Certified Semi-annual Shareholder Report for Management Investment Companies (n-csrs)

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

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 advisor 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 Ratings ^TM are as of 06/30/2013 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 1,488/1,308/863 large growth funds; Small Cap Growth Fund «« / ««« / ««« , out of 632/558/362 small growth funds; Mid Cap Growth Fund ««« / «««« /NA and Small-Mid Cap Growth Fund «««« / ««««« /NA out of 637/563/NA mid cap growth funds; Global Leaders Fund «««« / «« /NA out of 759/603/NA world stock funds; International Growth Fund ««« / ««« / ««« and International Equity Fund ««« / «« /NA out of 223/183/106 foreign large growth funds; International Small Cap Growth Fund ««« / ««« /NA out of 111/88/NA foreign small/mid growth funds; Emerging Markets Growth Fund «««« / «« /NA and Emerging Markets Leaders Fund ««« /NA/NA, out of 366/269/NA diversified emerging markets funds; Mid Cap Value Fund ««« /NA/NA, out of 369/NA/NA mid-cap value funds; Small Cap Value Fund ««« / «««« / ««« out of 295/254/151 small value funds; Income Fund «««« / «««« / ««« out of 360/322/217 short-term bond funds; Bond Fund «««« / «««« /NA out of 1,005/873/NA intermediate-term bond funds; Low Duration Fund ««« /NA/NA out of 88/NA/NA ultrashort bond funds.

Please carefully consider the Funds’ investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling 1-800-742-7272. Read it carefully before you invest or send money.

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

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

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

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

This report identifies the Fund’s investments on June 30, 2013. 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.

Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Information Technology—33.6%
*	Akamai Technologies, Inc.			204,900				$	8,719
	Apple, Inc.			72,885					28,868
*	Citrix Systems, Inc.			116,400					7,022
*	Cognizant Technology Solutions Corporation			403,400					25,257
*	eBay, Inc.			363,600					18,805
	FactSet Research Systems, Inc.			61,400					6,259
	Genpact, Ltd.†			1,055,305					20,304
*	Google, Inc.			51,405					45,255
	Mastercard, Inc.			64,200					36,883
*	Pandora Media, Inc.			977,183					17,980
	QUALCOMM, Inc.			301,140					18,394
*	RealPage, Inc.			525,275					9,634
*	Red Hat, Inc.			189,006					9,038
*	SolarWinds, Inc.			385,700					14,969
									267,387
	Industrials—17.7%
*	B/E Aerospace, Inc.			137,200					8,655
	Equifax, Inc.			198,400					11,692
	Fastenal Co.			232,458					10,658
*	IHS, Inc.			79,922					8,342
*	Jacobs Engineering Group, Inc.			222,956					12,292
	Precision Castparts Corporation			118,000					26,669
*	Stericycle, Inc.			141,400					15,615
	TransDigm Group, Inc.			77,180					12,099
*	Trimas Corporation			268,022					9,992
	Union Pacific Corporation			159,800					24,654
									140,668
	Health Care—14.2%
	Allergan, Inc.			213,500					17,985
*	Gilead Sciences, Inc.			427,070					21,870
*	Haemonetics Corporation			357,597					14,787
*	HMS Holdings Corporation			432,362					10,074
*	IDEXX Laboratories, Inc.			220,618					19,807
*	NxStage Medical, Inc.			647,761					9,250
	Perrigo Co.			160,400					19,409
									113,182
	Consumer Discretionary—14.2%
*	Amazon.com, Inc.			74,000					20,549
*	Discovery Communications, Inc.			144,800					11,180
	Harley-Davidson, Inc.			265,499					14,555
*	K12, Inc.			164,013					4,309
	Lowe’s Cos., Inc.			247,800					10,135
*	Sally Beauty Holdings, Inc.			358,800					11,159
	Tractor Supply Co.			73,900					8,691
	VF Corporation			93,300					18,012
	Yum! Brands, Inc.			206,700					14,333
									112,923

	Issuer		Shares or Principal Amount				Value
	Common Stocks—(continued)
	Consumer Staples—7.5%
	Costco Wholesale Corporation			283,200				$	31,313
*	Green Mountain Coffee Roasters, Inc.			150,300					11,282
	Mead Johnson Nutrition Co.			219,200					17,367
									59,962
	Financials—4.9%
*	Encore Capital Group, Inc.			354,921					11,752
*	IntercontinentalExchange, Inc.			96,700					17,189
	LPL Financial Holdings, Inc.			266,400					10,059
									39,000
	Energy—3.9%
*	Cameron International Corporation			138,447					8,467
	Schlumberger, Ltd.†			309,500					22,179
									30,646
	Materials—3.0%
	Airgas, Inc.			121,800					11,627
	Ecolab, Inc.			144,720					12,329
									23,956
	Total Common Stocks—99.0% (cost $608,829)								787,724
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $5,550, collateralized by U.S. Treasury Note, 0.750%, due 10/31/2017 .			$5,550					5,550
	Total Repurchase Agreement—0.7% (cost $5,550)								5,550
	Total Investments—99.7% (cost $614,379)								793,274
	Cash and other assets, less liabilities—0.3%								2,293
	Net assets—100.0%							$	795,567

 

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

8

Semi-Annual Report

June 30, 2013

	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 9.34% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 1000 ® Growth Index (the “Index”), increased 11.80%.   Market Review   Solid economic and corporate performance provided an upward bias to the market in the first half of the year. Continued improvement in economic data, especially in housing and also employment data, pushed stocks to their 2013 highs through May. In June, the market witnessed its only, albeit minor, hiccup of the year as the Federal Reserve signaled an eventual slowdown in monetary easing (dubbed as the Federal Reserve’s “tapering”). The uncertainty sparked a rapid increase in long-term interest rates from historically low levels, pressuring the fixed income market. Stocks experienced a short-lived correction on worries less quantitative easing may become a drag on the economy and investor psychology. However, the period ended on a positive note, in part as investors realized the Federal Reserve would only taper to the extent the economy stayed on a sustainable path to recovery.   Portfolio Results   The Fund’s underperformance relative to the Index in the first half of the year is attributable to style headwinds and stock selection. Investors’ gravitation to cheaper stocks (as defined by several valuation measures including price-to-earnings ratio), to which the Fund is underweight, served as a style headwind given the Fund’s typical underweight to this segment of the market. It is worth noting that this dynamic reversed late in the period (along with the Fund’s relative performance) as interest rates increased, seemingly reducing demand for the cheaper, higher dividend yielding stocks the market desired in the historically low interest rate environment. Stock selection in Information Technology was the largest source of underperformance. Cognizant Technology Solutions and Apple Inc. were the primary detractors in the sector. Allergan within Health Care was another meaningful detractor from return. On the upside, Green Mountain Coffee Roasters (Consumer Staples) and Financials stock selection (JPMorgan Chase and Affiliated Managers Group) helped the Fund partially keep pace with the market.   Outlook   Looking forward, the importance of central bank policy over the past few years brings plans for future policy into the forefront. The “tapering” of quantitative easing by the Federal Reserve (i.e., the slowing of its bond buying program) and China’s ability to execute a soft landing for its decelerating economy will be closely watched by the marketplace for their impacts on economic growth, global capital flows, and investor psychology. In addition, a potential change in leadership at the Federal Reserve as well as fiscal debate in Washington D.C. regarding the debt ceiling could negatively impact investor psychology. However, we believe that U.S. corporate performance remains solid and that U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and growth as well.   In the end, while we factor various economic scenarios into our stock picking, we focus our time on constructing the Fund from a bottom-up perspective. We continue to find good ideas across sectors, and are confident the Fund consists of well-managed companies with solid competitive positions whose stocks are at attractive valuations compared to the expected growth and consistency of their business.

 

June 30, 2013

William Blair Funds

9

Large Cap Growth Fund

 

Performance Highlights (Unaudited)

 

Average Annual Total Return at 6/30/2013

		Year to Date				1 Year				3 Year				5 Year				10 Year
Class N			9.34	%			15.43	%			16.42	%			5.28	%			5.44	%
Class I			9.46				15.70				16.76				5.56				5.69
Russell 1000 ® Growth Index			11.80				17.07				18.68				7.47				7.40

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 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 June 30, 2013. 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.

 

10

Semi-Annual Report

June 30, 2013

Large Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Information Technology—27.3%
	Apple, Inc.			2,605				$	1,032
*	Citrix Systems, Inc.			16,440					992
*	Cognizant Technology Solutions Corporation			19,200					1,202
*	eBay, Inc.			8,360					432
*	Google, Inc.			2,298					2,023
	Mastercard, Inc.			2,135					1,227
	QUALCOMM, Inc.			10,395					635
*	Red Hat, Inc.			11,040					528
*	Trimble Navigation, Ltd.			26,850					698
									8,769
	Consumer Discretionary—17.5%
*	Amazon.com, Inc.			1,540					428
*	Discovery Communications, Inc.			6,280					485
*	Dollar General Corporation			18,700					943
	Harley-Davidson, Inc.			15,130					829
*	O’Reilly Automotive, Inc.			8,440					950
*	priceline.com, Inc.			651					538
	Starbucks Corporation			21,920					1,436
									5,609
	Industrials—13.6%
	Equifax, Inc.			9,330					550
	Precision Castparts Corporation			6,040					1,365
*	Stericycle, Inc.			7,590					838
	The Boeing Co.			3,170					325
	Union Pacific Corporation			8,410					1,297
									4,375
	Financials—11.2%
*	Affiliated Managers Group, Inc.			5,350					877
	Citigroup, Inc.			21,120					1,013
	JPMorgan Chase & Co.			23,630					1,248
	T Rowe Price Group, Inc.			6,440					471
									3,609
	Health Care—9.7%
	Allergan, Inc.			6,925					583
*	Gilead Sciences, Inc.			22,630					1,159
*	IDEXX Laboratories, Inc.			11,820					1,061
	Perrigo Co.			2,650					321
									3,124
	Consumer Staples—7.7%
	Colgate-Palmolive Co.			12,270					703
*	Green Mountain Coffee Roasters, Inc.			12,870					966
	Mead Johnson Nutrition Co.			10,260					813
									2,482

	Issuer		Shares or Principal Amount				Value
	Common Stocks—(continued)
	Materials—5.2%
	Monsanto Co.			11,270				$	1,114
	Praxair, Inc.			4,795					552
									1,666
	Energy—4.5%
	Noble Energy, Inc.			11,420					686
	Schlumberger, Ltd.†			10,680					765
									1,451
	Telecommunication Services—2.0%
*	SBA Communications Corporation			8,500					630
	Total Common Stocks—98.7% (cost $24,741)								31,715
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $395, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17		$	395					395
	Total Repurchase Agreement—1.2% (cost $395)								395
	Total Investments—99.9% (cost $25,136)								32,110
	Cash and other assets, less liabilities—0.1%								33
	Net assets—100.0%							$	32,143

 

 

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

11

	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	The William Blair Mid Cap Growth Fund (Class N shares) posted a 12.49% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell Midcap ® Growth Index (the “Index”), increased 14.70%.   Market Review   Solid economic and corporate performance provided an upward bias to the market in the first half of the year. Continued improvement in economic data, especially in housing and also employment data, pushed stocks to their 2013 highs through May. In June, the market witnessed its only, albeit minor, hiccup of the year as the Federal Reserve signaled an eventual slowdown in monetary easing (dubbed as the Federal Reserve’s “tapering”). The uncertainty sparked a rapid increase in long-term interest rates from historically low levels, pressuring the fixed income market. Stocks experienced a short-lived correction on worries less quantitative easing may become a drag on the economy and investor psychology. However, the period ended on a positive note, in part as investors realized the Federal Reserve would only taper to the extent the economy stayed on a sustainable path to recovery.   Portfolio Results   The Fund’s underperformance relative to the Index in the first half of the year is attributable to style headwinds and stock selection. Our more conservative investment style detracted in the period’s rapid ascent, as did investors’ gravitation to cheaper stocks (as defined by several valuation measures including price-to-earnings ratio) to which the Fund is underweight. Stock picks such as HMS Holdings (Health Care), SolarWinds (Information Technology), and Citrix Systems (Information Technology) were the largest detractors from return. In each case, we have maintained or added to each of those positions. On the upside, Green Mountain Coffee Roasters (Consumer Staples), LPL Financial Holdings (Financials), and HealthSouth (Health Care) helped the Fund partially keep pace with the market.   Outlook   Looking forward, the importance of central bank policy over the past few years brings plans for future policy into the forefront. The “tapering” of quantitative easing by the Federal Reserve (i.e., the slowing of its bond buying program) and China’s ability to execute a soft landing for its decelerating economy will be closely watched by the marketplace for their impacts on economic growth, global capital flows, and investor psychology. In addition, a potential change in leadership at the Federal Reserve as well as fiscal debate in Washington D.C. regarding the debt ceiling could negatively impact investor psychology. However, we believe that U.S. corporate performance remains solid and that U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and growth as well.   In the end, while we factor various economic scenarios into our stock picking, we focus our time on constructing the Fund from a bottom-up perspective. We continue to find good ideas across sectors, and are confident the Fund consists of well-managed companies with solid competitive positions whose stocks are at attractive valuations compared to the expected growth and consistency of their business.

 

12

Semi-Annual Report

June 30, 2013

Mid Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Class N			12.49	%			16.56	%			17.31	%			8.59	%			7.20	%
Class I			12.63				16.88				17.62				8.88				7.50
Russell Midcap ® Growth Index			14.70				22.88				19.53				7.61				6.20

 

(a)	For the period from February 1, 2006 (Commencement of Operations) to June 30, 2013.

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 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 June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

13

Mid Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Information Technology—21.0%
*	Akamai Technologies, Inc.			113,900				$	4,846
	Amphenol Corporation			121,500					9,470
*	Citrix Systems, Inc.			197,000					11,885
*	CoStar Group, Inc.			62,277					8,038
	FactSet Research Systems, Inc.			61,900					6,310
*	Gartner, Inc.			40,800					2,325
	Genpact, Ltd.†			589,512					11,342
*	Guidewire Software, Inc.			132,200					5,559
*	Pandora Media, Inc.			355,900					6,549
*	RealPage, Inc.			105,600					1,937
*	Red Hat, Inc.			50,200					2,401
*	SolarWinds, Inc.			303,800					11,790
*	Trimble Navigation, Ltd.			347,608					9,041
*	VeriSign, Inc.			146,900					6,561
									98,054
	Consumer Discretionary—19.7%
*	Bed Bath & Beyond, Inc.			138,060					9,788
*	Chipotle Mexican Grill, Inc.			14,890					5,425
	Dick’s Sporting Goods, Inc.			323,929					16,216
*	Dollar General Corporation			214,805					10,833
*	Fossil Group, Inc.			64,600					6,674
	Harley-Davidson, Inc.			170,700					9,358
	Harman International Industries, Inc.			65,506					3,550
*	Lululemon Athletica, Inc.			103,400					6,775
*	O’Reilly Automotive, Inc.			117,080					13,185
*	Select Comfort Corporation			393,195					9,853
									91,657
	Industrials—18.6%
	AMETEK, Inc.			226,400					9,577
*	B/E Aerospace, Inc.			89,800					5,665
*	Clean Harbors, Inc.			191,400					9,671
	Equifax, Inc.			152,700					8,999
	Fastenal Co.			69,962					3,208
	Graco, Inc.			122,300					7,731
	J.B. Hunt Transport Services, Inc.			121,400					8,770
*	Jacobs Engineering Group, Inc.			170,600					9,405
*	Stericycle, Inc.			125,330					13,840
	TransDigm Group, Inc.			61,750					9,680
									86,546
	Health Care—13.0%
*	BioMarin Pharmaceutical, Inc.			78,200					4,363
*	HealthSouth Corporation			334,624					9,637
*	HMS Holdings Corporation			550,974					12,838
*	IDEXX Laboratories, Inc.			182,472					16,382
*	Mettler-Toledo International, Inc.			11,700					2,354
	Perrigo Co.			88,400					10,696
*	Sirona Dental Systems, Inc.			68,700					4,526
									60,796

			Shares or
			Principal
	Issuer		Amount				Value
	Common Stocks—(continued)
	Financials—10.4%
*	Affiliated Managers Group, Inc.			65,575				$	10,751
	First Republic Bank			186,000					7,157
	LPL Financial Holdings, Inc.			251,063					9,480
*	Signature Bank			169,300					14,055
	T Rowe Price Group, Inc.			97,000					7,096
									48,539
	Consumer Staples—5.8%
*	Green Mountain Coffee Roasters, Inc.			135,346					10,159
	McCormick & Co., Inc.			70,500					4,960
	Mead Johnson Nutrition Co.			148,600					11,774
									26,893
	Energy—5.1%
*	FMC Technologies, Inc.			124,300					6,921
	Helmerich & Payne, Inc.			117,627					7,346
	Oceaneering International, Inc.			31,500					2,274
	Range Resources Corporation			90,400					6,990
									23,531
	Materials—2.9%
	Airgas, Inc.			95,917					9,156
	Cytec Industries, Inc.			58,800					4,307
									13,463
	Telecommunication Services—1.0%
*	SBA Communications Corporation			62,500					4,633
	Total Common Stocks—97.5% (cost $399,581)								454,112
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $10,738, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17		$	10,738					10,738
	Total Repurchase Agreement—2.3% (cost $10,738)								10,738
	Total Investments—99.8% (cost $410,319)								464,850
	Cash and other assets, less liabilities—0.2%								1,039
	Net assets—100.0%							$	465,889

 

 

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

14

Semi-Annual Report

June 30, 2013

 

	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     Matthew A. Litfin	The Small-Mid Cap Growth Fund (Class N shares) posted a 19.07% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 2500 TM Growth Index (the “Index”), increased 15.82%.   Market Review   Solid economic and corporate performance provided an upward bias to the market in the first half of the year. Continued improvement in economic data, especially in housing and also employment data, pushed stocks to their 2013 highs through May. In June, the market witnessed its only, albeit minor, hiccup of the year as the Federal Reserve signaled an eventual slowdown in monetary easing (dubbed as the Federal Reserve’s “tapering”). The uncertainty sparked a rapid increase in long-term interest rates from historically low levels, pressuring the fixed income market. Stocks experienced a short-lived correction on worries less quantitative easing may become a drag on the economy and investor psychology. However, the period ended on a positive note, in part as investors realized the Federal Reserve would only taper to the extent the economy stayed on a sustainable path to recovery.   Portfolio Results   The Fund’s outperformance relative to the Index in the first half of the year is attributable to strong stock selection. Pandora Media (Information Technology) and Green Mountain Coffee Roasters (Consumer Staples) were the two largest contributors to return from a single stock perspective. Industrials stock selection (e.g., ICF International) and Financials stock selection (e.g., Portfolio Recovery Associates) were the largest sources of outperformance by sector. On the downside, while Information Technology as a whole was neutral to relative performance, the Fund’s top four detractors were Information Technology holdings: Real Page, Aruba Networks, Xoom Corp, and SolarWinds.   Outlook   Looking forward, the importance of central bank policy over the past few years brings plans for future policy into the forefront. The “tapering” of quantitative easing by the Federal Reserve (i.e., the slowing of its bond buying program) and China’s ability to execute a soft landing for its decelerating economy will be closely watched by the marketplace for their impacts on economic growth, global capital flows, and investor psychology. In addition, a potential change in leadership at the Federal Reserve as well as fiscal debate in Washington D.C. regarding the debt ceiling could negatively impact investor psychology. However, we believe that U.S. corporate performance remains solid and that U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and growth as well.   In the end, while we factor various economic scenarios into our stock picking, we focus our time on constructing the Fund from a bottom-up perspective. We continue to find good ideas across sectors, and are confident the Fund consists of well-managed companies with solid competitive positions whose stocks are at attractive valuations compared to the expected growth and consistency of their business.

 

June 30, 2013

William Blair Funds

15

Small-Mid Cap Growth Fund

 

Performance Highlights (Unaudited)

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Class N			19.07	%			27.23	%			19.05	%			10.82	%			8.93	%
Class I			19.24				27.48				19.32				11.10				9.20
Russell 2500 TM Growth Index			15.82				24.03				20.22				8.94				8.35

 

(a)	For the period from December 29, 2003 (Commencement of Operations) to June 30, 2013.

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 2500 ^TM 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 June 30, 2013. 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.

 

16

Semi-Annual Report

June 30, 2013

Small-Mid Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Industrials—22.4%
*	B/E Aerospace, Inc.			197,853				$	12,481
	Fortune Brands Home & Security, Inc.			146,500					5,675
	Graco, Inc.			77,500					4,899
	Healthcare Services Group, Inc.			246,832					6,052
*	Huron Consulting Group, Inc.			109,085					5,044
*	ICF International, Inc.			263,525					8,304
	Manpowergroup, Inc.			107,150					5,872
*	Old Dominion Freight Line, Inc.			191,200					7,958
*	Pandora Media, Inc.			555,902					10,229
	Robert Half International, Inc.			219,100					7,281
*	Standard Parking Corporation			176,418					3,786
*	Stericycle, Inc.			153,870					16,992
	The Corporate Executive Board Co.			126,135					7,974
	TransDigm Group, Inc.			10,175					1,595
*	Trimas Corporation			214,740					8,005
									112,147
	Health Care—19.4%
*	ABIOMED, Inc.			244,938					5,281
*	Align Technology, Inc.			176,003					6,519
*	BioMarin Pharmaceutical, Inc.			139,500					7,783
*	Brookdale Senior Living, Inc.			121,876					3,222
*	Catamaran Corporation†			171,132					8,338
*	Haemonetics Corporation			124,100					5,131
*	HealthSouth Corporation			230,584					6,641
*	HMS Holdings Corporation			236,461					5,510
*	Hologic, Inc.			353,700					6,826
*	IDEXX Laboratories, Inc.			83,300					7,479
*	Mettler-Toledo International, Inc.			22,400					4,507
*	Myriad Genetics, Inc.			70,000					1,881
	Perrigo Co.			92,900					11,241
*	Sirona Dental Systems, Inc.			103,483					6,817
*	Team Health Holdings, Inc.			235,811					9,685
									96,861
	Consumer Discretionary—15.7%
	Dick’s Sporting Goods, Inc.			254,390					12,735
*	Fossil Group, Inc.			49,000					5,062
*	Grand Canyon Education, Inc.			219,100					7,061
*	Jarden Corporation			117,350					5,134
*	K12, Inc.			179,814					4,724
*	LKQ Corporation			242,100					6,234
*	Panera Bread Co.			26,000					4,834
	Polaris Industries, Inc.			54,600					5,187
*	Sally Beauty Holdings, Inc.			268,300					8,344
	Six Flags Entertainment Corporation			104,600					3,678
	Tractor Supply Co.			64,800					7,621
*	Under Armour, Inc.			125,520					7,495
									78,109
	Information Technology—16.6%
*	Akamai Technologies, Inc.			124,900					5,314
*	ANSYS, Inc.			50,500					3,692
*	Aruba Networks, Inc.			252,100					3,872
*	CoStar Group, Inc.			47,910					6,184
*	Envestnet, Inc.			179,483					4,415
	FactSet Research Systems, Inc.			50,900					5,189
*	Gartner, Inc.			146,100					8,326
	Genpact, Ltd.†			373,900					7,194
*	Guidewire Software, Inc.			133,100					5,597

	Issuer		Shares or Principal Amount				Value
	Common Stocks—(continued)
	Information Technology—(continued)
	j2 Global, Inc.			101,700				$	4,323
*	Liquidity Services, Inc.			152,720					5,295
*	RealPage, Inc.			317,860					5,830
*	SolarWinds, Inc.			108,500					4,211
*	Ultimate Software Group, Inc.			21,825					2,560
*	WEX, Inc.			76,900					5,898
*	WNS Holdings, Ltd.—ADR			305,065					5,091
									82,991
	Financials—11.4%
*	Affiliated Managers Group, Inc.			76,109					12,477
	CBOE Holdings, Inc.			160,600					7,490
*	Encore Capital Group, Inc.			120,000					3,973
*	First Cash Financial Services, Inc.			112,443					5,533
	First Republic Bank			97,600					3,756
	FirstService Corporation†			120,041					3,755
	Jones Lang LaSalle, Inc.			83,900					7,647
*	Portfolio Recovery Associates, Inc.			79,200					12,168
									56,799
	Energy—5.2%
	Core Laboratories N.V.†			41,400					6,279
	Helmerich & Payne, Inc.			92,900					5,802
*	KiOR, Inc.			282,897					1,615
*	Oasis Petroleum, Inc.			127,800					4,968
	Oceaneering International, Inc.			104,200					7,523
									26,187
	Materials—3.1%
	Celanese Corporation			125,100					5,605
	Cytec Industries, Inc.			55,200					4,043
	Rockwood Holdings, Inc.			92,900					5,948
									15,596
	Consumer Staples—2.3%
*	Green Mountain Coffee Roasters, Inc.			90,623					6,802
	Nu Skin Enterprises, Inc.			75,100					4,590
									11,392
	Telecommunication Services—1.9%
*	SBA Communications Corporation			129,900					9,628
	Total Common Stocks—98.0% (cost $388,649)								489,710
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13 repurchase price $9,541, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17		$	9,540				$	9,540
	Total Repurchase Agreement—1.9% (cost $9,540)								9,540
	Total Investments—99.9% (cost $398,189)								499,250
	Cash and other assets, less liabilities—0.1%								614
	Net assets—100.0%							$	499,864

 

 

 

ADR = American Depository Receipt
* Non-income producing securities
† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

17

	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 Small Cap Growth Fund (Class N shares) posted a 23.65% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 2000 ® Growth Index (the “Index”), increased 17.44%.   Market Review   Solid economic and corporate performance provided an upward bias to the market in the first half of the year. Continued improvement in economic data, especially in housing and also employment data, pushed stocks to their 2013 highs through May. In June, the market witnessed its only, albeit minor, hiccup of the year as the Federal Reserve signaled an eventual slowdown in monetary easing (dubbed as the Federal Reserve’s “tapering”). The uncertainty sparked a rapid increase in long-term interest rates from historically low levels, pressuring the fixed income market. Stocks experienced a short-lived correction on worries less quantitative easing may become a drag on the economy and investor psychology. However, the period ended on a positive note, in part as investors realized the Federal Reserve would only taper to the extent the economy stayed on a sustainable path to recovery.   Portfolio Results   The Fund’s outperformance relative to the Index in the first half of the year is attributable to strong stock selection and a modest benefit from the Fund’s smaller-than-benchmark weighted average market capitalization. We witnessed strong stock selection across all sectors during the period. Pandora Media (Information Technology), National Financial Partners (Financials), Nu Skin Enterprises (Consumer Staples), and WNS Holdings (Information Technology) were the largest contributors to relative return. While Information Technology as a sector contributed positively to relative performance, three of our top detractors were holdings in the sector: Liquidity Services, OSI Systems, and Real Page. Stillwater Mining (Materials) was another top detractor.   Outlook   Looking forward, the importance of central bank policy over the past few years brings plans for future policy into the forefront. The “tapering” of quantitative easing by the Federal Reserve (i.e., the slowing of its bond buying program) and China’s ability to execute a soft landing for its decelerating economy will be closely watched by the marketplace for its impact on economic growth, global capital flows, and investor psychology. A potential change in leadership at the Federal Reserve could negatively impact investor psychology. However, we believe that U.S. corporate performance remains solid and that U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and growth as well.   In the end, while we factor various economic scenarios into our stock picking, we focus our time on constructing the Fund from a bottom-up perspective. We continue to find good ideas across sectors, and are confident the Fund consists of well-managed companies with solid competitive positions whose stocks are at attractive valuations compared to the expected growth and consistency of their business.

 

18

Semi-Annual Report

June 30, 2013

Small Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				10 Year
Class N			23.65	%			33.79	%			15.15	%			9.65	%			9.45	%
Class I			23.84				34.15				15.47				9.96				9.75
Russell 2000 ® Growth Index			17.44				23.67				19.97				8.89				9.62

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

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

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

19

Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Information Technology—25.4%
*	Audience, Inc.			544,922				$	7,198
*	Cardtronics, Inc.			211,844					5,847
*	CoStar Group, Inc.			73,470					9,483
*	Envestnet, Inc.			210,806					5,186
*	Exar Corporation			741,344					7,984
*	ExlService Holdings, Inc.			168,570					4,983
*	Inphi Corporation			536,971					5,907
*	Inuvo, Inc.			1,886,947					1,509
	j2 Global, Inc.			150,990					6,419
*	Liquidity Services, Inc.			197,070					6,832
	Monolithic Power Systems, Inc.			216,120					5,211
*	Pandora Media, Inc.			767,688					14,125
*	RealPage, Inc.			239,180					4,386
*	ServiceSource International, Inc.			453,880					4,230
*	SolarWinds, Inc.			124,400					4,828
*	Tangoe, Inc.			542,690					8,374
*	TeleTech Holdings, Inc.			178,940					4,193
*	Ultimate Software Group, Inc.			21,252					2,493
*	WEX, Inc.			66,931					5,134
*	WNS Holdings, Ltd.—ADR			591,999					9,880
									124,202
	Industrials—20.5%
	Acorn Energy, Inc.			456,126					3,850
*	Ameresco, Inc.			272,673					2,457
*	Astronics Corporation			128,900					5,268
	Barrett Business Services, Inc.			108,376					5,658
*	CAI International, Inc.			282,177					6,651
*	Clean Harbors, Inc.			103,890					5,249
*	DigitalGlobe, Inc.			159,720					4,953
*	Franklin Covey Co.			636,031					8,561
*	Furmanite Corporation			749,026					5,011
	Healthcare Services Group, Inc.			275,708					6,760
*	Heritage-Crystal Clean, Inc.			184,994					2,703
*	Hudson Technologies, Inc.			677,684					2,162
*	Huron Consulting Group, Inc.			107,937					4,991
*	ICF International, Inc.			211,414					6,662
*	Old Dominion Freight Line, Inc.			102,090					4,249
*	On Assignment, Inc.			201,335					5,380
*	Trimas Corporation			324,835					12,110
	US Ecology, Inc.			272,169					7,468
									100,143
	Health Care—16.8%
*	ABIOMED, Inc.			169,360					3,651
	Air Methods Corporation			130,706					4,428
*	Cyberonics, Inc.			95,780					4,977
*	ExamWorks Group, Inc.			508,141					10,788
*	Globus Medical, Inc.			389,200					6,562
*	Haemonetics Corporation			173,912					7,191
*	HealthSouth Corporation			223,105					6,425

	Issuer		Shares				Value
	Common Stocks—(continued)
	Health Care—(continued)
*	HMS Holdings Corporation			144,236				$	3,361
*	Nanosphere, Inc.			1,139,618					3,498
*	Novadaq Technologies, Inc.†			405,111					5,453
*	NxStage Medical, Inc.			508,822					7,266
*	Quidel Corporation			185,379					4,733
*	Spectranetics Corporation			389,877					7,283
	Trinity Biotech plc—ADR			360,334					6,072
									81,688
	Financials—13.5%
*	Cowen Group, Inc.			2,475,086					7,178
*	Encore Capital Group, Inc.			304,354					10,077
*	First Cash Financial Services, Inc.			207,102					10,192
	FirstService Corporation†			147,838					4,624
	FXCM, Inc.			344,130					5,647
	GFI Group, Inc.			1,682,831					6,580
*	ICG Group, Inc.			519,881					5,927
	Jones Lang LaSalle, Inc.			70,134					6,392
	Manning & Napier, Inc.			229,182					4,070
	Marlin Business Services Corporation			232,681					5,300
									65,987
	Consumer Discretionary—8.5%
	Dorman Products, Inc.			102,161					4,661
*	Gentherm, Inc.			605,314					11,241
*	K12, Inc.			209,672					5,508
	MDC Partners, Inc.†			251,432					4,536
*	SHFL Entertainment, Inc.			372,543					6,598
	Six Flags Entertainment Corporation			191,602					6,737
*	U.S. Auto Parts Network, Inc.			1,985,154					2,283
									41,564
	Materials—5.3%
	Compass Minerals International, Inc.			57,240					4,838
	Cytec Industries, Inc.			34,710					2,543
	HB Fuller Co.			118,770					4,491
*	Horsehead Holding Corporation			551,481					7,064
*	Stillwater Mining Co.			636,486					6,836
									25,772
	Energy—5.2%
*	Atwood Oceanics, Inc.			96,232					5,009
*	Dril-Quip, Inc.			32,006					2,890
	Gulfmark Offshore, Inc.			80,450					3,627
*	Hornbeck Offshore Services, Inc.			78,159					4,181
*	Oasis Petroleum, Inc.			135,890					5,282
*	PDC Energy, Inc.			71,598					3,686
									24,675
	Consumer Staples—2.5%
	Nu Skin Enterprises, Inc.			194,713					11,901
	Total Common Stocks—97.6% (cost $396,167)								476,391

 

See accompanying Notes to Financial Statements.

 

20

Semi-Annual Report

June 30, 2013

Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $8,418, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$8,418				$	8,418
	Total Repurchase Agreement—1.7% (cost $8,418)								8,418
	Total Investments—99.3% (cost $404,585)								484,809
	Cash and other assets, less liabilities—0.7%								3,611
	Net assets—100.0%							$	488,420

 

 

 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

 

If the 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. The Small Cap Growth Fund had the following transactions during the period ended June 30, 2013 with companies deemed affiliated during the period or at June 30, 2013.

 

			Share Activity								Period Ended June 30, 2013
											(in thousands)
	Security Name		Balance 12/31/2012		Purchases		Sales		Balance 6/30/2013		Value			Dividends Included in Income
π	Inuvo, Inc.		1,886,947		—		—		1,886,947		$	1,509		—
π	U.S. Auto Parts Network, Inc.		1,091,812		893,342		—		1,985,154			2,283		—
											$	3,792		—

 

π	Affiliated company at June 30, 2013. The Small Cap Growth Fund’s total value in companies deemed to be affiliated at June 30, 2013 was $ 3,792 (in thousands).

 

Affiliated companies accounted for $(934) of change in net unrealized appreciation on investments during the period.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

21

	GLOBAL MARKETS OVERVIEW FUND
	Market Summary & Outlook
	The global equity market rallied early in 2013, led by Japan on expectations of pro-growth fiscal and monetary policies. The United States also rose on solid economic data and the sequester non-event, while the USD rallied against most major currencies. In addition, corporate earnings results were generally better than expected, boosting the equity market, along with positive fund flows into equities as investors rotated out of fixed income and cash. This rally faltered in the second quarter as investors viewed Japanese Prime Minister Abe’s announced “third arrow” growth measures as underwhelming, and as Fed Chairman Ben Bernanke announced the Fed would begin tapering its bond purchases in 2014, leading to increased bond yields globally and a strengthening U.S. Dollar (USD). While 10 Year U.S. Treasury yields increased nearly 100 basis points, the impact of changing Fed policy was also felt heavily in emerging markets (EM), as bond yields increased and as investors, who searched for yield in a low yielding post Global Financial Crisis environment, began withdrawing from the bond markets, with equity outflows accelerating as well. In addition, as the carry trade began to unwind, the USD accelerated versus EM currencies, with commodity-exporting and current account deficit countries bearing the brunt of the currency decline. The market’s consternation increased when SHIBOR (the Chinese interbank lending rate) spiked to over 13% in mid-late June, raising concerns about Chinese banking system stability. While the Peoples Bank of China eventually made statements to assuage investor concerns about banking system liquidity, investors began to reduce their growth expectations for China as it appeared that the new government was willing to sacrifice some short term growth in order to implement longer term structural changes.   Within this environment, the global equity market fell 0.47% during the second quarter as represented by the MSCI All Country World IMI Index (net), but rose 6.40% year to date, led by the U.S., which was up 2.59% and 13.67%, respectively. Year to date, Japan was up approximately 16% (33% in local terms), while Europe rose 3.52%, led by Switzerland, Ireland, and core Europe. Conversely, Pacific ex-Japan fell 5.38%, led on the downside by Australia, as its currency weakened significantly and as commodity prices eased. Emerging markets fell sharply during the period, down approximately 8.89% year to date, as represented by the MSCI Emerging Markets IMI Index (net). As a result, emerging markets underperformed developed markets by approximately 17.5% year to date in USD terms, the most underperformance in six months since the late 1990s Asian Financial Crisis.Year to date Latin America fell 15.07%, led on the downside by Brazil, which more than offset relative strength in Mexico, which was bolstered by improving economic activity in the U.S. EM Asia fell 5.70% year to date, as China fell 9.53%, on concerns about slowing growth and financial system stability. This decline was somewhat offset by Indonesia’s 7% rally year to date, along with a 2.3% return in Taiwan. EMEA (Emerging Europe, Mid-East, Africa) fell approximately 13% year to date, as weakness in Russia and South Africa (commodity exporters) and Turkey (demonstrations) more than offset positive Hungary and Israeli markets.   Year to date, the MSCI World Small Cap Index (net) rose 10.42%, ahead of the 8.43% MSCI World Index (net) return, due to significant outperformance of U.K. and U.S. small cap stocks during the period. Within emerging markets EM small cap stocks outpaced their larger cap counterparts by nearly 6%, on stronger returns in Asia, particularly China and the ASEAN countries. From a sector perspective Healthcare was the strongest sector globally, up approximately 17%, due largely to Biotech and Life Sciences strength, followed by Discretionary, which rallied 14.84%. The Resources sectors were the laggards year to date, with Materials down 13.88%, driven on the downside by Metals/Mining, which was down over 30% on concerns about EM prospective demand. Energy was largely flat during the period as underperformance in Oil/Gas was largely mitigated by positive returns in Services. From a style perspective, companies with strong earnings trends and price momentum performed well globally, with particular strength outside the U.S., while high quality companies did well in emerging markets.

 

22

Semi-Annual Report

June 30, 2013

	GLOBAL LEADERS FUND
	The Global Leaders Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
W. George Greig       Kenneth J. McAtamney       David C. Fording	The William Blair Global Leaders Fund (Class N shares) posted a 4.65% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI All Country World IMI Index (net) (the “Index”), increased 6.40%.   Despite its second quarter outperformance, the Fund’s underperfomance against the Index year to date was driven by underperformance in Information Technology (“IT”) and Telecom Services. IT stock selection was hampered by underperformance by Samsung on concerns of declining margins and Solarwinds on negative sentiment following the price paid for its recent announced acquisition. Accenture and SAP also detracted from performance as Accenture warned on near term revenue growth, while SAP missed expectations on lower revenue growth than expected. The Fund’s sole Telecom Services holding, China Mobile, also detracted from results both on negative China sentiment more broadly, but also on concerns about the cost of building the new LTE network and potential earnings impact. Offsetting these negatives was strong Financials and Industrials stock selection, coupled with overall sector positioning. Japanese and U.S. Financials boosted overall sector performance, while Industrials performance was augmented by good operating performance by Rolls-Royce, low cost airline Easyjet and Fortune Brands Home & Security.   The United States continues to be the developed economy demonstrating the strongest economic resilience, and we are especially encouraged by the data from the housing market leading to positive implications for labor and overall consumer spending. At the same time, input costs remain subdued in the form of both low/stable wages and lower energy prices. This is bolstering domestic manufacturing activity. Despite the market’s consternation about the Federal Reserve tapering the bond purchasing program, leading to an interest rate tightening cycle, we believe the U.S. economy’s underlying strength without material attendant inflation can remain in an enviable range for economic growth and equities. Year to date the biggest change to Fund positioning was a 5% increase in U.S. holdings. We continue to find the prospects for a resurgent Japan promising. Though evidence of Prime Minister Abe’s “third arrow” of corporate reform remains anecdotal, we are focusing our research on those companies that have demonstrated high or improving returns, growth potential, and shareholder orientation on par with leading companies globally. While we remain modestly underweighted in Japan, we increased its weighting and are evaluating several potential additions to the Fund. We also increased Industrials to approximately 20% of the Fund, well ahead of the 11.4% Index weighting, due to additions in the U.S., U.K., and Japan, which more than offset a reduction in Europe Ex-U.K. Sources of funds for these additions included emerging markets, which decreased to approximately 8.4% as of June 30, along with Resources and Telecom Services. As of June 30, the largest sector overweightings were Consumer Discretionary, Industrials, and IT at the expense of Resources and Staples.

 

June 30, 2013

William Blair Funds

23

Global Leaders Fund

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception
Class N(a)			4.65	%			12.93	%			14.83	%			1.89	%			0.02	%
Class I(a)			4.65				13.17				15.06				2.11				0.28
MSCI ACW IMI (net)(a)			6.40				17.08				12.60				2.79				(0.35	)
Institutional Class(b)			4.75				—				—				—				4.42
MSCI ACW IMI (net)(b)			6.40				—				—				—				6.04

 

(a)	Since inception is for the period from October 15, 2007 (Commencement of Operations) to June 30, 2013.
(b)	Since inception is for the period from December 19, 2012 (Commencement of Operations) to June 30, 2013.

 

 

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. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution fees (12b-1). Institutional Class Shares are available to institutional investors without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Investable Market Index (IMI) (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market of developed and emerging markets. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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

Semi-Annual Report

June 30, 2013

Global Leaders Fund

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Western Hemisphere—48.3%
	Canada—1.4%
	Brookfield Asset Management, Inc. Class “A” (Real estate management & development)†			49,713				$	1,791
	United States—46.9%
*	Affiliated Managers Group, Inc. (Capital markets)			11,281					1,849
	American Express Co. (Consumer finance)			36,685					2,743
*	Citrix Systems, Inc. (Software)			22,775					1,374
	Colgate-Palmolive Co. (Household products)			22,682					1,299
	Costco Wholesale Corporation (Food & staples retailing)			20,638					2,282
	Covidien plc (Health care equipment & supplies)†			31,771					1,997
*	Discovery Communications, Inc. (Media)			29,898					2,308
*	Express Scripts Holding Co. (Health care providers & services)			34,491					2,128
	Exxon Mobil Corporation (Oil, gas & consumable fuels)			25,041					2,262
	Fortune Brands Home & Security, Inc. (Building products)			57,795					2,239
*	Green Mountain Coffee Roasters, Inc. (Food products)			20,725					1,556
	Harley-Davidson, Inc. (Automobiles)			39,336					2,156
*	IDEXX Laboratories, Inc. (Health care equipment & supplies)			16,395					1,472
	Invesco, Ltd. (Capital markets)†			55,080					1,752
*	Jacobs Engineering Group, Inc. (Construction & engineering)			32,373					1,785
	Jones Lang LaSalle, Inc. (Real estate management & development)			18,585					1,694
	JPMorgan Chase & Co. (Diversified financial services)			60,574					3,198
	Marriott International, Inc. Class “A” (Hotels, restaurants & leisure)			45,991					1,857
	Mastercard, Inc. (IT services)			4,437					2,549
*	O’Reilly Automotive, Inc. (Specialty retail)			14,280					1,608
*	Old Dominion Freight Line, Inc. (Road & rail)			21,768					906
*	priceline.com, Inc. (Internet & catalog retail)			2,827					2,338
	QUALCOMM, Inc. (Communications equipment)			31,946					1,951
	Schlumberger, Ltd. (Energy equipment & services)†			36,938					2,647
*	SolarWinds, Inc. (Software)			28,226					1,095
	Starbucks Corporation (Hotels, restaurants & leisure)			22,077					1,446
	The Toro Co. (Machinery)			18,087					821
	The Walt Disney Co. (Media)			40,550					2,561
	Union Pacific Corporation (Road & rail)			17,476					2,696
	Williams-Sonoma, Inc. (Specialty retail)			40,314					2,253
									58,822
	Europe, Mid-East—20.0%
	Denmark—1.0%
	Novo Nordisk A/S Class “B” (Pharmaceuticals)			8,054					1,255

	Issuer		Shares				Value
	Common Stocks—(continued)
	Europe, Mid-East—(continued)
	France—4.6%
	BNP Paribas S.A. (Commercial banks)			43,059				$	2,353
	Christian Dior S.A. (Textiles, apparel & luxury goods)			12,146					1,960
	Technip S.A. (Energy equipment & services)			14,527					1,475
									5,788
	Germany—2.8%
	Bayerische Motoren Werke AG (Automobiles)			22,694					1,985
	MTU Aero Engines AG (Aerospace & defense)			7,643					737
	SAP AG (Software)			9,713					711
									3,433
	Ireland—2.4%
	Accenture plc Class “A” (IT services)†			28,748					2,069
	Paddy Power plc (Hotels, restaurants & leisure)			11,283					968
									3,037
	Israel—1.1%
*	Check Point Software Technologies, Ltd. (Software)†			28,127					1,397
	Sweden—1.8%
	Atlas Copco AB Class “A” (Machinery)			92,470					2,234
	Switzerland—6.3%
	Nestle S.A. (Food products)			18,177					1,192
	Partners Group Holding AG (Capital markets)			7,135					1,932
	Roche Holding AG (Pharmaceuticals)			12,463					3,101
	Syngenta AG (Chemicals)			4,375					1,712
									7,937
	United Kingdom—12.9%
	ARM Holdings plc (Semiconductors & semiconductor equipment)			133,062					1,609
	Ashmore Group plc (Capital markets)			154,141					806
	Babcock International Group plc (Commercial services & supplies)			48,284					810
	BHP Billiton plc (Metals & mining)			75,691					1,936
	Compass Group plc (Hotels, restaurants & leisure)			174,594					2,231
	Diageo plc (Beverages)			42,186					1,206
	easyJet plc (Airlines)			95,817					1,889
	Experian plc (Professional services)			113,801					1,978
	Hargreaves Lansdown plc (Capital markets)			53,508					723
*	Rolls-Royce Holdings plc (Aerospace & defense)			110,078					1,898
	The Weir Group plc (Machinery)			33,492					1,096
									16,182

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

25

Global Leaders Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Japan—6.2%
	Daikin Industries, Ltd. (Building products)			31,400				$	1,270
	Makita Corporation (Machinery)			33,400					1,805
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			59,500					2,730
	Yahoo! Japan Corporation (Internet software & services)			4,055					1,999
									7,804
	Emerging Asia—5.9%
	India—1.1%
	Tata Motors, Ltd. (Automobiles)			304,595					1,442
	Indonesia—0.9%
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			1,470,000					1,148
	South Korea—2.0%
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			2,093					2,459
	Taiwan—1.9%
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			130,661					2,394
	Asia—1.6%
	Hong Kong—1.6%
	AIA Group, Ltd. (Insurance)			466,600					1,976
	Emerging Europe, Mid-East, Africa—1.3%
	South Africa—0.6%
	Bidvest Group, Ltd. (Industrial conglomerates)			31,765					787
	Turkey—0.7%
	Turkiye Halk Bankasi A.S. (Commercial banks)			103,121					874
	Emerging Latin America—1.2%
	Panama—1.2%
	Copa Holdings S.A. Class “A” (Airlines)†			11,831					1,551
	Total Common Stocks—97.4% (cost $113,425)								122,311

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $1,641, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$1,641				$	1,641
	Total Repurchase Agreement—1.3% (cost $1,641)								1,641
	Total Investments—98.7% (cost $115,066)								123,952
	Cash and other assets, less liabilities—1.3%								1,660
	Net assets—100.0%							$	125,612

 

 

 

ADR = American Depository Receipt

† = U.S. listed foreign security

* Non-income producing securities

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Consumer Discretionary			20.6	%
Industrials			20.0	%
Financials			19.4	%
Information Technology			17.5	%
Health Care			8.1	%
Consumer Staples			6.2	%
Energy			5.2	%
Materials			3.0	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

U.S. Dollar			55.6	%
British Pound Sterling			13.2	%
Euro			8.4	%
Swiss Franc			6.5	%
Japanese Yen			6.4	%
South Korean Won			2.0	%
Swedish Krona			1.8	%
Hong Kong Dollar			1.6	%
Indian Rupee			1.2	%
Danish Krone			1.0	%
All Other Currencies			2.3	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

26

Semi-Annual Report

June 30, 2013

	GLOBAL SMALL CAP GROWTH FUND
	The Global Small Cap Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Andrew G. Flynn     Matthew A. Litfin     Karl W. Brewer     Jeffrey A. Urbina	The William Blair Global Small Cap Growth Fund (Class N shares) posted a 3.00% increase, net of fees, since its inception date of April 10, 2013. By comparison, the Fund’s benchmark index, the MSCI ACW Small Cap Index (net) (the “Index”), increased 0.75%.   The Fund’s outperformance relative to the Index since inception was precipitated by strong performance across most sectors and regions. In particular, the Fund’s Consumer Discretionary holdings were up approximately 13%, well ahead of the 5.69% Index return, with significant value added across Media, Specialty Retail and Textiles/Apparel/Luxury Goods holdings. In addition, Grand Canyon Education, the U.S. for profit education company, outperformed as results were ahead of expectations and management increased guidance. Industrials benefited from strong performance in Aerospace/Defense and Airlines, along with good results by Keller Group, the U.K. ground engineering contractor, as North American revenues were significantly above expectations. Materials performance was augmented by limited Metals/Mining exposure and strong stock selection versus the Index. Somewhat detracting from results was overall regional positioning, given the Fund’s underweighting in the U.S. and, to some extent, the U.K. and overweighting in Latin America. Cash also detracted from results during the initial funding stage, given the market rally during that time.   As of June 30, the Fund’s largest weighting was in Industrials, which was 24.1%, above the 17.3% Index weighting, due to a focus in services-oriented and trading companies. Other significant Fund exposures included Consumer Discretionary (17.9%) and Information Technology (15.2%). Financials, which represented 15.9%, was below the approximately 22% Index weighting, due to lower exposure in developed markets including the U.S., despite the higher weighting in emerging markets. Materials was the most underweighted sector at June 30, approximating 3% of the portfolio, well below the 8.6% Index weighting, as the Fund only held Chemicals names. Regionally, 11.0% of the Fund was invested in the U.K., well above the 6.7% Index weighting, while the U.S. was 46.0%, below the 51.9% Index exposure despite significant Industrials holdings. Conversely, emerging markets totaled 12.7% of the Fund, above the 10.8% Index weighting, due largely to Europe, the Middle East and Africa.

 

June 30, 2013

William Blair Funds

27

 

Global Small Cap Growth Fund

 

 

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013

		Since
		Inception(a)
Class N			3.00	%
Class I			3.10
MSCI ACW Small Cap Index (net)			0.75

 

(a)	For the period from April 10, 2013 (Commencement of Operations) to June 30, 2013.
Note:	Chart is excluded since the Fund is less than six months old.

 

 

 

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. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. From time to time, the investment advisor may waive fees or reimburse expenses to the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institututional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Small Cap Index (net) is a free float-adjusted market capitalization index designed to measure global developed and emerging market small capitalization equity performance. The Index is unmanaged, does not incur fees or expenses, and cannot be invested in directly.

 

This report identifies the Fund’s investments on June 30, 2013. 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

Semi-Annual Report

June 30, 2013

 

Global Small Cap Growth Fund

 

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Western Hemisphere—48.5%
	Canada—2.5%
*	Legacy Oil + Gas, Inc. (Oil, gas & consumable fuels)			10,126				$	48
	Precision Drilling Corporation (Energy equipment & services)			9,095					77
	Trilogy Energy Corporation (Oil, gas & consumable fuels)			5,242					156
									281
	United States—46.0%
*	Align Technology, Inc. (Health care equipment & supplies)			3,270					121
	Allegiant Travel Co. (Airlines)			1,210					128
*	Aruba Networks, Inc. (Communications equipment)			4,565					70
*	Astronics Corporation (Aerospace & defense)			2,912					119
*	Atwood Oceanics, Inc. (Energy equipment & services)			1,371					71
*	CAI International, Inc. (Trading companies & distributors)			3,862					91
*	Cardtronics, Inc. (IT services)			4,826					133
	CBOE Holdings, Inc. (Diversified financial services)			3,333					156
*	CoStar Group, Inc. (Internet software & services)			1,075					139
*	Cyberonics, Inc. (Health care equipment & supplies)			2,788					145
*	Encore Capital Group, Inc. (Consumer finance)			3,266					108
*	Envestnet, Inc. (Internet software & services)			4,346					107
*	First Cash Financial Services, Inc. (Consumer finance)			2,052					101
*	Gentherm, Inc. (Auto components)			5,444					101
*	Globus Medical, Inc. Class “A” (Health care equipment & supplies)			6,143					104
	Graco, Inc. (Machinery)			1,667					105
*	Grand Canyon Education, Inc. (Diversified consumer services)			4,220					136
*	Guidewire Software, Inc. (Software)			2,572					108
*	Haemonetics Corporation (Health care equipment & supplies)			3,338					138
	Healthcare Services Group, Inc. (Commercial services & supplies)			4,879					120
*	HealthSouth Corporation (Health care providers & services)			5,255					151
	HEICO Corporation (Aerospace & defense)			2,666					134
*	Huron Consulting Group, Inc. (Professional services)			2,487					115
	j2 Global, Inc. (Internet software & services)			2,841					121
	Jones Lang LaSalle, Inc. (Real estate management & development)			1,510					138
*	K 12, Inc. (Diversified consumer services)			3,961					104
*	Middleby Corporation (Machinery)			453					77
	Nu Skin Enterprises, Inc. Class “A” (Personal products)			2,673					163
*	Old Dominion Freight Line, Inc. (Road & rail)			2,885					120

 

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Western Hemisphere—(continued)
*	Portfolio Recovery Associates, Inc. (Consumer finance)			963				$	148
	Robert Half International, Inc. (Professional services)			2,276					76
	Rollins, Inc. (Commercial services & supplies)			4,697					122
*	Signature Bank (Commercial banks)			1,770					147
*	Sirona Dental Systems, Inc. (Health care equipment & supplies)			2,446					161
	Six Flags Entertainment Corporation (Hotels, restaurants & leisure)			3,276					115
*	Standard Parking Corporation (Commercial services & supplies)			4,973					107
*	Team Health Holdings, Inc. (Health care providers & services)			3,360					138
	Texas Roadhouse, Inc. (Hotels, restaurants & leisure)			4,731					118
	The Corporate Executive Board Co. (Professional services)			1,953					124
	The Toro Co. (Machinery)			2,415					110
	US Ecology, Inc. (Commercial services & supplies)			4,664					128
	Watsco, Inc. (Trading companies & distributors)			1,322					111
*	WEX, Inc. (IT services)			1,254					96
	Williams-Sonoma, Inc. (Specialty retail)			1,810					101
									5,226
	United Kingdom—11.0%
*	ASOS plc (Internet & catalog retail)			1,537					95
	Aveva Group plc (Software)			2,894					99
	AZ Electronic Materials S.A. (Chemicals)			21,228					99
	Cineworld Group plc (Media)			17,393					90
*	Countrywide plc (Real estate management & development)			14,391					111
	Domino’s Pizza Group plc (Hotels, restaurants & leisure)			8,867					90
	Keller Group plc (Construction & engineering)			8,549					129
	Rightmove plc (Media)			3,799					120
	Senior plc (Machinery)			27,348					104
	Spirax-Sarco Engineering plc (Machinery)			2,585					106
	Ted Baker plc (Textiles, apparel & luxury goods)			4,252					110
	The Restaurant Group plc (Hotels, restaurants & leisure)			12,142					92
									1,245
	Europe—10.3%
	Belgium—0.9%
	Melexis N.V. (Semiconductors & semiconductor equipment)			2,740					58
*	ThromboGenics N.V. (Biotechnology)			1,237					47
									105

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

29

 

Global Small Cap Growth Fund

 

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Europe—(continued)
	Denmark—1.1%
	GN Store Nord A/S (Health care equipment & supplies)			6,290				$	119
	France—0.8%
*	GameLoft SE (Software)			13,302					93
	Germany—1.9%
	Bertrandt AG (Professional services)			708					76
	Wincor Nixdorf AG (Computers & peripherals)			2,531					137
									213
	Italy—2.4%
	Azimut Holding SpA (Capital markets)			6,694					122
	Brembo SpA (Auto components)			8,486					151
									273
	Norway—3.2%
	Borregaard ASA (Chemicals)			30,641					134
	Fred Olsen Energy ASA (Energy equipment & services)			2,133					84
	Opera Software ASA (Internet software & services)			10,152					79
	TGS Nopec Geophysical Co. ASA (Energy equipment & services)			2,442					71
									368
	Japan—8.2%
	ABC-Mart, Inc. (Specialty retail)			1,800					70
	Kakaku.com, Inc. (Internet software & services)			3,600					110
	MISUMI Group, Inc. (Trading companies & distributors)			2,700					74
	MonotaRO Co., Ltd. (Trading companies & distributors)			3,100					76
	Nihon M&A Center, Inc. (Professional services)			1,300					73
	Park24 Co., Ltd. (Commercial services & supplies)			6,300					114
	Sawai Pharmaceutical Co., Ltd. (Pharmaceuticals)			500					60
	Sundrug Co., Ltd. (Food & staples retailing)			1,800					76
	TS Tech Co., Ltd. (Auto components)			3,600					114
	United Arrows, Ltd. (Specialty retail)			4,000					167
									934
	Emerging Asia—6.5%
	China—2.3%
	China Medical System Holdings, Ltd. (Pharmaceuticals)			94,000					84
	Hilong Holding, Ltd. (Energy equipment & services)			161,000					95
	Sunny Optical Technology Group Co., Ltd. (Electronic equipment, instruments & components)			67,000					81
									260

 

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	Indonesia—0.5%
*	PT Bank Tabungan Pensiunan Nasional Tbk (Commercial banks)			132,000				$	55
	Malaysia—0.9%
	Guinness Anchor Bhd (Beverages)			11,600					70
	Silverlake Axis, Ltd. (Software)			48,000					28
									98
	Philippines—0.6%
*	East West Banking Corporation (Commercial banks)			101,700					70
	Taiwan—0.9%
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			22,000					107
	Thailand—1.3%
	LPN Development PCL (Real estate management & development)			110,200					86
	Tisco Financial Group PCL (Commercial banks)			49,310					65
									151
	Emerging Europe, Mid-East, Africa—4.4%
	Kenya—1.1%
	Safaricom, Ltd. (Wireless telecommunication services)			1,621,000					124
	Poland—0.5%
	LPP S.A. (Textiles, apparel & luxury goods)			32					63
	South Africa—1.3%
	Coronation Fund Managers, Ltd. (Capital markets)			11,570					74
	Oceana Group, Ltd. (Food products)			8,489					72
									146
	Turkey—1.5%
	Tofas Turk Otomobil Fabrikasi A.S. (Automobiles)			15,968					100
	Turkiye Sinai Kalkinma Bankasi A.S. (Commercial banks)			67,774					67
									167
	Asia—3.8%
	Australia—1.9%
	carsales.com, Ltd. (Internet software & services)			9,987					86
	DuluxGroup, Ltd. (Chemicals)			20,000					77
	FlexiGroup, Ltd. (Consumer finance)			13,556					54
									217
	New Zealand—1.0%
	Ryman Healthcare, Ltd. (Health care providers & services)			21,259					105

 

See accompanying Notes to Financial Statements.

 

30

Semi-Annual Report

June 30, 2013

 

Global Small Cap Growth Fund

 

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

			Shares or
			Principal
	Issuer		Amount				Value
	Common Stocks—(continued)
	Asia—(continued)
	Singapore—0.9%
	ARA Asset Management Ltd.—144A (Capital markets)			74,000				$	102
	Emerging Latin America—1.8%
	Brazil—1.2%
	Iguatemi Empresa de Shopping Centers S.A. (Real estate management & development)			5,800					57
	Mills Estruturas e Servicos de Engenharia S.A. (Trading companies & distributors)			5,800					79
									136
	Mexico—0.6%
	Banregio Grupo Financiero S.A.B. de C.V. (Commercial banks)			13,474					71
	Total Common Stocks—94.5% (cost $10,375)								10,729
	Exchange-Traded Fund
	India—1.4%
	Market Vectors India Small—Cap Index ETF			22,125					157
	Total Exchange-Traded Fund—1.4% (cost $198)								157
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $238, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$238					238
	Total Repurchase Agreement—2.1% (cost $238)								238
	Total Investments—98.0% (cost $10,811)								11,124
	Cash and other assets, less liabilities—2.0%								230
	Net assets—100.0%							$	11,354

 

 

 

*  Non-income producing securities

 

 

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Industrials			24.1	%
Consumer Discretionary			17.9	%
Financials			15.9	%
Information Technology			15.2	%
Health Care			12.6	%
Energy			5.5	%
Consumer Staples			3.5	%
Materials			2.8	%
Exchange-Traded Funds			1.4	%
Telecommunication Services			1.1	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

U.S. Dollar			49.4	%
British Pound Sterling			11.4	%
Japanese Yen			8.6	%
Euro			6.9	%
Norwegian Krone			3.4	%
Canadian Dollar			2.6	%
Hong Kong Dollar			2.4	%
Australian Dollar			2.0	%
Turkish Lira			1.5	%
Thai Baht			1.4	%
South African Rand			1.3	%
Brazilian Real			1.3	%
Singapore Dollar			1.2	%
Kenyan Shilling			1.1	%
Danish Krone			1.1	%
All Other Currencies			4.4	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

31

	INTERNATIONAL GROWTH FUND
	The International Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
W. George Greig     Jeffrey A. Urbina     Simon Fennell	The William Blair International Growth Fund (Class N shares) posted a 1.96% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI ACW Ex-U.S. IMI Index (net) (the “Index”), increased 0.18%.   The Fund outperformed the Index as its Consumer Discretionary, Financials, and Materials stock selection was strong, and due to the Fund’s higher weighting in Consumer Discretionary at the expense of Resources. Consumer Discretionary performance was driven by Fuji Heavy, coupled with strong performance in Auto Components, Specialty Retail, and Media. Financials stock selection was bolstered by the 5.3% Commercial Banks return, as compared to the -1.4% Index return, in addition to strong performance by Japanese holdings and Insurance. Materials stock selection benefited from outperformance in the underweighted Metals/Mining industry. The Fund’s focus on companies with above average earnings trends and positive price momentum added value year to date, offsetting the higher quality focus and higher valuation, which hampered results. Somewhat mitigating these performance drivers were underperformance in Oil/Gas and in Europe ex-U.K. more broadly.   We increased the Fund’s weighting in Japan from 13.6% at the end of 2012 on an improving fiscal/monetary policy outlook, coupled with improving earnings and moderate valuations. However, in May we reduced the Fund’s weighting in Japan from nearly 18% down to 15.5%, on concerns about valuation, but began increasing the weighting again in June after the market underperformed. As of June 30, the Fund maintained an approximate market weight of 16.5% in Japan, tilted towards Consumer Discretionary and Financials holdings. The U.K. increased from 18.1% to 24.2% of the Fund, well above the 13.7% Index weighting, due primarily to higher weightings in Consumer Discretionary, Financials (Insurers), and Industrials. Emerging markets were reduced from approximately 22% to 19.4%, both due to emerging markets underperformance, coupled with reductions in Korea, South Africa, and Brazil. From a sector perspective, the Fund’s largest weighting was in Financials, which totaled 27.0% of the Fund, above the 25.6% Index weighting, due to higher Capital Markets and Insurance weightings, which more than offset the lower weighting in Commercial Banks. Industrials and Consumer Discretionary each approximated 17% of the Fund, above the Index weighting, while Resources were significantly underweighted at approximately 8% of the Fund, well below the 18% Index weighting.

