.O. Box 9104, Boston, Massachusetts 02266-9104.

For the Ready Reserves Fund, send your check and letter to the Distributor,
William Blair Mutual Funds, Inc. 222 West Adams Street, Chicago, Illinois 60606.

BY WIRE

OPENING AN ACCOUNT.
First, call State Street at 1-800-635-2886 (in Massachusetts, 1-800-635-2840)
for an account number. Then instruct your bank to wire federal funds to:

State Street Bank and Trust Co.
ABA # 011000028
DDA # 99029340
Attn: Custody & Shareholder Services
225 Franklin Street
Boston, Massachusetts 02110

Include the portfolio name in which you are investing, your assigned account
number and the name(s) in which the account is registered. Finally, complete the
account application, indicate the account number assigned to you by State Street
and mail it to William Blair Mutual Funds, Inc., 222 West Adams Street, Chicago,
Illinois 60606.

ADDING TO AN ACCOUNT. To add to your account by wire, instruct your bank to wire
federal funds to:

State Street Bank and Trust Co.
ABA # 011000028
DDA # 99029340
Attn: Custody & Shareholder Services
225 Franklin Street
Boston, Massachusetts 02110

In your request, specify the portfolio name in which you are investing, your
account number and the name(s) in which the account is registered.

William Blair Mutual Funds, Inc. May 1, 1998
21

<PAGE> 26

To add to an existing account by wire transfer of funds, you must have selected
this option on your account application.

BY TELEPHONE

Opening an Account. See "By Wire."

ADDING TO AN ACCOUNT. Call your State Street account executive at 1-800-635-2886
(in Massachusetts, 1-800-635-2840). For the Ready Reserves Fund only, call your
William Blair account executive at (312) 364-8000.

Tell your account executive the portfolio name, your account number and the
name(s) in which the account is registered. You may then pay for your new shares
by mail or by wire.

To add to an existing account by telephone, you must have selected this option
on your account application.

MINIMUM INVESTMENTS. To open an account, the minimum initial investment for
regular accounts is $5,000, and the minimum initial investment for Individual
Retirement Accounts ("IRAs") is $2,000. To add to an account, the minimum
subsequent investment is generally $1,000 for all accounts, except accounts
holding shares of the Ready Reserves Fund, for which the subsequent minimum
investment is $1. The portfolios may accept smaller amounts under a group
payroll deduction or similar plan. These minimum amounts may be changed at any
time and may be waived for directors, principals, officers or employees of the
Fund or William Blair & Company, L.L.C. (the "Adviser").

SIDEBAR [All six of the Fund's portfolios are no-load funds. A load is a sales
charge that you pay when you purchase or sell your mutual fund shares.]

PURCHASE PRICE. All six portfolios of the Fund are "no-load," which means that
you do not pay a sales charge when you buy or sell shares. All purchases are
made at a price based on the net asset value per share that is next computed
after receipt of your order in proper form by the Distributor, the Transfer
Agent or a designated agent thereof. For the Ready Reserves Fund, the net asset
value per share will normally be $1.00. (For more information, see
"Determination of Net Asset Value.") If you fail to pay for your order, you will
be liable for any loss to the Fund and, if you are a current shareholder, the
Fund may redeem some or all of your shares to cover such loss.

NOTE: All purchases made by check should be in U.S. dollars and made payable to
William Blair Mutual Funds, Inc., or in the case of a retirement account, the
custodian or trustee of such account. Third party checks will not be accepted.
When purchases are made by check or periodic account investment, the Fund may
delay sending redemption proceeds until it has determined that collected funds
have been received for the purchase of such shares, which may be up to 15
calendar days.

HOW TO SELL

You can arrange to take money out of your Fund account at any time by selling
("redeeming") some or all of your shares. You may give instructions to redeem
your shares by mail, by wire or by telephone, as described below.

BY MAIL

For all portfolios except the Ready Reserves Funds, to redeem shares by mail,
send a written redemption request signed by all account owners to State Street
Bank and Trust Company, P.O. Box 9104, Boston, Massachusetts 02266-9104.

For the Ready Reserves Fund, send your redemption request signed by all account
owners to the Distributor, William Blair & Company, L.L.C., 222 West Adams
Street, Chicago, Illinois 60606, to the attention of your account executive.
Amounts redeemed will be placed in your brokerage account.

FOR ALL SIX PORTFOLIOS OF THE FUND, WRITTEN REDEMPTION REQUESTS MUST INCLUDE:

- -- a letter that contains your name, the portfolio's name and the dollar
amount or number of shares to be redeemed;

- -- any stock certificates endorsed, or accompanied by an endorsed stock
power, to the order of the Fund; and

- -- any other necessary documents, such as an inheritance tax consent or
evidence of authority (for example, letters testamentary), dated not
more than 60 days prior to receipt thereof by State Street or the
Distributor.

William Blair Mutual Funds, Inc. May 1, 1998
22

<PAGE> 27

BY TELEPHONE

To redeem shares by telephone, you must have elected this option on your account
application. For all portfolios except the Ready Reserves Fund, contact the
Fund's Transfer Agent at 1-800-635-2886 (in Massachusetts, 1-800-635-2840).

For the Ready Reserves Fund, you may redeem some or all of your shares by
telephone by calling your William Blair account executive at (312) 364-8000.
Amounts redeemed will be placed in your brokerage account.

BY WIRE

To redeem some or all of your shares in any of the six portfolios by wire, you
may contact the Transfer Agent, or the Distributor in the case of the Ready
Reserves Fund, by mail or telephone, as explained above. To redeem by wire, you
must have elected this option on your account application and attached a voided,
unsigned check or deposit slip for your bank account to the application.

NOTE: Redemption requests should NOT be sent to the Fund or to the Distributor
(except in the case of the Ready Reserves Fund).

SIDEBAR [Signature guarantees must be obtained from a bank that is a member of
the FDIC, by a brokerage firm that is a member of the NASD, or by an eligible
guarantor who is a member of, or a participant in, a signature guarantee
program.]

SIGNATURE GUARANTEES. Your redemption request must include a signature guarantee
if any of the following situations apply:

- -- You wish to redeem shares having a value of $5,000 or more in a single
transaction;

- -- Your account registration has changed; or

- -- You want a check in the amount of your redemption to be mailed to a
different address than the one on your account application (address of
record).

SIGNATURE GUARANTEES, IF REQUIRED, MUST APPEAR ON THE WRITTEN REDEMPTION REQUEST
AND ON ANY ENDORSED STOCK CERTIFICATE OR STOCK POWER.

REDEMPTION PRICE. The redemption price that you receive for your shares may be
more or less than the amount that you originally paid for them, depending upon
their net asset value at the time your redemption request is received in proper
order by the Distributor, the Transfer Agent or a designated agent thereof. For
the Ready Reserves Fund, the net asset value will usually be $1.00.

PAYMENT FOR REDEEMED SHARES. Payment normally will be mailed to you at the
address of record for your account by the third business day after receipt by
State Street (or, in the case of the Ready Reserves Fund, the Distributor) of a
redemption request and any other required documentation and after any checks in
payment for your shares have cleared.

For the Ready Reserves Fund, if the Distributor receives notice of your request
to redeem shares by 9:30 a.m., Chicago time, the redemption will be effected as
of that date and proceeds normally will be paid that day. If notice of your
redemption request is received after that time, proceeds normally will not be
paid until the next business day.

AUTOMATIC REDEMPTION OF SMALL ACCOUNTS. Because of the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem your shares in
any account that, following a redemption, is below a specified amount.
Currently, the MINIMUM IS $5,000 PER PORTFOLIO. Before the redemption is
processed, you will be notified that the value of your account has fallen below
the minimum and allowed to make an additional investment.

SPECIAL REDEMPTION METHODS FOR THE READY RESERVES FUND

In addition to the above methods, shares of the Ready Reserves Fund can be
redeemed by two other methods unique to this portfolio. Redemption requests will
be processed after the next daily dividend declaration at the net asset value
next determined upon receipt by the Distributor of a proper redemption request.
In this way, you will receive the net asset value of your shares and all
declared but unpaid dividends on your shares through the date of redemption.

1. REDEMPTION BY CHECK. To redeem shares by check, you must fill out the
appropriate section of your account application. If your application for the
check writing privilege is approved, you will be provided with checks that may
be made payable to

William Blair Mutual Funds, Inc. May 1, 1998
23

<PAGE> 28

any person IN AN AMOUNT NOT LESS THAN $500 NOR MORE THAN $9 MILLION. There
currently is no charge for this service and no limit on the number of checks
that you may write; however, these provisions are subject to change.

The payee of the check may cash or deposit it like any other check drawn on a
bank. When the check is presented for payment, a sufficient number of full and
fractional shares from your account will be redeemed at their next determined
net asset value per share, usually $1.00, to cover the amount of the check. This
enables you to continue earning daily dividends until the check clears. Canceled
checks will be returned to you by State Street. For joint accounts, unless a
single signer has been authorized on your account application, checks must be
signed by all joint account owners.

The Fund may refuse to honor checks whenever the right of redemption has been
suspended or postponed or whenever your account is otherwise impaired. For
instance, your account would be considered to be impaired when (1) there are
insufficient assets to cover the check, (2) a "stop order" has been placed on
the check and (3) in other situations, such as where there is a dispute over
ownership of the your account. A $25 SERVICE FEE will be charged when a check is
presented to redeem portfolio shares in excess of the value of your account or
for an amount less than $500.

2. AUTOMATIC REDEMPTION. The Distributor has instituted an automatic redemption
procedure available to Ready Reserve Fund shareholders who maintain certain
brokerage accounts with it. The Distributor may use this procedure to satisfy
amounts due it by you as a result of purchases of securities or other
transactions in your brokerage account. Under this procedure, if you so elect,
your brokerage account will be scanned at the opening of business each day and,
after application of any cash balances in the brokerage account, a sufficient
number of portfolio shares will be redeemed, effective that day at the next
determined net asset value, to satisfy any amounts which you are obligated to
pay to the Distributor. You will receive all dividends declared but unpaid
through the date of redemption.

EXCHANGES

- -- Growth Fund
- -- Value Discovery Fund
- -- International Growth Fund

- -- Emerging Markets Growth Fund

- -- Income Fund
- -- Ready Reserves Fund

Subject to the following limitations, you may exchange shares of all six
portfolios for each other at their relative net asset values so long as the
portfolio shares to be acquired are registered in your state of residence. There
is NO SERVICE FEE for an exchange; however, ONLY FOUR (4) EXCHANGES FROM A
PORTFOLIO ARE ALLOWED WITHIN ANY 12-MONTH PERIOD. Exchanges will be effected by
redeeming your shares of the portfolio held and purchasing shares of the other
portfolio or portfolios requested.

BY MAIL

You may request an exchange of your shares by writing to William Blair Mutual
Funds, Inc., Attention: Exchange Department, P.O. Box 9104, Boston,
Massachusetts 02266-9104.

BY TELEPHONE

You may also exchange your shares by telephone by completing the appropriate
section on your account application. Once your telephone authorization is on
file, State Street will honor your requests to redeem shares by telephone at
1-800-635-2886 (in Massachusetts, 1-800-635-2840). If you hold certificated
shares of the Fund, you must deposit them with State Street prior to any
exchange of such shares.

Neither the Fund nor State Street will be liable for any loss, expense or cost
arising out of any telephone request pursuant to the telephone exchange
privilege, including any fraudulent or unauthorized request, and you will bear
the risk of loss, so long as the Fund or its Transfer Agent reasonably believes,
based upon reasonable verification procedures, that the telephonic instructions
are genuine. The VERIFICATION PROCEDURES include (1) recording instructions, (2)
requiring certain identifying information before acting upon instructions and
(3) sending written confirmations.

William Blair Mutual Funds, Inc. May 1, 1998
24

<PAGE> 29

SHAREHOLDER SERVICES AND RIGHTS

SIDEBAR [William Blair provides a variety of services to help you manage your
account.]

AUTOMATIC SWEEP PROGRAM. You can purchase shares of the Ready Reserves Fund
through an automatic sweep program if you establish a brokerage account with the
Distributor, William Blair & Company, L.L.C., provided that you meet the current
minimum brokerage account size requirements. The automatic sweep program helps
you to make convenient, efficient use of free credit balances in your William
Blair brokerage account.

TO PURCHASE SHARES of the Ready Reserves Fund through the automatic sweep
program, you must have a free credit balance in your brokerage account with the
Distributor. Currently, free credit balances are used automatically to purchase
shares of the portfolio. If you have a FREE CREDIT BALANCE OF AT LEAST $1,000,
the Distributor will effect on your behalf an investment in the portfolio shares
on an expedited basis.

- -- If you have a free credit balance resulting from securities
transactions in your brokerage account at the opening of business of
the Distributor, it generally will be invested in shares of the
portfolio on that same day, but in no event later than the next
business day.

- -- If you have a free credit balance resulting from a deposit made prior
to 2:00 p.m., Chicago time, or a receipt of income (by check or wire),
then it will be invested in shares of the portfolio no later than the
next business day.

- -- If you have a free credit balance of at least $1 and less than $1,000,
it will be invested in shares of the portfolio within a maximum of five
business days from the day when the free credit balance is created.

DIVIDEND OPTIONS. You may choose to have your distributions reinvested in
additional shares of the Fund automatically or paid in cash by making the
appropriate election on your account application. You may change your election
at any time by providing written notice to State Street.

1. AUTOMATIC DIVIDEND REINVESTMENT PLAN. The Fund automatically reinvests all
income dividends and capital gain distributions in additional shares of a
portfolio's stock at net asset value on the reinvestment date. (For more
information, see "Dividend and Distribution Policy.")

2. CASH-DIVIDEND PLAN. You may choose to have all of your income dividends paid
in cash and/or have your capital gain distributions paid in cash. Any
distributions you do not elect to have paid in cash will be reinvested
automatically in additional shares of the Fund at net asset value.

3. AUTOMATIC DEPOSIT OF DIVIDENDS. You may elect to have all income dividends
and capital gain distributions automatically deposited in a previously
established bank account.

AUTOMATIC INVESTMENT PLAN. On your account application, you may authorize State
Street to automatically withdraw an amount of money (MINIMUM $250) from your
bank account on the fifth or twentieth day of each month. This amount will be
invested in additional shares. You may change your election at any time by
providing written notice to State Street.

<TABLE>
<CAPTION>
MINIMUM INVESTMENTS
<S> <C>
Initial Investment $2,000
Subsequent Investments $1,000
</TABLE>

SYSTEMATIC WITHDRAWAL PLAN. You may establish this plan with shares presently
held or through a new investment, which the Fund suggests be at least $5,000.
Under this plan, you specify a dollar amount to be paid monthly, quarterly or
annually. Shares corresponding to the specified dollar amount are automatically
redeemed from your account on the fifth business day preceding the end of the
month, quarter or year. While this plan is in effect, all income dividends and
capital gain distributions on shares in your account will be reinvested at net
asset value in additional shares. There is no charge for withdrawals, but the
MINIMUM WITHDRAWAL IS $250 PER MONTH. Depending upon the size of payments
requested, and fluctuations in the net asset value of the shares redeemed,
redemptions under this plan may reduce or even exhaust your account.

RETIREMENT PLANS. The Fund offers a variety of qualified retirement plans,
including Individual Retirement Accounts ("IRAs"), Simplified Employee Pension
Plans ("SEPs") and other qualified retirement plans. Additional information
concerning such plans is available from the Fund.

William Blair Mutual Funds, Inc. May 1, 1998
25

<PAGE> 30

The minimum initial retirement plan investment is $2,000 and the minimum
subsequent investment is $1,000. State Street may act as custodian for the
portfolio's IRAs and certain other qualified retirement plans. State Street
charges a $5 plan establishment fee, an annual $15 custodial fee and a $10 fee
for each lump sum distribution from a plan. These fees may be waived under
certain circumstances.

With regard to retirement plans:

- -- participation is voluntary;
- -- you may terminate or change a plan at any time without penalty or
charge from the Fund;
- -- the Fund will pay any additional expenses that it incurs in connection
with such plans;
- -- on your account application you may select a plan or plans in which to
invest;
- -- additional forms and further information may be obtained by writing or
calling the Fund;
- -- the Fund reserves the right to change the minimum amounts for initial
and subsequent investments or to terminate any of the plans;
- -- the Fund reserves the right to waive investment minimums at the
discretion of the Distributor; and
- -- the Fund requires a copy of the trust agreement when shares are to be
held in trust.

CONSULTATION WITH A PROFESSIONAL TAX ADVISER IS RECOMMENDED, both because of the
complexity of Federal tax laws and because various tax penalties are imposed for
excess contributions to, and late or premature distributions from, IRAs or other
qualified retirement plans. Termination of a plan shortly after its adoption may
have adverse tax consequences.

SHAREHOLDER RIGHTS. All shares of each portfolio have equal rights with respect
to dividends, assets and liquidation of a portfolio and equal, noncumulative
voting rights. Noncumulative voting rights allow the holder or holders of a
majority of shares, voting together for the election of directors, to elect all
the directors. All shares of each portfolio will be voted in the aggregate,
except when a separate vote by portfolio is required under the Investment
Company Act of 1940. Shares are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
Under Maryland law, the Fund is not required to hold shareholder meetings on an
annual basis. As required by law, the Fund will, however, hold shareholder
meetings when a sufficient number of shareholders request a meeting, or as
deemed desirable by the Board of Directors, for such purposes as electing or
removing directors, changing fundamental policies or approving an investment
management agreement. (For additional information about shareholder voting
rights, see the Statement of Additional Information.)

DIVIDEND AND DISTRIBUTION POLICY

SIDEBAR [INCOME DIVIDENDS. Each portfolio earns dividends from stocks and
interest from bond, money market, and other investments, which are passed along
to shareholders as income dividends.]

SIDEBAR [CAPITAL GAIN DISTRIBUTIONS. The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them, which are passed
along to shareholders as capital gain distributions.]

As a Fund shareholder, you are entitled to your portion of the Fund's net income
and gains on its investments. The Fund passes its earnings along to you as
distributions. The Fund's policy is to distribute substantially all net
investment income, if any, and all net realized capital gain, if any. All
distributions of income and capital gain and any return of capital have the
effect of immediately thereafter decreasing net asset value per share. Income
dividends and capital gain distributions will be automatically reinvested in
additional shares at net asset value on the reinvestment date, unless you
specifically request otherwise (see "Dividend Options" under "Shareholder
Services and Rights"). Cash payments are made by the Fund's Dividend Paying
Agent, State Street Bank and Trust Company, shortly following the reinvestment
date.

WHEN DIVIDENDS ARE PAID FOR EACH PORTFOLIO

- -- For the Growth Fund, Value Discovery Fund, International Growth Fund
and Emerging Markets Growth Fund, all income dividends, if any, and
capital gain distributions, if any, will generally be paid in December
and/or January.

- -- For the Income Fund, income dividends are normally paid the fifteenth
day of each month if a business day, with net realized long-term
capital gain distributions, if any, generally being paid in December
and/or in January. The Fund attempts to maintain relatively level
monthly dividends for the Income Fund and therefore, from time to time,
may distribute or retain net investment income and capital gain or make
a return of capital distribution in order to pursue that goal.

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- -- For the Ready Reserves Fund, on each day that the Fund is open for
business, the portfolio's net investment income will be declared at the
close of the New York Stock Exchange, which is generally 3:00 p.m.,
Chicago time, as a dividend to shareholders who were of record prior to
the declaration.

The Fund may vary these dividend practices at any time. Income dividends and any
capital gain distributions on all six portfolios will vary from year to year.
Dividends and distributions may be subject to withholding as required by the
Internal Revenue Service (see "Taxes").

TAXES

SIDEBAR [As with any investment, you should consider how your investment in the
Fund will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of these tax implications.]

TAXES ON DISTRIBUTIONS. Distributions are subject to Federal income tax and may
also be subject to state or local taxes. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them in more shares of
the Fund. However, dividends declared by the Fund in October, November or
December to shareholders of record as of a date in one of those months and paid
before the following February 1 are treated as having been paid on December 31
of the calendar year declared for Federal income tax purposes. The Fund will
inform you of the amount and nature of distributions paid.

Under the Federal tax laws, each portfolio's income dividends and short-term
capital gains distributions are taxed as ordinary income. Long-term capital gain
distributions are taxed as long-term capital gains. It is anticipated that a
portion of the ordinary income dividends for the Growth Fund and the Value
Discovery Fund will be eligible for the dividends-received deduction available
for corporate shareholders. The ordinary income dividends of International
Growth Fund, Emerging Markets Growth Fund, Income Fund and Ready Reserves Fund
are not eligible for the dividends-received deduction available to corporate
shareholders.

TAXES ON TRANSACTIONS. Your redemptions--including exchanges for shares of other
Fund portfolios--are subject to capital gains tax. A capital gain or loss is the
difference between the price that you paid for your shares and the price that
you receive when you sell them. For the Ready Reserves Fund, so long as a net
asset value of $1.00 is maintained, the sale or redemption of your shares will
not result in a capital gain or loss. Any loss recognized on the redemption of
Fund shares held six months or less will be treated as a long-term capital loss
to the extent you have received any long-term capital gain dividends on such
shares. A shareholder that redeems shares of the Fund will normally recognize a
capital gain or loss for Federal income tax purposes. If you realize a loss on
the redemption of portfolio shares within 30 days before or after an acquisition
of other Fund shares, the two transactions may be subject to the wash sale rules
of the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for Federal income tax purposes.

"BUYING A DIVIDEND." If you buy Fund shares before a portfolio deducts a
distribution from its net asset value, you will pay the full price for the
shares and then receive a portion of the price back in the form of a taxable
distribution. See "Dividend and Distribution Policy" for payment schedules, and
call the Distributor if you have further questions.

EFFECT OF FOREIGN TAXES. Investment income received from sources within foreign
countries may be subject to foreign income taxes, which generally will reduce
the Fund's distributions. However, the United States has entered into tax
treaties with many foreign countries that entitle certain investors to a reduced
rate of tax or to certain exemptions from tax. Accordingly, the International
Growth Fund and Emerging Markets Growth Fund will operate so as to qualify for
such reduced tax rates or tax exemptions whenever practicable.

For a more detailed discussion of taxes, see the Statement of Additional
Information.

DETERMINATION OF NET ASSET VALUE

WHEN AND HOW NET ASSET VALUE IS DETERMINED FOR THE PORTFOLIOS

SIDEBAR [NET ASSET VALUE ("NAV"). The market value of a mutual fund's total
assets, minus liabilities, divided by the number of shares outstanding is its
net asset value. The value of a single share is called its share value or share
price.]

The net asset value per share for each portfolio shall be determined as of the
close of trading on the New York Stock Exchange, which is generally 3:00 p.m.,
Chicago time (4:00 p.m. Eastern time), on each day when the Exchange is open. In
addition, the Ready Reserves Fund does not price its shares on Columbus Day and
Veteran's Day.

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When net asset value is computed, quotations of foreign securities in foreign
currencies are converted into the United States dollar equivalents at the
prevailing market rates as computed by Investors Bank & Trust Company, the
Fund's custodian. Trading in securities on exchanges and over-the-counter
markets in Europe and the Far East is normally completed at various times prior
to 3:00 p.m., Chicago time, the current closing time of the New York Stock
Exchange. Trading on foreign exchanges may not take place on every day that the
New York Stock Exchange is open. Conversely, trading in various foreign markets
may take place on days when a New York Stock Exchange is not open and on other
days when a portfolio's net asset value is not calculated. Consequently,
calculation of the net asset value for the International Growth Fund and the
Emerging Markets Growth Fund may not occur at the same time as determination of
the most current market prices of the securities included in the calculation,
and the value of the net assets held by the International Growth Fund and the
Emerging Markets Growth Fund may be significantly affected on days when shares
are not available for purchase or redemption.

For the purposes of calculating the net asset value of the Ready Reserves Fund,
portfolio securities are valued at their amortized cost, which means their
acquisition cost adjusted for the amortization of a premium or discount.

HOW THE MARKET VALUE OF PORTFOLIO SECURITIES IS DETERMINED

DOMESTIC EQUITY SECURITIES. The market value of portfolio domestic equity
securities is determined by valuing securities traded on national securities
markets at the last sale price or, in the absence of a recent sale on the date
of determination, at the latest bid price. Securities traded only on the
over-the-counter market are valued at the latest bid price.

FOREIGN EQUITY SECURITIES. The value of a foreign equity security is determined
based upon the last sale price on the foreign exchange or market on which it is
primarily traded and in the currency of that market, as of the close of the
appropriate exchange or, if there have been no sales during that day, at the
latest bid price.

FIXED-INCOME SECURITIES. Fixed-income securities are valued by using market
quotations, independent pricing services that use prices provided by
market-makers or matrixes producing estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.

OTHER SECURITIES AND ASSETS. Other securities, and all other assets, are valued
at a fair value as determined in good faith by, or under the direction of, the
Board of Directors.

OTHER IMPORTANT INFORMATION

WRITTEN CONFIRMATIONS. Each purchase, exchange or redemption transaction is
confirmed in writing to the address of record by giving details of the purchase
or redemption.

CERTIFICATED SHARES. In the interest of safekeeping and expediting transfers and
redemptions, most shareholders prefer not to receive certificates for their
shares. Rather, the value of the shares is represented by your account balance.
The Fund will, however, issue certificated shares upon your written request.
Unless payment for shares is made by certified or cashier's check, a share
certificate will not be issued until thirty days after your purchase is
completed.

USE OF INTERMEDIARIES. If you purchase or redeem shares of the Fund through an
investment dealer, bank or other institution, that institution may impose
charges for its services. These charges would reduce your yield or return. You
may purchase or redeem shares of the Fund directly from the Fund or with the
Fund's Transfer Agent, State Street Bank, without any such charges.

TRANSFER OF SHARES. Fund shares may be transferred by a written request
addressed to the Fund and delivered to State Street giving the name and social
security or taxpayer identification number of the transferee and accompanied by
the same signature guarantees and documents as would be required for a
redemption, together with specimen signatures of all transferees.

SUSPENSION OF OFFERING. The Fund reserves the right to withdraw all or any part
of the offering made by this Prospectus and the Fund or the Distributor may
reject purchase orders. From time to time, the Fund may temporarily suspend the
offering of its shares to new investors. During the period of such suspension,
persons who are already shareholders of a portfolio may be permitted to continue
to purchase additional shares of the portfolio, to have dividends reinvested and
to make redemptions.

