N-CSR 1 ncsr.txt BAIRD NCSR As filed with the Securities and Exchange Commission on September 5, 2003 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) Brett R. Meili -------------- Robert W. Baird 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: 12/31/03 -------- Date of reporting period: 6/30/03 ------- Item 1. Report to Stockholders. BAIRD/ FUNDS SEMI-ANNUAL REPORT ------------------------------------- June 30, 2003 Baird Intermediate Bond Fund Baird Aggregate Bond Fund Baird Intermediate Municipal Bond Fund Baird Core Plus Bond Fund Table of Contents 2003 Bond Market Overview .....................................................2 Baird Intermediate Bond Fund ..................................................3 Baird Aggregate Bond Fund.....................................................12 Baird Intermediate Municipal Bond Fund .......................................20 Baird Core Plus Bond Fund ....................................................24 Statements of Assets and Liabilities .........................................30 Statements of Operations .....................................................31 Statements of Changes in Net Assets ..........................................32 Financial Highlights .........................................................36 Notes to the Financial Statements ............................................44 This report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus. Bond Market Overview - 1st Half of 2003 -------------------------------------------------------------------------------- Yields March Lower For the first half of 2003, yields marched lower across the yield curve by 20-30 basis points, touching 50-year lows and generating solid positive returns for all sectors of the bond market (see table at bottom of page). Two-year Treasury yields fell 30 basis points while 30-year yields fell 20 basis points, causing a steep Treasury yield curve to steepen further (see chart and table below). The difference between the 2-year T-note and 30-year T-bond yields increased to 326 basis points from 316 basis points at year-end. Treasury Yields (source: Bloomberg) [LINE GRAPH] Maturity Dec 31, 2002 Jun 30, 2003 6 mo. change -------- ------------ ------------ ------------ 1 1.22% 1.04% -0.18 2 1.60% 1.30% -0.30 3 1.96% 1.59% -0.37 5 2.73% 2.41% -0.32 7 3.38% 3.05% -0.33 10 3.81% 3.51% -0.30 15 4.51% 4.05% -0.46 20 4.83% 4.52% -0.31 25 4.93% 4.64% -0.29 30 4.76% 4.56% -0.20 Maturity Corporate Bonds Lead Yield spreads on corporate bonds continued to tighten during the first half of the year (see below, left), making corporates the top performing investment grade sector so far in 2003 with a return of +7.72% (see table at bottom). Lower rated bonds outpaced higher rated issues with BBB's returning 10.16% and AAA's returning just 4.17%. High yield bonds beat all other sectors returning an impressive 18.49% for the first six months. U.S. Corporate Bonds Historical Spreads -------------------- [CHART] Date All AA 10 Yr All A 10 Yr All BBB 10 Yr All BB 10 Yr 5/31/94 42.60 65.84 100.44 261.35 6/30/94 39.84 62.06 94.31 259.25 7/29/94 39.88 57.92 90.36 257.04 8/31/94 41.84 60.39 89.93 256.31 9/30/94 39.77 60.41 88.90 233.32 10/31/94 43.92 63.81 91.40 228.22 11/30/94 44.57 67.41 94.28 246.23 12/30/94 46.23 66.57 95.26 239.64 1/31/95 48.32 69.65 97.80 247.34 2/28/95 48.53 67.72 98.22 229.87 3/31/95 46.45 63.71 94.46 216.60 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 60.10 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 96.60 232.86 12/29/95 51.46 69.12 95.10 234.25 1/31/96 49.37 68.70 95.78 226.45 2/29/96 46.83 62.70 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 62.00 85.21 203.20 7/31/96 48.02 62.45 85.13 204.76 8/30/96 45.94 58.80 82.51 189.74 9/30/96 45.09 58.29 81.19 182.60 10/31/96 46.13 56.80 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 72.30 146.47 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 45.90 55.94 75.49 143.25 6/30/97 45.78 56.10 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 91.18 160.10 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 80.28 101.73 178.50 2/13/98 56.49 72.56 96.20 185.82 2/27/98 54.60 71.05 94.95 180.57 3/13/98 54.60 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 70.20 93.49 191.21 5/15/98 54.13 70.31 93.75 190.50 5/29/98 52.08 69.13 91.80 195.67 6/15/98 62.47 77.92 102.74 207.07 6/30/98 63.80 78.87 102.49 211.93 7/15/98 61.83 77.01 101.88 201.59 7/31/98 68.99 83.34 109.20 207.67 8/14/98 78.10 92.74 123.13 223.33 8/31/98 106.67 122.81 166.98 308.10 9/15/98 99.49 120.70 164.54 313.06 9/30/98 100.90 124.58 168.31 323.97 10/15/98 120.17 140.55 189.64 318.92 10/30/98 122.06 144.18 196.83 355.33 11/13/98 107.21 128.69 182.63 341.30 11/30/98 96.75 116.99 174.12 307.85 12/15/98 102.50 123.29 181.28 313.12 12/30/98 94.80 116.78 175.01 305.17 1/15/99 80.43 103.49 163.47 303.95 1/29/99 81.53 104.98 165.76 303.90 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 75.20 90.93 141.75 304.02 3/31/99 77.04 91.84 135.96 293.63 4/15/99 76.64 91.40 134.25 295.70 4/30/99 77.90 91.84 133.93 261.58 5/14/99 76.43 89.39 126.74 257.93 5/28/99 85.50 97.81 136.19 276.34 6/15/99 93.56 104.42 139.50 277.86 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 8/13/99 109.80 125.01 159.69 296.15 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 83.56 102.47 140.27 304.70 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 98.83 134.42 294.30 12/31/99 84.45 99.99 134.17 289.47 1/14/00 92.53 105.88 138.37 298.43 1/31/00 98.37 113.69 142.53 304.60 2/15/00 108.73 119.70 149.71 310.66 2/29/00 112.33 124.85 155.38 332.69 3/15/00 126.78 139.93 177.85 340.25 3/31/00 136.13 152.42 191.18 391.39 4/14/00 137.89 154.88 198.98 401.44 4/28/00 138.54 157.32 207.77 402.14 5/15/00 151.33 169.08 218.96 375.05 5/31/00 154.74 168.10 215.34 408.15 6/15/00 140.07 156.61 193.06 379.40 6/30/00 149.90 163.89 197.05 370.52 7/14/00 147.48 161.69 193.68 356.75 7/31/00 153.01 166.65 198.18 350.95 8/15/00 155.89 167.81 198.85 346.74 8/31/00 156.88 171.34 205.44 340.55 9/15/00 142.85 164.38 203.71 323.34 9/29/00 137.74 163.53 202.07 348.26 10/13/00 155.92 185.84 221.21 352.94 10/31/00 151.99 184.21 227.22 375.11 11/15/00 151.12 186.44 231.19 428.19 11/30/00 168.69 202.21 244.56 375.58 12/15/00 161.42 198.42 245.44 395.84 12/29/00 163.11 203.03 248.07 375.01 1/12/01 146.48 183.73 228.35 358.98 1/31/01 133.30 165.27 221.35 341.39 2/15/01 139.43 168.75 222.52 329.01 2/28/01 135.20 167.74 220.50 342.29 3/15/01 140.32 169.15 225.50 341.91 3/30/01 134.65 161.88 218.31 368.04 4/12/01 136.30 166.73 223.57 354.35 4/30/01 121.25 152.73 204.30 338.23 5/15/01 122.64 153.79 204.45 332.98 5/31/01 115.31 144.45 194.62 343.74 6/15/01 115.47 143.88 191.38 342.70 6/29/01 116.12 142.03 196.18 370.97 7/13/01 118.61 143.73 196.99 380.56 7/31/01 116.33 141.90 192.89 393.14 8/15/01 114.93 139.31 195.69 372.16 8/31/01 115.08 141.05 197.31 391.53 9/28/01 136.81 167.98 226.91 534.76 10/15/01 128.06 163.83 218.14 525.98 10/31/01 128.12 166.92 233.09 528.03 11/15/01 111.36 154.50 219.75 443.47 11/30/01 99.51 142.03 211.86 406.29 12/14/01 97.81 144.37 216.90 354.56 12/31/01 91.59 142.12 208.50 378.69 1/2/02 87.96 139.55 201.35 367.82 1/3/02 88.14 137.39 200.63 371.49 1/4/02 88.42 138.79 200.92 366.87 1/7/02 89.90 140.47 199.96 375.11 1/8/02 90.04 140.99 199.92 375.32 1/9/02 90.64 139.22 198.53 375.07 1/10/02 91.69 139.79 200.23 382.28 1/11/02 93.99 141.90 203.95 386.62 1/14/02 90.96 141.25 203.28 374.73 1/15/02 91.53 137.97 201.59 374.70 1/16/02 93.67 138.78 203.01 372.53 1/17/02 93.21 139.41 205.14 367.17 1/18/02 93.69 138.88 205.81 369.93 1/22/02 92.10 136.89 204.04 364.70 1/23/02 92.05 134.28 204.32 360.70 1/24/02 90.69 132.47 204.29 360.88 1/25/02 92.57 133.27 205.53 361.29 1/28/02 92.07 133.05 205.88 361.70 1/29/02 96.98 135.70 207.85 368.97 1/30/02 96.63 135.63 207.12 369.11 1/31/02 94.09 136.13 207.70 364.26 2/1/02 95.81 138.38 210.09 366.79 2/4/02 97.03 139.39 210.72 373.91 2/5/02 102.43 145.32 215.70 375.43 2/6/02 103.13 146.25 217.81 371.02 2/7/02 102.04 144.96 216.40 374.77 2/8/02 100.35 142.83 215.71 377.83 2/11/02 100.93 143.95 215.94 376.03 2/12/02 97.39 139.79 210.26 369.66 2/13/02 92.42 137.52 209.14 368.39 2/14/02 94.61 138.43 209.70 372.80 2/15/02 93.10 133.28 203.51 377.01 2/19/02 93.56 133.99 204.00 377.45 2/20/02 93.03 135.24 204.21 380.02 2/21/02 94.17 135.41 205.81 380.64 2/22/02 93.88 135.12 205.52 385.41 2/25/02 92.88 132.96 206.53 381.68 2/26/02 90.78 130.82 203.81 374.60 2/27/02 90.20 130.12 203.19 377.77 2/28/02 91.45 130.10 202.17 365.55 3/1/02 89.42 128.97 200.87 360.29 3/4/02 89.18 129.85 201.77 359.37 3/5/02 88.17 125.69 199.69 361.20 3/6/02 87.03 124.76 199.87 356.85 3/7/02 84.56 122.03 196.69 340.37 3/8/02 82.42 118.84 193.19 329.73 3/11/02 82.61 117.77 193.46 330.15 3/12/02 83.67 118.84 193.94 329.08 3/13/02 83.87 119.65 194.50 329.75 3/14/02 83.42 118.87 193.54 319.98 3/15/02 87.29 122.57 193.10 310.38 3/18/02 87.45 122.02 194.24 312.97 3/19/02 87.14 121.21 193.21 307.88 3/20/02 86.30 120.41 193.11 305.39 3/21/02 86.72 120.44 194.18 307.47 3/22/02 86.29 120.81 192.69 306.44 3/25/02 87.72 122.29 193.70 306.35 3/26/02 89.88 123.06 194.94 310.46 3/27/02 90.41 123.74 195.23 306.82 3/28/02 94.00 125.84 194.32 308.39 4/1/02 92.80 126.02 194.27 318.25 4/2/02 93.96 126.87 194.25 326.87 4/3/02 94.47 127.26 194.50 324.73 4/4/02 94.23 126.99 193.68 326.02 4/5/02 95.08 127.72 194.19 331.65 4/8/02 95.50 128.05 194.10 331.75 4/9/02 95.55 126.89 194.72 333.74 4/10/02 95.55 126.71 194.95 331.08 4/11/02 96.19 127.87 195.92 333.54 4/12/02 98.88 129.79 199.42 334.68 4/15/02 96.68 127.40 193.91 339.99 4/16/02 96.42 126.05 192.77 336.63 4/17/02 95.65 124.35 190.68 331.93 4/18/02 94.55 123.65 190.11 332.23 4/19/02 94.34 122.32 188.70 335.73 4/22/02 94.29 122.95 192.30 338.07 4/23/02 93.17 123.23 192.21 339.05 4/24/02 92.74 121.28 199.69 347.44 4/25/02 94.18 121.16 195.87 351.03 4/26/02 95.51 122.51 196.64 350.57 4/29/02 98.98 123.56 203.96 342.02 4/30/02 102.70 126.39 205.91 345.98 5/1/02 103.57 127.17 209.32 341.47 5/2/02 101.96 125.78 205.89 328.71 5/3/02 102.37 126.63 205.97 330.13 5/6/02 101.24 127.27 210.95 328.65 5/7/02 102.36 127.93 213.46 324.02 5/8/02 99.35 125.39 209.02 308.78 5/9/02 98.87 125.34 206.10 318.81 5/10/02 99.25 126.05 200.64 342.80 5/13/02 98.30 126.74 205.84 333.16 5/14/02 95.23 123.54 202.24 320.41 5/15/02 97.76 122.76 195.90 335.09 5/16/02 97.06 121.95 195.87 340.47 5/17/02 90.80 116.01 189.32 334.07 5/20/02 94.67 121.17 196.32 338.72 5/21/02 94.50 120.10 195.22 343.94 5/22/02 95.53 120.21 192.08 347.48 5/23/02 94.57 118.87 186.90 344.09 5/24/02 95.26 119.06 185.74 345.71 5/28/02 94.99 118.28 183.11 345.25 5/29/02 95.85 117.41 181.64 350.29 5/30/02 95.69 115.97 184.12 354.20 5/31/02 89.31 111.71 181.63 366.12 6/3/02 89.04 110.65 181.27 368.73 6/4/02 89.39 110.57 182.53 371.58 6/5/02 89.73 111.06 182.52 368.57 6/6/02 90.03 110.51 182.23 373.47 6/7/02 90.90 112.87 186.78 369.10 6/10/02 90.04 112.96 186.48 371.66 6/11/02 89.95 112.42 186.91 376.57 6/12/02 90.42 112.72 191.61 377.96 6/13/02 91.14 112.83 192.88 377.07 6/14/02 90.32 111.21 186.05 391.03 6/17/02 89.41 110.22 183.96 385.84 6/18/02 90.61 111.73 187.34 388.40 6/19/02 90.32 111.22 186.27 398.06 6/20/02 89.71 111.70 187.54 390.51 6/21/02 90.15 113.24 188.59 375.88 6/24/02 92.21 115.66 192.35 374.38 6/25/02 92.64 115.22 190.59 379.69 6/26/02 93.87 115.19 194.08 393.33 6/27/02 92.91 115.10 195.95 386.80 6/28/02 96.20 114.73 192.20 418.72 7/1/02 96.76 115.78 195.64 418.72 7/2/02 97.71 117.81 199.75 425.67 7/3/02 98.68 119.04 201.20 430.32 7/5/02 97.53 118.18 199.47 419.88 7/8/02 98.11 118.35 199.31 426.93 7/9/02 98.16 117.56 199.37 436.64 7/10/02 98.95 119.33 200.22 448.94 7/11/02 100.29 120.04 204.03 435.62 7/12/02 100.74 120.31 201.29 445.30 7/15/02 103.23 124.21 203.99 464.20 7/16/02 103.71 125.24 204.94 454.19 7/17/02 102.11 124.69 205.67 461.54 7/18/02 101.99 125.43 207.72 467.26 7/19/02 102.37 127.71 217.12 473.14 7/22/02 107.93 130.07 227.66 481.77 7/23/02 112.36 130.93 229.86 482.64 7/24/02 114.08 132.88 253.63 498.04 7/25/02 114.55 133.42 242.80 492.41 7/26/02 117.65 135.22 247.70 506.97 7/29/02 118.38 137.61 248.02 476.62 7/30/02 113.13 135.92 233.24 496.48 7/31/02 125.52 141.56 230.52 525.42 8/1/02 123.22 140.88 228.41 521.04 8/2/02 122.15 141.45 231.67 540.50 8/5/02 129.91 148.05 241.05 563.33 8/6/02 126.89 146.03 237.66 547.31 8/7/02 123.59 146.15 237.87 552.74 8/8/02 126.31 145.84 235.27 544.90 8/9/02 123.64 145.31 237.52 557.14 8/12/02 121.81 146.09 240.63 554.00 8/13/02 124.28 146.06 243.52 562.98 8/14/02 123.62 147.07 241.80 578.55 8/15/02 133.23 152.25 242.28 576.33 8/16/02 128.78 151.89 243.29 560.89 8/19/02 128.29 151.77 240.68 561.72 8/20/02 126.48 148.00 236.48 570.97 8/21/02 123.56 147.75 232.34 558.45 8/22/02 120.79 146.93 228.25 547.08 8/23/02 120.95 148.75 228.61 550.13 8/26/02 115.56 147.31 228.03 551.14 8/27/02 112.37 146.28 226.31 526.85 8/28/02 114.46 145.60 225.86 552.60 8/29/02 114.99 146.26 226.50 564.69 8/30/02 113.68 145.75 226.32 533.43 9/3/02 116.21 147.49 231.67 549.91 9/4/02 117.90 147.72 232.04 555.70 9/5/02 118.31 148.50 233.34 562.46 9/6/02 115.83 147.87 232.30 552.92 9/9/02 117.20 147.26 232.48 553.33 9/10/02 118.07 144.93 228.93 558.09 9/11/02 117.66 144.52 228.38 549.72 9/12/02 118.80 143.15 228.44 551.49 9/13/02 119.75 143.11 226.19 565.92 9/16/02 119.52 142.77 225.42 568.62 9/17/02 118.83 143.24 225.28 569.82 9/18/02 119.68 143.48 225.92 569.37 9/19/02 122.48 144.35 225.98 577.22 9/20/02 124.15 146.50 227.15 579.40 9/23/02 126.78 149.62 237.43 596.64 9/24/02 127.30 152.48 246.80 611.45 9/25/02 126.48 150.42 244.22 601.05 9/26/02 124.83 150.11 245.57 583.81 9/27/02 127.18 149.17 244.59 629.45 9/30/02 128.29 147.50 250.10 644.17 10/1/02 126.56 145.42 248.03 636.50 10/2/02 123.52 143.75 241.63 643.91 10/3/02 123.52 143.90 243.22 645.99 10/4/02 125.65 146.40 247.92 644.91 10/7/02 126.15 152.89 261.92 656.41 10/8/02 128.95 155.74 280.63 659.52 10/9/02 133.01 158.53 291.50 659.44 10/10/02 133.18 161.74 294.66 655.37 10/11/02 128.91 158.41 288.24 659.44 10/15/02 120.74 152.95 270.07 638.10 10/16/02 120.28 152.40 268.35 634.67 10/17/02 118.90 151.74 267.62 626.76 10/18/02 116.40 151.18 269.18 622.13 10/21/02 115.28 148.17 264.81 614.49 10/22/02 114.46 147.49 262.96 615.22 10/23/02 114.85 146.96 263.11 612.39 10/24/02 114.67 145.91 261.58 617.79 10/25/02 115.53 148.22 261.81 623.78 10/28/02 111.70 146.82 258.33 623.15 10/29/02 109.99 146.68 257.69 641.77 10/30/02 110.20 145.36 253.39 621.69 10/31/02 110.27 146.98 256.20 624.79 11/1/02 111.44 147.80 257.81 624.40 11/4/02 107.38 141.80 250.14 615.37 11/5/02 103.95 139.29 247.09 615.71 11/6/02 99.98 134.91 243.38 616.21 11/7/02 98.14 132.30 242.28 613.74 11/8/02 98.77 133.78 245.16 617.85 11/12/02 103.72 136.64 250.16 619.33 11/13/02 103.11 137.18 252.62 616.16 11/14/02 101.79 133.67 244.01 580.43 11/15/02 97.46 134.15 236.72 571.18 11/18/02 96.15 133.73 236.17 572.68 11/19/02 96.31 133.34 235.38 572.99 11/20/02 93.09 131.91 231.05 558.08 11/21/02 90.98 130.23 223.25 543.31 11/22/02 90.23 130.25 223.24 538.71 11/25/02 90.90 130.75 222.60 539.76 11/26/02 91.64 130.34 223.16 546.96 11/27/02 90.64 128.00 213.15 488.49 11/29/02 90.69 122.59 208.07 436.48 12/2/02 89.16 120.14 206.06 506.99 12/3/02 90.39 120.00 205.73 503.79 12/4/02 90.18 120.90 207.92 509.54 12/5/02 92.37 121.17 209.10 513.84 12/6/02 96.95 123.62 213.13 521.44 12/9/02 97.28 124.50 214.12 531.33 12/10/02 98.21 126.37 216.10 531.83 12/11/02 99.17 126.13 216.32 537.91 12/12/02 99.99 125.02 215.30 532.20 12/13/02 95.64 120.28 207.13 525.63 12/16/02 94.80 117.08 204.19 518.89 12/17/02 92.14 116.89 202.83 521.65 12/18/02 92.81 117.18 203.24 525.90 12/19/02 90.39 118.10 204.96 533.06 12/20/02 91.63 117.72 205.42 532.55 12/23/02 91.53 117.01 205.26 544.31 12/24/02 92.52 118.04 206.94 538.91 12/26/02 93.09 117.82 208.41 540.03 12/27/02 90.91 117.85 209.31 552.03 12/30/02 91.18 117.77 212.02 548.44 12/31/02 93.04 116.97 204.11 550.26 1/2/03 90.53 114.02 197.44 527.54 1/3/03 90.92 114.20 197.42 527.30 1/6/03 89.55 112.82 194.05 521.67 1/7/03 88.31 111.53 192.93 522.44 1/8/03 88.73 112.02 193.55 524.58 1/9/03 87.10 112.15 193.20 500.93 1/10/03 86.84 112.53 192.85 498.74 1/13/03 85.65 112.78 187.88 497.58 1/14/03 85.15 111.32 187.85 481.39 1/15/03 85.42 109.71 189.80 478.48 1/16/03 85.40 109.38 191.33 478.94 1/17/03 85.97 110.14 192.20 484.15 1/21/03 88.60 111.14 194.80 489.26 1/22/03 91.47 111.97 198.07 496.53 1/23/03 90.92 111.41 196.89 493.33 1/24/03 91.47 111.73 196.97 503.04 1/27/03 90.90 112.86 198.17 503.44 1/28/03 90.57 112.79 197.81 501.39 1/29/03 89.90 112.64 195.47 447.24 1/30/03 88.99 111.68 194.26 479.65 1/31/03 86.56 107.37 187.04 522.64 2/3/03 84.27 107.01 183.97 520.28 2/4/03 84.00 106.94 184.40 523.52 2/5/03 82.69 106.05 182.51 515.16 2/6/03 82.29 105.63 180.75 524.39 2/7/03 81.23 106.48 179.49 526.63 2/10/03 81.75 106.47 179.34 522.31 2/11/03 81.41 106.20 179.08 522.57 2/12/03 82.73 107.50 179.95 534.98 2/13/03 82.78 107.92 181.24 505.95 2/14/03 87.84 107.83 181.91 507.98 2/18/03 87.57 107.97 183.12 509.54 2/19/03 88.07 108.04 183.62 514.73 2/20/03 86.24 108.10 184.46 517.70 2/21/03 87.54 107.91 184.93 511.50 2/24/03 85.73 108.11 185.15 517.53 2/25/03 87.77 106.40 185.35 512.19 2/26/03 86.24 105.91 186.49 517.50 2/27/03 85.23 105.61 186.21 514.10 2/28/03 87.52 106.10 180.16 513.25 3/3/03 84.81 106.39 179.35 511.16 3/4/03 85.48 107.02 180.50 510.31 3/5/03 87.20 109.00 182.67 514.68 3/6/03 86.43 109.29 184.33 507.34 3/7/03 87.07 109.93 186.11 504.76 3/10/03 88.32 110.48 187.05 509.61 3/11/03 86.36 111.54 187.44 513.79 3/12/03 86.72 109.93 187.34 514.00 3/13/03 86.34 108.52 184.98 497.86 3/14/03 83.18 107.93 181.64 486.99 3/17/03 83.78 108.06 180.62 478.33 3/18/03 81.17 106.94 179.90 469.21 3/19/03 80.53 106.79 179.31 466.25 3/20/03 80.49 107.60 178.14 460.77 3/21/03 80.05 107.12 177.35 453.50 3/24/03 79.78 106.57 177.49 451.84 3/25/03 80.49 106.00 176.55 451.29 3/26/03 77.43 105.26 173.65 453.48 3/27/03 77.66 105.73 173.84 438.72 3/28/03 76.11 106.42 173.83 443.28 3/31/03 74.42 105.03 171.35 432.81 4/1/03 74.67 104.95 172.55 430.61 4/2/03 74.12 104.62 171.37 420.27 4/3/03 73.70 104.61 170.24 419.98 4/4/03 74.78 104.77 170.42 412.63 4/7/03 73.10 102.94 169.42 409.08 4/8/03 72.13 102.41 170.63 417.39 4/9/03 73.32 102.57 170.76 418.86 4/10/03 73.34 102.98 170.67 415.81 4/11/03 73.31 102.71 170.50 397.98 4/14/03 70.84 100.30 168.03 386.24 4/15/03 72.02 99.79 162.85 385.40 4/16/03 72.92 99.68 161.26 390.87 4/17/03 72.63 101.45 161.22 390.23 4/21/03 71.31 98.02 158.89 388.78 4/22/03 71.10 97.70 157.47 391.55 4/23/03 70.65 95.58 154.55 390.95 4/24/03 69.35 95.18 154.78 397.60 4/25/03 70.77 95.66 155.12 396.58 4/28/03 69.80 95.38 155.00 369.10 4/29/03 70.02 94.39 154.39 381.68 4/30/03 68.17 92.79 145.39 373.00 5/1/03 68.11 92.00 143.52 372.50 5/2/03 66.94 91.27 143.13 367.32 5/5/03 66.32 90.36 142.34 369.77 5/6/03 66.86 90.10 137.65 377.27 5/7/03 67.07 90.03 141.75 387.61 5/8/03 67.34 90.78 142.74 389.53 5/9/03 66.93 91.03 143.36 387.29 5/12/03 67.05 90.77 142.24 391.17 5/13/03 66.87 91.06 143.54 391.34 5/14/03 66.56 90.63 143.71 399.55 5/15/03 73.42 90.72 145.06 396.29 5/16/03 72.77 90.95 146.22 396.45 5/19/03 75.80 91.25 146.37 397.31 5/20/03 76.44 93.41 148.65 353.70 5/21/03 75.70 91.65 147.71 395.68 5/22/03 74.67 91.70 148.28 409.17 5/23/03 74.23 90.58 146.77 410.38 5/27/03 77.50 92.54 148.55 406.39 5/28/03 75.66 93.17 148.60 404.45 5/29/03 74.20 91.27 146.26 415.03 5/30/03 73.47 92.16 