WILLIAM BLAIR FUNDS, 485BPOS, 2000-05-16

WILLIAM BLAIR FUNDS
485BPOS, 2000-05-16

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As filed with the Securities and Exchange Commission on or about May 16, 2000
Registration No. 33-17463 and 811-5344
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. __

Post-Effective Amendment No. 27 [X]

and/or

REGISTRATION STATEMENT
Under the Investment Company Act of 1940

Amendment No. 28 [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 June 15, 2000 pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on (date) pursuant to paragraph (a)(1); or
[ ] 75 days after filing pursuant to paragraph (a)(2); or
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

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

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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 16, 2000

June 15, 2000

WILLIAM BLAIR FUNDS

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

CLASS A, B AND C SHARES PROSPECTUS

MILLENNIUM FUND

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

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

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Information in this Prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

WILLIAM BLAIR FUNDS
222 West Adams Street
Chicago, Illinois 60606

<PAGE> 3

TABLE OF CONTENTS

Summary .................................................................... 1
Investment Objectives and Principal Investment Strategies................... 4

Investment Risks ........................................................... 7

Management of the Fund ..................................................... 10

Choosing a Share Class ..................................................... 11
Class A Shares ...................................................... 13
Class B Shares ...................................................... 15
Class C Shares ...................................................... 16

Your Account ............................................................... 17
How to Buy Shares ................................................... 17
How to Sell Shares .................................................. 17
How to Exchange Shares .............................................. 19
Dividends and Distributions ......................................... 19
Taxes ............................................................... 19

Determination of Net Asset Value ........................................... 21

Shareholder Services and Account Policies .................................. 22

Investment Glossary ........................................................ 24

For More Information ....................................................... 27

<PAGE> 4

WILLIAM BLAIR MILLENNIUM FUND SUMMARY
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE: The William Blair Millennium Fund aggressively seeks
capital appreciation.

MAIN INVESTMENT STRATEGIES: The Fund invests in equity securities of U.S. and
foreign companies that are in the opinion of the Adviser best positioned to
benefit from the development, advancement, and use of science and technology.
High growth trends will drive the investment focus of the Fund.

The Adviser believes that the current business environment is characterized by
an explosion of business opportunities facilitated by changes in science and
technology at unprecedented rates of speed and magnitude. The Adviser seeks to
identify fundamental trends in science and technology and invest in companies
best positioned to take advantage of these trends.

The Adviser may invest in companies that participate directly in fundamental
trends in science and technology by taking advantage of new ideas,
opportunities, or market niches. The Adviser may also invest in companies that
are suppliers to or provide infrastructure to these companies, as well as
companies that benefit from using new technologies.

The Fund may purchase and sell investments without regard to their holding
period. The Adviser may aggressively trade the Fund's portfolio in order to take
advantage of short-term appreciation of particular stocks. The Fund may
concentrate its investments in particular companies or industries to take
advantage of opportunities the Adviser believes are advantageous or to respond
to rapid changes in trends in science and technology or in the securities
market.

MAIN RISKS OF INVESTING: Since the Fund invests most of its assets in equity
securities, the primary risk is that the value of the stocks it holds might
decrease in response to the activities of individual companies or economic and
market conditions. Thus, the Fund's returns will vary, and you could lose money
by investing in the Fund.

The Fund will invest in some new companies and some small companies that have no
record of past earnings or current expectation of future earnings. Companies in
rapidly changing fields such as those in which the Fund invests face special
risks such as competitive pressures, high capital investment costs, and rapid
technological obsolescence. By being invested in these companies, the Fund's
performance may be substantially different from the returns of the broader stock
market. The equity of many of these companies is difficult to value using
traditional methods of analysis. The stocks of some companies owned by the Fund
appear to be particularly subject to changes in investor sentiment and may
decline more than other stocks in the event of a "market correction."

The Fund will invest in many new companies, both through initial public
offerings ("IPOs") and private placements. New companies may be undercapitalized
and may have inexperienced management. While the Fund is small in size,
particularly during its initial start-up phase, the Fund's participation in IPOs
may have a magnified impact on the Fund's performance. If the Fund grows, the
effect of IPO investments may not be as significant. Private placements are not
publicly traded and may be difficult to sell; because there is no public market
for some of these securities, it may be difficult to determine their value. The
Fund may not be able to sell these securities at the same price at which they
are carried in the portfolio.

The Fund may trade aggressively and thus may experience high portfolio turnover
and relatively high transaction costs. The Fund may realize significant
short-term and long-term capital gains, which will result in taxable
distributions to investors.

The Fund will focus its investments in companies expected to benefit from the
development, advancement and use of science and technology. The Fund normally
invests at least 65% of its total assets, in the aggregate, in companies that
participate directly in fundamental trends in science and technology by taking
advantage of new ideas, new opportunities, or new market niches, companies that
are suppliers to or provide infrastructure to these companies, and companies
which benefit from using new technologies.

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Because the Fund may invest in a limited number of companies and industries, the
Fund may be more adversely affected by a market downturn in a particular
industry or sector than more broad-based funds.

The Fund will invest in companies located in foreign countries, including
emerging market countries. Foreign investments often involve additional risks,
such as political instability, foreign currency risk, and less stringent
regulation of securities markets. These risks may be magnified in emerging
markets. The Fund will invest in small companies, whose stocks are generally
less liquid and more volatile.

THE FUND INVOLVES A HIGH LEVEL OF RISK, AND MAY NOT BE APPROPRIATE FOR EVERYONE.
You should consider it only for the aggressive portion of your portfolio. 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: The bar chart and table showing the Fund's annual
returns have been omitted because the Fund does not have annual returns for a
full calendar year.

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

SHAREHOLDER FEES are fees paid directly from your investment.

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management Fee .......................................... 1.10% 1.10% 1.10%
Distribution (Rule 12b-1) and/or Service Fees ........... .25% 1.00% 1.00%(2)
Other Expenses .......................................... .50% .50% .50%
Total Annual Fund Operating Expenses 1.85% 2.60% 2.60%
(without waiver)(3).................................
Adviser's Expense Waiver .............................. .20% .20% .20%
Net Expenses (with waiver) ......................... 1.65% 2.40% 2.40%
</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

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sales charge.

(3) The Adviser has entered into an agreement with the Fund to cap the expenses
for the Fund's Class A shares at 1.65% and its Class B and Class C shares
at 2.40% at least until April 30, 2001; the Adviser may continue to waive
fees voluntarily thereafter.

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 the
periods shown, earn a 5% return each year and incur the same operating expenses
as shown above. The figures reflect the expense cap for the first year.

CLASS A CLASS B CLASS C
------- ------- -------
1 Year ......... $ 734 $ 743 $ 343
3 Years ......... 1,105 1,090 790

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

CLASS A CLASS B CLASS C
------- ------- -------
1 Year ......... $ 734 $ 243 $ 243
3 Years ......... 1,105 790 790

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INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

The 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 the
Fund, its principal investment strategies and certain related investment risks.
The 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 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 a Fund
will achieve its objective.

GOAL AND PRINCIPAL STRATEGIES

The William Blair Millennium Fund aggressively seeks capital appreciation. The
Fund invests in U.S. and foreign companies that are in the opinion of the
Adviser best positioned to benefit from the development, advancement, and use of
science or technology. High growth trends will drive the investment focus of the
Fund.

The Fund may purchase and sell investments without regard to their holding
period. The Adviser may aggressively trade the Fund's portfolio in order to take
advantage of short-term appreciation of particular stocks. The Fund will focus
its investments in companies expected to benefit from the development,
advancement and use of science and technology. The Fund normally invests at
least 65% of its total assets, in the aggregate, in companies that participate
directly in fundamental trends in science and technology by taking advantage of
new ideas, new opportunities, or new market niches, companies that are suppliers
to or provide infrastructure to these companies, and companies which benefit
from using new technologies. These companies may include, for example, companies
that develop, produce, or distribute products or services in the following
industries: electronics, including hardware, software, networks and components;
telecommunication services and equipment; electronic commerce; information
services; contract manufacturing services; media; biotechnology; genomics;
healthcare services; drugs and medical products. Because the Fund may invest in
a limited number of industries, gains or losses in a particular industry may
have a greater impact on the Fund's share price than on the share price of other
mutual funds.

INVESTMENT PROCESS

The Adviser may invest in companies that take advantage of new ideas,
opportunities, or market niches. The Adviser may also invest in companies that
are suppliers to or provide infrastructure to the science or technology sectors,
as well as companies that benefit from using new technologies.

In selecting stocks, the Adviser considers a combination of bottom-up
fundamental stock analysis, stock-price momentum, and industry opportunities.
The Fund may invest in several companies competing in the same niche, with the
expectation that one company will succeed and that the resulting gain in its
stock price will more than offset the potential stock price declines of its
competitors.

The Fund will invest in companies that may have no record of reported earnings
or current expectation of future earnings. Companies in rapidly changing fields
such as those in which the Fund invests face special risks such as competitive
pressures, high capital investment costs, and rapid technological obsolescence.

