UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09997
---------
BAIRD FUNDS, INC.
-----------------
(Exact name of Registrant as specified in charter)
777 EAST WISCONSIN AVENUE, FLOOR 18
-----------------------------------
MILWAUKEE, WI 53202
--------------------
(Address of principal executive offices) (Zip code)
GLEN F. HACKMANN
----------------
ROBERT W. BAIRD & CO. INCORPORATED
----------------------------------
777 EAST WISCONSIN AVENUE
-------------------------
MILWAUKEE, WI 53202
--------------------
(Name and address of agent for service)
1-866-442-2473
--------------
Registrant's telephone number, including area code
Date of fiscal year end: 12/31/04
--------
Date of reporting period: 12/31/04
--------
ITEM 1. REPORT TO STOCKHOLDERS.
- ------------------------------
(BAIRD FUNDS LOGO)
ANNUAL REPORT
December 31, 2004
Baird Intermediate Bond Fund
Baird Aggregate Bond Fund
Baird Intermediate Municipal Bond Fund
Baird Core Plus Bond Fund
Baird Short-Term Bond Fund
TABLE OF CONTENTS
PAGE
----
SHAREHOLDER LETTER 1
2004 BOND MARKET OVERVIEW 2
BAIRD INTERMEDIATE BOND FUND 6
BAIRD AGGREGATE BOND FUND 19
BAIRD INTERMEDIATE MUNICIPAL BOND FUND 31
BAIRD CORE PLUS BOND FUND 37
BAIRD SHORT-TERM BOND FUND 45
ADDITIONAL INFORMATION ON FUND EXPENSES 52
STATEMENTS OF ASSETS AND LIABILITIES 54
STATEMENTS OF OPERATIONS 55
STATEMENTS OF CHANGES IN NET ASSETS 56
FINANCIAL HIGHLIGHTS 61
NOTES TO THE FINANCIAL STATEMENTS 70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 80
DIRECTORS AND OFFICERS 81
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
Dear Shareholders,
We would like to thank you for investing in the Baird Funds. The financial
markets continued to advance in 2004 and we appreciate the opportunity to help
our investors participate in these positive developments. The Baird Funds
continued to grow during the year with the introduction of the Baird Short-Term
Bond Fund and the Baird SmallCap Fund. Net assets in the Baird Funds as of
December 31, 2004 were approximately $590 million.
In this Annual Report we review the bond market in 2004 and the performance and
composition of each of the Baird Bond Funds. We hope you find this report both
informative and helpful in achieving your investment goals. We thank you for
your support and look forward to continued mutual success. Thank you again for
choosing Baird Funds.
Sincerely,
Mary Ellen Stanek, CFA
President
Baird Funds, Inc.
2004 BOND MARKET OVERVIEW
FLATTER YIELD CURVE, SURPRISE CHANGE IN RATES
The much-anticipated rise in interest rates finally began in 2004 as the Federal
Open Market Committee (FOMC) raised its target for the Fed funds rate from 1.0%
to 2.25% in five measured 0.25% increments between June 30 and December 14. As
is often the case, however, the increase in rates did not turn out the way many
market participants had expected. Short-term market rates did indeed rise in
response to the Fed's action, but the big surprise of 2004 was that long-term
rates actually declined (see chart and table below). Accordingly, the yield
curve flattened considerably with the difference between 2-year and 30-year
Treasury yields finishing the year at 176 basis points, down from 325 basis
points on December 31, 2003.
TREASURY YIELDS
Source: Bloomberg
(CHART HERE - Plot Points below)
MATURITY DEC. 31, 2003 DEC. 31, 2004 1 YR. CHANGE
-------- ------------- ------------- ------------
1 1.21% 2.77% 1.56%
2 1.82% 3.07% 1.25%
3 2.30% 3.22% 0.92%
5 3.25% 3.61% 0.36%
7 3.79% 3.93% 0.14%
10 4.25% 4.22% -0.03%
15 4.79% 4.65% -0.14%
20 5.10% 4.85% -.025%
25 5.18% 4.90% -0.28%
30 5.07% 4.83% -0.24%
POSITIVE RETURNS, LONG DURATION AND LOW QUALITY WIN
Despite the increase in short-term yields, all sectors of the bond market posted
positive returns in 2004 (see following table). However, shorter benchmarks
(e.g., LB 1-3 yr. Gov't/Credit Index, +1.30%) felt the full force of the
increase in yields and lagged full market benchmarks (LB Aggregate Index +4.34%
and LB Gov't/Credit Index, +4.19%) by considerable margins. Treasury issues had
respectable returns (+3.54%), but lagged all other sectors on a duration-
equivalent basis. Corporates led all investment grade sectors returning 5.39%
for the year and, as in 2003, lower quality issues outperformed higher quality
issues significantly (BBB +6.25% vs. AAA +3.27%) as investors reached for
additional yield. High yield bonds had another banner year (+11.13%) as strong
interest from hedge funds buoyed prices and returns. Mortgage prepayment rates
remained relatively stable with the modest overall change in 10-year Treasury
yields, enabling mortgage-backed securities (MBS) to also perform well on a
relative basis (+4.70%). A more detailed listing of various benchmark and
sector returns appears in the following table.
TOTAL RETURNS OF SELECTED LEHMAN BROTHERS (LB) INDICES AND SUBSECTORS
Index/Sector December 4th Quarter 2004
------------ -------- ---------- ----
LB Aggregate Index 0.92% 0.95% 4.34%
LB Gov't/Credit Index 1.06% 0.80% 4.19%
LB Int. Gov't/Credit Index 0.68% 0.44% 3.04%
LB 1-3 yr. Gov't/Credit Index 0.24% 0.10% 1.30%
US Treasury Sector 0.99% 0.42% 3.54%
Gov't Agency Sector 0.68% 0.63% 3.33%
Corporate Sector 1.37% 1.32% 5.39%
AAA 0.79% 0.48% 3.27%
AA 0.98% 0.73% 3.90%
A 1.26% 1.17% 5.06%
BBB 1.56% 1.69% 6.25%
MBS Sector 0.70% 1.26% 4.70%
ABS Sector 0.45% 0.37% 3.00%
High Yield Sector 1.49% 4.57% 11.13%
Municipal Sector 1.22% 1.25% 4.48%
INFLATION STILL MODEST
The pronounced flattening of the yield curve and the decline in long-term rates
characterize the market's benign view of inflation in 2004 despite the price of
oil spiking to over $55 per barrel. While the Consumer Price Index (CPI) and
the Producer Price Index (PPI) increased 3.5% and 5.0% respectively on a year-
over-year basis through November, excluding food and energy components, core CPI
and PPI increased just 2.2% and 1.9% respectively. Global competition in the
form of cheap labor and goods has limited the pricing power of domestic
companies and, along with rising healthcare costs and continued productivity
improvements, has discouraged the hiring of additional workers. As a result,
wage inflation in particular remained very modest in 2004.
U.S. DOLLAR WORRIES
U.S. dollar weakness in 2004 rekindled fears that foreigners may reduce their
substantial holdings of U.S. Treasury debt and/or refrain from purchasing new
issues in the future, causing interest rates to rise. However, while the
dollar's decline from its peak has been significant over the past several years
(-38% vs. Euro since October 2000 and -23% vs. Yen since February 2002, see
chart below left), foreign holdings of Treasury debt over the same time frame
have surged (see chart below right).
VALUE OF U.S. DOLLAR
Date Yen/$ (left scale) Euro/$ (right scale)
---- ------------------ --------------------
12/31/98 113.63 0.857118368
1/31/99 116.4 0.877269936
2/28/99 120.43 0.907111756
3/31/99 118.92 0.93101201
4/30/99 119.81 0.944019636
5/31/99 121.79 0.956114351
6/30/99 120.82 0.968523002
7/31/99 115.33 0.935103797
8/31/99 109.46 0.948586606
9/30/99 105.6 0.937646507
10/31/99 104.97 0.956571647
11/30/99 102.35 0.988435307
12/31/99 102.47 0.992851469
1/31/2000 106.82 1.018744906
2/29/2000 109.97 1.026061974
3/31/2000 103.96 1.048657718
4/30/2000 107.24 1.102900629
5/31/2000 107.29 1.07434465
6/30/2000 104.86 1.044059303
7/31/2000 109.37 1.082133968
8/31/2000 106.46 1.118818528
9/30/2000 107.94 1.137138958
10/31/2000 109.17 1.18708452
11/31/2000 110.87 1.153535587
12/31/2000 114.84 1.07561579
1/31/2001 116.32 1.074229241
2/28/2001 117.08 1.085422772
3/31/2001 125.07 1.134558657
4/30/2001 123.55 1.127268628
5/31/2001 118.92 1.178828245
6/30/2001 124.19 1.178689298
7/31/2001 124.85 1.141422212
8/31/2001 118.61 1.090393632
9/30/2001 118.75 1.090631476
10/31/2001 121.83 1.104850293
11/31/2001 123.72 1.125999324
12/31/2001 131.4 1.129943503
1/31/2002 132.98 1.158480074
2/28/2002 133.76 1.155134573
3/31/2002 132.76 1.146657493
4/30/2002 128.46 1.110124334
5/31/2002 123.88 1.065530101
6/30/2002 118.44 1.002405774
7/31/2002 120.26 1.021972407
8/31/2002 118.06 1.014713343
9/30/2002 121.86 1.015331506
10/31/2002 122.68 1.013479274
11/30/2002 122.47 1.006745193
12/31/2002 118.69 0.953470633
1/31/2003 119.07 0.923872875
2/28/2003 117.88 0.927902014
3/31/2003 118.67 0.917515368
4/30/2003 119.49 0.898634076
5/31/2003 118.76 0.845308538
6/30/2003 120.06 0.875273523
7/31/2003 120.02 0.884642604
8/31/2003 116.65 0.916758343
9/30/2003 110.36 0.855724799
10/31/2003 109.02 0.858958942
11/30/2003 109.36 0.834724541
12/31/2003 106.92 0.792895655
1/31/2004 105.68 0.806191551
2/29/2004 109 0.806126562
3/31/2004 103.9 0.817862108
4/30/2004 110.24 0.835701153
5/31/2004 109.1 0.81960495
6/30/2004 108.88 0.822571358
7/31/2004 111.41 0.829462508
8/31/2004 109.83 0.825286787
9/30/2004 110.82 0.810635538
10/31/2004 105.99 0.784006272
11/30/2004 102.99 0.753749906
12/31/2004 102.48 0.732493408
Source: Bloomberg
FOREIGN HOLDINGS OF MARKETABLE U.S. TREASURY DEBT
Year $ Billions (left scale) % of Total Outstanding
---- ----------------------- ----------------------
1980 127 0.17
1981 136 0.17
1982 151 0.15
1983 164 0.14
1984 200 0.15
1985 226 0.14
1986 269 0.15
1987 296 0.15
1988 354 0.17
1989 424 0.19
1990 438 0.18
1991 476 0.17
1992 520 0.17
1993 595 0.18
1994 633 0.18
1995 820 0.23
1996 1047 0.28
1997 1166 0.31
1998 1185 0.32
1999 1080 0.3
2000 1026 0.31
2001 1040 0.31
2002 1254 0.35
2003 1539 0.38
2004 1856 0.43
Source: US Federal Reserve
If foreign investors were to sell, they would have to find somewhere else to
invest. A comparison of yield curves from around the globe suggests that a lack
of more attractive alternatives may be compelling them to stick with U.S.
Treasury debt (see chart below left).
GLOBAL YIELD CURVES
Maturity U.S. Germany Japan U.K.
-------- ---- ------- ----- ----
1 2.77% 2.27% 0.01% 4.37%
2 3.07% 2.47% 0.12% 4.44%
3 3.22% 2.60% 0.25% 4.46%
5 3.61% 3.01% 0.61% 4.49%
7 3.93% 3.33% 0.96% 4.51%
10 4.22% 3.65% 1.44% 4.54%
15 4.65% 3.86% 1.73% 4.54%
20 4.85% 4.07% 2.06% 4.50%
30 4.83% 4.24% 2.42% 4.41%
Source: Bloomberg
NET NEW SUPPLY
Year Treasury Agency Investment Grade Corporate
- ---- -------- ------ --------------------------
1992 282.5 41.2 72.77
1993 235.4 86.7 66.36
1994 136.6 168.2 30.36
1995 181.1 105.7 84.72
1996 152.5 81.2 96.92
1997 -2.9 96.8 104.67
1998 -101.4 273.9 219.25
1999 -74.5 320 232.2
2000 -314.1 235.1 214.39
2001 16.1 219.1 458.72
2002 237.3 215.5 265.55
2003 370.1 269 221.04
2004 369 90 131
2005 est. 290 -70 120
Source: Lehman Brothers
SUPPLY TRENDS
Net Treasury issuance continued strong at $369 billion in 2004 (vs. $370 billion
in 2003) and is estimated at $290 billion for 2005. Net issuance of Government
agency debt fell to $90 billion (from $269 billion in 2003) as FNMA and FHLMC
began to contract their balance sheets in response to regulatory and
Congressional scrutiny; agency supply is estimated at -$70 billion for 2005.
Investment grade corporate issuance tailed off in the second half of 2004
leaving net new supply at $131 billion, down from $221 billion in 2003. Net
investment grade issuance is expected to decline slightly to $120 billion in
2005 (see chart above right).
SPREADS EDGE TIGHTER
Declining supply and steady investor demand provided the right technical
backdrop for tighter corporate and agency yield spreads in 2004. Corporate
spreads edged tighter throughout the year and are tight by historical standards
(see chart below left). A lower incidence of downgrades in 2004 also helped the
corporate market perform well. Downgrade ratios at Moody's and S&P fell to 1.46
and 1.95 respectively, down from 3.65 and 3.35 in 2003 (see table below right).
CORPORATE YIELD SPREADS
Date All AA 10 Yr All A 10 Yr All BBB 10 Yr All BB 10 Yr
---- ------------ ----------- ------------- -------------
1/31/95 48.32 69.65 97.8 247.34
2/28/95 48.53 67.72 98.22 229.87
3/31/95 46.45 63.71 94.46 216.6
4/28/95 47.45 64.43 95.88 207.46
5/31/95 49.93 67.77 99.62 237.26
6/30/95 51.41 69.14 99.25 227.81
7/31/95 48.53 64.43 93.84 211.74
8/31/95 44.35 60.1 90.55 226.58
9/29/95 47.22 61.65 91.05 218.93
10/31/95 50.65 67.21 95.94 231.56
11/30/95 50.58 69.48 96.6 232.86
12/29/95 51.46 69.12 95.1 234.25
1/31/96 49.37 68.7 95.78 226.45
2/29/96 46.83 62.7 88.69 207.51
3/29/96 43.07 59.74 83.96 201.94
4/30/96 43.89 60.02 84.07 207.89
5/31/96 45.45 57.46 81.24 196.37
6/28/96 47.58 62 85.21 203.2
7/31/96 48.02 62.45 85.13 204.76
8/30/96 45.94 58.8 82.51 189.74
9/30/96 45.09 58.29 81.19 182.6
10/31/96 46.13 56.8 78.56 194.16
11/29/96 46.58 57.48 79.25 191.81
12/31/96 47.08 58.84 80.12 177.66
1/31/97 47.68 58.24 79.05 163.32
2/28/97 42.41 52.02 72.3 146.47
3/31/97 45.98 54.83 74.83 153.18
4/30/97 46.92 57.82 78.12 163.91
5/30/97 47.91 57.67 77.36 150.86
6/13/97 45.9 55.94 75.49 143.25
6/30/97 45.78 56.1 73.61 143.72
7/15/97 45.19 56.08 73.28 141.47
7/31/97 45.75 55.49 72.63 138.37
8/15/97 45.57 56.37 72.06 140.12
8/29/97 46.24 56.82 73.26 145.02
9/15/97 47.79 57.91 75.62 146.83
9/30/97 46.86 56.99 74.13 145.59
10/15/97 48.22 58.48 75.56 142.86
10/31/97 52.09 61.78 78.14 147.28
11/14/97 60.59 74.53 91.18 160.1
11/28/97 56.71 71.18 90.39 157.62
12/15/97 55.81 70.68 89.86 162.21
12/31/97 57.53 70.78 90.69 167.94
1/15/98 64.73 79.01 99.47 177.37
1/30/98 63.46 80.28 101.73 178.5
2/13/98 56.49 72.56 96.2 185.82
2/27/98 54.6 71.05 94.95 180.57
3/13/98 54.6 71.34 94.84 177.42
3/31/98 55.72 71.61 95.81 178.23
4/15/98 53.04 69.85 94.23 186.81
4/30/98 54.04 70.2 93.49 191.21
5/15/98 54.13 70.31 93.75 190.5
5/29/98 52.08 69.13 91.8 195.67
6/15/98 62.47 77.92 102.74 207.07
6/30/98 63.8 78.87 102.49 211.93
7/15/98 61.83 77.01 101.88 201.59
7/31/98 68.99 83.34 109.2 207.67
8/14/98 78.1 92.74 123.13 223.33
8/31/98 106.67 122.81 166.98 308.1
9/15/98 99.49 120.7 164.54 313.06
9/30/98 100.9 124.58 168.31 323.97
10/15/98 120.17 140.55 189.64 318.92
10/30/98 122.06 144.18 196.83 355.33
11/13/98 107.21 128.69 182.63 341.3
11/30/98 96.75 116.99 174.12 307.85
12/15/98 102.5 123.29 181.28 313.12
12/30/98 94.8 116.78 175.01 305.17
1/15/99 80.43 103.49 163.47 303.95
1/29/99 81.53 104.98 165.76 303.9
2/12/99 79.45 99.71 154.17 283.55
2/26/99 78.25 96.07 153.74 293.04
3/15/99 75.2 90.93 141.75 304.02
3/31/99 77.04 91.84 135.96 293.63
4/15/99 76.64 91.4 134.25 295.7
4/30/99 77.9 91.84 133.93 261.58
5/14/99 76.43 89.39 126.74 257.93
5/28/99 85.5 97.81 136.19 276.34
6/15/99 93.56 104.42 139.5 277.86
6/30/99 92.27 104.37 143.31 292.17
7/15/99 91.44 103.23 139.22 285.26
7/30/99 101.56 111.87 148.08 288.35
8/13/99 109.8 125.01 159.69 296.15
8/31/99 106.27 121.97 157.21 312.32
9/15/99 95.12 109.92 144.43 303.41
9/30/99 98.39 113.63 148.83 315.02
10/15/99 83.56 102.47 140.27 304.7
10/29/99 88.76 107.55 143.33 328.11
11/15/99 87.41 103.14 140.28 331.53
11/30/99 75.57 91.17 128.09 303.95
12/15/99 83.11 98.83 134.42 294.3
12/31/99 84.45 99.99 134.17 289.47
1/14/2000 92.53 105.88 138.37 298.43
1/31/2000 98.37 113.69 142.53 304.6
2/15/2000 108.73 119.7 149.71 310.66
2/29/2000 112.33 124.85 155.38 332.69
3/15/2000 126.78 139.93 177.85 340.25
3/31/2000 136.13 152.42 191.18 391.39
4/14/2000 137.89 154.88 198.98 401.44
4/28/2000 138.54 157.32 207.77 402.14
5/15/2000 151.33 169.08 218.96 375.05
5/31/2000 154.74 168.1 215.34 408.15
6/15/2000 140.07 156.61 193.06 379.4
6/30/2000 149.9 163.89 197.05 370.52
7/14/2000 147.48 161.69 193.68 356.75
7/31/2000 153.01 166.65 198.18 350.95
8/15/2000 155.89 167.81 198.85 346.74
8/31/2000 156.88 171.34 205.44 340.55
9/15/2000 142.85 164.38 203.71 323.34
9/29/2000 137.74 163.53 202.07 348.26
10/13/2000 155.92 185.84 221.21 352.94
10/31/2000 151.99 184.21 227.22 375.11
11/15/2000 151.12 186.44 231.19 428.19
11/30/2000 168.69 202.21 244.56 375.58
12/15/2000 161.42 198.42 245.44 395.84
12/29/2000 163.11 203.03 248.07 375.01
1/12/2001 146.48 183.73 228.35 358.98
1/31/2001 133.3 165.27 221.35 341.39
2/15/2001 139.43 168.75 222.52 329.01
2/28/2001 135.2 167.74 220.5 342.29
3/15/2001 140.32 169.15 225.5 341.91
3/30/2001 134.65 161.88 218.31 368.04
4/12/2001 136.3 166.73 223.57 354.35
4/30/2001 121.25 152.73 204.3 338.23
5/15/2001 122.64 153.79 204.45 332.98
5/31/2001 115.31 144.45 194.62 343.74
6/15/2001 115.47 143.88 191.38 342.7
6/29/2001 116.12 142.03 196.18 370.97
7/13/2001 118.61 143.73 196.99 380.56
7/31/2001 116.33 141.9 192.89 393.14
8/15/2001 114.93 139.31 195.69 372.16
8/31/2001 115.08 141.05 197.31 391.53
9/28/2001 136.81 167.98 226.91 534.76
10/15/2001 128.06 163.83 218.14 525.98
10/31/2001 128.12 166.92 233.09 528.03
11/15/2001 111.36 154.5 219.75 443.47
11/30/2001 99.51 142.03 211.86 406.29
12/14/2001 97.81 144.37 216.9 354.56
12/31/2001 91.59 142.12 208.5 378.69
1/2/2002 87.96 139.55 201.35 367.82
1/3/2002 88.14 137.39 200.63 371.49
1/4/2002 88.42 138.79 200.92 366.87
1/7/2002 89.9 140.47 199.96 375.11
1/8/2002 90.04 140.99 199.92 375.32
1/9/2002 90.64 139.22 198.53 375.07
1/10/2002 91.69 139.79 200.23 382.28
1/11/2002 93.99 141.9 203.95 386.62
1/14/2002 90.96 141.25 203.28 374.73
1/15/2002 91.53 137.97 201.59 374.7
1/16/2002 93.67 138.78 203.01 372.53
1/17/2002 93.21 139.41 205.14 367.17
1/18/2002 93.69 138.88 205.81 369.93
1/22/2002 92.1 136.89 204.04 364.7
1/23/2002 92.05 134.28 204.32 360.7
1/24/2002 90.69 132.47 204.29 360.88
1/25/2002 92.57 133.27 205.53 361.29
1/28/2002 92.07 133.05 205.88 361.7
1/29/2002 96.98 135.7 207.85 368.97
1/30/2002 96.63 135.63 207.12 369.11
1/31/2002 94.09 136.13 207.7 364.26
2/1/2002 95.81 138.38 210.09 366.79
2/4/2002 97.03 139.39 210.72 373.91
2/5/2002 102.43 145.32 215.7 375.43
2/6/2002 103.13 146.25 217.81 371.02
2/7/2002 102.04 144.96 216.4 374.77
2/8/2002 100.35 142.83 215.71 377.83
2/11/2002 100.93 143.95 215.94 376.03
2/12/2002 97.39 139.79 210.26 369.66
2/13/2002 92.42 137.52 209.14 368.39
2/14/2002 94.61 138.43 209.7 372.8
2/15/2002 93.1 133.28 203.51 377.01
2/19/2002 93.56 133.99 204 377.45
2/20/2002 93.03 135.24 204.21 380.02
2/21/2002 94.17 135.41 205.81 380.64
2/22/2002 93.88 135.12 205.52 385.41
2/25/2002 92.88 132.96 206.53 381.68
2/26/2002 90.78 130.82 203.81 374.6
2/27/2002 90.2 130.12 203.19 377.77
2/28/2002 91.45 130.1 202.17 365.55
3/1/2002 89.42 128.97 200.87 360.29
3/4/2002 89.18 129.85 201.77 359.37
3/5/2002 88.17 125.69 199.69 361.2
3/6/2002 87.03 124.76 199.87 356.85
3/7/2002 84.56 122.03 196.69 340.37
3/8/2002 82.42 118.84 193.19 329.73
3/11/2002 82.61 117.77 193.46 330.15
3/12/2002 83.67 118.84 193.94 329.08
3/13/2002 83.87 119.65 194.5 329.75
3/14/2002 83.42 118.87 193.54 319.98
3/15/2002 87.29 122.57 193.1 310.38
3/18/2002 87.45 122.02 194.24 312.97
3/19/2002 87.14 121.21 193.21 307.88
3/20/2002 86.3 120.41 193.11 305.39
3/21/2002 86.72 120.44 194.18 307.47
3/22/2002 86.29 120.81 192.69 306.44
3/25/2002 87.72 122.29 193.7 306.35
3/26/2002 89.88 123.06 194.94 310.46
3/27/2002 90.41 123.74 195.23 306.82
3/28/2002 94 125.84 194.32 308.39
4/1/2002 92.8 126.02 194.27 318.25
4/2/2002 93.96 126.87 194.25 326.87
4/3/2002 94.47 127.26 194.5 324.73
4/4/2002 94.23 126.99 193.68 326.02
4/5/2002 95.08 127.72 194.19 331.65
4/8/2002 95.5 128.05 194.1 331.75
4/9/2002 95.55 126.89 194.72 333.74
4/10/2002 95.55 126.71 194.95 331.08
4/11/2002 96.19 127.87 195.92 333.54
4/12/2002 98.88 129.79 199.42 334.68
4/15/2002 96.68 127.4 193.91 339.99
4/16/2002 96.42 126.05 192.77 336.63
4/17/2002 95.65 124.35 190.68 331.93
4/18/2002 94.55 123.65 190.11 332.23
4/19/2002 94.34 122.32 188.7 335.73
4/22/2002 94.29 122.95 192.3 338.07
4/23/2002 93.17 123.23 192.21 339.05
4/24/2002 92.74 121.28 199.69 347.44
4/25/2002 94.18 121.16 195.87 351.03
4/26/2002 95.51 122.51 196.64 350.57
4/29/2002 98.98 123.56 203.96 342.02
4/30/2002 102.7 126.39 205.91 345.98
5/1/2002 103.57 127.17 209.32 341.47
5/2/2002 101.96 125.78 205.89 328.71
5/3/2002 102.37 126.63 205.97 330.13
5/6/2002 101.24 127.27 210.95 328.65
5/7/2002 102.36 127.93 213.46 324.02
5/8/2002 99.35 125.39 209.02 308.78
5/9/2002 98.87 125.34 206.1 318.81
5/10/2002 99.25 126.05 200.64 342.8
5/13/2002 98.3 126.74 205.84 333.16
5/14/2002 95.23 123.54 202.24 320.41
5/15/2002 97.76 122.76 195.9 335.09
5/16/2002 97.06 121.95 195.87 340.47
5/17/2002 90.8 116.01 189.32 334.07
5/20/2002 94.67 121.17 196.32 338.72
5/21/2002 94.5 120.1 195.22 343.94
5/22/2002 95.53 120.21 192.08 347.48
5/23/2002 94.57 118.87 186.9 344.09
5/24/2002 95.26 119.06 185.74 345.71
5/28/2002 94.99 118.28 183.11 345.25
5/29/2002 95.85 117.41 181.64 350.29
5/30/2002 95.69 115.97 184.12 354.2
5/31/2002 89.31 111.71 181.63 366.12
6/3/2002 89.04 110.65 181.27 368.73
6/4/2002 89.39 110.57 182.53 371.58
6/5/2002 89.73 111.06 182.52 368.57
6/6/2002 90.03 110.51 182.23 373.47
6/7/2002 90.9 112.87 186.78 369.1
6/10/2002 90.04 112.96 186.48 371.66
6/11/2002 89.95 112.42 186.91 376.57
6/12/2002 90.42 112.72 191.61 377.96
6/13/2002 91.14 112.83 192.88 377.07
6/14/2002 90.32 111.21 186.05 391.03
6/17/2002 89.41 110.22 183.96 385.84
6/18/2002 90.61 111.73 187.34 388.4
6/19/2002 90.32 111.22 186.27 398.06
6/20/2002 89.71 111.7 187.54 390.51
6/21/2002 90.15 113.24 188.59 375.88
6/24/2002 92.21 115.66 192.35 374.38
6/25/2002 92.64 115.22 190.59 379.69
6/26/2002 93.87 115.19 194.08 393.33
6/27/2002 92.91 115.1 195.95 386.8
6/28/2002 96.2 114.73 192.2 418.72
7/1/2002 96.76 115.78 195.64 418.72
7/2/2002 97.71 117.81 199.75 425.67
7/3/2002 98.68 119.04 201.2 430.32
7/5/2002 97.53 118.18 199.47 419.88
7/8/2002 98.11 118.35 199.31 426.93
7/9/2002 98.16 117.56 199.37 436.64
7/10/2002 98.95 119.33 200.22 448.94
7/11/2002 100.29 120.04 204.03 435.62
7/12/2002 100.74 120.31 201.29 445.3
7/15/2002 103.23 124.21 203.99 464.2
7/16/2002 103.71 125.24 204.94 454.19
7/17/2002 102.11 124.69 205.67 461.54
7/18/2002 101.99 125.43 207.72 467.26
7/19/2002 102.37 127.71 217.12 473.14
7/22/2002 107.93 130.07 227.66 481.77
7/23/2002 112.36 130.93 229.86 482.64
7/24/2002 114.08 132.88 253.63 498.04
7/25/2002 114.55 133.42 242.8 492.41
7/26/2002 117.65 135.22 247.7 506.97
7/29/2002 118.38 137.61 248.02 476.62
7/30/2002 113.13 135.92 233.24 496.48
7/31/2002 125.52 141.56 230.52 525.42
8/1/2002 123.22 140.88 228.41 521.04
8/2/2002 122.15 141.45 231.67 540.5
8/5/2002 129.91 148.05 241.05 563.33
8/6/2002 126.89 146.03 237.66 547.31
8/7/2002 123.59 146.15 237.87 552.74
8/8/2002 126.31 145.84 235.27 544.9
8/9/2002 123.64 145.31 237.52 557.14
8/12/2002 121.81 146.09 240.63 554
8/13/2002 124.28 146.06 243.52 562.98
8/14/2002 123.62 147.07 241.8 578.55
8/15/2002 133.23 152.25 242.28 576.33
8/16/2002 128.78 151.89 243.29 560.89
8/19/2002 128.29 151.77 240.68 561.72
8/20/2002 126.48 148 236.48 570.97
8/21/2002 123.56 147.75 232.34 558.45
8/22/2002 120.79 146.93 228.25 547.08
8/23/2002 120.95 148.75 228.61 550.13
8/26/2002 115.56 147.31 228.03 551.14
8/27/2002 112.37 146.28 226.31 526.85
8/28/2002 114.46 145.6 225.86 552.6
8/29/2002 114.99 146.26 226.5 564.69
8/30/2002 113.68 145.75 226.32 533.43
9/3/2002 116.21 147.49 231.67 549.91
9/4/2002 117.9 147.72 232.04 555.7
9/5/2002 118.31 148.5 233.34 562.46
9/6/2002 115.83 147.87 232.3 552.92
9/9/2002 117.2 147.26 232.48 553.33
9/10/2002 118.07 144.93 228.93 558.09
9/11/2002 117.66 144.52 228.38 549.72
9/12/2002 118.8 143.15 228.44 551.49
9/13/2002 119.75 143.11 226.19 565.92
9/16/2002 119.52 142.77 225.42 568.62
9/17/2002 118.83 143.24 225.28 569.82
9/18/2002 119.68 143.48 225.92 569.37
9/19/2002 122.48 144.35 225.98 577.22
9/20/2002 124.15 146.5 227.15 579.4
9/23/2002 126.78 149.62 237.43 596.64
9/24/2002 127.3 152.48 246.8 611.45
9/25/2002 126.48 150.42 244.22 601.05
9/26/2002 124.83 150.11 245.57 583.81
9/27/2002 127.18 149.17 244.59 629.45
9/30/2002 128.29 147.5 250.1 644.17
10/1/2002 126.56 145.42 248.03 636.5
10/2/2002 123.52 143.75 241.63 643.91
10/3/2002 123.52 143.9 243.22 645.99
10/4/2002 125.65 146.4 247.92 644.91
10/7/2002 126.15 152.89 261.92 656.41
10/8/2002 128.95 155.74 280.63 659.52
10/9/2002 133.01 158.53 291.5 659.44
10/10/2002 133.18 161.74 294.66 655.37
10/11/2002 128.91 158.41 288.24 659.44
10/15/2002 120.74 152.95 270.07 638.1
10/16/2002 120.28 152.4 268.35 634.67
10/17/2002 118.9 151.74 267.62 626.76
10/18/2002 116.4 151.18 269.18 622.13
10/21/2002 115.28 148.17 264.81 614.49
10/22/2002 114.46 147.49 262.96 615.22
10/23/2002 114.85 146.96 263.11 612.39
10/24/2002 114.67 145.91 261.58 617.79
10/25/2002 115.53 148.22 261.81 623.78
10/28/2002 111.7 146.82 258.33 623.15
10/29/2002 109.99 146.68 257.69 641.77
10/30/2002 110.2 145.36 253.39 621.69
10/31/2002 110.27 146.98 256.2 624.79
11/1/2002 111.44 147.8 257.81 624.4
11/4/2002 107.38 141.8 250.14 615.37
11/5/2002 103.95 139.29 247.09 615.71
11/6/2002 99.98 134.91 243.38 616.21
11/7/2002 98.14 132.3 242.28 613.74
11/8/2002 98.77 133.78 245.16 617.85
11/12/2002 103.72 136.64 250.16 619.33
11/13/2002 103.11 137.18 252.62 616.16
11/14/2002 101.79 133.67 244.01 580.43
11/15/2002 97.46 134.15 236.72 571.18
11/18/2002 96.15 133.73 236.17 572.68
11/19/2002 96.31 133.34 235.38 572.99
11/20/2002 93.09 131.91 231.05 558.08
11/21/2002 90.98 130.23 223.25 543.31
11/22/2002 90.23 130.25 223.24 538.71
11/25/2002 90.9 130.75 222.6 539.76
11/26/2002 91.64 130.34 223.16 546.96
11/27/2002 90.64 128 213.15 488.49
11/29/2002 90.69 122.59 208.07 436.48
12/2/2002 89.16 120.14 206.06 506.99
12/3/2002 90.39 120 205.73 503.79
12/4/2002 90.18 120.9 207.92 509.54
12/5/2002 92.37 121.17 209.1 513.84
12/6/2002 96.95 123.62 213.13 521.44
12/9/2002 97.28 124.5 214.12 531.33
12/10/2002 98.21 126.37 216.1 531.83
12/11/2002 99.17 126.13 216.32 537.91
12/12/2002 99.99 125.02 215.3 532.2
12/13/2002 95.64 120.28 207.13 525.63
12/16/2002 94.8 117.08 204.19 518.89
12/17/2002 92.14 116.89 202.83 521.65
12/18/2002 92.81 117.18 203.24 525.9
12/19/2002 90.39 118.1 204.96 533.06
12/20/2002 91.63 117.72 205.42 532.55
12/23/2002 91.53 117.01 205.26 544.31
12/24/2002 92.52 118.04 206.94 538.91
12/26/2002 93.09 117.82 208.41 540.03
12/27/2002 90.91 117.85 209.31 552.03
12/30/2002 91.18 117.77 212.02 548.44
12/31/2002 93.04 116.97 204.11 550.26
1/2/2003 90.53 114.02 197.44 527.54
1/3/2003 90.92 114.2 197.42 527.3
1/6/2003 89.55 112.82 194.05 521.67
1/7/2003 88.31 111.53 192.93 522.44
1/8/2003 88.73 112.02 193.55 524.58
1/9/2003 87.1 112.15 193.2 500.93
1/10/2003 86.84 112.53 192.85 498.74
1/13/2003 85.65 112.78 187.88 497.58
1/14/2003 85.15 111.32 187.85 481.39
1/15/2003 85.42 109.71 189.8 478.48
1/16/2003 85.4 109.38 191.33 478.94
1/17/2003 85.97 110.14 192.2 484.15
1/21/2003 88.6 111.14 194.8 489.26
1/22/2003 91.47 111.97 198.07 496.53
1/23/2003 90.92 111.41 196.89 493.33
1/24/2003 91.47 111.73 196.97 503.04
1/27/2003 90.9 112.86 198.17 503.44
1/28/2003 90.57 112.79 197.81 501.39
1/29/2003 89.9 112.64 195.47 447.24
1/30/2003 88.99 111.68 194.26 479.65
1/31/2003 86.56 107.37 187.04 522.64
2/3/2003 84.27 107.01 183.97 520.28
2/4/2003 84 106.94 184.4 523.52
2/5/2003 82.69 106.05 182.51 515.16
2/6/2003 82.29 105.63 180.75 524.39
2/7/2003 81.23 106.48 179.49 526.63
2/10/2003 81.75 106.47 179.34 522.31
2/11/2003 81.41 106.2 179.08 522.57
2/12/2003 82.73 107.5 179.95 534.98
2/13/2003 82.78 107.92 181.24 505.95
2/14/2003 87.84 107.83 181.91 507.98
2/18/2003 87.57 107.97 183.12 509.54
2/19/2003 88.07 108.04 183.62 514.73
2/20/2003 86.24 108.1 184.46 517.7
2/21/2003 87.54 107.91 184.93 511.5
2/24/2003 85.73 108.11 185.15 517.53
2/25/2003 87.77 106.4 185.35 512.19
2/26/2003 86.24 105.91 186.49 517.5
2/27/2003 85.23 105.61 186.21 514.1
2/28/2003 87.52 106.1 180.16 513.25
3/3/2003 84.81 106.39 179.35 511.16
3/4/2003 85.48 107.02 180.5 510.31
3/5/2003 87.2 109 182.67 514.68
3/6/2003 86.43 109.29 184.33 507.34
3/7/2003 87.07 109.93 186.11 504.76
3/10/2003 88.32 110.48 187.05 509.61
3/11/2003 86.36 111.54 187.44 513.79
3/12/2003 86.72 109.93 187.34 514
3/13/2003 86.34 108.52 184.98 497.86
3/14/2003 83.18 107.93 181.64 486.99
3/17/2003 83.78 108.06 180.62 478.33
3/18/2003 81.17 106.94 179.9 469.21
3/19/2003 80.53 106.79 179.31 466.25
3/20/2003 80.49 107.6 178.14 460.77
3/21/2003 80.05 107.12 177.35 453.5
3/24/2003 79.78 106.57 177.49 451.84
3/25/2003 80.49 106 176.55 451.29
3/26/2003 77.43 105.26 173.65 453.48
3/27/2003 77.66 105.73 173.84 438.72
3/28/2003 76.11 106.42 173.83 443.28
3/31/2003 74.42 105.03 171.35 432.81
4/1/2003 74.67 104.95 172.55 430.61
4/2/2003 74.12 104.62 171.37 420.27
4/3/2003 73.7 104.61 170.24 419.98
4/4/2003 74.78 104.77 170.42 412.63
4/7/2003 73.1 102.94 169.42 409.08
4/8/2003 72.13 102.41 170.63 417.39
4/9/2003 73.32 102.57 170.76 418.86
4/10/2003 73.34 102.98 170.67 415.81
4/11/2003 73.31 102.71 170.5 397.98
4/14/2003 70.84 100.3 168.03 386.24
4/15/2003 72.02 99.79 162.85 385.4
4/16/2003 72.92 99.68 161.26 390.87
4/17/2003 72.63 101.45 161.22 390.23
4/21/2003 71.31 98.02 158.89 388.78
4/22/2003 71.1 97.7 157.47 391.55
4/23/2003 70.65 95.58 154.55 390.95
4/24/2003 69.35 95.18 154.78 397.6
4/25/2003 70.77 95.66 155.12 396.58
4/28/2003 69.8 95.38 155 369.1
4/29/2003 70.02 94.39 154.39 381.68
4/30/2003 68.17 92.79 145.39 373
5/1/2003 68.11 92 143.52 372.5
5/2/2003 66.94 91.27 143.13 367.32
5/5/2003 66.32 90.36 142.34 369.77
5/6/2003 66.86 90.1 137.65 377.27
5/7/2003 67.07 90.03 141.75 387.61
5/8/2003 67.34 90.78 142.74 389.53
5/9/2003 66.93 91.03 143.36 387.29
5/12/2003 67.05 90.77 142.24 391.17
5/13/2003 66.87 91.06 143.54 391.34
5/14/2003 66.56 90.63 143.71 399.55
5/15/2003 73.42 90.72 145.06 396.29
5/16/2003 72.77 90.95 146.22 396.45
5/19/2003 75.8 91.25 146.37 397.31