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MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

Responsibility for overall management of the Fund rests with its directors and
officers. Their duties include supervising the business affairs of the Fund,
monitoring investment activities and practices and considering and acting upon
future plans for the Fund. The business affairs and investments of the Fund are
managed on a day-to-day basis by the Fund's Adviser, William Blair & Company,
L.L.C.

THE ADVISER

William Blair & Company, L.L.C., 222 West Adams Street, Chicago, Illinois 60606,
is the investment adviser and manager of the Fund and provides the Fund with
continuous professional investment supervision. The Adviser is also the
principal underwriter and distributor of the Fund and acts as agent of the Fund
in the sale of its shares. William Blair & Company, L.L.C. was founded over 60
years ago by William McCormick Blair. Today, the firm has more than 140
principals and 700 employees. The main office in Chicago houses all research and
investment management services.

The Investment Management Department oversees the assets of the six William
Blair mutual funds, along with corporate pension plans, endowments and
foundations and individual accounts. The department currently manages over $9.3
billion in equities, fixed-income securities and cash equivalents.

The Adviser firmly believes that clients are best served when portfolio managers
are encouraged to draw on their experience and develop new ideas. This
philosophy has helped build a hard-working, results-oriented team of over 30
portfolio managers, supported by over 35 analysts, with an exceptionally low
turnover rate. William Blair portfolio managers average more than ten years with
William Blair and more than two decades experience in the investment industry.
The Adviser is registered as an investment adviser under the Investment Advisers
Act of 1940.

Pursuant to its management agreement, the Adviser directs the investment of the
assets of the Fund and is responsible for the overall management of the business
affairs of the portfolios, subject to the supervision of the Fund's Board of
Directors. The Adviser's duties include determining which investments to buy and
sell, placing brokerage orders and negotiating the terms of securities
transactions on behalf of the Fund. It also provides various other services and
facilities.

MANAGEMENT FEES

GROWTH FUND. The Growth Fund pays the Adviser a monthly management advisory fee
at an annual rate of .75% of the average daily net assets of the portfolio.

VALUE DISCOVERY FUND. The Value Discovery Fund pays the Adviser a monthly
management advisory fee at an annual rate of 1.15% of the average daily net
assets of the portfolio. The management fee is greater than that paid by most
mutual funds.

INTERNATIONAL GROWTH FUND. The International Growth Fund pays the Adviser a
monthly management advisory fee at an annual rate of 1.10% of the first $250
million of average daily net assets of the portfolio and 1.00% of average daily
net assets above $250 million. The management fee is greater than that paid by
most mutual funds.

EMERGING MARKETS GROWTH FUND. The Emerging Markets Growth Fund pays the Adviser
a monthly management fee at an annual rate of 1.40% of the average daily net
assets of the portfolio. The management fee is greater than that paid by most
mutual funds.

INCOME FUND. The Income Fund pays the Adviser a monthly management advisory fee
at an annual rate of .25% of the first $250 million of average daily net assets
of the portfolio and .20% of average daily net assets in excess of $250 million,
plus 5.0% of the gross income earned. This fee structure results in higher
compensation to the Adviser when higher income is achieved, including the higher
income that is available from riskier securities.

READY RESERVES FUND. The Ready Reserves Fund pays the Adviser a monthly
management advisory fee at an annual rate of .625% of the first $250 million of
average daily net assets of the portfolio, .60% of the next $250 million, .575%
of the next $2 billion and .55% of the average daily net assets in excess of
$2.5 billion.

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YEAR 2000 COMPLIANCE

A critical issue has emerged in the investment services industry and for the
economy overall regarding how existing application software programs and
operating systems can accommodate the date value for the year 2000. Many
existing application software products in the marketplace were designed only to
accommodate a two-digit date position which represents the year (e.g., "95" is
stored on the system and represents the year 1995). As a result, the year 1999
(i.e., "99") could be the maximum date value these systems will be able to
accurately process. The Fund is in the process of working with the Adviser and
other service providers to assure that the Fund is prepared for the year 2000.
The Fund has been assured by the Adviser and other service providers that they
do not believe that the Fund will be materially adversely effected by year 2000.
Nevertheless, the inability of the Adviser and other service providers to
successfully address year 2000 issues could result in interruptions in the
Fund's business and have a material adverse effect on the Fund's operations.

EXPENSES

The Fund's expenses include the management advisory fees; transaction costs;
interest; taxes; legal, accounting, auditing, transfer agency and custodial fees
and certain other operational expenses. During the Emerging Markets Growth
Fund's first year of operation, the Adviser has voluntarily agreed to waive the
advisory fee and to absorb other operating expenses if total operating expenses
exceed 2.25% of the portfolio's average daily net assets. In addition, over a
five-year period following the portfolio's commencement of operations the Value
Discovery Fund and Emerging Markets Growth Fund are reimbursing the Adviser for
expenses (up to $50,000) incurred by the Adviser in establishing the portfolio.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT

The Fund's Custodian is Investors Bank and Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02117. The Fund's Transfer Agent and Dividend Paying Agent
is State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.

PERFORMANCE

From time to time, the portfolios may advertise several types of performance
information that are based upon historical results and are not necessarily
representative of the future performance of a portfolio.

Average annual total return is a standard measure of portfolio performance. It
assumes that any distributions of capital gains or dividends were reinvested for
the period quoted. Yield is a standard measure of performance for income funds
and money funds. Yield measures the net investment income per share earned over
a specific 30-day period for income funds and a 7-day period for money funds.

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INVESTMENT GLOSSARY

The following glossary explains some of the types of securities in which the
portfolios may invest, investment techniques they may employ and some of their
specific associated risks. For more information, please see the Fund's Statement
of Additional Information.

BORROWING. To a certain extent, each portfolio may borrow money from banks for
limited purposes. The Growth Fund, Value Discovery Fund, International Growth
Fund and Emerging Markets Growth Fund may borrow up to 10% of their total
assets; the Income Fund and Ready Reserves Fund may borrow up to 5% of their
total assets. Most borrowing is intended only as a temporary measure for
extraordinary or emergency purposes, such as to help meet redemption requests,
and not for leverage purposes.

COLLATERALIZED OBLIGATIONS. The Income Fund may invest in collateralized
obligations, which are debt securities issued by a corporation, trust or
custodian or by a U.S. Government agency or instrumentality, that are
collateralized by a portfolio or pool of assets, such as mortgages,
mortgage-backed securities, debit balances on credit card accounts or U.S.
Government securities. The issuer's obligation to make interest and/or principal
payments is secured by the underlying pool or portfolio of securities.

A variety of types of collateralized obligations are available currently, and
others may become available in the future. Some obligations are for the
guaranteed payment of only principal (the principal-only or "PO" class) or only
interest (the interest-only or "IO" class), while others are for the guaranteed
payment of both, or some variation thereof. The yields to maturity on PO and IO
class obligations are more sensitive than other obligations, with the IO class
obligations being extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying assets. The portfolio will
invest only in PO and IO class mortgage obligations collateralized by securities
guaranteed by the U.S. Government. Some types of collateralized obligations may
be less liquid than other types of securities. Investments in collateralized
obligations that are deemed to be illiquid, which includes PO and IO class
mortgage obligations, will be subject to the 15% limitation on illiquid assets.

The mortgage-backed collateralized obligations in which the portfolio may invest
include pools of mortgage loans assembled for sale to investors by various
governmental agencies such as the Government National Mortgage Association
("GNMA") and government-related organizations such as the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). Payments of principal and/or interest on such mortgages, including
prepayments, are guaranteed by the agency or instrumentality. The agencies and
instrumentalities are subject to varying degrees of support by the U.S.
Government. The effective credit quality of collateralized obligations is the
credit quality of the collateral. The requirements as to collateralization are
determined by the issuer or sponsor of the collateralized obligation in order to
satisfy rating agencies. These collateralized obligations generally have excess
collateral, but typically any guarantee is limited to a specified percentage of
the pool of assets.

The potential for appreciation in the event of a decline in interest rates may
be limited or negated by increased principal prepayments by certain
mortgage-backed securities, such as GNMA Certificates and other collateralized
obligations. During periods of declining interest rates, mortgages underlying
the security are prone to prepayment, causing the security's effective maturity
to be shortened. Prepayment of high interest rate mortgage-backed securities
during times of declining interest rates will tend to lower the return of the
portfolio and may even result in losses to the portfolio if the prepaid
securities were acquired at a premium. Because mortgage-backed securities tend
to be sensitive to prepayment rates on the underlying collateral, their value to
the portfolio is dependent upon the accuracy of the prepayment projections used,
which are a consensus derived from several major securities dealers. The
duration of many mortgage backed securities changes substantially in response to
changes in interest rates and prepayment rates.

DEPOSITORY RECEIPTS. The Growth Fund, Value Discovery Fund, International Growth
Fund and Emerging Markets Growth Fund may invest in foreign issuers through
sponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs"). Generally an ADR is a
dollar-denominated security issued by a U.S. bank or trust company that
represents, and may be converted into, the underlying foreign security, an EDR
represents a similar securities arrangement but is issued by a European bank and
a GDR is issued by a depository. ADRs, EDRs and GDRs may be denominated in a
currency different from the underlying securities into which they may be
converted. Typically, ADRs, in registered form, are designed for issuance in
U.S. securities markets and EDRs and GDRs, in bearer form, are designed for
issuance in European securities markets. Investments in depository receipts
entail risks similar to direct investments in foreign securities. These risks
are detailed in the section on "Investment Risks" under the "International
Growth Fund" and "Emerging Markets Growth Fund" above and in the Statement of
Additional Information.

DURATION. For the Income Fund, the duration of an instrument is different from
the maturity of an instrument in that duration measures the average period
remaining until the discounted value of the amounts due (principal and interest)
under the instrument are to be paid, rather than by the instrument's stated
final maturity. For example, a portfolio duration of five years means that,

William Blair Mutual Funds, Inc. May 1, 1998
31

<PAGE> 36
if interest rates increased by one percent, the value of the portfolio would
decrease approximately by five percent. Modified duration adjusts duration to
take into account the yield to maturity and the number of coupons received each
year. For purposes of calculating duration, instruments allowing prepayment will
be assigned a maturity schedule by the Adviser based upon general experience.

CONCENTRATION. Each portfolio does not intend to invest more than 25% of its
total asset in any one industry; however, the Ready Reserves Fund may invest
more than 25% of its total assets in the domestic banking industry. These
limitations do not apply to U.S. Government securities or government agency
securities, or to instruments, such as repurchase agreements, secured by these
instruments.

DIVERSIFICATION. As a matter of fundamental policy, each portfolio will not
purchase the securities of any issuer if, as a result, more than 5% of its total
assets would be invested in such issuer. For the Value Discovery Fund and
Emerging Markets Growth Fund, that limitation applies to 75% of the portfolio's
net assets. In addition, each portfolio will not purchase more than 10% of the
outstanding voting securities of any issuer. These limitations do not apply to
U.S. Government securities or to government agency or instrumentality
securities.

FOREIGN CURRENCY FUTURES. The International Growth Fund and Emerging Markets
Growth Fund may purchase and sell futures on foreign currencies as a hedge
against possible variation in foreign exchange rates. Foreign currency futures
contracts are traded on boards of trade and futures exchanges. A futures
contract on a foreign currency is an agreement between two parties to buy and
sell a specified amount of a particular currency for a particular price on a
future date. To the extent that the portfolio engages in foreign currency
futures transactions, but fails to consummate its obligations under the
contract, the net effect to the portfolio would be the same as speculating in
the underlying futures contract. Futures contracts entail certain risks. If the
Adviser's judgment about the general direction of rates or markets is wrong, the
portfolio's overall performance may be less than if no such contracts had been
entered into. There may also be an imperfect correlation between movements in
prices of futures contracts and the portfolio securities being hedged. In
addition, the market prices of futures contracts may be affected by certain
factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements,
distortions in the normal relationship between the securities and futures
markets could result. In addition, because margin requirements in the future
markets are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to price distortions in the futures market and an imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of market trends by the
portfolio's Adviser may still not result in a successful hedging transaction.
The portfolio could also experience losses if it could not close out its futures
position because of an illiquid secondary market, and losses on futures
contracts are not limited to the amount invested in the contract. The above
circumstances could cause the portfolio to lose money on the financial futures
contracts and also on the value of its portfolio securities.

To the extent required to comply with the 1940 Act and the rules and
interpretations thereunder, whenever the portfolio enters into a futures
contract, the portfolio will maintain a segregated account consisting of either
cash or liquid securities equal to the portfolio's potential obligation under
such contracts. The segregation of assets places a practical limit on the extent
to which the portfolio may engage in futures contracts.

To the extent required to comply with CFTC Rule 4.5 and in order to avoid
"commodity pool operator" status, each portfolio will not enter into a financial
futures contract if immediately thereafter the aggregate initial margin and
premiums for such contracts held by the portfolio would exceed 5% of the
liquidation value of the portfolio's assets. The portfolio will not engage in
transactions in financial futures contracts for speculation, but only in an
attempt to hedge against changes in interest rates or market conditions
affecting the value of securities that the portfolio holds or intends to
purchase.

FOREIGN SECURITIES. Securities of foreign companies may entail risks not
associated with domestic securities. The prices of such securities may be more
volatile, there may be less publicly available information about foreign issuers
and many foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers. These risks are detailed in the section on "Investment Risks" under the
"International Growth Fund" and "Emerging Markets Growth Fund" above and in the
Statement of Additional Information.

FORWARD FOREIGN CURRENCY TRANSACTIONS. The International Growth Fund and
Emerging Markets Growth Fund may enter into forward foreign currency contracts
as a means of managing the risks associated with changes in exchange rates. A
forward foreign currency contract is an agreement to exchange U.S. dollars for
foreign currencies at a specified future date and specified amount which is set
by the parties at the time of entering into the contract. The Adviser will
generally use such currency contracts to fix a definite price for securities
they have agreed to buy or sell and may also use such contracts to hedge the
portfolio's investments against adverse exchange rate changes. Alternatively,
the portfolios may enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which securities of the

William Blair Mutual Funds, Inc. May 1, 1998
32
<PAGE> 37

portfolio are denominated ("cross-hedge"). The profitability of forward foreign
currency transactions depends upon correctly predicting future changes in
exchange rates between the U.S. dollar and foreign currencies. As a result, a
portfolio may incur either a gain or loss on such transactions. While forward
foreign currency transactions may help reduce losses on securities denominated
in a foreign currency, they may also reduce gains on such securities depending
on the actual changes in the currency's exchange value relative to that of the
offsetting currency involved in the transaction. The portfolios will not enter
into forward foreign currency transactions for speculative purposes.

ILLIQUID SECURITIES. The Growth Fund, Value Discovery Fund, International Growth
Fund, Emerging Markets Growth Fund and Income Fund may each invest up to 15% of
its net assets in illiquid securities. The Ready Reserves Fund may invest up to
10% of its net assets in illiquid securities. Illiquid securities are those
securities that are not readily marketable, including restricted securities and
repurchase obligations maturing in more than seven days.

INVESTMENT COMPANIES. Subject to the provisions of the 1940 Act, the Growth
Fund, Value Discovery Fund, International Growth Fund and Emerging Markets
Growth Fund may each invest in the shares of investment companies. Investment in
other investment companies may provide advantages of diversification and
increased liquidity; however, there may be duplicative expenses, such as
advisory fees or custodial fees. At the present time each portfolio intends to
limit its investment in other investment companies, to no more than 10% of its
total assets. Several foreign governments permit investments by non-residents in
their markets only through participation in certain investment companies
specifically organized to participate in such markets. In addition, investments
in unit trusts and country funds permit investments in foreign markets that are
smaller than those in which the portfolio would ordinarily invest directly.
Investments in such pooled vehicles should enhance the geographical
diversification of the portfolio's assets while reducing the risks associated
with investing in certain smaller foreign markets. Investments in such vehicles
will provide increased liquidity and lower transaction costs than are normally
associated with direct investments in such markets; however, there may be
duplicative expenses, such as advisory fees or custodial fees.

PORTFOLIO TURNOVER RATE. None of the portfolios intends to trade portfolio
securities for the purpose of realizing short-term profits. However, each will
adjust its portfolio as considered advisable in view of prevailing or
anticipated market conditions and the portfolio's investment objective, and
there is no limitation on the length of time securities must be held by the
portfolio prior to being sold. Portfolio turnover rate will not be a limiting
factor for a portfolio. Although each portfolio's turnover rate will vary from
year to year, it is anticipated that each portfolio's turnover rate, under
normal circumstances, will be less than 100%. A higher portfolio turnover rate
would involve correspondingly higher transaction costs, which would be borne
directly by each portfolio.

RATINGS. The Ready Reserves Fund has adopted certain investment policies
designed to limit the market and financial risks of the portfolio. The portfolio
may only invest in securities that, based on their short-term ratings, are
deemed to be the highest grade, or if unrated, are of equivalent quality in the
judgment of the Adviser, subject to the supervision of the Board of Directors.
However, the portfolio may invest up to five percent of its total assets in
securities deemed within the second highest grade, or if unrated, are of
equivalent quality. In addition, portfolio investments will be limited to
instruments that the Adviser, under the supervision of the Board of Directors,
has determined present minimal credit risks. Securities are deemed to be highest
grade if they are rated high quality by two Rating Organizations, or if only
rated by one Rating Organization, rated high quality by that Rating
Organization. For example, commercial paper rated "Duff 1 minus," "Fitch 1,"
"Prime 1" and "A-1" by Duff & Phelps, Inc., Fitch Investors Service, Inc.,
Moody's Investors Service, Inc., and Standard & Poor's Corporation,
respectively, would be considered high quality. Obligations that are unrated are
not necessarily of lower quality than those that are rated, but may be less
marketable and, consequently, provide higher yields. Further, the portfolio may
invest in other corporate obligations maturing in thirteen months or less, such
as publicly traded bonds, debentures and notes, if they are rated within the two
highest grades by a Rating Organization. For a description of these ratings, see
Appendix B to the Statement of Additional Information.

REAL ESTATE INVESTMENT TRUSTS. The Value Discovery Fund may invest up to 15% of
its net assets in real estate investment trusts ("REITs"). REITs are subject to
volatility from risks associated with investments in real estate and investments
dependent on income from real estate, such as fluctuating demand for real estate
and sensitivity to adverse economic conditions. In addition, the failure of a
REIT to continue to qualify as a REIT for tax purposes would have an adverse
effect upon the value of a portfolio's investment in that REIT.

REPURCHASE AGREEMENTS. Each portfolio may invest in repurchase agreements.
Repurchase agreements are instruments under which a portfolio acquires ownership
of a security and the seller, a broker-dealer or a bank, agrees to repurchase
the security at a mutually agreed upon time and price. The repurchase agreement
serves to fix the yield of the security during the portfolio's holding period.
The portfolios currently intend to enter into repurchase agreements only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. In all cases, the Adviser, subject to the supervision of
the Board of Directors, must be satisfied with the creditworthiness of the
seller before entering into a repurchase agreement. In the event of the
bankruptcy or other default of the seller of a repurchase agreement, the
portfolio could incur expenses and delays enforcing its rights under the
agreement and experience a decline in the value of the underlying securities and
loss of income.

William Blair Mutual Funds, Inc. May 1, 1998
33

<PAGE> 38

The maturity of a security subject to repurchase may exceed one year, and, for
the Income Fund, the modified duration of a security subject to repurchase may
exceed eight years. Repurchase agreements maturing in more than seven days,
together with any securities that are restricted as to disposition under the
federal securities laws or are otherwise considered to be illiquid, will not
exceed 15% of the net assets of the Growth Fund, Value Discovery Fund,
International Growth Fund, Emerging Markets Growth Fund and Income Fund and 10%
of the net assets of the Ready Reserves Fund.

SECTION 4(2) PAPER. The Ready Reserves Fund may invest in commercial paper
issued in reliance upon the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Exchange Act of 1933
("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition under
the Federal securities laws, and generally is sold to institutional investors
such as the portfolio. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in the Section 4(2) paper, thus providing liquidity. The Adviser
considers the legally restricted but readily saleable Section 4(2) paper to be
liquid; however, pursuant to the procedures approved by the Fund's Board of
Directors, if a particular investment in Section 4(2) paper is not determined to
be liquid, that investment will be included within the limitation on illiquid
securities. The Adviser monitors the liquidity of each investment in Section
4(2) paper on a continuing basis.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time, in the ordinary
course of business, each portfolio may purchase newly-issued securities
appropriate for the portfolio on a "when-issued" basis and may purchase or sell
securities appropriate for the portfolio on a "delayed delivery" basis.
When-issued or delayed delivery transactions involve a commitment by the
portfolio to purchase or sell particular securities with payment and delivery to
take place at a future date. These transactions allow the portfolio to lock in
an attractive purchase price or yield on a security the portfolio intends to
purchase. Normally, settlement occurs within one month of the purchase or sale.
During the period between purchase and settlement, no payment is made or
received by the portfolio and, for delayed delivery purchases, no interest
accrues to the portfolio. Because the portfolio is required to set aside cash or
liquid securities at least equal in value to its commitments to purchase
when-issued or delayed delivery securities, the Adviser's ability to manage the
portfolio's assets may be affected by such commitments. The portfolio will only
make commitments to purchase securities on a when-issued or delayed delivery
basis with the intention of actually acquiring the securities, but it reserves
the right to sell them before the settlement date if deemed advisable.

VARIABLE RATE SECURITIES. The Ready Reserves Fund may invest in instruments
having rates of interest that are adjusted periodically or that "float"
continuously or periodically according to formulae intended to minimize
fluctuation in values of the instruments ("Variable Rate Securities"). The
interest rate on a Variable Rate Security is ordinarily determined by reference
to, or is a percentage of, an objective standard such as a bank's prime rate,
the 90-day U.S. Treasury Bill rate or the rate of return on commercial paper or
bank certificates of deposit. Generally, the changes in the interest rates on
Variable Rate Securities reduce the fluctuation in the market value of such
securities. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less than for fixed-rate
obligations. Further, the portfolio may invest in Variable Rate Securities that
have a demand feature entitling the portfolio to resell the securities to the
issuer or a third party at an amount approximately equal to the principal amount
thereof plus accrued interest ("Variable Rate Demand Securities"). As is the
case for other Variable Rate Securities, the interest rate on Variable Rate
Demand Securities varies according to some objective standard intended to
minimize fluctuation in the values of the instruments. Many of these Variable
Rate Demand Securities are unrated, their transfer is restricted by the issuer
and there is little if any secondary market for the securities. Thus, any
inability of the issuers of such securities to pay on demand could adversely
affect the liquidity of these securities. The portfolio determines the maturity
of Variable Rate Securities in accordance with Securities and Exchange
Commission rules, allowing the portfolio to consider certain of such instruments
as having maturities shorter than the maturity date on the face of the
instrument if they are guaranteed by the U.S. Government or its agencies, they
have a stated maturity date of one year or less or they have demand features
prior to maturity.

William Blair Mutual Funds, Inc. May 1, 1998
34

<PAGE> 39

[back cover]

FOR MORE INFORMATION

THE ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS include financial statements,
detailed performance information, portfolio holdings, a statement from the
portfolio manager. Shareholder reports are incorporated by reference into this
Prospectus, which means that they are part of this Prospectus for legal
purposes.

THE STATEMENT OF ADDITIONAL INFORMATION contains more detailed information about
the Fund and the portfolios. The current Statement of Additional Information has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus, which means that it is part of this Prospectus
for legal purposes.

A copy of the current annual or semi-annual report or Statement of Additional
Information may be obtained without charge by writing or calling the Fund.

WILLIAM BLAIR MUTUAL FUNDS, INC.
222 West Adams Street
Chicago, Illinois 60606
(312) 364-8000

STATE STREET BANK AND TRUST COMPANY
(the Fund's Transfer Agent)
P.O. Box 9104
Boston, MA 02266-9104
1-800-635-2886
(Massachusetts 1-800-635-2840)

No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or its distributor in any jurisdiction in which such offering may
not lawfully be made.

William Blair Mutual Funds, Inc. May 1, 1998
35

<PAGE> 40

WILLIAM BLAIR & COMPANY, L.L.C.

WILLIAM BLAIR MUTUAL FUNDS, INC.
211 WEST ADAMS STREET
CHICAGO, ILLINOIS 60606
(312) 364-8000

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of William Blair Mutual Funds, Inc. (the
"Fund") dated May 1, 1998. The Prospectus may be obtained without charge by
writing or calling the Fund.

TABLE OF CONTENTS

PAGE
<S> <C>
MANAGEMENT OF THE FUND...........................................B-2
Investment Adviser and Distributor......................B-2
Directors and Officers..................................B-3
Brokerage and Portfolio Transactions....................B-6
INVESTMENT POLICIES AND RESTRICTIONS.............................B-7
The Growth Fund.........................................B-7
Value Discovery Fund....................................B-8
International Growth Fund...............................B-9
Emerging Markets Growth Fund...........................B-10
Income Fund............................................B-11
Ready Reserves Fund....................................B-12
INVESTMENT PRACTICES............................................B-13
Collateralized Obligations.............................B-13
Foreign Securities.....................................B-16
Forward Foreign Currency Transactions..................B-18
Foreign Currency Futures...............................B-19
Futures................................................B-20
Illiquid Securities....................................B-20
Lending................................................B-20
Repurchase Agreements..................................B-20
Restricted Securities..................................B-21
Small Companies........................................B-21
Warrants...............................................B-21
When-Issued or Delayed Delivery Transactions...........B-21
GENERAL FUND INFORMATION........................................B-21
Redemptions............................................B-21
Determination of Net Asset Value.......................B-22
Performance............................................B-22
Tax Status.............................................B-25
Retirement Plans.......................................B-26
Independent Auditors...................................B-27
Legal Counsel..........................................B-27
Custodian..............................................B-27
Transfer Agent Services................................B-27
Reports To Shareholders................................B-27
SHAREHOLDER RIGHTS..............................................B-27
FUND HISTORY....................................................B-28
FINANCIAL INFORMATION OF THE FUND...............................B-28
APPENDIX A.......................................................A-1
APPENDIX B.......................................................B-1
</TABLE>

William Blair Mutual Funds, Inc. May 1, 1998

<PAGE> 41

MANAGEMENT OF THE FUND

INVESTMENT ADVISER AND DISTRIBUTOR. As stated in the Prospectus, William Blair &
Company, L.L.C. ("Adviser") is the Fund's investment adviser and manager.
Pursuant to an investment advisory and management agreement, the Adviser acts as
the Fund's adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services, provides shareholder and information services and
permits any of its principals or employees to serve without compensation as
directors or officers of the Fund if elected to such positions. In addition to
the management advisory fee, each portfolio pays the expenses of its operations,
including a portion of the Fund's general administrative expenses, allocated on
the basis of the portfolio's net asset value. Expenses that will be borne
directly by the portfolios include, but are not limited to, the following: the
fees and expenses of independent auditors, counsel, custodian and transfer
agent, costs of reports and notices to shareholders, stationery, printing,
postage, costs of calculating net asset value, brokerage commissions or
transaction costs, taxes, registration fees, the fees and expenses of qualifying
the Fund and its shares for distribution under Federal and state securities laws
and membership dues in the Investment Company Institute or any similar
organization.

