WILLIAM BLAIR MUTUAL FUNDS INC, 485BPOS, 1999-09-29

WILLIAM BLAIR MUTUAL FUNDS INC
485BPOS, 1999-09-29

Previous: HARTFORD LIFE INS CO PUTNAM CAPITAL MGR TR SEPARATE ACCT TWO, 485BPOS, 1999-09-29

Next: GOLDMAN SACHS TRUST, NSAR-A, 1999-09-29

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT SEPTEMBER 29,
1999

REGISTRATION NO. 33-17463 AND 811-5344

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

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. 21 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY

ACT OF 1940

Amendment No. 22 [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, including Zip Code)

Registrant's Telephone Number, Including Area Code: (312) 364-8000

Copy to:

<TABLE>
<S> <C>
MARCO HANIG CATHY G. O'KELLY
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
</TABLE>

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

[ ] immediately upon filing pursuant to paragraph (b); or

[X] on September 30, 1999 pursuant to paragraph (b); or

[ ] 60 days after filing pursuant to paragraph (a)(1); or

[ ] on (date) pursuant to paragraph (a)(1); or

[ ] 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

CLASS N PROSPECTUS

May 1, 1999, as supplemented September 30, 1999.

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 each Fund, including their
investment objectives. For your benefit and protection, please read it before
you invest and keep it for future reference. This prospectus relates only to
Class N Shares of each Fund, except for the Ready Reserves Fund which currently
offers a single class of shares.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE 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> 3

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY..................................................... 1
Growth Fund........................................ 1
Value Discovery Fund............................... 3
International Growth Fund.......................... 5
Emerging Markets Growth Fund....................... 7
Income Fund........................................ 9
Ready Reserves Fund................................ 11
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES... 13
Growth Fund........................................ 14
Value Discovery Fund............................... 16
International Growth Fund.......................... 18
Emerging Markets Growth Fund....................... 20
Income Fund........................................ 22
Ready Reserves Fund................................ 24
INVESTMENT RISKS............................................ 26
MANAGEMENT OF THE FUNDS..................................... 29
YOUR ACCOUNT................................................ 31
Class N Shares..................................... 31
How to Buy Shares.................................. 31
How to Sell Shares................................. 32
How to Exchange Shares............................. 34
Dividends and Distributions........................ 35
Taxes.............................................. 36
DETERMINATION OF NET ASSET VALUE............................ 37
SHAREHOLDER SERVICES AND ACCOUNT POLICIES................... 38
INVESTMENT GLOSSARY......................................... 40
FINANCIAL HIGHLIGHTS........................................ 44
FOR MORE INFORMATION........................................ Back Cover
</TABLE>

<PAGE> 4

WILLIAM BLAIR GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Growth Fund seeks long-term appreciation
of capital by investing in well-managed companies in growing industries.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks of domestic companies. The Adviser seeks growth
opportunities by investing in large, medium and small companies in varying
proportions. With respect to large companies, the Adviser looks for high
quality, seasoned growth companies that have demonstrated sustained growth over
a long period of time. With respect to medium-sized companies, the Adviser
searches for companies that are generally of similar investment quality to large
companies but whose records of sales and earnings growth are not as well
established. With respect to small companies, the Adviser looks for emerging,
rapid growth companies that have had especially vigorous growth in revenues and
earnings.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or general economic and
market conditions. If this occurs, the Fund's net asset value may also decrease.
The securities of small and medium size companies may be more volatile and more
speculative than the securities of larger, more established issuers. In
addition, small and medium companies may be traded in low volumes, which can
increase volatility. Of course, the skill of the Adviser will play a significant
role in the Fund's ability to achieve its investment objective. The Fund's
returns will vary, and you could lose money by investing in the Fund. The Fund
is designed for long-term investors.

FUND PERFORMANCE HISTORY

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
23.69% (4Q98) -14.91% (3Q90)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 1998, to a broad-based market
benchmark.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund 27.15% 21.68% 19.87% 18.96%
S&P 500* 28.57% 28.23% 24.06% 19.21%
</TABLE>

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

* The Standard and Poor's 500 Stock Index is an unmanaged index that
generally represents broad larger capitalization equity market performance.
Expenses are not included.

1
<PAGE> 5

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
Growth Fund Class N shares are no-load investments, so you will not pay
shareholder fees to buy shares, reinvest dividends in additional shares or
exchange into the Class N shares of another Fund. However, in order to
discourage short-term trading, the Fund may charge a redemption fee of 1.00% of
the value of the shares sold within 180 days of their purchase. This redemption
fee will be retained by the Fund. The Fund discourages short-term investments in
the Fund because they have a negative impact on remaining shareholders.

<TABLE>
<CAPTION>
REDEMPTION FEE
--------------
<S> <C>
Shares held less than 180 days.............................. 1.00%
Shares held 180 days or more................................ None
</TABLE>

ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.

<TABLE>
<S> <C>
Management Fee.............................................. .75%
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. .09%
-------
Total Annual Fund Operating Expenses........................ .84%
</TABLE>

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

(1) The Fund's Board of Directors has approved a shareholder solicitation
regarding a proposed .25% distribution fee. The proposal is scheduled to
be voted upon by shareholder of record on October 1, 1999 at a meeting on
November 30, 1999.

EXAMPLE: This example is intended to help you compare the cost of investing in
Class N shares of the Fund with the cost of investing in other mutual funds. The
example assumes that you: invest $10,000 in the Fund, redeem all of your shares
at the end of the periods shown, earn a 5% return each year and incur the same
operating expenses as shown above:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$86 $269 $468 $1,040
</TABLE>

2
<PAGE> 6

WILLIAM BLAIR VALUE DISCOVERY FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Value Discovery Fund seeks long-term
capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of the equity securities (including common stocks and other forms of
equity investments) of small companies that the Adviser believes offer a
long-term investment value. In implementing its value discipline, the Adviser
evaluates the extent to which a company meets the following criteria: (a)
whether the company's current market value reflects a material discount from the
Adviser's estimate of the company's value, (b) whether the company has a
reasonable expectation of improving its level of profitability over a three-year
investment horizon, (c) whether the company has a capable and skilled management
team, (d) whether the company has a relatively strong capital structure, and (e)
whether there is a likelihood that the company will undergo a positive corporate
change within a three-year investment horizon. The weight that the Adviser gives
to each of the investment criteria depends upon the circumstances, and some of
the Fund's investments will not meet all of the criteria.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in equity
securities, the primary risk is that the value of the securities it holds might
decrease in response to the activities of an individual company or general
economic and market conditions. If this occurs, the Fund's net asset value may
also decrease. The securities of smaller companies may be more volatile and more
speculative than the securities of larger, more established issuers, which may
cause the Fund's share price to be more volatile. In addition, small companies
may be traded in low volumes. This can increase volatility and increase the risk
that the Fund will not be able to sell the security on short notice at a
reasonable price. Of course, the skill of the Adviser will play a significant
role in the Fund's ability to achieve its investment objective. The Fund's
returns will vary, and you could lose money by investing in the Fund. The Fund
is designed for long-term investors.

FUND PERFORMANCE HISTORY

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
26.58% (3Q97) -17.59% (3Q98)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 1998, indicated to a
broad-based securities market index.

<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND**
------ --------------
<S> <C> <C>
Value Discovery Fund 0.66% 15.91%
Russell 2000 Index* -2.55% 9.20%
</TABLE>

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

* The Russell 2000 Index is an unmanaged composite of the smallest 2000
stocks of the Russell 3000 Index, which consists of the largest 3000 stocks
in the U.S. market as determined by market capitalization. Expenses are not
included.

** The Fund's inception was on December 23, 1996.

3
<PAGE> 7

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
Value Discovery Fund Class N shares are no-load investments, so you will not pay
shareholder fees to buy shares, reinvest dividends in additional shares or
exchange into the Class N shares of another Fund. However, in order to
discourage short-term trading, the Fund may charge a redemption fee of 1.00% of
the value of the shares sold within 180 days of their purchase. This redemption
fee will be retained by the Fund. The Fund discourages short-term investments in
the Fund because they have a negative impact on remaining shareholders.

<TABLE>
<CAPTION>
REDEMPTION
FEE
--------------
<S> <C>
Shares held less than 180 days.............................. 1.00%
Shares held 180 days or more................................ None
</TABLE>

<TABLE>
<S> <C>
Management Fee.............................................. 1.15%
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. .37%
----
Total Annual Fund Operating Expenses........................ 1.52%(2)
Adviser's Expense Waiver.................................... .13%
----
Net Expenses (with waiver).................................. 1.39%
</TABLE>

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

(2) The Adviser has entered an agreement with the Fund to cap the Fund's
Class N expense ratio at 1.39% until at least April 30, 2000; however, if
shareholders approve the distribution fee, the Adviser will cap the
Fund's expense ratio at 1.64%.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$156 $484 $835 $1,823
</TABLE>

4
<PAGE> 8

WILLIAM BLAIR INTERNATIONAL GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair International Growth Fund seeks
long-term capital appreciation through investment in well-managed, quality
growth companies.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks of foreign companies of all sizes. In choosing
investments, the Adviser performs fundamental company analysis. The Adviser
generally seeks common stocks of companies that historically have had and are
expected to maintain superior growth, profitability and quality relative to
local markets and relative to companies within the same industry worldwide.
Following stock selection, country selection and industry allocation are the
next most important investment criteria. The Adviser will vary the geographic
diversification and types of securities in which the Fund invests based upon its
continuous evaluation of economic, market and political trends throughout the
world. The Adviser normally will allocate the Fund's investments among at least
six different countries. Normally, the Fund's investments will be divided among
Continental Europe, the United Kingdom, Canada, Japan and the markets of the
Pacific Basin. However, selective investments may also be made in Latin America
and in emerging markets, which include every country in the world except the
United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and
most Western European countries.

MAIN RISKS OF INVESTING: Because the Fund invests most of its assets in common
stocks, the primary risk is that the value of the stocks it holds might decrease
in response to the activities of those companies or market and economic
conditions. If this occurs, the Fund's net asset value may also decrease.
Foreign investments often involve additional risks, including political
instability, differences in financial reporting standards, and less stringent
regulation of securities markets. These risks are magnified in less-established,
emerging markets. Because the securities held by the Fund usually will be
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates may adversely affect the value of the Fund's
investments. In addition, the Fund may invest in the securities of small
companies, which may be more volatile and less liquid than securities of large
companies. Of course, the skill of the Adviser will play a significant role in
the Fund's ability to achieve its investment objective. The Fund's returns will
vary, and you could lose money by investing in the Fund. The Fund is designed
for long-term investors.