144.77 417.31 6/2/03 72.19 90.61 142.47 409.22 6/3/03 73.64 91.51 143.87 417.22 6/4/03 72.98 91.94 143.57 420.42 6/5/03 71.70 90.49 142.24 415.07 6/6/03 71.36 90.61 142.00 411.99 6/9/03 68.89 89.33 140.51 417.50 6/10/03 69.52 89.97 140.87 425.84 6/11/03 68.71 88.74 139.75 421.17 6/12/03 67.21 88.34 139.48 423.69 6/13/03 68.02 87.85 141.46 408.86 6/16/03 65.13 87.16 141.07 402.51 6/17/03 62.91 86.10 139.72 392.83 6/18/03 63.28 84.85 139.52 385.00 6/19/03 65.03 85.62 140.38 386.98 6/20/03 65.51 85.66 140.29 385.94 6/23/03 68.23 86.26 141.65 394.53 6/24/03 68.51 85.96 141.58 397.73 6/25/03 67.40 84.63 139.74 384.80 6/26/03 66.88 82.88 139.36 332.28 6/27/03 66.61 83.05 138.47 374.04 6/30/03 65.38 81.80 138.93 378.22 Lehman Brothers Mortgage Index Historical Duration ------------------------------ [CHART] Jan-85 5.74 Feb-85 5.52 Mar-85 5.54 Apr-85 5.50 May-85 5.59 Jun-85 5.42 Jul-85 5.24 Aug-85 5.15 Sep-85 4.95 Oct-85 4.83 Nov-85 4.79 Dec-85 4.99 Jan-86 5.06 Feb-86 5.23 Mar-86 5.13 Apr-86 4.77 May-86 3.87 Jun-86 3.59 Jul-86 3.41 Aug-86 3.52 Sep-86 3.51 Oct-86 3.68 Nov-86 4.17 Dec-86 4.20 Jan-87 4.45 Feb-87 4.59 Mar-87 4.63 Apr-87 4.47 May-87 4.21 Jun-87 4.26 Jul-87 4.24 Aug-87 4.65 Sep-87 4.80 Oct-87 5.12 Nov-87 5.35 Dec-87 5.51 Jan-88 5.77 Feb-88 5.84 Mar-88 5.79 Apr-88 5.27 May-88 4.93 Jun-88 4.81 Jul-88 4.88 Aug-88 4.79 Sep-88 4.94 Oct-88 5.04 Nov-88 5.03 Dec-88 5.11 Jan-89 4.52 Feb-89 4.65 Mar-89 4.81 Apr-89 4.72 May-89 4.60 Jun-89 4.38 Jul-89 4.19 Aug-89 4.35 Sep-89 4.28 Oct-89 4.07 Nov-89 4.03 Dec-89 4.11 Jan-90 4.32 Feb-90 4.44 Mar-90 4.54 Apr-90 4.72 May-90 4.54 Jun-90 4.37 Jul-90 4.23 Aug-90 4.50 Sep-90 4.50 Oct-90 4.43 Nov-90 4.12 Dec-90 4.04 Jan-91 3.96 Feb-91 4.00 Mar-91 4.05 Apr-91 4.07 May-91 4.12 Jun-91 4.26 Jul-91 4.36 Aug-91 4.11 Sep-91 3.78 Oct-91 3.75 Nov-91 3.78 Dec-91 2.41 Jan-92 3.58 Feb-92 3.47 Mar-92 3.98 Apr-92 4.05 May-92 3.53 Jun-92 3.40 Jul-92 3.05 Aug-92 2.77 Sep-92 2.78 Oct-92 3.57 Nov-92 3.68 Dec-92 3.44 Jan-93 3.01 Feb-93 2.56 Mar-93 2.56 Apr-93 2.66 May-93 2.76 Jun-93 2.32 Jul-93 2.47 Aug-93 2.16 Sep-93 2.33 Oct-93 2.80 Nov-93 3.43 Dec-93 3.47 Jan-94 3.35 Feb-94 3.47 Mar-94 4.35 Apr-94 4.74 May-94 4.83 Jun-94 4.74 Jul-94 4.60 Aug-94 4.10 Sep-94 4.35 Oct-94 4.43 Nov-94 4.45 Dec-94 4.40 Jan-95 4.24 Feb-95 4.50 Mar-95 4.46 Apr-95 4.28 May-95 3.50 Jun-95 3.47 Jul-95 3.60 Aug-95 3.48 Sep-95 3.32 Oct-95 3.20 Nov-95 2.91 Dec-95 2.57 Jan-96 2.63 Feb-96 3.48 Mar-96 3.86 Apr-96 4.19 May-96 4.36 Jun-96 4.20 Jul-96 4.07 Aug-96 4.21 Sep-96 4.02 Oct-96 3.62 Nov-96 3.18 Dec-96 3.66 Jan-97 3.66 Feb-97 3.72 Mar-97 3.99 Apr-97 3.84 May-97 3.78 Jun-97 3.60 Jul-97 2.94 Aug-97 3.35 Sep-97 3.02 Oct-97 2.64 Nov-97 2.62 Dec-97 2.40 Jan-98 2.09 Feb-98 2.32 Mar-98 2.46 Apr-98 2.48 May-98 2.35 Jun-98 2.27 Jul-98 2.43 Aug-98 2.06 Sep-98 1.37 Oct-98 2.23 Nov-98 2.21 Dec-98 1.95 Jan-99 1.86 Feb-99 2.82 Mar-99 2.94 Apr-99 3.04 May-99 3.60 Jun-99 3.81 Jul-99 4.15 Aug-99 4.31 Sep-99 4.15 Oct-99 4.04 Nov-99 4.17 Dec-99 4.27 Jan-00 4.36 Feb-00 4.17 Mar-00 4.03 Apr-00 4.25 May-00 4.37 Jun-00 4.11 Jul-00 4.11 Aug-00 3.94 Sep-00 3.84 Oct-00 3.75 Nov-00 3.45 Dec-00 3.00 Jan-01 2.71 Feb-01 2.68 Mar-01 2.84 Apr-01 3.30 May-01 3.40 Jun-01 3.56 Jul-01 3.05 Aug-01 2.90 Sep-01 2.62 Oct-01 1.46 Nov-01 2.60 Dec-01 3.10 Jan-02 3.16 Feb-02 2.90 Mar-02 3.51 Apr-02 3.03 May-02 2.83 Jun-02 2.60 Jul-02 2.03 Aug-02 1.40 Sep-02 0.91 Oct-02 1.08 Nov-02 1.63 Dec-02 0.94 Jan-03 1.20 Feb-03 0.81 Mar-03 1.11 Apr-03 1.03 May-03 0.58 Jun-03 1.02 Mortgage Issues Lag Mortgage rates approached record lows in May and June, prompting record refinancing activity on the part of consumers. This caused prepayments on mortgage-backed securities (MBS) to accelerate greatly and durations of MBS shortened dramatically (see chart above, right). As a result, the MBS sector under-performed all other fixed income sectors, returning just 1.60% in the first six months of the year (see below). Total Returns of Selected Lehman Brothers Indices and Subsectors Investment Grade Index/Sector 1st Qtr. 2003 2nd Qtr. 2003 2003 YTD ----------------------------- ------------- ------------- -------- LB Aggregate Index 1.39% 2.50% 3.93% LB Gov't/Credit Index 1.65% 3.52% 5.23% US Treasury Sector 0.99% 2.73% 3.75% Gov't Agency Sector 1.20% 2.20% 3.43% Corporate Sector 2.53% 5.06% 7.72% AAA 1.50% 2.62% 4.17% AA 1.99% 3.46% 5.51% A 1.98% 4.48% 6.55% BBB 3.40% 6.54% 10.16% MBS Sector 0.92% 0.66% 1.60% ABS Sector 1.51% 1.85% 3.39% Non-Investment Grade Index/Sector --------------------------------- High Yield 7.61% 10.11% 18.49% Baird Intermediate Bond Fund -------------------------------------------------------------------------------- June 30, 2003 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. Portfolio Characteristics [PIE CHART] Quality Distribution U.S. Treasury 14% Sector Weightings U.S. Gov't Agency 23% U.S. Treasury 14% Aaa 17% U.S. Gov't Agency 14% Aa 6% Mortgage/CMOs 10% A 19% Int'l 2% Baa 17% Asset-Backed 10% Below Baa 4% Industrials 16% Utility 6% Finance/Bank/Broker 21% Cash 6% Municipal 1% Net Assets: $ 140,926,602 SEC 30-Day Yield:** Portfolio Expense Ratio: Institutional Class: 3.84% Institutional Class: 0.30% Investor Class: 3.49% Investor Class: 0.55%* Average Duration: 3.73 years Portfolio Turnover Ratio: 65.8%*** Average Maturity: 5.48 years Total Number of Holdings: 186 * Includes 0.25% 12b-1 fee. ** SEC yields are based on SEC guidelines and are calculated based on the 30 days ended June 30, 2003. *** The portfolio turnover is a rolling 12 month calculation.
Annualized Total Returns ----------------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) ----------------------------------------------------------------------------------------- Baird Intermediate Bond Fund - Institutional Class Shares 10.07% 9.76% Baird Intermediate Bond Fund - Investor Class Shares 9.69% 9.53% Lehman Brothers Intermediate Government/Credit Bond Index(2) 10.84% 9.86% -----------------------------------------------------------------------------------------
(1) For the period September 29, 2000 (commencement of operations) to June 30, 2003. (2) 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 June 30, 2003 (unaudited) Principal Amount Value ------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Asset-Backed Securities - 10.1% AAMES Mortgage Trust, $ 218,672 Series 1998-C, Class A6F, 6.13%, 09-15-2028 $ 230,956 Advanta Mortgage Loan Trust, 89,365 Series 1994-1, Class A1, 6.30%, 07-25-2025 89,306 AFC Home Equity Loan Trust, 189,438 Series 1997-2, Class 1A5, 6.97%, 06-25-2027 202,346 Amresco Residential Securities Mortgage Loan, 665,144 Series 1998-1, Class A6, 6.51%, 08-25-2027 705,735 BankAmerica Manufactured Housing Contract, 144,505 Series 1997-1, Class A7, 6.58%, 10-10-2019 148,110 Contimortgage Home Equity Loan Trust: 654,221 Series 1999-1, Class A7, 6.47%, 12-25-2013 695,066 1,000,000 Series 1998-2, Class A7, 6.57%, 03-15-2023 1,045,821 1,000,000 Series 1998-3, Class A17, 6.22%, 10-15-2029 1,056,839 Delta Funding Home Equity Loan Trust: 909,433 Series 1997-2, Class A6, 7.04%, 06-25-2027 952,949 475,999 Series 1999-1, Class A6F, 6.34%, 12-15-2028 505,170 592,767 Series 1999-2, Class A7F, 7.03%, 08-15-2030 642,802 EQCC Home Equity Loan Trust, 720,000 Series 1997-3, Class A9, 6.57%, 02-15-2029 746,767 Equivantage Home Equity Loan Trust, 103,753 Series 1996-3, Class A3, 7.70%, 09-25-2027 103,688 Green Tree Financial Corporation: 526,710 Series 1998-6, Class A5, 6.06%, 06-01-2030 531,258 500,000 Series 1999-3, Class A5, 6.16%, 02-01-2031 495,138 Green Tree Home Equity Loan Trust, 230,862 Series 1999-A, Class A5, 6.13%, 02-15-2019 234,081 Green Tree Home Improvement Loan Trust, 192,147 Series 1998-D, Class HEA6, 6.15%, 08-15-2029 193,763 IMC Home Equity Loan Trust: 185,523 Series 1997-7, Class A8, 6.65%, 02-20-2029 187,302 550,529 Series 1998-1, Class A6, 6.52%, 06-20-2029 586,429 MBNA Credit Card Master Note Trust, 2,500,000 Series 2003-A3, Class A3, 1.23%, 08-16-2010 2,503,545 Mortgage Lenders Network Home Equity Loan Trust, 734,196 Series 1998-2, Class A1, 6.61%, 07-25-2029 790,426 Oakwood Mortgage Investors Inc., 683,425 Series 1999-B, Class A3, 6.45%, 11-15-2017 688,995 Residential Asset Securitization Trust, 339,396 Series 1998-KS2, Class AI9, 6.42%, 07-25-2029 339,165 Salomon Brothers Mortgage Securities VII, 511,800 Series 1997-LB6, Class A6, 6.82%, 12-25-2027 540,433 ----------- 14,216,090 ----------- Financial - 21.6% ABN-AMRO Bank Subordinated Notes, 500,000 8.25%, 08-01-2009 529,804 Aetna, Inc., 325,000 7.13%, 08-15-2006 368,559 Allfirst Financial Subordinated Notes, 1,150,000 7.20%, 07-01-2007 1,299,984 American General Finance, 125,000 5.88%, 12-15-2005 136,340 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value ------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Financial - 21.6% (cont.) Amsouth Bancorp Subordinated Debentures, $ 630,000 6.75%, 11-01-2025 $ 715,757 Amsouth Bank NA Subordinated Notes, 120,000 6.45%, 02-01-2008 136,618 Anthem Inc., 810,000 6.80%, 08-01-2012 945,641 Auburn Hills Trust Debentures, 225,000 12.38%, 05-01-2020 328,544 Bank of America Corporation Subordinated Notes, 75,000 10.20%, 07-15-2015 111,164 Bank of Boston Corporation Subordinated Notes, 150,000 6.63%, 02-01-2004 154,641 Bank of Oklahoma Subordinated Notes, 350,000 7.13%, 08-15-2007 402,795 Bank One Corporation Subordinated Notes, 750,000 10.00%, 08-15-2010 1,012,304 Comerica Inc. Subordinated Notes, 176,000 7.25%, 08-01-2007 203,339 Compass Bank Subordinated Notes, 800,000 8.10%, 08-15-2009 996,215 Countrywide Home Loan: 200,000 5.50%, 08-01-2006 218,592 1,000,000 5.50%, 02-01-2007 1,094,812 Credit Suisse Finance Broker USA, Inc. Notes, 900,000 6.13%, 11-15-2011 1,008,210 Dime Capital Trust, 175,000 9.33%, 05-06-2027 214,434 First National Bank Chicago Pass Thru Certificates, 500,000 8.08%, 01-05-2018 627,945 First National Bank Omaha Subordinated Notes, 100,000 7.32%, 12-01-2010 108,118 FMR Corp., 775,000 4.75%, 03-01-2013, (Acquired 02-26-03; Cost $777,312)* 819,228 Ford Capital BV Debentures, 623,000 9.50%, 06-01-2010 704,995 Ford Motor Credit Company Notes, 300,000 9.03%, 12-30-2009 316,104 General Electric Capital Corporation Notes, 500,000 6.00%, 06-15-2012 564,384 Goldman Sachs Group, Inc. Notes, 200,000 6.60%, 01-15-2012 232,396 Hartford Financial Services Group Senior Notes, 150,000 7.75%, 06-15-2005 166,397 Health Care Services Corporation Notes, 500,000 7.75%, 06-15-2011 (Acquired 06-20-01; Cost $497,765)* 596,304 Household Finance Corporation Senior Unsubordinated Notes, 1,200,000 6.40%, 06-17-2008 1,369,822 ING Groep NV Notes, 400,000 8.50%, 02-15-2005 435,094 J.P. Morgan Chase & Company Subordinated Notes, 500,000 6.63%, 03-15-2012 576,835 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Financial - 21.6% (cont.) Keycorp Subordinated Notes: $ 750,000 8.00%, 07-01-2004 $ 797,085 300,000 6.75%, 03-15-2006 335,112 Lehman Brothers Holdings, Inc. Notes, 700,000 8.50%, 05-01-2007 837,900 Lehman Brothers, Inc. Senior Subordinated Debentures, 175,000 11.63%, 05-15-2005 204,966 MBNA Corp., 750,000 6.13%, 03-01-2013 815,741 Morgan Stanley Dean Witter Debentures, 1,000,000 10.00%, 06-15-2008 1,304,362 National City Bank of Kentucky, 196,000 6.30%, 02-15-2011 223,104 National Rural Utilities: 325,000 3.88%, 02-15-2008 338,549 925,000 5.75%, 08-28-2009 1,023,778 Nationwide Life Global Fund Notes, 500,000 5.35%, 02-15-2007 (Acquired 02-08-02; Cost $499,520)* 540,684 Newcourt Credit Group, 240,000 6.88%, 02-16-2005 257,095 PNC Funding Corporation, 894,000 7.50%, 11-01-2009 1,088,602 Protective Life US Funding Notes, 700,000 5.88%, 08-15-2006, (Acquired 08-06-01; Cost $699,160)* 775,669 Santander Financial Issuances: 325,000 7.00%, 04-01-2006 363,163 500,000 6.38%, 02-15-2011 572,149 Sanwa Bank Ltd. NY Subordinated Notes, 350,000 7.40%, 06-15-2011 392,445 Transamerica Finance Corporation Debentures, 1,160,000 0.00%, 03-01-2010 815,797 Union Planters Corporation Subordinated Notes: 645,000 6.50%, 03-15-2008 724,432 300,000 7.75%, 03-01-2011 363,903 USF&G Corporation Senior Notes, 395,000 7.13%, 06-01-2005 431,862 Wachovia Corporation Subordinated Notes, 1,200,000 8.00%, 08-15-2009 1,272,704 Washington Mutual Bank FA Notes, 500,000 6.88%, 06-15-2011 596,546 ----------- 30,471,023 ----------- Industrial - 16.4% America West Airlines Pass Thru Certificates, 237,485 8.54%, 01-02-2006 227,750 American Airline Pass Thru Certificates, 684,948 7.69%, 05-23-2008 123,131 AMVESCAP PLC, 500,000 5.38%, 02-27-2013 508,185 AOL Time Warner, Inc. Notes, 300,000 6.88%, 05-01-2012 342,485 British Telecom PLC Notes, 200,000 7.88%, 12-15-2005 227,768 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Industrial - 16.4% (cont.) Coca-Cola Enterprises, $ 300,000 4.38%, 09-15-2009 $ 319,269 Continental Airlines, Inc. Pass Thru Certificates: 1,000,000 7.43%, 09-15-2004 882,318 101,730 7.42%, 04-01-2007 86,477 435,218 6.54%, 09-15-2008 363,566 Continental Cablevision Debentures, 300,000 9.50%, 08-01-2013 345,322 Cooper Industries Ltd. Notes, 700,000 5.25%, 07-01-2007 758,324 Corp. Andina De Fomento Notes: 170,000 8.88%, 06-01-2005 186,741 275,000 7.38%, 01-18-2011 316,914 CSX Corporation Notes, 500,000 5.85%, 12-01-2003 509,022 Delta Air Lines Pass Thru Certificates, 350,000 7.78%, 11-18-2005 304,446 Deutsche Telekom International Finance Bonds, 350,000 8.50%, 06-15-2010 429,933 Dollar General Corporation, 300,000 8.63%, 06-15-2010 331,875 Fiserv Inc., 500,000 4.00%, 04-15-2008, (Acquired 04-08-03; Cost $499,595)* 514,901 Ford Motor Company Debentures, 300,000 9.22%, 09-15-2021 311,402 General Electric Company, 500,000 5.00%, 02-01-2013 528,128 General Motors Nova Financing, 500,000 6.85%, 10-15-2008 524,975 Georgia-Pacific Debentures, 300,000 9.88%, 11-01-2021 303,000 Halliburton Company, 425,000 5.63%, 12-01-2008 449,118 Hanson Australia Funding, 650,000 5.25%, 03-15-2013 665,835 Ingersoll-Rand Company Debentures, 1,000,000 6.39%, 11-15-2027 1,180,189 International Lease Finance Corporation Notes, 300,000 5.70%, 07-03-2006 323,899 ITT Corporation Debentures, 314,000 9.75%, 02-15-2021 327,724 Jones Intercable, Inc. Senior Notes, 1,202,000 8.88%, 04-01-2007 1,269,847 Korea Development Bank, 400,000 4.25%, 11-13-2027 413,003 Laboratory Corporation of America, 650,000 5.50%, 02-01-2013 695,921 Marathon Oil Corporation: 500,000 5.38%, 06-01-2007 547,244 350,000 6.00%, 07-01-2012 389,577 Masco Corporation Notes, 475,000 5.88%, 07-15-2012 527,501 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Industrial - 16.4% (cont.) Norfolk Southern Corporation Senior Notes, $ 475,000 8.38%, 05-15-2005 $ 527,824 Northwest Airlines, Inc. Pass Thru Certificates, 500,195 7.25%, 01-02-2012 327,853 Park Place Entertainment Senior Notes, 375,000 7.50%, 09-01-2009 410,625 PEMEX Project Fielding Master Trust: 275,000 6.13%, 08-15-2008, (Acquired 01-31-03; Cost $274,802)* 294,250 700,000 9.13%, 10-13-2010 847,000 Qwest Capital Funding: 350,000 7.00%, 08-03-2009 287,875 100,000 7.25%, 02-15-2011 82,000 Sealed Air Corp., 650,000 5.38%, 04-15-2008, (Acquired 04-09-03; Cost $646,490)* 682,167 Southwest Airlines Company Pass Thru Certificates, 265,616 7.67%, 01-02-2014 301,800 Sprint Capital Corporation, 500,000 6.00%, 01-15-2007 537,326 Time Warner Inc., 175,000 9.13%, 01-15-2013 224,132 Tyco International Group SA, 700,000 6.38%, 02-15-2006 729,750 Union PacificCorp Pass Thru Certificates, 318,774 8.66%, 07-02-2011 375,500 United Air Lines Pass Thru Certificates: 245,275 7.76%, 10-01-2005 41,846 400,000 6.20%, 09-01-2008 335,296 300,000 10.02%, 03-22-2014, @, ^ 77,214 Vectren Utility Holdings, 600,000 6.63%, 12-01-2011 691,469 Westvaco Corporation, 55,000 8.40%, 06-01-2007 64,576 Weyerhaeuser Company Notes, 300,000 5.95%, 11-01-2008 335,652 Willamette Industries Notes, 500,000 6.60%, 06-05-2012 557,932 Worldcom, Inc. Notes,@, ^ 300,000 7.38%, 01-15-2049, (Acquired 01-05-01; Cost $300,829)* 88,500 ----------- 23,056,377 ----------- Utilities - 5.9% Baltimore Gas & Electric Senior Notes, 300,000 5.25%, 12-15-2006 322,119 Conectiv, Inc. Notes, 450,000 6.73%, 06-01-2006 471,757 Edison Mission Senior Notes, 300,000 9.88%, 04-15-2011 277,500 Exelon Corporation Senior Notes, 300,000 6.75%, 05-01-2011 347,096 Gemstone Investors, Ltd., 450,000 7.71%, 10-31-2004, (Acquired 10-25-01; Cost $450,000)* 447,750 Gulf States Utilities 1st Mortgage, 400,000 6.77%, 08-01-2005 431,442 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Utilities - 5.9% (cont.) Korea Electric Power Debentures, $ 300,000 6.75%, 08-01-2027 315,483 Niagara Mohawk Power Senior Discount Notes: 211,707 7.38%, 07-01-2003 211,707 725,000 8.50%, 07-01-2010 760,090 Nisource Finance Corporation, 650,000 7.63%, 11-15-2005 710,678 NRG Energy, Inc. Bonds,@,^ 300,000 8.00%, 11-01-2003 129,000 NRG Energy, Inc. Senior Notes,@,^ 400,000 7.50%, 06-15-2007 170,000 Oneok, Inc. Senior Notes, 725,000 7.13%, 04-15-2011 796,246 PPL Energy Supply, LLC Senior Notes, 300,000 6.40%, 11-01-2011 333,042 PSEG Energy Holdings Senior Notes, 175,000 8.50%, 06-15-2011 188,125 PSEG Power Senior Notes, 275,000 7.75%, 04-15-2011 328,129 RGS (I&M) Funding Corp., 843,383 9.82%, 12-07-2022 1,134,671 System Energy Resources, 159,959 7.43%, 01-15-2011 166,858 Utilicorp United, Inc. Senior Notes, 125,000 7.00%, 07-15-2004 118,281 Williams Companies, Inc. Notes, 600,000 8.13%, 03-15-2012 615,000 Yosemite Security Trust I Bonds,@,^ 325,000 8.25%, 11-15-2004 (Acquired 04-26-01; Cost $331,401)* 87,750 ----------- 8,362,724 ----------- Mortgage-Backed Securities - 10.1% Federal Gold Loan Mortgage Corporation (FGLMC), 275,255 6.00%, 07-01-2028 285,779 Federal Home Loan Mortgage Corporation (FHLMC): 262,586 Series 2379, Class MD, 4.50%, 12-15-2008 263,185 1,398,882 Series 2418, Class MC, 6.00%, 09-15-2019 1,428,936 95,642 Series 1094, Class K, 7.00%, 06-15-2021 98,072 64,337 Series 1101, Class M, 6.95%, 07-15-2021 65,311 519,777 Series 1136, Class H, 6.00%, 09-15-2021 529,030 119,870 Series 1280, Class B, 6.00%, 04-15-2022 122,804 260,904 Series 1395, Class G, 6.00%, 10-15-2022 266,532 1,946,944 Series 2531, Class N, 4.00%, 07-15-2027 1,970,113 Federal National Mortgage Association (FNMA): 1,000,000 Series 2002-73, Class OC, 5.00%, 04-25-2014 1,034,917 1,601,829 Series 2002-46, Class D, 5.00%, 08-25-2016 1,646,724 2,000,000 Series 2001-42, Class AH, 5.50%, 05-25-2017 2,009,858 261,977 Series 1991-137, Class H, 7.00%, 10-25-2021 281,335 761,088 Series 1992-136, Class H-PK, 6.00%, 08-25-2022 796,037 434,558 Series 1993-32, Class H, 6.00%, 03-25-2023 447,906 500,000 Series 2003-25, Class PC, 4.50%, 02-25-2027 508,412 160,385 Series 1998-66, Class C, 6.00%, 12-25-2028 165,428 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.4% Mortgage-Backed Securities - 10.1% (cont.) GE Capital Mortgage Services, Inc.: $ 500,000 Series 1993-18, Class A12, 6.00%, 02-25-2009 $ 500,735 Residential Accredit Loans, Inc.: 255,828 Series 1998-QS2, Class A7, 7.00%, 02-25-2028 260,295 559,837 Series 1998-QS4, Class AI5, 7.00%, 03-25-2028 574,310 Residential Funding Mortgage Security I: 280,604 Series 1997-S11, Class A7, 7.00%, 08-25-2012 280,178 549,239 Series 1996-S14, Class M1, 7.50%, 05-25-2026 555,490 Washington Mutual, 110,889 Series 1999-WM2, Class 2A, 6.88%, 06-15-2011 113,421 ----------- 14,204,808 ----------- International (U.S. $ Denominated) - 1.8% Landeskreditbank Baden-Wuerttemberg, 700,000 6.35%, 04-01-2012 807,047 National Bank Hungary Debentures, 350,000 8.88%, 11-01-2013 468,526 Westdeutsche Landesbank Subordinated Notes, 800,000 6.75%, 06-15-2005 871,246 