N-CSR 1 c83085_ncsr.htm

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)

 

Michelle R. Seitz
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, 2015

 

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, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. (ss) 3507.

 
Item 1. February 25, 2016 Annual Reports transmitted to shareholders.

 

 
   
   
   
   
 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

William Blair Funds

 

Annual Report

 

 

 

 

 

 

 

 

 

 

 

 

 
 

Table of Contents

 

U.S. Growth Market Review and Outlook 6
   
U.S. Value Market Review and Outlook 7
   
Growth Fund  
An Overview from the Portfolio Managers 8
Portfolio of Investments 10
   
Large Cap Growth Fund  
An Overview from the Portfolio Managers 11
Portfolio of Investments 13
   
Large Cap Value Fund  
An Overview from the Portfolio Manager 14
Portfolio of Investments 16
   
Mid Cap Growth Fund  
An Overview from the Portfolio Managers 17
Portfolio of Investments 19
   
Mid Cap Value Fund  
An Overview from the Portfolio Managers 20
Portfolio of Investments 22
   
Small-Mid Cap Growth Fund  
An Overview from the Portfolio Managers 23
Portfolio of Investments 25
   
Small-Mid Cap Value Fund  
An Overview from the Portfolio Managers 27
Portfolio of Investments 29
   
Small Cap Growth Fund  
An Overview from the Portfolio Managers 31
Portfolio of Investments 33
   
Small Cap Value Fund  
An Overview from the Portfolio Managers 35
Portfolio of Investments 37
   
Global Markets Review and Outlook 39
   
Global Leaders Fund  
An Overview from the Portfolio Managers 41
Portfolio of Investments 43
   
Global Small Cap Growth Fund (In Liquidation)  
An Overview from the Portfolio Managers 45
Portfolio of Investments 47
   
International Leaders Fund  
An Overview from the Portfolio Managers 50
Portfolio of Investments 52
   
International Equity Fund  
An Overview from the Portfolio Managers 54
Portfolio of Investments 56
   
Institutional International Equity Fund  
An Overview from the Portfolio Managers 58
Portfolio of Investments 60

 

December 31, 2015 William Blair Funds 1
 

International Growth Fund  
An Overview from the Portfolio Managers 62
Portfolio of Investments 64
   
Institutional International Growth Fund  
An Overview from the Portfolio Managers 69
Portfolio of Investments 71
   
International Small Cap Growth Fund  
An Overview from the Portfolio Managers 76
Portfolio of Investments 78
   
Emerging Markets Leaders Fund  
An Overview from the Portfolio Managers 82
Portfolio of Investments 84
   
Emerging Markets Growth Fund  
An Overview from the Portfolio Managers 87
Portfolio of Investments 89
   
Emerging Markets Small Cap Growth Fund  
An Overview from the Portfolio Managers 93
Portfolio of Investments 95
   
Fixed Income Market Review and Outlook 99
   
Bond Fund  
An Overview from the Portfolio Managers 101
Portfolio of Investments 103
   
Income Fund  
An Overview from the Portfolio Manager 107
Portfolio of Investments 109
   
Low Duration Fund  
An Overview from the Portfolio Managers 111
Portfolio of Investments 113
   
Macro Allocation Fund  
An Overview from the Portfolio Managers 116
Portfolio of Investments 118
   
Financial Statements 122
   
Notes to Financial Statements 140
   
Financial Highlights 164
   
Report of Independent Registered Public Accounting Firm 197
   
Board of Trustees and Officers 198
   
Fund Expenses 204

 

The views expressed in the commentary for each Fund reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The portfolio management team’s views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Statements involving predictions, assessments, analyses, or outlook for individual securities, industries, market sectors, and/or markets involve risks and uncertainties, and there is no guarantee they will come to pass.

 

This report is submitted for the general information of the shareholders of William Blair Funds. It is not authorized for distribution to prospective investors unless accompanied or preceded by a prospectus of 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.

 

2 Annual Report December 31, 2015
 

Performance as of December 31, 2015—Class N Shares (Unaudited)

 

            10 yr     Overall
            (or since  Inception  Morningstar
   1 yr  3 yr  5 yr  inception)  Date  Rating
                   
Growth Fund                      
Class N  5.31   14.86   11.44   8.01   3/20/1946  ****
Morningstar Large Growth  3.60   15.27   11.70   7.33      Among 1,542
Russell 3000® Growth Index  5.09   16.62   13.30   8.49      Large Growth Funds
S&P 500® Index  1.38   15.13   12.57   7.31       
                       
Large Cap Growth Fund                      
Class N  7.04   17.62   13.15   7.43   12/27/1999  ****
Morningstar Large Growth  3.60   15.27   11.70   7.33      Among 1,542
Russell 1000® Growth Index  5.67   16.83   13.53   8.53      Large Growth Funds
                       
Large Cap Value Fund                      
Class N  (5.70)  10.83      11.68   10/24/2011  ***
Morningstar Large Value  (4.05)  11.63            Among 1,190
Russell 1000® Value Index  (3.83)  13.08      13.94      Large Value Funds
                       
Mid Cap Growth Fund                      
Class N  (0.20)  11.39   9.27   7.55   2/1/2006  ***
Morningstar Mid-Cap Growth  (0.95)  12.82   9.59         Among 644
Russell Midcap® Growth Index  (0.20)  14.88   11.54   7.59      Mid-Cap Growth Funds
                       
Mid Cap Value Fund                      
Class N  (2.13)  12.55   10.04   10.35   5/3/2010  ****
Morningstar Mid-Cap Value  (5.41)  11.50   9.06         Among 407
Russell Midcap® Value Index  (4.78)  13.40   11.25   11.21      Mid-Cap Value Funds
                       
Small-Mid Cap Growth Fund                      
Class N  4.47   16.99   12.37   9.27   12/29/2003  ****
Morningstar Mid-Cap Growth  (0.95)  12.82   9.59   7.16      Among 644
Russell 2500TM Growth Index  (0.19)  14.54   11.43   8.49      Mid-Cap Growth Funds
                       
Small-Mid Cap Value Fund                      
Class N  (3.13)  11.38      12.60   12/15/2011  ***
Morningstar Small Blend  (5.38)  10.34            Among 638
Russell 2500® Value Index  (5.49)  10.51      13.62      Small Blend Funds
                       
Small Cap Growth Fund                      
Class N  (4.44)  14.42   8.94   6.01   12/27/1999  ***
Morningstar Small Growth  (2.41)  12.20   9.40   7.14      Among 660
Russell 2000® Growth Index  (1.38)  14.28   10.67   7.95      Small Growth Funds
                       
Small Cap Value Fund                      
Class N  (5.77)  11.00   7.44   7.28   12/23/1996  ***
Morningstar Small Blend  (5.38)  10.34   8.22   6.27      Among 638
Russell 2000® Value Index  (7.47)  9.06   7.67   5.57      Small Blend Funds
                       
Global Leaders Fund                      
Class N  2.49   8.72   7.78   2.55   10/15/2007  ****
Morningstar World Stock  (1.69)  8.26   6.51         Among 984
MSCI ACW IMI (net)  (2.19)  7.86   6.11   1.78      World Stock Funds

 

December 31, 2015 William Blair Funds 3
 

Performance as of December 31, 2015—Class N Shares (Unaudited)—continued

 

            10 yr     Overall
            (or since  Inception  Morningstar
   1 yr  3 yr  5 yr  inception)  Date  Rating
                   
Global Small Cap Growth Fund                      
Class N  9.07         13.94   4/10/2013  Not rated.
Morningstar World Stock  (1.69)               
MSCI ACW Small Cap Index (net)  (1.04)        6.43       
                       
International Leaders Fund                      
Class N  6.01   7.01      8.69   8/16/2012  ****
Morningstar Foreign Large Growth  0.95   4.94            Among 323
MSCI ACW Ex-U.S. IMI (net)  (4.60)  2.02      4.36      Foreign Large Growth Funds
                       
International Equity Fund                      
Class N  1.54   5.54   3.79   2.52   5/24/2004  ***
Morningstar Foreign Large Growth  0.95   4.94   3.80   3.95      Among 323
MSCI World Ex-U.S. Index (net)  (3.04)  3.93   2.79   2.92      Foreign Large Growth Funds
                       
International Growth Fund                      
Class N  (0.27)  4.61   3.89   3.66   10/1/1992  ***
Morningstar Foreign Large Growth  0.95   4.94   3.80   3.95      Among 323
MSCI ACW Ex-U.S. IMI (net)  (4.60)  2.02   1.27   3.18      Foreign Large Growth Funds
                       
International Small Cap Growth Fund                      
Class N  9.67   8.11   6.02   5.67   11/1/2005  ***
Morningstar Foreign Small/Mid Growth  7.05   8.85   6.24   5.65      Among 136
MSCI ACW Small Cap Ex-U.S. Index (net)  2.60   5.64   2.63   4.97      Foreign Small/Mid Growth Funds
                       
Emerging Markets Leaders Fund                      
Class N  (14.56)  (4.67)  (3.45)  (0.11)  5/3/2010  ****
Morningstar Diversified Emerging Markets  (13.79)  (5.69)  (4.45)        Among 578
Diversified Emerging Markets Funds
MSCI Emerging Markets Index (net)  (14.92)  (6.76)  (4.81)  (1.71)      
                       
Emerging Markets Growth Fund                      
Class N  (15.03)  (3.89)  (2.38)  3.30   6/6/2005  ****
Morningstar Diversified Emerging Markets  (13.79)  (5.69)  (4.45)  3.19      Among 578
Diversified Emerging Markets Funds
MSCI Emerging Markets IMI (net)  (13.86)  (6.12)  (4.59)  3.94       
                       
Emerging Markets Small Cap Growth Fund                      
Class N  (6.40)  7.63      12.34   10/24/2011  *****
Morningstar Diversified Emerging Markets  (13.79)  (5.69)           Among 578
Diversified Emerging Markets Funds
MSCI Emerging Markets Small Cap Index (net)  (6.85)  (1.67)     2.05       
                       
Bond Fund                      
Class N  (0.23)  1.13   3.77   4.91   5/1/2007  ****
Morningstar Intermediate-Term Bond  (0.26)  1.16   3.22         Among 947
Barclays U.S. Aggregate Bond Index  0.55   1.44   3.25   4.47      Intermediate-Term Bond Funds

 

4 Annual Report December 31, 2015
 

Performance as of December 31, 2015—Class N Shares (Unaudited)—continued

 

            10 yr     Overall
            (or since  Inception  Morningstar
   1 yr  3 yr  5 yr  inception)  Date  Rating
                   
Income Fund                      
Class N  0.39   0.60   2.57   3.12   10/1/1990  ****
Morningstar Short-Term Bond  0.19   0.54   1.49   2.86      Among 493
Barclays Intermediate
Government/Credit Bond Index
  1.07   1.10   2.58   4.04      Short-Term Bond Funds
                       
Low Duration Fund                      
Class N  0.01   0.19   1.01   1.04   12/1/2009  ***
Morningstar Ultra Short Bond  0.17   0.34   0.70         Among 124
Bank of America Merrill Lynch
1-Year U.S. Treasury Note Index
  0.15   0.20   0.28   0.34      Ultrashort Bond Funds
                       
Macro Allocation Fund                      
Class N  (6.24)  2.86      6.12   11/29/2011  ****
Morningstar Multialternative  (2.58)  1.66            Among 240
Bank of America Merrill Lynch
3-Month U.S. Treasury Bill Index
  0.05   0.05      0.07      Multialternative Funds
Long-Term Comparative Index  (0.27)  3.00      3.89       

 

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 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. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. 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 may become more volatile. Class N shares are available to the general public without a sales load.