FUND PERFORMANCE HISTORY

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
17.43% (1Q98) -16.70% (3Q98)
</TABLE>

5
<PAGE> 9

AVERAGE ANNUAL TOTAL RETURNS. The table compares the Fund's average annual total
returns for the periods indicated to a broad-based securities market index.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND**
------ ------- ------- --------------
<S> <C> <C> <C> <C>
International Growth Fund 11.46% 10.01% 7.37% 11.10%
MSCI AC WLDF EX U.S.* 14.46% 7.61% 7.87% 10.91%
</TABLE>

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

* The Morgan Stanley Capital International All Country World (Free) except
U.S. Index is an unmanaged index that includes developed and emerging
markets and reduces the Japanese portion, making it comparable to the
International Growth Fund in terms of investment approach. Expenses are
not included.

** The Fund's inception was October 1, 1992.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
International Growth Fund Class N shares are no-load investments, so you will
not pay shareholder fees to buy shares, reinvest dividends in additional shares
or exchange into the Class N shares of another Fund. However, in order to
discourage short-term trading, the Fund may charge a redemption fee of 1.00% of
the value of the shares sold within 180 days of their purchase. This redemption
fee will be retained by the Fund. The Fund discourages short-term investments in
the Fund because they have a negative impact on remaining shareholders.

<TABLE>
<CAPTION>
REDEMPTION FEE
--------------
<S> <C>
Shares held less than 180 days.............................. 1.00%
Shares held 180 days or more................................ None
</TABLE>

<TABLE>
<S> <C>
Management Fee.............................................. 1.10%
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. .26%
----
Total Annual Fund Operating Expenses........................ 1.36%
</TABLE>

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$139 $433 $749 $1,643
</TABLE>

6
<PAGE> 10

WILLIAM BLAIR EMERGING MARKETS GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Emerging Markets Growth Fund seeks
long-term capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of equity securities (includes common stocks and other forms of equity
investments) issued by companies in emerging markets. In choosing investments,
the Adviser first analyzes individual companies. The Adviser generally seeks
well-managed companies with superior business fundamentals, including global
leadership in product quality or cost competitiveness, dominant or improving
market position within a growing local or regional economy, and sustainable
above-average and/or increasing returns on invested capital. Following stock
selection, the Adviser allocates investments based upon its analysis of the
economic strength of various countries and industries. The Adviser normally will
allocate the Fund's investments among at least six different 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.

MAIN RISKS OF INVESTING: Because the Fund invests most of its assets in equity
securities of companies, the primary risk is that value of the securities it
holds might decrease in response to the activities of those companies or markets
and economic conditions. If this occurs, the Fund's net asset value may also
decrease. Foreign investments often involve additional risks, such as political
instability, differences in financial reporting standards and less stringent
regulation of securities markets. These risks may be greatly increased in
emerging market countries because the securities in emerging markets may be
subject to greater volatility and less liquidity than companies in more
developed markets. Because the securities held by the Fund usually will be
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates may adversely affect the value of the Fund's
investments. 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 the Fund's assets denominated in
such currencies. Many emerging markets have experienced substantial rates of
inflation for many years, and continued inflation may adversely affect the
economies and securities markets of such countries. The Fund also may invest in
the securities of small companies, which may be more volatile and less liquid
than securities of large companies. Of course, the skill of the Adviser will
play a significant role in the Fund's ability to achieve its investment
objective. The Fund's returns will vary, and you could lose money by investing
in the Fund. The Fund is designed for long-term investors.

FUND PERFORMANCE HISTORY: The bar chart and table showing the Fund's annual
returns have been omitted because the Fund does not have annual returns for a
full calendar year.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
Emerging Markets Growth Fund Class N shares are no-load investments, so you will
not pay shareholder fees to buy shares, reinvest dividends in additional shares
or exchange into the Class N shares of another Fund. However, in order to
discourage short-term trading, the Fund may charge a redemption fee of 1.00% of
the value of the shares sold within 180 days of their purchase. This redemption
fee will be retained by the Fund. The Fund discourages short-term investments in
the Fund because they have a negative impact on remaining shareholders.

<TABLE>
<CAPTION>
REDEMPTION FEE
--------------
<S> <C>
Shares held less than 180 days.............................. 1.00%
Shares held 180 days or more................................ None
</TABLE>

7
<PAGE> 11

<TABLE>
<S> <C>
Management Fee.............................................. 1.40%
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. 4.95%
----
Total Annual Fund Operating Expenses (without waiver)....... 6.35%(2)
Adviser's Expense Waiver.................................... 4.60%
----
Net Expenses (with waiver).................................. 1.75%
</TABLE>

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

(2) Due to the Adviser voluntarily waiving fees and absorbing expenses, the
Fund's actual total expenses were 2.25% (annualized) during 1998. The
Adviser has entered into an agreement with the Fund to cap the Fund's
Class N expenses at 1.75% until at least April 30, 2000; however, if
shareholders approve the .25% distribution fee, the Adviser will cap the
Fund's expense ratio at 2.00%.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Without expense cap*: $651 $1,923 $3,158 $6,084
</TABLE>

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

* With the expense cap, the Fund's operating expenses would be as follows: 1
Year: $231; 3 Years: $711; 5 Years: $1,217; 10 Years: $2,607.

8
<PAGE> 12

WILLIAM BLAIR INCOME FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Income Fund seeks 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.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of intermediate-term income-producing securities, including government
securities, U.S. dollar-denominated corporate bonds and notes, collateralized
obligations and money market instruments that are rated in one of the top three
categories. The Fund's investments are subject to certain maturity and duration
restrictions, by which the Fund seeks to approximate the total returns of an
intermediate-term debt index while also providing investors with the additional
security of shorter-term obligations. The Adviser continually considers the
Fund's exposure to interest rate risk.

MAIN RISKS OF INVESTING: The primary risk of investing in the Fund is interest
rate risk. The yield paid by the Fund will vary with changes in interest rates.
Changes in interest rates may cause changes in the Fund's yield, net asset value
and total return. Investments with longer maturities, which typically provide
higher yield than securities with shorter maturities, may subject the Fund to
increased price changes resulting from market yield fluctuations. The Fund is
also subject to credit risk. The Fund's net asset value and total return may be
adversely affected by the inability of the issuers of the Fund's securities to
make payment at maturity. Of course, the skill of the Adviser will play a
significant role in the Fund's ability to achieve its investment objective. The
Fund's returns will vary, and you could lose money by investing in the Fund.

FUND PERFORMANCE HISTORY

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
5.44% (4Q91) -1.30% (4Q92)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 1998, to a broad-based
securities market index.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND**
------ ------- ------- --------------
<S> <C> <C> <C> <C>
Income Fund 7.07% 6.00% 6.22% 7.90%
Lehman Intermediate Gov't/Corp.
Index* 8.44% 6.77% 6.60% 8.19%
</TABLE>

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

* The Lehman Intermediate Government/Corporate Index is an unmanaged index
that represents broad intermediate government/ corporate bond market
performance. Expenses are not included.

** The Fund's inception was on September 25, 1990.

YIELD: You may obtain the most current yield information for the Fund by calling
1-800-742-7272.

9
<PAGE> 13

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
Income Fund Class N shares are no-load investments, so you will not pay
shareholder fees to buy shares, reinvest dividends in additional shares or
exchange into the Class N shares of another Fund. However, in order to
discourage short-term trading, the Fund may charge a redemption fee of 1.00% of
the value of the shares sold within 180 days of their purchase. This redemption
fee will be retained by the Fund. The Fund discourages short-term investments in
the Fund because they have a negative impact on remaining shareholders.

<TABLE>
<CAPTION>
REDEMPTION
FEE
----------
<S> <C>
Shares held less than 180 days.............................. 1.00%
Shares held 180 days or more................................ None
</TABLE>

<TABLE>
<S> <C>
Management Fee.............................................. .59%
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. .12%
----
Total Annual Fund Operating Expenses........................ .71%
</TABLE>

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

(1) The Fund's Board of Directors has approved a shareholder solicitation
regarding a proposed .15% distribution fee. The proposal is scheduled to
be voted upon by shareholder of record on October 1, 1999 at a meeting on
November 30, 1999.

EXAMPLE: This example is intended to help you compare the cost of investing in
Class N shares of the Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund, redeem all of your shares
at the end of the periods shown, earn a 5% return each year end and incur the
same operating expenses as shown above.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$73 $228 $396 $885
</TABLE>

10
<PAGE> 14

WILLIAM BLAIR READY RESERVES FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Ready Reserves Fund seeks to obtain the
maximum current income consistent with preservation of capital by investing
exclusively in high-quality money market instruments.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in short-term U.S.
dollar-denominated domestic money market instruments, which include securities
issued by domestic corporations; the U.S. Government, its agencies and
instrumentalities; and U.S. banks. The Fund invests exclusively in securities
that are high-quality, which means that they are rated in the top 2 categories.
These instruments are considered to be among the safest investments available
because of their short maturities, liquidity and high-quality ratings. The Fund
is designed to be highly liquid and seeks to maintain a net asset value of $1.00
per share. The Fund is designed for investors who seek to obtain the maximum
current income consistent with the preservation of capital.

MAIN RISKS OF INVESTING: Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund. As with any money market fund, there is a low risk that the issuers or
guarantors of securities will default on the payment of principal or interest or
the obligation to repurchase securities from the Fund. An investment in the Fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Of course, the skill of the Adviser will play a
significant role in the Fund's ability to achieve its investment objective.

FUND PERFORMANCE HISTORY

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
9.02% (2Q89) 2.55% (2Q93)
</TABLE>

CHART

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual total returns for the periods ended December 31, 1998, to a broad-based
securities market index.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Ready Reserves Fund....................... 4.98% 4.96% 4.77% 5.22%
S&P-rated AAA*............................ 4.97% 4.95% 4.75% 5.20%
</TABLE>

11
<PAGE> 15

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

* The Standard and Poor's-rated AAA Money Market Funds Index is a unmanaged
index that includes money market mutual funds rated AAA by Standard and
Poor's. Expenses are not included.

YIELD: You may obtain the most current yield information for the Fund by calling
1-800-742-7272.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N shares of the Fund.

SHAREHOLDER FEES are fees paid directly from your investment. William Blair
Ready Reserves Fund Class N shares are no-load investments, so you will not pay
any shareholder fees to buy shares, reinvest dividends in additional shares or
exchange into the Class N shares of another Fund.

