WILLIAM BLAIR MUTUAL FUNDS INC, 485BPOS, 1999-12-21

WILLIAM BLAIR MUTUAL FUNDS INC
485BPOS, 1999-12-21

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<PAGE> 1

As filed with the Securities and Exchange Commission on or about
December 20, 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. 23 X

and/or

REGISTRATION STATEMENT
Under the Investment Company Act of 1940

Amendment No. 24 X

WILLIAM BLAIR FUNDS
(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:

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

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

[ ] immediately upon filing pursuant to paragraph (b); or
[X] on December 22, 1999 pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on September 30, 1999 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

December 22, 1999

WILLIAM BLAIR FUNDS

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

CLASS N PROSPECTUS

GROWTH FUND
TAX-MANAGED GROWTH FUND
LARGE CAP GROWTH FUND
SMALL CAP GROWTH FUND
INTERNATIONAL GROWTH FUND
EMERGING MARKETS GROWTH FUND
DISCIPLINED LARGE CAP FUND
VALUE DISCOVERY FUND
INCOME FUND
READY RESERVES 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 FUNDS
222 West Adams Street
Chicago, Illinois 60606
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY..................................................... 1

Growth Fund......................................... 1

Tax-Managed Growth Fund............................. 3

Large Cap Growth Fund............................... 5

Small Cap Growth Fund............................... 6

International Growth Fund........................... 7

Emerging Markets Growth Fund........................ 9

Disciplined Large Cap Fund.......................... 11

Value Discovery Fund................................ 13

Income Fund......................................... 15

Ready Reserves Fund................................. 17

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES... 19

Growth Fund......................................... 20

Tax-Managed Growth Fund............................. 22

Large Cap Growth Fund............................... 24

Small Cap Growth Fund............................... 26

International Growth Fund........................... 28

Emerging Markets Growth Fund........................ 30

Disciplined Large Cap Fund.......................... 32

Value Discovery Fund................................ 33

Income Fund......................................... 35

Ready Reserves Fund................................. 37

INVESTMENT RISKS............................................ 39

MANAGEMENT OF THE FUNDS..................................... 42

YOUR ACCOUNT................................................ 44

Class N Shares...................................... 44

How to Buy Shares................................... 44

How to Sell Shares.................................. 45

How to Exchange Shares.............................. 48

Dividends and Distributions......................... 48

Taxes............................................... 49

DETERMINATION OF NET ASSET VALUE............................ 50

SHAREHOLDER SERVICES AND ACCOUNT POLICIES................... 51

INVESTMENT GLOSSARY......................................... 53

FINANCIAL HIGHLIGHTS........................................ 57

FOR MORE INFORMATION........................................ Back Cover
</TABLE>

<PAGE> 4

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

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks of domestic growth companies. The Adviser seeks
growth opportunities by investing in large, medium and small companies in
varying proportions.

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

MEDIUM-sized growth companies of recognized investment quality whose
records of sales and earnings growth may not be as well established; and

SMALL emerging, rapid growth companies of high quality 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. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of small and medium-sized companies may
be more volatile and more speculative than the securities of large companies. In
addition, small and medium-sized companies may be traded in low volumes, which
can increase volatility. Of course, for all mutual funds there is the risk that
a strategy used by the Adviser may fail to produce its intended result. The Fund
is designed for long-term investors.

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 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.

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

CHART

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 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Growth Fund 27.15% 19.87% 18.96%
S&P 500* 28.57% 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. 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, the Fund may charge a redemption fee of 1.00% of the value of the
shares sold within 180 days of their purchase, in order to compensate the Fund
for expenses directly related to the redemption of Fund shares and to discourage
short-term investments in the Fund. This redemption fee will be retained by the
Fund.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .75%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. .09%
-----
Total Annual Fund Operating Expenses...................... 1.09%
</TABLE>

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>
$112 $ 347 $601 $1,329
</TABLE>

2
<PAGE> 6

WILLIAM BLAIR TAX-MANAGED GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Tax-Managed Growth Fund seeks long-term
capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks of domestic growth companies. The Fund employs a
number of techniques designed specifically to enhance the long-term, after-tax
returns for its shareholders.

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

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

MEDIUM-sized growth companies of recognized investment quality whose
records of sales and earnings growth may not be as well established; and

SMALL emerging, rapid growth companies of high quality that have had
especially vigorous growth in revenues and earnings.

The Fund seeks high after-tax returns by balancing investment considerations and
tax considerations. The Fund seeks to achieve returns primarily in the form of
price appreciation and to minimize income distributions and distributions of
realized short-term gains. Among the techniques and strategies used in the
tax-efficient management of the Fund are the following:

- investing primarily in lower-yielding growth stocks;

- employing a long-term, low turnover approach to investing;

- attempting to avoid net realized short-term gains;

- when appropriate, selling stocks trading below cost to realize losses;

- in selling appreciated stocks, selecting the most tax-favored share
lots; and

- selectively using tax-advantaged hedging techniques, such as derivative
transactions, as an alternative to taxable sales.

The Fund can generally be expected to distribute a smaller percentage of returns
each year than most other equity mutual funds. There can be no assurance,
however, that taxable distributions can always be avoided.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that value of the stocks it holds might decrease in
response to the activities of an individual company or general economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of small and medium-sized companies may
be more volatile and more speculative than securities of large companies. In
addition, small and medium-sized companies may be traded in low volumes, which
can increase volatility.

The Fund may engage in derivative transactions to protect against price declines
or as a substitute for purchasing or selling securities. The use of these
techniques is subject to certain limitations and may expose the Fund to
increased risk of principal loss. Of course, for all mutual funds there is the
risk that a strategy used by the Adviser may fail to produce its intended
result. 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.

3
<PAGE> 7

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .80%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. .51%
-----
Total Annual Fund Operating Expenses (without waiver)..... 1.56%(1)
Adviser's Expense Waiver.................................. .20%
-----
Net Expenses (with waiver)............................. 1.36%
</TABLE>

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

(1) The Adviser has entered into an agreement with the Fund to cap the Fund's
expenses at 1.36% until at least April 30, 2000; the Adviser may continue
to waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$149 $484 $841 $1,848
</TABLE>

4
<PAGE> 8

WILLIAM BLAIR LARGE CAP GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Large Cap Growth Fund seeks long-term
capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks issued by large domestic growth companies of high
quality that have demonstrated sustained growth over a long period of time. The
Adviser currently defines large companies as those with market capitalizations
of $10 billion or more at the time of the Fund's investment. The Fund may also
invest in medium-sized growth companies of recognized investment quality whose
records of sales and earnings growth may not be as well established.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that value of the stocks it holds might decrease in
response to the activities of an individual company or general economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of medium-sized companies are more
volatile and more speculative than the securities of large companies. In
addition, medium-sized companies may be traded in low volumes, which can
increase volatility. Of course, for all mutual funds there is the risk that a
strategy used by the Adviser may fail to produce its intended result. 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.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

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

(1) The Adviser has entered into an agreement with the Fund to cap the Fund's
expenses at 1.36% until at least April 30, 2000; the Adviser may continue
to waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$149 $484 $841 $1,848
</TABLE>

5
<PAGE> 9

WILLIAM BLAIR SMALL CAP GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Small Cap Growth Fund seeks long-term
capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of common stocks of small emerging, rapid growth domestic companies
that are of high quality and that have had especially vigorous growth in
revenues and earnings. The Adviser currently defines small companies as those
with market capitalizations of $2 billion or less at the time of the Fund's
investment. To a limited extent, the Fund may also invest in companies with
business characteristics and growth prospects similar to small companies, but
which may have market capitalizations above $2 billion.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that value of the stocks it holds might decrease in
response to the activities of an individual company or general economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of small and medium-sized companies are
volatile and less liquid than securities of large companies. In addition, small
and medium-sized companies may be traded in low volumes, which can increase
volatility. Of course, for all mutual funds there is the risk that a strategy
used by the Adviser may fail to produce its intended result. 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.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. 1.10%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. .45%
-----
Total Annual Fund Operating Expenses (without waiver)..... 1.80%(1)
Adviser's Expense Waiver.................................. .20%
-----
Net Expenses (with waiver)............................. 1.60%
</TABLE>

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

(1) The Adviser has entered into an agreement with the Fund to cap the Fund's
expenses at 1.60% until at least April 30, 2000; the Adviser may continue
to waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$173 $557 $966 $2,107
</TABLE>

6
<PAGE> 10

WILLIAM BLAIR INTERNATIONAL GROWTH FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair International Growth Fund seeks
long-term capital appreciation.

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. Thus, the Fund's returns will vary, and you could lose money by
investing in the Fund. 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, for all mutual funds there is the risk that a strategy
used by the Adviser may fail to produce its intended result. The Fund is
designed for long-term investors.

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 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.

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

CHART

7
<PAGE> 11

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 5 YEARS LIFE OF FUND**
------ ------- --------------
<S> <C> <C> <C>
International Growth Fund 11.46% 7.37% 11.10%
MSCI AC WLDF EX U.S.* 14.46% 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.
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. 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, the Fund may charge a redemption fee of 1.00% of the value of the
shares sold within 180 days of their purchase, in order to compensate the Fund
for expenses directly related to the redemption of Fund shares and to discourage
short-term investments in the Fund. This redemption fee will be retained by the
Fund.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$164 $509 $877 $1,912
</TABLE>

8
<PAGE> 12

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, including common stocks, 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. Thus, the Fund's returns will vary, and you could lose
money by investing in the Fund. 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, for all mutual funds there is the
risk that a strategy used by the Adviser may fail to produce its intended
result. 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.

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. 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, the Fund may charge a redemption fee of 1.00% of the value of the
shares sold within 180 days of their purchase, in order to compensate the Fund
for expenses directly related to the redemption of Fund shares and to discourage
short-term investments in the Fund. This redemption fee will be retained by the
Fund.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. 1.40%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. 4.95%
-----
Total Annual Fund Operating Expenses (without waiver)..... 6.60%(1)
Adviser's Expense Waiver.................................. 4.60%
-----
Net Expenses (with waiver)............................. 2.00%
</TABLE>

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

(1) 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
expenses at 2.00% until at least April 30, 2000, the Adviser may continue to
waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$504 $1,802 $3,059 $6,030
</TABLE>

10
<PAGE> 14

WILLIAM BLAIR DISCIPLINED LARGE CAP FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Disciplined Large Cap Fund seeks
long-term capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests primarily in a diversified
portfolio of large capitalization domestic companies. The Adviser currently
defines large companies as those with market capitalizations of $10 billion or
more at the time of the Fund's investment. The Adviser chooses the Fund's
portfolio investments primarily from companies in the Standard & Poor's 500
Stock Index. The Adviser seeks to outperform the Standard & Poor's 500 Index
through careful selection of portfolio securities. The Adviser combines
bottom-up stock picking with quantitative measures to help manage risk and
create a portfolio with better value, better earnings growth momentum and
similar sensitivity to general macro-economic conditions as the Standard &
Poor's 500. Generally, the Fund will hold 90-140 companies of the Standard &
Poor's 500 companies.

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.

11
<PAGE> 15

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .80%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. .40%
----
Total Annual Fund Operating Expenses (without waiver)..... 1.45%(1)
Adviser's Expense Waiver.................................. .20%
----
Net Expenses (with waiver)............................. 1.25%
</TABLE>

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

(1) The Adviser has entered into an agreement with the Fund to cap the Fund's
expenses at 1.25% until at least April 30, 2000; the Adviser may continue
to waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$138 $450 $783 $1,727
</TABLE>

12
<PAGE> 16

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. Thus, the Fund's returns will vary, and you
could lose money by investing in the Fund. 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, for all mutual funds
there is the risk that a strategy used by the Adviser may fail to produce its
intended result. The Fund is designed for long-term investors.

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 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.

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

CHART

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.

13
<PAGE> 17

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. 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, the Fund may charge a redemption fee of 1.00% of the value of the
shares sold within 180 days of their purchase, in order to compensate the Fund
for expenses directly related to the redemption of Fund shares. 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.

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets.

<TABLE>
<S> <C>
Management Fee.............................................. 1.15%
Distribution (Rule 12b-1) Fee............................... .25%
Other Expenses.............................................. .37%
----
Total Annual Fund Operating Expenses...................... 1.77%(1)
Adviser's Expense Waiver.................................. .13%
----
Net Expenses (with waiver)............................. 1.64%
</TABLE>

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

(1) The Adviser has entered an agreement with the Fund to cap the Fund's
expense ratio at 1.64% until at least April 30, 2000; the Adviser may
continue to waive fees voluntarily thereafter.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$173 $550 $952 $2,077
</TABLE>

14
<PAGE> 18

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. Thus, the Fund's returns will vary, and you could lose
money by investing in the Fund. Of course, for all mutual funds there is the
risk that a strategy used by the Adviser may fail to produce its intended
result.

FUND PERFORMANCE HISTORY

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

#CHART#

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 5 YEARS LIFE OF FUND**
------ ------- --------------
<S> <C> <C> <C>
Income Fund 7.07% 6.22% 7.90%
Lehman Intermediate Gov't/Corp. Index* 8.44% 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.

15
<PAGE> 19

SHAREHOLDER FEES are fees paid directly from your investment.

<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 deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .59%
Distribution (Rule 12b-1) Fee............................... .15%
Other Expenses.............................................. .12%
----
Total Annual Fund Operating Expenses...................... .86%
</TABLE>

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>
$88 $275 $477 $1,061
</TABLE>

16
<PAGE> 20

WILLIAM BLAIR READY RESERVES FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Ready Reserves Fund seeks current
income, a stable share price and daily liquidity.

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, for all mutual funds there is the risk that
a strategy used by the Adviser may fail to produce its intended result.

FUND PERFORMANCE HISTORY

<TABLE>
<S> <C> <C>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
------------ ------------
2.26% (2Q89) 0.64% (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 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Ready Reserves Fund 4.98% 4.77% 5.22%
S&P-rated AAA* 4.97% 4.75% 5.20%
</TABLE>

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

* 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.

17
<PAGE> 21

SHAREHOLDER FEES are fees paid directly from your investment.

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .24%
Distribution (Rule 12b-1) Fee............................... .35%(1)
Other Expenses.............................................. .10%
-----
Total Annual Fund Operating Expenses...................... .69%
</TABLE>

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

(1) Long-term shareholders may 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
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 $859
</TABLE>

18
<PAGE> 22

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Each Fund is a series of William Blair Funds, 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, Tax-Managed Growth Fund, Large Cap
Growth Fund, Small Cap Growth Fund, International Growth Fund, Emerging Markets
Growth Fund, Disciplined Large Cap Fund and Value Discovery Fund are 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.

19
<PAGE> 23

WILLIAM BLAIR GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Growth Fund seeks long-term capital appreciation. The Fund
invests primarily in a diversified portfolio of the common stocks of domestic
growth companies with sustainable, above-average growth from one business cycle
to the next. The Fund generally does not invest in cyclical industries, but may
do so when the Adviser expects a multi-year period of sustained growth.

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

LARGE, high quality 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 may not be as well established; and

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

INVESTMENT PROCESS

The Adviser utilizes an investment process that relies on thorough, in-depth
fundamental research of a company, its competitors, its suppliers and its
customers. 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.

ADDITIONAL STRATEGIES

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. From time to time, the Fund may invest in equity related
securities such as preferred stocks, convertible securities and warrants. 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.

20
<PAGE> 24

PORTFOLIO MANAGEMENT

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

Rocky Barber, a principal of William Blair & Company, L.L.C., has co-managed the
Fund since 1992. He joined the firm 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 Funds 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 the firm since 1983. He is a
portfolio manager for numerous accounts and is a member of the department's
Small Cap team. He began his career in Institutional Sales, developing
long-standing relationships with each of the firm's research analysts. 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.

Gretchen Lash, a principal with William Blair & Company, L.L.C., has co-managed
the Fund since 1999. She joined the firm in 1997 as a portfolio manager.
Previously, she was a partner at Lincoln Capital Asset Management where she was
part of a nine person team managing $17 billion in institutional, large cap
growth equities. Prior to that, she was a consumer analyst and then a portfolio
manager of several growth mutual funds with total assets of $2.6 billion at
American Capital. Education: B.A., Cornell University; MBA, Rice University; and
CFA.

21
<PAGE> 25

WILLIAM BLAIR TAX-MANAGED GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Tax-Managed Growth Fund seeks long-term capital appreciation.
The Fund employs a number of techniques designed specifically to enhance the
long-term, after-tax returns for its shareholders. The Fund invests primarily in
a diversified portfolio of common stocks of domestic growth companies with
sustainable, above-average growth from one business to the next. The Fund
generally does not invest in cyclical industries, but may do so when the Adviser
expects a multi-year period of sustained growth.

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

LARGE, high quality 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 may not be as well established; and

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

The Adviser attempts to achieve high after-tax returns by balancing investment
considerations and tax considerations. The Adviser seeks to achieve returns
primarily in the form of price appreciation and to minimize income distributions
and distributions of realized short-term gains. Among the techniques and
strategies used in the tax-efficient management of the fund are the following:

- investing primarily in lower-yielding stocks;

- employing a long-term, low turnover approach to investing;

- attempting to avoid net realized short-term gains;

- when appropriate, selling stocks trading below cost to realize
losses;

- in selling appreciated stocks, selecting the most tax-favored share
lots; and

- selectively using tax-advantage hedging techniques, such as
derivative transactions, as an alternative to taxable sales.

INVESTMENT PROCESS

The Adviser utilizes an investment process that relies on thorough, in-depth
fundamental research of a company, its competitors, its suppliers and its
customers.

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.

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.

22
<PAGE> 26

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

To protect against price declines in securities holdings with large accumulated
gains, the Fund may use various hedging techniques (such as purchased put
options, equity collars (combining the purchase of a put option and the sale of
a call option), equity swaps, and the purchase or sale of stock index futures
contracts). By using these techniques rather than selling appreciated
securities, the Fund can reduce its exposure to price declines in the securities
without realizing substantial capital gains under current tax law. These
derivative instruments may also be used by the Fund as a substitute for the
purchase or sale of securities. The use of derivatives is highly specialized.
The use of derivative instruments can result in losses that substantially exceed
the initial amount paid or received by the Fund. Equity swaps and
over-the-counter options are private contracts in which there is a risk of loss
in the event of a counterparty's default. Derivative instruments may be
difficult to value, may be illiquid, and may be subject to wide swings in
valuation caused by changes in the value of the underlying security.

PORTFOLIO MANAGEMENT

The Tax-Managed Growth Fund is co-managed by John F. Jostrand, Gregory J.
Pusinelli and Michelle R. Seitz.

John Jostrand, a principal of William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1999. He joined the firm in 1993 as a portfolio
manager. Previously, he was with TRW, Inc. for ten years as Director,
Investments, equity portfolio manager and venture capital funds manager. Prior
to that he was with Boatmen's National Bank for five years as Assistant Trust
Officer, equity fund manager and research analyst. He is a member of the
Association for Investment Management and Research and past president of the
Pilgrim Village Board of Trustees. Education: B.A., University of Missouri;
M.B.A., University of Michigan; and CFA.

Greg Pusinelli, a principal of William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1999. He joined the firm in 1995 as portfolio
manager in the Investment Management Department. In 1996, he became the leader
of the Taxable Group. Previously, he was with Stein Roe & Farnham Incorporated
for nine years where he was a senior Vice President and Principal responsible
for managing client portfolios and a team of portfolio managers. He also
co-managed the Investment Counsel Division's Core Portfolio. From 1983 to 1986,
he was with the First National Bank of Chicago, where he became a Vice
President. Prior to that he was with Harris Trust and Savings Bank from 1980 to
1982. He is a past Chairman of the Board of Trustees of Providence-St. Mel
School. Education: B.S., Indiana University; M.B.A., Northwestern University
Kellogg Graduate School of Management.

Michelle Seitz, a principal of William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1999. She joined the firm in 1996 as a portfolio
manager. She has over 12 years of investment experience and is a portfolio
manager and member of the department's Wealth Management Team. Previously, she
was a vice president and senior portfolio manager with Concord Investment
Company for four years where she was invited to be a principal in the firm. She
managed a team of investment professionals at Concord and was a member of the
investment strategy team. Prior to that, she was a portfolio manager with
NationsBank for five years and served on the department's asset allocation
committee. She is an active member of the Investment Analysts Society of
Chicago. She serves on the Board of Advisors for Indiana University's Investment
Management Academy in the Graduate School of Business and Northwestern Memorial
Foundation's Planned Giving Professional Council. Education: B.S., Indiana
University; and CFA.

23
<PAGE> 27

WILLIAM BLAIR LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Large Cap Growth Fund seeks long-term capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks of large
domestic growth companies of high quality that have demonstrated sustained
growth over a long period of time. The Adviser currently defines large companies
as those with market capitalizations of $10 billion or more at the time of the
Fund's investment. Under normal market conditions, the Fund will invest at least
65% of its total assets in large cap stocks. The Fund may also invest in
medium-sized growth companies of recognized investment quality whose records of
sales and earnings growth may not be as well established.

The Fund invests primarily in a diversified portfolio of companies with
sustainable, above-average growth from one business cycle to the next. The Fund
generally does not invest in cyclical industries, but may do so when the Adviser
expects a multi-year period of sustained growth.

INVESTMENT PROCESS

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.

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.

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

24
<PAGE> 28

PORTFOLIO MANAGEMENT

The Large Cap Growth Fund is co-managed by John F. Jostrand and Gretchen Lash.

John Jostrand, a principal with William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1999. He joined the firm in 1993 as a portfolio
manager and now is a member of the department's institutional growth team.
Previously, he was with TRW, Inc. for ten years as Director, Investments, equity
portfolio manager and venture capital funds manager. Prior to that he was with
Boatmen's National Bank for five years as Assistant Trust Officer, equity fund
manager and research analyst. He is a member of the Association for Investment
Management and Research and past president of the Pilgrim Village Board of
Trustees. Education: B.A., University of Missouri; M.B.A., University of
Michigan; and CFA.

Gretchen Lash, a principal with William Blair & Company, L.L.C., has co-managed
the Fund since its inception in 1999. She joined the firm in 1997 as a portfolio
manager. Previously, she was a partner at Lincoln Capital Asset Management where
she was part of a nine person team managing $17 billion in institutional, large
cap growth equities. Prior to that, she was a consumer analyst and then a
portfolio manager of several growth mutual funds with total assets of $2.6
billion at American Capital. Education: B.A., Cornell University; MBA, Rice
University; and CFA.

25
<PAGE> 29

WILLIAM BLAIR SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Small Cap Growth Fund seeks long-term capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks of small
emerging, rapid growth domestic companies that are of high quality and that have
had especially vigorous growth in revenues and earnings. The Adviser currently
defines small companies as those with market capitalizations of $2 billion or
less at the time of the Fund's investment. Under normal market conditions, the
Fund will invest at least 65% of its total assets in small cap stocks. To a
limited extent, the Fund may also invest in companies with business
characteristics and growth prospects similar to small companies, but which may
have market capitalizations above $2 billion.

INVESTMENT PROCESS

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.

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.

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

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. The Fund also may use
options, futures and other derivative instruments for hedging and risk
management purposes, as further described in the Statement of Additional
Information.

26
<PAGE> 30

PORTFOLIO MANAGEMENT

The Small Cap Growth Fund is co-managed by Karl W. Brewer and Mark A. Fuller
III.

Karl W. Brewer has co-managed the Fund since its inception in 1999. He has been
with William Blair & Company, L.L.C. since 1996. He is an analyst and portfolio
manager, and a member of the department's Small Cap team. Previously, he spent
six years at Lehman Brothers Inc. in the Mergers & Acquisitions and Los Angeles
Corporate Finance Departments. Education: B.A., Washington & Lee University;
M.B.A., Northwestern University Kellogg Graduate School of Management.

Mark A. Fuller, III, a principal of William Blair & Company, L.L.C., has
co-managed the Fund since its inception in 1999. He has been with the firm since
1983. He is a portfolio manager for numerous accounts and is a member of the
department's Small Cap team. He began his career in Institutional Sales,
developing long-standing relationships with each of the firm's research
analysts. Prior to joining the firm, he was a sales representative with IBM
Corporation. Education: B.A., Northwestern University; M.B.A., Northwestern
University Kellogg Graduate School of Management.

27
<PAGE> 31

WILLIAM BLAIR INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair International Growth Fund seeks long-term capital
appreciation. 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.

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.

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.

28
<PAGE> 32

ADDITIONAL STRATEGIES

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 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.

29
<PAGE> 33

WILLIAM BLAIR EMERGING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Emerging Markets Growth Fund seeks 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. 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.

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.

30
<PAGE> 34

ADDITIONAL STRATEGIES

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 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, he 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, he
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. He 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.

31
<PAGE> 35

WILLIAM BLAIR DISCIPLINED LARGE CAP FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Disciplined Large Cap Fund seeks long-term capital
appreciation. The Fund invests primarily in a diversified portfolio of common
stocks and related equity securities of large capitalization domestic companies.
The Adviser chooses the Fund's portfolio investments primarily from companies in
the Standard & Poor's 500 Stock Index. The Adviser defines large companies as
those with market capitalizations of $10 billion or more at the time of the
Fund's investment. Under normal market conditions, the Fund will invest at least
65% of its total assets in large cap stocks.

INVESTMENT PROCESS

The Disciplined Large Cap Fund seeks to consistently outperform the Standard &
Poor's 500 Stock Index while maintaining similar market risk by utilizing a
disciplined investment process that combines bottom-up stock picking with
quantitative measures to help manage risk and create a portfolio with better
value, better earnings growth momentum and similar sensitivity to general
macro-economic conditions as the Standard & Poor's 500. The portfolio generally
will hold the securities of 90-140 companies in the Standard & Poor's 500. The
Adviser uses quantitative models to help determine the present value of each
stock in the Standard & Poor's 500 Index and to help forecast growth rate
momentum.

ADDITIONAL STRATEGIES

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 Fund may also invest to a limited extent in S&P
Futures contracts. 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. The Fund also may use options, futures and
other derivative instruments for hedging and risk management purposes, as
further described in the Statement of Additional Information.

PORTFOLIO MANAGEMENT

The Disciplined Large Cap Fund is managed by Stan Kirtman.

Stan Kirtman joined William Blair & Company, L.L.C. as a portfolio manager for
the Fund in 1999. Previously, he served as President and CIO for Nikko Global
Asset Management (USA), Inc from April 1987 to June 1999. From January 1975 to
April 1987, he was director of Pension & Profit Sharing at Thomas J. Lipton,
Inc., Senior Investment Officer with Gerard Bank, and Assistant Vice President
at Provident National Bank. He is a member of the New York Society of Security
Analysts and the Market Technicians Association. Education: B.A., Hunter
College.

32
<PAGE> 36

WILLIAM BLAIR VALUE DISCOVERY FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Value Discovery Fund seeks 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.

ADDITIONAL STRATEGIES

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.

33
<PAGE> 37

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 & Company, L.L.C. 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. He 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 & Company, L.L.C. 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 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 & Company, L.L.C. 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.

34
<PAGE> 38

WILLIAM BLAIR INCOME FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Income Fund seeks a high level of current income relative to
stability of principal. The Fund invests primarily in a diversified portfolio of
high-grade intermediate-term debt 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.

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 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.

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.

ADDITIONAL STRATEGIES

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.

35
<PAGE> 39

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 Jim Kaplan and Bentley Myer.

Jim Kaplan, an associate of William Blair & Company, L.L.C., has co-managed the
Fund since 1999. He joined the firm's Investment Management 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 traded risk positions
in mortgage-backed securities and municipal bonds. In addition, he co-managed
the mortgage-backed securities portion of the bank's investment portfolio. He is
a member of the Investment Analysts Society of Chicago. Education: B.A.,
Washington & Lee University and C.F.A.

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
he 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.

36
<PAGE> 40

WILLIAM BLAIR READY RESERVES FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Ready Reserves Fund seeks current income, a stable share price
and daily liquidity. The Fund invests 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.

ADDITIONAL STRATEGIES AND RISKS

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 Trustees.
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 Trustees, 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.

37
<PAGE> 41

PORTFOLIO MANAGEMENT

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

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
he 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.

38
<PAGE> 42

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

The following table summarizes the types of risks described below that each Fund
may experience.

<TABLE>
<CAPTION>
TEMPORARY
SMALLER COUNTRY EMERGING OPERATING DEFENSE INTEREST
STOCKS ALLOCATION MARKETS EXPENSES POSITION RATE CREDIT
------- ---------- -------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Fund............................ X X
Tax-Managed Growth Fund................ X X
Large Cap Growth Fund.................. X
Small Cap Growth Fund.................. X X
International Growth Fund.............. X X X X
Emerging Markets Growth Fund........... X X X X X
Disciplined Large Cap Growth Fund...... X
Value Discovery Fund................... X X
Income Fund............................ X X X
Ready Reserve Fund..................... X
</TABLE>

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, a 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 Growth Fund, the Small
Cap Growth Fund, the Emerging Markets Growth Fund and the Value Discovery 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.

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<PAGE> 43

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.

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.")

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<PAGE> 44

Temporary Defensive Position. Each Fund may significantly alter its make-up as a
temporary defensive strategy. A defensive strategy will be 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, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund,
Disciplined Large Cap 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
(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, for temporary defensive purposes, the Fund 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.

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<PAGE> 45

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

TRUSTEES, OFFICERS AND ADVISER. The Board of Trustees of the William Blair Funds
(the "Trust") has overall management responsibility. The duties of the trustees
and officers of the Trust include supervising the business affairs of the Trust,
monitoring investment activities and practices and considering and acting upon
future plans for the Trust. The Statement of Additional Information has the
names of and additional information about the trustees and officers of the
Trust. 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, subject to the direction of the Board of
Trustees. The Adviser is also the principal underwriter and distributor of the
Trust and acts as agent of the Trust 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 850 employees.
The main office in Chicago houses all research and investment management
services.

The Investment Management Department oversees the assets of the William Blair
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 based upon the
percentage of the Fund's average net assets as shown below:

<TABLE>
<CAPTION>
FEE AS A % OF
FUND AVERAGE NET ASSETS
- ---- ------------------
<S> <C>
Growth Fund 0.75%*
Tax-Managed Growth Fund .80%
Large Cap Growth Fund .80%
Small Cap Growth Fund 1.10%
International Growth Fund 1.10%*
Emerging Markets Growth Fund 1.40%*
Disciplined Large Cap Fund .80%
Value Discovery Fund 1.15%*
Income Fund 0.59%*
Ready Reserves Fund 0.59%*(1)
</TABLE>

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

* For the most recently completed fiscal year.

(1) Effective January 1, 2000, the fee will change to 0.24%.

CUSTODIAN. The Custodian is Investors Bank and Trust Company, 200 Clarendon
Street, Boston, Massachusetts 02117. The Custodian is responsible for custody of
portfolio securities, fund accounting and the calculation of the Fund's net
asset value. 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.

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<PAGE> 46

will be able to accurately process. The Trust is in the process of working with
the Adviser and other service providers to assure that the Trust is prepared for
the year 2000. The Trust has been assured by the Adviser and other service
providers that they do not believe that the Trust 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 Trust's business and have a material adverse effect on the
Trust's operations. Year 2000 problems would also increase the risks of a 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 a Fund may purchase. However, this may be difficult with certain
issuers. For example, a Fund that 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 Funds are still
being determined. There can be no assurance that potential year 2000 problems
would not have a material adverse effect on the Trust.

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<PAGE> 47

YOUR ACCOUNT

- --------------------------------------------------------------------------------
CLASS N SHARES

The Class N shares offered herein are offered only to investors who acquire the
shares directly through the Trust'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.

William Blair Funds has adopted a plan under Rule 12b-1 of the Investment
Company that provides for fees payable to compensate the Distributor for
distribution and other services provided to shareholders of Class N. Because
12b-1 fees are paid out of Fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges. Long-term shareholders may pay more than the economic equivalent
of the maximum initial sales charge permitted by the National Association of
Securities Dealers.

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 Funds, except the Ready
Reserves Fund, for which the subsequent minimum investment is $1.00. 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 trustees,
principals, officers or employees of the Trust 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 Funds, 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 Trust 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 Trust
also reserves 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 Funds" 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 Funds, 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 Funds" Except for the Ready
Reserves Fund, mail the check, together with a letter

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<PAGE> 48

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 Funds, 222 West Adams Street, Chicago, Illinois 60606.

BY WIRE

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

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

Include the name of the Fund 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 Funds, 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 Fund 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)

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.

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<PAGE> 49

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; 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 Trust 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.

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<PAGE> 50

notice of your redemption request is received after that time, proceeds normally
will not be paid until the next business day.

DELAYED PROCEEDS. The Trust reserves 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.

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 Trust 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 Trust 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.

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<PAGE> 51

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.

BY MAIL

You may request an exchange of your shares by writing to William Blair Funds,
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 Trust 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 Trust 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. Each Fund's policy is to distribute substantially all net
investment income, if any, and all net realized capital gain, if any. All
distributions of income and capital gain and any return of capital have the
effect of immediately thereafter decreasing net asset value per share. Income
dividends and capital gain distributions will be automatically reinvested in
additional shares at net asset value on the reinvestment date, unless you
specifically request otherwise (see "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, Tax-Managed Growth Fund, Large Cap Growth
Fund, Small Cap Growth Fund, International Growth Fund, Emerging
Markets Growth Fund, Disciplined Large Cap Fund and Value
Discovery Fund, 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.

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<PAGE> 52

-- 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").

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. Each 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, Tax-Managed Growth Fund, Large
Cap Growth Fund, Small Cap Growth Fund, Disciplined Large Cap Fund and 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.

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<PAGE> 53

DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

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

A Fund's net asset value is the market value of its total assets, minus
liabilities, divided by the number of shares outstanding. 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.

HOW THE MARKET VALUE OF FUND SECURITIES IS DETERMINED

DOMESTIC EQUITY SECURITIES. The market value of 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 Trustees
and in accordance with the Trust's pricing procedures.

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<PAGE> 54

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.

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<PAGE> 55

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.

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 Trust 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 Trust reserves the right to withdraw all or any part
of the offering made by this Prospectus, and the Trust or the Distributor may
reject purchase orders. From time to time, the Trust 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 trustees, to elect all the trustees.
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 Delaware
law, the Trust is 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 Trustees, for such purposes as electing or removing trustees,
changing fundamental policies or approving an investment management agreement.
(For additional information about shareholder voting rights, see the Statement
of Additional Information.)

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<PAGE> 56

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 to the extent allowable under the 1940 Act. 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 net
asset in any one industry; however, the Ready Reserves Fund may invest more than
25% of its net assets in the domestic banking industry. These limitations do not
apply to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or to instruments such as repurchase agreements secured by
these instruments or to tax-exempt securities.

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<PAGE> 57

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. 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 the contract. The Adviser will
generally use such currency contracts to fix a definite price for securities
they

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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. Each Fund except the Ready Reserves Fund may invest up to
15% of its net assets in illiquid securities. The Ready Reserves Fund may invest
up to 10% of its net assets in illiquid securities. Illiquid securities are
those securities that are not readily marketable, including restricted
securities and repurchase obligations maturing in more than seven days.

INVESTMENT COMPANIES. Subject to the provisions of the 1940 Act, the Growth
Fund, International Growth Fund, Emerging Markets Growth Fund and Value
Discovery 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 currently 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 Trustees, 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 income. The maturity of a security
subject to repurchase may exceed one year, and, for the Income Fund, the

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<PAGE> 59

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, International Growth Fund, Emerging Markets Growth
Fund, Value Discovery 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 Trustees, 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.

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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 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.

57
<PAGE> 61

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 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>

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

(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%.

58
<PAGE> 62

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>

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%.

59
<PAGE> 63

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 Funds
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. (1-202-942-8090) or, after paying a duplicating fee, by
electronic request at the following E-mail address: [email protected], or by
writing the SEC's Public Reference Room Section, Washington, D.C. 20549-0102.