 

32

Semi-Annual Report

June 30, 2013

International Growth Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				10 Year
Class N			1.96	%			17.13	%			10.56	%			(0.13	)%			8.94	%
Class I			2.14				17.45				10.87				0.17				9.25
MSCI ACW Ex-U.S. IMI (net)			0.18				13.91				8.13				(0.41	)			8.95

 

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 . From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Ex-U.S. Investable Market Index (IMI) (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

33

International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

 

	Issuer		Shares				Value
	Common Stocks
	Europe—28.2%
	Austria—0.1%
	Andritz AG (Machinery)			76,092				$	3,905
	Belgium—0.4%
	Colruyt S.A. (Food & staples retailing)			290,449					15,275
	Denmark—0.7%
	GN Store Nord A/S (Health care equipment & supplies)			1,049,292					19,832
	SimCorp A/S (Software)			273,400					8,111
									27,943
	Finland—1.5%
	Kone Oyj (Machinery)			232,336					18,463
	Sampo (Insurance)			1,032,299					40,230
									58,693
	France—4.9%
	AXA S.A. (Insurance)			3,003,033					59,005
	BNP Paribas S.A. (Commercial banks)			566,292					30,940
	Hermes International (Textiles, apparel & luxury goods)			43,320					13,984
	Publicis Groupe S.A. (Media)			393,947					28,049
	Societe BIC S.A. (Commercial services & supplies)			13,050					1,308
	Unibail-Rodamco SE (Real estate investment trusts (REITs))			201,025					46,838
	Zodiac Aerospace (Aerospace & defense)			48,980					6,484
									186,608
	Germany—5.6%
	Adidas AG (Textiles, apparel & luxury goods)			290,902					31,481
	Bayer AG (Pharmaceuticals)			503,678					53,715
	Bayerische Motoren Werke AG (Automobiles)			686,508					60,032
	Bertrandt AG (Professional services)			54,018					5,802
	Brenntag AG (Trading companies & distributors)			105,977					16,098
	Deutsche Wohnen AG (Real estate management & development)			917,068					15,572
	Gerry Weber International AG (Textiles, apparel & luxury goods)			51,586					2,182
	MTU Aero Engines AG (Aerospace & defense)			203,543					19,632
	Wincor Nixdorf AG (Computers & peripherals)			162,392					8,806
									213,320
	Italy—1.6%
	Azimut Holding SpA (Capital markets)			667,642					12,158
	Banca Generali SpA (Capital markets)			260,522					5,616
	Brembo SpA (Auto components)			193,675					3,456
	Intesa Sanpaolo SpA (Commercial banks)			16,979,569					27,207
	Tod’s SpA (Textiles, apparel & luxury goods)			98,438					13,915
									62,352

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Luxembourg—0.1%
*	Eurofins Scientific (Life sciences tools &  services)			23,494				$	4,963
	Netherlands—1.6%
	Unilever N.V. (Food products)			1,573,083				$	61,950
	Norway—3.5%
*	Algeta ASA (Biotechnology)			125,365					4,771
	Fred Olsen Energy ASA (Energy equipment  & services)			150,866					5,961
	Prosafe SE (Energy equipment & services)			609,213					5,351
	Statoil ASA (Oil, gas & consumable fuels)			2,673,972					55,158
	Telenor ASA (Diversified  telecommunication services)			2,311,571					45,818
	TGS Nopec Geophysical Co. ASA (Energy  equipment & services)			577,852					16,790
									133,849
	Spain—0.1%
	Viscofan S.A. (Food products)			36,731					1,840
	Sweden—1.2%
	Atlas Copco AB Class “A” (Machinery)			1,454,149					35,128
	Hexpol AB (Chemicals)			165,901					10,811
									45,939
	Switzerland—6.9%
	Burckhardt Compression Holding AG  (Machinery)			14,258					5,676
*	Credit Suisse Group AG (Capital markets)			2,005,034					53,175
	Geberit AG (Building products)			109,554					27,175
	Glencore Xstrata plc (Metals & mining)			13,778,882					57,034
	Partners Group Holding AG (Capital  markets)			87,548					23,705
	Roche Holding AG (Pharmaceuticals)			316,608					78,771
	SGS S.A. (Professional services)			9,852					21,163
									266,699
	United Kingdom—24.2%
	Abcam plc (Biotechnology)			1,032,007					7,118
	Aberdeen Asset Management plc (Capital markets)			2,813,276					16,379
	Amlin plc (Insurance)			2,410,896					14,422
	Antofagasta plc (Metals & mining)			794,581					9,608
	ARM Holdings plc (Semiconductors & semiconductor equipment)			549,221					6,641
	Ashmore Group plc (Capital markets)			1,305,974					6,827
	AZ Electronic Materials S.A. (Chemicals)			1,177,339					5,501
	Babcock International Group plc (Commercial services & supplies)			1,915,640					32,137
	Berkeley Group Holdings plc (Household durables)			889,740					28,838
	Big Yellow Group plc (Real estate investment trusts (REITs))			959,247					5,611
	BT Group plc (Diversified telecommunication services)			8,866,529					41,697
	Bunzl plc (Trading companies & distributors)			997,727					19,424
	Capita plc (Professional services)			1,050,949					15,441

 

See accompanying Notes to Financial Statements.

 

34

Semi-Annual Report

June 30, 2013

International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	United Kingdom—(continued)
	Compass Group plc (Hotels, restaurants & leisure)			3,004,472				$	38,385
	Daily Mail & General Trust plc (Media)			1,169,534					13,688
	Derwent London plc (Real estate investment trusts (REITs))			227,568					7,961
	Diageo plc (Beverages)			1,609,633					46,026
	Dunelm Group plc (Specialty retail)			1,032,488					14,871
	easyJet plc (Airlines)			1,233,540					24,315
	Elementis plc (Chemicals)			2,209,133					7,372
	Experian plc (Professional services)			1,276,640					22,194
	GlaxoSmithKline plc (Pharmaceuticals)			1,916,860					48,047
	Halma plc (Electronic equipment, instruments & components)			1,365,998					10,461
	Hargreaves Lansdown plc (Capital markets)			478,172					6,458
	Hiscox, Ltd. (Insurance)			1,115,330					9,661
	Howden Joinery Group plc (Specialty retail)			2,201,695					8,485
	IG Group Holdings plc (Diversified financial services)			1,280,360					11,295
	IMI plc (Machinery)			811,162					15,298
	InterContinental Hotels Group plc (Hotels, restaurants & leisure)			1,360,031					37,399
	ITV plc (Media)			19,220,646					40,956
	John Wood Group plc (Energy equipment & services)			1,635,209					20,133
	Jupiter Fund Management plc (Capital markets)			1,724,240					7,597
	Keller Group plc (Construction & engineering)			374,316					5,642
	Lancashire Holdings, Ltd. (Insurance)			1,081,998					13,034
	Meggitt plc (Aerospace & defense)			1,934,732					15,228
	Moneysupermarket.com Group plc (Internet software & services)			3,081,548					8,980
*	Nanoco Group plc (Semiconductors & semiconductor equipment)			801,031					1,608
	Oxford Instruments plc (Electronic equipment, instruments & components)			104,503					1,922
	Provident Financial plc (Consumer finance)			416,653					9,436
	Prudential plc (Insurance)			4,416,583					72,212
	Reckitt Benckiser Group plc (Household products)			719,292					50,849
	Restaurant Group plc (Hotels, restaurants & leisure)			462,636					3,518
	Rightmove plc (Media)			470,896					14,926
*	Rolls-Royce Holdings plc (Aerospace & defense)			2,526,183					43,570
	Rotork plc (Machinery)			285,126					11,579
	RPS Group plc (Commercial services & supplies)			1,049,791					3,225
	Senior plc (Machinery)			1,030,368					3,924
	St James’s Place plc (Insurance)			1,386,208					11,385
	Tullow Oil plc (Oil, gas & consumable fuels)			2,424,690					36,915
	William Hill plc (Hotels, restaurants & leisure)			2,904,000					19,474
									927,673

	Issuer		Shares				Value
	Japan—16.5%
	Astellas Pharma, Inc. (Pharmaceuticals)			745,400				$	40,509
	Daikin Industries, Ltd. (Building products)			388,300					15,700
	Denso Corporation (Auto components)			735,300					34,585
	FamilyMart Co., Ltd. (Food & staples retailing)			287,600					12,266
	Fuji Heavy Industries, Ltd. (Automobiles)			2,856,000					70,407
	Isuzu Motors, Ltd. (Automobiles)			3,831,000					26,228
	ITOCHU Corporation (Trading companies & distributors)			3,465,400					40,007
	Keyence Corporation (Electronic equipment, instruments & components)			44,000					14,041
	Lawson, Inc. (Food & staples retailing)			295,000					22,516
	Makita Corporation (Machinery)			549,700					29,708
	MISUMI Group, Inc. (Trading companies & distributors)			152,800					4,201
	Nexon Co., Ltd. (Software)			1,340,300					14,784
	Nitto Denko Corporation (Chemicals)			317,600					20,430
	ORIX Corporation (Diversified financial services)			4,134,500					56,486
	Park24 Co., Ltd. (Commercial services & supplies)			336,600					6,105
	Secom Co., Ltd. (Commercial services & supplies)			388,600					21,158
	Shimamura Co., Ltd. (Specialty retail)			100,400					12,198
	Shin-Etsu Chemical Co., Ltd. (Chemicals)			311,100					20,640
	Ship Healthcare Holdings, Inc. (Health care providers & services)			201,700					7,423
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			1,944,900					89,225
	Sundrug Co., Ltd. (Food & staples retailing)			198,700					8,434
	Suruga Bank, Ltd. (Commercial banks)			1,049,000					19,059
	TS Tech Co., Ltd. (Auto components)			125,000					3,970
	Tsuruha Holdings, Inc. (Food & staples retailing)			71,100					6,731
	United Arrows, Ltd. (Specialty retail)			154,300					6,449
	Yahoo! Japan Corporation (Internet software & services)			64,625					31,863
									635,123
	Emerging Asia—13.6%
	China—5.3%
	AAC Technologies Holdings, Inc. (Communications equipment)			2,490,000					14,062
	Biostime International Holdings, Ltd. (Food products)			224,500					1,259
	China Merchants Bank Co., Ltd. Class “H” (Commercial banks)			11,904,500					19,892
	China Overseas Grand Oceans Group, Ltd. (Real estate management & development)			6,904,000					8,812
	China Overseas Land & Investment, Ltd. (Real estate management & development)			12,300,000					32,272
	Great Wall Motor Co., Ltd. Class “H” (Automobiles)			5,831,500					25,150
	Haier Electronics Group Co., Ltd. (Household durables)			2,237,000					3,565

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

35

International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Emerging Asia—(continued)
	China—(continued)
	Haitian International Holdings, Ltd. (Machinery)			1,345,000				$	1,967
*	Hollysys Automation Technologies, Ltd. (Electronic equipment, instruments & components)†			403,494					5,007
	Industrial and Commercial Bank of China, Ltd. Class “H” (Commercial banks)			47,974,000					30,246
	Minth Group, Ltd. (Auto components)			2,588,000					4,024
	Sino Biopharmaceutical (Pharmaceuticals)			17,796,000					11,541
	Tencent Holdings, Ltd. (Internet software & services)			1,096,600					43,010
*	WuXi PharmaTech Cayman, Inc.—ADR (Life sciences tools & services)			233,977					4,914
									205,721
	India—2.3%
	Eicher Motors, Ltd. (Machinery)			80,335					4,430
	Glenmark Pharmaceuticals, Ltd. (Pharmaceuticals)			1,532,904					14,142
	Gruh Finance, Ltd. (Thrifts & mortgage finance)			870,425					3,350
	HCL Technologies, Ltd. (IT services)			805,794					10,523
	IndusInd Bank, Ltd. (Commercial banks)			1,025,306					8,065
	Ipca Laboratories, Ltd. (Pharmaceuticals)			601,557					6,633
	Lupin, Ltd. (Pharmaceuticals)			744,202					9,786
	Oberoi Realty, Ltd. (Real estate management & development)			872,228					2,904
	Tata Consultancy Services, Ltd. (IT services)			761,381					19,451
	Yes Bank, Ltd. (Commercial banks)			1,069,125					8,296
									87,580
	Indonesia—1.2%
	PT Alam Sutera Realty Tbk (Real estate management & development)			48,407,500					3,658
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			21,856,500					17,067
	PT Ciputra Development Tbk (Real estate management & development)			29,420,500					4,002
	PT Telekomunikasi Indonesia Persero Tbk (Diversified telecommunication services)			19,360,000					21,944
									46,671
	Philippines—0.1%
	Security Bank Corporation (Commercial banks)			978,390					3,424
	South Korea—1.6%
	GS Home Shopping, Inc. (Internet & catalog retail)			29,524					6,114
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			45,873					53,905
									60,019
	Sri Lanka—0.1%
	John Keells Holdings plc (Industrial conglomerates)			1,892,546					3,657

	Issuer		Shares					Value
	Emerging Asia—(continued)
	Taiwan—2.2%
	Asustek Computer, Inc. (Computers & peripherals)			1,498,000				$	12,895
	Eclat Textile Co., Ltd. (Textiles, apparel & luxury goods)			1,102,000					8,144
	St Shine Optical Co., Ltd. (Health care equipment & supplies)			101,000					2,625
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			3,234,522					59,257
									82,921
	Thailand—0.8%
	Advanced Info Service PCL (Wireless telecommunication services)			900,600					8,189
	BEC World PCL (Media)			3,101,400					5,875
	Kasikornbank PCL (Commercial banks)			2,207,100					13,948
	Kiatnakin Bank PCL (Commercial banks)			1,824,300					3,117
									31,129
	Asia—6.6%
	Australia—2.6%
	CSL, Ltd. (Biotechnology)			503,913					28,380
	DuluxGroup, Ltd. (Chemicals)			1,656,717					6,379
	REA Group, Ltd. (Media)			150,375					3,786
	Seek, Ltd. (Professional services)			667,303					5,535
	Super Retail Group, Ltd. (Specialty retail)			383,487					4,198
	Telstra Corporation, Ltd. (Diversified telecommunication services)			11,789,844					51,432
									99,710
	Hong Kong—2.5%
	China High Precision Automation Group, Ltd. (Electronic equipment, instruments & components)**§			6,597,000					689
	Hutchison Telecommunications Hong Kong Holdings, Ltd. (Diversified telecommunication services)			23,772,000					12,566
	Sa Sa International Holdings, Ltd. (Specialty retail)			10,214,000					10,140
	SmarTone Telecommunications Holdings, Ltd. (Wireless telecommunication services)			6,639,000					11,025
	Techtronic Industries Co. (Household  durables)			6,588,000					15,765
	Value Partners Group, Ltd. (Capital markets)			7,014,000					3,780
	Wharf Holdings, Ltd. (Real estate management & development)			5,007,000					42,091
									96,056
	New Zealand—0.1%
	Ryman Healthcare, Ltd. (Health care providers & services)			1,179,202					5,821
	Singapore—1.4%
	First Resources, Ltd. (Food products)			3,336,000					4,672
	Keppel Corporation, Ltd. (Industrial conglomerates)			1,619,300					13,286

 

See accompanying Notes to Financial Statements.

 

36

Semi-Annual Report

June 30, 2013

International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Asia—(continued)
	Singapore—(continued)
	Singapore Technologies Engineering, Ltd. (Aerospace & defense)			8,184,000				$	27,054
	StarHub, Ltd. (Wireless telecommunication services)			2,735,000					9,020
									54,032
	Emerging Europe, Mid-East, Africa—3.0%
	Kenya—0.1%
	Equity Bank, Ltd. (Commercial banks)			5,466,500					1,991
	Kenya Commercial Bank, Ltd. (Commercial banks)			7,519,700					3,243
									5,234
	Nigeria—0.3%
	Guaranty Trust Bank plc (Commercial banks)			70,554,411					10,549
	Poland—0.3%
*	Alior Bank S.A. (Commercial banks)			116,884					3,148
	Eurocash S.A. (Food & staples retailing)			459,791					8,123
									11,271
	South Africa—1.1%
	Bidvest Group, Ltd. (Industrial conglomerates)			725,976					17,990
	Coronation Fund Managers, Ltd. (Capital markets)			703,262					4,464
	FirstRand, Ltd. (Diversified financial services)			5,992,585					17,538
									39,992
	Turkey—0.6%
	Tofas Turk Otomobil Fabrikasi A.S. (Automobiles)			768,066					4,799
	Turkiye Halk Bankasi A.S. (Commercial banks)			2,252,278					19,093
									23,892
	United Arab Emirates—0.6%
	Dragon Oil plc (Oil, gas & consumable fuels)			1,218,607					10,611
	First Gulf Bank PJSC (Commercial banks)			2,968,407					12,890
									23,501
	Canada—2.8%
	Canadian National Railway Co. (Road  & rail)†			488,529					47,519
	CI Financial Corporation (Capital markets)			630,623					18,151
	First Quantum Minerals, Ltd. (Metals & mining)			890,340					13,206
	Metro, Inc. (Food & staples retailing)			320,762					21,496
	Westjet Airlines, Ltd. (Airlines)			387,247					8,292
									108,664

	Issuer		Shares or Principal Amount					Value
	Emerging Latin America—2.2%
	Brazil—1.4%
*	BB Seguridade Participacoes S.A.  (Insurance)			2,339,100				$	18,450
	CCR S.A (Transportation infrastructure)			1,233,700					9,786
	Kroton Educacional S.A. (Diversified  consumer services)			886,500					12,276
	Linx S.A. (Software)			347,200					5,602
	Mills Estruturas e Servicos de Engenharia  S.A. (Trading companies & distributors)			361,800					4,898
									51,012
	Chile—0.6%
	Forus S.A. (Textiles, apparel & luxury goods)			607,900					3,465
	Inversiones La Construccion S.A.  (Diversified financial services)			210,385					3,222
	Parque Arauco S.A. (Real estate  management & development)			5,294,073					11,567
	Sonda S.A. (IT services)			1,750,122					5,098
									23,352
	Mexico—0.2%
	Banregio Grupo Financiero S.A.B. de C.V.  (Commercial banks)			1,649,300					8,713
	Total Common Stocks—97.1% (cost $3,338,530)								3,729,053
	Affiliated Fund
	China—0.6%
	William Blair China A-Share Fund, LLC			2,202,200					22,815
	Total Affiliated Fund—0.6% (cost $22,022)								22,815
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010%  dated 6/28/13, due 7/1/13, repurchase  price $72,519, collateralized by U.S.  Treasury Note, 0.750%, due 10/31/17			$72,519					72,519
	Total Repurchase Agreement—1.9% (cost $72,519)								72,519
	Total Investments—99.6% (cost $3,433,071)								3,824,387
	Cash and other assets, less liabilities—0.4%								15,491
	Net assets—100.0%							$	3,839,878

 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

** = Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. This holding represents 0.02% of the Fund’s net assets at June 30, 2013.

§ = Deemed illiquid pursuant to Liquidity Procedures approved by the Board of Trustees. This holding represents 0.02% of the net assets at June 30, 2013.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

37

International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials		27.0%
Consumer Discretionary		17.0%
Industrials		17.0%
Health Care		9.4%
Information Technology		9.1%
Consumer Staples		7.1%
Telecommunication Services		5.4%
Energy		4.0%
Materials		4.0%
Total		100.0%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling		26.5%
Japanese Yen		16.9%
Euro		16.5%
Hong Kong Dollar		7.9%
Swiss Franc		5.6%
U.S. Dollar		3.6%
Norwegian Krone		3.6%
Australian Dollar		2.7%
Indian Rupee		2.3%
Canadian Dollar		1.6%
South Korean Won		1.6%
Singapore Dollar		1.4%
Brazilian Real		1.4%
Indonesian Rupiah		1.2%
Swedish Krona		1.2%
South African Rand		1.1%
All Other Currencies		4.9%
Total		100.0%

 

As of June 30, 2013 the Fund invested in William Blair China A-Share Fund, LLC, an affiliated fund. There are no unfunded commitments to the affiliated fund and the Fund may redeem its investment monthly.

 

Shares Activity Affiliated with China A-Share Fund

Period Ended June 30, 2013

(in thousands)

Fund Name

Balance 12/31/2012

Purchases

Sales

Balance 6/30/2013

Value

William Blair China A-Share Fund, LLC

2,202,200

—

—

2,202,200

$22,815

$22,815

 

Affiliated Funds accounted for $793 of change in net unrealized depreciation on investments during the period.

 

See accompanying Notes to Financial Statements.

 

38

Semi-Annual Report

June 30, 2013

	INSTITUTIONAL INTERNATIONAL GROWTH FUND
	The Institutional International Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
W. George Greig     Jeffrey A. Urbina       Simon Fennell	The William Blair Institutional International Growth Fund posted a 2.22% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI All Country World Ex-U.S. IMI Index (net) (the “Index”), increased 0.18%. The Fund outperformed the Index as its Consumer, Financials, and Materials stock selection was strong, and due to the Fund’s higher weighting in Consumer Discretionary at the expense of Resources. Discretionary performance was driven by Fuji Heavy, coupled with strong performance in Auto Components, Specialty Retail, and Media. Financials stock selection was bolstered by the 5.3% Commercial Banks return, as compared to the -1.4% Index return, in addition to strong performance by Japanese holdings and Insurance. Materials stock selection benefited from outperformance in the underweighted Metals/Mining industry. The Fund’s focus on companies with above average earnings trends and positive price momentum added value year to date, offsetting the higher quality focus and higher valuation, which hampered results. Somewhat mitigating these performance drivers were underperformance in Oil/Gas and in Europe Ex-U.K. more broadly. We increased the Fund’s weighting in Japan from 13.6% at the end of 2012 on an improving fiscal/monetary policy outlook, coupled with improving earnings and moderate valuations. However, in May we reduced the Fund’s weighting in Japan from nearly 18% down to 15.5%, on concerns about valuation, but began increasing the weighting again in June after the market underperformed. As of June 30, the Fund maintained an approximate market weight of 16.5% in Japan, tilted towards Discretionary and Financials holdings. The U.K. increased from 18.2% to 24.1% of the Fund, well above the 13.7% Index weighting, due primarily to higher weightings in Discretionary, Financials (Insurers), and Industrials. Emerging markets were reduced from approximately 22% to 19.3%, both due to emerging markets underperformance, coupled with reductions in Korea, South Africa, and Brazil. From a sector perspective, the Fund’s largest weighting was in Financials, which totaled 27.0% of the Fund, above the 25.6% Index weighting, due to higher Capital Markets and Insurance weightings, which more than offset the lower weighting in Commercial Banks. Industrials and Discretionary each approximated 17% of the Fund, above the Index weighting, while Resources were significantly underweighted at approximately 8% of the Fund, well below the 18% Index weighting.

 

June 30, 2013

William Blair Funds

39

Institutional International Growth Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				10 Year
Institutional Class			2.22	%			17.47	%			11.20	%			0.35	%			9.36	%
MSCI ACW Ex-U.S. IMI (net)			0.18				13.91				8.13				(0.41	)			8.95

 

 

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 returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com . International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Shares of the Fund are available without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Ex-U.S. Investable Market Index (IMI) (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

40

Semi-Annual Report

June 30, 2013

Institutional International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Europe—28.1%
	Austria—0.1%
	Andritz AG (Machinery)			41,001				$	2,104
	Belgium—0.4%
	Colruyt S.A. (Food & staples retailing)			156,876					8,251
	Denmark—0.7%
	GN Store Nord A/S (Health care equipment & supplies)			567,331					10,723
	SimCorp A/S (Software)			144,560					4,289
									15,012
	Finland—1.5%
	Kone Oyj Class ‘‘B’’ (Machinery)			125,489					9,972
	Sampo Class ‘‘A’’ (Insurance)			556,846					21,701
									31,673
	France—4.9%
	AXA S.A. (Insurance)			1,620,463					31,840
	BNP Paribas S.A. (Commercial banks)			305,864					16,711
	Hermes International (Textiles, apparel & luxury goods)			23,398					7,553
	Publicis Groupe S.A. (Media)			212,088					15,101
	Societe BIC S.A. (Commercial services & supplies)			7,152					717
	Unibail-Rodamco SE (Real estate investment trusts (REITs))			108,577					25,298
	Zodiac Aerospace (Aerospace & defense)			26,277					3,478
									100,698
	Germany—5.5%
	Adidas AG (Textiles, apparel & luxury goods)			156,660					16,953
	Bayer AG (Pharmaceuticals)			272,045					29,012
	Bayerische Motoren Werke AG (Automobiles)			369,988					32,353
	Bertrandt AG (Professional services)			29,130					3,129
	Brenntag AG (Trading companies & distributors)			57,240					8,695
	Deutsche Wohnen AG (Real estate management & development)			494,646					8,399
	Gerry Weber International AG (Textiles, apparel & luxury goods)			27,675					1,171
	MTU Aero Engines AG (Aerospace & defense)			109,937					10,604
	Wincor Nixdorf AG (Computers & peripherals)			86,190					4,674
									114,990
	Italy—1.6%
	Azimut Holding SpA (Capital markets)			360,605					6,567
	Banca Generali SpA (Capital markets)			140,299					3,024
	Brembo SpA (Auto components)			104,693					1,868
	Intesa Sanpaolo SpA (Commercial banks)			9,162,321					14,681
	Tod’s SpA (Textiles, apparel & luxury goods)			53,168					7,516
									33,656

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Europe—(continued)
	Luxembourg—0.1%
*	Eurofins Scientific (Life sciences tools & services)			12,460				$	2,632
	Netherlands—1.6%
	Unilever N.V. (Food products)			849,650					33,460
	Norway—3.5%
*	Algeta ASA (Biotechnology)			66,486					2,530
	Fred Olsen Energy ASA (Energy equipment & services)			79,538					3,143
	Prosafe SE (Energy equipment & services)			323,089					2,838
	Statoil ASA (Oil, gas & consumable fuels)			1,440,774					29,720
	Telenor ASA (Diversified telecommunication services)			1,245,507					24,687
	TGS Nopec Geophysical Co. ASA (Energy equipment & services)			311,191					9,042
									71,960
	Spain—0.1%
	Viscofan S.A. (Food products)			19,543					979
	Sweden—1.2%
	Atlas Copco AB Class “A” (Machinery)			785,412					18,973
	Hexpol AB (Chemicals)			89,005					5,800
									24,773
	Switzerland—6.9%
	Burckhardt Compression Holding AG (Machinery)			7,560					3,010
*	Credit Suisse Group AG (Capital markets)			1,080,492					28,655
*	Geberit AG (Building products)			59,172					14,678
	Glencore Xstrata plc (Metals & mining)			7,437,105					30,784
	Partners Group Holding AG (Capital markets)			47,286					12,803
	Roche Holding AG (Pharmaceuticals)			171,006					42,546
	SGS S.A. (Professional services)			5,321					11,430
									143,906
	United Kingdom—24.1%
	Abcam plc (Biotechnology)			545,441					3,762
	Aberdeen Asset Management plc (Capital markets)			1,515,284					8,822
	Amlin plc (Insurance)			1,302,167					7,789
	Antofagasta plc (Metals & mining)			428,600					5,183
	ARM Holdings plc (Semiconductors & semiconductor equipment)			285,974					3,458
	Ashmore Group plc (Capital markets)			705,338					3,687
	AZ Electronic Materials S.A. (Chemicals)			624,388					2,917
	Babcock International Group plc (Commercial services & supplies)			1,034,671					17,358
	Berkeley Group Holdings plc (Household durables)			480,564					15,576
	Big Yellow Group plc (Real estate investment trusts (REITs))			517,839					3,029
	BT Group plc (Diversified telecommunication services)			4,774,900					22,455

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

41

Institutional International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	United Kingdom—(continued)
	Bunzl plc (Trading companies & distributors)			538,859				$	10,491
	Capita plc (Professional services)			567,775					8,342
	Compass Group plc (Hotels, restaurants & leisure)			1,621,240					20,713
	Daily Mail & General Trust plc Class “A” (Media)			630,132					7,375
	Derwent London plc (Real estate investment trusts (REITs))			122,882					4,299
	Diageo plc (Beverages)			867,970					24,819
	Dunelm Group plc (Specialty retail)			565,546					8,146
	easyJet plc (Airlines)			664,095					13,090
	Elementis plc (Chemicals)			1,176,458					3,926
	Experian plc (Professional services)			688,886					11,976
	GlaxoSmithKline plc (Pharmaceuticals)			1,031,971					25,867
	Halma plc (Electronic equipment, instruments & components)			748,226					5,730
	Hargreaves Lansdown plc (Capital markets)			255,795					3,455
	Hiscox, Ltd. (Insurance)			602,409					5,218
	Howden Joinery Group plc (Specialty retail)			1,185,315					4,568
	IG Group Holdings plc (Diversified financial services)			701,314					6,187
	IMI plc (Machinery)			438,096					8,262
	InterContinental Hotels Group plc (Hotels, restaurants & leisure)			734,578					20,200
	ITV plc (Media)			10,381,410					22,121
	John Wood Group plc (Energy equipment & services)			883,205					10,874
	Jupiter Fund Management plc (Capital markets)			916,912					4,040
	Keller Group plc (Construction & engineering)			201,218					3,033
	Lancashire Holdings, Ltd. (Insurance)			592,661					7,139
	Meggitt plc (Aerospace & defense)			1,044,983					8,225
	Moneysupermarket.com Group plc (Internet software & services)			1,658,536					4,833
*	Nanoco Group plc (Semiconductors & semiconductor equipment)			432,625					869
	Oxford Instruments plc (Electronic equipment, instruments & components)			56,289					1,035
	Provident Financial plc (Consumer finance)			224,490					5,084
	Prudential plc (Insurance)			2,380,727					38,925
	Reckitt Benckiser Group plc (Household products)			388,047					27,433
	Rightmove plc (Media)			254,324					8,061
*	Rolls-Royce Holdings plc (Aerospace & defense)			1,364,436					23,533
	Rotork plc (Machinery)			156,180					6,342
	RPS Group plc (Commercial services & supplies)			552,726					1,698
	Senior plc (Machinery)			548,072					2,087
	St James’s Place plc (Insurance)			747,728					6,141
	The Restaurant Group plc (Hotels, restaurants & leisure)			245,353					1,866
	Tullow Oil plc (Oil, gas & consumable fuels)			1,306,769					19,895

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	United Kingdom—(continued)
	William Hill plc (Hotels, restaurants & leisure)			1,568,024				$	10,515
									500,449
	Japan—16.5%
	Astellas Pharma, Inc. (Pharmaceuticals)			402,600					21,880
	Daikin Industries, Ltd. (Building products)			209,700					8,478
	Denso Corporation (Auto components)			397,100					18,678
	FamilyMart Co., Ltd. (Food & staples retailing)			155,200					6,619
	Fuji Heavy Industries, Ltd. (Automobiles)			1,542,000					38,014
	Isuzu Motors, Ltd. (Automobiles)			2,062,000					14,117
	ITOCHU Corporation (Trading companies & distributors)			1,865,700					21,539
	Keyence Corporation (Electronic equipment, instruments & components)			23,700					7,563
	Lawson, Inc. (Food & staples retailing)			159,300					12,159
	Makita Corporation (Machinery)			296,900					16,045
	MISUMI Group, Inc. (Trading companies & distributors)			81,200					2,233
	Nexon Co., Ltd. (Software)			721,600					7,960
	Nitto Denko Corporation (Chemicals)			171,000					11,000
	ORIX Corporation (Diversified financial services)			2,197,800					30,026
	Park24 Co., Ltd. (Commercial services & supplies)			181,400					3,290
	Secom Co., Ltd. (Commercial services & supplies)			209,200					11,390
	Shimamura Co., Ltd. (Specialty retail)			54,700					6,646
	Shin-Etsu Chemical Co., Ltd. (Chemicals)			167,500					11,113
	Ship Healthcare Holdings, Inc. (Health care providers & services)			106,800					3,930
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			1,049,900					48,165
	Sundrug Co., Ltd. (Food & staples retailing)			109,500					4,648
	Suruga Bank, Ltd. (Commercial banks)			565,000					10,265
	TS Tech Co., Ltd. (Auto components)			67,400					2,141
	Tsuruha Holdings, Inc. (Food & staples retailing)			37,600					3,560
	United Arrows, Ltd. (Specialty retail)			81,100					3,389
	Yahoo! Japan Corporation (Internet software & services)			34,792					17,154
									342,002
	Emerging Asia—13.5%
	China—5.3%
	AAC Technologies Holdings, Inc. (Communications equipment)			1,344,000					7,590
	Biostime International Holdings, Ltd. (Food products)			120,000					673
	China Merchants Bank Co., Ltd. Class “H” (Commercial banks)			6,414,000					10,718
	China Overseas Grand Oceans Group, Ltd. (Real estate management & development)			3,804,000					4,856

 

See accompanying Notes to Financial Statements.

 

42

Semi-Annual Report

June 30, 2013

Institutional International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	China—(continued)
	China Overseas Land & Investment, Ltd. (Real estate management & development)			6,644,000				$	17,432
	Great Wall Motor Co., Ltd. Class “H” (Automobiles)			3,149,500					13,583
	Haier Electronics Group Co., Ltd. (Household durables)			1,205,000					1,920
	Haitian International Holdings, Ltd. (Machinery)			713,000					1,042
*	Hollysys Automation Technologies, Ltd. (Electronic equipment, instruments & components)†			214,215					2,658
	Industrial and Commercial Bank of China, Ltd. Class “H” (Commercial banks)			25,909,000					16,335
	Minth Group, Ltd. (Auto components)			1,382,000					2,149
	Sino Biopharmaceutical (Pharmaceuticals)			9,580,000					6,213
	Tencent Holdings, Ltd. (Internet software & services)			593,500					23,278
*	WuXi PharmaTech Cayman, Inc.—ADR (Life sciences tools & services)			123,283					2,589
									111,036
	India—2.3%
	Eicher Motors, Ltd. (Machinery)			43,480					2,398
	Glenmark Pharmaceuticals, Ltd. (Pharmaceuticals)			827,948					7,639
	Gruh Finance, Ltd. (Thrifts & mortgage finance)			467,643					1,800
	HCL Technologies, Ltd. (IT services)			442,046					5,772
	IndusInd Bank, Ltd. (Commercial banks)			551,010					4,334
	Ipca Laboratories, Ltd. (Pharmaceuticals)			317,967					3,506
	Lupin, Ltd. (Pharmaceuticals)			399,258					5,250
	Oberoi Realty, Ltd. (Real estate management & development)			461,980					1,538
	Tata Consultancy Services, Ltd. (IT services)			410,825					10,495
	Yes Bank, Ltd. (Commercial banks)			576,197					4,471
									47,203
	Indonesia—1.2%
	PT Alam Sutera Realty Tbk (Real estate management & development)			26,120,000					1,974
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			11,799,500					9,214
	PT Ciputra Development Tbk (Real estate management & development)			15,602,500					2,122
	PT Telekomunikasi Indonesia Persero Tbk (Diversified telecommunication services)			10,446,000					11,840
									25,150
	Philippines—0.1%
	Security Bank Corporation (Commercial banks)			518,880					1,816
	South Korea—1.5%
	GS Home Shopping, Inc. (Internet & catalog retail)			15,911					3,295

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	South Korea—(continued)
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			24,704				$	29,029
									32,324
	Sri Lanka—0.1%
	John Keells Holdings plc (Industrial conglomerates)			1,005,757					1,944
	Taiwan—2.2%
	Asustek Computer, Inc. (Computers & peripherals)			809,000					6,964
	Eclat Textile Co., Ltd. (Textiles, apparel & luxury goods)			594,000					4,390
	St Shine Optical Co., Ltd. (Health care equipment & supplies)			62,100					1,614
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			1,747,022					32,006
									44,974
	Thailand—0.8%
	Advanced Info Service PCL (Wireless telecommunication services)			486,000					4,419
	BEC World PCL (Media)			1,640,400					3,107
	Kasikornbank PCL (Commercial banks)			1,191,200					7,528
	Kiatnakin Bank PCL (Commercial banks)			982,100					1,678
									16,732
	Asia—6.6%
	Australia—2.6%
	CSL, Ltd. (Biotechnology)			272,173					15,328
	DuluxGroup, Ltd. (Chemicals)			879,307					3,386
	REA Group, Ltd. (Media)			80,361					2,023
	Seek, Ltd. (Professional services)			354,742					2,943
	Super Retail Group, Ltd. (Specialty retail)			203,865					2,232
	Telstra Corporation, Ltd. (Diversified telecommunication services)			6,367,902					27,779
									53,691
	Hong Kong—2.5%
	China High Precision Automation Group, Ltd. (Electronic equipment, instruments & components)**§			3,373,000					352
	Hutchison Telecommunications Hong Kong Holdings, Ltd. (Diversified telecommunication services)			12,840,000					6,788
	Sa Sa International Holdings, Ltd. (Specialty retail)			5,614,000					5,573
	SmarTone Telecommunications Holdings, Ltd. (Wireless telecommunication services)			3,512,500					5,833
	Techtronic Industries Co. (Household durables)			3,562,500					8,525
	Value Partners Group, Ltd. (Capital markets)			3,678,000					1,982

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

43

Institutional International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Asia—(continued)
	Hong Kong—(continued)
	Wharf Holdings, Ltd. (Real estate management & development)			2,696,000				$	22,664
									51,717
	New Zealand—0.1%
	Ryman Healthcare, Ltd. (Health care providers & services)			626,869					3,094
	Singapore—1.4%
	First Resources, Ltd. (Food products)			1,781,000					2,494
	Keppel Corporation, Ltd. (Industrial conglomerates)			873,300					7,166
	Singapore Technologies Engineering, Ltd. (Aerospace & defense)			4,410,000					14,578
	StarHub, Ltd. (Wireless telecommunication services)			1,478,000					4,874
									29,112
	Emerging Europe, Mid-East, Africa—3.0%
	Kenya—0.1%
	Equity Bank, Ltd. (Commercial banks)			2,895,700					1,055
	Kenya Commercial Bank, Ltd. (Commercial banks)			3,896,900					1,680
									2,735
	Nigeria—0.3%
	Guaranty Trust Bank plc (Commercial banks)			37,969,896					5,677
	Poland—0.3%
*	Alior Bank S.A. (Commercial banks)			62,376					1,680
	Eurocash S.A. (Food & staples retailing)			246,731					4,359
									6,039
	South Africa—1.1%
	Bidvest Group, Ltd. (Industrial conglomerates)			392,112					9,716
	Coronation Fund Managers, Ltd. (Capital markets)			372,967					2,368
	FirstRand, Ltd. (Diversified financial services)			3,236,701					9,473
									21,557
	Turkey—0.6%
	Tofas Turk Otomobil Fabrikasi A.S. (Automobiles)			414,156					2,588
	Turkiye Halk Bankasi A.S. (Commercial banks)			1,216,495					10,312
									12,900
	United Arab Emirates—0.6%
	Dragon Oil plc (Oil, gas & consumable fuels)			661,315					5,759
	First Gulf Bank PJSC (Commercial banks)			1,603,289					6,962
									12,721

 

	Issuer		Shares				Value
	Western Hemisphere—2.8%
	Canada—2.8%
	Canadian National Railway Co. (Road & rail)†			263,863				$	25,666
	CI Financial Corporation (Capital markets)			340,611					9,804
	First Quantum Minerals, Ltd. (Metals & mining)			480,254					7,124
	Metro, Inc. (Food & staples retailing)			173,249					11,610
	Westjet Airlines, Ltd. (Airlines)			205,630					4,403
									58,607
	Emerging Latin America—2.2%
	Brazil—1.3%
*	BB Seguridade Participacoes S.A. (Insurance)			1,263,100					9,963
	CCR S.A (Transportation infrastructure)			666,200					5,285
	Kroton Educacional S.A. (Diversified consumer services)			479,800					6,644
	Linx S.A. (Software)			187,700					3,028
	Mills Estruturas e Servicos de Engenharia S.A. (Trading companies & distributors)			190,800					2,583
									27,503
	Chile—0.6%
	Forus S.A. (Textiles, apparel & luxury goods)			328,070					1,870
	Inversiones La Construccion S.A. (Diversified financial services)			110,889					1,698
	Parque Arauco S.A. (Real estate management & development)			2,859,422					6,248
	Sonda S.A. (IT services)			922,766					2,688
									12,504
	Mexico—0.3%
	Banregio Grupo Financiero S.A.B. de C.V. (Commercial banks)			888,600					4,694
	Total Common Stocks—96.8% (cost $1,805,153)								2,010,275
	Affiliated Fund
	China—0.6%
	William Blair China A-Share Fund, LLC			1,183,400					12,260
	Total Affiliated Fund—0.6% (cost $11,834)								12,260

 

See accompanying Notes to Financial Statements.

 

44

Semi-Annual Report

June 30, 2013

Institutional International Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

Issuer			Principal Amount				Value
Repurchase Agreement
Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $39,731, collateralized by U.S. Treasury Notes, 0.750%, due 10/31/17			$39,731			$	39,731
Total Repurchase Agreement—1.9% (cost $39,731)							39,731
Total Investments—99.3% (cost $1,856,718)							2,062,266
Cash and other assets, less liabilities—0.7%							14,310
Net assets—100.0%						$	2,076,576

 

 

 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

** = Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. This holding represents 0.02% of the Fund’s net assets at June 30, 2013.

§ = Deemed illiquid pursuant to Liquidity Procedures approved by the Board of Trustees. This holding represents 0.02% of the net assets at June 30, 2013.

 

 

 

 

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials			27.0	%
Consumer Discretionary			17.0	%
Industrials			17.0	%
Health Care			9.4	%
Information Technology			9.1	%
Consumer Staples			7.1	%
Telecommunication Services			5.4	%
Energy			4.0	%
Materials			4.0	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling			26.5	%
Japanese Yen			16.9	%
Euro			16.5	%
Hong Kong Dollar			7.9	%
Swiss Franc			5.6	%
U.S. Dollar			3.6	%
Norwegian Krone			3.6	%
Australian Dollar			2.7	%
Indian Rupee			2.3	%
Canadian Dollar			1.6	%
South Korean Won			1.6	%
Singapore Dollar			1.4	%
Brazilian Real			1.4	%
Indonesian Rupiah			1.2	%
Swedish Krona			1.2	%
South African Rand			1.1	%
All Other Currencies			4.9	%
Total			100.0	%

 

As of June 30, 2013 the Fund invested in William Blair China A-Share Fund, LLC, an affiliated fund. There are no unfunded commitments to the affiliated fund and the Fund may redeem its investment monthly.

 

Shares Activity Affiliated with China A-Share Fund

Period Ended June 30, 2013

(in thousands)

Fund Name

Balance 12/31/2012

Purchases

Sales

Balance 6/30/2013

Value

William Blair China A-Share Fund, LLC

1,183,400

—

—

1,183,400

$12,260

$12,260

 

Affiliated Funds accounted for $426 of change in net unrealized depreciation on investments during the period.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

45

	INTERNATIONAL EQUITY FUND
	The International Equity Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGER
David Merjan	The William Blair International Equity Fund (Class N shares) posted a 2.90% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI World Ex-U.S. Index (net) (the “Index”), increased 3.01%.   The key detractor from year to date results was the Fund’s regional positioning, which detracted approximately 2% from relative performance. In particular, the Fund’s emerging markets exposure averaged 12% during the period, which detracted from results, given the severe underperformance of emerging markets relative to developed markets. In addition, the underweighting in Japan hampered performance, given market strength, coupled with the Fund’s strong stock selection. Conversely, stock selection was strong across most regions, with particular value added in Japan. Fuji Heavy, the manufacturer of Subarus, was a key contributor to performance, on good operating results and positive guidance, coupled with positive sentiment surrounding Japanese stocks generally, and exporters particularly. The Fund’s overweighting of Japanese Financials added value, as they were up nearly 24% during the period, bolstered by strong results across most holdings. Yahoo Japan was another key contributor, given increased ad spend and increased guidance. Canadian stock selection was bolstered by minimal Resources holdings, while the Healthcare overweighting and Industrials stock selection drove Europe Ex-U.K. results.   Overall sector positioning did not change substantially during the period. Financials, which totaled approximately 22% of the Fund, was below the 26.2% Index weighting, due primarily to the underweighting in Commercial Banks. Industrials was approximately 6% overweighted versus the Index, while Information Technology was approximately 10% overweighted. Conversely, Energy, and Materials were underweighted as was Consumer Staples. Regionally, the Fund’s emerging markets weighting 10.5%, due primarily to a focus on Asian exporters. This weighting represented a decrease since the beginning of the year. The Fund was also overweighted in the U.K., which totaled 27.0% of the Fund, above the 17.5% Index weighting, given significant exposure in Financials and Industrials. Conversely, Europe was most underweighted at 34.4% of the Fund, well below the 41.2% Index weighting, despite the significant Healthcare weighting, given limited Energy and Financials exposure.

 

46

Semi-Annual Report

June 30, 2013

International Equity Fund

 

Performance Highlights (Unaudited)

 

Average Annual Total Return at 6/30/2013
		Year																Since
		to Date				1 Year				3 Year				5 Year				Inception(a)
Class N			2.90	%			15.72	%			8.80	%			(2.23	)%			4.11	%
Class I			3.12				16.13				9.07				(1.97	)			4.40
MSCI World Ex-U.S. Index (net)			3.01				17.07				9.43				(0.84	)			5.99

 

(a)	For the period from May 24, 2004 (Commencement of Operations) to June 30, 2013.

 

 

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 . From time to time the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) World Ex-U.S. Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

47

International Equity Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Europe—34.4%
	Belgium—1.2%
	UCB S.A. (Pharmaceuticals)			15,077				$	812
	Denmark—2.0%
	Coloplast A/S Class “B” (Health care equipment & supplies)			11,347					636
	Novo Nordisk A/S Class “B” (Pharmaceuticals)			4,880					761
									1,397
	France—10.7%
	BNP Paribas S.A. (Commercial banks)			11,535					630
	Christian Dior S.A. (Textiles, apparel & luxury goods)			4,463					720
	Dassault Systemes S.A. (Software)			5,388					659
	Essilor International S.A. (Health care equipment & supplies)			8,339					887
	L’Oreal S.A. (Personal products)			3,923					645
	Publicis Groupe S.A. (Media)			14,968					1,066
	Sanofi (Pharmaceuticals)			12,381					1,283
	Technip S.A. (Energy equipment & services)			9,228					937
	Unibail-Rodamco SE (Real estate investment trusts (REITs))			3,365					784
									7,611
	Germany—4.9%
	BASF SE (Chemicals)			14,271					1,275
	Bayer AG (Pharmaceuticals)			12,705					1,355
	MTU Aero Engines AG (Aerospace & defense)			8,408					811
									3,441
	Ireland—3.7%
	Accenture plc Class “A” (IT services)†			13,726					988
	Ryanair Holdings plc—ADR (Airlines)			13,383					689
	Shire plc (Pharmaceuticals)			30,527					968
									2,645
	Netherlands—1.9%
	Unilever N.V. (Food products)			34,957					1,377
	Norway—1.4%
	Telenor ASA (Diversified telecommunication services)			49,914					989
	Spain—0.7%
	Inditex S.A. (Specialty retail)			4,128					510
	Sweden—1.3%
	Atlas Copco AB Class “A” (Machinery)			37,527					906
	Switzerland—6.6%
*	Credit Suisse Group AG (Capital markets)			45,145					1,197
*	Geberit AG (Building products)			2,224					552
	Nestle S.A. (Food products)			12,373					812
	Roche Holding AG (Pharmaceuticals)			4,841					1,204
	Syngenta AG (Chemicals)			2,412					944
									4,709

	Issuer		Shares				Value
	Common Stocks—(continued)
	United Kingdom—27.0%
	Antofagasta plc (Metals & mining)			74,639				$	903
	ARM Holdings plc (Semiconductors & semiconductor equipment)			56,014					677
	Babcock International Group plc (Commercial services & supplies)			50,694					851
	Burberry Group plc (Textiles, apparel & luxury goods)			26,290					540
	Capita plc (Professional services)			24,305					357
	Compass Group plc (Hotels, restaurants & leisure)			131,520					1,680
	Diageo plc (Beverages)			47,620					1,362
	Experian plc (Professional services)			46,172					803
	GlaxoSmithKline plc (Pharmaceuticals)			33,707					845
	HSBC Holdings plc (Commercial banks)			110,400					1,145
	IMI plc (Machinery)			52,335					987
	InterContinental Hotels Group plc (Hotels, restaurants & leisure)			25,213					693
	John Wood Group plc (Energy equipment & services)			73,510					905
	Prudential plc (Insurance)			64,137					1,049
	Reckitt Benckiser Group plc (Household products)			7,948					562
	Regus plc (Commercial services & supplies)			203,517					487
*	Rolls-Royce Holdings plc (Aerospace & defense)			85,080					1,467
	St James’s Place plc (Insurance)			128,543					1,056
	Standard Life plc (Insurance)			216,123					1,136
	Tullow Oil plc (Oil, gas & consumable fuels)			42,835					652
	Wolseley plc (Trading companies & distributors)			21,304					983
									19,140
	Japan—20.3%
	Astellas Pharma, Inc. (Pharmaceuticals)			16,600					902
	Chiyoda Corporation (Construction & engineering)			28,000					330
	Daikin Industries, Ltd. (Building products)			23,500					950
	Denso Corporation (Auto components)			21,400					1,007
	Fuji Heavy Industries, Ltd. (Automobiles)			31,000					764
	ITOCHU Corporation (Trading companies & distributors)			54,100					625
	Japan Exchange Group, Inc. (Diversified financial services)			8,000					808
	Keyence Corporation (Electronic equipment, instruments & components)			1,400					447
	Makita Corporation (Machinery)			13,400					724
	Nitto Denko Corporation (Chemicals)			10,700					688
	ORIX Corporation (Diversified financial services)			69,500					950
	Otsuka Corporation (IT services)			8,200					911
	Shin-Etsu Chemical Co., Ltd. (Chemicals)			12,900					856
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			26,500					1,216
	Sumitomo Mitsui Trust Holdings, Inc. (Commercial banks)			289,000					1,349
	Trend Micro, Inc. (Software)			27,500					873

 

See accompanying Notes to Financial Statements.

 

48

Semi-Annual Report

June 30, 2013

International Equity Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Japan—(continued)
	Yahoo! Japan Corporation (Internet software & services)			1,960				$	966
									14,366
	Emerging Asia—7.2%
	China—0.8%
	CNOOC, Ltd. (Oil, gas & consumable fuels)			346,000					587
	India—0.8%
	Tata Consultancy Services, Ltd. (IT services)			22,107					565
	Papua New Guinea—0.7%
	Oil Search, Ltd. (Oil, gas & consumable fuels)			68,769					486
	South Korea—1.8%
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			1,078					1,267
	Taiwan—1.7%
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			106,000					514
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			37,881					694
									1,208
	Thailand—1.4%
	Kasikornbank PCL (Commercial banks)			161,200					1,019
	Asia—3.4%
	Hong Kong—2.5%
	AIA Group, Ltd. (Insurance)			415,800					1,761
	Singapore—0.9%
	Keppel REIT (Real estate investment trusts (REITs))			619,800					633
	Canada—3.4%
	Brookfield Asset Management, Inc. Class “A” (Real estate management & development)†			38,360					1,382
	Canadian National Railway Co. (Road & rail)†			10,310					1,003
									2,385
	Emerging Latin America—2.0%
	Mexico—1.2%
	Fomento Economico Mexicano S.A.B. de C.V.—ADR (Beverages)			8,041					830
	Panama—0.8%
	Copa Holdings S.A. Class “A” (Airlines)† .			4,283					561
	Emerging Europe, Mid-East, Africa—1.3%
	South Africa—1.3%
	FirstRand, Ltd. (Diversified financial services)			312,106					913

			Principal
	Issuer		Amount				Value
	Common Stocks—(continued)
	Total Common Stocks—99.0% (cost $60,288)							$	70,118
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $865, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$865					865
	Total Repurchase Agreement—1.2% (cost $865)								865
	Total Investments—100.2% (cost $61,153)								70,983
	Liabilities, plus cash and other assets—(0.2)%								(119	)
	Net assets—100.0%							$	70,864

 

ADR = American Depository Receipt

† = U.S. listed foreign security

* Non-income producing securities

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials			22.2	%
Industrials			18.6	%
Information Technology			14.2	%
Health Care			13.8	%
Consumer Discretionary			10.0	%
Consumer Staples			8.0	%
Materials			6.7	%
Energy			5.1	%
Telecommunication Services			1.4	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling			28.7	%
Japanese Yen			20.5	%
Euro			19.6	%
U.S. Dollar			8.8	%
Swiss Franc			6.7	%
Hong Kong Dollar			3.3	%
Danish Krone			2.0	%
South Korean Won			1.8	%
Thai Baht			1.5	%
Norwegian Krone			1.4	%
South African Rand			1.3	%
Swedish Krona			1.3	%
All Other Currencies			3.1	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

49

	INSTITUTIONAL INTERNATIONAL EQUITY FUND
	The Institutional International Equity Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGER
David Merjan	The William Blair Institutional International Equity Fund posted a 3.14% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI World Ex-U.S. Index (net) (the “Index”), increased 3.01%.   Stock selection was strong across most regions, with particular value added in Japan. Fuji Heavy, the manufacturer of Subarus, was a key contributor to performance, on good operating results and positive guidance, coupled with positive sentiment surrounding Japanese stocks generally, and exporters particularly. The Fund’s overweighting of Japanese Financials added value, as they were up nearly 24% during the period, bolstered by strong results across most holdings. Yahoo Japan was another key contributor, given increased ad spend and increased guidance. Canadian stock selection was bolstered by minimal Resources holdings, while the Healthcare overweighting and Industrials stock selection drove Europe ex-U.K. results. The key detractor from year to date results was the Fund’s regional positioning, which detracted approximately 2% from relative performance. In particular, the Fund’s emerging markets exposure averaged 14% during the period, which detracted from results, given the severe underperformance of emerging markets relative to developed markets. In addition, the underweighting in Japan hampered performance, given market strength, coupled with the Fund’s strong stock selection.   Overall sector positioning did not change substantially during the period. Financials, which totaled approximately 22% of the Fund, was below the 26.2% Index weighting, due primarily to the underweighting in Commercial Banks. Industrials was approximately 6% overweighted versus the Index, while Information Technology was approximately 10% overweighted. Conversely, Energy, and Materials were underweighted as was Staples. Regionally, the Fund’s emerging markets weighting 10.5%, due primarily to a focus on Asian exporters. This weighting represented a decrease since the beginning of the year. The Fund was also overweighted in the U.K., which totaled 27.1% of the Fund, above the 17.5% Index weighting, given significant exposure in Financials and Industrials. Conversely, Europe was most underweighted at 34.5% of the Fund, well below the 41.1% Index weighting, despite the significant Healthcare weighting, given limited Energy and Financials exposure.

 

50

Semi-Annual Report

June 30, 2013

Institutional International Equity Fund

 

Performance Highlights (Unaudited)

 

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Institutional Class			3.14	%			16.26	%			9.50	%			(2.06	)%			3.78	%
MSCI World Ex-U.S.Index (net)			3.01				17.07				9.43				(0.84	)			4.43

 

(a)	For the period from December 1, 2004 (Commencement of Operations) to June 30, 2013.

 

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 . From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Shares of the Fund are available without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) World Ex-U.S. Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

51

Institutional International Equity Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Europe—34.5%
	Belgium—1.1%
	UCB S.A. (Pharmaceuticals)			19,240				$	1,036
	Denmark—2.0%
	Coloplast A/S Class “B” (Health care equipment & supplies)			14,480					812
	Novo Nordisk A/S Class “B” (Pharmaceuticals)			6,221					969
									1,781
	France—10.8%
	BNP Paribas S.A. (Commercial banks)			14,719					804
	Christian Dior S.A. (Textiles, apparel & luxury goods)			5,695					919
	Dassault Systemes S.A. (Software)			6,875					841
	Essilor International S.A. (Health care equipment & supplies)			10,642					1,132
	L’Oreal S.A. (Personal products)			5,006					823
	Publicis Groupe S.A. (Media)			19,100					1,360
	Sanofi (Pharmaceuticals)			15,799					1,637
	Technip S.A. (Energy equipment & services)			11,776					1,196
	Unibail-Rodamco SE (Real estate investment trusts (REITs))			4,317					1,006
									9,718
	Germany—4.9%
	BASF SE (Chemicals)			18,210					1,627
	Bayer AG (Pharmaceuticals)			16,213					1,729
	MTU Aero Engines AG (Aerospace & defense)			10,729					1,035
									4,391
	Ireland—3.7%
	Accenture plc Class “A” (IT services)†			17,482					1,258
	Ryanair Holdings plc—ADR (Airlines)			17,057					879
	Shire plc (Pharmaceuticals)			38,955					1,235
									3,372
	Netherlands—1.9%
	Unilever N.V. (Food products)			44,608					1,757
	Norway—1.4%
	Telenor ASA (Diversified telecommunication services)			63,694					1,263
	Spain—0.7%
	Inditex S.A. (Specialty retail)			5,268					650
	Sweden—1.3%
	Atlas Copco AB Class “A” (Machinery)			47,887					1,157
	Switzerland—6.7%
*	Credit Suisse Group AG (Capital markets)			57,609					1,528
*	Geberit AG (Building products)			2,838					704
	Nestle S.A. (Food products)			15,789					1,035
	Roche Holding AG (Pharmaceuticals)			6,177					1,537
	Syngenta AG (Chemicals)			3,071					1,202
									6,006

	Issuer		Shares				Value
	Common Stocks—(continued)
	United Kingdom—27.1%
	Antofagasta plc (Metals & mining)			95,055				$	1,149
	ARM Holdings plc (Semiconductors & semiconductor equipment)			71,323					862
	Babcock International Group plc (Commercial services & supplies)			64,690					1,085
	Burberry Group plc (Textiles, apparel & luxury goods)			33,548					689
	Capita plc (Professional services)			32,395					476
	Compass Group plc (Hotels, restaurants & leisure)			167,830					2,144
	Diageo plc (Beverages)			60,767					1,738
	Experian plc (Professional services)			58,919					1,024
	GlaxoSmithKline plc (Pharmaceuticals)			42,922					1,076
	HSBC Holdings plc (Commercial banks)			140,583					1,458
	IMI plc (Machinery)			66,783					1,260
	InterContinental Hotels Group plc (Hotels, restaurants & leisure)			32,174					885
	John Wood Group plc (Energy equipment & services)			93,804					1,155
	Prudential plc (Insurance)			81,843					1,338
	Reckitt Benckiser Group plc (Household products)			10,142					717
	Regus plc (Commercial services & supplies)			259,751					622
*	Rolls-Royce Holdings plc (Aerospace & defense)			108,569					1,873
	St James’s Place plc (Insurance)			163,864					1,346
	Standard Life plc (Insurance)			275,789					1,450
	Tullow Oil plc (Oil, gas & consumable fuels)			54,660					832
	Wolseley plc (Trading companies & distributors)			27,186					1,254
									24,433
	Japan—20.3%
	Astellas Pharma, Inc. (Pharmaceuticals)			21,200					1,152
	Chiyoda Corporation (Construction & engineering)			36,000					424
	Daikin Industries, Ltd. (Building products)			29,900					1,209
	Denso Corporation (Auto components)			27,400					1,289
	Fuji Heavy Industries, Ltd. (Automobiles)			39,000					961
	ITOCHU Corporation (Trading companies & distributors)			69,000					796
	Japan Exchange Group, Inc. (Diversified financial services)			10,200					1,030
	Keyence Corporation (Electronic equipment, instruments & components)			1,900					606
	Makita Corporation (Machinery)			17,000					919
	Nitto Denko Corporation (Chemicals)			13,600					875
	ORIX Corporation (Diversified financial services)			88,700					1,212
	Otsuka Corporation (IT services)			10,300					1,144
	Shin-Etsu Chemical Co., Ltd. (Chemicals)			16,500					1,095
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			33,900					1,555
	Sumitomo Mitsui Trust Holdings, Inc. (Commercial banks)			369,000					1,723
	Trend Micro, Inc. (Software)			35,000					1,112

 

See accompanying Notes to Financial Statements.

 

52

Semi-Annual Report

June 30, 2013

Institutional International Equity Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Japan—(continued)
	Yahoo! Japan Corporation (Internet software & services)			2,497				$	1,231
									18,333
	Emerging Asia—7.2%
	China—0.8%
	CNOOC, Ltd. (Oil, gas & consumable fuels)			442,000					750
	India—0.8%
	Tata Consultancy Services, Ltd. (IT services)			28,210					721
	Papua New Guinea—0.7%
	Oil Search, Ltd. (Oil, gas & consumable fuels)			87,755					620
	South Korea—1.8%
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			1,375					1,616
	Taiwan—1.7%
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			135,000					655
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			48,338					886
									1,541
	Thailand—1.4%
	Kasikornbank PCL (Commercial banks)			205,300					1,297
	Asia—3.4%
	Hong Kong—2.5%
	AIA Group, Ltd. (Insurance)			530,600					2,247
	Singapore—0.9%
	Keppel REIT (Real estate investment trusts (REITs))			790,600					808
	Canada—3.2%
	Brookfield Asset Management, Inc. Class “A” (Real estate management & development)†			43,789					1,578
	Canadian National Railway Co. (Road & rail)†			13,141					1,278
									2,856
	Emerging Latin America—2.0%
	Mexico—1.2%
	Fomento Economico Mexicano S.A.B. de C.V.—ADR (Beverages)			10,261					1,059
	Panama—0.8%
	Copa Holdings S.A. Class “A” (Airlines)†			5,462					716
	Emerging Europe, Mid-East, Africa—1.3%
	South Africa—1.3%
	FirstRand, Ltd. (Diversified financial services)			398,270					1,166
	Total Common Stocks—99.0% (cost $76,662)								89,294

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $3,446, collateralized by FNMA, 0.875%, due 10/26/17			$3,446				$	3,446
	Total Repurchase Agreement—3.8% (cost $3,446)								3,446
	Total Investments—102.8% (cost $80,108)								92,740
	Liabilities, plus cash and other assets—(2.8)%								(2,544	)
	Net assets—100.0%							$	90,196

 

 

 

ADR = American Depository Receipt

† = U.S. listed foreign security

* Non-income producing securities

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials			22.3	%
Industrials			18.7	%
Information Technology			14.0	%
Health Care			13.8	%
Consumer Discretionary			10.0	%
Consumer Staples			8.0	%
Materials			6.7	%
Energy			5.1	%
Telecommunication Services			1.4	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling			28.7	%
Japanese Yen			20.5	%
Euro			19.7	%
U.S. Dollar			8.6	%
Swiss Franc			6.7	%
Hong Kong Dollar			3.4	%
Danish Krone			2.0	%
South Korean Won			1.8	%
Thai Baht			1.5	%
Norwegian Krone			1.4	%
South African Rand			1.3	%
Swedish Krona			1.3	%
All Other Currencies			3.1	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

53

	INTERNATIONAL LEADERS FUND
	The International Leaders Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
W. George Greig       Kenneth J. McAtamney       Simon Fennell	The William Blair International Leaders Fund (Class N shares) posted a 2.50% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI ACW ex-U.S. IMI Index (net) (the “Index”), increased 0.18%.   The Fund’s outperformance relative to the Index was driven by overall sector positioning, coupled with Materials and Financials stock selection and regional stock selection more broadly. Within Materials, the Fund’s underweighting and stock selection in Mining added value, as did performance in the overweighted Chemicals industry. Financials stock selection was driven by Insurance performance, as the Fund’s stocks rose 11.5%, compared to the 6.2% Index return. In addition, Japanese financials added value, as did Partners Group. Regionally, developed Asia performance was strong, while Europe ex-U.K. lagged due to weakness in Consumer Discretionary, Energy, Healthcare, and Materials, as did Emerging Asia.   We continue to find the prospects for a resurgent Japan promising. Though evidence of Prime Minister Abe’s “third arrow” of corporate reform remains anecdotal, we are focusing our research on those companies that have demonstrated high or improving returns, growth potential, and shareholder orientation on par with leading companies globally. Thus, the biggest regional change was the 7.8% increased Japanese weighting to 17.8% of the Fund. More broadly, we purchased companies in the Consumer Discretionary and Industrial sectors where the growth outlook was improving while valuations remained reasonable. The sources of funds for these purchases came primarily from sales in the emerging markets and Financials. Emerging markets declined approximately 4%, while Financials was reduced approximately 5%. As of June 30, the largest sector overweightings were in Consumer Discretionary, Healthcare, and Industrials, while the largest underweightings were in the Resources-related sectors and Consumer Staples.

 

54

Semi-Annual Report

June 30, 2013

International Leaders Fund

 

Performance Highlights (Unaudited)

 

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				Since Inception
Class N(a)			2.50	%			10.86	%
Class I(a)			2.68				11.16
MSCI ACW Ex-U.S. IMI (net)(a)			0.18				9.81
Institutional Class(b)			2.78				8.61
MSCI ACW Ex-U.S. IMI (net)(b)			0.18				4.93

 

(a)	Since inception is for the period from August 16, 2012 (Commencement of Operations) to June 30, 2013.
(b)	Since inception is for the period from November 2, 2012 (Commencement of Operations) to June 30, 2013.