350,000 6.05%, 01-15-2009 397,941 ----------- 2,544,760 ----------- Municipal Bond - 0.6% Tobacco Settlement Financing Corporation: 500,000 5.92%, 06-01-2012 488,165 380,864 6.36%, 05-15-2025 367,126 ----------- 855,291 ----------- U.S. Government Agency - 13.9% Federal Home Loan Mortgage Corporation (FHLMC), 15,625,000 6.63%, 09-15-2009 18,752,750 Soyland Power Cooperative U.S. Government Guarantee, 740,143 8.35%, 09-15-2009 800,590 ----------- 19,553,340 ----------- U.S. Treasury Obligations - 14.0% U.S. Treasury Bonds: 350,000 9.88%, 11-15-2015 556,199 4,525,000 9.25%, 02-15-2016 6,928,377 U.S. Treasury Notes: 8,675,000 6.13%, 08-15-2007 10,034,876 1,900,000 6.00%, 08-15-2009 2,241,183 ----------- 19,760,635 ----------- Total Long-Term Investments (Cost $128,593,542) 133,025,048 ------------ Shares Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 6.1% Investment Company - 4.8% 6,769,029 Investment Company Cash Reserve Portfolio - AIM Fund 6,769,029 See notes to the financial statements Baird Intermediate Bond Fund Schedule of Investments June 30, 2003 (unaudited) Shares Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 6.1% (cont.) Money Market Fund - 1.0% 1,453,776 SEI Daily Income Trust Government Fund $ 1,453,776 ------------ Principal Amount Value -------------------------------------------------------------------------------- Variable Rate Demand Notes# - 0.3% $ 209,114 American4Family Financial Services, Inc., 0.85% 209,114 116,962 Wisconsin Corporation Central Credit Union, 0.70% 116,962 ------------ 326,076 ------------ Total Short-Term Investments (Cost $8,548,881) 8,548,881 ------------ Total Investments (Cost $137,142,423) 100.5% 141,573,929 ------------ Liabilities, Less Other Assets (0.5%) (647,327) ------------ TOTAL NET ASSETS 100.0% $ 140,926,602 ============== * Unregistered security @ Security in default ^ Non-income producing security # 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 June 30, 2003. See notes to the financial statements Baird Aggregate Bond Fund June 30, 2003 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. Portfolio Characteristics Quality Distribution Sector Weightings U.S. Treasury 19% U.S. Treasury 19% U.S. Gov't Agency 29% U.S. Gov't Agency 1% Aaa 17% CMB 2% Aa 4% Mortgage/CMOs 28% A 9% Asset-Backed 13% Baa 17% Industrials 13% Below Baa 5% Utility 7% Finance/Bank/Broker 14% Cash 2% Municipal 1% Net Assets: $ 89,827,014 SEC 30-Day Yield:** Portfolio Expense Ratio: Institutional Class: 4.47% Institutional Class: 0.30% Investor Class: 4.15% Investor Class: 0.55%* Average Duration: 3.95 years Portfolio Turnover Ratio: 80.5%*** Average Maturity: 6.98 years Total Number of Holdings: 187 * Includes 0.25% 12b-1 fee. ** SEC yields are based on SEC guidelines and are calculated based on the 30 days ended June 30, 2003. *** The portfolio turnover is a rolling 12 month calculation. Annualized Total Returns -------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) -------------------------------------------------------------------------------- Baird Aggregate Bond Fund - Institutional Class Shares 11.16% 10.38% Baird Aggregate Bond Fund - Investor Class Shares 10.92% 10.10% Lehman Brothers Aggregate Bond Index(2) 10.40% 9.85% -------------------------------------------------------------------------------- (1) For the period September 29, 2000 (commencement of operations) to June 30, 2003. (2) 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 June 30, 2003 (unaudited) Principal Amount Value ------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 97.2% Asset-Backed Securities - 13.1% Advanta Mortgage Loan Trust: $ 99,879 Series 1994-1, Class A1, 6.30%, 07-25-2025 $ 99,813 250,668 Series 1999-2, Class A6, 6.82%, 05-25-2029 273,280 American General Mortgage Loan Trust, 800,000 Series 2003-1, Class A2, 2.54%, 04-25-2033 802,000 Contimortgage Home Equity Loan Trust: 769,671 Series 1999-1, Class A7, 6.47%, 12-25-2013 817,725 63,976 Series 1997-2, Class A9, 7.09%, 04-15-2028 63,956 78,068 Series 1997-3, Class A9, 7.12%, 08-15-2028 78,691 Conseco Finance, 437,000 Series 2002-C, Class AF3, 4.58%, 06-15-2032 449,907 Delta Funding Home Equity Loan Trust, 347,765 Series 1997-3, Class A6F, 6.86%, 10-25-2028 357,986 EQCC Home Equity Loan Trust, 94,378 Series 1996-4, Class A9, 6.89%, 01-15-2028 95,410 Equivantage Home Equity Loan Trust: 64,845 Series 1996-3, Class A3, 7.70%, 09-25-2027 64,805 442,822 Series 1997-3, Class A3, 7.05%, 10-25-2028 456,104 GE Capital Mortgage Services, Inc.: 93,257 Series 1997-HE3, Class A6, 6.72%, 10-25-2027 97,748 741,729 Series 1999-HE1, Class A7, 6.27%, 04-25-2029 781,978 GE Home Equity Loan Asset Backed Certificates, 186,103 Series 1991-1, Class B, 8.70%, 09-15-2011 186,597 Green Tree Financial Corporation: 333,255 Series 1993-3, Class A7, 6.40%, 10-15-2018 346,047 47,353 Series 1995-4, Class A5, 6.95%, 06-15-2025 47,956 11,239 Series 1997-1, Class A5, 6.86%, 03-15-2028 11,522 513,591 Series 1997-6, Class A8, 7.07%, 01-15-2029 532,281 IMC Home Equity Loan Trust, 75,404 Series 1997-5, Class A10, 6.88%, 11-20-2028 78,658 Indymac Home Equity Loan Asset Backed Trust, 508,320 Series 1998-A, Class AF6, 6.18%, 10-25-2029 517,111 MBNA Credit Card Master Note Trust, 1,300,000 Series 2003-A3, Class A3, 1.23%, 08-16-2010 1,301,843 The Money Store Home Equity Trust, 375,921 Series 1997-D, Class AF7, 6.49%, 12-15-2038 386,925 Oakwood Mortgage Investors Inc., 341,713 Series 1999-B, Class A3, 6.45%, 11-15-2017 344,497 Residential Asset Mortgage Products, Inc., 1,000,000 Series 2003-RS5, Class AI3, 2.59%, 10-25-2028 995,000 Residential Asset Securities Corporation: 74,667 Series 1998-KS2, Class AI9, 6.42%, 07-25-2029 74,616 85,659 Series 1999-KS1, Class AI8, 6.32%, 04-25-2030 90,982 833,878 Series 1999-KS2, Class AI9, 7.15%, 07-25-2030 892,181 Salomon Brothers Mortgage Securities VII, 725,050 Series 1997-LB6, Class A6, 6.82%, 12-25-2027 765,613 Saxon Asset Securities Trust, 704,062 Series 1999-2, class AF6, 6.42%, 03-25-2014 745,453 -------------- 11,756,685 -------------- Commercial Mortgage-Backed Securities - 1.5% GE Capital Commerical Mortgage Corporation, 900,000 Series 2002-#A, Class A2, 5.00%, 12-10-2037 959,740 GMAC Commercial Mortgage Securities Inc., 400,000 Series 2003-C1, Class A2, 4.08%, 05-10-2036 398,201 -------------- 1,357,941 -------------- See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 97.2% Financial - 13.8% Aetna, Inc., $ 500,000 7.13%, 08-15-2006 $ 567,014 American General Finance Senior Notes, 400,000 8.45%, 10-15-2009 505,131 Amsouth Bancorp Subordinated Debentures, 200,000 6.75%, 11-01-2025 227,224 Anthem Inc., 400,000 6.80%, 08-01-2012 466,983 AON Corporation Notes, 500,000 8.65%, 05-15-2005 555,910 Banc One Corporation Subordinated Notes, 87,000 10.00%, 08-15-2010 117,427 Bank of Oklahoma Subordinated Notes, 400,000 7.13%, 08-15-2007 460,337 Bankers Trust Corporation Subordinated Notes, 145,000 7.13%, 03-15-2006 163,243 BSCH Issuances, Ltd., 350,000 7.63%, 09-14-2010 433,946 CIT Group, Inc. Senior Notes, 300,000 7.75%, 04-02-2012 357,706 Credit Suisse Finance Broker USA, Inc. Notes, 650,000 6.13%, 11-15-2011 728,152 Dime Capital Trust, 200,000 9.33%, 05-06-2027 245,068 First National Bank Chicago Pass Thru Certificates, 75,000 8.08%, 01-05-2018 94,192 First National Bank Omaha Subordinated Notes, 175,000 7.32%, 12-01-2010 189,206 First Union Corporation Subordinated Notes, 400,000 8.00%, 08-15-2009 424,235 FMR Corp., 250,000 4.75%, 03-01-2013, (Acquired 02-26-03; Cost $250,746)* 264,267 Ford Capital BV Debentures, 450,000 9.50%, 06-01-2010 509,226 General Electric Capital Corporation Notes, 400,000 6.00%, 06-15-2012 451,507 Goldman Sachs Group, Inc. Notes, 150,000 6.60%, 01-15-2012 174,297 Health Care Services Corporation Notes, 200,000 7.75%,06-15-2011 (Acquired 6-20-01; Cost $199,106)* 238,522 Household Finance Corporation Notes: 150,000 6.88%, 03-01-2007 171,206 139,000 7.88%, 03-01-2007 163,828 Keycorp Institution, 300,000 7.83%, 12-01-2026 338,955 Lehman Brothers Holdings, Inc. Notes, 300,000 8.50%, 05-01-2007 359,100 Liberty Mutual Insurance, 565,000 7.70%, 10-15-2097, (Acquired 03-26-03; Cost $361,572)* 415,630 Lincoln National Corporation Debentures, 500,000 9.13%, 10-01-2024 561,256 MBNA Corp., 425,000 6.13%, 03-01-2013 462,253 See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS- 97.2% Financial - 13.8% (cont.) Morgan Stanley Dean Witter Unsubordinated Notes, $ 300,000 6.75%, 04-15-2011 $ 350,904 NCNB Corporation Subordinated Notes, 150,000 10.20%, 07-15-2015 222,329 National Rural Utilities, 250,000 5.75%, 08-28-2009 276,697 New York Life Insurance, 200,000 5.88%, 05-15-2033, (Acquired 05-05-03; Cost $198,048)* 209,897 Sanwa Bank Ltd. NY Subordinated Notes, 275,000 7.40%, 06-15-2011 308,349 Transamerica Finance Corporation Debentures, 600,000 0.00%, 03-01-2010 421,964 Union Planters Corporation Subordinated Notes, 350,000 7.75%, 03-01-2011 424,553 USF&G Corporation Senior Notes, 300,000 7.13%, 06-01-2005 327,996 Washington Mutual Capital I, 150,000 8.38%, 06-01-2027 177,365 -------------- 12,365,875 -------------- Industrial - 13.0% AMVESCAP PLC, 275,000 5.38%, 02-27-2013 279,502 AOL Time Warner, Inc. Bonds, 275,000 7.63%, 04-15-2031 317,379 British Telecom PLC, 350,000 8.88%, 12-15-2030 477,598 Continental Airlines, Inc. Pass Thru Certificates: 171,120 6.80%, 07-02-2007 145,476 103,364 6.54%, 09-15-2008 86,347 526,293 6.90%, 01-02-2018 511,098 Continental Cablevision Debentures, 425,000 9.50%, 08-01-2013 489,207 Corp Andina De Fomento Notes: 150,000 8.88%, 06-01-2005 164,771 50,000 7.38%, 01-18-2011 57,621 Delta Air Lines Pass Thru Certificates, 250,000 7.78%, 11-18-2005 217,462 Deutsche Telekom International Finance, 250,000 8.25%, 06-15-2030 318,522 Duty Free International Inc. Notes,** 200,000 7.00%, 01-15-2004 100,000 Dynegy Holdings, Inc. Senior Notes, 325,000 7.45%, 07-15-2006 309,562 Fiserv Inc., 350,000 4.00%, 04-15-2008, (Acquired 04-08-03; Cost $349,717)* 360,431 Ford Motor Company Debentures, 403,000 9.22%, 09-15-2021 418,317 Georgia-Pacific Debentures: 150,000 9.88%, 11-01-2021 151,500 100,000 9.63%, 03-15-2022 99,000 Hertz Corporation Senior Notes, 150,000 8.25%, 06-01-2005 158,348 Jones Intercable, Inc. Senior Notes, 775,000 8.88%, 04-01-2007 818,745 See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS - 97.2% Industrial - 13.0% (cont.) May Department Stores Co., $ 585,000 9.75%, 02-15-2021 $ 776,096 Northwest Airlines, Inc. Pass Thru Certificates: 35,244 8.13%, 02-01-2014 22,927 446,603 7.25%, 01-02-2012 292,726 184,553 8.07%, 10-01-2019 200,927 Park Place Entertainment Senior Notes, 275,000 7.50%, 09-01-2009 301,125 PEMEX Project Fielding Master Trust, 75,000 6.13%, 08-15-2008, (Acquired 01-31-03; Cost $74,946)* 80,250 450,000 9.13%, 10-13-2010 544,500 Pohang Iron & Steel Notes, 500,000 7.38%, 05-15-2005 545,219 Qwest Capital Funding: 300,000 7.00%, 08-03-2009 246,750 200,000 7.25%, 02-15-2011 164,000 Sealed Air Corp.: 250,000 5.38%, 04-15-2008, (Acquired 04-09-03; Cost $248,650)* 262,372 250,000 8.75%, 07-01-2008, (Acquired 03-27-03; Cost $273,685)* 295,689 Sprint Capital Corporation, 375,000 6.00%, 01-15-2007 402,995 Tenneco Packaging Debentures, 320,000 7.95%, 12-15-2025 397,781 Tyco International Group SA Notes, 400,000 6.38%, 10-15-2011 422,000 United Air Lines Pass Thru Certificates, 120,000 6.20%, 09-01-2008 100,589 US Airways Pass Thru Certificates, 368,699 6.85%, 01-30-2018 344,119 Vectren Utility Holdings, 500,000 6.63%, 12-01-2011 576,224 Weyerhaeuser Company Notes, 200,000 5.95%, 11-01-2008 223,768 -------------- 11,680,943 -------------- Utilities - 6.6% Calenergy Co., Inc. Senior Notes, 750,000 7.63%, 10-15-2007 876,224 Edison Mission Senior Notes, 250,000 9.88%, 04-15-2011 231,250 Exelon Corporation Senior Notes, 300,000 6.75%, 05-01-2011 347,096 Gemstone Investors, Ltd., 300,000 7.71%, 10-31-2004, (Acquired 10-25-01; Cost $300,000)* 298,500 Korea Electric Power Debentures: 10,000 7.75%, 04-01-2013 12,406 300,000 6.75%, 08-01-2027 315,483 Niagara Mohawk Power Senior Discount Notes, 500,000 8.50%, 07-01-2010 524,200 Nisource Finance Corporation, 300,000 7.63%, 11-15-2005 328,005 NRG Energy Inc. Senior Notes,@,^ 130,000 8.25%, 09-15-2010 55,900 PPL Energy Supply, LLC Senior Notes, 300,000 6.40%, 11-01-2011 333,042 See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS - 97.2% Utilities - 6.6% (cont.) PSEG Energy Holdings Senior Notes, $ 175,000 8.50%, 06-15-2011 $ 188,125 PSEG Power Senior Notes, 250,000 7.75%, 04-15-2011 298,299 RGS (I&M) Funding Corp., 545,718 9.82%, 12-07-2022 734,199 System Energy Resources, 358,528 7.43%, 01-15-2011 373,991 Utilicorp United, Inc. Senior Notes: 200,000 7.00%, 07-15-2004 189,250 300,000 7.63%, 11-15-2009 253,875 Williams Companies, Inc. Notes, 550,000 8.13%, 03-15-2012 563,750 -------------- 5,923,595 -------------- Mortgage-Backed Securities - 28.4% BA Mortgage Securities, Inc., 103,530 Series 1998-2, Class 2A1, 6.50%, 06-25-2013 103,464 Federal Gold Loan Mortgage Corporation (FGLMC): 1,199,174 6.50%, 07-01-2014 1,260,527 664,578 6.00%, 05-01-2017 691,114 870,084 5.50%, 11-01-2022 901,056 367,006 6.00%, 07-01-2028 381,039 350,894 7.00%, 07-01-2028 368,495 924,961 6.50%, 09-01-2028 963,803 495,340 6.50%, 04-01-2029 515,989 213,098 6.50%, 05-01-2029 221,982 932,232 6.50%, 06-01-2029 971,092 Federal Home Loan Mortgage Corporation (FHLMC): 262,586 Series 2379, Class MD, 4.50%, 12-15-2008 263,185 668,974 Series 2512, Class HC, 4.25%, 12-15-2009 672,597 578,878 Series 2489, Class UA, 4.00%, 12-15-2012 581,431 939,207 Series 206, Class E, 0.00%, 07-15-2019 908,972 458,650 Series 2418, Class MC, 6.00%, 09-15-2019 468,504 198,781 Series 1074, Class I, 6.75%, 05-15-2021 203,368 135,479 Series 1081, Class K, 7.00%, 05-15-2021 136,770 135,273 Series 1101, Class M, 6.95%, 07-15-2021 137,321 213,261 Series 188, Class H, 7.00%, 09-15-2021 213,267 140,889 Series 1286, Class A, 6.00%, 05-15-2022 143,919 876,125 Series 2531, Class N, 4.00%, 07-15-2027 886,551 Federal National Mortgage Association (FNMA): 900,000 5.00%, 09-15-2015 934,744 966,879 5.50%, 03-01-2023 1,003,129 224,517 6.50%, 11-01-2027 234,596 452,311 6.50%, 07-01-2028 472,321 281,912 6.50%, 12-01-2028 294,383 737,306 6.50%, 02-01-2029 769,924 243,458 6.50%, 05-01-2031 253,885 797,507 5.50%, 01-01-2032 825,655 1,000,000 Series 2002-73, Class OC, 5.00%, 04-25-2014 1,034,917 150,000 Series 2002-70, Class PL, 5.00%, 04-25-2015 154,369 39,106 Series 1989-37, Class G, 8.00%, 07-25-2019 43,001 111,839 Series 1989-94, Class G, 7.50%, 12-25-2019 121,310 34,196 Series 1990-58, Class J, 7.00%, 05-25-2020 36,736 151,269 Series 1990-105, Class J, 6.50%, 09-25-2020 160,958 See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 97.2% Mortgage-Backed Securities - 28.4% (cont.) Federal National Mortgage Association (FNMA): (cont.) $ 152,835 Series 1990-108, Class G, 7.00%, 09-25-2020 $ 164,493 141,561 Series 1991-1, Class C, 7.00%, 01-25-2021 152,011 334,652 Series 1991-86, Class Z, 6.50%, 07-25-2021 357,770 146,720 Series G92-30, Class Z, 7.00%, 06-25-2022 158,462 114,960 Series 1992-150, Class MA, 5.50%, 09-25-2022 118,408 247,831 Series 1993-21, Class J, 7.00%, 09-25-2022 251,119 750,000 Series 2003-31, Class KG, 4.50%, 12-25-2028 763,847 665,598 Series 1998-66, Class C, 6.00%, 12-25-2028 686,527 618,218 Series 2003-44, Class AB, 3.75%, 05-25-2033 625,068 Government National Mortgage Association (GNMA): 459,916 6.50%, 08-15-2027 484,579 1,014,249 6.50%, 11-15-2027 1,068,638 395,088 6.50%, 05-15-2029 415,439 438,737 6.50%, 06-15-2029 461,327 412,370 7.00%, 11-15-2029 435,860 377,661 7.00%, 09-20-2029 397,522 Residential Accredit Loans, Inc.: 206,342 Series 1997-QS8, Class A10, 7.50%, 08-25-2027 209,064 249,089 Series 1997-QS9, Class A8, 7.25%, 09-25-2027 250,999 559,837 Series 1998-QS4, Class AI5, 7.00%, 03-25-2028 574,310 Residential Asset Securities Corporation, 186,850 Series 1998-A8, Class A8, 6.75%, 08-25-2028 191,129 Residential Funding Mortgage Security, 274,647 Series 1996-S14, Class M1, 7.50%, 05-25-2026 277,773 Wells Fargo Mortgage Backed Securities Trust, 161,971 Series 2001-29, Class A1, 6.00%, 12-25-2016 165,492 -------------- 25,544,211 -------------- International (U.S. $ Denominated) - 0.2% National Bank Hungary Debentures, 110,000 8.88%, 11-01-2013 147,251 -------------- Municipal Bond - 0.3% Tobacco Settlement Financing Corporation: 55,000 Series 2001-A, Class A, 5.92%, 06-01-2012 53,698 209,475 Series 2001-A, Class A, 6.36%, 05-15-2025 201,919 -------------- 255,617 -------------- U.S. Government Agency - 1.3% Federal Home Loan Mortgage Corporation (FHLMC), 335,000 6.63%, 09-15-2009 402,059 Soyland Power Cooperative U.S. Government Guarantee, 743,862 8.35%, 09-15-2009 804,613 -------------- 1,206,672 -------------- U.S. Treasury Obligations - 19.0% U.S. Treasury Bonds: 5,075,000 9.25%, 02-15-2016 7,770,500 3,525,000 6.25%, 08-15-2023 4,317,850 See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 97.2% U.S. Treasury Obligations - 19.0% (cont.) U.S. Treasury Notes: $2,800,000 6.13%, 08-15-2007 $ 3,238,922 1,500,000 6.00%, 08-15-2009 1,769,355 ------------- 17,096,627 ------------- Total Long-Term Investments (Cost $83,398,000) 87,335,417 ------------- Shares Value ------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.1% Investment Company - 0.6% 561,448 Investment Company Cash Reserve Portfolio - AIM Fund 561,448 ------------- Money Market Fund - 0.1% 94,548 SEI Daily Income Trust Government Fund 94,548 -------------- Principal Amount Value ------------------------------------------------------------------------------------------- Discount Note - 1.1% $1,000,000 Federal National Mortgage Association (FNMA) Discount Note, 0.00% 999,508 -------------- Variable Rate Demand Notes# - 0.3% 90,000 American Family Financial Services, Inc., 0.85% 90,000 134,966 Wisconsin Corporation Central Credit Union, 0.70% 134,966 -------------- 224,966 -------------- Total Short-Term Investments (Cost $1,880,470) 1,880,470 -------------- Total Investments (Cost $85,278,470) 99.3% 89,215,887 -------------- Other Assets, less Liabilities 0.7% 611,127 -------------- TOTAL NET ASSETS 100.0% $ 89,827,014 ==============
*Unregistered security ** Fair valued security @ Security in default ^ Non-income producing security # 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 June 30, 2003. See notes to the financial statements Baird Intermediate Municipal Bond Fund June 30, 2003 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 the 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. 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. Portfolio Characteristics Quality Distribution Sector Weightings Aaa 95% Pre-refunded ETM 81% Aa 4% Insured 12% A 1% Cash 1% Revenue 1% General Obligation 5% Net Assets: $ 32,506,283 SEC 30-Day Yield:** Portfolio Expense Ratio: Institutional Class: 3.22% Institutional Class: 0.30% Investor Class: 2.92% Investor Class: 0.55%* Average Duration: 5.91 years Portfolio Turnover Ratio: 27.5%*** Average Maturity: 7.32 years Total Number of Holdings: 37 * Includes 0.25% 12b-1 fee. ** SEC yields are based on SEC guidelines and are calculated based on the 30 days ended June 30, 2003. *** The portfolio turnover is a rolling 12 month calculation. Annualized Total Returns -------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) -------------------------------------------------------------------------------- Baird Intermediate Municipal Bond Fund - Institutional Class Shares 9.64% 8.77% Baird Intermediate Municipal Bond Fund - Investor Class Shares 9.36% 8.46% Lehman Brothers 10-Year General Obligation Bond Index(2) 9.48% 7.59% -------------------------------------------------------------------------------- (1) For the period March 30, 2001 (commencement of operations) to June 30, 2003. (2) 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 June 30, 2003 (unaudited)