The advisory agreement for a portfolio continues in effect from year to year for
so long as its continuation is approved at least annually (a) by a majority of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund and (b) by the
shareholders of the portfolio or the Board of Directors. The agreement may be
terminated at any time upon 60 days' notice by either party; the Fund may so
terminate the agreement either by vote of the Board of Directors or by majority
vote of the outstanding shares of the affected portfolio. The agreement may also
be terminated at any time either by vote of the Board of Directors or by
majority vote of the outstanding voting shares of the subject portfolio if the
Adviser were determined to have breached the agreement. The agreement would
terminate automatically upon assignment. The agreement provides that the Adviser
shall not be liable for any error of judgment or of law, or for any loss
suffered by the Fund in connection with the matters to which the agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the agreement.

Upon termination of the agreement and when so requested by the Adviser, the Fund
will refrain from using the name "William Blair" in its name or in its business
in any form or combination.

For the services and facilities furnished to each portfolio, the Fund pays the
Adviser an advisory fee, which is accrued daily and paid monthly on the first
business day of the following month. The Growth Fund pays an advisory fee at a
rate of .75% of the portfolio's average daily net assets. Prior to May 1, 1996,
the Growth Fund paid an advisory fee at a rate of 0.625% of the portfolio's
average daily net assets up to $75 million and 0.50% of average daily net assets
above $75 million. For the fiscal years ended December 31, 1997, 1996 and 1995,
the Adviser received fees of $4,093,417, $3,018,755 and $1,561,478,
respectively.

The Value Discovery Fund pays an advisory fee at a rate of 1.15% of the
portfolio's average daily net assets. For services and facilities furnished to
the portfolio pursuant to the advisory agreement during the fiscal year 1997 and
for the fiscal year from December 23, 1996 (Communication of Operations) to
December 31, 1997 the Fund paid $241,689 and $333, respectively. For the fiscal
year 1997 and for the fiscal year from December 23, 1996 (Commencement of
Operations) to December 31, 1996, the Adviser waived fees of $57,398 and $333,
respectively. For the fiscal year ended December 31, 1997, the Adviser received
fees of $184,291. The Adviser voluntarily agreed to reimburse the portfolio
during its first year of operation should all operating expenses, including the
compensation of the Adviser but excluding taxes, interest, extraordinary
expenses and brokerage commissions or transaction costs, exceed 1.50% of average
daily net assets of the portfolio.

The International Growth Fund pays an advisory fee at a rate of 1.10% of the
first $250 million of average daily net assets plus 1.00% of average daily net
assets over $250 million. Prior to May 1, 1996, the International Growth Fund
paid an advisory fee at a rate of 1.10% of the first $100,000,000 of average
daily net assets of the portfolio and .95% of average daily net assets above
$100,000,000. Under a former investment sub-advisory agreement, the Adviser paid
a sub-adviser a monthly fee at an annual rate equal to .40% of the first $100
million of average daily net assets of the portfolio and .275% of average daily
net assets above $100 million. For the services and facilities furnished during
the fiscal years ended December 31, 1997, 1996 and 1995, the Adviser received
fees of $1,351,263, $1,131,309 and $886,557, respectively, of which $303,364 in
1996 and $322,384 in 1995 was paid to the sub-adviser.

The Emerging Markets Growth Fund pays an advisory fee at a rate of 1.40% of the
portfolio's average daily net assets. The Adviser voluntarily has agreed to
reimburse the portfolio during its first year of operation should all operating
expenses, including the compensation of the Adviser but excluding taxes,
interest, extraordinary expenses and brokerage commissions or transaction costs,
exceed 2.25% of average daily net assets of the portfolio.

William Blair Mutual Funds, Inc. May 1, 1998
B-2

<PAGE> 42

The Income Fund pays an advisory fee at a rate of .25% of the first $250 million
of average daily assets plus .20% of average daily net assets over $250 million
plus 5% of the gross income earned by the portfolio. Prior to May 1, 1996, the
Income Fund paid an advisory fee at a rate of .25% of the first $100 million of
average daily net assets of the portfolio, .20% of the next $150 million and
.15% of average daily net assets in excess of $250 million, plus 5.0% of the
gross income earned. For the services and facilities furnished to the portfolio
pursuant to the advisory agreement during the fiscal years ended December 31,
1997, 1996 and 1995, the Fund paid $918,833, $880,815 and $868,277,
respectively.

The Ready Reserves Fund pays an advisory fee at a rate of .625% of the first
$250 million of average daily net assets, plus .60% of the next $250 million of
average daily net assets, plus .575% of the next $2 billion of average daily net
assets plus .55% of the average daily net assets over $2.5 billion. Prior to May
1, 1996, the Ready Reserves Fund paid an advisory fee at a rate of .625% of the
first $250 million of average daily net assets of the portfolio, .60% of the
next $250 million, .55% of the next $500 million, .50% of the next $2 billion,
.45% of the next $2 billion and .40% of average daily net assets in excess of $5
billion. For the services and facilities furnished to the portfolio pursuant to
the advisory agreement during the fiscal years ended December 31, 1997, 1996 and
1995, the Adviser received fees of $5,236,627, $4,282,827 and $3,613,262,
respectively.

The Adviser has agreed to reimburse the Fund should all operating expenses of
the Growth Fund, Income Fund or Ready Reserves Fund, including the compensation
of the Adviser but excluding taxes, interest, extraordinary expenses and
brokerage commissions or transaction costs, exceed 1.50% of the first $30
million of average net assets of the portfolio and 1.00% of average net assets
over $30 million of the portfolio on an annual basis.

William Blair & Company, L.L.C. also is the principal underwriter and
distributor ("Distributor") for shares of the Fund and acts as agent of the Fund
in the sale of its shares. The offering of shares is continuous, although the
Distributor and the Fund reserve the right to cease the offer of shares at any
time. The Distributor pays for the printing and distribution of copies of the
prospectus and shareholder reports used in connection with the offering of
shares to prospective investors. The Distributor also pays for supplementary
sales literature and advertising costs. The foregoing services are provided at
no charge to the Funds. Terms of continuation, termination and assignment under
the underwriting agreement are substantially the same as those described above
with regard to the advisory agreement, except that termination other than upon
assignment or upon determination of breach requires six months' notice.

Messrs. Barber, Fischer, Fuller and Ms. Gassmann, Messrs. Greig, Kaplan, Kayser,
Kleczka, McMullan, Myer, Sullivan, Truderung, Truettner and Urbina, who are
directors or officers of the Fund, are also principals or employees of the
Adviser/Distributor as indicated under "Directors and Officers."

The Adviser/Distributor is a limited liability company, the affairs of which are
controlled by all its principals, none of whom owns more than 25% of the firm.
The Chief Executive Officer of the firm is E. David Coolidge, III and the
Executive Committee is comprised of Rocky Barber, E. David Coolidge, III, Edgar
D. Jannotta, John P. Kayser, Richard P. Kiphart, Albert J. Lacher, Joseph F.
LaManna, James D. McKinney and William C. Perlitz.

DIRECTORS AND OFFICERS. The directors and officers of the Fund, their ages,
their principal occupations during the last five years, their affiliations, if
any, with William Blair & Company, L.L.C. and other significant affiliations are
set forth below. Unless otherwise noted, the address of each officer and
director is 222 West Adams Street, Chicago, Illinois 60606.

CONRAD FISCHER (64),* (2) Chairman of the Board and Director; Principal, William
Blair & Company, L.L.C.; Trustee Emeritus, Chicago Child Care Society, a
non-profit organization and Investment Committee, Kalamazoo College.

VERNON ARMOUR (70), * (1) (2) (3) Director; 633 East Woodland Road, Lake Forest,
Illinois 60045; private investor; Trustee, Life Illinois Institute of
Technology, Trustee Northwestern Memorial Hospital and OTHO S.A. Sprague
Memorial Institute.

J. GRANT BEADLE (65), (3) Director, 985 Riomar Drive, Vero Beach, Florida 32963;
Retired Chairman and Chief Executive Officer, Union Special Corporation,
industrial sewing machine manufacturer; Retired Associate Director, Northwestern
University Institute for Learning Sciences; Director, Learning Sciences
Corporation, Oliver Products Company, Batts, Inc., Portec, Inc. and Woodward
Governor Company.

THEODORE A. BOSLER (63), (3) Director, 812 Oak Street, Winnetka, Illinois 60093;
Retired Principal and Vice President, Lincoln Capital Management; Director,
Thresholds, a psychiatric recovery center and Institute of Chartered Financial
Analysts.

GEORGE KELM (69), (1) (3) Director; 4 Court of Connecticut River, Lincolnshire,
Illinois 60069; Retired Chairman of the Board, Sahara Coal Company, Inc. and
Sahara Enterprises, Inc.; Director, Rolf Jensen & Associates, Inc.; Trustee,
Newberry Library and McCormick Theological Seminary.

William Blair Mutual Funds, Inc. May 1, 1998
B-3

<PAGE> 43

ANN P. MCDERMOTT (58), (1) (3) Director; 330 Willow Road, Winnetka, Illinois
60093; Trustee, Rush Presbyterian St. Luke's Medical Center; Women's Board, Rush
Presbyterian St. Luke's Medical Center; Honorary Director, Visiting Nurse
Association; Director, Presbyterian Homes; Northwestern University, Women's
Board; University of Chicago, Women's Board; Director, Washington State
University Foundation.

JAMES M. MCMULLAN (63),* Director; Principal, William Blair & Company, L.L.C.;
Director, Securities Industry Association.

JOHN B. SCHWEMM (63), (1) (3) Director; 2 Turvey Lane, Downers Grove, Illinois
60515; Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons
Company, printer; Director, USG Corp., building material product company and
Walgreen Co., drug store chain.

W. JAMES TRUETTNER, JR. (66),* Director; Principal, William Blair & Company,
L.L.C.; Director, Glenview Foundation and International Travel Services.

ROCKY BARBER (46), President of the Fund; Principal, William Blair & Company,
L.L.C.; Vice President and Secretary, LaRabida Hospital Foundation; Past
President, Stanford Associates.

MARK A. FULLER, III (41), Senior Vice President; Principal, William Blair &
Company, L.L.C.

W. GEORGE GREIG (45), Senior Vice President; Portfolio Manager, William Blair &
Co., L.L.C.; former Portfolio Manager, Provident Capital Management; Manager,
Akamai, partnership affiliated with Framlington Investment Management Limited;
Partner, Pilgrim, Baxter & Greig.

GLEN KLECZKA (35), Senior Vice President; Portfolio Manager, William Blair &
Company, L.L.C.; former Partner, Brinson Partners; former Portfolio Manager, CNA
Financial Corp.

BENTLEY M. MYER (51), Senior Vice President; Principal, William Blair & Company,
L.L.C.; Director, Delnor Community Hospital.

NORBERT W. TRUDERUNG (45), Senior Vice President; Principal, William Blair &
Company, L.L.C.

JAMES S. KAPLAN (37), Vice President; Associate, William Blair & Company,
L.L.C.; former Vice President, First Union Bank.

JOHN P. KAYSER (48), Vice President; Principal, William Blair & Company, L.L.C.,
Director, DuPage Children's Museum.

TERENCE M. SULLIVAN (54), Vice President and Treasurer; Associate, William Blair
& Company, L.L.C.

JEFFREY A. URBINA (43), Vice President; Associate, William Blair & Company,
L.L.C.; former Director of Emerging Market Research and Portfolio Manager, Van
Kampen American Capital.

JANET V. GASSMANN (31), Secretary; Administrative Assistant, William Blair &
Company, L.L.C.; former Administrative Assistant, Shearson Lehman Brothers, Inc.

*Directors who are interested persons as defined in the Investment Company Act
of 1940.

(1) Member of the Standing Audit Committee.

(2) Member of Interim Valuation Committee. This committee handles any
questions regarding the valuation of portfolio securities that may
arise between meetings of the Board of Directors.

(3) Mr. Kelm maintains a brokerage account with the Adviser, and Mr.
Beadle, Mr. Bosler, Ms. McDermott and Mr. Schwemm employ the Adviser to
manage assets that they control. (In addition, as a result of his
former affiliation with the Adviser as a partner of William Blair &
Company, L.L.C. from 1973 to 1982, Mr. Armour has a beneficial interest
in a Deferred Profit Sharing Plan that is managed by the Adviser.)

Effective February 1, 1998, directors who are not affiliated with the Adviser
receive an annual fee of $8,000 plus $3,000 for each meeting attended in person
plus expenses, $1,500 for each meeting by telephone and $3,000 for each
committee meeting held on a different day from a board meeting. Prior to
February 1, 1998, the directors and officers not affiliated with the Adviser
received an annual fee of $4,000 plus $2,000 for each meeting attended in person
plus expenses. The directors and officers affiliated with the Adviser received
no compensation from the Fund.

William Blair Mutual Funds, Inc. May 1, 1998
B-4

<PAGE> 44

The following table sets forth the compensation earned from the Fund for the
fiscal year ended December 31, 1997 by directors who are not affiliated with the
Adviser:

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED ANNUAL
COMPENSATION AS PART OF BENEFITS UPON TOTAL
DIRECTOR FROM THE FUND FUND EXPENSES RETIREMENT COMPENSATION
- -------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Vernon Armour............................ $12,000 0 0 $12,000
J. Grant Beadle*......................... $ 5,000 0 0 $ 5,000
Theodore A. Bosler*...................... $ 5,000 0 0 $ 5,000
George Kelm.............................. $12,000 0 0 $12,000
Ann P. McDermott......................... $12,000 0 0 $12,000
John B. Schwemm.......................... $10,000 0 0 $10,000
</TABLE>

*Joined the Board of Directors on October 23, 1997.

The following table provides certain information at February 6, 1998 with
respect to persons known to the Fund to be record holders of 5% or more of the
shares of the following portfolios:

<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO'S
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER NUMBER OF SHARES COMMON STOCK
- --------------- ---------------- ------------
<S> <C> <C>
GROWTH FUND
Charles A. Schwab & Company 3,938,819 10.44%
101 Montgomery Street
San Francisco, CA 94104

William Blair Employees 3,885,568 10.18%
Profit Sharing Plan
222 West Adams Street
Chicago, IL 60606

Bank of America, Illinois Trustee 2,039,869 5.34%
FBO Kohls Department Stores 401(k)
231 South LaSalle Street
Chicago, IL 60604

VALUE DISCOVERY FUND
William Blair & Co., L.L.C. 206,007 8.36%
Ralph G. Portis
222 West Adams Street
Chicago, IL 60606

William Blair & Co., L.L.C. 202,760 8.23%
Catlin Investments L.P.
222 West Adams Street
Chicago, IL 60606

William Blair & Co., L.L.C. 202,760 8.23%
Travis Investments L.P.
222 West Adams Street
Chicago, IL 60606
</TABLE>

William Blair Mutual Funds, Inc. May 1, 1998
B-5

<PAGE> 45

As of February 6, 1998, the Fund's officers and directors as a group owned (or
held or shared investment or voting power with respect to) 503,035 shares or
1.3% of the Growth Fund's stock, 546,534 shares or 22.1% of the Value Discovery
Fund's stock, 731,553 shares or 7.5% of the International Growth Fund's stock,
177,195 shares or 1.1% of the Income Fund's stock and 13,169,233 shares or 1.4%
of the shares of the Ready Reserves Fund. These figures do not include shares of
the portfolios that may be indirectly owned by certain officers of the Fund as a
result of their interest in the William Blair Profit Sharing Plan.

BROKERAGE AND PORTFOLIO TRANSACTIONS. Decisions on portfolio transactions
(including the decision to buy or sell, the appropriate price, allocation of
brokerage, use of a broker as agent or dealer as principal and negotiation of
commissions) normally are made by the Adviser. In purchasing and selling
portfolio securities, the Fund seeks to obtain the most favorable overall
result, taking into account the net price, the method of execution and research
services provided by the broker. Such research services include economic
forecasts and analytical, narrative and statistical reports on industries and
companies for consideration by the Fund and the Adviser's other clients.

Portfolio transactions may increase or decrease the return of a portfolio
depending upon the Adviser's ability to correctly time and execute such
transactions. A portfolio turnover rate for any year is determined by dividing
the lesser of sales or purchases (excluding in either case cash equivalents,
such as short-term corporate notes) by the portfolio's monthly average net
assets and multiplying by 100 (with all securities with maturities and
expirations of one year or less excluded from the computation). The portfolio's
turnover rate will also vary from year to year depending on market conditions.
Since the Ready Reserves Fund's assets are invested in securities with short
(less than one year) effective maturities, its portfolio will turn over many
times a year. Such securities, however, are excluded from the Securities and
Exchange Commission's required portfolio turnover rate calculations, resulting
in no portfolio turnover rate for reporting purposes.

Selection of a broker for a particular portfolio transaction depends on many
factors, some of which are subjective and which include the net price, the
confidentiality, reliability, integrity, the size and nature of the transaction
and the market in which it is to occur and any research or other services that
the broker has provided. The Adviser determines the overall reasonableness of
brokerage commissions and of premiums and discounts on principal transactions
(which do not involve commissions), by review of comparable trades for the
Adviser's other clients and in the market generally. If more than one broker is
believed to be equally qualified to effect a portfolio transaction, the Adviser
may assign the transaction to a broker that has furnished research services, but
the Adviser has no agreement, formula or policy as to allocation of brokerage.
The Fund does not ordinarily market its shares through brokers and any sales of
the Fund's shares by a broker would be neither a qualifying nor disqualifying
factor in allocating brokerage. All the Fund's 1996 portfolio transactions were
with brokers that met the above requirements, some of which provided research or
other services to the Adviser.

The Fund may pay to brokers that provide research services to the Adviser a
commission higher than another broker might have charged if it is determined
that the commission is reasonable in relation to the value of the brokerage and
research services that are provided, viewed in terms of either the particular
transaction or the Adviser's overall responsibility to its advisory accounts.
The extent to which such commissions exceed commissions solely for execution
cannot be determined, but such research services, which are involved in
portfolio transactions for the Fund and for the Adviser's other advisory
accounts, can be of benefit to both the Fund and such other accounts. The value
of research services that are provided by brokers who handle portfolio
transactions for the Fund cannot be precisely determined and such services are
supplemental to the Adviser's own efforts, which are undiminished thereby. The
Adviser does not believe that its expenses are reduced by reason of such
services, which benefit the Fund and the Adviser's other clients. Transactions
in over-the-counter securities are generally executed as principal trades with
primary market makers, except where it is believed that a better combination of
price and execution could otherwise be obtained.

The Growth Fund paid total brokerage fees of $422,714, $394,561 and $254,434 in
1997, 1996 and 1995, respectively. None of these brokerage fees were paid to a
broker that was an affiliated person of the Fund or to a broker of an affiliated
person was an affiliated person of the Fund or of the Adviser.

The Value Discovery Fund paid total brokerage fees of $35,216 in 1997 and $12
for the period from December 23, 1996 (Commencement of Operations) to December
31, 1996. None of these brokerage fees were paid to a broker that was an
affiliated person of the Fund or to a broker of which an affiliated person was
an affiliated person of the Fund or of the Adviser.

International Growth Fund paid brokerage fees of $820,267, $779,507 and $454,667
in 1997, 1996 and 1995, respectively. None of these brokerage fees were paid to
a broker that was affiliated person of the Fund or to a broker of which an
affiliated person was an affiliated person of the Fund or of the Adviser.

Purchases and sales of portfolio securities for the Income Fund and Ready
Reserves Fund usually are principal transactions, either directly with the
issuer or with an underwriter or market maker, with no brokerage commissions
paid by the portfolio. No brokerage commissions were paid by the Income Fund or
the Ready Reserves Fund during the fiscal years ended December 31, 1997, 1996
and 1995. Purchases from underwriters will include a commission or concession
paid by the issuer to the underwriter

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and purchases from dealers serving as market makers will include the spread
between the bid and asked prices. The primary consideration in the allocation of
transactions is prompt execution of orders in an effective manner at the most
favorable price.

The investment decisions for the Fund are reached independently from those for
other accounts managed by the Adviser. Such other accounts also may make
investments in the same type of instruments or securities as the Fund at the
same time as the Fund. When two or more accounts have funds available for
investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases this
procedure may affect the size or price of the position obtainable for the Fund.
However, it is the opinion of the Board of Directors that the benefits available
because of the Adviser's organization outweigh any disadvantages that may arise
from exposure to simultaneous transactions.

No portfolio transactions are executed for the Fund with or through the Adviser
or any affiliated broker-dealer of the Adviser. The Fund may purchase securities
from other members of an underwriting syndicate of which the Adviser or an
affiliated broker-dealer is a participant, but only under conditions set forth
in applicable rules of the Securities and Exchange Commission and in accordance
with procedures adopted and reviewed periodically by the Board of Directors.

INVESTMENT POLICIES AND RESTRICTIONS

The Fund has adopted certain fundamental investment restrictions for each
portfolio that, along with the portfolio's investment objective, can not be
changed without approval by holders of a "majority of the outstanding voting
securities" of the portfolio, which is defined in the Investment Company Act of
1940 (the "Act") to mean the lesser of (a) 67% of the shares of the portfolio at
a meeting where more than 50% of the outstanding voting shares of the portfolio
are present in person or by proxy; or (b) more than 50% of the outstanding
voting shares of the portfolio. All percentage restrictions on investments apply
at the time the investment is made and shall not be considered to violate the
limitations unless, immediately after or as a result of the investment, a
violation of the restriction occurs. There can be no assurance that a portfolio
will meet its investment objective.

THE GROWTH FUND.

(1) The portfolio will operate as an open-end, diversified, management type
investment company, as defined in the Investment Company Act of 1940.

The Growth Fund may not:

(2) Invest in any enterprise for the purpose of exercising control or
management thereof.

(3) Buy or sell real estate or real estate loans.

(4) Underwrite the securities of other issuers.

(5) Make loans to other persons.

(6) Purchase or sell commodities or commodity contracts.

(7) Issue senior securities.

(8) Borrow money, except from banks for current obligations of a minor
character incurred in the ordinary course of business, nor borrow
amounts in excess of 10% of its gross assets. (The portfolio does not
presently intend to borrow any amount in excess of 5% of its gross
assets.)

(9) Make an investment if doing so would cause more than 25% of its total
assets to be invested in any one industry.

The following are the portfolio's non-fundamental operating policies, which may
be changed by the Fund's Board of Directors without shareholder approval.

The Growth Fund may not:

(10) Pledge, or create a lien on, its assets.

(11) Purchase any security if doing so would cause more than 10% of the
voting securities of the issuer to be held by the portfolio.

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<PAGE> 47

(12) Purchase, except for securities acquired as part of a merger,
consolidation or acquisition of assets, more than 3% of the stock of
another investment company.

(13) Invest in futures contracts, puts, calls, straddles, spreads or any
combination thereof.

(14) Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities.

(15) Sell securities short, unless the portfolio owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short, or unless it covers such short sale as required by the current
rules and positions of the Securities and Exchange Commission or its
staff and provided that transactions in futures contracts or other
derivative instruments are not deemed to constitute selling securities
short.

(16) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures contracts
or other derivative instruments shall not constitute purchasing
securities on margin.

VALUE DISCOVERY FUND.

The Value Discovery Fund:

(1) May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities) if, as a result,
(i) more than 5% of the portfolio's total assets would be invested in
the securities of that issuer or (ii) the portfolio would hold more
than 10% of the outstanding voting securities of that issuer.

(2) May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the "1940 Act") which may involve a borrowing, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the portfolio's total assets (including the amount borrowed),
less the portfolio's liabilities (other than borrowings), or such other
percentage permitted by law, except that the portfolio may borrow up to
an additional 5% of its total assets (not including the amount
borrowed) from a bank for temporary or emergency purposes (but not for
leverage or the purchase of investments).

Note: Presently, the Value Discovery Fund only intends to borrow from banks for
temporary or emergency purposes. However, the portfolio may borrow money from
banks and make other investments or engage in other transactions permissible
under the 1940 Act which may be considered a borrowing (such as mortgage dollar
rolls and reverse repurchase agreements).

(3) May not issue senior securities, except as permitted under the 1940
Act.

(4) May not act as an underwriter of another issuer's securities, except to
the extent that the portfolio may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities.

(5) May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the portfolio from purchasing or selling options, futures
contracts, or other derivative instruments or from investing in
securities or other instruments backed by physical commodities).

(6) May not make loans if, as a result, more than 33 1/3% of the
portfolio's total assets would be lent to other persons, except through
(i) purchases of debt securities or other debt instruments or (ii)
engaging in repurchase agreements.

(7) May not purchase the securities of any issuer if, as a result, 25% or
more of the portfolio's total assets would be invested in the
securities of issuers, the principal business activities of which are
in the same industry.

(8) May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the portfolio from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).

The following are the portfolio's non-fundamental operating policies, which may
be changed by the Fund's Board of Directors without shareholder approval.

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The Value Discovery Fund may not:

(9) Sell securities short, unless the portfolio owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short, or unless it covers such short sale as required by the current
rules and positions of the Securities and Exchange Commission or its
staff and provided that transactions in futures contracts or other
derivative instruments are not deemed to constitute selling securities
short.

(10) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures contracts
or other derivative instruments shall not constitute purchasing
securities on margin.

(11) Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities.

(12) Purchase except for securities acquired as part of a merger,
consolidation or acquisition of assets, more than 3% of the stock of
another investment company.