The Fund has no constraints on the size of companies in which it will invest.
The Adviser currently anticipates that more than 50% of the Fund will be
invested in small- and mid-capitalization companies, but this is subject to
change without notice. Smaller capitalization stocks are generally less liquid
and more volatile.

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<PAGE> 8
The Fund will invest in many new companies, through initial public offerings
("IPOs"), private placements, and private investment funds. While the Fund is
small in size, particularly during its initial start-up phase, the Fund's
participation in IPOs may have a magnified impact on the Fund's performance. If
the Fund grows, the effect of IPO investments may not be as significant. Private
placements and private investment funds enable the Fund to invest in companies
during early phases of development before their securities are publicly traded.

The Fund is non-diversified; this means that the Fund may invest its assets so
that securities each representing more than 5% of the Fund's total assets may
comprise more than 25% of the Fund's total assets. Because the Fund may invest
in a limited number of companies, gains or losses in particular companies or
securities may have a greater impact on the Fund's share price than on the share
price of other mutual funds.

The Adviser believes that the developing business environment is a global
phenomenon. Thus, the Fund may invest in companies without regard to the country
in which they are located, including emerging markets. The Adviser currently
anticipates that 25-35% of the Fund will be invested in foreign companies, but
this is subject to change without notice.

ADDITIONAL STRATEGIES

To a limited extent, the Fund may invest in depository receipts, illiquid
securities, private investment funds that in turn invest in private placements
or non-publicly traded securities, investment companies, warrants, when-issued
and delayed delivery securities and repurchase agreements, all of 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
and portfolio turnover. 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 Millennium Fund is co-managed by David C. Merjan, Stacey Riddell and Phil
Stekl. These individuals have limited portfolio management experience; they will
be assisted by an advisory committee composed of Mark A. Fuller III, W. George
Greig, and Robert D. Newman, all senior investment professionals of the Adviser.

David C. Merjan has co-managed the Fund since its inception in 2000. He has been
with William Blair & Company since 1998, and is a member of the department's
Technology Team and an equity analyst for the William Blair International Growth
Fund. Previously, he spent five years with a pension subsidiary of Hughes
Electronics as fund manager and equity analyst, and six years in the corporate
finance department of Hughes Electronics. Prior to that, he spent three years in
international banking with Irving Trust and with Security Pacific. Education:
B.A., Dickinson College; M.I.M., American Graduate School of International
Management; and CFA.

Stacey Riddell has co-managed the Fund since its inception in 2000. She joined
William Blair & Company in 1995 as an equity analyst, and is a member of the
department's Technology Team. Previously, she was a senior account manager with
MCI Telecommunications Corporation for four years. Prior to that, she spent five
years with the First National Bank of Chicago. Education: B.S., Northwestern
University; M.B.A.; Northwestern University Kellogg Graduate School of
Management; and CFA.

Phil Stekl has co-managed the Fund since its inception in 2000. He joined
William Blair & Company in 1996 as an equity analyst, and is a member of the
department's Healthcare team covering the pharmaceutical industry. Previously,
Phil was an analyst for Phoenix Investments for four years. He also spent eleven
years as an internal consultant at the Travelers Corp. in Hartford, Connecticut.
Education: B.A., University of Pennsylvania; M.B.A., University of Connecticut;
and CFA.

5
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Mark A. Fuller, III is a principal of William Blair & Company, L.L.C., and
co-manages the William Blair Growth Fund and the William Blair Small Cap Growth
Fund. 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 and Technology
teams. He began his career in Institutional Sales. Previously, he was a sales
representative with IBM Corporation. Education: B.A., Northwestern University;
M.B.A.; Northwestern University Kellogg Graduate School of Management.

W. George Greig is a principal of William Blair & Company. L.L.C. and has been
with the firm since 1996. He manages the William Blair International Growth Fund
and co-manages the William Blair Emerging Markets Growth Fund. Previously, he
headed international equities for PNC Bank from 1995 to 1996; prior to that he
was a founding partner of Pilgrim Baxter & Associates, where he was an analyst,
portfolio manager and research director for over ten years. Education: B.S.,
Massachusetts Institute of Technology; M.B.A., Wharton School of the University
of Pennsylvania.

Robert D. Newman is a principal of William Blair & Company, L.L.C. He has been
with the firm since 1989. He is the director of investment research for the
Investment Management department. Previously, he was with the Quaker Oats
Company in business development and strategic planning. Education: B.S.,
University of Illinois; M.B.A.; Northwestern University Kellogg Graduate School
of Management; CPA; and CFA.

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<PAGE> 10
INVESTMENT RISKS
- --------------------------------------------------------------------------------

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

Although the Adviser will attempt to identify advantageous trends in technology
and biotechnology and to select companies whose securities will increase in
value as a result of these trends, the Adviser may not always be successful in
doing so. Therefore, the performance of this Fund may be better or worse than
that of other funds that invest primarily in technology-related companies or
than direct investments in such companies as an investor might select.

Non-diversification. The Millennium Fund is a non-diversified fund. This means
that the Fund may invest its assets so that securities each representing more
than 5% of the Fund's total assets may comprise more than 25% of the Fund's
total assets. The Fund will, however, remain diversified for purposes of being
taxed as a registered investment company; that is, at least 50% of the Fund's
total assets will consist of securities none of which represents more than 5% of
the Fund's total assets. The decline in the price of a few large holdings will
have a greater adverse influence upon the value of shares of the Fund than it
would have on the value of shares of a diversified fund.

Concentration. The Millennium Fund normally invests at least 65% of its total
assets, in the aggregate, in companies that participate directly in fundamental
trends in science and technology by taking advantage of new ideas, new
opportunities, or new market niches, companies that are suppliers to or provide
infrastructure to these companies, and companies which benefit from using new
technologies. These companies may include, for example, companies that develop,
produce, or distribute products or services in the following industries:
electronics, including hardware, software, networks and components;
telecommunication services and equipment; electronic commerce; information
services; contract manufacturing services; media; biotechnology; genomics;
healthcare services; drugs and medical products. When the Fund is concentrated
in a particular industry or sector, it is less diversified than stock funds
investing in a broader range of industries and, therefore, could experience
significant volatility. The special risks common to these stocks create
potential for wide variation in the Fund's performance. Companies in rapidly
changing fields of science and technology face unusually high price volatility,
in terms of both gains and losses. In addition, science and technology-related
companies often progress at an accelerated rate, which may cause these companies
to be subject to short product cycles and aggressive pricing, which may increase
their volatility. The Fund's performance will largely depend upon the
performance of that industry or sector, which may differ from the performance of
the overall stock market. Financial, economic, business, political, regulatory,
and other factors affecting the industry or sector will have a greater effect
upon the share value of the Fund than such factors would have upon the share
value of a less concentrated fund.

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 Millennium Fund may
invest in the equity securities of very small companies, often referred to as
"micro-cap" companies. The Adviser currently defines "micro-cap" companies as
those with market capitalizations of $300 million or less at the time of a
Fund's investment. 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 that could lead to inadequate
capacity to meet timely interest and principal payments.

New Companies. The Millennium Fund will invest in new companies, many of which
will be small companies. New companies may have inexperienced management,
limited access to capital, and higher operating costs than established
companies. New companies may be less able to deal successfully with or survive
adverse circumstances

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<PAGE> 11
such as economic downturns, shifts in investor sentiment, or fierce competition.
The Fund may buy securities of new companies through initial public offerings
("IPOs"), private placement, or private limited partnerships or other investment
funds. IPOs are subject to high volatility and are of limited availability; the
Fund's ability to obtain allocations of IPOs is subject to allocation by members
of the underwriting syndicate to various clients and allocation by the Adviser
among its clients. Investments in private placements and private investment
funds may be difficult to sell at the time and at the price desired by the Fund;
companies making private placements may make less information available than
publicly offered companies; and privately placed securities are more difficult
to value than publicly traded securities. These factors may have a negative
effect on the performance of the Fund.

Foreign Investments. The Millennium Fund seeks to invest in companies located in
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, and
restrictions on the flow of international capital. 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.

Foreign securities held by the Millennium Fund will generally 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.

Emerging Markets. Foreign securities 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.
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 some emerging market countries, it may
be difficult to obtain or enforce a judgment against a local entity.

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.

Liquidity. The Fund invests in private placements and private investment funds.
These securities are registered for resale in the general securities market and
may be classified as illiquid. It may not be possible to sell or otherwise
dispose of illiquid securities both at the price and within a time period deemed
desirable by the Fund.

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<PAGE> 12
placements are generally higher than on domestic securities. In addition,
dividends and interest from foreign securities may be subject to foreign
withholding taxes. (For more information, see "Your Account --Taxes.")

