William Blair Funds NCSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act File Number 811-5344

William Blair Funds

(Exact name of registrant as specified in charter)


222 West Adams Street, Chicago, IL		60606
(Address of principal executive offices)		(Zip Code)

Marco Hanig

William Blair Funds

222 West Adams Street, Chicago, IL 60606

(Name and address of agent for service)

Registrant’s telephone number, including area code: 312-236-1600

Date of fiscal year end: December 31

Date of reporting period: December 31, 2004

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A Registrant is not required to respond to the collection of information contained in Form N-CSR unless the form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimates and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. (ss) 3507.

Item 1.

December 31, 2004 Annual Reports transmitted to shareholders.

WILLIAM BLAIR FUNDS

ANNUAL REPORT

DECEMBER 31, 2004

Table of Contents


A Letter from the President		2

Growth Fund
An Overview from the Portfolio Manager		4
Portfolio of Investments		7

Tax-Managed Growth Fund
An Overview from the Portfolio Managers		8
Portfolio of Investments		11

Large Cap Growth Fund
An Overview from the Portfolio Managers		12
Portfolio of Investments		15

Small Cap Growth Fund
An Overview from the Portfolio Managers		16
Portfolio of Investments		20

Small-Mid Cap Growth Fund
An Overview from the Portfolio Managers		22
Portfolio of Investments		25

International Growth Fund
An Overview from the Portfolio Manager		26
Portfolio of Investments		29

International Equity Fund
An Overview from the Portfolio Manager		32
Portfolio of Investments		34

Value Discovery Fund
An Overview from the Portfolio Managers		36
Portfolio of Investments		39

Income Fund
An Overview from the Portfolio Managers		40
Portfolio of Investments		43

Ready Reserves Fund
An Overview from the Portfolio Managers		46
Portfolio of Investments		48

Financial Statements		49

Notes to Financial Statements		55

Report of Independent Registered Public Accounting Firm		75

Board of Trustees		76

Fund Expenses		80

Officers		82

This report is submitted for the general information of the shareholders of the William Blair Funds. It is not authorized for distribution to prospective investors unless accompanied or preceded by a prospectus of the William Blair Funds. Please carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling 1-800-742-7272. Read it carefully before you invest or send money.

December 31, 2004

William Blair Funds 1

LOGO

Marco Hanig

A LETTER FROM THE PRESIDENT

Dear Shareholders:

The stock market grew at a more moderate rate in 2004 than the sharp rally experienced in 2003. The Standard & Poor’s 500 Index of large cap stocks posted a 10.88% return, the Russell 2000^® Index of small cap stocks was up 18.33%, and the MSCI World Free Ex-US Index of foreign stocks was up 21.36%. Despite the rise in interest rates, bonds had positive returns, with the Lehman Aggregate Bond Index increasing 4.34%.

After three years of declines in 2000-2002, the market rebounded strongly in 2003, and it was widely expected that it would drift sideways in 2004. Indeed, in the first three quarters of 2004, the S&P posted only a 1.51% gain as the market treaded water. While the economic recovery appeared to be generally on track, there were a number of concerns: the threat of a pickup in inflation, fueled partly by the sharp rise in oil prices; the Fed’s signal that it would raise interest rates; the challenges in Iraq; and uncertainty over the presidential election. In the fourth quarter it became clear that the Fed would be gentle in raising rates, oil prices declined, and the election was decided, thus removing most of the political uncertainty and leading to a nice year-end rally.

Small cap stocks once again outperformed large cap stocks, but many observers now believe that this multi-year differential has now run its course. Value performed a bit better than growth, a multi-year trend that is also likely to reverse. Foreign stocks outperformed domestic ones, with the difference due largely to the depreciation of the U.S. dollar.

Total Returns by Morningstar Fund Category*

January 1 through December 31, 2004


	Value		Blend		Growth
Large	12.91	%	9.96	%	7.64	%
Mid-Cap	17.90	%	16.00	%	12.93	%
Small	20.58	%	18.86	%	12.09	%

Looking forward, the consensus view for 2005 is continued moderate growth, measured increases in interest rates, and modestly positive stock market returns.

Our mutual funds posted positive results in 2004, with six of eight funds finishing within plus or minus 3% of their Morningstar Category peer groups. Funds that deviated more broadly from their peers were the Small Cap Growth and the Value Discovery funds. The Small Cap Growth Fund had another outstanding year, posting a return of 27.24% compared to 12.09% for its Morningstar Small Growth peers¹. The Fund’s 5-year average annual total return performance of 23.48% compared to a negative 0.55% return for its peers, a truly exceptional 5-year record that places the Small Cap Growth Fund among the top 50 funds among all 17,411 mutual funds tracked by Morningstar. The Value Discovery Fund had a difficult year compared to its Morningstar Small Value peers with a 12.05% return for the Fund versus a 20.58% return for the Category¹. Nonetheless, the Value Discovery Fund’s return still exceeded that of the broad market, as represented by the S&P 500’s return of 10.88%. The Fund’s managers discuss the challenges they faced in their letter to shareholders.

As always, we thank you for investing with us!

LOGO

Marco Hanig

*	Morningstar Category returns represent the (non-weighted) average annual composite performance of all mutual funds listed in a particular category (such as Large Growth) by Morningstar.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Average annual returns assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load.

¹ The Morningstar Small Growth Category included 787 small cap growth funds and the Morningstar Small Value Category included 277 small cap value funds during the 1 year ended December 31, 2004.

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December 31, 2004

PERFORMANCE AS OF DECEMBER 31, 2004—CLASS N SHARES


	1 Yr	3 Yr	5 Yr	10 Yr (or since inception)	Inception Date	Overall Morningstar Rating
Growth Fund	7.32	-0.52	-4.66	8.20	3/20/46	«««
Morningstar Large Growth	7.64	0.01	-7.64	9.00		Among 1,039 large growth funds
Russell 3000^® Growth	6.93	0.26	-8.87	9.30		Among 1,039 large growth funds
Standard & Poor’s 500	10.88	3.59	-2.30	12.07

Tax-Managed Growth Fund						««««
Return before Taxes	6.90	-0.29	-2.46	-2.09	12/27/99	Among 1,039 large growth funds
After Taxes on Distributions	6.90	-0.29	-2.46	-2.09		Among 1,039 large growth funds
After Taxes on Distributions and Sale of Fund Shares	4.48	-0.25	-1.73	-1.77
Morningstar Large Growth	7.64	0.01	-7.64	—
Russell 3000^® Growth	6.93	0.26	-8.87	-8.60

Large Cap Growth Fund	5.23	-2.44	-9.25	-8.94	12/27/99	«««
Morningstar Large Growth	7.64	0.01	-7.64	—		Among 1,039 large growth funds
Russell 1000^® Growth	6.30	-0.18	-9.29	-9.08		Among 1,039 large growth funds

Small Cap Growth Fund	27.24	19.45	23.48	23.74	12/27/99	«««««
Morningstar Small Growth	12.09	4.89	-0.55	—		Among 554 small growth funds
Russell 2000^® Growth	14.31	5.79	-3.57	-2.43		Among 554 small growth funds
The Small Cap Growth Fund’s performance during 2000 was primarily attributable to investments in initial public offerings (IPOs) during a rising market. Since then, IPOs have had an insignificant effect on the Fund’s performance.

Small-Mid Cap Growth Fund	13.48	—	—	12.80	12/29/03	Not rated.
Morningstar Mid-Cap Growth	12.93	—	—	—
Russell 2500^TM Growth	14.59	—	—	15.68

International Growth Fund	18.48	12.64	2.54	12.25	10/1/92	«««««
Morningstar Foreign Large Growth	15.58	7.92	-5.72	5.18		Among 175 foreign large growth funds
MSCI All Country World Free Ex-US	21.36	13.56	0.02	6.02		Among 175 foreign large growth funds

International Equity Fund	—	—	—	13.30	5/24/04	Not rated.
MSCI All Country World Free Ex-US.	—	—	—	22.61

Value Discovery Fund	12.05	11.71	14.23	13.49	12/23/96	««
Morningstar Small Value	20.58	15.53	15.81	—		Among 201 small value funds
Russell 2000^®	18.33	11.48	6.61	9.15		Among 201 small value funds
Russell 2000^® Value	22.25	16.50	17.23	13.30

Income Fund	2.61	4.71	6.24	6.35	10/1/90	«««««
Morningstar Short-Term Bond	1.60	3.24	4.91	5.52		Among 226 short-term bond funds
Lehman Intermediate Govt./Credit Bond Index	3.04	5.68	7.21	7.15		Among 226 short-term bond funds

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher that the data quoted. Returns shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or a loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. International and emerging markets investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. As interest rates rise, bond prices will fall and bond funds become more volatile. From time to time, the investment advisor may waive fees or reimburse expenses for certain Funds. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load.

Tax-Managed Growth Fund’s after-tax returns are calculated using the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class N and the after-tax returns for other classes will vary.

Morningstar Ratings^TMare as of 12/31/04 and are subject to change every month. The ratings are based on a risk-adjusted return measure that accounts for variation in a fund’s monthly performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each Category receive 5 stars, the next 22.5% receive 4 stars, the middle 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. The 3/5/10 year Morningstar ratings were as follows: Growth Fund «««/««««/«««, Tax-Managed Growth Fund «««/««««/NA, and Large Cap Growth Fund ««/«««/NA, out of 1,039/743/260 large growth funds; Small Cap Growth Fund «««««/«««««/NA out of 554/402 small growth funds; Value Discovery Fund ««/««/NA out of 201/154 small value funds; International Growth Fund ««««/«««««/««««« out of 175/131/48 foreign large growth funds; Income Fund «««««/«««««/««««« out of 226/185/101 short-term bond funds.

Please carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds prospectus, which you may obtain by calling 1-800-742-7272. Read it carefully before you invest or send money. ^©William Blair & Company, L.L.C., distributor. 01/05.

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 3

LOGO

John F. Jostrand

GROWTH FUND

The Growth Fund invests primarily in common stocks of domestic growth companies with sustainable, above-average growth from one business cycle to the next.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Growth Fund posted a 7.32% increase on a total return basis (Class N Shares) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmarks, the Russell 3000^® Growth Index increased 6.93%, while the Standard & Poor’s 500 Index increased 10.88%.

What were the most significant factors impacting Fund performance?

The market reversed course in the fourth quarter, sending what was going to be a negative return for the year into a respectable gain. The sharp reversal in the fourth quarter was due to the successful completion of the presidential election without major incident, declining oil prices, and continuing low inflation. While the market was lackluster earlier in the year, the last two months witnessed a sharp rally in stock prices, particularly for companies that are speculative in nature.

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

Health Care was the best contributing sector to the Fund’s performance on both an absolute and relative basis. The security selection in the Health Care sector was particularly strong. Our focus on names in the Health Care Management Services area, such as UnitedHealth Group and Express Scripts, proved to be among the best performers in the Fund. We also found stocks in the Medical Instruments and Supplies industry to be attractive, with Zimmer Holdings and Alcon Inc. being two strong performers. Further, our fundamental analysis has shown that large pharmaceuticals are not demonstrating an ability to achieve double-digit sustainable growth in earnings. Our decision to sell Pfizer stock proved a great benefit to performance relative to the benchmark as Pfizer and the other large pharmaceutical companies performed poorly.

Transportation stocks were beneficiaries of the increase in both consumer and business demand of goods. Knight Transportation and CH Robinson both posted significantly strong returns for the year. Another transportation stock that performed well was Harley-Davidson. The demand for bikes showed remarkable strength even in the afterglow of their 100 year anniversary, and margins responded favorably to the efficiency of their new production facilities.

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

One theme in the portfolio that had disappointing results in 2004 was radio and broadcasting. Media broadcasting tends to do well in the early to middle stages of a recovery cycle, as companies increase advertising. Entercom Communications Corporation is a company that

4 Annual Report

December 31, 2004

we liked due to its underlying financials and good positioning in the industry. This company should have benefited from a typical recovery growth period, but was a weak performer in the portfolio in 2004. Due to industry pricing and advertising unit problems over the past several years, the radio industry has not yet achieved the advertising revenues and margins we anticipated.

Consumer Discretionary proved to be the weakest performer in terms of the large economic sectors, and was the largest negative contributor to performance relative to the benchmark. Bed, Bath and Beyond experienced concerns about productivity with respect to their new stores. Family Dollar’s sales were lackluster due to the impact of rising gasoline prices on its customer base. Although some of our stocks in this area performed well, the stocks that the Fund did not own caused weak relative performance. Ebay and Starbucks both achieved strong gains and added value to benchmark returns. The Fund did not own these names due to their significantly high valuations.

What is your current strategy for the year ahead?

Overall, valuations remain at a reasonable level due to both a contraction in 2004’s price-to-earnings valuations and earnings surpassing the rise in the market. As 2005 progresses and interest rates become less accommodative, we expect the higher risk, higher levered companies to feel the impact. The equity markets over the past couple of years have favored lower quality names. It is possible that stocks will soon face an inflection point where the market will not be as generous with companies with lower quality earnings, and will reward companies that can execute through a normal to challenging environment.

Because of our bottom-up fundamental analysis, the majority of the risk that we take is in security selection and not in under or overweighting specific sectors. We believe our bottom-up fundamental approach to finding quality growth companies with sustainable business models should be well suited to this more challenging environment.

December 31, 2004

William Blair Funds 5

Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		10 Year		Since Inception(a)
Class N	7.32	%	(0.52	)%	(4.66	)%	8.20	%	—	%
Class I	7.54		(0.28	)	(4.43	)	—		(0.95	)
Russell 3000^® Growth Index	6.93		0.26		(8.87	)	9.30		(4.37	)
S&P Index	10.88		3.59		(2.30	)	12.07		0.43

(a)

For the period from October 1, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 3000^® Growth Index consists of large, medium, and small-capitalization companies with above average price-to-book ratios and forecasted growth rates. The index is weighted by market capitalization and large/medium/small companies make up approximately 80%/15%/5% of the index.

The S&P 500 Index indicates broad larger capitalization equity market performance.

This report identifies the Fund’s investments on December 31, 2004. These holdings are subject to change. Not all stocks in the Fund performed the same, nor is there any guarantee that these stocks will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

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December 31, 2004

Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—31.9%
*Accenture Ltd.†	282,390	$	7,625
Arm Holding plc—ADR	467,430		2,884
CDW Corporation	105,330		6,989
*Cognos, Inc.†	84,800		3,736
*Dell, Inc.	209,275		8,819
*Digital Insight Corporation	86,690		1,595
*EMC Corporation	362,375		5,389
First Data Corporation	225,700		9,601
*Intuit, Inc.	127,200		5,598
*Iron Mountain, Inc.	120,247		3,666
*Jabil Circuit, Inc.	232,960		5,959
Linear Technology Corporation	119,850		4,645
Microchip Technology, Inc.	102,705		2,738
Paychex, Inc.	142,250		4,848
SAP AG—ADR	121,330		5,364
*Skillsoft plc—ADR	272,480		1,540
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	806,200		6,845

			87,841

Health Care—23.1%
Alcon, Inc.†	66,745		5,380
Allergan, Inc.	53,610		4,346
*Amgen, Inc.	110,000		7,057
*Axcan Pharma, Inc.†	172,350		3,332
*Boston Scientific Corporation	76,190		2,709
Eli Lilly & Company	97,550		5,536
*Express Scripts, Inc., Class “A”	48,020		3,671
*Integra Lifesciences Holding Corporation	69,750		2,576
Medtronic, Inc.	179,490		8,915
*ResMed, Inc.	49,385		2,524
UnitedHealth Group, Inc.	111,550		9,820
Valeant Pharmaceuticals International	71,175		1,875
*Zimmer Holdings, Inc.	72,080		5,775

			63,516

Industrials—12.6%
C.H. Robinson Worldwide, Inc.	64,765		3,596
Corporate Executive Board Company	54,025		3,616
Danaher Corporation	228,696		13,129
*Education Management Corporation	134,050		4,425
Knight Transportation, Inc.	242,125		6,005
*Ryanair Holdings plc—ADR	97,550		3,975

			34,746

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Discretionary—11.1%
*Bed, Bath & Beyond, Inc.	173,725	$	6,919
*CarMax, Inc.	122,290		3,797
*Entercom Communications Corporation	126,935		4,556
Family Dollar Stores, Inc.	151,825		4,741
Harley—Davidson, Inc.	101,700		6,178
*Kohl’s Corporation	89,900		4,420

			30,611

Financials—9.6%
Goldman Sachs Group, Inc.	45,615		4,746
SEI Investments Company	155,805		6,533
SLM Corporation	164,150		8,764
State Street Corporation	129,950		6,383

			26,426

Consumer Staples—5.1%
Estee Lauder Companies, Inc.	118,850		5,440
PepsiCo, Inc.	165,850		8,657

			14,097

Materials—4.4%
Ecolab, Inc.	187,400		6,583
Praxair, Inc.	125,260		5,530

			12,113

Energy—2.3%
Apache Corporation	64,150		3,244
Suncor Energy, Inc.†	87,345		3,092

			6,336

Total Common Stock—100.1% (cost $208,478)			275,686


*Investment in Affiliate*
William Blair Ready Reserves	137,537		138

Total Investment in Affiliate—0.0% (cost $138)			138

Total Investments—100.1% (cost $208,616)			275,824
Liabilities plus cash and other assets—(0.1)%			(318	)

Net assets—100.0%		$	275,506

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 7

LOGO

Mark A. Fuller III

LOGO

Gregory J. Pusinelli

TAX-MANAGED GROWTH FUND

The Tax-Managed Growth Fund invests primarily in common stocks of large, medium and small domestic growth companies with sustainable, above-average growth from one business cycle to the next.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

For the 12-month period ended December 31, 2004, the Tax-Managed Growth Fund posted a 6.90% gain on a total return basis (Class N Shares). By comparison, the Fund’s benchmark, the Russell 3000^® Growth Index increased 6.93% and the Standard & Poor’s 500 Stock Index gained 10.88%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

The Fund’s performance was in line with the Russell 3000^® Growth benchmark.

A quick outcome to the presidential election, reassuring news on the economy and Federal Reserve monetary policy, as well as a decline in oil prices, all contributed to a strong market.

A sharp increase in the market is often times led by more aggressive and speculative stocks. This was certainly true in the fourth quarter, and our high quality focus and underweight position in the Technology sector caused us to lag the benchmark slightly.

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

The Industrials and Health Care sectors were where the Fund had its best performers, with Industrial stocks, in particular, benefiting from signs of strength in the economy. There were six issues among our Industrial sector holdings which gained 21% or more, including Expeditors International, a transportation and logistics company which focuses on imports from the Far East. Our Expeditors International position rose 48%, and turned in the second-best performance in the Fund’s portfolio.

The Fund also benefited from strong showings among a number of its Health Care stocks, with five issues that posted increases of 15% or more. These strong performances were less industry-driven and more a reflection of our individual stock selection.

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

The Consumer Discretionary and Information Technology sectors accounted for most of the weakness in the Fund’s portfolio.

Within the Consumer Discretionary sector, our media stocks Clear Channel and Univision posted disappointing results, and were down 23% and 26%, respectively, for the year. Ad spending during 2004 was widely expected to increase significantly as a result of a stronger

8 Annual Report

December 31, 2004

economy, winter Olympics and the presidential election. When ad spending failed to materialize over the course of the year, media stocks were negatively impacted.

Although as we mentioned Information Technology was a weak sector for the Fund, the Fund’s single-best-performing investment for the year was CACI International, an Information Technology holding. CACI International provides computer-based information technology and other software products. CACI International’s primary markets are agencies of national governments, major corporations, and state and local governments, with their products installed in 10,000 locations worldwide. The company has seen growth in its business partly as a result of the work it does for the Department of Defense. We bought this company’s stock when it was experiencing price weakness during the second quarter, and saw the stock appreciate during the third quarter and through year end.

What is your current strategy? How is the Fund positioned?

The speculative, lower quality stock rally that dominated the equity markets in 2003 was wrung out of the markets during 2004. The stock market shifted during 2004 towards profitable companies with good balance sheets and higher returns on invested capital. It is an environment in which we believe our high quality growth emphasis to have a greater impact on performance.

With the economic recovery on solid footing, we continually evaluate our industry focus and companies that will stand to benefit from the expansion in the economy. As we search for promising candidates for the Fund’s portfolio of investments, we intend to maintain reasonable weightings in different sectors, and are not currently inclined to change our over- or under-weighting in any particular area.

As always, we will continue to focus on and emphasize high-quality names that we believe will serve our investors well.

December 31, 2004

William Blair Funds 9

Tax-Managed Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		Since Inception(a)
Tax-Managed Growth Fund Class N	6.90	%	(0.29	)%	(2.46	)%	(2.09	)%
Tax-Managed Growth Fund Class I	7.06		(0.07	)	(2.22	)	(1.85	)
Russell 3000^® Growth Index	6.93		0.26		(8.87	)	(8.60	)
S&P Index	10.88		3.59		(2.30	)	(2.13	)

(a)

For the period from December 27, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The S&P 500 Index indicates broad larger capitalization equity market performance.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

10 Annual Report

December 31, 2004

Tax-Managed Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—20.4%
*CACI International, Inc., Class “A”	1,360	$	93
CDW Corporation	1,620		108
First Data Corporation	2,900		123
*Hewitt Associates, Inc.	3,060		98
*Intuit, Inc.	2,455		108
*Jabil Circuit, Inc.	3,545		91
Microchip Technology, Inc.	4,170		111
Microsoft Corporation	1,920		51
Paychex, Inc.	3,390		116
SAP AG—ADR	1,420		63
*SunGard Data Systems, Inc.	4,210		119
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	7,829		66
Xilinx, Inc.	1,600		47

			1,194

Health Care—20.2%
Alcon, Inc.†	965		78
Allergan, Inc.	795		65
*Amgen, Inc.	2,435		156
*Express Scripts, Inc., Class “A”	2,085		159
*Genentech, Inc.	1,800		98
Pfizer, Inc.	5,325		143
*ResMed, Inc.	2,197		112
*St. Jude Medical, Inc.	2,360		99
Stryker Corporation	1,230		59
Valeant Pharmaceuticals International	2,220		59
*Zimmer Holdings, Inc.	1,910		153

			1,181

Industrials—18.0%
*Apollo Group, Inc., Class “A”	750		61
C.H. Robinson Worldwide, Inc.	2,335		130
*ChoicePoint, Inc.	1,230		57
Danaher Corporation	3,020		173
Expeditors International of Washington	2,245		125
Fastenal Company	2,520		155
General Electric Company	3,355		122
Knight Transportation, Inc.	3,255		81
Pentair, Inc.	1,400		61
*Ryanair Holdings plc—ADR	2,085		85

			1,050

Consumer Discretionary—13.8%
*Bed, Bath & Beyond, Inc.	2,070		83
*CarMax, Inc.	2,710		84
Dollar General Corporation	4,230		88
*Entercom Communications Corporation	2,070		74

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Discretionary—(continued)
*IAC/InterActiveCorp	3,240	$	89
*Kohl’s Corporation	980		48
Lowe’s Companies, Inc.	2,735		158
*Univision Communications, Inc.	1,820		53
*Williams-Sonoma, Inc.	3,645		128

			805

Financials—10.8%
AFLAC, Incorporated	1,390		55
Ambac Financial Group, Inc.	1,450		119
American International Group	2,210		145
Investors Financial Service Corporation	2,240		112
Moody’s Corporation	1,215		106
Northern Trust Corporation	1,990		97

			634

Consumer Staples—6.1%
Colgate-Palmolive Company	1,100		56
PepsiCo, Inc.	2,825		147
Walgreen Co.	2,365		91
Whole Foods Market, Inc.	680		65

			359

Materials—5.8%
Airgas, Inc.	5,550		147
Ecolab, Inc.	2,090		73
Praxair, Inc.	2,660		118

			338

Energy—4.3%
*Smith International, Inc.	950		52
Suncor Energy, Inc.†	5,580		197

			249

Total Common Stock—99.4% (cost $4,400)			5,810


*Investment in Affiliate*
William Blair Ready Reserves	47,029		47

Total Investment in Affiliate—0.8% (cost $47)			47

Total Investments—100.2% (cost $4,447)			5,857
Liabilities, plus cash and other assets—(0.2)%			(10	)

Net assets—100.0%		$	5,847

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 11

LOGO

John F. Jostrand

LOGO

Norbert W. Truderung

LARGE CAP GROWTH FUND

The Large Cap Growth Fund invests primarily in common stocks of large domestic growth companies of high quality that have demonstrated sustained growth over a long period of time.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Large Cap Growth Fund posted a 5.23% gain on a total return basis (Class N Shares) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the Russell 1000 Growth^® Index, increased 6.30%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

The broad market behaved in a relatively skittish manner during the first ten months of the year. Investors were generally cautious, given concerns about rising oil prices, rising interest rates, and uncertainty regarding the outcome of the presidential election. During this period, the market generally rewarded stocks with steady earnings streams and sustainable earnings growth, characteristics consistent with our investment criteria. The last eight weeks witnessed a post-election euphoria rally, the fifth largest since 1900. Investors’ appetite for risk changed markedly, favoring stocks with higher earnings variability. Sectors that had lagged year-to-date, such as Health Care and Technology, were among the strongest performers in the last two months of the year. Our portfolio lagged the benchmark during this rally, however, as stocks with our investment criteria were less favored. Overall, we ended the year below the benchmark.

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

Health Care was the best contributing sector to the Fund’s performance on both an absolute and relative basis. Our focus on names in the Healthcare Management Services area, such as UnitedHealth Group and Caremark, proved to be among the best performers in the fund. We also found stocks in the Medical Instruments and Supplies industry to be attractive, with Zimmer Holdings and Alcon Inc. being two strong performers. Our decision to avoid Merck, especially as it encountered significant problems concerning Vioxx, along with an underweight to Pfizer, helped the portfolio’s relative performance in the Health Care sector as well.

Value-oriented stocks enjoyed strong price appreciation during the year, and stocks in our portfolio with an industrial leaning tended to perform well. Danaher, General Electric, Ecolab and Praxair all added value to the portfolio during the year. Suncor Energy also yielded strong absolute and relative results.

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

One theme in the portfolio that had disappointing results in 2004 was radio and broadcasting. Media broadcasting tends to do well in the early to middle stages of a recovery cycle, as

12 Annual Report

December 31, 2004

companies increase advertising. These companies should have benefited from a typical recovery growth period. Due to industry pricing and advertising unit problems over the past several years, the radio industry has not yet achieved the advertising revenues and margins we anticipated.

Consumer Discretionary proved to be the weakest performer in terms of the large economic sectors, and was the largest negative contributor to performance relative to the benchmark. Bed, Bath and Beyond experienced concerns about productivity with respect to their new stores. Wal-Mart’s sales were somewhat lackluster due its core customer base being negatively affected by rising energy prices. Although some of the Fund’s stocks in this area performed well, the stocks that it did not own caused weak relative performance. Ebay and Starbucks both achieved strong gains during the quarter and added value to benchmark returns. The Fund did not own these names due to their significantly high valuations.

What is your current strategy for the year ahead?

December 31, 2004

William Blair Funds 13

Large Cap Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		Since Inception(a)
Large Cap Growth Fund Class N	5.23	%	(2.44	)%	(9.25	)%	(8.94	)%
Large Cap Growth Fund Class I	5.34		(2.17	)	(9.05	)	(8.73	)
Russell 1000^® Growth Index	6.30		(0.18	)	(9.29	)	(9.08	)

(a)

For the period from December 27, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 1000^® Growth Index consists of large-capitalization companies with above average-to-book ratios and forecasted growth rates.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

14 Annual Report

December 31, 2004

Large Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—28.9%
*Accenture, Ltd.†	8,400	$	227
*Dell, Inc.	7,200		303
*EMC Corporation	9,375		139
First Data Corporation	6,125		261
Intel Corporation	5,360		125
*Intuit, Inc.	3,285		145
Linear Technology Corporation	4,875		189
Paychex, Inc.	4,590		156
SAP AG—ADR	2,825		125
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	22,157		188

			1,858

Health Care—24.4%
Alcon, Inc.†	1,560		126
Allergan, Inc.	1,550		126
*Amgen, Inc.	3,060		196
*Boston Scientific Corporation	1,590		56
*Caremark Rx, Inc.	2,540		100
Eli Lilly & Company	2,155		122
Medtronic, Inc.	5,395		268
Pfizer, Inc.	5,015		135
UnitedHealth Group, Inc.	3,540		312
*Zimmer Holdings, Inc.	1,545		124

			1,565

Financials—10.5%
Goldman Sachs Group, Inc.	1,675		174
SLM Corporation	5,850		313
State Street Corporation	3,745		184

			671

Consumer Discretionary—10.0%
*Bed, Bath & Beyond, Inc.	5,850		233
Clear Channel Communications, Inc.	3,635		122
Harley-Davidson, Inc.	2,300		140
*Kohl’s Corporation	2,975		146

			641

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Staples—9.7%
Avon Products, Inc.	2,725	$	105
PepsiCo, Inc.	3,025		158
Wal-Mart Stores, Inc.	3,010		159
Walgreen Co.	5,240		201

			623

Industrials—8.0%
Danaher Corporation	5,757		330
General Electric Company	4,950		181

			511

Materials—4.8%
Ecolab, Inc.	4,350		153
Praxair, Inc.	3,565		157

			310

Energy—2.2%
Apache Corporation	1,400		71
Suncor Energy, Inc.†	2,010		71

			142

Total Common Stock—98.5% (cost $5,212)			6,321


*Investment in Affiliate*
William Blair Ready Reserves	176,619		177

Total Investment in Affiliate—2.8% (cost $177)			177

Total Investments—101.3% (cost $5,389)			6,498
Liabilities, plus cash and other assets—(1.3)%			(81	)

Net assets—100.0%		$	6,417

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 15

LOGO

Michael P. Balkin

LOGO

Karl W. Brewer

SMALL CAP GROWTH FUND

The Small Cap Growth Fund invests primarily in common stocks of small domestic growth companies that are expected to experience solid growth in earnings.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Small Cap Growth Fund posted a 27.24% gain on a total return basis (Class N Shares) for the 12 months ended December 31, 2004. This was well ahead of its benchmark, the Russell 2000 Growth^® Index, which increased 14.31% during the period, and the Russell 2000^® Index, which rose 18.33%.

What were the most significant factors impacting Fund performance?

As indicated at the end of last year, we anticipated several issues to influence the markets in 2004. Rising oil prices, a weakening dollar, interest rate increases and concerns with respect to the presidential election outcome provided significant headwinds to the market over the first three quarters. Although modest gains were realized in October, momentum increased significantly in November with a post-election rally that represented the fifth largest of its kind since 1900. Nearly all of the annual Russell Index gains were achieved in the last two months of the year. For a record-breaking sixth year in a row, small cap stocks led the larger capitalization stocks, as indicated by the Russell 2000^® Index’s return for small stocks at 18.33% outpacing the Russell 1000^® Index’s return for large stocks at 6.30%. Size did have some influence on returns in the Russell 2000 Growth^® Index during the year, with larger companies generally out-performing the smaller ones. Value significantly outperformed growth for the year across all capitalizations. The Russell 2000^® Value index gained 22.25% for the year, nearly 800 basis points ahead of the Russell 2000 Growth^® Index return of 14.31%. The portfolio performed relatively well across most company sizes.

Which investment strategies enhanced the Fund’s return? Were there any investment themes that produced the best results?

The Fund had strong performance across all of the major economic sectors, such as Consumer Discretionary, Financials, Health Care, and Technology.

Technology proved to be the biggest source of relative out-performance for the portfolio. Although Technology returns in the index for the year were negative, the Fund posted double-digit gains in this area. Semiconductor companies tended to be among the weakest performers in the index, but among the strongest in the Fund. Artisan Components, a leading semiconductor intellectual property company, was one of the strongest performers for the year. Semiconductor IP is an area in Technology that we believe has the ability to outpace the growth of the industry at large. Artisan was acquired at the end of the year by ARM Holdings, another semiconductor IP company. The growth prospects for ARM are similarly attractive, and it continues to be a name we hold in the portfolio.

The Consumer Discretionary area provided the biggest absolute contribution to performance and the second largest contribution relative to the benchmark. We have typically held a significant overweight position in this sector, since a wide variety of industries are grouped here, particularly ones with interesting growth characteristics. Our stock selection in this

16 Annual Report

December 31, 2004

group was strong as well. In the Advertising industry, ValueClick proved to be a very strong performer. This Internet media and advertising company has been in the portfolio for several years, but began attracting the attention of Wall Street in the past two years. It was one of the portfolio’s top performers in 2003 as well. Laureate Education, a leading post-secondary education company yielded good results during the year as well. Although many education oriented stocks did not fare as well during 2004 due to domestic regulatory concerns, we liked Laureate’s business model and strong international exposure. The stock also offered comparatively good value with a lower multiple than many of its peers. In the Entertainment arena, Lions Gate Entertainment achieved strong gains in 2004. With several blockbuster movies during the year, and a large movie library offering potential for strong recurring revenues, the company continues to offer good prospects for growth.

Were there any investment strategies or themes that did not measure up to your expectations?

The Fund performed well overall, but there was some relative weakness in sectors that are not typically growth in orientation—specifically, Autos and Transportation, Materials and Processing, and Utilities. These sectors had extremely strong performance in the index, indicative of the trend of value stocks out-performing growth stocks. We have significant underweight positions in these sectors, that in aggregate comprise approximately 10% of the Russell 2000 Growth Index.

One theme that did not fare as well as we had anticipated centered in the Radio and TV Broadcasters segment of the Consumer Discretionary sector. In the early-to-mid part of an economic recovery, media advertising tends to do well. The recovery of Broadcast Company stocks has been slower than we expected, which has been reflected in the two stocks that we hold, Cumulus Media and Emmis Communications. Both stocks were among our bottom ten performers during the year.

What were among the best performing investments for the Fund?

In addition to the Technology and Consumer Discretionary names mentioned above, Quicksilver Resources in the Energy sector and Cyberonics Inc. in the Health Care area were two strong performers during the year. Quicksilver Resources is a natural gas producer focused primarily on the western United States and Canada. The stock was up significantly due to a combination of successful drilling on several key properties along with an overall strong energy market. This past summer, Cyberonics received positive early indications from the FDA with respect to its trademark VNS therapy. This therapy was originally designed for the treatment of epilepsy, and Cyberonics was seeking approval for this therapy to be used for patients suffering chronic depression.

What were among the weakest performing investments for the Fund?

OPNET Technologies, a leading provider of management software for networks and applications was our worst performer for the year. The company reported soft fiscal second quarter results, due to some delays in several large contracts. Also, they have experienced some salesforce turnover issues that have created disruption.

Vistacare Inc, a leading provider of hospice care, was the second weakest portfolio performer. The company had experienced softer than anticipated growth, accompanied by a cap in Medicare funding for hospice care, which brought significant weakness in revenues and margins.

Is there any additional news with respect to the fund?

We would note that the Fund has one security (which comprises less than 1% of net assets) that was relatively illiquid as of the end of the year.

December 31, 2004

William Blair Funds 17

Kintera, Inc. is a company that provides software and services to non-profit organizations. We wanted to purchase a significant number of shares in this company. We were able to participate in a Public Investment in Private Equity (PIPE) transaction at the beginning of December, through which we were able to buy a meaningful position of the company at a discount. We anticipate the PIPE will be registered to trade as common stock in 2005.

What is your current strategy for the year ahead?

While the overall market experienced a strong finish to 2004, we anticipate that 2005 could offer a more challenging environment. Although companies are continuing to grow earnings, the rate of growth is slowing. Since the economy is continuing to experience growth, there may be continued activity on the part of the Federal Reserve to keep inflation in check by raising interest rates. This could result in multiple compression on stocks, limiting stock price appreciation.

That said, our bottom-up stock selection process that focuses on companies with strong fundamentals should continue to uncover stocks that we believe will perform well regardless of the macroeconomic themes prevalent in the market. While it may be difficult to see gains such as the ones we achieved in 2003 and 2004, we are cautiously optimistic on the overall market for 2005.

As always, we will continue to invest in what we believe to be are high quality growth companies with solid fundamentals at attractive valuations. We appreciate your interest in the Fund.

18 Annual Report

December 31, 2004

Small Cap Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 06/30/2004


	1 Year		3 Year		5 Year		Since Inception(a)
Small Cap Growth Fund Class N	27.24	%	19.45	%	23.48	%	23.74	%
Small Cap Growth Fund Class I	27.54		19.73		23.76		24.02
Russell 2000^® Growth Index	14.31		5.79		(3.57	)	(2.43	)
Russell 2000^® Index	18.33		11.48		6.61		7.53

(a)

For the period from December 27, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2000^® Growth Index consists of small-capitalization companies with above average price-to-book ratios and forecasted growth rates.

The Russell 2000^® Index is an unmanaged composite of the smallest 2000 stocks of the Russell 3000^® Index.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 19

Small Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Consumer Discretionary—41.3%
*4 Kids Entertainment, Inc.	572,365	$	12,031
*Century Casinos, Inc.	652,942		5,961
*Charles River Associates	164,417		7,690
*Coinstar, Inc.	527,710		14,159
*Comstock Homebuilding Companies, Inc.	210,785		4,589
*Corrections Corporation of America	241,935		9,786
*Cumulus Media, Inc., Class “A”	644,120		9,713
*Elizabeth Arden, Inc.	476,900		11,322
*Emmis Communications Corporation, Class “A”	344,160		6,604
*FirstService Corporation†	476,510		7,801
Fred’s, Inc.	444,270		7,730
*FTI Consulting, Inc.	310,560		6,544
*Insight Enterprises, Inc.	649,390		13,326
*Intermix Media, Inc.	1,820,225		10,284
*Jarden Corporation	278,600		12,102
*Kforce, Inc.	1,524,265		16,919
*Labor Ready, Inc.	662,565		11,211
*Laureate Education, Inc.	540,000		23,809
*Lions Gate Entertainment Corporation†	1,016,910		10,800
*Multimedia Games, Inc.	600,385		9,462
Nautilus Group, Inc.	322,625		7,798
*Nu Skin Enterprises, Inc.	353,990		8,984
*Scientific Games Corporation, Class “A”	355,430		8,473
*Shuffle Master, Inc.	161,196		7,592
*Sirva, Inc.	388,055		7,458
Speedway Motorsports, Inc.	238,860		9,359
Strayer Education, Inc.	74,770		8,209
*TiVo, Inc.	744,970		4,373
*Usana Health Services, Inc.	211,710		7,241
*ValueClick, Inc.	1,333,970		17,782
*ValueVision Media, Inc., Class “A”	667,425		9,284
*Workstream, Inc.†	3,064,460		10,419

			318,815

Health Care—16.3%
*Allied Healthcare International	1,653,600		9,095
*American Healthways, Inc.	168,270		5,559
*Amicas, Inc. (Formerly Vitalworks, Inc.)	3,350,070		14,908
*Axcan Pharma, Inc.†	546,150		10,557
*Cell Therapeutics, Inc.	1,182,540		9,626
*Connectics Corporation	344,090		8,358
*Discovery Partners International, Inc.	1,319,596		6,268
*Integra Lifesciences Holdings Corporation	466,255		17,219
*Kensey Nash Corporation	224,945		7,767
*Martek Biosciences Corporation	87,430		4,476
*Matria Healthcare, Inc.	214,061		8,363
*Sangamo Biosciences, Inc.	550,655		3,304
*Santarus, Inc.	807,569		7,317
*Telik, Inc.	505,585		9,677
*Zila, Inc.	798,600		3,418

			125,912

Technology—15.3%
*AMIS Holdings, Inc.	553,110		9,137
ARM Holdings, plc—ADR	623,209		3,845
*Blackbaud, Inc.	642,043		9,400
*Kanbay International, Inc.	274,802		8,601



Issuer	Shares	Value

*Common Stocks—(continued)*
Technology—(continued)
*Kintera, Inc.	76,600	$	690
Kintera, Inc.#*	773,704		5,798
*Lionbridge Technologies, Inc.	340,900		2,291
*Loudeye Corporation	2,253,860		4,620
*Open Solutions, Inc.	326,630		8,479
*OPNET Technologies, Inc.	889,890		7,493
*Optimal Group, Inc.†	1,225,860		14,453
*PDF Solutions, Inc.	603,205		9,718
*Scansoft, Inc.	2,170,965		9,096
*SupportSoft, Inc.	715,360		4,764
*Ultimate Software Group, Inc.	720,538		9,137
*WebEx Communications, Inc.	457,855		10,888

			118,410

Financial Services—7.4%
*Affiliated Managers Group, Inc.	193,585		13,114
Commercial Capital Bancorp, Inc.	427,695		9,914
*Credit Acceptance Corp.	428,970		10,917
*Electronic Clearing House	617,737		5,547
*Euronet Worldwide, Inc.	342,905		8,922
Global Payments, Inc.	146,680		8,587

			57,001

Other Energy—5.7%
*ATP Oil and Gas Corporation	429,251		7,976
*Comstock Resources, Inc.	423,645		9,341
*Gasco Energy Inc.	2,489,825		10,607
*Grey Wolf, Inc.	1,703,730		8,979
*InterOil Corporation†	177,920		6,732

			43,635

Materials and Processing—2.8%
Airgas, Inc.	432,655		11,470
*Comfort Systems USA, Inc.	1,275,840		9,798

			21,268

Autos and Transport—2.1%
*Frozen Food Express Industries, Inc.	292,566		3,774
*Marten Transport, Ltd.	190,720		4,335
OMI Corporation	470,820		7,933

			16,042

Producer Durables—1.7%
*Educate, Inc.	544,952		7,215
*Providence Service Corporation	275,330		5,774

			12,989

Utilities—1.1%
*Intrado, Inc.	676,844		8,190

Total in Common Stock—93.7% (Total cost $566,452)			722,262


*Investment in Affiliate*
William Blair Ready Reserves	21,848,943		21,849

Total Investment in Affiliate—2.8% (cost $21,849)			21,849

See accompanying Notes to Financial Statements.

20 Annual Report

December 31, 2004

Small Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares of Principal Amount		Value

*Short-Term Investments—2.8%*
American Express Demand Note, VRN 2.24%, due 1/3/05 (cost $10,855)	$	10,855,000	$	10,855
Prudential Funding Demand Note, VRN 2.243%, due 1/3/05 (cost $10,667)		10,667,000		10,667

Total Short-Term Investments (cost $21,522)				21,522

Total Investments—99.3% (cost $609,823 )				765,633
Cash and other assets, less liabilities—0.7%				5,576

Net assets—100.0%			$	771,209

*Non-income producing securities

† = U.S. listed foreign security

# = Restricted security. The fund purchased 773,704 restricted shares on December 1, 2004 at a cost of $5,416 (in thousands). The value of the fund’s holding was $5,798 (in thousands) or $7.49 per share, or 0.75% of net assets at December 31, 2004.

**Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. The holding represents 0.75% of the net assets at December 31, 2004.

VRN = Variable Rate Note

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 21

LOGO

Karl W. Brewer

LOGO

Harvey H. Bundy, III

LOGO

Robert C. Lanphier, IV

SMALL-MID CAP GROWTH FUND

The Small-Mid Cap Growth Fund primarily invests in a diversified portfolio of common stocks of small and medium-sized domestic growth companies that are expected to experience solid growth in earnings.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Small-Mid Cap Growth Fund posted a 13.48% gain on a total return basis (Class N Shares) for the 12 months ended December 31, 2004. This result lagged its benchmark, the Russell 2500 Growth^® Index, which increased 14.59% during the period.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

The Fund performed particularly well relative to the benchmark during the first ten months of the year. During this period, investors were generally cautious, given concerns about rising oil prices, increasing interest rates, and uncertainty regarding the outcome of the presidential election. The market rewarded stocks with steady earnings streams and sustainable earnings growth, characteristics consistent with our investment criteria. The last eight weeks witnessed a post-election euphoria rally, the fifth largest since 1900. The risk posture on the market changed significantly as investors sought stocks with higher earnings variability, particularly in sectors that had lagged year-to-date, such as Health Care and Technology. Our portfolio trailed the benchmark during the last two months of the year, as stocks with our investment criteria were less favored.

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

One sector in which our stocks performed extremely well was Technology. While stocks in this sector of the benchmark yielded a negative return in aggregate, the Fund had positive results in this area, making it the largest contributor to relative results. Although most semiconductor stocks were weak due to excess supply and overcapacity issues, our semiconductor holdings performed well.

In general, our quality growth parameters lead us toward stocks with strong managements, sustainable business models through value-added delivery to the customer, and strong financial practices. Our portfolio’s top performer, Laureate Education, a company in the Education Services industry, exhibited many of these quality growth characteristics. Although many domestic education oriented stocks did not fare as well during 2004 due to domestic regulatory concerns, we liked the international post-secondary industry theme, and the strong business model that Laureate offered relative to many domestic companies. The stock also offered comparatively good value with a lower multiple than many of its peers. Corporate Executive Board, the fourth best performer in the portfolio, is another example of a quality growth company in the Consumer Discretionary sector. This company provides subscription-based research and information services to senior executives in major corporations in order to enhance management practices. With relatively low capital expenditures, the company is able to significantly leverage its services and achieve high margin growth. During the softer economy, we estimated that many new clients put their intentions on hold, and would sign up for services once the economy strengthened. This thesis

22 Annual Report

December 31, 2004

came to fruition this year as subscriptions increased significantly and the market recognized the outstanding potential for solid earnings growth. Corporate Executive Board and Laureate Education continue to be core holdings in the portfolio.

One theme in the portfolio that did particularly well was investment in transportation services companies. Expeditors International, Knight Transportation, and C.H. Robinson were among the top 10 performers in the Fund for the year. Along with strong managements and good business infrastructures, these companies were poised to benefit from economic recovery cycle as product deployment is on the rise.

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

There were a few stocks and themes that did not work as well as we anticipated during 2004. Vistacare Inc, a leading provider of hospice care, was the weakest portfolio performer. The company had experienced softer than anticipated patient admissions growth, and the effect of the cap in Medicare funding for hospice care. We sold the stock due to ongoing concerns about slower growth prospects.

From a thematic perspective, we thought Broadcast Radio would be an area likely to benefit from the economic recovery. The radio industry has been depressed for some time and has not bounced back during the economic recovery. Entercom Communications, a company we like due to their management team and their strong financial discipline, was a weak performer in the portfolio during 2004.

There were several stocks in the specialty retail industry that we liked due to differentiated business models and delivery of products and services, but one that did not meet our expectations was 99 Cents Only Stores. The company had fared well in its home state of California, but ran into significant difficulty executing strategy in newly opened Texas sites. We determined that the company was facing larger concerns, and sold the stock.

What is your current strategy for the year ahead?

Given that the market has experienced two years of strong returns, particularly in the smaller capitalization stocks, we may see a more challenging investment environment in 2005. While earnings growth continues, the pace of growth is slowing. Activity on the part of the Federal Reserve to keep inflation in check, commodity prices and the direction of the dollar will likely influence the domestic equity market.

Since our process incorporates bottom-up stock selection that focuses on companies with strong fundamentals, we hope to uncover stocks that will perform regardless of macroeconomic themes. While it may be difficult to see gains such as the ones we achieved in 2003 and 2004, we are cautiously optimistic on the overall market for 2005.

We believe our high quality growth style of investing will do well as the economy continues on its path of recovery. We appreciate your interest in the Fund.

December 31, 2004

William Blair Funds 23

Small-Mid Cap Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	Year	Since Inception(a)(b)
Small-Mid Cap Growth Fund Class N	13.48	12.80	%
Small-Mid Cap Growth Fund Class I	13.68	13.00
Russell 2500^® Growth Index	14.59	15.68

(a)

Total return is not annualized for periods that are less than a full year.