Principal Amount Value ------------------------------------------------------------------------------------------------ MUNICIPAL BONDS - 97.6% Alabama - 1.4% Mobile Alabama, ETM $ 400,000 6.20%, 02-15-2007 $ 458,020 ------------- Arkansas - 0.5% Pulaski County, Arkansas Residential Housing Facilities, ETM 145,000 7.25%, 06-01-2010 173,819 ------------- California - 3.4% Golden State Tobacco Securitization Corporation 500,000 6.25%, 06-01-2033 448,600 Santa Rosa California Hospital Revenue, ETM 495,000 10.30%, 03-01-2011 661,865 ------------- 1,110,465 ------------- Colorado - 0.4% Colorado Springs Colorado Utilities Revenue, ETM 120,000 5.80%, 11-15-2010 139,314 ------------- Delaware - 5.8% Delaware State Economic Development Authority Revenue, ETM 1,500,000 6.75%, 01-01-2013 1,880,370 ------------- Florida - 3.1% Jacksonville Florida Health Facility Authority Hospital Revenue, ETM 300,000 11.50%, 10-01-2012 498,201 Orange County Florida Health Revenue, ETM 405,000 8.75%, 10-01-2009 492,035 ------------- 990,236 ------------- Georgia - 3.2% Fulton County Georgia Hospital Authority Revenue, ETM 560,000 7.88%, 10-01-2013 745,298 Georgia State, 250,000 5.50%, 07-01-2012 296,620 ------------- 1,041,918 ------------- Illinois - 9.2% Illinois State, ETM 2,500,000 6.00%, 01-01-2014 2,981,850 ------------- Indiana - 2.9% Baugo Indiana School Building Corporation, 745,000 5.50%, 01-15-2012 866,897 Indiana Toll Road Commission, ETM 50,000 9.00%, 01-01-2015 72,140 ------------- 939,037 ------------- Iowa - 2.3% Muscatine Iowa Electric Revenue, ETM 630,000 6.70%, 01-01-2013 761,368 ------------- Louisiana - 5.3% Denhan Springs-Livingston Housing and Mortgage Finance Authority, ETM 545,000 7.20%, 08-01-2010 696,368 Jefferson Parish LA Home Mortgage Authority, ETM 820,000 7.10%, 08-01-2010 1,039,096 ------------- 1,735,464 ------------- See notes to the financial statements Principal Amount Value ------------------------------------------------------------------------------------------------ MUNICIPAL BONDS - 97.6% (cont.) Minnesota - 2.3% Western Minnesota Municipal Power Agency, ETM $ 620,000 6.38%, 01-01-2016 $ 747,664 ------------- Mississippi - 3.1% Mississippi Housing Financial Corporation, ETM 400,000 0.00%, 06-01-2015 248,724 Mississippi State, ETM 635,000 6.20%, 02-01-2008 742,226 ------------- 990,950 ------------- New Jersey - 1.8% New Jersey State Turnpike Authority, ETM 527,000 6.75%, 01-01-2009 594,893 ------------- New York - 3.4% Triborough Bridge & Tunnel Authority, ETM 1,000,000 5.25%, 01-01-2014 1,113,960 ------------- Ohio - 0.7% Miamisburg Ohio Water Revenue, ETM 175,000 7.00%, 11-15-2016 218,342 ------------- Oklahoma - 9.3% Tulsa County Oklahoma Home Financing Authority Single Family Mortgage Revenue, ETM 2,360,000 6.90%, 08-01-2011 3,025,591 ------------- Pennsylvania - 9.9% Philadelphia Pennsylvania Gas Works, ETM 600,000 7.00%, 05-15-2020 782,034 Pittsburgh Pennsylvania Water & Sewer Authority, ETM 1,310,000 7.25%, 09-01-2014 1,670,695 Wilson Pennsylvania Area School District, 1,000,000 0.00%, 05-15-2011 757,530 ------------- 3,210,259 ------------- South Carolina - 1.1% Greenville South Carolina Waterworks Revenue, ETM 285,000 7.00%, 02-01-2010 357,615 ------------- South Dakota - 2.7% Heartland Consumers Power District, ETM 705,000 7.00%, 01-01-2016 878,903 ------------- Tennessee - 7.2% Metropolitan Government Nashville & Davidson County Tennessee H&E,ETM 750,000 6.10%, 07-01-2010 852,487 Metropolitan Government Nashville & Davidson County Tennessee Water & Sewer Revenue, ETM 1,160,000 6.50%, 12-01-2014 1,484,846 ------------- 2,337,333 ------------- See notes to the financial statements Principal Amount Value ----------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 97.6% (cont.) Texas - 9.0% Houston Texas Sewer System Revenue, ETM $ 575,000 9.38%, 10-01-2013 $ 828,408 Sam Rayburn Texas Municipal Power Agency, ETM 665,000 6.00%, 09-01-2010 782,379 Texas Public Building Authority Building Revenue, ETM 150,000 7.13%, 08-01-2011 186,399 University Houston Texas, 1,000,000 5.25%, 02-15-2012 1,144,730 ------------- 2,941,916 ------------- Utah - 2.5% Salt Lake City Utah Hospital Revenue, ETM 605,000 8.13%, 05-15-2015 824,688 ------------- Washington - 7.1% Clark County School District No. 037, 1,025,000 5.13%, 12-01-2011 1,172,826 Washington State, 1,000,000 5.00%, 09-01-2013 1,124,590 ------------- 2,297,416 ------------- Total Long-Term Securities (Cost $30,006,606) 31,751,391 ------------- See notes to the financial statements Shares Value ------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENT - 0.9% Investment Company - 0.9% 284,634 Tax Free Investments Company Cash Reserve Portfolio - AIM Fund 284,634 ------------- Total Short-Term Investment (Cost $284,634) 284,634 ------------- Total Investments (Cost $30,291,240) 98.5% 32,036,025 ------------- Other Assets, less Liabilities 1.5% 470,258 ------------- TOTAL NET ASSETS 100.0% $ 32,506,283 =============
ETM Escrowed to maturity See notes to the financial statements Baird Core Plus Bond Fund June 30, 2003 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 government and investment grade debt, non-investment grade debt, asset-backed and mortgage-backed securities, Eurobonds, 144A securities and emerging market debt. Portfolio Characteristics Quality Distribution Sector Weightings U.S. Treasury 16% U.S. Treasury 16% U.S. Gov't Agency 33% U.S. Gov't Agency 2% Aaa 13% CMB 2% Aa 4% Mortgage/CMOs 26% A 6% Asset-Backed 10% Baa 21% Industrials 21% Below Baa 7% Utility 6% Finance/Bank/Broker 10% Cash 6% Municipal 1% Net Assets: $ 48,428,533 SEC 30-Day Yield:** Portfolio Expense Ratio: Institutional Class: 5.53% Institutional Class: 0.30% Investor Class: 5.17% Investor Class: 0.55%* Average Duration: 4.06 years Portfolio Turnover Ratio: 126.0%*** Average Maturity: 7.34 years Total Number of Holdings: 105 * Includes 0.25% 12b-1 fee. ** SEC yields are based on SEC guidelines and are calculated based on the 30 days ended June 30, 2003. *** The portfolio turnover is a rolling 12 month calculation. Annualized Total Returns -------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) -------------------------------------------------------------------------------- Baird Core Plus Bond Fund - Institutional Class Shares 12.00% 9.59% Baird Core Plus Bond Fund - Investor Class Shares 11.75% 9.35% Lehman Brothers U.S. Universal Bond Index(2) 11.51% 9.76% -------------------------------------------------------------------------------- (1) For the period September 29, 2000 (commencement of operations) to June 30, 2003. (2) 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 government and investment grade debt, non-investment grade debt, asset-backed and mortgage- backed securities, Eurobonds, 144A securities and emerging market debt. 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 June 30, 2003 (unaudited) Principal Amount Value -------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 92.8% Asset Backed Securities - 10.2% Advanta Mortgage Loan Trust, $ 478,943 Series 1997-2, Class M1, 7.55%, 06-25-2027 $ 489,371 American General Mortgage Loan Trust, 450,000 Series 2003-1, Class A2, 2.54%, 04-25-2033 451,125 Contimortgage Home Equity Loan Trust, 500,000 Series 1998-2, Class A7, 6.57%, 03-15-2023 522,910 Green Tree Financial Corporation: 89,908 Series 1997-1, Class A5, 6.86%, 03-15-2028 92,179 378,326 Series 1998-4, Class A5, 6.18%, 04-01-2030 359,434 Green Tree Home Improvement Loan Trust, 106,748 Series 1998-D, Class HEA6, 6.15%, 08-15-2029 107,646 MBNA Credit Card Master Note Trust, 1,400,000 Series 2003-A3, Class A3, 1.23%, 08-16-2010 1,401,985 Oakwood Mortgage Investors Inc., 195,264 Series 1999-B, Class A3, 6.45%, 11-15-2017 196,856 Residential Asset Mortgage Products, Inc., 400,000 Series 2003-RS5, Class AI3, 2.59%, 10-25-2028 398,000 Residential Asset Securities Corporation: 450,000 Series 2003-KS2, Class AI3, 2.66%, 11-25-2028 452,155 450,000 Series 2003-KS5, Class AI6, 3.62%, 07-25-2031 447,750 --------------- 4,919,411 --------------- Commercial Mortgage-Backed Securities - 1.7% First Union National Bank Commercial Mortgage 725,000 Series 2001-C4, Class A2, 6.22%, 12-12-2033 833,260 --------------- Financial - 10.0% Allfirst Financial Subordinated Notes, 500,000 7.20%, 07-01-2007 565,211 Associated P&C Holdings 150,000 6.75%, 07-15-2003, (Acquired 03-11-03; Cost $150,320)* 150,208 Credit Suisse Finance Broker USA, Inc. Notes, 350,000 6.13%, 11-15-2011 392,082 First National Bank Omaha Subordinated Notes, 350,000 7.32%, 12-01-2010 378,412 First Union Capital, 250,000 7.94%, 01-15-2027 290,685 Ford Motor Company Debentures, 400,000 9.22%, 09-15-2021 415,203 Household Finance Corp. 200,000 6.40%, 06-17-2008 228,304 Liberty Mutual Insurance, 375,000 7.70%, 10-15-2097, (Acquired 03-26-03; Cost $239,982)* 275,860 MBNA Corp., 250,000 6.13%, 03-01-2013 271,914 National Rural Utilities 335,000 6.00%, 01-15-2004 343,520 NCNB Corporation Subordinated Notes, 300,000 10.20%, 07-15-2015 444,658 New York Life Insurance, 100,000 5.88%, 05-15-2033, (Acquired 05-05-03; Cost $99,024)* 104,948 Sanwa Bank Ltd NY Subordinated Notes, 400,000 7.40%, 06-15-2011 448,508 See notes to the financial statements Principal Amount Value -------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 92.8% (cont.) Financial - 10.0% (cont.) Washington Mutual Capital I, $ 338,000 8.38%, 06-01-2027 $ 399,662 Wharf International Finance LTD, 100,000 7.63%, 03-13-2007 114,246 --------------- 4,823,421 --------------- Industrial - 21.0% America West Airlines Pass Thru Certificates, 313,304 8.54%, 01-02-2006 300,462 AMVESCAP PLC, 175,000 5.38%, 02-27-2013 177,865 AOL Time Warner, Inc. Bonds, 300,000 7.63%, 04-15-2031 346,232 Atlas Air, Inc. Pass Thru Certificates, 659,837 8.71%, 01-02-2019 585,341 Burlington Northern Santa Fe Pass Thru Certificates, 82,065 7.42%, 03-23-2010 92,947 Continental Airlines, Inc. Pass Thru Certificates: 300,000 7.43%, 09-15-2004 264,696 78,254 7.42%, 04-01-2007 66,521 148,304 6.80%, 07-02-2007 126,079 80,642 6.90%, 01-02-2018 78,313 Continental Cablevision Debentures, 400,000 9.50%, 08-01-2013 460,430 Corp. Andina De Fomento Notes, 450,000 7.38%, 01-18-2011 518,587 Delta Air Lines Pass Thru Certificates, 500,000 7.78%, 11-18-2005 434,924 Deutsche Telekom International Finance, 100,000 8.75%, 06-15-2030 127,409 Duty Free International Inc. Notes,** 825,000 7.00%, 01-15-2004 412,500 Dynegy Holdings, Inc. Senior Notes, 300,000 7.45%, 07-15-2006 285,750 Fiserv Inc., 200,000 4.00%, 04-15-2008, (Acquired 04-08-03; Cost $199,838)* 205,961 General Electric Company, 200,000 5.00%, 02-01-2013 211,251 Georgia-Pacific Debentures: 275,000 9.88%, 11-01-2021 277,750 200,000 9.63%, 03-15-2022 198,000 100,000 9.50%, 05-15-2022 98,500 Hanson Australia Funding, 200,000 5.25%, 03-15-2013 204,872 Laboratory Corporation of America, 200,000 5.50%, 02-01-2013 214,129 May Department Stores Co., 315,000 9.75%, 02-15-2021 417,898 Northop Grumman Corporation Debentures, 300,000 9.38%, 10-15-2024 335,780 Northwest Airlines, Inc. Pass Thru Certificates: 535,923 7.25%, 01-02-2012 351,271 105,195 8.07%, 10-01-2019 114,528 See notes to the financial statements Principal Amount Value -------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 92.8% (cont.) Industrial - 21.0% (cont.) PEMEX Project Fielding Master Trust Company Guarantee, $ 400,000 9.13%, 10-13-2010 $ 484,000 Sealed Air Corp.: 100,000 5.38%, 04-15-2008, (Acquired 04-09-03; Cost $99,460)* 104,949 180,000 8.75%, 07-01-2008, (Acquired 03-27-03; Cost $197,053)* 212,896 Southwest Airlines Pass Through Certificates, 303,561 7.67%, 01-02-2014 344,915 Sprint Capital Corporation, 400,000 6.00%, 01-15-2007 429,861 Sunoco, Inc. Debentures, 325,000 9.38%, 06-01-2016 371,478 TCI Communications, Inc. Debentures, 500,000 7.88%, 08-01-2013 605,608 Tyco International Group SA Notes, 350,000 6.38%, 10-15-2011 369,250 United Air Lines Pass Thru Certificates, 400,000 6.20%, 09-01-2008 335,296 --------------- 10,166,249 --------------- Utilities - 6.1% Edison Mission Senior Notes, 300,000 9.88%, 04-15-2011 277,500 Gemstone Investors, Ltd., 350,000 7.71%, 10-31-2004, (Acquired 10-25-01; Cost $350,000)* 348,250 Nisource Finance Corporation, 300,000 7.63%, 11-15-2005 328,005 Oneok, Inc. Senior Notes, 400,000 7.13%, 04-15-2011 439,308 PPL Energy Supply, LLC Senior Notes, 400,000 6.40%, 11-01-2011 444,056 PSEG Energy Holdings Senior Notes, 200,000 8.50%, 06-15-2011 215,000 PSEG Power Senior Notes, 350,000 7.75%, 04-15-2011 417,619 RGS (I&M) Funding Corp., 297,665 9.82%, 12-07-2022 400,472 Utilicorp United, Inc. Senior Notes, 100,000 7.00%, 07-15-2004 94,625 --------------- 2,964,835 --------------- Mortgage-Backed Securities - 25.9% Federal Gold Loan Mortgage Corporation (FGLMC): 407,809 6.00%, 05-01-2017 424,093 653,353 6.50%, 12-01-2028 680,789 424,186 6.50%, 09-01-2028 441,999 899,112 6.50%, 04-01-2029 936,592 487,057 6.50%, 05-01-2029 507,360 497,190 6.50%, 06-01-2029 517,916 Federal Home Loan Mortgage Corporation (FHLMC): 103,773 Series 1053, Class G, 7.00%, 03-15-2021 104,774 159,797 Series 1122, Class G, 7.00%, 08-15-2021 163,318 See notes to the financial statements Principal Amount Value ---------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 92.8% (cont.) Mortgage-Backed Securities - 25.9% (cont.) Federal Home Loan Mortgage Corporation (FHLMC): (cont.) $ 778,778 Series 2531, Class N, 4.00%, 07-15-2027 $ 788,045 750,000 Series 2141, Class N, 5.55%, 11-15-2027 771,917 Federal National Mortgage Association (FNMA): 705,146 5.00%, 02-01-2018 729,487 315,818 6.50%, 09-01-2028 329,790 512,234 6.50%, 02-01-2029 534,895 717,756 5.50%, 01-01-2032 743,090 150,000 Series 2002-70, Class PL, 5.00%, 04-25-2015 154,369 450,000 Series 2539, Class QB, 5.00%, 09-15-2015 467,372 55,920 Series 1989-94, Class G, 7.50%, 12-25-2019 60,655 74,583 Series 1990-15, Class J, 7.00%, 02-25-2020 79,358 125,328 Series 1990-76, Class G, 7.00%, 7-25-2020 131,466 63,025 Series 1991-21, Class J, 7.00%, 03-25-2021 67,969 298,759 Series 1993-32, Class H, 6.00%, 03-25-2023 307,935 680,895 Series 1993-58, Class H, 5.50%, 04-25-2023 707,726 450,000 Series 2003-31, Class KG, 4.50%, 12-25-2028 458,308 296,633 Series 2003-44, Class AB, 3.75%, 05-25-2033 299,920 Government National Mortgage Association (GNMA): 517,307 6.50%, 08-15-2027 545,047 775,387 6.00%, 12-20-2028 809,333 356,510 6.50%, 01-20-2029 372,915 352,360 6.50%, 02-20-2029 368,574 --------------- 12,505,012 --------------- Municipal Bond - 0.5% Tobacco Settlement Financing Corporation, 266,605 Series 2001-A, Class A, 6.36%, 05-15-2025 256,988 --------------- U.S. Government Agency Issue - 1.8% Federal Home Loan Mortgage Corporation (FHLMC), 730,000 6.63%, 09-15-2009 876,128 --------------- U.S. Treasury Obligations - 15.6% U.S. Treasury Bonds: 2,050,000 9.25%, 02-15-2016 3,138,823 1,850,000 6.25%, 08-15-2023 2,266,106 U.S. Treasury Notes: 1,325,000 3.00%, 11-15-2007 1,366,716 675,000 6.00%, 08-15-2009 796,210 --------------- 7,567,855 --------------- Total Long-Term Securities (Cost $43,918,459) 44,913,159 --------------- Shares Value -------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 6.0% Investment Company - 0.7% 342,060 Investment Company Cash Reserve Portfolio - AIM Fund $ 342,060 --------------- See notes to the financial statements Principal Amount Value -------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 6.0% (cont.) Discount Note - 4.9% $2,400,000 Federal National Mortgage Association (FNMA) Discount Note, 0.00% $ 2,398,820 Variable Rate Demand Notes# 0.4% 95,708 American Family Financial Services, Inc., 0.85% 95,708 84,704 Wisconsin Corporation Central Credit Union, 0.70% 84,704 --------------- 180,412 --------------- Total Short-Term Investments (Cost $2,921,292) 2,921,292 --------------- Total Investments (Cost $46,839,751) 98.8% 47,834,451 --------------- Other Assets, less Liabilities 1.2% 594,082 --------------- TOTAL NET ASSETS 100.0% $ 48,428,533 ===============
* Unregistered security ** Fair valued security # 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 June 30, 2003. See notes to the financial statements Baird Funds, Inc. Statements of Assets and Liabilities June 30, 2003 (unaudited)
Baird Intermediate Baird Baird Municipal Baird Intermediate Aggregate Bond Core Plus Bond Fund Bond Fund Fund Bond Fund ------------------------------------------------------------ ASSETS: Investments, at value $ 141,573,929 $ 89,215,887 $ 32,036,025 $ 47,834,451 (cost $137,142,423, $85,278,470, $30,291,240, $46,839,751 respectively) Receivable for investments sold 1,002,800 651,820 - 350,980 Interest receivable 1,917,499 1,061,926 596,900 629,624 Receivable for Fund shares sold 105,525 29,340 - 4,602 ---------------- -------------- -------------- ------------- Total assets 144,599,753 90,958,973 32,632,925 48,819,657 ---------------- -------------- -------------- ------------- LIABILITIES: Bank overdraft 6,753 - - - Payable for securities purchased 3,630,966 955,689 118,383 347,641 Payable for Fund shares purchased 425 154,760 - 31,448 Payable to Advisor and Distributor 35,007 21,510 8,259 12,035 ---------------- -------------- -------------- ------------- Total liabilities 3,673,151 1,131,959 126,642 391,124 ---------------- -------------- -------------- ------------- NET ASSETS $ 140,926,602 $ 89,827,014 $ 32,506,283 $ 48,428,533 ================ ============== ============== ============= NET ASSETS CONSIST OF: Capital stock $ 134,393,836 $ 84,936,936 $ 30,595,110 $ 45,921,544 Accumulated undistributed net investment income 99,763 71,020 20,469 39,761 Accumulated net realized gain on investments sold 2,001,497 881,641 145,919 1,472,528 Net unrealized appreciation on investments 4,431,506 3,937,417 1,744,785 994,700 ---------------- -------------- -------------- ------------- NET ASSETS $ 140,926,602 $ 89,827,014 $ 32,506,283 $ 48,428,533 ================ ============== ============== ============= INSTITUTIONAL CLASS SHARES Net Assets $ 139,641,658 $ 88,882,425 $ 31,520,652 $ 48,196,162 Shares outstanding ($0.01 par value, unlimited shares authorized) 12,506,622 8,064,919 2,844,040 4,440,174 Net asset value, offering and redemption price per share $ 11.17 $ 11.02 $ 11.08 $ 10.85 ================ ============== ============== ============= INVESTOR CLASS SHARES Net Assets $ 1,284,944 $ 944,589 $ 985,631 $ 232,371 Shares outstanding ($0.01 par value, unlimited shares authorized) 112,143 84,460 87,573 20,978 Net asset value, offering and redemption price per share $ 11.46 $ 11.18 $ 11.25 $ 11.08 ================ ============== ============== =============
See notes to the financial statements Baird Funds, Inc.