5/20/2003 76.44 93.41 148.65 353.7
5/21/2003 75.7 91.65 147.71 395.68
5/22/2003 74.67 91.7 148.28 409.17
5/23/2003 74.23 90.58 146.77 410.38
5/27/2003 77.5 92.54 148.55 406.39
5/28/2003 75.66 93.17 148.6 404.45
5/29/2003 74.2 91.27 146.26 415.03
5/30/2003 73.47 92.16 144.77 417.31
6/2/2003 72.19 90.61 142.47 409.22
6/3/2003 73.64 91.51 143.87 417.22
6/4/2003 72.98 91.94 143.57 420.42
6/5/2003 71.7 90.49 142.24 415.07
6/6/2003 71.36 90.61 142 411.99
6/9/2003 68.89 89.33 140.51 417.5
6/10/2003 69.52 89.97 140.87 425.84
6/11/2003 68.71 88.74 139.75 421.17
6/12/2003 67.21 88.34 139.48 423.69
6/13/2003 68.02 87.85 141.46 408.86
6/16/2003 65.13 87.16 141.07 402.51
6/17/2003 62.91 86.1 139.72 392.83
6/18/2003 63.28 84.85 139.52 385
6/19/2003 65.03 85.62 140.38 386.98
6/20/2003 65.51 85.66 140.29 385.94
6/23/2003 68.23 86.26 141.65 394.53
6/24/2003 68.51 85.96 141.58 397.73
6/25/2003 67.4 84.63 139.74 384.8
6/26/2003 66.88 82.88 139.36 332.28
6/27/2003 66.61 83.05 138.47 374.04
6/30/2003 65.38 81.8 138.93 378.22
7/1/2003 64.79 82.73 138.73 373.33
7/2/2003 66.22 83.68 139.82 377.22
7/3/2003 66.5 83.45 139.48 367.89
7/7/2003 65.57 82.98 138.6 362.75
7/8/2003 65.34 82.57 137.58 360.81
7/9/2003 65.33 82.76 136.85 362.56
7/10/2003 65.3 82.5 136.85 364.99
7/11/2003 65.88 82.97 137.85 368.46
7/14/2003 67.07 83.48 137.22 363.26
7/15/2003 80.52 81.4 132.13 349.12
7/16/2003 66.76 80.07 135.04 345.94
7/17/2003 65.66 78.86 128.65 343.47
7/18/2003 65.75 78.98 128.64 341.86
7/21/2003 64.41 78.6 127.41 315.45
7/22/2003 65.67 78.84 127.53 325.38
7/23/2003 66.7 79.26 127.63 330.17
7/24/2003 68.27 80.55 128.49 325.95
7/25/2003 68.29 80.46 128.58 325.53
7/28/2003 67.67 80.74 129 314.55
7/29/2003 70.35 82.15 136.18 314
7/30/2003 69.6 81.5 130.64 324.67
7/31/2003 77.36 83.31 131.12 323.83
8/1/2003 71.8 78.81 126.65 325.93
8/4/2003 74.99 81.8 128.92 344.69
8/5/2003 77.34 82.16 128.83 334.68
8/6/2003 80.09 84.68 131.04 360.53
8/7/2003 79.59 84.45 131.07 367.89
8/8/2003 79 84.96 131.3 365.59
8/11/2003 75.19 83.91 130.79 357.79
8/12/2003 77.17 83.48 130.19 357.95
8/13/2003 76.79 82.57 129.94 343.27
8/14/2003 74.84 80.5 128.15 351.3
8/15/2003 75.53 85.95 134.02 365.01
8/18/2003 74.51 85.37 133.13 359.19
8/19/2003 72.6 84.9 132.97 362.8
8/20/2003 70.47 83.79 132.09 343.75
8/21/2003 69.42 81.48 129.28 329.45
8/22/2003 70.37 82.19 130.26 333.03
8/25/2003 71.04 80.24 130.46 328.32
8/26/2003 72.2 83.79 131.21 332.76
8/27/2003 70.94 82.93 129.26 323.22
8/28/2003 70.95 82.79 128.67 321.98
8/29/2003 71.97 77.97 129.09 321.29
9/2/2003 68.32 80.02 125.84 295.17
9/3/2003 52.29 75.6 125.03 291.69
9/4/2003 52.76 75.25 126.21 296.87
9/5/2003 52.3 77.97 127.43 309.75
9/8/2003 52.02 78.43 127.88 302.18
9/9/2003 51.75 78.01 128.12 300.21
9/10/2003 51.96 78.48 128.19 305.04
9/11/2003 51.74 77.86 124.13 299.87
9/12/2003 52.37 78.08 127.07 306.95
9/15/2003 54.39 77.88 124.3 313.66
9/16/2003 54.22 78.62 125.25 302.53
9/17/2003 53.68 76.7 123.08 308.83
9/18/2003 53.33 76.69 122.75 305.13
9/19/2003 53.21 74.17 121.91 305.74
9/22/2003 54.01 76.37 123.63 300.74
9/23/2003 54.69 77.95 136.62 305.66
9/24/2003 53.64 76.88 124.08 306.59
9/25/2003 52.67 76.87 123.34 307.2
9/26/2003 52.81 77.35 123.93 310.18
9/29/2003 53.31 77.83 124.45 308.5
9/30/2003 54.11 74.95 121.02 322.09
10/1/2003 54.09 74.74 121.18 307.77
10/2/2003 55.33 74.62 120.92 300.48
10/3/2003 56.87 76.07 121.73 284.57
10/6/2003 56.45 75.93 121.9 292.57
10/7/2003 56.64 75.99 122.2 283.1
10/8/2003 56.96 75.94 121.89 282.43
10/9/2003 56.86 76.08 121.75 277.14
10/10/2003 57.1 75.82 121.69 280.88
10/14/2003 57.8 76.95 122.39 276.29
10/15/2003 54.29 73.08 115.53 271.15
10/16/2003 53.26 71.44 113.13 251.97
10/17/2003 53.1 71.2 112.1 255.96
10/20/2003 52.04 70.52 112.53 253.56
10/21/2003 51.88 69.93 112.3 253.49
10/22/2003 53.16 71.11 113.68 261.14
10/23/2003 54.14 71.64 114.4 260
10/24/2003 54.72 77.42 115.58 270.75
10/27/2003 54.39 72.39 115.86 264.38
10/28/2003 55.11 73.27 116.63 268.53
10/29/2003 55 73.07 115.89 255.03
10/30/2003 53.81 71.11 113.88 250.06
10/31/2003 52.39 69.33 110.96 255.28
11/3/2003 52.69 69.33 110.97 237.3
11/4/2003 53.41 70.41 111.95 239.2
11/5/2003 54.87 70.95 113.12 232.92
11/6/2003 54.31 70.39 112.64 226.42
11/7/2003 54.48 70.25 111.64 223.86
11/10/2003 54.43 70.32 111.36 222.13
11/12/2003 54.04 69.63 110.07 231.33
11/13/2003 54.06 69.71 110.75 243.45
11/14/2003 51.55 68.99 109.78 243.71
11/17/2003 51.85 69.29 109.63 245.34
11/18/2003 51.66 65.94 109.41 251.03
11/19/2003 51.35 69.04 109.66 243.57
11/20/2003 51.67 69.75 111.06 246.43
11/21/2003 52.5 69.72 111.08 244.4
11/24/2003 51.63 69.32 110.43 234.09
11/25/2003 51.32 69.72 110.67 239.51
11/26/2003 50.08 69.07 108.83 232.7
11/28/2003 49.02 66.27 106.53 221.76
12/1/2003 49.14 65.9 105.54 215.22
12/2/2003 49.67 66.44 105.8 212.91
12/3/2003 49.56 66.4 105.63 209.77
12/4/2003 49.16 66.45 105.69 209.9
12/5/2003 50.22 67.48 107.32 221.01
12/8/2003 51.45 68.58 107.79 212.37
12/9/2003 51.7 68.93 107.72 205.34
12/10/2003 50.79 65.76 108.47 208.56
12/11/2003 51.5 70.78 109.77 217.99
12/12/2003 51.85 70.69 109.89 217.99
12/15/2003 51.54 69.81 110.25 215.91
12/16/2003 50.93 69.72 110.64 220.93
12/17/2003 49.91 68.6 109.55 217.42
12/18/2003 49.59 68.23 108.82 220.24
12/19/2003 49.79 68.24 108.65 216.99
12/22/2003 50.59 68.72 109 213.43
12/23/2003 50.79 68.12 107.3 201.39
12/24/2003 50.94 68.58 107.6 208.59
12/26/2003 50.97 69.11 108.2 213.48
12/29/2003 50.48 68.87 107.86 211.41
12/30/2003 50.94 68.71 107.52 201.2
12/31/2003 50.58 69.28 108.07 212.44
1/2/2004 49.91 68.46 107.13 192.68
1/5/2004 49.79 68.78 106.87 189.21
1/6/2004 50.1 68.82 106.79 195.32
1/7/2004 50.47 68.79 107.24 193.46
1/8/2004 50.47 69.13 106.63 188.67
1/9/2004 50.37 69.79 107.78 201.35
1/12/2004 50.74 69.72 107.86 203.7
1/13/2004 51.27 70.3 109.13 209.05
1/14/2004 51.7 69.62 107.93 213.95
1/15/2004 50.87 67.57 104.98 220.27
1/16/2004 50.81 67.33 104.66 200.18
1/20/2004 50.42 67.52 104.55 196.17
1/21/2004 50.99 68.04 105.2 195.1
1/22/2004 51 67.53 104.38 196.18
1/23/2004 51.5 67.69 104.42 184.53
1/26/2004 51.99 68.11 104.81 181.86
1/27/2004 52.58 68.34 106.07 186.78
1/28/2004 51.4 67.53 105.4 182.64
1/29/2004 51.36 67.27 105.71 192.71
1/30/2004 49.61 68.13 105.64 203.21
2/2/2004 49.2 67.95 105.95 193.63
2/3/2004 50.63 68.58 106.24 201.11
2/4/2004 50.96 68.88 106.35 204.52
2/5/2004 50.58 68.15 105.54 203.82
2/6/2004 51.57 68.91 107.05 217.03
2/9/2004 51.58 68.69 106.87 212.82
2/10/2004 51.52 68.31 106.84 205.71
2/11/2004 52.27 68.82 106.62 213.57
2/12/2004 52.93 69.33 106.99 212.04
2/13/2004 51.3 69.15 106.41 215.22
2/17/2004 50.8 68.68 106.37 213.05
2/18/2004 50.8 68.55 106.26 208.62
2/19/2004 50.29 68.45 105.98 201.22
2/20/2004 50.49 68.16 105.71 200.88
2/23/2004 51.66 68.51 106.35 204.44
2/24/2004 51.57 68.62 106.47 208.9
2/25/2004 51.43 68.79 106.4 209.27
2/26/2004 51.52 68.77 106.41 213.76
2/27/2004 50.75 68.6 105.06 220.19
3/1/2004 49.87 68.61 105.09 213.72
3/2/2004 49.92 68.16 104.68 208.13
3/3/2004 50.11 68.18 104.55 206.85
3/4/2004 49.94 68.22 104.39 210
3/5/2004 50.58 69.53 105.75 219.15
3/8/2004 50.59 69.91 106.43 222.91
3/9/2004 50.81 69.76 107.21 224.83
3/10/2004 50.42 69.72 106.92 216.55
3/11/2004 51.09 70.65 107.47 223.48
3/12/2004 51.61 70.71 107.78 230.36
3/15/2004 54.01 72.21 109.92 229.67
3/16/2004 53.23 72.16 109.92 230.39
3/17/2004 53.32 72.07 109.78 234.1
3/18/2004 52.85 71.69 109.1 226.88
3/19/2004 52.4 71.7 108.42 221.75
3/22/2004 52.8 72.35 109.78 229.46
3/23/2004 52.8 72.4 109.95 224.74
3/24/2004 52.31 72.22 110.03 225.4
3/25/2004 54.28 73.21 110.76 226.59
3/26/2004 53.31 72.2 109.77 219.27
3/29/2004 52.92 72.07 109.42 215.77
3/30/2004 53.11 71.73 109.63 215.29
3/31/2004 54.24 72.27 110.85 226.1
4/1/2004 53.63 71.67 110.14 217.46
4/2/2004 52.48 70.58 108.09 200.7
4/5/2004 52.89 70.52 107.37 199.78
4/6/2004 53.11 70.7 107.67 206.26
4/7/2004 52.82 70.26 107.11 203.69
4/8/2004 52.62 70.31 106.06 200.57
4/12/2004 52.65 69.47 105.69 196.64
4/13/2004 52.15 68.79 104.74 189.84
4/14/2004 51.46 67.77 103 191.95
4/15/2004 50.09 67.42 104.05 193.77
4/16/2004 50.56 67.96 104.79 196.29
4/19/2004 49.93 67.71 104.42 191.53
4/20/2004 49.71 67.37 104.31 190.94
4/21/2004 50.27 67.32 104.25 194.55
4/22/2004 50.24 67.39 104.94 198.23
4/23/2004 49.9 66.29 103.72 191.43
4/26/2004 49.46 66.12 103.43 192.84
4/27/2004 49.83 67.02 104.07 197.13
4/28/2004 50.29 67.05 104.33 192.93
4/29/2004 51.16 68.44 106.22 194.94
4/30/2004 52.23 69.61 106.31 200.41
5/3/2004 50 69.66 104.47 196.75
5/4/2004 50.41 68.2 104.57 197.01
5/5/2004 51.39 68.75 105.4 196.88
5/6/2004 54.89 71.94 108.09 205.66
5/7/2004 53.7 71.14 105.64 206.15
5/10/2004 54.08 71.9 107.15 221.58
5/11/2004 56.16 72.03 107.64 225.28
5/12/2004 56.67 72.07 107.87 233.82
5/13/2004 56.43 72.09 108.28 241.45
5/14/2004 53.77 76.5 111.55 246.28
5/17/2004 51.52 76.46 112.5 257.85
5/18/2004 59.77 74.91 112.36 247.08
5/19/2004 51.15 74.81 111.33 243.05
5/20/2004 49.38 75.17 112.98 246.09
5/21/2004 49.05 74.76 111.09 237.12
5/24/2004 48.46 72.42 110.36 236.22
5/25/2004 47.72 71.5 110.32 238.31
5/26/2004 48.32 72.62 112 242.63
5/27/2004 46.63 73.1 111.65 251.76
5/28/2004 51.26 75.01 109.04 244.25
6/1/2004 53.07 76.4 110.25 238.37
6/2/2004 51.28 77.2 109.91 241.77
6/3/2004 50.48 76.96 109.78 239.32
6/4/2004 52.34 77.7 109.47 233.99
6/7/2004 51.66 77.84 110.63 236.21
6/8/2004 51.41 77.32 110.46 233.47
6/9/2004 51.38 75.29 110.1 229.63
6/10/2004 51.39 75.95 110.23 231.09
6/14/2004 51.89 76.6 110.17 230.29
6/15/2004 49.77 76.44 112.62 244.67
6/16/2004 50.78 76.47 112.98 235.62
6/17/2004 50.91 77.06 111.63 232.23
6/18/2004 51.5 76.77 112.01 235.69
6/21/2004 50.17 76.95 111.75 234.13
6/22/2004 50.27 77.94 112.37 224.14
6/23/2004 49.02 77.13 111.95 223.5
6/24/2004 48.38 77.37 110.47 226.47
6/25/2004 46.26 72.81 112.76 227.82
6/28/2004 47.01 75.32 110.33 216.98
6/29/2004 47.05 74.29 107.98 221.18
6/30/2004 49.5 77.57 114.66 241.53
7/1/2004 49.63 78.26 116.33 232.47
7/2/2004 51.47 78.07 117.66 239.95
7/6/2004 51.51 79.33 117.86 247.29
7/7/2004 50.5 79.43 118.03 239.99
7/8/2004 50.31 79.56 118.47 229.6
7/9/2004 51.04 79.38 117.5 229.42
7/12/2004 50.24 80.01 117.48 235.33
7/13/2004 49.77 78.7 118.3 228.81
7/14/2004 49.34 77.14 116.46 253.72
7/15/2004 48.69 76.84 111.51 230.28
7/16/2004 49.13 77.98 115.39 221.11
7/19/2004 48.52 77.7 116.21 223.05
7/20/2004 47.83 76.49 113.4 212.54
7/21/2004 47.82 76.23 113.18 214.04
7/22/2004 47.55 76.08 113.23 217.5
7/23/2004 47.99 75.95 113.34 227.39
7/26/2004 47.13 72.82 113.06 220.01
7/27/2004 47.2 73.54 112.28 209.28
7/28/2004 48.4 74.85 112.59 218.01
7/29/2004 48.73 76.92 113.36 228.46
7/30/2004 50.34 77.79 112.23 240.81
8/2/2004 50.49 77.93 112.62 233.5
8/3/2004 50.67 78.68 111.9 234.61
8/4/2004 49.78 77.95 113.75 230.65
8/5/2004 49.9 77.97 113.03 240.21
8/6/2004 51.56 80.55 115.59 248.92
8/9/2004 51.51 79.42 110.07 241.36
8/10/2004 50.67 77.97 109.25 237.07
8/11/2004 50.45 78.78 108.98 237.26
8/12/2004 50.04 78.64 109.64 240.73
8/13/2004 54.19 80.59 116.46 253.23
8/16/2004 58.91 80.11 117.54 237.54
8/17/2004 53.09 79.86 118.32 239.09
8/18/2004 59.1 79.29 117.73 242.14
8/19/2004 58.69 78.97 117.2 238.52
8/20/2004 60.42 79.6 117.11 237.87
8/23/2004 60.06 78.66 117.61 230.45
8/24/2004 59.59 80.15 117.14 229.25
8/25/2004 57.1 75.98 115.9 230.78
8/26/2004 56.43 74.97 115.25 232.33
8/27/2004 58.75 77.53 114.55 235.36
8/30/2004 58.66 76.66 112.92 240.49
8/31/2004 58.69 76.79 115.2 267.8
9/1/2004 56.65 77.97 115.94 236.49
9/2/2004 58.64 78.19 115.56 232.92
9/3/2004 57.26 75.65 114.69 228.75
9/7/2004 56.61 74.91 114.61 228.19
9/8/2004 57.21 76.5 114.94 235.06
9/9/2004 58.08 77.31 115.1 227.45
9/10/2004 58.89 78.69 115.26 228.71
9/13/2004 60.02 78.46 115.46 233.88
9/14/2004 58.63 75.61 114.47 232.17
9/15/2004 56.82 74.64 113.13 247.82
9/16/2004 49.92 76.16 113.56 257.72
9/17/2004 56.33 75.49 113.65 225.01
9/20/2004 57.05 75.22 113.92 235.19
9/21/2004 49.81 73.24 112.68 228.4
9/22/2004 56.08 72.88 113.22 215.68
9/23/2004 49.24 71.96 111.54 215.65
9/24/2004 48.46 72.71 110.68 213.65
9/27/2004 55.35 71.27 111.63 225.05
9/28/2004 55.79 71.82 112.27 204.94
9/29/2004 48.39 74 111.4 218.41
9/30/2004 47.57 72.72 109.8 227.18
10/1/2004 48.37 71.55 109.2 203.02
10/4/2004 47.03 71.15 108.96 201.64
10/5/2004 47.55 70.83 108.7 206.06
10/6/2004 47.57 71.23 106.04 198.04
10/7/2004 47.76 71.79 106.34 198.48
10/8/2004 49.32 71.5 106.58 213.58
10/12/2004 48.43 72.8 108.52 204.13
10/13/2004 48.43 72.35 107.27 211.7
10/14/2004 47.49 73.86 108.77 212.86
10/15/2004 48.67 73.96 104.88 225.7
10/18/2004 55.06 74 108.04 223.53
10/19/2004 53.98 72.97 107.82 214.74
10/20/2004 48.61 72.19 107.97 257.38
10/21/2004 63.12 72.3 108.04 228.32
10/22/2004 59.52 73.36 107.34 255.45
10/25/2004 55.26 69.48 108.24 227.81
10/26/2004 54.8 69.77 110.48 230.01
10/27/2004 55.42 69.28 109.21 219.08
10/28/2004 55.4 69.95 109.58 218.65
10/29/2004 49.91 76.64 107.04 216.43
11/1/2004 55.11 71.65 109.3 217.41
11/2/2004 44.2 71.67 108.19 218
11/3/2004 45.87 72.79 107.67 199.46
11/4/2004 42.9 71.66 106.47 191.38
11/5/2004 42.09 73.19 103.89 179.61
11/8/2004 42.09 69.93 104.67 180.59
11/9/2004 42.6 74.71 104.89 181.31
11/10/2004 44.89 69.99 103.68 183.09
11/12/2004 47.31 66.27 102.72 186.82
11/15/2004 43.17 66.63 101.04 187.87
11/16/2004 43.33 65.13 101.33 190.84
11/17/2004 43.3 65.58 101.4 206.24
11/18/2004 41.31 64 100.84 199.45
11/19/2004 46.27 65.44 100.27 194.88
11/22/2004 47.81 65.81 99.7 201.76
11/23/2004 49.76 66.85 100.62 210.12
11/24/2004 49.56 66.43 97.83 206.3
11/26/2004 41.32 71.13 100.26 204.94
11/29/2004 43.76 63 95.44 203.65
11/30/2004 42.42 65.72 98.18 199.72
12/1/2004 45.33 65.64 97.83 201.7
12/2/2004 46.94 65.52 97.88 196.19
12/3/2004 45.01 65.59 92.68 205.09
12/6/2004 43.71 65.51 97.19 202.03
12/7/2004 43.32 65.92 92.32 202.56
12/8/2004 37.48 65.17 90.23 205.93
12/9/2004 39.27 64.39 93.03 193.19
12/10/2004 38.5 64.18 97.83 202.56
12/13/2004 40.49 64.5 95.82 200.56
12/14/2004 38.25 64.65 93.54 206.7
12/15/2004 44.8 64.61 95.03 191.02
12/16/2004 43.29 66.1 93.83 194.95
12/17/2004 42.63 66.34 95.53 192.91
12/20/2004 42 66.65 95.42 191.71
12/21/2004 39.54 70.23 94.86 195.79
12/22/2004 38.36 70.52 95.46 195.28
12/23/2004 40.67 70.59 94.63 194.95
12/27/2004 35.14 70.09 94.72 193.34
12/28/2004 38.91 62.4 94.49 193.08
12/29/2004 38.28 59.84 93.74 191.17
12/30/2004 38.54 59.26 93.17 186.08
12/31/2004 39.53 62.66 92.94 185.79
Source: Lehman Brothers
INVESTMENT GRADE RATINGS CHANGES
Moody's S&P
Moody's Downgrade S&P Downgrade
Ratio Ratio
Up Down Up Down
-- ---- --------- -- ---- ---------
1998 62 120 1.94 65 134 2.06
1999 88 114 1.30 85 122 1.44
2000 104 149 1.43 93 180 1.94
2001 82 209 2.55 63 198 3.14
2002 46 244 5.30 41 231 5.63
2003 31 113 3.65 37 124 3.35
2004 26 38 1.46 22 43 1.95
Source: Lehman Brothers
2004 SUMMARY
Contrary to conventional forecasts, the bond market had a good year and "earned
its coupon" despite Fed tightening and sharply higher oil prices. Higher rates
were limited to shorter maturities, giving a performance advantage to longer
issues as the yield curve flattened significantly. Investors' search for higher
returns forced yield spreads to historically tight levels and non-Treasury
sectors outperformed Treasuries again in 2004 with lower quality issues
generating the highest returns.
2005 OUTLOOK
Additional Fed tightening will likely keep upward pressure on short-term
interest rates which may produce further flattening of the yield curve. Tight
spreads limit the return potential of corporates overall, making issue selection
key to adding value. A heavily refinanced mortgage market makes mortgage-backed
securities susceptible to significant extension risk with even a modest increase
in long-term interest rates. Strong competitive forces around the globe should
keep inflation mild, limiting the potential for sharply higher yields.
Except for historical information contained in this annual report for the Baird
Funds, the matters discussed in this report may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. These include any advisor and/or fund manager
predictions, assessments, analyses or outlooks for individual securities,
industries, market sectors and/or markets. These statements involve risks and
uncertainties. In addition to the general risks described for the Funds in the
current Prospectus, other factors bearing on these reports include the accuracy
of the advisor's or fund manager's forecasts and predictions, and the
appropriateness of the investment programs designed by the advisor or fund
manager to implement their strategies efficiently and effectively. Any one or
more of these factors, as well as other risks affecting the securities markets
and investment instruments generally, could cause the actual results of a Fund
to differ materially as compared to benchmarks associated with that Fund.
BAIRD INTERMEDIATE BOND FUND
DECEMBER 31, 2004
The investment objective of the Baird Intermediate Bond Fund is to seek an
annual rate of total return, before Fund expenses, greater than the annual rate
of total return of the Lehman Brothers Intermediate Government/Credit Bond
Index. The Lehman Brothers Intermediate Government/Credit Bond Index is an
unmanaged, market value weighted index of investment grade, fixed-rated debt
including government and corporate securities with maturities between one and
ten years.
The Baird Intermediate Bond Fund generated strong relative returns in 2004 when
compared to its benchmark. The strong relative performance came primarily from
three sources: 1) overall portfolio structure (under-weight 2-year, and 7 to 10-
year maturities, over-weight 4 to 5-year and 10-year+ maturities) which
benefited from flattening in the yield curve; 2) strong performance of specific
individual corporate issues; and 3) exposure to mortgage-backed and asset-backed
securities which are not found in the Fund's benchmark. An over-weighting of
BBB-rated corporate bonds and an under-weighting of U.S. Treasuries versus the
Fund's benchmark also contributed positively to the Fund's performance in 2004.
The Fund maintained its duration neutral strategy, holding a broadly diversified
portfolio of over 220 securities at year end.
The Fund ended 2004 with a yield advantage versus its benchmark, the Lehman
Brothers Intermediate Government/Credit Bond Index. This yield advantage,
combined with exposure to specific sectors which we believe have superior total
return potential (mortgage-backed securities and government agency issues),
enhance the Fund's prospects of continuing to add value over its benchmark in
the coming year. A December 31, 2004 summary of the Fund's portfolio
characteristics including quality distribution and sector allocation appears
below.
PORTFOLIO CHARACTERISTICS
QUALITY DISTRIBUTION
U.S. Treasury 10%
U.S. Gov't Agency 23%
Aaa 21%
Aa 5%
A 18%
Baa 21%
Below Baa 2%
SECTOR WEIGHTINGS
U.S. Treasury 9%
U.S. Gov't Agency 17%
Mortgage/CMOs 11%
Int'l 3%
Asset-Backed 14%
Industrials 18%
Utility 6%
Finance/Bank/Broker 19%
Cash 2%
Municipal 1%
NET ASSETS: $194,576,027
SEC 30-DAY YIELD:*<F1>
Institutional Class: 4.11%
Investor Class: 3.86%
AVERAGE DURATION: 3.66 years
AVERAGE MATURITY: 4.98 years
PORTFOLIO EXPENSE RATIO:
Institutional Class: 0.30%
Investor Class: 0.55%**<F2>
PORTFOLIO TURNOVER RATIO: 44.8%
TOTAL NUMBER OF HOLDINGS: 227
*<F1> SEC yields are based on SEC guidelines and are calculated on 30 days
ended December 31, 2004.
**<F2> Includes 0.25% 12b-1 fee.
BAIRD INTERMEDIATE BOND FUND - INSTITUTIONAL CLASS
VALUE OF A $250,000 INVESTMENT
Baird Intermediate Bond Fund - Lehman Brothers Intermediate
Date Institutional Class Shares Government/Credit Bond Index
---- -------------------------- ----------------------------
9/29/2000 $250,000 $250,000
12/31/2000 $266,589 $259,242
6/30/2001 $277,111 $269,827
12/31/2001 $284,379 $282,476
6/30/2002 $293,461 $291,870
12/31/2002 $307,199 $310,260
6/30/2003 $323,016 $323,504
12/31/2003 $325,290 $323,633
6/30/2004 $325,782 $323,274
12/31/2004 $337,996 $333,477
GROWTH OF A HYPOTHETICAL INVESTMENT OF $250,000 MADE ON THE FUND'S INCEPTION
DATE (9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD INTERMEDIATE BOND FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird Intermediate Bond Fund - Lehman Brothers Intermediate
Date Investor Class Shares Government/Credit Bond Index
---- --------------------- ----------------------------
9/29/2000 $10,000 $10,000
12/31/2000 $10,668 $10,370
6/30/2001 $11,075 $10,793
12/31/2001 $11,353 $11,299
6/30/2002 $11,711 $11,675
12/31/2002 $12,231 $12,410
6/30/2003 $12,845 $12,940
12/31/2003 $12,917 $12,945
6/30/2004 $12,921 $12,931
12/31/2004 $13,388 $13,339
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F3>
- -------------------------------------- -------- ----------------------
Baird Intermediate Bond Fund -
Institutional Class Shares 3.91% 7.35%
Baird Intermediate Bond Fund -
Investor Class Shares 3.65% 7.10%
Lehman Brothers Intermediate
Government/Credit Bond Index(2)<F4> 3.04% 7.01%
(1)<F3> For the period September 29, 2000 (commencement of operations) to
December 31, 2004.
(2)<F4> The Lehman Brothers Intermediate Government/Credit Bond Index is an
unmanaged, market value weighted index of investment grade, fixed-rate
debt including government and corporate securities with maturities
between one and ten years. The Index does not reflect any deduction
for fees, expenses or taxes. A direct investment in an index is not
possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Principal
Amount Value
--------- -----
LONG-TERM INVESTMENTS - 97.8%
ASSET-BACKED SECURITIES - 13.6%
$ 699,712 Advanta Mortgage
Loan Trust,
Series 1998-2, Class A6,
6.63%, 06-25-2028 $ 701,337
349,476 Amresco Residential
Securities Mortgage
Loan Trust,
Series 1998-1, Class A6,
6.51%, 08-25-2027 357,916
799,554 Banc One Home
Equity Trust,
Series 1999-2, Class A7,
7.18%, 06-25-2029 828,274
1,350,000 Chase Funding
Mortgage Loan,
Series 2004-1, Class 1A3,
2.98%, 04-25-2026 1,325,110
865,500 Chemical Master Credit
Card Trust I,
Series 1996-3, Class A,
7.09%, 02-15-2009 911,701
165,000 CitiFinancial Mortgage
Securities, Inc.,
Series 2003-2, Class AF2,
2.13%, 05-25-2033 163,726
Contimortgage Home
Equity Loan Trust:
378,800 Series 1999-1, Class A7,
6.47%, 12-25-2013 387,374
740,479 Series 1998-2, Class A7,
6.57%, 03-15-2023 758,164
677,394 Series 1998-3, Class A17,
6.22%, 10-15-2029 688,557
Countrywide Asset-Backed
Certificates:
1,475,000 Series 2004-10, Class AF2,
3.32%, 05-25-2022 1,460,580
600,000 Series 2004-9, Class AF2,
3.34%, 09-25-2023 595,625
Delta Funding Home
Equity Loan Trust:
547,770 Series 1997-2, Class A6,
7.04%, 06-25-2027 546,882
280,219 Series 1999-1, Class A6F,
6.34%, 12-15-2028 285,740
270,191 Series 1999-2, Class A7F,
7.03%, 08-15-2030 275,463
773,111 Deutsche Alt-A
Securities, Inc.,
Series 2003-2XS, Class A2,
3.03%, 09-25-2033 772,126
54,048 Equivantage Home
Equity Loan Trust,
Series 1996-3, Class A3,
7.70%, 09-25-2027 53,961
1,900,000 GMAC Mortgage Corporation
Loan Trust, 4.39%,
12-25-2025 1,910,263
Green Tree Financial
Corporation:
800,260 Series 1998-4, Class A5,
6.18%, 04-01-2030 831,608
881,841 Series 1999-3, Class A5,
6.16%, 02-01-2031 904,852
285,874 IMC Home Equity
Loan Trust:
Series 1998-1, Class A6,
6.52%, 06-20-2029 286,449
2,500,000 MBNA Credit Card
Master Note Trust,
Series 2003-A3, Class A3,
2.52%, 08-16-2010 2,507,034
456,600 Mortgage Lenders Network
Home Equity Loan Trust,
Series 1998-2, Class A1,
6.61%, 07-25-2029 467,872
2,000,000 New Century Home
Equity Loan Trust
3.56%, 11-25-2033 1,998,214
440,129 Oakwood Mortgage
Investors, Inc.,
Series 1999-B, Class A3,
6.45%, 11-15-2017 394,504
1,150,000 Renaissance Home
Equity Loan Trust,
Series 2004-3, Class AF2,
3.57%, 11-25-2034 1,140,169
Residential Asset
Mortgage Products, Inc.:
1,525,000 Series 2003-RS9, Class AI3,
3.61%, 10-25-2028 1,518,002
1,000,000 Series 2003-RS6, Class AI3,
3.08%, 12-25-2028 991,192
Residential Asset
Securities Corporation:
850,000 Series 2003-KS5, Class AI2,
1.88%, 09-25-2022 847,007
700,000 Series 2003-KS7, Class AI3,
3.37%, 11-25-2028 698,142
182,887 Series 1998-KS2, Class AI9,
6.42%, 07-25-2029 183,094
114,005 Salomon Brothers
Mortgage Securities VII,
Series 1997-LB6, Class A6,
6.82%, 12-25-2027 114,634
1,649,000 Wells Fargo Home
Equity Trust,
Series 2004-2, Class AI2,
3.45%, 09-25-2034 1,636,207
------------
26,541,779
------------
FINANCIAL - 18.8%
325,000 Aetna, Inc.,
7.13%, 08-15-2006 341,932
Allfirst Financial, Inc.
Subordinated Notes:
1,300,000 7.20%, 07-01-2007 1,412,662
500,000 6.88%, 06-01-2009 542,151
550,000 American General Finance
Corporation Notes,
4.00%, 03-15-2011 533,393
50,000 American General Finance
Corporation Senior Notes,
8.45%, 10-15-2009 58,571
630,000 AmSouth Bancorporation
Subordinated Debentures,
6.75%, 11-01-2025 703,871
120,000 AmSouth Bank NA
Subordinated Notes,
6.45%, 02-01-2008 128,391
500,000 AMVESCAP PLC, F<F8>
5.38%, 02-27-2013 504,460
519,000 Aon Corporation Notes,
8.65%, 05-15-2005 529,007
225,000 Bank of America
Corporation Subordinated
Notes,
10.20%, 07-15-2015 307,634
350,000 Bank of Oklahoma
Subordinated Notes,
7.13%, 08-15-2007 379,255
Bank One Corporation
Subordinated Notes,
750,000 10.00%, 08-15-2010 946,649
180,000 6.00%, 02-17-2009 192,405
480,000 Bankers Trust Corporation
Subordinated Notes,
7.38%, 05-01-2008 532,437
150,000 BSCH Issuances, Ltd., F<F8>
7.63%, 09-14-2010 174,810
800,000 CIT Group, Inc.
Senior Notes,
3.38%, 04-01-2009 777,098
1,086,000 Comerica Incorporated
Subordinated Notes,
7.25%, 08-01-2007 1,181,699
800,000 Compass Bank
Subordinated Notes,
8.10%, 08-15-2009 931,405
Countrywide Home
Loans, Inc.:
1,000,000 5.50%, 02-01-2007 1,036,615
175,000 2.88%, 02-15-2007 171,911
900,000 Credit Suisse Finance
Broker USA, Inc. Notes,
6.13%, 11-15-2011 981,427
475,000 Dime Capital Trust,
9.33%, 05-06-2027 538,878
494,646 First National Bank
Chicago Pass Thru
Certificates,
8.08%, 01-05-2018 593,249
1,100,000 First National Bank Omaha
Subordinated Notes,
7.32%, 12-01-2010 1,162,909
775,000 FMR Corporation Notes,
4.75%, 03-01-2013,
(Acquired 02-26-03;
Cost $777,068)*<F5> 773,237
500,000 General Electric Capital
Corporation Notes,
6.00%, 06-15-2012 545,018
1,000,000 Genworth Financial
Inc. Notes,
5.75%, 06-15-2014 1,057,899
500,000 The Goldman Sachs
Group, Inc.,
5.15%, 01-15-2014 506,705
200,000 The Goldman Sachs
Group, Inc. Notes,
6.60%, 01-15-2012 223,208
500,000 Health Care Service
Corporation Notes,
7.75%, 06-15-2011
(Acquired 06-20-01;
Cost $497,765)*<F5> 585,001
1,200,000 Household Finance
Corporation Senior
Unsubordinated Notes,
6.40%, 06-17-2008 1,294,656
400,000 ING Groep NV Notes,
8.50%, 02-15-2005 401,841
300,000 International Lease Finance
Corporation Notes,
5.70%, 07-03-2006 310,172
500,000 J.P. Morgan Chase &
Company Subordinated
Notes,
6.63%, 03-15-2012 559,658
1,550,000 KeyCorp
Subordinated Notes,
6.75%, 03-15-2006 1,610,610
700,000 Lehman Brothers
Holdings, Inc. Notes,
8.50%, 05-01-2007 777,726
175,000 Lehman Brothers, Inc.
Senior Subordinated
Debentures,
11.63%, 05-15-2005 180,215
600,000 Marsh & McLennan
Companies, Inc.
5.38%, 07-15-2014 586,238
600,000 MBNA Corporation Notes,
6.13%, 03-01-2013 643,036
750,000 Merrill Lynch & Co.,
Inc. Senior
Unsubordinated Notes,
5.00%, 02-03-2014 752,686
1,000,000 Morgan Stanley Dean
Witter Debentures,
10.00%, 06-15-2008 1,181,954
300,000 Morgan Stanley
Unsubordinated Notes,
6.75%, 04-15-2011 336,491
196,000 National City Bank of
Kentucky Subordinated
Notes,
6.30%, 02-15-2011 217,020
500,000 Nationwide Life Global
Fund Notes,
5.35%, 02-15-2007
(Acquired 02-08-02;
Cost $499,520)*<F5> 517,698
894,000 PNC Funding Corporation,
7.50%, 11-01-2009 1,018,089
1,200,000 Protective Life U.S.
Funding Notes, 5.88%,
08-15-2006, (Acquired
08-06-01 and 01-14-04;
Cost $699,160 and
$530,742, respectively)*<F5> 1,246,819
1,200,000 Rabobank Nederland
Senior Notes, F<F8>
2.70%, 03-15-2007,
(Acquired 02-03-04;
Cost $1,199,760)*<F5> 1,178,310
546,000 SAFECO Corporation
Senior Notes,
7.25%, 09-01-2012 623,242
Santander Central
Hispano Issuances: F<F8>
325,000 7.00%, 04-01-2006 339,140
500,000 6.38%, 02-15-2011 550,469
575,000 Sanwa Bank Ltd. NY
Subordinated Notes,
7.40%, 06-15-2011 659,256
1,160,000 Transamerica Finance
Corporation Debentures,^<F7>
0.00%, 03-01-2010 892,723
350,000 UFJ Finance Aruba AEC, F<F8>
6.75%, 07-15-2013 390,030
Union Planters Corporation
Subordinated Notes:
645,000 6.50%, 03-15-2008,
(Acquired 05-08-02,
02-12-03, and 05-08-03;
Cost $200,548, $75,169,
and $413,799, respectively)*<F5> 696,354
300,000 7.75%, 03-01-2011 351,292
395,000 USF&G Corporation
Senior Notes,
7.13%, 06-01-2005 400,859
500,000 Washington Mutual Bank
FA Subordinated Notes,
6.88%, 06-15-2011 562,675
------------
36,633,146
------------
INDUSTRIAL - 17.8%
84,130 America West Airlines
Pass Thru Certificates,
8.54%, 01-02-2006 79,837
810,000 Anthem, Inc.,
6.80%, 08-01-2012 916,982
375,000 AOL Time Warner, Inc.,
6.88%, 05-01-2012 427,071
225,000 Auburn Hills
Trust Debentures,
12.38%, 05-01-2020 352,905
300,000 Bellsouth Corporation
4.75%, 11-15-2012 301,842
400,000 British Telecom PLC
Notes, F<F8>
8.38%, 12-15-2010 480,344
800,000 Bunge Ltd. Finance
Corporation Notes,
5.35%, 04-15-2014 818,637
1,000,000 Clear Channel
Communications,
Inc. Notes,
5.50%, 09-15-2014 1,003,863
Continental Airlines, Inc.