(13) Engage in futures transactions which are impermissible pursuant to Rule
4.5 under the Commodity Exchange Act and, in accordance with Rule 4.5,
will use futures transactions solely for bona fide hedging transactions
(within the meaning of the Commodity Exchange Act); provided, however,
that the portfolio may, in addition to bona fide hedging transactions,
use futures transactions if the aggregate initial margin and premiums
required to establish such positions do not exceed 5% of the
portfolio's net assets. In addition, the aggregate margin deposits
required on all futures transactions being held will not exceed 5% of
the portfolio's total assets.

(14) Pledge, mortgage or hypothecate any assets owned by the portfolio
except as may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging or hypothecating may not
exceed 33 1/3% of the portfolio's total assets at the time of the
borrowing or investment.

INTERNATIONAL GROWTH FUND.

The International Growth Fund may not:

(1) Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to 10% of the value of
its total assets (any such borrowing under this section will not be
collateralized). The portfolio will not borrow for leverage purposes.

(2) Pledge, mortgage or create a lien on its assets.

(3) Make loans of money or portfolio securities, except through the
purchase of debt obligations and repurchase agreements.

(4) Purchase any securities if, immediately after such purchase, more than
25% of the value of the portfolio's total assets would be invested in
the securities of issuers in the same industry. There is no limitation
as to the portfolio's investments in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities. For purposes
of this restriction, the obligations of each foreign government are
deemed to constitute an industry.

(5) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities, or any class of securities, of any one issuer. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class and all preferred stock of an issuer is
considered as one class. (This restriction does not apply to
obligations issued or guaranteed by the U.S. government, or its
agencies or instrumentalities.)

(6) Underwrite securities by others, except to the extent the portfolio may
be deemed to be an underwriter, under the Federal securities laws, in
connection with the disposition of portfolio securities.

(7) Purchase securities of other U.S. or foreign investment companies,
except that the portfolio may make such a purchase (a) in the open
market provided that immediately thereafter (i) not more than 10% of
the portfolio's total assets would be invested in such securities; (ii)
not more than 5% of the portfolio's total assets would be invested in
securities of any one investment company; and (iii) not more than 3% of
the total outstanding voting stock of any one investment company would
be owned by the portfolio, or (b) as part of an offer of exchange,
reorganization or as a dividend.

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<PAGE> 49

(8) Make short sales of securities, or purchase any securities on margin,
or maintain a short position or participate on a joint or a joint and
several basis in any trading account in securities, except that the
portfolio may (i) obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities; (ii) purchase
or sell futures contracts and (iii) deposit or pay initial or variation
margin in connection with financial futures contracts or related
options transactions.

(9) Purchase or sell put options, call options, or combinations thereof,
except that the portfolio may engage in financial futures contracts and
related options transactions to seek to hedge against either a decline
in the value of securities included in the portfolio or an increase in
the price of securities which the portfolio plans to purchase in the
future.

(10) Purchase or sell commodities or commodity contracts, except that the
portfolio may enter into financial futures contracts, options on
futures contracts and forward foreign currency exchange contracts.

(11) Purchase or sell real estate (although it may purchase securities of
issuers that engage in real estate operations, securities that are
secured by interests in real estate or securities that represent
interests in real estate, including real estate investment trusts).

(12) Invest in interests in oil, gas or other mineral leases, rights or
royalty contracts or exploration or development programs, although it
may invest in the securities of issuers which invest in or sponsor such
programs.

(13) Invest for the purposes of exercising control or management of another
issuer.

(14) Issue any "senior securities" as defined in the Act (except for
engaging in futures and options transactions and except for borrowing
subject to the restrictions set forth above).

(15) Invest more than 5% of its total assets in securities of issuers which
with their predecessors have a record of less than three years
continuous operation.

EMERGING MARKETS GROWTH FUND.

The Emerging Markets Growth Fund:

Note: Presently, the Emerging Markets Growth Fund only intends to borrow from
banks for temporary or emergency purposes. However, the portfolio may borrow
money from banks and make other investments or engage in other transactions
permissible under the 1940 Act which may be considered a borrowing (such as
mortgage dollar rolls and reverse repurchase agreements).

(3) May not issue senior securities, except as permitted under the 1940
Act.

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<PAGE> 50

The following are the portfolio's non-fundamental operating policies, which may
be changed by the Fund's Board of Directors without shareholder approval.

The Emerging Markets Growth Fund may not:

(11) Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities.

(12) Purchase except for securities acquired as part of a merger,
consolidation or acquisition of assets, more than 3% of the stock of
another investment company.

INCOME FUND.

The Income Fund may not:

(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of its
total assets would be invested in securities of that issuer.

(2) Purchase more than 10% of any class of securities of any issuer, except
that such restriction shall not apply to securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities. All debt securities and all preferred stocks are
each considered as one class.

(3) Invest more than 5% of its total assets in securities of issuers which
with their predecessors have a record of less than three years
continuous operation.

(4) Make short sales of securities or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions.

(5) Write, purchase or sell puts, calls or combinations thereof.

(6) Invest for the purpose of exercising control or management of another
issuer.

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 51

(7) Invest in commodities or commodity futures contracts or in real estate;
although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.

(8) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs.

(9) Underwrite securities issued by others except to the extent the
portfolio may be deemed to be an underwriter, under the Federal
securities laws, in connection with the disposition of portfolio
securities.

(10) Issue senior securities as defined in the Investment Company Act of
1940.

(11) Purchase common stocks, preferred stocks, warrants or other equity
securities.

(12) Make loans to others, except through the purchase of debt obligations
or repurchase agreements or the loaning of portfolio securities not
exceeding 75% of the value of its total assets.

(13) Borrow money, except as a temporary measure and then only in an amount
up to 5% of the value of its total assets (any such borrowing under
this section will not be collateralized). The portfolio will not borrow
for leverage purposes.

(14) Concentrate more than 25% of the value of its total assets in any one
industry. This restriction does not apply to U.S. Government securities
or government agency securities, or to instruments, such as repurchase
agreements, secured by these instruments.

The following are the portfolio's non-fundamental operating policies, which may
be changed by the Fund's Board of Directors without shareholder approval.

The Income Fund may not:

(15) Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities.

READY RESERVES FUND.

The Ready Reserves Fund may not:

(3) Invest more than 5% of its total assets in securities of issuers which
with their predecessors have a record of less than three years
continuous operation.

(4) Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions.

(5) Write, purchase or sell puts, calls or combinations thereof.

(6) Invest for the purpose of exercising control or management of another
issuer.

(7) Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.

(8) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs.

William Blair Mutual Funds, Inc. May 1, 1998
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(10) Issue senior securities as defined in the Investment Company Act of
1940.

(11) Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objective
and policies).

(12) Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to 5% of the value of
its total assets (any such borrowing under this section will not be
collateralized). The portfolio will not borrow for leverage purposes.

(13) Concentrate more than 25% of the value of its total assets in any one
industry; provided, however, that the portfolio reserves freedom of
action to invest up to 100% of its total assets in certificates of
deposit, time deposits or bankers' acceptances or repurchase agreements
with domestic branches of domestic banks when management considers it
to be in the interests of the portfolio in attaining its investment
objective.

(14) Invest in securities restricted as to disposition under the Federal
securities laws (except commercial paper issued under Section 4(2) of
the Securities Act of 1933).

(15) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.

INVESTMENT PRACTICES

The Prospectus describes each portfolio's investment objective as well as
certain investment policies and investment techniques that the portfolio may
employ in pursuing its investment objective. The following discussion
supplements the discussion contained in the Prospectus, including the Investment
Glossary at the end of the Prospectus. Not all of the portfolios may invest in
all of the types of investments listed below.

COLLATERALIZED OBLIGATIONS. Mortgage-Backed Securities. Collateralized
obligations include mortgage-backed collateralized obligations ("mortgage-backed
securities"). Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans secured by real property. There currently are three basic types
of mortgage-backed securities: (1) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA (Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage Corporation); (2) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities and (3) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or mortgage-backed
securities without a government guarantee but that usually have some form of
private credit enhancement.

The yield characteristics of mortgage-backed securities differ from traditional
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans generally may be
prepaid at any time. As a result, if a portfolio purchases such a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will increase
yield to maturity. Conversely, if a portfolio purchases these securities at a
discount, faster than expected prepayments will increase yield to maturity,
while slower than expected prepayments will reduce it.

Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. Generally, however, prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the portfolio are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates than during a period of rising interest rates.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.

Guaranteed Mortgage Pass-Through Securities. Mortgage pass-through securities
represent participation interests in pools of residential mortgage loans
originated by United States Governmental or private lenders and guaranteed, to
the extent provided in such securities, by the United States Government or one
of its agencies or instrumentalities. Such securities, which are ownership
interests in the underlying mortgage loans, differ from conventional debt
securities, which provide for periodic payment of interest in fixed amounts
(usually semi-annually) and principal payments at maturity or on specified call
dates. Mortgage

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 53
pass-through securities provide for monthly payments that are a "pass-through"
of the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the services of the underlying mortgage
loans. The guaranteed mortgage pass-through securities in which the portfolio
will invest will include those issued or guaranteed by GNMA, FNMA and FHLMC.

GNMA is a wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The National Housing Act of 1934,
as amended (the "Housing Act"), authorizes GNMA to guarantee the timely payment
of the principal of and interest on certificates ("Ginnie Mae Certificates")
that are based upon and backed by a pool of mortgage loans insured by the
Federal Housing Administration under the Housing Act, or Title V of the Housing
Act of 1949 (FHA Loans), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended (VA Loans), or by pools of
other eligible mortgage loans. Ginnie Mae Certificates represent a pro rata
interest in one or more pools of eligible mortgage loans. The Housing Act
provides that the full faith and credit of the United States Government is
pledged to the payment of all amounts that may be required to be paid under any
guarantee. In order to meet its obligations under such guarantee, GNMA is
authorized to borrow from the United States Treasury with no limitations as to
amount.

FNMA is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act. FNMA was
originally established in 1938 as a United States Government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968. FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgage loans
directly, thereby expanding the total amount of funds available for housing.

Each Fannie Mae Certificate will entitle the registered holder thereof to
receive amounts representing the holder's pro rata interest in scheduled
principal payments and interest payments (at such Fannie Mae Certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans) and any principal prepayments, on the mortgage loans
in the pool represented by such Fannie Mae Certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each Fannie Mae Certificate will be guaranteed by
FNMA, which guarantee is not backed by the full faith and credit of the United
States Government. FNMA has limited rights to borrow from the United States
Treasury.

FHLMC is a corporate instrumentality of the United States created pursuant to
the Emergency Home Finance Act of 1970, as amended. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of needed housing. The principal activity of FHLMC currently
consists of the purchase of first lien, conventional, residential mortgage loans
and participation interests in such mortgage loans and the resale of the
mortgage loans so purchased in the form of mortgage securities, primarily
Freddie Mac Certificates.

FHLMC guarantees to each registered holder of a Freddie Mac Certificate the
timely payment of interest at the rate provided for by such Freddie Mac
Certificate, whether or not received. FHLMC also guarantees to each holder of a
Freddie Mac Certificate ultimate collection of all principal of the related
mortgage loans, without any offset or deduction, but does not always guarantee
the timely payment of scheduled principal. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default on
an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the United States Government. FHLMC has limited rights to borrow from the
United States Treasury.

Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities ("private pass-throughs") are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private pass-throughs are usually
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
Since private pass-throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. See "Types of Credit Support,"
below.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations, or, "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in
a trust composed of Mortgage Assets. Payments of principal of and interest on
the Mortgage Assets and any reinvestment

William Blair Mutual Funds, Inc. May 1, 1998
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income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distributions on the multiclass pass-through securities. CMOs may be
issued by agencies or instrumentalities of the United States Government, or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In a common structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of the series of
a CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.

Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the United States Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing.

SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all the interest (the interest-only or "IO" class),
while the other class will receive all the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying Mortgage
Assets and a rapid rate of principal payments may have a material adverse effect
on the portfolio's yield to maturity. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, the portfolio may
fail to fully recoup its initial investment in these securities.

Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed and, accordingly, may have less liquidity than other
securities. The portfolio will invest only in IO and PO class mortgage
obligations collateralized by securities guaranteed by the United States
Government.

Types of Credit Support. Mortgage-backed and asset-backed securities are often
backed by a pool of assets representing the obligations of a number of different
parties. To lessen the effect of failures by obligors on underlying assets to
make payments, such securities may contain elements of credit support. Such
credit support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "overcollateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based upon historical information
respecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in such a security.

Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are being securitized
in pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure. The
Income Fund may invest in these and other types of asset-backed securities that
may be developed in the future.

William Blair Mutual Funds, Inc. May 1, 1998
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As with mortgage-backed securities, the yield characteristics of asset-backed
securities differ from traditional debt securities. As with mortgage-backed
securities, asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties and use similar
credit enhancement techniques. See "Mortgage-Backed Securities," above. In
general, however, the collateral supporting asset-backed securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Although certain of the factors that affect the rate of
prepayments on mortgage-backed securities also affect the rate of prepayments on
asset-backed securities, during any particular period, the predominant factors
affecting prepayment rates on mortgage-backed securities and asset-backed
securities may be different.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If the servicers
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

Inverse Floaters. The Income Fund may invest in mortgage derivative products
like inverse floating rate debt instruments ("inverse floaters"). The interest
rate on an inverse floater resets in the opposite direction from the market rate
of interest to which the inverse floater is indexed. The income from an inverse
floater may be magnified to the extent that its rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
the degree of magnification in an inverse floater, the greater the volatility in
its market value. Accordingly, the duration of an inverse floater may exceed its
stated final maturity. The coupon of an inverse floating rate note moves
inversely to the movement of interest rates. In addition, mortgage-backed
inverse floaters will experience approximately the same changes in average lives
and durations that other comparable fixed rate mortgage-backed bonds do when
prepayments rise and fall with declines and increases in interest rates. In a
rising interest rate environment, the declining coupon coupled with the increase
in the average life can magnify the price decline relative to a fixed rate
obligation. Conversely, rate declines increase coupon income and gradually
shorten the average life, which tends to amplify the price increase. Inverse
floaters are typically priced based on a matrix.

FOREIGN SECURITIES. Investing in foreign securities involves a series of risks
not present in investing in U.S. securities. Most of the foreign securities held
by the portfolios will not be registered with the Securities and Exchange
Commission (the "SEC"), nor will the foreign issuers be subject to SEC reporting
requirements. Accordingly, there may be less publicly available information
concerning foreign issuers of securities held by the portfolio than is available
concerning U.S. companies. Disclosure and regulatory standards in many respects
are less stringent in emerging market countries than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets and enforcement
of existing regulations may be extremely limited. Foreign companies and in
particular, companies in smaller and emerging capital markets are not generally
subject to uniform accounting, auditing and financial reporting standards, or to
other regulatory requirements comparable to those applicable to U.S. companies.
The portfolio's net investment income and capital gains from its foreign
investment activities may be subject to non-U.S. withholding taxes.

The costs attributable to foreign investing that the portfolio must bear
frequently are higher than those attributable to domestic investing; this is
particularly true with respect to emerging capital markets. For example, the
costs of maintaining custody of foreign securities exceeds custodian costs for
domestic securities and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the portfolio may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the
portfolio would be subject.

The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries with which they
trade.

William Blair Mutual Funds, Inc. May 1, 1998
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Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
portfolio's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) the absence
of developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (v) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vi) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.

In addition, many countries in which the portfolios may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects a growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resources self-sufficiency and balance of payments position.

Investments in Eastern European countries may involve risks of nationalization,
expropriation and confiscatory taxation. The communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the event of
such expropriation, a portfolio could lose a substantial portion of any
investments it has made in the affected countries. Finally, even though certain
Eastern European currencies may be convertible into U.S. dollars, the conversion
rates may be artificial to the actual market values and may be adverse to
portfolio shareholders. Further, no accounting standards exist in Eastern
European countries.

Investing in Russian securities involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include: (1)
delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (2) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (3) pervasiveness of corruption and crime in the Russian economic
system; (4) currency exchange rate volatility and the lack of available currency
hedging instruments; (5) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (6) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a portfolio's
ability to exchange local currencies for U.S. dollars; (7) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (8) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by a portfolio due to
the underdeveloped nature of the securities markets.

There is little historical data on Russian securities markets because they are
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. Because of the recent
formation of the securities markets as well as the underdeveloped state of the
banking and telecommunications systems, settlement, clearing and registration of
securities transactions are subject to significant risks. Ownership of shares
(except where shares are held through depositories that meet the requirements of
the 1940 Act) is defined according to entries in the company's share register
and normally evidenced by extracts from the register or by formal share
certificates. However, there is no central registration system for shareholders
and these services are carried out by the companies themselves or by registrars
located throughout Russia. These registrars are not necessarily subject to
effective state supervision and it is possible for a portfolio to lose its
registration through fraud, negligence or even mere oversight. While each
portfolio will endeavor to ensure that its interest continues to be
appropriately recorded either itself or through a custodian or other agent
inspecting the share register and by obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the portfolio of its ownership rights or improperly dilute its
interests. In addition, while applicable Russian regulations impose liability on
registrars for losses resulting from their errors, it may be difficult for a
portfolio to enforce any rights it may have against the registrar or issuer of
the securities in the event of loss of share registration. Furthermore, although
a Russian public enterprise with more than 1,000 shareholders is required by law
to contract out the maintenance of its shareholder register to an independent
entity that meets certain criteria, in practice this regulation has not always
been strictly enforced. Because of this lack of independence, management of a
company may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions in the share register. This practice may prevent a portfolio
from investing in the securities of certain Russian

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 57

issuers deemed suitable by its portfolio manager. Further, this also could cause
a delay in the sale of Russian securities by a portfolio if a potential
purchaser is deemed unsuitable, which may expose the portfolio to potential loss
on the investment.

Each portfolio endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when a portfolio changes investments
from one country to another or when proceeds of the sale of shares in U.S.
dollars are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent a portfolio from transferring
cash out of the country or withhold portions of interest and dividends at the
source. There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization or confiscatory taxation, withholding and other
foreign taxes on income or other amounts, foreign exchange controls (which may
include suspension of the ability to transfer currency from a given country),
default in foreign government securities, political or social instability, or
diplomatic developments which could affect investments in securities of issuers
in foreign nations.

Foreign markets also have different clearance and settlement procedures and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the portfolio are uninvested and no return is earned thereon. The inability
of the portfolio to make intended security purchases due to settlement problems
could cause the portfolio to miss investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the portfolio due to subsequent declines in the value of such portfolio
security or, if the portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.

Foreign securities may be purchased through depository receipts, including
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs")
Global Depository Receivables (GDRs), or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets, while EDRs and GDRs may
be denominated in other currencies and are designed for use in the European
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs and GDRs are
European receipts evidencing a similar arrangement. For purposes of the
portfolio's investment policies, ADRs, EDRs and GDRs are deemed to have the same
classification as the underlying securities they represent, except that ADRs,
EDRs and GDRs shall be treated as indirect foreign investments. Thus, an ADR,
EDR or GDR representing ownership of common stock will be treated as common
stock. ADR, EDR and GDR depository receipts do not eliminate all of the risks
associated with directly investing in the securities of foreign issuers.

ADR facilities may be established as either "unsponsored" or "sponsored." While
ADRs issued under these two types of facilities are in some respects similar,
there are distinctions between them relating to the rights and obligations of
ADR holders and the practices of market participants.

A depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to pass through voting rights to ADR holders
with respect to the deposited securities. In addition, an unsponsored facility
is generally not obligated to distribute communications received from the issuer
of the deposited securities or to disclose material information about such
issuer in the U.S. and thus there may not be a correlation between such
information and the market value of the depository receipts.

Sponsored ADR facilities are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited securities enters into a
deposit agreements with the depository. The deposit agreement sets out the
rights and responsibilities of the issuer, the depository and the ADR holders.
With sponsored facilities, the issuer of the deposited securities generally will
bear some of the costs relating to the facility (such as dividend payment fees
of the depository), although ADR holders continue to bear certain other costs
(such as deposit and withdrawal fees). Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities.

FORWARD FOREIGN CURRENCY TRANSACTIONS. The foreign securities held by the
International Growth Fund and the Emerging Markets Growth Fund will usually be
denominated in foreign currencies and the portfolio may temporarily hold foreign
currency in connection with such investments. As a result, the value of the
assets held by the portfolio may be affected favorably or unfavorably by changes
in foreign currency exchange rates, by exchange control regulations and by
indigenous economic and political developments. Some countries in which the
portfolios may invest may also have fixed or managed currencies that are

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 58

not free-floating against the U.S. dollar. Further, certain currencies may not
be internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a portfolio's securities are denominated may have a detrimental impact on
that portfolio.

The portfolio may enter into forward foreign currency contracts ("forward
currency contracts") in an effort to control some of the uncertainties of
foreign currency rate fluctuations. A forward currency contract is an agreement
to purchase or sell a specific currency at a specified future date and price
agreed to by the parties at the time of entering into the contract. The
portfolio will not engage in foreign currency contracts in which the specified
future date is more than one year from the time of entering into the contract.
In addition, the portfolio will not engage in forward currency contracts for
speculation, but only as an attempt to hedge against changes in foreign currency
exchange rates affecting the values of securities which the portfolio holds or
intends to purchase. Thus, the portfolio will not enter into a forward currency
contract if such contract would obligate the portfolio to deliver an amount of
foreign currency in excess of the value of the portfolio securities or other
assets denominated in that currency.

The International Growth Fund and the Emerging Markets Growth Fund may use
forward currency contracts to fix the value of certain securities it has agreed
to buy or sell. For example, when the portfolio enters into a contract to
purchase or sell securities denominated in a particular foreign currency, the
portfolio could effectively fix the maximum cost of those securities by
purchasing or selling a foreign currency contract, for a fixed value of another
currency, in the amount of foreign currency involved in the underlying
transaction. In this way, the portfolio can protect the value of securities in
the underlying transaction from an adverse change in the exchange rate between
the currency of the underlying securities in the transaction and the currency
denominated in the foreign currency contract, during the period between the date
the security is purchased or sold and the date on which payment is made or
received.

The International Growth Fund and the Emerging Markets Growth Fund may also use
forward currency contracts to hedge the value, in U.S. dollars, of securities it
currently owns. For example, if the portfolio held securities denominated in a
foreign currency and anticipated a substantial decline (or increase) in the
value of that currency against the U.S. dollar, the portfolio may enter into a
foreign currency contract to sell (or purchase), for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of all or a
portion of the securities held which are denominated in such foreign currency.

Upon the maturity of a forward currency transaction, the portfolio may either
accept or make delivery of the currency specified in the contract or, at any
time prior to maturity, enter into a closing transaction which involves the
purchase or sale of an offsetting contract. An offsetting contract terminates
the portfolio's contractual obligation to deliver the foreign currency pursuant
to the terms of the forward currency contract by obligating the portfolio to
purchase the same amount of the foreign currency, on the same maturity date and
with the same currency trader, as specified in the forward currency contract.
The portfolio realizes a gain or loss as a result of entering into such an
offsetting contract to the extent the exchange rate between the currencies
involved moved between the time of the execution of the original forward
currency contract and the offsetting contract.

The use of forward currency contracts to protect the value of securities against
the decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities the portfolio owns or intends to acquire,
but it does fix a future rate of exchange. Although such contracts minimize the
risk of loss resulting from a decline in the value of the hedged currency, they
also limit the potential for gain resulting from an increase in the value of the
hedged currency. The benefits of forward currency contracts to the portfolio
will depend on the ability of the portfolio's investment manager to accurately
predict future currency exchange rates.

FOREIGN CURRENCY FUTURES. Generally, foreign futures contracts will be executed
on a U.S. exchange. To the extent they are not, however, engaging in such
transactions will involve the execution and clearing of trades on or subject to
the rules of a foreign board of trade. Neither the National Futures Association
nor any domestic (U.S.) exchange regulates activities of any foreign boards of
trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the exchange may be liquidated by
a transaction on the appropriate domestic market. Moreover, applicable laws or
regulations will vary depending on the foreign country in which the foreign
futures transaction occurs. Therefore, entities (such as the portfolio) which
trade foreign futures contracts may not be afforded certain of the protective
measures provided by the Commodity Exchange Act, Commodity Futures Trading
Commission ("CFTC") regulations, the rules of the National Futures Association
or those of a domestic (U.S.) exchange. In particular, monies received from
customers for foreign futures transactions may not be provided the same
protections as monies received in connection with transactions on U.S. futures
exchanges. In addition, the price of any foreign futures and, therefore, the
potential profits and loss thereon, may be affected by any variance in the
foreign exchange rate between the time the order for the futures contract is
placed and the time it is liquidated, offset or exercised.

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FUTURES. The Value Discovery Fund may purchase and sell futures contracts on
domestic stock indexes in order to facilitate exposure to the market or in order
to help meet redemption requests. The portfolio may purchase and sell futures
contracts on stock indexes, such as the Russell 2000 Index, as a substitute for
purchasing or selling the underlying securities. The portfolio may not purchase
or sell a futures contract unless, immediately after any such transaction, the
sum of the aggregate amount of initial margin deposits on its existing futures
positions is 5% or less of its total assets (after taking into account certain
technical adjustments).

The Value Discovery Fund may be subject to additional risks associated with
futures contracts, such as the possibility that the Adviser's forecasts of
market values and other factors are not correct, imperfect correlation between
the hedging instrument and the asset or liability being hedged, default by the
other party to the transaction and inability to close out a position because of
the lack of a liquid market. In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between movements in a futures
contract and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. As a result of these factors, a correct forecast of general market
trends or interest rate movements by the Adviser may still not result in a
successful hedging transaction over a short time frame.

The transactions described above are frequently referred to as derivative
transactions. In general, derivatives are instruments whose value is based upon,
or derived from, some underlying index, reference rate (e.g., interest rates or
currency exchange rates), security, commodity or other asset.

ILLIQUID SECURITIES. Illiquid securities are securities that are not readily
marketable. The Board of Directors of the Fund, or its delegate, has the
ultimate authority to determine, to the extent permissible under the federal
securities laws, which securities are illiquid for purposes of this limitation.
Certain securities exempt from registration or issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered liquid under guidelines adopted by the Fund's Board of Directors.