Statements of Operations Six months ended June 30, 2003 (unaudited) Baird Intermediate Baird Baird Municipal Baird Intermediate Aggregate Bond Core Plus Bond Fund Bond Fund Fund Bond Fund --------------------------------------------------- INVESTMENT INCOME: Interest income $ 3,605,975 $ 2,407,174 $ 661,964 $ 1,330,028 ------------ ------------ ------------ ------------ Total investment income 3,605,975 2,407,174 661,964 1,330,028 ------------ ------------ ------------ ------------ EXPENSES: Investment advisory fee 185,052 107,207 39,977 62,092 Administration fee 37,011 21,442 7,995 12,418 Distribution expense - Investor Class Shares 1,410 1,128 1,023 294 ------------ ------------ ------------ ------------ Total expenses 223,473 129,777 48,995 74,804 ------------ ------------ ------------ ------------ NET INVESTMENT INCOME 3,382,502 2,277,397 612,969 1,255,224 ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 2,047,699 839,497 144,319 1,472,334 Change in unrealized appreciation on investments 2,078,748 1,668,208 514,474 351,515 ------------ ------------ ------------ ------------ Net realized and unrealized gain on investments 4,126,447 2,507,705 658,793 1,823,849 ------------ ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING ------------ ------------ ------------ ------------ FROM OPERATIONS $ 7,508,949 $ 4,785,102 $ 1,271,762 $ 3,079,073 ============ ============ ============ ============
See notes to the financial statements Baird Funds, Inc. Statements of Changes in Net Assets
Baird Intermediate Bond Fund --------------------------------- Six months ended Year ended June 30, 2003 December 31, (unaudited) 2002 --------------- -------------- OPERATIONS: Net investment income $ 3,382,502 $ 6,043,311 Net realized gain on investments 2,047,699 10,437 Change in unrealized appreciation on investments 2,078,748 3,392,135 --------------- -------------- Net increase in net assets resulting from operations 7,508,949 9,445,883 --------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 20,327,139 72,757,418 Shares issued to holders in reinvestment of dividends 2,829,333 5,419,971 Cost of shares redeemed (33,801,711) (24,889,295) --------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions (10,645,239) 53,288,094 --------------- -------------- DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income (3,278,026) (6,039,040) From realized gains - (158,637) --------------- -------------- (3,278,026) (6,197,677) --------------- -------------- DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income (22,583) (42,898) From realized gains - (1,196) --------------- -------------- (22,583) (44,094) --------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (6,436,899) 56,492,206 NET ASSETS: Beginning of period 147,363,501 90,871,295 --------------- -------------- End of period (including undistributed net investment income of $99,763 and $17,870, respectively) $ 140,926,602 $ 147,363,501 =============== ==============
See notes to the financial statements Baird Funds, Inc. Statements of Changes in Net Assets
Baird Aggregate Bond Fund ------------------------------ Six months ended Year ended June 30, 2003 December 31, (unaudited) 2002 ---------------- ------------ OPERATIONS: Net investment income $ 2,277,397 $ 5,128,841 Net realized gain on investments 839,497 178,651 Change in unrealized appreciation on investments 1,668,208 1,793,364 ---------------- ------------- Net increase in net assets resulting from operations 4,785,102 7,100,856 ---------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 12,828,513 19,283,461 Shares issued to holders in reinvestment of dividends 1,874,452 4,474,044 Cost of shares redeemed (16,138,591) (20,113,617) ---------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (1,435,626) 3,643,888 ---------------- ------------- DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income (2,193,577) (5,196,705) From realized gains - (389,330) ---------------- ------------- (2,193,577) (5,586,035) ---------------- ------------- DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income (21,542) (21,628) From realized gains - (3,698) ---------------- ------------- (21,542) (25,326) ---------------- ------------- TOTAL INCREASE IN NET ASSETS 1,134,357 5,133,383 NET ASSETS: Beginning of period 88,692,657 83,559,274 ---------------- ------------- End of period (including undistributed net investment income of $71,020 and $8,742, respectively) $ 89,827,014 $ 88,692,657 ================ =============
See notes to the financial statements Baird Funds, Inc. Statements of Changes in Net Assets
Baird Intermediate Municipal Bond Fund -------------------------------------- Six months ended June 30, 2003 Year ended (unaudited) December 31, 2002 -------------- --------------- OPERATIONS: Net investment income $ 612,969 $ 771,580 Net realized gain on investments 144,319 12,917 Change in unrealized appreciation on investments 514,474 1,233,006 -------------- --------------- Net increase in net assets resulting from operations 1,271,762 2,017,503 -------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 559,520 19,006,017 Shares issued to holders in reinvestment of dividends 557,103 614,857 Cost of shares redeemed (1,213,488) (3,954,182) -------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions (96,865) 15,666,692 -------------- --------------- DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income (582,625) (798,038) From realized gains - (11,070) -------------- --------------- (582,625) (809,108) -------------- --------------- DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income (13,704) (19,906) From realized gains - (247) -------------- --------------- (13,704) (20,153) -------------- --------------- TOTAL INCREASE IN NET ASSETS 578,568 16,854,934 NET ASSETS: Beginning of period 31,927,715 15,072,781 -------------- --------------- End of period (including undistributed net investment income of $20,469 and $3,829, respectively) $ 32,506,283 $ 31,927,715 ============== ===============
See notes to the financial statements Baird Funds, Inc. Statements of Changes in Net Assets
Baird Core Plus Bond Fund ----------------------------------- Six months ended Year ended June 30, 2003 December 31, (unaudited) 2002 --------------- --------------- OPERATIONS: Net investment income $ 1,255,224 $ 3,459,119 Net realized gain (loss) on investments 1,472,334 (11,979) Change in unrealized appreciation on investments 351,515 87,938 --------------- --------------- Net increase in net assets resulting from operations 3,079,073 3,535,078 --------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 1,784,557 14,614,327 Shares issued to holders in reinvestment of dividends 680,222 2,585,078 Cost of shares redeemed (10,411,567) (32,033,440) --------------- --------------- Net decrease in net assets resulting from capital share transactions (7,946,788) (14,834,035) --------------- --------------- DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income (1,216,506) (3,428,087) From realized gains - (181,952) --------------- --------------- (1,216,506) (3,610,039) --------------- --------------- DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income (5,195) (12,350) From realized gains - (1,058) --------------- --------------- (5,195) (13,408) --------------- --------------- TOTAL DECREASE IN NET ASSETS (6,089,416) (14,922,404) NET ASSETS: Beginning of period 54,517,949 69,440,353 --------------- --------------- End of period (including undistributed net investment income of $39,761 and $6,238, respectively) $ 48,428,533 $ 54,517,949 =============== ===============
See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird Intermediate Bond Fund ---------------------------------------------------------------- Institutional Class Shares Institutional Institutional Institutional September 29, Class Shares Class Shares Class Shares 2000(1) Six months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 ---------------- -------------- ------------- ------------- Per Share Data: Net asset value, beginning of period $10.86 $10.60 $10.55 $10.00 ---------------- -------------- ------------ ------------- Income from investment operations: Net investment income 0.25 0.56 0.62(6) 0.13 Net realized and unrealized gains on investments 0.30 0.27 0.08(7) 0.53 ---------------- -------------- ------------ ------------- Total from investment operations 0.55 0.83 0.70 0.66 ---------------- -------------- ------------ ------------- Less distributions: Dividends from net investment income (0.24) (0.56) (0.62) (0.11) Distributions from net realized gains 0.00 (0.01) (0.03) (0.00)(5) ---------------- -------------- ------------ ------------- Total distributions (0.24) (0.57) (0.65) (0.11) ---------------- -------------- ------------ ------------- Net asset value, end of period $11.17 $10.86 $10.60 $10.55 ================ ============== ============ ============= Total return 5.15%(2) 8.02% 6.68% 6.63% (2) Supplemental data and ratios: Net assets, end of period $139,641,658 $146,236,339 $89,682,104 $9,769,062 Ratio of expenses to average net assets 0.30%(3) 0.30% 0.30% 0.30% (3) Ratio of net investment income to average net assets 4.57%(3) 5.20% 5.71% 6.73% (3) Portfolio turnover rate (4) 32.2% 41.1% 79.5% 102.5%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. (6) Calculated using average shares outstanding during the period. (7) 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 Class Shares Investor Class Investor Class Investor Class September 29, Shares Six Shares Shares 2000 (1) months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 --------------- ------------- -------------- -------------- Per Share Data: Net asset value, beginning of period $11.13 $10.71 $10.56 $10.00 --------------- ------------ -------------- -------------- Income from investment operations: Net investment income 0.24 0.54(6) 0.59(6) 0.13 Net realized and unrealized gains on investments 0.31 0.27 0.08(7) 0.53 --------------- ------------ -------------- -------------- Total from investment operations 0.55 0.81 0.67 0.66 --------------- ------------ -------------- -------------- Less distributions: Dividends from net investment income (0.22) (0.38) (0.49) (0.10) Distributions from net realized gains 0.00 (0.01) (0.03) (0.00)(5) --------------- ------------ -------------- -------------- Total distributions (0.22) (0.39) (0.52) (0.10) --------------- ------------ -------------- -------------- Net asset value, end of period $11.46 $11.13 $10.71 $10.56 =============== ============ ============== ============== Total return 5.02%(2) 7.74% 6.43% 6.68%(2) Supplemental data and ratios: Net assets, end of period $1,284,944 $1,127,162 $1,189,191 $351,262 Ratio of expenses to average net assets 0.55%(3) 0.55% 0.55% 0.55%(3) Ratio of net investment income to average net assets 4.32%(3) 4.95% 5.46% 6.48%(3) Portfolio turnover rate (4) 32.2% 41.1% 79.5% 102.5%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. (6) Calculated using average shares outstanding during the period. (7) 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 Class Shares Institutional Institutional Institutional September 29, Class Shares Class Shares Class Shares 2000(1) Six months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 ---------------- -------------- ------------- ------------- Per Share Data: Net asset value, beginning of period $10.69 $10.51 $10.42 $10.00 -------------- --------------- --------------- -------------- Income from investment operations: Net investment income 0.29 0.62 0.68 0.16 Net realized and unrealized gains on investments 0.32 0.23 0.17 0.42 -------------- --------------- --------------- -------------- Total from investment operations 0.61 0.85 0.85 0.58 -------------- --------------- --------------- -------------- Less distributions: Dividends from net investment income (0.28) (0.62) (0.67) (0.16) Distributions from net realized gains 0.00 (0.05) (0.09) (0.00)(5) -------------- --------------- --------------- -------------- Total distributions (0.28) (0.67) (0.76) (0.16) -------------- --------------- --------------- -------------- Net asset value, end of period $11.02 $10.69 $10.51 $10.42 ============== =============== =============== ============== Total return 5.75%(2) 8.30% 8.33% 5.78%(2) Supplemental data and ratios: Net assets, end of period $88,882,425 $87,847,176 $83,392,652 $35,975,190 Ratio of expenses to average net assets 0.30%(3) 0.30% 0.30% 0.30%(3) Ratio of net investment income to average net assets 5.31%(3) 5.75% 6.33% 6.85%(3) Portfolio turnover rate (4) 53.9% 51.2% 79.2% 14.7%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird Aggregate Bond Fund ------------------------------------------------------------- Investor Class Shares Investor Class Investor Class Investor Class September 29, Shares Six Shares Shares 2000 (1) months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 --------------- ------------- -------------- -------------- Per Share Data: Net asset value, beginning of period $10.84 $10.57 $10.43 $10.00 --------------- ------------- -------------- -------------- Income from investment operations: Net investment income 0.28 0.60(6) 0.65(6) 0.15 Net realized and unrealized gains on investments 0.32 0.23 0.17 0.42 --------------- ------------- -------------- -------------- Total from investment operations 0.60 0.83 0.82 0.57 --------------- ------------- -------------- -------------- Less distributions: Dividends from net investment income (0.26) (0.51) (0.59) (0.14) Distributions from net realized gains 0.00 (0.05) (0.09) (0.00)(5) ---------------- -------------------------------------------- Total distributions (0.26) (0.56) (0.68) (0.14) --------------- ------------- -------------- -------------- Net asset value, end of period $11.18 $10.84 $10.57 $10.43 =============== ============= ============== ============== Total return 5.58%(2) 8.08% 7.98% 5.77%(2) Supplemental data and ratios: Net assets, end of period $944,589 $845,481 $166,622 $13,223 Ratio of expenses to average net assets 0.55%(3) 0.55% 0.55% 0.55%(3) Ratio of net investment income to average net assets 5.06%(3) 5.50% 6.08% 6.60%(3) Portfolio turnover rate (4) 53.9% 51.2% 79.2% 14.7%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. (6) 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 Class Shares Institutional Institutional March 30, Class Shares Class Shares 2001(1) Six months ended Year ended through June 30, 2003 December 31, December 31, (unaudited) 2002 2001 ---------------- -------------- ------------- Per Share Data: Net asset value, beginning of period $10.86 $10.25 $10.00 ---------------- -------------- --------------- Income from investment operations: Net investment income 0.21 0.43(5) 0.34(5) Net realized and unrealized gains on investments 0.21 0.64 0.17(6) ---------------- -------------- --------------- Total from investment operations 0.42 1.07 0.51 ---------------- -------------- --------------- Less distributions: Dividends from net investment income (0.20) (0.46) (0.25) Distributions from net realized gains 0.00 (0.00)(7) (0.01) ---------------- -------------- --------------- Total distributions (0.20) (0.46) (0.26) ---------------- -------------- --------------- Net asset value, end of period $11.08 $10.86 $10.25 ================ ============== =============== Total return 3.94%(2) 10.72% 5.02%(2) Supplemental data and ratios: Net assets, end of period $31,520,652 $31,221,508 $14,448,572 Ratio of expenses to average net assets 0.30%(3) 0.30% 0.30%(3) Ratio of net investment income to average net assets 3.84%(3) 4.11% 4.32%(3) Portfolio turnover rate (4) 13.6% 32.6% 14.8%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Calculated using average shares outstanding during the period. (6) 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) Amount is less than $0.01. See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird Intermediate Municipal Bond Fund ------------------------------------------------ Investor Class Shares Investor Class Investor Class March 30, Shares Six Shares 2001 (1) months ended Year ended through June 30, 2003 December 31, December 31, (unaudited) 2002 2001 --------------- ------------- -------------- Per Share Data: Net asset value, beginning of period $11.02 $10.27 $10.00 ---------------- ------------ -------------- Income from investment operations: Net investment income 0.19 0.41(5) 0.31(5) Net realized and unrealized gains on investments 0.22 0.64 0.17(6) ---------------- ------------ -------------- Total from investment operations 0.41 1.05 0.48 ---------------- ------------ -------------- Less distributions: Dividends from net investment income (0.18) (0.30) (0.20) Distributions from net realized gains 0.00 (0.00)(7) (0.01) ---------------- ------------ -------------- Total distributions (0.18) (0.30) (0.21) ---------------- ------------ -------------- Net asset value, end of period $11.25 $11.02 $10.27 ================ ============ ============== Total return 3.79%(2) 10.46% 4.74%(2) Supplemental data and ratios: Net assets, end of period $985,631 $706,207 $624,209 Ratio of expenses to average net assets 0.55%(3) 0.55% 0.55%(3) Ratio of net investment income to average net assets 3.59%(3) 3.86% 4.07%(3) Portfolio turnover rate(4) 13.6% 32.6% 14.8%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Calculated using average shares outstanding during the period. (6) 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) Amount is less than $0.01. See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird Core Plus Bond Fund ---------------------------------------------------------------- Institutional Class Shares Institutional Institutional Institutional September 29, Class Shares Class Shares Class Shares 2000(1) Six months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 ---------------- -------------- ------------- ------------- Per Share Data: Net asset value, beginning of period $10.45 $10.42 $10.45 $10.00 ---------------- -------------- -------------- ------------ Income from investment operations: Net investment income 0.27 0.62 0.65 0.14 Net realized and unrealized gains on investments 0.39 0.07 0.05 0.45 ---------------- -------------- -------------- ------------ Total from investment operations 0.66 0.69 0.70 0.59 ---------------- -------------- -------------- ------------ Less distributions: Dividends from net investment income (0.26) (0.62) (0.66) (0.14) Distributions from net realized gains 0.00 (0.04) (0.07) (0.00)(5) ---------------- -------------- -------------- ------------ Total distributions (0.26) (0.66) (0.73) (0.14) ---------------- -------------- -------------- ------------ Net asset value, end of period $10.85 $10.45 $10.42 $10.45 ================ ============== ============== ============ Total return 6.39%(2) 6.90% 6.84% 5.89%(2) Supplemental data and ratios: Net assets, end of period $48,196,162 $54,221,923 $69,182,002 $40,083,054 Ratio of expenses to average net assets 0.30%(3) 0.30% 0.30% 0.30%(3) Ratio of net investment income to average net assets 5.06%(3) 6.03% 6.25% 6.68%(3) Portfolio turnover rate (4) 66.2% 66.8% 47.0% 11.8%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird Core Plus Bond Fund ------------------------------------------------------------- Investor Class Shares Investor Class Investor Class Investor Class September 29, Shares Six Shares Shares 2000 (1) months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 --------------- ------------- -------------- -------------- Per Share Data: Net asset value, beginning of period $10.65 $10.49 $10.45 $10.00 ------------- ------------ ------------- -------------- Income from investment operations: Net investment income 0.26 0.60(6) 0.64(6) 0.12 Net realized and unrealized gains on investments 0.41 0.07 0.05 0.45 ------------- ------------ ------------- -------------- Total from investment operations 0.67 0.67 0.69 0.57 ------------- ------------ ------------- -------------- Less distributions: Dividends from net investment income (0.24) (0.47) (0.58) (0.12) Distributions from net realized gains 0.00 (0.04) (0.07) (0.00)(5) ------------- ------------ ------------- -------------- Total distributions (0.24) (0.51) (0.65) (0.12) ------------- ------------ ------------- -------------- Net asset value, end of period $11.08 $10.65 $10.49 $10.45 ============= ============ ============= ============== Total return 6.35%(2) 6.58% 6.70% 5.73%(2) Supplemental data and ratios: Net assets, end of period $232,371 $296,026 $258,351 $13,222 Ratio of expenses to average net assets 0.55%(3) 0.55% 0.55% 0.55%(3) Ratio of net investment income to average net assets 4.81%(3) 5.78% 6.00% 6.43%(3) Portfolio turnover rate (4) 66.2% 66.8% 47.0% 11.8%