Pass Thru Certificates:
29,368 7.42%, 04-01-2007 27,620
291,523 6.54%, 09-15-2008 268,740
300,000 Continental Cablevision
Debentures,
9.50%, 08-01-2013 324,789
1,155,000 Cooper Cameron
Corporation Senior Notes,
2.65%, 04-15-2007 1,124,767
700,000 Cooper Industries, Inc.,
5.25%, 07-01-2007 725,214
693,000 CSX Corporation
Debentures,
9.00%, 08-15-2006 750,542
Delta Air Lines, Inc.
Pass Thru Certificates:
26,000 7.78%, 11-18-2005 23,911
324,000 9.50%, 11-18-2008
(Acquired 11/24/04,
Cost $324,000)*<F5> 300,510
1,000,000 Deutsche Telekom
International Finance BV, F<F8>
8.50%, 06-15-2010 1,191,373
300,000 Dollar General
Corporation,
8.63%, 06-15-2010 348,750
500,000 Fiserv, Inc. Notes,
4.00%, 04-15-2008 501,683
623,000 Ford Capital BV
Debentures, F<F8>
9.50%, 06-01-2010 724,528
300,000 Ford Motor Company
Debentures,
9.22%, 09-15-2021 345,645
500,000 General Electric
Company Notes,
5.00%, 02-01-2013 512,982
General Motors Acceptance
Corporation Notes:
800,000 6.88%, 09-15-2011 819,834
1,025,000 7.75%, 01-19-2010 1,100,149
200,000 6.75%, 12-01-2014 200,273
500,000 General Motors Nova
Financing, F<F8>
6.85%, 10-15-2008, 521,701
800,000 Glencore Funding LLC,
6.00%, 04-15-2014,
(Acquired 03-31-04;
Cost $794,280)*<F5> 773,982
Halliburton Company
Notes:
425,000 5.63%, 12-01-2008 448,677
325,000 5.50%, 10-15-2010 342,315
650,000 Hanson Australia
Funding, F<F8>
5.25%, 03-15-2013 662,210
400,000 Highmark, Inc. Notes,
6.80%, 08-15-2013,
(Acquired 08-14-03;
Cost $399,088)*<F5> 436,294
750,000 Hutchison Whamp
International Ltd., F<F8>
6.25%, 01-24-2014,
(Acquired 11-19-03;
Cost $749,228)*<F5> 789,826
1,000,000 Ingersoll-Rand Company
Debentures, F<F8>
6.39%, 11-15-2027 1,138,258
105,000 International Paper
Company Notes,
7.63%, 01-15-2007 113,209
650,000 Laboratory Corporation
of America Holdings
Senior Notes,
5.50%, 02-01-2013 673,958
500,000 Limited Brands, Inc.
5.25%, 11-01-2014 495,421
350,000 Marathon Oil Corporation,
6.00%, 07-01-2012 379,247
500,000 Marathon Oil
Corporation Notes,
5.38%, 06-01-2007 519,935
900,000 The May Department Stores
Company Debentures,
8.85%, 03-01-2006 952,494
175,000 MeadWestvaco
Corporation Notes,
2.75%, 12-01-2005 174,440
Northwest Airlines, Inc.:
500,195 7.25%, 01-02-2012 371,745
239,737 6.26%, 11-20-2021 247,008
375,000 Park Place Entertainment
Senior Notes,
7.50%, 09-01-2009 417,187
700,000 PCCW Capital II Ltd., F<F8>
6.00%, 07-15-2013,
(Acquired 07-10-03;
Cost $696,731)*<F5> 735,854
400,000 POSCO Notes, F<F8>
7.38%, 05-15-2005 406,391
Qwest Capital
Funding, Inc.:
350,000 7.00%, 08-03-2009 345,625
100,000 7.25%, 02-15-2011 98,000
500,000 SBC Communications
Inc. Notes,
5.63%, 06-15-2016 516,525
650,000 Sealed Air Corporation
Senior Notes,
5.38%, 04-15-2008,
(Acquired 04-09-03;
Cost $646,490)*<F5> 675,357
252,076 Southwest Airlines
Company Pass Thru
Certificates,
7.67%, 01-02-2014 280,364
875,000 Sprint Capital Corporation,
6.00%, 01-15-2007 915,772
300,000 TCI Communications, Inc.
Debentures,
8.75%, 08-01-2015 382,638
1,360,000 Telecom Italia Capital, F<F8>
4.95%, 09-30-2014
(Acquired 11/30/04;
Cost $1,318,262)*<F5> 1,332,445
200,000 Tele-Communications,
Inc. Debentures,
9.80%, 02-01-2012 257,799
425,000 Time Warner, Inc.
Debentures,
9.13%, 01-15-2013 546,354
Tyco International
Group SA: F<F8>
700,000 6.38%, 02-15-2006 723,324
400,000 6.38%, 10-15-2011 441,622
650,000 6.00%, 11-15-2013 708,150
281,976 Union Pacific Corporation
Pass Thru Certificates,
8.66%, 07-02-2011 315,635
United Air Lines, Inc.
Pass Thru Certificates:
245,275 7.76%, 10-01-2005, @<F6>, ^<F7> 19,713
399,224 6.20%, 09-01-2008 363,856
300,000 10.02%, 03-22-2014, @<F6>, ^<F7> 115,461
1,000,000 Viacom Inc.,
7.70%, 07-30-2010 1,170,319
55,000 Westvaco Corporation Notes,
8.40%, 06-01-2007 60,671
160,000 Weyerhaeuser Company
Notes,
5.95%, 11-01-2008 171,338
500,000 Willamette Industries,
Inc. Notes,
6.60%, 06-05-2012 563,655
250,000 Wyeth Notes,
7.90%, 02-15-2005 251,321
325,000 Yosemite Security Trust I,@<F6>,^<F7>
8.25%, 11-15-2004
(Acquired 04-26-01;
Cost $325,599)*<F5> 132,438
------------
34,661,325
------------
UTILITIES - 6.5%
300,000 Baltimore Gas and
Electric Company Notes,
5.25%, 12-15-2006 309,471
750,000 Columbia Energy Group
Notes, Series E,
7.32%, 11-28-2010 774,437
225,000 Conectiv, Inc. Notes,
6.73%, 06-01-2006 231,590
800,000 Duke Capital LLC Notes,
5.67%, 08-15-2014 825,481
300,000 Edison Mission Energy
Senior Notes,
9.88%, 04-15-2011 355,500
300,000 Exelon Corporation
Senior Notes,
6.75%, 05-01-2011 335,587
400,000 Gulf States Utilities 1st
Mortgage, Series B,
6.77%, 08-01-2005 408,394
500,000 Kiowa Power Partners LLC
4.81%, 12-30-2013
(Acquired 11/19/04;
Cost $500,000)*<F5> 501,335
300,000 Korea Electric Power
Corporation, F<F8>
6.75%, 08-01-2027 327,804
800,000 MidAmerican Energy
Holdings Company
Senior Notes,
4.63%, 10-01-2007 814,343
325,000 National Rural Utilities
Cooperative Finance
Collateral Trust,
3.88%, 02-15-2008 326,296
925,000 National Rural Utilities
Cooperative Finance
Corporation Notes,
5.75%, 08-28-2009 988,669
650,000 NiSource Finance
Corporation,
7.63%, 11-15-2005 673,678
800,000 ONEOK, Inc.
Senior Notes,
7.13%, 04-15-2011 905,218
800,000 Pacific Gas and Electric
Company 1st Mortgage,
4.80%, 03-01-2014 797,197
300,000 PPL Energy Supply, LLC
Senior Notes, Series A,
6.40%, 11-01-2011 329,871
175,000 PSE&G Energy Holdings
LLC Senior Notes,
8.50%, 06-15-2011 199,719
PSE&G Power LLC:
275,000 7.75%, 04-15-2011 320,649
400,000 5.00%, 04-01-2014 397,138
842,888 RGS (I&M) Funding
Corporation Debentures,
9.82%, 12-07-2022 1,087,283
350,000 Tristate Gen & Trans Assn,
6.04%, 01-31-2018 369,768
600,000 Vectren Utility Holdings,
6.63%, 12-01-2011 662,120
600,000 The Williams Companies,
Inc. Notes,
8.13%, 03-15-2012 693,000
------------
12,634,548
------------
MORTGAGE-BACKED SECURITIES - 10.7%
Citicorp Mortgage
Securities, Inc.
1,835,076 5.50%, 05-25-2015 1,852,313
1,864,487 5.50%, 10-25-2014 1,907,973
1,020,000 Deutsche Mortgage
Securities, Inc.,
Series 2004-1, Class 3A3,
3.69%, 12-25-2033 1,013,697
103,679 Federal Gold Loan Mortgage
Corporation (FGLMC),
6.00%, 07-01-2028 107,470
Federal Home Loan Mortgage
Corporation (FHLMC):
1,654,640 Series 2695, Class UA,
5.50%, 09-15-2014 1,710,959
47,505 Series 1094, Class K,
7.00%, 06-15-2021 47,564
27,342 Series 1101, Class M,
6.95%, 07-15-2021 27,410
259,026 Series 1136, Class H,
6.00%, 09-15-2021 258,742
98,227 Series 1280, Class B,
6.00%, 04-15-2022 98,119
107,508 Series 1395, Class G,
6.00%, 10-15-2022 108,421
1,350,000 Series 2592, Class PD,
5.00%, 07-15-2014 1,377,704
Federal Home Loan Mortgage
Corporation (FHLMC):
801,887 Series 2531, Class N,
4.00%, 07-15-2027 802,052
Federal National Mortgage
Association (FNMA):
1,500,000 Series 2003-24, Class PC,
5.00%, 11-25-2015 1,528,903
154,242 Series 1991-137, Class H,
7.00%, 10-25-2021 163,465
500,000 Series 2003-25, Class PC,
4.50%, 02-25-2027 502,103
302,020 Series 1992-136, Class PK,
6.00%, 08-25-2022 314,051
194,428 Series 1993-32, Class H,
6.00%, 03-25-2023 197,817
67,676 Series 1998-66, Class C,
6.00%, 12-25-2028 70,819
1,500,000 Series 2002-77, Class QP,
5.00%, 09-25-2026 1,517,313
1,000,000 Series 2002-73, Class OC,
5.00%, 04-25-2014 1,019,093
400,000 Series 2002-94, Class BG,
5.00%, 04-25-2016 407,905
1,500,000 Series 2002-95, Class MD,
5.00%, 07-25-2026 1,517,728
1,754,246 GMAC Mortgage
Corporation Loan Trust
5.50%, 08-25-2014 1,789,643
1,000,000 IMPAC Secured Assets
Corporation, Series 2004-2,
Class A3, 5.00%, 08-25-2034 999,736
Residential Accredit
Loans, Inc.:
40,531 Series 1998-QS2, Class A7,
7.00%, 02-25-2028 40,456
105,201 Series 1998-QS4, Class AI5,
7.00%, 03-25-2028 105,006
1,320,697 Salomon Brothers
Mortgage Securities VII,
Series 2003-UP2, Class
A2, 4.00%, 06-25-2033 1,316,223
------------
20,802,685
------------
INTERNATIONAL (U.S. $ DENOMINATED) - 2.6%
725,000 Banco Santander Chile SA, F<F8>
7.00%, 07-18-2007 778,939
Corp. Andina De Fomento
Notes, F<F8>
170,000 8.88%, 06-01-2005 174,073
275,000 7.38%, 01-18-2011 314,087
400,000 Korea Development
Bank Notes, F<F8>
4.25%, 11-13-2007 403,581
700,000 Landeskreditbank
Baden-Wuerttemberg
Subordinated Notes, F<F8>
6.35%, 04-01-2012 784,792
350,000 National Bank of Hungary
Debentures, F<F8>
8.88%, 11-01-2013 456,957
PEMEX Project Funding
Master Trust:
275,000 6.13%, 08-15-2008 291,500
1,000,000 9.13%, 10-13-2010 1,199,000
650,000 Westdeutsche Landesbank
Subordinated Notes, F<F8>
6.05%, 01-15-2009 693,612
------------
5,096,541
------------
TAXABLE MUNICIPAL BOND - 1.0%
Tobacco Settlement
Financing Corporation:
445,000 Series 2001-A, Class A,
5.92%, 06-01-2012 443,420
669,317 Series 2001-A, Class A,
6.36%, 05-15-2025 659,525
1,046,000 Toll Road Inv Part II, ^<F7>
0.00%, 02-15-2011,
(Acquired 09-28-04;
Cost $782,046)*<F5> 771,799
------------
1,874,744
------------
U.S. GOVERNMENT AGENCY - 17.3%
30,000,000 Federal Home Loan
Mortgage Corporation
(FHLMC) Notes,
6.63%, 09-15-2009 33,550,230
------------
U.S. TREASURY OBLIGATIONS - 9.5%
U.S. Treasury Bonds:
350,000 9.88%, 11-15-2015 517,070
4,300,000 9.25%, 02-15-2016 6,138,082
U.S. Treasury Notes:
1,850,000 6.13%, 08-15-2007 1,985,426
3,550,000 3.25%, 01-15-2009 3,519,214
5,775,000 6.00%, 08-15-2009 6,369,196
------------
18,528,988
------------
Total Long-Term
Investments
(Cost $187,715,522) 190,323,986
------------
Shares
------
SHORT-TERM INVESTMENTS - 3.8%
MONEY MARKET FUND - 3.8%
1,652,723 Investment Company
Cash Reserve Portfolio -
AIM Fund 1,652,723
5,764,708 SEI Daily Income Trust
Government Fund 5,764,708
------------
Total Short-Term
Investments
(Cost $7,417,431) 7,417,431
------------
Total Investments
(Cost $195,132,953)
101.6% 197,741,417
------------
Liabilities in Excess of
Other Assets - (1.6)% (3,165,390)
------------
TOTAL NET
ASSETS 100.0% $194,576,027
------------
------------
*<F5> Unregistered security
@<F6> Security in default
^<F7> Non-income producing security
F<F8> Foreign
See notes to the financial statements
BAIRD AGGREGATE BOND FUND
DECEMBER 31, 2004
The investment objective of the Baird Aggregate Bond Fund is to seek an annual
rate of total return, before Fund expenses, greater than the annual rate of
total return of the Lehman Brothers Aggregate Bond Index. The Lehman Brothers
Aggregate Bond Index is an unmanaged, market value weighted index of investment
grade, fixed-rate debt issues, including government, corporate, asset-backed,
and mortgage-backed securities, with maturities of at least one year.
The Baird Aggregate Bond Fund generated strong relative returns in 2004 when
compared to its benchmark. The strong relative performance came primarily from
three sources: 1) overall portfolio structure (under-weight 2-year, 7 to 10-year
and 30-year maturities, over-weight 4 to 5-year, 12-year and 20-year maturities)
which benefited from flattening in the yield curve; 2) strong performance of
specific individual corporate issues; and 3) significantly greater exposure to
asset-backed securities than the Fund's benchmark. An over-weighting of BBB-
rated corporate bonds and an under-weighting of U.S. Treasuries versus the
Fund's benchmark also contributed positively to the Fund's performance in 2004.
An under-weighting of mortgage pass-through securities versus the Fund's
benchmark detracted from the Fund's performance. The Fund maintained its
duration neutral strategy, holding a broadly diversified portfolio of over 220
securities at year end.
The Fund ended 2004 with a yield advantage versus its benchmark, the Lehman
Brothers Aggregate Bond Index. This yield advantage, combined with exposure to
specific sectors which we believe have superior total return potential (asset-
backed securities and government agency issues), enhance the Fund's prospects of
continuing to add value over its benchmark in the coming year. A December 31,
2004 summary of the Fund's portfolio characteristics including quality
distribution and sector allocation appears below.
PORTFOLIO CHARACTERISTICS
QUALITY DISTRIBUTION
U.S. Treasury 14%
U.S. Gov't Agency 29%
Aaa 27%
Aa 2%
A 9%
Baa 16%
Below Baa 3%
SECTOR WEIGHTINGS
U.S. Treasury 14%
U.S. Gov't Agency 3%
Mortgage/CMOs 29%
Int'l 1%
Asset-Backed 19%
Industrials 12%
Utility 6%
Finance/Bank/Broker 12%
Cash 3%
Municipal 1%
NET ASSETS: $116,091,720
SEC 30-DAY YIELD:*<F9>
Institutional Class: 4.40%
Investor Class: 4.15%
AVERAGE DURATION: 4.34 years
AVERAGE MATURITY: 7.38 years
PORTFOLIO EXPENSE RATIO:
Institutional Class: 0.30%
Investor Class: 0.55%**<F10>
PORTFOLIO TURNOVER RATIO: 72.6%
TOTAL NUMBER OF HOLDINGS: 227
*<F9> SEC yields are based on SEC guidelines and are calculated on 30 days
ended December 31, 2004.
**<F10> Includes 0.25% 12b-1 fee.
BAIRD AGGREGATE BOND FUND - INSTITUTIONAL CLASS
VALUE OF A $250,000 INVESTMENT
Baird Aggregate Bond Fund - Lehman Brothers
Date Institutional Class Shares Aggregate Bond Index
---- -------------------------- --------------------
9/29/2000 $250,000 $250,000
12/31/2000 $264,448 $260,514
6/30/2001 $275,084 $269,936
12/31/2001 $286,461 $282,512
6/30/2002 $295,106 $293,222
12/31/2002 $310,239 $311,484
6/30/2003 $328,053 $323,719
12/31/2003 $332,520 $324,268
6/30/2004 $333,936 $324,755
12/31/2004 $350,108 $338,336
GROWTH OF A HYPOTHETICAL INVESTMENT OF $250,000 MADE ON THE FUND'S INCEPTION
DATE (9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD AGGREGATE BOND FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird Aggregate Bond Fund - Lehman Brothers
Date Investor Class Shares Aggregate Bond Index
---- --------------------- -------------------
9/29/2000 $10,000 $10,000
12/31/2000 $10,577 $10,421
6/30/2001 $10,985 $10,797
12/31/2001 $11,420 $11,300
6/30/2002 $11,748 $11,729
12/31/2002 $12,343 $12,459
6/30/2003 $13,031 $12,949
12/31/2003 $13,200 $12,971
6/30/2004 $13,269 $12,990
12/31/2004 $13,885 $13,533
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F11>
- -------------------------------------- -------- -----------------------
Baird Aggregate Bond Fund -
Institutional Class Shares 5.30% 8.24%
Baird Aggregate Bond Fund -
Investor Class Shares 5.20% 8.02%
Lehman Brothers Aggregate Bond Index(2)<F12> 4.34% 7.38%
(1)<F11> For the period September 29, 2000 (commencement of operations) to
December 31, 2004.
(2)<F12> The Lehman Brothers Aggregate Bond Index is an unmanaged, market
value weighted index of investment grade, fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities, with maturities of at least one year. The Index does
not reflect any deduction for fees, expenses or taxes. A direct
investment in an index is not possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD AGGREGATE BOND FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Principal
Amount Value
--------- -----
LONG-TERM INVESTMENTS - 95.8%
ASSET-BACKED SECURITIES - 18.7%
$ 225,000 Advanta Business Card
Master Trust,
Series 2003-B, Class A,
2.76%, 12-22-2008 $ 225,493
166,259 Advanta Mortgage
Loan Trust,
Series 1999-2, Class A6,
6.82%, 05-25-2029 170,839
517,344 American General
Mortgage Loan Trust,
Series 2003-1, Class A2,
2.54%, 04-25-2033 515,816
574,679 Banc One Home
Equity Trust,
Series 1999-2, Class A7,
7.18%, 06-25-2029 595,322
776,209 Bear Stearns Asset
Backed Securities Trust,
Series 2003-AC1, Class A1,
4.10%, 05-25-2033 775,474
2,300,000 Chase Credit Card
Master Trust
2.51%, 02-15-2011 2,305,900
Citifinancial Mortgage
Securities, Inc.:
225,000 Series 2003-2, Class AF2,
2.13%, 05-25-2033 223,263
500,000 Series 2003-2, Class AF3,
3.04%, 05-25-2033 496,042
Contimortgage Home
Equity Loan Trust:
445,647 Series 1999-1, Class A7,
6.47%, 12-25-2013 455,734
26,974 Series 1997-2, Class A9,
7.09%, 04-15-2028 27,701
20,558 Series 1997-3, Class A9,
7.12%, 08-15-2028 20,816
242,321 Series 1999-3, Class A8,
2.46%, 05-25-2029 242,940
600,000 Daimler Chrysler Master
Owner Trust,
Series 2004-A, Class A,
2.43%, 01-15-2009 600,303
231,000 Delta Funding Home
Equity Loan Trust:
9.50%, 11-18-2008
(Acquired 11/24/04;
Cost $231,000)*<F13> 214,252
121,609 Equivantage Home
Equity Loan Trust,
Series 1996-3, Class A3,
7.70%, 09-25-2027 121,412
GE Capital Mortgage
Services, Inc.:
45,006 Series 1997-HE3, Class A6,
6.72%, 10-25-2027 44,940
101,190 Series 1997-HE4, Class A7,
6.74%, 12-25-2028 101,026
405,166 Series 1999-HE1, Class A7,
6.27%, 04-25-2029 415,992
Green Tree Financial
Corporation:
313,383 Series 1993-3, Class A7,
6.40%, 10-15-2018 322,924
107,529 Series 1993-4, Class A5,
7.05%, 01-15-2019 111,445
23,928 Series 1995-4, Class A5,
6.95%, 06-15-2025 24,655
8,261 Series 1997-1, Class A5,
6.86%, 03-15-2028 8,827
351,824 Series 1997-6, Class A8,
7.07%, 01-15-2029 373,797
400,130 Series 1998-4, Class A5,
6.18%, 04-01-2030 415,804
32,613 IMC Home Equity
Loan Trust,
Series 1997-5, Class A10,
6.88%, 11-20-2028 32,562
MBNA Credit Card
Master Note Trust,
400,000 Series 2003-A3, Class A3,
2.52%, 08-16-2010 401,125
2,050,000 Series 2003-A9, Class A9,
2.53%, 02-15-2011 2,056,622
1,250,000 New Century Home
Equity Loan Trust,
Series 2003-5, Class AI3,
3.56%, 11-25-2033 1,248,884
220,065 Oakwood Mortgage
Investors, Inc.,
Series 1999-B, Class A3,
6.45%, 11-15-2017 197,252
750,000 RAAC Series,
Series 2004-SP1, Class AI2,
4.38%, 01-25-2022 750,640
Residential Asset
Mortgage Products, Inc.:
1,000,000 Series 2004-RS1, Class
AI3, 3.41%, 06-25-2028 997,072
1,150,000 Series 2003-RS11, Class
AI3, 3.56%, 08-25-2028 1,147,930
1,000,000 Series 2003-RS5, Class
AI3, 2.59%, 10-25-2028 995,474
250,000 Series 2004-RS3, Class
AI2, 3.05%, 06-25-2029 246,802
1,035,000 Series 2003-RS7, Class
AI6, 5.34%, 08-25-2033 1,055,474
Residential Asset Securities
Corporation:
1,000,000 Series 2004-KS7, Class
AI2, 3.51%, 05-25-2024 995,631
1,250,000 Series 2004-KS2, Class
AI3, 3.02%, 08-25-2029 1,228,132
40,235 Series 1998-KS2, Class
AI9, 6.42%, 07-25-2029 40,281
249,412 Series 1998-KS3, Class
AI7, 5.98%, 10-25-2029 252,151
242,505 Series 1999-KS1, Class
AI8, 6.32%, 04-25-2030 245,819
562,778 Series 1999-KS2, Class
AI9, 7.15%, 07-25-2030 571,036
250,000 Series 2003-KS5, Class
AI6, 3.62%, 07-25-2033 238,617
161,507 Salomon Brothers
Mortgage Securities VII,
Series 1997-LB6, Class
A6, 6.82%, 12-25-2027 162,398
50,738 Saxon Asset Securities Trust,
Series 1999-2, Class AF6,
6.42%, 03-25-2014 50,656
------------
21,725,275
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 1.6%
GE Capital Commercial
Mortgage Corporation:
1,025,000 Series 2002-3A, Class A2,
5.00%, 12-10-2037 1,054,092
250,000 GMAC Commercial
Mortgage Securities, Inc.,
Series 2003-C1, Class A2,
4.08%, 05-10-2036 240,932
550,000 Mach One Trust,
Series 2004-1A, Class A2,
4.78%, 05-28-2040 560,078
------------
1,855,102
------------
FINANCIAL - 12.4%
300,000 Allfirst Financial, Inc.
Subordinated Notes,
7.20%, 07-01-2007 325,999
50,000 American General Finance
Corporation Senior Notes,
8.45%, 10-15-2009 58,571
200,000 AmSouth Bancorporation
Subordinated Debentures,
6.75%, 11-01-2025 223,451
275,000 AMVESCAP PLC, F<F16>
5.38%, 02-27-2013 277,453
275,000 Bank of America
Corporation Subordinated
Notes,
10.20%, 07-15-2015 375,997
400,000 Bank of Oklahoma
Subordinated Notes,
7.13%, 08-15-2007 433,435
219,000 Bank One Corporation
Subordinated Notes,
10.00%, 08-15-2010 276,422
350,000 BSCH Issuances, Ltd., F<F16>
7.63%, 09-14-2010 407,889
CIT Group, Inc.
Senior Notes:
300,000 7.75%, 04-02-2012 355,111
959,609 Citicorp Mortgage
Securities, Inc.
5.25%, 05-25-2034 975,735
590,000 Citigroup Inc.
Subordinated Notes,
5.00%, 09-15-2014
(Acquired 09-16-04;
Cost $574,852)*<F13> 592,846
Countrywide Home
Loans, Inc.,
175,000 5.63%, 07-15-2009 185,381
1,500,000 4.61%, 01-25-2008 1,496,719
375,000 Credit Suisse Finance
Broker USA, Inc. Notes,
6.13%, 11-15-2011 408,928
900,000 Dime Capital Trust,
9.33%, 05-06-2027 1,021,032
175,000 Dresdner Bank - New York
Subordinated Debentures, F<F16>
7.25%, 09-15-2015 204,585
74,197 First National Bank Chicago
Pass Thru Certificates,
8.08%, 01-05-2018 88,987
675,000 First National Bank Omaha
Subordinated Notes,
7.32%, 12-01-2010 713,603
460,000 First Union Capital,
7.94%, 01-15-2027 514,963
250,000 FMR Corporation Notes,
4.75%, 03-01-2013,
(Acquired 02-26-03;
Cost $250,667)*<F13> 249,431
150,000 The Goldman Sachs
Group, Inc. Notes:
6.60%, 01-15-2012 167,406
200,000 Health Care Service
Corporation Notes,
7.75%, 06-15-2011
(Acquired 06-20-01;
Cost $199,106)*<F13> 234,000
KeyCorp Institution:
300,000 7.83%, 12-01-2026 324,905
400,000 8.25%, 12-15-2026 440,112
565,000 Liberty Mutual Notes,
7.70%, 10-15-2097,
(Acquired 03-26-03;
Cost $361,573)*<F13> 591,544
300,000 Marsh & McLennan
Companies, Inc.
5.38%, 07-15-2014 293,119
400,000 Morgan Stanley
Subordinated Notes,
4.75%, 04-01-2014 389,763
200,000 New York Life Insurance
Company Notes,
5.88%, 05-15-2033,
(Acquired 05-05-03;
Cost $198,048)*<F13> 206,928
275,000 Sanwa Bank Ltd. NY
Subordinated Notes,
7.40%, 06-15-2011 315,296
500,000 SLM Corporation Notes,
5.63%, 08-01-2033 494,603
200,000 Transamerica Capital II,
7.65%, 12-01-2026,
(Acquired 10-21-03;
Cost $216,762)*<F13> 224,779
600,000 Transamerica Finance
Corporation Debentures, ^<F15>
0.00%, 03-01-2010 461,753
225,000 UFJ Finance Aruba AEC, F<F16>
6.75%, 07-15-2013 250,733
350,000 Union Planters Corporation
Subordinated Notes,
7.75%, 03-01-2011 409,841
50,000 USF&G Corporation
Senior Notes,
7.13%, 06-01-2005 50,742
150,000 Washington Mutual
Capital I,
8.38%, 06-01-2027 166,325
200,000 Washington Mutual, Inc.
Subordinated Notes,
8.25%, 04-01-2010 233,987
------------
14,442,374
------------
INDUSTRIAL - 11.7%
AOL Time Warner, Inc.:
400,000 7.63%, 04-15-2031 483,904
175,000 7.70%, 05-01-2032 214,046
250,000 AT&T Wireless Services,
Inc. Senior Notes,
8.75%, 03-01-231 337,078
450,000 British Telecom PLC, F<F16>
8.88%, 12-15-2030 602,559
500,000 Bunge Ltd. Finance
Corporation Notes,
5.35%, 04-15-2014 511,648
500,000 ConAgra Foods, Inc.
Subordinated Notes,
9.75%, 03-01-2021 704,558
Continental Airlines, Inc.
Pass Thru Certificates:
103,669 6.80%, 07-02-2007 94,389
227,753 6.54%, 09-15-2008 209,953
176,464 8.31%, 04-02-2011 135,857
512,169 6.90%, 01-02-2018 513,418
1,200,000 Continental Cablevision
Debentures,
9.50%, 08-01-2013 1,299,157
19,000 Delta Air Lines, Inc.
Pass Thru Certificates,
7.78%, 11-18-2005 17,473
250,000 Deutsche Telekom
International Finance BV, F<F16>
8.75%, 06-15-2030 330,114
18,309 Duty Free Promissory Note,
0.00%, 11-10-2013
(Acquired 11-10-03;
Cost $6,408)*<F13>,**<F14>,^<F15> 6,408
164,232 FedEx Corp.
Pass Thru Certificates,
6.85%, 01-15-2019 181,476
475,000 Ford Capital BV
Debentures, F<F16>
9.50%, 06-01-2010 552,409
403,000 Ford Motor Company
Debentures,
9.22%, 09-15-2021 464,316
General Motors Acceptance
Corporation Notes,
100,000 7.25%, 03-02-2011 104,696
150,000 6.75%, 12-01-2014 150,205
500,000 Glencore Funding LLC,
6.00%, 04-15-2014,
(Acquired 03-31-04;
Cost $496,425)*<F13> 483,739
350,000 Halliburton
Company Notes,
5.50%, 10-15-2010 368,647
100,000 Hanson Australia
Funding, F<F16>
5.25%, 03-15-2013 101,878
350,000 The Hertz Corporation
Senior Notes,
8.25%, 06-01-2005 356,066
275,000 Highmark, Inc. Notes,
6.80%, 08-15-2013,
(Acquired 08-14-03;
Cost $274,373)*<F13> 299,952
350,000 Hutchison Whamp
International Ltd., F<F16>
6.25%, 01-24-2014,
(Acquired 06-02-04;
Cost $334,266)*<F13> 368,585
100,000 Marathon Oil Corporation,
6.00%, 07-01-2012 108,356
536,250 The May Department
Stores Company Debentures,
9.75%, 02-15-2021 686,963
Northwest Airlines, Inc.:
446,603 7.25%, 07-02-2014 331,915
178,538 Series 2000-1, Class G,
8.07%, 04-01-2021 196,249
32,179 Northwest Airlines, Inc.
Pass Thru Certificates,
8.13%, 02-01-2014 20,951
275,000 Park Place Entertainment
Senior Notes,
7.50%, 09-01-2009 305,938
400,000 PCCW Capital II Ltd., F<F16>
6.00%, 07-15-2013,
(Acquired 07-10-03;
Cost $398,132)*<F13> 420,488
Qwest Capital
Funding, Inc.:
300,000 7.00%, 08-03-2009 296,250
200,000 7.25%, 02-15-2011 196,000
250,000 Sealed Air Corporation
Senior Notes,
5.38%, 04-15-2008,
(Acquired 04-09-03;
Cost $248,650)*<F13> 259,753
Sprint Capital Corporation,
125,000 7.63%, 01-30-2011 145,130
200,000 8.75%, 03-15-2032 266,462
320,000 Tenneco Packaging
Debentures,
7.95%, 12-15-2025 393,590
Tyco International
Group SA: F<F16>
175,000 6.38%, 10-15-2011 193,210
300,000 6.00%, 11-15-2013 326,838
United Air Lines, Inc.
Pass Thru Certificates:
269,803 7.76%, 10-01-2005, @<F71> 21,684
119,767 6.20%, 09-01-2008 109,157
268,051 U.S. Airways Pass Thru
Certificates,
6.85%, 01-30-2018 259,416
195,000 The Walt Disney
Company Notes,
5.62%, 12-01-2008 198,543
------------
13,629,424
------------
UTILITIES - 5.6%
750,000 Calenergy Co., Inc.
Senior Notes,
7.63%, 10-15-2007 821,333
200,000 Duke Capital LLC Notes,
5.67%, 08-15-2014 206,370
250,000 Edison Mission Energy
Senior Notes,
9.88%, 04-15-2011 296,250
300,000 Exelon Corporation
Senior Notes,
6.75%, 05-01-2011 335,587
300,000 Kiowa Power Partners, LLC
4.81%, 12-30-2013, (Acquired
11/19/04; Cost $300,000)*<F13> 300,801
Korea Electric Power
Corporation: F<F16>
100,000 7.75%, 04-01-2013 118,917
365,000 6.75%, 08-01-2027 398,828
325,000 ONOEK, Inc.
Senior Notes,
7.13%, 04-15-2011 367,745
300,000 PPL Energy Supply LLC
Senior Notes,
6.40%, 11-01-2011 329,871
175,000 PSE&G Energy Holdings
LLC Senior Notes,
8.50%, 06-15-2011 199,719
PSE&G Power LLC:
250,000 7.75%, 04-15-2011 291,499
350,000 5.00%, 04-01-2014 347,496
545,398 RGS (I&M) Funding
Corporation Debentures,
9.82%, 12-07-2022 703,536
200,000 Tristate Gen & Trans Assn,
6.04%, 01-31-2018 211,296
300,000 Utilicorp United, Inc.
Senior Notes,
7.63%, 11-15-2009 313,500
500,000 Vectren Utility Holdings,
6.63%, 12-01-2011 551,767
550,000 The Williams
Companies, Inc. Notes,
8.13%, 03-15-2012 635,250
------------
6,429,765
------------
200,000 Deutsche Mortgage
Securities, Inc.,
Series 2004-1, Class 3A3,
3.69%, 12-25-2033 198,764
Federal Gold Loan Mortgage
Corporation (FGLMC):
120,551 7.00%, 07-01-2028 127,945
338,717 6.50%, 04-01-2029 355,939
Federal Home Loan Mortgage
Corporation (FHLMC):
973,501 5.50%, 11-01-2022 996,625
394,239 6.00%, 05-01-2017 412,951
587,423 6.50%, 07-01-2014 622,617
459,622 Series 2695, Class UA,
5.5%, 09-15-2014 475,266
66,350 Series 1081, Class K,
7.00%, 05-15-2021 66,535
116,640 Series 1101, Class M,
6.95%, 07-15-2021 116,931
103,059 Series 188, Class H,
7.00%, 09-15-2021 103,085
208,231 Series 1286, Class A,
6.00%, 05-15-2022 208,002
99,752 Series 1074, Class I,
6.75%, 05-15-2021 99,641
466,768 Series 206, Class E,
0.00%, 07-15-2019 465,183
137,566 Series 2141, Class N,
5.55%, 11-15-2027 139,480
1,150,000 Series 2539, Class QB,
5.00%, 09-15-2015 1,174,853
360,849 Series 2531, Class N,
4.00%, 07-15-2027 360,923
250,000 Series 2533, Class PC,
5.00%, 10-15-2017 253,436
933,659 Series 2857, Class VA,
5.00%, 09-15-2015 950,817
575,000 Series 2664, Class LG,
5.50%, 07-15-2028 591,750
Federal National Mortgage
Association (FNMA):
937,335 5.50%, 12-01-2016 970,280
710,033 5.00%, 06-01-2018 722,539
794,287 5.00%, 10-01-2017 807,992
882,319 5.00%, 11-01-2017 897,542
1,362,743 5.00%, 12-01-2017 1,386,256
965,856 5.00%, 10-01-2018 982,239
219,608 5.00%, 10-01-2023 220,701
289,655 6.50%, 02-01-2029 304,380
406,875 5.50%, 01-01-2032 413,915
796,545 5.00%, 11-01-2033 791,873
1,000,000 Series 2002-73, Class OC,
5.00%, 04-25-2014 1,019,093
1,175,000 Series 2002-82, Class XC,
5.00%, 05-25-2014 1,198,612
350,000 Series 2003-4, Class PC,
5.00%, 12-25-2014 356,920
700,745 Series 2002-70, Class PL,
5.00%, 04-25-2015 707,151
1,000,000 Series 2003-27, Class OJ,
5.00%, 07-25-2015 1,017,977
1,150,000 Series 2002-94, Class MC,
5.00%, 08-25-2015 1,174,063
500,000 Series 2003-24, Class PC,
5.00%, 11-25-2015 509,634
1,000,000 Series 2003-18, Class GB,
5.00%, 03-25-2016 1,019,432
191,217 Series 2002-56, Class MC,
5.50%, 09-25-2017 196,862
120,280 Series 1989-37, Class G,
8.00%, 07-25-2019 129,058
158,195 Series 1989-94, Class G,
7.50%, 12-25-2019 168,909
16,079 Series 1990-58, Class J,
7.00%, 05-25-2020 17,030
197,989 Series 1990-105, Class J,
6.50%, 09-25-2020 208,022
76,594 Series 1990-108, Class G,
7.00%, 09-25-2020 79,841
59,782 Series 1991-1, Class G,
7.00%, 01-25-2021 62,194
177,750 Series 1991-86, Class Z,
6.50%, 07-25-2021 186,556
606,399 Series 2003-28, Class KA,
4.25%, 03-25-2022 595,128
74,793 Series G92-30, Class Z,
7.00%, 06-25-2022 78,051
128,787 Series 1992-150, Class MA,
5.50%, 09-25-2022 132,799
227,389 Series 1993-58, Class H,
5.50%, 04-25-2023 234,223
1,125,000 Series 2003-17, Class QR,
4.50%, 11-25-2025 1,127,333
1,250,000 Series 2003-31, Class KG,
4.50%, 12-25-2028 1,268,280
280,855 Series 1998-66, Class C,
6.00%, 12-25-2028 293,901
237,797 Series 2003-44, Class AB,
3.75%, 05-25-2033 235,329
179,742 6.50%, 08-15-2027 189,917
142,402 6.00%, 12-20-2028 147,935
345,791 6.50%, 06-15-2029 364,595
141,349 7.00%, 11-15-2029 150,355
1,162,179 6.00%, 11-20-2033 1,203,816
561,441 Series 2001-61, Class EA,
6.00%, 09-16-2028 565,558
228,364 IMPAC CMB Trust,
Series 2004-4, Class 2A2,
5.25%, 09-25-2034 228,297
Residential Accredit
Loans, Inc.:
10,100 Series 1997-QS8, Class A10,
7.50%, 08-25-2027 10,081
36,030 Series 1997-QS9, Class A8,
7.25%, 09-25-2027 35,963
105,201 Series 1998-QS4, Class AI5,
7.00%, 03-25-2028 105,006
800,000 Residential Funding
Mortgage Security I,
Series 2003-S11, Class A2,
4.00%, 06-25-2018 752,586
440,232 Salomon Brothers
Mortgage Securities VII,
Series 2003-UP2, Class A2,
4.00%, 06-25-2033 438,741
125,000 Structured Asset
Securities Corporation,
Series 2004-16XS, Class A2,
4.91%, 08-25-2034 125,477
------------
31,553,185
------------
INTERNATIONAL (U.S. $ DENOMINATED) - 1.5%
Corp. Andina De Fomento
Notes: F<F16>
100,000 8.88%, 06-01-2005 102,396
50,000 7.38%, 01-18-2011 57,107
125,000 Hydro-Quebec, F<F16>
11.75%, 02-01-2012 180,132
175,000 Landesbank
Baden-Wurttemberg
Subordinated Notes, F<F16>
6.35%, 04-01-2012 196,198
110,000 National Bank of Hungary
Debentures, F<F16>
8.88%, 11-01-2013 143,615
PEMEX Project Funding
Master Trust:
75,000 6.13%, 08-15-2008 79,500
450,000 9.13%, 10-13-2010 539,550
United Mexican States
Notes, F<F16>
150,000 9.88%, 02-01-2010 184,350
225,000 7.50%, 04-08-2033 243,000
------------
1,725,848
------------
TAXABLE MUNICIPAL BOND - 0.5%
Tobacco Settlement
Financing Corporation:
230,000 Series 2001-A, Class A,
5.92%, 06-01-2012 229,184
304,539 Series 2001-A, Class A,
6.36%, 05-15-2025 300,084
------------
529,268
------------
U.S. GOVERNMENT AGENCY - 2.8%
2,925,000 Federal Home Loan
Mortgage Corporation
(FHLMC) Notes,
6.63%, 09-15-2009 3,271,147
------------
U.S. TREASURY OBLIGATIONS - 13.8%
U.S. Treasury Bonds:
$5,925,000 9.25%, 02-15-2016 8,457,706
5,800,000 6.25%, 08-15-2023 6,790,304
700,000 U.S. Treasury Note,
6.00%, 08-15-2009 772,024
------------
16,020,034
------------
Total Long-Term
Investments
(Cost $108,762,988) 111,181,422
------------
Shares
------
SHORT-TERM INVESTMENTS - 3.2%
MONEY MARKET FUND - 3.2%
3,685,524 Investment Company
Cash Reserve Portfolio -
AIM Fund 3,685,524
10,003 SEI Daily Income Trust
Government Fund 10,003
------------
3,695,527
------------
Total Short-Term
Investments
(Cost $3,695,527) 3,695,527
------------
Total Investments
(Cost $112,458,515)
99.0% 114,876,949
------------
Other Assets, less
Liabilities 1.0% 1,214,771
------------
TOTAL NET
ASSETS 100.0% $116,091,720
------------
------------
@<F71> Security in default
*<F13> Unregistered security
**<F14> Fair valued security
^<F15> Non-income producing security
F<F16> Foreign
See notes to the financial statements
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
DECEMBER 31, 2004
The primary investment objective of the Baird Intermediate Municipal Bond Fund
is to provide current income that is substantially exempt from federal income
tax. A secondary objective is to provide total return with relatively low
volatility of principal. The Intermediate Municipal Bond Fund strives to
achieve an annual rate of return, before Fund expenses, greater than the annual
rate of total return of the Lehman Brothers 10-Year General Obligation Bond
Index. The Lehman Brothers 10-Year General Obligation Bond Index is an
unmanaged, market value weighted index of bond prices compiled by Lehman
Brothers. This index is comprised of investment grade state and local general
obligation bonds that have been issued as part of an offering of at least $50
million; have a minimum amount outstanding of at least $5 million; have been
issued within the last five years; and have a maturity of eight to twelve years.
