Mid Cap Growth Fund. Portfolio Review. June Dan Crowe, CFA, Partner Robert C. Lanphier, Partner David P. Ricci, CFA, Partner Portfolio Managers

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1 Mid Cap Growth Fund Portfolio Review Dan Crowe, CFA, Partner Robert C. Lanphier, Partner David P. Ricci, CFA, Partner Portfolio Managers

2 William Blair Mid Cap Growth Fund Important Disclosures Risks: The views expressed in this report and the information about the holdings are as of the date of this material, unless otherwise noted, and are subject to change. Information about the Fund s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay invested in any one particular sector. Holdings are subject to change at any time. The Fund s returns will vary, and you could lose money by investing in the Fund. The Fund invests most of its assets in equity securities of mid cap domestic growth companies, where the primary risk is that the value of the equity securities it holds might decrease in response to the activities of those companies or market and economic conditions. Individual securities may not perform as expected or a strategy used by the Adviser may fail to produce its intended result. Investing in medium capitalization companies involves special risks, including higher volatility and lower liquidity. Mid-cap stocks are also more sensitive to purchase/sale transactions and changes in the issuer s financial condition. Convertible securities are at risk of being called before intended, which may have an adverse effect on investment objectives. The Fund is not intended to be a complete investment program. The Fund is designed for long-term investors. Diversification does not ensure against loss. 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 with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call , or visit our Web site at Class N shares are available to the general public without a sales load. Class I Shares are available only to investors who meet certain eligibility requirements. This content is for informational and educational purposes only and is not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor s objectives, guidelines and restrictions. Investing includes the risk of loss. Please carefully consider the Fund's investment objective, risks, charges, and expenses before investing. This and other information is contained in the Fund's prospectus, which you may obtain by calling Read it carefully before you invest or send money. Copyright 2018 William Blair & Company, L.L.C. William Blair is a registered trademark of William Blair & Company, L.L.C. Distributed by William Blair & Company, L.L.C., member FINRA/SIPC 2

3 William Blair Mid Cap Growth Fund Summary & Outlook Market Review the quarter, and as more countries became involved, anxiety grew that tariffs could potentially escalate into a trade war. Strong second quarter performance across U.S. growth equity benchmarks placed U.S. growth equities among the strongest performing investment styles year-to-date. In contrast, first quarter returns were more muted. After robust market performance in January, inflationary fears arose causing market volatility to spike and most major equity benchmarks to retreat. While companies generally reported strong financial results for the prior quarter and economic data was mostly positive, trade tensions and building inflationary pressures weighed on returns for the duration of the first quarter. Fund Performance The Mid Cap Growth Fund (Class N) outperformed the Russell Midcap Growth Index in the second quarter. Both stock selection and style contributed to the positive relative performance. Stock selection was particularly strong in Consumer Discretionary including our positions in Domino s Pizza and Vail Resorts. Pizza restaurant chain Domino s Pizza outperformed primarily due to positively trending data from franchisee surveys and management confidence about the strength of the underlying business momentum. The top individual contributor to the Fund was ABIOMED (Health Care) which develops, manufactures and markets advanced medical technologies designed to assist or replace the pumping function of a failing heart. The company reported strong results as its Impella heart pump is increasingly becoming the standard of care for acute heart failure patients. Other top contributors were CoStar Group (Industrials) and WEX (Information Technology). Conversely, the top detractor from performance was food service and kitchen equipment maker Middleby Corp (Industrials). The company reported revenue and earnings were below expectations for the prior quarter primarily due to weakness in its Commercial Foodservice segment. Metal packaging maker Ball Corporation (Materials) was also a top detractor due in part to North and Central American aluminum can volumes, which declined given Ball s exposure to big beer where a consumer shift toward imported and craft beers has negatively impacted volumes. Other top detractors were Xylem (Industrials), Concho Resources (Energy) and Red Hat (Information Technology). From a style In the second quarter, growth style indices were broadly positive and volatility moderated from elevated first quarter levels. Higher stock prices and declining volatility were supported by a healthy U.S. economy. Retail spending rebounded, housing starts increased and manufacturing activity remained robust despite an appreciating U.S. dollar. In addition, consumer and business confidence remained elevated. With unemployment reaching 3.8%, its lowest level since 2000, and core inflation just over 2%, the Federal Reserve announced its second rate increase of 2018 and communicated expectations for two more before year end. With a strong fundamental backdrop and a positive tax impact, U.S. corporations generally posted robust earnings growth. As a gauge, corporations in the S&P 500 Index reported first quarter earnings growth of approximately 25%, as compared to the same period in the prior year, with over 80% of companies in the Index topping investor expectations. However, aggregate forward P/E ratios contracted as investors appeared to be mindful of risks on the horizon. Notably, trade tensions between the U.S. and China were a focus for investors over the course of 3