 

Morningstar RatingsTM are as of 12/31/2015 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 ***/***/**** and Large Cap Growth Fund ****/****/***, out of 1,542/1,326/933 large growth funds; Large Cap Value Fund ***/NA/NA, out of 1,190/NA/NA large value funds; Mid Cap Growth Fund ***/***/NA and Small-Mid Cap Growth Fund *****/****/**** out of 644/577/431 mid-cap growth funds; Mid Cap Value Fund ****/****/NA, out of 407/343/NA mid-cap value funds; Small Cap Growth Fund ****/***/**, out of 660/588/423 small growth funds; Small-Mid Cap Value Fund ***/NA /NA and Small Cap Value Fund ***/**/**** out of 638/564/366 small blend funds; Global Leaders Fund ***/****/NA out of 984/781/NA world stock funds; International Equity Fund ****/***/**, International Growth Fund ***/***/***, and International Leaders Fund ****/NA/NA out of 323/288/189 foreign large growth funds; International Small Cap Growth Fund ***/***/*** out of 136/115/77 foreign small/mid growth funds; Emerging Markets Leaders Fund ****/****/NA, Emerging Markets Growth Fund ****/****/***, and Emerging Markets Small Cap Growth *****/NA/NA out of 578/386/172 diversified emerging markets funds; Bond Fund ***/****/NA out of 947/829/NA intermediate-term bond funds; Income Fund ***/*****/*** out of 493/406/278 short-term bond funds; Low Duration Fund **/****/NA out of 124/80/NA ultrashort bond funds; and Macro Allocation Fund ****/NA/NA out of 240/NA/NA multialternative 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, 2015 William Blair Funds 5
 

U.S. Growth Market Review and Outlook

 

Broadly, the domestic equity market modestly advanced over the first half of 2015 as strong consumer confidence, improving labor market health, and solid housing data suggested continued health of the U.S. economy. In addition, the equity market was supported by strong mergers and acquisitions (“M&A”) activity driven by healthy corporate balance sheets, the continued availability of cheap debt financing and a generally favorable market response to deal announcements. However, market volatility spiked late in the summer and downdrafts in August and September, driven by concerns of slowing growth in China and potential spillover effects for global economic growth, weighed significantly on market returns.

 

Volatility continued in the fourth quarter. Following third quarter weakness, the market rebounded strongly in October as investor fears were eased by the combination of better data out of China and continued solid U.S. economic data. In the U.S., steady improvement in employment, signs of acceleration in wage growth, low gas prices, and solid housing data bolstered consumer confidence. However, challenges in the manufacturing segment of the economy, in part due to weakness in energy and commodity-driven industries and exacerbated by weak exports related to a strong dollar, remained a concern. In December, Brent Crude Oil fell below $40 a barrel for the first time since the 2008 financial crisis. Moreover, credit spreads in both high yield and investment grade bonds widened over the course of the year, suggesting growing concerns over either a slowing economy or rising default risk, or both. While much of this was tied to highly indebted companies with exposure to global commodities, high yield spreads nevertheless bear monitoring.

 

After speculation through much of 2015 as to when the Federal Reserve (the “Fed”) would begin to raise interest rates, the Fed raised rates by 25 basis points in December, the first rate increase in nine years. While the move was largely anticipated by the market, there was an uptick in volatility surrounding the announcement as investors digested the dovish commentary that accompanied the rate hike and reiterated the Fed’s data-dependent stance on the trajectory of future monetary policy implementation. The Fed’s first move toward policy re-normalization along with the aforementioned pockets of weakness in the economy caused investors to question the durability of U.S. growth, especially given more challenged growth prospects abroad. These factors contributed to weaker equity markets in the final month of the year.

 

With the Fed’s first rate hike behind us, investor conversation has shifted to speculation around the pace at which the Fed will pursue monetary policy re-normalization. While policy mistakes on this front could pose a risk to economic growth, we also acknowledge that we remain in an environment of near-zero rates and accommodative fiscal policy in the U.S., as well as generally stimulative policies abroad. The Fed has set expectations for a gradual path of rising rates as it looks for progress toward its inflation target of 2%. We believe interest rates are likely to stay lower for longer due to economic risks abroad and the excess capacity currently present in many parts of the global economy today, both of which are likely to limit inflationary pressures relative to past cycles.

 

Among these risks, China remains notable. While the country tries to engineer a soft landing, structural headwinds remain as China faces a difficult transition from an industrial to a consumer-led economy. China’s trajectory on this front will have important implications for other emerging markets, particularly commodity-driven economies reliant on Chinese demand. With respect to energy and commodity markets in general, there could be further fallout in the space if the current supply and demand imbalances persist.

 

In terms of the market, we expect that the increased volatility observed in the second half of 2015 will continue into 2016, supported by the Fed’s data-dependent policy stance, China’s uncertain economic trajectory, the U.S. presidential election, and a more challenging backdrop for corporate earnings growth. Nearly seven years into an economic recovery and with profit margins near peak levels, we believe fundamentally driven earnings growth will be harder to achieve going-forward. That being said, the balance sheets of U.S. corporations generally remain healthy and the translation impact of foreign exchange headwinds appears to be largely behind them. Given our bias toward companies with durable long-term growth opportunities that trade at attractive valuations relative to those characteristics, we believe our style of investing is likely to be rewarded in this type of market environment.

 

6 Annual Report December 31, 2015
 

U.S. Value Market Review and Outlook

 

Broadly, the domestic equity markets modestly advanced over the first half of 2015 as strong consumer confidence, improving labor market health and solid business data helped overcome early economic disappointments and suggested continued health of the U.S. economy. In addition, the equity markets were supported by strong mergers and acquisitions (“M&A”) activity driven by healthy corporate balance sheets, the continued availability of cheap debt financing and a generally favorable market response to deal announcements. However, market volatility spiked late in the summer and market declines in August and September, driven by continued weak commodity prices and concerns of slowing growth in China, including potential spillover effects for global economic growth, weighed significantly on market returns for the year.

 

After most value benchmark indices posted consecutive quarters of negative returns, the domestic equity markets traded higher in the fourth quarter. October and November returns were driven by continued solid U.S. economic data as news of a lowering unemployment rate, signs of acceleration in wage growth, low gas prices, and solid housing data bolstered consumer confidence. While domestic economic data broadly continued to improve, dovish commentary early in the fourth quarter from the Federal Reserve (the “Fed”) helped propel domestic equity markets higher. In addition, improved economic data out of China, which many hope signals economic stabilization, helped support market gains early in the fourth quarter.

 

December returns were negatively impacted by continued weakness in commodities, highlighted by oil prices that fell below $40 per barrel for the first time since the 2008 financial crisis. While U.S. consumers continue to drive domestic economic expansion, disappointing industrial data contributed to market declines in December. Moreover, credit spreads in both high yield and investment grade bonds widened over the course of the year, suggesting rising concerns over either a slowing economy or rising default risk, or both. While much of the widening in credit spreads was tied to highly indebted companies with significant exposure to global commodities, high yield spreads nevertheless bear monitoring.

 

After much speculation in 2015 as to when the Fed would begin to raise interest rates, the Fed raised rates by 25 basis points in December, the first increase in nine years. While the move was largely anticipated by the market, there was an uptick in volatility surrounding the announcement as investors digested the dovish commentary that accompanied the rate hike and reiterated the Fed’s data-dependent stance on the trajectory of future monetary policy implementation. The Fed’s first move toward policy re-normalization, along with the aforementioned pockets of weakness in the economy, caused investors to question the durability of U.S. growth—especially given more challenged growth prospects abroad. These factors contributed to weaker equity markets in the final month of the year.

 

We continue to be constructive on the domestic equity markets and, absent a major global economic disruption, we expect U.S. economic expansion to continue at a slow and steady pace. With that said, we anticipate continued volatility in 2016 due to geopolitical tensions, concerns over a slowdown in China, the potential for further commodity weakness, the upcoming U.S. presidential election, and a more challenging backdrop for corporate earnings growth. Higher-quality companies typically outperform lower-quality companies when volatility rises, which should benefit our Funds given our higher-quality bias.

 

We believe that the Fed is less likely to raise rates into an uncertain U.S. and global economic growth backdrop, and temporary economic hiccups are likely to materialize that may delay future Fed rate increases. As the U.S. moves toward monetary policy normalization and many global central banks are following an accommodative policy, this policy divergence may amplify the strength of the U.S. dollar. Further strengthening of the dollar could offset accommodative policy measures in emerging and global markets. This scenario could stress global economic growth and ultimately disrupt the trajectory of the U.S. recovery. While we do not attempt to predict the timing or trajectory of future Fed rate increases, we believe rates will remain lower for longer than they otherwise would have due to economic risks abroad and the excess capacity that exists in many parts of the global economy today, both of which are likely to limit inflationary pressures.

 

Among these risks for the global economy, China remains important. While the country tries to engineer a soft landing, evident in its recent currency devaluation and supply side reforms, structural headwinds remain. China has been overly dependent on fixed asset investment in real estate, manufacturing capacity, and infrastructure to drive economic growth and faces a difficult transition from an industrial economy to a consumer-led economy. China’s trajectory on this front will have important implications for other emerging markets, particularly commodity-driven economies reliant on Chinese demand. With respect to energy and commodity markets risk, there could be further fallout in the space if the current supply and demand imbalances persist.

 

While we are cognizant of these macroeconomic variables, our focus remains on identifying attractive risk/reward opportunities based on individual company fundamentals. From our bottom-up perspective, we remain constructive on corporate earnings, albeit against a backdrop of lower revenue growth and increasing margin pressure from higher wages. As always, our focus remains on identifying quality companies at discount prices and corporate transformation opportunities, and we continue to find good ideas across sectors. Given our investment approach, we believe the Funds are well-suited to withstand a variety of market scenarios and add value over the long-term.

 

December 31, 2015 William Blair Funds 7
 
 

Growth Fund

  
 The Growth Fund seeks long-term capital appreciation.
  
 AN OVERVIEW FROM THE PORTFOLIO MANAGERS
  

 

David C. Fording

 

 

John F. Jostrand

The William Blair Growth Fund (Class N shares) posted a 5.31% increase, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 3000® Growth Index (the “Index”), increased 5.09%.