The Baird Intermediate Municipal Bond Fund generated solid nominal investment
returns in 2004. The Fund's limited exposure to issues shorter than five years
in maturity helped the Fund's relative performance while the Fund's limited
exposure to issues longer than ten years in maturity detracted from relative
performance. The Fund's focus on high quality, prerefunded issues detracted
from performance somewhat as lower quality issues generated higher returns.
With interest rates near historic lows and yield spreads on lower quality issues
relatively tight by historical standards, we continue to emphasize high quality,
intermediate holdings in the Baird Intermediate Municipal Bond Fund. A December
31, 2004 summary of the Fund's portfolio characteristics including quality
distribution and sector allocation appears below.
PORTFOLIO CHARACTERISTICS
QUALITY DISTRIBUTION
Aaa 94%
Aa 5%
Baa 1%
SECTOR WEIGHTINGS
Pre-refunded ETM 72%
Insured 17%
General Obligation 5%
Cash 5%
Revenue 1%
NET ASSETS: $41,500,977
SEC 30-DAY YIELD:*<F17>
Institutional Class: 3.37%
Investor Class: 3.13%
AVERAGE DURATION: 5.34 years
AVERAGE MATURITY: 6.41 years
PORTFOLIO EXPENSE RATIO:
Institutional Class: 0.30%
Investor Class: 0.55%**<F18>
PORTFOLIO TURNOVER RATIO: 4.2%
TOTAL NUMBER OF HOLDINGS: 41
*<F17> SEC yields are based on SEC guidelines and are calculated on 30 days
ended December 31, 2004.
**<F18> Includes 0.25% 12b-1 fee.
BAIRD INTERMEDIATE MUNICIPAL BOND FUND -
INSTITUTIONAL CLASS
VALUE OF A $250,000 INVESTMENT
Baird Intermediate Lehman Brothers
Municipal Bond Fund - 10-Year General
Date Institutional Class Shares Obligation Bond Index
---- -------------------------- ---------------------
3/30/2001 $250,000 $250,000
6/30/2001 $255,511 $250,675
12/31/2001 $262,544 $255,106
6/30/2002 $275,570 $268,754
12/31/2002 $290,693 $281,322
6/30/2003 $302,139 $294,597
12/31/2003 $304,973 $297,785
6/30/2004 $300,175 $296,147
12/31/2004 $313,163 $311,064
GROWTH OF A HYPOTHETICAL INVESTMENT OF $250,000 MADE ON THE FUND'S INCEPTION
DATE (3/30/01) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD INTERMEDIATE MUNICIPAL BOND FUND -
INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird Intermediate Lehman Brothers
Municipal Bond Fund - 10-Year General
Date Investor Class Shares Obligation Bond Index
---- --------------------- ---------------------
3/30/2001 $10,000 $10,000
6/30/2001 $10,217 $10,027
12/31/2001 $10,474 $10,204
6/30/2002 $10,980 $10,750
12/31/2002 $11,569 $11,253
6/30/2003 $12,007 $11,784
12/31/2003 $12,111 $11,912
6/30/2004 $11,911 $11,846
12/31/2004 $12,402 $12,443
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(3/30/01) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F19>
- -------------------------------------- -------- -----------------------
Baird Intermediate Municipal Bond Fund -
Institutional Class Shares 2.69% 6.18%
Baird Intermediate Municipal Bond Fund -
Investor Class Shares 2.40% 5.90%
Lehman Brothers 10-Year General
Obligation Bond Index(2)<F20> 4.46% 6.00%
(1)<F19> For the period March 30, 2001 (commencement of operations) to December
31, 2004.
(2)<F20> The Lehman Brothers 10-Year General Obligation Bond Index is an
unmanaged, market value weighted index of bond prices compiled by
Lehman Brothers. The index is comprised of investment grade state and
local general obligation bonds that have been issued as part of an
offering of at least $50 million; have a minimum amount outstanding of
at least $5 million; have been issued within the last five years; and
have a maturity of eight to twelve years. The Index does not reflect
any deduction for fees, expenses or taxes. A direct investment in an
index is not possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Principal
Amount Value
--------- -----
MUNICIPAL BONDS - 93.7%
ALABAMA - 1.2%
$ 460,000 Mobile Alabama, ETM
6.20%, 02-15-2007 $ 492,315
-----------
CALIFORNIA - 2.6%
500,000 Golden State Tobacco
Securitization Corporation,
6.25%, 06-01-2033 500,635
450,000 Santa Rosa California
Hospital Revenue, ETM
10.30%, 03-01-2011 561,308
-----------
1,061,943
-----------
COLORADO - 0.3%
120,000 Colorado Springs Colorado
Utilities Revenue, ETM
5.80%, 11-15-2010 132,371
-----------
DELAWARE - 4.3%
1,500,000 Delaware State Economic
Development Authority
Revenue, ETM
6.75%, 01-01-2013 1,796,550
-----------
FLORIDA - 2.0%
300,000 Jacksonville Florida Health
Facility Authority Hospital
Revenue, ETM
11.50%, 10-01-2012 464,364
325,000 Orange County Florida
Health Revenue, ETM
8.75%, 10-01-2009 377,205
-----------
841,569
-----------
GEORGIA - 2.8%
925,000 Fulton County Georgia
Hospital Authority
Revenue, ETM
7.88%, 10-01-2013 1,174,815
-----------
ILLINOIS - 2.6%
1,000,000 Lake County Illinois
Community High School
District No. 128,
5.00%, 01-01-2013 1,100,090
-----------
INDIANA - 11.0%
745,000 Baugo Indiana School
Building Corporation,
5.50%, 01-15-2012
(AMBAC insured) 843,556
3,030,000 Indiana State Office
Building, Pre-refunded
to 07-01-2013
5.38%, 07-01-2015 3,453,655
195,000 Indiana Toll Road
Commission, ETM
9.00%, 01-01-2015 268,932
-----------
4,566,143
-----------
IOWA - 4.5%
1,010,000 Des Moines Iowa
Metropolitan Wastewater
Reclamation Authority,
5.00%, 06-01-2015
(MBIA Insured) 1,115,151
640,000 Muscatine Iowa Electric
Revenue, ETM
6.70%, 01-01-2013 735,878
-----------
1,851,029
-----------
LOUISIANA - 7.2%
645,000 Denham Springs-Livingston
Housing and Mortgage
Finance Authority, ETM
7.20%, 08-01-2010 784,146
400,000 Houma-Terrebonne
Public Transit Financing
Authority, ETM
7.30%, 04-01-2010 476,252
1,450,000 Jefferson Parish LA Home
Mortgage Authority, ETM
7.10%, 08-01-2010 1,740,406
-----------
3,000,804
-----------
MINNESOTA - 2.1%
740,000 Western Minnesota
Municipal Power
Agency, ETM
6.38%, 01-01-2016 860,553
-----------
MISSISSIPPI - 2.6%
600,000 Mississippi Housing
Financial Corporation, ETM
0.00%, 06-01-2015 383,844
620,000 Mississippi State, ETM
6.20%, 02-01-2008 686,042
-----------
1,069,886
-----------
NEW JERSEY - 2.9%
400,000 New Jersey State Transit
Trust, Pre-refunded
to 06-15-2009
5.00%, 06-15-2017 439,512
New Jersey State Turnpike
Authority, ETM :
577,000 6.75%, 01-01-2009 606,992
130,000 6.50%, 01-01-2016 157,780
-----------
1,204,284
-----------
NEW YORK - 2.6%
1,000,000 Triborough Bridge &
Tunnel Authority, ETM
5.25%, 01-01-2014 1,091,640
-----------
OHIO - 0.5%
160,000 Miamisburg Ohio Water
Revenue, ETM
7.00%, 11-15-2016 194,426
-----------
OKLAHOMA - 7.0%
2,360,000 Tulsa County Oklahoma
Home Financing Authority
Single Family Mortgage
Revenue, ETM
6.90%, 08-01-2011 2,895,767
-----------
PENNSYLVANIA - 8.8%
830,000 Philadelphia Pennsylvania
Gas Works, ETM
7.00%, 05-15-2020 1,043,949
1,515,000 Pittsburgh Pennsylvania
Water & Sewer Authority,
ETM 7.25%, 09-01-2014 1,827,257
1,000,000 Wilson Pennsylvania Area
School District,
0.00%, 05-15-2011
(AMBAC insured) 794,960
-----------
3,666,166
-----------
SOUTH CAROLINA - 0.8%
285,000 Greenville South Carolina
Waterworks Revenue, ETM
7.00%, 02-01-2010 341,524
-----------
SOUTH DAKOTA - 2.3%
790,000 Heartland Consumers
Power District, ETM
7.00%, 01-01-2016 944,192
-----------
TENNESSEE - 6.2%
605,000 Metropolitan Government
Nashville & Davidson
County Tennessee H&E,
ETM 6.10%, 07-01-2010 665,760
1,545,000 Metropolitan Government
Nashville & Davidson
County Tennessee Water
& Sewer Revenue, ETM
6.50%, 12-01-2014 1,909,172
-----------
2,574,932
-----------
TEXAS - 12.1%
720,000 Houston Texas Sewer
System Revenue, ETM
9.38%, 10-01-2013 977,796
1,735,000 Lufkin Texas Independent
School District, #<F21>
5.00%, 08-15-2015 1,901,265
675,000 Sam Rayburn Texas
Municipal Power Agency,
ETM 6.00%, 09-01-2010 759,503
225,000 Texas Public Building
Authority Building
Revenue, ETM
7.13%, 08-01-2011 264,850
1,000,000 University Houston Texas,
5.25%, 02-15-2012
(FSA insured) 1,116,620
-----------
5,020,034
-----------
UTAH - 1.9%
605,000 Salt Lake City Utah
Hospital Revenue, ETM
8.13%, 05-15-2015 773,559
-----------
WASHINGTON - 5.4%
1,025,000 Clark County School
District No. 037,
5.13%, 12-01-2011 1,137,637
1,000,000 Washington State,
5.00%, 09-01-2013
(FGIC insured) 1,090,600
-----------
2,228,237
-----------
Total Municipal Bonds
(Cost $37,994,328) 38,882,829
-----------
Shares
------
SHORT-TERM INVESTMENT - 9.0%
MONEY MARKET FUND - 9.0%
1,985,558 First American Tax-Free
Obligation Fund 1,985,558
1,752,209 Tax Free Investment
Company Cash Reserve
Portfolio - AIM Fund 1,752,209
-----------
3,737,767
-----------
Total Short-Term
Investment
(Cost $3,737,767) 3,737,767
-----------
Total Investments
(Cost $41,732,095)
102.7% 42,620,596
-----------
Other Assets, less
Liabilities (2.7%) (1,119,619)
-----------
TOTAL NET
ASSETS 100.0% $41,500,977
-----------
-----------
ETM Escrowed to maturity
#<F21> When-issued security
See notes to the financial statements
BAIRD CORE PLUS BOND FUND
DECEMBER 31, 2004
The investment objective of the Baird Core Plus Bond Fund is to provide an
annual rate of total return, before Fund expenses, greater than the annual rate
of total return of the Lehman Brothers U.S. Universal Bond Index. The Lehman
Brothers U.S. Universal Bond Index is an unmanaged, market value weighted index
of fixed income securities issued in U.S. dollars, including U.S. government and
investment grade debt, non-investment grade debt, asset-backed and mortgage-
backed securities, Eurobonds, 144A securities and emerging market debt with
maturities of at least one year.
The Baird Core Plus Bond Fund generated strong relative returns in 2004 when
compared to its benchmark. The strong relative performance came primarily from
three sources: 1) overall portfolio structure (under-weight 2-year, 7 to 10-year
and 30-year maturities, over-weight 4 to 5-year, 12-year and 20-year maturities)
which benefited from flattening in the yield curve; 2) strong performance of
specific individual corporate issues; and 3) exposure to well-structured
mortgage-backed and asset-backed securities with more stable prepayment
characteristics than standard mortgage pass-through securities. An over-
weighting of BBB-rated corporate bonds and an under-weighting of U.S. Treasuries
versus the Fund's benchmark also contributed positively to the Fund's
performance in 2004. An under-weighting of emerging market debt versus the
Fund's benchmark detracted from the Fund's performance. The Fund maintained its
duration neutral strategy, holding a broadly diversified portfolio of over 110
securities at year end.
The Fund ended 2004 with a yield advantage versus its benchmark, the Lehman
Brothers U.S. Universal Bond Index. This yield advantage, combined with
exposure to specific sectors which we believe have superior total return (asset-
backed securities and government agency issues), enhance the Fund's prospects of
continuing to add value over its benchmark in the coming year. A December 31,
2004 summary of the Fund's portfolio characteristics including quality
distribution and sector allocation appears below.
PORTFOLIO CHARACTERISTICS
QUALITY DISTRIBUTION
U.S. Treasury 13%
U.S. Gov't Agency 30%
Aaa 21%
Aa 1%
A 5%
Baa 21%
Below Baa 9%
SECTOR WEIGHTINGS
U.S. Treasury 13%
U.S. Gov't Agency 2%
Mortgage/CMOs 30%
Int'l 1%
Asset-Backed 16%
Industrials 19%
Utility 5%
Finance/Bank/Broker 7%
Cash 6%
Municipal 1%
NET ASSETS: $32,621,488
SEC 30-DAY YIELD:*<F22>
Institutional Class: 4.83%
Investor Class: 4.59%
AVERAGE DURATION: 4.41 years
AVERAGE MATURITY: 8.42 years
PORTFOLIO EXPENSE RATIO:
Institutional Class: 0.30%
Investor Class: 0.55%**<F23>
PORTFOLIO TURNOVER RATIO: 52.5%
TOTAL NUMBER OF HOLDINGS: 113
*<F22> SEC yields are based on SEC guidelines and are calculated on 30 days
ended December 31, 2004.
**<F23> Includes 0.25% 12b-1 fee.
BAIRD CORE PLUS BOND FUND - INSTITUTIONAL CLASS
VALUE OF A $250,000 INVESTMENT
Baird Core Plus Bond Fund - Lehman Brothers U.S.
Date Institutional Class Shares Universal Bond Index
---- -------------------------- --------------------
9/29/2000 $250,000 $250,000
12/31/2000 $264,734 $259,261
6/30/2001 $273,977 $268,929
12/31/2001 $282,819 $280,238
6/30/2002 $287,185 $289,675
12/31/2002 $302,329 $307,801
6/30/2003 $321,649 $323,008
12/31/2003 $329,342 $325,717
6/30/2004 $331,030 $326,267
12/31/2004 $350,045 $341,904
GROWTH OF A HYPOTHETICAL INVESTMENT OF $250,000 MADE ON THE FUND'S INCEPTION
DATE (9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD CORE PLUS BOND FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird Core Plus Bond Fund - Lehman Brothers U.S.
Date Investor Class Shares Universal Bond Index
---- --------------------- --------------------
9/29/2000 $10,000 $10,000
12/31/2000 $10,573 $10,370
6/30/2001 $10,932 $10,757
12/31/2001 $11,281 $11,210
6/30/2002 $11,443 $11,587
12/31/2002 $12,024 $12,312
6/30/2003 $12,787 $12,920
12/31/2003 $13,057 $13,029
6/30/2004 $13,119 $13,051
12/31/2004 $13,851 $13,676
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F24>
- -------------------------------------- -------- ----------------------
Baird Core Plus Bond Fund -
Institutional Class Shares 6.29% 8.23%
Baird Core Plus Bond Fund -
Investor Class Shares 6.09% 7.96%
Lehman Brothers U.S.
Universal Bond Index(2)<F25> 4.97% 7.64%
(1)<F24> For the period September 29, 2000 (commencement of operations) to
December 31, 2004.
(2)<F25> The Lehman Brothers U.S. Universal Bond Index is an unmanaged,
market value weighted index of fixed income securities issued in
U.S. dollars, including U.S. government and investment grade debt,
non-investment grade debt, asset-backed and mortgage-backed
securities, Eurobonds, 144A securities and emerging market debt with
maturities of at least one year. The Index does not reflect any
deduction for fees, expenses or taxes. A direct investment in an
index is not possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD CORE PLUS BOND FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Principal
Amount Value
--------- -----
LONG-TERM INVESTMENTS - 94.1%
ASSET-BACKED SECURITIES - 16.2%
$ 291,006 American General
Mortgage Loan Trust,
Series 2003-1, Class A2,
2.54%, 04-25-2033 $ 290,147
172,491 Bear Stearns Asset Backed
Securities Trust,
Series 2003-AC1, Class A1,
4.10%, 05-25-2033 172,328
600,000 Chase Credit Card
Master Trust,
Series 2003-6, Class A,
2.59%, 02-15-2011 601,539
370,240 Contimortgage Home
Equity Loan Trust,
Series 1998-2, Class A7,
6.57%, 03-15-2023 379,082
231,933 Deutsche Alt-A Securities,
Inc. Alternate Loan Trust,
Series 2003-2XS, Class A2,
3.03%, 09-25-2033 231,636
Green Tree Financial
Corporation:
66,087 Series 1997-1, Class A5,
6.86%, 03-15-2028 70,614
530,172 Series 1998-4, Class A5,
6.18%, 04-01-2030 550,940
MBNA Credit Card
Master Note Trust,
300,000 Series 2003-A3, Class A3,
2.60%, 08-16-2010 300,844
300,000 Series 2003-A9, Class A9,
2.61%, 02-15-2011 300,969
300,000 New Century Home
Equity Loan Trust,
Series 2003-5, Class AI3,
3.56%, 11-25-2033 299,732
125,751 Oakwood Mortgage
Investors, Inc.,
Series 1999-B, Class A3,
6.45%, 11-15-2017 112,715
Residential Asset Mortgage
Products, Inc.:
400,000 Series 2003-RS11, Class
AI3, 3.56%, 08-25-2028 399,280
400,000 Series 2003-RS5, Class AI3,
2.59%, 10-25-2028 398,189
300,000 Series 2003-RS10, Class
AI7, 4.85%, 11-25-2033 306,118
Residential Asset
Securities Corporation:
436,201 Series 2003-KS2, Class AI3,
2.66%, 11-25-2028 434,086
450,000 Series 2003-KS5, Class AI6,
3.62%, 07-25-2031 429,510
-----------
5,277,729
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 1.4%
300,000 GE Capital Commercial
Mortgage Corporation,
Series 2002-3A, Class A2,
4.99%, 12-10-2037 308,515
150,000 Mach One Trust,
Series 2004-1A, Class A2,
4.78%, 05-28-2040 152,748
-----------
461,263
-----------
FINANCIAL - 7.4%
175,000 CIT Group, Inc. Senior
Notes, 3.38%, 04-01-2009 169,990
100,000 Banco Santander Chile SA,
7.38%, 07-18-2012 114,846
100,000 Countrywide Home Loans,
Inc., 6.25%, 04-15-2009 107,826
350,000 First National Bank Omaha
Subordinated Notes,
7.32%, 12-01-2010 370,016
250,000 First Union Capital,
7.94%, 01-15-2027 279,871
375,000 Liberty Mutual Insurance
Notes, 7.70%, 10-15-2097,
(Acquired 03-26-03;
Cost $239,982)*<F26> 392,618
100,000 Marsh & McLennan
Companies, Inc.
5.38%, 07-15-2014 97,706
50,000 Met Life Global Funding I
Notes, 4.75%, 06-20-2007,
(Acquired 09-15-04;
Cost $51,534)*<F26> 51,299
100,000 New York Life Insurance
Company Notes,
5.88%, 05-15-2033,
(Acquired 05-05-03;
Cost $99,024)*<F26> 103,464
100,000 Transamerica Capital II,
7.65%, 12-01-2026,
(Acquired 10-21-03;
Cost $108,381)*<F26> 112,390
457,000 Washington Mutual
Capital I,
8.38%, 06-01-2027 506,737
100,000 Wharf International
Finance LTD, F<F29>
7.63%, 03-13-2007 107,551
-----------
2,414,314
-----------
INDUSTRIAL - 18.7%
110,989 America West Airlines
Pass Thru Certificates,
8.54%, 01-02-2006 105,325
300,000 AOL Time Warner, Inc.,
7.63%, 04-15-2031 362,928
100,000 AT&T Wireless Services Inc.,
8.75%, 03-01-2031 134,831
645,260 Atlas Air, Inc.
Pass Thru Certificates,
8.71%, 01-02-2019 652,351
75,000 Best Foods Notes, Series C,
6.15%, 01-15-2006 77,032
150,000 Bunge Ltd. Finance
Corporation Notes,
5.35%, 04-15-2014 153,494
67,130 The Burlington Northern
Santa Fe Railway Company
Pass Thru Certificates,
7.42%, 03-23-2010 72,141
Continental Airlines, Inc.
Pass Thru Certificates:
22,590 7.42%, 04-01-2007 21,246
89,846 6.80%, 07-02-2007 81,803
78,478 6.90%, 01-02-2018 78,669
400,000 Continental Cablevision
Debentures,
9.50%, 08-01-2013 433,052
100,000 Cox Communications, Inc.
Notes, 7.88%, 08-15-2009 113,498
462,000 Delta Air Lines, Inc.,
9.50%, 11-18-2008
(Acquired 11/24/04;
Cost $462,000)*<F26> 428,505
38,000 Delta Air Lines, Inc.
Pass Thru Certificates,
7.78%, 11-18-2005 34,947
100,000 Deutsche Telekom
International Finance BV, F<F29>
8.75%, 06-15-2030 132,046
75,525 Duty Free Promissory Note,
0.00%, 11-10-2013
(Acquired 11-10-03;
Cost $26,434)*<F26>,**<F27>,^<F28> 26,434
400,000 Ford Motor Company
Debentures,
9.22%, 09-15-2021 460,860
150,000 General Motors Acceptance
Corporation,
6.75%, 12-01-2014 150,205
150,000 Glencore Funding LLC,
6.00%, 04-15-2014,
(Acquired 03-31-04;
Cost $148,928)*<F26> 145,122
100,000 Halliburton Company
Notes, 5.50%, 10-15-2010 105,328
288,750 The May Department Stores
Company Debentures,
9.75%, 02-15-2021 369,903
77,000 Norfolk Southern
Corporation Senior Notes,
8.38%, 05-15-2005 78,486
535,923 Northwest Airlines, Inc.,
7.25%, 01-02-2012 398,298
100,102 Northwest Airlines, Inc.
Pass Thru Certificates,
8.07%, 10-01-2019 111,862
200,000 PCCW Capital II Ltd., F<F29>
6.00%, 07-15-2013,
(Acquired 07-10-03;
Cost $199,066)*<F26> 210,244
25,000 PennzEnergy Company
Debentures,
10.25%, 11-01-2005 26,345
288,087 Southwest Airlines Co.
Pass Through Certificates,
7.67%, 01-02-2014 320,416
100,000 Sprint Capital Corporation,
8.75%, 03-15-2032 133,231
50,000 Tyco International
Group SA, F<F29>
6.00%, 11-15-2013 54,473
673,690 United Air Lines, Inc.
Pass Thru Certificates,
6.20%, 09-01-2008 614,007
-----------
6,087,082
-----------
UTILITIES - 5.5%
64,000 Conectiv, Inc. Notes,
6.73%, 06-01-2006 65,875
300,000 Edison Mission Energy
Senior Notes,
9.88%, 04-15-2011 355,500
100,000 Kiowa Power Partners, LLC,
4.88%, 12-30-2013
(Acquired 11/19/04;
Cost $100,000)*<F26> 100,267
400,000 ONEOK, Inc. Senior Notes,
7.13%, 04-15-2011 452,609
50,000 Pacific Gas and Electric
Company 1st Mortgage,
6.05%, 03-01-2034 51,931
200,000 PSE&G Energy Holdings
LLC Senior Notes,
8.50%, 06-15-2011 228,250
50,000 PSI Energy, Inc. Debentures,
7.85%, 10-15-2007 55,111
297,490 RGS (I&M) Funding
Corporation Debentures,
9.82%, 12-07-2022 383,747
100,000 Tristate Gen & Trans Assn,
6.04%, 01-31-2018 105,648
-----------
1,798,938
-----------
MORTGAGE-BACKED SECURITIES - 28.3%
Federal Gold Loan Mortgage
Corporation (FGLMC):
177,408 6.00%, 05-01-2017 185,828
143,022 6.50%, 09-01-2028 150,361
232,936 6.50%, 12-01-2028 244,889
172,305 6.50%, 05-01-2029 181,066
173,675 6.50%, 06-01-2029 182,506
Federal Home Loan Mortgage
Corporation (FHLMC):
400,000 Series 2567, Class OD,
5.00%, 08-15-2015 408,708
450,000 Series 2539, Class QB,
5.00%, 09-15-2015 459,725
44,612 Series 1053, Class G,
7.00%, 03-15-2021 44,714
294,326 Series 2804, Class VC,
5.00%, 07-15-2021 294,683
74,220 Series 1122, Class G,
7.00%, 08-15-2021 74,137
250,000 Series 2598, Class QC,
4.50%, 06-15-2027 250,545
320,755 Series 2531, Class N,
4.00%, 07-15-2027 320,821
Federal National Mortgage
Association (FNMA):
466,169 5.00%, 02-01-2018 474,212
321,952 5.00%, 10-01-2018 327,413
321,824 5.00%, 11-01-2018 327,282
247,166 5.50%, 03-01-2023 252,842
113,555 6.50%, 09-01-2028 119,327
201,234 6.50%, 02-01-2029 211,464
366,187 5.50%, 01-01-2032 372,524
400,000 Series 2002-82, Class XC,
5.00%, 05-25-2014 408,038
450,000 Series 2002-74, Class TC,
5.00%, 03-25-2015 458,384
254,816 Series 2002-70, Class PL,
5.00%, 04-25-2015 257,146
350,000 Series 2002-57, Class PE,
5.50%, 09-25-2015 359,444
300,000 Series 2003-16, Class PC,
5.00%, 10-25-2015 306,094
30,422 Series 1989-94, Class G,
7.50%, 12-25-2019 32,482
34,133 Series 1990-15, Class J,
7.00%, 02-25-2020 35,599
121,468 Series 1990-76, Class G,
7.00%, 07-25-2020 128,094
30,948 Series 1991-21, Class J,
7.00%, 03-25-2021 32,231
95,325 Series 1992-129, Class L,
6.00%, 07-25-2022 99,120
224,808 Series 1993-32, Class H,
6.00%, 03-25-2023 228,726
272,866 Series 1993-58, Class H,
5.50%, 04-25-2023 281,068
450,000 Series 2003-31, Class KG,
4.50%, 12-25-2028 456,581
114,099 Series 2003-44, Class AB,
3.75%, 05-25-2033 112,915
Government National
Mortgage Association
(GNMA):
202,210 6.50%, 08-15-2027 213,657
329,304 6.00%, 12-20-2028 342,100
127,119 6.50%, 01-20-2029 133,703
123,389 6.50%, 02-20-2029 129,780
309,914 6.00%, 11-20-2033 321,017
-----------
9,219,226
-----------
TAXABLE MUNICIPAL BOND - 0.7%
234,261 Tobacco Settlement
Financing Corporation,
Series 2001-A, Class A,
6.36%, 05-15-2025 230,834
-----------
INTERNATIONAL (U.S. $ DENOMINATED) - 1.5%
400,000 PEMEX Project Funding
Master Trust,
9.13%, 10-13-2010 479,600
-----------
U.S. GOVERNMENT AGENCY - 1.5%
455,000 Federal Home Loan
Mortgage Corporation
(FHLMC) Notes,
6.63%, 09-15-2009 508,845
-----------
U.S. TREASURY OBLIGATIONS - 12.9%
U.S. Treasury Bonds:
650,000 9.25%, 02-15-2016 927,850
2,800,000 6.25%, 08-15-2023 3,278,078
-----------
4,205,928
-----------
Total Long-Term
Investments
(Cost $30,013,734) 30,683,759
-----------
Shares
------
SHORT-TERM INVESTMENTS - 5.9%
MONEY MARKET FUND - 5.6%
577,808 Investment Company
Cash Reserve Portfolio -
AIM Fund 577,808
1,244,756 SEI Daily Income Trust
Government Fund 1,244,756
-----------
1,822,564
-----------
Principal
Amount
---------
VARIABLE RATE DEMAND NOTES#<F30> 0.3%
$ 51,593 American Family Financial
Services, Inc., 2.00% 51,593
50,000 Wisconsin Corporate
Central Credit
Union, 2.09% 50,000
-----------
101,593
-----------
Total Short-Term
Investments
(Cost $1,924,157) 1,924,157
-----------
Total Investments
(Cost $31,937,891)
100.0% 32,607,916
-----------
Other Assets, less
Liabilities 0.0% 13,572
-----------
TOTAL NET
ASSETS 100.0% $32,621,488
-----------
-----------
*<F26> Unregistered security
**<F27> Fair valued security
^<F28> Non-income producing security
F<F29> Foreign
#<F30> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of December 31, 2004.
See notes to the financial statements
BAIRD SHORT-TERM BOND FUND
DECEMBER 31, 2004
The investment objective of the Baird Short-Term Bond Fund is to seek an annual
rate of total return, before Fund expenses, greater than the annual rate of
return of the Lehman Brothers 1-3 Year Government/Credit Bond Index. The Lehman
Brothers 1-3 Year Government/Credit Bond Index is an unmanaged, market value
weighted index of investment grade, fixed rate debt including government and
corporate securities with maturities between one and three years.
The Baird Short-Term Bond Fund generated positive relative returns during its
first four months of operation in 2004. An over-weighting of BBB-rated
corporate bonds and an under-weighting of U.S. Treasuries versus the Fund's
benchmark as well as exposure to mortgage-backed and asset-backed securities,
which are not found in the Fund's benchmark, contributed positively to the
Fund's performance. The Fund maintained its duration neutral strategy, holding
a broadly diversified portfolio of 79 securities at year end.
The Fund ended 2004 with a yield advantage versus its benchmark, the Lehman
Brothers 1-3 Year Government/Credit Bond Index. This yield advantage, combined
with exposure to specific sectors which we believe have superior total return
(asset-backed securities and government agency issues), enhance the Fund's
prospects of continuing to add value over its benchmark in the coming year. A
December 31, 2004 summary of the Fund's portfolio characteristics including
quality distribution and sector allocation appears below.
PORTFOLIO CHARACTERISTICS
QUALITY DISTRIBUTION
U.S. Treasury 12%
U.S. Gov't Agency 38%
Aaa 12%
Aa 3%
A 12%
Baa 23%
SECTOR WEIGHTINGS
U.S. Treasury 12%
U.S. Gov't Agency 36%
Mortgage/CMOs 4%
Asset-Backed 9%
Industrials 14%
Utility 9%
Finance/Bank/Broker 14%
Int'l 1%
Municipal 1%
NET ASSETS: $31,973,000
SEC 30-DAY YIELD:*<F31>
Institutional Class: 3.09%
AVERAGE DURATION: 1.74 years
AVERAGE MATURITY: 2.11 years
PORTFOLIO EXPENSE RATIO:
Institutional Class: 0.30%
PORTFOLIO TURNOVER RATIO: 16.7%
TOTAL NUMBER OF HOLDINGS: 79
*<F31> SEC yields are based on SEC guidelines and are calculated on 30 days
ended December 31, 2004.
BAIRD SHORT-TERM BOND FUND - INSTITUTIONAL CLASS*<F32>
VALUE OF A $250,000 INVESTMENT
Baird Short-Term Bond Fund - Lehman 1-3 Year U.S.
Date Institutional Class Shares Government/Credit Index
---- -------------------------- -----------------------
8/31/2004 $250,000 $250,000
9/30/2004 $249,602 $249,862
10/31/2004 $250,597 $250,730
11/30/2004 $249,438 $249,509
12/31/2004 $250,238 $250,114
GROWTH OF A HYPOTHETICAL INVESTMENT OF $250,000 MADE ON THE FUND'S INCEPTION
DATE (8/31/04) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
*<F32> The Baird Short-Term Bond Fund is currently offering only the
Institutional Class shares to investors.
TOTAL RETURNS
For the Period Ended December 31, 2004 SINCE INCEPTION(1)<F33>
- -------------------------------------- -----------------------
Baird Short-Term Bond Fund -
Institutional Class 0.10%
Lehman Brothers 1-3 Year
Government/Credit Bond Index(2)<F34> 0.05%
(1)<F33> For the period August 31, 2004 (commencement of operations) to
December 31, 2004.
(2)<F34> The Lehman Brothers 1-3 Year Government/Credit Bond Index is an
unmanaged, market value weighted index of investment grade, fixed-rate
debt including government and corporate securities with maturities
between one and three years. The Index does not reflect any deduction
for fees, expenses or taxes. A direct investment in an index is not
possible.
THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS FOR THE PERIOD AUGUST 31,
2004 THROUGH DECEMBER 31, 2004. THE RETURNS REFLECT REINVESTMENT OF DIVIDENDS
AND/OR CAPITAL GAINS DISTRIBUTIONS IN ADDITIONAL SHARES. RETURNS DO NOT REFLECT
THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE
REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Principal
Amount Value
--------- -----
LONG-TERM INVESTMENTS - 98.7%
ASSET-BACKED SECURITIES - 8.8%
$ 66,509 Americredit Automobile
Receivables Trust,
Series 2001-B, Class A4,
5.37%, 06-12-2008 $ 67,327
120,000 Chase Manhattan Auto
Owner Trust,
Series 2003-C, Class A4,
2.94%, 06-15-2010 118,657
Chemical Master Credit
Card Trust I:
250,370 Series 1996-2, Class A,
5.98%, 09-15-2008 256,814
250,000 Series 1996-3, Class A,
7.09%, 02-15-2009 263,345
Countrywide Asset-Backed
Certificates:
300,000 Series 2004-10, Class AF2,
3.32%, 11-20-2023 297,067
400,000 Series 2004-9, Class AF2,
3.34%, 09-25-2023 397,083
175,000 Household Automobile
Trust, 2.22%, 11-17-2009 171,441
300,000 MBNA Credit Card
Master Note Trust,
Series 2003-A3, Class A3,
2.529%, 08-16-2010 300,844
400,000 New Century Home
Equity Loan Trust,
Series 2003-5, Class AI3,
3.56%, 11-25-2033 399,643
400,000 Renaissance Home
Equity Loan Trust,
Series 2004-3, Class AF2,
3.57%, 11-25-2034 396,581
140,000 Residential Asset Mortgage
Products, Inc.
5.34%, 08-25-2033 142,769
-----------
2,811,571
-----------
FINANCIAL - 13.8%
140,000 American General Finance
Corporation Notes,
4.50%, 11-15-2007 142,637
300,000 Aon Corp.,
8.65%, 05-15-2005 305,784
304,000 Bank of Oklahoma
Subordinated Notes,
7.13%, 08-15-2007 329,410
200,000 Bankers Trust Corp.,
7.38%, 05-01-2008 221,849
110,000 BB&T Corporation
Subordinated Notes,
7.25%, 06-15-2007 119,071
210,000 CIT Group Inc. Senior
Notes, 5.50%, 11-30-2007 219,832
200,000 Citicorp Subordinated
Notes, 7.00%, 07-01-2007 215,552
275,000 EOP Operating LP,
6.63%, 02-15-2005 276,238
200,000 Franchise Finance
Corporation Notes,
7.07%, 01-15-2008 221,879
200,000 J.P. Morgan & Co.
Incorporated Subordinated
Notes, 6.70%, 11-01-2007 216,188
KeyCorp Subordinated Notes,
100,000 6.75%, 03-15-2006 103,910
200,000 7.50%, 06-15-2006 211,224
203,000 Lehman Brothers Holdings
Inc. Notes,
8.50%, 05-01-2007 225,541
200,000 Morgan Stanley Group,
Inc. Debentures,
8.33%, 01-15-2007 218,599
150,000 Principal Life Global,
5.13%, 06-28-2007
(Acquired 12-28-04;
Cost $154,880)*<F72> 154,774
300,000 Santander Financial
Issuances, F<F36>
7.25%, 05-30-2006 315,787
200,000 Transamerica Corporation
Debentures,
9.38%, 03-01-2008 231,475
225,000 USF&G Corporation
Senior Notes,
7.13%, 06-01-2005 228,337
162,000 Washington Mutual,
Inc. Notes,
7.50%, 08-15-2006 172,100
250,000 Wells Fargo & Company
Subordinated Notes,
6.25%, 04-15-2008 268,926
-----------
4,399,113
-----------
INDUSTRIAL - 13.5%
250,000 American Home
Products Corp.,
7.90%, 02-15-2005 251,321
300,000 British Telecommunications
PLC Notes, F<F36>
7.88%, 12-15-2005 312,897
250,000 Centex Corporation Notes,
9.75%, 06-15-2005 256,408
200,000 Comcast Cable
Communications, Inc.