 

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 . From time to time the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Ex-U.S. Investable Market Index (IMI) (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

55

International Leaders Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Europe, Mid-East—40.5%
	Denmark—2.9%
	Coloplast A/S Class “B” (Health care equipment & supplies)			17,480				$	980
	Novo Nordisk A/S Class “B” (Pharmaceuticals)			4,982					777
									1,757
	France—8.4%
	BNP Paribas S.A. (Commercial banks)			33,805					1,847
	Dassault Systemes S.A. (Software)			9,916					1,213
	Publicis Groupe S.A. (Media)			15,496					1,104
	Technip S.A. (Energy equipment & services)			9,851					1,000
									5,164
	Germany—6.6%
	Bayerische Motoren Werke AG (Automobiles)			15,425					1,349
	Brenntag AG (Trading companies & distributors)			5,282					802
	Fresenius SE & Co. KGaA (Health care providers & services)			11,428					1,409
	SAP AG (Software)			6,880					504
									4,064
	Ireland—1.6%
	Ryanair Holdings plc—ADR (Airlines)			19,593					1,010
	Israel—1.4%
*	Check Point Software Technologies, Ltd. (Software)†			17,664					877
	Netherlands—1.8%
	Unilever N.V. (Food products)			27,819					1,095
	Norway—2.8%
	Statoil ASA (Oil, gas & consumable fuels)			42,311					873
	Telenor ASA (Diversified telecommunication services)			16,067					318
	TGS Nopec Geophysical Co. ASA (Energy equipment & services)			19,443					565
									1,756
	Spain—1.1%
	Inditex S.A. (Specialty retail)			5,584					689
	Sweden—2.1%
	Atlas Copco AB Class “A” (Machinery)			53,597					1,295
	Switzerland—11.8%
	Cie Financiere Richemont S.A. (Textiles, apparel & luxury goods)			13,614					1,204
*	Geberit AG (Building products)			3,938					977
	Glencore Xstrata plc (Metals & mining)			209,623					868
	Partners Group Holding AG (Capital markets)			4,325					1,171
	Roche Holding AG (Pharmaceuticals)			7,682					1,911
	Syngenta AG (Chemicals)			3,019					1,181
									7,312

	Issuer		Shares				Value
	Common Stocks—(continued)
	United Kingdom—24.7%
	ARM Holdings plc (Semiconductors & semiconductor equipment)			66,052				$	799
	Babcock International Group plc (Commercial services & supplies)			48,461					813
	Berkeley Group Holdings plc (Household durables)			28,759					932
	Compass Group plc (Hotels, restaurants & leisure)			102,837					1,314
	Diageo plc (Beverages)			32,370					926
	Experian plc (Professional services)			60,121					1,045
	HSBC Holdings plc (Commercial banks)			130,800					1,370
	InterContinental Hotels Group plc (Hotels, restaurants & leisure)			36,582					1,006
	John Wood Group plc (Energy equipment & services)			56,641					697
	Johnson Matthey plc (Chemicals)			25,621					1,024
	Meggitt plc (Aerospace & defense)			127,755					1,006
*	Rolls-Royce Holdings plc (Aerospace & defense)			43,287					747
	St James’s Place plc (Insurance)			94,527					776
	The Weir Group plc (Machinery)			28,450					931
	Tullow Oil plc (Oil, gas & consumable fuels)			48,025					731
	Wolseley plc (Trading companies & distributors)			25,564					1,179
									15,296
	Japan—17.8%
	Astellas Pharma, Inc. (Pharmaceuticals)			23,000					1,250
	Fuji Heavy Industries, Ltd. (Automobiles)			51,959					1,281
	Lawson, Inc. (Food & staples retailing)			8,600					656
	Makita Corporation (Machinery)			21,400					1,156
	ORIX Corporation (Diversified financial services)			113,100					1,545
	Secom Co., Ltd. (Commercial services & supplies)			21,500					1,171
	Shin-Etsu Chemical Co., Ltd. (Chemicals)			15,300					1,015
	Sumitomo Mitsui Financial Group, Inc. (Commercial banks)			35,500					1,629
	Yahoo! Japan Corporation (Internet software & services)			2,636					1,300
									11,003
	Emerging Europe, Mid-East, Africa—5.7%
	Kenya—1.0%
	Safaricom, Ltd. (Wireless telecommunication services)			8,105,800					624
	South Africa—4.0%
	Aspen Pharmacare Holdings, Ltd. (Pharmaceuticals)			25,489					585
	Bidvest Group, Ltd. (Industrial conglomerates)			33,796					837
	Discovery, Ltd. (Insurance)			120,126					1,022
									2,444

 

See accompanying Notes to Financial Statements.

 

56

Semi-Annual Report

June 30, 2013

International Leaders Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Europe, Mid-East, Africa—(continued)
	Turkey—0.7%
	Turkiye Halk Bankasi A.S. (Commercial banks)			51,526				$	437
	Emerging Asia—4.4%
	India—1.3%
	Tata Motors, Ltd.—ADR (Automobiles)			34,700					813
	Indonesia—1.0%
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			815,000					637
	South Korea—2.1%
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			1,087					1,277
	Asia—2.9%
	Hong Kong—2.9%
	AIA Group, Ltd. (Insurance)			429,000					1,817
	Canada—2.0%
	Brookfield Asset Management, Inc. Class “A” (Real estate management & development)†			34,240					1,233
	Emerging Latin America—1.5%
	Mexico—1.5%
	Fomento Economico Mexicano S.A.B. de C.V.—ADR (Beverages)			9,012					930
	Total Common Stocks—99.5% (cost $60,848)								61,530
	Total Investments—99.5% (cost $60,848)								61,530
	Cash and other assets, less liabilities—0.5%								283
	Net assets—100.0%							$	61,813

 

 

 

ADR = American Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

 

 

 

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Industrials	21.1%
Financials	19.9%
Consumer Discretionary	15.8%
Information Technology	11.7%
Health Care	11.2%
Materials	6.6%
Energy	6.3%
Consumer Staples	5.9%
Telecommunication Services	1.5%
Total	100.0%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling	24.0%
Euro	17.9%
Japanese Yen	17.9%
Swiss Franc	10.5%
U.S. Dollar	7.9%
Hong Kong Dollar	5.2%
South African Rand	4.0%
Danish Krone	2.9%
Norwegian Krone	2.8%
Swedish Krona	2.1%
South Korean Won	2.1%
Indonesian Rupiah	1.0%
Kenyan Shilling	1.0%
All Other Currencies	0.7%
Total	100.0%

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

57

	INTERNATIONAL SMALL CAP GROWTH FUND
	The International Small Cap Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Jeffrey A. Urbina     Andrew G. Flynn	The William Blair International Small Cap Growth Fund (Class N shares) posted a 6.91% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI All Country World Ex-U.S. Small Cap Index (net) (the “Index”), increased 1.83%.   The Fund’s outperformance relative to the Index was driven by stock selection in Consumer Discretionary, Financials, and Materials. The Fund’s Consumer Discretionary stocks rallied approximately 19%, well ahead of the 10.3% Index return, as U.K. and Japanese specialty and internet retailers added value, in addition to Japanese auto component manufacturers. The Fund’s Financials stocks rose approximately 8.5% during the period, well ahead of the 2% Index return, due to strong performance by the Fund’s REIT holdings, coupled with Suruga Bank, the Japanese regional bank, which rose on positive results and positive Japanese sentiment, and Azimut, the Italian asset management company, on good earnings results amidst strong positive fund flows. Materials benefited from strong stock performance by Hoganas, the Fund’s sole Metals/Mining holding, which was up approximately 25% during the period, as it was acquired. Emerging Markets stock selection also augmented results, as did strong performance across developed market regions. The Fund’s focus on Japan and the U.K. at the expense of Canada was additive as well. Somewhat detracting from positive year to date results was Energy and Telecom Services stock selection, coupled with the underweighting in Financials.   After increasing Japanese holdings in the first quarter, we reduced Japan on valuation concerns in May, as the market rallied substantially with cash largely reinvested in Europe-Ex U.K. holdings. As of June 30, the U.K. remained the most overweighted at 26.2% of the Fund, well ahead of the 14.2% Index weighting, while emerging markets totaled 12.8%, well below the 22.6% weighting of the Index, and a decline since December 31, due to concerns about slower growth in the short term. From a sector perspective, the Fund remained most overweighted versus the Index in Consumer Discretionary (25.3% v. 18.4%), Healthcare (13.9% v. 5.7%), and Information Technology (“IT”) (17.3% v. 10.4%), and most underweighted versus the Index in Financials (12.9% v. 19.9%) and Industrials (10.5% v. 19.0%). Since year end, IT increased from 11.8% to 17.3% of the Fund, while Consumer Staples, Energy, and Telecom Services declined.

 

58

Semi-Annual Report

June 30, 2013

International Small Cap Growth Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013

		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Class N			6.91	%			21.58	%			13.47	%			3.11	%			6.67	%
Class I			7.07				22.00				13.84				3.46				7.01
Institutional Class			7.18				22.22				14.08				3.67				7.20
MSCI ACW Ex-U.S. Small Cap Index (net)			1.83				15.94				9.16				2.65				5.85

 

(a)	For the period from November 1, 2005 (Commencement of Operations) to June 30, 2013.

 

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 . 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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) All Country World (ACW) Ex-U.S. Small Cap Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of small capitalization developed and emerging markets, excluding the United States. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

59

International Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Europe—26.7%
	Belgium—0.8%
	Melexis N.V. (Semiconductors & semiconductor equipment)			56,818				$	1,195
*	ThromboGenics N.V. (Biotechnology)			120,666					4,626
									5,821
	Denmark—4.1%
	GN Store Nord A/S (Health care equipment & supplies)			629,397					11,896
*	Matas A/S (Specialty retail)			29,430					603
	SimCorp A/S (Software)			238,665					7,081
*	Topdanmark A/S (Insurance)			470,613					11,991
									31,571
	Finland—1.1%
	Tikkurila Oyj (Chemicals)			361,521					8,164
	France—0.4%
*	GameLoft SE (Software)			480,904					3,368
	Germany—6.9%
	Bertrandt AG (Professional services)			33,076					3,553
	Deutsche Wohnen AG (Real estate management & development)			531,568					9,026
	ElringKlinger AG (Auto components)			168,825					5,635
	Gerry Weber International AG (Textiles, apparel & luxury goods)			73,524					3,110
	Pfeiffer Vacuum Technology AG (Machinery)			41,396					4,289
	Wincor Nixdorf AG (Computers & peripherals)			294,776					15,985
	Wirecard AG (IT services)			426,204					11,600
									53,198
	Ireland—1.1%
	Paddy Power plc (Hotels, restaurants & leisure)			92,993					7,979
	Italy—4.4%
	Azimut Holding SpA (Capital markets)			724,559					13,195
	Brembo SpA (Auto components)			244,301					4,360
	De’Longhi SpA (Household durables)			80,675					1,261
	Recordati SpA (Pharmaceuticals)			854,881					9,486
*	Yoox SpA (Internet & catalog retail)			254,867					5,477
									33,779
	Norway—2.6%
*	Algeta ASA (Biotechnology)			73,510					2,798
	Borregaard ASA (Chemicals)			944,414					4,120
	Opera Software ASA (Internet software & services)			830,051					6,423
	Prosafe SE (Energy equipment & services)			757,542					6,653
									19,994
	Spain—1.1%
	Viscofan S.A. (Food products)			172,370					8,636

	Issuer		Shares				Value
	Common Stocks—(continued)
	Europe—(continued)
	Sweden—3.4%
	Axis Communications AB (Communications equipment)			291,710				$	7,212
	Hexpol AB (Chemicals)			158,759					10,345
	JM AB (Household durables)			320,661					6,766
	Nolato AB (Communications equipment)			118,780					2,055
									26,378
	Switzerland—0.8%
	Burckhardt Compression Holding AG (Machinery)			15,516					6,176
	United Kingdom—26.2%
	Abcam plc (Biotechnology)			1,125,991					7,766
	Alent plc (Chemicals)			982,962					4,904
*	ASOS plc (Internet & catalog retail)			252,047					15,506
	Aveva Group plc (Software)			318,176					10,908
	AZ Electronic Materials S.A. (Chemicals)			2,256,662					10,544
	Big Yellow Group plc (Real estate investment trusts (REITs))			312,614					1,829
	Booker Group plc (Food & staples retailing)			6,372,000					11,775
	Cineworld Group plc (Media)			622,515					3,212
*	Countrywide plc (Real estate management & development)			1,045,557					8,031
	Domino’s Pizza Group plc (Hotels, restaurants & leisure)			463,189					4,723
	Dunelm Group plc (Specialty retail)			889,020					12,805
	Elementis plc (Chemicals)			2,010,113					6,708
	Fidessa Group plc (Software)			196,525					5,763
	Howden Joinery Group plc (Specialty retail)			3,035,504					11,699
	Keller Group plc (Construction & engineering)			115,914					1,747
	Lancashire Holdings, Ltd. (Insurance)			888,860					10,707
	Moneysupermarket.com Group plc (Internet software & services)			2,892,596					8,429
*	Nanoco Group plc (Semiconductors & semiconductor equipment)			1,762,211					3,538
*	Ocado Group plc (Internet & catalog retail)			1,148,326					5,210
	Oxford Instruments plc (Electronic equipment, instruments & components)			366,684					6,743
	Provident Financial plc (Consumer finance)			632,216					14,318
	Regus plc (Commercial services & supplies)			3,062,555					7,327
	Restaurant Group plc (Hotels, restaurants & leisure)			993,062					7,552
	RPS Group plc (Commercial services & supplies)			724,487					2,226
*	Salamander Energy plc (Oil, gas & consumable fuels)			1,574,706					3,449
	Senior plc (Machinery)			1,831,788					6,976
	Synergy Health plc (Health care providers & services)			196,553					3,372
	Ted Baker plc (Textiles, apparel & luxury goods)			129,909					3,359
									201,126

 

See accompanying Notes to Financial Statements.

 

60

Semi-Annual Report

June 30, 2013

International Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Japan—20.2%
	Cosmos Pharmaceutical Corporation (Food & staples retailing)			77,200				$	7,815
	CyberAgent, Inc. (Media)			1,705					3,266
	Don Quijote Co., Ltd. (Multiline retail)			166,300					8,090
	F.C.C. Co., Ltd. (Auto components)			486,709					11,503
	Kakaku.com, Inc. (Internet software & services)			446,700					13,624
	M3, Inc. (Health care technology)			1,778					3,994
	Miraca Holdings, Inc. (Health care providers & services)			166,800					7,669
	MISUMI Group, Inc. (Trading companies & distributors)			262,300					7,212
	MonotaRO Co., Ltd. (Trading companies & distributors)			154,600					3,768
	Nihon M&A Center, Inc. (Professional services)			62,300					3,474
	Nippon Kayaku Co., Ltd. (Chemicals)			260,000					3,240
*	Nippon Prologis REIT, Inc. (Real estate investment trusts (REITs))			443					3,855
	Nissan Chemical Industries, Ltd. (Chemicals)			618,900					8,337
	Park24 Co., Ltd. (Commercial services & supplies)			676,100					12,264
	Ryohin Keikaku Co., Ltd. (Multiline retail)			125,400					10,292
	Sawai Pharmaceutical Co., Ltd. (Pharmaceuticals)			74,000					8,841
	Ship Healthcare Holdings, Inc. (Health care providers & services)			173,300					6,378
	Sundrug Co., Ltd. (Food & staples retailing)			264,600					11,232
	TS Tech Co., Ltd. (Auto components)			378,000					12,005
	United Arrows, Ltd. (Specialty retail)			198,300					8,287
									155,146
	Emerging Asia—11.1%
	China—3.3%
	China Medical System Holdings, Ltd. (Pharmaceuticals)			8,867,000					7,911
	China Overseas Grand Oceans Group, Ltd. (Real estate management & development)			5,478,000					6,992
	Dongyue Group (Chemicals)			6,363,000					2,543
	Haitian International Holdings, Ltd. (Machinery)			3,828,496					5,598
	Sino Biopharmaceutical (Pharmaceuticals)			3,176,000					2,060
									25,104
	India—3.4%
	Glenmark Pharmaceuticals, Ltd. (Pharmaceuticals)			1,208,859					11,153
	Ipca Laboratories, Ltd. (Pharmaceuticals)			694,363					7,656
	Motherson Sumi Systems, Ltd. (Auto components)			1,904,902					6,355
	Oberoi Realty, Ltd. (Real estate management & development)			328,318					1,093
									26,257

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	Indonesia—0.5%
	PT Ace Hardware Indonesia Tbk (Specialty retail)			26,233,000				$	1,956
	PT Mitra Adiperkasa Tbk (Multiline retail)			2,160,500					1,524
									3,480
	Malaysia—0.4%
	Hartalega Holdings Bhd (Health care equipment & supplies)			986,300					1,998
	Silverlake Axis, Ltd. (Software)			2,304,000					1,354
									3,352
	South Korea—0.9%
*	Cheil Worldwide, Inc. (Media)			328,150					7,068
	Taiwan—2.6%
	Chipbond Technology Corporation (Semiconductors & semiconductor equipment)			1,827,527					4,482
	Eclat Textile Co., Ltd. (Textiles, apparel & luxury goods)			511,000					3,776
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			2,417,000					11,734
									19,992
	Asia—7.8%
	Australia—4.0%
	carsales.com, Ltd. (Internet software & services)			1,054,661					9,096
	Domino’s Pizza Enterprises, Ltd. (Hotels, restaurants & leisure)			190,884					1,950
	DuluxGroup, Ltd. (Chemicals)			1,657,035					6,380
	FlexiGroup, Ltd. (Consumer finance)			874,056					3,485
	Super Retail Group, Ltd. (Specialty retail)			908,115					9,941
									30,852
	Hong Kong—1.3%
	Sa Sa International Holdings, Ltd. (Specialty retail)			3,608,000					3,582
	SmarTone Telecommunications Holdings, Ltd. (Wireless telecommunication services)			3,847,500					6,389
									9,971
	New Zealand—1.0%
	Ryman Healthcare, Ltd. (Health care providers & services)			1,476,767					7,290
	Singapore—1.5%
	ARA Asset Management Ltd.—144A (Capital markets)			1,345,300					1,847
	First Resources, Ltd. (Food products)			4,865,000					6,813
	SATS, Ltd. (Transportation infrastructure)			1,160,000					3,011
									11,671

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

61

International Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares or Principal Amount				Value
	Common Stocks—(continued)
	Canada—4.5%
	Canadian Energy Services & Technology Corporation (Energy equipment & services)			423,357				$	6,574
*	Legacy Oil + Gas, Inc. (Oil, gas & consumable fuels)			1,312,910					6,180
	Precision Drilling Corporation (Energy equipment & services)			919,619					7,826
	Total Energy Services, Inc. (Energy equipment & services)			216,430					2,994
	Westjet Airlines, Ltd. (Airlines)			521,374					11,164
									34,738
	Emerging Europe, Mid-East, Africa—1.4%
	Turkey—1.4%
	Dogus Otomotiv Servis ve Ticaret A.S. (Distributors)			358,552					1,818
	Turkiye Sinai Kalkinma Bankasi A.S. (Commercial banks)			8,640,409					8,557
									10,375
	Emerging Latin America—0.3%
	Mexico—0.3%
*	Macquarie Mexico Real Estate Management S.A. de C.V.—144A (Real estate investment trusts (REITs))			874,140					1,889
	Total Common Stocks—98.2% (cost $671,270)								753,375
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $15,669, collateralized by FNMA, 0.875%, due 10/26/17			$15,669					15,669
	Total Repurchase Agreement—2.0% (cost $15,669)								15,669
	Total Investments—100.2% (cost $686,939)								769,044
	Liabilities, plus cash and other assets—(0.2)%								(1,835	)
	Net assets—100.0%							$	767,209

 

 

* Non-income producing securities

 

 

 

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Consumer Discretionary		25.3	%
Information Technology		17.3	%
Health Care		13.9	%
Financials		12.9	%
Industrials		10.5	%
Materials		8.7	%
Consumer Staples		6.1	%
Energy		4.5	%
Telecommunication Services		0.8	%
Total		100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

British Pound Sterling		26.7	%
Japanese Yen		20.6	%
Euro		16.0	%
Hong Kong Dollar		4.7	%
Canadian Dollar		4.6	%
Danish Krone		4.2	%
Australian Dollar		4.1	%
Swedish Krona		3.5	%
Indian Rupee		3.5	%
Norwegian Krone		2.7	%
New Taiwan Dollar		2.6	%
Singapore Dollar		1.7	%
Turkish Lira		1.4	%
All Other Currencies		3.7	%
Total		100.0	%

 

See accompanying Notes to Financial Statements.

 

62

Semi-Annual Report

June 30, 2013

	EMERGING MARKETS GROWTH FUND
	The Emerging Markets Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Todd M. McClone     Jeffrey A. Urbina	The William Blair Emerging Markets Growth Fund (Class N shares) posted a 6.27% decrease, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI Emerging Markets IMI Index (net) (the “Index”), decreased 8.89%.   While the Fund outperformed the Index, it was down in absolute terms, given weakness in Emerging Markets in general during the period. This weakness was precipitated by lower demand for commodities, coupled with concerns of a structural slowdown in China and expectations of rising interest rates in the United States.   The Fund’s performance relative to the Index was driven by strong performance across sectors and regions, coupled with overall sector positioning. In particular, the Fund’s Materials stocks added value year to date, due largely to the underweighting and stock selection in Metals/Mining, coupled with good results by Indocement Tunggal Prakarsa, the Indonesian cement company. Industrials stock selection was strong, as the Fund’s holdings were up 2.31%, well ahead of the -9.41% Index return. Low cost airlines added value, as did solid operating results from Industries Qatar and Haitian International Holdings. Consumer Staples and Financials stock selection were also additive to results. Somewhat detracting from year to date performance was Energy stock selection, particularly in Chinese Oil/Gas, as Shenhua Energy, CNOOC, and Kunlun underperformed. Regionally, Asian stock selection was bolstered by good relative performance in China, India, and Thailand, more than offsetting weakness in South Korea, particularly Hyundai Motors, which we sold on margin pressure and increasing competition. Europe, the Middle East and Africa benefited from frontier markets exposure in Qatar, UAE, Nigeria, and Kenya, coupled with good stock selection in Russia and South Africa. The Fund’s focus on companies with above average earnings trends and positive price momentum added value year to date, offsetting the higher quality focus and higher valuation, which hampered results.   Consumer Discretionary and Consumer Staples each represented approximately 12% of the Fund, ahead of the Index weightings, while Information Technology totaled 19.6% of the Fund, above the 14.8% Index weighting. Conversely, Resources were significantly underweighted, as Energy represented approximately 5% of the Fund, half the Index weighting, and Materials totaled 2.0% of the Fund, well below the 9.8% Index weighting. Regionally, the Fund remained underweighted in Asia, due largely to underweighting in Taiwan and Korea, which more than offset the India overweighting. EMEA increased to 19.5% of the Fund, despite underweightings in Europe and Russia, due largely to 5.3% exposure in Middle East and African frontier markets.

 

June 30, 2013

William Blair Funds

63

Emerging Markets Growth Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Class N			(6.27	)%			5.66	%			6.46	%			(1.87	)%			9.51	%
Class I			(6.07	)			5.93				6.78				(1.60	)			9.80
Institutional Class			(6.03	)			6.18				6.98				(1.43	)			9.98
MSCI Emerging Markets IMI (net)			(8.89	)			3.66				3.43				0.16				9.49

 

(a)	For the period from June 6, 2005 (Commencement of Operations) to June 30, 2013.

 

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 . From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) Emerging Markets Investable Market Index (IMI) (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

64

Semi-Annual Report

June 30, 2013

Emerging Markets Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Emerging Asia—53.8%
	Cambodia—0.3%
	NagaCorp, Ltd. (Hotels, restaurants & leisure)			2,874,000				$	2,242
	China—17.4%
	AAC Technologies Holdings, Inc. (Communications equipment)			767,959					4,337
	Biostime International Holdings, Ltd. (Food products)			299,000					1,677
	China BlueChemical, Ltd. (Chemicals)			3,590,609					2,194
	China Mobile, Ltd. (Wireless telecommunication services)			2,570,309					26,843
	China Overseas Grand Oceans Group, Ltd. (Real estate management & development)			1,642,000					2,096
	China Overseas Land & Investment, Ltd. (Real estate management & development)			5,102,000					13,386
	China Unicom Hong Kong, Ltd. (Diversified telecommunication services)			10,364,000					13,763
	Dongyue Group (Chemicals)			3,907,287					1,562
	ENN Energy Holdings, Ltd. (Gas utilities)			1,744,000					9,298
	Haier Electronics Group Co., Ltd. (Household durables)			5,489,000					8,747
	Haitian International Holdings, Ltd. (Machinery)			2,315,870					3,386
	Kunlun Energy Co., Ltd. (Oil, gas & consumable fuels)			7,518,000					13,338
	Shenzhou International Group Holdings, Ltd. (Textiles, apparel & luxury goods)			667,000					1,918
	Sino Biopharmaceutical (Pharmaceuticals)			3,796,000					2,462
	Sun Art Retail Group, Ltd. (Food & staples retailing)			5,387,245					7,793
	Sunny Optical Technology Group Co., Ltd. (Electronic equipment, instruments & components)			1,719,000					2,074
	Tencent Holdings, Ltd. (Internet software & services)			702,835					27,566
	Want Want China Holdings, Ltd. (Food products)			6,612,217					9,311
*	WuXi PharmaTech Cayman, Inc.—ADR (Life sciences tools & services)			143,757					3,019
									154,770
	India—15.3%
	Apollo Hospitals Enterprise, Ltd. (Health care providers & services)			154,479					2,739
	Bajaj Auto, Ltd. (Automobiles)			226,153					7,322
	HCL Technologies, Ltd. (IT services)			990,957					12,940
	HDFC Bank, Ltd. (Commercial banks)			828,401					9,333
	Housing Development Finance Corporation (Thrifts & mortgage finance)			1,063,733					15,735
	IndusInd Bank, Ltd. (Commercial banks)			650,266					5,115
	ITC, Ltd. (Tobacco)			3,985,041					21,751
	Lupin, Ltd. (Pharmaceuticals)			559,430					7,357
	Marico, Ltd. (Personal products)			567,382					1,983

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	India—(continued)
	Motherson Sumi Systems, Ltd. (Auto components)			1,011,710				$	3,375
	Sun Pharmaceutical Industries, Ltd. (Pharmaceuticals)			713,243					12,141
	Tata Consultancy Services, Ltd. (IT services)			518,104					13,236
	Tata Motors, Ltd. (Automobiles)			4,501,204					21,307
	Yes Bank, Ltd. (Commercial banks)			273,097					2,119
									136,453
	Indonesia—3.4%
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			12,047,321					9,407
	PT Indocement Tunggal Prakarsa Tbk (Construction materials)			1,795,500					4,423
	PT Jasa Marga Persero Tbk (Transportation infrastructure)			3,771,000					2,299
	PT Kalbe Farma Tbk (Pharmaceuticals)			17,712,915					2,570
*	PT Matahari Department Store Tbk (Multiline retail)			2,078,000					2,429
	PT Telekomunikasi Indonesia Persero Tbk (Diversified telecommunication services)			8,042,000					9,115
									30,243
	Malaysia—2.7%
	CIMB Group Holdings Bhd (Commercial banks)			6,379,787					16,720
	Guinness Anchor Bhd (Beverages)			331,400					1,999
*	IHH Healthcare Bhd (Health care providers & services)			4,520,000					5,651
									24,370
	Papua New Guinea—1.0%
	Oil Search, Ltd. (Oil, gas & consumable fuels)			1,299,864					9,189
	Philippines—1.1%
	SM Prime Holdings, Inc. (Real estate management & development)			18,287,700					6,900
	Universal Robina Corporation (Food products)			1,069,710					3,096
									9,996
	South Korea—5.0%
*	Cheil Worldwide, Inc. (Media)			105,200					2,266
	GS Home Shopping, Inc. (Internet & catalog retail)			10,945					2,267
	Hana Tour Service, Inc. (Hotels, restaurants & leisure)			36,196					2,279
	LG Household & Health Care, Ltd. (Household products)			4,622					2,258
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			29,840					35,064
									44,134

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

65

Emerging Markets Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	Taiwan—5.1%
	Asustek Computer, Inc. (Computers & peripherals)			941,000				$	8,100
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			693,000					3,364
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			1,647,918					30,190
	TPK Holding Co., Ltd. (Electronic equipment, instruments & components)			251,979					4,036
									45,690
	Thailand—2.5%
	Advanced Info Service PCL (Wireless telecommunication services)			836,262					7,603
	Bangkok Dusit Medical Services PCL (Health care providers & services)			472,000					2,397
	BEC World PCL (Media)			1,113,300					2,109
	Kasikornbank PCL (Commercial banks)			1,598,182					10,100
									22,209
	Emerging Europe, Mid-East, Africa—19.5%
	Kenya—0.1%
	Safaricom, Ltd. (Wireless telecommunication services)			15,213,800					1,170
	Nigeria—1.2%
	Guaranty Trust Bank plc (Commercial banks)			40,269,497					6,021
	Nestle Nigeria plc (Food products)			344,565					2,056
	Nigerian Breweries plc (Beverages)			2,375,731					2,282
									10,359
	Poland—0.4%
	Eurocash S.A. (Food & staples retailing)			220,047					3,888
	Qatar—2.3%
	Industries Qatar QSC (Industrial conglomerates)			406,490					17,698
	Qatar National Bank S.A.Q. (Commercial banks)			59,840					2,613
									20,311
	Russia—4.0%
*	Etalon Group Ltd.—144A—GDR (Real estate management & development)			448,600					1,539
	M Video OJSC (Specialty retail)			278,070					2,014
	Magnit OJSC (Food & staples retailing) †			64,131					14,756
	Mail.ru Group Ltd.—144A—GDR (Internet software & services) †			28,376					813
	Mail.ru Group, Ltd.—GDR (Internet software & services)			74,481					2,135
*	Yandex N.V. Class “A” (Internet software & services)†			517,514					14,299
									35,556

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Europe, Mid-East, Africa—(continued)
	South Africa—6.9%
	Bidvest Group, Ltd. (Industrial conglomerates)			285,076				$	7,064
	Discovery, Ltd. (Insurance)			329,789					2,804
	FirstRand, Ltd. (Diversified financial services)			3,406,500					9,970
	Life Healthcare Group Holdings, Ltd. (Health care providers & services)			634,643					2,408
	Mr. Price Group, Ltd. (Specialty retail)			233,156					3,177
	MTN Group, Ltd. (Wireless telecommunication services)			633,027					11,783
	Naspers, Ltd. (Media)			236,721					17,481
	Shoprite Holdings, Ltd. (Food & staples retailing)			370,345					6,950
									61,637
	Turkey—2.9%
	Coca-Cola Icecek A.S. (Beverages)			217,949					6,272
*	Pegasus Hava Tasimaciligi A.S. (Airlines)			233,156					2,768
	Tofas Turk Otomobil Fabrikasi A.S. (Automobiles)			786,224					4,912
	Turkiye Halk Bankasi A.S. (Commercial banks)			1,384,825					11,740
									25,692
	United Arab Emirates—1.7%
	Dragon Oil plc (Oil, gas & consumable fuels)			491,246					4,277
	First Gulf Bank PJSC (Commercial banks)			2,402,721					10,434
									14,711
	Emerging Latin America—19.4%
	Argentina—0.3%
	MercadoLibre, Inc. (Internet software & services)			27,576					2,972
	Brazil—8.8%
*	BB Seguridade Participacoes S.A. (Insurance)			1,662,300					13,112
	BR Malls Participacoes S.A. (Real estate management & development)			466,890					4,181
	CCR S.A (Transportation infrastructure)			1,177,489					9,340
	Cia de Bebidas das Americas—ADR (Beverages)			472,321					17,641
	Embraer S.A.—ADR (Aerospace & defense)			237,821					8,773
	Grendene S.A. (Textiles, apparel & luxury goods)			213,900					1,942
	Iguatemi Empresa de Shopping Centers S.A. (Real estate management & development)			205,200					2,021
	Iochpe-Maxion S.A. (Machinery)			30,800					332
	Kroton Educacional S.A. (Diversified consumer services)			302,680					4,192
	Localiza Rent a Car S.A. (Road & rail)			188,510					2,670
	Lojas Renner S.A. (Multiline retail)			107,722					3,087
	Totvs S.A. (Software)			146,232					2,293
	Tractebel Energia S.A. (Independent power producers & energy traders)			551,538					8,570
									78,154

 

See accompanying Notes to Financial Statements.

 

66

Semi-Annual Report

June 30, 2013

Emerging Markets Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Latin America—19.4%
	Chile—2.0%
	Banco Santander Chile—ADR (Commercial banks)			107,230				$	2,622
	CFR Pharmaceuticals S.A. (Pharmaceuticals)			9,180,599					2,073
	Inversiones La Construccion S.A. (Diversified financial services)			170,487					2,611
	S.A.C.I. Falabella (Multiline retail)			718,000					7,773
	Sonda S.A. (IT services)			902,353					2,628
									17,707
	Colombia—2.0%
	Ecopetrol S.A. (Oil, gas & consumable fuels)			3,456,625					7,339
	Pacific Rubiales Energy Corporation (Oil, gas & consumable fuels)			601,269					10,559
									17,898
	Mexico—4.6%
	Fibra Uno Administracion S.A. de C.V. (Real estate investment trusts (REITs))			1,818,769					6,107
	Fomento Economico Mexicano S.A.B. de C.V.—ADR (Beverages)			44,841					4,627
	Grupo Financiero Banorte S.A.B. de C.V. (Commercial banks)			2,801,210					16,733
	Grupo Mexico S.A.B. de C.V. Series “B” (Metals & mining)			3,009,067					8,709
	Grupo Sanborns S.A. de C.V. (Multiline retail)			2,008,600					4,483
									40,659
	Panama—0.4%
	Copa Holdings S.A. Class “A” (Airlines) †			28,320					3,713
	Peru—1.3%
	Credicorp, Ltd. (Commercial banks) †			74,469					9,529
	Intercorp Financial Services, Inc. (Diversified financial services)			68,646					2,265
									11,794
	Total Common Stocks—92.7% (cost $793,867)								825,517
	Preferred Stock
	Brazil—2.3%
	Itau Unibanco Holding S.A. (Commercial banks)			1,625,385					20,957
	Total Preferred Stock—2.3% (cost $23,239)								20,957
	Affiliated Fund
	China—2.7%
	William Blair China A-Share Fund, LLC			2,362,400					24,474
	Total Affiliated Fund—2.7% (cost $23,624)								24,474

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $8,594, collateralized by FNMA, 1.160%, due 6/28/17			$8,594				$	8,594
	Total Repurchase Agreement—1.0% (cost $8,594)								8,594
	Total Investments—98.7% (cost $849,324)								879,542
	Cash and other assets, less liabilities—1.3%								11,339
	Net assets—100.0%							$	890,881

 

 

 

ADR = American Depository Receipt

GDR = Global Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

67

Emerging Markets Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials			25.4	%
Information Technology			19.6	%
Consumer Staples			12.9	%
Consumer Discretionary			12.4	%
Telecommunication Services			8.3	%
Industrials			6.9	%
Energy			5.3	%
Health Care			5.1	%
Utilities			2.1	%
Materials			2.0	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

Hong Kong Dollar			18.0	%
U.S. Dollar			16.2	%
Indian Rupee			15.7	%
Brazilian Real			8.3	%
South African Rand			7.1	%
South Korean Won			5.1	%
Mexican Peso			4.1	%
Indonesian Rupiah			3.5	%
Turkish Lira			2.9	%
Malaysian Ringgit			2.8	%
Thai Baht			2.6	%
Qatari Rial			2.3	%
New Taiwan Dollar			1.8	%
Chilean Peso			1.7	%
Canadian Dollar			1.2	%
UAE Dirham			1.2	%
Nigerian Naira			1.2	%
Philippine Peso			1.1	%
Australian Dollar			1.1	%
All Other Currencies			2.1	%
Total			100.0	%

 

As of June 30, 2013 the Fund invested in William Blair China A-Share Fund, LLC, an affiliated fund. There are no unfunded commitments to the affiliated fund and the Fund may redeem its investment monthly.

 

Shares Activity Affiliated with China A-Share Fund

Period Ended June 30, 2013

(in thousands)

Fund Name

Balance 12/31/2012

Purchases

Sales

Balance 6/30/2013

Value

William Blair China A-Share Fund, LLC

2,362,400

—

—

2,362,400

$24,474

$24,474

 

Affiliated Funds accounted for $850 of change in net unrealized depreciation on investments during the period.

 

See accompanying Notes to Financial Statements.

 

68

Semi-Annual Report

June 30, 2013

	EMERGING MARKETS LEADERS FUND
	The Emerging Markets Leaders Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Todd M. McClone       Jeffrey A. Urbina	The William Blair Emerging Markets Leaders Fund (Class N shares) posted a 7.50% decrease, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI Emerging Markets Index (net) decreased 9.57%.   While the Fund outperformed the Index it was down in absolute terms, given weakness in Emerging Markets in general during the period. This weakness was precipitated by lower demand for commodities, coupled with concerns of a structural slowdown in China and expectations of rising interest rates in the United States.   The Fund’s performance relative to the Index resulted from strong stock selection across most sectors, coupled with overall sector positioning. The Fund’s focus on Healthcare and Staples at the expense of Materials and Energy added value. In addition, the Fund’s Industrials stocks were up 0.3%, well above the -10% Index return, due largely to a lack of Machinery holdings. Within Materials, performance benefited from an underweighting in Metals/Mining. In addition, Grupo Mexico outpaced the Mining industry as a whole during the period. The Fund’s Healthcare stocks rose 19.6%, well ahead of the 2% Index return, given strong performance by Sun Pharmaceutical and IHH Healthcare. Detracting from results was the Fund’s Energy stock selection, as oil/gas holdings underperformed. Regionally, stock selection added value across all regions, with particular value added in Europe, the Middle East and Africa, and Latin America. In EMEA, strong performance by stocks held in Qatar and the UAE (frontier markets) added value, as did strong stock selection in Russia and South Africa, given the lack of Resources exposure. Within Latin America, strong performance in Brazil and Chile more than offset weakness in Resource-oriented holdings (Ecopetrol and Pacific Rubiales) in the region.   While overall positioning did not change substantially, we reduced Financials from approximately 30% to 29%, due to a reduction in Commercial Banks, which more than offset additional weightings in Insurance names. This reduction funded an increase in Industrials to 8.7%, above the 6.3% Index weighting. We also reduced Resources on continued concerns about slowing demand and stagnating prices. Regionally, EMEA increased from approximately 17% to 19.8%, above the 17.2% Index weighting, due largely to a 4.7% weighting in frontier countries, coupled with increased exposure in South African consumer and financials-related holdings. While Latin America was slightly overweighted versus the Index, Emerging Asia totaled 53.5%, and remained significantly underweighted versus the Index, given lower weightings in Korea and Taiwan, which more than offset the higher India exposure.

 

June 30, 2013

William Blair Funds

69

Emerging Markets Leaders Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception
Class N(b)			(7.50	)%			4.15	%			4.16	%			—				1.88	%
Class I(a)			(7.41	)			4.47				4.38				(0.22	)			(0.92	)
Institutional Class(a)			(7.41	)			4.63				4.54				(0.10	)			(0.78	)
MSCI Emerging Markets Index (net)(a)			(9.57	)			2.87				3.38				(0.43	)			(0.62	)
MSCI Emerging Markets Large Cap Index (net)(a)			(9.65	)			2.73				3.54				(0.82	)			(0.73	)

 

(a)	Since Inception is for the period from March 26, 2008 (Commencement of Operations) to June 30, 2013.
(b)	Since Inception for Class N is for the period from May 3, 2010 (Commencement of Operations) to June 30, 2013. The corresponding benchmark inception returns for the MSCI Emerging Index (net) and the MSCI Emerging Markets Large Cap Index (net) are 0.36% and 0.42%, respectively.

 

 

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

 

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

 

The Morgan Stanley Capital International (MSCI) Emerging Markets Index (net) is a free float-adjusted market-capitalization-weighted index that is designed to measure equity market performance of emerging markets. This series approximates the minimum possible dividend reinvestment.

 

The Morgan Stanley Capital International (MSCI) Emerging Markets Large Cap Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure market performance of large capitalization stocks in emerging markets. This series approximates the minimum possible dividend reinvestment.

 

On December 31, 2012, the Fund’s Benchmark changed from the Morgan Stanley Capital International (MSCI) Emerging Markets Large Cap Index (net) to the Morgan Stanley Capital International (MSCI) Emerging Markets Index (net). The primary reason for this change is to compare the Fund to a benchmark that more closely reflects the market capitalization focus the Fund uses in its investment strategy.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

70

Semi-Annual Report

June 30, 2013

Emerging Markets Leaders Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Emerging Asia—53.5%
	China—17.4%
	China Mobile, Ltd. (Wireless telecommunication services)			156,500				$	1,634
	China Overseas Land & Investment, Ltd. (Real estate management & development)			634,000					1,663
	China Unicom Hong Kong, Ltd. (Diversified telecommunication services)			906,000					1,203
	Great Wall Motor Co., Ltd. Class “H” (Automobiles)			286,500					1,236
	Kunlun Energy Co., Ltd. (Oil, gas & consumable fuels)			818,000					1,451
	Sun Art Retail Group, Ltd. (Food & staples retailing)			445,500					645
	Tencent Holdings, Ltd. (Internet software & services)			47,700					1,871
	Want Want China Holdings, Ltd. (Food products)			677,000					953
									10,656
	India—14.8%
	Bajaj Auto, Ltd. (Automobiles)			24,311					787
	HCL Technologies, Ltd. (IT services)			115,477					1,508
	HDFC Bank, Ltd. (Commercial banks)			55,042					620
	Housing Development Finance Corporation (Thrifts & mortgage finance)			99,909					1,478
	ITC, Ltd. (Tobacco)			233,908					1,277
	Lupin, Ltd. (Pharmaceuticals)			37,040					487
	Sun Pharmaceutical Industries, Ltd. (Pharmaceuticals)			68,613					1,168
	Tata Consultancy Services, Ltd. (IT services)			35,589					909
	Tata Motors, Ltd. (Automobiles)			164,913					781
									9,015
	Indonesia—3.5%
	PT Bank Rakyat Indonesia Persero Tbk (Commercial banks)			1,113,000					869
	PT Jasa Marga Persero Tbk (Transportation infrastructure)			499,500					305
	PT Kalbe Farma Tbk (Pharmaceuticals)			1,435,000					208
	PT Telekomunikasi Indonesia Persero Tbk (Diversified telecommunication services)			685,500					777
									2,159
	Malaysia—4.1%
	CIMB Group Holdings Bhd (Commercial banks)			618,800					1,622
*	IHH Healthcare Bhd (Health care providers & services)			722,700					903
									2,525
	Philippines—1.2%
	SM Prime Holdings, Inc. (Real estate management & development)			1,881,700					710
	South Korea—5.2%
	LG Household & Health Care, Ltd. (Household products)			1,194					584

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	South Korea—(continued)
	Samsung Electronics Co., Ltd. (Semiconductors & semiconductor equipment)			2,194				$	2,578
									3,162
	Taiwan—4.8%
	Asustek Computer, Inc. (Computers & peripherals)			61,000					525
	Taiwan Semiconductor Manufacturing Co., Ltd.—ADR (Semiconductors & semiconductor equipment)			131,675					2,412
									2,937
	Thailand—2.5%
	Advanced Info Service PCL (Wireless telecommunication services)			75,700					688
	Kasikornbank PCL (Commercial banks)			136,000					860
									1,548
	Emerging Latin America—20.7%
	Brazil—8.8%
*	BB Seguridade Participacoes S.A. (Insurance)			144,200					1,137
	BR Malls Participacoes S.A. (Real estate management & development)			49,600					444
	CCR S.A (Transportation infrastructure)			97,700					775
	Cia de Bebidas das Americas—ADR (Beverages)			39,768					1,485
	Embraer S.A.—ADR (Aerospace & defense)			15,067					556
	Kroton Educacional S.A. (Diversified consumer services)			50,000					693
	Localiza Rent a Car S.A. (Road & rail)			18,870					267
									5,357
	Chile—1.0%
	S.A.C.I. Falabella (Multiline retail)			58,155					629
	Colombia—3.0%
	Ecopetrol S.A. (Oil, gas & consumable fuels)			300,750					639
	Pacific Rubiales Energy Corporation (Oil, gas & consumable fuels)			68,067					1,195
									1,834
	Mexico—6.3%
	Fomento Economico Mexicano S.A.B. de C.V.—ADR (Beverages)			9,354					965
	Grupo Financiero Banorte S.A.B. de C.V. (Commercial banks)			243,100					1,452
	Grupo Mexico S.A.B. de C.V. Series “B” (Metals & mining)			353,600					1,023
	Grupo Sanborns S.A. de C.V. (Multiline retail)			186,100					416
									3,856
	Panama—0.5%
	Copa Holdings S.A. Class “A” (Airlines)†			2,410					316

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

71

Emerging Markets Leaders Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Latin America—(continued)
	Peru—1.1%
	Credicorp, Ltd. (Commercial banks)†			5,437				$	696
	Emerging Europe, Mid-East, Africa—19.8%
	Nigeria—0.5%
	Guaranty Trust Bank plc (Commercial banks)			2,213,912					331
	Qatar—3.5%
	Industries Qatar QSC (Industrial conglomerates)			44,788					1,950
	Qatar National Bank S.A.Q. (Commercial banks)			3,717					162
									2,112
	Russia—5.0%
*	Magnit OJSC—144A—GDR (Food & staples retailing)†			31,246					1,787
*	Yandex N.V. Class “A” (Internet software & services)†			45,629					1,261
									3,048
	South Africa—6.9%
	Bidvest Group, Ltd. (Industrial conglomerates)			38,813					962
	Discovery, Ltd. (Insurance)			75,243					640
	FirstRand, Ltd. (Diversified financial services)			271,290					794
	Naspers, Ltd. (Media)			16,045					1,185
	Shoprite Holdings, Ltd. (Food & staples retailing)			33,471					628
									4,209
	Turkey—2.6%
	Coca-Cola Icecek A.S. (Beverages)			14,528					418
	Turkiye Halk Bankasi A.S. (Commercial banks)			136,887					1,160
									1,578
	United Arab Emirates—1.3%
	First Gulf Bank PJSC (Commercial banks)			189,402					823
	Total Common Stocks—94.0% (cost $55,962)								57,501
	Preferred Stock
	Brazil—2.7%
	Itau Unibanco Holding S.A. (Commercial banks)			129,600					1,671
	Total Preferred Stock—2.7% (cost $1,849)								1,671

			Principal
	Issuer		Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $2,926, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$2,926				$	2,926
	Total Repurchase Agreement—4.8% (cost $2,926)								2,926
	Total Investments—101.5% (cost $60,737)								62,098
	Liabilities, plus cash and other assets—(1.5)%								(928	)
	Net assets—100.0%							$	61,170

 

 

ADR = American Depository Receipt

GDR = Global Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Financials			28.9	%
Information Technology			18.6	%
Consumer Staples			14.8	%
Consumer Discretionary			9.7	%
Industrials			8.7	%
Telecommunication Services			7.3	%
Energy			5.6	%
Health Care			4.7	%
Materials			1.7	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

Hong Kong Dollar			18.0	%
U.S. Dollar			16.0	%
Indian Rupee			15.2	%
Brazilian Real			8.4	%
South African Rand			7.1	%
South Korean Won			5.3	%
Mexican Peso			4.9	%
Malaysian Ringgit			4.3	%
Indonesian Rupiah			3.7	%
Qatari Rial			3.6	%
Turkish Lira			2.7	%
Thai Baht			2.6	%
Canadian Dollar			2.0	%
UAE Dirham			1.4	%
Philippine Peso			1.2	%
Colombian Peso			1.1	%
Chilean Peso			1.1	%
All Other Currencies			1.4	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

72

Semi-Annual Report

June 30, 2013

	EMERGING MARKETS SMALL CAP GROWTH FUND
	The Emerging Markets Small Cap Growth Fund seeks long-term capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Todd M. McClone       Jeffrey A. Urbina	The William Blair Emerging Markets Small Cap Growth Fund (Class N shares) posted a 6.54% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the MSCI Emerging Markets Small Cap Index (net) (the “Index”), decreased 3.58%.   Year to date, the Fund significantly outpaced the Index due to strong stock selection across all sectors, with all sectors except Materials posting positive absolute returns. In particular, the Fund’s Consumer Discretionary stocks rallied 10.64%, while the Index fell 2.72%. Performance was bolstered by strong results in Hotels/Restaurants and Textiles/Apparel/Luxury Goods. In addition, GS Home Shopping added value on strong earnings results on increased mobile sales, and Nagacorp, the Cambodian casino added value, as visitation growth accelerated during the first quarter and the company announced new initiatives to drive the Chinese VIP segment. Consumer Staples outperformed due to strong operating performance from Prince Frog, the Chinese child care products company, and good performance in Food Products, while Energy benefited from the focused exposure in Energy Equipment/Services, particularly with Dayang Enterprises. Industrials stock selection was bolstered by strong performance in low cost airlines, coupled with good performance by Haitian Holdings, the Chinese plastic injection molding machine supplier, as 2012 results were better than expected due to improving product mix and increased average sales prices. The Fund’s Materials stocks were down 2.58%, well above the -14.63% Index return, due to a focus on and stock selection in Chemicals at the expense of Mining. The Fund’s underweighting in Energy, Industrials, and Materials were key detractors from results, as was the underweighting in Emerging Asia, as the Fund’s regional return rallied 12.37%, well ahead of the flat Index return.   Overall positioning did not change markedly year to date. The Fund remained significantly overweighted in Consumer Discretionary at approximately 27% versus the 18% Index weighting, as well as in Consumer Staples, which totaled approximately 15% of the Fund, versus the 8% Index weighting. Financials remained above the Index weighting, due to higher Commercial Banks and REIT weightings, which more than offset underweightings elsewhere. Resources remained significantly underweighted versus the Index, with Energy and Materials combined approximating 4% of the Fund, well below the nearly 14% Index weighting. Regionally, the Fund was underweighted in Asia, due to South Korea and Taiwan, which more than offset higher India and Philippines exposure. Europe, the Middle East and Africa totaled approximately 19% of the Fund, well above the Index weighting, given approximately 6% invested in frontier markets. Latin America, while overweighted, declined since December 31, due to reductions across most markets in the region.

 

June 30, 2013

William Blair Funds

73

Emerging Markets Small Cap Growth Fund

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				Since Inception
Class N(a)			6.54	%			25.14	%			21.67	%
Class I(a)			6.62				25.36				21.92
MSCI Emerging Markets Small Cap Index (net)(a)			(3.58	)			9.86				6.04
Institutional Class(b)			6.62				—				8.37
MSCI Emerging Markets Small Cap Index (net)(b)			(3.58	)			—				(2.20	)

 

(a)	Since inception is for the period from October 24, 2011 (Commencement of Operations) to June 30, 2013.
(b)	Since inception is for the period from December 20, 2012 (Commencement of Operations) to June 30, 2013.

 

 

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 . From time to time, the investment advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. International investing involves special risk considerations, including currency fluctuations, lower liquidity, economic and political risk. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company L.L.C. without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors without a sales load or distribution (12b-1) or service fees.

 

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

 

The Morgan Stanley Capital International (MSCI) Emerging Markets Small Cap Index (net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets. This series approximates the minimum possible dividend reinvestment.

 

This report identifies the Fund’s investments on June 30, 2013. 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.

 

74

Semi-Annual Report

June 30, 2013

Emerging Markets Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Emerging Asia—63.0%
	Cambodia—1.8%
	NagaCorp, Ltd. (Hotels, restaurants & leisure)			1,918,000				$	1,496
	China—13.7%
	AAC Technologies Holdings, Inc. (Communications equipment)			180,000					1,017
	Biostime International Holdings, Ltd. (Food products)			213,500					1,198
	China Medical System Holdings, Ltd. (Pharmaceuticals)			485,000					433
	China Overseas Grand Oceans Group, Ltd. (Real estate management & development)			636,000					812
	CIMC Enric Holdings, Ltd. (Machinery)			812,000					1,263
	Haitian International Holdings, Ltd. (Machinery)			968,000					1,415
	Hilong Holding, Ltd. (Energy equipment & services)			812,000					477
	Minth Group, Ltd. (Auto components)			910,000					1,415
	Prince Frog International Holdings, Ltd. (Personal products)			1,609,000					1,112
	Sunny Optical Technology Group Co., Ltd. (Electronic equipment, instruments & components)			698,000					842
	Tiangong International Co., Ltd. (Metals & mining)			1,290,000					319
*	WuXi PharmaTech Cayman, Inc.-ADR (Life sciences tools & services)			42,762					898
									11,201
	India—13.5%
	Amara Raja Batteries, Ltd. (Electrical equipment)			112,474					486
	Apollo Hospitals Enterprise, Ltd. (Health care providers & services)			34,561					613
	Bata India, Ltd. (Textiles, apparel & luxury goods)			14,278					201
	Bayer CropScience, Ltd. (Chemicals)			24,473					574
	Berger Paints India, Ltd. (Chemicals)			171,755					663
	Colgate-Palmolive India, Ltd. (Personal products)			10,410					238
	Eicher Motors, Ltd. (Machinery)			9,672					533
	Emami, Ltd. (Personal products)			86,931					702
	Glenmark Pharmaceuticals, Ltd. (Pharmaceuticals)			74,634					689
	Gruh Finance, Ltd. (Thrifts & mortgage finance)			148,808					573
	Havells India, Ltd. (Electrical equipment) .			42,292					523
	IndusInd Bank, Ltd. (Commercial banks)			136,138					1,071
	Ipca Laboratories, Ltd. (Pharmaceuticals)			97,345					1,073
	Marico, Ltd. (Personal products)			116,461					407
	Motherson Sumi Systems, Ltd. (Auto components)			149,233					498
	Page Industries, Ltd. (Textiles, apparel & luxury goods)			9,114					628
	Pidilite Industries, Ltd. (Chemicals)			179,947					809
	Yes Bank, Ltd. (Commercial banks)			97,845					759
									11,040

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	Indonesia—3.9%
	PT Ace Hardware Indonesia Tbk (Specialty retail)			7,033,000				$	524
	PT Alam Sutera Realty Tbk (Real estate management & development)			4,404,500					333
	PT Ciputra Development Tbk (Real estate management & development)			3,079,000					419
	PT Mitra Adiperkasa Tbk (Multiline retail)			757,500					534
	PT Pakuwon Jati Tbk (Real estate management & development)			24,503,000					852
	PT Sumber Alfaria Trijaya Tbk (Food & staples retailing)			496,000					337
*	PT Tower Bersama Infrastructure Tbk (Wireless telecommunication services)			456,000					239
									3,238
	Malaysia—5.6%
	Aeon Co. M Bhd (Multiline retail)			179,500					841
	Aeon Credit Service M Bhd (Consumer finance)			191,400					1,043
	Dayang Enterprise Holdings Bhd (Energy equipment & services)			394,300					612
	Guinness Anchor Bhd (Beverages)			105,200					635
	Hartalega Holdings Bhd (Health care equipment & supplies)			230,100					466
	Oldtown Bhd (Food products)			1,021,900					889
	Silverlake Axis, Ltd. (Software)			140,000					82
									4,568
	Philippines—4.0%
	Alliance Global Group, Inc. (Industrial conglomerates)			1,441,100					781
*	East West Banking Corporation (Commercial banks)			638,000					441
	Puregold Price Club, Inc. (Food & staples retailing)			1,279,900					1,075
	Security Bank Corporation (Commercial banks)			93,630					328
	Universal Robina Corporation (Food products)			234,140					677
									3,302
	South Korea—5.6%
*	Cheil Worldwide, Inc. (Media)			8,010					173
	GS Home Shopping, Inc. (Internet & catalog retail)			6,397					1,325
	Hana Tour Service, Inc. (Hotels, restaurants & leisure)			12,637					796
	Kolao Holdings (Automobiles)			26,298					678
	Medy-Tox, Inc. (Biotechnology)			3,448					303
	Paradise Co., Ltd. (Hotels, restaurants & leisure)			67,020					1,358
									4,633
	Sri Lanka—1.4%
	Commercial Bank of Ceylon plc (Commercial banks)			661,457					589

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

75

Emerging Markets Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Asia—(continued)
	Sri Lanka—(continued)
	John Keells Holdings plc (Industrial conglomerates)			288,842				$	558
									1,147
	Taiwan—7.8%
	Chipbond Technology Corporation (Semiconductors & semiconductor equipment)			63,000					154
	Eclat Textile Co., Ltd. (Textiles, apparel & luxury goods)			115,000					850
	Ginko International Co., Ltd. (Health care equipment & supplies)			49,000					827
	Makalot Industrial Co., Ltd. (Textiles, apparel & luxury goods)			204,000					973
	Merida Industry Co., Ltd. (Leisure equipment & products)			185,000					1,099
	Novatek Microelectronics Corporation (Semiconductors & semiconductor equipment)			249,000					1,209
	St Shine Optical Co., Ltd. (Health care equipment & supplies)			48,000					1,248
									6,360
	Thailand—5.7%
	Bangkok Chain Hospital PCL (Health care providers & services)			2,076,375					526
	Dynasty Ceramic PCL (Building products)			308,600					634
	Home Product Center PCL (Specialty retail)			717,513					266
	Kiatnakin Bank PCL (Commercial banks)			179,300					306
	LPN Development PCL (Real estate management & development)			432,200					336
	Major Cineplex Group PCL (Media)			844,700					572
	Minor International PCL (Hotels, restaurants & leisure)			745,310					596
	Robinson Department Store PCL (Multiline retail)			201,600					397
	Siam Global House PCL (Specialty retail)			444,400					334
	Thai Tap Water Supply PCL (Water utilities)			885,200					288
	Tisco Financial Group PCL (Commercial banks)			315,450					417
									4,672
	Emerging Europe, Mid—East, Africa—19.3%
	Kenya—3.2%
	East African Breweries, Ltd. (Beverages)			117,700					466
	Equity Bank, Ltd. (Commercial banks)			1,066,200					388
	Kenya Commercial Bank, Ltd. (Commercial banks)			894,600					386
	Safaricom, Ltd. (Wireless telecommunication services)			17,886,000					1,376
									2,616
	Nigeria—2.6%
	Access Bank plc (Commercial banks)			6,022,024					404
	Guaranty Trust Bank plc (Commercial banks)			5,382,745					805

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Europe, Mid-East, Africa—(continued)
	Nigeria—(continued)
	Nestle Nigeria plc (Food products)			160,382				$	957
									2,166
	Poland—3.5%
*	Alior Bank S.A. (Commercial banks)			26,677					718
	Eurocash S.A. (Food & staples retailing)			52,543					928
	LPP S.A. (Textiles, apparel & luxury goods)			605					1,193
									2,839
	Russia—0.3%
	MD Medical Group Investments plc-144A-GDR (Health care providers & services)			15,831					230
	South Africa—4.5%
	Coronation Fund Managers, Ltd. (Capital markets)			199,521					1,267
	Discovery, Ltd. (Insurance)			49,210					418
	Famous Brands, Ltd. (Hotels, restaurants & leisure)			94,956					912
	Life Healthcare Group Holdings, Ltd. (Health care providers & services)			71,255					270
	Oceana Group, Ltd. (Food products)			101,506					865
									3,732
	Turkey—4.7%
	Anadolu Hayat Emeklilik A.S. (Insurance)			179,274					396
	Bizim Toptan Satis Magazalari A.S. (Food & staples retailing)			62,724					1,021
	Dogus Otomotiv Servis ve Ticaret A.S. (Distributors)			60,229					306
*	Pegasus Hava Tasimaciligi A.S. (Airlines)			56,786					674
	Tofas Turk Otomobil Fabrikasi A.S. (Automobiles)			154,179					963
	Turkiye Sinai Kalkinma Bankasi A.S. (Commercial banks)			492,339					488
									3,848
	United Arab Emirates—0.5%
	NMC Health plc (Health care providers & services)			94,279					387
	Emerging Latin America—14.6%
	Brazil—5.1%
	Arezzo Industria e Comercio S.A. (Textiles, apparel & luxury goods)			16,000					243
	Iguatemi Empresa de Shopping Centers S.A. (Real estate management & development)			24,300					239
	International Meal Co. Holdings S.A. (Hotels, restaurants & leisure)			73,000					697
	Kroton Educacional S.A. (Diversified consumer services)			97,020					1,344
	Linx S.A. (Software)			35,500					573
	Lojas Renner S.A. (Multiline retail)			2,150					62
	Mills Estruturas e Servicos de Engenharia S.A. (Trading companies & distributors)			75,686					1,025
									4,183

 

See accompanying Notes to Financial Statements.

 

76

Semi-Annual Report

June 30, 2013

Emerging Markets Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Emerging Latin America—(continuied)
	Chile—2.1%
	Forus S.A. (Textiles, apparel & luxury goods)			45,499				$	259
	Inversiones La Construccion S.A. (Diversified financial services)			28,448					436
	Parque Arauco S.A. (Real estate management & development)			178,536					390
	Sonda S.A. (IT services)			204,237					595
									1,680
	Mexico—5.2%
	Alsea S.A.B. de C.V. (Hotels, restaurants & leisure)			148,055					351
	Banregio Grupo Financiero S.A.B. de C.V. (Commercial banks)			117,438					620
	Concentradora Fibra Hotelera Mexicana S.A. de C.V. (Real estate investment trusts (REITs))			268,406					536
	Fibra Uno Administracion S.A. de C.V. (Real estate investment trusts (REITs))			199,700					671
*	Macquarie Mexico Real Estate Management S.A. de C.V.-144A (Real estate investment trusts (REITs))			584,095					1,262
	TF Administradora Industrial S de RL de C.V. (Real estate investment trusts (REITs))			401,756					837
									4,277
	Panama—0.6%
	Copa Holdings S.A. (Airlines)†			3,893					510
	Peru—1.6%
	Alicorp S.A. (Food products)			199,423					670
	Grana y Montero S.A. (Construction & engineering)			164,658					652
									1,322
	Total Common Stocks—96.9% (cost $77,009)								79,447
	Preferred Stock
	Brazil—0.3%
	Marcopolo S.A. (Machinery)			40,400					231
	Total Preferred Stock—0.3% (cost $247)								231

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $1,563, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$1,563				$	1,563
	Total Repurchase Agreement—1.9% (cost $1,563)								1,563
	Total Investments—99.1% (cost $78,819)								81,241
	Cash and other assets, less liabilities—0.9%								738
	Net assets—100.0%							$	81,979

 

 

 

ADR = American Depository Receipt

GDR = Global Depository Receipt

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

77

Emerging Markets Small Cap Growth Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

For securities primarily traded on exchanges or markets that close before the close of regular trading on the New York Stock Exchange, the Fund may use an independent pricing service to fair value price the securities pursuant to Valuation Procedures approved by the Board of Trustees.

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following industry categories:

 

Consumer Discretionary			27.3	%
Financials			23.3	%
Consumer Staples			15.3	%
Industrials			11.7	%
Health Care			10.0	%
Information Technology			5.6	%
Materials			3.0	%
Telecommunication Services			2.0	%
Energy			1.4	%
Utilities			0.4	%
Total			100.0	%

 

At June 30, 2013, the Fund’s Portfolio of Investments includes the following currency categories:

 

Hong Kong Dollar			14.8	%
Indian Rupee			13.8	%
New Taiwan Dollar			8.0	%
Thai Baht			5.9	%
South Korean Won			5.8	%
Malaysian Ringgit			5.6	%
Brazilian Real			5.5	%
Mexican Peso			5.4	%
Turkish Lira			4.8	%
South African Rand			4.7	%
Philippine Peso			4.1	%
Indonesian Rupiah			4.1	%
Kenyan Shilling			3.3	%
Nigerian Naira			2.7	%
Euro			2.7	%
Chilean Peso			2.1	%
U.S. Dollar			2.1	%
Peruvian Nouveau Sol			1.7	%
Sri Lanka Rupee			1.4	%
All Other Currencies			1.5	%
Total			100.0	%

 

See accompanying Notes to Financial Statements.

 

78

Semi-Annual Report

June 30, 2013

	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 15.08% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 1000 ® Value Index (the “Index”), increased 15.90%.   Market Review   The market’s strong performance during the first five months of the year was fueled by positive economic data. More specifically, improvements in housing and employment data helped instill confidence that the recovery in the market was self-sustaining. The tide seemed to turn in mid-June as questions about Federal Reserve Chairman Ben Bernanke’s tenure and possible successors injected uncertainty into the market. The Federal Reserve’s plans of “tapering” quantitative easing (i.e., the slowing of its bond buying program) added to the markets concerns regarding sustainable growth domestically and contributed to a spike in bond yields. Within the next week, stocks around the world sold off over 4.5% before finding some footing and reversing course to close out the quarter. Adding to the questions about tapering and who will succeed Chairman Bernanke, investors were also concerned with a slowdown in emerging markets, China in particular, and the implications a slowdown may have on global and domestic growth.   Portfolio Results   The Fund’s slightly positive contribution from stock selection was more than offset by a negative allocation effect in the first half of the year. The largest detractors from performance came from poor stock selection within Information Technology and Health Care; the top two performing sectors in the market. Positive stock selection within Energy and Financials were not able to offset the negative performance from these two sectors. Given the strong market performance year-to-date, the Fund’s cash position was a drag on performance. From a style perspective, growth factors were in favor. All companies have a growth rate associated with them, even value stocks. Because the Fund tends to have an overweight to higher growth companies and an underweight to slower growth companies, this was a nice tailwind for the Fund and contributed to relative performance. Looking specifically at stock selection, VeriFone Systems, American Tower Corp., and Freeport McMoRan Cooper & Gold were the largest detractors from relative performance. Offsetting the underperformance were investments in Hewlett-Packard, Lincoln National Corp., and Boeing.   Outlook   Despite currently being overshadowed by the other political and legislative agendas, the fiscal debate in Washington D.C. regarding the debt ceiling and potential spending cuts could be headwinds to growth as we move into the second half of 2013. Even in the face of these headwinds, we believe the domestic economy will continue to grind ahead in a slow growth environment. Domestically, we may benefit in the face of strong or weak economic data: strong economic data is good and should help move the markets higher, whereas weaker data may delay tapering of quantitative easing, resulting in support for the markets. Corporate performance remains solid and U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and GDP as well.   For the Fund, we continue to find attractive opportunities on a valuation basis across most sectors. As always, our focus remains on fundamental analysis to identify quality companies that are temporarily out of favor with investors but have prospects for longer-term growth reacceleration. Over time, we believe investors can benefit from attractive value creation as these companies return toward historical growth trends and investor sentiment improves.