<TABLE>
<S> <C>
Management Fee.............................................. .59%(1)
Distribution (Rule 12b-1) Fee............................... None(1)
Other Expenses.............................................. .10%
----
Total Annual Fund Operating Expenses........................ .69%
</TABLE>

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

(1) The Fund's Board of Directors has approved a shareholder solicitation
regarding a proposed .35% distribution fee. If the proposal is passed,
the Adviser will reduce the Management Fee by the same amount; therefore,
the Fund's Total Annual Operating Expense would not be affected by the
change. The proposal is scheduled to be voted upon by shareholders of
record on October 1, 1999 at a meeting on November 30, 1999.

EXAMPLE: This example is intended to help you compare the cost of investing in
Class N shares of the Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund, redeem all of your shares
at the end of the periods shown, earn a 5% return each year and incur the same
operating expenses as shown above.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$71 $221 $385 $861
</TABLE>

12
<PAGE> 16

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

- --------------------------------------------------------------------------------
Each Fund is a series of William Blair Mutual Funds, Inc., an open-end
management investment company. William Blair & Company, L.L.C. (the "Adviser")
provides management and investment advisory services to the Funds.

The following section takes a closer look at the investment objectives of each
Fund, its principal investment strategies and certain related investment risks.
Each Fund's secondary strategies or investments are described in the Investment
Glossary at the end of this prospectus. In addition, the Statement of Additional
Information contains more detailed information about certain of these practices,
the potential risks and/or the limitations adopted by each Fund to help manage
such risks.

All investments, including those in mutual funds, have risks. No investment is
suitable for all investors. The Growth Fund, Value Discovery Fund, International
Growth Fund and Emerging Markets Growth Fund are intended for long-term
investors. In addition, the International Growth Fund and Emerging Markets
Growth Fund are intended for investors who can accept the risks entailed in
investing in foreign securities. Of course, there can be no assurance that a
Fund will achieve its objective.

13
<PAGE> 17

GROWTH FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

The Growth Fund seeks long-term appreciation of capital by investing in
well-managed companies in growing industries. The Fund invests primarily in a
diversified portfolio of the common stocks and equity-related securities of
domestic companies.

INVESTMENT PROCESS

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 Fund
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 seeks growth opportunities by investing in 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 recognized investment quality whose records of
sales and earnings growth are not as well established; and

SMALL, emerging, 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

The Fund invests primarily in a diversified portfolio of the common stocks of
domestic companies and related equity securities. To a limited extent, the Fund
may invest in depository receipts, illiquid securities, investment companies,
when-issued and delayed delivery securities and repurchase agreements which are
described in the Investment Glossary at the end of this prospectus. The
Investment Glossary also describes the Fund's policies with regard to borrowing,
concentration, diversification and portfolio turnover. The Fund may invest to a
limited extent in warrants, which are described in the Statement of Additional
Information.

14
<PAGE> 18

PORTFOLIO MANAGEMENT

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

Rocky Barber, a principal of William Blair & Company, L.L.C., has co-managed the
Fund since 1992. He joined William Blair in 1986 as a portfolio manager and
manager of the Investment Management Department. In addition to his management
responsibilities, he is a member of the department's Growth team. Previously, he
was an equity and fixed-income manager with Alliance Capital Management for nine
years and president of the Alliance Capital Bond Fund, a group of fixed-income
mutual funds. Rocky is Chief Executive Officer of William Blair Mutual Funds,
Inc. 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 of
Chicago. Education: B.A., M.S. and M.B.A., Stanford University; and CFA.

Mark A. Fuller, III, a principal of William Blair & Company, L.L.C., has
co-managed the Fund since 1992. 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. He is a portfolio manager for
numerous accounts 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.

15
<PAGE> 19

VALUE DISCOVERY FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

The Value Discovery Fund's objective is to seek long-term capital appreciation.
The Fund pursues its objective by investing with a value discipline primarily in
a diversified portfolio of the equity securities of small companies.

INVESTMENT PROCESS

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
Fund holdings may not meet all of the following criteria, which are described
more fully in the Statement of Additional Information:

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.

PROBABLE EXPANSION IN PROFITABILITY--whether the company has a reasonable
expectation of improving its level of profitability over a three-year
investment horizon.

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.

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.

PORTFOLIO SECURITIES

Generally, most of the Fund's assets will be invested in the common stocks of
small companies. The Fund may also hold debentures and preferred stocks if they
are convertible into common stocks that meet the Fund's investment criteria. The
Fund may invest up to 15% of its net assets in foreign securities, which may
include American Depository Receipts or substantially similar investments;
however, the Fund may invest only up to 5% of its net assets directly in foreign
securities. To a limited extent, the Fund may invest in depository receipts,
foreign securities, illiquid securities, investment companies, real estate
investment trusts, repurchase agreements and when-issued and delayed delivery
securities which are described in the Investment Glossary at the end of this
prospectus. The Investment Glossary also describes the Fund's policies with
regard to borrowing, concentration, diversification and portfolio turnover. The
Fund may invest to a limited extent in warrants and futures, which are described
in the Statement of Additional Information.

PORTFOLIO MANAGEMENT

The Value Discovery Fund is co-managed by Glen A. Kleczka, David S. Mitchell and
Capucine E. Price.

Glen Kleczka joined William Blair's Investment Management Services in 1996 to
lead the Fund's portfolio management team. For the previous 7 years, he was a
partner in the Private Markets and U.S. Equity groups of Brinson Partners, Inc.
and co-managed the Post-Venture Fund, whose assets totaled more than $900
million. Glen was also a member of the Private Markets Committee which approved
all venture capital and partnership investments. Previously, he spent two years
at CNA Financial Corp. as a manager of their Variable Annuity Trust equity
portfolio. While at the University of Wisconsin he was a participant at the
Center for Applied Security Analysis, a nationally recognized investment
management program. He is a member of the Investment Analyst Society of Chicago.
Education: B.S., Marquette University; M.B.A., University of Wisconsin.

David Mitchell joined William Blair in 1996 as a portfolio manager for the Fund.
In 1996, he was a partner in the U.S. Equity group of Brinson Partners, Inc. and
a member of the Post-Venture Fund management team, whose
16
<PAGE> 20

assets totaled more than $900 million. Prior to joining Brinson, he spent four
years as a co-manager of Thomas Paine Investors, L.P., a private small-cap fund.
Before joining Thomas Paine, he was a Senior Equity Analyst on NBD's small-cap
Woodward Opportunity Fund and with Connecticut National Bank as an equity
analyst and portfolio manager. Prior to graduate studies he worked as an equity
trader and a money market portfolio manager. Education: B.A., Knox College;
M.M., Northwestern University.

Capucine "Cappy" Price joined William Blair in 1996 as a portfolio manager for
the Fund. For the previous 3 years, she was a partner in the Private Markets and
U.S. Equity groups of Brinson Partners, Inc. and a member of the Post-Venture
Fund management team, whose assets totaled more than $900 million. Previously,
she was an equity analyst for the First National Bank of Chicago. While
attending Northwestern University she was a participant in First Chicago's First
Scholar program. Education: B.A., University of Michigan; M.A., University of
Chicago; M.M., Northwestern University.

17
<PAGE> 21

INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

The International Growth Fund seeks long-term capital appreciation through
investment in well-managed, quality growth companies. 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.

INVESTMENT PROCESS

Stock Selection. In selecting companies for investment, fundamental company
analysis and stock selection are the Adviser's primary investment criteria. The
Adviser seeks 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 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.

Country Allocation. In pursuing the Fund's investment objective, the Adviser
will vary the geographic diversification and types of securities based upon the
Adviser's continuous evaluation of economic, market and political trends
throughout the world. The investment of the Fund's assets in various
international securities markets tends to decrease the degree to which events in
any one country can affect the entire Fund. 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. Normally, the Fund's
investments will be spread throughout the world (excluding the United States).
The Adviser intends to maintain approximately 10 to 20 percent of the Fund's
assets in emerging markets, although that allocation will vary over time.
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 (at least 50%) located in and/or derive a significant amount of their
revenues (at least 50%) 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 Adviser will seek investment opportunities in companies at
different stages of development ranging from large, well-established companies
to smaller companies at an earlier stage of development.

PORTFOLIO SECURITIES

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

The Fund 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 Fund's assets 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 Fund does not have specific rating requirements for its
short-term

18
<PAGE> 22

securities; however, the Adviser presently does not intend to invest more than
5% of the Fund's net assets in securities rated lower than investment grade.

The Fund may enter into forward foreign currency transactions in an effort to
protect against changes in foreign exchange rates. To a limited extent, the Fund
may also invest in depository receipts, foreign currency futures, forward
foreign currency transactions, illiquid securities, investment companies,
repurchase agreements and when-issued and delayed-delivery securities, which are
described in the Investment Glossary at the end of this prospectus. The
Investment Glossary also describes the Fund's policies with regard to borrowing,
concentration, diversification, and portfolio turnover. The Fund may invest to a
very limited extent in warrants, which are described in the Statement of
Additional Information.

PORTFOLIO MANAGEMENT

The International Growth Fund is managed by W. George Greig.

W. George Greig, a principal of William Blair & Company, L.L.C., has managed the
Fund since 1996 when he joined the Investment Management Department as an
international portfolio manager. He headed international equities for PNC Bank
in Philadelphia from 1995 to 1996 and, prior to that, he 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.

19
<PAGE> 23

EMERGING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

The investment objective of the Emerging Markets Growth Fund is long-term
capital appreciation. The Fund pursues its objective by investing in a
diversified portfolio of equity securities issued by companies in emerging
economies worldwide.

INVESTMENT PROCESS

The Adviser seeks well-managed, high quality growth companies. Such companies
will generally exhibit superior business fundamentals, including one or more of
the following characteristics:

REGIONAL LEADERSHIP in product quality or cost competitiveness;

DOMINANT OR IMPROVING MARKET POSITION, generally associated with a
competitive advantage in distribution, pricing or business franchise,
within a growing local or regional economy; and

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.

In pursuing the Fund's investment objective, the Adviser will vary the Fund's
geographic diversification and types of securities based upon the Adviser's
continuous evaluation of economic, market and political trends throughout the
world. The investment of the Fund's assets in various international securities
markets tends to decrease the degree to which events in any one country can
affect the entire Fund. 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. In addition, the Adviser will seek investment
opportunities in companies at different stages of development ranging from
large, well-established companies to smaller companies at an earlier stage of
development.