4 William Blair Mid Cap Growth Fund Summary & Outlook perspective, our higher growth bias was a tailwind in the quarter. Outlook Despite the Fed pursuing monetary tightening and the potential for a global trade war, optimism still persists across consumers, businesses and investors as we enter the tenth year of the current economic expansion. While rates still remain low relative to history, the Fed has telegraphed a path of increases and their ability to navigate the economy in the face of inflationary pressures from a potential trade war remains a risk. Further, continued uncertainty around the ultimate outcome of proposed tariffs could disrupt business planning and dampen overall productivity. However, the impact of fiscal stimulus in the form of lower corporate tax rates has largely overwhelmed trade concerns thus far. One early benefit of corporate tax reform in the U.S. has been an increase in capital expenditures, which in turn has the potential to boost productivity and create jobs longer term. In addition, the current administration has been aggressive in reducing regulation on businesses, which could be a continued tailwind for companies. For the year-to-date period ended June 30, 2018, the Fund outperformed its benchmark driven by both positive stock selection and a style tailwind. Stock selection was positive across many sectors, most notably Industrials, including positions in Copart and CoStar Group, and Health Care, including our positions in ABIOMED and Encompass Health. The top individual contributors to performance were ABIOMED and CoStar. ABIOMED outperformed for reasons cited above and real estate information provider CoStar outperformed due to accelerating growth in both the commercial real estate and multifamily housing segments of its businesses. Another top contributor was Domino s Pizza (Consumer Discretionary). Conversely, for reasons also cited above, Middleby Corporation (Industrials) was also the top detractor for the year-to-date period. Coherent (Information Technology), which designs and manufacturs lasers used to manufacture OLED displays, was also a top detractor. Coherent s stock came under pressure due to questions surrounding how quickly and to what extent smartphone manufacturers will adopt OLED screens going forward. Other top detractors were Newell Brands (Consumer Discretionary), Mohawk Industries (Consumer Discretionary) and Ball Corporation (Materials). From a style perspective, as investors became more focused on the potential implications of inflation-related cost pressures on businesses, our higher and more sustainable growth bias, which leads us to companies with value-added products and services and flexible pricing, was a tailwind. It remains to be seen how long the expansion can persist given the unprecedented fiscal stimulus at this point of the economic cycle. Broadly speaking, corporate earnings trends and forward looking guidance are reflective of the strong economy. But to the extent that rising wages, raw materials prices and freight costs begin to compress margins for the average company, we believe our Fund companies, which generally offer strong value propositions to their customers and have more pricing flexibility, are better positioned to withstand these pressures. Our focus remains on identifying companies with durable growth drivers, independent of the economic backdrop, whose stocks present compelling risk/reward opportunities. 4