(b)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2500^™ Growth Index measures the performance of those Russell 2500 companies with above average price-to-book ratios and forcasted growth rates.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

24 Annual Report

December 31, 2004

Small-Mid Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Consumer Discretionary—37.9%
*Bed, Bath and Beyond, Inc.	16,700	$	665
*CarMax, Inc.	18,500		574
CDW Corporation	12,600		836
Cintas Corporation	7,400		325
*Coinstar, Inc	15,005		403
Corporate Executive Board Co.	11,400		763
*Corrections Corporation of America	8,700		352
*Cross Country Healthcare, Inc.	17,200		311
*Entercom Communications Corporation	7,200		258
Fastenal Company	11,800		726
*Getty Images, Inc.	4,900		337
*Hewitt Associates, Inc., Class “A”	17,900		573
*Iron Mountain, Inc.	17,450		532
*Lamar Advertising Company	9,500		406
*Laureate Education, Inc.	23,600		1,041
MSC Industrial Direct Company, Inc.	9,640		347
*O’Reilly Automotive, Inc.	16,000		721
*Shuffle Master, Inc.	7,400		349
Strayer Education, Inc.	2,900		318

			9,837

Health Care—18.9%
*American Healthways, Inc.	15,700		519
*Axcan Pharma, Inc.†	19,100		369
*Cell Therapeutics, Inc.	34,400		280
*Connetics Corporation	11,300		275
*Express Scripts, Inc.	6,900		527
*IDEXX Laboratories, Inc.	5,000		273
*Integra LifeSciences Holdings Corporation	18,920		699
*Kensey Nash Corporation	9,600		332
*Kyphon, Inc.	9,900		255
*Medicines Company	9,900		285
*Patterson Companies, Inc.	6,600		286
*ResMed, Inc.	9,200		470
*Telik, Inc.	17,200		329

			4,899

Technology—15.7%
Adobe Systems, Inc.	9,400		590
*Amis Holdings, Inc.	27,900		461
*Cognos, Inc.†	15,400		678
*Intuit, Inc.	17,900		788
*Jabil Circuit, Inc.	20,700		529
Microchip Technology, Inc.	22,900		611
*OPNET Technologies, Inc.	28,400		239
Xilinx, Inc.	6,600		196

			4,092

*Non-income producing securities

† = U.S. listed foreign security




Issuer	Shares	Value

*Common Stocks—(continued)*
Autos and Transport—7.9%
C.H. Robinson Worldwide, Inc.	8,800	$	489
Expeditors International of Washington	11,300		631
Gentex Corporation	11,100		411
Knight Transportation, Inc.	20,600		511

			2,042

Financial Services—5.7%
East West Bancorp, Inc.	9,000		378
*Fiserv, Inc.	13,900		559
*SunGard Data Systems, Inc.	19,000		538

			1,475

Other Energy—4.4%
Apache Corporation	5,000		253
*Smith International, Inc.	11,600		631
XTO Energy Corporation	7,500		265

			1,149

Producer Durables—2.2%
Pentair, Inc.	13,300		579

Materials and Processing—2.1%
Airgas, Inc.	20,900		554

Utilities—1.0%
*Intrado, Inc.	20,970		254

Total in Common Stock—95.8% (Total cost $22,507)			24,881


*Investment in Affiliate*
William Blair Ready Reserves	976,240		976

Total Investment in Affiliate—3.8% (cost $976)			976

Total Investments—99.6% (cost $23,483)			25,857
Cash and other assets, less liabilities—0.4%			117

Net assets—100%		$	25,974

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 25

LOGO

W. George Greig

INTERNATIONAL GROWTH FUND

The International Growth Fund invests primarily in common stocks of foreign growth companies of all sizes.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The International Growth Fund posted a 18.48% gain (Class N Shares) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 21.36%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

While 2004 started strongly and extended the equity market gains of 2003, sentiment turned negative during mid-2004. In the second quarter concerns arose regarding tightening monetary policy in the United States, coupled with uneasiness about the Chinese government’s ability to engineer a “soft landing” of its rapidly growing economy. During the third quarter increasing energy prices resulting from a supply/demand imbalance, coupled with macroeconomic evidence of slowing growth globally extended the markets’ decline. However, beginning in September 2004 the market began its rally through year end. Gains were spread broadly across regions and sectors, as cyclical concerns regarding the U.S. and Asian economic outlook seemed to recede. In particular, strength in recent U.S. employment reports and relatively steady growth signals in China alleviated pessimism about the global cycle. Relief from the oil price uptrend and a clear and conclusive U.S. election outcome also paid dividends in market psychology.

During the year, value-oriented, or more defensive benchmarks outperformed their growth counterparts by 8.54%, as measured by the MSCI All Country World Index ex-U.S. style indices. Despite 2004’s strong absolute performance, the Fund’s focus on high quality growth names was not rewarded on a relative basis, particularly in Asia and Japan, as they were viewed by investors as the markets most susceptible to slowing global growth and liquidity constraints. The absence of meaningful allocations to Basic Materials, Utilities and Telecommunications stocks also hampered relative Fund performance during this time period.

What sectors had the biggest impact on portfolio performance?

Technology trailed the other sectors during 2004, which negatively affected the Fund’s relative results as it was overweighted in this sector versus the benchmark. Stock selection within information technology was positive. The Fund participated in the strong Energy rally during the year, although it was underweighted versus the Index, which detracted from results. Stock selection across most sectors was positive.

From a regional perspective, the Fund’s emerging markets exposure and stock selection augmented results, as emerging markets outperformed their developed counterparts during the year. The underweighted allocation to Europe-ex UK was a drag on results as this region performed well during the year, aided by the US Dollar’s depreciation relative to the Euro. The portfolio’s small and mid cap names also added value, as smaller companies outperformed their larger capitalization peers.

26 Annual Report

December 31, 2004

What is your outlook for the international markets?

A steady deceleration in economic growth and earnings trends toward sustainable long run levels still seems the likeliest scenario for global stocks. There is no clear basis for anticipating the slowdown to intensify or become unstable in the near term.

Cyclical factors to monitor in the months ahead for signs of stability or reacceleration would include: 1) trends in key technology segments (semiconductors and flat panel displays), 2) trends in bank lending, particularly in Asia; 3) trends in consumption growth in China, Korea and Taiwan; and 4) trends in industrial production and orders growth in Europe and Japan.

December 31, 2004

William Blair Funds 27

International Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		10 Year		Since Inception(a)
International Growth Fund Class N	18.48	%	12.64	%	2.54	%	12.25	%	—
International Growth Fund Class I	18.79		12.90		2.80		—		9.84	%
MSCI All Country World Free Ex-US Index	21.36		13.56		0.02		6.02		3.19
Lipper International Index	18.60		11.60		(0.90	)	7.20		—

(a)

For the period from October 1, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Morgan Stanley Capital International (MSCI) All Country World Free Ex-U.S. Index is an unmanaged index that includes developed and emerging markets and reduced Japanese portion, making it more comparable to the International Growth Fund in terms of investment approach.

The Lipper International Index is a composite of international growth mutual funds.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

28 Annual Report

December 31, 2004

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Europe—30.2%*
Austria—1.5%
Erste Bank Der Oester (Banking)	846,000	$	44,945

Estonia—0.5%
Hansabank (Banking)	1,214,083		15,809

Finland—0.7%
Nokian Renkaat Oyj (Automotive)	130,400		19,680

France—8.0%
Christian Dior (Apparel and luxury goods)	221,304		14,991
Essilor International (Health care supplies)	419,300		32,802
Hermes International SCA (Apparel & luxury goods)	70,800		14,094
*JC Decaux (Media)	1,236,100		35,986
Klepierre (Real estate)	169,800		14,977
*Orpea (Hospital and nursing management)	407,221		14,353
Sanofi-Avenits (Pharmaceuticals)	1,014,500		80,833
Technip-Coflexip S.A. (Construction)	171,400		31,587

			239,623

Germany—6.4%
Celesio AG (Pharmaceuticals)	354,700		28,808
Continental AG (Diversified manufacturing)	463,600		29,371
Did Deutscher Industrie Svc (Commercial services)	226,461		8,889
E.ON AG (Energy)	498,200		45,130
GFK AG (Commercial services)	250,948		9,766
Puma AG (Consumer non-durables)	49,985		13,711
SAP AG (Software)	316,800		55,989

			191,664

Greece—2.7%
Coca-Cola Hellenic Bottling S.A. (Beverages)	854,400		20,762
EFG Eurobank (Banking)	613,800		21,012
Folli Follie S.A. (Apparel and footwear retailer)	250,200		7,314
National Bank of Greece (Banking)	926,820		30,526

			79,614

Ireland—1.2%
Anglo Irish Bank plc (Finance)	1,020,200		24,706
*Grafton Group (Wholesale distributors)	1,133,900		12,288

			36,994

Italy—2.5%
Banco Popolare Di Verona E N (Banking)	1,797,700		36,432
Credito Emiliano SpA (Banking)	1,297,400		12,845
Hera SpA (Electric Services)	3,901,699		11,167
Pirelli & C Real Estate (Real estate development)	271,052		14,166

			74,610

Norway—1.4%
Statoil Asa (Oil and gas)	2,625,100		41,225

Spain—0.9%
Cortefiel S.A. (Specialty retail)	514,400		8,111
Grupo Ferrovial S.A. (Industrial services)	367,000		19,522

			27,633



Issuer	Shares	Value

*Common Stocks—Europe—30.2%—(continued)*
Sweden—1.8%
*Ericsson LM-B Shares (Communications equipment)	17,387,800	$	54,684

Switzerland—2.6%
*Actelion (Biotechnology)	110,100		11,241
*Geberit AG (Building products)	13,200		9,589
Serono S.A., Class “B” (Biotechnology)	43,600		28,448
UBS AG (Banking)	345,200		28,825

			78,103


*United Kingdom—15.2%*
BG Group plc (Industrial services)	8,218,500		55,750
*Cairn Energy plc (Petroleum refining)	629,800		13,156
Capita Group plc (Commercial services)	4,336,900		30,312
Carnival plc (Hotels, restaurants and leisure activities)	1,081,200		65,845
Cattle’s Holdings plc (Finance and leasing)	1,983,900		13,936
Intertek Group (Diversified commercial services)	879,305		11,856
Johnston Press plc (Publishing)	1,254,100		13,009
MAN Group plc (Finance)	513,800		14,473
McCarthy & Stone plc (Real estate)	825,900		9,405
*Michael Page International (Personnel services)	3,394,200		12,147
Morrison Supermarkets (Groceries)	4,687,100		18,581
Next plc (Multiline retail)	738,400		23,316
Reckitt Benckiser plc (Household products)	1,478,500		44,511
Smith & Nephew plc (Health care equipment and supplies)	565,900		5,780
Standard Chartered plc (Banking)	2,826,400		52,371
Tesco plc (Food retail)	11,763,400		72,449

			456,897


*Canada—6.2%*
*Alimentation Couche-Tard—Class “B” (Food retail)	527,400		15,598
Canadian National Railway Company (Railroads)	483,700		29,446
Four Seasons Hotel, Inc. (Hotels)	270,600		22,118
Manulife Financial Corp. (Life and health insurance)	594,100		27,421
*Precision Drilling Corp. (Drilling)	270,900		17,045
*Research in Motion Ltd. (Wireless telecommunication)	234,800		19,323
*Rona, Inc. (Building materials)	265,800		9,035
*Shoppers Drug Mart Corp. (Retail trade)	461,700		14,336
Suncor Energy, Inc. (Energy minerals)	883,300		31,202

			185,524


*Japan—19.0%*
Aeon Credit Service Co., Ltd. (Consumer finance)	244,700		18,178
Aeon Mall Co., Ltd. (Real estate)	206,900		14,685
Arisawa Manufacturing Co. (Chemicals)	260,000		11,766
Arnest One Corp. (Real estate)	372,900		9,460
Askul Corporation (Retail trade)	153,300		9,414
Canon, Inc. (Office electronics)	797,500		43,172
*Chiyoda Corp. (Construction)	1,952,000		14,249

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 29

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Japan—19.0%—(continued)*
Fast Retailing (Specialty retail)	374,600	$	28,533
Hino Motors Ltd. (Trucks, construction and farm machinery)	3,205,500		23,841
Hoya Corporation (Electronic technology)	378,200		42,599
Keyence Corporation (Electronic technology)	92,360		20,680
Misumi Corp. (Trading companies and distributors)	188,150		5,463
Mitsubishi Tokyo Financial (Banking)	2,192		22,380
Nakanishi Inc. (Medical specialties)	119,000		8,139
Neomax Co., Ltd. (Electronic equipment and instruments)	498,400		8,813
Nidec Corporation (Electronic technology)	231,900		28,305
Nitori Company Ltd. (Specialty stores)	184,860		12,024
Orix Corporation (Consumer finance)	307,900		42,008
Park 24 Co., Ltd. (Commercial services)	549,200		9,833
Pasona Inc. (Personnel services)	2,043		6,208
Point Inc. (Apparel and footwear retail)	340,900		11,268
Ryohin Keikaku Co. (Retail stores)	207,700		10,401
Sharp Corp. (Electronics)	2,417,200		39,453
*Shinsei Bank, Ltd. (Banking)	3,262,000		22,177
SMC Corporation (Trucks, construction and farm machinery)	157,200		17,986
Sumitomo Trust & Banking Co. (Finance)	4,421,000		31,951
Sundrug Co., Ltd. (Drug stores)	175,400		6,162
Toto Ltd. (Building products)	1,831,000		17,450
Trend Micro, Inc. (Application software)	430,000		23,303
USS Co., Ltd. (Commercial services)	126,800		10,615
Yamada Denki Company (Retail trade)	18,900		809

			571,325


*Emerging Asia—8.8%*
India—3.5%
Bharat Forge Ltd. (Machinery)	422,048		10,304
*Bharti Tele-Ventures (Wireless telecommunication services)	4,374,800		21,880
HDFC Bank (Banking)	1,240,400		14,928
Housing Development Finance Corp. (Financial services)	971,900		17,181
Infosys Technologies, Ltd. (Consulting and software services)	596,824		28,863
Ranbaxy Laboratories (Pharmaceuticals)	448,900		13,032

			106,188

Indonesia—0.6%
*Bank Rakyat Indonesia (Banking)	58,813,000		18,221

Malaysia—0.2%
*Airasia Bhd (Air transport)	11,964,000		5,226

South Korea—2.8%
Hyundai Motor Co., Ltd. (Automobiles)	771,800		41,234
Samsung Electronics Co. (Semiconductors)	97,800		42,490

			83,724

Taiwan—1.7%
EVA Airways Corp. (Airlines)	20,980,910		10,304
Hon Hai Precision Industry (Computers)	8,563,312		39,586

			49,890



Issuer	Shares	Value

*Asia—7.1%*
Australia—3.8%
Billabong International Ltd. (Apparel and luxury goods)	1,406,700	$	12,606
Macquarie Bank, Ltd. (Financial services)	769,200		28,032
Perpetual Trustees Australia (Investment managers)	293,200		14,426
Sigma Company, Ltd. (Medical distributors)	1,655,110		12,057
Toll Holdings, Ltd. (Trucking)	2,341,800		23,455
Wesfarmers Ltd. (Diversified industrials)	777,300		24,232

			114,808

Hong Kong—3.2%
China Insurance International (Insurance)	16,510,000		6,802
Cnooc Ltd. (Oil and gas)	87,777,000		46,998
Esprit Holdings Ltd. (Apparel, footwear and retail)	3,268,000		19,750
Techtronic Industries Co. (Consumer durables)	10,216,200		22,265

			95,815

Singapore—0.1%
Osim International Ltd. (Consumer sundries)	6,374,900		3,466


*Emerging Latin America—5.9%*
Brazil—1.0%
Cia De Concessoes (Transportation)	223,800		4,894
*Gol Linhas Aereas Int S.P—ADR (Air transport)	357,800		11,407
*Natura Cosmeticos S.A. (Cosmetics)	474,300		13,834

			30,135

Chile—1.9%
Banco Santander SP—ADR (Banking)	432,700		14,651
Cencosud S.A.—ADR 144A (Retail stores)	679,930		17,985
Lan Chile S.A.—ADR (Airlines)	448,900		14,454
S.A.C.I. Falabella (Department stores)	4,567,464		11,082

			58,172

Mexico—3.0%
America Movil S.A. (Communications)	16,078,100		42,228
*Corporacion Geo Sa De Cv (Real estate)	5,454,900		10,908
*Urbi Desarrollos Urbanos S.A. (Household durables)	3,340,200		14,586
Walmart de Mexico (Retail trade)	6,340,300		21,775

			89,497


*Emerging Europe, Mid-East, Africa—3.4%*
Egypt—0.9%
Orascom Contruction Industry (Construction)	1,144,741		13,669
*Orascom Telecommunication Holding GDR (Telecommunications)	611,400		12,913

			26,582

Hungary—0.9%
OTP Bank (Banking)	843,700		25,867

See accompanying Notes to Financial Statements.

30 Annual Report

December 31, 2004

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Emerging Europe, Mid-East, Africa—3.4%—(continued)*
South Africa—1.6%
Edgars Consolidated Stores (Apparel, footwear and retail)	436,363	$	23,359
*MTN Group Ltd. (Telecommunication services)	2,508,000		19,272
Network Healthcare Holdings (Health services)	7,220,000		6,442

			49,073

Total Common Stock—95.8% (cost $2,106,999)			2,874,994


*Preferred Stock*
Brazil—1.0%
Banco Itau Holding (Banking)	205,910		30,921

Total Preferred Stock—1.0% (cost $19,338)			30,921

*Non-income producing securities

ADR = American Depository Receipt

GDR = Global Depository Receipt

VRN = Variable Rate Note

All securities excluding those traded on exchanges in this hemisphere, are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004, the Fund’s Portfolio of Investments includes the following currency categories:


Euro		25.1%
Japanese Yen		19.7%
British Pound Sterling		15.7%
Canadian Dollar		6.4%
Australian Dollar		4.0%
Indian Rupee		3.7%
Hong Kong Dollar		3.3%
Mexico Nuevo Peso		3.1%
South Korean Won		2.9%
Swiss Franc		2.7%
United States Dollar		2.5%
Swedish Krona		1.9%
Taiwan Dollar		1.7%
Brazilian Real		1.7%
South African Rand		1.7%
All other currencies		3.9%

		100.0%



Issuer	Shares or Principal Amount		Value

*Investment in Affiliate*
William Blair Ready Reserves Fund		39,866,050	$	39,866

Total Investments in Affiliate—1.3% (cost $39,866)				39,866


*Short-Term Investments*
American Express Demand Note, VRN 2.24% due 1/3/05	$	24,538,000		24,538
Prudential Funding Demand Note, VRN 2.243% due 1/3/05		21,204,000		21,204

Total Short-term Investments—1.5% (cost $45,742)				45,742

Total Investments—99.6% (cost $2,211,945)				2,991,523
Cash and other assets, less liabilities—0.4%				9,911

Net assets—100.0%			$	3,001,434

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 31

LOGO

W. George Greig

INTERNATIONAL EQUITY FUND

The International Equity Fund invests primarily in common stocks of large and medium-sized companies included in the Morgan Stanley Capital International All Country World Free ex-U.S. Index.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform in 2004? How did the Fund’s performance compare to its benchmark?

The William Blair International Equity Fund commenced operations on May 24, 2004. Through the period ended December 31, 2004, the Fund posted a gain of 13.30%. By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 22.61%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

Throughout the year, value-oriented, or more defensive benchmarks outperformed their growth counterparts by 8.54%, as measured by the MSCI ACWI ex-US style indices. Despite 2004’s strong absolute performance, the Fund’s focus on high quality growth names was not rewarded on a relative basis, as higher allocations to Information Technology and Consumer Discretionary stocks at the expense of Basic Materials, Utilities and Telecommunications stocks hampered relative Fund performance during this time period. In addition the Fund’s cash position in the fourth quarter detracted from results, as the markets rallied strongly in the fourth quarter.

What sectors or regions had the biggest impact on portfolio performance?

The Fund’s emerging markets exposure and stock selection added value since inception as emerging markets outperformed other world markets. Stock selection was strong across sectors, with the exception of Health Care and Materials. Relative weakness in Health Care was due to several stock specific issues, while the portfolio’s high quality growth holdings in Materials lagged their deeper value counterparts within the sector. However, the largest contributor to underperformance during the period resulted from the Fund’s overweighting in the growth-oriented sectors of the market, which trailed the defensive, value-oriented sectors.

What is your outlook for the international markets?

Cyclical factors to monitor in the months ahead for signs of stability or reacceleration would include: 1) trends in key technology segments (semiconductors and flat panel displays)’ 2) trends in bank lending, particularly in Asia; 3) trends in consumption growth in China, Korea and Taiwan; and 4) trends in industrial production and orders growth in Europe and Japan.

32 Annual Report

December 31, 2004

International Equity Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	Since Inception(a)(b)
Class N	13.30	%
Class I	13.70
Russell 3000^® Growth Index
S&P Index
MSCI All Country World Free Ex-US	22.61

(a)

For the period from May 24, 2004 to December 31, 2004.

(b)

Total return is not annualized for periods that are less than a full year.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S. Index is an unmanaged index that includes developed and emerging markets and reduced Japanese portion, making it more comparable to the International Growth Fund in terms of investment approach.

The Lipper International Index is a composite of international growth mutual funds.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 33

International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Europe—31.6%*
Austria—2.1%
Erste Bank Der Oester (Banking)	3,800	$	202

France—7.0%
Dassault Systemes S.A. (Software)	1,900		96
Essilor International (Health care supplies)	1,300		102
Hermes International SCA (Apparel and luxury goods)	240		48
*JC Decaux (Media)	2,000		58
LVMH Moet-Hennessy Louis Vuitton (Luxury goods)	600		46
Sanofi-Aventis (Pharmaceuticals)	4,150		331

			681

Germany—9.8%
Celesio AG (Pharmaceuticals)	2,400		195
Continental AG (Diversified manufacturing)	2,375		150
E.ON AG (Energy)	2,620		237
Puma AG (Consumer non-durables)	225		62
SAP AG (Software)	1,725		305

			949

Greece—2.6%
Coca-Cola Hellenic Bottling S.A. (Beverages)	2,450		59
EFG Eurobank (Banking)	2,800		96
National Bank of Greece (Banking)	3,000		99

			254

Ireland—0.9%
Anglo Irish Bank plc (Finance)	3,900		94

Italy—1.5%
Banco Popolare di Verona E N (Banking)	7,200		146

Norway—2.0%
Statoil ASA (Oil and gas)	12,200		192

Spain—0.9%
Grupo Ferrovial S.A. (Industrial services)	1,600		85

Sweden—2.2%
*Ericsson LM-B Shares (Communications equipment)	67,500		212

Switzerland—2.6%
Serono S.A., Class “B” (Biotechnology)	130		85
UBS AG (Banking)	1,960		164

			249


*United Kingdom—16.4%*
BG Group plc (Industrial services)	39,900		271
Capita Group plc (Commercial services)	16,600		116
Carnival plc (Hotels, restaurants and leisure activities)	4,000		244
MAN Group plc (Finance)	1,700		48
Next plc (Multiline retail)	2,900		91
Reckitt Benckiser plc (Household products)	7,900		238
Smith & Nephew plc (Health care equipment and supplies)	1,700		17
Standard Chartered plc (Banking)	14,200		263
Tesco plc (Food retailer)	49,400		304

			1,592



Issuer	Shares	Value

*Japan—19.5%*
Askul Corporation (Retail trade)	600	$	37
Canon, Inc. (Office electronics)	5,400		292
Denso Corporation (Auto parts manufacturing)	8,200		220
Fast Retailing (Specialty retail)	1,300		99
Hino Motors Ltd. (Trucks, construction and farm machinery)	14,600		109
Hoya Corporation (Electronic technology)	1,200		135
Keyence Corporation (Electronic technology)	400		89
Nidec Corporation (Electronic technology)	800		98
Orix Corporation (Consumer finance)	1,100		150
Sharp Corporation (Electronics)	13,100		214
*Shinsei Bank, Ltd. (Banking)	14,500		99
SMC Corporation (Trucks, construction and farm machinery)	800		91
Sumitomo Trust & Banking Co. (Finance)	20,600		149
Toto Ltd. (Building products)	4,300		41
Yamada Denki Company (Retail trade)	1,500		64

			1,887


*Bermuda—2.0%*
*Accenture (Information technology)	7,200		194


*Canada—6.2%*
*Alimentation Couche-Tard—Class “B” (Food retail)	1,300		39
Canadian National Railway Co. (Railroads)	1,500		91
Manulife Financial Corporation (Life and health insurance)	2,200		102
*Precision Drilling Corporation (Drilling)	1,100		69
*Research in Motion Ltd. (Wireless telecommunication)	1,400		115
*Shoppers Drug Mart Corporation (Retail trade)	1,800		56
Suncor Energy, Inc. (Energy minerals)	3,600		127

			599


*Asia—7.6%*
Australia—4.2%
Macquarie Bank, Ltd. (Financial services)	4,900		178
Toll Holdings, Ltd. (Trucking)	7,800		78
Wesfarmers Ltd. (Diversified Industrials)	4,800		150

			406

Hong Kong—3.4%
Cnooc Ltd. (Oil and gas)	241,300		129
Esprit Holdings Ltd. (Apparel, footwear and retail)	16,500		100
Techtronic Industries Co. (Consumer durables)	45,300		99

			328


*Emerging Asia—5.0%*
India—1.8%
HDFC Bank (Banking)	4,100		49
Infosys Technologies Ltd. (Consulting and software services)	2,500		121

			170

South Korea—3.2%
Hyundai Motor Co., Ltd. (Automobiles)	2,600		139
Samsung Electronics Co. (Semiconductors)	400		174

			313

See accompanying Notes to Financial Statements.

34 Annual Report

December 31, 2004

International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Emerging Latin America—2.0%*
Mexico—2.0%
America Movil S.A. (Communications)	39,800	$	104
Walmart de Mexico (Retail trade)	26,200		90

			194


*Emerging Europe, Mid-East, Africa—1.6%*
Russia—0.5%
*Mobile TeleSystems ADR (Wireless Telecommunication)	330		46

South Africa—1.1%
Standard Bank Group Ltd. (Banking)	9,117		106

Total Common Stock—91.9% (cost $8,513)			8,899


*Preferred Stocks*
Brazil—1.2%
Banco Itau SA (Banking)	800		120

Total Preferred Stocks—1.2% (cost $80)			120

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security

VRN = Variable Rate Note

All securities excluding those traded on exchanges in this hemisphere, are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004, the Fund’s Portfolio of Investments includes the following currency categories:


Euro		26.7%
Japanese Yen		20.9%
British Pound Sterling		17.7%
Canadian Dollar		6.6%
Australian Dollar		4.5%
Hong Kong Dollar		3.6%
South Korean Won		3.5%
Swiss Franc		2.8%
United States Dollar		2.7%
Swedish Krona		2.4%
Mexico Nuevo Peso		2.2%
Norwegian Krone		2.1%
Indian Rupee		1.9%
Brazilian Real		1.3%
South African Rand		1.1%

		100.0%



Issuer	Shares or Principal Amount		Value

*Investment in Affiliate*
William Blair Ready Reserves Fund		219,072	$	219

Total Investment in Affiliate—2.3% (cost $219)				219


*Short-Term Investments*
American Express Demand Note, VRN 2.24% due 01/3/05	$	207,000		207

Total Short-term Investments—2.1% (cost $207)				207

Total Investments—97.5% (cost $9,019)				9,445
Cash and other assets, less liabilities—2.5%				244

Net assets—100.0%			$	9,689

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 35

LOGO

[PHOTO]

MITCHEL

David S. Mitchell

LOGO

Capucine “Cappy” Price

VALUE DISCOVERY FUND

The Value Discovery Fund invests in small companies that we believe offer a long-term investment value.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Value Discovery Fund posted a 12.05% gain on a total return basis (Class N shares) during the 12 months ended December 31, 2004. By comparison, the Fund’s primary benchmark, the Russell 2000^® Index, rose 18.33%, while the Russell 2000^® Value Index, increased 22.25%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

Even though our strategy produced mid double digit returns for the year, 2004 was the most difficult year we have had relative to the Russell 2000 Value Index. From analysis of our results, we conclude that three factors contributed to our underperformance. First, non-energy commodity driven stocks provided a significant boost to the benchmark’s performance. We believe that non-energy commodity companies tend be poor long term investments and are generally trading vehicles at best. As a result, we tend to avoid this area given our long term, low turnover approach. Consequently, we did not participate in this segment of market performance.

Secondly, while our sell discipline continues to provide long term value it can occasionally dampen near term results. This is especially true in instances where markets are strong for an extended period with solid underlying fundamentals but stretched valuations. After two very strong performance years for small cap value stocks, it would be unusual if certain holdings did not see extended valuations. Sticking to our discipline, we eliminated several names for this reason. Short term performance would have been significantly better had we ignored valuation and continued to hold these securities. However, we are unwilling to alter our approach, incur potential style drift, and jeopardize our mandate to garner short term gains at the detriment of long term performance.

Lastly, we made some stock picks that turned out to be mistakes.

What were among the best performing sectors and investments for the Fund?

Producer Durables was the best performing sector for the Fund during 2004, boosted in large measure by the strong showings of two stocks, General Cable, a manufacturer and marketer of copper, aluminum and fiber optic wire and cable, and by Spatialight, a designer, manufacturer and marketer of liquid crystal displays for computers, video and other applications. The Fund’s investments in General Cable and Spatialight were up 83.2% and 73.5%, respectively.

Autos and Transportation was another strong performing sector for the Fund. Leading this sector for the Fund was Borg-Warner, a supplier of engine systems and components primarily for automotive powertrain applications. Borg-Warner finished the year posting a 28.7% increase.

36 Annual Report

December 31, 2004

What were among the weakest performing sectors for the Fund?

Were there any investments that did not measure up to your expectations?

Consumer Discretionary and Materials and Processing were weak sectors for the Fund, with two investments standing out as poor stock picks during 2004; Interstate Bakeries (IBC) and Integrated Electrical Services (IES). To recap, IBC (the long standing manufacturer of Twinkies, Wonder Bread, and many other strong national brand names) filed for protection under Chapter 11 in an effort to combat an unfavorable union contact. Holding a position in a Chapter 11 scenario is outside our discipline and we sold the stock. Subsequent to the Chapter 11 filing, the stock has gone up confirming our belief that the company had the financial strength to weather its difficulties without seeking Chapter 11 protection.

IES encountered difficulty when their auditors would not sign off on their third quarter report pending a re-audit of IES’s systems. The auditors were unwilling/unable to perform the re-audit in a timely fashion resulting in a delay in IES’s filing. The market reacted quickly and harshly to the situation and we ultimately sold the stock.

What is your current strategy? How is the Fund positioned?

Following the robust performance experienced in the small cap arena in 2004, many market indicators point towards overvaluation of small cap stocks. Consequently, we believe our strategy of investing in well managed undervalued companies gives us a significant advantage in the coming year.

In conclusion, while we understand the performance difficulties we experienced in 2004, we are none-the-less disappointed that we fell short of expectations. That being said, we remain true to our philosophy and investment discipline. We appreciate your confidence in us and thank you for investing in the Fund.

December 31, 2004

William Blair Funds 37

Value Discovery Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		Since Inception
Value Discovery Fund Class N	12.05	%	11.71	%	14.23	%	13.49	%(a)
Value Discovery Fund Class I	12.18		11.97		14.51		16.02	(b)
Russell 2000^® Index	18.33		11.48		6.61		9.15	(a)
							9.72	(b)
Russell 2000^® Value Index	22.25		16.50		17.23		13.30	(a)
							16.61	(b)

(a)

For the period from December 23, 1996 (Commencement of the Class) to December 31, 2004.

(b)

For the period from October 1, 1999 (Commencement of the Class) to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2000^® Index is the Fund’s primary benchmark. The Russell 2000^® Index is unmanaged composite of the smallest 2000 stocks of the Russell 3000 Index.

The Russell 2000^® Value Index consists of small-capitalization companies with below average price-to-book ratios and forecasted growth rates.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

38 Annual Report

December 31, 2004

Value Discovery Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Financial Services—25.7%
Agree Realty Corporation	100,560	$	3,187
American Financial Realty Trust	281,500		4,555
AmerUs Group, Class “A”	122,135		5,533
Astoria Financial Corporation	94,070		3,760
Brandywine Realty Trust	41,485		1,219
City Bank (Lynnwood, WA)	5,163		187
Donegal Group, Inc., Class “A”	130,595		2,995
Equity Inns, Inc.	84,000		986
First Financial Holdings, Inc.	75,765		2,481
Flagstar Bancorp, Inc.	194,490		4,395
*Franklin Bank Corporation	214,640		3,917
*Jones Lang LaSalle, Inc	121,970		4,563
*KMG America Coporation	385,550		4,241
*Meadowbrook Insurance Group, Inc.	515,290		2,571
National Financial Partners Corporation	112,880		4,380
Ryder System, Inc.	76,750		3,666
*U.S.I. Holdings Corporation	157,686		1,824
*United Rentals, Inc.	263,700		4,984
Winston Hotels, Inc.	313,660		3,704

			63,148

Consumer Discretionary—25.2%
*BJ’s Wholesale Club, Inc.	191,335		5,574
Cadmus Communications Corporation	174,916		2,239
Christopher & Banks Corporation	220,050		4,060
*Elizabeth Arden, Inc.	346,000		8,214
Ethan Allen Interiors Inc.	90,580		3,625
Hancock Fabrics, Inc.	225,085		2,334
*Heidrick & Struggles International	78,035		2,674
*K2, Inc.	357,290		5,674
Michaels Stores, Inc.	89,725		2,689
Nautilus Group, Inc.	305,570		7,386
*Navigant Consulting, Inc.	153,545		4,084
*Restoration Hardware, Inc.	677,334		3,888
*Sharper Image Corporation	149,250		2,813
*Tech Data Corporation	147,820		6,711

			61,965

Producer Durables—9.8%
*Agco Corporation	174,740		3,825
*Artesyn Technologies, Inc.	403,235		4,557
*Belden, Inc.	233,930		5,427
General Cable Corporation	579,070		8,020
*Spatialight, Inc.	258,915		2,317

			24,146

Technology—9.8%
*Borland Software Corporation	578,985		6,763
*Carrier Access Corporation	366,625		3,915
*Checkpoint Systems, Inc.	130,848		2,362
*Overland Storage, Inc.	246,295		4,111
*SPSS, Inc.	155,615		2,434
*Sykes Enterprises, Inc.	57,800		402
*Tier Technologies, Inc., Class “B”	434,227		4,016

			24,003

*Non-income producing

**Fair Valued pursuant to Valuation Procedures adopted by the Board of Trustees. The holding represents 0.51% of the Fund’s net assets at December 31, 2004.



Issuer	Shares or Principal Amount		Value		��

*Common Stocks—(continued)*
Materials and Processing—6.5%
Jacuzzi Brands, Inc.		430,738	$	3,747
Polyone Corporation		463,749		4,202
Spartech Corporation		150,320		4,072
Watsco, Inc.		112,805		3,973

				15,994

Other Energy—6.1%
Consol Energy, Inc.		166,596		6,839
*Forest Oil Corporation		194,255		6,162
*Newpark Resources, Inc.		414,940		2,137

				15,138

Health Care—4.8%
*Albany Molecular Research		182,210		2,030
Alpharma, Inc., Class “A”		135,500		2,297
*Discovery Partners International, Inc.		468,149		2,224
*Encore Medical Corporation		776,340		5,271

				11,822

Consumer Staples—3.3%
*Del Monte Foods Company		455,355		5,018
*Hain Celestial Group, Inc.		145,178		3,001

				8,019

Autos and Transportation—3.7%
BorgWarner, Inc.		116,780		6,326
*SCS Transportation, Inc.		123,340		2,882

				9,208

Utilities—2.5%
Atmos Energy Corporation		227,135		6,212

Total Common Stock—97.4% (cost $177,384)				239,655


*Convertible Bonds*
Midwest Express Holdings, 6.750%, due 10/01/08**	$	2,157,000		1,255

Total Convertible Bonds—0.5% (cost $2,157)				1,255


*Investment in Affiliate*
William Blair Ready Reserves Fund		6,901,159		6,901

Total Investment in Affiliate—2.8% (cost $6,901)				6,901

Total Investments—100.7% (cost $186,442)				247,811
Liabilities, plus cash and other assets—(0.7)%				(1,635	)

Net assets—100.0%			$	246,176

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 39

LOGO

James S. Kaplan

LOGO

Christopher T. Vincent

INCOME FUND

The Income Fund invests in high-grade intermediate-term debt securities.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Income Fund posted a 2.61% gain on a total return basis (Class N Shares) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the Lehman Intermediate Government/Credit Bond Index, rose 3.04%, while the Fund’s peer group, the Morningstar Short-term Bond Category, increased 1.60%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

It was an excellent year for investors in virtually every single non-U.S. Treasury asset class, such as corporate bonds, mortgage- and asset-backed securities. Every one of these sectors posted positive excess returns for the year, when compared to U.S. Treasury securities.

The Fund maintained an overweight position in corporate, mortgage and asset-backed securities throughout the year, and this strategy of emphasizing non-Treasury securities was a successful one for the Fund.

Over the course of the year there was also a very significant flattening of the yield curve. For example, 2-year Treasury note yields rose from 1.82% on December 31, 2003 to 3.07% on December 31, 2004. Meanwhile, the yield on 10-year Treasury notes decreased slightly during the same period, from 4.25% to 4.22%. The rise in short-term rates over the course of the year mirrored the signs of improved business confidence in the economy and its prospects, including stronger employment growth.

At the same time, the Federal Reserve raised short-term interest rates five times during 2004—each time by a quarter of a percentage point, in an effort to restore rates to more normalized historical levels.

The Fund benefited from maintaining a more defensive posture than that of the Fund’s benchmark. However, the fact that the Fund took on less duration risk (duration is a measure of the price sensitivity of a bond) accounts for the Fund’s slight underperformance versus the benchmark. Said another way, the Fund’s defensive posture helped mitigate losses from rising short-term interest rates, but the Fund also did not participate to the extent the benchmark did from any price gains in longer-term securities. Bonds with longer durations outperformed short-term term bonds.

Which investment strategies enhanced the Fund’s return? Were there any investment strategies that produced the best results?

Our investment strategy throughout the year focused on exploiting the yield advantage of corporate, mortgage and asset-backed securities versus U.S. Treasury securities. These securities have generated higher yields and exhibited relatively stable returns for the Fund.

Corporate bond spreads were underpinned by a lack of supply and a dearth of new issuance. In addition, as corporations have benefited from productivity gains, credit quality has

40 Annual Report

December 31, 2004

improved. As a result of the improved credit quality, there have been fewer downgrades of corporate issues and an increased number of upgrades, when compared to the environment several years ago.

In contrast to 2003, the market evolved from a period where corporate bonds were too cheap—reflecting a lack of demand in the aftermath of a period of corporate scandals—to a period during the first quarter of this year marked by fair value and renewed investor confidence, and finally to an environment in the second half of this year in which there has been less discrimination in terms of bond valuations.

What were among the weakest performing sectors for the Fund?

There really was not any sector that stood out in terms of weaker-than expected performance during the year. As mentioned in our previous report, one asset-backed security was unexpectedly downgraded by a rating agency during the first quarter, which acted as a slight drag on portfolio performance during the first half of the year. That security was subsequently sold out of the Fund’s portfolio of investments.

What is your current strategy? How is the Fund positioned?

With further interest rate hikes expected by the Federal Reserve, we believe that the yield curve will continue to flatten. We have the Fund positioned defensively, attempting to minimize exposure to interest rates. Although our forecast is for rates to increase, good (low) inflation fundamentals and solid foreign demand for U.S. debt securities should keep our domestic rates from rising dramatically.

We believe the U.S. economy will grow in the 3-5% range in 2005. Credit fundamentals are positive. However, a dearth of fixed rate investment grade industrial supply has kept risk premiums (spreads) on corporate bonds very narrow. We are concerned about shareholder-enhancing activity, initiated by management, which may degrade corporate credit fundamentals. Share buy-backs, increased leverage and merger and acquisition activity to date has been modestly negative. More egregious actions would make us reduce holdings in the sector. By and large, fundamental and technical considerations look good for the mortgage- and asset-backed securities markets where we invest. Our concerns with the mortgage-backed and asset-backed securities markets center around valuation. Our strategy of favoring non-Treasury sectors of the bond market will continue, but we will be looking to make adjustments if warranted.

Corporate bonds have had a great run the last two years, particularly BBB-rated securities. Given our concerns regarding valuations and potential threats to fundamentals, we currently have a bias toward upgrading portfolio credit quality and being judicious in our use of BBB-rated names. In structure, our view on interest rates will likely lead us to continue to emphasize coupon and income-producing securities which produce generous cash flow. These securities should provide “extension” protection, and allow us to reinvest at higher yields if rates move higher during the next stages of the Fed’s tightening cycle.

We continue to favor being defensive and emphasizing non-Treasury sectors. Our enthusiasm for maintaining this strategy will be driven by future changes in valuations and fundamentals.

December 31, 2004

William Blair Funds 41

Income Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		3 Year		5 Year		10 Year		Since Inception(a)
Income Fund Class N	2.61	%	4.71	%	6.24	%	6.35	%	—	%
Income Fund Class I	2.79		4.84		6.40		—		6.11
Lehman Intermediate Government Credit Bond Index	3.04		5.68		7.21		7.15		6.84

(a)

For the period from October 1, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Lehman Intermediate Government/Credit Bond Index indicates broad intermediate government/corporate bond market performance.

This report identifies the Fund’s investments on December 31, 2004. These holdings are subject to change. Not all investments in the Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

42 Annual Report

December 31, 2004

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	Principal Amount	Value

*U.S. Government and U.S. Government Agency—45.2%*
U.S. Treasury—4.6%
U.S. Treasury Note, 6.000%, due 8/15/09	$ 2,025	$2,233
U.S. Treasury Note, 6.500%, due 2/15/10	8,075	9,142
U.S. Treasury Note, 4.750%, due 5/15/14	2,000	2,084

Total U.S. Treasury Obligations	12,100	13,459

Government National Mortgage Association (GNMA)—2.8%
#589335, 6.500%, due 10/15/22	2,929	3,105
#616250, 6.000%, due 2/15/04	2,788	2,908
#2002-48, Tranche 0B, 6.000%, due 5/16/30	2,250	2,305

Total Government National Mortgage Association	7,967	8,318

Small Business Administration—0.01%
Receipt for Multiple Originator Fees, #3, 0.755%, due 11/01/08 (Interest Only) WAC	—	48

Federal Home Loan Mortgage Corp. (FHLMC)—15.5%
FDIC REMIC Trust, 96-C1, 7.250%, due 5/25/26	952	952
#G10067, 7.000%, due 1/1/08	819	853
#G10147, 8.500%, due 2/1/08	241	251
#1601, Tranche PJ, 6.000%, due 10/15/08, VRN	2,200	2,273
#1612, Tranche SE, 8.100%, due 11/15/08, VRN	1,216	1,267
# E80050, 6.000%, due 10/1/09	1,160	1,211
#G90028, 7.000%, due 5/15/09	768	810
#G90019, 7.500%, due 12/17/09	884	935
7.000%, due 3/15/10	5,575	6,367
#E65418, 7.000%, due 8/1/10	727	757
#G10457, 7.000%, due 2/1/11	835	885
#E00436, 7.000%, due 6/1/11	789	836
#G10708, 6.500%, due 8/1/12	483	512
#E91999, 5.000%, due 10/1/12	1,421	1,448
#G11218, 7.000%, due 10/1/12	261	276
#E96147, 5.000%, due 5/1/13	2,213	2,251
#E95846, 4.500%, due 5/1/13	1,712	1,723
#G10839, 5.500%, due 10/1/13	2,005	2,077
#E72924, 7.000%, due 10/1/13	1,923	2,038
#E00639, 5.000%, due 3/1/14	2,504	2,563
#E81908, 8.500%, due 12/1/15	327	349
#G90022, 8.000%, due 9/17/16	1,392	1,480
#G11486, 7.500%, due 4/1/17	1,952	2,071
#E90398, 7.000%, due 5/1/17	2,371	2,514
#M30028, 5.500%, due 5/1/17	695	726
#G11549, 7.000%, due 7/1/17	1,600	1,696
#G90027, 6.000%, due 11/15/17	2,386	2,513
#C67537, 9.500%, due 8/1/21	405	452
#G30243, 6.000%, due 12/1/21	2,997	3,136
#G21, Tranche J, 6.250%, due 8/25/22	367	368

Total FHLMC Mortgage Obligations	43,180	45,590


Issuer	NRSRO Rating		Principal Amount	Value
Federal National Mortgage Association (FNMA)—22.3%
#545560, 8.000%, due 5/1/07			$ 947	$992
6.6250%, due 10/15/07			935	1,013
#93-196, Tranche SA, 18.589%, due 10/25/08, VRN			916	1,060
#1993-221, Tranche SG, 9.980%, due 12/25/08, VRN			493	521
#765396, 5.500%, due 1/1/09			584	604
#731691, 7.000%, due 9/1/09			1,381	1,449
#695512, 8.000%, due 9/1/10			944	1,004
#725479, 8.5%, due 10/1/10			1,727	1,848
#255056, 5.000%, due 11/1/10			2,854	2,906
6.250%, due 2/1/11			6,625	7,263
#313816, 6.000%, due 4/1/11			967	1,016
#577393, 10.000%, due 6/1/11			478	524
#577395, 10.000%, due 8/1/11			1,359	1,497
#254705, 5.500%, due 3/1/13			2,715	2,833
#254788, 6.500%, due 4/1/13			958	1,022
#725315, 8.000%, due 5/1/13			1,518	1,614
#190539, 6.000%, due 1/1/14			692	723
#806463, 7.000%, due 3/1/14			1,873	1,986
#593561, 9.500%, due 8/1/14			647	724
#567027, 7.000%, due 9/1/14			2,615	2,773
#567026, 6.500%, due 10/1/14			2,843	3,017
#458124, 7.000%, due 12/15/14			925	982
#598453, 7.000%, due 6/1/15			999	1,055
#555747, 8.000%, due 5/1/16			1,013	1,078
#643217 , 6.500%, due 6/1/17			650	690
# 682075, 5.500%, due 11/1/17			1,439	1,488
#662925, 6.000%, due 12/1/17			2,722	2,864
#740847, 6.000%, due 10/1/18			1,951	2,045
#458147, 10.000%, due 8/15/20			1,587	1,800
#735104, 7.000%, due 5/1/22			4,479	4,771
#725927, 7.000%, due 8/1/22			3,616	3,851
#735137, 6.500%, due 11/1/22			2,400	2,534
#1993-19, Tranche SH, 11.233%, due 4/25/23, VRN			11	16
#254797, 5.000%, due 6/1/23			1,581	1,589
#806458, 8.00%, due 6/1/28			2,623	2,855
#654674, 6.500%, due 9/1/32			613	644
#733897, 6.500%, due 12/1/32			748	789

Total FNMA Mortgage Obligations			61,428	65,440


*Collateralized Mortgage Obligations—22.9%*
Security National Mortgage Loan Trust, 2002-2, Tranche M2, 6.460%, due 8/25/08*	A	+	2,500	2,501
GRP 2004-1, 3.96%, due 3/25/09	A		329	329
Countrywide Alternative Loan Trust, 2003-11T1, Tranche M, 4.750%, due 7/25/18	AA		1,988	1,962
Cityscape Home Equity Loan Trust, 1997-4, Tranche M2, 8.210%, due 10/25/18	A		1,294	1,291
ABFS, 2002-2, Tranche A6, 5.850%, due 3/15/19	AAA		1,900	1,969
Countrywide, 2001-HLV1, Tranche B1 9.385%, due 5/10/22	BBB		3,153	3,163
First Plus, 1997-4, Tranche M2, 7.330%, due 9/11/23	A		917	917
First Plus, 1997-4, Tranche A8, 7.310%, due 9/11/23	AAA		714	714

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 43

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	NRSRO Rating		Principal Amount	Value

*Collateralized Mortgage Obligations—(continued)*
First Plus, 1998-2, Tranche M2, 7.510%, due 5/10/24	A2		$ 538	$ 537
First Plus, 1998-3, Tranche M2, 7.420%, due 5/10/24	A2		181	181
GMAC Mortgage Corporation Loan Trust, 2000-CL1, Tranche B, 9.000%, due 6/25/26	A		399	405
GMAC Mortgage Corporation Loan Trust, 2000-CL1, Tranche M, 8.720%, due 6/25/26	AAA		980	986
CIT Group Home Equity Loan Trust, 98-1 M2, 6.720%, due 9/15/27	A2		1,315	1,331
Green Tree Home Improvement Loan Trust, 1998-E, Tranche HEM2, 7.270%, due 6/15/28	A	+	4,525	4,636
Delta Funding Home Equity Loan Trust, 2000-2, Tranche A6F, 7.970%, due 8/15/30	AAA		628	631
Bear Stearns ABS, 2001-A, Tranche M1, 7.540%, due 2/15/31	A		2,700	2,830
INHEL 2001-B, Tranche MF1 6.829%, due 2/25/31	AA	+	3,075	3,126
Countrywide, 2000-2, Tranche MF2, 9.000%, due 6/25/31	A		2,000	2,041
Residential Asset Securities Corporation, 2001-KS, Tranche MI2 7.370%, due 6/25/31	A		2,211	2,283
Countrywide, 2001-1, Tranche MF1, 7.215%, due 7/25/31	AA	+	1,328	1,336
Countrywide, 2001-1, Tranche MF2, 7.511%, due 7/25/31	AA-		590	595
IMSA, 2001-5, Tranche M1 7.250%, due 8/25/31	Aaa		2,222	2,309
Credit Suisse First Boston, 2002-22, Tranche 2M2 6.500%, due 6/25/32	A		3,041	3,122
Security National Mortgage Loan Trust, 2004-1A, Tranche M2, 6.750%, due 06/25/32*	A		1,600	1,597
Credit Suisse First Boston, 2001—HE30, Tranche MF2 7.760%, due 7/25/32	A	+	3,985	4,075
Structured Assets Security Corporation, 2002-17, Tranche B3, 6.075%, due 9/25/32, VRN	BBB		1,974	1,980
GRP Real Estate Asset Trust, 2003-1, Tranche A,* 5.970%, due 11/25/32	A		323	323
LSSCO, 2004-2, Tranche M1, 5.208%, due 2/28/33, VRN*	AA		2,622	2,643
LSSCO, 2004-2, Tranche M2, 5.208%, due 2/28/33, VRN*	A		2,010	2,021
ABFS, 2002-2, Tranche A-7, 5.215%, due 6/15/33, VRN	AAA		556	566
ABFS, 2002-3, Tranche MI, 5.402%, due 9/15/33, VRN	AA		1,500	1,520
ACE, 2004-SD1, Tranche M3 5.168%, due 11/25/33, VRN	BBB		2,099	1,992
Residential Asset Mortgage Products, 2003-RS11, Tranche MI1 5.597%, due 12/25/2033	AA		2,400	2,470


Issuer	NRSRO Rating		Principal Amount	Value

*Collateralized Mortgage Obligations—(continued)*
GRP Real Estate Asset Trust, 2004-2 Tranche A, 4.210%, due 7/25/34	A		$ 4,752	$ 4,758
FHASI, 2004-AR4, Tranche 3A1 4.650%, due 8/25/34	AAA		1,957	1,960
Security National Mortgage Loan Trust, 2004-2, Tranche M2, 6.352%, due 11/25/34*	A		2,200	2,181
Total Collateralized Mortgage Obligations			66,506	67,281

*Corporate Obligations—29.0%*
Block Financial Corporation, 8.500%, due 4/15/07	BBB	+	2,699	2,971
Mellon Bank NA, 7.375%, due 5/15/07	A	+	2,025	2,189
Ford Motor Credit, 7.200%, due 6/15/07	BBB		1,336	1,425
Applied Materials, Inc., 6.750%, due 10/15/07	A-		2,800	3,014
Amgen Inc., 6.500%, due 12/01/07	A	+	1,000	1,081
DaimlerChrysler, NA Holdings, 4.750%, due 1/15/08	A3		2,575	2,630
Wells Fargo Company, 3.500%, due 4/4/08	AA		2,375	2,360
Goldman Sachs Group, Inc. 3.875%, due 1/15/09	A	+	2,325	2,320
CIT Group Inc., 3.375%, due 4/1/09	A		2,475	2,404
Philips Petroleum, 8.750%, due 5/25/10	A-		3,525	4,302
Household Finance Corporation, 8.000%, due 7/15/10	A		2,325	2,736
Boeing Capital Corporation, 7.375%, due 9/27/10	A		2,449	2,824
Sprint Capital Corp., 7.625%, due 1/30/11	BBB		2,600	3,019
Countrywide Financial Corp., 4.000%, due 3/22/11	A		2,625	2,552
AOL Time Warner, 6.750%, due 4/15/11	BBB	+	1,900	2,137
Morgan Stanley, 6.750%, due 4/15/11	A	+	3,275	3,673
General Motors Acceptance Corporation, 6.875%, due 9/15/11	BBB		3,050	3,126
Ford Motor Credit Co., Inc. 7.250%, due 10/25/11	BBB	+	1,525	1,635
Lehman Brothers Holdings, Inc. 6.625%, due 1/18/12	A		2,650	2,963
National Rural Utility Cooperative, 7.250%, due 3/1/12	A		2,900	3,347
Weyerhaeuser Company, 6.750%, due 3/15/12	BBB		2,500	2,817
GE Capital Corporation, 6.000%, due 6/15/12	AAA		2,525	2,752
Citigroup, Inc. 5.625%, 8/27/12	A	+	2,550	2,716
SLM Corporation, 5.125%, due 8/27/12	A		2,025	2,082
Verizon Global Funding Corporation, 7.375%, due 9/1/12	A	+	2,600	3,060
Cox Communications Inc., 7.125%, due 10/1/12	BBB-		1,360	1,524

See accompanying Notes to Financial Statements.