 

June 30, 2013

William Blair Funds

79

Large Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				Since Inception(a)
Class N			15.08	%			23.28	%			19.12	%
Class I			15.15				23.51				19.38
Russell 1000 ® Value Index			15.90				25.32				21.30

 

(a)	For the period from October 24, 2011 (Commencement of Operations) to June 30, 2013.

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 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 June 30, 2013. 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.

 

80

Semi-Annual Report

June 30, 2013

Large Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Financials—26.3%
*	American International Group, Inc.			1,559				$	70
	American Tower Corporation			833					61
	Bank of America Corporation			5,313					68
*	CBRE Group, Inc. Class “A”			1,334					31
	Citigroup, Inc.			1,840					88
	CNA Financial Corporation			740					24
	Discover Financial Services			952					45
	JPMorgan Chase & Co.			2,157					114
	Lazard, Ltd. Class “A”†			1,444					46
	Lincoln National Corporation			1,777					65
	Morgan Stanley			2,626					64
	Regions Financial Corporation			4,605					44
	State Street Corporation			857					56
	SunTrust Banks, Inc.			1,666					53
	The Allstate Corporation			887					43
	The Goldman Sachs Group, Inc.			101					15
	Wells Fargo & Co.			2,008					83
	Zions Bancorporation			1,862					54
									1,024
	Energy—13.7%
	Anadarko Petroleum Corporation			471					41
	Apache Corporation			430					36
	Baker Hughes, Inc.			1,032					48
	Chevron Corporation			754					89
	Devon Energy Corporation			1,042					54
	Exxon Mobil Corporation			1,376					124
	Hess Corporation			627					42
	Occidental Petroleum Corporation			740					66
*	Southwestern Energy Co.			877					32
									532
	Health Care—12.2%
	Baxter International, Inc.			618					43
*	Boston Scientific Corporation			2,100					19
	Cardinal Health, Inc.			1,133					54
*	Express Scripts Holding Co.			758					47
	Merck & Co., Inc.			1,802					84
	Pfizer, Inc.			3,547					99
	UnitedHealth Group, Inc.			1,181					77
	Zimmer Holdings, Inc.			684					51
									474
	Information Technology—10.0%
*	Adobe Systems, Inc.			1,045					48
	Broadcom Corporation Class “A”			880					30
	Corning, Inc.			3,828					54
	Hewlett-Packard Co.			2,948					73
	Intel Corporation			2,491					60
	Microsoft Corporation			1,033					36
*	NetApp, Inc.			949					36
	Symantec Corporation			1,476					33
*	VeriFone Systems, Inc.			1,160					19
									389

	Issuer		Shares				Value
	Common Stocks—(continued)
	Industrials—9.4%
	General Electric Co.			4,520				$	105
	Honeywell International, Inc.			215					17
	Kansas City Southern			442					47
	SPX Corporation			464					33
	Textron, Inc.			2,010					52
	The ADT Corporation			775					31
	The Boeing Co.			497					51
	Union Pacific Corporation			195					30
									366
	Consumer Discretionary—8.1%
*	Big Lots, Inc.			1,103					35
	Brunswick Corporation			1,071					34
	Coach, Inc.			472					27
*	General Motors Co.			1,436					48
	Kohl’s Corporation			735					37
	Lear Corporation			609					37
*	MGM Resorts International			1,257					18
	The Walt Disney Co.			596					38
	Time Warner Cable, Inc.			383					43
									317
	Consumer Staples—6.3%
	General Mills, Inc.			997					49
	Kimberly-Clark Corporation			248					24
	Philip Morris International, Inc.			533					46
	The Procter & Gamble Co.			974					75
	Walgreen Co.			1,131					50
									244
	Utilities—4.5%
	CMS Energy Corporation			2,096					57
	NextEra Energy, Inc.			819					67
	Wisconsin Energy Corporation			1,270					52
									176
	Materials—3.9%
	Alcoa, Inc.			3,029					24
	Cliffs Natural Resources, Inc.			427					7
	Freeport-McMoRan Copper & Gold, Inc.			1,241					34
*	Owens-Illinois, Inc.			1,794					50
	Rockwood Holdings, Inc.			570					36
									151
	Telecommunication Services—3.1%
	AT&T, Inc.			2,095					74
	CenturyLink, Inc.			1,337					47
									121
	Total Common Stocks—97.5% (cost $3,361)								3,794

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

81

Large Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Principal Amount				Value
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $115, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$115				$	115
	Total Repurchase Agreement—3.0% (cost $115)								115
	Total Investments—100.5%   (cost $3,476)								3,909
	Liabilities, plus cash and other assets—(0.5)%								(19	)
	Net assets—100.0%							$	3,890

 

 

 

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

82

Semi-Annual Report

June 30, 2013

	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 15.28% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell Midcap ® Value Index (the “Index”), increased 16.10%.   Market Review   The market’s strong performance during the first five months of the year was fueled by positive economic data. More specifically, improvements in housing and employment data helped instill confidence that the recovery in the market was self-sustaining. The tide seemed to turn mid-June as questions about Federal Reserve Chairman Ben Bernanke’s tenure and possible successors injected uncertainty into the market. The Federal Reserve’s plans of “tapering” quantitative easing (i.e., the slowing of its bond buying program) added to the market’s concerns regarding sustainable growth domestically and contributed to a spike in bond yields. Within the next week, stocks around the world sold off over 4.5% before finding some footing and reversing course to close out the quarter. Adding to the questions about tapering and who will succeed Chairman Bernanke, investors were also concerned with a slowdown in emerging markets, China in particular, and the implications a slowdown may have on global and domestic growth.   Portfolio Results   The Fund narrowly trailed its benchmark in the first half 2013 due to stock selection. Detracting from performance was selection within Information Technology, Industrials, and Health Care. The sector that contributed most to relative returns was Energy, which was one of the worst performing sectors in the first half of the year. The lack of exposure to Coal and Consumables contributed almost one-third of the positive relative performance within Energy. From a style perspective, growth factors were in favor. All companies have a growth rate associated with them, even value stocks. Because the Fund tends to have an overweight to higher growth companies and an underweight to slower growth companies, this was a nice tailwind for the Fund and contributed to relative performance. Looking specifically at stock selection, Joy Global, American Campus Communities, and Carpenter Technology Corp. were the largest detractors from relative performance. Partially offsetting the underperformance were investments in H&R Block, Pioneer Natural Resources, and The Hartford Services Group.   Outlook   Despite currently being overshadowed by the other political and legislative agendas, the fiscal debate in Washington D.C. regarding the debt ceiling and potential spending cuts could be headwinds to growth as we move into the second half of 2013. Even in the face of these headwinds, we believe the domestic economy will continue to grind ahead in a slow growth environment. Domestically, we may benefit in the face of strong or weak economic data: strong economic data is good and should help move the markets higher, whereas weaker data may delay tapering of quantitative easing, resulting in support for the markets. Corporate performance remains solid and U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and GDP as well.   In the end, while we are cognizant of various economic scenarios and incorporate these into our stock picking, we focus our time on constructing the portfolio from a bottom-up perspective. As always, we remain focused on finding quality companies at discount prices and corporate transformation opportunities, and we continue to find good ideas across sectors. We believe building a fund with these types of companies should produce solid investment results over the long term.

June 30, 2013

William Blair Funds

83

 

Mid Cap Value Fund

 

 

 

Performance Highlights (Unaudited)

 

 

’

 

Average Annual Total Return at 6/30/2013

		Year to Date				1 Year				3 Year				Since Inception(a)
Class N			15.28	%			25.04	%			17.65	%			11.54	%
Class I			15.45				25.37				17.89				11.80
Russell Midcap ® Value Index			16.10				27.65				19.53				12.57

 

(a)	For the period from May 3, 2010 (Commencement of Operations) to June 30, 2013.

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 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 June 30, 2013. 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.

 

84

Semi-Annual Report

June 30, 2013

 

Mid Cap Value Fund

 

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares					Value
	Common Stocks
	Financials—31.7%
	Allied World Assurance Co. Holdings, Ltd.†			485				$	44
	American Campus Communities, Inc.			1,285					52
	Ameriprise Financial, Inc.			840					68
*	CIT Group, Inc.			1,265					59
	Comerica, Inc.			1,275					51
	DDR Corporation			2,515					42
	Digital Realty Trust, Inc.			590					36
	East West Bancorp, Inc.			1,705					47
	Essex Property Trust, Inc.			265					42
	Fifth Third Bancorp			2,990					54
	First Horizon National Corporation			3,895					44
*	Forest City Enterprises, Inc.			2,480					44
	General Growth Properties, Inc.			2,100					42
*	Genworth Financial, Inc.			3,988					45
	Hartford Financial Services Group, Inc.			2,640					82
	Host Hotels & Resorts, Inc.			2,795					47
	Marsh & McLennan Cos., Inc.			1,650					66
	People’s United Financial, Inc.			2,960					44
	Post Properties, Inc.			645					32
	SL Green Realty Corporation			715					63
	SunTrust Banks, Inc.			2,050					65
	Taubman Centers, Inc.			555					42
	The Hanover Insurance Group, Inc.			1,080					53
	Validus Holdings, Ltd.†			1,530					55
	Ventas, Inc.			920					64
	Zions Bancorporation			1,140					33
									1,316
	Industrials—11.6%
	Dover Corporation			800					62
	Eaton Corporation plc†			650					43
	EMCOR Group, Inc.			1,035					42
	Generac Holdings, Inc.			735					27
	Hubbell, Inc.			655					65
	Pall Corporation			925					61
	Pentair, Ltd.†			1,090					63
	Rockwell Collins, Inc.			865					55
	Towers Watson & Co.			775					64
									482
	Information Technology—11.0%
*	Atmel Corporation			5,975					44
*	Cadence Design Systems, Inc.			3,735					54
	Genpact, Ltd.†			2,345					45
*	Juniper Networks, Inc.			2,255					43
	Linear Technology Corporation			1,195					44
*	ON Semiconductor Corporation			4,185					34
*	PTC, Inc.			1,835					45
	TE Connectivity, Ltd.†			1,705					78
	Xerox Corporation			7,800					71
									458
	Consumer Discretionary—10.2%
	Autoliv, Inc.			475					37
*	Bed Bath & Beyond, Inc.			755					53
	DISH Network Corporation			1,235					52
	H&R Block, Inc.			1,435					40

 

 

	Issuer		Shares					Value
	Common Stocks—(continued)
	Consumer Discretionary—(continued)
	Kohl’s Corporation			1,355				$	68
	Macy’s, Inc.			1,180					57
	Newell Rubbermaid, Inc.			2,350					62
	VF Corporation			290					56
									425
	Utilities—10.2%
	American Water Works Co., Inc.			1,440					59
	CMS Energy Corporation			1,750					48
	DTE Energy Co.			880					59
	Northeast Utilities			1,465					62
	Pinnacle West Capital Corporation			580					32
	Sempra Energy			760					62
	Southwest Gas Corporation			880					41
	Xcel Energy, Inc.			2,095					59
									422
	Energy—7.5%
*	Cameron International Corporation			670					41
	Noble Energy, Inc.			870					52
	Pioneer Natural Resources Co.			460					67
*	Rowan Cos. plc†			1,420					48
*	Superior Energy Services, Inc.			1,575					41
*	Whiting Petroleum Corporation			1,375					63
									312
	Health Care—7.4%
*	CareFusion Corporation			1,695					62
	CIGNA Corporation			1,230					89
*	Laboratory Corporation of America Holdings			465					47
*	Mettler-Toledo International, Inc.			257					52
	Zimmer Holdings, Inc.			780					58
									308
	Consumer Staples—4.7%
	ConAgra Foods, Inc.			2,155					75
	Ingredion, Inc.			915					60
	The Kroger Co.			1,775					62
									197
	Materials—4.5%
	Airgas, Inc.			425					41
	Carpenter Technology Corporation			1,005					45
	FMC Corporation			945					58
	Steel Dynamics, Inc.			3,025					45
									189
	Total Common Stocks—98.8% (cost $3,299)								4,109
	Total Investments—98.8% (cost $3,299)								4,109
	Cash and other assets, less liabilities—1.2%								48
	Net assets—100.0%							$	4,157

 

 

† = U.S. listed foreign security

* Non-income producing securities

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

85

	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     David S. Mitchell	The William Blair Small-Mid Cap Value Fund (Class N shares) posted a 16.74% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 2500 TM Value Index (the “Index”), increased 15.10%.   Market Review   The market’s strong performance during the first five months of the year was fueled by positive economic data. More specifically, improvements in housing and employment data helped instill confidence that the recovery in the market was self-sustaining. The tide seemed to turn mid-June as questions about Federal Reserve Chairman Ben Bernanke’s tenure and possible successors injected uncertainty into the market. The Federal Reserve’s plans of “tapering” quantitative easing (i.e., the slowing of its bond buying program) added to the market’s concerns regarding sustainable growth domestically and contributed to a spike in bond yields. Within the next week, stocks around the world sold off over 4.5% before finding some footing and reversing course to close out the quarter. Adding to the questions about tapering and who will succeed Chairman Bernanke, investors were also concerned with a slowdown in emerging markets, China in particular, and the implications a slowdown may have on global and domestic growth.   Portfolio Results   The Fund’s first half 2013 outperformance relative to the Index was driven by positive stock selection in most sectors of the market. The Fund’s biggest contribution to relative performance came from Financials. This more than offset stock selection within Industrials and Consumer Staples, which detracted from relative performance. The Fund also benefitted from positive relative performance in Energy and Consumer Discretionary. From a style perspective, growth factors were in favor. All companies have a growth rate associated with them, even value stocks. Because the Fund tends to have an overweight to higher growth companies and an underweight to slower growth companies, this was a nice tailwind for the Fund and contributed to relative performance. Looking specifically at stock selection, ESCO Technologies, Joy Global, and Quanex Building Products were the largest detractors from relative performance. More than offsetting the underperformance were investments in Krispy Kreme Doughnuts, WMS Industries, and National Financial Partners.   Outlook   Despite currently being overshadowed by the other political and legislative agendas, the fiscal debate in Washington D.C. regarding the debt ceiling and potential spending cuts could be headwinds to growth as we move into the second half of 2013. Even in the face of these headwinds, we believe the domestic economy will continue to grind ahead in a slow growth environment. Domestically, we may benefit in the face of strong or weak economic data: strong economic data is good and should help move the markets higher, whereas weaker data may delay tapering of quantitative easing, resulting in support for the markets. Corporate performance remains solid and U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and GDP as well.   In the end, while we are cognizant of various economic scenarios and incorporate these into our stock picking, we focus our time on constructing the portfolio from a bottom-up perspective. As always, we remain focused on finding quality companies at discount prices and corporate transformation opportunities, and we continue to find good ideas across sectors. We believe building a fund with these types of companies should produce solid investment results over the long term.

 

86

Semi-Annual Report

June 30, 2013

Small-Mid Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				Since Inception(a)
Class N			16.74	%			24.95	%			22.40	%
Class I			16.92				25.33				22.70
Russell 2500 TM Value Index			15.10				26.88				26.09

 

(a)	For the period from December 15, 2011 (Commencement of Operations) to June 30, 2013.

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

Russell 2500 ^TM 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 June 30, 2013. 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.

 

June 30, 2013

William Blair Funds

87

Small-Mid Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Financials—31.0%
	Acadia Realty Trust			865				$	21
	Allied World Assurance Co. Holdings AG†			225					21
	American Assets Trust, Inc.			935					29
	American Campus Communities, Inc.			705					29
	Bank of the Ozarks, Inc.			600					26
	Banner Corporation			655					22
*	CIT Group, Inc.			370					17
	CNO Financial Group, Inc.			1,970					26
	Comerica, Inc.			820					33
	Coresite Realty Corporation			351					11
	East West Bancorp, Inc.			755					21
	EastGroup Properties, Inc.			470					26
	Essex Property Trust, Inc.			180					29
	First Horizon National Corporation			2,500					28
*	Forest City Enterprises, Inc.			1,310					23
*	Genworth Financial, Inc.			2,908					33
	Hartford Financial Services Group, Inc.			1,220					38
	Highwoods Properties, Inc.			610					22
	LaSalle Hotel Properties			815					20
	Old National Bancorp			1,390					19
	PacWest Bancorp			909					28
	Pebblebrook Hotel Trust			818					21
	People’s United Financial, Inc.			1,890					28
	Post Properties, Inc.			440					22
	ProAssurance Corporation			514					27
	Prosperity Bancshares, Inc.			540					28
	Radian Group, Inc.			2,005					23
	Selective Insurance Group, Inc.			985					23
	SL Green Realty Corporation			355					31
	Susquehanna Bancshares, Inc.			1,935					25
	Taubman Centers, Inc.			280					21
	The Hanover Insurance Group, Inc.			500					24
	Validus Holdings, Ltd.†			840					30
*	Western Alliance Bancorp			980					16
	Zions Bancorporation			1,085					31
									872
	Industrials—14.8%
	Actuant Corporation			1,002					33
	Belden, Inc.			505					25
	CIRCOR International, Inc.			565					29
	EMCOR Group, Inc.			885					36
*	FTI Consulting, Inc.			805					26
	G&K Services, Inc.			720					34
	Generac Holdings, Inc.			505					19
	Hubbell, Inc. Class “B”			320					32
	Interface, Inc.			1,261					21
*	Moog, Inc.			665					34
	Pall Corporation			495					33
	Simpson Manufacturing Co., Inc.			980					29
	Towers Watson & Co.			405					33
	Werner Enterprises, Inc.			1,270					31
									415

	Issuer		Shares				Value
	Common Stocks—(continued)
	Consumer Discretionary—13.4%
	Autoliv, Inc.			330				$	26
*	Big Lots, Inc.			828					26
	Dana Holding Corporation			970					19
*	Genesco, Inc.			310					21
	H&R Block, Inc.			740					21
*	Krispy Kreme Doughnuts, Inc.			2,530					44
*	Life Time Fitness, Inc.			665					33
	Meredith Corporation			575					27
	Newell Rubbermaid, Inc.			1,080					28
	Pier 1 Imports, Inc.			1,085					26
	Regis Corporation			1,125					18
*	The Children’s Place Retail Stores, Inc.			450					25
	The Men’s Wearhouse, Inc.			755					29
*	The PEP Boys-Manny, Moe & Jack			1,510					17
	Vail Resorts, Inc.			295					18
									378
	Information Technology—11.1%
*	Acxiom Corporation			1,500					34
	ADTRAN, Inc.			1,113					27
*	Atmel Corporation			3,995					29
*	Cadence Design Systems, Inc.			2,520					37
	Earthlink, Inc.			4,710					29
	Genpact, Ltd.†			1,480					29
*	Integrated Device Technology, Inc.			4,490					36
	j2 Global, Inc.			570					24
	Monolithic Power Systems, Inc.			858					21
*	ON Semiconductor Corporation			2,650					21
*	PTC, Inc.			1,010					25
									312
	Utilities—8.0%
	ALLETE, Inc.			525					26
	American Water Works Co., Inc.			790					33
	Cleco Corporation			540					25
	CMS Energy Corporation			930					25
	Pinnacle West Capital Corporation			340					19
	PNM Resources, Inc.			1,170					26
	Southwest Gas Corporation			625					29
	UIL Holdings Corporation			365					14
	WGL Holdings, Inc.			645					28
									225
	Energy—7.1%
*	Bonanza Creek Energy, Inc.			465					16
	Gulfmark Offshore, Inc.			535					24
*	Gulfport Energy Corporation			362					17
*	Helix Energy Solutions Group, Inc.			930					21
*	Oasis Petroleum, Inc.			435					17
*	Rosetta Resources, Inc.			370					16
*	Rowan Cos. plc†			710					24
*	Superior Energy Services, Inc.			795					21
*	TETRA Technologies, Inc.			2,535					26
*	Whiting Petroleum Corporation			410					19
									201

 

See accompanying Notes to Financial Statements.

 

88

Semi-Annual Report

June 30, 2013

Small-Mid Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks—(continued)
	Materials—6.5%
	Airgas, Inc.			200				$	19
	Carpenter Technology Corporation			370					17
	FMC Corporation			430					26
	Minerals Technologies, Inc.			525					22
	PolyOne Corporation			1,210					30
*	RTI International Metals, Inc.			695					19
	Sensient Technologies Corporation			420					17
	Silgan Holdings, Inc.			299					14
	Steel Dynamics, Inc.			1,245					19
									183
	Health Care—5.8%
*	CareFusion Corporation			845					31
	CONMED Corporation			425					13
*	Greatbatch, Inc.			535					18
*	HealthSouth Corporation			875					25
*	Magellan Health Services, Inc.			295					17
*	Mednax, Inc.			365					33
*	Mettler-Toledo International, Inc.			130					26
									163
	Consumer Staples—2.2%
	Ingredion, Inc.			540					35
	J&J Snack Foods Corporation			260					20
	Spartan Stores, Inc.			295					6
									61
	Total Common Stocks—99.9% (cost $2,314)								2,810

	Issuer		Principal Amount				Value
	Repurchase Agreement
	State Street Bank and Trust Company, 0.010% dated 6/28/13, due 7/1/13, repurchase price $35, collateralized by FHLMC, 2.070% due 11/07/2022			$35				$	35
	Total Repurchase Agreement—1.2% (cost $35)								35
	Total Investments—101.1% (cost $2,349)								2,845
	Liabilities, plus cash and other assets—(1.1)%								(32	)
	Net assets—100.0%							$	2,813

 

 

† = U.S. listed foreign security

* Non-income producing securities

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

89

	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   David S. Mitchell	The William Blair Small Cap Value Fund (Class N shares) posted a 17.58% increase, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Russell 2000 ® Value Index (the “Index”), increased 14.39%.   Market Review   The market’s strong performance during the first five months of the year was fueled by positive economic data. More specifically, improvements in housing and employment data helped instill confidence that the recovery in the market was self-sustaining. The tide seemed to turn mid-June as questions about Federal Reserve Chairman Ben Bernanke’s tenure and possible successors injected uncertainty into the market. The Federal Reserve’s plans of “tapering” quantitative easing (i.e., the slowing of its bond buying program) added to the market’s concerns regarding sustainable growth domestically and contributed to a spike in bond yields. Within the next week, stocks around the world sold off over 4.5% before finding some footing and reversing course to close out the quarter. Adding to the questions about tapering and who will succeed Chairman Bernanke, investors were also concerned with a slowdown in emerging markets, China in particular, and the implications a slowdown may have on global and domestic growth.   Portfolio Results   The Fund’s first half 2013 outperformance relative to the Index was driven by positive stock selection in almost every sector of the market. The most significant sectors contributing to relative performance were Financials and Energy. Slightly detracting from performance was a cash drag and stock selection within Industrials. From a style perspective, growth factors were in favor. All companies have a growth rate associated with them, even value stocks. Because the Fund tends to have an overweight to higher growth companies and an underweight to slower growth companies, this was a nice tailwind for the Fund and contributed to relative performance. The Fund’s higher market cap bias versus the Index was a sizeable headwind in the first half of the year as stocks with a market capitalization over $2 billion were the only size segment to underperform during the period. Even in the face of this headwind, our stock selection within this market cap segment was additive to relative performance. Looking specifically at stock selection, ESCO Technologies, Quanex Building Products, and EarthLink were the detractors from relative performance. More than offsetting the underperformance were investments in Krispy Kreme Doughnuts, WMS Industries, and National Financial Partners.   Outlook   Despite currently being overshadowed by the other political and legislative agendas, the fiscal debate in Washington D.C. regarding the debt ceiling and potential spending cuts could be headwinds to growth as we move into the second half of 2013. Even in the face of these headwinds, we believe the domestic economy will continue to grind ahead in a slow growth environment. Domestically, we may benefit in the face of strong or weak economic data: strong economic data is good and should help move the markets higher, whereas weaker data may delay tapering of quantitative easing, resulting in support for the markets. Corporate performance remains solid and U.S. stocks have been a relative safe haven versus more interest rate-sensitive asset classes, commodities, and stocks outside the U.S. Broadly speaking, the U.S. housing market remains a tailwind for U.S. employment and GDP as well.

 

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Semi-Annual Report

June 30, 2013

In the end, while we are cognizant of various economic scenarios and incorporate these into our stock picking, we focus our time on constructing the portfolio from a bottom-up perspective. As always, we remain focused on finding quality companies at discount prices and corporate transformation opportunities, and we continue to find good ideas across sectors. We believe building a fund with these types of companies should produce solid investment results over the long term.

 

June 30, 2013

William Blair Funds

91

Small Cap Value Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year
		to Date				1 Year				3 Year				5 Year				10 Year
Class N			17.58	%			25.41	%			17.09	%			9.84	%			9.36	%
Class I			17.80				25.82				17.39				10.09				9.59
Russell 2000 ® Value Index			14.39				24.76				17.33				8.59				9.30

 

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Russell 2000 ^® 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 June 30, 2013. 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.

 

92

Semi-Annual Report

June 30, 2013

Small Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Shares				Value
	Common Stocks
	Financials—31.8%
	Acadia Realty Trust			138,320				$	3,415
	American Assets Trust, Inc.			103,105					3,182
	Bank of the Ozarks, Inc.			87,650					3,798
	Banner Corporation			103,400					3,494
	Berkshire Hills Bancorp, Inc.			126,290					3,506
	Boston Private Financial Holdings, Inc.			373,213					3,971
	CNO Financial Group, Inc.			317,385					4,113
	CoBiz Financial, Inc.			307,945					2,556
	Coresite Realty Corporation			67,945					2,161
*	Eagle Bancorp, Inc.			165,055					3,694
	East West Bancorp, Inc.			129,955					3,574
	EastGroup Properties, Inc.			63,195					3,556
	Education Realty Trust, Inc.			338,760					3,465
	First Horizon National Corporation			269,600					3,020
*	Forest City Enterprises, Inc.			151,480					2,713
	FXCM, Inc.			164,068					2,692
	Highwoods Properties, Inc.			67,155					2,391
	LaSalle Hotel Properties			95,425					2,357
	Old National Bancorp			186,176					2,575
	PacWest Bancorp			133,773					4,100
	Pebblebrook Hotel Trust			146,829					3,796
	Post Properties, Inc.			46,880					2,320
	ProAssurance Corporation			61,675					3,217
	Prosperity Bancshares, Inc.			73,120					3,787
	Radian Group, Inc.			266,470					3,096
*	Safeguard Scientifics, Inc.			226,506					3,635
	Selective Insurance Group, Inc.			153,285					3,529
	Susquehanna Bancshares, Inc.			268,620					3,452
	The Hanover Insurance Group, Inc.			74,100					3,626
*	Western Alliance Bancorp			211,100					3,342
									98,133
	Industrials—14.3%
	Actuant Corporation			112,458					3,708
	Belden, Inc.			60,650					3,028
	CIRCOR International, Inc.			70,185					3,570
	EMCOR Group, Inc.			116,106					4,720
*	FTI Consulting, Inc.			103,233					3,395
	G&K Services, Inc.			88,938					4,233
	Generac Holdings, Inc.			54,830					2,029
	Interface, Inc.			154,569					2,623
	Kadant, Inc.			90,954					2,744
*	Moog, Inc.			89,369					4,605
*	Northwest Pipe Co.			94,690					2,642
	Simpson Manufacturing Co., Inc.			116,065					3,415
	Werner Enterprises, Inc.			142,820					3,452
									44,164
	Consumer Discretionary—13.3%
*	Big Lots, Inc.			89,065					2,808
	Core-Mark Holding Co., Inc.			33,015					2,097
	Dana Holding Corporation			171,920					3,311
*	Genesco, Inc.			40,400					2,706
*	Krispy Kreme Doughnuts, Inc.			341,840					5,965
*	Life Time Fitness, Inc.			77,670					3,892
	Meredith Corporation			72,435					3,455
	Pier 1 Imports, Inc.			143,455					3,370

	Issuer		Shares				Value
	Common Stocks—(continued)
	Consumer Discretionary—(continued)
	Regis Corporation			140,475				$	2,307
*	The Children’s Place Retail Stores, Inc.			57,080					3,128
	The Men’s Wearhouse, Inc.			91,100					3,448
*	The PEP Boys-Manny, Moe & Jack			200,680					2,324
	Vail Resorts, Inc.			37,170					2,287
									41,098
	Information Technology—13.0%
*	Acxiom Corporation			161,160					3,655
	ADTRAN, Inc.			149,335					3,675
*	Atmel Corporation			429,340					3,156
*	Cadence Design Systems, Inc.			271,800					3,936
	Earthlink, Inc.			558,760					3,470
	Genpact, Ltd.†			167,520					3,223
*	Inphi Corporation			189,706					2,087
*	Integrated Device Technology, Inc.			480,082					3,812
*	IntraLinks Holdings, Inc.			250,720					1,820
	j2 Global, Inc.			55,125					2,343
	Monolithic Power Systems, Inc.			92,464					2,229
*	ON Semiconductor Corporation			293,270					2,369
*	PTC, Inc.			119,635					2,935
*	Ultra Clean Holdings			250,572					1,516
									40,226
	Energy—6.3%
*	Bonanza Creek Energy, Inc.			62,020					2,199
	Gulfmark Offshore, Inc.			72,244					3,257
*	Gulfport Energy Corporation			49,320					2,321
*	Helix Energy Solutions Group, Inc.			154,365					3,557
*	Oasis Petroleum, Inc.			59,135					2,299
*	Rosetta Resources, Inc.			50,425					2,144
*	TETRA Technologies, Inc.			358,175					3,675
									19,452
	Utilities—6.1%
	ALLETE, Inc.			62,115					3,096
	Chesapeake Utilities Corporation			11,027					568
	Cleco Corporation			66,860					3,104
	PNM Resources, Inc.			139,985					3,106
	Southwest Gas Corporation			69,650					3,259
	UIL Holdings Corporation			71,152					2,722
	WGL Holdings, Inc.			71,360					3,084
									18,939
	Materials—5.8%
	Minerals Technologies, Inc.			91,560					3,785
	PolyOne Corporation			204,545					5,069
*	RTI International Metals, Inc.			101,635					2,816
	Sensient Technologies Corporation			82,660					3,345
	Silgan Holdings, Inc.			64,385					3,024
									18,039
	Health Care—5.0%
	CONMED Corporation			90,585					2,830
*	Greatbatch, Inc.			104,475					3,426
*	HealthSouth Corporation			105,305					3,033
*	Magellan Health Services, Inc.			42,505					2,383
*	Mednax, Inc.			40,203					3,682
									15,354

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

93

Small Cap Value Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

			Shares or
			Principal
	Issuer		Amount				Value
	Common Stocks—(continued)
	Consumer Staples—2.0%
	J&J Snack Foods Corporation			38,687				$	3,010
	Spartan Stores, Inc.			170,094					3,136
									6,146
	Total Common Stocks—97.6% (cost $243,678)								301,551
	Repurchase Agreement
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $8,134, collateralized by U.S. Treasury Note, 0.750%, due 10/31/17			$8,134					8,134
	Total Repurchase Agreement—2.7% (cost $8,134)								8,134
	Total Investments—100.3% (cost $251,812)								309,685
	Liabilities, plus cash and other assets—(0.3)%								(818	)
	Net assets—100.0%							$	308,867

 

* Non-income producing securities

† = U.S. listed foreign security

 

See accompanying Notes to Financial Statements.

 

94

Semi-Annual Report

June 30, 2013

	BOND FUND
	The Bond Fund seeks to outperform the Barclays Capital U.S. Aggregate Bond Index by maximizing total return through a combination of income and capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Christopher T. Vincent   Paul J. Sularz	The William Blair Bond Fund (Class N shares) posted a 3.37% decrease, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Barclays U.S. Aggregate Bond Index (the “Index”), decreased 2.44%.   Portfolio Results   The Fund’s underperformance year-to-date was caused primarily by two factors: an overweight to investment-grade corporate bonds and an allocation to U.S. Treasury Inflation-Protected Securities (“TIPS”). Factors that had a positive impact on the Fund’s performance year-to-date included security selection among mortgage-backed securities (“MBS”) and an allocation to high yield corporate bonds.   The Fund’s overweight to investment-grade corporate bonds detracted year-to-date. Corporate risk spreads widened during the second quarter of 2013 due to elevated levels of volatility created by uncertainty regarding when and how the Federal Open Market Committee (“FOMC”) will end its quantitative easing programs. The Fund’s allocation to TIPS also had a negative effect on performance year-to-date. TIPS underperformed the broad market because the market’s expectations for inflation declined due to the FOMC’s signals that it will slow down the pace of purchases in its quantitative easing programs, with the result being less inflationary pressures.   Despite the Fund’s underperformance, there were some themes that contributed year-to-date. Security selection among MBS impacted performance favorably. The Fund avoided mortgages that the FOMC purchased in its quantitative easing programs, and that helped performance as those bonds struggled during the quarter. The MBS owned in the Fund performed better than the Index and were a source of relative value. The Fund’s allocation to high yield corporate bonds also provided some performance benefits. High yield corporate bonds outperformed the Index, and their inclusion in the Fund helped mitigate declines year-to-date.   Fixed Income Markets Summary & Outlook   Fixed income instruments declined year-to-date after a volatile second quarter. Interest rates rose, interest rate volatility spiked, and risk spreads widened. The 10-year Treasury note yielded 2.49% at June 30, 2013.   We believe that the threat of a sustained, rapid rise in interest rates is subdued, though longer-term interest rates may trend higher. Interest rate volatility has increased due to uncertainty surrounding the timing and magnitude of the FOMC’s exit from its quantitative easing programs. However, the FOMC continues to assert that its policy interest rate will be maintained at low levels until the unemployment rate declines below 6.5% and inflation expectations are well-anchored, and the market’s prices imply that will occur in late 2014 at the earliest.   With corporations holding record levels of cash, the corporate bond market remains concerned about shareholder-friendly activities such as leveraged buyouts (“LBOs”), large share repurchases, and special dividends. We believe idiosyncratic risks are among the top issues for investment-grade corporate bond investors, but we do not believe the market will enter a period of excessive LBO activity.   We believe that spread sectors are poised to lead the market. Risk premiums across all spread sectors remain elevated versus long-term averages but not approaching the historically cheap levels experienced in prior years. In addition, fundamentals are strong, as corporations’ balance sheets are strong given their historically high level of cash holdings. For these reasons, coupled with the low level of Treasury interest rates, we are bullish on spread products relative to Treasuries.

 

June 30, 2013

William Blair Funds

95

Bond Fund

 

Performance Highlights (Unaudited)

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				5 Year				Since Inception(a)
Class N			(3.37	)%			0.73	%			4.84	%			6.31	%			5.80	%
Class I			(3.26	)			0.94				5.02				6.48				5.97
Institutional Class			(3.19	)			1.09				5.18				6.64				6.13
Barclays U.S. Aggregate Bond Index			(2.44	)			(0.69	)			3.51				5.19				5.18

 

(a)	For the period from May 1, 2007 (Commencement of Operations) to June 30, 2013.

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors 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 Barclays U.S. Aggregate Bond Index indicates broad intermediate government/corporate bond market performance.

 

This report identifies the Fund’s investments on June 30, 2013. These holdings are subject to change. Not all investments in the Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

 

Sector Diversification (Unaudited)

 

 

The sector diversification shown is based on the total investments.

 

96

Semi-Annual Report

June 30, 2013

Bond Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

 

	Issuer		Principal Amount				Value
	U.S. Government and U.S. Government Agency—44.8%
	U.S. Treasury Inflation Indexed Notes/Bonds—7.1%
	U.S. Treasury Inflation Indexed
	Note, 2.375%, due 1/15/17			$4,612				$	5,113
	U.S. Treasury Inflation Indexed
	Bond, 3.875%, due 4/15/29			9,336					13,455
	Total U.S. Treasury Inflation
	Indexed Notes/Bonds								18,568
	U.S. Treasury—0.6%
	U.S. Treasury Strip Principal,
	0.000%, due 5/15/20			1,800					1,575
	Government National Mortgage Association (GNMA)—2.0%
#	344902, 6.250%, due 3/15/14			2					2
#	623162, 6.500%, due 7/15/18			31					33
#	616250, 6.000%, due 2/15/24			8					9
#	422470, 7.500%, due 3/15/26			1					1
#	509405, 7.500%, due 8/15/29			1					1
	GNR 2004–2 M5, 4.891%, due 7/16/34			125					130
#	699118, 6.000%, due 9/15/38			4,431					4,980
	Total GNMA Mortgage Obligations								5,156
	Federal Home Loan Mortgage Corp. (FHLMC)—6.5%
#	J16051, 4.500%, due 7/1/26			1,090					1,164
#	G01728, 7.500%, due 7/1/32			233					279
#	C01385, 6.500%, due 8/1/32			208					236
#	A13303, 5.000%, due 9/1/33			423					470
#	C01623, 5.500%, due 9/1/33			275					298
#	A15039, 5.500%, due 10/1/33			4					5
#	G01843, 6.000%, due 6/1/35			52					58
#	G02141, 6.000%, due 3/1/36			1,145					1,282
#	A62179, 6.000%, due 6/1/37			528					580
#	A63539, 6.000%, due 7/1/37			700					781
#	A62858, 6.500%, due 7/1/37			364					407
#	G03170, 6.500%, due 8/1/37			911					1,017
#	A66843, 6.500%, due 10/1/37			1,442					1,627
#	A78138, 5.500%, due 6/1/38			807					894
#	G04544, 6.000%, due 8/1/38			2,225					2,436
#	A81799, 6.500%, due 9/1/38			1,565					1,761
#	A86143, 5.000%, due 5/1/39			97					106
#	G06017, 5.500%, due 6/1/40			359					397
#	C03665, 9.000%, due 4/1/41			1,493					1,823
#	G06583, 5.000%, due 6/1/41			1,194					1,334
	Total FHLMC Mortgage Obligations								16,955
	Federal National Mortgage Association (FNMA)—28.6%
#	576553, 8.000%, due 2/1/16			6					7
#	580793, 6.000%, due 4/1/16			1					1
#	624506, 6.000%, due 1/1/17			1					2
#	679247, 7.000%, due 8/1/17			7					7
#	689612, 5.000%, due 5/1/18			192					205
#	695910, 5.000%, due 5/1/18			377					403
#	697593, 5.000%, due 5/1/18			341					364
#	770395, 5.000%, due 4/1/19			7					8

 

 

	Issuer		Principal Amount					Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal National Mortgage Association (FNMA)—(continued)
#	900725, 6.000%, due 8/1/21		$	99				$	109
#	893325, 7.000%, due 9/1/21			7					8
#	AA2924, 4.500%, due 4/1/24			668					727
#	932095, 4.000%, due 11/1/24			2,759					2,978
#	255956, 5.500%, due 10/1/25			43					48
#	AH2671, 4.000%, due 1/1/26			364					393
#	890329, 4.000%, due 4/1/26			403					434
#	AI4872, 4.500%, due 6/1/26			708					771
#	AL2851, 4.000%, due 8/1/26			6,199					6,689
#	AI9811, 4.500%, due 8/1/26			462					503
#	AH9564, 3.500%, due 9/1/26			951					1,003
#	AJ8149, 3.500%, due 12/1/26			1,161					1,225
#	AJ9402, 4.000%, due 12/1/26			2,026					2,188
#	AB4818, 4.000%, due 4/1/27			1,129					1,220
#	AP0446, 3.500%, due 7/1/27			5,101					5,382
#	AL2590, 4.000%, due 7/1/27			2,197					2,373
#	252925, 7.500%, due 12/1/29			2					3
#	535977, 6.500%, due 4/1/31			18					20
#	253907, 7.000%, due 7/1/31			3					3
#	587849, 6.500%, due 11/1/31			27					31
#	545437, 7.000%, due 2/1/32			107					122
#	545759, 6.500%, due 7/1/32			1,067					1,181
#	678007, 6.000%, due 9/1/32			21					23
#	254548, 5.500%, due 12/1/32			44					49
#	684601, 6.000%, due 3/1/33			1,048					1,159
#	703391, 5.000%, due 5/1/33			155					167
#	708993, 5.000%, due 6/1/33			65					72
#	190340, 5.000%, due 9/1/33			128					138
#	254868, 5.000%, due 9/1/33			14					15
#	727056, 5.000%, due 9/1/33			693					772
#	739243, 6.000%, due 9/1/33			1,321					1,483
#	739331, 6.000%, due 9/1/33			642					721
#	555800, 5.500%, due 10/1/33			146					159
#	555946, 5.500%, due 11/1/33			568					636
#	756153, 5.500%, due 11/1/33			1,348					1,508
#	762505, 5.500%, due 11/1/33			273					305
#	725017, 5.500%, due 12/1/33			66					73
#	725205, 5.000%, due 3/1/34			1,739					1,881
#	725232, 5.000%, due 3/1/34			1,842					1,992
#	725238, 5.000%, due 3/1/34			654					708
#	763798, 5.500%, due 3/1/34			195					218
#	776964, 5.000%, due 4/1/34			522					579
#	725611, 5.500%, due 6/1/34			265					291
#	783786, 5.500%, due 7/1/34			200					223
#	786546, 6.000%, due 7/1/34			566					632
#	787816, 6.000%, due 7/1/34			655					736
#	190353, 5.000%, due 8/1/34			192					207
#	794474, 6.000%, due 10/1/34			116					129
#	745092, 6.500%, due 7/1/35			782					875
#	357944, 6.000%, due 9/1/35			58					65
#	829306, 6.000%, due 9/1/35			614					669
#	836140, 5.500%, due 10/1/35			99					110
#	843487, 6.000%, due 10/1/35			182					204
#	849191, 6.000%, due 1/1/36			382					425
#	848782, 6.500%, due 1/1/36			495					558
#	745349, 6.500%, due 2/1/36			747					843

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

97

Bond Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		NRSRO Rating				Principal Amount					Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal National Mortgage Association (FNMA)—(continued)
#	888305, 7.000%, due 3/1/36						$	20				$	23
#	895637, 6.500%, due 5/1/36							267					300
#	831540, 6.000%, due 6/1/36							86					96
#	745802, 6.000%, due 7/1/36							366					411
#	886220, 6.000%, due 7/1/36							799					896
#	893318, 6.500%, due 8/1/36							104					117
#	902974, 6.000%, due 12/1/36							748					830
#	909480, 6.000%, due 2/1/37							732					814
#	938440, 6.000%, due 7/1/37							362					401
#	928561, 6.000%, due 8/1/37							463					519
#	948689, 6.000%, due 8/1/37							640					703
#	946646, 6.000%, due 9/1/37							220					246
#	888967, 6.000%, due 12/1/37							1,495					1,677
#	889385, 6.000%, due 2/1/38							425					473
#	962058, 6.500%, due 3/1/38							3,201					3,613
#	934006, 6.500%, due 9/1/38							946					1,067
#	986856, 6.500%, due 9/1/38							649					725
#	991911, 7.000%, due 11/1/38							549					619
#	AA7611, 5.000%, due 5/1/39							1,090					1,217
#	AA8443, 5.000%, due 6/1/39							417					466
#	931492, 6.000%, due 7/1/39							306					343
#	AA6898, 6.000%, due 7/1/39							1,606					1,805
#	932279, 5.000%, due 12/1/39							187					206
#	AE0082, 5.000%, due 5/1/40							1,047					1,155
#	AB1200, 5.500%, due 7/1/40							2,302					2,569
#	AL0913, 6.000%, due 7/1/41							2,854					3,159
#	AK2733, 5.000%, due 2/1/42							3,065					3,430
	Total FNMA Mortgage Obligations												74,913
	Non-Agency Mortgage-Backed Obligations—0.1%
*	First Plus Home Loan Owner Trust,
	1997-4, Tranche M1,
	7.640%, 9/11/23§**			D				199					167
	Asset-Backed Securities—3.6%
	Avis Budget Rental Car Funding
	AESOP LLC—144A, 2010–3A,
	Tranche A, 4.640%, 5/20/16			Aaa				100					106
	Centre Point Funding LLC—144A,
	2010–1A, Tranche 1,
	5.430%, 7/20/16			A2				1,625					1,695
	Hertz Vehicle Financing LLC—144A,
	2013–1A, Tranche B1,
	1.860%, 8/25/17			Baa1				1,500					1,480
	GE Capital Credit Card Master Note
	Trust, 2012–6, Tranche B,
	1.830%, 8/17/20			AA-				3,000					2,930
	SLM Student Loan Trust, 2002–1,
	Tranche B,
	0.746%, 1/25/21, VRN			Aaa				1,500					1,490
	Centre Point Funding LLC—144A,
	2012–2A, Tranche 1,
	2.610%, 8/20/21			Baa2				1,722					1,727
	Total Asset-Backed Securities												9,428

 

	Issuer		NRSRO Rating				Principal Amount					Value
	Corporate Obligations—51.8%
	Ally Financial, Inc., 5.500%, due 2/15/17			BB-				$1,788				$	1,868
	Penske Truck Leasing Co. L.P.—144A, 3.750%, due 5/11/17			BBB+				2,000					2,093
	JPMorgan Chase & Co., 6.125%, due 6/27/17			A				1,100					1,241
	General Motors Financial Co., Inc.—144A, 4.750%, due 8/15/17			BB				1,000					1,025
	Capital One Financial Corporation, 6.750%, due 9/15/17			A-				1,900					2,238
	Exelon Generation Co. LLC, 6.200%, due 10/1/17			BBB+				1,160					1,326
	Toll Brothers Finance Corporation, 8.910%, due 10/15/17			BBB-				1,050					1,244
	American Tower Corporation, 4.500%, due 1/15/18			BBB				1,625					1,733
	Intesa Sanpaolo SpA, 3.875%, due 1/16/18			BBB+				3,000					2,881
	Banco Davivienda S.A.—144A, 2.950%, due 1/29/18			BBB-				2,000					1,890
	Wyndham Worldwide Corporation, 2.500%, due 3/1/18			BBB-				500					491
	Morgan Stanley, 6.625%, due 4/1/18			A				2,575					2,919
	International Lease Finance Corporation, 3.875%, due 4/15/18			BBB-				1,400					1,316
	Regions Financial Corporation, 2.000%, due 5/15/18			BBB-				2,500					2,363
	Merrill Lynch & Co., Inc., 6.875%, due 11/15/18			A				1,100					1,281
	Glencore Funding LLC—144A, 1.574%, due 1/15/19, VRN			BBB				3,000					2,788
	Petrobras Global Finance BV, 2.414%, due 1/15/19, VRN			A3				2,900					2,842
	CSX Corporation, 7.375%, due 2/1/19			BBB				870					1,073
	Cemex S.A.B. de C.V.—144A, 5.875%, due 3/25/19			B+				1,500					1,455
	Citigroup, Inc., 8.500%, due 5/22/19			A				2,050					2,583
	Roper Industries, Inc., 6.250%, due 9/1/19			BBB				1,850					2,153
	Republic Services, Inc., 5.500%, due 9/15/19			BBB				1,725					1,952
	SBA Communications Corp.—144A, 5.625%, due 10/1/19			B2				1,250					1,238
	Boston Properties L.P., 5.875%, due 10/15/19			A-				1,575					1,817
	Toll Brothers Finance Corporation, 6.750%, due 11/1/19			BBB-				500					565
	Ford Motor Credit Co. LLC, 8.125%, due 1/15/20			Baa3				3,050					3,674
	Jarden Corporation, 7.500%, due 1/15/20			B1				1,550					1,658
	Johnson Controls, Inc., 5.000%, due 3/30/20			BBB+				1,675					1,840

 

See accompanying Notes to Financial Statements.

 

98

Semi-Annual Report

June 30, 2013

Bond Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

 

Issuer		NRSRO Rating				Principal Amount					Value
Corporate Obligations—(continued)
The Goldman Sachs Group, Inc., 6.000%, due 6/15/20			A			$	2,575				$	2,893
Hologic, Inc., 6.250%, due 8/1/20			BB				1,100					1,141
Alcoa, Inc., 6.150%, due 8/15/20			BBB-				2,050					2,100
Omnicom Group, Inc., 4.450%, due 8/15/20			BBB+				2,075					2,156
The Goodyear Tire & Rubber Co., 8.250%, due 8/15/20			B+				1,500					1,642
Georgia-Pacific LLC—144A, 5.400%, due 11/1/20			A				1,500					1,673
Standard Pacific Corporation, 8.375%, due 1/15/21			B+				1,750					1,995
ArcelorMittal, 6.000%, due 3/1/21			BB+				1,600					1,592
Wyndham Worldwide Corporation, 5.625%, due 3/1/21			BBB-				1,000					1,072
Ball Corporation, 5.750%, due 5/15/21			BB+				1,550					1,631
Energizer Holdings, Inc., 4.700%, due 5/19/21			BBB-				2,050					2,081
Hewlett-Packard Co., 4.300%, due 6/1/21			A-				2,900					2,836
JBS USA LLC / JBS USA Finance, Inc.—144A, 7.250%, due 6/1/21			BB				1,500					1,500
O’Reilly Automotive, Inc., 4.625%, due 9/15/21			BBB				2,275					2,381
Corporation Nacional del Cobre de Chile—144A, 3.875%, due 11/3/21			A1				1,900					1,853
Itau Unibanco Holding S.A.—144A, 6.200%, due 12/21/21			BBB				2,500					2,531
SLM Corporation, 7.250%, due 1/25/22			BBB-				2,000					2,100
Fresenius Medical Care US Finance II, Inc.—144A, 5.875%, due 1/31/22			BB+				1,000					1,053
Masco Corporation, 5.950%, due 3/15/22			BBB-				1,675					1,759
BE Aerospace, Inc., 5.250%, due 4/1/22			BB				1,550					1,542
Discover Financial Services, 5.200%, due 4/27/22			BBB				2,150					2,219
Embraer S.A., 5.150%, due 6/15/22			BBB				2,500					2,506
Bancolombia S.A., 5.125%, due 9/11/22			BBB-				1,750					1,667
DR Horton, Inc., 4.375%, due 9/15/22			BB				1,350					1,283
Mexichem S.A.B. de C.V.—144A, 4.875%, due 9/19/22			BBB-				1,500					1,508
WEA Finance LLC—144A, 3.375%, due 10/3/22			A2				2,650					2,498
American Axle & Manufacturing, Inc., 6.625%, due 10/15/22			B				1,550					1,573

 

 

Issuer			NRSRO Rating				Principal Amount					Value
Corporate Obligations—(continued)
Southern Copper Corporation, 3.500%, due 11/8/22				BBB+			$	1,750				$	1,571
Jones Lang LaSalle, Inc., 4.400%, due 11/15/22				Baa2				1,650					1,619
Owens Corning, 4.200%, due 12/15/22				BBB-				500					484
Royal Bank of Scotland Group plc, 6.125%, due 12/15/22				BB+				3,200					3,045
Carlyle Holdings Finance LLC—144A, 3.875%, due 2/1/23				A-				2,425					2,347
Jaguar Land Rover Automotive plc—144A, 5.625%, due 2/1/23				BB-				1,500					1,455
Corporation Lindley S.A.—144A, 4.625%, due 4/12/23				BBB-				2,150					2,085
Toll Brothers Finance Corporation, 4.375%, due 4/15/23				BBB-				1,300					1,209
The Kroger Co., 8.000%, due 9/15/29				BBB				450					565
Comcast Corporation, 6.450%, due 3/15/37				A-				650					777
Yum! Brands, Inc., 6.875%, due 11/15/37				BBB				625					747
JPMorgan Chase & Co., 6.400%, due 5/15/38				A+				1,470					1,724
Philip Morris International, Inc., 6.375%, due 5/16/38				A				2,175					2,585
General Electric Capital Corporation, 6.875%, due 1/10/39				AA+				750					924
Burlington Northern Santa Fe LLC, 5.750%, due 5/1/40				A3				1,565					1,743
Express Scripts Holding Co., 6.125%, due 11/15/41				BBB+				2,500					2,887
Gilead Sciences, Inc., 5.650%, due 12/1/41				A-				1,775					1,974
Bank of America Corporation, 5.875%, due 2/7/42				A				2,375					2,655
Odebrecht Finance Ltd.—144A, 7.125%, due 6/26/42				BBB-				2,000					1,940
Jefferies Group LLC, 6.500%, due 1/20/43				BBB				755					723
Total Corporate Obligations													135,391
Total Long-Term Investments—100.3% (cost $257,776)													262,153
Total Investments—100.3% (cost $257,776)													262,153
Liabilities, plus cash and other assets—(0.3)%													(821	)
Net assets—100.0%												$	261,332

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

99

Bond Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

 

NRSRO = Nationally Recognized Statistical Rating Organization—The credit quality ratings of the securities in the Fund reflect the highest category rating by either Fitch Ratings, Moody’s Investors Service Inc., or Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. The obligations of certain U. S. Government-sponsored securities are neither issued nor guaranteed by the U. S. Treasury.

 

VRN = Variable Rate Note

 

§ = Deemed illiquid pursuant to Liquidity Procedures approved by the Board of Trustees. This holding represents 0.06% of the net assets at June 30, 2013.

 

* = Non-income producing security

 

** = Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. This holding represents 0.06% of the Fund’s net assets at June 30, 2013.

 

See accompanying Notes to Financial Statements.

 

100

Semi-Annual Report

June 30, 2013

	INCOME FUND
	The Income Fund seeks a high level of current income with relative stability of principal.
	AN OVERVIEW FROM THE PORTFOLIO MANAGER
Christopher T. Vincent	The William Blair Income Fund (Class N shares) posted a 2.45% decrease, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Barclays U.S. Intermediate Government/Credit Index (the “Index”), decreased 1.45%.   Portfolio Results   The Fund’s underperformance year-to-date was caused primarily by two factors: an overweight to investment-grade corporate bonds and an allocation to U.S. Treasury Inflation-Protected Securities (“TIPS”). Factors that had a positive impact on the Fund’s performance year-to-date included security selection among mortgage-backed securities (“MBS”) and its defensive position on interest rate exposure.   The Fund’s overweight to investment-grade corporate bonds detracted year-to-date. Corporate risk spreads widened during the second quarter of 2013 due to elevated levels of volatility created by uncertainty regarding when and how the Federal Open Market Committee (“FOMC”) will end its quantitative easing programs. The Fund’s allocation to TIPS also had a negative effect on performance year-to-date. TIPS underperformed the broad market because the market’s expectations for inflation declined due to the FOMC’s signals that it will slow down the pace of purchases in its quantitative easing programs, with the result being less inflationary pressures.   Despite the Fund’s underperformance, there were some themes that contributed year-to-date. Security selection among MBS impacted performance favorably. The MBS owned in the Fund were higher-coupon pools that generated consistent levels of income. These pools performed better than the Index and were a source of relative value. The Fund was also positioned defensively on interest rate risk; its duration was shorter than that of its Index. This position helped mitigate declines as interest rates rose year-to-date, and interest rates rose significantly during the second quarter of 2013.   Fixed Income Markets Summary & Outlook   Fixed income instruments declined year-to-date after a volatile second quarter. Interest rates rose, interest rate volatility spiked, and risk spreads widened. The 10-year Treasury note yielded 2.49% at June 30, 2013.   We believe that the threat of a sustained, rapid rise in interest rates is subdued, though longer-term interest rates may trend higher. Interest rate volatility has increased due to uncertainty surrounding the timing and magnitude of the FOMC’s exit from its quantitative easing programs. However, the FOMC continues to assert that its policy interest rate will be maintained at low levels until the unemployment rate declines below 6.5% and inflation expectations are well-anchored, and the market’s prices imply that will occur in late 2014 at the earliest.   With corporations holding record levels of cash, the corporate bond market remains concerned about shareholder-friendly activities such as leveraged buyouts (“LBOs”), large share repurchases, and special dividends. We believe idiosyncratic risks are among the top issues for investment-grade corporate bond investors, but we do not believe the market will enter a period of excessive LBO activity.   We believe that spread sectors are poised to lead the market. Risk premiums across all spread sectors remain elevated versus long-term averages but not approaching the historically cheap levels experienced in prior years. In addition, fundamentals are strong, as corporations’ balance sheets are strong given their historically high level of cash holdings. For these reasons, coupled with the low level of Treasury interest rates, we are bullish on spread products relative to Treasuries.

 

June 30, 2013

William Blair Funds

101

Income Fund

 

Performance Highlights (Unaudited)

 

 

 

 

Average Annual Total Return at 6/30/2013
			Year to Date				1 Year				3 Year				5 Year				10 Year
Class N			(2.45	)%			0.45	%			3.54	%			4.36	%			3.19	%
Class I			(2.36	)			0.67				3.80				4.59				3.38
Barclays U.S. Intermediate Government/Credit Bond Index			(1.45	)			0.28				3.14				4.57				4.03

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) or service fees.

 

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

 

The Barclays Capital U.S. Intermediate Government/Credit Bond Index indicates broad intermediate government/corporate bond market performance.

 

This report identifies the Fund’s investments on June 30, 2013. These holdings are subject to change. Not all investments in the Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

 

Sector Diversification (Unaudited)

 

 

The sector diversification shown is based on the total investments.

 

102

Semi-Annual Report

June 30, 2013

Income Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Principal Amount					Value
	U.S. Government and U.S. Government Agency—55.5%
	U.S. Treasury Inflation Indexed Notes/Bonds—7.5%
	U.S. Treasury Inflation Indexed Note, 2.375%, due 1/15/17			$	4,180				$	4,633
	U.S. Treasury Inflation Indexed Note, 1.125%, due 1/15/21				4,943					5,287
	Total U.S. Treasury Inflation Indexed Notes/Bonds									9,920
	U.S. Treasury—0.7%
	U.S. Treasury Strip Principal, 0.000%, due 5/15/20				1,000					875
	Government National Mortgage Association (GNMA)—0.1%
#	780405, 9.500%, due 11/15/17				66					70
#	357322, 7.000%, due 9/15/23				50					57
	Total GNMA Mortgage Obligations									127
	Federal Home Loan Mortgage Corp. (FHLMC)—8.1%
#	E72924, 7.000%, due 10/1/13				16					16
#	E81703, 7.000%, due 5/1/15				52					53
#	E81697, 8.000%, due 5/1/15				216					225
#	E81908, 8.500%, due 12/1/15				19					19
#	J02184, 8.000%, due 4/1/16				117					121
#	G90022, 8.000%, due 9/17/16				68					69
#	M30028, 5.500%, due 5/1/17				8					8
#	E90398, 7.000%, due 5/1/17				295					314
#	E97112, 4.000%, due 5/1/18				128					134
#	D95621, 6.500%, due 7/1/22				1,292					1,434
#	J16051, 4.500%, due 7/1/26				2,019					2,157
#	J19032, 3.500%, due 5/1/27				1,309					1,385
#	A45790, 7.500%, due 5/1/35				170					196
#	G02141, 6.000%, due 3/1/36				573					642
#	A66843, 6.500%, due 10/1/37				653					736
#	A81799, 6.500%, due 9/1/38				877					987
#	C03665, 9.000%, due 4/1/41				724					884
#	G06583, 5.000%, due 6/1/41				1,194					1,334
	Total FHLMC Mortgage Obligations									10,714
	Federal National Mortgage Association (FNMA)—39.1%
#	593561, 9.500%, due 8/1/14				16					17
#	567027, 7.000%, due 9/1/14				76					78
#	567026, 6.500%, due 10/1/14				40					41
#	458124, 7.000%, due 12/15/14				17					17
#	576554, 8.000%, due 1/1/16				268					282
#	576553, 8.000%, due 2/1/16				385					406
#	555747, 8.000%, due 5/1/16				26					28
#	735569, 8.000%, due 10/1/16				182					192
#	725410, 7.500%, due 4/1/17				53					55
#	643217, 6.500%, due 6/1/17				113					121
#	679247, 7.000%, due 8/1/17				391					416
#	695910, 5.000%, due 5/1/18				392					419
#	740847, 6.000%, due 10/1/18				236					252
#	323501, 6.500%, due 1/1/19				77					83
#	751313, 5.000%, due 3/1/19				337					365
#	852864, 7.000%, due 7/1/20				899					989
#	458147, 10.000%, due 8/15/20				203					232

	Issuer		Principal Amount					Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal National Mortgage Association (FNMA)—(continued)
#	835563, 7.000%, due 10/1/20			$	346				$	380
#	831430, 5.500%, due 3/1/21				582					626
#	735574, 8.000%, due 3/1/22				235					263
#	679253, 6.000%, due 10/1/22				616					681
FNR G93–19 SH, 11.234%, due 4/25/23, VRN					11					13
#	982878, 4.500%, due 5/1/23				470					506
#	932095, 4.000%, due 11/1/24				8,755					9,449
#	AC5124, 4.000%, due 11/1/24				537					579
#	AC6257, 4.000%, due 12/1/24				132					142
#	AD8164, 4.000%, due 8/1/25				735					793
#	AE1176, 4.000%, due 8/1/25				649					700
#	255956, 5.500%, due 10/1/25				130					143
#	AB2256, 3.500%, due 2/1/26				1,062					1,120
#	890329, 4.000%, due 4/1/26				2,016					2,168
#	AL2851, 4.000%, due 8/1/26				2,657					2,867
#	AI9811, 4.500%, due 8/1/26				693					755
#	AJ2322, 3.500%, due 10/1/26				838					884
#	AJ3203, 4.000%, due 10/1/26				1,745					1,884
#	AJ8149, 3.500%, due 12/1/26				2,300					2,426
#	AJ7724, 4.000%, due 12/1/26				804					868
#	AK0498, 3.500%, due 1/1/27				491					518
#	256639, 5.000%, due 2/1/27				28					30
#	AB4818, 4.000%, due 4/1/27				873					943
#	AP0446, 3.500%, due 7/1/27				3,246					3,425
#	AL2590, 4.000%, due 7/1/27				2,728					2,946
#	806458, 8.000%, due 6/1/28				186					215
#	880155, 8.500%, due 7/1/29				322					378
#	797846, 7.000%, due 3/1/32				547					608
#	745519, 8.500%, due 5/1/32				182					214
#	654674, 6.500%, due 9/1/32				93					105
#	733897, 6.500%, due 12/1/32				262					293
#	254693, 5.500%, due 4/1/33				20					22
#	555531, 5.500%, due 6/1/33				55					60
#	555591, 5.500%, due 7/1/33				33					36
#	762505, 5.500%, due 11/1/33				273					305
#	725231, 5.000%, due 2/1/34				416					450
#	725220, 5.000%, due 3/1/34				403					436
#	725232, 5.000%, due 3/1/34				397					430
#	725238, 5.000%, due 3/1/34				225					244
#	776964, 5.000%, due 4/1/34				783					869
#	725424, 5.500%, due 4/1/34				214					234
#	255630, 5.000%, due 3/1/35				23					25
#	888884, 5.500%, due 12/1/35				403					450
#	886220, 6.000%, due 7/1/36				569					638
#	928658, 6.500%, due 9/1/37				70					78
#	889385, 6.000%, due 2/1/38				993					1,105
#	962058, 6.500%, due 3/1/38				1,121					1,266
#	991911, 7.000%, due 11/1/38				351					395
#	AB1200, 5.500%, due 7/1/40				767					856
#	AL0028, 5.000%, due 2/1/41				393					439
#	AL0913, 6.000%, due 7/1/41				2,075					2,297
	Total FNMA Mortgage Obligations									51,550

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

103

Income Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		NRSRO Rating		Principal Amount					Value
	U.S. Government and U.S. Government Agency—(continued)
	Non-Agency Mortgage-Backed Obligations—0.8%
*	First Plus Home Loan Owner Trust, 1997–4, Tranche M1, 7.640%, 9/11/23§**		D			$	676				$	565
*	First Plus Home Loan Owner Trust, 1997–4, Tranche M2, 7.830%, 9/11/23§**		D				143					104
*	First Plus Home Loan Owner Trust, 1998–3, Tranche M2, 7.920%, 5/10/24§**		Caa1ø				256					247
*	Lehman Structured Securities Corp.—144A, 2004–2, Tranche M1, 2.694%, 2/28/33, VRN§		CCC				291					143
	Total Non-Agency Mortgage-Backed Obligations											1,059
	Asset-Backed Securities—5.7%
	Centre Point Funding LLC—144A, 2010–1A, Tranche 1, 5.430%, 7/20/16		A2				832					868
	Chase Issuance Trust, 2008-A8, Tranche A8, 1.393%, 5/15/17, VRN		AAA				1,250					1,272
	Citibank Credit Card Issuance Trust, 2008-A6, Tranche A6, 1.392%, 5/22/17, VRN		AAA				700					713
	Citibank Omni Master Trust—144A, 2009-A14A, Tranche A14, 2.943%, 8/15/18, VRN		Aaa				1,000					1,027
	GE Capital Credit Card Master Note Trust, 2012–6, Tranche B, 1.830%, 8/17/20		AA-				1,705					1,665
	SLM Student Loan Trust, 2002–1, Tranche B, 0.746%, 1/25/21, VRN		Aaa				2,000					1,986
	Total Asset-Backed Securities											7,531
	Corporate Obligations—36.8%
	The Goldman Sachs Group, Inc., 3.300%, due 5/3/15		A				600					618
	Bank of America Corporation, 1.093%, due 3/22/16, VRN		A				1,000					997
	BHP Billiton Finance USA, Ltd., 5.400%, due 3/29/17		A+				1,000					1,128
	JPMorgan Chase & Co., 6.125%, due 6/27/17		A				1,750					1,974
	American Express Co., 6.150%, due 8/28/17		A+				1,500					1,738
	Capital One Financial Corporation, 6.750%, due 9/15/17		A-				1,000					1,178
	Standard Chartered Bank—144A, 6.400%, due 9/26/17		A+				1,000					1,125
	Wells Fargo & Co., 5.625%, due 12/11/17		AA-				1,250					1,421

Issuer		NRSRO Rating		Principal Amount					Value
U.S. Government and U.S. Government Agency—(continued)
Corporate Obligations—(continued)
Intesa Sanpaolo SpA, 3.875%, due 1/16/18		BBB+			$	1,000				$	960
Morgan Stanley, 6.625%, due 4/1/18		A				1,250					1,417
General Electric Capital Corporation, 5.625%, due 5/1/18		AA+				1,200					1,376
Philip Morris International, Inc., 5.650%, due 5/16/18		A				1,250					1,441
Simon Property Group L.P., 6.125%, due 5/30/18		A				1,250					1,469
John Deere Capital Corporation, 5.750%, due 9/10/18		A				1,300					1,517
Merrill Lynch & Co., Inc., 6.875%, due 11/15/18		A				1,000					1,165
Glencore Funding LLC—144A, 1.574%, due 1/15/19, VRN		BBB				1,000					929
Petrobras Global Finance BV, 2.414%, due 1/15/19, VRN		A3				1,250					1,225
Honeywell International, Inc., 5.000%, due 2/15/19		A				1,280					1,463
The Procter & Gamble Co., 4.700%, due 2/15/19		AA-				500					564
Citigroup, Inc., 8.500%, due 5/22/19		A				1,250					1,575
Burlington Northern Santa Fe LLC, 4.700%, due 10/1/19		A3				1,000					1,110
Boston Properties L.P., 5.875%, due 10/15/19		A-				1,350					1,557
Royal Bank of Scotland Group plc, 6.400%, due 10/21/19		A				750					833
The Goldman Sachs Group, Inc., 6.000%, due 6/15/20		A				1,250					1,405
Alcoa, Inc., 6.150%, due 8/15/20		BBB-				750					768
Georgia-Pacific LLC—144A, 5.400%, due 11/1/20		A				1,000					1,115
Hewlett-Packard Co., 4.300%, due 6/1/21		A-				1,250					1,222
Corporation Nacional del Cobre de Chile—144A, 3.875%, due 11/3/21		A1				1,000					975
Gilead Sciences, Inc., 4.400%, due 12/1/21		A-				1,425					1,530
Itau Unibanco Holding S.A.—144A, 6.200%, due 12/21/21		BBB				750					759
SLM Corporation, 7.250%, due 1/25/22		BBB-				750					788
Masco Corporation, 5.950%, due 3/15/22		BBB-				1,000					1,050
Potomac Electric Power Co., 3.050%, due 4/1/22		A				1,000					987
American International Group, Inc., 4.875%, due 6/1/22		A-				1,275					1,359
Odebrecht Finance Ltd.—144A, 5.125%, due 6/26/22		BBB-				1,000					980

 

See accompanying Notes to Financial Statements.