(1) Commencement of operations. (2) Not annualized. (3) Annualized. (4) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Amount is less than $0.01. (6) Calculated using average shares outstanding during the period. See notes to the financial statements Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 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 and Baird Core Plus Bond Fund (each a "Fund" and collectively the "Funds"), four of the seven portfolios comprising the Corporation and each a diversified fund. One additional series, the Baird Short-Term Bond Fund, is not presently being offered to investors. 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 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. Prior to December 30, 2002, the investment objective of the Baird Core Plus Bond Fund was to provide an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Lehman Brothers Government/Credit Bond Index. The Lehman Brothers Government/Credit Bond Index is an unmanaged market value weighted performance benchmark for government and corporate fixed-rate debt issues with maturities between one and thirty years or more. At a meeting held on December 30, 2002, the shareholders of the Baird Core Plus Bond Fund approved a change in the Fund's investment objective so that instead of seeking to outperform the Government/Credit Bond Index, the Fund will seek to outperform the Lehman Brothers U.S. Universal Bond Index (the "Universal Bond Index") before Fund expenses. 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 government and investment grade debt, non-investment grade debt, asset-backed and mortgage-backed securities, Eurobonds, 144A securities and emerging market debt. In conjunction with the change in investment objective, the name of the Fund was changed from the Baird Core Bond Fund to the Baird Core Plus Bond Fund. The shares of the Fund at the meeting held on December 30, 2002 were voted as follows: 3,679,855.100 for the change, 50,222.240 against the change and 1,028,086.331 abstained (unaudited). 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. Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (cont.) 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 on the day the valuation is made. Securities traded on NASDAQ are valued at the NASDAQ official closing price on the day the valuation is made. 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 on the day the valuation is made. 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. 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 and Baird Core Plus Bond Fund was $4,847,203 (3.44% of net assets), $2,425,558 (2.70% of net assets) and $1,403,070 (2.90% of net assets), respectively, at June 30, 2003. 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) Distributions to Shareholders - Dividends from net investment income are declared and paid monthly. Distributions of net realized capital gains, if any, will be declared and paid at least annually. 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 or as soon as information is available to the Funds, and interest income is recognized on an accrual basis. Premiums and discounts on the purchase of securities are amortized using the interest method. Generally accepted accounting principles require that permanent financial reporting and tax differences be reclassified in the capital accounts. Subscriptions in-kind are included in proceeds from shares sold. Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 3. CAPITAL SHARE TRANSACTIONS The following table summarizes the capital share transactions of each Fund: BAIRD INTERMEDIATE BOND FUND
Period Ended Period Ended June 30, 2003 June 30, 2003 --------------------------- -------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------- ------------- ------------- Shares sold $ 20,132,839 1,835,878 Shares sold $ 194,300 16,999 Shares issued through Shares issued through reinvestment of reinvestment of dividends 2,813,129 256,203 dividends 16,204 1,437 Shares redeemed (33,716,040) (3,053,091) Shares redeemed (85,671) (7,560) ------------- ------------- ------------- ------------ Net Decrease $(10,770,072) (961,010) Net Increase $ 124,833 10,876 ============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 13,467,632 Beginning of period 101,267 ------------- ------------- End of period 12,506,622 End of period 112,143 ============= ============= Year Ended Year Ended December 31, 2002 December 31, 2002 ---------------------------- ---------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------- ------------- ------------- Shares sold $ 72,426,596 6,772,682 Shares sold $ 330,822 30,694 Shares issued through Shares issued through reinvestment of reinvestment of dividends 5,385,313 504,042 dividends 34,658 3,209 Shares redeemed (24,413,576) (2,272,314) Shares redeemed (475,719) (43,697) ------------- ------------- ------------- ------------- Net Increase $ 53,398,333 5,004,410 Net Decrease $ (110,239) (9,794) ============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 8,463,222 Beginning of period 111,061 ------------- ------------- End of period 13,467,632 End of period 101,267 ============= ============= BAIRD AGGREGATE BOND FUND Period Ended Period Ended June 30, 2003 June 30, 2003 ---------------------------- -------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------- ------------ ------------ Shares sold $ 12,739,767 1,158,131 Shares sold $ 88,746 8,137 Shares issued through Shares issued through reinvestment of reinvestment of dividends 1,856,855 171,176 dividends 17,597 1,599 Shares redeemed (16,102,014) (1,484,147) Shares redeemed (36,577) (3,296) -------------- ----------- ------------- ------------ Net Decrease $(1,505,392) (154,840) Net Increase $ 69,766 6,440 =============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 8,219,759 Beginning of period 78,020 ------------- ------------ End of period 8,064,919 End of period 84,460 ============= =============
Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) --------------------------------------------------------------------------------
3. CAPITAL SHARE TRANSACTIONS (cont.) Year Ended Year Ended December 31, 2002 December 31, 2002 --------------------------- ---------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares ------------- ------------- ------------- ------------- Shares sold $ 18,588,606 1,756,712 Shares sold $ 694,855 64,941 Shares issued through Shares issued through reinvestment of reinvestment of dividends 4,456,325 422,385 dividends 17,719 1,650 Shares redeemed (20,067,579) (1,894,427) Shares redeemed (46,038) (4,333) ------------- ------------ ------------- ------------- Net Increase $ 2,977,352 284,670 Net Increase $ 666,536 62,258 ============= ============= Shares Outstanding: Shares Outstanding: Beginning of period 7,935,089 Beginning of period 15,762 ------------- ------------- End of period 8,219,759 End of period 78,020 ============= ============= BAIRD INTERMEDIATE MUNICIPAL BOND FUND Period Ended Period Ended June 30, 2003 June 30, 2003 --------------------------- -------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares ------------- ------------- ------------- ------------ Shares sold $ 134,516 12,302 Shares sold $ 425,004 38,264 Shares issued through Shares issued through reinvestment of reinvestment of dividends 545,470 49,842 dividends 11,633 1,047 Shares redeemed (1,039,539) (94,192) Shares redeemed (173,949) (15,842) ------------- ------------- ------------- ------------ Net Decrease $ (359,553) (32,048) Net Increase $ 262,688 23,469 ============= ============= Shares Outstanding: Shares Outstanding: Beginning of period 2,876,088 Beginning of period 64,104 ------------- ------------ End of period 2,844,040 End of period 87,573 ============= ============ Year Ended Year Ended December 31, 2002 December 31, 2002 ---------------------------- ---------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares ------------- ------------ -------------- ------------ Shares sold $ 18,541,000 1,741,855 Shares sold $ 465,017 43,033 Shares issued through Shares issued through reinvestment of reinvestment of dividends 595,558 56,402 dividends 19,299 1,829 Shares redeemed (3,504,170) (331,901) Shares redeemed (450,012) (41,514) ------------- ------------- --------------- ------------ Net Increase $ 15,632,388 1,466,356 Net Increase $ 34,304 3,348 ============= =============== Shares Outstanding: Shares Outstanding: Beginning of period 1,409,732 Beginning of period 60,756 ------------- ------------- End of period 2,876,088 End of period 64,104 ============= =============
Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 3. CAPITAL SHARE TRANSACTIONS (cont.) BAIRD CORE PLUS BOND FUND
Period Ended Period Ended June 30, 2003 June 30, 2003 ---------------------------- -------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ----------- ------------- ----------- Shares sold $ 1,767,874 166,043 Shares sold $ 16,683 1,510 Shares issued through Shares issued through reinvestment of reinvestment of dividends 677,554 63,847 dividends 2,668 247 Shares redeemed (10,319,738) (977,428) Shares redeemed (91,829) (8,565) -------------- ------------- ------------ ------------ Net Decrease $ (7,874,310) (747,538) Net Decrease $ (72,478) (6,808) ================ ============= Shares Outstanding: Shares Outstanding: Beginning of period 5,187,712 Beginning of period 27,786 ------------- ------------ End of period 4,440,174 End of period 20,978 ============= ============ Year Ended Year Ended December 31, 2002 December 31, 2002 --------------------------- --------------------------- Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------- ------------- ------------- Shares sold $ 14,591,327 1,402,586 Shares sold $ 23,000 2,237 Shares issued through Shares issued through reinvestment of reinvestment of dividends 2,575,585 250,196 dividends 9,493 912 Shares redeemed (32,033,440) (3,102,403) Shares redeemed - - -------------- ------------- ------------- ------------- Net Decrease $(14,866,528) (1,449,621) Net Increase $ 32,493 3,149 ============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 6,637,333 Beginning of period 24,637 ------------- ------------- End of period 5,187,712 End of period 27,786 ============= =============
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION During the period ended June 30, 2003, purchases and sales of investment securities (excluding short-term investments) were as follows:
Baird Intermediate Baird Aggregate Baird Intermediate Baird Core Plus Bond Fund Bond Fund Municipal Bond Fund Bond Fund --------- --------- ------------------- --------- Purchases: U.S. Government $ 25,883,213 $ 29,436,681 $ - $ 13,909,980 Other $ 19,477,888 $ 15,229,678 $ 4,446,578 $ 15,995,826 Sales: U.S. Government $ 47,220,757 $ 27,600,557 $ - $ 29,567,465 Other $ 10,542,291 $ 18,541,179 $ 4,294,428 $ 9,912,134
Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION (cont.) At June 30, 2003, gross unrealized appreciation and depreciation of investments and distributable ordinary income and long-term capital gains for federal tax purposes were as follows:
Cost for Tax Basis Tax Basis Tax Basis Net Distributable Federal Gross Gross Unrealized Distributable Long-Term Income Tax Unrealized Unrealized Appreciation Ordinary Capital Purposes Appreciation Depreciation (Depreciation) Income Gains -------- ------------ ------------ -------------- ------ ----- Baird Intermediate $ 137,142,423 $ 7,041,651 $ 2,610,145 $ 4,431,506 $ 205,061 $ 2,047,699 Bond Fund Baird Aggregate $ 85,278,470 $ 4,676,406 $ 738,989 $ 3,937,417 $ 71,020 $ 882,545 Bond Fund Baird Intermediate $ 30,291,240 $ 2,764,427 $ 1,019,642 $ 1,744,785 $ 20,469 $ 145,919 Municipal Bond Fund Baird Core Plus $ 46,839,751 $ 2,028,946 $ 1,034,246 $ 994,700 $ 39,761 $ 1,472,528 Bond Fund
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 period ended June 30, 2003 were: Ordinary Long-Term Income Capital Gains Distributions Distributions Baird Intermediate Bond Fund $3,300,609 $ - Baird Aggregate Bond Fund $2,215,119 $ - Baird Intermediate Municipal $ 596,329 $ - Bond Fund Baird Core Plus Bond Fund $1,221,701 $ - 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, 2002, the Baird Intermediate Bond Fund elected to defer capital losses occurring between November 1, 2002 and December 31, 2002 in the amount of $151,500. 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 and Baird Core Plus 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 and Baird Core Plus Bond Fund as applied to the respective Fund's average daily net assets. Baird Funds, Inc. -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 5. INVESTMENT ADVISORY AND OTHER AGREEMENTS (cont.) 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 $1,410, $1,128, $1,023 and $294, respectively, in fees pursuant to the Plan for the period ended June 30, 2003. 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 Legal Counsel G. Frederick Kasten, Jr. (Chairman) Godfrey & Kahn, S.C. 780 North Water Street John W. Feldt Milwaukee, Wisconsin 53202 George C. Kaiser ------------------------------------- Stephen A. Roell Independent Accountants ------------------------------------------ PricewaterhouseCoopers LLP 100 East Wisconsin Avenue, Suite 1500 Investment Advisor Milwaukee, Wisconsin 53202 Robert W. Baird & Co. Incorporated ------------------------------------- 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Distributor ------------------------------------------ Robert W. Baird & Co. Incorporated 777 East Wisconsin Avenue Administrator, Transfer Agent and Dividend Milwaukee, Wisconsin 53202 - 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 [LOGO] Baird/FUNDS Semi-Annual Report ------------------ June 30, 2003 Baird LargeCap Fund Baird MidCap Fund Table of Contents Economic and Stock Market Commentary......................................... 2 Baird LargeCap Fund........................................................ 4 Baird MidCap Fund ......................................................... 9 Statements of Assets and Liabilities ...................................... 14 Statements of Operations .................................................... 15 Statements of Changes in Net Assets ....................................... 16 Financial Highlights ...................................................... 18 Notes to the Financial Statements ............................................22 This report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus. Economic and Stock Market Commentary -------------------------------------------------------------------------------- Although 2003 got off to a difficult start for stock market investors, a quick end to major combat in Iraq, lower interest rates and new tax cuts ignited a broad market rally. For the first six months of 2003, the Standard & Poor's 500 Index gained +11.77% and the Dow Jones Industrial Average advanced +9.16%. The last time these market benchmarks posted positive first-half returns was 1999. The rally in stock prices offers hope that policymakers' efforts to stimulate economic growth will be successful. Although we believe the probability of success is high, the timing and intensity of the economy's improvement is still in question. There is little doubt, however, that the level of stimulus brought to bear on the U.S. economy is extraordinary. Despite the recent run up in longer-term interest rates, borrowing costs are still at historically low levels. Although home sales and mortgage refinancing activity will most likely slow from recent record levels, low rates have allowed consumers to reduce debt service, increase savings and cash-out home equity for other purchases. Corporate bond yields remain at historically low levels, allowing creditworthy businesses to lower their debt costs and finance new projects. The tax cut signed into law on May 29th is very "front-end-loaded" with much of the $350 billion package impacting the economy almost immediately. The acceleration of tax rate reductions originally scheduled for 2004 and 2006, a top rate of 15% for dividends and long-term capital gains, rebate checks for families and new incentives for businesses to invest in plant and equipment should aid economic growth by increasing consumers' after-tax disposable income and lowering businesses' cost of capital. Finally, the recent decline in the foreign exchange rate of the U.S. dollar completes the economic stimulus "trifecta". By lowering the cost of U.S. goods to foreign buyers, a cheaper dollar should stimulate demand for U.S. exports. Further, a lower dollar increases the value of profits earned by U.S. companies on their overseas operations. In sum, virtually all the policy "levers" that can be pulled to accelerate the U.S. economy are now engaged. The only sources of stimulus missing from the current environment are a sustained drop in energy prices and what economist John Maynard Keynes called "animal spirits", the appetite for entrepreneurial risk-taking essential to a capitalist system. Economic participants - including consumers, corporate CEO's and government policymakers - require a confident optimism in order to save, spend and invest for future growth. Our initial success in Iraq, the absence of new "shocks" to the economy and the improved performance of U.S. financial markets are important positive contributors in this respect. Indeed, this may be an instance where the stock market not only anticipates an improved economy, but also leads to economic improvement by boosting confidence and initiating a virtuous circle of self-reinforcing growth. While it is easy to presume stronger economic growth is a fait accompli, risks to the U.S. economic recovery remain. Underlying economic imbalances may require several quarters of above-trend growth before they abate. These imbalances include high debt levels and significant excess capacity. The "bubble" years of the late 1990's led to over-investment in everything from fiber optic networks to power generation plants. Much of that investment was financed with debt. Although the value of these investments has declined, the debt used to finance them still needs to be repaid. For consumers, although low interest rates keep the cost of servicing debt low, record housing market activity has pushed consumer indebtedness to historically high levels. Add the increase in public sector debt due to record budget deficits and it is easy to see how the ratio of total debt to economic activity (as measured by U.S. Gross Domestic Product) has risen to an unprecedented 170%. However, it should be noted that historically, this debt measure rises to its cyclical peak at the trough of the business cycle. Since