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

WILLIAM BLAIR FUNDS December 22, 1999

Investment Company Act File No.: 811-5344
<PAGE> 64

December 22, 1999

WILLIAM BLAIR FUNDS
---------------------

CLASS A, B, C AND I PROSPECTUS

GROWTH FUND
TAX-MANAGED GROWTH FUND
LARGE CAP GROWTH FUND
SMALL CAP GROWTH FUND
INTERNATIONAL GROWTH FUND
EMERGING MARKETS GROWTH FUND
DISCIPLINED LARGE CAP FUND
VALUE DISCOVERY FUND
INCOME FUND

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

CLASS N SHARES

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. For each Fund other than the Ready
Reserves Fund, this prospectus relates only to the Class A, Class B, Class C and
Class I shares and relates only to Class N shares for the Ready Reserves 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 FUNDS
222 West Adams Street
Chicago, Illinois 60606
<PAGE> 65

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY..................................................... 1
Growth Fund........................................ 1
Tax-Managed Growth Fund............................ 3
Large Cap Growth Fund.............................. 5
Small Cap Growth Fund.............................. 7
International Growth Fund.......................... 9
Emerging Markets Growth Fund....................... 12
Disciplined Large Cap Fund......................... 14
Value Discovery Fund............................... 16
Income Fund........................................ 19
Ready Reserves Fund................................ 22
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES... 24
Growth Fund........................................ 25
Tax-Managed Growth Fund............................ 27
Large Cap Growth Fund.............................. 29
Small Cap Growth Fund.............................. 31
International Growth Fund.......................... 33
Emerging Markets Growth Fund....................... 35
Disciplined Large Cap Fund......................... 37
Value Discovery Fund............................... 38
Income Fund........................................ 40
Ready Reserves Fund................................ 42
INVESTMENT RISKS............................................ 44
MANAGEMENT OF THE FUNDS..................................... 47
CHOOSING A SHARE CLASS...................................... 49
Class A Shares..................................... 50
Class B Shares..................................... 53
Class C Shares..................................... 54
Class I Shares..................................... 55
YOUR ACCOUNT................................................ 56
How to Buy Shares.................................. 56
How to Sell Shares................................. 57
How to Exchange Shares............................. 59
Dividends and Distributions........................ 60
Taxes.............................................. 61
DETERMINATION OF NET ASSET VALUE............................ 62
SHAREHOLDER SERVICES AND ACCOUNT POLICIES................... 63
INVESTMENT GLOSSARY......................................... 65
FINANCIAL HIGHLIGHTS........................................ 69
FOR MORE INFORMATION........................................ Back Cover
</TABLE>

<PAGE> 66

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

MEDIUM-sized growth companies of recognized investment quality whose
records of sales and earnings growth may not be as well established; and

SMALL emerging, rapid growth companies of high quality that have had
especially vigorous growth in revenues and earnings.

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS (CLASS N SHARES)(1)

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

CHART

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

(1) 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.

1
<PAGE> 67

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 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Growth Fund Class N Shares 27.15% 19.87% 18.96%
S&P 500* 28.57% 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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<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%(2) None
Other Expenses............................ .09% .09% .09% .09%
----- ----- ----- -----
Total Annual Fund Operating Expenses.... 1.09% 1.84% 1.84% .84%
</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) 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 CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year.................................... $ 680 $ 687 $ 287 $ 86
3 Years................................... 902 879 579 269
5 Years................................... 1,142 1,196 996 466
10 Years.................................. 1,828 1,871 2,159 1,038
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year.................................... $ 680 $ 187 $ 187 $ 86
3 Years................................... 902 579 579 269
5 Years................................... 1,142 996 996 466
10 Years.................................. 1,828 1,871 2,159 1,038
</TABLE>

2
<PAGE> 68

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

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

MEDIUM-sized growth companies of recognized investment quality whose
records of sales and earnings growth may not be as well established; and

SMALL emerging, rapid growth companies of high quality that have had
especially vigorous growth in revenues and earnings.

The Fund seeks high after-tax returns by balancing investment considerations and
tax considerations. The Fund seeks to achieve returns primarily in the form of
price appreciation, and to minimize income distributions and distributions of
realized short-term gains. Among the techniques and strategies used in the
tax-efficient management of the Fund are the following:

- investing primarily in lower-yielding growth stocks;

- employing a long-term, low turnover approach to investing;

- attempting to avoid net realized short-term gains;

- when appropriate, selling stocks trading below cost to realize
losses;

- in selling appreciated stocks, selecting the most tax-favored share
lots; and

- selectively using tax-advantaged hedging techniques, such as
derivative transactions, as an alternative to taxable sales.

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.

3
<PAGE> 69

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee............................ .80% .80% .80% .80%
Distribution (12b-1) and/or Service
Fees.................................... .25% 1.00% 1.00%(2) None
Other Expenses............................ .51% .51% .51% .51%
---- ---- ---- ----
Total Annual Fund Operating Expenses
(without waiver)(3).................. 1.56% 2.31% 2.31% 1.31%
Adviser's Expense Waiver................ .20% .20% .20% .20%
---- ---- ---- ----
Net Expenses (with waiver)........... 1.36% 2.11% 2.11% 1.11%
</TABLE>

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

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

(3) The Adviser has entered into an agreement with the Fund to cap the
expenses for the Fund's Class I shares at 1.11% at least until April 30,
2000; the Adviser may continue to waive fees voluntarily thereafter. For
the Fund's Class A, B and C shares, the expenses will be capped at 1.11%
plus any distribution and/or shareholder services fees.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year.................................... $ 716 $ 724 $ 324 $ 125
3 Years................................... 1,031 1,011 711 406
5 Years................................... 1,368 1,426 1,226 710
10 Years.................................. 2,317 2,361 2,637 1,571
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year.................................... $ 716 $ 224 $ 224 $ 125
3 Years................................... 1,031 711 711 406
5 Years................................... 1,368 1,226 1,226 710
10 Years.................................. 2,317 2,361 2,637 1,571
</TABLE>

4
<PAGE> 70

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that value of the stocks it holds might decrease in
response to the activities of an individual company or general economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of medium-sized companies are more
volatile and more speculative than the securities of large companies. In
addition, medium sized companies may be traded inn low volumes, which can
increase volatility. Of course, for all mutual funds there is the risk that a
strategy used by the Adviser may fail to produce its intended results. The Fund
is designed for long-term investors.

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee............................... .80% .80% .80% .80%
Distribution (12b-1) and/or Service Fees..... .25% 1.00% 1.00%(2) None
Other Expenses............................... .51% .51% .51% .51%
----- ----- ----- -----
Total Annual Fund Operating
Expenses (without waiver)(3)..... 1.56% 2.31% 2.31% 1.31%
Adviser's Expense Waiver..................... .20% .20% .20% .20%
----- ----- ----- -----
Net Expenses (with waiver)................. 1.36% 2.11% 2.11% 1.11%
</TABLE>

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

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

5
<PAGE> 71

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year....................................... $ 716 $ 724 $ 324 $ 125
3 Years...................................... 1,031 1,011 711 406
5 Years...................................... 1,368 1,426 1,226 710
10 Years..................................... 2,317 2,361 2,637 1,571
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year....................................... $ 716 $ 224 $ 224 $ 125
3 Years...................................... 1,031 711 711 406
5 Years...................................... 1,368 1,226 1,226 710
10 Years..................................... 2,317 2,361 2,657 1,571
</TABLE>

6
<PAGE> 72

WILLIAM BLAIR SMALL CAP GROWTH FUND SUMMARY

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Small Cap Growth Fund seeks long-term
capital appreciation.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in common
stocks, the primary risk is that value of the stocks it holds might decrease in
response to the activities of an individual company or general economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund. The securities of small and medium-sized companies are
volatile and less liquid than securities of large companies. In addition, small
and medium-sized companies may be traded in low volumes, which can increase
volatility. Of course, for all mutual funds there is the risk that a strategy
used by the Adviser may fail to produce its intended result. The Fund is
designed for long-term investors.

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<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%(2) None
Other Expenses............................... .45% .45% .45% .45%
----- ----- ----- -----
Total Annual Fund Operating
Expenses (without waiver)(3)..... 1.80% 2.55% 2.55% 1.55%
Adviser's Expense Waiver..................... .20% .20% .20% .20%
----- ----- ----- -----
Net Expenses (with waiver)................. 1.60% 2.35% 2.35% 1.35%
</TABLE>

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

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

(3) The Adviser has entered into an agreement with the Fund to cap the
expenses for the Fund's Class I shares at 1.35% at least until April 30,
2000; the Adviser may continue to waive fees voluntarily thereafter. For
the Fund's Class A, B and C shares, the expenses will be capped at 1.35%
plus any distribution and/or shareholders services fees.

7
<PAGE> 73

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year....................................... $ 738 $ 748 $ 348 $ 148
3 Years...................................... 1,100 1,083 783 480
5 Years...................................... 1,485 1,546 1,346 836
10 Years..................................... 2,561 2,607 2,876 1,837
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year....................................... $ 738 $ 248 $ 248 $ 148
3 Years...................................... 1,100 783 783 480
5 Years...................................... 1,485 1,346 1,346 836
10 Years..................................... 2,561 2,607 2,876 1,837
</TABLE>

8
<PAGE> 74

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS (CLASS N SHARES)(1)

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

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

(1) 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.

9
<PAGE> 75

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.

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

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

* The Morgan Stanley Capital International All Country World (Free) except
U.S. Index includes developed and emerging markets; 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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from Fund's assets:

<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%(2) None
Other Expenses................................... .26% .26% .26% .26%
------ ------ ------ ------
Total Annual Fund Operating Expenses... 1.61% 2.36% 2.36% 1.36%
</TABLE>

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

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

10
<PAGE> 76

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 730 $ 740 $ 340 $ 139
3 Years.......................................... 1,054 1,037 737 431
5 Years.......................................... 1,401 1,461 1,261 745
10 Years......................................... 2,377 2,423 2,697 1,636
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 730 $ 240 $ 240 $ 139
3 Years.......................................... 1,054 737 737 431
5 Years.......................................... 1,401 1,261 1,261 745
10 Years......................................... 2,377 2,423 2,697 1,636
</TABLE>

11
<PAGE> 77

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.

12
<PAGE> 78

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<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%(2) None
Other Expenses................................... 4.95% 4.95% 4.95% 4.95%
----- ----- ----- -----
Total Annual Fund Operating Expenses (without
waiver)(3).................................. 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>

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

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

(3) 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; the Adviser may continue to waive fees
voluntarily thereafter. For the Fund's Class A, B and C shares, the
expenses will be capped at 1.75% plus any distribution and/or shareholder
servicing fees.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $1,050 $1,078 $ 678 $ 480
3 Years.......................................... 2,274 2,302 2,002 1,735
5 Years.......................................... 3,458 3,559 3,359 2,956
10 Years......................................... 6,258 6,316 6,484 5,869
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $1,058 $ 578 $ 578 $ 480
3 Years.......................................... 2,274 2,002 2,002 1,735
5 Years.......................................... 3,458 3,359 3,359 2,956
10 Years......................................... 6,258 6,316 6,484 5,869
</TABLE>

13
<PAGE> 79

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee.......................................... .80% .80% .80% .80%
Distribution (12b-1) and/or Service Fees................ .25% 1.00% 1.00%(2) None
Other Expenses.......................................... .40% .40% .40% .40%
----- ----- ----- -----
Total Annual Fund Operating Expenses (without
waiver)(3).......................................... 1.45% 2.20% 2.20% 1.20%
Adviser's Expense Waiver................................ .20% .20% .20% .20%
----- ----- ----- -----
Net Expenses (with waiver)............................ 1.25% 2.00% 2.00% 1.00%
</TABLE>

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

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

(3) The Adviser has entered into an agreement with the Fund to cap the
expenses for the Fund's Class I shares at 1.00% at least until April 30,
2000; the Adviser may continue to waive fees voluntarily thereafter. For
the Fund's Class A, B and C shares, the expenses will be capped at 1.00%
plus any distribution and/or shareholder services fees.

14
<PAGE> 80

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 705 $ 713 $ 313 $ 114
3 Years.......................................... 999 978 678 372
5 Years.......................................... 1,313 1,370 1,170 651
10 Years......................................... 2,203 2,247 2,525 1,447
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 705 $ 213 $ 213 $ 114
3 Years.......................................... 999 678 678 372
5 Years.......................................... 1,313 1,170 1,170 651
10 Years......................................... 2,203 2,247 2,525 1,447
</TABLE>

15
<PAGE> 81

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 (includes 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.

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS (CLASS N SHARES)(1)

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

CHART

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

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.

16
<PAGE> 82

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 are 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 (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<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%(2) None
Other Expenses................................... .37% .37% .37% .37%
----- ----- ----- -----
Total Annual Fund Operating Expenses........... 1.77% 2.52% 2.52% 1.52%(3)
Adviser's Expense Waiver....................... .13% .13% .13% .13%
----- ----- ----- -----
Net Expenses (with waiver)..................... 1.64% 2.39% 2.39% 1.39%
</TABLE>

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

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

(3) 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; the
Adviser may continue to waive fees voluntarily thereafter. For the Fund's
Class A, B and C shares, the expenses will be capped at 1.39% plus any
distribution and/or shareholder servicing fees.

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 (the first year in each example reflects the fee waiver
noted above):

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 738 $ 747 $ 347 $ 148
3 Years.......................................... 1,093 1,076 776 473
5 Years.......................................... 1,473 1,533 1,333 822
10 Years......................................... 2,533 2,578 2,848 1,806
</TABLE>

17
<PAGE> 83

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 738 $ 247 $ 247 $ 148
3 Years.......................................... 1,093 776 776 473
5 Years.......................................... 1,473 1,333 1,333 822
10 Years......................................... 2,533 2,578 2,848 1,806
</TABLE>

18
<PAGE> 84

WILLIAM BLAIR INCOME FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The William Blair Income Fund seeks a high a level of
current income relative to stability of principal. The Fund invests primarily in
a diversified portfolio of high-grade, intermediate-term debt securities.

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. Thus, the Fund's returns
will vary, and you could lose money by investing in the Fund. Of course, for all
mutual funds there is the risk that a strategy used by the Adviser may fail to
produce its intended result.

FUND PERFORMANCE HISTORY

ANNUAL TOTAL RETURNS (CLASS N SHARES)(1)

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

CHART

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

(1) 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.

19
<PAGE> 85

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 5 YEARS LIFE OF FUND**
------ ------- --------------
<S> <C> <C> <C>
Income Fund Class N Shares 7.07% 6.22% 7.90%
Lehman Intermediate Gov't/Corp. Index* 8.44% 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 are 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)......................... 2.00% None None None
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds)........................... None(1) 2.00% 1.00% None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions........................ None None None None
Redemption Fee (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>

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<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%(2) None
Other Expenses................................... .12% .12% .12% .12%
--- ----- ----- ----
Total Annual Fund Operating Expenses........... 96% 1.71% 1.71% .71%
</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.

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

20
<PAGE> 86

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 296 $ 374 $ 274 $ 73
3 Years.......................................... 500 639 539 228
5 Years.......................................... 721 929 929 396
10 Years......................................... 1,355 1,728 2,020 883
</TABLE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................................... $ 296 $ 274 $ 174 $ 78
3 Years.......................................... 500 539 539 228
5 Years.......................................... 721 929 929 396
10 Years......................................... 1,355 1,728 2,020 883
</TABLE>

21
<PAGE> 87

FUND PERFORMANCE HISTORY

<TABLE>
<S> <C> <C>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN RETURN
-------------- --------------
2.26% (2Q89) 0.64% (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 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Ready Reserves Fund 4.98% 4.77% 5.22%
S&P-rated AAA* 4.97% 4.75% 5.20%
</TABLE>

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

* 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.

22
<PAGE> 88

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. 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.

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets:

<TABLE>
<S> <C>
Management Fee.............................................. .24%
Distribution (Rule 12b-1) Fee............................... .35%(1)
Other Expenses.............................................. .10%
----
Total Annual Fund Operating Expenses...................... .69%
</TABLE>

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

(1) Long-term shareholders may 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
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 $859
</TABLE>

23
<PAGE> 89

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

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

24
<PAGE> 90

WILLIAM BLAIR GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

LARGE, high quality 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 may not be as well established; and

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

INVESTMENT PROCESS

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.

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.

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

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. From time to time, the Fund may invest in related equity
securities such as preferred stocks, convertible securities and warrants. 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.

25
<PAGE> 91

PORTFOLIO MANAGEMENT

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

26
<PAGE> 92

WILLIAM BLAIR TAX-MANAGED GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The Adviser seeks growth opportunities by investing in large, medium and small
companies in varying proportions:

LARGE, high quality 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 may not be as well established; and

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

The Adviser attempts to achieve high after-tax returns by balancing investment
considerations and tax considerations. The Adviser seeks to achieve returns
primarily in the form of price appreciation, and to minimize income
distributions and distributions of realized short-term gains. Among the
techniques and strategies used in the tax-efficient management of the fund are
the following:

- investing primarily in lower-yielding stocks;

- employing a long-term, low turnover approach to investing;

- attempting to avoid net realized short-term gains;

- when appropriate, selling stocks trading below cost to realize
losses;

- in selling appreciated stocks, selecting the most tax-favored share
lots; and

- selectively using tax-advantage hedging techniques, such as
derivative transactions, as an alternative to taxable sales.

INVESTMENT PROCESS

The Adviser utilizes an investment process that relies on thorough, in-depth
fundamental research of a company, its competitors, its suppliers and its
customers.

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.

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.
27
<PAGE> 93

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

To protect against price declines in securities holdings with large accumulated
gains, the Fund may use various hedging techniques (such as purchased put
options, equity collars (combining the purchase of a put option and the sale of
a call option), equity swaps, and the purchase or sale of stock index futures
contracts). By using these techniques rather than selling appreciated
securities, the Fund can reduce its exposure to price declines in the securities
without realizing substantial capital gains under current tax law. These
derivative instruments may also be used by the Fund as a substitute for the
purchase or sale of securities. The use of derivatives is highly specialized.
The use of derivative instruments can result in losses that exceed the initial
amount paid or received by the Fund. Equity swaps and over-the-counter options
are private contracts in which there is a risk of loss in the event of a
counterparty's default. Derivative instruments may be difficult to value, may be
illiquid, and may be subject to wide swings in valuation caused by changes in
the value of the underlying security.

PORTFOLIO MANAGEMENT

The Tax-Managed Growth Fund is co-managed by John F. Jostrand, Gregory J.
Pusinelli and Michelle R. Seitz.

28
<PAGE> 94

WILLIAM BLAIR LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Large Cap Growth Fund seeks long-term capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks of large
domestic growth companies of high quality that have demonstrated sustained
growth over a long period of time. The Adviser currently defines large companies
as those with market capitalization of $10 billion or more at the time of the
Fund's investment. Under normal conditions, the Fund will invest at least 65% of
its total assets in large cap stocks. The Fund may also invest in medium-sized
growth companies of recognized investment quality whose records of sales and
earnings growth may not be as well established.

INVESTMENT PROCESS

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.

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.

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

29
<PAGE> 95

PORTFOLIO MANAGEMENT

The Large Cap Growth Fund is co-managed by John F. Jostrand and Gretchen Lash.

30
<PAGE> 96

WILLIAM BLAIR SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Small Cap Growth Fund seeks long-term capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks and
related equity securities of small emerging, rapid growth domestic companies
that are of high quality and that have had especially vigorous growth in
revenues and earnings. The Adviser currently defines small companies as those
with market capitalizations of $2 billion or less at the time of the Fund's
investment. Under normal conditions, the Fund will invest at least 65% of its
total assets in small cap stocks. To a limited extent, the Fund may also invest
in companies with business characteristics and growth prospects similar to small
companies, but which may have market capitalizations above $2 billion.

INVESTMENT PROCESS

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.

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.

CONSERVATIVE FINANCIAL POLICIES AND ACCOUNTING PRACTICES. The company
should have a relatively simple, clean financial structure and adhere to
conservative and straightforward accounting practices.

ADDITIONAL STRATEGIES

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. The Fund also may use
options, futures and other derivative instruments for hedging and risk
management purposes, as further described in the Statement of Additional
Information.

31
<PAGE> 97

PORTFOLIO MANAGEMENT

The Small Cap Growth Fund is co-managed by Karl W. Brewer and Mark A. Fuller
III.

32
<PAGE> 98

WILLIAM BLAIR INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

INVESTMENT PROCESS

33
<PAGE> 99

ADDITIONAL STRATEGIES

PORTFOLIO MANAGEMENT

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

34
<PAGE> 100

WILLIAM BLAIR EMERGING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

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

35
<PAGE> 101

ADDITIONAL STRATEGIES

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.

36
<PAGE> 102

WILLIAM BLAIR DISCIPLINED LARGE CAP FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

The William Blair Disciplined Large Cap Fund seeks long-term capital
appreciation. The Fund invests primarily in a diversified portfolio of common
stocks and related equity securities of large capitalization domestic companies.
The Adviser chooses the Fund's portfolio investments primarily from companies in
the Standard & Poor's 500 Stock Index. The Adviser defines large companies as
those with market capitalizations of $10 billion or more at the time of the
Fund's investment. Under normal conditions, the Fund will invest at least 65% of
its total assets in large cap stocks.

INVESTMENT PROCESS

ADDITIONAL STRATEGIES

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 Fund may also invest to a limited extent in S&P
Futures contracts. 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. The Fund also may use options, futures and
other derivative instruments for hedging and risk management purposes, as
further described in the Statement of Additional Information.

PORTFOLIO MANAGEMENT

The Disciplined Large Cap Fund is managed by Stan Kirtman.

Stan Kirtman joined William Blair & Company, L.L.C. as a portfolio manager for
the Fund in 1999. Previously, he served as President and CIO for Nikko Global
Asset Management (USA), Inc from April 1987 to June 1999. From January 1975 to
April 1987 he was director of Pension & Profit Sharing at Thomas J. Lipton,
Inc., Senior Investment Officer with Gerard Bank, and Assistant Vice President
at Provident National Bank. He is a member of the New York Society of Security
Analysts and the Market Technicians Association. Education: B.A., Hunter
College.

37
<PAGE> 103

WILLIAM BLAIR VALUE DISCOVERY FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

INVESTMENT PROCESS

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.

ADDITIONAL STRATEGIES

38
<PAGE> 104

PORTFOLIO MANAGEMENT

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

39
<PAGE> 105

WILLIAM BLAIR INCOME FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

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

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

INVESTMENT PROCESS

ADDITIONAL STRATEGIES

40
<PAGE> 106

PORTFOLIO MANAGEMENT

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

41
<PAGE> 107

WILLIAM BLAIR READY RESERVES FUND
- --------------------------------------------------------------------------------

GOAL AND PRINCIPAL STRATEGIES

ADDITIONAL STRATEGIES AND RISKS

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.

42
<PAGE> 108

PORTFOLIO MANAGEMENT

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

43
<PAGE> 109

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

The following table summarizes the types of risks described below that each Fund
may experience:

<TABLE>
<CAPTION>
TEMPORARY
SMALLER COUNTRY EMERGING OPERATING DEFENSE INTEREST
STOCKS ALLOCATION MARKETS EXPENSES POSITION RATE CREDIT
------- ---------- -------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Fund........................... X X
Tax-Managed Growth Fund............... X X
Large Cap Growth Fund................. X
Small Cap Growth Fund................. X X
International Growth Fund............. X X X X
Emerging Markets Growth Fund.......... X X X X X
Disciplined Large Cap Growth Fund..... X
Value Discovery Fund.................. X X
Income Fund........................... X X X
Ready Reserve Fund.................... X
</TABLE>

EQUITY FUNDS

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 Growth Fund, the Small
Cap Growth Fund, Emerging Markets Growth Fund and Value Discovery 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.

44
<PAGE> 110

45
<PAGE> 111

foreign securities may be subject to foreign withholding taxes. (For more
information, see "Your Account -- Taxes.")

INCOME FUND

46
<PAGE> 112

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

TRUSTEES, OFFICERS AND ADVISER. The Board of Trustees of William Blair Funds
(the "Trust") has overall management responsibility. The duties of the directors
and officers of the Trust include supervising the business affairs of the Trust,
monitoring investment activities and practices and considering and acting upon
future plans for the Trust. The Statement of Additional Information has the
names of and additional information about the directors and officers of the
Trust. 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 Trust, subject to the direction of the Board of
Trustees. The Adviser is also the principal underwriter and distributor of the
Trust and acts as agent of the Trust 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 850 employees.
The main office in Chicago houses all research and investment management
services.

Each Fund pays the Adviser a monthly investment management fee based upon the
percentage of the average net assets as shown below:

<TABLE>
<CAPTION>
FEE AS A % OF
FUND AVERAGE NET ASSETS
- ---- ------------------
<S> <C>
Growth Fund................................. 0.75%*
Tax-Managed Growth Fund..................... .80%
Large Cap Growth Fund....................... .80%
Small Cap Growth Fund....................... 1.10%
International Growth Fund................... 1.10%*
Emerging Markets Growth Fund................ 1.40%*
Disciplined Large Cap Fund.................. .80%
Value Discovery Fund........................ 1.15%*
Income Fund................................. 0.59%*
Ready Reserves Fund......................... 0.59%*(1)
</TABLE>

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

* For the most recently completed fiscal year.

(1) Effective January 1, 2000, the management fee will change to 0.24%.

CUSTODIAN. The Custodian is Investors Bank and Trust Company, 200 Clarendon
Street, Boston, Massachusetts 02117. The Custodian is responsible for custody of
portfolio securities, fund accounting and calculation of the Fund's net asset
value. 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 Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110.

47
<PAGE> 113

48
<PAGE> 114

CHOOSING A SHARE CLASS

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

CLASS A SHARES Offered at net asset value plus a maximum sales
charge of 5.75% (2.00% for the Income Fund) of the
offering price, subject to a 0.25% shareholder
services fee. Reduced sales charges apply to
purchases of $50,000 or more.

CLASS B SHARES Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee, a 0.25% shareholder services fee
and a contingent deferred sales charge that declines
from 5.00% to zero on certain redemptions made
within seven years of purchase (for the Income Fund,
2.00% to zero on certain redemptions made within two
years of purchase) within three years of purchase.
Class B shares automatically convert into Class A
shares (which have lower ongoing expenses) at the
end of the seventh year after purchase (third year
for the Income Fund).

CLASS C SHARES Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee, a 0.25% shareholder services fee,
and a 1.00% contingent deferred sales charge on
redemptions made within one year of purchase. Class
C shares do not convert into another class.

CLASS I SHARES Offered at net asset value without an initial sales
charge, Rule 12b-1 distribution fee or shareholder
services fee. Certain eligibility requirements
apply.
- --------------------------------------------------------------------------------

When placing purchase orders, investors must specify whether the order is for
Class A, Class B, Class C or Class I shares. Each class of shares represents
interest in the same portfolio of investments of a Fund. The Ready Reserves Fund
currently does not offer Class A, Class B or Class C shares. The Ready Reserves
Fund offers Class N shares via this prospectus and Class I shares via another
prospectus. Each other Fund offers Class N shares through a separate prospectus.
Class N shares, which are offered without a sales charge, 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.

The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than seven years might consider Class B shares. Investors who prefer
not to pay an initial sales charge but who plan to redeem their shares within
seven years might consider Class C shares. Investors who qualify for Class I
shares will not pay sales charges. For more information about the three sales
arrangements, consult your financial representative and the Statement of
Additional Information. Financial services firms may receive different
compensation depending upon which class of shares they sell.

RULE 12b-1 PLAN

William Blair Funds has adopted plans under Rule 12b-1 of the Investment Company
Act of 1940 that provide for fees payable to compensate the Distributor for
distribution and other services provided to shareholders of Class B, Class C and
Class N shares. Because 12b-1 fees are paid out of Fund assets on an ongoing
basis, they will, over time, increase the cost of investment and may cost more
than other types of sales charges. Long-term shareholders of Class B and Class C
shares and Class N shares of the Ready Reserves Fund may pay more than the
economic equivalent of the maximum initial sales charges permitted by the
National Association of Securities Dealers, although the Distributor believes
that it is unlikely, in the case of Class B Shares, because of the automatic
conversion feature of those shares.

49
<PAGE> 115

SHAREHOLDER SERVICES AGREEMENT

Each Fund has entered into a Shareholder Services Agreement with the Distributor
that provides for fees as an expense of the Class A, Class B and Class C shares
that are used by the Distributor to pay for shareholder services provided to
shareholders of these classes.

SPECIAL FEATURES

CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of William Blair
Funds.

CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 12-month period under a written Letter of Intent ("Letter") provided by
the Distributor. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period.

CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned William Blair Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.

CLASS A SHARES--LARGE ORDER NAV PURCHASE PRIVILEGE. Class A shares of a Fund may
be purchased at net asset value by any purchaser provided that the amount
invested in such Fund or other William Blair Funds totals at least $1,000,000
including purchases of Class A shares pursuant to the "Combined Purchase,"
"Letter of Intent" and "Discount" features described above (the "Large Order NAV
Purchase Privilege").

EXCHANGE PRIVILEGE--GENERAL. Shareholders of Class A, Class B, Class C and Class
I shares may exchange their shares for shares of the corresponding class of a
Fund. For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged is computed by
aggregating the value of shares being exchanged for all accounts under common
control, direction or advice, including without limitation accounts administered
by a financial services firm offering market timing, asset allocation or similar
services.

For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.

CLASS A SHARES

PUBLIC OFFERING PRICE

Net asset value per share plus the following sales charge:

<TABLE>
<CAPTION>
EQUITY FUNDS
SALES CHARGE DEALER REALLOWANCE
--------------------------------- ------------------
AS A % OF AS A % OF NET AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED* OFFERING PRICE
- ------------------ -------------- ---------------- ------------------
<S> <C> <C> <C>
$0--$49,999................ 5.75% 6.10% 5.00%
$50,000--$99,999........... 4.50% 4.71% 3.75%
$100,000--$249,999......... 3.50% 3.63% 2.75%
$250,000--$499,999......... 2.50% 2.56% 2.00%
$500,000--$999,999......... 2.00% 2.04% 1.75%
$1 million and over**...... 0.00% 0.00% 1.00%
</TABLE>

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

* Rounded to the nearest one hundredth percent.

** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.

50
<PAGE> 116

<TABLE>
<CAPTION>
EQUITY FUNDS
SALES CHARGE DEALER REALLOWANCE
--------------------------------- ------------------
AS A % OF AS A % OF NET AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED* OFFERING PRICE
- ------------------ -------------- ---------------- ------------------
<S> <C> <C> <C>
$0--$49,999................ 2.00% 2.04% 1.75%
$50,000--$99,999........... 2.00% 2.04% 1.75%
$100,000--$249,999......... 1.50% 1.52% 1.25%
$250,000--$499,999......... 1.50% 1.52% 1.25%
$500,000--$999,999......... 1.00% 1.01% 0.75%
$1 million and over**...... 0.00% 0.00% 0.50%
</TABLE>

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

* Rounded to the nearest one hundredth percent.

** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.

NAV PURCHASES

Class A shares of a Fund may be purchased at net asset value by:

- - shareholders in connection with the investment or reinvestment of income
dividends and capital gain distributions;

- - a participant-directed qualified retirement plan or a participant-directed
non-qualified deferred compensation plan or a participant-directed
qualified retirement plan, provided in each case that such plan has not
less than 200 eligible employees;

- - any purchaser with investment totals in the Funds of at least $1,000,000;

- - in connection with the acquisition of the assets of or merger or
consolidation with another investment company; and

- - certain investment advisers registered under the Investment Advisers Act of
1940 and other financial services firms, acting solely as agent for their
clients, that adhere to certain standards established by the Distributor.

CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: for
all Funds (except the Income Fund), 1.00% if they are redeemed within one year
of purchase and 0.50% if they are redeemed during the second year following
purchase; for the Income Fund, 0.50% if they are redeemed within one year of
purchase. The charge will not be imposed upon redemption of reinvested dividends
or share appreciation. The charge is applied to the value of the shares
redeemed, excluding amounts not subject to the charge. The contingent deferred
sales charge will be waived in the event of:

- - redemptions to satisfy required minimum distributions after age 70 1/2 from
an IRA account (with the maximum amount subject to this waiver being based
only upon the shareholder's William Blair IRA accounts);

- - redemptions made pursuant to any IRA systematic withdrawal based on the
shareholder's life expectancy including, but not limited to, substantially
equal periodic payments described in Code; Section 72(t)(2)(A)(iv) prior to
age 59 1/2;

- - redemptions under a Fund's Systematic Withdrawal Plan at the maximum of 10%
per year of the net asset value of the account;

- - the redemption of shares of a shareholder (including a registered joint
owner) who has died;

51
<PAGE> 117

- - redemption of shares of a shareholder (including a registered joint owner)
who after purchase of the shares being redeemed becomes totally disabled
(as evidenced by a determination by the federal Social Security
Administration);

- - redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan, provided in
each case that such plan has not less than 200 eligible employees; and

- - the redemption of shares whose dealer of record at the time of the
investment notifies the Distributor that the dealer waives the commission
applicable to such Large Order NAV Purchase Privilege.

DISTRIBUTION (RULE 12b-1) FEE

None

SHAREHOLDER SERVICES FEE

0.25%

EXCHANGE PRIVILEGE

Class A shares of a Fund may be exchanged for the Class A shares of another Fund
at their relative net asset values.

Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any William Blair Mutual Fund without paying any
contingent deferred sales charge. If the Class A shares received on exchange are
redeemed thereafter, a contingent deferred sales charge may be imposed.

52
<PAGE> 118

CLASS B SHARES

PUBLIC OFFERING PRICE

Net asset value per share without any sales charge at the time of purchase.

CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge may be imposed upon redemption of Class B
shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends. The sales charge is applied to the value of the shares
redeemed, excluding amounts not subject to the charge. The charge is computed at
the following rates applied to the value of the shares redeemed excluding
amounts not subject to the charge.

EQUITY FUNDS:

<TABLE>
<CAPTION>
YEAR OF REDEMPTION
AFTER PURCHASE: FIRST SECOND THIRD FOURTH FIFTH SIXTH SEVENTH
- --------------- ----- ------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Contingent Deferred Sales
Charge:.......................... 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% 0.00%
</TABLE>

INCOME FUND:

The contingent deferred sales charge will be waived in the event of:

- - redemptions made pursuant to a Fund's Systematic Withdrawal Plan for up to
10% per year of the net asset value per year of the account;

- - the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint
owner) occurring after the purchase of the shares being redeemed; and

- - the redemption of shares of a shareholder (including a registered joint
owner) who has died.

DISTRIBUTION (RULE 12b-1) FEE

0.75%

SHAREHOLDER SERVICES FEE

0.25%

CONVERSION FEATURE

Class B shares of a Fund will automatically convert to Class A shares of the
same Fund at the end of the seventh year after purchase for equity funds and at
the end of the third year after purchase for the Income Fund after issuance on
the basis of the relative net asset value per share. Shares purchased through
the reinvestment of dividends and other distributions paid with respect to Class
B shares in a shareholder's account will be converted to Class A shares on a pro
rata basis.

EXCHANGE PRIVILEGE

Class B shares of a Fund may be exchanged for Class B Shares of another Fund at
their relative net asset values without a contingent deferred sales charge.
However, for shares exchanged from the Income Fund into an equity fund, the
shares will be treated according to the equity fund schedule based upon the date
purchased into the Income Fund.

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CLASS C SHARES

PUBLIC OFFERING PRICE

Net asset value per share without any sales charge at the time of purchase.

CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge of 1.00% may be imposed upon redemption of
Class C shares redeemed within one year of purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of:

- - redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457;

- - the redemption of shares of a shareholder (including a registered joint
owner) who has died;

- - the redemption of shares of a shareholder (including a registered joint
owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration);

- - redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account;

- - the redemption of shares by an employer sponsored employee benefit plan
that offers funds in addition to William Blair Funds and whose dealer of
record has waived the advance of the first year administrative service and
distribution fees applicable to such shares and agrees to receive such fees
quarterly; and

- - the redemption of shares purchased through a dealer-sponsored asset
allocation program maintained on an omnibus record-keeping system provided
the dealer of record has waived the advance of the first year
administrative services and distribution fees applicable to such shares and
has agreed to receive such fees quarterly.

DISTRIBUTION (RULE 12b-1) FEE

0.75%

SHAREHOLDER SERVICES FEE

0.25%

CONVERSION FEATURE

None

EXCHANGE PRIVILEGE

Class C shares of a Fund may be exchanged for the Class C shares of another Fund
at their relative net sales values without a contingent deferred sales charge.
However, for shares exchanged from the Income Fund into an equity fund, the
shares will be treated according to the equity fund schedule based upon the date
purchased into the Income Fund.

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CLASS I SHARES

PUBLIC OFFERING PRICE

Net asset active without any sales change at the time of purchase.

CONTINGENT DEFERRED SALES CHARGE

None

DISTRIBUTION (RULE 12B-1) FEE

None

SHAREHOLDER SERVICES FEE

None

EXCHANGE PRIVILEGE

Class I shares of a Fund may be exchanged for the Class I share of another Fund
at their relative net asset value.

ELIGIBILITY

Class I shares are available for purchase exclusively by the following
categories of institutional investors:

- - institutional investors (such as qualified retirement plans, wrap fee plans
and other programs charging asset-based fees) with $500,000 or more
invested in the William Blair Funds. Purchases may be aggregated but must
be in an omnibus account;

- - clients of William Blair & Company, L.L.C. with $2 million in aggregate
assets under management with William Blair & Company, L.L.C.; and

- - clients of William Blair & Company, L.L.C. who opened an equity or income
fund account prior to September 30, 1999.

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

PURCHASE PRICE. All Funds 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
plus, with regard to the Class A shares of each Fund, an initial sales charge.
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.

CLASS A, B AND C SHARES. You may open a new account and purchase additional
shares by contacting the securities dealer or other financial services firm from
whom you received the prospectus.