The Board of Directors has delegated to the Adviser the day-to-day determination
of the liquidity of a security, although it has retained oversight for such
determinations. The Board of Directors has approved procedures that allow the
Adviser to deem Section 4(2) liquid only if the Adviser determines that there is
no significant difference between Section 4(2) commercial paper and traditional
commercial paper based upon an evaluation of the following characteristics, (i)
market characteristic, such as the nature of the security and the nature of
marketplace trades; (ii) trading characteristics, such as the frequency of
trades and quotes for the security, the number of dealers willing to purchase or
sell the security and the number of other potential purchasers; and (iii) the
quality of the issue or issuer. With respect to a portfolio's foreign holdings,
a foreign security may be considered liquid by the Adviser (despite its
restricted nature under the Securities Act) if the security can be freely traded
in a foreign securities market and the facts and circumstances support a finding
of liquidity.

LENDING. The Income Fund may from time to time lend securities (but not in
excess of 75% of its assets) from its portfolio to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities, government agency
securities, U.S. Government instrumentality securities, cash or cash equivalents
adjusted daily to have a market value at least equal to the current market value
of the securities loaned plus accrued interest; (2) the portfolio may at any
time call the loan and regain the securities loaned and (3) the Adviser (under
the supervision of the Board of Directors) has reviewed the creditworthiness of
the borrower and has found it satisfactory. The portfolio will receive from the
borrower amounts equal to the interest paid on the securities loaned and will
also earn income for having made the loan. Any cash collateral will be invested
in short-term securities, the income from which will increase the return to the
portfolio. The risks associated with lending portfolio securities are similar to
those of entering into repurchase agreements. While the Value Discovery Fund has
the authority to lend portfolio securities, it has no current intention to do
so.

REPURCHASE AGREEMENTS. In a repurchase agreement, a portfolio buys a security at
one price and at the time of sale, the seller agrees to repurchase the
obligation at a mutually agreed upon time and price (usually within seven days).
The repurchase agreement thereby determines the yield during the purchaser's
holding period, while the seller's obligation to repurchase is secured by the
value of the underlying security. The Adviser will monitor, on an ongoing basis,
the value of the underlying securities to ensure that the value always equals or
exceeds the repurchase price plus accrued interest. Repurchase agreements could
involve certain risks in the event of a default or insolvency of the other party
to the agreement, including possible delays or restrictions upon a portfolio's
ability to dispose of the underlying securities. The risk to a portfolio is
limited to the ability of the seller to pay the agreed upon sum on the delivery
date. In the event of default, a repurchase agreement provides that the
portfolio is entitled to sell the underlying collateral. The loss, if any, to
the portfolio will be the difference between the proceeds from the sale and the
repurchase price. However, if bankruptcy proceedings are commenced with respect
to the seller of the security, disposition of the collateral by the portfolio
may be delayed or limited. Although no definitive creditworthiness criteria are
used, the Adviser reviews the creditworthiness of the banks and non-bank dealers
with which the portfolio enters into repurchase agreements to evaluate those
risks. The Board of Directors will review and monitor the creditworthiness of

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 60
broker-dealers and banks with which a portfolio enters into repurchase
agreements. A portfolio may, under certain circumstances, deem repurchase
agreements collateralized by U.S. government securities to be investments in
U.S. government securities.

RESTRICTED SECURITIES. Restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. Where registration
is required, a portfolio may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the portfolio may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the portfolio might obtain a less favorable price
than prevailed when it decided to sell. If through the appreciation of
restricted securities or the depreciation of unrestricted securities, a
portfolio would be in a position where more of its net assets are invested in
illiquid securities, including restricted securities that are not readily
marketable (except for 144A Securities and 4(2) commercial paper deemed to be
liquid by the Adviser), than is permitted by its investment restrictions, the
Fund will take such steps as it deems advisable, if any, to protect liquidity.

SMALL COMPANIES. While smaller companies generally have the potential for rapid
growth, investments in smaller companies often involve greater risks than
investments in larger, more established companies because smaller companies may
lack the management experience, financial resources, product diversification and
competitive strengths of larger companies. In addition, in many instances the
securities of smaller companies are traded only over-the-counter or on a
regional securities exchange and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to greater and more abrupt price
fluctuations. When making large sales, the portfolio may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time due to the trading volume of smaller
company securities. Investors should be aware that, based on the foregoing
factors, an investment in the Value Discovery Fund, and to a lesser extent, the
Growth Fund and the International Growth Fund, may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger, more
established companies. The Adviser's research efforts may also play a greater
role in selecting securities for the portfolio than in a fund that invests in
larger, more established companies.

WARRANTS. Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance) during a specified period
or perpetually. Warrants may be acquired separately or in connection with the
acquisition of securities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered to have more speculative
characteristics than certain other types of investments. In addition, the value
of a warrant does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised prior to
its expiration date.

WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. Each portfolio may purchase newly
issued securities on a when-issued basis and may purchase or sell portfolio
securities on a delayed delivery basis. When a portfolio purchases securities on
a when-issued or a delayed delivery basis, it becomes obligated to purchase the
securities and it has all the rights and risks attendant to ownership of the
securities, although delivery and payment occur at a later date. A portfolio
will record the transaction and reflect the liability for the purchase and the
value of the security in determining its net asset value. The value of
fixed-income securities to be delivered in the future will fluctuate as interest
rates vary. A portfolio generally has the ability to close out a purchase
obligation on or before the settlement date, rather than take delivery of the
security.

At the time a portfolio makes the commitment to sell a security on a delayed
delivery basis, it will record the transaction and include the proceeds to be
received in determining its net asset value; accordingly, any fluctuations in
the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. Normally, settlement occurs within one month of the purchase or sale.

To the extent a portfolio engages in when-issued or delayed delivery purchases,
it will do so for the purpose of acquiring securities consistent with the
portfolio's investment objective and policies and not for the purpose of
investment leverage or to speculate on interest rate changes; but each portfolio
reserves the right to sell these securities before the settlement date if deemed
advisable. To the extent required to comply with Securities and Exchange
Commission Release No. IC-10666, when purchasing securities on a when-issued or
delayed delivery basis, each portfolio will maintain in a segregated account
cash or liquid securities equal to the value of such contracts.

GENERAL FUND INFORMATION

REDEMPTIONS. Suspension of Redemption or Delay in Payment. The Fund may not
suspend the right of redemption or delay payment on its shares for more than
seven days except (a) during any period when the New York Stock Exchange is
closed (other than on weekends and customary holidays); (b) when trading in the
markets that the portfolio normally utilizes is restricted or any emergency
exists as determined by the Securities and Exchange Commission, so that disposal
of the portfolio's investments

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 61

or determination of its net asset value is not reasonably practicable or (c) for
such other periods as the Securities and Exchange Commission may permit by order
for protection of the Fund's shareholders.

Special Redemptions. Although it is the present policy of all six of the
portfolios to redeem portfolio shares in cash, if the Board of Directors
determines that a material adverse effect would be experienced by the remaining
shareholders if payment of large redemptions were made wholly in cash, the
portfolios will pay the redemption price in whole or in part by a distribution
of portfolio instruments in lieu of cash, in conformity with the applicable
rules of the Securities and Exchange Commission, taking such instruments at the
same value used to determine net asset value and selecting the instruments in
such manner as the Board of Directors may deem fair and equitable. If such a
distribution occurs, shareholders receiving instruments and selling them before
their maturity could receive less than the redemption value of such instruments
and could also incur transaction costs. The portfolios have elected to be
governed by Rule 18f-1 under the Act, pursuant to which the portfolios are
obligated to redeem portfolio shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the portfolio during any 90-day period for any
one shareholder of record.

DETERMINATION OF NET ASSET VALUE. For each portfolio, net asset value is not
determined on the days that the New York Stock Exchange is closed, which include
New Year's Day, President's Day, Dr. Martin Luther King Jr.'s Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. In addition, the net asset value for the Ready Reserves Fund is
not calculated on Columbus Day and Veteran's Day. Net asset value is not
required to be computed on a day when no orders to purchase shares were received
and no shares were tendered for redemption.

As mentioned in the prospectus, the Ready Reserves Fund values its portfolio
instruments at amortized cost in accordance with Rule 2a-7 under the Investment
Company Act of 1940, which means that they are valued at their acquisition cost
(as adjusted for amortization of premium or discount), rather than at current
market value. This involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the portfolio would receive if it sold the
instrument. Calculations are made to compare the value of the portfolio's
investments valued at amortized cost with market values. Market valuations are
obtained by using actual quotations provided by market makers, estimates of
market value or values obtained from yield data relating to classes of money
market instruments published by reputable sources at the bid price for such
securities.

If a deviation of one-half of one percent or more were to occur between the net
asset value per share calculated by reference to market values and the
portfolio's $1.00 per share net asset value, or if there were any other
deviation that the Board of Directors determined would result in a material
dilution to shareholders or purchasers, the Board of Directors would promptly
consider what action, if any, should be initiated. If the portfolio's net asset
value per share (computed using market values) declined, or was expected to
decline, below $1.00 (computed using amortized cost), the Board of Directors of
the Fund might temporarily reduce or suspend dividend payments in an effort to
maintain the net asset value at $1.00 per share. As a result of such reduction
or suspension of dividends or other action by the Board of Directors, an
investor would receive less income during a given period than if such a
reduction or suspension had not taken place. Such action could result in
investors receiving no dividends for the period during which they held shares
and receiving, upon redemption, a price per share lower than that which they
paid. On the other hand, if the portfolio's net asset value per share (computed
using market values) were to increase, or were anticipated to increase, above
$1.00 (computed using amortized cost), the Board of Directors of the Fund might
supplement dividends in an effort to maintain the net asset value at $1.00 per
share.

The Ready Reserves Fund has never had a deviation of one-half of one percent or
more between its net asset value per share calculated by reference to market
values and its $1.00 per share net asset value; therefore, no Board actions of
the type described above have been taken. To use the amortized cost method of
valuation, the portfolio is limited to investing in instruments that the Board
of Directors has determined present minimal credit risks and that are within
certain rating categories of a nationally recognized statistical rating
organization.

PERFORMANCE.

HISTORICAL PERFORMANCE

In general. The historical performance or return of the Growth Fund, the Value
Discovery Fund, the International Growth Fund, the Emerging Markets Growth Fund
and the Income Fund may be shown in the form of "average annual total return"
and "total return" figures. The Income Fund's and Ready Reserves Fund's
historical performance or return may also be shown in the form of "yield
figures." These various measures of performance are described below.

William Blair Mutual Funds, Inc. May 1, 1998
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Average annual total return and total return measure both the net investment
income generated by and the effect of any realized and unrealized appreciation
or depreciation of, the underlying investments of the portfolio, assuming the
reinvestment of all dividends during the period. Average annual total return
figures represent the average annual percentage change over the period in
question. Total returns represent the aggregate percentage or dollar value
change over the period in question. Yield is a measure of the net investment
income per share earned over a specified period, expressed as a percentage of
the net asset value. Yield is an annualized figure, which means that it assumes
that a portfolio generates the same level of net investment income over a
one-year period.

The performance quotations for all of the portfolios are based upon historical
results and are not necessarily representative of future performance. Returns
and net asset value will fluctuate. The portfolios' performance depends upon
general market conditions, operating expenses and the performance of the
investment manager. Any additional fees charged by a dealer or other financial
services firm would reduce the returns described in this section.

In addition, from time to time the adviser has voluntarily absorbed certain
operating expenses of certain of the portfolios. For the Income Fund, the
Adviser has voluntarily waived certain advisory management fees for the fiscal
years from 1990 to 1993 and to the extent described under "Management of the
Fund--Investment Adviser and Distributor." For the Value Discovery Fund, the
Adviser has voluntarily waived certain advisory fees from December 23, 1996
(Commencement of Operations ) to December 31, 1997 and to the extent described
under "Management of the Fund --Investment Adviser and Distributor." For the
Emerging Markets Growth Fund, the Adviser is currently voluntarily waiving
certain advisory management fees. Without such waiver, the performance results
noted above for these portfolios would have been lower.

Average annual total return. The portfolios' average annual total return is
computed in accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission. The average annual total return for a
specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in a portfolio's shares on the first day of the period
and computing the "redeemable value" of that investment at the end of the
period. The redeemable value is then divided by the initial investment and this
quotient is taken to the nth root (n representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. This calculation assumes that all income dividends and capital gains
distributions by the portfolio have been reinvested at net asset value on the
reinvestment dates during the period.

The average annual total return for the Growth Fund, Value Discovery Fund,
International Growth Fund and Income Fund for the one-, five- and ten-year
periods, or, if less, from commencement of operations through December 31, 1997
are as follows:

<TABLE>
<CAPTION>
10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------
<S> <C> <C> <C>
GROWTH FUND .................... 20.07 17.59 16.94
VALUE DISCOVERY FUND (1) ....... 33.46 -- 33.46
INTERNATIONAL GROWTH FUND(2) ... 8.39 11.33 11.04
INCOME FUND(3) ................. 8.03 6.37 8.02
</TABLE>

Total return. Total return performance for a specific period is calculated by
first taking an investment (assumed below to be $10,000) ("initial investment")
in a portfolio's shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return percentage
is then determined by subtracting the initial investment from the ending value,
dividing the remainder by the initial investment and expressing the result as a
percentage. This calculation assumes that all income and capital gains dividends
by the portfolio have been reinvested at net asset value on the reinvestment
dates during the period. Total return may also be shown as the increased dollar
value of the hypothetical investment over the period.

The total return for the Growth Fund, the Value Discovery Fund, the
International Growth Fund and the Income Fund for the one-, five- and ten-year
periods, or, if less, from commencement of operations through December 31, 1997
are as follows:

<TABLE>
<CAPTION>
10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------
<S> <C> <C> <C>
GROWTH FUND 20.07 124.84 378.28
VALUE DISCOVERY FUND (1) 33.46 -- 33.46
INTERNATIONAL GROWTH FUND(2) 8.39 71.04 73.26
INCOME FUND(3) 8.03 36.16 74.89
</TABLE>

(1) Commenced operations on December 23, 1996.

William Blair Mutual Funds, Inc. May 1, 1998

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(2) Commenced operations on October 1, 1992.
(3) Commenced operations on September 25, 1990.

Yield. Like the portfolios' average annual total return, the yield for the
Income Fund portfolio is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. The yield is
computed by dividing the net investment income per share earned during a
specific one-month or 30-day period by the offering price per share on the last
day of that period according to the following formula:

YIELD = 2[(((a-b)/cd)+1)(6) - 1]

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period entitled to receive dividends
d = the offering price (net asset value) per share on the last day
of the period

The Income Fund's current yield for the 30-day period ended December 31, 1997
was 6.32%. Semiannual compounding is assumed.

In computing the foregoing yield, the portfolio follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that the portfolio
uses to prepare its annual and interim financial statements in accordance with
generally accepted accounting principles.

From time to time, the Fund may include in its sales literature and shareholder
reports a quotation of the current "distribution rate" for the Income Fund.
Distribution rate is simply a measure of the level of income and short-term
capital gain dividends distributed for a specified period. It differs from
yield, which is a measure of the income actually earned by the Income Fund's
investments and from total return, which is a measure of the income actually
earned by, plus the effect of any realized or unrealized appreciation or
depreciation of, such investments during the period. Distribution rate,
therefore, is not intended to be a complete measure of performance. Distribution
rate may sometimes be greater than yield since, for instance, it may include
short-term gains (which may be nonrecurring) and may not include the effect of
amortization of bond premiums.

The Ready Reserves Fund's yield quotations as they may appear in advertising and
sales materials also are calculated by a standard method prescribed by rules of
the Securities and Exchange Commission. Under that method, the current yield
quotation is annualized based on a seven-day period and computed as follows: the
portfolio's net investment income per share (accrued interest on portfolio
securities, plus or minus amortized purchase discount or premium, less accrued
expenses) is divided by the price per share (expected to remain constant at
$1.00) during the period ("base period return") and the result is divided by
seven and multiplied by 365 and the current yield figure is carried to the
nearest one-hundredth of one percent. Realized capital gains or losses and
unrealized appreciation or depreciation of investments are not included in the
calculation. The effective yield is determined by taking the base period return
and calculating the effect of assumed compounding according to the following
formula:

YIELD = [(BASE PERIOD RETURN +1)(365/7)] - 1

The Ready Reserves Fund's effective yield is calculated similarly to its current
yield, except that the net investment income earned is assumed to be compounded
when annualized. The Ready Reserves Fund effective yield will be slightly higher
than its current yield due to compounding.

The Ready Reserves Fund's current yield for the seven-day period ended December
31, 1997 was 4.98%. The Ready Reserves Fund's effective yield for the same
period was 5.10%.

The Ready Reserves Fund's yield fluctuates and the publication of an annualized
yield quotation is not a representation as to what an investment in the
portfolio will actually yield for any given future period. Actual yields will
depend not only on changes in interest rates on money market instruments during
the period the investment in the portfolio is held, but also on such matters as
any realized gains and losses and changes in portfolio expenses.

COMPARISON OF PORTFOLIO PERFORMANCE TO MARKET INDICES

From time to time, in marketing and other Fund literature, each portfolio's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds with similar goals, as
tracked by independent organizations. Such market comparisons are set forth
briefly below.

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 64

From time to time, the portfolios' performance may be compared to that of
various, unmanaged stock indices such as the Standard & Poor's 500 Stock Index,
NASDAQ, Value Line and Russell 1,000, 2,000 and 3,000. The portfolios'
performance may also be compared to the performance of other growth mutual funds
or mutual fund indices as reported by CDA Investment Technologies, Inc. ("CDA"),
Lipper Analytical Services, Inc. ("Lipper") or Morningstar, Inc.
("Morningstar").

* CDA: CDA is a widely recognized independent mutual fund reporting
service that is based upon changes in net asset value with all
dividends reinvested.

* LIPPER: Lipper is a widely used independent research firm that ranks
mutual funds' overall performance, investment objectives and assets.
Lipper performance figures are based on changes in net asset value,
with all income and capital gain dividends assumed to be reinvested.
Lipper's calculations do not include the effect of any sales charges
imposed by other funds. Lipper also issues a monthly yield analysis for
fixed-income funds.

* MORNINGSTAR: Morningstar rates funds on the basis of historical risk
and total return. Morningstar's ratings range from five stars (highest)
to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average
for three-, five- and ten-year periods.
Ratings are not absolute and do not represent future results.

The portfolios may also compare their performance with that of indices, such as
the Consumer Price Index, the Shearson Lehman Intermediate Government/Corporate
Bond Index and the Merrill Lynch Intermediate Term Corporate & Government Bond
Index. Both the Shearson Lehman and the Merrill Lynch bond indices are unmanaged
and do not adjust for taxes payable on interest or dividends. When assessing a
portfolio's performance as compared to that of any of these indices, it is
important to note the differences and similarities between the investments that
the portfolio may purchase and the investments measured by the applicable
indices.

* CONSUMER PRICE INDEX: The Consumer Price Index is generally
considered to be a measure of inflation.

* SHEARSON LEHMAN GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX: This
index generally represents the performance of intermediate government
and investment grade corporate debt securities under various market
conditions.

* MERRILL LYNCH INTERMEDIATE TERM CORPORATE & GOVERNMENT BOND INDEX:
This index also generally represents the performance of intermediate
government and investment grade corporate debt securities under various
market conditions.

Bank product performance may be based upon, among other things, the Bank Rate
Monitor National Index or various certificates of deposit indexes. Performance
of U.S. Treasury obligations may be based upon, among other things, various U.S.
treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Money market fund
performance may be based upon, among other things, the IBC/Donoghue's Money Fund
Average (All Taxable). Investors may also want to compare the historical returns
of various investments, performance indexes of those investments or economic
indicators, including but not limited to stocks, bonds, certificates of deposit,
money market funds and U.S. Treasury obligations and the rate of inflation.

Comparative performance information other than that listed above may be used
from time to time in advertising the International Growth Fund and the Emerging
Markets to Growth Fund, including data from Micropal Ltd., an independent fund
reporting service and independent unmanaged indices. For the International
Growth Fund indices include the Morgan Stanley Capital International's Europe,
Australia and the Far East (EAFE) Index or Morgan Stanley Capital
International's All Country World (Free) Except United States (ACWFxUS) Index.
For the Emerging Markets Growth Fund such indices include the MSCI Emerging
Markets (free) Index.

In addition, the portfolios may quote information from industry or financial
publications of general U.S. or international interest, such as information from
Morningstar, the Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune,
the Chicago Tribune, USA Today, Institutional Investor and Registered
Representative.

TAX STATUS. Each series (portfolio) of the Fund is treated as a separate entity
for accounting and tax purposes. The Fund has qualified and elected to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code (the "Code") and intends to continue to so qualify in the future.
As such, and by complying with the applicable provisions of the Code regarding
the sources of its income, the timing of its distributions and the
diversification of its assets, the Fund will not be subject to Federal income
tax on its taxable income (including net short-term and long-term capital gains)
that is distributed to shareholders in accordance with the timing requirements
of the Code.

William Blair Mutual Funds, Inc. May 1, 1998
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Each portfolio intends to declare and make distributions during the calendar
year of an amount sufficient to prevent imposition of a 4% nondeductible Federal
excise tax. The required distribution generally is the sum of 98% of a
portfolio's net investment income for the calendar year plus 98% of its net
capital gain income for the one-year period ending October 31, plus the sum of
any undistributed net investment income and capital gain net income from the
prior year, less any over-distribution from the prior year.

The Fund is required to withhold Federal income tax at the rate of 31% (commonly
called "backup withholding") from taxable distributions to shareholders that do
not provide the fund with a taxpayer identification (social security) number or
in other circumstances where shareholders have failed to comply with Internal
Revenue Service regulations.

Special tax provisions may accelerate or defer recognition of certain gains or
losses, change the character of certain gains or losses or alter the holding
periods of certain of a portfolio's securities. Specifically, the mark-to-market
rules of the Internal Revenue Code (the "Code") may require a portfolio to
recognize unrealized gains and losses on certain forward contracts, futures and
foreign currency futures held by a portfolio at the end of the Fund's fiscal
year. Under these provisions, 60% of any capital gain net income or loss
recognized will generally be treated as long-term and 40% as short-term.
Although certain foreign currency forward contracts and foreign currency futures
contracts are marked-to-market, any gain or loss related to foreign currency
fluctuations is generally treated as ordinary under Section 988 of the Code (see
below). In addition, the straddle rules of the Code require deferral of certain
losses realized on positions of a straddle to the extent that the portfolio has
unrealized gains in offsetting positions at year end. The portfolios have
elected to mark-to-market their investments in passive foreign investment
companies for Federal income tax purposes.

Foreign exchange gains and losses realized by the Fund in connection with
certain transactions that involve foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. For example, if a portfolio sold
a foreign stock or bond and part of the gain or loss on the sale was
attributable to an increase or decrease in the value of a foreign currency, then
the currency gain or loss may be treated as ordinary income or loss. If such
transactions result in higher net ordinary income, the dividends paid by the
portfolio will be increased; if such transactions result in lower net ordinary
income, a portion of dividends paid could be classified as a return of capital.

The International Growth Fund and Emerging Markets Growth Fund may qualify for
and make an election permitted under the "pass through" provisions of Section
853 of the Internal Revenue Code, which allows a regulated investment company to
elect to have its foreign tax credit taken by its shareholders instead of on its
own tax return. To be eligible for this credit, more than 50% of the value of
the Fund's total assets at the close of its taxable year must consist of stock
or other securities in foreign corporations, and the Fund must have distributed
at least 90% of its taxable income.

If the Fund makes this election, it may not take any foreign tax credit and may
not take a deduction for foreign taxes paid. However, the Fund is allowed to
include the amount of foreign taxes paid in a taxable year in its dividends paid
deduction. Each shareholder would then include in his gross income, and treat as
paid by him, his proportionate share of the foreign taxes paid by the Fund.

If the U.S. government were to impose any restrictions, through taxation or
other means, on foreign investments by U.S. investors such as those to be made
through the portfolio, the Board of Directors of the Fund will promptly review
the policies of the International Growth Fund to determine whether significant
changes in its investments are appropriate.

Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above and in the
prospectus. Such investors may be subject to nonresident alien withholding tax
at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund and, unless an effective IRS Form
W-8 or authorized substitute for Form W-8 is on file, to 31% backup withholding
on certain other payments from the Fund. Non-U.S. investors should consult their
tax advisers regarding such treatment and the application of foreign taxes to an
investment in the Fund.

RETIREMENT PLANS. The Fund offers a variety of retirement investment programs
whereby contributions are invested in shares of the Fund's portfolios and any
income dividends or capital gain distributions are reinvested in additional full
and fractional shares of the Fund.

Individual Retirement Accounts. The Fund has available Individual Retirement
Accounts ("IRAs") under Internal Revenue Service approved prototypes. IRA
contributions are fully deductible only to (1) taxpayers who are not active
participants in an employer-sponsored retirement plan and (2) taxpayers who are
active participants in an employer-sponsored plan but who have adjusted gross
income below a specified level. For these purposes, a taxpayer will be deemed to
be an active participant in an

William Blair Mutual Funds, Inc. May 1, 1998
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<PAGE> 66

employer-sponsored retirement plan if for any part of the plan year he is an
active participant under a qualified pension plan, a qualified profit sharing or
money purchase plan, a 403(a) annuity plan, a 403(b) annuity program, a
Simplified Employee Pension ("SEP") plan or a government plan (other than a plan
maintained for state and local employees under Section 457 of the Internal
Revenue Code). A taxpayer will not be treated as an active participant in an
employer-sponsored plan because his spouse is an active participant. However,
the deductibility of IRA contributions is limited based on adjusted gross income
being above a specified level.

Married taxpayers filing a joint return who are active participants in an
employer-sponsored plan may make tax deductible IRA contributions up to $2,000
individually, or $4,000 jointly, if their adjusted gross income ("AGI") is
$50,000 or less. For any active participant of an employer-sponsored plan who
files a joint return, the IRA deduction is gradually phased out for AGI between
$50,000 and $60,000. For married taxpayers filing a joint return where only one
spouse is an active participant in an employer-sponsored plan, a $2,000
deductible IRA contribution is available to the individual who is not an active
participant if their AGI is $150,000 or less. This deduction is gradually phased
out for AGI between $150,000 and $160,000. For single taxpayers who are active
participants in an employer-sponsored plan, a $2,000 deductible IRA contribution
is available for taxpayers with AGI up to $30,000. This deduction is gradually
phased out for AGI between $30,000 and $40,000. To the extent that the IRA
deduction is reduced or eliminated by the phase-out rules, an individual may
elect to make nondeductible IRA contributions which, when combined with any
deductible contributions, may not exceed $2,000 individually or $4,000 jointly
for a spousal IRA. Tax deductible IRA contributions are not subject to Federal
income taxation until such contributions are withdrawn.