 

104

Semi-Annual Report

June 30, 2013

Income Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

Issuer		NRSRO Rating		Principal Amount					Value
U.S. Government and U.S. Government Agency—(continued)
Corporate Obligations—(continued)
Bancolombia S.A., 5.125%, due 9/11/22		BBB-			$	1,000				$	953
Mexichem S.A.B. de C.V.—144A, 4.875%, due 9/19/22		BBB-				750					754
WEA Finance LLC—144A, 3.375%, due 10/3/22		A2				1,000					943
Jones Lang LaSalle, Inc., 4.400%, due 11/15/22		Baa2				625					613
Royal Bank of Scotland Group plc, 6.125%, due 12/15/22		BB+				800					761
Carlyle Holdings Finance LLC—144A, 3.875%, due 2/1/23		A-				1,200					1,161
Corporation Lindley S.A.—144A, 4.625%, due 4/12/23		BBB-				750					728
Toll Brothers Finance Corporation, 4.375%, due 4/15/23		BBB-				900					837
Total Corporate Obligations											48,468
Total Long-Term Investments—98.8% (cost $129,503)											130,244
Total Investments—98.8% (cost $129,503)											130,244
Cash and other assets, less liabilities—1.2%											1,605
Net assets—100.0%										$	131,849

 

 

 

NRSRO = Nationally Recognized Statistical Rating Organization—The credit quality ratings of the securities in the Fund reflect the highest category rating by either Fitch Ratings, Moody’s Investors Service Inc., or Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

 

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

 

VRN = Variable Rate Note

 

§ = Deemed illiquid pursuant to Liquidity Procedures approved by the Board of Trustees. These holdings represent 0.80% of the net assets at June 30, 2013.

 

* = Non-income producing securities

 

** = Fair valued pursuant to Valuation Procedures adopted by the Board of Trustees. These holdings represent 0.69% of the Fund’s net assets at June 30, 2013.

 

ø = Moody’s withdrew its rating as of July 29, 2011. The rating shown represents the last issued. The bond currently is not rated by a NRSRO.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

105

	LOW DURATION FUND
	The Low Duration Fund seeks to maximize total return. Total return includes both income and capital appreciation.
	AN OVERVIEW FROM THE PORTFOLIO MANAGERS
Christopher T. Vincent     Paul J. Sularz	The William Blair Low Duration Fund (Class N shares) posted a 1.27% decrease, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark index, the Bank of America Merrill Lynch 1-Year U.S. Treasury Note Index (the “Index”), increased 0.11%.   Portfolio Results   The Fund’s underperformance year-to-date was caused primarily by the performance of mortgage-backed securities (“MBS”) held in the Fund, as MBS comprises the majority of the Fund’s assets (approximately 70%). An allocation to U.S. Treasury Inflation-Protected Securities (“TIPS”) also detracted from performance. Factors that had a positive impact on the Fund’s performance year-to-date included its exposures to floating-rate instruments in the corporate and asset-backed sectors.   The Fund’s positioning in MBS detracted year-to-date. MBS risk spreads widened during the second quarter of 2013 due to elevated levels of volatility created by uncertainty regarding when and how the Federal Open Market Committee (“FOMC”) will end its quantitative easing programs. MBS were one of the segments of the bond market that the FOMC targeted in its purchases for the quantitative easing programs. The Fund’s allocation to TIPS also had a negative effect on performance year-to-date. TIPS underperformed the broad market because the market’s expectations for inflation declined due to the FOMC’s signals that it will slow down the pace of purchases in its quantitative easing programs, with the result being less inflationary pressures.   An allocation to floating-rate instruments in the corporate and asset-backed sectors mitigated declines year-to-date. The floating-rate instruments helped preserve principal as interest rates rose rapidly during the second quarter of 2013.   Fixed Income Markets Summary & Outlook   Fixed income instruments declined year-to-date after a volatile second quarter. Interest rates rose, interest rate volatility spiked, and risk spreads widened. The 10-year Treasury note yielded 2.49% at June 30, 2013.   We believe that the threat of a sustained, rapid rise in interest rates is subdued, though longer-term interest rates may trend higher. Interest rate volatility has increased due to uncertainty surrounding the timing and magnitude of the FOMC’s exit from its quantitative easing programs. However, the FOMC continues to assert that its policy interest rate will be maintained at low levels until the unemployment rate declines below 6.5% and inflation expectations are well-anchored, and the market’s prices imply that will occur in late 2014 at the earliest.   With corporations holding record levels of cash, the corporate bond market remains concerned about shareholder-friendly activities such as leveraged buyouts (“LBOs”), large share repurchases, and special dividends. We believe idiosyncratic risks are among the top issues for investment-grade corporate bond investors, but we do not believe the market will enter a period of excessive LBO activity.   We believe that spread sectors are poised to lead the market. Risk premiums across all spread sectors remain elevated versus long-term averages but not approaching the historically cheap levels experienced in prior years. In addition, fundamentals are strong, as corporations’ balance sheets are strong given their historically high level of cash holdings. For these reasons, coupled with the low level of Treasury interest rates, we are bullish on spread products relative to Treasuries.

 

106

Semi-Annual Report

June 30, 2013

Low Duration Fund

 

Performance Highlights (Unaudited)

 

 

 

 

 

 

 

Average Annual Total Return at 6/30/2013
		Year to Date				1 Year				3 Year				Since Inception(a)
Class N			(1.27	)%			(0.09	)%			1.22	%			1.25	%
Class I			(1.20	)			0.06				1.36				1.39
Institutional Class			(1.01	)			0.32				1.53				1.58
Bank of America Merrill Lynch 1-Year U.S. Treasury Note Index			0.11				0.32				0.41				0.44

 

(a)	For the period from December 1, 2009 (Commencement of Operations) to June 30, 2013.

 

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 advisor may waive fees or reimburse expenses for the Fund. Without these waivers, performance would be lower. Class N shares are available to the general public without a sales load. Class I shares are available to certain institutional investors and advisory clients of William Blair & Company, L.L.C., without a sales load or distribution (12b-1) fees. Institutional Class Shares are available to institutional investors 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 Bank of America Merrill Lynch 1-Year U.S. Treasury Note Index is comprised of a single U.S. Treasury Note issue purchased at the beginning of the month and held for a full month. Each month the index is rebalanced and the issue selected is the outstanding U.S. Treasury Note that matures closest to, but not beyond one year from the rebalancing date.

 

This report identifies the Fund’s investments on June 30, 2013. These holdings are subject to change. Not all investments in the Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

 

Sector Diversification (Unaudited)

 

 

 

The sector diversification shown is based on the total investments.

 

June 30, 2013

William Blair Funds

107

Low Duration Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Principal Amount				Value
	U.S. Government and U.S. Government Agency—72.8%
	U.S. Treasury Inflation Indexed Notes/Bonds—2.2%
	U.S. Treasury Inflation Indexed Note, 2.375%, due 1/15/17			$3,748				$	4,154
	U.S. Treasury Inflation Indexed Note, 1.625%, due 1/15/18			2,220					2,430
	Total U.S. Treasury Inflation Indexed Notes/Bonds								6,584
	Government National Mortgage Association (GNMA)—0.9%
#	623159, 5.000%, due 11/15/13			6					6
#	628400, 6.000%, due 11/15/13			15					15
#	002682, 6.500%, due 11/20/13			2					2
#	623182, 5.000%, due 12/15/13			14					16
#	781010, 6.500%, due 4/15/14			12					12
#	002761, 6.000%, due 5/20/14			11					11
#	002787, 5.500%, due 7/20/14			2					2
#	781275, 6.000%, due 10/15/14			38					39
	GNR 2011–24 VA, 3.500%, due 2/20/16			1,054					1,100
#	561031, 5.500%, due 9/15/16			144					153
#	003180, 6.000%, due 1/20/17			22					23
#	781567, 5.000%, due 2/15/18			59					63
#	606406, 5.000%, due 4/15/18			82					89
#	003438, 4.500%, due 9/20/18			142					153
#	003465, 4.500%, due 11/20/18			47					51
#	004430, 4.500%, due 5/20/24			749					803
	Total GNMA Mortgage Obligations								2,538
	Federal Home Loan Mortgage Corp. (FHLMC)—18.6%
#	G12631, 5.500%, due 4/1/17			201					215
#	G13127, 4.500%, due 4/1/18			54					56
#	G11606, 4.500%, due 5/1/18			22					23
#	E96962, 4.000%, due 6/1/18			98					103
#	E01418, 4.000%, due 7/1/18			22					23
#	E01424, 4.000%, due 8/1/18			11					12
#	E99160, 4.500%, due 9/1/18			117					122
#	E99582, 5.000%, due 9/1/18			29					30
#	E99659, 4.500%, due 10/1/18			160					167
#	B11362, 5.500%, due 12/1/18			17					18
#	G13367, 5.500%, due 12/1/18			378					404
#	B11849, 5.500%, due 1/1/19			194					208
#	B12826, 4.500%, due 3/1/19			637					671
#	B13051, 4.500%, due 4/1/19			86					92
#	B13143, 4.500%, due 4/1/19			428					457
#	B14961, 4.500%, due 6/1/19			86					92
#	B15141, 4.500%, due 6/1/19			85					90
#	G11604, 5.000%, due 7/1/19			166					177
#	G11596, 5.500%, due 8/1/19			141					152
#	G11605, 5.500%, due 9/1/19			66					72
#	B17142, 4.500%, due 11/1/19			1,047					1,115
#	B17161, 4.500%, due 11/1/19			29					31
#	G11697, 5.500%, due 4/1/20			1,100					1,189
#	J02537, 5.000%, due 9/1/20			66					70
#	G12113, 5.500%, due 5/1/21			198					214
#	E02322, 5.500%, due 5/1/22			56					61
#	J06484, 5.500%, due 11/1/22			460					498

	Issuer		Principal Amount				Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal Home Loan Mortgage Corp. (FHLMC)—(continued)
#	J06871, 5.500%, due 1/1/23			$   161				$	174
#	J08703, 5.500%, due 9/1/23			72					78
#	J10351, 4.000%, due 7/1/24			288					310
#	C00351, 8.000%, due 7/1/24			99					116
#	G13695, 4.000%, due 9/1/24			1,361					1,465
#	G00363, 8.000%, due 6/1/25			139					161
#	J12853, 4.000%, due 8/1/25			200					215
#	C80329, 8.000%, due 8/1/25			26					30
#	J13022, 4.000%, due 9/1/25			2,473					2,662
#	J14491, 4.000%, due 2/1/26			6,741					7,335
#	G14150, 4.500%, due 4/1/26			3,235					3,455
#	E02912, 5.000%, due 6/1/26			991					1,062
#	J16051, 4.500%, due 7/1/26			4,083					4,362
#	J18361, 3.500%, due 3/1/27			3,323					3,515
#	J19032, 3.500%, due 5/1/27			1,549					1,640
#	G04053, 5.500%, due 3/1/38			2,696					2,984
#	G04424, 6.000%, due 6/1/38			202					223
#	G04778, 6.000%, due 7/1/38			192					215
#	A81372, 6.000%, due 8/1/38			72					80
#	G04544, 6.000%, due 8/1/38			1,113					1,218
#	G04687, 6.000%, due 9/1/38			268					296
#	G04745, 6.000%, due 9/1/38			130					143
#	A81799, 6.500%, due 9/1/38			824					927
#	G06964, 5.500%, due 11/1/38			4,237					4,779
#	G05723, 6.500%, due 11/1/38			3,769					4,232
#	A92646, 5.500%, due 6/1/40			358					398
#	G06017, 5.500%, due 6/1/40			2,344					2,593
#	G06583, 5.000%, due 6/1/41			1,592					1,779
#	4122, Tranche FP, 0.593%, due 10/15/42, VRN			1,314					1,313
	Total FHLMC Mortgage Obligations								54,122
	Federal National Mortgage Association (FNMA)—51.1%
#	679220, 6.000%, due 12/1/14			9					9
#	256224, 5.500%, due 4/1/16			16					17
#	254181, 5.000%, due 1/1/17			51					55
#	256559, 5.500%, due 1/1/17			9					10
#	256606, 5.500%, due 2/1/17			12					13
#	256646, 5.500%, due 3/1/17			10					11
#	545862, 5.000%, due 8/1/17			54					57
#	545898, 5.500%, due 9/1/17			298					314
#	545899, 5.500%, due 9/1/17			314					331
#	254510, 5.000%, due 11/1/17			50					53
#	555029, 5.000%, due 11/1/17			39					42
#	254545, 5.000%, due 12/1/17			22					23
#	254590, 5.000%, due 1/1/18			25					26
#	257067, 5.000%, due 1/1/18			58					62
#	663692, 5.000%, due 1/1/18			116					124
#	674713, 5.000%, due 1/1/18			9					10
#	679305, 5.000%, due 1/1/18			46					49
#	254591, 5.500%, due 1/1/18			233					246
#	678938, 5.500%, due 2/1/18			23					25
#	683100, 5.500%, due 2/1/18			301					318
#	254684, 5.000%, due 3/1/18			15					16
#	675717, 5.000%, due 3/1/18			180					193

 

See accompanying Notes to Financial Statements.

 

108

Semi-Annual Report

June 30, 2013

Low Duration Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer			Principal Amount			Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal National Mortgage Association (FNMA)—(continued)
#	681361, 5.000%, due 3/1/18			$    66				$	70
#	656564, 5.000%, due 4/1/18			1,115					1,191
#	696677, 5.000%, due 4/1/18			72					77
#	702888, 5.000%, due 4/1/18			107					115
#	695838, 5.500%, due 4/1/18			70					74
#	254721, 5.000%, due 5/1/18			180					193
#	697593, 5.000%, due 5/1/18			182					194
#	702332, 5.000%, due 5/1/18			36					39
#	704049, 5.500%, due 5/1/18			703					743
#	735357, 5.500%, due 5/1/18			979					1,037
#	656573, 5.000%, due 6/1/18			179					191
#	709848, 5.000%, due 6/1/18			161					172
#	728715, 5.000%, due 7/1/18			294					314
#	735003, 5.500%, due 7/1/18			1,001					1,060
#	711991, 5.000%, due 8/1/18			156					166
#	190341, 5.000%, due 9/1/18			42					45
#	743183, 5.000%, due 10/1/18			65					70
#	555872, 5.000%, due 11/1/18			162					173
#	749596, 5.000%, due 11/1/18			246					266
#	745237, 5.000%, due 12/1/18			48					51
#	753866, 6.000%, due 12/1/18			337					362
#	761246, 5.000%, due 1/1/19			340					369
#	761267, 4.500%, due 2/1/19			567					617
#	255079, 5.000%, due 2/1/19			42					45
#	766059, 5.500%, due 2/1/19			250					270
#	766276, 5.000%, due 3/1/19			372					400
#	742086, 4.500%, due 4/1/19			2,090					2,275
#	779363, 5.000%, due 6/1/19			71					77
#	785259, 5.000%, due 8/1/19			289					311
#	761489, 5.500%, due 9/1/19			165					178
#	788424, 5.500%, due 9/1/19			69					75
#	725953, 5.000%, due 10/1/19			87					95
#	745877, 5.000%, due 1/1/20			195					212
#	735401, 5.500%, due 3/1/20			191					202
#	357865, 5.000%, due 7/1/20			190					205
#	357978, 5.000%, due 9/1/20			204					221
#	745735, 5.000%, due 3/1/21			638					685
#	879607, 5.500%, due 4/1/21			103					111
#	831497, 6.000%, due 4/1/21			373					408
#	880993, 6.000%, due 1/1/22			24					26
#	972934, 5.500%, due 2/1/23			297					321
#	889342, 5.000%, due 3/1/23			120					128
#	982878, 4.500%, due 5/1/23			425					458
#	555734, 5.000%, due 7/1/23			822					903
#	254908, 5.000%, due 9/1/23			54					58
#	AE0011, 5.500%, due 9/1/23			166					179
#	747339, 5.500%, due 10/1/23			406					449
#	255165, 4.500%, due 3/1/24			86					92
#	934808, 4.500%, due 3/1/24			216					232
#	AA4519, 4.500%, due 3/1/24			1,663					1,805
#	AA2922, 4.000%, due 4/1/24			960					1,035
#	AA5028, 4.500%, due 4/1/24			318					346
#	190988, 9.000%, due 6/1/24			142					160
#	993231, 4.000%, due 7/1/24			1,225					1,323
#	AC1520, 4.000%, due 9/1/24			140					150
#	AC3674, 4.500%, due 10/1/24			1,632					1,776

	Issuer		Principal Amount				Value
	U.S. Government and U.S. Government Agency—(continued)
	Federal National Mortgage Association (FNMA)—(continued)
#	AC5410, 4.500%, due 10/1/24			$   625				$	678
#	932095, 4.000%, due 11/1/24			8,067					8,707
#	AC5124, 4.000%, due 11/1/24			1,073					1,158
#	AC6600, 4.500%, due 11/1/24			83					90
#	AC6257, 4.000%, due 12/1/24			3,749					4,045
#	AC8857, 4.500%, due 12/1/24			65					71
#	AC9560, 5.000%, due 1/1/25			3,503					3,799
#	AL3422, 5.000%, due 1/1/25			1,408					1,578
#	932449, 4.000%, due 2/1/25			429					463
#	932629, 4.000%, due 3/1/25			470					507
#	AD0855, 4.000%, due 3/1/25			349					375
#	932723, 4.000%, due 4/1/25			502					542
#	AD4073, 4.000%, due 5/1/25			185					200
#	935995, 4.000%, due 6/1/25			186					201
#	AD4677, 4.000%, due 6/1/25			1,845					1,991
#	AD8164, 4.000%, due 8/1/25			4,023					4,341
#	AE1176, 4.000%, due 8/1/25			730					787
#	AB1459, 4.000%, due 9/1/25			359					387
#	AD8190, 4.000%, due 9/1/25			1,616					1,738
#	AH2671, 4.000%, due 1/1/26			1,711					1,847
#	890329, 4.000%, due 4/1/26			3,025					3,252
#	AI4856, 4.500%, due 6/1/26			3,043					3,313
#	AL2851, 4.000%, due 8/1/26			3,542					3,822
#	AH9564, 3.500%, due 9/1/26			4,287					4,522
#	AB3497, 4.000%, due 9/1/26			1,787					1,922
#	AB3608, 3.500%, due 10/1/26			4,259					4,493
#	AI7363, 3.500%, due 10/1/26			1,119					1,180
#	AJ2322, 3.500%, due 10/1/26			3,924					4,139
#	AB3975, 3.500%, due 12/1/26			1,532					1,616
#	AJ8149, 3.500%, due 12/1/26			3,006					3,171
#	AJ7724, 4.000%, due 12/1/26			2,412					2,605
#	AK0498, 3.500%, due 1/1/27			811					855
#	AK2768, 3.500%, due 3/1/27			2,724					2,873
#	AK7384, 4.000%, due 3/1/27			3,460					3,737
#	AB4818, 4.000%, due 4/1/27			2,620					2,829
#	AP0446, 3.500%, due 7/1/27			6,921					7,304
#	AP0462, 3.500%, due 7/1/27			1,108					1,169
#	AL2590, 4.000%, due 7/1/27			6,387					6,899
#	AQ8404, 3.000%, due 12/1/27			2,970					3,068
#	809926, 5.500%, due 2/1/35			197					219
#	829306, 6.000%, due 9/1/35			92					101
#	886762, 7.000%, due 9/1/36			983					1,126
#	928574, 6.000%, due 7/1/37			191					210
#	889385, 6.000%, due 2/1/38			1,418					1,578
#	975649, 6.000%, due 7/1/38			302					328
#	AA8706, 5.500%, due 6/1/39			4,623					5,352
#	935532, 4.500%, due 8/1/39			96					105
#	AC0505, 5.500%, due 9/1/39			1,480					1,713
#	AC3270, 5.500%, due 9/1/39			3,065					3,550
#	AC6651, 4.500%, due 12/1/39			125					136
#	AD3360, 5.500%, due 5/1/40			4,081					4,571
#	AB1146, 5.000%, due 6/1/40			449					495
#	AD8810, 5.500%, due 6/1/40			1,676					1,941
#	AL0913, 6.000%, due 7/1/41			5,708					6,318
Total FNMA Mortgage Obligations									148,821

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

109

Low Duration Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		NRSRO Rating		Principal Amount				Value
Asset-Backed Securities—14.5%
	Nissan Auto Receivables Owner Trust, 2010-A, Tranche A3, 0.870%, 7/15/14		Aaa			$     49				$	49
	CarMax Auto Owner Trust, 2012–1, Tranche A2, 0.590%, 3/16/15		AAA			263					263
	CNH Equipment Trust, 2010-C, Tranche A3, 1.170%, 5/15/15		AAA			87					87
	Harley-Davidson Motorcycle Trust, 2011–2, Tranche A2, 0.710%, 5/15/15		Aaa			167					168
	FPL Recovery Funding LLC, 2007-A, Tranche A2, 5.044%, 8/1/15		AAA			160					161
	Chase Issuance Trust, 2008-A13, Tranche A13, 1.773%, 9/15/15, VRN		AAA			100					100
	Hertz Vehicle Financing LLC—144A, 2009–2A, Tranche A2, 5.290%, 3/25/16		Aaa			2,950					3,132
	CNH Equipment Trust, 2010-C, Tranche A4, 1.750%, 5/16/16		AAA			60					61
	Avis Budget Rental Car Funding AESOP LLC—144A, 2010–3A, Tranche A, 4.640%, 5/20/16		Aaa			1,400					1,481
	Citibank Credit Card Issuance Trust, 2002-A4, Tranche A4, 0.443%, 6/7/16, VRN		AAA			2,200					2,200
	Centre Point Funding LLC—144A, 2010–1A, Tranche 1, 5.430%, 7/20/16		A2			1,457					1,519
	CNH Equipment Trust, 2011-B, Tranche A3, 0.910%, 8/15/16		AAA			590					590
	Discover Card Execution Note Trust, 2011-A1, Tranche A1, 0.543%, 8/15/16, VRN		Aaa			1,400					1,401
	Bank of America Credit Card Trust, 2007-A6, Tranche A6, 0.253%, 9/15/16, VRN		AAA			20					20
	Enterprise Fleet Financing LLC—144A, 2011–2, Tranche A2, 1.430%, 10/20/16		AAA			686					686
	GE Capital Credit Card Master Note Trust, 2011–1, Tranche A, 0.743%, 1/15/17, VRN		Aaa			620					621
	Ford Credit Floorplan Master Owner Trust A—144A, 2010–3, Tranche A2, 1.893%, 2/15/17, VRN		AAA			2,000					2,040
	GE Dealer Floorplan Master Note Trust, 2012–1, Tranche A, 0.762%, 2/20/17, VRN		Aaa			2,010					2,016
	Bank of America Credit Card Trust, 2007-A15, Tranche A15, 0.543%, 4/17/17, VRN		AAA			100					100
	Chase Issuance Trust, 2008-A8, Tranche A8, 1.393%, 5/15/17, VRN		AAA			3,000					3,054

	Issuer		NRSRO Rating		Principal Amount				Value
Asset-Backed Securities—(continued)
	Nissan Master Owner Trust, 2012-A, Tranche A, 0.663%, 5/15/17, VRN		Aaa			$2,196				$	2,193
	Citibank Credit Card Issuance Trust, 2008-A6, Tranche A6, 1.392%, 5/22/17, VRN		AAA			200					204
	Ally Master Owner Trust, 2010–4, Tranche A, 1.263%, 8/15/17, VRN		Aaa			125					126
	GE Dealer Floorplan Master Note Trust, 2012–4, Tranche A, 0.632%, 10/20/17, VRN		Aaa			2,000					1,986
	Ford Credit Floorplan Master Owner Trust, 2013–1, Tranche A2, 0.573%, 1/15/18, VRN		AAA			1,900					1,899
	Discover Card Execution Note Trust, 2010-A2, Tranche A2, 0.773%, 3/15/18, VRN		AAA			350					352
	Citibank Omni Master Trust—144A, 2009-A14A, Tranche A14, 2.943%, 8/15/18, VRN		Aaa			2,000					2,054
	Bank of America Credit Card Trust, 2007-A11, Tranche A11, 0.263%, 12/15/19, VRN		AAA			75					74
	Capital One Multi-Asset Execution Trust, 2007-A2, Tranche A2, 0.273%, 12/16/19, VRN		AAA			215					213
	American Express Credit Account Secured Note Trust, 2012–4, Tranche A, 0.433%, 5/15/20, VRN		AAA			2,200					2,193
	SLM Student Loan Trust, 2002–1, Tranche B, 0.746%, 1/25/21, VRN		Aaa			4,500					4,469
	MBNA Credit Card Master Note Trust, 2004-A3, Tranche A3, 0.453%, 8/16/21, VRN		AAA			475					469
	SLM Student Loan Trust, 2008–5, Tranche A4, 1.976%, 7/25/23, VRN		Aaa			4,000					4,132
	SLM Private Education Loan Trust—144A, 2011-A, Tranche A3, 2.693%, 1/15/43, VRN		AAA			2,000					2,070
	Total Asset-Backed Securities										42,183
Corporate Obligations—11.1%
	Morgan Stanley, 6.000%, due 5/13/14		A			1,300					1,352
	Daimler Finance North America LLC—144A, 0.879%, due 1/9/15, VRN		A-			1,000					1,003
	The Goldman Sachs Group, Inc., 0.777%, due 1/12/15, VRN		A			1,000					998
	The Goldman Sachs Group, Inc., 5.125%, due 1/15/15		A			1,000					1,055
	American International Group, Inc., 3.000%, due 3/20/15		A-			1,150					1,185

 

See accompanying Notes to Financial Statements.

 

110

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June 30, 2013

Low Duration Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		NRSRO Rating		Principal Amount				Value
Corporate Obligations—(continued)
	JPMorgan Chase & Co., 1.875%, due 3/20/15		A+			$1,525				$	1,543
	Citigroup, Inc., 4.700%, due 5/29/15		A			1,300					1,381
	American Express Credit Corporation, 2.750%, due 9/15/15		A+			1,000					1,037
	Royal Bank of Scotland Group, PLC, 2.550%, due 9/18/15		A			3,000					3,050
	AbbVie, Inc.—144A, 1.200%, due 11/6/15		A			1,250					1,251
	Capital One Financial Corporation, 1.000%, due 11/6/15		A-			3,000					2,959
	McKesson Corporation, 0.950%, due 12/4/15		A-			1,000					997
	General Electric Capital Corporation, 1.000%, due 1/8/16		AA+			1,000					995
	Petrobras International Finance Co., 3.875%, due 1/27/16		A3			3,000					3,087
	Morgan Stanley, 1.523%, due 2/25/16, VRN		A			1,700					1,695
	Bank of America Corporation, 1.093%, due 3/22/16, VRN		A			3,000					2,991
	Capital One NA, 0.723%, due 3/22/16, VRN		A3			2,500					2,483
	Petrobras Global Finance BV, 1.894%, due 5/20/16, VRN		A3			1,400					1,392
	Hewlett-Packard Co., 3.300%, due 12/9/16		A-			2,000					2,076
	Total Corporate Obligations										32,530
	Total Long-Term Investments—98.4% (cost $288,575)										286,778
	Total Investments—98.4% (cost $288,575)										286,778
	Cash and other assets, less liabilities—1.6%										4,537
	Net assets—100.0%									$	291,315

 

 

NRSRO = Nationally Recognized Statistical Rating Organization—The credit quality ratings of the securities in the Fund reflect the highest category rating by either Fitch Ratings, Moody’s Investors Service Inc., or Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

 

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

 

VRN = Variable Rate Note

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

111

 

 

 

Christopher T. Vincent

 

 

 

Kathleen M. Lynch

READY RESERVES FUND

 

AN OVERVIEW FROM THE PORTFOLIO MANAGERS

 

The William Blair Ready Reserves Fund (Class N shares) posted a 0.00% return, net of fees, for the six months ended June 30, 2013. By comparison, the Fund’s benchmark, AAA Rated Money Market Funds, increased 0.01%.

 

Portfolio Results

 

The Fund preserved principal successfully year-to-date while investing in accordance with the SEC’s Rule 2a-7 for money market funds. The Fund invested primarily in commercial paper issued by Tier 1 industrial companies and repurchase agreements. The Fund’s weighted average maturity has been maintained at a defensive level that has been shorter than what is required by the SEC’s Rule 2a-7.

 

Money Market Outlook

 

Short-term interest rates continue to be held down by the weight of the Federal Open Market Committee’s (FOMC) large-scale asset purchases, known as quantitative easing (QE). The FOMC continues to purchase securities that dealers are pledging as collateral for reverse repurchase agreements (repo). These agreements are collateralized short-term loans that are generally employed by money market funds to meet Rule 2a-7 mandated liquidity requirements. The FOMC is purchasing collateral which is effectively shrinking the repo market and creating a significant amount of demand for other money market eligible securities such as corporate commercial paper. The corporate commercial paper market is also exhibiting low interest rates as corporations’ balances sheets are flushed with cash, limiting the need for short-term funding.

 

We do not anticipate that this trend will reverse in the near-term. It is widely expected that the FOMC will begin to trim its QE activities in the next several months; however, the Fed continues to assert that the federal funds’ rate will remain at exceptionally low levels until the unemployment rate improves below 6.5% and inflation expectations are well-anchored.

 

In June, the U.S. Securities and Exchange Commission (SEC) unanimously agreed to propose rule amendments that govern money market funds. The proposed rule amendments were designed to address money market funds susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions and increase transparency of portfolio risks while preserving as much as possible the benefits of money market funds.

 

The SEC has requested money market participants to submit comments on two alternatives. The first alternative would require prime institutional money market funds to float their net asset values. The second alternative would allow money market funds to maintain a constant net asset value at $1.00 and require the implementation of liquidity fees and redemption gates. The comment period closes on September 17, 2013. At which time, the SEC will collect and study the merits of the comments. We do not anticipate hearing from the SEC on this matter until the first quarter 2014.

 

112

Semi-Annual Report

June 30, 2013

  Ready Reserves Fund

 

Performance Highlights (Unaudited)

 

The Fund’s 7 day yield on June 30, 2013 was 0.01%.

 

Average Annual Total Returns—Class N Shares
period ended 6/30/2013

		Year to Date			1 Year			3 Year			5 Year			10 Year
Class N		0.00	%		0.01	%		0.01	%		0.19	%		1.51	%
AAA Rated Money Market Funds		0.01			0.01			0.02			0.23			1.49
30 Day Treasury Bills		0.02			0.05			0.07			0.16			1.54

 

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com . Class N Shares are available to the general public without a sales load. Total return includes reinvestment of income. Yields fluctuate and are not guaranteed. An investment in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corp. (FDIC) or any government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

 

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

 

This report identifies the Fund’s investments on June 30, 2013. These holdings are subject to change. Not all fixed-income securities in the Fund performed the same, nor is there any guarantee that these fixed-income securities will perform as well in the future. Market forecasts provided in this report may not necessarily come to pass.

 

Sector Diversification (Unaudited)

 

 

The sector diversification shown is based on the total investments.

 

June 30, 2013

William Blair Funds

113

Ready Reserves Fund

 

Portfolio of Investments, June 30, 2013 (all dollar amounts in thousands) (unaudited)

 

	Issuer		Principal Amount				Amortized Cost
	U.S. Government and U.S. Government Agency—4.7%
	Federal National Mortgage Association (FNMA)—3.1%
	Federal National Mortgage Association, 0.500%-4.375%, 7/17/13-9/17/13			$37,620			$	37,654
	Total Federal National Mortgage Association (FNMA)							37,654
	U.S. Treasury—1.6%
	U.S. Treasury Bill, 0.014%, 7/11/13			20,000				20,000
	Corporate Notes—9.7%
	Bristol-Myers Squibb Co., 5.250%, 8/15/13			3,450				3,471
	Caterpillar Financial Services Corporation, 1.550%-4.900%, 8/15/13-1/15/14			14,028				14,155
	CME Group, Inc., 5.400%, 8/1/13			2,127				2,136
	Deere & Co., 6.950%, 4/25/14			1,000				1,054
	EI du Pont de Nemours & Co., 1.750%, 3/25/14			10,000				10,108
	General Electric Capital Corporation, 1.875%-5.900%, 9/16/13-5/13/14			39,077				39,726
	International Business Machines Corporation, 1.000%-1.250%, 8/5/13-5/12/14			22,972				23,073
	John Deere Capital Corporation, 4.900%, 9/9/13			7,211				7,274
	PepsiCo, Inc., 0.875%, 10/25/13			2,000				2,004
	Pfizer, Inc., 4.500%, 2/15/14			7,505				7,702
	Toyota Motor Credit Corporation, 1.375%, 8/12/13			650				651
	Wal-Mart Stores, Inc., 0.750%-1.625%, 10/25/13-4/15/14			7,302				7,365
	Total Corporate Notes							118,719
	Commercial Paper—66.3%
	Abbott Laboratories, 0.080%-0.110%, 7/18/13-9/4/13			43,000				42,993
	American Honda Finance Corporation,  0.050%-0.110%, 7/8/13-8/23/13			43,000				42,997
	Caterpillar Financial Services Corporation, 0.080%-0.170%, 7/25/13-9/26/13			29,000				28,994
	Chevron Corporation, 0.050%-0.080%, 7/2/13-7/22/13			36,000				35,999
	Coca-Cola Co. (The), 0.050%-0.110%, 7/10/13-9/24/13			43,274				43,270
	Colgate Palmolive Co., 0.040%-0.060%, 7/8/13-7/16/13			20,000				20,000
	ConocoPhillips Qatar Funding, Ltd., 0.090%-0.130%, 7/18/13-7/29/13			32,800				32,797
	Dover Corporation, 0.080%-0.100%, 7/1/13-7/11/13			46,000				46,000
	EI du Pont de Nemours & Co., 0.060%-0.080%, 7/8/13-7/23/13			34,000				34,000
	Illinois Tool Works, Inc., 0.080%-0.100%, 7/1/13-7/12/13			30,000				30,000

	Issuer		Principal Amount				Amortized Cost
	Commercial Paper—(continued)
	International Business Machines Corporation, 0.030%-0.040%, 7/1/13-7/8/13			$ 20,000			$	20,000
	John Deere Financial Ltd., 0.080%-0.100%, 7/1/13-7/25/13			36,100				36,099
	Johnson & Johnson, 0.030%, 7/15/13			10,000				10,000
	Kimberly-Clark Worldwide, Inc., 0.060%, 7/8/13			10,800				10,800
	Merck & Co., Inc., 0.060%-0.080%, 7/15/13-7/26/13			42,000				42,000
	Nestle Capital Corporation, 0.070%-0.100%, 7/11/13			6,000				6,000
	PACCAR Financial Corporation, 0.070%-0.090%, 7/2/13-7/24/13			42,100				42,099
	PepsiCo, Inc., 0.050%-0.070%, 7/8/13-8/1/13			42,000				42,000
	Pfizer, Inc., 0.030%-0.050%, 7/2/13-7/16/13			42,000				42,000
	Praxair, Inc., 0.040%-0.050%, 7/5/13-7/22/13			29,700				29,700
	Private Export Funding Corporation, 0.120%, 7/17/13			7,000				6,999
	Procter & Gamble Co. 0.080%-0.140%, 8/1/13-8/6/13			24,691				24,687
	Roche Holdings, Inc., 0.070%, 7/8/13-7/26/13			32,000				32,000
	Toyota Credit de Puerto Rico Corporation, 0.040%-0.090%, 7/1/13-7/31/13			43,000				42,999
	Unilever Capital Corporation, 0.060%-0.110%, 7/3/13-8/6/13			42,000				41,998
	Wal-Mart Stores, Inc., 0.050%-0.090%, 7/1/13-9/16/13			28,000				27,999
	Total Commercial Paper							814,430
	Repurchase Agreements—19.2%
	Bank of America, 0.110% dated 6/28/13, due 7/1/13, repurchase price $60,001, collateralized by FMAC, 2.500%-5.200%, due 7/1/24–10/1/32, and FNMA, 2.500%-5.000%, due 8/1/23–2/1/43			60,000				60,000
	Fixed Income Clearing Corporation, 0.010% dated 6/28/13, due 7/1/13, repurchase price $116,088, collateralized by FHLB, 3.300%-5.500%, due 8/27/32–7/15/36, and FNMA, 3.430%, due 5/27/33			116,088				116,088
	Goldman Sachs, 0.120% dated 6/28/13, due 7/1/13, repurchase price $60,001, collateralized by FMAC, 3.000%, due 6/1/33, and FNMA, 4.000%, due 3/1/42			60,000				60,000
	Total Repurchase Agreements							236,088
	Total Investments—99.9% (cost $1,226,891)							1,226,891
	Cash and other assets, less liabilities—0.1%							995
	Net assets—100.0%						$	1,227,886
	Portfolio Weighted Average Maturity							33 days

 

See accompanying Notes to Financial Statements.

 

114

Semi-Annual Report

June 30, 2013

Statements of Assets and Liabilities

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

		Growth Fund				Large Cap Growth Fund				Mid Cap Growth Fund				Small-Mid Cap Growth Fund
Assets
Investments in securities, at cost		$	614,379			$	25,136			$	410,319			$	398,189
Investments in securities, at value		$	793,274			$	32,110			$	464,850			$	499,250
Receivable for securities sold			2,065				163				373				687
Receivable for fund shares sold			3,200				60				1,299				1,349
Receivable from Advisor			—				5				2				13
Dividend and interest receivable			319				15				66				12
Total assets			798,858				32,353				466,590				501,311
Liabilities
Payable for investment securities purchased			2,001				163				—				547
Payable for fund shares redeemed			488				—				319				267
Management fee payable			490				21				362				413
Distribution and shareholder administration fees payable			54				1				10				12
Other payables and accrued expenses			258				25				10				208
Total liabilities			3,291				210				701				1,447
Net Assets		$	795,567			$	32,143			$	465,889			$	499,864
Capital
Composition of Net Assets
Par value of shares of beneficial interest		$	57			$	4			$	31			$	29
Capital paid in excess of par value			575,826				24,451				392,434				380,051
Accumulated net investment income (loss)			(1,067	)			(15	)			(1,485	)			(1,710	)
Accumulated realized gain (loss)			41,856				729				20,378				20,433
Net unrealized appreciation (depreciation) of investments and foreign currencies			178,895				6,974				54,531				101,061
Net Assets		$	795,567			$	32,143			$	465,889			$	499,864
Class N Shares
Net Assets		$	263,854			$	5,046			$	46,346			$	59,354
Shares Outstanding			19,627,809				566,775				3,257,148				3,508,771
Net Asset Value Per Share		$	13.44				8.90			$	14.23			$	16.92
Class I Shares
Net Assets		$	531,713			$	27,097			$	419,543			$	440,510
Shares Outstanding			37,810,914				2,963,933				28,858,246				25,389,382
Net Asset Value Per Share		$	14.06				9.14			$	14.54			$	17.35

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

115

 

Statements of Operations

 

 

For the Period Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

						Large Cap				Mid Cap					Small-Mid
		Growth				Growth					Growth				Cap Growth
		Fund				Fund					Fund				Fund
Investment income
Dividends		$	2,638				$	139			$	898				$	804
Less foreign tax withheld			—					—				—					(6	)
Interest			2					—				4					3
Total income			2,640					139				902					801
Expenses
Investment advisory fees			2,892					124				2,012					2,246
Distribution fees			326					6				56					60
Custodian fees			11					15				16					18
Transfer agent fees			74					5				19					26
Sub-transfer agent fees
Class N			168					3				31					32
Class I			158					5				183					83
Professional fees			25					10				16					17
Registration fees			21					17				24					16
Shareholder reporting fees			22					2				28					22
Trustee fees			14					1				7					7
Other expenses			4					2				5					4
Total expenses before waiver			3,715					190				2,397					2,531
Expenses reimbursed to (waived or absorbed by) the Advisor			—					(36	)			(10	)				(20	)
Net expenses			3,715					154				2,387					2,511
Net investment income (loss)			(1,075	)				(15	)			(1,485	)				(1,710	)
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities			29,967					1,812				21,225					16,869
Total net realized gain (loss)			29,967					1,812				21,225					16,869
Change in net unrealized appreciation (depreciation) of:
Investments			55,145					954				27,807					61,864
Change in net unrealized appreciation (depreciation)			55,145					954				27,807					61,864
Net increase (decrease) in net assets resulting from operations		$	84,037				$	2,751			$	47,547				$	77,023

 

See accompanying Notes to Financial Statements.

 

116

Semi-Annual Report

June 30, 2013

 

Statements of Changes in Net Assets

 

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

										Large Cap								Mid Cap								Small-Mid
		Growth Fund								Growth Fund								Growth Fund								Cap Growth Fund
		2013				2012				2013				2012				2013				2012				2013				2012
Operations
Net investment income (loss)		$	(1,075	)		$	1,123			$	(15	)		$	(1	)		$	(1,485	)		$	484			$	(1,710	)		$	1,480
Net realized gain (loss) on investments and other assets			29,967				29,181				1,812				2,407				21,225				7,689				16,869				11,592
Change in net unrealized appreciation (depreciation) on investments			55,145				60,237				954				2,131				27,807				15,618				61,864				22,741
Net increase (decrease) in net assets resulting from operations			84,037				90,541				2,751				4,537				47,547				23,791				77,023				35,813
Distributions to shareholders from
Net investment income
Class N			—				(10	)			—				—				—				—				—				(61	)
Class I			—				(1,133	)			—				—				—				(488	)			—				(1,426	)
Net realized gain
Class N			—				(7,281	)			—				—				—				(905	)			—				(1,028	)
Class I			—				(12,939	)			—				—				—				(7,042	)			—				(8,102	)
Total Distributions			—				(21,363	)			—				—				—				(8,435	)			—				(10,617	)
Capital stock transactions
Net proceeds from sale of shares			61,025				178,095				2,400				3,967				79,678				273,232				81,793				188,047
Shares issued in reinvestment of income dividends and capital gain distributions			—				19,820				—				—				—				8,342				—				9,387
Less cost of shares redeemed			(65,740	)			(117,590	)			(1,421	)			(5,040	)			(31,571	)			(72,449	)			(50,312	)			(84,867	)
Net increase (decrease) in net assets resulting from capital share transactions			(4,715	)			80,325				979				(1,073	)			48,107				209,125				31,481				112,567
Increase (decrease) in net assets			79,322				149,503				3,730				3,464				95,654				224,481				108,504				137,763
Net assets
Beginning of period			716,245				566,742				28,413				24,949				370,235				145,754				391,360				253,597
End of period		$	795,567			$	716,245			$	32,143			$	28,413			$	465,889			$	370,235			$	499,864			$	391,360
Accumulated net investment income (loss) at the end of the period		$	(1,067	)		$	8			$	(15	)		$	—			$	(1,485	)		$	—			$	(1,710	)		$	—

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

117

 

Statements of Assets and Liabilities

 

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

										Global
		Small Cap				Global				Small Cap				International
		Growth				Leaders				Growth				Growth
		Fund				Fund				Fund				Fund
Assets
Investments in securities, at cost		$	379,965			$	115,066			$	10,811			$	3,411,049
Investments in affiliated companies, at cost			24,620				—				—				22,022
Investments in securities, at value		$	481,017			$	123,952			$	11,124			$	3,801,572
Investments in affiliated companies, at value			3,792				—				—				22,815
Foreign currency, at value ($—; $144; $—; $6,204)			—				144				—				6,164
Receivable for securities sold			3,865				398				72				7,204
Receivable for fund shares sold			1,530				22,000				200				9,436
Receivable from Advisor			15				7				11				—
Dividend and interest receiveable			106				226				13				12,556
Unrealized appreciation on forward currency contracts			—				—				—				6,195
Total assets			490,325				146,727				11,420				3,865,942
Liabilities
Payable for investment securities purchased			974				20,951				31				16,351
Payable for fund shares redeemed			259				—				—				4,717
Payable to custodian			—				—				—				4
Management fee payable			444				86				9				3,222
Distribution and shareholder administration fees payable			32				8				1				270
Foreign tax liability			—				12				—				672
Other payables and accrued expenses			196				58				25				828
Total liabilities			1,905				21,115				66				26,064
Net Assets		$	488,420			$	125,612			$	11,354			$	3,839,878
Capital
Composition of Net Assets
Par value of shares of beneficial interest		$	16			$	13			$	1			$	166
Capital paid in excess of par value			353,994				128,034				11,062				4,265,717
Accumulated net investment income (loss)			(1,984	)			502				21				29,027
Accumulated realized gain (loss)			56,170				(11,814	)			(43	)			(852,661	)
Net unrealized appreciation (depreciation) of investments and foreign currencies			80,224				8,877				313				397,629
Net Assets		$	488,420			$	125,612			$	11,354			$	3,839,878
Class N Shares
Net Assets		$	154,734			$	5,557			$	291			$	1,291,137
Shares Outstanding			5,283,804				561,085				28,266				56,459,011
Net Asset Value Per Share		$	29.28			$	9.91			$	10.30			$	22.87
Class I Shares
Net Assets		$	333,686			$	48,384			$	11,063			$	2,548,741
Shares Outstanding			10,927,644				4,881,879				1,073,535				108,802,179
Net Asset Value Per Share		$	30.54			$	9.91			$	10.31			$	23.43
Class Institutional
Net Assets						$	71,671
Shares Outstanding							7,224,435
Net Asset Value Per Share						$	9.92

 

See accompanying Notes to Financial Statements.

 

118

Semi-Annual Report

June 30, 2013

 

Statements of Operations

 

 

For the Year Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

												Global
		Small Cap					Global					Small Cap					International
		Growth					Leaders					Growth					Growth
		Fund					Fund					Fund(a)					Fund
Investment income
Dividends			$	1,004				$	1,171				$	58				$	74,713
Less foreign tax withheld				(13	)				(108	)				(6	)				(7,191	)
Interest				3					1					—					18
Total income				994					1,064					52					67,540
Expenses
Investment advisory fees				2,464					462					23					19,480
Distribution fees				178					7					—					1,659
Shareholder administration fees				—					40					3					—
Custodian fees				18					38					19					308
Transfer agent fees				52					9					1					173
Sub-transfer agent fees
Class N				94					2					—					758
Class I				200					9					—					994
Professional fees				24					14					8					144
Registration fees				21					23					2					38
Shareholder reporting fees				121					4					—					172
Trustee fees				12					1					—					78
Other expenses				3					2					—					19
Total expenses before waiver				3,187					611					56					23,823
Expenses reimbursed to (waived or absorbed by) the Advisor				(209	)				(56	)				(25	)				—
Net expenses				2,978					555					31					23,823
Net investment income (loss)				(1,984	)				509					21					43,717
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities				55,550					2,256					(37	)				276,133
Forward foreign currency contracts				—					—					—					(4,434	)
Foreign currency transactions				—					(29	)				(6	)				(2,334	)
Total net realized gain (loss)				55,550					2,227					(43	)				269,365
Change in net unrealized appreciation (depreciation) of:
Investments				40,314					589					313					(243,846	)
Forward foreign currency contracts				—					—					—					6,195
Foreign currency transactions				—					(9	)				—					(212	)
Change in net unrealized appreciation (depreciation)				40,314					580					313					(237,863	)
Net increase (decrease) in net assets resulting from operations			$	93,880				$	3,316				$	291				$	75,219

 

 

(a)	For the period from April 10, 2013 (commencement of operations) to June 30, 2013.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

119

 

Statements of Changes in Net Assets

 

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

																		Global
																		Small Cap
		Small Cap								Global								Growth					International
		Growth Fund								Leaders Fund								Fund					Growth Fund
		2013				2012				2013				2012				2013(a)					2013				2012
Operations
Net investment income (loss)		$	(1,984	)		$	(3,984	)		$	509			$	258				$	21			$	43,717			$	49,275
Net realized gain (loss) on investments, forwards, and foreign currency			55,550				71,506				2,227				3,704					(43	)			269,365				105,420
Change in net unrealized appreciation (depreciation) on investments, forwards, and foreign currency			40,314				18,864				580				3,879					313				(237,863	)			580,675
Net increase (decrease) in net assets resulting from operations			93,880				86,386				3,316				7,841					291				75,219				735,370
Distributions to shareholders from
Net investment income
Class N			—				—				—				(15	)				—				—				(37,353	)
Class I			—				—				—				(227	)				—				—				(74,977	)
Class Institutional			—				—				—				—					—				—				—
Net realized gain
Class N			—				(564	)			—				—					—				—				—
Class I			—				(1,107	)			—				—					—				—				—
Class Institutional			—				—				—				—					—				—				—
Total Distributions			—				(1,671	)			—				(242	)				—				—				(112,330	)
Capital stock transactions
Net proceeds from sale of shares			50,509				93,413				60,627				32,763					11,063				418,377				673,026
Shares issued in reinvestment of income dividends and capital gain distributions			—				1,627				—				234					—				—				103,180
Less cost of shares redeemed			(52,782	)			(337,680	)			(5,325	)			(16,176	)				—				(326,351	)			(955,515	)
Net increase (decrease) in net assets resulting from capital share transactions			(2,273	)			(242,640	)			55,302				16,821					11,063				92,026				(179,309	)
Increase (decrease) in net assets			91,607				(157,925	)			58,618				24,420					11,354				167,245				443,731
Net assets
Beginning of period			396,813				554,738				66,994				42,574					—				3,672,633				3,228,902
End of period		$	488,420			$	396,813			$	125,612			$	66,994				$	11,354			$	3,839,878			$	3,672,633
Accumulated net investment income (loss) at the end of the period		$	(1,984	)		$	—			$	502			$	(7	)			$	21			$	29,027			$	(14,690	)

 

 

(a)	For the period from April 10, 2013 (commencement of operations) to June 30, 2013.

 

See accompanying Notes to Financial Statements.

 

120

Semi-Annual Report

June 30, 2013

 

Statements of Assets and Liabilities

 

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

		Institutional									Institutional					International
		International				International					International					Leaders
	Growth Fund					Equity Fund					Equity Fund					Fund
Assets
Investments in securities, at cost		$	1,844,884				$	61,153				$	80,108				$	60,848
Investments in affiliated companies, at cost			11,834					—					—					—
Investments in securities, at value		$	2,050,006				$	70,983				$	92,740				$	61,530
Investments in affiliated companies, at value			12,260					—					—					—
Foreign currency, at value ($3,119; $95; $149; $94)			3,099					95					148					95
Receivable for securities sold			3,885					15					19					552
Receivable for fund shares sold			8,744					1					—					—
Receivable from Advisor			—					17					1					9
Dividend and interest receivable			6,258					128					192					163
Unrealized appreciation on forward currency contracts			3,340					—					—					—
Total assets			2,087,592					71,239					93,100					62,349
Liabilities
Payable for investment securities purchased			8,803					263					2,767					298
Payable for fund shares redeemed			90					—					—					—
Payable to custodian			—					—					—					164
Management fee payable			1,616					65					73					50
Distribution and shareholder administration fees payable			—					1					—					2
Foreign tax liability			365					4					5					7
Other payables and accrued expenses			142					42					59					15
Total liabilities			11,016					375					2,904					536
Net Assets		$	2,076,576				$	70,864				$	90,196				$	61,813
Capital
Composition of Net Assets
Par value of shares of beneficial interest		$	136				$	6				$	8				$	6
Capital paid in excess of par value			1,893,137					148,521					190,466					61,711
Accumulated net investment income (loss)			18,078					562					695					617
Accumulated realized gain (loss)			(43,567	)				(88,052	)				(113,597	)				(1,202	)
Net unrealized appreciation (depreciation) of investments and foreign currencies			208,792					9,827					12,624					681
Net Assets		$	2,076,576				$	70,864				$	90,196				$	61,813
Class N Shares
Net Assets							$	3,844									$	101
Shares Outstanding								309,920										9,104
Net Asset Value Per Share							$	12.40									$	11.08
Class I Shares
Net Assets							$	67,020									$	11,555
Shares Outstanding								5,337,425										1,041,126
Net Asset Value Per Share							$	12.56									$	11.10
Institutional Class Shares
Net Assets		$	2,076,576									$	90,196				$	50,157
Shares Outstanding			136,465,422										8,079,727					4,517,826
Net Asset Value Per Share		$	15.22									$	11.16				$	11.10

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

121

Statements of Operations

 

For the Period Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

		Institutional International Growth Fund					International Equity Fund					Institutional International Equity Fund					International Leaders Fund
Investment income
Dividends			$	40,112				$	1,250				$	1,561				$	983
Less foreign tax withheld				(3,866	)				(121	)				(153	)				(111	)
Interest				9					—					1					—
Total income				36,255					1,129					1,409					872
Expenses
Investment advisory fees				9,737					399					470					222
Distribution fees				—					6					—					—
Shareholder administration fees				—					—					—					7
Custodian fees				195					35					39					39
Transfer agent fees				21					3					2					3
Sub-transfer agent fees
Class N				—					3					—					—
Class I				—					37					—					—
Professional fees				78					14					15					15
Registration fees				16					18					9					16
Shareholder reporting fees				6					1					—					5
Trustee fees				39					2					3					—
Other expenses				9					1					2					2
Total expenses before waiver				10,101					519					540					309
Expenses reimbursed to (waived or absorbed by) the Advisor				—					(78	)				(22	)				(57	)
Net expenses				10,101					441					518					252
Net investment income (loss)				26,154					688					891					620
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities				141,537					4,248					9,893					(858	)
Forward foreign currency contracts				(2,353	)				—					—					(175	)
Foreign currency transactions				(1,326	)				(33	)				(46	)				(65	)
Total net realized gain (loss)				137,858					4,215					9,847					(1,098	)
Change in net unrealized appreciation (depreciation) of:
Investments				(124,387	)				(2,619	)				(7,384	)				(30	)
Forward foreign currency contracts				3,340					—					—					—
Foreign currency translations				551					1					(3	)				(1	)
Change in net unrealized appreciation (depreciation)				(120,496	)				(2,618	)				(7,387	)				(31	)
Net increase (decrease) in net assets resulting from operations			$	43,516				$	2,285				$	3,351				$	(509	)

 

See accompanying Notes to Financial Statements.

 

122

Semi-Annual Report

June 30, 2013

Statements of Changes in Net Assets

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

		Institutional International Growth Fund								International Equity Fund								Institutional International Equity Fund								International Leaders Fund
		2013				2012				2013				2012				2013				2012				2013				2012(a)
Operations
Net investment income (loss)		$	26,154			$	29,169			$	688			$	799			$	891			$	1,465			$	620			$	3
Net realized gain (loss) on investments, forwards, and foreign currency			137,858				35,136				4,215				2,041				9,847				5,793				(1,098	)			(94	)
Change in net unrealized appreciation (depreciation) on investments, forwards, and foreign currency			(120,496	)			314,439				(2,618	)			8,569				(7,387	)			11,762				(31	)			712
Net increase (decrease) in net assets resulting from operations			43,516				378,744				2,285				11,409				3,351				19,020				(509	)			621
Distributions to shareholders from
Net investment income
Class N			—				—				—				(172	)			—				—				—				—
Class I			—				—				—				(2,061	)			—				—				—				(6	)
Class Institutional			—				(62,889	)			—				—				—				(1,482	)			—				(10	)
Net realized gain
Class N			—				—				—				—				—				—				—				—
Class I			—				—				—				—				—				—				—				—
Class Institutional			—				—				—				—				—				—				—				—
Total Distributions			—				(62,889	)			—				(2,233	)			—				(1,482	)			—				(16	)
Capital stock transactions
Net proceeds from sale of shares			153,499				283,364				4,819				3,288				3,150				9,705				53,790				9,543
Shares issued in reinvestment of income dividends and capital gain distributions			—				58,949				—				1,945				—				1,482				—				16
Less cost of shares redeemed			(94,569	)			(226,632	)			(6,424	)			(19,882	)			(25,995	)			(30,509	)			(1,632	)			—
Net increase (decrease) in net assets resulting from capital share transactions			58,930				115,681				(1,605	)			(14,649	)			(22,845	)			(19,322	)			52,158				9,559
Increase (decrease) in net assets			102,446				431,536				680				(5,473	)			(19,494	)			(1,784	)			51,649				10,164
Net assets
Beginning of period			1,974,130				1,542,594				70,184				75,657				109,690				111,474				10,164				—
End of period		$	2,076,576			$	1,974,130			$	70,864			$	70,184			$	90,196			$	109,690			$	61,813			$	10,164
Accumulated net investment income (loss) at the end of the period		$	18,078			$	(8,076	)		$	562			$	(126	)		$	695			$	(196	)		$	617			$	(3	)

 

 

(a)	For the period from August 16, 2012 (commencement of Operations) to December 31, 2012.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

123

Statements of Assets and Liabilities

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

		International Small Cap Growth Fund					Emerging Markets Growth Fund					Emerging Markets Leaders Fund					Emerging Markets Small Cap Growth Fund
Assets
Investments in securities, at cost			$	686,939				$	825,700				$	60,737				$	78,819
Investments in affiliated companies, at cost				—					23,624					—					—
Investments in securities, at value			$	769,044				$	855,068				$	62,098				$	81,241
Investments in affiliated companies, at value				—					24,474					—					—
Foreign currency, at value ($2,222; $8,949; $369; $534)				2,224					8,903					367					534
Receivable for securities sold				3,251					9,766					155					349
Receivable for fund shares sold				537					270					262					742
Receivable from Advisor				—					—					12					34
Dividend and interest receivable				1,519					1,404					71					115
Total assets				776,575					899,885					62,965					83,015
Liabilities
Payable for investment securities purchased				7,606					6,181					1,658					875
Payable for fund shares redeemed				445					849					11					—
Unrealized depreciation on forward currency contracts				469					125					5					—
Management fee payable				635					883					56					76
Distribution and shareholder administration fees payable				55					23					4					8
Other payables and accrued expenses				156					943					61					77
Total liabilities				9,366					9,004					1,795					1,036
Net Assets			$	767,209				$	890,881				$	61,170				$	81,979
Capital
Composition of Net Assets
Par value of shares of beneficial interest			$	53				$	70				$	7				$	6
Capital paid in excess of par value				670,486					847,330					60,777					79,456
Accumulated net investment income (loss)				4,672					4,378					367					284
Accumulated realized gain (loss)				10,404					9,797					(1,338	)				(133	)
Net unrealized appreciation (depreciation) of investments and foreign currencies				81,594					29,306					1,357					2,366
Net Assets			$	767,209				$	890,881				$	61,170				$	81,979
Class N Shares
Net Assets			$	15,339				$	13,912				$	199				$	10,194
Shares Outstanding				1,065,831					1,107,470					23,435					736,807
Net Asset Value Per Share			$	14.39				$	12.56				$	8.50				$	13.84
Class I Shares
Net Assets			$	399,781				$	143,033				$	31,061				$	32,301
Shares Outstanding				27,492,161					11,283,027					3,654,625					2,331,490
Net Asset Value Per Share			$	14.54				$	12.68				$	8.50				$	13.85
Institutional Class Shares
Net Assets			$	352,089				$	733,936				$	29,910				$	39,484
Shares Outstanding				24,079,224					57,489,299					3,518,695					2,847,880
Net Asset Value Per Share			$	14.62				$	12.77				$	8.51				$	13.86

 

See accompanying Notes to Financial Statements.

 

124

Semi-Annual Report

June 30, 2013

Statements of Operations

 

For the Period Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

		International Small Cap Growth Fund					Emerging Markets Growth Fund					Emerging Markets Leaders Fund					Emerging Markets Small Cap Growth Fund
Investment income
Dividends			$	11,646				$	14,236				$	940				$	847
Less foreign tax withheld				(725	)				(1,318	)				(77	)				(80	)
Interest				4					5					—					—
Total income				10,925					12,923					863					767
Expenses
Investment advisory fees				3,742					5,606					378					344
Distribution fees				19					20					—					9
Shareholder administration fees				303					124					22					22
Custodian fees				85					274					52					108
Transfer agent fees				17					22					9					5
Sub-transfer agent fees
Class N				10					7					—					—
Class I				159					42					1					—
Professional fees				36					71					26					35
Registration fees				22					29					25					23
Shareholder reporting fees				45					40					3					1
Trustee fees				16					22					1					—
Other expenses				7					8					3					1
Total expenses before waiver				4,461					6,265					520					548
Expenses reimbursed to (waived or absorbed by) the Advisor				—					—					(68	)				(124	)
Net expenses				4,461					6,265					452					424
Net investment income (loss)				6,464					6,658					411					343
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities				68,179					48,333					3,723					(5	)
Forward foreign currency contracts				279					—					—					—
Foreign currency transactions				(460	)				(1,142	)				(74	)				(124	)
Total net realized gain (loss)				67,998					47,191					3,649					(129	)
Change in net unrealized appreciation (depreciation) of:
Investments				(23,663	)				(122,792	)				(8,773	)				583
Forward foreign currency contracts				(469	)				(125	)				(5	)				—
Foreign currency translations				(37	)				939					1					(30	)
Change in net unrealized appreciation (depreciation)				(24,169	)				(121,978	)				(8,777	)				553
Net increase (decrease) in net assets resulting from operations			$	50,293				$	(68,129	)			$	(4,717	)			$	767

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

125

Statements of Changes in Net Assets

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

		International Small Cap Growth Fund								Emerging Markets Growth Fund								Emerging Markets Leaders Fund								Emerging Markets Small Cap Growth Fund
			2013				2012				2013				2012				2013				2012				2013				2012
Operations
Net investment income (loss)		$	6,464			$	7,217			$	6,658			$	10,446			$	411			$	496			$	343			$	39
Net realized gain (loss) on investments, forwards, and foreign currency			67,998				9,291				47,191				(10,469	)			3,649				(2,390	)			(129	)			48
Change in net unrealized appreciation (depreciation) on investments, forwards, and foreign currency			(24,169	)			125,993				(121,978	)			170,595				(8,777	)			12,693				553				1,831
Net increase (decrease) in net assets resulting from operations			50,293				142,501				(68,129	)			170,572				(4,717	)			10,799				767				1,918
Distributions to shareholders from
Net investment income
Class N			—				(274	)			—				(88	)			—				(1	)			—				(13	)
Class I			—				(7,774	)			—				(1,209	)			—				(169	)			—				(65	)
Class Institutional			—				(8,146	)			—				(7,965	)			—				(303	)			—				—
Total Distributions			—				(16,194	)			—				(9,262	)			—				(473	)			—				(78	)
Capital stock transactions
Net proceeds from sale of shares			53,982				122,084				137,296				260,741				8,998				29,723				61,168				25,035
Shares issued in reinvestment of income dividends and capital gain distributions			—				14,490				—				8,174				—				413				—				52
Less cost of shares redeemed			(56,574	)			(261,594	)			(142,523	)			(283,834	)			(12,090	)			(19,305	)			(6,977	)			(3,178	)
Net increase (decrease) in net assets resulting from capital share transactions			(2,592	)			(125,020	)			(5,227	)			(14,919	)			(3,092	)			10,831				54,191				21,909
Increase (decrease) in net assets			47,701				1,287				(73,356	)			146,391				(7,809	)			21,157				54,958				23,749
Net assets
Beginning of period			719,508				718,221				964,237				817,846				68,979				47,822				27,021				3,272
End of period		$	767,209			$	719,508			$	890,881			$	964,237			$	61,170			$	68,979			$	81,979			$	27,021
Accumulated net investment income (loss) at the end of the period		$	4,672			$	(1,792	)		$	4,378			$	(2,280	)		$	367			$	(44	)		$	284			$	(59	)

 

See accompanying Notes to Financial Statements.