CLASS I SHARES. For those who are eligible to purchase Class I shares, you may
open a new account and purchase additional shares by contacting the securities
dealer or other financial services firm from whom you received this prospectus
or you may purchase shares directly from the Company by mail, by wire or by
telephone as described below.

CLASS N SHARES OF READY RESERVES FUND. The Class N shares of the Ready Reserves
Fund 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. You may purchase shares by
mail, by wire or by telephone as described below.

BY MAIL

OPENING AN ACCOUNT. To open a new account for Class I shares of the Funds by
mail, make out a check for the amount of your investment, payable to "William
Blair Funds" 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 Funds, 222 West Adams Street, Chicago, Illinois
60606.

ADDING TO AN ACCOUNT. To purchase additional Class I shares, make out a check
for the amount of your investment, payable to "William Blair Funds" 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.

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

BY WIRE

OPENING AN ACCOUNT. For Class I shares of the Funds and Class N of the Ready
Reserves Fund, 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

ADDING TO AN ACCOUNT. To add to your Class I share account or Ready Reserves
Fund Class N share 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 Fund 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 Fund 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)

CLASS A, B AND C SHARES. Contact your securities dealer or other financial
services firm to arrange for share redemption.

Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to the Transfer Agent, State Street Bank and Trust Company, P.O. Box
8506, Boston, Massachusetts.

CLASS I SHARES. Contact your securities dealer or other financial services firm
to arrange for share redemption or you may give instructions to redeem your
shares directly to the Company by mail, by wire or by telephoned, as described
below.

CLASS N SHARES OF READY RESERVES FUND. Class N shareholders of the Ready
Reserves Fund may redeem shares by mail, by wire or by telephone, as described
below.

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<PAGE> 123

BY MAIL

To redeem Class I 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 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; 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 Class I shares in any Funds or Class N shares of
the Ready Reserves Fund 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 Class I shares, 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 Trust or to the Distributor
(except in the case of the Ready Reserves Fund).

-- 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.

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.

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<PAGE> 124

AUTOMATIC REDEMPTION OF SMALL ACCOUNTS. Because of the relatively high cost of
maintaining small accounts, the Trust 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.

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 Trust 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 all Class A, B,
C and I shares into either shares of each corresponding Class A, B, C and I
shares of another Fund at their relative net asset values so long as the shares
to be acquired are available for sale in your state of residence. Class N shares
of the Ready Reserve Fund
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<PAGE> 125

may be exchanged for Class N shares of each Fund which are offered in a separate
prospectus at their relative net asset value 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. Shares of a William Blair Fund with a value in excess of
$1,000,000 acquired by exchange from another William Blair Fund may not be
exchanged thereafter until they have been owned for 15 days (the "15 Day Hold
Policy").

CLASS A, B AND C. Contact your securities dealer or other financial services
firm to arrange for share exchanges.

CLASS I. Contact your securities dealer or other financial services firm to
arrange for share exchange or contact the Company directly by mail or telephone
as described below.

CLASS N SHARES OF THE READY RESERVES FUND. You may exchange shares by mail or
telephone as described below.

BY MAIL

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

BY TELEPHONE

You may also exchange your Class I shares of each Fund and Class N shares of the
Ready Reserves Fund 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).

DIVIDENDS AND 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

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<PAGE> 126

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.

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.

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, Tax-Managed Growth Fund, Large
Cap Growth Fund, Small Cap Growth Fund, Disciplined Large Cap Fund and 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 and Income Fund are not eligible for
the dividends-received deduction available to corporate shareholders.

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

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<PAGE> 127

DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

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

A mutual fund's net asset value is the market value of its total assets, minus
liabilities, divided by the number of shares outstanding. The value of a single
share is called its share value or share price.

HOW THE MARKET VALUE OF FUND SECURITIES IS DETERMINED

FIXED-INCOME SECURITIES. Fixed-income securities are valued by using market
quotations, 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.

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<PAGE> 128

SHAREHOLDER SERVICES AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------
The Funds provide a variety of services to help you manage your account.

-- 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.

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.

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<PAGE> 129

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.

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 trustees, to elect all the trustees.
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 Delaware
law, the Trust is 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 Trustees, 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.)

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<PAGE> 130

BORROWING. To a certain extent, each Fund may borrow money from banks for
limited purposes to the extent allowable under the 1940 Act. The Growth Fund,
Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund,
International Growth Fund, Emerging Markets Growth Fund, Disciplined Large Cap
Fund and Value Discovery Fund 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.

CONCENTRATION. Each of the Funds intends to invest not more than 25% of its net
assets in any one industry, however, the Ready Reserves Fund may invest more
than 25% of its net assets in the domestic banking industry. These limitations
do not apply to obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities or to instruments, such as repurchase agreements,
secured by these instruments or in tax-exempt securities or certificates of
deposit.

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

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<PAGE> 132

exchange rates. A forward foreign currency contract is an agreement to exchange
U.S. dollars for foreign currencies at a specified future date and specified
amount which is set by the parties at the time of entering into the contract.
The Adviser will generally use such currency contracts to fix a definite price
for securities they have agreed to buy or sell and may also use such contracts
to hedge the 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. Each Fund, except the Ready Reserves Fund, may 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.

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<PAGE> 133

rights under the agreement, and experience a decline in the value of the
underlying securities and loss of 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 and Income 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 Trustees, 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.

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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WILLIAM BLAIR READY RESERVES FUND

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

(a) The total return includes the effect of the adviser's capital
contribution. Without the advisers capital contribution, the total return
would have been 3.04%.

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<PAGE> 135

FOR MORE INFORMATION

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

SEMI-ANNUAL/ANNUAL REPORTS

STATEMENT OF ADDITIONAL INFORMATION (SAI)

TO OBTAIN INFORMATION:

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

BY MAIL
Write to:

WILLIAM BLAIR FUNDS
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

WILLIAM BLAIR FUNDS December 22, 1999

Investment Company Act File No.: 811-5344
<PAGE> 136

December 22, 1999

WILLIAM BLAIR FUNDS

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

CLASS I PROSPECTUS

READY RESERVES FUND

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

This prospectus contains important information about Class I shares of the Ready
Reserves Fund, including its investment objectives. For your benefit and
protection, please read it before you invest and keep it for future reference.

TABLE OF CONTENTS

Summary........................................................................1
Financial Highlights...........................................................2
Investment Objectives, Principal Investment Strategies and Risks...............3
Management of the Funds........................................................5
Your Account...................................................................6
How to Buy Shares..............................................................6
How to Sell Shares.............................................................7
How to Exchange Shares.........................................................8
Dividends and Distributions....................................................9
Taxes..........................................................................9
Determination of Net Asset Value..............................................10
Shareholder Services and Account Policies.....................................10
Investment Glossary...........................................................11
For More Information..................................................Back Cover

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 FUNDS
222 West Adams Street
Chicago, Illinois 60606

<PAGE> 137

- --------------------------------------------------------------------------------
WILLIAM BLAIR READY RESERVES FUND SUMMARY
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE: The William Blair Ready Reserves Fund seeks current
income, a stable share price and daily liquidity.

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 investment
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

[BAR GRAPH]

HIGHEST LOWEST
QUARTERLY QUARTERLY
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 RETURN RETURN
- ----------------------------------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.86 7.81 5.64 3.32 2.64 3.67 5.45 4.81 5.04 4.98 2.26% (2Q89) 0.64% (2Q93)

</TABLE>

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.

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

* The Standard and Poor's-rated AAA Money Market Funds Index is an 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.

<PAGE> 138

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

SHAREHOLDER FEES. Class I 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 I shares of another Fund.

ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets.

Management Fee...............................................................24%
Distribution (Rule 12b-1) Fee.............................................. None
Other Expenses...............................................................10%
---
Total Annual Fund Operating Expenses........................................34%

EXAMPLE: This example is intended to help you compare the cost of investing in
Class I 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.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$35 $109 $191 $431

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
WILLIAM BLAIR READY RESERVES FUND 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
===== ===== ===== ===== =====
-- -- -- -- .01
------ ------ ------ ------- ------
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 Adviser's capital
contribution. Without the Adviser's capital contribution, the total
return would have been 3.04%.

<PAGE> 139

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

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

The following section takes a closer look at the investment objectives of the
Fund, its principal investment strategies and certain related investment risks.
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 the Fund to help manage such risks. All investments,
including those in mutual funds, have risks. No investment is suitable for all
investors. Of course, there can be no assurance that the Fund will achieve its
objective.

GOAL AND PRINCIPAL STRATEGIES

The Ready Reserves Fund seeks current income, a stable share price and daily
liquidity. The Fund invests 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.

ADDITIONAL STRATEGIES AND RISKS

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.

<PAGE> 140

of, but not limited to, less publicly available information, more volatile
markets, less securities regulation, less favorable tax provisions, war and
expropriation.

PORTFOLIO MANAGEMENT

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

<PAGE> 141

MANAGEMENT OF THE FUNDS

TRUSTEES, OFFICERS AND ADVISER. The Board of Trustees of William Blair Funds
(the "Trust") has overall management responsibility. The duties of the directors
and officers of the Trust include supervising the business affairs of the Trust,
monitoring investment activities and practices and considering and acting upon
future plans for the Trust. The Statement of Additional Information has the
names of and additional information about the directors and officers of the
Trust. 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 Trust, subject to the direction of the Board of
Trustees. The Adviser is also the principal underwriter and distributor of the
Trust and acts as agent of the Trust 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.

For the most recently completed fiscal year, the Ready Reserves Fund paid the
Adviser a monthly investment management fee of 0.24% of the Fund's average net
assets.

TRANSFER AGENT AND DIVIDEND PAYING AGENT. The Transfer Agent and Dividend
Paying Agent is 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 Trust is in the process of working with the Adviser and
other service providers to assure that the Trust is prepared for the year 2000.
The Trust has been assured by the Adviser and other service providers that they
do not believe that the Trust 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
Trust's business and have a material adverse effect on the Trust's operations.
Year 2000 problems would also increase the risks of a 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 a Fund
may purchase. However, this may be difficult with certain issuers. For example,
a Fund that 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 Funds are still being determined.
There can be no assurance that potential year 2000 problems would not have a
material adverse effect on the Trust.

<PAGE> 142

- -------------------------------------------------------------------------------
YOUR ACCOUNT
- -------------------------------------------------------------------------------

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

ELIGIBILITY AND MINIMUM INVESTMENT. The Fund is designed primarily for
institutional investors. Fund shares may not be purchased directly by
individuals, although institutions may purchase shares for accounts maintained
by individuals. Generally, each investor is required to open a single account
with the Fund for all purposes. In certain cases, the Trust may request
investors to maintain separate omnibus accounts for shares held by the investor
for its own account, for the account of other institutions and for accounts
for which the institution acts as a fiduciary.

The minimum initial investment is $10,000,000 or any lesser amount if,
in the Trust's opinion, the investor has adequate intent and availability of
funds to reach a future level of investment of $10,000,000. There is no minimum
for subsequent purchases. The initial investment must be accompanied by the
Account Application and corporate resolutions, if applicable. The Trust reserves
the right to offer Fund shares without regard to the minimum purchase
requirements to qualified or non-qualified employee benefit plans. The Trust
does not impose any sales charges in connection with purchases of Fund shares,
although Service Agents and other institutions may charge their clients fees in
connection with purchases for the accounts of their clients. Service Agents may
receive different levels of compensation for selling different classes of
shares. The Fund does not issue share certificates. To add to an account, the
minimum subsequent investment is $1.00. These minimum amounts may be changed at
any time.

PURCHASE PRICE. The Fund is sold at its 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 more information, see "Determination of Net Asset Value.") If you
fail to pay for your order, you will be liable for any loss to the Fund and, if
you are a current shareholder, the Fund may redeem some or all of your shares to
cover such loss.

NOTE: All purchases made by check should be in U.S. dollars and made payable to
William Blair Funds. Third party checks will not be accepted. When purchases are
made by check or periodic account investment, the Fund may delay sending
redemption proceeds until it determines 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 Trust reserves the right to decline
your purchase order (including exchanges) upon receipt for any reason, including
excessive, short-term or other abusive trading practices which may disrupt
portfolio management strategies and harm Fund performance. The Trust also
reserves 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. Send your check and completed application to the
Distributor, William Blair Funds, 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 Funds." Send your check and
letter to the Distributor, William Blair Funds, 222 West Adams Street, Chicago,
Illinois 60606.

<PAGE> 143

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 Fund and the share class 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 Funds, 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 Fund name and the share class 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."

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. 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.

BY MAIL

Send your redemption request signed by all account owners to the Transfer Agent
or to the Distributor, William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606.

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; and
-- any other necessary documents, such as corporate resolutions, 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.

<PAGE> 144

BY WIRE

To redeem some or all of your shares in any Funds 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. You may redeem some or all of your shares by telephone by calling
the Transfer Agent.

REDEMPTION PRICE. The Fund's net asset value normally will be $1.00. However,
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.

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
the Distributor of a redemption request and any other required documentation and
after any checks in payment for your shares have cleared.

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, the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1.00% of the Fund's
net asset value during any 90-day period for any one shareholder of record.

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.

HOW TO EXCHANGE SHARES (By Mail or by Telephone)

Subject to the following limitations, you may exchange shares of Class I shares
into either shares of Class I shares of another 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. Shares of a

<PAGE> 145

William Blair Fund with a value in excess of $1,000,000 acquired by exchange
from another William Blair Fund may not be exchanged thereafter until they have
been owned for 15 days (the "15 Day Hold Policy").

BY MAIL

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

BY TELEPHONE

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS. The Fund earns interest from short-term U.S. dollar
denominated domestic money market instruments, which are passed along to
shareholders as income dividends as long as expenses do not exceed income.

As a shareholder, you are entitled to your portion of the Fund's net income. The
Fund passes its earnings along to you as distributions. The Funds' policy is to
distribute substantially all net investment income. All distributions have the
effect of immediately thereafter decreasing net asset value per share. Income
dividends 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

The Ready Reserves 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 Fund may vary its dividend practices at any time. Income dividends from the
Fund will vary from year to year. Dividends may be subject to withholding, as
required by the Internal Revenue Service (see "Your Account -- Taxes").

TAXES

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

TAXES ON DISTRIBUTIONS. 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. The Fund will inform you of
the amount and nature of distributions paid.

<PAGE> 146

Under the Federal tax laws, income dividends and short-term capital gains
distributions are taxed as ordinary income.

TAXES ON TRANSACTIONS. 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.

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

- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

WHEN AND HOW NET ASSET VALUE IS DETERMINED

The Fund's net asset value is the market value of its total assets, minus
liabilities, divided by the number of shares outstanding. The value of a single
share is called its share value or share price.

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.
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 Trustees
and in accordance with the Trust's pricing procedures.

- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------

The Fund provides a variety of services to help you manage your account.

1. AUTOMATIC DIVIDEND REINVESTMENT PLAN. The Fund automatically
reinvests 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. 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 automatically deposited in a previously established bank account.

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.

<PAGE> 147

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

SHAREHOLDER RIGHTS. All shares have equal rights with respect to dividends,
assets and liquidation of the 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 trustees, to elect all the trustees. All
shares 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 Delaware law, the Trust is
not required to hold shareholder meetings on an annual basis. As required by
law, the Fund will, however, hold shareholder meetings when a sufficient number
of shareholders request a meeting, or as deemed desirable by the Board of
Trustees, 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.)

- --------------------------------------------------------------------------------
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. The Ready Reserves Fund may borrow up to 5% of its 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.

CONCENTRATION. The Ready Reserves Fund may invest more than 25% of its total
assets in the domestic banking industry.

DIVERSIFICATION. As a matter of fundamental policy, the 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. In addition, the 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.

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.

REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. Repurchase
agreements are instruments under which the 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
Fund currently intends to enter into repurchase agreements only with member
banks of the Federal Reserve System or with primary dealers in U.S. Government
securities. 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 income. Repurchase agreements maturing in more
than seven days, together with any

<PAGE> 148

securities that are restricted as to disposition under the federal securities
laws or are otherwise considered to be illiquid, will not exceed 10% of the
Fund's net assets.

SECTION 4(2) PAPER. The 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 Trustees, 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, the 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 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.

<PAGE> 149

FOR MORE INFORMATION

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

SEMI-ANNUAL/ANNUAL REPORTS

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information about the Fund. 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 FUNDS
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

William Blair Funds December 22, 1999
Investment Company Act File No.: 811-5344

<PAGE> 150

WILLIAM BLAIR FUNDS
222 WEST ADAMS STREET
CHICAGO, ILLINOIS 60606
(312) 364-8000

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 22, 1999

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of William Blair Funds (the "Trust") dated
December 22, 1999. The financial statements for the William Blair Funds for the
year ended December 31, 1998, and the Report of Independent Auditors thereon are
incorporated by reference from the Annual Report to Shareholders dated December
31, 1998. The Prospectus and Annual Report to Shareholders may be obtained
without charge by writing or calling the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE

<S> <C>
MANAGEMENT OF THE TRUST..............................................................................................1
Investment Adviser..........................................................................................1
Distributor.................................................................................................3
Trustees and Officers.......................................................................................3
Brokerage and Fund Transactions............................................................................12

INVESTMENT POLICIES AND RESTRICTIONS................................................................................14

INVESTMENT PRACTICES................................................................................................19
Borrowings.................................................................................................19
Collateralized Obligations.................................................................................19
Foreign Securities.........................................................................................30
Forward Foreign Currency Transactions......................................................................33
Foreign Currency Futures...................................................................................33
Futures....................................................................................................34
High-Yield/High-Risk Securities............................................................................34
Investment Companies.......................................................................................35
Illiquid Securities........................................................................................35
Lending....................................................................................................35
Repurchase Agreements......................................................................................35
Restricted Securities......................................................................................36
Small Companies............................................................................................36
Warrants...................................................................................................36
When-Issued or Delayed Delivery Transactions...............................................................36

ADDITIONAL INFORMATION ABOUT SHARE CLASSES..........................................................................37
Purchase of Shares--Alternative Purchase Arrangements......................................................37
Eligibility................................................................................................37
Distribution Fees..........................................................................................38
Shareholder Service Fees...................................................................................38
Summary of Ongoing Fees for Class A Shares.................................................................38
Summary of Ongoing Fees for Class B Shares.................................................................38
Summary of Ongoing Fees for Class C Shares.................................................................38
Summary of Ongoing Fees for Class N Shares.................................................................39
Summary of Ongoing Fees for Class I Shares.................................................................39
Initial Sales Charge Alternative--Class A Shares...........................................................39

</TABLE>

i
<PAGE> 151

<S> <C>
Deferred Sales Charge Alternative--Class B Shares..........................................................40
Purchase of Class C Shares.................................................................................41
Purchase of Class N and Class I Shares.....................................................................41
Fees Paid by Distributor to Service Firms..................................................................41
Class A Shares.............................................................................................41
Class B Shares.............................................................................................42
Class C Shares.............................................................................................42
Class N Shares.............................................................................................42
General....................................................................................................42
Redemptions................................................................................................43
Special Redemptions........................................................................................43
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege.......................................44
Contingent Deferred Sales Charge--Class B Shares...........................................................44
Contingent Deferred Sales Charge--Class C Shares...........................................................45
Contingent Deferred Sales Charge--General..................................................................45
Special Features...........................................................................................45
Class A Shares--Combined Purchases.........................................................................45
Class A Shares--Letter of Intent...........................................................................45
Class A Shares--Cumulative Discount........................................................................46
Class A Shares--Availability of Quantity Discounts.........................................................46
Exchange Privilege.........................................................................................46

GENERAL TRUST INFORMATION...........................................................................................47
Determination of Net Asset Value...........................................................................47
Performance................................................................................................48
Historical Performance.....................................................................................48
Comparison of Fund Performance to Market Indices...........................................................51
Tax Status.................................................................................................53
Retirement Plans...........................................................................................54
Independent Auditors.......................................................................................55
Legal Counsel..............................................................................................56
Custodian..................................................................................................56
Transfer Agent Services....................................................................................56
Reports to Shareholders....................................................................................56

SHAREHOLDER RIGHTS..................................................................................................56

INVESTMENT CRITERIA.................................................................................................56

TRUST HISTORY.......................................................................................................58

FINANCIAL INFORMATION OF THE FUND...................................................................................58

APPENDIX A...........................................................................................................1

APPENDIX B...........................................................................................................1

</TABLE>

<PAGE> 152

MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------

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

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

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

For the services and facilities furnished to each portfolio, the Trust pays the
Adviser an advisory fee, which is accrued daily and paid monthly on the first
business day of the following month. The Growth Fund pays an advisory fee at a
rate of .75% of the portfolio's average daily net assets. Prior to May 1, 1996,
the Growth Fund paid an advisory fee at a rate of 0.625% of the portfolio's
average daily net assets up to $75 million and 0.50% of average daily net assets
above $75 million. For the fiscal years ended December 31, 1998, 1997 and 1996,
the Adviser received fees of $4,861,435, $4,093,417 and $3,018,755,
respectively.

The Tax-Managed Growth Fund pays an advisory fee at a rate of .80% of the
portfolio's average daily net assets. The Adviser has entered into an agreement
with the Trust to cap the Fund's Class I share expenses at 1.11% until at least
April 30, 2000; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B and C shares, the expenses will be capped at 1.11%
plus any distribution and/or shareholder services fees.

The Large Cap Growth Fund pays an advisory fee at a rate of .80% of the
portfolio's average daily net assets. The Adviser has entered into an agreement
with the Trust to cap the Fund's Class I share expenses at 1.11% until at least
April 30, 2000; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B and C shares, the expenses will be capped at 1.11%
plus any distribution and/or shareholder services fees.

The Small Cap Growth Fund pays an advisory fee at a rate of 1.10% of the
portfolio's average daily net assets. The Adviser has entered into an agreement
with the Trust to cap the Fund's Class I share expenses at 1.35% until at least
April 30, 2000; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B and C shares, the expenses will be capped at 1.35%
plus any distribution and/or shareholder services fees.

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<PAGE> 153

The International Growth Fund pays an advisory fee at a rate of 1.10% of the
first $250 million of average daily net assets plus 1.00% of average daily net
assets over $250 million. Prior to May 1, 1996, the International Growth Fund
paid an advisory fee at a rate of 1.10% of the first $100,000,000 of average
daily net assets of the portfolio and .95% of average daily net assets above
$100,000,000. Under a former investment sub-advisory agreement, the Adviser paid
a sub-adviser a monthly fee at an annual rate equal to .40% of the first $100
million of average daily net assets of the portfolio and .275% of average daily
net assets above $100 million. For the services and facilities furnished during
the fiscal years ended December 31, 1998, 1997 and 1996, the Adviser received
fees of $1,557,766, $1,351,263 and $1,131,309, respectively, of which $303,364
in 1996 was paid to the former sub-adviser.

The Emerging Markets Growth Fund pays an advisory fee at a rate of 1.40% of the
portfolio's average daily net assets. The Adviser voluntarily has agreed to
reimburse the portfolio during its first year of operation should all operating
expenses, including the compensation of the Adviser but excluding taxes,
interest, extraordinary expenses and brokerage commissions or transaction costs,
exceed 2.25% of average daily net assets of the portfolio. For the services and
facilities furnished during the fiscal period from the portfolio's incorporation
on May 1, 1998 to December 31, 1998, the Adviser received fees of $34,835. The
Adviser voluntarily agreed to reimburse the portfolio during its first year of
operation should all operating expenses, including the compensation of the
Adviser but excluding taxes, interest, extraordinary expenses and brokerage
commissions or transaction costs, exceed 2.25% of average daily net assets of
the portfolio. The Adviser has entered into an agreement with the Fund to cap
the Fund's Class I shares expenses at 1.75% until at least April 30, 2000; the
Adviser may continue to waive fees voluntarily thereafter. For the Fund's Class
A, B and C shares, the expenses will be capped at 1.75% plus any distribution
and/or shareholder services fees.

The Disciplined Large Cap Fund pays an advisory fee at a rate of .80% of the
portfolio's average daily net assets. The Adviser has entered into an agreement
with the Trust to cap the Fund's Class B share's expenses at 1.00% until at
least April 30, 2000; the Adviser may continue to waive fees voluntarily
thereafter. For the Fund's Class A, B and C shares, the expense will be capped
at 1.00% plus any distribution and/or shareholder services fees.

The Value Discovery Fund pays an advisory fee at a rate of 1.15% of the
portfolio's average daily net assets. For services and facilities furnished to
the portfolio pursuant to the advisory agreement during the fiscal years 1998
and 1997 and for the fiscal year from December 23, 1996 (Commencement of
Operations) to December 31, 1996, the Trust paid $442,942, $241,689 and $333,
respectively. The Adviser has entered into an agreement with the Fund to cap the
Fund's Class I expenses at 1.39% until at least April 30, 2000; the Adviser may
continue to waive fees voluntarily thereafter. For the Fund's Class A, B and C
shares, the expenses will be capped at 1.39% plus any distribution and/or
shareholder services fees.

The Income Fund pays an advisory fee at a rate of .25% of the first $250 million
of average daily net assets plus .20% of average daily net assets over $250
million plus 5% of the gross income earned by the portfolio. Prior to May 1,
1996, the Income Fund paid an advisory fee at a rate of .25% of the first $100
million of average daily net assets of the portfolio, .20% of the next $150
million and .15% of average daily net assets in excess of $250 million, plus
5.0% of the gross income earned. For the services and facilities furnished to
the portfolio pursuant to the advisory agreement during the fiscal years ended
December 31, 1998, 1997 and 1996, the Fund paid $1,046,049, $918,833 and
$880,815, respectively.

The Ready Reserves Fund pays an advisory fee at a rate of .28% of the first $250
million of average daily net assets, plus .25% of the next $250 million of
average daily net assets, plus .23% of the next $2 billion of average daily net
assets, plus .20% of the average daily net assets over $2.5 billion. Prior to
January 1, 2000, the Ready Reserves Fund paid an advisory fee at a rate of .625%
of the first $250 million of average daily net assets, plus .60% of the next
$250 million of average daily net assets, plus .575% of the next $2 billion of
average daily net assets, plus .55% of the average daily net assets over $2.5
billion. Prior to May 1, 1996, the Ready Reserves Fund paid an advisory fee at a
rate of .625% of the first $250 million of average daily net assets of the
portfolio, .60% of the next $250 million, .55% of the next $500 million, .50% of
the next $2 billion, .45% of the next $2 billion and .40% of average daily net
assets in excess of $5 billion. For the services and facilities furnished to the
portfolio pursuant to the advisory agreement during the fiscal years ended
December 31, 1998, 1997 and 1996, the Adviser received fees of $6,215,491,
$5,236,627 and $4,282,827, respectively.

B-2
<PAGE> 154

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

DISTRIBUTOR. Pursuant to separate Underwriting and Distribution Agreements,
William Blair & Company, L.L.C. also is the principal underwriter and
distributor ("Distributor") for shares of the Trust and acts as agent of the
Trust in the sale of its shares.

The Distribution Agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Trust, including the Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by the Distributor upon 60 days' notice. Termination by the Trust with
respect to a class may be by vote of a majority of the Board of Trustees, or a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the agreement, or a "majority
of the outstanding voting securities" of the class of a Fund, as defined under
the 1940 Act. The agreement may not be amended for a class to increase the fee
to be paid by a Fund with respect to such class without approval by a majority
of the outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the agreement.

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

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

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

CONRAD FISCHER (65),* Chairman of the Board and Trustee; Principal, William
Blair & Company, L.L.C.; Trustee Emeritus, Chicago Child Care Society, a
non-profit organization, and Investment Committee, Kalamazoo College.

J. GRANT BEADLE (66), (1)(2)(3) Trustee; 985 Riomar Drive, Vero Beach, Florida
32963; Retired Chairman and Chief Executive Officer, Union Special Corporation,
industrial sewing machine manufacturer; Retired Associate Director, Northwestern
University Institute for Learning Sciences; Oliver Products Company, Batts, Inc.
and Woodward Governor Company.

THEODORE A. BOSLER (64), (1)(2)(3) Trustee; 812 Oak Street, Winnetka, Illinois
60093; Retired Principal and Vice President, Lincoln Capital Management;
Director, Thresholds, a psychiatric recovery center, and Institute of Chartered
Financial Analysts.

JOHN P. KAYSER (49),* Trustee; Vice President of the Trust; Principal, William
Blair & Company, L.L.C.; Director, DuPage Children's Museum.

ANN P. MCDERMOTT (59), (1)(2)(3) Trustee; 330 Willow Road, Winnetka, Illinois
60093; Trustee, Rush Presbyterian St. Luke's Medical Center; Women's Board, Rush
Presbyterian St. Luke's Medical Center; Honorary

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<PAGE> 155

Director, Visiting Nurse Association; Director, Presbyterian Homes; Northwestern
University, Women's Board; University of Chicago, Women's Board; Director,
Washington State University Foundation.

JOHN B. SCHWEMM (65), (1)(2)(3) Trustee; 2 Turvey Lane, Downers Grove, Illinois
60515; Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons
Company, printer; Director, USG Corp., building material product company, and
Walgreen Co., drug store chain.

ROBERT E. WOOD II (61), (1)(2) Trustee; 401 North Michigan Avenue, Suite 700,
Chicago, Illinois 60611; Retired Executive Vice President, Morgan Stanley Dean
Witter; Chairman, Add-Vision, Inc.; Chairman, Micro-Combustion, LLC.

ROCKY BARBER (47), Chief Executive Officer; Principal, William Blair & Company,
L.L.C.; Vice President and Secretary, LaRabida Hospital Foundation; Past
President, Stanford Associates.

MARCO HANIG (41), President; Associate, William Blair & Company, L.L.C.; former
Senior Vice President, First Chicago NBD; Engagement Manager, Marakon
Associates.

MARK A. FULLER, III (42), Senior Vice President; Principal, William Blair &
Company, L.L.C.

W. GEORGE GREIG (46), Senior Vice President; Principal, William Blair & Co.,
L.L.C.; former Portfolio Manager, Provident Capital Management; Manager, Akamai,
partnership affiliated with Framlington Investment Management Limited; Partner,
Pilgrim, Baxter & Greig.

GLEN KLECZKA (36), Senior Vice President; Portfolio Manager, William Blair &
Company, L.L.C.; former Partner, Brinson Partners; former Portfolio Manager, CNA
Financial Corp.

BENTLEY M. MYER (52), Senior Vice President; Principal, William Blair & Company,
L.L.C.; Director, Delnor Community Hospital.

JAMES S. KAPLAN (38), Vice President; Associate, William Blair & Company,
L.L.C.; former Vice President, First Union Bank.

TERENCE M. SULLIVAN (55), Vice President and Treasurer; Associate, William Blair
& Company, L.L.C.

JEFFREY A. URBINA (44), Vice President; Associate, William Blair & Company,
L.L.C.; former Director of Emerging Market Research and Portfolio Manager, Van
Kampen American Capital.

SHEILA M. JOHNSON (32), Secretary; Administrative Assistant, William Blair &
Company, L.L.C.

JANET V. GASSMANN (32), Assistant Secretary; Administrative Assistant, William
Blair & Company, L.L.C.; former Administrative Assistant, Shearson Lehman
Brothers, Inc.
- --------------
* Trustees who are interested persons as defined in the 1940 Act.

(1) Member of the Standing Audit Committee. Mr. Schwemm is Chairperson of
the Standing Audit Committee.

(2) Member of the Nominating Committee. J. Grant Beadle is the Chairperson of
the Nominating Committee.

(3) Mr. Beadle, Mr. Bosler, Ms. McDermott and Mr. Schwemm employ the Adviser
to manage assets that they control. In addition, as a result of his
former affiliation with the Adviser as a partner of William Blair &
Company, L.L.C. from 1973 to 1982.

Effective February 1, 1998, trustees who are not affiliated with the Adviser
receive an annual fee of $8,000 plus $3,000 for each meeting attended in person
plus expenses, $1,500 for each meeting by telephone and $3,000 for each
committee meeting held on a different day from a board meeting. Prior to
February 1, 1998, the trustees and

B-4

<PAGE> 156

officers not affiliated with the Adviser received an annual fee of $4,000 plus
$2,000 for each meeting attended in person plus expenses. The trustees and
officers affiliated with the Adviser received no compensation from the Trust.

The following table sets forth the compensation earned from the Trust for the
fiscal year ended December 31, 1998 by trustees who are not affiliated with the
Adviser:

PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED ANNUAL
COMPENSATION AS PART OF BENEFITS UPON TOTAL
TRUSTEE FROM THE TRUST TRUST EXPENSES RETIREMENT COMPENSATION
- ------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
J. Grant Beadle.......................... $23,000 0 0 $23,000
Theodore A. Bosler....................... $23,000 0 0 $23,000
George Kelm.............................. $18,500 0 0 $18,500
Ann P. McDermott......................... $23,000 0 0 $23,000
John B. Schwemm.......................... $21,500 0 0 $21,500

</TABLE>

The following table provides certain information at December 8, 1999 with
respect to persons known to the Trust to be record holders of 5% or more of the
shares of the following portfolios:

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
GROWTH FUND CLASS A
- -------------------
William Blair & Co., L.L.C. 11.43% 1,507
Sharon Lappin
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 9.23% 1,217
Mark E. Lawler
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 8.64% 1,139
Dudley J. Stroup
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 7.11% 937
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.79% 763
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

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<PAGE> 157

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
William Blair & Co., L.L.C. 5.54% 730
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.27% 695
Pastora San Juan Cafferty TTEE
222 West Adams Street
Chicago, IL 60606-5307

GROWTH FUND CLASS B
- -------------------
William Blair & Co., L.L.C. 37.40% 1,521
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 22.07% 897
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 15.94% 648
Ferne Reichman Trustee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 8.90% 362
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 8.31% 338
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

GROWTH FUND CLASS C
- -------------------
William Blair & Co., L.L.C. 32.58% 1,066
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 29.00% 949
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 16.40% 537
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

B-6

<PAGE> 158

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
William Blair & Co., L.L.C. 13.30% 435
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.64% 185
Patricia T. Bergeson Cust
222 West Adams Street
Chicago, IL 60606-5307

GROWTH FUND CLASS I
- -------------------
Society National Bank 13.32% 3,721,896
FBO William Blair Profit
Sharing Plan
PO Box 94870
Cleveland, OH 44101-4870

GROWTH FUND CLASS N
- -------------------
Charles Schwab & Co. Inc. 48.15% 4,970,142
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122

NFSC 41.42% 4,275,111
F B O Our Customers
Liberty Street
One World Financial Center
Attn: Mutual Funds Dept., 15th Fl
New York, NY 10281

VALUE DISCOVERY FUND CLASS A
- ----------------------------
William Blair & Co., L.L.C. 47.36% 763
The Chomicz Family Foundation
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 47.28% 762
John R. Garofalo
222 West Adams Street
Chicago, IL 60606-5307

VALUE DISCOVERY FUND CLASS B
- ----------------------------
William Blair & Co., L.L.C. 91.08% 79
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

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<PAGE> 159

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
VALUE DISCOVERY FUND CLASS C
- ----------------------------
William Blair & Co., L.L.C. 88.31% 687
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 10.19% 79
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

VALUE DISCOVERY FUND CLASS I
- ----------------------------
William Blair & Co., L.L.C. 6.38% 219,089
Ralph Gerald Portis B
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.95% 204,261
Travis Investments LP
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.95% 204,261
Catlin Investment LP
222 West Adams Street
Chicago, IL 60606-5307

Society National Bank 5.34% 183,510
FBO William Blair Profit
Sharing Plan
PO Box 94870
Cleveland, OH 441014870

VALUE DISCOVERY FUND CLASS N
- ----------------------------
Mitra & Co. 49.21% 78,123
c/o Marshall & Ilsley Trust co.
PO Box 2977
Milwaukee, WI 53201-2977

Charles Schwab & Co., Inc. 43.00% 72,704
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122

INTERNATIONAL GROWTH CLASS A
- ----------------------------
William Blair & Co., L.L.C. 22.30% 422
John R. Garofalo &
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

B-8

<PAGE> 160

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
William Blair & Co., L.L.C. 22.15% 419
The Chomicz Family Foundation
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 19.81% 375
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 12.78% 242
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 11.54% 218
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

INTERNATIONAL GROWTH CLASS B
- ----------------------------
William Blair & Co., L.L.C. 33.59% 800
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 23.47% 559
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 21.67% 516
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 13.68% 326
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 7.32% 174
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

INTERNATIONAL GROWTH CLASS C
- ----------------------------
William Blair & Co., L.L.C. 40.33% 829
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

B-9

<PAGE> 161

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
William Blair & Co., L.L.C. 30.59% 628
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 18.64% 383
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 7.83% 161
Patricia T. Bergeson Cust
222 West Adams Street
Chicago, IL 60606-5307

INTERNATIONAL GROWTH CLASS N
- ----------------------------
Charles Schwab & Co., Inc. 61.38% 751,311
Special Custody Account
for Exclusive Benefit of Customers
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122

NFSC 14.75% 180,497
F B O Our Customers
Liberty Street
One World Financial Center
Attn: Mutual Funds Dept., 5th Fl
New York, NY 10281

EMERGING MARKETS CLASS A
- ------------------------
William Blair & Co., L.L.C. 86.53% 87
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

EMERGING MARKETS CLASS B
- ------------------------
William Blair & Co., L.L.C. 87.88% 93
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

EMERGING MARKETS CLASS C
- ------------------------
William Blair & Co., L.L.C. 87.21% 93
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

</TABLE>

B-10

<PAGE> 162

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
EMERGING MARKETS CLASS I
- ------------------------
William Blair & Co., L.L.C. 11.06% 50,000
Edgar David Coolidge, III
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.53% 25,000
John P. Nicholas Trustee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 5.53% 25,000
William George Greig
222 West Adams Street
Chicago, IL 60606-5307

INCOME FUND CLASS A
- -------------------
William Blair & Co., L.L.C. 97.07% 493
Delaware Charter Guarantee
222 West Adams Street
Chicago, IL 60606-5307

INCOME FUND CLASS B
- -------------------
William Blair & Co., L.L.C. 91.88% 1,297
Ferne Reichman Trustee
222 West Adams Street
Chicago, IL 60606-5307

William Blair & Co., L.L.C. 7.07% 100
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

INCOME FUND CLASS C
- -------------------
William Blair & Co., L.L.C. 87.00% 100
Mutual Fund Investment Account
222 West Adams Street
Chicago, IL 60606-5307

INCOME FUND CLASS I
- -------------------
William Blair & Co., L.L.C. 5.07% 82,779
MidMfg Inc. Money Pur Pen Plan
222 West Adams Street
Chicago, IL 60606-5307

INCOME FUND CLASS N
- -------------------
Charles Schwab & Co., Inc. 59.84% 1,050,118
Attn: Mutual Funds Dept
101 Montgomery Street
San Francisco, CA 94104-4122

</TABLE>

B-11

<PAGE> 163

PERCENT OF FUND's
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- ---------------- ----------------- ----------------
<S> <C> <C>
NFSC
F B O Our Customers 17.99% 315,806
Liberty Street
One World Financial Center
Attn: Mutual Funds Dept., 5th Fl
New York, NY 10281

Post & Co. A/C 016009 6.07% 106,549
c/o The Bank of New York
Mutual Fund/Reorg. Dept.
PO Box 1066, Wall Street Station
New York, NY 10268-1066

Bear Stearns Securities Corp. 5.62% 98,659
FBO 103-21060-13
1 Metrotech Center North
Brooklyn, NY 11201-3870

</TABLE>

As of December 8, 1999, the Trust's officers and directors as a group owned (or
held or shared investment or voting power with respect to) 147,911 shares or
4.38% of the Value Discovery Fund's Class I shares, 109,967 shares or 1.19% of
the International Growth Fund's Class I shares, 105,394 shares or 23.35% of the
Emerging Markets Growth Fund's Class I shares. As of December 8, 1999, the
Trust's officers and directors as a group did not own more than 1% of the
outstanding shares of the Growth Fund, Income Fund and the Ready Reserves Fund.
These figures do not include shares of the Funds that may be indirectly owned by
certain officers of the Trust as a result of their interest in the William Blair
Profit Sharing Plan.