Simplified Employee Pension Plans. An employer may establish a SEP plan under
which the employer makes contributions to all eligible employees' IRAs. Any
portfolio's shares may be used for this purpose.

Qualified Retirement Plans. A corporation, partnership, or sole proprietorship
may establish a qualified money purchase pension and profit sharing plan and
make contributions for each participant up to the lesser of 25% of each
participant's gross compensation or $30,000. Such contributions may be made by
the employer and, if certain conditions are met, participants may also make
nondeductible voluntary contributions.

Under the Internal Revenue Code, an investor has at least seven days in which to
revoke an IRA after receiving certain explanatory information about the plan.
Individuals who have received distributions from certain qualified plans may
roll over all or part of such distributions into an IRA, which will defer taxes
on the distributions and shelter investment earnings. Trustees of qualified
retirement plans and 403(b)(7) accounts are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement, however, does not apply to distributions from
IRAs or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account or IRA. Shareholders are advised to
consult with a tax professional regarding this requirement.

INDEPENDENT AUDITORS. The Fund's independent auditors are Ernst & Young LLP,
Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606. Ernst & Young
audits and reports upon the Fund's annual financial statements, reviews certain
regulatory reports and prepares the Fund's Federal and state tax returns and
performs other professional accounting, auditing, tax and advisory services when
engaged to do so by the Fund.

LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601 is the Fund's Counsel.

CUSTODIAN. The Fund's custodian, Investors Bank and Trust Company, 200
Clarendon, Boston, Massachusetts 02117, has custody of all securities and cash
of the Fund and attends to the collection of principal and income and payment
for and collection of proceeds of securities bought and sold by the Fund.

TRANSFER AGENT SERVICES. State Street Bank and Trust Company ("State Street"),
225 Franklin Street, Boston, Massachusetts 02110, is the Fund's transfer agent
and dividend-paying agent. State Street, as the shareholder service agent,
provides certain bookkeeping, data processing and administrative services
pertaining to the maintenance of shareholder accounts.

REPORTS TO SHAREHOLDERS. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.

SHAREHOLDER RIGHTS

All shares of each portfolio have equal rights with respect to dividends, assets
and liquidation of a portfolio and equal, noncumulative voting rights.
Noncumulative voting rights allow the holder or holders of a majority of shares,
voting together for the election of directors, to elect all the directors. All
shares of each portfolio will be voted in the aggregate, except when a separate
vote by portfolio is required under the Investment Company Act of 1940. Shares
are fully paid and nonaccessible when issued, are transferable without
restriction and have no preemptive or conversion rights.

William Blair Mutual Funds, Inc. May 1, 1998
B-27

<PAGE> 67

Under Maryland law, the Fund generally is not required to hold annual
shareholders' meetings. Upon the written request of ten or more shareholders
that have held Fund shares for at least six months in an amount equal to the
lesser of 1% of the outstanding shares or $25,000, the Fund will either
disseminate appropriate materials (at the expense of the requesting
shareholders) or provide such shareholders access to a list of names and
addresses of all shareholders of record. The written notice must state that the
shareholders making such request wish to communicate with the other shareholders
to obtain the signatures necessary to demand a meeting to consider removal of a
director. The Fund will hold Shareholders' meetings when requested to do so in
writing by one or more shareholders collectively holding at least 10% of the
shares entitled to vote or when determined by the Board of Directors in their
discretion. Shareholders' meetings also will be held in connection with the
following matters: (1) the election or removal of directors, if a meeting is
called for such purpose; (2) the adoption of any contract for which shareholder
approval is required by the Act; (3) any termination of the Fund; (4) any
amendment of the articles of incorporation and (5) such additional matters as
may be required by law, the articles of incorporation, the by-laws of the Fund,
or any registration of the Fund with the Securities and Exchange Commission or
any state, or that the directors may consider necessary or desirable, such as
changes in fundamental investment objectives, policies or restrictions.

The Fund's directors serve until the next meeting of shareholders, if any,
called for the purpose of electing directors and until the election and
qualification of their successors or until a director sooner dies, resigns,
retires, or is removed by a majority vote of the shares entitled to vote or by a
majority of the directors. In accordance with the Act, the Fund will hold a
shareholder meeting for the election of directors at such time that (1) less
than a majority of the directors has been elected by the shareholders and (2)
if, as a result of a vacancy in the Board of Directors, less than two-thirds of
the directors have been elected by the shareholders. A director may be removed
from office by a vote of the holders of a majority of the outstanding shares
entitled to vote.

FUND HISTORY

The Fund was organized as a Maryland corporation on September 22, 1987 under the
name of William Blair Ready Reserves, Inc. On April 30, 1991, a reorganization
of the Fund and Growth Industry Shares, Inc., a Maryland corporation, occurred
such that Growth Industry Shares, Inc. was reorganized into a separate portfolio
of the Fund, now the Growth Fund portfolio and the Fund changed its name to
William Blair Mutual Funds, Inc. Presently, the Fund is offering shares of the
six portfolios described in the prospectus. The Board of Directors of the Fund
may, however, establish additional portfolios with different investment
objectives, policies and restrictions in the future.

FINANCIAL INFORMATION OF THE FUND

The Fund's audited financial statements, including the notes thereto, contained
in the Fund's annual reports to shareholders for the period ended December 31,
1997, are incorporated herein by reference. Additional copies of the reports to
shareholders may be obtained without charge by writing or calling the Fund.

William Blair Mutual Funds, Inc. May 1, 1998
B-28
<PAGE> 68
APPENDIX A

DESCRIPTION OF MONEY MARKET INSTRUMENTS

The following information includes a description of certain money market
instruments in which the Ready Reserves Fund portfolio may invest to the extent
consistent with its investment objective.

UNITED STATES GOVERNMENT SECURITIES These include marketable securities issued
by the United States Treasury, which consist of bills, notes and bonds. Such
securities are direct obligations of the United States government and are backed
by the full faith and credit of the United States. They differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government security, have a maturity of up to one year and are issued on a
discount basis.

GOVERNMENT AGENCY SECURITIES These include debt securities issued by
government-sponsored enterprises, federal agencies or instrumentalities and
international institutions. Such securities are not direct obligations of the
U.S. Treasury but involve some government sponsorship or guarantees. Different
instruments have different degrees of government backing. For example,
securities issued by the Federal National Mortgage Association are supported by
the agency's right to borrow money from the U.S. Treasury under certain
circumstances. Securities issued by the Student Loan Marketing Association are
supported only by the credit of the agency that issued them. Thus, the Fund may
not be able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitment.

SHORT-TERM CORPORATE DEBT INSTRUMENTS These include commercial paper (including
variable amount master demand notes), which refers to short-term unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months. In addition, some short-term paper,
which can have a maturity exceeding nine months, is issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933 ("Section 4(2) paper"). The Ready Reserves
Fund portfolio may invest in Section 4(2) paper with maturities of twelve months
or less. Section 4(2) paper is restricted as to disposition under the Federal
securities laws and generally is sold to institutional investors such as the
Fund who agree that they are purchasing the paper for investment and not with a
view to public distribution. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payees of such notes, whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.

Because variable amount master demand notes are direct lending arrangements
between the lender and the borrower, it is not generally contemplated that such
instruments will be traded and there is no secondary market for the notes.
Typically, agreements relating to such notes provide that the lender may not
sell or otherwise transfer the note without the borrower's consent. Such notes
provide that the interest rate on the amount outstanding is adjusted
periodically, typically on a daily basis in accordance with a stated short-term
interest rate benchmark. Since the interest rate of a variable amount master
demand note is adjusted no less often than every 60 days and since repayment of
the note may be demanded at any time, the Fund values such a note in accordance
with the amortized cost basis at the outstanding principal amount of the note.

Also included are nonconvertible corporate debt securities (e.g., bonds and
debentures) with no more than one year remaining to maturity at the date of
settlement. Corporate debt securities with a remaining maturity of less than one
year tend to become quite liquid, have considerably less market value
fluctuations than longer term issues and are traded as money market securities.

BANK MONEY INSTRUMENTS These include instruments such as certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
generally short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. A time deposit is a non-negotiable deposit in a banking
institution earning a specified interest rate over a given period of time. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.

REPURCHASE AGREEMENTS A repurchase agreement is an instrument under which the
purchaser (e.g., a mutual fund) acquires ownership of an obligation (debt
security) and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining the
yield during the purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period. The underlying
securities will consist only of U.S. Government or government agency or
instrumentality securities.

William Blair Mutual Funds, Inc. May 1, 1998

A-1

<PAGE> 69
Repurchase agreements usually are for short periods, typically less than one
week. Repurchase agreements are considered to be loans under the 1940 Act, with
the security subject to repurchase, in effect, serving as "collateral" for the
loan. The Fund will require the seller to provide additional collateral if the
market value of the securities falls below the repurchase price at any time
during the term of the repurchase agreement. In the event of a default by the
seller because of bankruptcy or otherwise, the Fund may suffer time delays and
incur costs or losses in connection with the disposition of the collateral.

William Blair Mutual Funds, Inc. May 1, 1998

A-2

<PAGE> 70
APPENDIX B

SHORT-TERM RATINGS (COMMERCIAL PAPER)

DUFF & PHELPS INC. Duff & Phelps Inc. rating system for "Top Grade" commercial
paper incorporates three gradations to recognize quality differences within its
highest grade. Lower grades (Duff - 2 and Duff - 3) do not distinguish between
such quality differences within the grade.

CATEGORY 1: TOP GRADE

Duff 1 plus: Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready
access to alternative sources of funds, is clearly outstanding
and safety is just below risk-free U.S. Treasury short-term
obligations.

Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.

Duff 1 minus: High certainty of timely payment. Liquidity factors are
strong and supported by fundamental protection factors. Risk
factors are very small.

CATEGORY 2: GOOD GRADE

Duff 2: Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing internal
funds needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small.

FITCH INVESTORS SERVICE, INC. Fitch Investors Service, Inc. commercial paper
ratings are grouped into four categories: Fitch-1 (Strong Credit Quality);
Fitch-2 (Good Credit Quality); Fitch-3 (Fair Credit Quality); and Fitch-4 (Weak
Credit Quality).

Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

Fitch-1 (Very Strong Credit Quality) Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.

Fitch-2 (Good Credit Quality) Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1
categories.

MOODY'S INVESTORS SERVICE, INC. The ratings Prime-1 and Prime-2 are the two
highest commercial paper ratings assigned by Moody's Investors Service, Inc.
Among the factors considered by it in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1, 2 or 3.

STANDARD & POOR'S CORPORATION The ratings A-1+, A-1 and A-2 are the three
highest commercial paper ratings assigned by Standard & Poor's Corporation.
Commercial paper so rated by Standard & Poor's Corporation has the following
characteristics. Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1+, A-1, A-2 or A-3.

William Blair Mutual Funds, Inc. May 1, 1998

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<PAGE> 71
LONG-TERM RATINGS (BONDS)

DUFF & PHELPS INC. BOND RATINGS

<TABLE>
<CAPTION>
CATEGORY RATING
- --------------------
<S> <C> <C>
Triple A 1 Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.

Double A High credit quality. Protection factors are strong.
High 2 Risk is modest but may vary slightly from time to
Middle 3 time because of economic conditions.
Low 4

Single A Protection factors are average but adequate. However,
High 5 risk factors are more variable and greater in periods
Medium 6 of economic stress.
Low 7
</TABLE>

FITCH INVESTORS SERVICE INC. BOND RATINGS

AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

PLUS (+) OR MINUS (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE, INC. BOND RATINGS

AAA Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in its generic rating
classification in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S CORPORATION BOND RATINGS

AAA This is the highest rating assigned by Standard & Poor's Corporation to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.

William Blair Mutual Funds, Inc. May 1, 1998

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<PAGE> 72
AA Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong and in the majority of instances they
differ from AAA issues only in small degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

William Blair Mutual Funds, Inc. May 1, 1998

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<PAGE> 73
WILLIAM BLAIR MUTUAL FUNDS, INC.

PART C

OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

(a) Financial Statements:

(i) Financial Statements included in Part A of the Registration
Statement:

For Growth Fund, Value Discovery Fund, International Growth
Fund, Income Fund, and Ready Reserves Fund:

Financial Highlights

(ii) Financial Statements included in Part B of the Registration
Statement:

The following information contained in the Annual Report for
William Blair Mutual Funds, Inc. (Growth Fund, Value Discovery
Fund, International Growth Fund, Income Fund, and Ready
Reserves Fund) for the fiscal year ended December 31, 1997 is
incorporated by reference into Part A.

William Blair Mutual Funds, Inc.

Growth Fund, Value Discovery Fund, International Growth Fund,
Income Fund, and Ready Reserves Fund

Statements of Assets and Liabilities at December 31,
1997

Statements of Operations for the Year Ended December 31,
1997

Statements of Changes in Net Assets for the Years Ended
December 31, 1997 and 1996 (for the period from December
23, 1996 (Commencement of Operations) to December 31,
1996 for the Value Discovery Fund)

Notes to Financial Statements

Growth Fund, Value Discovery Fund, International Growth Fund,
Income Fund, and Ready Reserves Fund

Schedules II, III, IV, V, VI and VII are omitted as the
required information is not present

Schedule I has been omitted as the required information
is presented in the Portfolio of Investments at December
31, 1997

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<PAGE> 74
(b) Exhibits

EX-99.B1.1 Articles of Incorporation.(1)/
EX-99.B1.2 Form of Amendment to Articles of Incorporation.(1)/
EX-99.B2 By-laws, as amended.*
EX-99.B3 Inapplicable
EX-99.B4 See items 1 and 2 above.
EX-99.B5.1 Form of Management Agreement dated May 1, 1996, as
amended.(3)/
EX-99.B5.2 Form of Management Agreement dated December 23,
1996.(2)/
EX-99.B5.3 Form of Management Agreement dated __________, 1998.*
EX-99.B6 Underwriting Agreement.(1)/
EX-99.B7 Inapplicable.
EX-99.B8.1 Custodian Agreement.(1)/
EX-89.B8.2 Delegation Agreement.*
EX-99.B9 Inapplicable.
EX-99.B10 Opinion and Consent of Vedder, Price, Kaufman &
Kammholz.*
EX-99.B11 Consent of Ernst & Young LLP.*
EX-99.B12 Inapplicable.
EX-99.B13 Subscription Agreement.(1)/
EX-99.B14 Inapplicable.
EX-99.B15 Inapplicable.
EX-99.B16 Schedule for calculation of performance quotation.*
EX-99.B17 Powers of Attorney*
EX-99.B27.1 Financial Data Schedule - Growth Fund*
EX-99.B27.2 Financial Data Schedule - Value Discovery Fund*
EX-99.B27.3 Financial Data Schedule - International Growth Fund*
EX-99.B27.4 Financial Data Schedule - Income Fund*
EX-99.B27.5 Financial Data Schedule - Ready Reserves Fund *

(1)/ Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A as filed on or about
March 1, 1996.

(2)/ Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A as filed on or about
November 5, 1996.

(3)/ Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A as filed on or about
February 26, 1997.

*Filed herewith.

ITEM 25. Persons Controlled by or under Common Control with Registrant

Inapplicable.

ITEM 26. Number of Holders of Securities

Number of holders of securities as of December 31, 1997:

<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Shares of common stock of:
Growth Fund ................................................ 10,180
Value Discovery Fund ....................................... 637
International Growth Fund .................................. 1,665
Emerging Markets Growth Fund ............................... --
Income Fund ................................................ 1,840
Ready Reserves Fund ........................................ 20,628
</TABLE>

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<PAGE> 75
ITEM 27. Indemnification

Section 2-418 of the Maryland General Corporation Law provides for
indemnification of directors, officers, employees and agents.

Article XII of the Registrant's Articles of Incorporation provides for
indemnification of directors and officers under certain circumstances but does
not allow such indemnification in cases of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

The Investment Management Agreement between the Registrant and William
Blair & Company, L.L.C. (the "Adviser") provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties thereunder on the part of the Adviser, the Adviser shall not be liable
for any error of judgment or mistake of law, or for any loss suffered by the
Fund in connection with the matters to which such Agreement relates.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.

ITEM 28. Business and Other Connections of Investment Adviser

Registrant's investment manager is William Blair & Company, L.L.C., a
limited liability company. In addition to its services to Registrant as
investment manager as set forth in Parts A and B of this Registration Statement
on Form N-1A, William Blair & Company, L.L.C. is a registered broker-dealer and
investment adviser and engages in investment banking.

The principal occupations of the principals and primary officers of
William Blair & Company, L.L.C. are their services as principals and officers of
that Company. The address of William Blair & Company, L.L.C. and Registrant is
222 West Adams Street, Chicago, Illinois 60606.

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<PAGE> 76

Set forth below is information as to any other business, profession,
vocation, or employment of a substantial nature in which each principal of
William Blair & Company, L.L.C. is, or at any time during the last two fiscal
years has been, engaged for his own account or in the capacity of director,
officer, employee, partner, or trustee:

<TABLE>
<CAPTION>
NAME AND POSITION WITH
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
------------------------------- ------------------ --------
<S> <C> <C>
James L. Barber, Jr., LaRabida Hospital Foundation Vice President of the Board of Directors
Principal Stanford Associates Past President
William Blair Mutual Funds, Inc. President

Bowen Blair, The Art Institute of Chicago Trustee
Senior Principal Chicago Historical Society Trustee
Field Museum of Natural History Trustee

Edward McC. Blair, Sr., The Art Institute of Chicago Life Trustee
Senior Principal College of The Atlantic Board of Trustees
Pullman Educational Foundation Life Trustee
Rush Presbyterian-St. Luke Life Trustee
Medical Center
University of Chicago Life Trustee

Edward McC. Blair, Jr., Chicago Dock and Canal Trust Trustee
Principal Chicago Zoological Society Deputy Chairman
Research Medical, Inc. Director
University of Chicago Hospital Trustee

Kurt Beuchel, Social Security Fund of the Member
Principal Principality of Liechtenstein Investment Advisory Board

David G. Chandler, The Bruss Company Director
Principal Encore Paper Company Director
Electronic Manufacturing Systems, Director
Inc. Director
Gibraltar Packaging Group Director
Harmonic Systems, Inc. Director
Morton Grove Pharmaceuticals, Inc. Director
Predelivery Service Corporation Director
Sweetwater Sound, Inc.

E. David Coolidge, III, Pittway Corporation Director
Chief Executive Officer

Conrad Fischer APM Limited Partnership General Partner
Principal Chicago Child Care Trustee, Emeritus
Kalamazoo College Investment Committee
William Blair Mutual Funds, Inc. Chairman and Director
</TABLE>

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<PAGE> 77

<TABLE>
<CAPTION>
NAME AND POSITION WITH
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
------------------------------- ------------------ --------
<S> <C> <C>
Mark A. Fuller, III, Fuller Investment Company President
Principal Fulsen Howney Partners Partner
Three Rio Grande, LLC Principal
William Blair Mutual Funds, Inc. Senior Vice President

John K. Greene, Chicago Horticultural Society Trustee
Principal Children's Home & Aid Society Trustee
of Illinois, Inc.
Hazelden Chairman Illinois Board of Directors
Vulcan Materials Co. Director

Thomas L. Greene, Tyler School of Secretarial Science 25% Owner
Principal

James P. Hickey, Eagle Point Software Director
Principal

Edgar D. Jannotta, Sr., AAR Corporation Director
Senior Principal AON Corporation Director
Bandag, Incorporated Director
Commonwealth Edison Director
Molex, Incorporated Director
New York Stock Exchange, Inc. Director
Oil-Dri Corporation of America Director
Safety-Kleen Corporation Director
Sloan Valve Company Director
Unicom Corporation Director
</TABLE>

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<PAGE> 78

<TABLE>
<CAPTION>
NAME AND POSITION WITH
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
------------------------------- ------------------ --------
<S> <C> <C>
Edgar D. Jannotta, Jr., Big Sky Joint Venture General Partner
Principal The Bruss Company Director
CARA Corporation Director
Chicago Communities in Schools Director
Corporate Project Resources, Inc. Director
Daisytek International Director
Electronic Manufacturing Services, Director
Inc. Director
Gibraltar Packaging Director
Towne Holdings, Inc.

Richard P. Kiphart, McCormick Theological Seminary Board of Directors
Principal

Robert Lamphier, IV, Ag. Med, Inc. Chairman
Principal

James McMullan, Security Industry Association Director
Principal William Blair Mutual Funds, Inc. Director

David W. Morrison, Bell Flavors & Fragrances, Inc. Director
Principal

Timothy M. Murray, AGI, Inc. Director
Principal Daisytek International Director
Mede America, Inc. Director
MRC Group, Inc. Director
Portland Food Products, Director
Incorporated Director
Towne Holdings, Inc.

Bentley M. Myer, Delnor Community Hospital Director
Principal William Blair Mutual Funds, Inc. Senior Vice President

Daniel Nichols, Armani Racing Stable Partner
Principal

David G. O'Neill, Elder Care Information Network Director
Principal Resume Link, Inc. Director
Svboda, Collins & Co. Advisory Board

Phillip Reitz XOLOX Corporation Advisory Board

Neal L. Seltzer, Scholarship and Guidance Foundation Director
Principal Lake Shore Country Club Director

William Semmer, Chicago Home and Garden Magazine Director
Principal

Ronald B. Stansell, AFO Limited Partnership Limited Partner
Principal
</TABLE>

C-6
<PAGE> 79

Mark Timmerman, DIY Home Warehouse, Incorporated Director
Principal Prophet 21, Incorporated Director

Norbert W. Truderung, William Blair Mutual Funds, Inc. Senior Vice President
Principal

W. James Truettner, Jr., Glenview Foundation Director
Principal International Travel Services Director
William Blair Mutual Funds, Inc. Senior Vice President and Director
</TABLE>

ITEM 29. Principal Underwriters

(a) Inapplicable.

(b) The principal business address of each principal and officer
of William Blair & Company, L.L.C., principal underwriter for
Registrant, is 222 West Adams Street, Chicago, Illinois 60606.
See Item 28 for information with respect to officers and
principals of William Blair & Company, L.L.C.

ITEM 30. Location of Accounts and Records

All such accounts, books and other documents are maintained by the
Registrant's officers at the offices of the Registrant and the offices of the
Investment Adviser, William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606. Shareholder account information and original
shareholder correspondence is also available at the offices of the Transfer
Agent and Dividend Paying Agent, State Street Bank and Trust Company, P.O. Box
9104, Boston, Massachusetts 02205-9104.

ITEM 31. Management Services

Inapplicable.

ITEM 32. Undertakings

(a) Inapplicable.

(b) With respect to the Emerging Markets Growth Fund, Registrant
undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six
months from the effective date of registrant's 1933 Act
registration statement.

(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest
annual report to shareholders upon request and without charge.

C-7

<PAGE> 80
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago, and State of Illinois, on the 27th day
of February, 1998.

WILLIAM BLAIR MUTUAL FUNDS, INC.

By: /s/ ROCKY BARBER
------------------------------------
Rocky Barber, President

Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the registration statement has been signed below by
the following persons in the capacity and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
VERNON ARMOUR* Director February 27, 1998
- ------------------------------------
Vernon Armour

J. GRANT BEADLE* Director February 27, 1998
- ------------------------------------
J. Grant Beadle

THEODORE A. BOSLER* Director February 27, 1998
- ------------------------------------
Theodore A. Bosler

/s/ CONRAD FISCHER Director (Chairman of the Board) February 27, 1998
- -------------------------------
Conrad Fischer

GEORGE KELM* Director February 27, 1998
- ------------------------------------
George Kelm

ANN P. MCDERMOTT* Director February 27, 1998
- ------------------------------------
Ann P. McDermott

JAMES M. MCMULLAN* Director February 27, 1998
- ------------------------------------
James M. McMullan

JOHN B. SCHWEMM* Director February 27, 1998
- ------------------------------------
John B. Schwemm

W. JAMES TRUETTNER, JR.* Director February 27, 1998
- ------------------------------------
W. James Truettner, Jr.

/s/ ROCKY BARBER President (Principal Executive Officer) February 27, 1998
- ------------------------------------
James L. Barber, Jr.

/s/ TERENCE M. SULLIVAN Treasurer (Principal Financial Officer, February 27, 1998
- ------------------------------------ Principal Accounting Officer)
Terence M. Sullivan
</TABLE>

* Rocky Barber signs this document pursuant to a power of attorney filed
herewith.

<PAGE> 81
EXHIBIT INDEX

<TABLE>
<S> <C>
EX-99.B1.1 Articles of Incorporation.(1)/
EX-99.B1.2 Form of Amendment to Articles of Incorporation.(1)/
EX-99.B2 By-laws, as amended.*
EX-99.B3 Inapplicable
EX-99.B4 See items 1 and 2 above.
EX-99.B5.1 Form of Management Agreement dated May 1, 1996, as amended.(3)/
EX-99.B5.2 Form of Management Agreement dated December 23, 1996.(2)/
EX-99.B5.3 Form of Management Agreement dated ___________, 1998.*
EX-99.B6 Underwriting Agreement.(1)/
EX-99.B7 Inapplicable.
EX-99.B8.1 Custodian Agreement.(1)/
EX-99.B8.2 Delegation Agreement*
EX-99.B9 Inapplicable.
EX-99.B10 Opinion and Consent of Vedder, Price, Kaufman & Kammholz.*
EX-99.B11 Consent of Ernst & Young LLP.*
EX-99.B12 Inapplicable.
EX-99.B13 Subscription Agreement.(1)/
EX-99.B14 Inapplicable.
EX-99.B15 Inapplicable.
EX-99.B16 Schedule for calculation of performance quotation.*
EX-99.B17 Powers of Attorney*
EX-99.B27.1 Financial Data Schedule - Growth Fund*
EX-99.B27.2 Financial Data Schedule - Value Discovery Fund*
EX-99.B27.3 Financial Data Schedule - International Growth Fund*
EX-99.B27.4 Financial Data Schedule - Income Fund*
EX-99.B27.5 Financial Data Schedule - Ready Reserves Fund*
</TABLE>

(1)/ Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A as filed on or about
March 1, 1996.

(2)/ Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A as filed on or about
November 5, 1996.

(3)/ Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A as filed on or about
February 26, 1997.

* Filed herewith.