Temporary Defensive Position. The Millennium 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 Fund will remain fully invested, and the Adviser will not attempt
to time the market. However, the Adviser may temporarily maintain a position in
cash or cash equivalents from time to time, resulting from the sale of Fund
shares or the sale of portfolio securities. If a significant adverse market
action is anticipated, investment-grade debt securities may be held without
limit as a temporary defensive measure. At such time as the Adviser determines
that the Fund's defensive strategy is no longer warranted, the Adviser will
adjust the Fund back to its normal complement of securities as soon as
practicable. When a Fund is invested defensively, it may not meet its investment
objective.

Turnover. The Fund may trade aggressively and thus may experience high portfolio
turnover and relatively high brokerage and other transaction costs. The Fund may
realize significant short-term and long-term capital gains, which will result in
taxable distributions to investors which may be greater than those made by other
funds.

Valuation. The securities of some companies in which the Fund invests may be
subject to high volatility resulting from intense global competition, consumer
preferences, product compatibility, product obsolescence, excessive investor
optimism or pessimism, or other factors. The equity of many of these companies
is difficult to value using traditional methods of analysis. The stocks of some
companies owned by the Fund appear to be particularly subject to investor
sentiment and may decline more than other stocks in the event of a "market
correction." Furthermore, it may be difficult to determine the current price for
securities issued in private placements or securities of private investment
funds, since no public market exists for these securities.

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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

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 65 years ago by
William McCormick Blair. Today, the firm has over 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 more than $13 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.

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

FEE AS A % OF
FUND AVERAGE NET ASSETS
---- ------------------
Millennium Fund ...................... 1.10%

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.

10
<PAGE> 14
CHOOSING A SHARE CLASS
- --------------------------------------------------------------------------------

CLASS A SHARES Offered at net asset value plus a maximum sales charge of
5.75% 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. Class B
shares automatically convert into Class A shares (which
have lower ongoing expenses) at the end of the seventh year
after purchase.

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.

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

When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interest in
the same portfolio of investments of a Fund. The Fund offers Class N and I
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 financial intermediaries with whom the
Distributor has entered into selling agreements specifically authorizing them to
sell Class N shares. Class I shares are offered only to institutional investors
and certain qualified advisory clients of the Adviser.

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. 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 and Class C
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 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.

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.

11
<PAGE> 15
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 and Class C
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.

12
<PAGE> 16
CLASS A SHARES

PUBLIC OFFERING PRICE: Net asset value per share plus the following sales
charge:

DEALER
SALES CHARGE REALLOWANCE
---------------------------------- --------------
AS A % OF AS A % OF NET AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED* OFFERING PRICE
- ------------------ -------------- --------------- --------------

$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%

- --------------
* 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: 1.00% if they are redeemed within one year of
purchase and 0.50% if they are redeemed during the second year following
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;

13
<PAGE> 17

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

- - 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 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.

14
<PAGE> 18

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.

<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>

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 the Fund will automatically convert to
Class A shares of the same Fund at the end of the seventh year after purchase 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.

15
<PAGE> 19

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 asset values without a contingent
deferred sales charge.

16
<PAGE> 20

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

HOW TO BUY SHARES

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. 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 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 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, or in the case of a retirement account, the custodian or
trustee of such account. Third party checks will not be accepted. When purchases
are made by check or periodic account investment, the Fund may delay sending
redemption proceeds until it 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 (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.

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.

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.

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.

17
<PAGE> 21
BY WIRE

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.

NOTE: Redemption requests should NOT be sent to the Trust or to the
Distributor.

SIGNATURE GUARANTEES. Signature guarantees must be obtained from a bank that is
a member of the FDIC, from a brokerage firm that is a member of the NASD, or
from 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 from 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 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.

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

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 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.

HOW TO EXCHANGE SHARES

Subject to the following limitations, you may exchange shares of all Class A, B
and C shares into shares of corresponding Class A, B and C shares of another
Fund at their relative net asset values so long as the shares to be

18
<PAGE> 22
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.

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.

DIVIDENDS AND DISTRIBUTIONS

INCOME DIVIDENDS. The 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. The Fund realizes capital gains whenever it sells
securities for a higher price than it paid for them, which are passed along to
shareholders as capital gain distributions.

As a shareholder, you are entitled to your portion of the Fund's net income and
gains on its investments. The Fund passes its earnings along to you as
distributions. The Fund's policy is to distribute substantially all net
investment income, if any, and all net realized capital gain, if any. All
distributions of income and capital gain and any return of capital have the
effect of immediately thereafter decreasing net asset value per share. Income
dividends and capital gain distributions will be automatically reinvested in
additional shares at net asset value on the reinvestment date, unless you
specifically request otherwise (see "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 Millennium Fund, all income dividends, if any, and capital gain
distributions, if any, generally will be paid in December and/or January.

The Fund may vary these dividend practices at any time. Income dividends and any
capital gain distributions on the Fund 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. The Fund's distributions are subject to Federal income
tax and may also be subject to state or local taxes. Distributions may be
taxable at different rates depending upon the length of time the Fund holds the
security. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them in additional shares. However, dividends declared
in October, November or December to shareholders of record as of a date in one
of those months and paid before the following February 1 are treated as having
been paid on December 31 of the calendar year declared for Federal income tax
purposes. The Fund will inform you of the amount and nature of distributions
paid.

19
<PAGE> 23
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. The ordinary income dividends of the
Millennium 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. 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 Millennium 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.

20
<PAGE> 24
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.

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.

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.

21
<PAGE> 25
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------

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

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 Fund offers 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 Fund.

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 Fund;

-- the Fund will pay any additional expenses that it incurs in
connection with such plans;

-- on your account application, you may select a plan or plans in which
to invest;

-- additional forms and further information may be obtained by writing
or calling the Fund;

22
<PAGE> 26

-- the Fund reserves the right to change the minimum amounts for
initial and subsequent investments or to terminate any of the plans;

-- the Fund reserves the right to waive investment minimums at the
discretion of the Distributor; and

-- the Fund requires a copy of the trust agreement when shares are to
be held in trust.

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 the 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 the 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 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 trustees,
changing fundamental policies or approving an investment management agreement.
(For additional information about shareholder voting rights, see the Statement
of Additional Information.)

23
<PAGE> 27
INVESTMENT GLOSSARY
- --------------------------------------------------------------------------------

The following glossary explains some of the types of securities in which the
Millennium Fund 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 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.

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

EQUITY SECURITIES. Equity securities represent a share of an issuer's earnings
and assets, after the issuer pays its liabilities. The Fund cannot predict the
income it will receive from equity securities because issuers generally have
discretion as to the payment of any dividends or distributions. However, equity
securities offer greater potential for appreciation than many other types of
securities, because their value increases directly with the value of the
issuer's business.

FINANCIAL FUTURES. The Fund may purchase and sell futures on financial
instruments or indices as a hedge against possible variation in financial
markets. Financial futures contracts are traded on boards of trade and futures
exchanges. A financial futures contract is an agreement between two parties to
buy and sell a specified amount of a particular type of financial instrument or
index for a particular price on a future date. To the extent that the Fund
engages in 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
futures 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.

24
<PAGE> 28
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 Millennium 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 that 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 Fund 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, the 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 Fund will not enter into forward foreign currency transactions
for speculative purposes.

ILLIQUID SECURITIES. The Fund may invest up to 15% 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 Fund may
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. The Fund may trade portfolio securities for the purpose
of realizing short-term profits. 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 the Fund. Although the Fund's turnover rate will
vary from year to year, it is anticipated that the Fund's turnover rate, under
normal circumstances, may be in excess of 300%. Such a high portfolio turnover
rate involves correspondingly higher transaction costs, which are borne directly
by the Fund.

REPURCHASE AGREEMENTS. The 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 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
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

25
<PAGE> 29
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.
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 Fund.

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 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.

26
<PAGE> 30
FOR MORE INFORMATION

More information about the Fund 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 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, IL 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 June 15, 2000
Investment Company Act File No.: 811-5344

27
<PAGE> 31

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 16, 2000

June 15, 2000

WILLIAM BLAIR FUNDS

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

CLASS N AND I SHARES PROSPECTUS

MILLENNIUM FUND

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

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

WILLIAM BLAIR FUNDS
222 West Adams Street
Chicago, Illinois 60606

<PAGE> 32
TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary...........................................................................................................1
Investment Objectives and Principal Investment Strategies.........................................................3

Investment Risks..................................................................................................6

Management of the Fund............................................................................................9

Your Account.....................................................................................................10
How to Buy Shares.......................................................................................10
How to Sell Shares......................................................................................12
How to Exchange Shares..................................................................................13
Dividends and Distributions.............................................................................14
Taxes ...............................................................................................14

Determination of Net Asset Value.................................................................................16

Shareholder Services and Account Policies........................................................................17

Investment Glossary..............................................................................................19

For More Information.............................................................................................22
</TABLE>

<PAGE> 33

WILLIAM BLAIR MILLENNIUM FUND SUMMARY
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE: The William Blair Millennium Fund aggressively seeks
capital appreciation.

The Fund may purchase and sell investments without regard to their holding
period. The Adviser may aggressively trade the Fund's portfolio in order to take
advantage of short-term appreciation of particular stocks. The Fund may
concentrate its investments in particular companies or industries to take
advantage of opportunities the Adviser believes are advantageous or to respond
to rapid changes in trends in science and technology or in the securities
market.