the bursting of the stock market bubble in 2000, U.S. economic growth has averaged well below the 3% annual rate many economists estimate is the economy's long-term potential. With recent growth below potential, an "output gap" has been created. Until this gap is closed, excess capacity and high debt levels put downward pressure on prices as businesses compete aggressively for survival. While lower prices for goods and services due to productivity gains and new competition benefits the economy by increasing demand, persistent price declines could lead to falling incomes and declining asset values. This situation could be dangerous, especially in an economy with sizeable debt leverage. Productivity gains in a robust economy help keep inflation pressures at bay, but they raise the "hurdle rate" for a sluggish economy by requiring higher rates of growth before employment trends turn positive. The past several months witnessed a tremendous improvement in many economic variables. Corporate profits and stock prices are generally up while geopolitical risks have, for the moment, declined. However, energy prices remain "sticky", interest rates have risen from their recent historic lows, employment trends are weak, state and local governments are under pressure to raise taxes or reduce services and the economy has yet to exhibit evidence of a meaningful acceleration in growth. While we believe the odds greatly favor an eventual pick up in activity, the consequences of renewed weakness argue for a measured approach to the stock market. With most stock market valuation benchmarks (e.g. dividend yields, price-to-earnings and price-to-sales ratios) at the upper end of their historical Economic and Stock Market Commentary -------------------------------------------------------------------------------- ranges over the past 50 years, stock prices may be vulnerable to disappointment should the hoped for acceleration in economic growth come later or prove weaker than currently expected. However, positive sales and earnings growth momentum along with lots of cash on the sidelines can result in stock valuations remaining elevated for an extended period of time while economic imbalances are resolved. Inflation-adjusted economic growth for the first six months of 2003 was less than +2% at an annualized rate. Most economists expect growth to approach +4% in the second half, taking the rise in inflation-adjusted gross domestic product (real GDP) for full-year 2003 to +2% to +3%. We anticipate a +1% to +2% gain in the Consumer Price Index for the year. We anticipate the Federal Reserve will keep short-term interest rates low until the economy demonstrates sustainable, above-trend growth. Steady improvement in economic and corporate profit growth, we believe, will give the stock market an upward bias. However, the stock market as a whole is likely to remain volatile, given the downside risk to share values should efforts to reaccelerate economic growth fail. Baird Equity Funds Investment Management Team Robinson Bosworth III, Managing Director and Senior Portfolio Manager J. Bary Morgan, CFA, Managing Director and Senior Portfolio Manager David W. Bowman, 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 Baird LargeCap Fund -------------------------------------------------------------------------------- Stocks that suffered the sharpest declines during the bear market led the rally in share prices during the first six months of 2003. Not surprisingly, an improved economic outlook was most positive for the stocks of the most speculative companies, as investors increased their appetite for risk. Indeed, Standard & Poor's 500 ("S&P 500") Index stocks rated C or lower by Standard & Poor's Quality Ranking System provided average six-month price returns of +29.19% while higher quality stocks (companies rated in the A category) returned +8.50%. The Fund's emphasis on high quality companies caused its return to lag the performance of the broad market during the rally. Specifically, the Baird LargeCap Fund's +9.05% total return for Institutional Class shares (+8.59% for Investor Class shares) trailed the +11.77% total return for the Fund's benchmark, the S&P 500 Index. The Fund's sector weightings proved to be a modest positive for relative performance with a lack of exposure to the under performing energy, telecommunications and materials sectors complemented by above benchmark exposure to the better performing consumer discretionary, health care and technology sectors. Stock selection provided mixed results during the first half of the year with strong price performance delivered by core retail holdings Best Buy (+82%) and Home Depot (+38%) as well as core technology holdings Intel (+34%) and Cisco Systems (+28%). The Fund's newest health care holdings also made strong positive contributions with Genentech shares climbing 103% and Teva Pharmaceutical Industries shares gaining 32% since their respective portfolio debuts. Offsetting these positives were below market returns from many higher quality core portfolio holdings such as Sysco (+1%), Medtronic (+5%) and Wal-Mart (+6%) along with disappointing results from holdings in core portfolio companies American International Group (-5%), Johnson & Johnson (-4%), Kohl's (-8%) and Automatic Data Processing (-14%). Fund activity during the first six months of 2003 included a reduction in portfolio holdings in Automatic Data Processing ("ADP"), Best Buy, Fiserv, Genentech, Kimberly Clark, Eli Lilly and Merck. Best Buy, Fiserv, Genentech and Eli Lilly were trimmed based on our analysis of their valuations while ADP, Kimberly Clark and Merck were reduced due to their size in the portfolio and/or decelerating earnings growth. Portfolio positions eliminated during the period include Applied Materials and Electronic Data Systems ("EDS"). Excess capacity in the semiconductor manufacturing industry continues to depress the demand for Applied Material's products. Further, the company could lose market share as large customers such as Intel look to protect proprietary research by broadening the number of equipment manufacturers they use. EDS's competitive position has been compromised by the financial difficulties of several large clients (e.g., WorldCom and US Air). This has forced the company to restructure internally and work aggressively to preserve balance sheet liquidity. As a result, we believe the company is vulnerable to competition and is likely to lose market share. Sale proceeds were used to add to portfolio holdings in IBM, Kohl's Department Stores and Sysco and to initiate positions in Teva Pharmaceutical Industries, SunGard Data Systems, Genentech and Dell. Dell is the world's largest direct marketer of technology products, including personal computers, storage and networking equipment and handheld devices. The company continues to take market share while maintaining industry-leading margins and providing customers with high quality service. Genentech is a pioneer in the use of human genetic information for drug research. A diversified product line of ten protein-based drugs marketed in four large and growing therapeutic categories (oncology, cardiology, endocrinology and pulmonary), a strong pipeline of new products and a proven marketing and commercialization strategy should allow Genentech to provide sustainable, above-average earnings growth. SunGard provides integrated software and processing solutions for financial institutions as well as disaster recovery services for information-dependent enterprises. SunGard maintained rising earnings and strengthened its competitive position during the recent downturn in technology spending by increasing its product offerings and winning market share from smaller competitors. We believe SunGard's growth can accelerate as corporate profits rise and technology spending picks up. Teva is a leading worldwide manufacturer and marketer of generic drugs. The use of generic drugs is growing as major branded drugs lose patent protection and cost containment pressures favor the use of generics when appropriate. Based on the strength of its generic and specialty drug businesses, we anticipate Teva will grow at a meaningfully faster rate than most large pharmaceutical companies. The Fund's focus on high quality growth companies proved to be a performance liability during the recent stock market rally. The most badly beaten down stocks recovered sharply, feeding a speculative urge among investors and fostering a trading mentality. As investors shift their focus from short-term speculative opportunities to long-term investment merit, we anticipate relative price performance will favor the shares of higher quality, predictable growth companies. Baird LargeCap Fund -------------------------------------------------------------------------------- A June 30, 2003 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") is shown below.
Top 10 Holdings* Equity Sector Analysis** (BAR CHART) LargeCap S&P 500 Medtronic, Inc. 4.4% Consumer Discretionary 11.8% 11.1% Citigroup, Inc. 4.0% Consumer Staples 12.0% 11.7% Wal-Mart Stores, Inc. 3.7% Energy 0.0% 5.8% American International Group, Inc. 3.6% Financials 16.1% 20.5% Kohl's Corporation 3.6% Health Care 24.9% 14.8% Microsoft Corporation 3.4% Industrials 9.5% 10.4% General Electric Company 3.2% Information Technology 25.7% 16.2% Home Depot, Inc. 3.2% Materials 0.0% 2.7% Cardinal Health, Inc. 3.1% Telecommunication Services 0.0% 3.9% Sysco Corporation 3.1% Utilities 0.0% 3.0% Net Assets: $54,998,154 Portfolio Turnover Ratio: 8.89% Number of Equity Holdings: 38 Portfolio Expense Ratio: INSTITUTIONAL CLASS: 0.75% INVESTOR CLASS: 1.00% ***
* The Fund's portfolio composition is subject to change and there is no assurance that the Fund will continue to hold any particular security. ** As of 6/30/03, based on equity sector values. *** Includes 0.25% 12b-1 fee. Annualized Total Returns -------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) -------------------------------------------------------------------------------- Baird LargeCap Fund - Institutional Class Shares -0.87% -12.08% Baird LargeCap Fund - Investor Class Shares -1.40% -12.38% S&P 500 Index(2) 0.25% -11.83% -------------------------------------------------------------------------------- (1) For the period September 29, 2000 (commencement of operations) to June 30, 2003. (2) 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. 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 Large Cap Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Investments June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value ------------------------------------------------------------- ------------------ COMMON STOCKS - 97.1% Air Freight & Logistics - 1.5% 12,657 United Parcel Service, Inc. - Class B $ 806,251 ---------------- Banks - 5.4% 27,919 Fifth Third Bancorp 1,603,109 26,802 Wells Fargo & Company 1,350,821 ---------------- 2,953,930 ---------------- Biotechnology - 4.6% 24,564 Amgen, Inc.* 1,632,032 12,200 Genentech, Inc.* 879,864 ---------------- 2,511,896 ---------------- Commercial Services & Supplies - 7.7% 27,914 Automatic Data Processing, Inc. 945,168 34,000 Cintas Corporation 1,204,620 45,420 Fiserv, Inc.* 1,617,406 16,800 Paychex, Inc. 493,752 ---------------- 4,260,946 ---------------- Communications Equipment - 3.6% 59,910 Cisco Systems, Inc.* 1,005,889 58,000 Nokia Oyj-ADR f 952,940 ---------------- 1,958,829 ---------------- Computers & Peripherals - 5.1% 38,000 Dell Computer Corporation* 1,209,920 19,000 International Business Machines Corporation 1,567,500 ---------------- 2,777,420 ---------------- Diversified Financials - 6.7% 50,996 Citigroup, Inc. 2,182,629 38,000 State Street Corporation 1,497,200 ---------------- 3,679,829 ---------------- Electrical Equipment - 2.3% 24,563 Emerson Electric Company 1,255,169 ---------------- Electronic Equipment & Instruments - 1.6% 39,454 Molex, Inc. - Class A 907,837 ---------------- Food & Drug Retailing - 5.9% 56,117 Sysco Corporation 1,685,755 51,738 Walgreen Company 1,557,314 ---------------- 3,243,069 ---------------- Health Care Equipment & Supplies - 4.4% 50,989 Medtronic, Inc. 2,445,942 ---------------- See notes to the financial statements Baird Large Cap Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Investments June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- COMMON STOCKS - 97.1% (cont.) Health Care Providers & Services 3.1% 26,550 Cardinal Health, Inc. $ 1,707,165 ---------------- Household Products - 2.0% 21,600 Kimberly-Clark Corporation 1,126,224 ---------------- Industrial Conglomerates - 3.2% 62,000 General Electric Company 1,778,160 ---------------- Information Technology Consulting & Services - 1.9% 40,000 SunGard Data Systems Inc.* 1,036,400 ---------------- Insurance - 3.6% 35,600 American International Group, Inc. 1,964,408 ---------------- Media - 1.9% 23,076 New York Times Company - Class A 1,049,958 ---------------- Multiline Retail - 7.3% 38,000 Kohl's Corporation* 1,952,440 38,250 Wal-Mart Stores, Inc. 2,052,878 ---------------- 4,005,318 ---------------- Pharmaceuticals - 12.1% 16,800 Eli Lilly and Company 1,158,696 29,034 Johnson & Johnson 1,501,058 17,656 Merck & Company, Inc. 1,069,071 48,014 Pfizer, Inc. 1,639,678 22,300 Teva Pharmaceutical Industries Ltd.-ADR (f) 1,269,539 ---------------- 6,638,042 ---------------- Semiconductor Equipment & Products - 2.2% 58,068 Intel Corporation 1,206,885 ---------------- Software - 5.0% 73,000 Microsoft Corporation 1,871,720 73,694 Oracle Corporation* 885,065 ---------------- 2,756,785 ---------------- Specialty Retail - 6.0% 34,850 Best Buy Company, Inc.* 1,530,612 53,587 Home Depot, Inc. 1,774,801 ---------------- 3,305,413 ---------------- Total Common Stocks (Cost $57,614,227) 53,375,876 ---------------- See notes to the financial statements Baird Large Cap Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Investments June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.8% Money Market Fund - 2.5% 1,369,969 SEI Daily Income Trust Government Fund - Class B $ 1,369,969 ---------------- Principal Amount Value -------------------------------------------------------------------------------- Variable Rate Demand Notes# - 0.3% $ 55,202 American Family Financial Services, Inc., 0.85% 55,202 138,845 Wisconsin Corporation Central Credit Union, 0.70% 138,845 ---------------- 194,047 ---------------- Total Short-Term Investments (Cost $1,564,016) 1,564,016 ---------------- Total Investments (Cost $59,178,243) 99.9% 54,939,892 ---------------- Other Assets Less Liabilities 0.1% 58,262 ---------------- TOTAL NET ASSETS 100.0% $54,998,154 ================ ADR - American Depository Receipt * Non Income Producing f Foreign # 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 June 30, 2003. See notes to the financial statements Baird MidCap Fund -------------------------------------------------------------------------------- A decidedly better operating environment and improving investor confidence combined to drive the prices of many mid cap companies higher during the first half of 2003. Additionally, a quick end to major combat in Iraq, lower interest rates and new tax cuts improved investor psychology during the period. We believe that corporate profits, taken as a whole, are on the rise due in part to the significant corporate restructurings during the past three years coupled with accommodative actions of the Federal Reserve and Federal Government. We anticipate that the resumption of economic growth, and importantly profits growth, is therefore likely in the ensuing months. Given our belief that earnings growth is the ultimate driver of stock prices, the current environment should be regarded as welcome relief to investors. During the first six months, the fund's sector weights proved to have a slight negative impact on performance. Lack of exposure to basic materials and utilities coupled with an under-weight position in energy hurt results. Generally, those sectors do not have the fundamental characteristics that we desire, so it is not unusual for the fund to lag the benchmark when heavily regulated and deep cyclical companies outperform. Additionally, sectors less sensitive to an economic rebound, such as healthcare and the consumer areas, lagged during the period. Those areas have been mainstays of the fund, as we have identified companies possessing desirable characteristics such as consistent revenue and earnings growth, and clean balance sheets for long-term investment. Stock selection was somewhat mixed during the first half of 2003. During that period, the for profit education sector, represented in the fund by Career Education (+71%) and Apollo Group (+40%) showed strong price gains. Given State budget problems, we expect those companies to continue to perform well. Results of the education stocks offset declines in Consumer companies such as Whole Foods Markets (-10%) and Harley Davidson (-4%). In the technology area, the first six months produced solid gains by Zebra Technologies (+31%), Electronic Arts (+48%) and Novellus (+30%) which offset disappointing healthcare stocks Accredo Health (-39%), Charles River Labs (-16%) and King Pharmaceutical (-14%). A combination of price targets being achieved and a desire to add to faster growing companies lead us to trim several stocks in the financial sector, including Legg Mason, TCF Financial, MGIC Investment Corp and Charter One Financial. Two positions in the Energy Services sector, Smith International and Cooper Cameron, were established during the period. Both companies are expected to benefit from an anticipated upswing in drilling activity. In the healthcare sector, new positions were established in Health Management Associates ("HMA"), a rural hospital company, and Sicor, a generic pharmaceutical maker, replacing King Pharmaceutical and Accredo. King Pharmaceutical was eliminated due to potential generic competition for its most important drug and Accredo was sold because of industry pricing pressures and a lack of new products. It is our opinion that HMA and Sicor offer better earnings growth potential and further diversify the fund's Healthcare sector holdings. It is our expectation that any sustained recovery in the economy will result in an improving labor market. New hiring activity should benefit fund companies such as Hewitt Associates, a human resource consulting firm, Paychex, a payroll processing company and Cintas, the nation's largest uniform rental company. While these companies have disappointed investors thus far in 2003, we believe that their industry position and opportunities for future growth will reward investors in the coming years. There was also a decided shift in sentiment toward lower quality issues during the first half of 2003. Mid Cap companies with quality ratings of "B+" or better by Standard and Poor's ("S&P") averaged a low teens return in the first six months compared with a better than 20% average return for companies rated "B" or lower by S&P. That type of market environment is challenging for our strategy of identifying high quality investment candidates. We remain confident that our investment process of purchasing profitable, well-financed companies will provide solid long-term investment results. Baird MidCap Fund -------------------------------------------------------------------------------- A June 30, 2003 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") is shown below.