Notes, 6.20%, 11-15-2008 215,980
200,000 Cooper Cameron
Corporation Senior Notes,
2.65%, 04-15-2007 194,765
270,000 CSX Corporation
Debentures,
9.00%, 08-15-2006 292,419
200,000 Deutsche Telekom
International Finance BV, F<F36>
8.25%, 06-15-2005 204,661
300,000 Disney, Walt Co.,
7.30%, 02-08-2005 301,281
200,000 France Telecom SA Notes, F<F36>
7.95%, 03-01-2006 209,993
200,000 General Motors Acceptance
Corporation Notes,
6.13%, 09-15-2006 205,037
310,000 The Hertz Corporation
Senior Notes,
6.50%, 05-15-2006 319,848
250,000 International Paper
Company Notes,
7.63%, 01-15-2007 269,544
200,000 MeadWestvaco
Corporation Notes,
2.75%, 12-01-2005 199,360
149,000 Southwestern Bell
Telephone Company Notes,
6.63%, 07-15-2007 159,067
250,000 Telus Corporation Notes, F<F36>
7.50%, 06-01-2007 271,625
200,000 Time Warner Cos., Inc.,
8.18%, 08-15-2007 222,115
200,000 Tyco International
Group SA,
6.38%, 02-15-2006 206,664
217,000 Union Pacific Corp,
6.40%, 02-01-2006 224,055
-----------
4,317,040
-----------
UTILITIES - 9.4%
300,000 Baltimore Gas & Electric,
5.25%, 12-15-2006 309,471
300,000 Conective,
5.30%, 06-01-2005 302,436
175,000 Energy Gulf States, Inc.,
6.77%, 08-01-2005 178,673
220,000 Indiana Michigan Power
Company Senior Notes,
Series C, 6.13%,
12-15-2006 230,362
111,000 Jersey Central Power &
Light Company 1st
Mortgage, 6.85%,
11-27-2006 117,139
200,000 Kinder Morgan Energy
Partners, 8.00%,
03-15-2005 201,862
200,000 MidAmerican Energy
Holdings Company
Senior Notes,
4.63%, 10-01-2007 203,586
160,000 Nisource Finance Corp.,
7.63%, 11-15-2005 165,828
200,000 Oneok, Inc.,
7.75%, 08-15-2006 212,705
220,000 PanEnergy Corporation
Notes, 7.00%, 10-15-2006 231,721
250,000 Pepco Holdings, Inc.
Notes, 3.75%, 02-15-2006 251,227
175,000 Progress Energy, Inc. Senior
Notes, 6.75%, 03-01-2006 181,590
200,000 Public Service Electric
& Gas Co.,
6.25%, 01-01-2007 210,698
200,000 Southern California Edison
Company 1st Mortgage,
8.00%, 02-15-2007 217,796
-----------
3,015,094
-----------
INTERNATIONAL (U.S. $ DENOMINATED) - 0.7%
200,000 PEMEX Project Funding
Master Trust,
6.13%, 08-15-2008 212,000
-----------
MORTGAGE-BACKED SECURITIES - 4.3%
289,653 Citicorp Mortgage
Securities, Inc.,
Series 2004-4, Class A2,
5.25%, 05-25-2015 288,773
300,000 Citifinancial Mortgage
Securities, Inc.,
Series 2003-3, Class AF2,
3.08%, 08-25-2033 298,621
250,000 Federal National Mortgage
Association (FNMA),
Series 2002-94, Class BG,
5.00%, 04-25-2016 254,940
255,470 FHLMC Remic Series 2548,
4.50%, 01-15-2010 258,007
266,041 FHLMC Remic Series 2835,
5.50%, 11-15-2012 274,202
-----------
1,374,543
-----------
U.S. GOVERNMENT AGENCY - 35.5%
Federal Home Loan
Bank (FHLB):
500,000 6.45%, 06-08-2005 508,509
1,000,000 4.70%, 10-07-2010 1,000,047
9,300,000 Federal National Mortgage
Association (FNMA) Notes,
2.38%, 02-15-2007 9,127,922
750,000 Government Backed Trust
U.S. Government
Guarantee,^<F35>, F<F36>
Series T-1, 0.00%,
11-15-2006 703,093
-----------
11,339,571
-----------
U.S. TREASURY OBLIGATIONS - 11.9%
U.S. Treasury Note,
500,000 4.38%, 05-15-2007 513,887
1,250,000 2.38%, 08-31-2006 1,237,549
2,075,000 2.50%, 09-30-2006 2,057,087
-----------
3,808,523
-----------
TAXABLE MUNICIPAL BONDS - 0.8%
267,727 Tobacco Settlement
Financial Corp.,
6.36%, 05-15-2025 263,810
-----------
Total Long-Term
Investments
(Cost $31,749,347) 31,541,265
-----------
Shares
------
SHORT-TERM INVESTMENTS - 0.1%
MONEY MARKET FUNDS - 0.1%
32,369 SEI Daily Income
Trust Government
Fund - Class B 32,369
6,089 AIM Liquid
Assets Portfolio 6,089
-----------
38,458
-----------
Total Short-Term
Investments
(Cost $38,458) 38,458
-----------
Total Investments
(Cost $31,787,805)
98.8% 31,579,723
-----------
Other Assets, less
Liabilities 1.2% 393,277
-----------
TOTAL NET
ASSETS 100.0% $31,973,000
-----------
-----------
*<F72> Unregistered security
^<F35> Non-income producing security
F<F36> Foreign
See notes to the financial statements
BAIRD FUNDS, INC.
ADDITIONAL INFORMATION ON FUND EXPENSES DECEMBER 31, 2004 (UNAUDITED)
EXAMPLE
As a shareholder of a mutual fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; interest expense and other fund expenses.
This Example is intended to help you understand your ongoing costs (in dollars)
of investing in each Fund and to compare these costs with the ongoing costs of
investing in other mutual funds. The Example is based on an investment of
$1,000 invested at the beginning of the period and held for the entire period
(7/1/04 - 12/31/04; 8/31/04-12/31/04 in the case of the Short-Term Bond Fund).
ACTUAL EXPENSES
The fourth and fifth columns of the table below provide information about
account values based on actual returns and actual expenses. Although the Funds
do not charge any sales loads, redemption fees, or other transaction fees, you
will be assessed fees for outgoing wire transfers, returned checks and stop
payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC,
the Fund's transfer agent. If you request that a redemption be made by wire
transfer, currently the Fund's transfer agent charges a $15.00 fee. You may use
the information in these columns, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the fifth column entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The sixth and seventh columns of the table below provide information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which is not the Funds' 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 Funds and other mutual funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other mutual funds. Please note that
the expenses shown in the table are meant to highlight your ongoing costs only
and do not reflect any transactional costs. Therefore, the seventh column of
the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different mutual funds. In
addition, if these transactional costs were included, your costs could have been
higher.
ACTUAL VS. HYPOTHETICAL RETURNS
For the Six Months Ended December 31, 2004
HYPOTHETICAL (5% RETURN
ACTUAL BEFORE EXPENSES)
-------------------------- --------------------------
FUND'S BEGINNING ENDING EXPENSES ENDING EXPENSES
ANNUALIZED ACCOUNT ACCOUNT PAID ACCOUNT PAID
EXPENSE VALUE VALUE DURING VALUE DURING
RATIO 7/1/04 12/31/04 PERIOD 12/31/04 PERIOD
------------- ------ -------- -------------- -------- --------------
BAIRD INTERMEDIATE BOND FUND(1)<F37>
Institutional Class 0.30% $1,000.00 $1,037.50 $1.54 $1,023.63 $1.53
Investor Class 0.55% $1,000.00 $1,036.20 $2.82 $1,022.37 $2.80
BAIRD AGGREGATE BOND FUND(1)<F37>
Institutional Class 0.30% $1,000.00 $1,048.40 $1.54 $1,023.63 $1.53
Investor Class 0.55% $1,000.00 $1,046.40 $2.83 $1,022.37 $2.80
BAIRD INTERMEDIATE MUNICIPAL(1)<F37>
BOND FUND
Institutional Class 0.30% $1,000.00 $1,043.30 $1.54 $1,023.63 $1.53
Investor Class 0.55% $1,000.00 $1,041.30 $2.82 $1,022.37 $2.80
BAIRD CORE PLUS BOND FUND(1)<F37)
Institutional Class 0.30% $1,000.00 $1,057.40 $1.55 $1,023.63 $1.53
Investor Class 0.55% $1,000.00 $1,055.90 $2.84 $1,022.37 $2.80
BAIRD SHORT-TERM BOND FUND
Institutional Class(2)<F71> 0.30% $1,000.00 $1,001.00 $1.01 $1,000.00 $1.53
(1)<F37> Expenses are equal to the Fund's annualized expense ratio multiplied
by the average account value over the period, multiplied by 184 days
and divided by 366 to reflect the one-half year period.
(2)<F71> The Baird Short-Term Bond Fund commenced operations on August 31,
2004. Because the Fund does not have a full six months of operations,
information in the above table is based on the period from August 31,
2004 through December 31, 2004. Expenses are equal to the Fund's
annualized expense ratio multiplied by the average account value over
the period, multiplied by 123 days and divided by 365.
BAIRD FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
BAIRD
BAIRD BAIRD INTERMEDIATE BAIRD BAIRD
INTERMEDIATE AGGREGATE MUNICIPAL CORE PLUS SHORT-TERM
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
------------ --------- ------------ --------- ----------
ASSETS:
Investments, at value $197,741,417 $114,876,949 $42,620,596 $32,607,916 $31,579,723
(cost $195,132,953, $112,458,515,
$41,732,095, and $31,937,891
and $31,787,805 respectively)
Interest receivable 2,631,277 1,231,938 709,049 358,608 332,077
Receivable for Fund shares sold 442,864 22,876 75,000 10,581 69,122
------------ ------------ ----------- ----------- -----------
Total assets 200,815,558 116,131,763 43,404,645 32,977,105 31,980,922
------------ ------------ ----------- ----------- -----------
LIABILITIES:
Payable to Custodian 857 862 -- -- --
Payable for securities purchased 6,187,702 -- 1,892,175 312,311 --
Payable for Fund shares purchased -- 1,074 -- -- --
Payable to Advisor and Distributor 50,972 29,612 11,493 8,264 7,922
Other liabilities -- 8,495 -- 35,042 --
------------ ------------ ----------- ----------- -----------
Total liabilities 6,239,531 40,043 1,903,668 355,617 7,922
------------ ------------ ----------- ----------- -----------
NET ASSETS $194,576,027 $116,091,720 $41,500,977 $32,621,488 $31,973,000
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
NET ASSETS CONSIST OF:
Capital stock $192,532,392 $113,627,297 $40,603,173 $31,898,286 $32,178,285
Accumulated undistributed net
investment income 223,829 134,477 34,676 44,701 12,668
Accumulated net realized gain (loss)
on investments sold (788,658) (88,488) (25,373) 8,476 (9,871)
Net unrealized appreciation (depreciation)
on investments 2,608,464 2,418,434 888,501 670,025 (208,082)
------------ ------------ ----------- ----------- -----------
NET ASSETS $194,576,027 $116,091,720 $41,500,977 $32,621,488 $31,973,000
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
INSTITUTIONAL CLASS SHARES
Net Assets $191,563,699 $115,382,862 $36,889,211 $32,495,641 $31,973,000
Shares outstanding ($0.01 par value,
unlimited shares authorized) 17,693,963 10,741,629 3,413,492 3,130,712 3,220,409
Net asset value, offering and
redemption price per share $ 10.83 $ 10.74 $ 10.81 $ 10.38 $ 9.93
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
INVESTOR CLASS SHARES
Net Assets $ 3,012,328 $ 708,858 $ 4,611,766 $ 125,847 $ --
Shares outstanding ($0.01 par value,
unlimited shares authorized) 270,605 64,721 419,482 11,848 --
Net asset value, offering and
redemption price per share $ 11.13 $ 10.95 $ 10.99 $ 10.62 $ --
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD
AUGUST 31,
2004(1)<F38>
THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, 2004 2004
------------------------------------------------------------- --------------
BAIRD
BAIRD BAIRD INTERMEDIATE BAIRD BAIRD
INTERMEDIATE AGGREGATE MUNICIPAL CORE PLUS SHORT-TERM
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
------------ --------- ------------ --------- ----------
INVESTMENT INCOME:
Interest income $7,780,431 $5,102,277 $1,475,009 $1,753,922 $271,272
---------- ---------- ---------- ---------- --------
Total investment income 7,780,431 5,102,277 1,475,009 1,753,922 271,272
---------- ---------- ---------- ---------- --------
EXPENSES:
Investment advisory fees 420,661 261,616 92,247 85,160 23,406
Administration fees 84,132 52,324 18,449 17,032 4,681
Distribution expenses - Investor Class Shares 5,355 881 6,767 300 --
---------- ---------- ---------- ---------- --------
Total expenses 510,148 314,821 117,463 102,492 28,087
---------- ---------- ---------- ---------- --------
NET INVESTMENT INCOME 7,270,283 4,787,456 1,357,546 1,651,430 243,185
---------- ---------- ---------- ---------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (599,286) 425,360 (24,020) 944,452 (8,613)
Change in unrealized appreciation/
depreciation on investments (282,245) 42,347 (508,690) (365,553) (208,082)
---------- ---------- ---------- ---------- --------
Net realized and unrealized
gain (loss) on investments (881,531) 467,707 (532,710) 578,899 (216,695)
---------- ---------- ---------- ---------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,388,752 $5,255,163 $ 824,836 $2,230,329 $ 26,490
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
(1)<F38> Commencement of operations.
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD INTERMEDIATE BOND FUND
-----------------------------------------------
Year ended Year ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income $ 7,270,283 $ 6,434,985
Net realized gain (loss) on investments (599,286) 1,740,221
Change in unrealized appreciation/depreciation on investments (282,245) 537,951
------------ ------------
Net increase in net assets resulting from operations 6,388,752 8,713,157
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 67,465,697 43,458,210
Shares issued to holders in reinvestment of dividends 6,659,149 7,222,416
Cost of shares redeemed (29,883,566) (47,428,392)
------------ ------------
Net increase in net assets resulting from
capital share transactions 44,241,280 3,252,234
------------ ------------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (7,099,177) (6,546,220)
From realized gains (27,024) (1,561,393)
------------ ------------
(7,126,201) (8,107,613)
------------ ------------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net investment income (85,930) (49,351)
From realized gains (377) (13,425)
------------ ------------
(86,307) (62,776)
------------ ------------
TOTAL INCREASE IN NET ASSETS 43,417,524 3,795,002
NET ASSETS:
Beginning of year 151,158,503 147,363,501
------------ ------------
End of year (including undistributed net investment
income of $223,829 and $19,667, respectively) $194,576,027 $151,158,503
------------ ------------
------------ ------------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD AGGREGATE BOND FUND
-----------------------------------------------
Year ended Year ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income $ 4,787,456 $ 4,198,609
Net realized gain on investments 425,360 1,661,350
Change in unrealized appreciation/depreciation on investments 42,347 106,878
------------ -----------
Net increase in net assets resulting from operations 5,255,163 5,966,837
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 49,052,903 36,689,242
Shares issued to holders in reinvestment of dividends 4,563,691 5,339,766
Cost of shares redeemed (29,904,273) (38,487,603)
------------ -----------
Net increase in net assets resulting from
capital share transactions 23,712,321 3,541,405
------------ -----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (4,819,107) (4,442,442)
From realized gains (311,207) (1,435,567)
------------ -----------
(5,130,314) (5,878,009)
------------ -----------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net investment income (13,976) (41,011)
From realized gains (1,852) (11,501)
------------ -----------
(15,828) (52,512)
------------ -----------
TOTAL INCREASE IN NET ASSETS 23,821,342 3,577,721
NET ASSETS:
Beginning of year 92,270,378 88,692,657
------------ -----------
End of year (including undistributed net investment
income of $134,477 and $7,203, respectively) $116,091,720 $92,270,378
------------ -----------
------------ -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
-----------------------------------------------
Year ended Year ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income $ 1,357,546 $ 1,214,886
Net realized gain (loss) on investments (24,020) 124,095
Change in unrealized appreciation/depreciation on investments (508,690) 166,880
----------- -----------
Net increase in net assets resulting from operations 824,836 1,505,861
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 16,224,440 1,659,864
Shares issued to holders in reinvestment of dividends 1,121,415 1,279,039
Cost of shares redeemed (6,337,831) (4,030,518)
----------- -----------
Net increase (decrease) in net assets resulting from
capital share transactions 11,008,024 (1,091,615)
----------- -----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (1,230,984) (1,198,858)
From realized gains -- (123,978)
----------- -----------
(1,230,984) (1,322,836)
----------- -----------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net investment income (91,886) (25,068)
From realized gains -- (3,070)
----------- -----------
(91,886) (28,138)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 10,509,990 (936,728)
NET ASSETS:
Beginning of year 30,990,987 31,927,715
----------- -----------
End of year (including undistributed net investment
income of $34,676 and $0, respectively) $41,500,977 $30,990,987
----------- -----------
----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD CORE PLUS BOND FUND
-----------------------------------------------
Year ended Year ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income $ 1,651,430 $ 2,172,767
Net realized gain on investments 944,452 1,461,883
Change in unrealized appreciation/depreciation on investments (365,553) 392,393
----------- -----------
Net increase in net assets resulting from operations 2,230,329 4,027,043
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,987,818 7,748,809
Shares issued to holders in reinvestment of dividends 1,182,113 1,824,060
Cost of shares redeemed (14,342,365) (21,370,481)
----------- -----------
Net decrease in net assets resulting from
capital share transactions (10,172,434) (11,797,612)
----------- -----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (1,712,108) (2,456,877)
From realized gains (550,721) (1,443,349)
----------- -----------
(2,262,829) (3,900,226)
----------- -----------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net investment income (5,608) (8,965)
From realized gains (2,085) (4,074)
----------- -----------
(7,693) (13,039)
----------- -----------
TOTAL DECREASE IN NET ASSETS (10,212,627) (11,683,834)
NET ASSETS:
Beginning of year 42,834,115 54,517,949
----------- -----------
End of year (including undistributed net investment
income of $44,701 and $5,172, respectively) $32,621,488 $42,834,115
----------- -----------
----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD SHORT-TERM BOND FUND
--------------------------
For the Period
August 31, 2004(1)<F39>
through
December 31, 2004
--------------------------
OPERATIONS:
Net investment income $ 243,185
Net realized loss on investments (8,613)
Change in unrealized appreciation/depreciation on investments (208,082)
-----------
Net increase in net assets resulting from operations 26,490
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 33,919,057
Shares issued to holders in reinvestment of dividends 158,249
Cost of shares redeemed (1,899,021)
-----------
Net increase in net assets resulting from
capital share transactions 32,178,285
-----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (231,775)
From realized gains --
-----------
(231,775)
-----------
TOTAL INCREASE IN NET ASSETS 31,973,000
NET ASSETS:
Beginning of period --
-----------
End of period (including undistributed net investment
income of $12,668) $31,973,000
-----------
-----------
(1)<F39> Commencement of operations.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD INTERMEDIATE BOND FUND
--------------------------------------------------------------------------------------
Institutional
Institutional Institutional Institutional Institutional Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F40> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 10.88 $ 10.86 $ 10.60 $ 10.55 $ 10.00
------------ ------------ ------------ ----------- ----------
Income from investment operations:
Net investment income 0.47(6)<F45> 0.49 0.56 0.62(6)<F45> 0.13
Net realized and unrealized
gains (losses) on investments (0.05) 0.14 0.27 0.08(7)<F46> 0.53
------------ ------------ ------------ ----------- ----------
Total from investment operations 0.42 0.63 0.83 0.70 0.66
------------ ------------ ------------ ----------- ----------
Less distributions:
Dividends from net investment income (0.47) (0.49) (0.56) (0.62) (0.11)
Distributions from net realized gains (0.00)(5) (0.12) (0.01) (0.03) (0.00)(5)
<F44> <F44>
------------ ------------ ------------ ----------- ----------
Total distributions (0.47) (0.61) (0.57) (0.65) (0.11)
------------ ------------ ------------ ----------- ----------
Net asset value, end of period $ 10.83 $ 10.88 $ 10.86 $ 10.60 $ 10.55
------------ ------------ ------------ ----------- ----------
------------ ------------ ------------ ----------- ----------
Total return 3.91% 5.89% 8.02% 6.68% 6.63%(2)
<F41>
Supplemental data and ratios:
Net assets, end of period $191,563,699 $149,836,855 $146,236,339 $89,682,104 $9,769,062
Ratio of expenses to average net assets 0.30% 0.30% 0.30% 0.30% 0.30%(3)
<F42>
Ratio of net investment income
to average net assets 4.32% 4.39% 5.20% 5.71% 6.73%(3)
<F42>
Portfolio turnover rate(4)<F43> 44.8% 64.4% 41.1% 79.5% 102.5%(2)
<F41>
(1)<F40> Commencement of operations.
(2)<F41> Not annualized.
(3)<F42> Annualized.
(4)<F43> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F44> Amount is less than $0.01.
(6)<F45> Calculated using average shares outstanding during the period.
(7)<F46> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD INTERMEDIATE BOND FUND
------------------------------------------------------------------------------------
Investor
Investor Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F47> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 11.17 $ 11.13 $ 10.71 $ 10.56 $ 10.00
------------ ------------ ------------ ----------- ----------
Income from investment operations:
Net investment income 0.45(6)<F52> 0.48 0.54(6)<F52> 0.59(6)<F52> 0.13
Net realized and unrealized
gains (losses) on investments (0.05) 0.14 0.27 0.08(7) 0.53
------------ ------------ ------------ ----------- ----------
Total from investment operations 0.40 0.62 0.81 0.67 0.66
------------ ------------ ------------ ----------- ----------
Less distributions:
Dividends from net investment income (0.44) (0.46) (0.38) (0.49) (0.10)
Distributions from net realized gains (0.00)(5) (0.12) (0.01) (0.03) (0.00)(5)
<F51> <F51>
------------ ------------ ------------ ----------- ----------
Total distributions (0.44) (0.58) (0.39) (0.52) (0.10)
------------ ------------ ------------ ----------- ----------
Net asset value, end of period $ 11.13 $ 11.17 $ 11.13 $ 10.71 $ 10.56
------------ ------------ ------------ ----------- ----------
------------ ------------ ------------ ----------- ----------
Total return 3.65% 5.61% 7.74% 6.43% 6.68%(2)
<F48>
Supplemental data and ratios:
Net assets, end of period $ 3,012,328 $ 1,321,648 $ 1,127,162 $ 1,189,191 $ 351,262
Ratio of expenses to average net assets 0.55% 0.55% 0.55% 0.55% 0.55%(3)
<F49>
Ratio of net investment income to average
net assets 4.07% 4.14% 4.95% 5.46% 6.48%(3)
<F49>
Portfolio turnover rate(4)<F50> 44.8% 64.4% 41.1% 79.5% 102.5%(2)
<F48>
(1)<F47> Commencement of operations.
(2)<F48> Not annualized.
(3)<F49> Annualized.
(4)<F50> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F51> Amount is less than $0.01.
(6)<F52> Calculated using average shares outstanding during the period.
(7)<F53> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD AGGREGATE BOND FUND
--------------------------------------------------------------------------------------
Institutional
Institutional Institutional Institutional Institutional Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F54> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 10.71 $ 10.69 $ 10.51 $ 10.42 $ 10.00
------------ ------------ ------------ ----------- ----------
Income from investment operations:
Net investment income 0.49(6)<F59> 0.56 0.62 0.68 0.16
Net realized and unrealized
gains (losses) on investments 0.07 0.20 0.23 0.17 0.42
------------ ------------ ------------ ----------- ----------
Total from investment operations 0.56 0.76 0.85 0.85 0.58
------------ ------------ ------------ ----------- ----------
Less distributions:
Dividends from net investment income (0.50) (0.56) (0.62) (0.67) (0.16)
Distributions from net realized gains (0.03) (0.18) (0.05) (0.09) (0.00)(5)
<F58>
------------ ------------ ------------ ----------- ----------
Total distributions (0.53) (0.74) (0.67) (0.76) (0.16)
------------ ------------ ------------ ----------- ----------
Net asset value, end of period $ 10.74 $ 10.71 $ 10.69 $ 10.51 $ 10.42
------------ ------------ ------------ ----------- ----------
------------ ------------ ------------ ----------- ----------
Total return 5.30% 7.19% 8.30% 8.33% 5.78%(2)
<F55>
Supplemental data and ratios:
Net assets, end of period $115,382,862 $ 91,550,534 $ 87,847,176 $83,392,652 $35,975,190
Ratio of expenses to average net assets 0.30% 0.30% 0.30% 0.30% 0.30%(3)
<F56>
Ratio of net investment income
to average net assets 4.58% 4.85% 5.75% 6.33% 6.85%(3)
<F56>
Portfolio turnover rate(4)<F57> 72.6% 106.7% 51.2% 79.2% 14.7%(2)
<F55>
(1)<F54> Commencement of operations.
(2)<F55> Not annualized.
(3)<F56> Annualized.
(4)<F57> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F58> Amount is less than $0.01.
(6)<F59> Calculated using average shares outstanding throughout the period.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD AGGREGATE BOND FUND
-------------------------------------------------------------------------------------
Investor
Investor Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F60> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 10.88 $ 10.84 $ 10.57 $ 10.43 $ 10.00
------------ ------------ ------------ ----------- ----------
Income from investment operations:
Net investment income 0.48(6)<F65> 0.55 0.60(6)<F65> 0.65(6)<F65> 0.15
Net realized and unrealized
gains (losses) on investments 0.07 0.19 0.23 0.17 0.42
------------ ------------ ------------ ----------- ----------
Total from investment operations 0.55 0.74 0.83 0.82 0.57
------------ ------------ ------------ ----------- ----------
Less distributions:
Dividends from net investment income (0.45) (0.52) (0.51) (0.59) (0.14)
Distributions from net realized gains (0.03) (0.18) (0.05) (0.09) (0.00)(5)
<F64>
------------ ------------ ------------ ----------- ----------
Total distributions (0.48) (0.70) (0.56) (0.68) (0.14)
------------ ------------ ------------ ----------- ----------
Net asset value, end of period $ 10.95 $ 10.88 $ 10.84 $ 10.57 $ 10.43
------------ ------------ ------------ ----------- ----------
------------ ------------ ------------ ----------- ----------
Total return 5.20% 6.95% 8.08% 7.98% 5.77%(2)
<F61>
Supplemental data and ratios:
Net assets, end of period $ 708,858 $ 719,844 $ 845,481 $ 166,622 $ 13,223
Ratio of expenses to average net assets 0.55% 0.55% 0.55% 0.55% 0.55%(3)
<F62>
Ratio of net investment income
to average net assets 4.33% 4.60% 5.50% 6.08% 6.60%(3)
<F62>
Portfolio turnover rate(4)<F63> 72.6% 106.7% 51.2% 79.2% 14.7%(2)
<F61>
(1)<F60> Commencement of operations.
(2)<F61> Not annualized.
(3)<F62> Annualized.
(4)<F63> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F64> Amount is less than $0.01.
(6)<F65> Calculated using average shares outstanding during the period.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
--------------------------------------------------------------------------------------
Institutional
Institutional Institutional Institutional Class Shares
Class Shares Class Shares Class Shares March 30, 2001(1)<F66>
Year ended Year ended Year ended through
December 31, 2004 December 31, 2003 December 31, 2002 December 31, 2001
----------------- ----------------- ----------------- -----------------
Per Share Data:
Net asset value, beginning of period $ 10.91 $ 10.86 $ 10.25 $ 10.00
------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.40(5) 0.42(5) 0.43(5) 0.34(5)
<F70> <F70> <F70> <F70>
Net realized and unrealized
gains (losses) on investments (0.11) 0.10 0.64 0.17(6)
<F71>
------------ ------------ ------------ ------------
Total from investment operations 0.29 0.52 1.07 0.51
------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment income (0.39) (0.43) (0.46) (0.25)
Distributions from net realized gains -- (0.04) (0.00)(7) (0.01)
<F72>
------------ ------------ ------------ ------------
Total distributions (0.39) (0.47) (0.46) (0.26)
------------ ------------ ------------ ------------
Net asset value, end of period $ 10.81 $ 10.91 $ 10.86 $ 10.25
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return 2.69% 4.91% 10.72% 5.02%(2)
<F67>
Supplemental data and ratios:
Net assets, end of period $ 36,889,211 $ 30,234,195 $ 31,221,508 $ 14,448,572
Ratio of expenses to average net assets 0.30% 0.30% 0.30% 0.30%(3)
<F68>
Ratio of net investment income
to average net assets 3.70% 3.88% 4.11% 4.32%(3)
<F68>
Portfolio turnover rate(4)<F69> 4.2% 17.7% 32.6% 14.8%(2)
<F67>
(1)<F66> Commencement of operations.
(2)<F67> Not annualized.
(3)<F68> Annualized.
(4)<F69> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F70> Calculated using average shares outstanding during the period.
(6)<F71> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
(7)<F72> Amount is less than $0.01.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
--------------------------------------------------------------------------------------
Investor
Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares March 30, 2001(1)<F73>
Year ended Year ended Year ended through
December 31, 2004 December 31, 2003 December 31, 2002 December 31, 2001
----------------- ----------------- ----------------- -----------------
Per Share Data:
Net asset value, beginning of period $ 11.09 $ 11.02 $ 10.27 $ 10.00
------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.38(5) 0.40(5) 0.41(5) 0.31(5)
<F77> <F77> <F77> <F77>
Net realized and unrealized
gains (losses) on investments (0.12) 0.10 0.64 0.17(6)
<F78>
------------ ------------ ------------ ------------
Total from investment operations 0.26 0.50 1.05 0.48
------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment income (0.36) (0.39) (0.30) (0.20)
Distributions from net realized gains -- (0.04) (0.00)(7) (0.01)
<F79>
------------ ------------ ------------ ------------
Total distributions (0.36) (0.43) (0.30) (0.21)
------------ ------------ ------------ ------------
Net asset value, end of period $ 10.99 $ 11.09 $ 11.02 $ 10.27
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return 2.40% 4.69% 10.46% 4.74%(2)
<F74>
Supplemental data and ratios:
Net assets, end of period $ 4,611,766 $ 756,792 $ 706,207 $ 624,209
Ratio of expenses to average net assets 0.55% 0.55% 0.55% 0.55%(3)
<F75>
Ratio of net investment income
to average net assets 3.45% 3.63% 3.86% 4.07%(3)
<F75>
Portfolio turnover rate(4)<F76> 4.2% 17.7% 32.6% 14.8%(2)
<F74>
(1)<F73> Commencement of operations.
(2)<F74> Not annualized.
(3)<F75> Annualized.
(4)<F76> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F77> Calculated using average shares outstanding during the period.
(6)<F78> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
(7)<F79> Amount is less than $0.01.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD CORE PLUS BOND FUND
--------------------------------------------------------------------------------------
Institutional
Institutional Institutional Institutional Institutional Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F80> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 10.45 $ 10.45 $ 10.42 $ 10.45 $ 10.00
------------ ------------ ------------ ----------- -----------
Income from investment operations:
Net investment income 0.54 0.56 0.62 0.65 0.14
Net realized and unrealized
gains (losses) on investments 0.10 0.36 0.07 0.05 0.45
------------ ------------ ------------ ----------- -----------
Total from investment operations 0.64 0.92 0.69 0.70 0.59
------------ ------------ ------------ ----------- -----------
Less distributions:
Dividends from net investment income (0.53) (0.56) (0.62) (0.66) (0.14)
Distributions from net realized gains (0.18) (0.36) (0.04) (0.07) (0.00)(5)
<F84>
------------ ------------ ------------ ----------- -----------
Total distributions (0.71) (0.92) (0.66) (0.73) (0.14)
------------ ------------ ------------ ----------- -----------
Net asset value, end of period $ 10.38 $ 10.45 $ 10.45 $ 10.42 $ 10.45
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Total return 6.29% 8.94% 6.90% 6.84% 5.89%(2)
<F81>
Supplemental data and ratios:
Net assets, end of period $ 32,495,641 $ 42,709,634 $ 54,221,923 $69,182,002 $40,083,054
Ratio of expenses to average net assets 0.30% 0.30% 0.30% 0.30% 0.30%(3)
<F82>
Ratio of net investment income
to average net assets 4.85% 4.56% 6.03% 6.25% 6.68%(3)
<F82>
Portfolio turnover rate(4)<F83> 52.5% 103.1% 66.8% 47.0% 11.8%(2)
<F81>
(1)<F80> Commencement of operations.
(2)<F81> Not annualized.
(3)<F82> Annualized.
(4)<F83> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F84> Amount is less than $0.01.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD CORE PLUS BOND FUND
------------------------------------------------------------------------------------
Investor
Investor Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year ended Year ended Year ended Year ended 2000(1)<F85> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 10.67 $ 10.65 $ 10.49 $ 10.45 $ 10.00
------------ ------------ ------------ ----------- -----------
Income from investment operations:
Net investment income 0.53 0.53(6)<F90> 0.60(6)<F90> 0.64(6)<F90> 0.12
Net realized and unrealized
gains (losses) on investments 0.10 0.37 0.07 0.05 0.45
------------ ------------ ------------ ----------- -----------
Total from investment operations 0.63 0.90 0.67 0.69 0.57
------------ ------------ ------------ ----------- -----------
Less distributions:
Dividends from net investment income (0.50) (0.52) (0.47) (0.58) (0.12)
Distributions from net realized gains (0.18) (0.36) (0.04) (0.07) (0.00)(5)
<F89>
------------ ------------ ------------ ----------- -----------
Total distributions (0.68) (0.88) (0.51) (0.65) (0.12)
------------ ------------ ------------ ----------- -----------
Net asset value, end of period $ 10.62 $ 10.67 $ 10.65 $ 10.49 $ 10.45
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Total return 6.09% 8.60% 6.58% 6.70% 5.73%(2)
<F86>
Supplemental data and ratios:
Net assets, end of period $ 125,847 $ 124,481 $ 296,026 $ 258,351 $ 13,222
Ratio of expenses to average net assets 0.55% 0.55% 0.55% 0.55% 0.55%(3)
<F87>
Ratio of net investment income
to average net assets 4.60% 4.31% 5.78% 6.00% 6.43%(3)
<F87>
Portfolio turnover rate(4)<F88> 52.5% 103.1% 66.8% 47.0% 11.8%(2)
<F86>
(1)<F85> Commencement of operations.
(2)<F86> Not annualized.
(3)<F87> Annualized.
(4)<F88> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(5)<F89> Amount is less than $0.01.
(6)<F90> Calculated using average shares outstanding during the period.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD SHORT-TERM BOND FUND
--------------------------
Institutional Class Shares
August 31, 2004(1)<F91>
through
December 31, 2004
--------------------------
Per Share Data:
Net asset value, beginning of period $ 10.00
-----------
Income from investment operations:
Net investment income 0.08
Net realized and unrealized
gains (losses) on investments (0.07)
-----------
Total from investment operations 0.01
-----------
Less distributions:
Dividends from net investment income (0.08)
Distributions from net realized gains --
-----------
Total distributions (0.08)
-----------
Net asset value, end of period $ 9.93
-----------
-----------
Total return 0.10%(2)
<F92>
Supplemental data and ratios:
Net assets, end of period $31,973,000
Ratio of expenses to average net assets 0.30%(3)
<F93>
Ratio of net investment income
to average net assets 2.60%(3)
<F93>
Portfolio turnover rate(4)<F94> 16.7%(2)
<F92>
(1)<F91> Commencement of operations.
(2)<F92> Not annualized.
(3)<F93> Annualized.
(4)<F94> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004
1. ORGANIZATION
Baird Funds, Inc. (the "Corporation") was incorporated on June 9, 2000 as a
Wisconsin corporation and is registered as an open-end investment management
company under the Investment Company Act of 1940, as amended (the "1940 Act").
The accompanying financial statements include the Baird Intermediate Bond Fund,
Baird Aggregate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Core
Plus Bond Fund and Baird Short-Term Bond Fund (each, a "Fund" and collectively,
the "Funds"), five of the eight portfolios comprising the Corporation and each a
diversified fund.
The Baird Intermediate Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus
Bond Fund commenced operations with the sale of both Institutional and Investor
class shares on September 29, 2000. The Baird Intermediate Municipal Bond Fund
commenced operations with the sale of both Institutional and Investor class
shares on March 30, 2001. The Baird Short-Term Bond Fund commenced operations
with the sale of Institutional Class Shares on August 31, 2004. The
Institutional Class Shares are not subject to a distribution and service (12b-1)
fee, while the Investor Class Shares are subject to a distribution and service
(12b-1) fee up to 0.25%.
The investment objective of the Baird Intermediate Bond Fund is to seek an
annual rate of total return, before Fund expenses, greater than the annual rate
of total return of the Lehman Brothers Intermediate Government/Credit Bond
Index. The Lehman Brothers Intermediate Government/Credit Bond Index is an
unmanaged, market value weighted index of investment grade, fixed-rate debt
including government and corporate securities with maturities between one and
ten years.
The investment objective of the Baird Aggregate Bond Fund is to seek an annual
rate of total return, before Fund expenses, greater than the annual rate of
total return of the Lehman Brothers Aggregate Bond Index. The Lehman Brothers
Aggregate Bond Index is an unmanaged, market value weighted index of investment
grade, fixed-rate debt issues, including government, corporate, asset-backed,
and mortgage-backed securities, with maturities of at least one year.
The primary investment objective of the Baird Intermediate Municipal Bond Fund
is to provide current income that is substantially exempt from federal income
tax. A secondary objective is to provide total return with relatively low
volatility of principal. The Fund strives to achieve an annual rate of return,
before Fund expenses, greater than the annual rate of total return of the Lehman
Brothers 10-Year General Obligation Bond Index. The Lehman Brothers 10-Year
General Obligation Bond Index is an unmanaged, market value weighted index of
bond prices compiled by Lehman Brothers. This index is comprised of investment
grade state and local general obligation bonds that have been issued as part of
an offering of at least $50 million; have a minimum amount outstanding of at
least $5 million; have been issued within the last five years; and have a
maturity of eight to twelve years.
The investment objective of the Baird Core Plus Bond Fund is to provide an
annual rate of total return, before Fund expenses, greater than the annual rate
of total return of the Lehman Brothers U.S. Universal Bond Index. The Lehman
Brothers U.S. Universal Bond Index is an unmanaged, market value weighted index
of fixed income securities issued in U.S. dollars, including U.S. government and
investment grade debt, non-investment grade debt, asset-backed and mortgage-
backed securities, Eurobonds, 144A securities and emerging market debt with
maturities of at least one year.
The investment objective of the Baird Short-Term Bond Fund is to seek an annual
rate of total return, before Fund expenses, greater than the annual rate of
total return of the Lehman Brothers 1-3 Year Government/Credit Bond Index. The
Lehman Brothers 1-3 Year Government/Credit Bond Index is an unmanaged, market
value weighted index of investment grade, fixed-rate debt including government
and corporate securities with maturities between one and three years.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America.
a) Investment Valuation - Debt securities are valued at the latest bid price.