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

FEES AND EXPENSES: This section describes the fees and expenses that you may pay
if you buy and hold Class N or Class I shares of the Fund. Class N and Class I
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 or
Class I 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>
Class N Class I
------- -------
<S> <C> <C>
Redemption fee on shares held less than 180 days......................... 1.00% 1.00%
Redemption fee on shares held 180 days or more........................... None None

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

Management Fee........................................................... 1.10% 1.10%
Distribution (Rule 12b-1) Fee............................................ .25% None
Other Expenses........................................................... .50% .50%
-------- --------
Total Annual Fund Operating Expenses (without waiver)(1)................ 1.85% 1.60%
Adviser's Expense Waiver................................................ .20% .20%
-------- --------
Net Expenses (with waiver)........................................... 1.65% 1.40%
</TABLE>

- --------------
(1) The Adviser has entered an agreement with the Fund to cap the Fund's
Class N expense ratio at 1.65% and Class I expense ratio at 1.40% until
at least April 30, 2001; the Adviser may continue to waive fees
voluntarily thereafter.

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. The figures reflect the expense cap for the
first year.

Class N Class I
------- -------

1 Year................ $168 $143
3 Years............... 562 485

<PAGE> 35
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

All investments, including those in mutual funds, have risks. No investment is
suitable for all investors. Of course, there can be no assurance that a Fund
will achieve its objective.

GOAL AND PRINCIPAL STRATEGIES

The Fund may purchase and sell investments without regard to their holding
period. The Adviser may aggressively trade the Fund's portfolio in order to take
advantage of short-term appreciation of particular stocks. The Fund will focus
its investments in companies expected to benefit from the development,
advancement and use of science and technology. The Fund normally invests at
least 65% of its total assets, in the aggregate, in companies that participate
directly in fundamental trends in science and technology by taking advantage of
new ideas, new opportunities, or new market niches, companies that are suppliers
to or provide infrastructure to these companies, and companies which benefit
from using new technologies. These companies may include, for example, companies
that develop, produce, or distribute products or services in the following
industries: electronics, including hardware, software, networks and components;
telecommunication services and equipment; electronic commerce; information
services; contract manufacturing services; media; biotechnology; genomics;
healthcare services; drugs and medical products. Because the Fund may invest in
a limited number of industries, gains or losses in a particular industry may
have a greater impact on the Fund's share price than on the share price of other
mutual funds.

INVESTMENT PROCESS

<PAGE> 36
The Fund will invest in many new companies, through initial public offerings
("IPOs"), private placements, and private investment funds. While the Fund is
small in size, particularly during its initial start-up phase, the Fund's
participation in IPOs may have a magnified impact on the Fund's performance. If
the Fund grows, the effect of IPO investments may not be as significant. Private
placements and private investment funds enable the Fund to invest in companies
during early phases of development before their securities are publicly traded.

ADDITIONAL STRATEGIES

PORTFOLIO MANAGEMENT

<PAGE> 37

<PAGE> 38
INVESTMENT RISKS
- --------------------------------------------------------------------------------

Although the Adviser will attempt to identify advantageous trends in technology
and biotechnology and to select companies whose securities will increase in
value as a result of these trends, the Adviser may [not] always be successful in
doing so. Therefore, the performance of this Fund may be better or worse than
that of other funds that invest primarily in technology-related companies or
than direct investments in such companies as an investor might select.

<PAGE> 39
new companies through initial public offerings ("IPOs"), private placement, or
private limited partnerships or other investment funds. IPOs are subject to high
volatility and are of limited availability; the Fund's ability to obtain
allocations of IPOs is subject to allocation by members of the underwriting
syndicate to various clients and allocation by the Adviser among its clients.
Investments in private placements and private investment funds may be difficult
to sell at the time and at the price desired by the Fund; companies making
private placements may make less information available than publicly offered
companies; and privately placed securities are more difficult to value than
publicly traded securities. These factors may have a negative effect on the
performance of the Fund.

Operating Expenses. The Millennium Fund may incur operating expenses that are
higher than those of mutual funds investing exclusively in publicly traded U.S.
equity securities, since expenses such as custodial fees related to foreign
investments and private placements are usually higher than those associated with
investments in publicly traded U.S. securities. Similarly, brokerage commissions
on purchases and sales of foreign securities and private placements 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.")

<PAGE> 40

<PAGE> 41
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

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

FEE AS A % OF
FUND AVERAGE NET ASSETS
---- ------------------
Millennium Fund....................... 1.10%

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.

<PAGE> 42
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 Act 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.

CLASS I SHARES

The Class I shares are offered at net asset value without an initial sales
charge, Rule 12b-1 distribution fee or shareholder services fee. Certain
eligibility requirements apply.

Investors who qualify for Class I shares will not pay sales charges.

PUBLIC OFFERING PRICE: Net asset value per share without any sales charge 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, only if the shareholder
is eligible for Class I ownership of the Fund into which the exchange is being
made.

ELIGIBILITY: Class I shares are available for purchase exclusively by the
following categories of 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; and

- - advisory clients of William Blair & Company, L.L.C. with a fee-based asset
management account with William Blair & Company, L.L.C.

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

<PAGE> 43

PURCHASE PRICE. All Class N and Class I 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 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.

BY MAIL

OPENING AN ACCOUNT. To open a new account by mail, make out a check for the
amount of your investment, payable to "William Blair 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.

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

BY WIRE

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

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

Include the name of the portfolio in which you are investing, your assigned
account number and the name(s) in which the account is registered. Finally,
complete the account application, indicate the account number assigned to you by
State Street and mail it to William Blair 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

<PAGE> 44
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). 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)

You can arrange to take money out of your account by selling ("redeeming") some
or all of your 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 telephone, as
described below.

BY MAIL

To redeem Class N or 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 shares in any Funds by wire, you may contact the
Transfer Agent; 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. Contact the Transfer Agent at 1-800-635-2886 (in Massachusetts,
1-800-635-2840).

NOTE: Redemption requests should NOT be sent to the Trust or to the
Distributor.

-- 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 from the one on your account application (address of
record).

<PAGE> 45

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

HOW TO EXCHANGE SHARES (By Mail or by Telephone)

Subject to the following limitations, you may exchange shares of Class N and
Class I shares into corresponding Class N and Class I shares of another Fund at
their relative net asset values, subject to the Exchange Privilege restriction
of Class I shares (page 10) and 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").

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).

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.

<PAGE> 46
DIVIDENDS AND DISTRIBUTIONS

WHEN DIVIDENDS ARE PAID

For the Millennium Fund all income dividends, if any, and capital gain
distributions, if any, generally will be paid in December and/or January.

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. The ordinary income dividends of the
Millennium Fund are not eligible for the dividends-received deduction available
to corporate shareholders.

<PAGE> 47
"Your Account -- Dividends and Distributions" for payment schedules, and call
the Distributor if you have further questions.

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

<PAGE> 48

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.

HOW THE MARKET VALUE OF FUND SECURITIES IS DETERMINED

<PAGE> 49
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------

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

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.")

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.

With regard to retirement plans:

-- participation is voluntary;

-- you may terminate or change a plan at any time without penalty or
charge from the Fund;

-- the Fund will pay any additional expenses that it incurs in
connection with such plans;

-- on your account application, you may select a plan or plans in
which to invest;

-- additional forms and further information may be obtained by writing
or calling the Fund;

<PAGE> 50
-- the Fund reserves the right to change the minimum amounts for
initial and subsequent investments or to terminate any of the
plans;

-- the Fund reserves the right to waive investment minimums at the
discretion of the Distributor; and

-- the Fund requires a copy of the trust agreement when shares are to
be held in trust.

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> 51
INVESTMENT GLOSSARY
- --------------------------------------------------------------------------------

<PAGE> 52
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.

<PAGE> 53
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 Fund.