PORTFOLIO SECURITIES

The Fund 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 (at least 50%) located in and/or
derive a significant amount of their revenues (at least 50%) 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 Fund 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 Fund's equity securities will be invested in
securities of issuers in one country at any given time.

The Fund 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 Fund's assets 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

20
<PAGE> 24

market instruments, such as government obligations, certificates of deposit,
bankers' acceptances, time deposits, commercial paper and short-term corporate
debt securities. The Fund does not have specific rating requirements for its
short-term securities; however, the Adviser presently does not intend to invest
more than 5% of the Fund's net assets in securities rated below investment
grade.

The Fund may enter into forward foreign currency transactions in an effort to
protect against changes in foreign exchange rates. To a limited extent, the Fund
may also invest in depository receipts, foreign currency futures, illiquid
securities, investment companies, repurchase agreements and when-issued and
delayed delivery securities which are described in the Investment Glossary at
the end of this prospectus. The Investment Glossary also describes the Fund's
policies with regard to borrowing, concentration, diversification and portfolio
turnover. The Fund intends to invest to a very limited extent in warrants, which
are described in the Statement of Additional Information.

PORTFOLIO MANAGEMENT

The Emerging Markets Growth Fund is co-managed by W. George Greig and Jeffrey A.
Urbina.

W. George Greig, a principal of William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1998. He joined the Investment Management
Department in 1996 as an international portfolio manager. He headed
international equities for PNC Bank in Philadelphia from 1995 to 1996 and, prior
to that, he 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.

Jeffrey A. Urbina joined William Blair & Company, L.L.C. in 1996 and has
co-managed the Fund since its inception in 1998. In addition to the Emerging
Market Growth Fund, he is responsible for emerging market research for the
William Blair International Growth Fund. From 1991 to 1996, 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 University
Kellogg Graduate School of Management.

21
<PAGE> 25

INCOME FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

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.

INVESTMENT PROCESS

The Adviser seeks to outperform the total return of an index of broad
intermediate-term government and corporate high-grade debt through an actively
managed diversified portfolio of debt securities. The Adviser's investment
philosophy emphasizes shifts in the Fund's portfolio among various sectors of
the debt market, subject to the Fund's credit quality constraints for its
portfolio. The Adviser also actively manages the Fund based upon the average
duration and yield to maturity of the Fund's portfolio and the Adviser's
perceived trends in interest rates.

PORTFOLIO SECURITIES

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

U.S. DOLLAR-DENOMINATED CORPORATE 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 Fund'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.

The anticipated dollar-weighted average maturity of the Fund is three to seven
years. The anticipated weighted average modified duration for the Fund 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.

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 if interest rates increased by one percent,
the value of the portfolio would decrease by approximately five percent.
Modified duration adjusts duration to take into account the yield to maturity
and

22
<PAGE> 26

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 industry experience.

To a limited extent, the Fund may invest in illiquid securities, repurchase
agreements and when-issued and delayed delivery securities, which are described
in the Investment Glossary at the end of this prospectus. The Investment
Glossary also describes the Fund's policies with regard to borrowing,
concentration, diversification and portfolio turnover. In addition, the Fund's
policy regarding lending portfolio securities is described in the Statement of
Additional Information.

PORTFOLIO MANAGEMENT

The Income Fund is co-managed by Bentley Myer and James Kaplan.

Bentley Myer, a principal of William Blair & Company, L.L.C., has managed the
Fund since 1992. He 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.

James Kaplan, an associate of William Blair & Company, L.L.C., has co-managed
the Fund since 1999. He joined the firm's Investment Management Services
department in 1994 as a fixed-income portfolio manager. Prior to that, he was
with First Union National Bank for twelve years. While at First Union, he
completed their management training program in lending. His other
responsibilities included trading fixed-income securities such as money markets,
municipal bonds and mortgage backed securities. He also assisted in the
management of the bank's portfolio. Education: B.A., Washington & Lee University
and C.F.A.

23
<PAGE> 27

READY RESERVES FUND
- --------------------------------------------------------------------------------
GOAL AND STRATEGY

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 Fund seeks to maintain a net
asset value of $1.00 per share. Nevertheless, there is no guarantee that the
objective of the Fund will be achieved or that the net asset value of $1.00 per
share of the Fund will be maintained.

PORTFOLIO SECURITIES AND INVESTMENT RISK

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

-- Corporations;

-- The U.S. Government, its agencies and instrumentalities;

-- U.S. and foreign banks;

-- Municipalities;

-- Foreign governments; and

-- Multinational organizations, such as the World Bank.

The yield paid by the Ready Reserves Fund will vary with changes in interest
rates. While the Fund seeks to maintain its $1.00 share price, there is no
guarantee that it will be able to do so. The Fund has adopted certain investment
policies designed to limit the market and financial risks of the Fund. The Fund
complies with the requirements of Rule 2a-7 under the Investment Company Act of
1940, which governs the maturity and credit quality of money market funds. The
Fund 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 Fund may invest up to 5% 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, may provide
higher yields. Further, the Fund 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.

To the extent the Fund invests in short-term U.S. dollar-denominated foreign
money market instruments, investing in foreign securities may involve a greater
degree of risk than investing in domestic securities due to the possibility of,
but not limited to, less publicly available information, more volatile markets,
less securities regulation, less favorable tax provisions, war and
expropriation.

To a limited extent, the Fund may invest in 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 Fund's policies
with regard to borrowing, concentration and diversification.

24
<PAGE> 28

PORTFOLIO MANAGEMENT

The Ready Reserves Fund is co-managed by Bentley Myer and James Kaplan.

Bentley Myer, a principal with William Blair & Company, L.L.C., has managed the
Fund since 1992. He 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.

25
<PAGE> 29

INVESTMENT RISKS
- --------------------------------------------------------------------------------

EQUITY FUNDS

General. Because the each equity fund invests substantially all of its assets in
common stocks, the main risk is that the value of the stocks it holds may
decrease in response to the activities of an individual company or in response
to general market, business and economic conditions. If this occurs, the Fund's
share price may also decrease.

Smaller Stocks. Stocks of smaller companies involve greater risk than those of
larger, more established companies. This is because smaller companies may be in
earlier stages 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, and may be traded in low volumes, which may increase
volatility and liquidity risks. From time to time, the Value Discovery Fund and
the Emerging Markets Growth Fund 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,
including uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments.

Country Allocation. The International Growth Fund and Emerging Markets Growth
Fund seek to invest in companies and governments of countries having stable or
improving political environments; however, 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 investments 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.

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.

Emerging Markets. 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 a Fund's investments in emerging market 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 a 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.

26
<PAGE> 30

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. A Fund 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 been and may continue
to be adversely affected by economic conditions in the countries with which they
trade.

The securities held by the International Growth Fund and the Emerging Markets
Growth Fund usually will 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 Fund 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 Emerging Markets Growth Fund 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 Fund 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.

Operating Expenses. The International Growth Fund and Emerging Markets Growth
Fund are 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--Taxes.")

Temporary Defensive Position. Each Fund may significantly alter its make-up as a
temporary defensive strategy. A defensive strategy will employed only if, in the
judgment of the Adviser, investments in a Fund's usual markets or types of
securities become decidedly unattractive because of current or anticipated
adverse economic, financial, political and social factors. Generally, the Growth
Fund and Value Discovery Fund 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 Funds do not purchase any stocks with
a view to quick turnover for capital gains. For the International Growth Fund
and Emerging Markets Growth Fund, the types of securities that might be acquired
and held for defensive purposes could include fixed-income securities and
securities issued by the U.S. or foreign governments as well as domestic or
foreign money market instruments and non-convertible preferred stock, each of
which would be of investment-grade. At such time as the Adviser determines that
the Fund's defensive strategy is no longer warranted, the Fund will adjust its
Fund back to its normal complement securities as soon as practicable. When a
Fund is invested defensively, it may not meet its investment objective.

INCOME FUND

Interest Rate Risk. The Income Fund's investments are subject to price
fluctuations resulting from various factors, including rising or declining
interest rates (interest rate risk). The value of the portfolio's investments

27
<PAGE> 31

(other than an interest-only class of a collateralized obligation) tends to
decrease when interest rates rise and tends to increase when interest rates
fall. In addition, investments with longer maturities, which typically provide
better yields, may subject the Fund to increased price changes resulting from
market yield fluctuations.

Credit Risk. The value of the Fund's securities is subject to the ability of the
issuers of such securities to make payment at maturity (credit risk). 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 Fund
primarily will 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. 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 Fund 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). For a description of ratings, see Appendix
B in the Statement of Additional Information.

Temporary Defensive Position. Generally the Fund will remain fully invested.
However, the Fund 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 Fund does not invest in equity securities.

28
<PAGE> 32

MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------

DIRECTORS, OFFICERS AND ADVISER. The Board of Directors of William Blair Mutual
Funds, Inc. has overall management responsibility. The duties of the directors
and officers of the Fund include supervising the business affairs of the Fund,
monitoring investment activities and practices and considering and acting upon
future plans for the Fund. The Statement of Additional Information has the names
of and additional information about the directors and officers of the Fund. The
Adviser, William Blair & Company, L.L.C., 222 West Adams Street, Chicago,
Illinois 60606, is responsible for providing investment advisory and management
services to the Funds of the Fund, subject to the direction of the Board of
Directors. 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 (the
"Distributor"). William Blair & Company, L.L.C. was founded over 60 years ago by
William McCormick Blair. Today, the firm has 150 principals and 750 employees.
The main office in Chicago houses all research and investment management
services.

The Investment Management Department oversees the assets of the William Blair
mutual funds, along with corporate pension plans, endowments and foundations and
individual accounts. The department currently manages approximately $12 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 40 analysts, with an exceptionally low
turnover rate. William Blair portfolio managers generally average more than ten
years with William Blair and more than two decades of experience in the
investment industry. The Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940.

Each Fund pays the Adviser a monthly investment management fee. Fees paid for
each Fund's most recently completed fiscal year are shown below:

<TABLE>
<CAPTION>
FUND FEE AS A % OF AVERAGE NET ASSETS
- ---- --------------------------------
<S> <C>
Growth Fund 0.75%
Value Discovery Fund 1.15%
International Growth Fund 1.10%
Emerging Markets Growth Fund 1.40%
Income Fund 0.59%
Ready Reserves Fund 0.59%
</TABLE>

CUSTODIAN. The Custodian is Investors Bank and Trust Company, 200 Clarendon
Street, Boston, Massachusetts 02117. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, may serve as the Custodian for
Individual Retirement Accounts ("IRAs").