 

The Fund’s outperformance relative to the Index for 2015 was driven by stock selection as style factors were mostly offsetting. Strong stock selection in Information Technology was a standout positive during the year. While we held many good performers, positions in Alphabet (formerly Google Inc.) and Vantiv were the top contributors to return within the sector. Amazon.com (Consumer Discretionary) was our largest individual contributor to return during the period while positions in Equifax (Industrials) and Bristol-Myers Squibb (Health Care) also added value. Alphabet outperformed on strong growth in both its core search business and in YouTube while Amazon.com outperformed on strong growth out of both its core e-commerce business and its rapidly growing AWS segment. Conversely, stock selection within Consumer Staples, including positions in Keurig Green Mountain and Mead Johnson Nutrition, detracted from 2015 relative performance. Keurig Green Mountain underperformed on disappointing business results for its hot platform and investor skepticism of the company’s launch strategy for the Keurig Kold platform. Other notable underperformers included Precision Castparts (Industrials), Encore Capital Group (Financials) and Borg Warner (Consumer Discretionary). Precision Castparts underperformed due to a reduction of inventory destocking by a major customer and a drop in orders following the collapse of oil prices. From a style perspective, increasing investor concerns about the sustainability of economic growth, given that we have likely moved past the mid-point of the current economic cycle, contributed to a gravitation toward more consistent growers and less sensitivity to valuation. As such, the Fund’s overweight to higher valuation stocks, an exposure driven by our typical bias toward less cyclical and more sustainable growers, was a modest tailwind during the period. At the same time, the Fund’s typical smaller-size profile relative to the Index worked against the Fund as large- and mega-cap stocks outperformed their small- and mid-cap counterparts by a considerable margin during the year. During 2015, the Fund participated in one initial public offering for Square Inc., which had a modest positive impact on performance.

 

Please refer to the U.S. Growth Market Review and Outlook relating to the Fund on page 6.

 

8 Annual Report December 31, 2015
 

Growth Fund

 

Performance Highlights (Unaudited)

 

 

        
        
        
        
Average Annual Total Return at 12/31/2015       
        
   1 Year  3 Year  5 Year  10 Year
Class N   5.31%   14.86%   11.44%   8.01%
Class I   5.69    15.25    11.82    8.36 
Russell 3000® Growth Index   5.09    16.62    13.30    8.49 
S&P 500® Index   1.38    15.13    12.57    7.31 

 


 

 

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 Investment Management, LLC and 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, 2015. 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)

 

 

 

The sector diversification shown is based on the total long-term securities.

 

December 31, 2015 William Blair Funds 9
 

Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
             
  Common Stocks          
             
  Information Technology—32.9%          
* Adobe Systems, Inc.   144,300   $13,556 
* Akamai Technologies, Inc.   103,999    5,473 
* Alphabet, Inc. Class “C”   44,738    33,951 
* Alphabet, Inc. Class “A”   43,180    33,595 
* CoStar Group, Inc.   50,357    10,408 
* Facebook, Inc.   226,900    23,747 
* Guidewire Software, Inc.   151,000    9,084 
  Mastercard, Inc.   399,300    38,876 
  Microsoft Corporation   372,900    20,689 
* NeuStar, Inc.   362,678    8,693 
* Pandora Media, Inc.   649,783    8,714 
* Red Hat, Inc.   233,306    19,320 
* ServiceNow, Inc.   80,900    7,003 
* Square, Inc.   397,255    5,200 
  Texas Instruments, Inc.   349,500    19,156 
* Vantiv, Inc.   316,600    15,013 
* Workday, Inc.   77,200    6,151 
           278,629 
  Consumer Discretionary—21.0%          
* Amazon.com, Inc.   52,900    35,755 
  BorgWarner, Inc.   343,700    14,858 
  Dollar General Corporation   342,000    24,580 
  Lowe’s Cos., Inc.   420,600    31,982 
  Newell Rubbermaid, Inc.   387,400    17,077 
* Sally Beauty Holdings, Inc.   470,400    13,119 
* Steven Madden, Ltd.   196,100    5,926 
* The Priceline Group, Inc.   10,885    13,878 
  VF Corporation   229,900    14,311 
  Williams-Sonoma, Inc.   100,600    5,876 
           177,362 
  Health Care—16.0%          
* Align Technology, Inc.   176,800    11,642 
* Biogen, Inc.   53,500    16,390 
* BioMarin Pharmaceutical, Inc.   84,000    8,800 
  Bristol-Myers Squibb Co.   450,100    30,962 
* Cerner Corporation   313,600    18,869 
* Exact Sciences Corporation   190,000    1,754 
  Gilead Sciences, Inc.   230,570    23,331 
* Medivation, Inc.   108,244    5,233 
  Perrigo Co. plc†   54,900    7,944 
  Shire plc-ADR   49,100    10,066 
           134,991 
  Industrials—14.9%          
  AMETEK, Inc.   331,900    17,787 
  Danaher Corporation   196,800    18,279 
  Equifax, Inc.   122,204    13,610 
  Rockwell Collins, Inc.   137,200    12,664 
* RPX Corporation   140,677    1,547 
  Towers Watson & Co.   113,400    14,567 
* TransDigm Group, Inc.   69,780    15,941 
  Union Pacific Corporation   274,300    21,450 
     Shares or     
     Principal     
  Issuer  Amount   Value 
             
  Common Stocks—(continued)          
             
  Industrials—(continued)          
* Verisk Analytics, Inc.   131,020   $10,073 
           125,918 
  Financials—9.5%          
* Affiliated Managers Group, Inc.   79,200    12,653 
* Encore Capital Group, Inc.   258,021    7,503 
  Intercontinental Exchange, Inc.   75,800    19,425 
* Markit, Ltd.†   441,063    13,307 
  Moody’s Corporation   171,000    17,158 
* Signature Bank   69,800    10,705 
           80,751 
  Energy—2.4%          
  Schlumberger, Ltd.†   184,200    12,848 
  Suncor Energy, Inc.†   296,300    7,644 
           20,492 
  Consumer Staples—2.0%          
  Costco Wholesale Corporation   106,000    17,119 
  Total Common Stocks—98.7%
(cost $664,436)
        835,262 
             
  Repurchase Agreement          
  Fixed Income Clearing Corporation, 0.030% dated 12/31/15, due 1/4/16, repurchase price $7,796, collateralized by U.S. Treasury Note, 2.375%, due 8/15/24   $7,795    7,795 
  Total Repurchase Agreement—0.9%
(cost $7,795)
        7,795 
  Total Investments—99.6%
(cost $672,231)
        843,057 
  Cash and other assets, less liabilities—0.4%        3,441 
  Net assets—100.0%       $846,498 

 

 

 

  ADR = American Depository Receipt

  * Non-income producing securities

  † = U.S. listed foreign security                


 

See accompanying Notes to Financial Statements.

 

10 Annual Report December 31, 2015
 
 

Large Cap Growth Fund

  
 The Large Cap Growth Fund seeks long-term capital appreciation.
  
 AN OVERVIEW FROM THE PORTFOLIO MANAGERS
  

 

James S. Golan

 

 

David P. Ricci

The William Blair Large Cap Growth Fund (Class N shares) posted a 7.04% increase, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 1000® Growth Index (the “Index”), increased 5.67%.

 

The Fund’s outperformance during 2015 was driven by stock selection. Good stock selection within Consumer Discretionary and Information Technology contributed significantly to returns. Within Consumer Discretionary, top performers included Amazon.com, Home Depot, and O’Reilly Automotive, while within Information Technology, Alphabet (formerly Google Inc.) was a notable contributor. Alphabet outperformed on strong growth in both its core search business and in YouTube while Amazon.com outperformed on strong growth out of both its core e-commerce business and its rapidly growing AWS segment. In addition, the Fund benefited from strong performance from its position in Equifax (Industrials). Conversely, stock selection within Consumer Staples, including the Fund’s positions in Keurig Green Mountain and Mead Johnson Nutrition, detracted from 2015 performance. Keurig Green Mountain underperformed on disappointing business results for its hot platform and investor skepticism of the company’s launch strategy for the Keurig Kold platform. Other notable underperformers included Affiliated Managers Group (Financials), Union Pacific Corporation (Industrials), and Cerner Corporation (Health Care). Union Pacific Corporation underperformed due to lower coal and crude-by-rail volumes being transported over its railroad network. From a style perspective, increasing investor concerns about the sustainability of economic growth, given that we have likely moved past the mid-point of the current economic cycle, contributed to a gravitation toward more consistent growers and less sensitivity to valuation. As such, the Fund’s overweight to higher-valuation stocks, an exposure driven by our typical bias toward less cyclical and more sustainable growers, was a modest tailwind during the year.

 

Please refer to the U.S. Growth Market Review and Outlook relating to the Fund on page 6.

 

December 31, 2015 William Blair Funds 11
 

Large Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 12/31/2015
 
   1 Year  3 Year  5 Year  10 Year
Class N   7.04%   17.62%   13.15%   7.43%
Class I   7.26    17.89    13.42    7.67 
Russell 1000® Growth Index   5.67    16.83    13.53    8.53 


 

 

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/reimbursements, 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 Investment Management, LLC and 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 price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

 

The sector diversification shown is based on the total long-term securities.

 

12 Annual Report December 31, 2015
 

Large Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
             
  Common Stocks          
             
  Information Technology—29.8%          
* Adobe Systems, Inc.   19,950   $1,874 
* Alphabet, Inc. Class “C”   2,606    1,978 
* Alphabet, Inc. Class “A”   3,850    2,995 
  Apple, Inc.   46,305    4,874 
* Facebook, Inc.   20,430    2,138 
  Mastercard, Inc.   23,280    2,267 
* Red Hat, Inc.   28,170    2,333 
  Texas Instruments, Inc.   41,530    2,276 
           20,735 
  Consumer Discretionary—24.3%          
* Amazon.com, Inc.   4,480    3,028 
  BorgWarner, Inc.   34,270    1,482 
  Dollar General Corporation   39,290    2,824 
* O’Reilly Automotive, Inc.   7,920    2,007 
  Starbucks Corporation   17,510    1,051 
* Tesla Motors, Inc.   3,170    761 
  The Home Depot, Inc.   27,590    3,649 
* The Priceline Group, Inc.   738    941 
  VF Corporation   18,320    1,140 
           16,883 
  Health Care—17.0%          
* Biogen, Inc.   6,190    1,896 
  Bristol-Myers Squibb Co.   32,640    2,245 
* Cerner Corporation   36,300    2,184 
* IDEXX Laboratories, Inc.   24,430    1,782 
  UnitedHealth Group, Inc.   16,900    1,988 
  Zoetis, Inc.   35,560    1,704 
           11,799 
  Industrials—8.5%          
  Danaher Corporation   9,460    879 
* TransDigm Group, Inc.   6,840    1,562 
  Union Pacific Corporation   27,530    2,153 
* Verisk Analytics, Inc.   16,900    1,299 
           5,893 
  Financials—7.8%          
* Affiliated Managers Group, Inc.   11,810    1,887 
  Citigroup, Inc.   40,990    2,121 
  Moody’s Corporation   14,280    1,433 
           5,441 
  Consumer Staples—6.7%          
* Monster Beverage Corporation   8,280    1,233 
  The Estee Lauder Cos., Inc.   16,970    1,494 
  The Kroger Co.   46,580    1,949 
           4,676 
  Energy—1.8%          
  Schlumberger, Ltd.†   17,820    1,243 
     Shares or     
     Principal     
  Issuer  Amount   Value 
             
  Common Stocks—(continued)          
             
  Telecommunication Services—1.4%          
* SBA Communications Corporation   9,120   $958 
  Materials—1.0%          
  PPG Industries, Inc.   6,640    656 
  Total Common Stocks—98.3%
(cost $55,465)
        68,284 
             
  Repurchase Agreement          
  Fixed Income Clearing Corporation, 0.030% dated 12/31/15, due 1/4/16, repurchase price $740, collateralized by U.S. Treasury Note 2.375%, due 8/15/24   $740    740 
  Total Repurchase Agreement—1.0%
(cost $740)
        740 
  Total Investments—99.3%
(cost $56,205)
        69,024 
  Cash and other assets, less liabilities—0.7%        457 
  Net assets—100.0%       $69,481 

 

 

 

  * Non-income producing securities

  † = U.S. listed foreign security                


 

See accompanying Notes to Financial Statements.