5 Market Performance Month to Date Russell 3000 Russell 1000 Russell Midcap Russell 2500 Russell 2000 Quarter to Date Russell 3000 Russell 1000 Russell Midcap Russell 2500 Russell 2000 Year to Date Russell 3000 Russell 1000 Russell Midcap Russell 2500 Russell 2000 Value Core Growth Market Performance Although peak earnings and economic growth concerns remain, corporate earnings continued to be generally stronger than expected, helping drive the U.S. equity market higher in the second quarter. While the fundamental backdrop in the U.S. remains positive and inflation remains moderate, there are a number of risks on the horizon. Global market risks include the potential for a global trade war, geopolitical tensions and emerging market turmoil; all of which could contribute to a possible slowdown in global growth. Style Performance Growth benchmarks generally outperformed value benchmarks in June; the lone exception was mid caps where value outperformed growth. While value outperformed growth during the quarter in the smaller cap segments of the market, growth maintained a sizable lead over value across the cap spectrum year-to-date. Market Cap Performance With the exception of mid cap outperformance in June, smaller caps outperformed larger caps within the value benchmarks in all three periods; the performance was linear for the quarter and year-to-date periods. Within the growth benchmarks, large caps narrowly outperformed smaller caps in June while smaller caps outperformed larger caps for the quarter and year-to-date periods. Mid caps trailed in all three periods. Source: FactSet; Eagle Past Performance is not a guarantee of future results. A direct investment is an index is not possible. The Russell 3000 Index measures the performance of the all-cap segment of the U.S. equity universe. The Russell 1000 Index measures the performance of the largecap segment of the U.S. equity universe. It includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell Midcap Index measures the performance of the mid cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index based on a combination of their market cap and current index membership. The Russell 2500 Index measures the performance of the small to mid-cap segment of the U.S. equity universe. It includes approximately 2500 of the smallest securities in the Russell 3000 Index based on a combination of their market cap and current index membership. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. It includes approximately 2000 of the smallest securities in the Russell 3000 Index based on a combination of their market cap and current index membership. Core returns represent the Total Return indices. The value segments of these indices include companies with lower price-to-book ratios and lower forecasted growth values. The growth segments of these indices include companies with higher price-to-book ratios and higher forecasted growth values. 5

6 Market Performance Russell Midcap Growth Total Return Q Consumer Discretionary 7.06 Consumer Staples 1.33 Energy Financials Health Care Industrials Information Technology Materials Real Estate 5.54 Telecom Utilities Data calculated in Opturo. Past returns are no guarantee of future performance. A direct investment in an index is not possible. The Russell Midcap Growth Index measures the performance of the 800 companies with the lowest market capitalizations in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. 6

7 William Blair Mid Cap Growth Fund Performance Periods ended 6/30/2018 Quarter YTD 1 Year 3 Year 5 Year 10 Year Mid Cap Growth Fund (WCGNX) Class N 5.45% 11.63% 22.45% 8.85% 10.69% 9.63% Mid Cap Growth Fund (WCGIX) Class I 5.55% 11.75% 22.72% 9.13% 10.96% 9.91% Russell Midcap Growth 3.16% 5.40% 18.52% 10.73% 13.37% 10.45% Inception 2/1/2006 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 with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month end performance information, please call , or visit our Web site at Class N shares are available to the general public without a sales load. Class I Shares are available only to investors who meet certain eligibility requirements. Mid Cap Growth Fund Expense Ratios: Class N Shares Class I Shares Gross Net 1.49% 1.20% 1.23% 0.95% The Fund s Adviser has contractually agreed to waive fees and/or reimburse expenses to limit fund operating expenses until 4/30/19. Expenses shown are as of the most recent prospectus. A direct investment in an index is not possible. The Russell Midcap Growth Index measures the performance of the 800 companies with the lowest market capitalizations in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. 7

8 William Blair Mid Cap Growth Fund Analysis The charts below show the average sector weights and relative performance, by sector, for the Fund vs. its benchmark. Q Average Weights Energy Financials Telecom Utilities Cash Financials Industrials 0.78 Information Technology Health Care Information Technology Real Estate Energy Industrials 1.22 Consumer Staples Health Care Materials Consumer Discretionary Consumer Discretionary Consumer Staples Q Relative Performance Materials WILLIAM BLAIR MID CAP GROWTH FUND Real Estate Telecom Russell Midcap Growth Utilities Cash 0.02 Source: Opturo. Past returns are no guarantee of future results. Based on Global Industry Classification Sectors (GICS). Concentration of assets in one or a few sectors may entail greater risk than a fully diversified stock portfolio and should be considered as only part of a diversified portfolio. 8