TRANSFER AGENT AND DIVIDEND PAYING AGENT. The Transfer Agent and Dividend Paying
Agent is State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.

YEAR 2000. 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 affected 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.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the year 2000 problem, the Adviser is reviewing
information regarding the year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
a Fund that

29
<PAGE> 33

deals with foreign service providers or invests in foreign securities will have
difficulty determining the year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets. The financial impact
of these issues for the Fund is still being determined. There can be no
assurance that potential year 2000 problems would not have a material adverse
effect on the Fund.

PENDING CHANGES TO THE FUND. The Board of Directors of the Fund has approved a
proxy solicitation of shareholders of record as of October 1, 1999. The matters
to be considered by all shareholders include the election of Board members,
ratification of auditors, approval of changes in certain fundamental investment
restrictions, including certain investment objectives and approval of a Plan of
Reorganization that would reorganize the Fund into a Delaware Business Trust. In
addition, the Class N shareholders will be asked to approve a Distribution Plan
under Rule 12b-1 of the Investment Company Act of 1940. The shareholder meeting
is scheduled to be held on November 30, 1999.

30
<PAGE> 34

YOUR ACCOUNT

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

CLASS N SHARES

The Class N shares offered herein are offered only to investors who acquire the
shares directly through the Fund's distributor or through a select number of
financial intermediaries with whom the distributor has entered into selling
agreements specifically authorizing them to sell Class N shares.

HOW TO BUY SHARES (By Mail, by Wire or by Telephone)

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 Funds 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 Funds or
the Adviser.

PURCHASE PRICE. All Class N shares are sold at their public offering price,
which is 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, shares are sold at 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. The net
asset value per share of the Ready Reserves Fund normally will 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 Funds and, if you are a
current shareholder, the Funds 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 Funds may
delay sending redemption proceeds until they determine that collected funds have
been received for the purchase of such shares, which may be up to 15 calendar
days.

RIGHT TO REJECT YOUR PURCHASE ORDER. The Fund reserves the right to decline your
purchase order (including exchanges) upon receipt for any reason, including
excessive, short-term (market-timing) or other abusive trading practices which
may disrupt portfolio management strategies and harm Fund performance. The Funds
also reserve the right to delay delivery of redemption proceeds--up to seven
days--or to honor certain redemptions with securities, rather than cash.

BY MAIL

OPENING AN ACCOUNT. To open a new account by mail (except for the Ready Reserves
Fund), make out a check for the amount of your investment, payable to "William
Blair Mutual Funds, Inc." Complete the account application included with this
Prospectus and mail the completed application and the check to the Transfer
Agent, State Street Bank and Trust Company ("State Street"), P.O. Box 8506,
Boston, Massachusetts 02266-8506.

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, make out a check for the
amount of your investment, payable to "William Blair Mutual Funds, Inc." Except
for the Ready Reserves Fund, 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 8506,
Boston, Massachusetts 02266-8506.

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.

31
<PAGE> 35

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 name of the portfolio 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.

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 State Street at 1-800-635-2886 (in Massachusetts,
1-800-635-2840). For the Ready Reserves Fund only, call your William Blair
account executive.

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.

HOW TO SELL SHARES (By Mail, by Wire or by Telephone)

You can arrange to take money out of your account 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 Funds except the Ready Reserves Fund, 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 8506, Boston, Massachusetts 02266-8506. 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 FUNDS, WRITTEN REDEMPTION REQUESTS MUST INCLUDE:

-- a letter that contains your name, the Fund's name and the dollar
amount or number of shares to be redeemed;
32
<PAGE> 36

-- 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.

BY WIRE

To redeem some or all of your shares in any Funds 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 herein. To redeem by wire, you must have elected
this option on your account application and attached to the application a
voided, unsigned check or deposit slip for your bank account.

BY TELEPHONE

TO REDEEM SHARES BY TELEPHONE, YOU MUST HAVE ELECTED THIS OPTION ON YOUR ACCOUNT
APPLICATION. For all Funds except the Ready Reserves Fund, contact the 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. Amounts redeemed will
be placed in your brokerage account.

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

SIGNATURE GUARANTEES. 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. 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 next calculated after receipt of your redemption request
in proper order by the Distributor, the Transfer Agent or a designated agent
thereof. For the Ready Reserves Fund, the net asset value normally will 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.

DELAYED PROCEEDS. The Funds reserve the right to delay delivery of your
redemption proceeds--up to seven days--or to honor certain redemptions with
securities, rather than cash, as described in the next section. In addition,
redemption of shares from a Fund, other than the Ready Reserves Fund, within 180
days of purchase may be subject to a 1.00% redemption fee.

33
<PAGE> 37

REDEMPTIONS IN KIND. If the Adviser determines that existing conditions make
cash payments undesirable, redemption payments may be made in whole or in part
in securities or other financial assets, valued for this purpose as they are
valued in computing the NAV for each of the Fund's shares. Shareholders
receiving securities or other financial assets on redemption may realize a gain
or loss for tax purposes, and will incur any costs of sale, as well as the
associated inconveniences. Notwithstanding the above, each of the Funds are
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1.00%
of the net asset value of such Fund during any 90-day period for any one
shareholder of record.

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 ACCOUNT. 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 Fund. 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 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 may be charged when a check is presented to redeem 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 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.

HOW TO EXCHANGE SHARES (By Mail or by Telephone)

Subject to the following limitations, you may exchange shares of Class N shares
of each Fund into either Class N shares of another Fund or into shares of the
Ready Reserves Fund at their relative net asset values so long as the shares to
be acquired are available for sale in your state of residence. Only four (4)
exchanges from a Fund are allowed within any 12-month period. Exchanges will be
effected by redeeming your shares and purchasing shares of the other Fund or
Funds requested.

34
<PAGE> 38

BY MAIL

You may request an exchange of your shares by writing to William Blair Mutual
Funds, Inc., Attention: Exchange Department, P.O. Box 8506, Boston,
Massachusetts 02266-8506.

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, you must deposit them with State Street prior to any exchange of such
shares.

Neither the Funds 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 Funds or the 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.

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS. Each Fund earns dividends from stocks and interest from bond,
money market, and other investments, which are passed along to shareholders as
income dividends as long as expenses do not exceed income.

CAPITAL GAIN DISTRIBUTIONS. Each 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 shareholder, you are entitled to your portion of the Fund's net income and
gains on its investments. Each Fund passes its earnings along to you as
distributions. The Funds' 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 "Shareholder Services and Account
Policies--Dividend Options"). Cash payments are made by the Dividend Paying
Agent, State Street Bank and Trust Company, shortly following the reinvestment
date.

WHEN DIVIDENDS ARE PAID

-- 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, generally will 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 paid in
December and/or January. The Income Fund attempts to maintain
relatively level monthly dividends and, 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.

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

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

35
<PAGE> 39

TAXES

As with any investment, you should consider how your investment in a 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. The Fund's distributions are subject to Federal income
tax and may also be subject to state or local taxes. Distributions may be
taxable at different rates depending upon the length of time the Fund holds the
security. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them in additional shares. However, dividends declared
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 Funds will inform you of the amount and nature of distributions
paid.

Under the Federal tax laws, 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. Redemptions of Fund shares and exchanges for shares of
other Funds are treated as sales and are subject to capital gains taxation. 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 (or exchange) 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 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 who redeems
shares normally will recognize a capital gain or loss for Federal income tax
purposes. If you realize a loss on the redemption of Fund shares within 30 days
before or after an acquisition of shares of the same Fund, 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 shares before a Fund 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 "Your
Account--Dividends and Distributions" 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 a
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.

36
<PAGE> 40

DETERMINATION OF NET ASSET VALUE ("NAV")
- --------------------------------------------------------------------------------
WHEN AND HOW NET ASSET VALUE IS DETERMINED

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 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 the observance of Columbus Day
and Veterans Day.

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
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 the New York Stock Exchange is not open and on other days
when 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 FUND 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 or independent pricing services that use either prices provided by
market-makers or matrixes that produce 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, including
securities for which a market price is not available, are valued at a fair value
as determined in good faith by, or under the direction of, the Board of
Directors and in accordance with the Fund's pricing procedures.

37
<PAGE> 41

SHAREHOLDER SERVICES AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------
The Funds provide 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, 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. If you have a FREE CREDIT BALANCE OF AT LEAST $1,000, the Distributor
will effect on your behalf an investment in 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 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 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 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 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 Funds automatically
reinvest all income dividends and capital gain distributions in additional
shares of 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 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.

SYSTEMATIC WITHDRAWAL PLAN. You may establish this plan with shares presently
held or through a new investment, which should 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 Funds offer a variety of qualified retirement plans,
including several types of Individual Retirement Accounts ("IRAs") (e.g.
traditional IRAs, Roth IRAs and education IRAs), Simplified Employee Pension
Plans ("SEPs") and other qualified retirement plans. Additional information
concerning such plans is available from the Funds.

38
<PAGE> 42

The minimum initial retirement plan investment is $2,000 and the minimum
subsequent investment is $1,000. State Street serves as custodian for IRAs.
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 Funds;
-- the Funds will pay any additional expenses that they incur 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 Funds;
-- the Funds reserve the right to change the minimum amounts for
initial and subsequent investments or to terminate any of the
plans;
-- the Funds reserve the right to waive investment minimums at the
discretion of the Distributor; and
-- the Funds require a copy of the trust agreement when shares are
to be held in trust.

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.
However, you may obtain 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 30 days after your purchase is completed.

USE OF INTERMEDIARIES. If you purchase or redeem shares 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 directly from the Fund or with the 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 Funds reserves the right to withdraw all or any part
of the offering made by this Prospectus, and the Funds or the Distributor may
reject purchase orders. From time to time, the Funds may temporarily suspend the
offering of shares to new investors. During the period of such suspension,
persons who are already shareholders of a Fund may be permitted to continue to
purchase additional shares of the Fund, to have dividends reinvested and to make
redemptions.

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 Fund have equal rights with respect to
dividends, assets and liquidation of a Fund 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 Fund will be voted in the aggregate, except when a
separate vote by Fund is required under the Investment Company Act of 1940 (the
"1940 Act"). Shares are fully paid and nonassessable when issued, are
transferable without restriction, and have no preemptive or conversion rights.
Under Maryland law, the Funds are not required to hold shareholder meetings on
an annual basis. As required by law, the Funds 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.)