44 Annual Report

December 31, 2004

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	NRSRO Rating		Principal Amount	Value

*Corporate Obligations—(continued)*
IBM Corporation, 4.750%, due 11/29/12	A	+	$ 3,250	$ 3,318
Ohio Power Company, 5.500%, due 2/15/13	A3		1,900	1,987
Comcast Cable Communications, Inc 8.375%, due 3/15/13	BBB		2,000	2,466
TXU Energy Company, 7.00%, due 3/15/13	BBB		2,650	2,960
Bank of America Corporation, 5.375%, due 6/15/14	A	+	2,250	2,348
May Department Stores, 5.750%, due 7/15/14	BBB		2,000	2,055
SBC Communications, Inc., 5.100%, due 9/15/14	A	+	2,000	2,019
Petro-Canada Financial Partnership, 5.000%, due 11/15/14	BBB		600	598

Total Corporate Obligations			78,644	85,410

Total Long Term Investments—97.1% (cost $283,197)			269,825	285,546

WAC = Weighted Average Coupon

VRN = Variable Rate Note

NRSRO = Nationally Recognized Statistical Rating Organization, such as S&P, Moody’s or Fitch (Unaudited)

The obligations of certain U. S. Government-sponsored securities are neither issued nor guaranteed by the U. S. Treasury.

*Deemed illiquid pursuant to Illiquidity Procedures adopted by the Board of Trustees. These holdings represent 3.8% of the net assets at December 31, 2004.


Issuer	NRSRO Rating		Principal Amount	Value

*Short-Term Investments—0.2%*
American Express Corporation, VRN 2.240%, due 1/3/05	A	+	$252	$252
Prudential Funding LLC, VRN 2.243%, due 1/3/05	A	+	263	263

Total Short-Term Investments (cost $515)			515	515

Total Investments—97.3% (cost $283,712)			$270,340	286,061

Cash and other assets, less liabilities—2.7%				8,023

Net Assets—100%				$294,084

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 45

LOGO

James S. Kaplan

LOGO

Christopher T. Vincent

READY RESERVES FUND

The Ready Reserves Fund invests primarily in short-term U.S. dollar-denominated money market instruments, and exclusively in high quality securities that are rated in the top two categories of credit quality.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

Federal Reserve Monetary policy was the focus of the money markets during 2004, with investors monitoring the strength of the economic recovery, the price of oil, and resultant implications for inflation and interest rates.

Five interest rate hikes by the Federal Reserve Board occurred during the year. The rate increases were seen as part of a gradual process by the Fed to “wean” the economy from historically low rates that are no longer needed to sustain the economic recovery.

Beginning in the first quarter, there began to be threads of communication from the Federal Reserve Board that interest rates could not remain as low as they were for an indefinite period of time.

In January, for example, the Fed abandoned a promise to keep interest rates low for “a considerable period,” in favor of a promise to be “patient” with any move to raise short-term interest rates. And in February, Federal Reserve Chairman Alan Greenspan cautioned that low interest rates “will not be compatible indefinitely” with the Fed’s primary job of fighting inflation.

The Fed voted at its March 16^th, 2004 meeting to keep short-term interest rates at a 45-year low, saying in its statement that risks to economic growth were roughly equal and repeated its view that chances of a drop in prices were about the same as a pickup of inflation, maintaining a position that the Federal Reserve had adopted in December of 2003.

Finally, and as anticipated, the Federal Reserve decided at its June 30^th meeting to raise the federal funds rate—the interest rate that banks charge each other to lend money overnight—0.25% to 1.25%. It was the first time in four years that the Fed had raised the federal funds rate, which had been at a 46-year low.

During the third quarter the Federal Reserve raised the federal funds rate by 0.25% on August 11 and then again by 0.25% on September 21. During the fourth quarter, the Fed again raised the federal funds rate by 0.25% twice—on November 10 and December 14.

At its December meeting the Fed reiterated its willingness to be “measured” in its approach regarding future rate hikes in order to restore rates to more normalized historical levels. We believe the money markets may have factored in additional rate hikes by the Federal Reserve this year, perhaps as early as the Fed’s first meeting on February 1 and 2, 2005.

For the money markets, continued strength in the economy has resulted in increased issuance of commercial paper by corporations, an affirmation of a healthy economy.

We will continue to maintain our strategy of using commercial paper in the short end of the market, barbelled with fixed-rate obligations with slightly longer maturities, and also intend to emphasize floating-rate obligations, which price off of LIBOR. (LIBOR is the London Interbank Offered Rate, which is the rate the creditworthiest international banks dealing in Eurodollars—U.S. currency held in banks outside of the U.S.—charge each other for large loans.)

At December 31, 2004, the average maturity of the Fund’s holdings was 55.2 days, compared to 59.9 days at June 30, 2004 and 54 days at the end of 2003.

The return for the 12 months ended December 31, 2004 of the Fund’s Class N Shares was 0.80%, versus the 0.65% return of the Fund’s benchmark, the AAA-Rated Money Market Funds Average. Total assets were $1.09 billion, compared to $1.05 billion at June 30, 2004 and $1.15 billion at December 31, 2003.

46 Annual Report

December 31, 2004

Ready Reserves Fund

Performance Highlights

The Fund’s 7 day yield on December 31, 2004 was 1.56%.

Average Annual Total Returns—Class N Shares period ending December 31, 2004.


	1 Year		5 Year		10 Year
Ready Reserves Fund AAA Rated Money Market Funds	.80 .65	% %	2.44 2.33	% %	3.71 3.71	% %

Performance cited represents past performance. Past Performance does not guarantee future results and current performance may be lower or higher than the data quoted. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Total return includes reinvestment of income. Yields fluctuate and are not guaranteed. An investment in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

The AAA Rated Money Market Funds Average represents the average annual composite performance of all AAA rated First Tier Retail Money Market Funds listed by IBC Financial data.

This report identifies the Fund’s investment’s on December 31, 2004. These holdings are subject to change. Not all fixed-income securities in the Fund performed the same, nor is there any guarantee that these fixed-income securities will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

Sector Diversification

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 47

Ready Reserves Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)



Issuer	Principal Amount		Amortized Cost
Mortgage Backed Securities—7.5%
Federal Home Loan Bank (FHLB), 1.745%-2.450%, 1/5/05-3/21/05	$	34,783	$	34,785
Federal Home Loan Mortgage Corp. (FHLMC), 1.500%-2.165%, 2/7/05-2/14/05		11,000		11,000
Federal National Mortgage Assoc. (FNMA), 1.876%-2.460%, 1/3/05-3/24/05		36,218		36,221

Total Mortgage Backed Securities		82,001		82,006

Canadian Fixed Rate Notes—2.6%
Province of New Brunswick, 6.500%, 6/20/05		2,589		2,551
Province of Ontario, 4.200%-7.000%, 6/30/05-8/04/05		20,952		20,778
Province of Quebec, 4.200%, 1/19/05		4,779		4,720

Total Canadian Fixed Rate Notes		28,320		28,049

Fixed Rate Notes—30.7%
Abbott Laboratories, 6.800%, 5/15/05		1,421		1,399
American General Finance Corporation, 7.250%-7.450%, 1/15/05-5/15/05		20,265		19,398
Associates Corporation, 6.100%-7.750%, 1/15/05-2/15/05		7,814		7,442
BellSouth Telecommunications, 7.000%, 2/1/05		1,008		1,004
B.P. plc, 4.000%-10.875%, 4/29/05-7/15/05		35,836		35,258
Brown-Foreman Corporation, 7.380%, 5/10/05		1,307		1,297
Caterpillar Financial Services, 2.158%-4.690%, 1/14/05-4/25/05		25,746		25,585
Coca-Cola Company, 4.000%, 6/1/05		9,148		9,064
Coca-Cola Enterprises, 8.000%, 1/4/05		18,669		17,749
Colgate-Palmolive Corporation, 3.980%, 4/29/05		14,037		13,889
First Data Corporation, 6.750%, 7/15/05		1,160		1,137
GE Capital Corporation, 2.300%-8.850%, 2/1/05-5/15/05		25,357		24,493
Gillette Company, 4.000%-5.750%, 6/30/05-10/15/05		16,660		16,596
IBM Credit Corporation, 4.125%, 6/30/05		5,631		5,597
Kimberly Clark, 4.500%-10.000%, 3/15/05-7/30/05		19,225		18,885
Merck & Company, 4.125%, 1/18/05		5,412		5,380
National Rural Utility Cooperative Finance Corporation, 2.610%-5.500%, 1/15/05-3/10/05		14,202		13,995
Pharmacia Corporation, 5.750%, 12/01/05		3,441		3,428
Procter & Gamble Corporation, 4.000%, 4/30/05		5,083		5,030
SBC Communications, Inc., 7.500%, 4/1/05		13,174		13,155
USA Education, 2.380%, 1/25/05		2,254		2,250
USAA Capital Corporation, 3.130%-7.540%, 3/30/05-12/15/05		14,216		13,940
Verizon GTE North, 6.400%, 2/15/05		10,426		10,078
Wal-Mart Stores, 2.296%-5.875%, 2/22/05-10/15/05		38,088		37,962
Wells Fargo Financial, 2.570%-7.600%, 3/24/05-12/1/05		31,778		31,300

Total Fixed Rate Notes		341,358		335,311

VRN = Variable Rate Note



Issuer	Principal Amount		Amortized Cost
Variable Rate Notes—9.3%
Caterpillar Financial Services, 2.380%-2.688%, 1/25/05-3/7/05	$	4,363	$	4,355
General Electric Capital Corporation, 2.540%-2.640%, 3/21/05-9/23/05		16,947		16,923
Paccar Financial Corporation, 2.000%-2.019%, 1/11/05-1/20/05		17,997		17,998
Pfizer, Inc. 2.120%, 2/3/05		9,699		9,699
SLM Corporation, 2.570%, 3/15/05		10,012		10,007
U.S. Bancorp, 2.540%-2.680%, 1/1/05-3/14/05		40,174		40,099
Wells Fargo Financial, 2.491%, 3/17/05		3,001		3,001

Total Variable Rate Notes		102,193		102,082

Asset Backed Commercial Paper—46.7%
Alpine Securitization Corporation, 2.280%, 1/10/05		10,000		9,994
Amsterdam Funding Corporation, 2.330%-2.340%, 1/31/05-2/2/05		25,000		24,950
Blue Ridge Asset Funding, 2.260%, 1/20/05		20,000		19,976
CAFCO, L.L.C. 2.150%-2.230%, 1/5/05-1/6/05		24,350		24,344
CRC Funding, L.L.C., 2.270%, 1/26/05		15,000		14,976
Daimler Chrysler Revolving Auto, 2.090%-2.250%, 1/3/05-1/19/05		15,051		15,044
Delaware Funding Corporation, 2.200%-2.340%, 1/13/05-1/24/05		14,847		14,828
Edison Securitization, 2.290%-2.330%, 1/7/05-2/7/05		23,000		22,965
FCAR Owner Trust, 2.210%-2.290%, 1/7/05-1/25/05		45,000		44,960
Govco, Inc. 2.190%, 1/12/05		15,000		14,990
Jupiter Securitization Corporation, 2.280%-2.350%, 1/28/05-2/3/05		20,000		19,961
Kitty Hawk Funding, 2.340%, 1/26/05		15,000		14,976
New Center Asset Trust, 2.240%-2.360%, 1/13/05-1/28/05		45,000		44,940
Old Line Funding, 2.200%-2.230%, 1/11/05-1/14/05		21,435		21,420
Park Avenue Receivables, 2.270%-2.340%, 1/11/05-1/27/05		20,000		19,977
Preferred Receivables Funding, 2.230%-2.340%, 1/4/05-2/4/05		42,615		42,552
Ranger Funding, L.L.C., 2.250%-2.330%, 1/14/05-1/24/05		30,000		29,966
Sheffield Receivables, 2.190%-2.260%, 1/5/05-1/18/05		45,000		44,972
Thames Asset Global Securitization, 2.240%-2.290%, 1/12/05-1/20/05		24,677		24,655
Thunder Bay Funding, 2.200%-2.340%, 1/10/05-2/1/05		25,216		25,180
Windmill Funding Corporation, 2.260%,1/21/05		15,000		14,981

Total Asset Backed Commercial Paper		511,191		510,607

Demand Note—2.7%
American Express Corporation, VRN, 2.240%, 1/1/05		14,271		14,271
Prudential Funding, VRN, 2.243%, 1/1/05		15,105		15,105

Total Demand Note		29,376		29,376

Total Investments—99.5% (cost $1,087,431)		$1,094,439		1,087,431

Cash and other assets, less liabilities—0.5%				5,509

Net assets—100.0%			$	1,092,940

Portfolio Weighted Average Maturity				55.2 Days

See accompanying Notes to Financial Statements.

48 Annual Report

December 31, 2004

Statements of Assets and Liabilities

December 31, 2004 (all dollar amounts in thousands)


	Growth Fund			Tax- Managed Growth Fund			Large Cap Growth Fund			Small Cap Growth Fund		Small- Mid Cap Growth Fund
*Assets*
Investments in securities, at cost	$	208,478		$	4,400		$	5,212		$	587,974	$	22,507
Investments in Affiliated Fund, at cost		138			47			177			21,849		976


Investments in securities, at value	$	275,686		$	5,810		$	6,321		$	743,784	$	24,881
Investments in Affiliated Fund, at value		138			47			177			21,849		976
Cash		60			—			2			421		1
Receivable for fund shares sold		151			—			20			4,612		190
Receivable for investment securities sold		—			—			—			5,729		—
Receivable from Advisor		—			2			13			—		—
Dividend and interest receivable		127			4			4			210		3

Total assets		276,162			5,863			6,537			776,605		26,051
*Liabilities*
Payable for investment securities purchased		—			—			105			4,270		—
Payable for fund shares redeemed		364			—			—			232		—
Management fee payable		189			4			5			667		53
Distribution and shareholder services fee payable		10			—			—			95		2
Other accrued expenses		93			12			10			132		22

Total liabilities		656			16			120			5,396		77

Net Assets	$	275,506		$	5,847		$	6,417		$	771,209	$	25,974

*Capital*
Composition of Net Assets
Par value of shares of beneficial interest	$	26		$	1		$	1		$	30	$	2
Capital paid in excess of par value		225,096			6,322			10,756			594,459		23,668
Accumulated realized gain (loss)		(16,824	)		(1,886	)		(5,449	)		20,910		(70	)
Net unrealized appreciation (depreciation) of investments and foreign currencies		67,208			1,410			1,109			155,810		2,374

Net Assets	$	275,506		$	5,847		$	6,417		$	771,209	$	25,974


Class N Shares
Net Assets	$	50,098		$	171		$	277		$	476,669	$	7,873
Shares Outstanding		4,683,419			19,048			44,401			18,534,310		697,778
Net Asset Value Per Share	$	10.70		$	8.99		$	6.24		$	25.72	$	11.28
Class I Shares
Net Assets	$	225,402		$	5,670		$	6,137		$	294,525	$	18,095
Shares Outstanding		20,796,745			622,898			972,817			11,309,652		1,600,666
Net Asset Value Per Share	$	10.84		$	9.10		$	6.31		$	26.04	$	11.30

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 49

Statements of Operations

For the Year Ended December 31, 2004 (all dollar amounts in thousands)


	Growth Fund			Tax-Managed Growth Fund			Large Cap Growth Fund			Small Cap Growth Fund			Small-Mid Cap Growth Fund
*Investment income*
Dividends	$	1,583		$	37		$	46		$	903		$	31
Less foreign tax withheld		(63	)		(1	)		(1	)		—			—
Income from Affiliated Fund		23			1			1			165			8
Interest		—			—			—			304			—

Total income		1,543			37			46			1,372			39
*Expenses*
Investment advisory fees		2,017			47			48			6,663			134
Distribution fees		112			—			—			952			11
Custodian fees		64			15			16			142			31
Transfer agent fees		208			8			9			348			25
Professional fees		34			16			15			48			27
Registration fees		34			29			29			94			30
Other expenses		145			6			8			228			14

Total expenses before waiver		2,614			121			125			8,475			272
Plus expenses recovered by the Advisor		—			—			—			164
Less expenses waived or absorbed by the Advisor		—			(43	)		(56	)		—			(81	)

Net expenses		2,614			78			69			8,639			191

Net investment income (loss)		(1,071	)		(41	)		(23	)		(7,267	)		(152	)
Net realized and unrealized gain (loss) on investments, foreign currency transactions and other assets and liabilities
Net realized gain (loss) on investments		14,917			460			196			80,817			5

Change in net unrealized appreciation (depreciation) on investments and other assets and liabilities		5,610			(38	)		149			78,333			2,395

Net increase (decrease) in net assets resulting from operations	$	19,456		$	381		$	322		$	151,883		$	2,248

See accompanying Notes to Financial Statements.

50 Annual Report

December 31, 2004

Statements of Changes in Net Assets

For the Years Ended December 31, 2004 and 2003 (all amounts in thousands)


	Growth Fund						Tax- Managed Growth Fund						Large Cap Growth Fund						Small Cap Growth Fund						Small-Mid Cap Growth Fund
	2004			2003			2004			2003			2004			2003			2004			2003			2004			2003 (a)
*Operations*
Net investment income (loss)	$	(1,071	)	$	(1,214	)	$	(41	)	$	(40	)	$	(23	)	$	(26	)	$	(7,267	)	$	(2,137	)	$	(152	)	$	—
Net realized gain (loss) on investments, foreign currency transactions and other assets and liabilities		14,917			758			460			(483	)		196			(553	)		80,817			20,759			5			—
Change in net unrealized appreciation (depreciation) on investments, and other assets and liabilities		5,610			58,056			(38	)		1,777			149			1,644			78,333			75,261			2,395			(21	)

Net increase (decrease) in net assets resulting from operations		19,456			57,600			381			1,254			322			1,065			151,883			93,883			2,248			(21	)
*Distributions to shareholders from*
Net investment income		—			—			—			—			—			—			—			—			—			—
Net realized gain		—			—			—			—			—			—			(54,782	)		(7,443	)		—			—

		—			—			—			—			—			—			(54,782	)		(7,443	)		—			—
*Capital stock transactions*
Net proceeds from sale of shares		35,194			29,113			246			1,159			1,655			1,147			260,030			400,136			21,231			3,694
Shares issued in reinvestment of income dividends and capital gain distributions		—			—			—			—			—			—			53,276			7,200			—			—
Less cost of shares redeemed		(60,798	)		(60,684	)		(1,651	)		(845	)		(1,079	)		(2,162	)		(158,022	)		(53,533	)		(1,178	)		—

Net increase (decrease) in net assets resulting from capital share transactions		(25,604	)		(31,571	)		(1,405	)		314			576			(1,015	)		155,284			353,803			20,053			3,694

Increase (decrease) in net assets		(6,148	)		26,029			(1,024	)		1,568			898			50			252,385			440,243			22,301			3,673
Net assets
Beginning of year	$	281,654		$	255,625		$	6,871		$	5,303		$	5,519		$	5,469		$	518,824		$	78,581		$	3,673		$	—

End of year	$	275,506		$	281,654		$	5,847		$	6,871		$	6,417		$	5,519		$	771,209		$	518,824		$	25,974		$	3,673

Undistributed net investment income (loss) at the end of the year	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

(a)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2003.

See accompanying Notes to Financial Statements

December 31, 2004

William Blair Funds 51

Statements of Assets and Liabilities

December 31, 2004 (all dollar amounts in thousands)


	International Growth Fund			International Equity Fund			Value Discovery Fund		Income Fund			Ready Reserves Fund
*Assets*
Investments in securities, at cost	$	2,172,079		$	8,800		$	179,541	$	283,712		$	1,087,431
Investments in Affiliated Fund, at cost		39,866			219			6,901		—			—


Investments in securities, at value	$	2,951,657		$	9,226		$	240,910	$	286,061		$	1,087,431
Investments in Affiliated Fund, at value		39,866			219			6,901		—			—
Cash		135			104			—		11			—
Foreign currency, at value (cost $4,623 and $22, respectively)		4,752			22			—		—			—
Receivable for fund shares sold		6,083			119			4		5,655			—
Receivable for investment securities sold		3,151			84			437		102			—
Receivable from Advisor		—			38			—		—			—
Dividend and interest receivable		2,162			7			356		2,733			6,280

Total assets		3,007,806			9,819			248,608		294,562			1,093,711
*Liabilities*
Payable for investment securities purchased		1,731			98			1,712		—			—
Payable for fund shares redeemed		1,182			—			424		248			—
Management fee payable		2,477			14			230		129			220
Distribution and shareholder services fee payable		420			—			16		10			332
Dividend payable		—			—			—		—			94
Other accrued expenses		562			18			50		91			125

Total liabilities		6,372			130			2,432		478			771

Net Assets	$	3,001,434		$	9,689		$	246,176	$	294,084		$	1,092,940

*Capital*
Composition of Net Assets
Par value of shares of beneficial interest	$	136		$	1		$	10	$	29		$	1,093
Capital paid in excess of par value		2,249,967			9,359			179,541		304,241			1,092,794
Accumulated net investment income (loss)		(17,106	)		(79	)		36		173			81
Accumulated realized gain (loss)		(11,340	)		(17	)		5,220		(12,708	)		(1,028	)
Net unrealized appreciation (depreciation) of investments and foreign currencies		779,777			425			61,369		2,349			—

Net Assets	$	3,001,434		$	9,689		$	246,176	$	294,084		$	1,092,940


Class N Shares
Net Assets	$	2,062,659		$	1,864		$	34,153	$	81,963		$	1,092,940
Shares Outstanding		93,393,300			164,561			1,504,783		8,047,009			1,092,993,802
Net Asset Value Per Share	$	22.09		$	11.33		$	22.70	$	10.19		$	1.00
Class I Shares
Net Assets	$	938,762		$	7,818		$	212,011	$	212,116
Shares Outstanding		42,026,452			687,554			9,290,895		20,897,410
Net Asset Value Per Share	$	22.34		$	11.37		$	22.82	$	10.15

See accompanying Notes to Financial Statements.

52 Annual Report

December 31, 2004

Statements of Operations

For the Year Ended December 31, 2004 (all dollar amounts in thousands)


	International Growth Fund			International Equity Fund(a)			Value Discovery Fund			Income Fund			Ready Reserves Fund
*Investment income*
Dividends	$	34,752		$	30		$	2,635		$	—		$	—
Less foreign tax withheld		(3,356	)		(2	)		—			—			—
Income from Affiliated Fund		304			4			58			—			—
Interest		490			11			460			13,357			16,264

Total income		32,190			43			3,153			13,357			16,264
*Expenses*
Investment advisory fees		24,383			45			2,788			1,351			2,711
Distribution fees		4,299			1			79			90			—
Shareholder services fees		—			—			—			—			3,925
Custodian fees		2,054			32			70			78			190
Transfer agent fees		2,050			13			121			141			114
Professional fees		135			14			21			30			61
Registration fees		183			10			31			41			22
Other expenses		834			1			4			77			274

Total expenses before waiver		33,938			116			3,114			1,808			7,297
Less expenses waived or absorbed by the Advisor		—			(62	)		(45	)		—			—

Net expenses		33,938			54			3,069			1,808			7,297

Net investment income (loss)		(1,748	)		(11	)		84			11,549			8,967
Net realized and unrealized gain (loss) on investments, foreign currency transactions and other assets and liabilities:
Net realized gain (loss) on investments		118,301			717			26,728			(1,841	)		13
Net realized gain (loss) on foreign currency transactions and other assets and liabilities		(11,823	)		(76	)		—			—			—

Total net realized gain (loss)		106,478			641			26,728			(1,841	)		13
Change in net unrealized appreciation (depreciation) on investments and other assets and liabilities		341,262			425			240			(2,534	)		—

Net increase (decrease) in net assets resulting from operations	$	445,992		$	1,055		$	27,052		$	7,174		$	8,980

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 53

Statements of Changes in Net Assets

For the Years Ended December 31, 2004 and 2003 (all amounts in thousands)


	International Growth Fund						International Equity Fund			Value Discovery Fund						Income Fund						Ready Reserves Fund
	2004			2003			2004(a)			2004			2003			2004			2003			2004			2003
*Operations*
Net investment income (loss)	$	(1,748	)	$	1,037		$	(11	)	$	84		$	(310	)	$	11,549		$	10,144		$	8,967		$	8,301
Net realized gain (loss) on investments, foreign currency transactions and other assets and liabilities		106,478			(14,894	)		641			26,728			6,425			(1,841	)		865			13			(33	)
Change in net unrealized appreciation (depreciation) on investments, foreign currency transactions and other assets and liabilities		341,262			459,102			425			240			60,586			(2,534	)		(2,342	)		—			—

Net increase (decrease) in net assets resulting from operations		445,992			445,245			1,055			27,052			66,701			7,174			8,667			8,980			8,268
*Distributions to shareholders from*
Net investment income		(2,616	)		(2,775	)		—			—			—			(14,033	)		(13,802	)		(8,967	)		(8,301	)
Net realized gain		—			—			—			(26,037	)		—			—			—			—			—

		(2,616	)		(2,775	)		—			(26,037	)		—			(14,033	)		(13,802	)		(8,967	)		(8,301	)
*Capital stock transactions*
Net proceeds from sale of shares		1,143,395			1,012,995			16,380			58,405			53,181			93,503			139,094			1,678,077			1,648,639
Shares issued in reinvestment of income dividends and capital gain distributions		2,161			2,457			—			25,638			—			10,085			10,207			8,904			8,334
Capital contribution by the Advisor		—			—			—			—			—			—			—			1,000			—
Less cost of shares redeemed		(487,197	)		(337,011	)		(7,746	)		(75,993	)		(73,573	)		(67,707	)		(75,240	)		(1,748,986	)		(1,827,009	)

Net increase (decrease) in net assets resulting from capital stock transactions		658,359			678,441			8,634			8,050			(20,392	)		35,881			74,061			(61,005	)		(170,036	)

Increase (decrease) in net assets		1,101,735			1,120,911			9,689			9,065			46,309			29,022			68,926			(60,992	)		(170,069	)
Net assets
Beginning of year	$	1,899,699		$	778,788		$	—		$	237,111		$	190,802		$	265,062		$	196,136		$	1,153,932		$	1,324,001

End of year	$	3,001,434		$	1,899,699		$	9,689		$	246,176		$	237,111		$	294,084		$	265,062		$	1,092,940		$	1,153,932

Undistributed net investment income (loss) at the end of the period	$	(17,106	)	$	(3,046	)	$	(79	)	$	36		$	—		$	173		$	128		$	81		$	81

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

See accompanying Notes to Financial Statements.

54 Annual Report

December 31, 2004

Notes to Financial Statements

(1) Significant Accounting Policies

(a) Description of the Fund

William Blair Funds (the “Fund”) is a diversified mutual fund registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. For each portfolio, the number of shares authorized is unlimited. The Fund currently consists of the following twelve portfolios (the “Portfolios”), each with its own investment objectives and policies.


Equity Portfolios		International Portfolios
Growth		International Growth
Tax-Managed Growth		International Equity
Large Cap Growth		Institutional International Growth
Small Cap Growth		Institutional International Equity
Small-Mid Cap Growth		Fixed Income Portfolio
Value Discovery		Income
		Money Market Portfolio
		Ready Reserves

The investment objectives of the Portfolios are as follows:


Equity		Long-term capital appreciation.
International		Long-term capital appreciation.
Fixed Income		High level of current income with relative stability of principal.
Money Market		Current income, a stable share price and daily liquidity.

The Institutional International Growth Fund and the Institutional International Equity Fund issue a separate report.

(b) Share Classes

Five different classes of shares currently exist: A,B,C, N and I. This report includes financial highlight information for Classes N and I. The table below describes the Class N shares and the Class I shares covered by this report:


Class		Description
N		Class N shares are sold to the general public, either directly through the Fund’s distributor or through a select number of financial intermediaries. Class N shares are sold without any sales load, and carry an annual 12b-1 distribution fee (0.25% for the Equity and International Portfolios and 0.15% for the Fixed Income Portfolio) or a service fee (0.35% for the Money Market Portfolio).
I		Class I shares are sold to a limited group of investors. They do not carry any sales load or distribution fees and generally have lower ongoing expenses than the other classes.

Investment income, realized and unrealized gains and losses, and certain portfolio level expenses and expense reductions, if any, are allocated based on the relative net assets of each class, except for certain class specific expenses which are charged directly to the appropriate class. Differences in class expenses may result in the payment of different per share dividends by class. All share classes of the Portfolios have equal rights with respect to voting subject to class specific arrangements.

(c) Investment Valuation

The market value of domestic equity securities and options is determined by valuing securities traded on national securities exchanges or markets or in the over-the-counter markets at the last sales price or, if applicable, the official closing price or, in the absence of a sale on the date of valuation, at the latest bid price.

December 31, 2004

William Blair Funds 55

Otherwise, the value of foreign equity securities is determined based on the last sale price on the foreign exchange or market on which it is primarily traded or, if there have been no sales during that day, at the latest bid price. Foreign currency forward contracts and foreign currencies are valued at the forward and current exchange rates, respectively, prevailing on the date of valuation.

Long-term, fixed income securities are valued based on market quotations, or by independent pricing services that use prices provided by market makers or by estimates of market values obtained from yield data relating to instruments or securities with similar characteristics.

Investments in other funds are valued at the underlying fund’s net asset value on the date of valuation. Other securities, and all other assets, including securities for which a market price is not available, or the value of which is affected by a significant valuation event, are valued at fair value as determined in good faith by, or under the direction of the Board of Trustees and in accordance with the Fund’s valuation procedures. As of December 31, 2004, there were securities held in Small Cap Growth, Value Discovery and International Growth and International Equity Portfolios requiring fair valuation pursuant to the Fund’s valuation procedures. Short-term securities held in the Ready Reserves Fund are valued at amortized cost, which approximates market value.

(d) Investment income and investment transactions

Dividend income is recorded on the ex-dividend date, except for those dividends from certain foreign securities which are recorded as soon as the information is available.

Premiums and discounts are accreted and amortized on a straight-line basis for short-term investments and on an effective interest method for long-term investments.

Interest income is determined on the basis of the interest accrued, adjusted for amortization of premium or discount. Variable rate bonds and floating rate notes earn interest at coupon rates that fluctuate at specific time intervals. The interest rates shown in the Portfolio of Investments for the Income Portfolio and the Ready Reserves Portfolio were the rates in effect on December 31, 2004. Put bonds may be redeemed at the discretion of the holder on specified dates prior to maturity. The Portfolios utilize the straight-line method of amortization of premiums and discounts for short-term securities (maturities less than one year) and the effective interest method for long-term securities (maturities greater than one year).

Paydown gains and losses on mortgage and asset-backed securities are treated as an adjustment to interest income. For the years ended December 31, 2004 and 2003, the Income Portfolio recognized a reduction in interest income and a reduction in net realized loss of $2,532 and $2,691 (in thousands), respectively. This reclassification has no effect on the net asset value of the Portfolio.

Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are recognized on the basis of high cost lot sell selection.

(e) Share Valuation and Dividends to Shareholders

Shares are sold and redeemed on a continuous basis at net asset value. The net asset value per share is determined separately for each class by dividing the Portfolio’s net assets attributable to that class by the number of shares of the class outstanding as of the close of regular trading on the New York Stock Exchange, which is generally 3:00 p.m. Central time (4:00 p.m. Eastern time), on each day the Exchange is open. Redemption fees may be applicable to redemptions within 60 days of purchase. The redemption fees collected by the Fund are netted against the amount of Redemptions for presentation on the Statement of Changes in Net Assets.

56 Annual Report

December 31, 2004

For the year ended December 31, 2004, the redemption fees collected by the Portfolios were as follows (in thousands):


	Redemption Fees
Growth	$	7
Tax-Managed Growth		—
Large Cap Growth		—
Small Cap Growth		26
Small Mid-Cap Growth		2
International Growth		78
International Equity		—
Value Discovery		7
Income		2

Dividends from net investment income, if any, of the Growth, Tax-Managed Growth, Large Cap Growth, Small Cap Growth, Small-Mid Cap Growth, International Growth, International Equity, and Value Discovery Portfolios are declared at least annually. Dividends from the Income and the Ready Reserves Portfolios are declared monthly and daily, respectively. Capital gain distributions, if any, are declared at least annually in December. Dividends payable to shareholders are recorded on the ex-dividend date.

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with Federal income tax regulations that may differ from U.S. generally accepted accounting principles. As a result, net investment income or loss and net realized gain or loss for a reporting period may differ from the amount distributed during such period. In addition, the Portfolios may periodically record reclassifications among certain capital accounts to reflect differences between financial reporting and income tax basis distributions. The reclassifications were reported in order to reflect the tax treatment for certain permanent differences that exist between income tax regulations and U.S. generally accepted accounting principles. The reclassifications relate to net operating losses, Section 988 currency gains and losses, mortgage paydown securities gains and losses associated with securities issued before June 8, 1997 and recharacterization of dividends received from investments in REITs, expired capital loss carryforwards, and gain or loss on in-kind transactions. These reclassifications have no impact on the net asset values of the Portfolios. Accordingly, at December 31, 2004, the following reclassifications were recorded (in thousands):


Portfolio	Undistributed Net Investment Income/(Loss)			Accumulated Undistributed Net Realized Gain/ (Loss)		Capital Paid In Excess of Par Value
Growth	$	1,071		—		$	(1,071	)
Tax-Managed Growth		41		—			(41	)
Large Cap Growth		23		—			(23	)
Small Cap Growth		7,267		(7,267	)		—
Small-Mid Cap Growth		152		(75	)		(77	)
International Growth		(9,697	)	9,697			—
International Equity		(67	)	(658	)		725
Value Discovery		(48	)	84			(36	)
Income		2,529		(369	)		(2,160	)
Ready Reserves		—		108			(108	)

Distributions from net realized gains for book purposes may include short-term capital gains, which are included as ordinary income for tax purposes. The tax character of distributions paid during 2004 and 2003 was as follows (in thousands):


	Distributions Paid In 2004				Distributions Paid In 2003
Portfolio	Ordinary Income		Long-Term Capital Gains		Ordinary Income		Long-Term Capital Gains
Growth	$	—	$	—	$	—	$	—
Tax-Managed Growth		—		—		—		—
Large Cap Growth		—		—		—		—
Small Cap Growth		15,332		39,450		1,139		6,304
Small-Mid Cap Growth		—		—		—		—
International Growth		2,616		—		2,775		—
International Equity		—		—		—		—
Value Discovery		—		—		—		—
Income		14,033		—		13,802		—
Ready Reserves		8,967		—		8,301		—

December 31, 2004

William Blair Funds 57

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows (in thousands):


Portfolio	Undistributed Ordinary Income		Accumulated Capital and Other Losses		Undistributed Long-Term Gain		Net Unrealized Appreciation / (Depreciation)
Growth	$	—	$	16,820	$	—	$	67,205
Tax-Managed Growth		—		1,886		—		1,410
Large Cap Growth		—		5,421		—		1,082
Small Cap Growth		8,679		—		14,322		153,719
Small-Mid Cap Growth		—		—		—		2,304
International Growth		1,313		5,866		—		753,758
International Equity		—		72		—		402
Value Discovery		—		—		6,625		59,999
Income		173		12,623		—		2,262
Ready Reserves		81		1,028		—		—

(f) Options

The Portfolios may engage in options transactions on security indices and other financial indices and in doing so achieve similar objectives to what they would achieve through the sale or purchase of options on individual securities or other instruments.

Option writing. When a Portfolio writes an option, an amount equal to the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Portfolio on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Portfolio. The Portfolio as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option. There were no open options at December 31, 2004.

(g) Foreign Currency Translation and Forward Foreign Currency Contracts

The International Growth and International Equity Portfolios may invest in securities denominated in foreign currencies. As such, assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the current exchange rate on the date of valuation. The Portfolios may enter into foreign currency forward contracts (1) as a means of managing the risks associated with changes in the exchange rates for the purchase or sale of a specific amount of a particular foreign currency, and (2) to hedge the value, in U.S. dollars, of portfolio securities. Gains and losses from foreign currency transactions associated with purchases and sales of investments and foreign currency forward contracts are included with the net realized and unrealized gain or loss on investments.

(h) Income Taxes

Each Portfolio intends to comply with the special provisions Subchapter M of the Internal Revenue Code available to regulated investment companies and, therefore, no provision for Federal income taxes has been made in the accompanying financial statements since each Portfolio intends to distribute substantially all of its taxable income to its shareholders and be relieved of all Federal income taxes.

58 Annual Report

December 31, 2004

The cost of investments for Federal income tax purposes and related gross unrealized appreciation/(depreciation) and net unrealized appreciation/(depreciation) at December 31, 2004, were as follows (in thousands):


Portfolio	Cost of Investments		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation / (Depreciation)
Growth	$	208,619	$	73,285	$	6,080	$	67,205
Tax-Managed Growth		4,447		1,497		87		1,410
Large Cap Growth		5,416		1,210		128		1,082
Small Cap Growth		611,914		164,942		11,223		153,719
Small-Mid Cap Growth		23,553		2,629		325		2,304
International Growth		2,237,964		764,887		11,129		753,758
International Equity		9,043		464		62		402
Value Discovery		187,812		63,504		3,505		59,999
Income		283,799		4,685		2,423		2,262
Ready Reserves		1,087,431		—		—		—

At December 31, 2004, the Portfolios have unused capital loss carryforwards available for Federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows (in thousands):


Portfolio	2005		2006		2007		2008		2009		2010		2011		2012		Total
Growth	$	—	$	—	$	—	$	—	$	—	$	14,788	$	2,032	$	—	$	16,820
Tax-Managed Growth		—		—		—		—		381		1,037		468		—		1,886
Large Cap Growth		—		—		—		356		2,714		1,582		769		—		5,421
Small Cap Growth		—		—		—		—		—		—		—		—		—
Small-Mid Cap Growth		—		—		—		—		—		—		—		—		—
International Growth		—		—		—		—		—		—		5,866		—		5,866
International Equity		—		—		—		—		—		—		—		—		—
Value Discovery		—		—		—		—		—		—		—		—		—
Income		—		—		1,249		3,292		—		1,692		1,582		4,808		12,623
Ready Reserves		1		1		51		24		—		930		—		21		1,028

The International Growth and International Equity Portfolios have elected to mark-to-market its investments in Passive Foreign Investment Companies (“PFICs”) for Federal income tax purposes. In accordance with this election, the Portfolio recognized net unrealized appreciation (depreciation) of $15,094 and $6, respectively (in thousands) in 2004, all of which has been reclassified from unrealized gain (loss) on investments to undistributed net investment income.

For the period November 1, 2004 through December 31, 2004, the following Portfolios incurred net realized capital or foreign currency losses. Each Portfolio intends to treat this loss as having occurred in fiscal year 2005 for Federal income tax purposes (in thousands):


Portfolio	Amount
Growth	$	—
Tax-Managed Growth		—
Large Cap Growth		—
Small Cap Growth		—
Small-Mid Cap Growth		—
International Growth		—
International Equity		72
Value Discovery		—
Income		376
Ready Reserves		—

(i) Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates.

December 31, 2004

William Blair Funds 59

(2) Transactions with Affiliates

(a) Management and Expense Limitation Agreements

Each Portfolio has a management agreement with William Blair & Company L.L.C. (the “Company”) for investment advisory, administrative, and other accounting services. Each Portfolio pays the Company an annual fee, payable monthly, based on a specified percentage of its average daily net assets. A summary of the annual rates expressed as a percentage of average daily net assets is as follows:


Equity Portfolios		International Portfolios
Growth	0.75%	International Growth and International Equity
Tax-Managed Growth	0.80%	First $250 million	1.10%
Large Cap Growth	0.80%	In excess of $250 million	1.00%
Small Cap Growth	1.10%
Small-Mid Cap Growth	1.00%
Value Discovery	1.15%

Fixed Income Portfolio		Money Market Portfolio
Income*		Ready Reserves
First $250 million	0.25%	First $250 million	0.275%
In excess of $250 million	0.20%	Next $250 million	0.250%
*Management fee also includes a charge of 5% of gross income.		Next $2 billion In excess of $2.5 billion	0.225% 0.200%

Some of the Portfolios have also entered into Expense Limitation Agreements with the Company. Under the terms of these Agreements, the Company has agreed to waive its advisory fees and absorb other operating expenses through April 30, 2005, if total expenses for each class of the following Portfolios exceed the following rates (as a percentage of average daily net assets):


	Class N Shares				Class I Shares
	Through April 30, 2004		Effective May 1, 2004		Through April 30, 2004		Effective May 1, 2004
Tax-Managed Growth	1.55	%	1.54	%	1.30	%	1.29	%
Large Cap Growth	1.45	%	1.34	%	1.20	%	1.09	%
Small Cap Growth	1.55	%	1.53	%	1.38	%	1.40	%
Small-Mid Cap Growth	1.54	%	1.54	%	1.29	%	1.29	%
International Equity	N/A		1.50	%	N/A		1.25	%
Value Discovery	1.49	%	1.34	%	1.33	%	1.25	%

For a period of five years subsequent to the Commencement of Operations of each Fund, the Company is entitled to reimbursement from the Tax-Managed Growth, Large Cap Growth, and Small Cap Growth Portfolios for previously waived fees and expenses to the extent the overall expense ratio remains below the percentages indicated. As a result, the total expense ratio for the Portfolios during the period the agreement is in effect, will not fall below the percentages indicated. The Company’s right to be reimbursed under these agreements expired December 27, 2004. Under this provision, the Small Cap Growth Portfolio reimbursed the Advisor $164,000, and $186,000 for the years ended December 31, 2004 and 2003, respectively.

For a period of three years subsequent to the Commencement of Operations of the Small-Mid Cap Growth and the International Equity Portfolios, the Company is entitled to reimbursement for previously waived fees and expenses to the extent the overall expense ratio remains below the percentages indicated. The total amount available for recapture at December 31, 2004 is $81 (in thousands) for the Small-Mid Cap Growth Portfolio and $62 for the International Equity Portfolio.

60 Annual Report

December 31, 2004

For the year ended December 31, 2004, the investment advisory fees incurred by the Portfolios and related fee waivers were as follows (in thousands) :


Portfolio	Gross Advisory Fee		Fee Waiver		Net Advisory Fee		Additional Expenses (Recovered) or Absorbed by Advisor
Growth	$	2,017	$	—	$	2,017	$	—
Tax-Managed Growth		47		43		4		—
Large Cap Growth		48		48		—		8
Small Cap Growth		6,663		—		6,663		(164	)
Small-Mid Cap Growth		134		81		53		—
International Growth		24,383		—		24,383		—
International Equity		45		45		—		17
Value Discovery		2,788		—		2,788		—
Income		1,351		—		1,351		—
Ready Reserves		2,711		—		2,711		—

(b) Underwriting, Distribution Services and Service Agreement

Each Portfolio except Ready Reserves Portfolio has a Distribution Agreement with the Company for distribution services. Each Portfolio pays the Company an annual fee, payable monthly, based on a specified percentage of its average daily net assets of specified share classes. The annual rates expressed as a percentage of average daily net assets for Class N is 0.25% for all Portfolios except the Income Portfolio, which is 0.15%. Pursuant to the Distribution Agreement, the Company enters into related selling group agreements with various firms at various rates for sales of the Portfolios’ Class N shares.

Distribution fees incurred by the Portfolios to the Company, for the year ended December 31, 2004, were as follows (in thousands):


Portfolio	Gross Distribution Fees		Fee Waiver		Net Distribution Fee
Growth	$	112	$	—	$	112
Tax-Managed Growth		—		—		—
Large Cap Growth		—		—		—
Small Cap Growth		952		—		952
Small-Mid Cap Growth		11		—		11
International Growth		4,299		—		4,299
International Equity		1		—		1
Value Discovery		79		45		34
Income		90		—		90

The Ready Reserves Portfolio has a Service Agreement with the Company to provide shareholder services and automatic sweep services. The Portfolio pays the Company an annual fee, payable monthly, based upon 0.35% of its average daily net assets. For the year ended December 31, 2004, the following fees were incurred (in thousands):


Ready Reserves		$	3,925

(c) Trustees Fees

The Portfolios incurred fees of $200 (in thousands) to non-interested trustees of the Fund for the year ended December 31, 2004. Interested trustees are not compensated.

(d) Investments in Affiliated Portfolio

December 31, 2004

William Blair Funds 61

below. Distributions received from Ready Reserves are reflected as dividend income in each Portfolio’s statement of operations. Amounts relating to the Portfolios’ investments in Ready Reserves were as follows for the year ended December 31, 2004 (in thousands):


Portfolio	Purchases		Sales Proceeds		Fees Waived		Dividend Income		Value		Percent of Net Assets
Growth	$	79,762	$	85,440	$	17	$	23	$	138	0.0	%
Tax-Managed Growth		1,835		1,913		1		1		47	0.8
Large Cap Growth		3,140		3,198		1		1		177	2.8
Small Cap Growth		304,943		325,566		135		165		21,849	2.8
Small-Mid Cap Growth		18,524		17,628		5		8		976	3.8
International Growth		328,021		387,225		238		304		39,866	1.3
International Equity		7,805		7,586		2		4		219	2.3
Value Discovery		93,912		93,507		41		58		6,901	2.8

(e) Capital Contribution to Affiliated Portfolio

In 2004, the Company voluntarily contributed $1 million dollars to the Ready Reserves Portfolio for which it did not receive any shares. This contribution is reflected on the Statement of Changes in Net Assets.