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

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

Selection of a broker for a particular portfolio transaction depends on many
factors, some of which are subjective and which include the net price, the
confidentiality, reliability, integrity, the size and nature of the transaction
and the market in which it is to occur and any research or other services that
the broker has provided. The Adviser determines the overall reasonableness of
brokerage commissions and of premiums and discounts on principal transactions
(which do not involve commissions) by review of comparable trades for the
Adviser's other clients and in the market generally. If more than one broker is
believed to be equally qualified to effect a portfolio transaction, the Adviser
may assign the transaction to a broker that has furnished research services, but
the Adviser has no

B-12

<PAGE> 164

agreement, formula or policy as to allocation of brokerage. The Adviser may
place orders with a broker on the basis that the broker has or has not sold
shares of a Fund.

The Trust may pay to brokers that provide research services to the Adviser a
commission higher than another broker might have charged if it is determined
that the commission is reasonable in relation to the value of the brokerage and
research services that are provided, viewed in terms of either the particular
transaction or the Adviser's overall responsibility to its advisory accounts.
The extent to which such commissions exceed commissions solely for execution
cannot be determined, but such research services, which are involved in
portfolio transactions for the Trust and for the Adviser's other advisory
accounts, can be of benefit to both the Trust and such other accounts. The value
of research services that are provided by brokers who handle portfolio
transactions for the Trust cannot be precisely determined and such services are
supplemental to the Adviser's own efforts, which are undiminished thereby. The
Adviser does not believe that its expenses are reduced by reason of such
services, which benefit the Trust and the Adviser's other clients. Transactions
in over-the-counter securities are generally executed as principal trades with
primary market makers, except where it is believed that a better combination of
price and execution could otherwise be obtained. The Adviser receives research
products and services from broker/dealers and third parties in the form of
written reports on individual companies and industries of particular interest to
the Adviser, general economic conditions, pertinent Federal and State
legislative developments and changes in accounting practices; direct access by
telephone or meetings with leading research analysts throughout the financial
community, corporate management personnel, and industry experts, comparative
performance and evaluation and technical measurement services for issuers,
industries and the market as a whole; access to and monitoring of equity
valuation models; and services from recognized experts on investment matters of
particular interest to the Adviser.

The Growth Fund paid total brokerage fees of $515,832, $422,714 and $394,561 in
1998, 1997 and 1996, respectively. None of these brokerage fees were paid to a
broker that was an affiliated person of the Trust or to a broker of which an
affiliated person was an affiliated person of the Trust or of the Adviser. The
increase in brokerage fees from year to year is in proportion to the change in
the Fund's asset size.

The Value Discovery Fund paid total brokerage fees of $103,906 in 1998, $35,216
in 1997 and $12 for the period from December 23, 1996 (Commencement of
Operations) to December 31, 1996. None of these brokerage fees were paid to a
broker that was an affiliated person of the Trust or to a broker of which an
affiliated person was an affiliated person of the Trust or of the Adviser.

The International Growth Fund paid brokerage fees of $889,064, $820,267 and
$779,507 in 1998, 1997 and 1996, respectively. None of these brokerage fees were
paid to a broker that was an affiliated person of the Trust or to a broker of
which an affiliated person was an affiliated person of the Trust or of the
Adviser.

The Emerging Markets Growth Fund paid brokerage fees of $60,161 in 1998. None of
these brokerage fees were paid to a broker that was an affiliated person of the
Trust or to a broker of which an affiliated person was an affiliated person of
the Trust or the Adviser.

Purchases and sales of portfolio securities for the Income Fund and the Ready
Reserves Fund usually are principal transactions, either directly with the
issuer or with an underwriter or market maker, with no brokerage commissions
paid by the portfolio. No brokerage commissions were paid by the Income Fund or
the Ready Reserves Fund during the fiscal years ended December 31, 1998, 1997
and 1996. Purchases from underwriters will include a commission or concession
paid by the issuer to the underwriter and purchases from dealers serving as
market makers will include the spread between the bid and asked prices. The
primary consideration in the allocation of transactions is prompt execution of
orders in an effective manner at the most favorable price.

No brokerage commissions were paid by the Tax-Managed Growth Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund and the Disciplined Large Cap Fund during
the last fiscal year ended December 31, 1998 because the Funds did not begin
operation until December 8, 1999.

Generally, the investment decisions for the Funds are reached independently from
those for other accounts managed by the Adviser. However, some other accounts
may make investments in the same type of instruments or securities

B-13

<PAGE> 165

as the Funds at the same time as the Funds. In those instances where the Funds
and another client of the Adviser trade in the same type of instrument at the
same time, the Adviser has established allocation procedures that ensure an
equitable allocation of such trades among its various clients and the Funds. In
some cases this procedure may affect the size or price of the position
obtainable for the Funds. However, it is the opinion of the Board of Trustees
that the benefits available because of the Adviser's organization outweigh any
disadvantages that may arise from exposure to simultaneous transactions.

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

INVESTMENT POLICIES AND RESTRICTIONS

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

Except as otherwise noted, the following fundamental investment restrictions
apply to each Fund:

CONCENTRATION. Each Fund except the Ready Reserves Fund:

The Fund will not make investments that will result in the concentration (as
that term is defined in the 1940 Act, any rule or order thereunder, or SEC staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax exempt securities.

This restriction also does not limit the Fund from investing in instruments,
such as repurchase agreements, secured by obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities.

Ready Reserves Fund: The Fund will not make investments that will result in the
concentration (as that term is defined in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof) of its investments in the
securities of issuers primarily engaged in the same industry; provided, however,
that the Fund reserves the freedom of action to invest up to 100% of its total
assets in securities or instruments issued by domestic banks, which include
certificates of deposit, time deposits, bankers' acceptances and repurchase
agreements.

SENIOR SECURITIES AND BORROWING. The Fund may not borrow money or issue senior
securities, except as the 1940 Act, any rule or order thereunder, or SEC staff
interpretation thereof may permit.

UNDERWRITING. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition, or resale of its portfolio securities under circumstances where it
may be considered to be an underwriter under the Securities Act of 1933.

REAL ESTATE. The Fund may not purchase or sell real estate unless the real
estate is acquired as a result of ownership of securities or other instrument;
and provided that this restriction does not prevent the Fund from investing in
issuers that invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real estate or
interest therein.

B-14
<PAGE> 166

COMMODITIES. The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instrument; however,
this restriction shall not prevent the Fund from engaging in transactions
involving futures contracts, options or other derivative instruments, or
investing in securities that are secured by physical commodities.

LENDING. The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker/dealers or institutional investors, and
investing in loans, including assignments and participation interests.

DIVERSIFICATION.

Growth Fund, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth
Fund and Disciplined Large Cap Fund.

The Fund will operate as an open-end, diversified, management type
investment company, as defined in the 1940 Act. The Fund will not
purchase any security if doing so would cause more than 10% of the
voting securities of the issuer to be held by the Fund.

International Growth Fund:

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

Emerging Markets Growth Fund and Value Discovery Fund:

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

Income Fund and Ready Reserves Fund:

The Fund may not purchase securities of any issuer (other than
obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities) if, as a result, more than 5% of the
value of its total assets would be invested in securities of that
issuer.

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

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

The Growth Fund may not:

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

(2) Purchase, except for securities acquired as part of a merger,
consolidation or acquisition of assets, more than 3% of the stock of
another investment company, except as otherwise permitted by statute,
rule, exemptive order, SEC no-action letter or investment restriction.

B-15

<PAGE> 167

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

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

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

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

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

The International Growth Fund may not:

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

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

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

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

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

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

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

The Emerging Markets Growth Fund may not:

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

B-16

<PAGE> 168

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

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

(4) Purchase, except for securities acquired as part of a merger,
consolidation or acquisition of assets, more than 3% of the stock of
another investment company, except as otherwise permitted by statute,
rule, exemptive order, SEC no-action letter or investment restriction.

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

(6) Pledge, mortgage or hypothecate any assets owned by the portfolio
except as may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging or hypothecating may not
exceed 331/3% of the portfolio's total assets at the time of the
borrowing or investment.

The Value Discovery Fund may not:

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

B-17

<PAGE> 169

The Income Fund may not:

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

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

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

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

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

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

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

The Ready Reserves Fund may not:

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

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

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

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

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

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

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

The Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund and
Disciplined Large Cap Fund may not:

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

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

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<PAGE> 170

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

INVESTMENT PRACTICES

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

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

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

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

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

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

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services of the underlying mortgage loans. The guaranteed mortgage pass-through
securities in which the portfolio will invest will include those issued or
guaranteed by GNMA, FNMA and FHLMC.

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

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

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

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

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

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

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FHLMC, such securities generally are structured with one or more types of credit
enhancement. See "Types of Credit Support," below.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations, or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates,
but also may be collateralized by whole loans or private pass-throughs (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets
and any reinvestment income thereon provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through securities.
CMOs may be issued by agencies or instrumentalities of the United States
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.

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

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

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

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

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

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letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches.

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

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

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

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

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

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DERIVATIVE INSTRUMENTS. In General. The Tax-Managed Growth Fund, Large Cap
Growth Fund, Small Cap Growth Fund and Disciplined Large Cap Fund may use
derivative instruments solely for the purpose of bona fide hedging or risk
management. Derivative instruments are commonly defined to include securities or
contracts whose values depend on (or "derive" from) the value of one or more
other assets, such as securities, currencies, or commodities. These "other
assets" are commonly referred to as "underlying assets."

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to OPTIONS or FORWARD CONTRACTS. Options and forward
contracts are considered to be the basic "building blocks" of derivatives. For
example, forward-based derivatives include forward contracts, swap contracts, as
well as exchange-traded futures. Option-based derivatives include privately
negotiated, over-the-counter ("OTC") options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-traded options on
futures. Diverse types of derivatives may be created by combining options or
forward contracts in different ways, and by applying these structures to a wide
range of underlying assets.

An option is a contract in which the "holder" (the buyer) pays a certain amount
("premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price at or before a certain time. The
holder pays the premium at inception and has no further financial obligation.
The holder of an option-based derivative generally will benefit from favorable
movements in the price of the underlying asset but is not exposed to
corresponding losses due to adverse movements in the value of the underlying
asset. The writer of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses due to changes in the value of the
underlying asset.

A forward is a sales contract between a buyer (holding the "long" position) and
a seller (holding the "short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed price at the agreed future
date and the seller agrees to deliver the asset. The seller hopes that the
market price on the delivery date is less than the agreed upon price, while the
buyer hopes for the contrary. The change in value of a forward-based derivative
generally is roughly proportional to the change in value of the underlying
asset.

Hedging. The Funds may use derivative instruments to protect against possible
adverse changes in the market value of securities held in, or are anticipated to
be held in, its portfolio. Derivatives may also be used to "lock-in" realized
but unrecognized gains in the value of its portfolio securities. Hedging
strategies, if successful, can reduce the risk of loss by wholly or partially
offsetting the negative effect of unfavorable price movements in the investments
being hedged. However, hedging strategies can also reduce the opportunity for
gain by offsetting the positive effect of favorable price movements in the
hedged investments. To the extent that a hedge matures prior to or after the
disposition of the investment subject to the hedge, any gain or loss on the
hedge will be realized earlier or later than any offsetting gain or loss on the
hedged investment.

Managing Risk. The Funds may also use derivative instruments to manage the risks
of its portfolio. Risk management strategies include, but are not limited to,
facilitating the sale of portfolio securities, managing the effective maturity
or duration of debt obligations in its portfolio, establishing a position in the
derivatives markets as a substitute for buying or selling certain securities, or
creating or altering exposure to certain asset classes, such as equity, debt, or
foreign securities. The use of derivative instruments may provide a less
expensive, more expedient or more specifically focused way to invest than
"traditional" securities (i.e., stocks or bonds) would.

Exchange and OTC Derivatives. Derivative instruments may be exchange-traded or
traded in OTC transactions between private parties. Exchange-traded derivatives
are standardized options and futures contracts traded in an auction on the floor
of a regulated exchange. Exchange contracts are generally very liquid. The
exchange clearinghouse is the counterparty of every contract. Thus, each holder
of an exchange contract bears the credit risk of the clearinghouse (and has the
benefit of its financial strength) rather than that of a particular
counterparty. OTC transactions are subject to additional risks, such as the
credit risk of the counterparty to the instrument, and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.

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Risks and Special Considerations. The use of derivative instruments involves
risks and special considerations as described below. Risks pertaining to
particular derivative instruments are described in the sections that follow.

(1) Market Risk. The primary risk of derivatives is the same as the risk
of the underlying assets, namely that the value of the underlying asset may go
up or down. Adverse movements in the value of an underlying asset can expose the
Funds to losses. Derivative instruments may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
ability of the Adviser to predict movements of the securities, currencies, and
commodity markets, which requires different skills than predicting changes in
the prices of individual securities. There can be no assurance that any
particular strategy adopted will succeed. The Adviser's decision to engage in a
derivative transaction will reflect its judgment that the derivative transaction
will provide value to the Funds and their shareholders and is consistent with
the Funds' objectives, investment limitations, and operating policies. In making
such a judgment, the Adviser will analyze the benefits and risks of the
derivative transaction and weigh them in the context of the Funds' entire
portfolio and investment objective.

(2) Credit Risk. The Funds will be subject to the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with the terms
of a derivative instrument. The counterparty risk for exchange-traded derivative
instruments is generally less than for privately negotiated or OTC derivative
instruments, since generally a clearing agency, which is the issuer or
counterparty to each exchange-traded instrument, provides a guarantee of
performance. For privately negotiated instruments, there is no similar clearing
agency guarantee. In all transactions, the Funds will bear the risk that the
counterparty will default, and this could result in a loss of the expected
benefit of the derivative transaction and possibly other losses. The Funds will
enter into transactions in derivative instruments only with counterparties that
the Adviser reasonably believes are capable of performing under the contract.

(3) Correlation Risk. When a derivative transaction is used to completely
hedge another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from an
imperfect correlation between the price movements of the two instruments. With a
perfect hedge, the value of the combined position remains unchanged for any
change in the price of the underlying asset. With an imperfect hedge, the values
of the derivative instrument and the hedged position are not perfectly
correlated. Correlation risk is the risk that there might be imperfect
correlation, or even no correlation, between price movements of a derivative
instrument and price movements of investments being hedged. For example, if the
value of a derivative instrument used in a short hedge (such as writing a call
option, buying a put option, or selling a futures contract) increased by less
than the decline in value of the hedged investments, the hedge would not be
perfectly correlated. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as speculative or
other pressures on the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices will depend, in part, on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.

(4) Liquidity Risk. Derivatives are also subject to liquidity risk.
Liquidity risk is the risk that a derivative instrument cannot be sold, closed
out, or replaced quickly at or very close to its fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can be closed out only with the
other party to the transaction. The Funds might be required by applicable
regulatory requirement to maintain assets as "cover," maintain segregated
accounts, and/or make margin payments when they take positions in derivative
instruments involving obligations to third parties (i.e., instruments other than
purchased options). If the Funds were unable to close out their positions in
such instruments, they might be required to continue to maintain such assets or
accounts or make such payments until the position expired, matured, or was
closed out. The requirements might impair the Funds' ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Funds sell a portfolio security at a disadvantageous
time. The Funds' ability to sell or close out a position in an instrument prior
to expiration or maturity depends on the existence of a liquid secondary market
or, in the absence of such a market, the ability and willingness of the
counterparty to enter into a

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transaction closing out the position. Therefore, there is no assurance that any
derivatives position can be sold or closed out at a time and price that is
favorable to the Funds.

(5) Legal Risk. Legal risk is the risk of loss caused by the legal
unenforceability of a party's obligations under the derivative. While a party
seeking price certainty agrees to surrender the potential upside gain in
exchange for downside protection, the party taking the risk is looking for a
positive payoff. Despite this voluntary assumption of risk, a counterparty that
has lost money in a derivative transaction may try to avoid payment by
exploiting various legal uncertainties about certain derivative products.

(6) Systemic or "Interconnection" Risk. Interconnection risk is the risk
that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill over
into other markets, perhaps creating a chain reaction. Much of the OTC
derivatives market takes place among the OTC dealers themselves, thus creating a
large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses at
other dealers and destabilize the entire market for OTC derivative instruments.

General Limitations. The use of derivative instruments is subject to applicable
regulations of the SEC, the several options and futures exchanges upon which
they may be traded, the Commodity Futures Trading Commission ("CFTC"), and
various state regulatory authorities. In addition, the Funds' ability to use
derivative instruments may be limited by certain tax considerations.

The Funds have filed a notice of eligibility for exclusion from the definition
of the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. In accordance with
Rule 4.5 of the regulations under the Commodity Exchange Act ("CEA"), the notice
of eligibility for the Funds includes representations that the Funds will use
futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations, provided that the Funds may hold other
positions in futures contracts and related options that do not qualify as a bona
fide hedging position if the aggregate initial margin deposits and premiums
required to establish these positions, less the amount by which any such futures
contracts and related options positions are "in the money," do not exceed 5% of
a Fund's net assets. Adherence to these guidelines does not limit a Fund's risk
to 5% of the Fund's assets.

The SEC has identified certain trading practices involving derivative
instruments that involve the potential for leveraging the Funds' assets in a
manner that raises issues under the 1940 Act. In order to limit the potential
for the leveraging of the Funds' assets, as defined under the 1940 Act, the SEC
has stated that the Funds may use coverage or the segregation of the Funds'
assets. To the extent required by SEC guidelines, the Funds will not enter into
any such transactions unless it owns either: (1) an offsetting ("covered")
position in securities, options, futures, or derivative instruments; or (2) cash
or liquid securities positions with a value sufficient at all times to cover its
potential obligations to the extent that the position is not "covered". The
Funds will also set aside cash and/or appropriate liquid assets in a segregated
custodial account if required to do so by SEC and CFTC regulations. Assets used
as cover or held in a segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Funds' assets to segregated accounts could
impede portfolio management or the Funds' ability to meet redemption requests or
other current obligations.

In some cases, the Funds may be required to maintain or limit exposure to a
specified percentage of its assets to a particular asset class. In such cases,
when the Funds uses a derivative instrument to increase or decrease exposure to
an asset class and is required by applicable SEC guidelines to set aside liquid
assets in a segregated account to secure its obligations under the derivative
instruments, the Adviser may, where reasonable in light of the circumstances,
measure compliance with the applicable percentage by reference to the nature of
the economic exposure created through the use of the derivative instrument and
not by reference to the nature of the exposure arising from the liquid assets
set aside in the segregated account (unless another interpretation is specified
by applicable regulatory requirements).

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Options. The Funds may use options for any bona fide hedging or risk management
purpose. An option is a contract in which the "holder" (the buyer) pays a
certain amount ("premium") to the "writer" (the seller) to obtain the right, but
not the obligation, to buy from the writer (in a "call") or sell to the writer
(in a "put") a specific asset at an agreed upon price ("strike price" or
"exercise price") at or before a certain time ("expiration date"). The holder
pays the premium at inception and has no further financial obligation. The
holder of an option will benefit from favorable movements in the price of the
underlying asset but is not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The writer of an option will
receive fees or premiums but is exposed to losses due to changes in the value of
the underlying asset. The Funds may buy or write (sell) put and call options on
assets, such as securities, currencies, futures, financial commodities, and
indices of debt and equity securities ("underlying assets") and enter into
closing transactions with respect to such options to terminate an existing
position. Options used by the Funds may include European, American, and Bermuda
style options. If an option is exercisable only at maturity, it is a "European"
option; if it is also exercisable prior to maturity, it is an "American" option.
If it is exercisable only at certain times, it is a "Bermuda" option.

The Funds may purchase (buy) and write (sell) put and call options on underlying
assets and enter into closing transactions with respect to such options to
terminate an existing position. The purchase of a call option serves as a long
hedge, and the purchase of a put option serves as a short hedge. Writing put or
call options can enable the Funds to enhance income by reason of the premiums
paid by the purchaser of such options. Writing call options serves as a limited
short hedge because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However, if
the security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Funds will
be obligated to sell the security at less than its market value or will be
obligated to purchase the security at a price greater than that at which the
security must be sold under the option. All or a portion of any assets used as
cover for OTC options written by the Funds would be considered illiquid. Writing
put options serves as a limited long hedge because decreases in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security depreciates to a price lower than
the exercise price of the put option, it can be expected that the put option
will be exercised and the Funds will be obligated to purchase the security at
more than its market value.

The value of an option position will reflect, among other things, the historical
price volatility of the underlying investment, the current market value of the
underlying investment, the time remaining until expiration, the relationship of
the exercise price to the market price of the underlying investment, and general
market conditions.

The Funds may effectively terminate a right or obligation under an option by
entering into a closing transaction. For example, the Funds may terminate an
obligation under a call or put option that they had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Funds may terminate a position in a put or call option they had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Funds to realize the profit or
limit the loss on an option position prior to its exercise or expiration.

The Funds may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. In contrast, OTC options
are contracts between the Funds and the other party to the transaction
("counterparty") (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Funds purchase or write an OTC option,
they rely on the counterparty to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Funds as well as the loss of
any expected benefit of the transaction.

The Funds' ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Funds intend to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. Although the
Funds will enter into OTC options only with counterparties that are expected to
be capable of entering into closing transactions with the Funds, there is no

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assurance that the Funds will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Funds might be unable to close out an OTC option position at
any time prior to its expiration. If the Funds were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the option
to realize any profit.

The Funds also may engage in options transactions as described above on
securities indices and other financial indices and in so doing can achieve many
of the same objectives they would achieve through the sale or purchase of
options on individual securities or other instruments. Options on securities
indices and other financial indices are similar to options on a security or
other instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement, i.e., an option on an
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
making up the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.

The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of the
attempted hedging.

Futures Contracts. The Funds may enter into contracts for the purchase or sale
for future delivery of fixed-income securities, foreign currencies or contracts
based on financial indices, including indices of U.S. government securities,
foreign government securities, equity or fixed-income securities. The Funds may
also purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered call
options on futures contracts can serve as a limited short hedge, and writing
covered put options on futures contracts can serve as a limited long hedge,
using a strategy similar to that used for writing covered options in securities.
The Funds may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the same
strike prices and expiration dates. The Funds will engage in this strategy only
when the Adviser believes it is more advantageous to the Funds than purchasing
the futures contract.

The Funds may use futures contracts solely for the purpose of bona fide hedging
or risk management. A Fund's primary purpose in entering into futures contracts
is to protect that Fund from fluctuations in the value of securities or interest
rates without actually buying or selling the underlying debt or equity security.
For example, if a Fund anticipates an increase in the price of stocks, and it
intends to purchase stocks at a later time, that Fund could enter into a futures
contract to purchase a stock index as a temporary substitute for stock
purchases. If an increase in the market occurs that influences the stock index,
as anticipated, the value of the futures contracts will increase, thereby
serving as a hedge against that Fund not participating in a market advance.
Conversely, if a Fund holds stocks and seeks to protect itself from a decrease
in stock prices, the Fund might sell stock index futures contracts, thereby
hoping to offset the potential decline in the value of its portfolio securities
by a corresponding increase in the value of the futures contract position. A
Fund could protect against a decline in stock prices by selling portfolio
securities and investing in money market instruments, but the use of futures
contracts enables it to maintain a defensive position without having to sell
portfolio securities.

Although techniques other than sales and purchases of futures contracts could be
used to reduce the Funds' exposure to market or interest rate fluctuations, the
Funds may be able to hedge its exposure more effectively and perhaps at a lower
cost through the use of futures contracts.

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A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument for a
specified price at a designated date, time, and place. An index futures contract
is an agreement pursuant to which the parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
futures contract was originally written. Transaction costs are incurred when a
futures contract is bought or sold and margin deposits must be maintained. A
futures contract may be satisfied by delivery or purchase, as the case may be,
of the instrument or by payment of the change in the cash value of the index.
More commonly, futures contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching futures contract. Although the
value of an index might be a function of the value of certain specified
securities, no physical delivery of those securities is made. If the offsetting
purchase price is less than the original sale price, the Funds realize a gain;
if it is more, the Funds realize a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Funds realize a gain; if it
is less, the Funds realize a loss. The transaction costs must also be included
in these calculations. There can be no assurance, however, that the Funds will
be able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Funds are not able to enter into
an offsetting transaction, the Funds will continue to be required to maintain
the margin deposits on the futures contract.

No price is paid by the Funds upon entering into a futures contract. Instead, at
the inception of a futures contract, the Funds are required to deposit in a
segregated account with its custodian, in the name of the futures broker through
whom the transaction was effected, "initial margin" consisting of cash and/or
other appropriate liquid assets in an amount generally equal to 10% or less of
the contract value. Margin must also be deposited when writing a call or put
option on a futures contract, in accordance with applicable exchange rules.
Unlike margin in securities transactions, initial margin on futures contracts
does not represent a borrowing, but rather is in the nature of a performance
bond or good-faith deposit that is returned to the Funds at the termination of
the transaction if all contractual obligations have been satisfied. Under
certain circumstances, such as periods of high volatility, the Funds may be
required by an exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by
regulatory action.

Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of the Funds' obligations to or from a futures broker. When the
Funds purchases an option on a future, the premium paid plus transaction costs
is all that is at risk. In contrast, when the Funds purchase or sell a futures
contract or writes a call or put option thereon, it is subject to daily
variation margin calls that could be substantial in the event of adverse price
movements. If the Funds have insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales are
disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument held or written.
Positions in futures and options on futures may be closed only on an exchange or
board of trade that provides a secondary market. The Funds intends to enter into
futures transactions only on exchanges or boards of trade where there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is reached, no trades may
be made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If the Funds were unable to liquidate a futures or option on a futures contract
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Funds would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Funds would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.

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Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and might
be compelled to liquidate futures or options on futures contracts positions
whose prices are moving unfavorably to avoid being subject to further calls.
These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

Swap Agreements. The Funds may enter into interest rate, securities index,
commodity, or security and currency exchange rate swap agreements and related
caps, floors, and collars. The Funds will use such instruments solely for the
purpose of bona fide hedging or risk management, such as for the purpose of
attempting to obtain or preserve a particular desired return or spread at a
lower cost to the Funds than if the Funds had invested directly in an instrument
that yielded that desired return or spread. The Funds also may enter into swaps
in order to protect against an increase in the price of, or the currency
exchange rate applicable to, securities that the Funds anticipate purchasing at
a later date. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to several years.
In a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount" (i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate) in a particular foreign currency, or in a "basket" of
securities representing a particular index. Swap agreements may include caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that a specified index exceed a specified rate or amount, or
"cap;" floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that a specified index fall below a
specified level, or "floor;" and collars, under which a party sells a cap and
purchases a floor, or vice versa, in an attempt to protect itself against
movements interest or values exceeding given minimum or maximum levels.

The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Funds, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Funds'
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement. A Fund's obligation
under a swap agreement will be accrued daily (offset against amounts owed to the
Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash and/or
other appropriate liquid assets.

Whether the Funds' use of swap agreements will be successful in furthering their
investment objectives will depend, in part, on the Adviser's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. The swap market has grown substantially in
recent years with a large number of banking firms acting as both principals and
agents using standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not been fully developed and,
accordingly, they are less liquid than swaps. Moreover, the Funds bear the risk
of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. Certain
restrictions imposed on the Funds by the Internal Revenue Code of 1986 ("IRC")
may limit the Funds' ability to use swap agreements. The swaps market is largely
unregulated.

The Funds will enter swap agreements only with counterparties that the Adviser
reasonably believes are capable of performing under the swap agreements. If
there is a default by the other party to such a transaction, the Funds will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.

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Additional Derivative Instruments and Strategies. In addition to the derivative
instruments and strategies described above and in the Prospectus, the Adviser
expects additional derivative instruments and other hedging or risk management
techniques to develop from time to time. The Adviser may utilize these new
derivative instruments and techniques to the extent that they are consistent
with the Funds' investment objective and permitted by the Funds' investment
limitations, operating policies, and applicable regulatory authorities.

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

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

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

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

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

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

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

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

Each portfolio endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when a portfolio changes

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

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

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

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

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

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

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FORWARD FOREIGN CURRENCY TRANSACTIONS. The foreign securities held by the
International Growth Fund and the Emerging Markets Growth Fund will usually be
denominated in foreign currencies and the Fund may temporarily hold foreign
currency in connection with such investments. As a result, the value of the
assets held by the Fund may be affected favorably or unfavorably by changes in
foreign currency exchange rates, by exchange control regulations and by
indigenous economic and political developments. Some countries in which the
Funds may invest may also have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's securities are denominated may have a detrimental impact on that
Fund.

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

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

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

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

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

FOREIGN CURRENCY FUTURES. Generally, foreign futures contracts will be executed
on a U.S. exchange. To the extent they are not, however, engaging in such
transactions will involve the execution and clearing of trades on or

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

HIGH-YIELD/HIGH-RISK SECURITIES. High-yield/high-risk securities (or "junk"
bonds) are debt securities rated below investment grade by the primary rating
agencies (such as Standard & Poor's Ratings Services and Moody's Investors
Service, Inc.).

The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield securities may not be as strong
financially as those issuing bonds with higher credit ratings. Investments in
such companies are considered to be more speculative than higher quality
investments.

Issuers of high-yield securities are more vulnerable to real or perceived
economic changes (for instance, an economic downturn or prolonged period of
rising interest rates), political changes or adverse developments specific to
the issuer. The market for lower quality securities is generally less liquid
than the market for higher quality securities. Adverse publicity and investor
perceptions as well as new or proposed laws may also have a greater negative
impact on the market for lower quality securities.

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INVESTMENT COMPANIES. The Trust has applied for certain exemptive relief with
the SEC that, if granted, will allow the Funds to invest a portion of their
assets into shares of the Ready Reserves Fund based upon the terms and
conditions of such relief.

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

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

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

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

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

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

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

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

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

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

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ADDITIONAL INFORMATION ABOUT SHARE CLASSES

PURCHASE OF SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each
Fund are sold to investors subject to an initial sales charge. Class B shares
are sold without an initial sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically convert to Class A shares at
the end of the seventh year after issuance. Class C shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares, are subject to a contingent deferred sales charge payable upon certain
redemptions within the first year following purchase, and do not convert into
another class. Class N shares are sold to investors without an initial sales
charge or a contingent deferred sales charge but have higher ongoing expenses
than Class I shares. Class I shares are sold to investors without an initial
sales charge or a contingent deferred sales charge, and have lower ongoing
expenses than Class N shares. When placing purchase orders, investors must
specify whether the order is for Class A, Class B, Class C shares, Class N
shares or Class I shares.

The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structure and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees and shareholder services fees. These differences are
summarized in the table below. Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.

ANNUAL ANNUAL
12B-1 FEES SHAREHOLDER
(AS A % OF SERVICES FEES
AVERAGE DAILY (AS A % OF AVERAGE OTHER
SALES CHARGE NET ASSETS) DAILY NET ASSETS) INFORMATION
------------ ------------- ------------------ -----------
<S> <C> <C> <C> <C>
Class A Maximum initial sales charge of None 0.25% Initial sales charge
5.75% (2.00% for the Income waived or reduced
Fund) of the public offering price for certain
purchases

Class B Maximum contingent deferred 0.75% 0.25% Shares convert to
sales charge of 5.00% (2.00% for Class A shares
the Income Fund) of redemption eight years after
proceeds; declines to zero after issuance (three for
six years (two years for the the Income Fund)
Income Fund)

Class C Contingent deferred sales charge 0.75% 0.25% No conversion
of 1% of redemption proceeds for feature
redemptions made during first
year after purchase

Class N None 0.25%(1) None

Class I None None None
</TABLE>

- --------------
(1) For all Funds except the Income Fund (0.15%) and the Ready Reserves
Fund (0.35%).

ELIGIBILITY. In addition to the eligibility requirements set forth in the
prospectus, the following types of investors may invest in the following classes
of shares:

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Class A:

(1) through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms, acting solely
as agent for their clients, that adhere to certain standards
established by the Distributor, including a requirement that such
shares be purchased for the benefit of their clients participating in
an investment advisory program or agency commission program under which
such clients pay a fee to the investment advisor or the other firm for
portfolio management or agency brokerage services.

Class I:

(1) tax-exempt retirement plans (Profit Sharing, 401(k), Money Purchase
Pension and Defined Benefit Plans) of William Blair and it affiliates
and rollover accounts from those plans; and

(2) investment companies managed by William Blair that invest primarily in
other investment companies.

Share certificates will not be issued.

DISTRIBUTION FEES. Each Fund has adopted plans under Rule 12b-1 ("Distribution
Plans") that provide for fees to compensate the Distributor for distribution and
services for Class B, Class C and Class N shares. Because Rule 12b-1 fees are
paid out of Fund assets on an ongoing basis, they will, over time, increase the
cost of an investment and cost more than other types of sales charges.

For its services under the Distribution Plan, the Distributor reserves a
distribution fee from each Fund, payable monthly, at the annual rate of 0.75%,
0.75% and 0.25%, of average daily net assets attributable to Class B, Class C
and Class N shares, respectively, of each Fund except for Class N shares of the
Income Fund and the Ready Reserves Fund. For the Class N shares of the Income
Fund and Ready Reserves Fund, the Distributor receives a fee under the
Distribution Plan, payable monthly, at the annual rate of 0.15% and 0.35%,
respectively.

If a Distribution Plan is terminated in accordance with its terms, the
obligation of a Fund to make payments to the Distributor pursuant to the
Distribution Plan will cease and the Fund will not be required to make any
payments past the termination date. Thus, there is no legal obligation for the
Fund to pay any expenses incurred by the Distributor in excess of its fees under
a Distribution Plan, if for any reason the Plan is terminated in accordance with
its terms. Future fees under a Distribution Plan may or may not be sufficient to
reimburse the Distributor for its expenses incurred.