 

December 31, 2015 William Blair Funds 13
 

 

Large Cap Value Fund

  
 The Large Cap Value Fund seeks long-term capital appreciation.
  
 AN OVERVIEW FROM THE PORTFOLIO MANAGER
  

 

David F. Hone

 

 

The William Blair Large Cap Value Fund (Class N shares) posted a 5.70% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 1000® Value Index (the “Index”), decreased 3.83%.

 

The Fund’s underperformance relative to the Index during 2015 was driven by stock selection. Performance within Industrials, the largest sector detractor from relative performance, was driven by a lack of exposure to Industrial Conglomerates and stock selection within Machinery, Road & Rail, and Aerospace & Defense within the sector. Energy was another meaningful sector detractor from relative performance as stock selection within Exploration & Production, coupled with an overweight to an underperforming segment, drove the underperformance within the sector. A lack of exposure to Storage & Transportation, the largest contributor at the sub-industry level, helped offset some of the negative relative returns within the sector. Consumer Staples was the largest sector contributor to relative performance as an overweight in Beverages and Tobacco, combined with positive stock selection within Food & Staples Retailing, drove sector returns. Looking specifically at stock selection, the Fund’s largest detractor from relative performance was Anadarko Petroleum (Energy). Anadarko is an independent exploration and production company. The underperformance was primarily due to continued weakness in the oil and gas markets. Other notable detractors included Devon Energy (Energy) and Kansas City Southern (Industrials). Offsetting these detractors were the Fund’s investments in Boston Scientific (Health Care), Molson Coors Brewing Company (Consumer Staples), and T-Mobile US (Telecommunications). T-Mobile US offers voice, messaging, and data services. The outperformance was due to continued strong new subscriber growth and speculation regarding the possible acquisition of the company.

 

Please refer to the U.S. Value Market Review and Outlook relating to the Fund on page 7.

 

14 Annual Report December 31, 2015
 

Large Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 12/31/2015
 
    1 Year   3 Year   Since
Inception(a)
Class N   (5.70)%   10.83%   11.68%
Class I   (5.58)   11.04    11.92 
Russell 1000® Value Index   (3.83)   13.08    13.94 

 

(a)For the period from October 24, 2011 (Commencement of Operations) to December 31, 2015.


 

     

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/reimbursements, 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 Investment Management, LLC and 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® Value Index consists of large capitalization companies with above average price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

 

 

The sector diversification shown is based on the total long-term securities.

 

December 31, 2015 William Blair Funds 15
 

Large Cap Value Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
             
  Common Stocks          
             
  Financials—31.1%          
  American International Group, Inc.   1,185   $73 
  American Tower Corporation   556    54 
  Bank of America Corporation   6,450    109 
* CBRE Group, Inc.   1,064    37 
  Citigroup, Inc.   2,077    108 
  Citizens Financial Group, Inc.   2,336    61 
  CNA Financial Corporation   877    31 
  Discover Financial Services   597    32 
  JPMorgan Chase & Co.   1,831    121 
  Lincoln National Corporation   989    50 
  Morgan Stanley   1,177    37 
  Regions Financial Corporation   5,976    57 
  SunTrust Banks, Inc.   1,563    67 
* Synchrony Financial   1,788    54 
  The Charles Schwab Corporation   1,788    59 
  Zions Bancorporation   1,392    38 
           988 
  Information Technology—13.6%          
  Belden, Inc.   627    30 
  Broadcom Corporation   654    38 
  Cisco Systems, Inc.   3,345    91 
* Citrix Systems, Inc.   464    35 
  Corning, Inc.   1,807    33 
  HP, Inc.   1,907    22 
  Microsoft Corporation   1,926    107 
  QUALCOMM, Inc.   973    49 
* VeriFone Systems, Inc.   990    28 
           433 
  Health Care—11.1%          
  Baxalta, Inc.   664    26 
* Boston Scientific Corporation   2,687    49 
  Cardinal Health, Inc.   478    43 
* Express Scripts Holding Co.   531    46 
  Merck & Co., Inc.   1,641    87 
  PerkinElmer, Inc.   818    44 
  Zimmer Biomet Holdings, Inc.   545    56 
           351 
  Energy—10.3%          
  Anadarko Petroleum Corporation   853    42 
  Baker Hughes, Inc.   1,155    53 
  Chevron Corporation   794    71 
  Devon Energy Corporation   944    30 
  Diamond Offshore Drilling, Inc.   556    12 
  Exxon Mobil Corporation   1,039    81 
  Hess Corporation   786    38 
           327 
           
           
  Issuer  Shares   Value 
             
  Common Stocks—(continued)          
             
  Industrials—9.3%          
  FedEx Corporation   215   $32 
  Ingersoll-Rand plc†   507    28 
  Kansas City Southern   363    27 
* SPX FLOW, Inc.   591    16 
  Textron, Inc.   1,615    68 
  The Boeing Co.   275    40 
  Union Pacific Corporation   331    26 
  United Technologies Corporation   595    57 
           294 
  Consumer Staples—7.2%          
  General Mills, Inc.   606    35 
  Molson Coors Brewing Co.   450    42 
  Philip Morris International, Inc.   1,056    93 
  Walgreens Boots Alliance, Inc.   703    60 
           230 
  Consumer Discretionary—5.5%          
  Big Lots, Inc.   583    22 
  Brunswick Corporation   692    35 
* Burlington Stores, Inc.   515    22 
  CBS Corporation   657    31 
  Delphi Automotive plc†   419    36 
* MGM Resorts International   1,228    28 
           174 
  Materials—5.0%          
  Alcoa, Inc.   3,186    31 
  EI du Pont de Nemours & Co.   550    37 
* Owens-Illinois, Inc.   2,496    44 
  Valspar Corporation   571    47 
           159 
  Utilities—3.6%          
  NextEra Energy, Inc.   681    71 
  WEC Energy Group, Inc.   858    44 
           115 
  Telecommunication Services—2.5%          
* T-Mobile US, Inc.   1,499    58 
  Verizon Communications, Inc.   449    21 
           79 
  Total Common Stocks—99.2%
(cost $2,776)
        3,150 
  Total Investments—99.2%
(cost $2,776)
        3,150 
  Cash and other assets, less liabilities—0.8%        26 
  Net assets—100.0%       $3,176 

 

 

 

* Non-income producing securities

  † = U.S. listed foreign security                


 

See accompanying Notes to Financial Statements.

 

16 Annual Report December 31, 2015
 
  Mid Cap Growth Fund
   
  The Mid Cap Growth Fund seeks long-term capital appreciation.
   
  AN OVERVIEW FROM THE PORTFOLIO MANAGERS
   

 

Robert C. Lanphier, IV

 

 

David P. Ricci

 

 

Daniel Crowe

 

The William Blair Mid Cap Growth Fund (Class N shares) posted a 0.20% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell Midcap® Growth Index (the “Index”), decreased 0.20%.

 

The Fund performed in line with the Index during 2015, with results driven by stock selection and a modest style benefit. From a stock selection standpoint, Information Technology and Industrials were areas of strength. Within Information Technology, Vantiv and Genpact were top contributors to relative performance and within Industrials, Equifax and the Fund’s typical bias toward business services companies drove strong results. Vantiv operates in the payment processing industry as a merchant acquirer and benefited from strong business results in 2015, with particularly strong growth in areas such as e-commerce and integrated payments. Other notable contributors included Airgas (Materials) and BioMarin Pharmaceutical (Health Care). Airgas is a leader in the industrial gas industry and its agreement to be acquired for a significant premium during the fourth quarter drove outperformance. In terms of negatives, Polaris Industries (Consumer Discretionary), Affiliated Managers Group (Financials), Old Dominion Freight Line (Industrials), and Michael Kors Holdings (Consumer Discretionary) were among the Fund’s top detractors. Polaris Industries underperformed due to increasing competitive threats in the off road vehicle market and weaker demand in regions heavily impacted by the collapse of U.S. energy and agricultural markets. Consumer Staples was also an area of weakness, in part due to the Fund’s position in Keurig Green Mountain. Keurig Green Mountain underperformed on disappointing business results for its hot platform and investor skepticism of the company’s launch strategy for the Keurig Kold platform. From a style perspective, increasing investor concerns about the sustainability of economic growth, given that we have likely moved past the mid-point of the current economic cycle, contributed to a gravitation toward more consistent growers and underperformance from the lowest P/E stocks in the Index. As such, the Fund’s overweight to higher valuation stocks, an exposure driven by our typical bias toward less cyclical and more sustainable growers, was a modest tailwind during the year.

 

Please refer to the U.S. Growth Market Review and Outlook relating to the Fund on page 6.

 

December 31, 2015 William Blair Funds 17
 

Mid Cap Growth Fund

 

Performance Highlights (Unaudited)

 

Average Annual Total Return at 12/31/2015
      
    1 Year   3 Year   5 Year   Since
Inception(a)
Class N   (0.20)%   11.39%   9.27%   7.55%
Class I   0.00    11.66    9.55    7.84 
Russell Midcap® Growth                    
Index   (0.20)   14.88    11.54    7.59 
                     
(a)For the period from February 1, 2006 (Commencement of Operations) to December 31, 2015.


 

 

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 medium capitalization companies involves special risks, including higher volatility and lower liquidity. Medium capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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 Midcap® Growth Index is an index that is constructed to provide a comprehensive and unbiased barometer of the mid-cap growth market.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

The sector diversification shown is based on the total long-term securities.