9 William Blair Mid Cap Growth Fund Top 5 Contributors to Return ABIOMED, Inc. (ABMD) develops, manufactures and markets advanced medical technologies designed to assist or replace the pumping function of a failing heart. ABIOMED reported strong results during the quarter in support of our thesis that Impella, the world s smallest heart pump, will become the standard of care in the markets it serves. In the U.S., Impella patient utilization was strong with 35% sales growth in the quarter, while our thesis that Impella will be adopted globally was supported by 107% non-u.s. sales growth in the quarter. We trimmed our position on strength. We believe ABIOMED s heart pump will become the standard of care in high risk PCI and cardiogenic shock settings. Further, expansion into additional indications and increased penetration globally should support many years of double-digit revenue growth. Domino s Pizza (DPZ) is one of the largest pizza restaurant chains in the world. The stock outperformed primarily due to positively trending data from franchisee surveys and management confidence about the strength of the underlying business momentum. Domino s is leveraging its technology and operational advantages to gain market share and continue its industry leading same-store-sales growth. We trimmed our position in the quarter due to strong relative performance in 2018, but continue to believe the company s technological and operational advantages will allow it to sustain growth over the long term. Vail Resorts (MTN) is a premier mountain resort company operating ski resorts in the U.S., Canada and Australia. The stock outperformed after reporting quarterly results that exceeded expectations, despite low snowfall, primarily driven by strength in season pass sales. These results reduced investor concern that a competing season pass would pressure Vail s passholder growth. Also in the quarter, Vail announced the acquisition of four new resorts that are complementary to Vail s East Coast and North West portfolios, and created another destination in Colorado. We maintained our position as we believe that Vail s repeatable M&A strategy will continue to improve its season pass value proposition, and with the support of robust data analytics, should driver further pass adoption and pricing power. Further, we expect growth of the season pass base and increased geographic diversification via recent acquisitions to yield a more consistent earnings stream going forward. CoStar Group (CSGP) provides information, marketing and analytic services to the real estate industry in the United States and select countries internationally. Shares outperformed in the quarter as organic revenue growth and business momentum in the commercial real estate and multifamily housing portions of the business remained strong. Within commercial real estate, the company recently shut down LoopNet, a low-cost service acquired in 2012, and is in the process of converting former LoopNet users to the CoStar service. The CoStar service costs materially more than the LoopNet service and the navigation of users from LoopNet to CoStar has accelerated revenue growth in this segment of the company. Within multifamily housing, strong traffic on Aparments.net and upselling of clients to higher-priced ad packages has aided revenue growth. We trimmed our position in the stock, but believe the core business has meaningful growth opportunities to continue expansion and leverage its strong competitive moat, and Apartments.com stands to take significant share in a fragmented market due to the website s vast information advantage relative to competitors. WEX Inc (WEX) is a leading provider of payment solutions to the global fuel card market and online travel agents (OTAs) and is also a leader in white label technology services supporting health savings account (HSA) administrators. Shares appreciated during the quarter as WEX reported strong quarterly results, raised 2018 guidance and announced a new agreement with Shell. Strength in financial results was broad-based, with its fleet and travel segments exceeding expectations, and also helped by higher oil prices. The agreement with Shell, where WEX will issue and operate Shell s entire portfolio of commercial fleet cards in the U.S. and Canada, is a significant win in that Shell is the largest fuel marketer in the U.S. We maintained our position and continue to believe that shares of WEX are mispriced relative to the strength of the underlying business fundamentals. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients, and you should not assume that investments in the securities identified and discussed were or will be profitable. 9