(3) Investment Transactions

Investment transactions, excluding money market instruments, for the year ended December 31, 2004 were as follows (in thousands):


Portfolio	Purchases		Sales
Growth	$	95,518	$	120,463
Tax-Managed Growth		1,861		3,347
Large Cap Growth		2,968		2,289
Small Cap Growth		726,401		643,126
Small-Mid Cap Growth		26,152		7,120
International Growth		2,555,805		1,850,393
International Equity		17,766		3,339
Value Discovery		120,141		137,748
Income		148,018		118,825

(4) Foreign Currency Forward Contracts

To protect itself against a decline in the value of foreign currency against the U.S. dollar, the International Growth and International Equity Portfolios enter into foreign currency forward contracts with its custodian and others. The Portfolios bear the market risk that arises from changes in foreign currency rates and bears the credit risk if the counterparty fails to perform under the contract. The net realized and unrealized gains and losses associated with foreign currency forward contracts are reflected in the accompanying financial statements. There were no open foreign currency forward contracts at December 31, 2004.

62 Annual Report

December 31, 2004

(6) Fund Share Transactions

The following table summarizes the activity in capital shares of each Portfolio (in thousands):


	Sales (Dollars)
	Year Ended December 31, 2004									Year Ended December 31, 2003
Portfolio	Class N			Class I			Total			Class N			Class I			Total
Growth	$	19,930		$	15,264		$	35,194		$	7,157		$	21,956		$	29,113
Tax-Managed Growth		—			246			246			36			1,123			1,159
Large Cap Growth		99			1,556			1,655			116			1,031			1,147
Small Cap Growth		182,154			77,876			260,030			298,425			101,709			400,134
Small Mid-Cap Growth		7,409			13,822			21,231			699			2,989			3,688
International Growth		806,487			336,908			1,143,395			758,408			254,587			1,012,995
International Equity (a)		1,729			14,645			16,374			—			—			—
Value Discovery		13,405			45,000			58,405			3,825			49,356			53,181
Income (b)		50,605			42,898			93,503			48,173			90,922			139,095
Ready Reserves		1,678,077			—			1,678,077			1,648,639			—			1,648,639

	Reinvested Distributions (Dollars)
	Year Ended December 31, 2004									Year Ended December 31, 2003
Portfolio	Class N			Class I			Total			Class N			Class I			Total
Growth	$	—		$	—		$	—		$	—		$	—		$	—
Tax-Managed Growth		—			—			—			—			—			—
Large Cap Growth		—			—			—			—			—			—
Small Cap Growth		33,424			19,852			53,276			4,718			2,482			7,200
Small Mid-Cap Growth		—			—			—			—			—			—
International Growth		497			1,664			2,161			1,375			1,082			2,457
International Equity (a)		—			—			—			—			—			—
Value Discovery		3,559			22,079			25,638			—			—			—
Income		2,575			7,510			10,085			1,695			8,512			10,207
Ready Reserves		8,904			—			8,904			8,334			—			8,334

	Redemptions (Dollars)
	Year Ended December 31, 2004									Year Ended December 31, 2003
Portfolio	Class N			Class I			Total			Class N			Class I			Total
Growth	$	15,081		$	45,717		$	60,798		$	8,875		$	51,809		$	60,684
Tax-Managed Growth		41			1,610			1,651			14			831			845
Large Cap Growth		134			945			1,079			104			2,058			2,162
Small Cap Growth		128,696			29,326			158,022			40,291			13,239			53,530
Small Mid-Cap Growth		924			254			1,178			—			—			—
International Growth		409,543			77,654			487,197			238,935			98,076			337,011
International Equity (a)(b)		1			7,745			7,746			—			—			—
Value Discovery		9,478			66,515			75,993			12,601			60,972			73,573
Income		16,560			51,147			67,707			23,206			52,035			75,241
Ready Reserves		1,748,986			—			1,748,986			1,827,009			—			1,827,009

	Net Change in Net Assets relating to Fund Share Activity (Dollars)
	Year Ended December 31, 2004									Year Ended December 31, 2003
Portfolio	Class N			Class I			Total			Class N			Class I			Total
Growth	$	4,849		$	(30,453	)	$	(25,604	)	$	(1,718	)	$	(29,853	)	$	(31,571	)
Tax-Managed Growth		(41	)		(1,364	)		(1,405	)		22			292			314
Large Cap Growth		(35	)		611			576			12			(1,027	)		(1,015	)
Small Cap Growth		86,882			68,402			155,284			262,852			90,952			353,804
Small Mid-Cap Growth		6,485			13,568			20,053			699			2,989			3,688
International Growth		397,441			260,918			658,359			520,848			157,593			678,441
International Equity (a)		1,728			6,900			8,628			—			—			—
Value Discovery		7,486			564			8,050			(8,776	)		(11,616	)		(20,392	)
Income		36,620			(739	)		35,881			26,662			47,399			74,061
Ready Reserves		(62,005	)		—			(62,005	)		(170,036	)		—			(170,036	)

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

(b)

The sales of Class I for Income Fund reflect two in-kind purchases totaling $1.4 million dollars. The redemptions for Class I for International Equity Fund reflects an in-kind redemption of $7.7 million. This in-kind redemption resulted in a non-taxable gain of $739 (in thousands).

December 31, 2004

William Blair Funds 63


	Sales (Shares)
	Year Ended December 31, 2004						Year Ended December 31, 2003
Portfolio	Class N		Class I		Total		Class N		Class I		Total
Growth	2,031		1,516		3,547		824		2,476		3,300
Tax-Managed Growth	—		29		29		5		148		153
Large Cap Growth	16		259		275		22		201		223
Small Cap Growth	7,573		3,260		10,833		15,338		5,249		20,587
Small Mid-Cap Growth	714		1,328		2,042		70		299		369
International Growth	41,858		17,229		59,087		49,012		16,140		65,152
International Equity (a)	165		1,392		1,557		—		—		—
Value Discovery	576		1,900		2,476		203		2,696		2,899
Income	4,919		4,171		9,090		4,557		8,632		13,189
Ready Reserves	1,678,077		—		1,678,077		1,648,639		—		1,648,639

	Reinvested Distributions (Shares)
	Year Ended December 31, 2004						Year Ended December 31, 2003
Portfolio	Class N		Class I		Total		Class N		Class I		Total
Growth	—		—		—		—		—		—
Tax-Managed Growth	—		—		—		—		—		—
Large Cap Growth	—		—		—		—		—		—
Small Cap Growth	1,331		781		2,112		226		118		344
Small Mid-Cap Growth	—		—		—		—		—		—
International Growth	23		78		101		77		60		137
International Equity (a)	—		—		—		—		—		—
Value Discovery	160		991		1,151		—		—		—
Income	251		734		985		162		811		973
Ready Reserves	8,904		—		8,904		8,334		—		8,334

	Redemptions (Shares)
	Year Ended December 31, 2004						Year Ended December 31, 2003
Portfolio	Class N		Class I		Total		Class N		Class I		Total
Growth	1,529		4,528		6,057		1,027		5,796		6,823
Tax-Managed Growth	5		190		195		2		109		111
Large Cap Growth	22		158		180		20		415		435
Small Cap Growth	5,546		1,239		6,785		2,161		783		2,944
Small Mid-Cap Growth	86		26		112		—		—		—
International Growth	21,332		4,005		25,337		16,368		6,456		22,824
International Equity (a)	—		705		705		—		—		—
Value Discovery	408		2,844		3,252		767		3,409		4,176
Income	1,614		4,985		6,599		2,198		4,957		7,155
Ready Reserves	1,748,986		—		1,748,986		1,827,009		—		1,827,009

	Net Change in Shares Outstanding relating to Fund Share Activity (Shares)
	Year Ended December 31, 2004						Year Ended December 31, 2003
Portfolio	Class N		Class I		Total		Class N		Class I		Total
Growth	502		(3,012	)	(2,510	)	(203	)	(3,320	)	(3,523	)
Tax-Managed Growth	(5	)	(161	)	(166	)	3		39		42
Large Cap Growth	(6	)	101		95		2		(214	)	(212	)
Small Cap Growth	3,358		2,802		6,160		13,403		4,584		17,987
Small Mid-Cap Growth	628		1,302		1,930		70		299		369
International Growth	20,549		13,302		33,851		32,721		9,744		42,465
International Equity (a)	165		687		852		—		—		—
Value Discovery	328		47		375		(564	)	(713	)	(1,277	)
Income	3,556		(80	)	3,476		2,521		4,486		7,007
Ready Reserves	(62,005	)	—		(62,005	)	(170,036	)	—		(170,036	)

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

64 Annual Report

December 31, 2004

Financial Highlights

Growth Fund


	Class N
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	9.97		$	8.06		$	10.87		$	12.73		$	20.10
Income (loss) from investment operations:
Net investment income (loss)		(0.06	)		(0.06	)		(0.07	)		(0.06	)		(0.06	)
Net realized and unrealized gain (loss) on investments		0.79			1.97			(2.74	)		(1.66	)		(1.52	)

Total from investment operations		0.73			1.91			(2.81	)		(1.72	)		(1.58	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			0.14			5.79

Total distributions		—			—			—			0.14			5.79

Net asset value, end of period	$	10.70		$	9.97		$	8.06		$	10.87		$	12.73

Total return (%)		7.32			23.70			(25.85	)		(13.53	)		(7.47	)
Ratios to average daily net assets (%):
Expenses		1.17			1.19			1.19			1.18			1.13
Net investment income (loss)		(0.60	)		(0.67	)		(0.73	)		(0.57	)		(0.34	)

	Class I
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	10.08		$	8.12		$	10.93		$	12.77		$	20.10
Income (loss) from investment operations:
Net investment income (loss)		(0.04	)		(0.04	)		(0.05	)		(0.04	)		(0.01	)
Net realized and unrealized gain (loss) on investments		0.80			2.00			(2.76	)		(1.66	)		(1.53	)

Total from investment operations		0.76			1.96			(2.81	)		(1.70	)		(1.54	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			0.14			5.79

Total distributions		—			—			—			0.14			5.79

Net asset value, end of period	$	10.84		$	10.08		$	8.12		$	10.93		$	12.77

Total return (%)		7.54			24.14			(25.71	)		(13.33	)		(7.27	)
Ratios to average daily net assets (%):
Expenses		0.92			0.94			0.94			0.93			0.88
Net investment income (loss)		(0.35	)		(0.42	)		(0.48	)		(0.32	)		(0.06	)



	Years Ended December 31,
	2004	2003	2002	2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$275,506	$281,654	$255,625	$	386,096	$	550,987
Portfolio turnover rate (%)	35	45	29		74		88

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 65

Financial Highlights

Tax-Managed Growth Fund


	Class N
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	8.41		$	6.86		$	9.07		$	10.08		$	10.18
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)		(0.07	)		(0.06	)		(0.05	)		(0.02	)
Net realized and unrealized gain (loss) on investments		0.66			1.62			(2.15	)		(0.96	)		(0.08	)

Total from investment operations		0.58			1.55			(2.21	)		(1.01	)		(0.10	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	8.99		$	8.41		$	6.86		$	9.07		$	10.08

Total return (%)		6.90			22.59			(24.37	)		(10.02	)		(0.98	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.54			1.49			1.36			1.36			1.36
Expenses, before waivers and reimbursements		2.26			2.26			2.22			3.64			11.34
Net investment income (loss), net of waivers and reimbursements		(0.92	)		(0.91	)		(0.72	)		(0.57	)		(0.15	)
Net investment income (loss), before waivers and reimbursements		(1.64	)		(1.68	)		(1.58	)		(2.85	)		(10.13	)

	Class I
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	8.50		$	6.92		$	9.12		$	10.11		$	10.18
Income (loss) from investment operations:
Net investment income (loss)		(0.06	)		(0.05	)		(0.04	)		(0.03	)		—
Net realized and unrealized gain (loss) on investments		0.66			1.63			(2.16	)		(0.96	)		(0.07	)

Total from investment operations		0.60			1.58			(2.20	)		(0.99	)		(0.07	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	9.10		$	8.50		$	6.92		$	9.12		$	10.11

Total return (%)		7.06			22.83			(24.12	)		(9.79	)		(0.69	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.29			1.24			1.11			1.11			1.11
Expenses, before waivers and reimbursements		2.01			2.01			1.97			3.39			11.09
Net investment income (loss), net of waivers and reimbursements		(0.67	)		(0.66	)		(0.47	)		(0.32	)		0.05
Net investment income (loss), before waivers and reimbursements		(1.39	)		(1.43	)		(1.33	)		(2.60	)		(9.93	)


	Years Ended December 31,
	2004			2003			2002			2001			2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	5,847		$	6,871		$	5,303		$	7,211		$	5,001
Portfolio turnover rate (%)		31			37			44			37			32

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

66 Annual Report

December 31, 2004

Financial Highlights

Large Cap Growth Fund


	Class N
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	5.93		$	4.80		$	6.72		$	8.45		$	10.14
Income (loss) from investment operations:
Net investment income (loss)		(0.04	)		(0.04	)		(0.04	)		(0.05	)		(0.05	)
Net realized and unrealized gain (loss) on investments		0.35			1.17			(1.88	)		(1.68	)		(1.64	)

Total from investment operations		0.31			1.13			(1.92	)		(1.73	)		(1.69	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	6.24		$	5.93		$	4.80		$	6.72		$	8.45

Total return (%)		5.23			23.54			(28.57	)		(20.47	)		(16.67	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.38			1.42			1.36			1.36			1.36
Expenses, before waivers and reimbursements		2.29			2.39			2.45			3.01			2.84
Net investment income (loss), net of waivers and reimbursements		(0.63	)		(0.76	)		(0.71	)		(0.79	)		(0.58	)
Net investment income (loss), before waivers and reimbursements		(1.54	)		(1.73	)		(1.80	)		(2.44	)		(2.06	)

	Class I
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	5.99		$	4.82		$	6.74		$	8.47		$	10.14
Income (loss) from investment operations:
Net investment income (loss)		(0.02	)		(0.03	)		(0.03	)		(0.04	)		(0.04	)
Net realized and unrealized gain (loss) on investments		0.34			1.20			(1.89	)		(1.69	)		(1.63	)

Total from investment operations		0.32			1.17			(1.92	)		(1.73	)		(1.67	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	6.31		$	5.99		$	4.82		$	6.74		$	8.47

Total return (%)		5.34			24.27			(28.49	)		(20.43	)		(16.47	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.13			1.17			1.11			1.11			1.11
Expenses, before waivers and reimbursements		2.04			2.14			2.20			2.76			2.59
Net investment income (loss), net of waivers and reimbursements		(0.38	)		(0.51	)		(0.46	)		(0.54	)		(0.35	)
Net investment income (loss), before waivers and reimbursements		(1.29	)		(1.48	)		(1.55	)		(2.19	)		(1.83	)

	Years Ended December 31,
	2004			2003			2002			2001			2000
Supplemental data for all classes:
Net assets at end of period (in thousands)		$6,417			$5,519			$5,469			$5,991		$	10,995
Portfolio turnover rate (%)		39			33			52			87			95

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 67

Financial Highlights

Small Cap Growth Fund


	Class N
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	21.83		$	13.72		$	16.58		$	13.16		$	10.19
Income (loss) from investment operations:
Net investment income (loss)		(0.30	)		(0.21	)		(0.19	)		(0.17	)		(0.11	)
Net realized and unrealized gain (loss) on investments		6.20			8.68			(2.67	)		3.59			3.51

Total from investment operations		5.90			8.47			(2.86	)		3.42			3.40
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.01			0.36			—			—			0.43

Total distributions		2.01			0.36			—			—			0.43

Net asset value, end of period	$	25.72		$	21.83		$	13.72		$	16.58		$	13.16

Total return (%)		27.24			61.88			(17.25	)		25.99			33.68
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.49			1.55			1.56			1.59			1.60
Expenses, before waivers and reimbursements		1.46			1.52			1.62			1.95			2.17
Net investment income (loss), net of waivers and reimbursements		(1.27	)		(1.22	)		(1.31	)		(1.15	)		(0.75	)
Net investment income (loss), before waivers and reimbursements		(1.24	)		(1.19	)		(1.37	)		(1.51	)		(1.32	)

	Class I
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	22.03		$	13.82		$	16.65		$	13.18		$	10.19
Income (loss) from investment operations:
Net investment income (loss)		(0.24	)		(0.18	)		(0.16	)		(0.13	)		(0.11	)
Net realized and unrealized gain (loss) on investments		6.26			8.75			(2.67	)		3.60			3.53

Total from investment operations		6.02			8.57			(2.83	)		3.47			3.42
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.01			0.36			—			—			0.43

Total distributions		2.01			0.36			—			—			0.43

Net asset value, end of period	$	26.04		$	22.03		$	13.82		$	16.65		$	13.18

Total return (%)		27.54			62.15			(17.00	)		26.33			33.87
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.24			1.35			1.31			1.34			1.35
Expenses, before waivers and reimbursements		1.21			1.28			1.37			1.70			1.92
Net investment income (loss), net of waivers and reimbursements		(1.02	)		(1.02	)		(1.06	)		(0.90	)		(0.72	)
Net investment income (loss), before waivers and reimbursements		(0.99	)		(0.95	)		(1.12	)		(1.26	)		(1.29	)


	Years Ended December 31,
	2004			2003			2002			2001			2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	771,209		$	518,824		$	78,581		$	54,658		$	28,778
Portfolio turnover rate (%)		109			103			133			147			433

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

68 Annual Report

December 31, 2004

Financial Highlights

Small-Mid Cap Growth Fund


	Class N
	Years Ended December 31,
	2004			2003 (a)
Net asset value, beginning of period	$	9.94		$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.13	)		—
Net realized and unrealized gain (loss) on investments		1.47			(0.06	)

Total from investment operations		1.34			(0.06	)
Less distributions from:
Net investment income		—			—
Net realized gain		—			—

Total distributions		—			—

Net asset value, end of period	$	11.28		$	9.94

Total return (%)		13.48			(0.60	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.54			1.54
Expenses, before waivers and reimbursements		2.14			1.54
Net investment income (loss), net of waivers and reimbursements		(1.26	)		(1.54	)
Net investment income (loss), before waivers and reimbursements		(1.86	)		(1.54	)

	Class I
	Years Ended December 31,
	2004			2003 (a)
Net asset value, beginning of period	$	9.94		$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.11	)		—
Net realized and unrealized gain (loss) on investments		1.47			(0.06	)

Total from investment operations		1.36			(0.06	)
Less distributions from:
Net investment income		—			—
Net realized gain		—			—

Total distributions		—			—

Net asset value, end of period	$	11.30		$	9.94

Total return (%)		13.68			(0.60	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.29			1.29
Expenses, before waivers and reimbursements		1.89			1.29
Net investment income (loss), net of waivers and reimbursements		(1.01	)		(1.29	)
Net investment income (loss), before waivers and reimbursements		(1.61	)		(1.29	)


	Years Ended December 31,
	2004			2003
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	25,974		$	3,673
Portfolio turnover rate (%) (b)		55			—

(a)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2003.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 69

Financial Highlights

International Growth Fund


	Class N
	Years Ended December 31,
	2004			2003		2002			2001			2000
Net asset value, beginning of period	$	18.65		$	13.13	$	15.48		$	17.93		$	24.03
Income (loss) from investment operations:
Net investment income (loss) (a)		(0.02	)		0.02		(0.05	)		(0.02	)		(0.01	)
Net realized and unrealized gain (loss) on investments		3.47			5.52		(2.30	)		(2.43	)		(2.04	)

Total from investment operations		3.45			5.54		(2.35	)		(2.45	)		(2.05	)
Less distributions from:
Net investment income		0.01			0.02		—			—			0.08
Net realized gain		—			—		—			—			3.97

Total distributions		0.01			0.02		—			—			4.05

Net asset value, end of period	$	22.09		$	18.65	$	13.13		$	15.48		$	17.93

Total return (%)		18.48			42.21		(15.18	)		(13.66	)		(8.10	)
Ratios to average daily net assets (%):
Expenses		1.47			1.50		1.51			1.60			1.59
Net investment income (loss)		(0.16	)		0.05		(0.36	)		(0.11	)		(0.44	)

	Class I
				Years Ended December 31,
	2004			2003		2002			2001			2000
Net asset value, beginning of period	$	18.85		$	13.27	$	15.60		$	18.02		$	24.03
Income (loss) from investment operations:
Net investment income (loss) (a)		0.01			0.09		(0.01	)		0.02			0.03
Net realized and unrealized gain (loss) on investments		3.53			5.54		(2.32	)		(2.44	)		(2.03	)

Total from investment operations		3.54			5.63		(2.33	)		(2.42	)		(2.00	)
Less distributions from:
Net investment income		0.05			0.05		—			—			0.04
Net realized gain		—			—		—			—			3.97

Total distributions		0.05			0.05		—			—			4.01

Net asset value, end of period	$	22.34		$	18.85	$	13.27		$	15.60		$	18.02

Total return (%)		18.79			42.42		(14.94	)		(13.43	)		(7.87	)
Ratios to average daily net assets (%):
Expenses		1.22			1.25		1.26			1.35			1.34
Net investment income (loss)		0.09			0.30		(0.11	)		0.14			(0.16	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	3,001,434	$	1,899,699	$	778,788	$	454,055	$	333,888
Portfolio turnover rate (%)		79		57		73		112		116

(a)	Includes $0.12, $0.03, $0.00, $0.00, and $0.06 in PFIC transactions which are treated as ordinary income for Federal tax purposes for the years 2004, 2003, 2002, 2001, and 2000, respectively.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

70 Annual Report

December 31, 2004

Financial Highlights

International Equity Fund


	Class N
	Period Ended December 31, 2004 (a)
Net asset value, beginning of period	$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.04	)
Net realized and unrealized gain (loss) on investments		1.37

Total from investment operations		1.33
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	11.33

Total return (%)		13.30
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.50
Expenses, before waivers and reimbursements		2.96
Net investment income (loss), net of waivers and reimbursements		(0.77	)
Net investment income (loss), before waivers and reimbursements		(2.23	)

	Class I
	Period Ended December 31, 2004 (a)
Net asset value, beginning of period	$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.01	)
Net realized and unrealized gain (loss) on investments		1.38

Total from investment operations		1.37
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	11.37

Total return (%)		13.70
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.25
Expenses, before waivers and reimbursements		2.71
Net investment income (loss), net of waivers and reimbursements		(0.52	)
Net investment income (loss), before waivers and reimbursements		(1.98	)


	Period Ended December 31, 2004
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	9,689
Portfolio turnover rate (%) (b)		108

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 71

Financial Highlights

Value Discovery Fund


	Class N
	Years Ended December 31,
	2004			2003			2002			2001		2000
Net asset value, beginning of period	$	22.68		$	16.28		$	18.23		$	16.20	$	13.66
Income (loss) from investment operations:
Net investment income (loss)		(0.01	)		(0.06	)		(0.03	)		0.08		0.05
Net realized and unrealized gain (loss) on investments		2.68			6.46			(1.92	)		2.74		2.52

Total from investment operations		2.67			6.40			(1.95	)		2.82		2.57
Less distributions from:
Net investment income		—			—			—			0.03		0.03
Net realized gain		2.65			—			—			0.76		—

Total distributions		2.65			—			—			0.79		0.03

Net asset value, end of period	$	22.70		$	22.68		$	16.28		$	18.23	$	16.20

Total return (%)		12.05			39.31			(10.70	)		17.39		18.85
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.34			1.49			1.53			1.61		1.64
Expenses, before waivers and reimbursements		1.48			1.58			1.53			1.66		1.88
Net investment income (loss), net of waivers and reimbursements		(0.06	)		(0.30	)		(0.16	)		0.28		0.40
Net investment income (loss), before waivers and reimbursements		(0.20	)		(0.39	)		(0.16	)		0.23		0.16

	Class I
	Years Ended December 31,
	2004			2003			2002			2001		2000
Net asset value, beginning of period	$	22.76		$	16.31		$	18.19		$	16.16	$	13.64
Income (loss) from investment operations:
Net investment income (loss)		0.01			(0.03	)		0.01			0.17		0.09
Net realized and unrealized gain (loss) on investments		2.70			6.48			(1.89	)		2.70		2.52

Total from investment operations		2.71			6.45			(1.88	)		2.87		2.61
Less distributions from:
Net investment income		—			—			—			0.08		0.09
Net realized gain		2.65			—			—			0.76		—

Total distributions		2.65			—			—			0.84		0.09

Net asset value, end of period	$	22.82		$	22.76		$	16.31		$	18.19	$	16.16

Total return (%)		12.18			39.55			(10.34	)		17.72		19.16
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.23			1.33			1.34			1.36		1.39
Expenses, before waivers and reimbursements		1.23			1.33			1.34			1.41		1.63
Net investment income (loss), net of waivers and reimbursements		0.05			(0.14	)		0.03			0.53		0.61
Net investment income (loss), before waivers and reimbursements		0.05			(0.14	)		0.03			0.48		0.37


	Years Ended December 31,
	2004			2003			2002			2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	246,176		$	237,111		$	190,802		$	149,292	$	74,093
Portfolio turnover rate (%)		50			51			20			48		68

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

72 Annual Report

December 31, 2004

Financial Highlights

Income Fund


	Class N
	Years Ended December 31,
	2004			2003			2002		2001		2000
Net asset value, beginning of period	$	10.43		$	10.62		$	10.34	$	10.22	$	9.92
Income (loss) from investment operations:
Net investment income (loss) (a)		0.52			0.40			0.55		0.55		0.62
Net realized and unrealized gain (loss) on investments		(0.26	)		(0.02	)		0.25		0.17		0.33

Total from investment operations		0.26			0.38			0.80		0.72		0.95
Less distributions from:
Net investment income		0.50			0.57			0.52		0.60		0.65
Net realized gain		—			—			—		—		—

Total distributions		0.50			0.57			0.52		0.60		0.65

Net asset value, end of period	$	10.19		$	10.43		$	10.62	$	10.34	$	10.22

Total return (%)		2.61			3.68			7.91		7.18		9.99
Ratios to average daily net assets (%) :
Expenses		0.78			0.77			0.81		0.94		0.92
Net investment income (loss)		4.12			4.09			5.23		5.38		6.23

	Class I
	Years Ended December 31,
	2004			2003			2002		2001		2000
Net asset value, beginning of period	$	10.40		$	10.62		$	10.35	$	10.24	$	9.91
Income (loss) from investment operations:
Net investment income (loss) (a)		0.59			0.43			0.57		0.58		0.64
Net realized and unrealized gain (loss) on investments		(0.31	)		(0.04	)		0.24		0.15		0.34

Total from investment operations		0.28			0.39			0.81		0.73		0.98
Less distributions from:
Net investment income		0.53			0.61			0.54		0.62		0.65
Net realized gain		—			—			—		—		—

Total distributions		0.53			0.61			0.54		0.62		0.65

Net asset value, end of period	$	10.15		$	10.40		$	10.62	$	10.35	$	10.24

Total return (%)		2.79			3.76			8.04		7.32		10.28
Ratios to average daily net assets (%) :
Expenses		0.63			0.62			0.66		0.79		0.77
Net investment income (loss)		4.27			4.24			5.38		5.53		6.39



	Years Ended December 31,
	2004	2003	2002	2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$294,084	$265,062	$196,136	$	176,264	$	167,746
Portfolio turnover rate (%)	43	36	66		82		54

(a)

As required, in 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began treating any paydown gain or losses on mortgage and asset backed securities as an adjustment to income. The effect of this change for the year 2001 was to decrease net investment income per share by $.05 and increase the net realized and unrealized gain and loss per share by $.05. It decreases the Ratio of Net Investment Income to Average Net Assets from 5.87% to 5.38% for Class N for 2001. It decreased the Ratio of Net Investment Income from 6.02% to 5.53% for Class I shares for 2001.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 73

Financial Highlights

Ready Reserves Fund


	Class N
	Years Ended December 31,
	2004		2003		2002		2001		2000
Net asset value, beginning of period	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00
Income (loss) from investment operations:
Net investment income (loss)		0.01		0.01		0.01		0.04		0.06

Total from investment operations		0.01		0.01		0.01		0.04		0.06
Less distributions from:
Net investment income		0.01		0.01		0.01		0.04		0.06

Total distributions		0.01		0.01		0.01		0.04		0.06

Net asset value, end of period	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00

Total return (%)		0.80		0.66		1.28		3.66		5.91
Ratios to average daily net assets (%):
Expenses		0.65		0.66		0.67		0.67		0.70
Net investment income (loss)		0.80		0.66		1.28		3.63		5.78
Supplemental data:
Net assets at end of period (in thousands)	$	1,092,940	$	1,153,932	$	1,324,001	$	1,403,740	$	1,339,180

74 Annual Report

December 31, 2004

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders

William Blair Funds

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of William Blair Funds (comprised of Growth Fund, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund, Small-Mid Cap Growth Fund, International Growth Fund, International Equity Fund, Value Discovery Fund, Income Fund and Ready Reserves Fund) (collectively, the “Portfolios”) as of December 31, 2004, and the related statements of operations, changes in net assets and financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolios’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the William Blair Funds at December 31, 2004, the results of their operations for the period then ended, the changes in their net assets and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

LOGO

Chicago, Illinois

February 4, 2005

December 31, 2004

William Blair Funds 75

Trustees and Officers. The trustees and officers of the William Blair Funds, their ages, their principal occupations during the last five years, their affiliations, if any, with William Blair & Company, L.L.C., and other significant affiliations are set forth below. The address of each trustee and officer is 222 West Adams Street, Chicago, Illinois 60606.


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer
Interested Trustees
Conrad Fischer, 70*	Chairman of the Board of Trustees	Since 1987	Principal, William Blair & Company, L.L.C.; Partner, APM Limited Partnership	12	Trustee Emeritus, Chicago Child Care Society, a non-profit organization, and Partner, APM Limited Partnership

Michelle Seitz, 39*	Trustee	Since 2002	Principal, William Blair & Company, L.L.C.	12	N/A
Non-Interested Trustees

J. Grant Beadle, 72	Trustee	Since 1997	Retired Chairman and Chief Executive Officer, Union Special Corporation, industrial sewing machine manufacturer	12	Batts Group and Oliver Products Company, manufacturer of products for the medical device, food and grahics markets, Retired Associate Director, Northwestern University Institute for The Learning Sciences.

Theodore A. Bosler, 70	Trustee	Since 1997	Retired Principal and Vice President, Lincoln Capital Management	12	Crystal Lake Watershed Fund, Desert Foothills Land Trust and Institute of Chartered Financial Analysts.

Ann P. McDermott, 65	Trustee	Since 1996	Board member and officer for various civic and charitable organizations over the past thirty years; professional experience prior thereto, registered representative for New York Stock Exchange firm	12	Junior League of Chicago, Northwestern University, Women’s Board; Ravinia Festival Women’s Board; Rush Presbyterian St. Luke’s Medical Center, Women’s Board; University of Chicago, Women’s Board; Visiting Nurses Association, Honorary Director

Donald J. Reaves, 58	Trustee	Since 2004	Vice President for Administration and Chief Financial Officer, University of Chicago since 2002. Executive Vice President and Chief Financial Officer, Brown University from 1993 to 2002		American Student Assistance Corp.; Amica Mutual Insurance Company; NACUBO (National Association of College and University Business Officers)

John B. Schwemm, 70	Trustee	Since 1990	Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons Company	12	USG Corp., building material manufacturer, and Walgreen Co.

Donald L. Seeley, 60	Trustee	Since 2003	Director, Applied Investment Management Program, University of Arizona Department of Finance, Formerly Vice Chairman and Chief Financial Officer, True North Communications, Inc., marketing communications and advertising firm	12	Beverly Enterprises, Inc., provider of eldercare and rehabilitative services; Modem Media, Inc., interactive services company

76 Annual Report

December 31, 2004


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer

Robert E. Wood II, 66	Trustee	Since 1999	Retired Executive Vice President, Morgan Stanley Dean Witter	12	Chairman, Add-Vision, Inc. manufacturer of surface animation systems, and Micro-Combustion, LLC
Officers

Marco Hanig, 46	President	Since 1999	Principal, William Blair & Company, L.L.C.; former Senior Vice President, First Chicago NBD	N/A	N/A
Michael P. Balkin, 45	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	Exceed Corp.

Karl W. Brewer, 38	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	N/A

Harvey H. Bundy, III, 60	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	N/A

Mark A. Fuller, III, 47	Senior Vice President	Since 1993	Principal, William Blair & Company, L.L.C.	N/A	Partner, Fulsen Howney Partners

W. George Greig, 52	Senior Vice President	Since 1996	Principal, William Blair & Company, L.L.C.	N/A	N/A

Michael A. Jancosek, 45	Senior Vice President Vice President	Since 2004 Since 2000	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.; former Vice President, First Chicago NBD	N/A	N/A

John F. Jostrand, 50	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.	N/A	N/A

James S. Kaplan, 44	Senior Vice President Vice President	Since 2004 Since 1995	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Robert C. Lanphier, IV, 48	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	Chairman, AG. Med, Inc.

David S. Mitchell, 44	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Capucine E. Price, 40	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

December 31, 2004

William Blair Funds 77


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer

Gregory J. Pusinelli, 46	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.; former Principal and Vice President, Stein Roe & Farnham Incorporated	N/A	N/A

Norbert W. Truderung, 52	Senior Vice President	Since 1992	Principal, William Blair & Company, L.L.C.	N/A	N/A

Jeffrey A. Urbina, 49	Senior Vice President	Since 1998	Principal, William Blair & Company, L.L.C.	N/A	N/A
Christopher T. Vincent, 48	Senior Vice President Vice President	Since 2004 Since 2002	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.; former Managing Director/Senior Portfolio Manager, Zurich Scudder Investments	N/A	Uhlich Children’s Home

Terence M. Sullivan, 60	Vice President and Treasurer	Since 1997	Associate, William Blair & Company, L.L.C.	N/A	N/A

Colette M. Garavalia, 43	Secretary	Since 2000	Associate, William Blair & Company, L.L.C.; former Assistant Vice President, Scudder Kemper Investments	N/A	N/A

Mr. Fischer and Ms. Seitz are interested persons of the William Blair Funds because each is a principal of William Blair & Company, L.L.C., the Funds’ investment advisor and principal underwriter.

The Statement of Additional Information for the William Blair Funds includes additional information about the trustees and is available without charge by calling 1-800-635-2886 (in Massachusetts 1-800-635-2840) or by writing the Fund.

78 Annual Report

December 31, 2004

Proxy Voting

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling 1-800-635-2886 (in Massachusetts 1-800-635-2840), at www.williamblairfunds.com and on the SEC’s website at http://www.sec.gov.

Quarterly Portfolio Schedules

The Fund will file its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended March 31 and September 30) on Form N-Q. The Fund’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330.

December 31, 2004

William Blair Funds 79

Useful Information About Your Report (unaudited)

Please refer to this information when reviewing the Expense Example for each Fund.

Expense Example

As a shareholder of a Fund, you incur two types of costs: (1) transaction costs such as redemption fees and (2) ongoing costs, including management fees distribution (12b-1) fees (for Class N shares except for Ready Reserves Fund), service fee (for Class N of Ready Reserves Fund), and other Fund expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare the Fund’s 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from July 1, 2004 to December 31, 2004.

Actual Expenses

In each example, the first line for each share class in the table provides information about the actual account values and actual expenses. These expenses reflect the effect of any expense cap applicable to the share class during the period. Without this expense cap, the costs shown in the table would have been higher. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during the period.

Hypothetical Example for Comparison Purposes

In each example, the second line for each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. This is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund to other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in both examples are meant to highlight your ongoing costs only and do not reflect any transactional costs or account type fees, such as redemption fees and IRA Fiduciary Administration fees, respectively. These fees are fully described in the prospectus. Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

80 Annual Report

December 31, 2004

Fund Expenses (unaudited)

The examples below show you the ongoing costs (in dollars) of investing in your fund and allows you to compare these costs with those of other mutual funds. Please refer to the previous page for a detailed explanation of the information presented on this chart.


	Beginning Account Value 7/1/2004		Ending Account Value 12/31/2004		Expenses Paid during Period(a)		Annualized Expense Ratio
Growth Fund
Class N—actual return	$	1,000.00	$	1,074.30	$	6.10	1.17	%
Class N—hypothetical 5% return		1,000.00		1,019.25		5.94	1.17

Class I—actual return		1,000.00		1,075.40		4.80	0.92
Class I—hypothetical 5% return		1,000.00		1,020.51		4.67	0.92

Tax-Managed Growth Fund
Class N—actual return		1,000.00		1,057.60		7.97	1.54
Class N—hypothetical 5% return		1,000.00		1,017.39		7.81	1.54

Class I—actual return		1,000.00		1,056.90		6.67	1.29
Class I—hypothetical 5% return		1,000.00		1,018.65		6.55	1.29

Large Cap Growth Fund
Class N—actual return		1,000.00		1,061.20		7.15	1.38
Class N—hypothetical 5% return		1,000.00		1,018.20		7.00	1.38

Class I—actual return		1,000.00		1,062.30		5.86	1.13
Class I—hypothetical 5% return		1,000.00		1,019.46		5.74	1.13

Small Cap Growth Fund
Class N—actual return		1,000.00		1,140.70		8.02	1.49
Class N—hypothetical 5% return		1,000.00		1,017.65		7.56	1.49

Class I—actual return		1,000.00		1,142.10		6.68	1.24
Class I—hypothetical 5% return		1,000.00		1,018.90		6.29	1.24

Small-Mid Cap Growth Fund
Class N—actual return		1,000.00		1,060.20		7.98	1.54
Class N—hypothetical 5% return		1,000.00		1,017.39		7.81	1.54

Class I—actual return		1,000.00		1,061.00		6.68	1.29
Class I—hypothetical 5% return		1,000.00		1,018.65		6.55	1.29

International Growth Fund
Class N—actual return		1,000.00		1,150.80		7.95	1.47
Class N—hypothetical 5% return		1,000.00		1,017.75		7.46	1.47

Class I—actual return		1,000.00		1,151.90		6.60	1.22
Class I—hypothetical 5% return		1,000.00		1,019.00		6.19	1.22

International Equity Fund
Class N—actual return		1,000.00		1,072.90		7.82	1.50
Class N—hypothetical 5% return		1,000.00		1,017.60		7.61	1.50

Class I—actual return		1,000.00		1,076.70		6.53	1.25
Class I—hypothetical 5% return		1,000.00		1,018.55		6.34	1.25

Value Discovery Fund
Class N—actual return		1,000.00		1,064.60		6.95	1.34
Class N—hypothetical 5% return		1,000.00		1,018.40		6.80	1.34

Class I—actual return		1,000.00		1,064.80		6.38	1.23
Class I—hypothetical 5% return		1,000.00		1,018.95		6.24	1.23

Income Fund
Class N—actual return		1,000.00		1,030.60		3.98	0.78
Class N—hypothetical 5% return		1,000.00		1,021.22		3.96	0.78

Class I—actual return		1,000.00		1,031.30		3.22	0.63
Class I—hypothetical 5% return		1,000.00		1,021.97		3.20	0.63

Ready Reserves Fund
Class N—actual return		1,000.00		1,005.50		3.28	0.65
Class N—hypothetical 5% return		1,000.00		1,021.87		3.30	0.65

(a)

Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the period (184), and dividend by 365 (to reflect the one-half-year period.

December 31, 2004

William Blair Funds 81

BOARD OF TRUSTEES

Conrad Fischer, Chairman

Principal, William Blair & Company, L.L.C.

J. Grant Beadle

Retired Chairman and CEO, Union Special Corporation

Theodore A. Bosler

Retired Principal and Vice President, Lincoln Capital Management Company

Ann P. McDermott

Director and Trustee

Profit and not-for-profit organizations

Donald J. Reaves

Vice President for Administration and Chief Financial Officer, University of Chicago

Donald L. Seeley

Adjunct Lecturer and Director, University of Arizona Department of Finance

John B. Schwemm

Retired Chairman and CEO, R.R. Donnelley & Sons Company

Michelle Seitz

Principal, William Blair & Company, L.L.C.,

Robert E. Wood II

Retired Executive Vice President, Morgan Stanley Dean Witter

Officers

Marco Hanig, President

Michael P. Balkin, Senior Vice President

Karl W. Brewer, Senior Vice President

Harvey H. Bundy III, Senior Vice President

Mark A. Fuller, III, Senior Vice President

W. George Greig, Senior Vice President

Michael A. Jancosek, Senior Vice President

John F. Jostrand, Senior Vice President

James S. Kaplan, Senior Vice President

Robert C. Lanphier, IV, Senior Vice President

David S. Mitchell, Senior Vice President

Capucine E. Price, Senior Vice President

Gregory J. Pusinelli, Senior Vice President

Norbert W. Truderung, Senior Vice President

Jeffrey A. Urbina, Senior Vice President

Christopher T. Vincent, Senior Vice President

Terence M. Sullivan, Vice President and Treasurer

Colette M. Garavalia, Secretary

Investment Advisor

William Blair & Company, L.L.C.

Legal Counsel

Vedder, Price, Kaufman & Kammholz, P.C.

Independent Registered Public Accounting Firm

Ernst & Young LLP

Transfer Agent

State Street Bank and Trust Company

P.O. Box 8506

Boston, MA 02266-8506

For customer assistance, call 1-800-635-2886

(Massachusetts 1-800-635-2840)

82 Date of First Use February, 2005

WILLIAM BLAIR FUNDS

GROWTH FUNDS

Growth Fund

Tax-Managed Growth Fund

Large Cap Growth Fund

Small Cap Growth Fund

Small-Mid Cap Growth Fund

International Growth Fund

International Equity Fund

OTHER FUNDS

Value Discovery Fund

Income Fund

Ready Reserves Fund

222 West Adams Street Chicago, Illinois 60606 800.742.7272 w w w.williamblairfunds.com

William Blair & Company , L . L . C ., Distributors


				WILLIAM BLAIR FUNDS

INSTITUTIONAL INTERNATIONAL FUNDS

ANNUAL REPORT

DECEMBER 31, 2004

Table of Contents


Institutional International Growth Fund
An Overview from the Portfolio Manager		2
Portfolio of Investments		5

Institutional International Equity Fund
An Overview from the Portfolio Manager		8
Portfolio of Investments		10

Financial Statements		12

Notes to Financial Statements		15

Report of Independent Registered Public Accounting Firm		21

Board of Trustees		22

Fund Expense Information		26

Officers		28

This report is submitted for the general information of the shareholders of the William Blair Funds. It is not authorized for distribution to prospective investors unless accompanied or preceded by a prospectus of the William Blair Funds. Please consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling 1-800-742-7272. Read it carefully before you invest or send money. ^©William Blair & Company, LLC., distributor.

December 31, 2004

William Blair Funds 1

LOGO

W. George Greig

INSTITUTIONAL INTERNATIONAL GROWTH FUND

The Institutional International Growth Fund invests primarily in common stocks of foreign growth companies of all sizes.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Institutional International Growth Fund posted a 18.15% gain for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 21.36%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

During the year, value-oriented, or more defensive benchmarks outperformed their growth counterparts by 8.54%, as measured by the MSCI ACWI ex-U.S. style indices. Despite 2004’s strong absolute performance, the Fund’s focus on high quality growth names was not rewarded on a relative basis, particularly in Asia and Japan, as they were viewed by investors as the markets most susceptible to slowing global growth and liquidity constraints. The absence of meaningful allocations to Basic Materials, Utilities and Telecommunications stocks also hampered relative Fund performance during this time period.

What sectors had the biggest impact on portfolio performance?

2 Annual Report

December 31, 2004

What is your outlook for the international markets?

December 31, 2004

William Blair Funds 3

Institutional International Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	1 Year		Since Inception(a)
Institutional International Growth Fund	18.15	%	21.54	%
MSCI All Country World Ex-U.S. Index	21.36		23.58

(a)

For the period from July 26, 2002 (Commencement of Operations) to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Morgan Stanley Capital International (MSCI) All Country World Free ex-US Index is an unmanaged index that includes developed and emerging markets and reduced Japanese portion, making it more comparable to the Institutional International Growth Fund in terms of investment approach.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

4 Annual Report

December 31, 2004

Institutional International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Shares	Issuer	Value

*Common Stocks—Europe—30.6%*
Austria—1.5%
353,200	Erste Bank Der Oester (Banking)	$	18,764

Estonia—0.6%
514,072	Hansabank (Banking)		6,694

Finland—0.7%
52,500	Nokian Renkaat Ojy (Automotive)		7,923

France—8.2%
90,100	Christian Dior (Apparel and luxury goods)		6,103
1,500	Dassault Systemes (Computers and data processing)		75
176,000	Essilor International (Health care supplies)		13,769
29,400	Hermes International SCA (Apparel & luxury goods)		5,853
528,400	*JC Decaux (Media)		15,383
70,500	Klepierre (Real estate)		6,219
600	LVMH Moet-Hennessy Louis Vuitton (Luxury goods)		46
170,400	*Orpea (Hospital and nursing management)		6,006
421,600	Sanofi-Aventis (Pharmaceuticals)		33,592
69,900	Technip-Coflexip S.A. (Construction)		12,882

			99,928

Germany—6.2%
113,500	Celesio AG (Pharmaceuticals)		9,218
190,700	Continental AG (Diversified manufacturing)		12,082
103,100	Did Deutscher Industrie Svc (Commercial services)		4,047
205,000	E.ON AG (Energy)		18,570
93,600	GFK AG (Commercial services)		3,643
20,900	Puma AG (Consumer non-durables)		5,733
130,200	SAP AG (Software)		23,010

			76,303

Greece—2.7%
335,300	Coca-Cola Hellenic Bottling S.A. (Beverages)		8,148
253,800	EFG Eurobank (Banking)		8,688
106,000	Folli Follie S.A. (Apparel and footwear retailer)		3,098
380,790	National Bank of Greece (Banking)		12,542

			32,476

Ireland—1.3%
443,600	Anglo Irish Bank plc (Finance)		10,743
464,600	*Grafton Group (Wholesale distributors)		5,035

			15,778

Italy—2.5%
754,300	Banco Popolare Di Verona E N (Banking)		15,287
556,600	Credito Emiliano SpA (Banking)		5,510
1,603,900	Hera SpA (Electric services)		4,591
111,100	Pirelli & C Real Estate (Real estate development)		5,806

			31,194

Norway—1.4%
1,071,700	Statoil Asa (Oil & gas)		16,830

Spain—1.0%
212,100	Cortefiel S.A. (Specialty retail)		3,344
162,100	Grupo Ferrovial S.A. (Industrial services)		8,623

			11,967



Shares	Issuer	Value

*Common Stocks—Europe—30.6%—(continued)*
Sweden—1.8%
7,148,100	*Ericsson LM-B Shares (Communications equipment)	$	22,481

Switzerland—2.7%
46,600	*Actelion (Biotechnology)		4,758
5,700	*Geberit AG (Building products)		4,141
17,900	Serono S.A., Class “B” (Biotechnology)		11,679
142,800	UBS AG (Banking)		11,924

			32,502


*United Kingdom—15.4%*
3,392,200	BG Group plc (Industrial services)		23,011
245,800	*Cairn Energy plc (Oil & gas exploration & production)		5,134
1,782,400	Capita Group plc (Commercial services)		12,458
447,300	Carnival plc (Hotels, restaurants and leisure activities)		27,241
814,700	Cattle’s Holdings plc (Finance and leasing)		5,723
329,000	Intertek Group (Diversified commercial services)		4,436
489,500	Johnston Press plc (Publishing)		5,078
210,500	MAN Group plc (Finance)		5,930
322,100	McCarthy & Stone plc (Real estate)		3,668
1,421,000	*Michael Page International (Personnel services)		5,085
1,907,300	Morrison Supermarkets (Groceries)		7,561
302,800	Next plc (Multiline retail)		9,561
631,000	Reckitt Benckiser plc (Household products)		18,996
235,600	Smith & Nephew plc (Health care equipment and supplies)		2,406
1,220,800	Standard Chartered plc (Banking)		22,620
4,835,400	Tesco plc (Food retailer)		29,781

			188,689


*Bermuda—0.0%*
5,700	*Accenture (Information Technology)		154


*Canada—6.2%*
217,100	*Alimentation Couche-Tard—Class “B” (Food retail)		6,421
196,800	Canadian National Railway Company (Railroads)		11,981
110,300	Four Seasons Hotel, Inc. (Hotels)		9,016
246,800	Manulife Financial Corp. (Life and health insurance)		11,391
105,800	*Precision Drilling Corp. (Drilling)		6,657
99,600	*Research in Motion Ltd. (Wireless telecommunication)		8,197
108,100	*Rona, Inc. (Building materials)		3,674
185,700	*Shoppers Drug Mart Corp. (Retail trade)		5,766
377,200	Suncor Energy, Inc. (Energy minerals)		13,324

			76,427


*Japan—19.3%*
99,200	Aeon Credit Service Co., Ltd. (Consumer finance)		7,369
86,800	Aeon Mall Co., Ltd. (Real estate)		6,161
107,200	Arisawa Manufacturing Co. (Chemicals)		4,851
151,700	Arnest One Corp. (Real estate)		3,849
65,100	Askul Corporation (Retail trade)		3,997
329,100	Canon, Inc. (Office electronics)		17,816

See accompanying Notes to Portfolios of Investments.