<PAGE> 54
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)

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, IL 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 June 15, 2000
Investment Company Act File No.: 811-5344

<PAGE> 55
WILLIAM BLAIR FUNDS
222 WEST ADAMS STREET
CHICAGO, ILLINOIS 60606
(312) 364-8000

STATEMENT OF ADDITIONAL INFORMATION

JUNE 15, 2000

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
May 1, 2000, or the prospectus of the New Millennium Fund dated June 15, 2000.
The financial statements for the William Blair Funds for the year ended December
31, 1999, and the Report of Independent Auditors thereon are incorporated by
reference from the Annual Report to Shareholders dated December 31, 1999. 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.........................................................................................B-1
Investment Adviser.....................................................................................B-1
Distributor............................................................................................B-3
Code of Ethics.........................................................................................B-3
Trustees and Officers..................................................................................B-3
Brokerage and Fund Transactions........................................................................B-9

INVESTMENT POLICIES AND RESTRICTIONS...........................................................................B-11

INVESTMENT PRACTICES...........................................................................................B-13
Borrowings............................................................................................B-13
Collateralized Obligations............................................................................B-13
Derivative Instruments................................................................................B-17
Foreign Securities....................................................................................B-24
Forward Foreign Currency Transactions.................................................................B-27
Foreign Currency Futures..............................................................................B-28
High-Yield/High-Risk Securities.......................................................................B-28
Investment Companies..................................................................................B-29
Illiquid Securities...................................................................................B-29
Lending .............................................................................................B-29
New Companies.........................................................................................B-29
Private Investment Funds..............................................................................B-30
Repurchase Agreements.................................................................................B-31
Restricted Securities.................................................................................B-31
Small Companies.......................................................................................B-31
Warrants .............................................................................................B-32
When-Issued or Delayed Delivery Transactions..........................................................B-32

ADDITIONAL INFORMATION ABOUT SHARE CLASSES.....................................................................B-32
Purchase of Shares--Alternative Purchase Arrangements.................................................B-32
Distribution Fees.....................................................................................B-33
Shareholder Service Fees..............................................................................B-34
Summary of Ongoing Fees for Class A Shares............................................................B-34
Summary of Ongoing Fees for Class B Shares............................................................B-34
</TABLE>

<PAGE> 56
<TABLE>
<S> <C> <C>
Summary of Ongoing Fees for Class C Shares............................................................B-34
Summary of Ongoing Fees for Class N Shares............................................................B-34
Summary of Ongoing Fees for Class I Shares............................................................B-34
Initial Sales Charge Alternative--Class A Shares......................................................B-35
Deferred Sales Charge Alternative--Class B Shares.....................................................B-36
Purchase of Class C Shares............................................................................B-36
Purchase of Class N and Class I Shares................................................................B-37
Fees Paid by Distributor to Service Firms.............................................................B-37
Class A Shares........................................................................................B-37
Class B Shares........................................................................................B-37
Class C Shares........................................................................................B-37
Class N Shares........................................................................................B-38
General .............................................................................................B-38
Redemptions...........................................................................................B-39
Special Redemptions...................................................................................B-39
Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege..................................B-39
Contingent Deferred Sales Charge--Class B Shares......................................................B-40
Contingent Deferred Sales Charge--Class C Shares......................................................B-40
Contingent Deferred Sales Charge--General.............................................................B-41
Class A Shares--Combined Purchases....................................................................B-41
Class A Shares--Letter of Intent......................................................................B-41
Class A Shares--Cumulative Discount...................................................................B-41
Class A Shares--Availability of Quantity Discounts....................................................B-42
Exchange Privilege....................................................................................B-42

GENERAL TRUST INFORMATION......................................................................................B-43
Determination of Net Asset Value......................................................................B-43
Performance...........................................................................................B-43
Historical Performance................................................................................B-43
Tax Status............................................................................................B-49
Retirement Plans......................................................................................B-50
Independent Auditors..................................................................................B-51
Legal Counsel.........................................................................................B-51
Custodian.............................................................................................B-52
Transfer Agent Services...............................................................................B-52
Reports to Shareholders...............................................................................B-52

SHAREHOLDER RIGHTS.............................................................................................B-52

INVESTMENT CRITERIA............................................................................................B-52

TRUST HISTORY..................................................................................................B-54

FINANCIAL INFORMATION OF THE FUND..............................................................................B-54

APPENDIX A - DESCRIPTION OF MONEY MARKET INSTRUMENTS............................................................A-1

APPENDIX B - RATINGS OF DEBT OBLIGATIONS........................................................................B-1
</TABLE>

<PAGE> 57
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
trustees 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. For the fiscal years
ended December 31, 1999, 1998 and 1997, the Adviser received fees of $5,616,635,
$4,861,435 and $4,093,417, 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, 2001; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B, C and N 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, 2001; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B, C and N 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, 2001; the Adviser may continue to waive fees voluntarily thereafter.
For the Fund's Class A, B, C and N shares, the expenses will be capped at 1.35%
plus any distribution and/or shareholder services fees.

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. For the services and facilities furnished during the

B-1

<PAGE> 58
fiscal years ended December 31, 1999, 1998 and 1997, the Adviser received fees
of $2,068,002, $1,557,766 and $1,351,263, respectively.

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, and the fiscal year ended December 31,
1999, the Adviser received fees of $34,835 and $57,371, respectively. The
Adviser has entered into an agreement with the Fund to cap the Fund's Class I
shares expenses at 1.81% until at least April 30, 2001; 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 1.81% 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 I share's expenses at 1.00% until at
least April 30, 2001; the Adviser may continue to waive fees voluntarily
thereafter. For the Fund's Class A, B, C and N shares, the expenses 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 1999,
1998 and 1997 the Trust paid $513,144 (after the waiver of $14,075), $442,942
and $241,689, respectively. The Adviser has entered into an agreement with the
Fund to cap the Fund's Class I share expenses at 1.39% until at least April 30,
2001; the Adviser may continue to waive fees voluntarily thereafter. For the
Fund's Class A, B, C and N shares, the expenses will be capped at 1.39% plus any
distribution and/or shareholder services fees.

The Millennium 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 shares' expenses at 1.40% until at least April
30, 2001; the Adviser may continue to waive fees voluntarily thereafter. For the
Fund's Class A, B, C and N shares, the expenses will be capped at 1.40% plus any
distribution and/or shareholder service 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. For the services
and facilities furnished to the portfolio pursuant to the advisory agreement
during the fiscal years ended December 31, 1999, 1998 and 1997, the Fund paid
$1,082,218, $1,046,049 and $918,833, 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. For the services and facilities furnished to the portfolio pursuant to
the advisory agreement during the fiscal years ended December 31, 1999, 1998 and
1997, the Adviser received fees of $6,564,500, $6,215,491 and $5,236,627,
respectively.

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.

B-2

<PAGE> 59
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. Balkin, Barber, Brewer, Fischer, Fuller, Greig, Hanig, Jancosek,
Jostrand, Kaplan, Kayser, Kirtman, Kleczka, Ms. Lash, Myer, Ms. Seitz, Sullivan
and Urbina, Ms. Garavalia and Ms. Gassmann, who are trustees 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,
Richard D. Gottfred, John P. Kayser, Richard P. Kiphart, Albert J. Lacher,
Joseph F. LaManna and James D. McKinney.

CODE OF ETHICS. The Trust and Adviser/Distributor have adopted a joint Code of
Ethics (the "Code") in accordance with Rule 17j-1 under the Investment Company
Act of 1940 (the "1940 Act"). The Code allows access persons to purchase and
sell securities for their own accounts, subject to industry standard reporting
requirements and trading restrictions. The Code requires that such persons,
among other things, pre-clear their securities transactions, with certain
limited exceptions. The Code also bans investment personnel from acquiring any
securities in an initial public offering. The Code prohibits all persons subject
to the Code from purchasing or selling any security if such person knows or
reasonably should know at the time of the transaction that the security was
being purchased or sold or was being considered for such purchase or sale by a
Fund. Finally, the Code provides for trading "black out" periods of seven
calendar days for portfolio managers who may not trade in securities which have
been purchased or sold by any mutual fund or other account managed by the
portfolio manager. The foregoing description is qualified in its entirety by the
Code, a copy of which has been filed with the Securities and Exchange
Commission.

TRUSTEES AND OFFICERS. The trustees and officers of the Trust, their birthdates,
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 trustee
is 222 West Adams Street, Chicago, Illinois 60606.

CONRAD FISCHER (04/29/34),* 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 (12/16/32), (1)(2)(3) Trustee; Retired Chairman and Chief
Executive Officer, Union Special Corporation, industrial sewing machine
manufacturer; Retired Associate Director, Northwestern University Institute for
The Learning Sciences; Oliver Products Company, Batts Group and Woodward
Governor Company.

THEODORE A. BOSLER (12/02/34), (1)(2)(3) Trustee; Retired Principal and Vice
President, Lincoln Capital Management; Director, Thresholds, a psychiatric
recovery center, and Institute of Chartered Financial Analysts.

B-3

<PAGE> 60
JOHN P. KAYSER (08/21/49),* Trustee; Vice President of the Trust; Principal,
William Blair & Company, L.L.C.; Director, DuPage Children's Museum.

ANN P. MCDERMOTT (10/24/39), (1)(2)(3) Trustee; Trustee, Rush Presbyterian St.
Luke's Medical Center; Women's Board, Rush Presbyterian St. Luke's Medical
Center; Honorary Director, Visiting Nurse Association; Director, Presbyterian
Homes; Northwestern University, Women's Board; University of Chicago, Women's
Board; Director, Washington State University Foundation.

JOHN B. SCHWEMM (05/18/34), (1)(2)(3) Trustee; Retired Chairman and Chief
Executive Officer, R.R. Donnelley & Sons Company; Director, USG Corp., and
Walgreen Co.

ROBERT E. WOOD II (05/07/38), (1)(2) Trustee; Retired Executive Vice President,
Morgan Stanley Dean Witter; Chairman, Add-Vision, Inc.; Chairman,
Micro-Combustion, LLC.