 

126

Semi-Annual Report

June 30, 2013

Statements of Assets and Liabilities

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

		Large Cap Value Fund					Mid Cap Value Fund					Small-Mid Cap Value Fund					Small Cap Value Fund
Assets
Investments in securities, at cost			$	3,476				$	3,299				$	2,349				$	251,812
Investments in securities, at value			$	3,909				$	4,109				$	2,845				$	309,685
Cash				—					40					—					—
Receivable for securities sold				—					179					118					7,317
Receivable for fund shares sold				—					—					—					1,041
Receivable from Advisor				7					8					6					1
Dividend and interest receivable				6					6					3					217
Total assets				3,922					4,342					2,972					318,261
Liabilities
Payable for investment securities purchased				—					164					110					8,884
Payable for fund shares redeemed				—					—					10					106
Management fee payable				3					3					2					279
Distribution and shareholder administration fees payable				—					—					—					8
Other payables and accrued expenses				29					18					37					117
Total liabilities				32					185					159					9,394
Net Assets			$	3,890				$	4,157				$	2,813				$	308,867
Capital
Composition of Net Assets
Par value of shares of beneficial interest			$	—				$	—				$	—				$	19
Capital paid in excess of par value				2,976					3,050					2,140					236,216
Accumulated net investment income (loss)				17					18					6					149
Accumulated realized gain (loss)				464					279					171					14,610
Net unrealized appreciation (depreciation) of investments and foreign currencies				433					810					496					57,873
Net Assets			$	3,890				$	4,157				$	2,813				$	308,867
Class N Shares
Net Assets			$	1,236				$	179				$	1,034				$	41,272
Shares Outstanding				93,096					13,611					78,414					2,571,050
Net Asset Value Per Share			$	13.28				$	13.13				$	13.18				$	16.05
Class I Shares
Net Assets			$	2,654				$	3,978				$	1,779				$	267,595
Shares Outstanding				199,553					302,450					134,755					16,367,934
Net Asset Value Per Share			$	13.30				$	13.15				$	13.20				$	16.35

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

127

Statements of Operations

 

For the Period Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

		Large Cap Value Fund					Mid Cap Value Fund					Small-Mid Cap Value Fund					Small Cap Value Fund
Investment income
Dividends			$	33				$	41				$	21				$	1,818
Interest				—					—					—					2
Total income				33					41					21					1,820
Expenses
Investment advisory fees				13					20					13					1,553
Distribution fees				1					—					1					49
Custodian fees				20					16					19					24
Transfer agent fees				2					2					2					19
Sub-transfer agent fees
Class N				—					—					—					26
Class I				—					—					—					96
Professional fees				10					10					15					15
Registration fees				16					19					13					20
Shareholder reporting fees				—					1					—					17
Trustee fees				—					—					—					5
Other expenses				1					2					1					2
Total expenses before waiver				63					70					64					1,826
Expenses reimbursed to (waived or absorbed by) the Advisor				(47	)				(46	)				(49	)				(58	)
Net expenses				16					24					15					1,768
Net investment income (loss)				17					17					6					52
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities				463					269					149					15,442
Total net realized gain (loss)				463					269					149					15,442
Change in net unrealized appreciation (depreciation) of:
Investments				25					336					252					28,736
Change in net unrealized appreciation (depreciation)				25					336					252					28,736
Net increase (decrease) in net assets resulting from operations			$	505				$	622				$	407				$	44,230

 

See accompanying Notes to Financial Statements.

 

128

Semi-Annual Report

June 30, 2013

Statements of Changes in Net Assets

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

		Large Cap Value Fund										Mid Cap Value Fund										Small-Mid Cap Value Fund										Small Cap Value Fund
		2013					2012					2013					2012					2013					2012					2013					2012
Operations
Net investment income (loss)			$	17				$	37				$	17				$	39				$	6				$	20				$	52				$	2,073
Net realized gain (loss) on investments				463					5					269					186					149					93					15,442					6,771
Change in net unrealized appreciation (depreciation) on investments				25					415					336					377					252					150					28,736					19,569
Net increase (decrease) in net assets resulting from operations				505					457					622					602					407					263					44,230					28,413
Distributions to shareholders from
Net investment income
Class N				—					(12	)				—					(1	)				—					(7	)				—					(256	)
Class I				—					(25	)				—					(35	)				—					(14	)				—					(1,734	)
Net realized gain
Class N				—					—					—					(3	)				—					(27	)				—					(164	)
Class I				—					—					—					(148	)				—					(41	)				—					(782	)
Total Distributions				—					(37	)				—					(187	)				—					(89	)				—					(2,936	)
Capital stock transactions
Net proceeds from sale of shares				2,164					957					135					303					127					72					58,504					47,641
Shares issued in reinvestment of income dividends and capital gain distributions				—					15					—					158					—					20					—					2,750
Less cost of shares redeemed				(2,624	)				—					(737	)				(1,312	)				(113	)				(30	)				(29,135	)				(71,998	)
Net increase (decrease) in net assets resulting from capital share transactions				(460	)				972					(602	)				(851	)				14					62					29,369					(21,607	)
Increase (decrease) in net assets				45					1,392					20					(436	)				421					236					73,599					3,870
Net assets
Beginning of period				3,845					2,453					4,137					4,573					2,392					2,156					235,268					231,398
End of period			$	3,890				$	3,845				$	4,157				$	4,137				$	2,813				$	2,392				$	308,867				$	235,268
Accumulated net investment income (loss) at the end of the period			$	17				$	—				$	18				$	1				$	6				$	—				$	149				$	97

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

129

Statements of Assets and Liabilities

 

As of June 30, 2013 (dollar amounts in thousands) (unaudited)

 

		Bond Fund				Income Fund				Low Duration Fund				Ready Reserves Fund
Assets
Investments in securities, at cost		$	257,776			$	129,503			$	288,575			$	990,803
Repurchase agreements, at cost			—				—				—				236,088
Investments in securities, at value		$	262,153			$	130,244			$	286,778			$	990,803
Repurchase agreements, at value			—				—				—				236,088
Receivable for securities sold			5,327				3,919				22,689				—
Receivable for fund shares sold			255				126				1,001				—
Receivable from Advisor			16				—				—				511
Dividend and interest receivable			2,243				769				962				1,074
Total assets			269,994				135,058				311,430				1,228,476
Liabilities
Payable for investment securities purchased			2,896				1,167				16,813				—
Payable for fund shares redeemed			662				882				2,365				—
Payable to custodian			4,769				1,052				653				2
Management fee payable			63				41				68				168
Distribution and shareholder administration fees payable			25				7				22				336
Shareholder distributions payable			210				39				137				—
Other payables and accrued expenses			37				21				57				84
Total liabilities			8,662				3,209				20,115				590
Net Assets		$	261,332			$	131,849			$	291,315			$	1,227,886
Capital
Composition of Net Assets
Par value of shares of beneficial interest		$	26			$	15			$	30			$	1,226
Capital paid in excess of par value			253,400				166,792				300,849				1,226,569
Accumulated net investment income (loss)			(1,248	)			(638	)			(2,076	)			112
Accumulated realized gain (loss)			4,777				(35,061	)			(5,691	)			(21	)
Net unrealized appreciation (depreciation) of investments and foreign currencies			4,377				741				(1,797	)			—
Net Assets		$	261,332			$	131,849			$	291,315			$	1,227,886
Class N Shares
Net Assets		$	21,558			$	59,339			$	10,127			$	1,227,886
Shares Outstanding			2,014,483				6,465,899				1,054,911				1,227,942,335
Net Asset Value Per Share		$	10.70			$	9.18			$	9.59			$	1.00
Class I Shares
Net Assets		$	160,098			$	72,510			$	173,829
Shares Outstanding			15,107,750				7,959,906				18,109,350
Net Asset Value Per Share		$	10.60			$	9.11			$	9.59
Institutional Class Shares
Net Assets		$	79,676							$	107,359
Shares Outstanding			7,524,826								11,180,911
Net Asset Value Per Share		$	10.59							$	9.60

 

See accompanying Notes to Financial Statements.

 

130

Semi-Annual Report

June 30, 2013

Statements of Operations

 

For the Period Ended June 30, 2013 (all amounts in thousands) (unaudited)

 

		Bond Fund					Income Fund					Low Duration Fund					Ready Reserves Fund
Investment income
Interest			$	5,111				$	2,020				$	2,532				$	779
Total income				5,111					2,020					2,532					779
Expenses
Investment advisory fees				434					274					444					1,605
Distribution fees				23					51					9					—
Shareholder administration fees				152					—					136					2,352
Custodian fees				30					25					35					25
Transfer agent fees				17					19					15					17
Sub-transfer agent fees
Class N				18					40					1					—
Class I				28					7					6					—
Professional fees				14					32					21					60
Registration fees				30					21					29					13
Shareholder reporting fees				9					10					6					65
Trustee fees				6					3					4					29
Other expenses				5					2					4					9
Total expenses before waiver				766					484					710					4,175
Expenses reimbursed to (waived or absorbed by) the Advisor				(84	)				—					—					(3,463	)
Net expenses				682					484					710					712
Net investment income (loss)				4,429					1,536					1,822					67
Realized and unrealized gain (loss)
Net realized gain (loss) on transactions from:
Investments in securities				3,384					702					(883	)				—
Total net realized gain (loss)				3,384					702					(883	)				—
Change in net unrealized appreciation (depreciation) of:
Investments				(17,036	)				(5,569	)				(4,033	)				—
Change in net unrealized appreciation (depreciation)				(17,036	)				(5,569	)				(4,033	)				—
Net increase (decrease) in net assets resulting from operations			$	(9,223	)			$	(3,331	)			$	(3,094	)			$	67

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

131

Statements of Changes in Net Assets

 

For the Period Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012 (all amounts in thousands)

 

		Bond Fund								Income Fund								Low Duration Fund								Ready Reserves Fund
		2013				2012				2013				2012				2013				2012				2013				2012
Operations
Net investment income (loss)		$	4,429			$	9,312			$	1,536			$	3,393			$	1,822			$	3,071			$	67			$	131
Net realized gain (loss) on investments			3,384				4,348				702				2,712				(883	)			192				—				—
Change in net unrealized appreciation (depreciation) on investments			(17,036	)			8,020				(5,569	)			1,352				(4,033	)			1,977				—				—
Net increase (decrease) in net assets resulting from operations			(9,223	)			21,680				(3,331	)			7,457				(3,094	)			5,240				67				131
Distributions to shareholders from
Net investment income
Class N			(567	)			(961	)			(1,009	)			(1,884	)			(144	)			(219	)			(67	)			(131	)
Class I			(3,359	)			(6,754	)			(1,165	)			(2,587	)			(2,185	)			(2,909	)			—				—
Class Institutional			(1,753	)			(3,467	)			—				—				(1,569	)			(2,382	)			—				—
Net realized gain
Class N			—				(211	)			—				—				—				—				—				—
Class I			—				(1,126	)			—				—				—				—				—				—
Class Institutional			—				(597	)			—				—				—				—				—				—
Total Distributions			(5,679	)			(13,116	)			(2,174	)			(4,471	)			(3,898	)			(5,510	)			(67	)			(131	)
Capital stock transactions
Net proceeds from sale of shares			32,176				82,419				38,382				71,248				68,664				191,001				349,973				867,610
Shares issued in reinvestment of income dividends and capital gain distributions			4,468				10,216				1,867				3,667				3,101				4,275				67				131
Less cost of shares redeemed			(57,152	)			(36,473	)			(44,672	)			(48,109	)			(60,288	)			(65,323	)			(637,484	)			(624,157	)
Net increase (decrease) in net assets resulting from capital share transactions			(20,508	)			56,162				(4,423	)			26,806				11,477				129,953				(287,444	)			243,584
Increase (decrease) in net assets			(35,410	)			64,726				(9,928	)			29,792				4,485				129,683				(287,444	)			243,584
Net assets
Beginning of period			296,742				232,016				141,777				111,985				286,830				157,147				1,515,330				1,271,746
End of period		$	261,332			$	296,742			$	131,849			$	141,777			$	291,315			$	286,830			$	1,227,886			$	1,515,330
Accumulated net investment income (loss) at the end of the period		$	(1,248	)		$	2			$	(638	)		$	—			$	(2,076	)		$	—			$	112			$	112

 

See accompanying Notes to Financial Statements.

 

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Notes to Financial Statements

 

(1) Significant Accounting Policies

 

The following is a summary of William Blair Funds’ (the “Trust”) significant accounting policies in effect during the period covered by the financial statements, which are in accordance with U.S. generally accepted accounting principles.

 

(a) Description of the Trust

 

The Trust is a mutual fund registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end management investment company. The Trust currently consists of the following twenty-six funds (the “Funds”), each with its own investment objective and policies. For each Fund, the number of shares authorized is unlimited.

 

Domestic Equity Funds Growth Large Cap Growth Mid Cap Growth Small-Mid Cap Growth Small Cap Growth Large Cap Value Mid Cap Value Small-Mid Cap Value Small Cap Value Global Equity Fund Global Leaders Global Small Cap Growth Multi-Asset and Alternative Funds Macro Allocation Commodity Strategy Long/Short

International Equity Funds International Growth Institutional International Growth International Equity Institutional International Equity International Leaders International Small Cap Growth Emerging Markets Growth Emerging Markets Leaders Emerging Markets Small Cap Growth Fixed-Income Funds Bond Income Low Duration Money Market Fund Ready Reserves

 

The Macro Allocation Fund and the Commodity Strategy Long/Short Fund have a fiscal year-end of October 31, and issue a separate report.

 

The investment objectives of the Funds are as follows:

 

Domestic Equity	Long-term capital appreciation.
Global Equity	Long-term capital appreciation.
International Equity	Long-term capital appreciation.
Fixed-Income	High level of current income with relative stability of principal.
	(Maximize total return-Low Duration)
Money Market	Current income, a stable share price and daily liquidity.

 

(b) Share Classes

 

Three different classes of shares currently exist: N, I and Institutional (“Inst.”).

 

Class		Description
N		Class N shares are sold to the general public, either directly through the Trust’s distributor or through a select number of financial intermediaries. Class N shares are sold without any sales load, and carry an annual 12b-1 distribution fee (0.25% for the Equity, Global Equity and International Equity Funds and 0.15% for the Fixed-Income Funds) or a service fee (0.35% for the Money Market Fund), a sub-transfer agent fee that is not a fixed rate and may vary by Fund and class, and an annual shareholder administration fee (0.15% for the Global Leaders, the International Leaders, the International Small Cap Growth, the Emerging Markets Growth, the Emerging Markets Leaders, the Emerging Markets Small Cap Growth, the Bond and the Low Duration Funds)

 

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Class		Description
I		Class I shares are sold to a limited group of investors. They do not carry any sales load or distribution fees and generally have lower ongoing expenses than the Class N shares. Class I shares have a sub-transfer agent fee that is not a fixed rate and may vary by Fund and class and the Global Leaders, the International Leaders, the International Small Cap Growth, the Emerging Markets Growth, the Emerging Markets Leaders, the Emerging Markets Small Cap Growth, the Bond and the Low Duration Funds carry an annual shareholder administration fee of 0.15%.
Inst.		The Institutional share class is sold to institutional investors, including but not limited to employee benefit plans, endowments, foundations, trusts and corporations, who are able to meet the Fund’s high minimum investment requirement. The minimum initial investment required is $5 million.

 

Sub-transfer agent fees: For Class N and Class I Shares the Funds may reimburse William Blair & Company, L.L.C. for fees paid to intermediaries such as banks, broker-dealers, financial advisors or other financial institutions for sub-transfer agency, sub-administration and other services provided to investors whose shares of record are held in omnibus, other group accounts, retirement plans or accounts traded through registered securities clearing agents. These fees may vary based on, for example, the nature of services provided, but generally range up to 0.15% of the assets of the class serviced or maintained by the intermediary or up to $15 per sub-account maintained by the intermediary.

 

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

 

(c) Investment Valuation

 

The market value of domestic equity securities is determined by valuing securities traded on national securities markets or in the over-the-counter markets at the last sale price or, if applicable, the official closing price or, in the absence of a recent sale on the date of determination, the mean between the last reported bid and ask price.

 

The value of foreign equity securities is generally determined based upon the last sale price on the foreign exchange or market on which it is primarily traded and in the currency of that market as of the close of the appropriate exchange or, if there have been no sales during that day, the mean between the last reported bid and ask price. The Board of Trustees has determined that the passage of time between when the foreign exchanges or markets close and when the Funds compute their net asset values could cause the value of foreign equity securities to no longer be representative or accurate and, as a result, may necessitate that such securities be fair valued. Accordingly, for foreign equity securities, the Funds may use an independent pricing service to fair value the security as of the close of regular trading on the New York Stock Exchange. As a result, a Fund’s value for a security may be different from the last sale price (or the mean between the last reported bid and ask price).

 

Fixed-income securities are generally valued using evaluated prices provided by an independent pricing service. The evaluated prices are formed using various market inputs the pricing service believes accurately represent the fair market value of a security at a particular point in time. The pricing service determines evaluated prices for fixed-income securities using inputs including, but not limited to, recent transaction prices, dealer quotes, transaction prices for securities with similar characteristics, collateral characteristics, credit quality, payment history, liquidity and market conditions.

 

Securities, and other assets, for which a market price is not available or is deemed unreliable, (e.g., securities affected by unusual or extraordinary events, such as natural disasters or securities affected by market or economic events, such as bankruptcy filings), or the value of which is affected by a significant valuation event, are valued at a fair value as determined in good faith by, or under the direction of, the Board of Trustees and in accordance with the Trust’s Valuation Procedures. The value of fair valued securities may be different from the last sale price (or the mean between the last reported bid and ask price), and there is no guarantee that a fair valued security will be sold at the price at which a Fund is carrying the security.

 

Investments in other funds that are not exchange-traded funds are valued at the underlying fund’s net asset value on the date of valuation. Securities held in the Ready Reserves Fund are valued at amortized cost, which approximates fair value.

 

As of June 30, 2013, there were securities held in the International Growth, Institutional International Growth, Bond and Income Funds requiring fair valuation pursuant to the Trust’s Valuation Procedures.

 

(d) Investment income and transactions

 

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

 

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Interest income is recorded on an accrual basis, adjusted for amortization of premium or accretion of discount. Variable rate bonds and floating rate notes earn interest at coupon rates that fluctuate at specific time intervals. The interest rates shown in the Portfolio of Investments for the Bond, Income, Low Duration and Ready Reserves Funds were the rates in effect on June 30, 2013. Put bonds may be redeemed at the discretion of the holder on specified dates prior to maturity.

 

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

 

Paydown gains and losses on mortgage-backed and asset-backed securities are treated as an adjustment to interest income. For the period ended June 30, 2013, the Bond, Income and Low Duration Funds recognized a reduction of interest income and a decrease of net realized loss of $(1,249), $(636) and $(2,075), respectively (in thousands). This reclassification had no effect on the net asset value or the net assets of the Funds.

 

The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

 

Reported net realized foreign currency gains or losses arise from disposition of foreign currency, the difference in the foreign exchange rates between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the ex-date or accrual date and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies held at period end.

 

Security and shareholder transactions are accounted for no later than one business day following the trade date. However, for financial reporting purposes, security and shareholder transactions are accounted for on the trade date of the last business day of the reporting period. Realized gains and losses from securities transactions are recognized on a specifically identified cost basis.

 

Awards from class action litigation may be recorded as a reduction of cost. If the Funds no longer own the applicable securities, the proceeds are recorded as realized gains.

 

(e) Share Valuation and Distributions to Shareholders

 

Shares are sold and redeemed on a continuous basis at net asset value. The net asset value per share is determined separately for each class by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding as of the close of regular trading on the New York Stock Exchange (the “Exchange”), which is generally 4:00 p.m. Eastern time, on each day the Exchange is open. Redemption fees may be applicable to redemptions or exchanges within 60 days of purchase. For both Class N and Class I shares, the Domestic Equity Funds assess a 1% redemption fee on shares sold or exchanged that have been owned 60 days or less and the Global Equity and International Equity Funds assess a 2% redemption fee on shares sold or exchanged that have been owned 60 days or less as disclosed within the Fund’s Prospectus. The redemption fees collected by the Fund are netted against the amount of redemptions for presentation on the Statements of Changes in Net Assets.

 

The redemption fees collected by the Funds were as follows (in thousands):

 

	Fund		Period Ended June 30, 2013				Year Ended December 31, 2012
	Growth		$	3			$	7
	Large Cap Growth			—				—
	Mid Cap Growth			4				12
	Small-Mid Cap Growth			4				9
	Small Cap Growth			5				4
	Global Leaders			1				1
	Global Small Cap Growth			—			N/A
	International Growth			35				38
	International Equity			—				7
	International Leaders			13				—
	International Small Cap Growth			—				19
	Emerging Markets Growth			—				1
	Emerging Markets Leaders			—				1
	Emerging Markets Small Cap Growth			23				3
	Large Cap Value			—				—
	Mid Cap Value			—				—
	Small-Mid Cap Value			—				1
	Small Cap Value			7				8

 

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Distributions from net investment income, if any, of all Equity Funds are declared and paid at least annually. Distributions from the Bond, Income, Low Duration and Ready Reserves Funds are declared daily and paid monthly. Capital gain distributions, if any, are declared and paid at least annually in December. Distributions payable to shareholders are recorded on the ex-dividend date.

 

(f) Foreign Currency Translation and Forward Foreign Currency Contracts

 

The Global Equity and International Equity Funds may invest in securities denominated in foreign currencies. As such, assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the current exchange rate on the date of valuation. The values of foreign investments, open forward foreign currency contracts, and cash denominated in foreign currencies are translated into U.S. dollars using a spot market rate of exchange as of the time of the determination of each Fund’s Net Asset Value, typically 4:00 p.m. Eastern time on days when there is regular trading on the New York Stock Exchange. Payables and receivables for securities transactions, dividends, interest income and tax reclaims are translated into U.S. dollars using a spot market rate of exchange as of 4:00 p.m. Eastern time. Settlement of purchases and sales and dividend and interest receipts are translated into U.S. dollars using a spot market rate of exchange as of 11:00 a.m. Eastern time.

 

(g) Income Taxes

 

Each Fund intends to comply with the provisions of Subchapter M of the Internal Revenue Code available to regulated investment companies. Each Fund intends to make the requisite distributions of income and capital gains to its shareholders sufficient to relieve it from all, or substantially all, federal income and excise taxes. No provision for federal income and excise taxes has been made.

 

Certain Funds may be subject to foreign income taxes imposed on realized gains on securities of issuers from certain foreign countries.

 

Management has evaluated all of the uncertain tax positions of the Funds and has determined that no liability is required to be recorded in the financial statements.

 

The statute of limitations on the Funds’ tax returns for each of the tax years in the four year period ended December 31, 2012, remains open and the returns are subject to examination.

 

The Funds have elected to mark-to-market their investments in Passive Foreign Investment Companies (“PFICs”) for federal income tax purposes. The Funds also treat the deferred loss associated with current and prior year wash sales as an adjustment to the cost of investments for tax purposes. The cost of investments for federal income tax purposes and related gross unrealized appreciation/(depreciation) and net unrealized appreciation (depreciation) at June 30, 2013, were as follows (in thousands):

 

Fund		Cost of Investments					Gross Unrealized Appreciation					Gross Unrealized Depreciation					Net Unrealized Appreciation/ (Depreciation)
Growth			$	615,510				$	181,920				$	4,156				$	177,764
Large Cap Growth				25,309					7,065					264					6,801
Mid Cap Growth				412,300					59,539					6,989					52,550
Small-Mid Cap Growth				400,815					104,002					5,567					98,435
Small Cap Growth				408,804					105,478					29,473					76,005
Global Leaders				115,361					10,572					1,981					8,591
Global Small Cap Growth				10,816					691					383					308
International Growth				3,444,437					505,910					125,960					379,950
Institutional International Growth				1,862,544					266,673					66,951					199,722
International Equity				61,334					11,090					1,441					9,649
Institutional International Equity				80,572					13,783					1,615					12,168
International Leaders				60,866					2,957					2,293					664
International Small Cap Growth				690,056					107,809					28,821					78,988
Emerging Markets Growth				857,646					56,297					34,401					21,896

 

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Fund		Cost of Investments					Gross Unrealized Appreciation						Gross Unrealized Depreciation						Net Unrealized Appreciation/ (Depreciation)
Emerging Markets Leaders			$	61,449				$	3,393					$	2,744					$	649
Emerging Markets Small Cap Growth				79,139					5,277						3,175						2,102
Large Cap Value				3,502					443						36						407
Mid Cap Value				3,310					819						20						799
Small-Mid Cap Value				2,351					511						17						494
Small Cap Value				253,808					57,862						1,985						55,877
Bond				257,776					8,399						4,022						4,377
Income				129,503					2,932						2,191						741
Low Duration				288,574					912						2,708						(1,796	)
Ready Reserves				1,226,891					—						—						—

 

In addition, the Funds may periodically record reclassifications among certain capital accounts to reflect differences between financial reporting and income tax basis distributions. The reclassifications were reported in order to reflect the tax treatment for certain permanent differences that exist between income tax regulations and U.S. generally accepted accounting principles. The reclassifications generally relate to net operating losses, Section 988 currency gains and losses, PFICs gains and losses, expiration of capital loss carryforward, recharacterization of dividends received from investments in Real Estate Investment Trust, paydown gains and losses, and redemptions in-kind. These reclassifications have no impact on the net asset values of the Funds. Accordingly, at December 31, 2012, the following reclassifications were recorded (in thousands):

 

Fund		Accumulated Undistributed Net Investment Income (Loss)					Accumulated Undistributed Net Realized Gain/(Loss)					Capital Paid in Excess of Par Value
Growth			$	28				$	(28	)			$	—
Large Cap Growth				1					(1	)				—
Mid Cap Growth				4					—					(4	)
Small-Mid Cap Growth				7					(7	)				—
Small Cap Growth				3,984					—					(3,984	)
Global Leaders				(20	)				20					—
International Growth				20,416					(20,416	)				—
Institutional International Growth				9,629					(9,629	)				—
International Equity				(71	)				71					—
Institutional International Equity				(154	)				154					—
International Leaders				10					(10	)				—
International Small Cap Growth				2,643					(2,665	)				22
Emerging Markets Growth				(1,511	)				1,511					—
Emerging Markets Leaders				(53	)				53					—
Emerging Markets Small Cap Growth				(7	)				6					1
Large Cap Value				—					—					—
Mid Cap Value				(2	)				(32	)				34
Small-Mid Cap Value				—					—					—
Small Cap Value				(12	)				12					—
Bond				1,870					(1,870	)				—
Income				1,078					1,412					(2,490	)
Low Duration				2,439					(2,439	)				—
Ready Reserves				4					20					(24	)

 

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal income tax regulations that may differ from U.S. generally accepted accounting principles. As a result, net investment income or loss and net realized gain or loss for a reporting period may differ from the amount distributed during such period.

 

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Distributions from net realized gains for book purposes may include short-term capital gains, which are included as ordinary income for tax purposes. The tax character of distributions paid during 2012 and 2011 was as follows (in thousands):

 

		Distributions Paid in 2012																Distributions Paid in 2011
		Ordinary Income								Long-Term Capital Gains								Return of Capital								Ordinary Income								Long-Term Capital Gains
Fund		Class N				Class I				Class N				Class I				Class N				Class I				Class N				Class I				Class N				Class I
Growth		$	10			$	1,133			$	7,281			$	12,939			$	—			$	—			$	—			$	329			$	5,882			$	10,199
Large Cap Growth			—				—				—				—				—				—				—				37				—				—
Mid Cap Growth			—				488				905				7,042				—				—				—				—				2,378				8,679
Small-Mid Cap Growth			63				1,436				1,026				8,092				—				—				595				3,772				2,542				16,104
Small Cap Growth			—				—				564				1,107				—				—				—				—				—				—
Global Leaders			15				227				—				—				—				—				4				170				—				—
International Growth			37,353				74,977				—				—				—				—				—				6,046				—				—
International Equity			172				2,061				—				—				—				—				—				—				—				—
International Leaders			—				6				—				—				—				—				—				—				—				—
International Small Cap Growth			274				7,774				—				—				—				—				193				5,147				—				—
Emerging Markets Growth			88				1,209				—				—				—				—				—				466				2,577				18,690
Emerging Markets Leaders			1				169				—				—				—				11				1				582				3				1,287
Emerging Markets Small Cap Growth			13				65				—				—				—				—				—				—				—				—
Large Cap Value			12				25				—				—				—				—				3				4				—				—
Mid Cap Value			1				62				3				121				—				—				1				64				—				34
Small-Mid Cap Value			34				55				—				—				—				—				—				—				—				—
Small Cap Value			256				1,734				164				782				60				273				6				483				1,471				6,717
Bond			961				6,754				211				1,126				—				—				229				6,707				66				1,188
Income			1,884				2,587				—				—				—				—				1,377				2,800				—				—
Low Duration			219				2,909				—				—				—				—				152				2,098				—				—
Ready Reserves			131				—				—				—				—				—				125				—				—				—

 

		Distributions Paid in 2012												Distributions Paid in 2011
		Ordinary Income						Long-Term Capital Gains						Return of Capital						Ordinary Income						Long-Term Capital Gains
		Institutional						Institutional						Institutional						Institutional						Institutional
Global Leaders			$	—					$	—					$	—					$	—					$	—
Institutional International Growth				62,889						—						—						1,997						—
Institutional International Equity				1,482						—						—						2,326						—
International Leaders				10						—						—						—						—
International Small Cap Growth				8,146						—						—						5,384						—
Emerging Markets Growth				7,965						—						—						3,984						93,763
Emerging Markets Leaders				303						—						14						695						1,443
Emerging Markets Small Cap Growth				—						—						—						—						—
Bond				3,467						597						—						2,764						577
Low Duration				2,382						—						—						1,853						—

 

As of December 31, 2012, the components of distributable earnings on a tax basis were as follows (in thousands):

 

Fund		Undistributed Ordinary Income					Accumulated Capital and Other Losses				Undistributed Long-Term Capital Gain					Net Unrealized Appreciation/ Depreciation
Growth			$	10			$	—				$	13,481				$	122,156
Large Cap Growth				—				(887	)				—					5,824
Mid Cap Growth				—				(168	)				3,258					22,787
Small-Mid Cap Growth				—				1					6,952					35,809
Small Cap Growth				—				—					6,887					33,642
Global Leaders				2				(13,781	)				—					8,028
International Growth				16,303				(1,105,046	)				—					587,519
Institutional International Growth				8,836				(175,273	)				—					306,224
International Equity				120				(91,971	)				—					11,903
Institutional International Equity				191				(122,787	)				—					18,967
International Leaders				30				(104	)				—					679
International Small Cap Growth				1,592				(53,929	)				—					98,714
Emerging Markets Growth				155				(28,010	)				—					139,465
Emerging Markets Leaders				57				(3,213	)				—					8,259
Emerging Markets Small Cap Growth				56				(37	)				36					1,695
Large Cap Value				1				—					5					403
Mid Cap Value				8				—					14					463

 

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Fund		Undistributed Ordinary Income					Accumulated Capital and Other Losses					Undistributed Long-Term Capital Gain					Net Unrealized Appreciation/ Depreciation
Small-Mid Cap Value			$	14				$	—				$	8				$	244
Small Cap Value				83					—					1,441					26,878
Bond				2					(104	)				1,498					21,412
Income				—					(35,763	)				—					6,310
Low Duration				—					(4,807	)				—					2,235
Ready Reserves				113					(22	)				—					—

 

As of December 31, 2012, the Funds have unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows (in thousands):

 

Fund		2013				2014				2015				2016				2017				2018				Total
Large Cap Growth		$	—			$	—			$	—			$	—			$	887			$	—			$	887
Global Leaders			—				—				—				644				13,127				—				13,771
International Growth			—				—				—				—				1,101,382				—				1,101,382
Institutional International Growth			—				—				—				—				172,315				—				172,315
International Equity			—				—				—				10,048				81,926				—				91,974
Institutional International Equity			—				—				—				9,705				113,087				—				122,792
International Small Cap Growth			—				—				—				—				53,954				—				53,954
Income			3,398				4,138				9,190				14,459				4,577				—				35,762
Low Duration			—				—				—				—				—				955				955
Ready Reserves			—				—				2				—				—				—				2

 

Under current law, the Funds may carry forward net capital losses indefinitely to use to offset capital gains realized in future years. Previous law limited the carry forward of capital losses to the eight tax years following the year the capital loss was realized. If a Fund has capital losses that are subject to current law and also has capital losses subject to prior law, the losses realized under current law will be utilized to offset capital gains before any of the losses governed by prior law can be used. As a result of these ordering rules, capital losses realized under previous law may be more likely to expire unused. Capital losses realized under current law will carry forward retaining their classification as long-term or short-term losses; as compared to under prior law in which all capital losses were carried forward as short term capital losses.

 

As of December 31, 2012, the Funds incurred the following capital losses which will not expire (in thousands):

 

Fund		Short- Term				Long- Term
International Leaders		$	33			$	—
Emerging Markets Growth			23,905				—
Emerging Markets Leaders			2,240				—
Low Duration			2,054				1,296
Ready Reserves			19				—

 

In order to meet certain excise tax distribution requirements, the Funds are required to measure and distribute annually, net capital gains realized during a twelve month period ending October 31 and net investment income earned during a twelve month period ending December 31. In connection with this, the Funds are permitted for tax purposes to defer into their next fiscal year qualified late year losses. Qualified late year capital losses are any net capital losses incurred between November 1 and the end of their fiscal year, December 31, 2012. Qualified late year ordinary losses are comprised of losses related to foreign currency and PFICs, incurred between November 1 and the end of their fiscal year, December 31, 2012.

 

At December 31, 2012, the following Funds deferred, on a tax basis, qualified late year losses of:

 

		Qualified Late Year Losses
Fund		Ordinary Income						Short-Term Capital					Long-Term Capital
Mid Cap Growth			$	—					$	168				$	—
Global Leaders				10						—					—
International Growth				—						4,050					—
Institutional International Growth				—						2,341					—
International Leaders				—						71					—
Emerging Markets Growth				—						2,380					—

 

June 30, 2013

William Blair Funds

139

		Qualified Late Year Losses
Fund		Ordinary Income						Short-Term Capital					Long-Term Capital
Emerging Markets Leaders				$—					$	464				$	507
Emerging Markets Small Cap Growth				—						7					—
Bond				—						104					—
Low Duration				—						291					210

 

(h) Repurchase Agreements

 

In a repurchase agreement, a Fund buys a security at one price and at the time of sale, the seller agrees to repurchase the security at a mutually agreed upon time and price (usually within seven days). The repurchase agreement thereby determines the yield during the purchaser’s holding period, while the seller’s obligation to repurchase is secured by the value of the underlying security. William Blair & Company, L.L.C. (“William Blair” or the “Advisor”) will monitor, on an ongoing basis, the value of the underlying securities to ensure that the value always equals or exceeds the repurchase price plus accrued interest. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon a Fund’s ability to dispose of the underlying securities. The risk to a Fund is limited to the ability of the seller to pay the agreed upon sum on the delivery date. In the event of default, a repurchase agreement provides that a Fund is entitled to sell the underlying collateral. The loss, if any, to a Fund will be the difference between the proceeds from the sale and the repurchase price. However, if bankruptcy proceedings are commenced with respect to the seller of the security, disposition of the collateral by the Fund may be delayed or limited. Although no definitive creditworthiness criteria are used, the Advisor reviews the creditworthiness of the banks and non-bank dealers with which a Fund enters into repurchase agreements to evaluate those risks. A Fund may, for tax purposes, deem repurchase agreements collateralized by U.S. Government securities to be investments in U.S. Government securities.

 

(i) Use of Estimates

 

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

 

(j) Indemnification

 

In the normal course of business, the Funds have entered into contracts in which the Funds agree to indemnify the other party or parties against various potential costs or liabilities. The Funds’ maximum exposure under these arrangements is unknown. No claim has been made for indemnification pursuant to any such agreement of the Funds.

 

(k) Fair Value Measurements

 

Fair value is defined as the price that a Fund would receive upon selling a security in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. Various inputs are used in determining the value of a Fund’s investments. A three-tier hierarchy of inputs is used to classify fair value measurements for disclosure purposes. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:

 

	•	Level 1—Quoted prices (unadjusted) in active markets for an identical security.
	•	Level 2—Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. In addition, other observable inputs such as foreign exchange rates, benchmark securities indices and foreign futures contracts may be utilized in the valuation of certain foreign securities when significant events occur between the last sale on the foreign securities exchange and the time the net asset value of the Fund is calculated.
	•	Level 3—Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

 

The inputs or methodology used for valuing an investment are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2.

 

140

Semi-Annual Report

June 30, 2013

Any transfers between Level 1 and Level 2 are disclosed, effective as of the beginning of the period, in the following tables with the reasons for the transfers disclosed in a note to the tables, if applicable.

 

As of June 30, 2013, the hierarchical input levels of securities in each Fund, segregated by security class, are as follows (in thousands):

 

Investments in securities		Growth				Large Cap Growth				Mid Cap Growth				Small-Mid Cap Growth				Small Cap Growth
Level 1—Quoted prices Common Stocks		$	787,724			$	31,715			$	454,112			$	489,710			$	476,391
Level 2—Other significant observable inputs Short-Term Investments			5,550				395				10,738				9,540				8,418
Level 3—Significant unobservable inputs None			—				—				—				—				—
Total investments in securities		$	793,274			$	32,110			$	464,850			$	499,250			$	484,809

 

Investments in securities		Global Leaders				Global Small Cap Growth				International Growth				Institutional International Growth				International Equity				Institutional International Equity
Level 1—Quoted prices Common Stocks		$	122,311			$	10,729			$	3,728,364			$	2,009,923			$	70,118			$	89,294
Exchange-Traded Funds			—				157				—				—				—				—
Level 2—Other significant observable inputs Affiliated Fund			—				—				22,815				12,260				—				—
Short-Term Investments			1,641				238				72,519				39,731				865				3,446
Level 3—Significant unobservable inputs Common stock			—				—				689				352				—				—
Total investments in securities.		$	123,952			$	11,124			$	3,824,387			$	2,062,266			$	70,983			$	92,740
Level 1 and Level 2 transfers Transfers from Level 1 to Level 2			—				—				—				—				—				—
Transfers from Level 2 to Level 1 (a)			23,732				—				2,066,827				1,112,905				48,727				76,072
Other financial instruments
Level 2—Other significant observable inputs Forward foreign currency contracts			—				—				6,195				3,340				—				—

 

Investments in securities		International Leaders				International Small Cap Growth				Emerging Markets Growth				Emerging Markets Leaders				Emerging Markets Small Cap Growth
Level 1—Quoted prices Common Stocks		$	61,530			$	753,375			$	825,517			$	57,501			$	79,447
Preferred stock			—				—				20,957				1,671				231
Level 2—Other significant observable inputs Short-Term Investments			—				15,669				8,594				2,926				1,563
Affiliated Fund			—				—				24,474				—				—
Level 3—Significant unobservable inputs None			—				—				—				—				—
Total investments in securities		$	61,530			$	769,044			$	879,542			$	62,098			$	81,241
Level 1 and Level 2 transfers
Transfers from Level 1 to Level 2			—				—				—				—				—
Transfers from Level 2 to Level 1 (a)			7,088				414,868				473,910				31,452				13,076
Other financial instruments
Assets
Level 2—Other significant observable inputs Forward foreign currency contracts			—				192				—				—				—
Liabilities
Level 2—Other significant observable inputs Forward foreign currency contracts			—				(661	)			(125	)			(5	)			—

 

June 30, 2013

William Blair Funds

141

Investments in securities		Large Cap Value				Mid Cap Value				Small-Mid Cap Value				Small Cap Value
Level 1—Quoted prices Common Stocks		$	3,794			$	4,109			$	2,810			$	301,551
Level 2—Other significant observable inputs Short-Term Investments			115				—				35				8,134
Level 3—Significant unobservable inputs None			—				—				—				—
Total investments in securities		$	3,909			$	4,109			$	2,845			$	309,685

 

Investments in securities		Bond				Income				Low Duration				Ready Reserves
Level 1—Quoted Prices None			—				—				—				—
Level 2—Other significant observable inputs US Government and Agency Bonds		$	117,167			$	73,186			$	212,065			$	57,654
Corporate Bonds			135,391				48,468				32,530				118,719
Asset Backed Bonds			9,428				7,674				42,183				—
Commercial Paper			—				—				—				814,430
Short-Term Investments			—				—				—				236,088
Level 3—Significant unobservable inputs Asset Backed Bonds			167				916				—				—
Total investments in securities		$	262,153			$	130,244			$	286,778			$	1,226,891

 

 

(a)	Fair valuation estimates were obtained from the Portfolios’ pricing vendor and applied to certain foreign securities at December 31, 2012 but not at June 30, 2013.

 

Level 1 Common Stocks are exchange-traded securities with a quoted price. See Portfolio of Investments for Sector Classification.

 

The fair value estimates for the Level 3 securities in the International Growth, Institutional International Growth, Bond and Income Funds were determined in good faith by the Pricing Committee in consultation with the Valuation Committee, pursuant to the Valuation Procedures adopted by the Board of Trustees. There were various factors considered in reaching this fair value determination, including, but not limited to, the following: the type of security, the extent of public trading of the security, information obtained from a broker-dealer for the security, analysis of the company’s performance, market trends that influence its performance and the potential for an adverse outcome in pending litigation. Level 3 securities represented 0.02%, 0.02%, 0.06% and 0.69% as a percentage of Net Assets in the International Growth, Institutional International Growth, Bond and Income Funds, respectively. The change in net unrealized gain (loss) related to those securities held at June 30, 2013 is included in the change in net unrealized appreciation (depreciation) of investments on the Statements of Operations.

 

(2) Transactions with Affiliates

 

(a) Management and Expense Limitation Agreements

 

Each Fund has a management agreement with the Advisor for investment advisory, clerical, bookkeeping and administrative services. Each Fund pays the Advisor an annual fee, payable monthly, based on a specified percentage of its average daily net assets. A summary of the annual rates expressed as a percentage of average daily net assets is as follows:

 

Domestic Equity Funds
Growth		0.75	%
Large Cap Growth		0.80	%
Mid Cap Growth		0.95	%
Small-Mid Cap Growth		1.00	%
Small Cap Growth		1.10	%
Large Cap Value		0.80	%
Mid Cap Value		0.95	%
Small-Mid Cap Value		1.00	%
Small Cap Value		1.10	%
Global Equity Fund
Global Leaders		1.00	%
Global Small Cap Growth		1.00	%

Fixed-Income Funds
Bond		0.30	%
Income*:
First $250 million		0.25	%
In excess of $250 million		0.20	%
Low Duration		0.30	%
Money Market Fund
Ready Reserves:
First $250 million		0.275	%
Next $250 million		0.25	%
Next $2 billion		0.225	%
In excess of $2.5 billion		0.20	%

 

142

Semi-Annual Report

June 30, 2013

International Equity Funds
International Growth:
First $250 million		1.10	%
Next $4.75 billion		1.00	%
Next $5 billion		0.95	%
Next $5 billion		0.925	%
In excess of $15 billion		0.90	%
Institutional International Growth:
First $500 million		1.00	%
Next $500 million		0.95	%
Next $1.5 billion		0.90	%
Next $2.5 billion		0.875	%
Next $5 billion		0.85	%
Next $5 billion		0.825	%
In excess of $15 billion		0.80	%

International Equity:
First $250 million		1.10	%
In excess of $250 million		1.00	%
Institutional International Equity:
First $500 million		1.00	%
Next $500 million		0.95	%
In excess of $1 billion		0.90	%
International Leaders		0.95	%
International Small Cap Growth		1.00	%
Emerging Markets Growth		1.10	%
Emerging Markets Leaders		1.10	%
Emerging Markets Small Cap Growth		1.10	%

 

 

*Management fee also includes a charge of 5% of gross income.

 

Some of the Funds have also entered into an amended and restated Expense Limitation Agreement with the Advisor. Under the terms of the agreement, the Advisor will waive its management fee and/or reimburse the Fund for expenses in excess of the agreed upon rate. The amount the Advisor owes a Fund as of the reporting date is recorded as the Receivable from Advisor on the Statements of Assets and Liabilities. The Advisor reimburses the Funds on a monthly basis. Under the terms of the agreement, the Advisor has agreed to waive its advisory fees and/or absorb other operating expenses through April 30, 2014, if total expenses for each class of the following Funds exceed the following rates (as a percentage of average daily net assets):

 

		Class N								Class I								Institutional Class
Fund		Effective May 1, 2013 through April 30, 2014				Effective May 1, 2012 through April 30, 2013				Effective May 1, 2013 through April 30, 2014				Effective May 1, 2012 through April 30, 2013				Effective May 1, 2013 through April 30, 2014				Effective May 1, 2012 through April 30, 2013
Growth			N/A				N/A				N/A				N/A				N/A				N/A
Large Cap Growth			1.20	%			1.20	%			0.95	%			0.95	%			N/A				N/A
Mid Cap Growth			1.35	%			1.35	%			1.10	%			1.10	%			N/A				N/A
Small-Mid Cap Growth			1.35	%			1.35	%			1.10	%			1.10	%			N/A				N/A
Small Cap Growth			1.50	%			1.50	%			1.25	%			1.25	%			N/A				N/A
Global Leaders			1.50	%			1.50	%			1.25	%			1.25	%			1.10	%			1.10	%
Global Small Cap Growth			1.65	%(b)			N/A				1.40	%(b)			N/A				1.25	%(b)			N/A
International Growth			1.45	%			1.45	%			1.20	%			1.20	%			N/A				N/A
Institutional International Growth			N/A				N/A				N/A				N/A				N/A				N/A
International Equity			1.45	%			1.45	%			1.20	%			1.20	%			N/A				N/A
Institutional International Equity			N/A				N/A				N/A				N/A				1.10	%			1.10	%
International Leaders			1.45	%			1.45	%(a)			1.20	%			1.20	%(a)			1.05	%			1.05	%(a)
International Small Cap Growth			1.65	%			1.65	%			1.40	%			1.40	%			1.25	%			1.25	%
Emerging Markets Growth			1.70	%			1.70	%			1.45	%			1.45	%			1.30	%			1.30	%
Emerging Markets Leaders			1.65	%			1.65	%			1.40	%			1.40	%			1.25	%			1.25	%
Emerging Markets Small Cap Growth			1.65	%			1.65	%			1.40	%			1.40	%			1.25	%			1.25	%
Large Cap Value			1.20	%			1.20	%			0.95	%			0.95	%			N/A				N/A
Mid Cap Value			1.35	%			1.35	%			1.10	%			1.10	%			N/A				N/A
Small-Mid Cap Value			1.40	%			1.40	%			1.15	%			1.15	%			N/A				N/A
Small Cap Value			1.50	%			1.45	%			1.25	%			1.20	%			N/A				N/A
Bond			0.65	%			0.65	%			0.50	%			0.50	%			0.35	%			0.35	%
Income			0.85	%			0.85	%			0.70	%			0.70	%			N/A				N/A
Low Duration			0.70	%			0.70	%			0.55	%			0.55	%			0.40	%			0.40	%
Ready Reserves			N/A				N/A				N/A				N/A				N/A				N/A

 

 

(a)	Effective August 16, 2012 through April 30, 2014
(b)	Effective April 10, 2013 through April 30, 2014

 

June 30, 2013

William Blair Funds

143

The Advisor has agreed to voluntarily waive fees and reimburse expenses incurred for the Ready Reserves Fund in order to maintain a minimum yield given the current interest rate environment.

 

For a period of three years subsequent to the commencement of operations, the Advisor is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent the overall expense ratio remains below the expense limitation in place at the time the fee was waived and/or the expense was reimbursed. The total amounts available for recapture at June 30, 2013 were as follows (in thousands):

 

Fund		Available for Recapture
Global Small Cap Growth		$	25
International Leaders			114
Emerging Markets Small Cap Growth			377
Large Cap Value			177
Small-Mid Cap Value			177

 

For the period ended June 30, 2013, the fee waivers and/or reimbursements for each Fund were as follows (in thousands):

 

Fund		Fund Level Waiver				Class I Specific Waiver				Class N Specific Waiver				Total Waiver
Growth		$	—			$	—			$	—			$	—
Large Cap Growth			28				5				3				36
Mid Cap Growth			—				—				10				10
Small-Mid Cap Growth			—				—				20				20
Small Cap Growth			—				143				66				209
Global Leaders			45				9				2				56
Global Small Cap Growth			25				—				—				25
International Growth			—				—				—				—
Institutional International Growth			—				—				—				—
International Equity			38				37				3				78
Institutional International Equity			22				—				—				22
International Leaders			57				—				—				57
International Small Cap Growth			—				—				—				—
Emerging Markets Growth			—				—				—				—
Emerging Markets Leaders			67				1				—				68
Emerging Markets Small Cap Growth			124				—				—				124
Large Cap Value			47				—				—				47
Mid Cap Value			46				—				—				46
Small-Mid Cap Value			49				—				—				49
Small Cap Value			—				41				17				58
Bond			38				28				18				84
Income			—				—				—				—
Low Duration			—				—				—				—
Ready Reserves			3,463				—				—				3,463

 

(b) Underwriting, Distribution Services and Service Agreements

 

Each Fund, except the Institutional International Growth Fund, the Institutional International Equity Fund, and the Ready Reserves Fund, has a Distribution Agreement with William Blair for distribution services to the Funds’ Class N shares. Each Fund pays William Blair an annual fee, payable monthly, based on a specified percentage of its average daily net assets of Class N shares. The annual rate expressed as a percentage of average daily net assets for Class N is 0.25% for all Funds except the Income, Bond and Low Duration Funds, which is 0.15%. Pursuant to the Distribution Agreement, William Blair enters into related selling group agreements with various firms at various rates for sales of the Funds’ Class N shares.

 

The Ready Reserves Fund has entered into a Service Agreement with the Advisor under which the Advisor agrees to provide certain support services to Class N shareholders, including shareholder services and automatic sweep services, for a fee of 0.35% of the Fund’s average daily net assets attributable to Class N shares. The Board of Trustees has determined that the amount payable for “service fees” (as defined by FINRA, Financial Industry Regulatory Authority) does not exceed 0.25% of the average annual net assets attributable to the Class N shares of the Ready Reserves Fund.

 

144

Semi-Annual Report

June 30, 2013

The Global Leaders, Global Small Cap Growth, International Leaders, International Small Cap Growth, Emerging Markets Growth, Emerging Markets Leaders, Emerging Markets Small Cap Growth, Bond and Low Duration Funds have a Shareholder Administration Agreement with William Blair to provide shareholder administration services to Class N and Class I shares. Class N and Class I shares of the Funds pay William Blair an annual fee, payable monthly, based upon 0.15% of average daily net assets attributable to each class, respectively. For the period ended June 30, 2013, the following fees were incurred (in thousands):

 

Fund		Class N				Class I				Total
Global Leaders		$	4			$	36			$	40
Global Small Cap Growth			—				3				3
International Leaders			—				7				7
International Small Cap Growth			11				292				303
Emerging Markets Growth			12				112				124
Emerging Markets Leaders			—				22				22
Emerging Markets Small Cap Growth			6				16				22
Bond			23				129				152
Low Duration			9				127				136
Ready Reserves			2,352				—				2,352

 

(3) Investment Transactions

 

Investment transactions, excluding money market instruments, repurchase agreements and demand notes for the period ended June 30, 2013, were as follows (in thousands):

 

Fund		Purchases				Sales
Growth		$	191,316			$	(194,211	)
Large Cap Growth			7,975				(7,128	)
Mid Cap Growth			200,906				(153,823	)
Small-Mid Cap Growth			109,795				(85,800	)
Small Cap Growth			189,515				(190,535	)
Global Leaders			81,064				(24,825	)
Global Small Cap Growth			12,688				(2,079	)
International Growth			2,171,218				(2,053,260	)
Institutional International Growth			1,173,809				(1,106,627	)
International Equity			29,844				(30,950	)
Institutional International Equity			37,413				(59,241	)
International Leaders			67,671				(15,218	)
International Small Cap Growth			463,834				(451,515	)
Emerging Markets Growth			609,793				(608,687	)
Emerging Markets Leaders			44,449				(47,942	)
Emerging Markets Small Cap Growth			95,652				(42,119	)
Large Cap Value			2,303				(2,798	)
Mid Cap Value			1,022				(1,625	)
Small-Mid Cap Value			975				(937	)
Small Cap Value			115,776				(91,920	)
Bond			83,199				(99,271	)
Income			42,364				(46,746	)
Low Duration			128,965				(98,536	)

 

(4) Forward Foreign Currency Contracts

 

The Global Equity and International Equity Funds from time to time may enter into forward foreign currency contracts with the Fund’s custodian and other counterparties in an attempt to hedge against a decline in the value of foreign currency against the U.S. dollar. The Funds bear the market risk that arises from changes in foreign currency rates and bear the credit risk if the counterparty fails to perform under the contract.

 

June 30, 2013

William Blair Funds

145

For the period ended June 30, 2013, the International Growth, Institutional International Growth, International Leaders, International Small Cap Growth, Emerging Markets Growth and Emerging Markets Leaders Funds engaged in forward foreign currency contracts with notional volume (in thousands) of:

 

Fund		Average Monthly Notional Value
International Growth		$	857,890
Institutional International Growth			458,966
International Leaders			5,877
International Small Cap Growth			55,135
Emerging Markets Growth			2,025
Emerging Markets Leaders			58

 

The following tables present the value of forward foreign currency contracts as of June 30, 2013 and their respective location on the Statements of Assets and Liabilities (values in thousands):

 

Assets

Liabilities

Fund

Statement of Assets and Liabilities Location

Value

Statement of Assets and Liabilities Location

Value

International Growth

Unrealized appreciation on foreign forward currency contracts

$

6,195

Unrealized depreciation on foreign forward currency contracts

$

—

Institutional International Growth

Unrealized appreciation on foreign forward currency contracts

3,340

Unrealized depreciation on foreign forward currency contracts

—

International Leaders

Unrealized appreciation on foreign forward currency contracts

—

Unrealized depreciation on foreign forward currency contracts

—

International Small Cap Growth

Unrealized appreciation on foreign forward currency contracts

—

Unrealized depreciation on foreign forward currency contracts

469

Emerging Markets Growth

Unrealized appreciation on foreign forward currency contracts

—

Unrealized depreciation on foreign forward currency contracts

125

Emerging Markets Leaders

Unrealized appreciation on foreign forward currency contracts

—

Unrealized depreciation on foreign forward currency contracts

5

 

The effect of forward foreign currency contracts on the Statements of Operations for the period ended June 30, 2013 (values in thousands):

 

Realized gain (loss) recognized on forward foreign currency contracts
Fund		Value
International Growth		$	4,434
Institutional International Growth			2,353
International Leaders			(175	)
International Small Cap Growth			279
Emerging Markets Growth			—
Emerging Markets Leaders			—
Change in net unrealized gain (loss) recognized on forward foreign currency contracts
Fund			Value
International Growth		$	6,195
Institutional International Growth			3,340
International Leaders			—
International Small Cap Growth			(469	)
Emerging Markets Growth			(125	)
Emerging Markets Leaders			(5	)

 

146

Semi-Annual Report

June 30, 2013

The following table presents open forward foreign currency contracts as of June 30, 2013 (values in thousands):

 

International Growth

Counterparty

(S)hort (B)uy to cover

Currency Description

Settlement Date

Local Currency

Current Value (USD)

Net Unrealized Gain/(Loss)

State Street Bank

S

Pound Sterling

8/14/2013

(65,057,000

)

$

98,918

3,085

Bank Of New York

S

Japanese Yen

8/13/2013

(6,048,222,000

)

60,994

3,110

$

6,195

Institutional International Growth

Counterparty

(S)hort (B)uy to cover

Currency Description

Settlement Date

Local Currency

Current Value (USD)

Unrealized Gain/(Loss)

State Street Bank

S

Pound Sterling

8/14/2013

(35,098,000

)

$

53,366

1,665

Bank Of New York

S

Japanese Yen

8/13/2013

(3,256,868,000

)

32,844

1,675

$

3,340

International Small Cap Growth

Counterparty

(S)hort (B)uy to cover

Currency Description

Settlement Date

Local Currency

Current Value (USD)

Unrealized Gain/(Loss)

Bank Of New York

S

Japanese Yen

8/13/2013

(2,807,630,000

)

$

28,314

(661

)

Bank Of New York

S

Japanese Yen

8/13/2013

(910,034,000

)

9,177

192

$

(469

)

Emerging Markets Growth

Counterparty

(S)hort (B)uy to cover

Currency Description

Settlement Date

Local Currency

Current Value (USD)

Unrealized Gain/(Loss)

Bank Of New York

S

South African Rand

8/5/2013

(71,687,000

)

$

7,214

$

(125

)

Emerging Markets Leaders

Counterparty

(S)hort (B)uy to cover

Currency Description

Settlement Date

Local Currency

Current Value (USD)

Unrealized Gain/(Loss)

Bank Of New York

S

South African Rand

8/5/2013

(4,053,000

)

$408

$(5

)

 

(5) Statement of Assets and Liabilities Offsetting

 

The Global and International Equity Funds from time to time may enter into foreign currency contracts. These contracts are subject to master netting agreements with each counterparty.

 

										Gross Amounts Not Offset in the Statement of Assets and Liabilities
Fund		Gross Amounts of Recognized Assets				Gross Amounts Offset in the Statement of Assets and Liabilities				Net Amounts of Assets Presented in the Statement of Assets and Liabilities				Financial Instruments				Net Amount
	Foreign Currency Contracts
International Growth		$	6,195				$ —			$	6,195			$	—			$	6,195
Institutional International Growth			3,340				—				3,340				—				3,340
	Repurchase Agreements
Growth		$	5,550				$ —			$	5,550			$	5,550			$	—
Large Cap Growth			395				—				395				395				—
Mid Cap Growth			10,738				—				10,738				10,738				—
Small-Mid Cap Growth			9,540				—				9,540				9,540				—
Small Cap Growth			8,418				—				8,418				8,418				—
Global Leaders			1,641				—				1,641				1,641				—
Global Small Cap Growth			238				—				238				238				—
International Growth			72,519				—				72,519				72,519				—
Institutional International Growth			39,731				—				39,731				39,731				—

 

June 30, 2013

William Blair Funds

147

										Gross Amounts Not Offset in the Statement of Assets and Liabilities
Fund		Gross Amounts of Recognized Assets				Gross Amounts Offset in the Statement of Assets and Liabilities				Net Amounts of Assets Presented in the Statement of Assets and Liabilities				Financial Instruments				Net Amount
	Repurchase Agreements
International Equity		$	865				$ —			$	865			$	865			$	—
Institutional International Equity			3,446				—				3,446				3,446				—
International Small Cap Growth			15,669				—				15,669				15,669				—
Emerging Markets Growth			8,594				—				8,594				8,594				—
Emerging Markets Leaders			2,926				—				2,926				2,926				—
Emerging Markets Small Cap Growth .			1,563				—				1,563				1,563				—
Large Cap Value			115				—				115				115				—
Small-Mid Cap Value			35				—				35				35				—
Small Cap Value			8,134				—				8,134				8,134				—
Ready Reserves			236,088				—				236,088				236,088				—
										Gross Amounts Not Offset in the Statement of Assets and Liabilities
Fund		Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Statement of Assets and Liabilities				Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities				Financial Instruments				Net Amount
	Foreign Currency Contracts
International Small Cap Growth		$	(661	)			$ 192			$	(469	)		$	—			$	(469	)
Emerging Markets Growth			(125	)			—				(125	)			—				(125	)
Emerging Markets Leaders			(5	)			—				(5	)			—				(5	)

 

(6) Subsequent Event

 

On July 22, 2013, the William Blair Income Fund (the “Fund”) was named as a defendant in the case entitled OCWEN Loan Servicing, LLC, et al. v. State Street Bank, et al., No. 13-104 (JGK) (S.D.N.Y filed January 4, 2013). OCWEN Loan Servicing (“OCWEN”) determined that it made errors in its calculation and seeks to recover alleged overpayments made in 2007 and 2008 on certain mortgage pass-through securities (the “Bonds”) formerly owned by the Fund. The Fund sold the Bonds in 2008 at a price reflecting the allegedly erroneous overpayments before OCWEN discovered the errors. The total amount of the claim is $494,806.44. The Fund believes that OCWEN’s claims are without merit and intends to vigorously defend the action.

 

148

Semi-Annual Report

June 30, 2013

(7) Fund Share Transactions

 

The following tables summarizes the activity in capital shares of each fund for the period ended June 30, 2013 (in thousands) (unaudited):

 

		Class N
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	17,073			$	—			$	29,889			$	(12,816	)			1,319				—				2,284				(965	)
Large Cap Growth			706				—				302				404				81				—				35				46
Mid Cap Growth			6,774				—				6,511				263				494				—				472				22
Small Mid-Cap Growth			14,342				—				5,136				9,206				872				—				320				552
Small Cap Growth			13,568				—				19,202				(5,634	)			494				—				717				(223	)
Global Leaders			1,251				—				1,158				93				126				—				115				11
Global Small Cap Growth (a)			292				—				—				292				28				—				—				28
International Growth			134,288				—				138,940				(4,652	)			5,762				—				5,911				(149	)
International Equity			264				—				2,233				(1,969	)			20				—				179				(159	)
International Leaders			3				—				455				(452	)			—				—				41				(41	)
International Small Cap Growth			1,922				—				2,338				(416	)			136				—				167				(31	)
Emerging Markets Growth			733				—				2,545				(1,812	)			54				—				195				(141	)
Emerging Markets Leaders			—				—				116				(116	)			9				—				13				(4	)
Emerging Markets Small Cap Growth			10,596				—				3,236				7,360				731				—				226				505
Large Cap Value		$	952				—				1,309				(357	)			74				—				104				(30	)
Mid Cap Value			86				—				6				80				7				—				—				7
Small-Mid Cap Value			27				—				102				(75	)			2				—				8				(6	)
Small Cap Value			5,841				—				10,095				(4,254	)			384				—				677				(293	)
Bond			4,761				563				15,087				(9,763	)			451				24				1,374				(899	)
Income			19,146				943				27,088				(6,999	)			2,076				46				2,875				(753	)
Low Duration			4,176				58				5,051				(817	)			430				3				519				(86	)
Ready Reserves			349,973				67				637,484				(287,444	)			350,006				35				637,486				(287,445	)

 

		Class I
		Dollars																				Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	43,952			$	—			$	35,851			$	8,101				3,223				—				2,612				611
Large Cap Growth			1,694				—				1,119				575				190				—				123				67
Mid Cap Growth			72,904				—				25,060				47,844				5,143				—				1,785				3,358
Small Mid-Cap Growth			67,451				—				45,176				22,275				4,156				—				2,768				1,388
Small Cap Growth			36,941				—				33,580				3,361				1,309				—				1,187				122
Global Leaders			4,077				—				3,528				549				412				—				359				53
Global Small Cap Growth (a)			10,771				—				—				10,771				1,074				—				—				1,074
International Growth			284,089				—				187,411				96,678				11,899				—				7,827				4,072
International Equity			4,555				—				4,191				364				366				—				328				38
International Leaders			7,690				—				535				7,155				690				—				50				640
International Small Cap Growth			39,152				—				24,703				14,449				2,734				—				1,713				1,021
Emerging Markets Growth			12,401				—				5,054				7,347				923				—				374				549
Emerging Markets Leaders			8,915				—				1,127				7,788				990				—				127				863
Emerging Markets Small Cap Growth			27,246				—				3,716				23,530				1,919				—				262				1,657
Large Cap Value			1,212				—				1,315				(103	)			94				—				104				(10	)
Mid Cap Value			49				—				731				(682	)			4				—				58				(54	)
Small-Mid Cap Value			100				—				11				89				8				—				1				7
Small Cap Value			52,663				—				19,040				33,623				3,468				—				1,231				2,237
Bond			22,796				2,463				29,098				(3,839	)			2,178				106				2,644				(360	)
Income			19,236				924				17,584				2,576				2,118				45				1,887				276
Low Duration			62,420				1,442				43,206				20,656				6,471				70				4,429				2,112
Ready Reserves			—				—				—				—				—				—				—				—

 

 

(a)	For the period from April 10, 2013 (Commencement of Operations) to June 30, 2013.