December 31, 2004

William Blair Funds 5

Institutional International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Shares	Issuer	Value

*Common Stocks—Japan—19.3%—(continued)*
804,500	*Chiyoda Corp. (Construction)	$	5,872
7,200	Denso Corp. (Motor vehicles and equipment)		193
154,500	Fast Retailing Co. Ltd (Specialty retail)		11,768
1,396,700	Hino Motors Ltd. (Trucks, construction and farm machinery)		10,388
157,000	Hoya Corporation (Electronic technology)		17,684
37,990	Keyence Corporation (Electronic technology)		8,506
78,200	Misumi Corp. (Trading companies and distributors)		2,271
904	Mitsubishi Tokyo Financial (Banking)		9,230
50,800	Nakanishi Inc. (Medical specialties)		3,474
206,700	Neomax Co., Ltd. (Electronic equipment and instruments)		3,655
96,000	Nidec Corporation (Electronic technology)		11,717
76,140	Nitori Company Ltd. (Specialty stores)		4,952
126,000	Orix Corporation (Consumer finance)		17,191
231,000	Park 24 Co., Ltd. (Commercial services)		4,136
842	Pasona Inc. (Personnel services)		2,559
131,690	Point Inc. (Apparel and footwear retail)		4,353
77,400	Ryohin Keikaku Co. (Retail stores)		3,876
1,002,500	Sharp Corp. (Electronics)		16,363
1,285,500	*Shinsei Bank, Ltd. (Banking)		8,740
64,700	SMC Corporation (Trucks, construction and farm machinery)		7,403
1,829,400	Sumitomo Trust & Banking Co. (Finance)		13,221
72,100	Sundrug Co., Ltd. (Drug stores)		2,533
776,700	Toto Ltd. (Building products)		7,402
175,500	Trend Micro Inc. (Application software)		9,511
53,900	USS Co., Ltd. (Commercial services)		4,512
9,200	Yamada Denki Company (Retail trade)		394

			235,947


*Emerging Asia—8.9%*
India—3.5%
166,560	Bharat Forge Ltd. (Machinery)		4,085
1,900,100	*Bharti Tele-Ventures (Wireless telecommunication services)		9,503
382,000	HDFC Bank (Banking)		4,597
22,800	HDFC Bank ADR (Banking)		1,034
396,100	Housing Development Finance Corp. (Financial services)		7,002
211,028	Infosys Technologies, Ltd. (Consulting and software services)		10,206
19,800	Infosys Technologies, Ltd. ADR (Consulting and software services)		1,372
183,200	Ranbaxy Laboratories Ltd (Pharmaceuticals)		5,319

			43,118

Indonesia—0.6%
24,196,000	*Bank Rakyat Indonesia (Banking)		7,496

Malaysia—0.2%
4,876,000	*Airasia Bhd (Air transport)		2,130

South Korea—2.9%
328,500	Hyundai Motor Co., Ltd. (Automobiles)		17,550
41,500	Samsung Electronics Co. (Semiconductors)		18,030

			35,580



Shares	Issuer	Value

*Emerging Asia—8.9%—(continued)*
Taiwan—1.7%
8,634,505	EVA Airways Corp. (Airlines)	$	4,240
3,485,347	Hon Hai Precision Industry (Computers)		16,112

			20,352


*Asia—7.2%*
Australia—3.9%
565,000	Billabong International Ltd. (Apparel and luxury goods)		5,063
321,400	Macquarie Bank, Ltd. (Financial services)		11,713
131,500	Perpetual Trustees Australia (Investment managers)		6,470
705,100	Sigma Company, Ltd. (Medical distributors)		5,137
979,900	Toll Holdings, Ltd. (Trucking)		9,814
323,800	Wesfarmers Ltd. (Diversified industrials)		10,094

			48,291

Hong Kong—3.2%
6,634,000	China Insurance International (Insurance)		2,733
36,409,900	Cnooc Ltd. (Oil and gas)		19,494
1,346,000	Esprit Holdings Ltd. (Apparel, footwear and retail)		8,135
4,253,400	Techtronic Industries Co. (Consumer durables)		9,270

			39,632

Singapore—0.1%
2,211,200	Osim International Ltd. (Consumer sundries)		1,202


*Latin America—5.9%*
Brazil—1.0%
88,000	Cia De Concessoes (Transportation)		1,924
150,000	*Gol Linhas Aereas Int S.P—ADR (Air transport)		4,782
193,300	*Natura Cosmeticos S.A. (Cosmetics)		5,638

			12,344

Chile—1.9%
165,133	Banco Santander SP—ADR (Banking)		5,592
276,600	Cencosud S.A.—ADR 144A (Retail stores)		7,316
187,800	Lan Chile S.A.—ADR (Airlines)		6,047
1,919,700	S.A.C.I. Falabella (Department stores)		4,658

			23,613

Mexico—3.0%
6,435,600	America Movil S.A. (Communications)		16,903
2,250,000	*Corporacion Geo Sa De Cv (Homebuilding)		4,499
1,396,500	*Urbi Desarrollos Urbanos S.A. (Household durables)		6,098
2,606,200	Walmart de Mexico (Retail trade)		8,951

			36,451


*Emerging Europe, Mid-East, Africa—3.4%*
Egypt—0.9%
465,735	Orascom Contruction Industry (Construction)		5,561
256,200	*Orascom Telecommunication Holding GDR (Telecommunications)		5,411

			10,972

See accompanying Notes to Portfolios of Investments.

6 Annual Report

December 31, 2004

Institutional International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Shares	Issuer	Value

Common Stocks—Emerging Europe, Mid-East, Africa—3.4%—(continued)
Hungary—0.9%
347,300	OTP Bank (Banking)	$	10,648

Russia—0.0%
200	*Mobile TeleSystems ADR (Wireless telecommunication)		28

South Africa—1.6%
179,400	Edgars Consolidated Stores (Apparel, footwear and retail)		9,603
949,500	*MTN Group Ltd. (Telecommunication services)		7,296
2,968,000	Network Healthcare Holdings (Health services)		2,648
7,800	Standard Bank Group Ltd. (Banking)		91

			19,638

Turkey—0.0%
1	Enka Insaat (Industrial conglomerates)		—

Total Common Stock—96.9% (cost $925,920)			1,185,552


*Preferred Stock*
Brazil—1.0%
84,190	Banco Itau Holding (Banking)		12,643

Total Preferred Stock—1.0% (cost $8,112)			12,643

* Non-income producing securities

ADR = American Depository Receipt

GDR = Global Depository Receipt

VRN =Variable rate note.

All securities excluding those traded on exchanges in this hemisphere, are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004 the Fund’s Portfolio of Investments includes the following currency categories:


Euro		25.1%
Japanese Yen		19.7%
British Pound Sterling		15.8%
Canadian Dollar		6.4%
Australian Dollar		4.0%
Indian Rupee		3.4%
Hong Kong Dollar		3.3%
Mexico Nuevo Peso		3.1%
South Korean Won		3.0%
Swiss Franc		2.7%
United States Dollar		2.6%
Swedish Krona		1.9%
Brazilian Real		1.7%
New Taiwan Dollar		1.7%
All other currencies		5.6%

		100.0%



Shares or Principal Amount		Issuer	Value

	*Investment in Affiliate*
	9,409,946	William Blair Ready Reserves Fund	$	9,410

	Total Investments in Affiliate—0.8% (cost $9,410)			9,410


	*Short-Term Investments*
$	6,799,000	American Express Demand Note, VRN 2.24% due 1/3/05		6,799
	6,424,000	Prudential Funding Demand Note, VRN 2.243% due 1/3/05		6,424

	Total Short-term Investments—1.1% (cost $13,223)			13,223

	Total Investments—99.8% (cost $956,665)			1,220,828
	Cash and other assets, less liabilities—0.2%			2,608

	Net assets—100.0%		$	1,223,436

See accompanying Notes to Portfolios of Investments.

December 31, 2004

William Blair Funds 7

LOGO

W. George Greig

INSTITUTIONAL INTERNATIONAL EQUITY FUND

The International Equity Fund invests primarily in common stocks of large and medium-sized companies included in the Morgan Stanley Capital International All Country World Free ex-U.S. Index.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform in 2004? How did the Fund’s performance compare to its benchmark?

The William Blair Institutional International Equity Fund commenced operations on December 1, 2004. Through the one-month period ended December 31, 2004, the Fund posted a gain of 2.0%. By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 4.29%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

What sectors or regions had the biggest impact on portfolio performance?

The Fund’s emerging markets exposure and stock selection added value since inception as emerging markets outperformed. Stock selection was strong across sectors, with the exception of Health Care and Materials. Relative weakness in Health Care was due to several stock specific issues, while the portfolio’s high quality growth holdings in Materials lagged their deeper value counterparts within the sector. However, the largest contributor to underperformance during the period resulted from the Fund’s overweighting in the growth-oriented sectors of the market, which trailed the defensive, value-oriented sectors.

What is your outlook for the international markets?

Cyclical factors to monitor in the months ahead for signs of stability or reacceleration would include: 1) trends in key technology segments (semiconductors and flat panel displays); 2) trends in bank lending, particularly in Asia; 3) trends in consumption growth in China, Korea and Taiwan; and 4) trends in industrial production and orders growth in Europe and Japan.

8 Annual Report

December 31, 2004

Institutional International Equity Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004


	Since Inception(a)
Institutional International Equity Fund	2.00	%
MSCI All Country World Free Ex-U.S. Index	4.29

(a)

For the period from December 1, 2004 (Commencement of Operations) to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Morgan Stanley Capital International (MSCI) All Country World Free Ex-US Index is an unmanaged index that includes developed and emerging markets and reduced Japanese portion, making it more comparable to the Institutional International Growth Fund in terms of investment approach.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 9

Institutional International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Shares	Issuer	Value

*Common Stocks—Europe—23.2%*
Austria—1.6%
7,700	Erste Bank Der Oester (Banking)	$	409

France—5.2%
3,900	Dassault Systemes S.A. (Software)		196
2,700	Essilor International (Health care supplies)		211
500	Hermes International SCA (Apparel and luxury goods)		100
4,100	*JC Decaux (Media)		119
1,400	LVMH Moet-Hennessy Louis Vuitton (Luxury goods)		107
8,550	Sanofi-Aventis (Pharmaceuticals)		681

			1,414

Germany—7.2%
5,000	Celesio AG (Pharmaceuticals)		406
4,900	Continental AG (Diversified manufacturing)		310
5,400	E.ON AG (Energy)		489
500	Puma AG (Consumer non-durables)		137
3,570	SAP AG (Software)		631

			1,973

Greece—1.9%
5,050	Coca-Cola Hellenic Bottling S.A. (Beverages)		123
5,900	EFG Eurobank (Banking)		202
6,050	National Bank of Greece (Banking)		199

			524

Ireland—0.7%
8,000	Anglo Irish Bank plc (Finance)		194

Italy—1.1%
14,990	Banco Popolare di Verona E N (Banking)		304

Norway—1.4%
25,000	Statoil ASA (Oil and gas)		393

Spain—0.6%
3,300	Grupo Ferrovial S.A. (Industrial services)		176

Sweden—1.6%
140,300	*Ericsson LM-B Shares (Communications equipment)		441

Switzerland—1.9%
275	Serono S.A., Class “B” (Biotechnology)		180
4,100	UBS AG (Banking)		342

			522


*United Kingdom—12.0%*
81,200	BG Group plc (Industrial services)		551
35,100	Capita Group plc (Commercial services)		245
8,200	Carnival plc (Hotels, restaurants and leisure activities)		499
3,500	MAN Group plc (Finance)		98
6,100	Next plc (Multiline retail)		193
16,200	Reckitt Benckiser plc (Household products)		488
3,600	Smith & Nephew plc (Health care equipment and supplies)		37
30,000	Standard Chartered plc (Banking)		556
102,000	Tesco plc (Food retailer)		628

			3,295



Shares	Issuer	Value

*Japan—14.2%*
1,300	Askul Corporation (Retail trade)	$	80
11,100	Canon, Inc. (Office electronics)		601
16,900	Denso Corporation (Auto parts manufacturing)		453
2,600	Fast Retailing Co., Ltd. (Specialty retail)		198
29,000	Hino Motors Ltd. (Trucks, construction and farm machinery)		216
2,500	Hoya Corporation (Electronic technology)		282
900	Keyence Corporation (Electronic technology)		201
1,600	Nidec Corporation (Electronic technology)		195
2,200	Orix Corporation (Consumer finance)		300
27,000	Sharp Corporation (Electronics)		441
29,000	*Shinsei Bank, Ltd. (Banking)		197
1,800	SMC Corporation (Trucks, construction and farm machinery)		206
42,000	Sumitomo Trust & Banking Co. (Finance)		304
9,000	Toto Ltd. (Building products)		86
3,100	Yamada Denki Company (Retail trade)		133

			3,893


*Bermuda—1.4%*
14,200	*Accenture (Information technology)		383


*Canada—4.4%*
2,800	*Alimentation Couche-Tard—Class “B” (Food retail)		83
3,200	Canadian National Railway Co. (Railroads)		195
4,300	Manulife Financial Corporation (Life and health insurance)		198
2,300	*Precision Drilling Corporation (Drilling)		145
2,800	*Research in Motion Ltd. (Wireless telecommunication)		230
3,700	*Shoppers Drug Mart Corporation (Retail trade)		115
7,100	Suncor Energy, Inc. (Energy minerals)		251

			1,217


*Asia—5.7%*
Australia—3.1%
10,300	Macquarie Bank, Ltd. (Financial services)		375
16,500	Toll Holdings, Ltd. (Trucking)		165
10,100	Wesfarmers Ltd. (Diversified industrials)		315

			855

Hong Kong—2.6%
510,500	Cnooc Ltd. (Oil and gas)		273
35,400	Esprit Holdings Ltd. (Apparel, footwear and retail)		214
97,900	Techtronic Industries Co. (Consumer durables)		213

			700


*Emerging Asia—4.3%*
India—1.3%
8,700	HDFC Bank (Banking)		105
5,300	Infosys Technologies Ltd. (Consulting and software services)		256

			361

South Korea—3.0%
6,600	Hyundai Motor Co., Ltd. (Automobiles)		353
1,050	Samsung Electronics Co. (Semiconductors)		456

			809

See accompanying Notes to Financial Statements.

10 Annual Report

December 31, 2004

Institutional International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Shares	Issuer	Value

*Emerging Latin America—1.5%*
Mexico—1.5%
84,100	America Movil S.A. (Communications)	$	221
55,500	Walmart de Mexico (Retail trade)		191

			412


*Emerging Europe, Mid-East, Africa—1.1%*
Russia—0.3%
600	*Mobile TeleSystems—ADR (Wireless Telecommunication)		83

South Africa—0.8%
19,300	Standard Bank Group Ltd. (Banking)		224


*Total Common Stock—67.8%* (cost $18,075)			18,582


*Preferred Stocks*
Brazil—0.9%
1,600	Banco Itau SA (Banking)		240

Total Preferred Stocks—0.9% (cost $218)			240

* Non-income producing securities

ADR = American Depository Receipt

+ = U.S. listed foreign security

VRN =Variable Rate Note.

All securities excluding those traded on exchanges in this hemisphere are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004 the Fund’s Portfolio of Investments includes the following currency categories:


Euro		26.5%
Japanese Yen		20.7%
British Pound Sterling		17.5%
Canadian Dollar		6.5%
Australian Dollar		4.5%
South Korean Won		4.3%
Hong Kong Dollar		3.7%
Swiss Franc		2.8%
United States Dollar		2.5%
Swedish Krona		2.3%
Mexico Nuevo Peso		2.2%
Norwegian Krone		2.1%
Indian Rupee		1.9%
Brazilian Real		1.3%
South African Rand		1.2%

		100.0%



Shares or Principal Amount		Issuer	Value

	*Investment in Affiliate*
	373,774	William Blair Ready Reserves Fund	$	374

	Total Investment in Affiliate—1.4% (cost $374)			374


	*Short-Term Investments*
$	357,000	American Express Demand Note, VRN 2.24% due 1/3/05		357

	Total Short-term Investments—1.3% (cost $357)			357

	Total Investments—71.4% (cost $19,024)			19,553
	Cash and other assets, less liabilities—28.6%			7,831

	Net assets—100.0%		$	27,384

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 11

Statements of Assets and Liabilities

December 31, 2004 (all dollar amounts in thousands)


	Institutional International Growth Fund			Institutional International Equity Fund
*Assets*
Investments in securities, at cost	$	947,255		$	18,650
Investments in Affiliated Fund, at cost		9,410			374


Investments in securities, at value	$	1,211,418		$	19,179
Investments in Affiliated Fund, at value		9,410			374
Cash		41			—
Foreign currency, at value (cost $2,215 and $15, respectively)		2,265			15
Receivable for fund shares sold		—			7,700
Receivable for investment securities sold		1,317			255
Receivable from Advisor		47			21
Dividend and interest receivable		813			11

Total assets		1,225,311			27,555
*Liabilities*
Payable for investment securities purchased		666			132
Payable for fund shares redeemed		63			—
Management fee payable		980			16
Distribution and shareholder services fee payable		—			—
Dividend payable		—			—
Other accrued expenses		166			23

Total liabilities		1,875			171

Net Assets	$	1,223,436		$	27,384

*Capital*
Composition of Net Assets
Par value of shares of beneficial interest	$	76		$	3
Capital paid in excess of par value		955,262			26,997
Accumulated net investment income (loss)		(5,484	)		(125	)
Accumulated realized gain (loss)		9,350			(20	)
Net unrealized appreciation (depreciation) of investments and foreign currencies		264,232			529

Net Assets	$	1,223,436		$	27,384


Net Assets	$	1,223,436		$	27,384
Shares Outstanding		76,165,013			2,684,902
Net Asset Value Per Share	$	16.06		$	10.20

See accompanying Notes to Financial Statements.

12 Annual Report

December 31, 2004

Statements of Operations

For the Year Ended December 31, 2004 (all dollar amounts in thousands)


	Institutional International Growth Fund			Institutional International Equity Fund(a)
*Investment income*
Dividends	$	10,936		$	8
Less foreign tax withheld		(1,038	)		(1	)
Income from Affiliated Fund		132			2
Interest		433			5

Total income		10,463			14
*Expenses*
Investment advisory fees		7,904			16
Custodian fees		802			3
Transfer agent fees		47			3
Professional fees		60			12
Registration fees		86			3
Other expenses		185			1

Total expenses before waiver		9,084			38
Less expenses waived or absorbed by the Advisor		(96	)		(21	)

Net expenses		8,988			17

Net investment income (loss)		1,475			(3	)
Net realized and unrealized gain (loss) on investments, foreign currency transactions and other assets and liabilities
Net realized gain (loss) on investments		12,131			(17	)
Net realized gain (loss) on foreign currency transactions and other assets and liabilities		(5,196	)		(125	)

Total net realized gain (loss)		6,935			(142	)
Change in net unrealized appreciation (depreciation) on investments and other assets and liabilities		168,587			529

Net increase (decrease) in net assets resulting from operations	$	176,997		$	384

(a) For the period from December 1, 2004 (Commencement of Operations) to December 31, 2004.

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 13

Statements of Changes in Net Assets

For the Years Ended December 31, 2004 and 2003 (all amounts in thousands)


	Institutional International Growth Fund						Institutional International Equity Fund
	2004			2003			2004(a)
*Operations*
Net investment income (loss)	$	1,475		$	861		$	(3	)
Net realized gain (loss) on investments, foreign currency transactions and other assets and liabilities		6,935			1,169			(142	)
Change in net unrealized appreciation (depreciation) on investments, foreign currency transactions and other assets and liabilities		168,587			94,217			529

Net increase (decrease) in net assets resulting from operations		176,997			96,247			384
*Distributions to shareholders from*
Net investment income		(605	)		(1,120	)		—
Net realized gain		—			—			—

		(605	)		(1,120	)		—
*Capital stock transactions*
Net proceeds from sale of shares (b)		597,277			247,919			27,000
Shares issued in reinvestment of income dividends and capital gain distributions		487			1,069			—
Less cost of shares redeemed		(28,231	)		(16,452	)		—

Net increase (decrease) in net assets resulting from capital stock transactions		569,533			232,536			27,000

Increase (decrease) in net assets		745,925			327,663			27,384
Net assets
Beginning of year	$	477,511		$	149,848		$	—

End of year	$	1,223,436		$	477,511		$	27,384

Undistributed net investment income (loss) at the end of the period	$	(5,484	)	$	(1,627	)	$	(125	)

*Capital stock transactions in shares*
Shares sold		43,026			20,772			2,685
Shares issued in reinvestment of income dividends and capital gain distributions		31			82			—
Less shares redeemed		(1,991	)		(1,412	)		—

		41,066			19,442			2,685

(a)

For the period from December 1, 2004 (Commencement of Operations) to December 31, 2004.

(b)

The net proceeds from sale of shares includes $73 million dollars in two in-kind purchase transactions completed during the year.

See accompanying Notes to Financial Statements.

14 Annual Report

December 31, 2004

Notes to Financial Statements

(1) Significant Accounting Policies

(a) Description of the Fund

William Blair Funds (the “Fund”) is a diversified mutual fund registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The number of shares authorized for this Fund is unlimited. The Fund currently consists of the following twelve portfolios (the “Portfolios”), each with its own investment objectives and policies.


Equity Portfolios		International Portfolios
Growth		International Growth
Tax-Managed Growth		International Equity
Large Cap Growth		Institutional International Growth
Small Cap Growth		Institutional International Equity
Small-Mid Cap Growth		Fixed Income Portfolio
Value Discovery		Income
		Money Market Portfolio
		Ready Reserves

The investment objectives of the Portfolios are as follows:


Equity		Long-term capital appreciation.
International		Long-term capital appreciation.
Fixed Income		High level of current income with relative stability of principal.
Money Market		Current income, a stable share price and daily liquidity.

The Institutional International Growth Fund and the Institutional International Equity Fund are the only Portfolios covered in this report.

(b) Investment Valuation

For international securities, if the foreign exchange or market on which a security is primarily traded closes before the close of regular trading on the New York Stock Exchange (4:00 p.m. Eastern time), the Funds use an independent pricing service on a daily basis to estimate the fair value price as of the close of regular trading on the New York Stock Exchange. Otherwise, the value of foreign equity securities is determined based on the last sale price on the foreign exchange or market on which it is primarily traded or, if there have been no sales during that day, at the latest bid price. Foreign currency forward contracts and foreign currencies are valued at the forward and current exchange rates, respectively, prevailing on the date of valuation.

Investments in other funds are valued at the underlying fund’s net asset value on the date of valuation. Other securities, and all other assets, including securities for which a market price is not available, or the value of which is affected by a significant valuation event, are valued at fair value as determined in good faith by, or under the direction of the Board of Trustees and in accordance with the Fund’s valuation procedures. As of December 31, 2004, there were securities held in the Institutional International Growth and Institutional International Equity Portfolios requiring fair valuation by the Board of Trustees pursuant to the Fund’s valuation procedures.

(c) Investment income and investment transactions

Dividend income is recorded on the ex-dividend date, except for those dividends from certain foreign securities which are recorded as soon as the information is available.

December 31, 2004

William Blair Funds 15

Premiums and discounts are accreted and amortized on a straight-line basis for short-term investments and on an effective interest method for long-term investments.

Interest income is determined on the basis of the interest accrued, adjusted for amortization of premium or discount. Variable rate bonds and floating rate notes earn interest at coupon rates that fluctuate at specific time intervals. The Portfolio utilizes the straight-line method of amortization of premiums and discounts for short-term securities (maturities less than one year) and the effective interest method for long-term securities (maturities greater than one year).

Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on an identified cost basis.

(d) Share Valuation and Dividends to Shareholders

Shares are sold and redeemed on a continuous basis at net asset value. The net asset value per share is determined by dividing the Portfolio’s net assets by the number of shares outstanding as of the close of regular trading on the New York Stock Exchange, which is generally 3:00 p.m. Central time (4:00 p.m. Eastern time), on each day the Exchange is open.

Dividends from net investment income, if any, are declared at least annually. Capital gain distributions, if any, are declared at least annually in December. Dividends payable to shareholders are recorded on the ex-dividend date.

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with Federal income tax regulations that may differ from U.S. generally accepted accounting principles. As a result, net investment income or loss and net realized gain or loss for a reporting period may differ from the amount distributed during such period. In addition, the Portfolio may periodically record reclassifications among certain capital accounts to reflect differences between financial reporting and income tax basis distributions. The reclassifications were reported in order to reflect the tax treatment for certain permanent differences that exist between income tax regulations and U.S. generally accepted accounting principles. The reclassifications relate to section 988 currency gains and losses, and recharacterization of unrealized appreciation on PFICs. (Passive Foreign Investment Corporations). These reclassifications have no impact on the net asset values of the Portfolio. Accordingly, at December 31, 2004, the following reclassifications were recorded (in thousands):


Portfolio	Undistributed Net Investment Income/(Loss)			Accumulated Undistributed Net Realized Gain/ (Loss)		Capital Paid In Excess of Par Value
Institutional International Growth	$	(4,727	)	$	4,727	$	—
Institutional International Equity		(121	)		121		—


	Distributions Paid In 2004					Distributions Paid In 2003
Portfolio	Ordinary Income		Long-Term Capital Gains			Ordinary Income		Long-Term Capital Gains
Institutional International Growth	$	605	$	—	��	$	1,120	$	—
Institutional International Equity		—		—			—		—

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows (in thousands):


Portfolio	Undistributed Ordinary Income		Accumulated Capital and Other Losses		Undistributed Long-Term Gain		Net Unrealized Appreciation / (Depreciation)
Institutional International Growth	$	1,320	$	—	$	12,011	$	254,767
Institutional International Equity		2		110		—		492

(e) Foreign Currency Translation and Foreign Currency Forward Contracts

The Portfolios may invest in securities denominated in foreign currencies. As such, assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the current exchange rate on the date of valuation. These

16 Annual Report

December 31, 2004

Portfolios may enter into foreign currency forward contracts (1) as a means of managing the risks associated with changes in the exchange rates for the purchase or sale of a specific amount of a particular foreign currency, and (2) to hedge the value, in U.S. dollars, of portfolio securities. Gains and losses from foreign currency transactions associated with purchases and sales of investments and foreign currency forward contracts are included with the net realized and unrealized gain or loss on investments.

(f) Income Taxes

The Portfolios intend to comply with the special provisions Subchapter M of the Internal Revenue Code available to regulated investment companies and, therefore, no provision for Federal income taxes has been made in the accompanying financial statements since the Portfolio intends to distribute substantially all of its taxable income to its shareholders and be relieved of all Federal income taxes.

The Portfolios have elected to mark-to-market its investments in Passive Foreign Investment Companies (“PFICs”) for Federal income tax purposes. In accordance with this election, the Institutional International Growth and Institutional International Equity Portfolios recognized net unrealized appreciation (depreciation) of $5,929 and $15, respectively (in thousands) in 2004 all of which has been treated as an adjustment to the cost of investments for tax purposes. The Portfolio also treats the deferred loss associated with current and prior year wash sales as an adjustment to the cost of investments for tax purposes. The cost of investments for Federal income tax purposes and related gross unrealized appreciation/(depreciation) and net unrealized appreciation/(depreciation) at December 31, 2004 were as follows (in thousands):


Portfolio	Cost of Investments		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation / (Depreciation)
Institutional International Growth	$	979,352	$	258,548	$	3,781	$	254,767
Institutional International Equity		19,061		644		152		492

At December 31, 2004, the Portfolios have no unused capital loss carryforwards available for Federal income tax purposes to be applied against future capital gains, if any.

For the period November 1, 2004 through December 31, 2004, the Institutional International Equity Portfolio incurred net realized capital or foreign currency losses. The Portfolio intends to treat this loss as having occurred in fiscal year 2005 for Federal income tax purposes (in thousands):


Portfolio	Capital Loss		Currency Loss
Institutional International Growth	$	—	$	—
Institutional International Equity		—		110

(g) Use of Estimates

(2) Transactions with Affiliates

(a) Management and Expense Limitation Agreements

The Portfolios have a management agreement with William Blair & Company L.L.C. (the “Company”) for investment advisory, administrative, and other accounting services. The Portfolios pay the Company an annual fee, payable monthly, based on a specified percentage of its average daily net assets. A summary of the annual rates expressed as a percentage of average daily net assets is as follows:


First $500 million	1.00	%
Next $500 million	0.95	%
In excess of $1 billion	0.90	%

December 31, 2004

William Blair Funds 17

The Portfolios have also entered into an Expense Limitation Agreement with the Company. Under terms of this Agreement, the Company has agreed to waive its advisory fees and absorb other operating expenses through April 30, 2005, if total expenses of either Portfolio exceeds 1.10% of average daily net assets.

For a period of three years subsequent to the Commencement of Operations of the Fund, the Company is entitled to reimbursement from the Institutional International Growth and Institutional International Equity Portfolios for previously waived fees and expenses to the extent the overall expense ratio remains below the percentages indicated. The total amount available for recapture at December 31, 2004 is $320 and $21, (in thousands) for Institutional International Growth and Institutional International Equity Portfolios, respectively. As a result, the total expense ratio for the Portfolio during the period the agreement is in effect, will not fall below the percentage indicated.

For the year ended December 31, 2004, the investment advisory fees incurred by the Portfolio and related fee waivers were as follows (in thousands) :


Portfolio	Gross Advisory Fee		Fee Waiver		Net Advisory Fee		Expenses (Recovered) or Absorbed by Advisor
Institutional International Growth	$	7,904	$	96	$	7,808	$	—
Institutional International Equity		16		16		—		5

(b) Trustees Fees

The Portfolio incurred fees of $28 (in thousands) to non-interested trustees of the Fund for the year ended December 31, 2004. Interested trustees are not compensated.

(c) Investments in Affiliated Portfolio

Pursuant to an Exemptive Order granted by the Securities and Exchange Commission in January, 2001, each of the Portfolios of the Fund may invest in the William Blair Ready Reserves Portfolio (“Ready Reserves”), an open-end money market portfolio managed by the Advisor. Ready Reserves Portfolio is used as a cash management option to the other Portfolios in the Fund. The Advisor waives management fees and shareholder service fees earned from the other Portfolios investment in the Ready Reserves Fund. The fees waived with respect to the Portfolio for the period ended December 31, 2004 are listed below. Distributions received from Ready Reserves are reflected as dividend income in the Portfolio’s statement of operations. Amounts relating to the Portfolio’s investments in Ready Reserves were as follows for the year ended December 31, 2004 (in thousands):


Portfolio	Purchases		Sales Proceeds		Fees Waived		Dividend Income		Value		Percent of Net Assets
Institutional International Growth	$	163,568	$	174,211	$	90	$	132	$	9,410	0.8	%
Institutional International Equity		4,460		4,086		1		2		374	1.4

(3) Investment Transactions

Investment transactions, excluding money market instruments, for the year ended December 31, 2004 were as follows (in thousands):


Portfolio	Purchases		Sales
Institutional International Growth	$	1,065,411	$	562,310
Institutional International Equity		19,011		701

(4) Foreign Currency Forward Contracts

To protect itself against a decline in the value of foreign currency against the U.S. dollar, the Institutional International Growth Portfolio enters into foreign currency forward contracts with its custodian and others. The Portfolio bears the market risk that arises from changes in foreign currency rates and bears the credit risk if the counterparty fails to perform under the contract. The net realized and unrealized gains and losses associated with foreign currency forward contracts are reflected in the accompanying financial statements.

18 Annual Report

December 31, 2004

Financial Highlights

Institutional International Growth Fund


	Years Ended
	12/31/2004		12/31/2003		12/31/2002(a)
Net asset value, beginning of period	$	13.60	$	9.567	$	10.000
Income from investment operations:
Net investment income		0.03		0.073		—
Net realized and unrealized loss on investments		2.44		3.993		(0.430	)

Total from investment operations		2.47		4.066		(0.430	)
Less distributions from:
Net investment income		0.01		0.033		0.003
Net realized gain		—		—		—

Total distributions		0.01		0.033		0.003

Net asset value, end of period	$	16.06	$	13.600	$	9.567

Total return (%)		18.15		42.47		(4.27	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.10		1.10		1.10
Expenses, before waivers and reimbursements		1.11		1.16		1.29
Net investment income (loss), net of waivers and reimbursements		0.18		0.37		(0.05	)
Net investment income (loss), before waivers and reimbursements		0.17		0.31		(0.24	)



	Years Ended
	12/31/04		12/31/2003		12/31/2002(a)
Supplemental data:
Net assets at end of period (in thousands)	$	1,223,436	$	477,511	$	149,848
Portfolio turnover rate (%) (b)		72		56		59

(a)

For the period from July 26, 2002 (Commencement of Operations) to December 31, 2002.

(b)

Rates are annualized for periods that are less than a year.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher that the data quoted. Results shown are annual returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds. com.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 19

Financial Highlights

Institutional International Equity Fund


	Period Ended
	12/31/2004(a)
Net asset value, beginning of period	$	10.000
Income from investment operations:
Net investment income		—
Net realized and unrealized loss on investments		0.20

Total from investment operations		0.20
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	10.20

Total return (%)		2.00
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.10
Expenses, before waivers and reimbursements		2.46
Net investment income (loss), net of waivers and reimbursements		(0.21	)
Net investment income (loss), before waivers and reimbursements		(1.57	)



	Period Ended
	12/31/2004(a)
Supplemental data:
Net assets at end of period (in thousands)	$	27,384
Portfolio turnover rate (%) (b)		45

(a)

For the period from December 1, 2004 (Commencement of Operations) to December 31, 2004.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

20 Annual Report

December 31, 2004

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders

William Blair Funds

We have audited the accompanying statement of assets and liabilities, including the portfolios of investments, of William Blair Institutional International Growth Fund and William Blair Institutional International Equity Fund (collectively, the “Portfolios”) as of December 31, 2004, and the related statements of operations, changes in net assets and financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolios’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of William Blair Institutional International Growth Fund and William Blair Institutional International Equity Fund at December 31, 2004, the results of their operations for the period then ended, the changes in their net assets and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles.

LOGO

/s/ Ernst & Young LLP

Chicago, Illinois

February 4, 2005

December 31, 2004

William Blair Funds 21


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer
Interested Trustees
Conrad Fischer, 70*	Chairman of the Board of Trustees	Since 1987	Principal, William Blair & Company, L.L.C.; Partner, APM Limited Partnership	12	Trustee Emeritus, Chicago Child Care Society, a non-profit organization, and Partner, APM Limited Partnership

Michelle Seitz, 39*	Trustee	Since 2002	Principal, William Blair & Company, L.L.C.	12	N/A
Non-Interested Trustees

J. Grant Beadle, 72	Trustee	Since 1997	Retired Chairman and Chief Executive Officer, Union Special Corporation, industrial sewing machine manufacturer	12	Batts Group and Oliver Products Company, manufacturer of products for the medical device, food and grahics markets, Retired Associate Director, Northwestern University Institute for The Learning Sciences.

Theodore A. Bosler, 70	Trustee	Since 1997	Retired Principal and Vice President, Lincoln Capital Management	12	Crystal Lake Watershed Fund, Desert Foothills Land Trust and Institute of Chartered Financial Analysts.

Ann P. McDermott, 65	Trustee	Since 1996	Board member and officer for various civic and charitable organizations over the past thirty years; professional experience prior thereto, registered representative for New York Stock Exchange firm	12	Junior League of Chicago, Northwestern University, Women’s Board; Ravinia Festival Women’s Board; Rush Presbyterian St. Luke’s Medical Center, Women’s Board; University of Chicago, Women’s Board; Visiting Nurses Association, Honorary Director

Donald J. Reaves, 58	Trustee	Since 2004	Vice President for Administration and Chief Financial Officer, University of Chicago since 2002. Executive Vice President and Chief Financial Officer, Brown University from 1993 to 2002		American Student Assistance Corp.; Amica Mutual Insurance Company; NACUBO (National Association of College and University Business Officers)

John B. Schwemm, 70	Trustee	Since 1990	Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons Company	12	USG Corp., building material manufacturer, and Walgreen Co.

Donald L. Seeley, 60	Trustee	Since 2003	Director, Applied Investment Management Program, University of Arizona Department of Finance, Formerly Vice Chairman and Chief Financial Officer, True North Communications, Inc., marketing communications and advertising firm	12	Beverly Enterprises, Inc., provider of eldercare and rehabilitative services; Modem Media, Inc., interactive services company

22 Annual Report

December 31, 2004


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer

Robert E. Wood II, 66	Trustee	Since 1999	Retired Executive Vice President, Morgan Stanley Dean Witter	12	Chairman, Add-Vision, Inc. manufacturer of surface animation systems, and Micro-Combustion, LLC
Officers

Marco Hanig, 46	President	Since 1999	Principal, William Blair & Company, L.L.C.; former Senior Vice President, First Chicago NBD	N/A	N/A
Michael P. Balkin, 45	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	Exceed Corp.

Karl W. Brewer, 38	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	N/A

Harvey H. Bundy, III, 60	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	N/A

Mark A. Fuller, III, 47	Senior Vice President	Since 1993	Principal, William Blair & Company, L.L.C.	N/A	Partner, Fulsen Howney Partners

W. George Greig, 52	Senior Vice President	Since 1996	Principal, William Blair & Company, L.L.C.	N/A	N/A

Michael A. Jancosek, 45	Senior Vice President Vice President	Since 2004 Since 2000	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.; former Vice President, First Chicago NBD	N/A	N/A

John F. Jostrand, 50	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.	N/A	N/A

James S. Kaplan, 44	Senior Vice President Vice President	Since 2004 Since 1995	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Robert C. Lanphier, IV, 48	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	Chairman, AG. Med, Inc.

David S. Mitchell, 44	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Capucine E. Price, 40	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

December 31, 2004

William Blair Funds 23


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer

Gregory J. Pusinelli, 46	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.; former Principal and Vice President, Stein Roe & Farnham Incorporated	N/A	N/A

Norbert W. Truderung, 52	Senior Vice President	Since 1992	Principal, William Blair & Company, L.L.C.	N/A	N/A

Jeffrey A. Urbina, 49	Senior Vice President	Since 1998	Principal, William Blair & Company, L.L.C.	N/A	N/A
Christopher T. Vincent, 48	Senior Vice President Vice President	Since 2004 Since 2002	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.; former Managing Director/Senior Portfolio Manager, Zurich Scudder Investments	N/A	Uhlich Children’s Home

Terence M. Sullivan, 60	Vice President and Treasurer	Since 1997	Associate, William Blair & Company, L.L.C.	N/A	N/A

Colette M. Garavalia, 43	Secretary	Since 2000	Associate, William Blair & Company, L.L.C.; former Assistant Vice President, Scudder Kemper Investments	N/A	N/A

Mr. Fischer and Ms. Seitz are interested persons of the William Blair Funds because each is a principal of William Blair & Company, L.L.C., the Funds’ investment advisor and principal underwriter.

24 Annual Report

December 31, 2004

Proxy Voting

A description of the policies and procedures that the William Blair Institutional International Growth Fund and the William Blair Institutional International Equity Fund use to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling 1-800-635-2886 (in Massachusetts 1-800-635-2840), at www.williamblairfunds.com and on the SEC’s website at http://www.sec.gov.

Quarterly Portfolio Schedules

The Funds will file its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended March 31 and September 30) on Form N-Q. The Fund’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330.

December 31, 2004

William Blair Funds 25

Useful Information About Your Report (Unaudited)

Please refer to this information when reviewing the Expense Example for each Fund.

Expense Example

Actual Expenses

Hypothetical Example for Comparison Purposes

26 Annual Report

December 31, 2004

Fund Expenses (Unaudited)

The examples below show you the ongoing costs (in dollars) of investing in your fund and allows you to compare these costs with those of other mutual funds. Please refer to previous page for a detailed explanation of the information presented on this chart.


	Beginning Account Value 7/1/2004		Ending Account Value 12/31/2004		Expenses Paid during Period(a)			Annualized Expense Ratio
Institutional International Growth Fund
Actual return	$	1,000.00	$	1,146.90	$	5.94		1.10	%
Hypothetical 5% return		1,000.00		1,019.61		5.58		1.10


Institutional International Equity Fund
Actual return		1,000.00		1,020.00		0.94	(b)	1.10
Hypothetical 5% return		1,000.00		1,003.30		0.93	(b)	1.10

(a)

Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the period (184), and divided by 365 (to reflect the one-half-year period).

(b)

For the period from December 1, 2004 (commencement of operations) until December 31, 2004.

December 31, 2004

William Blair Funds 27

BOARD OF TRUSTEES

Conrad Fischer, Chairman

Principal, William Blair & Company, L.L.C.

J. Grant Beadle

Retired Chairman and CEO, Union Special Corporation

Theodore A. Bosler

Retired Principal and Vice President, Lincoln Capital Management Company

Ann P. McDermott

Director and Trustee

Profit and not-for-profit organizations

Donald J. Reaves

Vice President for Administration and Chief Financial Officer, University of Chicago

Donald L. Seeley

Adjunct Lecturer and Director, University of Arizona Department of Finance

John B. Schwemm

Retired Chairman and CEO, R.R. Donnelley & Sons Company

Michelle Seitz

Principal, William Blair & Company, L.L.C.

Robert E. Wood II

Retired Executive Vice President, Morgan Stanley Dean Witter

Officers

Marco Hanig, President

Michael P. Balkin, Senior Vice President

Rocky Barber, Senior Vice President

Karl W. Brewer, Senior Vice President

Harvey H. Bundy III, Senior Vice President

Mark A. Fuller, III, Senior Vice President

W. George Greig, Senior Vice President

Michael A. Jancosek, Senior Vice President

John F. Jostrand, Senior Vice President

James S. Kaplan, Senior Vice President

Robert C. Lanphier, IV, Senior Vice President

David S. Mitchell, Senior Vice President

Capucine E. Price, Senior Vice President

Gregory J. Pusinelli, Senior Vice President

Norbert W. Truderung, Senior Vice President

Jeffrey A. Urbina, Senior Vice President

Christopher T. Vincent, Senior Vice President

Terence M. Sullivan, Vice President and Treasurer

Colette M. Garavalia, Secretary

Investment Advisor

William Blair & Company, L.L.C.

Legal Counsel

Vedder, Price, Kaufman & Kammholz, P.C.

Independent Registered Public Accounting Firm

Ernst & Young LLP

Transfer Agent

State Street Bank and Trust Company

P.O. Box 8506

Boston, MA 02266-8506

For customer assistance, call 1-800-635-2886

(Massachusetts 1-800-635-2840)

28 Date of First Use February 2005


		WILLIAM BLAIR FUNDS

Institutional International Growth Fund

Institutional International Equity Fund


		222 West Adams Street n Chicago, Illinois 60606 n 800.742.7272 n www.williamblairfunds.com
		William Blair & Company,L.L.C., Distributors

LOGO

Table of Contents


A Letter from the President		2

Growth Fund
An Overview from the Portfolio Manager		4
Portfolio of Investments		7

Tax-Managed Growth Fund
An Overview from the Portfolio Managers		8
Portfolio of Investments		11

Large Cap Growth Fund
An Overview from the Portfolio Managers		12
Portfolio of Investments		15

Small Cap Growth Fund
An Overview from the Portfolio Managers		16
Portfolio of Investments		20

Small-Mid Cap Growth Fund
An Overview from the Portfolio Managers		22
Portfolio of Investments		25

International Growth Fund
An Overview from the Portfolio Manager		26
Portfolio of Investments		29

International Equity Fund
An Overview from the Portfolio Manager		32
Portfolio of Investments		34

Value Discovery Fund
An Overview from the Portfolio Managers		36
Portfolio of Investments		39

Income Fund
An Overview from the Portfolio Managers		40
Portfolio of Investments		43

Financial Statements		46

Notes to Financial Statements		52

Report of Independent Registered Public Accounting Firm		78

Board of Trustees		79

Fund Expenses		83

Officers		86

December 31, 2004

William Blair Funds 1

LOGO

Marco Hanig

A LETTER FROM THE PRESIDENT

Dear Shareholders:

Total Returns by Morningstar Fund Category*

January 1 through December 31, 2004


	Value		Blend		Growth
Large	12.91	%	9.96	%	7.64	%
Mid-Cap	17.90	%	16.00	%	12.93	%
Small	20.58	%	18.86	%	12.09	%

Looking forward, the consensus view for 2005 is continued moderate growth, measured increases in interest rates, and modestly positive stock market returns.

Our mutual funds posted positive results in 2004, with six of eight funds finishing within plus or minus 3% of their Morningstar Category peer groups. Funds that deviated more broadly from their peers were the Small Cap Growth and the Value Discovery funds. The Small Cap Growth Fund had another outstanding year, posting a return of 27.16% (Class A Shares) compared to 12.09% for its Morningstar Small Growth peers¹. The Fund’s 5-year average annual total return performance of 23.45% (Class A Shares) compared to a negative 0.55% return for its peers, a truly exceptional 5-year record that places the Small Cap Growth Fund among the top 50 funds among all 17,411 mutual funds tracked by Morningstar. The Value Discovery Fund had a difficult year compared to its Morningstar Small Value peers with a 11.89% (Class A Shares) return for the Fund versus a 20.58% return for the Category¹. Nonetheless, the Value Discovery Fund’s return still exceeded that of the broad market, as represented by the S&P 500’s return of 10.88%. The Fund’s managers discuss the challenges they faced in their letter to shareholders.

As always, we thank you for investing with us!

LOGO

Marco Hanig

*	Morningstar Category returns represent the (non-weighted) average annual composite performance of all mutual funds listed in a particular category (such as Large Growth) by Morningstar.

¹	The Morningstar Small Growth Category included 787 small cap growth funds and the Morningstar Small Value Category included 277 small cap value funds during the 1 year ended December 31, 2004.

2 Annual Report

December 31, 2004

PERFORMANCE AS OF DECEMBER 31, 2004—CLASS A SHARES


	1 Yr	3 Yr	5 Yr	Since inception	Inception Date
Growth Fund	1.15	-2.46	-5.77	-1.67	3/20/46
Russell 3000^® Growth	6.93	0.26	-8.87	-4.04
Standard & Poor’s 500	10.88	3.59	-2.30	0.86

Tax-Managed Growth Fund
Return before Taxes	0.65	-2.28	-3.65	-3.29	12/27/99
After Taxes on Distributions	0.65	-2.28	-3.65	-3.29
After Taxes on Distributions and Sale of Fund Shares	-1.59	-2.23	-2.92	-2.96
Russell 3000^® Growth	6.93	0.26	-8.87	-8.60

Large Cap Growth Fund	-0.97	-4.31	-10.38	-10.10	12/27/99
Russell 1000^® Growth	6.30	-0.18	-9.29	-9.08

Small Cap Growth Fund	19.85	17.10	22.00	22.38	12/27/99
Russell 2000^® Growth	14.31	5.79	-3.57	-2.43
The Small Cap Growth Fund’s performance during 2000 was primarily attributable to investments in initial public offerings (IPOs) during a rising market. Since then, IPOs have had an insignificant effect on the Fund’s performance.

Small-Mid Cap Growth Fund	6.86	—	—	6.16	12/29/03
Russell 2500^TM Growth	14.59	—	—	15.68

International Growth Fund	11.65	10.42	1.33	7.93	10/1/92
MSCI All Country World Free Ex-US	21.36	13.56	0.02	3.15

International Equity Fund	—	—	—	6.97	5/24/04
MSCI All Country World Free Ex-US.	—	—	—	22.61

Value Discovery Fund	5.46	9.49	12.91	14.37	12/23/96
Russell 2000^®	18.33	11.48	6.61	9.65
Russell 2000^® Value	22.25	16.50	17.23	17.26

Income Fund	0.54	3.95	5.83	5.74	10/1/90
Lehman Intermediate Govt./Credit Bond Index	3.04	5.68	7.21	7.04

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher that the data quoted. Returns shown are average annual total returns, which assume reinvestment of dividends and capital gains. Returns shown reflect the effects of maximum sales loads. Investment returns and principal will fluctuate and you may have a gain or a loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. International and emerging markets investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. As interest rates rise, bond prices will fall and bond funds become more volatile. From time to time, the investment advisor may waive fees or reimburse expenses for certain Funds. Without these waivers, performance would be lower. Class A shares are not available for sale.

Tax-Managed Growth Fund’s after-tax returns are calculated using the highest historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for Class A and the after-tax returns for other classes will vary.

Please carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling 1-800-742-7272. Read it carefully before you invest or send money. ^©William Blair & Company, L.L.C., distributor. 01/05.

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 3

LOGO

[PHOTO]

JOSTRAND

John F. Jostrand

GROWTH FUND

The Growth Fund invests primarily in common stocks of domestic growth companies with sustainable, above-average growth from one business cycle to the next.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Growth Fund posted a 1.15% increase on a total return basis (Class A Shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmarks, the Russell 3000^® Growth Index increased 6.93%, while the Standard & Poor’s 500 Index increased 10.88%.

What were the most significant factors impacting Fund performance?

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

4 Annual Report

December 31, 2004

What is your current strategy for the year ahead?