SHAREHOLDER SERVICE FEES. Shareholder services are provided to each Fund's Class
A, Class B and Class C shares under a Shareholder Services Agreement with the
Distributor. The Distributor bears all its expenses of providing services
pursuant to the Shareholder Services Agreement, including the payment of
shareholder service fees. The Fund pays the Distributor a shareholder services
fee, payable monthly, at an annual rate of 0.25% of average daily net assets of
Class A, Class B and Class C shares of the Fund.

SUMMARY OF ONGOING FEES FOR CLASS A SHARES. Under a Shareholder Service
Agreement, the Funds pay a shareholder services fee to the Distributor, payable
monthly, at an annual rate of 0.25% of average daily net assets of each Fund
attributable to Class A shares. The fee is accrued daily as an expense of Class
A shares.

SUMMARY OF ONGOING FEES FOR CLASS B SHARES. Under a Distribution Plan, the Funds
pay a distribution fee to the Distributor, payable monthly, at the annual rate
of 0.75% of average daily net assets of each Fund attributable to Class B
shares. Under a Shareholder Service Agreement, the Funds also pay to the
Distributor a shareholder services fee, payable monthly, at an annual rate of
0.25% of average daily net assets of each Fund attributable to Class B shares.
Both fees are accrued daily as an expense of Class B shares.

SUMMARY OF ONGOING FEES FOR CLASS C SHARES. Under a Distribution Plan, the Funds
pay a distribution fee to the Distributor, payable monthly, at an annual rate of
0.75% of average daily net assets of each Fund attributable to

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Class C shares. Under a separate Shareholder Services Agreement, the Funds also
pay to the Distributor a shareholder services fee, payable monthly, at an annual
rate of 0.25% of average daily net assets of each Fund attributable to Class C
shares. Both fees are accrued daily as an expense of Class C shares.

SUMMARY OF ONGOING FEES FOR CLASS N SHARES. Under a Distribution Plan, the Funds
pay a distribution fee to the Distributor, payable monthly, at the annual rate
of 0.25% of average daily net assets of each Fund (0.15% for the Income Fund and
0.35% for the Ready Reserves Fund) attributable to Class N shares. The fee is
accrued daily as an expense of Class N shares.

SUMMARY OF ONGOING FEES FOR CLASS I SHARES. The Funds do not pay a distribution
or shareholder services fee for Class I shares.

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below:

EQUITY FUNDS
SALES CHARGE
-------------------------------------------------------------
ALLOWED TO DEALERS
AS A PERCENTAGE AS A PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF PURCHASE OF OFFERING PRICE NET ASSET VALUE* OFFERING PRICE***
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C>
$0 - $49,999 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.75%
$1 million and over** 0.00% 0.00% 1.00%

</TABLE>

- --------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by the Distributor as discussed below.

INCOME FUND
SALES CHARGE
------------------------------------------------------------
ALLOWED TO DEALERS
AS A PERCENTAGE AS A PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF PURCHASE OF OFFERING PRICE NET ASSET VALUE* OFFERING PRICE***
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C>
$0 - $49,999 2.00% 2.04% 1.75%
$50,000 - $99,999 2.00% 2.04% 1.75%
$100,000 - $249,999 1.50% 1.52% 1.25%
$250,000 - $499,999 1.50% 1.52% 1.25%
$500,000 - $999,999 1.00% 1.01% 0.75%
$1 million and over** 0.0% 0.0% 0.50%

</TABLE>

Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which William Blair or an affiliate does not serve as investment
manager ("non-William Blair Fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-William Blair Fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the

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investor or the investor's dealer must, at the time of purchase, submit a
request that the purchase be processed at net asset value pursuant to this
privilege. The Distributor may in its discretion compensate firms for sales of
Class A shares under this privilege at a commission rate of 0.50% of the amount
of Class A shares purchased. The redemption of the shares of the non-William
Blair Fund is, for Federal income tax purposes, a sale upon which a gain or loss
may be realized.

Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other William Blair
Funds listed under " Special Features -- Class A Shares-- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant- directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457, provided
in each case that such plan has not less than 200 eligible employees (the "Large
Order NAV Purchase Privilege"). Redemption within two years of shares purchased
under the Large Order NAV Purchase Privilege may be subject to a contingent
deferred sales charge. See "Contingent Deferred Sales Charge-Large Order NAV
Purchase Privilege" below.

Class A shares may be sold at a net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, it principal underwriter or certain affiliate
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with the Distributor and officers, directors and employees of service agents of
the Funds, for themselves or their spouses or dependent children; and (c) any
trust, pension, profit-sharing or other benefit plan for only such persons.
Class A shares may be sold at net asset value in any amount to selected
employees (including their spouses and dependent children) of banks and other
financial services firms that provide services related to order placement and
payment to facilitate transactions in shares of the Funds on their clients
pursuant to an agreement with the Distributor or one of its affiliates. Only
those employees of such banks and other firms who as part of their usual duties
provide services related to transactions in Fund shares may purchase Fund Class
A shares at net asset value hereunder. Class A shares of a Fund may be sold at
net asset value through certain investment advisers registered under the
Investment Advisors Act of 1940 and other financial services firms that adhere
to certain standards established by the Distributor, including a requirement
that such shares be sold for the benefit of their clients participating in an
investment advisory program under which such clients pay a fee to the Adviser or
other firm for portfolio management and other services. Such shares are sold for
investment purposes and on the condition that they will not be resold except
through redemption or repurchase by the Funds. The Funds may also issue Class A
shares at net asset value in connection with the acquisition of the assets of or
merger or consolidation with another investment company, or to shareholders in
connection with the investment or reinvestment of income and capital gain
dividends.

The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.

DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."

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Class B shares of a Fund will automatically convert to Class A shares of the
same fund eight years (three years for the Income Fund) after issuance on the
basis of the relative net asset value per share. The purpose of the conversion
feature is to relieve holders of Class B shares from the distribution services
fee when they have been outstanding long enough for the Distributor to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class a shares on a pro rata basis.

PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Contingent Deferred Sales Charge--Class C Shares" below.

PURCHASE OF CLASS N AND CLASS I SHARES. The public offering price of the Class N
and Class I shares of a Fund (except Ready Reserves) is the next determined net
asset value. No initial sales charge or contingent deferred charge is imposed.
Since Class N and Class I shares are sold without an initial sales charge, the
full amount of the investor's purchase payment will be invested in Class N and
Class I shares for the investor's account.

FEES PAID BY DISTRIBUTOR TO SERVICE FIRMS. The Distributor may enter into
related arrangements with various broker-dealer firms and other service firms
("firms"), that provide services and facilities for their customers or clients
who are shareholders of a Fund. The firms provide such office space and
equipment, telephone facilities and personnel as is necessary or beneficial for
providing information and services to their clients. Such services and
assistance may include, but are not limited to, establishing and maintaining
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund, assistance to clients in changing dividend
and investment options, account designations and addresses and such other
services as may be agreed upon from time to time and permitted by applicable
statute, rule or regulation. The Distributor also may provide some of the above
services and retains any portion of the fee under the Shareholder Services
Agreement not paid to firms. Currently, the shareholder services fee payable to
the Distributor is based upon all Fund assets.

CLASS A SHARES. Each Fund receives the entire net asset value of all its Class A
shares sold. The Distributor retains the sales charge on sales of Class A shares
from which it allows discounts from the applicable public offering price to
investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers (up to 5.00%
for equity funds and up to 1.75% for the Income Fund) is set forth in the table
in "Initial Sales Change Alternative--Class A shares" above. Upon notice to all
dealers with whom it has sales agreements, the Distributor may allow up to the
full applicable sales charge, as shown in the above table, during periods and
for transactions specified in such notice and such reallowances may be based
upon attainment of minimum sales levels. During periods when 90% or more of the
sales charge is reallowed, such dealers may be deemed to be underwriters as that
term is defined in the Securities Act of 1933.

The Distributor may in its discretion compensate investment dealers or other
financial services firms in connection with the sale of Class A shares of a Fund
at net asset value in accordance with the Large Order NAV Purchase Privilege up
to the following amounts: 1.00% of the net asset value of shares of all Funds
(except the Income Fund) and sold 0.50% on the net asset value of shares of the
Income Fund sold. The commission schedule will be reset on a calendar year basis
for sales of shares pursuant to the Large Order NAV Purchase Privilege to
employer sponsored employee benefit plans using the subaccount recordkeeping
system available through William Blair. For purposes of determining the
appropriate commission percentage to be applied to a particular sale, the
Distributor will consider the cumulative amount invested by the purchaser in a
Fund and other Funds listed under "Special Features--Class A Shares--Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another asset value purchase privilege
also applies.

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<PAGE> 193

For periods after the first year, the Distributor intends to pay firms for sales
of Class A shares a shareholder services fee, payable quarterly, at an annual
rate of 0.25% of net assets attributable to Class A shares. The fee will
continue until terminated by the Distributor or the Fund.

CLASS B SHARES. For Class B shares, the Distributor receives any contingent
deferred sales charges but may compensate firms for sales of Class B shares at
the time of sale at a commission rate of up to 4.00% for equity funds (1.50% for
the Income Fund). For periods after the first year, the Distributor intends to
pay firms for sales of Class B shares a shareholder services fee, payable
quarterly, at an annual rate of 0.25% of net assets attributable to Class B
shares. The fee will continue until terminated by the Distributor or the Fund.

CLASS C SHARES. The Distributor currently intends to pay firms for sales of
Class C shares a distribution and shareholder services fee, payable quarterly,
at an annual rate of 1.00% of net assets attributable to Class C shares.
The Distributor retains any contingent deferred sales charge on Class C shares.

CLASS N SHARES. The Distributor, in its discretion, may compensate firms,
payable quarterly, at an annual rate up to 0.25% (0.15% for the Income Fund and
0.35% for the Ready Reserves Fund) of the net assets attributable to Class N
shares.

GENERAL. Banks and other financial services firms may provide services related
to order placement and payment to facilitate transactions in shares of a Fund
for their clients, and the Distributor may pay them a transaction fee up to the
level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. The Distributor does not believe that termination
of a relationship with a bank would result in any material adverse consequences
to a Fund.

The Distributor may, from time to time, pay or allow to firms a 1% commission on
the amount of shares of the Fund sold under the following conditions: (i) the
purchase shares are held in a William Blair IRA account, (ii) the shares are
purchased as a direct "roll over" of a distribution from a qualified retirement
plan account maintained on a participant subaccount record keeping system
provided by William Blair, and (iii) the purchase is not otherwise subject to a
commission.

In addition to the discounts or commissions described above, the Distributor
will, from time to time, pay or allow additional discounts, commissions or
promotional incentives, in the form of cash or other compensation, to firms that
sell shares of the Funds. Noncash compensation includes luxury merchandise and
trips to luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Funds, or other funds underwritten by the Distributor.

Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by the
Distributor of the order accompanied by payment. However, orders received by
dealers or other financial services firms prior to the determination of net
asset value (see "Net Asset Value") and received by the Distributor prior to the
close of its business day will be confirmed at a price based on the net asset
value effective on that day ("trade date"). The Funds reserve the right to
determine the net asset value more frequently than once a day if deemed
desirable. Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased.

Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirement than set forth above. Firms may arrange with
their clients for other investments or administrative services. Such firms may
independently establish

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and charge additional amounts to their clients for such services, which charges
would reduce the clients' return. Firms also may hold the Funds' shares in
nominee or street name as agent for and on behalf of their customers. In such
instances, the Funds' transfer agent will have no information with respect to or
control over the accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
firm. Certain of these firms may receive compensation from the Funds through the
Distributor for recordkeeping and other expenses relating to these nominee
accounts. In addition, certain privileges with respect to the purchase and
redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them access
to their client's accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as generation of confirmation statements and reimbursement of cash
dividends. Such firms may receive compensation from the Funds through the
Distributor Service Agent for these services. This statement of additional
information should be read in connection with such firms' material regarding
their fees and services.

The Funds reserve the right to withdraw all or any part of the offering made by
this statement of additional information and reject purchase orders. Also, from
time to time, each Fund may temporarily suspend the offering of any class of its
shares to new investors. During the period of such suspension, persons who are
already shareholders of such class of such Fund normally are permitted to
continue to purchase additional shares of such class and to have dividends
reinvested.

The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversion of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described herein.

The Trust has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than the Distributor to accept purchase
and redemption orders for the Funds' shares. Those brokers may also designate
other parties to accept purchase and redemption orders on the Funds' behalf.
Orders for purchase or redemption will be deemed to have been received by the
Trust when such brokers or their authorized designees accept the orders. Subject
to the terms of the contract between the Trust and the broker, ordinarily orders
will be priced at the Fund's net asset value next computed after acceptance by
such brokers or their authorized designees. Further, if purchases or redemptions
of a Fund's shares are arranged and settlement is made at an investor's election
through any other authorized NASD member, that member may, at its discretion,
charge a fee for that service. The Board of Trustees and the Distributor each
has the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board of Trustees and the Distributor may suspend or terminate the
offering of shares of a Fund at any time for any reason.

REDEMPTIONS. SUSPENSION OF REDEMPTION OR DELAY IN PAYMENT. The Trust may not
suspend the right of redemption or delay payment on its shares for more than
seven days except (a) during any period when the New York Stock Exchange is
closed (other than on weekends and customary holidays); (b) when trading in the
markets that the portfolio normally utilizes is restricted or any emergency
exists as determined by the Securities and Exchange Commission, so that disposal
of a Fund's investments or determination of its net asset value is not
reasonably practicable; or (c) for such other periods as the Securities and
Exchange Commission may permit by order for protection of the Trust's
shareholders.

SPECIAL REDEMPTIONS. Although it is the present policy of all of the Fund's to
redeem shares in cash, if the Board of Trustees determines that a material
adverse effect would be experienced by the remaining shareholders if payment of
large redemptions were made wholly in cash, the Funds will pay the redemption
price in whole or in part by a distribution of portfolio instruments in lieu of
cash, in conformity with the applicable rules of the Securities and Exchange
Commission, taking such instruments at the same value used to determine net
asset value

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and selecting the instruments in such manner as the Board of Trustees may deem
fair and equitable. If such a distribution occurs, shareholders receiving
instruments and selling them before their maturity could receive less than the
redemption value of such instruments and could also incur transaction costs. The
Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to
which the Funds are obligated to redeem portfolio shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the portfolio during any
90-day period for any one shareholder of record.

CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: for all Funds (except the Income Fund), 1% if they are redeemed within
one year of purchase and 0.50% if they are redeemed during the second year after
purchase and for the Income Fund, 0.50% if they are redeemed within one year of
purchase. The charge will not be imposed upon redemption of reinvested dividends
or share appreciation. The charge is applied to the value of the shares
redeemed, excluding amounts not subject to the charge. The contingent deferred
sales charge will be waived in the event of: (a) redemptions by a
participant-directed qualified retirement plan described in Code Section 401(a)
or a participant-directed non-qualified deferred compensation plan described in
Code Section 457, provided in each case that such plan has not less than 200
eligible employees; (b) redemption of shares of a shareholder (including a
registered joint owner) who has died; (c) redemption of shares of a shareholder
(including a registered joint owner) who after purchase of the shares being
redeemed becomes totally disabled (as evidenced by a determination by the
federal Social Security Administration); (d) redemptions under a Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (e) redemptions of shares whose dealer of record at the time
of the investment notifies the Distributor that the dealer waives the
discretionary commission applicable to such Large Order NAV Purchase.

CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is applied to the value of the shares redeemed, excluding
amounts not subject to the charge. The charge is computed at the following rates
applied to the value of the shares redeemed excluding amounts not subject to the
charge.

EQUITY FUNDS INCOME FUNDS
CONTINGENT DEFERRED CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE SALES CHARGE
--------------------------------- ------------------- -------------------
<S> <C> <C>
First............................ 5.00% 2.00%
Second........................... 4.00% 1.00%
Third............................ 3.00% 0.00%
Fourth........................... 3.00% 0.00%
Fifth............................ 2.00% 0.00%
Sixth............................ 1.00% 0.00%
Seventh.......................... 0.00% 0.00%

</TABLE>

The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan for up to 10% of net
assets annually (see "Special Features--Systematic Withdrawal Plan" below), (d)
for redemptions made pursuant to any IRA systematic withdrawal based on the
shareholder's life expectancy including, but not limited to, substantially equal
periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv)
prior to age 59 1/2 and (e) for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the shareholder's William Blair IRA
accounts). The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by employer sponsored
employee benefit plans maintained on the subaccount record keeping system made
available by the Distributor: (a) redemptions to satisfy participant loan
advances (note that loan repayments constitute new purchases for purposes of the
contingent deferred sales charge and the conversion privilege), (b) redemptions
in

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connection with retirement distributions (limited at any one time to 10% of the
total value of plan assets invested in a Fund), (c) redemptions in connection
with distributions qualifying under the hardship provisions of the Internal
Revenue Code and (d) redemptions representing returns of excess contributions to
such plans.

CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account, see "Special Features--Systematic Withdrawal
Plan"), (d) for redemptions made pursuant to any IRA systematic withdrawal based
on the shareholder's life expectancy including, but not limited to,
substantially equal periodic payments described in Internal Revenue Code Section
72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy required
minimum distributions after age 70 1/2 from an IRA account (with the maximum
amount subject to this waiver being based only upon the shareholder's William
Blair IRA accounts), (f) for any participant-directed redemptions of shares held
by employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Distributor and (g) redemption of shares by
an employer sponsored employee benefit plan that offers funds in addition to
William Blair Funds and whose dealer of record has waived the advance of the
first year administrative service and distribution fees applicable to such
shares and agrees to receive such fees quarterly.

CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation
is subject to the charge. The charge would be at the rate of 4.00% (1.00% for
the Income Fund) ($40 ($10 for the Income Fund)) because it was in the second
year after the purchase was made.

The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1999 will be eligible for the second year's charge if redeemed on or
after December 1, 2000. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. The Distributor receives any contingent
deferred sales charge directly.

SPECIAL FEATURES.

CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus or statement of additional
information, also apply to the aggregate amount of purchase of such Fund made by
any purchaser within a 12-month period under a written Letter of Intent
("Letter") provided by the Distributor. The Letter, which imposes no obligation
to purchase or sell additional Class A shares, provides for a price adjustment
depending upon the actual amount purchased within such period. The Letter
provides that the first purchase following execution of the Letter must be at
least 5% of the amount of the intended purchase, and that 5% of the amount of
the intended purchase normally will be held in escrow in the form of shares
pending completion of the intended purchase. If the total investments under the
Letter are less than the intended amount and thereby

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qualify only for a higher sales charge than actually paid, the appropriate
number of escrowed shares are redeemed and the proceeds used toward satisfaction
of the obligation to pay the increased sales charge. The Letter for an employer
sponsored employee benefit plan maintained on the subaccount record keeping
system available through the Distributor may have special provisions regarding
payment of any increased sales charge resulting from a failure to complete the
intended purchase under the Letter. A shareholder may include the value (at the
maximum offering price) of all shares of such William Blair Funds held of record
as of the initial purchase date under the Letter as an "accumulation credit"
toward the completion of the Letter, but no price adjustment will be made on
such shares. Only investments in Class A shares are included in this privilege.

CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the William Blair Funds (computer at the maximum offering price at the time of
purchase for which the discount is applicable) already owned by the investor.

CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Distributor
whenever a quantity discount or reduced sales charge is applicable to a
purchase. Upon such notification, the investor will receive the lowest
applicable sales charge. Quantity discounts described above may be modified or
terminated at any time.

EXCHANGE PRIVILEGE. Shareholders of Class A, Class B, Class C, Class N and Class
I shares may exchange their shares for shares of the corresponding class of
other William Blair Funds in accordance with the provisions below.

Class A Shares. Class A shares of the William Blair Funds may be exchanged for
each other at their relative net asset values.

Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another William Blair Fund under the
exchange privilege described above without paying any contingent deferred sales
charge at the time of exchange. If the Class A shares received on exchange are
redeemed thereafter, a contingent deferred sales charge may be imposed in
accordance with the foregoing requirements provided that the shares redeemed
will retain their original cost and purchase date for purposes of the contingent
deferred sales charge.

Class B Shares. Class B shares of a Fund may be exchanged for each other at
their relative net asset values. Class B shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
purposes of the contingent deferred sales charge that may be imposed upon the
redemption of the Class B shares received on exchange, amounts exchanged retain
their original cost and purchase date.

Class C Shares. Class C shares of a Fund may be exchanged for each other at
their relative net asset values. Class C shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
determining whether there is a contingent deferred sales charge that may be
imposed upon the redemption of the Class C shares received, by exchange, they
retain the cost and purchase date of the shares that were originally purchased
and exchanged.

General. Shares of a William Blair Fund with a value in excess of $1,000,000
acquired by exchange from another William Blair Fund may not be exchanged
thereafter until they have been owned for 15 days (the "15-Day Hold Policy").
For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including without limitation accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Fund into which they
are being exchanged. Exchanges are made based on relative dollar values of the
shares involved in the exchange. There is no service fee for an exchange;
however, dealers or other firms may charge for their services in effecting
exchange transactions. Exchanges will be effected by redemption of shares of the
fund held and purchase of shares of the other Fund. For federal income tax
purposes, any such exchange constitutes a sale upon which a gain or loss may

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be realized, depending upon whether the value of the shares being exchanged is
more or less than the shareholder's adjusted cost basis of such shares.
Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other funds from dealers, other firms or the Distributor.
Exchanges may be accomplished by a written request to William Blair, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Distributor will honor requests by telephone subject to the
limitations on liability under "Purchase, Repurchase and Redemption of
Shares--General." Any share certificates must be deposited prior to any exchange
of such shares. During periods when it is difficult to contact the Distributor
by telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Exchanges may only be made for the funds that are available for
sale in the shareholder's state of residence.

GENERAL TRUST INFORMATION

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

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

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

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

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PERFORMANCE.

From time to time, the Trust may advertise its total return for prior period.
Any such advertisement would include at least average annual total return
quotations for one-year, five-year and ten-year (or since inception) periods.
Other total return quotations, aggregate or average, over other time periods may
also be included.

HISTORICAL PERFORMANCE

In general. The historical performance or return of the Growth Fund, the
Tax-Managed Growth Fund, the Large Cap Growth Fund, the Small Cap Growth Fund,
the International Growth Fund, the Emerging Markets Growth Fund, the Disciplined
Large Cap Fund, the Value Discovery Fund and the Income Fund may be shown in the
form of "average annual total return" and "total return" figures. The
Tax-Managed Growth Fund may use annual average total return figures showing
after-tax returns, including comparisons to tax-deferred vehicles such as
Individual Retirement Accounts and variable annuities. The Income Fund's and
Ready Reserves Fund's historical performance or return may also be shown in the
form of "yield figures." These various measures of performance are described
below.

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

The Trust may advertise cumulative (non-annualized) total return of each class
of shares of a Fund for various periods. Cumulative total return is calculated
by measuring the value of an initial investment in a given class of shares of a
Fund at a given time, deducting the value of all subsequent reinvested
distributions, and dividing the net change in the value of the investment as of
the end period by the amount of the initial investment and expressing the result
as a percentage. Cumulative total return will be calculated separately for each
class of shares. Cumulative total return calculations do not reflect the
imposition of a contingent deferred sales charge, and if any such contingent
deferred sales charge imposed at the time of redemption were reflected, it would
reduce the performance quoted.

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

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

Average annual total return. The Funds' average annual total return is computed
in accordance with a standardized method prescribed by rules of the Securities
and Exchange Commission. The average annual total return for a specific period
is found by first taking a hypothetical $1,000 investment ("initial investment")
in a portfolio's shares on the first day of the period and computing the
"redeemable value" of that investment at the end of the period. The

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redeemable value is then divided by the initial investment and this quotient is
taken to the nth root (n representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. This
calculation assumes that all income dividends and capital gains distributions by
a Fund have been reinvested at net asset value on the reinvestment dates during
the period.

The average annual total return for the Class N shares of the Funds for the
one-, five- and ten-year periods, or, if less, from commencement of operations
through December 31, 1998 are as follows:

10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------
<S> <C> <C> <C>
Growth Fund 27.15% 19.87% 18.96%
Value Discovery Fund (1) 0.66 -- 15.91
International Growth Fund (2) 11.46 7.37 11.10
Emerging Markets Growth Fund (3) -- -- (23.70)
Income Fund (4) 7.07 6.22 7.90
</TABLE>

- --------------
(1) Commenced operations on December 23, 1996.
(2) Commenced operations on October 1, 1992.
(3) Commenced operations on May 1, 1998.
(4) Commenced operations on September 25, 1990.

Average annual after-tax total return. The Tax-Managed Growth Fund's average
annual after-tax total return is calculated by finding the average annual
compounded rates of return over the 1-, 5-, and 10- year periods (or for the
periods of the Fund's operations) that would equate the initial amount invested
to the after-tax value, according to the following formula:

After tax return (pre-liquidation):

P(1+T)(n) = ATV (pre)

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ATV(pre)= after-tax value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-,
or 10-year periods at the end of the 1-, 5-,
10-year periods, assuming no liquidation of
the investment at the end of the measurement
periods.

In calculating after-tax returns, the Fund will, in general, will make certain
assumptions. First, the Fund will assume the maximum sales load (or other
charges deducted from payments) is deducted from the initial $1,000 payment.
Second, the Fund will assume all distributions by the Fund are reinvested--less
the taxes due on such dividends and distributions--at the price stated in the
prospectus (including any sales load imposed upon reinvestment of dividends) on
the reinvestment dates during the period. Third, the Fund will calculate the
taxes due on distributions by the Fund by applying the required federal marginal
tax rates to each component of the distributions on the reinvestment date (e.g.,
ordinary income, short-term capital gain, long-term capital gain, etc.). Note
that the required tax rates may vary over time. The Fund will assume no taxes
are due on the portions of any distributions classified as exempt interest or
non-taxable (i.e., return of capital). The Fund will not deduct any amounts for
state or local taxes. Fourth, if the Fund elects to pass through any foreign
taxes paid, the amount of the foreign taxes paid will be added to the ordinary
income distribution before applying the required marginal tax rate to that
portion of the distribution. Then, the taxes due on distributions will be
reduced by the amount of the assumed foreign tax credit resulting from such
distributions. If the calculated tax due is less than zero, the Fund will assume
that the tax due equals to zero. Fifth, the Fund will include all recurring fees
that are charged to all shareholder accounts. For any account fees that vary
with the size of the account, the Fund will assume an account size equal to the
Fund's mean (or median) account size. The Fund will assume that no additional
taxes or tax credits

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result from any redemption of shares required to pay such fees. Finally, the
Fund will state the total return to the nearest hundredth of one percent.

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

The total return for the Class N shares of the Funds for the one-, five- and
ten-year periods, or, if less, from commencement of operations through December
31, 1998 are as follows:

10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------
<S> <C> <C> <C>
Growth Fund 27.15% 147.51% 467.73%
Value Discovery Fund (1) 0.66 -- 34.34
International Growth Fund (2) 11.46 42.69 93.12
Emerging Markets Growth Fund (3) -- -- (23.70)
Income Fund (4) 7.07 35.21 87.25
</TABLE>

- --------------
(1) Commenced operations on December 23, 1996.
(2) Commenced operations on October 1, 1992.
(3) Commenced operations on May 1, 1998.
(4) Commenced operations on September 25, 1990.

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

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

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

The Income Fund's current yield for the 30-day period ended December 31, 1998
was 5.72%. Semiannual compounding is assumed.

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

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

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sometimes be greater than yield since, for instance, it may include short-term
gains (which may be nonrecurring) and may not include the effect of amortization
of bond premiums.

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

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

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

The Ready Reserves Fund's current yield for the seven-day period ended December
31, 1998 was 4.58%. The Ready Reserves Fund's effective yield for the same
period was 4.68%.

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

COMPARISON OF FUND PERFORMANCE TO MARKET INDICES.

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

From time to time, the Funds' performance may be compared to that of various
unmanaged stock indices such as the Standard & Poor's 500 Stock Index, NASDAQ,
Value Line and Russell 1000, 2000 and 3000. The Funds' performance may also be
compared to the performance of other growth mutual funds or mutual fund indices
as reported by CDA Investment Technologies, Inc. ("CDA"), Lipper Analytical
Services, Inc. ("Lipper") or Morningstar, Inc. ("Morningstar").

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

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

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

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

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

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

The Trust may also utilize performance information in hypothetical
illustrations. For example, a Fund may, from time to time: (1) illustrate the
benefits of tax-deferral by comparing taxable investments to investments made
through tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan; (3) illustrate allocations among
different types of mutual funds or other investments for investors at different
stages of their lives; and (4) illustrate the benefits of compounding at various
assumed rates of return.

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

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

From time to time marketing materials may show a Fund's asset class
diversification, top sectors, ten largest holdings and other Fund asset
structures. In addition, marketing materials may include various actual or
estimated portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, and breakdowns by geographic regions or industries. Materials
may also mention how the Adviser believes a Fund compares relative to other
William Blair Funds.

The portfolios may quote information from industry or financial publications of
general U.S. or international interest, such as information from Morningstar,
the Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, the Chicago
Tribune, USA Today, Institutional Investor and Registered Representative. From
time to time, the Adviser or portfolio manager may provide views on the current
economy and portfolio strategy. In addition, portfolio holdings are available on
a delayed basis upon request.

Occasionally statistics may be used in marketing materials to specify a Fund's
volatility or risk. The general premise is that greater volatility connotes
greater risk undertaken in achieving performance. Measures of volatility or risk
are generally used to compare a Fund's net asset value or performance relative
to a market index. One measure of volatility is beta. Beta is the volatility of
a fund relative to the total market as represented by the Standard & Poor's 500
Stock Index. A beta of more than 1.00 indicates volatility greater than the
market, and a

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beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is a
statistical tool that measures the degree to which a fund's performance has
varied from its average performance during a particular time period.

Standard deviation is calculated using the following formula:

Standard deviation = the square root of S(xi - xm)2

n-1

Where: S= "the sum of",
xi= each individual return during the time period,
xm= the average return over the time period, and
n= the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance. One such
measure is alpha. Alpha measures the actual return of a fund compared to the
expected return of a fund given its risk (as measured by beta). The expected
return is based on how the market as a whole performed, and how the particular
fund has historically performed against the market. Specifically, alpha is the
actual return less the expected return. The expected return is computed by
multiplying the advance or decline in a market representation by the Fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost.

Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.

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

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

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

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

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elected to mark-to-market their investments in passive foreign investment
companies for Federal income tax purposes.

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

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

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

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

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

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

Individual Retirement Accounts. One of the tax-deferred retirement plan accounts
that may hold shares is an Individual Retirement Account ("IRA"). There are
three kinds of IRAs that an individual may establish: traditional IRAs, Roth
IRAs and education IRAs. With a traditional IRA, an individual may be able to
make a deductible contribution of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year prior to the year the individual
reaches age 70 1/2 if neither the individual nor his or her spouse is an active
participant in an employer's retirement plan. An individual who is (or who has a
spouse who is) an active participant in an employer retirement plan may be
eligible to make deductible IRA contributions; the amount, if any, of IRA
contributions that are deductible by such an individual is determined by the
individual's (and spouse's, if applicable) adjusted gross income for the year.
Even if an individual is not permitted to make a deductible contribution to an
IRA for a taxable year, however, the individual nonetheless may make
nondeductible contributions up to $2,000, or 100% of earned income if less, for
that year. A spouse also may contribute up to $2,000, as long as the spouses'
joint earned income is at least $4,000. There are special rules for determining
how withdrawals are to be taxed if an IRA contains both deductible and
nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be

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made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Lump sum distributions from
another qualified retirement plan may be rolled over into a traditional IRA
also.

With a Roth IRA, an individual may make only nondeductible contributions;
contributions can be made of up to $2,000 or, if less, the amount of the
individual's earned income for any taxable year, but only if the individual's
(and spouse's, if applicable) adjusted gross income for the year is less than
$95,000 for single individuals or $150,000 for married individuals. The maximum
contribution amount phases out and falls to zero between $95,000 and $110,000
for single persons and between $150,000 and $160,000 for married persons.
Contributions to a Roth IRA may be made even after the individual attains age 70
1/2. Distributions from a Roth IRA that satisfy certain requirements will not be
taxable when taken; other distributions of earnings will be taxable. An
individual with adjusted gross income of $100,000 or less generally may elect to
roll over amounts from a traditional IRA to a Roth IRA. The full taxable amount
held in the traditional IRA that is rolled over to a Roth IRA will be taxable in
the year of the rollover, except rollovers made in 1998, which may be included
in taxable income over a four-year period.

An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (post-secondary) educational institution. An individual may
contribute to an education IRA for the benefit of a child under 18 years old if
the individual's income does not exceed certain limits. The maximum contribution
for the benefit of any one child is $500 per year. Contributions are not
deductible, but earnings accumulate tax-free until withdrawal, and withdrawals
used to pay qualified higher education expenses of the beneficiary (or
transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.

Please call the Trust to obtain information regarding the establishment of IRAs.
An IRA plan custodian may charge fees in connection with establishing and
maintaining the IRA. An investor should consult with a competent tax adviser for
specific advice concerning his or her tax status and the possible benefits of
establishing one or more IRAs. The description above is only very general; there
are numerous other rules applicable to these plans to be considered before
establishing one.

Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.

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

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

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

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

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

CUSTODIAN. The Trust's custodian, Investors Bank and Trust Company, 200
Clarendon Street, Boston, Massachusetts 02117, has custody of all securities and
cash of the Trust and attends to the collection of principal and income and
payment for and collection of proceeds of securities bought and sold by the
Trust. The custodian for IRAs may be State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110.

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

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

SHAREHOLDER RIGHTS

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

Under Delaware law, the Trust generally is not required to hold annual
shareholders' meetings. Upon the written request of ten or more shareholders
that have held Fund shares for at least six months in an amount equal to the
lesser of 1% of the outstanding shares or $25,000, the Fund will either
disseminate appropriate materials (at the expense of the requesting
shareholders) or provide such shareholders access to a list of names and
addresses of all shareholders of record. The written notice must state that the
shareholders making such request wish to communicate with the other shareholders
to obtain the signatures necessary to demand a meeting to consider removal of a
director. The Fund will hold shareholders' meetings when requested to do so in
writing by one or more shareholders collectively holding at least 10% of the
shares entitled to vote, such request specifying the purpose or purposes for
which each meeting is to be called, or when determined by a majority of the
Board of Trustees in their discretion. Shareholders' meetings also will be held
in connection with the following matters: (1) the election or removal of
directors, if a meeting is called for such purpose; (2) the adoption of any
contract for which shareholder approval is required by the Act; (3) any
termination of the Fund; (4) any amendment of the Declaration of Trust; (5) any
merger, consolidation or sale of assets; (6) incorporation of the Trust; and (7)
such additional matters as may be required by law, the Declaration of Trust, the
By-Laws of the Fund or any registration of the Fund with the Securities and
Exchange Commission or any state, or that the Trustees may consider necessary or
desirable, such as changes in fundamental investment objectives, policies or
restrictions.

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

INVESTMENT CRITERIA

VALUE DISCOVERY FUND. The Value Discovery Fund's investment objective is to seek
long-term capital appreciation. The Fund pursues its objective by investing with
a value discipline primarily in the equity securities of small companies. The
Adviser's small cap value search begins with the total universe of companies
with market

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capitalizations of less than $1,500 million. This represents approximately 90%
of all companies trading in the U.S. They identify and quantify potential
price/value disparities, conduct fundamental due diligence and formulate an
opinion of the firm, estimate the value of the fund, calculate the total
expected return for all portfolio and database firms daily, build a portfolio of
high-expected return, low valuation and high qualify firms and adhere to a
structured sell discipline. In selecting companies for investment, the Adviser
evaluates the extent to which a company meets the investment criteria set forth
below. The weight given to a particular investment criterion will depend upon
the circumstances, and some portfolio holdings may not meet all of the following
criteria:

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

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

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

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

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

INCOME FUND. The Adviser uses the following process to construct fixed income
portfolios:

- - A maturity range is selected that meets the fund's overall risk parameters.

- - Cash levels and maturity distributions are chosen to reflect current and
expected interest rates. The fund's need for liquidity is also factored.

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- - When buying securities, careful attention is paid to factors such as
options, prepayments, etc., that may adversely affect prices in different
interest rate environments.

- - Individual, non-government position sizes are limited to less than 10% of
the value of the Fund.

- - Bond types are varied to favor sectors expected to benefit from periodic
changes in yield spreads.

