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