December 31, 2004

William Blair Funds 5

Growth Fund

Performance Highlights

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Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception
Class A	1.15	%	(2.46	)%	(5.77	)%	(1.67	)%(a)
Class B	1.45		(2.27	)	(5.78	)	(3.44	)(b)
Class C	5.46		(1.30	)	(5.40	)	(3.05	)(b)
Russell 3000^® Growth Index	6.93		0.26		(8.87	)	(4.04	)(a)
							(5.62	)(b)
S&P Index	10.88		3.59		(2.30	)	0.86	(a)
							0.62	(b)

(a)

For the period from October 19, 1999 to December 31, 2004.

(b)

For the period from November 2, 1999 to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The S&P 500 Index indicates broad larger capitalization equity market performance.

Sector Diversification (unaudited)

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The sector diversification shown is based on the total investment portfolio.

6 Annual Report

December 31, 2004

Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—31.9%
*Accenture Ltd.†	282,390	$	7,625
Arm Holding plc—ADR	467,430		2,884
CDW Corporation	105,330		6,989
*Cognos, Inc.†	84,800		3,736
*Dell, Inc.	209,275		8,819
*Digital Insight Corporation	86,690		1,595
*EMC Corporation	362,375		5,389
First Data Corporation	225,700		9,601
*Intuit, Inc.	127,200		5,598
*Iron Mountain, Inc.	120,247		3,666
*Jabil Circuit, Inc.	232,960		5,959
Linear Technology Corporation	119,850		4,645
Microchip Technology, Inc.	102,705		2,738
Paychex, Inc.	142,250		4,848
SAP AG—ADR	121,330		5,364
*Skillsoft plc—ADR	272,480		1,540
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	806,200		6,845

			87,841

Health Care—23.1%
Alcon, Inc.†	66,745		5,380
Allergan, Inc.	53,610		4,346
*Amgen, Inc.	110,000		7,057
*Axcan Pharma, Inc.†	172,350		3,332
*Boston Scientific Corporation	76,190		2,709
Eli Lilly & Company	97,550		5,536
*Express Scripts, Inc., Class “A”	48,020		3,671
*Integra Lifesciences Holding Corporation	69,750		2,576
Medtronic, Inc.	179,490		8,915
*ResMed, Inc.	49,385		2,524
UnitedHealth Group, Inc.	111,550		9,820
Valeant Pharmaceuticals International	71,175		1,875
*Zimmer Holdings, Inc.	72,080		5,775

			63,516

Industrials—12.6%
C.H. Robinson Worldwide, Inc.	64,765		3,596
Corporate Executive Board Company	54,025		3,616
Danaher Corporation	228,696		13,129
*Education Management Corporation	134,050		4,425
Knight Transportation, Inc.	242,125		6,005
*Ryanair Holdings plc—ADR	97,550		3,975

			34,746

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Discretionary—11.1%
*Bed, Bath & Beyond, Inc.	173,725	$	6,919
*CarMax, Inc.	122,290		3,797
*Entercom Communications Corporation	126,935		4,556
Family Dollar Stores, Inc.	151,825		4,741
Harley—Davidson, Inc.	101,700		6,178
*Kohl’s Corporation	89,900		4,420

			30,611

Financials—9.6%
Goldman Sachs Group, Inc.	45,615		4,746
SEI Investments Company	155,805		6,533
SLM Corporation	164,150		8,764
State Street Corporation	129,950		6,383

			26,426

Consumer Staples—5.1%
Estee Lauder Companies, Inc.	118,850		5,440
PepsiCo, Inc.	165,850		8,657

			14,097

Materials—4.4%
Ecolab, Inc.	187,400		6,583
Praxair, Inc.	125,260		5,530

			12,113

Energy—2.3%
Apache Corporation	64,150		3,244
Suncor Energy, Inc.†	87,345		3,092

			6,336

Total Common Stock—100.1% (cost $208,478)			275,686


*Investment in Affiliate*
William Blair Ready Reserves	137,537		138

Total Investment in Affiliate—0.0% (cost $138)			138

Total Investments—100.1% (cost $208,616)			275,824
Liabilities plus cash and other assets—(0.1)%			(318	)

Net assets—100.0%		$	275,506

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 7

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Mark A. Fuller III

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Gregory J. Pusinelli

TAX-MANAGED GROWTH FUND

The Tax-Managed Growth Fund invests primarily in common stocks of large, medium and small domestic growth companies with sustainable, above-average growth from one business cycle to the next.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

For the 12-month period ended December 31, 2004, the Tax-Managed Growth Fund posted a 0.65% gain on a total return basis (Class A Shares reflecting the impact of the maximum sales load). By comparison, the Fund’s benchmark, the Russell 3000^® Growth Index increased 6.93% and the Standard & Poor’s 500 Stock Index gained 10.88%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

The Fund’s performance was in line with the Russell 3000^® Growth benchmark.

A quick outcome to the presidential election, reassuring news on the economy and Federal Reserve monetary policy, as well as a decline in oil prices, all contributed to a strong market.

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

The Consumer Discretionary and Information Technology sectors accounted for most of the weakness in the Fund’s portfolio.

8 Annual Report

December 31, 2004

economy, winter Olympics and the presidential election. When ad spending failed to materialize over the course of the year, media stocks were negatively impacted.

What is your current strategy? How is the Fund positioned?

As always, we will continue to focus on and emphasize high-quality names that we believe will serve our investors well.

December 31, 2004

William Blair Funds 9

Tax-Managed Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception(a)
Tax-Managed Growth Fund Class A	0.65	%	(2.28	)%	(3.65	)%	(3.29	)%
Tax-Managed Growth Fund Class B	1.02		(2.13	)	(3.64	)	(3.29	)
Tax-Managed Growth Fund Class C	5.02		(1.13	)	(3.25	)	(2.88	)
Russell 3000^® Growth Index	6.93		0.26		(8.87	)	(8.60	)
S&P Index	10.88		3.59		(2.30	)	(2.13	)

(a)

For the period from December 27, 1999 to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The S&P 500 Index indicates broad larger capitalization equity market performance.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

10 Annual Report

December 31, 2004

Tax-Managed Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—20.4%
*CACI International, Inc., Class “A”	1,360	$	93
CDW Corporation	1,620		108
First Data Corporation	2,900		123
*Hewitt Associates, Inc.	3,060		98
*Intuit, Inc.	2,455		108
*Jabil Circuit, Inc.	3,545		91
Microchip Technology, Inc.	4,170		111
Microsoft Corporation	1,920		51
Paychex, Inc.	3,390		116
SAP AG—ADR	1,420		63
*SunGard Data Systems, Inc.	4,210		119
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	7,829		66
Xilinx, Inc.	1,600		47

			1,194

Health Care—20.2%
Alcon, Inc.†	965		78
Allergan, Inc.	795		65
*Amgen, Inc.	2,435		156
*Express Scripts, Inc., Class “A”	2,085		159
*Genentech, Inc.	1,800		98
Pfizer, Inc.	5,325		143
*ResMed, Inc.	2,197		112
*St. Jude Medical, Inc.	2,360		99
Stryker Corporation	1,230		59
Valeant Pharmaceuticals International	2,220		59
*Zimmer Holdings, Inc.	1,910		153

			1,181

Industrials—18.0%
*Apollo Group, Inc., Class “A”	750		61
C.H. Robinson Worldwide, Inc.	2,335		130
*ChoicePoint, Inc.	1,230		57
Danaher Corporation	3,020		173
Expeditors International of Washington	2,245		125
Fastenal Company	2,520		155
General Electric Company	3,355		122
Knight Transportation, Inc.	3,255		81
Pentair, Inc.	1,400		61
*Ryanair Holdings plc—ADR	2,085		85

			1,050

Consumer Discretionary—13.8%
*Bed, Bath & Beyond, Inc.	2,070		83
*CarMax, Inc.	2,710		84
Dollar General Corporation	4,230		88
*Entercom Communications Corporation	2,070		74

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Discretionary—(continued)
*IAC/InterActiveCorp	3,240	$	89
*Kohl’s Corporation	980		48
Lowe’s Companies, Inc.	2,735		158
*Univision Communications, Inc.	1,820		53
*Williams-Sonoma, Inc.	3,645		128

			805

Financials—10.8%
AFLAC, Incorporated	1,390		55
Ambac Financial Group, Inc.	1,450		119
American International Group	2,210		145
Investors Financial Service Corporation	2,240		112
Moody’s Corporation	1,215		106
Northern Trust Corporation	1,990		97

			634

Consumer Staples—6.1%
Colgate-Palmolive Company	1,100		56
PepsiCo, Inc.	2,825		147
Walgreen Co.	2,365		91
Whole Foods Market, Inc.	680		65

			359

Materials—5.8%
Airgas, Inc.	5,550		147
Ecolab, Inc.	2,090		73
Praxair, Inc.	2,660		118

			338

Energy—4.3%
*Smith International, Inc.	950		52
Suncor Energy, Inc.†	5,580		197

			249

Total Common Stock—99.4% (cost $4,400)			5,810


*Investment in Affiliate*
William Blair Ready Reserves	47,029		47

Total Investment in Affiliate—0.8% (cost $47)			47

Total Investments—100.2% (cost $4,447)			5,857
Liabilities, plus cash and other assets—(0.2)%			(10	)

Net assets—100.0%		$	5,847

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 11

LOGO

John F. Jostrand

LOGO

Norbert W. Truderung

LARGE CAP GROWTH FUND

The Large Cap Growth Fund invests primarily in common stocks of large domestic growth companies of high quality that have demonstrated sustained growth over a long period of time.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Large Cap Growth Fund posted a -0.97% loss on a total return basis (Class A Shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the Russell 1000 Growth^® Index, increased 6.30%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

One theme in the portfolio that had disappointing results in 2004 was radio and broadcasting. Media broadcasting tends to do well in the early to middle stages of a recovery cycle, as

12 Annual Report

December 31, 2004

Consumer Discretionary proved to be the weakest performer in terms of the large economic sectors, and was the largest negative contributor to performance relative to the benchmark. Bed, Bath and Beyond experienced concerns about productivity with respect to their new stores. Wal-Mart’s sales were somewhat lackluster due its core customer base being negatively affected by rising energy prices. Although some of the Fund’s stocks in this area performed well, the stocks that it did not own caused weak relative performance. Ebay and Starbucks both achieved strong gains during the quarter and added value to benchmark returns. The Fund did not own these names due to their significantly high valuations.

What is your current strategy for the year ahead?

December 31, 2004

William Blair Funds 13

Large Cap Growth Fund

Performance Highlights

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Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception(a)
Large Cap Growth Fund Class A	(0.97	)%	(4.31	)%	(10.38	)%	(10.10	)%
Large Cap Growth Fund Class B	(0.64	)	(4.12	)	(10.39	)	(10.12	)
Large Cap Growth Fund Class C	3.37		(3.14	)	(10.05	)	(9.73	)
Russell 1000^® Growth Index	6.30		(0.18	)	(9.29	)	(9.08	)

(a)

For the period from December 27, 1999 to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 1000^® Growth Index consists of large-capitalization companies with above average-to-book ratios and forecasted growth rates.

Sector Diversification (unaudited)

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The sector diversification shown is based on the total investment portfolio.

14 Annual Report

December 31, 2004

Large Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Information Technology—28.9%
*Accenture, Ltd.†	8,400	$	227
*Dell, Inc.	7,200		303
*EMC Corporation	9,375		139
First Data Corporation	6,125		261
Intel Corporation	5,360		125
*Intuit, Inc.	3,285		145
Linear Technology Corporation	4,875		189
Paychex, Inc.	4,590		156
SAP AG—ADR	2,825		125
Taiwan Semiconductor Mfg. Co. Ltd.—ADR	22,157		188

			1,858

Health Care—24.4%
Alcon, Inc.†	1,560		126
Allergan, Inc.	1,550		126
*Amgen, Inc.	3,060		196
*Boston Scientific Corporation	1,590		56
*Caremark Rx, Inc.	2,540		100
Eli Lilly & Company	2,155		122
Medtronic, Inc.	5,395		268
Pfizer, Inc.	5,015		135
UnitedHealth Group, Inc.	3,540		312
*Zimmer Holdings, Inc.	1,545		124

			1,565

Financials—10.5%
Goldman Sachs Group, Inc.	1,675		174
SLM Corporation	5,850		313
State Street Corporation	3,745		184

			671

Consumer Discretionary—10.0%
*Bed, Bath & Beyond, Inc.	5,850		233
Clear Channel Communications, Inc.	3,635		122
Harley-Davidson, Inc.	2,300		140
*Kohl’s Corporation	2,975		146

			641

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security



Issuer	Shares	Value

*Common Stocks—(continued)*
Consumer Staples—9.7%
Avon Products, Inc.	2,725	$	105
PepsiCo, Inc.	3,025		158
Wal-Mart Stores, Inc.	3,010		159
Walgreen Co.	5,240		201

			623

Industrials—8.0%
Danaher Corporation	5,757		330
General Electric Company	4,950		181

			511

Materials—4.8%
Ecolab, Inc.	4,350		153
Praxair, Inc.	3,565		157

			310

Energy—2.2%
Apache Corporation	1,400		71
Suncor Energy, Inc.†	2,010		71

			142

Total Common Stock—98.5% (cost $5,212)			6,321


*Investment in Affiliate*
William Blair Ready Reserves	176,619		177

Total Investment in Affiliate—2.8% (cost $177)			177

Total Investments—101.3% (cost $5,389)			6,498
Liabilities, plus cash and other assets—(1.3)%			(81	)

Net assets—100.0%		$	6,417

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 15

LOGO

Michael P. Balkin

LOGO

Karl W. Brewer

SMALL CAP GROWTH FUND

The Small Cap Growth Fund invests primarily in common stocks of small domestic growth companies that are expected to experience solid growth in earnings.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Small Cap Growth Fund posted a 19.85% gain on a total return basis (Class A Shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. This was well ahead of its benchmark, the Russell 2000 Growth^® Index, which increased 14.31% during the period, and the Russell 2000^® Index, which rose 18.33%.

What were the most significant factors impacting Fund performance?

Which investment strategies enhanced the Fund’s return? Were there any investment themes that produced the best results?

The Fund had strong performance across all of the major economic sectors, such as Consumer Discretionary, Financials, Health Care, and Technology.

16 Annual Report

December 31, 2004

Were there any investment strategies or themes that did not measure up to your expectations?

What were among the best performing investments for the Fund?

What were among the weakest performing investments for the Fund?

Is there any additional news with respect to the fund?

We would note that the Fund has one security (which comprises less than 1% of net assets) that was relatively illiquid as of the end of the year.

December 31, 2004

William Blair Funds 17

What is your current strategy for the year ahead?

As always, we will continue to invest in what we believe to be are high quality growth companies with solid fundamentals at attractive valuations. We appreciate your interest in the Fund.

18 Annual Report

December 31, 2004

Small Cap Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception(a)
Small Cap Growth Fund Class A	19.85	%	17.10	%	22.00	%	22.38	%
Small Cap Growth Fund Class B	21.25		17.81		22.33		22.71
Small Cap Growth Fund Class C	25.24		18.51		22.51		22.78
Russell 2000^® Growth Index	14.31		5.79		(3.57	)	(2.43	)
Russell 2000^® Index	18.33		11.48		6.61		7.53

(a)

For the period from December 27, 1999 to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class A, B and C shares are not available for sale.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2000^® Growth Index consists of small-capitalization companies with above average price-to-book ratios and forecasted growth rates.

The Russell 2000^® Index is an unmanaged composite of the smallest 2000 stocks of the Russell 3000^® Index.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 19

Small Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Consumer Discretionary—41.3%
*4 Kids Entertainment, Inc.	572,365	$	12,031
*Century Casinos, Inc.	652,942		5,961
*Charles River Associates	164,417		7,690
*Coinstar, Inc.	527,710		14,159
*Comstock Homebuilding Companies, Inc.	210,785		4,589
*Corrections Corporation of America	241,935		9,786
*Cumulus Media, Inc., Class “A”	644,120		9,713
*Elizabeth Arden, Inc.	476,900		11,322
*Emmis Communications Corporation, Class “A”	344,160		6,604
*FirstService Corporation†	476,510		7,801
Fred’s, Inc.	444,270		7,730
*FTI Consulting, Inc.	310,560		6,544
*Insight Enterprises, Inc.	649,390		13,326
*Intermix Media, Inc.	1,820,225		10,284
*Jarden Corporation	278,600		12,102
*Kforce, Inc.	1,524,265		16,919
*Labor Ready, Inc.	662,565		11,211
*Laureate Education, Inc.	540,000		23,809
*Lions Gate Entertainment Corporation†	1,016,910		10,800
*Multimedia Games, Inc.	600,385		9,462
Nautilus Group, Inc.	322,625		7,798
*Nu Skin Enterprises, Inc.	353,990		8,984
*Scientific Games Corporation, Class “A”	355,430		8,473
*Shuffle Master, Inc.	161,196		7,592
*Sirva, Inc.	388,055		7,458
Speedway Motorsports, Inc.	238,860		9,359
Strayer Education, Inc.	74,770		8,209
*TiVo, Inc.	744,970		4,373
*Usana Health Services, Inc.	211,710		7,241
*ValueClick, Inc.	1,333,970		17,782
*ValueVision Media, Inc., Class “A”	667,425		9,284
*Workstream, Inc.†	3,064,460		10,419

			318,815

Health Care—16.3%
*Allied Healthcare International	1,653,600		9,095
*American Healthways, Inc.	168,270		5,559
*Amicas, Inc. (Formerly Vitalworks, Inc.)	3,350,070		14,908
*Axcan Pharma, Inc.†	546,150		10,557
*Cell Therapeutics, Inc.	1,182,540		9,626
*Connectics Corporation	344,090		8,358
*Discovery Partners International, Inc.	1,319,596		6,268
*Integra Lifesciences Holdings Corporation	466,255		17,219
*Kensey Nash Corporation	224,945		7,767
*Martek Biosciences Corporation	87,430		4,476
*Matria Healthcare, Inc.	214,061		8,363
*Sangamo Biosciences, Inc.	550,655		3,304
*Santarus, Inc.	807,569		7,317
*Telik, Inc.	505,585		9,677
*Zila, Inc.	798,600		3,418

			125,912

Technology—15.3%
*AMIS Holdings, Inc.	553,110		9,137
ARM Holdings, plc—ADR	623,209		3,845
*Blackbaud, Inc.	642,043		9,400
*Kanbay International, Inc.	274,802		8,601



Issuer	Shares	Value

*Common Stocks—(continued)*
Technology—(continued)
*Kintera, Inc.	76,600	$	690
Kintera, Inc.#*	773,704		5,798
*Lionbridge Technologies, Inc.	340,900		2,291
*Loudeye Corporation	2,253,860		4,620
*Open Solutions, Inc.	326,630		8,479
*OPNET Technologies, Inc.	889,890		7,493
*Optimal Group, Inc.†	1,225,860		14,453
*PDF Solutions, Inc.	603,205		9,718
*Scansoft, Inc.	2,170,965		9,096
*SupportSoft, Inc.	715,360		4,764
*Ultimate Software Group, Inc.	720,538		9,137
*WebEx Communications, Inc.	457,855		10,888

			118,410

Financial Services—7.4%
*Affiliated Managers Group, Inc.	193,585		13,114
Commercial Capital Bancorp, Inc.	427,695		9,914
*Credit Acceptance Corp.	428,970		10,917
*Electronic Clearing House	617,737		5,547
*Euronet Worldwide, Inc.	342,905		8,922
Global Payments, Inc.	146,680		8,587

			57,001

Other Energy—5.7%
*ATP Oil and Gas Corporation	429,251		7,976
*Comstock Resources, Inc.	423,645		9,341
*Gasco Energy Inc.	2,489,825		10,607
*Grey Wolf, Inc.	1,703,730		8,979
*InterOil Corporation†	177,920		6,732

			43,635

Materials and Processing—2.8%
Airgas, Inc.	432,655		11,470
*Comfort Systems USA, Inc.	1,275,840		9,798

			21,268

Autos and Transport—2.1%
*Frozen Food Express Industries, Inc.	292,566		3,774
*Marten Transport, Ltd.	190,720		4,335
OMI Corporation	470,820		7,933

			16,042

Producer Durables—1.7%
*Educate, Inc.	544,952		7,215
*Providence Service Corporation	275,330		5,774

			12,989

Utilities—1.1%
*Intrado, Inc.	676,844		8,190

Total in Common Stock—93.7% (Total cost $566,452)			722,262


*Investment in Affiliate*
William Blair Ready Reserves	21,848,943		21,849

Total Investment in Affiliate—2.8% (cost $21,849)			21,849

See accompanying Notes to Financial Statements.

20 Annual Report

December 31, 2004

Small Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares of Principal Amount		Value

*Short-Term Investments—2.8%*
American Express Demand Note, VRN 2.24%, due 1/3/05 (cost $10,855)	$	10,855,000	$	10,855
Prudential Funding Demand Note, VRN 2.243%, due 1/3/05 (cost $10,667)		10,667,000		10,667

Total Short-Term Investments (cost $21,522)				21,522

Total Investments—99.3% (cost $609,823 )				765,633
Cash and other assets, less liabilities—0.7%				5,576

Net assets—100.0%			$	771,209

*Non-income producing securities

† = U.S. listed foreign security

**Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. The holding represents 0.75% of the net assets at December 31, 2004.

VRN = Variable Rate Note

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 21

LOGO

Karl W. Brewer

LOGO

Harvey H. Bundy, III

LOGO

Robert C. Lanphier, IV

SMALL-MID CAP GROWTH FUND

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Small-Mid Cap Growth Fund posted a 6.86% gain on a total return basis (Class A shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. This result lagged its benchmark, the Russell 2500 Growth^® Index, which increased 14.59% during the period.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

What were among the best performing sectors for the Fund? Were there any investment themes that produced the best results?

22 Annual Report

December 31, 2004

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

What is your current strategy for the year ahead?

We believe our high quality growth style of investing will do well as the economy continues on its path of recovery. We appreciate your interest in the Fund.

December 31, 2004

William Blair Funds 23

Small-Mid Cap Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	Year	Since Inception(a)(b)
Small-Mid Cap Growth Fund Class A	6.86	6.16	%
Small-Mid Cap Growth Fund Class B	7.58	7.82
Small-Mid Cap Growth Fund Class C	11.58	11.78
Russell 2500^® Growth Index	14.59	15.68

(a)

Total return is not annualized for periods that are less than a full year.

(b)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class A, B, and C shares are not available for sale.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2500^™ Growth Index measures the performance of those Russell 2500 companies with above average price-to-book ratios and forcasted growth rates.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

24 Annual Report

December 31, 2004

Small-Mid Cap Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Consumer Discretionary—37.9%
*Bed, Bath and Beyond, Inc.	16,700	$	665
*CarMax, Inc.	18,500		574
CDW Corporation	12,600		836
Cintas Corporation	7,400		325
*Coinstar, Inc	15,005		403
Corporate Executive Board Co.	11,400		763
*Corrections Corporation of America	8,700		352
*Cross Country Healthcare, Inc.	17,200		311
*Entercom Communications Corporation	7,200		258
Fastenal Company	11,800		726
*Getty Images, Inc.	4,900		337
*Hewitt Associates, Inc., Class “A”	17,900		573
*Iron Mountain, Inc.	17,450		532
*Lamar Advertising Company	9,500		406
*Laureate Education, Inc.	23,600		1,041
MSC Industrial Direct Company, Inc.	9,640		347
*O’Reilly Automotive, Inc.	16,000		721
*Shuffle Master, Inc.	7,400		349
Strayer Education, Inc.	2,900		318

			9,837

Health Care—18.9%
*American Healthways, Inc.	15,700		519
*Axcan Pharma, Inc.†	19,100		369
*Cell Therapeutics, Inc.	34,400		280
*Connetics Corporation	11,300		275
*Express Scripts, Inc.	6,900		527
*IDEXX Laboratories, Inc.	5,000		273
*Integra LifeSciences Holdings Corporation	18,920		699
*Kensey Nash Corporation	9,600		332
*Kyphon, Inc.	9,900		255
*Medicines Company	9,900		285
*Patterson Companies, Inc.	6,600		286
*ResMed, Inc.	9,200		470
*Telik, Inc.	17,200		329

			4,899

Technology—15.7%
Adobe Systems, Inc.	9,400		590
*Amis Holdings, Inc.	27,900		461
*Cognos, Inc.†	15,400		678
*Intuit, Inc.	17,900		788
*Jabil Circuit, Inc.	20,700		529
Microchip Technology, Inc.	22,900		611
*OPNET Technologies, Inc.	28,400		239
Xilinx, Inc.	6,600		196

			4,092

*Non-income producing securities

† = U.S. listed foreign security




Issuer	Shares	Value

*Common Stocks—(continued)*
Autos and Transport—7.9%
C.H. Robinson Worldwide, Inc.	8,800	$	489
Expeditors International of Washington	11,300		631
Gentex Corporation	11,100		411
Knight Transportation, Inc.	20,600		511

			2,042

Financial Services—5.7%
East West Bancorp, Inc.	9,000		378
*Fiserv, Inc.	13,900		559
*SunGard Data Systems, Inc.	19,000		538

			1,475

Other Energy—4.4%
Apache Corporation	5,000		253
*Smith International, Inc.	11,600		631
XTO Energy Corporation	7,500		265

			1,149

Producer Durables—2.2%
Pentair, Inc.	13,300		579

Materials and Processing—2.1%
Airgas, Inc.	20,900		554

Utilities—1.0%
*Intrado, Inc.	20,970		254

Total in Common Stock—95.8% (Total cost $22,507)			24,881


*Investment in Affiliate*
William Blair Ready Reserves	976,240		976

Total Investment in Affiliate—3.8% (cost $976)			976

Total Investments—99.6% (cost $23,483)			25,857
Cash and other assets, less liabilities—0.4%			117

Net assets—100%		$	25,974

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 25

LOGO

W. George Greig

INTERNATIONAL GROWTH FUND

The International Growth Fund invests primarily in common stocks of foreign growth companies of all sizes.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The International Growth Fund posted a 11.65% gain (Class A Shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 21.36%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

What sectors had the biggest impact on portfolio performance?

26 Annual Report

December 31, 2004

What is your outlook for the international markets?

December 31, 2004

William Blair Funds 27

International Growth Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception
International Growth Fund Class A	11.65	%	10.42	%	1.33	%	7.93	%(a)
International Growth Fund Class B	12.61		10.98		1.39		7.41	(b)
International Growth Fund Class C	16.61		11.79		1.77		7.65	(b)
MSCI All Country World Free Ex-US Index	21.36		13.56		0.02		3.15	(a)
							2.53	(b)
Lipper International Index	18.60		11.60		(0.90	)	—

(a)

For the period from October 21, 1999 to December 31, 2004.

(b)

For the period November 2, 1999 to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Lipper International Index is a composite of international growth mutual funds.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

28 Annual Report

December 31, 2004

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Europe—30.2%*
Austria—1.5%
Erste Bank Der Oester (Banking)	846,000	$	44,945

Estonia—0.5%
Hansabank (Banking)	1,214,083		15,809

Finland—0.7%
Nokian Renkaat Oyj (Automotive)	130,400		19,680

France—8.0%
Christian Dior (Apparel and luxury goods)	221,304		14,991
Essilor International (Health care supplies)	419,300		32,802
Hermes International SCA (Apparel & luxury goods)	70,800		14,094
*JC Decaux (Media)	1,236,100		35,986
Klepierre (Real estate)	169,800		14,977
*Orpea (Hospital and nursing management)	407,221		14,353
Sanofi-Avenits (Pharmaceuticals)	1,014,500		80,833
Technip-Coflexip S.A. (Construction)	171,400		31,587

			239,623

Germany—6.4%
Celesio AG (Pharmaceuticals)	354,700		28,808
Continental AG (Diversified manufacturing)	463,600		29,371
Did Deutscher Industrie Svc (Commercial services)	226,461		8,889
E.ON AG (Energy)	498,200		45,130
GFK AG (Commercial services)	250,948		9,766
Puma AG (Consumer non-durables)	49,985		13,711
SAP AG (Software)	316,800		55,989

			191,664

Greece—2.7%
Coca-Cola Hellenic Bottling S.A. (Beverages)	854,400		20,762
EFG Eurobank (Banking)	613,800		21,012
Folli Follie S.A. (Apparel and footwear retailer)	250,200		7,314
National Bank of Greece (Banking)	926,820		30,526

			79,614

Ireland—1.2%
Anglo Irish Bank plc (Finance)	1,020,200		24,706
*Grafton Group (Wholesale distributors)	1,133,900		12,288

			36,994

Italy—2.5%
Banco Popolare Di Verona E N (Banking)	1,797,700		36,432
Credito Emiliano SpA (Banking)	1,297,400		12,845
Hera SpA (Electric Services)	3,901,699		11,167
Pirelli & C Real Estate (Real estate development)	271,052		14,166

			74,610

Norway—1.4%
Statoil Asa (Oil and gas)	2,625,100		41,225

Spain—0.9%
Cortefiel S.A. (Specialty retail)	514,400		8,111
Grupo Ferrovial S.A. (Industrial services)	367,000		19,522

			27,633



Issuer	Shares	Value

*Common Stocks—Europe—30.2%—(continued)*
Sweden—1.8%
*Ericsson LM-B Shares (Communications equipment)	17,387,800	$	54,684

Switzerland—2.6%
*Actelion (Biotechnology)	110,100		11,241
*Geberit AG (Building products)	13,200		9,589
Serono S.A., Class “B” (Biotechnology)	43,600		28,448
UBS AG (Banking)	345,200		28,825

			78,103


*United Kingdom—15.2%*
BG Group plc (Industrial services)	8,218,500		55,750
*Cairn Energy plc (Petroleum refining)	629,800		13,156
Capita Group plc (Commercial services)	4,336,900		30,312
Carnival plc (Hotels, restaurants and leisure activities)	1,081,200		65,845
Cattle’s Holdings plc (Finance and leasing)	1,983,900		13,936
Intertek Group (Diversified commercial services)	879,305		11,856
Johnston Press plc (Publishing)	1,254,100		13,009
MAN Group plc (Finance)	513,800		14,473
McCarthy & Stone plc (Real estate)	825,900		9,405
*Michael Page International (Personnel services)	3,394,200		12,147
Morrison Supermarkets (Groceries)	4,687,100		18,581
Next plc (Multiline retail)	738,400		23,316
Reckitt Benckiser plc (Household products)	1,478,500		44,511
Smith & Nephew plc (Health care equipment and supplies)	565,900		5,780
Standard Chartered plc (Banking)	2,826,400		52,371
Tesco plc (Food retail)	11,763,400		72,449

			456,897


*Canada—6.2%*
*Alimentation Couche-Tard—Class “B” (Food retail)	527,400		15,598
Canadian National Railway Company (Railroads)	483,700		29,446
Four Seasons Hotel, Inc. (Hotels)	270,600		22,118
Manulife Financial Corp. (Life and health insurance)	594,100		27,421
*Precision Drilling Corp. (Drilling)	270,900		17,045
*Research in Motion Ltd. (Wireless telecommunication)	234,800		19,323
*Rona, Inc. (Building materials)	265,800		9,035
*Shoppers Drug Mart Corp. (Retail trade)	461,700		14,336
Suncor Energy, Inc. (Energy minerals)	883,300		31,202

			185,524


*Japan—19.0%*
Aeon Credit Service Co., Ltd. (Consumer finance)	244,700		18,178
Aeon Mall Co., Ltd. (Real estate)	206,900		14,685
Arisawa Manufacturing Co. (Chemicals)	260,000		11,766
Arnest One Corp. (Real estate)	372,900		9,460
Askul Corporation (Retail trade)	153,300		9,414
Canon, Inc. (Office electronics)	797,500		43,172
*Chiyoda Corp. (Construction)	1,952,000		14,249

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 29

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Japan—19.0%—(continued)*
Fast Retailing (Specialty retail)	374,600	$	28,533
Hino Motors Ltd. (Trucks, construction and farm machinery)	3,205,500		23,841
Hoya Corporation (Electronic technology)	378,200		42,599
Keyence Corporation (Electronic technology)	92,360		20,680
Misumi Corp. (Trading companies and distributors)	188,150		5,463
Mitsubishi Tokyo Financial (Banking)	2,192		22,380
Nakanishi Inc. (Medical specialties)	119,000		8,139
Neomax Co., Ltd. (Electronic equipment and instruments)	498,400		8,813
Nidec Corporation (Electronic technology)	231,900		28,305
Nitori Company Ltd. (Specialty stores)	184,860		12,024
Orix Corporation (Consumer finance)	307,900		42,008
Park 24 Co., Ltd. (Commercial services)	549,200		9,833
Pasona Inc. (Personnel services)	2,043		6,208
Point Inc. (Apparel and footwear retail)	340,900		11,268
Ryohin Keikaku Co. (Retail stores)	207,700		10,401
Sharp Corp. (Electronics)	2,417,200		39,453
*Shinsei Bank, Ltd. (Banking)	3,262,000		22,177
SMC Corporation (Trucks, construction and farm machinery)	157,200		17,986
Sumitomo Trust & Banking Co. (Finance)	4,421,000		31,951
Sundrug Co., Ltd. (Drug stores)	175,400		6,162
Toto Ltd. (Building products)	1,831,000		17,450
Trend Micro, Inc. (Application software)	430,000		23,303
USS Co., Ltd. (Commercial services)	126,800		10,615
Yamada Denki Company (Retail trade)	18,900		809

			571,325


*Emerging Asia—8.8%*
India—3.5%
Bharat Forge Ltd. (Machinery)	422,048		10,304
*Bharti Tele-Ventures (Wireless telecommunication services)	4,374,800		21,880
HDFC Bank (Banking)	1,240,400		14,928
Housing Development Finance Corp. (Financial services)	971,900		17,181
Infosys Technologies, Ltd. (Consulting and software services)	596,824		28,863
Ranbaxy Laboratories (Pharmaceuticals)	448,900		13,032

			106,188

Indonesia—0.6%
*Bank Rakyat Indonesia (Banking)	58,813,000		18,221

Malaysia—0.2%
*Airasia Bhd (Air transport)	11,964,000		5,226

South Korea—2.8%
Hyundai Motor Co., Ltd. (Automobiles)	771,800		41,234
Samsung Electronics Co. (Semiconductors)	97,800		42,490

			83,724

Taiwan—1.7%
EVA Airways Corp. (Airlines)	20,980,910		10,304
Hon Hai Precision Industry (Computers)	8,563,312		39,586

			49,890



Issuer	Shares	Value

*Asia—7.1%*
Australia—3.8%
Billabong International Ltd. (Apparel and luxury goods)	1,406,700	$	12,606
Macquarie Bank, Ltd. (Financial services)	769,200		28,032
Perpetual Trustees Australia (Investment managers)	293,200		14,426
Sigma Company, Ltd. (Medical distributors)	1,655,110		12,057
Toll Holdings, Ltd. (Trucking)	2,341,800		23,455
Wesfarmers Ltd. (Diversified industrials)	777,300		24,232

			114,808

Hong Kong—3.2%
China Insurance International (Insurance)	16,510,000		6,802
Cnooc Ltd. (Oil and gas)	87,777,000		46,998
Esprit Holdings Ltd. (Apparel, footwear and retail)	3,268,000		19,750
Techtronic Industries Co. (Consumer durables)	10,216,200		22,265

			95,815

Singapore—0.1%
Osim International Ltd. (Consumer sundries)	6,374,900		3,466


*Emerging Latin America—5.9%*
Brazil—1.0%
Cia De Concessoes (Transportation)	223,800		4,894
*Gol Linhas Aereas Int S.P—ADR (Air transport)	357,800		11,407
*Natura Cosmeticos S.A. (Cosmetics)	474,300		13,834

			30,135

Chile—1.9%
Banco Santander SP—ADR (Banking)	432,700		14,651
Cencosud S.A.—ADR 144A (Retail stores)	679,930		17,985
Lan Chile S.A.—ADR (Airlines)	448,900		14,454
S.A.C.I. Falabella (Department stores)	4,567,464		11,082

			58,172

Mexico—3.0%
America Movil S.A. (Communications)	16,078,100		42,228
*Corporacion Geo Sa De Cv (Real estate)	5,454,900		10,908
*Urbi Desarrollos Urbanos S.A. (Household durables)	3,340,200		14,586
Walmart de Mexico (Retail trade)	6,340,300		21,775

			89,497


*Emerging Europe, Mid-East, Africa—3.4%*
Egypt—0.9%
Orascom Contruction Industry (Construction)	1,144,741		13,669
*Orascom Telecommunication Holding GDR (Telecommunications)	611,400		12,913

			26,582

Hungary—0.9%
OTP Bank (Banking)	843,700		25,867

See accompanying Notes to Financial Statements.

30 Annual Report

December 31, 2004

International Growth Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Emerging Europe, Mid-East, Africa—3.4%—(continued)*
South Africa—1.6%
Edgars Consolidated Stores (Apparel, footwear and retail)	436,363	$	23,359
*MTN Group Ltd. (Telecommunication services)	2,508,000		19,272
Network Healthcare Holdings (Health services)	7,220,000		6,442

			49,073

Total Common Stock—95.8% (cost $2,106,999)			2,874,994


*Preferred Stock*
Brazil—1.0%
Banco Itau Holding (Banking)	205,910		30,921

Total Preferred Stock—1.0% (cost $19,338)			30,921

*Non-income producing securities

ADR = American Depository Receipt

GDR = Global Depository Receipt

VRN = Variable Rate Note

All securities excluding those traded on exchanges in this hemisphere, are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004, the Fund’s Portfolio of Investments includes the following currency categories:


Euro		25.1%
Japanese Yen		19.7%
British Pound Sterling		15.7%
Canadian Dollar		6.4%
Australian Dollar		4.0%
Indian Rupee		3.7%
Hong Kong Dollar		3.3%
Mexico Nuevo Peso		3.1%
South Korean Won		2.9%
Swiss Franc		2.7%
United States Dollar		2.5%
Swedish Krona		1.9%
Taiwan Dollar		1.7%
Brazilian Real		1.7%
South African Rand		1.7%
All other currencies		3.9%

		100.0%



Issuer	Shares or Principal Amount		Value

*Investment in Affiliate*
William Blair Ready Reserves Fund		39,866,050	$	39,866

Total Investments in Affiliate—1.3% (cost $39,866)				39,866


*Short-Term Investments*
American Express Demand Note, VRN 2.24% due 1/3/05	$	24,538,000		24,538
Prudential Funding Demand Note, VRN 2.243% due 1/3/05		21,204,000		21,204

Total Short-term Investments—1.5% (cost $45,742)				45,742

Total Investments—99.6% (cost $2,211,945)				2,991,523
Cash and other assets, less liabilities—0.4%				9,911

Net assets—100.0%			$	3,001,434

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 31

LOGO

W. George Greig

INTERNATIONAL EQUITY FUND

The International Equity Fund invests primarily in common stocks of large and medium-sized companies included in the Morgan Stanley Capital International All Country World Free ex-U.S. Index.

AN OVERVIEW FROM THE PORTFOLIO MANAGER

How did the Fund perform in 2004? How did the Fund’s performance compare to its benchmark?

The William Blair International Equity Fund commenced operations on May 24, 2004. Through the period ended December 31, 2004, the Fund posted a gain of 6.97% (Class A shares reflecting the impact of the maximum sales load). By comparison, the Fund’s benchmark, the MSCI All Country World Free except US Index, rose 22.61%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s underperformance versus the benchmark?

What sectors or regions had the biggest impact on portfolio performance?

What is your outlook for the international markets?

Cyclical factors to monitor in the months ahead for signs of stability or reacceleration would include: 1) trends in key technology segments (semiconductors and flat panel displays)’ 2) trends in bank lending, particularly in Asia; 3) trends in consumption growth in China, Korea and Taiwan; and 4) trends in industrial production and orders growth in Europe and Japan.

32 Annual Report

December 31, 2004

International Equity Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	Since Inception(a)(b)
International Equity Fund Class A	6.97	%
International Equity Fund Class B	8.00
International Equity Fund Class C	12.00
MSCI All Country World Free Ex-US	22.61

(a)

For the period from May 24, 2004 to December 31, 2004.

(b)

Total return is not annualized for periods that are less than a full year.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Lipper International Index is a composite of international growth mutual funds.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

December 31, 2004

William Blair Funds 33

International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks—Europe—31.6%*
Austria—2.1%
Erste Bank Der Oester (Banking)	3,800	$	202

France—7.0%
Dassault Systemes S.A. (Software)	1,900		96
Essilor International (Health care supplies)	1,300		102
Hermes International SCA (Apparel and luxury goods)	240		48
*JC Decaux (Media)	2,000		58
LVMH Moet-Hennessy Louis Vuitton (Luxury goods)	600		46
Sanofi-Aventis (Pharmaceuticals)	4,150		331

			681

Germany—9.8%
Celesio AG (Pharmaceuticals)	2,400		195
Continental AG (Diversified manufacturing)	2,375		150
E.ON AG (Energy)	2,620		237
Puma AG (Consumer non-durables)	225		62
SAP AG (Software)	1,725		305

			949

Greece—2.6%
Coca-Cola Hellenic Bottling S.A. (Beverages)	2,450		59
EFG Eurobank (Banking)	2,800		96
National Bank of Greece (Banking)	3,000		99

			254

Ireland—0.9%
Anglo Irish Bank plc (Finance)	3,900		94

Italy—1.5%
Banco Popolare di Verona E N (Banking)	7,200		146

Norway—2.0%
Statoil ASA (Oil and gas)	12,200		192

Spain—0.9%
Grupo Ferrovial S.A. (Industrial services)	1,600		85

Sweden—2.2%
*Ericsson LM-B Shares (Communications equipment)	67,500		212

Switzerland—2.6%
Serono S.A., Class “B” (Biotechnology)	130		85
UBS AG (Banking)	1,960		164

			249


*United Kingdom—16.4%*
BG Group plc (Industrial services)	39,900		271
Capita Group plc (Commercial services)	16,600		116
Carnival plc (Hotels, restaurants and leisure activities)	4,000		244
MAN Group plc (Finance)	1,700		48
Next plc (Multiline retail)	2,900		91
Reckitt Benckiser plc (Household products)	7,900		238
Smith & Nephew plc (Health care equipment and supplies)	1,700		17
Standard Chartered plc (Banking)	14,200		263
Tesco plc (Food retailer)	49,400		304

			1,592



Issuer	Shares	Value

*Japan—19.5%*
Askul Corporation (Retail trade)	600	$	37
Canon, Inc. (Office electronics)	5,400		292
Denso Corporation (Auto parts manufacturing)	8,200		220
Fast Retailing (Specialty retail)	1,300		99
Hino Motors Ltd. (Trucks, construction and farm machinery)	14,600		109
Hoya Corporation (Electronic technology)	1,200		135
Keyence Corporation (Electronic technology)	400		89
Nidec Corporation (Electronic technology)	800		98
Orix Corporation (Consumer finance)	1,100		150
Sharp Corporation (Electronics)	13,100		214
*Shinsei Bank, Ltd. (Banking)	14,500		99
SMC Corporation (Trucks, construction and farm machinery)	800		91
Sumitomo Trust & Banking Co. (Finance)	20,600		149
Toto Ltd. (Building products)	4,300		41
Yamada Denki Company (Retail trade)	1,500		64

			1,887


*Bermuda—2.0%*
*Accenture (Information technology)	7,200		194


*Canada—6.2%*
*Alimentation Couche-Tard—Class “B” (Food retail)	1,300		39
Canadian National Railway Co. (Railroads)	1,500		91
Manulife Financial Corporation (Life and health insurance)	2,200		102
*Precision Drilling Corporation (Drilling)	1,100		69
*Research in Motion Ltd. (Wireless telecommunication)	1,400		115
*Shoppers Drug Mart Corporation (Retail trade)	1,800		56
Suncor Energy, Inc. (Energy minerals)	3,600		127

			599


*Asia—7.6%*
Australia—4.2%
Macquarie Bank, Ltd. (Financial services)	4,900		178
Toll Holdings, Ltd. (Trucking)	7,800		78
Wesfarmers Ltd. (Diversified Industrials)	4,800		150

			406

Hong Kong—3.4%
Cnooc Ltd. (Oil and gas)	241,300		129
Esprit Holdings Ltd. (Apparel, footwear and retail)	16,500		100
Techtronic Industries Co. (Consumer durables)	45,300		99

			328


*Emerging Asia—5.0%*
India—1.8%
HDFC Bank (Banking)	4,100		49
Infosys Technologies Ltd. (Consulting and software services)	2,500		121

			170

South Korea—3.2%
Hyundai Motor Co., Ltd. (Automobiles)	2,600		139
Samsung Electronics Co. (Semiconductors)	400		174

			313

See accompanying Notes to Financial Statements.

34 Annual Report

December 31, 2004

International Equity Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Emerging Latin America—2.0%*
Mexico—2.0%
America Movil S.A. (Communications)	39,800	$	104
Walmart de Mexico (Retail trade)	26,200		90

			194


*Emerging Europe, Mid-East, Africa—1.6%*
Russia—0.5%
*Mobile TeleSystems ADR (Wireless Telecommunication)	330		46

South Africa—1.1%
Standard Bank Group Ltd. (Banking)	9,117		106

Total Common Stock—91.9% (cost $8,513)			8,899


*Preferred Stocks*
Brazil—1.2%
Banco Itau SA (Banking)	800		120

Total Preferred Stocks—1.2% (cost $80)			120

*Non-income producing securities

ADR = American Depository Receipt

† = U.S. listed foreign security

VRN = Variable Rate Note

All securities excluding those traded on exchanges in this hemisphere, are fair valued pursuant to Valuation Procedures adopted by the Board of Trustees.

At December 31, 2004, the Fund’s Portfolio of Investments includes the following currency categories:


Euro		26.7%
Japanese Yen		20.9%
British Pound Sterling		17.7%
Canadian Dollar		6.6%
Australian Dollar		4.5%
Hong Kong Dollar		3.6%
South Korean Won		3.5%
Swiss Franc		2.8%
United States Dollar		2.7%
Swedish Krona		2.4%
Mexico Nuevo Peso		2.2%
Norwegian Krone		2.1%
Indian Rupee		1.9%
Brazilian Real		1.3%
South African Rand		1.1%

		100.0%



Issuer	Shares or Principal Amount		Value

*Investment in Affiliate*
William Blair Ready Reserves Fund		219,072	$	219

Total Investment in Affiliate—2.3% (cost $219)				219


*Short-Term Investments*
American Express Demand Note, VRN 2.24% due 01/3/05	$	207,000		207

Total Short-term Investments—2.1% (cost $207)				207

Total Investments—97.5% (cost $9,019)				9,445
Cash and other assets, less liabilities—2.5%				244

Net assets—100.0%			$	9,689

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 35

LOGO

[PHOTO]

MITCHEL

David S. Mitchell

LOGO

Capucine “Cappy” Price

VALUE DISCOVERY FUND

The Value Discovery Fund invests in small companies that we believe offer a long-term investment value.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Value Discovery Fund posted a 5.46% gain on a total return basis (Class A shares reflecting the impact of the maximum sales load) during the 12 months ended December 31, 2004. By comparison, the Fund’s primary benchmark, the Russell 2000^® Index, rose 18.33%, while the Russell 2000^® Value Index, increased 22.25%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

Lastly, we made some stock picks that turned out to be mistakes.

What were among the best performing sectors and investments for the Fund?

36 Annual Report

December 31, 2004

What were among the weakest performing sectors for the Fund? Were there any investments that did not measure up to your expectations?

What is your current strategy? How is the Fund positioned?

December 31, 2004

William Blair Funds 37

Value Discovery Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception
Value Discovery Fund Class A	5.46	%	9.49	%	12.91	%	14.37	%(a)
Value Discovery Fund Class B	6.04		10.02		13.11		14.57	(a)
Value Discovery Fund Class C	10.08		10.84		13.37		14.63	(b)
Russell 2000^® Index	18.33		11.48		6.61		9.65	(a)
							9.63	(b)
Russell 2000^® Value Index	22.25		16.50		17.23		17.26	(a)
							17.18	(b)

(a)

For the period from November 2, 1999 (Commencement of the Class) to December 31, 2004.

(b)

For the period from November 3, 1999 (Commencement of the Class) to December 31, 2004.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Results shown are average annual total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class A, B, and C shares are not available for sale.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Russell 2000^® Index is the Fund’s primary benchmark. The Russell 2000^® Index is unmanaged composite of the smallest 2000 stocks of the Russell 3000 Index.