Common stocks that are listed on a securities exchange are valued at the
last quoted sales price. Securities traded on NASDAQ are valued at the
NASDAQ official closing price. Price information on listed stocks is taken
from the exchange where the security is primarily traded. If such
securities were not traded on the valuation date they are valued at the
average of the current bid and asked price. Unlisted equity securities for
which market quotations are readily available are valued at the latest
quoted bid price. Investments in open-end mutual funds are valued at the net
asset value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by management
in accordance with procedures approved by the Board of Directors. In
determining fair value, the valuation committee takes into account all
relevant factors and available information. Consequently, the price of the
security used by a Fund to calculate its NAV may differ from quoted or
published prices for the same security. Fair value pricing involves
subjective judgments and it is possible that the fair value determined for a
security is materially different than the value that could be realized upon
the sale of that security.
b) Unregistered Securities - Three of the Funds own certain investment
securities which are unregistered and thus restricted to resale. These
securities are valued by the Funds after giving due consideration to
pertinent factors including recent private sales, market conditions and the
issuer's financial performance. Where future disposition of these
securities requires registration under the Securities Act of 1933, the Funds
have the right to include these securities in such registration, generally
without costs to the Funds. The Funds have no right to require registration
of unregistered securities. The value of such securities for the Baird
Intermediate Bond Fund, Baird Aggregate Bond Fund, Baird Core Plus Bond Fund
and Baird Short-Term Bond Fund was $11,447,259 (5.88% of net assets),
$4,453,506 (3.84% of net assets), $1,570,343 (4.81% of net assets) and
$154,774 (0.48% of net assets), respectively, at December 31, 2004.
c) Foreign Securities - Investing in securities of foreign companies and
foreign governments involves special risks and consideration not typically
associated with investing in U.S. companies and the U.S. government. These
risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
U.S. government.
d) Federal Income Taxes - The Funds intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of their taxable income to their
shareholders in a manner which results in no tax cost to the Funds.
Therefore, no federal income or excise tax provision is recorded.
e) Allocation of Income and Expenses - Each Fund in the series is charged for
those expenses directly attributable to the portfolio. Expenses directly
attributable to a class of shares, such as Rule 12b-1 distribution fees, are
charged to that class of shares. Income, expenses and realized and
unrealized gains and losses are allocated to the classes based on their
respective net assets. Expenses that are not directly attributable to a
Fund are allocated among the Funds in the series in proportion to their
assets.
f) Distributions to Shareholders - Dividends from net investment income are
declared and paid monthly. Distributions of net realized capital gains, if
any, are declared and paid at least annually.
g) Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
h) Other - Investment and shareholder transactions are recorded on trade date.
The Funds determine the gain or loss realized from investment transactions
by comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis. Premiums and discounts
on the purchase of securities are amortized/accreted using the effective
interest method. Accounting principles generally accepted in the United
States of America require that permanent financial reporting and tax
differences be reclassified in the capital accounts.
i) Guarantees and Indemnifications - In the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown and would involve future claims against the Funds
that have not yet occurred. Based on experience, the Funds would expect the
risk of loss to be remote.
3. CAPITAL SHARE TRANSACTIONS
The following table summarizes the capital share transactions of each Fund:
BAIRD INTERMEDIATE BOND FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $65,558,500 6,038,526 Shares sold $1,907,197 170,365
Shares issued through Shares issued through
reinvestment of dividends 6,589,217 608,839 reinvestment of dividends 69,932 6,291
Shares redeemed (29,612,681) (2,727,641) Shares redeemed (270,885) (24,345)
------------ ---------- ---------- -------
Net Increase $ 42,535,036 3,919,724 Net Increase $1,706,244 152,311
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 13,774,239 Beginning of period 118,294
---------- -------
End of period 17,693,963 End of period 270,605
---------- -------
---------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $43,116,910 3,940,148 Shares sold $ 341,300 30,154
Shares issued through Shares issued through
reinvestment of dividends 7,173,357 655,863 reinvestment of dividends 49,059 4,370
Shares redeemed (47,232,471) (4,289,404) Shares redeemed (195,921) (17,497)
------------ ---------- ---------- -------
Net Increase $ 3,057,796 306,607 Net Increase $ 194,438 17,027
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 13,467,632 Beginning of period 101,267
---------- -------
End of period 13,774,239 End of period 118,294
---------- -------
---------- -------
BAIRD AGGREGATE BOND FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $ 48,367,650 4,492,828 Shares sold $ 685,253 62,158
Shares issued through Shares issued through
reinvestment of dividends 4,549,171 425,224 reinvestment of dividends 14,520 1,326
Shares redeemed (29,182,312) (2,725,437) Shares redeemed (721,961) (64,948)
------------ ---------- ---------- -------
Net Increase $ 23,734,509 2,192,615 Net Decrease $ (22,188) (1,464)
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 8,549,014 Beginning of period 66,185
---------- -------
End of period 10,741,629 End of period 64,721
---------- -------
---------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $ 36,542,668 3,355,566 Shares sold $ 146,574 13,362
Shares issued through Shares issued through
reinvestment of dividends 5,293,396 490,460 reinvestment of dividends 46,370 4,231
Shares redeemed (38,165,353) (3,516,771) Shares redeemed (322,250) (29,428)
------------ ---------- ---------- -------
Net Increase $ 3,670,711 329,255 Net Decrease $ (129,306) (11,835)
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 8,219,759 Beginning of period 78,020
---------- -------
End of period 8,549,014 End of period 66,185
---------- -------
---------- -------
BAIRD INTERMEDIATE MUNICIPAL BOND FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $11,175,557 1,016,975 Shares sold $5,048,883 456,491
Shares issued through Shares issued through
reinvestment of dividends 1,044,261 96,858 reinvestment of dividends 77,154 7,040
Shares redeemed (5,105,189) (471,111) Shares redeemed (1,232,642) (112,263)
------------ ---------- ---------- -------
Net Increase $7,114,629 642,722 Net Increase $3,893,395 351,268
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 2,770,770 Beginning of period 68,214
---------- -------
End of period 3,413,492 End of period 419,482
---------- -------
---------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $ 947,840 87,103 Shares sold $ 712,024 64,242
Shares issued through Shares issued through
reinvestment of dividends 1,258,681 115,648 reinvestment of dividends 20,358 1,838
Shares redeemed (3,356,549) (308,069) Shares redeemed (673,969) (61,970)
------------ ---------- ---------- -------
Net Decrease $ (1,150,028) (105,318) Net Increase $ 58,413 4,110
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 2,876,088 Beginning of period 64,104
---------- -------
End of period 2,770,770 End of period 68,214
---------- -------
---------- -------
BAIRD CORE PLUS BOND FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $ 2,974,318 282,586 Shares sold $ 13,500 1,261
Shares issued through Shares issued through
reinvestment of dividends 1,177,007 113,096 reinvestment of dividends 5,106 480
Shares redeemed (14,326,134) (1,353,665) Shares redeemed (16,231) (1,555)
------------ ---------- ---------- -------
Net Decrease $(10,174,809) (957,983) Net Increase $ 2,375 186
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 4,088,695 Beginning of period 11,662
---------- -------
End of period 3,130,712 End of period 11,848
---------- -------
---------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
----------------------------- -----------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
------------ ---------- ------------ ----------
Shares sold $ 7,732,126 725,295 Shares sold $ 16,683 1,510
Shares issued through Shares issued through
reinvestment of dividends 1,816,338 171,853 reinvestment of dividends 7,722 716
Shares redeemed (21,173,372) (1,996,165) Shares redeemed (197,109) (18,350)
------------ ---------- ---------- -------
Net Decrease $(11,624,908) (1,099,017) Net Decrease $ (172,704) (16,124)
------------ ----------
------------ ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 5,187,712 Beginning of period 27,786
---------- -------
End of period 4,088,695 End of period 11,662
---------- -------
---------- -------
BAIRD SHORT-TERM BOND FUND
August 31, 2004(1)<F95>
through
December 31, 2004
-----------------------------
INSTITUTIONAL CLASS SHARES $ Shares
------------ ----------
Shares sold $33,919,057 3,395,735
Shares issued through
reinvestment of dividends 158,249 15,909
Shares redeemed (1,899,021) (191,235)
------------ ----------
Net Increase $32,178,285 3,220,409
------------
------------
Shares Outstanding:
Beginning of period --
----------
End of period 3,220,409
----------
----------
(1)<F95> Commencement of operations.
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION
During the year ended December 31, 2004, (note that the Baird Short-Term Bond
Fund commenced operations on August 31, 2004) purchases and sales of investment
securities (excluding short-term investments) were as follows:
Baird
Baird Baird Intermediate Baird Baird
Intermediate Aggregate Municipal Core Plus Short-Term
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
------------ --------- ----------- --------- ----------
Purchases:
U.S. Government $60,414,987 $63,791,261 $ -- $12,172,762 $18,099,948
Other $62,252,654 $41,061,330 $11,328,726 $ 6,018,359 $14,075,202
Sales:
U.S. Government $52,553,395 $56,889,797 $ -- $16,868,569 $ 3,264,152
Other $21,084,829 $23,622,608 $ 1,568,636 $12,300,761 $ 118,206
At December 31, 2004, gross unrealized appreciation and depreciation of
investments and distributable ordinary income and long-term capital gains for
federal tax purposes were as follows:
INTERMEDIATE
INTERMEDIATE AGGREGATE MUNICIPAL CORE PLUS SHORT-TERM
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
------------ --------- ------------ --------- ----------
Cost of Investments $195,269,862 $112,589,326 $41,732,095 $31,951,080 $31,788,368
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Gross unrealized appreciation $ 4,213,676 $ 3,005,210 $ 1,088,345 $ 1,036,941 $ 2,448
Gross unrealized depreciation (1,742,121) (717,587) (199,844) (380,105) (211,093)
------------ ------------ ----------- ----------- -----------
Net unrealized appreciation/depreciation $ 2,471,555 $ 2,287,623 $ 888,501 $ 656,836 $ (208,645)
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Undistributed ordinary income $ 223,829 $ 134,477 $ 34,676 $ 44,709 $ 12,668
Undistributed long-term capital gain -- 42,323 -- 21,657 --
------------ ------------ ----------- ----------- -----------
Total distributable earnings $ 223,829 $ 176,800 $ 34,676 $ 66,366 $ 12,668
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Other accumulated gains (losses) $ (651,749) $ -- $ (25,373) $ -- $ (9,308)
------------ ------------ ----------- ----------- -----------
Total accumulated earnings (losses) $ 2,043,635 $ 2,464,423 $ 897,804 $ 723,202 $ (205,285)
------------ ------------ ----------- ----------- -----------
------------ ------------ ----------- ----------- -----------
Undistributed income or net realized gains for financial statement purposes may
differ from federal income tax purposes due to differences in the recognition
and characterization of income, expense and capital gain items for financial
statement and tax purposes.
The tax components of dividends paid during the periods ended December 31, 2004
and December 31, 2003 were:
2004 2003
------------------------------- -------------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ------------- -------------
Baird Intermediate Bond Fund $7,212,508 $ -- $8,170,389 $ --
Baird Aggregate Bond Fund $5,007,328 $138,814 $4,483,491 $1,447,030
Baird Intermediate Municipal Bond Fund $ 8,850 $ -- $ 128,007 $ 1,601
Baird Core Plus Bond Fund $1,816,264 $454,258 $2,630,370 $1,282,895
Baird Short-Term Bond Fund $ 231,775 $ -- N/A N/A
For the years ended December 31, 2004 and December 31, 2003, distributions of
$1,314,020 and $1,221,366, respectively, from the Baird Intermediate Municipal
Bond Fund were tax-exempt.
Under the current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
For the year ended December 31, 2004, the Baird Intermediate Bond Fund, Baird
Intermediate Municipal Bond Fund and Baird Short-Term Bond Fund elected to defer
capital losses occurring between November 1, 2004 and December 31, 2004 in the
amount of $166,180, $18,747 and $1,158, respectively.
At December 31, 2004, the Baird Intermediate Bond Fund, Baird Intermediate
Municipal Bond Fund, and Baird Short-Term Bond Fund had accumulated net realized
capital loss carryovers of $485,569, $6,626 and $8,150, respectively, expiring
in 2012. To the extent these Funds realize future net capital gains, those
gains will be offset by any unused capital loss carryforward.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with Robert W.
Baird & Co. Incorporated (the "Advisor"). Pursuant to the advisory agreement
with the Funds, the Advisor is entitled to receive a fee, calculated daily and
payable monthly, at the annual rate of 0.25% for the Baird Intermediate Bond
Fund, Baird Aggregate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird
Core Plus Bond Fund and Baird Short-Term Bond Fund as applied to the respective
Fund's average daily net assets. Certain officers of the Advisor are also
officers of the Funds.
The Funds have entered into an Administration Agreement with the Advisor. Under
the Administration Agreement, the Advisor assumes and pays all expenses of the
applicable Fund other than the investment advisory fees and fees under the 12b-1
plan. Pursuant to the Administration Agreement with the Funds, the Advisor is
entitled to receive a fee, calculated daily and payable monthly, at the annual
rate of 0.05% for the Baird Intermediate Bond Fund, Baird Aggregate Bond Fund,
Baird Intermediate Municipal Bond Fund, Baird Core Plus Bond Fund and Baird
Short-Term Bond Fund as applied to the respective Fund's average daily net
assets.
U.S. Bancorp Fund Services, LLC serves as transfer agent, administrator, and
accounting services agent for the Funds. U.S. Bank, N.A. serves as custodian
for the Funds.
Robert W. Baird & Co. Incorporated (the "Distributor") is the sole distributor
of the Funds pursuant to a distribution agreement.
6. DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
The Funds have adopted a distribution and shareholder service plan (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended. The
Plan allows the Funds to compensate the Distributor for a portion of the costs
incurred in distributing the Funds' Investor Class Shares, including amounts
paid to brokers or dealers, at an annual rate not to exceed 0.25% of the average
daily net assets of the Funds' Investor Class Shares. The Baird Intermediate
Bond Fund, Baird Aggregate Bond Fund, Baird Intermediate Municipal Bond Fund and
Baird Core Plus Bond Fund incurred $5,355, $881, $6,767 and $300, respectively,
in fees pursuant to the Plan for the year ended December 31, 2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Baird Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Baird Intermediate Bond Fund, Baird
Aggregate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Core Plus
Bond Fund and Baird Short-Term Bond Fund (five of the portfolios constituting
Baird Funds, Inc., hereafter referred to as the "Funds") at December 31, 2004,
and the results of each of their operations, the changes in each of their net
assets and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 22, 2005
BAIRD FUNDS, INC.
DIRECTORS & OFFICERS AS OF DECEMBER 31, 2004
Term of Number of
Position(s) Office Portfolios Other
Held with and Length Principal in Complex Directorships
the Of Time Occupation(s) Overseen Held
Name, Address, and Age Corporation Served During Past 5 Years by Director by Director
- ---------------------- ----------- ---------- ------------------- ----------- -----------
G. Frederick Kasten, Jr. *<F96> Director Indefinite; Chairman, the Advisor since January 2000; 8 Director of
777 East Wisconsin Avenue And Since Chairman & CEO, the Advisor (January 1998- Regal-Beloit
Milwaukee, WI 53202 Chairman September January 2000); President, Chairman and Corporation, a
Age: 65 2000 CEO, the Advisor (June 1983-January 1998); manufacturing
President, the Advisor (January 1979- company
January 1983)
John W. Feldt Independent Indefinite; Senior Vice President-Finance, University 8 Director of
University of Director Since of Wisconsin Foundation since 1985; Vice Thompson
Wisconsin Foundation September President-Finance, University of Wisconsin Plumb Funds,
1848 University Avenue 2000 Foundation (1980-1985); Associate Director, a mutual fund
Madison, WI 53705 University of Wisconsin Foundation complex of
Age: 62 (1967-1980) which Mr.
Feldt oversees
4 portfolios
George C. Kaiser Independent Indefinite; CEO, George Kaiser & Co., a business
759 N. Milwaukee Street Director Since consulting company, since 1999; Chairman 8 None
Milwaukee, WI 53202 September and CEO, Hanger Tight Company, a manufacturing
Age: 71 2000 company (1988-1999); Chairman and CEO, Interstore
Transfer Systems, Ltd., a manufacturing company
(1992-1999); Chairman, International Retail
Services Group, Ltd. (1995-1999); Executive
Vice President, Arandell Schmidt Co., a
catalog printer company (1984-1987); various
positions Arthur Andersen & Co. (1957-1964,
1967-1984), most recently serving as Partner
(1969-1984); Secretary of Administration, State
of Wisconsin (1965-1967)
Frederick P. Stratton, Jr. Independent Indefinite; Chairman Emeritus, Briggs & Stratton 8 Director of
777 East Wisconsin Avenue Director Since May Corporation, a manufacturing company, since Midwest Air
Suite 1400 2004 2003; Chairman, Briggs & Stratton Corporation Group, Inc.,
Milwaukee, WI 53202 (2001-2002); Chairman and CEO, an airline
Age: 65 Briggs & Stratton Corporation (1986-2001) company;
Weyco Group,
Inc., a men's
footwear
distributor;
Wisconsin
Energy
Corporation
and its
subsidiaries
Wisconsin
Electric
Company and
Wisconsin Gas
Company
Mary Ellen Stanek President Indefinite; Managing Director, the Advisor, and Chief N/A N/A
777 East Wisconsin Avenue Since Investment Officer, Baird Advisors, a
Milwaukee, WI 53202 September department of the Advisor, since March 2000;
Age: 48 2000 President and CEO, Firstar Investment Research
& Management Company, LLC ("FIRMCO") (November
1998-February 2000); President, Firstar Funds,
Inc. (December 1998-March 2000); President and
Chief Operating Officer, FIRMCO (March 1994-
November 1998)
J. Bary Morgan Senior Vice Indefinite; Chief Investment Officer, Baird Investment N/A N/A
777 East Wisconsin Avenue President Since Management, a department of the Advisor,
Milwaukee, WI 53202 February since January 2004; Managing Director, the
Age: 39 2003 Advisor since January 2001; Director, Baird
Investment Management (January 2001-January
2004); Senior Vice President, the Advisor
(January 2000-January 2001); First Vice
President, the Advisor (January 1996-
January 2000)
Todd S. Nichol Vice Indefinite; Chief Compliance Officer, the Advisor N/A N/A
777 East Wisconsin Avenue President Since since October 2004; Assistant Compliance
Milwaukee, WI 53202 and August Director, the Advisor since August 2002;
Age: 42 Chief 2004 Senior Vice President, the Advisor since
Compliance January 2005; First Vice President, the
Officer Advisor (January 2004-January 2005):
Vice President, the Advisor (August 2002-
January 2004); Vice President-Risk
Management; BNY Clearing Services, LLC,
a division of The Bank of New York
(August 1995-August 2002)
Russell P. Schwei Vice Indefinite; Operations Director, the Advisor since N/A N/A
777 East Wisconsin Avenue President Since July 1992; Chief Financial Officer and
Milwaukee, WI 53202 September Managing Director, the Advisor (February
Age: 45 2000 1999-December 1999); Managing Director,
the Advisor since January 1997
Leonard M. Rush Treasurer Indefinite; Chief Financial Officer, the Advisor N/A N/A
777 East Wisconsin Avenue Since since January 2000
Milwaukee, WI 53202 September
Age: 58 2000
Brett R. Meili Secretary Indefinite; Associate General Counsel, the Advisor N/A N/A
777 East Wisconsin Avenue Since since April 1999; Senior Counsel, Strong
Milwaukee, WI 53202 September Capital Management, Inc, a mutual fund
Age: 42 2000 company (January 1996-April 1999)
*<F96> Mr. Kasten is an "interested person" of the Corporation (as defined in
the 1940 Act) because he serves as the Chairman of the Advisor.
Additional information about the Funds' directors is available in the Statement
of Additional Information which may be obtained without charge, upon request, by
calling 1-866-44BAIRD.
PROXY VOTING
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds'
website at http://www.bairdfunds.com; and by accessing the SEC's website at
http://www.sec.gov.
Each Fund's proxy voting record, if applicable, is available without charge,
upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds'
website at http://www.bairdfunds.com; and by accessing the SEC's website at
http://www.sec.gov.
PORTFOLIO HOLDINGS DISCLOSURE
The Funds file a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q
are available on the SEC 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 Public Reference Room may be obtained by calling
1-888-732-0330.
BAIRD FUNDS, INC.
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-866-44BAIRD
BOARD OF DIRECTORS
G. Frederick Kasten, Jr. (Chairman)
John W. Feldt
George C. Kaiser
Frederick P. Stratton, Jr.
INVESTMENT ADVISOR
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND - DISBURSING AGENT
U.S. Bancorp Fund Services, LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
DISTRIBUTOR
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(BAIRD FUNDS LOGO)
ANNUAL REPORT
December 31, 2004
Baird LargeCap Fund
Baird MidCap Fund
Baird SmallCap Fund
TABLE OF CONTENTS
PAGE
----
SHAREHOLDER LETTER 1
2004 ECONOMIC AND STOCK MARKET COMMENTARY 2
BAIRD LARGECAP FUND 5
BAIRD MIDCAP FUND 12
BAIRD SMALLCAP FUND 19
ADDITIONAL INFORMATION ON FUND EXPENSES 26
STATEMENTS OF ASSETS AND LIABILITIES 28
STATEMENTS OF OPERATIONS 29
STATEMENTS OF CHANGES IN NET ASSETS 30
FINANCIAL HIGHLIGHTS 33
NOTES TO THE FINANCIAL STATEMENTS 39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 46
DIRECTORS AND OFFICERS 47
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
Dear Shareholders,
We would like to thank you for investing in the Baird Funds. The financial
markets continued to advance in 2004 and we appreciate the opportunity to help
our investors participate in these positive developments. The Baird Funds
continued to grow during the year with the introduction of the Baird Short-Term
Bond Fund and the Baird SmallCap Fund. Net assets in the Baird Funds as of
December 31, 2004 were approximately $590 million.
In this Annual Report we review the equity market in 2004 and the performance
and composition of each of the Baird Equity Funds. We hope you find this report
both informative and helpful in achieving your investment goals. We thank you
for your support and look forward to continued mutual success. Thank you again
for choosing Baird Funds.
Sincerely,
Mary Ellen Stanek, CFA
President
Baird Funds, Inc.
2004 ECONOMIC AND STOCK MARKET COMMENTARY
After declining during the summer months amid higher oil prices and the US
economy's "soft patch", stocks rallied in the final months of 2004 as investors
found relief in the elimination of US presidential election uncertainty and a
retreat in energy prices. Specifically, the Dow Jones Industrial Average (the
"Dow Industrials") rose +4.47% and the Standard & Poor's 500 Index (the "S&P
500") gained +7.19% during the year's second half, bringing their full-year
total returns to +5.31% and +10.88%, respectively. This marked the first back-
to-back calendar year gains for these two benchmarks since 1999.
Despite a hotly contested presidential election, five interest rate hikes from
the Federal Reserve, $50/barrel oil and ballooning trade and budget deficits,
the US economy grew at the fastest rate in five years in 2004, posting a +4.4%
gain in inflation adjusted gross domestic product (i.e., real GDP). We believe
2005 offers the potential for continued US economic growth and further stock
market gains, although investor confidence could be tested by factors including
dollar weakness, higher interest rates and slower corporate profit growth, not
to mention unexpected adverse geopolitical developments. Sustained economic
growth in the US depends on continued gains in consumer spending and business
investment. With stimulus from tax cuts and low interest rates fading, growth
in consumer spending will likely depend on income gains from additional job
creation. Therefore, to sustain spending growth, we believe the improvement in
2005 US employment needs to approximate 2004's 2.2 million job increase.
A sustained rise in home prices is another important element in the outlook for
consumer spending. A recent report sponsored by the National Association of
Realtors shows that an increase in wealth from rising home values translates
into higher consumer spending much more quickly than wealth gains from rising
stock prices. Specifically, the study shows that the typical US consumer spends
about 5% of the annual increase in their home's value, with 80% of the
expenditures occurring within twelve months. With US home prices recently
rising at near double-digit year-over-year rates, consumer spending growth is
likely to exceed expectations until home price gains slow sharply. Finally,
thanks to strong balance sheets, rising cash flows and recently enacted
legislation allowing foreign derived profits to be repatriated at favorable tax
rates, we believe US businesses also have the wherewithal to sustain robust
spending growth. Adding it all up, we expect 2005 US real GDP growth to pace in
the +3% to +4% range with stronger growth in the first half of the year and
slower growth in the second half.
We believe economic growth outside the US is also likely to be in the +3% to +4%
range, thanks to robust gains in the developing economies of non-Japan Asia and
Latin America. Despite the implementation of several needed economic reforms,
export driven economies in Europe and Japan will likely struggle as the dollar's
lower exchange rate renders imports from these countries less competitive.
Although higher import prices could be viewed as inflationary for the US
economy, competition from dollar-pegged China is likely to restrain US import
price increases. While continued economic growth is expected to sustain the
global appetite for raw materials, 2004's broad-based gains in commodity prices
due to unexpectedly strong demand is unlikely to be repeated in 2005. For
example, we expect oil to trade in a range of $40 to $50 per barrel in 2005
after trading as high as $56 per barrel in 2004. Despite cyclical inflationary
pressures from high commodity prices and a weak dollar, the secular deflationary
forces exerted by high debt levels, intense global competition and the
technology revolution are currently intact. Consequently, US inflation in 2005
is likely to remain subdued, with the Consumer Price Index posting a gain below
its +3.3% increase in 2004.
Absent a jump in inflation or an unanticipated deceleration in economic growth,
we anticipate the Federal Reserve will likely continue its "measured" quarter-
point increases in short-term interest rates. We expect the Fed to raise rates
an additional 125 basis points (1.25 percentage points) in 2005, taking the
target Fed Funds rate to 3.5% by the end of the year. A Fed Funds rate at this
level would comfortably exceed the inflation rate and could be viewed as
"neutral" to the economy (i.e., neither accommodative nor restrictive).
Additional increases in short-term interest rates by the Federal Reserve are
likely to put upward pressure on longer-term interest rates. Although the Fed's
actions in 2004, taking short-term rates from a 46 year low of 1% to 2.25%, had
virtually no impact on longer-term rates, we expect long-term rates to move
higher in 2005, especially if economic growth accelerates or inflation pressures
intensify. Specifically, we look for the yield on the bellwether ten-year US
Treasury note to trade in a range of 4% to 5.5% (versus 3.7% to 4.9% in 2004),
finishing the year around 5%.
Rising interest rates and sustained economic growth should help stabilize the
dollar's foreign exchange rate. While attempting to forecast currency exchange
rates can be a "fool's errand", the dollar is due for a rally after declining
more than -15% from its early 2002 peak versus a trade-weighted basket of
foreign currencies. Dollar "bears" cite the re-emergence of America's twin
trade and budget deficits to support their case for further weakness in the
greenback. However, after posting a record $412 billion shortfall for the year
ended September 2004, the US federal budget deficit should improve thanks to
sustained economic growth. Finally, the US trade deficit should show some
improvement as the lagged effect of the dollar's decline begins to impact the
relative levels of imports and exports. Although the odds favor a rally in the
dollar early in 2005, the US currency is likely to remain under pressure until
the Chinese modify their currency's peg to the dollar in order to slow the
burgeoning US trade deficit with China. Such a move is likely to involve either
a shift in the pegged exchange rate that revalues the Chinese currency higher
versus the dollar or a shift from a dollar-only peg to a peg based on a "basket"
of major currencies. We believe any move toward a more realistic exchange rate
for China's currency would be positive for the dollar and the US economy over
the long-term.
The dollar's gradual descent over the past three years has helped US corporate
profits. Not only are US products more competitive in overseas markets, profits
earned by the foreign affiliates of US companies are translated into more
dollars. The exchange rate boost, along with improved productivity and a solid
domestic economy, has allowed operating earnings for the S&P 500 companies to
rise 37% over the past two years. This rise in earnings nearly matches the gain
in the S&P 500 Index over this period. However, we believe earnings gains in
2005 are unlikely to match the growth rates posted in recent quarters as cost
pressures from rising raw materials prices, higher interest rates and smaller
productivity gains restrain profit growth. Consequently, the upside potential
for share prices in 2005 is limited, in our opinion, because investors will
assign lower valuations (i.e., lower price-to-earnings ratios) to stocks to
reflect slower earnings gains and increased competition from higher bond yields.
Some observers argue that today's low inflation, low interest rates and
sustained economic growth justify higher price-to-earnings multiples for stocks.
Given the risks to the outlook, we believe today's stock valuations provide too
little margin of safety. At eighteen times estimated operating earnings for
2004, the current level of the stock market as measured by the S&P 500 is
meaningfully above its post-WWII average of sixteen times trailing earnings. As
a result, stock prices are vulnerable to adverse economic and geopolitical
developments. Among these risks are: the dollar's exchange rate declines
sharply due to further deterioration in the US budget and trade deficits; oil
prices surge to $60+ per barrel due to a disruption in the oil supply; inflation
jumps and interest rates spike due to dollar weakness and/or oil price
increases; US consumer spending growth slows as a result of anemic job gains and
soft real estate prices; and lastly, global growth decelerates sharply due to an
economic slowdown in the US, leading to a "hard landing" in China and raising
recessionary pressures in Japan and Europe. On the geopolitical front, risks
include: Iraq deteriorates further forcing the US to increase its military
presence; terrorist activity threatens to destabilize Saudi Arabia and the
entire Middle East; Russia backslides further toward authoritarianism; and,
emboldened by US preoccupation with Iraq, Iran and North Korea resume their
nuclear weapons programs. Needless to say, any of these developments, should
they occur, could be negative for stock prices, especially at today's elevated
valuations. Consequently, although the odds favor a positive outcome for the
economy in 2005, stock market investors are likely to experience wider swings in
share prices versus 2004's below-average volatility.
Except for historical information contained in this annual report for the Baird
Funds, the matters discussed in this report may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. These include any advisor and/or fund manager
predictions, assessments, analyses or outlooks for individual securities,
industries, market sectors and/or markets. These statements involve risks and
uncertainties. In addition to the general risks described for the Funds in the
current Prospectus, other factors bearing on these reports include the accuracy
of the advisor's or fund manager's forecasts and predictions, and the
appropriateness of the investment programs designed by the advisor or fund
manager to implement their strategies efficiently and effectively. Any one or
more of these factors, as well as other risks affecting the securities markets
and investment instruments generally, could cause the actual results of a Fund
to differ materially as compared to benchmarks associated with that Fund.
BAIRD EQUITY FUNDS INVESTMENT MANAGEMENT TEAM
- ---------------------------------------------
Robinson Bosworth III, Managing Director and Senior Portfolio Manager
J. Bary Morgan, CFA, Managing Director and Chief Investment Officer
of Baird Investment Management
David W. Bowman, CFA, Senior Vice-President and Senior Portfolio Manager
Richard A. Burling, CFA, Senior Vice-President and Senior Portfolio Manager
Charles F. Severson, CFA, Senior Vice-President and Senior Portfolio Manager
Joel D. Vrabel, CFA, Senior Vice-President and Senior Portfolio Manager
Greg P. Edwards, CFA, Vice-President and Portfolio Manager
BAIRD LARGECAP FUND
DECEMBER 31, 2004
Similar to 2003's results, 2004's stock market performance favored low quality
companies over high quality companies and value stocks over growth stocks. In
addition, investors favored companies benefiting from the sharp rise in
commodity prices, such as firms in the energy, chemical and steel industries.
These trends put the high quality, growth companies that the Fund's advisor
emphasizes in the Baird LargeCap Fund at a performance disadvantage.
Consequently, the Fund's equity performance trailed the broad market benchmarks
in 2004. Specifically, Institutional Class shares provided a +3.88% return in
the final six months of 2004 (+3.79% for Investor Class shares), bringing the
full-year result to +5.21% (+5.00% for Investor Class shares). These returns
lagged the performance of the Fund's primary benchmark, the Standard & Poor's
500 Index (the "S&P 500"). The S&P 500 posted six month and full-year returns
of +7.19% and +10.88%, respectively. 2004's winning themes were not consistent
with the emphasis of the Fund's investment advisor ("Baird") on high quality
companies - that is, companies that are leaders in their respective industries
and that have strong balance sheets and an established record of consistent
growth in sales, earnings, cash flows and dividends. Indeed, Standard & Poor's
reports that the growth stock component of the S&P 500 (S&P 500/Barra Growth
Index) posted a +6.14% gain in 2004 while the value stock component (S&P
500/Barra Value Index) gained +15.71%.
Last year's best performing S&P 500 sectors were Energy (+29% in 2004),
Utilities (+20% in 2004), Telecommunications Services (+16% in 2004),
Industrials (+16% in 2004) and Consumer Discretionary (+12% in 2004). Sectors
where the Fund traditionally concentrates investments because of their favorable
quality and growth characteristics (and where the Fund was concentrated in 2004)
were laggards with Health Care (flat in 2004), Information Technology (+2% in
2004), Consumer Staples (+7% in 2004) and Financials (+7% in 2004) all
underperforming the S&P 500 Index return. The underperformance of the Fund's
investment style in 2004 can be viewed as a cyclical adjustment following the
above-market returns posted by this approach during the market decline from the
"bubble" highs in early 2000 to the lows of October 2002. Baird expects
investors will again embrace high quality, predictable growth companies when, as
Baird anticipates, the economy slows to a more sustainable growth rate and
profit gains moderate. Baird believes that the Fund's overall higher quality,
higher growth profile versus the S&P 500 (measured on a market-weighted basis
utilizing Standard & Poor's quality ratings and historical earnings, sales and
dividend growth rates) is a winning strategy over the full market cycle,
delivering competitive returns with less price volatility. Consequently, Baird
intends to adhere to its investment discipline despite recent performance
trends.
As stated above, the Fund's sector weightings were a major source of
underperformance during the year with above benchmark exposure to the weak
Health Care and Technology sectors compounded by under exposure to the year's
top performing Energy sector and by lack of exposure to the better performing
Utilities and Telecommunications sectors. Stock selection among the year's
laggard groups provided mixed results with strong returns from core holding Dell
(+24% in 2004) and more recent additions Adobe (+61% in 2004) and Electronic
Arts (+29% since the initial purchase date in November 2004) in the Technology
sector offset by a disappointing year for core holdings Cisco and Intel (-20%
and -27%, respectively, in 2004). In the Health Care sector, standout returns
from pharmacy benefit manager Caremark Rx (+55% in 2004) and Johnson & Johnson
(+23% in 2004) were almost completely negated by disappointing performances from
drug companies Eli Lilly and Pfizer (-19% and -24%, respectively, in 2004).
Finally, in the Financials sector, flat results from core holdings American
International Group and Citigroup and disappointing returns from State Street
(-6% in 2004) adversely affected the Fund's relative performance.
Stock selection in 2004's better performing sectors positively affected the
Fund's relative performance. In the Consumer Discretionary sector, strong
returns from new holdings McGraw-Hill, Staples and Target (+19%, +35% and +18%,
respectively, since their initial purchase dates), along with substantial gains
in core holdings Best Buy (+14% in 2004) and Home Depot (+20% in 2004), aided
the Fund's performance. The only negative performer among the Fund's Consumer
Discretionary holdings was New York Times (-8% from the beginning of the year
through the date the stock was eliminated from the portfolio). Stock selection
also positively impacted relative performance in the Industrials sector.
Specifically, above-benchmark performances from core holdings General Electric
and UPS (+18% and +15%, respectively in 2004) and excellent results from the
Fund's new position in Illinois Tool Works (+19% since the initial purchase
date) were bright spots in the portfolio in 2004. Cintas (-12% in 2004) was the
only blemish on the Fund's holdings in the Industrials sector last year.
Four stocks eliminated from the portfolio in 2004, Cardinal Health, Fifth 3rd
Bancorp, Hewlett-Packard and Nokia, contributed meaningfully to the Fund's
disappointing relative performance. From the beginning of the year through the
dates the positions were eliminated, Cardinal declined 28%, Fifth 3rd dropped
22%, Hewlett-Packard fell 35% and Nokia declined 17%. All four companies failed
to adequately adjust their business models to address challenges in their
respective industries. Cardinal's attempt to transform its drug distribution
business model in order to cope with changes in the pharmaceutical industry
proved more difficult and time consuming than anticipated. In addition,
Cardinal's executive management team experienced significant change (including
the resignation of the Chief Financial Officer, which delayed the release of the
company's fiscal fourth quarter results) as the board of directors conducted an
internal review of the company's accounting practices. As a result, Baird sold
the stock, believing it prudent to watch from the sidelines while Cardinal
completes the transformation of its business model, the management team
stabilizes and the company's financial accounting issues are resolved.
Although Fifth 3rd continues to perform at a level consistent with its peer
group of large regional banks, we believe the recently announced balance sheet
restructuring may signal that the company is having difficulty generating
internal growth. Historically, Fifth 3rd excelled versus its peers, using a
lean cost structure and decentralized strategy to compete at the local level
while augmenting growth through acquisitions. Inconsistent performance and the
balance sheet changes reduced Baird's confidence in the company's ability to
execute its business model. In addition, the company no longer boasts a premium
price-to-earnings ratio, limiting acquisition opportunities. Hewlett-Packard
has struggled in the highly competitive PC and Server markets and is now facing
competition in its highly profitable printer supplies business. Poor execution,
sub-par earnings growth and ongoing management changes reduced our confidence in
the company. Finally, although Nokia continues to be a leader in the wireless
handset market, the company's competitive position has weakened considerably.
Nokia was slow to offer the popular clamshell-style handsets, resulting in
market share losses to rivals such as Motorola and Samsung. In addition, the
company's highly integrated "vertical" manufacturing structure prevents it from
introducing new models quickly and capitalizing on emerging handset fashion
trends. To stem share losses, Nokia reduced prices, pressuring margins and
forcing management to lower earnings expectations. Given the challenges facing
the company, we exited the position.
Unexpected disappointments from a few formerly dependable companies and the
Fund's bias toward high quality, large capitalization growth companies were
performance liabilities in 2004. As economic and corporate profit growth slows
and investors shift their focus from short-term speculative opportunities to
long-term investment merit, relative price performance should favor the shares
of firms that Baird believes are higher quality growth companies. Consequently,
Baird believes its investment strategy should be rewarded in 2005.
A December 31, 2004 summary of the Fund's top 10 holdings and equity sector
analysis compared to the Standard & Poor's 500 Index (the "S&P 500 Index") and
the Russell 1000 Growth Index is shown below.
TOP 10 HOLDINGS*<F97>
General Electric Company 3.7%
American International Group, Inc. 3.5%
Emerson Electric Company 3.3%
Medtronic, Inc. 3.3%
Citigroup, Inc. 3.2%
Teva Pharmaceutical Industries Ltd. 3.2%
Best Buy Company, Inc. 3.1%
Sysco Corporation 3.0%
Wal-Mart Stores, Inc. 3.0%
Microsoft Corporation 2.9%
NET ASSETS: $66,654,193
PORTFOLIO TURNOVER RATIO: 23.2%
NUMBER OF EQUITY HOLDINGS: 40
PORTFOLIO EXPENSE RATIO:***<F99>
INSTITUTIONAL CLASS: 0.75%
INVESTOR CLASS: 1.00%****<F1>
EQUITY SECTOR ANALYSIS**<F98>
LargeCap S&P 500 Russell 1000 Growth
--------- ------- -------------------
Consumer Discretionary 13.5% 11.9% 14.6%
Consumer Staples 13.5% 10.5% 12.4%
Energy 3.7% 7.2% 1.4%
Financials 12.6% 20.6% 9.3%
Health Care 19.0% 12.7% 23.7%
Industrials 14.4% 11.8% 9.1%
Information Technology 21.2% 16.1% 27.2%
Materials 2.1% 3.1% 1.3%
Telecommunication Services 0.0% 3.3% 1.0%
Utilities 0.0% 2.9% 0.2%
*<F97> The Fund's portfolio composition is subject to change and there is
no assurance that the Fund will continue to hold any particular
security.
**<F98> As of 12/31/04, based on equity sector values.
***<F99> The Advisor has contractually agreed to limit the Fund's total
annual fund operating expenses to 0.75% of average daily net assets
for the Institutional Class shares and 1.00% of average daily net
assets for the Investor Class shares, at least through December 31,
2005.