10 William Blair Mid Cap Growth Fund Largest 5 Detractors to Return Middleby Corp (MIDD) designs, manufactures and markets equipment used in the commercial foodservice and food processing industries as well as in residential kitchens. The company reported revenue and earnings were below expectations for the prior quarter primarily due to weakness in the Commercial Foodservice segment. Despite the weakness in Commercial Foods, we believe the company remains well positioned relative to competitors and believe organic growth in this segment will accelerate going forward. We maintained our position in the stock. Ball Corporation (BLL) provides metal packaging for beverages, foods and household products. While the company reported sales and earnings that were ahead of expectations, driven by strong global volumes, the stock underperformed during the quarter. Weakness was due in part to North and Central American can volumes, which declined given Ball s exposure to big beer where a consumer shift toward imported and craft beers has negatively impacted volumes. In addition, investors became concerned about prospects for the current quarter due to a trucker strike in Brazil, where Ball has operations. We believe the stock is undervalued relative to the fundamentals of the business and added to our position following weakness. The stock presents an attractive risk/reward opportunity given its Consumer Staples-like durability with a lower valuation than other companies with similar characteristics. Further, we believe the company s dominant competitive position in the global can manufacturing market and the superior environmental qualities of aluminum cans relative to plastics will drive growth. Xylem (XYL) is a leading global water technology company that provides a broad range of products and services for water treatment, analysis, filtration and throughput measurement. Despite reporting revenue growth that topped expectations, with broad-based strength across end markets and geographies, Xylem did not raise full year guidance in expectation of moderating growth in industrial end markets. Given strong performance relative to the group earlier in 2018, shares declined in the quarter. We believe Xylem, with the broadest offering of dedicated products and services, should be a significant beneficiary of increased investment in water networks, driven by the secular tailwinds of a need for clean water in emerging markets, increased efforts to meter and charge for water delivery in developed markets, and a shift to private water utility management (from local/municipal). Concho Resources (CXO) is an exploration and production company in the oil and natural gas industry. The stock underperformed in the quarter due to investors questioning the price paid and benefits of an announced acquisition of RSPP, a competitor with complementary assets in the Midland and Delaware Basins. While we believe the increased scale from the acquisition will be beneficial to the company, we sold our position in the stock late in the quarter to reduce our relative overweight in Energy, where we prefer to remain neutral weighted, and in favor of another company in the sector which has better growth, lower takeaway costs and whose stock is more attractively valued. Red Hat (RHT) provides open source software solutions designed to provide high-performing, scalable, flexible, reliable, secure and stable technologies that meet the information technology (IT) infrastructure needs of its enterprise customers. The stock came under pressure after the company reported lower-than-expected billings growth due to lower renewals of contracts from the company s largest customers. Many of these large customers renewed their contracts earlier than expected last year instead of waiting to 2018 to take advantage of new products that Red Hat began offering in Hence, renewal opportunities for 2018 have diminished. We view lower renewal opportunities as a near-term headwind as demand still appears to be robust for Red Hat s products. We trimmed our position in the stock due to strong relative performance over the last year and a less optimistic outlook for the near-term. However, we maintain our belief that Red Hat, with its industry leading position, will continue to be a beneficiary of the massive shift in enterprise IT architectures to Linux-based operating systems, around which Red Hat provides enterprise quality support, services and other cloud-based products. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients, and you should not assume that investments in the securities identified and discussed were or will be profitable. 10

11 William Blair Mid Cap Growth Fund Positioning Top 10 Holdings by Weight % in Fund Russell Midcap Growth % in Index Mid Cap Growth Fund Costar Group Inc Copart Inc Verisk Analytics Inc Ross Stores Inc Progressive Corp Ball Corp BWX Technologies Inc Six Flags Entertainment Corp Booz Allen Hamilton Holdings Domino's Pizza Inc Total: Source: Eagle. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. William Blair may or may not own the securities referenced and, if such securities are owned, no representation is being made that such securities will continue to be held. Holdings are shown as a percentage of total gross assets. 11

12 William Blair Mid Cap Growth Fund Characteristics Mid Cap Growth Fund Russell Midcap Growth EPS Growth Rate (3-yr historic) 16.2% 15.2% EPS Growth Rate (LT forecast)* 16.9% 18.8% Return on Invested Capital 11.8% 11.9% Free Cash Flow Margin 12.4% 11.8% Debt to Total Capital Ratio 44.3% 46.0% 22.8x 21.5x Weighted Average Market Cap $14.7 $15.5 Weighted Median Market Cap $12.9 $ Growth Quality Valuation P/E (1-year forecast) Capitalization ($B) Portfolio Positions Number of Securities Source: William Blair; FactSet; Eagle. *This measure represents the weighted average of forecasted growth in earnings expected to be experienced by stocks within the portfolio over the next 3-5 years. This projected earnings growth should not be considered an indication of future performance. From a portfolio perspective, the portfolio P/E ratio and EPS Growth Rate are weighted averages of the individual holdings' P/E ratios and EPS Growth Rates. 12