TRUST HISTORY

The Trust is a Delaware business trust organized under a Declaration of Trust
dated September 8, 1999. The Trust was formerly organized as a Maryland
corporation on September 22, 1987 under the name of William Blair Ready
Reserves, Inc. (the "Company"). On April 30, 1991, a reorganization of the
Company and Growth Industry Shares, Inc., a Maryland corporation, occurred such
that Growth Industry Shares, Inc. was reorganized into a separate portfolio of
the Company, now the Growth Fund, and the Fund changed its name to William Blair
Mutual Funds, Inc. On December 15, 1999, the Company was reorganized into the
Trust and changed its name to William Blair Funds. Presently, the Trust is
offering shares of the nine funds described in the prospectuses. The Board of
Trustees of the Trust may, however, establish additional portfolios with
different investment objectives, policies and restrictions in the future.

FINANCIAL INFORMATION OF THE FUND

The Trust's audited financial statements, including the notes thereto, contained
in the Trust's annual reports to shareholders for the period ended December 31,
1998, are incorporated herein by reference. Additional copies of the reports to
shareholders may be obtained without charge by writing or calling the Trust.

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APPENDIX A

DESCRIPTION OF MONEY MARKET INSTRUMENTS

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

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

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

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

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

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

BANK MONEY INSTRUMENTS. These include instruments such as certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
generally short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. A time deposit is a non-negotiable deposit in a banking
institution earning a specified interest rate over a given period of time. A

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banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.

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

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

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APPENDIX B

COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

"A-3" - Issue has an adequate capacity for timely payment. It is, however,
somewhat more vulnerable to the adverse effects of changes and circumstances
than an obligation carrying a higher designation.

"B" - Issue has only a speculative capacity for timely payment.

"C" - Issue has a doubtful capacity for payment.

"D" - Issue is in payment default. The "D" category is used when interest
payments or principal payments are not made on the due date, even if the
applicable grace period has not expired when S & P believes such payments will
be made during such grace period.

Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered to have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered to have a
strong capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.

"Prime-3" - Issuer or related supporting institutions have an acceptable ability
for repayment of senior short-term debt obligations. The effects of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.

"Not Prime"- Issuer does not fall within any of the Prime rating categories.

The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps
employs three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the
highest rating category. The following summarizes the rating categories used by
Duff & Phelps for commercial paper:

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"Duff 1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

"Duff 1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.

"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.

"Duff 2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.

"Duff 3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.

"Duff 4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to ensure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.

"Duff 5" - Issuer has failed to meet scheduled principal and/or interest
payments.

Fitch short-term ratings apply generally to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:

"F-1+" - Securities possess exceptionally strong credit quality. Issues assigned
this rating are regarded as having the strongest degree of assurance for timely
payment.

"F-1" - Securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues carrying this rating have
a satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the "F-1+" and "F-1" categories.

"F-3" - Securities possess fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.

"F-S" - Securities possess weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.

"D" - Securities are in actual or imminent payment default.

CORPORATE LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:

"AAA" - This designation represents the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment is extremely
strong.

"AA" - An obligation rated "AA" differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

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"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

"BB," "B," "CCC," "CC," and "C" - Debt is regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

"BB" - Debt is less vulnerable to non-payment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to obligor's inadequate
capacity to meet its financial commitment on the obligation.

"B" - Debt is more vulnerable to non-payment than obligations rated "BB," but
the obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

"CCC" - Debt is currently vulnerable to non-payment, and is dependent upon
favorable business, financial and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial or economic conditions, the obligor is not likely to have the capacity
to meet its financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to non-payment.

"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

"D" - An obligation rated "D" is in payment default. This rating is used when
payments on an obligation are not made on the date due, even if the applicable
grace period has not expired, unless S & P believes that such payments will be
made during such grace period. "D" rating is also used upon the filing of a
bankruptcy petition or the taking of similar action if payments on an obligation
are jeopardized.

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

"r" - This rating is attached to highlight derivative, hybrid, and certain other
obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt:

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

"Aa" - Bonds are judged to be of high quality by all standards. Together with
the "Aaa" group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection

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may not be as large as in "Aaa" securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities.

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

"Baa" - Bonds considered medium-grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.

Con. (--) - Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.

(P) - When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.

The following summarizes the ratings used by Duff & Phelps for corporate and
municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of economic
conditions.

"A" - Debt possesses protection factors which are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.

"BBB" - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend averages.

To provide more detailed indications of credit quality, the "AA," "A," "BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major categories.

The following summarizes the highest four ratings used by Fitch for corporate
and municipal bonds:

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

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

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

"BBB" - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these bonds and,
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings.

"BB" - Bonds considered to be speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist the obligor in satisfying its debt service requirements.

"B" - Bonds are considered highly speculative. While securities in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.

"CCC " - Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

"CC" - Bonds are minimally protected. Default in payments of interest and/or
principal seems probable over time.

"C" - Bonds are in imminent default in payment of interest or principal.

"DDD," "DD" and "D" - Bonds are in default on interest and/or principal
payments. Such securities are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
securities, and "D" represents the lowest potential for recovery.

To provide more detailed indications of credit quality, the Fitch ratings from
and including "AA" to "C" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within these major rating categories.

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WILLIAM BLAIR FUNDS
PART C

OTHER INFORMATION
ITEM 23. EXHIBITS

(a) Declaration of Trust dated September 3, 1999.*

(b) By-laws.*

(d) (i) Form of Management Agreement dated May 1, 1996, as amended.
(3)/
(ii) Form of Management Agreement dated December 23, 1996. (2)/
(iii) Form of Management Agreement dated April 30, 1998. (4)/
(iv) Form of Management Agreement (Amended and Restated) dated
December 15, 1999.*

(e) (i) Underwriting Agreement. (1)/
(ii) Form of Distribution Agreement -- Class B and Class C. (5)/
(iii) Distribution Agreement -- Class N. (6)/

(f) None.

(g) (i) Custodian Agreement. (6)/
(ii) Delegation Agreement. (4)/

(h) (i) Shareholder Services Agreement -- Class A, Class B and Class
C dated July 30, 1999.*
(ii) Expense Limitation Agreement for the Value Discovery Fund
dated September 30, 1999.*
(iii) Expense Limitation Agreement for the Emerging Markets Growth
Fund dated September 30, 1999.*
(iv) Expense Limitation Agreement for the Tax Managed Growth Fund
dated December 15, 1999.*
(v) Expense Limitation Agreement for the Disciplined Large Cap
Fund dated December 15, 1999.*
(vi) Expense Limitation Agreement for the Small Cap Growth Fund
dated December 15, 1999.*
(vii) Expense Limitation Agreement for the Large Cap Growth Fund
dated December 15, 1999.*

(i) Opinion and Consent of Vedder, Price, Kaufman & Kammholz. *

(j) Consent of Ernst & Young LLP. *

(k) Not applicable.

(l) Subscription Agreement. (1)/

(m) (i) Form of Distribution Plan -- Class B and Class C. (5)/
(ii) Distribution Plan -- Class N. (6)/

(n) (i) Form of Multi-Class Plan. (5)/
(ii) Amended Multi-Class Plan. (6)/

(o) (i) Powers of Attorney for each trustee except John P. Kayser
and Robert E. Wood II.(6)/
(ii) Powers of Attorney for John P. Kayser and Robert E.
Wood II.*

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<PAGE> 218

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

(1)/ Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A as filed on or about
March 1, 1996.
(2)/ Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A as filed on or about
November 5, 1996.
(3)/ Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A as filed on or about
February 26, 1997.
(4)/ Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A as filed on or about
February 27, 1998.
(5)/ Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A as filed on or about
July 30, 1999.
(6)/ Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A as filed on or about
September 29, 1999.
* Filed herewith.

ITEM 24. Persons Controlled by or Under Common Control with Registrant

Not applicable.

ITEM 25. Indemnification

Section 5.2 of Article V of the Registrant's Declaration of
Trust provides for indemnification of directors and officers under certain
circumstances but does not allow such indemnification in cases of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

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

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

ITEM 26. Business and Other Connections of Investment Adviser

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

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

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

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NAME AND POSITION WITH
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Michael Balkin The New Providence Fund General Partner
Principal

Rocky Barber LaRabida Hospital Foundation Vice President of the Board of Trustees
Principal Metropolitan Chicago YMCA Director
Metropolitan Club Board Member
Stanford Business School Member Advisory Council
William Blair Funds Chief Executive Officer

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

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

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

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

George Busse Busse Venture Associates Partner
Principal George L. Busse & Co. Director
Mount Prospect National Bank Director

David G. Chandler, Electronic Manufacturing Systems, Director
Principal Inc. Director
Encore Paper Company Director
Engineered Materials Corp. Director
Gibraltar Packaging Group Director
Harmonic Systems, Inc. Director
Morton Grove Pharmaceuticals, Inc. Director
Pacwest Telecom, Inc. Director
Pharma Research Corp. Director
Predelivery Service Corporation Director
Sweetwater Sound, Inc.

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

Conrad Fischer, APM Limited Partnership General Partner
Principal Chicago Child Care Trustee, Emeritus
Kalamazoo College Investment Committee
William Blair Funds Chairman and Director

</TABLE>

C-3

<PAGE> 220

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

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

James P. Hickey, Eagle Point Software Director
Principal

Edgar D. Jannotta, Sr., AAR Corporation Director
Senior Principal AON Corporation Director
Bandag, Incorporated Director
Molex, Incorporated Director
Oil-Dri Corporation of America Director
Sloan Valve Company Director
Unicom Corporation Director

John P. Kayser, William Blair Funds Trustee
Principal

Richard P. Kiphart, McCormick Theological Seminary Board of Trustees
Principal Concord EFS, Inc. Director

Charles Kraft, Spartan Holdings LLC President
Principal Dalton, Grenar, Hartman, Maher LP Limited Partner

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

James McMullan, University of Mississippi Foundation Director
Principal

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

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

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

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

C-4

<PAGE> 221

NAME AND POSITION WITH
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Phillip Reitz, Fairway Drive Funding Corp. Director
Principal Worcester Co. Director
XOLOX Corporation Advisory Board

Neal L. Seltzer, Scholarship and Guidance Director
Principal Foundation Director
Lake Shore Country Club General Partner
Serendipity Fund II, L.P. General Partner
New Providence Fund, L.P.

William Semmer, Chicago Home and Garden Magazine Director
Principal

Thomas H. Story, Security APL, Inc. Member, Advisory Council
Principal

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

W. James Truettner, Jr., Glenview Foundation Director
Principal International Travel Services Director

Kathleen A. Wieland, Blue Egg Enterprises President
Principal D/B/A Robin's Bookshop

</TABLE>

ITEM 27. Principal Underwriters

(a) Not applicable.

(b) The principal business address of each principal and
officer of William Blair & Company, L.L.C., principal
underwriter for Registrant, is 222 West Adams Street,
Chicago, Illinois 60606. See Item 26 for information
with respect to officers and principals of William
Blair & Company, L.L.C.

ITEM 28. Location of Accounts and Records

All such accounts, books and other documents are maintained by the
Registrant's officers at the offices of the Registrant and the offices of the
Investment Adviser, William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606. Shareholder account information and original
shareholder correspondence is also available at the offices of the Transfer
Agent and Dividend Paying Agent, State Street Bank and Trust Company, P.O. Box
9104, Boston, Massachusetts 02266-9104.

ITEM 29. Management Services

Not applicable.

ITEM 30. Undertakings

Not applicable.

C-5

<PAGE> 222

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to the
registration statement under Rule 485(b) under the Securities Act of 1933 and
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Chicago, and State
of Illinois, on the 20th day of December, 1999.

WILLIAM BLAIR FUNDS

By: /s/ MARCO HANIG
--------------------------------
Marco Hanig, President

Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the registration statement has been signed below by
the following persons in the capacity indicated and on the 20th day of December,
1999.

SIGNATURE TITLE
- --------- -----
/s/J. GRANT BEADLE* Trustee
- --------------------------
J. Grant Beadle

/s/THEODORE A. BOSLER* Trustee
- --------------------------
Theodore A. Bosler

/s/CONRAD FISCHER* Trustee (Chairman of the Board)
- --------------------------
Conrad Fischer

/s/JOHN P. KAYSER* Trustee
- --------------------------
John P. Kayser

/s/ANN P. MCDERMOTT* Trustee
- --------------------------
Ann P. McDermott

/s/JOHN B. SCHWEMM* Trustee
- --------------------------
John B. Schwemm

/s/ROBERT E. WOOD II* Trustee
- --------------------------
Robert E. Wood II

/s/MARCO HANIG President (Principal Executive Officer)
- --------------------------
Marco Hanig

/s/TERENCE M. SULLIVAN Treasurer (Principal Financial Officer,
- --------------------------
Terence M. Sullivan Principal Accounting Officer)

- --------------
* Marco Hanig signs this document pursuant to powers of attorney previously
filed or as filed herewith.

<PAGE> 223

Index to Exhibits

(a) Declaration of Trust dated September 3, 1999.

(b) By-laws.

(d) (iv) Form of Management Agreement dated December 15, 1999.

(h) (i) Shareholder Services Agreement -- Class A, Class B and
Class C dated July 30, 1999.* (ii) Expense Limitation
Agreement for the Value Discovery Fund dated September 30,
1999.*
(iii) Expense Limitation Agreement for the Emerging Markets Growth
Fund dated September 30, 1999.*
(iv) Expense Limitation Agreement for the Tax Managed Growth Fund
dated December 15, 1999.*
(v) Expense Limitation Agreement for the Disciplined Large Cap
Fund dated December 15, 1999.*
(vi) Expense Limitation Agreement for the Small Cap Growth Fund
dated December 15, 1999.*
(vii) Expense Limitation Agreement for the Large Cap Growth Fund
dated December 15, 1999.*

(i) Opinion of Consent of Vedder, Price, Kaufman & Kammholz.

(j) Consent of Ernst & Young LLP.

(o) (ii) Powers of Attorney for John P. Kayser and Robert E. Wood II.

<PAGE> 1
EXHIBIT (a)

DECLARATION OF TRUST

WILLIAM BLAIR FUNDS

September 3, 1999

<PAGE> 2

DECLARATION OF TRUST
OF
WILLIAM BLAIR FUNDS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page

<S> <C>
ARTICLE I

The Trust..............................................................................................1
1.1 Name............................................................................................1
1.2 Trust Purpose...................................................................................1
1.3 Definitions.....................................................................................2

ARTICLE II

Trustees...............................................................................................3
2.1 Number and Qualification........................................................................3
2.2 Term and Election...............................................................................4
2.3 Resignation and Removal.........................................................................4
2.4 Vacancies.......................................................................................4
2.5 Meetings........................................................................................5
2.6 Officers; Chairperson of the Board..............................................................6
2.7 By-Laws.........................................................................................6

ARTICLE III

Powers of Trustees.....................................................................................6
3.1 General.........................................................................................6
3.2 Investments.....................................................................................6
3.3 Legal Title.....................................................................................7
3.4 Sale of Interests...............................................................................7
3.5 Borrow Money....................................................................................7
3.6 Delegation; Committee...........................................................................7
3.7 Collection and Payment..........................................................................8
3.8 Expenses........................................................................................8
3.9 Miscellaneous Powers............................................................................8
3.10 Further Powers..................................................................................8
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
ARTICLE IV

Investment Advisory, Administrative, and Placement Agent Services......................................9
4.1 Investment Advisory and Other Services..........................................................9
4.2 Parties to Contract.............................................................................9

ARTICLE V

Limitations of Liability..............................................................................10
5.1 No Personal Liability of Trustees, Officers, Employees or Agents...............................10
5.2 Indemnification of Trustees, Officers, Employees and Agents....................................10
5.3 Liability of Holders; Indemnification..........................................................11
5.4 No Bond Required of Trustees...................................................................11
5.5 No Duty of Investigation; Notice in Trust Instruments, Etc.....................................11
5.6 Reliance on Experts, Etc.......................................................................11
5.7 Assent to Declaration..........................................................................12

ARTICLE VI

Interests in the Trust................................................................................12
6.1 General Characteristics........................................................................12
6.2 Establishment of Series of Interests...........................................................13
6.3 Establishment of Classes.......................................................................13
6.4 Assets of Series...............................................................................14
6.5 Liabilities of Series..........................................................................14
6.6 Dividends and Distributions....................................................................15
6.7 Voting Rights..................................................................................16
6.8 Record Dates...................................................................................16
6.9 Transfer.......................................................................................16
6.10 Equality.......................................................................................16
6.11 Fractions......................................................................................16
6.12 Class Differences..............................................................................17
6.13 Conversion of Interests........................................................................17
6.14 Investments in the Trust.......................................................................17
6.15 Trustees and Officers as Holders...............................................................17
6.16 No Preemptive Rights; Derivative Suits.........................................................17
6.17 No Appraisal Rights............................................................................17
6.18 Status of Interests and Limitation of Personal Liability.......................................17
6.19 Elimination of Series..........................................................................18

ARTICLE VII

Purchases and Redemptions.............................................................................18
7.1 Purchases......................................................................................18
7.2 Redemption by Holder...........................................................................18
7.3 Redemption by Trust............................................................................19
7.4 Net Asset Value................................................................................19
</TABLE>

<PAGE> 4

<TABLE>
<S> <C>
ARTICLE VIII

Holders...............................................................................................20
8.1 Rights of Holders..............................................................................20
8.2 Register of Interests..........................................................................20
8.3 Notices........................................................................................20
8.4 Meetings of Holders............................................................................20
8.5 Notice of Meetings.............................................................................21
8.6 Record Date....................................................................................21
8.7 Proxies, Etc...................................................................................21
8.8 Reports........................................................................................22
8.9 Inspection of Records..........................................................................22
8.10 Voting Powers..................................................................................22
8.11 Holder Action by Written Consent...............................................................22
8.12 Holder Communications..........................................................................22

ARTICLE IX

Duration; Termination of Trust; Amendment; Mergers; Etc...............................................23
9.1 Duration.......................................................................................23
9.2 Termination of Trust...........................................................................23
9.3 Amendment Procedure............................................................................24
9.4 Merger, Consolidation and Sale of Assets.......................................................25
9.5 Incorporation..................................................................................25

ARTICLE X

Miscellaneous.........................................................................................25
10.1 Certificate of Designation; Agent for Service of Process.......................................25
10.2 Governing Law..................................................................................26
10.3 Counterparts...................................................................................26
10.4 Reliance by Third Parties......................................................................26
10.5 Provisions in Conflict With Law or Regulations.................................................26
10.6 Trust Only.....................................................................................27
10.7 Withholding....................................................................................27
10.8 Headings and Construction......................................................................27
</TABLE>

iii

<PAGE> 5

This DECLARATION OF TRUST OF WILLIAM BLAIR FUNDS is made on the
3rd day of September, 1999 by the parties signatory hereto, as Trustees.

WHEREAS, the Trustees desire to form a business trust under the
law of Delaware for the investment and reinvestment of its assets; and

WHEREAS, it is proposed that the Trust assets be composed of
cash, securities and other assets contributed to the Trust by the Holders of
Interests in the Trust entitled to ownership rights in the Trust;

NOW, THEREFORE, the Trustees hereby declare that the Trustees
will hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and dispose
of the same for the benefit of the Holders of Interests in the Trust, and
subject to the following terms and conditions.

ARTICLE I

The Trust

1.1 Name. The name of the Trust created hereby (the "Trust") shall be
"William Blair Funds," and so far as may be practicable the Trustees shall
conduct the Trust's activities, execute all documents and sue or be sued under
that name, which name (and the word "Trust" wherever hereinafter used) shall not
refer to the Trustees in their individual capacities or to the officers, agents,
employees or Holders of Interest in the Trust. However, should the Trustees
determine that the use of the name of the Trust is not advisable, they may
select such other name for the Trust as they deem proper and the Trust may hold
its property and conduct its activities under such other name. Any name change
shall become effective upon the execution by a majority of the then Trustees of
an instrument setting forth the new name and the filing of a certificate of
amendment pursuant to Section 3810(b) of the DBTA. Any such instrument shall not
require the approval of the Holders of Interests in the Trust, but shall have
the status of an amendment to this Declaration.

1.2 Trust Purpose. The purpose of the Trust is to conduct, operate
and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be the
purpose of the Trust to do everything necessary, suitable, convenient or proper
for the conduct, promotion and attainment of any businesses and purposes which
at any time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith, the Trust shall
have and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.

<PAGE> 6

1.3 Definitions. As used in this Declaration, the following terms
shall have the following meanings:

(a) "1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.

(b) "Affiliated Person," "Assignment" and "Interested Person"
shall have the meanings given such terms in the 1940 Act.

(c) "Administrator" shall mean any party furnishing services to
the Trust pursuant to any administrative services contract described in Section
4.1.

(d) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.

(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.

(f) "Commission" shall mean the Securities and Exchange
Commission.

(g) "Declaration" shall mean this Declaration of Trust, as
amended from time to time. References in this Declaration to "Declaration,"
"hereof," "herein" and "hereunder" shall be deemed to refer to the Declaration
rather than the article or section in which such words appear. This Declaration
shall, together with the By-Laws, constitute the governing instrument of the
Trust under the DBTA.

(h) "DBTA" shall mean the Delaware Business Trust Act, Delaware
Code Annotated Title 12, Sections 3801, et seq., as amended from time to time.

(i) "Fiscal Year" shall mean an annual period as determined by
the Trustees unless otherwise provided by the Code or applicable regulations.

(j) "Holders" shall mean as of any particular time any or all
holders of record of Interests in the Trust or in Trust Property, as the case
may be, at such time.

(k) "Interest" shall mean a Holder's units of interest into which
the beneficial interest in the Trust and each series and class of the Trust
shall be divided from time to time.

(l) "Investment Adviser" shall mean any party furnishing services
to the Trust pursuant to any investment advisory contract described in Section
4.1 hereof.

<PAGE> 7

(m) "Majority Interests Vote" shall mean the vote, at a meeting
of the Holders of Interests, of the lesser of (i) 67% or more of the Interests
present or represented at such meeting, provided the Holders of more than 50% of
the Interests are present or represented by proxy or (ii) more than 50% of the
Interests.

(n) "Person" shall mean and include an individual, corporation,
partnership, trust, foundation, plan, association, joint venture, estate and
other entity, whether or not a legal entity, and a government and agencies and
political subdivisions thereof, whether domestic or foreign.

(o) "Registration Statement" as of any particular time shall mean
the Registration Statement of the Trust which is effective at such time under
the 1940 Act.

(p) "Trust Property" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees or any series
of the Trust established in accordance with Section 6.2.

(q) "Trustees" shall mean such persons who have signed this
Declaration, so long as they shall continue in office in accordance with the
terms of this Declaration, and all other persons who at the time in question
have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration and are then in office, in their capacity as
trustees hereunder.

ARTICLE II

Trustees

2.1 Number and Qualification. The number of Trustees shall initially
be one and shall thereafter be fixed from time to time by written instrument
signed, or by resolution approved at a duly constituted meeting, by a majority
of the Trustees so fixed, then in office, provided, however, that the number of
Trustees shall in no event be less than one. A Trustee shall be an individual at
least 21 years of age who is not under a legal disability.

(a) Any vacancy created by an increase in Trustees shall be
filled by the appointment or election of an individual having the qualifications
described in this Article as provided in Section 2.4. Any such appointment shall
not become effective, however, until the individual appointed or elected shall
have accepted in writing such appointment or election and agreed in writing to
be bound by the terms of the Declaration. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office.

(b) Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.4 hereof, the Trustees in
office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by this
Declaration.

2.2 Term and Election. Each Trustee named herein, or elected or
appointed prior to the first meeting of the Holders, shall (except in the event
of resignations or removals or vacancies

<PAGE> 8

pursuant to Section 2.3 or 2.4 hereof) hold office until his or her successor
has been elected at such meeting and has qualified to serve as Trustee.
Beginning with the Trustees elected at the first meeting of Holders, each
Trustee shall hold office during the lifetime of this Trust and until its
termination as hereinafter provided unless such Trustee resigns or is removed as
provided in Section 2.3 below or his term expires pursuant to Section 2.4
hereof.

2.3 Resignation and Removal. Any Trustee may resign (without need for
prior or subsequent accounting) by an instrument in writing signed by him or her
and delivered or mailed to the Chairperson, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument.

(a) Any of the Trustees may be removed with or without cause by
the affirmative vote of the Holders of two-thirds (2/3) of the Interests or
(provided the aggregate number of Trustees, after such removal and after giving
effect to any appointment made to fill the vacancy created by such removal,
shall not be less than the number required by Section 2.1 hereof) with cause, by
the action of two-thirds (2/3) of the remaining Trustees, or without cause, by
the action of eighty percent (80%) of the remaining Trustees. Removal with cause
shall include, but not be limited to, the removal of a Trustee due to physical
or mental incapacity.

(b) Upon the resignation or removal of a Trustee, or his or her
otherwise ceasing to be a Trustee, he or she shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the death of any Trustee or upon removal
or resignation due to any Trustee's incapacity to serve as trustee, his or her
legal representative shall execute and deliver on his or her behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.

2.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the earliest to occur of the following: the
Trustee's death, resignation, adjudicated incompetence or other incapacity to
perform the duties of the office, or the removal of the Trustee. A vacancy shall
also occur in the event of an increase in the number of Trustees as provided in
Section 2.1. No such vacancy shall operate to annul this Declaration or to
revoke any existing trust created pursuant to the terms of this Declaration. In
the case of a vacancy, the Holders of a plurality of the Interests entitled to
vote, acting at any meeting of the Holders held in accordance with Article VIII
hereof, or, to the extent permitted by the 1940 Act, a majority vote of the
Trustees continuing in office acting by written instrument or instruments, may
fill such vacancy, and any Trustee so elected by the Trustees or the Holders
shall hold office as provided in this Declaration. There shall be no cumulative
voting by the Holders in the election of Trustees.

2.5 Meetings. Meetings of the Trustees shall be held from time to
time within or without the State of Delaware upon the call of the Chairperson,
if any, the Chief Executive Officer, the President, the Secretary, an Assistant
Secretary or any two Trustees.

(a) Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall

<PAGE> 9

be given not later than 72 hours preceding the meeting by United States mail or
by electronic transmission to each Trustee at his or her business address as set
forth in the records of the Trust or otherwise given personally not less than 24
hours before the meeting but may be waived in writing by any Trustee either
before or after such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting has not been lawfully called or convened.

(b) A quorum for all meetings of the Trustees shall be one-third
of the total number of Trustees, but (except at such time as there is only one
Trustee) no less than two Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority of the Trustees, which written consent shall be
filed with the minutes of proceedings of the Trustees or any such committee. If
there be less than a quorum present at any meeting of the Trustees, a majority
of those present may adjourn the meeting until a quorum shall have been
obtained.

(c) Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be two or more of the members thereof, unless the
Board shall provide otherwise. Unless provided otherwise in this Declaration,
any action of any such committee may be taken at a meeting by vote of a majority
of the members present (a quorum being present) or without a meeting by written
consent of a majority of the members, which written consent shall be filed with
the minutes of proceedings of the Trustees or any such committee.

(d) With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or are otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.

(e) All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting,
unless the 1940 Act specifically requires the Trustees to act "in person," in
which case such term shall be construed consistent with Commission or staff
releases or interpretations.

2.6 Officers; Chairperson of the Board. The Trustees shall, from time
to time, elect officers of the Trust, including a Chief Executive Officer, a
President, a Secretary and a Treasurer. The Trustees shall elect or appoint,
from time to time, a Trustee to act as Chairperson of the Board who shall
preside at all meetings of the Trustees and carry out such other duties as the
Trustees shall designate. The Trustees may elect or appoint or authorize the
Chief Executive Officer and/or the President to appoint such other officers or
agents with such powers as the Trustees may deem to be advisable. The President,
Secretary and Treasurer may, but need not, be a Trustee. The Chairperson

<PAGE> 10

of the Board and such officers of the Trust shall serve in such capacity for
such time and with such authority as the Trustees may, in their discretion, so
designate or as provided for in the By-Laws.

2.7 By-Laws. The Trustees may adopt and, from time to time, amend or
repeal the By-Laws for the conduct of the business of the Trust not inconsistent
with this Declaration, and such By-Laws are hereby incorporated in this
Declaration by reference thereto.

ARTICLE III

Powers of Trustees

3.1 General. The Trustees shall have exclusive and absolute control
over management of the business and affairs of the Trust, but with such powers
of delegation as may be permitted by this Declaration and the DBTA. The Trustees
may perform such acts as in their sole discretion are proper for conducting the
business and affairs of the Trust. The enumeration of any specific power herein
shall not be construed as limiting the aforesaid power. Such powers of the
Trustee may be exercised without order of, or recourse to, any court.

3.2 Investments. The Trustees shall have power to:

(a) conduct, operate and carry on the business of an investment
company; and

(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, lend, transfer, exchange, distribute, write
or otherwise deal in or dispose of United States and foreign currencies and
related instruments including forward contracts, and securities, including
common and preferred stock, warrants, bonds, debentures, time notes, bankers
acceptances and all other evidences of indebtedness, negotiable or
non-negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those issued,
guaranteed or sponsored by any state, territory or possession of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, or by the United States Government, any foreign
government, or any agency, instrumentality or political subdivision of the
United States Government or any foreign government, or international
instrumentalities, or by any bank, savings institution, corporation or other
business entity organized under the laws of the United States or under foreign
laws or in "when-issued" contracts for such securities; and to exercise any and
all rights, powers and privileges of ownership or interest in respect of any and
all such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional securities in which the Trustees may determine to
invest.

<PAGE> 11

The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.

3.3 Legal Title. Legal title to all the Trust Property shall be
vested in the Trust as a separate legal entity under the DBTA, except that the
Trustees shall have the power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees or in the name of any
other Person on behalf of the Trust on such terms as the Trustees may determine.

In the event that title to any part of the Trust Property is vested in
one or more Trustees, the right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his or her due election and qualification. Upon the resignation,
removal or death of a Trustee he or she shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. To the extent permitted by law, such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.

3.4 Sale of Interests. Subject to the more detailed provisions set
forth in Article VII, the Trustees shall have the power to permit persons to
purchase Interests and to add or reduce, in whole or in part, their Interest in
the Trust.

3.5 Borrow Money. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee or undertake the performance
of any obligation, contract or engagement of any other person, firm, association
or corporation.

3.6 Delegation; Committee. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.

3.7 Collection and Payment. The Trustees shall have the power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.

3.8 Expenses. The Trustees shall have the power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage

<PAGE> 12

services, as they in good faith may deem reasonable (subject to any limitations
in the 1940 Act), and reimbursement for expenses reasonably incurred by
themselves on behalf of the Trust. There shall be no retirement compensation
plan for the Trustees; provided, however, that the Trustees may adopt a deferred
compensation plan consistent with industry and regulatory standards.

3.9 Miscellaneous Powers. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies (including, but not
limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any officers, employees and agents of the Trust; (e) to the extent permitted by
law, indemnify any Person with whom the Trust has dealings, including the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such extent as the
Trustees shall determine; (f) guarantee indebtedness or contractual obligations
of others; (g) determine and change the Fiscal Year of the Trust and the method
by which its accounts shall be kept; and (h) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.

3.10 Further Powers. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of Delaware, in any
and all states of the United States of America, in the District of Columbia, in
any foreign countries, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign countries, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive and shall be
binding upon the Trust and the Holders, past, present and future. In construing
the provisions of this Declaration, the presumption shall be in favor of a grant
of power to the Trustees. The Trustees shall not be required to obtain any court
order to deal with Trust Property.

ARTICLE IV

Investment Advisory, Administrative, and Placement Agent Services

4.1 Investment Advisory and Other Services. The Trustees may in their
discretion, from time to time, enter into contracts or agreements for investment
advisory services, administrative services (including management, transfer and
dividend disbursing agency services), distribution services, fiduciary
(including custodian, subcustodian and depository) services, placement agent
services, Holder servicing and distribution services, or other services, whereby
the other party to

<PAGE> 13

such contract or agreement shall undertake to furnish the Trustees such services
as the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Adviser (all without further action by the Trustees). Any such purchases, sales,
loans or exchanges shall be binding upon the Trust.

4.2 Parties to Contract. Any contract or agreement of the character
described in Section 4.1 of this Article IV or in the By-Laws of the Trust may
be entered into with any Person, although one or more of the Trustees or
officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or held
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into was reasonable and fair and not
inconsistent with the provisions of this Article IV or the By-Laws. Any Trustee
or officer of the Trust or any Holder may be the other party to contracts or
agreements entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any Trustee or officer of the Trust or any Holder may be financially
interested or otherwise affiliated with Persons who are parties to any or all of
the contracts or agreements mentioned in this Section 4.2.

ARTICLE V

Limitations of Liability

5.1 No Personal Liability of Trustees, Officers, Employees or Agents.
No Trustee, officer, employee or agent of the Trust when acting in such capacity
shall be subject to any personal liability whatsoever, in his or her individual
capacity, to any Person, other than the Trust or its Holders, in connection with
Trust Property or the affairs of the Trust; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer, employee or agent of the Trust arising in connection with the
affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall
be liable to the Trust, Holders of Interests therein, or to any Trustee,
officer, employee, or agent thereof for any action or failure to act (including,
without limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust), except for his or her own bad faith,
willful misfeasance, gross negligence or reckless disregard of his or her
duties.

5.2 Indemnification of Trustees, Officers, Employees and Agents. The
Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or trustees
of another organization in which it has any interest, as a shareholder, creditor
or otherwise) against all liabilities and expenses (including amounts paid in

<PAGE> 14

satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him or her in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he or she may be involved or with which he or she may be threatened,
while in office or thereafter, by reason of his or her being or having been such
a Trustee, officer, employee or agent, except with respect to any matter as to
which he or she shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties;
provided, however, that as to any matter disposed of by a compromise payment by
such Person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless there
has been a determination that such Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office by the court or other body approving the settlement
or other disposition or by a reasonable determination, based upon review of
readily available facts (as opposed to a full trial-type inquiry), that he or
she did not engage in such conduct or by a reasonable determination, based upon
a review of the facts, that such Person was not liable by reason of such
conduct, by (a) the vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act
nor parties to the proceeding, or (b) a written opinion from independent legal
counsel approved by the Trustees. The rights accruing to any Person under these
provisions shall not exclude any other right to which he or she may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the Trust Property. The Trustees may make
advance payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she is
not entitled to such indemnification. All payments shall be made in compliance
with Section 17(h) of the 1940 Act.

5.3 Liability of Holders; Indemnification. The Trust shall indemnify
and hold each Holder harmless from and against any claim or liability to which
such Holder may become subject solely by reason of his or her being or having
been a Holder and not because of such Holder's acts or omissions or for some
other reason, and shall reimburse such Holder for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or liability
(upon proper and timely request by the Holder); provided, however, that no
Holder shall be entitled to indemnification by any series established in
accordance with Section 8.8 unless such Holder is a Holder of Interests of such
series. The rights accruing to a Holder under this Section 5.3 shall not exclude
any other right to which such Holder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein.

5.4 No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.

5.5 No Duty of Investigation; Notice in Trust Instruments, Etc. No
purchaser, lender, or other Person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid,

<PAGE> 15

loaned, or delivered to or on the order of the Trustees or of said officer,
employee or agent. Every obligation, contract, instrument, certificate or other
interest or undertaking of the Trust, and every other act or thing whatsoever
executed in connection with the Trust, shall be conclusively relied upon as
having been executed or done by the executors thereof only in their capacities
as Trustees, officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust made by the Trustees or by any officer, employee or agent of the
Trust, in his or her capacity as such, shall contain an appropriate recital to
the effect that the Trustee, officer, employee or agent of the Trust shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property or the private property of the Holders for the satisfaction of
any obligation or claim thereunder, and appropriate references shall be made
therein to the Declaration, and may contain any further recital which they may
deem appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the Trustees shall deem advisable.

5.6 Reliance on Experts, Etc. Each Trustee and officer or employee of
the Trust shall, in the performance of his or her duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by any Investment Adviser, Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.

5.7 Assent to Declaration. Every Holder, by virtue of having become a
Holder in accordance with the terms of this Declaration, shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto.

ARTICLE VI

Interests in the Trust

6.1 General Characteristics. (a) The Trustees shall have the power
and authority, without Holder approval, to issue Interests in one or more series
from time to time as they deem necessary or desirable. Each series shall be
separate from all other series in respect to the assets and liabilities
allocated to that series and shall represent a separate investment portfolio of
the Trust. The Trustees shall have exclusive power, without Holder approval, to
establish and designate such separate and distinct series, as set forth in
Section 6.2, and to fix and determine the relative rights and preferences as
between the Interests of the separate series as to right of redemption, special
and relative rights as to dividends and other distributions and on liquidation,
conversion rights, and conditions under which the series shall have separate
voting rights or no voting rights.

(b) The Trustees may, without Holder approval, divide Interests
of any series into two or more classes, Interests of each such class having such
preferences and special or relative rights and privileges (including conversion
rights, if any) as the Trustees may determine as provided

<PAGE> 16

in Section 6.3. The fact that a series shall have been initially established and
designated without any specific establishment or designation of classes, shall
not limit the authority of the Trustees to divide a series and establish and
designate separate classes thereof.