****<F1> Includes 0.25% 12b-1 fee.
BAIRD LARGECAP FUND - INSTITUTIONAL CLASS
VALUE OF A $100,000 INVESTMENT
Baird LargeCap Fund - S&P 500 Russell 1000
Date Institutional Class Shares Index Growth Index
---- -------------------------- ------- ------------
9/29/2000 $100,000 $100,000 $100,000
12/31/2000 $95,854 $92,176 $78,655
6/30/2001 $86,949 $86,003 $67,454
12/31/2001 $86,421 $81,220 $62,591
6/30/2002 $70,799 $70,532 $49,587
12/31/2002 $64,357 $63,270 $45,138
6/30/2003 $70,181 $70,710 $51,045
12/31/2003 $78,357 $81,418 $58,566
6/30/2004 $79,364 $84,222 $60,170
12/31/2004 $82,442 $90,278 $62,256
GROWTH OF A HYPOTHETICAL INVESTMENT OF $100,000 MADE ON THE FUND'S INCEPTION
DATE (9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD LARGECAP FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird LargeCap Fund - S&P 500 Russell 1000
Date Investor Class Shares Index Growth Index
---- --------------------- ------- ------------
9/29/2000 $10,000 $10,000 $10,000
12/31/2000 $9,572 $9,218 $7,865
6/30/2001 $8,672 $8,600 $6,745
12/31/2001 $8,612 $8,122 $6,259
6/30/2002 $7,052 $7,053 $4,959
12/31/2002 $6,403 $6,327 $4,514
6/30/2003 $6,953 $7,071 $5,105
12/31/2003 $7,760 $8,142 $5,857
6/30/2004 $7,850 $8,422 $6,017
12/31/2004 $8,148 $9,028 $6,226
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(9/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F2>
- -------------------------------------- -------- ----------------------
Baird LargeCap Fund -
Institutional Class Shares 5.21% -4.44%
Baird LargeCap Fund -
Investor Class Shares 5.00% -4.70%
S&P 500 Index(2)<F3> 10.88% -2.37%
Russell 1000 Growth Index(3)<F4> 6.30% -10.55%
(1)<F2> For the period September 29, 2000 (commencement of operations) to
December 31, 2004.
(2)<F3> The S&P 500 Index is an unmanaged, market-value weighted index of 500
stocks chosen by Standard & Poor's on the basis of market size,
liquidity and industry group representation. The S&P 500 Index is one
of the most widely used benchmarks of U.S. equity performance. The
Index does not reflect any deduction for fees, expenses or taxes. A
direct investment in an index is not possible.
(3)<F4> The Russell 1000 Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately
92% of the total market capitalization of the Russell 3000 Index. The
Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth rates. The Russell 3000 Index is comprised of the 3,000
largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly
traded equity market. A direct investment in an index is not
possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD LARGECAP FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
COMMON STOCKS - 94.9%
AIR FREIGHT & LOGISTICS - 2.4%
18,457 United Parcel Service,
Inc. - Class B $ 1,577,335
-----------
BEVERAGES - 2.2%
28,100 PepsiCo, Inc. 1,466,820
-----------
BIOTECHNOLOGY - 2.4%
24,564 Amgen, Inc.*<F5> 1,575,781
-----------
CAPITAL MARKETS - 1.4%
19,200 State Street Corporation 943,104
-----------
CHEMICALS - 2.0%
29,500 Praxair, Inc. 1,302,425
-----------
COMMERCIAL BANKS - 2.5%
26,802 Wells Fargo & Company 1,665,744
-----------
COMMERCIAL SERVICES & SUPPLIES - 1.9%
29,000 Cintas Corporation 1,271,940
-----------
COMMUNICATIONS EQUIPMENT - 1.3%
44,110 Cisco Systems, Inc.*<F5> 851,323
-----------
COMPUTERS & PERIPHERALS - 5.6%
44,200 Dell, Inc.*<F5> 1,862,588
19,000 International Business
Machines Corporation 1,873,020
-----------
3,735,608
-----------
DIVERSIFIED FINANCIAL SERVICES - 3.2%
44,796 Citigroup, Inc. 2,158,271
-----------
ELECTRICAL EQUIPMENT - 3.3%
31,600 Emerson Electric Company 2,215,160
-----------
FOOD & STAPLES RETAILING - 8.3%
53,000 Sysco Corporation 2,023,010
38,000 Walgreen Company 1,458,060
38,250 Wal-Mart Stores, Inc. 2,020,365
-----------
5,501,435
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 3.3%
43,700 Medtronic, Inc. 2,170,579
-----------
HEALTH CARE PROVIDERS & SERVICES - 2.6%
44,400 Caremark Rx, Inc.*<F5> 1,750,692
-----------
HOUSEHOLD PRODUCTS - 2.4%
28,800 The Procter &
Gamble Company 1,586,304
-----------
INDUSTRIAL CONGLOMERATES - 3.7%
68,000 General Electric Company 2,482,000
-----------
INSURANCE - 4.8%
22,000 AFLAC Incorporated 876,480
35,600 American International
Group, Inc. 2,337,852
-----------
3,214,332
-----------
IT SERVICES - 2.0%
32,920 Fiserv, Inc.*<F5> 1,323,055
-----------
MACHINERY - 2.3%
16,600 Illinois Tool Works, Inc. 1,538,488
-----------
MEDIA - 2.3%
16,700 The McGraw-Hill
Companies, Inc. 1,528,718
-----------
MULTILINE RETAIL - 2.2%
28,600 Target Corporation 1,485,198
-----------
OIL & GAS - 3.5%
30,000 Apache Corporation 1,517,100
16,000 Exxon Mobil Corporation 820,160
-----------
2,337,260
-----------
PHARMACEUTICALS - 9.8%
29,000 Abbott Laboratories 1,352,850
16,800 Eli Lilly and Company 953,400
13,000 Johnson & Johnson 824,460
48,014 Pfizer, Inc. 1,291,097
70,500 Teva Pharmaceutical
Industries Ltd.-ADR f<F6> 2,105,130
-----------
6,526,937
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.4%
46,968 Intel Corporation 1,098,582
28,000 Maxim Integrated
Products, Inc. 1,186,920
-----------
2,285,502
-----------
SOFTWARE - 7.8%
26,000 Adobe Systems, Inc. 1,631,240
26,600 Electronic Arts Inc.*<F5> 1,640,688
73,000 Microsoft Corporation 1,949,830
-----------
5,221,758
-----------
SPECIALTY RETAIL - 8.3%
34,850 Best Buy Company, Inc. 2,070,787
41,856 The Home Depot, Inc. 1,788,925
49,500 Staples, Inc. 1,668,645
-----------
5,528,357
-----------
Total Common Stocks
(Cost $56,358,226) 63,244,126
-----------
SHORT-TERM INVESTMENTS - 5.2%
MONEY MARKET FUND - 4.6%
3,041,759 SEI Daily Income
Trust Government
Fund - Class B 3,041,759
-----------
VARIABLE RATE DEMAND NOTES#<F7> - 0.6%
$152,000 American Family Financial
Services, Inc., 2.00% 152,000
256,000 Wisconsin Corporation
Central Credit
Union, 2.09% 256,000
-----------
408,000
-----------
Total Short-Term
Investments
(Cost $3,449,759) 3,449,759
-----------
Total Investments
(Cost $59,807,985)
100.1% 66,693,885
-----------
Liabilities, less Other
Assets (0.1)% (39,692)
-----------
TOTAL NET
ASSETS 100.0% $66,654,193
-----------
-----------
ADR - American Depository Receipt
*<F5> Non Income Producing
F<F6> Foreign
#<F7> Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of December 31, 2004.
See notes to the financial statements
BAIRD MIDCAP FUND
DECEMBER 31, 2004
Mid cap company shares enjoyed a second consecutive year of overall gains in
2004. The path of the gains however was very different than the year before.
Significantly higher oil prices, concerns over the Iraq war, higher short term
interest rates and the uncertainty surrounding the November election erased a
first quarter rally in stocks, ultimately bringing mid cap indexes lower by
roughly five percent from the beginning of the year through mid-August.
Investor confidence waned as analysts raised the notion of slower profits growth
and the possible return of a bear market.
The combination of a temporary retreat in energy prices and the resolution to
the banter surrounding the U.S. Presidential election sparked a strong fourth
quarter rally in the stock market. Additionally, increased consumer confidence
and the prospects for a solid holiday spending season helped offset somewhat
higher inflation and interest rates, driving the stock market indices higher.
MidCap Fund shares participated in the move, although did not keep pace with the
major mid cap indices as a result of the Fund having concentrations in higher-
quality companies (companies that possess higher than average earnings growth,
superior balance sheets, and returns on invested capital versus their peers) as
well as not having benchmark exposure to commodity and heavily regulated
sectors. For the year, the S&P MidCap 400 Index posted a return of +16.48%.
Traditional value sectors outperformed their growth counterparts for the second
straight year. Areas such as basic materials (e.g., metals and mining), a
sector with few, if any, companies possessing the attributes the Fund's
investment advisor ("Baird") deems to be high quality, performed well as global
unit demand coupled with higher prices resulted in expanded margins and
earnings. Utilities, another area that is historically inconsistent with the
Fund's quality growth focus, benefited from the expectation of continued lower
taxes on cash dividends, following the election. In both cases, the
inconsistency of earnings growth coupled with below average balance sheets make
investment difficult given the Fund's quality growth focus.
While maintaining at least a market weight in the information technology sector,
issue selection hurt the Funds' performance relative to the benchmark. This was
particularly evident in the fourth quarter when lower quality technology
companies outperformed those held in the Fund. In addition, shares in
semiconductor related companies held in the Fund underperformed the benchmark.
Another challenging sector for Fund performance during 2004 was the consumer
staples sector. Here, a lack of high quality investment candidates caused Baird
to maintain an underweighted position relative to the benchmark for the entire
year. That, coupled with lower performance for the positions held, resulted in
lower sector returns versus the benchmark.
On the other hand, the Fund's performance was enhanced during 2004 by strong
results from holdings in the financials sector, where Baird maintained a
benchmark weighting for much of the year and identified companies that grew
faster and more profitably than many of their peers. Additionally, an
overweight position in the healthcare sector made positive contributions to the
fund in 2004 due to good stock selection relative to the benchmark. Healthcare
remained a heavily weighted economic sector in the Fund at year-end 2004, one
that Baird believes presently exhibits the growth, balance sheet and
profitability characteristics consistent with a quality growth philosophy.
Baird is optimistic in the fundamental outlook for the sector exposure held by
the Fund at year end 2004, although valuation considerations and changes in the
macroeconomic environment can cause Baird to alter the weightings from time to
time.
During 2004, broad-based strength in revenue and margin improvements assisted in
raising the share prices of many medium sized company stocks. Corporate balance
sheets for the most part steadily improved, with many companies now considering
establishing or increasing cash dividends. The notion of total return, that
being the combination of dividends and share price gains, is likely to be more
important in the coming years. Baird's historic focus on clean balance sheets
(lower levels of debt to capital versus peer companies in the benchmark) and
strong cash generation allows the type of company Baird likes to hold in the
Fund the flexibility to act in the best interest of shareholders. Furthermore,
in Baird's opinion, it is likely that some of the companies in the Fund's
portfolio will be active purchasers of additional businesses, providing
additional support to the sustainability of revenue and earnings growth into
2005.
Strategically, Baird believes that the Fund is positioned to benefit from
expected continued growth in the economy and resulting improved earnings growth.
Exposure to sectors such as industrials, energy and technology services was
increased throughout 2004 as the fundamental outlook for profit growth in those
areas improved. Following strong results, gains were harvested and the Fund
weighting was reduced in the financial sector as valuations became somewhat
extended and earnings growth, in Baird's opinion, is likely to moderate in 2005.
Additionally, certain positions in the consumer discretionary sector were
trimmed late in the year, effectively reducing sector exposure, as the prospects
for earnings growth became less visible. As has been the case since the Fund
was started, the Fund has no exposure to telecommunications services, a heavily
regulated and volatile sector, as well as the aforementioned materials and
utilities areas.
It is our belief that broad-based growth in earnings and overall economic
activity will continue, but the pace of activity will decrease in 2005 versus
2004. This deceleration in overall economic and profits growth will likely
result in a heightened focus on absolute earnings growth by investors during
2005. Historically during this type of environment, companies showing strong
absolute revenue and earnings growth rates and above average quality ratings are
rewarded.
A December 31, 2004 summary of the Fund's top 10 holdings and equity sector
analysis compared to the Standard & Poor's MidCap 400 Index (the "S&P MidCap 400
Index") and the Russell Midcap Growth Index is shown below.
TOP 10 HOLDINGS*<F8>
Legg Mason, Inc. 3.7%
Zebra Technologies Corporation - Class A 3.6%
PETCO Animal Supplies, Inc. 3.3%
Fastenal Company 3.2%
Nordson Corporation 3.2%
Eaton Vance Corporation 3.1%
Symbol Technologies, Inc. 3.1%
Smith International, Inc. 2.9%
Iron Mountain Incorporated 2.8%
Southwest Bancorporation & Texas, Inc. 2.8%
NET ASSETS: $90,421,726
PORTFOLIO TURNOVER RATIO: 77.9%
NUMBER OF EQUITY HOLDINGS: 41
PORTFOLIO EXPENSE RATIO:***<F10>
INSTITUTIONAL CLASS: 0.85%
INVESTOR CLASS: 1.10%****<F11>
EQUITY SECTOR ANALYSIS**<F9>
MidCap S&P 400 Russell Midcap Growth
------ ------- ---------------------
Consumer Discretionary 18.5% 17.3% 22.2%
Consumer Staples 3.2% 3.4% 3.3%
Energy 6.1% 5.7% 4.3%
Financials 9.6% 15.6% 8.7%
Health Care 17.1% 12.4% 19.1%
Industrials 21.2% 10.5% 12.3%
Information Technology 22.3% 15.9% 25.7%
Materials 0.0% 6.1% 2.7%
Telecommunication Services 0.0% 0.4% 1.2%
Utilities 0.0% 4.0% 0.6%
*<F8> The Fund's portfolio composition is subject to change and there is
no assurance that the Fund will continue to hold any particular
security.
**<F9> As of 12/31/04, based on equity sector values.
***<F10> The Advisor has contractually agreed to limit the Fund's total
annual fund operating expenses to 0.85% of average daily net assets
for the Institutional Class shares and 1.10% of average daily net
assets for the Investor Class shares, at least through December 31,
2005.
****<F11> Includes 0.25% 12b-1 fee.
BAIRD MIDCAP FUND - INSTITUTIONAL CLASS
VALUE OF A $100,000 INVESTMENT
Baird MidCap Fund - S&P MidCap Russell Midcap
Date Institutional Class Shares 400 Index Growth Index
---- -------------------------- ---------- --------------
12/29/2000 $100,000 $100,000 $100,000
6/30/2001 $93,807 $99,105 $84,792
12/31/2001 $91,108 $97,562 $77,788
6/30/2002 $85,310 $94,427 $62,460
12/31/2002 $76,610 $83,398 $56,466
6/30/2003 $83,400 $93,756 $67,046
12/31/2003 $97,200 $113,108 $80,586
6/30/2004 $103,800 $119,991 $85,367
12/31/2004 $109,289 $131,753 $93,057
GROWTH OF A HYPOTHETICAL INVESTMENT OF $100,000 MADE ON THE FUND'S INCEPTION
DATE (12/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD MIDCAP FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird MidCap Fund - S&P MidCap Russell Midcap
Date Investor Class Shares 400 Index Growth Index
---- --------------------- ---------- --------------
12/29/2000 $10,000 $10,000 $10,000
6/30/2001 $9,370 $9,910 $8,479
12/31/2001 $9,091 $9,756 $7,779
6/30/2002 $8,511 $9,443 $6,246
12/31/2002 $7,631 $8,340 $5,647
6/30/2003 $8,300 $9,376 $6,705
12/31/2003 $9,650 $11,311 $8,059
6/30/2004 $10,300 $11,999 $8,537
12/31/2004 $10,839 $13,175 $9,306
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(12/29/00) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
ANNUALIZED TOTAL RETURNS
For the Period Ended December 31, 2004 ONE YEAR SINCE INCEPTION(1)<F12>
- -------------------------------------- -------- -----------------------
Baird MidCap Fund _
Institutional Class Shares 12.44% 2.24%
Baird MidCap Fund _
Investor Class Shares 12.32% 2.03%
S&P MidCap 400 Index(2)<F13> 16.48% 7.12%
Russell Midcap Growth Index(3)<F14> 15.48% -1.78%
(1)<F12> For the period December 29, 2000 (commencement of operations) to
December 31, 2004.
(2)<F13> The S&P MidCap 400 Index is an unmanaged, market-value weighted index
of 400 mid-cap stocks chosen by Standard & Poor's on the basis of
market size, liquidity and industry group representation. The Index
does not reflect any deduction for fees, expenses or taxes. A direct
investment in an index is not possible.
(3)<F14> The Russell Midcap Index consists of the 800 smallest companies in the
Russell 1000 Index, which represent approximately 24% of the total
market capitalization of the Russell 1000 Index. The Russell Midcap
Growth Index measures the performance of those companies in the
Russell Midcap Index with higher price-to-book ratios and higher
forecasted growth rates. A direct investment in an index is not
possible.
THE FUND'S INVESTMENT RESULTS REPRESENT AVERAGE ANNUAL TOTAL RETURNS. THE
RETURNS REFLECT REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES. THE RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD MIDCAP FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
COMMON STOCKS - 96.5%
AUTO COMPONENTS - 2.0%
38,250 Autoliv, Inc. $ 1,847,475
-----------
BIOTECHNOLOGY - 2.7%
54,616 Gen-Probe Incorporated*<F15> 2,469,189
-----------
CAPITAL MARKETS - 6.8%
54,407 Eaton Vance Corporation 2,837,325
45,134 Legg Mason, Inc. 3,306,517
-----------
6,143,842
-----------
COMMERCIAL BANKS - 9.3%
48,782 East West Bancorp, Inc. 2,046,893
107,678 Southwest Bancorporation
of Texas, Inc. 2,507,821
59,696 TCF Financial Corporation 1,918,629
33,617 Wintrust Financial
Corporation 1,914,824
-----------
8,388,167
-----------
COMMERCIAL SERVICES & SUPPLIES - 5.1%
57,084 Cintas Corporation 2,503,704
46,601 Stericycle, Inc.*<F15> 2,141,316
-----------
4,645,020
-----------
ELECTRICAL EQUIPMENT - 3.4%
32,992 Rockwell Automation, Inc. 1,634,754
23,095 Roper Industries, Inc. 1,403,483
-----------
3,038,237
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 5.0%
26,908 CDW Corporation 1,785,346
159,601 Symbol Technologies, Inc. 2,761,097
-----------
4,546,443
-----------
ENERGY EQUIPMENT & SERVICES - 5.5%
43,801 Cooper Cameron
Corporation*<F15> 2,356,932
48,097 Smith International, Inc.*<F15> 2,616,958
-----------
4,973,890
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 12.3%
90,193 Cytyc Corporation*<F15> 2,486,621
32,513 INAMED Corporation*<F15> 2,056,447
45,235 ResMed, Inc.*<F15> 2,311,509
43,731 Varian Medical
Systems, Inc.*<F15> 1,890,928
51,184 Waters Corporation*<F15> 2,394,899
-----------
11,140,404
-----------
HEALTH CARE PROVIDERS & SERVICES - 5.4%
56,601 Patterson Companies, Inc.*<F15> 2,455,917
59,755 Pharmaceutical Product
Development, Inc.*<F15> 2,467,284
-----------
4,923,201
-----------
HOTELS, RESTAURANTS & LEISURE - 6.8%
93,126 Applebee's
International, Inc. 2,463,183
41,450 Outback Steakhouse, Inc. 1,897,581
32,092 P.F. Chang's China
Bistro, Inc.*<F15> 1,808,384
-----------
6,169,148
-----------
HOUSEHOLD DURABLES - 1.0%
7,140 Harman International
Industries, Incorporated 906,780
-----------
IT SERVICES - 7.5%
31,044 Global Payments, Inc. 1,817,316
75,291 Hewitt Associates,
Inc. - Class A*<F15> 2,410,065
82,720 Iron Mountain
Incorporated*<F15> 2,522,133
-----------
6,749,514
-----------
MACHINERY - 3.2%
71,425 Nordson Corporation 2,862,000
-----------
MEDIA - 1.6%
16,860 Pixar*<F15> 1,443,385
-----------
OFFICE ELECTRONICS - 3.6%
57,047 Zebra Technologies
Corporation - Class A*<F15> 3,210,605
-----------
OIL & GAS - 1.6%
40,805 XTO Energy, Inc. 1,443,681
-----------
PHARMACEUTICALS - 1.4%
34,895 Medicis Pharmaceutical
Corporation - Class A 1,225,163
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.4%
46,435 Microchip Technology
Incorporated 1,237,957
-----------
SPECIALTY RETAIL - 7.7%
67,103 Dick's Sporting
Goods, Inc.*<F15> 2,358,671
75,942 PETCO Animal
Supplies, Inc.*<F15> 2,998,190
45,705 Williams-Sonoma, Inc.*<F15> 1,601,503
-----------
6,958,364
-----------
TRADING COMPANIES & DISTRIBUTORS - 3.2%
47,577 Fastenal Company 2,928,840
-----------
Total Common Stocks
(Cost $75,807,930) 87,251,305
-----------
EXCHANGE-TRADED FUND - 1.7%
11,300 iShares S&P MidCap
400/BARRA Growth
Index Fund 1,525,839
-----------
Total Exchange-Traded
Fund (Cost $1,488,954) 1,525,839
-----------
SHORT-TERM INVESTMENTS - 5.9%
MONEY MARKET FUND - 4.7%
4,261,873 SEI Daily Income
Trust Government
Fund - Class B 4,261,873
-----------
Principal Amount Value
- ---------------- -----
VARIABLE RATE DEMAND NOTES#<F16> - 1.2%
$130,000 American Family Financial
Services, Inc., 2.00% 130,000
915,841 Wisconsin Corporation
Central Credit
Union, 2.09% 915,841
-----------
1,045,841
-----------
Total Short-Term
Investments
(Cost $5,307,714) 5,307,714
-----------
Total Investments
(Cost $82,604,598)
104.1% 94,084,858
-----------
Liabilities, less Other
Assets (4.1)% (3,663,132)
-----------
TOTAL NET
ASSETS 100.0% $90,421,726
-----------
-----------
*<F15> Non Income Producing
#<F16> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of December 31, 2004.
See notes to the financial statements
BAIRD SMALLCAP FUND
DECEMBER 31, 2004
Major small company stock indices enjoyed their second consecutive year of
double digit gains during 2004. Broad strength in corporate profits generally
drove stock prices higher, although the upswing was anything but a straight line
affair. Offsetting the rise in profits in the minds of investors was an up tick
in inflation, the war in Iraq and the possibility of a slowdown in economic
activity.
During the second half of the year, the period which the Fund was open during
2004, an initial third quarter decline brought on by persistently high and
rising energy prices as well as monetary policy tightening by the Federal
Reserve was more than eclipsed by a post-election rally. Additionally,
increased consumer confidence and the prospects for a robust holiday spending
season helped offset more expensive raw materials prices and Fed-induced higher
short term interest rates, resulting in a bull market for stocks. SmallCap Fund
shares participated in the move, although did not keep pace with the major small
cap indices as a result of the Fund having concentrations in higher-quality
companies (companies that possess higher than average earnings growth, superior
balance sheets, and returns on invested capital versus their peers) as well as
not having benchmark exposure to commodity and heavily regulated sectors. For
the last six months of 2004, the S&P Small Cap 600 Index posted a gain of 11.3%.
Traditional value sectors outperformed their growth counterparts for the second
straight year and also performed well in the second half of 2004. Areas such as
basic materials (e.g. metals and mining), a sector with few, if any, companies
possessing the attributes the Fund's investment advisor ("Baird") deems to be
high quality, performed well as global unit demand coupled with higher prices
resulted in expanded margins and earnings. Utilities, another area that is
historically inconsistent with the Fund's quality growth focus, benefited from
the expectation of continued lower taxes and cash dividends, following the
election. In both cases, the inconsistency of earnings growth coupled with
below average balance sheets make investment difficult given the Fund's quality
growth focus.
Two sectors in which the Fund held above benchmark weights during the period,
consumer discretionary ("CD") and healthcare, underperformed their respective
market sectors. In both cases, issue selection was responsible for the
shortfall. Specifically, shares in discount and home goods retailers held in
the Fund lagged the CD sector and those declines were only partially offset by
gains in holdings in the restaurant and computer wholesale areas. As for
healthcare, poor results in holdings in healthcare services businesses and
medical device companies during the third quarter could not be offset by the
fourth quarter rally, resulting in roughly flat performance for the period, but
nonetheless below the benchmark sector returns. Baird believes that the
healthcare sector exhibits the growth, balance sheets and profitability
characteristics consistent with a quality growth approach.
Exposure to the energy sector, on the other hand, aided Fund results during the
period. Sector weight was kept in line with the benchmark, but issue selection
was the key to the out-performance. Especially helpful was investment in a
supply vessel company, whose prospects have brightened coincident with the
increased drilling activity in the Gulf of Mexico. It is Baird's present
expectation that the Fund will maintain exposure to the Energy sector as long as
oil prices remain high and drilling activity stays at current or above average
levels.
An overweight position in the information technology ("IT") sector also aided
Fund results for the period. In this case, Baird identified several companies
that match the high quality strategy and have historically produced consistent
earnings growth. This was especially true in the IT services area, where
companies providing contract programming and temporary workers in the technology
field enjoyed above sector average performance during the second six months of
the year. Somewhat offsetting those gains were declines in the semiconductor
and equipment areas, where Baird held positions throughout the period.
Technology remained an overweighted sector at year end.
During 2004, broad-based strength in revenue and margin improvements assisted in
raising the share prices of many smaller company stocks. Corporate balance
sheets for the most part steadily improved, with many companies now considering
establishing or increasing cash dividends. The notion of total return, that
being the combination of dividends and share price gains, is likely to be more
important in coming years. Baird's historic focus on clean balance sheets
(lower levels of debt to capital versus peer companies in the benchmark) and
strong cash generation allows the type of company Baird likes to hold in the
Fund the flexibility to act in the best interest of shareholders. Furthermore,
it is, in Baird's opinion, likely that some of the companies in the Fund's
portfolio will be active purchasers of additional businesses, providing
additional support to the sustainability of revenue and earnings growth into
2005.
Strategically, Baird believes that the Fund is positioned to benefit from
expected continued growth in the economy and resulting improved earnings growth.
Exposure to sectors such as industrials and technology services was increased
during the period as the fundamental outlook for profit growth in those areas
improved. Following strong results, gains were harvested and the Fund weighting
was reduced in the financial sector as valuations became somewhat extended and
earnings growth, in Baird's opinion, is likely to moderate in 2005. As has been
the case since the inception date, the Fund has no exposure to
telecommunications services, a heavily regulated and volatile sector, as well as
the aforementioned materials and utilities areas.
It is Baird's belief that broad-based growth in earnings and overall economic
activity will continue, but the pace of activity will decrease in 2005 versus
2004. This deceleration in overall economic and profits growth will likely
result in a heightened focus on absolute earnings growth by investors in 2005.
Historically during this type of environment, companies showing strong absolute
revenue and earnings growth rates and above average quality ratings are
rewarded.
A December 31, 2004 summary of the Funds top 10 holdings and equity sector
analysis compared to the Standard & Poor's Small Cap 600 Index (the "S&P 600
Index") and the Russell 2000 Growth Index is shown below.
TOP 10 HOLDINGS*<F17>
Gulfmark Offshore, Inc. 3.5%
Brady Corporation - Class A 3.5%
United Natural Foods, Inc. 3.2%
United Surgical Partners International, Inc. 3.0%
Insight Enterprises, Inc. 3.0%
G&K Services Inc. - Class A 3.0%
MPS Group, Inc. 2.9%
Hibbett Sporting Goods, Inc. 2.8%
ScanSource, Inc. 2.8%
Nordson Corporation 2.8%
NET ASSETS: $17,399,446
PORTFOLIO TURNOVER RATIO: 34.7%
NUMBER OF EQUITY HOLDINGS: 42
PORTFOLIO EXPENSE RATIO:***<F19>
INSTITUTIONAL CLASS: 0.95%
INVESTOR CLASS: 1.20%****<F20>
EQUITY SECTOR ANALYSIS**<F18>
SmallCap S&P 600 Russell 2000 Growth
-------- ------- -------------------
Consumer Discretionary 18.5% 17.3% 16.0%
Consumer Staples 3.2% 3.4% 2.1%
Energy 6.1% 5.7% 4.7%
Financials 9.6% 15.6% 10.1%
Health Care 19.1% 12.4% 21.1%
Industrials 21.2% 19.5% 13.7%
Information Technology 22.3% 15.9% 27.9%
Materials 0.0% 6.1% 3.4%
Telecommunication Services 0.0% 0.4% 1.0%
Utilities 0.0% 4.0% 0.2%
*<F17> The Fund's portfolio composition is subject to change and there is
no assurance that the Fund will continue to hold any particular
security.
**<F18> As of 12/31/04, based on equity sector values.
***<F19> The Advisor has contractually agreed to limit the Fund's total
annual fund operating expenses to 0.95% of average daily net assets
for the Institutional Class shares and 1.20% of average daily net
assets for the Investor Class shares, at least through December 31,
2005.
****<F20> Includes 0.25% 12b-1 fee.
BAIRD SMALLCAP FUND - INSTITUTIONAL CLASS
VALUE OF A $100,000 INVESTMENT
Baird SmallCap Fund - S&P Russell 2000
Date Institutional Class Shares 600 Index Growth Index
---- -------------------------- --------- ------------
6/30/2004 $100,000 $100,000 $100,000
9/30/2004 $97,300 $98,627 $93,989
12/31/2004 $108,400 $111,451 $108,163
GROWTH OF A HYPOTHETICAL INVESTMENT OF $100,000 MADE ON THE FUND'S INCEPTION
DATE (6/30/04) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
BAIRD SMALLCAP FUND - INVESTOR CLASS
VALUE OF A $10,000 INVESTMENT
Baird SmallCap Fund - S&P Russell 2000
Date Investor Class Shares 600 Index Growth Index
---- --------------------- --------- ------------
6/30/2004 $10,000 $10,000 $10,000
9/30/2004 $9,730 $9,863 $9,399
12/31/2004 $10,830 $11,145 $10,816
GROWTH OF A HYPOTHETICAL INVESTMENT OF $10,000 MADE ON THE FUND'S INCEPTION DATE
(6/30/04) ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS.
TOTAL RETURNS
For the Period Ended December 31, 2004 SINCE INCEPTION(1)<F21>
- -------------------------------------- -----------------------
Baird SmallCap Fund - Institutional Class Shares 8.40%
Baird SmallCap Fund - Investor Class Shares 8.30%
S&P Small Cap 600 Index(2)<F22> 11.45%
Russell 2000 Growth Index(3)<F23> 8.16%
(1)<F21> For the period June 30, 2004 (commencement of operations) through
December 31, 2004.
(2)<F22> The Standard & Poor's Small Cap 600 Index is an unmanaged, market-
value weighted index of 600 small-capitalization common stocks chosen
by Standard & Poor's on the basis of market size, liquidity and
industry characteristics. The Index does not reflect any deduction
for fees, expenses or taxes. A direct investment in an index is not
possible.
(3)<F23> The Russell 2000 Index consists of the 2,000 smallest U.S. domiciled
publicly-traded common stocks that are included in the Russell 3000
Index. These common stocks represent approximately 8% of the U.S.
Equity market. The Russell 2000 Growth Index measures the performance
of those Russell 2000 companies with higher price-to-book and higher
forecasted growth rates. A direct investment in an index is not
possible.
THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS FOR THE PERIOD JUNE 30,
2004 THROUGH DECEMBER 31, 2004. THE RETURNS REFLECT REINVESTMENT OF DIVIDENDS
AND/OR CAPITAL GAINS DISTRIBUTIONS IN ADDITIONAL SHARES. THE RETURNS DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
BAIRD SMALLCAP FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
Shares Value
------ -----
COMMON STOCKS - 94.9%
AIRLINES - 2.2%
19,086 SkyWest, Inc. $ 382,865
-----------
BIOTECHNOLOGY - 2.0%
6,928 Martek Biosciences
Corporation*<F24> 354,714
-----------
COMMERCIAL BANKS - 9.4%
16,999 Boston Private Financial
Holdings, Inc. 478,862
8,736 East West Bancorp, Inc. 366,563
17,947 Southwest Bancorporation
of Texas, Inc. 417,986
6,600 Wintrust Financial
Corporation 375,936
-----------
1,639,347
-----------
COMMERCIAL SERVICES & SUPPLIES - 10.3%
9,753 Brady Corporation -
Class A 610,245
11,850 G & K Services, Inc. -
Class A 514,527
19,091 Marlin Business
Services, Inc.*<F24> 362,729
6,667 Stericycle, Inc.*<F24> 306,349
-----------
1,793,850
-----------
COMMUNICATIONS EQUIPMENT - 1.7%
44,056 Westell Technologies,
Inc. - Class A*<F24> 299,581
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.8%
27,326 Plexus Corporation*<F24> 355,511
7,782 ScanSource, Inc.*<F24> 483,729
-----------
839,240
-----------
ENERGY EQUIPMENT & SERVICES - 6.0%
27,648 GulfMark Offshore, Inc.*<F24> 615,721
11,375 Oceaneering
International, Inc.*<F24> 424,515
-----------
1,040,236
-----------
FOOD & STAPLES RETAILING - 3.2%
17,634 United Natural
Foods, Inc.*<F24> 548,417
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 6.7%
16,077 Molecular Devices
Corporation*<F24> 323,148
7,191 ResMed, Inc.*<F24> 367,460
16,687 Wright Medical
Group, Inc.*<F24> 475,579
-----------
1,166,187
-----------
HEALTH CARE PROVIDERS & SERVICES - 10.1%
20,265 Computer Programs
and Systems, Inc. 469,135
15,775 PAREXEL International
Corporation*<F24> 320,232
20,659 Providence Service
Corporation*<F24> 433,219
12,683 United Surgical Partners
International, Inc.*<F24> 528,881
-----------
1,751,467
-----------
HOTELS, RESTAURANTS & LEISURE - 5.5%
7,440 Buffalo Wild Wings Inc.*<F24> 258,986
7,585 P.F. Chang's China
Bistro, Inc.*<F24> 427,415
5,117 Red Robin Gourmet
Burgers Inc.*<F24> 273,606
-----------
960,007
-----------
INTERNET & CATALOG RETAIL - 3.0%
25,624 Insight Enterprises, Inc.*<F24> 525,804
-----------
IT SERVICES - 9.6%
23,801 Covansys Corporation*<F24> 364,155
40,751 MPS Group, Inc.*<F24> 499,607
13,453 Open Solutions Inc.*<F24> 349,240
7,229 SRA International,
Inc. - Class A*<F24> 464,102
-----------
1,677,104
-----------
MACHINERY - 2.8%
12,025 Nordson Corporation 481,842
-----------
MULTILINE RETAIL - 2.2%
21,834 Fred's, Inc. 379,912
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.9%
8,367 Varian Semiconductor
Equipment Associates, Inc.*<F24> 308,324
32,292 Zoran Corporation*<F24> 373,941
-----------
682,265
-----------
SOFTWARE - 1.9%
6,395 Kronos Incorporated*<F24> 326,976
-----------
SPECIALTY RETAIL - 7.5%
9,859 A.C. Moore Arts
& Crafts, Inc.*<F24> 284,038
12,421 Cost Plus, Inc.*<F24> 399,087
10,195 Gander Mountain
Company*<F24> 130,802
18,552 Hibbett Sporting
Goods, Inc.*<F24> 493,669
-----------
1,307,596
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.1%
10,111 Watsco, Inc. 356,109
-----------
Total Common Stocks
(Cost $14,946,919) 16,513,519
-----------
EXCHANGE-TRADED FUND - 2.5%
2,665 iShares S&P MidCap
400/BARRA Growth
Index Fund 433,622
-----------
Total Exchange-Traded
Fund (Cost $406,656) 433,622
-----------
SHORT-TERM INVESTMENTS - 4.4%
MONEY MARKET FUND - 3.5%
616,293 SEI Daily Income
Trust Government
Fund - Class B 616,293
-----------
Principal Amount Value
- ---------------- -----
VARIABLE RATE DEMAND NOTES#<F25> - 0.9%
$60,000 American Family
Financial Services,
Inc., 2.00% 60,000
90,531 Wisconsin Corporation
Central Credit
Union, 2.09% 90,531
-----------
150,531
-----------
Total Short-Term
Investments
(Cost $766,824) 766,824
-----------
Total Investments
(Cost $16,120,399)
101.8% 17,713,965
-----------
Liabilities, less Other
Assets (1.8)% (314,519)
-----------
TOTAL NET
ASSETS 100.0% $17,399,446
-----------
-----------
*<F24> Non Income Producing
#<F25> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of December 31, 2004.
See notes to the financial statements
BAIRD FUNDS, INC.
ADDITIONAL INFORMATION ON FUND EXPENSES DECEMBER 31, 2004 (UNAUDITED)
EXAMPLE
As a shareholder of a mutual fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; interest expense and other fund expenses.
This Example is intended to help you understand your ongoing costs (in dollars)
of investing in each Fund and to compare these costs with the ongoing costs of
investing in other mutual funds. The Example is based on an investment of
$1,000 invested at the beginning of the period and held for the entire period
(7/1/04 - 12/31/04).
ACTUAL EXPENSES
The fourth and fifth columns of the table below provide information about
account values based on actual returns and actual expenses. Although the Funds
do not charge any sales loads, redemption fees, or other transaction fees, you
will be assessed fees for outgoing wire transfers, returned checks and stop
payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC,
the Fund's transfer agent. If you request that a redemption be made by wire
transfer, currently the Fund's transfer agent charges a $15.00 fee. You may use
the information in these columns, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the fifth column entitled "Expenses
Paid During Period'' to estimate the expenses you paid on your account during
this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The sixth and seventh columns of the table below provide information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which is not the Funds' 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 Funds and other mutual funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other mutual funds. Please note that
the expenses shown in the table are meant to highlight your ongoing costs only
and do not reflect any transactional costs. Therefore, the seventh column of
the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different mutual funds. In
addition, if these transactional costs were included, your costs could have been
higher.
ACTUAL VS. HYPOTHETICAL RETURNS
For the Six Months Ended December 31, 2004
HYPOTHETICAL (5% RETURN
ACTUAL BEFORE EXPENSES)
-------------------------- ---------------------------
FUND'S BEGINNING ENDING EXPENSES ENDING EXPENSES
ANNUALIZED ACCOUNT ACCOUNT PAID ACCOUNT PAID
EXPENSE VALUE VALUE DURING VALUE DURING
RATIO(1)<F26> 7/1/04 12/31/04 PERIOD(1)<F26> 12/31/04 PERIOD(1)<F26>
------------- --------- -------- -------------- -------- --------------
BAIRD LARGECAP FUND
Institutional Class 0.75% $1,000.00 $1,038.80 $3.84 $1,021.37 $3.81
Investor Class 1.00% $1,000.00 $1,037.90 $5.12 $1,020.11 $5.08
BAIRD MIDCAP FUND
Institutional Class 0.85% $1,000.00 $1,052.90 $4.39 $1,020.86 $4.32
Investor Class 1.10% $1,000.00 $1,052.30 $5.67 $1,019.61 $5.58
BAIRD SMALLCAP FUND
Institutional Class 0.95% $1,000.00 $1,084.00 $4.98 $1,020.36 $4.82
Investor Class 1.20% $1,000.00 $1,083.00 $6.28 $1,019.10 $6.09
(1)<F26> Expenses are equal to the Fund's annualized expense ratio multiplied
by the average account value over the period, multiplied by 184 days
and divided by 366 to reflect the one-half year period.