 

18 Annual Report December 31, 2015
 

Mid Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
           
  Common Stocks          
             
  Consumer Discretionary—25.0%          
  BorgWarner, Inc.   144,943   $6,266 
  Brunswick Corporation   78,900    3,985 
  *Chipotle Mexican Grill, Inc.   3,325    1,595 
  Dollar General Corporation   97,565    7,012 
  Hanesbrands, Inc.   168,600    4,962 
  L Brands, Inc.   28,100    2,693 
  Newell Rubbermaid, Inc.   101,600    4,479 
*O’Reilly Automotive, Inc.   13,634    3,455 
  Polaris Industries, Inc.   45,730    3,930 
  Ross Stores, Inc.   87,100    4,687 
* Sally Beauty Holdings, Inc.   74,901    2,089 
  Six Flags Entertainment Corporation   53,680    2,949 
  Williams-Sonoma, Inc.   32,127    1,877 
           49,979 
  Industrials—19.1%          
  AMETEK, Inc.   72,958    3,910 
  Carlisle Cos., Inc.   39,800    3,530 
  Equifax, Inc.   36,000    4,009 
* Old Dominion Freight Line, Inc.   118,886    7,023 
  Rockwell Collins, Inc.   59,070    5,452 
* The Middleby Corporation   24,970    2,693 
  Towers Watson & Co.   30,490    3,917 
* TransDigm Group, Inc.   13,200    3,016 
* Verisk Analytics, Inc.   60,980    4,688 
           38,238 
  Information Technology—18.3%          
* Akamai Technologies, Inc.   30,179    1,588 
  Booz Allen Hamilton Holding Corporation   73,100    2,255 
* CoStar Group, Inc.   22,577    4,667 
* Genpact, Ltd.†   217,252    5,427 
* Guidewire Software, Inc.   64,620    3,888 
* IPG Photonics Corporation   18,724    1,669 
  MAXIMUS, Inc.   46,117    2,594 
* Pandora Media, Inc.   173,404    2,325 
* Red Hat, Inc.   69,730    5,774 
* Trimble Navigation, Ltd.   91,700    1,967 
* Vantiv, Inc.   92,424    4,383 
           36,537 
  Health Care—17.8%          
* Align Technology, Inc.   53,680    3,535 
* BioMarin Pharmaceutical, Inc.   25,542    2,676 
* Centene Corporation   24,848    1,635 
* Cerner Corporation   87,600    5,271 
* IDEXX Laboratories, Inc.   44,340    3,233 
* Medivation, Inc.   53,848    2,603 
* Mednax, Inc.   79,260    5,680 
* Mettler-Toledo International, Inc.   11,120    3,771 
Perrigo Co. plc†   20,800    3,010 
* Sirona Dental Systems, Inc.   37,010    4,055 
           35,469 
           
           
  Issuer  Shares   Value 
           
  Common Stocks—(continued)          
             
  Financials—12.4%          
* Affiliated Managers Group, Inc.   35,655   $5,696 
  Intercontinental Exchange, Inc.   24,100    6,176 
  LPL Financial Holdings, Inc.   62,091    2,648 
  Moody’s Corporation   51,900    5,208 
* Signature Bank   33,120    5,079 
           24,807 
  Telecommunication Services—2.3%          
* SBA Communications Corporation   43,750    4,597 
  Materials—2.2%          
  Vulcan Materials Co.   47,000    4,464 
  Consumer Staples—1.4%          
* Monster Beverage Corporation   18,210    2,712 
  Energy—0.8%          
* Concho Resources, Inc.   16,820    1,562 
  Total Common Stocks—99.3%
(cost $185,222)
        198,365 
  Total Investments—99.3%
(cost $185,222)
        198,365 
  Cash and other assets, less liabilities—0.7%        1,357 
  Net assets—100.0%       $199,722 

 

 

 

*Non-income producing securities
= U.S. listed foreign security


 

 

See accompanying Notes to Financial Statements.

 

December 31, 2015 William Blair Funds 19
 
  Mid Cap Value Fund
   
  The Mid Cap Value Fund seeks long-term capital appreciation.
   
  AN OVERVIEW FROM THE PORTFOLIO MANAGERS
 

 

Chad M. Kilmer

 

 

Mark T. Leslie

 

 

David S. Mitchell

The William Blair Mid Cap Value Fund (Class N shares) posted a 2.13% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell Midcap® Value Index (the “Index”), decreased 4.78%.

 

The Fund’s outperformance relative to the Index during 2015 was driven by strong stock selection across all sectors. Broadly speaking, from a style perspective, an underweight to slower-growth companies and a higher-quality bias provided tailwinds for the Fund’s relative outperformance. Energy, which was the worst performing sector of the market for the year, was the largest contributor to relative returns for the Fund due to stock selection. Within the sector, the acquisition of Cameron International, an Oilfield Services company, and the lack of exposure to the Storage & Transportation and Coal & Consumables each contributed to relative returns. Within Utilities, relative outperformance was driven by strong stock selection within the sector and a lack of exposure to Independent Power Producers. Consumer Staples and Health Care, the best two performing sectors of the market, were notable contributors to performance driven by stock selection within Food Retail and Health Care Services. Looking specifically at stock selection, the Fund’s largest contributor to relative performance was Kroger (Consumer Staples). Kroger operates retail food and drug stores throughout the United States, along with its convenience stores, supermarket fuel centers, and processing plants used to make private-label goods. The company continues to report solid earnings and margin improvement that beat estimates and increased forward guidance. Other notable contributors to relative performance included Cigna Corp (Health Care) and Omnicare (Health Care). Offsetting these contributors were the Fund’s investments in Belden (Technology), Whiting Petroleum (Energy), and Carpenter Technology Corporation (Materials). Whiting Petroleum is an independent oil and gas company engaged in acquisition, development, production and exploration activities primarily in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast and Michigan regions of the United States. The stock traded lower with other Energy stocks given the underlying weakness in oil prices.

 

Please refer to the U.S. Value Market Review and Outlook relating to the Fund on page 7.

 

20 Annual Report December 31, 2015
 

Mid Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 12/31/2015
 
   1 Year  3 Year  5 Year  Since
Inception(a)
Class N   (2.13)%   12.55%   10.04%   10.35%
Class I   (1.73)   12.88    10.30    10.63 
Russell Midcap® Value Index   (4.78)   13.40    11.25    11.21 
   
(a)For the period from May 3, 2010 (Commencement of Operations) to December 31, 2015.


 

 

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 and medium capitalization companies involves special risks, including higher volatility and lower liquidity. Medium capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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 Midcap® Value Index consists of midcap-capitalization companies with below average price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

The sector diversification shown is based on the total long-term securities.

 

December 31, 2015 William Blair Funds 21
 

Mid Cap Value Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
           
  Common Stocks          
             
  Financials—35.4%          
  Allied World Assurance Co. Holdings, Ltd.†   819   $30 
  American Campus Communities, Inc.   923    38 
  Ameriprise Financial, Inc.   232    25 
* Arch Capital Group, Ltd.†   462    32 
  Assured Guaranty, Ltd.†   923    24 
  Camden Property Trust   452    35 
  DDR Corporation   1,716    29 
  Douglas Emmett, Inc.   1,240    39 
* E*TRADE Financial Corporation   928    28 
  East West Bancorp, Inc.   962    40 
* Equity Commonwealth   508    14 
  Essex Property Trust, Inc.   153    37 
  FNF Group   804    28 
* Forest City Enterprises, Inc.   1,389    30 
  General Growth Properties, Inc.   1,187    32 
  Hanover Insurance Group, Inc.   441    36 
  Hartford Financial Services Group, Inc.   891    39 
  Host Hotels & Resorts, Inc.   1,174    18 
  Jones Lang LaSalle, Inc.   265    42 
  Northern Trust Corporation   612    44 
  PacWest Bancorp   810    35 
  Pebblebrook Hotel Trust   546    15 
  Principal Financial Group, Inc.   689    31 
  Prologis, Inc.   647    28 
* Signature Bank   163    25 
  SL Green Realty Corporation   407    46 
  SunTrust Banks, Inc.   1,240    53 
  Taubman Centers, Inc.   311    24 
  Ventas, Inc.   518    29 
  Zions Bancorporation   679    19 
           945 
  Utilities—12.2%          
  American Water Works Co., Inc.   688    41 
  Atmos Energy Corporation   559    35 
  CMS Energy Corporation   1,062    39 
  Eversource Energy   690    35 
  FirstEnergy Corporation   842    27 
  Pinnacle West Capital Corporation   468    30 
  Sempra Energy   375    35 
  WEC Energy Group, Inc.   850    44 
  Xcel Energy, Inc.   1,142    41 
           327 
  Industrials—9.7%          
  Carlisle Cos., Inc.   309    27 
  Flowserve Corporation   301    13 
  Fortune Brands Home & Security, Inc.   475    26 
  Hubbell, Inc.   335    34 
  Ingersoll-Rand plc†   608    34 
  Kansas City Southern   297    22 
  KAR Auction Services, Inc.   910    34 
  The Toro Co.   508    37 
  Wabtec Corporation   454    32 
           259 
  Information Technology—9.6%          
  Belden, Inc.   823    39 
* Cadence Design Systems, Inc.   2,306    48 
* CommScope Holding Co., Inc.   1,159    30 
           
           
  Issuer  Shares   Value 
           
  Common Stocks—(continued)          
             
  Information Technology—(continued)          
* Genpact, Ltd.†   1,493   $37 
  Juniper Networks, Inc.   1,359    37 
  TE Connectivity, Ltd.†   540    35 
* Trimble Navigation, Ltd.   1,335    29 
           255 
  Energy—8.4%          
* Cameron International Corporation   540    34 
  Cimarex Energy Co.   255    23 
* Gulfport Energy Corporation   760    18 
  Hess Corporation   380    18 
* Memorial Resource Development Corporation   1,829    29 
  Noble Energy, Inc.   874    29 
  Patterson-UTI Energy, Inc.   1,646    25 
  Pioneer Natural Resources Co.   205    26 
  Rowan Cos. plc†   810    14 
* Whiting Petroleum Corporation   819    8 
           224 
  Consumer Discretionary—7.7%          
  Autoliv, Inc.   239    30 
  Brunswick Corporation   287    14 
  Darden Restaurants, Inc.   469    30 
  Foot Locker, Inc.   217    14 
  Lennar Corporation   612    30 
  Newell Rubbermaid, Inc.   723    32 
* The Michaels Cos., Inc.   1,109    24 
  VF Corporation   494    31 
           205 
  Health Care—7.3%          
  CIGNA Corporation   174    26 
* Hologic, Inc.   881    34 
* Mednax, Inc.   598    43 
* Mettler-Toledo International, Inc.   134    45 
  Zimmer Biomet Holdings, Inc.   466    48 
           196 
  Consumer Staples—5.2%          
  ConAgra Foods, Inc.   810    34 
  Ingredion, Inc.   462    45 
  The Kroger Co.   1,441    60 
           139 
  Materials—4.5%          
  Carpenter Technology Corporation   800    24 
  Eastman Chemical Co.   530    36 
  FMC Corporation   627    25 
  Steel Dynamics, Inc.   1,929    34 
           119 
  Total Common Stocks—100.0%
(cost $2,261)
        2,669 
  Total Investments—100.0%
(cost $2,261)
        2,669 
  Liabilities, plus cash and other assets—0.0%        (1)
  Net assets—100.0%       $2,668 

 

 

 

  = U.S. listed foreign security
  * Non-income producing securities


 

See accompanying Notes to Financial Statements.

 

22 Annual Report December 31, 2015
 
  Small-Mid Cap Growth Fund
   
  The Small-Mid Cap Growth Fund seeks long-term capital appreciation.
   
  AN OVERVIEW FROM THE PORTFOLIO MANAGERS

 

 

Karl W. Brewer

 

 

Robert C. Lanphier, IV

 

 

Daniel Crowe

The William Blair Small-Mid Cap Growth Fund (Class N shares) posted a 4.47% increase, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 2500TM Growth Index (the “Index”), decreased 0.19%.