<PAGE> 1
EXHIBIT 99.B2

BYLAWS

WILLIAM BLAIR MUTUAL FUNDS, INC.

formerly

WILLIAM BLAIR READY RESERVES, INC.
(Amended and Restated as of February 5, 1991 and Amended as of
February 10, 1998)

ARTICLE I

Shareholder Meetings

1. Place of Meetings. All meetings of the shareholders of the William
Blair Ready Reserves, Inc. (the "Corporation") shall be held at such place,
within or without the State of Maryland, as may be determined by the Board of
Directors and as shall be stated in the notice of said meeting.

2. Holding of Meeting. No meeting of the shareholders of this
Corporation shall be held unless required by applicable law or otherwise
determined by the Board of Directors.

3. Call of Meeting. Meetings of the shareholders, for any purpose,
unless otherwise prescribed by statute, may be called by the Board of Directors
or the President at any time, and shall be called by the Board of Directors or
the Secretary of the Corporation upon written application by one or more
shareholders holding at least ten percent (10%) of the common stock of the
Corporation, then issued and outstanding, and entitled to vote, requesting that
a meeting be called for a purpose requiring action by the shareholders as
provided herein or in the Articles of Incorporation, which purpose shall be
specified in any such written application. Business transacted at such meetings
shall be confirmed to the objects stated in the notice thereof.

4. Notice. Written notice of every meeting of the shareholders, stating
the time, place and purpose or purposes for which the meeting is called, shall
be given by the Secretary to each shareholder entitled to vote thereat and to
any shareholder entitled by law to such notice. Such notice shall be given to
each shareholder by mailing the same, postage prepaid, to the address of the
shareholder as it appears on the books of the Corporation not less than ten (10)
days nor more than ninety (90) days before the time fixed for such meeting.

5. Quorum. The holders of a majority of the shares of common stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of the shareholders for the transaction of business, except as
otherwise provided by applicable law. If such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to

<PAGE> 2

adjourn the meeting from time to time to a date not more than 120 days after the
original record date for the meeting, without further notice other than
announcement at the meeting. At such adjourned meeting, if a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.

6. Vote. When a quorum is present at any meeting, the vote of the
holders of a majority of the shares having the right to vote thereat, present in
person or represented by proxy, shall determine any matter brought before such
meeting, unless the matter is one for which a different vote is required under
applicable law, the Articles of Incorporation or these Bylaws. Each shareholder
shall be entitled to one vote or fraction of a vote for each share or fraction
thereof held by the shareholder on the record date determined for such meeting.

7. Proxies. At any meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person or by proxy
appointed by an instrument in writing subscribed by such shareholder and bearing
a date not more than eleven (11) months prior to said meeting, which instrument
shall be filed with the Secretary of the meeting before being voted.

8. Record Date. The Board of Directors may fix a record date not more
than ninety (90) nor less than ten (10) days prior to the date for which a
meeting is called, as of which the shareholders entitled to vote any such
meeting, or any adjournment thereof, shall be determined, notwithstanding any
transfer or the issue of any share occurring after such record date.

9. Communications of Shareholders. Whenever ten or more shareholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate shares either having a net asset
value of at least $25,000 or constituting at least one percent of the
outstanding shares of the Corporation, shall apply to the Board of Directors in
writing, stating that they wish to communicate with other shareholders with a
view to obtaining signatures to a request for a meeting to consider removal of a
Director and accompanied by a form of communication and request that they wish
to transmit, the Board of Directors shall within five business days after
receipt of such application either (a) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Corporation, or (b) inform such applicants as to the number of shareholders
of record and the approximate cost of mailing to the shareholders of record the
proposed communication and form of request. If the Board of Directors elects to
follow the course specified in subparagraph 9(b) above, the Board of Directors,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books of the Corporation. Notwithstanding the
foregoing, the Board of Directors may refuse to mail such material on the basis
and in accordance with the procedures set forth in the last two paragraphs of
Section 16(c) of the Investment Company Act of 1940.

2
<PAGE> 3

ARTICLE II

Directors

1. Number. The number of Directors which shall constitute the whole
Board shall not be less than three (3) nor more than fifteen (15). The number of
Directors may be increased or decreased by the Board of Directors prior to each
meeting of shareholders for the election of Directors and shall be as stated in
the notice of such meeting, but the tenure of office of any Director shall not
be affected by any decrease in the number of Directors then in office.

2. Term; Retirement. Subject to death, resignation, removal or
retirement, each Director shall hold office, during the lifetime of the
Corporation, until the next meeting of shareholders brought for the purpose of
electing Directors, and until his successor is elected and qualified. No
Director will stand for reelection as Director at any election held after such
Director shall have reached 70 years of age, and, after his successor shall have
been elected and qualify, such Director shall retire. Directors need not be
shareholders of the Corporation or residents of the State of Maryland.

3. Vacancies. Except as provided below: (a) if the number of Directors
is increased by the Board of Directors, then the resulting vacancies may be
filled by a majority of the entire Board of Directors, and (b) if the office of
any Director or Directors becomes vacant for any other reason, then a majority
of the remaining Directors, though less than a quorum, may choose a successor or
successors. Vacancies may not be so filled by the Board of Directors unless, if
immediately after filling any such vacancy, at least two-thirds (2/3) of the
Directors then holding office shall have been elected to such office by the
shareholders of the Corporation; otherwise such vacancy shall be filled, if at
all, by vote of the shareholders at a meeting called for such purpose. A
Director so elected by the Board shall hold office until the next election of
Directors and until his successor is elected and qualified. In the event that at
any time less than a majority of the Directors were elected by the shareholders,
a special meeting of the shareholders shall be held as promptly as possible, and
in any event within sixty days, for the purpose of electing the necessary new
members, unless the Securities and Exchange Commission extends that period.

4. Powers. The business and affairs of the Corporation shall be managed
by its Board of Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are consistent with the Articles of
Incorporation, these Bylaws and applicable law, except those conferred upon or
reserved to the shareholders under the Articles of Incorporation, these Bylaws
or applicable law.

5. Removals. The shareholders, at any meeting called for such purpose,
by vote of the holders of a majority of the outstanding shares entitled to vote,
may remove from office any Director and, unless the number of Directors
constituting the whole Board is simultaneously reduced by the Board, elect a
successor.

6. Meetings. Regular meetings of the Board of Directors shall be held
at such time and place, either within or without the State of Maryland as shall
from time to time be determined by the Board of Directors, and, if so
determined, notices thereof need not be given. Special meetings of the Board of
Directors may be held at any time when called by the Chairman of the Board, the
President or two (2) or

3
<PAGE> 4

more Directors. Not less than twenty-four (24) hours' notice of any special
meeting shall be given by the Secretary or other officer calling such meeting to
each Director either in person or by telephone, mail or telegram. Such special
meetings shall be held at such time and place, within or without the State of
Maryland, as the notice thereof or waiver shall specify. Unless otherwise
specified in the notice thereof, any and all business may be transacted at any
meeting of the Board of Directors.

Any member of the Board of Directors, or of any committee organized by
the Board pursuant to Article III, may participate in any meeting of the Board
or committee of the Board of Directors, by means of a telephone conference or
similar communications equipment, provided that all persons participating in the
meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at the meeting. This paragraph shall
not be applicable to meetings held for the purpose of approving contracts or
agreements with persons undertaking to serve as an investment adviser or
principal underwriter to the Fund, or for the purpose of conducting any other
business with respect to which the members of the Board are required, under
applicable law, to attend the meeting in person in order to transact such
business.

7. Quorum. At all meetings of the Board of Directors, a majority of the
directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of the majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute, by the
Articles of Incorporation or by these Bylaws. If a quorum shall not be present
at any meeting of the Board of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.

8. Informal Action. Except as otherwise required by applicable law, any
action to be taken by the Board of Directors may be taken without a meeting, if
written consent to such action is signed by all members of the Board and filed
with the minutes of the Board's proceedings.

9. Compensation. Directors may receive compensation for services to the
Corporation in their capacities as Directors, as determined by the Board.

4
<PAGE> 5

ARTICLE III

Committees

The Board of Directors may elect from their own number, by resolution
or resolutions passed by a majority of the whole Board, an executive committee
to consist of two (2) or more Directors, which shall have the power to conduct
the current and ordinary business of the Corporation while the Board of
Directors is not in session. The Board of Directors may also, in the same
manner, appoint from their own number from time to time other committees, the
number composing any such committee and the powers conferred thereon to be
determined from the resolution creating the same.

ARTICLE IV

Notices

1. Manner of Giving Notice. Whenever, under the provisions of the
Articles of Incorporation, these Bylaws or applicable law, notice is required to
be given to any shareholder or Director, such requirement shall not be construed
to mean person notice unless the context otherwise provides. Such notice may be
given, in the case of shareholders, in writing, by mail, by depositing the same
in a post office or letter box, in a postpaid sealed wrapper, addressed to such
shareholder at such address as appears on the books of the Corporation; and, in
the case of Directors, committees of Directors and advisory board members, by
telephone, mail or telegram to the last business address known to the Secretary
of the Corporation. Such notice shall be deemed to be given at the time when it
is mailed, telephoned or telegraphed.

2. Waiver. Whenever any notice is required to be given under applicable
law, the Articles of Incorporation or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, and, if given with respect to a meeting of the Board of
Directors or a committee thereof, filed with the records of the meeting, shall
be equivalent thereto. Attendance at any meeting where notice is required shall
be deemed a waiver of the requirement for such notice.

ARTICLE V

Officers

1. Selection. The Officers of the Corporation shall, at a minimum, be a
President, a Secretary and a Treasurer, shall be elected by the Board of
Directors and shall serve at the pleasure of the Board. The Board of Directors
may elect one of its own members as Chairman of the Board. The Board of
Directors may also elect one or more Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers, and such other Officers as it
may deem advisable, and may prescribe their respective duties. Two or more
offices may be held by the same person, except that any person holding the
office of President shall not hold the office of Vice President. Officers may
be, but need not be, Directors.

5
<PAGE> 6

2. Chairman of the Board. The Chairman of the Board, if one shall be
elected, shall preside at all meetings of the shareholders and Board of
Directors and shall perform such other duties as the Board of Directors may from
time to time prescribe.

3. President. The President shall be the Chief Executive Officer of the
Corporation and shall, in the absence of the Chairman, preside at all meetings
of the shareholders and Board of Directors. The President shall have power to
sign all certificates for shares of stock. The President shall perform such
other duties as the Board of Directors shall from time to time prescribe. Except
in those instances in which the authority to execute is expressly delegated to
another officer or agent of the Fund or a different mode of execution is
expressly prescribed by the Board of Directors or these Bylaws or where
otherwise required by law, the President may execute any documents or
instruments which the Board has authorized to be executed or the execution of
which is in the ordinary course of the Corporation's business.

4. Vice Presidents. The Vice Presidents, in the order of their
seniority or as designated by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and exercise the powers of the
President and shall perform such other duties as the Board of Directors may from
time to time prescribe.

5. Secretary. The Secretary shall record all votes and proceedings of
meetings of the shareholders and of the Board of Directors in the corporate
records. He shall give, or cause to be given, notice of all meetings of the
shareholders and meetings of the Board of Directors when notice thereof is
required. The Secretary shall have custody of the corporate seal of the
Corporation and may affix the same to any instrument requiring the corporate
seal and attest to the same with his signature. He shall have power to sign all
certificates for shares of stock and shall perform such other duties as the
Board of Directors may from time to time prescribe.

6. Assistant Secretaries. The Assistant Secretaries, in order of their
seniority or as directed by the Board of Directors, shall in the absence or
disability of the Secretary perform the duties and exercise the powers of the
Secretary and shall perform such other duties as the Board of Directors may
prescribe.

7. Treasurer. The Treasurer shall deliver all funds and securities of
the Corporation which may come into his hands to such bank or trust company as
the Board of Directors may designate as custodian. He shall keep such records of
the financial transactions of the Corporation as the Board of Directors shall
prescribe. The Treasurer shall have power to sign all certificates for shares of
stock and shall perform such other duties as the Board of Directors may from
time to time prescribe.

8. Assistant Treasurers. The Assistant Treasurers, in order of their
seniority or as directed by the Board of Directors, shall in the absence or
disability of the Treasurer perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the Board of Directors may
prescribe.

9. Term of Office; Removal; Vacancies. The Officers of the Corporation
shall hold office until their successors are chosen and qualified. Any Officer
may be removed at any time by the affirmative vote of a majority of the whole
Board of Directors. If the office of any Officer shall become vacant for any

6
<PAGE> 7

reason, the vacancy shall (or, in the case of a Chairman of the Board, a Vice
President, an Assistant Vice President, an Assistant Secretary or an Assistant
Treasurer, may) be filled by the Board of Directors.

ARTICLE VI

Shares and Stock Certificates

1. Issuance of Stock Certificates. The Board of Directors may authorize
the issue of some or all of the shares of any or all its series without
certificates. Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation.

2. Form of Certificates; Replacement. If the Board of Directors shall
not have adopted a resolution providing that the Corporation shall issue all
shares of all classes without certificates, each holder of shares of a class for
which certificates may be issued shall be entitled to a certificate or
certificates representing shares of such class owned by such shareholder, in
such form as shall be approved by the Board of Directors. The certificates shall
be signed by the President or a Vice President and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary. Any or all of the
signatures or the seal on such certificates may be a facsimile. In the case of
any Officer who has signed or whose facsimile signature has been used on any
such certificate shall case to be such Officer, such certificate may be issued
and delivered as though the person whose signature appears on the certificate
had not ceased to be such Officer. All certificates for shares of a class shall
be consecutively numbered or otherwise identified. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation, alleged to have been lost or destroyed. When
authorizing the issue of a new certificate, the Board of Directors may, as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate, or its legal representative, to either advertise the same
in such manner as it shall require or to give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.

3. Shareholder Open Accounts. The Corporation may (or, if the Board of
Directors shall have authorized the issue of all shares without certificates
pursuant to paragraph 1 of this Article VI, shall) maintain for each shareholder
a shareholder open account in which shall be recorded such shareholder's
ownership of shares and all changes therein. Even if the Board shall not have so
authorized the issue of all shares without certificates, certificates need not
be issued for shares so recorded in a shareholder open account unless requested
by such shareholder.

4. Transfers. Transfers of shares for which certificates have been
issued will be made only upon surrender to the Corporation or its transfer agent
of a certificate for shares of the same class duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer. Transfers of
stock evidenced by open account authorized by Article VI, paragraph 3 will be
made upon delivery to the Corporation or its transfer agent of instructions for
transfer or evidence of assignment or succession of the shares of a particular
class, in each case executed in such manner and with such supporting evidence as
the Corporation or transfer agent may reasonably require.

7
<PAGE> 8

5. Record Dates. The Board of Directors may fix in advance a date not
exceeding ninety days preceding the date fixed for the payment of any dividend
or the allotment of rights as a record date for the determination of the
shareholders to receive any such dividend or allotment.

6. Registered Ownership. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends and to vote as such owner and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, except as otherwise provided by the laws of
Maryland ("Maryland Law").

ARTICLE VII

General Provisions

1. Disbursement of Funds. All checks, drafts, orders or instructions
for the payment of money and all notes of the Corporation shall be signed as the
Board of Directors may designate.

2. Voting Shares of Other Corporations. Unless otherwise ordered by the
Board of Directors, the President or any Officer designated by the President
shall have full power and authority to execute proxies to vote shares at, or
attend, act and vote at, any meeting of shareholders of any other corporation in
which this Corporation may own shares.

3. Execution of Instruments. All deeds, mortgages, bonds, contracts,
stock powers, reports and other instruments may be executed on behalf of the
Corporation by the Chairman of the Board, the President, any Vice President, or
other Officer or agent authorized by the Board of Directors to act with respect
to such matters. Such authorization may be general or specific.

4. Seal. The seal of the Corporation shall be in such form as the Board
may from time to time determine. The seal may be affixed or reproduced or
otherwise. In the event it is deemed inconvenient to use such seal at any time,
the signature of the Corporation following the word "Seal" shall be deemed the
seal of the Corporation.

5. Fiscal Year. Except as otherwise from time to time provided by the
Board of Directors, the fiscal year of the Corporation shall begin January 1 and
end December 31.

6. Custodian. All funds, securities and other investments of the
Corporation shall be deposited in the safekeeping of such banks or other
companies as the Board of Directors of the Corporation may from time to time
determine. Every arrangement entered into with any bank or other company for the
safekeeping of the securities and investments of the Corporation shall contain
provisions complying with the 1940 Act and the general rules and regulations
thereunder.

7. Auditor. An auditor shall be selected annually in accordance with
the 1940 Act or any successor statute.

8
<PAGE> 9

ARTICLE VIII

Indemnification

1. Indemnification of Directors and Officers. Except as provided in
paragraph 2 herein, every person who is, or has been, a Director or Officer of
the Corporation (including any person who, while a Director of the Corporation,
has served at the request of the Corporation as a director, officer or trustee
of another organization in which the Corporation has an interest as a
shareholder, creditor or otherwise), hereinafter referred to as a "Covered
Person," shall be indemnified by the Corporation to the fullest extent permitted
by law against liability and against all expenses reasonably incurred or paid by
such person in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of such directorship,
officership, trusteeship or employment, and against amounts paid or incurred by
him in the settlement thereof. The words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened, and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.

2. Limitation of Indemnification. No indemnification shall be provided
hereunder to any Covered Person:

(a) who shall have been finally adjudicated by a court or body
before which the proceeding was brought:

(i) to be liable to the Corporation or its shareholders by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his office;

(ii) not to have acted in good faith (A) in the case of a
director acting in his or her official capacity with the
Corporation, in the reasonable belief that his or her
conduct was in the best interests of the Corporation, or
(B) in all other cases, in the reasonable belief that
his or her conduct was at best not opposed to the best
interests of the Corporation; or

(b) in the event of a settlement, unless there has been a
determination that such Director or Officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office:

(i) by the court or other body approving the settlement;

(ii) by at least a majority of those Directors who are
neither interested persons of the Corporation nor are
parties to the matter based upon a review of readily
available facts (as opposed to a full trial-type
inquiry); or

9
<PAGE> 10

(iii) by written opinion of independent legal counsel based
upon a review of readily available facts (as opposed to
a full trial-type inquiry); provided, however, that any
shareholder may, by appropriate legal proceedings,
challenge any such determination by the Directors, or by
independent counsel.

3. Insurance. The rights of indemnification provided to Covered Persons
herein may be insured against by policies maintained by the Corporation, shall
be severable, shall not be exclusive of or affect any other rights to which any
Covered Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be such director, trustee or officer and shall inure to the
benefit of the heirs, executors and administrators of such person. Nothing
contained herein shall affect any rights to indemnification to which Corporation
personnel and other persons, other than Covered Persons, may be entitled by
contract or otherwise under applicable law.

4. Expenses. Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or proceeding of the
character described in paragraph 1 of this Article VIII may be paid by the
Corporation from time to time prior to final disposition thereof upon receipt of
an undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the Corporation if it is ultimately determined that he is
not entitled to indemnification under this Article VIII; provided, however, that
either:

(a) such Covered Person shall have provided appropriate security
for such undertaking;

(b) the Corporation is insured against losses arising out of any
such advance payments; or

(c) either a majority of the Directors who are neither interested
persons of the Corporation nor are parties to the matter, or
independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Article VIII.

5. Indemnification of Other Persons. Subject to the provisions of this
Article VIII, the Corporation may indemnify, in the discretion of the Board of
Directors, any person who is or has been an employee or agent of the Corporation
or who has served at the request of the Corporation as an employee or agent of
another organization in which the Corporation has an interest as a shareholder,
creditor or otherwise, who is not a Covered Person, against any liability and
all expenses reasonably incurred or paid by such person in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of such employment or agency and against amounts paid or
incurred by him in the settlement thereof.

10
<PAGE> 11

ARTICLE IX

Amendments

Either the Board of Directors or the shareholders may make, amend,
alter or repeal the Bylaws at any meeting duly held.

<PAGE> 1
EXHIBIT 99.B5.3

MANAGEMENT AGREEMENT

AGREEMENT made as of this __ day of _________ 1998, by and between
WILLIAM BLAIR MUTUAL FUNDS, INC., a Maryland corporation (the "Fund"), and
WILLIAM BLAIR & COMPANY, L.L.C., an Illinois limited liability company (the
"Manager").

WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, the shares of
common stock, $.001 per value per share ("Shares"), of which are registered or
are to be registered under the Securities Act of 1933; and

WHEREAS, the Fund is authorized to issue Shares in separate series with
each such series representing the interests in a separate portfolio of
securities and other assets; and

WHEREAS, the Fund currently offers Shares in five portfolios,
designated the Growth Fund, the International Growth Fund, the Income Fund, the
Ready Reserves Fund, and the Value Discovery Fund; and

WHEREAS, the Fund wants at this time to retain the Manager to render
investment advisory and management services to a newly established portfolio,
designated the Emerging Markets Growth Fund (the "Portfolio") and the Manager
wants to render such services;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:

1. Employment; Services. The Fund hereby employs the Manager to act as
the adviser for the Value Discovery Fund and to manage the investment and
reinvestment of the assets of such Portfolio in accordance with applicable
investment objectives, policies and restrictions, and to administer its affairs
to the extent requested by and subject to the supervision of the Board of
Directors of the Fund for the period and upon the terms herein set forth. The
investment of funds shall be subject to all applicable restrictions of the
Articles of Incorporation and By-Laws of the Fund as may from time to time be in
force.

The Manager accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
principals or employees to serve without compensation as directors or officers
of the Fund if elected to such positions, and to assume the obligations herein
set forth for the compensation herein provided. The Manager shall for all
purposes herein provided be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that the Manager, by separate agreements with the Fund,
may also serve other Fund portfolios and serve the Fund in other capacities.
<PAGE> 2
2. Management Fee. For the services and facilities described in Section
1, the Fund will pay to the Manager an annual management fee of 1.40% of the
average daily net assets of the Portfolio.

The fee payable under this Agreement shall be calculated and accrued
for each business day by applying the appropriate annual rates to the net assets
of the Portfolio as of the close of the preceding business day, and dividing the
sum so computed by the number of business days in the fiscal year. The fee for a
given month shall be paid on the first business day of the following month. For
the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively. The services
of the Manager to the Fund under this Agreement are not to be deemed exclusive,
and the Manager shall be free to render similar services or other services to
others so long as its services hereunder are not impaired thereby.

3. Expenses. In addition to the fee of the Manager, the Fund shall
assume and pay expenses for services rendered by a custodian for the safekeeping
of the Fund's securities or other property, for keeping its books for account,
for any other charges of the custodian, and for calculating the net asset value
of the Fund as provided in the prospectus of the Fund. The Manager shall not be
required to pay and the Fund shall assume and pay the charges and expenses of
its operations, including but not limited to compensation of the directors
(other than those affiliated with the Manager), charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursement
agent, any registrar of the Fund, costs of acquiring and disposing of portfolio
securities, interest, if any, on obligations incurred by the Fund, costs of
share certificates and of reports, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
stationery, printing, postage, other like miscellaneous expenses and all taxes
and fees payable to federal, state or other government agencies on account of
the registration of securities issued by the Fund, filing of corporate documents
or otherwise. The Fund shall not pay or incur any obligation for any expenses
for which the Fund intends to seek reimbursement from the Manager as herein
provided without first obtaining the written approval of the Manager. The
Manager shall arrange, if desired by the Fund, for principals or employees of
the Manager to serve, without compensation from the Fund, as directors, officers
or agents of the Fund if duly elected or appointed to such positions and subject
to their individual consent and to any limitations imposed by law.

The net asset value for the Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or at such other time or times as
the directors may determine in accordance with the provisions of the Investment
Company Act of 1940. On each day when the net asset value is not calculated, the
net asset value of a share of the Portfolio shall be deemed to be the net asset
value of such a share as of the close of business on the last day on which such
calculation was made for the purpose of the foregoing computations.

4. Affiliations. Subject to applicable statutes and regulation, it is
understood that directors, officers or agents of the Fund are or may be
interested in the Manager as principals, agents or otherwise, and that the
principals and agents of the Manager may be interested in the Fund otherwise
than as a director, officer or agent.

<PAGE> 3
5. Limitation of Liability of Manager. The Manager shall not be liable
for any error of judgment or of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Manager in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.

6. Term; Termination; Amendment. This Agreement shall become effective
on the date hereof and shall remain in full force until April 30, 2000, unless
sooner terminated as hereinafter provided. This Agreement shall continue in
force from year to year thereafter but only so long as such continuance is
specifically approved for the Portfolio at least annually in the manner required
by the Investment Company Act of 1940 and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved
for the Portfolio, the Manager may continue to serve in such capacity for the
Portfolio in the manner and to the extent permitted by the Investment Company
Act of 1940 and the rules and regulations thereunder.

This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Manager on sixty (60) days written notice to the other
party. The Fund may effect termination by action of the Board of Directors or by
vote of a majority of the outstanding voting securities of the Portfolio.

This Agreement may also be terminated at any time, without the payment
of any penalty, by the Board of Directors or by vote of a majority of the
outstanding voting securities of the Portfolio, in the event that it shall have
been established by a court of competent jurisdiction that the Manager or any
officer or principal of the Manager has taken any action which results in a
breach of the covenants of the Manager set forth herein.

The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.

Termination of this Agreement shall not affect the right of the Manager
to receive payments on any unpaid balance of the compensation described in
Section 3 earned prior to such termination.

This Agreement may be amended only by an instrument in writing signed
by the party against which enforcement of the amendment is sought. An amendment
of this Agreement shall not be effective until approved by (i) vote of the
holders of a majority of the outstanding voting securities of the Portfolio; and
(ii) a majority of those Directors of the Fund who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act of
1940) of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval.

7. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
shall not be thereby affected.

<PAGE> 4
8. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.

9. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of Illinois.

IN WITNESS WHEREOF, the Fund and the Manager have caused this Agreement
to be executed as of the day and year first above written.

WILLIAM BLAIR MUTUAL FUNDS, INC.

EMERGING MARKETS GROWTH FUND

By:
--------------------------------

ATTEST:

- -----------------------------------

WILLIAM BLAIR & COMPANY, L.L.C.

By:
--------------------------------

ATTEST:

- -----------------------------------

<PAGE> 1
EXHIBIT 99.B8.2

DELEGATION AGREEMENT

AGREEMENT, dated as of October 29, 1997 by and between Investors Bank
& Trust Company, a Massachusetts Trust Company (the "Delegate"), and William
Blair Mutual Funds, Inc., a Maryland corporation (the "Company").