13 William Blair Mid Cap Growth Fund Positioning Sector Weights as of 6/30/ Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecom 0.25 Utilities Cash WILLIAM BLAIR MID CAP GROWTH FUND Russell Midcap Growth 1.77 Source: William Blair; Eagle. Based on Global Industry Classification Sectors (GICS). Concentration of assets in one or a few sectors may entail greater risk than a fully diversified stock portfolio and should be considered as only part of a diversified portfolio. 13

14 William Blair Mid Cap Growth Fund Holdings Portfolio Benchmark Weight Weight CONSUMER DISCRETIONARY Ross Stores Inc Six Flags Entertainment Corp Domino's Pizza Inc Ulta Beauty Inc Live Nation Entertainment In Vail Resorts Inc Aptiv PLC Mohawk Industries Inc Carmax Inc CONSUMER STAPLES Conagra Brands Inc ENERGY Parsley Energy Inc-Class A FINANCIALS Progressive Corp East West Bancorp Inc Cboe Global Markets Inc HEALTH CARE Encompass Health Corp Mettler-Toledo International Centene Corp Agilent Technologies Inc Abiomed Inc Teleflex Inc Charles River Laboratories Veeva Systems Inc-Class A West Pharmaceutical Services Dexcom Inc Idexx Laboratories Inc Portfolio Benchmark Weight Weight INDUSTRIALS Costar Group Inc Copart Inc Verisk Analytics Inc Bwx Technologies Inc Equifax Inc Fortive Corp Middleby Corp Wabtec Corp Xylem Inc INFORMATION TECHNOLOGY Booz Allen Hamilton Holdings Ultimate Software Group Inc Worldpay Inc-Class A Global Payments Inc Wex Inc Akamai Technologies Inc Godaddy Inc - Class A Red Hat Inc Microchip Technology Inc Guidewire Software Inc Tyler Technologies Inc Analog Devices Inc Sabre Corp J2 Global Inc MATERIALS Ball Corp Vulcan Materials Co Celanese Corp-Series A Axalta Coating Systems Ltd REAL ESTATE Sba Communications Corp Cash Total As of 6/30/2018. Individual securities listed in this report are for informational purposes only. There is no guarantee that the Fund will continue to hold any one particular security or stay invested in any one particular sector. Holdings are subject to change at any time. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed. 14