The Russell 2000^® Value Index consists of small-capitalization companies with below average price-to-book ratios and forecasted growth rates.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

38 Annual Report

December 31, 2004

Value Discovery Fund

Portfolio of Investments, December 31, 2004 (all dollar amounts in thousands)



Issuer	Shares	Value

*Common Stocks*
Financial Services—25.7%
Agree Realty Corporation	100,560	$	3,187
American Financial Realty Trust	281,500		4,555
AmerUs Group, Class “A”	122,135		5,533
Astoria Financial Corporation	94,070		3,760
Brandywine Realty Trust	41,485		1,219
City Bank (Lynnwood, WA)	5,163		187
Donegal Group, Inc., Class “A”	130,595		2,995
Equity Inns, Inc.	84,000		986
First Financial Holdings, Inc.	75,765		2,481
Flagstar Bancorp, Inc.	194,490		4,395
*Franklin Bank Corporation	214,640		3,917
*Jones Lang LaSalle, Inc	121,970		4,563
*KMG America Coporation	385,550		4,241
*Meadowbrook Insurance Group, Inc.	515,290		2,571
National Financial Partners Corporation	112,880		4,380
Ryder System, Inc.	76,750		3,666
*U.S.I. Holdings Corporation	157,686		1,824
*United Rentals, Inc.	263,700		4,984
Winston Hotels, Inc.	313,660		3,704

			63,148

Consumer Discretionary—25.2%
*BJ’s Wholesale Club, Inc.	191,335		5,574
Cadmus Communications Corporation	174,916		2,239
Christopher & Banks Corporation	220,050		4,060
*Elizabeth Arden, Inc.	346,000		8,214
Ethan Allen Interiors Inc.	90,580		3,625
Hancock Fabrics, Inc.	225,085		2,334
*Heidrick & Struggles International	78,035		2,674
*K2, Inc.	357,290		5,674
Michaels Stores, Inc.	89,725		2,689
Nautilus Group, Inc.	305,570		7,386
*Navigant Consulting, Inc.	153,545		4,084
*Restoration Hardware, Inc.	677,334		3,888
*Sharper Image Corporation	149,250		2,813
*Tech Data Corporation	147,820		6,711

			61,965

Producer Durables—9.8%
*Agco Corporation	174,740		3,825
*Artesyn Technologies, Inc.	403,235		4,557
*Belden, Inc.	233,930		5,427
General Cable Corporation	579,070		8,020
*Spatialight, Inc.	258,915		2,317

			24,146

Technology—9.8%
*Borland Software Corporation	578,985		6,763
*Carrier Access Corporation	366,625		3,915
*Checkpoint Systems, Inc.	130,848		2,362
*Overland Storage, Inc.	246,295		4,111
*SPSS, Inc.	155,615		2,434
*Sykes Enterprises, Inc.	57,800		402
*Tier Technologies, Inc., Class “B”	434,227		4,016

			24,003

*Non-income producing

**Fair Valued pursuant to Valuation Procedures adopted by the Board of Trustees. The holding represents 0.51% of the Fund’s net assets at December 31, 2004.



Issuer	Shares or Principal Amount		Value

*Common Stocks—(continued)*
Materials and Processing—6.5%
Jacuzzi Brands, Inc.		430,738	$	3,747
Polyone Corporation		463,749		4,202
Spartech Corporation		150,320		4,072
Watsco, Inc.		112,805		3,973

				15,994

Other Energy—6.1%
Consol Energy, Inc.		166,596		6,839
*Forest Oil Corporation		194,255		6,162
*Newpark Resources, Inc.		414,940		2,137

				15,138

Health Care—4.8%
*Albany Molecular Research		182,210		2,030
Alpharma, Inc., Class “A”		135,500		2,297
*Discovery Partners International, Inc.		468,149		2,224
*Encore Medical Corporation		776,340		5,271

				11,822

Consumer Staples—3.3%
*Del Monte Foods Company		455,355		5,018
*Hain Celestial Group, Inc.		145,178		3,001

				8,019

Autos and Transportation—3.7%
BorgWarner, Inc.		116,780		6,326
*SCS Transportation, Inc.		123,340		2,882

				9,208

Utilities—2.5%
Atmos Energy Corporation		227,135		6,212

Total Common Stock—97.4% (cost $177,384)				239,655


*Convertible Bonds*
Midwest Express Holdings, 6.750%, due 10/01/08**	$	2,157,000		1,255

Total Convertible Bonds—0.5% (cost $2,157)				1,255


*Investment in Affiliate*
William Blair Ready Reserves Fund		6,901,159		6,901

Total Investment in Affiliate—2.8% (cost $6,901)				6,901

Total Investments—100.7% (cost $186,442)				247,811
Liabilities, plus cash and other assets—(0.7)%				(1,635	)

Net assets—100.0%			$	246,176

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 39

LOGO

James S. Kaplan

LOGO

Christopher T. Vincent

INCOME FUND

The Income Fund invests in high-grade intermediate-term debt securities.

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

How did the Fund perform over the last year? How did the Fund’s performance compare to its benchmark?

The Income Fund posted a 0.54% gain on a total return basis (Class A shares reflecting the impact of the maximum sales load) for the 12 months ended December 31, 2004. By comparison, the Fund’s benchmark, the Lehman Intermediate Government/Credit Bond Index, rose 3.04%, while the Fund’s peer group, the Morningstar Short-term Bond Category, increased 1.60%.

What were the most significant factors impacting Fund performance? What factors were behind the Fund’s performance versus the benchmark?

Which investment strategies enhanced the Fund’s return? Were there any investment strategies that produced the best results?

Corporate bond spreads were underpinned by a lack of supply and a dearth of new issuance. In addition, as corporations have benefited from productivity gains, credit quality has

40 Annual Report

December 31, 2004

improved. As a result of the improved credit quality, there have been fewer downgrades of corporate issues and an increased number of upgrades, when compared to the environment several years ago.

What were among the weakest performing sectors for the Fund?

What is your current strategy? How is the Fund positioned?

We continue to favor being defensive and emphasizing non-Treasury sectors. Our enthusiasm for maintaining this strategy will be driven by future changes in valuations and fundamentals.

December 31, 2004

William Blair Funds 41

Income Fund

Performance Highlights

LOGO

Average Annual Total Return at 12/31/2004 reflecting the maximum sales load


	1 Year		3 Year		5 Year		Since Inception(a)
Income Fund Class A	0.54	%	3.95	%	5.83	%	5.74	(a)%
Income Fund Class B	(0.09	)	3.94		5.46		5.18	(b)
Income Fund Class C	0.80		3.89		5.40		5.10	(c)
Lehman Intermediate Government Credit Bond Index	3.04		5.68		7.21		7.04	(a)
							6.93	(b)
							6.91	(c)

(a)

For the period from October 25, 1999 to December 31, 2004.

(b)

For the period from November 2, 1999 to December 31, 2004.

(c)

For the period from November 3, 1999 to December 31, 2004.

The performance highlights and graph presented above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The Lehman Intermediate Government/Credit Bond Index indicates broad intermediate government/corporate bond market performance.

Sector Diversification (unaudited)

LOGO

The sector diversification shown is based on the total investment portfolio.

42 Annual Report

December 31, 2004

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	Principal Amount	Value

*U.S. Government and U.S. Government Agency—45.2%*
U.S. Treasury—4.6%
U.S. Treasury Note, 6.000%, due 8/15/09	$ 2,025	$2,233
U.S. Treasury Note, 6.500%, due 2/15/10	8,075	9,142
U.S. Treasury Note, 4.750%, due 5/15/14	2,000	2,084

Total U.S. Treasury Obligations	12,100	13,459

Government National Mortgage Association (GNMA)—2.8%
#589335, 6.500%, due 10/15/22	2,929	3,105
#616250, 6.000%, due 2/15/04	2,788	2,908
#2002-48, Tranche 0B, 6.000%, due 5/16/30	2,250	2,305

Total Government National Mortgage Association	7,967	8,318

Small Business Administration—0.01%
Receipt for Multiple Originator Fees, #3, 0.755%, due 11/01/08 (Interest Only) WAC	—	48

Federal Home Loan Mortgage Corp. (FHLMC)—15.5%
FDIC REMIC Trust, 96-C1, 7.250%, due 5/25/26	952	952
#G10067, 7.000%, due 1/1/08	819	853
#G10147, 8.500%, due 2/1/08	241	251
#1601, Tranche PJ, 6.000%, due 10/15/08, VRN	2,200	2,273
#1612, Tranche SE, 8.100%, due 11/15/08, VRN	1,216	1,267
# E80050, 6.000%, due 10/1/09	1,160	1,211
#G90028, 7.000%, due 5/15/09	768	810
#G90019, 7.500%, due 12/17/09	884	935
7.000%, due 3/15/10	5,575	6,367
#E65418, 7.000%, due 8/1/10	727	757
#G10457, 7.000%, due 2/1/11	835	885
#E00436, 7.000%, due 6/1/11	789	836
#G10708, 6.500%, due 8/1/12	483	512
#E91999, 5.000%, due 10/1/12	1,421	1,448
#G11218, 7.000%, due 10/1/12	261	276
#E96147, 5.000%, due 5/1/13	2,213	2,251
#E95846, 4.500%, due 5/1/13	1,712	1,723
#G10839, 5.500%, due 10/1/13	2,005	2,077
#E72924, 7.000%, due 10/1/13	1,923	2,038
#E00639, 5.000%, due 3/1/14	2,504	2,563
#E81908, 8.500%, due 12/1/15	327	349
#G90022, 8.000%, due 9/17/16	1,392	1,480
#G11486, 7.500%, due 4/1/17	1,952	2,071
#E90398, 7.000%, due 5/1/17	2,371	2,514
#M30028, 5.500%, due 5/1/17	695	726
#G11549, 7.000%, due 7/1/17	1,600	1,696
#G90027, 6.000%, due 11/15/17	2,386	2,513
#C67537, 9.500%, due 8/1/21	405	452
#G30243, 6.000%, due 12/1/21	2,997	3,136
#G21, Tranche J, 6.250%, due 8/25/22	367	368

Total FHLMC Mortgage Obligations	43,180	45,590


Issuer	NRSRO Rating		Principal Amount	Value
Federal National Mortgage Association (FNMA)—22.3%
#545560, 8.000%, due 5/1/07			$ 947	$992
6.6250%, due 10/15/07			935	1,013
#93-196, Tranche SA, 18.589%, due 10/25/08, VRN			916	1,060
#1993-221, Tranche SG, 9.980%, due 12/25/08, VRN			493	521
#765396, 5.500%, due 1/1/09			584	604
#731691, 7.000%, due 9/1/09			1,381	1,449
#695512, 8.000%, due 9/1/10			944	1,004
#725479, 8.5%, due 10/1/10			1,727	1,848
#255056, 5.000%, due 11/1/10			2,854	2,906
6.250%, due 2/1/11			6,625	7,263
#313816, 6.000%, due 4/1/11			967	1,016
#577393, 10.000%, due 6/1/11			478	524
#577395, 10.000%, due 8/1/11			1,359	1,497
#254705, 5.500%, due 3/1/13			2,715	2,833
#254788, 6.500%, due 4/1/13			958	1,022
#725315, 8.000%, due 5/1/13			1,518	1,614
#190539, 6.000%, due 1/1/14			692	723
#806463, 7.000%, due 3/1/14			1,873	1,986
#593561, 9.500%, due 8/1/14			647	724
#567027, 7.000%, due 9/1/14			2,615	2,773
#567026, 6.500%, due 10/1/14			2,843	3,017
#458124, 7.000%, due 12/15/14			925	982
#598453, 7.000%, due 6/1/15			999	1,055
#555747, 8.000%, due 5/1/16			1,013	1,078
#643217 , 6.500%, due 6/1/17			650	690
# 682075, 5.500%, due 11/1/17			1,439	1,488
#662925, 6.000%, due 12/1/17			2,722	2,864
#740847, 6.000%, due 10/1/18			1,951	2,045
#458147, 10.000%, due 8/15/20			1,587	1,800
#735104, 7.000%, due 5/1/22			4,479	4,771
#725927, 7.000%, due 8/1/22			3,616	3,851
#735137, 6.500%, due 11/1/22			2,400	2,534
#1993-19, Tranche SH, 11.233%, due 4/25/23, VRN			11	16
#254797, 5.000%, due 6/1/23			1,581	1,589
#806458, 8.00%, due 6/1/28			2,623	2,855
#654674, 6.500%, due 9/1/32			613	644
#733897, 6.500%, due 12/1/32			748	789

Total FNMA Mortgage Obligations			61,428	65,440


*Collateralized Mortgage Obligations—22.9%*
Security National Mortgage Loan Trust, 2002-2, Tranche M2, 6.460%, due 8/25/08*	A	+	2,500	2,501
GRP 2004-1, 3.96%, due 3/25/09	A		329	329
Countrywide Alternative Loan Trust, 2003-11T1, Tranche M, 4.750%, due 7/25/18	AA		1,988	1,962
Cityscape Home Equity Loan Trust, 1997-4, Tranche M2, 8.210%, due 10/25/18	A		1,294	1,291
ABFS, 2002-2, Tranche A6, 5.850%, due 3/15/19	AAA		1,900	1,969
Countrywide, 2001-HLV1, Tranche B1 9.385%, due 5/10/22	BBB		3,153	3,163
First Plus, 1997-4, Tranche M2, 7.330%, due 9/11/23	A		917	917
First Plus, 1997-4, Tranche A8, 7.310%, due 9/11/23	AAA		714	714

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 43

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	NRSRO Rating		Principal Amount	Value

*Collateralized Mortgage Obligations—(continued)*
First Plus, 1998-2, Tranche M2, 7.510%, due 5/10/24	A2		$ 538	$ 537
First Plus, 1998-3, Tranche M2, 7.420%, due 5/10/24	A2		181	181
GMAC Mortgage Corporation Loan Trust, 2000-CL1, Tranche B, 9.000%, due 6/25/26	A		399	405
GMAC Mortgage Corporation Loan Trust, 2000-CL1, Tranche M, 8.720%, due 6/25/26	AAA		980	986
CIT Group Home Equity Loan Trust, 98-1 M2, 6.720%, due 9/15/27	A2		1,315	1,331
Green Tree Home Improvement Loan Trust, 1998-E, Tranche HEM2, 7.270%, due 6/15/28	A	+	4,525	4,636
Delta Funding Home Equity Loan Trust, 2000-2, Tranche A6F, 7.970%, due 8/15/30	AAA		628	631
Bear Stearns ABS, 2001-A, Tranche M1, 7.540%, due 2/15/31	A		2,700	2,830
INHEL 2001-B, Tranche MF1 6.829%, due 2/25/31	AA	+	3,075	3,126
Countrywide, 2000-2, Tranche MF2, 9.000%, due 6/25/31	A		2,000	2,041
Residential Asset Securities Corporation, 2001-KS, Tranche MI2 7.370%, due 6/25/31	A		2,211	2,283
Countrywide, 2001-1, Tranche MF1, 7.215%, due 7/25/31	AA	+	1,328	1,336
Countrywide, 2001-1, Tranche MF2, 7.511%, due 7/25/31	AA-		590	595
IMSA, 2001-5, Tranche M1 7.250%, due 8/25/31	Aaa		2,222	2,309
Credit Suisse First Boston, 2002-22, Tranche 2M2 6.500%, due 6/25/32	A		3,041	3,122
Security National Mortgage Loan Trust, 2004-1A, Tranche M2, 6.750%, due 06/25/32*	A		1,600	1,597
Credit Suisse First Boston, 2001—HE30, Tranche MF2 7.760%, due 7/25/32	A	+	3,985	4,075
Structured Assets Security Corporation, 2002-17, Tranche B3, 6.075%, due 9/25/32, VRN	BBB		1,974	1,980
GRP Real Estate Asset Trust, 2003-1, Tranche A,* 5.970%, due 11/25/32	A		323	323
LSSCO, 2004-2, Tranche M1, 5.208%, due 2/28/33, VRN*	AA		2,622	2,643
LSSCO, 2004-2, Tranche M2, 5.208%, due 2/28/33, VRN*	A		2,010	2,021
ABFS, 2002-2, Tranche A-7, 5.215%, due 6/15/33, VRN	AAA		556	566
ABFS, 2002-3, Tranche MI, 5.402%, due 9/15/33, VRN	AA		1,500	1,520
ACE, 2004-SD1, Tranche M3 5.168%, due 11/25/33, VRN	BBB		2,099	1,992
Residential Asset Mortgage Products, 2003-RS11, Tranche MI1 5.597%, due 12/25/2033	AA		2,400	2,470


Issuer	NRSRO Rating		Principal Amount	Value

*Collateralized Mortgage Obligations—(continued)*
GRP Real Estate Asset Trust, 2004-2 Tranche A, 4.210%, due 7/25/34	A		$ 4,752	$ 4,758
FHASI, 2004-AR4, Tranche 3A1 4.650%, due 8/25/34	AAA		1,957	1,960
Security National Mortgage Loan Trust, 2004-2, Tranche M2, 6.352%, due 11/25/34*	A		2,200	2,181
Total Collateralized Mortgage Obligations			66,506	67,281

*Corporate Obligations—29.0%*
Block Financial Corporation, 8.500%, due 4/15/07	BBB	+	2,699	2,971
Mellon Bank NA, 7.375%, due 5/15/07	A	+	2,025	2,189
Ford Motor Credit, 7.200%, due 6/15/07	BBB		1,336	1,425
Applied Materials, Inc., 6.750%, due 10/15/07	A-		2,800	3,014
Amgen Inc., 6.500%, due 12/01/07	A	+	1,000	1,081
DaimlerChrysler, NA Holdings, 4.750%, due 1/15/08	A3		2,575	2,630
Wells Fargo Company, 3.500%, due 4/4/08	AA		2,375	2,360
Goldman Sachs Group, Inc. 3.875%, due 1/15/09	A	+	2,325	2,320
CIT Group Inc., 3.375%, due 4/1/09	A		2,475	2,404
Philips Petroleum, 8.750%, due 5/25/10	A-		3,525	4,302
Household Finance Corporation, 8.000%, due 7/15/10	A		2,325	2,736
Boeing Capital Corporation, 7.375%, due 9/27/10	A		2,449	2,824
Sprint Capital Corp., 7.625%, due 1/30/11	BBB		2,600	3,019
Countrywide Financial Corp., 4.000%, due 3/22/11	A		2,625	2,552
AOL Time Warner, 6.750%, due 4/15/11	BBB	+	1,900	2,137
Morgan Stanley, 6.750%, due 4/15/11	A	+	3,275	3,673
General Motors Acceptance Corporation, 6.875%, due 9/15/11	BBB		3,050	3,126
Ford Motor Credit Co., Inc. 7.250%, due 10/25/11	BBB	+	1,525	1,635
Lehman Brothers Holdings, Inc. 6.625%, due 1/18/12	A		2,650	2,963
National Rural Utility Cooperative, 7.250%, due 3/1/12	A		2,900	3,347
Weyerhaeuser Company, 6.750%, due 3/15/12	BBB		2,500	2,817
GE Capital Corporation, 6.000%, due 6/15/12	AAA		2,525	2,752
Citigroup, Inc. 5.625%, 8/27/12	A	+	2,550	2,716
SLM Corporation, 5.125%, due 8/27/12	A		2,025	2,082
Verizon Global Funding Corporation, 7.375%, due 9/1/12	A	+	2,600	3,060
Cox Communications Inc., 7.125%, due 10/1/12	BBB-		1,360	1,524

See accompanying Notes to Financial Statements.

44 Annual Report

December 31, 2004

Income Fund

Portfolio of Investments, December 31, 2004 (all amounts in thousands)


Issuer	NRSRO Rating		Principal Amount	Value

*Corporate Obligations—(continued)*
IBM Corporation, 4.750%, due 11/29/12	A	+	$ 3,250	$ 3,318
Ohio Power Company, 5.500%, due 2/15/13	A3		1,900	1,987
Comcast Cable Communications, Inc 8.375%, due 3/15/13	BBB		2,000	2,466
TXU Energy Company, 7.00%, due 3/15/13	BBB		2,650	2,960
Bank of America Corporation, 5.375%, due 6/15/14	A	+	2,250	2,348
May Department Stores, 5.750%, due 7/15/14	BBB		2,000	2,055
SBC Communications, Inc., 5.100%, due 9/15/14	A	+	2,000	2,019
Petro-Canada Financial Partnership, 5.000%, due 11/15/14	BBB		600	598

Total Corporate Obligations			78,644	85,410

Total Long Term Investments—97.1% (cost $283,197)			269,825	285,546

WAC = Weighted Average Coupon

VRN = Variable Rate Note

NRSRO = Nationally Recognized Statistical Rating Organization, such as S&P, Moody’s or Fitch (Unaudited)

The obligations of certain U. S. Government-sponsored securities are neither issued nor guaranteed by the U.S. Treasury.

*Deemed illiquid pursuant to Illiquidity Procedures adopted by the Board of Trustees. These holdings represent 3.8% of the net assets at December 31, 2004.


Issuer	NRSRO Rating		Principal Amount	Value

*Short-Term Investments—0.2%*
American Express Corporation, VRN 2.240%, due 1/3/05	A	+	$252	$252
Prudential Funding LLC, VRN 2.243%, due 1/3/05	A	+	263	263

Total Short-Term Investments (cost $515)			515	515

Total Investments—97.3% (cost $283,712)			$270,340	286,061

Cash and other assets, less liabilities—2.7%				8,023

Net Assets—100%				$294,084

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 45

Statements of Assets and Liabilities

December 31, 2004 (all dollar amounts in thousands)


	Growth Fund			Tax- Managed Growth Fund			Large Cap Growth Fund			Small Cap Growth Fund		Small- Mid Cap Growth Fund
*Assets*
Investments in securities, at cost	$	208,478		$	4,400		$	5,212		$	587,974	$	22,507
Investments in Affiliated Fund, at cost		138			47			177			21,849		976


Investments in securities, at value	$	275,686		$	5,810		$	6,321		$	743,784	$	24,881
Investments in Affiliated Fund, at value		138			47			177			21,849		976
Cash		60			—			2			421		1
Receivable for fund shares sold		151			—			20			4,612		190
Receivable for investment securities sold		—			—			—			5,729		—
Receivable from Advisor		—			2			13			—		—
Dividend and interest receivable		127			4			4			210		3

Total assets		276,162			5,863			6,537			776,605		26,051
*Liabilities*
Payable for investment securities purchased		—			—			105			4,270		—
Payable for fund shares redeemed		364			—			—			232		—
Management fee payable		189			4			5			667		53
Distribution and shareholder services fee payable		10			—			—			95		2
Other accrued expenses		93			12			10			132		22

Total liabilities		656			16			120			5,396		77

Net Assets	$	275,506		$	5,847		$	6,417		$	771,209	$	25,974

*Capital*
Composition of Net Assets
Par value of shares of beneficial interest	$	26		$	1		$	1		$	30	$	2
Capital paid in excess of par value		225,096			6,322			10,756			594,459		23,668
Accumulated realized gain (loss)		(16,824	)		(1,886	)		(5,449	)		20,910		(70	)
Net unrealized appreciation (depreciation) of investments and foreign currencies		67,208			1,410			1,109			155,810		2,374

Net Assets	$	275,506		$	5,847		$	6,417		$	771,209	$	25,974


Class A Shares
Net Assets	$	2		$	2		$	1		$	5	$	2
Shares Outstanding		200			200			200			200		200
Maximum offering price reflecting 5.75% sales load	$	11.35		$	9.52		$	6.60		$	27.26	$	11.96
Net Asset Value Per Share	$	10.70		$	8.97		$	6.22		$	25.69	$	11.27
Class B Shares
Net Assets	$	2		$	2		$	1		$	5	$	2
Shares Outstanding		200			200			200			200		200
Net Asset Value Per Share	$	10.23		$	8.63		$	5.98		$	24.62	$	11.19
Class C Shares
Net Assets	$	2		$	2		$	1		$	5	$	2
Shares Outstanding		200			200			200			200		200
Net Asset Value Per Share	$	10.22		$	8.63		$	5.97		$	24.63	$	11.19

See accompanying Notes to Financial Statements.

46 Annual Report

December 31, 2004

Statements of Operations

For the Year Ended December 31, 2004 (all dollar amounts in thousands)


	Growth Fund			Tax-Managed Growth Fund			Large Cap Growth Fund			Small Cap Growth Fund			Small-Mid Cap Growth Fund
*Investment income*
Dividends	$	1,583		$	37		$	46		$	903		$	31
Less foreign tax withheld		(63	)		(1	)		(1	)		—			—
Income from Affiliated Fund		23			1			1			165			8
Interest		—			—			—			304			—

Total income		1,543			37			46			1,372			39
*Expenses*
Investment advisory fees		2,017			47			48			6,663			134
Distribution fees		112			—			—			952			11
Custodian fees		64			15			16			142			31
Transfer agent fees		208			8			9			348			25
Professional fees		34			16			15			48			27
Registration fees		34			29			29			94			30
Other expenses		145			6			8			228			14

Total expenses before waiver		2,614			121			125			8,475			272
Plus expenses recovered by the Advisor		—			—			—			164
Less expenses waived or absorbed by the Advisor		—			(43	)		(56	)		—			(81	)

Net expenses		2,614			78			69			8,639			191

Net investment income (loss)		(1,071	)		(41	)		(23	)		(7,267	)		(152	)
Net realized and unrealized gain (loss) on investments, foreign currency transactions and other assets and liabilities
Net realized gain (loss) on investments		14,917			460			196			80,817			5

Change in net unrealized appreciation (depreciation) on investments and other assets and liabilities		5,610			(38	)		149			78,333			2,395

Net increase (decrease) in net assets resulting from operations	$	19,456		$	381		$	322		$	151,883		$	2,248

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 47

Statements of Changes in Net Assets

For the Years Ended December 31, 2004 and 2003 (all amounts in thousands)


	Growth Fund						Tax- Managed Growth Fund						Large Cap Growth Fund						Small Cap Growth Fund						Small-Mid Cap Growth Fund
	2004			2003			2004			2003			2004			2003			2004			2003			2004			2003 (a)
*Operations*
Net investment income (loss)	$	(1,071	)	$	(1,214	)	$	(41	)	$	(40	)	$	(23	)	$	(26	)	$	(7,267	)	$	(2,137	)	$	(152	)	$	—
Net realized gain (loss) on investments, foreign currency transactions and other assets and liabilities		14,917			758			460			(483	)		196			(553	)		80,817			20,759			5			—
Change in net unrealized appreciation (depreciation) on investments, and other assets and liabilities		5,610			58,056			(38	)		1,777			149			1,644			78,333			75,261			2,395			(21	)

Net increase (decrease) in net assets resulting from operations		19,456			57,600			381			1,254			322			1,065			151,883			93,883			2,248			(21	)
*Distributions to shareholders from*
Net investment income		—			—			—			—			—			—			—			—			—			—
Net realized gain		—			—			—			—			—			—			(54,782	)		(7,443	)		—			—

		—			—			—			—			—			—			(54,782	)		(7,443	)		—			—
*Capital stock transactions*
Net proceeds from sale of shares		35,194			29,113			246			1,159			1,655			1,147			260,030			400,136			21,231			3,694
Shares issued in reinvestment of income dividends and capital gain distributions		—			—			—			—			—			—			53,276			7,200			—			—
Less cost of shares redeemed		(60,798	)		(60,684	)		(1,651	)		(845	)		(1,079	)		(2,162	)		(158,022	)		(53,533	)		(1,178	)		—

Net increase (decrease) in net assets resulting from capital share transactions		(25,604	)		(31,571	)		(1,405	)		314			576			(1,015	)		155,284			353,803			20,053			3,694

Increase (decrease) in net assets		(6,148	)		26,029			(1,024	)		1,568			898			50			252,385			440,243			22,301			3,673
Net assets
Beginning of year	$	281,654		$	255,625		$	6,871		$	5,303		$	5,519		$	5,469		$	518,824		$	78,581		$	3,673		$	—

End of year	$	275,506		$	281,654		$	5,847		$	6,871		$	6,417		$	5,519		$	771,209		$	518,824		$	25,974		$	3,673

Undistributed net investment income (loss) at the end of the year	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

(a)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2003.

See accompanying Notes to Financial Statements

48 Annual Report

December 31, 2004

Statements of Assets and Liabilities

December 31, 2004 (all dollar amounts in thousands)


	International Growth Fund			International Equity Fund			Value Discovery Fund		Income Fund
*Assets*
Investments in securities, at cost	$	2,172,079		$	8,800		$	179,541	$	283,712
Investments in Affiliated Fund, at cost		39,866			219			6,901		—


Investments in securities, at value	$	2,951,657		$	9,226		$	240,910	$	286,061
Investments in Affiliated Fund, at value		39,866			219			6,901		—
Cash		135			104			—		11
Foreign currency, at value (cost $4,623 and $22, respectively)		4,752			22			—		—
Receivable for fund shares sold		6,083			119			4		5,655
Receivable for investment securities sold		3,151			84			437		102
Receivable from Advisor		—			38			—		—
Dividend and interest receivable		2,162			7			356		2,733

Total assets		3,007,806			9,819			248,608		294,562
*Liabilities*
Payable for investment securities purchased		1,731			98			1,712		—
Payable for fund shares redeemed		1,182			—			424		248
Management fee payable		2,477			14			230		129
Distribution and shareholder services fee payable		420			—			16		10
Dividend payable		—			—			—		—
Other accrued expenses		562			18			50		91

Total liabilities		6,372			130			2,432		478

Net Assets	$	3,001,434		$	9,689		$	246,176	$	294,084

*Capital*
Composition of Net Assets
Par value of shares of beneficial interest	$	136		$	1		$	10	$	29
Capital paid in excess of par value		2,249,967			9,359			179,541		304,241
Accumulated net investment income (loss)		(17,106	)		(79	)		36		173
Accumulated realized gain (loss)		(11,340	)		(17	)		5,220		(12,708	)
Net unrealized appreciation (depreciation) of investments and foreign currencies		779,777			425			61,369		2,349

Net Assets	$	3,001,434		$	9,689		$	246,176	$	294,084


Class A Shares
Net Assets	$	5		$	3		$	4	$	1
Shares Outstanding		200			200			200		200
Maximum offering price reflecting 5.75% sales load	$	23.42		$	12.04		$	22.79	$	6.19
Net Asset Value Per Share	$	22.07		$	11.35		$	21.48	$	6.07
Class B Shares
Net Assets	$	4		$	2		$	4	$	2
Shares Outstanding		200			200			200		200
Net Asset Value Per Share	$	20.97		$	11.30		$	21.94	$	10.03
Class C Shares
Net Assets	$	4		$	2		$	4	$	2
Shares Outstanding		200			200			200		200
Net Asset Value Per Share	$	20.97		$	11.30		$	21.95	$	10.17

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 49

Statements of Operations

For the Year Ended December 31, 2004 (all dollar amounts in thousands)


	International Growth Fund			International Equity Fund(a)			Value Discovery Fund			Income Fund			Ready Reserves Fund
*Investment income*
Dividends	$	34,752		$	30		$	2,635		$	—		$	—
Less foreign tax withheld		(3,356	)		(2	)		—			—			—
Income from Affiliated Fund		304			4			58			—			—
Interest		490			11			460			13,357			16,264

Total income		32,190			43			3,153			13,357			16,264
*Expenses*
Investment advisory fees		24,383			45			2,788			1,351			2,711
Distribution fees		4,299			1			79			90			—
Shareholder services fees		—			—			—			—			3,925
Custodian fees		2,054			32			70			78			190
Transfer agent fees		2,050			13			121			141			114
Professional fees		135			14			21			30			61
Registration fees		183			10			31			41			22
Other expenses		834			1			4			77			274

Total expenses before waiver		33,938			116			3,114			1,808			7,297
Less expenses waived or absorbed by the Advisor		—			(62	)		(45	)		—			—

Net expenses		33,938			54			3,069			1,808			7,297

Net investment income (loss)		(1,748	)		(11	)		84			11,549			8,967
Net realized and unrealized gain (loss) on investments, foreign currency transactions and other assets and liabilities:
Net realized gain (loss) on investments		118,301			717			26,728			(1,841	)		13
Net realized gain (loss) on foreign currency transactions and other assets and liabilities		(11,823	)		(76	)		—			—			—

Total net realized gain (loss)		106,478			641			26,728			(1,841	)		13
Change in net unrealized appreciation (depreciation) on investments and other assets and liabilities		341,262			425			240			(2,534	)		—

Net increase (decrease) in net assets resulting from operations	$	445,992		$	1,055		$	27,052		$	7,174		$	8,980

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

See accompanying Notes to Financial Statements.

50 Annual Report

December 31, 2004

Statements of Changes in Net Assets

For the Years Ended December 31, 2004 and 2003 (all amounts in thousands)


	International Growth Fund						International Equity Fund			Value Discovery Fund						Income Fund						Ready Reserves Fund
	2004			2003			2004(a)			2004			2003			2004			2003			2004			2003
*Operations*
Net investment income (loss)	$	(1,748	)	$	1,037		$	(11	)	$	84		$	(310	)	$	11,549		$	10,144		$	8,967		$	8,301
Net realized gain (loss) on investments, foreign currency transactions and other assets and liabilities		106,478			(14,894	)		641			26,728			6,425			(1,841	)		865			13			(33	)
Change in net unrealized appreciation (depreciation) on investments, foreign currency transactions and other assets and liabilities		341,262			459,102			425			240			60,586			(2,534	)		(2,342	)		—			—

Net increase (decrease) in net assets resulting from operations		445,992			445,245			1,055			27,052			66,701			7,174			8,667			8,980			8,268
*Distributions to shareholders from*
Net investment income		(2,616	)		(2,775	)		—			—			—			(14,033	)		(13,802	)		(8,967	)		(8,301	)
Net realized gain		—			—			—			(26,037	)		—			—			—			—			—

		(2,616	)		(2,775	)		—			(26,037	)		—			(14,033	)		(13,802	)		(8,967	)		(8,301	)
*Capital stock transactions*
Net proceeds from sale of shares		1,143,395			1,012,995			16,380			58,405			53,181			93,503			139,094			1,678,077			1,648,639
Shares issued in reinvestment of income dividends and capital gain distributions		2,161			2,457			—			25,638			—			10,085			10,207			8,904			8,334
Capital contribution by the Advisor		—			—			—			—			—			—			—			1,000			—
Less cost of shares redeemed		(487,197	)		(337,011	)		(7,746	)		(75,993	)		(73,573	)		(67,707	)		(75,240	)		(1,748,986	)		(1,827,009	)

Net increase (decrease) in net assets resulting from capital stock transactions		658,359			678,441			8,634			8,050			(20,392	)		35,881			74,061			(61,005	)		(170,036	)

Increase (decrease) in net assets		1,101,735			1,120,911			9,689			9,065			46,309			29,022			68,926			(60,992	)		(170,069	)
Net assets
Beginning of year		1,899,699			778,788			—			237,111			190,802			265,062			196,136			1,153,932			1,324,001

End of year	$	3,001,434		$	1,899,699		$	9,689		$	246,176		$	237,111		$	294,084		$	265,062		$	1,092,940		$	1,153,932

Undistributed net investment income (loss) at the end of the period	$	(17,106	)	$	(3,046	)	$	(79	)	$	36		$	—		$	173		$	128		$	81		$	81

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

See accompanying Notes to Financial Statements.

December 31, 2004

William Blair Funds 51

Notes to Financial Statements

(1) Significant Accounting Policies

(a) Description of the Fund


Equity Portfolios		International Portfolios
Growth		International Growth
Tax-Managed Growth		International Equity
Large Cap Growth		Institutional International Growth
Small Cap Growth		Institutional International Equity
Small-Mid Cap Growth		Fixed Income Portfolio
Value Discovery		Income
		Money Market Portfolio
		Ready Reserves

The investment objectives of the Portfolios are as follows:


Equity		Long-term capital appreciation.
International		Long-term capital appreciation.
Fixed Income		High level of current income with relative stability of principal.
Money Market		Current income, a stable share price and daily liquidity.

The Institutional International Growth Fund and the Institutional International Equity Fund issue a separate report. The Ready Reserves Fund which only offers Class N shares issues a separate report.

(b) Share Classes

Five different classes of shares currently exist. These share classes were offered for sale from November 2, 1999 until May 25, 2001. Currently, William Blair and Company, L.L.C., is the only shareholder in Class A, Class B, and Class C. All of the remaining shareholders in these classes exchanged their shares to Class N shares of their respective portfolio as of May 25, 2001. The table below describes the Class A shares, Class B shares and Class C shares covered by this report:


Class		Description
A		Class A shares are sold to investors subject to an initial sales charge (maximum amount 5.75% for equity, and international funds, 2.0% for fixed income portfolio) and is subject to ongoing shareholder service fees of 0.25% of average daily net assets of Class A, except the Income Portfolio which is 0.15%.
B		Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares in the form of shareholder service fees of 0.25% and distribution fees under a Rule 12b-1 plan of 0.75% of average daily net assets of Class B and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares seven years after issuance (three years for the Income Portfolio).
C		Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares in the form of shareholder service fees of 0.25% and distribution fees under a Rule 12b-1 plan of 0.75% of average daily net assets of Class B and a contingent deferred sales charge payable upon certain redemptions within one year of purchase.

52 Annual Report

December 31, 2004

(c) Investment Valuation

(d) Investment income and investment transactions

Dividend income is recorded on the ex-dividend date, except for those dividends from certain foreign securities which are recorded as soon as the information is available.

Premiums and discounts are accreted and amortized on a straight-line basis for short-term investments and on an effective interest method for long-term investments.

Interest income is determined on the basis of the interest accrued, adjusted for amortization of premium or discount. Variable rate bonds and floating rate notes earn interest at coupon rates that fluctuate at specific time intervals. The interest rates shown in the Portfolio of Investments for the Income Portfolio were the rates in effect on December 31, 2004. Put bonds may be redeemed at the discretion of the holder on specified dates prior to maturity. The Portfolios utilize the straight-line method of amortization of premiums and discounts for short-term securities (maturities less than one year) and the effective interest method for long-term securities (maturities greater than one year).

Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are recognized on the basis of high cost lot sell selection.

(e) Share Valuation and Dividends to Shareholders

December 31, 2004

William Blair Funds 53

For the year ended December 31, 2004, the redemption fees collected by the Portfolios were as follows (in thousands):


	Redemption Fees
Growth	$	7
Tax-Managed Growth		—
Large Cap Growth		—
Small Cap Growth		26
Small Mid-Cap Growth		2
International Growth		78
International Equity		—
Value Discovery		7
Income		2

Dividends from net investment income, if any, of the Growth, Tax-Managed Growth, Large Cap Growth, Small Cap Growth, Small-Mid Cap Growth, International Growth, International Equity, and Value Discovery Portfolios are declared at least annually. Dividends from the Income Portfolio are declared monthly. Capital gain distributions, if any, are declared at least annually in December. Dividends payable to shareholders are recorded on the ex-dividend date.


Portfolio	Undistributed Net Investment Income/(Loss)			Accumulated Undistributed Net Realized Gain/ (Loss)		Capital Paid In Excess of Par Value
Growth	$	1,071		—		$	(1,071	)
Tax-Managed Growth		41		—			(41	)
Large Cap Growth		23		—			(23	)
Small Cap Growth		7,267		(7,267	)		—
Small-Mid Cap Growth		152		(75	)		(77	)
International Growth		(9,697	)	9,697			—
International Equity		(67	)	(658	)		725
Value Discovery		(48	)	84			(36	)
Income		2,529		(369	)		(2,160	)


	Distributions Paid In 2004				Distributions Paid In 2003
Portfolio	Ordinary Income		Long-Term Capital Gains		Ordinary Income		Long-Term Capital Gains
Growth	$	—	$	—	$	—	$	—
Tax-Managed Growth		—		—		—		—
Large Cap Growth		—		—		—		—
Small Cap Growth		15,332		39,450		1,139		6,304
Small-Mid Cap Growth		—		—		—		—
International Growth		2,616		—		2,775		—
International Equity		—		—		—		—
Value Discovery		—		—		—		—
Income		14,033		—		13,802		—

54 Annual Report

December 31, 2004

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows (in thousands):


Portfolio	Undistributed Ordinary Income		Accumulated Capital and Other Losses		Undistributed Long-Term Gain		Net Unrealized Appreciation / (Depreciation)
Growth	$	—	$	16,820	$	—	$	67,205
Tax-Managed Growth		—		1,886		—		1,410
Large Cap Growth		—		5,421		—		1,082
Small Cap Growth		8,679		—		14,322		153,719
Small-Mid Cap Growth		—		—		—		2,304
International Growth		1,313		5,866		—		753,758
International Equity		—		72		—		402
Value Discovery		—		—		6,625		59,999
Income		173		12,623		—		2,262

(f) Options

(g) Foreign Currency Translation and Forward Foreign Currency Contracts

(h) Income Taxes


Portfolio	Cost of Investments		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation / (Depreciation)
Growth	$	208,619	$	73,285	$	6,080	$	67,205
Tax-Managed Growth		4,447		1,497		87		1,410
Large Cap Growth		5,416		1,210		128		1,082
Small Cap Growth		611,914		164,942		11,223		153,719
Small-Mid Cap Growth		23,553		2,629		325		2,304
International Growth		2,237,964		764,887		11,129		753,758
International Equity		9,043		464		62		402
Value Discovery		187,812		63,504		3,505		59,999
Income		283,799		4,685		2,423		2,262

December 31, 2004

William Blair Funds 55


Portfolio	2005		2006		2007		2008		2009		2010		2011		2012		Total
Growth	$	—	$	—	$	—	$	—	$	—	$	14,788	$	2,032	$	—	$	16,820
Tax-Managed Growth		—		—		—		—		381		1,037		468		—		1,886
Large Cap Growth		—		—		—		356		2,714		1,582		769		—		5,421
Small Cap Growth		—		—		—		—		—		—		—		—		—
Small-Mid Cap Growth		—		—		—		—		—		—		—		—		—
International Growth		—		—		—		—		—		—		5,866		—		5,866
International Equity		—		—		—		—		—		—		—		—		—
Value Discovery		—		—		—		—		—		—		—		—		—
Income		—		—		1,249		3,292		—		1,692		1,582		4,808		12,623


Portfolio	Amount
Growth	$	—
Tax-Managed Growth		—
Large Cap Growth		—
Small Cap Growth		—
Small-Mid Cap Growth		—
International Growth		—
International Equity		72
Value Discovery		—
Income		376

(i) Use of Estimates

(2) Transactions with Affiliates

(a) Management and Expense Limitation Agreements


Equity Portfolios			International Portfolios
Growth	0.75	%	International Growth and International Equity
Tax-Managed Growth	0.80	%	First $250 million	1.10	%
Large Cap Growth	0.80	%	In excess of $250 million	1.00	%
Small Cap Growth	1.10	%
Small-Mid Cap Growth	1.00	%
Value Discovery	1.15	%
Fixed Income Portfolio
Income*
First $250 million	0.25	%
In excess of $250 million	0.20	%

*Management fee also includes a charge of 5% of gross income.

56 Annual Report

December 31, 2004


	Class A Shares				Class B & C Shares
	Through April 30, 2004		Effective May 1, 2004		Through April 30, 2004		Effective May 1, 2004
Tax-Managed Growth	1.55	%	1.54	%	2.30	%	2.29	%
Large Cap Growth	1.45	%	1.34	%	2.20	%	2.09	%
Small Cap Growth	1.63	%	1.65	%	2.38	%	2.40	%
Small-Mid Cap Growth	1.54	%	1.54	%	2.29	%	2.29	%
International Equity	N/A		1.50	%	N/A		2.25	%
Value Discovery	1.58	%	1.50	%	2.33	%	2.25	%

For the year ended December 31, 2004, the investment advisory fees incurred by the Portfolios and related fee waivers were as follows (in thousands) :


Portfolio	Gross Advisory Fee		Fee Waiver		Net Advisory Fee		Additional Expenses (Recovered) or Absorbed by Advisor
Growth	$	2,017	$	—	$	2,017	$	—
Tax-Managed Growth		47		43		4		—
Large Cap Growth		48		48		—		8
Small Cap Growth		6,663		—		6,663		(164	)
Small-Mid Cap Growth		134		81		53		—
International Growth		24,383		—		24,383		—
International Equity		45		45		—		17
Value Discovery		2,788		—		2,788		—
Income		1,351		—		1,351		—

(b) Underwriting, Distribution Services and Service Agreement

Each Portfolio has a Distribution Agreement with the Company for distribution services. Each Portfolio pays the Company an annual fee, payable monthly, based on a specified percentage of its average daily net assets of specified share classes. The annual rates for Distribution fees expressed as a percentage of average daily net assets for Class B and Class C is 0.75% for all Portfolios. The annual rate for shareholder services fees expressed as a percentage of average daily net assets for Class A, Class B and Class C is 0.25%, except the Income Portfolio, which is 0.15%.

December 31, 2004

William Blair Funds 57

Distribution and shareholder services fees incurred by Class A, Class B and Class C the Portfolios to the Company, for the year ended December 31, 2004, were as follows:


Portfolio	Distribution Fees		Shareholder Service Fee
Growth	$	29	$	13
Tax-Managed Growth		24		12
Large Cap Growth		16		9
Small Cap Growth		68		34
Small-Mid Cap Growth		30		13
International Growth		55		28
International Equity		18		8
Value Discovery		68		33
Income		30		9

(c) Trustees Fees

The Portfolios incurred fees of $200 (in thousands) to non-interested trustees of the Fund for the year ended December 31, 2004. Interested trustees are not compensated.

(d) Investments in Affiliated Portfolio

Pursuant to an Exemptive Order granted by the Securities and Exchange Commission in January, 2001, each of the Portfolios of the Fund may invest in the William Blair Ready Reserves Portfolio (“Ready Reserves”), an open-end money market portfolio managed by the Advisor. Ready Reserves Portfolio is used as a cash management option to the other Portfolios in the Fund. The Advisor waives management fees and shareholder service fees earned from the other Portfolios investment in the Ready Reserves Fund. The fees waived with respect to each Portfolio for the year ended December 31, 2004 are listed below. Distributions received from Ready Reserves are reflected as dividend income in each Portfolio’s statement of operations. Amounts relating to the Portfolios’ investments in Ready Reserves were as follows for the year ended December 31, 2004 (in thousands):


Portfolio	Purchases		Sales Proceeds		Fees Waived		Dividend Income		Value		Percent of Net Assets
Growth	$	79,762	$	85,440	$	17	$	23	$	138	0.0	%
Tax-Managed Growth		1,835		1,913		1		1		47	0.8
Large Cap Growth		3,140		3,198		1		1		177	2.8
Small Cap Growth		304,943		325,566		135		165		21,849	2.8
Small-Mid Cap Growth		18,524		17,628		5		8		976	3.8
International Growth		328,021		387,225		238		304		39,866	1.3
International Equity		7,805		7,586		2		4		219	2.3
Value Discovery		93,912		93,507		41		58		6,901	2.8

(3) Investment Transactions

Investment transactions, excluding money market instruments, for the year ended December 31, 2004 were as follows (in thousands):


Portfolio	Purchases		Sales
Growth	$	95,518	$	120,463
Tax-Managed Growth		1,861		3,347
Large Cap Growth		2,968		2,289
Small Cap Growth		726,401		643,126
Small-Mid Cap Growth		26,152		7,120
International Growth		2,555,805		1,850,393
International Equity		17,766		3,339
Value Discovery		120,141		137,748
Income		148,018		118,825

58 Annual Report

December 31, 2004

(4) Foreign Currency Forward Contracts

(5) Fund Share Transactions

There were no Fund share transactions to report for the Funds’ Class A, Class B, and Class C shares with the exception of International Equity Fund which commenced operations on May 24, 2004. International Equity Fund sold 200 shares of Class A, Class B, and Class C shares at a $10.00 NAV for a total of 600 shares and $6,000. The Class A, B and C shares of this Fund are closed to any additional investors. For all other Funds, Class A shares, Class B shares and Class C shares, each have one open account held by William Blair & Company, L.L.C. There have been no purchases, reinvestments of dividends or redemptions in these accounts since they initially opened with 200 shares each on May 25, 2001.