39
<PAGE> 43

INVESTMENT GLOSSARY
- --------------------------------------------------------------------------------
The following glossary explains some of the types of securities in which the
Funds may invest, investment techniques they may employ, and some of the related
risks. For more information, please see the Statement of Additional Information.

BORROWING. To a certain extent, each Fund 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 (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 Fund 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 Fund 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
Fund and may even result in losses to the Fund 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 Fund 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.

CONCENTRATION. Each of the Funds intends to invest not 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.

("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 sections on "Investment Risks" under
the "International Growth Fund" and "Emerging Markets Growth Fund" above and in
the Statement of Additional Information.

DIVERSIFICATION. As a matter of fundamental policy, each Fund 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 Fund's net assets. In
addition, each Fund 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 Fund engages in foreign currency futures
transactions, but fails to consummate its obligations under the contract, the
net effect to the Fund 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 Fund'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 to 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 Fund's Adviser may still
not result in a successful hedging transaction. The Fund 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 Fund 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 Investment Company Act of 1940 (the
"1940 Act") and the rules and interpretations thereunder, whenever the Fund
enters into a futures contract, the Fund will maintain a segregated account
consisting of either cash or liquid securities equal to the Fund's potential
obligation under such contracts. The segregation of assets places a practical
limit on the extent to which the Fund 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 Fund will not enter into a financial
futures contract if immediately thereafter the aggregate initial margin and
premiums for such contracts held by the Fund would exceed 5% of the liquidation
value of the Fund's assets. The Fund 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 Fund holds or intends to purchase.

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

41
<PAGE> 45

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 Fund's investments against adverse exchange rate
changes. Alternatively, the Funds 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 Fund 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 Fund 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 Funds 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
their 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. 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 Fund would ordinarily
invest directly. Investments in such pooled vehicles should enhance the
geographical diversification of the Fund'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 Funds intend 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 Fund's investment objective, and there is no limitation on
the length of time securities must be held by the Fund prior to being sold. Fund
turnover rate will not be a limiting factor for a Fund. Although each Fund's
turnover rate will vary from year to year, it is anticipated that each Fund'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 Fund.

REAL ESTATE INVESTMENT TRUSTS. Although the Value Discovery Fund does not invest
primarily in real estate investment trusts ("REITs"), the Fund may invest
without limit in 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 an
investment in that REIT.

REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. Repurchase
agreements are instruments under which a Fund 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 Fund's holding period. The Funds 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 Fund 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

42
<PAGE> 46

income. 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 Fund. 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 Fund may purchase newly issued securities appropriate
for the Fund on a "when-issued" basis, and may purchase or sell securities
appropriate for the Fund on a "delayed delivery" basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
particular securities, with payment and delivery to take place at a future date.
These transactions allow the Fund to lock in an attractive purchase price or
yield on a security the Fund 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 Fund and, for delayed delivery
purchases, no interest accrues to the Fund. Because the Fund 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 Fund's assets may be affected by such commitments. The Fund 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 it is 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 Fund may invest in Variable Rate Securities that have
a demand feature entitling the Fund 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 Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission rules, which
allow the Fund 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, if they have a stated
maturity date of one year or less, or if they have demand features prior to
maturity.

43
<PAGE> 47

FINANCIAL HIGHLIGHTS

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

The tables below are intended to help you understand each Fund's financial
performance for the past several years. The total return figures show what an
investor in a Fund would have earned (or lost) assuming reinvestment of all
dividends and distributions. This information has been audited by Ernst & Young
LLP, whose report, along with the Fund's financial statement, is included in the
annual report, which is available upon request (see back cover).

WILLIAM BLAIR GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 15.350 $ 13.480 $ 11.900 $ 9.600 $ 9.730
Income from investment operations:
Net investment income (loss)............. (.003) (.023) (.010) .034 .027
Net realized and unrealized gain on
investments........................... 4.123 2.694 2.144 2.750 .581
-------- -------- -------- -------- --------
Total from investment operations........... 4.120 2.671 2.134 2.784 .608
Less distributions from:
Net investment income.................... -- -- .010 .030 .025
Net realized gain on investments......... 1.500 .801 .544 .454 .713
-------- -------- -------- -------- --------
Total distributions........................ 1.500 .801 .554 .484 .738
-------- -------- -------- -------- --------
Net asset value, end of year............... $ 17.970 $ 15.350 $ 13.480 $ 11.900 $ 9.600
======== ======== ======== ======== ========
Total return (%)........................... 27.15 20.07 17.99 29.07 6.45
Ratios to average net assets (%):
Expenses................................. .84 .84 .79 .65 .71
Net investment income (loss)............. (.02) (.16) (.08) .34 .32
Supplemental data:
Net assets at end of year (000s)......... $742,056 $591,353 $501,774 $363,036 $217,560
Portfolio turnover rate (%).............. 37 34 43 32 46
</TABLE>

WILLIAM BLAIR VALUE DISCOVERY FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1998 1997 1996()(a)
------- ------- ---------
<S> <C> <C> <C>
Net asset value, beginning of year.......................... $12.970 $10.000 $10.000
Income from investment operations:
Net investment income..................................... .088 .029 --
Net realized and unrealized gain (loss) on investments.... (.005) 3.305 --
------- ------- -------
Total from investment operations............................ .083 3.334 --
Less distributions from:
Net investment income..................................... .093 .020 --
Net realized gain on investments.......................... -- .344 --
------- ------- -------
Total distributions......................................... .093 .364 --
------- ------- -------
Net asset value, end of year................................ $12.960 $12.970 $10.000
======= ======= =======
Total return (%)............................................ 0.66 33.46 --
Ratios to average net assets (%):
Expenses.................................................. 1.52 1.50(b) --
Net investment income..................................... .76 .29(b) --
Supplemental data:
Net assets at end of year (000s).......................... $44,675 $30,354 $ 2
Portfolio turnover rate (%)............................... 78 69 --
</TABLE>

44
<PAGE> 48

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

(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 INTERNATIONAL GROWTH FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $ 13.140 $ 13.950 $ 13.120 $12.360 $13.180
Income from investment operations:
Net investment income...................... .074 .072 .029 .105 .016
Net realized and unrealized gain (loss) on
investments, foreign currency and other
assets and liabilities.................. 1.431 1.056 1.299 .785 (.025)
-------- -------- -------- ------- -------
Total from investment operations............. 1.505 1.128 1.328 .890 (.009)
Less distributions from:
Net investment income...................... .024(a) .078(a) .068(a) .130(a) .024
Net realized gain on investments........... .001 1.860 .430 -- .714
Tax return of capital........................ -- -- -- -- .073(b)
-------- -------- -------- ------- -------
Total distributions.......................... .025 1.938 .498 .130 .811
-------- -------- -------- ------- -------
Net asset value, end of year................. $ 14.620 $ 13.140 $ 13.950 $13.120 $12.360
======== ======== ======== ======= =======
Total return (%)............................. 11.46 8.39 10.20 7.22 (.04)
Ratios to average net assets (%):
Expenses................................... 1.36 1.43 1.44 1.48 1.51
Net investment income...................... .09 .01 .19 .87 .15
Supplemental data:
Net assets at end of year (000s)........... $139,746 $128,747 $105,148 $89,762 $70,403
Portfolio turnover rate (%)................ 98 102 89 77 40
</TABLE>

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

(a) Includes $.024, $.078, $.022 and $.061 in passive foreign investment
company transactions which are treated as ordinary income for Federal
income tax purposes for 1998, 1997, 1996 and 1995, respectively.

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

45
<PAGE> 49

WILLIAM BLAIR EMERGING MARKETS GROWTH FUND

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998(A)(B)
-----------------------
<S> <C>
Net asset value, beginning of period........................ $10.000
Income from investment operations:
Net investment income..................................... .002
Net realized and unrealized gain (loss) on investments,
foreign currency and other assets and liabilities...... (2.372)
-------
Total from investment operations............................ (2.370)
Less distributions from:
Net investment income..................................... --
Net realized gain on investments.......................... --
-------
Total distributions......................................... --
-------
Net asset value, end of year................................ $ 7.630
=======
Total return (%)............................................ (23.70)
Ratios to average net assets (%):
Expenses(c)............................................... 2.25%
Net investment income(c).................................. .04%
Supplemental data:
Net assets at end of year (000s).......................... $ 3,754
Portfolio turnover rate (%)............................... 226
</TABLE>

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

(a) For the period May 1, 1998 (Commencement of Operations) to December 31,
1998.

(b) Rates are annualized, except total returns for periods less than one
year.

(c) Without the waiver of expenses in 1998, the expense ratio would have been
6.35% and the net investment loss ratio would have been 4.06%.

WILLIAM BLAIR INCOME FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 10.410 $ 10.270 $ 10.570 $ 9.850 $ 10.580
Income from investment operations:
Net investment income.................... .640 .659 .619 .646 .661
Net realized and unrealized gain (loss)
on investments........................ .076 .140 (.309) .732 (.741)
-------- -------- -------- -------- --------
Total from investment operations........... .716 .799 .310 1.378 (.080)
Less distributions from:
Net investment income...................... .636 .659 .610 .658 .646
Net realized gain on investments........... -- -- -- -- .004
-------- -------- -------- -------- --------
Total distributions........................ .636 .659 .610 .658 .650
-------- -------- -------- -------- --------
Net asset value, end of year............... $ 10.490 $ 10.410 $ 10.270 $ 10.570 $ 9.850
======== ======== ======== ======== ========
Total return (%)........................... 7.07 8.03 3.07 14.37 (.74)
Ratios to average net assets (%):
Expenses................................. .71 .71 .70 .68 .68
Net investment income.................... 6.81 6.40 5.97 6.24 6.33
Supplemental data:
Net assets at end of year (000s)......... $188,051 $160,055 $150,006 $147,370 $143,790
Portfolio turnover rate (%).............. 96 83 66 54 63
</TABLE>

46
<PAGE> 50

WILLIAM BLAIR READY RESERVES FUND

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income.................. .05 .05 .05 .05 .04
Net realized and unrealized gain (loss)
on investments...................... -- -- -- -- (.01)
---------- -------- -------- -------- --------
Total from investment operations......... .05 .05 .05 .05 .03
Less distributions from:
Net investment income.................. .05 .05 .05 .05 .04
---------- -------- -------- -------- --------
Total distributions.................... .05 .05 .05 .05 .04
---------- -------- -------- -------- --------
Capital contribution..................... -- -- -- -- .01
---------- -------- -------- -------- --------
Net asset value, end of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total return (%)......................... 4.98 5.04 4.81 5.45 3.67(a)
Ratios to average net assets (%):
Expenses............................... .69 .70 .71 .72 .71
Net investment income.................. 4.87 4.92 4.78 5.30 3.61
Supplemental data:
Net assets at end of year (000s)....... $1,189,051 $904,569 $760,808 $703,993 $521,277
</TABLE>

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

(a) 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%.