(c) The number of Interests authorized shall be unlimited, and
the Interests so authorized may be represented in part by fractional Interests.
From time to time, the Trustees may divide or combine the Interests of any
series or class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series or class. The Trustees may
issue Interests of any series or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or approval of the Holders.
All Interests when so issued on the terms determined by the Trustees shall be
fully paid and non-assessable. The Trustees may classify or reclassify any
unissued Interests or any Interests previously issued and reacquired of any
series or class thereof into one or more series or classes thereof that may be
established and designated from time to time. The Trustees may hold as treasury
Interests, reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Interests of
any series or class thereof reacquired by the Trust.

6.2 Establishment of Series of Interests. (a) Without limiting the
authority of the Trustees set forth in Section 6.2(b) to establish and designate
any further series, the Trustees hereby establish and designate six series, as
follows:

William Blair Growth Fund
William Blair Value Discovery Fund
William Blair International Growth Fund
William Blair Emerging Markets Growth Fund
William Blair Income Fund
William Blair Ready Reserves Fund

The provisions of this Article VI shall be applicable to the
above designated series and any further series that may from time to time be
established and designated by the Trustees as provided in Section 6.2(b).

(b) The establishment and designation of any series of Interests
other than the one set forth above shall be effective upon the execution, by a
majority of the Trustees, of an instrument setting forth such establishment and
designation and the relative rights and preferences of such series, or as
otherwise provided in such instrument. At any time that there are no Interests
outstanding of any particular series previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment of this
Declaration.

(c) Section 9.2 of this Declaration of Trust shall apply also
with respect to each such series as if such series were a separate trust.

<PAGE> 17

6.3 Establishment of Classes. (a) Without limiting the authority of
the Trustees set forth in Section 6.3(b) to establish and designate any further
classes, the Trustees hereby establish five classes of each series (except the
Ready Reserves Fund) as follows:

Class A Shares
Class B Shares
Class C Shares
Class N Shares
Class I Shares

Without limiting the authority of the Trustees set forth in Section
6.3(b) to establish and designate any further classes, the Trustees hereby
establish two classes of the Ready Reserves Fund as follows:

Class N Shares
Class I Shares

The provision of this Article VI shall be applicable to the above
designated classes and any further classes that may from time to time be
established and designated by the Trustees as provided in Section 6.3(b).

(b) The division of any series into two or more classes and the
establishment and designation of such classes shall be effective upon the
execution by a majority of the Trustees of an instrument setting forth such
division, and the establishment, designation, and relative rights and
preferences of such classes, or as otherwise provided in such instrument. The
relative rights and preferences of the classes of any series may differ in such
respects as the Trustees may determine to be appropriate, provided that such
differences are set forth in the aforementioned instrument. At any time that
there are no Interests outstanding of any particular class previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.

(c) Section 9.2 of this Declaration of Trust shall apply also
with respect to each such class as if such class were a separate trust.

6.4 Assets of Series. All consideration received by the Trust for the
issue or sale of Interests of a particular series together with all Trust
Property in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. Separate and distinct records shall be maintained for each series and the
assets associated with a series shall be held and accounted for separately from
the other assets of the Trust, or any other series. In the event that there is
any Trust Property, or any income, earnings, profits, and

<PAGE> 18

proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Holders of all Interests for all purposes.

6.5 Liabilities of Series. (a) The Trust Property belonging to each
particular series shall be charged with the liabilities of the Trust in respect
to that series and all expenses, costs, charges and reserves attributable to
that series, and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
series shall be allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Holders of all
Interests for all purposes. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital, and each such determination and
allocation shall be conclusive and binding upon the Holders.

(b) Without limitation of the foregoing provisions of this
Section, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series shall be
enforceable against the assets of such series only, and not against the assets
of any other series. Notice of this limitation on interseries liabilities shall
be set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the DBTA, and upon the giving of such notice
in the certificate of trust, the statutory provisions of Section 3804 of the
DBTA relating to limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each series. Every note, bond,
contract or other undertaking issued by or on behalf of a particular series
shall include a recitation limiting the obligation represented thereby to that
series and its assets.

6.6 Dividends and Distributions. (a) Dividends and distributions on
Interests of a particular series or any class thereof may be paid with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or a resolution adopted only once or with such
frequency as the Trustees may determine, to the Holders of Interests in that
series or class, from such of the income and capital gains, accrued or realized,
from the Trust Property belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
series. All dividends and distributions on Interests in a particular series or
class thereof shall be distributed pro rata to the Holders of Interests in that
series or class in proportion to the total outstanding Interests in that series
or class held by such Holders at the date and time of record established for the
payment of such dividends or distribution, except to the extent otherwise
required or permitted by the preferences and special or relative rights and
privileges of any series or class. Such dividends and distributions may be made
in cash or Interests of that series or class or a

<PAGE> 19

combination thereof as determined by the Trustees or pursuant to any program
that the Trustees may have in effect at the time for the election by each Holder
of the mode of the paying of such dividend or distribution to that Holder. Any
such dividend or distribution paid in Interests will be paid at the net asset
value thereof as determined in accordance with Section 7.4.

(b) The Interests in a series or a class of the Trust shall
represent beneficial interests in the Trust Property belonging to such series or
in the case of a class, belonging to such series and allocable to such class.
Each Holder of Interests in a series or a class shall be entitled to receive its
pro rata share of distributions of income and capital gains made with respect to
such series or such class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being or having been a
Holder of Interests in a series or a class, such Holder shall be paid solely out
of the funds and property of such series or in the case of a class, the funds
and property of such series and allocable to such class of the Trust. Upon
liquidation or termination of a series or class of the Trust, Holders of
Interests in such series or class shall be entitled to receive a pro rata share
of the Trust Property belonging to such series or in the case of a class,
belonging to such series and allocable to such class.

6.7 Voting Rights. Notwithstanding any other provision hereof, on
each matter submitted to a vote of the Holders, each Holder shall be entitled to
one vote for each whole Interest standing in his name on the books of the Trust,
and each fractional Interest shall be entitled to a proportionate fractional
vote, irrespective of the series thereof or class thereof, and all Interests of
all series and classes thereof shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a separate vote of one
or more series or classes thereof is permitted or required by the 1940 Act or
the provisions of the instrument establishing and designating the series or
class, such requirements as to a separate vote by such series or class thereof
shall apply in lieu of all Interests of all series and classes thereof voting
together; and (b) as to any matter which affects only the interests of one or
more particular series or classes thereof, only the Holders of the one or more
affected series or classes shall be entitled to vote, and each such series or
class shall vote as a separate series or class.

6.8 Record Dates. The Trustees may from time to time close the
transfer books or establish record dates and times for the purposes of
determining the Holders entitled to be treated as such, to the extent provided
or referred to in Section 8.6.

6.9 Transfer. All Interests of each particular series or class
thereof shall be transferable, but transfers of Interests of a particular series
or class thereof will be recorded on the Interest transfer records of the Trust
applicable to that series or class only at such times as Holders shall have the
right to require the Trust to redeem Interests of that series or class and at
such other times as may be permitted by the Trustees.

6.10 Equality. Except as provided herein or in the instrument
designating and establishing any class or series, all Interests of each
particular series or class thereof shall represent an equal proportionate
interest in the assets belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, subject to the liabilities
belonging to that series, and each Interest of any particular series or class
shall be equal to each other Interest of that series or class; but the

<PAGE> 20

provisions of this sentence shall not restrict any distinctions permissible
under Section 6.6 that may exist with respect to dividends and distributions on
Interests of the same series or class. The Trustees may from time to time divide
or combine the Interests of any particular series or class into a greater or
lesser number of Interests of that series or class without thereby changing the
proportionate beneficial interest in the assets belonging to that series or
class or in any way affecting the rights or Interests of any other series or
class.

6.11 Fractions. Any fractional Interest of any series or class, if any
such fractional Interest is outstanding, shall carry proportionately all the
rights and obligations of a whole Interest of that series or class, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Interests, and liquidation of the Trust.

6.12 Class Differences. Subject to Section 6.3, the relative rights
and preferences of the classes of any series may differ in such other respects
as the Trustees may determine to be appropriate in their sole discretion,
provided that such differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the Trustees.

6.13 Conversion of Interests. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that Holders of Interests of any series shall have the right to convert said
Interests into one or more other series in accordance with such requirements and
procedures as may be established by the Trustees. The Trustees shall also have
the authority to provide that Holders of Interests of any class of a particular
series shall have the right to convert said Interests into one or more other
classes of that particular series or any other series in accordance with such
requirements and procedures as may be established by the Trustees.

6.14 Investments in the Trust. The Trustees may accept investments in
the Trust from such persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from time to time
authorize. The Trustees may authorize any distributor, principal underwriter,
custodian, transfer agent or other person to accept orders for the purchase of
Interests that conform to such authorized terms and to reject any purchase
orders for Interests whether or not conforming to such authorized terms.

6.15 Trustees and Officers as Holders. Any Trustee, officer or other
agent of the Trust, and any organization in which any such person is interested,
may acquire, own, hold and dispose of Interests of the Trust to the same extent
as if such person were not a Trustee, officer or other agent of the Trust; and
the Trust may issue and sell or cause to be issued and sold and may purchase
Interests from any such person or any such organization subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Interests generally.

6.16 No Preemptive Rights; Derivative Suits. Holders shall have no
preemptive or other right to subscribe to any additional Interests or other
securities issued by the Trust. No action may be brought by a Holder on behalf
of the Trust unless Holders owning no less than 10% of the then outstanding
Interests, or series or class thereof, join in the bringing of such action. A
Holder of Interests in a particular series or a particular class of the Trust
shall not be entitled to participate in

<PAGE> 21

a derivative or class action lawsuit on behalf of any other series or any other
class or on behalf of the Holders of Interests in any other series or any other
class of the Trust.

6.17 No Appraisal Rights. Holders shall have no right to demand
payment for their Interests or to any other rights of dissenting Holders in the
event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a stockholder of a corporation organized
under the General Corporation Law of Delaware, or otherwise.

6.18 Status of Interests and Limitation of Personal Liability.
Interests shall be deemed to be personal property giving only the rights
provided in this Declaration of Trust. Every Holder by virtue of acquiring
Interests shall be held to have expressly assented and agreed to the terms
hereof and to be bound hereby. The death, incapacity, dissolution, termination
or bankruptcy of a Holder during the continuance of the Trust shall not operate
to dissolve or terminate the Trust or any series thereof nor entitle the
representative of such Holder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but shall entitle the
representative of such Holder only to the rights of such Holder under this
Trust. Ownership of Interests shall not entitle the Holder to any title in or to
the whole or any part of the Trust Property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Interests
constitute the Holders as partners or joint venturers. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust, shall have any power
to bind personally any Holder, nor except as specifically provided herein to
call upon any Holder for the payment of any sum of money or assessment
whatsoever other than such as the Holder may at any time personally agree to
pay.

6.19 Elimination of Series. Without limiting the authority of the
Trustees set forth in Section 9.2 of this Declaration of Trust, at any time that
there are no Interests outstanding of a series (or class), the Trustees may
abolish such series (or class).

ARTICLE VII

Purchases and Redemptions

7.1 Purchases. The Trustees, in their discretion, may, from time to
time, without a vote of the Holders, permit the purchase of Interests by such
party or parties (or increase in the Interests of a Holder), for such type of
consideration, including, without limitation, cash or property, at such time or
times (including, without limitation, each business day), and on such terms as
the Trustees may deem best, and may in such manner acquire other assets
(including, without limitation, the acquisition of assets subject to, and in
connection with the assumption of, liabilities) and businesses.

7.2 Redemption by Holder. Each Holder of Interests of the Trust or
any series or class thereof shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any part of his or
her Interests of the Trust, or series or class thereof, at a redemption price
equal to the net asset value per Interest of the Trust or series or class
thereof, next determined in accordance with Section 7.4 hereof after the
Interests are properly tendered for redemption, subject to any contingent
deferred sales charge or redemption charge in effect at the time of redemption.
Payment of the redemption price shall be in cash; provided, however, that if the

<PAGE> 22

Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Trust or series or class thereof of
which the Interests being redeemed are part of the value of such securities or
assets used in such determination of the net asset value.

Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the Holders of Interests of the
Trust, or series or class thereof, to require the Trust to redeem Interests of
the Trust, or of any series or class thereof, during any period or at any time
when and to the extent permissible under the 1940 Act.

7.3 Redemption by Trust. Each Interest of the Trust, or series or
class thereof that has been established and designated is subject to redemption
by the Trust at the redemption price which would be applicable if such Interest
was then being redeemed by the Holder pursuant to Section 7.2 hereof: (a) at any
time, if the Trustees determine in their sole discretion and by majority vote
that it is in the best interest of the Trust, or any series or class thereof, to
so redeem, or (b) upon such other conditions as may from time to time be
determined by the Trustees and set forth in the then current Prospectus of the
Trust with respect to maintenance of Holder accounts of a minimum or maximum
amount or percentage. Upon such redemption the Holders of the Interests so
redeemed shall have no further right with respect thereto other than to receive
payment of such redemption price.

7.4 Net Asset Value. The net asset value per Interest of any series
shall be (a) in the case of a series whose Interests are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
series (being the value of the assets belonging to that series less the
liabilities belonging to that series) by the total number of Interests of that
series outstanding, and (b) in the case of a class of Interests of a series
whose Interests are divided into classes, the quotient obtained by dividing the
value of the net assets of that series allocable to such class (being the value
of the assets belonging to that series allocable to such class less the
liabilities belonging to such class) by the total number of Interests of such
class outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.

The Trustees may determine to maintain the net asset value per Interest
of any series or any class at a designated constant dollar amount and in
connection therewith may adopt procedures consistent with the 1940 Act for
continuing declarations of income attributable to that series or that class as
dividends payable in additional Interests of that series at the designated
constant dollar amount and for the handling of any losses attributable to that
series or that class. Such procedures may provide that in the event of any loss
each Holder shall be deemed to have contributed to the capital of the Trust
attributable to that series his or her pro rata portion of the total number of
Interests required to be canceled in order to permit the net asset value per
Interest of that series or class to be maintained, after reflecting such loss,
at the designated constant dollar amount. Each Holder of the Trust shall be
deemed to have agreed, by his or her investment in any series or class with
respect to which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss.

<PAGE> 23

ARTICLE VIII

Holders

8.1 Rights of Holders. The right to conduct any business hereinbefore
described is vested exclusively in the Trustees, and the Holders shall have no
rights under this Declaration or with respect to the Trust Property other than
the beneficial interest conferred by their Interests and the voting rights
accorded to them under this Declaration.

8.2 Register of Interests. A register shall be kept by the Trust
under the direction of the Trustees which shall contain the names and addresses
of the Holders and the number of Interests held by each Holder. Each such
register shall be conclusive as to the identity of the Holders of the Trust and
the Persons who shall be entitled to payments of distributions or otherwise to
exercise or enjoy the rights of Holders. No Holder shall be entitled to receive
payment of any distribution, nor to have notice given to it as herein provided,
until it has given its address to such officer or agent of the Trustees as shall
keep the said register for entry thereon. No certificates certifying the
ownership of interests need be issued except as the Trustees may otherwise
determine from time to time.

8.3 Notices. Any and all notices to which any Holder hereunder may be
entitled and any and all communications shall be deemed duly served or given if
presented personally to a Holder, left at his or her residence or usual place of
business, or sent via United States mail or by electronic transmission to a
Holder at his or her address as it is registered with the Trust, as provided in
Section 8.2. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the Holder at his or her address as it is
registered with the Trust, as provided in Section 8.2, with postage thereon
prepaid.

8.4 Meetings of Holders. Meetings of the Holders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests (or series or class thereof), such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Delaware on such day and at such time as the
Trustees shall designate. Holders of one-third of the Interests in the Trust,
present in person or by proxy, shall constitute a quorum for the transaction of
any business, except as may otherwise be required by the 1940 Act or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote by the Holders present, in person
or by proxy, holding more than 50% of the total Interests (or series or class
thereof) of the Holders present, either in person or by proxy, at such meeting
constitutes the action of the Holders, unless the 1940 Act, other applicable
law, this Declaration or the By-Laws of the Trust require a greater number of
affirmative votes. Notwithstanding the foregoing, the affirmative vote by the
Holders present, in person or by proxy, holding less than 50% of the Interests
(or class or series thereof) of the Holders present, in person or by proxy, at
such meeting shall be sufficient for adjournments. Any meeting of Holders,
whether or not a quorum is present, may be adjourned for any lawful purpose
provided that no meeting shall be adjourned for more than six months beyond the
originally scheduled meeting date. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the original meeting
without the necessity of further notice.

<PAGE> 24

8.5 Notice of Meetings. Written or printed notice of all meetings of
the Holders, stating the time, place and purposes of the meeting, shall be given
as provided in Section 8.3. At any such meeting, any business properly before
the meeting may be considered, whether or not stated in the notice of the
meeting. Any adjourned meeting held as provided in Section 8.4 shall not require
the giving of additional notice.

8.6 Record Date. For the purpose of determining the Holders who are
entitled to notice of any meeting, to vote at any meeting, to participate in any
distribution, or for the purpose of any other action, the Trustees may from time
to time fix a date, not more than 90 calendar days prior to the date of any
meeting of the Holders or payment of distributions or other action, as the case
may be, as a record date for the determination of the persons to be treated as
Holders of record for such purposes, and any Holder who was a Holder at the date
and time so fixed shall be entitled to vote at such meeting or to be treated as
a Holder of record for purposes of such other action, even though he or she has
since that date and time disposed of his or her Interests, and no Holder
becoming such after that date and time shall be so entitled to vote at such
meeting or to be treated as a Holder of record for purposes of such other
action. If the Trustees shall divide the Interests into two or more series in
accordance with Section 6.2 herein, nothing in this Section shall be construed
as precluding the Trustees from setting different record dates for different
series and if the Trustees shall divide any series into two or more classes in
accordance with Section 6.3 herein, nothing in this Section 8.6 shall be
construed as precluding the Trustees from setting different record dates for
different classes.

8.7 Proxies, Etc. At any meeting of Holders, any Holder entitled to
vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken.

(a) Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Holders of record shall be entitled to vote.
Each Holder shall be entitled to a vote proportionate to its Interest in the
Trust.

(b) When Interests are held jointly by several persons, any one
of them may vote at any meeting in person or by proxy in respect to such
Interest, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect to such
Interest.

(c) A proxy purporting to be executed by or on behalf of a Holder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. If the Holder is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person regarding the charge or management of his or her
Interest, he or she may vote by his or her guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.

<PAGE> 25

8.8 Reports. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually an interim report containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.

8.9 Inspection of Records. The records of the Trust shall be open to
inspection by Holders during normal business hours and for any purpose not
harmful to the Trust.

8.10 Voting Powers. (a) The Holders shall have power to vote only (i)
for the election or removal of Trustees as contemplated by Section 2.2 and 2.3
hereof, (ii) with respect to any investment advisory contract as contemplated by
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to amendments to the Declaration of
Trust as provided in Section 9.3 hereof, (v) with respect to any merger,
consolidation or sale of assets as provided in Section 9.4 hereof, (vi) with
respect to incorporation of the Trust to the extent and as provided in Section
9.5 hereof, and (vii) with respect to such additional matters relating to the
Trust as may be required by the 1940 Act, DBTA, or any other applicable law, the
Declaration, the By-Laws or any registration of the Trust with the Commission
(or any successor agency) or any state, or as and when the Trustees may consider
necessary or desirable.

(b) Each Holder shall be entitled to vote based on the ratio his
or her Interest bears to the Interests of all Holders entitled to vote. Until
Interests are issued, the Trustees may exercise all rights of Holders and may
take any action required by law, the Declaration or the By-Laws to be taken by
Holders. The By-Laws may include further provisions for Holders' votes and
meetings and related matters not inconsistent with this Declaration.

8.11 Holder Action by Written Consent. Any action which may be taken
by the Holders may be taken without notice and without a meeting if Holders
holding more than 50% of the total Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents shall
be treated for all purposes as votes taken at a meeting of the Holders.

8.12 Holder Communications. (a) Whenever ten or more Holders who have
been such for at least six months preceding the date of application, and who
hold in the aggregate at least 1% of the total Interests, shall apply to the
Trustees in writing, stating that they wish to communicate with other Holders
with a view to obtaining signatures for a request for a meeting of Holders and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either (i) afford to such applicants access to a list of the names and addresses
of all Holders as recorded on the books of the Trust; or (ii) inform such
applicants as to the approximate number of Holders, and the approximate cost of
transmitting to them the proposed communication and form of request.

<PAGE> 26

(b) If the Trustees elect to follow the course specified in
clause (ii) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be transmitted and of the reasonable
expenses of transmission, shall, with reasonable promptness, transmit, by United
States mail or by electronic transmission, such material to all Holders at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall transmit, by United States mail or by electronic
transmission, to such applicants and file with the Commission, together with a
copy of the material to be transmitted, a written statement signed by at least a
majority of the Trustees to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.

ARTICLE IX

Duration; Termination of Trust; Amendment; Mergers; Etc.

9.1 Duration. Subject to possible termination in accordance with the
provisions of Section 9.2, the Trust created hereby shall continue perpetually
pursuant to Section 3808 of DBTA.

9.2 Termination of Trust. (a) The Trust may be terminated (i) by the
affirmative vote of the Holders of not less than two-thirds of the Interests in
the Trust at any meeting of the Holders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
Holders of not less than two-thirds of such Interests, or (iii) by the Trustees
by written notice to the Holders. Upon any such termination,

(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, or otherwise
dispose of all or any part of the remaining Trust Property to one or
more Persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of
any kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, or other disposition of all or
substantially all of the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the Holders with a Majority Interests Vote.

(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property, in cash or in
kind or partly each, among the Holders according to their respective
rights.

<PAGE> 27

(b) Upon termination of the Trust and distribution to the Holders
as herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination and file a certificate of cancellation in accordance with Section
3810 of the DBTA. Upon termination of the Trust, the Trustees shall thereon be
discharged from all further liabilities and duties hereunder, and the rights and
interests of all Holders shall thereupon cease.

9.3 Amendment Procedure.

(a) All rights granted to the Holders under this Declaration of
Trust are granted subject to the reservation of the right of the Trustees to
amend this Declaration of Trust as herein provided, except as set forth herein
to the contrary. Subject to the foregoing, the provisions of this Declaration of
Trust (whether or not related to the rights of Holders) may be amended at any
time, so long as such amendment is not in contravention of applicable law,
including the 1940 Act, by an instrument in writing signed by a majority of the
Trustees (or by an officer of the Trust pursuant to the vote of a majority of
such Trustees). Any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed by a Trustee
or officer of the Trust to the effect that such amendment has been duly adopted.

(b) No amendment may be made, under Section 9.3(a) above, which
would change any rights with respect to any Interest in the Trust by reducing
the amount payable thereon upon liquidation of the Trust, by repealing the
limitations on personal liability of any Holder or Trustee, or by diminishing or
eliminating any voting rights pertaining thereto, except with a Majority
Interests Vote.

(c) A certification signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Holders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.

(d) Notwithstanding any other provision hereof, until such time
as Interests are first sold, this Declaration may be terminated or amended in
any respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.

9.4 Merger, Consolidation and Sale of Assets. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of its property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by no less than a majority of the Trustees
and by a Majority Interests Vote of the Trust or by an instrument or instruments
in writing without a meeting, consented to by the Holders of not less than 50%
of the total Interests of the Trust or such series, as the case may be, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of the
State of Delaware. In

<PAGE> 28

accordance with Section 3815(f) of DBTA, an agreement of merger or consolidation
may effect any amendment to the Declaration or By-Laws or effect the adoption of
a new declaration of trust or by-laws of the Trust if the Trust is the surviving
or resulting business trust. A certificate of merger or consolidation of the
Trust shall be signed by a majority of the Trustees.

9.5 Incorporation. Upon a Majority Interests Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the equity interests thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.

ARTICLE X

Miscellaneous

10.1 Certificate of Designation; Agent for Service of Process. The
Trust shall file, in accordance with Section 3812 of DBTA, in the office of the
Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 of DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at least
one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall comply
with Section 3807(b) of DBTA by having and maintaining a registered office in
Delaware and by designating a registered agent for service of process on the
Trust, which agent shall have the same business office as the Trust's registered
office. The failure to file any such certificate, to maintain a registered
office, to designate a registered agent for service of process, or to include
such other information shall not affect the validity of the establishment of the
Trust, the Declaration, the By-Laws or any action taken by the Trustees, the
Trust officers or any other Person with respect to the Trust except insofar as a
provision of the DBTA would have governed, in which case the Delaware common law
governs.

10.2 Governing Law. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of

<PAGE> 29

Section 3540 of Title 12 of the Delaware Code, or (b) any provisions of the laws
(statutory or common) of the State of Delaware (other than the DBTA) pertaining
to trusts which are inconsistent with the rights, duties, powers, limitations or
liabilities of the Trustees set forth or referenced in this Declaration.

10.3 Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.

10.4 Reliance by Third Parties. The original or a copy of this
instrument and of each restatement and/or amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Holder. Any certificate
executed by an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to be a
Trustee hereunder, certifying to (a) the number or identity of Trustees or
Holders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or Holders,
(d) the fact that the number of Trustees or Holders present at any meeting or
executing any written instrument satisfies the requirements of this Declaration,
(e) the form of any By-Laws adopted by or the identity of any officers elected
by the Trustees, or (f) the existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trustees and their
successors.

10.5 Provisions in Conflict With Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the DBTA, or with other applicable laws and
regulations, the conflicting provisions shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.

(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.

10.6 Trust Only. It is the intention of the Trustees to create only a
business trust under DBTA with the relationship of trustee and beneficiary
between the Trustees and each Holder from time to time. It is not the intention
of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment, or any form of legal relationship
other than a Delaware business trust except to the extent such trust is deemed
to constitute a corporation under the Code and applicable state tax laws.
Nothing in this Declaration of Trust shall be construed to make the Holders,
either by themselves or with the Trustees, partners or members of a joint stock
association.

<PAGE> 30

10.7 Withholding. Should any Holder be subject to withholding pursuant
to the Code or any other provision of law, the Trust shall withhold all amounts
otherwise distributable to such Holder as shall be required by law and any
amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.

10.8 Headings and Construction. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. Whenever the
singular number is used herein, the same shall include the plural; and the
neuter, masculine and feminine genders shall include each other, as applicable.

IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.

/s/ JAMES M. MCMULLAN September 3, 1999
- ---------------------------
Trustee

<PAGE> 1
EXHIBIT (B)

BY-LAWS

WILLIAM BLAIR FUNDS

Section 1. Declaration of Trust and Principal Office

1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect, of William Blair Funds, a
Delaware business trust established by the Declaration of Trust (the "Trust").

1.2 Principal Office of the Trust. The principal office of the Trust shall be
located at 222 W. Adams Street, Chicago, Illinois 60606.

Section 2. Shareholders

2.1 Shareholder Meetings. A meeting of the shareholders of the Trust or of any
one or more series of shares may be called at any time by the Trustees, by the
president or, if the Trustees and the president shall fail to call any meeting
of shareholders for a period of 30 days after written application of one or more
shareholders who hold at least 10% of all outstanding shares of the Trust, if
shareholders of all series are required under the Declaration of Trust to vote
in the aggregate and not by individual series at such meeting, or of any series,
if shareholders of such series are entitled under the Declaration of Trust to
vote by individual series at such meeting, then such shareholders may call such
meeting. If the meeting is a meeting of the shareholders of one or more series,
but not a meeting of all shareholders of the Trust, then only the shareholders
of such one or more series shall be entitled to notice of and to vote at the
meeting. Each call of a meeting shall state the place, date, hour and purposes
of the meeting.

2.2 Place of Meetings. All meetings of the shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be designated by the Trustees or the president of the Trust.

2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meeting to each shareholder entitled to vote
thereat by leaving such notice with him or her or at his or her residence or
usual place of business or by mailing it, postage prepaid, and addressed to such
shareholder at his or her address as it appears in the records of the Trust.
Such notice shall be given by the secretary or an assistant secretary or by an
officer designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his or her attorney thereunto duly
authorized, is filed with the records of the meeting.
<PAGE> 2
2.4 Ballots. No ballot shall be required for any election unless requested by a
shareholder present or represented at the meeting and entitled to vote in the
election.

2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting.

Section 3. Trustees

3.1 Committees and Advisory Board. The Trustees may appoint from their number
an executive committee and other committees. Except as the Trustees may
otherwise determine, and subject to the provisions of the Declaration of Trust,
any such committee may make rules for conduct of its business. The Trustees may
appoint an advisory board to consist of not less than one nor more than five
members. The members of the advisory board shall be compensated in such manner
as the Trustees may determine and shall confer with and advise the Trustees
regarding the investments and other affairs of the Trust. Each member of the
advisory board shall hold office until the first meeting of the Trustees
following the next meeting of the shareholders and until his or her successor is
elected and qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified, or until the advisory board is sooner abolished by the
Trustees.

3.2 Nominating Committee of Disinterested Directors. The Trustees who are not
interested persons (as defined in the Investment Company Act of 1940) of the
Trust shall, without any action by the Board of Trustees, constitute a
Nominating Committee that has all the powers of the Board of Trustees in the
selection and nomination for election or appointment to the Board of Trustees of
Trustees who are not interested persons (as so defined) of the Trust. The
Chairman of the Nominating Committee shall be elected by the Nominating
Committee. The Nominating Committee may fix its own rules of procedure and may
meet when and as provided by such rules.

3.3 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.

3.4 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting, when called by the
president or the treasurer or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the secretary or an assistant secretary or by the
officer or one of the Trustees calling the meeting.

3.5 Compensation of Trustees. No Trustee shall receive any stated salary or
fees from the Trust for his or her services as such if such Trustee is, as
director, officer, or employee of the Trust's investment adviser, administrator
or principal underwriter, if any. Except as provided in the preceding sentence,
Trustees shall be entitled to receive such compensation from the Trust for their

<PAGE> 3
services in such manner and such amounts as may from time to time be voted by
the Board of Trustees.

3.6 Notice. It shall be sufficient notice to a Trustee to send notice by mail
or electronic transmission at least seventy-two hours before the meeting
addressed to the Trustee at his or her usual or last known business or residence
address or to give notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him or her. Neither notice of a meeting nor a waiver of a
notice need specify the purposes of the meeting.

3.7 Quorum. At any meeting of the Trustees one-third of the Trustees then in
office shall constitute a quorum; provided, however, a quorum shall not be less
than two (except at such time as there is only one Trustee). Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.

Section 4. Officers and Agents

4.1 Enumeration; Qualification. The officers of the Trust shall be a chief
executive officer, a president, a vice president, a treasurer, a secretary and
such other officers, if any, as the Trustees from time to time may in their
discretion elect or appoint. The Trust may also have such agents, if any, as the
Trustees from time to time may in their discretion appoint. Any officer may be
but none need be a Trustee or shareholder. Any two or more offices may be held
by the same person.

4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to his or
her office as if the Trust were organized as a Delaware business corporation and
such other duties and powers as the Trustees may from time to time designate,
including without limitation the power to make purchases and sales of portfolio
securities of the Trust pursuant to recommendations of the Trust's investment
adviser in accordance with the policies and objectives of the Trust set forth in
its prospectus and with such general or specific instructions as the Trustees
may from time to time have issued.

4.3 Election. The chief executive officer, the president, the vice president,
the treasurer and the secretary shall be elected annually by the Trustees. Other
officers, if any, may be elected or appointed by the Trustees at any time.

4.4 Tenure. The chief executive officer, the president, the vice president, the
treasurer and the secretary shall hold office until their respective successors
are chosen and qualified, or in each case until he or she sooner dies, resigns,
is removed or becomes disqualified. Each other officer shall hold office at the
pleasure of the Trustees. Each agent shall retain his or her authority at the
pleasure of the Trustees.

<PAGE> 4
4.5 Chief Executive Officer. The Chief Executive Officer shall, in the absence
of the Chairman, preside at all meetings of the shareholders and Board of
Trustees. The Chief Executive Officer shall perform such other duties as the
Board of Trustees shall from time to time prescribe. Except in those instances
in which the authority to execute is expressly delegated to another officer or
agent of the Trust or a different mode of execution is expressly prescribed by
the Board of Trustees or these Bylaws or where otherwise required by law, the
Chief Executive Officer may execute any documents or instruments which the Board
has authorized to be executed or the execution of which is in the ordinary
course of the Trust's business.

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

4.7 Vice President. In the absence of the president or in the event of his
inability or refusal to act, the vice president shall perform the duties of the
president. The vice president shall perform such other duties as from time to
time may be prescribed by the president or the Board of Trustees.

4.8 Treasurer and Assistant Treasurer. Subject to any arrangement made by the
Trustees with a bank or trust company or other organization as custodian or
transfer or shareholder services agent, the treasurer shall be in charge of the
Trust's valuable papers and shall keep or cause to be kept correct and complete
books and records of account. The treasurer shall keep such records of the
financial transactions of the Trust as the Board of Trustees shall prescribe.
The treasurer shall have power to sign all certificates for shares of beneficial
interest, if authorized by the Trustees, and shall perform such other duties as
from time to time may be prescribed by the president or the Board of Trustees.
Any assistant treasurer shall have such duties and powers as shall be designated
from time to time by the Trustees.

4.9 Secretary and Assistant Secretary. The secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept therefor,
which books shall be kept at the principal office of the Trust. In the absence
of the secretary from any meeting of shareholders or Trustees, an assistant
secretary, or if there be none or he or she is absent, a temporary clerk chosen
at the meeting, shall record the proceedings thereof in the aforesaid books.

Section 5. Resignations, Retirement and Removals

Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the president, the vice
president or the secretary or to a meeting of the Trustees. No Trustee will
stand for reelection as Trustee at any election held after such Trustee shall
have reached 70 years of age, and, after his successor shall have been elected
and qualify, such

<PAGE> 5
Trustee shall retire. The Trustees may remove any officer elected by them with
or without cause by the vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee, officer, or advisory board member resigning, and no officer or
advisory board member removed, shall have any right to any compensation for any
period following his or her resignation or removal, or any right to damages on
account of such removal.

Section 6. Vacancies

A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the president, the vice
president, the treasurer and the secretary, until his or her successor is chosen
and qualified, or in each case until he or she sooner dies, resigns, is removed
or becomes disqualified.

Section 7. Shares of Beneficial Interest

Certificates certifying the ownership of shares may be issued as the Trustees
may authorize. In lieu of issuing certificates for shares, the Trustees or the
transfer agent shall keep accounts upon the books of the Trust for the record
holders of such shares, who shall be deemed, for all purposes hereunder, to be
the holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof. Any certificates issued shall be in such form as the Board of
Trustees may from time to time prescribe, including on its face the name of the
Trust, the name of the person to whom it is issued, and the class of shares and
number of shares it represents. The certificate shall contain on its face or
back either a full statement or summary of the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of each class which the Trust is authorized to issue or a statement that the
Trust will furnish such statement or summary to any shareholder on request and
without charge. Each certificate issued shall be signed by the President, a
Vice-President or the Chairman of the Board and countersigned by the Secretary,
an Assistant Secretary, the Treasurer or an Assistant Treasurer. Such signatures
may be either manual or facsimile signatures. A certificate is valid whether or
not an officer who signed it is still an officer when it is issued. Each
certificate may be sealed with the actual seal of the Trust or a facsimile of it
or in any other form.

Section 8. Record Date and Closing Transfer Books

The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.

<PAGE> 6
Section 9. Seal

The Board of Trustees may provide for a suitable seal for the Trust, in such
form and bearing such inscriptions as it may determine.

Section 10. Execution of Papers

Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president, by the vice president,
secretary, treasurer or assistant secretary or treasurer or by whomsoever else
shall be designated for that purpose by the vote of the Trustees and need not
bear the seal of the Trust.

Section 11. Fiscal Year

Except as from time to time otherwise provided by the Trustees, the fiscal year
of the Trust shall end on December 31.

Section 12. Amendments

These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.

Approved:
September 8, 1999

<PAGE> 1
Exhibit (d)(iv)

MANAGEMENT AGREEMENT
(Amended and Restated)

AGREEMENT made as of this 15th day of December, 1999, by and between
WILLIAM BLAIR FUNDS, a Delaware business trust (the "Trust"), and WILLIAM BLAIR
& COMPANY, L.L.C., an Illinois limited liability company (the "Manager").

WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, the common shares
("Shares") of which are registered or are to be registered under the Securities
Act of 1933; and

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

WHEREAS, the Trust currently offers Shares in the portfolios listed on
Appendix A hereto, together with any other Trust portfolios which may be
established later and served by the Manager hereunder, being herein referred to
collectively as the "Portfolios" and individually referred to as a "Portfolio";
and

WHEREAS, the Trust desires to retain the Manager to render investment
advisory and management services to the Portfolios listed on Appendix A hereto,
and the Manager is willing to render such services;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows: 1.
Employment; Services. The Trust hereby employs the Manager to act as the adviser
for the Portfolios hereunder and to manage the investment and reinvestment of
the assets of such Portfolios in accordance with applicable investment
objectives, policies and restrictions, and to administer its affairs to the
extent requested by and subject to the supervision of the Board of
<PAGE> 2

Trustees of the Trust for the period and upon the terms herein set forth. The
investment of funds shall be subject to all applicable restrictions of the
Declaration of Trust and By-Laws of the Trust as may from time to time be in
force.