 

The Fund’s outperformance during 2015 was driven by stock selection and a favorable style tailwind. From a style perspective, the Fund’s overweight exposure to less volatile stocks positively contributed to the Fund’s relative performance. The Fund typically gravitates toward companies with more consistent business models, whose stocks generally held up better amid the volatility and modestly negative market returns that characterized 2015. Related to this, our typical bias toward companies with larger market capitalizations within the small-mid cap universe provided a tailwind as larger-cap stocks outperformed in the year. From a stock selection standpoint, Information Technology, and Consumer Discretionary were areas of strength. j2 Global was a top contributor within Information Technology and Six Flags Entertainment was a standout within Consumer Discretionary. Our top performing individual holdings for the year were Ligand Pharmaceuticals (Health Care), ABIOMED (Health Care) and FirstService Corp (Financials). Ligand Pharmaceuticals outperformed both the market and other Biotechnology stocks due to strong results for its current royalty-generating assets and in anticipation of several upcoming clinical milestones that could be further catalysts for growth. ABIOMED’s strong business results and accelerating revenue growth suggest the clinical adoption of the company’s Impella products is gaining momentum, which has driven outperformance of the stock. Conversely, our top detractors for the year included FXCM Inc. (Financials), Exact Sciences Corporation (Health Care), Polaris Industries (Consumer Discretionary), Encore Capital Group (Financials) and First Cash Financial Services (Financials). FXCM, an online foreign exchange trading solution provider, meaningfully underperformed after a historically unprecedented move in the Swiss Franc impaired client positions and forced the company into a dilutive financing arrangement. Exact Sciences’ underperformance was largely due to the US Preventative Services Task Force’s decision to not grant a rating for the company’s Cologuard test that would have eased the way for broad-based reimbursement coverage by commercial managed care companies.

 

Please refer to the U.S. Growth Market Review and Outlook relating to the Fund on page 6.

 

December 31, 2015 William Blair Funds 23
 

Small-Mid Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 12/31/2015
 
    1 Year   3 Year   5 Year   10 Year
Class N   4.47%   16.99%   12.37%   9.27%
Class I   4.74    17.30    12.65    9.55 
Russell 2500TM Growth Index   (0.19)   14.54    11.43    8.49 


 

 

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 and medium capitalization companies involves special risks, including higher volatility and lower liquidity. Smaller and medium capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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 2500TM Growth Index measures the performance of those Russell 2500 companies with above average price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

The sector diversification shown is based on the total long-term securities.

 

24 Annual Report December 31, 2015
 

Small-Mid Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

           
           
  Issuer  Shares   Value 
           
  Common Stocks          
             
  Information Technology—21.5%          
* ANSYS, Inc.   234,300   $21,673 
  Booz Allen Hamilton Holding Corporation   695,668    21,461 
* CoStar Group, Inc.   109,810    22,697 
* Cvent, Inc.   432,600    15,102 
* Gartner, Inc.   224,300    20,344 
* Guidewire Software, Inc.   537,334    32,326 
j2 Global, Inc.   327,185    26,934 
  MAXIMUS, Inc.   316,706    17,815 
* NeuStar, Inc.   739,521    17,726 
* Pandora Media, Inc.   573,573    7,691 
* Tyler Technologies, Inc.   110,000    19,175 
* Vantiv, Inc.   445,430    21,122 
* WNS Holdings, Ltd.-ADR   374,020    11,666 
         255,732 
  Health Care—20.7%          
* ABIOMED, Inc.   150,938    13,627 
* Align Technology, Inc.   317,703    20,921 
* Cambrex Corporation   363,800    17,131 
* Centene Corporation   183,810    12,096 
* Exact Sciences Corporation   1,067,177    9,850 
* ExamWorks Group, Inc.   291,200    7,746 
HealthSouth Corporation   590,484    20,555 
* IDEXX Laboratories, Inc.   200,422    14,615 
* Ligand Pharmaceuticals, Inc.   231,159    25,062 
* Medivation, Inc.   285,304    13,792 
* Mednax, Inc.   347,200    24,880 
* Mettler-Toledo International, Inc.   74,900    25,401 
* Quintiles Transnational Holdings, Inc.   290,700    19,959 
* Sirona Dental Systems, Inc.   184,253    20,189 
         245,824 
  Consumer Discretionary—16.6%          
* 2U, Inc.   448,755    12,556 
  Brunswick Corporation   220,432    11,134 
  Choice Hotels International, Inc.   342,036    17,242 
  Drew Industries, Inc.   240,000    14,614 
* Jarden Corporation   405,675    23,172 
  Polaris Industries, Inc.   170,300    14,637 
* Sally Beauty Holdings, Inc.   532,600    14,854 
* ServiceMaster Global Holdings, Inc.   373,608    14,660 
  Six Flags Entertainment Corporation   511,386    28,096 
  Tractor Supply Co.   178,300    15,245 
* Ulta Salon Cosmetics & Fragrance, Inc.   116,700    21,589 
  Williams-Sonoma, Inc.   170,700    9,971 
           197,770 
  Financials—16.0%          
* Affiliated Managers Group, Inc.   145,709    23,278 
  CBOE Holdings, Inc.   369,500    23,981 
* Colliers International Group, Inc.†   290,393    12,937 
* Encore Capital Group, Inc.   386,171    11,230 
  FactSet Research Systems, Inc.   91,544    14,882 
* First Cash Financial Services, Inc.   278,065    10,408 
           
           
  Issuer  Shares   Value 
           
  Common Stocks—(continued)          
             
  Financials—(continued)          
* FirstService Corporation†   537,797   $21,743 
  Jones Lang LaSalle, Inc.   108,541    17,351 
  Lazard, Ltd.†   369,200    16,618 
  OM Asset Management plc†   619,738    9,501 
* Signature Bank   123,300    18,911 
  Virtu Financial, Inc.   405,702    9,185 
           190,025 
  Industrials—13.1%          
  CEB, Inc.   268,328    16,473 
  Healthcare Services Group, Inc.   416,932    14,538 
  Hexcel Corporation   345,300    16,039 
* Huron Consulting Group, Inc.   207,409    12,320 
  Manpowergroup, Inc.   184,050    15,514 
* Old Dominion Freight Line, Inc.   382,971    22,622 
* Stericycle, Inc.   98,370    11,863 
* The Middleby Corporation   151,872    16,383 
  The Toro Co.   185,400    13,547 
  Towers Watson & Co.   12,804    1,645 
* TransDigm Group, Inc.   64,675    14,775 
           155,719 
  Materials—4.6%          
  Ball Corporation   165,349    12,026 
  Celanese Corporation   305,900    20,596 
  International Flavors & Fragrances, Inc.   187,800    22,468 
           55,090 
  Consumer Staples—2.5%          
  Nu Skin Enterprises, Inc.   370,652    14,044 
  WD-40 Co.   163,200    16,100 
           30,144 
  Telecommunication Services—1.8%          
* SBA Communications Corporation   202,000    21,224 
  Energy—1.6%          
* Carrizo Oil & Gas, Inc.   230,500    6,818 
* Diamondback Energy, Inc.   176,400    11,801 
           18,619 
  Total Common Stocks—98.4%
(cost $1,022,480)
        1,170,147 


 

See accompanying Notes to Financial Statements.

 

December 31, 2015 William Blair Funds 25
 

Small-Mid Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

Issuer  Principal Amount   Value 
           
Repurchase Agreement          
           
Fixed Income Clearing Corporation, 0.030% dated 12/31/15, due 1/4/16, repurchase price $22,916, collateralized by U.S. Treasury Note 2.375%, due 8/15/24   $22,916   $22,916 
Total Repurchase Agreement—1.9%
(cost $22,916)
        22,916 
Total Investments—100.3%
(cost $1,045,396)
        1,193,063 
Liabilities, plus cash and other assets—(0.3)%        (3,924)
Net assets—100.0%       $1,189,139 

 

 

 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security


 

See accompanying Notes to Financial Statements.

 

26 Annual Report December 31, 2015
 
    Small-Mid Cap Value Fund
     
    The Small-Mid Cap Value Fund seeks long-term capital appreciation.
     
    AN OVERVIEW FROM THE PORTFOLIO MANAGERS
     

 

Chad M. Kilmer

 

 

Mark T. Leslie

 

The William Blair Small-Mid Cap Value Fund (Class N shares) posted a 3.13% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 2500TM Value Index (the “Index”), decreased 5.49%.

 

The Fund’s higher-quality bias and underweight to slower-growth companies contributed to its outperformance relative to the Index during 2015. Strong stock selection across nearly every sector contributed to the relative outperformance for the year with the largest contributions coming from Financials and Technology. Within Financials, stock selection within Regional Banks, Capital Markets, and REITS all contributed to the outperformance within the sector. The outperformance in Technology was a result of strong stock selection, particularly within IT Services and Internet Software & Services. The only sector that detracted from relative performance for the year was Consumer Discretionary, as stock selection within Footwear was the most significant drag on performance. Looking specifically at stock selection, the Fund’s largest contributor to relative performance was Inphi (Technology). Inphi is a fabless semiconductor company that provides high-speed analog semiconductor solutions for the communications and computing markets. The company is seeing strong momentum with new products and the company is aligned with high priority spending trends. Other contributors included j2 Global (Technology) and Bank of the Ozarks (Financials). Offsetting these contributors were the Fund’s investments in Helix Energy Solutions (Energy), Belden (Technology), and GasLog (Energy). Helix is an energy service company providing deepwater contracting services to the energy market. The stock underperformed as operating results continue to be pressured by utilization declines in its major business segments, primarily, Well Intervention.

 

Please refer to the U.S. Value Market Review and Outlook relating to the Fund on page 7.

     
   
     
David S. Mitchell    

 

December 31, 2015 William Blair Funds 27
 

Small-Mid Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 12/31/2015
 
           Since
   1 Year  3 Year  Inception(a)
Class N   (3.13)%   11.38%   12.60%
Class I   (2.86)   11.70    12.91 
Russell 2500TM Value Index   (5.49)   10.51    13.62 

 

(a)For the period from December 15, 2011 (Commencement of Operations) to December 31, 2015.


 

 

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 and medium capitalization companies involves special risks, including higher volatility and lower liquidity. Smaller and medium capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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.

 

Russell 2500TM Value Index consists of midcap-capitalization companies with below average price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

 

The sector diversification shown is based on the total long-term securities.