47
<PAGE> 51

FOR MORE INFORMATION

More information about the Funds is available without charge, upon request,
including the following:

SEMI-ANNUAL/ANNUAL REPORTS

The Semi-Annual and audited Annual Reports to Shareholders include financial
statements, detailed performance information, portfolio holdings and statements
from the Fund managers. In the Annual Report, you will find a discussion of the
market conditions and investment strategies that the Adviser believes
significantly affected the Fund's performance in its last fiscal year.
Shareholder reports are incorporated by reference into this Prospectus, which
means that they are part of this Prospectus for legal purposes.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the Funds. The current SAI 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.

TO OBTAIN INFORMATION:

BY TELEPHONE
Call: 1-800-635-2886
(In Massachusetts 1-800-635-2840)

BY MAIL
Write to:

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

STATE STREET BANK AND TRUST COMPANY
(the Fund's Transfer Agent)

P.O. Box 8506

Boston, MA 02266-8506

ON THE INTERNET

Text-only versions of fund documents can be viewed online or downloaded from the
SEC at http://www.sec.gov

You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (1-800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Room Section, Washington, D.C. 20549-6009.

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 Funds or their distributor. The Prospectus does not constitute an
offering by the Fund or their distributor in any jurisdiction in which such
offering may not lawfully be made.

WILLIAM BLAIR MUTUAL FUNDS, INC. May 1, 1999, as supplemented
Investment Company Act File No.: 811-5344 September 30, 1999

48
<PAGE> 52

May 1, 1999, as supplemented September 30, 1999

WILLIAM BLAIR MUTUAL FUNDS, INC.

CLASS A, B, C AND I SHARES

GROWTH FUND
VALUE DISCOVERY FUND
INTERNATIONAL GROWTH FUND
EMERGING MARKETS GROWTH FUND
INCOME FUND

This prospectus contains important information about each Fund, including their
investment objectives. For your benefit and protection, please read it before
you invest and keep it for future reference. This prospectus relates only to
Class A, Class B, Class C and Class I Shares of each Fund.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE 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> 53

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY..................................................... 1
Growth Fund........................................ 1
Value Discovery Fund............................... 3
International Growth Fund.......................... 5
Emerging Markets Growth Fund....................... 7
Income Fund........................................ 9
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES... 11
Growth Fund........................................ 12
Value Discovery Fund............................... 14
International Growth Fund.......................... 16
Emerging Markets Growth Fund....................... 18
Income Fund........................................ 20
INVESTMENT RISKS............................................ 22
MANAGEMENT OF THE FUNDS..................................... 25
Choosing a Share Class............................. 27
Class A Shares..................................... 28
Class B Shares..................................... 31
Class C Shares..................................... 33
Class I Shares..................................... 34
YOUR ACCOUNT................................................ 35
How to Buy Shares.................................. 35
How to Sell Shares................................. 36
How to Exchange Shares............................. 37
Dividends and Distributions........................ 38
Taxes.............................................. 39
DETERMINATION OF NET ASSET VALUE............................ 40
SHAREHOLDER SERVICES AND ACCOUNT POLICIES................... 41
INVESTMENT GLOSSARY......................................... 43
</TABLE>

<PAGE> 54

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS. The bar chart below provides an illustration of how the
Fund's performance has varied in each of the last 10 calendar years. The
information in the bar chart and table below provides some indication of the
risks of investing in the Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for the years
indicated compare with those of a broad measure of market performance. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The Class A, Class B, Class C and Class I shares are new classes of the
Fund for which performance is not yet available. The Class N shares of the Fund
are offered in a separate prospectus. The returns for the Class A, Class B,
Class C and Class I shares will be substantially similar to those of the Class N
shares shown in the chart below because all shares of the Fund are invested in
the same portfolio of securities. The annual returns of the different Classes of
shares will differ only to the extent that the expenses of the Classes differ.

Class A, B and C share sale loads are not reflected in the chart below. If sales
loads were reflected, the Fund's returns would be less than those shown. Class I
has no sales loads.

<TABLE>
<CAPTION>
HIGHEST LOWEST
QUARTERLY QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
23.69% (4Q98) -14.91% (3Q90)
</TABLE>

1
<PAGE> 55

Average Annual Total Returns. The following table compares the Fund's Class N
average annual returns for the periods ended December 31, 1998, to a broad-based
market benchmark.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund Class N Shares 27.15% 21.68% 19.87% 18.96%
S&P 500* 28.57% 28.23% 24.06% 19.21%
</TABLE>

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

* The Standard and Poor's 500 Stock Index generally represents broad larger
capitalization equity market performance; expenses are not included.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.

SHAREHOLDER FEES. Fees paid directly from your investment.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price)...... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as %
of redemption proceeds)................. None(1) 5.00% 1.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions...... None None None None
Redemption Fee(2) (as % of amount
redeemed)
Shares held less than 180 days.......... None None None 1.00%
Shares held more than 180 days.......... None None None None
Exchange Fee.............................. None None None None
</TABLE>

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

(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent
deferred sales charge of 1.00% during the first year and 0.50% during the
second year. For more information about the Large Order NAV Purchase
Privilege see "Choosing a Share Class--Special Features" below.

(2) The redemption fee will be retained by the Fund. The redemption fee is
designed to discourage short-term trading. The Fund discourages
short-term investments in the Fund because they have a negative impact on
remaining shareholders.

ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, distribution services, maintenance of shareholder
accounts, shareholder servicing, accounting and other services. You do not pay
these fees directly but, as the example shows, these costs are borne indirectly
by shareholders.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- -------- -------
<S> <C> <C> <C> <C>
Management Fee................. .75% .75% .75% .75%
Distribution (12b-1) and/or
Service Fees................. .25% 1.00% 1.00%(1) None
Other Expenses................. .09% .09% .09% .09%
----- ----- -------- ----
Total Annual Fund Operating
Expenses..................... 1.09% 1.84% 1.84% .84%
</TABLE>

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

(1) Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales charge.

EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund, redeem all of your shares at the end of
those periods shown, earn a 5% return each year and incur the same operating
expenses as shown above:

<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B(2) CLASS C(1) CLASS C(2) CLASS I
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 Year............... $ 112 $ 704 $ 189 $ 292 $ 189 $ 86
3 Years.............. 348 913 584 584 584 269
5 Years.............. 604 1,237 1,004 1,004 1,004 468
10 Years............. 1,334 2,173 2,173 2,173 2,173 1,040
</TABLE>

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

(1) Assuming redemption.

(2) Assuming no redemption.

2
<PAGE> 56

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of the equity securities [(includes common stocks and other equity
investments)] of small companies that the Adviser believes offer a long-term
investment value. In implementing its value discipline, the Adviser evaluates
the extent to which a company meets the following criteria: (a) whether the
company's current market value reflects a material discount from the Adviser's
estimate of the company's value, (b) whether the company has a reasonable
expectation of improving its level of profitability over a three-year investment
horizon, (c) whether the company has a capable and skilled management team, (d)
whether the company has a relatively strong capital structure, and (e) whether
there is a likelihood that the company will undergo a positive corporate change
within a three-year investment horizon. The weight that the Adviser gives to
each of the investment criteria depends upon the circumstances, and some of the
Fund's investments will not meet all of the criteria.

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS. The bar chart below provides an illustration of how the
Fund's performance has varied in each of the calendar years since the Fund
started. The information in the bar chart and table below provides some
indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns for the years indicated compare with those of a broad measure of
market performance. The Fund's past performance does not necessarily indicate
how it will perform in the future. The Class A, Class B, Class C and Class I
shares are new Classes of the Fund for which performance is not yet available.
The Class N shares of the Fund are offered in a separate prospectus. The returns
for the Class A, Class B, Class C and Class I shares will be substantially
similar to those of the Class N shares shown in the chart because all shares of
the Fund are invested in the same portfolio of securities. The annual returns of
the different Classes of shares will differ only to the extent that the expenses
of the Classes differ.

Class A, B and C share sale loads are not reflected in the above chart. If sales
loads were reflected, the Fund's returns would be less than those shown. Class I
has no sales loads.

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
26.58% (3Q97) -17.59% (3Q98)
</TABLE>

3
<PAGE> 57

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's Class N
average annual returns for the periods ended December 31, 1998, indicated to a
broad-based securities market index.

<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND**
------ --------------
<S> <C> <C>
Value Discovery Fund Class N
Shares............................. 0.66% 15.91%
Russell 2000 Index*.................. -2.55 9.20
</TABLE>

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

* The Russell 2000 Index is a composite of the smallest 2000 stocks of the
Russell 3000 Index, which consists of the largest 3000 stocks in the U.S.
market as determined by market capitalization; expenses are not included.

** The Fund's inception was December 23, 1996.

FEES AND EXPENSES: This table describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.

SHAREHOLDER FEES. Fees paid directly from your investment.

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee............................ 1.15% 1.15% 1.15% 1.15%
Distribution (12b-1) and/or Service
Fees.................................... .25 1.00 1.00(1) None
Other Expenses............................ .37 .37 .37 .37
---- ---- ---- ----
Total Annual Fund Operating Expenses...... 1.77 2.52 2.52 1.52(2)
Adviser's Expense Waiver.................. .13 .13 .13 .13
---- ---- ---- ----
Net Expenses (with waiver)................ 1.64 2.39 2.39 1.39
</TABLE>

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

(1) Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales charge.

(2) The Adviser has entered an agreement with the Fund to cap the expenses
for the Fund's Class I shares at 1.39% until at least April 30, 2000. For
the Fund's Class A, B and C shares, the expenses will be capped at 1.39%
plus any distribution and/or shareholder service fees.

4
<PAGE> 58

shares at the end of those periods shown, earn a 5% return each year and incur
the same operating expenses as shown above:

<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B(2) CLASS C(1) CLASS C(2) CLASS I
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 Year....................... $ 181 $ 770 $ 258 $ 361 $ 258 $ 156
3 Years...................... 562 1,116 794 794 794 484
5 Years...................... 967 1,581 1,355 1,355 1,355 835
10 Years..................... 2,098 2,883 2,883 2,883 2,883 1,823
</TABLE>

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

(1) Assuming redemption.