The Manager accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Trust, to permit any of its
principals or employees to serve without compensation as trustees or officers of
the Trust if elected to such positions, and to assume the obligations herein set
forth for the compensation herein provided. The Manager shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust. It
is understood and agreed that the Manager, by separate agreements with the
Trust, may also serve the Trust in other capacities.

2. Additional Portfolios. In the event that the Trust establishes one or
more portfolios in addition to the existing Portfolios with respect to which it
desires to engage the Manager to render investment advisory and management
services hereunder, it shall notify the Manager in writing. If the Manager is
willing to render such services and the Trust and the Manager agree upon the
management fee rates (including breakpoints) to be payable by such portfolio or
portfolios, the Manager shall notify the Trust in writing, whereupon such
portfolio or portfolios shall become a Portfolio or Portfolios hereunder.

3. Management Fee. For the services and facilities described in
Section 1, the Trust will pay to the Manager a management fee based upon an
annual percentage of the average daily net assets of each Portfolio, as
described in Appendix A hereto.

2
<PAGE> 3

The fee payable under this Agreement shall be calculated and accrued for
each business day by applying the appropriate annual rates to the net assets of
the Portfolio as of the close of the preceding business day, and dividing the
sum so computed by the number of business days in the fiscal year. The fee for a
given month shall be paid on the first business day of the following month. For
the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively. The services
of the Manager to the Trust under this Agreement are not to be deemed exclusive,
and the Manager shall be free to render similar services or other services to
others so long as its services hereunder are not impaired thereby.

4. Expenses. In addition to the fee of the Manager, the Trust shall
assume and pay expenses for services rendered by a custodian for the safekeeping
of the Trust's securities or other property, for keeping its books for account,
for any other charges of the custodian, and for calculating the net asset value
of the Trust as provided in the prospectus of the Trust. The Manager shall not
be required to pay and the Trust shall assume and pay the charges and expenses
of its operations, including but not limited to compensation of the trustees
(other than those affiliated with the Manager), charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursement
agent, any registrar of the Trust, costs of acquiring and disposing of portfolio
securities, interest, if any, on obligations incurred by the Trust, costs of
share certificates and of reports, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
stationery, printing, postage, other like miscellaneous expenses and all taxes
and fees payable to federal, state or other government agencies on account of
the registration of securities issued by the Trust, filing of corporate
documents or otherwise. The Trust shall not pay or incur any obligation for any
expenses for which the Trust intends to seek reimbursement from the

3
<PAGE> 4

Manager as herein provided without first obtaining the written approval of the
Manager. The Manager shall arrange, if desired by the Trust, for principals or
employees of the Manager to serve, without compensation from the Trust, as
trustees, officers or agents of the Trust if duly elected or appointed to such
positions and subject to their individual consent and to any limitations imposed
by law.

If expenses borne by the Trust for the Growth Fund and Income Fund
(including the Manager's fee, but excluding interest, taxes, fees incurred in
acquiring and disposing of portfolio securities, distribution fees, shareholder
servicing fees and, to the extent permitted, extraordinary expenses) exceed 1.5%
of the first $30,000,000 of average daily net assets of such Portfolio and 1% of
average daily net assets of the Portfolio over $30,000,000, the Manager will
reduce its fee or reimburse the Portfolio for any excess. If expenses borne by
the Trust for the Ready Reserves Fund (including the Manager's fee, but
excluding interest, taxes, fees incurred in acquiring and disposing of portfolio
securities and, to the extent permitted, extraordinary expenses) exceed 1.5% of
the first $30,000,000 of average daily net assets of such Portfolio and 1% of
average daily net assets of the Portfolio over $30,000,000, the Manager will
reduce its fee or reimburse the Portfolio for any excess. If for any month the
expenses of a Portfolio properly chargeable to the income account shall exceed
1/12 of the percentage of average net assets allowable as expenses, the payment
to the Manager with respect to such Portfolio for that month shall be reduced so
that the total net expense will not exceed such percentage. As of the end of the
Trust's fiscal year, however, the foregoing computations and payments shall be
readjusted so that the aggregate compensation payable to the Manager for the
year is equal to the percentage set forth in Section 3 hereof of the average net
asset values as determined as described herein throughout the fiscal year,
diminished to the extent necessary so that the total of the aforementioned
expense items shall not exceed the expense limitation. The aggregate of

4
<PAGE> 5

repayments, if any, by the Manager to the Portfolio for the year shall be the
amount necessary to limit the said net expense to said percentage.
Notwithstanding anything in the foregoing to the contrary, the Manager shall not
be obligated to reimburse the Portfolio in an amount exceeding its advisory fee
for the period received from such Portfolio.

The net asset value for each Portfolio shall be calculated in accordance
with the provisions of the Trust's prospectus or at such other time or times as
the trustees may determine in accordance with the provisions of the Investment
Company Act of 1940. On each day when the net asset value is not calculated, the
net asset value of a share of a Portfolio shall be deemed to be the net asset
value of such a share as of the close of business on the last day on which such
calculation was made for the purpose of the foregoing computations.

5. Affiliations. Subject to applicable statutes and regulation, it is
understood that trustees, officers or agents of the Trust are or may be
interested in the Manager as principals, agents or otherwise, and that the
principals and agents of the Manager may be interested in the Trust otherwise
than as a trustee, officer or agent.

6. Limitation of Liability of Manager. The Manager shall not be liable
for any error of judgment or of law or for any loss suffered by the Trust in
connection with the matters to which this Agreement relates, except loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Manager in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.

7. Term; Termination; Amendment. This Agreement shall become effective
with respect to the existing Portfolios on the date hereof and shall remain in
full force until the dates set forth in Appendix B hereto with respect to each
Portfolio or unless sooner terminated as hereinafter provided. This Agreement
shall continue in force from year to year thereafter with respect to the

5
<PAGE> 6

existing Portfolios and each other Portfolio to which the Agreement shall have
become applicable, but only so long as such continuance is specifically approved
for each Portfolio at least annually in the manner required by the Investment
Company Act of 1940 and the rules and regulations thereunder; provided, however,
that if the continuation of this Agreement is not approved for a Portfolio, the
Manager may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.

This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Trust or by the Manager on sixty (60) days written notice to the other
party. The Trust may effect termination with respect to any Portfolio by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Portfolio.

This Agreement may also be terminated with respect to any Portfolio at any
time, without the payment of any penalty, by the Board of Trustees or by vote of
a majority of the outstanding voting securities of such Portfolio, in the event
that it shall have been established by a court of competent jurisdiction that
the Manager or any officer or principal of the Manager has taken any action
which results in a breach of the covenants of the Manager set forth herein.

The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.

Termination of this Agreement shall not affect the right of the Manager to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.

6
<PAGE> 7

As to each Portfolio of the Trust, this Agreement may be amended only by
an instrument in writing signed by the party against which enforcement of the
amendment is sought. An amendment of this Agreement affecting a Portfolio
hereunder shall not be effective until approved by (i) vote of the holders of a
majority of the outstanding voting securities of the Portfolio; and (ii) a
majority of those Trustees of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the Investment Company Act of 1940) of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval.

8. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
shall not be thereby affected.

9. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.

10. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of Illinois.

<PAGE> 8

IN WITNESS WHEREOF, the Trust and the Manager have caused this Agreement
to be executed as of the day and year first above written.

WILLIAM BLAIR FUNDS

By:
--------------------------------------

ATTEST:

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

WILLIAM BLAIR & COMPANY, L.L.C.

By:
--------------------------------------
ATTEST:

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

<PAGE> 9

APPENDIX A

Management Fees

William Blair Growth Fund:
.75% of average daily net assets

William Blair Tax-Managed Growth Fund:
.80% of average daily net assets

William Blair Large Cap Growth Fund:
.80% of average daily net assets

William Blair Small Cap Growth Fund:
1.10% of average daily net assets

William Blair International Growth Fund:
1.10% of the first $250 million of average daily net assets; plus 1.00%
of average daily net assets over $250 million

William Blair Emerging Markets Growth Fund:
1.40% of average daily net assets

William Blair Disciplined Large Cap Fund:
.80% of average daily net assets

William Blair Value Discovery Fund:
1.15% of average daily net assets

William Blair Income Fund:
.25% of the first $250 million of average daily net assets; plus
.20% of average daily net assets over $250 million; plus
5.00% of the gross income earned by the Portfolio

William Blair Ready Reserves Fund(1):

.275% of the first $250 million of average daily net assets; plus
.250% of the next $250 million of average daily net assets; plus
.225% of the next $2,000 million of average daily net assets; plus
.200% of the average daily net assets over $2,500 million

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

(1)From the date of this Agreement until December 31, 1999, the Ready
Reserves Fund pays the Adviser as follows:

.625% of the first $250 million of average daily net assets; plus
.600% of the next $250 million of average daily net assets; plus
.575% of the next $2,000 million of average daily net assets; plus
.550% of the average daily net assets over $2,500 million

A-1

<PAGE> 10

APPENDIX B

Date of End of Initial Term

For the William Blair Growth Fund, the William Blair International Growth Fund,
the William Blair Emerging Markets Growth Fund, the William Blair Value
Discovery Fund, the William Blair Income Fund and the William Blair Ready
Reserves Fund:

April 30, 2000

For the William Blair Tax-Managed Growth Fund, the William Blair Large Cap
Growth Fund, the William Blair Small Cap Growth Fund and the William Blair
Disciplined Large Cap Fund:

April 30, 2001

B-1

<PAGE> 1

EXHIBIT (h)(i)

SHAREHOLDER SERVICES AGREEMENT

(CLASS A, B AND C)

AGREEMENT made as of this 21st day of July, 1999 by and between WILLIAM
BLAIR MUTUAL FUNDS, INC., a Maryland corporation (the "Company") and WILLIAM
BLAIR & COMPANY, L.L.C., an Illinois limited liability company ("William
Blair").

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

1. The Company hereby appoints William Blair to provide information and
shareholder services for the benefit of the Company and its shareholders. In
this regard, William Blair shall appoint various broker-dealer firms and other
service firms ("Firms") to provide related services and facilities for persons
who are investors in the Company ("investors"). The Firms shall provide such
office space and equipment, telephone facilities, personnel or other services as
may be necessary or beneficial for providing information and services to
investors in the Company. Such services and assistance may include, but are not
limited to, establishing and maintaining accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Company and the Funds and special features available to shareholders, assistance
to investors in changing dividend and investment options, account designations
and addresses, and such other services as the Company or William Blair may
reasonably request. Firms may include affiliates of William Blair. William Blair
may also provide some of the above services for the Company directly.

William Blair accepts such appointment and agrees during such period to
render such services and to assume the obligations herein set forth for the
compensation herein provided. William Blair shall for all purposes herein
provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Company in any way or otherwise be deemed an agent of the Company.
William Blair, by separate agreement with the Company, may also serve the
Company in other capacities. In carrying out its duties and responsibilities
hereunder, William Blair will appoint various Firms to provide services
described herein directly to or for the benefit of investors in the Company.
Such firms shall at all times be deemed to be independent contractors retained
by William Blair and not the Company. William Blair and not the Company will be
responsible for the payment of compensation to such Firms for such services.

2. For the shareholder services and facilities described in Section 1,
the Company will pay to William Blair at the end of each calendar month a
shareholder services fee computed at an annual rate of 0.25 of 1% of the average
daily net assets of each Class A, B and C share of each separate series (each a
"Fund") of the Company. The shareholder services fee will be calculated

<PAGE> 2

separately for each Class A, B and C share of a Fund as an expense of each such
class. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during such month and year,
respectively. The services of William Blair to the Company under this Agreement
are not to be deemed exclusive, and William Blair shall be free to render
similar services or other services to others.

The net asset value for each share of a Fund shall be calculated in
accordance with the provisions of the Company's current prospectus. On each day
when net asset value is not calculated, the net asset value of a share of each
Fund shall be deemed to be the net asset value of such a share as of the close
of business on the last day on which such calculation was made for the purpose
of the foregoing computations.

3. The Company shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by William Blair
under this Agreement.

4. This Agreement may be terminated at any time without the payment of
any penalty by the Company or by William Blair on sixty (60) days written notice
to the other party. Termination of this Agreement shall not affect the right of
William Blair to receive payments on any unpaid balance of the compensation
described in Section 2 hereof earned prior to such termination. All material
amendments to this Agreement must be approved by vote of the Board of Directors
of the Company.

5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.

6. Any notice under this Agreement shall be in writing, addressed and
delivered or mail, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.

7. This Agreement shall be construed in accordance with applicable
federal law and the laws of the State of Illinois.

[SIGNATURES APPEAR ON THE NEXT PAGE]

<PAGE> 3

IN WITNESS WHEREOF, the Company and William Blair have caused this
Agreement to be executed as of the day and year first above written.

WILLIAM BLAIR MUTUAL FUNDS, INC.

Attest: /s/ Janet V. Gassmann By: /s/ Marco Hanig
---------------------------- --------------------------------

WILLIAM BLAIR & COMPANY, L.L.C.

Attest: /s/ John P. Kayser By: /s/ Conrad Fischer
---------------------------- --------------------------------

<PAGE> 1

EXHIBIT (h)(ii)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of
September 30, 1999 by and between William Blair & Company, L.L.C., an Illinois
limited liability company (the "Adviser") and William Blair Mutual Funds, Inc.
(the "Company"), on behalf of the William Blair Value Discovery Fund series of
the Company (the "Fund").

WHEREAS, the Company is a Maryland corporation, and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management company of the series type, and the Fund is a series of the Company;

WHEREAS, the Company and the Adviser have entered into a Management
Agreement dated December 23, 1996 ("Advisory Agreement"), pursuant to which the
Adviser provides investment management services to the Fund for compensation
based on the value of the average daily net assets of the Fund; and

WHEREAS, the Company and the Adviser have determined that it is
appropriate and in the best interests of the Fund and its shareholders to
maintain the expenses of the Fund at a level below the level to which the Fund
may otherwise be subject;

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.1 Applicable Expense Limit. To the extent that the ordinary operating
expenses incurred by the Fund in any fiscal year, including but not limited to
investment advisory fees of the Adviser, but excluding interest, taxes,
brokerage commissions, other investment-related costs and extraordinary
expenses, such as litigation and other expenses not incurred in the ordinary
course of the Fund's business ("Fund Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the "Excess
Amount") shall be the liability of the Adviser to the extent set forth in this
Agreement.

1.2 Operating Expense Limit. The Operating Expense Limit in any year
with respect to the Fund shall be 1.39% (annualized) of the average daily net
assets of the Fund for its Class I shares. For the Fund's Class A, B, C and N
shares, the Operating Expense Limit shall be 1.39% plus any
shareholder/distribution service fees under Rule 12b-1 under the 1940 Act and/or
shareholder service fees as described in the then current registration statement
offering shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit
with respect to the Fund shall remain in effect during the term of this
Agreement.

<PAGE> 2

1.4 Method of Computation. To determine the Adviser's obligation with
respect to the Excess Amount, each day the Fund Operating Expenses for the Fund
shall be annualized. If the annualized Fund Operating Expenses for any day of
the Fund exceed the Operating Expense Limit of the Fund, the Adviser shall waive
or reduce its investment advisory fee or absorb the other Fund expenses in an
amount sufficient to pay that day's Excess Amount. The Company may offset
amounts owed to the Fund pursuant to this Agreement against the advisory fee
payable to the Adviser. Furthermore, to the extent that the Excess Amount
exceeds such waived or reduced investment advisory fees, the Adviser shall, if
required pursuant to the securities laws or regulations of any state in which
the Fund's shares are qualified for sale, or may, voluntarily, reimburse the
Fund for any operating expenses.

2. TERM AND TERMINATION OF AGREEMENT.

The Agreement shall terminate either upon the termination of the
Advisory Agreement or on April 30, 2000. The obligation of the Adviser under
Section 1 of this Agreement shall survive the termination of the Agreement
solely as to expenses and obligations incurred prior to the date of such
termination.

3. MISCELLANEOUS.

3.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.

3.2 Interpretation. Nothing herein contained shall be deemed to require
the Company or the Fund to take any action contrary to the Company's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Company's Board of Directors of its responsibility for and control of the
conduct of the affairs of the Company or the Fund.

3.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.

3.4 Amendments. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.

3.5 Assignment. This Agreement may be assigned to the successors in
interest of either party with the consent of the other party.

<PAGE> 3

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.

WILLIAM BLAIR MUTUAL FUNDS, INC.

By: /s/ Marco Hanig
---------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
---------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1

EXHIBIT (h)(iii)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of
September 30, 1999 by and between William Blair & Company, L.L.C., an Illinois
limited liability company (the "Adviser") and William Blair Mutual Funds, Inc.
(the "Company"), on behalf of the William Blair Emerging Markets Growth Fund
series of the Company (the "Fund").

WHEREAS, the Company and the Adviser have entered into a Management
Agreement dated April 30, 1998 ("Advisory Agreement"), pursuant to which the
Adviser provides investment management services to the Fund for compensation
based on the value of the average daily net assets of the Fund; and

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.2 Operating Expense Limit. The Operating Expense Limit in any year
with respect to the Fund shall be 1.75% (annualized) of the average daily net
assets of the Fund for its Class I shares. For the Fund's Class A, B, C and N
shares, the Operating Expense Limit shall be 1.75% plus any
shareholder/distribution service fees under Rule 12b-1 and/or shareholder
service fees as described in the then current registration statement offering
shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit
with respect to the Fund shall remain in effect during the term of this
Agreement.

<PAGE> 2

2. TERM AND TERMINATION OF AGREEMENT.

3. MISCELLANEOUS.

3.4 Amendments. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.

3.5 Assignment. This Agreement may be assigned to the successors in
interest of either party with the consent of the other party.

<PAGE> 3

WILLIAM BLAIR MUTUAL FUNDS, INC.

By: /s/ Marco Hanig
-------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
-------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1
EXHIBIT (H)(IV)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of
December 15, 1999 by and between William Blair & Company, L.L.C., an Illinois
limited liability company (the "Adviser") and William Blair Funds (the "Trust"),
on behalf of the William Blair Tax-Managed Growth Fund series of the Trust (the
"Fund").

WHEREAS, the Trust is a Delaware business trust, and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management company of the series type, and the Fund is a series of the
Trust;

WHEREAS, the Trust and the Adviser have entered into a Management
Agreement dated December 15, 1999 ("Advisory Agreement"), pursuant to which the
Adviser provides investment management services to the Fund for compensation
based on the value of the average daily net assets of the Fund; and

WHEREAS, the Trust and the Adviser have determined that it is
appropriate and in the best interests of the Fund and its shareholders to
maintain the expenses of the Fund at a level below the level to which the Fund
may otherwise be subject;

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.2 Operating Expense Limit. The Operating Expense Limit in any year
with respect to the Fund shall be 1.11% (annualized) of the average daily net
assets of the Fund for its Class I shares. For the Fund's Class A, B, C and N
shares, the Operating Expense Limit shall be 1.11% plus any
shareholder/distribution service fees under Rule 12b-1 and/or shareholder
service fees as described in the then current registration statement offering
shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit
with respect to the Fund shall remain in effect during the term of this
Agreement.

<PAGE> 2

1.4 Method of Computation. To determine the Adviser's obligation with
respect to the Excess Amount, each day the Fund Operating Expenses for the Fund
shall be annualized. If the annualized Fund Operating Expenses for any day of
the Fund exceed the Operating Expense Limit of the Fund, the Adviser shall waive
or reduce its investment advisory fee or absorb the other Fund expenses in an
amount sufficient to pay that day's Excess Amount. The Trust may offset amounts
owed to the Fund pursuant to this Agreement against the advisory fee payable to
the Adviser. Furthermore, to the extent that the Excess Amount exceeds such
waived or reduced investment advisory fees, the Adviser shall, if required
pursuant to the securities laws or regulations of any state in which the Fund's
shares are qualified for sale, or may, voluntarily, reimburse the Fund for any
operating expenses.

2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.

2.1 Reimbursement. If on any day during which the Advisory Agreement is
in effect, the estimated annualized Fund Operating Expenses of the Fund for that
day are less than the Operating Expense Limit, the Adviser shall be entitled to
reimbursement by the Fund of the investment advisory fees waived or reduced, and
any other expense reimbursements or similar payments remitted by the Adviser to
the Fund pursuant to Section 1 hereof (the "Reimbursement Amount") during any of
the previous five (5) years, to the extent that the Fund's annualized Operating
Expenses plus the amount so reimbursed equals, for such day, the Operating
Expense Limit, provided that such amount paid to the Adviser will in no event
exceed the total Reimbursement Amount and will not include any amounts
previously reimbursed.

3. TERM AND TERMINATION OF AGREEMENT.

This Agreement may be terminated by the Trust or, after April 30, 2000,
by the Adviser, without payment of any penalty, upon sixty (60) days' prior
written notice to the Trust at its principal place of business. In any event,
the Agreement shall terminate upon the termination of the Advisory Agreement or
[five] years after the Fund's commencement of operations. The obligation of the
Adviser under Section 1 of this Agreement and of the Trust under Section 2 of
this Agreement shall survive the termination of the Agreement solely as to
expenses and obligations incurred prior to the date of such termination.

4. MISCELLANEOUS.

4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.

4.2 Interpretation. Nothing herein contained shall be deemed to require
the Trust or the Fund to take any action contrary to the Trust's Declaration of
Trust or By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound, or to relieve or deprive the Trust's
Board of Trustees of its responsibility for and control of the conduct of the
affairs of the Trust or the Fund.

<PAGE> 3

4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.

4.4 Amendments. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.

4.5 Limitation of Liability. This Agreement is executed by or on behalf
of the Trust, and Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Agreement and Declaration of Trust, as
amended, of the Trust and agrees that the obligations assumed by the Trust
pursuant to this Agreement shall be limited in all cases to the Trust and its
assets, and Adviser shall not seek satisfaction of any such obligations from the
trustees, officers or shareholders of the Trust.

WILLIAM BLAIR FUNDS

By: /s/ Marco Hanig
-----------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
-----------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1
EXHIBIT (H)(V)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of
December 15, 1999 by and between William Blair & Company, L.L.C., an Illinois
limited liability company (the "Adviser") and William Blair Funds (the "Trust"),
on behalf of the William Blair Disciplined Large Cap Fund series of the Trust
(the "Fund").

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.2 Operating Expense Limit. The Operating Expense Limit in any year
with respect to the Fund shall be 1.14% (annualized) of the average daily net
assets of the Fund for its Class I shares. For the Fund's Class A, B, C and N
shares, the Operating Expense Limit shall be _____% plus any
shareholder/distribution service fees under Rule 12b-1 and/or shareholder
service fees as described in the then current registration statement offering
shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit
with respect to the Fund shall remain in effect during the term of this
Agreement.

<PAGE> 2

1.4 Method of Computation. To determine the Adviser's obligation with
respect to the Excess Amount, each day the Fund Operating Expenses for the Fund
shall be annualized. If the annualized Fund Operating Expenses for any day of
the Fund exceed the Operating Expense Limit of the Fund, the Adviser shall waive
or reduce its investment advisory fee in an amount sufficient to pay that day's
Excess Amount. The Trust may offset amounts owed to the Fund pursuant to this
Agreement against the advisory fee payable to the Adviser. Furthermore, to the
extent that the Excess Amount exceeds such waived or reduced investment advisory
fees, the Adviser shall, if required pursuant to the securities laws or
regulations of any state in which the Fund's shares are qualified for sale, or
may, voluntarily, reimburse the Fund for any operating expenses.

2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.

If on any day during which the Advisory Agreement is in effect, the
estimated annualized Fund Operating Expenses of the Fund for that day are less
than the Operating Expense Limit, the Adviser shall be entitled to reimbursement
by the Fund of the investment advisory fees waived or reduced, and any other
expense reimbursements or similar payments remitted by the Adviser to the Fund
pursuant to Section 1 hereof (the "Reimbursement Amount") during any of the
previous five (5) years, to the extent that the annualized Fund Operating
Expenses plus the amount so reimbursed equals, for such day, the Operating
Expense Limit, provided that such amount paid to the Adviser will in no event
exceed the total Reimbursement Amount and will not include any amounts
previously reimbursed.

3. TERM AND TERMINATION OF AGREEMENT.

4. MISCELLANEOUS.

<PAGE> 3

4.4 Amendments. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.

WILLIAM BLAIR FUNDS

By: /s/ Marco Hanig
--------------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
--------------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1
EXHIBIT (H)(VI)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of December
15, 1999 by and between William Blair & Company, L.L.C., an Illinois limited
liability company (the "Adviser") and William Blair Funds (the "Trust"), on
behalf of the William Blair Tax-Managed Growth Fund series of the Trust (the
"Fund").

WHEREAS, the Trust is a Delaware business trust, and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management company of the series type, and the Fund is a series of the Trust;

WHEREAS, the Trust and the Adviser have determined that it is appropriate
and in the best interests of the Fund and its shareholders to maintain the
expenses of the Fund at a level below the level to which the Fund may otherwise
be subject;

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.2 Operating Expense Limit. The Operating Expense Limit in any year with
respect to the Fund shall be 1.11% (annualized) of the average daily net assets
of the Fund for its Class I shares. For the Fund's Class A, B, C and N shares,
the Operating Expense Limit shall be 1.11% plus any shareholder/distribution
service fees under Rule 12b-1 and/or shareholder service fees as described in
the then current registration statement offering shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit with
respect to the Fund shall remain in effect during the term of this Agreement.

<PAGE> 2

1.4 Method of Computation. To determine the Adviser's obligation with
respect to the Excess Amount, each day the Fund Operating Expenses for the Fund
shall be annualized. If the annualized Fund Operating Expenses for any day of
the Fund exceed the Operating Expense Limit of the Fund, the Adviser shall waive
or reduce its investment advisory fee or absorb the other Fund expenses in an
amount sufficient to pay that day's Excess Amount. The Trust may offset amounts
owed to the Fund pursuant to this Agreement against the advisory fee payable to
the Adviser. Furthermore, to the extent that the Excess Amount exceeds such
waived or reduced investment advisory fees, the Adviser shall, if required
pursuant to the securities laws or regulations of any state in which the Fund's
shares are qualified for sale, or may, voluntarily, reimburse the Fund for any
operating expenses.

2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.

2.1 Reimbursement. If on any day during which the Advisory Agreement is in
effect, the estimated annualized Fund Operating Expenses of the Fund for that
day are less than the Operating Expense Limit, the Adviser shall be entitled to
reimbursement by the Fund of the investment advisory fees waived or reduced, and
any other expense reimbursements or similar payments remitted by the Adviser to
the Fund pursuant to Section 1 hereof (the "Reimbursement Amount") during any of
the previous five (5) years, to the extent that the Fund's annualized Operating
Expenses plus the amount so reimbursed equals, for such day, the Operating
Expense Limit, provided that such amount paid to the Adviser will in no event
exceed the total Reimbursement Amount and will not include any amounts
previously reimbursed.

3. TERM AND TERMINATION OF AGREEMENT.

This Agreement may be terminated by the Trust or, after April 30, 2000, by
the Adviser, without payment of any penalty, upon sixty (60) days' prior written
notice to the Trust at its principal place of business. In any event, the
Agreement shall terminate upon the termination of the Advisory Agreement or
[five] years after the Fund's commencement of operations. The obligation of the
Adviser under Section 1 of this Agreement and of the Trust under Section 2 of
this Agreement shall survive the termination of the Agreement solely as to
expenses and obligations incurred prior to the date of such termination.

4. MISCELLANEOUS.

4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.

<PAGE> 3

4.3 Definitions. Any question of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.

4.4 Amendments. This Agreement may be amended only by a written agreement
signed by each of the parties hereto.

4.5 Limitation of Liability. This Agreement is executed by or on behalf of
the Trust, and Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Agreement and Declaration of Trust, as
amended, of the Trust and agrees that the obligations assumed by the Trust
pursuant to this Agreement shall be limited in all cases to the Trust and its
assets, and Adviser shall not seek satisfaction of any such obligations from the
trustees, officers or shareholders of the Trust.

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.

WILLIAM BLAIR FUNDS

By: /s/ Marco Hanig
-----------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
-----------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1
EXHIBIT (H)(VII)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of December
15, 1999 by and between William Blair & Company, L.L.C., an Illinois limited
liability company (the "Adviser") and William Blair Funds (the "Trust"), on
behalf of the William Blair Disciplined Large Cap Fund series of the Trust (the
"Fund").

WHEREAS, the Trust is a Delaware business trust, and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management company of the series type, and the Fund is a series of the Trust;

WHEREAS, the Trust and the Adviser have determined that it is appropriate
and in the best interests of the Fund and its shareholders to maintain the
expenses of the Fund at a level below the level to which the Fund may otherwise
be subject;

NOW THEREFORE, the parties hereto agree as follows:

1. EXPENSE LIMITATION.

1.2 Operating Expense Limit. The Operating Expense Limit in any year with
respect to the Fund shall be 1.11% (annualized) of the average daily net assets
of the Fund for its Class I shares. For the Fund's Class A, B, C and N shares,
the Operating Expense Limit shall be 1.11% plus any shareholder/distribution
service fees under Rule 12b-1 and/or shareholder service fees as described in
the then current registration statement offering shares of the Fund.

1.3 Duration of Operating Expense Limit. The Operating Expense Limit with
respect to the Fund shall remain in effect during the term of this Agreement.

<PAGE> 2

1.4 Method of Computation. To determine the Adviser's obligation with
respect to the Excess Amount, each day the Fund Operating Expenses for the Fund
shall be annualized. If the annualized Fund Operating Expenses for any day of
the Fund exceed the Operating Expense Limit of the Fund, the Adviser shall waive
or reduce its investment advisory fee in an amount sufficient to pay that day's
Excess Amount. The Trust may offset amounts owed to the Fund pursuant to this
Agreement against the advisory fee payable to the Adviser. Furthermore, to the
extent that the Excess Amount exceeds such waived or reduced investment advisory
fees, the Adviser shall, if required pursuant to the securities laws or
regulations of any state in which the Fund's shares are qualified for sale, or
may, voluntarily, reimburse the Fund for any operating expenses.

2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.

2.1 Reimbursement. If on any day during which the Advisory Agreement is in
effect, the estimated annualized Fund Operating Expenses of the Fund for that
day are less than the Operating Expense Limit, the Adviser shall be entitled to
reimbursement by the Fund of the investment advisory fees waived or reduced, and
any other expense reimbursements or similar payments remitted by the Adviser to
the Fund pursuant to Section 1 hereof (the "Reimbursement Amount") during any of
the previous five (5) years, to the extent that the annualized Fund Operating
Expenses plus the amount so reimbursed equals, for such day, the Operating
Expense Limit, provided that such amount paid to the Adviser will in no event
exceed the total Reimbursement Amount and will not include any amounts
previously reimbursed.

3. TERM AND TERMINATION OF AGREEMENT.

This Agreement may be terminated by the Trust or, after April 30, 2000, by
the Adviser, without payment of any penalty, upon sixty (60) days' prior written
notice to the Trust at its principal place of business. In any event, the
Agreement shall terminate upon the termination of the Advisory Agreement or
[five] years after the Fund's commencement of operations. The obligation of the
Adviser under Section 1 of this Agreement and of the Trust under Section 2 of
this Agreement shall survive the termination of the Agreement solely as to
expenses and obligations incurred prior to the date of such termination.

4. MISCELLANEOUS.

4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.

<PAGE> 3

4.3 Definitions. Any question of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.

4.4 Amendments. This Agreement may be amended only by a written agreement
signed by each of the parties hereto.

4.5 Limitation of Liability. This Agreement is executed by or on behalf of
the Trust, and Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Agreement and Declaration of Trust, as
amended, of the Trust and agrees that the obligations assumed by the Trust
pursuant to this Agreement shall be limited in all cases to the Trust and its
assets, and Adviser shall not seek satisfaction of any such obligations from the
trustees, officers or shareholders of the Trust.

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.

WILLIAM BLAIR FUNDS

By: /s/ Marco Hanig
--------------------------------------
Name: Marco Hanig
Title: President

WILLIAM BLAIR & COMPANY, L.L.C.

By: /s/ Conrad Fischer
--------------------------------------
Name: Conrad Fischer
Title: Principal

<PAGE> 1
EXHIBIT (I)

[Vedder, Price, Kaufman & Kammholz letterhead]

December 20, 1999

William Blair Funds
222 West Adams Street
Chicago, Illinois 60606

Ladies and Gentlemen:

Reference is made to Post-Effective Amendment No. 23 to the Registration
Statement on Form N-1A under the Securities Act of 1933 being filed by William
Blair Funds, a Delaware business trust (the "Trust") in connection with the
public offering from time to time of units of beneficial interest, no par value
("Shares") in the William Blair Income Fund, the William Blair Growth Fund, the
William Blair International Growth Fund, the William Blair Value Discovery Fund,
the William Blair Emerging Markets Growth Fund, the William Blair Ready Reserves
Fund, the William Blair Tax-Managed Growth Fund, the William Blair Large Cap
Growth Fund, the William Blair Small Cap Growth Fund and the William Blair
Disciplined Large Cap Fund (each, a "Fund" and collectively, the "Funds"),
respectively, of which the shares of each Fund (other than the William Blair
Ready Reserves Fund) have been further classified and designated as Class A,
Class B, Class C, Class N and Class I shares (each a "Class"); the shares of
William Blair Ready Reserves Fund have been classified and designated as Class N
and Class I shares.

We have acted as counsel to the Trust since its inception, and in such
capacity are familiar with the Trust's organization and have counseled the Trust
regarding various legal matters. We have examined such Trust records and other
documents and certificates as we have considered necessary or appropriate for
the purposes of this opinion. In our examination of such materials, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us.

Based upon the foregoing, and assuming that the Trust's Declaration of
Trust dated September 3, 1999, as amended by Written Instrument Amending the
Declaration of Trust dated September 8, 1999, the Written Instrument
Establishing and Designating Class A, B, C, N and I Shares of the William Blair
Tax-Managed Growth Fund, the William Blair Large Cap Growth Fund, the William
Blair Small Cap Growth Fund and the William Blair Disciplined Large Cap Fund
dated October 19, 1999, and the By-Laws of the Fund dated September 8, 1999, are
presently in full force and effect and have not been amended in any respect
except as provided above and that the

<PAGE> 2

VEDDER PRICE

William Blair Funds
December 20, 1999
Page 2

resolutions adopted by the Board of Trustees of the Trust on September 8, 1999
and October 19, 1999 relating to organizational matters, securities matters and
the issuance of shares are presently in full force and effect and have not been
amended in any respect, we advise you and opine that (a) the Trust is a validly
existing voluntary association with transferable shares under the laws of the
State of Delaware and is authorized to issue an unlimited number of Shares in
the Funds; and (b) presently and upon such further issuance of the Shares in
accordance with the Trust's Declaration of Trust and the receipt by the Trust of
a purchase price not less than the net asset value per Share and when the
pertinent provisions of the Securities Act of 1933 and such "blue sky" and
securities laws as may be applicable have been complied with, and assuming that
the Trust continues to validly exist as provided in (a) above, the Shares are
and will be legally issued and outstanding, fully paid and nonassessable.

This opinion is solely for the benefit of the Trust, the Trust's Board of
Trustees and the Trust's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this opinion
in connection with said Post-Effective Amendment.

Very truly yours,

VEDDER, PRICE, KAUFMAN & KAMMHOLZ

COK/RJM/MLW

<PAGE> 1
Exhibit (j)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 2, 1999 for William Blair Mutual Funds, Inc. (comprised of the Growth
Fund, Value Discovery Fund, International Growth Fund, Emerging Markets Growth
Fund, Income Fund and Ready Reserves Fund) in the Registration Statement (Form
N-1A) and its incorporation by reference in the related Prospectus and Statement
of Additional Information, filed with the Securities and Exchange Commission in
this Post-Effective Amendment No. 23 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-17463) and this Amendment No. 24 to
the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-5344).

/s/ Ernst & Young LLP
------------------------------
ERNST & YOUNG LLP

Chicago, Illinois
December 20, 1999

<PAGE> 1
Exhibit (o)(ii)

LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Conrad Fischer, Rocky Barber, Marco Hanig, Cathy G. O'Kelly or any
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any amendment to the Registration Statement of
William Blair Mutual Funds, Inc. on Form N-1A under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully as
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.

DATED: December 17, 1999
-------------------

/s/ John P. Kayser
---------------------------
John P. Kayser

<PAGE> 2

LIMITED POWER OF ATTORNEY

DATED: December 17, 1999
-------------------

/s/ Robert E. Wood II
---------------------------
Robert E. Wood II