Top 10 Holdings* Equity Sector Analysis** (BAR CHART) MidCap S&P 400 Midcap SPDR Trust Series 1 3.4% Consumer Discretionary 16.1% 16.2% Performance Food Group Company 3.3% Consumer Staples 5.0% 5.0% Michaels Stores, Inc. 3.3% Energy 2.5% 6.9% Charles River Laboratories International, Inc. 3.2% Financials 12.2% 19.9% Fiserv, Inc. 3.0% Health Care 18.4% 14.1% Zebra Technologies Corporation - Class A 3.0% Industrials 13.9% 11.3% Express Scripts, Inc. 2.9% Information Technology 28.3% 14.9% Gentex Corporation 2.9% Materials 0.0% 4.2% Patterson Dental Company 2.7% Telecommunication Services 0.0% 0.6% Microchip Technology, Inc. 2.6% Utilities 0.0% 6.9% Other Hldgs 3.6% 0.0% Net Assets: $25,617,285 Portfolio Turnover Ratio: 35.29% Number of Equity Holdings: 43 Portfolio Expense Ratio: INSTITUTIONAL CLASS: 1.25% INVESTOR CLASS: 1.50% ***
* The Fund's portfolio composition is subject to change and there is no assurance that the Fund will continue to hold any particular security. ** As of 6/30/03, based on equity sector values. *** Includes 0.25% 12b-1 fee. Annualized Total Returns -------------------------------------------------------------------------------- For the Period Ending June 30, 2003 One Year Since Inception(1) -------------------------------------------------------------------------------- Baird MidCap Fund - Institutional Class Shares -2.23% -7.00% Baird MidCap Fund - Investor Class Shares -2.47% -7.18% S&P MidCap 400 Index(2) -0.73% -2.54% -------------------------------------------------------------------------------- (1) For the period December 29, 2000 (commencement of operations) to June 30, 2003. (2) 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. 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 June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value ------------------------------------------------------------------------------- COMMON STOCKS - 91.7% Automobile Components - 4.7% 24,233 Gentex Corporation* $ 742,741 5,395 Johnson Controls, Inc. 461,812 --------------------- 1,204,553 --------------------- Banks - 3.3% 13,838 Charter One Financial, Inc. 431,469 10,405 TCF Financial Corporation 414,535 --------------------- 846,004 --------------------- Biotechnology - 3.2% 25,123 Charles River Laboratories International, Inc.* 808,458 --------------------- Commercial Services & Supplies - 20.5% 12,538 Affiliated Computer Services, Inc.* 573,363 9,671 Apollo Group, Inc.* 597,668 8,980 Career Education Corporation* 613,334 14,251 Cintas Corporation 504,913 21,678 Fiserv, Inc.* 771,953 18,622 Hewitt Associates, Inc.* 438,548 12,847 Iron Mountain Incorporated* 476,495 21,166 Paychex, Inc. 622,069 17,377 Stericycle, Inc.* 666,582 --------------------- 5,264,925 --------------------- Communications Equipment - 3.0% 12,700 Avocent Corporation* 379,603 16,656 Emulex Corporation* 379,257 --------------------- 758,860 --------------------- Diversified Financials - 6.8% 18,962 Eaton Vance Corporation 599,199 22,584 Investors Financial Services Corporation 653,807 7,424 Legg Mason, Inc. 482,189 --------------------- 1,735,195 --------------------- Energy Equipment & Services - 2.4% 6,270 Cooper Cameron Corporation* 315,883 8,255 Smith International, Inc.* 303,289 --------------------- 619,172 --------------------- Food & Drug Retailing - 4.8% 23,186 Performance Food Group Company* 857,882 7,644 Whole Foods Market, Inc.* 363,319 --------------------- 1,221,201 --------------------- See notes to the financial statements Baird MidCap Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Investments June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- COMMON STOCKS - 91.7% (cont.) Health Care Equipment & Supplies - 2.0% 9,089 Varian Medical Systems, Inc.* $ 523,254 --------------------- Health Care Providers & Services - 7.8% 11,012 Express Scripts, Inc.* 750,908 30,931 Health Management Associates, Inc. 570,677 15,160 Patterson Dental Company* 687,961 --------------------- 2,009,546 --------------------- Hotels, Restaurants & Leisure - 4.1% 15,501 Applebee's International, Inc. 487,196 22,402 Starbucks Corporation* 549,969 --------------------- 1,037,165 --------------------- Insurance - 1.5% 8,200 MGIC Investment Corporation 382,448 --------------------- Media - 1.5% 8,523 New York Times Company - Class A 387,797 --------------------- Office Electronics - 3.0% 10,075 Zebra Technologies Corporation - Class A* 758,144 --------------------- Pharmaceuticals - 4.4% 14,083 Biovail Corporation (f) * 662,746 22,935 SICOR Inc.* 466,498 --------------------- 1,129,244 --------------------- Semiconductor Equipment & Products - 4.9% 27,218 Microchip Technology, Inc. 673,645 15,981 Novellus Systems, Inc.* 585,240 --------------------- 1,258,885 --------------------- Software - 4.2% 7,060 Electronic Arts, Inc.* 521,734 12,513 Intuit Inc.* 557,955 --------------------- 1,079,689 --------------------- Specialty Retail - 7.4% 11,877 Bed Bath & Beyond, Inc.* 461,065 13,109 CDW Computer Centers, Inc.* 600,785 21,928 Michaels Stores, Inc. 834,580 --------------------- 1,896,430 --------------------- Trading Companies & Distributors - 2.2% 16,781 Fastenal Company 569,547 --------------------- Total Common Stocks (Cost $21,352,509) 23,490,517 --------------------- See notes to the financial statements Baird MidCap Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Investments June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- EXCHANGE-TRADED FUND - 3.4% 10,000 Midcap SPDR Trust Series 1 $ 877,200 --------------------- Total Exchange-Traded Fund (Cost $902,625) 877,200 --------------------- SHORT-TERM INVESTMENTS - 5.0% Money Market Fund - 2.8% 718,610 SEI Daily Income Trust Government Fund - Class B 718,610 --------------------- Principal Amount Value -------------------------------------------------------------------------------- Variable Rate Demand Notes# - 2.2% $390,119 American Family Financial Services, Inc., 0.85% 390,119 181,933 Wisconsin Corporation Central Credit Union, 0.70% 181,933 --------------------- 572,052 --------------------- Total Short-Term Investments (Cost $1,290,662) 1,290,662 --------------------- Total Investments (Cost $23,545,796) 100.1% 25,658,379 --------------------- Liabilities, Less Other Assets (0.1%) (41,094) --------------------- TOTAL NET ASSETS 100.0% $ 25,617,285 ===================== * Non Income Producing f Foreign # 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 June 30, 2003. See notes to the financial statements Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statements of Assets and Liabilities June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Baird LargeCap Baird MidCap Fund Fund ------------------------------- ASSETS: Investments, at value $ 54,939,892 $ 25,658,379 (cost $59,178,243 and $23,545,796, respectively) Dividends receivable 47,472 2,801 Interest receivable 1,409 979 Receivable for fund shares sold 64,126 40,691 Other assets 7,203 5,530 -------------- -------------- Total assets 55,060,102 25,708,380 -------------- -------------- LIABILITIES: Payable to Advisor and Distributor 21,967 64,443 Accrued expenses and other liabilities 39,981 26,652 -------------- -------------- Total liabilities 61,948 91,095 -------------- -------------- NET ASSETS $ 54,998,154 $ 25,617,285 ============== ============== NET ASSETS CONSIST OF: Capital stock $ 65,833,929 $ 26,941,961 Accumulated undistributed net investment income (loss) 99,716 (83,191) Accumulated net realized loss on investments sold (6,697,140) (3,354,068) Net unrealized appreciation (depreciation) on investments (4,238,351) 2,112,583 -------------- -------------- NET ASSETS $ 54,998,154 $ 25,617,285 ============== ============== INSTITUTIONAL CLASS SHARES Net Assets $ 54,428,236 $ 24,703,522 Shares outstanding ($0.01 par value, unlimited shares authorized) 7,789,127 2,960,937 Net asset value, offering and redemption price per share $ 6.99 $ 8.34 ============== ============== INVESTOR CLASS SHARES Net Assets $ 569,918 $ 913,763 Shares outstanding ($0.01 par value, unlimited shares authorized) 81,958 110,145 Net asset value, offering and redemption price per share $ 6.95 $ 8.30 ============== ============== See notes to the financial statements Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statement of Operations Six months ended June 30, 2003 (unaudited) -------------------------------------------------------------------------------- Baird Baird LargeCap Fund MidCap Fund ------------------------------- INVESTMENT INCOME: Dividends $ 272,917 $ 44,044 Interest 14,640 5,838 -------------- -------------- Total investment income 287,557 49,882 -------------- -------------- EXPENSES: Investment advisory fees 163,366 83,812 Administration fees 17,440 7,400 Shareholder servicing fees 15,981 14,124 Fund accounting fees 16,036 13,656 Professional fees 7,781 3,985 Federal and state registration 5,533 4,503 Directors fees 2,896 1,086 Custody fees 3,004 2,405 Miscellaneous 1,629 845 Reports to shareholders 5,581 2,272 Distribution fees - Investor Class Shares 698 1,035 -------------- -------------- 239,945 135,123 Expense reimbursement by Advisor (50,748) (2,050) -------------- -------------- Total expenses 189,197 133,073 -------------- -------------- NET INVESTMENT INCOME (LOSS) 98,360 (83,191) -------------- -------------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on investments (1,832,577) (168,987) Change in unrealized appreciation on investments 6,170,025 2,291,803 -------------- -------------- Net realized and unrealized gain on invest 4,337,448 2,122,816 -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,435,808 $ 2,039,625 ============== ============== See notes to the finacial statements Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statement of Changes in Net Assets -------------------------------------------------------------------------------- Baird LargeCap Fund ----------------------------------- Six months ended June 30, 2003 Year Ended (unaudited) December 31, 2002 -------------- ------------------ OPERATIONS: Net investment income $ 98,360 $ 102,008 Net realized loss on investments (1,832,577) (4,699,997) Change in unrealized appreciation (depreciation) on investments 6,170,025 (9,008,476) -------------- -------------- Net increase (decrease) in net assets resulting from operations 4,435,808 (13,606,465) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 3,451,747 16,377,188 Shares issued to holders in reinvestment of dividends - 100,103 Cost of shares redeemed (2,437,186) (5,284,507) -------------- -------------- Net increase in net assets resulting from capital share transactions 1,014,561 11,192,784 -------------- -------------- DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income - (100,610) From net realized gains - - ------------------------------- - (100,610) ------------------------------- DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income - (123) From net realized gains - - ------------------------------- - (123) ------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 5,450,369 (2,514,414) NET ASSETS: Beginning of period 49,547,785 52,062,199 ------------------------------- End of period (including undistributed net investment income of $99,716 and $ 54,998,154 $ 49,547,785 $1,356, respectively) =============================== See notes to the financial statements Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statement of Changes in Net Assets -------------------------------------------------------------------------------- Baird MidCap Fund ----------------------------------- Six months ended June 30, 2003 Year Ended (unaudited) December 31, 2002 -------------- ------------------ OPERATIONS: Net investment loss $ (83,191) $ (128,527) Net realized loss on investments (168,987) (1,970,892) Change in unrealized appreciation (depreciation) on investments 2,291,803 (558,454) -------------- ------------------ Net increase (decrease) in net assets resulting from operations 2,039,625 (2,657,873) -------------- ------------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 2,820,342 13,171,369 Shares issued to holders in reinvestment of dividends - - Cost of shares redeemed (908,649) (2,947,459) -------------- ----------------- Net increase in net assets resulting from capital share transactions 1,911,693 10,223,910 -------------- ------------------ DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOL From net investment income - - From net realized gains - - -------------- ------------------ - - -------------- ------------------ DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS: From net investment income - - From net realized gains - - -------------- ------------------ - - -------------- ------------------ TOTAL INCREASE IN NET ASSETS 3,951,318 7,566,037 NET ASSETS: Beginning of period 21,665,967 14,099,930 -------------- ------------------ End of period $ 25,617,285 $ 21,665,967 ============== ================== See notes to the financial statements Baird Funds, Inc. Financial Highlights
Baird LargeCap Fund ---------------------------------------------------------------- Institutional Class Shares Institutional Institutional Institutional September 29, Class Shares Class Shares Class Shares 2000(1) Six months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 ---------------- -------------- ------------- ------------- Per Share Data: Net asset value, beginning of period $6.41 $8.63 $9.58 $10.00 ---------------- -------------- -------------- ------------- Income from investment operations: Net investment income 0.01 0.02 0.01 0.00(2) Net realized and unrealized gain (losses) on investments 0.57 (2.22) (0.95) (0.42) ---------------- -------------- -------------- ------------- Total from investment operations 0.58 (2.20) (0.94) (0.42) ---------------- -------------- -------------- ------------- Less distributions: Dividends from net investment income - (0.02) (0.01) (0.00)(2) Distributions from net realized gains - - - (0.00)(2) ---------------- -------------- -------------- ------------- Total distributions - (0.02) (0.01) (0.00) ---------------- -------------- -------------- ------------- Net asset value, end of period $6.99 $6.41 $8.63 $9.58 ================ ============== ============== ============= Total return 9.05%(3) (25.53%) (9.84%) (4.15%)(3) Supplemental data and ratios: Net assets, end of period $54,428,236 $48,900,767 $51,446,666 $9,623,337 Ratio of expenses to average net assets(5) 0.75%(4) 0.75% 0.75% 0.85%(4) Ratio of net investment income to average net assets(5) 0.39%(4) 0.23% 0.12% 0.13%(4) Portfolio turnover rate(6) 8.89% 16.17% 9.00% 4.38%
(1) Commencement of operations. (2) Amount is less than $0.01. (3) Not annualized. (4) Annualized. (5) Without fees waived, ratios of net expenses to average net assets for the periods ended June 30, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 would have been 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 0.19%, 0.03%, (0.19%) and (1.97%), respectively. (6) 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 Class Shares Investor Class Investor Class Investor Class September 29, Shares Six Shares Shares 2000 (1) months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 --------------- ------------- -------------- -------------- Per Share Data: Net asset value, beginning of period $6.40 $8.61 $9.57 $10.00 -------------- ----------- ------------- ------------ Income from investment operations: Net investment loss 0.00 (0.00)(2) (0.01) (0.00)(2) Net realized and unrealized gain (losses) on investments 0.55 (2.21) (0.95) (0.43) -------------- ----------- ------------- ------------ Total from investment operations 0.55 (2.21) (0.96) (0.43) -------------- ----------- ------------- ------------ Less distributions: Dividends from net investment income - (0.00)(2) - - Distributions from net realized gains - - - (0.00)(2) -------------- ----------- ------------- ------------ Total distributions 0.00 (0.00) - (0.00) -------------- ----------- ------------- ------------ Net asset value, end of period $6.95 $6.40 $8.61 $9.57 ============== =========== ============= ============ Total return 8.59%(3) (25.65%) (10.03%) (4.28%)(3) Supplemental data and ratios: Net assets, end of period $569,918 $647,018 $615,533 $42,288 Ratio of expenses to average net assets (5) 1.00%(4) 1.00% 1.00% 1.10% (4) Ratio of net investment income to average net assets (5) 0.14%(4) (0.02%) (0.13%) (0.12%)(4) Portfolio turnover rate (6) 8.89% 16.17% 9.00% 4.38%
(1) Commencement of operations. (2) Amount is less than $0.01. (3) Not annualized. (4) Annualized. (5) Without fees waived, ratios of net expenses to average net assets for the periods ended June 30, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 would have been 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 (0.06%), (0.22%), (0.44%) and (2.22%), respectively. (6) 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 Class Shares Institutional Institutional Institutional December 29, Class Shares Class Shares Class Shares 2000(1) Six months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 ---------------- -------------- ------------- ------------- Per Share Data: Net asset value, beginning of period $7.66 $9.11 $9.70 $10.00 -------------- -------------- ------------ -------------- Income from investment operations: Net investment loss (0.03) (0.07)(2) (0.06)(2) (0.00)(3) Net realized and unrealized income (losses) on investments 0.71 (1.38) (0.53) (0.30) -------------- -------------- ------------ -------------- Total from investment operations 0.68 (1.45) (0.59) (0.30) -------------- -------------- ------------ -------------- Less distributions: Dividends from net investment income - - - - Distributions from net realized gains - - - - -------------- -------------- ------------ -------------- Total distributions - - - - -------------- -------------- ------------ -------------- Net asset value, end of period $8.34 $7.66 $9.11 $9.70 ============== ============== ============ ============== Total return 8.88%(4) (15.92%) (6.08%) (3.00%)(4) Supplemental data and ratios: Net assets, end of period $24,703,522 $20,864,264 $13,049,574 $7,853,228 Ratio of expenses to average net assets (6) 1.12% (5) 1.25% 1.25% 1.25%(5) Ratio of net investment loss to average net assets (6) (0.70%)(5) (0.84%) (0.67%) (1.25%)(5) Portfolio turnover rate (7) 35.29% 55.40% 73.62% 0%
(1) Commencement of operations. (2) Calculated using average shares outstanding during the period. (3) Amount is less than $0.01. (4) Not annualized. (5) Annualized. (6) Without fees waived, ratios of net expenses to average net assets for the periods ended June 30, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 would have been 1.14%, 1.39%, 2.06% and 2.78%, respectively; and the ratios of net investment loss to average net assets would have been (0.72%), (0.98%), (1.48%) and (2.78%), respectively. (7) 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 Class Shares Investor Class Investor Class Investor Class December 29, Shares Six Shares Shares 2000 (1) months ended Year ended Year ended through June 30, 2003 December 31, December 31, December 31, (unaudited) 2002 2001 2000 --------------- ------------- -------------- -------------- Per Share Data: Net asset value, beginning of period $7.63 $9.09 $9.70 $10.00 --------------- ------------- ------------- ------------ Income from investment operations: Net investment loss (0.04)(2) (0.09)(2) (0.08)(2) (0.00)(3) Net realized and unrealized income (losses) on investments 0.71 (1.37) (0.53) (0.30) --------------- ------------- ------------- ------------ Total from investment operations 0.67 (1.46) (0.61) (0.30) --------------- ------------- ------------- ------------ Less distributions: Dividends from net investment income - - - - Distributions from net realized gains - - - - --------------- ------------ ------------- ----------- Total distributions - - - - --------------- ------------- ------------- ------------ Net asset value, end of period $8.30 $7.63 $9.09 $9.70 =============== ============= ============= ============ Total return 8.78%(4) (16.06%) (6.29%) (3.00%)(4) Supplemental data and ratios: Net assets, end of period $913,763 $801,703 $1,050,356 $10 Ratio of expenses to average net assets(6) 1.37%(5) 1.50% 1.50% 1.50%(5) Ratio of net investment loss to average net assets (6) (0.95%)(5) (1.09%) (0.92%) (1.50%)(5) Portfolio turnover rate (7) 35.29% 55.40% 73.62% 0%
(1) Commencement of operations. (2) Calculated using average shares outstanding during the period. (3) Amount is less than $0.01. (4) Not annualized. (5) Annualized. (6) Without fees waived, ratios of net expenses to average net assets for the periods ended June 30, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 would have been 1.39%, 1.64%, 2.31% and 3.03%, respectively; and the ratios of net investment loss to average net assets would have been (0.97%), (1.23%), (1.73%) and (3.03%), respectively. (7) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 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 and the Baird MidCap Fund (each a "Fund" and collectively the "Funds"), two of the seven portfolios comprising the Corporation. Pursuant to the 1940 Act, the Funds are "diversified" series of the Corporation. The Baird Short-Term Bond Fund is not presently being offered to investors. 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 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. On June 30, 2003, one shareholder related to the investment advisor held approximately 55% of the Institutional Class Shares of the Baird LargeCap Fund and one shareholder related to the investment advisor held approximately 65% of the Institutional Class Shares of the Baird MidCap 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 on the day the valuation is made. Securities traded on NASDAQ are valued at the NASDAQ official closing price on the day the valuation is made. 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 on the day the valuation is made. 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. 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. Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (cont.) d) Distributions to Shareholders - Dividends from net investment income are declared and paid annually. Distributions of net realized gains, if any, will be declared and paid at least annually. e) 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. f) 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 or as soon as information is available to the Funds and interest income is recognized on an accrual basis. Generally accepted accounting principles require that permanent financial reporting and tax differences be reclassified in the capital accounts. 3. CAPITAL SHARE TRANSACTIONS The following table summarizes the capital share transactions of each Fund: BAIRD LARGECAP FUND
Period Ended Period Ended June 30, 2003 June 30, 2003 --------------------------- ------------------------ Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------ ------------ ---------- Shares sold $ 3,356,747 516,187 Shares sold $ 95,000 14,522 Shares redeemed (2,225,686) (352,839) Shares redeemed (211,500) (33,674) ------------ ------------ ------------ ---------- Net Increase $ 1,131,061 163,348 Net Decrease $(116,500) (19,152) ============== ============ Shares Outstanding: Shares Outstanding: Beginning of period 7,625,779 Beginning of period 101,110 ------------ ---------- End of period 7,789,127 End of period 81,958 ============ ========== Year Ended Year Ended December 31, 2002 December 31, 2002 --------------------------- ------------------------ Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------ ------------- --------- Shares sold $ 16,127,835 2,383,970 Shares sold $249,353 35,023 Shares issued through Shares issued through reinvestment of dividends 99,982 15,477 reinvestment of dividends 121 19 Shares redeemed (5,251,605) (736,052) Shares redeemed (32,902) (5,415) ------------- ------------ ------------ --------- Net Increase $ 10,976,212 1,663,395 Net Increase $216,572 29,627 ============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 5,962,384 Beginning of period 71,483 ------------ --------- End of period 7,625,779 End of period 101,110 ============ =========
Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 3. CAPITAL SHARE TRANSACTIONS (cont.) BAIRD MIDCAP FUND
Period Ended Period Ended June 30, 2003 June 30, 2003 --------------------------- ------------------------ Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------ ------------ ---------- Shares sold $ 2,723,399 348,808 Shares sold $ 96,943 12,205 Shares redeemed (856,077) (110,514) Shares redeemed ,(52,572) (7,099) ------------ ------------ ------------ ---------- Net Increase $ 1,867,322 238,294 Net Increase $ 44,371 5,106 ============== ============ Shares Outstanding: Shares Outstanding: Beginning of period 2,722,643 Beginning of period 105,039 ------------ ---------- End of period 2,960,937 End of period 110,145 ============ ========== Year Ended Year Ended December 31, 2002 December 31, 2002 --------------------------- ------------------------ Institutional Class Shares $ Shares Investor Class Shares $ Shares -------------- ------------ ------------- --------- Shares sold $ 13,055,395 1,621,440 Shares sold $115,974 14,460 Shares redeemed (2,736,555) (331,959) Shares redeemed (210,904) (24,942) ------------- ------------ ------------ --------- Net Increase $ 10,318,840 1,289,481 Net Increase $(94,930) (10,482) ============== ============= Shares Outstanding: Shares Outstanding: Beginning of period 1,433,162 Beginning of period 115,521 ------------ --------- End of period 2,722,643 End of period 105,039 ============ =========
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION During the period ended June 30, 2003, purchases and sales of investment securities (excluding short-term investments) were as follows: Baird Baird LargeCap Fund MidCap Fund --------------- -------------- Purchases: $7,577,629 $9,151,807 Sales: $4,209,641 $7,614,740 At June 30, 2003, gross unrealized appreciation and depreciation of investments and distributable ordinary income and long-term capital gains for federal tax purposes were as follows:
Cost for Tax Basis Tax Basis Tax Basis Net Distributable Federal Gross Gross Unrealized Distributable Long-Term Income Tax Unrealized Unrealized Appreciation Ordinary Capital Purposes Appreciation Depreciation (Depreciation) Income Gains -------- ------------ ------------ -------------- ------ ----- Baird LargeCap Fund $59,178,243 $3,282,671 ($7,521,022) ($4,238,351) $99,716 - Baird MidCap Fund $23,545,796 $3,050,683 ($938,100) $2,112,583 - -
Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION(cont.) 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. 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, 2002, the Baird LargeCap Fund elected to defer capital losses occurring between November 1, 2002 and December 31, 2002 in the amount of $516,163. At December 31, 2002, the Baird LargeCap Fund and Baird MidCap Fund had accumulated net realized capital loss carryovers of $4,188,556 and $2,546,738, respectively that expire in 2010 and $151,937 and $615,557, respectively that expire in 2009. To the extent the Funds realize future net capital gains, taxable distributions to shareholders will be offset by any unused capital loss carryover. 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 and 0.75% for the Baird MidCap 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 six months ended June 30, 2003 and through December 31, 2003, the Advisor 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 1.25% 1.50% 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.
Six months ended Year ended June 30, December 31, ------------------- --------------------------------- Year ended: 2003 2002 2001 2000 Reimbursed / Absorbed Expenses Subject to Recovery by Advisor Until: 2006 2005 2004 2003 Baird LargeCap Fund $ 50,748 $ 91,116 $ 128,541 $50,141 Baird MidCap Fund $ 2,050 $ 21,503 $ 67,451 $ 986
During the period prior to commencement of operations, the Advisor absorbed $7,405 and $6,837 of organizational expenses of the Baird LargeCap Fund and Baird MidCap Fund, respectively. These reimbursed/absorbed expenses are subject to recovery by the Advisor until December 31, 2003. 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. Baird Funds, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to the Financial Statements June 30, 2003 (unaudited) -------------------------------------------------------------------------------- 5. INVESTMENT ADVISORY AND OTHER AGREEMENTS (cont.) No commissions were earned by the Distributor for services rendered as a registered broker-dealer in securities transactions for the Baird LargeCap Fund and Baird MidCap Fund for the period ended June 30, 2003. 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 and the Baird MidCap Fund incurred $698 and $1,035, respectively, in fees pursuant to the Plan for the period ended June 30, 2003. 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 Legal Counsel G. Frederick Kasten, Jr. (Chairman) Godfrey & Kahn, S.C. 780 North Water Street John W. Feldt Milwaukee, Wisconsin 53202 George C. Kaiser ------------------------------------ Stephen A. Roell Independent Accountants ------------------------------------------ PricewaterhouseCoopers LLP 100 East Wisconsin Avenue, Suite 1500 Investment Advisor Milwaukee, Wisconsin 53202 Robert W. Baird & Co. Incorporated ------------------------------------ 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Distributor ------------------------------------------ Robert W. Baird & Co. Incorporated 777 East Wisconsin Avenue Administrator, Transfer Agent and Dividend Milwaukee, Wisconsin 53202 - 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 Item 2. Code of Ethics. Not applicable to semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable to semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable to semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. [Reserved] Item 9. Controls and Procedures. (a) Based on their evaluation of the Registrant's Disclosure Controls and Procedures as of a date within 90 days of the Filing Date, the Registrant's President, Treasurer, and CFO have determined that the Disclosure Controls and Procedures (as defined in Rule 30a-2(c) under the Act) are designed to ensure that information required to be disclosed by the Registrant is recorded, processed, summarized and reported by the filing Date, and that information required to be disclosed in the report is communicated to the Registrant's management, as appropriate, to allow timely decisions regarding required disclosure. (b) There were no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. Item 10. Exhibits. (a) Any code of ethics or amendment thereto. Not applicable to annual reports for periods ending before July 15, 2003. (b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (c) 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. (Registrant) Baird Funds, Inc. By (Signature and Title) /s/ Mary Ellen Stanek --------------------- Mary Ellen Stanek, President Date August 28, 2003 ------------------------------------- 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. (Registrant) Baird Funds, Inc. By (Signature and Title) /s/ Leonard Rush --------------------- Leonard Rush, Treasurer Date August 28, 2003 -------------------------------------