 

28 Annual Report December 31, 2015
 

Small-Mid Cap Value Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

  Issuer  Shares   Value 
             
  Common Stocks          
             
  Financials—38.7%          
  Acadia Realty Trust   1,040   $34 
  Allied World Assurance Co. Holdings, Ltd.†   1,179    44 
  American Assets Trust, Inc.   979    38 
  American Campus Communities, Inc.   909    38 
* Arch Capital Group, Ltd.†   765    53 
  Assured Guaranty, Ltd.†   1,411    37 
  Bank of the Ozarks, Inc.   624    31 
  Boston Private Financial Holdings, Inc.   1,302    15 
  Camden Property Trust   671    52 
  CNO Financial Group, Inc.   1,737    33 
  DDR Corporation   1,914    32 
  Douglas Emmett, Inc.   1,531    48 
* E*TRADE Financial Corporation   1,814    54 
* Eagle Bancorp, Inc.   604    30 
  East West Bancorp, Inc.   1,248    52 
  EastGroup Properties, Inc.   591    33 
  Education Realty Trust, Inc.   907    34 
  EPR Properties   541    32 
* Equity Commonwealth   767    21 
  First American Financial Corporation   1,110    40 
  FirstMerit Corporation   1,245    23 
* Forest City Enterprises, Inc.   1,589    35 
  Glacier Bancorp, Inc.   1,515    40 
  Hanover Insurance Group, Inc.   606    49 
  Highwoods Properties, Inc.   738    32 
  Home BancShares, Inc.   730    30 
  Iberiabank Corporation   592    33 
  Jones Lang LaSalle, Inc.   329    53 
  LaSalle Hotel Properties   1,047    26 
  PacWest Bancorp   1,015    44 
  Pebblebrook Hotel Trust   995    28 
  Prosperity Bancshares, Inc.   465    22 
  Radian Group, Inc.   2,422    32 
  Renasant Corporation   848    29 
  Selective Insurance Group, Inc.   1,206    40 
* Signature Bank   264    40 
  SL Green Realty Corporation   355    40 
  Sunstone Hotel Investors, Inc.   2,198    27 
  Taubman Centers, Inc.   528    41 
  Umpqua Holdings Corporation   1,449    23 
* Western Alliance Bancorp   881    32 
  WSFS Financial Corporation   1,627    53 
  Yadkin Financial Corporation   994    25 
  Zions Bancorporation   1,031    28 
           1,576 
  Industrials—13.2%          
  Barnes Group, Inc.   797    28 
  Carlisle Cos., Inc.   420    37 
  CIRCOR International, Inc.   453    19 
  Curtiss-Wright Corporation   449    31 
  EMCOR Group, Inc.   790    38 
  Flowserve Corporation   441    19 
  Fortune Brands Home & Security, Inc.   632    35 
* FTI Consulting, Inc.   659    23 
  Issuer  Shares   Value 
             
  Common Stocks—(continued)          
             
  Industrials—(continued)          
  G&K Services, Inc.   519   $33 
  Hubbell, Inc.   394    40 
  Interface, Inc.   1,747    33 
  KAR Auction Services, Inc.   1,119    41 
* Lydall, Inc.   686    24 
  Matson, Inc.   857    37 
  Standex International Corporation   292    24 
  The Toro Co.   562    41 
  Wabtec Corporation   502    36 
           539 
  Information Technology—10.1%          
* Acxiom Corporation   3,346    70 
  Belden, Inc.   1,027    49 
  Booz Allen Hamilton Holding Corporation   1,150    36 
* Cadence Design Systems, Inc.   2,993    62 
* Genpact, Ltd.†   2,266    57 
* Inphi Corporation   1,787    48 
  j2 Global, Inc.   769    63 
  Littelfuse, Inc.   238    25 
           410 
  Consumer Discretionary—9.7%          
  Autoliv, Inc.   304    38 
  Brunswick Corporation   426    21 
  CalAtlantic Group, Inc.   523    20 
  Children’s Place, Inc.   547    30 
  Dana Holding Corporation   1,159    16 
  Ethan Allen Interiors, Inc.   759    21 
* Express, Inc.   2,028    35 
* Genesco, Inc.   408    23 
* Krispy Kreme Doughnuts, Inc.   2,718    41 
  Lennar Corporation   688    34 
  Meredith Corporation   687    30 
* The Michaels Cos., Inc.   977    22 
  Vail Resorts, Inc.   348    45 
  Wolverine World Wide, Inc.   1,105    18 
           394 
  Utilities—8.7%          
  ALLETE, Inc.   418    21 
  American Water Works Co., Inc.   752    45 
  Atmos Energy Corporation   760    48 
  CMS Energy Corporation   1,324    48 
  IDACORP, Inc.   607    41 
  Pinnacle West Capital Corporation   558    36 
  PNM Resources, Inc.   1,032    32 
  Portland General Electric Co.   729    27 
  Southwest Gas Corporation   571    31 
  The Laclede Group, Inc.   469    28 
           357 
  Health Care—5.7%          
  CONMED Corporation   518    23 
* Greatbatch, Inc.   646    34 
  HealthSouth Corporation   954    33 


 

See accompanying Notes to Financial Statements.

 

December 31, 2015 William Blair Funds 29
 

Small-Mid Cap Value Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

  Issuer  Shares   Value 
             
  Common Stocks—(continued)          
             
  Health Care—(continued)          
* Hologic, Inc.   655   $25 
* Magellan Health, Inc.   356    22 
* Mednax, Inc.   664    48 
* Mettler-Toledo International, Inc.   135    46 
           231 
  Energy—5.1%          
  Archrock, Inc.   1,126    9 
* Exterran Corporation   567    9 
  GasLog, Ltd.†   1,964    16 
* Gulfport Energy Corporation   952    23 
* Helix Energy Solutions Group, Inc.   2,813    15 
* Memorial Resource Development Corporation   2,749    44 
  Patterson-UTI Energy, Inc.   1,591    24 
* PDC Energy, Inc.   558    30 
* TETRA Technologies, Inc.   4,111    31 
* Whiting Petroleum Corporation   929    9 
           210 
  Materials—4.8%          
  Carpenter Technology Corporation   664    20 
  FMC Corporation   521    20 
  Minerals Technologies, Inc.   633    29 
  PolyOne Corporation   1,310    42 
  Sensient Technologies Corporation   511    32 
  Silgan Holdings, Inc.   446    24 
  Steel Dynamics, Inc.   1,509    27 
           194 
  Consumer Staples—2.5%          
* Darling Ingredients, Inc.   1,313    14 
  Ingredion, Inc.   568    54 
  J&J Snack Foods Corporation   292    34 
           102 
  Total Common Stocks—98.5%
(cost $3,671)
        4,013 
  Total Investments—98.5%
(cost $3,671)
        4,013 
  Cash and other assets, less liabilities—1.5%        62 
  Net assets—100.0%       $4,075 
 

† = U.S. listed foreign security

* Non-income producing securities


 

See accompanying Notes to Financial Statements.

 

30 Annual Report December 31, 2015
 
    Small Cap Growth Fund
     
    The Small Cap Growth Fund seeks long-term capital appreciation.
     
    AN OVERVIEW FROM THE PORTFOLIO MANAGERS
     

 

Michael P. Balkin

 

 

Karl W. Brewer

 

The William Blair Small Cap Growth Fund (Class N shares) posted a 4.44% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 2000® Growth Index (the “Index”), decreased 1.38%.

 

The Fund’s underperformance relative to the Index during 2015 was driven by stock selection and headwinds to its investment style. From a style perspective, our typical contrarian bias worked against the Fund as the market favored momentum-oriented stocks during most of the year. Additionally, our typical underweight exposure to Biotechnology, given the highly speculative nature of many companies within the industry, was a headwind due to the strong performance of the industry. From a stock specific standpoint, Health Care stock selection was disappointing, in part due to its position in Spectranetics. The Fund’s top individual detractors for the year included FXCM Inc. (Financials), CAI International (Industrials), Tuesday Morning Corporation (Consumer Discretionary), and Acacia Research Corporation (Industrials). FXCM, an online foreign exchange trading solution provider, meaningfully underperformed after a historically unprecedented move in the Swiss Franc impaired client positions and forced the company into a dilutive financing arrangement. CAI International provides intermodal freight container leasing services and underperformed due to lower lease utilization rates and pricing pressure in the resale market for used containers. The Fund’s top individual contributors to relative performance were Ligand Pharmaceuticals (Health Care) and ABIOMED (Health Care). Ligand Pharmaceuticals outperformed both the market and other Biotechnology stocks due to strong results for its current royalty-generating assets and in anticipation of several upcoming clinical milestones that could be further catalysts for growth. ABIOMED’s strong business results and accelerating revenue growth suggest the clinical adoption of the company’s Impella products is gaining momentum, which has driven outperformance of the stock. Other significant contributors to relative performance included MaxLinear (Information Technology), FirstService Corp (Financials), and Six Flags Entertainment (Consumer Discretionary).

 

Please refer to the U.S. Growth Market Review and Outlook relating to the Fund on page 6.

 

December 31, 2015 William Blair Funds 31
 

Small Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 12/31/2015
             
   1 Year  3 Year  5 Year  10 Year
Class N   (4.44)%   14.42%   8.94%   6.01%
Class I   (4.20)   14.70    9.20    6.30 
Russell 2000® Growth Index   (1.38)   14.28    10.67    7.95 


 

 

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. Smaller capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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 is an unmanaged composite of the smallest 2000 stocks of the Russell 3000® Growth Index.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

 

The sector diversification shown is based on the total long-term securities.

 

32 Annual Report December 31, 2015
 

Small Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

  Issuer  Shares   Value 
             
  Common Stocks          
             
  Information Technology—25.3%          
* Acxiom Corporation   210,860   $4,411 
* Callidus Software, Inc.   445,567    8,274 
* Fleetmatics Group plc†   53,410    2,713 
* Guidewire Software, Inc.   124,346    7,481 
* Hortonworks, Inc.   236,930    5,189 
* Inphi Corporation   91,960    2,485 
  j2 Global, Inc.   132,051    10,870 
  MAXIMUS, Inc.   23,281    1,310 
* MaxLinear, Inc.   484,741    7,140 
* NeuStar, Inc.   380,428    9,119 
* OSI Systems, Inc.   60,834    5,394 
* Pandora Media, Inc.   250,700    3,362 
* Q2 Holdings, Inc.   103,140    2,720 
* Quotient Technology, Inc.   348,704    2,378 
  TeleTech Holdings, Inc.   109,948    3,069 
* Tyler Technologies, Inc.   16,730    2,916 
* Ultimate Software Group, Inc.   22,602    4,419 
* USA Technologies, Inc.   1,193,580    3,676 
* WNS Holdings, Ltd.-ADR   161,864    5,048 
* Xactly Corporation   288,651    2,462 
           94,436 
  Health Care—22.0%          
* ABIOMED, Inc.   74,090    6,689 
* Accelerate Diagnostics, Inc.   182,489    3,922 
* Air Methods Corporation   186,700    7,828 
* Akorn, Inc.   167,400    6,246 
* AtriCure, Inc.   207,543    4,657 
* Cambrex Corporation   95,175    4,482 
* Connecture, Inc.   149,866    541 
* Exact Sciences Corporation   126,060    1,164 
* ExamWorks Group, Inc.   278,544    7,409 
  HealthSouth Corporation   214,695    7,473 
  LeMaitre Vascular, Inc.   228,195    3,936 
* Ligand Pharmaceuticals, Inc.   58,810    6,376 
* Novadaq Technologies, Inc.†   277,600    3,537 
* NxStage Medical, Inc.   280,456    6,145 
* Repligen Corporation   88,260    2,497 
  Trinity Biotech plc-ADR   414,060    4,869 
* Zeltiq Aesthetics, Inc.   153,180    4,370 
           82,141 
  Industrials—13.9%          
* CAI International, Inc.   422,207    4,256 
  CEB, Inc.   41,970    2,577 
* Franklin Covey Co.   285,489    4,779 
* GP Strategies Corporation   187,750    4,714 
  Healthcare Services Group, Inc.   232,230    8,098 
  Hexcel Corporation   127,620    5,928 
* Hudson Technologies, Inc.   1,681,784    4,995 
* Huron Consulting Group, Inc.   81,739    4,855 
* ICF International, Inc.   161,341    5,737 
  John Bean Technologies Corporation   80,895    4,031 
* RPX Corporation   185,027    2,035 
           52,005 
  Issuer  Shares   Value 
             