15 Glossary - Terms Alpha: A measure of a portfolio s return in excess of the market return, after both have been adjusted for risk. It is a mathematical estimate of the amount of return expected from a portfolio above and beyond the market return at any point in time. For example, an alpha of 1.25 indicates that a stock is projected to rise 1.25% in price in a year over the return of the market, or the return when the market return is zero. When an investment price is low relative to its alpha, it is undervalued, and considered a good selection. Beta: A quantitative measure of the volatility of the portfolio relative to the overall market, represented by a comparable benchmark. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile, and could be expected to rise and fall more slowly than the market. Developed Markets: Using the Morgan Stanley Capital International (MSCI) geographic definition, this region includes: United Kingdom, Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Spain, Sweden and Switzerland), Japan, Pacific Asia (Australia, Hong Kong, New Zealand, and Singapore) and the Western Hemisphere (Canada and other Americas). Debt to Total Capital Ratio: This figure is the percentage of each company s invested capital that consists of debt. Companies with a high Debt to Total Capital level may be considered more risky. From a portfolio perspective, the portfolio Debt to Total Capital Ratio is a weighted average of the individual holdings' Debt to Total Capital Ratio. Emerging Markets: Using MSCI s geographic definition, this region includes: Emerging Markets Asia (China, India, Indonesia, Malaysia, S Korea, Taiwan, and Thailand), Emerging Markets Europe, Mid-East and Africa (Czech Republic, Hungary, Poland, Russia, Turkey, Egypt, Morocco, and S Africa), and Latin America (Argentina, Brazil, Chile, Columbia, Mexico, Peru and Venezuela). EPS (Earnings Per Share) Growth Rate (Projected): This measure represents the weighted average of forecasted growth in earnings expected to be experienced by the stocks within the portfolio over the next 3-5 years. From a portfolio perspective, the portfolio P/E ratio and EPS Growth Rate are weighted averages of the individual holdings P/E ratios and EPS Growth Rates. Data calculated in FactSet. EV/EBITDA: (Enterprise Value / Earnings Before Interest, Taxes and Depreciation-Amortization): The EV/EBITDA ratio is useful for global comparisons because it ignores the distorting effects of individual countries' taxation policies. It's used to find attractive takeover candidates. Enterprise value is a better measure than market cap for takeovers because it takes into account the debt which the acquirer will have to assume. Therefore, a company with a low EV/EBITDA ratio can be viewed as a good takeover candidate. EV/IC: (Enterprise Value / Invested Capital) Ratio: Enterprise Value (EV), which is market capitalization minus cash plus debt divided by Invested Capital (IC), which is the sum of common stock, preferred stock and long-term debt. This number will get you a simple multiple. If it is below 1.0, then it means that the company is selling below book value and theoretically below its liquidation value. Information Coefficient: A measure of the correlation between expected and actual returns. Information Ratio: A measure of risk-adjusted return. The annualized excess return of the portfolio relative to a respective benchmark, divided by the annualized tracking error relative to that same benchmark. The higher the measure, the higher the risk-adjusted return. PBV: (Price/Book Value) Ratio: The PBV Ratio measures the value of a company's common stock relative to its shareholder's equity. A price-tobook multiple above one means that the price of the company's common stock is higher than its common shareholder's equity. A price-to-book multiple below one means that the price of the company's common stock are less than its break-up value, and the shares may be undervalued. 15

16 Glossary - Terms PCF: (Price/CashFlow): Some analysts favor the price/cash flow over the price-earnings (PE) ratio as a measure of a company s value. Cash flow is a measure of a company's financial health. It equals cash receipts minus cash payments over a given period of time. P/E: (Price/Earnings) Ratio: This is the most common measure of how expensive a stock is. Simply, it is the cost an investor in a given stock must pay per dollar of current annual earnings. A high P/E generally indicates that the market is paying more to obtain the stock because it has confidence in the company s ability to increase its earnings. Conversely, a low P/E often indicates that the market has less confidence that the company s earnings will increase rapidly or steadily, and therefore will not pay as much for its stock. R-squared: A measurement of how closely the portfolio s performance correlates with the performance of its benchmark, such as the MSC AC World Free ex US Index. In other words, it is a measurement of what portion of a portfolio s performance can be explained by the performance of the overall market or index. Ranges from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation. Risk (Standard Deviation): A measure of the portfolio s risk. A higher standard deviation represents a greater dispersion of returns, and thus a greater amount of risk. The annualized standard deviation is calculated using monthly returns. Sharpe-Ratio: A risk-adjusted measure calculated using standard deviation and excess return (Portfolio return Risk Free Rate) to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio s historic risk-adjusted performance. Tracking Error: Tracking Error measures the extent to which a portfolio tracks its benchmark. The tracking error of an index portfolio should be lower than that of an active portfolio. The tracking error will always be greater than zero if the portfolio is anything other than a replication of the benchmark. Trailing 1-Year Turnover: This figure reflects the portfolio s trading activity by calculating the amount of the portfolio s holdings bought or sold over the prior year, expressed as a percentage of the portfolio s average market value. Turnover figures may be related to the amount of trading costs experienced by the portfolio. Weighted Average Market Capitalization: Market capitalization refers to the total market value of each company's outstanding shares. The Weighted Average Market Capitalization for a portfolio is calculated as the average market capitalization of the stocks within the portfolio, weighted by the amount of each stock owned. Weighted Median Market Capitalization: This calculation represents the median market capitalization of the stocks in the portfolio, weighted by the amount of each stock owned. 16