 

June 30, 2013

William Blair Funds

149

		Institutional
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Global Leaders		$	55,299			$	—			$	639			$	54,660				5,599				—				65.00				5,534
Institutional International Growth			153,499				—				94,569				58,930				9,948				—				6,071				3,877
Institutional International Equity			3,150				—				25,995				(22,845	)			288				—				2,343				(2,055	)
International Leaders			46,097				—				642				45,455				4,088				—				59				4,029
International Small Cap Growth			12,908				—				29,533				(16,625	)			885				—				2,107				(1,222	)
Emerging Markets Growth			124,162				—				134,924				(10,762	)			8,974				—				10,562				(1,588	)
Emerging Markets Leaders			83				—				10,847				(10,764	)			—				—				1,179				(1,179	)
Emerging Markets Small Cap Growth			23,326				—				25				23,301				1,675				—				—				1,675
Bond			4,619				1,442				12,967				(6,906	)			486				63				1,178				(629	)
Low Duration			2,068				1,601				12,031				(8,362	)			297				78				1,238				(863	)

 

		Total
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	61,025			$	—			$	65,740			$	(4,715	)			4,542				—				4,896				(354	)
Large Cap Growth			2,400				—				1,421				979				271				—				158				113
Mid Cap Growth			79,678				—				31,571				48,107				5,637				—				2,257				3,380
Small Mid-Cap Growth			81,793				—				50,312				31,481				5,028				—				3,088				1,940
Small Cap Growth			50,509				—				52,782				(2,273	)			1,803				—				1,904				(101	)
Global Leaders			60,627				—				5,325				55,302				6,137				—				539				5,598
Global Small Cap Growth (a)			11,063				—				—				11,063				1,102				—				—				1,102
International Growth			418,377				—				326,351				92,026				17,661				—				13,738				3,923
Institutional International Growth			153,499				—				94,569				58,930				9,948				—				6,071				3,877
International Equity			4,819				—				6,424				(1,605	)			386				—				507				(121	)
Institutional International Equity			3,150				—				25,995				(22,845	)			288				—				2,343				(2,055	)
International Leaders			53,790				—				1,632				52,158				4,778				—				150				4,628
International Small Cap Growth			53,982				—				56,574				(2,592	)			3,755				—				3,987				(232	)
Emerging Markets Growth			137,296				—				142,523				(5,227	)			9,951				—				11,131				(1,180	)
Emerging Markets Leaders			8,998				—				12,090				(3,092	)			999				—				1,319				(320	)
Emerging Markets Small Cap Growth			61,168				—				6,977				54,191				4,325				—				488				3,837
Large Cap Value			2,164				—				2,624				(460	)			168				—				208				(40	)
Mid Cap Value			135				—				737				(602	)			11				—				58				(47	)
Small-Mid Cap Value			127				—				113				14				10				—				9				1
Small Cap Value			58,504				—				29,135				29,369				3,852				—				1,908				1,944
Bond			32,176				4,468				57,152				(20,508	)			3,115				193				5,196				(1,888	)
Income			38,382				1,867				44,672				(4,423	)			4,194				91				4,762				(477	)
Low Duration			68,664				3,101				60,288				11,477				7,198				151				6,186				1,163
Ready Reserves			349,973				67				637,484				(287,444	)			350,006				35				637,486				(287,445	)

 

 

(a)	For the period from April 10, 2013 (Commencement of Operations) to June 30, 2013.

 

150

Semi-Annual Report

June 30, 2013

The following tables summarizes the activity in capital shares of each fund for the period ended December 31, 2012 (in thousands):

 

		Class N
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	78,696			$	7,021			$	66,403			$	19,314				6,511				581				5,556				1,536
Large Cap Growth			910				—				679				231				117				—				88				29
Mid Cap Growth			23,163				883				15,631				8,415				1,835				70				1,251				654
Small Mid-Cap Growth			21,591				1,057				18,344				4,304				1,549				74				1,290				333
Small Cap Growth			11,395				558				114,495				(102,542	)			507				24				5,073				(4,542	)
Global Leaders			2,165				14				1,342				837				237				1				150				88
International Growth			201,960				36,834				478,336				(239,542	)			9,747				1,647				23,161				(11,767	)
International Equity			230				172				2,397				(1,995	)			20				14				207				(173	)
International Leaders (a)			501				—				—				501				50				—				—				50
International Small Cap Growth			1,764				249				8,879				(6,866	)			140				19				734				(575	)
Emerging Markets Growth			439				71				4,491				(3,981	)			35				5				358				(318	)
Emerging Markets Leaders			182				1				10				173				22				—				1				21
Emerging Markets Small Cap Growth			3,152				12				1,607				1,557				261				1				134				128
Large Cap Value			247				2				—				249				23				—				—				23
Mid Cap Value			27				4				16				15				2				—				1				1
Small-Mid Cap Value			22				1				2				21				2				—				—				2
Small Cap Value			13,727				412				20,304				(6,165	)			1,057				30				1,543				(456	)
Bond			29,217				1,107				6,469				23,855				2,628				99				579				2,148
Income			46,878				1,690				25,694				22,874				4,948				178				2,712				2,414
Low Duration			13,181				97				8,314				4,964				1,337				10				843				504
Ready Reserves			867,610				131				624,157				243,584				867,610				131				624,157				243,584

 

		Class I
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	99,399			$	12,799			$	51,187			$	61,011				7,918				1,014				4,123				4,809
Large Cap Growth			3,057				—				4,361				(1,304	)			382				—				550				(168	)
Mid Cap Growth			250,069				7,459				56,818				200,710				19,576				576				4,392				15,760
Small Mid-Cap Growth			166,456				8,330				66,523				108,263				11,543				570				4,593				7,520
Small Cap Growth			82,018				1,069				223,185				(140,098	)			3,541				44				9,629				(6,044	)
Global Leaders			14,574				220				14,834				(40	)			1,589				24				1,585				28
International Growth			471,066				66,346				477,179				60,233				22,026				2,899				22,367				2,558
International Equity			3,058				1,773				17,485				(12,654	)			266				146				1,569				(1,157	)
International Leaders (a)			4,042				6				—				4,048				401				—				—				401
International Small Cap Growth			70,906				6,537				146,425				(68,982	)			5,547				483				11,369				(5,339	)
Emerging Markets Growth			14,379				863				19,348				(4,106	)			1,140				64				1,558				(354	)
Emerging Markets Leaders			5,784				109				6,173				(280	)			702				12				745				(31	)
Emerging Markets Small Cap Growth			6,883				40				1,571				5,352				568				3				129				442
Large Cap Value			710				13				—				723				63				1				—				64
Mid Cap Value			276				154				1,296				(866	)			24				14				113				(75	)
Small-Mid Cap Value			50				19				28				41				5				2				3				4
Small Cap Value			33,914				2,338				51,694				(15,442	)			2,556				169				3,881				(1,156	)
Bond			30,744				5,895				23,329				13,310				2,776				531				2,114				1,193
Income			24,370				1,977				22,415				3,932				2,595				210				2,382				423
Low Duration			106,781				1,897				34,142				74,536				10,837				192				3,465				7,564
Ready Reserves			—				—				—				—				—				—				—				—

 

 

(a)	For the period from August 16, 2012 (Commencement of Operations) to December 31, 2012.

 

June 30, 2013

William Blair Funds

151

		Institutional
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Global Leaders		$	16,024			$	—			$	—			$	16,024				1,690				—				—				1,690
Institutional International Growth			283,364				58,949				226,632				115,681				20,453				3,970				16,310				8,113
Institutional International Equity			9,705				1,482				30,509				(19,322	)			987				137				3,013				(1,889	)
International Leaders (a)			5,000				10				—				5,010				488				1				—				489
International Small Cap Growth			49,414				7,704				106,290				(49,172	)			3,936				567				8,279				(3,776	)
Emerging Markets Growth			245,923				7,240				259,995				(6,832	)			19,326				537				20,495				(632	)
Emerging Markets Leaders			23,757				303				13,122				10,938				2,826				33				1,581				1,278
Emerging Markets Small Cap Growth			15,000				—				—				15,000				1,173				—				—				1,173
Bond			22,458				3,214				6,675				18,997				2,035				290				604				1,721
Low Duration			71,039				2,281				22,867				50,453				7,207				231				2,321				5,117

 

		Net Change in Net Assets Relating to Fund Share Activity
		Dollars																Shares
Fund		Sales				Reinvest				Redemptions				Total				Sales				Reinvest				Redemptions				Total
Growth		$	178,095			$	19,820			$	117,590			$	80,325				14,429				1,595				9,679				6,345
Large Cap Growth			3,967				—				5,040				(1,073	)			499				—				638				(139	)
Mid Cap Growth			273,232				8,342				72,449				209,125				21,411				646				5,643				16,414
Small Mid-Cap Growth			188,047				9,387				84,867				112,567				13,092				644				5,883				7,853
Small Cap Growth			93,413				1,627				337,680				(242,640	)			4,048				68				14,702				(10,586	)
Global Leaders			32,763				234				16,176				16,821				3,516				25				1,735				1,806
International Growth			673,026				103,180				955,515				(179,309	)			31,773				4,546				45,528				(9,209	)
Institutional International Growth			283,364				58,949				226,632				115,681				20,453				3,970				16,310				8,113
International Equity			3,288				1,945				19,882				(14,649	)			286				160				1,776				(1,330	)
Institutional International Equity			9,705				1,482				30,509				(19,322	)			987				137				3,013				(1,889	)
International Leaders (a)			9,543				16				—				9,559				939				1				—				940
International Small Cap Growth			122,084				14,490				261,594				(125,020	)			9,623				1,069				20,382				(9,690	)
Emerging Markets Growth			260,741				8,174				283,834				(14,919	)			20,501				606				22,411				(1,304	)
Emerging Markets Leaders			29,723				413				19,305				10,831				3,550				45				2,327				1,268
Emerging Markets Small Cap Growth			25,035				52				3,178				21,909				2,002				4				263				1,743
Large Cap Value			957				15				—				972				86				1				—				87
Mid Cap Value			303				158				1,312				(851	)			26				14				114				(74	)
Small-Mid Cap Value			72				20				30				62				7				2				3				6
Small Cap Value			47,641				2,750				71,998				(21,607	)			3,613				199				5,424				(1,612	)
Bond			82,419				10,216				36,473				56,162				7,439				920				3,297				5,062
Income			71,248				3,667				48,109				26,806				7,543				388				5,094				2,837
Low Duration			191,001				4,275				65,323				129,953				19,381				433				6,629				13,185
Ready Reserves			867,610				131				624,157				243,584				867,610				131				624,157				243,584

 

 

(a)	For the period from August 16, 2012 (Commencement of Operations) to December 31, 2012.

 

152

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Growth Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	12.05			$	10.73			$	11.28			$	9.89			$	7.12			$	11.70
Income (loss) from investment operations:
Net investment income (loss)				(0.03	)			(0.01	)			(0.04	)			(0.01	)			(0.02	)			(0.05	)
Net realized and unrealized gain (loss) on investments				1.42				1.69				(0.19	)			1.40				2.79				(4.35	)
Total from investment operations				1.39				1.68				(0.23	)			1.39				2.77				(4.40	)
Less distributions from:
Net investment income				—				0.00	^			—				—				—				—
Net realized gain				—				0.36				0.32				—				—				0.18
Total distributions				—				0.36				0.32				—				—				0.18
Net asset value, end of year			$	13.44			$	12.05			$	10.73			$	11.28			$	9.89			$	7.12
Total Return (%)*				11.54				15.67				(1.93	)			14.05				38.90				(37.61	)
Ratios to average daily net assets (%):**
Expenses				1.17				1.20				1.21				1.16				1.23				1.17
Net investment income (loss)				(0.49	)			(0.06	)			(0.37	)			(0.13	)			(0.20	)			(0.54	)
Net assets at end of year (in thousands)			$	263,854			$	248,121			$	204,476			$	198,622			$	153,987			$	85,142
Portfolio turnover rate (%)*				25				73				59				66				67				60

 

		Class I
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	12.58			$	11.18			$	11.71			$	10.24			$	7.35			$	12.02
Income (loss) from investment operations:
Net investment income (loss)				(0.01	)			0.04				0.00	^			0.02				0.01				(0.02	)
Net realized and unrealized gain (loss) on investments				1.49				1.75				(0.20	)			1.45				2.88				(4.47	)
Total from investment operations				1.48				1.79				(0.20	)			1.47				2.89				(4.49	)
Less distributions from:
Net investment income				—				0.03				0.01				0.00	^			0.00	^			—
Net realized gain				—				0.36				0.32				—				—				0.18
Total distributions				—				0.39				0.33				0.00	^			0.00	^			0.18
Net asset value, end of year			$	14.06			$	12.58			$	11.18			$	11.71			$	10.24			$	7.35
Total Return (%)*				11.76				16.03				(1.60	)			14.36				39.34				(37.35	)
Ratios to average daily net assets (%):**
Expenses				0.86				0.89				0.86				0.84				0.89				0.85
Net investment income (loss)				(0.17	)			0.30				(0.03	)			0.20				0.14				(0.22	)
Net assets at end of year (in thousands)			$	531,713			$	468,124			$	362,266			$	376,991			$	265,533			$	153,444
Portfolio turnover rate (%)*				25				73				59				66				67				60

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

See accompanying Notes to Financial Statements.

 

June 30, 2013

William Blair Funds

153

 

Financial Highlights

 

 

Large Cap Growth Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	8.14			$	6.88			$	7.14			$	6.16			$	4.68			$	7.52
Income (loss) from investment operations:
Net investment income (loss)				(0.01	)			(0.02	)			(0.01	)			(0.00	)^			(0.01	)			(0.02	)
Net realized and unrealized gain (loss) on investments				0.77				1.28				(0.25	)			0.98				1.49				(2.82	)
Total from investment operations				0.76				1.26				(0.26	)			0.98				1.48				(2.84	)
Less distributions from:
Net investment income				—				—				—				—				—				0.00	^
Net realized gain				—				—				—				—				—				—
Total distributions				—				—				—				—				—				0.00	^
Net asset value, end of year			$	8.90			$	8.14			$	6.88			$	7.14			$	6.16			$	4.68
Total Return (%)*				9.34				18.31				(3.64	)			15.91				31.62				(37.76	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.20				1.20				1.20				1.21				1.23				1.23
Expenses, before waivers and reimbursements				1.50				1.57				1.51				1.53				2.28				1.85
Net investment income (loss), net of waivers and reimbursements				(0.31	)			(0.21	)			(0.13	)			(0.08	)			(0.13	)			(0.29	)
Net investment income (loss), before waivers and reimbursements				(0.61	)			(0.58	)			(0.44	)			(0.40	)			(1.18	)			(0.91	)
Net assets at end of year (in thousands)			$	5,046			$	4,238			$	3,387			$	7,135			$	5,952			$	4,842
Portfolio turnover rate (%)*				23				50				67				54				88				85

 

		Class I
		(unaudited)
		Period Ended
		June 30,				Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	8.35			$	7.03			$	7.30			$	6.30			$	4.77			$	7.64
Income (loss) from investment operations:
Net investment income (loss)				(0.00	)^			0.00	^			0.01				0.01				0.01				0.00	^
Net realized and unrealized gain (loss) on investments				0.79				1.32				(0.27	)			1.00				1.52				(2.87	)
Total from investment operations				0.79				1.32				(0.26	)			1.01				1.53				(2.87	)
Less distributions from:
Net investment income				—				—				0.01				0.01				0.00	^			0.00	^
Net realized gain				—				—				—				—				—				—
Total distributions				—				—				0.01				0.01				0.00	^			0.00	^
Net asset value, end of year			$	9.14			$	8.35			$	7.03			$	7.30			$	6.30			$	4.77
Total Return (%)*				9.46				18.78				(3.54	)			16.03				32.17				(37.56	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.95				0.95				0.95				0.96				0.98				0.98
Expenses, before waivers and reimbursements				1.17				1.23				1.16				1.16				1.26				1.21
Net investment income (loss), net of waivers and reimbursements				(0.05	)			0.03				0.11				0.16				0.12				(0.04	)
Net investment income (loss), before waivers and reimbursements				(0.27	)			(0.25	)			(0.10	)			(0.04	)			(0.16	)			(0.27	)
Net assets at end of year (in thousands)			$	27,097			$	24,175			$	21,562			$	24,900			$	24,359			$	18,437
Portfolio turnover rate (%)*				23				50				67				54				88				85

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

154

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Mid Cap Growth Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	12.65			$	11.66			$	12.50			$	10.08			$	7.41			$	11.35
Income (loss) from investment operations:
Net investment income (loss)				(0.06	)			(0.02	)			(0.08	)			(0.05	)			(0.04	)			(0.07	)
Net realized and unrealized gain (loss) on investments				1.64				1.29				0.25				2.47				2.71				(3.87	)
Total from investment operations				1.58				1.27				0.17				2.42				2.67				(3.94	)
Less distributions from:
Net investment income				—				—				—				—				—				—
Net realized gain				—				0.28				1.01				—				—				0.00	^
Total distributions				—				0.28				1.01				—				—				0.00	^
Net asset value, end of year			$	14.23			$	12.65			$	11.66			$	12.50			$	10.08			$	7.41
Total Return (%)*				12.49				10.90				1.65				24.01				36.03				(34.71	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.35				1.35				1.35				1.35				1.36				1.36
Expenses, before waivers and reimbursements				1.39				1.42				1.43				1.42				2.13				2.03
Net investment income (loss), net of waivers and reimbursements				(0.93	)			(0.15	)			(0.65	)			(0.42	)			(0.51	)			(0.76	)
Net investment income (loss), before waivers and reimbursements				(0.97	)			(0.22	)			(0.73	)			(0.49	)			(1.28	)			(1.43	)
Net assets at end of year (in thousands)			$	46,346			$	40,940			$	30,093			$	13,802			$	10,379			$	4,803
Portfolio turnover rate (%)*				37				62				70				73				87				76

 

		Class I
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	12.91			$	11.87			$	12.68			$	10.20			$	7.48			$	11.42
Income (loss) from investment operations:
Net investment income (loss)				(0.05	)			0.03				(0.05	)			(0.02	)			(0.02	)			(0.05	)
Net realized and unrealized gain (loss) on investments				1.68				1.31				0.25				2.50				2.74				(3.89	)
Total from investment operations				1.63				1.34				0.20				2.48				2.72				(3.94	)
Less distributions from:
Net investment income				—				0.02				—				—				—				—
Net realized gain				—				0.28				1.01				—				—				0.00	^
Total distributions				—				0.30				1.01				—				—				0.00	^
Net asset value, end of year			$	14.54			$	12.91			$	11.87			$	12.68			$	10.20			$	7.48
Total Return (%)*				12.63				11.30				1.86				24.31				36.36				(34.50	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.10				1.07				1.10				1.10				1.11				1.11
Expenses, before waivers and reimbursements				1.10				1.07				1.13				1.15				1.28				1.23
Net investment income (loss), net of waivers and reimbursements				(0.67	)			0.19				(0.42	)			(0.14	)			(0.26	)			(0.51	)
Net investment income (loss), before waivers and reimbursements				(0.67	)			0.19				(0.45	)			(0.19	)			(0.43	)			(0.63	)
Net assets at end of year (in thousands)			$	419,543			$	329,295			$	115,661			$	87,446			$	60,455			$	35,723
Portfolio turnover rate (%)*				37				62				70				73				87				76

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

155

 

Financial Highlights

 

 

Small-Mid Cap Growth Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	14.21			$	13.00			$	14.40			$	11.73			$	8.16			$	13.10
Income (loss) from investment operations:
Net investment income (loss)				(0.08	)			0.02				(0.11	)			(0.09	)			(0.06	)			(0.03	)
Net realized and unrealized gain (loss) on investments				2.79				1.57				0.03				2.76				3.63				(4.91	)
Total from investment operations				2.71				1.59				(0.08	)			2.67				3.57				(4.94	)
Less distributions from:
Net investment income				—				0.02				—				—				—				—
Net realized gain				—				0.36				1.32				—				—				0.00	^
Total distributions				—				0.38				1.32				—				—				0.00	^
Net asset value, end of year			$	16.92			$	14.21			$	13.00			$	14.40			$	11.73			$	8.16
Total Return (%)*				19.07				12.20				(0.27	)			22.76				43.75				(37.71	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.35				1.35				1.35				1.35				1.36				1.36
Expenses, before waivers and reimbursements				1.43				1.47				1.46				1.46				1.49				1.41
Net investment income (loss), net of waivers and reimbursements				(1.00	)			0.16				(0.77	)			(0.76	)			(0.60	)			(0.26	)
Net investment income (loss), before waivers and reimbursements				(1.08	)			0.04				(0.88	)			(0.87	)			(0.73	)			(0.31	)
Net assets at end of year (in thousands)			$	59,354			$	42,015			$	34,123			$	26,876			$	23,576			$	7,954
Portfolio turnover rate (%)*				20				82				76				93				112				77

 

		Class I
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	14.55			$	13.32			$	14.68			$	11.93			$	8.27			$	13.24
Income (loss) from investment operations:
Net investment income (loss)				(0.06	)			0.07				(0.08	)			(0.06	)			(0.03	)			0.00	^
Net realized and unrealized gain (loss) on investments				2.86				1.58				0.04				2.81				3.69				(4.97	)
Total from investment operations				2.80				1.65				(0.04	)			2.75				3.66				(4.97	)
Less distributions from:
Net investment income				—				0.06				—				—				0.00	^			—
Net realized gain				—				0.36				1.32				—				—				0.00	^
Total distributions				—				0.42				1.32				—				0.00	^			0.00	^
Net asset value, end of year			$	17.35			$	14.55			$	13.32			$	14.68			$	11.93			$	8.27
Total Return (%)*				19.24				12.36				0.01				23.05				44.26				(37.54	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.09				1.10				1.10				1.10				1.11				1.11
Expenses, before waivers and reimbursements				1.09				1.20				1.12				1.11				1.18				1.17
Net investment income (loss), net of waivers and reimbursements				(0.73	)			0.48				(0.54	)			(0.50	)			(0.33	)			0.03
Net investment income (loss), before waivers and reimbursements				(0.73	)			0.38				(0.56	)			(0.51	)			(0.40	)			(0.03	)
Net assets at end of year (in thousands)			$	440,510			$	349,345			$	219,474			$	181,189			$	123,252			$	75,525
Portfolio turnover rate (%)*				20				82				76				93				112				77

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

156

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Small Cap Growth Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	23.68			$	20.13			$	23.22			$	19.99			$	11.79			$	23.30
Income (loss) from investment operations:
Net investment income (loss)				(0.14	)			(0.22	)			(0.28	)			(0.21	)			(0.15	)			(0.19	)
Net realized and unrealized gain (loss) on investments				5.74				3.87				(2.81	)			3.44				8.35				(10.73	)
Total from investment operations				5.60				3.65				(3.09	)			3.23				8.20				(10.92	)
Less distributions from:
Net investment income				—				—				—				—				—				—
Net realized gain				—				0.10				—				—				—				0.59
Total distributions				—				0.10				—				—				—				0.59
Net asset value, end of year			$	29.28			$	23.68			$	20.13			$	23.22			$	19.99			$	11.79
Total Return (%)*				23.65				18.15				(13.31	)			16.16				69.55				(46.85	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.50				1.50				1.50				1.50				1.50				1.50
Expenses, before waivers and reimbursements				1.59				1.59				1.59				1.52				1.55				1.50
Net investment income (loss), net of waivers and reimbursements				(1.06	)			(0.96	)			(1.25	)			(1.03	)			(0.93	)			(1.05	)
Net investment income (loss), before waivers and reimbursements				(1.15	)			(1.05	)			(1.34	)			(1.05	)			(0.98	)			(1.05	)
Net assets at end of year (in thousands)			$	154,734			$	130,382			$	202,341			$	396,767			$	469,746			$	224,612
Portfolio turnover rate (%)*				44				89				97				117				122				135

 

		Class I
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	24.66			$	20.91			$	24.07			$	20.64			$	12.14			$	23.89
Income (loss) from investment operations:
Net investment income (loss)				(0.11	)			(0.16	)			(0.23	)			(0.16	)			(0.11	)			(0.14	)
Net realized and unrealized gain (loss) on investments				5.99				4.01				(2.93	)			3.59				8.61				(11.02	)
Total from investment operations				5.88				3.85				(3.16	)			3.43				8.50				(11.16	)
Less distributions from:
Net investment income				—				—				—				—				—				—
Net realized gain				—				0.10				—				—				—				0.59
Total distributions				—				0.10				—				—				—				0.59
Net asset value, end of year			$	30.54			$	24.66			$	20.91			$	24.07			$	20.64			$	12.14
Total Return (%)*				23.84				18.43				(13.13	)			16.62				70.02				(46.70	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.25				1.25				1.25				1.25				1.20				1.20
Expenses, before waivers and reimbursements				1.34				1.35				1.35				1.25				1.20				1.20
Net investment income (loss), net of waivers and reimbursements				(0.80	)			(0.71	)			(1.00	)			(0.76	)			(0.63	)			(0.75	)
Net investment income (loss), before waivers and reimbursements				(0.89	)			(0.81	)			(1.10	)			(0.76	)			(0.63	)			(0.75	)
Net assets at end of year (in thousands)			$	333,686			$	266,431			$	352,397			$	494,822			$	293,052			$	177,015
Portfolio turnover rate (%)*				44				89				97				117				122				135

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

157

 

Financial Highlights

 

 

Global Leaders Fund

 

		Class N
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	9.47			$	8.10			$	8.40			$	6.97			$	4.96			$	9.89
Income (loss) from investment operations:
Net investment income (loss) (a)				0.04				0.03				0.02				(0.01	)			(0.01	)			0.08
Net realized and unrealized gain (loss) on investments				0.40				1.37				(0.31	)			1.44				2.02				(4.98	)
Total from investment operations				0.44				1.40				(0.29	)			1.43				2.01				(4.90	)
Less distributions from:
Net investment income				—				0.03				0.01				—				—				0.03
Net realized gain				—				—				—				—				—				—
Total distributions				—				0.03				0.01				—				—				0.03
Net asset value, end of year			$	9.91			$	9.47			$	8.10			$	8.40			$	6.97			$	4.96
Total Return (%)*				4.65				17.25				(3.47	)			20.52				40.52				(49.52	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.50				1.50				1.50				1.52				1.55				1.55
Expenses, before waivers and reimbursements				1.67				1.84				1.82				1.93				2.61				2.17
Net investment income (loss), net of waivers and reimbursements				0.80				0.29				0.29				(0.09	)			(0.17	)			0.98
Net investment income (loss), before waivers and reimbursements				0.63				(0.05	)			(0.03	)			(0.50	)			(1.23	)			0.36
Net assets at end of year (in thousands)			$	5,557			$	5,215			$	3,740			$	5,101			$	4,721			$	3,652
Portfolio turnover rate (%)*				27				73				75				96				133				124

 

		Class I
		(unaudited)
		Period Ended
		June 30,					Years Ended December 31,
		2013					2012				2011				2010				2009				2008
Net asset value, beginning of year			$	9.47			$	8.09			$	8.40			$	6.96			$	4.94			$	9.91
Income (loss) from investment operations:
Net investment income (loss) (a)				0.05				0.05				0.04				0.01				0.00	^			0.08
Net realized and unrealized gain (loss) on investments				0.39				1.38				(0.31	)			1.43				2.02				(4.98	)
Total from investment operations				0.44				1.43				(0.27	)			1.44				2.02				(4.90	)
Less distributions from:
Net investment income				—				0.05				0.04				0.00	^			0.00	^			0.07
Net realized gain				—				—				—				—				—				—
Total distributions				—				0.05				0.04				0.00	^			0.00	^			0.07
Net asset value, end of year			$	9.91			$	9.47			$	8.09			$	8.40			$	6.96			$	4.94
Total Return (%)*				4.65				17.64				(3.26	)			20.73				40.90				(49.41	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.25				1.25				1.25				1.27				1.30				1.30
Expenses, before waivers and reimbursements				1.39				1.56				1.55				1.62				1.62				1.74
Net investment income (loss), net of waivers and reimbursements				1.04				0.54				0.52				0.16				0.05				1.05
Net investment income (loss), before waivers and reimbursements				0.90				0.23				0.22				(0.19	)			(0.27	)			0.61
Net assets at end of year (in thousands)			$	48,384			$	45,757			$	38,834			$	39,776			$	33,566			$	24,353
Portfolio turnover rate (%)*				27				73				75				96				133				124

 

 

(a)	Excludes $0.00, $0.00, $0.00, $0.00 $0.00 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

158

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Global Leaders Fund

 

		Institutional Class Shares
		(unaudited)
		Period Ended					Period Ended
		June, 30					December 31,
		2013					2012(a)
Net asset value, beginning of year			$	9.47				$	9.50
Income (loss) from investment operations:
Net investment income (loss) (b)				0.06					0.00	^
Net realized and unrealized gain (loss) on investments				0.39					(0.03	)
Total from investment operations				0.45					(0.03	)
Less distributions from:
Net investment income				—					—
Net realized gain				—					—
Total distributions				—					—
Net asset value, end of year			$	9.92				$	9.47
Total Return (%)*				4.75					(0.32	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.10					1.10
Expenses, before waivers and reimbursements				1.19					1.26
Net investment income (loss), net of waivers and reimbursements				1.23					(0.91	)
Net investment income (loss), before waivers and reimbursements				1.14					(1.07	)
Net assets at end of year (in thousands)			$	71,671				$	16,022
Portfolio turnover rate (%)*				27					73

 

 

(a)	For the period from December 9, 2012 (Commencement of Operations) to December 31, 2012.
(b)	Excludes $0.00 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the periods 2013 and 2012 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

159

 

Financial Highlights

 

 

Global Small Cap Growth Fund

 

		Class N
		(unaudited) Period Ended June 30,
		2013(a)
Net asset value, beginning of year			$	10.00
Income (loss) from investment operations:
Net investment income (loss) (b)				(0.04	)
Net realized and unrealized gain (loss) on investments				0.34
Total from investment operations				0.30
Less distributions from:
Net investment income				—
Net realized gain				—
Total distributions				—
Net asset value, end of year			$	10.30
Total Return (%)*				3.00
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.65
Expenses, before waivers and reimbursements				2.78
Net investment income (loss), net of waivers and reimbursements				(1.77	)
Net investment income (loss), before waivers and reimbursements				(2.90	)
Net assets at end of year (in thousands)			$	291
Portfolio turnover rate (%)*				21
		Class I
		(unaudited) Period Ended June 30,
		2013(a)
Net asset value, beginning of year			$	10.00
Income (loss) from investment operations:
Net investment income (loss) (b)				0.02
Net realized and unrealized gain (loss) on investments				0.29
Total from investment operations				0.31
Less distributions from:
Net investment income				—
Net realized gain.				—
Total distributions				—
Net asset value, end of year			$	10.31
Total Return (%)*				3.10
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.40
Expenses, before waivers and reimbursements				2.50
Net investment income (loss), net of waivers and reimbursements				0.94
Net investment income (loss), before waivers and reimbursements				(0.16	)
Net assets at end of year (in thousands)			$	11,063
Portfolio turnover rate (%)*				21

 

 

 

(a)	For the period from April 10, 2013 (Commencement of Operations) to June 30, 2013.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

160

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

International Growth Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013					2012					2011					2010					2009					2008
Net asset value, beginning of year			$	22.43				$	18.68				$	21.85				$	18.55				$	13.12				$	29.12
Income (loss) from investment operations:
Net investment income (loss) (a)				0.24					0.26					0.26					0.14					0.07					0.29
Net realized and unrealized gain (loss) on investments				0.20					4.16					(3.43	)				3.58					5.47					(15.54	)
Total from investment operations				0.44					4.42					(3.17	)				3.72					5.54					(15.25	)
Less distributions from:
Net investment income				—					0.67					—					0.42					0.11					—
Net realized gain				—					—					—					—					—					0.75
Total distributions				—					0.67					—					0.42					0.11					0.75
Net asset value, end of year			$	22.87				$	22.43				$	18.68				$	21.85				$	18.55				$	13.12
Total Return (%)*				1.96					23.67					(14.51	)				20.09					42.27					(52.33	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.42					1.44					1.45					1.43					1.45					1.39
Expenses, before waivers and reimbursements.				1.42					1.44					1.46					1.43					1.46					1.39
Net investment income (loss), net of waivers and reimbursements				2.07					1.25					1.22					0.73					0.48					1.29
Net investment income (loss), before waivers and reimbursements				2.07					1.25					1.21					0.73					0.47					1.29
Net assets at end of year (in thousands)			$	1,291,137				$	1,269,736				$	1,277,534				$	2,689,417				$	2,539,596				$	1,980,750
Portfolio turnover rate (%)*				54					81					103					99					121					91
		Class I
		(unaudited) Period Ended June 30,						Years Ended December 31,
				2013					2012					2011					2010					2009					2008
Net asset value, beginning of year			$	22.94				$	19.10				$	22.34				$	18.95				$	13.40				$	29.61
Income (loss) from investment operations:
Net investment income (loss) (a)				0.28					0.32					0.30					0.20					0.12					0.37
Net realized and unrealized gain (loss) on investments				0.21					4.25					(3.48	)				3.67					5.59					(15.83	)
Total from investment operations				0.49					4.57					(3.18	)				3.87					5.71					(15.46	)
Less distributions from:
Net investment income				—					0.73					0.06					0.48					0.16					—
Net realized gain				—					—					—					—					—					0.75
Total distributions				—					0.73					0.06					0.48					0.16					0.75
Net asset value, end of year			$	23.43				$	22.94				$	19.10				$	22.34				$	18.95				$	13.40
Total Return (%)*				2.14					23.96					(14.23	)				20.47					42.63					(52.17	)
Ratios to average daily net assets (%):**
Expenses				1.13					1.15					1.15					1.14					1.17					1.08
Net investment income (loss)				2.36					1.51					1.40					0.99					0.74					1.58
Net assets at end of year (in thousands)			$	2,548,741				$	2,402,897				$	1,951,368				$	2,392,762				$	1,933,812				$	1,150,188
Portfolio turnover rate (%)*				54					81					103					99					121					91

 

 

(a)	Excludes $0.00, $0.10, $0.00, $0.13, $0.08 and $(0.18) of PFIC mark to market, which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009 and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

161

 

Financial Highlights

 

 

Institutional International Growth Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June, 30					Years Ended December 31,
			2013					2012					2011					2010					2009					2008
Net asset value, beginning of year			$	14.89				$	12.39				$	14.37				$	12.20				$	8.66				$	19.20
Income (loss) from investment operations:
Net investment income (loss) (a)				0.19					0.23					0.21					0.14					0.10					0.25
Net realized and unrealized gain (loss) on investments				0.14					2.76					(2.17	)				2.31					3.61					(10.24	)
Total from investment operations				0.33					2.99					(1.96	)				2.45					3.71					(9.99	)
Less distributions from:
Net investment income				—					0.49					0.02					0.28					0.17					—
Net realized gain				—					—					—					—					—					0.55
Total distributions				—					0.49					0.02					0.28					0.17					0.55
Net asset value, end of year			$	15.22				$	14.89				$	12.39				$	14.37				$	12.20				$	8.66
Total Return (%)*				2.22					24.11					(13.66	)				20.10					42.83					(51.99	)
Ratios to average daily net assets (%):**
Expenses				0.97					0.98					0.99					0.99					1.01					0.98
Net investment income (loss)				2.51					1.64					1.51					1.12					0.95					1.68
Net assets at end of year (in thousands)			$	2,076,576				$	1,974,130				$	1,542,594				$	1,886,217				$	1,375,848				$	998,266
Portfolio turnover rate (%)*				55					83					111					99					125					86

 

 

 

(a)	Excludes $0.00, $0.00, $0.09, $0.05, $(0.10), and $0.06 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

162

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

International Equity Fund

 

		Class N
		(unaudited) Period Ended June 30,				Years Ended December 31,
				2013				2012					2011					2010					2009					2008
Net asset value, beginning of year			$	12.05				$	10.56				$	12.12				$	11.07				$	8.35				$	16.53
Income (loss) from investment operations:
Net investment income (loss) (a)				0.08					0.11					0.13					0.06					0.09					0.10
Net realized and unrealized gain (loss) on investments				0.27					1.75					(1.69	)				1.15					2.64					(8.16	)
Total from investment operations				0.35					1.86					(1.56	)				1.21					2.73					(8.06	)
Less distributions from:
Net investment income				—					0.37					—					0.16					0.01					—
Net realized gain				—					—					—					—					—					0.12
Total distributions				—					0.37					—					0.16					0.01					0.12
Net asset value, end of year			$	12.40				$	12.05				$	10.56				$	12.12				$	11.07				$	8.35
Total Return (%)*				2.90					17.57					(12.87	)				10.92					32.69					(48.75	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.45					1.45					1.45					1.45					1.45					1.45
Expenses, before waivers and reimbursements				1.69					1.71					1.60					1.66					1.59					1.45
Net investment income (loss), net of waivers and reimbursements				1.36					0.95					1.09					0.55					1.03					0.80
Net investment income (loss), before waivers and reimbursements				1.12					0.69					0.94					0.34					0.89					0.80
Net assets at end of year (in thousands)			$	3,844				$	5,648				$	6,773				$	13,733				$	15,436				$	42,824
Portfolio turnover rate (%)*				42					80					99					71					88					92
		Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013					2012					2011					2010					2009					2008
Net asset value, beginning of year			$	12.18				$	10.67				$	12.22				$	11.16				$	8.44				$	16.66
Income (loss) from investment operations:
Net investment income (loss) (a)				0.12					0.14					0.17					0.10					0.08					0.15
Net realized and unrealized gain (loss) on investments				0.26					1.77					(1.72	)				1.15					2.70					(8.25	)
Total from investment operations				0.38					1.91					(1.55	)				1.25					2.78					(8.10	)
Less distributions from:
Net investment income				—					0.40					—					0.19					0.06					—
Net realized gain				—					—					—					—					—					0.12
Total distributions				—					0.40					—					0.19					0.06					0.12
Net asset value, end of year			$	12.56				$	12.18				$	10.67				$	12.22				$	11.16				$	8.44
Total Return (%)*				3.12					17.89					(12.68	)				11.19					32.93					(48.61	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.20					1.20					1.20					1.20					1.20					1.20
Expenses, before waivers and reimbursements				1.41					1.44					1.33					1.28					1.39					1.22
Net investment income (loss), net of waivers and reimbursements				1.94					1.17					1.43					0.88					0.86					1.12
Net investment income (loss), before waivers and reimbursements				1.73					0.93					1.30					0.80					0.67					1.10
Net assets at end of year (in thousands)			$	67,020				$	64,536				$	68,884				$	164,322				$	282,732				$	185,662
Portfolio turnover rate (%)*				42					80					99					71					88					92

 

 

 

(a)	Excludes $0.00, $0.01, $0.00, $0.04, $0.00, and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

163

 

Financial Highlights

 

 

Institutional International Equity Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June, 30					Years Ended December 31,
			2013					2012					2011					2010					2009					2008
Net asset value, beginning of year			$	10.82				$	9.27				$	10.78				$	9.84				$	7.44				$	15.03
Income (loss) from investment operations:
Net investment income (loss) (a)				0.11					0.13					0.16					0.10					0.09					0.15
Net realized and unrealized gain (loss) on investments				0.23					1.57					(1.47	)				0.99					2.38					(7.60	)
Total from investment operations				0.34					1.70					(1.31	)				1.09					2.47					(7.45	)
Less distributions from:
Net investment income				—					0.15					0.20					0.15					0.07					—
Net realized gain				—					—					—					—					—					0.14
Total distributions				—					0.15					0.20					0.15					0.07					0.14
Net asset value, end of year			$	11.16				$	10.82				$	9.27				$	10.78				$	9.84				$	7.44
Total Return (%)*				3.14					18.31					(12.12	)				11.12					33.27					(49.57	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.10					1.10					1.10					1.07					1.09					1.05
Expenses, before waivers and reimbursements.				1.15					1.16					1.10					1.07					1.09					1.05
Net investment income (loss), net of waivers and reimbursements				1.90					1.28					1.48					0.97					1.04					1.26
Net investment income (loss), before waivers and reimbursements				1.85					1.22					1.48					0.97					1.04					1.26
Net assets at end of year (in thousands)			$	90,196				$	109,690				$	111,474				$	291,468				$	365,271				$	360,451
Portfolio turnover rate (%)*				40					86					91					73					78					91

 

 

 

(a)	Excludes $0.00, $0.00, $0.04, $0.00, $0.00, and $(0.07) of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

164

Semi-Annual Report

June 30, 2013

Financial Highlights

 

International Leaders Fund

 

							Class N
		(unaudited) Period Ended June 30,					Period Ended December 31,
			2013				2012(a)
Net asset value, beginning of year			$	10.81				$	10.00
Income (loss) from investment operations:
Net investment income (loss) (b)				0.03					0.00	^
Net realized and unrealized gain (loss) on investments				0.24					0.82
Total from investment operations				0.27					0.82
Less distributions from:
Net investment income				—					0.01
Net realized gain				—					—
Total distributions				—					0.01
Net asset value, end of year			$	11.08				$	10.81
Total Return (%)*				2.50					8.16
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.45					1.45
Expenses, before waivers and reimbursements				1.76					4.98
Net investment income (loss), net of waivers and reimbursements				0.54					—
Net investment income (loss), before waivers and reimbursements				0.23					(3.53	)
Net assets at end of year (in thousands)			$	101				$	542
Portfolio turnover rate (%)*				36					16
							Class I
		(unaudited)
		Period Ended					Period Ended
		June 30,					December 31,
			2013				2012(a)
Net asset value, beginning of year			$	10.81				$	10.00
Income (loss) from investment operations:
Net investment income (loss) (b)				0.12					0.01
Net realized and unrealized gain (loss) on investments				0.17					0.82
Total from investment operations				0.29					0.83
Less distributions from:
Net investment income				—					0.02
Net realized gain				—					—
Total distributions				—					0.02
Net asset value, end of year			$	11.10				$	10.81
Total Return (%)*				2.68					8.26
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.20					1.20
Expenses, before waivers and reimbursements.				1.45					4.56
Net investment income (loss), net of waivers and reimbursements				2.21					0.22
Net investment income (loss), before waivers and reimbursements				1.96					(3.14	)
Net assets at end of year (in thousands)			$	11,555				$	4,336
Portfolio turnover rate (%)*				36					16

 

 

(a)	For the period from August 16, 2012 (Comencement of Operations) to December 31, 2012.
(b)	Excludes $0.00 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the year 2013 and 2012.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

165

Financial Highlights

 

International Leaders Fund

 

							Institutional Class Shares
		(unaudited) Period Ended June, 30					Period Ended December 31,
			2013				2012(a)
Net asset value, beginning of year			$	10.80				$	10.24
Income (loss) from investment operations:
Net investment income (loss) (b)				0.16					0.00	^
Net realized and unrealized gain (loss) on investments				0.14					0.58
Total from investment operations				0.30					0.58
Less distributions from:
Net investment income				—					0.02
Net realized gain				—					—
Total distributions				—					0.02
Net asset value, end of year			$	11.10				$	10.80
Total Return (%)*				2.78					5.67
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.05					1.05
Expenses, before waivers and reimbursements.				1.29					1.84
Net investment income (loss), net of waivers and reimbursements				2.78					0.01
Net investment income (loss), before waivers and reimbursements				2.54					(0.78	)
Net assets at end of year (in thousands)			$	50,157				$	5,286
Portfolio turnover rate (%)*				36					16

 

 

 

(a)	For the period from August 16, 2012 (Comencement of Operations) to December 31, 2012.
(b)	Excludes $0.00 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the year 2012 and 2013 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

166

Semi-Annual Report

June 30, 2013

Financial Highlights

 

International Small Cap Growth Fund

 

																	Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.46			$	11.36			$	13.07			$	10.40			$	6.62			$	13.98
Income (loss) from investment operations:
Net investment income (loss) (a)				0.09				0.08				0.07				0.03				(0.01	)			(0.02	)
Net realized and unrealized gain (loss) on investments				0.84				2.27				(1.66	)			2.66				3.79				(7.22	)
Total from investment operations				0.93				2.35				(1.59	)			2.69				3.78				(7.24	)
Less distributions from:
Net investment income				—				0.25				0.12				0.02				—				—
Net realized gain				—				—				—				—				—				0.12
Total distributions				—				0.25				0.12				0.02				—				0.12
Net asset value, end of year			$	14.39			$	13.46			$	11.36			$	13.07			$	10.40			$	6.62
Total Return (%)*				6.91				20.73				(12.16	)			25.88				57.10				(51.82	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.59				1.61				1.64				1.55				1.65				1.65
Expenses, before waivers and reimbursements				1.59				1.61				1.64				1.55				1.83				1.62
Net investment income (loss), net of waivers and reimbursements				1.30				0.65				0.55				0.30				(0.16	)			(0.20	)
Net investment income (loss), before waivers and reimbursements				1.30				0.65				0.55				0.30				(0.34	)			(0.17	)
Net assets at end of year (in thousands)			$	15,339			$	14,771			$	18,991			$	21,916			$	14,854			$	11,363
Portfolio turnover rate (%)*				62				76				85				85				136				78
																						Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
				2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.58			$	11.46			$	13.19			$	10.49			$	6.67			$	14.01
Income (loss) from investment operations:
Net investment income (loss) (a)				0.12				0.12				0.12				0.07				0.01				0.01
Net realized and unrealized gain (loss) on investments				0.84				2.30				(1.69	)			2.68				3.83				(7.23	)
Total from investment operations				0.96				2.42				(1.57	)			2.75				3.84				(7.22	)
Less distributions from:
Net investment income				—				0.30				0.16				0.05				0.02				—
Net realized gain				—				—				—				—				—				0.12
Total distributions				—				0.30				0.16				0.05				0.02				0.12
Net asset value, end of year			$	14.54			$	13.58			$	11.46			$	13.19			$	10.49			$	6.67
Total Return (%)*				7.07				21.10				(11.84	)			26.24				57.51				(51.56	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.29				1.30				1.28				1.25				1.31				1.31
Expenses, before waivers and reimbursements				1.29				1.30				1.28				1.25				1.31				1.28
Net investment income (loss), net of waivers and reimbursements				1.64				0.95				0.92				0.61				0.11				0.11
Net investment income (loss), before waivers and reimbursements				1.64				0.95				0.92				0.61				0.11				0.14
Net assets at end of year (in thousands)			$	399,781			$	359,557			$	364,574			$	349,679			$	210,561			$	89,452
Portfolio turnover rate (%)*				62				76				85				85				136				78

 

 

 

(a)	Excludes $0.00, $0.04, $0.00, $0.15, $0.01 and $(0.02) of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

167

Financial Highlights

 

International Small Cap Growth Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.64			$	11.51			$	13.24			$	10.53			$	6.69			$	14.04
Income (loss) from investment operations:
Net investment income (loss) (a)				0.13				0.15				0.14				0.09				0.04				0.03
Net realized and unrealized gain (loss) on investments				0.85				2.31				(1.68	)			2.69				3.83				(7.26	)
Total from investment operations				0.98				2.46				(1.54	)			2.78				3.87				(7.23	)
Less distributions from:
Net investment income				—				0.33				0.19				0.07				0.03				—
Net realized gain				—				—				—				—				—				0.12
Total distributions				—				0.33				0.19				0.07				0.03				0.12
Net asset value, end of year			$	14.62			$	13.64			$	11.51			$	13.24			$	10.53			$	6.69
Total Return (%)*				7.18				21.36				(11.60	)			26.40				57.84				(51.53	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.06				1.08				1.08				1.08				1.13				1.14
Expenses, before waivers and reimbursements				1.06				1.08				1.08				1.08				1.13				1.11
Net investment income (loss), net of waivers and reimbursements				1.84				1.14				1.10				0.77				0.48				0.28
Net investment income (loss), before waivers and reimbursements				1.84				1.14				1.10				0.77				0.48				0.31
Net assets at end of year (in thousands)			$	352,089			$	345,180			$	334,656			$	275,356			$	165,436			$	191,173
Portfolio turnover rate (%)*				62				76				85				85				136				78

 

 

 

(a)	Excludes $0.00, $0.04, $0.00, $0.13, $0.01 and $(0.02) of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

168

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Emerging Markets Growth Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
				2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.40			$	11.16			$	15.76			$	12.87			$	7.46			$	21.92
Income (loss) from investment operations:
Net investment income (loss) (a)				0.05				0.07				0.07				(0.01	)			0.00	^			0.11
Net realized and unrealized gain (loss) on investments				(0.89	)			2.24				(2.84	)			3.02				5.51				(13.63	)
Total from investment operations				(0.84	)			2.31				(2.77	)			3.01				5.51				(13.52	)
Less distributions from:
Net investment income				—				0.07				—				0.12				0.10				—
Net realized gain				—				—				1.83				—				—				0.94
Total distributions				—				0.07				1.83				0.12				0.10				0.94
Net asset value, end of year			$	12.56			$	13.40			$	11.16			$	15.76			$	12.87			$	7.46
Total Return (%)*				(6.27	)			20.70				(17.29	)			23.44				73.85				(61.71	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.68				1.69				1.68				1.63				1.70				1.67
Expenses, before waivers and reimbursements				1.68				1.69				1.68				1.63				1.81				1.65
Net investment income (loss), net of waivers and reimbursements				0.81				0.59				0.48				(0.05	)			0.04				0.65
Net investment income (loss), before waivers and reimbursements				0.81				0.59				0.48				(0.05	)			(0.07	)			0.67
Net assets at end of year (in thousands)			$	13,912			$	16,724			$	17,474			$	34,324			$	27,271			$	16,486
Portfolio turnover rate (%)*				62				90				104				121				113				118

 

		Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.50			$	11.25			$	15.87			$	12.95			$	7.51			$	21.99
Income (loss) from investment operations:
Net investment income (loss) (a)				0.08				0.11				0.11				0.04				0.03				0.15
Net realized and unrealized gain (loss) on investments				(0.90	)			2.25				(2.85	)			3.03				5.54				(13.69	)
Total from investment operations				(0.82	)			2.36				(2.74	)			3.07				5.57				(13.54	)
Less distributions from:
Net investment income				—				0.11				0.05				0.15				0.13				—
Net realized gain				—				—				1.83				—				—				0.94
Total distributions				—				0.11				1.88				0.15				0.13				0.94
Net asset value, end of year			$	12.68			$	13.50			$	11.25			$	15.87			$	12.95			$	7.51
Total Return (%)*				(6.07	)			21.01				(17.00	)			23.77				74.18				(61.60	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.40				1.41				1.38				1.36				1.41				1.41
Expenses, before waivers and reimbursements				1.40				1.41				1.38				1.36				1.41				1.39
Net investment income (loss), net of waivers and reimbursements				1.12				0.86				0.77				0.26				0.31				0.91
Net investment income (loss), before waivers and reimbursements				1.12				0.86				0.77				0.26				0.31				0.93
Net assets at end of year (in thousands)			$	143,033			$	144,942			$	124,739			$	194,763			$	180,329			$	69,363
Portfolio turnover rate (%)*				62				90				104				121				113				118

 

 

(a)	Excludes $0.00, $0.00, $0.01, $0.11, $0.15 and $(0.09) of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

169

 

Financial Highlights

 

 

Emerging Markets Growth Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013				2012				2011				2010				2009				2008
Net asset value, beginning of year			$	13.59			$	11.32			$	15.96	$			13.03			$	7.56			$	22.07
Income (loss) from investment operations:
Net investment income (loss) (a)				0.09				0.14				0.14				0.06				0.06				0.17
Net realized and unrealized gain (loss) on investments				(0.91	)			2.27				(2.87	)			3.05				5.55				(13.74	)
Total from investment operations				(0.82	)			2.41				(2.73	)			3.11				5.61				(13.57	)
Less distributions from:
Net investment income				—				0.14				0.08				0.18				0.14				—
Net realized gain				—				—				1.83				—				—				0.94
Total distributions				—				0.14				1.91				0.18				0.14				0.94
Net asset value, end of year			$	12.77			$	13.59			$	11.32	$			15.96			$	13.03			$	7.56
Total Return (%)*				(6.03	)			21.28				(16.82	)			23.91				74.33				(61.51	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.19				1.20				1.19				1.17				1.22				1.22
Expenses, before waivers and reimbursements				1.19				1.20				1.19				1.17				1.22				1.20
Net investment income (loss), net of waivers and reimbursements				1.35				1.12				0.93				0.43				0.54				1.08
Net investment income (loss), before waivers and reimbursements				1.35				1.12				0.93				0.43				0.54				1.10
Net assets at end of year (in thousands)			$	733,936			$	802,571			$	675,633			$	1,021,456			$	830,660			$	299,739
Portfolio turnover rate (%)*				62				90				104				121				113				118

 

 

(a)	Excludes $0.00, $0.00, $0.01, $0.11, $0.15 and $(0.09) of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

170

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Emerging Markets Leaders Fund

 

		Class N
		(unaudited) Period Ended June 30,					Periods Ended December 31,
			2013				2012				2011				2010(a)
Net asset value, beginning of year			$	9.20			$	7.68			$	10.34			$	8.80
Income (loss) from investment operations:
Net investment income (loss) (c)				0.04				0.02				0.04				(0.02	)
Net realized and unrealized gain (loss) on investments				(0.74	)			1.54				(2.08	)			1.64
Total from investment operations				(0.70	)			1.56				(2.04	)			1.62
Less distributions from:
Net investment income				—				0.04				—				0.02
Net realized gain				—				—				0.62				0.06
Total distributions				—				0.04				0.62				0.08
Net asset value, end of year			$	8.50			$	9.20			$	7.68			$	10.34
Total Return (%)*				(7.50	)			20.37				(19.55	)			18.43
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.65				1.65				1.65				1.65
Expenses, before waivers and reimbursements				2.01				2.10				1.83				1.71
Net investment income (loss), net of waivers and reimbursements				0.83				0.26				0.44				(0.38	)
Net investment income (loss), before waivers and reimbursements				0.47				(0.19	)			0.26				(0.44	)
Net assets at end of year (in thousands)			$	199			$	249			$	46			$	53
Portfolio turnover rate (%)*				66				94				142				176

 

		Class I
		(unaudited) Period Ended June 30,					Periods Ended December 31,
			2013				2012				2011				2010				2009				2008(b)
Net asset value, beginning of year			$	9.18			$	7.66			$	10.35			$	8.43			$	4.79			$	10.00
Income (loss) from investment operations:
Net investment income (loss) (c)				0.05				0.07				0.06				0.02				0.02				0.04
Net realized and unrealized gain (loss) on investments				(0.73	)			1.51				(2.08	)			1.98				3.73				(5.25	)
Total from investment operations				(0.68	)			1.58				(2.02	)			2.00				3.75				(5.21	)
Less distributions from:
Net investment income				—				0.06				0.05				0.02				0.11				0.00	^
Net realized gain				—				—				0.62				0.06				—				—
Return of capital				—				—				0.00	^			—				—				—
Total distributions				—				0.06				0.67				0.08				0.11				0.00	^
Net asset value, end of year			$	8.50			$	9.18			$	7.66			$	10.35			$	8.43			$	4.79
Total Return (%)*				(7.41	)			20.64				(19.34	)			23.70				78.38				(52.09	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.40				1.40				1.40				1.40				1.40				1.40
Expenses, before waivers and reimbursements				1.60				1.75				1.58				1.52				1.54				1.56
Net investment income (loss), net of waivers and reimbursements				1.13				0.83				0.69				0.25				0.37				0.70
Net investment income (loss), before waivers and reimbursements				0.93				0.48				0.51				0.13				0.23				0.54
Net assets at end of year (in thousands)			$	31,061			$	25,628			$	21,610			$	16,332			$	8,823			$	2,914
Portfolio turnover rate (%)*				66				94				142				176				176				151

 

 

 

(a)	For the period from May 3, 2010 (Commencement of Operations) to Decmeber 31, 2010.
(b)	For the period from March 26, 2008 (Commencement of Operations) to December 31, 2008.
(c)	Excludes $0.00, $0.00, $0.00, $0.96, $1.29, and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

171

 

Financial Highlights

 

 

Emerging Markets Leaders Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June 30,					Periods Ended December 31,
			2013				2012				2011				2010				2009				2008(a)
Net asset value, beginning of year			$	9.18			$	7.65			$	10.35			$	8.43			$	4.78			$	10.00
Income (loss) from investment operations:
Net investment income (loss) (b)				0.06				0.08				0.09				0.04				0.04				0.04
Net realized and unrealized gain (loss) on investments				(0.73	)			1.52				(2.10	)			1.97				3.73				(5.26	)
Total from investment operations				(0.67	)			1.60				(2.01	)			2.01				3.77				(5.22	)
Less distributions from:
Net investment income				—				0.07				0.06				0.03				0.12				0.00	^
Net realized gain				—				—				0.63				0.06				—				—
Return of capital				—				—				0.00	^			—				—				—
Total distributions				—				0.07				0.69				0.09				0.12				0.00	^
Net asset value, end of year			$	8.51			$	9.18			$	7.65			$	10.35			$	8.43			$	4.78
Total Return (%)*				(7.41	)			20.97				(19.30	)			23.84				78.93				(52.11	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.25				1.25				1.25				1.26				1.25				1.25
Expenses, before waivers and reimbursements				1.45				1.59				1.41				1.35				1.36				1.41
Net investment income (loss), net of waivers and reimbursements				1.24				0.90				0.90				0.50				0.58				0.70
Net investment income (loss), before waivers and reimbursements				1.04				0.56				0.74				0.41				0.47				0.54
Net assets at end of year (in thousands)			$	29,910			$	43,102			$	26,166			$	78,516			$	106,313			$	43,762
Portfolio turnover rate (%)*				66				94				142				176				176				151

 

 

(a)	For the period from March 26, 2008 (Commencement of Operations) to Decmeber 31, 2008.
(b)	Excludes $0.00, $0.00, $0.00, $0.96, $1.29, and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, 2011, 2010, 2009, and 2008 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

172

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Emerging Markets Small Cap Growth Fund

 

		Class N
		(unaudited) Period Ended June 30,					Periods Ended December 31,
			2013				2012				2011(a)
Net asset value, beginning of year			$	12.99			$	9.73			$	10.00
Income (loss) from investment operations:
Net investment income (loss)(b)				0.06				0.06				0.00	^
Net realized and unrealized gain (loss) on investments				0.79				3.27				(0.27	)
Total from investment operations				0.85				3.33				(0.27	)
Less distributions from:
Net investment income				—				0.07				—
Net realized gain				—				—				—
Total distributions				—				0.07				—
Net asset value, end of year			$	13.84			$	12.99			$	9.73
Total Return (%)*				6.54				34.23				(2.70	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.65				1.65				1.65
Expenses, before waivers and reimbursements				2.07				4.76				9.53
Net investment income (loss), net of waivers and reimbursements				0.76				0.56				0.08
Net investment income (loss), before waivers and reimbursements				0.34				(2.54	)			(7.80	)
Net assets at end of year (in thousands)			$	10,194			$	3,016			$	1,012
Portfolio turnover rate (%)*				69				78				17

 

		Class I
		(unaudited) Period Ended June 30,					Periods Ended December 31,
			2013				2012				2011(a)
Net asset value, beginning of year			$	12.99			$	9.73			$	10.00
Income (loss) from investment operations:
Net investment income (loss)(b)				0.07				0.08				0.01
Net realized and unrealized gain (loss) on investments				0.79				3.29				(0.28	)
Total from investment operations				0.86				3.37				(0.27	)
Less distributions from:
Net investment income				—				0.11				—
Net realized gain				—				—				—
Total distributions				—				0.11				—
Net asset value, end of year			$	13.85			$	12.99			$	9.73
Total Return (%)*				6.62				34.62				(2.70	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.40				1.40				1.40
Expenses, before waivers and reimbursements				1.80				4.40				9.28
Net investment income (loss), net of waivers and reimbursements				1.01				0.70				0.33
Net investment income (loss), before waivers and reimbursements				0.61				(2.30	)			(7.55	)
Net assets at end of year (in thousands)			$	32,301			$	8,763			$	2,260
Portfolio turnover rate (%)*				69				78				17

 

 

(a)	For the period from October 24, 2011 (Comencement of Operations) to December 31, 2011.
(b)	Excludes $0.00, $0.05 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013, 2012, and 2011 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

173

 

Financial Highlights

 

 

Emerging Markets Small Cap Growth Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June 30,					Period Ended December 31,
				2013				2012(a)
Net asset value, beginning of year			$	13.00				$	12.79
Income (loss) from investment operations:
Net investment income (loss)(b)				0.09					0.00	^
Net realized and unrealized gain (loss) on investments				0.77					0.21
Total from investment operations				0.86					0.21
Less distributions from:
Net investment income				—					—
Net realized gain				—					—
Total distributions				—					—
Net asset value, end of year			$	13.86				$	13.00
Total Return (%)*				6.62					1.64
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.25					1.25
Expenses, before waivers and reimbursements				1.64					2.32
Net investment income (loss), net of waivers and reimbursements				1.21					(0.87	)
Net investment income (loss), before waivers and reimbursements				0.82					(1.93	)
Net assets at end of year (in thousands)			$	39,484				$	15,242
Portfolio turnover rate (%)*				69					78

 

 

 

(a)	For the period from December 20, 2012 (Comencement of Operations) to December 31, 2012.
(b)	Excludes $0.00 and $0.00 of PFIC mark to market which is treated as ordinary income for Federal tax purposes for the years 2013 and 2012 respectively.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

174

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Large Cap Value Fund

 

		Class N
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012			2011(a)
Net asset value, beginning of year			$	11.54				$	9.95			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.05					0.11				0.03
Net realized and unrealized gain (loss) on investments				1.69					1.57				(0.05	)
Total from investment operations				1.74					1.68				(0.02	)
Less distributions from:
Net investment income				—					0.09				0.03
Net realized gain				—					—				0.00	^
Total distributions				—					0.09				0.03
Net asset value, end of year			$	13.28				$	11.54			$	9.95
Total Return (%)*				15.08					16.92				(0.19	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.20					1.20				1.20
Expenses, before waivers and reimbursements				4.01					4.25				7.83
Net investment income (loss), net of waivers and reimbursements				0.76					0.96				1.41
Net investment income (loss), before waivers and reimbursements				(2.05	)				(2.09	)			(5.22	)
Net assets at end of year (in thousands)			$	1,236				$	1,416			$	998
Portfolio turnover rate (%)*				67					20				5

 

		Class I
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012			2011(a)
Net asset value, beginning of year			$	11.55				$	9.95			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.07					0.14				0.03
Net realized and unrealized gain (loss) on investments				1.68					1.58				(0.05	)
Total from investment operations				1.75					1.72				(0.02	)
Less distributions from:
Net investment income				—					0.12				0.03
Net realized gain				—					—				0.00	^
Total distributions				—					0.12				0.03
Net asset value, end of year			$	13.30				$	11.55			$	9.95
Total Return (%)*				15.15					17.28				(0.19	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.95					0.95				0.95
Expenses, before waivers and reimbursements				3.74					4.06				7.58
Net investment income (loss), net of waivers and reimbursements				1.03					1.22				1.66
Net investment income (loss), before waivers and reimbursements				(1.76	)				(1.89	)			(4.97	)
Net assets at end of year (in thousands)			$	2,654				$	2,429			$	1,455
Portfolio turnover rate (%)*				67					20				5

 

 

 

(a)	For the period from October 24, 2011 (Comencement of Operations) to December 31, 2011.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

175

 

Financial Highlights

 

 

Mid Cap Value Fund

 

		Class N
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012				2011			2010(a)
Net asset value, beginning of year			$	11.39				$	10.48			$	10.75			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.04					0.08				0.12				0.09
Net realized and unrealized gain (loss) on investments				1.70					1.34				(0.17	)			0.74
Total from investment operations				1.74					1.42				(0.05	)			0.83
Less distributions from:
Net investment income				—					0.08				0.09				0.06
Net realized gain				—					0.43				0.13				0.02
Total distributions				—					0.51				0.22				0.08
Net asset value, end of year			$	13.13				$	11.39			$	10.48			$	10.75
Total Return (%)*				15.28					13.54				(0.34	)			8.36
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.35					1.35				1.35				1.35
Expenses, before waivers and reimbursements				3.53					3.40				3.85				5.09
Net investment income (loss), net of waivers and reimbursements				0.64					0.70				1.15				0.92
Net investment income (loss), before waivers and reimbursements				(1.54	)				(1.35	)			(1.35	)			(2.82	)
Net assets at end of year (in thousands)			$	179				$	79			$	58			$	4
Portfolio turnover rate (%)*				24					63				69				35