  Common Stocks—(continued)          
             
  Consumer Discretionary—13.7%          
* 2U, Inc.   73,820   $2,066 
  Choice Hotels International, Inc.   132,530    6,681 
* Five Below, Inc.   86,350    2,772 
* IMAX Corporation†   185,911    6,607 
  Interval Leisure Group, Inc.   185,999    2,903 
  Monro Muffler Brake, Inc.   29,421    1,948 
  Six Flags Entertainment Corporation   223,832    12,297 
* Steven Madden, Ltd.   107,960    3,263 
* U.S. Auto Parts Network, Inc.   1,647,409    4,843 
* Universal Electronics, Inc.   150,162    7,711 
           51,091 
  Financials—12.0%          
* BofI Holding, Inc.   188,040    3,958 
* Colliers International Group, Inc.†   118,673    5,287 
* Cowen Group, Inc.   839,914    3,217 
* Encore Capital Group, Inc.   106,916    3,109 
* First Cash Financial Services, Inc.   146,936    5,500 
* FirstService Corporation†   210,373    8,506 
  OM Asset Management plc†   436,290    6,688 
  Pinnacle Financial Partners, Inc.   50,990    2,619 
  Virtu Financial, Inc.   252,622    5,719 
           44,603 
  Consumer Staples—4.5%          
* Herbalife, Ltd.†   49,800    2,670 
  Nu Skin Enterprises, Inc.   162,185    6,145 
  WD-40 Co.   81,631    8,053 
           16,868 
  Materials—2.0%          
* Headwaters, Inc.   211,612    3,570 
* Stillwater Mining Co.   441,276    3,782 
           7,352 
  Telecommunication Services—1.7%          
* ORBCOMM, Inc.   865,982    6,270 
             
  Energy—1.6%          
* Carrizo Oil & Gas, Inc.   72,553    2,146 
* Gulfport Energy Corporation   60,507    1,487 
* Hornbeck Offshore Services, Inc.   107,810    1,072 
  SM Energy Co.   67,260    1,322 
           6,027 
  Total Common Stocks—96.7%
(cost $317,893)
        360,793 
             
  Exchange-Traded Fund          
  iShares Russell 2000 Growth Index Fund   15,600    2,175 
  Total Exchange-Traded Fund—0.6%
(cost $2,164)
        2,175 


 

See accompanying Notes to Financial Statements.

 

December 31, 2015 William Blair Funds 33
 

Small Cap Growth Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

             
     Principal     
  Issuer  Amount    Value  
             
  Repurchase Agreement          
  Fixed Income Clearing Corporation, 0.030% dated 12/31/15, due 1/4/16, repurchase price $9,567, collateralized by FNMA, 2.625%, due 9/6/24   $9,567   $9,567 
  Total Repurchase Agreement—2.5%
(cost $9,567)
        9,567 
  Total Investments—99.8%
(cost $329,624)
        372,535 
  Cash and other assets, less liabilities—0.2%        678 
  Net assets—100.0%       $373,213 
 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security


 

If a fund’s portfolio holdings represent ownership of 5% or more of the voting securities of a company, the company is deemed to be an affiliate as defined in the Investment Company Act of 1940, as amended. The Fund had the following transactions during the year ended December 31, 2015 with companies deemed affiliated during the year or at December 31, 2015.

 

     Share Activity  Year Ended December 31, 2015
  Security Name  Balance
12/31/2014
  Purchases  Sales  Balance
12/31/2015
  Value  Dividend
Income
  Net realized
gain (loss)
  Change in net
unrealized
appreciation
(depreciation)
  ᴫHudson Technologies, Inc.   1,711,704    361,811    391,731    1,681,784     $4,995     $     $(330)    $(1,163)
                           $4,995     $     $(330)    $(1,163)

 

ᴫ = Affiliated company at December 31, 2015. The Fund’s total value in companies deemed to be affiliated at December 31, 2015 was $4,995.

 

See accompanying Notes to Financial Statements.

 

34 Annual Report December 31, 2015
 
    Small Cap Value Fund
     
    The Small Cap Value Fund seeks long-term capital appreciation.
     
    AN OVERVIEW FROM THE PORTFOLIO MANAGERS
     

 

Chad M. Kilmer

 

 

 

Mark T. Leslie

 

The William Blair Small Cap Value Fund (Class N shares) posted a 5.77% decrease, net of fees, for the twelve months ended December 31, 2015. By comparison, the Fund’s benchmark index, the Russell 2000® Value Index (the “Index”), decreased 7.47%.

 

The Fund’s outperformance relative to the Index during 2015 was driven by strong stock selection across most sectors. Broadly speaking, from a style perspective, the Fund’s higher-quality bias, larger market cap, and higher-growth profile relative to the Index provided tailwinds during the period. At the sector level, Financials and Materials were the most significant contributors to relative performance. Strong stock selection within Regional Banks, Insurance, and REITs drove relative outperformance within Financials. Outperformance within Materials was due to the Fund’s acquisition of RTI International Metals early in the year and a lack of exposure to more commodity exposed companies, mainly steel. The Fund’s lack of exposure to Biotechnology and Pharmaceuticals resulted in relative underperformance within Health Care, the only positive performing sector for the year. Looking specifically at stock selection, the Fund’s largest contributor to relative performance was Inphi (Technology). Inphi is a fabless semiconductor company that provides high-speed analog semiconductor solutions for the communications and computing markets. Outperformance for the year was due to solid earnings driven by strong momentum with new products that are aligned with high priority spending trends. Other notable contributors included Bank of the Ozarks (Financials) and Western Alliance Bancorp (Financials). Offsetting these contributors were the Fund’s investments in FXCM (Financials), Helix Energy Solutions (Energy), and Northwest Pipe (Industrials). Helix Energy Solutions is an energy service company providing deepwater contracting services to the energy market. The stock underperformed as operating results continue to be pressured by utilization declines in its major business segments, primarily, Well Intervention.

 

Please refer to the U.S. Value Market Review and Outlook relating to the Fund on page 7.

     
   
     
David S. Mitchell    

 

December 31, 2015 William Blair Funds 35
 

Small Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 12/31/2015
             
   1 Year  3 Year  5 Year  10 Year
Class N   (5.77)%   11.00%   7.44%   7.28%
Class I   (5.47)   11.31    7.73    7.53 
Russell 2000® Value Index   (7.47)   9.06    7.67    5.57 


 

 

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. Smaller capitalization stocks are also more sensitive to purchase/sale transactions and changes in the issuer’s financial condition. From time to time, the investment adviser may waive fees or reimburse expenses for the Fund. Without these waivers/reimbursements, 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 Investment Management, LLC and 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® Value Index consists of small-capitalization companies with below average price-to-book ratios and forecasted growth rates.

 

This report identifies the Fund’s investments on December 31, 2015. 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)

 

 

 

The sector diversification shown is based on the total long-term securities.

 

36 Annual Report December 31, 2015
 

Small Cap Value Fund

 

Portfolio of Investments, December 31, 2015 (all dollar amounts in thousands)

 

  Issuer  Shares   Value 
             
  Common Stocks          
             
  Financials—40.5%          
  Acadia Realty Trust   266,530   $8,835 
  American Assets Trust, Inc.   191,990    7,363 
  American Campus Communities, Inc.   195,435    8,079 
  Bank of the Ozarks, Inc.   129,975    6,429 
  Berkshire Hills Bancorp, Inc.   188,230    5,479 
  Boston Private Financial Holdings, Inc.   308,290    3,496 
* Cascade Bancorp   726,305    4,409 
  CNO Financial Group, Inc.   489,530    9,345 
  CoBiz Financial, Inc.   602,029    8,079 
  Douglas Emmett, Inc.   271,750    8,473 
* Eagle Bancorp, Inc.   156,225    7,885 
  EastGroup Properties, Inc.   88,844    4,941 
  Education Realty Trust, Inc.   215,541    8,165 
  EPR Properties   124,235    7,262 
* Equity Commonwealth   115,885    3,213 
  First American Financial Corporation   195,955    7,035 
  FirstMerit Corporation   313,825    5,853 
* Forest City Enterprises, Inc.   251,395    5,513 
  Glacier Bancorp, Inc.   312,780    8,298 
  Hanover Insurance Group, Inc.   99,490    8,093 
  Highwoods Properties, Inc.   166,935    7,278 
  Home BancShares, Inc.   165,890    6,722 
  Iberiabank Corporation   125,800    6,928 
  LaSalle Hotel Properties   218,090    5,487 
  National Bank Holdings Corporation   186,250    3,980 
  PacWest Bancorp   196,143    8,454 
  Pebblebrook Hotel Trust   221,429    6,204 
  Prosperity Bancshares, Inc.   119,225    5,706 
  Radian Group, Inc.   493,285    6,605 
  Renasant Corporation   228,635    7,867 
* Safeguard Scientifics, Inc.   298,791    4,335 
  Selective Insurance Group, Inc.   227,275    7,632 
  Sunstone Hotel Investors, Inc.   425,425    5,314 
  Umpqua Holdings Corporation   365,605    5,813 
* Western Alliance Bancorp   208,380    7,473 
  WSFS Financial Corporation   284,490    9,206 
  Yadkin Financial Corporation   275,925    6,945 
           248,194 
  Industrials—12.7%          
  Barnes Group, Inc.   166,880    5,906 
  CIRCOR International, Inc.   106,280    4,480 
  Curtiss-Wright Corporation   95,402    6,535 
  EMCOR Group, Inc.   159,816    7,678 
* FTI Consulting, Inc.   113,065    3,919 
  G&K Services, Inc.   145,951    9,180 
  Interface, Inc.   375,964    7,196 
  Kadant, Inc.   129,018    5,239 
* Lydall, Inc.   134,821    4,783 
  Matson, Inc.   151,900    6,475 
* Northwest Pipe Co.   253,960    2,842 
  Standex International Corporation   71,095    5,912 
  The Toro Co.   103,355    7,552 
           77,697 
  Issuer  Shares   Value 
             
  Common Stocks—(continued)          
             
  Information Technology—10.5%          
* Acxiom Corporation   566,137   $11,844 
  Belden, Inc.   155,345    7,407 
  Booz Allen Hamilton Holding Corporation   219,992    6,787 
* Cadence Design Systems, Inc.   455,600    9,481 
* Inphi Corporation   291,170    7,867 
* Intralinks Holdings, Inc.   512,119    4,645 
  j2 Global, Inc.   116,720    9,608 
  Littelfuse, Inc.   61,784    6,611 
           64,250 
  Consumer Discretionary—9.9%          
  Br