December 31, 2004

William Blair Funds 59

Financial Highlights

Growth Fund


	Class A
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	9.97		$	8.05		$	10.87		$	12.72		$	20.09
Income (loss) from investment operations:
Net investment income (loss)		(0.06	)		(0.06	)		(0.07	)		(0.05	)		(0.06	)
Net realized and unrealized gain (loss) on investments		0.79			1.98			(2.75	)		(1.66	)		(1.52	)

Total from investment operations		0.73			1.92			(2.82	)		(1.71	)		(1.58	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			0.14			5.79

Total distributions		—			—			—			0.14			5.79

Net asset value, end of period	$	10.70		$	9.97		$	8.05		$	10.87		$	12.72

Total return (%)		7.32			23.85			(25.94	)		(13.46	)		(7.47	)
Ratios to average daily net assets (%):
Expenses		1.17			1.19			1.19			1.18			1.13
Net investment income (loss)		(0.60	)		(0.67	)		(0.73	)		(0.57	)		(0.29	)


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	9.61		$	7.82		$	10.63		$	12.56		$	20.07
Income (loss) from investment operations:
Net investment income (loss)		(0.13	)		(0.12	)		(0.13	)		(0.14	)		(0.20	)
Net realized and unrealized gain (loss) on investments		0.75			1.91			(2.68	)		(1.65	)		(1.52	)

Total from investment operations		0.62			1.79			(2.81	)		(1.79	)		(1.72	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			0.14			5.79

Total distributions		—			—			—			0.14			5.79

Net asset value, end of period	$	10.23		$	9.61		$	7.82		$	10.63		$	12.56

Total return (%)		6.45			22.89			(26.43	)		(14.27	)		(8.17	)
Ratios to average daily net assets (%):
Expenses		1.92			1.94			1.94			1.93			1.88
Net investment income (loss)		(1.35	)		(1.42	)		(1.48	)		(1.32	)		(1.04	)



	Years Ended December 31,
	2004	2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$275,506	$	281,654	$	255,625	$	386,096	$	550,987
Portfolio turnover rate (%)	35		45		29		74		88

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

60 Annual Report

December 31, 2004

Financial Highlights

Growth Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	9.60		$	7.82		$	10.63		$	12.54		$	20.06
Income (loss) from investment operations:
Net investment income (loss)		(0.13	)		(0.12	)		(0.13	)		(0.14	)		(0.20	)
Net realized and unrealized gain (loss) on investments		0.75			1.90			(2.68	)		(1.63	)		(1.53	)

Total from investment operations		0.62			1.78			(2.81	)		(1.77	)		(1.73	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			0.14			5.79

Total distributions		—			—			—			0.14			5.79

Net asset value, end of period	$	10.22		$	9.60		$	7.82		$	10.63		$	12.54

Total return (%)		6.46			22.76			(26.43	)		(14.13	)		(8.22	)
Ratios to average daily net assets (%):
Expenses		1.92			1.94			1.94			1.93			1.88
Net investment income (loss)		(1.35	)		(1.42	)		(1.48	)		(1.32	)		(1.01	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	275,506	$	281,654	$	255,625	$	386,096	$	550,987
Portfolio turnover rate (%)		35		45		29		74		88

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 61

Financial Highlights

Tax-Managed Growth Fund


	Class A
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	8.40		$	6.85		$	9.06		$	10.08		$	10.18
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)		(0.07	)		(0.06	)		(0.04	)		(0.04	)
Net realized and unrealized gain (loss) on investments		0.65			1.62			(2.15	)		(0.98	)		(0.06	)

Total from investment operations		0.57			1.55			(2.21	)		(1.02	)		(0.10	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	8.97		$	8.40		$	6.85		$	9.06		$	10.08

Total return (%)		6.79			22.63			(24.39	)		(10.12	)		(0.98	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.54			1.49			1.36			1.36			1.36
Expenses, before waivers and reimbursements		2.26			2.26			2.22			3.64			11.34
Net investment income (loss), net of waivers and reimbursements		(0.92	)		(0.91	)		(0.72	)		(0.57	)		(0.41	)
Net investment income (loss), before waivers and reimbursements		(1.64	)		(1.68	)		(1.58	)		(2.85	)		(10.39	)


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	8.14		$	6.69		$	8.93		$	10.01		$	10.18
Income (loss) from investment operations:
Net investment income (loss)		(0.14	)		(0.12	)		(0.11	)		(0.11	)		(0.12	)
Net realized and unrealized gain (loss) on investments		0.63			1.57			(2.13	)		(0.97	)		(0.05	)

Total from investment operations		0.49			1.45			(2.24	)		(1.08	)		(0.17	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	8.63		$	8.14		$	6.69		$	8.93		$	10.01

Total return (%)		6.02			21.67			(25.08	)		(10.79	)		(1.67	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.29			2.24			2.11			2.11			2.11
Expenses, before waivers and reimbursements		3.01			3.01			2.97			4.39			12.09
Net investment income (loss), net of waivers and reimbursements		(1.67	)		(1.66	)		(1.47	)		(1.32	)		(1.16	)
Net investment income (loss), before waivers and reimbursements		(2.39	)		(2.43	)		(2.33	)		(3.60	)		(11.14	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	5,847	$	6,871	$	5,303	$	7,211	$	5,001
Portfolio turnover rate (%)		31		37		44		37		32

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

62 Annual Report

December 31, 2004

Financial Highlights

Tax-Managed Growth Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	8.14		$	6.69		$	8.93		$	10.01		$	10.18
Income (loss) from investment operations:
Net investment income (loss)		(0.14	)		(0.12	)		(0.11	)		(0.11	)		(0.12	)
Net realized and unrealized gain (loss) on investments		0.63			1.57			(2.13	)		(0.97	)		(0.05	)

Total from investment operations		0.49			1.45			(2.24	)		(1.08	)		(0.17	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	8.63		$	8.14		$	6.69		$	8.93		$	10.01

Total return (%)		6.02			21.67			(25.08	)		(10.79	)		(1.67	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.29			2.24			2.11			2.11			2.11
Expenses, before waivers and reimbursements		3.01			3.01			2.97			4.39			12.09
Net investment income (loss), net of waivers and reimbursements		(1.67	)		(1.66	)		(1.47	)		(1.32	)		(1.15	)
Net investment income (loss), before waivers and reimbursements		(2.39	)		(2.43	)		(2.33	)		(3.60	)		(11.13	)



	Years Ended December 31,
	2004	2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$5,847	$	6,871	$	5,303	$	7,211	$	5,001
Portfolio turnover rate (%)	31		37		44		37		32

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 63

Financial Highlights

Large Cap Growth Fund


	Class A
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	5.92		$	4.78		$	6.69		$	8.45		$	10.14
Income (loss) from investment operations:
Net investment income (loss)		(0.04	)		(0.04	)		(0.04	)		(0.06	)		(0.07	)
Net realized and unrealized gain (loss) on investments		0.34			1.18			(1.87	)		(1.70	)		(1.62	)

Total from investment operations		0.30			1.14			(1.91	)		(1.76	)		(1.69	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	6.22		$	5.92		$	4.78		$	6.69		$	8.45

Total return (%)		5.07			23.85			(28.55	)		(20.83	)		(16.67	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.38			1.42			1.36			1.36			1.36
Expenses, before waivers and reimbursements		2.29			2.39			2.45			3.01			2.84
Net investment income (loss), net of waivers and reimbursements		(0.63	)		(0.76	)		(0.71	)		(0.79	)		(0.68	)
Net investment income (loss), before waivers and reimbursements		(1.54	)		(1.73	)		(1.80	)		(2.44	)		(2.16	)


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	5.73		$	4.67		$	6.58		$	8.39		$	10.14
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)		(0.08	)		(0.08	)		(0.11	)		(0.13	)
Net realized and unrealized gain (loss) on investments		0.33			1.14			(1.83	)		(1.70	)		(1.62	)

Total from investment operations		0.25			1.06			(1.91	)		(1.81	)		(1.75	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	5.98		$	5.73		$	4.67		$	6.58		$	8.39

Total return (%)		4.36			22.70			(29.03	)		(21.57	)		(17.26	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.13			2.17			2.11			2.11			2.11
Expenses, before waivers and reimbursements		3.04			3.14			3.20			3.76			3.59
Net investment income (loss), net of waivers and reimbursements		(1.38	)		(1.51	)		(1.46	)		(1.54	)		(1.43	)
Net investment income (loss), before waivers and reimbursements		(2.29	)		(2.48	)		(2.55	)		(3.19	)		(2.91	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	6,417	$	5,519	$	5,469	$	5,991	$	10,995
Portfolio turnover rate (%)		39		33		52		87		95

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

64 Annual Report

December 31, 2004

Financial Highlights

Large Cap Growth Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	5.72		$	4.66		$	6.57		$	8.39		$	10.14
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)		(0.08	)		(0.08	)		(0.11	)		(0.14	)
Net realized and unrealized gain (loss) on investments		0.33			1.14			(1.83	)		(1.71	)		(1.61	)

Total from investment operations		0.25			1.06			(1.91	)		(1.82	)		(1.75	)
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		—			—			—			—			—

Total distributions		—			—			—			—			—

Net asset value, end of period	$	5.97		$	5.72		$	4.66		$	6.57		$	8.39

Total return (%)		4.37			22.75			(29.07	)		(21.69	)		(17.26	)
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.13			2.17			2.11			2.11			2.11
Expenses, before waivers and reimbursements		3.04			3.14			3.20			3.76			3.59
Net investment income (loss), net of waivers and reimbursements		(1.38	)		(1.51	)		(1.46	)		(1.54	)		(1.41	)
Net investment income (loss), before waivers and reimbursements		(2.29	)		(2.48	)		(2.55	)		(3.19	)		(2.89	)



	Years Ended December 31,
	2004	2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$6,417	$	5,519	$	5,469	$	5,991	$	10,995
Portfolio turnover rate (%)	39		33		52		87		95

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 65

Financial Highlights

Small Cap Growth Fund


	Class A
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	21.82		$	13.72		$	16.57		$	13.16		$	10.19
Income (loss) from investment operations:
Net investment income (loss)		(0.30	)		(0.21	)		(0.19	)		(0.11	)		(0.14	)
Net realized and unrealized gain (loss) on investments		6.18			8.67			(2.66	)		3.52			3.54

Total from investment operations		5.88			8.46			(2.85	)		3.41			3.40
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.01			0.36			—			—			0.43

Total distributions		2.01			0.36			—			—			0.43

Net asset value, end of period	$	25.69		$	21.82		$	13.72		$	16.57		$	13.16

Total return (%)		27.16			61.81			(17.20	)		25.91			33.68
Ratios to average daily net assets (%):
Expenses, net of waivers, reimbursements or recovery by Advisor		1.49			1.60			1.56			1.59			1.60
Expenses, before waivers, reimbursements or recovery by Advisor		1.46			1.53			1.62			1.95			2.17
Net investment income (loss), net of waivers, reimbursements or recovery by Advisor		(1.27	)		(1.27	)		(1.31	)		(1.15	)		(0.85	)
Net investment income (loss), before waivers, reimbursements or recovery by Advisor		(1.24	)		(1.20	)		(1.37	)		(1.51	)		(1.42	)


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	21.13		$	13.40		$	16.31		$	13.05		$	10.19
Income (loss) from investment operations:
Net investment income (loss)		(0.46	)		(0.34	)		(0.30	)		(0.22	)		(0.24	)
Net realized and unrealized gain (loss) on investments		5.96			8.43			(2.61	)		3.48			3.53

Total from investment operations		5.50			8.09			(2.91	)		3.26			3.29
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.01			0.36			—			—			0.43

Total distributions		2.01			0.36			—			—			0.43

Net asset value, end of period	$	24.62		$	21.13		$	13.40		$	16.31		$	13.05

Total return (%)		26.25			60.51			(17.84	)		24.98			32.60
Ratios to average daily net assets (%):
Expenses, net of waivers, reimbursements or recovery by Advisor		2.24			2.35			2.31			2.34			2.35
Expenses, before waivers, reimbursements or recovery by Advisor		2.21			2.28			2.37			2.70			2.92
Net investment income (loss), net of waivers, reimbursements or recovery by Advisor		(2.02	)		(2.02	)		(2.06	)		(1.90	)		(1.70	)
Net investment income (loss), before waivers, reimbursements or recovery by Advisor		(1.99	)		(1.95	)		(2.12	)		(2.26	)		(2.27	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	771,209	$	518,824	$	78,581	$	54,658	$	28,778
Portfolio turnover rate (%)		109		103		133		147		433

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

66 Annual Report

December 31, 2004

Financial Highlights

Small Cap Growth Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	21.14		$	13.40		$	16.32		$	13.05		$	10.19
Income (loss) from investment operations:
Net investment income (loss)		(0.46	)		(0.34	)		(0.30	)		(0.22	)		(0.25	)
Net realized and unrealized gain (loss) on investments		5.96			8.44			(2.62	)		3.49			3.54

Total from investment operations		5.50			8.10			(2.92	)		3.27			3.29
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.01			0.36			—			—			0.43

Total distributions		2.01			0.36			—			—			0.43

Net asset value, end of period	$	24.63		$	21.14		$	13.40		$	16.32		$	13.05

Total return (%)		26.24			60.59			(17.89	)		25.06			32.60
Ratios to average daily net assets (%):
Expenses, net of waivers, reimbursements or recovery by Advisor		2.24			2.35			2.31			2.34			2.35
Expenses, before waivers, reimbursements or recovery by Advisor		2.21			2.28			2.37			2.70			2.92
Net investment income (loss), net of waivers, reimbursements or recovery by Advisor		(2.02	)		(2.02	)		(2.06	)		(1.90	)		(1.70	)
Net investment income (loss), before waivers, reimbursements or recovery by Advisor		(1.99	)		(1.95	)		(2.12	)		(2.26	)		(2.27	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	771,209	$	518,824	$	78,581	$	54,658	$	28,778
Portfolio turnover rate (%)		109		103		133		147		433

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 67

Financial Highlights

Small-Mid Cap Growth Fund


	Class A
	Periods Ended December 31,
	2004			2003(a)
Net asset value, beginning of period	$	9.94		$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.13	)		—
Net realized and unrealized gain (loss) on investments		1.46			(0.06	)

Total from investment operations		1.33			(0.06	)
Less distributions from:
Net investment income		—			—
Net realized gain		—			—

Total distributions		—			—

Net asset value, end of period	$	11.27		$	9.94

Total return (%)		13.38			(0.60	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.54			1.54
Expenses, before waivers and reimbursements		2.14			1.54
Net investment income (loss), net of waivers and reimbursements		(1.26	)		(1.54	)
Net investment income (loss), before waivers and reimbursements		(1.86	)		(1.54	)


	Class B
	Periods Ended December 31,
	2004			2003(a)
Net asset value, beginning of period	$	9.94		$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.21	)		—
Net realized and unrealized gain (loss) on investments		1.46			(0.06	)

Total from investment operations		1.25			(0.06	)
Less distributions from:
Net investment income		—			—
Net realized gain		—			—
Total distributions		—			—

Net asset value, end of period	$	11.19		$	9.94

Total return (%)		12.58			(0.60	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		2.29			2.29
Expenses, before waivers and reimbursements		2.89			2.29
Net investment income (loss), net of waivers and reimbursements		(2.01	)		(2.29	)
Net investment income (loss), before waivers and reimbursements		(2.61	)		(2.29	)



	Periods Ended December 31,
	2004	2003
Supplemental data for all classes:
Net assets at end of period (in thousands)	$25,974	$	3,673
Portfolio turnover rate (%) (b)	55		—

(a)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2003.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

68 Annual Report

December 31, 2004

Financial Highlights

Small-Mid Cap Growth Fund


	Class C
	Periods Ended December 31,
	2004			2003(a)
Net asset value, beginning of period	$	9.94		$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.21	)		—
Net realized and unrealized gain (loss) on investments		1.46			(0.06	)

Total from investment operations		1.25			(0.06	)
Less distributions from:
Net investment income		—			—
Net realized gain		—			—

Total distributions		—			—

Net asset value, end of period	$	11.19		$	9.94

Total return (%)		12.58			(0.60	)
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		2.29			2.29
Expenses, before waivers and reimbursements		2.89			2.29
Net investment income (loss), net of waivers and reimbursements		(2.01	)		(2.29	)
Net investment income (loss), before waivers and reimbursements		(2.61	)		(2.29	)



	Periods Ended December 31,
	2004		2003
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	25,974	$	3,673
Portfolio turnover rate (%) (b)		55		—

(a)

For the period from December 29, 2003 (Commencement of Operations) to December 31, 2003.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 69

Financial Highlights

International Growth Fund


	Class A
	Years Ended December 31,
	2004			2003		2002			2001			2000
Net asset value, beginning of period	$	18.63		$	13.12	$	15.46		$	17.90		$	24.01
Income (loss) from investment operations:
Net investment income (loss) (a)		(0.03	)		0.03		(0.05	)		0.07			(0.04	)
Net realized and unrealized gain (loss) on investments		3.47			5.49		(2.29	)		(2.51	)		(2.01	)

Total from investment operations		3.44			5.52		(2.34	)		(2.44	)		(2.05	)
Less distributions from:
Net investment income		—			—		—			—			0.09
Net realized gain		—			0.01		—			—			3.97

Total distributions		—			0.01		—			—			4.06

Net asset value, end of period	$	22.07		$	18.63	$	13.12		$	15.46		$	17.90

Total return (%)		18.46			42.10		(15.14	)		(13.63	)		(8.11	)
Ratios to average daily net assets (%):
Expenses		1.47			1.50		1.51			1.60			1.59
Net investment income (loss)		(0.16	)		0.05		(0.36	)		(0.11	)		(0.37	)


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	17.83		$	12.64		$	15.01		$	17.52		$	23.98
Income (loss) from investment operations:
Net investment income (loss) (a)		(0.17	)		(0.09	)		(0.15	)		(0.07	)		(0.23	)
Net realized and unrealized gain (loss) on investments		3.31			5.28			(2.22	)		(2.44	)		(1.99	)

Total from investment operations		3.14			5.19			(2.37	)		(2.51	)		(2.22	)
Less distributions from:
Net investment income		—			—			—			—			0.27
Net realized gain		—			—			—			—			3.97

Total distributions		—			—			—			—			4.24

Net asset value, end of period	$	20.97		$	17.83		$	12.64		$	15.01		$	17.52

Total return (%)		17.61			41.06			(15.79	)		(14.33	)		(8.79	)
Ratios to average daily net assets (%):
Expenses		2.22			2.25			2.26			2.35			2.34
Net investment income (loss)		(0.91	)		(0.70	)		(1.11	)		(0.86	)		(1.16	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	3,001,434	$	1,899,699	$	778,788	$	454,055	$	333,888
Portfolio turnover rate (%)		79		57		73		112		116

(a)

Includes $0.12, $0.03, $0.00, $0.00 and $0.06 in PFIC transactions which are treated as ordinary income for Federal tax purposes for the years 2004, 2003, 2002, 2001 and 2000, respectively.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

70 Annual Report

December 31, 2004

Financial Highlights

International Growth Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	17.83		$	12.64		$	15.01		$	17.52		$	23.98
Income (loss) from investment operations:
Net investment income (loss) (a)		(0.17	)		(0.09	)		(0.15	)		(0.07	)		(0.23	)
Net realized and unrealized gain (loss) on investments		3.31			5.28			(2.22	)		(2.44	)		(1.99	)

Total from investment operations		3.14			5.19			(2.37	)		(2.51	)		(2.22	)
Less distributions from:
Net investment income		—			—			—			—			0.27
Net realized gain		—			—			—			—			3.97

Total distributions		—			—			—			—			4.24

Net asset value, end of period	$	20.97		$	17.83		$	12.64		$	15.01		$	17.52

Total return (%)		17.61			41.06			(15.79	)		(14.33	)		(8.81	)
Ratios to average daily net assets (%):
Expenses		2.22			2.25			2.26			2.35			2.34
Net investment income (loss)		(0.91	)		(0.70	)		(1.11	)		(0.86	)		(1.10	)



	Years Ended December 31,
	2004	2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$3,001,434	$	1,899,699	$	778,788	$	454,055	$	333,888
Portfolio turnover rate (%)	79		57		73		112		116

(a)

Includes $0.12, $0.03, $0.00, $0.00 and $0.06 in PFIC transactions which are treated as ordinary income for Federal tax purposes for the years 2004, 2003, 2002, 2001 and 2000, respectively.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 71

Financial Highlights

International Equity Fund


	Class A
	Period Ended December 31,
	2004(a)
Net asset value, beginning of period	$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.03	)
Net realized and unrealized gain (loss) on investments		1.38

Total from investment operations		1.35
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	11.35

Total return (%)		13.50
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		1.50
Expenses, before waivers and reimbursements		2.96
Net investment income (loss), net of waivers and reimbursements		(0.77	)
Net investment income (loss), before waivers and reimbursements		(2.23	)

	Class B
	Period Ended December 31,
	2004(a)
Net asset value, beginning of period	$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)
Net realized and unrealized gain (loss) on investments		1.38

Total from investment operations		1.30
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	11.30

Total return (%)		13.00
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		2.25
Expenses, before waivers and reimbursements		3.71
Net investment income (loss), net of waivers and reimbursements		(1.52	)
Net investment income (loss), before waivers and reimbursements		(2.98	)



	Period Ended December 31,
	2004(a)
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	9,689
Portfolio turnover rate (%) (b)		108

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

72 Annual Report

December 31, 2004

Financial Highlights

International Equity Fund


	Class C
	Period Ended December 31,
	2004(a)
Net asset value, beginning of period	$	10.00
Income (loss) from investment operations:
Net investment income (loss)		(0.08	)
Net realized and unrealized gain (loss) on investments		1.38

Total from investment operations		1.30
Less distributions from:
Net investment income		—
Net realized gain		—

Total distributions		—

Net asset value, end of period	$	11.30

Total return (%)		13.00
Ratios to average daily net assets (%) (b):
Expenses, net of waivers and reimbursements		2.25
Expenses, before waivers and reimbursements		3.71
Net investment income (loss), net of waivers and reimbursements		(1.52	)
Net investment income (loss), before waivers and reimbursements		(2.98	)



	Period Ended December 31,
	2004(a)
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	9,689
Portfolio turnover rate (%) (b)		108

(a)

For the period from May 24, 2004 (Commencement of Operations) to December 31, 2004.

(b)

Rates are annualized for periods that are less than a year.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 73

Financial Highlights

Value Discovery Fund


	Class A
	Years Ended December 31,
	2004			2003			2002			2001		2000
Net asset value, beginning of period	$	21.62		$	15.54		$	17.37		$	16.25	$	13.72
Income (loss) from investment operations:
Net investment income (loss)		(0.04	)		(0.07	)		(0.04	)		0.09		0.09
Net realized and unrealized gain (loss) on investments		2.55			6.15			(1.79	)		2.75		2.53

Total from investment operations		2.51			6.08			(1.83	)		2.84		2.62
Less distributions from:
Net investment income		—			—			—			0.96		0.09
Net realized gain		2.65			—			—			0.76		—

Total distributions		2.65			—			—			1.72		0.09

Net asset value, end of period	$	21.48		$	21.62		$	15.54		$	17.37	$	16.25

Total return (%)		11.89			39.12			(10.54	)		17.42		19.09
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		1.48			1.58			1.59			1.61		1.64
Expenses, before waivers and reimbursements		1.48			1.58			1.59			1.66		1.88
Net investment income (loss), net of waivers and reimbursements		(0.20	)		(0.39	)		(0.22	)		0.28		0.47
Net investment income (loss), before waivers and reimbursements		(0.20	)		(0.39	)		(0.22	)		0.23		0.23


	Class B
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	22.20		$	16.07		$	18.10		$	16.18		$	13.72
Income (loss) from investment operations:
Net investment income (loss)		(0.22	)		(0.20	)		(0.18	)		(0.06	)		(0.07	)
Net realized and unrealized gain (loss) on investments		2.61			6.33			(1.85	)		2.74			2.53

Total from investment operations		2.39			6.13			(2.03	)		2.68			2.46
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.65			—			—			0.76			—

Total distributions		2.65			—			—			0.76			—

Net asset value, end of period	$	21.94		$	22.20		$	16.07		$	18.10		$	16.18

Total return (%)		11.04			38.15			(11.22	)		16.54			17.93
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.23			2.33			2.34			2.36			2.39
Expenses, before waivers and reimbursements		2.23			2.33			2.34			2.41			2.63
Net investment income (loss), net of waivers and reimbursements		(0.95	)		(1.14	)		(0.97	)		(0.47	)		(0.27	)
Net investment income (loss), before waivers and reimbursements		(0.95	)		(1.14	)		(0.97	)		(0.52	)		(0.51	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	246,176	$	237,111	$	190,802	$	149,292	$	74,093
Portfolio turnover rate (%)		50		51		20		48		68

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

74 Annual Report

December 31, 2004

Financial Highlights

Value Discovery Fund


	Class C
	Years Ended December 31,
	2004			2003			2002			2001			2000
Net asset value, beginning of period	$	22.20		$	16.07		$	18.11		$	16.19		$	13.72
Income (loss) from investment operations:
Net investment income (loss)		(0.22	)		(0.20	)		(0.18	)		(0.06	)		(0.06	)
Net realized and unrealized gain (loss) on investments		2.62			6.33			(1.86	)		2.74			2.53

Total from investment operations		2.40			6.13			(2.04	)		2.68			2.47
Less distributions from:
Net investment income		—			—			—			—			—
Net realized gain		2.65			—			—			0.76			—

Total distributions		2.65			—			—			0.76			—

Net asset value, end of period	$	21.95		$	22.20		$	16.07		$	18.11		$	16.19

Total return (%)		11.08			38.15			(11.26	)		16.53			18.00
Ratios to average daily net assets (%):
Expenses, net of waivers and reimbursements		2.23			2.33			2.34			2.36			2.39
Expenses, before waivers and reimbursements		2.23			2.33			2.34			2.41			2.63
Net investment income (loss), net of waivers and reimbursements		(0.95	)		(1.14	)		(0.97	)		(0.47	)		(0.37	)
Net investment income (loss), before waivers and reimbursements		(0.95	)		(1.14	)		(0.97	)		(0.52	)		(0.61	)



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	246,176	$	237,111	$	190,802	$	149,292	$	74,093
Portfolio turnover rate (%)		50		51		20		48		68

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 75

Financial Highlights

Income Fund


	Class A
	Years Ended December 31,
	2004			2003		2002		2001			2000
Net asset value, beginning of period	$	6.23		$	6.40	$	6.21	$	10.37		$	9.94
Income (loss) from investment operations:
Net investment income (loss) (a)		0.39			0.22		0.32		4.80			0.63
Net realized and unrealized gain (loss) on investments		(0.23	)		—		0.16		(4.16	)		0.35

Total from investment operations		0.16			0.22		0.48		0.64			0.98
Less distributions from:
Net investment income		0.32			0.39		0.29		4.80			0.55
Net realized gain		—			—		—		—			—

Total distributions		0.32			0.39		0.29		4.80			0.55

Net asset value, end of period	$	6.07		$	6.23	$	6.40	$	6.21		$	10.37

Total return (%)		2.59			3.56		7.86		7.26			10.20
Ratios to average daily net assets (%) (e):
Expenses		0.78			0.77		0.81		0.94			1.02
Net investment income (loss)		4.12			4.09		5.23		5.38			6.25


	Class B
	Years Ended December 31,
	2004			2003			2002		2001		2000
Net asset value, beginning of period	$	10.28		$	10.51		$	10.24	$	10.23	$	9.94
Income (loss) from investment operations:
Net investment income (loss) (a)		0.52			0.33			0.47		0.63		0.57
Net realized and unrealized gain (loss) on investments		(0.33	)		(0.04	)		0.24		0.01		0.32

Total from investment operations		0.19			0.29			0.71		0.64		0.89
Less distributions from:
Net investment income		0.44			0.52			0.44		0.63		0.60
Net realized gain		—			—			—		—		—

Total distributions		0.44			0.52			0.44		0.63		0.60

Net asset value, end of period	$	10.03		$	10.28		$	10.51	$	10.24	$	10.23

Total return (%)		1.91			2.82			7.15		6.37		9.25
Ratios to average daily net assets (%) (e):
Expenses		1.53			1.52			1.56		1.69		1.77
Net investment income (loss)		3.37			3.34			4.48		4.63		5.38



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	294,084	$	265,062	$	196,136	$	176,264	$	167,746
Portfolio turnover rate (%) (e)		43		36		66		82		54

(a)

As required, in 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began treating any paydown gain or losses on mortgage and asset backed securities as an adjustment to income. The effect of this change for the year 2001 was to decrease net investment income per share by $.05 and increase the net realized and unrealized gain and loss per share by $.05. It decreases the Ratio of Net Investment Income to Average Net Assets from 5.87% to 5.38% for Class A for 2001. It decreased the Ratio of Net Investment Income 5.12% to 4.63% for Class B and C shares for 2001. Per share amounts and the Ratio of Net Investment Income to Average Net Assets for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

76 Annual Report

December 31, 2004

Financial Highlights

Income Fund


	Class C
	Years Ended December 31,
	2004			2003			2002		2001		2000
Net asset value, beginning of period	$	10.43		$	10.66		$	10.39	$	10.27	$	9.93
Income (loss) from investment operations:
Net investment income (loss) (a)		0.52			0.33			0.47		0.53		0.53
Net realized and unrealized gain (loss) on investments		(0.34	)		(0.03	)		0.25		0.12		0.34

Total from investment operations		0.18			0.30			0.72		0.65		0.87
Less distributions from:
Net investment income		0.44			0.53			0.45		0.53		0.53
Net realized gain		—			—			—		—		—

Total distributions		0.44			0.53			0.45		0.53		0.53

Net asset value, end of period	$	10.17		$	10.43		$	10.66	$	10.39	$	10.27

Total return (%)		1.80			2.85			7.09		6.41		9.05
Ratios to average daily net assets (%):
Expenses		1.53			1.52			1.56		1.69		1.77
Net investment income (loss)		3.37			3.34			4.48		4.63		5.35



	Years Ended December 31,
	2004		2003		2002		2001		2000
Supplemental data for all classes:
Net assets at end of period (in thousands)	$	294,084	$	265,062	$	196,136	$	176,264	$	167,746
Portfolio turnover rate (%)		43		36		66		82		54

(a)

As required, in 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began treating any paydown gain or losses on mortgage and asset backed securities as an adjustment to income. The effect of this change for the year 2001 was to decrease net investment income per share by $.05 and increase the net realized and unrealized gain and loss per share by $.05. It decreases the Ratio of Net Investment Income to Average Net Assets from 5.87% to 5.38% for Class A for 2001. It decreased the Ratio of Net Investment Income from 5.12% to 4.63% for Class B and C shares for 2001. Per share amounts and the Ratio of Net Investment Income to Average Net Assets for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.

Note: Net investment income (loss) per share is based on the average shares outstanding during the period.

December 31, 2004

William Blair Funds 77

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of Class A, Class B and Class C

William Blair Funds

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of William Blair Funds (comprised of Growth Fund, Tax-Managed Growth Fund, Large Cap Growth Fund, Small Cap Growth Fund, Small-Mid Cap Growth Fund, International Growth Fund, International Equity Fund, Value Discovery Fund and Income Fund) (collectively, the “Portfolios”) as of December 31, 2004, and the related statements of operations, changes in net assets and financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolios’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolios’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

LOGO

Chicago, Illinois

February 4, 2005

78 Annual Report

December 31, 2004


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer
Interested Trustees
Conrad Fischer, 70*	Chairman of the Board of Trustees	Since 1987	Principal, William Blair & Company, L.L.C.; Partner, APM Limited Partnership	12	Trustee Emeritus, Chicago Child Care Society, a non-profit organization, and Partner, APM Limited Partnership

Michelle Seitz, 39*	Trustee	Since 2002	Principal, William Blair & Company, L.L.C.	12	N/A
Non-Interested Trustees
J. Grant Beadle, 72	Trustee	Since 1997	Retired Chairman and Chief Executive Officer, Union Special Corporation, industrial sewing machine manufacturer	12	Batts Group and Oliver Products Company, manufacturer of products for the medical device, food and grahics markets, Retired Associate Director, Northwestern University Institute for The Learning Sciences.

Theodore A. Bosler, 70	Trustee	Since 1997	Retired Principal and Vice President, Lincoln Capital Management	12	Crystal Lake Watershed Fund, Desert Foothills Land Trust and Institute of Chartered Financial Analysts.

Ann P. McDermott, 65	Trustee	Since 1996	Board member and officer for various civic and charitable organizations over the past thirty years; professional experience prior thereto, registered representative for New York Stock Exchange firm	12	Junior League of Chicago, Northwestern University, Women’s Board; Ravinia Festival Women’s Board; Rush Presbyterian St. Luke’s Medical Center, Women’s Board; University of Chicago, Women’s Board; Visiting Nurses Association, Honorary Director

Donald J. Reaves, 58	Trustee	Since 2004	Vice President for Administration and Chief Financial Officer, University of Chicago since 2002. Executive Vice President and Chief Financial Officer, Brown University from 1993 to 2002		American Student Assistance Corp.; Amica Mutual Insurance Company; NACUBO (National Association of College and University Business Officers)

John B. Schwemm, 70	Trustee	Since 1990	Retired Chairman and Chief Executive Officer, R.R. Donnelley & Sons Company	12	USG Corp., building material manufacturer, and Walgreen Co.

Donald L. Seeley, 60	Trustee	Since 2003	Director, Applied Investment Management Program, University of Arizona Department of Finance, Formerly Vice Chairman and Chief Financial Officer, True North Communications, Inc., marketing communications and advertising firm	12	Beverly Enterprises, Inc., provider of eldercare and rehabilitative services; Modem Media, Inc., interactive services company

December 31, 2004

William Blair Funds 79


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer
Robert E. Wood II, 66	Trustee	Since 1999	Retired Executive Vice President, Morgan Stanley Dean Witter	12	Chairman, Add-Vision, Inc. manufacturer of surface animation systems, and Micro-Combustion, LLC
Officers
Marco Hanig, 46	President	Since 1999	Principal, William Blair & Company, L.L.C.; former Senior Vice President, First Chicago NBD	N/A	N/A

Michael P. Balkin, 45	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	Exceed Corp.

Karl W. Brewer, 38	Senior Vice President	Since 2000	Principal, William Blair & Company, L.L.C.	N/A	N/A

Harvey H. Bundy, III, 60	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	N/A

Mark A. Fuller, III, 47	Senior Vice President	Since 1993	Principal, William Blair & Company, L.L.C.	N/A	Partner, Fulsen Howney Partners

W. George Greig, 52	Senior Vice President	Since 1996	Principal, William Blair & Company, L.L.C.	N/A	N/A

Michael A. Jancosek, 45	Senior Vice President Vice President	Since 2004 Since 2000	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.; former Vice President, First Chicago NBD	N/A	N/A

John F. Jostrand, 50	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.	N/A	N/A

James S. Kaplan, 44	Senior Vice President Vice President	Since 2004 Since 1995	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Robert C. Lanphier, IV, 48	Senior Vice President	Since 2003	Principal, William Blair & Company, L.L.C.	N/A	Chairman, AG. Med, Inc.

David S. Mitchell, 44	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

Capucine E. Price, 40	Senior Vice President Vice President	Since 2004 Since 2003	Principal, William Blair & Company L.L.C. Associate, William Blair & Company, L.L.C.	N/A	N/A

80 Annual Report

December 31, 2004


Name and Age	Position(s) Held with Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee/Officer
Gregory J. Pusinelli, 46	Senior Vice President	Since 1999	Principal, William Blair & Company, L.L.C.; former Principal and Vice President, Stein Roe & Farnham Incorporated	N/A	N/A

Norbert W. Truderung, 52	Senior Vice President	Since 1992	Principal, William Blair & Company, L.L.C.	N/A	N/A

Jeffrey A. Urbina, 49	Senior Vice President	Since 1998	Principal, William Blair & Company, L.L.C.	N/A	N/A

Christopher T. Vincent, 48	Senior Vice President Vice President	Since 2004 Since 2002	Principal, William Blair & Company, L.L.C. Associate, William Blair & Company, L.L.C.; former Managing Director/Senior Portfolio Manager, Zurich Scudder Investments	N/A	Uhlich Children’s Home

Terence M. Sullivan, 60	Vice President and Treasurer	Since 1997	Associate, William Blair & Company, L.L.C.	N/A	N/A

Colette M. Garavalia, 43	Secretary	Since 2000	Associate, William Blair & Company, L.L.C.; former Assistant Vice President, Scudder Kemper Investments	N/A	N/A

Mr. Fischer and Ms. Seitz are interested persons of the William Blair Funds because each is a principal of William Blair & Company, L.L.C., the Funds’ investment advisor and principal underwriter.

December 31, 2004

William Blair Funds 81

Proxy Voting

Quarterly Portfolio Schedules

82 Annual Report

December 31, 2004

Useful Information About Your Report (unaudited)

Please refer to this information when reviewing the Expense Example for each Fund.

Expense Example

Actual Expenses

Hypothetical Example for Comparison Purposes

December 31, 2004

William Blair Funds 83

Fund Expenses (unaudited)


	Beginning Account Value 7/1/2004		Ending Account Value 12/31/2004		Expenses Paid during Period(a)		Annualized Expense Ratio
Growth Fund
Class A—actual return	$	1,000.00	$	1,074.30	$	6.10	1.17	%
Class A—hypothetical 5% return		1,000.00		1,019.25		5.94	1.17

Class B—actual return		1,000.00		1,070.10		9.99	1.92
Class B—hypothetical 5% return		1,000.00		1,015.48		9.73	1.92

Class C—actual return		1,000.00		1,070.20		9.99	1.92
Class C—hypothetical 5% return		1,000.00		1,015.48		9.73	1.92

Tax-Managed Growth Fund
Class A—actual return		1,000.00		1,056.50		7.96	1.54
Class A—hypothetical 5% return		1,000.00		1,017.39		7.81	1.54

Class B—actual return		1,000.00		1,052.40		11.81	2.29
Class B—hypothetical 5% return		1,000.00		1,013.62		11.59	2.29

Class C—actual return		1,000.00		1,052.40		11.81	2.29
Class C—hypothetical 5% return		1,000.00		1,013.62		11.59	2.29

Large Cap Growth Fund
Class A—actual return		1,000.00		1,059.60		7.14	1.38
Class A—hypothetical 5% return		1,000.00		1,018.20		7.00	1.38

Class B—actual return		1,000.00		1,056.50		11.01	2.13
Class B—hypothetical 5% return		1,000.00		1,014.43		10.79	2.13

Class C—actual return		1,000.00		1,056.60		11.01	2.13
Class C—hypothetical 5% return		1,000.00		1,014.43		10.79	2.13

Small Cap Growth Fund
Class A—actual return		1,000.00		1,140.90		8.02	1.49
Class A—hypothetical 5% return		1,000.00		1,017.65		7.56	1.49

Class B—actual return		1,000.00		1,136.60		12.03	2.24
Class B—hypothetical 5% return		1,000.00		1,013.88		11.34	2.24

Class C—actual return		1,000.00		1,136.50		12.03	2.24
Class C—hypothetical 5% return		1,000.00		1,013.88		11.34	2.24

Small-Mid Cap Growth Fund
Class A—actual return		1,000.00		1,060.20		7.98	1.54
Class A—hypothetical 5% return		1,000.00		1,017.39		7.81	1.54

Class B—actual return		1,000.00		1,056.70		11.84	2.29
Class B—hypothetical 5% return		1,000.00		1,013.62		11.59	2.29

Class C—actual return		1,000.00		1,056.70		11.84	2.29
Class C—hypothetical 5% return		1,000.00		1,013.62		11.59	2.29

International Growth Fund
Class A—actual return		1,000.00		1,150.10		7.94	1.47
Class A—hypothetical 5% return		1,000.00		1,017.75		7.46	1.47

Class B—actual return		1,000.00		1,146.50		11.98	2.22
Class B—hypothetical 5% return		1,000.00		1,013.98		11.24	2.22

Class C—actual return		1,000.00		1,146.50		11.98	2.22
Class C—hypothetical 5% return		1,000.00		1,013.98		11.24	2.22

84 Annual Report

December 31, 2004

Fund Expenses (unaudited)—continued


	Beginning Account Value 7/1/2004		Ending Account Value 12/31/2004		Expenses Paid during Period(a)		Annualized Expense Ratio
International Equity Fund
Class A—actual return	$	1,000.00	$	1,075.80	$	7.83	1.50	%
Class A—hypothetical 5% return		1,000.00		1,017.60		7.61	1.50

Class B—actual return		1,000.00		1,071.10		11.71	2.25
Class B—hypothetical 5% return		1,000.00		1,013.83		11.39	2.25

Class C—actual return		1,000.00		1,071.10		11.71	2.25
Class C—hypothetical 5% return		1,000.00		1,013.83		11.39	2.25

Value Discovery Fund
Class A—actual return		1,000.00		1,063.40		7.68	1.48
Class A—hypothetical 5% return		1,000.00		1,017.70		7.51	1.48

Class B—actual return		1,000.00		1,059.80		11.55	2.23
Class B—hypothetical 5% return		1,000.00		1,013.93		11.29	2.23

Class C—actual return		1,000.00		1,059.80		11.55	2.23
Class C—hypothetical 5% return		1,000.00		1,013.93		11.29	2.23

Income Fund
Class A—actual return		1,000.00		1,031.10		3.98	0.78
Class A—hypothetical 5% return		1,000.00		1,021.22		3.96	0.78

Class B—actual return		1,000.00		1,027.00		7.80	1.53
Class B—hypothetical 5% return		1,000.00		1,017.44		7.76	1.53

Class C—actual return		1,000.00		1,025.80		7.79	1.53
Class C—hypothetical 5% return		1,000.00		1,017.44		7.76	1.53

(a)

December 31, 2004

William Blair Funds 85

BOARD OF TRUSTEES

Conrad Fischer, Chairman

Principal, William Blair & Company, L.L.C.

J. Grant Beadle

Retired Chairman and CEO, Union Special Corporation

Theodore A. Bosler

Retired Principal and Vice President, Lincoln Capital Management Company

Ann P. McDermott

Director and Trustee

Profit and not-for-profit organizations

Donald J. Reaves

Vice President for Administration and Chief Financial Officer, University of Chicago

Donald L. Seeley

Adjunct Lecturer and Director, University of Arizona Department of Finance

John B. Schwemm

Retired Chairman and CEO, R.R. Donnelley & Sons Company

Michelle Seitz

Principal, William Blair & Company, L.L.C.,

Robert E. Wood II

Retired Executive Vice President, Morgan Stanley Dean Witter

Officers

Marco Hanig, President

Michael P. Balkin, Senior Vice President

Karl W. Brewer, Senior Vice President

Harvey H. Bundy III, Senior Vice President

Mark A. Fuller, III, Senior Vice President

W. George Greig, Senior Vice President

Michael A. Jancosek, Senior Vice President

John F. Jostrand, Senior Vice President

James S. Kaplan, Senior Vice President

Robert C. Lanphier, IV, Senior Vice President

David S. Mitchell, Senior Vice President

Capucine E. Price, Senior Vice President

Gregory J. Pusinelli, Senior Vice President

Norbert W. Truderung, Senior Vice President

Jeffrey A. Urbina, Senior Vice President

Christopher T. Vincent, Senior Vice President

Terence M. Sullivan, Vice President and Treasurer

Colette M. Garavalia, Secretary

Investment Advisor

William Blair & Company, L.L.C.

Legal Counsel

Vedder, Price, Kaufman & Kammholz, P.C.

Independent Registered Public Accounting Firm

Ernst & Young LLP

Transfer Agent

State Street Bank and Trust Company

P.O. Box 8506

Boston, MA 02266-8506

For customer assistance, call 1-800-635-2886

(Massachusetts 1-800-635-2840)

86 Date of First Use February, 2005


		WILLIAM BLAIR FUNDS

GROWTH FUNDS

Growth Fund

Tax-Managed Growth Fund

Large Cap Growth Fund

Small Cap Growth Fund

Small-Mid Cap Growth Fund

International Growth Fund

International Equity Fund

OTHER FUNDS

Value Discovery Fund

Income Fund

222 West Adams Street • Chicago, Illinois 60606 • 800.742.7272 • www.williamblairfunds.com

William Blair & Company,L.L.C., Distributors

Item 2.

Code of Ethics

As of the end of the period covered by this Form N-CSR, the Registrant has adopted a code of ethics that applies to its principal executive officer and principal financial officer. Such code of ethics is posted on the Registrant’s website: www.williamblairfunds.com.

Item 3.

Audit Committee Financial Expert

The Registrant’s Board of Trustees has determined that the Registrant has at least one “audit committee financial expert” (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. Mr. Donald L. Seeley, the Registrant’s audit committee financial expert, is “independent” for purposes of Item 3 to Form N-CSR.

An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an “audit committee financial expert.” Further, the designation of a person as an “audit committee financial expert” does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the “audit committee financial expert” designation. Similarly, the designation of a person as an “audit committee financial expert” does not affect the duties, obligations, or liability of any other member of the audit committee or Board of Trustees.

Item 4.

Principal Accountant Fees and Services

Audit Fees

For the fiscal years ended December 31, 2003 and 2004, Ernst & Young, LLP, the Registrant’s principal accountant (“E&Y), billed the Registrant $167,500 and $215,000, respectively, for professional services rendered for the audit of the Registrant’s annual financial statements or services that are normally provided in connection with statutory and regulatory filings.

Audit-Related Fees

For the fiscal years ended December 31, 2003 and 2004, E&Y billed the Registrant $27,600 and $0, respectively for assurance and related services that are reasonably related to the performance of the audit of the Registrant’s financial statements and that are not reported above, such as reviewing prospectuses and SEC filings. For engagements that William Blair & Company L.L.C, the Registrant’s investment adviser (“William Blair”) or any of its control affiliates entered into with E&Y on or after May 6, 2003, E&Y provided no audit-related services to William Blair or any of its control affiliates that were for engagements directly related to the Registrant’s operations and financial reporting.

Tax Fees

For the fiscal years ended December 31, 2003 and 2004, E&Y billed the Registrant $41,600 and $45,200, respectively, for professional services rendered for tax compliance, tax advice and tax planning. Such services consisted of preparation of tax returns, year-end distribution review, qualifying dividend income analysis and computation of foreign tax credit pass through. For engagements with E&Y entered into on or after May 6, 2003, the Audit Committee pre-approved all tax services that E&Y provided to the Registrant.

For engagements that William Blair or any of its control affiliates entered into with E&Y on or after May 6, 2003, E&Y provided no tax services to William Blair or any of its control affiliates that were for engagements directly related to the Registrant’s operations and financial reporting.

All Other Fees

For the fiscal years ended December 31, 2003 and 2004, E&Y did not bill the Registrant for products and services other than the services reported above. For engagements that William Blair or any of its control affiliates entered into with E&Y on or after May 6, 2003, E&Y provided no other services to William Blair or any of its control affiliates that were for engagements directly related to the Registrant’s operations and financial reporting.

Audit Committee Pre-Approval Policies and Procedures

Pursuant to Registrant’s Audit Committee Charter (the “Charter”), the Audit Committee is responsible for pre-approving any engagement of the principal accountant to provide non-prohibited services to the Registrant, including the fees and other compensation to be paid to the principal accountant, to the extent required by Rule 2-01(c)(7) of Regulation S-X. Any member of the Audit Committee may grant pre-approval for engagements of less than $5,000. All such delegated pre-approvals will be presented to the Audit Committee no later than the next Audit Committee meeting. Pursuant to the Charter, the Audit Committee is also responsible for pre-approving any engagement of the principal accountant, including the fees and other compensation to be paid to the principal accountant, to provide non-audit services to the Registrant’s investment adviser (or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant), if the engagement relates directly to the operations and financial reporting of the Registrant, to the extent required by Rule 2-01(c)(7) of Regulation S-X. Any member of the Audit Committee may grant pre-approval for engagements of less than $5,000. All such delegated pre-approvals will be presented to the Audit Committee no later than the next Audit Committee meeting.

Non-Audit Fees

For the fiscal years ended December 31, 2003 and 2004, E&Y billed the Registrant $41,600 and $45,200, respectively, in non-audit fees (tax services). For the same periods, E&Y billed William Blair and its control affiliates $21,000 and $156,300, respectively, in non-audit fees. The Registrant’s Audit Committee has considered whether the provision of non-audit services that were rendered to William Blair or any of its control affiliates that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining E&Y’s independence. Such non-audit services primarily pertained to due diligence reviews performed for the Corporate Finance Group of William Blair and did not relate to the Registrant’s operations or financial reporting.

Item 5.

Audit Committee of Listed Registrants

Not Applicable to this Registrant, insofar as the Registrant is not a listed company.

Item 6.

Schedule of Investments

See Schedule of Investments in Item 1

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

Item 8.

Portfolio Mangers of Closed Investment Companies

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

Item 9.

Purchase of Equity Securities by Closed end Management Investment Companies and Affiliated Purchasers

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

Item 10.

Submission of Matters to a Vote of Security Holders

The Nominating and Governance Committee is responsible for the identification and recommendation of individuals for Board membership. Pursuant to the Registrant’s Governance Procedures and Guidelines, other Board members, shareholders and the Registrant’s investment adviser may submit suggestions for Board candidates to the Nominating and Governance Committee. Shareholders may submit suggestions for candidates by sending a resume of the candidate to the Secretary of the Registrant for the attention of the Nominating and Governance Committee

Item 11.

Controls and Procedures

(a) The Registrant’s principal executive and principal financial officer, or persons performing similar functions, have concluded that the Registrant’s Disclosure Controls and Procedures (as defined in Rule 30-a-3( c ) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3 ( c )) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3 (b)1/c under the 1940 Act (17 CFR 270.30a-3( b ) and Rules 13a-15( b ) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the final quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12.

Exhibits

12. (a) Code of Ethics

Not applicable to this Registrant, insofar as the Registrant has satisfied the Item 2 requirements by posting the Registrant’s Code of Ethics to its Web site.


12. (a) (2) (1)				Certification of Principal Executive Officer Required by Rule 30a 2(a) of the Investment Company Act

12. (a) (2) (2)				Certification of Principal Financial Officer Required by Rule 30a 2(a) of the Investment Company Act.

12. (b)				Certification of Chief Executive Officer and Chief Financial Officer Certification Required by Rule 30a-2(b) of the Investment Company Act

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		William Blair Funds

		/s/ Marco Hanig
By:		Marco Hanig
		President (Chief Executive Officer)

Date: February 24, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated


		/s/ Marco Hanig

By:

Marco Hanig

President

(Chief Executive Officer)

Date: February 24, 2005


		/s/ Terence M. Sullivan

By:

Terence M. Sullivan

Treasurer

(Chief Financial Officer)

Date: February 24, 2005

William Blair Funds N-CSRCertified annual shareholder report (management investment company)