 

		Class I
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012				2011			2010(a)
Net asset value, beginning of year			$	11.39				$	10.48			$	10.76			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.05					0.10				0.13				0.11
Net realized and unrealized gain (loss) on investments				1.71					1.35				(0.17	)			0.75
Total from investment operations				1.76					1.45				(0.04	)			0.86
Less distributions from:
Net investment income				—					0.11				0.11				0.08
Net realized gain				—					0.43				0.13				0.02
Total distributions				—					0.54				0.24				0.10
Net asset value, end of year			$	13.15				$	11.39			$	10.48			$	10.76
Total Return (%)*				15.45					13.77				(0.25	)			8.66
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.10					1.10				1.10				1.10
Expenses, before waivers and reimbursements				3.24					3.13				3.60				4.92
Net investment income (loss), net of waivers and reimbursements				0.82					0.92				1.20				1.10
Net investment income (loss), before waivers and reimbursements				(1.32	)				(1.11	)			(1.30	)			(2.72	)
Net assets at end of year (in thousands)			$	3,978				$	4,058			$	4,515			$	3,389
Portfolio turnover rate (%)*				24					63				69				35

 

 

 

(a)	For the period from May 3, 2010 (Commencement of Operations) to December 31, 2010.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

176

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Small-Mid Cap Value Fund

 

		Class N
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012			2011(a)
Net asset value, beginning of year			$	11.29				$	10.45			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.01					0.10				0.00	^
Net realized and unrealized gain (loss) on investments				1.88					1.15				0.45
Total from investment operations				1.89					1.25				0.45
Less distributions from:
Net investment income				—					0.09				—
Net realized gain				—					0.32				—
Total distributions				—					0.41				—
Net asset value, end of year			$	13.18				$	11.29			$	10.45
Total Return (%)*				16.74					11.95				4.50
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.40					1.40				1.40
Expenses, before waivers and reimbursements				5.09					6.34				18.68
Net investment income (loss), net of waivers and reimbursements				0.17					0.87				0.53
Net investment income (loss), before waivers and reimbursements				(3.52	)				(4.07	)			(16.75	)
Net assets at end of year (in thousands)			$	1,034				$	950			$	860
Portfolio turnover rate (%)*				35					56				1

 

		Class I
		(unaudited) Period Ended June 30,					Periods Ended December 31,
				2013					2012			2011(a)
Net asset value, beginning of year			$	11.29				$	10.45			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.03					0.13				0.00	^
Net realized and unrealized gain (loss) on investments				1.88					1.15				0.45
Total from investment operations				1.91					1.28				0.45
Less distributions from:
Net investment income				—					0.12				—
Net realized gain				—					0.32				—
Total distributions				—					0.44				—
Net asset value, end of year			$	13.20				$	11.29			$	10.45
Total Return (%)*				16.92					12.22				4.50
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.15					1.15				1.15
Expenses, before waivers and reimbursements				4.82					5.88				18.43
Net investment income (loss), net of waivers and reimbursements				0.42					1.12				0.79
Net investment income (loss), before waivers and reimbursements				(3.25	)				(3.61	)			(16.49	)
Net assets at end of year (in thousands)			$	1,779				$	1,442			$	1,296
Portfolio turnover rate (%)*				35					56				1

 

 

 

(a)	For the period from December 15, 2011 (Comencement of Operations) to December 31, 2011.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

177

 

Financial Highlights

 

 

Small Cap Value Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
			2013				2012					2011				2010				2009				2008
Net asset value, beginning of year			$	13.65				$	12.26			$	13.71			$	10.49			$	8.33			$	11.31
Income (loss) from investment operations:
Net investment income (loss)				(0.01	)				0.10				0.00	^			0.03				0.06				0.09
Net realized and unrealized gain (loss) on investments				2.41					1.43				(0.97	)			3.22				2.13				(3.02	)
Total from investment operations				2.40					1.53				(0.97	)			3.25				2.19				(2.93	)
Less distributions from:
Net investment income				—					0.08				0.02				0.03				0.03				0.05
Net realized gain				—					0.06				0.46				—				—				—
Return of capital				—					—				0.00	^			—				—				—
Total distributions				—					0.14				0.48				0.03				0.03				0.05
Net asset value, end of year			$	16.05				$	13.65			$	12.26			$	13.71			$	10.49			$	8.33
Total Return (%)*				17.58					12.49				(6.95	)			30.94				26.24				(25.85	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.47					1.43				1.38				1.33				1.29				1.29
Expenses, before waivers and reimbursements				1.56					1.60				1.60				1.57				1.78				1.82
Net investment income (loss), net of waivers and reimbursements				(0.19	)				0.78				(0.01	)			0.25				0.68				0.84
Net investment income (loss), before waivers and reimbursements				(0.28	)				0.61				(0.23	)			0.01				0.19				0.31
Net assets at end of year (in thousands)			$	41,272				$	39,084			$	40,712			$	34,285			$	7,745			$	7,061
Portfolio turnover rate (%)*				33					51				65				71				62				87

 

		Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	13.88				$	12.47			$	13.93			$	10.65			$	8.45			$	11.50
Income (loss) from investment operations:
Net investment income (loss)				0.01					0.14				0.03				0.05				0.08				0.11
Net realized and unrealized gain (loss) on investments				2.46					1.45				(0.98	)			3.27				2.16				(3.08	)
Total from investment operations				2.47					1.59				(0.95	)			3.32				2.24				(2.97	)
Less distributions from:
Net investment income				—					0.12				0.03				0.04				0.04				0.08
Net realized gain				—					0.06				0.46				—				—				—
Return of capital				—					—				0.02				—				—				—
Total distributions				—					0.18				0.51				0.04				0.04				0.08
Net asset value, end of year			$	16.35				$	13.88			$	12.47			$	13.93			$	10.65			$	8.45
Total Return (%)*				17.80					12.73				(6.68	)			31.16				26.56				(25.77	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				1.22					1.18				1.14				1.10				1.09				1.09
Expenses, before waivers and reimbursements				1.25					1.29				1.30				1.29				1.50				1.57
Net investment income (loss), net of waivers and reimbursements				0.07					1.02				0.26				0.43				0.86				1.06
Net investment income (loss), before waivers and reimbursements				0.04					0.91				0.10				0.24				0.45				0.58
Net assets at end of year (in thousands)			$	267,595				$	196,184			$	190,686			$	130,214			$	47,114			$	29,188
Portfolio turnover rate (%)*				33					51				65				71				62				87

 

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

178

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Bond Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	11.28				$	10.91			$	10.70			$	10.40			$	9.82			$	10.07
Income (loss) from investment operations:
Net investment income (loss)				0.16					0.36				0.43				0.46				0.48				0.47
Net realized and unrealized gain (loss) on investments				(0.53	)				0.53				0.34				0.35				0.59				(0.31	)
Total from investment operations				(0.37	)				0.89				0.77				0.81				1.07				0.16
Less distributions from:
Net investment income				0.21					0.45				0.47				0.48				0.49				0.41
Net realized gain				—					0.07				0.09				0.03				—				—
Total distributions				0.21					0.52				0.56				0.51				0.49				0.41
Net asset value, end of year			$	10.70				$	11.28			$	10.91			$	10.70			$	10.40			$	9.82
Total Return (%)*				(3.37	)				8.33				7.41				7.86				11.11				1.64
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.65					0.65				0.65				0.65				0.65				0.65
Expenses, before waivers and reimbursements				0.79					0.81				0.76				0.70				1.40				2.47
Net investment income (loss), net of waivers and reimbursements				2.88					3.25				3.97				4.25				4.76				4.69
Net investment income (loss), before waivers and reimbursements				2.74					3.09				3.86				4.20				4.01				2.87
Net assets at end of year (in thousands)			$	21,558				$	32,867			$	8,345			$	4,479			$	3,580			$	407
Portfolio turnover rate (%)*				29					25				28				25				29				52

 

		Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	11.17				$	10.80			$	10.59			$	10.31			$	9.72			$	10.04
Income (loss) from investment operations:
Net investment income (loss)				0.17					0.38				0.45				0.47				0.49				0.48
Net realized and unrealized gain (loss) on investments				(0.52	)				0.52				0.33				0.33				0.59				(0.31	)
Total from investment operations				(0.35	)				0.90				0.78				0.80				1.08				0.17
Less distributions from:
Net investment income				0.22					0.46				0.48				0.49				0.49				0.49
Net realized gain				—					0.07				0.09				0.03				—				—
Total distributions				0.22					0.53				0.57				0.52				0.49				0.49
Net asset value, end of year			$	10.60				$	11.17			$	10.80			$	10.59			$	10.31			$	9.72
Total Return (%)*				(3.26	)				8.54				7.62				7.89				11.40				1.72
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.50					0.50				0.50				0.50				0.50				0.50
Expenses, before waivers and reimbursements				0.56					0.56				0.55				0.55				0.58				0.71
Net investment income (loss), net of waivers and reimbursements				3.03					3.45				4.17				4.41				4.92				4.90
Net investment income (loss), before waivers and reimbursements				2.97					3.39				4.12				4.36				4.84				4.69
Net assets at end of year (in thousands)			$	160,098				$	172,836			$	154,224			$	147,807			$	127,538			$	63,763
Portfolio turnover rate (%)*				29					25				28				25				29				52

 

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

179

 

Financial Highlights

 

 

Bond Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	11.16				$	10.80			$	10.58			$	10.30			$	9.72			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.17					0.40				0.45				0.48				0.51				0.50
Net realized and unrealized gain (loss) on investments				(0.51	)				0.51				0.36				0.34				0.58				(0.31	)
Total from investment operations				(0.34	)				0.91				0.81				0.82				1.09				0.19
Less distributions from:
Net investment income				0.23					0.48				0.50				0.51				0.51				0.47
Net realized gain				—					0.07				0.09				0.03				—				—
Total distributions				0.23					0.55				0.59				0.54				0.51				0.47
Net asset value, end of year			$	10.59				$	11.16			$	10.80			$	10.58			$	10.30			$	9.72
Total Return (%)*				(3.19	)				8.61				7.88				8.06				11.47				1.95
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.35					0.35				0.35				0.35				0.34				0.35
Expenses, before waivers and reimbursements				0.38					0.38				0.39				0.40				0.43				0.56
Net investment income (loss), net of waivers and reimbursements				3.18					3.60				4.24				4.54				5.07				5.04
Net investment income (loss), before waivers and reimbursements				3.15					3.57				4.20				4.49				4.98				4.83
Net assets at end of year (in thousands)			$	79,676				$	91,039			$	69,447			$	40,490			$	16,226			$	10,443
Portfolio turnover rate (%)*				29					25				28				25				29				52

 

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

180

Semi-Annual Report

June 30, 2013

 

Financial Highlights

 

 

Income Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	9.55				$	9.32			$	9.22			$	9.07			$	8.69			$	9.29
Income (loss) from investment operations:
Net investment income (loss)				0.10					0.24				0.32				0.35				0.40				0.37
Net realized and unrealized gain (loss) on investments				(0.33	)				0.31				0.15				0.19				0.44				(0.59	)
Total from investment operations				(0.23	)				0.55				0.47				0.54				0.84				(0.22	)
Less distributions from:
Net investment income				0.14					0.32				0.37				0.39				0.46				0.38
Net realized gain				—					—				—				—				—				—
Total distributions				0.14					0.32				0.37				0.39				0.46				0.38
Net asset value, end of year			$	9.18				$	9.55			$	9.32			$	9.22			$	9.07			$	8.69
Total Return (%)*				(2.45	)				6.00				5.21				6.04				9.88				(2.46	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.82					0.83				0.85				0.85				0.85				0.90
Expenses, before waivers and reimbursements				0.82					0.83				0.91				0.85				0.93				0.93
Net investment income (loss), net of waivers and reimbursements				2.06					2.49				3.40				3.79				4.48				4.38
Net investment income (loss), before waivers and reimbursements				2.06					2.49				3.34				3.79				4.41				4.35
Net assets at end of year (in thousands)			$	59,339				$	68,947			$	44,802			$	35,755			$	37,567			$	47,009
Portfolio turnover rate (%)*				28					33				39				29				40				38

 

		Class I
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	9.48				$	9.25			$	9.15			$	9.00			$	8.64			$	9.30
Income (loss) from investment operations:
Net investment income (loss)				0.11					0.26				0.34				0.37				0.41				0.39
Net realized and unrealized gain (loss) on investments				(0.33	)				0.31				0.15				0.19				0.43				(0.59	)
Total from investment operations				(0.22	)				0.57				0.49				0.56				0.84				(0.20	)
Less distributions from:
Net investment income				0.15					0.34				0.39				0.41				0.48				0.46
Net realized gain				—					—				—				—				—				—
Total distributions				0.15					0.34				0.39				0.41				0.48				0.46
Net asset value, end of year			$	9.11				$	9.48			$	9.25			$	9.15			$	9.00			$	8.64
Total Return (%)*				(2.36	)				6.28				5.46				6.33				9.89				(2.26	)
Ratios to average daily net assets (%):**
Expenses				0.57					0.58				0.64				0.63				0.66				0.72
Net investment income				2.31					2.78				3.66				4.01				4.67				4.57
Net assets at end of year (in thousands)			$	72,510				$	72,830			$	67,183			$	77,522			$	80,041			$	93,426
Portfolio turnover rate (%)*				28					33				39				29				40				38

 

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

181

Financial Highlights

 

Low Duration Fund

 

		Class N
		(unaudited) Period Ended June, 30					Years Ended December 31,
		2013					2012					2011				2010				2009(a)
Net asset value, beginning of year			$	9.83				$	9.82			$	9.90			$	9.93			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.05					0.13				0.15				0.13				0.01
Net realized and unrealized gain (loss) on investments				(0.17	)				0.14				0.02				0.05				(0.07	)
Total from investment operations				(0.12	)				0.27				0.17				0.18				(0.06	)
Less distributions from:
Net investment income				0.12					0.26				0.25				0.21				0.01
Net realized gain				—					—				—				—				—
Total distributions				0.12					0.26				0.25				0.21				0.01
Net asset value, end of year			$	9.59				$	9.83			$	9.82			$	9.90			$	9.93
Total Return (%)*				(1.27	)				2.80				1.73				1.86				(0.60	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.69					0.70				0.70				0.70				0.70
Expenses, before waivers and reimbursements				0.69					0.74				0.73				0.78				0.94
Net investment income (loss), net of waivers and reimbursements				1.02					1.37				1.52				1.33				1.27
Net investment income (loss), before waivers and reimbursements				1.02					1.33				1.49				1.25				1.03
Net assets at end of year (in thousands)			$	10,127				$	11,216			$	6,260			$	6,937			$	1,861
Portfolio turnover rate (%)*				24					20				43				51				—

 

		Class I
		(unaudited) Period Ended June, 30					Years Ended December 31,
		2013					2012					2011				2010				2009(a)
Net asset value, beginning of year			$	9.83				$	9.82			$	9.89			$	9.93			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.06					0.15				0.17				0.15				0.01
Net realized and unrealized gain (loss) on investments				(0.17	)				0.14				0.02				0.04				(0.07	)
Total from investment operations				(0.11	)				0.29				0.19				0.19				(0.06	)
Less distributions from:
Net investment income				0.13					0.28				0.26				0.23				0.01
Net realized gain				—					—				—				—				—
Total distributions				0.13					0.28				0.26				0.23				0.01
Net asset value, end of year			$	9.59				$	9.83			$	9.82			$	9.89			$	9.93
Total Return (%)*				(1.20	)				2.96				1.99				1.89				(0.59	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.53					0.55				0.55				0.55				0.55
Expenses, before waivers and reimbursements				0.53					0.57				0.58				0.63				0.79
Net investment income (loss), net of waivers and reimbursements				1.18					1.52				1.67				1.46				1.39
Net investment income (loss), before waivers and reimbursements				1.18					1.50				1.64				1.38				1.15
Net assets at end of year (in thousands)			$	173,829				$	157,213			$	82,828			$	88,568			$	79,773
Portfolio turnover rate (%)*				24					20				43				51				—

 

 

 

(a)	For the period from December 1, 2009 (Commencement of Operations) to December 31, 2009.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

182

Semi-Annual Report

June 30, 2013

Financial Highlights

 

Low Duration Fund

 

		Institutional Class Shares
		(unaudited) Period Ended June, 30					Years Ended December 31,
		2013					2012					2011				2010				2009(a)
Net asset value, beginning of year			$	9.83				$	9.83			$	9.90			$	9.93			$	10.00
Income (loss) from investment operations:
Net investment income (loss)				0.06					0.17				0.18				0.16				0.01
Net realized and unrealized gain (loss) on investments				(0.15	)				0.12				0.03				0.05				(0.07	)
Total from investment operations				(0.09	)				0.29				0.21				0.21				(0.06	)
Less distributions from:
Net investment income				0.14					0.29				0.28				0.24				0.01
Net realized gain				—					—				—				—				—
Total distributions				0.14					0.29				0.28				0.24				0.01
Net asset value, end of year			$	9.60				$	9.83			$	9.83			$	9.90			$	9.93
Total Return (%)*				(1.01	)				3.01				2.14				2.15				(0.58	)
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.38					0.40				0.40				0.40				0.40
Expenses, before waivers and reimbursements				0.38					0.41				0.42				0.48				0.64
Net investment income (loss), net of waivers and reimbursements				1.33					1.68				1.81				1.61				1.54
Net investment income (loss), before waivers and reimbursements				1.33					1.67				1.79				1.53				1.30
Net assets at end of year (in thousands)			$	107,359				$	118,401			$	68,059			$	47,965			$	13,500
Portfolio turnover rate (%)*				24					20				43				51				—

 

 

 

(a)	For the period December 1, 2009 (Commencement of Operations) to December 31, 2009.
*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.

 

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

 

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 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.

 

June 30, 2013

William Blair Funds

183

Financial Highlights

 

Ready Reserves Fund

 

		Class N
		(unaudited) Period Ended June 30,					Years Ended December 31,
		2013					2012					2011				2010				2009				2008
Net asset value, beginning of year			$	1.00				$	1.00			$	1.00			$	1.00			$	1.00			$	1.00
Income (loss) from investment operations:
Net investment income (loss)				0.00					0.00	^			0.00	^			0.00	^			0.00	^			0.02
Net realized and unrealized gain (loss) on investments				—					—				—				—				—				—
Total from investment operations				0.00					0.00	^			0.00	^			0.00	^			0.00	^			0.02
Less distributions from:
Net investment income				0.00	^				0.00	^			0.00	^			0.00	^			0.00	^			0.02
Net realized gain				—					—				—				—				—				—
Total distributions				0.00	^				0.00	^			0.00	^			0.00	^			0.00	^			0.02
Net asset value, end of year			$	1.00				$	1.00			$	1.00			$	1.00			$	1.00			$	1.00
Total Return (%)*				0.00					0.01				0.01				0.01				0.10				2.20
Ratios to average daily net assets (%):**
Expenses, net of waivers and reimbursements				0.11					0.14				0.14				0.24				0.46				0.60
Expenses, before waivers and reimbursements				0.62					0.62				0.62				0.61				0.66				0.60
Net investment income (loss), net of waivers and reimbursements				0.01					0.01				0.01				0.01				0.11				2.12
Net investment income (loss), before waivers and reimbursements				(0.50	)				(0.47	)			(0.47	)			(0.36	)			(0.09	)			2.12
Net assets at end of year (in thousands)			$	1,227,886				$	1,515,330			$	1,271,746			$	1,216,543			$	1,352,901			$	1,841,189

 

 

 

*	Rates not annualized for periods that are less than a year.
**	Rates are annualized for periods that are less than a year.
^	Amount is less than $0.005 per share.

 

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

 

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 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.

 

184

Semi-Annual Report

June 30, 2013

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

 

Name and Year of Birth		Position(s) Held with Fund		Term of Office and Length of Time Served(1)		Principal Occupation(s) During Past 5 Years(2)		Number of Portfolios in Fund Complex Overseen by Trustee		Other Directorships Held by Trustee/Officer
Interested Trustees
Michelle R. Seitz, 1965*		Chairman of the Board of Trustees and President		Trustee since 2002; Chairman since 2010 Since 2007		Partner, William Blair & Company, L.L.C.; Limited Partner, WBC Holdings, L.P. (since 2008); Member, WBC GP, L.L.P. (since 2008); Director, William Blair International, Ltd. (U.K.) (since 2012)		26		Chairman, William Blair SICAV; Director, William Blair CLS Ltd.; Director, William Blair MAS Ltd.; Financial Accounting Foundation (FAF)
Richard W. Smirl, 1967*		Trustee and Senior Vice President		Trustee since 2010 and Senior Vice President Since 2008		Partner, William Blair & Company, L.L.C.; Limited Partner, WBC Holdings, L.P. (since 2008); Director, William Blair International, Ltd. (U.K.) (since 2012)		26		Director, William Blair SICAV; Director, William Blair CLS Ltd.; Director, William Blair MAS Ltd.
Non-Interested Trustees
Vann A. Avedisian, 1964		Trustee		Since 2012		Principal, Highgate Holdings (hotel investments) since 2009; formerly, co-founder and Managing Director, Oxford Capital Partners, Inc. from 1994 to 2006		26		Potbelly Sandwich Works, LLC
Kathleen T. Barr, 1955		Trustee		Since 2013		President, Productive Capital Management, Inc. (registered investment adviser to public entities) since 2010; Owner, KT Barr Consulting, LLC (mutual fund and investment management consulting) since 2010; formerly, Chief Administrative Officer, Senior Vice President and Senior Managing Director of Allegiant Asset Management Company (merged with PNC Capital Advisors, LLC in 2009) from 2004 to 2010; formerly, Chief Administrative Officer, Chief Compliance Officer and Senior Vice President of PNC Funds and PNC Advantage Funds (f/k/a Allegiant Funds) from 2003 to 2010		26		AmericaFirst Quantitative Funds (4 portfolios)
Phillip O. Peterson, 1944		Trustee		Since 2007		Retired; formerly, President, Strong Mutual Funds, 2004 to 2005; formerly, Partner, KPMG LLP		26		The Hartford Group of Mutual Funds (88 portfolios); Symetra Mutual Funds Trust (variable annuity funds) (3 portfolios)
Donald J. Reaves, 1946		Trustee		Since 2004		Chancellor, Winston-Salem State University since 2007; formerly, Vice President for Administration and Chief Financial Officer, University of Chicago 2002 to 2007		26		American Student Assistance Corp., guarantor of student loans; Amica Mutual Insurance Company

 

June 30, 2013

William Blair Funds

185

Name and Year of Birth		Position(s) Held with Fund		Term of Office and Length of Time Served(1)		Principal Occupation(s) During Past 5 Years(2)		Number of Portfolios in Fund Complex Overseen by Trustee		Other Directorships Held by Trustee/Officer
Donald L. Seeley, 1944		Trustee		Since 2003		Retired; formerly, Director, Applied Investment Management Program, University of Arizona Department of Finance, prior thereto, Vice Chairman and Chief Financial Officer, True North Communications, Inc., (marketing communications and advertising firm)		26		Center for Furniture Craftsmanship (not-for-profit)
Thomas J. Skelly, 1951		Trustee		Since 2007		Advisory Board Member for various U.S. Companies; Director and Investment Committee Chairman of the US Accenture Foundation, Inc.; prior to 2005, Managing Partner of various divisions at Accenture		26		Mutual Trust Financial Group, provider of insurance and investment products; First MetLife Investors Insurance Company, NY Chartered Company for Metropolitan Life Insurance
Officers
Michael P. Balkin, 1959		Senior Vice President		Since 2009		Partner, William Blair & Company, L.L.C.				N/A
		Vice President		2008-2009		Associate, William Blair & Company, L.L.C.; former Partner, Magnetar Capital (2005-2009)
Karl W. Brewer, 1966		Senior Vice President		Since 2000		Partner, William Blair & Company, L.L.C.				N/A
Andrew G. Flynn, 1961		Senior Vice President		Since 2013		Partner, William Blair & Company, L.L.C. (since 2009); prior thereto, Associate, William Blair & Company, L.L.C. (2006-2009)				N/A
David C. Fording, 1967		Senior Vice President		Since 2009		Partner, William Blair & Company, L.L.C.				N/A
		Vice President		2006-2009		Associate, William Blair & Company, L.L.C.
James S. Golan, 1961		Senior Vice President		Since 2005		Partner, William Blair & Company, L.L.C.				N/A
W. George Greig, 1952		Senior Vice President		Since 1996		Partner, William Blair & Company, L.L.C.				N/A
Michael A. Jancosek, 1959		Senior Vice President		Since 2004		Partner, William Blair & Company, L.L.C.				N/A
John F. Jostrand, 1954		Senior Vice President		Since 1999		Partner, William Blair & Company, L.L.C.				N/A
Chad M. Kilmer, 1975		Senior Vice President		Since 2011		Partner, William Blair & Company, L.L.C.				N/A
		Vice President		2006-2011		Associate, William Blair & Company, L.L.C.
Robert C. Lanphier, IV, 1956		Senior Vice President		Since 2003		Partner, William Blair & Company, L.L.C.				Chairman, AG. Med, Inc.

 

186

Semi-Annual Report

June 30, 2013

Name and Year of Birth		Position(s) Held with Fund		Term of Office and Length of9 Time Served(1)		Principal Occupation(s) During Past 5 Years(2)		Other Directorships Held by Trustee/Officer
Mark T. Leslie, 1967		Senior Vice President		Since 2008		Partner, William Blair & Company, L.L.C.		N/A
		Vice President		2005-2008		Associate, William Blair & Company, L.L.C.
Matthew A. Litfin, 1972		Senior Vice President		Since 2008		Partner, William Blair & Company, L.L.C.		N/A
Kenneth J. McAtamney 1966		Senior Vice President		Since 2008		Partner, William Blair & Company, L.L.C. (since 2008); prior thereto, Associate, William Blair & Company, L.L.C., (2005-2008)		N/A
Todd M. McClone, 1968		Senior Vice President		Since 2006		Partner, William Blair & Company, L.L.C.		N/A
David Merjan, 1960		Senior Vice President		Since 2008		Partner, William Blair & Company, L.L.C.		N/A
David S. Mitchell, 1960		Senior Vice President		Since 2004		Partner, William Blair & Company, L.L.C.		N/A
David P. Ricci, 1958		Senior Vice President		Since 2006		Partner, William Blair & Company, L.L.C.		N/A
Brian D. Singer, 1960		Senior Vice President		Since 2012		Partner, William Blair & Company, L.L.C.		N/A
		Vice President		2011-2012		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Managing Partner, Singer Partners, LLC (2009-2011); prior thereto, UBS Global Asset Management (Americas) Inc. (2003-2007)
Paul J. Sularz, 1967		Senior Vice President		Since 2012		Partner, William Blair & Company, L.L.C.		N/A
		Vice President		2009-2012		Associate, William Blair & Company, L.L.C., Vice President, J.P. Morgan Securities, Inc.
Jeffrey A. Urbina, 1955		Senior Vice President		Since 1998		Partner, William Blair & Company, L.L.C.		N/A
Christopher T. Vincent, 1956		Senior Vice President		Since 2004		Partner, William Blair & Company, L.L.C.		N/A
Kathleen M. Lynch, 1971		Vice President		Since 2010		Associate, William Blair & Company, L.L.C.		N/A
Jason Moede, 1971		Vice President		Since 2013		Associate, William Blair & Company L.L.C. (since 2011); prior thereto, TradeLink, LLC (2008-2011)		N/A
David F. Hone, 1967		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Portfolio Manager Large Cap Value, Deutsche Asset Management (2002-2010)		N/A

 

June 30, 2013

William Blair Funds

187

Name and Year of Birth		Position(s) Held with Fund		Term of Office and Length of Time Served(1)		Principal Occupation(s) During Past 5 Years(2)		Other Directorships Held by Trustee/Officer
John Abunassar, 1967		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Principal, Guidance Capital LLC (2009- 2011); prior thereto, President and CEO of Allegiant Asset Management (2004-2009)		N/A
Peter Carl, 1967		Vice President		Since 2011		Associate, William Blair & Company L.L.C. (since 2011); prior thereto, Portfolio Manager, Guidance Capital LLC (2006-2011)		N/A
D. Trowbridge Elliman III, 1957		Vice President		Since 2011		Associate, William Blair & Company L.L.C. (since 2011); prior thereto, Principal, Guidance Capital LLC (2001-2011)		N/A
Christopher Walvoord, 1966		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Principal, Guidance Capital LLC (2002-2011)		N/A
Brian Ziv, 1957		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Principal, Guidance Capital LLC (2001- 2011)		N/A
Edwin Denson, 1967		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Managing Partner, Singer Partners, LLC (2009-2011); prior thereto, UBS Global Asset Management (Americas) Inc. (2001-2009)		N/A
Thomas Clarke, 1968		Vice President		Since 2011		Associate, William Blair & Company, L.L.C. (since 2011); prior thereto, Managing Partner, Singer Partners, LLC (2009- 2011); prior thereto, UBS Global Asset Management (Americas) Inc. (2000-2009)		N/A
Walter R. Randall, Jr., 1960		Chief Compliance Officer and Assistant Secretary		Since 2009		Associate, William Blair & Company, L.L.C. (since 2008); prior thereto, Associate Counsel and Chief Compliance Officer, Calamos Investments (2006- 2008)		N/A
Colette M. Garavalia, 1961		Treasurer		Since 2009		Associate, William Blair & Company, L.L.C.		N/A
		Secretary		2000-2009		Associate, William Blair & Company, L.L.C.		N/A

 

188

Semi-Annual Report

June 30, 2013

Name and Year of Birth		Position(s) Held with Fund		Term of Office and Length of Time Served(1)		Principal Occupation(s) During Past 5 Years(2)		Other Directorships Held by Trustee/Officer
Andrew T. Pfau, 1970		Secretary		Since 2009		Associate, William Blair & Company, L.L.C. (since 2008); prior thereto, Associate, Bell, Boyd & Lloyd, LLP (2006- 2008)		N/A
John M. Raczek, 1970		Assistant Treasurer		Since 2010		Associate, William Blair & Company, L.L.C. (since 2009); prior thereto, Manager, Calamos Investments (2003-2009)		N/A

 

 

*	Ms. Seitz and Mr. Smirl are interested persons of the Trust because they are partners of William Blair & Company, L.L.C., the Fund’s investment advisor and principal underwriter.
(1)	Each Trustee serves until the election and qualification of a successor, or until death, resignation or retirement or removal as provided in the Fund’s Declaration of Trust. Retirement for non-interested Trustees occurs no later than at the conclusion of the first regularly scheduled Board meeting of the Fund’s fiscal year that occurs after the earlier of (a) the non-interested Trustee’s 72nd birthday or (b) the 15th anniversary of the date that the non-interested Trustee was first elected or appointed as a member of the Board of Trustees. The Fund’s officers, except the Chief Compliance Officer, are elected annually by the Trustees. The Fund’s Chief Compliance Officer is designated by the Board of Trustees and may only be removed by action of the Board of Trustees, including a majority of the non-interested Trustees.
(2)	In November 2008, all partners of William Blair & Company, L.L.C. also became limited partners in WBC Holdings, L.P.

 

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

 

June 30, 2013

William Blair Funds

189

Approval of the Management Agreement for the William Blair Global Small Cap Growth Fund

 

On February 20, 2013, the Board of Trustees (the “Board”) of William Blair Funds (the “Trust”), including the Trustees who are not interested persons of the Trust as defined by the Investment Company Act of 1940, as amended (the “Independent Trustees”), approved the Management Agreement between the Trust, on behalf of the William Blair Global Small Cap Growth Fund (the “Fund”), and William Blair & Company, L.L.C. (the “Advisor”). On February 20, 2013, the Board met to consider the approval of the Management Agreement. On February 19, 2013, the Independent Trustees also met independently of Trust management and the interested Trustees of the Trust to consider the approval of the Management Agreement. The Independent Trustees reviewed materials provided by the Advisor for the approval of the Management Agreement and were assisted by independent legal counsel in making their determination. The Board considered the following factors in making its determination, but did not identify any single factor or group of factors as all important or controlling and considered all factors together.

 

Nature, Quality and Extent of Services. In evaluating the nature, quality and extent of services expected to be provided by the Advisor to the Fund, the Board noted that the Advisor is a quality firm with a reputation for integrity and honesty that employs high quality people. The Board considered biographical information about the Fund’s portfolio managers and senior advisors, financial information regarding the Advisor, the compliance regime created by the Advisor and the proposed financial support of the Fund. The Board considered the proposed portfolio management team members’ experience in managing other series of the Trust. The Board also considered the Advisor’s experience in managing new funds. Based upon all relevant factors, the Board concluded that the nature, quality and extent of the services to be provided by the Advisor to the Fund were expected to be satisfactory.

 

Fees and Expenses. The Board reviewed the proposed advisory fee for the Fund and reviewed information comparing the advisory fee to a peer group of funds for Class N and Class I shares and a peer group of institutional funds for Institutional Class shares provided by Lipper Inc. The Lipper peer groups consisted of other no-load retail global small-/mid-cap funds. In considering the information, the Board noted that the proposed advisory fee for the Fund was below the median contractual management fee and above the actual management fees of the Lipper peer group for Class N and Class I and at the median of the Lipper peer group for Institutional Class shares. The Board also considered that the Advisor had proposed to limit total operating expenses, including waiving advisory fees, if necessary, for each share class of the Fund until April 30, 2014. On the basis of the information provided, the Board concluded that the proposed advisory fee was reasonable in light of the nature, quality and extent of services expected to be provided by the Advisor.

 

Profitability. With respect to the estimated profitability of the Management Agreement to the Advisor, the Board considered the proposed advisory fee, that the Fund was newly organized and had no assets and the Advisor’s agreement to limit total expenses until April 30, 2014. The Board concluded that the expected profits to be realized by the Advisor were not expected to be unreasonable.

 

Economies of Scale. The Board considered the extent to which economies of scale would be realized as the Fund grows and whether fee levels reflect these economies of scale. In considering whether fee levels reflect economies of scale for the benefit of Fund investors, the Board reviewed the Fund’s advisory fee compared to peer funds and the Fund’s estimated expense ratios giving effect to the Advisor’s agreement to limit total expenses until April 30, 2014, and concluded that the advisory fee was reasonable.

 

Other Benefits to the Advisor. The Board considered benefits to be derived by the Advisor from its relationship with the Fund. The Board concluded that, after taking into account these benefits, the proposed advisory fee was reasonable.

 

Conclusion. Based upon all of the information considered and the conclusions reached, the Board determined that the terms of the Management Agreement are fair and reasonable and that the approval of the Management Agreement is in the best interests of the Fund.

 

190

Semi-Annual Report

June 30, 2013

Renewal of the Management Agreement

 

On April 23, 2013, the Board of Trustees (the “Board”) of the William Blair Funds (the “Trust”), including the Trustees who are not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “Independent Trustees”), approved the renewal for an additional one-year term of the Trust’s Management Agreement with William Blair & Company, L.L.C. (the “Advisor”) on behalf of each of the William Blair Growth Fund, the William Blair Large Cap Growth Fund, the William Blair Mid Cap Growth Fund, the William Blair Small-Mid Cap Growth Fund, the William Blair Small Cap Growth Fund, the William Blair Large Cap Value Fund, the William Blair Mid Cap Value Fund, the William Blair Small-Mid Cap Value Fund, the William Blair Small Cap Value Fund, the William Blair Global Leaders Fund, the William Blair International Growth Fund, the William Blair Institutional International Growth Fund, the William Blair International Equity Fund, the William Blair Institutional International Equity Fund, the William Blair International Small Cap Growth Fund, the William Blair Emerging Markets Growth Fund, the William Blair Emerging Markets Leaders Fund, the William Blair Emerging Markets Small Cap Growth Fund, the William Blair Bond Fund, the William Blair Income Fund, the William Blair Low Duration Fund and the William Blair Ready Reserves Fund (each, a “Fund” and collectively, the “Funds”). In deciding to approve the renewal of the Management Agreement, the Board did not identify any single factor or group of factors as all important or controlling and considered all factors together.

 

The information in this summary outlines the Board’s considerations associated with its renewal of the Management Agreement. In connection with its deliberations regarding the continuation of the Management Agreement, the Board considered such information and factors as it believed to be relevant. As described below, the Board considered the nature, quality and extent of the services performed by the Advisor under the Management Agreement; comparative management fees and expense ratios as prepared by an independent provider (Lipper Inc.); the estimated profits realized by the Advisor; the extent to which the Advisor realizes economies of scale as a Fund grows; and whether any fall-out benefits are being realized by the Advisor. In addition, the Independent Trustees discussed the renewal of the Management Agreement with Fund management and in private sessions with independent legal counsel at which no representatives of the Advisor were present.

 

The Board, including the Independent Trustees, considered the renewal of the Management Agreement pursuant to a process that concluded at the Board’s April 23, 2013 meeting. In preparation for the review process, the Independent Trustees met with independent legal counsel and discussed the type and nature of information to be requested and independent legal counsel sent a formal request for information to Trust management. The Advisor provided extensive information in response to the request. After reviewing the information received, the Independent Trustees requested supplemental information, which the Advisor provided. The Independent Trustees considered: (i) the nature, quality and extent of services provided by the Advisor; (ii) information comparing the performance of each Fund to one or more relevant securities indexes; (iii) information comparing advisory fees of each Fund to fees charged by the Advisor to other funds and client accounts with similar investment strategies; (iv) the estimated allocated direct or indirect costs of services provided and estimated profits realized by the Advisor for both the Trust as a whole and each Fund individually; and (v) information describing other benefits to the Advisor resulting from its relationship with the Funds. The Independent Trustees reviewed comparative performance for a performance peer universe of funds and comparative advisory fees and expense ratios for an expense peer group and an expense peer universe of funds provided by Lipper for each Fund. The Independent Trustees noted that they receive information from the Advisor regarding the Funds throughout the year in connection with regular Board meetings, including presentations from portfolio managers. The Independent Trustees received a memorandum from independent legal counsel advising them of their duties and responsibilities in connection with the review of the Management Agreement. Finally, the Advisor made an in-person presentation to the Independent Trustees regarding the contract review information, including addressing the supplemental information requests, and answered questions from the Independent Trustees.

 

On April 9, 22 and 23, 2013, the Independent Trustees met independently of Trust management and of the interested Trustees to review and discuss with independent legal counsel the information provided by the Advisor, Lipper and independent legal counsel. The Independent Trustees noted that in evaluating the Management Agreement, they were taking into account their accumulated experience as Board members in working with the Advisor on matters relating to the Funds. Based on their review, the Independent Trustees concluded that it was in the best interest of each Fund to renew the Management Agreement for each Fund and recommended to the Board the renewal of the Management Agreement. The Board considered the recommendation of the Independent Trustees along with the other factors that the Board deemed relevant.

 

Nature, Quality and Extent of Services. In evaluating the nature, quality and extent of the services provided by the Advisor to the Funds, the Board noted that the Advisor is a quality firm with a reputation for integrity and honesty that employs high quality people and has a long association with the Funds, in each case other than the Growth Fund, since the inception of the Funds. The Trustees believe that a long-term relationship with a capable, conscientious advisor is in the best interests of shareholders and that shareholders have invested in the Funds knowing that the Advisor managed the Funds and knowing the investment

 

June 30, 2013

William Blair Funds

191

advisory fee. The Board considered biographical information about the Trust’s officers and the Funds’ portfolio managers, including information on the portfolio managers’ investments in the Funds. The Board also considered the administrative services performed by the Advisor, financial information regarding the Advisor, the Advisor’s execution quality and use of soft dollars, the Advisor’s risk management activities and its compliance program, and the Advisor’s expense limitations in place for the Funds. The Board was also provided with information pertaining to the Advisor’s organizational structure. The Board noted that the Advisor pays the compensation of all of the officers and the interested Trustees of the Trust.

 

The Board reviewed information on the annualized total returns of each Fund for the one, three, five and ten year periods ended December 31, 2012, as applicable, along with annualized total return information for a performance peer universe of funds provided by Lipper and one or more benchmark securities indexes. The Lipper performance peer universe for each Fund included all funds with a similar investment style as classified by Lipper regardless of asset size or primary channel of distribution. With respect to the comparative performance information, the Board considered the Advisor’s statement that it is committed to managing each Fund consistently with the Fund’s stated investment strategies through all market environments and that, as a result, the Funds’ relative performance compared to the Lipper performance peer universe and relevant securities indexes from year to year will be affected by whether the market environment favors or disfavors certain of the Advisor’s investment strategies, but that the Advisor seeks to provide superior performance over the long term. The Trustees reviewed each Fund’s ranking in its Lipper performance peer universe during the applicable periods, and based on that review, requested and discussed with the Advisor additional information regarding the performance of the Small Cap Growth Fund, the International Equity Fund and the Low Duration Fund. With respect to the Small Cap Growth Fund, the Board noted the Fund’s underperformance relative to its Lipper performance peer universe over the three and five year periods and discussed the Fund’s performance with the Advisor. The Board considered the Fund’s short-term performance, noting that the Fund’s total return over the one year period ended December 31, 2012 was in the top decile of its Lipper performance peer universe. With respect to the International Equity Fund, the Board considered the Advisor’s view that the Fund’s lower allocations to emerging markets and small cap securities relative to many of its peer funds had contributed to relative underperformance and that the Fund invested in high quality growth companies. With respect to the Low Duration Fund, the Board considered information presented by the Advisor comparing the Fund’s performance to the performance of a peer group of funds provided by Morningstar, Inc. that the Advisor believed to be more representative of the Fund’s investment style and portfolio characteristics, including the Fund’s average duration. The Board noted that the Fund’s performance was in the top quartile of the Morningstar peer group over the one and three year periods ended December 31, 2012. The Board considered the Advisor’s statement that the Fund’s lower average duration as compared to the funds in its Lipper performance peer universe negatively impacted its comparative performance versus the Lipper performance peer universe. Based upon all relevant factors, the Board concluded that the nature, quality and extent of the services provided by the Advisor to each Fund were satisfactory.

 

Fees and Expenses. Class N and Class I shares. The Board reviewed each Fund’s advisory fee and expense ratios for Class N and Class I shares and reviewed information comparing the advisory fee and expense ratios to those of an expense peer group and an expense peer universe of funds provided by Lipper for Class N and Class I shares of each Fund. The Lipper expense peer group for Class N and Class I shares of each Fund (“Class N and Class I Lipper Expense Group”) consisted of a group of retail no-load funds with a similar investment style as classified by Lipper and asset size as the Fund. The Lipper expense peer universe for Class N and Class I shares of each Fund consisted of the Fund’s Class N and Class I Lipper Expense Group and all other retail no-load funds (excluding outliers) with a similar investment style as classified by Lipper as the Fund. In considering the Lipper information, the Board noted that the contractual advisory fees for the Growth Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the Global Leaders Fund, the International Small Cap Growth Fund, the Emerging Markets Growth Fund, the Bond Fund, the Income Fund, the Low Duration Fund and the Ready Reserves Fund were below the average contractual advisory fee of their Class N and Class I Lipper Expense Group. The Board also noted that the contractual advisory fees for the Mid Cap Growth Fund, the Small-Mid Cap Growth Fund, the Small Cap Growth Fund, the Small-Mid Cap Value Fund, the Small Cap Value Fund, the International Growth Fund, the International Equity Fund, the Emerging Markets Leaders Fund and the Emerging Markets Small Cap Growth Fund were above the average contractual advisory fee of their Class N and Class I Lipper Expense Group.

 

Institutional shares. The Board reviewed each Fund’s advisory fee and expense ratio for institutional shares and reviewed information comparing the advisory fee and expense ratio to those of an expense peer group and an expense peer universe of funds provided by Lipper for institutional shares of each Fund. The Lipper expense peer group for institutional shares of each Fund (“Institutional Lipper Expense Group”) consisted of a group of institutional funds with a similar investment style as classified by Lipper and asset size as the Fund. The Lipper expense peer universe for institutional shares of each Fund consisted of the Fund’s Institutional Lipper Expense Group and all other institutional funds (excluding outliers) with a similar investment style as classified by Lipper as the Fund. In considering the Lipper information, the Board noted that the contractual advisory fees for the Emerging Markets Growth Fund, the Emerging Markets Small Cap Growth Fund, the Bond Fund and the Low Duration Fund were below the average contractual advisory fee of their Institutional Lipper Expense Group. The Board also

 

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noted that the contractual advisory fees for the Global Leaders Fund, the Institutional International Growth Fund, the Institutional International Equity Fund, the International Small Cap Growth Fund and the Emerging Markets Leaders Fund were above the average contractual advisory fee of their Institutional Lipper Expense Group.

 

The Board noted the contractual expense limitations in place for all of the Funds, except the Growth Fund, the Institutional International Growth Fund and the Ready Reserves Fund, and considered the advisory fees waived and other expenses reimbursed by the Advisor on behalf of the Funds in 2012, noting that for the Large Cap Value Fund, the Mid Cap Value Fund, the Small-Mid Cap Value Fund and the Emerging Markets Small Cap Growth Fund the Advisor waived its entire advisory fee. The Board also considered that the Advisor had proposed to continue to contractually limit operating expenses until April 30, 2014 for the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small-Mid Cap Growth Fund, the Small Cap Growth Fund, Large Cap Value Fund, the Mid Cap Value Fund, the Small-Mid Cap Value Fund, the Small Cap Value Fund, the Global Leaders Fund, the International Growth Fund, the International Equity Fund, the Institutional International Equity Fund, the International Small Cap Growth Fund, the Emerging Markets Growth Fund, the Emerging Markets Leaders Fund, the Emerging Markets Small Cap Growth Fund, the Bond Fund, the Income Fund and the Low Duration Fund. The Board also considered that the Advisor intended to continue to voluntarily waive or reimburse certain operating expenses of the Ready Reserves Fund to maintain a positive yield for the Fund.

 

For each Fund, the Board also reviewed amounts charged by the Advisor to other pooled investment vehicles, including other registered funds for which the Advisor acts as a subadvisor, and the Advisor’s fee schedule for institutional separate accounts. With respect to other pooled investment vehicles and institutional separate accounts, the Board considered the Advisor’s statement that both the mix of services provided to the Funds and the additional regulatory responsibilities associated with sponsoring registered investment companies were greater as compared to the work involved for other pooled investment vehicles and separate accounts. In addition, the Board considered the Advisor’s statement that institutional separate accounts are distributed differently, operate under different investment and regulatory structures and have different business risks as compared to the Funds.

 

On the basis of all the information provided, the Board concluded that each Fund’s advisory fee, coupled with applicable expense limitations, was reasonable.

 

Profitability. With respect to the profitability of the Management Agreement to the Advisor, the Board considered the overall fees paid under the Management Agreement, including the estimated allocated costs of the services provided and profits realized by the Advisor from its relationship with the Trust as a whole and each Fund individually. The Board concluded that the estimated profits realized by the Advisor were not unreasonable.

 

Economies of Scale. The Board considered the extent to which economies of scale would be realized as the Funds grow and whether fee levels reflect these economies of scale for the benefit of investors. The Board noted the Advisor’s statement that certain Fund expenses are relatively fixed and unrelated to asset size and that because the Advisor emphasizes fundamental research, the Advisor’s strategies (other than for the Large Cap Growth Fund and Large Cap Value Fund) are subject to capacity constraints which limit economies of scale. In considering whether fee levels reflect economies of scale for the benefit of Fund investors, the Board reviewed each Fund’s asset size, breakpoints for those Funds with breakpoints in the advisory fee schedule, the Fund’s total and net expense ratios and the expense limitations in place for all but two of the Funds, and concluded that in the aggregate they reasonably reflect appropriate recognition of any economies of scale.

 

Other Benefits to the Advisor. The Board considered benefits derived by the Advisor from its relationship with the Funds, including (i) non-advisory fee revenue from the Funds in the form of shareholder administration fees, service fees and/or distribution fees and the payment of some or all of those revenues to affiliates or third parties, (ii) soft dollars, which pertain primarily to the Funds investing in equity securities, and (iii) favorable media coverage. The Board concluded that, taking into account these benefits, each Fund’s advisory fee was reasonable.

 

Conclusion. Based upon all of the information considered and the conclusions reached, the Board determined that the terms of the Management Agreement continue to be fair and reasonable and that the continuation of the Management Agreement is in the best interests of each Fund.

 

June 30, 2013

William Blair Funds

193

(unaudited)

 

Proxy Voting

 

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

 

Quarterly Portfolio Schedules

 

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

 

Additional Federal Income Tax Information: (unaudited)

 

Under Section 852(b)(3)(C) of the Code, the Funds hereby designate the following amounts as capital gain dividends for the fiscal year ended December 31, 2012:

 

Growth Fund		Small Cap Growth		Mid Cap Growth		Small-Mid Cap Growth
20,221,469		1,671,239		7,948,197		9,118,849
Small Cap Value		Mid Cap Value		Small-Mid Cap Value		Bond Fund
946,031		145,618		123		1,934,272

 

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The following table provides the percentage of the 2012 year-end distributions that qualify for the dividend received deduction, and the qualified dividend income percentage:

 

Fund		Dividend Received Deduction%				Qualified Dividend Income%
Growth			100.00	%			100.00	%
Large Cap Growth			0.00	%			0.00	%
Small Cap Growth			0.00	%			0.00	%
Mid Cap Growth			100.00	%			100.00	%
Small-Mid Cap Growth			99.13	%			100.00	%
Global Leaders			100.00	%			100.00	%
International Growth			0.00	%			72.82	%
Institutional International Growth			0.00	%			65.16	%
International Equity			0.00	%			70.29	%
Institutional International Equity			0.00	%			100.00	%
International Leaders			0.42	%			92.76	%
International Small Cap Growth			0.00	%			78.98	%
Emerging Markets Growth			0.27	%			100.00	%
Emerging Markets Leaders			0.00	%			100.00	%
Emerging Markets Small Cap Growth			0.21	%			100.00	%
Large Cap Value			100.00	%			100.00	%
Small Cap Value			100.00	%			100.00	%
Mid Cap Value			89.10	%			100.00	%
Small-Mid Cap Value			38.86	%			47.73	%
Bond			0.00	%			0.00	%
Income			0.00	%			0.00	%
Low Duration			0.00	%			0.00	%
Ready Reserves			0.00	%			0.00	%

 

In January 2013, investors were notified on IRS Form 1099-Div or substitute 1099 DIV as to the Federal tax status of the distributions received by investors in the calendar year 2012.

 

June 30, 2013

William Blair Funds

195

	Useful Information About Your Report (unaudited)
	Please refer to this information when reviewing the Expense Example for each Fund.
	Expense Example
	As a shareholder of a Fund, you incur two types of costs: (1) transaction costs such as redemption fees and (2) ongoing costs, including management fees, distribution (12b-1) fees (for Class N shares except for the Institutional International Growth Fund, the Institutional International Equity Fund, and the Ready Reserves Fund), service fees (for Class N shares of the Ready Reserves Fund), shareholder administration fees (for Class N and Class I shares of the Global Leaders Fund, the Global Small Cap Growth Fund, the International Leaders Fund, the International Small Cap Growth Fund, the Emerging Markets Growth Fund, the Emerging Markets Leaders Fund, the Emerging Markets Small Cap Growth Fund, the Bond Fund and the Low Duration Fund) and other Fund expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare the Fund’s 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from January 1, 2013 to June 30, 2013.
	Actual Expenses
	In each example, the first line for each share class in the table provides information about the actual account values and actual expenses. These expenses reflect the effect of any expense cap applicable to the share class during the period. Without this expense cap, the costs shown in the table would have been higher. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during the period.
	Hypothetical Example for Comparison Purposes
	In each example, the second line for each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. This is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund to other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
	Please note that the expenses shown in both examples are meant to highlight your ongoing costs only and do not reflect any transactional costs or account type fees, such as redemption fees and IRA Fiduciary Administration fees, respectively. These fees are fully described in the prospectus. Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs or account fees were included, your costs would have been higher.

 

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Fund Expenses (unaudited)

 

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

 

Expense Example		Beginning Account Value 1/1/2013				Ending Account Value 6/30/2013				Expenses Paid During the Period (a)				Annualized Expense Ratio
Growth Fund
Class N-actual return		$	1,000.00			$	1,115.40			$	6.15				1.17	%
Class N-hypothetical 5% return			1,000.00				1,044.18				5.95				1.17
Class I-actual return			1,000.00				1,117.60				4.49				0.86
Class I-hypothetical 5% return			1,000.00				1,045.76				4.34				0.86
Large Cap Growth Fund
Class N-actual return			1,000.00				1,093.40				6.23				1.20
Class N-hypothetical 5% return			1,000.00				1,044.05				6.08				1.20
Class I-actual return			1,000.00				1,094.60				4.93				0.95
Class I-hypothetical 5% return			1,000.00				1,045.29				4.82				0.95
Mid Cap Growth Fund
Class N-actual return			1,000.00				1,124.90				7.11				1.35
Class N-hypothetical 5% return			1,000.00				1,043.31				6.84				1.35
Class I-actual return			1,000.00				1,126.30				5.80				1.10
Class I-hypothetical 5% return			1,000.00				1,044.55				5.58				1.10
Small-Mid Cap Growth Fund
Class N-actual return			1,000.00				1,190.70				7.33				1.35
Class N-hypothetical 5% return			1,000.00				1,043.31				6.84				1.35
Class I-actual return			1,000.00				1,192.40				5.93				1.09
Class I-hypothetical 5% return			1,000.00				1,044.59				5.53				1.09
Small Cap Growth Fund
Class N-actual return			1,000.00				1,236.50				8.32				1.50
Class N-hypothetical 5% return			1,000.00				1,042.56				7.60				1.50
Class I-actual return			1,000.00				1,238.40				6.94				1.25
Class I-hypothetical 5% return			1,000.00				1,043.80				6.33				1.25
Global Leaders Fund
Institutional Class-actual return			1,000.00				1,047.50				1.71				1.10
Institutional Class-hypothetical 5% return			1,000.00				1,044.55				5.58				1.10
Class N-actual return			1,000.00				1,046.50				7.61				1.50
Class N-hypothetical 5% return			1,000.00				1,042.56				7.60				1.50
Class I-actual return			1,000.00				1,046.50				6.34				1.25
Class I-hypothetical 5% return			1,000.00				1,043.80				6.33				1.25
Global Small Cap Growth Fund
Class N-actual return (b)			1,000.00				1,031.00				8.31				1.65
Class N-hypothetical 5% return (6 month period)			1,000.00				1,041.82				8.35				1.65
Class I-actual return (b)			1,000.00				1,030.00				7.05				1.40
Class I-hypothetical 5% return (6 month period)			1,000.00				1,043.06				7.09				1.40
International Growth Fund
Class N-actual return			1,000.00				1,019.60				7.11				1.42
Class N-hypothetical 5% return			1,000.00				1,042.96				7.19				1.42
Class I-actual return			1,000.00				1,021.40				5.68				1.13
Class I-hypothetical 5% return			1,000.00				1,044.38				5.74				1.13
Institutional International Growth Fund
Institutional Class-actual return			1,000.00				1,022.20				4.87				0.97
Institutional Class-hypothetical 5% return			1,000.00				1,045.18				4.92				0.97
International Equity Fund
Class N-actual return			1,000.00				1,029.00				7.29				1.45
Class N-hypothetical 5% return			1,000.00				1,042.81				7.34				1.45
Class I-actual return			1,000.00				1,031.20				6.04				1.20
Class I-hypothetical 5% return			1,000.00				1,044.05				6.08				1.20
Institutional International Equity Fund
Institutional Class-actual return			1,000.00				1,031.40				5.54				1.10
Institutional Class-hypothetical 5% return			1,000.00				1,044.55				5.58				1.10

 

June 30, 2013

William Blair Funds

197

Expense Example		Beginning Account Value 1/1/2013				Ending Account Value 6/30/2013				Expenses Paid During the Period (a)				Annualized Expense Ratio
International Leaders Fund
Class N-actual return		$	1,000.00			$	1,025.00			$	7.28				1.45	%
Class N-hypothetical 5% return			1,000.00				1,042.81				7.34				1.45
Class I-actual return			1,000.00				1,026.80				6.03				1.20
Class I-hypothetical 5% return			1,000.00				1,044.05				6.08				1.20
Institutional Class-actual return			1,000.00				1,027.80				5.28				1.05
Institutional Class-hypothetical 5% return			1,000.00				1,044.79				5.32				1.05
International Small Cap Growth Fund
Class N-actual return			1,000.00				1,069.10				8.14				1.59
Class N-hypothetical 5% return			1,000.00				1,042.13				8.04				1.59
Class I-actual return			1,000.00				1,070.70				6.64				1.29
Class I-hypothetical 5% return			1,000.00				1,043.59				6.55				1.29
Institutional Class-actual return			1,000.00				1,071.80				5.45				1.06
Institutional Class-hypothetical 5% return			1,000.00				1,044.74				5.38				1.06
Emerging Markets Growth Fund
Class N-actual return			1,000.00				937.30				8.06				1.68
Class N-hypothetical 5% return			1,000.00				1,041.67				8.50				1.68
Class I-actual return			1,000.00				939.30				6.72				1.40
Class I-hypothetical 5% return			1,000.00				1,043.07				7.08				1.40
Institutional Class-actual return			1,000.00				939.70				0.00				1.19
Institutional Class-hypothetical 5% return			1,000.00				1,044.09				6.04				1.19
Emerging Markets Leaders Fund
Class N-actual return			1,000.00				925.00				7.88				1.65
Class N-hypothetical 5% return			1,000.00				1,041.82				8.35				1.65
Class I-actual return			1,000.00				925.90				6.69				1.40
Class I-hypothetical 5% return			1,000.00				1,043.06				7.09				1.40
Institutional Class-actual return			1,000.00				925.90				5.97				1.25
Institutional Class-hypothetical 5% return			1,000.00				1,043.80				6.33				1.25
Emerging Markets Small Cap Growth Fund
Class N-actual return			1,000.00				1,065.40				8.45				1.65
Class N-hypothetical 5% return			1,000.00				1,041.82				8.35				1.65
Class I-actual return			1,000.00				1,066.20				7.17				1.40
Class I-hypothetical 5% return			1,000.00				1,043.06				7.09				1.40
Institutional Class-actual return			1,000.00				1,066.20				6.40				1.25
Institutional Class-hypothetical 5% return			1,000.00				1,043.80				6.33				1.25
Large Cap Value Fund
Class N-actual return			1,000.00				1,150.80				6.40				1.20
Class N-hypothetical 5% return			1,000.00				1,044.05				6.08				1.20
Class I-actual return			1,000.00				1,151.50				5.07				0.95
Class I-hypothetical 5% return			1,000.00				1,045.29				4.82				0.95
Mid Cap Value Fund
Class N-actual return			1,000.00				1,152.80				7.21				1.35
Class N-hypothetical 5% return			1,000.00				1,043.31				6.84				1.35
Class I-actual return			1,000.00				1,154.50				5.88				1.10
Class I-hypothetical 5% return			1,000.00				1,044.55				5.58				1.10
Small-Mid Cap Value Fund
Class N-actual return			1,000.00				1,167.40				7.52				1.40
Class N-hypothetical 5% return			1,000.00				1,043.06				7.09				1.40
Class I-actual return			1,000.00				1,169.20				6.19				1.15
Class I-hypothetical 5% return			1,000.00				1,044.30				5.83				1.15
Small Cap Value Fund
Class N-actual return			1,000.00				1,175.80				7.82				1.45
Class N-hypothetical 5% return			1,000.00				1,042.81				7.34				1.45
Class I-actual return			1,000.00				1,178.00				6.48				1.20
Class I-hypothetical 5% return			1,000.00				1,044.05				6.08				1.20

 

198

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Expense Example		Beginning Account Value 1/1/2013				Ending Account Value 6/30/2013				Expenses Paid During the Period (a)				Annualized Expense Ratio
Bond Fund
Class N-actual return		$	1,000.00			$	966.30			$	3.17				0.65	%
Class N-hypothetical 5% return			1,000.00				1,046.78				3.30				0.65
Class I-actual return			1,000.00				967.40				2.44				0.50
Class I-hypothetical 5% return			1,000.00				1,047.52				2.54				0.50
Institutional Class-actual return			1,000.00				968.10				1.71				0.35
Institutional Class-hypothetical 5% return			1,000.00				1,048.26				1.78				0.35
Income Fund
Class N-actual return			1,000.00				975.50				4.01				0.82
Class N-hypothetical 5% return			1,000.00				1,045.94				4.15				0.82
Class I-actual return			1,000.00				976.40				2.81				0.57
Class I-hypothetical 5% return			1,000.00				1,047.15				2.91				0.57
Low Duration Fund
Class N-actual return			1,000.00				987.30				3.40				0.69
Class N-hypothetical 5%			1,000.00				1,046.58				3.50				0.69
Class I-actual return			1,000.00				988.00				2.63				0.53
Class I-hypothetical 5%			1,000.00				1,047.36				2.71				0.53
Institutional Class-actual return			1,000.00				989.90				1.86				0.38
Institutional Class-hypothetical 5% return			1,000.00				1,048.13				1.91				0.38
Ready Reserve Fund
Class N-actual return			1,000.00				1,000.00				0.50				0.10
Class N-hypothetical 5% return			1,000.00				1,049.50				0.51				0.10

 

 

 

(a)	Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the period 181, and divided by 365 (to reflect the one-half year period).
(b)	For the period April 10, 2013 (Commencement of Operations) to June 30, 2013.

 

June 30, 2013

William Blair Funds

199

BOARD OF TRUSTEES

 

Vann A. Avedisian

Principal, Highgate Holdings

Kathleen T. Barr

President, Productive Capital Management, Inc.

Phillip O. Peterson

Retired Partner, KPMG LLP

Donald J. Reaves

Chancellor, Winston-Salem State University

Donald L. Seeley

Retired Adjunct Lecturer and Director, University of Arizona Department of Finance

Michelle R. Seitz, Chairman and President

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

Thomas J. Skelly

Retired Managing Partner, Accenture U.S.

Richard W. Smirl, Senior Vice President

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

Officers

Michael P. Balkin, Senior Vice President

Karl W. Brewer, Senior Vice President

Andrew G. Flynn, Senior Vice President

David C. Fording, Senior Vice President

James S. Golan, Senior Vice President

W. George Greig, Senior Vice President

Michael A. Jancosek, Senior Vice President

John F. Jostrand, Senior Vice President

Chad M. Kilmer, Senior Vice President

Robert C. Lanphier, IV, Senior Vice President

Mark T. Leslie, Senior Vice President

Matthew A. Litfin, Senior Vice President

Kenneth J. McAtamney, Senior Vice President

Todd M. McClone, Senior Vice President

David Merjan, Senior Vice President

David S. Mitchell, Senior Vice President

David P. Ricci, Senior Vice President

Brian D. Singer, Senior Vice President

Paul J. Sularz, Senior Vice President

Jeffrey A. Urbina, Senior Vice President

Christopher T. Vincent, Senior Vice President

Kathleen M. Lynch, Vice President

David F. Hone, Vice President

John Abunassar, Vice President

Peter Carl, Vice President
Jason Moede, Vice President

D. Trowbridge Elliman III, Vice President

Christopher Walvoord, Vice President

Brian Ziv, Vice President

Edwin Denson, Vice President

Thomas Clarke, Vice President

Walter R. Randall, Jr., Chief Compliance Officer and Assistant Secretary

Colette M. Garavalia, Treasurer

Andrew T. Pfau, Secretary

John M. Raczek, Assistant Treasurer

Investment Advisor

William Blair & Company, L.L.C.

Independent Registered Public Accounting Firm

Ernst & Young LLP

Legal Counsel

Vedder Price P.C.

Transfer Agent

Boston Financial Data Services, Inc.
P.O. Box 8506
Boston, MA 02266-8506
For customer assistance, call 1-800-635-2886
(Massachusetts 1-800-635-2840)

 

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William Blair Funds

 

DOMESTIC EQUITY		GLOBAL EQUITY		FIXED-INCOME
Growth Fund		Global Growth Fund		Bond Fund
Large Cap Growth Fund		Global Small Cap Growth Fund		Income Fund
Small Cap Growth Fund				Low Duration Fund
Mid Cap Growth Fund		INTERNATIONAL EQUITY
Small-Mid Cap Growth Fund		International Growth Fund		MONEY MARKET
		Institutional International Growth Fund
Large Cap Value Fund		International Equity Fund		Ready Reserves Fund
Small Cap Value Fund		Institutional International Equity Fund
Mid Cap Value Fund		International Leaders Fund
Small-Mid Cap Value Fund		International Small Cap Growth Fund
		Emerging Markets Growth Fund
		Emerging Markets Leaders Fund
		Emerging Markets Small Cap Growth Fund

 

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