WHEREAS, the Company has entered into a Custodian Agreement dated
February 26, 1996 between the Company and Delegate whereby Delegate is appointed
as custodian of the assets of the Company;

WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the
Investment Company Act of 1940, and subject to the terms and conditions set
forth herein, the Board of Directors of the Company desires to delegate to the
Delegate, and the Delegate hereby agrees to accept and assume, certain
responsibilities described herein concerning Assets held outside of the United
States on behalf of the portfolios listed in Appendix H, as amended from time to
time (each a "Fund");

NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:

1. Definitions

Capitalized terms in this Agreement have the following meanings:

a. Assets

Assets means any of a Fund's investments (including foreign
currencies) for which the primary market is outside the United States, and such
cash and cash equivalents as are reasonably necessary to effect a Fund's
transactions in such investments.

b. Authorized Representative

Authorized Representative means any one of the persons who are
empowered, on behalf of the parties to this Agreement, to receive notices from
the other party, to send notices to the other party, to add or delete
jurisdictions pursuant to Article 4, and to otherwise bind the respective
parties with respect to the subject matter of this Agreement.

c. Board

Board means the Board of Directors of the Company.
<PAGE> 2
d. Compulsory Securities Depository

Compulsory Securities Depository means a Securities Depository
the use of which is mandatory (i) by law or regulation; (ii) because securities
cannot be withdrawn from the depository; or (iii) because maintaining securities
outside the Securities Depository is not consistent with prevailing custodial
practices.

e. Country Risk

Country Risk means all factors reasonably related to the
systemic risk of holding assets in a particular country including, but not
limited to, such country's financial infrastructure (including any Securities
Depositories operating in such country); prevailing custody and settlement
practices; and laws applicable to the safekeeping and recovery of Assets held in
custody.

f. Eligible Foreign Custodian

Eligible Foreign Custodian has the meaning set forth in Rule
17f-5(a)(1) and shall include foreign branches of U.S. Banks (as the term "U.S.
Banks" is defined in Rule 17f-5).

g. Foreign Custody Manager

Foreign Custody Manager has the meaning set forth in Rule
17f-5(a)(2).

h. Monitor

Monitor means to re-assess or re-evaluate, at reasonable
intervals, a decision or determination previously made.

i. Securities Depository

Securities Depository has the meaning set forth in Rule
17f-5(a)(6).

2. Representations

a. Delegate's Representations

Delegate represents that it is a trust company chartered under
the laws of the Commonwealth of Massachusetts.

b. Fund's Representations

Fund represents that the Board has determined to rely upon
Delegate to perform the responsibilities delegated by this Agreement.

<PAGE> 3
3. Jurisdictions Covered

a. Initial Jurisdictions

The authority delegated by this Agreement applies only with
respect to Assets of a Fund held in the jurisdictions listed in Appendix A.

b. Added Jurisdictions

Jurisdictions may be added to Appendix A by written agreement
in the form of Appendix B. Delegate's responsibility and authority with respect
to any jurisdiction so added will commence at the later of (i) the time when
Delegate's Authorized Representative and Board's Authorized Representative have
both executed a copy of Appendix B listing such jurisdiction, or (ii) the time
when Delegate's Authorized Representative receives a copy of such fully executed
Appendix B.

c. Withdrawn Jurisdictions

Board may withdraw its delegation with respect to any
jurisdiction upon written notice to Delegate. Delegate may withdraw its
acceptance of designated authority with respect to any jurisdiction upon written
notice to Board. Ten days (or such longer period as to which the parties agree)
after receipt of any such notice by the Authorized Representative of the party
other than the party giving notice, Delegate shall have no further
responsibility or authority under this Agreement with respect to the
jurisdiction or jurisdictions as to which authority is withdrawn. With regard to
Assets then custodied in any jurisdiction for which the delegation is withdrawn,
Delegate shall act in accordance with any instructions of Board or the Company's
Authorized Representative regarding the disposition of such Assets, and Delegate
shall not be liable for the safekeeping of such assets upon the expiration of
the time period described herein.

4. Delegation of Authority to Act as Foreign Custody Manager

a. Selection of Eligible Foreign Custodians

Subject to the provisions of this Agreement and the
requirements of Rule 17f-5 (and any other applicable law), Delegate is
authorized and directed to place and maintain Assets in the care of any Eligible
Foreign Custodian or Custodians selected by Delegate in each jurisdiction to
which this Agreement applies.

b. Contracts with Eligible Foreign Custodians

Subject to the provisions of this Agreement and the
requirements of Rule 17f-5 (and any other applicable law), Delegate is
authorized to enter into, on behalf of Fund, such written contracts governing
Fund's foreign custody arrangements with such Eligible Foreign Custodians as
Delegate deems appropriate.

<PAGE> 4
5. Monitoring of Eligible Foreign Custodians and Contracts

In each case in which Delegate has exercised the authority delegated
under this Agreement to place Assets with an Eligible Foreign Custodian,
Delegate is authorized to, and shall, on behalf of Fund, establish a system to
Monitor the appropriateness of maintaining Assets with such Eligible Foreign
Custodian. In each case in which Delegate has exercised the authority delegated
under this Agreement to enter into a written contract governing Fund's foreign
custody arrangements, Delegate is authorized to, and shall, on behalf of Fund,
establish a system to Monitor the appropriateness of such contract.

6. Guidelines and Procedures for the Exercise of Delegated Authority

a. Country Risk

In exercising its delegated authority under this Agreement,
Delegate may assume, for all purposes, that it is not responsible for such
Country Risk as is incurred by placing and maintaining Assets in the
jurisdictions to which this Agreement applies. Nothing in this Agreement shall
require Delegate to make any selection or to engage in any Monitoring on behalf
of Fund that would entail consideration of Country Risk.

b. Selection of Eligible Foreign Custodians

In exercising the authority delegated under this Agreement to
place Assets with an Eligible Foreign Custodian, Delegate shall determine that
Assets will be subject to reasonable care, based on the standards applicable to
custodians in the market in which the Assets will be held, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation;

i. The Eligible Foreign Custodian's practices,
procedures, and internal controls, including, but not
limited to, the physical protections available for
certificated securities (if applicable), the method
of keeping custodial records, and the security and
data protection practices;

ii. Whether the Eligible Foreign Custodian has the
financial strength to provide reasonable care for
Assets;

iii. The Eligible Foreign Custodian's general reputation
and standing and, in the case of a Securities
Depository, the Securities Depository's operating
history and number of participants;

iv. Whether Fund will have jurisdiction over and be able
to enforce judgments against the Eligible Foreign
Custodian, such as by virtue of the existence of any
offices of the Eligible Foreign Custodian in the
United States or the Eligible Foreign Custodian's
consent to service of process in the United States;

<PAGE> 5
v. In the case of an Eligible Foreign Custodian that is
a banking institution or trust company, any
additional factors and criteria set forth in Appendix
C to this Agreement; and

vi. In the case of an Eligible Foreign Custodian that is
a Securities Depository, any additional factors and
criteria set forth in Appendix D to this Agreement.

c. Evaluation of Written Contracts

In exercising the authority delegated under this Agreement to
enter into written contracts governing Fund's foreign custody arrangements with
an Eligible Foreign Custodian, Delegate shall determine that such contracts (or,
in the case of a Securities Depository, such contract, the rules or established
practices or procedures of the depository, or any combination of the foregoing)
provide reasonable care for Assets based on the standards applicable to Eligible
Foreign Custodian in the relevant market. In making this determination, Delegate
shall ensure that the terms of such contracts comply with the provisions of Rule
17f-5(c)(2).

d. Monitoring

In exercising the authority delegated under this Agreement to
establish a system to Monitor the appropriateness of maintaining Assets with an
Eligible Foreign Custodian or the appropriateness of a written contract
governing Fund's foreign custody arrangements, Delegate shall consider all
factors Delegate deems relevant, including, without limitation those factors and
criteria set forth in Appendix E to this Agreement. If, as a result of its
Monitoring of Eligible Foreign Custodian relationships hereunder or otherwise,
the Delegate determines in its sole discretion that it is in the best interest
of the safekeeping of the Assets to move such Assets to a different Eligible
Foreign Custodian, the Fund shall bear any expense related to such relocation of
Assets. In the event that Delegate shall have determined that no Eligible
Foreign Custodian in a given country would afford reasonable care, Delegate
shall promptly so advise the Board and shall then act in accordance with the
instructions of Board or the Company's Authorized Representative(s) with respect
to the disposition of the affected Assets. Ten days after so advising the Board,
Delegate shall not be liable for safekeeping of the affected Assets while
awaiting the receipt or execution of such instructions.

7. Standard of Care

In exercising the authority delegated under this Agreement, Delegate
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of an investment company
registered under the Investment Company Act of 1940 would exercise.

8. Reporting Requirements

Delegate agrees to provide written reports notifying Board of the
placement of Assets with a particular Eligible Foreign Custodian or Permissible
Foreign Custodian and of any material change in Fund's foreign custody
arrangements. Such reports shall be provided to Board quarterly for

<PAGE> 6
consideration at the next regularly scheduled meeting of the Board or more
frequently if deemed necessary or advisable by the Delegate or if reasonably
requested by the Board. Delegate shall provide to the Company's Authorized
Representative(s) reports with reasonable promptness upon the occurrence of any
material change in the arrangement with any Eligible Foreign Custodian.

9. Provision of Information Regarding Country Risk

With respect to the jurisdictions listed in Appendix A or added thereto
pursuant to Article 4, Delegate agrees to provide annually to Board, such
information relating to Country Risk, if available, as is specified in Appendix
F to this Agreement.

10. Limitation of Liability

a. Notwithstanding anything in this Agreement to the contrary, in
no event shall the Delegate or any of its officers, directors, employees or
agents (collectively, the "Indemnified Parties") be liable to the Fund or any
third party, and the Fund shall indemnify and hold the Delegate and the
Indemnified Parties harmless from and against any and all loss, damage,
liability, actions, suits, claims, costs and expenses, including legal fees, (a
"Claim") arising as a result of any act or omission of the Delegate or any
Indemnified Party done or omitted to be done in accordance with this Agreement
in good faith, except for any Claim resulting solely from the negligence,
willful misfeasance or bad faith of the Delegate or any Indemnified Party.
Without limiting the foregoing, neither the Delegate nor the Indemnified Parties
shall be liable for, and the Delegate and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:

i. Any act or omission by the Delegate or any
Indemnified Party in reasonable good faith reliance
upon the terms of this Agreement, any resolution of
the Board, telegram, telecopy, notice, request,
certificate or other instrument reasonably believed
by the Delegate to be genuine;

ii. Any information which the Delegate provides or does
not provide under Section 9 hereto except as results
from Delegate's own gross negligence; or

iii. Any act of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes,
riots, nationalization, expropriation, currency
restrictions, act of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities,
transportation or computers (hardware or software)
and computer facilities, the unavailability of energy
sources and other similar happenings or events except
as results from Delegate's own gross negligence.

<PAGE> 7

b. Notwithstanding anything to the contrary in this Agreement, in
no event shall the Delegate or the Indemnified Parties be liable to the Fund or
any third party for any special, consequential or punitive damages of any kind
whatsoever in connection with this Agreement or any activities hereunder.

11. Effectiveness and Termination of Agreement

This Agreement shall be effective as of the later of the date of
execution on behalf of Board or Delegate and shall remain in effect until
terminated as provided herein. This Agreement may be terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective 60 days after receipt
by the non-terminating party of such notice.

12. Authorized Representatives and Notices

The respective Authorized Representatives of Company and Delegate, and
the addresses to which notices and other documents under this Agreement are to
be sent to each, are as set forth in Appendix G. Any Authorized Representative
of a party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.

13. Governing Law

This Agreement shall be constructed in accordance with the laws of the
Commonwealth of Massachusetts without regard to principals of choice of law. In
the event that there is a conflict between this Agreement and the Custodian
Agreement between the parties, the terms of this Agreement shall control.

<PAGE> 8
IN WITNESS WHEREOF, Authorized Representatives of Board and of Delegate
have fixed their signatures as of the date first written above.

INVESTORS BANK & TRUST COMPANY

By: /s/ Robert D. Mancuso 10/29/97
----------------------------------------

Name: Robert D. Mancuso

Title: Senior Vice President

WILLIAM BLAIR MUTUAL FUNDS, INC.

By: /s/ Rocky Barber
----------------------------------------

Name: Rocky Barber

Title: President

<PAGE> 9
List of Appendices

A -- Jurisdictions Covered

B -- Additional Jurisdictions Covered

C -- Additional Factors and Criteria To Be Applied in the
Selection of Eligible Foreign Custodians That Are Banking
Institutions or Trust Companies

D -- Additional Factors and Criteria To Be Applied in the Selection
of Eligible Foreign Custodians That Are Securities Depositories

E -- Factors and Criteria To Be Applied in Establishing Systems for
the Monitoring of Foreign Custody Arrangements and Contracts

F -- Information Regarding Investment Risk

G -- Authorized Representatives

H -- Covered Portfolios

<PAGE> 10
APPENDIX A

JURISDICTIONS COVERED

For the International Growth Fund and Value Discovery Fund:

Argentina Greece Philippines
Australia Hong Kong Poland
Austria Hungary Portugal
Bangladesh India Russia
Belgium Indonesia Singapore
Botswana Ireland Slovenia
Brazil Israel Slovak Republic
Canada Italy South Africa
Chile Japan South Korea
China Luxembourg Spain
Colombia Malaysia Sri Lanka
Czech Republic Mauritius Sweden
Denmark Mexico Switzerland
Ecuador Morocco Taiwan
Egypt Netherlands Thailand
Finland New Zealand Turkey
France Norway United Kingdom
Germany Pakistan Venezuela
Ghana Peru Zambia
Zimbabwe

A-1

<PAGE> 11
APPENDIX B

ADDITIONAL JURISDICTIONS COVERED

Pursuant to Article 4 of this Agreement, Delegate and Board agree that
the following jurisdiction(s) shall be added to Appendix A:

Bahrain Lithuania
Croatia Namibia
Cyprus Oman
Estonia Panama
Iceland Papua New Guinea
Jordan Romania
Kenya Swaziland
Latvia Uruguay
Lebanon

INVESTORS BANK & TRUST COMPANY

By:
------------------------------------

Name:

Title:

WILLIAM BLAIR MUTUAL FUNDS, INC.

By:
------------------------------------

Name:

Title:

DATE:
----------------------------------

B-1

<PAGE> 12

APPENDIX C

ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED
IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS
THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES

In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are banking institutions or trust companies,
Delegate shall consider the following factors, if such information is available
(check all that apply):

______ None

______ Other (list below):

C-1

<PAGE> 13
APPENDIX D

ADDITIONAL FACTORS AND CRITERIA TO BE
APPLIED IN THE SELECTION OF ELIGIBLE FOREIGN
CUSTODIANS THAT ARE SECURITIES DEPOSITORIES

In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are Securities Depositories, Delegate shall
consider the following factors, if such information is available (check all that
apply):

1. Whether use is voluntary or compulsory

2. Ownership

3. Operating History

4. Established rules, practices and procedures

5. Membership

6. Financial strength

7. Governing regulatory body

D-1

<PAGE> 14
APPENDIX E

FACTORS AND CRITERIA TO BE APPLIED
IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF
FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS

In establishing systems for the Monitoring of foreign custody
arrangements and contracts with Eligible Foreign Custodians, Delegate shall
consider the following factors, if such information is available (check all that
apply):

1. Operating performance

2. Established practices and procedures

3. Relationship with market regulators

4. Contingency planning

E-1

<PAGE> 15
APPENDIX F

INFORMATION REGARDING COUNTRY RISK

To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3, and entities used therein, the following:

1. Copy of Subcustodian Agreement

2. Legal Opinion, if available, with regard to:

a. Access to books and records by the Fund's accountants

b. Ability to recover assets in the event of bankruptcy of a
custodian

c. Ability to recover assets in the event of a loss

d. Likelihood of expropriation or nationalization, if available

e. Ability to repatriate or convert cash or cash equivalents

3. Audit Report

4. Copy of Balance Sheet from Annual Report

5. Summary of Central Depository Information

6. Country Profile Matrix containing market practice for:

a. Delivery versus payment

b. Settlement method

c. Currency restrictions

d. Buy-in practice

e. Foreign ownership limits

f. Unique market arrangements

F-1

<PAGE> 16
APPENDIX G

AUTHORIZED REPRESENTATIVES

Notices under this Agreement shall be sent to, and shall be executed on
behalf of the respective parties by, any one of the following --

1. Board

a. James L. ("Rocky") Barber, Jr. (name)

President, William Blair Mutual Funds, Inc. (title)

222 West Adams Street, Chicago, Illinois 60606 (address)

b. Norbert W. Truderung (name)

Senior Vice President, William Blair Mutual Funds, Inc. (title)

222 West Adams Street, Chicago, Illinois 60606 (address)

c. W. George Greig (name)

Senior Vice President, William Blair Mutual Funds, Inc. (title)

222 West Adams Street, Chicago, Illinois 60606 (address)

d. Glen Kleczka (name)

Senior Vice President, William Blair Mutual Funds, Inc. (title)

222 West Adams Street, Chicago, Illinois 60606 (address)

2. Delegate

a. Robert Gallagher (name)

Director, Investors Bank & Trust Company (title)

200 Clarendon Street, P.O. Box 9130 (address)
Boston, Massachusetts 02117-9130

b. Geoffrey O'Connell (name)

Director, Investors Bank & Trust Company (title)

200 Clarendon Street, P.O. Box 9130 (address)
Boston, Massachusetts 02117-9130

G-1
<PAGE> 17

WITH A COPY OF ALL NOTICES TO:

John E. Henry (name)

General Counsel, Investors Bank & Trust Company (title)

200 Clarendon Street, P.O. Box 9130 (address)
Boston, Massachusetts 02117-9130

G-2

<PAGE> 18
APPENDIX H

COVERED PORTFOLIOS

International Growth Fund

Value Discovery Fund

Emerging Markets Growth Fund

H-1

<PAGE> 1

EXHIBIT 99.B10

[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]

February 27, 1998

William Blair Mutual Funds, Inc.
222 West Adams Street
Chicago, Illinois 60606

Gentlemen:

Reference is made to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being filed
by William Blair Mutual Funds, Inc. (the "Fund") in connection with the proposed
public offering of any or all of 50 million (50,000,000) shares of stock, $.001
par value per share (the "Shares"), of the Emerging Markets Growth Fund (the
"Portfolio").

We have acted as counsel for the Fund since its inception and in such
capacity have assisted in supervising its organization and have counseled the
Fund regarding all subsequent legal matters.

It is our opinion that the Fund is a corporation existing under the
laws of the State of Maryland and is authorized to issue the Shares of the
Portfolio. It is our further opinion that when the provisions of any securities
laws as may be applicable have been complied with and such Shares have been duly
delivered against payment therefor as contemplated by the Registration
Statement, such Shares will be validly issued, fully paid and nonassessable.

We hereby consent to the use of this opinion in connection with said
Registration Statement as amended and the prospectus and statement of additional
information relating to said Shares.

Very truly yours,

VEDDER, PRICE, KAUFMAN & KAMMHOLZ

COK
AEO
MLW

<PAGE> 1

EXHIBIT 99.B11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 3, 1998 for William Blair Mutual Funds, Inc. (comprised of the Growth
Fund, Value Discovery Fund, International Growth Fund, Income Fund and Ready
Reserves Fund) in the Registration Statement (Form N-1A) of William Blair Mutual
Funds, Inc., and its incorporation by reference in the related Prospectus and
Statement of Additional Information, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 17 to the Registration Statement
under the Securities Act of 1933 (Registration No. 33-17463) and this Amendment
No. 18 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-5344).

/s/ ERNST & YOUNG LLP
------------------------------
ERNST & YOUNG LLP

Chicago, Illinois
February 27, 1998

<PAGE> 1
EXHIBIT 99.B16

EXHIBIT OF PERFORMANCE CALCULATIONS
THIS EXHIBIT REFLECTS THE CALCULATION OF CERTAIN PERFORMANCE FIGURES THAT
APPEAR UNDER "PERFORMANCE" IN THE PART B STATEMENT OF ADDITIONAL INFORMATION
("PART B") OF WILLIAM BLAIR MUTUAL FUNDS, INC. (THE "FUND")

A. TOTAL RETURN.

1. Formula. The total return performance of a series of the Fund
for a specified period equals the change in the value of a hypothetical $10,000
Investment ("Initial Investment") from the beginning of the period to the end
of the period. It is assumed that all dividends and capital gains
distributions are reinvested. Total return may be expressed either as a dollar
value change or as a percentage change. Total return information is set forth
in the discussion of total return that appears under "Performance" in Part B.

2. Performance Reflected. The representative total return
calculations reflected in this Section A are for the International Growth Fund
portfolio (the "Portfolio") for the period beginning January 1, 1997 and ending
December 31, 1997.

3. Total Return. The total return information for the Fund shows
the total return of that Portfolio as a percentage change. The percentage
change in value of the Initial Investment for the period is calculated by
determining the percentage increase in the net asset value per share ("NAV") of
the Portfolio over the period and adjusting that for the dividends reinvested
over the period. There was 1 dividend during the period. The percentage
change is then calculated as follows:

Percentage Change = Shares x Ending NAV - 1
-----------------------
Beginning NAV

Ending NAV = NAV on December 31, 1997 = $13.14/Share
------

Beginning NAV = NAV on January 1, 1997 = $13.95/Share
------

<TABLE>
<S> <C>
Shares = Number of shares at the end of the period assuming a one
share investment at the beginning of the period and
reinvestment of dividends. "Shares" is computed under the
following formula.
</TABLE>

Shares = (1 + DIV1 )
-----
RNAV1

<TABLE>
<S> <C>
DIVn = Dollar amount distributed for the nth dividend of the period.
n is 1 in the present example since there was 1 dividend
distributed.

RNAVn = NAV on the date that the nth dividend in the period was reinvested.
n is 1 in the present example.
</TABLE>

<PAGE> 2
The following data is presented:

<TABLE>
<S> <C> <C>
n DIVn RNAVn
- ---- -----

1 $1.93835/Share $12.86/Share
</TABLE>

Shares = 1 + $1.93835 = 1.1507
$12.86 Share

Percentage Change = 1.1507 x $12.86 / Share - 1 = .0839
$13.95/Share

The decimal return is converted to a percentage by multiplying by 100.

.0839 X 100 = 8.39%

B. AVERAGE ANNUAL TOTAL RETURN.

1. Formula. The average annual return of the Fund for a specific
period is found by taking a hypothetical $1,000 investment ("Initial
Investment") at the beginning of the period and computing the redeemable value
at the end of the period ("Redeemable Value"). The Redeemable Value is then
divided by the Initial Investment, and this quotient is taken to the Nth root
(N represents the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Thus, the following formula
applies:

Average Annual Total Return = ( Redeemable Value ) 1/N -1
----------------
Initial Investment

2. Performance Reflected. The representative average annual
total return calculation reflected in this Section B is for the International
Growth Fund portfolio (the "Portfolio") for the period from January 1, 1993
through December 31, 1997.

3. Calculation. The Redeemable Value is equal to the Initial
Investment plus the percentage change in the value of such investment over the
period. The percentage change over the period is calculated in the same manner
as in Sub-Section 3 of Section A above. The percentage change over the period
is 11.33%.

Redeemable Value=$1,000+(11.33% of $1,000)=$1,000+(.1133 x $1,000.00)=$1,133.00

The period covered is from January 1, 1993 to December 31, 1997, or 5 years.

N = number of years in the period = 5

2
<PAGE> 3
Using the formula provided above, average annual total return for the period
may then be calculated.

The Redeemable Value is divided by the initial investment.

($1,083.90/$1,000) = 1.0839
--------- ------

This quotient is taken to the Nth root.

The 3rd root of 1.0839 = 1.0272
------ ------

1 is subtracted from the result.

1.0272 - 1 = .0272
------ -----

The decimal return is converted to a percentage by multiplying by 100.

.0272 X 100 = 2.72%
----- ----

C. YIELD (NON MONEY MARKET).

1. Formula. The yield for the Fund is computed by dividing the
net investment income per share earned during a specified one month or 30-day
period by the offering price per share on the last day of the period, according
to the following formula:

YIELD = 2[a - b + 1)6 - 1]
-----
cd

<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the offering price per share on the last day of the
period.
</TABLE>

2. Performance Reflected. The representative yield calculation
reflected in this Section C is for the Income Fund portfolio (the "Portfolio")
for the 30-day period ended December 31, 1997.

3. Calculation. For the period reflected, the following figures
are provided for use in the formula provided in Sub-section 1 above:

a = $704,850
--------

3
<PAGE> 4

b = $96.344
c = 15,243,013
d = $10.41

Thus, the yield is calculated as follows:

YIELD = 2[(a - b + 1)6 - 1]
-----
cd

= 2[( 608.506 + 1) 6 - 1]
-----------
158,679.765

= 2[(1.00383)6 - 1]
-------

= 2[1.02320 - 1]

= .0464
-----

The decimal return is converted to a percentage by multiplying by 100.

.0464 X 100 = 4.64%

D. YIELD (MONEY MARKET).

1. Formula. The current yield for the Ready Reserves Fund
("Portfolio") is computed as follows: the Portfolio's net investment income per
share (accrued interest on portfolio securities, plus or minus amortized
purchase discount or premium, less accrued expenses) is divided by the price
per share (expected to remain constant at $1.00) during the period ("base
period return") and the result is divided by 7 and multiplied by 365. The
effective yield is determined by the following formula: [(base period return +
1) raised to the 365/7 power] - 1.

2. Performance Reflected. The calculation for the Portfolio
reflected in this Section D are for the 7-day period ended December 31, 1997.

3. Calculation. The current yield for the period reflected above
is calculated as follows:

.000969 x 365 = 5.05%
------- ---
1 7

The effective yield for the period reflected above is calculated as
follows:

[(.000969 + 1) raised to the 365/7 power] - 1 = 5.18%

<PAGE> 1

EXHIBIT 99.B17

LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Conrad Fischer, Rocky Barber, Cathy G. O'Kelly or any of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any amendment to the Registration Statement of William Blair
Mutual Funds, Inc. on Form N-1A under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.