ROCKY BARBER (10/20/51), Chief Executive Officer; Principal, William Blair &
Company, L.L.C.; Vice President and Secretary, LaRabida Hospital Foundation;
Past President, Stanford Associates.

MARCO HANIG (01/10/58), President; Associate, William Blair & Company, L.L.C.;
former Senior Vice President, First Chicago NBD; Engagement Manager, Marakon
Associates.

MICHAEL P. BALKIN (03/28/59), Senior Vice President; Principal, William Blair &
Company, L.L.C.

MARK A. FULLER, III (03/11/57), Senior Vice President; Principal, William Blair
& Company, L.L.C.

W. GEORGE GREIG (10/02/52), Senior Vice President; Principal, William Blair &
Company, L.L.C.; former Portfolio Manager, Provident Capital Management;
Manager, Akamai, partnership affiliated with Framlington Investment Management
Limited; Partner, Pilgrim, Baxter & Greig.

JOHN JOSTRAND (03/29/54), Senior Vice President; Principal, William Blair &
Company, L.L.C.

STAN KIRTMAN (09/08/41), Senior Vice President; Portfolio Manager, William Blair
& Company, L.L.C.; former President and CIO, Nikko Global Asset Management.

GLEN KLECZKA (10/19/62), Senior Vice President; Portfolio Manager, William Blair
& Company, L.L.C.; former Partner, Brinson Partners; former Portfolio Manager,
CNA Financial Corp.

GRETCHEN S. LASH (10/20/53), Senior Vice President; Principal, William Blair &
Company, L.L.C.; former Partner, Lincoln Capital Asset Management.

BENTLEY M. MYER (09/14/46), Senior Vice President; Principal, William Blair &
Company, L.L.C.; Director, Delnor Community Hospital.

MICHELLE SEITZ (07/09/65), Senior Vice President; Principal, William Blair &
Company, L.L.C.

NORBERT TRUDERING (05/02/52), Senior Vice President; Principal, William Blair &
Company, L.L.C.

JAMES S. KAPLAN (10/18/60), Vice President; Associate, William Blair & Company,
L.L.C.; former Vice President, First Union Bank.

TERENCE M. SULLIVAN (01/22/44), Vice President and Treasurer; Associate, William
Blair & Company, L.L.C.

JEFFREY A. URBINA (03/11/55), Vice President; Associate, William Blair &
Company, L.L.C.; former Director of Emerging Market Research and Portfolio
Manager, Van Kampen American Capital.

B-4

<PAGE> 61
COLETTE M. GARAVALIA (03/15/61), Secretary; Associate, William Blair & Company,
L.L.C.; former Assistant Vice President; Scudder Kemper Investments.

JANET V. GASSMANN (01/20/67), 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.

Effective February 2000, trustees who are not affiliated with the Adviser
receive an annual fee of $12,000 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 officers not affiliated with the Adviser
received an annual fee of $8,000 plus $3,000 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, 1999 by trustees who are not affiliated with the
Adviser:

<TABLE>
<CAPTION>
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.......................... $24,500 0 0 $24,500
Theodore A. Bosler....................... $24,500 0 0 $24,500
Ann P. McDermott......................... $24,500 0 0 $24,500
John B. Schwemm.......................... $24,500 0 0 $24,500
Robert E. Wood II........................ $ 1,500 $ 1,500
------- -------
$99,500 $99,500
======= =======
</TABLE>

In addition, Mr. Vernon Armour, who retired as a Trustee in October, 1999,
received $23,000 of total compensation for the fiscal year ended December 31,
1999. Mr. Robert E. Wood II was elected by shareholders on November 30, 1999,
therefore his aggregate compensation from the Trust for the fiscal year ended
December 31, 1999 was only $1,500.

The following table provides certain information at ________________, 2000 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
- --------------- ------------ ----------------

GROWTH FUND CLASS A

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PERCENT OF FUND'S
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- --------------- ------------ ----------------

GROWTH FUND CLASS B

GROWTH FUND CLASS C

GROWTH FUND CLASS I

GROWTH FUND CLASS N

VALUE DISCOVERY FUND CLASS A

VALUE DISCOVERY FUND CLASS B

VALUE DISCOVERY FUND CLASS C

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PERCENT OF FUND'S
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- --------------- ------------ ----------------

VALUE DISCOVERY FUND CLASS I

VALUE DISCOVERY FUND CLASS N

INTERNATIONAL GROWTH CLASS A

INTERNATIONAL GROWTH CLASS B

INTERNATIONAL GROWTH CLASS C

INTERNATIONAL GROWTH CLASS N

EMERGING MARKETS CLASS A

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<PAGE> 64
PERCENT OF FUND'S
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- --------------- ------------ ----------------

EMERGING MARKETS CLASS B

EMERGING MARKETS CLASS C

EMERGING MARKETS CLASS I

INCOME FUND CLASS A

INCOME FUND CLASS B

INCOME FUND CLASS C

INCOME FUND CLASS I

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PERCENT OF FUND'S
NAME AND ADDRESS OUTSTANDING
OF RECORD OWNER COMMON STOCK NUMBER OF SHARES
- --------------- ------------ ----------------

INCOME FUND CLASS N

As of , 2000, the Trust's officers and trustees as a group owned (or
held or share investment or voting power with respect to) shares or % of
the Tax-Managed Growth Fund's Class I shares, shares or % of the Large
Cap Growth Fund's Class I shares, shares or % of the Large Cap Growth
Fund's Class N Shares, shares of % of the Small Cap Growth Fund's
Class I shares, shares or % of the International Growth Fund's
Class I shares, shares or % of the Emerging Markets Growth Fund's
Class I shares, shares or % of the Disciplined Large Cap Fund's
Class I shares, shares or % of the Value Discovery Fund's Class I
shares and shares or % of the Value Discovery Fund's Class N shares. As of
2000, the Trust's officers and directors as a group did not own more than 1% of
the outstanding shares of any class of shares of any Fund, except as noted
above. These figures do to 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. The Adviser anticipates that the
Millennium Fund will have a turnover rate substantially higher than most other
mutual funds; for this reason, the Millennium Fund will incur brokerage
commissions and other transactions cost at a much higher level than most mutual
funds.

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

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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 $905,779, $515,832 and $422,714 in
1999, 1998 and 1997, 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 International Growth Fund paid brokerage fees of $1,181,973, $889,064 and
$820,267 in 1999, 1998 and 1997, 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 $79,199 in 1999 and
$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.

The Value Discovery Fund paid total brokerage fees of $114,434 in 1999, $103,906
in 1998 and $35,216 in 1997. 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 Tax-Managed Growth Fund, the Large Cap Growth Fund, the Small Cap Growth
Fund and the Disciplined Large Cap Fund paid brokerage fees of $600, $822,
$2,376 and $941 for the period from December 27, 1999 (Commencement of
Operations) to December 31, 1999, respectively.

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 commence
operations until December 27, 1999.

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, 1999, 1998
and 1997. 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.

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 as the Funds
at the same time as the Funds. Such other accounts may include private
investment funds operated by the Adviser which compete directly with the
Millennium Fund for securities - particularly those sold in private placements
or initial public offerings ("IPOs"); the Adviser and its personnel may stand to
benefit more personally from good investment performance by these private
investment funds than by equivalent performance of the

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Millennium Fund. 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 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 Millennium Fund and 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.

Millennium Fund: The Fund will concentrate its investments by investing at least
25% of its total assets in the securities of issuers principally engaged in the
business activities having the specific characteristics denoted by the Fund.

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

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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.

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.

Millennium Fund:

The Fund is a non-diversified fund as such term as defined in the
Investment Company Act of 1940. The Fund invest its assets so that
securities each representing more than 5% of the Fund's total assets
may comprise more than 25% of the Fund's total assets. This policy is
non-fundamental and may be changed by a majority vote of the Board of
Trustees.

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.

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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, 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, and Millennium 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.

(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.

The Income Fund may not:

(1) 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.

(2) Purchase common stocks, preferred stocks, convertible preferred bonds,
warrants or other equity securities.

(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.

The Ready Reserves Fund may not:

(1) 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.

(2) Invest in illiquid securities if, as a result of such investment, more than
10% of its net assets would be invested in illiquid securities.

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

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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 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.

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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 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

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class of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.

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

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

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

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

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

Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are being 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

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"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.

DERIVATIVE INSTRUMENTS. In General. 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, Value Discovery Fund,
and Millennium 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.

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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.

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

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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 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

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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).

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

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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
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

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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.

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.

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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.

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 falls below a
specified

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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.

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

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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.

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

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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 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

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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.

FORWARD FOREIGN CURRENCY TRANSACTIONS. The foreign securities held by the Funds
will usually be denominated in foreign currencies and the Funds 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 Funds 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

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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 Funds 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 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.

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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.

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 or unregistered securities, a foreign or
unregistered 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 or resold to institutional investors 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.