(2) Assuming no redemption; with the expense cap, the Fund's operation
expenses would be as follows:
1 Year: $168, $758, $245, $348, $245, and $142 for Class A, B, B (no
redemption), C, C (no redemption) and I, respectively; 3 Years: $521,
$1,077, $754, $754, $754, and $443 for Class A, B, B (no redemption), C,
C (no redemption) and I, respectively; 5 Years: $898, $1,516, $1,289,
$1,289, $1,289, and $765 for Class A, B, B (no redemption), C, C (no
redemption) and I, respectively; 10 Years: $1,956, $2,751, $2,751, $2,751,
$2,751, and $1,677 for Class A, B, B (no redemption), C, C (no redemption)
and I, respectively.

5
<PAGE> 59

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS. The bar chart below provides an illustration of how the
Fund's performance has varied in each calendar year since the Fund started. The
information in the bar chart and table below provides some indication of the
risks of investing in the Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for the years
indicated compare with those of a broad measure of market performance. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The Class A, Class B, Class C and Class I shares are new Classes of the
Fund for which performance is not yet available. The Class N shares of the Fund
are offered in a separate prospectus. The returns for the Class A, Class B,
Class C and Class I shares will be substantially similar to those of the Class N
shares shown in the chart because all shares of the Fund are invested in the
same portfolio of securities. The annual returns of the different Classes of
shares will differ only to the extent that the expenses of the Classes differ.

6
<PAGE> 60

Class A, B and C share sale loads are not reflected in the above chart. If sales
loads were reflected, the Fund's returns would be less than those shown. Class I
has no sales loads.

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
17.43% (1Q98) -16.70% (3Q98)
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's Class N
average annual total returns for the periods ended December 31, 1998, to a
broad-based securities market index.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND**
------ ------- ------- --------------
<S> <C> <C> <C> <C>
International Growth Fund
Class N Shares 11.46% 10.01% 7.37% 11.10%
MSCI AC WLDF EX U.S. 14.46% 7.61% 7.87% 10.91%
</TABLE>

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

* The Morgan Stanley Capital International All Country World (Free) except
U.S. Index includes developed and emerging markets and reduces the
Japanese portion, making it comparable to the International Growth Fund in
terms of investment approach; expenses are not included in the index.

** The Fund's inception was October 1, 1992.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.

SHAREHOLDER FEES. Fees paid directly from your investment.

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

7
<PAGE> 61

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee............................ 1.10% 1.10% 1.10% 1.10%
Distribution (12b-1) and/or Service
Fees.................................... .25% 1.00% 1.00%(1) None
Other Expenses............................ .26% .26% .26% .26%
---- ---- ---- ----
Total Annual Fund Operating Expenses...... 1.61% 2.36% 2.36% 1.36%
</TABLE>

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

(1) Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales charge.

<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B(2) CLASS C(1) CLASS C(2) CLASS I
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 Year............... $ 165 $ 755 $ 242 $ 344 $ 242 $ 139
3 Years.............. 512 1,068 745 745 745 433
5 Years.............. 882 1,501 1,274 1,274 1,274 749
10 Years............. 1,923 2,720 2,720 2,720 2,720 1,643
</TABLE>

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

(1) Assuming redemption.

(2) Assuming no redemption.

8
<PAGE> 62

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of equity securities [(includes common stocks and other forms of
equity investments)] issued by companies in emerging markets. In choosing
investments, the Adviser first analyzes individual companies. The Adviser
generally seeks well-managed companies with superior business fundamentals,
including global leadership in product quality or cost competitiveness, dominant
or improving market position within a growing local or regional economy, and
sustainable above-average and/or increasing returns on invested capital.
Following stock selection, the Adviser allocates investments based upon its
analysis of the economic strength of various countries and industries. The
Adviser normally will allocate the Fund's investments among at least six
different 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.

FUND PERFORMANCE HISTORY: The bar chart and table showing the Fund's annual
return has been omitted because the Fund does not have annual returns for a full
calendar year.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.

SHAREHOLDER FEES. Fees paid directly from your investment.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price)......... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds)....................... None(1) 5.00% 1.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions......... None None None None
Redemption Fee(2) (as % of amount redeemed)
Shares held less than 180 days............. None None None 1.00%
Shares held more than 180 days............. None None None None
Exchange Fee................................. None None None None
</TABLE>

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

9
<PAGE> 63

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee............................... 1.40% 1.40% 1.40% 1.40%
Distribution (12b-1) and/or Service Fees..... .25% 1.00% 1.00%(1) None
Other Expenses............................... 4.95% 4.95% 4.95% 4.95%
---- ---- ---- -----
Total Annual Fund Operating Expenses (without
waiver)(2)................................. 6.60% 7.35% 7.35% 6.35%
Adviser's Expense Waiver..................... 4.60% 4.60% 4.60% 4.60%
---- ---- ---- -----
Net Expenses (with waiver)................... 2.00% 2.75% 2.75% 1.75%
</TABLE>

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

(1) Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales charge.

(2) Due to the Adviser voluntarily waiving fees and absorbing expenses, the
actual total expenses for the Fund's Class I shares were 2.25%
(annualized) during 1998. The Adviser has entered into an agreement with
the Fund to cap the expenses for the Fund's Class I shares at 1.75% at
least until April 30, 2000. For the Fund's Class A, B and C shares, the
expenses will be capped at 1.75% plus any distribution and/or shareholder
service fees.

<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B(2) CLASS C(1) CLASS C(2) CLASS I
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 Year................. $ 677 $1,241 $ 753 $ 851 $ 753 $ 651
3 Years................ 1,994 2,481 2,203 2,203 2,203 1,923
5 Years................ 3,265 3,757 3,581 3,581 3,581 3,158
10 Years............... 6,252 6,730 6,730 6,730 6,730 6,084
</TABLE>

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

(1) Assumes redemption.

(2) Assumes no redemption; with the expense cap, the Fund's operating
expenses would be as follows:

1 Year: $205, $793, $282, $384, $282, and $179 for Class A, B, B (no
redemption), C, C (no redemption) and I, respectively; 3 Years: $633,
$1,184, $864, $864, $864, and $556 for Class A, B, B (no redemption), C,
C (no redemption) and I, respectively; 5 Years: $1,087, $1,695, $1,472,
$1,472, $1,472, and $956 for Class A, B, B (no redemption), C, C (no
redemption) and I, respectively; 10 Years: $2,345, $3,112, $3,112,
$3,112, $3,112, and $2,076 for Class A, B, B (no redemption), C, C (no
redemption) and I, respectively.

10
<PAGE> 64

MAIN RISKS OF INVESTING: The primary risk of investing in the Fund is interest
rate risk. The yield paid by the Fund will vary with changes in interest rates.
As noted above, changes in interest rates may cause changes in the Fund's yield,
net asset value and total return. Investments with longer maturities, which
typically provide higher yield than securities with shorter maturities, may
subject the Fund to increased price changes resulting from market yield
fluctuations. The Fund is also subject to credit risk. The Fund's net asset
value and total return may be adversely affected by the inability of the issuers
of the Fund's securities to make payment at maturity. Of course, the skill of
the Adviser will play a significant role in the Fund's ability to achieve its
investment objective. The Fund's returns will vary, and you could lose money by
investing in the Fund.

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS. The bar chart below provides an illustration of how the
Fund's performance has varied in each of the last 10 calendar years. The
information in the bar chart and table below provides some indication of the
risks of investing in the Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for the years
indicated compare with those of a broad measure of market performance. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The Class A, Class B, Class C and Class I shares are new Classes of the
Fund for which performance is not yet available. The Class N shares of the Fund
are offered in a separate prospectus. The returns for the Class A, Class B,
Class C and Class I shares will be substantially similar to those of the Class N
shares shown in the chart below because all shares of the Fund are invested in
the same portfolio of securities. The annual returns of the different Classes of
shares will differ only to the extent that the expenses of the Classes differ.

Class A, B and C share sale loads are not reflected in the above chart. If sales
loads were reflected, the Fund's returns would be less than those shown. Class I
has no sales loads.

<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
----------------- ----------------
<S> <C> <C>
5.44% (4Q91) -1.30% (4Q92)
</TABLE>

11
<PAGE> 65

AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 1998, to a broad-based
securities market index.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND**
------ ------- ------- --------------
<S> <C> <C> <C> <C>
Income Fund Class N Shares......................... 7.07% 6.00% 6.22% 7.90%
Lehman Intermediate Gov't/Corp. Index*............. 8.44% 6.77% 6.60% 8.19%
</TABLE>

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

* The Lehman Intermediate Government/Corporate Index represents broad
intermediate government/corporate bond market performance; expenses are
not included.

** The Fund's inception was September 25, 1990.

YIELD: You may obtain the most current yield information for the Fund by calling
1-800-742-7272.

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.

SHAREHOLDER FEES. Fees paid directly from your investment.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price)...... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as %
of redemption proceeds)................. None(1) 5.00% 1.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions...... None None None None
Redemption Fee(2)(as % of amount redeemed)
Shares held less than 180 days.......... None None None 1.00%
Shares held more than 180 days.......... None None None None
Exchange Fee.............................. None None None None
</TABLE>

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

(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent
deferred sales charge of .25% during the first year. For more information
about the Large Order NAV Purchase Privilege see "Choosing a Share
Class--Special Features" below.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee................................ .59% .59% .59% .59%
Distribution (12b-1) and/or Service Fees...... .25% 1.00% 1.00%(1) None
Other Expenses................................ .12% .12% .12% .12%
--- ---- ---- ----
Total Annual Fund Operating
Expenses.......................... .96% 1.71% 1.71% .71%
</TABLE>

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

(1) Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales charge.

12
<PAGE> 66

shares at the end of those periods shown, earn a 5% return each year and incur
the same operating expenses as shown above:

<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B(2) CLASS C(1) CLASS C(2) CLASS I
------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 Year................... $ 98 $ 382 $ 175 $ 279 $ 175 $ 73
3 Years.................. 307 543 543 543 543 228
5 Years.................. 533 935 935 935 935 396
10 Years................. 1,182 2,032 2,032 2,032 2,032 885
</TABLE>

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

(1) Assumes redemption.

(2) Assumes no redemption.

13
<PAGE> 67

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

14
<PAGE> 68