BAIRD FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2004
BAIRD LARGECAP BAIRD MIDCAP BAIRD SMALLCAP
FUND FUND FUND
-------------- ------------ --------------
ASSETS:
Investments, at value (cost $59,807,985, $66,693,885 $94,084,858 $17,713,965
$82,604,598 and $16,120,399 respectively)
Dividends receivable 39,801 25,431 2,704
Cash -- 1,978 1,047
Interest receivable 2,779 3,658 760
Receivable for fund shares sold 7,246 40,248 1,208
Other assets 6,098 11,218 7,663
----------- ----------- -----------
Total assets 66,749,809 94,167,391 17,727,347
----------- ----------- -----------
LIABILITIES:
Payable to Advisor and Distributor 38,545 93,755 30,554
Payable for securities purchased -- 3,590,922 255,068
Accrued expenses and other liabilities 57,071 60,988 42,279
----------- ----------- -----------
Total liabilities 95,616 3,745,665 327,901
----------- ----------- -----------
NET ASSETS $66,654,193 $90,421,726 $17,399,446
----------- ----------- -----------
----------- ----------- -----------
NET ASSETS CONSIST OF:
Capital stock $68,427,289 $79,029,835 $16,008,968
Accumulated undistributed net investment income 787 -- --
Accumulated net realized loss on investments sold (8,659,783) (88,369) (203,088)
Net unrealized appreciation on investments 6,885,900 11,480,260 1,593,566
----------- ----------- -----------
NET ASSETS $66,654,193 $90,421,726 $17,399,446
----------- ----------- -----------
----------- ----------- -----------
INSTITUTIONAL CLASS SHARES
Net Assets $64,754,140 $86,476,869 $17,331,262
Shares outstanding
($0.01 par value, unlimited shares authorized) 7,960,799 7,924,137 1,598,470
Net asset value, offering and redemption price per share $ 8.13 $ 10.91 $ 10.84
----------- ----------- -----------
----------- ----------- -----------
INVESTOR CLASS SHARES
Net Assets $ 1,900,053 $ 3,944,857 $ 68,184
Shares outstanding
($0.01 par value, unlimited shares authorized) 234,864 364,694 6,296
Net asset value, offering and redemption price per share $ 8.09 $ 10.82 $ 10.83
----------- ----------- -----------
----------- ----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF OPERATIONS
JUNE 30, 2004(1)<F27>
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2004 2004
------------------------------ --------------
BAIRD LARGECAP BAIRD MIDCAP BAIRD SMALLCAP
FUND FUND FUND
-------------- ------------ -------------
INVESTMENT INCOME:
Dividends $ 893,379 $ 230,333 $ 19,529
Interest 16,941 16,458 3,631
---------- ---------- ----------
Total investment income 910,320 246,791 23,160
---------- ---------- ----------
EXPENSES:
Investment advisory fees 402,995 442,480 65,704
Administration fees 44,095 39,769 5,296
Shareholder servicing fees 32,596 31,323 12,743
Fund accounting fees 33,885 33,568 17,000
Professional fees 30,400 28,152 34,282
Federal and state registration 10,483 19,991 5,347
Directors fees 8,205 7,313 1,733
Custody fees 6,181 8,729 1,459
Reports to shareholders 3,874 3,562 1,624
Distribution fees - Investor Class Shares 1,982 3,957 24
Miscellaneous 6,407 2,770 566
---------- ---------- ----------
581,103 621,614 145,778
Expense reimbursement by Advisor (114,127) (116,179) (72,320)
---------- ---------- ----------
Total expenses 466,976 505,435 73,458
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) 443,344 (258,644) (50,298)
---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (696,191) 1,764,507 (203,088)
Change in unrealized appreciation on investments 3,517,047 6,685,264 1,593,566
---------- ---------- ----------
Net realized and unrealized gain on investments 2,820,856 8,449,771 1,390,478
---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,264,200 $8,191,127 $1,340,180
---------- ---------- ----------
---------- ---------- ----------
(1)<F27> Commencement of operations.
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD LARGECAP FUND
-------------------------------------
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income $ 443,344 $ 183,307
Net realized loss on investments (696,191) (3,099,029)
Change in unrealized appreciation on investments 3,517,047 13,777,229
----------- -----------
Net increase in net assets resulting from operations 3,264,200 10,861,507
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 6,437,380 6,300,312
Shares issued to holders in reinvestment of dividends 439,027 183,995
Cost of shares redeemed (3,421,800) (6,330,955)
----------- -----------
Net increase in net assets resulting from
capital share transactions 3,454,607 153,352
----------- -----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net investment income (431,568) (184,144)
----------- -----------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net investment income (10,989) (557)
----------- -----------
TOTAL INCREASE IN NET ASSETS 6,276,250 10,830,158
NET ASSETS:
Beginning of year 60,377,943 49,547,785
----------- -----------
End of year (including undistributed net investment income
of $787 and $0, respectively) $66,654,193 $60,377,943
----------- -----------
----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD MIDCAP FUND
-------------------------------------
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
OPERATIONS:
Net investment loss $ (258,644) $ (208,334)
Net realized gain on investments 1,764,507 1,482,477
Change in unrealized appreciation on investments 6,685,264 4,974,216
----------- -----------
Net increase in net assets resulting from operations 8,191,127 6,248,359
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 56,415,797 5,465,190
Shares issued to holders in reinvestment of dividends 149,585 --
Cost of shares redeemed (3,773,365) (3,790,651)
----------- -----------
Net increase in net assets resulting from
capital share transactions 52,792,017 1,674,539
----------- -----------
DISTRIBUTIONS TO
INSTITUTIONAL CLASS SHAREHOLDERS:
From net realized gains (143,452) --
----------- -----------
DISTRIBUTIONS TO
INVESTOR CLASS SHAREHOLDERS:
From net realized gains (6,831) --
----------- -----------
TOTAL INCREASE IN NET ASSETS 60,832,861 7,922,898
NET ASSETS:
Beginning of year 29,588,865 21,665,967
----------- -----------
End of year $90,421,726 $29,588,865
----------- -----------
----------- -----------
See notes to the financial statements
BAIRD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
BAIRD SMALLCAP FUND
---------------------
June 30, 2004(1)<F28>
through
December 31, 2004
---------------------
OPERATIONS:
Net investment loss $ (50,298)
Net realized loss on investments (203,088)
Change in unrealized appreciation on investments 1,593,566
-----------
Net increase in net assets resulting from operations 1,340,180
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 17,042,209
Cost of shares redeemed (982,943)
-----------
Net increase in net assets resulting from
capital share transactions 16,059,266
-----------
TOTAL INCREASE IN NET ASSETS 17,399,446
NET ASSETS:
Beginning of period --
-----------
End of period $17,399,446
-----------
-----------
(1)<F28> Commencement of operations.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD LARGECAP FUND
---------------------------------------------------------------------------------------
Institutional
Institutional Institutional Institutional Institutional Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year Ended Year Ended Year Ended Year Ended 2000(1)<F29> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 7.78 $ 6.41 $ 8.63 $ 9.58 $ 10.00
----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income 0.06(2) 0.02 0.02 0.01 0.00(3)
<F30> <F31>
Net realized and unrealized
gains (losses) on investments 0.35 1.37 (2.22) (0.95) (0.42)
----------- ----------- ----------- ----------- ----------
Total from investment operations 0.41 1.39 (2.20) (0.94) (0.42)
----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends from net investment income (0.06) (0.02) (0.02) (0.01) (0.00)(3)
<F31>
Distributions from net realized gains -- -- -- -- (0.00)(3)
<F31>
----------- ----------- ----------- ----------- ----------
Total distributions (0.06) (0.02) (0.02) (0.01) (0.00)
----------- ----------- ----------- ----------- ----------
Net asset value, end of period $ 8.13 $ 7.78 $ 6.41 $ 8.63 $ 9.58
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Total return 5.21% 21.75% (25.53%) (9.84%) (4.15%)(4)
<F32>
Supplemental data and ratios:
Net assets, end of period $64,754,140 $59,743,783 $48,900,767 $51,446,666 $9,623,337
Ratio of expenses
to average net assets(6)<F34> 0.75% 0.75% 0.75% 0.75% 0.85%(5)
<F33>
Ratio of net investment income
to average net assets(6)<F34> 0.72% 0.34% 0.23% 0.12% 0.13%(5)
<F33>
Portfolio turnover rate(7)<F35> 23.2% 24.8% 16.2% 9.0% 4.4%(4)
<F32>
(1)<F29> Commencement of operations.
(2)<F30> Calculated using average shares outstanding during the period.
(3)<F31> Amount is less than $0.01.
(4)<F32> Not annualized.
(5)<F33> Annualized.
(6)<F34> Without fees reimbursed, ratios of net expenses to average net assets
for the periods ended December 31, 2004, December 31, 2003, December
31, 2002, December 31, 2001 and December 31, 2000 would have been
0.93%, 0.95%, 0.95%, 1.06% and 2.94%, respectively; and the ratios of
net investment income (loss) to average net assets would have been
0.54%, 0.14%, 0.03%, (0.19%) and (1.97%), respectively.
(7)<F35> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD LARGECAP FUND
--------------------------------------------------------------------------------------
Investor
Investor Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares Class Shares September 29,
Year Ended Year Ended Year Ended Year Ended 2000(1)<F36> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net asset value, beginning of period $ 7.75 $ 6.40 $ 8.61 $ 9.57 $ 10.00
----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income (loss) 0.04(2) 0.01 (0.00)(3) (0.01) (0.00)(3)
<F37> <F38> <F38>
Net realized and unrealized
gains (losses) on investments 0.35 1.35 (2.21) (0.95) (0.43)
----------- ----------- ----------- ----------- ----------
Total from investment operations 0.39 1.36 (2.21) (0.96) (0.43)
----------- ----------- ----------- ----------- ----------
Less distributions:
Dividends from net investment income (0.05) (0.01) (0.00)(3) -- --
<F38>
Distributions from net realized gains -- -- -- -- (0.00)(3)
<F38>
----------- ----------- ----------- ----------- ----------
Total distributions (0.05) (0.01) (0.00) -- (0.00)
----------- ----------- ----------- ----------- ----------
Net asset value, end of period $ 8.09 $ 7.75 $ 6.40 $ 8.61 $ 9.57
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Total return 5.00% 21.20% (25.65%) (10.03%) (4.28%)(4)
<F39>
Supplemental data and ratios:
Net assets, end of period $ 1,900,053 $ 634,160 $ 647,018 $ 615,533 $ 42,288
Ratio of expenses
to average net assets(6)<F41> 1.00% 1.00% 1.00% 1.00% 1.10%(5)
<F40>
Ratio of net investment income (loss)
to average net assets(6)<F41> 0.47% 0.09% (0.02%) (0.13%) (0.12%)(5)
<F40>
Portfolio turnover rate(7)<F42> 23.2% 24.8% 16.2% 9.0% 4.4%(4)
<F39>
(1)<F36> Commencement of operations.
(2)<F37> Calculated using average shares outstanding during the period.
(3)<F38> Amount is less than $0.01.
(4)<F39> Not annualized.
(5)<F40> Annualized.
(6)<F41> Without fees reimbursed, ratios of net expenses to average net assets
for the periods ended December 31, 2004, December 31, 2003, December
31, 2002, December 31, 2001 and December 31, 2000 would have been
1.18%, 1.20%, 1.20%, 1.31% and 3.19%, respectively; and the ratios of
net investment income (loss) to average net assets would have been
0.29%, (0.11%), (0.22%), (0.44%) and (2.22%), respectively.
(7)<F42> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD MIDCAP FUND
---------------------------------------------------------------------------------------
Institutional Institutional Institutional Institutional Institutional
Class Shares Class Shares Class Shares Class Shares Class Shares
Year Ended Year Ended Year Ended Year Ended December 29,
December 31, December 31, December 31, December 31, 2000(1)<F43> through
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ --------------------
Per Share Data:
Net asset value, beginning of period $ 9.72 $ 7.66 $ 9.11 $ 9.70 $ 10.00
----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income (0.04)(2) (0.07) (0.07)(2) (0.06)(2) (0.00)(3)
<F44> <F44> <F44> <F45>
Net realized and unrealized
gains (losses) on investments 1.25 2.13 (1.38) (0.53) (0.30)
----------- ----------- ----------- ----------- ----------
Total from investment operations 1.21 2.06 (1.45) (0.59) (0.30)
----------- ----------- ----------- ----------- ----------
Less distributions:
Distributions from net realized gains (0.02) -- -- -- --
----------- ----------- ----------- ----------- ----------
Net asset value, end of period $ 10.91 $ 9.72 $ 7.66 $ 9.11 $ 9.70
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Total return 12.44% 26.89% (15.92%) (6.08%) (3.00%)(4)
<F46>
Supplemental data and ratios:
Net assets, end of period $86,476,869 $28,629,656 $20,864,264 $13,049,574 $7,853,228
Ratio of expenses
to average net assets(6)<F48> 0.85% 1.20% 1.25% 1.25% 1.25%(5)
<F47>
Ratio of net investment loss
to average net assets(6)<F48> (0.43%) (0.81%) (0.84%) (0.67%) (1.25%)(5)
<F47>
Portfolio turnover rate(7)<F49> 77.9% 81.8% 55.4% 73.6% 0.0%
(1)<F43> Commencement of operations.
(2)<F44> Calculated using average shares outstanding during the period.
(3)<F45> Amount is less than $0.01.
(4)<F46> Not annualized.
(5)<F47> Annualized.
(6)<F48> Without fees reimbursed, ratios of net expenses to average net assets
for the periods ended December 31 2004, December 31, 2003, December
31, 2002, December 31, 2001 and December 31, 2000 would have been
1.05%, 1.20%, 1.39%, 2.06% and 2.78%, respectively; and the ratios of
net investment loss to average net assets would have been (0.63%),
(0.81%), (0.98%), (1.48%) and (2.78%), respectively.
(7)<F49> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD MIDCAP FUND
--------------------------------------------------------------------------------------
Investor
Investor Investor Investor Investor Class Shares
Class Shares Class Shares Class Shares Class Shares December 29,
Year Ended Year Ended Year Ended Year Ended 2000(1)<F50> through
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ --------------------
Per Share Data:
Net asset value, beginning of period $ 9.65 $ 7.63 $ 9.09 $ 9.70 $ 10.00
----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income (0.07)(2) (0.09) (0.09)(2) (0.08)(2) (0.00)(3)
<F51> <F51> <F51> <F52>
Net realized and unrealized
gains (losses) on investments 1.26 2.11 (1.37) (0.53) (0.30)
----------- ----------- ----------- ----------- ----------
Total from investment operations 1.19 2.02 (1.46) (0.61) (0.30)
----------- ----------- ----------- ----------- ----------
Less distributions:
Distributions from net realized gains (0.02) -- -- -- --
----------- ----------- ----------- ----------- ----------
Net asset value, end of period $ 10.82 $ 9.65 $ 7.63 $ 9.09 $ 9.70
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Total return 12.32% 26.47% (16.06%) (6.29%) (3.00%)(4)
<F53>
Supplemental data and ratios:
Net assets, end of period $ 3,944,857 $ 959,209 $ 801,703 $ 1,050,356 $ 10
Ratio of expenses
to average net assets(6)<F55> 1.10% 1.45% 1.50% 1.50% 1.50%(5)
<F54>
Ratio of net investment loss
to average net assets(6)<F55> (0.68%) (1.06%) (1.09%) (0.92%) (1.50%)(5)
<F54>
Portfolio turnover rate(7)<F56> 77.9% 81.8% 55.4% 73.6% 0.0%
(1)<F50> Commencement of operations.
(2)<F51> Calculated using average shares outstanding during the period.
(3)<F52> Amount is less than $0.01.
(4)<F53> Not annualized.
(5)<F54> Annualized.
(6)<F55> Without fees reimbursed, ratios of net expenses to average net assets
for the periods ended December 31, 2004, December 31, 2003, December
31, 2002, December 31, 2001 and December 31, 2000 would have been
1.30%, 1.45%, 1.64%, 2.31% and 3.03%, respectively; and the ratios of
net investment loss to average net assets would have been (0.88%),
(1.06%), (1.23%), (1.73%) and (3.03%), respectively.
(7)<F56> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD SMALLCAP FUND
--------------------------
Institutional Class Shares
June 30, 2004(1)<F57>
through
December 31, 2004
--------------------------
Per Share Data:
Net asset value, beginning of period $ 10.00
-----------
Income from investment operations:
Net investment loss(2)<F58> (0.03)
Net realized and unrealized gains on investments 0.87
-----------
Total from investment operations 0.84
-----------
Net asset value, end of period $ 10.84
-----------
-----------
Total return 8.40%(3)
<F59>
Supplemental data and ratios:
Net assets, end of period $17,331,262
Ratio of expenses to average net assets(5)<F61> 0.95%(4)
<F60>
Ratio of net investment loss
to average net assets(5)<F61> (0.65%)(4)
<F60>
Portfolio turnover rate(6)<F62> 34.7%(3)
<F59>
(1)<F57> Commencement of operations.
(2)<F58> Calculated using average shares outstanding during the period.
(3)<F59> Not annualized.
(4)<F60> Annualized.
(5)<F61> Without fees reimbursed, ratio of net expenses to average net assets
for the period ended December 31, 2004 would have been 1.89%; and the
ratio of net investment loss to average net assets would have been
(1.59%).
(6)<F62> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
FINANCIAL HIGHLIGHTS
BAIRD SMALLCAP FUND
---------------------
Investor Class Shares
June 30, 2004(1)<F63>
through
December 31, 2004
---------------------
Per Share Data:
Net asset value, beginning of period $ 10.00
-----------
Income from investment operations:
Net investment loss(2)<F64> (0.05)
Net realized and unrealized gains on investments 0.88
-----------
Total from investment operations 0.83
-----------
Net asset value, end of period $ 10.83
-----------
-----------
Total return 8.30%(3)
<F65>
Supplemental data and ratios:
Net assets, end of period $ 68,184
Ratio of expenses to average net assets(5)<F67> 1.20%(4)
<F66>
Ratio of net investment loss
to average net assets(5)<F67> (0.90%)(4)
<F66>
Portfolio turnover rate(6)<F68> 34.7%(3)
<F65>
(1)<F63> Commencement of operations.
(2)<F64> Calculated using average shares outstanding during the period.
(3)<F65> Not annualized.
(4)<F66> Annualized.
(5)<F67> Without fees reimbursed, ratio of net expenses to average net assets
for the period ended December 31, 2004 would have been 2.14%; and the
ratio of net investment loss to average net assets would have been
(1.84%).
(6)<F68> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See notes to the financial statements
BAIRD FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2004
1. ORGANIZATION
Baird Funds, Inc. (the "Corporation") was incorporated on June 9, 2000 as a
Wisconsin corporation and is registered as an open-end management company under
the Investment Company Act of 1940, as amended (the "1940 Act"). The
accompanying financial statements include the Baird LargeCap Fund, the Baird
MidCap Fund and the Baird SmallCap Fund (each a "Fund" and collectively the
"Funds"), three of the eight portfolios comprising the Corporation. Pursuant to
the 1940 Act, the Funds are "diversified" series of the Corporation.
The Baird LargeCap Fund commenced operations with the sale of both Institutional
and Investor Class Shares on September 29, 2000. The Baird MidCap Fund commenced
operations with the sale of both Institutional and Investor Class Shares on
December 29, 2000. The Baird SmallCap Fund commenced operations with the sale of
both Institutional and Investor Class Shares on June 30, 2004. The Institutional
Class Shares are not subject to a distribution and service (12b-1) fee, while
the Investor Class Shares are subject to a distribution and service (12b-1) fee
up to 0.25%.
The investment objective of the Baird LargeCap Fund is to seek long-term growth
of capital through investments in equity securities of large-capitalization
companies.
The investment objective of the Baird MidCap Fund is to seek long-term growth of
capital through investments in equity securities of mid-capitalization
companies.
The investment objective of the Baird SmallCap Fund is to seek long-term growth
of capital through investments in equity securities of small-capitalization
companies.
On December 31, 2004, one shareholder related to the investment advisor held
approximately 51% of the Baird LargeCap Fund and one shareholder related to the
investment advisor held 94% of the Baird SmallCap Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America.
a) Investment Valuation - Common stocks that are listed on a securities
exchange are valued at the last quoted sales price. Securities traded on
NASDAQ are valued at the NASDAQ official closing price. Price information
on listed stocks is taken from the exchange where the security is primarily
traded. If such securities were not traded on the valuation date they are
valued at the average of the current bid and asked price. Unlisted equity
securities for which market quotations are readily available are valued at
the latest quoted bid price. Debt securities are valued at the latest bid
price. Investments in open-end mutual funds are valued at the net asset
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by
management in accordance with procedures approved by the Board of
Directors. In determining fair value, the valuation committee takes into
account all relevant factors and available information. Consequently, the
price of the security used by a Fund to calculate its NAV may differ from
quoted or published prices for the same security. Fair value pricing
involves subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could
be realized upon the sale of that security.
b) Foreign Securities - Investing in securities of foreign companies and
foreign governments involves special risks and consideration not typically
associated with investing in U.S. companies and the U.S. government. These
risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
U.S. government.
c) Federal Income Taxes - The Funds intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of their taxable income to their
shareholders in a manner which results in no tax cost to the Funds.
Therefore, no federal income or excise tax provision is recorded.
d) Distributions to Shareholders - Dividends from net investment income are
declared and paid annually. Distributions of net realized gains, if any,
are declared and paid at least annually.
e) Allocation of Income and Expenses - Each Fund in the series is charged for
those expenses directly attributable to the portfolio. Expenses directly
attributable to a class of shares, such as Rule 12b-1 distribution fees,
are charged to that class of shares. Income, expenses, and realized and
unrealized gains and losses are allocated to the classes based on their
respective net assets. Expenses that are not directly attributable to a
Fund are allocated among the Funds in the series in proportion to their
assets.
f) Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g) Other - Investment and shareholder transactions are recorded on trade date.
The Funds determine the gain or loss realized from investment transactions
by comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis. Accounting principles
generally accepted in the United States of America require that permanent
financial reporting and tax differences be reclassified in the capital
accounts.
h) Guarantees and Indemnifications - In the normal course of business, the
Funds enter into contracts with service providers that contain general
indemnification clauses. The Funds' maximum exposure under these
arrangements is unknown and this would involve future claims against the
Funds that have not yet occurred. Based on experience, the Funds would
expect the risk of loss to be remote.
3. CAPITAL SHARE TRANSACTIONS
The following table summarizes the capital share transactions of each Fund:
BAIRD LARGECAP FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
--------------------------- --------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
---------- ---------- ---------- ----------
Shares sold $ 5,204,938 657,907 Shares sold $1,232,442 156,739
Shares issued through Shares issued through
reinvestment of dividends 428,099 52,721 reinvestment of dividends 10,928 1,354
Shares redeemed (3,382,487) (430,488) Shares redeemed (39,313) (5,082)
----------- --------- ---------- -------
Net Increase $ 2,250,550 280,140 Net Increase $1,204,057 153,011
----------- ----------
----------- ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 7,680,659 Beginning of period 81,853
--------- -------
End of period 7,960,799 End of period 234,864
--------- -------
--------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
--------------------------- --------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
---------- ---------- ---------- ----------
Shares sold $ 6,076,762 881,458 Shares sold $ 223,550 31,439
Shares issued through Shares issued through
reinvestment of dividends 183,447 23,855 reinvestment of dividends 548 72
Shares redeemed (5,993,735) (850,433) Shares redeemed (337,220) (50,768)
----------- --------- ---------- -------
Net Increase $ 266,474 54,880 Net Decrease $ (113,122) (19,257)
----------- ----------
----------- ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 7,625,779 Beginning of period 101,110
--------- -------
End of period 7,680,659 End of period 81,853
--------- -------
--------- -------
BAIRD MIDCAP FUND
Year Ended Year Ended
December 31, 2004 December 31, 2004
--------------------------- --------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
---------- ---------- ---------- ----------
Shares sold $53,356,727 5,302,856 Shares sold $3,059,070 299,099
Shares issued through Shares issued through
reinvestment of dividends 142,982 13,214 reinvestment of dividends 6,603 615
Shares redeemed (3,419,077) (337,955) Shares redeemed (354,288) (34,372)
----------- --------- ---------- -------
Net Increase $50,080,632 4,978,115 Net Increase $2,711,385 265,342
----------- ----------
----------- ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 2,946,022 Beginning of period 99,352
--------- -------
End of period 7,924,137 End of period 364,694
--------- -------
--------- -------
Year Ended Year Ended
December 31, 2003 December 31, 2003
--------------------------- --------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
---------- ---------- ---------- ----------
Shares sold $ 5,353,711 631,918 Shares sold $ 111,479 13,783
Shares redeemed (3,627,348) (408,539) Shares redeemed (163,303) (19,470)
----------- --------- ---------- -------
Net Increase $ 1,726,363 223,379 Net Decrease $ (51,824) (5,687)
----------- ----------
----------- ----------
Shares Outstanding: Shares Outstanding:
Beginning of period 2,722,643 Beginning of period 105,039
--------- -------
End of period 2,946,022 End of period 99,352
--------- -------
--------- -------
BAIRD SMALLCAP FUND
June 30, 2004(1)<F69> June 30, 2004(1)<F69>
Through through
December 31, 2004 December 31, 2004
--------------------------- --------------------------
INSTITUTIONAL CLASS SHARES $ Shares INVESTOR CLASS SHARES $ Shares
---------- ---------- ---------- ----------
Shares sold $16,977,724 1,699,415 Shares sold $ 64,485 6,296
Shares redeemed (982,943) (100,945) Shares redeemed -- --
----------- --------- ---------- -------
Net Increase $15,994,781 1,598,470 Net Increase $ 64,485 6,296
----------- ----------
----------- ----------
Shares Outstanding: Shares Outstanding:
Beginning of period -- Beginning of period --
--------- -------
End of period 1,598,470 End of period 6,296
--------- -------
--------- -------
(1)<F69> Commencement of operations.
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION
During the period ended December 31, 2004, purchases and sales of investment
securities (excluding short-term investments) were as follows:
Baird Baird Baird
LargeCap Fund MidCap Fund SmallCap Fund
------------- ----------- -------------
Purchases: $14,805,919 $96,892,536 $20,111,394
Sales: $13,892,744 $45,040,329 $ 4,554,730
At December 31, 2004, accumulated earnings/losses on a tax basis were as
follows:
LARGECAP MIDCAP SMALLCAP
FUND FUND FUND
-------- ------ --------
Cost of Investments $59,865,853 $82,628,748 $16,126,782
----------- ----------- -----------
----------- ----------- -----------
Gross unrealized appreciation 9,615,738 12,085,890 2,038,830
Gross unrealized depreciation (2,787,706) (629,780) (451,647)
----------- ----------- -----------
Net unrealized appreciation/(depreciation) $ 6,828,032 $11,456,110 $ 1,587,183
----------- ----------- -----------
----------- ----------- -----------
Undistributed ordinary income 787 -- --
Undistributed long-term capital gain -- -- --
----------- ----------- -----------
Total distributable earnings $ 787 $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
Other accumulated gains (losses) $(8,601,915) $ (64,219) $ (196,705)
----------- ----------- -----------
Total accumulated earnings/(losses) $(1,773,096) $11,391,891 $ 1,390,478
----------- ----------- -----------
----------- ----------- -----------
Undistributed income or net realized gains for financial statement purposes may
differ from amounts recognized for federal income tax purposes due to
differences in the recognition and characterization of income, expense and
capital gain items.
Under the current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
For the year ended December 31, 2004, the Baird MidCap Fund and the Baird
SmallCap Fund elected to defer capital losses occurring between November 1, 2004
and December 31, 2004 in the amounts of $64,219 and $5,827, respectively.
At December 31, 2004, the Baird LargeCap Fund had accumulated net realized
capital loss carryovers of $1,167,011 that expire in 2012, $3,094,411 that
expire in 2011, $4,188,556 that expire in 2010 and $151,937 that expire in 2009.
At December 31, 2004, the Baird SmallCap Fund had accumulated net realized
capital loss carryover of $190,878 expiring in 2012. To the extent the Funds
realize future net capital gains, taxable distributions to shareholders will be
offset by any unused capital loss carryover.
During the period ended December 31, 2004, the Funds paid the following
dividends:
ORDINARY INCOME DIVIDENDS NET LONG-TERM CAPITAL GAINS
------------------------- ---------------------------
Baird LargeCap Fund 442,557 --
Baird MidCap Fund -- 150,283
Baird SmallCap Fund -- --
During the year ended December 31, 2003, the Funds paid the following
distributions:
ORDINARY INCOME DIVIDENDS NET LONG-TERM CAPITAL GAINS
------------------------- ---------------------------
Baird LargeCap Fund 184,701 --
Baird MidCap Fund -- --
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with Robert W.
Baird & Co. Incorporated (the "Advisor"). Pursuant to the advisory agreement
with the Funds, the Advisor is entitled to receive a fee, calculated daily and
payable monthly, at the annual rate of 0.65% for the Baird LargeCap Fund, 0.75%
for the Baird MidCap Fund and 0.85% for the Baird SmallCap Fund as applied to
the respective Fund's average daily net assets. Certain officers of the Advisor
are also officers of the Funds.
For the year ended December 31, 2004 and through December 31, 2005, the Advisor
has agreed to waive its investment advisory fee and/or reimburse the Funds'
operating expenses (exclusive of brokerage, interest, taxes, and extraordinary
expenses) to the extent necessary to ensure that each Fund's operating expenses
do not exceed the following amounts:
INSTITUTIONAL CLASS SHARES INVESTOR CLASS SHARES
-------------------------- ---------------------
Baird LargeCap Fund 0.75% 1.00%
Baird MidCap Fund 0.85% 1.10%
Baird SmallCap Fund 0.95% 1.20%
To the extent that the Advisor reimburses or absorbs fees and expenses, it may
seek payment of such amounts for three years after the year in which expenses
were reimbursed or absorbed. A Fund will make no such payment, however, if the
total annual Fund operating expenses exceed the expense limits in effect at the
time the expenses were reimbursed or at the time these payments are proposed.
December 31,
-----------------------------
YEAR ENDED: 2004 2003 2002
REIMBURSED / ABSORBED EXPENSES SUBJECT
TO RECOVERY BY ADVISOR UNTIL: 2007 2006 2005
BAIRD LARGECAP FUND $114,127 $108,138 $91,116
BAIRD MIDCAP FUND $116,179 $ 1,122 $21,503
BAIRD SMALLCAP FUND $ 72,320 -- --
U.S. Bancorp Fund Services, LLC serves as transfer agent, administrator, and
accounting services agent for the Funds. U.S. Bank, N.A. serves as custodian
for the Funds.
Robert W. Baird & Co. Incorporated (the "Distributor") is the sole distributor
of the Funds pursuant to a distribution agreement.
No commissions were earned by the Distributor for services rendered as a
registered broker-dealer in securities transactions for the Baird LargeCap Fund,
Baird MidCap Fund and Baird SmallCap Fund for the period ended December 31,
2004.
6. DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
The Funds have adopted a distribution and shareholder service plan (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended. The
Plan allows the Funds to compensate the Distributor for a portion of the costs
incurred in distributing the Funds' Investor Class Shares, including amounts
paid to brokers or dealers, at an annual rate not to exceed 0.25% of the average
daily net assets of the Funds' Investor Class Shares. The Baird LargeCap Fund,
Baird MidCap Fund and Baird SmallCap Fund incurred $1,982, $3,957 and $24,
respectively, in fees pursuant to the Plan for the period ended December 31,
2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Baird Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Baird LargeCap Fund, Baird MidCap
Fund and Baird SmallCap Fund (three of the portfolios constituting Baird Funds,
Inc., hereafter referred to as the "Funds") at December 31, 2004, and the
results of each of their operations, the changes in each of their net assets and
the financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
February 22, 2005
BAIRD FUNDS, INC.
DIRECTORS & OFFICERS AS OF DECEMBER 31, 2004
Term of Number of
Position(s) Office Portfolios Other
Held with and Length Principal in Complex Directorships
the Of Time Occupation(s) Overseen Held
Name, Address, and Age Corporation Served During Past 5 Years by Director by Director
- ---------------------- ----------- ---------- ------------------- ----------- -----------
G. Frederick Kasten, Jr. *<F70> Director Indefinite; Chairman, the Advisor since January 2000; 8 Director of
777 East Wisconsin Avenue And Since Chairman & CEO, the Advisor (January 1998- Regal-Beloit
Milwaukee, WI 53202 Chairman September January 2000); President, Chairman and Corporation, a
Age: 65 2000 CEO, the Advisor (June 1983-January 1998); manufacturing
President, the Advisor (January 1979- company
January 1983)
John W. Feldt Independent Indefinite; Senior Vice President-Finance, University 8 Director of
University of Director Since of Wisconsin Foundation since 1985; Vice Thompson
Wisconsin Foundation September President-Finance, University of Wisconsin Plumb Funds,
1848 University Avenue 2000 Foundation (1980-1985); Associate Director, a mutual fund
Madison, WI 53705 University of Wisconsin Foundation complex of
Age: 62 (1967-1980) which Mr.
Feldt oversees
4 portfolios
George C. Kaiser Independent Indefinite; CEO, George Kaiser & Co., a business
759 N. Milwaukee Street Director Since consulting company, since 1999; Chairman 8 None
Milwaukee, WI 53202 September and CEO, Hanger Tight Company, a manufacturing
Age: 71 2000 company (1988-1999); Chairman and CEO, Interstore
Transfer Systems, Ltd., a manufacturing company
(1992-1999); Chairman, International Retail
Services Group, Ltd. (1995-1999); Executive
Vice President, Arandell Schmidt Co., a
catalog printer company (1984-1987); various
positions Arthur Andersen & Co. (1957-1964,
1967-1984), most recently serving as Partner
(1969-1984); Secretary of Administration, State
of Wisconsin (1965-1967)
Frederick P. Stratton, Jr. Independent Indefinite; Chairman Emeritus, Briggs & Stratton 8 Director of
777 East Wisconsin Avenue Director Since May Corporation, a manufacturing company, since Midwest Air
Suite 1400 2004 2003; Chairman, Briggs & Stratton Corporation Group, Inc.,
Milwaukee, WI 53202 (2001-2002); Chairman and CEO, an airline
Age: 65 Briggs & Stratton Corporation (1986-2001) company;
Weyco Group,
Inc., a men's
footwear
distributor;
Wisconsin
Energy
Corporation
and its
subsidiaries
Wisconsin
Electric
Company and
Wisconsin Gas
Company
Mary Ellen Stanek President Indefinite; Managing Director, the Advisor, and Chief N/A N/A
777 East Wisconsin Avenue Since Investment Officer, Baird Advisors, a
Milwaukee, WI 53202 September department of the Advisor, since March 2000;
Age: 48 2000 President and CEO, Firstar Investment Research
& Management Company, LLC ("FIRMCO") (November
1998-February 2000); President, Firstar Funds,
Inc. (December 1998-March 2000); President and
Chief Operating Officer, FIRMCO (March 1994-
November 1998)
J. Bary Morgan Senior Vice Indefinite; Chief Investment Officer, Baird Investment N/A N/A
777 East Wisconsin Avenue President Since Management, a department of the Advisor,
Milwaukee, WI 53202 February since January 2004; Managing Director, the
Age: 39 2003 Advisor since January 2001; Director, Baird
Investment Management (January 2001-January
2004); Senior Vice President, the Advisor
(January 2000-January 2001); First Vice
President, the Advisor (January 1996-
January 2000)
Todd S. Nichol Vice Indefinite; Chief Compliance Officer, the Advisor N/A N/A
777 East Wisconsin Avenue President Since since October 2004; Assistant Compliance
Milwaukee, WI 53202 and August Director, the Advisor since August 2002;
Age: 42 Chief 2004 Senior Vice President, the Advisor since
Compliance January 2005; First Vice President, the
Officer Advisor (January 2004-January 2005):
Vice President, the Advisor (August 2002-
January 2004); Vice President-Risk
Management; BNY Clearing Services, LLC,
a division of The Bank of New York
(August 1995-August 2002)
Russell P. Schwei Vice Indefinite; Operations Director, the Advisor since N/A N/A
777 East Wisconsin Avenue President Since July 1992; Chief Financial Officer and
Milwaukee, WI 53202 September Managing Director, the Advisor (February
Age: 45 2000 1999-December 1999); Managing Director,
the Advisor since January 1997
Leonard M. Rush Treasurer Indefinite; Chief Financial Officer, the Advisor N/A N/A
777 East Wisconsin Avenue Since since January 2000
Milwaukee, WI 53202 September
Age: 58 2000
Brett R. Meili Secretary Indefinite; Associate General Counsel, the Advisor N/A N/A
777 East Wisconsin Avenue Since since April 1999; Senior Counsel, Strong
Milwaukee, WI 53202 September Capital Management, Inc, a mutual fund
Age: 42 2000 company (January 1996-April 1999)
*<F70> Mr. Kasten is an "interested person" of the Corporation (as defined in
the 1940 Act) because he serves as the Chairman of the Advisor.
Additional information about the Funds' directors is available in the Statement
of Additional Information which may be obtained without charge, upon request, by
calling 1-866-44BAIRD.
PROXY VOTING
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds'
website at http://www.bairdfunds.com; and by accessing the SEC's website at
http://www.sec.gov.
Each Fund's proxy voting record, if applicable, is available without charge,
upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds'
website at http://www.bairdfunds.com; and by accessing the SEC's website at
http://www.sec.gov.
PORTFOLIO HOLDINGS DISCLOSURE
The Funds file a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q
are available on the SEC 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 Public Reference Room may be obtained by calling
1-888-732-0330.
ADDITIONAL TAX INFORMATION
The Baird LargeCap Fund designates 100% of dividends declared from net
investment income as qualified dividend income under the Jobs Growth and Tax
Relief Reconciliation Act of 2003. Additionally, 100% of the dividends paid by
the Baird LargeCap Fund qualify for the dividend received deduction.
BAIRD FUNDS, INC.
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-866-44BAIRD
BOARD OF DIRECTORS
G. Frederick Kasten, Jr. (Chairman)
John W. Feldt
George C. Kaiser
Frederick P. Stratton, Jr.
INVESTMENT ADVISOR
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND - DISBURSING AGENT
U.S. Bancorp Fund Services, LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
DISTRIBUTOR
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ITEM 2. CODE OF ETHICS.
- -----------------------
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer and principal financial officer. The Registrant has
not made any amendments to its code of ethics during the period covered by this
report. The Registrant has not granted any waivers from any provisions of the
code of ethics during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
The Registrant's board of directors has determined that John W. Feldt and
Frederick P. Stratton, Jr., members of the audit committee, each qualify as an
"audit committee financial expert" as such term is defined in paragraph (b) of
Item 3 of Form N-CSR. Mr. Feldt and Mr. Stratton are each "independent" as such
term is defined in paragraph (a)(2) of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Fees Billed by PricewaterhouseCoopers LLP. The aggregate fees billed for
professional services by PricewaterhouseCoopers LLP ("PWC") during fiscal 2004
and fiscal 2003 were:
FYE FYE
--- ---
Type of Fees 12/31/04 12/31/03
Audit Fees $ 93,370 $ 72,000
Audit-Related Fees -- --
Tax Fees 32,230 18,900
All Other Fees -- --
In the above table, "audit fees" are fees billed for professional services for
the audit of the Registrant's annual financial statements or for services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements. "Tax fees" are fees billed for professional
services rendered by PWC for tax compliance, tax advice and tax planning.
The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit services of
the Registrant, including services provided to any entity affiliated with the
Registrant with respect to any engagement that directly relates to the
operations and financial reporting of the Registrant. In accordance with its
pre-approval policies and procedures, the audit committee pre-approved all audit
and tax services provided by PWC during fiscal 2004. During the last two fiscal
years, there were no non-audit services rendered by PWC to Registrant's
investment adviser or any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
Registrant. All of PWC's hours spent on auditing the Registrant's financial
statements were attributed to work performed by full-time permanent employees of
PWC.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
- ------------------------------------------------------------------------
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- ---------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act")) as of a date within 90 days prior to the filing date of this Form
N-CSR, the Registrant's President and Treasurer have concluded that the
disclosure controls and procedures are effective.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
- -----------------
(a) (1) Code of ethics. Incorporated by reference to the Registrant's Form N-
CSR filed on March 9, 2004.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Baird Funds, Inc.
By: /s/ Mary Ellen Stanek
----------------------------
Mary Ellen Stanek, President
Date: May 26, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Mary Ellen Stanek
----------------------------
Mary Ellen Stanek, President
Date: May 26, 2005
By: /s/ Leonard Rush
------------------------
Leonard Rush, Treasurer
Date: May 26, 2005