NEW COMPANIES. The Millennium Fund may invest its assets in the securities
of companies with continuous operations of less than three years ("new
companies"). Investments in new companies involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements and accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general. In addition, securities of new
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because such companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for the Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. These companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, these companies are typically subject to a greater

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degree of changes in business prospects than are larger, more established
companies. There is typically less publicly available information concerning
these companies than for larger, more established ones.

Although investing in securities of these companies offers potential for
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Millennium
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in more established, larger
companies.

PRIVATE INVESTMENT FUNDS. Up to 10% of the Millennium Fund's net assets may
be invested in U.S. or foreign private limited partnerships or other investment
funds ("Private Funds") that themselves invest in equity or debt securities of
companies in the venture capital or post-venture capital stages of development.
In selecting Private Funds for investment, the Adviser attempts to invest in a
mix of Private Funds that will provide an above average internal rate of return
(i.e., the discount rate at which the present value of an investment's future
cash inflows (dividend income and capital gains) are equal to the cost of the
investment). The Adviser believes that the Fund's investments in Private Funds
offer individual investors a unique opportunity to participate in venture
capital and other private investment funds, providing access to investment
opportunities typically available only to large institutions and accredited
investors. Although the Fund's investments in Private Funds are limited to a
maximum of 10% of the Fund's assets (measured at the time the investments are
made), these investments are highly speculative and volatile and may produce
gains or losses in this portion of the Fund that exceed those of the Fund's
other holdings and of more mature companies generally.

Because Private Funds generally are investment companies for purposes of
the 1940 Act, the Millennium Fund's ability to invest in them will be limited.
In addition, Fund shareholders will remain subject to the Fund's expenses while
also bearing their pro rata share of the operating expenses of the Private
Funds. The ability of the Fund to dispose of interests in Private Funds is very
limited and will involve certain risks. In valuing the Fund's holdings of
interests in Private Funds, the Fund will be relying on the most recent reports
provided by the Private Funds themselves prior to calculation of the Fund's net
asset value. These reports, which are provided on an infrequent basis, often
depend on the subjective valuations of the managers of the Private Funds and, in
addition, would not generally reflect positive or negative subsequent
developments affecting companies held by the Private Fund. Debt securities held
by a Private Fund will tend to be rated below investment grade and may be rated
as low as C by Moody's or D by S&P. Securities in these rating categories are in
payment default or have extremely poor prospects of attaining any investment
standing.

Although investments in Private Funds offer the opportunity for
significant capital gains, these investments involve a high degree of business
and financial risk that can result in substantial losses in the portion of the
Fund's portfolio invested in these investments. Among these are the risks
associated with investment in companies in an early stage of development or with
little or no operating history, companies operating at a loss or with
substantial variation in operation results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Fund will have no control.

Interests in the Private Funds in which a Fund may invest will be subject
to substantial restrictions on transfer and, in some instances, may be
non-transferable for a period of years. Private Funds may participate in only a
limited number of investments and, as a consequence, the return of a particular
Private Fund may be substantially adversely affected by the unfavorable
performance of even a single investment. Certain of the Private Funds in which
the Millennium Fund may invest may pay their investment managers a fee based on
the performance of the Fund, which may create an incentive for the manager to
make investments that are riskier or more speculative than would be the case if
the manager was paid a fixed fee. Private Funds are not registered under the
1940 Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to regulated investment companies.
The valuation of companies held by Private Funds, the securities of which are
generally unlisted and illiquid, may be very difficult and will often depend on
the subjective valuation of the managers of the Private Funds, which may prove
to be inaccurate. Inaccurate valuations of a Private Fund's

B-30

<PAGE> 87
portfolio holdings may affect the Fund's net asset value calculations. Private
Funds in which the Fund invests will not borrow to increase the amount of assets
available for investment or otherwise engage in leverage.

The Fund may also hold non-publicly traded equity securities of companies
in the venture capital and post-venture capital stages of development, such as
those of closely-held companies or private placements of public companies. The
portion of the Fund's assets invested in these non-publicly traded securities
will vary over time depending on investment opportunities and other factors. The
Fund's illiquid assets, including Private Funds and other non-publicly traded
securities, may not exceed 15% of the Fund's net assets.

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.

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, the Emerging Markets Growth
Fund, the Millennium 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.

B-31

<PAGE> 88

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.

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 (at the end of the third year after
issuance for Income Fund). 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.

B-32

<PAGE> 89

<TABLE>
<CAPTION>
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 seven 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:

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 its 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.

B-33

<PAGE> 90

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 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.

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<PAGE> 91
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:

<TABLE>
<CAPTION>
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** 0.00% 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.
*** Commission is payable by the Distributor as discussed below.

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 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

B-35

<PAGE> 92
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, its 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 for 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."

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.

B-36

<PAGE> 93

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 Charge 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) sold and 0.50% on the net asset value of shares of the
Income Fund sold. 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.

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 of an initial 1.00%
of the sale price at the time of sale and a periodic fee beginning one year
after the sale, 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.

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<PAGE> 94

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.

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 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.

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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 Funds 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 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

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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.
<TABLE>
<CAPTION>
EQUITY FUNDS INCOME FUND
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 recordkeeping 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 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

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<PAGE> 97
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--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 any William
Blair Fund.

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 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.

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<PAGE> 98

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 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.

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<PAGE> 99
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.

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, the Millennium 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

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<PAGE> 100

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 Class A, B, C, and I Shares of the William Blair Growth Fund, the William
Blair International Growth Fund, the William Blair Emerging Markets Growth
Fund, the William Blair Value Discovery Fund, and the William Blair Income Fund
were not in existence before December 22, 1999. Only shares which are now Class
N shares existed prior to that date. Performance information for the Class N
Shares of each Fund, adjusted to assume the expenses associated with the
respective Class A, B, C, and I Shares of that Fund.

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 $14,000 of management fees
in 1999 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, the Value
Discovery Fund, and the Millennium Fund, the Adviser is currently
voluntarily waiving certain advisory fees. Without such waivers, 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 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, 1999 are as follows:

10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------
Growth Fund 19.98% 22.77% 17.97%
International Growth Fund (1) 96.25 22.88 20.17

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<PAGE> 101

10-YEAR OR
1-YEAR 5-YEAR LIFE OF FUND
------ ------ ------------

Emerging Markets Growth Fund (2) 79.31 -- 20.69
Value Discovery Fund (3) 6.10 -- 12.54
Income Fund (4) 0.34 6.45 7.06
- --------------
(1) Commenced operations on October 1, 1992.
(2) Commenced operations on May 1, 1998.
(3) Commenced operations on December 23, 1996.
(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, 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 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

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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, 1999 are as follows:

10-Year or
1-Year 5-Year Life of Fund
------ ----- ------------
Growth Fund 19.98% 179.06% 422.40%
International Growth Fund(1) 96.25% 180.15 279.57
Emerging Markets Growth Fund(2) 79.31 -- 36.84
Value Discovery Fund(3) 6.10 -- 42.55
Income Fund(4) .34 36.85 87.98

- --------------
(1) Commenced operations on October 1, 1992.
(2) Commenced operations on May 1, 1998.
(3) Commenced operations on December 23, 1996.
(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, 1999
was 6.56%. 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 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

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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, 1999 was 4.67%. The Ready Reserves Fund's effective yield for the same
period was 4.78%.

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 Weisenberger/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.

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.

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- 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 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.

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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 elected to mark-to-market
their investments in passive foreign investment companies for Federal income tax
purposes.

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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, Emerging Markets Growth Fund, and, in some years,
the New Millennium 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 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.

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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.

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

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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 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

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firms daily, build a portfolio of high-expected return, low valuation and high
quality 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.

- - When buying securities, careful attention is paid to factors such as
options, prepayments, etc., that may adversely affect prices in different
interest rate environments.

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- - 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 eleven 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,
1999, 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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<PAGE> 111

APPENDIX A

DESCRIPTION OF MONEY MARKET INSTRUMENTS

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

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

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

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

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

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

BANK MONEY INSTRUMENTS. These include instruments such as certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
generally short-term, interest-bearing negotiable certificates issued by
commercial banks or savings and loan associations against funds deposited in the
issuing institution. A time deposit is a non-negotiable deposit in a banking
institution earning a specified interest rate over a given period of time. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an

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<PAGE> 112
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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<PAGE> 113

APPENDIX B - RATINGS OF DEBT OBLIGATIONS

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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<PAGE> 114

"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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<PAGE> 115

"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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<PAGE> 116

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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<PAGE> 117

"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.

B-5
<PAGE> 118
WILLIAM BLAIR FUNDS
PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(a) Declaration of Trust dated September 3, 1999.(7)/

(b) By-laws.(7)/

(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.(7)/
(v) Form of Letter Agreement to Management Agreement
dated May 15, 2000.*

(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.(7)/
(ii) Expense Limitation Agreement for the Value Discovery
Fund dated September 30, 1999.(7)/
1) Expense Limitation Agreement for the Value
Discovery Fund dated February 15, 2000.(8)/
(iii) Expense Limitation Agreement for the Emerging Markets
Growth Fund dated September 30, 1999.(7)/
1) Expense Limitation Agreement for the Emerging
Markets Growth Fund dated February 15, 2000.
(8)/
(iv) Expense Limitation Agreement for the Tax Managed
Growth Fund dated December 15, 1999.(7)/
1) Expense Limitation Agreement for the Tax
Managed Growth Fund dated February 15, 2000.
(8)/
(v) Expense Limitation Agreement for the Disciplined
Large Cap Fund dated December 15, 1999.(7)/
1) Expense Limitation Agreement for the
Disciplined Large Cap Fund dated February 15,
2000.(8)/
(vi) Expense Limitation Agreement for the Small Cap Growth
Fund dated December 15, 1999.(7)/
1) Expense Limitation Agreement for the Small
Cap Growth Fund dated February 15, 2000.(8)/
(vii) Expense Limitation Agreement for the Large Cap Growth
Fund dated December 15, 1999.(7)/
1) Expense Limitation Agreement for the Large
Cap Growth Fund dated February 15, 2000.(8)/

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<PAGE> 119

(viii) Expense Limitation Agreement for the Millennium Fund
dated ___________, 2000.*

(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. (7)/

(p) Code of Ethics.(8)/

- --------------
(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.
(7)/ Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A as filed on or about
December 21, 1999.
(8)/ Incorporated herein by reference to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A as filed on or about
April 28, 2000.
* Filed herewith.
** To be filed by Amendment.

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

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<PAGE> 120
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:

<TABLE>
<CAPTION>
NAME AND POSITION WITH NAME OF COMPANY AND/OR
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Michael P. Balkin, The New Providence Fund General Partner
Principal William Blair Funds Sr. Vice President

Rocky Barber, LaRabida Hospital Foundation Vice President of the
Principal Board of Directors
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
Medical Center Life Trustee
University of Chicago Life Trustee
</TABLE>

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<PAGE> 121

<TABLE>
<CAPTION>
NAME AND POSITION WITH NAME OF COMPANY AND/OR
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Edward McC. Blair, Jr., Chicago Zoological Society Deputy Chairman
Principal Interluken Genetics Director
Research Medical, Inc. Director
University of Chicago Hospital Trustee

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

George Busse, Busse Venture Associates Partner
Principal George L. Busse & Co. Director
Mount Prospect National Bank Director

Ellen Carnahan, William Blair Capital Partners VI, LLC Managing Member
Principal William Blair Venture Partners, L.P. General Partner

David G. Chandler, Cypress Medical Products Director
Principal DJ Pharma, Inc. Director
Electro Mechanical Solutions, Inc. Director
Encore Paper Company Director
Engineered Materials Corp. Director
Gibraltar Packaging Group Director
Harmonic Systems, Inc. Director
Morton Grove Pharmaceuticals, Inc. Director
PacWest Telecomm, Inc. Director
Pharma Research Corp. Director
Predelivery Service Corporation Director
Sweetwater Sound, Inc. Director

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

John Draper, Black Knight Productions, Inc. Director
Principal

Francis C. Farwell, Lake Forest Bank & Trust Director
Principal

Conrad Fischer, APM Limited Partnership General Partner
Principal Chicago Child Care Society Trustee, Emeritus
William Blair Funds Investment Committee
Chairman and Trustee

Thomas A. Fitzsimmons, Credit Acceptance Corporation Director
Principal

John Fordham, B.T. Alex Brown Managing Director
Principal (resigned 4/98)
</TABLE>

C-4

<PAGE> 122

<TABLE>
<CAPTION>
NAME AND POSITION WITH NAME OF COMPANY AND/OR
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 Sr. 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 Directors
Vulcan Materials Co. Director

W. George Greig, William Blair Funds Sr. Vice President
Principal

James P. Hickey, Eagle Point Software Director
Principal

Edgar D. Jannotta, 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
William Blair Capital Partners VI, LLC Managing Member
William Blair Leveraged Capital Management, LP Partner
William Blair Capital Management, LP Partner

John F. Jostrand, William Blair Funds Sr. Vice President
Principal

John P. Kayser, Chicago Stock Exchange Board of Governors
Principal DuPage Children's Museum Director
King-Bruwaert House Director
William Blair Funds Trustee

Richard P. Kiphart, Concord EFS, Inc. Director
Principal Lyric Opera Director
McCormick Theological Seminary Board of Directors
Merit Music Program Director

Charles Kraft, Dalton, Greiner, Hartman, Maher, LP Limited Partner
Principal Spartan Holdings, LLC President

Robert Lanphier, IV, Ag. Med, Inc. Chairman
Principal
</TABLE>

C-5

<PAGE> 123
<TABLE>
<CAPTION>
NAME AND POSITION WITH NAME OF COMPANY AND/OR
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Gretchen S. Lash, William Blair Funds Sr. Vice President
Principal

James McMullan, University of Mississippi Foundation Director
Principal

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

Timothy M. Murray, Daisytek Int. Director
Principal PFS Web, Inc. Director
Portland Food Products, Incorporated Director
Towne Holdings, Inc. Director
William Blair Capital Partners, VI, LLC Managing Director
William Blair Leveraged Capital Management Partner

Bentley M. Myer, Delnor Community Hospital Director
Principal William Blair Funds Sr. Vice President

David G. O'Neill, Elder Care Information Network Director
Principal Resume Link, Inc. Director
Svoboda, Collins & Co. Investor/Advisor

Gregory J. Pusinelli, Steriltek, L.L.C. Director
Principal William Blair Funds Sr. Vice President

Philip W. Reitz, Fairway Drive Funding Corp. Director
Principal Worcester Co. Director (resigned 7/99)
XOLOX Corporation Advisory Board Member

Michelle R. Seitz, William Blair Funds Sr. Vice President
Principal

Neal L. Seltzer, Lake Shore Country Club Director
Principal New Providence Fund, L.P. General Partner
Scholarship and Guidance Foundation Director
Serendipity Fund II, L.P. General Partner

William Semmer, Chicago Home and Garden Magazine Director
Principal

Ronald B. Stansell, AFO Limited Partnership Limited Partner
Principal

Thomas H. Story, Security APL, Inc. Member, Advisory
Principal Council

Mark Timmerman, DIY Home Warehouse, Incorporated Director
Principal Prophet 21, Incorporated Director
</TABLE>

C-6

<PAGE> 124
<TABLE>
<CAPTION>
NAME AND POSITION WITH NAME OF COMPANY AND/OR
WILLIAM BLAIR & COMPANY, L.L.C. PRINCIPAL BUSINESS CAPACITY
- ------------------------------- ------------------ --------
<S> <C> <C>
Kathleen A. Wieland, Blue Egg Enterprises President
Principal D/B/A Robin's Bookshop Co-Owner
</TABLE>

ITEM 27. Principal Underwriters

(a) Not applicable.

(b) The main 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
8506, Boston, Massachusetts 02266-8506.

ITEM 29. Management Services

Not applicable.

ITEM 30. Undertakings

Not applicable.

C-7

<PAGE> 125
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 registration statement pursuant to
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 16th day
of May, 2000.

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 16th day of May,
2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/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)
</TABLE>

- --------------
* Marco Hanig signs this document pursuant to powers of attorney previously
filed.

<PAGE> 1
EXHIBIT (D)(V)

May 15, 2000

William Blair & Company, L.L.C.
222 West Adams Street
Chicago, IL 60606

Re: MANAGEMENT AGREEMENT WITH WILLIAM BLAIR FUNDS DATED
DECEMBER 15, 1999 (THE "MANAGEMENT AGREEMENT")

To Whom It May Concern:

Pursuant to Section 2 of the Management Agreement, we are hereby
providing notification of a new series of the William Blair Funds to be called
"William Blair Millennium Fund" (the "New Portfolio"). Attached hereto are
amended Appendix A and B to the Management Agreement to reflect the appropriate
management fees and initial term end for the New Portfolio.

By acknowledging below, you agree to render the investment advisory and
management services to the New Portfolio under the terms of the Management
Agreement and the amended Appendix A and B attached hereto.

WILLIAM BLAIR FUNDS

By:____________________________________

Name: _________________________________

Its: __________________________________

Accepted this 15th day of May, 2000.

WILLIAM BLAIR & COMPANY, L.L.C.

By: _________________________________

Name: ______________________________

Its: _________________________________

<PAGE> 2
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 Millennium Fund:
1.10% 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:
.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

A-1

<PAGE> 3

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

For the William Blair Millennium Fund:

April 30, 2002

B-1

<PAGE> 1
EXHIBIT (H)(VIII)

EXPENSE LIMITATION AGREEMENT

EXPENSE LIMITATION AGREEMENT (the "Agreement"), effective as of
________ __, 2000 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 Millennium 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.

1.1 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 1.40% (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 1.40% 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, 2001,
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.

2
<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:
---------------------------------
Name:
Title:

WILLIAM BLAIR & COMPANY, L.L.C.

By:
---------------------------------
Name:
Title: