0000898531-15-000161.txt : 20150309 0000898531-15-000161.hdr.sgml : 20150309 20150309172706 ACCESSION NUMBER: 0000898531-15-000161 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 48 CONFORMED PERIOD OF REPORT: 20141231 FILED AS OF DATE: 20150309 DATE AS OF CHANGE: 20150309 EFFECTIVENESS DATE: 20150309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAIRD FUNDS INC CENTRAL INDEX KEY: 0001282693 IRS NUMBER: 000000000 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-09997 FILM NUMBER: 15686229 BUSINESS ADDRESS: STREET 1: 777 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 414-765-3500 MAIL ADDRESS: STREET 1: 777 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 0001282693 S000000753 Baird Aggregate Bond Fund C000002163 Institutional BAGIX C000002164 Investor BAGSX 0001282693 S000000754 Baird Core Plus Bond Fund C000002165 Institutional BCOIX C000002166 Investor BCOSX 0001282693 S000000755 Baird Intermediate Bond Fund C000002167 Institutional BIMIX C000002168 Investor BIMSX 0001282693 S000000756 Baird Intermediate Municipal Bond Fund C000002169 Institutional BMBIX C000002170 Investor BMBSX 0001282693 S000000757 Baird Short-Term Bond Fund C000002171 Institutional BSBIX C000118526 Investor Class BSBSX 0001282693 S000000758 Baird LargeCap Fund C000002172 Institutional BHGIX C000002173 Investor BHGSX 0001282693 S000000759 Baird MidCap Fund C000002174 Institutional BMDIX C000002175 Investor BMDSX 0001282693 S000036810 Baird SmallCap Value Fund C000112568 Investor Class BSVSX C000112569 Institutional Class BSVIX 0001282693 S000043689 Baird Ultra Short Bond Fund C000135467 Institutional Class BUBIX C000135468 Investor Class BUBSX N-CSR 1 baird-ncsra.htm BAIRD FIXED INCOME FUNDS AND BAIRD EQUITY FUNDS ANNUAL REPORTS 12-31-14 baird-ncsra.htm

 

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
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)



Andrew D. Ketter
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: December 31, 2014


Date of reporting period: December 31, 2014


 
 

 

Item 1. Reports to Stockholders.

 






 
Annual Report –
Baird Funds
December 31, 2014
 

 

Baird Ultra Short Bond Fund
Baird Short-Term Bond Fund
Baird Intermediate Bond Fund
Baird Intermediate Municipal Bond Fund
Baird Aggregate Bond Fund
Baird Core Plus Bond Fund


 
 
 
 
 
 

 
 
 
 

 


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Table of Contents

Letter to Shareholders
1
2014 Bond Market Overview
2
Baird Ultra Short Bond Fund
6
Baird Short-Term Bond Fund
16
Baird Intermediate Bond Fund
26
Baird Intermediate Municipal Bond Fund
36
Baird Aggregate Bond Fund
49
Baird Core Plus Bond Fund
58
Additional Information on Fund Expenses
68
Statements of Assets and Liabilities
70
Statements of Operations
72
Statements of Changes in Net Assets
74
Financial Highlights
80
Notes to the Financial Statements
92
Report of Independent Registered Public Accounting Firm
105
Directors and Officers
106
Disclosure Regarding the Board of Directors’ Approval
of the Investment Advisory Agreement for Baird Bond Funds
109
Additional Information
112
Privacy Notice
A-1

 
This report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus.
 
Cautionary Note on Analyses, Opinions and Outlooks:  In this report we offer analyses and opinions on the performance of individual securities, companies, industries, sectors, markets, interest rates and governmental policies, including predictions, forecasts and outlooks regarding possible future events.  These can generally be identified as such because the context of the statements may include such words as “believe,” “should,” “will,” “expects,” “anticipates,” “hopes” and words of similar effect.  These statements reflect the portfolio managers’ good faith beliefs and judgments and involve risks and uncertainties, including the risk that the portfolio managers’ analyses, opinions and outlooks are or will prove to be inaccurate.  It is inherently difficult to correctly assess and explain the performance of particular securities, sectors, markets, interest rate movements, governmental actions or general economic trends and conditions, and many unforeseen factors contribute to the performance of Baird Funds.  Investors are, therefore, cautioned not to place undue reliance on subjective judgments contained in this report.
 




 
 

 

 

 
Baird Funds
1-866-442-2473
www.bairdfunds.com
 
 
 
February 26, 2015
 
Dear Shareholder,
 
The Baird Funds has a passion for delivering competitive, risk-adjusted returns and outstanding service. That deeply held commitment led to another year of strong asset growth during 2014 for our fixed income and equity funds. Consistency, continuity and collaboration are hallmarks of our approach to meeting your investing and servicing needs. Our senior portfolio management teams have worked through many market cycles and have developed disciplined, risk-controlled approaches of adding value over benchmark returns through proven, bottom-up strategies focused on identifying, researching and investing in quality investments that exhibit strong fundamentals and oer attractive relative value.
 
We understand that it is this consistency of approach and unwavering focus on risk control that our shareholders depend on to help them achieve their investment objectives through market cycles. Our commitment to these long-term principles combined with strong alignment with the interests of investors helped drive assets under management in the Baird Funds to $17 billion at year end.
 
Our success rests on the trust you have placed in us to be effective stewards of your assets and we want to thank you for your continued investment in the Baird Funds.
 
On the following pages, we review the bond market in 2014 and the performance and composition of each of the Baird Bond Funds.
 
We are privileged to provide you with fixed income investment management services and appreciate the confidence and trust you have placed in our experienced investment team.
 
Sincerely,
 

 
Mary Ellen Stanek, CFA
President
Baird Funds


 
Page 1

 

2014 Bond Market Overview
 

Curve Flattens: Fed Ends QE as U.S. Growth Accelerates, Global Growth Falters
The yield curve flattened significantly during the year as weak global growth outside the U.S. and declining energy prices pushed the 30-year bond yield down 122 bps to 2.75% while the yield on the 2-year Treasury rose 28 bps to 0.66%, reflecting the consensus expectation of a Fed Funds rate hike in 2015. The Fed concluded QE purchases in October, but continues to reinvest interest and principal payments on its $4.5 trillion portfolio of Treasuries, Agency Debentures, and Mortgage Backed Securities. U.S. economic data demonstrated substantial progress: 3Q GDP accelerated to a +5.0% annualized pace and unemployment declined to 5.8% through November (down from 7% one year prior). Nevertheless, the yield on the 30-year Treasury fell 122 bps over the year as inflation remained tepid (U.S. Nov. CPI +1.3% year over year) and global growth faltered.
 
Treasury Yields
 

 
       
3 Mo.
12 Mo.
Maturity
12/31/13
9/30/14
12/31/14
Change
Change
1
0.11%
0.10%
0.21%
0.11%
0.10%
2
0.38%
0.58%
0.66%
0.08%
0.28%
3
0.77%
1.05%
1.07%
0.02%
0.30%
5
1.74%
1.78%
1.65%
-0.13%
-0.09%
7
2.45%
2.22%
1.97%
-0.25%
-0.48%
10
3.03%
2.51%
2.17%
-0.34%
-0.86%
30
3.97%
3.21%
2.75%
-0.46%
-1.22%
 
Oil Drops, Global Bond Yields Decline
Economic weakness across China, Europe, and Japan has contributed to a roughly 50% decline in oil prices since mid-year (see chart below left). Wrestling with weak growth and deflationary worries, foreign central banks have remained very accommodative, contributing to a precipitous decline in foreign sovereign bond yields. The yield on the 10-year German sovereign dropped from 1.93% at the start of the year to 0.54% (see graph below right). Remarkably low yields abroad have put downward pressure on U.S. Treasury yields, which look attractive in a global context.
 

 
Page 2

 

2014 Bond Market Overview
 

Corporate Yield Spreads Widen on Heavy Supply, Securitized Sectors Stable
Corporate spreads were nearly unchanged through September but widened 19 bps in the 4th quarter (17 bps wider on the year, see chart below), pressured by heavy supply and weak global growth outside of the U.S. Industrials widened more than other corporate sectors during the year (+26 bps) as energy-related sectors were adversely impacted by falling oil prices. 2014 set an all-time record for gross issuance of investment grade corporate bonds, totaling over $1.1 trillion and pushing spreads wider. Conversely, spreads on securitized sectors (e.g. MBS) were stable for the quarter. MBS spreads tightened 7 bps in 2014, in spite of the Fed tapering QE purchases of MBS from $35 billion per month in January to zero by November. Declining supply was the predominant factor, as gross MBS issuance fell roughly 40% from 2013 to 2014 (see chart, next page right). Please note that the 1-year change in CMBS and Utility spreads are impacted by mid-year changes to Barclay’s index inclusion rules.
Option-Adjusted Spreads (in bps)
 
       
4th Qtr
1 Year
 
12/31/13
9/30/14
12/31/14
Change
Change
U.S. Aggregate Index
   45
   43
   48
  5
    3
U.S. Agency (non-mortgage)
   17
   16
   16
  0
   -1
Mortgage and ABS Sectors
         
    U.S. Agency Pass-throughs
   34
   30
   27
 -3
   -7
    Asset-Backed Securities
   55
   56
   58
  2
    3
    CMBS
126
   99
   98
 -1
-28
Corporate Sectors
         
    U.S. Investment Grade
114
112
131
19
  17
        Industrial
114
115
140
25
  26
        Utility
125
106
119
13
   -6
        Financial Institutions
109
107
117
10
    8
    U.S. High Yield
382
424
483
59
101
 
Source:  Barclays
 

 
Strong Year - Except for High Yield
For the 2014 calendar year, Municipals (+9.05%) finished on top, as scant supply and steady demand drove returns while Investment Grade Corporates (+7.46%) benefitted from declining yields and solid credit fundamentals to overcome record issuance. After a very strong start to the year, Corporate High Yield dropped to the back of the pack, returning just 2.45% for the year. Corporate High Yield returns for the fourth quarter (-1.00%) were dragged down by a 10% decline in the Energy sector (which comprises 15% of the HY sector) as falling oil prices raised fundamental credit concerns at leveraged high yield energy companies.

 
Page 3

 

2014 Bond Market Overview
 

Total Returns of Selected Barclays Indices and Subsectors
 
 
Barclays Index/Sector
 
December
 
4th Quarter
 
2014 
 
U.S. Aggregate Index
    0.09 %     1.79 %     5.97 %
 
U.S. Gov’t/Credit Index
    0.08 %     1.82 %     6.01 %
 
U.S. Intermediate Gov’t/Credit Index
    -0.32 %     0.89 %     3.13 %
 
U.S. 1-3 Yr. Gov’t/Credit Index
    -0.26 %     0.17 %     0.77 %
 
U.S. Treasury
    0.14 %     1.93 %     5.05 %
 
U.S. Agency
    0.01 %     1.16 %     3.58 %
 
MBS (Mortgage Backed Securities)
    0.15 %     1.79 %     6.08 %
 
CMBS (Commercial Mortgage Backed Securities)
    -0.15 %     1.45 %     3.86 %
 
ABS (Asset Backed Securities)
    -0.22 %     0.55 %     1.88 %
 
U.S. Corporate - Investment Grade
    0.06 %     1.77 %     7.46 %
 
Corporate High Yield
    -1.45 %     -1.00 %     2.45 %
 
Municipal Bond Index
    0.50 %     1.37 %     9.05 %
 
TIPS (Treasury Inflation Protected Securities)
    -1.13 %     -0.03 %     3.64 %
 
Outlook
We expect the modest acceleration in U.S. economic growth will continue and inflation will stay contained in 2015, although many headwinds and uncertainties remain. Wage inflation remains benign and we expect the decline in oil prices will keep consumer inflation well below the Fed’s 2% target, while providing a net positive impact to growth. The first Fed Funds rate hike and eventual end of QE reinvestments will put upward pressure on rates; however, the magnitude will be limited as we expect the Fed will be “patient” and limit the pace of subsequent hikes. As other global central banks maintain accommodative policies, remarkably low interest rates abroad will continue to encourage capital flows into U.S. markets. We see limited return potential for Treasuries and Agencies, especially shorter maturities. Instead, we see good relative value in several non-government sectors. We expect Investment Grade Corporates to outperform, as strong credit fundamentals and attractive valuations will allow spreads to tighten modestly. We also see select relative value in senior CMBS structures with superior credit enhancement and conservative loan underwriting. We hold a cautious view on Agency MBS as the Fed is now only making reinvestment purchases in the sector and wider spreads may be required to absorb any material increase in supply. Non-Agency RMBS continues to offer attractive relative value as new issuance is very limited and fundamentals continue to improve. Even with the recent widening in Corporate High Yield spreads we remain cautious, finding very select value in the sector. In the municipal sector, state credit conditions have shown signs of improvement and some of the high-profile challenges (e.g. Detroit) have largely been resolved. Nevertheless investors will remain cautious of credit risk for municipals as high looming pension liabilities and infrastructure spending needs remain. Across tax-exempt markets, we caution investors against going too far out the yield curve or too far down in quality given the high level of uncertainty and broad range of potential outcomes.
 
This is not a complete analysis of every material fact regarding any company, industry or security. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.
 
Fixed income is generally considered to be a more conservative investment than stocks, but bonds and other fixed income investments still carry a variety of risks such as interest rate risk, credit risk, inflation risk, and liquidity risk. In a rising interest rate environment, the value of fixed-income securities generally decline and conversely, in a falling interest rate environment, the value of fixed-income securities generally increase. High yield securities may be subject to heightened market, interest rate or credit risk and should not be purchased solely because of the stated yield.
 
Indices are unmanaged, and are not available for direct investment.  Past performance is not a guarantee of future results.
 
The Barclays Aggregate Bond Index is an index comprised of approximately 6000 publicly traded bonds including U.S. Government, mortgage backed, corporate, and Yankee bonds with an average maturity of approximately 10 years.
 
The Barclays Government/Credit Index is a combination of the Government Index which measures government-bond general and Treasury funds, and the Credit Bond Index, which is a market value-weighted index which tracks the

 
Page 4

 

2014 Bond Market Overview
 

returns of all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC registered, investment grade Corporate Debt.
 
The Barclays Intermediate Government/Credit Index is a combination of the Government Index which measures government-bond general and Treasury funds, and the Credit Bond Index, which is a market value-weighted index which tracks the returns of all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC registered, investment grade Corporate Debt with maturities between one and ten years.
 
The Barclays Government/Credit Intermediate Index (1 – 3 yr.)  is a combination of the Government Index which measures government-bond general and Treasury funds, and the Credit Bond Index, which is a market value-weighted index which tracks the returns of all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC registered, investment grade Corporate Debt with maturities between zero and three years.
 
The Barclays U.S. Treasury Index includes public obligations of the U.S. Treasury.  Treasury bills are excluded by the maturity constraint of at least one year but are part of a separate Short Treasury Index.  In addition, certain special issues, such as state and local government series bonds (SLGs), as well as U.S. Treasury TIPS, are excluded.  STRIPS are excluded from the index because their inclusion would result in double-counting.  Securities in the Index roll up to the U.S. Aggregate, U.S. Universal, and Global Aggregate Indices.  The U.S. Treasury Index was launched on January 1, 1973.
 
U.S. Agency:  This index is the U.S. Agency component of the U.S. Government/Credit index.  Publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government (such as USAID securities). The largest issues are Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System (FHLB). The index includes both callable and non-callable agency securities.
 
U.S. Corporate – Investment Grade:  This index is the Corporate component of the U.S. Credit index.  It includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered.
 
CMBS (Commercial Mortgage Backed Securities):  This index is the CMBS component of the U.S. Aggregate index.  The Barclays CMBS ERISA-Eligible Index is the ERISA-eligible component of the Barclays CMBS Index. This index, which includes investment grade securities that are ERISA eligible under the underwriter’s exemption, is the only CMBS sector that is included in the U.S. Aggregate Index.
 
MBS (Mortgage Backed Securities):  This index is the U.S. MBS component of the U.S. Aggregate index.  The MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The MBS Index is formed by grouping the universe of over 600,000 individual fixed rate MBS pools into approximately 3,500 generic aggregates.
 
ABS (Asset Backed Securities):  This index is the ABS component of the U.S. Aggregate index.  The ABS index has three subsectors:  credit and charge cards, autos, and utility.  The index includes pass-through, bullet, and controlled amortization structures.  The ABS Index includes only the senior class of each ABS issue and the ERISA-eligible B and C tranche. The Manufactured Housing sector was removed as of January 1, 2008, and the Home Equity Loan sector was removed as of October 1, 2009.
 
Corporate High Yield:  The Barclays U.S. High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included.
 
The Barclays Municipal Bond Index is a broad-based, total-return index.  The bonds are all investment-grade, tax-exempt, and fixed-rate securities with long-term maturities (greater than 2 years).  They are selected from issues larger than $50 million.
 
The Barclays TIPS Index consists of Treasury Inflation Protected Securities (TIPS).  TIPS are securities whose principal is tied to the Consumer Price Index.  TIPS pay interest semi-annually, based on the fixed rate applied to the adjusted principal.

 
Page 5

 

Baird Ultra Short Bond Fund
December 31, 2014

The Baird Ultra Short Bond Fund seeks current income consistent with preservation of capital. The Fund’s primary benchmark index against which it measures performance is the Barclays U.S. Short-Term Government/Corporate Index. The Barclays U.S. Short-Term Government/Corporate Index is an unmanaged, market value weighted index of investment grade fixed debt, including government and corporate securities, with maturities of less than one year.
 
The Fund had strong absolute and relative returns versus its benchmark index in 2014.  Our long-term commitment to duration neutrality again proved to be a prudent strategy as the bond market saw a sharp drop in yields for longer maturities and continued flattening of the yield curve throughout the year. The movements in the bond market confounded the predictions of many market participants who expected rates to rise and proved again the difficulty of forecasting both the direction and timing of interest rate moves. The primary factors contributing to the Fund’s outperformance in 2014 are described below.
 
 
Within the Credit sector, an overweight to the Financial sub-sector, which continued to outperform other credit sectors for the full year, aided the Fund’s performance as credit fundamentals remained solid.
 
 
Exposure to non-agency residential mortgage-backed securities (RMBS) contributed to the Fund’s outperformance as limited supply and continued improvements in housing provided strong technical and fundamental support.
 
 
An overweight position to commercial mortgage-backed securities (CMBS) primarily through seasoned, super-senior CMBS added to performance as the sector outperformed significantly for the year resulting from tight supply combined with growing demand for these high quality securities.
 
 
Yield curve positioning benefitted the Fund’s performance, allowing it to achieve a rolldown advantage versus its benchmark.
 
Looking forward, we believe select credits still offer good relative value despite an elevated risk environment, as company balance sheets and credit fundamentals remain solid.  We also expect continued positive contribution from non-agency RMBS.  Yield curve positioning should modestly benefit from continued flattening of the yield curve with attractive rolldown opportunities being captured on a more selective basis.  The Fund remains duration neutral to its benchmark and we are optimistic that the Fund is well positioned to add value relative to its benchmark.
 


 
Page 6

 

Baird Ultra Short Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
         
 
Net Assets
$85,368,564
 
 
 
SEC 30-Day
   
 
Yield(3)
   
 
Institutional Class
   
 
  (Subsidized)
1.13%
 
 
Institutional Class
   
 
  (Unsubsidized)
0.99%
 
 
Investor Class (Subsidized)
0.90%
 
 
Investor Class
   
 
  (Unsubsidized)
0.75%
 
 
 
Average
   
 
Effective
   
 
Duration
0.60 years
 
 
 
Average
   
 
Effective
   
   
Maturity
0.61 years
 
Sector Weightings(1)  
 
Annualized
   
   
Portfolio
   
 
Expense Ratio(4)
   
 
Gross
   
 
Institutional Class
0.30%
 
 
Investor Class
0.55%(5)
 
 
 
Net
   
 
Institutional Class
0.15%
 
 
Investor Class
0.40%(5)
 
 
 
Portfolio
   
 
Turnover
   
 
Rate
57.6%(6)
 
 
 
Number of
   
 
Holdings
162
 
       
       
       
       
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments.
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(4)
Reflects expense ratios as stated in the Fund’s current prospectus.  The Advisor has contractually agreed to waive management fees in an amount equal to an annual rate of 0.15% of average daily net assets for the Fund, at least through April 30, 2016.  The agreement may only be terminated prior to the end of this term by or with the consent of the Board of Directors of Baird Funds, Inc.
(5)
Includes 0.25% 12b-1 fee.
(6)
Not annualized.


 
Page 7

 

Baird Ultra Short Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



 
Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (12/31/13), assuming reinvestment of all distributions.

Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (12/31/13), assuming reinvestment of all distributions.
 

 
Page 8

 

Baird Ultra Short Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
 
One
Since
For the Periods Ended December 31, 2014
Year
Inception(1)
Institutional Class Shares
1.21%
1.21%
Investor Class Shares
0.88%
0.88%
Barclays U.S. Short-Term Government/Corporate Index(2)
0.18%
0.18%

(1)
For the period from inception as of the close of business on December 31, 2013 through December 31, 2014.
(2)
The Barclays U.S. Short-Term Government/Corporate Credit Index is an unmanaged, market value weighted index of investment grade, fixed debt including government and corporate securities with maturities less than one year.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund may invest up to 10% of its net assets in non-investment grade debt securities (commonly referred to as “high yield” bonds).  While these types of securities typically offer higher yields than investment grade securities, they also include greater risks including increased credit risk and the increased risk of default or bankruptcy.  The Fund may also invest in U.S. dollar denominated foreign securities which involve additional risks such as political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund may also invest in mortgage- and asset-backed securities, which include interest rate and prepayment risks more pronounced than those of other fixed income securities.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 9

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
U.S. Treasury Securities
                 
U.S. Treasury Bonds,
                 
  2.000%, 01/31/2016
  $ 10,000,000     $ 10,178,120       11.9 %
  2.375%, 03/31/2016
    2,500,000       2,561,720       3.0 %
Total U.S. Treasury Securities
                       
(Cost $12,743,502)
            12,739,840       14.9 %
Corporate Bonds
                       
Finance
                       
BB&T Corporation:
                       
  5.200%, 12/23/2015
    41,000       42,635       0.1 %
  0.892%, 02/01/2019
    880,000       881,220       1.0 %
BNP Paribas SA,
                       
  0.692%, 05/07/2017 f
    1,000,000       998,574       1.2 %
BPCE,
                       
  1.082%, 02/10/2017 f
    500,000       503,311       0.6 %
Capital One Financial Corporation,
                       
  3.150%, 07/15/2016
    1,015,000       1,043,874       1.2 %
Citigroup Inc.,
                       
  0.506%, 06/09/2016
    950,000       940,912       1.1 %
Fifth Third Bancorp,
                       
  0.667%, 12/20/2016
    1,000,000       992,012       1.1 %
First Horizon National Corporation,
                       
  5.375%, 12/15/2015
    550,000       569,416       0.6 %
General Electric Capital Corporation,
                       
  0.740%, 01/14/2019
    1,000,000       1,000,392       1.2 %
ING Bank N.V.,
                       
  4.000%, 03/15/2016 (Acquired 03/08/2011,
                       
  Cost $517,981)* f
    500,000       517,167       0.6 %
PNC Funding Corp,
                       
  5.250%, 11/15/2015
    730,000       756,573       0.9 %
Royal Bank of Canada,
                       
  0.488%, 10/13/2017 f
    1,000,000       999,168       1.2 %


The accompanying notes are an integral part of these financial statements.

 
Page 10

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Societe Generale,
                 
  1.335%, 10/01/2018 f
  $ 1,000,000     $ 1,017,644       1.2 %
Symetra Financial Corporation,
                       
  6.125%, 04/01/2016 (Acquired 04/23/2014
                       
  through 11/24/2014, Cost $590,741)*
    560,000       587,513       0.7 %
The Bank of New York Mellon Corporation,
                       
  0.792%, 08/01/2018
    1,000,000       1,002,100       1.2 %
The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
                       
  0.545%, 09/08/2017 (Acquired 09/30/2014,
                       
  Cost $998,890)* f
    1,000,000       989,930       1.1 %
The Goldman Sachs Group, Inc.:
                       
  5.350%, 01/15/2016
    555,000       579,152       0.7 %
  1.332%, 11/15/2018
    500,000       504,900       0.6 %
The Royal Bank of Scotland Group
                       
  Public Limited Company,
                       
  2.550%, 09/18/2015 f
    800,000       808,010       0.9 %
Other Finance#~
            10,195,288       12.0 %
Total Finance
                       
(Cost $24,982,112)
            24,929,791       29.2 %
Utility
                       
Exelon Corporation,
                       
  4.900%, 06/15/2015
    503,000       511,995       0.6 %
PPL Energy Supply, LLC,
                       
  Series A, 5.700%, 10/15/2015
    600,000       613,066       0.7 %
Other Utility#~
            592,759       0.7 %
Total Utility
                       
(Cost $1,719,425)
            1,717,820       2.0 %
Industrials
                       
Anglo American Capital PLC,
                       
  1.181%, 04/15/2016 (Acquired 04/08/2014
                       
  through 11/13/2014, Cost $802,361)* f
    800,000       800,805       0.9 %
Becton, Dickinson and Company,
                       
  0.691%, 06/15/2016
    1,000,000       1,000,238       1.2 %
Deutsche Telekom International Finance B.V.,
                       
  3.125%, 04/11/2016 (Acquired 09/17/2014,
                       
  Cost $514,177)* f
    500,000       512,464       0.6 %
Enbridge Inc.:
                       
  0.905%, 10/01/2016 f
    750,000       749,612       0.9 %
  0.684%, 06/02/2017 f
    250,000       248,919       0.3 %
Ford Motor Credit Company LLC:
                       
  2.500%, 01/15/2016
    200,000       202,237       0.2 %
  4.207%, 04/15/2016
    750,000       776,284       0.9 %


The accompanying notes are an integral part of these financial statements.

 
Page 11

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Gulf South Pipeline Company, LP,
                 
  5.050%, 02/01/2015 (Acquired 09/29/2014,
                 
  Cost $501,798)*
  $ 500,000     $ 501,489       0.6 %
Hanson Limited,
                       
  6.125%, 08/15/2016 f
    800,000       848,000       1.0 %
Kinder Morgan Finance Company LLC,
                       
  5.700%, 01/05/2016
    650,000       674,778       0.8 %
Laboratory Corporation of America Holdings,
                       
  5.625%, 12/15/2015
    1,000,000       1,040,268       1.2 %
Marathon Petroleum Corporation,
                       
  3.500%, 03/01/2016
    1,000,000       1,024,744       1.2 %
Medtronic, Inc.,
                       
  1.043%, 03/15/2020 (Acquired 12/01/2014,
                       
  Cost $750,000)*
    750,000       749,209       0.9 %
Plum Creek Timberlands, L.P.,
                       
  5.875%, 11/15/2015
    725,000       753,151       0.9 %
Rockies Express Pipeline LLC,
                       
  3.900%, 04/15/2015 (Acquired 09/30/2014
                       
  through 10/08/2014, Cost $1,073,079)*
    1,072,000       1,066,640       1.3 %
Verizon Communications Inc.,
                       
  1.991%, 09/14/2018
    1,063,000       1,105,793       1.3 %
Xerox Corporation,
                       
  6.400%, 03/15/2016
    843,000       894,307       1.0 %
Other Industrials#~
            8,869,487       10.4 %
Total Industrials
                       
(Cost $21,861,577)
            21,818,425       25.6 %
Total Corporate Bonds
                       
(Cost $48,563,114)
            48,466,036       56.8 %
Other Government Related Securities
                       
Eksportfinans ASA,
                       
  2.000%, 09/15/2015 f
    540,000       540,632       0.6 %
Other Government Related Securities#~
            2,033,694       2.4 %
Total Other Government Related Securities
                       
(Cost $2,647,306)
            2,574,326       3.0 %
Taxable Municipal Bonds
                       
University of Illinois,
                       
  1.308%, 02/15/2016
    700,000       699,524       0.8 %
Other Taxable Municipal Bonds#
            2,183,543       2.6 %
Total Taxable Municipal Bonds
                       
(Cost $2,887,738)
            2,883,067       3.4 %


The accompanying notes are an integral part of these financial statements.

 
Page 12

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Residential Mortgage-Backed Securities
                 
U.S. Government Agency Issues
                 
Other U.S. Government Agency Issues#
        $ 737,465       0.9 %
Total U.S. Government Agency Issues
                     
(Cost $721,764)
          737,465       0.9 %
Non-U.S. Government Agency Issues
                     
Other Non-U.S. Government Agency Issues#
          341,844       0.4 %
Total Non-U.S. Government Agency Issues
                     
(Cost $339,018)
          341,844       0.4 %
Asset Backed Securities
                     
Accredited Mortgage Loan Trust:
                     
  Series 2005-3, Class A1, 0.400%, 09/25/2035
  $ 186,271       185,565       0.2 %
  Series 2006-2, Class A3, 0.320%, 09/25/2036
    1,022,933       1,010,298       1.2 %
Asset Backed Securities Corp Home Equity Loan Trust,
                       
  Series 2004-HE6, Class A1, 0.720%, 09/25/2034
    667,312       667,286       0.8 %
Capital Auto Receivables Asset Trust,
                       
  Series 2014-1, Class A1B, 0.515%, 05/20/2016
    590,000       590,159       0.7 %
HSI Asset Securitization Corp Trust,
                       
  Series 2007-WF1, Class 2A3, 0.340%, 05/25/2037
    668,363       646,410       0.8 %
Master Credit Card Trust II,
                       
  Series 2012-2A, Class A, 0.780%, 04/21/2017
                       
  (Acquired 10/24/2012, Cost $1,001,048)* f
    1,000,000       1,000,320       1.2 %
Specialty Underwriting & Residential Finance Trust,
                       
  Series 2006-BC1, Class A2C, 0.370%, 12/25/2036
    665,770       659,909       0.8 %
Springleaf Mortgage Loan Trust,
                       
  Series 2012-2A, Class A, 2.220%, 10/25/2057 (Acquired
                       
  08/20/2014 through 10/22/2014, Cost $531,381)*
    525,962       533,015       0.6 %
Other Asset Backed Securities#~
            4,039,638       4.6 %
Total Asset Backed Securities
                       
(Cost $9,329,059)
            9,332,600       10.9 %
Commercial Mortgage-Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
  Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    982,681       996,832       1.2 %
COMM Mortgage Trust,
                       
  Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    885,035       894,471       1.1 %
Wachovia Bank Commercial Mortgage Trust,
                       
  Series 2005-C22, Class A4, 5.269%, 12/15/2044
    871,172       889,771       1.0 %
Other Commercial Mortgage Backed Securities#
            20,207       0.0 %
Total Commercial Mortgage Backed Securities
                       
(Cost $2,829,884)
            2,801,281       3.3 %
Total Long-Term Investments
                       
(Cost $80,061,385)
            79,876,459       93.6 %


The accompanying notes are an integral part of these financial statements.

 
Page 13

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

Short-Term Investments
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Funds
                 
Dreyfus Cash Advantage Fund, 0.06%«
    3,882,770     $ 3,882,770       4.5 %
Total Short-Term Investments
                       
(Cost $3,882,770)
            3,882,770       4.5 %
Total Investments
                       
(Cost $83,944,155)
            83,759,229       98.1 %
Other Assets in Excess of Liabilities
            1,609,335       1.9 %
TOTAL NET ASSETS
          $ 85,368,564       100.0 %
Notes to Summary Schedule of Investments
*
Restricted Security Deemed Liquid
f
Foreign Security
«
7-Day Yield
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
~
Groupings contain, in aggregate, restricted securities totaling $5,085,445 representing 5.96% of net assets.

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.


The accompanying notes are an integral part of these financial statements.

 
Page 14

 

Baird Ultra Short Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014 (cont.)
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fixed Income
                       
U.S. Treasury Securities
  $     $ 12,739,840     $     $ 12,739,840  
Corporate Bonds
          48,466,036             48,466,036  
Other Government Related Securities
          2,574,326             2,574,326  
Taxable Municipal Bonds
          2,883,067             2,883,067  
Residential Mortgage-Backed Securities –
                               
  U.S. Government Agency Issues
          737,465             737,465  
Residential Mortgage-Backed Securities –
                               
  Non-U.S. Government Agency Issues
          341,844             341,844  
Asset Backed Securities
          9,332,600             9,332,600  
Commercial Mortgage-Backed Securities
          2,801,281             2,801,281  
Total Fixed Income
          79,876,459             79,876,459  
Short-Term Investment
                               
Money Market Mutual Fund
    3,882,770                   3,882,770  
Total Short-Term Investment
    3,882,770                   3,882,770  
Investments Purchased with Cash
                               
Proceeds from Securities Lending
                               
Investment Companies
                       
Total Investments Purchased with
                               
Cash Proceeds from Securities Lending
                       
Total Investments
  $ 3,882,770     $ 79,876,459     $     $ 83,759,229  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period.  See the Fund’s valuation policy in Note 2a to the financial statements.
 




The accompanying notes are an integral part of these financial statements.

 
Page 15

 

Baird Short-Term Bond Fund
December 31, 2014

The Baird Short-Term Bond Fund seeks an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays 1-3 Year U.S. Government/Credit Bond Index. The Barclays 1-3 Year U.S. Government/Credit Bond Index is an unmanaged, market value weighted index of investment grade, fixed rate debt issues, including government and credit securities, with maturities between one and three years.
 
The Fund had strong absolute and relative returns versus its benchmark index in 2014.  Our long-term commitment to duration neutrality again proved to be a prudent strategy as the bond market saw a sharp drop in yields for longer maturities and continued flattening of the yield curve throughout the year. The movements in the bond market confounded the predictions of many market participants who expected rates to rise and proved again the difficulty of forecasting both the direction and timing of interest rate moves. The primary factors contributing to the Fund’s outperformance in 2014 are described below.
 
 
Within the Credit sector, an overweight to the Financial sub-sector, which continued to outperform other credit sectors for the full year, aided the Fund’s performance as credit fundamentals remained solid.
 
 
Exposure to non-agency residential mortgage-backed securities (RMBS) contributed to the Fund’s outperformance as limited supply and continued improvements in housing provided strong technical and fundamental support.
 
 
An overweight position to commercial mortgage-backed securities (CMBS) primarily through seasoned, super-senior CMBS added to performance as the sector outperformed significantly for the year resulting from tight supply combined with growing demand for these high quality securities.
 
 
The Fund’s yield curve positioning where an underweight in 1-2 year maturities and a slight overweight in the 4 year part of the curve benefitted the Fund as the curve continued to flatten.
 
Looking forward, we believe select credits still offer good relative value despite an elevated risk environment, as company balance sheets and credit fundamentals remain solid.  We also expect continued positive contribution from non-agency RMBS.  Yield curve positioning should modestly benefit from continued flattening of the yield curve with attractive rolldown opportunities being captured on a more selective basis.  The Fund remains duration neutral to its benchmark and we are optimistic that the Fund is well positioned to add value relative to its benchmark.
 


 
Page 16

 

Baird Short-Term Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
         
   
Net Assets
$2,676,707,885
 
       
 
SEC 30-Day
   
 
Yield(3)
   
 
Institutional Class
1.55%
 
 
Investor Class
1.30%
 
       
 
Average
   
 
Effective
   
 
Duration
1.93 years
 
       
 
Average
   
 
Effective
   
 
Maturity
1.99 years
 
       
 
Annualized
   
Sector Weightings(1)
 
Expense
   
   
Ratio
   
 
Institutional Class
0.30%
 
 
Investor Class
0.55%(4)
 
       
 
Portfolio
   
 
Turnover
   
 
Rate
51.2%
 
       
 
Number of
   
 
Holdings
532
 
       
       
       
       
       
       
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments (less investments purchased with cash proceeds from securities lending).
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(4)
Includes 0.25% 12b-1 fee.


 
Page 17

 

Baird Short-Term Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



 
Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (8/31/04), assuming reinvestment of all distributions.

Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (9/19/12), assuming reinvestment of all distributions.

 
Page 18

 

Baird Short-Term Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
       
Average Annual
       
Since
Since
 
One
Five
Ten
Inception
Inception
For the Periods Ended December 31, 2014
Year
Years
Years
(8/31/04)
(9/19/12)
Institutional Class Shares
1.49%
2.68%
3.20%
3.11%
N/A
Investor Class Shares
1.25%
N/A
N/A
N/A
1.33%
Barclays 1-3 Year U.S.
         
  Government/Credit Bond Index(1)
0.77%
1.41%
2.85%
2.77%
0.72%
 
(1)
The Barclays 1-3 Year U.S. Government/Credit Bond Index is an unmanaged, market value weighted index of investment grade, fixed-rate debt issues, including government and corporate securities, with maturities between one and three years.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund may invest in U.S. dollar denominated foreign securities which involve additional risks such as political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund may also invest in mortgage- and asset-backed securities, which include interest rate and prepayment risks more pronounced than those of other fixed income securities.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 19

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
  2.250%, 07/31/2018@
  $ 130,950,000     $ 135,154,674       5.0 %
  1.250%, 04/30/2019@
    172,000,000       169,997,748       6.4 %
Total U.S. Treasury Securities
                       
(Cost $304,755,926)
            305,152,422       11.4 %
Corporate Bonds
                       
Finance
                       
ABN AMRO Bank N.V.,
                       
  1.033%, 10/28/2016 (Acquired 10/23/2013 through
                       
  05/19/2014, Cost $11,058,523)* f
    11,050,000       11,128,886       0.4 %
Citizens Bank, National Association,
                       
  1.600%, 12/04/2017
    12,500,000       12,444,875       0.5 %
CNA Financial Corporation,
                       
  7.350%, 11/15/2019
    10,200,000       12,174,159       0.5 %
Dresdner Bank AG,
                       
  7.250%, 09/15/2015 f
    12,322,000       12,741,835       0.5 %
LeasePlan Corporation N.V.,
                       
  2.500%, 05/16/2018 (Acquired 05/07/2013 through
                       
  10/20/2014, Cost $14,710,581)* f
    14,785,000       14,791,343       0.5 %
Nomura Holdings, Inc.,
                       
  2.000%, 09/13/2016 f
    10,205,000       10,287,324       0.4 %
Synchrony Financial,
                       
  3.000%, 08/15/2019@
    13,350,000       13,496,089       0.5 %
Voya Financial, Inc.,
                       
  2.900%, 02/15/2018
    14,708,000       15,057,359       0.6 %
Other Finance#~
            611,155,586       22.8 %
Total Finance
                       
(Cost $710,774,596)
            713,277,456       26.7 %

 
 
The accompanying notes are an integral part of these financial statements.

 
Page 20

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Utility
                 
National Grid PLC
                 
  6.300%, 08/01/2016 f
  $ 9,531,000     $ 10,288,219       0.4 %
Other Utility#~
            73,544,435       2.7 %
Total Utility
                       
(Cost $83,674,285)
            83,832,654       3.1 %
Industrials
                       
Amgen Inc.,
                       
  5.700%, 02/01/2019
    10,000,000       11,248,780       0.4 %
Boardwalk Pipelines, LP,
                       
  5.500%, 02/01/2017
    13,384,000       14,118,969       0.5 %
CF Industries, Inc.,
                       
  6.875%, 05/01/2018
    11,182,000       12,712,022       0.5 %
Dollar General Corporation,
                       
  4.125%, 07/15/2017
    17,321,000       17,863,424       0.7 %
Hospira, Inc.,
                       
  6.050%, 03/30/2017
    9,654,000       10,408,605       0.4 %
Petrofac Limited,
                       
  3.400%, 10/10/2018 (Acquired 10/03/2013 through
                       
  09/19/2014, Cost $11,971,239)* f
    11,750,000       11,591,751       0.4 %
PetroLogistics LP / PetroLogistics Finance Corp.,
                       
  6.250%, 04/01/2020
    11,755,000       12,666,013       0.5 %
Pioneer Natural Resources Company,
                       
  5.875%, 07/15/2016
    10,133,000       10,762,057       0.4 %
Seagate HDD Cayman,
                       
  6.875%, 05/01/2020 f
    10,653,000       11,185,650       0.4 %
Telecom Italia Capital,
                       
  5.250%, 10/01/2015 f
    10,960,000       11,179,200       0.4 %
The Dow Chemical Company,
                       
  8.550%, 05/15/2019
    11,427,000       14,206,572       0.5 %
The Valspar Corporation,
                       
  5.100%, 08/01/2015
    10,450,000       10,698,376       0.4 %
Valero Energy Corporation,
                       
  9.375%, 03/15/2019
    10,349,000       12,906,559       0.5 %
Verizon Communications Inc.,
                       
  3.650%, 09/14/2018
    14,000,000       14,794,178       0.5 %
Walgreen Co.,
                       
  5.250%, 01/15/2019
    9,392,000       10,440,025       0.4 %
Other Industrials#~
            669,215,310       25.1 %
Total Industrials
                       
(Cost $858,524,095)
            855,997,491       32.0 %
Total Corporate Bonds
                       
(Cost $1,652,972,976)
            1,653,107,601       61.8 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 21

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Other Government Related Securities
                 
Other Government Related Securities#~
        $ 74,963,835       2.8 %
Total Other Government Related Securities
                     
(Cost $75,485,344)
          74,963,835       2.8 %
Taxable Municipal Bonds
                     
Rhode Island Housing & Mortgage Finance Corp/RI,
                     
  3.000%, 10/01/2034 (Callable   10/01/2023)
  $ 11,760,000       12,039,653       0.5 %
Other Taxable Municipal Bonds#
            55,720,525       2.0 %
Total Taxable Municipal Bonds
                       
(Cost $67,442,585)
            67,760,178       2.5 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Other U.S. Government Agency Issues#
            556,684       0.0 %
Total U.S. Government Agency Issues
                       
(Cost $530,947)
            556,684       0.0 %
Non-U.S. Government Agency Issues
                       
Structured Securities Corp
                       
  Mortgage Pass-Through Certificates,
                       
  Series 2004-22, Class A2, 5.133%, 01/25/2035
    11,396,361       11,796,339       0.4 %
WaMu Mortgage Pass-Through Certificates,
                       
  Series 2004-AR3, Class A1, 2.370%, 06/25/2034
    11,157,219       11,259,452       0.4 %
Other Non-U.S. Government Agency Issues#
            39,326,014       1.5 %
Total Non-U.S. Government Agency Issues
                       
(Cost $62,269,082)
            62,381,805       2.3 %
Asset Backed Securities
                       
Accredited Mortgage Loan Trust,
                       
  Series 2006-2, Class A3, 0.320%, 09/25/2036
    17,591,177       17,373,891       0.7 %
Ally Auto Receivables Trust,
                       
  Series 2014-SN2, Class A2B, 0.465%, 03/20/2017
    13,000,000       13,000,559       0.5 %
Ameriquest Mortgage Securities Inc
                       
  Asset-Backed Pass-Through Ctfs,
                       
  Series 2005-R8, Class A2D, 0.530%, 10/25/2035
    11,660,913       11,613,838       0.4 %
Argent Securities Inc Asset-Backed
                       
  Pass-Through Certificates,
                       
  Series 2005-W3, Class A2D, 0.510%, 11/25/2035
    14,097,419       13,542,798       0.5 %
Capital Auto Receivables Asset Trust,
                       
  Series 2014-3, Class A-2, 1.180%, 12/20/2017
    25,515,000       25,515,230       1.0 %
Ford Credit Auto Owner Trust,
                       
  Series 2014-1, Class A, 2.260%, 11/15/2025
                       
  (Acquired 05/06/2014 through 11/18/2014,
                       
  Cost $17,958,650)*
    17,894,000       17,989,518       0.7 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 22

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
GSAA Trust,
                 
  Series 2005-8, Class A4, 0.440%, 06/25/2035
  $ 21,675,795     $ 21,045,268       0.8 %
Nationstar Home Equity Loan Trust,
                       
  Series 2006-B, Class AV3, 0.340%, 09/25/2036
    20,309,304       20,267,406       0.8 %
RASC Series Trust,
                       
  Series 2005-AHL2, Class A3, 0.520%, 10/25/2035
    12,150,000       11,990,519       0.4 %
Securitized Asset Backed Receivables LLC Trust,
                       
  Series 2005-OP2, Class A1, 0.495%, 10/25/2035
                       
  (Acquired 03/13/2014, Cost $13,669,278)*
    13,837,928       13,678,778       0.5 %
Springleaf Funding Trust,
                       
  Series 2013-AA, Class A, 2.580%, 09/15/2021 (Acquired
                       
  01/09/2014 through 11/18/2014, Cost $23,206,842)*
    23,100,000       23,166,505       0.9 %
Structured Asset Investment Loan Trust,
                       
  Series 2004-9, Class A5, 1.170%, 10/25/2034
    16,953,015       16,921,940       0.6 %
Synchrony Credit Card Master Note Trust,
                       
  Series 2014-1, Class A, 1.610%, 11/15/2020
    11,700,000       11,657,307       0.4 %
Other Asset Backed Securities#~
            120,271,442       4.4 %
Total Asset Backed Securities
                       
(Cost $337,392,381)
            338,034,999       12.6 %
Commercial Mortgage-Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
  Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    24,181,820       24,530,038       0.9 %
CD Commercial Mortgage Trust,
                       
  Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    18,872,614       19,177,558       0.7 %
COMM Mortgage Trust,
                       
  Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    14,296,123       14,448,548       0.6 %
Credit Suisse First Boston Mortgage Securities Corp.,
                       
  Series 2005-C5, Class A4, 5.100%, 08/15/2038
    13,878,629       14,062,854       0.5 %
DBUBS Mortgage Trust,
                       
  Series 2011-LC3A, Class A2, 3.642%, 08/10/2044
    18,450,000       19,047,614       0.7 %
J.P. Morgan Chase Commercial Mortgage Securities Trust,
                       
  Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    19,435,000       19,636,638       0.7 %
Morgan Stanley Capital I Trust,
                       
  Series 2005-HQ7, Class A4, 5.206%, 11/14/2042
    12,256,304       12,449,549       0.5 %
Wachovia Bank Commercial Mortgage Trust,
                       
  Series 2005-C22, Class A4, 5.269%, 12/15/2044
    17,540,804       17,915,282       0.7 %
Other Commercial Mortgage Backed Securities#
            7,956,896       0.3 %
Total Commercial Mortgage Backed Securities
                       
(Cost $155,070,916)
            149,224,977       5.6 %
Total Long-Term Investments
                       
(Cost $2,655,920,157)
            2,651,182,501       99.0 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 23

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

Short-Term Investments
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Funds
                 
Short-Term Investments Trust –
                 
  Liquid Assets Portfolio, 0.07%«
    9,270,655     $ 9,270,655       0.4 %
Total Short-Term Investments
                       
(Cost $9,270,655)
            9,270,655       0.4 %
Investments Purchased with Cash
                       
Proceeds from Securities Lending
                       
Investment Companies
                       
Mount Vernon Securities Lending
                       
  Trust Prime Portfolio, 0.29%«
    147,613,109       147,613,109       5.5 %
Total Investment Companies
                       
(Cost $147,613,109)
            147,613,109       5.5 %
Total Investments Purchased With Securities Lending
                       
(Cost $147,613,109)
            147,613,109       5.5 %
Total Investments
                       
(Cost $2,812,803,921)
            2,808,066,265       104.9 %
Liabilities in Excess of Other Assets
            (131,358,380 )     (4.9 )%
TOTAL NET ASSETS
          $ 2,676,707,885       100.0 %
Notes to Summary Schedule of Investments
*
Restricted Security Deemed Liquid
@
This security or portion of this security is out on loan at December 31, 2014.
f
Foreign Security
«
7-Day Yield
~
Groupings contain, in aggregate, restricted securities totaling $369,690,728 representing 13.81% of net assets.
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 24

 

Baird Short-Term Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014 (cont.)
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Long-Term Investments
                       
U.S. Treasury Securities
  $     $ 305,152,422     $     $ 305,152,422  
Corporate Bonds
          1,653,107,601             1,653,107,601  
Other Government Related Securities
          74,963,835             74,963,835  
Taxable Municipal Bonds
          67,760,178             67,760,178  
Residential Mortgage-
                               
  Backed Securities –
                               
  U.S. Government Agency Issues
          556,684             556,684  
Residential Mortgage-
                               
  Backed Securities –
                               
  Non-U.S. Government Agency Issues
          62,381,805             62,381,805  
Asset Backed Securities
          338,034,999             338,034,999  
Commercial Mortgage-
                               
  Backed Securities
          149,224,977             149,224,977  
Total Long-Term Investments
          2,651,182,501             2,651,182,501  
Short-Term Investments
                               
Money Market Mutual Fund
    9,270,655                   9,270,655  
Total Short-Term Investments
    9,270,655                   9,270,655  
Investments Purchased with Cash
                               
Proceeds from Securities Lending
                               
Investment Companies
    147,613,109                   147,613,109  
Total Investments Purchased with
                               
Cash Proceeds from
                               
Securities Lending
    147,613,109                   147,613,109  
Total Investments
  $ 156,883,764     $ 2,651,182,501     $     $ 2,808,066,265  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 



 
The accompanying notes are an integral part of these financial statements.

 
Page 25

 

Baird Intermediate Bond Fund
December 31, 2014

The Baird Intermediate Bond Fund seeks an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays Intermediate U.S. Government/Credit Bond Index.  The Barclays Intermediate U.S. Government/Credit Bond Index is an unmanaged, market value weighted index of investment grade, fixed-rate debt issues, including government and credit securities, with maturities between one and ten years.
 
The Fund had strong absolute and relative returns versus its benchmark index in 2014.  Our long-term commitment to duration neutrality again proved to be a prudent strategy as the bond market saw a sharp drop in yields for longer maturities and continued flattening of the yield curve throughout the year. The movements in the bond market confounded the predictions of many market participants who expected rates to rise and proved again the difficulty of forecasting both the direction and timing of interest rate moves. The primary factors contributing to the Fund’s outperformance in 2014 are described below.
 
 
Within the Credit sector, an overweight in short to intermediate maturities versus long maturity credit added value in the year as credit spreads widened less on intermediate maturities than long maturities.  An overweight to Financials also added value as this sector outperformed other credit sectors for the full year due to continued solid credit fundamentals.
 
 
Exposure to non-agency residential mortgage-backed securities (RMBS) contributed to the Fund’s outperformance as limited supply and continued improvements in housing provided strong technical and fundamental support.
 
 
An overweight position to commercial mortgage-backed securities (CMBS) primarily through seasoned, super-senior CMBS added to performance as the sector outperformed significantly for the year resulting from tight supply combined with growing demand for these high quality securities.
 
Looking forward, we believe select credits still offer good relative value despite an elevated risk environment, as company balance sheets and credit fundamentals remain solid.  We also expect continued positive contribution from non-agency RMBS.  Yield curve positioning should modestly benefit from continued flattening of the yield curve with attractive rolldown opportunities being captured on a more selective basis.  The Fund remains duration neutral to its benchmark and we are optimistic that the Fund is well positioned to add value relative to its benchmark.
 



 
Page 26

 

Baird Intermediate Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
 
         
   
Net Assets
$1,583,778,911
 
       
 
SEC 30-Day
   
 
Yield(3)
   
 
Institutional Class
1.97%
 
 
Investor Class
1.73%
 
       
 
Average
   
 
Effective
   
 
Duration
3.89 years
 
       
 
Average
   
 
Effective
   
 
Maturity
4.35 years
 
       
 
Annualized
   
   
Expense
   
Sector Weightings(1)
 
Ratio
   
   
Institutional Class
0.30%
 
   
Investor Class
0.55%(4)
 
       
 
Portfolio
   
 
Turnover
   
 
Rate
29.2%
 
       
 
Number of
   
 
Holdings
438
 
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments (less investments purchased with cash proceeds from securities lending).
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(4)
Includes 0.25% 12b-1 fee.



 
Page 27

 

Baird Intermediate Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 
Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.

 
Page 28

 

Baird Intermediate Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
   
Average Annual
 
One
Five
Ten
Since
For the Periods Ended December 31, 2014
Year
Years
Years
Inception(1)
Institutional Class Shares
3.50%
4.67%
4.65%
5.45%
Investor Class Shares
3.29%
4.41%
4.37%
5.18%
Barclays Intermediate
       
  U.S. Government/Credit Bond Index(2)
3.13%
3.54%
4.10%
4.96%

(1)
For the period from September 29, 2000 (inception date) through December 31, 2014.
(2)
The Barclays Intermediate U.S. Government/Credit Bond Index is an unmanaged, market value weighted index of investment grade, fixed-rate debt issues, including government and corporate securities, with maturities between one and ten years.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund may invest in U.S. dollar denominated foreign securities which involve additional risks such as political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund may also invest in mortgage- and asset-backed securities, which include interest rate and prepayment risks more pronounced than those of other fixed income securities.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 29

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
  1.250%, 04/30/2019@
  $ 143,300,000     $ 141,631,845       8.9 %
  2.625%, 08/15/2020@
    262,525,000       274,154,070       17.3 %
  7.875%, 02/15/2021@
    67,000,000       90,518,072       5.7 %
  2.500%, 05/15/2024
    13,000,000       13,393,042       0.9 %
Total U.S. Treasury Securities
                       
(Cost $515,610,298)
            519,697,029       32.8 %
Corporate Bonds
                       
Finance
                       
Citizens Bank, National Association,
                       
  2.450%, 12/04/2019
    8,000,000       7,950,000       0.5 %
Comerica Bank,
                       
  5.200%, 08/22/2017
    5,570,000       6,054,039       0.4 %
Commonwealth Bank of Australia,
                       
  5.000%, 10/15/2019 (Acquired 03/02/2012
                       
  through 10/03/2014, Cost $4,596,189)* f
    4,335,000       4,839,910       0.3 %
LeasePlan Corporation N.V.,
                       
  2.500%, 05/16/2018 (Acquired 05/29/2013
                       
  through 10/20/2014, Cost $5,026,908)* f
    5,000,000       5,002,145       0.3 %
Macquarie Bank Limited,
                       
  2.000%, 08/15/2016 (Acquired 08/07/2013,
                       
  Cost $4,998,250)* f
    5,000,000       5,060,895       0.3 %
Synchrony Financial,
                       
  3.750%, 08/15/2021
    5,000,000       5,107,445       0.3 %
The Huntington National Bank,
                       
  1.300%, 11/20/2016
    4,850,000       4,829,984       0.3 %
Other Finance#~
            288,156,756       18.2 %
Total Finance
                       
(Cost $318,318,244)
            327,001,174       20.6 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 30

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Utility
                 
Other Utility#~
        $ 28,839,901       1.8 %
Total Utility
                     
(Cost $27,910,938)
          28,839,901       1.8 %
Industrials
                     
21st CENTURY FOX AMERICA, INC.,
                     
  8.000%, 10/17/2016
  $ 5,575,000       6,225,485       0.4 %
Hutchison Whampoa International (09) Limited,
                       
  7.625%, 04/09/2019 (Acquired 10/16/2009
                       
  through 04/16/2014, Cost $6,136,117)* f
    5,400,000       6,532,369       0.4 %
Hyundai Capital Services, Inc.,
                       
  3.500%, 09/13/2017 (Acquired 08/04/2014
                       
  through 09/30/2014, Cost $6,422,012)* f
    6,150,000       6,362,034       0.4 %
ONEOK Partners, L.P.,
                       
  3.375%, 10/01/2022
    6,000,000       5,553,972       0.4 %
Pearson Funding Two plc,
                       
  4.000%, 05/17/2016 (Acquired 10/03/2014,
                       
  Cost $6,230,596)* f
    6,000,000       6,236,658       0.4 %
Petrofac Limited,
                       
  3.400%, 10/10/2018 (Acquired 10/03/2013
                       
  through 09/19/2014, Cost $6,959,451)* f
    6,880,000       6,787,340       0.4 %
Seagate HDD Cayman,
                       
  6.875%, 05/01/2020 f
    5,000,000       5,250,000       0.3 %
Valero Energy Corporation,
                       
  9.375%, 03/15/2019
    5,898,000       7,355,579       0.5 %
Verizon Communications Inc.,
                       
  5.150%, 09/15/2023
    6,100,000       6,735,821       0.4 %
Waste Management, Inc.,
                       
  7.375%, 03/11/2019
    5,000,000       6,042,715       0.4 %
Other Industrials#~
            272,477,213       17.2 %
Total Industrials
                       
(Cost $330,552,397)
            335,559,186       21.2 %
Total Corporate Bonds
                       
(Cost $676,781,579)
            691,400,261       43.6 %
Other Government Related Securities
                       
CNOOC Nexen Finance (2014) ULC,
                       
  4.250%, 04/30/2024 f
    5,150,000       5,328,597       0.3 %
Federal Home Loan Mortgage Corporation (FHLMC),
                       
  1.375%, 05/01/2020@
    10,000,000       9,751,660       0.6 %
Other Government Related Securities#~
            27,081,569       1.8 %
Total Other Government Related Securities
                       
(Cost $40,870,072)
            42,161,826       2.7 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 31

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Taxable Municipal Bonds
                 
New Jersey Economic Development Authority,
                 
  1.802%, 06/15/2017
  $ 5,000,000     $ 4,964,950       0.3 %
Other Taxable Municipal Bonds#
            26,363,925       1.7 %
Total Taxable Municipal Bonds
                       
(Cost $30,180,895)
            31,328,875       2.0 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Other U.S. Government Agency Issues#
            938,541       0.1 %
Total U.S. Government Agency Issues
                       
(Cost $887,801)
            938,541       0.1 %
Non-U.S. Government Agency Issues
                       
Banc of America Funding Trust,
                       
  Series 2004-2, Class 1CB1, 5.750%, 09/20/2034
    5,035,983       5,429,036       0.3 %
Structured Asset Securities Corp
                       
  Mortgage Pass-Through Certificates,
                       
  Series 2004-22, Class A2, 5.133%, 01/25/2035
    7,597,574       7,864,226       0.5 %
WaMu Mortgage Pass-Through Certificates:
                       
  Series 2004-AR3, Class A1, 2.370%, 06/25/2034
    6,545,568       6,605,546       0.4 %
  Series 2004-CB2, Class 3A, 6.000%, 08/25/2034
    4,887,754       5,225,953       0.3 %
Other Non-U.S. Government Agency Issues#~
            12,637,818       0.9 %
Total Non-U.S. Government Agency Issues
                       
(Cost $37,632,608)
            37,762,579       2.4 %
Asset Backed Securities
                       
Ford Credit Auto Owner Trust:
                       
  Series 2014-1, Class A, 2.260%, 11/15/2025 (Acquired
                       
  10/07/2014 through 10/09/2014, Cost $10,913,561)*
    10,859,000       10,916,965       0.7 %
  Series 2014-2, Class A, 2.310%, 04/15/2026
                       
   (Acquired 10/07/2014, Cost $11,745,689)*
    11,750,000       11,780,268       0.7 %
Nomura Holdings, Inc.,
                       
  Series 2006-HE2, Class A3, 0.340%, 03/25/2036
    6,445,215       6,275,171       0.4 %
Securitized Asset Backed Receivables LLC Trust,
                       
  Series 2005-OP2, Class A1, 0.495%, 10/25/2035
                       
  (Acquired 03/13/2014, Cost $7,570,677)*
    7,664,083       7,575,939       0.5 %
Specialty Underwriting & Residential Finance Trust,
                       
  Series 2006-BC1, Class A2D, 0.470%, 12/25/2036
    7,617,879       7,378,845       0.5 %
Springleaf Funding Trust,
                       
  Series 2013-AA, Class A, 2.580%, 09/15/2021
                       
  (Acquired 02/14/2014, Cost $5,021,458)*
    5,000,000       5,014,395       0.3 %
Structured Asset Investment Loan Trust,
                       
  Series 2004-9, Class A5, 1.170%, 10/25/2034
    7,899,820       7,885,340       0.5 %
Other Asset Backed Securities#~
            37,394,504       2.3 %
Total Asset Backed Securities
                       
(Cost $94,050,350)
            94,221,427       5.9 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 32

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Commercial Mortgage Backed Securities
                 
Bear Stearns Commercial Mortgage Securities Trust,
                 
  Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
  $ 5,337,924     $ 5,414,790       0.3 %
CD Commercial Mortgage Trust,
                       
  Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    6,551,416       6,657,273       0.4 %
DBUBS Mortgage Trust,
                       
  Series 2011-LC3A, Class A2, 3.642%, 08/10/2044
    6,885,000       7,108,012       0.5 %
FHLMC Multifamily Structured Pass Through Certificates:
                       
  Series K-708, Class A2, 2.130%, 01/25/2019
    8,300,000       8,393,010       0.5 %
  Series K-003, Class A4, 5.053%, 01/25/2019
    9,000,000       10,054,692       0.6 %
  Series K-004, Class A2, 4.186%, 08/25/2019
    5,875,000       6,416,217       0.4 %
  Series K-005, Class A2, 4.317%, 11/25/2019
    4,975,000       5,472,321       0.4 %
  Series K-F02, Class A3, 0.800%, 07/25/2020
    6,441,042       6,477,054       0.4 %
  1.655%-4.251%, 11/25/2016-01/25/2020
    8,083,000       8,400,633       0.6 %
J.P. Morgan Chase Commercial Mortgage Securities Trust,
                       
  Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    5,000,000       5,051,875       0.3 %
Wachovia Bank Commercial Mortgage Trust,
                       
  Series 2005-C22, Class A4, 5.269%, 12/15/2044
    9,027,691       9,220,423       0.6 %
Wells Fargo Commercial Mortgage Trust,
                       
  Series 2014-LC18, Class ASB, 3.244%, 12/15/2047
    10,000,000       10,245,800       0.6 %
WFRBS Commercial Mortgage Trust:
                       
  Series 2012-C6, Class A4, 3.440%, 04/15/2045
    8,000,000       8,358,064       0.5 %
  Series 2014-C24, Class ASB, 3.324%, 11/15/2047
    8,275,000       8,539,742       0.5 %
  Series 2014-C21, Class A2, 2.917%, 08/15/2047
    2,435,234       2,500,304       0.2 %
Other Commercial Mortgage Backed Securities#~
            14,364,440       0.9 %
Total Commercial Mortgage Backed Securities
                       
(Cost $122,882,319)
            122,674,650       7.7 %
Total Long-Term Investments
                       
(Cost $1,518,895,922)
            1,540,185,188       97.2 %
Short-Term Investments
                       
   
Shares
                 
Money Market Mutual Funds
                       
Dreyfus Cash Advantage Fund, 0.06%«
    12,590,051       12,590,051       0.8 %
Short-Term Investments Trust –
                       
  Liquid Assets Portfolio, 0.07%«
    30,000,000       30,000,000       1.9 %
Total Short-Term Investments
                       
(Cost $42,590,051)
            42,590,051       2.7 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 33

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

Investments Purchased with Cash
Proceeds from Securities Lending
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Investment Companies
                 
Mount Vernon Securities Lending
                 
  Trust Prime Portfolio, 0.29%«
    192,781,148     $ 192,781,148       12.2 %
Total Investment Companies
                       
(Cost $192,781,148)
            192,781,148       12.2 %
Total Investments Purchased With
                       
Cash Proceeds From Securities Lending
                       
(Cost $192,781,148)
            192,781,148       12.2 %
Total Investments
                       
(Cost $1,754,267,121)
            1,775,556,387       112.1 %
Liabilities in Excess of Other Assets
            (191,777,476 )     (12.1 )%
TOTAL NET ASSETS
          $ 1,583,778,911       100.0 %
Notes to Summary Schedule of Investments
*
Restricted Security Deemed Liquid
@
This security or portion of this security is out on loan at December 31, 2014.
f
Foreign Security
«
7-Day Yield
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
~
Groupings contain, in aggregate, restricted securities totaling $161,203,712 representing 10.18% of net assets.

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
 
The accompanying notes are an integral part of these financial statements.

 
Page 34

 

Baird Intermediate Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014 (cont.)
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Long-Term Investments
                       
U.S. Treasury Securities
  $     $ 519,697,029     $     $ 519,697,029  
Corporate Bonds
          691,379,750       20,511       691,400,261  
Other Government Related Securities
          42,161,826             42,161,826  
Taxable Municipal Bonds
          31,328,875             31,328,875  
Residential Mortgage-Backed Securities –
                               
  U.S. Government Agency Issues
          938,541             938,541  
Residential Mortgage-Backed Securities –
                               
  Non-U.S. Government Agency Issues
          37,762,579             37,762,579  
Asset Backed Securities
          94,221,427             94,221,427  
Commercial Mortgage-Backed Securities
          122,674,650             122,674,650  
Total Long-Term Investments
          1,540,164,677       20,511       1,540,185,188  
Short-Term Investments
                               
Money Market Mutual Funds
    42,590,051                   42,590,051  
Total Short-Term Investments
    42,590,051                   42,590,051  
Investments Purchased with Cash
                               
Proceeds from Securities Lending
                               
Investment Companies
    192,781,148                   192,781,148  
Total Investments Purchased with
                               
Cash Proceeds from Securities Lending
    192,781,148                   192,781,148  
Total Investments
  $ 235,371,199     $ 1,540,164,677     $ 20,511     $ 1,775,556,387  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1 and Level 2 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  There were two transfers between Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  One security that had been priced by the Valuation Committee using Level 3 inputs instead of the Fund’s pricing vendor transferred to Level 2 from Level 3 due to the Fund’s pricing vendor beginning to price the security.  One security that had been priced by the Fund’s pricing vendor began to be priced by the Valuation Committee using Level 3 inputs and transferred from Level 2 to Level 3.  See the Fund’s valuation policy in Note 2a to the financial statements.
 
Level 3 Reconciliation Disclosure
 
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
 
Description
Investments in Securities
Balance as of December 31, 2013
  $ 392  
Accrued discounts/premiums
     
Realized gain (loss)
     
Change in unrealized appreciation (depreciation)
    3,565  
Purchases
     
Sales
     
Transfers in and/or out of Level 3*
    16,554  
Balance as of December 31, 2014
  $ 20,511  

*  Transfers between levels are recognized at the end of the reporting period.


 
The accompanying notes are an integral part of these financial statements.

 
Page 35

 

Baird Intermediate Municipal Bond Fund
December 31, 2014

The Baird Intermediate Municipal Bond Fund seeks 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 uses the Barclays 7-Year General Obligation Bond Index as its benchmark. The Barclays 7-Year General Obligation Bond Index is an unmanaged, market value weighted index consisting 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 six to eight years.
 
The Fund had solid absolute returns in 2014 though it lagged its benchmark for the year as investor demand for additional yield continued to help lower quality issues outperform higher quality sectors of the market. The portfolio benefited from its yield curve positioning relative to its benchmark as the yield curve flattened, but its high quality bias limited its return.  We believe the Fund’s focus on high quality intermediate maturities will serve our investors well in 2015 given the current level of interest rates near historic lows and the ongoing financial strain on many municipalities.
 
The Fund had a very broadly diversified portfolio at year end, with 53% of its investments in pre-refunded bonds. Pre-refunded municipal bonds are generally regarded as the safest municipal bonds available as their interest and principal payments are paid from an escrow account which holds U.S. Treasury and/or U.S. Agency securities. With its focus on high-quality holdings and intermediate duration, we believe the Fund is well-positioned for the uncertain environment for municipal bonds as we enter 2015.
 
 
 
 
 
 

 

 
Page 36

 

Baird Intermediate Municipal Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
 
         
 
Net Assets
$1,105,612,651
 
       
 
SEC 30-Day
   
 
Yield(4)
   
 
Institutional Class
1.65%
 
 
Investor Class
1.40%
 
       
 
Average
   
 
Effective
   
 
Duration
4.50 years
 
       
 
Average
   
 
Effective
   
 
Maturity
5.40 years
 
         
Sector Weightings(1)
 
Annualized
   
   
Expense
   
   
Ratio
   
 
Institutional Class
0.30%
 
 
Investor Class
0.55%(5)
 
       
 
Portfolio
   
 
Turnover
   
 
Rate
4.7%
 
       
 
Number of
   
 
Holdings
299
 
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments.
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
Includes pre-refunded and escrowed-to-maturity (ETM) bonds.
(4)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(5)
Includes 0.25% 12b-1 fee.



 
Page 37

 

Baird Intermediate Municipal Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (3/30/01), assuming reinvestment of all distributions.
 
Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (3/30/01), assuming reinvestment of all distributions.

 
Page 38

 

Baird Intermediate Municipal Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
   
Average Annual
 
One
Five
Ten
Since
For the Periods Ended December 31, 2014
Year
Years
Years
Inception(1)
Institutional Class Shares
4.54%
3.44%
3.96%
4.56%
Investor Class Shares
4.27%
3.18%
3.70%
4.30%
Barclays 7-Year General Obligation Bond Index(2)
5.81%
4.58%
4.61%
4.90%

(1)
For the period from March 30, 2001 (inception date) through December 31, 2014.
(2)
The Barclays 7-Year General Obligation Bond Index is an unmanaged, market value weighted index 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 six to eight years.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund may invest up to 25% of its total assets in municipal obligations issued by persons in the same state. As a result, changes in economic, business or political conditions of a particular state may have a disproportionate impact on the Fund’s share price. Municipal securities investments are not appropriate for all investors, especially those taxed at lower rates.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 39

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Municipal Bonds
                 
Alabama
                 
Other Alabama#
        $ 2,366,049       0.2 %
Total Alabama
                     
(Cost $2,177,319)
          2,366,049       0.2 %
Alaska
                     
Other Alaska#
          1,019,270       0.1 %
Total Alaska
                     
(Cost $1,003,903)
          1,019,270       0.1 %
Arizona
                     
Other Arizona#
          3,070,223       0.3 %
Total Arizona
                     
(Cost $2,923,370)
          3,070,223       0.3 %
Arkansas
                     
Other Arkansas#
          1,129,880       0.1 %
Total Arkansas
                     
(Cost $1,137,808)
          1,129,880       0.1 %
California
                     
Bakersfield California Certificates Participation
                     
  0.000%, 04/15/2021 (ETM)
  $ 12,380,000       11,028,971       1.0 %
San Joaquin Hills California Transportation
                       
  Corridor Agency Toll Road Revenue
                       
  0.000%, 01/01/2020 (ETM)
    6,865,000       6,403,672       0.6 %
  0.000%, 01/01/2023 (ETM)
    14,000,000       11,858,140       1.0 %
San Marcos California Public
                       
  Facilities Authority Revenue
                       
  0.000%, 09/01/2019 (ETM)
    17,295,000       16,192,963       1.5 %
Other California#
            10,425,987       1.0 %
Total California
                       
(Cost $51,084,577)
            55,909,733       5.1 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 40

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Colorado
                 
Dawson Ridge Metropolitan District No. 1 Colorado
                 
  0.000%, 10/01/2022 (ETM)
  $ 17,540,000     $ 14,899,704       1.3 %
  0.000%, 10/01/2022 (ETM)
    26,895,000       22,846,495       2.1 %
Regional Transportation District
                       
  Colorado Sales Tax Revenue
                       
  5.000%, 11/01/2036 (Pre-refunded to 11/01/2016)
    6,785,000       7,328,207       0.7 %
Other Colorado#
            12,708,636       1.1 %
Total Colorado
                       
(Cost $55,235,906)
            57,783,042       5.2 %
Connecticut
                       
Other Connecticut#
            5,172,956       0.5 %
Total Connecticut
                       
(Cost $5,020,871)
            5,172,956       0.5 %
Delaware
                       
Other Delaware#
            2,357,780       0.2 %
Total Delaware
                       
(Cost $2,367,226)
            2,357,780       0.2 %
Florida
                       
Broward County Florida School Board
                       
  5.250%, 07/01/2022 (Callable 07/01/2021)
    8,390,000       9,962,370       0.9 %
  5.250%, 07/01/2023 (Callable 07/01/2021)
    4,915,000       5,748,486       0.5 %
County of St. Lucie Florida
                       
  6.000%, 10/01/2020 (ETM)
    6,420,000       7,725,122       0.7 %
Florida State Board of Education
                       
  5.000%, 06/01/2022 (Callable 06/01/2019)
    13,800,000       15,965,082       1.4 %
Miami-Dade County Florida
                       
  4.500%, 10/01/2020
    7,100,000       8,098,544       0.7 %
Other Florida#
            54,608,006       5.0 %
Total Florida
                       
(Cost $95,070,015)
            102,107,610       9.2 %
Georgia
                       
Atlanta Georgia Water & Wastewater Revenue
                       
  5.500%, 11/01/2017 (Insured by AGM)
    8,445,000       9,516,417       0.9 %
Forsyth County Georgia Hospital Authority
                       
  Revenue Anticipation Certificates
                       
  6.375%, 10/01/2028 (ETM)
    8,050,000       10,295,708       0.9 %
Gwinnett County Georgia School District
                       
  5.000%, 02/01/2026 (Pre-refunded to 02/01/2018)
    7,400,000       8,318,858       0.7 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 41

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
State of Georgia
                 
  5.000%, 07/01/2020 (Callable 07/01/2017)
  $ 12,570,000     $ 13,889,976       1.3 %
Other Georgia#
            11,494,066       1.0 %
Total Georgia
                       
(Cost $52,116,384)
            53,515,025       4.8 %
Illinois
                       
Chicago Illinois Board of Education
                       
  6.000%, 01/01/2020 (Insured by NPFGC)
    14,745,000       16,501,572       1.5 %
  5.000%-5.000%, 12/01/2017-12/01/2017
    6,445,000       6,921,363       0.6 %
Illinois Development Financial Authority
                       
  0.000%, 07/15/2023 (ETM)
    21,475,000       17,760,684       1.6 %
Illinois Finance Authority
                       
  0.000%, 07/15/2025 (ETM)
    12,625,000       9,760,514       0.9 %
Kane McHenry Cook & De Kalb
                       
  Counties Illinois School District No. 300
                       
  7.000%, 01/01/2018 (ETM)
    5,775,000       6,812,479       0.6 %
Kendall Kane & Will Counties
                       
  Community Unit School District No. 308
                       
  0.000%, 02/01/2021
    13,625,000       11,710,824       1.1 %
Village of Schaumburg IL
                       
  4.000%, 12/01/2024 (Callable 12/01/2022)
    5,750,000       6,291,477       0.6 %
Other Illinois#
            60,066,239       5.4 %
Total Illinois
                       
(Cost $130,031,911)
            135,825,152       12.3 %
Indiana
                       
Other Indiana#
            15,073,300       1.4 %
Total Indiana
                       
(Cost $14,341,676)
            15,073,300       1.4 %
Kansas
                       
Other Kansas#
            3,302,857       0.3 %
Total Kansas
                       
(Cost $3,111,559)
            3,302,857       0.3 %
Kentucky
                       
Louisville & Jefferson County
                       
  Metropolitan Government
                       
  6.125%, 02/01/2037 (Pre-refunded to 02/01/2018)
    13,665,000       15,826,256       1.4 %
Other Kentucky#
            3,732,851       0.4 %
Total Kentucky
                       
(Cost $19,372,369)
            19,559,107       1.8 %
Louisiana
                       
Louisiana Public Facilities Authority Revenue
                       
  5.500%, 05/15/2027 (Pre-refunded to 05/15/2026)
    9,885,000       12,708,749       1.2 %
  5.500%, 05/15/2032 (Pre-refunded to 05/15/2026)
    20,585,000       27,039,427       2.4 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 42

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
State of Louisiana
                 
  5.000%, 11/15/2020 (Callable 05/15/2020)
  $ 10,000,000     $ 11,750,300       1.0 %
  5.000%, 11/15/2018
    1,775,000       2,032,872       0.2 %
Total Louisiana
                       
(Cost $48,029,527)
            53,531,348       4.8 %
Maryland
                       
Other Maryland#
            3,878,293       0.4 %
Total Maryland
                       
(Cost $3,844,851)
            3,878,293       0.4 %
Massachusetts
                       
Massachusetts State
                       
  5.000%, 08/01/2020 (Pre-refunded to 08/01/2016)
    5,820,000       6,236,537       0.6 %
  4.000%, 12/01/2022 (Callable 12/01/2019)
    15,000,000       16,571,400       1.5 %
Other Massachusetts#
            8,410,309       0.7 %
Total Massachusetts
                       
(Cost $30,499,023)
            31,218,246       2.8 %
Michigan
                       
Michigan Finance Authority
                       
  5.000%, 01/01/2019
    7,000,000       7,994,140       0.7 %
Other Michigan#
            31,011,458       2.8 %
Total Michigan
                       
(Cost $38,424,729)
            39,005,598       3.5 %
Minnesota
                       
University of Minnesota
                       
  5.500%, 07/01/2021 (ETM)
    9,980,000       11,964,922       1.1 %
Other Minnesota#
            2,870,682       0.2 %
Total Minnesota
                       
(Cost $14,527,370)
            14,835,604       1.3 %
Mississippi
                       
Other Mississippi#
            2,649,702       0.2 %
Total Mississippi
                       
(Cost $2,611,275)
            2,649,702       0.2 %
Missouri
                       
Other Missouri#
            1,107,360       0.1 %
Total Missouri
                       
(Cost $1,067,361)
            1,107,360       0.1 %
Nebraska
                       
Other Nebraska#
            5,960,762       0.5 %
Total Nebraska
                       
(Cost $5,887,144)
            5,960,762       0.5 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 43

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Nevada
                 
Other Nevada#
        $ 2,232,110       0.2 %
Total Nevada
                     
(Cost $2,091,692)
          2,232,110       0.2 %
New Hampshire
                     
Other New Hampshire#
          3,681,238       0.3 %
Total New Hampshire
                     
(Cost $3,612,663)
          3,681,238       0.3 %
New Jersey
                     
New Jersey State Housing &
                     
  Mortgage Finance Agency Bonds
                     
  4.500%, 10/01/2029 (Callable 04/01/2021)
  $ 7,305,000       7,630,292       0.7 %
Other New Jersey#
            18,569,676       1.7 %
Total New Jersey
                       
(Cost $25,551,539)
            26,199,968       2.4 %
New Mexico
                       
Other New Mexico#
            2,808,636       0.3 %
Total New Mexico
                       
(Cost $2,839,203)
            2,808,636       0.3 %
New York
                       
Metropolitan Transit Authority New York
                       
  6.000%, 04/01/2020 (ETM)
    13,430,000       15,718,472       1.4 %
New York State Dormitory Authority
                       
  5.000%, 12/15/2023 (Callable 12/15/2022)
    11,685,000       14,142,122       1.3 %
Westchester Tobacco Asset
                       
  Securitization Corp. New York
                       
  6.950%, 07/15/2039 (Pre-refunded to 07/15/2017)
    13,075,000       15,234,336       1.4 %
Other New York#
            30,148,665       2.7 %
Total New York
                       
(Cost $72,682,717)
            75,243,595       6.8 %
North Carolina
                       
North Carolina Eastern Municipal Power Agency
                       
  5.000%, 01/01/2021 (ETM)
    10,120,000       11,909,216       1.1 %
North Carolina Eastern Municipal
                       
  Power Agency Power Systems Revenue
                       
  5.000%, 01/01/2017 (ETM)
    6,630,000       6,926,560       0.6 %
  4.500%, 01/01/2024 (Pre-refunded to 01/01/2022)
    7,665,000       9,028,067       0.8 %
  6.000%-6.400%, 01/01/2021-01/01/2026
    7,647,000       9,147,535       0.9 %
Total North Carolina
                       
(Cost $36,163,663)
            37,011,378       3.4 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 44

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Ohio
                 
State of Ohio
                 
  5.000%, 06/15/2021
  $ 6,740,000     $ 8,091,572       0.8 %
Other Ohio#
            15,184,313       1.3 %
Total Ohio
                       
(Cost $22,601,776)
            23,275,885       2.1 %
Pennsylvania
                       
Pennsylvania Convention Center
                       
  Authority Revenue Bonds
                       
  6.000%, 09/01/2019 (ETM)
    11,125,000       12,999,118       1.2 %
Other Pennsylvania#
            22,199,417       2.0 %
Total Pennsylvania
                       
(Cost $34,162,782)
            35,198,535       3.2 %
Puerto Rico
                       
Other Puerto Rico#
            13,433,475       1.2 %
Total Puerto Rico
                       
(Cost $15,011,212)
            13,433,475       1.2 %
South Carolina
                       
Piedmont Municipal Power Agency
                       
  South Carolina Electric Revenue
                       
  6.750%, 01/01/2020 (ETM)
    6,450,000       8,070,949       0.7 %
Other South Carolina#
            5,468,566       0.5 %
Total South Carolina
                       
(Cost $12,844,136)
            13,539,515       1.2 %
South Dakota
                       
Other South Dakota#
            469,537       0.1 %
Total South Dakota
                       
(Cost $467,290)
            469,537       0.1 %
Tennessee
                       
Other Tennessee#
            10,300,652       0.9 %
Total Tennessee
                       
(Cost $10,179,369)
            10,300,652       0.9 %
Texas
                       
City of Houston TX Combined Utility System Revenue
                       
  0.000%, 12/01/2019 (ETM)
    13,355,000       12,411,469       1.1 %
  5.500%, 12/01/2029 (ETM)
    16,050,000       21,784,183       2.0 %
  5.500%, 12/01/2024 (ETM)
    1,735,000       2,206,452       0.2 %
Harris County Texas
                       
  5.750%, 10/01/2028 (Pre-refunded to 10/01/2018)
    6,830,000       8,000,252       0.7 %
North East Independent School District/TX
                       
  5.000%, 08/01/2021
    6,095,000       7,323,386       0.7 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 45

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
San Antonio Texas Electric & Gas Revenue
                 
  5.650%, 02/01/2019 (ETM)
  $ 11,665,000     $ 13,111,577       1.2 %
Tarrant County Texas Health Facilities Revenue
                       
  6.000%, 09/01/2024 (ETM)
    7,990,000       9,603,820       0.9 %
Texas State
                       
  5.000%, 10/01/2018
    6,285,000       7,182,184       0.7 %
  5.000%-5.000%, 04/01/2020-08/01/2021
    5,170,000       5,654,026       0.5 %
University of Texas System/The
                       
  5.000%, 08/15/2022
    9,530,000       11,628,506       1.1 %
Other Texas#
            87,141,538       7.7 %
Total Texas
                       
(Cost $179,186,786)
            186,047,393       16.8 %
Utah
                       
Other Utah#
            6,823,145       0.6 %
Total Utah
                       
(Cost $6,330,992)
            6,823,145       0.6 %
Virginia
                       
Other Virginia#
            7,243,089       0.7 %
Total Virginia
                       
(Cost $7,161,750)
            7,243,089       0.7 %
Washington
                       
Washington Health Care Facilities Authority
                       
  6.250%, 08/01/2036 (Pre-refunded to 08/01/2018)
    7,850,000       9,258,133       0.8 %
  6.125%-6.250%, 08/01/2028-11/15/2041
    6,195,000       7,795,011       0.7 %
Washington State
                       
  5.000%, 01/01/2021
    10,000,000       11,889,500       1.1 %
  5.500%, 07/01/2023
    5,000,000       6,165,050       0.5 %
Other Washington#
            13,833,972       1.3 %
Total Washington
                       
(Cost $47,371,433)
            48,941,666       4.4 %
West Virginia
                       
Other West Virginia#
            1,287,816       0.1 %
Total West Virginia
                       
(Cost $1,268,525)
            1,287,816       0.1 %
Wisconsin
                       
Other Wisconsin#
            2,825,533       0.3 %
Total Wisconsin
                       
(Cost $2,631,300)
            2,825,533       0.3 %
Total Long-Term Investments
                       
(Cost $1,062,045,002)
            1,106,942,063       100.1 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 46

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Short-Term Investment
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Fund
                 
Goldman Sachs Financial Square Funds, 0.01%«
    12,684,854     $ 12,684,854       1.2 %
Total Short-Term Investments
                       
(Cost $12,684,854)
            12,684,854       1.2 %
Total Investments
                       
(Cost $1,074,729,856)
            1,119,626,917       101.3 %
Liabilities in Excess of Other Assets
            (14,014,266 )     (1.3 )%
TOTAL NET ASSETS
          $ 1,105,612,651       100.0 %
Notes to Summary Schedule of Investments
ETM – Escrowed to Maturity
AGM – Assured Guaranty Municipal
NPFGC – National Public Finance Guarantee Corp.
«
7-Day Yield
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 47

 

Baird Intermediate Municipal Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014 (cont.)
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Municipal Bonds
                       
Municipal Bonds
  $     $ 1,106,942,063     $     $ 1,106,942,063  
Total Municipal Bonds
          1,106,942,063             1,106,942,063  
Short-Term Investment
                               
Money Market Mutual Fund
    12,684,854                   12,684,854  
Total Short-Term Investment
    12,684,854                   12,684,854  
Total Investments
  $ 12,684,854     $ 1,106,942,063     $     $ 1,119,626,917  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 

 

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 48

 

Baird Aggregate Bond Fund
December 31, 2014

The Baird Aggregate Bond Fund seeks an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays U.S. Aggregate Bond Index. The Barclays U.S. Aggregate Bond Index is an unmanaged, market value weighted index of investment grade, fixed-rate debt issues, including government, credit, asset-backed, mortgage-backed and commercial mortgage-backed securities (CMBS) with maturities of at least one year.
 
The Fund had strong absolute and relative returns versus its benchmark index in 2014.  Our long-term commitment to duration neutrality again proved to be a prudent strategy as the bond market saw a sharp drop in yields for longer maturities and continued flattening of the yield curve throughout the year. The movements in the bond market confounded the predictions of many market participants who expected rates to rise and proved again the difficulty of forecasting both the direction and timing of interest rate moves. The primary factors contributing to the Fund’s outperformance in 2014 are described below.
 
 
Within the Credit sector, an overweight in short to intermediate maturities versus long maturity credit added value in the year as credit spreads widened less on intermediate maturities than long maturities.  An overweight to Financials also added value as this sector outperformed other credit sectors for the full year due to continued solid credit fundamentals.
 
 
Exposure to non-agency residential mortgage-backed securities (RMBS) contributed to the Fund’s outperformance as limited supply and continued improvements in housing provided strong technical and fundamental support.
 
 
An overweight position to commercial mortgage-backed securities (CMBS) primarily through seasoned, super-senior CMBS added to performance as the sector outperformed significantly for the year resulting from tight supply combined with growing demand for these high quality securities.
 
 
Yield curve positioning aided the Fund’s performance as the Fund benefitted from the flattening of the curve over the year.
 
Looking forward, we believe select credits still offer good relative value despite an elevated risk environment, as company balance sheets and credit fundamentals remain solid.  We also expect continued positive contribution from non-agency RMBS.  Yield curve positioning should modestly benefit from continued flattening of the yield curve with attractive rolldown opportunities being captured on a more selective basis.  The Fund remains duration neutral to its benchmark and we are optimistic that the Fund is well positioned to add value relative to its benchmark.
 


 
Page 49

 

Baird Aggregate Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
 
         
   
Net Assets
$3,690,239,918
 
       
 
SEC 30-Day
   
 
Yield(3)
   
 
Institutional Class
2.52%
 
 
Investor Class
2.28%
 
       
 
Average
   
 
Effective
   
 
Duration
5.55 years
 
       
 
Average
   
 
Effective
   
 
Maturity
7.10 years
 
       
 
Annualized
   
   
Expense
   
Sector Weightings(1)
 
Ratio
   
   
Institutional Class
0.30%
 
   
Investor Class
0.55%(4)
 
       
 
Portfolio
   
 
Turnover
   
 
Rate
32.1%
 
       
 
Number of
   
 
Holdings
600
 
       
       
       
       
       
       
       
       
       
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments (less investments purchased with cash proceeds from securities lending).
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(4)
Includes 0.25% 12b-1 fee.



 
Page 50

 

Baird Aggregate Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 
Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 

 

 
Page 51

 

Baird Aggregate Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
   
Average Annual
 
One
Five
Ten
Since
For the Periods Ended December 31, 2014
Year
Years
Years
Inception(1)
Institutional Class Shares
6.89%
5.88%
5.08%
6.02%
Investor Class Shares
6.71%
5.64%
4.82%
5.77%
Barclays U.S. Aggregate Bond Index(2)
5.97%
4.45%
4.71%
5.50%

(1)
For the period from September 29, 2000 (inception date) through December 31, 2014.
(2)
The Barclays U.S. 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.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund maintains securities with longer maturities in order to provide a greater potential for return. Generally, the longer a bond’s maturity, the greater the interest rate risk. The Fund may also invest in U.S. dollar denominated foreign securities which involve additional risks such as political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund may also invest in mortgage- and asset-backed securities, which include interest rate and prepayment risks more pronounced than those of other fixed income securities.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 52

 

Baird Aggregate Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
  2.625%, 08/15/2020@
  $ 423,000,000     $ 441,737,631       12.0 %
  6.250%, 08/15/2023@
    23,600,000       31,423,022       0.8 %
  5.250%, 11/15/2028@
    60,626,500       81,282,131       2.2 %
  3.500%, 02/15/2039@
    196,330,900       225,489,180       6.1 %
  1.250%-4.375%, 04/30/2019-08/15/2044@
    2,500,400       2,691,928       0.1 %
Total U.S. Treasury Securities
                       
(Cost $759,266,174)
            782,623,892       21.2 %
Corporate Bonds
                       
Finance
                       
Citizens Bank, National Association,
                       
  2.450%, 12/04/2019
    18,000,000       17,887,500       0.5 %
LeasePlan Corporation N.V.,
                       
  2.500%, 05/16/2018 (Acquired 08/02/2013
                       
  through 10/20/2014, Cost $18,106,913)* f
    18,158,000       18,165,790       0.5 %
Massachusetts Mutual Life Insurance Company,
                       
  8.875%, 06/01/2039 (Acquired 05/27/2009
                       
  through 12/16/2014, Cost $19,421,722)*@
    13,000,000       20,975,461       0.6 %
Voya Financial, Inc.,
                       
  5.500%, 07/15/2022
    17,350,000       19,598,838       0.5 %
Other Finance#~
            562,131,281       15.2 %
Total Finance
                       
(Cost $619,724,496)
            638,758,870       17.3 %
Utility
                       
Other Utility#~
            37,475,890       1.0 %
Total Utility
                       
(Cost $35,711,821)
            37,475,890       1.0 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 53

 

Baird Aggregate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Industrials
                 
Petrofac Limited,
                 
  3.400%, 10/10/2018 (Acquired 10/03/2013
                 
  through 12/03/2014, Cost $15,573,119)* f
  $ 15,546,000     $ 15,336,626       0.4 %
Seagate HDD Cayman,
                       
  6.875%, 05/01/2020 f
    13,137,000       13,793,850       0.4 %
Valero Energy Corporation,
                       
  9.375%, 03/15/2019
    15,578,000       19,427,807       0.5 %
Verizon Communications Inc.,
                       
  6.400%, 09/15/2033
    12,140,000       14,953,846       0.4 %
Other Industrials#~
            583,497,742       15.8 %
Total Industrials
                       
(Cost $635,118,028)
            647,009,871       17.5 %
Total Corporate Bonds
                       
(Cost $1,290,554,345)
            1,323,244,631       35.8 %
Other Government Related Securities
                       
Other Government Related Securities#~
            58,870,672       1.6 %
Total Other Government Related Securities
                       
(Cost $57,149,203)
            58,870,672       1.6 %
Taxable Municipal Bonds
                       
Other Taxable Municipal Bonds#
            71,891,692       2.0 %
Total Taxable Municipal Bonds
                       
(Cost $67,210,710)
            71,891,692       2.0 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Gold Loan Mortgage Corporation (FGLMC):
                       
  5.000%, 03/01/2036
    13,333,755       14,748,959       0.4 %
  3.500%, 07/01/2042
    24,921,096       25,951,116       0.7 %
  3.000%, 08/01/2042
    29,410,175       29,770,702       0.8 %
  3.000%, 06/01/2043
    29,145,934       29,487,905       0.8 %
  4.000%, 03/01/2044
    17,702,169       18,892,473       0.5 %
  3.500%, 07/01/2044
    26,061,345       27,126,823       0.7 %
  4.000%, 07/01/2044
    14,547,938       15,526,150       0.4 %
  3.500%, 10/01/2044
    23,682,205       24,650,416       0.7 %
  4.000%, 10/01/2044
    23,872,897       25,586,748       0.7 %
  2.500%-6.500%, 06/01/2020-08/01/2043
    88,733,531       93,599,261       2.6 %
Federal National Mortgage Association (FNMA):
                       
  2.500%, 12/01/2027
    18,187,506       18,567,324       0.5 %
  4.000%, 01/01/2034
    16,199,105       17,443,542       0.5 %
  4.000%, 06/01/2034
    21,561,020       23,182,479       0.6 %
  4.000%, 09/01/2034
    23,074,170       24,826,579       0.7 %
  5.000%, 07/01/2035
    12,460,325       13,796,908       0.4 %
  3.500%, 02/01/2041
    30,108,654       31,440,201       0.9 %
  4.000%, 02/01/2041
    20,919,408       22,352,703       0.6 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 54

 

Baird Aggregate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Federal National Mortgage Association (FNMA): (cont.)
                 
  3.500%, 03/01/2041
  $ 35,675,753     $ 37,253,964       1.0 %
  4.500%, 07/01/2041
    26,836,656       29,160,204       0.8 %
  3.500%, 11/01/2041
    21,116,964       22,056,362       0.6 %
  4.000%, 12/01/2041
    21,024,574       22,465,074       0.6 %
  4.500%, 01/01/2042
    31,282,168       34,034,118       0.9 %
  3.000%, 05/01/2043
    35,490,509       35,955,674       1.0 %
  3.000%, 06/01/2043
    14,558,335       14,748,073       0.4 %
  3.000%-8.000%, 07/25/2019-05/01/2042
    71,592,925       76,975,540       2.0 %
Government National Mortgage Association (GNMA):
                       
  4.500%, 01/20/2041
    16,918,186       18,577,368       0.5 %
  4.000%, 06/20/2042
    19,749,637       21,196,436       0.6 %
  4.500%, 04/20/2044
    12,423,038       13,591,617       0.3 %
  3.500%-6.000%, 11/20/2033-09/20/2042
    15,817,272       16,999,425       0.5 %
Other U.S. Government Agency Issues#
            255,064       0.0 %
Total U.S. Government Agency Issues
                       
(Cost $784,566,274)
            800,219,208       21.7 %
Non-U.S. Government Agency Issues
                       
Merrill Lynch Mortgage Investors Trust,
                       
  Series 2004-F, 1.827%, 12/25/2029
    15,596,039       15,709,687       0.4 %
Other Non-U.S. Government Agency Issues#
            84,337,304       2.3 %
Total Non-U.S. Government Agency Issues
                       
(Cost $100,472,034)
            100,046,991       2.7 %
Asset Backed Securities
                       
Accredited Mortgage Loan Trust,
                       
  Series 2006-2, Class A3, 0.320%, 09/25/2036
    13,514,993       13,348,056       0.4 %
Republic Services, Inc.,
                       
  Series 2006-KS4, Class A4, 0.410%, 06/25/2036
    26,038,000       25,247,929       0.7 %
Other Asset Backed Securities#~
            105,879,306       2.8 %
Total Asset Backed Securities
                       
(Cost $143,986,451)
            144,475,291       3.9 %
Commercial Mortgage-Backed Securities
                       
COMM Mortgage Trust:
                       
  Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    24,213,710       24,471,876       0.7 %
  Series 2012-CR2, Class A4, 3.147%, 08/15/2045
    16,445,536       16,847,268       0.5 %
  3.391%-4.022%, 05/15/2045-08/10/2046
    30,263,462       32,257,686       0.8 %
FHLMC Multifamily Structured
                       
  Pass Through Certificates,
                       
  Series K-003, Class A4, 5.053%, 01/25/2019
    12,525,000       13,992,780       0.4 %
GS Mortgage Securities Corp II,
                       
  Series 2012-GCJ9, Class A3, 2.773%, 11/10/2045
    22,112,320       21,982,388       0.6 %
Morgan Stanley Bank of America Merrill Lynch Trust:
                       
  Series 2012-C5, Class A4, 3.176%, 08/15/2045
    20,835,000       21,331,727       0.6 %
  Series 2012-C6, Class A4, 2.858%, 11/15/2045
    20,460,945       20,490,859       0.5 %
  3.960%-3.973%, 08/15/2046-10/15/2046
    21,100,000       22,624,916       0.6 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 55

 

Baird Aggregate Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
WFRBS Commercial Mortgage Trust:
                 
  Series 2012-C6, Class A4, 3.440%, 04/15/2045
  $ 20,464,220     $ 21,380,158       0.6 %
  3.636%-3.678%, 08/15/2047-10/15/2057
    17,254,000       18,106,808       0.5 %
Other Commercial Mortgage Backed Securities#
            110,901,712       3.0 %
Total Commercial Mortgage Backed Securities
                       
(Cost $324,698,722)
            324,388,178       8.8 %
Total Long-Term Investments
                       
(Cost $3,527,903,913)
            3,605,760,555       97.7 %
Short-Term Investments
                       
   
Shares
                 
Money Market Mutual Funds
                       
Dreyfus Cash Advantage Fund, 0.06%«
    44,145,740       44,145,740       1.2 %
Short-Term Investments Trust –
                       
  Liquid Assets Portfolio, 0.07%«
    70,000,000       70,000,000       1.9 %
Total Short-Term Investments
                       
(Cost $114,145,740)
            114,145,740       3.1 %
Investments Purchased with Cash
                       
Proceeds from Securities Lending
                       
Investment Companies
                       
Mount Vernon Securities Lending
                       
  Trust Prime Portfolio, 0.29%«
    98,296,098       98,296,098       2.7 %
Total Investment Companies
                       
(Cost $98,296,098)
            98,296,098       2.7 %
Total Investments Purchased With
                       
Cash Proceeds From Securities Lending
                       
(Cost $98,296,098)
            98,296,098       2.7 %
Total Investments
                       
(Cost $3,740,345,751)
            3,818,202,393       103.5 %
Liabilities in Excess of Other Assets
            (127,962,475 )     (3.5 )%
TOTAL NET ASSETS
          $ 3,690,239,918       100.0 %
Notes to Summary Schedule of Investments
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
*
Restricted Security Deemed Liquid
@
This security or portion of this security is out on loan at December 31, 2014.
f
Foreign Security
«
7-Day Yield
~
Groupings contain, in aggregate, restricted securities totaling $344,699,002 representing 9.34% of net assets.

 
The accompanying notes are an integral part of these financial statements.

 
Page 56

 

Baird Aggregate Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Long-Term Investments
                       
U.S. Treasury Securities
  $     $ 782,623,892     $     $ 782,623,892  
Corporate Bonds
          1,323,244,631             1,323,244,631  
Other Government Related Securities
          58,870,672             58,870,672  
Taxable Municipal Bonds
          71,891,692             71,891,692  
Residential Mortgage-Backed Securities  –
                               
  U.S. Government Agency Issues
          800,219,208             800,219,208  
Residential Mortgage-Backed Securities –
                               
  Non-U.S. Government Agency Issues
          100,046,991             100,046,991  
Asset Backed Securities
          144,475,291             144,475,291  
Commercial Mortgage Backed Securities
          324,388,178             324,388,178  
Total Long-Term Investments
          3,605,760,555             3,605,760,555  
Short-Term Investments
                               
Money Market Mutual Funds
    114,145,740                   114,145,740  
Total Short-Term Investment
    114,145,740                   114,145,740  
Investments Purchased with Cash
                               
Proceeds from Securities Lending
                               
Investment Companies
    98,296,098                   98,296,098  
Total Investments Purchased with
                               
Cash Proceeds from Securities Lending
    98,296,098                   98,296,098  
Total Investments
  $ 212,441,838     $ 3,605,760,555     $     $ 3,818,202,393  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 
The accompanying notes are an integral part of these financial statements.

 
Page 57

 

Baird Core Plus Bond Fund
December 31, 2014

The Baird Core Plus Bond Fund seeks an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays U.S. Universal Bond Index. The Barclays 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, investment grade and non-investment grade credit, emerging market debt, asset-backed and mortgage-backed securities, Eurobonds, 144A securities and commercial mortgage-backed securities (CMBS) with maturities of at least one year.
 
The Fund had strong absolute and relative returns versus its benchmark index in 2014.  Our long-term commitment to duration neutrality again proved to be a prudent strategy as the bond market saw a sharp drop in yields for longer maturities and continued flattening of the yield curve throughout the year. The movements in the bond market confounded the predictions of many market participants who expected rates to rise and proved again the difficulty of forecasting both the direction and timing of interest rate moves. The primary factors contributing to the Fund’s outperformance in 2014 are described below.
 
 
Within the Credit sector, an overweight in short to intermediate maturities versus long maturity credit added value in the year as credit spreads widened less on intermediate maturities than long maturities.  An overweight to Financials also added value as this sector outperformed other credit sectors for the full year due to continued solid credit fundamentals.
 
 
Exposure to non-agency residential mortgage-backed securities (RMBS) contributed to the Fund’s outperformance as limited supply and continued improvements in housing provided strong technical and fundamental support.
 
 
An overweight position to commercial mortgage-backed securities (CMBS) primarily through seasoned, super-senior CMBS added to performance as the sector outperformed significantly for the year resulting from tight supply combined with growing demand for these high quality securities.
 
 
Yield curve positioning aided the Fund’s performance as the Fund benefitted from the flattening of the curve over the year.
 
 
An underweight to high yield corporates benefitted relative performance as high yield corporate spreads widened significantly for the year.
 
Looking forward, we believe select credits still offer good relative value despite an elevated risk environment, as company balance sheets and credit fundamentals remain solid.  We also expect continued positive contribution from non-agency RMBS.  Yield curve positioning should modestly benefit from continued flattening of the yield curve with attractive rolldown opportunities being captured on a more selective basis.  The Fund remains duration neutral to its benchmark and we are optimistic that the Fund is well positioned to add value relative to its benchmark.
 



 
Page 58

 

Baird Core Plus Bond Fund
December 31, 2014 (Unaudited)

Portfolio Characteristics
 
Quality Distribution(1)(2)
 
         
   
Net Assets
$6,716,606,911
 
       
 
SEC 30-Day
   
 
Yield(3)
   
 
Institutional Class
2.86%
 
 
Investor Class
2.62%
 
       
 
Average
   
 
Effective
   
 
Duration
5.42 years
 
       
 
Average
   
 
Effective
   
 
Maturity
6.90 years
 
       
   
Annualized
   
Sector Weightings(1)
 
Expense
   
   
Ratio
   
   
Institutional Class
0.30%
 
 
Investor Class
0.55%(4)
 
       
 
Portfolio
   
 
Turnover
   
 
Rate
35.0%
 
       
 
Number of
   
 
Holdings
867
 
       
       
       
       
       
       
       
       
       
       
       
       
       
         
 
(1)
Percentages shown are based on the Fund’s total investments (less investments purchased with cash proceeds from securities lending).
(2)
The quality profile is calculated on a market value-weighted basis using the highest credit quality rating for each security held by the Fund given by S&P, Moody’s or Fitch, each of which is a Nationally Recognized Statistical Rating Organization (NRSRO).  NRSROs rate the credit quality of securities using a scale that generally ranges from AAA (highest) to D (lowest).
(3)
SEC yields are based on SEC guidelines and are calculated for the 30 days ended December 31, 2014.
(4)
Includes 0.25% 12b-1 fee.


 

 
Page 59

 

Baird Core Plus Bond Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



 
Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 
Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 


 
Page 60

 

Baird Core Plus Bond Fund
December 31, 2014 (Unaudited)

Total Returns
 
   
Average Annual
 
One
Five
Ten
Since
For the Periods Ended December 31, 2014
Year
Years
Years
Inception(1)
Institutional Class Shares
6.59%
6.11%
5.82%
6.54%
Investor Class Shares
6.27%
5.84%
5.55%
6.27%
Barclays U.S. Universal Bond Index(2)
5.56%
4.81%
4.91%
5.72%

(1)
For the period from September 29, 2000 (inception date) through December 31, 2014.
(2)
The Barclays 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.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in an index is not possible.
 
The line graph on the previous page and the returns shown in the table above 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.  The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The Fund’s gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund may invest up to 20% of its net assets in non-investment grade debt securities (commonly referred to as “high yield” bonds). While these types of debt securities typically offer higher yields than investment grade securities, they also include greater risks including increased credit risk and the increased risk of default or bankruptcy. The Fund maintains securities with longer maturities in order to provide a greater potential for return. Generally, the longer a bond’s maturity, the greater the interest rate risk. The Fund may also invest in U.S. dollar denominated foreign securities which involve additional risks such as political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund may also invest in mortgage- and asset-backed securities, which include interest rate and prepayment risks more pronounced than those of other fixed income securities.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com.  Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 61

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

This schedule summarizes the Fund’s holdings by asset type. Details are reported for each of the Fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the Fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
 
The Fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter end. For the second and fourth fiscal quarters, the complete listing of the Fund’s holdings is available electronically in the Fund’s Form N-CSR at http://www.bairdfunds.com/prospectuses-reports and on the Securities and Exchange Commission’s website (www.sec.gov) or you can have it mailed to you without charge by calling 1-866-44BAIRD. For the first and third fiscal quarters, the Fund files the lists with the SEC on Form N-Q. Shareholders can look up the Fund’s Forms N-CSR and N-Q on the SEC’s website (www.sec.gov).
 
Long-Term Investments
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
  2.625%, 08/15/2020
  $ 441,300,000     $ 460,848,266       6.9 %
  6.250%, 08/15/2023
    40,000,000       53,259,360       0.8 %
  5.250%, 11/15/2028
    118,325,000       158,638,682       2.3 %
  3.500%, 02/15/2039@
    282,420,000       324,363,889       4.8 %
Total U.S. Treasury Securities
                       
(Cost $967,984,709)
            997,110,197       14.8 %
Corporate Bonds
                       
Finance
                       
BPCE,
                       
  5.700%, 10/22/2023 (Acquired 10/15/2013,
                       
  Cost $30,117,248)* f
    28,500,000       30,602,359       0.5 %
Citizens Bank, National Association,
                       
  2.450%, 12/04/2019
    36,000,000       35,775,000       0.5 %
Compass Bank,
                       
  2.750%, 09/29/2019
    30,470,000       30,501,140       0.4 %
Discover Financial Services,
                       
  3.950%, 11/06/2024
    25,000,000       25,131,075       0.4 %
HSBC Finance Corporation,
                       
  6.676%, 01/15/2021
    21,623,000       25,654,738       0.4 %
Massachusetts Mutual Life Insurance Company,
                       
  8.875%, 06/01/2039 (Acquired 10/03/2012
                       
  through 09/26/2014, Cost $30,206,377)*
    19,440,000       31,366,382       0.5 %
Voya Financial, Inc.,
                       
  5.500%, 07/15/2022
    25,634,000       28,956,577       0.4 %
Other Finance#~
            1,000,004,426       14.9 %
Total Finance
                       
(Cost $1,180,667,059)
            1,207,991,697       18.0 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 62

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Utility
                 
Other Utility#~
        $ 100,034,916       1.5 %
Total Utility
                     
(Cost $95,996,939)
          100,034,916       1.5 %
Industrials
                     
Hospira, Inc.,
                     
  6.050%, 03/30/2017
  $ 25,000,000       26,954,125       0.4 %
Petrofac Limited,
                       
  3.400%, 10/10/2018 (Acquired 10/03/2013
                       
  through 09/19/2014, Cost $30,947,395)* f
    30,900,000       30,483,839       0.4 %
Rockwood Specialties Group Inc Sr Glbl Nt 20,
                       
  4.625%, 10/15/2020
    26,454,000       27,313,755       0.4 %
Valero Energy Corporation,
                       
  9.375%, 03/15/2019
    19,606,000       24,451,250       0.4 %
Verizon Communications Inc.,
                       
  6.400%, 09/15/2033@
    22,675,000       27,930,680       0.4 %
Other Industrials#~
            1,516,327,234       22.6 %
Total Industrials
                       
(Cost $1,655,053,379)
            1,653,460,883       24.6 %
Total Corporate Bonds
                       
(Cost $2,931,717,377)
            2,961,487,496       44.1 %
Other Government Related Securities
                       
Other Government Related Securities#~
            125,691,062       1.9 %
Total Other Government Related Securities
                       
(Cost $124,241,875)
            125,691,062       1.9 %
Taxable Municipal Bonds
                       
Other Taxable Municipal Bonds#
            90,246,582       1.3 %
Total Taxable Municipal Bonds
                       
(Cost $86,203,322)
            90,246,582       1.3 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Gold Loan Mortgage Corporation (FGLMC):
                       
  3.500%, 07/01/2042
    44,208,857       46,036,064       0.7 %
  3.000%, 08/01/2042
    35,165,351       35,596,428       0.5 %
  3.000%, 08/01/2043
    28,123,864       28,448,937       0.4 %
  3.500%, 07/01/2044
    34,504,440       35,915,101       0.5 %
  3.500%, 08/01/2044
    57,289,724       59,631,925       0.9 %
  4.000%, 09/01/2044
    72,146,397       76,997,565       1.2 %
  4.000%, 10/01/2044
    41,875,737       44,882,024       0.7 %
  3.000%-6.500%, 12/01/2020-06/01/2043
    88,205,108       92,704,930       1.4 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 63

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Federal National Mortgage Association (FNMA):
                 
  3.000%, 04/01/2027
  $ 21,961,457     $ 22,886,552       0.3 %
  2.500%, 12/01/2027
    31,745,931       32,408,897       0.5 %
  4.000%, 01/01/2034
    28,112,674       30,272,328       0.4 %
  4.000%, 09/01/2034
    37,297,332       40,129,943       0.6 %
  5.000%, 06/01/2040
    39,901,521       44,126,679       0.7 %
  3.500%, 03/01/2041
    21,630,571       22,587,457       0.3 %
  3.500%, 11/01/2041
    38,370,981       40,077,932       0.6 %
  4.000%, 12/01/2041
    34,948,428       37,342,923       0.6 %
  4.500%, 01/01/2042
    28,557,672       31,069,943       0.5 %
  3.000%, 05/01/2043
    47,027,453       47,643,830       0.7 %
  3.000%, 06/01/2043
    47,771,468       48,394,070       0.7 %
  3.000%-7.500%, 12/25/2019-06/01/2042
    157,454,757       169,985,896       2.5 %
  3.000%-6.000%, 05/01/2038-03/01/2043
    46,499,762       50,552,686       0.7 %
Government National Mortgage Association (GNMA):
                       
  4.500%, 07/20/2040
    23,755,343       26,101,668       0.4 %
  4.000%, 06/20/2042
    33,552,983       36,010,972       0.5 %
  4.000%, 09/20/2044
    49,171,576       52,820,348       0.8 %
  3.500%-6.500%, 12/20/2028-09/20/2042
    41,386,799       44,623,537       0.7 %
Other U.S. Government Agency Issues#
            193,456       0.0 %
Total U.S. Government Agency Issues
                       
(Cost $1,179,038,242)
            1,197,442,091       17.8 %
Non-U.S. Government Agency Issues
                       
COMM Mortgage Trust,
                       
  Series 2014-CCRE18, Class A4, 3.550%, 07/15/2047
    5,000,000       5,177,600       0.1 %
Other Non-U.S. Government Agency Issues#
            320,169,183       4.7 %
Total Non-U.S. Government Agency Issues
                       
(Cost $325,137,934)
            325,346,783       4.8 %
Asset Backed Securities
                       
Carrington Mortgage Loan Trust,
                       
  Series 2007-FRE1, Class A2, 0.370%, 02/25/2037
    45,098,518       41,230,328       0.6 %
Other Asset Backed Securities#~
            318,786,365       4.8 %
Total Asset Backed Securities
                       
(Cost $359,548,871)
            360,016,693       5.4 %
Commercial Mortgage-Backed Securities
                       
COMM Mortgage Trust:
                       
  Series 2012-CR1, Class A3, 3.391%, 05/15/2045
    25,842,000       26,878,419       0.4 %
  Series 2012-CR2, Class A4, 3.147%, 08/15/2045
    29,950,000       30,681,619       0.5 %
  4.022%-5.116%, 06/10/2044-07/10/2045
    36,581,545       38,262,723       0.6 %
GS Mortgage Securities Corp II,
                       
  Series 2012-GCJ9, Class A3, 2.773%, 11/10/2045
    37,485,000       37,264,738       0.5 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 64

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

Long-Term Investments (cont.)
 
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
J.P. Morgan Chase Commercial Mortgage Securities Trust:
                 
  Series 2005-CB12, Class A4, 4.895%, 09/12/2037
  $ 24,965,000     $ 25,224,012       0.4 %
  Series 2013-LC11, Class A5, 2.960%, 04/15/2046
    22,075,000       22,164,624       0.3 %
JPMBB Commercial Mortgage Securities Trust,
                       
  Series 2013-C17, Class A3, 3.928%, 01/15/2047
    23,700,000       25,382,818       0.4 %
  Series 2014-C25, Class A5, 3.672%, 11/15/2047
    24,000,000       25,070,064       0.4 %
Morgan Stanley Bank of America Merrill Lynch Trust:
                       
  Series 2012-C5, Class A4, 3.176%, 08/15/2045
    27,800,000       28,462,780       0.4 %
  Series 2012-C6, Class A4, 2.858%, 11/15/2045
    30,160,000       30,204,094       0.5 %
  Series 2013-C10, Class A3, 3.968%, 07/15/2046
    31,290,000       33,726,896       0.5 %
  Series 2013-C11, Class A3, 3.960%, 08/15/2046
    19,100,000       20,445,595       0.3 %
Other Commercial Mortgage Backed Securities#
            170,819,878       2.5 %
Total Commercial Mortgage Backed Securities
                       
(Cost $518,692,043)
            514,588,260       7.7 %
Total Long-Term Investments
                       
(Cost $6,492,564,373)
            6,571,929,164       97.8 %
Short-Term Investments
                       
   
Shares
                 
Money Market Mutual Funds
                       
Dreyfus Cash Advantage Fund, 0.06%«
    67,643,075       67,643,075       1.0 %
Short-Term Investments Trust -
                       
  Liquid Assets Portfolio, 0.07%«
    130,000,000       130,000,000       2.0 %
Total Short-Term Investments
                       
(Cost $197,643,075)
            197,643,075       3.0 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 65

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

Investments Purchased with Cash
Proceeds from Securities Lending
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Investment Companies
                 
Mount Vernon Securities Lending
                 
  Trust Prime Portfolio, 0.29%«
    180,054,574     $ 180,054,574       2.7 %
Total Investment Companies
                       
(Cost $180,054,574)
            180,054,574       2.7 %
Total Investments Purchased With
                       
Cash Proceeds From Securities Lending
                       
(Cost $180,054,574)
            180,054,574       2.7 %
Total Investments
                       
(Cost $6,870,262,022)
            6,949,626,813       103.5 %
Liabilities in Excess of Other Assets
            (233,019,902 )     (3.5 )%
TOTAL NET ASSETS
          $ 6,716,606,911       100.0 %
Notes to Summary Schedule of Investments
#
Represents the aggregate value, by category, securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
*
Restricted Security Deemed Liquid
@
This security or portion of this security is out on loan at December 31, 2014.
f
Foreign Security
«
7-Day Yield
~
Groupings contain, in aggregate, restricted securities totaling $713,432,972 representing 10.62% of net assets.

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
 
The accompanying notes are an integral part of these financial statements.

 
Page 66

 

Baird Core Plus Bond Fund
Summary Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014 (cont.)
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fixed Income
                       
U.S. Treasury Securities
  $     $ 997,110,197     $     $ 997,110,197  
Corporate Bonds
          2,961,470,404       17,092       2,961,487,496  
Other Government Related Securities
          125,691,062             125,691,062  
Taxable Municipal Bonds
          90,246,582             90,246,582  
Residential Mortgage-Backed Securities –
                               
  U.S. Government Agency Issues
          1,197,442,091             1,197,442,091  
Residential Mortgage-Backed Securities –
                               
  Non-U.S. Government Agency Issues
          325,346,783             325,346,783  
Asset Backed Securities
          360,016,693             360,016,693  
Commercial Mortgage-Backed Securities
          514,588,260             514,588,260  
Total Fixed Income
          6,571,912,072       17,092       6,571,929,164  
Short-Term Investments
                               
Money Market Mutual Fund
    197,643,075                   197,643,075  
Total Short-Term Investments
    197,643,075                   197,643,075  
Investments Purchased with Cash
                               
Proceeds from Securities Lending
                               
Investment Companies
    180,054,574                   180,054,574  
Total Investments Purchased with
                               
Cash Proceeds from Securities Lending
    180,054,574                   180,054,574  
Total Investments
  $ 377,697,649     $ 6,571,912,072     $ 17,092     $ 6,949,626,813  

Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1 and Level 2 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  There was one transfer between Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  One security that had been priced by the Fund’s pricing vendor began to be priced by the Valuation Committee using Level 3 inputs and transferred from Level 2 to Level 3.  See the Fund’s valuation policy in Note 2a to the financial statements.
 
Level 3 Reconciliation Disclosure
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
 
Description
Investments in Securities
Balance as of December 31, 2013
  $  
Accrued discounts/premiums
     
Realized gain (loss)
     
Change in unrealized appreciation (depreciation)
     
Purchases
     
Sales
     
Transfers in and/or out of Level 3*
    17,092  
Balance as of December 31, 2014
  $ 17,092  

* Transfers between levels are recognized at the end of the reporting period.
 
The accompanying notes are an integral part of these financial statements.

 
Page 67

 

Additional Information on Fund Expenses
December 31, 2014 (Unaudited)

As a shareholder of a mutual fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, such as management fees; distribution and/or service (12b-1) fees;  and other fund 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 Funds’ transfer agent.  If you request that a redemption be made by wire transfer, currently the Funds’ transfer agent charges a $15.00 fee.
 
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 (7/1/14 – 12/31/14).
 
Actual Expenses
 
The third and fourth columns of the following table provide information about account values based on actual returns and actual expenses.  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 fourth column entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
 
Hypothetical Example for Comparison Purposes
 
The fifth and sixth columns of the following table 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 sixth column of the table (entitled “Expenses Paid During Period”) 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.
 
 
 
 
 

 
Page 68

 

Additional Information on Fund Expenses
December 31, 2014 (Unaudited)

Actual vs. Hypothetical Returns
 
         
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)
7/1/14
12/31/14
Period(1)
12/31/14
Period(1)
Baird Ultra Short
           
Bond Fund
           
Institutional Class
0.15%
$1,000.00
$1,000.70
$0.76
$1,024.45
$0.77
Investor Class
0.40%
$1,000.00
$   998.50
$2.01
$1,023.19
$2.04
             
Baird Short-Term
           
Bond Fund
           
Institutional Class
0.30%
$1,000.00
$1,001.80
$1.51
$1,023.69
$1.53
Investor Class
0.55%
$1,000.00
$1,000.50
$2.77
$1,022.43
$2.80
             
Baird Intermediate
           
Bond Fund
           
Institutional Class
0.30%
$1,000.00
$1,007.20
$1.52
$1,023.69
$1.53
Investor Class
0.55%
$1,000.00
$1,005.60
$2.78
$1,022.43
$2.80
             
Baird Intermediate
           
Municipal Bond Fund
           
Institutional Class
0.30%
$1,000.00
$1,012.30
$1.52
$1,023.69
$1.53
Investor Class
0.55%
$1,000.00
$1,011.60
$2.79
$1,022.43
$2.80
             
Baird Aggregate
           
Bond Fund
           
Institutional Class
0.30%
$1,000.00
$1,020.10
$1.53
$1,023.69
$1.53
Investor Class
0.55%
$1,000.00
$1,019.10
$2.80
$1,022.43
$2.80
             
Baird Core Plus
           
Bond Fund
           
Institutional Class
0.30%
$1,000.00
$1,016.90
$1.53
$1,023.69
$1.53
Investor Class
0.55%
$1,000.00
$1,015.90
$2.79
$1,022.43
$2.80
 
(1)
Expenses are equal to the Fund’s annualized net expense ratio multiplied by the average account value over the period, multiplied by 184 days and divided by 365 to reflect the one-half year period.


 
Page 69

 

Statements of Assets and Liabilities
December 31, 2014

   
Baird
   
Baird
   
Baird
 
   
Ultra Short
   
Short-Term
   
Intermediate
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
ASSETS:
                 
Investments, at value (cost $83,944,155,
                 
  $2,812,803,921 and $1,754,267,121, respectively)*
  $ 83,759,229     $ 2,808,066,265     $ 1,775,556,387  
Interest receivable
    485,304       19,316,764       14,050,266  
Receivable for investments sold
                25  
Receivable for Fund shares sold
    13,870,158       7,909,865       1,564,230  
Uninvested cash
          5,804        
Receivable for securities lending
          9,308       11,777  
Total assets
    98,114,691       2,835,308,006       1,791,182,685  
LIABILITIES:
                       
Payable for collateral received
                       
  for securities loaned (Note 6)
          147,613,109       192,781,148  
Payable for securities purchased
    12,737,380       6,472,885       13,428,104  
Payable for Fund shares repurchased
          3,818,186       622,123  
Payable to Advisor and Distributor
    8,747       695,888       419,935  
Other liabilities
          53       152,464  
Total liabilities
    12,746,127       158,600,121       207,403,774  
NET ASSETS
  $ 85,368,564     $ 2,676,707,885     $ 1,583,778,911  
NET ASSETS CONSIST OF:
                       
Capital stock
  $ 85,563,125     $ 2,680,022,051     $ 1,562,009,640  
Accumulated undistributed
                       
  net investment income
    3,769       151,789       143,749  
Accumulated net realized
                       
  gain (loss) on investments sold
    (13,404 )     1,271,701       336,256  
Net unrealized appreciation (depreciation)
                       
  on investments
    (184,926 )     (4,737,656 )     21,289,266  
NET ASSETS
  $ 85,368,564     $ 2,676,707,885     $ 1,583,778,911  
INSTITUTIONAL CLASS SHARES
                       
Net Assets
  $ 84,477,492     $ 2,640,892,177     $ 1,468,212,932  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    8,424,284       273,164,316       132,223,556  
Net asset value, offering and
                       
  redemption price per share
  $ 10.03     $ 9.67     $ 11.10  
INVESTOR CLASS SHARES
                       
Net Assets
  $ 891,072     $ 35,815,708     $ 115,565,979  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    88,900       3,704,764       10,001,347  
Net asset value, offering and
                       
  redemption price per share
  $ 10.02     $ 9.67     $ 11.56  

*
Includes securities out on loan to brokers with a market value of $0, $144,409,191 and $188,657,283, respectively.


The accompanying notes are an integral part of these financial statements.

 
Page 70

 

Statements of Assets and Liabilities
December 31, 2014

   
Baird
             
   
Intermediate
   
Baird
   
Baird
 
   
Municipal
   
Aggregate
   
Core Plus
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
ASSETS:
                 
Investments, at value (cost $1,074,729,856,
                 
  $3,740,345,751 and
                 
  $6,870,262,022, respectively)*
  $ 1,119,626,917     $ 3,818,202,393     $ 6,949,626,813  
Interest receivable
    13,118,022       27,547,589       50,818,666  
Receivable for investments sold
          27,179,805       111  
Receivable for Fund shares sold
    3,564,972       16,632,483       28,792,054  
Uninvested cash
    462              
Receivable for securities lending
          16,264       53,636  
Other assets
          4,376        
Total assets
    1,136,310,373       3,889,582,910       7,029,291,280  
LIABILITIES:
                       
Payable for collateral received
                       
  for securities loaned (Note 6)
          98,296,098       180,054,574  
Payable for securities purchased
    4,136,676       97,738,892       125,569,045  
Payable for Fund shares repurchased
    26,208,023       2,047,132       3,968,572  
Payable to Advisor and Distributor
    353,023       951,747       2,111,403  
Other liabilities
          309,123       980,775  
Total liabilities
    30,697,722       199,342,992       312,684,369  
NET ASSETS
  $ 1,105,612,651     $ 3,690,239,918     $ 6,716,606,911  
NET ASSETS CONSIST OF:
                       
Capital stock
  $ 1,061,592,176     $ 3,622,135,784     $ 6,648,429,795  
Accumulated undistributed
                       
  net investment income
    24,885       63,990       402,605  
Accumulated net realized loss on
                       
  investments sold
    (901,471 )     (9,816,498 )     (11,590,280 )
Net unrealized appreciation on investments
    44,897,061       77,856,642       79,364,791  
NET ASSETS
  $ 1,105,612,651     $ 3,690,239,918     $ 6,716,606,911  
INSTITUTIONAL CLASS SHARES
                       
Net Assets
  $ 918,944,572     $ 3,448,566,888     $ 4,520,948,037  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    78,104,232       318,988,439       405,895,839  
Net asset value, offering and
                       
  redemption price per share
  $ 11.77     $ 10.81     $ 11.14  
INVESTOR CLASS SHARES
                       
Net Assets
  $ 186,668,079     $ 241,673,030     $ 2,195,658,874  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    15,522,287       21,682,288       190,054,912  
Net asset value, offering and
                       
  redemption price per share
  $ 12.03     $ 11.15     $ 11.55  

*
Includes securities out on loan to brokers with a market value of $0, $96,025,717 and $175,957,815, respectively.


The accompanying notes are an integral part of these financial statements.

 
Page 71

 

Statement of Operations
Year Ended December 31, 2014

   
Baird
   
Baird
   
Baird
 
   
Ultra Short
   
Short-Term
   
Intermediate
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
INVESTMENT INCOME:
                 
Interest income, net of paydowns
  $ 288,480     $ 42,323,282     $ 35,181,502  
Income from securities lending (Note 6)
          199,859       266,526  
Other income
          77,115       8,989  
Total investment income
    288,480       42,600,256       35,457,017  
EXPENSES:
                       
Investment advisory fees
    66,373       5,717,200       3,317,947  
Administration fees
    13,275       1,143,440       663,590  
Distribution expense –
                       
  Investor Class Shares (Note 8)
    501       72,753       163,945  
Total expenses
    80,149       6,933,393       4,145,482  
Fee waiver by Advisor (Note 5)
    (39,803 )            
Net expenses
    40,346       6,933,393       4,145,482  
NET INVESTMENT INCOME
    248,134       35,666,863       31,311,535  
                         
REALIZED AND UNREALIZED GAIN (LOSS)
                       
  ON INVESTMENTS:
                       
Net realized gain on investments
    13,668       4,753,146       3,224,796  
Change in unrealized appreciation/
                       
  depreciation on investments
    (184,926 )     (9,498,528 )     9,181,636  
Net realized and unrealized gain (loss)
                       
  on investments
    (171,258 )     (4,745,382 )     12,406,432  
NET INCREASE IN NET ASSETS
                       
  RESULTING FROM OPERATIONS
  $ 76,876     $ 30,921,481     $ 43,717,967  

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 72

 

Statement of Operations
Year Ended December 31, 2014

   
Baird
             
   
Intermediate
   
Baird
   
Baird
 
   
Municipal
   
Aggregate
   
Core Plus
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
INVESTMENT INCOME:
                 
Interest income, net of paydowns
  $ 30,714,118     $ 74,343,857     $ 121,967,930  
Income from securities lending (Note 6)
          234,566       704,653  
Other income
          27,543       26,647  
Total investment income
    30,714,118       74,605,966       122,699,230  
EXPENSES:
                       
Investment advisory fees
    2,684,440       6,003,443       9,618,223  
Administration fees
    536,888       1,200,689       1,923,645  
Distribution expense –
                       
  Investor Class Shares (Note 8)
    520,135       476,674       3,367,885  
Total expenses
    3,741,463       7,680,806       14,909,753  
NET INVESTMENT INCOME
    26,972,655       66,925,160       107,789,477  
                         
REALIZED AND UNREALIZED GAIN (LOSS)
                       
  ON INVESTMENTS:
                       
Net realized gain (loss) on investments
    (530,835 )     4,517,863       8,760,815  
Change in unrealized appreciation/
                       
  depreciation on investments
    19,389,924       77,563,931       107,099,217  
Net realized and unrealized gain
                       
  on investments
    18,859,089       82,081,794       115,860,032  
NET INCREASE IN NET ASSETS
                       
  RESULTING FROM OPERATIONS
  $ 45,831,744     $ 149,006,954     $ 223,649,509  

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 73

 

Statement of Changes in Net Assets
Baird Ultra Short Bond Fund^

   
Year Ended
 
 
December 31, 2014
OPERATIONS:
     
Net investment income
  $ 248,134  
Net realized gain on investments
    13,668  
Change in unrealized depreciation on investments
    (184,926 )
Net increase in net assets resulting from operations
    76,876  
         
CAPITAL SHARE TRANSACTIONS:
       
Proceeds from shares sold
    93,172,532  
Shares issued to holders in reinvestment of distributions
    226,670  
Cost of shares redeemed
    (7,836,077 )
Net increase in net assets resulting from capital share transactions
    85,563,125  
         
DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS:
       
From net investment income
    (269,807 )
Total Distributions
    (269,807 )
         
DISTRIBUTIONS TO INVESTOR CLASS SHAREHOLDERS:
       
From net investment income
    (1,630 )
Total Distributions
    (1,630 )
         
TOTAL INCREASE IN NET ASSETS
    85,368,564  
         
NET ASSETS:
       
Beginning of year
     
End of year (including accumulated undistributed net investment
       
  income of $3,769)
  $ 85,368,564  

^  Inception was the close of business on December 31, 2013.


The accompanying notes are an integral part of these financial statements.

 
Page 74

 

Statement of Changes in Net Assets
Baird Short-Term Bond Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 35,666,863       $ 27,854,126  
Net realized gain on investments
    4,753,146         4,483,161  
Change in unrealized depreciation on investments
    (9,498,528 )       (9,991,149 )
Net increase in net assets
                 
  resulting from operations
    30,921,481         22,346,138  
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    1,376,961,950         1,321,429,969  
Shares issued to holders in reinvestment of distributions
    34,127,758         28,803,751  
Cost of shares redeemed
    (734,856,529 )       (628,082,008 )
Net increase in net assets resulting
                 
  from capital share transactions
    676,233,179         722,151,712  
                   
DISTRIBUTIONS TO  
                 
  INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (37,504,235 )       (28,830,295 )
From net realized gains
    (1,473,635 )       (3,715,930 )
Total Distributions
    (38,977,870 )       (32,546,225 )
                   
DISTRIBUTIONS TO
                 
   INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (413,795 )       (101,725 )
From net realized gains
    (19,699 )       (43,827 )
Total Distributions
    (433,494 )       (145,552 )
                   
TOTAL INCREASE IN NET ASSETS
    667,743,296         711,806,073  
                   
NET ASSETS:
                 
Beginning of year
    2,008,964,589         1,297,158,516  
End of year (including accumulated
                 
  undistributed net investment income
                 
  of $151,789 and $87,597)
  $ 2,676,707,885       $ 2,008,964,589  


The accompanying notes are an integral part of these financial statements.

 
Page 75

 

Statement of Changes in Net Assets
Baird Intermediate Bond Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 31,311,535       $ 24,284,984  
Net realized gain on investments
    3,224,796         280,244  
Change in unrealized appreciation/depreciation
                 
  on investments
    9,181,636         (25,956,146 )
Net increase (decrease) in net assets
                 
  resulting from operations
    43,717,967         (1,390,918 )
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    579,006,584         446,423,832  
Shares issued to holders in reinvestment of distributions
    29,350,298         22,280,498  
Cost of shares redeemed
    (189,933,013 )       (179,390,475 )
Net increase in net assets resulting
                 
  from capital share transactions
    418,423,869         289,313,855  
                   
DISTRIBUTIONS TO  
                 
  INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (30,366,524 )       (23,931,138 )
From net realized gains
    (2,154,632 )       (1,670,359 )
Total Distributions
    (32,521,156 )       (25,601,497 )
                   
DISTRIBUTIONS TO
                 
  INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (1,383,958 )       (763,548 )
From net realized gains
    (163,736 )       (60,340 )
Total Distributions
    (1,547,694 )       (823,888 )
                   
TOTAL INCREASE IN NET ASSETS
    428,072,986         261,497,552  
                   
NET ASSETS:
                 
Beginning of year
    1,155,705,925         894,208,373  
End of year (including accumulated
                 
  undistributed net investment income
                 
  of $143,749 and $34,180)
  $ 1,583,778,911       $ 1,155,705,925  


The accompanying notes are an integral part of these financial statements.

 
Page 76

 

Statement of Changes in Net Assets
Baird Intermediate Municipal Bond Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 26,972,655       $ 29,327,292  
Net realized gain (loss) on investments
    (530,835 )       393,206  
Change in unrealized appreciation/depreciation
                 
  on investments
    19,389,924         (45,857,361 )
Net increase (decrease) in net assets
                 
  resulting from operations
    45,831,744         (16,136,863 )
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    323,804,525         375,180,193  
Shares issued to holders in reinvestment of distributions
    23,414,513         24,773,117  
Cost of shares redeemed
    (267,484,959 )       (569,130,806 )
Net increase (decrease) in net assets
                 
  resulting from capital share transactions
    79,734,079         (169,177,496 )
                   
DISTRIBUTIONS TO
                 
  INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (22,257,987 )       (23,787,845 )
Total Distributions
    (22,257,987 )       (23,787,845 )
                   
DISTRIBUTIONS TO
                 
  INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (4,689,783 )       (5,549,463 )
Total Distributions
    (4,689,783 )       (5,549,463 )
                   
TOTAL INCREASE (DECREASE) IN NET ASSETS
    98,618,053         (214,651,667 )
                   
NET ASSETS:
                 
Beginning of year
    1,006,994,598         1,221,646,265  
End of year (including accumulated undistributed
                 
  net investment income of $24,885 and $0)
  $ 1,105,612,651       $ 1,006,994,598  


The accompanying notes are an integral part of these financial statements.

 
Page 77

 

Statement of Changes in Net Assets
Baird Aggregate Bond Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 66,925,160       $ 51,332,825  
Net realized gain on investments
    4,517,863         378,075  
Change in unrealized appreciation/depreciation
                 
  on investments
    77,563,931         (72,138,203 )
Net increase (decrease) in net assets
                 
  resulting from operations
    149,006,954         (20,427,303 )
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    2,221,120,686         1,010,876,966  
Shares issued to holders in reinvestment of distributions
    60,169,930         44,941,674  
Cost of shares redeemed
    (476,225,763 )       (717,490,386 )
Net increase in net assets resulting
                 
  from capital share transactions
    1,805,064,853         338,328,254  
                   
DISTRIBUTIONS TO
                 
  INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (65,793,639 )       (52,544,503 )
Total Distributions
    (65,793,639 )       (52,544,503 )
                   
DISTRIBUTIONS TO
                 
  INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (4,963,419 )       (3,280,448 )
Total Distributions
    (4,963,419 )       (3,280,448 )
                   
TOTAL INCREASE IN NET ASSETS
    1,883,314,749         262,076,000  
                   
NET ASSETS:
                 
Beginning of year
    1,806,925,169         1,544,849,169  
End of year (including accumulated
                 
  undistributed net investment income
                 
  of $63,990 and $63,323)
  $ 3,690,239,918       $ 1,806,925,169  


The accompanying notes are an integral part of these financial statements.

 
Page 78

 

Statement of Changes in Net Assets
Baird Core Plus Bond Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 107,789,477       $ 76,999,110  
Net realized gain (loss) on investments
    8,760,815         (5,595,901 )
Change in unrealized appreciation/depreciation
                 
  on investments
    107,099,217         (116,074,581 )
Net increase (decrease) in net assets
                 
  resulting from operations
    223,649,509         (44,671,372 )
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    4,327,319,011         1,377,196,811  
Shares issued to holders in reinvestment of distributions
    110,692,074         81,644,399  
Cost of shares redeemed
    (664,302,496 )       (1,103,175,773 )
Net increase in net assets resulting
                 
  from capital share transactions
    3,773,708,589         355,665,437  
                   
DISTRIBUTIONS TO
                 
  INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (78,483,997 )       (54,209,559 )
From net realized gains
            (1,221,572 )
Total Distributions
    (78,483,997 )       (55,431,131 )
                   
DISTRIBUTIONS TO
                 
  INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (36,081,493 )       (30,443,741 )
From net realized gains
            (694,353 )
Total Distributions
    (36,081,493 )       (31,138,094 )
                   
TOTAL INCREASE IN NET ASSETS
    3,882,792,608         224,424,840  
                   
NET ASSETS:
                 
Beginning of year
    2,833,814,303         2,609,389,463  
End of year (including accumulated
                 
  undistributed net investment income
                 
  of $402,605 and $269,644)
  $ 6,716,606,911       $ 2,833,814,303  


The accompanying notes are an integral part of these financial statements.

 
Page 79

 

Financial Highlights
Baird Ultra Short Bond Fund – Institutional Class^

   
Year Ended
 
 
December 31, 2014
Per Share Data:
     
Net asset value, beginning of year
  $ 10.00  
Income from investment operations:
       
Net investment income
    0.09  
Net realized and unrealized gain on investments
    0.03 (1)
Total from investment operations
    0.12  
Less distributions:
       
Distributions from net investment income
    (0.09 )
Total Distributions
    (0.09 )
Net asset value, end of year
  $ 10.03  
         
Total return
    1.21 %
         
Supplemental data and ratios:
       
Net assets, end of year (millions)
  $ 84.5  
Ratio of expenses to average net assets
    0.15 %
Ratio of expenses to average net assets (before waivers)
    0.30 %
Ratio of net investment income to average net assets
    0.93 %
Ratio of net investment income to average net assets (before waivers)
    0.78 %
Portfolio turnover rate(2)
    57.6 %

^
Inception was the close of business on December 31, 2013.
(1)
Due to timing of capital share transactions, the per share amount of net realized and unrealized gain on investments varies from the amounts shown in the statement of operations.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 80

 

Financial Highlights
Baird Ultra Short Bond Fund – Investor Class^


   
Year Ended
 
 
December 31, 2014
Per Share Data:
     
Net asset value, beginning of year
  $ 10.00  
Income from investment operations:
       
Net investment income
    0.07  
Net realized and unrealized gain on investments
    0.02 (1)
Total from investment operations
    0.09  
Less distributions:
       
Distributions from net investment income
    (0.07 )
Total Distributions
    (0.07 )
Net asset value, end of year
  $ 10.02  
         
Total return
    0.88 %
         
Supplemental data and ratios:
       
Net assets, end of year (millions)
  $ 0.9  
Ratio of expenses to average net assets
    0.40 %
Ratio of expenses to average net assets (before waivers)
    0.55 %
Ratio of net investment income to average net assets
    0.68 %
Ratio of net investment income to average net assets (before waivers)
    0.53 %
Portfolio turnover rate(2)
    57.6 %

^
Inception was the close of business on December 31, 2013.
(1)
Due to timing of capital share transactions, the per share amount of net realized and unrealized gain on investments varies from the amounts shown in the statement of operations.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 81

 

Financial Highlights
Baird Short-Term Bond Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 9.69     $ 9.75     $ 9.59     $ 9.68     $ 9.57  
Income from
                                       
investment operations:
                                       
Net investment income
    0.16       0.17 (1)     0.22       0.23       0.29  
Net realized and unrealized
                                       
  gains (losses) on investments
    (0.01 )     (0.04 )     0.17       (0.03 )     0.13  
Total from investment operations
    0.15       0.13       0.39       0.20       0.42  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.16 )     (0.17 )     (0.22 )     (0.23 )     (0.29 )
Distributions from
                                       
  net realized gains
    (0.01 )     (0.02 )     (0.01 )     (0.06 )     (0.02 )
Total distributions
    (0.17 )     (0.19 )     (0.23 )     (0.29 )     (0.31 )
Net asset value, end of year
  $ 9.67     $ 9.69     $ 9.75     $ 9.59     $ 9.68  
                                         
Total return
    1.49 %     1.33 %     4.16 %     2.08 %     4.39 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 2,640.9     $ 1,985.0     $ 1,295.7     $ 1,017.2     $ 919.0  
Ratio of expenses to average net assets
    0.30 %     0.30 %     0.30 %     0.30 %     0.30 %
Ratio of net investment income
                                       
  to average net assets
    1.56 %     1.71 %     2.23 %     2.40 %     2.92 %
Portfolio turnover rate(2)
    51.2 %     45.1 %     40.1 %     61.1 %     58.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 82

 

Financial Highlights
Baird Short-Term Bond Fund – Investor Class

             
September 19, 2012^
               
through
 
   
Year Ended December 31,
   
December 31,
 
   
2014
   
2013
   
2012
 
Per Share Data:
                 
Net asset value, beginning of period
  $ 9.69     $ 9.75     $ 9.77  
Income from investment operations:
                       
Net investment income
    0.14       0.15 (1)     0.06  
Net realized and unrealized gains (losses)
                       
  on investments
    (0.02 )     (0.04 )     0.00 (2)
Total from investment operations
    0.12       0.11       0.06  
Less distributions:
                       
Distributions from net investment income
    (0.13 )     (0.15 )     (0.07 )
Distributions from net realized gains
    (0.01 )     (0.02 )     (0.01 )
Total distributions
    (0.14 )     (0.17 )     (0.08 )
Net asset value, end of period
  $ 9.67     $ 9.69     $ 9.75  
                         
Total return
    1.25 %     1.11 %     0.68 %(3)
                         
Supplemental data and ratios:
                       
Net assets, end of period (millions)
  $ 35.8     $ 2.5     $ 1.5  
Ratio of expenses to average net assets
    0.55 %     0.55 %     0.55 %(4)
Ratio of net investment income
                       
  to average net assets
    1.31 %     1.46 %     1.98 %(4)
Portfolio turnover rate(5)
    51.2 %     45.1 %     40.1 %(3)

^
Inception date.
(1)
Calculated using average shares outstanding during the year.
(2)
Amount is less than $0.005.
(3)
Not annualized.
(4)
Annualized.
(5)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
 

 

The accompanying notes are an integral part of these financial statements.

 
Page 83

 

Financial Highlights
Baird Intermediate Bond Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 11.00     $ 11.31     $ 11.06     $ 10.87     $ 10.61  
Income from
                                       
investment operations:
                                       
Net investment income
    0.26 (1)     0.27       0.33 (1)     0.39       0.44 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.13       (0.29 )     0.38       0.27       0.35  
Total from investment operations
    0.39       (0.02 )     0.71       0.66       0.79  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.27 )     (0.27 )     (0.33 )     (0.39 )     (0.44 )
Distributions from
                                       
  net realized gains
    (0.02 )     (0.02 )     (0.13 )     (0.08 )     (0.09 )
Total distributions
    (0.29 )     (0.29 )     (0.46 )     (0.47 )     (0.53 )
Net asset value, end of year
  $ 11.10     $ 11.00     $ 11.31     $ 11.06     $ 10.87  
                                         
Total return
    3.50 %     (0.17 )%     6.52 %     6.14 %     7.54 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 1,468.2     $ 1,113.7     $ 867.5     $ 703.2     $ 591.2  
Ratio of expenses to average net assets
    0.30 %     0.30 %     0.30 %     0.30 %     0.30 %
Ratio of net investment income
                                       
  to average net assets
    2.37 %     2.45 %     2.95 %     3.49 %     4.05 %
Portfolio turnover rate(2)
    29.2 %     45.1 %     45.1 %     24.1 %     38.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
 

 

The accompanying notes are an integral part of these financial statements.

 
Page 84

 

Financial Highlights
Baird Intermediate Bond Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 11.43     $ 11.74     $ 11.47     $ 11.26     $ 10.97  
Income from
                                       
investment operations:
                                       
Net investment income
    0.25 (1)     0.25       0.32 (1)     0.37       0.43 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.14       (0.29 )     0.39       0.28       0.36  
Total from investment operations
    0.39       (0.04 )     0.71       0.65       0.79  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.24 )     (0.25 )     (0.31 )     (0.36 )     (0.41 )
Distributions from
                                       
  net realized gains
    (0.02 )     (0.02 )     (0.13 )     (0.08 )     (0.09 )
Total distributions
    (0.26 )     (0.27 )     (0.44 )     (0.44 )     (0.50 )
Net asset value, end of year
  $ 11.56     $ 11.43     $ 11.74     $ 11.47     $ 11.26  
                                         
Total return
    3.29 %     (0.41 )%     6.20 %     5.84 %     7.30 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 115.6     $ 42.1     $ 26.7     $ 14.7     $ 12.7  
Ratio of expenses to average net assets
    0.55 %     0.55 %     0.55 %     0.55 %     0.55 %
Ratio of net investment income
                                       
  to average net assets
    2.12 %     2.20 %     2.70 %     3.24 %     3.80 %
Portfolio turnover rate(2)
    29.2 %     45.1 %     45.1 %     24.1 %     38.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 85

 

Financial Highlights
Baird Intermediate Municipal Bond Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 11.55     $ 12.01     $ 11.94     $ 11.31     $ 11.35  
Income from
                                       
investment operations:
                                       
Net investment income
    0.30       0.32 (1)     0.30       0.32       0.32  
Net realized and unrealized
                                       
  gains (losses) on investments
    0.22       (0.46 )     0.07       0.64       (0.04 )
Total from investment operations
    0.52       (0.14 )     0.37       0.96       0.28  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.30 )     (0.32 )     (0.30 )     (0.32 )     (0.32 )
Distributions from
                                       
  net realized gains
                      (0.01 )      
Total distributions
    (0.30 )     (0.32 )     (0.30 )     (0.33 )     (0.32 )
Net asset value, end of year
  $ 11.77     $ 11.55     $ 12.01     $ 11.94     $ 11.31  
                                         
Total return
    4.54 %     (1.19 )%     3.12 %     8.55 %     2.42 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 918.9     $ 801.4     $ 963.1     $ 836.1     $ 739.0  
Ratio of expenses to average net assets
    0.30 %     0.30 %     0.30 %     0.30 %     0.30 %
Ratio of net investment income
                                       
  to average net assets
    2.56 %     2.65 %     2.48 %     2.74 %     2.74 %
Portfolio turnover rate(2)
    4.7 %     9.0 %     5.1 %     8.0 %     8.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
 

 

The accompanying notes are an integral part of these financial statements.

 
Page 86

 

Financial Highlights
Baird Intermediate Municipal Bond Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 11.80     $ 12.26     $ 12.18     $ 11.53     $ 11.57  
Income from
                                       
investment operations:
                                       
Net investment income
    0.28       0.29 (1)     0.27       0.29       0.29  
Net realized and unrealized
                                       
  gains (losses) on investments
    0.22       (0.46 )     0.08       0.66       (0.04 )
Total from investment operations
    0.50       (0.17 )     0.35       0.95       0.25  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.27 )     (0.29 )     (0.27 )     (0.29 )     (0.29 )
Distributions from
                                       
  net realized gains
                      (0.01 )      
Total distributions
    (0.27 )     (0.29 )     (0.27 )     (0.30 )     (0.29 )
Net asset value, end of year
  $ 12.03     $ 11.80     $ 12.26     $ 12.18     $ 11.53  
                                         
Total return
    4.27 %     (1.42 )%     2.88 %     8.30 %     2.11 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 186.7     $ 205.6     $ 258.5     $ 257.9     $ 202.8  
Ratio of expenses to average net assets
    0.55 %     0.55 %     0.55 %     0.55 %     0.55 %
Ratio of net investment income
                                       
  to average net assets
    2.31 %     2.40 %     2.23 %     2.49 %     2.49 %
Portfolio turnover rate(2)
    4.7 %     9.0 %     5.1 %     8.0 %     8.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 87

 

Financial Highlights
Baird Aggregate Bond Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 10.41     $ 10.89     $ 10.65     $ 10.52     $ 10.23  
Income from
                                       
investment operations:
                                       
Net investment income
    0.30 (1)     0.32 (2)     0.38 (2)     0.44 (2)     0.47 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.41       (0.45 )     0.45       0.36       0.37  
Total from investment operations
    0.71       (0.13 )     0.83       0.80       0.84  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.31 )     (0.35 )     (0.43 )     (0.46 )     (0.49 )
Distributions from
                                       
  net realized gains
                (0.16 )     (0.21 )     (0.06 )
Total distributions
    (0.31 )     (0.35 )     (0.59 )     (0.67 )     (0.55 )
Net asset value, end of year
  $ 10.81     $ 10.41     $ 10.89     $ 10.65     $ 10.52  
                                         
Total return
    6.89 %     (1.25 )%     7.92 %     7.85 %     8.34 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 3,448.6     $ 1,665.0     $ 1,495.4     $ 1,480.3     $ 1,658.4  
Ratio of expenses to average net assets
    0.30 %     0.30 %     0.30 %     0.30 %     0.30 %
Ratio of net investment income
                                       
  to average net assets
    2.81 %     3.01 %     3.51 %     4.10 %     4.44 %
Portfolio turnover rate(3)
    32.1 %     28.4 %     64.4 %     45.9 %     41.4 %

(1)
Net investment income per share is calculated using ending balance prior to consideration of adjustments for permanent book and tax differences.
(2)
Calculated using average shares outstanding during the year.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 88

 

Financial Highlights
Baird Aggregate Bond Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 10.72     $ 11.21     $ 10.94     $ 10.80     $ 10.48  
Income from
                                       
investment operations:
                                       
Net investment income
    0.28 (1)     0.29 (2)     0.37 (2)     0.42 (2)     0.46 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.43       (0.46 )     0.46       0.37       0.38  
Total from investment operations
    0.71       (0.17 )     0.83       0.79       0.84  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.28 )     (0.32 )     (0.40 )     (0.44 )     (0.46 )
Distributions from
                                       
  net realized gains
                (0.16 )     (0.21 )     (0.06 )
Total distributions
    (0.28 )     (0.32 )     (0.56 )     (0.65 )     (0.52 )
Net asset value, end of year
  $ 11.15     $ 10.72     $ 11.21     $ 10.94     $ 10.80  
                                         
Total return
    6.71 %     (1.54 )%     7.72 %     7.46 %     8.16 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 241.7     $ 141.9     $ 49.4     $ 26.1     $ 38.9  
Ratio of expenses to average net assets
    0.55 %     0.55 %     0.55 %     0.55 %     0.55 %
Ratio of net investment income
                                       
  to average net assets
    2.56 %     2.76 %     3.26 %     3.85 %     4.19 %
Portfolio turnover rate(3)
    32.1 %     28.4 %     64.4 %     45.9 %     41.4 %

(1)
Net investment income per share is calculated using ending balance prior to consideration of adjustments for permanent book and tax differences.
(2)
Calculated using average shares outstanding during the year.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 89

 

Financial Highlights
Baird Core Plus Bond Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 10.77     $ 11.27     $ 10.82     $ 10.51     $ 10.18  
Income from
                                       
investment operations:
                                       
Net investment income
    0.32 (1)     0.31 (1)     0.35 (2)     0.45 (2)     0.59 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.38       (0.46 )     0.50       0.36       0.39  
Total from investment operations
    0.70       (0.15 )     0.85       0.81       0.98  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.33 )     (0.34 )     (0.38 )     (0.46 )     (0.60 )
Distributions from
                                       
  net realized gains
          (0.01 )     (0.02 )     (0.04 )     (0.05 )
Total distributions
    (0.33 )     (0.35 )     (0.40 )     (0.50 )     (0.65 )
Net asset value, end of year
  $ 11.14     $ 10.77     $ 11.27     $ 10.82     $ 10.51  
                                         
Total return
    6.59 %     (1.32 )%     7.95 %     7.89 %     9.81 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 4,520.9     $ 1,789.7     $ 1,573.4     $ 768.9     $ 452.4  
Ratio of expenses to average net assets
    0.30 %     0.30 %     0.30 %     0.30 %     0.30 %
Ratio of net investment income
                                       
  to average net assets
    2.89 %     2.83 %     3.12 %     4.22 %     5.56 %
Portfolio turnover rate(3)
    35.0 %     35.5 %     36.7 %     34.6 %     61.5 %

(1)
Net investment income per share is calculated using ending balance prior to consideration of adjustments for permanent book and tax differences.
(2)
Calculated using average shares outstanding during the year.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 90

 

Financial Highlights
Baird Core Plus Bond Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 11.16     $ 11.67     $ 11.18     $ 10.85     $ 10.49  
Income from
                                       
 investment operations:
                                       
Net investment income
    0.29 (1)     0.29 (1)     0.33 (2)     0.44 (2)     0.57 (1)
Net realized and unrealized
                                       
  gains (losses) on investments
    0.40       (0.48 )     0.53       0.37       0.41  
Total from investment operations
    0.69       (0.19 )     0.86       0.81       0.98  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.30 )     (0.31 )     (0.35 )     (0.44 )     (0.57 )
Distributions from
                                       
  net realized gains
          (0.01 )     (0.02 )     (0.04 )     (0.05 )
Total distributions
    (0.30 )     (0.32 )     (0.37 )     (0.48 )     (0.62 )
Net asset value, end of year
  $ 11.55     $ 11.16     $ 11.67     $ 11.18     $ 10.85  
                                         
Total return
    6.27 %     (1.61 )%     7.80 %     7.57 %     9.53 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 2,195.7     $ 1,044.1     $ 1,036.0     $ 331.9     $ 58.4  
Ratio of expenses to average net assets
    0.55 %     0.55 %     0.55 %     0.55 %     0.55 %
Ratio of net investment income
                                       
  to average net assets
    2.64 %     2.58 %     2.87 %     3.97 %     5.31 %
Portfolio turnover rate(3)
    35.0 %     35.5 %     36.7 %     34.6 %     61.5 %

(1)
Net investment income per share is calculated using ending balance prior to consideration of adjustments for permanent book and tax differences.
(2)
Calculated using average shares outstanding during the year.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 91

 

Notes to the Financial Statements
December 31, 2014

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 Ultra Short Bond Fund, Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund (each, a “Fund” and collectively, the “Funds”), six of the nine series comprising the Corporation, each of which is diversified within the meaning of the 1940 Act.  Robert W. Baird & Co. Incorporated (“Baird” or the “Advisor”) serves as investment advisor to the Funds.
 
The Baird Ultra Short Bond Fund commenced with the sale of both Institutional and Investor Class shares on December 31, 2013.  The Baird Short-Term Bond Fund commenced with the sale of Institutional Class shares on August 31, 2004 while the Investor Class shares commenced on September 19, 2012.  The Baird Intermediate Municipal Bond Fund commenced with the sale of both Institutional and Investor Class shares on March 30, 2001.  The Baird Intermediate Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund commenced with the sale of both Institutional and Investor Class shares on September 29, 2000.  The Institutional Class Shares are not subject to a distribution and service (12b-1) fee, while the Investor Class Shares are subject to a distribution and service (12b-1) fee of 0.25%.  See Note 8.
 
The investment objective of the Baird Ultra Short Bond Fund is to seek current income consistent with preservation of capital.  The Fund’s benchmark index, the Barclays U.S. Short-Term Government/Corporate Index, is an unmanaged, market value weighted index of investment grade, fixed debt including government and corporate securities with maturities less than one year.
 
The investment objective of the Baird Short-Term Bond Fund is to provide an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays 1-3 Year U.S. Government/Credit Bond Index. The Barclays 1-3 Year U.S. 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 investment objective of the Baird Intermediate Bond Fund is to provide an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays Intermediate U.S. Government/Credit Bond Index.  The Barclays Intermediate U.S. Government/Credit Bond Index is an unmanaged, market value weighted index of investment grade, fixed-rate debt issues, including government and corporate securities, with maturities between one and ten years.
 
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 investment objective of the Baird Aggregate Bond Fund is to provide an annual rate of total return, before Fund expenses, greater than the annual rate of total return of the Barclays U.S. Aggregate Bond Index.  The Barclays U.S. 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 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 Barclays U.S. Universal Bond Index. The Barclays 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.

 
Page 92

 

Notes to the Financial Statements
December 31, 2014

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 – Section 2(a)(41) of the 1940 Act, together with the rules and interpretations of the SEC, require the Funds, in computing net asset value, to value their portfolio securities using market quotations when they are “readily available.”  When market quotations are not readily available (e.g., because there is no regular market quotation for such securities, the market for such security is limited, the validity of quotations is questionable or the Funds’ independent pricing service does not provide a price), the Board of Directors of the Corporation must value the securities at “fair value determined in good faith.”  The Board has delegated such responsibility to the Advisor pursuant to pricing policies and procedures that the Board has adopted and regularly reviews. In general, the “fair value” of a security means the price that would be received to sell a security in an orderly transaction between market participants at the measurement date.
 
 
The Funds determine the fair value of their investments and compute their net asset value per share as of the close of regular trading of the New York Stock Exchange (4:00 p.m. EST).
 
 
Consistent with Section 2(a)(41) of the 1940 Act, the Funds price their securities as follows:  debt securities are valued at their evaluated bid prices as provided by an independent pricing service using valuation methods that are designed to represent fair value, such as matrix pricing and other analytical pricing models, market transactions and dealer quotations.  Debt securities purchased with maturities of 60 days or less are valued as described above unless an evaluated price is not available, in which case such security is valued at acquisition cost, plus or minus any amortized discount or premium (“amortized cost”), or, if the Advisor does not believe amortized cost is reflective of the value of the security, the security is priced at fair value as described below.  Investments in mutual funds are valued at their stated net asset value.  Common stocks that are listed on a securities exchange (other than NASDAQ) 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.  Securities that were not traded on the valuation date, as well as stocks that are not listed on an exchange, including NASDAQ, are valued at the average of the current bid and asked price.  Other assets and securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Advisor in accordance with procedures approved by the Corporation’s Board of Directors.  In accordance with such procedures, the Advisor may use broker quotes or prices obtained from alternative independent pricing services or, if the broker quotes or prices from alternative pricing services are unavailable or deemed to be unreliable, fair value will be determined by a valuation committee of the Advisor.  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 there is no single standard for determining a security’s fair value.  As a result, different mutual funds could reasonably arrive at a different fair value for the same security.  It is possible that the fair value determined for a security is materially different from the value that could be realized upon the sale of that security or from the values that other mutual funds may determine.  In addition, given the volatility and periodic illiquidity experienced in recent years, the prices determined for any individual security on any given day may vary significantly from the amount that can be obtained in an actual sale of that security, and the Funds’ NAVs may fluctuate significantly from day to day or from period to period.
 
b)
Unregistered Securities – Five of the Funds own certain investment securities which are unregistered and thus restricted with respect to resale.  The value of such securities for the Baird Ultra Short Bond, Baird Short-Term Bond, Baird Intermediate Bond, Baird Aggregate Bond and Baird Core Plus Bond Funds were $12,343,997 (14.46% of net assets), $462,037,510 (17.26% of net assets), $237,312,630 (14.98%  
 

 
Page 93

 

Notes to the Financial Statements
December 31, 2014

2.
Significant Accounting Policies (cont.)
 
 
of net assets), $399,176,879 (10.82% of net assets), and $805,885,552 (12.00% of net assets),  respectively, at December 31, 2014.  Restricted securities may be deemed to be liquid as determined by the Advisor based on several factors.  All of the restricted securities held by the Funds as of December 31, 2014 consist of securities issued pursuant to Rule 144A under the Securities Act of 1933 and all have been deemed to be liquid.
 
c)
Foreign Securities – Foreign securities are defined as securities of issuers that are organized outside the United States. The Funds may invest in U.S. dollar-denominated debt obligations of foreign companies and foreign governments. Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government.  These risks include foreign currency fluctuations, political and economic instability and differences in financial reporting standards and less strict regulation of securities markets.  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. Occasionally, events that affect these values and exchange rates may occur after the close of the exchange on which such securities are traded.  If such events materially affect the value of a Fund’s securities, these securities may be valued at their fair value pursuant to procedures adopted by the Board of Directors.
 
d)
Income Tax Status – The Funds intend to continue to qualify as regulated investment companies as provided in subchapter M of the Internal Revenue Code and to distribute substantially all of their taxable income to their shareholders in a manner which results in no tax expense to the Funds.  Therefore, no federal income or excise tax provision is recorded.
 
 
There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014, or for any other tax years which are open for exam. As of December 31, 2014, open tax years include the tax years ended December 31, 2011 through 2014. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as interest and other expense, respectively, in the Statement of Operations. During the period, the Funds did not incur any interest or penalties.
 
e)
Allocation of Income and Expenses – Each Fund is charged for those expenses directly attributable to it.  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 or are divided equally amongst the Funds.
 
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.  The book basis character of distributions may differ from their ultimate characterization for Federal income tax purposes.
 
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)
Securities Transactions and Investment Income – Investment and shareholder transactions are recorded on the 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
 

 
Page 94

 

Notes to the Financial Statements
December 31, 2014

2.
Significant Accounting Policies (cont.)
 
 
discounts on the purchase of securities are amortized/accreted using the effective interest method.  Paydown gains and losses are netted and recorded as interest income on the Statements of Operations for financial reporting purposes.  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.
 
j)
Recent Accounting Pronouncements – In June 2014, the FASB issued ASU No. 2014-11 “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” ASU No. 2014-11 makes limited changes to the accounting for repurchase agreements, clarifies when repurchase agreements and securities lending transactions should be accounted for as secured borrowings, and requires additional disclosures regarding these types of transactions.  The effective date of this ASU is for fiscal years beginning on or after December 15, 2014, and for interim periods within those fiscal years.  Management is currently evaluating the impact these changes will have on the Funds’ financial statement disclosures.
 
3.
Capital Share Transactions
 
The following table summarizes the capital share transactions of each Fund for the past two fiscal periods:
 
Baird Ultra Short Bond Fund^
                           
                             
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    9,168,297     $ 92,148,532    
Shares sold
    101,927     $ 1,024,000  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    22,471       225,826    
  dividends
    84       844  
Shares redeemed
    (766,484 )     (7,704,577 )  
Shares redeemed
    (13,111 )     (131,500 )
Net increase
    8,424,284     $ 84,669,781    
Net increase
    88,900     $ 893,344  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
               
Beginning of year
             
End of year
    8,424,284            
End of year
    88,900          

^  Inception was the close of business on December 31, 2013.

 

 
Page 95

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird Short-Term Bond Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    138,260,639     $ 1,344,119,921    
Shares sold
    3,377,961     $ 32,842,029  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    3,483,214       33,814,184    
  dividends
    32,310       313,574  
Shares redeemed
    (73,412,100 )     (713,624,084 )  
Shares redeemed
    (2,183,840 )     (21,232,445 )
Net increase
    68,331,753     $ 664,310,021    
Net increase
    1,226,431     $ 11,923,158  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    204,832,563            
Beginning of year
    2,478,333          
End of year
    273,164,316            
End of year
    3,704,764          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    133,023,716     $ 1,293,669,284    
Shares sold
    2,851,595     $ 27,760,685  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    2,957,005       28,726,556    
  dividends
    7,956       77,195  
Shares redeemed
    (63,981,180 )     (622,888,419 )  
Shares redeemed
    (533,574 )     (5,193,589 )
Net increase
    71,999,541     $ 699,507,421    
Net increase
    2,325,977     $ 22,644,291  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    132,833,022            
Beginning of year
    152,356          
End of year
    204,832,563            
End of year
    2,478,333          
                                     
Baird Intermediate Bond Fund
                                   
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    43,826,069     $ 488,521,243    
Shares sold
    7,818,912     $ 90,485,341  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    2,502,026       27,818,191    
  dividends
    132,487       1,532,107  
Shares redeemed
    (15,357,797 )     (171,067,958 )  
Shares redeemed
    (1,628,553 )     (18,865,055 )
Net increase
    30,970,298     $ 345,271,476    
Net increase
    6,322,846     $ 73,152,393  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    101,253,258            
Beginning of year
    3,678,501          
End of year
    132,223,556            
End of year
    10,001,347          
 

 
Page 96

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird Intermediate Bond Fund (cont.)
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    37,134,677     $ 412,939,370    
Shares sold
    2,881,540     $ 33,484,462  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    1,931,633       21,480,431    
  dividends
    69,261       800,067  
Shares redeemed
    (14,537,572 )     (161,463,957 )  
Shares redeemed
    (1,548,764 )     (17,926,518 )
Net increase
    24,528,738     $ 272,955,844    
Net increase
    1,402,037     $ 16,358,011  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    76,724,520            
Beginning of year
    2,276,464          
End of year
    101,253,258            
End of year
    3,678,501          
                                     
Baird Intermediate Municipal Bond Fund
                                   
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    23,703,150     $ 278,740,222    
Shares sold
    3,749,692     $ 45,064,303  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    1,605,530       18,878,665    
  dividends
    377,495       4,535,848  
Shares redeemed
    (16,597,639 )     (194,974,883 )  
Shares redeemed
    (6,035,550 )     (72,510,076 )
Net increase
    8,711,041     $ 102,644,004    
Net decrease
    (1,908,363 )   $ (22,909,925 )
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    69,393,191            
Beginning of year
    17,430,650          
End of year
    78,104,232            
End of year
    15,522,287          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    26,493,640     $ 312,051,832    
Shares sold
    5,238,276     $ 63,128,361  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    1,665,529       19,521,896    
  dividends
    438,678       5,251,221  
Shares redeemed
    (38,953,053 )     (457,319,983 )  
Shares redeemed
    (9,327,884 )     (111,810,823 )
Net decrease
    (10,793,884 )   $ (125,746,255 )  
Net decrease
    (3,650,930 )   $ (43,431,241 )
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    80,187,075            
Beginning of year
    21,081,580          
End of year
    69,393,191            
End of year
    17,430,650          

 

 
Page 97

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird Aggregate Bond Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    193,596,308     $ 2,082,229,816    
Shares sold
    12,606,839     $ 138,890,870  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    5,162,943       55,308,532    
  dividends
    440,709       4,861,398  
Shares redeemed
    (39,723,087 )     (425,549,216 )  
Shares redeemed
    (4,594,876 )     (50,676,547 )
Net increase
    159,036,164     $ 1,711,989,132    
Net increase
    8,452,672     $ 93,075,721  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    159,952,275            
Beginning of year
    13,229,616          
End of year
    318,988,439            
End of year
    21,682,288          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    81,532,396     $ 864,177,608    
Shares sold
    13,314,778     $ 146,699,358  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    3,939,511       41,769,235    
  dividends
    291,300       3,172,439  
Shares redeemed(1)
    (62,786,649 )     (665,296,456 )  
Shares redeemed
    (4,783,014 )     (52,193,930 )
Net increase
    22,685,258     $ 240,650,387    
Net increase
    8,823,064     $ 97,677,867  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    137,267,017            
Beginning of year
    4,406,552          
End of year
    159,952,275            
End of year
    13,229,616          
 
(1)
In the fourth quarter of 2013, the Baird Aggregate Bond Fund satisfied a redemption request made by a large shareholder by distributing the Fund’s portfolio securities in kind to the redeeming shareholder.  The redemption was effected in accordance with policies and procedures approved by the Board of Directors of the Funds.

 

 
Page 98

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird Core Plus Bond Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    266,303,664     $ 2,958,518,458    
Shares sold
    119,230,689     $ 1,368,800,553  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    6,772,143       74,952,246    
  dividends
    3,115,198       35,739,828  
Shares redeemed
    (33,346,604 )     (368,208,073 )  
Shares redeemed
    (25,852,541 )     (296,094,423 )
Net increase
    239,729,203     $ 2,665,262,631    
Net increase
    96,493,346     $ 1,108,445,958  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    166,166,636            
Beginning of year
    93,561,566          
End of year
    405,895,839            
End of year
    190,054,912          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    74,068,429     $ 816,081,945    
Shares sold
    48,901,785     $ 561,114,866  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment of
                 
  reinvestment of
               
  dividends
    4,648,511       50,888,369    
  dividends
    2,710,437       30,756,030  
Shares redeemed
    (52,145,086 )     (570,782,143 )  
Shares redeemed
    (46,866,443 )     (532,393,630 )
Net increase
    26,571,854     $ 296,188,171    
Net increase
    4,745,779     $ 59,477,266  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    139,594,782            
Beginning of year
    88,815,787          
End of year
    166,166,636            
End of year
    93,561,566          

4.
INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION
 
During the year ended December 31, 2014, purchases and sales of investment securities (excluding short-term investments) were as follows:
 
   
Baird
   
Baird
   
Baird
 
   
Ultra Short
   
Short-Term
   
Intermediate
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
Purchases:
                 
U.S. Government
  $     $     $  
Other
  $ 76,530,190     $ 1,893,000,813     $ 776,412,437  
                         
Sales:
                       
U.S. Government
  $     $     $ 25,715  
Other
  $ 13,620,727     $ 1,144,323,727     $ 375,308,745  

 

 
Page 99

 

Notes to the Financial Statements
December 31, 2014

4.  Investment Transactions and Income Tax Information (cont.)
 
   
Baird
             
   
Intermediate
   
Baird
   
Baird
 
   
Municipal
   
Aggregate
   
Core Plus
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
Purchases:
                 
U.S. Government
  $     $ 20,376,483     $ 82,738,352  
Other
  $ 179,367,784     $ 2,329,070,432     $ 4,806,304,290  
                         
Sales:
                       
U.S. Government
  $     $ 10,739,389     $ 18,707,151  
Other
  $ 48,892,156     $ 739,941,677     $ 1,303,188,066  
 
At December 31, 2014, gross unrealized appreciation and depreciation of investments and distributable ordinary income and long-term capital gains for federal tax purposes were as follows:
 
   
Baird
   
Baird
   
Baird
 
   
Ultra Short
   
Short-Term
   
Intermediate
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
Cost of Investments
  $ 83,944,155     $ 2,812,824,722     $ 1,754,360,432  
Gross unrealized appreciation
  $ 52,130     $ 10,864,328     $ 27,786,867  
Gross unrealized depreciation
    (237,056 )     (15,622,785 )     (6,590,912 )
Net unrealized
                       
  appreciation (depreciation)
  $ (184,926 )   $ (4,758,457 )   $ 21,195,955  
Undistributed ordinary income
    3,769       252,709       213,371  
Undistributed long-term capital gain
          1,191,582       359,945  
Total distributable earnings
  $ 3,769     $ 1,444,291     $ 573,316  
Other accumulated losses
    (13,404 )            
Total accumulated earnings/(losses)
  $ (194,561 )   $ (3,314,166 )   $ 21,769,271  
                         
   
Baird
                 
   
Intermediate
   
Baird
   
Baird
 
   
Municipal
   
Aggregate
   
Core Plus
 
   
Bond Fund
   
Bond Fund
   
Bond Fund
 
Cost of Investments
  $ 1,074,767,553     $ 3,740,392,274     $ 6,871,638,917  
Gross unrealized appreciation
  $ 47,832,843     $ 95,431,123     $ 124,743,476  
Gross unrealized depreciation
    (2,973,479 )     (17,621,004 )     (46,755,580 )
Net unrealized appreciation
  $ 44,859,364     $ 77,810,119     $ 77,987,896  
Undistributed ordinary income
          63,990       402,605  
Undistributed tax-exempt income
    24,885              
Total distributable earnings
  $ 24,885     $ 63,990     $ 402,605  
Other accumulated losses
    (863,774 )     (9,769,975 )     (10,213,385 )
Total accumulated earnings
  $ 44,020,475     $ 68,104,134     $ 68,177,116  

 

 
Page 100

 

Notes to the Financial Statements
December 31, 2014

4.
Investment Transactions and Income Tax Information (cont.)
 
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.  The difference between book-basis and tax-basis unrealized appreciation is attributed primarily to the tax deferral of losses on wash sales.
 
Additionally, U.S. generally accepted accounting principles require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications are primarily due to differing treatments for losses deferred due to wash sales, equalization accounting for tax purposes, and non-deductible expenses. These reclassifications have no effect on net assets or net asset value per share.  For the year ended December 31, 2014, the following table shows the reclassifications made:
 
 
Undistributed Net
 
Accumulated Net
   
Paid In
 
 
Investment Income (Loss)
 
Realized Gain (Loss)
   
Capital
 
Baird Ultra Short Bond Fund
  $ 27,072       $ (27,072 )     $  
Baird Short-Term Bond Fund
    2,315,359         (2,315,359 )        
Baird Intermediate Bond Fund
    548,516         (548,516 )        
Baird Intermediate Municipal Bond Fund
                     
Baird Aggregate Bond Fund
    3,832,565         (3,832,565 )        
Baird Core Plus Bond Fund
    6,908,974         (6,908,974 )        
 
The tax components of dividends paid during the periods shown below were as follows:
 
   
Year Ended
   
Year Ended
 
   
December 31, 2014
   
December 31, 2013
 
   
Ordinary
   
Long-Term
   
Ordinary
   
Long-Term
 
   
Income
   
Capital Gains
   
Income
   
Capital Gains
 
   
Distributions
   
Distributions
   
Distributions
   
Distributions
 
Baird Ultra Short Bond Fund
  $ 271,437     $     $     $  
Baird Short-Term Bond Fund
  $ 38,351,400     $ 1,059,964     $ 29,397,102     $ 3,294,675  
Baird Intermediate Bond Fund
  $ 31,870,518     $ 2,198,332     $ 25,175,900     $ 1,249,485  
Baird Intermediate Municipal Bond Fund
  $ 199,334     $     $ 209,368     $  
Baird Aggregate Bond Fund
  $ 70,757,058     $     $ 55,824,951     $  
Baird Core Plus Bond Fund
  $ 114,565,490     $     $ 84,668,834     $ 1,900,391  
 
For the year ended December 31, 2014 and the year ended December 31, 2013, distributions of $26,748,436 and $29,127,940, respectively, from the Baird Intermediate Municipal Bond Fund were tax-exempt.
 
The Fund designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Fund related to net capital gain to zero for the tax year ended December 31, 2014. To the extent necessary to fully distribute such capital gains, the Funds also designate earnings and profits distributed to shareholders on the redemption of shares.
 
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, 2014, the Baird Funds did not defer any capital losses occurring between November 1, 2014 and December 31, 2014.
 

 
Page 101

 

Notes to the Financial Statements
December 31, 2014

4.
Investment Transactions and Income Tax Information (cont.)
 
At December 31, 2014, accumulated net realized capital loss carryovers, if any, and the year(s) in which the capital loss carryovers expire were:
 
   
Capital Loss
   
Year of
   
Carryover
 
Character
Expiration
Baird Ultra Short Bond Fund
  $ 13,404  
Short-Term
Indefinitely
Baird Intermediate Municipal Bond Fund
    365,127  
Short-Term
Indefinitely
      498,647  
Long-Term
Indefinitely
Baird Aggregate Bond Fund
    4,058,488  
Short-Term
Indefinitely
      5,711,487  
Long-Term
Indefinitely
Baird Core Plus Bond Fund
    10,213,385  
Long-Term
Indefinitely
 
5.
Investment Advisory and Other Agreements
 
The Funds have entered into an Investment Advisory Agreement with Baird for the provision of investment advisory services. Pursuant to the Investment Advisory Agreement, the Advisor is entitled to receive a fee, calculated daily and payable monthly, at the annual rate of 0.25% for the Funds 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, 2014, the Advisor waived the following amount pursuant to the fee waiver agreement between the Advisor and the Corporation on behalf of the Baird Ultra Short Bond Fund:
 
Fund
Waived Amount
 
Baird Ultra Short Bond Fund
$39,803
 
 
The Funds have entered into an Administration Agreement with Baird.  Under the Administration Agreement, the Advisor assumes and pays all expenses of the applicable Fund other than the investment advisory fees, fees under the 12b-1 plan, costs related to portfolio securities transactions and extraordinary or non-recurring expenses.  Pursuant to the Administration Agreement, the Advisor is entitled to receive a fee, calculated daily and payable monthly, at the annual rate of 0.05% for the Funds as applied to the respective Fund’s average daily net assets.
 
U.S. Bancorp Fund Services, LLC (“USBFS”) serves as transfer agent, administrator, and accounting services agent for the Funds.  U.S. Bank, N.A. (“U.S. Bank”) serves as custodian for the Funds.  Effective June 20, 2014, U.S. Bank is considered an “affiliated person” of the Funds for purposes of the 1940 Act, as a result of U.S. Bank’s fiduciary accounts for which it has investment authority and/or voting authority collectively acquiring 5% or more of the shares of the Baird Aggregate Bond Fund, a separate series of the Company.  As a result, USBFS is an affiliated person of an affiliated person (or a “second tier” affiliate) of the Funds.
 
Baird (the “Distributor”) is the distributor of the Funds pursuant to a distribution agreement.
 
6.
Securities Lending
 
Each Fund (other than the Intermediate Municipal Bond Fund) may lend up to one-third of its total assets (including such loans) to borrowers under terms of participation in a securities lending program administered by U.S. Bank, N.A., the Funds’ custodian and an affiliated person of the Funds, and an affiliate of USBFS, the Funds’ transfer agent and administrator and a second-tier affiliate of the Funds.  The  securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the market value of any loaned securities at the time of the loan, plus accrued interest.
 

 
Page 102

 

Notes to the Financial Statements
December 31, 2014

6.
Securities Lending (cont.)
 
The Funds receive compensation in the form of fees and earn interest on the cash collateral.  The amount of fees depends on a number of factors including the type of security and length of the loan.  Each Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period.  Each Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand.
 
As of December 31, 2014, the Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund had loaned securities that were collateralized by cash equivalents.  The cash collateral is invested by the custodian in accordance with approved investment guidelines.  Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending.  A Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Funds are indemnified from this risk by contract with the securities lending agent.
 
As of December 31, 2014, the market value of the securities on loan and payable on collateral due to broker were as follows:
 
 
Market Value of
 
Payable on Collateral
 
Securities on Loan
 
due to Broker
Baird Short-Term Bond Fund
  $ 144,409,191       $ 147,613,109  
Baird Intermediate Bond Fund
    188,657,283         192,781,148  
Baird Aggregate Bond Fund
    96,025,717         98,296,098  
Baird Core Plus Bond Fund
    175,957,815         180,054,574  
 
The Funds receive cash as collateral in return for securities lent as part of the securities lending program.  The collateral is invested in the Mount Vernon Securities Lending Prime Portfolio (a securities lending trust subject to Rule 2a-7 under the 1940 Act).  The schedules of investments for the Funds include the particular cash collateral holdings as of December 31, 2014.
 
The interest income earned by the Funds on investments of cash collateral received from borrowers for the securities loaned to them (“securities lending income”) is reflected in the Funds’ statements of operations.  Interest income earned on collateral investments and recognized by the Funds during the year ended December 31, 2014 for the Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Aggregate Bond Fund, and Baird Core Plus Bond Fund were $199,859, $266,526, $234,566, and $704,653, respectively.
 
7.
Line of Credit
 
The Corporation maintains an uncommitted, senior secured and unsecured line of credit (“LOC”) with U.S. Bank, N.A. (the “Bank”) to provide the Funds a temporary liquidity source to meet unanticipated redemptions.  The unsecured line of credit is available to the Funds for any period during which U.S. Bank is an affiliate of the Funds.  Under the terms of the LOC, borrowings for each Fund are limited to one-third of the total assets (including the amount borrowed) of the respective Fund, or as otherwise indicated within the Funds’ agreement with the Bank. The Bank charges interest at the Bank’s Prime Rate less 2% (weighted average rate of 1.25% for 2014).  During the year ended December 31, 2014, the Funds did not have any borrowings.
 

 

 
Page 103

 

Notes to the Financial Statements
December 31, 2014

8.
Distribution and Shareholder Service Plan
 
The Funds have adopted a distribution and shareholder service plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act.  The Plan allows the Funds to compensate the Distributor for the costs incurred in distributing the Funds’ Investor Class Shares, including amounts paid to brokers or dealers, at an annual rate of 0.25% of the average daily net assets of the Funds’ Investor Class Shares.  The Baird Ultra Short Bond, Baird Short-Term Bond, Baird Intermediate Bond, Baird Intermediate Municipal Bond, Baird Aggregate Bond and Baird Core Plus Bond Funds incurred $501, $72,753, $163,945, $520,135, $476,674 and $3,367,885, respectively, in fees pursuant to the Plan during the year ended December 31, 2014.
 
9.
Subsequent Event
 
In preparing these financial statements, the Corporation has evaluated events after December 31, 2014.  There were no subsequent events since December 31, 2014 through the date the financial statements were issued that would require adjustment to or additional disclosure in these financial
 
 
 
 
 
 
 
 

 


 
Page 104

 

Report of Independent Registered Public
Accounting Firm

Board of Directors and Shareholders
Baird Funds, Inc.
 
We have audited the accompanying statements of assets and liabilities of Baird Ultra Short Bond Fund, Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund (six of the nine funds constituting Baird Funds, Inc.) (collectively the “Funds”), including the summary schedules of investments, as of December 31, 2014, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for the Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund, and the related statement of operations, statement of changes in net assets, and the financial highlights for the year ended December 31, 2014, for the Baird Ultra Short Bond Fund. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
We conducted our audits 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the aforementioned Funds of Baird Funds, Inc. as of December 31, 2014, and the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.
 
Chicago, Illinois
February 26, 2015

 
Page 105

 

Directors & Officers
As of December 31, 2014

Independent Directors
 
G. Frederick Kasten, Jr.
 
Independent Director and Chairman
Term of Office:  Indefinite
Length of Time Served:  Since September 2000
Age:  75
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Chairman, the Advisor (January 2000-December 2005); Chairman and CEO, the Advisor (January 1998-January 2000); President, Chairman and CEO, the Advisor (June 1983-January 1998); President, the Advisor (January 1979-January 1983)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  None

John W. Feldt
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since September 2000
Age:  72
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Senior Vice President-Finance, University of Wisconsin Foundation (1985-2006); Vice President-Finance, University of Wisconsin Foundation (1980-1985); Associate Director, University of Wisconsin Foundation (1967-1980)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Thompson Plumb Funds, Inc., a mutual fund complex (3 portfolios)

Frederick P. Stratton, Jr.
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since May 2004
Age:  75
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Chairman Emeritus, Briggs & Stratton Corporation, a manufacturing company, since 2003; Chairman of the Board, Briggs & Stratton Corporation (2001-2002); Chairman and CEO, Briggs & Stratton Corporation (1986-2001)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Weyco Group, Inc., a men’s footwear distributor

Marlyn J. Spear, CFA
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since January 2008
Age:  61
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Chief Investment Officer, Building Trades United Pension Trust Fund, since July 1989; Investment Officer, Northwestern Mutual Financial Network (1988-1989); Assistant Vice-President, Firstar Trust Company (1978-1987); Financial Analyst, Harco Holdings, Inc. (1976-1978)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Management Trustee of AFL-CIO Housing Investment Trust, a mutual fund complex (1 portfolio)
 

 

 
Page 106

 

Directors & Officers
As of December 31, 2014

Interested Directors and Officers
 
Cory L. Nettles*
 
Interested Director
Term of Office:  Indefinite
Length of Time Served:  Since January 2008
Age:  44
 
c/o Generation Growth Capital, Inc.
411 East Wisconsin Avenue, Suite 1710
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, Generation Growth Capital, Inc., a private equity fund, since March 2007; Of Counsel, Quarles & Brady LLP, a law firm, since January 2005; Secretary, Wisconsin Department of Commerce (January 2003-January 2005)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Weyco Group, Inc., a men’s footwear distributor;
Director of Associated Banc-Corp

Mary Ellen Stanek
 
President
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since September 2000
Age: 58
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, the Advisor, and Chief Investment Officer, Baird Advisors, a department of the Advisor, since March 2000; Director, Baird Kailash Group, LLC since December 2013

Charles B. Groeschell
 
Vice President
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since January 2010
Age: 61
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, the Advisor, and Senior Portfolio Manager, Baird Advisors, a department of the Advisor, since February 2000

Angela Palmer
 
Chief Compliance Officer
Term of Office:  Re-elected by Board annually
Length of Time Served: Since March 2014
Age:  43
 
777 East Wisconsin Ave
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Chief Compliance Officer, the Advisor, since March 2014; Director, the Advisor, since July 2014; Senior Vice President, the Advisor (March 2014-June 2014); Chief Compliance Officer, RIAs US, BMO Financial Group (January 2013-March 2014); Chief Compliance Officer, Institutional RIAs, BMO Financial Group (March 2012-January 2013); Vice President, BMO Harris Bank, N.A. (July 2011-March 2014); Chief Compliance Officer, Taplin, Canida & Habacht, LLC (December 2008-March 2014); Chief Compliance Officer and Vice President, M&I Investment Management Corp. (June 2006-May 2012); Assistant Secretary, M&I Investment Management Corp. (April 2010-May 2012); Vice President, Marshall & Ilsley Trust Company N.A. (June 2006-August 2012).

Dominick P. Zarcone
 
Treasurer
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since March 2011
Age: 56
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Chief Financial Officer, the Advisor, since March 2011; Chief Financial Officer, Baird Financial Group, since October 2012; Chief Operating Officer-Investment Banking, the Advisor (June 2004-March 2011); Managing Director, the Advisor since February 1995
 

 
Page 107

 

Directors & Officers
As of December 31, 2014

Interested Directors and Officers
 
Charles M. Weber
 
Secretary
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since September 2005
Age: 51
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Senior Associate General Counsel, the Advisor, since January 2013; Managing Director, the Advisor since January 2009; Chief Compliance Officer and Secretary, Baird Kailash Group, LLC since July 2013; Associate General Counsel, the Advisor (July 2005-December 2012)

Peter J. Hammond
 
Vice President
Term of Office: Re-elected by Board annually
Length of Time Served: Since August 2012
Age: 51
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:
Senior Vice President, the Advisor, since March 2012; Vice President, Baird Kailash Group, LLC since July 2013; Executive VP and Chief Administrative Officer, UMB Fund Services (September 1996 to March 2012)

Dustin J. Hutter
 
Assistant Treasurer
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since February 2011
Age: 38
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Director of Reporting and Analysis, Capital Markets Finance since February 2013; Senior Vice President, the Advisor, since January 2011; Treasurer, Baird Kailash Group, LLC since July 2013; First Vice President, the Advisor (January 2008-December 2010); Vice President, the Advisor (January 2006-December 2007); Assistant Controller, the Advisor (January 2006-January 2013)

Andrew D. Ketter
 
Assistant Secretary
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since February 2011
Age: 40
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Associate General Counsel, the Advisor, since September 2010; Director, the Advisor, since July 2014; Senior Vice President, the Advisor (January 2014-June 2014); First Vice President, the Advisor (September 2010 to December 2013); Associate, Quarles & Brady LLP, a law firm (September 2002-August 2010)

Edgar L. Sturkey
 
AML Compliance Officer
Term of Office:  Re-elected by Board annually
Length of Time Served: Since March 2014
Age: 30
 
777 East Wisconsin Ave
Milwaukee, WI 53202
 
Principal Occupation(s) During Past 5 Years:  Senior Compliance Officer and Vice President, the Advisor, since January 2015; Compliance Officer and Vice President, the Advisor (January 2013-December 2014); Compliance Officer and Assistant Vice President, the Advisor (January 2011-December 2012); Compliance Analyst, the Advisor (November 2009-December 2010).


*
Mr. Nettles is considered an “interested person” of the Corporation (as defined in the 1940 Act) because of his association with the law firm, Quarles & Brady LLP, which provides legal services to the Advisor.  The legal services that Quarles & Brady LLP has provided to the Advisor include litigation, real estate, trademark and miscellaneous securities related matters that did not relate to the Corporation or the Funds.  The Advisor has invested in and may in the future invest in private equity funds managed by Generation Growth Capital, Inc., a company of which Mr. Nettles is affiliated, through its division, Baird Capital.

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, or at www.bairdfunds.com.

 
Page 108

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Bond Funds
 
The Board of Directors (the “Board”) of Baird Funds, Inc. (the “Corporation”), including the directors who are not “interested persons” of the Corporation within the meaning of the Investment Company Act of 1940 (the “Independent Directors”), met on August 13 and August 21, 2014 to consider the annual renewal of the investment advisory agreement between Robert W. Baird & Co. Incorporated (“Baird” or the “Advisor”) and the Corporation on behalf of the Baird Intermediate Bond, Aggregate Bond, Intermediate Municipal Bond, Core Plus Bond and Short-Term Bond Funds (collectively, the “Funds”).  The Board, including the Independent Directors, approved the investment advisory agreement through a process that concluded at the August 21, 2014 meeting.  In connection with its consideration of the investment advisory agreement, the Board reviewed and discussed various information that had been provided prior to the meeting, including the investment advisory agreement, a memorandum provided by legal counsel summarizing the guidelines relevant to the Board’s consideration of the renewal of the investment advisory agreement, a memorandum and other information provided in response to requests from the Board, from the Advisor (including the Advisor’s Form ADV brochure, annual report and financial statements), a profitability analysis, comparative information about the Funds’ performance for periods ended June 30, 2014, management fees and expense ratios, and other pertinent information.  The Board also considered relevant case law.
 
The Independent Directors met separately in executive session with the Funds’ legal counsel to consider the investment advisory agreement.  The Board discussed the Advisor’s 15(c) response at the August 13, 2014 special meeting and discussed various questions and information with the President of the Funds at the August 13, 2014 meeting and during executive session earlier in the meeting.  The Board also took into account information reviewed periodically throughout the year that was relevant to its consideration of the investment advisory agreement, including performance, management fee and other expense information and discussions with the Funds’ portfolio managers.  Based on its evaluation of this information, the Board, including a majority of the Independent Directors, approved the continuation of the investment advisory agreement for an additional one-year period.
 
In considering the investment advisory agreement and reaching its conclusions, the Board reviewed and analyzed various factors that it determined were relevant, including the factors below.  In deciding to approve the investment advisory agreement for each Fund, the Board did not identify any single factor as determinative but considered all factors together.
 
Nature, Extent and Quality of Services Provided to the Funds
The Board analyzed the nature, extent and quality of the services provided by the Advisor to the Funds.  The Board reviewed and considered the Advisor’s significant role in establishing the Funds and the construction of their investment objectives, principal strategies, investment limitations and fee structures.  The Board noted the Advisor’s overall reputation and positive name recognition, the depth of the Advisor’s personnel, resources and commitment to the Funds, and the experience, credentials and continuity of the portfolio management teams employed to manage the Funds’ investments.  The Board further noted that the Funds provide an opportunity for smaller institutional and retail accounts to receive the same professional advice from the Advisor that it offers to its larger institutional clients.  However, the Board noted that the provision of investment advisory services to the Funds requires more effort than it does for separately managed accounts due to daily sales and redemption activity and additional regulatory and compliance requirements.
 
The Board considered the Advisor’s disciplined investment decision-making process used for the Funds.  The Board also considered other services that the Advisor provides the Funds in its capacity as their investment advisor, such as making some of its key personnel available to serve as officers of the Funds, selecting broker-dealers for execution of portfolio transactions, ensuring adherence to the Funds’ investment policies and restrictions, compliance, risk management services, valuation, providing support services to the Board and the committees of the Board and overseeing the Funds’ other service providers.  In addition, the Board considered
 

 
Page 109

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Bond Funds (cont.)
 
that the Advisor provides administrative services to each of the Funds at an annual rate of 0.05% of each Fund’s average daily net assets, and is responsible for paying each Fund’s custody, transfer agency, accounting, printing, auditing, legal and director fees and other ordinary expenses (except for advisory and 12b-1 fees and certain other costs), which has the effect of capping the Funds’ expense ratios at 0.55% and 0.30% for Investor and Institutional Class Shares, respectively.  The Board further noted that the Advisor, in its capacity as a registered broker-dealer, also serves as distributor and principal underwriter of shares of the Funds and spends time and effort marketing the Funds.  The Board also considered the strength of the Advisor’s compliance department, including the Funds’ chief compliance officer, and the fact that the Advisor has not experienced any significant legal, compliance or regulatory difficulties since the Funds were launched.  The Board reviewed a summary of the Advisor’s risk management tools and process.  The Board concluded that the nature, extent and quality of the services provided by the Advisor to the Funds were appropriate and that each Fund was likely to continue to benefit from services provided under the investment advisory agreement.
 
Investment Performance of the Advisor and the Funds
In considering the investment performance of each of the Funds, the Board reviewed information as of June 30, 2014 regarding the Fund’s performance in comparison to its benchmark index and its peer groups as determined by Lipper.  The Board concluded that the Funds had performed extremely well over most time periods and had achieved consistent performance results.  While the Intermediate Municipal Bond Fund has trailed its benchmark index and Lipper peer group average over recent periods, the Board noted that the Fund’s high quality bias and emphasis on intermediate maturity holdings have detracted from relative returns and referred to the Advisor’s commentary in this regard.  The Board noted that the Intermediate Bond Fund had exceeded the Lipper peer group average for the 10-year and since-inception periods but trailed the average for the one-year and five-year periods, and that the Fund’s performance exceeded its benchmark index for all respective time periods.  The Board took into consideration that the Fund falls into the broadly defined intermediate bond fund category along with core and core plus strategies with longer duration, and longer duration funds tend to outperform in falling interest rate environments.  The Board also noted that each of the other Funds (both Institutional and Investor Class shares) had outperformed its respective Lipper peer group average over most time periods.
 
The Board also considered the Advisor’s quarterly portfolio commentaries and reviews explaining the Funds’ performance, the Advisor’s consistent and disciplined investment decision process and the investment strategies it employs for the Funds.  After considering all of the information, the Board concluded that, although past performance is not a guarantee of future results, each Fund and its shareholders were likely to benefit from the continued management by the Advisor.
 
Costs of Services Provided and Profits Realized by the Advisor
The Board examined the fee and expense information for each of the Funds, including a comparison of such information to other similarly situated mutual funds as determined by Morningstar.  The Board noted that each Fund’s advisory fee and total expense ratio (for both its Investor Class and Institutional Class Shares) were significantly lower than the average and median advisory fees and expense ratios for all mutual funds in its Morningstar category.
 
The Board also reviewed and considered investment management fees charged by the Advisor to other investment advisory clients and found that the fee paid by the Funds (0.25%) was less than the fee that the Advisor charges on the first $25 million (0.30%) of a separately managed account and the same as the fee that the Advisor charges on the next $25 million.  The Board noted the extent of the significant additional services provided to the Funds that the Advisor did not provide in the other advisory relationships.  Those services included certain administrative services, oversight of the Funds’ other service providers, director support, risk management, regulatory compliance and various other services.  The Board was informed of the subadvisory
 

 
Page 110

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Bond Funds (cont.)
 
fees paid to the Advisor under two subadvisory arrangements with unaffiliated mutual funds.  The Board noted that the subadvisory services were limited to asset management and that the Advisor provided numerous other services under the advisory agreement with the Funds.
 
The Board considered the fees realized, and the costs incurred, by the Advisor in providing investment management services to the Funds and a profitability analysis with respect to each Fund.  The Board noted the unique expense structure of the Funds whereby the Institutional Class shareholders were charged only a management fee and an administration fee, Investor Class shareholders incurred the same expenses as the Institutional Class shareholders plus a 0.25% 12b-1 fee, and the Advisor assumes almost all of the other expenses on behalf of each Fund.  The Board noted that for the past fiscal year, the Advisor had incurred more in expenses under the Administration Agreement than it received in administrative fees.
 
The Board concluded that the profits realized by the Advisor from its relationship with the Funds were appropriate.  The Board noted that the Advisor’s profitability information does not reflect certain internal resources provided by the Advisor to the Funds, such as legal and compliance support.  The Board reviewed and considered the general financial condition of the Advisor and determined it to be sound.  The Board also discussed a report regarding payments to financial intermediaries, noting that all fees other than the Rule 12b-1 fee payable by the Investor Class shares of the Funds were paid by the Advisor and any payments by the Advisor for distribution were made from the Advisor’s profits.  In light of all of the information that it received and considered, the Board concluded that the management fee and total expense ratio of each Fund were reasonable.
 
Economies of Scale and Fee Levels Reflecting Those Economies
The Board reviewed the extent to which economies of scale may be realized as the Funds increase in size, noting that the Funds have experienced strong growth in assets over recent years.  The Board noted that the Funds’ advisory fee structure does not contain any breakpoint reductions as the Funds grow in size.  However, the Board recognized that the Advisor bears almost all of the Funds’ expenses other than management, 12b-1 and administration fees. The Board also recognized that the advisory fee rates paid by the Funds were designed to be lower than the fees otherwise charged by the Advisor to its separately managed account clients and to be comparable to the second or third breakpoint advisory fee levels paid by other comparable mutual funds.  The Board also considered the Advisor’s commitment to continue to evaluate advisory fee breakpoints in the future.  The directors concluded that the current fee structure of each Fund was reasonable.
 
Benefits Derived from the Relationship with the Funds
The Board considered other benefits to the Advisor from serving as advisor to the Funds (in addition to the advisory fee).  The Board considered the administration fees received by the Advisor under the Administration Agreement, noting that historically the Advisor has paid more in Fund expenses under the agreement than it has received in administration fees.  The Board noted that the Advisor does not have any soft dollar arrangements in connection with its management of the Funds.  The Board also noted that the Advisor’s financial advisors receive 12b-1 payments under the selling agreement with the Distributor.  The Board noted that the Advisor’s asset management business may experience indirect benefits from the Advisor’s association with the Funds.  The Board concluded that the other benefits realized by the Advisor from its relationship with the Funds were appropriate.
 
Based on its evaluation of the above factors, as well as other factors relevant to their consideration of the investment advisory agreement, the directors, including all of the Independent Directors, concluded that the continuation of the investment advisory agreement was in the best interest of each Fund and its shareholders.
 


 
Page 111

 

Additional Information

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 www.bairdfunds.com; and by accessing the SEC’s website at www.sec.gov.
 
Each Fund’s proxy voting record for the most recent 12-month period ended June 30, if applicable, is available without charge, upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds’ website at www.bairdfunds.com; and by accessing the SEC’s website at www.sec.gov.  The Funds generally do not vote proxies because the securities held in their portfolios, consisting of bonds and other fixed-income securities, are not entitled to vote.
 
 
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’s website at 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 1-800-732-0330.  The Funds’ Forms N-Q may also be obtained by calling toll-free 1-866-44BAIRD.
 
 
Tax Information
 
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(c) for the Baird Short-Term Bond Fund and Baird Intermediate Bond Fund were 1.13% and 0.38%, respectively.
 



 
Page 112

 

Baird Funds, Inc. Privacy Policy

Protecting the privacy of Fund shareholders is important to us.  The following is a description of the practices and policies through which Baird Funds, Inc. protects the privacy and security of your non-public personal information.
 
What Information We Collect
 
We collect and maintain information about you so that we can open and maintain your account in the Funds and provide various services to you.  We may collect and maintain the following personal information about you:
 
 
Information we receive from you or your financial advisor on account applications or other forms, correspondence, or conversations, such as your name, address, e-mail address, phone number, social security number, assets, income and date of birth; and
 
 
Information about your transactions with us, our affiliates, or others, such as your account number and balance, positions, activity, history, cost basis information, and other financial information.
 
What Information We Disclose
 
We do not sell any non-public personal information about our current or former shareholders to third parties.  We do not disclose any non-public personal information about our current or former shareholders to anyone, except as permitted or required by law.  We are permitted by law to share any of the information we collect, as described above, with our affiliates.  In addition, we may share such information with nonaffiliated third parties to the extent necessary to effect, process, administer or enforce a transaction that the shareholder requests or authorizes, in connection with maintaining or servicing the shareholder’s account, as requested by regulatory authorities or as otherwise permitted or required by law.  For example, we are permitted by law to disclose all of the information we collect, as described above, to our transfer agent to process your transactions.  We may also provide your name and address to third party service providers who send account statements and other Fund-related material to you.
 
How We Protect Your Information
 
We restrict access to your non-public personal information to those persons who require such information to provide products or services to you.  We maintain physical, electronic, and procedural safeguards that comply with federal standards to protect the confidentiality, integrity and security of your non-public personal information.
 
We will continue to adhere to the privacy policies and practices in this notice even after your account is closed or becomes inactive.
 
In the event that you hold shares of the Fund(s) through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with nonaffiliated third parties.­
 



 
Page A-1

 











Baird Funds, Inc.
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
1-866-44BAIRD




Board of Directors
G. Frederick Kasten, Jr. (Chairman)
John W. Feldt
Cory L. Nettles
Marlyn J. Spear
Frederick P. Stratton, Jr.

Investment Advisor and Distributor
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI 53202

Administrator and Transfer Agent
U.S. Bancorp Fund Services, LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, WI 53202

Custodian
U.S. Bank, N.A.
1555 N. RiverCenter Drive, Suite 302
Milwaukee, WI 53212

Legal Counsel
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202

Independent Registered Public
Accounting Firm
Grant Thornton LLP
175 West Jackson Boulevard, 20th Floor
Chicago, IL 60604



 
 

 







Annual Report –
Baird Funds
December 31, 2014


 

 
Baird LargeCap Fund
Baird MidCap Fund
Baird SmallCap Value Fund





 
 

 

 
 
 
 

 
Go Green.
Go Paperless.
 
Sign up to receive your Baird Funds’ prospectuses and reports online.
 

 
 

 

 
 
Table of Contents

Letter to Shareholders
1
2014 Economic and Stock Market Commentary
2
Baird LargeCap Fund
4
Baird MidCap Fund
19
Baird SmallCap Value Fund
29
Additional Information on Fund Expenses
38
Statements of Assets and Liabilities
40
Statements of Operations
41
Statements of Changes in Net Assets
42
Financial Highlights
45
Notes to the Financial Statements
51
Report of Independent Registered Public Accounting Firm
61
Directors and Officers
62
Disclosure Regarding the Board of Directors’ Approval
  of the Investment Advisory Agreement for Baird Equity Funds
65
Additional Information
68
Privacy Notice
A-1

 
This report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus.
 
Cautionary Note on Analyses, Opinions and Outlooks:  In this report we offer analyses and opinions on the performance of individual securities, companies, industries, sectors, markets, interest rates and governmental policies, including predictions, forecasts and outlooks regarding possible future events.  These can generally be identified as such because the context of the statements may include such words as “believe,” “should,” “will,” “expects,” “anticipates,” “hopes” and words of similar effect.  These statements reflect the portfolio managers’ good faith beliefs and judgments and involve risks and uncertainties, including the risk that the portfolio managers’ analyses, opinions and outlooks are or will prove to be inaccurate.  It is inherently difficult to correctly assess and explain the performance of particular securities, sectors, markets, interest rate movements, governmental actions or general economic trends and conditions, and many unforeseen factors contribute to the performance of Baird Funds.  Investors are, therefore, cautioned not to place undue reliance on subjective judgments contained in this report.
 



 
 

 





 
Baird Funds
1-866-442-2473
www.bairdfunds.com
 
 

 
February 26, 2015
 
Dear Shareholder,
 
The Baird Funds has a passion for delivering competitive, risk-adjusted returns and outstanding service. That deeply held commitment led to another year of strong asset growth during 2014 for our fixed income and equity funds. Consistency, continuity and collaboration are hallmarks of our approach to meeting your investing and servicing needs. Our senior portfolio management teams have worked through many market cycles and have developed disciplined, risk-controlled approaches of adding value over benchmark returns through proven, bottom-up strategies focused on identifying, researching and investing in quality investments that exhibit strong fundamentals and offer attractive relative value.
 
We understand that it is this consistency of approach and unwavering focus on risk control that our shareholders depend on to help them achieve their investment objectives through market cycles. Our commitment to these long-term principles combined with strong alignment with the interests of investors helped drive assets under management in the Baird Funds to $17 billion at year end.
 
Our success rests on the trust you have placed in us to be effective stewards of your assets and we want to thank you for your continued investment in the Baird Funds.
 
On the following pages, we review the equity market in 2014 and the performance and composition of each of the Baird Equity Funds.
 
We are privileged to provide you with equity investment management services and appreciate the confidence and trust you have placed in our experienced investment team.
 
Sincerely,
 


Mary Ellen Stanek, CFA
President
Baird Funds
 



 
Page 1

 

2014 Economic and Stock Market Commentary
 

U.S. equity markets adjusted to the diverging growth path of global economies, with further strengthening on the domestic front contrasting the heightened concerns about activity in Europe and China. The broad-based S&P 500 Index rose 13.7% for the year, while Dow Jones Industrial Average advanced 10.0%.  Market returns were influenced by size as larger companies tended to fare better.  For the year, the Russell 1000® Growth Index advanced 13.0%, the Russell Midcap Growth® Index increased 11.9%, and the Russell 2000® Value Index increased 4.2%.
 
Sector performance within the broad S&P 500 index reflected an interesting mix, with typically more-defensive sectors such as healthcare, utilities, and staples, combining with technology and financials, to outperform the index.  On the weaker side of the ledger were the energy, materials, consumer discretionary and industrial sectors.
 
As in most years, equity returns were not steady on a quarter-to-quarter basis.  Market returns early in the year were muted as harsh winter weather throughout much of the country tempered domestic economic data.  As the year progressed, improving domestic growth contrasted an uptick in geopolitical tensions, particularly in the Middle East and between Russia and Ukraine, along with weaker economic data globally.  Notably, the global inflation picture remained benign as a sharp drop in commodity prices, led by oil, helped pull interest rates lower.  A rather abrupt market pullback in October quickly reversed itself on the back of solid domestic economic data as well as anticipated benefits from declining energy costs.  The favorable market push into year-end resulted in solid fourth quarter returns and moved the S&P 500 Index into positive double-digit territory for the fifth time out of the past six years.
 
Economic Outlook
The U.S. stock market, having delivered a string of positive returns, will continue to be influenced by the pace of domestic growth, which we believe to be improving.  Economic data released during the final quarter of 2014 reflected solid economic activity in the U.S. – employment, inflation, and confidence measures to name a few, indicate good momentum as we turn the calendar.  The consumer appears to be particularly well positioned given these factors, plus improving personal balance sheets and substantially lower fuel prices. We expect economic momentum to result in continued growth in profits, a key driver of stock prices.  Offsetting that backdrop, however, is that multiples paid for earnings could be challenged by the prospects of rising short-term interest rates.  The Federal Reserve has indicated a desire to raise short-term rates, possibly as early as the June meeting.  History shows that stocks can rise alongside interest rates, but investors should expect volatility as we get closer to the eventual announcement.  We are also mindful of the sharp decline in oil prices.  Historically, the dislocation of an important asset price can lead to episodes of financial or political strain.
 
The growth (or lack thereof) in international economies will also remain a concern in 2015.  Europe has delivered anemic growth for years, and the European Central Bank has taken a page out of the Fed’s playbook and commenced with a Quantitative Easing program.  That program follows the very aggressive easing moves in Japan, which to date have shown modest success in reinvigorating growth.  Additionally, China recently relaxed lending requirements in a hope to stimulate activity.  The key is whether the strength in our economy helps pull the rest of the world along, or will the rest of the world drag U.S. growth down.  As of today, we think the former is the correct answer, but the latter cannot be dismissed.
 
In closing, we are optimistic that the U.S. economy continues to grow at modest, but sustainable rates, a positive backdrop for stocks.  Foreign central bank moves may help lift international markets, but the effectiveness of those actions to spur sustainable economic growth is uncertain.  We will keep a close eye on changes both here and abroad and are prepared to make necessary adjustments.  Thank you for your support of Baird Investment Management and Baird Kailash Group.
 
The S&P 500 Index is an unmanaged, market capitalization weighted index of 500 common stocks widely regarded to be representative of the U.S. market in general. Returns include reinvestment of dividends.
 

 
Page 2

 

2014 Economic and Stock Market Commentary
 

The Dow Jones Industrial Average is a price weighted average of 30 high quality stocks selected for total market value and broad public ownership. A price weighted benchmark results in the stocks with the highest prices contributing the most to the performance of the benchmark. The returns of this index do not include the reinvestment of dividend income.
 
The Russell 1000® Growth Index measures the performance  of the large-cap  growth  segment  of the  U.S. equity universe. It includes those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values. This index does not reflect any deduction for fees, expenses or taxes.
 
The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. This index does not reflect any deduction for fees, expenses or taxes.
 
The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe and includes Russell 2000® Index companies with lower price-to-book ratios and lower forecasted growth values. This index does not reflect any deduction for fees, expenses or taxes.
 
A direct investment in an index is not possible.
 
 
 
 
 

 


 
Page 3

 
 
Baird LargeCap Fund
December 31, 2014

Portfolio Managers’ Commentary
 
Rising over 13% in 2014, the S&P 500 built on the powerful 32% return from 2013.  On a sector level Utilities, Health Care and IT all returned over 20% for the year while Materials, Telecoms and Energy stocks lagged with returns ranging from 10% to -8%.  The market climbed as investor confidence rose, index products took in record amounts of assets and investor exposure to equities reached levels approximating those seen in 1999 and 2007.  We are somewhat concerned about rising investor enthusiasm for equities this late in a bull market.  This anxiety is exacerbated by a number of long-run valuation models that indicate equities may be expensive.  With that said, we recognize that market timing is futile and that relative to many alternatives, equities may have significant long-term appeal.
 
We would encourage investors to read a recent cover article in The Economist that attempted to answer “Who buys negative-yield bonds?”  Observing that “…government bonds…in as many as ten countries are selling at negative yields” the author went on to note that one “…would have to be quite depressed to conclude that no asset on the planet would make any money at all over the next decade.”1  We could not agree more and believe that a disciplined approach that seeks to source returns from both value and growth among large global franchises with strong balance sheets and durable economic moats helmed by capable managers represents one of the best risk-adjusted methods to compound wealth over long horizons.
 
While the Baird LargeCap Fund (Institutional Class) outperformed the S&P by 1.40% in 2014, we believe 2014 sends a powerful message about the benefits of using a balanced approach towards large-cap stock selection.
 
Investment Process
We believe there are meaningful advantages to both growth and value investing.  While we understand the near religious affiliations some managers and investors have for one or the other, few would argue with the assertion that the performance pendulum can swing back and forth.  There are times when value bests growth and others when growth outperforms value.
 
The field of behavioral finance does not shine a flattering light on fund managers’ or investors’ ability to astutely time their entry and exit points from various strategies.  Human beings have shown a tendency to switch from disciplines right when they are bottoming and enter strategies when they should probably be departing.  Taking a balanced approach that seeks to identify both the best value and growth opportunities may afford us a significant competitive advantage over indexing while reducing the odds we experience the large relative drawdowns that can afflict these strategies when run in isolation.  Because we are convinced that trying to time growth vs. value is futile, managing money in a way that improves our ability (and hopefully yours!) to stick with our discipline is at the heart of what we believe will give us a significant competitive advantage over a full-market cycle.
 
Some Simple Evidence:
We ran a test to see if even the most naïve approach to balanced investing would have historically offered a meaningful advantage over just buying the index.  For this purpose only, we simply built a hypothetical hybrid portfolio that contained both the 20% highest growth and the 20% deepest value names in the S&P 500 and compared the results to the broader index.2  The results were striking.  In our hypothetical example, Fig. 1 below shows that even a simple combination of value and growth stocks would have doubled the value of the hypothetical investment compared to the index since 1990.  Equally interesting, as shown in Fig. 2, the volatility of the monthly relative returns of this hypothetical hybrid strategy are significantly below those found in either the growth or value return streams.
 

1
The Economist, January 24th-30th 2015, “Buttonwood: Accentuate the Negative, Why investors would opt to lose money”, p 62.
2
The hypothetical hybrid portfolio is used for illustrative purposes only and does not represent any accounts managed by Baird Kailash Group.

 
Page 4

 

Baird LargeCap Fund
December 31, 2014

Fig. 1: A hypothetical combination of Growth +
Fig. 2:  …While significantly reducing the
Value has outperformed the broader S&P 500
volatility of relative returns compared to Growth
index since 1990…
or Value alone
   
   

Sources: Kailash Capital LLC, Compustat
See note 2 above
 
Figure 3 below compares the performance of the S&P 500 index to the performance of a hypothetical portfolio consisting of 20% of the index’s deepest value and highest growth names in 2014.3  You can see that growth (blue line) outperformed the core index (dashed black line) while the value names (solid red line) ended the year just shy of the broader benchmark.  Figure 4 shows us historically how often growth outperforms value depending on the market’s monthly return.  The left-most bar shows that since 1990, when the market experiences its strongest upside, growth outperforms value nearly 70% of the time.4  The right-most bar shows that when the market suffers sharp reversals, growth only beats value 30% of the time.  With the market up north of 13% last year we find nothing surprising about growth’s dominance in 2014.
 
Fig. 3: In 2014, growth outperformed value
Fig. 4:  History tells us growth tends to do better
 
in up markets
   
   

Sources: Kailash Capital LLC, Compustat
See note 2 above
 

3
We define “growth” as the 20% of firms in the S&P 500 with the highest price to earnings ratios and “value” as the 20% of firms in the S&P 500 with the lowest price to earnings ratios.
4
Hypothetical data since 1990.

 
Page 5

 

Baird LargeCap Fund
December 31, 2014

No Fans of Forecasting:
The data above indicates that historically when the market is going to rise a lot, you are better off in growth strategies and when it falls sharply, value has historically been the better place to be.  Unfortunately, like Warren Buffet who in 1961 told his investors “I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don’t have the faintest idea,” we don’t believe anyone can predict short-term market direction.5  Instead we use a balanced approach to large cap investing to avoid the pain that can emerge from dedicated growth or value strategies and the associated timing errors that even short term missteps can encourage.
 
Similarly, since we believe that history rhymes, we like to use large amounts of fundamental data to try and exploit the behavioral errors of other investors caught up in what we view as futile attempts to predict the future.  We are in the “Moneyball” business, not the “crystal-ball” business.  We would rather stick to our process of trying to find self-funded firms whose growth may be underestimated by other investors or find inexpensive firms with asymmetrically positive payoff structures.
 
Examples from 2014:
The following examples are not stock recommendations.  One investment represents one of our largest contributors to the Fund’s performance and the other was one of our largest detractors to performance.  These examples are merely intended to better explain our investment approach that seeks to identify companies that we believe are mispriced.
 
Capitalizing on a Favorable Environment for Growth: Health Care
In 2013 Edwards Lifesciences fell 27% while the S&P 500 rose over 32%.  This apparently left its mark on investors who, by the start of 2014, saw the company’s relentlessly rising R&D spend, the movement of its U.S. end-market from a monopoly to a duopoly and emerging competitors in other geographies as credible reasons to avoid the stock.  We cannot help but wonder if much of the antipathy towards Edwards at the start of 2014 stemmed from the less than spectacular price movement in the prior year rather than dispassionate analysis.
 
Devoid of emotions or biases, our models simply saw a firm that by year end 2013 had managed to grow revenues by 22% and profits by 65% over the prior three years trading at a mid-teens price to earnings ratio with a healthy return on equity and a management repurchasing shares after a bout of severe underperformance.  Our fundamental review of the company found a firm whose products sought to mitigate the number-one cause of death in the world: cardiovascular disease.  As the global leader in heart valve therapy, a world leader in hemodynamic monitoring systems (used to monitor a patient’s heart function in surgery and ICU settings) and with a rapidly growing franchise in transcatheter heart valves which allow the non-surgical replacement of heart valves, we believed the core products were unlikely to go away anytime soon.  While other investors were frustrated as the company grew R&D spending from 14.7% of sales in 2011 to nearly 16% by 2013, we believed the money was being put to good use as evidenced by the firm’s 2,500 patents.  At the start of 2014 we felt the negative view on the company was priced in, the firm’s economic moat defensible, the balance sheet robust, the management credible and that the firm’s prospects and growth were significantly mispriced.  Without forecasting anything we were pleased to see this growth firm rise over 93% and become the largest contributor to the Fund’s 2014 returns.
 
Suffering at the Hands of an Inhospitable Value Environment: Industrials
Investor views about China are about as diverse and widely distributed as anything we can remember.  There are China acolytes who believe the country’s economic ascent to displace America as the global hegemon is all but certain and others who believe the country is a Potemkin village built on a debt bubble.  In late 2013, a prominent short-seller who believes in the bearish view targeted Caterpillar (CAT) as a likely casualty of what he felt were the inevitable problems facing China.
 

5
We define “short-term” as any period less than three years.

 
Page 6

 

Baird LargeCap Fund
December 31, 2014

Although we also worry a great deal about the “big picture,” investor anxiety is often the source of great opportunities.  In early 2014, our models looked at CAT and found an inexpensive firm with robust cash flows and shareholder friendly management and indicated the timing was ripe to invest.  Reviewing the fundamentals of the firm we noted that Caterpillar was the world’s leading manufacturer of heavy equipment, diesel and gas engines and provided a wide array of products used for residential and commercial construction, mining, paving, forestry, tunneling, power generation, rail and marine applications.  To us it seemed that investors’ worries about China had already transpired as the company’s Resource division had seen revenues collapse from over $21 billion in 2012 to just over $10 billion by FYE 2013.  In contrast, the firm’s Power and Construction divisions had remained essentially flat at around $20 billion each by the end of 2013.  Despite being cast as a macro-dependent cyclical, it is worth mentioning that in the depths of the 2009 crash, CAT lost only a nominal amount of money in one quarter that year.
 
Caterpillar’s management was aggressive as they embraced cost reductions across the complex taking charges to set the firm up for robust profits despite the painful decrease in revenues.  Looking at the situation, we felt this was an outstanding opportunity to buy a world-class global franchise at a very reasonable price.  For much of 2014 this decision seemed to be the right one as the stock outperformed both the broad S&P 500 and the S&P 500 industrials index.  Unfortunately for us however, as oil’s descent accelerated in the back-half of the year, it eventually took CAT down with it.  With a meaningful and lucrative business selling well stimulation pumps, reciprocating engines and turbines to the energy space this would prove to be CAT’s undoing, the shares suffered and became one of the Fund’s largest detractors from returns as investors (rightly) worried that the firm’s profits would decline.  While the shares have suffered, we continue to believe the Caterpillar franchise is healthy, intact and a good deal of pessimism is reflected in current valuations.
 
Discussion of Fund’s Performance in 2014
In 2014, the Baird LargeCap Fund (Institutional Class) generated a total return of 15.09%, compared to a 13.69% return for the S&P 500 index, the Fund’s benchmark.  Below we discuss sectors and companies that were key contributors and detractors from the Fund’s performance relative to the S&P 500.
 
Key Contributors To Relative Returns:
 
o
Industrials as a sector rose less than 10% compared to the broad S&P 500 index which was up nearly 14%.  The Fund ran almost exactly at the sector weight but benefitted from very strong stock selection with its Industrial picks rising over 20% for the year.  Significant overweights in low cost and legacy carriers Southwest and Delta added the most to the Fund’s relative returns as the industry continues to benefit from a more rational operating environment post significant capacity reductions.
 
o
Similar to Industrials, Consumer Discretionary was another sector that underperformed the benchmark (again up 10% vs. the broad S&P 500 being up nearly 14%), where the Fund carried an identical sector weight but strong stock selection contributed significantly to relative returns.  The Fund’s holdings in the sector rose nearly 18% as a large weighting in DISH Networks and Delphi Automotive, among others, drove meaningful outperformance in the group.
 
o
The Fund was neutral the Health Care sector which meaningfully outperformed the broad benchmark, rising almost 25% for the year.  With its Health Care holdings up 31% for the year, the Fund benefitted from strong stock selection in the space as we profited from both growth (Edwards Lifesciences) and value names (Abbvie).
 
Key Detractors From Relative Returns:
 
o
Despite representing only 3% of the S&P 500, the Utilities sector detracted from the Fund’s relative returns more than any other sector.  The Fund held just shy of a 2% weighting in the sector and our largest weighting, AES, fell in absolute terms.  Being underweight such a strong sector hampered us on allocation and due to the underperformance of our largest weighted stock, selection in the sector was also negative.


 
Page 7

 
Baird LargeCap Fund
December 31, 2014

o
Despite being overweight Financials which outperformed the broad benchmark, poor stock selection dragged results down as our holdings rose only 12.5% compared to the S&P 500 Financial sector being up 15%.  Our positions in credit card companies (American Express and Capital One) combined with a weak showing out of some of our regional banks led to a negative effect from stock selection in the group.
 
o
Despite carrying less than 2% of the Fund’s assets in cash on average, our desire to keep even this small amount of “dry powder” on hand cost the Fund 25 bps.
 
Conclusion
As the first year of managing the LargeCap Fund comes to a close we would like to thank every one of our investors for sticking with us.  We understand that a new manager represents an unknown and are deeply grateful for your support.  My money is invested along-side yours in the belief that it is not just common sense that a fund manager “eat his own cooking” but that it also provides a healthy dose of professional alignment.  Over the course of the year nearly 80% of the Fund’s excess returns were sourced from stock selection and we believe that hews to the product’s core value proposition.  While there are many products that attempt to time markets or sectors, we believe these behaviors are more difficult than finding the under-appreciated growth firms and inexpensive value opportunities we typically work in.  By maintaining a balanced approach to stock selection we hope to minimize our own (and hopefully our investors’) behavioral errors in an effort to keep us all focused on the long-term, process-driven approach that we believe is the key to compounding wealth at better than market rates.  We understand that track records are built over years and that even the best managers will experience unflattering moments.  With that said, we would like to make it clear that in our view the investors in the Fund are not customers, rather they are partners.  While long-term investment results are always the ultimate arbiters of a money manager’s success, we understand that aside from the portfolios we build, the shareholders we work with represent the LargeCap Fund’s greatest asset.
 
Portfolio Manager:
 
Matt Malgari
 

 


 
Page 8

 

Baird LargeCap Fund
December 31, 2014 (Unaudited)

A December 31, 2014 summary of the Fund’s top 10 holdings and equity sector analysis compared to the S&P 500® Index is shown below.
 
Top 10 Holdings*
   
Equity Sector Analysis**
       
Intel Corporation
2.8%
   
AbbVie Inc.
2.7%
 
Oracle Corporation
2.6%
 
Moody’s Corporation
2.3%
 
SanDisk Corporation
2.3%
 
Hewlett-Packard Company
2.2%
 
C.R. Bard, Inc.
2.2%
 
Expedia, Inc.
2.1%
 
PepsiCo, Inc.
2.0%
 
Medtronic, Inc.
2.0%
 
     
Net Assets:
$40,175,502
 
Portfolio Turnover Rate:
88.2%
 
Number of Equity Holdings:
115
 
     
Annualized Portfolio Expense Ratio:***
   
Gross
   
Institutional Class:
1.24%
 
Investor Class:
1.49%
****
     
Net
   
Institutional Class:
0.75%
 
Investor Class:
1.00%
****
 

*
 
The Fund’s portfolio composition is subject to change and there is no assurance that the Fund will continue to hold any particular security.  Percentages shown relate to the Fund’s total net assets as of December 31, 2014.
**
 
Percentages shown in parentheses relate to the Fund’s total market value of investments as of December 31, 2014, and may not add up to 100% due to rounding.
***
 
Reflects expense ratios as stated in the Fund’s current prospectus.  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 April 30, 2016.
****
 
Includes 0.25% 12b-1 fee.



 
Page 9

 

Baird LargeCap Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



 
Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 

Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (9/29/00), assuming reinvestment of all distributions.
 


 
Page 10

 

Baird LargeCap Fund
December 31, 2014 (Unaudited)

Average Annual Total Returns
 
       
Since
For the Periods Ended December 31, 2014
One Year
Five Years
Ten Years
Inception(1)
Institutional Class Shares
15.09%
14.88%
6.69%
3.24%
Investor Class Shares
14.89%
14.62%
6.44%
2.99%
S&P 500® Index(2)
13.69%
15.45%
7.67%
4.57%

(1)
For the period from September 29, 2000 (inception date) through December 31, 2014.
(2)
The S&P 500® Index measures the performance of 500 common stocks chosen for market size, liquidity and industry group representation of U.S. equity performance.  This index does not reflect any deduction for fees, expenses or taxes.  A direct investment in the index is not possible.
 
Effective December 23, 2013, Baird Kailash Group, LLC became the Fund’s subadviser.  The returns shown in the table above and line graphs on the previous page 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. The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund’s subadviser makes investment decisions for the Fund primarily using quantitative investment models which rank securities based on fundamental measures of value, past performance and indicators of recent positive changes.  The success of the quantitative investment methodologies and processes employed by the subadviser depends on the analyses and assessments that were used in developing such methodologies and processes, as well as on the accuracy and reliability of models and data provided by third parties.  Incorrect analyses and assessments or inaccurate or incomplete models and data would adversely affect performance.  Certain low-probability events or factors that are assigned little weight may occur or prove to be more likely or may have more relevance than expected, for short or extended periods of time.  It is also possible that prices of securities may move in directions that were not predicted by the subadviser’s quantitative methodologies.  The Fund may invest in stocks (or ADRs representing stocks) of foreign companies that are traded on U.S. exchanges.  Foreign investments involve additional risk such as currency rate fluctuations, political and economic instability, and different and sometimes less strict financial reporting standards and regulation.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com. Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 11

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Common Stocks
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Aerospace & Defense
                 
The Boeing Company
    1,601     $ 208,098       0.5 %
General Dynamics Corporation
    1,821       250,606       0.6 %
Northrop Grumman Corporation
    2,498       368,180       0.9 %
Raytheon Company
    1,609       174,046       0.5 %
              1,000,930       2.5 %
Airlines
                       
Alaska Air Group, Inc.
    1,421       84,919       0.2 %
Delta Air Lines, Inc.
    4,777       234,981       0.6 %
Southwest Airlines Co.
    13,232       559,978       1.4 %
United Continental Holdings, Inc.*
    2,901       194,048       0.5 %
              1,073,926       2.7 %
Auto Components
                       
Autoliv, Inc.
    724       76,831       0.2 %
Automobiles
                       
Ford Motor Company
    39,411       610,870       1.5 %
General Motors Company
    1,850       64,584       0.2 %
Harley-Davidson, Inc.
    4,686       308,854       0.8 %
              984,308       2.5 %
Banks
                       
Bank of America Corp.
    13,891       248,510       0.6 %
Fifth Third Bancorp
    10,434       212,592       0.5 %
Huntington Bancshares Incorporated
    41,567       437,285       1.1 %
U.S. Bancorp
    16,663       749,002       1.9 %
Wells Fargo & Company
    14,133       774,771       1.9 %
              2,422,160       6.0 %
Beverages
                       
The Coca-Cola Company
    5,772       243,694       0.6 %
Dr Pepper Snapple Group, Inc.
    2,454       175,903       0.5 %
PepsiCo, Inc.
    8,668       819,646       2.0 %
              1,239,243       3.1 %
Biotechnology
                       
Amgen Inc.
    2,149       342,314       0.9 %
Biogen Idec Inc.*
    514       174,477       0.4 %
Celgene Corporation*
    3,046       340,726       0.8 %
              857,517       2.1 %
Building Products
                       
Masco Corporation
    17,382       438,026       1.1 %


The accompanying notes are an integral part of these financial statements.

 
Page 12

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Capital Markets
                 
Ameriprise Financial, Inc.
    4,507     $ 596,051       1.5 %
The Blackstone Group L.P.
    16,920       572,403       1.4 %
              1,168,454       2.9 %
Chemicals
                       
Celanese Corporation
    2,734       163,931       0.4 %
CF Industries Holdings, Inc.
    1,223       333,316       0.8 %
The Dow Chemical Company
    5,891       268,689       0.7 %
International Flavors & Fragrances Inc.
    790       80,074       0.2 %
LyondellBasell Industries N.V. – Class A f
    6,203       492,456       1.2 %
              1,338,466       3.3 %
Communications Equipment
                       
Harris Corporation
    3,050       219,051       0.5 %
QUALCOMM Incorporated
    1,950       144,944       0.4 %
              363,995       0.9 %
Consumer Finance
                       
American Express Company
    3,435       319,592       0.8 %
Capital One Financial Corporation
    4,805       396,653       1.0 %
Discover Financial Services
    8,844       579,194       1.4 %
              1,295,439       3.2 %
Containers & Packaging
                       
Ball Corporation
    5,220       355,847       0.9 %
Diversified Financial Services
                       
Moody’s Corporation
    9,760       935,106       2.3 %
Diversified Telecommunication Services
                       
AT&T Inc.
    8,950       300,630       0.7 %
CenturyLink, Inc.
    2,058       81,456       0.2 %
              382,086       0.9 %
Electrical Equipment
                       
Rockwell Automation, Inc.
    1,256       139,667       0.3 %
Electronic Equipment, Instruments & Components
                       
Corning Incorporated
    7,963       182,592       0.5 %
Energy Equipment & Services
                       
Halliburton Company
    4,620       181,705       0.4 %
Schlumberger Limited f
    715       61,068       0.2 %
Seadrill Ltd f
    2,902       34,650       0.1 %
              277,423       0.7 %


The accompanying notes are an integral part of these financial statements.

 
Page 13

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Food & Staples Retailing
                 
The Kroger Co.
    11,551     $ 741,690       1.8 %
Safeway Inc.
    2,216       77,826       0.2 %
              819,516       2.0 %
Food Products
                       
Archer-Daniels-Midland Company
    5,420       281,840       0.7 %
Bunge Limited f
    1,840       167,274       0.4 %
General Mills, Inc.
    1,471       78,449       0.2 %
Tyson Foods, Inc.
    1,730       69,356       0.2 %
              596,919       1.5 %
Health Care Equipment & Supplies
                       
Baxter International Inc.
    1,004       73,583       0.2 %
Becton, Dickson and Company
    4,620       642,919       1.6 %
C.R. Bard, Inc.
    5,338       889,418       2.2 %
Edwards Lifesciences Corporation*
    4,717       600,851       1.5 %
Medtronic, Inc.
    11,303       816,077       2.0 %
Varian Medical Systems, Inc.*
    894       77,340       0.2 %
              3,100,188       7.7 %
Health Care Providers & Services
                       
Anthem, Inc.
    1,293       162,491       0.4 %
Hotels, Restaurants & Leisure
                       
Wyndham Worldwide Corporation
    9,105       780,845       1.9 %
Household Durables
                       
PulteGroup, Inc.
    18,191       390,379       1.0 %
Household Products
                       
Energizer Holdings, Inc.
    3,278       421,420       1.1 %
Independent Power Producers & Energy Traders
                       
The AES Corporation
    25,670       353,476       0.9 %
Insurance
                       
Aflac, Inc.
    3,383       206,667       0.5 %
The Progressive Corporation
    6,145       165,854       0.4 %
The Travelers Companies, Inc.
    1,606       169,995       0.4 %
              542,516       1.3 %
Internet & Catalog Retail
                       
Expedia, Inc.
    9,676       825,943       2.1 %
Internet Software & Services
                       
Google Inc.*
    1,256       661,158       1.6 %
IT Services
                       
Alliance Data Systems Corporation*
    598       171,058       0.4 %


The accompanying notes are an integral part of these financial statements.

 
Page 14

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
IT Services (cont.)
                 
International Business Machines Corporation
    923     $ 148,086       0.4 %
MasterCard Incorporated
    2,130       183,521       0.4 %
Visa Inc.
    1,065       279,243       0.7 %
The Western Union Company
    4,515       80,863       0.2 %
              862,771       2.1 %
Leisure Equipment Products
                       
Hasbro, Inc.
    1,351       74,291       0.2 %
Life Sciences Tools & Services
                       
Agilent Technologies, Inc.
    1,732       70,908       0.2 %
Machinery
                       
Caterpillar Inc.
    7,529       689,129       1.7 %
Deere & Company
    6,025       533,032       1.4 %
Illinois Tool Works, Inc.
    921       87,219       0.2 %
              1,309,380       3.3 %
Media
                       
DISH Network Corporation – Class A*
    10,277       749,090       1.9 %
Gannett Co., Inc.
    2,577       82,284       0.2 %
Omnicom Group Inc.
    2,039       157,961       0.4 %
              989,335       2.5 %
Multiline Retail
                       
Kohl’s Corporation
    1,493       91,133       0.2 %
Macy’s, Inc.
    1,268       83,371       0.2 %
Nordstrom, Inc.
    4,632       367,734       0.9 %
              542,238       1.3 %
Multi-Utilities
                       
CMS Energy Corporation
    5,021       174,480       0.4 %
Oil, Gas & Consumable Fuels
                       
Marathon Petroleum Corporation
    5,010       452,203       1.1 %
Phillips 66
    5,388       386,320       1.0 %
Tesoro Corporation
    3,511       261,043       0.6 %
Valero Energy Corporation
    1,329       65,785       0.2 %
Whiting Petroleum Corporation*
    3,196       105,468       0.3 %
              1,270,819       3.2 %
Pharmaceuticals
                       
AbbVie Inc.
    16,562       1,083,817       2.7 %
Eli Lilly and Company
    3,752       258,851       0.6 %
Johnson & Johnson
    2,281       238,524       0.6 %
Pfizer Inc.
    2,415       75,227       0.2 %
              1,656,419       4.1 %


The accompanying notes are an integral part of these financial statements.

 
Page 15

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Real Estate Investment Trusts (REITs)
                 
American Capital Agency Corp.
    6,930     $ 151,282       0.4 %
Road & Rail
                       
Hertz Global Holdings, Inc.*
    2,721       67,862       0.2 %
Union Pacific Corporation
    1,937       230,755       0.6 %
              298,617       0.8 %
Semiconductors & Semiconductor Equipment
                       
Intel Corporation
    31,001       1,125,026       2.8 %
Linear Technology Corporation
    1,643       74,921       0.2 %
Maxim Integrated Products, Inc.
    9,417       300,120       0.7 %
Microchip Technology Incorporated
    1,657       74,747       0.2 %
Micron Technology, Inc.*
    15,984       559,600       1.4 %
NXP Semiconductors N.V.*f
    3,563       272,213       0.7 %
              2,406,627       6.0 %
Software
                       
Check Point Software Technologies Ltd.*f
    2,277       178,904       0.4 %
Citrix Systems, Inc.*
    3,510       223,938       0.6 %
Electronic Arts Inc.*
    1,910       89,799       0.2 %
Microsoft Corporation
    9,572       444,619       1.1 %
Oracle Corporation
    23,022       1,035,299       2.6 %
              1,972,559       4.9 %
Specialty Retail
                       
Foot Locker, Inc.
    1,402       78,765       0.2 %
The Gap, Inc.
    2,138       90,031       0.2 %
              168,796       0.4 %
Technology Hardware, Storage & Peripherals
                       
Apple Inc.
    4,928       543,953       1.4 %
Hewlett-Packard Company
    22,244       892,652       2.2 %
NetApp, Inc.
    3,860       159,997       0.4 %
SanDisk Corporation
    9,445       925,421       2.3 %
Seagate Technology Public Limited Company f
    10,205       678,632       1.7 %
              3,200,655       8.0 %
Thrifts & Mortgage Finance
                       
New York Community Bancorp, Inc.
    9,444       151,104       0.4 %
Total Common Stocks
                       
(Cost $34,329,690)
            38,487,148       95.8 %


The accompanying notes are an integral part of these financial statements.

 
Page 16

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Short-Term Investments
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Funds
                 
Dreyfus Cash Advantage Fund, 0.06%«
    952,402     $ 952,402       2.4 %
Short-Term Investments Trust –
                       
  Liquid Assets Portfolio, 0.07%«
    700,000       700,000       1.7 %
Total Short-Term Investments
                       
(Cost $1,652,402)
            1,652,402       4.1 %
Total Investments
                       
(Cost $35,982,092)
            40,139,550       99.9 %
Other Assets in Excess of Liabilities
            35,952       0.1 %
TOTAL NET ASSETS
          $ 40,175,502       100.0 %
Notes to Schedule of Investments
*
Non-Income Producing
f
Foreign Security
«
7-Day Yield

Industry classifications shown in the Schedule of Investments are based off of the Global Industry Classification Standard (GICS®).  GICS was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC (“S&P”).  GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.

 
 
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 17

 

Baird LargeCap Fund
Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity
                       
Common Stocks
  $ 38,487,148     $     $     $ 38,487,148  
Total Equity
    38,487,148                   38,487,148  
Short-Term Investments
                               
Money Market Mutual Funds
    1,652,402                   1,652,402  
Total Short-Term Investments
    1,652,402                   1,652,402  
Total Investments*
  $ 40,139,550     $     $     $ 40,139,550  

*
Additional information regarding the industry classifications of these investments is disclosed in the Schedule of Investments.
 
Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 



 
The accompanying notes are an integral part of these financial statements.

 
Page 18

 

Baird MidCap Fund
December 31, 2014

Portfolio Managers’ Commentary
 
For the year ended December 31, 2014, the Baird MidCap Fund Institutional Class posted a total return of 4.85% (4.62% for the Investor Class), as compared with a gain of 11.90% for the Russell MidCap® Growth Index, the MidCap Fund’s primary benchmark.
 
As we move further into the economic recovery, we are increasingly sensitive to the performance dynamics within the market.  In recent quarters, we have been struck by the strong relative performance from companies that are unprofitable or carrying higher debt levels.  In our long tenure of managing mid cap stocks, we have seen these types of low quality cycles before.  We understand why it is happening, how abruptly it can change and the importance of staying true to the Fund’s high quality approach. In the interim, the Fund has felt the very real challenge of keeping pace in such an environment.  Among several possibilities, Fed tightening may serve as a catalyst to return favor to businesses with strong profitability and conservative balance sheets, the type of companies on which we focus.  We believe that focus is one of the primary reasons for the long-term success of the Fund.
 
The Fund’s sector weights remained relatively balanced compared to its benchmark during 2014, a continuation of our approach in recent years.  We did maintain a modest pro-cyclical stance within economically-sensitive sectors.  This positioning was based on continued U.S. economic growth, supported by the positive trend in U.S. employment, low inflation, and rising consumer and business confidence.
 
The Fund’s technology holdings provided the strongest relative performance.  Our stock selection in the semiconductor industry was helped by strong product cycle participation.  In addition, the software and services industry benefitted from exposure to security spending and merger activity.  These two industry groups helped the Fund outpace broad strength in the technology sector overall.
 
Stocks in the basic materials sector also made a positive contribution to relative performance.  Holding companies with end market exposure tilted toward construction activity proved beneficial as fundamentals improved.  We tend to avoid pure commodity-oriented business models in this sector, as those earnings patterns are often more volatile.
 
Producer durable holdings fought several macro-related headwinds and failed to keep pace with benchmark returns.  Thematically, an expectation for continued economic growth in the form of better corporate and consumer spending generally played out on the domestic front, but weakness emerged on a global basis, hurting businesses with a higher foreign revenue mix.  A sharp drop in oil prices in the second half negatively impacted performance from industrial companies tied to energy activity.  Also, a lack of exposure to the traditionally cyclical airline industry created a meaningful performance headwind.
 
The Fund’s healthcare stocks produced fairly broad strength, but relative performance was hurt by the Fund’s relatively light exposure to biotech and pharmaceutical companies, areas with significant price returns.  The challenge of matching performance in the healthcare sector is underscored by the strong multi-year run in biotech.  Many companies in that industry offer interesting growth prospects, but are not profitable.  We will participate in that industry when we find companies that meet our fundamental criteria, but may struggle in periods when we do not.
 
The Fund’s energy stocks detracted from relative performance, reflecting a tale of two halves, with a positive first half more than offset by the impact of a dramatic decrease in the price of oil during the second half.  We have often mentioned the potential for volatility in this sector due to performance correlation with oil and natural gas prices.  We continue to like the long-term backdrop for many energy companies, recognizing the potential for continued commodity volatility as the global growth picture sorts itself out.
 
In the consumer staples sector, the performance of the Fund’s holdings fell short of corresponding benchmark sector returns.  We were somewhat surprised all year that returns from the staples sector significantly outpaced the market advance.  Notably, many companies within the sector displayed meaningful price-earnings multiple
 

 
Page 19

 

Baird MidCap Fund
December 31, 2014

expansion, which was due in part to increased merger activity in the beverage, tobacco, and food industries.  The Fund’s holdings were underexposed to these industries relative to the benchmark.
 
The consumer discretionary sector lagged the overall market.  While many of the Fund’s holdings, including retailers, restaurants, and apparel companies, delivered strong performance, the collective holdings in that sector trailed on a relative performance basis.  The outlook for spending remains relatively favorable due to improving employment trends, higher confidence levels, and the potential benefit from low energy prices.
 
The Fund’s financial services holdings provided a drag on relative performance during the year. The Fund’s financial services sector holdings were based on our expectation that stronger U.S. economic growth would lead to higher rates during the year, which did not occur.  The persistent decline in longer-term interest rates created a headwind as low yields proved very supportive of REIT performance. The REIT industry comprised approximately 20% of the financial services sector weight, but none in the Fund.  We find the REIT business model, which requires the distribution of earnings and dependency on the capital markets for growth, difficult for our fundamental approach.  We will continue to assess the appropriateness of REITs for the Fund, but don’t intend to blindly plug a benchmark hole. Asset managers, a key Fund holding, lagged overall sector performance despite what we viewed as solid fundamental performance.
 
The investment process underlying the MidCap Fund remains focused on identifying high-quality companies that deliver attractive returns and above average growth relative to peers.  Seeking to control risk at the sector and position level is also a priority of our process, with the goal of providing lower volatility of returns for the Fund compared to its benchmark index.
 
Portfolio Managers:
 
Charles F. Severson
Kenneth M. Hemauer
 




 
Page 20

 

Baird MidCap Fund
December 31, 2014 (Unaudited)

A December 31, 2014 summary of the Fund’s top 10 holdings and equity sector analysis compared to the Russell MidCap® Growth Index is shown below.
 
Top 10 Holdings*
   
Equity Sector Analysis**
       
O’Reilly Automotive, Inc.
2.5%
   
Integrated Device Technology, Inc.
2.5%
 
Affiliated Managers Group, Inc.
2.4%
 
Stericycle, Inc.
2.4%
 
Mead Johnson Nutrition Company
2.4%
 
Acuity Brands, Inc.
2.3%
 
Fortinet, Inc.
2.3%
 
Alliance Data Systems Corporation
2.3%
 
Tractor Supply Company
2.2%
 
Acadia Healthcare Company, Inc.
2.2%
 
     
Net Assets:
$1,116,264,231
 
Portfolio Turnover Rate:
37.3%
 
Number of Equity Holdings:
59
 
     
Annualized Portfolio Expense Ratio:***
   
Gross
   
Institutional Class:
0.88%
 
Investor Class:
1.13%
****
     
Net
   
Institutional Class:
0.85%
 
Investor Class:
1.10%
****
 

*
 
The Fund’s portfolio composition is subject to change and there is no assurance that the Fund will continue to hold any particular security.  Percentages shown relate to the Fund’s total net assets as of December 31, 2014.
**
 
Percentages shown in parentheses relate to the Fund’s total market value of investments as of December 31, 2014, and may not add up to 100% due to rounding.
***
 
Reflects expense ratios as stated in the Fund’s current prospectus.  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 April 30, 2016.
****
 
Includes 0.25% 12b-1 fee.
 

 


 
Page 21

 

Baird MidCap Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment



 
Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (12/29/00), assuming reinvestment of all distributions.
 

Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (12/29/00), assuming reinvestment of all distributions.
 


 
Page 22

 

Baird MidCap Fund
December 31, 2014 (Unaudited)

Average Annual Total Returns
 
       
Since
For the Periods Ended December 31, 2014
One Year
Five Years
Ten Years
Inception(1)
Institutional Class Shares
  4.85%
16.76%
9.02%
7.04%
Investor Class Shares
  4.62%
16.50%
8.76%
6.79%
Russell Midcap® Growth Index(2)
11.90%
16.94%
9.43%
6.10%

(1)
For the period from December 29, 2000 (inception date) through December 31, 2014.
(2)
The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® index companies with higher price-to-book ratios and higher forecasted growth values. This index does not reflect any deduction for fees, expenses or taxes. A direct investment in the index is not possible.
 
The returns shown in the table above and the line graphs on the previous page 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. The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund focuses on growth-style stocks and therefore the performance of the Fund will typically be more volatile than the performance of funds that focus on types of stocks that have a broader investment style.  The Fund may invest up to 15% of its total assets in U.S. dollar denominated foreign securities and ADRs. Foreign investments involve additional risks such as currency rate fluctuations, political and economic instability, and different and sometimes less strict financial reporting standards and regulation.  The Fund invests a substantial portion of its assets in the stocks of mid-capitalization companies.  Mid-capitalization companies often are more volatile and face greater risks than larger, more established companies.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com. Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 23

 

Baird MidCap Fund
Schedule of Investments, December 31, 2014

Common Stocks
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Banks
                 
East West Bancorp, Inc.
    513,913     $ 19,893,572       1.8 %
Building Products
                       
Fortune Brands Home & Security, Inc.
    506,251       22,917,983       2.1 %
Capital Markets
                       
Affiliated Managers Group, Inc.*
    128,312       27,232,939       2.4 %
Greenhill & Co., Inc.
    432,009       18,835,592       1.7 %
Invesco Limited f
    242,119       9,568,543       0.9 %
              55,637,074       5.0 %
Chemicals
                       
Airgas, Inc.
    154,768       17,826,178       1.6 %
Commercial Services & Supplies
                       
Stericycle, Inc.*
    205,019       26,873,891       2.4 %
Distributors
                       
LKQ Corporation*
    757,097       21,289,568       1.9 %
Electrical Equipment
                       
Acuity Brands, Inc.
    186,006       26,053,860       2.3 %
Regal-Beloit Corporation
    107,329       8,071,141       0.7 %
Rockwell Automation, Inc.
    100,759       11,204,401       1.1 %
              45,329,402       4.1 %
Electronic Equipment, Instruments & Components
                       
Trimble Navigation Limited*
    600,570       15,939,128       1.4 %
Energy Equipment & Services
                       
Core Laboratories N.V. f
    53,064       6,385,722       0.6 %
Oceaneering International, Inc.
    291,501       17,143,174       1.5 %
              23,528,896       2.1 %
Food & Staples Retailing
                       
The Fresh Market, Inc.*
    385,581       15,885,937       1.4 %
Food Products
                       
McCormick & Co, Incorporated
    323,313       24,022,156       2.1 %
Mead Johnson Nutrition Company
    265,053       26,648,429       2.4 %
              50,670,585       4.5 %
Health Care Equipment & Supplies
                       
Globus Medical, Inc.*
    442,375       10,515,254       1.0 %
Health Care Providers & Services
                       
Acadia Healthcare Company, Inc.*
    403,478       24,696,888       2.2 %
Envision Healthcare Holdings, Inc.*
    451,127       15,649,596       1.4 %
              40,346,484       3.6 %
 
 
The accompanying notes are an integral part of these financial statements.

 
Page 24

 

Baird MidCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Health Care Technology
                 
Cerner Corporation*
    280,440     $ 18,133,250       1.6 %
Hotels, Restaurants & Leisure
                       
Buffalo Wild Wings Inc.*
    121,032       21,831,752       2.0 %
Household Products
                       
Church & Dwight Co., Inc.
    287,670       22,671,273       2.0 %
Internet & Catalog Retail
                       
HomeAway, Inc.*
    600,532       17,883,843       1.6 %
Internet Software & Services
                       
Envestnet, Inc.*
    306,768       15,074,579       1.3 %
Pandora Media, Inc.*
    423,518       7,551,326       0.7 %
              22,625,905       2.0 %
IT Services
                       
Alliance Data Systems Corporation*
    88,966       25,448,724       2.3 %
Fiserv, Inc.*
    156,930       11,137,322       1.0 %
Gartner, Inc.*
    216,879       18,263,381       1.6 %
              54,849,427       4.9 %
Leisure Equipment Products
                       
Polaris Industries Inc.
    141,875       21,457,175       1.9 %
Life Sciences Tools & Services
                       
ICON Public Limited Company*f
    251,908       12,844,789       1.1 %
Illumina, Inc.*
    77,103       14,231,672       1.3 %
              27,076,461       2.4 %
Machinery
                       
The Middleby Corporation*
    230,949       22,887,046       2.1 %
Trinity Industries, Inc.
    395,509       11,078,207       1.0 %
WABCO Holdings Inc.*
    213,862       22,408,460       2.0 %
              56,373,713       5.1 %
Multiline Retail
                       
Dollar Tree, Inc.*
    162,132       11,410,850       1.0 %
Oil, Gas & Consumable Fuels
                       
Concho Resources Inc.*
    96,547       9,630,563       0.9 %
Southwestern Energy Company*
    651,909       17,790,597       1.6 %
Whiting Petroleum Corporation*
    225,115       7,428,795       0.6 %
              34,849,955       3.1 %
Pharmaceuticals
                       
Perrigo Company PLC f
    145,700       24,355,212       2.2 %
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 25

 

Baird MidCap Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Road & Rail
                 
J.B. Hunt Transport Services, Inc.
    275,800     $ 23,236,150       2.1 %
Semiconductors & Semiconductor Equipment
                       
Integrated Device Technology, Inc.*
    1,395,296       27,347,801       2.5 %
Skyworks Solutions, Inc.
    222,059       16,145,910       1.4 %
              43,493,711       3.9 %
Software
                       
ANSYS, Inc.*
    155,189       12,725,498       1.1 %
Fortinet, Inc.*
    837,896       25,689,891       2.3 %
ServiceNow, Inc.*
    180,664       12,258,053       1.1 %
The Ultimate Software Group, Inc.*
    127,541       18,724,932       1.7 %
              69,398,374       6.2 %
Specialty Retail
                       
Dick’s Sporting Goods, Inc.
    373,405       18,539,558       1.7 %
O’Reilly Automotive, Inc.*
    146,847       28,285,669       2.5 %
Ross Stores, Inc.
    122,441       11,541,289       1.0 %
Tiffany & Co.
    230,451       24,625,994       2.2 %
Tractor Supply Company
    318,103       25,072,878       2.2 %
Urban Outfitters, Inc.*
    558,816       19,631,206       1.8 %
              127,696,594       11.4 %
Technology Hardware, Storage & Peripherals
                       
Stratasys Ltd.*f
    188,503       15,666,484       1.4 %
Textiles, Apparel & Luxury Goods
                       
PVH Corp.
    169,566       21,733,274       2.0 %
Under Armour, Inc. – Class A*
    230,025       15,618,698       1.4 %
              37,351,972       3.4 %
Trading Companies & Distributors
                       
Fastenal Company
    392,498       18,667,205       1.7 %
United Rentals, Inc.*
    147,143       15,010,057       1.3 %
Watsco, Inc.
    185,285       19,825,495       1.8 %
              53,502,757       4.8 %
Total Common Stocks
                       
(Cost $941,673,996)
            1,070,518,810       95.9 %
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 26

 

Baird MidCap Fund
Schedule of Investments, December 31, 2014

Short-Term Investments
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Funds
                 
Dreyfus Institutional Cash Advantage Fund, 0.06%«
    23,324,166     $ 23,324,166       2.1 %
Short-Term Investments Trust –
                       
  Liquid Assets Portfolio, 0.07%«
    20,000,000       20,000,000       1.8 %
Total Short-Term Investments
                       
(Cost $43,324,166)
            43,324,166       3.9 %
Total Investments
                       
(Cost $984,998,162)
            1,113,842,976       99.8 %
Other Assets in Excess of Liabilities
            2,421,255       0.2 %
TOTAL NET ASSETS
          $ 1,116,264,231       100.0 %
Notes to Schedule of Investments
*
Non-Income Producing
f
Foreign Security
«
7-Day Yield

Industry classifications shown in the Schedule of Investments are based off of the Global Industry Classification Standard (GICS®).  GICS was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC (“S&P”).  GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.
 
 
 

 
 
The accompanying notes are an integral part of these financial statements.

 
Page 27

 

Baird MidCap Fund
Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity
                       
Common Stocks
  $ 1,070,518,810     $     $     $ 1,070,518,810  
Total Equity
    1,070,518,810                   1,070,518,810  
Short-Term Investments
                               
Money Market Mutual Funds
    43,324,166                   43,324,166  
Total Short-Term Investments
    43,324,166                   43,324,166  
Total Investments*
  $ 1,113,842,976     $     $     $ 1,113,842,976  
 
*
Additional information regarding the industry classifications of these investments is disclosed in the Schedule of Investments.
 
Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 


 

 
The accompanying notes are an integral part of these financial statements.

 
Page 28

 

Baird SmallCap Value Fund
December 31, 2014

Portfolio Manager’s Commentary
 
For the year ended December 31, 2014, the Baird SmallCap Value Fund Institutional Class posted a total return of 0.42% (0.13% for the Investor Class), as  compared to a gain of 4.22% for the Russell 2000 Value Index, the SmallCap Value Fund’s primary benchmark.
 
As we reflect on what worked last year, we note positive security selection across most economic sectors.  We witnessed our investment theses bear out for many of the Fund’s individual holdings, which posted better than anticipated profits, leading to upwards earnings revisions and the ultimate reward of market revaluation. In general, defensive sectors in our benchmark fared better than cyclical industries for the year.  The strongest absolute performance came from the Fund’s healthcare, consumer staples, consumer discretionary, and utilities sector holdings.  On a relative contribution basis, the Fund’s overweight in the information technology sector added meaningfully to performance.  Two information technology positions, Triquint Semiconductor and Integrated Device Technology Inc., moved sharply higher as earnings growth accelerated from both margin improvement and market share gains in mobile devices.  Motorcar Parts of America and newly acquired Land’s End both performed well.
 
Throughout the year, the Fund held a meaningful overweight in consumer discretionary, energy, industrials and information technology stocks.  Despite reducing our exposure in October, the substantial drop in the price of oil during the last quarter of the year punished our energy overweight despite strong security selection in the sector.  It was this overweight to energy and energy-related industrials that was responsible for the Fund’s underperformance for the year. Pacific Drilling, Willbros and Mastec were the biggest detractors.  While our overweight to energy was a drag on overall performance, our strategy of avoiding the highest risk securities in the sector, including exploration and production, as well as oil and gas servicing companies, in favor of infrastructure-related businesses proved correct.  Earlier in the year we sold Mitcham Industries and Sandridge Energy and lightened up again in the Fall, selling our holdings in PDC Energy and Vantage Drilling.  A number of our industrial holdings also traded lower on the energy selloff despite having large project backlogs or ancillary businesses without direct ties to the energy infrastructure space.  During the year, we sold positions in Willbros Group and MasTec Incorporated.
 
While the Fed did complete its quantitative easing (QE) tapering process, global slowdowns outside the United States in emerging markets and Europe saw overseas investors flock to U.S. fixed income markets, pressuring interest rates even lower.  Last year, we continued to rotate our financial exposure away from more defensive areas in favor of economically sensitive holdings that stand to benefit from a better lending and interest rate environment.  Many of our holdings such as Real Estate Investment Trusts continue to benefit from a low interest rate environment but also offer the upside of improving revenues from sources such as rents.
 
We continue to find value in information technology, increasing the number of positions within the Fund, and ended the year with a substantial overweight versus the benchmark, a reflection of our belief in continued rollouts of smartphones with content and features consumers demand. In May, we initiated a position in Integrated Device Technology Inc. a semiconductor chip maker of random access memory and involved in wireless charging.
 
We began 2014 with a strategic focus on companies which operate primarily domestically to avoid the earnings disappointment experienced by firms with large foreign exposure, especially to emerging markets.  Predicated on our weaker outlook for China and emerging markets, we maintained our aversion to materials stocks, with no exposure, a theme dating back to last year.  The Fund benefited from this underweight in 2013 and once again in 2014.
 
As we look to 2015, we remain wary of economic growth prospects outside the U.S.  We expect the strong U.S. dollar and decelerating global growth will be headwinds for large multinational companies but plays to the strength of domestic small companies with less than half the exposure to foreign revenue.  We are most bullish on the U.S. consumer, which has made progress repairing personal balance sheets and should benefit
 

 
Page 29

 

Baird SmallCap Value Fund
December 31, 2014

from continued gains in employment, housing market strength and falling gas prices.  While falling energy prices are ultimately good for the majority of industries and capital spending, our concern is that in the short-run, the benefit will not be able to offset a rapid decline in domestic oil-related capital expenditures.  Consequently, we start the year with a somewhat defensive bias as the market digests these spending adjustments, and we will look to become more constructive on cyclical exposure as we see signs of stabilization outside the U.S. and within the energy complex.  As always, we will seek to mitigate risk by maintaining a well-diversified portfolio of businesses, which we project can exceed growth expectations and which trade at compelling valuations.  This strategy, we believe, when applied with discipline, yields attractive long-term returns for investors.
 
Portfolio Manager:
 
Michelle Stevens
 

 
 
 
 
 

 

 
Page 30

 

Baird SmallCap Value Fund
December 31, 2014 (Unaudited)

A December 31, 2014 summary of the Fund’s top 10 holdings and equity sector analysis compared to the Russell 2000® Value Index is shown below.
 
Top 10 Holdings*
   
Equity Sector Analysis**
       
Lands’ End, Inc
5.0%
 
Integrated Device Technology, Inc.
4.6%
 
Motorcar Parts of America, Inc.
4.5%
 
TriQuint Semiconductor, Inc.
3.9%
 
PRA Group, Inc.
3.9%
 
Pinnacle Foods Inc.
3.8%
 
LTC Properties, Inc.
3.4%
 
Diamond Hill Investment Group, Inc.
3.0%
 
Hilltop Holdings, Inc.
3.0%
 
Universal Truckload Services, Inc.
3.0%
 
     
Net Assets:
$25,553,431
 
Portfolio Turnover Rate:
41.9%
 
Number of Equity Holdings:
40
 
     
Annualized Portfolio Expense Ratio:***
   
Gross
   
Institutional Class:
2.03%
 
Investor Class:
2.28%
****
     
Net
   
Institutional Class:
1.00%
 
Investor Class:
1.25%
****
 

*
 
The Fund’s portfolio composition is subject to change and there is no assurance that the Fund will continue to hold any particular security.  Percentages shown relate to the Fund’s total net assets as of December 31, 2014.
**
 
Percentages shown in parentheses relate to the Fund’s total market value of investments as of December 31, 2014, and may not add up to 100% due to rounding.
***
 
Reflects expense ratios as stated in the Fund’s current prospectus.  The Advisor has contractually agreed to limit the Fund’s total annual fund operating expenses to 1.00% of average daily net assets for the Institutional Class shares and 1.25% of average daily net assets for the Investor Class shares, at least through April 30, 2016.
****
 
Includes 0.25% 12b-1 fee.



 
Page 31

 

Baird SmallCap Value Fund
December 31, 2014 (Unaudited)

Institutional Class
Value of a $25,000 Investment


 

Growth of a hypothetical investment of $25,000 made on the Fund’s inception date (5/1/12), assuming reinvestment of all distributions.
 

Investor Class
Value of a $10,000 Investment



 
Growth of a hypothetical investment of $10,000 made on the Fund’s inception date (5/1/12), assuming reinvestment of all distributions.
 


 
Page 32

 

Baird SmallCap Value Fund
December 31, 2014 (Unaudited)

Average Annual Total Returns
 
   
Since
For the Periods Ended December 31, 2014
One Year
Inception(1)
Institutional Class Shares
0.42%
15.04%
Investor Class Shares
0.13%
14.75%
Russell 2000® Value Index(2)
4.22%
16.53%

(1)
For the period from May 1, 2012 (inception date) through December 31, 2014.
(2)
The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000® Index companies with lower price-to-book ratios and lower forecasted growth values. This index does not reflect any deduction for fees, expenses or taxes. A direct investment in the index is not possible.
 
The returns shown in the table above and the line graphs on the previous page 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. The returns reflect the actual performance for each period and do not include the impact of trades executed on the last business day of the period that were recorded on the first business day of the next period.
 
The gross expense ratio for each Class, as reflected in the Fund’s current prospectus, is set forth under “Portfolio Characteristics”.
 
The Fund focuses on small cap value style stocks and therefore the performance of the Fund may be more volatile than the performance of funds that focus on types of stocks that have a broader investment style.  The Fund may invest up to 15% of its total assets in U.S. dollar denominated foreign securities and ADRs. Foreign investments involve additional risks such as currency rate fluctuations and the potential for political and economic instability, and different and sometimes less strict financial reporting standards and regulation.
 
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.
 
For information about the performance of the Fund as of the most recent month-end, please call 1-866-44BAIRD or visit www.bairdfunds.com. Mutual fund performance changes over time and current performance may be lower or higher than that stated.
 


 
Page 33

 

Baird SmallCap Value Fund
Schedule of Investments, December 31, 2014

Common Stocks
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Aerospace & Defense
                 
Hexcel Corporation*
    12,534     $ 520,036       2.0 %
Auto Components
                       
Drew Industries Incorporated*
    5,112       261,070       1.0 %
Motorcar Parts of America, Inc.*
    36,840       1,145,356       4.5 %
              1,406,426       5.5 %
Banks
                       
PrivateBancorp, Inc.
    20,276       677,219       2.6 %
Texas Capital Bancshares, Inc.*
    9,783       531,510       2.1 %
              1,208,729       4.7 %
Capital Markets
                       
Diamond Hill Investment Group, Inc.
    5,555       766,812       3.0 %
Communications Equipment
                       
Applied Optoelectronics, Inc.*
    25,342       284,337       1.1 %
Construction & Engineering
                       
Quanta Services, Inc.*
    18,393       522,177       2.0 %
Consumer Finance
                       
Encore Capital Group, Inc.*
    15,777       700,499       2.7 %
PRA Group, Inc.*
    16,968       982,956       3.9 %
              1,683,455       6.6 %
Diversified Consumer Services
                       
Steiner Leisure Limited*f
    8,533       394,310       1.5 %
Electric Utilities
                       
UIL Holdings Corporation
    13,897       605,075       2.4 %
Electrical Equipment
                       
Generac Holdings Inc.*
    10,708       500,706       2.0 %
Electronic Equipment, Instruments & Components
                       
Methode Electronics, Inc.
    17,170       626,877       2.5 %
Energy Equipment & Services
                       
Pacific Drilling SA*f
    55,304       256,611       1.0 %
Food Products
                       
Pinnacle Foods Inc.
    27,760       979,928       3.8 %
Gas Utilities
                       
South Jersey Industries, Inc.
    8,751       515,696       2.0 %
Health Care Equipment & Supplies
                       
ICU Medical, Inc.*
    7,267       595,167       2.3 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 34

 

Baird SmallCap Value Fund
Schedule of Investments, December 31, 2014

Common Stocks (cont.)
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Insurance
                 
Hilltop Holdings, Inc.*
    38,304     $ 764,165       3.0 %
Internet & Catalog Retail
                       
Lands’ End, Inc.*
    23,819       1,285,273       5.0 %
Internet Software & Services
                       
j2 Global, Inc.
    11,345       703,390       2.8 %
IT Services
                       
WEX Inc.*
    3,474       343,648       1.3 %
Oil, Gas & Consumable Fuels
                       
Dorian LPG Limited*f
    28,280       392,809       1.5 %
Navigator Holdings Limited*f
    21,357       449,778       1.8 %
Targa Resources Corp.
    7,016       744,047       2.9 %
              1,586,634       6.2 %
Real Estate Investment Trusts (REITs)
                       
BioMed Realty Trust, Inc.
    23,184       499,383       2.0 %
Blackstone Mortgage Trust, Inc.
    22,882       666,782       2.6 %
Capstead Mortgage Corporation
    29,690       364,593       1.4 %
DiamondRock Hospitality Company
    44,075       655,395       2.6 %
Hatteras Financial Corp.
    20,012       368,821       1.4 %
Hersha Hospitality Trust
    71,799       504,747       2.0 %
LTC Properties, Inc.
    20,314       876,956       3.4 %
              3,936,677       15.4 %
Road & Rail
                       
Quality Distribution, Inc.*
    35,517       377,901       1.5 %
Universal Truckload Services, Inc.
    26,589       758,052       3.0 %
              1,135,953       4.5 %
Semiconductors & Semiconductor Equipment
                       
Integrated Device Technology, Inc.*
    59,862       1,173,295       4.6 %
Synaptics Incorporated*
    6,477       445,877       1.7 %
TriQuint Semiconductor, Inc.*
    35,942       990,202       3.9 %
              2,609,374       10.2 %
Specialty Retail
                       
Lithia Motors, Inc.
    6,047       524,215       2.1 %
Thrifts & Mortgage Finance
                       
Bofi Holding, Inc.*
    9,368       728,924       2.9 %
Capitol Federal Financial, Inc.
    20,256       258,872       1.0 %
              987,796       3.9 %
Total Common Stocks
                       
(Cost $20,837,411)
            24,743,467       96.8 %

 
The accompanying notes are an integral part of these financial statements.

 
Page 35

 

Baird SmallCap Value Fund
Schedule of Investments, December 31, 2014

Short-Term Investments
 
               
% of
 
   
Shares
   
Value
   
Net Assets
 
Money Market Mutual Funds
                 
Dreyfus Cash Advantage Fund, 0.06%«
    260,804     $ 260,804       1.0 %
Short-Term Investments Trust –
                       
  Liquid Assets Portfolio, 0.07%«
    450,000       450,000       1.8 %
Total Short-Term Investments
                       
(Cost $710,804)
            710,804       2.8 %
Total Investments
                       
(Cost $21,548,215)
            25,454,271       99.6 %
Other Assets in Excess of Liabilities
            99,160       0.4 %
TOTAL NET ASSETS
          $ 25,553,431       100.0 %
Notes to Schedule of Investments
*
Non-Income Producing
f
Foreign Security
«
7-Day Yield
 
Industry classifications shown in the Schedule of Investments are based off of the Global Industry Classification Standard (GICS®).  GICS was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC (“S&P”).  GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.
 
 
 

 
The accompanying notes are an integral part of these financial statements.

 
Page 36

 

Baird SmallCap Value Fund
Schedule of Investments, December 31, 2014

Summary of Fair Value Exposure at December 31, 2014
 
The Fund has adopted authoritative fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion on changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy is organized into three levels based upon the assumptions (referred to as “inputs”) used in pricing the asset or liability.  These standards state that “observable inputs” reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and “unobservable inputs” reflect an entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized into three broad levels and described below:
 
Level 1
Unadjusted quoted prices in active markets for identical unrestricted securities.
Level 2
Other significant observable inputs (including quoted prices for similar securities, quoted prices in inactive markets, dealer indications, interest rates, yield curves, prepayment speeds, credit risk, default rates, inputs corroborated by observable market data, etc.).
Level 3
Significant unobservable inputs (including the Fund’s own assumptions about the factors that market participants would use in valuing the security) based on the best information available.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2014:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity
                       
Common Stocks
  $ 24,743,467     $     $     $ 24,743,467  
Total Equity
    24,743,467                   24,743,467  
Short-Term Investments
                               
Money Market Mutual Funds
    710,804                   710,804  
Total Short-Term Investments
    710,804                   710,804  
Total Investments*
  $ 25,454,271     $     $     $ 25,454,271  
 
*
Additional information regarding the industry classifications of these investments is disclosed in the Schedule of Investments.
 
Changes in valuation techniques may result in transfers into or out of assigned levels within the fair value hierarchy.  There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the reporting period, as compared to their classification from the prior year’s annual report.  See the Fund’s valuation policy in Note 2a to the financial statements.
 



 
The accompanying notes are an integral part of these financial statements.

 
Page 37

 

Additional Information on Fund Expenses
December 31, 2014 (Unaudited)

Example
 
As a shareholder of a mutual fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, such as management fees; distribution and/or service (12b-1) fees; and other fund 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.
 
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 (7/1/14 – 12/31/14).
 
 
Actual Expenses
 
The third and fourth columns of the following table provide information about account values based on actual returns and actual expenses. 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 fourth column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
 
 
Hypothetical Example for Comparison Purposes
 
The fifth and sixth columns of the following table 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 sixth column of the table (entitled “Expenses Paid During Period”) 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.
 

 


 
 

 

 
Page 38

 

Additional Information on Fund Expenses
December 31, 2014 (Unaudited)

Actual vs. Hypothetical Returns
 
For the Six Months Ended December 31, 2014
 
         
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)
7/1/14
12/31/14
Period(1)
12/31/14
Period(1)
Baird LargeCap Fund
           
Institutional Class
0.75%
$1,000.00
$1,067.43
$3.91
$1,021.42
$3.82
Investor Class
1.00%
$1,000.00
$1,067.50
$5.21
$1,020.16
$5.09
             
Baird MidCap Fund
           
Institutional Class
0.85%
$1,000.00
$1,019.30
$4.33
$1,020.92
$4.33
Investor Class
1.10%
$1,000.00
$1,018.10
$5.60
$1,019.66
$5.60
             
Baird SmallCap Value Fund
           
Institutional Class
1.00%
$1,000.00
$   974.30
$4.98
$1,020.16
$5.09
Investor Class
1.25%
$1,000.00
$   972.80
$6.22
$1,018.90
$6.36

(1)
Expenses are equal to the Fund’s annualized net expense ratio multiplied by the average account value over the period, multiplied by 184 days and divided by 365 to reflect the one-half year period.

 
 
 
 
 

 

 
Page 39

 
 
Statements of Assets and Liabilities
December 31, 2014

   
Baird
   
Baird
   
Baird
 
   
LargeCap
   
MidCap
   
SmallCap
 
   
Fund
   
Fund
   
Value Fund
 
ASSETS:
                 
Investments, at value (cost $35,982,092,
                 
  $984,998,162 and $21,548,215, respectively)
  $ 40,139,550     $ 1,113,842,976     $ 25,454,271  
Dividends receivable
    42,472       333,217       60,098  
Interest receivable
    89       3,146       71  
Receivable for Fund shares sold
    27,928       8,515,527       55,598  
Uninvested cash
          109,233        
Prepaid expenses and other assets
    8,536       19,387       8,381  
Total assets
    40,218,575       1,122,823,486       25,578,419  
LIABILITIES:
                       
Payable for Fund shares repurchased
          5,410,394       993  
Payable to Advisor and Distributor
    12,954       813,342       4,244  
Accrued expenses and other liabilities
    30,119       335,519       19,751  
Total liabilities
    43,073       6,559,255       24,988  
NET ASSETS
  $ 40,175,502     $ 1,116,264,231     $ 25,553,431  
NET ASSETS CONSIST OF:
                       
Capital stock
  $ 35,653,560     $ 986,778,852     $ 21,753,240  
Accumulated net realized gain (loss) on investments sold
    364,484       640,565       (105,865 )
Net unrealized appreciation on investments
    4,157,458       128,844,814       3,906,056  
NET ASSETS
  $ 40,175,502     $ 1,116,264,231     $ 25,553,431  
INSTITUTIONAL CLASS SHARES
                       
Net Assets
  $ 38,961,436     $ 910,893,531     $ 23,453,239  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    4,361,175       58,500,521       1,697,207  
Net asset value, offering and
                       
  redemption price per share
  $ 8.93     $ 15.57     $ 13.82  
INVESTOR CLASS SHARES
                       
Net Assets
  $ 1,214,066     $ 205,370,700     $ 2,100,192  
Shares outstanding ($0.01 par value,
                       
  unlimited shares authorized)
    136,832       13,729,522       152,417  
Net asset value, offering and
                       
  redemption price per share
  $ 8.87     $ 14.96     $ 13.78  


The accompanying notes are an integral part of these financial statements.

 
Page 40

 

Statements of Operations
Year Ended December 31, 2014

   
Baird
   
Baird
   
Baird
 
   
LargeCap
   
MidCap
   
SmallCap
 
   
Fund
   
Fund
   
Value Fund
 
INVESTMENT INCOME:
                 
Dividends (net of foreign taxes withheld
                 
  of  $0, $12,090 and $0, respectively)
  $ 616,570     $ 5,895,509     $ 326,937  
Interest
    686       24,358       532  
Other income
          2,428       91  
Total investment income
    617,256       5,922,295       327,560  
                         
EXPENSES:
                       
Investment advisory fees
    218,066       6,537,585       204,070  
Administration fees
    5,894       88,343       5,478  
Shareholder servicing fees
    16,410       502,272       14,312  
Fund accounting fees
    16,040       60,929       15,213  
Professional fees
    38,913       38,891       30,831  
Federal and state registration
    40,752       167,111       44,065  
Directors fees
    50,161       50,130       50,161  
Custody fees
    7,083       38,195       6,264  
Reports to shareholders
    2,278       70,389       1,846  
Distribution expense – Investor Class Shares (Note 8)
    1,770       569,959       4,509  
Miscellaneous expenses
    132       1,947       73  
Total expenses
    397,499       8,125,751       376,822  
Expense reimbursement by Advisor (Note 5)
    (141,765 )     (143,779 )     (132,231 )
Net expenses
    255,734       7,981,972       244,591  
                         
NET INVESTMENT  INCOME (LOSS)
    361,522       (2,059,677 )     82,969  
                         
REALIZED AND UNREALIZED
                       
  GAIN (LOSS) ON INVESTMENTS:
                       
Net realized gain on investments
    837,245       11,854,713       280,519  
Change in unrealized appreciation/depreciation
                       
  on investments
    3,634,313       31,922,782       (211,518 )
Net realized and unrealized gain on investments
    4,471,558       43,777,495       69,001  
NET INCREASE IN NET ASSETS
                       
  RESULTING FROM OPERATIONS
  $ 4,833,080     $ 41,717,818     $ 151,970  


The accompanying notes are an integral part of these financial statements.

 
Page 41

 

Statements of Changes in Net Assets
Baird LargeCap Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 361,522       $ 76,503  
Net realized gain on investments
    837,245         13,127,622  
Change in unrealized appreciation/depreciation
                 
  on investments
    3,634,313         (5,351,781 )
Net increase in net assets resulting from operations
    4,833,080         7,852,344  
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    13,065,266         4,465,469  
Shares issued to holders in reinvestment of distributions
    824,279         11,004,303  
Cost of shares redeemed
    (5,923,052 )       (8,523,677 )
Net increase in net assets resulting
                 
  from capital share transactions
    7,966,493         6,946,095  
                   
DISTRIBUTIONS TO
                 
INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (354,933 )       (76,300 )
From net realized gains
    (446,433 )       (10,867,055 )
Total Distributions
    (801,366 )       (10,943,355 )
                   
DISTRIBUTIONS TO
                 
INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (9,164 )        
From net realized gains
    (13,750 )       (60,948 )
Total Distributions
    (22,914 )       (60,948 )
                   
TOTAL INCREASE IN NET ASSETS
    11,975,293         3,794,136  
                   
NET ASSETS:
                 
Beginning of year
    28,200,209         24,406,073  
End of year (including distributions in excess of net investment
                 
  income (loss) of $0 and $297, respectively)
  $ 40,175,502       $ 28,200,209  

 

 
The accompanying notes are an integral part of these financial statements.

 
Page 42

 

Statements of Changes in Net Assets
Baird MidCap Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment loss
  $ (2,059,677 )     $ (441,675 )
Net realized gain on investments
    11,854,713         12,919,158  
Change in unrealized appreciation/depreciation
                 
  on investments
    31,922,782         78,465,897  
Net increase in net assets resulting from operations
    41,717,818         90,943,380  
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    963,929,395         184,044,271  
Shares issued to holders in reinvestment of distributions
    10,127,896         8,466,032  
Cost of shares redeemed
    (317,272,798 )       (66,916,146 )
Other capital contribution (Note 3)
            118  
Net increase in net assets resulting
                 
  from capital share transactions
    656,784,493         125,594,275  
                   
DISTRIBUTIONS TO
                 
INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net realized gains
    (9,261,206 )       (5,756,644 )
Total Distributions
    (9,261,206 )       (5,756,644 )
                   
DISTRIBUTIONS TO
                 
INVESTOR CLASS SHAREHOLDERS:
                 
From net realized gains
    (2,129,486 )       (2,987,660 )
Total Distributions
    (2,129,486 )       (2,987,660 )
                   
TOTAL INCREASE IN NET ASSETS
    687,111,619         207,793,351  
                   
NET ASSETS:
                 
Beginning of year
    429,152,612         221,359,261  
End of year
  $ 1,116,264,231       $ 429,152,612  
 

 

The accompanying notes are an integral part of these financial statements.

 
Page 43

 

Statements of Changes in Net Assets
Baird SmallCap Value Fund

   
Year Ended
     
Year Ended
 
 
December 31, 2014
 
December 31, 2013
OPERATIONS:
             
Net investment income
  $ 82,969       $ 76,633  
Net realized gain on investments
    280,519         345,941  
Change in unrealized appreciation/depreciation
                 
  on investments
    (211,518 )       3,905,459  
Net increase in net assets resulting from operations
    151,970         4,328,033  
                   
CAPITAL SHARE TRANSACTIONS:
                 
Proceeds from shares sold
    9,218,037         9,409,735  
Shares issued to holders in reinvestment of distributions
    399,253         325,192  
Cost of shares redeemed
    (3,881,622 )       (1,934,888 )
Net increase in net assets resulting
                 
  from capital share transactions
    5,735,668         7,800,039  
                   
DISTRIBUTIONS TO
                 
INSTITUTIONAL CLASS SHAREHOLDERS:
                 
From net investment income
    (76,463 )       (70,596 )
From net realized gains
    (340,398 )       (265,202 )
Total Distributions
    (416,861 )       (335,798 )
                   
DISTRIBUTIONS TO
                 
INVESTOR CLASS SHAREHOLDERS:
                 
From net investment income
    (2,430 )       (3,119 )
From net realized gains
    (30,893 )       (15,228 )
Total Distributions
    (33,323 )       (18,347 )
                   
TOTAL INCREASE IN NET ASSETS
    5,437,454         11,773,927  
                   
NET ASSETS:
                 
Beginning of year
    20,115,977         8,342,050  
End of year
  $ 25,553,431       $ 20,115,977  
 

 

The accompanying notes are an integral part of these financial statements.

 
Page 44

 

Financial Highlights
Baird LargeCap Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013(1)
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 7.92     $ 9.86     $ 8.71     $ 8.93     $ 7.57  
Income from
                                       
  investment operations:
                                       
Net investment income
    0.09 (2)     0.03 (2)     0.04 (2)     0.01       0.01  
Net realized and unrealized
                                       
  gains (losses) on investments
    1.10       3.16       1.15       (0.22 )     1.36  
Total from investment operations
    1.19       3.19       1.19       (0.21 )     1.37  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.08 )     (0.04 )     (0.04 )     (0.01 )     (0.01 )
Distributions from
                                       
  net realized gains
    (0.10 )     (5.09 )                  
Total distributions
    (0.18 )     (5.13 )     (0.04 )     (0.01 )     (0.01 )
Net asset value, end of year
  $ 8.93     $ 7.92     $ 9.86     $ 8.71     $ 8.93  
                                         
Total return
    15.09 %     32.68 %     13.62 %     (2.34 )%     18.06 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 39.0     $ 28.0     $ 24.0     $ 20.5     $ 23.4  
Ratio of net expenses
                                       
  to average net assets
    0.75 %     0.75 %     0.75 %     0.75 %     0.75 %
Ratio of expenses to average
                                       
  net assets (before waivers)
    1.17 %     1.24 %     1.34 %     1.35 %     1.40 %
Ratio of net investment income
                                       
  to average net assets
    1.08 %     0.28 %     0.37 %     0.12 %     0.14 %
Ratio of net investment income (loss) to
                                       
  average net assets (before waivers)
    0.66 %     (0.21 )%     (0.22 )%     (0.48 )%     (0.51 )%
Portfolio turnover rate(3)
    88.2 %     127.7 %     39.2 %     38.2 %     52.0 %

(1)
Effective December 23, 2013, Baird Kailash Group, LLC became the Fund’s subadviser.
(2)
Calculated using average shares outstanding during the year.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.  The Baird LargeCap Fund’s portfolio turnover rate in 2013 was higher than previous years primarily due to the implementation of a new investment strategy for the Fund by Baird Kailash Group, LLC, the Fund’s subadviser.


The accompanying notes are an integral part of these financial statements.

 
Page 45

 

Financial Highlights
Baird LargeCap Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013(1)
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 7.87     $ 9.82     $ 8.68     $ 8.91     $ 7.56  
Income from
                                       
  investment operations:
                                       
Net investment income (loss)
    0.05 (2)     0.00 (2)(3)     0.01 (2)     (0.01 )     (0.02 )
Net realized and unrealized
                                       
  gains (losses) on investments
    1.12       3.14       1.15       (0.22 )     1.37  
Total from investment operations
    1.17       3.14       1.16       (0.23 )     1.35  
Less distributions:
                                       
Distributions from
                                       
  net investment income
    (0.07 )           (0.02 )            
Distributions from
                                       
  net realized gains
    (0.10 )     (5.09 )                  
Total distributions
    (0.17 )     (5.09 )     (0.02 )            
Net asset value, end of year
  $ 8.87     $ 7.87     $ 9.82     $ 8.68     $ 8.91  
                                         
Total return
    14.89 %     32.34 %     13.32 %     (2.58 )%     17.86 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 1.2     $ 0.2     $ 0.4     $ 0.2     $ 0.1  
Ratio of net expenses
                                       
  to average net assets
    1.00 %     1.00 %     1.00 %     1.00 %     1.00 %
Ratio of expenses to average
                                       
  net assets (before waivers)
    1.42 %     1.49 %     1.59 %     1.60 %     1.65 %
Ratio of net investment income (loss)
                                       
  to average net assets
    0.83 %     0.03 %     0.12 %     (0.13 )%     (0.11 )%
Ratio of net investment income (loss)
                                       
  to average net assets (before waivers)
    0.41 %     (0.46 )%     (0.47 )%     (0.73 )%     (0.76 )%
Portfolio turnover rate(4)
    88.2 %     127.7 %     39.2 %     38.2 %     52.0 %

(1)
Effective December 23, 2013, Baird Kailash Group, LLC became the Fund’s subadviser.
(2)
Calculated using average shares outstanding during the period.
(3)
Amount is less than $0.005.
(4)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.  The Baird LargeCap Fund’s portfolio turnover rate in 2013 was higher than previous years primarily due to the implementation of a new investment strategy for the Fund by Baird Kailash Group, LLC, the Fund’s subadviser.


The accompanying notes are an integral part of these financial statements.

 
Page 46

 

Financial Highlights
Baird MidCap Fund – Institutional Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 15.00     $ 11.52     $ 9.98     $ 10.04     $ 7.90  
Income from
                                       
  investment operations:
                                       
Net investment income (loss)
    (0.03 )(1)     (0.01 )     0.07 (1)     (0.01 )(1)     (0.01 )(1)
Net realized and unrealized
                                       
  gain on investments
    0.76       3.80       1.57       0.54       2.15  
Total from investment operations
    0.73       3.79       1.64       0.53       2.14  
Less distributions:
                                       
Distributions from
                                       
  net investment income
                (0.04 )            
Distributions from
                                       
  net realized gains
    (0.16 )     (0.31 )     (0.06 )     (0.59 )      
Total distributions
    (0.16 )     (0.31 )     (0.10 )     (0.59 )      
Net asset value, end of year
  $ 15.57     $ 15.00     $ 11.52     $ 9.98     $ 10.04  
                                         
Total return
    4.85 %     32.90 %     16.49 %     5.19 %     27.09 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 910.9     $ 286.1     $ 137.2     $ 40.9     $ 33.4  
Ratio of net expenses
                                       
  to average net assets
    0.85 %     0.85 %     0.85 %     0.85 %     0.85 %
Ratio of expenses to average
                                       
  net assets (before waivers)
    0.87 %     0.87 %     0.97 %     1.21 %     1.30 %
Ratio of net investment income (loss)
                                       
  to average net assets
    (0.17 )%     (0.04 )%     0.65 %     (0.10 )%     (0.10 )%
Ratio of net investment income (loss)
                                       
  to average net assets (before waivers)
    (0.19 )%     (0.06 )%     0.53 %     (0.46 )%     (0.55 )%
Portfolio turnover rate(2)
    37.3 %     36.3 %     29.5 %     44.8 %     62.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.


The accompanying notes are an integral part of these financial statements.

 
Page 47

 

Financial Highlights
Baird MidCap Fund – Investor Class

   
Year Ended December 31,
 
   
2014
   
2013
   
2012
   
2011
   
2010
 
Per Share Data:
                             
Net asset value, beginning of year
  $ 14.45     $ 11.13     $ 9.66     $ 9.76     $ 7.69  
Income from
                                       
  investment operations:
                                       
Net investment income (loss)
    (0.06 )(1)     (0.03 )     0.04 (1)     (0.03 )(1)     (0.03 )(1)
Net realized and unrealized gain
                                       
  on investments
    0.73       3.66       1.52       0.52       2.10  
Total from investment operations
    0.67       3.63       1.56       0.49       2.07  
Less distributions:
                                       
Distributions from
                                       
  net investment income
                (0.03 )            
Distributions from
                                       
  net realized gains
    (0.16 )     (0.31 )     (0.06 )     (0.59 )      
Total distributions
    (0.16 )     (0.31 )     (0.09 )     (0.59 )      
Net asset value, end of year
  $ 14.96     $ 14.45     $ 11.13     $ 9.66     $ 9.76  
                                         
Total return
    4.62 %     32.62 %     16.16 %     4.93 %     26.92 %
                                         
Supplemental data and ratios:
                                       
Net assets, end of year (millions)
  $ 205.4     $ 143.1     $ 84.1     $ 2.6     $ 1.1  
Ratio of net expenses to
                                       
  average net assets
    1.10 %     1.10 %     1.10 %     1.10 %     1.10 %
Ratio of expenses to average
                                       
  net assets (before waivers)
    1.12 %     1.12 %     1.22 %     1.46 %     1.55 %
Ratio of net investment income (loss)
                                       
  to average net assets
    (0.42 )%     (0.29 )%     0.40 %     (0.35 )%     (0.35 )%
Ratio of net investment income (loss)
                                       
  to average net assets (before waivers)
    (0.44 )%     (0.31 )%     0.28 %     (0.71 )%     (0.80 )%
Portfolio turnover rate(2)
    37.3 %     36.3 %     29.5 %     44.8 %     62.7 %

(1)
Calculated using average shares outstanding during the year.
(2)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.


The accompanying notes are an integral part of these financial statements.

 
Page 48

 

Financial Highlights
Baird SmallCap Value Fund – Institutional Class

               
May 1, 2012^
 
               
through
 
   
Year Ended December 31,
   
December 31,
 
   
2014
   
2013
   
2012
 
Per Share Data:
                 
Net asset value, beginning of period
  $ 14.01     $ 10.20     $ 10.00  
Income from investment operations:
                       
Net investment income(1)
    0.05       0.07       0.15  
Net realized and unrealized
                       
  gain on investments
    0.01       3.99       0.20  
Total from investment operations
    0.06       4.06       0.35  
Less distributions:
                       
Distributions from net investment income
    (0.05 )     (0.05 )     (0.12 )
Distributions from net realized gains
    (0.20 )     (0.20 )     (0.03 )
Total distributions
    (0.25 )     (0.25 )     (0.15 )
Net asset value, end of period
  $ 13.82     $ 14.01     $ 10.20  
                         
Total return
    0.42 %     39.85 %     3.52 %(2)
                         
Supplemental data and ratios:
                       
Net assets, end of period (millions)
  $ 23.5     $ 19.0     $ 8.1  
Ratio of net expenses to average net assets
    1.00 %     1.00 %     1.00 %(3)
Ratio of expenses to
                       
  average net assets (before waivers)
    1.55 %     2.02 %     3.06 %(3)
Ratio of net investment income to
                       
  average net assets
    0.36 %     0.71 %     2.32 %(3)
Ratio of net investment income (loss) to
                       
  average net assets (before waivers)
    (0.19 )%     (0.31 )%     0.26 %(3)
Portfolio turnover rate(4)
    41.9 %     36.9 %     24.6 %(2)

^
Inception date.
(1)
Calculated using average shares outstanding during the period.
(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.


The accompanying notes are an integral part of these financial statements.

 
Page 49

 

Financial Highlights
Baird SmallCap Value Fund – Investor Class

               
May 1, 2012^
 
               
through
 
   
Year Ended December 31,
   
December 31,
 
   
2014
   
2013
   
2012
 
Per Share Data:
                 
Net asset value, beginning of period
  $ 13.98     $ 10.19     $ 10.00  
Income from investment operations:
                       
Net investment income(1)
    0.02       0.04       0.14  
Net realized and unrealized
                       
  gain on investments
    0.00 (2)     3.99       0.19  
Total from investment operations
    0.02       4.03       0.33  
Less distributions:
                       
Distributions from net investment income
    (0.02 )     (0.04 )     (0.11 )
Distributions from net realized gains
    (0.20 )     (0.20 )     (0.03 )
Total distributions
    (0.22 )     (0.24 )     (0.14 )
Net asset value, end of period
  $ 13.78     $ 13.98     $ 10.19  
                         
Total return
    0.13 %     39.58 %     3.32 %(3)
                         
Supplemental data and ratios:
                       
Net assets, end of period (millions)
  $ 2.1     $ 1.1     $ 0.2  
Ratio of net expenses to average net assets
    1.25 %     1.25 %     1.25 %(4)
Ratio of expenses to
                       
  average net assets (before waivers)
    1.80 %     2.27 %     3.31 %(4)
Ratio of net investment income to
                       
  average net assets
    0.11 %     0.46 %     2.07 %(4)
Ratio of net investment income (loss) to
                       
  average net assets (before waivers)
    (0.44 )%     (0.56 )%     0.01 %(4)
Portfolio turnover rate(5)
    41.9 %     36.9 %     24.6 %(3)

^
Inception date.
(1)
Calculated using average shares outstanding during the period.
(2)
Amount is less than $0.005.
(3)
Not annualized.
(4)
Annualized.
(5)
Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.


The accompanying notes are an integral part of these financial statements.

 
Page 50

 

Notes to the Financial Statements
December 31, 2014

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 investment 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 Value Fund (each a “Fund” and collectively the “Funds”), three of the nine series comprising the Corporation. Pursuant to the 1940 Act, the Funds are “diversified” series of the Corporation. The investment advisor to the Funds is Robert W. Baird & Co. Incorporated (“Baird” or the “Advisor”).
 
The Baird LargeCap Fund commenced with the sale of both Institutional and Investor Class Shares on September 29, 2000. The Baird MidCap Fund commenced with the sale of both Institutional and Investor Class Shares on December 29, 2000. The Baird SmallCap Value Fund commenced with the sale of both Institutional and Investor Class Shares on May 1, 2012.  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%.  See Note 8.
 
The Baird LargeCap Fund seeks long-term growth of capital through investments in equity securities of large-capitalization companies.
 
The Baird MidCap Fund seeks long-term growth of capital through investments in equity securities of mid-capitalization companies.
 
The Baird SmallCap Value Fund seeks long-term growth of capital through investments in equity securities of small-capitalization companies.
 
On December 31, 2014, shareholders affiliated with the Advisor held 90% of the Institutional Class shares of the Baird LargeCap Fund and 51% of the Institutional Class shares of the Baird SmallCap Value Fund.  These shareholders included the Advisor’s participant-directed retirement and deferred compensation plans and the Baird Foundation.
 
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 – Section 2(a)(41) of the 1940 Act, together with the rules and interpretations of the SEC, require the Funds, in computing net asset value, to value their portfolio securities using market quotations when they are “readily available.” When market quotations are not readily available (e.g., because there is no regular market quotation for such securities, the market for such security is limited, the validity of quotations is questionable or, for debt securities, the Funds’ independent pricing service, does not provide a price), the Board of Directors of the Corporation must value the securities at “fair value determined in good faith.” The Board has delegated such responsibility to the Advisor pursuant to pricing policies and procedures that the Board has adopted and regularly reviews. In general, the “fair value” of a security means the price that would be received to sell a security in an orderly transaction between market participants at the measurement date.
 
 
The Funds determine the fair value of their investments and compute their net asset value per share as of the close of regular trading of the New York Stock Exchange (4:00 p.m. EST).
 
 
Consistent with Section 2(a)(41) of the 1940 Act, the Funds price their securities as follows: common stocks that are listed on a securities exchange (other than NASDAQ) are valued at the last quoted sale 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.  Securities that were not traded on the valuation date, as well as stocks that are not listed on an exchange, including
 

 
Page 51

 

Notes to the Financial Statements
December 31, 2014

2.
Significant Accounting Policies (cont.)
 
 
NASDAQ, are valued at the average of the current bid and asked price.  Debt securities are valued at their evaluated bid prices as provided by an independent pricing service using valuation methods that are designed to represent fair value, such as matrix pricing and other analytical pricing models, market transactions and dealer quotations.  Debt securities purchased with maturities of 60 days or less are valued as described above unless an evaluated price is not available, in which case such security is valued at acquisition cost, plus or minus any amortized discount or premium (“amortized cost”), or, if the Advisor does not believe amortized cost is reflective of the value of the security, the security is priced at fair value as described below.  Investments in mutual funds are valued at their stated net asset value. Other assets and securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Advisor in accordance with procedures approved by the Corporation’s Board of Directors.  In accordance with such procedures, the Advisor may use broker quotes or prices obtained from alternative independent pricing services or, if the broker quotes or prices from alternative pricing services are unavailable or deemed to be unreliable, fair value will be determined by a valuation committee of the Advisor.  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 there is no single standard for determining a security’s fair value.  As a result, different mutual funds could reasonably arrive at a different fair value for the same security. It is possible that the fair value determined for a security is materially different from the value that could be realized upon the sale of that security or from the values that other mutual funds may determine. In addition, given the volatility and periodic illiquidity experienced in recent years, the prices determined for any individual security on any given day may vary significantly from the amount that can be obtained in an actual sale of that security, and the Funds’ NAV may fluctuate significantly from day to day or from period to period.
 
b)
Foreign Securities – Foreign securities are defined as securities issued by companies that are organized outside the United States.  Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government.  These risks include foreign currency fluctuations and 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.  Occasionally, events that affect these values and exchange rates may occur after the close of the exchange on which such securities are traded.  If such events materially affect the value of a Fund’s securities, these securities may be valued at their fair value pursuant to procedures adopted by the Board of Directors.  All of the foreign securities owned by the Funds as of December 31, 2014 are traded directly on the New York Stock Exchange or NASDAQ or through an American Depository Receipt (ADR).
 
c)
Income Tax Status – The Funds intend to continue to qualify as regulated investment companies as provided in subchapter M of the Internal Revenue Code and to distribute substantially all of their taxable income to their shareholders in a manner which results in no tax expense to the Funds.  Therefore, no federal income or excise tax provision is recorded.
 
 
There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014, or for any other tax years which are open for exam.  As of December 31, 2014, open tax years include the tax years ended December 31, 2011 through 2014.  The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.  The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as interest expense and other expense, respectively, in the Statement of Operations.  During the year, the Funds did not incur any interest or penalties.
 

 
Page 52

 

Notes to the Financial Statements
December 31, 2014

2.
Significant Accounting Policies (cont.)
 
d)
Distributions to Shareholders – Dividends from net investment income, if any, are declared and paid annually.  Distributions of net realized capital gains, if any, are declared and paid at least annually.  The book basis character of distributions may differ from their ultimate characterization for Federal income tax purposes.
 
e)
Allocation of Income and Expenses – Each Fund is charged for those expenses directly attributable to it. 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 of the Corporation 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 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)
Securities Transactions and Investment Income – 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 net of withholding taxes, if any, and interest income is recognized on an accrual basis.
 
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 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.
 
i)
Recent Accounting Pronouncement – In June 2014, the FASB issued ASU No. 2014-11 “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” ASU No. 2014-11 makes limited changes to the accounting for repurchase agreements, clarifies when repurchase agreements and securities lending transactions should be accounted for as secured borrowings, and requires additional disclosures regarding these types of transactions.  The effective date of this ASU is for fiscal years beginning on or after December 15, 2014, and for interim periods within those fiscal years.  Management is currently evaluating the impact these changes will have on the Fund’s financial statement disclosures.

 

 
 

 

 
Page 53

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions
 
The following table summarizes the capital share transactions of each Fund for the past two fiscal periods:
 
Baird LargeCap Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    1,328,086     $ 11,158,768    
Shares sold
    227,284     $ 1,906,498  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    88,451       801,365    
  of dividends
    2,546       22,914  
Shares redeemed
    (597,146 )     (4,981,546 )  
Shares redeemed
    (112,615 )     (941,506 )
Net increase
    819,391     $ 6,978,587    
Net increase
    117,215     $ 987,906  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    3,541,784            
Beginning of year
    19,617          
End of year
    4,361,175            
End of year
    136,832          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    412,836     $ 4,388,931    
Shares sold
    7,175     $ 76,538  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    1,390,515       10,943,355    
  of dividends
    7,794       60,948  
Shares redeemed
    (700,194 )     (8,160,107 )  
Shares redeemed
    (31,739 )     (363,570 )
Net increase
    1,103,157     $ 7,172,179    
Net decrease
    (16,770 )   $ (226,084 )
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    2,438,627            
Beginning of year
    36,387          
End of year
    3,541,784            
End of year
    19,617          


 

 

 
Page 54

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird MidCap Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    47,418,737     $ 720,729,467    
Shares sold
    16,548,473     $ 243,199,928  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    515,098       8,107,643    
  of dividends
    133,615       2,020,253  
Shares redeemed
    (8,506,966 )     (130,128,454 )  
Shares redeemed
    (12,855,423 )     (187,144,344 )
Net increase
    39,426,869     $ 598,708,656    
Net increase
    3,826,665     $ 58,075,837  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    19,073,652            
Beginning of year
    9,902,857          
End of year
    58,500,521            
End of year
    13,729,522          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    9,558,656     $ 126,368,466    
Shares sold
    4,440,509     $ 57,675,805  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    374,122       5,585,636    
  of dividends
    200,305       2,880,396  
Shares redeemed
    (2,772,115 )     (37,423,433 )  
Shares redeemed
    (2,295,565 )     (29,492,713 )
Other capital
                 
Other capital
               
  contribution(1)
          75    
  contribution(1)
          43  
Net increase
    7,160,663     $ 94,530,744    
Net increase
    2,345,249     $ 31,063,531  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    11,912,989            
Beginning of year
    7,557,608          
End of year
    19,073,652            
End of year
    9,902,857          

(1)  Reimbursement from Advisor for trade error.
 

 
 
 

 

 
Page 55

 

Notes to the Financial Statements
December 31, 2014

3.
Capital Share Transactions (cont.)
 
Baird SmallCap Value Fund
 
Institutional Class Shares
             
Investor Class Shares
           
   
Year Ended
       
Year Ended
 
   
December 31, 2014
       
December 31, 2014
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    575,554     $ 7,984,672    
Shares sold
    89,753     $ 1,233,365  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    27,353       381,575    
  of dividends
    1,270       17,678  
Shares redeemed
    (264,424 )     (3,666,171 )  
Shares redeemed
    (15,479 )     (215,451 )
Net increase
    338,483     $ 4,700,076    
Net increase
    75,544     $ 1,035,592  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    1,358,724            
Beginning of year
    76,873          
End of year
    1,697,207            
End of year
    152,417          
                                     
Institutional Class Shares
                 
Investor Class Shares
               
   
Year Ended
       
Year Ended
 
   
December 31, 2013
       
December 31, 2013
 
   
Shares
   
Amount
       
Shares
   
Amount
 
Shares sold
    686,823     $ 8,629,742    
Shares sold
    58,124     $ 779,993  
Shares issued to
                 
Shares issued to
               
  shareholders in
                 
  shareholders in
               
  reinvestment
                 
  reinvestment
               
  of dividends
    22,607       314,468    
  of dividends
    773       10,724  
Shares redeemed
    (149,451 )     (1,918,409 )  
Shares redeemed
    (1,298 )     (16,479 )
Net increase
    559,979     $ 7,025,801    
Net increase
    57,599     $ 774,238  
Shares Outstanding:
                 
Shares Outstanding:
               
Beginning of year
    798,745            
Beginning of year
    19,274          
End of year
    1,358,724            
End of year
    76,873          
 
4.
Investment Transactions and Income Tax Information
 
During the year ended December 31, 2014, purchases and sales of investment securities (excluding short-term investments) were as follows:
 
 
Baird
Baird
Baird
 
LargeCap Fund
MidCap Fund
SmallCap Value Fund
Purchases:
$35,427,809
$926,488,862
$15,076,074
Sales:
$28,596,613
$309,742,990
$  9,690,701
 
The Baird LargeCap Fund, Baird MidCap Fund and Baird SmallCap Value Fund did not purchase or sell U.S. Government securities during the year ended December 31, 2014.
 

 
Page 56

 

Notes to the Financial Statements
December 31, 2014

4.
Investment Transactions and Income Tax Information (cont.)
 
At December 31, 2014, accumulated earnings/losses on a tax basis were as follows:
 
   
Baird
   
Baird
   
Baird
 
   
LargeCap
   
MidCap
   
SmallCap
 
   
Fund
   
Fund
   
Value Fund
 
Cost of Investments
  $ 36,021,682     $ 986,120,823     $ 21,558,762  
Gross unrealized appreciation
    4,847,959       174,862,351       5,066,368  
Gross unrealized depreciation
    (730,091 )     (47,140,198 )     (1,170,859 )
Net unrealized appreciation
  $ 4,117,868     $ 127,722,153     $ 3,895,509  
Undistributed ordinary income
    404,074              
Undistributed long-term capital gain
          1,763,226        
Total distributable earnings
  $ 404,074     $ 1,763,226     $  
Other accumulated losses
                (95,318 )
Total accumulated earnings
  $ 4,521,942     $ 129,485,379     $ 3,800,191  
 
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. The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales.
 
Additionally, U.S. generally accepted accounting principles require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting.  These reclassifications are primarily due to differing treatments for losses deferred due to wash sales, equalization accounting for tax purposes, and non-deductible expenses.  These reclassifications have no effect on net assets or net asset value per share. For the year ended December 31, 2014, the following table shows the reclassifications made:
 
 
Undistributed Net
 
Accumulated Net
       
 
Investment Income/(Loss)
 
Realized Gain/(Loss)
   
Paid In Capital
 
Baird LargeCap Fund
  $ 2,278       $ (2,278 )     $  
Baird MidCap Fund
    2,059,677         (2,400,798 )       341,121  
Baird SmallCap Value Fund
    (4,076 )       (68,186 )       72,262  
 
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, 2014, Baird SmallCap Fund elected to defer capital losses occurring between November 1, 2014 and December 31, 2014 in the amount of $95,318.
 
To the extent the Fund realizes future net capital gains, those gains will be offset by any unused capital loss carryovers. During the year ended December 31, 2014, the Baird LargeCap Fund, Baird MidCap Fund and Baird SmallCap Fund did not use any capital loss carryovers.
 
During the year ended December 31, 2014, the Funds paid the following dividends:
 
 
Ordinary Income Dividends
 
Long-Term Capital Gain
Baird LargeCap Fund
  $ 780,172       $ 44,108  
Baird MidCap Fund
    990,315         10,400,377  
Baird SmallCap Value Fund
    107,742         342,442  
 
 

 
Page 57

 

Notes to the Financial Statements
December 31, 2014

4.
Investment Transactions and Income Tax Information (cont.)
 
During the year ended December 31, 2013, the Funds paid the following dividends:
 
 
Ordinary Income Dividends
 
Long-Term Capital Gain
Baird LargeCap Fund
  $ 76,300       $ 10,928,003  
Baird MidCap Fund
    5,304,795         3,439,509  
Baird SmallCap Value Fund
    98,898         255,247  
 
The Funds designated as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Funds related to net capital gain to zero for the tax year ended December 31, 2014.  To the extent necessary to fully distribute such capital gains, the Baird MidCap Fund and Baird SmallCap Value Fund also designated earnings and profits distributed to shareholders on the redemption of shares.
 
5.
Investment Advisory and Other Agreements
 
The Funds have entered into Investment Advisory Agreements with Baird for the provision of investment advisory services.  Pursuant to the Investment Advisory Agreements, 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 Value Fund as applied to the respective Fund’s average daily net assets.  Certain officers of the Advisor are also officers of the Funds.
 
Baird has entered into a Sub-Advisory Agreement with Baird Kailash Group, LLC (“BKG”), pursuant to which BKG acts as subadvisor to the Baird LargeCap Fund (the “Sub-Advisory Agreement”).  Baird is responsible for paying BKG a subadvisory fee, which is calculated daily and paid monthly at the annual rate of 0.45% of the average daily net assets of the Baird LargeCap Fund, out of the advisory fee that the Baird LargeCap Fund pays to Baird.  Certain officers of BKG are also officers of the Funds.
 
For the year ended December 31, 2014 and through April 30, 2016, the Advisor has contractually agreed to waive its  investment advisory fee and/or reimburse the Funds’ operating expenses (exclusive of brokerage, taxes, and extraordinary  expenses) to the extent necessary to ensure that each Fund’s annual operating expenses do not exceed the following  percentages of average daily net assets:
 
 
Institutional Class Shares
Investor Class Shares
Baird LargeCap Fund
0.75%
1.00%
Baird MidCap Fund
0.85%
1.10%
Baird SmallCap Value Fund
1.00%
1.25%
 
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 its total annual operating expenses exceed the expense limits in effect at the time the expenses were reimbursed or at the time these payments are proposed.
 
   
Fiscal Year Ended December 31,
 
   
2014
   
2013
   
2012
 
Reimbursed/Absorbed Expenses Subject
                 
  to Recovery by Advisor Until:
 
2017
   
2016
   
2015
 
Baird LargeCap Fund
  $ 141,765     $ 136,777     $ 141,680  
Baird MidCap Fund
  $ 143,779     $ 73,919     $ 153,676  
Baird SmallCap Value Fund
  $ 132,231     $ 133,527     $ 91,176 (1)
 
(1)
Amount shown reflects expense reimbursements made by the Advisor from May 1, 2012 (inception date) through December 31, 2012.
 

 
Page 58

 

Notes to the Financial Statements
December 31, 2014

U.S. Bancorp Fund Services, LLC (“USBFS”) serves as transfer agent, administrator, and accounting services agent for the Funds. U.S. Bank, N.A. (“U.S. Bank”) serves as custodian for the Funds.  Effective June 20, 2014, U.S. Bank is considered an “affiliated person” of the Funds for purposes of the 1940 Act, as a result of U.S. Bank’s fiduciary accounts for which it has investment authority and/or voting authority collectively acquiring 5% or more of the shares of the Baird Aggregate Bond Fund, a separate series of the Company.  As a result, USBFS is an affiliated person of an affiliated person (or a “second tier” affiliate) of 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 Value Fund for the year ended December 31, 2014.
 
6.
Securities Lending
 
Each Fund may lend up to one-third of its total assets (including such loans) to borrowers under terms of participation in  a securities lending program administered by U.S. Bank N.A., the Funds’ custodian and an affiliated person of the Funds, and an affiliate of USBFS, the Funds’ transfer  agent and administrator, and a second-tier affiliate of the Funds.  The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the market value of any loaned securities at the time of the loan, plus accrued interest.
 
The Funds receive compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. Each Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Each Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand.
 
As of December 31, 2014, none of the Funds had securities on loan.  When a Fund engages in securities lending, loaned securities are collateralized by cash equivalents. The cash collateral is invested by the custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. A Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Funds are indemnified from this risk by contract with the securities lending agent.
 
The Funds receive cash as collateral in return for securities lent as part of a securities lending program. The collateral is invested in the Mount Vernon Securities Lending Prime Portfolio (a securities lending trust subject to Rule 2a-7 under the 1940 Act).
 
The interest income earned by the Funds, if any, on investments of cash collateral received from borrowers for the securities loaned to them (“securities lending income”) is reflected in the Funds’ statements of operations. The Funds did not participate in the securities lending program during the year ended December 31, 2014.
 
7.
Line of Credit
 
The Corporation maintains an uncommitted, senior secured and unsecured line of credit (“LOC”) with U.S. Bank, N.A. (the “Bank”) to provide the Funds a temporary liquidity source to meet unanticipated redemptions.  The unsecured line of credit is available to the Funds for any period during which U.S. Bank is an affiliate of the Funds.  Under the terms of the LOC, borrowings for each Fund are limited to one-third of the total assets (including the amount borrowed) of the respective Fund, or as otherwise indicated within the Funds’ agreement with the Bank. The Bank charged interest at the Bank’s Prime Rate less 2% (weighted average rate of 1.25% during 2014). For the year ended December 31, 2014, the Funds did not borrow on the LOC.
 

 
Page 59

 

Notes to the Financial Statements
December 31, 2014

8.
Distribution and Shareholder Service Plan
 
The Funds have adopted a distribution and shareholder service plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan allows the Funds to compensate the Distributor for the costs incurred in distributing the Funds’ Investor Class Shares, including amounts paid to brokers or dealers, at an annual rate of 0.25% of the average daily net assets of the Funds’ Investor Class Shares. The Baird LargeCap Fund, Baird MidCap Fund and Baird SmallCap Value Fund incurred $1,770, $569,959 and $4,509, respectively, in fees pursuant to the Plan during the year ended December 31, 2014.
 
9.
Subsequent Event
 
In preparing these financial statements, the Corporation has evaluated subsequent events after December 31, 2014 through the date the financial statements were issued.  There were no subsequent events since December 31, 2014 that would require adjustment to or additional disclosure in these financial statements.
 

 
 
 
 
 

 

 
Page 60

 

Report of Independent Registered Public
Accounting Firm

Board of Directors and Shareholders
Baird Funds, Inc.
 
We have audited the accompanying statements of assets and liabilities of Baird LargeCap Fund, Baird MidCap Fund and Baird SmallCap Value Fund (three of the nine funds constituting Baird Funds, Inc.) (collectively the “Funds”), including the schedules of investments, as of December 31, 2014, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for the Baird LargeCap Fund and Baird MidCap Fund, the statement of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the two years in the period then ended and for the period from May 1, 2012 (inception) to December 31, 2012, for the Baird SmallCap Value Fund. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
We conducted our audits 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the aforementioned Funds of Baird Funds, Inc. as of December 31, 2014, and the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.
 

 
Chicago, Illinois
 
February 26, 2015
 


 
Page 61

 

Directors & Officers
As of December 31, 2014

Independent Directors
 
G. Frederick Kasten, Jr.
 
Independent Director and Chairman
Term of Office:  Indefinite
Length of Time Served:  Since September 2000
Age:  75
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Chairman, the Advisor (January 2000-December 2005); Chairman and CEO, the Advisor (January 1998-January 2000); President, Chairman and CEO, the Advisor (June 1983-January 1998); President, the Advisor (January 1979-January 1983)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  None

John W. Feldt
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since September 2000
Age:  72
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Senior Vice President-Finance, University of Wisconsin Foundation (1985-2006); Vice President-Finance, University of Wisconsin Foundation (1980-1985); Associate Director, University of Wisconsin Foundation (1967-1980)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Thompson Plumb Funds, Inc., a mutual fund complex (3 portfolios)

Frederick P. Stratton, Jr.
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since May 2004
Age:  75
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Retired; Chairman Emeritus, Briggs & Stratton Corporation, a manufacturing company, since 2003; Chairman of the Board, Briggs & Stratton Corporation (2001-2002); Chairman and CEO, Briggs & Stratton Corporation (1986-2001)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Weyco Group, Inc., a men’s footwear distributor.

Marlyn J. Spear, CFA
 
Independent Director
Term of Office:  Indefinite
Length of Time Served:  Since January 2008
Age:  61
 
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Chief Investment Officer, Building Trades United Pension Trust Fund, since July 1989; Investment Officer, Northwestern Mutual Financial Network (1988-1989); Assistant Vice-President, Firstar Trust Company (1978-1987); Financial Analyst, Harco Holdings, Inc. (1976-1978)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Management Trustee of AFL-CIO Housing Investment Trust, a mutual fund complex (1 portfolio)

 

 
Page 62

 

Directors & Officers
As of December 31, 2014

Interested Directors and Officers
 
Cory L. Nettles*
 
Interested Director
Term of Office:  Indefinite
Length of Time Served:  Since January 2008
Age:  44
 
c/o Generation Growth Capital, Inc.
411 East Wisconsin Avenue, Suite 1710
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, Generation Growth Capital, Inc., a private equity fund, since March 2007; Of Counsel, Quarles & Brady LLP, a law firm, since January 2005; Secretary, Wisconsin Department of Commerce (January 2003-January 2005)
 
Number of Portfolios in Complex Overseen by Director:  9
 
Other Directorships Held by Director:  Director of Weyco Group, Inc., a men’s footwear distributor;
Director of Associated Banc-Corp

Mary Ellen Stanek
 
President
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since September 2000
Age: 58
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, the Advisor, and Chief Investment Officer, Baird Advisors, a department of the Advisor, since March 2000; Director, Baird Kailash Group, LLC since December 2013

Charles B. Groeschell
 
Vice President
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since January 2010
Age: 61
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Managing Director, the Advisor, and Senior Portfolio Manager, Baird Advisors, a department of the Advisor, since February 2000

Angela M. Palmer
 
Chief Compliance Officer
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since March 2014
Age:  43
 
777 East Wisconsin Ave
Milwaukee, WI 53202
 
Chief Compliance Officer, the Advisor, since March 2014; Director, the Advisor, since July 2014; Senior Vice President, the Advisor (March 2014-June 2014); Chief Compliance Officer, RIAs US, BMO Financial Group (January 2013-March 2014); Chief Compliance Officer, Institutional RIAs, BMO Financial Group (March 2012-January 2013); Vice President, BMO Harris Bank, N.A. (July 2011-March 2014); Chief Compliance Officer, Taplin, Canida & Habacht, LLC (December 2008-March 2014); Chief Compliance Officer and Vice President, M&I Investment Management Corp. (June 2006-May 2012); Assistant Secretary, M&I Investment Management Corp. (April 2010-May 2012); Vice President, Marshall & Ilsley Trust Company N.A. (June 2006-August 2012).

Dominick P. Zarcone
 
Treasurer
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since March 2011
Age: 56
 
777 East Wisconsin Avenue
Milwaukee, WI  53202
 
Principal Occupation(s) During the Past 5 Years:  Chief Financial Officer, the Advisor, since March 2011; Chief Financial Officer, Baird Financial Group, since October 2012; Chief Operating Officer-Investment Banking, the Advisor (June 2004-March 2011); Managing Director, the Advisor, since February 1995

 
Page 63

 

Directors & Officers
As of December 31, 2014

Interested Directors and Officers
 
Charles M. Weber
 
Secretary
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since September 2005
Age: 51
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years: Senior Associate General Counsel, the Advisor, since January 2013; Managing Director, the Advisor since January 2009; Chief Compliance Officer and Secretary, Baird Kailash Group, LLC, since July 2013; Associate General Counsel, the Advisor (July 2005-December 2012)

Peter J. Hammond
 
Vice President
Term of Office: Re-elected by Board annually
Length of Time Served: Since August 2012
Age: 51
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:
Senior Vice President, the Advisor, since March 2012; Vice President, Baird Kailash Group, LLC since July 2013; Executive VP and Chief Administrative Officer, UMB Fund Services (September 1996-March 2012)

Dustin J. Hutter
 
Assistant Treasurer
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since February 2011
Age: 38
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Director of Reporting and Analysis, Capital Markets Finance since February 2013; Senior Vice President, the Advisor, since January 2011; Treasurer, Baird Kailash Group, LLC since July 2013; First Vice President, the Advisor (January 2008-December 2010); Vice President, the Advisor (January 2006-December 2007); Assistant Controller, the Advisor (January 2006-January 2013)

Andrew D. Ketter
 
Assistant Secretary
Term of Office:  Re-elected by Board annually
Length of Time Served:  Since February 2011
Age: 40
 
777 East Wisconsin Avenue
Milwaukee, WI 53202
 
Principal Occupation(s) During the Past 5 Years:  Associate General Counsel, the Advisor, since September 2010; Director, the Advisor, since July 2014; Senior Vice President, the Advisor, (January 2014-June 2014); First Vice President, the Advisor September 2010 to December 2013; Associate, Quarles & Brady LLP, a law firm (September 2002-August 2010)

Edgar L. Sturkey
 
AML Compliance Officer
Term of Office:  Re-elected by Board annually
Length of Time Served: Since March 2014
Age: 30
 
777 East Wisconsin Ave
Milwaukee, WI 53202
 
Principal Occupation(s) During Past 5 Years:
Senior Compliance Officer and Vice President, the Advisor, since January 2015; Compliance Officer and Vice President, the Advisor (January 2013-December 2014); Compliance Officer and Assistant Vice President, the Advisor (January 2011-December 2012); Compliance Analyst, the Advisor (November 2009-December 2010).


*
Mr. Nettles is considered an “interested person” of the Corporation (as defined in the 1940 Act) because of his association with the law firm, Quarles & Brady LLP, which provides legal services to the Advisor.  The legal services that Quarles & Brady LLP has provided to the Advisor include litigation, real estate, trademark and miscellaneous securities related matters that did not relate to the Corporation or the Funds..  The Advisor has invested in and may in the future invest in private equity funds managed by Generation Growth Capital, Inc., a company of which Mr. Nettles is affiliated, through its division, Baird Capital.

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, or at www.bairdfunds.com.

 
Page 64

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Equity Funds
 
The Board of Directors (the “Board”) of Baird Funds, Inc. (the “Corporation”), including the directors who are not “interested persons” of the Corporation within the meaning of the Investment Company Act of 1940 (the “Independent Directors”), met on August 13 and August 21, 2014 to consider the annual renewal of the investment advisory agreement between Robert W. Baird & Co. Incorporated (“Baird” or the “Advisor”) and the Corporation on behalf of the Baird MidCap and SmallCap Value Funds (the “Funds”).  The Board, including the Independent Directors, approved the investment advisory agreement through a process that concluded at the August 21, 2014 meeting.  In connection with its consideration of the investment advisory agreement, the Board reviewed and discussed various information that had been provided prior to the meeting, including the investment advisory agreement, a memorandum provided by legal counsel summarizing the guidelines relevant to the Board’s consideration of the renewal of the investment advisory agreement, a memorandum and other information provided in response to requests from the Board, from the Advisor (including the Advisor’s Form ADV brochure, annual report and financial statements), a profitability analysis, comparative information about the Funds’ performance for periods ended June 30, 2014, management fees and expense ratios, and other pertinent information.  The Board also considered relevant case law.
 
The Independent Directors met separately in executive session with the Funds’ legal counsel to consider the investment advisory agreement.  The Board discussed the Advisor’s 15(c) response at the August 13, 2014 special meeting and discussed various questions and information with the President of the Funds at the August 13, 2014 meeting and during executive session earlier in the meeting.  The Board also took into account information reviewed periodically throughout the year that was relevant to its consideration of the investment advisory agreement, including performance, management fee and other expense information and discussions with the Funds’ portfolio managers.  Based on its evaluation of this information, the Board, including a majority of the Independent Directors, approved the continuation of the investment advisory agreement for an additional one-year period.
 
In considering the investment advisory agreement and reaching its conclusions, the Board reviewed and analyzed various factors that it determined were relevant, including the factors below.  In deciding to approve the investment advisory agreement for each Fund, the Board did not identify any single factor as determinative but considered all factors together.
 
Nature, Extent and Quality of Services Provided to the Funds
The Board analyzed the nature, extent and quality of the services provided by the Advisor to the Funds.  The Board reviewed and considered the Advisor’s significant role in establishing the Funds and the construction of their investment objectives, principal strategies, investment limitations and fee structures.  The Board noted the Advisor’s overall reputation and positive name recognition, the depth of the Advisor’s personnel, resources and commitment to the Funds, and the experience, credentials and continuity of the portfolio management teams employed to manage the Funds’ investments.  The Board further noted that the Funds provide an opportunity for smaller institutional and retail accounts to receive the same professional advice from the Advisor that it offers to its larger institutional clients.  However, the Board noted that the provision of investment advisory services to the Funds requires more effort than it does for separately managed accounts due to daily sales and redemption activity and additional regulatory and compliance requirements.
 
The Board considered the Advisor’s disciplined investment decision-making process used for the Funds.  The Board also considered other services that the Advisor provides the Funds in its capacity as their investment advisor, such as making some of its key personnel available to serve as officers of the Funds, selecting broker-dealers for execution of portfolio transactions, ensuring adherence to the Funds’ investment policies and restrictions, compliance, risk management services, valuation, providing support services to the Board and the committees of the Board and overseeing the Funds’ other service providers.  The Board further noted that the Advisor, in its capacity as a registered broker-dealer, also serves as distributor and principal underwriter of
 

 
Page 65

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Equity Funds (cont.)
 
shares of the Funds and spends time and effort marketing the Funds.  The Board also considered the strength of the Advisor’s compliance department, including the Funds’ chief compliance officer, and the fact that the Advisor has not experienced any significant legal, compliance or regulatory difficulties since the Funds were launched.  The Board reviewed a summary of the Advisor’s risk management tools and process.  The Board concluded that the nature, extent and quality of the services provided by the Advisor to the Funds were appropriate and that each Fund was likely to continue to benefit from services provided under the investment advisory agreement.
 
Investment Performance of the Advisor and the Funds
In considering the investment performance of each of the Funds, the Board reviewed information as of June 30, 2014 regarding the Fund’s performance in comparison to its benchmark index and its peer group as determined by Lipper.  The Board  noted that the performance of the Baird MidCap Fund had exceeded its Lipper peer group average for the five-year, ten-year and since inception periods but lagged the average for the one-year period.  The Fund’s performance had exceeded the benchmark index for the five-year and since inception periods but lagged the index for the one-year and ten-year periods.  With respect to the SmallCap Value Fund, the Board noted that the Fund had exceeded its Lipper peer group average and benchmark index for the one-year period and had slightly trailed the peer group average and benchmark index for the since inception period.
 
The Board also considered the Advisor’s quarterly portfolio commentaries and reviews explaining the Funds’ performance, the Advisor’s consistent and disciplined investment decision process and the investment strategies it employs for the Funds.  After considering all of the information, the Board concluded that, although past performance is not a guarantee of future results, each Fund and its shareholders were likely to benefit from the continued management by the Advisor.
 
Costs of Services Provided and Profits Realized by the Advisor
The Board examined the fee and expense information for each of the Funds, including a comparison of such information to other similarly situated mutual funds as determined by Morningstar.  The Board noted that each Fund’s advisory fee was comparable to the average and median for all mutual funds in its Morningstar category.  The Board also reviewed and considered management fees charged by the Advisor to other investment advisory clients and found that the investment management fee paid by the MidCap Fund was 10 basis points (or 0.10%) less than what the Advisor charges on the first $10 million of a separately managed account.  With respect to the SmallCap Value Fund, the Fund’s investment management fee was 15 basis points (or 0.15%) less than what the Advisor charges on the first $20 million of a separately managed account.  The Board recognized the extent of the significant additional services provided to each Fund that the Advisor did not provide to its other clients, such as certain administrative services, oversight of the Fund’s other service providers, director support, risk management, regulatory compliance and various other services.  The Board was informed of the subadvisory fee paid to the Advisor under a subadvisory arrangement with an unaffiliated mutual fund.  The Board noted that the subadvisory services were limited to asset management and that the Advisor provided numerous other services under the advisory agreement with the Funds.
 
The Board also examined the total expense ratio of each Fund relative to all other mutual funds in its Morningstar category.  The Board noted that each Fund’s total expense ratio (both for its Institutional and Investor Class shares), after fee waivers and expense reimbursements by the Advisor, was lower than the average and median expense ratios for all funds in its Morningstar category and also but in the lowest or second lowest quartile.
 

 
Page 66

 

Baird Funds, Inc.

Disclosure Regarding the Board of Directors’ Approval of the Investment Advisory Agreement for Baird Equity Funds (cont.)
 
The Board considered the fees realized, and the costs incurred, by the Advisor in providing investment management services to the Funds and the profitability to the Advisor of having a relationship with the Funds.  The Board noted that the Advisor had waived significant fees and/or reimbursed expenses for the Funds since their respective inception dates, but that the Advisor had begun recouping previously waived management fees with respect to the MidCap Fund.
 
The Board concluded that the profits realized by the Advisor from its relationship with the Funds were appropriate.  The Board noted that the Advisor’s profitability information does not reflect certain internal resources provided by the Advisor to the Funds, such as legal and compliance support.  The Board reviewed and considered the general financial condition of the Advisor and determined it to be sound.  The Board also discussed a report regarding payments to financial intermediaries, noting that all fees other than the Rule 12b-1 fee payable by the Investor Class shares of the Funds were paid by the Advisor and any payments by the Advisor for distribution were made from the Advisor’s profits.  In light of all of the information that it received and considered, the Board concluded that the management fee and total expense ratio of each Fund were reasonable.
 
Economies of Scale and Fee Levels Reflecting Those Economies
The Board reviewed the extent to which economies of scale may be realized as the Funds increase in size.  The Board noted that the Funds’ advisory fee structure does not contain any breakpoint reductions as the Funds grow in size.  However, the Board recognized that the Advisor has committed to waive fees and/or reimburse expenses for the Funds pursuant to the expense cap agreement.  The Board also recognized that the advisory fee rates paid by the Funds were designed to be lower than the fees otherwise charged by the Advisor to its separately managed account clients and to be comparable to the second or third breakpoint advisory fee levels paid by other comparable mutual funds.  The directors concluded that the current fee structure of each Fund was reasonable.
 
Benefits Derived from the Relationship with the Funds
The Board considered other benefits to the Advisor from serving as advisor to the Funds (in addition to the advisory fee).  The Board noted that the Advisor derives ancillary benefits from its association with the Funds in the form of research products and services received from unaffiliated broker dealers who execute portfolio trades for the Funds.  However, the Board determined such products and services have been used for legitimate purposes relating to the Funds by providing assistance in the investment decision-making process.  The Board also noted that the Advisor’s financial advisors receive 12b-1 payments under the selling agreement with the Distributor. The Board noted that the Advisor’s asset management business may experience indirect benefits from the Advisor’s association with the Funds.  The Board concluded that the other benefits realized by the Advisor from its relationship with the Funds were appropriate.
 
Based on its evaluation of the above factors, as well as other factors relevant to their consideration of the investment advisory agreement, the directors, including all of the Independent Directors, concluded that the continuation of the investment advisory agreement was in the best interest of each Fund and its shareholders.

 

 
Page 67

 

Additional Information

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 www.bairdfunds.com; and by accessing the SEC’s website at www.sec.gov.
 
Each Fund’s proxy voting record for the most recent 12-month period ended June 30 is available without charge, upon request, by calling toll free, 1-866-44BAIRD, or by accessing the Funds’ website at www.bairdfunds.com; and by accessing the SEC’s website at 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’s website at 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 1-800-732-0330.  The Funds’ Forms N-Q may also be obtained by calling toll-free 1-866-44BAIRD.
 
 
Qualified Dividend Income/Dividends Received Deduction
 
For the fiscal year ended December 31, 2014, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003.  The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
 
Baird LargeCap Fund
74.19%
 
Baird MidCap Fund
43.44%
 
Baird SmallCap Value Fund
100.00%
 
 
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended December 31, 2014 was as follows:
 
Baird LargeCap Fund
69.11%
 
Baird MidCap Fund
30.82%
 
Baird SmallCap Value Fund
100.00%
 
 
Other Tax Information
 
For the fiscal year ended December 31, 2014, the percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for each Fund were as follows:
 
Baird LargeCap Fund
53.63%
 
Baird MidCap Fund
100.00%
 
Baird SmallCap Value Fund
31.72%
 

 

 


 
Page 68

 

Baird Funds, Inc. Privacy Policy

Protecting the privacy of Fund shareholders is important to us.  The following is a description of the practices and policies through which Baird Funds, Inc. protects the privacy and security of your non-public personal information.
 
What Information We Collect
 
We collect and maintain information about you so that we can open and maintain your account in the Funds and provide various services to you.  We may collect and maintain the following personal information about you:
 
 
Information we receive from you or your financial advisor on account applications or other forms, correspondence, or conversations, such as your name, address, e-mail address, phone number, social security number, assets, income and date of birth; and
 
 
Information about your transactions with us, our affiliates, or others, such as your account number and balance, positions, activity, history, cost basis information, and other financial information.
 
What Information We Disclose
 
We do not sell any non-public personal information about our current or former shareholders to third parties.  We do not disclose any non-public personal information about our current or former shareholders to anyone, except as permitted or required by law.  We are permitted by law to share any of the information we collect, as described above, with our affiliates.  In addition, we may share such information with nonaffiliated third parties to the extent necessary to effect, process, administer or enforce a transaction that the shareholder requests or authorizes, in connection with maintaining or servicing the shareholder’s account, as requested by regulatory authorities or as otherwise permitted or required by law.  For example, we are permitted by law to disclose all of the information we collect, as described above, to our transfer agent to process your transactions.  We may also provide your name and address to third party service providers who send account statements and other Fund-related material to you.
 
How We Protect Your Information
 
We restrict access to your non-public personal information to those persons who require such information to provide products or services to you.  We maintain physical, electronic, and procedural safeguards that comply with federal standards to protect the confidentiality, integrity and security of your non-public personal information.
 
We will continue to adhere to the privacy policies and practices in this notice even after your account is closed or becomes inactive.
 
In the event that you hold shares of the Fund(s) through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with nonaffiliated third parties.
 





 
Page A-1

 










Baird Funds, Inc.
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
1-866-44BAIRD




 
Board of Directors
G. Frederick Kasten, Jr. (Chairman)
John W. Feldt
Cory L. Nettles
Marlyn J. Spear
Frederick P. Stratton, Jr.

Investment Advisor and Distributor
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, WI 53202

Administrator and Transfer Agent
U.S. Bancorp Fund Services, LLC
P.O. Box 701
615 East Michigan Street
Milwaukee, WI 53202

Custodian
U.S. Bank, N.A.
1555 N. RiverCenter Drive, Suite 302
Milwaukee, WI 53212

Legal Counsel
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202

Independent Registered Public
Accounting Firm
Grant Thornton LLP
175 West Jackson Boulevard, 20th Floor
Chicago, IL 60604

 


 
 

 

Item 2. Code of Ethics.

As of the end of the period covered by this report, the Registrant has adopted a code of ethics that applies to the President, Treasurer and Assistant Treasurer of the Registrant.  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, Frederick P. Stratton,  Jr., and Marlyn J. Spear, 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, Mr. Stratton, and Ms. Spear 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 Grant Thornton LLP.  The aggregate fees billed for professional services by Grant Thornton LLP (“GT”) during the last two fiscal years were as follows:

 
FYE  12/31/2014
FYE  12/31/2013
Audit Fees
$113,400
$103,950
Audit-Related Fees
-
-
Tax Fees
$39,690
$31,920
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 for tax compliance, tax advice and tax planning, and specifically relate to GT’s review of the Registrant’s federal and state tax returns.

The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services rendered to the Registrant, as well as all non-audit services provided to the Registrant’s investment adviser and any entity affiliated with the Registrant’s investment adviser with respect to any engagement that relates directly to the operations and financial reporting of the Registrant.  In accordance with its policies and procedures, the audit committee pre-approved all audit and tax services provided by GT to the Registrant during fiscal 2014.  During the past two fiscal years, the Registrant did not receive any non-audit services from GT pursuant to any waivers of the pre-approval requirement under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.  All of GT’s hours spent on auditing the Registrant’s financial statements were attributed to work performed by full-time permanent employees of GT.

During the last two fiscal years, GT has served as the auditor to Robert W. Baird & Co. Incorporated (“RWB”), the Registrant’s investment adviser, and has rendered non-audit services to RWB. The non-audit services that GT provided to RWB in 2014 and 2013 consisted of a review of state and federal tax returns, tax and general consulting services and tax services for RWB associates working overseas. GT charged the following amounts for such non-audit services to RWB: $333,572 for 2014 and $552,151 for 2013. None of the non-audit services provided by GT to RWB directly related to the operations or financial reporting of the Registrant. During the last two fiscal years, GT has also provided audit and non-audit services to affiliates of RWB, but those affiliates do not provide ongoing services to the Registrant.  The Audit Committee has concluded that the provision of these audit and non-audit services to RWB and RWB affiliates is compatible with GT’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable because the Registrant is not a “listed issuer” within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934.

Item 6. Schedule of Investments.
 
(a)  
The complete Schedules of Investments in securities of unaffiliated issuers as of the close of the reporting period for the LargeCap Fund, MidCap Fund and SmallCap Value Fund are included as part of the report to shareholders filed under Item 1.  The Summary Schedules of Investments in securities of unaffiliated issuers as of the close of the reporting period for the Baird Ultra Short Bond Fund, Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund are included as part of the report to shareholders filed under Item 1. The complete Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period for Baird Ultra Short Bond Fund, Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund are listed below.
 
Baird Ultra Short Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                 
                   
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
LONG-TERM INVESTMENTS
                 
U.S. Treasury Securities
                 
U.S. Treasury Bonds,
                 
2.000%, 01/31/2016
  $ 10,000,000     $ 10,178,120        
2.375%, 03/31/2016
    2,500,000       2,561,720        
              12,739,840       14.9 %
Corporate Bonds
                       
Finance
                       
ABN AMRO Bank N.V.,
                       
1.033%, 10/28/2016 (Acquired 01/03/2014 through 10/03/2014, Cost $326,099) * f
    325,000       327,320          
Ally Financial Inc.,
                       
3.125%, 01/15/2016
    500,000       501,250          
American Express Company,
                       
0.823%, 05/22/2018
    500,000       499,984          
Ameriprise Financial, Inc.,
                       
5.650%, 11/15/2015
    325,000       338,110          
AmSouth Bank,
                       
Class AI, 5.200%, 04/01/2015
    400,000       404,000          
Banco Santander-Chile,
                       
1.131%, 04/11/2017 (Acquired 04/08/2014, Cost $200,000) * f
    200,000       199,107          
Barclays Bank PLC,
                       
2.500%, 01/30/2015 f
    500,000       500,207          
BB&T Corporation:
                       
5.200%, 12/23/2015
    41,000       42,635          
0.892%, 02/01/2019
    880,000       881,220          
BNP Paribas SA,
                       
0.692%, 05/07/2017 f
    1,000,000       998,574          
BPCE,
                       
1.082%, 02/10/2017 f
    500,000       503,311          
Capital One Financial Corporation,
                       
3.150%, 07/15/2016
    1,015,000       1,043,874          
Citigroup Inc.,
                       
0.506%, 06/09/2016
    950,000       940,912          
Commonwealth Bank of Australia,
                       
0.833%, 10/08/2015 (Acquired 01/03/2014, Cost $199,800) * f
    200,000       199,956          
Countrywide Financial Corporation,
                       
6.250%, 05/15/2016
    400,000       424,537          
Credit Agricole SA,
                       
1.106%, 10/03/2016 (Acquired 01/03/2014, Cost $250,404) * f
    250,000       251,559          
Credit Suisse,
                       
0.724%, 05/26/2017 f
    500,000       499,389          
Deutsche Bank Aktiengesellschaft,
                       
0.843%, 02/13/2017 f
    150,000       150,215          
Dresdner Bank AG,
                       
7.250%, 09/15/2015 f
    357,000       369,164          
Fifth Third Bancorp,
                       
0.667%, 12/20/2016
    1,000,000       992,012          
First Horizon National Corporation,
                       
5.375%, 12/15/2015
    550,000       569,416          
First Tennessee Bank National Association,
                       
5.050%, 01/15/2015
    250,000       250,321          
General Electric Capital Corporation,
                       
0.740%, 01/14/2019
    1,000,000       1,000,392          
HSBC Finance Corporation,
                       
5.500%, 01/19/2016
    300,000       313,652          
HSBC USA Inc.,
                       
0.843%, 11/13/2019
    250,000       249,993          
ING Bank N.V.,
                       
4.000%, 03/15/2016 (Acquired 03/08/2011, Cost $517,981) * f
    500,000       517,167          
J.P. Morgan Chase & Co.,
                       
Series 1, 0.863%, 01/28/2019
    250,000       249,998          
Kookmin Bank,
                       
1.109%, 01/27/2017 (Acquired 01/21/2014, Cost $250,000) * f
    250,000       251,658          
Macquarie Bank Limited,
                       
1.045%, 03/24/2017 (Acquired 03/18/2014, Cost $200,000) * f
    200,000       200,868          
Mizuho Bank, Ltd.:
                       
0.705%, 04/16/2017 (Acquired 04/09/2014, Cost $200,000) * f
    200,000       200,089          
0.684%, 09/25/2017 (Acquired 09/18/2014, Cost $300,000) * f
    300,000       300,226          
Morgan Stanley:
                       
1.007%, 01/05/2018
    500,000       500,127          
1.083%, 01/24/2019
    250,000       250,493          
National Australia Bank Limited,
                       
0.733%, 10/08/2015 (Acquired 01/03/2014, Cost $199,860) * f
    200,000       199,971          
Nomura Holdings, Inc.,
                       
5.000%, 03/04/2015 f
    250,000       251,786          
PNC Funding Corp,
                       
5.250%, 11/15/2015
    730,000       756,573          
Rabobank Nederland,
                       
0.485%, 03/07/2016 (Acquired 01/03/2014, Cost $249,625) * f
    250,000       250,445          
Raymond James Financial, Inc.,
                       
4.250%, 04/15/2016
    400,000       414,722          
Royal Bank of Canada,
                       
0.488%, 10/13/2017 f
    1,000,000       999,168          
Societe Generale,
                       
1.335%, 10/01/2018 f
    1,000,000       1,017,644          
Sumitomo Mitsui Banking Corporation,
                       
0.900%, 01/18/2016 f
    400,000       399,645          
SunTrust Bank,
                       
0.555%, 04/01/2015
    450,000       449,667          
Symetra Financial Corporation,
                       
6.125%, 04/01/2016 (Acquired 04/23/2014 through 11/24/2014, Cost $590,741) *
    560,000       587,513          
The Bank of New York Mellon Corporation,
                       
0.792%, 08/01/2018
    1,000,000       1,002,100          
The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
                       
0.545%, 09/08/2017 (Acquired 09/30/2014, Cost $998,890) * f
    1,000,000       989,930          
The Bear Stearns Companies LLC,
                       
5.300%, 10/30/2015
    294,000       304,776          
The Goldman Sachs Group, Inc.:
                       
5.350%, 01/15/2016
    555,000       579,152          
1.332%, 11/15/2018
    500,000       504,900          
The Royal Bank of Scotland Group Public Limited Company,
                       
2.550%, 09/18/2015 f
    800,000       808,010          
Wells Fargo Bank, National Association,
                       
0.442%, 05/16/2016
    250,000       249,314          
Willis North America, Inc.,
                       
5.625%, 07/15/2015
    237,000       242,739          
              24,929,791       29.2 %
Utility
                       
Exelon Corporation,
                       
4.900%, 06/15/2015
    503,000       511,995          
Orange and Rockland Utilities, Inc.,
                       
2.500%, 08/15/2015 (Acquired 03/19/2014, Cost $100,712) *
    100,000       100,655          
PPL Energy Supply, LLC,
                       
Series A, 5.700%, 10/15/2015
    600,000       613,066          
TECO Finance Inc,
                       
4.000%, 03/15/2016
    100,000       103,505          
Trans-Allegheny Interstate Line Company,
                       
4.000%, 01/15/2015 (Acquired 01/07/2014 through 06/16/2014, Cost $350,345) *
    350,000       350,275          
W3A Funding Corporation,
                       
8.090%, 01/02/2017
    38,329       38,324          
              1,717,820       2.0 %
Industrials
                       
Alibaba Group Holding Limited,
                       
0.756%, 11/28/2017 (Acquired 11/20/2014, Cost $500,000) * f
    500,000       500,983          
Amgen Inc.,
                       
0.613%, 05/22/2017
    250,000       249,461          
Anglo American Capital PLC,
                       
1.181%, 04/15/2016 (Acquired 04/08/2014 through 11/13/2014, Cost $802,361) * f
    800,000       800,805          
Becton, Dickinson and Company,
                       
0.691%, 06/15/2016
    1,000,000       1,000,238          
Bunge Limited Finance Corp.:
                       
5.100%, 07/15/2015
    405,000       413,795          
4.100%, 03/15/2016
    250,000       257,740          
Chesapeake Energy Corporation,
                       
3.481%, 04/15/2019
    500,000       490,000          
Computer Sciences Corporation,
                       
2.500%, 09/15/2015
    390,000       393,521          
ConAgra Foods, Inc.,
                       
0.601%, 07/21/2016
    375,000       374,075          
CNPC General Capital Ltd,
                       
1.133%, 05/14/2017 (Acquired 05/07/2014, Cost $250,000) * f
    250,000       250,397          
D.R. Horton, Inc.,
                       
6.500%, 04/15/2016
    390,000       411,450          
Deutsche Telekom International Finance B.V.,
                       
3.125%, 04/11/2016 (Acquired 09/17/2014, Cost $514,177) * f
    500,000       512,464          
Enbridge Inc.:
                       
0.905%, 10/01/2016 f
    750,000       749,612          
0.684%, 06/02/2017 f
    250,000       248,919          
Energy Transfer Partners, L.P.,
                       
5.950%, 02/01/2015
    299,000       299,987          
Fiserv, Inc.:
                       
3.125%, 10/01/2015
    75,000       76,292          
3.125%, 06/15/2016
    175,000       179,672          
Ford Motor Credit Company LLC:
                       
2.500%, 01/15/2016
    200,000       202,237          
4.207%, 04/15/2016
    750,000       776,284          
Glencore Canada Corporation:
                       
5.375%, 06/01/2015 f
    200,000       203,384          
6.000%, 10/15/2015 f
    200,000       206,751          
Gulf South Pipeline Company, LP,
                       
5.050%, 02/01/2015 (Acquired 09/29/2014, Cost $501,798) *
    500,000       501,489          
Hanson Limited,
                       
6.125%, 08/15/2016 f
    800,000       848,000          
Hewlett-Packard Company,
                       
1.170%, 01/14/2019
    461,000       453,112          
Hyundai Capital Services, Inc.,
                       
6.000%, 05/05/2015 (Acquired 01/09/2014 through 07/15/2014, Cost $320,387) * f
    315,000       320,259          
John Deere Capital Corporation,
                       
0.461%, 12/15/2017
    500,000       500,073          
Kinder Morgan Finance Company LLC,
                       
5.700%, 01/05/2016
    650,000       674,778          
Laboratory Corporation of America Holdings,
                       
5.625%, 12/15/2015
    1,000,000       1,040,268          
Lafarge S.A.,
                       
6.500%, 07/15/2016 f
    100,000       106,500          
Marathon Petroleum Corporation,
                       
3.500%, 03/01/2016
    1,000,000       1,024,744          
Masco Corporation,
                       
6.125%, 10/03/2016
    400,000       424,200          
McKesson Corporation,
                       
0.638%, 09/10/2015
    400,000       400,125          
Medtronic, Inc.,
                       
1.043%, 03/15/2020 (Acquired 12/01/2014, Cost $750,000) *
    750,000       749,209          
Mondelez International, Inc.,
                       
0.752%, 02/01/2019
    500,000       494,421          
Plum Creek Timberlands, L.P.,
                       
5.875%, 11/15/2015
    725,000       753,151          
Quest Diagnostics Inc,
                       
5.450%, 11/01/2015
    439,000       454,514          
Rockies Express Pipeline LLC,
                       
3.900%, 04/15/2015 (Acquired 09/30/2014 through 10/08/2014, Cost $1,073,079) *
    1,072,000       1,066,640          
Total Capital International,
                       
0.595%, 06/19/2019 f
    250,000       247,583          
Verizon Communications Inc.,
                       
1.991%, 09/14/2018
    1,063,000       1,105,793          
Volkswagen Group of America Finance, LLC:
                       
0.603%, 05/23/2017 (Acquired 05/15/2014, Cost $250,000) *
    250,000       249,280          
0.672%, 11/20/2017 (Acquired 11/12/2014, Cost $500,000) *
    500,000       499,274          
Weatherford International Ltd,
                       
5.500%, 02/15/2016 f
    400,000       412,638          
Xerox Corporation,
                       
6.400%, 03/15/2016
    843,000       894,307          
              21,818,425       25.6 %
Total Corporate Bonds
            48,466,036       56.8 %
 
Other Government Related Securities
                 
CNOOC Finance 2013 Ltd,
                 
1.125%, 05/09/2016 f
    500,000       498,228        
Corp Andina de Fomento,
                     
3.750%, 01/15/2016 f
    375,000       384,390        
Eksportfinans ASA,
                     
2.000%, 09/15/2015 f
    540,000       540,632        
Electricite de France Societe anonyme,
                     
0.691%, 01/20/2017 (Acquired 01/13/2014, Cost $250,000) * f
    250,000       250,680        
Petrobras Global Finance B.V.,
                     
2.603%, 03/17/2017 f
    250,000       230,775        
Portigon AG,
                     
4.796%, 07/15/2015 f
    411,000       418,920        
The Export-Import Bank of Korea,
                     
0.980%, 01/14/2017 f
    250,000       250,701        
                2,574,326       3.0 %
Taxable Municipal Bonds
                       
Board of Governors of Colorado State University System,
                       
0.963%, 03/01/2015
    105,000       105,043          
City of Passaic NJ,
                       
1.630%, 02/01/2015
    125,000       125,074          
City of Trenton NJ,
                       
1.430%, 04/01/2015
    440,000       440,497          
Consolidated Municipalities Electric Power Systems Joint Powers Board,
                       
1.000%, 06/01/2016
    300,000       298,794          
Cook County School District No 144 Prairie Hills:
                       
1.000%, 12/01/2015
    150,000       149,758          
1.500%, 12/01/2016
    250,000       248,928          
Madison County Community Unit School District No 12 Madison,
                       
1.950%, 01/01/2017
    200,000       199,322          
Plano Special Service Areas No 1 & 2,
                       
2.000%, 03/01/2016
    150,000       151,559          
State of Illinois,
                       
4.961%, 03/01/2016
    350,000       364,605          
Tulsa Airports Improvement Trust,
                       
1.389%, 06/01/2015
    100,000       99,963          
University of Illinois,
                       
1.308%, 02/15/2016
    700,000       699,524          
                2,883,067       3.4 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Fannie Mae Pool,
                       
5.500%, 11/01/2017
    223,343       235,906          
Federal Gold Loan Mortgage Corporation (FGLMC),
                       
5.000%, 12/01/2017
    134,810       141,622          
Federal National Mortgage Association (FNMA):
                       
5.000%, 10/01/2017
    135,152       142,372          
5.000%, 11/01/2017
    110,156       116,049          
5.000%, 12/01/2017
    96,369       101,516          
                737,465       0.9 %
Non-U.S. Government Agency Issues
                       
Banc of America Alternative Loan Trust:
                       
Series 2003-4, Class 2A1, 5.000%, 06/25/2018
    83,810       85,891          
Series 2004-1, Class 5A2, 5.500%, 02/25/2019
    66,241       68,404          
MASTR Alternative Loan Trust,
                       
Series 2004-13, Class 8A1, 5.500%, 01/25/2025
    95,241       96,176          
Morgan Stanley Mortgage Loan Trust,
                       
Series 2004-4, Class 1A10, 5.000%, 08/25/2034
    89,878       91,373          
                341,844       0.4 %
Asset Backed Securities
                       
Accredited Mortgage Loan Trust:
                       
Series 2005-3, Class A1, 0.400%, 09/25/2035
    186,271       185,565          
Series 2006-2, Class A3, 0.320%, 09/25/2036
    1,022,933       1,010,298          
ACE Securities Corp Home Equity Loan Trust,
                       
Series 2006-HE1, Class A1A, 0.370%, 02/25/2036
    320,590       317,776          
Asset Backed Securities Corp Home Equity Loan Trust,
                       
Series 2004-HE6, Class A1, 0.720%, 09/25/2034
    667,312       667,286          
Capital Auto Receivables Asset Trust,
                       
Series 2014-1, Class A1B, 0.515%, 05/20/2016
    590,000       590,159          
Carrington Mortgage Loan Trust,
                       
Series 2007-HE1, Class A1, 0.270%, 06/25/2037
    47,641       47,187          
Countrywide Asset-Backed Certificates:
                       
Series 2005-1, Class AF4, 5.147%, 02/25/2033
    248,710       250,334          
Series 2005-13, Class 3AV3, 0.405%, 04/25/2036
    252,638       250,105          
First Franklin Mortgage Loan Trust,
                       
Series 2004-FF7, Class A1, 0.810%, 09/25/2034
    174,386       174,024          
Ford Credit Floorplan Master Owner Trust,
                       
Series 2013-1, Class A2, 0.541%, 01/15/2018
    400,000       400,147          
GSAMP Trust:
                       
Series 2005-HE5, Class A2D, 0.510%, 11/25/2035
    286,802       285,784          
Series 2006-HE1, Class A2C, 0.380%, 01/25/2036
    450,703       441,903          
HSI Asset Securitization Corp Trust,
                       
Series 2007-WF1, Class 2A3, 0.340%, 05/25/2037
    668,363       646,410          
J.P. Morgan Mortgage Acquisition Trust:
                       
Series 2007-CH1, Class AV4, 0.285%, 11/25/2036
    217,182       216,270          
Series 2007-CH3, Class A3, 0.320%, 03/25/2037
    192,843       190,147          
Long Beach Mortgage Loan Trust,
                       
Series 2006-WL2, Class 2A3, 0.370%, 01/25/2036
    48,408       46,965          
Louisiana Local Government Environmental Facilities & Community Development Auth.,
                       
1.520%, 02/01/2018
    245,620       246,919          
Master Credit Card Trust II,
                       
Series 2012-2A, Class A, 0.780%, 04/21/2017 (Acquired 10/24/2012, Cost $1,001,048) * f
    1,000,000       1,000,320          
Morgan Stanley Capital I Inc. Trust,
                       
Series 2006-NC2, Class A2C, 0.350%, 02/25/2036
    129,017       128,495          
Morgan Stanley Home Equity Loan Trust,
                       
Series 2006-2, Class A3, 0.340%, 02/25/2036
    104,650       103,864          
Park Place Securities Inc Asset-Backed Pass-Through Certificates,
                       
Series 2005-WCW2, Class A2D, 0.540%, 07/25/2035
    443,428       441,293          
RAMP Series Trust,
                       
Series 2003-RS7, Class AI6, 5.340%, 08/25/2033
    94,473       94,756          
RASC Series Trust:
                       
Series 2003-KS2, Class AI6, 3.990%, 04/25/2033
    56,858       56,800          
Series 2005-AHL2, Class A2, 0.430%, 10/25/2035
    55,299       55,262          
Soundview Home Loan Trust,
                       
Series 2005-4, Class 2A4, 0.520%, 03/25/2036
    109,286       109,164          
Specialty Underwriting & Residential Finance Trust,
                       
Series 2006-BC1, Class A2C, 0.370%, 12/25/2036
    665,770       659,909          
Springleaf Mortgage Loan Trust,
                       
Series 2012-2A, Class A, 2.220%, 10/25/2057 (Acquired 08/20/2014 through 10/22/2014, Cost $531,381) *
    525,962       533,015          
Tri-State Pass Through Trust,
                       
6.040%, 01/31/2018 (Acquired 09/18/2014, Cost $183,875) *
    175,745       182,443          
                9,332,600       10.9 %
Commercial Mortgage Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    982,681       996,832          
COMM Mortgage Trust,
                       
Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    885,035       894,471          
J.P. Morgan Chase Commercial Mortgage Securities Trust,
                       
Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    20,000       20,207          
Wachovia Bank Commercial Mortgage Trust,
                       
Series 2005-C22, Class A4, 5.269%, 12/15/2044
    871,172       889,771          
                2,801,281       3.3 %
Total Long-Term Investments (Cost $80,061,385)
            79,876,459       93.6 %
                           
     
Shares
                 
SHORT-TERM INVESTMENTS
                       
Money Market Mutual Fund
                       
Dreyfus Cash Advantage Fund, 0.06% «
    3,882,770       3,882,770          
Total Short-Term Investments (Cost $3,882,770)
            3,882,770       4.5 %
                           
Total Investments (Cost $83,944,155)
            83,759,229       98.1 %
Other Assets in Excess of Liabilities
            1,609,335       1.9 %
TOTAL NET ASSETS
          $ 85,368,564       100.0 %
                           
Notes to Schedule of Investments
                       
 
*
Restricted security as defined in Rule 144(a) under the Securities Act of 1933 and determined to be liquid. Purchased in a private placement transaction; resale to the public may require registration or may extend only to qualified institutional buyers. At December 31, 2014, the value of these securities total $12,343,997, which represents 14.46% of total net assets.
                       
f
Foreign Security
                       
«
7-Day Yield
                       

 
 

 
 
Baird Short-Term Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                 
                   
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
LONG-TERM INVESTMENTS
                 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
2.250%, 07/31/2018 @
  $ 130,950,000     $ 135,154,674        
1.250%, 04/30/2019 @
    172,000,000       169,997,748        
              305,152,422       11.4 %
Corporate Bonds
                       
Finance
                       
ABN AMRO Bank N.V.:
                       
1.033%, 10/28/2016 (Acquired 10/23/2013 through 05/19/2014, Cost $11,058,523) * f
    11,050,000       11,128,886          
4.250%, 02/02/2017 (Acquired 08/23/2013 through 11/21/2014, Cost $3,852,004) * f
    3,675,000       3,872,201          
2.500%, 10/30/2018 (Acquired 03/04/2014, Cost $956,469) * f
    950,000       959,515          
American Express Bank, FSB,
                       
0.461%, 06/12/2017
    750,000       746,200          
American Express Company:
                       
5.500%, 09/12/2016
    1,213,000       1,299,805          
7.000%, 03/19/2018
    2,661,000       3,078,652          
0.823%, 05/22/2018
    1,155,000       1,154,964          
American Express Credit Corporation:
                       
0.743%, 07/29/2016
    5,000,000       5,018,725          
0.722%, 08/15/2019
    2,000,000       1,985,508          
American International Group, Inc.:
                       
2.375%, 08/24/2015
    1,100,000       1,108,904          
5.600%, 10/18/2016
    5,120,000       5,501,824          
5.450%, 05/18/2017
    3,575,000       3,900,675          
AmSouth Bank,
                       
Series AI, 5.200%, 04/01/2015
    6,740,000       6,807,407          
ANZ New Zealand (Int'l) Limited:
                       
1.125%, 03/24/2016 (Acquired 03/20/2013 through 01/16/2014, Cost $5,322,805) * f
    5,324,000       5,341,873          
2.600%, 09/23/2019 (Acquired 09/16/2014, Cost $3,347,823) * f
    3,350,000       3,383,212          
Aon Corporation,
                       
3.125%, 05/27/2016 f
    1,582,000       1,623,333          
Associates Corporation of North America,
                       
6.950%, 11/01/2018
    667,000       779,049          
Australia and New Zealand Banking Group Limited:
                       
0.609%, 01/10/2017 (Acquired 01/06/2014, Cost $750,000) * f
    750,000       751,199          
1.875%, 10/06/2017 (Acquired 07/17/2013 through 11/21/2013, Cost $749,522) * f
    750,000       756,797          
2.250%, 06/13/2019 f
    1,000,000       1,004,791          
Banco Santander-Chile:
                       
3.750%, 09/22/2015 (Acquired 11/21/2013 through 03/28/2014, Cost $1,599,633) * f
    1,575,000       1,598,537          
1.130%, 04/11/2017 (Acquired 04/08/2014, Cost $1,800,000) * f
    1,800,000       1,791,965          
Bank of America Corporation:
                       
10.200%, 07/15/2015
    3,920,000       4,112,468          
5.750%, 12/01/2017
    5,000,000       5,524,485          
Bank of Montreal,
                       
0.831%, 04/09/2018 f
    1,325,000       1,330,550          
Barclays Bank PLC:
                       
2.500%, 01/30/2015 f
    500,000       500,207          
Series 1, 5.000%, 09/22/2016 f
    5,480,000       5,839,472          
0.812%, 02/17/2017 f
    4,000,000       4,003,280          
BB&T Corporation,
                       
1.101%, 06/15/2018
    3,750,000       3,787,001          
BBVA U.S. Senior, S.A. Unipersonal,
                       
4.664%, 10/09/2015 f
    2,800,000       2,874,936          
BNP Paribas:
                       
0.830%, 12/12/2016 f
    4,540,000       4,548,676          
2.375%, 09/14/2017 @ f
    3,000,000       3,051,312          
BNZ International Funding Limited,
                       
2.350%, 03/04/2019 (Acquired 09/03/2014 through 11/13/2014, Cost $7,239,851) * f
    7,250,000       7,250,863          
BPCE:
                       
1.082%, 02/10/2017 f
    9,650,000       9,713,912          
2.500%, 12/10/2018 f
    3,275,000       3,319,648          
Branch Banking and Trust Company,
                       
0.533%, 05/23/2017
    9,370,000       9,312,075          
Canadian Imperial Bank of Commerce,
                       
1.350%, 07/18/2016 @ f
    5,000,000       5,031,655          
Capital One Bank, (USA), National Association,
                       
2.250%, 02/13/2019
    1,500,000       1,489,137          
Capital One Financial Corporation:
                       
6.150%, 09/01/2016
    1,403,000       1,507,716          
5.250%, 02/21/2017
    1,100,000       1,184,714          
Capital One N.A.:
                       
1.500%, 09/05/2017
    5,000,000       4,959,715          
2.400%, 09/05/2019
    5,300,000       5,274,125          
CIGNA Corporation:
                       
2.750%, 11/15/2016
    5,331,000       5,474,239          
5.375%, 03/15/2017
    2,300,000       2,484,602          
Citigroup Inc.:
                       
0.912%, 11/15/2016
    2,000,000       2,000,628          
1.550%, 08/14/2017 @
    2,400,000       2,393,230          
1.850%, 11/24/2017
    5,000,000       4,994,255          
6.125%, 05/15/2018
    3,920,000       4,436,162          
Citizens Bank, National Association,
                       
1.600%, 12/04/2017
    12,500,000       12,444,875          
CNA Financial Corporation:
                       
6.500%, 08/15/2016
    4,995,000       5,402,767          
7.350%, 11/15/2019
    10,200,000       12,174,159          
Comerica Bank:
                       
5.750%, 11/21/2016
    1,425,000       1,543,109          
5.200%, 08/22/2017
    4,325,000       4,700,847          
Commonwealth Bank of Australia,
                       
0.833%, 10/08/2015 (Acquired 12/05/2013, Cost $1,198,800) * f
    1,200,000       1,199,738          
Compass Bank:
                       
1.850%, 09/29/2017
    10,000,000       9,957,350          
2.750%, 09/29/2019
    3,400,000       3,403,475          
Countrywide Financial Corporation,
                       
6.250%, 05/15/2016
    4,150,000       4,404,569          
Credit Agricole SA,
                       
1.106%, 10/03/2016 (Acquired 09/26/2013, Cost $10,000,000) * @ f
    10,000,000       10,062,340          
Credit Suisse:
                       
0.724%, 05/26/2017 f
    2,000,000       1,997,556          
6.000%, 02/15/2018 f
    8,440,000       9,388,555          
Deutsche Bank Aktiengesellschaft:
                       
0.843%, 02/13/2017 f
    3,850,000       3,855,517          
Series 3FXD, 1.400%, 02/13/2017 f
    3,000,000       2,993,745          
0.706%, 05/30/2017 f
    2,640,000       2,635,501          
6.000%, 09/01/2017 f
    3,467,000       3,851,442          
Discover Bank,
                       
8.700%, 11/18/2019
    4,000,000       4,946,560          
Dresdner Bank AG,
                       
7.250%, 09/15/2015 f
    12,322,000       12,741,835          
Fifth Third Bancorp:
                       
3.625%, 01/25/2016
    1,305,000       1,337,179          
0.667%, 12/20/2016
    6,135,000       6,085,993          
5.450%, 01/15/2017
    619,000       664,259          
First Hawaiian Capital I,
                       
Series B, 8.343%, 07/01/2027
    1,500,000       1,520,053          
First Horizon National Corporation,
                       
5.375%, 12/15/2015
    3,079,000       3,187,692          
First Tennessee Bank National Association:
                       
5.050%, 01/15/2015
    1,000,000       1,001,282          
5.650%, 04/01/2016
    7,219,000       7,459,949          
General Electric Capital Corporation:
                       
5.625%, 09/15/2017
    9,080,000       10,079,290          
5.625%, 05/01/2018
    175,000       196,916          
0.740%, 01/14/2019
    1,750,000       1,750,686          
Genworth Holdings, Inc.,
                       
8.625%, 12/15/2016
    1,000,000       1,058,038          
Hana Bank,
                       
1.357%, 11/09/2016 (Acquired 11/05/2013, Cost $7,004,564) * f
    7,000,000       7,038,871          
HSBC Bank USA, National Association,
                       
6.000%, 08/09/2017
    925,000       1,022,589          
HSBC Finance Corporation:
                       
5.500%, 01/19/2016
    556,000       581,301          
6.676%, 01/15/2021
    221,000       262,207          
HSBC USA Capital Trust III,
                       
8.380%, 05/15/2027 (Acquired 11/06/2007, Cost $1,514,977) *
    1,500,000       1,519,599          
HSBC USA Inc.:
                       
1.135%, 09/24/2018
    1,000,000       1,008,759          
0.843%, 11/13/2019
    4,750,000       4,749,872          
Huntington Bancshares Incorporated,
                       
2.600%, 08/02/2018
    3,250,000       3,289,507          
ING Bank N.V.:
                       
4.000%, 03/15/2016 (Acquired 03/08/2012 through 07/15/2013, Cost $5,912,747) * f
    5,783,000       5,981,548          
3.750%, 03/07/2017 (Acquired 05/30/2013 through 01/13/2014, Cost $3,324,735) * f
    3,200,000       3,348,806          
J.P. Morgan Chase & Co.:
                       
0.784%, 04/25/2018
    3,500,000       3,491,974          
Series 1, 0.863%, 01/28/2019
    750,000       749,993          
Kemper Corporation:
                       
6.000%, 11/30/2015
    8,500,000       8,860,774          
6.000%, 05/15/2017
    4,565,000       4,931,711          
KeyBank National Association:
                       
4.950%, 09/15/2015
    920,000       946,203          
2.500%, 12/15/2019 @
    5,325,000       5,346,811          
Kookmin Bank:
                       
1.109%, 01/27/2017 (Acquired 01/21/2014 through 02/20/2014, Cost $4,752,506) * f
    4,750,000       4,781,492          
1.625%, 07/14/2017 (Acquired 07/07/2014, Cost $5,983,080) * f
    6,000,000       5,966,460          
LeasePlan Corporation N.V.,
                       
2.500%, 05/16/2018 (Acquired 05/07/2013 through 10/20/2014, Cost $14,710,581) * f
    14,785,000       14,791,343          
Lloyds Bank plc,
                       
4.875%, 01/21/2016 f
    1,775,000       1,846,435          
M&I Marshall & Ilsley Bank:
                       
4.850%, 06/16/2015
    6,857,000       6,980,872          
5.000%, 01/17/2017
    2,488,000       2,640,464          
M&T Capital Trust I,
                       
8.234%, 02/01/2027
    1,000,000       1,009,336          
Macquarie Bank Limited:
                       
2.000%, 08/15/2016 (Acquired 08/07/2013 through 09/27/2013, Cost $10,014,962) * f
    10,000,000       10,121,790          
0.864%, 10/27/2017 (Acquired 10/22/2014, Cost $5,000,000) * f
    5,000,000       5,005,470          
Macquarie Group Limited,
                       
4.875%, 08/10/2017 (Acquired 10/29/2014 through 11/25/2014, Cost $2,960,787) * f
    2,750,000       2,940,542          
Manufacturers And Traders Trust Company:
                       
0.535%, 03/07/2016
    8,150,000       8,146,406          
0.534%, 07/25/2017
    1,000,000       996,695          
6.625%, 12/04/2017
    1,000,000       1,131,327          
Marsh & McLennan Companies, Inc.,
                       
2.300%, 04/01/2017
    1,297,000       1,313,075          
MassMutual Global Funding II,
                       
3.125%, 04/14/2016 (Acquired 01/19/2012 through 08/26/2014, Cost $2,132,041) *
    2,100,000       2,162,641          
Metropolitan Life Global Funding I,
                       
0.609%, 04/10/2017 (Acquired 04/07/2014, Cost $8,500,000) *
    8,500,000       8,522,916          
Mizuho Bank, Ltd.:
                       
2.550%, 03/17/2017 (Acquired 05/30/2013 through 05/30/2013, Cost $7,017,702) * f
    6,900,000       7,034,847          
0.659%, 04/16/2017 (Acquired 04/09/2014, Cost $2,800,000) * f
    2,800,000       2,801,246          
Morgan Stanley:
                       
1.750%, 02/25/2016
    2,000,000       2,010,848          
5.450%, 01/09/2017
    2,950,000       3,167,456          
1.007%, 01/05/2018
    1,500,000       1,500,381          
6.625%, 04/01/2018
    2,000,000       2,278,070          
1.083%, 01/24/2019
    4,750,000       4,759,372          
MUFG Union Bank, National Association:
                       
3.000%, 06/06/2016
    6,300,000       6,467,744          
2.125%, 06/16/2017
    3,500,000       3,538,937          
National Australia Bank Limited,
                       
0.733%, 10/08/2015 (Acquired 03/26/2013 through 08/26/2014, Cost $1,198,889) * f
    1,200,000       1,199,827          
National City Bank,
                       
5.800%, 06/07/2017
    2,525,000       2,772,437          
Nomura Holdings, Inc.:
                       
5.000%, 03/04/2015 f
    1,000,000       1,007,145          
2.000%, 09/13/2016 f
    10,205,000       10,287,324          
Nordea Bank AB:
                       
3.125%, 03/20/2017 (Acquired 10/03/2012 through 08/21/2013, Cost $5,272,324) * f
    5,140,000       5,324,911          
1.250%, 04/04/2017 (Acquired 03/31/2014, Cost $3,988,880) * f
    4,000,000       3,979,664          
Paine Webber Group Inc.,
                       
7.990%, 06/09/2017
    300,000       317,906          
Principal Financial Group, Inc.,
                       
1.850%, 11/15/2017 @
    3,500,000       3,502,796          
Prudential Covered Trust 2012-1,
                       
2.997%, 09/30/2015 (Acquired 10/16/2012 through 07/15/2013, Cost $2,445,237) *
    2,418,750       2,452,724          
Prudential Financial, Inc.,
                       
6.100%, 06/15/2017
    4,720,000       5,211,772          
Rabobank Nederland,
                       
3.375%, 01/19/2017 f
    1,092,000       1,139,159          
Raymond James Financial, Inc.,
                       
4.250%, 04/15/2016
    5,600,000       5,806,114          
Regions Bank,
                       
7.500%, 05/15/2018
    4,670,000       5,421,380          
Regions Financial Corporation,
                       
5.750%, 06/15/2015 @
    3,549,000       3,622,709          
Royal Bank of Canada,
                       
1.400%, 10/13/2017 f
    8,450,000       8,422,352          
Santander Bank, N.A.,
                       
8.750%, 05/30/2018
    1,443,000       1,718,616          
Santander Holdings USA, Inc.,
                       
3.000%, 09/24/2015
    2,975,000       3,010,658          
Societe Generale:
                       
3.100%, 09/14/2015 (Acquired 02/06/2013 through 06/19/2013, Cost $3,514,671) * f
    3,475,000       3,527,399          
5.750%, 04/20/2016 (Acquired 07/08/2014, Cost $1,995,217) * f
    1,890,000       1,979,023          
1.335%, 10/01/2018 f
    6,000,000       6,105,864          
2.625%, 10/01/2018 @ f
    1,000,000       1,015,637          
Standard Chartered PLC:
                       
0.575%, 09/08/2017 (Acquired 09/03/2014, Cost $10,000,000) * f
    10,000,000       9,951,950          
2.400%, 09/08/2019 (Acquired 09/03/2014, Cost $1,996,540) * @ f
    2,000,000       1,989,442          
Sumitomo Mitsui Banking Corporation:
                       
1.450%, 07/19/2016 @ f
    4,000,000       4,014,892          
0.659%, 01/10/2017 f
    2,075,000       2,072,510          
SunTrust Bank:
                       
0.555%, 04/01/2015
    7,755,000       7,749,269          
0.523%, 08/24/2015
    1,000,000       997,998          
5.000%, 09/01/2015
    2,396,000       2,461,572          
7.250%, 03/15/2018
    154,000       178,186          
SunTrust Banks, Inc.,
                       
6.000%, 09/11/2017
    780,000       864,663          
SUSA Partnership, L.P.,
                       
8.200%, 06/01/2017
    714,000       814,360          
Svenska Handelsbanken AB:
                       
3.125%, 07/12/2016 f
    175,000       180,760          
2.875%, 04/04/2017 f
    275,000       284,232          
1.625%, 03/21/2018 f
    1,100,000       1,098,295          
0.733%, 06/17/2019 f
    2,000,000       2,001,650          
Symetra Financial Corporation,
                       
6.125%, 04/01/2016 (Acquired 11/24/2014, Cost $2,776,492) *
    2,630,000       2,759,215          
Synchrony Financial,
                       
3.000%, 08/15/2019 @
    13,350,000       13,496,089          
The Bank of New York Mellon Corporation,
                       
0.792%, 08/01/2018
    1,000,000       1,002,100          
The Bank of Tokyo-Mitsubishi UFJ, Ltd.:
                       
0.611%, 07/15/2016 f
    5,000,000       4,998,435          
0.648%, 03/10/2017 (Acquired 11/24/2014, Cost $3,296,337) * f
    3,300,000       3,283,536          
The Bear Stearns Companies LLC:
                       
6.400%, 10/02/2017
    7,700,000       8,623,307          
7.250%, 02/01/2018
    450,000       518,647          
The Goldman Sachs Group, Inc.:
                       
6.250%, 09/01/2017
    4,583,000       5,099,275          
1.338%, 12/10/2017
    1,000,000       995,679          
5.950%, 01/18/2018
    1,045,000       1,160,962          
6.150%, 04/01/2018
    4,550,000       5,107,006          
2.900%, 07/19/2018
    1,000,000       1,025,880          
7.500%, 02/15/2019 @
    3,000,000       3,568,383          
The Hartford Financial Services Group, Inc.:
                       
5.500%, 10/15/2016
    3,150,000       3,378,863          
5.375%, 03/15/2017
    3,145,000       3,397,239          
6.300%, 03/15/2018
    1,825,000       2,062,420          
6.000%, 01/15/2019
    455,000       516,017          
The Huntington National Bank,
                       
1.350%, 08/02/2016
    5,000,000       5,002,660          
The Royal Bank of Scotland Group Public Limited Company,
                       
2.550%, 09/18/2015 f
    4,430,000       4,474,353          
UBS AG:
                       
5.875%, 12/20/2017 f
    1,000,000       1,116,590          
5.750%, 04/25/2018 f
    3,201,000       3,600,930          
Voya Financial, Inc.,
                       
2.900%, 02/15/2018
    14,708,000       15,057,359          
WEA Finance LLC / Westfield UK & Europe Finance PLC,
                       
2.700%, 09/17/2019 (Acquired 09/10/2014, Cost $6,986,000) *
    7,000,000       6,997,963          
Wells Fargo Bank, National Association:
                       
0.442%, 05/16/2016
    7,000,000       6,980,792          
6.000%, 11/15/2017
    610,000       683,757          
Westpac Banking Corporation:
                       
2.000%, 08/14/2017 f
    2,000,000       2,026,428          
0.604%, 12/01/2017 f
    10,000,000       9,962,280          
Willis North America, Inc.,
                       
5.625%, 07/15/2015
    6,650,000       6,811,043          
              713,277,456       26.7 %
 
Utility
                 
Beaver Valley II Funding Corporation,
                 
9.000%, 06/01/2017
    434,000       468,720        
Commonwealth Edison Company:
                     
Series 104, 5.950%, 08/15/2016
    550,000       593,148        
6.150%, 09/15/2017
    100,000       112,181        
Constellation Energy Group, Inc.,
                     
4.550%, 06/15/2015
    3,169,000       3,220,173        
Dominion Resources, Inc.:
                     
6.400%, 06/15/2018
    3,550,000       4,052,566        
2.500%, 12/01/2019
    9,500,000       9,527,740        
Entergy Corporation,
                     
4.700%, 01/15/2017
    8,750,000       9,214,573        
National Grid PLC,
                     
6.300%, 08/01/2016 f
    9,531,000       10,288,219        
National Rural Utilities Cooperative Finance Corporation,
                     
10.375%, 11/01/2018
    550,000       716,502        
NextEra Energy Capital Holdings, Inc.,
                     
1.339%, 09/01/2015
    5,100,000       5,115,371        
Pacific Gas and Electric Company,
                     
8.250%, 10/15/2018
    8,320,000       10,011,772        
Pepco Holdings, Inc.,
                     
2.700%, 10/01/2015
    1,395,000       1,411,792        
PPL Energy Supply, LLC:
                     
Series A, 5.700%, 10/15/2015
    6,127,000       6,260,422        
6.200%, 05/15/2016
    4,041,000       4,199,423        
PSEG Power LLC,
                     
5.320%, 09/15/2016
    4,905,000       5,240,389        
Public Service Company of New Mexico,
                     
7.950%, 05/15/2018
    623,000       733,184        
Sempra Energy:
                     
2.300%, 04/01/2017
    1,300,000       1,323,899        
9.800%, 02/15/2019
    1,325,000       1,701,430        
Southwestern Public Service Company,
                     
5.600%, 10/01/2016
    3,000,000       3,241,512        
Trans-Allegheny Interstate Line Company,
                     
4.000%, 01/15/2015 (Acquired 01/19/2010 through 08/26/2014, Cost $5,883,867) *
    5,890,000       5,894,635        
Union Electric Company,
                     
4.750%, 04/01/2015
    500,000       505,003        
              83,832,654       3.1 %
Industrials
                       
A.P. Meoller - Maersk A/S,
                       
2.550%, 09/22/2019 (Acquired 09/15/2014, Cost $4,540,672) * f
    4,550,000       4,562,763          
AbbVie Inc.,
                       
1.750%, 11/06/2017
    10,049,000       10,070,836          
Actavis Funding SCS,
                       
2.450%, 06/15/2019 f
    3,000,000       2,948,841          
ACTAVIS, INC.,
                       
1.875%, 10/01/2017
    1,392,000       1,386,605          
ADT Corp.,
                       
2.250%, 07/15/2017
    6,700,000       6,482,250          
Agrium Inc.,
                       
7.700%, 02/01/2017 f
    5,000,000       5,580,145          
Alibaba Group Holding Limited,
                       
0.756%, 11/28/2017 (Acquired 11/20/2014, Cost $2,500,000) * f
    2,500,000       2,504,917          
Altera Corporation,
                       
2.500%, 11/15/2018
    3,000,000       3,019,110          
America Movil, S.A.B. de C.V.,
                       
1.241%, 09/12/2016 f
    9,000,000       9,064,377          
Amgen Inc.:
                       
0.613%, 05/22/2017
    2,750,000       2,744,074          
5.700%, 02/01/2019
    10,000,000       11,248,780          
Anadarko Petroleum Corporation:
                       
5.950%, 09/15/2016
    5,705,000       6,100,813          
6.375%, 09/15/2017
    2,400,000       2,668,325          
8.700%, 03/15/2019
    2,970,000       3,638,104          
Anglo American Capital PLC,
                       
1.181%, 04/15/2016 (Acquired 04/08/2014 through 11/13/2014, Cost $2,045,964) * f
    2,045,000       2,047,057          
ArcelorMittal S.A.,
                       
4.250%, 08/05/2015 f
    1,525,000       1,547,875          
Avon Products, Inc.,
                       
2.375%, 03/15/2016
    2,000,000       1,980,000          
Beam Suntory Inc.:
                       
5.375%, 01/15/2016
    1,269,000       1,326,774          
1.875%, 05/15/2017
    8,000,000       8,032,440          
Boardwalk Pipelines, LP,
                       
5.500%, 02/01/2017
    13,384,000       14,118,969          
Boston Scientific Corporation:
                       
5.125%, 01/12/2017
    3,000,000       3,180,045          
2.650%, 10/01/2018
    7,077,000       7,085,330          
BP Capital Markets:
                       
0.742%, 05/10/2018 f
    1,575,000       1,557,977          
0.885%, 09/26/2018 f
    7,085,000       7,020,406          
Bunge Limited Finance Corp.:
                       
5.100%, 07/15/2015
    2,335,000       2,385,707          
3.200%, 06/15/2017 @
    500,000       514,122          
8.500%, 06/15/2019
    3,808,000       4,666,856          
Bunge N.A. Finance L.P.,
                       
5.900%, 04/01/2017
    1,820,000       1,978,844          
CareFusion Corporation,
                       
1.450%, 05/15/2017
    5,315,000       5,277,386          
CF Industries, Inc.,
                       
6.875%, 05/01/2018
    11,182,000       12,712,022          
Coca-Cola FEMSA, S.A.B. de C.V.,
                       
2.375%, 11/26/2018 f
    4,000,000       4,072,840          
Colorado Interstate Gas Company, L.L.C.,
                       
6.800%, 11/15/2015
    2,000,000       2,092,016          
Computer Sciences Corporation,
                       
2.500%, 09/15/2015
    9,864,000       9,953,062          
ConAgra Foods, Inc.:
                       
5.819%, 06/15/2017
    6,234,000       6,824,952          
1.900%, 01/25/2018
    9,290,000       9,228,110          
Cox Communications, Inc.:
                       
5.500%, 10/01/2015
    200,000       206,769          
7.250%, 11/15/2015
    2,000,000       2,105,196          
5.875%, 12/01/2016 (Acquired 02/26/2014, Cost $1,083,617) *
    1,000,000       1,080,922          
Crane Co.,
                       
2.750%, 12/15/2018
    7,585,000       7,666,819          
CRH America, Inc.,
                       
6.000%, 09/30/2016
    5,865,000       6,312,582          
CSX Corporation,
                       
7.900%, 05/01/2017
    2,221,000       2,535,367          
Daimler Finance North America LLC:
                       
1.250%, 01/11/2016 (Acquired 01/07/2013, Cost $2,846,494) *
    2,850,000       2,857,752          
0.912%, 08/01/2016 (Acquired 07/24/2013 through 08/26/2014, Cost $2,281,972) *
    2,280,000       2,292,146          
0.588%, 03/10/2017 (Acquired 03/03/2014, Cost $2,000,000) *
    2,000,000       1,996,018          
0.572%, 08/01/2017 (Acquired 07/24/2014, Cost $2,000,000) *
    2,000,000       1,994,360          
1.092%, 08/01/2018 (Acquired 11/14/2014, Cost $2,023,734) *
    2,000,000       2,025,374          
DCP Midstream Operating, LP,
                       
2.500%, 12/01/2017
    250,000       249,713          
DCP Midstream, LLC,
                       
5.375%, 10/15/2015 (Acquired 01/13/2012, Cost $1,745,587) *
    1,708,000       1,760,917          
Deutsche Telekom International Finance B.V.:
                       
5.750%, 03/23/2016 f
    400,000       422,399          
3.125%, 04/11/2016 (Acquired 03/14/2012 through 06/25/2013, Cost $5,848,404) * f
    5,775,000       5,918,953          
6.750%, 08/20/2018 f
    3,900,000       4,525,814          
DIRECTV Holdings LLC / DIRECTV Financing Co., Inc.,
                       
3.500%, 03/01/2016
    400,000       410,434          
Dollar General Corporation,
                       
4.125%, 07/15/2017
    17,321,000       17,863,424          
Eaton Corporation,
                       
1.500%, 11/02/2017
    5,000,000       4,971,035          
El Paso Natural Gas Company, L.L.C.,
                       
5.950%, 04/15/2017
    2,050,000       2,203,865          
El Paso Pipeline Partners Operating Company, L.L.C.,
                       
4.100%, 11/15/2015
    5,286,000       5,408,535          
Enable Midstream Partners, LP,
                       
2.400%, 05/15/2019 (Acquired 05/19/2014, Cost $2,997,780) *
    3,000,000       2,917,806          
Enbridge Inc.:
                       
0.905%, 10/01/2016 f
    2,100,000       2,098,914          
5.600%, 04/01/2017 f
    5,125,000       5,563,839          
Encana Corporation,
                       
5.900%, 12/01/2017 f
    1,500,000       1,636,138          
Energy Transfer Partners, L.P.:
                       
5.950%, 02/01/2015
    5,570,000       5,588,386          
6.125%, 02/15/2017
    645,000       698,517          
9.700%, 03/15/2019
    5,494,000       6,895,613          
Enterprise Products Operating LLC,
                       
1.250%, 08/13/2015
    3,000,000       3,007,926          
Express Scripts Holding Company:
                       
3.125%, 05/15/2016
    3,000,000       3,083,829          
2.650%, 02/15/2017
    200,000       204,499          
FBG Finance Pty Ltd,
                       
5.125%, 06/15/2015 (Acquired 03/12/2012, Cost $522,949) * f
    515,000       525,198          
Federal Express Corp 1998 Pass Through Trust,
                       
Series 981B, 6.845%, 01/15/2019
    3,429,592       3,777,996          
Federal Express Corp 2012 Pass Through Trust,
                       
2.625%, 01/15/2018 (Acquired 01/20/2012 through 05/07/2012, Cost $1,471,681) *
    1,470,453       1,488,189          
Fidelity National Information Services, Inc.,
                       
1.450%, 06/05/2017
    3,000,000       2,983,197          
Fiserv, Inc.:
                       
3.125%, 10/01/2015
    2,586,000       2,630,539          
3.125%, 06/15/2016
    3,295,000       3,382,963          
Florida Gas Transmission Company, LLC,
                       
4.000%, 07/15/2015 (Acquired 09/12/2012 through 10/15/2013, Cost $3,499,486) *
    3,450,000       3,497,627          
Ford Motor Credit Company LLC:
                       
2.500%, 01/15/2016
    800,000       808,949          
6.625%, 08/15/2017 @
    9,100,000       10,144,289          
1.724%, 12/06/2017
    1,250,000       1,237,081          
Forest Laboratories, Inc.,
                       
4.375%, 02/01/2019 (Acquired 08/13/2014 through 09/29/2014, Cost $10,079,534) *
    9,450,000       9,982,697          
Freeport-McMoRan Inc.,
                       
2.150%, 03/01/2017
    2,000,000       2,003,292          
Georgia-Pacific LLC,
                       
7.700%, 06/15/2015
    3,600,000       3,704,306          
Glencore Canada Corporation,
                       
6.000%, 10/15/2015 f
    2,245,000       2,320,784          
Glencore Finance (Canada) Limited,
                       
2.050%, 10/23/2015 (Acquired 10/18/2012, Cost $2,999,040) * f
    3,000,000       3,019,521          
Glencore Funding LLC:
                       
1.700%, 05/27/2016 (Acquired 05/22/2013, Cost $2,998,770) * @
    3,000,000       3,004,770          
1.591%, 01/15/2019 (Acquired 06/17/2014, Cost $5,041,781) *
    5,000,000       5,084,445          
2.500%, 01/15/2019 (Acquired 05/22/2013, Cost $597,012) * @
    600,000       590,805          
GTE Corporation,
                       
6.840%, 04/15/2018
    140,000       161,528          
Gulfstream Natural Gas System, L.L.C.,
                       
6.950%, 06/01/2016 (Acquired 07/22/2013 through 08/27/2013, Cost $8,233,706) *
    7,646,000       8,200,847          
Heineken N.V.,
                       
1.400%, 10/01/2017 (Acquired 10/02/2012, Cost $1,993,400) * f
    2,000,000       1,988,476          
Hess Corporation,
                       
8.125%, 02/15/2019
    3,982,000       4,737,752          
Hewlett-Packard Company:
                       
3.000%, 09/15/2016
    550,000       564,727          
1.170%, 01/14/2019 @
    5,700,000       5,602,473          
2.750%, 01/14/2019
    1,119,000       1,120,430          
Hospira, Inc.,
                       
6.050%, 03/30/2017
    9,654,000       10,408,605          
Husky Energy Inc.,
                       
6.200%, 09/15/2017 f
    1,000,000       1,099,777          
Husky Oil Limited,
                       
7.550%, 11/15/2016 f
    2,500,000       2,749,428          
Hutchison Whampoa International (09/16) Limited,
                       
4.625%, 09/11/2015 (Acquired 09/24/2012 through 06/25/2013, Cost $9,278,424) * f
    9,090,000       9,318,886          
Hutchison Whampoa International (14) Limited,
                       
1.625%, 10/31/2017 (Acquired 10/28/2014, Cost $4,988,500) * f
    5,000,000       4,958,800          
Hyundai Capital Services, Inc.:
                       
6.000%, 05/05/2015 (Acquired 11/01/2012 through 08/26/2014, Cost $7,898,354) * f
    7,774,000       7,903,795          
4.375%, 07/27/2016 (Acquired 05/11/2012 through 12/05/2013, Cost $6,416,982) * f
    6,230,000       6,518,729          
3.500%, 09/13/2017 (Acquired 06/04/2014, Cost $2,091,007) * f
    2,000,000       2,068,954          
Ingersoll-Rand Global Holding Company Limited,
                       
6.875%, 08/15/2018
    1,000,000       1,160,866          
Ingredion Incorporated,
                       
1.800%, 09/25/2017
    9,100,000       9,073,856          
John Deere Capital Corporation,
                       
0.461%, 12/15/2017
    500,000       500,073          
Johnson Controls, Inc.,
                       
5.500%, 01/15/2016 @
    7,370,000       7,718,048          
Kia Motors Corporation,
                       
3.625%, 06/14/2016 (Acquired 02/18/2014, Cost $1,441,542) * f
    1,400,000       1,443,456          
Kinder Morgan Energy Partners, L.P.:
                       
6.000%, 02/01/2017
    250,000       270,058          
5.950%, 02/15/2018
    1,710,000       1,887,845          
Kinder Morgan, Inc.,
                       
2.000%, 12/01/2017
    3,000,000       2,981,439          
L-3 Communications Corporation,
                       
1.500%, 05/28/2017
    2,000,000       1,980,326          
Laboratory Corporation of America Holdings:
                       
5.625%, 12/15/2015
    2,491,000       2,591,308          
3.125%, 05/15/2016
    2,000,000       2,052,520          
Marathon Oil Corporation,
                       
6.000%, 10/01/2017
    7,805,000       8,603,202          
Marathon Petroleum Corporation,
                       
3.500%, 03/01/2016
    1,503,000       1,540,190          
Masco Corporation,
                       
6.125%, 10/03/2016
    9,654,000       10,238,067          
McKesson Corporation,
                       
0.638%, 09/10/2015
    435,000       435,136          
Medco Health Solutions, Inc.,
                       
2.750%, 09/15/2015
    375,000       379,922          
Medtronic, Inc.,
                       
1.043%, 03/15/2020 (Acquired 12/01/2014, Cost $2,250,000) *
    2,250,000       2,247,626          
Mondelez International, Inc.:
                       
6.125%, 02/01/2018
    8,400,000       9,438,181          
0.752%, 02/01/2019 @
    9,337,000       9,232,818          
Murphy Oil Corporation,
                       
2.500%, 12/01/2017
    10,281,000       10,219,314          
Mylan Inc.:
                       
1.800%, 06/24/2016
    1,350,000       1,358,140          
2.600%, 06/24/2018
    1,150,000       1,165,025          
7.875%, 07/15/2020 (Acquired 07/16/2013 through 09/16/2013, Cost $6,428,152) *
    6,000,000       6,391,170          
Nabors Industries, Inc.,
                       
2.350%, 09/15/2016
    2,000,000       1,978,276          
National Oilwell Varco, Inc.,
                       
Series B, 6.125%, 08/15/2015
    4,700,000       4,702,237          
NBCUniversal Enterprise, Inc.,
                       
0.768%, 04/15/2016 (Acquired 07/03/2013 through 10/21/2013, Cost $2,264,120) *
    2,260,000       2,264,079          
NiSource Finance Corp.:
                       
5.250%, 09/15/2017
    5,400,000       5,904,997          
6.400%, 03/15/2018
    500,000       569,464          
Nissan Motor Acceptance Corporation:
                       
0.955%, 09/26/2016 (Acquired 09/19/2013, Cost $5,000,000) *
    5,000,000       5,028,865          
0.785%, 03/03/2017 (Acquired 02/25/2014, Cost $3,000,000) *
    3,000,000       3,009,543          
2.650%, 09/26/2018 (Acquired 07/29/2014 through 11/05/2014, Cost $4,458,349) *
    4,365,000       4,444,779          
Noble Holding International Limited:
                       
3.450%, 08/01/2015 f
    4,552,000       4,611,877          
2.500%, 03/15/2017 f
    5,510,000       5,271,081          
ONEOK Partners, L.P.:
                       
6.150%, 10/01/2016
    5,289,000       5,678,694          
2.000%, 10/01/2017
    2,858,000       2,842,044          
8.625%, 03/01/2019
    1,500,000       1,812,484          
Pentair Finance S.A.,
                       
1.875%, 09/15/2017 f
    4,000,000       3,995,164          
Petrofac Limited,
                       
3.400%, 10/10/2018 (Acquired 10/03/2013 through 09/19/2014, Cost $11,971,239) * f
    11,750,000       11,591,751          
PetroLogistics LP / PetroLogistics Finance Corp.,
                       
6.250%, 04/01/2020
    11,755,000       12,666,013          
Phillips 66,
                       
2.950%, 05/01/2017
    3,000,000       3,098,349          
Pioneer Natural Resources Company:
                       
5.875%, 07/15/2016
    10,133,000       10,762,057          
6.650%, 03/15/2017
    1,260,000       1,380,390          
6.875%, 05/01/2018
    1,000,000       1,119,425          
Plum Creek Timberlands, L.P.,
                       
5.875%, 11/15/2015
    9,700,000       10,076,641          
PPG Industries, Inc.,
                       
1.900%, 01/15/2016
    1,552,000       1,568,518          
Quest Diagnostics Inc,
                       
3.200%, 04/01/2016
    5,050,000       5,174,154          
Republic Services, Inc.,
                       
5.500%, 09/15/2019
    6,446,000       7,261,928          
Rockies Express Pipeline LLC,
                       
3.900%, 04/15/2015 (Acquired 02/17/2011, Cost $2,000,023) *
    2,000,000       1,990,000          
Rohm and Haas Company,
                       
6.000%, 09/15/2017
    646,000       714,466          
RPM International Inc.,
                       
6.500%, 02/15/2018
    3,870,000       4,324,384          
RPM United Kingdom G.P.,
                       
6.700%, 11/01/2015 (Acquired 03/04/2013 through 08/26/2014, Cost $8,030,186) * f
    7,700,000       7,999,569          
SABMiller Holdings Inc.,
                       
0.922%, 08/01/2018 (Acquired 08/06/2013 through 11/14/2014, Cost $7,207,139) *
    7,180,000       7,202,746          
Seagate HDD Cayman,
                       
6.875%, 05/01/2020 f
    10,653,000       11,185,650          
Southwestern Bell Telephone, L.P.,
                       
7.000%, 07/01/2015
    875,000       898,330          
Sunoco, Inc.,
                       
5.750%, 01/15/2017
    600,000       648,684          
Talisman Energy Inc.,
                       
5.125%, 05/15/2015 f
    3,557,000       3,610,341          
Telecom Italia Capital,
                       
5.250%, 10/01/2015 f
    10,960,000       11,179,200          
Telefonica Emisiones S.A.U.:
                       
6.421%, 06/20/2016 f
    7,290,000       7,798,492          
6.221%, 07/03/2017 f
    1,344,000       1,487,938          
Telefonica Moviles Chile S.A.,
                       
2.875%, 11/09/2015 (Acquired 11/03/2010 through 04/04/2012, Cost $1,017,018) * f
    1,020,000       1,031,294          
Temple-Inland Inc.,
                       
6.625%, 01/15/2018
    4,676,000       5,221,189          
Tennessee Gas Pipeline Company, L.L.C.,
                       
8.000%, 02/01/2016
    1,000,000       1,065,814          
The Dow Chemical Company,
                       
8.550%, 05/15/2019
    11,427,000       14,206,572          
The Valspar Corporation,
                       
5.100%, 08/01/2015
    10,450,000       10,698,376          
Thermo Fisher Scientific Inc.,
                       
1.850%, 01/15/2018
    7,000,000       6,944,924          
Thomson Reuters Corporation:
                       
0.875%, 05/23/2016 f
    4,650,000       4,625,904          
1.650%, 09/29/2017 f
    7,000,000       6,957,104          
Time Warner Cable Inc.:
                       
5.850%, 05/01/2017
    2,355,000       2,570,598          
8.250%, 04/01/2019
    1,000,000       1,224,143          
Time Warner Companies, Inc.,
                       
7.250%, 10/15/2017
    7,831,000       8,974,342          
Total Capital International:
                       
0.802%, 08/10/2018 f
    4,350,000       4,373,233          
0.595%, 06/19/2019 f
    7,700,000       7,625,564          
TransCanada PipeLines Ltd,
                       
0.937%, 06/30/2016 f
    2,575,000       2,587,180          
Transocean Inc:
                       
5.050%, 12/15/2016 f
    400,000       401,915          
2.500%, 10/15/2017 f
    7,400,000       6,541,926          
TSMC Global Ltd:
                       
0.950%, 04/03/2016 (Acquired 03/27/2013, Cost $1,999,760) * f
    2,000,000       1,990,656          
1.625%, 04/03/2018 (Acquired 08/05/2014 through 08/14/2014, Cost $6,088,652) * f
    6,175,000       6,060,886          
Tyco Electronics Group S.A.,
                       
6.550%, 10/01/2017 f
    860,000       968,041          
Vale Overseas Limited,
                       
6.250%, 01/23/2017 f
    915,000       975,948          
Valero Energy Corporation:
                       
6.125%, 06/15/2017
    1,120,000       1,230,222          
9.375%, 03/15/2019
    10,349,000       12,906,559          
Verizon Communications Inc.:
                       
2.500%, 09/15/2016
    2,057,000       2,102,614          
3.650%, 09/14/2018
    14,000,000       14,794,178          
Viacom Inc.,
                       
6.250%, 04/30/2016
    2,255,000       2,409,021          
Vodafone Group Public Limited Company,
                       
5.625%, 02/27/2017 f
    2,000,000       2,166,970          
Volkswagen Group of America Finance, LLC:
                       
0.603%, 05/23/2017 (Acquired 05/15/2014, Cost $2,750,000) *
    2,750,000       2,742,083          
0.672%, 11/20/2017 (Acquired 11/12/2014, Cost $4,500,000) *
    4,500,000       4,493,461          
Walgreen Co.,
                       
5.250%, 01/15/2019
    9,392,000       10,440,025          
Walgreens Boots Alliance, Inc.,
                       
1.750%, 11/17/2017
    1,150,000       1,152,847          
Weatherford International Ltd,
                       
5.500%, 02/15/2016 f
    600,000       618,958          
Williams Partners L.P.,
                       
3.800%, 02/15/2015
    9,000,000       9,025,713          
Williams Partners LP / Williams Partners Finance Corp.,
                       
7.250%, 02/01/2017
    935,000       1,030,575          
Xerox Corporation,
                       
6.400%, 03/15/2016 @
    2,893,000       3,069,074          
Yara International ASA,
                       
7.875%, 06/11/2019 (Acquired 10/02/2014, Cost $601,795) * f
    500,000       595,716          
Yum! Brands, Inc.:
                       
4.250%, 09/15/2015
    6,425,000       6,574,857          
6.250%, 04/15/2016
    2,000,000       2,122,260          
Zoetis Inc.,
                       
1.150%, 02/01/2016
    1,000,000       999,107          
              855,997,491       32.0 %
Total Corporate Bonds
            1,653,107,601       61.8 %

Other Government Related Securities
                 
Centrais Eletricas Brasileiras SA,
                 
7.750%, 11/30/2015 (Acquired 12/06/2012 through 12/06/2012, Cost $3,152,358) * f
    3,000,000       3,076,500        
CNOOC Finance 2013 Ltd:
                     
1.125%, 05/09/2016 f
    2,575,000       2,565,877        
1.750%, 05/09/2018 f
    1,000,000       983,998        
CNOOC Nexen Finance (2014) ULC,
                     
1.625%, 04/30/2017 f
    5,000,000       4,975,585        
CNPC General Capital Ltd,
                     
1.133%, 05/14/2017 (Acquired 05/07/2014, Cost $4,750,000) * f
    4,750,000       4,757,548        
CNPC HK Overseas Capital Ltd,
                     
3.125%, 04/28/2016 (Acquired 12/18/2012 through 07/23/2014, Cost $2,417,103) * f
    2,375,000       2,420,956        
Corp Andina de Fomento,
                     
5.750%, 01/12/2017 f
    250,000       270,644        
Electricite de France Societe anonyme,
                     
0.691%, 01/20/2017 (Acquired 01/13/2014, Cost $9,750,000) * f
    9,750,000       9,776,539        
Korea Expressway Corporation,
                     
1.625%, 04/28/2017 (Acquired 06/23/2014, Cost $3,989,480) * f
    4,000,000       3,977,640        
Korea Hydro & Nuclear Power Co., Ltd.,
                     
2.875%, 10/02/2018 (Acquired 09/25/2013, Cost $2,982,150) * f
    3,000,000       3,059,643        
Petrobras Global Finance B.V.,
                     
2.603%, 03/17/2017 f
    4,000,000       3,692,400        
Petrobras International Finance Company S.A.,
                     
3.875%, 01/27/2016 f
    6,825,000       6,697,372        
Petroleos Mexicanos,
                     
8.000%, 05/03/2019 f
    5,000,000       5,912,500        
Sinopec Capital (2013) Limited,
                     
1.250%, 04/24/2016 (Acquired 01/10/2014, Cost $4,250,110) * f
    4,250,000       4,237,633        
Sinopec Group Overseas Development [2014] Ltd.,
                     
1.750%, 04/10/2017 (Acquired 04/02/2014, Cost $6,984,110) * f
    7,000,000       6,966,610        
The Export-Import Bank of Korea,
                     
0.980%, 01/14/2017 f
    1,570,000       1,574,401        
The Korea Development Bank:
                     
0.857%, 01/22/2017 f
    5,000,000       5,010,630        
3.875%, 05/04/2017 f
    2,350,000       2,458,077        
3.000%, 03/17/2019 f
    2,475,000       2,549,282        
              74,963,835       2.8 %
Taxable Municipal Bonds
                       
City of Cuyahoga Falls OH,
                       
1.000%, 08/13/2015
    6,600,000       6,612,276          
City of Passaic NJ,
                       
1.882%, 02/01/2016
    1,020,000       1,022,111          
City of Trenton NJ,
                       
1.722%, 04/01/2016
    1,470,000       1,479,202          
Consolidated Municipalities Electric Power Systems Joint Powers Board,
                       
1.550%, 06/01/2017
    590,000       586,755          
Cook County School District No 144 Prairie Hills:
                       
2.000%, 12/01/2017
    930,000       925,955          
2.500%, 12/01/2018
    745,000       744,575          
County of Dauphin PA,
                       
1.194%, 03/01/2016
    1,200,000       1,194,252          
County of Miami-Dade FL Aviation Revenue,
                       
5.000%, 10/01/2016
    6,200,000       6,625,692          
Government Development Bank for Puerto Rico,
                       
4.704%, 05/01/2016
    725,000       618,788          
Indiana Bond Bank,
                       
1.689%, 01/15/2017
    1,000,000       1,005,350          
Iowa Tobacco Settlement Authority,
                       
6.500%, 06/01/2023 (Callable 06/01/2015)
    265,000       264,992          
New Hampshire Housing Finance Authority:
                       
1.250%, 07/01/2016
    890,000       886,938          
1.500%, 01/01/2017
    855,000       856,505          
1.650%, 07/01/2017
    810,000       809,409          
New Jersey Economic Development Authority:
                       
0.000%, 02/15/2016 ^
    2,500,000       2,462,425          
2.421%, 06/15/2018
    10,000,000       10,043,000          
Ohio Air Quality Development Authority,
                       
5.750%, 06/01/2033
    3,000,000       3,183,210          
Rhode Island Housing & Mortgage Finance Corp/RI:
                       
1.150%, 04/01/2016
    1,175,000       1,171,052          
1.930%, 04/01/2017
    600,000       604,350          
3.000%, 10/01/2034 (Callable 10/01/2023)
    11,760,000       12,039,653          
Schenectady Metroplex Development Authority/NY:
                       
0.979%, 08/01/2015
    375,000       374,760          
2.232%, 08/01/2017
    200,000       200,856          
South Carolina State Public Service Authority,
                       
1.255%, 06/01/2016 (Callable 12/01/2015)
    6,800,000       6,816,932          
State of Illinois:
                       
4.422%, 04/01/2015
    2,210,000       2,228,166          
4.961%, 03/01/2016
    1,760,000       1,833,445          
5.090%, 04/01/2017
    2,785,000       2,954,077          
Tulsa Airports Improvement Trust:
                       
2.592%, 06/01/2017
    115,000       114,865          
3.042%, 06/01/2018
    100,000       100,587          
              67,760,178       2.5 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Home Loan Mortgage Corporation (FHLMC),
                       
Series 5, Class B, 0.861%, 05/15/2019
    6,375       6,415          
Federal National Mortgage Association (FNMA):
                       
5.500%, 07/01/2015
    8,477       8,947          
Series 2004-W6, Class 1A4, 5.500%, 07/25/2034
    246,922       248,048          
Series 2004-W6, Class 1A6, 5.500%, 07/25/2034
    285,833       293,274          
              556,684       0.0 %
Non-U.S. Government Agency Issues
                       
Alternative Loan Trust:
                       
Series 2005-50CB, Class 4A1, 5.000%, 11/25/2020 §
    302,948       302,695          
Series 2004-2CB, Class 1A8, 5.750%, 03/25/2034
    3,136,711       3,139,390          
Series 2005-73CB, Class 1A7, 5.500%, 01/25/2036 §
    143,240       134,877          
Series 2006-28CB, Class A17, 6.000%, 10/25/2036 §
    1,086,152       900,716          
Banc of America Alternative Loan Trust:
                       
Series 2003-4, Class 2A1, 5.000%, 06/25/2018
    128,509       131,701          
Series 2004-2, Class 5A1, 5.500%, 03/25/2019
    600,435       612,964          
Series 2003-3, Class A1, 5.500%, 05/25/2033
    1,587,739       1,655,420          
Series 2004-B, Class 2A2, 2.646%, 03/25/2034
    3,674,393       3,699,588          
Banc of America Mortgage Trust,
                       
Series 2003-10, Class 3A1, 5.000%, 01/25/2019
    904,597       932,962          
Countrywide Alternative Loan Trust:
                       
Series 2004-12CB, Class 1A1, 5.000%, 07/25/2019
    1,494,439       1,553,155          
Series 2004-J2, Class 3A3, 5.500%, 04/25/2034
    301,423       308,066          
HSI Asset Securitization Corp. Trust,
                       
Series 2005-NC1, Class 2A3, 0.530%, 07/25/2035
    532,508       531,987          
J.P. Morgan Mortgage Trust,
                       
Series 2005-A4, Class 1A1, 5.238%, 07/25/2035
    1,956,967       1,958,763          
MASTR Alternative Loan Trust:
                       
Series 2003-5, Class 7A1, 5.000%, 07/25/2018
    8,190,682       8,470,517          
Series 2003-9, Class 3A1, 4.750%, 11/25/2018
    4,019,338       4,099,729          
Series 2003-5, Class 4A1, 5.500%, 07/25/2033
    7,758,988       8,249,100          
Morgan Stanley Mortgage Loan Trust,
                       
Series 2004-4, Class 1A10, 5.000%, 08/25/2034
    1,611,805       1,638,615          
Structured Asset Securities Corp Mortgage Pass-Through Certificates,
                       
Series 2004-22, Class A2, 5.133%, 01/25/2035
    11,396,361       11,796,339          
Structured Asset Securities Corp.,
                       
Series 2004-4XS, Class 1A6, 4.550%, 02/25/2034
    593,585       605,430          
WaMu Mortgage Pass-Through Certificates:
                       
Series 2004-CB4, Class 21A, 5.500%, 12/25/2019
    120,117       124,427          
Series 2004-CB4, Class 22A, 6.000%, 12/25/2019
    264,186       275,912          
Series 2004-AR3, Class A1, 2.370%, 06/25/2034
    11,157,219       11,259,452          
              62,381,805       2.3 %
Asset Backed Securities
                       
Accredited Mortgage Loan Trust:
                       
Series 2005-3, Class A1, 0.400%, 09/25/2035
    176,026       175,359          
Series 2006-2, Class A3, 0.320%, 09/25/2036
    17,591,177       17,373,891          
Aegis Asset Backed Securities Trust,
                       
Series 2005-5, Class 1A3, 0.440%, 12/25/2035
    7,133,621       7,033,871          
Ally Auto Receivables Trust,
                       
Series 2014-SN2, Class A2B, 0.465%, 03/20/2017
    13,000,000       13,000,559          
Ameriquest Mortgage Securities Inc Asset-Backed Pass-Through Ctfs,
                       
Series 2005-R8, Class A2D, 0.530%, 10/25/2035
    11,660,913       11,613,838          
Argent Securities Inc Asset-Backed Pass-Through Certificates:
                       
Series 2005-W2, Class A2B1, 0.370%, 10/25/2035
    753,964       752,192          
Series 2005-W3, Class A2D, 0.510%, 11/25/2035
    14,097,419       13,542,798          
Barclays Dryrock Issuance Trust,
                       
Series 2014-4, Class A, 0.545%, 09/15/2020
    3,925,000       3,925,612          
BCMSC Trust,
                       
Series 1998-A, Class A3, 6.230%, 04/15/2028
    2,965       2,973          
Capital Auto Receivables Asset Trust:
                       
Series 2014-1, Class A1B, 0.515%, 05/20/2016
    465,000       465,125          
Series 2014-3, Class A-2, 1.180%, 12/20/2017
    25,515,000       25,515,230          
Carrington Mortgage Loan Trust,
                       
Series 2006-OPT1, Class A3, 0.350%, 02/25/2036
    6,257,772       6,065,007          
Citigroup Mortgage Loan Trust. Inc.,
                       
Series 2006-WFH3, Class A3, 0.320%, 10/25/2036
    510,936       509,915          
Conseco Financial Corp.:
                       
Series 1998-2, Class A5, 6.240%, 12/01/2028
    21,289       21,968          
Series 1997-5, Class A6, 6.820%, 05/15/2029
    56,257       56,526          
Series 1998-3, Class A5, 6.220%, 03/01/2030
    273,757       289,688          
Countrywide Asset-Backed Certificates:
                       
Series 2006-13, Class 1AF3, 4.896%, 01/25/2037 §
    1,509,089       1,826,645          
Series 2006-9, Class 1AF3, 5.297%, 10/25/2046 §
    1,268,947       989,913          
Credit-Based Asset Servicing and Securitization LLC,
                       
Series 2005-CB8, Class AF2, 4.184%, 12/25/2035
    299,259       296,604          
First Franklin Mortgage Loan Trust,
                       
Series 2004-FF7, Class A1, 0.810%, 09/25/2034
    7,659,414       7,643,536          
Ford Credit Auto Owner Trust,
                       
Series 2014-1, Class A, 2.260%, 11/15/2025 (Acquired 05/06/2014 through 11/18/2014, Cost $17,958,650) *
    17,894,000       17,989,518          
GE-WMC Asset-Backed Pass Through Certificates,
                       
Series 2005-1, Class A2C, 0.530%, 10/25/2035
    4,707,986       4,679,889          
GSAA Trust,
                       
Series 2005-8, Class A4, 0.440%, 06/25/2035
    21,675,795       21,045,268          
GSAMP Trust:
                       
Series 2005-HE5, Class A2D, 0.510%, 11/25/2035
    590,197       588,101          
Series 2006-HE1, Class A2C, 0.380%, 01/25/2036
    3,695,763       3,623,607          
Home Equity Asset Trust,
                       
Series 2006-4, Class 2A3, 0.340%, 08/25/2036
    3,893,627       3,821,735          
J.P. Morgan Mortgage Acquisition Trust:
                       
Series 2006-CH1, Class A1, 0.285%, 07/25/2036
    10,243,905       9,852,967          
Series 2007-CH1, Class AV4, 0.285%, 11/25/2036
    5,755,327       5,731,155          
Master Credit Card Trust II:
                       
Series 2012-2A, Class A, 0.780%, 04/21/2017 (Acquired 10/08/2014, Cost $1,701,781) * f
    1,700,000       1,700,544          
Series 2013-3A, Class A, 0.595%, 01/22/2018 (Acquired 07/25/2013 through 11/05/2014, Cost $8,950,769) * f
    8,950,000       8,957,285          
MASTR Asset Backed Securities Trust,
                       
Series 2006-AB1, Class A2, 0.400%, 02/25/2036
    1,161,741       1,154,028          
Morgan Stanley ABS Capital I Inc Trust,
                       
Series 2005-HE2, Class A3B, 0.610%, 01/25/2035
    8,206,362       8,054,388          
Nationstar Home Equity Loan Trust,
                       
Series 2006-B, Class AV3, 0.340%, 09/25/2036
    20,309,304       20,267,406          
Nomura Holdings, Inc.,
                       
Series 2006-HE2, Class A3, 0.340%, 03/25/2036
    6,445,215       6,275,171          
Option One Mortgage Loan Trust Asset-Backed Certificates,
                       
Series 2005-5, Class A3, 0.380%, 12/25/2035
    8,020,815       7,967,340          
RAMP Series Trust:
                       
Series 2003-RS7, Class AI6, 5.340%, 08/25/2033
    57,698       57,871          
Series 2003-RS11, Class AI7, 4.828%, 12/25/2033
    400,650       407,291          
RASC Series Trust:
                       
Series 2005-AHL2, Class A3, 0.520%, 10/25/2035
    12,150,000       11,990,519          
Series 2006-KS1, Class A4, 0.470%, 02/25/2036
    4,938,990       4,891,907          
Renaissance Home Equity Loan Trust,
                       
Series 2007-2, Class AF2, 5.675%, 06/25/2037
    1,965,282       1,022,456          
Securitized Asset Backed Receivables LLC Trust,
                       
Series 2005-OP2, Class A1, 0.495%, 10/25/2035 (Acquired 03/13/2014, Cost $13,669,278) *
    13,837,928       13,678,778          
Soundview Home Loan Trust,
                       
Series 2005-OPT4, Class 2A3, 0.690%, 12/25/2035
    2,722,271       2,675,590          
Specialty Underwriting & Residential Finance Trust,
                       
Series 2006-BC1, Class A2C, 0.370%, 12/25/2036
    3,837,023       3,803,245          
Springleaf Funding Trust,
                       
Series 2013-AA, Class A, 2.580%, 09/15/2021 (Acquired 01/09/2014 through 11/18/2014, Cost $23,206,842) *
    23,100,000       23,166,505          
Springleaf Mortgage Loan Trust:
                       
Series 2012-1A, Class A, 2.667%, 09/25/2057 (Acquired 04/11/2012 through 03/28/2014, Cost $2,693,482) *
    2,682,682       2,722,651          
Series 2012-2A, Class A, 2.220%, 10/25/2057 (Acquired 07/31/2012 through 08/20/2014, Cost $5,422,217) *
    5,383,581       5,455,769          
Structured Asset Investment Loan Trust,
                       
Series 2004-9, Class A5, 1.170%, 10/25/2034
    16,953,015       16,921,940          
Structured Asset Securities Corp Mortgage Loan Trust,
                       
Series 2007-BC2, Class A3, 0.300%, 03/25/2037
    6,805,620       6,773,518          
Synchrony Credit Card Master Note Trust,
                       
Series 2014-1, Class A, 1.610%, 11/15/2020
    11,700,000       11,657,307          
              338,034,999       12.6 %
 
Commercial Mortgage Backed Securities
                   
Bear Stearns Commercial Mortgage Securities Trust,
                   
Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    24,181,820       24,530,038          
CD Commercial Mortgage Trust,
                       
Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    18,872,614       19,177,558          
Citigroup Commercial Mortgage Trust,
                       
Series 2006-C4, Class A3, 5.771%, 03/15/2049
    7,612,733       7,956,896          
COMM Mortgage Trust,
                       
Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    14,296,123       14,448,548          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-C5, Class A4, 5.100%, 08/15/2038
    13,878,629       14,062,854          
DBUBS Mortgage Trust,
                       
Series 2011-LC3A, Class A2, 3.642%, 08/10/2044
    18,450,000       19,047,614          
J.P. Morgan Chase Commercial Mortgage Securities Trust,
                       
Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    19,435,000       19,636,638          
Morgan Stanley Capital I Trust,
                       
Series 2005-HQ7, Class A4, 5.206%, 11/14/2042
    12,256,304       12,449,549          
Wachovia Bank Commercial Mortgage Trust,
                       
Series 2005-C22, Class A4, 5.269%, 12/15/2044
    17,540,804       17,915,282          
              149,224,977      
5.6%
 
Total Long-Term Investments (Cost $2,655,920,157)
            2,651,182,501      
99.0%
 

SHORT-TERM INVESTMENTS
                 
Money Market Mutual Funds
                 
Short-Term Investments Trust - Liquid Assets Portfolio, 0.07% «
    9,270,655       9,270,655        
Total Short-Term Investments (Cost $9,270,655)
            9,270,655       0.4 %
                         
INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM
                       
SECURITIES LENDING
                       
Investment Companies
                       
Mount Vernon Securities Lending Trust Prime Portfolio, 0.29% «
    147,613,109       147,613,109          
Total Investment Companies (Cost $147,613,109)
            147,613,109       5.5 %
                         
Total Investments Purchased With Cash Proceeds From
                       
Securities Lending (Cost $147,613,109)
            147,613,109       5.5 %
                         
Total Investments (Cost $2,812,803,921)
            2,808,066,265       104.9 %
Liabilities in Excess of Other Assets
            (131,358,380 )     (4.9 )%
TOTAL NET ASSETS
          $ 2,676,707,885       100.0 %

Notes to Schedule of Investments
 
*
Restricted security as defined in Rule 144(a) under the Securities Act of 1933 and determined to be liquid. Purchased in a private placement transaction; resale to the public may require registration or may extend only to qualified institutional buyers. At December 31, 2014, the value of these securities total $462,037,510, which represents 17.26% of total net assets.
 
@
This security or portion of this security is out on loan at December 31, 2014.
 
f
Foreign Security
 
«
7-Day Yield
 
§
Security in Default
 
^
Non-Income Producing
 
 

 
 

 
 
Baird Intermediate Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                 
                   
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
LONG-TERM INVESTMENTS
                 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
1.250%, 04/30/2019 @
  $ 143,300,000     $ 141,631,845        
2.625%, 08/15/2020 @
    262,525,000       274,154,070        
7.875%, 02/15/2021 @
    67,000,000       90,518,072        
2.500%, 05/15/2024
    13,000,000       13,393,042        
              519,697,029       32.8 %
Corporate Bonds
                       
Finance
                       
Abbey National Treasury Services plc,
                       
3.050%, 08/23/2018 f
    1,050,000       1,087,085          
ABN AMRO Bank N.V.:
                       
4.250%, 02/02/2017 (Acquired 11/22/2013, Cost $4,740,927) * f
    4,500,000       4,741,470          
2.500%, 10/30/2018 (Acquired 10/23/2013 through 04/17/2014, Cost $1,200,606) * f
    1,200,000       1,212,019          
AgriBank, FCB,
                       
Series AI, 9.125%, 07/15/2019 (Acquired 02/24/2014, Cost $3,574,969) *
    2,850,000       3,638,595          
Ally Financial Inc.,
                       
8.000%, 12/31/2018
    96,000       108,960          
American International Group, Inc.,
                       
4.875%, 06/01/2022
    3,000,000       3,370,032          
AmSouth Bancorporation,
                       
6.750%, 11/01/2025
    630,000       751,281          
ANZ New Zealand (Int'l) Limited:
                       
1.850%, 10/15/2015 (Acquired 08/29/2013, Cost $1,005,497) * f
    1,000,000       1,009,595          
2.600%, 09/23/2019 (Acquired 09/16/2014, Cost $2,998,050) * f
    3,000,000       3,029,742          
Associates Corporation of North America,
                       
6.950%, 11/01/2018
    2,579,000       3,012,246          
Australia and New Zealand Banking Group Limited,
                       
3.250%, 03/01/2016 (Acquired 02/22/2011, Cost $1,693,081) * f
    1,700,000       1,750,927          
Bank of America Corporation:
                       
10.200%, 07/15/2015
    1,035,000       1,085,817          
5.700%, 05/02/2017
    1,100,000       1,189,107          
6.875%, 04/25/2018
    1,000,000       1,148,580          
3.300%, 01/11/2023
    3,350,000       3,350,258          
4.000%, 04/01/2024
    2,750,000       2,863,369          
BanPonce Trust I,
                       
Series A, 8.327%, 02/01/2027
    2,500,000       2,182,869          
Barclays Bank PLC:
                       
Series 1, 5.000%, 09/22/2016 f
    2,565,000       2,733,256          
6.750%, 05/22/2019 f
    2,000,000       2,353,408          
BB&T Corporation,
                       
6.850%, 04/30/2019
    2,322,000       2,754,619          
Berkshire Hathaway Finance Corporation,
                       
1.600%, 05/15/2017
    3,800,000       3,832,486          
BNZ International Funding Limited,
                       
2.350%, 03/04/2019 (Acquired 09/03/2014, Cost $2,789,836) * f
    2,800,000       2,800,333          
BPCE:
                       
5.700%, 10/22/2023 (Acquired 11/10/2014, Cost $3,744,707) * f
    3,500,000       3,758,184          
4.000%, 04/15/2024 @ f
    3,500,000       3,658,081          
Capital One Bank, (USA), National Association,
                       
2.250%, 02/13/2019
    3,500,000       3,474,653          
Capital One Financial Corporation,
                       
3.150%, 07/15/2016 @
    2,596,000       2,669,848          
Capital One N.A.,
                       
0.697%, 03/22/2016
    2,100,000       2,102,650          
CIGNA Corporation,
                       
2.750%, 11/15/2016
    3,781,000       3,882,592          
Citigroup Inc.:
                       
4.450%, 01/10/2017
    1,800,000       1,902,750          
1.550%, 08/14/2017 @
    1,000,000       997,179          
6.125%, 11/21/2017
    635,000       708,078          
3.750%, 06/16/2024 @
    500,000       510,624          
Citizens Bank, National Association,
                       
2.450%, 12/04/2019
    8,000,000       7,950,000          
CNA Financial Corporation:
                       
6.500%, 08/15/2016
    2,000,000       2,163,270          
7.350%, 11/15/2019
    2,395,000       2,858,540          
5.750%, 08/15/2021
    1,260,000       1,435,973          
Comerica Bank,
                       
5.200%, 08/22/2017
    5,570,000       6,054,039          
Commonwealth Bank of Australia,
                       
5.000%, 10/15/2019 (Acquired 03/02/2012 through 10/03/2014, Cost $4,596,189) * f
    4,335,000       4,839,910          
Countrywide Financial Corporation,
                       
6.250%, 05/15/2016
    2,200,000       2,334,952          
Credit Suisse:
                       
2.300%, 05/28/2019 @ f
    2,450,000       2,445,794          
5.300%, 08/13/2019 f
    3,220,000       3,611,906          
Deutsche Bank Aktiengesellschaft,
                       
3.250%, 01/11/2016 f
    4,250,000       4,342,204          
Dresdner Bank AG,
                       
7.250%, 09/15/2015 f
    2,652,000       2,742,359          
First Tennessee Bank National Association,
                       
5.650%, 04/01/2016
    4,263,000       4,405,286          
General Electric Capital Corporation:
                       
6.000%, 08/07/2019
    2,700,000       3,140,567          
5.500%, 01/08/2020
    2,550,000       2,918,669          
5.550%, 05/04/2020
    2,850,000       3,275,439          
Genworth Holdings, Inc.,
                       
4.900%, 08/15/2023
    1,500,000       1,208,546          
Great-West Life & Annuity Insurance Capital LP II,
                       
7.153%, 05/16/2046 (Acquired 05/16/2006 through 11/08/2007, Cost $1,792,736) *
    1,800,000       1,863,000          
Highmark Inc,
                       
4.750%, 05/15/2021 (Acquired 07/30/2014, Cost $2,014,854) *
    2,000,000       2,065,636          
HSBC Finance Corporation,
                       
6.676%, 01/15/2021
    4,059,000       4,815,825          
Humana Inc.,
                       
7.200%, 06/15/2018
    2,000,000       2,336,376          
ING Bank N.V.:
                       
3.000%, 09/01/2015 (Acquired 08/17/2010 through 09/14/2012, Cost $2,306,381) * f
    2,300,000       2,332,108          
2.500%, 10/01/2019 (Acquired 09/23/2014, Cost $2,461,635) * f
    2,475,000       2,490,830          
5.000%, 06/09/2021 (Acquired 06/12/2013, Cost $2,160,417) * f
    2,000,000       2,262,692          
Invesco Finance PLC,
                       
3.125%, 11/30/2022 f
    4,225,000       4,187,262          
iStar Financial Inc.,
                       
5.850%, 03/15/2017
    75,000       76,875          
J.P. Morgan Chase & Co.,
                       
4.500%, 01/24/2022
    3,000,000       3,275,256          
Jefferies Group LLC,
                       
6.875%, 04/15/2021
    2,000,000       2,273,520          
John Hancock Life Insurance Company,
                       
7.375%, 02/15/2024 (Acquired 04/10/2013 through 04/11/2013, Cost $2,931,333) *
    2,325,000       2,902,311          
Kemper Corporation,
                       
6.000%, 05/15/2017
    600,000       648,199          
KeyBank National Association,
                       
7.413%, 05/06/2015
    4,000,000       4,090,128          
Korea Housing Finance Corporation,
                       
1.625%, 09/15/2018 (Acquired 02/26/2013 through 08/28/2014, Cost $1,039,533) * f
    1,050,000       1,028,607          
LeasePlan Corporation N.V.:
                       
3.000%, 10/23/2017 (Acquired 02/07/2013, Cost $4,035,045) * f
    4,000,000       4,096,972          
2.500%, 05/16/2018 (Acquired 05/29/2013 through 10/20/2014, Cost $5,026,908) * f
    5,000,000       5,002,145          
Liberty Mutual Group Inc.,
                       
4.250%, 06/15/2023 (Acquired 06/13/2013, Cost $1,987,300) *
    2,000,000       2,060,958          
Lloyds Bank plc:
                       
4.875%, 01/21/2016 f
    225,000       234,055          
5.800%, 01/13/2020 (Acquired 02/09/2010 through 03/16/2012, Cost $2,904,036) * f
    2,900,000       3,351,081          
M&I Marshall & Ilsley Bank:
                       
4.850%, 06/16/2015
    3,075,000       3,130,550          
5.000%, 01/17/2017
    1,000,000       1,061,280          
Macquarie Bank Limited:
                       
2.000%, 08/15/2016 (Acquired 08/07/2013, Cost $4,998,250) * f
    5,000,000       5,060,895          
1.600%, 10/27/2017 (Acquired 10/22/2014, Cost $2,498,475) * f
    2,500,000       2,483,570          
Manulife Financial Corporation,
                       
4.900%, 09/17/2020 @ f
    2,300,000       2,525,257          
Marsh & McLennan Companies, Inc.,
                       
2.550%, 10/15/2018
    1,000,000       1,016,906          
MassMutual Global Funding II,
                       
2.000%, 04/05/2017 (Acquired 03/29/2012, Cost $3,783,470) * @
    3,800,000       3,853,538          
MBIA Insurance Corporation,
                       
11.491%, 01/15/2033 (Acquired 01/11/2008, Cost $500,000) *
    500,000       300,000          
Metropolitan Life Global Funding I,
                       
3.000%, 01/10/2023 (Acquired 01/03/2013, Cost $1,299,337) *
    1,300,000       1,293,226          
Metropolitan Life Insurance Company,
                       
7.700%, 11/01/2015 (Acquired 11/21/2013, Cost $2,106,057) *
    2,000,000       2,108,824          
Morgan Stanley:
                       
6.625%, 04/01/2018
    1,600,000       1,822,456          
7.300%, 05/13/2019
    2,700,000       3,202,594          
2.375%, 07/23/2019 @
    1,000,000       996,312          
MUFG Americas Holdings Corporation,
                       
3.500%, 06/18/2022
    225,000       231,717          
MUFG Union Bank, National Association,
                       
2.125%, 06/16/2017
    1,800,000       1,820,025          
National Australia Bank Limited,
                       
0.733%, 10/08/2015 (Acquired 02/19/2013, Cost $3,100,571) * f
    3,100,000       3,099,554          
Nationwide Financial Services, Inc.,
                       
5.375%, 03/25/2021 (Acquired 10/07/2013, Cost $884,948) *
    828,000       931,584          
Nomura Holdings, Inc.:
                       
5.000%, 03/04/2015 f
    2,900,000       2,920,721          
2.000%, 09/13/2016 f
    2,450,000       2,469,764          
6.700%, 03/04/2020 f
    1,000,000       1,182,276          
NYSE Euronext,
                       
2.000%, 10/05/2017
    800,000       806,818          
PNC Bank, National Association,
                       
2.950%, 01/30/2023
    4,000,000       3,908,760          
Protective Life Corporation,
                       
7.375%, 10/15/2019
    1,925,000       2,316,535          
Prudential Covered Trust 2012-1,
                       
2.997%, 09/30/2015 (Acquired 11/06/2012 through 07/23/2013, Cost $2,275,168) *
    2,250,000       2,281,604          
Prudential Financial, Inc.,
                       
7.375%, 06/15/2019
    850,000       1,021,828          
Regions Bank,
                       
7.500%, 05/15/2018
    2,475,000       2,873,215          
Regions Financial Corporation:
                       
5.750%, 06/15/2015
    1,500,000       1,531,154          
2.000%, 05/15/2018
    2,000,000       1,980,378          
Santander Bank, N.A.,
                       
8.750%, 05/30/2018
    3,080,000       3,668,286          
Santander UK PLC,
                       
5.000%, 11/07/2023 (Acquired 10/31/2013, Cost $996,810) * f
    1,000,000       1,056,196          
Societe Generale:
                       
1.335%, 10/01/2018 f
    2,000,000       2,035,288          
2.625%, 10/01/2018 f
    1,000,000       1,015,637          
5.200%, 04/15/2021 (Acquired 01/28/2013, Cost $1,374,058) * f
    1,250,000       1,414,978          
5.000%, 01/17/2024 (Acquired 01/14/2014 through 02/18/2014, Cost $3,127,979) * @ f
    3,150,000       3,167,265          
Sumitomo Mitsui Banking Corporation:
                       
2.500%, 07/19/2018 f
    3,000,000       3,032,991          
2.250%, 07/11/2019 f
    2,000,000       1,980,990          
SunTrust Bank:
                       
5.450%, 12/01/2017
    500,000       546,463          
7.250%, 03/15/2018
    1,506,000       1,742,523          
SunTrust Banks, Inc.,
                       
3.600%, 04/15/2016
    2,600,000       2,681,632          
SUSA Partnership, L.P.,
                       
8.200%, 06/01/2017
    2,800,000       3,193,568          
Svenska Handelsbanken AB:
                       
3.125%, 07/12/2016 f
    275,000       284,052          
2.875%, 04/04/2017 f
    1,500,000       1,550,357          
2.500%, 01/25/2019 @ f
    1,000,000       1,019,620          
Swedbank AB:
                       
1.750%, 03/12/2018 (Acquired 03/05/2013, Cost $3,236,382) * f
    3,250,000       3,242,772          
2.375%, 02/27/2019 (Acquired 02/20/2014, Cost $2,595,606) * f
    2,600,000       2,615,720          
Symetra Financial Corporation,
                       
6.125%, 04/01/2016 (Acquired 08/12/2011 through 12/02/2013, Cost $1,303,518) *
    1,269,000       1,331,347          
Synchrony Financial:
                       
3.750%, 08/15/2021
    5,000,000       5,107,445          
4.250%, 08/15/2024
    4,000,000       4,104,516          
The Bank of Nova Scotia,
                       
2.550%, 01/12/2017 f
    150,000       153,831          
The Bank of Tokyo-Mitsubishi UFJ, Ltd.:
                       
2.700%, 09/09/2018 (Acquired 09/03/2013, Cost $2,547,756) * f
    2,550,000       2,594,184          
2.300%, 03/10/2019 (Acquired 03/04/2014, Cost $998,400) * f
    1,000,000       994,604          
The Bear Stearns Companies LLC:
                       
6.400%, 10/02/2017
    1,450,000       1,623,870          
7.250%, 02/01/2018
    2,275,000       2,622,051          
The Charles Schwab Corporation,
                       
6.375%, 09/01/2017
    325,000       365,494          
The Goldman Sachs Group, Inc.:
                       
6.150%, 04/01/2018
    3,900,000       4,377,434          
2.900%, 07/19/2018
    1,000,000       1,025,880          
7.500%, 02/15/2019
    865,000       1,028,884          
2.550%, 10/23/2019
    2,000,000       1,992,696          
The Hartford Financial Services Group, Inc.:
                       
5.500%, 10/15/2016
    1,500,000       1,608,983          
5.125%, 04/15/2022
    500,000       562,044          
The Huntington National Bank,
                       
1.300%, 11/20/2016
    4,850,000       4,829,984          
The Royal Bank of Scotland Group Public Limited Company,
                       
2.550%, 09/18/2015 f
    200,000       202,002          
The Royal Bank of Scotland Public Limited Company:
                       
5.625%, 08/24/2020 f
    3,300,000       3,757,704          
6.125%, 01/11/2021 f
    1,300,000       1,531,895          
UBS AG,
                       
5.875%, 12/20/2017 f
    2,000,000       2,233,180          
Voya Financial, Inc.,
                       
2.900%, 02/15/2018
    2,000,000       2,047,506          
Wells Fargo Bank, National Association,
                       
6.000%, 11/15/2017
    1,479,000       1,657,830          
Westpac Banking Corporation:
                       
1.600%, 01/12/2018 f
    1,250,000       1,249,923          
4.875%, 11/19/2019 f
    2,775,000       3,096,245          
Willis Group Holdings Public Limited Company,
                       
5.750%, 03/15/2021 f
    3,250,000       3,629,980          
              327,001,174       20.6 %
 
Utility
                       
Commonwealth Edison Company,
                       
Series 104, 5.950%, 08/15/2016
    375,000       404,419          
National Grid PLC,
                       
6.300%, 08/01/2016 f
    3,925,000       4,236,833          
National Rural Utilities Cooperative Finance Corporation,
                       
10.375%, 11/01/2018
    3,619,000       4,714,580          
PPL Capital Funding, Inc.,
                       
3.400%, 06/01/2023 @
    2,475,000       2,479,648          
PPL Energy Supply, LLC,
                       
Series A, 5.700%, 10/15/2015
    1,950,000       1,992,463          
PSEG Power LLC:
                       
2.750%, 09/15/2016
    75,000       76,862          
5.320%, 09/15/2016
    994,000       1,061,967          
5.125%, 04/15/2020
    220,000       244,406          
Public Service Company of New Mexico,
                       
7.950%, 05/15/2018
    2,820,000       3,318,748          
RGS I&M Funding Corp,
                       
Series F*, 9.820%, 06/07/2022
    438,351       519,464          
Talent Yield Investments Ltd.,
                       
4.500%, 04/25/2022 (Acquired 04/18/2012, Cost $3,774,008) * @ f
    3,800,000       3,978,144          
Trans-Allegheny Interstate Line Company,
                       
4.000%, 01/15/2015 (Acquired 01/19/2010 through 02/22/2013, Cost $3,664,883) *
    3,673,000       3,675,891          
West Penn Power Company,
                       
5.875%, 08/15/2016 (Acquired 10/25/2010, Cost $2,086,952) *
    2,000,000       2,136,476          
              28,839,901       1.8 %
Industrials
                       
21st CENTURY FOX AMERICA, INC.,
                       
8.000%, 10/17/2016
    5,575,000       6,225,485          
Agrium Inc.,
                       
3.150%, 10/01/2022 f
    1,306,000       1,274,877          
Altera Corporation,
                       
2.500%, 11/15/2018
    2,000,000       2,012,740          
America Movil, S.A.B. de C.V.,
                       
1.241%, 09/12/2016 f
    3,200,000       3,222,890          
Ameritech Capital Funding Corporation:
                       
9.100%, 06/01/2016
    476,700       515,759          
6.450%, 01/15/2018
    2,758,000       3,093,207          
Anadarko Petroleum Corporation:
                       
5.950%, 09/15/2016
    2,270,000       2,427,493          
6.375%, 09/15/2017
    2,000,000       2,223,604          
6.950%, 06/15/2019
    1,000,000       1,168,351          
Anglo American Capital PLC,
                       
9.375%, 04/08/2019 (Acquired 07/11/2012, Cost $2,449,203) * f
    2,000,000       2,490,884          
Apple Inc.,
                       
2.400%, 05/03/2023
    2,000,000       1,943,994          
Boston Scientific Corporation,
                       
4.125%, 10/01/2023
    3,000,000       3,064,908          
BP Capital Markets:
                       
4.750%, 03/10/2019 @ f
    2,500,000       2,734,770          
2.521%, 01/15/2020 @ f
    2,650,000       2,653,098          
3.245%, 05/06/2022 f
    1,000,000       983,039          
British Telecommunications plc,
                       
5.950%, 01/15/2018 f
    2,000,000       2,230,378          
Bunge Limited Finance Corp.:
                       
4.100%, 03/15/2016
    2,830,000       2,917,620          
3.200%, 06/15/2017
    1,300,000       1,336,716          
Bunge N.A. Finance L.P.,
                       
5.900%, 04/01/2017
    575,000       625,184          
Celgene Corporation,
                       
4.000%, 08/15/2023
    2,000,000       2,105,058          
Coca-Cola FEMSA, S.A.B. de C.V.,
                       
2.375%, 11/26/2018 f
    3,425,000       3,487,369          
Comcast Cable Communications, LLC,
                       
8.875%, 05/01/2017
    550,000       643,612          
Comcast Corporation:
                       
6.500%, 01/15/2017
    175,000       193,236          
2.850%, 01/15/2023
    1,475,000       1,465,163          
Computer Sciences Corporation,
                       
2.500%, 09/15/2015
    4,500,000       4,540,630          
ConAgra Foods, Inc.:
                       
0.601%, 07/21/2016
    2,125,000       2,119,757          
7.000%, 04/15/2019
    1,583,000       1,843,904          
Cox Communications, Inc.:
                       
3.250%, 12/15/2022 (Acquired 11/26/2012, Cost $3,594,456) * @
    3,600,000       3,534,620          
3.850%, 02/01/2025 (Acquired 12/01/2014, Cost $4,492,215) *
    4,500,000       4,542,377          
CVS Health Corporation:
                       
2.250%, 08/12/2019
    3,375,000       3,360,903          
4.000%, 12/05/2023
    4,425,000       4,682,853          
D.R. Horton, Inc.,
                       
6.500%, 04/15/2016
    1,000,000       1,055,000          
Daimler Finance North America LLC,
                       
2.250%, 07/31/2019 (Acquired 07/25/2012, Cost $2,285,234) * @
    2,300,000       2,292,937          
DCP Midstream, LLC,
                       
9.750%, 03/15/2019 (Acquired 10/15/2012, Cost $1,946,620) *
    1,600,000       2,001,290          
Deutsche Telekom International Finance B.V.:
                       
6.750%, 08/20/2018 f
    2,850,000       3,307,325          
6.000%, 07/08/2019 @ f
    1,700,000       1,972,160          
Devon Energy Corporation,
                       
6.300%, 01/15/2019
    910,000       1,038,664          
DIRECTV Holdings LLC / DIRECTV Financing Co., Inc.,
                       
3.500%, 03/01/2016
    250,000       256,521          
Ecolab Inc.,
                       
1.450%, 12/08/2017
    4,000,000       3,964,152          
El Paso Pipeline Partners Operating Company, L.L.C.,
                       
4.100%, 11/15/2015
    3,000,000       3,069,543          
Energy Transfer Partners, L.P.:
                       
5.950%, 02/01/2015
    1,336,000       1,340,410          
9.700%, 03/15/2019
    2,457,000       3,083,823          
Enterprise Products Operating LLC,
                       
2.550%, 10/15/2019
    3,000,000       2,969,796          
ERAC USA Finance LLC,
                       
2.350%, 10/15/2019 (Acquired 06/30/2014, Cost $3,594,744) *
    3,600,000       3,573,169          
Express Scripts Holding Company:
                       
2.650%, 02/15/2017
    2,000,000       2,044,988          
7.250%, 06/15/2019
    1,000,000       1,200,657          
Federal Express Corp 1998 Pass Through Trust,
                       
Series 981B, 6.845%, 01/15/2019
    2,130,878       2,347,349          
Fidelity National Information Services, Inc.,
                       
3.875%, 06/05/2024
    2,300,000       2,323,235          
Fiserv, Inc.:
                       
4.750%, 06/15/2021
    1,630,000       1,794,540          
3.500%, 10/01/2022
    2,300,000       2,322,835          
FMC Corporation,
                       
4.100%, 02/01/2024
    2,000,000       2,069,074          
Ford Motor Credit Company LLC:
                       
2.500%, 01/15/2016
    3,000,000       3,033,558          
1.724%, 12/06/2017
    3,300,000       3,265,894          
5.750%, 02/01/2021
    2,000,000       2,291,864          
Freeport-McMoRan Inc.:
                       
3.100%, 03/15/2020
    2,000,000       1,945,466          
3.875%, 03/15/2023 @
    1,100,000       1,037,120          
Freeport-McMoran Oil & Gas LLC / FCX Oil & Gas Inc.,
                       
6.750%, 02/01/2022
    1,649,000       1,813,900          
Glencore Canada Corporation,
                       
6.000%, 10/15/2015 f
    1,024,000       1,058,567          
Glencore Funding LLC:
                       
2.500%, 01/15/2019 (Acquired 05/22/2013 through 10/29/2013, Cost $4,311,300) * @
    4,400,000       4,332,570          
4.125%, 05/30/2023 (Acquired 04/03/2014, Cost $1,452,965) *
    1,500,000       1,463,638          
4.625%, 04/29/2024 (Acquired 10/08/2014, Cost $1,029,005) *
    1,000,000       1,004,800          
Grupo Bimbo, S.A.B. de C.V.,
                       
3.875%, 06/27/2024 (Acquired 06/24/2014, Cost $2,987,700) * f
    3,000,000       3,011,790          
GTE Corporation,
                       
8.750%, 11/01/2021
    2,150,000       2,804,026          
Hanson Limited,
                       
6.125%, 08/15/2016 f
    650,000       689,000          
Hess Corporation,
                       
8.125%, 02/15/2019
    1,200,000       1,427,750          
Hewlett-Packard Company:
                       
3.300%, 12/09/2016
    3,500,000       3,614,537          
2.750%, 01/14/2019 @
    2,550,000       2,553,259          
Historic TW Inc.,
                       
6.875%, 06/15/2018
    392,000       453,224          
Hutchison Whampoa International (09) Limited,
                       
7.625%, 04/09/2019 (Acquired 10/16/2009 through 04/16/2014, Cost $6,136,117) * f
    5,400,000       6,532,369          
Hutchison Whampoa International (14) Limited,
                       
1.625%, 10/31/2017 (Acquired 10/28/2014, Cost $1,995,400) * f
    2,000,000       1,983,520          
Hyundai Capital Services, Inc.,
                       
3.500%, 09/13/2017 (Acquired 08/04/2014 through 09/30/2014, Cost $6,422,012) * f
    6,150,000       6,362,034          
Ingersoll-Rand Company,
                       
6.391%, 11/15/2027 f
    1,195,000       1,432,691          
Ingersoll-Rand Global Holding Company Limited,
                       
2.875%, 01/15/2019
    3,000,000       3,047,319          
Ingredion Incorporated,
                       
1.800%, 09/25/2017
    1,275,000       1,271,337          
Johnson Controls, Inc.:
                       
5.500%, 01/15/2016 @
    1,625,000       1,701,741          
4.250%, 03/01/2021
    2,000,000       2,161,762          
Kinder Morgan Finance Company LLC,
                       
5.700%, 01/05/2016
    2,500,000       2,595,300          
Kraft Foods Group, Inc.,
                       
3.500%, 06/06/2022
    2,000,000       2,049,424          
Laboratory Corporation of America Holdings,
                       
4.625%, 11/15/2020
    400,000       431,186          
Lafarge S.A.:
                       
6.200%, 07/09/2015 (Acquired 07/06/2010, Cost $999,140) * f
    1,000,000       1,022,900          
6.500%, 07/15/2016 f
    625,000       665,625          
Martin Marietta Materials, Inc.,
                       
6.600%, 04/15/2018
    75,000       85,023          
Masco Corporation,
                       
6.125%, 10/03/2016
    2,200,000       2,333,100          
MeadWestvaco Corporation,
                       
7.375%, 09/01/2019
    2,033,000       2,402,095          
Medco Health Solutions, Inc.:
                       
2.750%, 09/15/2015
    215,000       217,822          
7.125%, 03/15/2018
    1,850,000       2,135,931          
Merey Sweeny, L.P.,
                       
8.850%, 12/18/2019 (Acquired 06/11/2013, Cost $1,663,325) *
    1,454,448       1,679,339          
Midcontinent Express Pipeline LLC,
                       
6.700%, 09/15/2019 (Acquired 09/30/2014, Cost $1,128,781) *
    1,000,000       1,095,000          
Murphy Oil Corporation,
                       
3.700%, 12/01/2022
    5,000,000       4,487,565          
Mylan Inc.,
                       
7.875%, 07/15/2020 (Acquired 07/22/2013, Cost $1,071,324) *
    1,000,000       1,065,195          
Nabors Industries, Inc.,
                       
6.150%, 02/15/2018
    825,000       859,293          
NiSource Finance Corp.,
                       
4.450%, 12/01/2021
    2,000,000       2,161,002          
Noble Energy, Inc.:
                       
8.250%, 03/01/2019
    1,000,000       1,198,901          
4.150%, 12/15/2021
    450,000       458,865          
ONEOK Partners, L.P.,
                       
3.375%, 10/01/2022
    6,000,000       5,553,972          
Pearson Funding Two plc,
                       
4.000%, 05/17/2016 (Acquired 10/03/2014, Cost $6,230,596) * f
    6,000,000       6,236,658          
Petrofac Limited,
                       
3.400%, 10/10/2018 (Acquired 10/03/2013 through 09/19/2014, Cost $6,959,451) * f
    6,880,000       6,787,340          
Pioneer Natural Resources Company,
                       
6.875%, 05/01/2018
    1,225,000       1,371,296          
Plum Creek Timberlands, L.P.,
                       
5.875%, 11/15/2015
    2,445,000       2,539,937          
POSCO,
                       
5.250%, 04/14/2021 (Acquired 04/08/2011 through 09/22/2011, Cost $2,977,729) * f
    3,000,000       3,397,128          
R.R. Donnelley & Sons Company:
                       
8.600%, 08/15/2016
    1,000,000       1,095,000          
6.125%, 01/15/2017
    43,000       45,580          
7.625%, 06/15/2020 @
    1,000,000       1,097,500          
Rio Tinto Alcan Inc.,
                       
5.000%, 06/01/2015 f
    450,000       457,917          
Rio Tinto Finance (USA) Limited:
                       
9.000%, 05/01/2019 f
    2,975,000       3,763,857          
3.500%, 11/02/2020 f
    500,000       518,783          
Rockies Express Pipeline LLC:
                       
3.900%, 04/15/2015 (Acquired 02/17/2011, Cost $3,000,034) *
    3,000,000       2,985,000          
5.625%, 04/15/2020 (Acquired 03/17/2010, Cost $999,110) *
    1,000,000       982,500          
RPM United Kingdom G.P.,
                       
6.700%, 11/01/2015 (Acquired 03/06/2013, Cost $3,441,197) * f
    3,300,000       3,428,387          
SABMiller Holdings Inc.,
                       
0.922%, 08/01/2018 (Acquired 10/28/2014, Cost $3,998,590) *
    3,980,000       3,992,609          
Samarco Mineracao S.A.,
                       
5.375%, 09/26/2024 (Acquired 09/23/2014, Cost $1,670,511) * f
    1,675,000       1,552,725          
Schneider Electric SE,
                       
2.950%, 09/27/2022 (Acquired 09/20/2012, Cost $1,994,680) * f
    2,000,000       2,010,466          
Seagate HDD Cayman,
                       
6.875%, 05/01/2020 f
    5,000,000       5,250,000          
Southwestern Bell Telephone, L.P.,
                       
7.000%, 07/01/2015
    125,000       128,333          
Sprint Communications, Inc.,
                       
6.000%, 12/01/2016
    500,000       523,013          
Sunoco, Inc.,
                       
5.750%, 01/15/2017
    1,275,000       1,378,454          
Sysco Corporation:
                       
3.000%, 10/02/2021
    2,550,000       2,588,686          
2.600%, 06/12/2022
    150,000       147,563          
Teck Resources Limited,
                       
3.150%, 01/15/2017 f
    1,000,000       1,019,690          
Telecom Italia Capital,
                       
5.250%, 10/01/2015 f
    4,425,000       4,513,500          
Telefonica Emisiones S.A.U.:
                       
6.421%, 06/20/2016 f
    3,450,000       3,690,644          
6.221%, 07/03/2017 f
    1,000,000       1,107,097          
3.192%, 04/27/2018 f
    1,000,000       1,028,339          
Teva Pharmaceutical Finance IV, LLC,
                       
2.250%, 03/18/2020
    1,250,000       1,227,851          
Texas Eastern Transmission, LP,
                       
6.000%, 09/15/2017 (Acquired 11/07/2013 through 11/14/2014, Cost $2,292,214) *
    2,073,000       2,283,664          
The Dow Chemical Company,
                       
8.550%, 05/15/2019
    2,800,000       3,481,089          
The Mosaic Company,
                       
4.250%, 11/15/2023
    2,000,000       2,110,390          
Time Warner Cable Inc.,
                       
5.850%, 05/01/2017
    1,000,000       1,091,549          
Time Warner Inc.:
                       
4.700%, 01/15/2021
    1,325,000       1,450,301          
4.750%, 03/29/2021
    2,000,000       2,182,754          
TransCanada PipeLines Ltd,
                       
9.875%, 01/01/2021 f
    150,000       204,114          
TSMC Global Ltd,
                       
1.625%, 04/03/2018 (Acquired 03/27/2013, Cost $3,297,789) * f
    3,300,000       3,239,016          
Tyco Electronics Group S.A.,
                       
6.550%, 10/01/2017 f
    1,245,000       1,401,408          
United AirLines, Inc. Pass Through Trust,
                       
Series 91A2, 10.020%, 03/22/2014 ** § †
    85,600       20,511          
Vale Overseas Limited:
                       
6.250%, 01/23/2017 f
    1,650,000       1,759,906          
4.375%, 01/11/2022 @ f
    2,425,000       2,324,387          
Valero Energy Corporation,
                       
9.375%, 03/15/2019
    5,898,000       7,355,579          
Verizon Communications Inc.:
                       
5.150%, 09/15/2023
    6,100,000       6,735,821          
4.150%, 03/15/2024
    2,000,000       2,070,468          
Viacom Inc.,
                       
6.250%, 04/30/2016
    500,000       534,151          
Vulcan Materials Company,
                       
7.000%, 06/15/2018
    2,000,000       2,200,000          
Wabtec Corporation,
                       
4.375%, 08/15/2023
    3,000,000       3,188,277          
Walgreen Co.,
                       
5.250%, 01/15/2019
    637,000       708,081          
Waste Management, Inc.,
                       
7.375%, 03/11/2019
    5,000,000       6,042,715          
Wesfarmers Limited,
                       
1.874%, 03/20/2018 (Acquired 03/13/2013, Cost $3,900,000) * f
    3,900,000       3,886,424          
Williams Partners L.P.:
                       
5.250%, 03/15/2020
    1,000,000       1,085,528          
4.125%, 11/15/2020
    350,000       358,574          
4.300%, 03/04/2024
    2,500,000       2,495,405          
              335,559,186       21.2 %
Total Corporate Bonds
            691,400,261       43.6 %
 
Other Government Related Securities
                 
CDP Financial Inc.,
                 
4.400%, 11/25/2019 (Acquired 11/20/2009, Cost $997,520) * f
    1,000,000       1,101,126        
Centrais Eletricas Brasileiras SA,
                     
5.750%, 10/27/2021 (Acquired 10/20/2011 through 10/25/2011, Cost $1,151,829) * @ f
    1,150,000       1,104,000        
CNOOC Finance 2013 Ltd,
                     
3.000%, 05/09/2023 f
    2,000,000       1,892,814        
CNOOC Nexen Finance (2014) ULC,
                     
4.250%, 04/30/2024 f
    5,150,000       5,328,597        
Corp Andina de Fomento,
                     
4.375%, 06/15/2022 f
    680,000       730,903        
Federal Home Loan Mortgage Corporation (FHLMC):
                     
1.375%, 05/01/2020 @
    10,000,000       9,751,660        
2.375%, 01/13/2022
    300,000       303,088        
KfW,
                     
4.875%, 06/17/2019 f
    3,250,000       3,694,567        
Korea Electric Power Corporation,
                     
6.750%, 08/01/2027 f
    300,000       381,760        
Korea Gas Corporation,
                     
2.875%, 07/29/2018 (Acquired 07/22/2013, Cost $994,790) * f
    1,000,000       1,020,714        
Mexico Government International Bond,
                     
5.125%, 01/15/2020 f
    2,650,000       2,921,625        
Petrobras Global Finance B.V.,
                     
2.603%, 03/17/2017 f
    1,700,000       1,569,270        
Petrobras International Finance Company S.A.,
                     
3.875%, 01/27/2016 f
    4,175,000       4,096,928        
Petroleos Mexicanos:
                     
3.125%, 01/23/2019 f
    2,000,000       2,005,000        
5.500%, 01/21/2021 f
    2,000,000       2,165,000        
Portigon AG,
                     
4.796%, 07/15/2015 f
    1,811,000       1,845,896        
The Korea Development Bank,
                     
3.875%, 05/04/2017 f
    2,150,000       2,248,878        
              42,161,826       2.7 %
Taxable Municipal Bonds
                       
Alaska Municipal Bond Bank Authority:
                       
4.309%, 08/01/2018
    1,000,000       1,076,820          
4.459%, 08/01/2019
    1,340,000       1,465,880          
California Qualified School Bond Joint Powers Authority,
                       
5.955%, 03/01/2019
    3,375,000       3,623,265          
California School Finance Authority,
                       
4.426%, 07/01/2020
    2,500,000       2,673,000          
Central Valley Support Joint Power Agency,
                       
5.326%, 09/01/2022
    2,000,000       2,138,980          
County of Contra Costa CA,
                       
5.140%, 06/01/2017
    2,500,000       2,647,525          
Dallas Independent School District,
                       
4.950%, 02/15/2022 (Callable 02/15/2021)
    1,965,000       2,223,692          
Davie Florida Water & Sewer Revenue,
                       
6.062%, 10/01/2025 (Callable 10/01/2020)
    1,000,000       1,167,810          
Government Development Bank for Puerto Rico,
                       
4.704%, 05/01/2016
    3,525,000       3,008,588          
Iowa Tobacco Settlement Authority,
                       
6.500%, 06/01/2023
    970,000       969,971          
New Hampshire Housing Finance Authority,
                       
2.600%, 01/01/2020
    1,880,000       1,909,215          
New Jersey Economic Development Authority,
                       
1.802%, 06/15/2017
    5,000,000       4,964,950          
North Carolina Housing Finance Agency,
                       
4.000%, 01/01/2030 (Callable 07/01/2021)
    415,000       427,093          
North East Independent School District/TX,
                       
5.240%, 08/01/2027
    2,100,000       2,503,956          
State of California,
                       
5.500%, 03/01/2016
    500,000       528,130          
              31,328,875       2.0 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Gold Loan Mortgage Corporation (FGLMC):
                       
6.000%, 06/01/2021
    131,322       143,869          
6.000%, 07/01/2028
    9,463       10,831          
Federal Home Loan Mortgage Corporation (FHLMC):
                       
Series 74, Class F, 6.000%, 10/15/2020
    1,414       1,503          
Series 1395, Class G, 6.000%, 10/15/2022
    11,967       12,936          
Federal National Mortgage Association (FNMA):
                       
Series 1989-2, Class D, 8.800%, 01/25/2019
    5,748       6,249          
Series 1990-108, Class G, 7.000%, 09/25/2020
    5,698       6,231          
Series G-29, Class O, 8.500%, 09/25/2021
    642       730          
Series 1991-137, Class H, 7.000%, 10/25/2021
    32,791       36,290          
Series 1993-32, Class H, 6.000%, 03/25/2023
    20,455       22,189          
Series 2004-W6, Class 1A6, 5.500%, 07/25/2034
    551,877       566,244          
Government National Mortgage Association (GNMA),
                       
Series 1999-4, Class ZB, 6.000%, 02/20/2029
    117,587       131,469          
              938,541       0.1 %
Non-U.S. Government Agency Issues
                       
Alternative Loan Trust:
                       
Series 2005-50CB, Class 4A1, 5.000%, 11/25/2020 §
    348,390       348,099          
Series 2005-85CB, Class 3A1, 5.250%, 02/25/2021 (Acquired 09/26/2007 through 01/28/2009, Cost $286,667) *§
    290,361       281,911          
Series 2006-7CB, Class 3A1, 5.250%, 05/25/2021 §
    518,348       502,696          
Series 2004-2CB, Class 1A8, 5.750%, 03/25/2034
    1,801,167       1,802,705          
Series 2005-11CB, Class 2A1, 5.500%, 06/25/2035 §
    81,653       81,530          
Banc of America Alternative Loan Trust:
                       
Series 2003-11, Class 4A1, 4.750%, 01/25/2019
    90,816       91,679          
Series 2004-2, Class 5A1, 5.500%, 03/25/2019
    297,491       303,698          
Series 2004-11, Class 4A1, 5.500%, 12/25/2019
    413,534       425,513          
Series 2005-6, Class 7A1, 5.500%, 07/25/2020
    20,069       20,242          
Series 2006-2, Class 7A1, 6.000%, 03/25/2021
    287,322       291,011          
Series 2003-9, Class 1CB2, 5.500%, 11/25/2033
    399,715       402,900          
Series 2006-3, Class 6A1, 6.000%, 04/25/2036
    342,339       351,993          
Series 2006-4, Class 3CB4, 6.000%, 05/25/2046 §
    467,324       388,379          
Banc of America Funding Trust,
                       
Series 2004-2, Class 1CB1, 5.750%, 09/20/2034
    5,035,983       5,429,036          
Bear Stearns ARM Trust,
                       
Series 2004-5, Class 2A, 2.957%, 07/25/2034
    3,035,277       3,039,141          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-3, Class 3A27, 5.500%, 07/25/2035
    23,219       23,594          
J.P. Morgan Alternative Loan Trust:
                       
Series 2005-S1, Class 3A1, 5.500%, 10/25/2020
    739,017       734,650          
Series 2006-A1, Class 2A1, 2.584%, 03/25/2036 §
    608,708       496,393          
Lehman Mortgage Trust,
                       
Series 2006-4, Class 3A1, 5.000%, 08/25/2021
    128,371       125,652          
MASTR Alternative Loan Trust:
                       
Series 2004-1, Class 1A1, 5.000%, 01/25/2019
    386,139       392,300          
Series 2004-3, Class 1A1, 5.000%, 03/25/2019
    98,634       101,001          
Series 2005-3, Class 4A1, 5.500%, 03/25/2020
    95,310       98,833          
RALI Series Trust,
                       
Series 2004-QS6, Class A1, 5.000%, 05/25/2019
    36,946       37,479          
Salomon Brothers Mortgage Securities VII, Inc.,
                       
Series 2003-UP2, Class A2, 7.000%, 06/25/2033
    99,280       107,360          
Structured Asset Securities Corp Mortgage Pass-Through Certificates,
                       
Series 2004-22, Class A2, 5.133%, 01/25/2035
    7,597,574       7,864,226          
WaMu Mortgage Pass-Through Certificates:
                       
Series 2004-CB1, Class 5A, 5.000%, 06/25/2019
    489,143       501,823          
Series 2004-CB3, Class 3A, 5.500%, 10/25/2019
    852,944       885,105          
Series 2004-CB3, Class 4A, 6.000%, 10/25/2019
    277,476       291,267          
Series 2004-CB4, Class 21A, 5.500%, 12/25/2019
    288,280       298,624          
Series 2004-CB4, Class 22A, 6.000%, 12/25/2019
    203,220       212,240          
Series 2004-AR3, Class A1, 2.370%, 06/25/2034
    6,545,568       6,605,546          
Series 2004-CB2, Class 3A, 6.000%, 08/25/2034
    4,887,754       5,225,953          
              37,762,579       2.4 %
Asset Backed Securities
                       
Amresco Residential Securities Mortgage Loan Trust,
                       
Series 1998-1, Class A6, 6.510%, 08/25/2027
    16,721       17,931          
Argent Securities Inc Asset-Backed Pass-Through Certificates,
                       
Series 2005-W3, Class A2D, 0.510%, 11/25/2035
    2,704,541       2,598,139          
Citigroup Mortgage Loan Trust. Inc.,
                       
Series 2006-WFH3, Class A3, 0.320%, 10/25/2036
    410,531       409,710          
Cityscape Home Equity Loan Trust,
                       
Series 1997-C, Class A4, 7.000%, 07/25/2028 §
    3,921       3,957          
Conseco Financial Corp.:
                       
Series 1993-4, Class A5, 7.050%, 01/15/2019
    6,723       6,906          
Series 1998-2, Class A5, 6.240%, 12/01/2028
    331,538       342,116          
Series 1998-3, Class A5, 6.220%, 03/01/2030
    500,062       529,163          
Series 1998-4, Class A5, 6.180%, 04/01/2030
    197,745       202,796          
Countrywide Asset-Backed Certificates:
                       
Series 2006-S3, Class A2, 6.085%, 06/25/2021 §
    285,887       284,706          
Series 2004-12, Class AF6, 4.634%, 03/25/2035
    25,247       25,616          
Series 2005-1, Class AF6, 5.030%, 07/25/2035
    1,231,822       1,253,999          
Series 2006-13, Class 1AF3, 4.896%, 01/25/2037 §
    226,817       274,546          
Series 2006-9, Class 1AF3, 5.297%, 10/25/2046 §
    1,167,431       910,720          
Delta Funding Home Equity Loan Trust:
                       
Series 1997-2, Class A6, 7.040%, 06/25/2027
    4,561       4,647          
Series 1999-1, Class A6F, 6.340%, 12/15/2028
    25       25          
Series 1999-2, Class A7F, 7.030%, 08/15/2030
    421,665       439,109          
First Franklin Mortgage Loan Trust,
                       
Series 2004-FF7, Class A1, 0.810%, 09/25/2034
    4,767,985       4,758,101          
Ford Credit Auto Owner Trust:
                       
Series 2014-1, Class A, 2.260%, 11/15/2025 (Acquired 10/07/2014 through 10/09/2014, Cost $10,913,561) *
    10,859,000       10,916,965          
Series 2014-2, Class A, 2.310%, 04/15/2026 (Acquired 10/07/2014, Cost $11,745,689) *
    11,750,000       11,780,268          
IMC Home Equity Loan Trust,
                       
Series 1998-1, Class A6, 7.020%, 06/20/2029
    5,200       5,203          
J.P. Morgan Mortgage Acquisition Trust,
                       
Series 2006-CH1, Class A1, 0.285%, 07/25/2036
    4,917,075       4,729,424          
Nomura Holdings, Inc.,
                       
Series 2006-HE2, Class A3, 0.340%, 03/25/2036
    6,445,215       6,275,171          
Oakwood Mortgage Investors, Inc.,
                       
Series 1999-B, Class A3, 6.450%, 11/15/2017
    89,091       91,323          
RAAC Series Trust,
                       
Series 2004-SP1, Class AI4, 5.285%, 08/25/2027
    11,990       12,183          
RAMP Series Trust,
                       
Series 2005-RS1, Class AI6, 4.713%, 01/25/2035
    119,944       121,374          
Saxon Asset Securities Trust,
                       
Series 2005-4, Class A1B, 0.550%, 11/25/2037
    4,205,803       4,081,135          
Securitized Asset Backed Receivables LLC Trust,
                       
Series 2005-OP2, Class A1, 0.495%, 10/25/2035 (Acquired 03/13/2014, Cost $7,570,677) *
    7,664,083       7,575,939          
Soundview Home Loan Trust,
                       
Series 2003-2, Class A2, 1.470%, 11/25/2033
    3,909,807       3,873,113          
Specialty Underwriting & Residential Finance Trust:
                       
Series 2004-BC4, Class A1A, 0.840%, 10/25/2035
    3,585,643       3,488,386          
Series 2006-BC1, Class A2D, 0.470%, 12/25/2036
    7,617,879       7,378,845          
Springleaf Funding Trust,
                       
Series 2013-AA, Class A, 2.580%, 09/15/2021 (Acquired 02/14/2014, Cost $5,021,458) *
    5,000,000       5,014,395          
Springleaf Mortgage Loan Trust,
                       
Series 2012-1A, Class A, 2.667%, 09/25/2057 (Acquired 04/11/2012, Cost $1,730,742) *
    1,730,762       1,756,549          
Structured Asset Investment Loan Trust,
                       
Series 2004-9, Class A5, 1.170%, 10/25/2034
    7,899,820       7,885,340          
Synchrony Credit Card Master Note Trust,
                       
Series 2014-1, Class A, 1.610%, 11/15/2020
    3,825,000       3,811,043          
Wells Fargo Home Equity Asset-Backed Securities,
                       
Series 2004-2, Class A33, 0.670%, 10/25/2034
    3,473,159       3,362,584          
              94,221,427       5.9 %
Commercial Mortgage Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    5,337,924       5,414,790          
CD Commercial Mortgage Trust,
                       
Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    6,551,416       6,657,273          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-C5, Class A4, 5.100%, 08/15/2038
    4,100,391       4,154,820          
DBUBS Mortgage Trust,
                       
Series 2011-LC3A, Class A2, 3.642%, 08/10/2044
    6,885,000       7,108,012          
Federal National Mortgage Association (FNMA):
                       
Series 2013-M1, Class ASQ2, 1.074%, 11/25/2016
    2,736,058       2,742,852          
Series 2012-M9, Class ASQ2, 1.513%, 12/25/2017
    1,125,000       1,126,215          
FHLMC Multifamily Structured Pass Through Certificates:
                       
Series K-501, Class A2, 1.655%, 11/25/2016
    2,345,000       2,369,723          
Series K-702, Class A2, 3.154%, 02/25/2018
    275,000       288,215          
Series K-704, Class A2, 2.412%, 08/25/2018
    300,000       307,275          
Series K-705, Class A2, 2.303%, 09/25/2018
    3,000,000       3,059,496          
Series K-708, Class A2, 2.130%, 01/25/2019
    8,300,000       8,393,010          
Series K-003, Class A4, 5.053%, 01/25/2019
    9,000,000       10,054,692          
Series K-004, Class A2, 4.186%, 08/25/2019
    5,875,000       6,416,217          
Series K-005, Class A2, 4.317%, 11/25/2019
    4,975,000       5,472,321          
Series K-006, Class A2, 4.251%, 01/25/2020
    2,163,000       2,375,924          
Series K-F02, Class A3, 0.800%, 07/25/2020
    6,441,042       6,477,054          
J.P. Morgan Chase Commercial Mortgage Securities Trust:
                       
Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    5,000,000       5,051,875          
Series 2012-C8, Class ASB, 2.379%, 10/15/2045 (Acquired 11/21/2014, Cost $4,136,035) *
    4,129,000       4,132,927          
NCUA Guaranteed Notes Trust,
                       
Series 2010-C1, Class A2, 2.900%, 10/29/2020
    2,150,000       2,207,626          
Wachovia Bank Commercial Mortgage Trust,
                       
Series 2005-C22, Class A4, 5.269%, 12/15/2044
    9,027,691       9,220,423          
Wells Fargo Commercial Mortgage Trust,
                       
Series 2014-LC18, Class ASB, 3.244%, 12/15/2047
    10,000,000       10,245,800          
WFRBS Commercial Mortgage Trust:
                       
Series 2012-C6, Class A4, 3.440%, 04/15/2045
    8,000,000       8,358,064          
Series 2014-C21, Class A2, 2.917%, 08/15/2047
    2,435,234       2,500,304          
Series 2014-C24, Class ASB, 3.324%, 11/15/2047
    8,275,000       8,539,742          
              122,674,650       7.7 %
Total Long-Term Investments (Cost $1,518,895,922)
            1,540,185,188       97.2 %

SHORT-TERM INVESTMENTS
                 
Money Market Mutual Funds
                 
Dreyfus Cash Advantage Fund, 0.06% «
    12,590,051       12,590,051        
Short-Term Investments Trust - Liquid Assets Portfolio, 0.07% «
    30,000,000       30,000,000        
Total Short-Term Investments (Cost $42,590,051)
            42,590,051       2.7 %
                         
INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM
                       
SECURITIES LENDING
                       
Investment Companies
                       
Mount Vernon Securities Lending Trust Prime Portfolio, 0.29% «
    192,781,148       192,781,148          
Total Investment Companies (Cost $192,781,148)
            192,781,148       12.2 %
                         
Total Investments Purchased With Cash Proceeds From
                       
Securities Lending (Cost $192,781,148)
            192,781,148       12.2 %
Total Investments (Cost $1,754,267,121)
            1,775,556,387       112.1 %
Liabilities in Excess of Other Assets
            (191,777,476 )     (12.1 )%
TOTAL NET ASSETS
          $ 1,583,778,911       100.0 %

Notes to Schedule of Investments
 
*
Restricted security as defined in Rule 144(a) under the Securities Act of 1933 and determined to be liquid. Purchased in a private placement transaction; resale to the public may require registration or may extend only to qualified institutional buyers. At December 31, 2014, the value of these securities total $237,312,630, which represents 14.98% of total net assets.
 
**
Illiquid Security
 
@
This security or portion of this security is out on loan at December 31, 2014.
 
f
Foreign Security
 
«
7-Day Yield
 
§
Security in Default
 
Priced at Fair Value by the Valuation Committee as delegated by the Baird Funds' Board of Directors.
 

 
 

 
 
Baird Intermediate Municipal Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                 
                   
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
Municipal Bonds
                 
Alabama
                 
Alabama State Public School & College Authority,
                 
5.000%, 05/01/2019
  $ 1,000,000     $ 1,153,090        
Gulf Shores Alabama,
                     
5.000%, 12/15/2018 (Callable 12/15/2017)(Insured by AGM)
    1,080,000       1,212,959        
              2,366,049       0.2 %
Alaska
                       
Alaska State Housing Finance Corporation,
                       
5.000%, 06/01/2017 (Callable 06/01/2015)(Insured by NPFGC)
    1,000,000       1,019,270       0.1 %
Arizona
                       
Gila County Arizona Unified School District Bonds,
                       
5.250%, 07/01/2027 (Pre-refunded to 07/01/2017)
    1,000,000       1,111,680          
Maricopa County Arizona University School District No. 48 Scottsdale,
                       
4.000%, 07/01/2026 (Pre-refunded to 07/01/2016)
    1,860,000       1,958,543          
              3,070,223       0.3 %
Arkansas
                       
Arkansas Development Finance Authority,
                       
5.500%, 12/01/2018 (ETM)
    1,000,000       1,129,880       0.1 %
California
                       
Bakersfield California Certificates Participation,
                       
0.000%, 04/15/2021 (ETM)
    12,380,000       11,028,971          
Coalinga California Regional Medical Center,
                       
5.125%, 03/01/2032 (Pre-refunded to 03/01/2015)
    2,370,000       2,435,507          
Commerce Community Development Commission,
                       
0.000%, 08/01/2021 (ETM)
    815,000       582,635          
Pittsburg California Redevelopment Agency Residential Mortgage Revenue,
                       
9.600%, 06/01/2016 (ETM)
    3,725,000       4,184,106          
Port Oakland California Revenue,
                       
5.000%, 11/01/2017 (Insured by NPFGC)
    1,800,000       2,003,904          
San Joaquin Hills California Transportation Corridor Agency Toll Road Revenue:
                       
0.000%, 01/01/2020 (ETM)
    6,865,000       6,403,672          
0.000%, 01/01/2023 (ETM)
    14,000,000       11,858,140          
San Marcos California Public Facilities Authority Revenue,
                       
0.000%, 09/01/2019 (ETM)
    17,295,000       16,192,963          
Woodside California Elementary School District Government School Bonds,
                       
5.000%, 10/01/2023 (Pre-refunded to 10/01/2016)
    1,130,000       1,219,835          
              55,909,733       5.1 %
Colorado
                       
Colorado Health Facilities Authority,
                       
0.000%, 07/15/2022 (ETM)
    4,540,000       3,830,807          
Colorado Springs Colorado Hospital Revenue Bonds,
                       
5.000%, 12/15/2032 (Pre-refunded to 12/15/2018)
    1,300,000       1,494,493          
Colorado Springs Colorado Utilities Revenue Bonds,
                       
5.875%, 11/15/2017 (ETM)
    4,720,000       5,157,261          
County of El Paso Colorado Mortgage Revenue Bonds,
                       
0.000%, 09/01/2015 (ETM)
    2,230,000       2,226,075          
Dawson Ridge Metropolitan District No. 1 Colorado:
                       
0.000%, 10/01/2022 (ETM)
    17,540,000       14,899,704          
0.000%, 10/01/2022 (ETM)
    26,895,000       22,846,495          
Regional Transportation District Colorado Sales Tax Revenue,
                       
5.000%, 11/01/2036 (Pre-refunded to 11/01/2016)
    6,785,000       7,328,207          
              57,783,042       5.2 %
Connecticut
                       
State of Connecticut,
                       
5.000%, 10/15/2020
    4,390,000       5,172,956       0.5 %
Delaware
                       
State of Delaware,
                       
5.000%, 03/01/2020
    2,000,000       2,357,780       0.2 %
Florida
                       
Brevard County Florida School Board,
                       
5.000%, 07/01/2020 (Callable 07/01/2017)(Insured by AMBAC)
    1,925,000       2,102,658          
Broward County Florida School Board:
                       
5.250%, 07/01/2022 (Callable 07/01/2021)
    8,390,000       9,962,370          
5.250%, 07/01/2023 (Callable 07/01/2021)
    4,915,000       5,748,486          
County of St. Lucie Florida,
                       
6.000%, 10/01/2020 (ETM)
    6,420,000       7,725,122          
Dade County Florida Health Facility Authority Hospital Revenue,
                       
5.750%, 05/01/2021 (ETM)
    1,570,000       1,770,520          
Escambia County Florida Housing Finance Authority Multifamily Housing Revenue,
                       
0.000%, 10/15/2018 (ETM)
    4,130,000       3,901,983          
Florida State Board of Education,
                       
5.000%, 06/01/2022 (Callable 06/01/2019)
    13,800,000       15,965,082          
Florida State Department of Management Services,
                       
5.000%, 08/01/2018
    2,500,000       2,832,825          
Florida State Mid-Bay Bridge Authority Revenue:
                       
6.875%, 10/01/2022 (ETM)
    4,675,000       5,890,920          
6.875%, 10/01/2022 (ETM)
    3,175,000       4,000,786          
Florida State Municipal Power Agency Revenue,
                       
5.000%, 10/01/2017 (Callable  03/13/2015)(ETM)
    1,590,000       1,774,488          
Gulf Environmental Services Inc. Florida Revenue Bonds,
                       
5.000%, 10/01/2018 (ETM)
    1,065,000       1,166,335          
Hillsborough County Florida School Board Master Lease Program,
                       
5.500%, 07/01/2018 (Insured by NPFGC)
    2,000,000       2,290,540          
Hillsborough County Industrial Development Authority:
                       
5.625%, 08/15/2029 (Pre-refunded to 08/15/2018)
    2,285,000       2,657,706          
8.000%, 08/15/2032 (Pre-refunded to 08/15/2019)
    1,940,000       2,525,609          
Miami Beach Florida Resort Tax Revenue,
                       
6.250%, 10/01/2022 (ETM)
    1,470,000       1,779,905          
Miami Dade County Florida Entitlement Revenue Bonds,
                       
5.000%, 08/01/2015 (Insured by NPFGC)
    3,000,000       3,081,030          
Miami-Dade County Florida,
                       
4.500%, 10/01/2020
    7,100,000       8,098,544          
Miami-Dade County Florida School Board,
                       
5.000%, 05/01/2016 (Insured by NPFGC)
    3,000,000       3,174,840          
Miami-Dade County Florida Water & Sewer Revenue,
                       
5.250%, 10/01/2022
    1,125,000       1,363,365          
Orlando Florida Utilities Commission Water & Electric Revenue,
                       
6.750%, 10/01/2017 (ETM)
    1,635,000       1,803,585          
Palm Beach County Florida Revenue,
                       
5.000%, 11/01/2018 (Pre-refunded to 11/01/2017)
    1,000,000       1,119,530          
Pinellas County Housing Finance Authority,
                       
4.250%, 03/01/2027 (Callable 09/01/2019)
    1,435,000       1,468,895          
Sarasota County Florida School Board,
                       
5.000%, 07/01/2015 (Insured by NPFGC)
    1,000,000       1,023,310          
Seminole County Florida Water & Sewage Revenue,
                       
6.000%, 10/01/2019 (ETM)
    5,200,000       5,838,144          
Sunrise Florida Utility System Revenue,
                       
5.500%, 10/01/2018 (ETM)
    2,750,000       3,041,032          
              102,107,610       9.2 %
Georgia
                       
Atlanta Georgia Water & Wastewater Revenue,
                       
5.500%, 11/01/2017 (Insured by AGM)
    8,445,000       9,516,417          
Forsyth County Georgia Hospital Authority Revenue Anticipation Certificates,
                       
6.375%, 10/01/2028 (ETM)
    8,050,000       10,295,708          
Georgia Municipal Electric Authority Power Revenue,
                       
6.500%, 01/01/2017 (Insured by AGM)
    4,700,000       4,945,293          
Gwinnett County Georgia School District,
                       
5.000%, 02/01/2026 (Pre-refunded to 02/01/2018)
    7,400,000       8,318,858          
Northwestern Gwinnett County Georgia Facilities Corporation I Certificate Participation,
                       
5.750%, 06/15/2019 (Pre-refunded to 06/15/2015)
    1,735,000       1,785,992          
Richmond County Development Authority:
                       
0.000%, 12/01/2021 (ETM)
    3,510,000       3,099,505          
0.000%, 12/01/2021 (ETM)
    720,000       635,796          
State of Georgia,
                       
5.000%, 07/01/2020 (Callable 07/01/2017)
    12,570,000       13,889,976          
Walton County School District,
                       
5.000%, 08/01/2024 (Pre-refunded to 08/01/2015)
    1,000,000       1,027,480          
              53,515,025       4.8 %
Illinois
                       
Chicago Illinois,
                       
5.000%, 01/01/2017 (Callable 01/01/2016)(Insured by AGM)
    2,360,000       2,451,686          
Chicago Illinois Board of Education:
                       
5.000%, 12/01/2017 (Callable 12/01/2016)(Insured by AGM)
    4,345,000       4,649,541          
5.000%, 12/01/2017 (Insured by AMBAC)
    2,100,000       2,271,822          
6.000%, 01/01/2020 (Insured by NPFGC)
    14,745,000       16,501,572          
Chicago Illinois Public Building Community Building Revenue:
                       
7.000%, 01/01/2015 (ETM)
    1,025,000       1,025,000          
7.000%, 01/01/2020 (ETM)
    1,555,000       1,915,013          
Cook County Community High School District No. 233,
                       
4.000%, 12/01/2026 (Callable 06/01/2022)
    3,695,000       4,109,616          
Cook County Illinois School District No. 097,
                       
9.000%, 12/01/2015 (Insured by NPFGC)
    2,605,000       2,806,419          
Cook County Illinois School District No. 100,
                       
8.100%, 12/01/2016 (ETM)
    1,430,000       1,633,189          
Cook County Illinois School District No. 159,
                       
0.000%, 12/01/2022 (ETM)
    2,000,000       1,666,720          
Dupage County Illinois Stormwater Project,
                       
5.600%, 01/01/2021
    980,000       1,113,349          
Illinois Development Financial Authority,
                       
0.000%, 07/15/2023 (ETM)
    21,475,000       17,760,684          
Illinois Finance Authority,
                       
0.000%, 07/15/2025 (ETM)
    12,625,000       9,760,514          
Illinois Municipal Electric Agency Power Supply Revenue Bonds,
                       
5.250%, 02/01/2016 (Insured by NPFGC)
    1,000,000       1,050,490          
Illinois State:
                       
5.000%, 01/01/2019 (Insured by AGM)
    1,000,000       1,116,420          
4.000%, 09/01/2019 (Callable 09/01/2018)(Insured by AGM)
    5,000,000       5,276,250          
6.000%, 11/01/2026 (Insured by NPFGC)
    3,000,000       3,692,940          
Illinois State Toll Highway Authority Priority Revenue Bonds,
                       
5.500%, 01/01/2016 (Insured by AGM)
    2,100,000       2,207,016          
Illinois State Toll Highway Authority Revenue Bonds:
                       
5.000%, 01/01/2026 (Pre-refunded to 07/01/2016)
    1,065,000       1,137,186          
5.000%, 01/01/2031 (Pre-refunded to 07/01/2016)
    2,055,000       2,194,288          
Kane County Community Unit School District No 304 Geneva,
                       
9.000%, 01/01/2023 (Insured by AGM)
    2,000,000       2,910,500          
Kane McHenry Cook & De Kalb Counties Illinois School District No. 300:
                       
9.000%, 01/01/2015 (Insured by AMBAC)
    1,000,000       1,000,000          
7.750%, 01/01/2017 (ETM)
    1,835,000       2,094,047          
7.000%, 01/01/2018 (ETM)
    5,775,000       6,812,479          
7.000%, 01/01/2018 (ETM)
    365,000       430,572          
Kendall Kane & Will Counties Community Unit School District No. 308,
                       
0.000%, 02/01/2021
    13,625,000       11,710,824          
Lake County Illinois Community High School District No. 124 Grant,
                       
5.000%, 12/01/2017
    1,050,000       1,161,573          
McHenry & Kane Counties Illinois Community School District No. 158:
                       
0.000%, 01/01/2016 (ETM)
    1,245,000       1,240,842          
0.000%, 01/01/2016
    725,000       714,603          
Metropolitan Pier & Exposition Authority Illinois:
                       
5.500%, 06/15/2016 (ETM)
    1,805,000       1,935,285          
5.500%, 12/15/2023 (ETM)
    2,250,000       2,695,837          
Regional Transportation Authority Illinois:
                       
7.750%, 06/01/2020
    1,000,000       1,181,480          
6.700%, 11/01/2021
    1,200,000       1,405,272          
6.000%, 07/01/2022 (Insured by NPFGC)
    4,705,000       5,888,543          
Southern Illinois University Revenue:
                       
5.250%, 04/01/2018 (Insured by NPFGC)
    1,075,000       1,189,261          
5.250%, 04/01/2019 (Insured by NPFGC)
    1,390,000       1,559,330          
Village of Schaumburg IL,
                       
4.000%, 12/01/2024 (Callable 12/01/2022)
    5,750,000       6,291,477          
Winnebago County Illinois School District No. 122 Harlam-Loves Park:
                       
0.000%, 01/01/2018 (ETM)
    155,000       150,273          
0.000%, 01/01/2018 (Insured by AGM)
    1,205,000       1,113,239          
              135,825,152       12.3 %
Indiana
                       
Franklin Community Multi-School Building Corp,
                       
5.000%, 07/15/2020
    1,990,000       2,215,885          
Hammond Indiana Multi-School Building Corporation Revenue Bonds:
                       
6.000%, 01/15/2018 (ETM)
    825,000       890,629          
5.000%, 07/15/2018 (Insured by NPFGC)
    1,330,000       1,487,778          
Indiana State Office Building Commissions Facilities Revenue Bonds,
                       
5.250%, 07/01/2017
    1,115,000       1,231,651          
Indiana Toll Road Commission,
                       
9.000%, 01/01/2015 (ETM)
    255,000       255,000          
Indianapolis Local Public Improvement Bond Bank,
                       
5.500%, 01/01/2019 (Insured by NPFGC)
    1,155,000       1,297,816          
Indianapolis Local Public Improvement Bond Waterworks Project,
                       
5.500%, 07/01/2018 (Insured by NPFGC)
    3,460,000       3,893,192          
Perry Township Multi School Building Corporation,
                       
5.000%, 07/10/2018 (Callable 07/10/2015)
    1,000,000       1,023,570          
Purdue University Indiana Revenue,
                       
5.000%, 07/01/2015
    1,650,000       1,689,039          
South Bend Indiana Community School Building Corporation,
                       
5.000%, 07/15/2017 (Insured by NPFGC)
    1,000,000       1,088,740          
              15,073,300       1.4 %
Kansas
                       
City of Wichita KS,
                       
5.000%, 11/15/2034 (Pre-refunded to 11/15/2019)
    1,005,000       1,178,473          
Wyandotte County Kansas Revenue,
                       
5.000%, 09/01/2019 (Callable 03/01/2019)(Insured by BHAC)
    1,865,000       2,124,384          
              3,302,857       0.3 %
Kentucky
                       
Jefferson County Kentucky School District Financial School Building Revenue Bonds,
                       
5.500%, 01/01/2018 (Insured by AGM)
    3,340,000       3,732,851          
Louisville & Jefferson County Metropolitan Government,
                       
6.125%, 02/01/2037 (Pre-refunded to 02/01/2018)
    13,665,000       15,826,256          
              19,559,107       1.8 %
Louisiana
                       
Louisiana Public Facilities Authority Revenue:
                       
5.500%, 05/15/2027 (Pre-refunded to 05/15/2026)
    9,885,000       12,708,749          
5.500%, 05/15/2032 (Pre-refunded to 05/15/2026)
    20,585,000       27,039,427          
State of Louisiana:
                       
5.000%, 11/15/2018
    1,775,000       2,032,872          
5.000%, 11/15/2020 (Callable 05/15/2020)
    10,000,000       11,750,300          
              53,531,348       4.8 %
Maryland
                       
City of Baltimore MD,
                       
5.000%, 07/01/2024 (ETM)
    1,195,000       1,456,454          
State of Maryland:
                       
5.000%, 03/15/2019 (Pre-refunded to 03/15/2017)
    1,135,000       1,245,129          
5.000%, 03/01/2021 (Callable  03/01/2020)
    1,000,000       1,176,710          
              3,878,293       0.4 %
Massachusetts
                       
Massachusetts Clean Water Trust/The,
                       
5.000%, 08/01/2018 (Callable 08/01/2016)(Partially Pre-refunded)
    2,115,000       2,269,839          
Massachusetts Department of Transportation,
                       
5.000%, 01/01/2020 (ETM)
    2,075,000       2,284,368          
Massachusetts State:
                       
5.000%, 08/01/2020 (Pre-refunded to 08/01/2016)
    5,820,000       6,236,537          
4.000%, 12/01/2022 (Callable 12/01/2019)
    15,000,000       16,571,400          
Massachusetts State Water Resources Authority:
                       
5.250%, 12/01/2015 (ETM)
    1,115,000       1,165,655          
6.500%, 07/15/2019 (ETM)
    2,395,000       2,690,447          
              31,218,246       2.8 %
Michigan
                       
Brighton Area School District/MI:
                       
5.000%, 05/01/2020 (Insured by Q-SBLF)
    1,300,000       1,485,952          
5.000%, 05/01/2021 (Insured by Q-SBLF)
    500,000       575,155          
Detroit Michigan City School District,
                       
5.000%, 05/01/2016 (Callable 05/01/2015)(Insured by AGM and Q-SBLF)
    1,000,000       1,014,700          
Fraser Public School District:
                       
5.000%, 05/01/2024 (Insured by Q-SBLF)
    1,000,000       1,182,480          
5.000%, 05/01/2026 (Callable 05/01/2025) (Insured by Q-SBLF)
    1,140,000       1,345,223          
Garden City Hospital Finance Authority,
                       
4.875%, 08/15/2027 (Pre-refunded to 08/15/2017)
    1,000,000       1,106,070          
Harper Creek Michigan Community School District,
                       
5.000%, 05/01/2016 (Callable 05/01/2015)(Insured by AGM)
    1,550,000       1,572,785          
Jenison Michigan Public Schools,
                       
5.250%, 05/01/2015 (Insured by NPFGC)
    1,390,000       1,412,351          
Lakeview Public School District,
                       
5.000%, 05/01/2017 (Insured by NPFGC and Q-SBLF)
    2,275,000       2,466,123          
Michigan Finance Authority,
                       
5.000%, 01/01/2019
    7,000,000       7,994,140          
Michigan State Housing Development Authority,
                       
4.750%, 06/01/2016
    4,000,000       4,117,080          
Pinckney Community Schools:
                       
5.000%, 05/01/2022 (Insured by Q-SBLF)
    1,935,000       2,239,859          
5.000%, 05/01/2023 (Insured by Q-SBLF)
    2,200,000       2,555,124          
St Johns Public Schools,
                       
5.000%, 05/01/2021 (Insured by Q-SBLF)
    5,040,000       5,871,399          
State of Michigan,
                       
0.000%, 06/01/2022 (ETM)
    2,000,000       1,729,840          
Wayne-Westland Community Schools,
                       
5.000%, 05/01/2019 (Insured by Q-SBLF)
    2,060,000       2,337,317          
              39,005,598       3.5 %
Minnesota
                       
Minnesota State Housing Finance Agency Homeownership Finance Bond:
                       
4.250%, 07/01/2028 (Callable 01/01/2020)
    630,000       661,437          
4.500%, 07/01/2034 (Callable 07/01/2021)
    1,305,000       1,365,891          
University of Minnesota,
                       
5.500%, 07/01/2021 (ETM)
    9,980,000       11,964,922          
Western Minnesota Municipal Power Agency,
                       
6.375%, 01/01/2016 (ETM)
    820,000       843,354          
              14,835,604       1.3 %
Mississippi
                       
Mississippi Development Bank Special Obligations,
                       
5.250%, 10/01/2030 (Pre-refunded to 10/01/2015)
    1,110,000       1,151,037          
Mississippi Housing Financial Corporation,
                       
0.000%, 06/01/2015 (ETM)
    1,500,000       1,498,665          
              2,649,702       0.2 %
Missouri
                       
St. Charles County Missouri Francis Howell School District,
                       
4.500%, 03/01/2018
    1,000,000       1,107,360       0.1 %
Nebraska
                       
Omaha Nebraska Public Electric Power District Revenue,
                       
6.200%, 02/01/2017 (ETM)
    5,630,000       5,960,762       0.5 %
Nevada
                       
Las Vegas Clark County Nevada Library District,
                       
5.000%, 01/01/2017
    2,080,000       2,232,110       0.2 %
New Hampshire
                       
New Hampshire Housing Finance Authority Revenue Bonds,
                       
5.250%, 07/01/2028 (Callable 01/01/2021)
    2,385,000       2,490,608          
State of New Hampshire,
                       
5.000%, 07/01/2021 (Callable 07/01/2020)
    1,000,000       1,190,630          
              3,681,238       0.3 %
 
New Jersey
                       
County of Hudson NJ,
                       
3.000%, 03/15/2021
    1,140,000       1,212,219          
New Jersey Educational Facilities Authority,
                       
7.500%, 12/01/2032 (Pre-refunded  to  06/01/2019)
    3,575,000       4,516,905          
New Jersey Health Care Facilities Financing Authority,
                       
5.750%, 07/01/2039 (Pre-refunded  to  07/01/2019)
    870,000       1,037,344          
New Jersey State Housing & Mortgage Finance Agency Bonds,
                       
4.500%, 10/01/2029 (Callable 04/01/2021)
    7,305,000       7,630,292          
New Jersey State Transportation Trust Fund Authority:
                       
5.500%, 12/15/2015 (Insured by AMBAC)
    2,595,000       2,719,768          
5.250%, 12/15/2020
    5,000,000       5,781,650          
New Jersey State Turnpike Authority:
                       
6.500%, 01/01/2016 (ETM)
    585,000       591,944          
6.500%, 01/01/2016 (ETM)
    45,000       45,534          
5.500%, 01/01/2025
    2,100,000       2,664,312          
              26,199,968       2.4 %
New Mexico
                       
New Mexico Mortgage Financial Authority:
                       
4.625%, 09/01/2025 (Callable 03/01/2020)
    970,000       1,009,877          
4.500%, 09/01/2028 (Callable 03/01/2020)
    735,000       775,079          
New Mexico State Hospital Equipment Loan Council Hospital Revenue,
                       
5.250%, 07/01/2025 (Pre-refunded to 07/01/2015)
    1,000,000       1,023,680          
              2,808,636       0.3 %
New York
                       
Cattaraugus-Little Valley Central School District:
                       
3.125%, 06/15/2016 (Insured by AGM)
    1,520,000       1,567,880          
3.125%, 06/15/2017 (Insured by AGM)
    1,000,000       1,046,430          
Churchville-Chili Central School District:
                       
3.000%, 06/15/2017
    1,045,000       1,096,842          
3.000%, 06/15/2018
    1,070,000       1,134,746          
City of New York NY,
                       
5.000%, 08/01/2022
    5,000,000       6,002,050          
Long Island Power Authority and Electric System Revenue,
                       
5.000%, 12/01/2017 (Callable 12/01/2016)(Insured by NPFGC)
    2,000,000       2,154,740          
Metropolitan Transit Authority New York,
                       
6.000%, 04/01/2020 (ETM)
    13,430,000       15,718,472          
New York State Dormitory Authority,
                       
5.000%, 12/15/2023 (Callable 12/15/2022)
    11,685,000       14,142,122          
New York State Thruway Authority,
                       
5.000%, 03/15/2022 (Callable 03/15/2019)
    4,040,000       4,603,459          
New York State Urban Development Corp,
                       
5.000%, 03/15/2022
    2,000,000       2,408,900          
New York, New York:
                       
5.000%, 03/01/2016 (Callable 03/01/2015)(Partially Pre-refunded)(Insured by FGIC-TCRS)
    1,000,000       1,007,330          
5.250%, 08/15/2021 (Callable 08/15/2018)
    1,125,000       1,285,414          
Suffolk County Water Authority,
                       
6.000%, 06/01/2017 (ETM)
    4,715,000       5,053,160          
Susquehanna Valley Central School District:
                       
3.125%, 06/15/2017 (Insured by AGM)
    1,155,000       1,208,626          
3.125%, 06/15/2019 (Insured by AGM)
    1,375,000       1,428,529          
TSASC Inc. New York,
                       
4.750%, 06/01/2022 (Callable 06/01/2016)
    150,000       150,559          
Westchester Tobacco Asset Securitization Corp. New York,
                       
6.950%, 07/15/2039 (Pre-refunded to 07/15/2017)
    13,075,000       15,234,336          
              75,243,595       6.8 %
North Carolina
                       
North Carolina Eastern Municipal Power Agency,
                       
5.000%, 01/01/2021 (ETM)
    10,120,000       11,909,216          
North Carolina Eastern Municipal Power Agency Power Systems Revenue:
                       
5.000%, 01/01/2017 (ETM)
    6,630,000       6,926,560          
6.400%, 01/01/2021 (ETM)
    5,362,000       6,212,681          
4.500%, 01/01/2024 (Pre-refunded to 01/01/2022)
    7,665,000       9,028,067          
6.000%, 01/01/2026 (Pre-refunded to 01/01/2022)
    2,285,000       2,934,854          
              37,011,378       3.4 %
Ohio
                       
Cincinnati Ohio City School District,
                       
5.000%, 12/01/2016 (Insured by AGM)
    2,000,000       2,169,820          
Cleveland Municipal School District:
                       
4.000%, 12/01/2017
    1,790,000       1,926,685          
4.000%, 12/01/2018
    1,865,000       2,022,611          
4.000%, 12/01/2019
    1,940,000       2,114,619          
5.000%, 12/01/2020
    2,015,000       2,323,275          
Miamisburg Ohio Water Revenue,
                       
7.000%, 11/15/2016 (Callable 03/13/2015)(ETM)
    60,000       63,071          
Ohio Housing Finance Agency,
                       
5.000%, 11/01/2028 (Callable 05/01/2020)
    1,630,000       1,731,321          
State of Ohio:
                       
5.000%, 03/01/2019
    1,220,000       1,403,488          
5.500%, 02/01/2020
    1,195,000       1,429,423          
5.000%, 06/15/2021
    6,740,000       8,091,572          
              23,275,885       2.1 %
Pennsylvania
                       
Central Dauphin Pennsylvania School District,
                       
6.750%, 02/01/2024 (Pre-refunded to 02/01/2016)
    1,275,000       1,363,600          
Erie Pennsylvania Sewer Authority Revenue,
                       
5.125%, 06/01/2020 (ETM)
    1,380,000       1,559,662          
Lampeter Strasburg School District,
                       
4.000%, 06/01/2019
    1,715,000       1,852,818          
Pennsylvania Convention Center Authority Revenue Bonds,
                       
6.000%, 09/01/2019 (ETM)
    11,125,000       12,999,118          
Pennsylvania Housing Finance Agency:
                       
3.700%, 04/01/2018
    2,130,000       2,250,430          
3.750%, 10/01/2018
    1,760,000       1,877,515          
3.900%, 04/01/2019
    1,025,000       1,102,398          
3.900%, 10/01/2019 (Callable 04/01/2019)
    1,675,000       1,801,479          
Philadelphia Hospitals & Higher Education Facilities Authority:
                       
5.000%, 05/15/2020 (ETM)
    1,525,000       1,794,498          
5.250%, 05/15/2023 (Pre-refunded to 05/15/2020)
    2,675,000       3,181,966          
Philadelphia Pennsylvania Authority For Industrial Development Revenue,
                       
5.250%, 01/01/2027 (Pre-refunded to 01/01/2017)
    1,790,000       1,950,724          
Philadelphia Pennsylvania Gas Works,
                       
7.000%, 05/15/2020 (ETM)
    2,120,000       2,473,552          
South Fork Municipal Authority:
                       
5.500%, 07/01/2029 (Pre-refunded to 07/01/2020)
    450,000       544,455          
5.375%, 07/01/2035 (Pre-refunded to 07/01/2020)
    370,000       446,320          
              35,198,535       3.2 %
Puerto Rico
                       
Commonwealth of Puerto Rico,
                       
5.000%, 07/01/2021
    6,000,000       4,736,760          
Puerto Rico Electric Power Authority:
                       
0.000%, 07/01/2017 (ETM)
    5,010,000       4,583,649          
0.000%, 07/01/2017 (Pre-refunded to various dates)(ETM)
    3,000,000       2,694,810          
Puerto Rico Public Finance Corp.,
                       
6.000%, 08/01/2026 (ETM)
    1,080,000       1,418,256          
              13,433,475       1.2 %
South Carolina
                       
Charleston Educational Excellence Finance Corp,
                       
5.000%, 12/01/2026 (Callable 12/01/2023)
    4,580,000       5,468,566          
Piedmont Municipal Power Agency South Carolina Electric Revenue,
                       
6.750%, 01/01/2020 (ETM)
    6,450,000       8,070,949          
              13,539,515       1.2 %
South Dakota
                       
Heartland Consumers Power District,
                       
7.000%, 01/01/2016 (ETM)
    455,000       469,537       0.1 %
Tennessee
                       
County of Rutherford TN,
                       
5.000%, 04/01/2021
    1,955,000       2,341,543          
Metropolitan Government Nashville & Davidson County Tennessee H&E,
                       
0.000%, 06/01/2021 (ETM)
    1,050,000       934,993          
Shelby County Tennessee Health Educational & Housing Facilities Revenue,
                       
5.500%, 08/15/2019 (ETM)
    3,755,000       4,002,680          
Tennessee Housing Development Agency,
                       
4.500%, 07/01/2028 (Callable 01/01/2020)
    2,935,000       3,021,436          
              10,300,652       0.9 %
Texas
                       
Amarillo Independent School District,
                       
5.000%, 02/01/2026 (Callable 02/01/2024)(PSF Guaranteed)
    1,370,000       1,676,250          
Arlington Higher Education Finance Corp,
                       
5.000%, 08/15/2024 (PSF Guaranteed)
    1,000,000       1,229,610          
Barbers Hill Texas Independent School District General Obligation,
                       
5.000%, 02/15/2017 (Pre-refunded to 02/15/2015)(PSF Guaranteed)
    2,125,000       2,136,305          
Capital Area Housing Finance Corporation Texas,
                       
0.000%, 01/01/2016 (ETM)
    6,060,000       6,033,821          
Central Texas Housing Finance Corporation,
                       
0.000%, 09/01/2016 (ETM)
    1,500,000       1,484,730          
City of Austin TX Water & Wastewater System Revenue,
                       
5.000%, 11/15/2024 (Callable 11/15/2022)
    3,000,000       3,615,090          
City of Houston TX Combined Utility System Revenue:
                       
0.000%, 12/01/2019 (ETM)
    13,355,000       12,411,469          
5.500%, 12/01/2024 (ETM)
    1,735,000       2,206,452          
5.500%, 12/01/2029 (ETM)
    16,050,000       21,784,183          
Conroe Independent School District:
                       
5.000%, 02/15/2022 (Callable 02/15/2021)(PSF Guaranteed)
    1,000,000       1,198,380          
5.000%, 02/15/2023 (Callable 02/15/2021)(PSF Guaranteed)
    2,680,000       3,197,883          
Cypress-Fairbanks Independent School District:
                       
5.000%, 02/15/2017 (Pre-refunded to 02/15/2016)
    1,085,000       1,142,125          
5.000%, 02/15/2017 (Callable 02/15/2016)(PSF Guaranteed)
    415,000       436,277          
Dallas Texas Independent School District,
                       
5.000%, 02/15/2020 (PSF Guaranteed)
    2,410,000       2,831,051          
El Paso Texas,
                       
5.000%, 08/15/2018
    1,355,000       1,538,846          
Frisco Texas Independent School District,
                       
6.000%, 08/15/2018 (Callable 08/15/2016)(PSF Guaranteed)
    1,625,000       1,771,006          
Georgetown Independent School District,
                       
4.000%, 02/15/2020 (PSF Guaranteed)
    1,900,000       2,141,699          
Georgetown Texas Independent School District,
                       
5.000%, 02/15/2016 (Callable 02/15/2015)(PSF Guaranteed)
    1,000,000       1,005,320          
Goose Creek Consolidated Independent School District,
                       
5.000%, 02/15/2021 (PSF Guaranteed)
    1,050,000       1,253,574          
Harris County Texas:
                       
5.000%, 10/01/2019
    1,525,000       1,778,745          
5.750%, 10/01/2020 (Pre-refunded to 10/01/2018)
    175,000       204,985          
5.750%, 10/01/2028 (Pre-refunded to 10/01/2018)
    6,830,000       8,000,252          
Harris County Texas Health Facilities Development Corporation Hospital Revenue,
                       
5.500%, 10/01/2019 (ETM)
    4,780,000       5,401,830          
Houston Higher Education Finance Corp:
                       
5.000%, 02/15/2020
    1,000,000       1,170,940          
5.000%, 02/15/2026 (Callable 02/15/2024)
    1,030,000       1,237,638          
Humble Texas Independent School District,
                       
5.000%, 02/15/2021 (PSF Guaranteed)
    1,500,000       1,793,700          
Irving Independent School District,
                       
5.000%, 02/15/2025 (Callable 08/15/2024)
    1,250,000       1,539,438          
Killeen Independent School District,
                       
4.000%, 02/15/2024 (Callable 02/15/2021)(PSF Guaranteed)
    1,145,000       1,258,057          
La Porte Independent School District/TX,
                       
5.000%, 02/15/2018 (Pre-refunded to 02/15/2015)(Insured by NPFGC)
    85,000       85,447          
Llano Independent School District,
                       
5.000%, 02/15/2024 (Callable 02/15/2023)(PSF Guaranteed)
    1,265,000       1,534,015          
Lower Colorado River Authority,
                       
4.750%, 01/01/2028 (ETM)
    1,200,000       1,445,112          
Lubbock Texas,
                       
5.000%, 02/15/2021 (Callable 02/15/2018)(Insured by AGM)
    3,425,000       3,815,313          
Lubbock Texas Housing Finance Corp.,
                       
8.000%, 10/01/2021 (ETM)
    1,780,000       2,433,687          
Lubbock Texas Independent School District,
                       
4.000%, 02/15/2022 (Callable 02/15/2020)(PSF Guaranteed)
    1,000,000       1,097,160          
Magnolia Texas Independent School District,
                       
5.000%, 08/15/2016 (PSF Guaranteed)
    1,475,000       1,582,174          
Mansfield Independent School District:
                       
5.000%, 02/15/2023 (PSF Guaranteed)
    1,725,000       2,104,776          
5.000%, 02/15/2024 (PSF Guaranteed)
    1,905,000       2,351,894          
Mission Consolidation Independent School District,
                       
5.000%, 02/15/2019 (Pre-refunded to 02/17/2015)(PSF Guaranteed)
    1,265,000       1,272,071          
North East Independent School District/TX,
                       
5.000%, 08/01/2021 (PSF Guaranteed)
    6,095,000       7,323,386          
Pasadena Independent School District,
                       
5.000%, 02/15/2022 (Callable 02/15/2021)(PSF Guaranteed)
    1,115,000       1,312,734          
Pflugerville Independent School District,
                       
5.000%, 02/15/2025 (Callable 02/15/2024)(PSF Guaranteed)
    1,000,000       1,226,240          
Retama Texas Development Corporation Special Facilities Revenue,
                       
8.750%, 12/15/2018 (ETM)
    2,035,000       2,596,701          
San Antonio Texas Electric & Gas Revenue,
                       
5.650%, 02/01/2019 (ETM)
    11,665,000       13,111,577          
San Antonio Texas Hotel Occupancy Tax Revenue Bonds,
                       
0.000%, 08/15/2015 (ETM)
    2,100,000       2,095,926          
San Antonio Texas Independent School District,
                       
5.000%, 08/15/2017 (Callable 08/15/2015)(PSF Guaranteed)
    2,000,000       2,058,840          
Sherman Independent School District/TX,
                       
5.000%, 02/15/2026 (Callable 02/15/2024)(PSF Guaranteed)
    1,775,000       2,173,292          
Spring Texas Independent School District,
                       
5.000%, 08/15/2019 (Callable 08/15/2018)(PSF Guaranteed)
    1,020,000       1,159,954          
Tarrant County Texas Health Facilities Revenue,
                       
6.000%, 09/01/2024 (ETM)
    7,990,000       9,603,820          
Tarrant County Texas Housing Finance Corporation Revenue Bonds,
                       
0.000%, 09/15/2016 (ETM)
    1,800,000       1,784,250          
Temple Independent School District,
                       
4.000%, 02/01/2022 (Callable 02/01/2021)(PSF Guaranteed)
    1,120,000       1,249,450          
Texas State:
                       
5.000%, 10/01/2018
    6,285,000       7,182,184          
5.000%, 04/01/2020 (Pre-refunded  to  04/01/2016)
    3,965,000       4,200,362          
5.000%, 08/01/2021
    1,205,000       1,453,664          
Tomball Hospital Authority,
                       
5.000%, 07/01/2020 (Pre-refunded to 07/01/2015)
    2,200,000       2,252,162          
University of Texas Revenue Bonds,
                       
5.000%, 08/15/2018 (Pre-refunded to 08/15/2016)
    1,225,000       1,312,771          
University of Texas System/The,
                       
5.000%, 08/15/2022
    9,530,000       11,628,506          
Ysleta Independent School District:
                       
5.000%, 08/15/2023 (Callable 08/15/2021)(PSF Guaranteed)
    1,020,000       1,208,517          
5.000%, 08/15/2025 (Callable 08/15/2024)(PSF Guaranteed)
    1,545,000       1,911,752          
              186,047,393       16.8 %
Utah
                       
Granite School District Board of Education:
                       
5.000%, 06/01/2022 (Callable 06/01/2021)
    3,900,000       4,656,678          
5.000%, 06/01/2023 (Callable 06/01/2021)
    1,750,000       2,079,052          
Salt Lake City Utah Hospital Revenue,
                       
8.125%, 05/15/2015 (Callable 02/02/2015)(ETM)
    85,000       87,415          
              6,823,145       0.6 %
Virginia
                       
Bristol Virginia Utility Systems General Obligations,
                       
5.500%, 11/01/2018 (ETM)
    1,095,000       1,232,182          
County of Fairfax VA,
                       
4.000%, 10/01/2016
    2,500,000       2,651,500          
Danville Industrial Development Authority,
                       
5.250%, 10/01/2028 (ETM)
    1,500,000       1,822,830          
Virginia Public School Authority,
                       
6.250%, 12/01/2028 (Pre-refunded to 12/01/2018)
    1,285,000       1,536,577          
              7,243,089       0.7 %
Washington
                       
Snohomish County School District No. 201,
                       
4.000%, 12/01/2021 (Callable 12/01/2020)
    4,500,000       5,065,425          
Snohomish County Washington Public Utilities Revenue,
                       
6.800%, 01/01/2020 (Callable 03/13/2015)(ETM)
    3,605,000       4,232,378          
Thurston & Pierce Counties Washington Community Schools,
                       
4.250%, 12/01/2021 (Callable 12/01/2020)
    2,755,000       3,074,057          
Walla Walla County School District No 250 College Place,
                       
5.000%, 12/01/2019
    1,290,000       1,462,112          
Washington Health Care Facilities Authority:
                       
6.250%, 08/01/2028 (Pre-refunded to 08/01/2018)
    1,305,000       1,539,091          
6.125%, 11/15/2031 (Pre-refunded to 05/15/2021)
    455,000       578,987          
6.250%, 08/01/2036 (Pre-refunded to 08/01/2018)
    7,850,000       9,258,133          
6.250%, 11/15/2041 (Pre-refunded to 05/15/2021)
    4,435,000       5,676,933          
Washington State:
                       
5.000%, 01/01/2021
    10,000,000       11,889,500          
5.500%, 07/01/2023
    5,000,000       6,165,050          
              48,941,666       4.4 %
West Virginia
                       
Ohio County Board of Education,
                       
5.250%, 06/01/2018 (ETM)
    1,130,000       1,287,816       0.1 %
Wisconsin
                       
Ladysmith-Hawkins Wisconsin School District General Obligation,
                       
5.200%, 04/01/2018 (Callable 04/01/2016)(Insured by NPFGC)
    2,685,000       2,825,533       0.3 %
Total Municipal Bonds (Cost $1,062,045,002)
            1,106,942,063       100.1 %
                         
   
Shares
                 
SHORT-TERM INVESTMENT
                       
Money Market Mutual Fund
                       
Goldman Sachs Financial Square Funds, 0.01% «
    12,684,854       12,684,854          
Total Short-Term Investments (Cost $12,684,854)
            12,684,854       1.2 %
                         
Total Investments (Cost $1,074,729,856)
            1,119,626,917       101.3 %
Liabilities in Excess of Other Assets
            (14,014,266 )     (1.3 )%
TOTAL NET ASSETS
          $ 1,105,612,651       100.0 %
 
Notes to Schedule of Investments
AGM - Assured Guaranty Municipal
AMBAC - Ambac Assurance Corporation
BHAC - Berkshire Hathaway Assurance Corp.
FGIC-TCRS - Financial Guaranty Insurance Company
NPFGC - National Public Finance Guarantee Corp.
PSF - Texas Permanent School Fund
ETM - Escrowed to Maturity
Q-SBLF - Qualified School Building Loan Fund
«  7-Day Yield
 
 
 

 
 
Baird Aggregate Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                 
                   
   
Principal
         
% of
 
   
Amount
   
Value
   
Net Assets
 
LONG-TERM INVESTMENTS
                 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
2.625%, 08/15/2020 @
  $ 423,000,000     $ 441,737,631        
6.250%, 08/15/2023
    23,600,000       31,423,022        
5.250%, 11/15/2028 @
    60,626,500       81,282,131        
4.375%, 02/15/2038
    400       523        
3.500%, 02/15/2039 @
    196,330,900       225,489,180        
3.125%, 08/15/2044 @
    2,500,000       2,691,405        
              782,623,892       21.2 %
Corporate Bonds
                       
Finance
                       
ABN AMRO Bank N.V.,
                       
2.500%, 10/30/2018 (Acquired 10/23/2013 through 01/13/2014, Cost $11,027,299) * f
    11,033,000       11,143,506          
Ally Financial Inc.,
                       
8.000%, 12/31/2018
    360,000       408,600          
American International Group, Inc.:
                       
5.450%, 05/18/2017
    2,678,000       2,921,961          
6.400%, 12/15/2020 @
    830,000       989,750          
4.875%, 06/01/2022
    3,700,000       4,156,373          
4.125%, 02/15/2024 @
    893,000       950,609          
8.175%, 05/15/2058
    893,000       1,210,015          
Ameriprise Financial, Inc.,
                       
7.300%, 06/28/2019
    1,785,000       2,150,802          
AmSouth Bancorporation,
                       
6.750%, 11/01/2025
    223,000       265,930          
Associates Corporation of North America,
                       
6.950%, 11/01/2018
    4,764,000       5,564,304          
Australia and New Zealand Banking Group Limited,
                       
4.500%, 03/19/2024 (Acquired 03/12/2014, Cost $5,991,840) * @ f
    6,000,000       6,124,926          
BAC Capital Trust VI,
                       
5.625%, 03/08/2035 ^
    357,000       370,883          
Bank of America Corporation:
                       
10.200%, 07/15/2015
    1,531,000       1,606,171          
6.400%, 08/28/2017
    893,000       994,950          
6.875%, 04/25/2018
    3,162,000       3,631,810          
7.750%, 05/14/2038
    1,138,000       1,607,202          
BanPonce Trust I,
                       
Series A, 8.327%, 02/01/2027
    1,941,000       1,694,779          
Barclays Bank PLC:
                       
2.500%, 02/20/2019 @ f
    2,000,000       2,026,572          
6.750%, 05/22/2019 f
    3,570,000       4,200,833          
3.750%, 05/15/2024 f
    1,450,000       1,494,589          
BNP Paribas,
                       
3.250%, 03/03/2023 f
    3,570,000       3,639,561          
BNZ International Funding Limited,
                       
2.350%, 03/04/2019 (Acquired 09/03/2014, Cost $3,288,021) * f
    3,300,000       3,300,393          
BPCE:
                       
1.082%, 02/10/2017 f
    2,544,000       2,560,849          
2.500%, 07/15/2019 @ f
    1,925,000       1,932,583          
5.700%, 10/22/2023 (Acquired 10/15/2013 through 09/30/2014, Cost $8,230,913) * f
    8,055,000       8,649,193          
4.000%, 04/15/2024 @ f
    2,500,000       2,612,915          
Capital One Bank, (USA), National Association,
                       
3.375%, 02/15/2023
    6,000,000       5,966,646          
Capital One N.A.,
                       
2.400%, 09/05/2019
    12,000,000       11,941,416          
Citigroup Inc.:
                       
4.450%, 01/10/2017
    893,000       943,975          
6.125%, 11/21/2017
    2,477,000       2,762,063          
1.850%, 11/24/2017
    6,100,000       6,092,991          
3.750%, 06/16/2024 @
    1,000,000       1,021,248          
Citizens Bank, National Association,
                       
2.450%, 12/04/2019
    18,000,000       17,887,500          
CNA Financial Corporation:
                       
6.500%, 08/15/2016
    4,463,000       4,827,337          
7.250%, 11/15/2023
    4,000,000       4,987,668          
Commonwealth Bank of Australia,
                       
0.833%, 10/08/2015 (Acquired 01/09/2013, Cost $4,263,757) * f
    4,263,000       4,262,071          
Compass Bank,
                       
2.750%, 09/29/2019
    8,650,000       8,658,840          
Countrywide Financial Corporation,
                       
6.250%, 05/15/2016
    4,757,000       5,048,804          
Credit Agricole SA:
                       
1.106%, 10/03/2016 (Acquired 09/26/2013, Cost $1,500,000) * @ f
    1,500,000       1,509,351          
6.637%, 05/29/2049 (Acquired 05/23/2007, Cost $893,000) * @ f
    893,000       934,013          
Credit Suisse:
                       
5.300%, 08/13/2019 @ f
    1,406,000       1,577,124          
5.400%, 01/14/2020 f
    5,000,000       5,591,435          
3.625%, 09/09/2024 @ f
    4,325,000       4,399,559          
Deutsche Bank Aktiengesellschaft,
                       
3.700%, 05/30/2024 @ f
    10,000,000       10,147,670          
Discover Financial Services,
                       
3.950%, 11/06/2024
    5,000,000       5,026,215          
Dresdner Bank AG,
                       
7.250%, 09/15/2015 f
    5,475,000       5,661,544          
First Hawaiian Capital I,
                       
Series B, 8.343%, 07/01/2027
    3,346,000       3,390,733          
First Horizon National Corporation,
                       
5.375%, 12/15/2015
    2,872,000       2,973,384          
First Tennessee Bank National Association:
                       
5.050%, 01/15/2015
    8,503,000       8,513,901          
5.650%, 04/01/2016
    500,000       516,689          
2.950%, 12/01/2019
    3,400,000       3,391,265          
FMR LLC,
                       
4.950%, 02/01/2033 (Acquired 01/29/2013, Cost $1,747,795) * @
    1,750,000       1,934,819          
General Electric Capital Corporation:
                       
5.550%, 05/04/2020 @
    5,534,000       6,360,099          
4.650%, 10/17/2021
    5,355,000       6,035,776          
Genworth Holdings, Inc.,
                       
4.900%, 08/15/2023
    1,339,000       1,078,828          
Goldman Sachs Capital I,
                       
6.345%, 02/15/2034 @
    1,053,000       1,252,654          
Great-West Life & Annuity Insurance Capital LP II,
                       
7.153%, 05/16/2046 (Acquired 05/16/2006 through 11/08/2007, Cost $2,482,656) *
    2,499,000       2,586,465          
Highmark Inc,
                       
4.750%, 05/15/2021 (Acquired 05/03/2011 through 07/30/2014, Cost $4,379,807) *
    4,378,000       4,521,677          
HSBC Bank plc,
                       
0.872%, 05/15/2018 (Acquired 12/17/2014, Cost $4,973,561) * f
    4,950,000       4,969,770          
HSBC Finance Corporation,
                       
0.664%, 06/01/2016
    5,000,000       4,989,085          
HSBC Holdings PLC,
                       
6.500%, 09/15/2037 f
    1,874,000       2,407,876          
HSBC USA Capital Trust I,
                       
7.808%, 12/15/2026 (Acquired 03/08/2007, Cost $302,289) *
    300,000       302,451          
HSBC USA Capital Trust III:
                       
7.750%, 11/15/2026
    893,000       900,101          
8.380%, 05/15/2027 (Acquired 11/06/2007, Cost $450,453) *
    446,000       451,828          
HSBC USA Inc.,
                       
9.125%, 05/15/2021
    625,000       829,109          
Humana Inc.,
                       
7.200%, 06/15/2018
    1,870,000       2,184,512          
ING Bank N.V.:
                       
4.000%, 03/15/2016 (Acquired 03/08/2011, Cost $3,256,241) * @ f
    3,258,000       3,369,857          
3.750%, 03/07/2017 (Acquired 03/28/2012, Cost $1,903,782) * f
    1,919,000       2,008,237          
2.500%, 10/01/2019 (Acquired 09/23/2014, Cost $3,481,100) * f
    3,500,000       3,522,386          
5.800%, 09/25/2023 (Acquired 01/14/2014 through 04/07/2014, Cost $2,585,887) * f
    2,450,000       2,717,734          
Invesco Finance PLC,
                       
3.125%, 11/30/2022 f
    5,902,000       5,849,283          
J.P. Morgan Chase & Co.:
                       
2.200%, 10/22/2019
    3,675,000       3,643,310          
4.250%, 10/15/2020
    636,000       683,764          
5.600%, 07/15/2041
    4,106,000       4,971,171          
J.P. Morgan Chase Bank, National Association,
                       
6.000%, 10/01/2017
    500,000       554,942          
Jefferies Group LLC:
                       
6.875%, 04/15/2021
    3,570,000       4,058,233          
6.250%, 01/15/2036
    1,290,000       1,267,779          
John Hancock Life Insurance Company,
                       
7.375%, 02/15/2024 (Acquired 08/26/2010, Cost $6,693,506) *
    6,069,000       7,575,969          
Kookmin Bank,
                       
1.625%, 07/14/2017 (Acquired 07/07/2014, Cost $3,988,720) * f
    4,000,000       3,977,640          
LeasePlan Corporation N.V.:
                       
3.000%, 10/23/2017 (Acquired 12/03/2013 through 04/04/2014, Cost $763,883) * f
    750,000       768,182          
2.500%, 05/16/2018 (Acquired 08/02/2013 through 10/20/2014, Cost $18,106,913) * f
    18,158,000       18,165,790          
Liberty Mutual Group Inc.:
                       
4.250%, 06/15/2023 (Acquired 06/13/2013, Cost $2,660,995) *
    2,678,000       2,759,623          
10.750%, 06/15/2058 (Acquired 05/21/2008, Cost $2,182,029) *
    2,231,000       3,443,809          
Liberty Mutual Insurance Company,
                       
7.697%, 10/15/2097 (Acquired 03/26/2003, Cost $297,700) *
    465,000       587,397          
Lincoln National Corporation:
                       
8.750%, 07/01/2019
    5,218,000       6,520,048          
6.050%, 04/20/2067
    1,004,000       1,004,000          
Lloyds Bank plc,
                       
5.800%, 01/13/2020 (Acquired 02/10/2010, Cost $1,403,280) * f
    1,428,000       1,650,118          
M&I Marshall & Ilsley Bank,
                       
4.850%, 06/16/2015
    5,355,000       5,451,738          
M&T Capital Trust I,
                       
8.234%, 02/01/2027
    2,798,000       2,824,122          
M&T Capital Trust II,
                       
8.277%, 06/01/2027
    1,406,000       1,431,215          
Macquarie Bank Limited,
                       
1.600%, 10/27/2017 (Acquired 10/22/2014, Cost $4,996,950) * f
    5,000,000       4,967,140          
Macquarie Group Limited:
                       
3.000%, 12/03/2018 (Acquired 11/25/2013, Cost $8,490,900) * @ f
    8,525,000       8,728,500          
7.625%, 08/13/2019 (Acquired 02/12/2014 through 04/09/2014, Cost $1,926,933) * f
    1,630,000       1,954,299          
Marsh & McLennan Companies, Inc.,
                       
2.300%, 04/01/2017
    2,231,000       2,258,651          
Massachusetts Mutual Life Insurance Company,
                       
8.875%, 06/01/2039 (Acquired 05/27/2009 through 12/16/2014, Cost $19,421,722) * @
    13,000,000       20,975,461          
MBIA Insurance Corporation,
                       
11.491%, 01/15/2033 (Acquired 01/11/2008, Cost $714,000) * §
    714,000       428,400          
MetLife, Inc.:
                       
7.717%, 02/15/2019 @
    982,000       1,189,961          
6.500%, 12/15/2032
    466,000       621,616          
Mizuho Bank, Ltd.:
                       
1.850%, 03/21/2018 (Acquired 03/14/2013, Cost $3,119,689) * f
    3,124,000       3,107,012          
2.450%, 04/16/2019 (Acquired 04/09/2014, Cost $2,096,262) * f
    2,100,000       2,086,337          
Morgan Stanley:
                       
7.300%, 05/13/2019
    5,110,000       6,061,206          
2.375%, 07/23/2019 @
    1,000,000       996,312          
5.625%, 09/23/2019
    1,941,000       2,190,989          
Series F, 3.875%, 04/29/2024
    1,650,000       1,692,960          
3.700%, 10/23/2024 @
    4,000,000       4,054,480          
National Australia Bank Limited,
                       
0.733%, 10/08/2015 (Acquired 01/16/2013, Cost $8,703,094) * f
    8,700,000       8,698,747          
National City Bank,
                       
5.800%, 06/07/2017
    1,750,000       1,921,491          
Navient, LLC,
                       
5.625%, 08/01/2033
    446,000       336,730          
Nomura Holdings, Inc.:
                       
2.000%, 09/13/2016 f
    6,248,000       6,298,403          
2.750%, 03/19/2019 @ f
    1,400,000       1,415,334          
6.700%, 03/04/2020 f
    1,667,000       1,970,854          
PNC Bank, National Association,
                       
4.200%, 11/01/2025
    2,678,000       2,832,488          
PNC Funding Corp,
                       
5.250%, 11/15/2015
    2,500,000       2,591,002          
Protective Life Corporation,
                       
7.375%, 10/15/2019
    7,096,000       8,539,291          
Prudential Covered Trust 2012-1,
                       
2.997%, 09/30/2015 (Acquired 12/19/2012 through 07/23/2013, Cost $6,041,068) *
    5,974,500       6,058,418          
Rabobank Nederland,
                       
0.485%, 03/07/2016 (Acquired 05/21/2013, Cost $8,648,260) * f
    8,676,000       8,691,435          
Raymond James Financial, Inc.,
                       
8.600%, 08/15/2019
    5,000,000       6,207,845          
Regions Bank,
                       
7.500%, 05/15/2018 @
    7,108,000       8,251,642          
Regions Financial Corporation,
                       
5.750%, 06/15/2015
    1,785,000       1,822,073          
Santander Bank, N.A.,
                       
8.750%, 05/30/2018
    8,802,000       10,483,200          
Santander UK PLC,
                       
5.000%, 11/07/2023 (Acquired 10/31/2013 through 12/02/2014, Cost $10,318,530) * f
    9,880,000       10,435,216          
Skandinaviska Enskilda Banken AB:
                       
2.375%, 11/20/2018 (Acquired 11/13/2013, Cost $4,995,550) * f
    5,000,000       5,056,920          
2.375%, 03/25/2019 (Acquired 03/18/2014, Cost $1,498,875) * f
    1,500,000       1,509,720          
SpareBank 1 Boligkreditt AS,
                       
1.750%, 11/15/2019 (Acquired 11/07/2012, Cost $4,428,322) * f
    4,463,000       4,368,594          
Springleaf Finance Corp,
                       
6.900%, 12/15/2017
    400,000       426,000          
Standard Chartered PLC,
                       
5.700%, 03/26/2044 (Acquired 03/21/2014, Cost $5,988,000) * f
    6,000,000       6,241,158          
Sumitomo Mitsui Banking Corporation,
                       
3.950%, 07/19/2023 f
    1,850,000       1,969,438          
SunTrust Bank,
                       
7.250%, 03/15/2018
    1,874,000       2,168,319          
SUSA Partnership, L.P.,
                       
8.200%, 06/01/2017
    921,000       1,050,456          
Swedbank AB:
                       
2.125%, 09/29/2017 (Acquired 09/24/2012, Cost $1,782,305) * f
    1,785,000       1,805,574          
2.375%, 02/27/2019 (Acquired 02/20/2014, Cost $7,287,663) * f
    7,300,000       7,344,136          
Symetra Financial Corporation,
                       
6.125%, 04/01/2016 (Acquired 03/23/2006, Cost $889,044) *
    893,000       936,874          
Synchrony Financial:
                       
3.000%, 08/15/2019
    2,000,000       2,021,886          
3.750%, 08/15/2021
    10,000,000       10,214,890          
4.250%, 08/15/2024
    8,000,000       8,209,032          
TD Ameritrade Holding Corporation:
                       
5.600%, 12/01/2019
    2,945,000       3,380,639          
3.625%, 04/01/2025
    7,000,000       7,094,591          
The Bank of Tokyo-Mitsubishi UFJ, Ltd.:
                       
0.611%, 07/15/2016 f
    4,600,000       4,598,560          
4.100%, 09/09/2023 (Acquired 09/03/2013 through 03/26/2014, Cost $2,940,356) * f
    2,911,000       3,134,548          
3.750%, 03/10/2024 (Acquired 03/04/2014, Cost $2,594,410) * f
    2,600,000       2,693,176          
The Bear Stearns Companies LLC,
                       
7.250%, 02/01/2018
    5,547,000       6,393,195          
The Goldman Sachs Group, Inc.:
                       
6.250%, 09/01/2017
    893,000       993,596          
6.150%, 04/01/2018
    5,634,000       6,323,709          
7.500%, 02/15/2019 @
    1,964,000       2,336,101          
2.550%, 10/23/2019
    2,700,000       2,690,140          
3.850%, 07/08/2024
    3,000,000       3,076,794          
The Guardian Life Insurance Company of America,
                       
4.875%, 06/19/2064 (Acquired 06/16/2014, Cost $1,993,300) *
    2,000,000       2,129,208          
The Hartford Financial Services Group, Inc.:
                       
4.000%, 10/15/2017
    4,463,000       4,745,182          
8.125%, 06/15/2038
    1,964,000       2,248,450          
The Royal Bank of Scotland Public Limited Company,
                       
6.125%, 01/11/2021 f
    2,812,000       3,313,607          
UBS AG:
                       
1.375%, 08/14/2017 f
    7,000,000       6,954,458          
5.750%, 04/25/2018 f
    2,678,000       3,012,587          
Voya Financial, Inc.,
                       
5.500%, 07/15/2022
    17,350,000       19,598,838          
WellPoint, Inc.,
                       
5.100%, 01/15/2044
    1,584,000       1,780,018          
Wells Fargo Bank, National Association,
                       
6.000%, 11/15/2017
    3,789,000       4,247,139          
Westpac Banking Corporation,
                       
1.600%, 01/12/2018 f
    7,079,000       7,078,561          
Willis North America, Inc.:
                       
5.625%, 07/15/2015
    669,000       685,201          
7.000%, 09/29/2019
    4,463,000       5,205,184          
              638,758,870       17.3 %
Utility
                       
Arizona Public Service Company,
                       
8.750%, 03/01/2019
    759,000       954,681          
Beaver Valley II Funding Corporation,
                       
9.000%, 06/01/2017
    219,000       236,520          
ENEL Finance International N.V.:
                       
5.125%, 10/07/2019 (Acquired 09/30/2009, Cost $2,199,280) * f
    2,209,000       2,440,834          
6.800%, 09/15/2037 (Acquired 09/13/2007, Cost $1,691,506) * f
    1,696,000       2,168,421          
Exelon Generation Company, LLC,
                       
6.200%, 10/01/2017
    1,964,000       2,182,446          
Mega Advance Investments Ltd,
                       
5.000%, 05/12/2021 (Acquired 05/09/2011, Cost $4,858,830) * f
    4,909,000       5,316,840          
MidAmerican Energy Holdings Company,
                       
2.400%, 02/01/2020 (Acquired 12/01/2014, Cost $4,998,900) *
    5,000,000       4,978,230          
National Rural Utilities Cooperative Finance Corporation:
                       
10.375%, 11/01/2018
    547,000       712,593          
8.000%, 03/01/2032
    2,834,000       4,165,224          
NextEra Energy Capital Holdings, Inc.,
                       
Series D, 7.300%, 09/01/2067
    2,455,000       2,626,850          
PPL Energy Supply, LLC,
                       
Series A, 5.700%, 10/15/2015
    1,839,000       1,879,046          
PSEG Power LLC:
                       
5.320%, 09/15/2016
    2,877,000       3,073,720          
5.125%, 04/15/2020
    3,575,000       3,971,600          
RGS I&M Funding Corp,
                       
Series F*, 9.820%, 06/07/2022
    759,638       900,204          
Talent Yield Investments Ltd.,
                       
4.500%, 04/25/2022 (Acquired 04/18/2012, Cost $1,772,791) * @ f
    1,785,000       1,868,681          
              37,475,890       1.0 %
Industrials
                       
Actavis Funding SCS,
                       
3.850%, 06/15/2024 @ f
    3,000,000       3,015,327          
Acuity Brands Lighting, Inc.,
                       
6.000%, 12/15/2019
    3,749,000       4,155,605          
Altera Corporation,
                       
4.100%, 11/15/2023
    2,000,000       2,070,000          
Ameritech Capital Funding Corporation:
                       
9.100%, 06/01/2016
    910,497       985,098          
6.450%, 01/15/2018
    2,668,000       2,992,269          
Anadarko Petroleum Corporation:
                       
6.375%, 09/15/2017 @
    5,355,000       5,953,699          
8.700%, 03/15/2019
    2,432,000       2,979,081          
Anglo American Capital PLC,
                       
9.375%, 04/08/2019 (Acquired 04/02/2009, Cost $1,785,000) * f
    1,785,000       2,223,114          
Apple Inc.,
                       
2.400%, 05/03/2023 @
    2,678,000       2,603,008          
Bayer US Finance LLC,
                       
2.375%, 10/08/2019 (Acquired 10/01/2014, Cost $9,954,200) *
    10,000,000       10,039,680          
Beam Suntory Inc.,
                       
1.875%, 05/15/2017
    2,000,000       2,008,110          
Becton, Dickinson and Company:
                       
2.675%, 12/15/2019
    4,600,000       4,660,495          
3.250%, 11/12/2020
    7,000,000       7,120,932          
Boston Scientific Corporation,
                       
2.650%, 10/01/2018
    10,000,000       10,011,770          
Bunge Limited Finance Corp.,
                       
8.500%, 06/15/2019
    6,933,000       8,496,669          
Bunge N.A. Finance L.P.,
                       
5.900%, 04/01/2017
    3,392,000       3,688,044          
Canadian Natural Resources Limited:
                       
5.700%, 05/15/2017 f
    2,550,000       2,764,315          
6.500%, 02/15/2037 f
    982,000       1,125,153          
Celgene Corporation,
                       
4.000%, 08/15/2023 @
    2,477,000       2,607,114          
CenturyLink, Inc.,
                       
Series R, 5.150%, 06/15/2017
    2,678,000       2,805,205          
CF Industries, Inc.,
                       
5.150%, 03/15/2034
    3,000,000       3,137,997          
Comcast Corporation:
                       
4.250%, 01/15/2033
    5,712,000       6,048,591          
6.950%, 08/15/2037
    893,000       1,258,144          
Computer Sciences Corporation,
                       
2.500%, 09/15/2015
    4,986,000       5,031,019          
ConAgra Foods, Inc.:
                       
0.601%, 07/21/2016
    4,000,000       3,990,132          
5.819%, 06/15/2017
    1,506,000       1,648,761          
1.900%, 01/25/2018
    4,000,000       3,973,352          
4.950%, 08/15/2020
    1,785,000       1,960,594          
9.750%, 03/01/2021
    4,107,000       5,299,254          
Continental Airlines Pass Through Trust,
                       
Series 974A, 6.900%, 01/02/2018
    185,556       194,834          
Cox Communications, Inc.:
                       
3.850%, 02/01/2025 (Acquired 12/01/2014, Cost $4,991,350) *
    5,000,000       5,047,085          
4.800%, 02/01/2035 (Acquired 12/01/2014, Cost $8,996,760) *
    9,000,000       9,376,857          
8.375%, 03/01/2039 (Acquired 10/08/2014, Cost $2,882,138) *
    2,000,000       2,851,312          
Crane Co.,
                       
2.750%, 12/15/2018
    10,000,000       10,107,870          
D.R. Horton, Inc.,
                       
6.500%, 04/15/2016
    893,000       942,115          
DCP Midstream, LLC,
                       
9.750%, 03/15/2019 (Acquired 02/29/2012 through 10/15/2012, Cost $6,108,505) *
    5,065,000       6,335,332          
Deutsche Telekom International Finance B.V.,
                       
8.750%, 06/15/2030 f
    411,000       607,112          
El Paso Pipeline Partners Operating Company, L.L.C.,
                       
7.500%, 11/15/2040
    4,017,000       4,940,818          
Enable Midstream Partners, LP,
                       
3.900%, 05/15/2024 (Acquired 05/19/2014, Cost $4,994,350) *
    5,000,000       4,819,430          
Energy Transfer Partners, L.P.:
                       
5.950%, 02/01/2015
    10,000,000       10,033,010          
9.700%, 03/15/2019
    893,000       1,120,819          
EQT Midstream Partners, LP,
                       
4.000%, 08/01/2024 @
    3,000,000       2,970,795          
Express Scripts Holding Company:
                       
2.650%, 02/15/2017
    2,678,000       2,738,239          
4.750%, 11/15/2021
    5,000,000       5,517,765          
3.500%, 06/15/2024
    9,000,000       8,968,428          
Federal Express Corp 1998 Pass Through Trust,
                       
Series 981B, 6.845%, 01/15/2019
    2,052,822       2,261,363          
Fidelity National Information Services, Inc.:
                       
3.500%, 04/15/2023
    12,845,000       12,767,968          
3.875%, 06/05/2024
    2,000,000       2,020,204          
Fiserv, Inc.:
                       
4.625%, 10/01/2020
    1,785,000       1,939,079          
3.500%, 10/01/2022
    5,410,000       5,463,711          
FMC Corporation,
                       
4.100%, 02/01/2024 @
    3,000,000       3,103,611          
Fomento Economico Mexicano, S.A.B. de C.V.:
                       
2.875%, 05/10/2023 f
    5,000,000       4,663,560          
4.375%, 05/10/2043 @ f
    4,374,000       4,087,337          
Ford Motor Credit Company LLC:
                       
2.375%, 03/12/2019 @
    6,806,000       6,758,617          
2.597%, 11/04/2019
    10,000,000       9,946,210          
Forest Laboratories, Inc.,
                       
5.000%, 12/15/2021 (Acquired 08/26/2014, Cost $10,962,456) *
    10,000,000       10,828,260          
Freeport-McMoran Oil & Gas LLC / FCX Oil & Gas Inc.:
                       
6.500%, 11/15/2020
    3,221,000       3,486,636          
6.625%, 05/01/2021
    1,447,000       1,555,525          
6.750%, 02/01/2022
    2,649,000       2,913,900          
Georgia-Pacific LLC,
                       
2.539%, 11/15/2019 (Acquired 11/03/2014, Cost $10,675,000) * @
    10,675,000       10,671,306          
Glencore Finance (Canada) Limited,
                       
5.800%, 11/15/2016 (Acquired 12/06/2011, Cost $636,421) * f
    616,000       658,960          
Glencore Funding LLC:
                       
2.500%, 01/15/2019 (Acquired 05/22/2013, Cost $4,440,774) * @
    4,463,000       4,394,605          
4.125%, 05/30/2023 (Acquired 07/22/2013 through 04/03/2014, Cost $3,605,781) *
    3,746,000       3,655,193          
4.625%, 04/29/2024 (Acquired 04/22/2014 through 10/08/2014, Cost $4,755,249) * @
    4,675,000       4,697,440          
GTE Corporation,
                       
8.750%, 11/01/2021
    89,000       116,074          
Gulf South Pipeline Company, LP,
                       
4.000%, 06/15/2022
    3,633,000       3,581,455          
Hess Corporation,
                       
8.125%, 02/15/2019
    4,376,000       5,206,530          
Hewlett-Packard Company:
                       
3.300%, 12/09/2016
    5,219,000       5,389,792          
4.650%, 12/09/2021 @
    6,645,000       7,115,240          
Holcim US Finance S. a r.l. & Cie S.C.S.,
                       
6.000%, 12/30/2019 (Acquired 09/24/2009 through 09/04/2013, Cost $1,248,288) * f
    1,232,000       1,410,104          
Hospira, Inc.,
                       
6.050%, 03/30/2017
    4,463,000       4,811,850          
Hutchison Whampoa International (09) Limited,
                       
7.625%, 04/09/2019 (Acquired 10/22/2009 through 04/16/2014, Cost $9,244,613) * f
    8,288,000       10,025,977          
Hutchison Whampoa International (14) Limited,
                       
3.625%, 10/31/2024 (Acquired 10/28/2014, Cost $4,994,200) * @ f
    5,000,000       5,022,895          
Hyundai Capital Services, Inc.:
                       
6.000%, 05/05/2015 (Acquired 05/20/2013, Cost $35,543) * f
    35,000       35,584          
4.375%, 07/27/2016 (Acquired 04/23/2013, Cost $2,086,786) * f
    2,008,000       2,101,061          
1.043%, 03/18/2017 (Acquired 03/11/2014, Cost $2,000,000) * f
    2,000,000       1,995,988          
3.500%, 09/13/2017 (Acquired 08/21/2014 through 12/03/2013, Cost $7,723,934) * f
    7,458,000       7,715,130          
Ingersoll-Rand Luxembourg Finance S.A.,
                       
2.625%, 05/01/2020 f
    2,650,000       2,632,847          
Johnson Controls, Inc.:
                       
6.000%, 01/15/2036
    893,000       1,081,350          
4.950%, 07/02/2064
    2,400,000       2,474,328          
Kinder Morgan Energy Partners, L.P.:
                       
9.000%, 02/01/2019
    893,000       1,082,544          
6.950%, 01/15/2038
    2,008,000       2,317,491          
6.500%, 09/01/2039
    893,000       993,812          
Kinder Morgan Finance Company LLC,
                       
5.700%, 01/05/2016
    803,000       833,610          
Lafarge S.A.,
                       
7.125%, 07/15/2036 f
    893,000       1,035,880          
Marathon Petroleum Corporation:
                       
3.625%, 09/15/2024
    1,600,000       1,568,005          
4.750%, 09/15/2044
    1,500,000       1,416,609          
Martin Marietta Materials, Inc.,
                       
6.250%, 05/01/2037
    893,000       945,682          
Masco Corporation,
                       
6.125%, 10/03/2016
    1,450,000       1,537,725          
Medtronic, Inc.:
                       
3.150%, 03/15/2022 (Acquired 12/01/2014, Cost $3,966,692) * @
    3,975,000       4,025,387          
4.375%, 03/15/2035 (Acquired 12/01/2014, Cost $2,973,510) * @
    3,000,000       3,182,568          
Murphy Oil Corporation,
                       
4.000%, 06/01/2022
    4,463,000       4,102,631          
Mylan Inc.,
                       
7.875%, 07/15/2020 (Acquired 04/25/2014, Cost $3,227,885) *
    3,000,000       3,195,585          
Nabors Industries, Inc.,
                       
6.150%, 02/15/2018
    982,000       1,022,819          
National Oilwell Varco, Inc.,
                       
Series B, 6.125%, 08/15/2015
    6,288,000       6,290,993          
New Cingular Wireless Services, Inc.,
                       
8.750%, 03/01/2031
    1,260,000       1,951,880          
Noble Energy, Inc.,
                       
8.250%, 03/01/2019
    2,684,000       3,217,850          
ONEOK Partners, L.P.:
                       
6.150%, 10/01/2016
    3,036,000       3,259,692          
8.625%, 03/01/2019
    7,627,000       9,215,880          
3.375%, 10/01/2022 @
    1,130,000       1,045,998          
Oracle Corporation,
                       
3.400%, 07/08/2024
    3,000,000       3,066,216          
Pactiv LLC,
                       
7.950%, 12/15/2025
    286,000       287,430          
Petrofac Limited,
                       
3.400%, 10/10/2018 (Acquired 10/03/2013 through 12/03/2014, Cost $15,573,119) * f
    15,546,000       15,336,626          
PetroLogistics LP / PetroLogistics Finance Corp.,
                       
6.250%, 04/01/2020
    7,041,000       7,586,677          
Plum Creek Timberlands, L.P.,
                       
5.875%, 11/15/2015
    3,887,000       4,037,928          
POSCO,
                       
4.250%, 10/28/2020 (Acquired 12/18/2014, Cost $1,043,034) * f
    975,000       1,041,535          
QEP Resources, Inc.,
                       
6.800%, 03/01/2020
    893,000       924,255          
R.R. Donnelley & Sons Company:
                       
8.600%, 08/15/2016 @
    2,231,000       2,442,945          
6.125%, 01/15/2017
    88,000       93,280          
7.625%, 06/15/2020 @
    893,000       980,067          
Republic Services, Inc.:
                       
5.500%, 09/15/2019
    7,400,000       8,336,685          
3.550%, 06/01/2022
    3,000,000       3,079,851          
Rio Tinto Alcan Inc.,
                       
5.750%, 06/01/2035 f
    446,000       513,679          
Rio Tinto Finance (USA) Limited,
                       
9.000%, 05/01/2019 @ f
    4,909,000       6,210,680          
Rockies Express Pipeline LLC,
                       
5.625%, 04/15/2020 (Acquired 03/17/2010, Cost $1,783,411) *
    1,785,000       1,753,762          
SABMiller Holdings Inc.,
                       
0.922%, 08/01/2018 (Acquired 10/21/2014, Cost $10,050,452) *
    10,000,000       10,031,680          
Samarco Mineracao S.A.,
                       
5.750%, 10/24/2023 (Acquired 10/22/2013, Cost $4,477,199) * f
    4,463,000       4,262,165          
Seagate HDD Cayman,
                       
6.875%, 05/01/2020 f
    13,137,000       13,793,850          
SK Telecom Co., Ltd.,
                       
6.625%, 07/20/2027 (Acquired 07/13/2007, Cost $1,322,945) * f
    1,339,000       1,706,194          
Southern Natural Gas Company, L.L.C.,
                       
5.900%, 04/01/2017 (Acquired 03/14/2007, Cost $1,247,925) *
    1,250,000       1,344,050          
Sprint Capital Corporation:
                       
6.900%, 05/01/2019
    2,499,000       2,548,980          
8.750%, 03/15/2032
    320,000       309,600          
Talisman Energy Inc.,
                       
7.750%, 06/01/2019 f
    1,071,000       1,233,652          
Telecom Italia Capital:
                       
7.175%, 06/18/2019 f
    1,785,000       2,043,825          
7.200%, 07/18/2036 f
    5,350,000       5,751,250          
Telefonica Emisiones S.A.U.:
                       
6.421%, 06/20/2016 f
    1,930,000       2,064,621          
6.221%, 07/03/2017 f
    4,530,000       5,015,150          
The Mosaic Company,
                       
5.450%, 11/15/2033
    2,000,000       2,262,814          
The Timken Company,
                       
3.875%, 09/01/2024 (Acquired 08/13/2014, Cost $1,978,020) *
    2,000,000       1,996,898          
The Williams Companies, Inc.,
                       
4.550%, 06/24/2024 @
    5,000,000       4,649,905          
Time Warner Cable Inc.:
                       
6.550%, 05/01/2037
    893,000       1,149,728          
6.750%, 06/15/2039
    2,767,000       3,617,246          
Time Warner Inc.:
                       
7.625%, 04/15/2031
    5,082,000       7,084,994          
7.700%, 05/01/2032 @
    5,918,000       8,361,181          
Transocean Inc,
                       
6.500%, 11/15/2020 @ f
    4,000,000       3,771,872          
TSMC Global Ltd,
                       
1.625%, 04/03/2018 (Acquired 12/03/2013, Cost $1,147,107) * f
    1,175,000       1,153,286          
TTX Company,
                       
3.600%, 01/15/2025 (Acquired 11/13/2014, Cost $4,999,250) *
    5,000,000       5,095,065          
Tyco Electronics Group S.A.,
                       
6.550%, 10/01/2017 f
    6,248,000       7,032,930          
U.S. Airways Pass Through Trust,
                       
Series 981A, 6.850%, 01/30/2018
    207,944       223,019          
Vale Overseas Limited:
                       
8.250%, 01/17/2034 @ f
    8,526,000       10,203,405          
6.875%, 11/21/2036 f
    1,383,000       1,457,945          
6.875%, 11/10/2039 @ f
    893,000       951,099          
Valero Energy Corporation,
                       
9.375%, 03/15/2019
    15,578,000       19,427,807          
Verizon Communications Inc.:
                       
5.150%, 09/15/2023
    7,000,000       7,729,631          
4.150%, 03/15/2024
    3,000,000       3,105,702          
6.400%, 09/15/2033
    12,140,000       14,953,846          
Viacom Inc.,
                       
2.500%, 09/01/2018 @
    3,153,000       3,180,879          
Vulcan Materials Company:
                       
7.000%, 06/15/2018
    1,785,000       1,963,500          
7.150%, 11/30/2037
    446,000       454,920          
Wabtec Corporation,
                       
4.375%, 08/15/2023
    2,678,000       2,846,069          
Walgreens Boots Alliance, Inc.,
                       
3.800%, 11/18/2024
    5,934,000       6,052,087          
Weatherford International Ltd,
                       
9.625%, 03/01/2019 f
    3,120,000       3,700,570          
Western Gas Partners, LP,
                       
5.375%, 06/01/2021
    8,701,000       9,546,198          
Westvaco Corporation:
                       
9.750%, 06/15/2020
    143,000       183,328          
8.200%, 01/15/2030
    4,463,000       5,905,267          
Williams Partners L.P.,
                       
6.300%, 04/15/2040
    2,767,000       3,095,363          
              647,009,871       17.5 %
Total Corporate Bonds
            1,323,244,631       35.8 %
                         
Other Government Related Securities
                       
CNPC General Capital Ltd,
                       
2.750%, 05/14/2019 (Acquired 05/07/2014, Cost $1,983,740) * f
    2,000,000       1,986,442          
Comision Federal de Electricidad,
                       
4.875%, 01/15/2024 (Acquired 10/17/2013, Cost $2,662,655) * f
    2,678,000       2,798,510          
Corp Andina de Fomento,
                       
4.375%, 06/15/2022 f
    6,107,000       6,564,152          
Korea Electric Power Corporation,
                       
6.750%, 08/01/2027 f
    1,932,000       2,458,531          
Korea Gas Corporation,
                       
4.250%, 11/02/2020 (Acquired 10/26/2010, Cost $2,309,418) * f
    2,321,000       2,521,061          
Nexen Energy ULC:
                       
6.400%, 05/15/2037 f
    3,392,000       4,224,899          
7.500%, 07/30/2039 f
    4,000,000       5,551,400          
Petrobras Global Finance B.V.:
                       
2.603%, 03/17/2017 f
    3,000,000       2,769,300          
4.375%, 05/20/2023 f
    1,785,000       1,535,243          
Petrobras International Finance Company S.A.:
                       
3.500%, 02/06/2017 @ f
    4,463,000       4,261,763          
5.750%, 01/20/2020 f
    893,000       862,379          
Petroleos Mexicanos:
                       
5.750%, 03/01/2018
    2,499,000       2,698,920          
8.000%, 05/03/2019 f
    1,500,000       1,773,750          
5.500%, 01/21/2021 f
    5,600,000       6,062,000          
4.875%, 01/24/2022 f
    4,000,000       4,189,640          
6.625%, 06/15/2035 @
    893,000       1,031,415          
Portigon AG,
                       
4.796%, 07/15/2015 f
    2,488,000       2,535,941          
Sinopec Group Overseas Development [2014] Ltd.,
                       
4.375%, 04/10/2024 (Acquired 04/02/2014, Cost $1,496,505) * f
    1,500,000       1,573,412          
The Export-Import Bank of Korea,
                       
4.000%, 01/11/2017 f
    1,400,000       1,467,662          
The Korea Development Bank,
                       
0.857%, 01/22/2017 f
    2,000,000       2,004,252          
              58,870,672       1.6 %
Taxable Municipal Bonds
                       
Atlanta Independent School System,
                       
5.557%, 03/01/2026
    4,465,000       5,089,475          
California Qualified School Bond Joint Powers Authority,
                       
7.155%, 03/01/2027
    6,695,000       7,563,676          
California School Finance Authority:
                       
5.041%, 07/01/2020
    2,230,000       2,454,271          
5.043%, 01/01/2021 (Callable 12/31/2015)
    1,785,000       1,813,953          
County of Contra Costa CA,
                       
5.140%, 06/01/2017
    5,335,000       5,649,818          
County of Cuyahoga OH,
                       
9.125%, 10/01/2023
    895,000       875,767          
Eaton Community City School District,
                       
5.390%, 08/25/2027 (Callable 06/01/2020)
    2,305,000       2,459,781          
Elgin Local School District,
                       
5.499%, 08/31/2027 (Callable 12/01/2019)
    4,440,000       4,798,796          
Iowa Tobacco Settlement Authority,
                       
6.500%, 06/01/2023 (Callable 06/01/2015)
    5,105,000       5,104,847          
New Hampshire Housing Finance Authority:
                       
3.050%, 01/01/2021
    1,005,000       1,037,562          
3.750%, 07/01/2034 (Callable 07/01/2023)
    2,705,000       2,870,167          
New Jersey Economic Development Authority,
                       
2.421%, 06/15/2018
    7,000,000       7,030,100          
North Carolina Housing Finance Agency,
                       
2.812%, 07/01/2035 (Callable 01/01/2024)
    5,270,000       5,398,799          
San Dieguito Public Facilities Authority,
                       
6.459%, 05/01/2027
    5,675,000       6,519,667          
State Public School Building Authority,
                       
5.000%, 09/15/2027
    4,458,000       4,825,384          
Three Rivers Local School District,
                       
5.209%, 09/15/2027 (Callable 12/01/2020)
    2,365,000       2,514,752          
West Contra Costa Unified School District,
                       
6.250%, 08/01/2030
    1,785,000       2,160,439          
Westlake City School District,
                       
5.227%, 12/01/2026 (Callable 12/01/2020)
    3,570,000       3,724,438          
              71,891,692       2.0 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Gold Loan Mortgage Corporation (FGLMC):
                       
6.000%, 06/01/2020
    137,160       147,739          
5.500%, 11/01/2022
    85,757       95,646          
5.000%, 06/01/2023
    89,008       98,114          
5.500%, 07/01/2023
    101,911       113,702          
3.500%, 11/01/2025
    7,435,983       7,861,114          
2.500%, 04/01/2028
    5,255,240       5,356,227          
6.500%, 06/01/2029
    298,894       349,738          
5.500%, 01/01/2036
    540,052       604,012          
5.000%, 03/01/2036
    13,333,755       14,748,959          
6.000%, 12/01/2036
    425,796       483,919          
5.000%, 03/01/2038
    4,250,901       4,688,750          
5.500%, 05/01/2038
    1,825,509       2,043,439          
4.500%, 11/01/2039
    10,386,863       11,261,219          
4.500%, 11/01/2039
    5,996,437       6,500,617          
4.500%, 08/01/2040
    1,957,073       2,123,309          
4.500%, 09/01/2040
    8,241,518       8,942,448          
4.500%, 03/01/2041
    6,051,418       6,566,384          
3.500%, 06/01/2042
    9,562,286       9,958,350          
3.500%, 07/01/2042
    24,921,096       25,951,116          
3.000%, 08/01/2042
    29,410,175       29,770,702          
3.000%, 10/01/2042
    10,785,227       10,917,464          
3.000%, 02/01/2043
    5,978,750       6,051,506          
3.000%, 06/01/2043
    29,145,934       29,487,905          
3.000%, 08/01/2043
    9,327,748       9,435,564          
4.000%, 03/01/2044
    17,702,169       18,892,473          
3.500%, 07/01/2044
    26,061,345       27,126,823          
4.000%, 07/01/2044
    14,547,938       15,526,150          
3.500%, 10/01/2044
    23,682,205       24,650,416          
4.000%, 10/01/2044
    23,872,897       25,586,748          
Federal Home Loan Mortgage Corporation (FHLMC):
                       
Series 206, Class E, 0.000%, 07/15/2019
    27,500       27,353          
Series 141, Class D, 5.000%, 05/15/2021
    18,487       19,332          
Series 1074, Class I, 6.750%, 05/15/2021
    16,456       17,625          
Series 1081, Class K, 7.000%, 05/15/2021
    105,833       116,648          
Series 163, Class F, 6.000%, 07/15/2021
    16,938       18,293          
Series 188, Class H, 7.000%, 09/15/2021
    38,675       42,159          
Series 1286, Class A, 6.000%, 05/15/2022
    12,770       13,654          
Federal National Mortgage Association (FNMA):
                       
Series 1989-37, Class G, 8.000%, 07/25/2019
    92,304       100,275          
5.000%, 12/01/2019
    312,849       330,313          
Series 1989-94, Class G, 7.500%, 12/25/2019
    30,369       32,930          
Series 1990-58, Class J, 7.000%, 05/25/2020
    4,238       4,606          
Series 1990-76, Class G, 7.000%, 07/25/2020
    34,035       37,031          
Series 1990-105, Class J, 6.500%, 09/25/2020
    19,045       20,366          
Series 1990-108, Class G, 7.000%, 09/25/2020
    6,570       7,186          
Series 1991-1, Class G, 7.000%, 01/25/2021
    8,449       9,262          
Series 1991-86, Class Z, 6.500%, 07/25/2021
    15,253       16,458          
5.000%, 11/01/2021
    2,701,931       2,901,751          
5.500%, 01/01/2023 §
    4,400,223       4,916,940          
Series 1993-58, Class H, 5.500%, 04/25/2023
    186,919       204,506          
5.500%, 07/01/2023
    358,450       400,557          
5.000%, 11/01/2023
    856,488       945,591          
6.000%, 03/01/2026
    344,090       389,575          
6.000%, 05/01/2026
    745,204       843,712          
3.000%, 04/01/2027
    11,543,340       12,029,586          
2.500%, 12/01/2027
    18,187,506       18,567,324          
5.000%, 05/01/2028
    527,112       581,949          
Series 1998-66, Class C, 6.000%, 12/25/2028
    114,474       123,029          
4.500%, 08/01/2029
    4,000,888       4,341,780          
4.500%, 09/01/2029
    4,485,229       4,867,390          
6.000%, 03/01/2033
    105,610       120,923          
5.000%, 11/01/2033
    111,480       123,491          
4.000%, 01/01/2034
    16,199,105       17,443,542          
5.500%, 04/01/2034
    2,199,083       2,476,826          
4.000%, 06/01/2034
    21,561,020       23,182,479          
Series 2004-W6, Class 1A6, 5.500%, 07/25/2034
    1,044,041       1,071,220          
Series 2004-W6, Class 1A4, 5.500%, 07/25/2034
    169,702       170,476          
4.000%, 09/01/2034
    23,074,170       24,826,579          
5.500%, 09/01/2034
    419,981       472,582          
6.000%, 11/01/2034
    109,567       125,130          
5.500%, 02/01/2035
    1,469,854       1,651,432          
5.000%, 07/01/2035
    12,460,325       13,796,908          
5.000%, 10/01/2035
    6,626,025       7,338,609          
5.000%, 11/01/2035
    2,558,820       2,829,199          
5.500%, 11/01/2036
    661,080       740,020          
5.500%, 04/01/2037
    3,325,666       3,748,849          
6.000%, 08/01/2037
    118,886       130,290          
4.500%, 11/01/2039
    620,293       674,213          
4.000%, 08/01/2040
    4,100,061       4,383,811          
3.500%, 12/01/2040
    2,026,451       2,116,391          
3.500%, 02/01/2041
    30,108,654       31,440,201          
4.000%, 02/01/2041
    20,919,408       22,352,703          
3.500%, 03/01/2041
    35,675,753       37,253,964          
4.500%, 07/01/2041
    26,836,656       29,160,204          
4.000%, 09/01/2041
    6,411,384       6,850,661          
3.500%, 11/01/2041
    21,116,964       22,056,362          
4.000%, 12/01/2041
    21,024,574       22,465,074          
4.500%, 01/01/2042
    31,282,168       34,034,118          
3.000%, 05/01/2042
    8,727,485       8,846,624          
3.000%, 05/01/2043
    35,490,509       35,955,674          
3.000%, 06/01/2043
    14,558,335       14,748,073          
Government National Mortgage Association (GNMA):
                       
6.000%, 11/20/2033
    93,920       108,031          
5.000%, 07/20/2040
    5,569,850       6,216,266          
4.500%, 01/20/2041
    16,918,186       18,577,368          
4.000%, 06/20/2042
    19,749,637       21,196,436          
3.500%, 09/20/2042
    10,153,502       10,675,128          
4.500%, 04/20/2044
    12,423,038       13,591,617          
              800,219,208       21.7 %
Non-U.S. Government Agency Issues
                       
Alternative Loan Trust:
                       
Series 2006-43CB, Class 2A1, 6.000%, 02/25/2022
    355,084       380,591          
Series 2006-28CB, Class A17, 6.000%, 10/25/2036 §
    1,090,637       904,436          
Banc of America Alternative Loan Trust:
                       
Series 2003-4, Class 2A1, 5.000%, 06/25/2018
    87,273       89,441          
Series 2003-11, Class 4A1, 4.750%, 01/25/2019
    159,865       161,384          
Series 2004-11, Class 4A1, 5.500%, 12/25/2019
    130,785       134,573          
Series 2005-2, Class 4A1, 5.500%, 03/25/2020
    187,937       193,878          
Series 2005-4, Class 3A1, 5.500%, 05/25/2020
    997,187       1,010,357          
Series 2007-1, Class 1A1, 5.875%, 04/25/2022
    954,532       957,532          
Series 2005-2, Class 1CB2, 5.500%, 03/25/2035 §
    153,463       142,112          
Series 2006-5, Class CB7, 6.000%, 06/25/2046 §
    829,159       677,918          
Bank of America Alternative Loan Trust:
                       
Series 2003-5, Class 2A1, 5.000%, 07/25/2018
    1,080,170       1,102,744          
Series 2004-7, Class 4A1, 5.000%, 08/25/2019
    2,467,450       2,540,595          
Series 2005-10, Class 5A1, 5.250%, 11/25/2020
    505,899       516,550          
Series 2003-11, Class 2A1, 6.000%, 01/25/2034
    575,864       599,658          
Series 2005-9, Class 1CB3, 5.500%, 10/25/2035 §
    362,644       331,864          
Series 2005-11, Class 1CB4, 5.500%, 12/25/2035 §
    218,208       198,211          
Bear Stearns Asset Backed Securities I Trust,
                       
Series 2004-AC2, Class 2A, 5.000%, 05/25/2034
    1,045,686       1,052,460          
Chase Mortgage Finance Trust,
                       
Series 2006-A1, Class 2A3, 2.515%, 09/25/2036 §
    2,941,725       2,602,029          
Citigroup Mortgage Loan Trust, Inc.,
                       
Series 2005-9, Class 2A2, 5.500%, 11/25/2035 §
    307,628       305,246          
Countrywide Alternative Loan Trust:
                       
Series 2005-50CB, Class 4A1, 5.000%, 11/25/2020 §
    337,939       337,656          
Series 2006-7CB, Class 3A1, 5.250%, 05/25/2021 §
    1,478,487       1,433,842          
Series 2006-J5, Class 3A1, 5.149%, 07/25/2021
    273,195       271,445          
Series 2002-11, Class A4, 6.250%, 10/25/2032
    55,956       57,149          
Series 2003-20CB, Class 1A1, 5.500%, 10/25/2033
    5,751,447       5,866,090          
Deutsche Alt-A Securities Mortgage Loan Trust,
                       
Series 2006-AR5, Class 21A, 6.000%, 10/25/2021 §
    497,917       432,806          
First Horizon Alternative Mortgage Securities Trust:
                       
Series 2005-FA7, Class 2A1, 5.000%, 09/25/2020
    206,587       210,829          
Series 2006-FA6, Class 3A1, 5.750%, 11/25/2021
    314,621       312,214          
Series 2006-FA8, Class 2A1, 5.750%, 02/25/2037 §
    1,205,329       1,045,600          
J.P. Morgan Alternative Loan Trust,
                       
Series 2006-A1, Class 2A1, 2.584%, 03/25/2036 §
    543,308       443,060          
J.P. Morgan Mortgage Trust:
                       
Series 2007-A1, Class 5A2, 2.576%, 07/25/2035
    6,519,208       6,622,538          
Series 2005-A4, Class 1A1, 5.238%, 07/25/2035
    3,532,170       3,535,412          
Series 2006-A7, Class 2A2, 2.695%, 01/25/2037 §
    325,925       297,552          
Series 2006-A7, Class 2A4R, 2.695%, 01/25/2037 §
    1,392,499       1,260,403          
Series 2007-A2, Class 2A3, 2.539%, 04/25/2037
    3,699,482       3,313,319          
MASTR Alternative Loan Trust:
                       
Series 2004-2, Class 6A1, 5.250%, 12/25/2018
    3,703,423       3,849,234          
Series 2004-1, Class 1A1, 5.000%, 01/25/2019
    482,512       490,212          
Series 2004-2, Class 4A1, 5.000%, 02/25/2019
    28,688       29,448          
Series 2004-4, Class 4A1, 5.000%, 04/25/2019
    382,043       390,144          
Series 2003-5, Class 6A1, 6.000%, 08/25/2033
    442,165       471,171          
Merrill Lynch Mortgage Investors Trust:
                       
Series 2004-F, 1.827%, 12/25/2029
    15,596,039       15,709,687          
Series 2005-A10, Class A, 0.380%, 02/25/2036
    12,367,665       11,329,795          
RALI Series Trust,
                       
Series 2004-QS6, Class A1, 5.000%, 05/25/2019
    192,038       194,809          
RFMSI Series Trust,
                       
Series 2003-S11, Class A2, 4.000%, 06/25/2018
    13,815       13,682          
Salomon Brothers Mortgage Securities VII, Inc.,
                       
Series 2003-UP2, Class A2, 7.000%, 06/25/2033
    357,407       386,494          
Structured Asset Securities Corp. Mortgage Loan Trust,
                       
Series 2005-7XS, Class 1A4B, 5.440%, 04/25/2035
    327,055       344,517          
WaMu Mortgage Pass-Through Certificates:
                       
Series 2004-CB1, Class 5A, 5.000%, 06/25/2019
    461,011       472,961          
Series 2004-CB2, Class 7A, 5.500%, 08/25/2019
    903,714       930,149          
Series 2004-CB3, Class 3A, 5.500%, 10/25/2019
    70,990       73,666          
Series 2004-CB3, Class 4A, 6.000%, 10/25/2019
    283,110       297,181          
Series 2004-CB4, Class 21A, 5.500%, 12/25/2019
    215,932       223,680          
Series 2004-CB2, Class 3A, 6.000%, 08/25/2034 §
    12,084,840       12,921,027          
Series 2004-CB3, Class 2A, 6.500%, 10/25/2034
    6,995,813       7,640,331          
WaMu Mortgage Pass-Through Certificates Trust,
                       
Series 2004-AR14, Class A1, 2.395%, 01/25/2035
    4,917,345       4,937,309          
              100,046,991       2.7 %
Asset Backed Securities
                       
Accredited Mortgage Loan Trust,
                       
Series 2006-2, Class A3, 0.320%, 09/25/2036
    13,514,993       13,348,056          
AMRESCO Residential Securities Corp Mortgage Loan Trust,
                       
Series 1997-3, Class A9, 6.960%, 03/25/2027 §
    0       0          
Bayview Financial Mortgage Pass-Through Trust:
                       
Series 2006-A, Class 1A2, 5.483%, 02/28/2041
    319,298       326,882          
Series 2007-B, Class 1A2, 6.831%, 08/28/2047
    2,231,398       1,840,163          
Bear Stearns ALT-A Trust,
                       
Series 2004-4, Class A1, 0.770%, 06/25/2034
    4,175,892       3,999,097          
Citibank Credit Card Issuance Trust,
                       
Series 2007-A3, Class A3, 6.150%, 06/15/2039
    4,166,000       5,583,444          
Citigroup Mortgage Loan Trust, Inc.,
                       
Series 2005-HE4, Class A2D, 0.530%, 10/25/2035
    12,711,444       12,564,182          
Conseco Financial Corp.:
                       
Series 1993-3, Class A7, 6.400%, 10/15/2018
    63,491       65,019          
Series 1993-4, Class A5, 7.050%, 01/15/2019
    32,083       32,955          
Series 1997-1, Class A5, 6.860%, 03/15/2028
    902       904          
Series 1998-2, Class A5, 6.240%, 12/01/2028
    662,741       683,887          
Series 1997-6, Class A8, 7.070%, 01/15/2029
    8,373       8,522          
Series 1998-3, Class A5, 6.220%, 03/01/2030
    673,533       712,728          
Series 1998-4, Class A5, 6.180%, 04/01/2030
    397,566       407,722          
Contimortgage Home Equity Loan Trust,
                       
Series 1997-2, Class A9, 7.090%, 04/15/2028
    18       18          
Countrywide Asset-Backed Certificates:
                       
Series 2004-13, Class AF4, 4.583%, 01/25/2033
    953,507       959,742          
Series 2004-S1, Class A3, 5.115%, 02/25/2035
    1,112,677       1,134,464          
Series 2004-15, Class AF6, 4.613%, 04/25/2035
    1,646,223       1,655,913          
Series 2005-1, Class AF6, 5.030%, 07/25/2035
    2,649,648       2,697,352          
Series 2005-11, Class AF3, 4.778%, 02/25/2036
    6,629,802       6,733,578          
Series 2005-10, Class AF6, 4.835%, 02/25/2036
    1,897,827       1,878,410          
Series 2005-13, Class AF3, 5.000%, 04/25/2036
    3,000,935       2,530,488          
Series 2005-17, Class 1AF2, 4.981%, 05/25/2036 §
    283,901       353,749          
Series 2005-17, Class 1AF5, 4.981%, 05/25/2036 §
    828,260       956,032          
Series 2006-10, Class 1AF3, 4.933%, 09/25/2046 §
    1,290,940       988,666          
Credit-Based Asset Servicing and Securitization LLC,
                       
Series 2005-CB8, Class AF2, 4.184%, 12/25/2035
    284,914       282,386          
CWHEQ Home Equity Loan Trust,
                       
Series 2007-S1, Class A6, 5.693%, 11/25/2036
    664,263       639,449          
Deutsche Mortgage Securities Inc Mortgage Loan Trust,
                       
Series 2004-4, Class 1A6, 6.000%, 04/25/2034
    44,934       46,020          
First Franklin Mortgage Loan Trust,
                       
Series 2006-FFH1, Class A4, 0.470%, 01/25/2036
    5,000,000       4,842,590          
GE Capital Mortgage Services Inc. Trust,
                       
Series 1999-HE1, Class A7, 6.265%, 04/25/2029
    2,554       2,575          
GE Mortgage Services LLC,
                       
Series 1997-HE4, Class A7, 6.735%, 12/25/2028
    92       93          
GSAA Home Equity Trust,
                       
Series 2004-6, Class A1, 0.970%, 06/25/2034
    3,775,908       3,682,469          
GSAMP Trust,
                       
Series 2005-WMC2, Class A2C, 0.520%, 11/25/2035
    1,134,457       1,101,153          
Imc Home Equity Loan Trust,
                       
Series 1997-5, Class A10, 6.880%, 11/20/2028
    5,525       5,514          
Impac CMB Trust,
                       
Series 2004-4, Class 2A2, 4.636%, 09/25/2034
    148,147       150,282          
J.P. Morgan Mortgage Acquisition Trust:
                       
Series 2006-CH1, Class A1, 0.285%, 07/25/2036
    9,409,027       9,049,950          
Series 2007-CH1, Class AV4, 0.285%, 11/25/2036
    2,010,688       2,002,243          
MortgageIT Trust,
                       
Series 2005-2, Class 1A1, 0.430%, 05/25/2035
    4,684,941       4,502,734          
Nationstar Home Equity Loan Trust,
                       
Series 2006-B, Class AV3, 0.340%, 09/25/2036
    6,291,819       6,278,839          
Oakwood Mortgage Investors, Inc.,
                       
Series 1999-B, Class A3, 6.450%, 11/15/2017
    39,760       40,756          
Pemex Finance Ltd.,
                       
10.610%, 08/15/2017 f
    1,841,125       2,046,730          
RAAC Series Trust,
                       
Series 2004-SP1, Class AI4, 5.285%, 08/25/2027
    33,709       34,253          
RAMP Series Trust:
                       
Series 2003-RS7, Class AI6, 5.340%, 08/25/2033
    373,227       374,344          
Series 2005-RS1, Class AI6, 4.713%, 01/25/2035
    152,939       154,763          
RASC Series Trust:
                       
Series 2003-KS2, Class AI6, 3.990%, 04/25/2033
    537,097       536,552          
Series 2003-KS5, Class AI6, 3.620%, 07/25/2033
    31,201       30,296          
Series 2004-KS2, Class AI6, 4.300%, 03/25/2034
    61,950       62,626          
Renaissance Home Equity Loan Trust,
                       
Series 2007-1, Class AF3, 5.612%, 04/25/2037
    2,603,261       1,394,288          
Republic Services, Inc.,
                       
Series 2006-KS4, Class A4, 0.410%, 06/25/2036
    26,038,000       25,247,929          
Securitized Asset Backed Receivables LLC Trust,
                       
Series 2005-OP2, Class A1, 0.495%, 10/25/2035 (Acquired 03/13/2014, Cost $2,904,238) *
    2,940,070       2,906,256          
Specialty Underwriting & Residential Finance Trust:
                       
Series 2004-BC4, Class A1A, 0.840%, 10/25/2035
    3,784,791       3,682,132          
Series 2006-BC1, Class A2D, 0.470%, 12/25/2036
    4,436,698       4,297,484          
Structured Asset Securities Corp.,
                       
Series 2005-WF1, Class A3, 0.830%, 02/25/2035
    11,677,079       11,618,612          
              144,475,291       3.9 %
Commercial Mortgage Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    8,823,130       8,950,183          
CD Commercial Mortgage Trust,
                       
Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    11,464,977       11,650,229          
Citigroup Commercial Mortgage Trust,
                       
Series 2014-GC19, Class A3, 3.753%, 03/10/2047
    5,000,000       5,269,850          
COMM Mortgage Trust:
                       
Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    24,213,710       24,471,876          
Series 2012-CR1, Class A3, 3.391%, 05/15/2045
    7,813,462       8,126,829          
Series 2013-CR9, Class A3, 4.022%, 07/10/2045
    11,900,000       12,835,542          
Series 2012-CR2, Class A4, 3.147%, 08/15/2045
    16,445,536       16,847,268          
Series 2013-CR10, Class A3, 3.923%, 08/10/2046
    10,550,000       11,295,315          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-C5, Class A4, 5.100%, 08/15/2038
    11,968,999       12,127,875          
FHLMC Multifamily Structured Pass Through Certificates,
                       
Series K-003, Class A4, 5.053%, 01/25/2019
    12,525,000       13,992,780          
GE Capital Commercial Mortgage Corp.,
                       
Series 2005-C4, Class A4, 5.312%, 11/10/2045
    9,751,208       9,902,615          
GS Mortgage Securities Corp II,
                       
Series 2012-GCJ9, Class A3, 2.773%, 11/10/2045
    22,112,320       21,982,388          
J.P. Morgan Chase Commercial Mortgage Securities Corp.,
                       
Series 2012-LC9, Class A5, 2.840%, 12/15/2047
    5,530,059       5,518,855          
J.P. Morgan Chase Commercial Mortgage Securities Trust:
                       
Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    10,399,264       10,507,156          
Series 2013-LC11, Class A5, 2.960%, 04/15/2046
    11,652,913       11,700,224          
JPMBB Commercial Mortgage Securities Trust:
                       
Series 2013-C17, Class A3, 3.928%, 01/15/2047
    8,300,000       8,889,342          
Series 2014-C25, Class ASB, 3.407%, 11/15/2047
    5,388,000       5,599,075          
Morgan Stanley Bank of America Merrill Lynch Trust:
                       
Series 2012-C5, Class A4, 3.176%, 08/15/2045
    20,835,000       21,331,727          
Series 2012-C6, Class A4, 2.858%, 11/15/2045
    20,460,945       20,490,859          
Series 2013-C11, Class A3, 3.960%, 08/15/2046
    12,100,000       12,952,445          
Series 2013-C12, Class A3, 3.973%, 10/15/2046
    9,000,000       9,672,471          
Wachovia Bank Commercial Mortgage Trust,
                       
Series 2005-C22, Class A4, 5.269%, 12/15/2044
    10,560,215       10,785,665          
Wells Fargo Commercial Mortgage Trust,
                       
Series 2013-LC12, Class A3, 3.986%, 07/15/2046
    9,300,000       10,000,643          
WFRBS Commercial Mortgage Trust:
                       
Series 2012-C6, Class A4, 3.440%, 04/15/2045
    20,464,220       21,380,158          
Series 2014-C21, Class A5, 3.678%, 08/15/2047
    11,254,000       11,793,854          
Series 2014-C23, Class ASB, 3.636%, 10/15/2057
    6,000,000       6,312,954          
              324,388,178       8.8 %
Total Long-Term Investments (Cost $3,527,903,913)
            3,605,760,555       97.7 %
                         
   
Shares
                 
SHORT-TERM INVESTMENTS
                       
Money Market Mutual Funds
                       
Dreyfus Cash Advantage Fund, 0.06% «
    44,145,740       44,145,740          
Short-Term Investments Trust - Liquid Assets Portfolio, 0.07% «
    70,000,000       70,000,000          
Total Short-Term Investments (Cost $114,145,740)
            114,145,740       3.1 %
                         
INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM
                       
SECURITIES LENDING
                       
Investment Companies
                       
Mount Vernon Securities Lending Trust Prime Portfolio, 0.29% «
    98,296,098       98,296,098          
Total Investment Companies (Cost $98,296,098)
            98,296,098       2.7 %
                         
Total Investments Purchased With Cash Proceeds From
                       
Securities Lending (Cost $98,296,098)
            98,296,098       2.7 %
Total Investments (Cost $3,740,345,751)
            3,818,202,393       103.5 %
Liabilities in Excess of Other Assets
            (127,962,475 )     (3.5 )%
TOTAL NET ASSETS
          $ 3,690,239,918       100.0 %
 
Notes to Schedule of Investments
 
*
Restricted security as defined in Rule 144(a) under the Securities Act of 1933 and determined to be liquid. Purchased in a private placement transaction; resale to the public may require registration or may extend only to qualified institutional buyers. At December 31, 2014, the value of these securities total $399,176,879, which represents 10.82% of total net assets.
 
@
This security or portion of this security is out on loan at December 31, 2014.
 
f
Foreign Security
 
^
Non-Income Producing
 
«
7-Day Yield
 
§
Security in Default
 

 
 

 

Baird Core Plus Bond Fund
                 
Schedule of Investments
                 
December 31, 2014
                   
                     
     
Principal
         
% of
 
     
Amount
   
Value
   
Net Assets
 
LONG-TERM INVESTMENTS
                 
U.S. Treasury Securities
                 
U.S. Treasury Bonds:
                 
2.625%, 08/15/2020
  $ 441,300,000     $ 460,848,266        
6.250%, 08/15/2023
    40,000,000       53,259,360        
5.250%, 11/15/2028
    118,325,000       158,638,682        
3.500%, 02/15/2039 @
    282,420,000       324,363,889        
                997,110,197       14.8 %
Corporate Bonds
                       
Finance
                       
Abbey National Treasury Services plc,
                       
4.000%, 03/13/2024 f
    7,700,000       8,015,993          
ABN AMRO Bank N.V.:
                       
4.250%, 02/02/2017 (Acquired 01/30/2012, Cost $4,995,100) * f
    5,000,000       5,268,300          
2.500%, 10/30/2018 (Acquired 10/23/2013, Cost $6,828,106) * f
    6,750,000       6,817,608          
AIG SunAmerica Global Financing X,
                       
6.900%, 03/15/2032 (Acquired 11/10/2011, Cost $2,127,116) *
    2,000,000       2,753,854          
Ally Financial Inc.:
                       
8.300%, 02/12/2015
    1,065,000       1,070,325          
4.625%, 06/26/2015
    5,000,000       5,037,500          
5.500%, 02/15/2017
    7,275,000       7,638,750          
8.000%, 12/31/2018
    1,194,000       1,355,190          
3.750%, 11/18/2019
    17,000,000       16,745,000          
5.125%, 09/30/2024
    3,000,000       3,045,000          
American Express Credit Corporation,
                       
0.722%, 08/15/2019
    7,450,000       7,396,017          
American International Group, Inc.:
                       
6.400%, 12/15/2020 @
    3,500,000       4,173,645          
4.875%, 06/01/2022
    10,625,000       11,935,530          
AmSouth Bancorporation,
                       
6.750%, 11/01/2025
    710,000       846,682          
Associates Corporation of North America,
                       
6.950%, 11/01/2018
    12,038,000       14,060,264          
Australia and New Zealand Banking Group Limited,
                       
4.500%, 03/19/2024 (Acquired 03/12/2014, Cost $8,987,760) * @ f
    9,000,000       9,187,389          
Banco Santander (Brasil) S.A.,
                       
4.625%, 02/13/2017 (Acquired 02/06/2012, Cost $994,140) * f
    1,000,000       1,036,300          
Bank of America Corporation:
                       
10.200%, 07/15/2015
    2,675,000       2,806,340          
6.875%, 04/25/2018
    1,250,000       1,435,725          
7.625%, 06/01/2019
    6,000,000       7,251,672          
3.300%, 01/11/2023
    9,450,000       9,450,728          
7.750%, 05/14/2038
    725,000       1,023,920          
BanPonce Trust I,
                       
Series A, 8.327%, 02/01/2027
    2,185,000       1,907,827          
Barclays Bank PLC:
                       
6.750%, 05/22/2019 f
    9,850,000       11,590,534          
3.750%, 05/15/2024 @ f
    1,450,000       1,494,589          
Barclays PLC,
                       
2.750%, 11/08/2019 f
    7,000,000       6,957,230          
BB&T Corporation,
                       
2.450%, 01/15/2020
    15,000,000       14,938,935          
Berkshire Hathaway Finance Corporation,
                       
4.400%, 05/15/2042
    3,500,000       3,764,555          
BNP Paribas:
                       
0.692%, 05/07/2017 f
    6,500,000       6,490,731          
2.375%, 09/14/2017 f
    3,000,000       3,051,312          
5.000%, 01/15/2021 f
    5,000,000       5,655,115          
3.250%, 03/03/2023 f
    4,000,000       4,077,940          
BNZ International Funding Limited,
                       
2.350%, 03/04/2019 (Acquired 09/03/2014, Cost $13,754,587) * f
    13,775,000       13,776,639          
BOKF, National Association,
                       
0.922%, 05/15/2017
    3,000,000       2,992,080          
BPCE:
                       
2.500%, 12/10/2018 f
    5,500,000       5,574,982          
5.700%, 10/22/2023 (Acquired 10/15/2013, Cost $30,117,248) * f
    28,500,000       30,602,359          
Capital One Financial Corporation:
                       
6.150%, 09/01/2016
    4,425,000       4,755,269          
2.450%, 04/24/2019
    3,975,000       3,965,893          
CIT Group Inc.:
                       
4.250%, 08/15/2017 @
    1,000,000       1,020,000          
5.500%, 02/15/2019 (Acquired 02/02/2012, Cost $500,000) * @
    500,000       527,500          
5.000%, 08/01/2023 @
    5,000,000       5,137,500          
Citigroup Inc.:
                       
4.450%, 01/10/2017
    1,800,000       1,902,749          
1.850%, 11/24/2017
    11,500,000       11,486,787          
8.500%, 05/22/2019
    1,389,000       1,730,787          
Citizens Bank, National Association,
                       
2.450%, 12/04/2019
    36,000,000       35,775,000          
CNA Financial Corporation:
                       
6.500%, 08/15/2016
    1,000,000       1,081,635          
7.350%, 11/15/2019
    1,175,000       1,402,416          
5.875%, 08/15/2020 @
    6,839,000       7,806,965          
5.750%, 08/15/2021
    4,477,000       5,102,262          
7.250%, 11/15/2023
    5,300,000       6,608,660          
Comerica Bank:
                       
5.750%, 11/21/2016
    3,200,000       3,465,229          
5.200%, 08/22/2017
    2,855,000       3,103,102          
Commonwealth Bank of Australia,
                       
5.000%, 10/15/2019 (Acquired 03/02/2012 through 08/16/2012, Cost $6,254,222) * f
    5,900,000       6,587,191          
Compass Bank,
                       
2.750%, 09/29/2019
    30,470,000       30,501,140          
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA,
                       
1.700%, 03/19/2018 @ f
    5,250,000       5,240,823          
Countrywide Financial Corporation,
                       
6.250%, 05/15/2016
    2,100,000       2,228,818          
Credit Mutuel-CIC Home Loan SFH,
                       
1.500%, 11/16/2017 (Acquired 11/08/2012, Cost $4,981,300) * @ f
    5,000,000       5,016,745          
Credit Suisse:
                       
    0.553%, 08/24/2015 f
    5,000,000       5,000,780          
5.300%, 08/13/2019 @ f
    6,966,000       7,813,832          
3.000%, 10/29/2021 f
    12,600,000       12,541,183          
Deutsche Bank Aktiengesellschaft,
                       
3.250%, 01/11/2016 f
    2,000,000       2,043,390          
Discover Bank,
                       
8.700%, 11/18/2019
    3,237,000       4,003,004          
Discover Financial Services,
                       
3.950%, 11/06/2024
    25,000,000       25,131,075          
Dresdner Bank AG,
                       
7.250%, 09/15/2015 f
    10,425,000       10,780,201          
Fifth Third Bancorp,
                       
0.667%, 12/20/2016
    9,585,000       9,508,435          
First Horizon National Corporation,
                       
5.375%, 12/15/2015
    12,420,000       12,858,438          
First Tennessee Bank National Association:
                       
5.050%, 01/15/2015
    7,022,000       7,031,002          
2.950%, 12/01/2019
    9,000,000       8,976,879          
FMR LLC:
                       
4.950%, 02/01/2033 (Acquired 01/29/2013, Cost $4,405,344) *
    4,235,000       4,682,262          
6.500%, 12/14/2040 (Acquired 04/04/2013 through 10/28/2013, Cost $2,278,543) *
    1,820,000       2,426,406          
General Electric Capital Corporation:
                       
5.500%, 01/08/2020
    1,875,000       2,146,080          
5.550%, 05/04/2020
    4,185,000       4,809,724          
4.375%, 09/16/2020
    2,925,000       3,203,566          
5.300%, 02/11/2021
    3,000,000       3,425,961          
4.650%, 10/17/2021
    8,450,000       9,524,240          
Genworth Holdings, Inc.,
                       
7.625%, 09/24/2021
    1,000,000       977,792          
Goldman Sachs Capital I,
                       
6.345%, 02/15/2034 @
    125,000       148,701          
Highmark Inc,
                       
4.750%, 05/15/2021 (Acquired 07/30/2014, Cost $7,857,931) *
    7,800,000       8,055,980          
HSBC Bank USA, National Association,
                       
6.000%, 08/09/2017
    2,720,000       3,006,965          
HSBC Finance Corporation:
                       
5.500%, 01/19/2016
    2,420,000       2,530,125          
6.676%, 01/15/2021
    21,623,000       25,654,738          
Humana Inc.,
                       
7.200%, 06/15/2018
    800,000       934,550          
ING Bank N.V.:
                       
4.000%, 03/15/2016 (Acquired 03/08/2011 through 09/20/2011, Cost $1,599,838) * f
    1,600,000       1,654,933          
3.750%, 03/07/2017 (Acquired 02/29/2012 through 04/24/2013, Cost $4,984,106) * f
    5,000,000       5,232,510          
5.000%, 06/09/2021 (Acquired 10/12/2011, Cost $2,468,800) * f
    2,500,000       2,828,365          
5.800%, 09/25/2023 (Acquired 01/14/2014, Cost $2,945,147) * f
    2,800,000       3,105,981          
Invesco Finance PLC,
                       
3.125%, 11/30/2022 f
    5,500,000       5,450,874          
iStar Financial Inc.,
                       
5.850%, 03/15/2017
    500,000       512,500          
J.P. Morgan Chase & Co.:
                       
0.784%, 04/25/2018
    2,300,000       2,294,726          
2.200%, 10/22/2019
    3,500,000       3,469,820          
4.250%, 10/15/2020
    8,100,000       8,708,310          
4.350%, 08/15/2021
    2,400,000       2,608,022          
4.500%, 01/24/2022
    4,400,000       4,803,709          
3.200%, 01/25/2023 @
    5,350,000       5,356,035          
Jefferies Group LLC,
                       
6.450%, 06/08/2027
    1,000,000       1,037,541          
John Hancock Life Insurance Company,
                       
7.375%, 02/15/2024 (Acquired 08/26/2010 through 04/11/2013, Cost $11,929,136) *
    9,765,000       12,189,708          
Kemper Corporation:
                       
6.000%, 11/30/2015
    2,500,000       2,606,110          
6.000%, 05/15/2017
    1,000,000       1,080,331          
KeyBank National Association:
                       
7.413%, 05/06/2015
    5,100,000       5,214,913          
5.450%, 03/03/2016
    1,279,000       1,344,005          
4.625%, 06/15/2018
    2,670,000       2,792,564          
Kookmin Bank,
                       
1.625%, 07/14/2017 (Acquired 07/07/2014, Cost $4,985,900) * f
    5,000,000       4,972,050          
LeasePlan Corporation N.V.:
                       
3.000%, 10/23/2017 (Acquired 10/15/2012 through 02/07/2013, Cost $10,040,556) * f
    10,000,000       10,242,430          
2.500%, 05/16/2018 (Acquired 05/07/2013 through 09/24/2014, Cost $20,076,061) * f
    19,960,000       19,968,563          
Liberty Mutual Group Inc.:
                       
6.500%, 03/15/2035 (Acquired 09/29/2008 through 04/16/2013, Cost $700,157) *
    700,000       855,236          
10.750%, 06/15/2058 (Acquired 05/21/2008 through 05/06/2009, Cost $751,178) *
    900,000       1,389,256          
Liberty Mutual Insurance Company,
                       
7.697%, 10/15/2097 (Acquired 03/26/2003, Cost $240,081) *
    375,000       473,707          
Lincoln National Corporation:
                       
8.750%, 07/01/2019
    7,801,000       9,747,584          
6.050%, 04/20/2067
    930,000       930,000          
Lloyds Bank plc:
                       
4.200%, 03/28/2017 f
    2,000,000       2,115,158          
5.800%, 01/13/2020 (Acquired 01/05/2010 through 01/19/2012, Cost $6,398,137) * f
    6,350,000       7,337,711          
M&I Marshall & Ilsley Bank,
                       
4.850%, 06/16/2015
    2,189,000       2,228,544          
M&T Capital Trust I,
                       
8.234%, 02/01/2027
    500,000       504,668          
M&T Capital Trust II,
                       
8.277%, 06/01/2027
    2,300,000       2,341,248          
Macquarie Bank Limited:
                       
2.000%, 08/15/2016 (Acquired 09/27/2013, Cost $3,511,699) * f
    3,500,000       3,542,626          
0.864%, 10/27/2017 (Acquired 10/22/2014, Cost $8,000,000) * f
    8,000,000       8,008,752          
1.600%, 10/27/2017 (Acquired 10/22/2014, Cost $7,595,364) * f
    7,600,000       7,550,053          
Macquarie Group Limited:
                       
4.875%, 08/10/2017 (Acquired 10/30/2014, Cost $1,075,379) * f
    1,000,000       1,069,288          
7.625%, 08/13/2019 (Acquired 12/15/2014, Cost $2,972,715) * f
    2,467,000       2,957,824          
Manufacturers And Traders Trust Company:
                       
6.625%, 12/04/2017
    1,120,000       1,267,086          
5.585%, 12/28/2020
    4,614,000       4,787,713          
Manulife Financial Corporation,
                       
4.900%, 09/17/2020 f
    2,784,000       3,056,659          
Marsh & McLennan Companies, Inc.,
                       
4.800%, 07/15/2021
    1,000,000       1,111,420          
Massachusetts Mutual Life Insurance Company:
                       
7.625%, 11/15/2023 (Acquired 10/10/2012, Cost $4,156,492) *
    3,184,000       4,085,046          
8.875%, 06/01/2039 (Acquired 10/03/2012 through 09/26/2014, Cost $30,206,377) *
    19,440,000       31,366,382          
MBIA Insurance Corporation,
                       
11.491%, 01/15/2033 (Acquired 01/11/2008, Cost $700,000) * §
    700,000       420,000          
METLIFE CAPITAL TRUST IV,
                       
7.875%, 12/15/2037 (Acquired 03/26/2012 through 04/05/2013, Cost $1,046,853) *
    900,000       1,149,750          
MetLife, Inc.,
                       
7.717%, 02/15/2019 @
    1,157,000       1,402,021          
Metropolitan Life Global Funding I,
                       
3.875%, 04/11/2022 (Acquired 12/18/2012, Cost $1,605,052) *
    1,500,000       1,585,661          
Mizuho Bank, Ltd.:
                       
1.850%, 03/21/2018 (Acquired 03/14/2013, Cost $1,847,447) * f
    1,850,000       1,839,940          
2.650%, 09/25/2019 (Acquired 09/18/2014, Cost $4,991,400) * f
    5,000,000       5,022,865          
Morgan Stanley:
                       
5.450%, 01/09/2017
    2,000,000       2,147,428          
6.625%, 04/01/2018
    1,275,000       1,452,270          
7.300%, 05/13/2019
    4,675,000       5,545,233          
2.375%, 07/23/2019 @
    2,000,000       1,992,624          
5.625%, 09/23/2019
    10,100,000       11,400,819          
3.750%, 02/25/2023
    1,000,000       1,025,821          
3.700%, 10/23/2024
    5,000,000       5,068,100          
MUFG Americas Holdings Corporation,
                       
3.500%, 06/18/2022
    1,150,000       1,184,331          
National Australia Bank Ltd/New York,
                       
2.750%, 03/09/2017 f
    6,000,000       6,181,884          
National City Bank,
                       
5.800%, 06/07/2017
    6,170,000       6,774,629          
Nationwide Mutual Insurance Company,
                       
7.875%, 04/01/2033 (Acquired 10/13/2009, Cost $90,823) *
    100,000       138,655          
Navient, LLC,
                       
5.625%, 08/01/2033
    50,000       37,750          
New England Mutual Life Insurance Company,
                       
7.875%, 02/15/2024 (Acquired 11/07/2012, Cost $4,203,933) *
    3,200,000       4,103,216          
Nippon Life Insurance Company,
                       
5.000%, 10/18/2042 (Acquired 10/11/2012, Cost $2,000,000) * f
    2,000,000       2,084,202          
Nomura Holdings, Inc.:
                       
2.000%, 09/13/2016 f
    3,000,000       3,024,201          
2.750%, 03/19/2019 f
    11,268,000       11,391,418          
6.700%, 03/04/2020 f
    2,525,000       2,985,247          
Nordea Bank AB,
                       
3.125%, 03/20/2017 (Acquired 03/14/2012 through 05/09/2012, Cost $8,022,880) * f
    8,000,000       8,287,800          
Principal Financial Group, Inc.:
                       
3.300%, 09/15/2022
    1,000,000       999,709          
3.125%, 05/15/2023
    3,550,000       3,494,936          
Prudential Financial, Inc.,
                       
6.000%, 12/01/2017
    2,000,000       2,238,856          
Rabobank Nederland:
                       
3.375%, 01/19/2017 f
    2,000,000       2,086,372          
3.875%, 02/08/2022 f
    4,150,000       4,414,670          
Raymond James Financial, Inc.,
                       
8.600%, 08/15/2019
    6,427,000       7,979,564          
Regions Bank,
                       
7.500%, 05/15/2018
    15,864,000       18,416,438          
Royal Bank of Canada,
                       
0.488%, 10/13/2017 f
    9,000,000       8,992,512          
Santander Bank, N.A.,
                       
8.750%, 05/30/2018
    7,034,000       8,377,508          
Santander Financial Issuances Limited,
                       
7.250%, 11/01/2015 f
    300,000       314,096          
Santander UK PLC,
                       
5.000%, 11/07/2023 (Acquired 10/31/2013, Cost $996,810) * f
    1,000,000       1,056,196          
Simon Property Group LP,
                       
1.500%, 02/01/2018 (Acquired 12/10/2012, Cost $11,962,200) *
    12,000,000       11,923,920          
Societe Generale:
                       
5.200%, 04/15/2021 (Acquired 09/20/2011 through 02/13/2013, Cost $9,990,291) * @ f
    10,100,000       11,433,018          
5.000%, 01/17/2024 (Acquired 01/14/2014, Cost $2,972,790) * @ f
    3,000,000       3,016,443          
SpareBank 1 Boligkreditt AS,
                       
1.750%, 11/15/2019 (Acquired 11/07/2012, Cost $4,961,150) * f
    5,000,000       4,894,235          
Springleaf Finance Corp,
                       
6.900%, 12/15/2017 @
    1,000,000       1,065,000          
Standard Chartered PLC,
                       
5.700%, 03/26/2044 (Acquired 03/21/2014 through 05/01/2014, Cost $14,104,484) * f
    14,000,000       14,562,702          
Stifel Financial Corp.,
                       
4.250%, 07/18/2024
    10,000,000       10,059,260          
Sumitomo Mitsui Banking Corporation:
                       
2.250%, 07/11/2019 f
    12,050,000       11,935,465          
3.000%, 01/18/2023 f
    2,500,000       2,483,417          
SunTrust Bank:
                       
0.523%, 08/24/2015
    10,000,000       9,979,980          
7.250%, 03/15/2018
    5,682,000       6,574,381          
SunTrust Banks, Inc.,
                       
3.500%, 01/20/2017
    4,750,000       4,951,661          
SUSA Partnership, L.P.,
                       
8.200%, 06/01/2017
    1,000,000       1,140,560          
Svenska Handelsbanken AB,
                       
2.875%, 04/04/2017 f
    2,425,000       2,506,410          
Swedbank AB,
                       
2.125%, 09/29/2017 (Acquired 09/24/2012, Cost $2,995,470) * f
    3,000,000       3,034,578          
Symetra Financial Corporation,
                       
6.125%, 04/01/2016 (Acquired 10/12/2010 through 10/16/2012, Cost $7,377,493) *
    7,127,000       7,477,157          
Synchrony Financial:
                       
3.750%, 08/15/2021
    16,650,000       17,007,792          
4.250%, 08/15/2024 @
    18,000,000       18,470,322          
TD Ameritrade Holding Corporation,
                       
5.600%, 12/01/2019
    1,000,000       1,147,925          
The Bank of Tokyo-Mitsubishi UFJ, Ltd.:
                       
0.684%, 02/26/2016 (Acquired 10/09/2014, Cost $3,347,197) * f
    3,340,000       3,343,153          
    0.611%, 07/15/2016 * f
    10,000,000       9,996,870          
2.350%, 02/23/2017 (Acquired 02/14/2012, Cost $5,996,640) * f
    6,000,000       6,101,316          
0.648%, 03/10/2017 (Acquired 10/08/2014 through 11/12/2014, Cost $7,259,985) * f
    7,250,000       7,213,830          
The Bear Stearns Companies LLC,
                       
7.250%, 02/01/2018
    2,250,000       2,593,238          
The Chubb Corporation,
                       
6.375%, 03/29/2067
    1,320,000       1,415,106          
The Goldman Sachs Group, Inc.:
                       
5.950%, 01/18/2018
    3,000,000       3,332,904          
6.150%, 04/01/2018
    6,500,000       7,295,724          
7.500%, 02/15/2019
    1,825,000       2,170,766          
2.550%, 10/23/2019 @
    4,000,000       3,985,392          
5.250%, 07/27/2021
    1,000,000       1,128,662          
5.750%, 01/24/2022
    8,100,000       9,369,975          
6.750%, 10/01/2037
    300,000       377,212          
The Guardian Life Insurance Company of America,
                       
4.875%, 06/19/2064 (Acquired 06/16/2014, Cost $2,989,950) *
    3,000,000       3,193,812          
The Hartford Financial Services Group, Inc.:
                       
5.375%, 03/15/2017
    2,913,000       3,146,631          
4.000%, 10/15/2017
    3,000,000       3,189,681          
5.125%, 04/15/2022
    3,447,000       3,874,731          
8.125%, 06/15/2038
    1,365,000       1,562,696          
The Royal Bank of Scotland Group Public Limited Company:
                       
5.050%, 01/08/2015 f
    1,528,000       1,528,305          
2.550%, 09/18/2015 f
    4,225,000       4,267,301          
The Royal Bank of Scotland Public Limited Company,
                       
6.125%, 01/11/2021 f
    7,850,000       9,250,291          
Torchmark Corporation,
                       
3.800%, 09/15/2022
    1,275,000       1,314,985          
UBS AG,
                       
1.375%, 08/14/2017 f
    3,000,000       2,980,482          
UnitedHealth Group Incorporated,
                       
6.000%, 02/15/2018
    1,000,000       1,125,652          
Voya Financial, Inc.,
                       
5.500%, 07/15/2022
    25,634,000       28,956,577          
Wells Fargo Bank, National Association,
                       
6.000%, 11/15/2017 @
    8,322,000       9,328,238          
Westpac Banking Corporation:
                       
2.000%, 08/14/2017 f
    8,000,000       8,105,712          
4.875%, 11/19/2019 f
    636,000       709,626          
Willis North America, Inc.:
                       
5.625%, 07/15/2015
    2,600,000       2,662,964          
7.000%, 09/29/2019
    7,803,000       9,100,616          
                1,207,991,697       18.0 %
Utility
                       
Appalachian Power Company,
                       
Series P, 6.700%, 08/15/2037
    1,150,000       1,537,267          
Arizona Public Service Company,
                       
8.750%, 03/01/2019
    1,150,000       1,446,487          
CMS Energy Corporation,
                       
5.050%, 03/15/2022
    1,000,000       1,121,111          
Consolidated Edison Company of New York, Inc.,
                       
4.625%, 12/01/2054
    7,600,000       8,323,444          
Constellation Energy Group, Inc.,
                       
4.550%, 06/15/2015
    750,000       762,111          
Dominion Resources, Inc.:
                       
2.500%, 12/01/2019
    5,225,000       5,240,257          
Series B, 5.950%, 06/15/2035
    1,880,000       2,390,552          
ENEL Finance International N.V.,
                       
6.800%, 09/15/2037 (Acquired 09/13/2007 through 09/29/2008, Cost $498,897) * f
    500,000       639,275          
Exelon Corporation,
                       
4.900%, 06/15/2015
    775,000       788,859          
Exelon Generation Company, LLC:
                       
6.200%, 10/01/2017
    4,350,000       4,833,829          
5.600%, 06/15/2042
    6,100,000       6,824,235          
IPALCO Enterprises, Inc.,
                       
5.000%, 05/01/2018
    1,000,000       1,055,000          
KeySpan Corporation,
                       
8.000%, 11/15/2030
    1,875,000       2,585,503          
Mega Advance Investments Ltd,
                       
5.000%, 05/12/2021 (Acquired 05/09/2011 through 05/23/2012, Cost $2,812,201) * f
    2,800,000       3,032,624          
MidAmerican Energy Holdings Company,
                       
3.500%, 02/01/2025 (Acquired 12/01/2014, Cost $6,998,390) * @
    7,000,000       7,044,506          
National Grid PLC,
                       
6.300%, 08/01/2016 f
    4,790,000       5,170,556          
National Rural Utilities Cooperative Finance Corporation:
                       
10.375%, 11/01/2018
    6,673,000       8,693,117          
2.300%, 11/15/2019
    5,000,000       4,993,950          
NextEra Energy Capital Holdings, Inc.,
                       
Series D, 7.300%, 09/01/2067
    2,600,000       2,782,000          
ONEOK, Inc.,
                       
4.250%, 02/01/2022
    6,150,000       5,628,806          
PPL Energy Supply, LLC:
                       
Series A, 5.700%, 10/15/2015
    1,600,000       1,634,842          
6.200%, 05/15/2016
    3,070,000       3,190,356          
PSEG Power LLC,
                       
5.320%, 09/15/2016
    3,077,000       3,287,396          
Public Service Company of New Mexico,
                       
7.950%, 05/15/2018
    6,553,000       7,711,970          
RGS I&M Funding Corp,
                       
Series F*, 9.820%, 06/07/2022
    154,712       183,340          
Talent Yield Investments Ltd.,
                       
4.500%, 04/25/2022 (Acquired 04/18/2012, Cost $5,958,960) * f
    6,000,000       6,281,280          
Trans-Allegheny Interstate Line Company,
                       
4.000%, 01/15/2015 (Acquired 08/03/2012, Cost $2,852,520) *
    2,850,000       2,852,243          
                100,034,916       1.5 %
Industrials
                       
21st CENTURY FOX AMERICA, INC.:
                       
6.900%, 03/01/2019
    6,659,000       7,851,973          
3.700%, 09/15/2024 (Acquired 09/10/2014, Cost $4,023,350) *
    4,025,000       4,140,216          
4.750%, 09/15/2044 (Acquired 09/10/2014, Cost $1,948,459) *
    1,950,000       2,130,899          
A.P. Meoller - Maersk A/S:
                       
2.550%, 09/22/2019 (Acquired 11/24/2014, Cost $10,065,609) * f
    10,000,000       10,028,050          
3.750%, 09/22/2024 (Acquired 09/15/2014, Cost $4,459,830) * @ f
    4,475,000       4,594,550          
AbbVie Inc.:
                       
1.750%, 11/06/2017
    7,450,000       7,466,189          
2.000%, 11/06/2018
    10,835,000       10,798,648          
Access Midstream Partners LP / ACMP Finance Corp,
                       
6.125%, 07/15/2022 @
    300,000       318,750          
Acuity Brands Lighting, Inc.,
                       
6.000%, 12/15/2019
    700,000       775,920          
ADT Corp.:
                       
2.250%, 07/15/2017
    2,810,000       2,718,675          
3.500%, 07/15/2022
    1,200,000       1,023,000          
Alibaba Group Holding Limited,
                       
3.125%, 11/28/2021 (Acquired 11/20/2014, Cost $9,955,800) * f
    10,000,000       9,879,770          
Altera Corporation,
                       
4.100%, 11/15/2023
    3,000,000       3,105,000          
Ameritech Capital Funding Corporation,
                       
6.450%, 01/15/2018
    3,175,000       3,560,889          
Anadarko Petroleum Corporation:
                       
5.950%, 09/15/2016
    2,792,000       2,985,709          
6.375%, 09/15/2017
    968,000       1,076,224          
8.700%, 03/15/2019
    4,380,000       5,365,286          
6.450%, 09/15/2036 @
    1,725,000       2,072,922          
Anglo American Capital PLC,
                       
9.375%, 04/08/2019 (Acquired 09/20/2011 through 07/11/2012, Cost $6,767,133) * @ f
    5,600,000       6,974,475          
ArcelorMittal S.A.:
                       
5.000%, 02/25/2017 f
    5,000,000       5,200,000          
6.750%, 02/25/2022 @ f
    2,000,000       2,135,000          
AT&T Inc.:
                       
6.300%, 01/15/2038 @
    11,000,000       13,309,208          
5.550%, 08/15/2041
    1,000,000       1,114,300          
Atlas Air, Inc. Pass Through Trust,
                       
Series 00-1, 8.707%, 01/02/2019
    132,635       137,609          
Ball Corporation,
                       
6.750%, 09/15/2020 @
    13,153,000       13,679,120          
Bayer US Finance LLC,
                       
2.375%, 10/08/2019 (Acquired 10/01/2014, Cost $14,657,559) *
    14,725,000       14,783,429          
Beam Suntory Inc.,
                       
3.250%, 05/15/2022
    2,000,000       2,002,216          
Becton, Dickinson and Company:
                       
3.250%, 11/12/2020
    13,000,000       13,224,588          
3.734%, 12/15/2024
    4,900,000       5,044,917          
Bemis Company, Inc.,
                       
4.500%, 10/15/2021
    1,000,000       1,084,830          
Boston Scientific Corporation,
                       
2.650%, 10/01/2018
    10,000,000       10,011,770          
BP Capital Markets:
                       
0.885%, 09/26/2018 f
    5,000,000       4,954,415          
4.750%, 03/10/2019 @ f
    1,500,000       1,640,862          
Browning-Ferris Industries, Inc.,
                       
9.250%, 05/01/2021
    1,600,000       2,040,934          
Bunge Limited Finance Corp.,
                       
8.500%, 06/15/2019
    13,690,000       16,777,643          
Bunge N.A. Finance L.P.,
                       
5.900%, 04/01/2017
    4,024,000       4,375,203          
CareFusion Corporation:
                       
6.375%, 08/01/2019
    5,000,000       5,784,990          
3.875%, 05/15/2024
    7,500,000       7,739,940          
CCOH Safari, LLC:
                       
5.500%, 12/01/2022
    2,000,000       2,030,000          
5.750%, 12/01/2024 @
    10,000,000       10,112,500          
CenturyLink, Inc.,
                       
Series R, 5.150%, 06/15/2017
    2,000,000       2,095,000          
CF Industries, Inc.:
                       
6.875%, 05/01/2018
    5,000,000       5,684,145          
3.450%, 06/01/2023
    8,745,000       8,548,631          
5.375%, 03/15/2044
    5,000,000       5,394,475          
Chesapeake Energy Corporation:
                       
6.500%, 08/15/2017
    3,544,000       3,774,360          
3.481%, 04/15/2019
    4,500,000       4,410,000          
Cliffs Natural Resources Inc.,
                       
5.700%, 01/15/2018 @
    11,579,000       7,526,350          
Comcast Cable Communications Holdings, Inc.,
                       
9.455%, 11/15/2022
    2,030,000       2,918,415          
Comcast Corporation:
                       
4.250%, 01/15/2033
    5,900,000       6,247,669          
4.650%, 07/15/2042
    2,000,000       2,189,024          
Computer Sciences Corporation,
                       
4.450%, 09/15/2022
    2,000,000       2,045,826          
ConAgra Foods, Inc.,
                       
1.900%, 01/25/2018
    8,569,000       8,511,913          
ConocoPhillips Canada Funding Company I,
                       
5.950%, 10/15/2036 f
    845,000       1,055,218          
Constellation Brands, Inc.,
                       
4.750%, 11/15/2024 @
    100,000       101,250          
Continental Airlines Pass Through Trust,
                       
Series 974A, 6.900%, 01/02/2018
    31,877       33,471          
Cox Communications, Inc.:
                       
9.375%, 01/15/2019 (Acquired 10/06/2014 through 10/06/2014, Cost $9,708,015) *
    7,670,000       9,652,864          
2.950%, 06/30/2023 (Acquired 04/24/2013, Cost $5,440,103) * @
    5,475,000       5,250,207          
3.850%, 02/01/2025 (Acquired 12/01/2014, Cost $4,616,999) *
    4,625,000       4,668,554          
4.800%, 02/01/2035 (Acquired 12/01/2014, Cost $9,996,400) *
    10,000,000       10,418,730          
4.700%, 12/15/2042 (Acquired 11/26/2012, Cost $4,999,050) * @
    5,000,000       4,995,570          
CSX Corporation,
                       
6.220%, 04/30/2040
    175,000       227,952          
D.R. Horton, Inc.,
                       
4.750%, 05/15/2017 @
    1,447,000       1,512,115          
Daimler Finance North America LLC,
                       
1.875%, 01/11/2018 (Acquired 01/07/2013, Cost $2,116,139) *
    2,125,000       2,132,384          
Danone,
                       
3.000%, 06/15/2022 (Acquired 05/29/2012, Cost $3,489,465) * f
    3,500,000       3,515,414          
DCP Midstream, LLC:
                       
9.750%, 03/15/2019 (Acquired 02/29/2012 through 12/12/2012, Cost $11,004,099) *
    9,155,000       11,451,129          
4.750%, 09/30/2021 (Acquired 09/14/2011 through 11/18/2011, Cost $2,250,486) *
    2,245,000       2,229,042          
Deutsche Telekom International Finance B.V.:
                       
6.750%, 08/20/2018 f
    1,250,000       1,450,581          
8.750%, 06/15/2030 f
    825,000       1,218,656          
Devon Energy Corporation,
                       
6.300%, 01/15/2019
    5,220,000       5,958,051          
Devon Financing Corporation, LLC
                       
7.875%, 09/30/2031
    5,000,000       6,820,735          
DISH DBS Corporation,
                       
5.000%, 03/15/2023 @
    2,500,000       2,418,750          
Dollar General Corporation:
                       
4.125%, 07/15/2017
    275,000       283,612          
1.875%, 04/15/2018
    2,100,000       2,029,211          
Dominion Gas Holdings, LLC,
                       
3.600%, 12/15/2024
    6,100,000       6,205,207          
Eaton Corporation:
                       
2.750%, 11/02/2022
    2,500,000       2,455,992          
4.000%, 11/02/2032
    3,660,000       3,722,802          
Ecolab Inc.,
                       
1.450%, 12/08/2017
    5,200,000       5,153,398          
El Paso Pipeline Partners Operating Company, L.L.C.,
                       
7.500%, 11/15/2040
    2,500,000       3,074,942          
Enbridge Inc.,
                       
0.905%, 10/01/2016 f
    1,250,000       1,249,354          
Encana Corporation,
                       
6.500%, 05/15/2019 f
    500,000       567,558          
Energy Transfer Partners, L.P.:
                       
9.700%, 03/15/2019
    1,189,000       1,492,334          
5.200%, 02/01/2022
    1,000,000       1,069,556          
3.600%, 02/01/2023 @
    5,000,000       4,838,340          
EnLink Midstream Partners, LP,
                       
4.400%, 04/01/2024
    7,000,000       7,091,287          
Enogex LLC,
                       
6.250%, 03/15/2020 (Acquired 10/25/2012 through 05/10/2013, Cost $3,559,188) *
    3,190,000       3,648,588          
Enterprise Products Operating LLC:
                       
3.350%, 03/15/2023 @
    10,000,000       9,890,920          
3.750%, 02/15/2025 @
    7,000,000       7,026,656          
Express Scripts Holding Company:
                       
7.250%, 06/15/2019
    4,600,000       5,523,022          
4.750%, 11/15/2021
    14,700,000       16,222,229          
3.500%, 06/15/2024
    7,500,000       7,473,690          
FedEx Corporation,
                       
8.000%, 01/15/2019
    6,100,000       7,425,945          
Fidelity National Information Services, Inc.:
                       
5.000%, 03/15/2022
    9,345,000       9,910,886          
3.500%, 04/15/2023
    4,100,000       4,075,412          
3.875%, 06/05/2024 @
    19,750,000       19,949,515          
Fiserv, Inc.:
                       
3.125%, 06/15/2016
    2,475,000       2,541,073          
4.625%, 10/01/2020
    3,000,000       3,258,957          
3.500%, 10/01/2022
    11,500,000       11,614,172          
Florida Gas Transmission Company, LLC,
                       
3.875%, 07/15/2022 (Acquired 06/12/2012, Cost $2,996,190) *
    3,000,000       3,038,295          
Fomento Economico Mexicano, S.A.B. de C.V.:
                       
2.875%, 05/10/2023 f
    11,700,000       10,912,730          
4.375%, 05/10/2043 @ f
    4,000,000       3,737,848          
Ford Motor Credit Company LLC:
                       
2.500%, 01/15/2016
    2,000,000       2,022,372          
4.207%, 04/15/2016
    4,710,000       4,875,062          
8.000%, 12/15/2016
    2,000,000       2,238,304          
3.000%, 06/12/2017
    3,000,000       3,078,021          
6.625%, 08/15/2017
    1,063,000       1,184,987          
5.750%, 02/01/2021 @
    13,000,000       14,897,116          
Forest Laboratories, Inc.:
                       
4.375%, 02/01/2019 (Acquired 10/20/2014, Cost $4,222,938) *
    4,000,000       4,225,480          
5.000%, 12/15/2021 (Acquired 08/26/2014 through 09/29/2014, Cost $20,099,491) *
    18,608,000       20,149,226          
Freeport-McMoRan Inc.:
                       
3.100%, 03/15/2020 @
    3,800,000       3,696,385          
3.550%, 03/01/2022 @
    5,000,000       4,725,555          
Freeport-McMoran Oil & Gas LLC / FCX Oil & Gas Inc.:
                       
6.500%, 11/15/2020
    6,337,000       6,859,612          
6.625%, 05/01/2021
    6,447,000       6,930,525          
6.750%, 02/01/2022
    2,649,000       2,913,900          
General Mills, Inc.,
                       
2.200%, 10/21/2019
    12,000,000       11,899,188          
Georgia-Pacific LLC:
                       
5.400%, 11/01/2020 (Acquired 10/27/2010, Cost $994,130) *
    1,000,000       1,125,238          
3.163%, 11/15/2021 (Acquired 11/03/2014, Cost $19,999,800) *
    20,000,000       20,119,520          
Glencore Canada Corporation,
                       
5.375%, 06/01/2015 f
    2,000,000       2,033,840          
Glencore Finance (Canada) Limited:
                       
4.950%, 11/15/2021 (Acquired 11/03/2011, Cost $1,997,480) * f
    2,000,000       2,109,958          
4.250%, 10/25/2022 (Acquired 10/18/2012 through 05/22/2013, Cost $7,120,116) * f
    7,000,000       6,965,693          
Glencore Funding LLC:
                       
4.125%, 05/30/2023 (Acquired 05/22/2013 through 04/03/2014, Cost $12,194,471) *
    12,300,000       12,001,836          
4.625%, 04/29/2024 (Acquired 10/08/2014, Cost $5,145,026) *
    5,000,000       5,024,000          
Grupo Bimbo, S.A.B. de C.V.,
                       
3.875%, 06/27/2024 (Acquired 06/27/2014, Cost $7,011,037) * f
    7,000,000       7,027,510          
GTE Corporation,
                       
8.750%, 11/01/2021
    975,000       1,271,593          
Gulf South Pipeline Company, LP,
                       
4.000%, 06/15/2022
    3,000,000       2,957,436          
H. J. Heinz Company,
                       
4.250%, 10/15/2020 @
    20,000,000       20,200,000          
H. J. Heinz Finance Company,
                       
6.750%, 03/15/2032
    10,000,000       10,575,000          
Hanson Limited,
                       
6.125%, 08/15/2016 f
    15,157,000       16,066,420          
HCA Inc.:
                       
4.250%, 10/15/2019
    10,900,000       11,063,500          
5.000%, 03/15/2024
    8,366,000       8,596,065          
Hess Corporation,
                       
8.125%, 02/15/2019
    1,262,000       1,501,517          
Hewlett-Packard Company:
                       
4.375%, 09/15/2021
    10,000,000       10,484,770          
4.650%, 12/09/2021 @
    15,500,000       16,596,873          
Hospira, Inc.:
                       
6.050%, 03/30/2017
    25,000,000       26,954,125          
5.800%, 08/12/2023
    6,465,000       7,235,175          
Husky Energy Inc.,
                       
4.000%, 04/15/2024 f
    1,605,000       1,576,373          
Hutchison Whampoa International (09/16) Limited,
                       
4.625%, 09/11/2015 (Acquired 08/19/2010 through 12/28/2011, Cost $3,597,608) * f
    3,563,000       3,652,716          
Hutchison Whampoa International (11) Limited,
                       
3.500%, 01/13/2017 (Acquired 01/10/2012, Cost $4,070,309) * f
    4,000,000       4,144,240          
Hutchison Whampoa International (12) (II) Limited,
                       
3.250%, 11/08/2022 (Acquired 11/05/2012, Cost $4,603,093) * f
    4,625,000       4,598,244          
Hutchison Whampoa International (14) Limited,
                       
3.625%, 10/31/2024 (Acquired 10/28/2014, Cost $14,982,600) * f
    15,000,000       15,068,685          
Hyundai Capital Services, Inc.:
                       
4.375%, 07/27/2016 (Acquired 04/05/2013, Cost $1,145,127) * f
    1,100,000       1,150,979          
1.043%, 03/18/2017 (Acquired 03/11/2014, Cost $2,400,000) * f
    2,400,000       2,395,186          
3.500%, 09/13/2017 (Acquired 03/06/2012 through 08/29/2014, Cost $12,915,582) * f
    12,470,000       12,899,928          
Ingersoll-Rand Luxembourg Finance S.A.:
                       
3.550%, 11/01/2024 f
    3,200,000       3,180,493          
4.650%, 11/01/2044 f
    1,300,000       1,321,789          
Ingredion Incorporated,
                       
1.800%, 09/25/2017
    5,650,000       5,633,768          
Johnson Controls, Inc.,
                       
5.250%, 12/01/2041
    1,150,000       1,297,131          
Keysight Technologies, Inc.,
                       
3.300%, 10/30/2019 (Acquired 10/06/2014, Cost $4,995,100) *
    5,000,000       4,967,545          
Kinder Morgan Energy Partners, L.P.:
                       
9.000%, 02/01/2019
    1,658,000       2,009,920          
6.850%, 02/15/2020
    4,645,000       5,335,359          
6.500%, 02/01/2037
    400,000       449,611          
6.950%, 01/15/2038
    350,000       403,945          
Kinder Morgan Finance Company LLC:
                       
5.700%, 01/05/2016
    2,536,000       2,632,672          
6.000%, 01/15/2018 (Acquired 12/06/2010, Cost $999,930) *
    1,000,000       1,083,800          
Kinder Morgan, Inc.,
                       
3.050%, 12/01/2019
    7,000,000       6,944,350          
Kinross Gold Corporation,
                       
6.875%, 09/01/2041 f
    5,500,000       5,229,191          
Kraft Foods Group Inc,
                       
5.000%, 06/04/2042 @
    1,000,000       1,100,803          
Lafarge S.A.:
                       
6.200%, 07/09/2015 (Acquired 10/01/2013, Cost $509,945) * f
    500,000       511,450          
6.500%, 07/15/2016 f
    4,843,000       5,157,795          
7.125%, 07/15/2036 f
    1,225,000       1,421,000          
Lear Corporation,
                       
5.250%, 01/15/2025
    20,000,000       20,250,000          
Marathon Oil Corporation,
                       
2.800%, 11/01/2022 @
    10,175,000       9,528,867          
Marathon Petroleum Corporation:
                       
3.625%, 09/15/2024
    2,500,000       2,450,008          
4.750%, 09/15/2044 @
    2,375,000       2,242,964          
Martin Marietta Materials, Inc.:
                       
6.600%, 04/15/2018
    475,000       538,478          
6.250%, 05/01/2037
    450,000       476,548          
Masco Corporation:
                       
6.125%, 10/03/2016
    2,150,000       2,280,075          
7.125%, 03/15/2020
    1,800,000       2,079,000          
MeadWestvaco Corporation,
                       
7.375%, 09/01/2019
    6,650,000       7,857,321          
Medtronic, Inc.:
                       
2.500%, 03/15/2020 (Acquired 12/01/2014, Cost $4,994,950) *
    5,000,000       5,013,115          
4.375%, 03/15/2035 (Acquired 12/01/2014, Cost $6,938,190) * @
    7,000,000       7,425,992          
Murphy Oil Corporation,
                       
4.000%, 06/01/2022
    12,600,000       11,582,600          
Mylan Inc.:
                       
7.875%, 07/15/2020 (Acquired 07/16/2013, Cost $5,355,348) *
    5,000,000       5,325,975          
4.200%, 11/29/2023 @
    4,525,000       4,689,846          
Nabors Industries, Inc.,
                       
6.150%, 02/15/2018
    250,000       260,392          
National Oilwell Varco, Inc.,
                       
Series B, 6.125%, 08/15/2015
    2,655,000       2,656,264          
New Cingular Wireless Services, Inc.,
                       
8.750%, 03/01/2031
    3,050,000       4,724,789          
Noble Energy, Inc.:
                       
3.900%, 11/15/2024 @
    3,000,000       2,965,044          
5.050%, 11/15/2044
    3,000,000       2,965,284          
Northern Tier Energy LLC / Northern Tier Finance Corp:
                       
7.125%, 11/15/2020
    5,000,000       5,050,000          
7.125%, 11/15/2020
    10,935,000       11,044,350          
NuStar Logistics, L.P.:
                       
4.800%, 09/01/2020
    4,275,000       4,018,500          
6.750%, 02/01/2021
    3,000,000       3,172,500          
Oi S.A.,
                       
5.750%, 02/10/2022 (Acquired 02/06/2012, Cost $3,000,000) * @ f
    3,000,000       2,745,000          
ONEOK Partners, L.P.:
                       
3.375%, 10/01/2022
    9,500,000       8,793,789          
5.000%, 09/15/2023 @
    5,800,000       6,059,886          
Oracle Corporation,
                       
3.400%, 07/08/2024
    8,850,000       9,045,337          
Orange,
                       
2.750%, 09/14/2016 f
    1,050,000       1,073,002          
Owens Corning,
                       
4.200%, 12/01/2024 @
    10,000,000       9,868,660          
Packaging Corporation of America,
                       
4.500%, 11/01/2023
    4,700,000       4,923,302          
Pactiv LLC,
                       
7.950%, 12/15/2025
    1,338,000       1,344,690          
PCCW-HKT Capital No. 3 Limited,
                       
5.250%, 07/20/2015 (Acquired 09/29/2008 through 12/20/2010, Cost $776,905) * f
    775,000       791,199          
Pearson Funding Two plc,
                       
4.000%, 05/17/2016 (Acquired 07/17/2012, Cost $2,803,768) * f
    2,700,000       2,806,496          
Pentair Finance S.A.,
                       
2.650%, 12/01/2019 f
    5,000,000       4,948,540          
PepsiCo, Inc.,
                       
4.250%, 10/22/2044
    2,850,000       2,974,397          
Petrofac Limited,
                       
3.400%, 10/10/2018 (Acquired 10/03/2013 through 09/19/2014, Cost $30,947,395) * f
    30,900,000       30,483,839          
PetroLogistics LP / PetroLogistics Finance Corp.,
                       
6.250%, 04/01/2020
    2,225,000       2,397,438          
Phillips 66:
                       
4.300%, 04/01/2022
    6,168,000       6,511,502          
4.650%, 11/15/2034
    13,000,000       13,324,974          
Pioneer Natural Resources Company,
                       
6.875%, 05/01/2018
    14,075,000       15,755,907          
Plum Creek Timberlands, L.P.:
                       
5.875%, 11/15/2015
    4,775,000       4,960,409          
4.700%, 03/15/2021
    1,200,000       1,301,460          
3.250%, 03/15/2023
    8,375,000       8,231,268          
POSCO,
                       
4.250%, 10/28/2020 (Acquired 10/21/2010, Cost $2,165,365) * f
    2,175,000       2,323,424          
Qwest Capital Funding, Inc.,
                       
7.625%, 08/03/2021
    200,000       215,500          
R.R. Donnelley & Sons Company:
                       
8.600%, 08/15/2016
    1,250,000       1,368,750          
6.125%, 01/15/2017
    76,000       80,560          
Reliance Holding USA, Inc.:
                       
4.500%, 10/19/2020 (Acquired 10/14/2010 through 10/18/2010, Cost $1,988,700) *
    2,000,000       2,089,896          
5.400%, 02/14/2022 (Acquired 02/09/2012 through 02/23/2012, Cost $3,514,333) * @
    3,500,000       3,791,578          
Republic Services, Inc.:
                       
5.500%, 09/15/2019
    13,000,000       14,645,527          
3.550%, 06/01/2022
    4,000,000       4,106,468          
4.750%, 05/15/2023
    13,459,000       14,958,211          
Rio Tinto Finance (USA) Limited,
                       
9.000%, 05/01/2019 @ f
    11,000,000       13,916,782          
Rockies Express Pipeline LLC:
                       
3.900%, 04/15/2015 (Acquired 09/15/2011 through 01/08/2013, Cost $2,851,540) *
    2,850,000       2,835,750          
6.850%, 07/15/2018 (Acquired 12/21/2011, Cost $2,024,067) *
    2,000,000       2,060,000          
5.625%, 04/15/2020 (Acquired 12/10/2010 through 12/29/2011, Cost $2,700,128) *
    2,695,000       2,647,838          
Rockwood Specialties Group Inc Sr Glbl Nt 20,
                       
4.625%, 10/15/2020
    26,454,000       27,313,755          
SABMiller Holdings Inc.,
                       
0.922%, 08/01/2018 (Acquired 10/16/2014, Cost $15,075,759) *
    15,000,000       15,047,520          
Samarco Mineracao S.A.:
                       
5.750%, 10/24/2023 (Acquired 10/21/2013, Cost $5,312,968) * f
    5,475,000       5,228,625          
5.375%, 09/26/2024 (Acquired 09/23/2014, Cost $4,835,580) * @ f
    5,125,000       4,750,875          
Schneider Electric SE,
                       
2.950%, 09/27/2022 (Acquired 09/20/2012, Cost $4,986,700) * f
    5,000,000       5,026,165          
Seagate HDD Cayman,
                       
6.875%, 05/01/2020 f
    10,447,000       10,969,350          
Sealed Air Corporation,
                       
8.375%, 09/15/2021 (Acquired 09/16/2011 through 09/19/2011, Cost $2,288,360) *
    2,250,000       2,514,375          
SK Telecom Co., Ltd.,
                       
6.625%, 07/20/2027 (Acquired 07/13/2007 through 04/30/2013, Cost $996,143) * f
    960,000       1,223,261          
Sonoco Products Company,
                       
4.375%, 11/01/2021
    1,000,000       1,065,017          
Sprint Capital Corporation:
                       
6.900%, 05/01/2019
    675,000       688,500          
8.750%, 03/15/2032
    300,000       290,250          
Sprint Communications, Inc.,
                       
6.000%, 12/01/2016
    200,000       209,205          
Sunoco Logistics Partners Operations L.P.:
                       
3.450%, 01/15/2023
    2,000,000       1,917,954          
6.100%, 02/15/2042
    1,000,000       1,084,621          
Sunoco, Inc.,
                       
5.750%, 01/15/2017
    701,000       757,879          
Targa Resources Partners LP,
                       
4.125%, 11/15/2019 (Acquired 10/23/2014 through 10/27/2014, Cost $7,031,250) *
    7,000,000       6,737,500          
Telecom Italia Capital:
                       
5.250%, 10/01/2015 f
    4,250,000       4,335,000          
7.200%, 07/18/2036 f
    2,900,000       3,117,500          
Telecom Italia S.p.A.,
                       
5.303%, 05/30/2024 (Acquired 05/22/2014, Cost $17,142,728) * @ f
    17,000,000       17,212,500          
Telefonica Emisiones S.A.U.:
                       
6.421%, 06/20/2016 f
    3,950,000       4,225,521          
6.221%, 07/03/2017 f
    8,942,000       9,899,661          
5.462%, 02/16/2021 f
    2,402,000       2,678,211          
4.570%, 04/27/2023 @ f
    1,000,000       1,070,645          
7.045%, 06/20/2036 f
    200,000       263,096          
The Dow Chemical Company:
                       
8.550%, 05/15/2019
    5,000,000       6,216,230          
4.125%, 11/15/2021
    835,000       882,267          
The Timken Company,
                       
3.875%, 09/01/2024 (Acquired 08/13/2014, Cost $18,336,205) *
    18,500,000       18,471,307          
The Williams Companies, Inc.:
                       
7.875%, 09/01/2021
    1,335,000       1,542,157          
3.700%, 01/15/2023
    3,000,000       2,694,258          
Series A, 7.500%, 01/15/2031
    120,000       127,326          
7.750%, 06/15/2031
    3,500,000       3,748,248          
5.750%, 06/24/2044 @
    2,500,000       2,174,643          
Thermo Fisher Scientific Inc.,
                       
3.300%, 02/15/2022 @
    7,000,000       7,011,571          
Time Warner Cable Inc.:
                       
8.750%, 02/14/2019
    1,132,000       1,401,250          
8.250%, 04/01/2019
    35,000       42,845          
Time Warner Companies, Inc.,
                       
7.250%, 10/15/2017
    2,300,000       2,635,805          
Time Warner Inc.:
                       
7.625%, 04/15/2031 @
    13,375,000       18,646,556          
7.700%, 05/01/2032
    408,000       576,438          
Transcontinental Gas Pipe Line Company, LLC,
                       
4.450%, 08/01/2042
    2,600,000       2,433,119          
Transocean Inc.:
                       
6.500%, 11/15/2020 @ f
    9,500,000       8,958,196          
6.375%, 12/15/2021 @ f
    5,500,000       5,073,470          
3.800%, 10/15/2022 @ f
    5,000,000       4,051,625          
6.800%, 03/15/2038 @ f
    878,000       752,364          
TSMC Global Ltd,
                       
1.625%, 04/03/2018 (Acquired 03/27/2013, Cost $2,997,990) * f
    3,000,000       2,944,560          
Tyco Electronics Group S.A.:
                       
6.550%, 10/01/2017 f
    5,243,000       5,901,673          
7.125%, 10/01/2037 f
    500,000       681,566          
U.S. Airways Pass Through Trust,
                       
Series 981B, 7.350%, 01/30/2018
    311,469       330,936          
United AirLines, Inc. Pass Through Trust,
                       
Series 91A2, 10.020%, 12/31/2014 § † **
    60,931       17,092          
Ultramar Diamond Shamrock Corporation,
                       
7.200%, 10/15/2017
    7,100,000       7,982,594          
Vale Overseas Limited:
                       
6.250%, 01/23/2017 f
    3,850,000       4,106,449          
4.375%, 01/11/2022 @ f
    2,700,000       2,587,977          
8.250%, 01/17/2034 @ f
    425,000       508,614          
6.875%, 11/10/2039 f
    5,625,000       5,990,963          
Valero Energy Corporation:
                       
9.375%, 03/15/2019
    19,606,000       24,451,250          
6.625%, 06/15/2037
    5,000,000       5,903,295          
Verizon Communications Inc.:
                       
5.150%, 09/15/2023
    17,000,000       18,771,961          
6.400%, 09/15/2033 @
    22,675,000       27,930,680          
Viacom Inc.,
                       
2.750%, 12/15/2019 @
    10,000,000       10,019,830          
Vodafone Group Public Limited Company,
                       
6.150%, 02/27/2037 f
    500,000       603,315          
Vulcan Materials Company:
                       
7.000%, 06/15/2018
    2,435,000       2,678,500          
7.150%, 11/30/2037
    500,000       510,000          
Walgreen Co.,
                       
5.250%, 01/15/2019
    10,000,000       11,115,870          
Walgreens Boots Alliance, Inc.,
                       
3.800%, 11/18/2024
    10,000,000       10,199,000          
Wal-Mart Stores, Inc.,
                       
3.300%, 04/22/2024
    12,000,000       12,390,180          
Weatherford International Ltd.,
                       
4.500%, 04/15/2022 f
    5,020,000       4,467,926          
6.750%, 09/15/2040 f
    1,250,000       1,164,356          
Western Gas Partners, LP,
                       
5.375%, 06/01/2021
    18,000,000       19,748,484          
Westvaco Corporation:
                       
9.750%, 06/15/2020
    930,000       1,192,272          
8.200%, 01/15/2030
    2,790,000       3,691,619          
Weyerhaeuser Company,
                       
7.375%, 10/01/2019
    11,865,000       14,155,206          
Williams Partners L.P.:
                       
5.250%, 03/15/2020 @
    2,000,000       2,171,056          
6.300%, 04/15/2040
    1,590,000       1,778,687          
WPX Energy, Inc.,
                       
6.000%, 01/15/2022
    4,000,000       3,850,000          
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp.,
                       
4.250%, 05/30/2023 (Acquired 05/15/2013, Cost $4,000,000) * @
    4,000,000       3,800,000          
Yara International ASA,
                       
7.875%, 06/11/2019 (Acquired 12/03/2012 through 10/31/2013, Cost $7,102,981) * f
    5,880,000       7,005,614          
                1,653,460,883       24.6 %
Total Corporate Bonds
            2,961,487,496       44.1 %
                           
Other Government Related Securities
                       
Centrais Eletricas Brasileiras SA:
                       
6.875%, 07/30/2019 (Acquired 12/06/2012, Cost $3,366,904) * f
    3,000,000       3,060,000          
5.750%, 10/27/2021 (Acquired 10/20/2011, Cost $4,000,000) * @ f
    4,000,000       3,840,000          
CNOOC Curtis Funding No.1 Pty Ltd,
                       
4.500%, 10/03/2023 (Acquired 02/26/2014, Cost $5,038,886) * f
    5,000,000       5,255,890          
CNOOC Finance 2013 Ltd,
                       
3.000%, 05/09/2023 f
    2,415,000       2,285,573          
CNOOC Nexen Finance (2014) ULC,
                       
4.250%, 04/30/2024 f
    4,450,000       4,604,322          
CNPC General Capital Ltd,
                       
2.750%, 05/14/2019 (Acquired 05/07/2014, Cost $1,983,740) * f
    2,000,000       1,986,442          
CNPC HK Overseas Capital Ltd,
                       
5.950%, 04/28/2041 (Acquired 04/20/2011, Cost $978,120) * f
    1,000,000       1,241,480          
Comision Federal de Electricidad,
                       
5.750%, 02/14/2042 (Acquired 02/08/2012, Cost $5,116,800) * f
    5,200,000       5,548,400          
Corp Andina de Fomento,
                       
4.375%, 06/15/2022 f
    3,956,000       4,252,134          
Eksportfinans ASA,
                       
2.000%, 09/15/2015 f
    12,213,000       12,227,289          
Korea Electric Power Corporation,
                       
6.750%, 08/01/2027 f
    490,000       623,541          
Korea Expressway Corporation,
                       
1.625%, 04/28/2017 (Acquired 04/22/2014, Cost $2,643,057) * f
    2,650,000       2,635,186          
Korea Hydro & Nuclear Power Co., Ltd.,
                       
3.125%, 09/16/2015 (Acquired 09/09/2010, Cost $493,770) * f
    500,000       507,352          
Nexen Energy ULC,
                       
7.500%, 07/30/2039 f
    6,175,000       8,569,974          
Petrobras Global Finance B.V.,
                       
3.000%, 01/15/2019 f
    3,000,000       2,652,210          
Petrobras International Finance Company S.A.:
                       
3.875%, 01/27/2016 f
    5,800,000       5,691,540          
7.875%, 03/15/2019 f
    5,000,000       5,261,850          
5.375%, 01/27/2021 f
    3,200,000       2,965,024          
Petroleos Mexicanos:
                       
4.875%, 01/24/2022 f
    6,500,000       6,808,165          
4.250%, 01/15/2025 (Acquired 10/06/2014 through 10/24/2014, Cost $15,000,829) * f
    15,000,000       14,902,500          
6.500%, 06/02/2041 f
    4,000,000       4,590,000          
Portigon AG,
                       
4.796%, 07/15/2015 f
    1,885,000       1,921,322          
PTT Public Company Limited,
                       
3.375%, 10/25/2022 (Acquired 10/19/2012, Cost $4,958,500) * f
    5,000,000       4,932,630          
Sinopec Group Overseas Development [2014] Ltd.,
                       
4.375%, 04/10/2024 (Acquired 04/02/2014, Cost $1,496,505) * f
    1,500,000       1,573,412          
State Bank of India,
                       
4.125%, 08/01/2017 (Acquired 07/25/2012, Cost $6,939,800) * f
    7,000,000       7,264,180          
The Export-Import Bank of Korea:
                       
5.875%, 01/14/2015 f
    3,500,000       3,504,099          
4.000%, 01/29/2021 f
    2,400,000       2,566,831          
The Korea Development Bank,
                       
3.000%, 09/14/2022 f
    4,400,000       4,419,716          
                125,691,062       1.9 %
Taxable Municipal Bonds
                       
Bellevue Union School District,
                       
5.000%, 08/01/2028
    625,000       643,956          
California Qualified School Bond Joint Powers Authority:
                       
6.739%, 09/01/2026
    2,415,000       2,670,338          
7.155%, 03/01/2027
    1,700,000       1,920,575          
California School Finance Authority,
                       
5.041%, 07/01/2020
    1,500,000       1,650,855          
Central Valley Support Joint Powers Agency,
                       
5.676%, 09/01/2024
    1,500,000       1,610,355          
Colton Joint Unified School District,
                       
6.008%, 08/01/2026
    1,250,000       1,431,875          
County of Contra Costa CA,
                       
5.140%, 06/01/2017
    1,300,000       1,376,713          
Elgin Local School District,
                       
5.499%, 08/31/2027 (Callable 12/01/2019)
    1,000,000       1,080,810          
Government Development Bank for Puerto Rico,
                       
4.704%, 05/01/2016
    875,000       746,812          
Iowa Tobacco Settlement Authority,
                       
6.500%, 06/01/2023 (Callable 06/01/2015)
    2,810,000       2,809,916          
New Hampshire Housing Finance Authority:
                       
3.100%, 07/01/2021
    1,880,000       1,938,788          
3.750%, 07/01/2034
    7,555,000       8,016,308          
New Jersey Economic Development Authority,
                       
1.802%, 06/15/2017
    15,000,000       14,894,850          
North Carolina Housing Finance Agency:
                       
2.870%, 07/01/2032 (Callable 01/01/2024)
    7,000,000       7,170,940          
2.812%, 07/01/2035 (Callable 01/01/2024)
    9,430,000       9,660,469          
North East Independent School District/TX,
                       
5.240%, 08/01/2027
    3,000,000       3,577,080          
Port of Oakland,
                       
5.000%, 11/01/2020 (Callable 11/01/2017)
    2,900,000       3,199,454          
Rhode Island Housing & Mortgage Finance Corporation,
                       
2.913%, 10/01/2039 (Callable 10/01/2023)
    3,500,000       3,529,610          
San Dieguito Public Facilities Authority,
                       
6.459%, 05/01/2027
    1,825,000       2,096,633          
State of California,
                       
5.500%, 03/01/2016
    2,000,000       2,112,520          
State of Illinois:
                       
4.421%, 01/01/2015
    1,600,000       1,600,000          
4.961%, 03/01/2016
    2,000,000       2,083,460          
5.163%, 02/01/2018
    3,000,000       3,213,270          
State Public School Building Authority,
                       
5.000%, 09/15/2027
    1,998,000       2,162,655          
Three Rivers Local School District,
                       
5.209%, 09/15/2027 (Callable 12/01/2020)
    1,350,000       1,435,482          
Town of Davie FL Water & Sewer Revenue,
                       
6.599%, 10/01/2030 (Callable 10/01/2020)
    1,000,000       1,174,050          
West Contra Costa Unified School District,
                       
6.250%, 08/01/2030
    4,320,000       5,228,626          
Westlake City School District,
                       
5.227%, 12/01/2026 (Callable 12/01/2020)
    1,160,000       1,210,182          
                90,246,582       1.3 %
Residential Mortgage-Backed Securities
                       
U.S. Government Agency Issues
                       
Federal Gold Loan Mortgage Corporation (FGLMC):
                       
5.000%, 12/01/2020
    63,436       67,585          
5.000%, 05/01/2021
    117,575       125,257          
6.000%, 06/01/2021
    22,839       25,021          
3.000%, 05/01/2027
    11,749,673       12,226,498          
6.500%, 12/01/2028
    35,075       40,624          
6.500%, 06/01/2029
    14,782       17,297          
5.000%, 03/01/2036
    10,318,270       11,413,420          
5.500%, 04/01/2037
    326,336       365,315          
5.500%, 04/01/2038
    187,093       209,300          
5.500%, 05/01/2038
    379,531       424,840          
4.500%, 11/01/2039
    6,027,265       6,534,634          
4.500%, 11/01/2039
    1,933,678       2,096,261          
4.500%, 08/01/2040
    6,101,891       6,619,837          
4.500%, 08/01/2040
    8,694,766       9,433,308          
3.500%, 06/01/2042
    12,545,971       13,065,618          
3.500%, 07/01/2042
    44,208,857       46,036,064          
3.000%, 08/01/2042
    35,165,351       35,596,428          
3.000%, 02/01/2043
    11,164,060       11,299,918          
3.000%, 06/01/2043
    18,522,868       18,740,197          
3.000%, 08/01/2043
    28,123,864       28,448,937          
3.500%, 07/01/2044
    34,504,440       35,915,101          
3.500%, 08/01/2044
    57,289,724       59,631,925          
4.000%, 09/01/2044
    72,146,397       76,997,565          
4.000%, 10/01/2044
    41,875,737       44,882,024          
Federal Home Loan Mortgage Corporation (FHLMC):
                       
Series 1053, Class G, 7.000%, 03/15/2021
    3,609       4,105          
Series 136, Class E, 6.000%, 04/15/2021
    7,226       7,685          
Series 2804, Class VC, 5.000%, 07/15/2021
    145,333       153,215          
Series 1122, Class G, 7.000%, 08/15/2021
    8,541       9,287          
Series 1186, Class I, 7.000%, 12/15/2021
    17,079       19,164          
Federal National Mortgage Association (FNMA):
                       
Series 1989-94, Class G, 7.500%, 12/25/2019
    4,362       4,730          
Series 1990-15, Class J, 7.000%, 02/25/2020
    13,220       14,132          
Series 1991-21, Class J, 7.000%, 03/25/2021
    2,970       3,252          
Series 1991-43, Class J, 7.000%, 05/25/2021
    58,545       64,650          
Series 1991-65, Class Z, 6.500%, 06/25/2021
    52,466       55,797          
5.000%, 11/01/2021
    438,470       470,897          
Series 1992-129, Class L, 6.000%, 07/25/2022
    104,916       113,498          
5.500%, 03/01/2023
    252,211       281,828          
Series 1993-32, Class H, 6.000%, 03/25/2023
    23,651       25,656          
Series 1993-58, Class H, 5.500%, 04/25/2023
    118,302       129,433          
5.500%, 07/01/2023
    122,280       136,645          
5.500%, 12/01/2023
    177,034       197,933          
6.000%, 03/01/2026
    38,551       43,647          
5.000%, 06/01/2026
    9,352,732       10,139,422          
3.000%, 04/01/2027
    21,961,457       22,886,552          
2.500%, 12/01/2027
    31,745,931       32,408,897          
5.000%, 05/01/2028
    106,686       117,785          
6.500%, 09/01/2028
    27,899       32,402          
6.500%, 02/01/2029
    56,288       64,283          
4.500%, 07/01/2030
    11,481,362       12,536,692          
4.000%, 11/01/2031
    11,177,160       12,051,764          
5.500%, 01/01/2032
    23,516       26,490          
4.000%, 01/01/2034
    28,112,674       30,272,328          
5.500%, 04/01/2034
    1,754,666       1,976,279          
5.500%, 04/01/2034
    1,827,856       2,059,691          
Series 2004-90, Class LH, 5.000%, 04/25/2034
    2,995,056       3,098,149          
Series 2004-W6, Class 1A6, 5.500%, 07/25/2034
    171,500       175,964          
Series 2004-W6, Class 1A4, 5.500%, 07/25/2034
    63,102       63,390          
4.000%, 09/01/2034
    37,297,332       40,129,943          
5.500%, 09/01/2034
    57,030       64,172          
5.500%, 02/01/2035
    28,175       31,656          
5.000%, 04/01/2035
    3,295,831       3,650,608          
5.000%, 07/01/2035
    9,669,212       10,706,400          
5.000%, 02/01/2036
    6,212,854       6,875,351          
5.000%, 03/01/2036
    2,023,368       2,236,573          
5.500%, 04/01/2036
    9,449,607       10,564,674          
6.000%, 08/01/2037
    133,197       145,973          
6.000%, 05/01/2038
    17,167,700       19,481,116          
4.500%, 06/01/2039
    18,178,677       19,769,166          
5.000%, 06/01/2040
    39,901,521       44,126,679          
4.000%, 08/01/2040
    2,618,036       2,799,221          
4.500%, 08/01/2040
    12,898,278       14,029,355          
4.000%, 10/01/2040
    1,781,732       1,903,988          
4.000%, 12/01/2040
    6,865,499       7,404,613          
3.500%, 01/01/2041
    4,048,050       4,229,046          
4.000%, 01/01/2041
    9,361,576       10,002,986          
3.500%, 02/01/2041
    4,409,004       4,603,991          
3.500%, 03/01/2041
    21,630,571       22,587,457          
4.500%, 07/01/2041
    17,112,963       18,594,623          
4.000%, 09/01/2041
    8,262,190       8,828,275          
3.500%, 11/01/2041
    38,370,981       40,077,932          
4.000%, 12/01/2041
    34,948,428       37,342,923          
4.500%, 01/01/2042
    28,557,672       31,069,943          
3.000%, 05/01/2042
    5,862,503       5,942,532          
3.500%, 06/01/2042
    12,920,850       13,487,450          
3.000%, 03/01/2043
    11,153,385       11,302,404          
3.000%, 05/01/2043
    47,027,453       47,643,830          
3.000%, 06/01/2043
    47,771,468       48,394,070          
Government National Mortgage Association (GNMA):
                       
6.000%, 12/20/2028
    37,104       41,958          
6.500%, 01/20/2029
    17,814       20,828          
6.000%, 11/20/2033
    28,060       32,276          
4.500%, 05/20/2040
    4,257,324       4,680,080          
4.500%, 07/20/2040
    23,755,343       26,101,668          
5.000%, 07/20/2040
    1,855,753       2,071,125          
4.500%, 01/20/2041
    16,674,297       18,309,560          
4.000%, 06/20/2042
    33,552,983       36,010,972          
3.500%, 09/20/2042
    18,516,447       19,467,710          
4.000%, 09/20/2044
    49,171,576       52,820,348          
                1,197,442,091       17.8 %
Non-U.S. Government Agency Issues
                       
Alternative Loan Trust:
                       
Series 2005-3CB, Class 2A1, 5.000%, 03/25/2020
    2,423,179       2,453,893          
Series 2005-50CB, Class 4A1, 5.000%, 11/25/2020 §
    594,536       594,038          
Series 2006-7CB, Class 3A1, 5.250%, 05/25/2021 §
    656,090       636,279          
Series 2006-43CB, Class 2A1, 6.000%, 02/25/2022 §
    253,018       271,193          
Series 2004-18CB, Class 1A1, 6.000%, 09/25/2034
    13,588,132       14,288,097          
Series 2005-73CB, Class 1A7, 5.500%, 01/25/2036 §
    776,931       731,576          
Series 2006-28CB, Class A17, 6.000%, 10/25/2036 §
    930,018       771,239          
Banc of America Alternative Loan Trust:
                       
Series 2004-6, Class 4A1, 5.000%, 07/25/2019
    6,434,321       6,625,298          
Series 2004-1, Class 5A2, 5.500%, 02/25/2019
    946,863       977,771          
Series 2004-2, Class 5A1, 5.500%, 03/25/2019
    205,764       210,058          
Series 2004-8, Class 3A1, 5.500%, 09/25/2019
    1,247,539       1,299,332          
Series 2005-2, Class 4A1, 5.500%, 03/25/2020
    817,468       843,310          
Series 2005-4, Class 3A1, 5.500%, 05/25/2020
    674,471       683,379          
Series 2005-8, Class 5A1, 5.500%, 09/25/2020
    170,191       172,086          
Series 2006-2, Class 6A1, 5.500%, 03/25/2021
    167,490       172,038          
Series 2007-1, Class 1A1, 5.875%, 04/25/2022
    695,131       697,316          
Series 2004-2, Class 1A1, 6.000%, 03/25/2034
    4,277,123       4,473,396          
Series 2005-2, Class 1CB2, 5.500%, 03/25/2035 §
    1,977,258       1,831,020          
Series 2005-9, Class 2CB1, 6.000%, 10/25/2035 §
    13,534,342       13,022,013          
Series 2006-3, Class 6A1, 6.000%, 04/25/2036
    241,349       248,155          
Series 2007-C, Class 1A3, 5.293%, 05/20/2036
    7,683,255       7,409,116          
Series 2006-5, Class CB7, 6.000%, 06/25/2046 §
    418,036       341,785          
Banc of America Mortgage Trust,
                       
Series 2003-L, Class 2A1, 2.775%, 01/25/2034
    5,244,365       5,253,469          
Chase Mortgage Finance Trust:
                       
Series 2006-A1, Class 2A3, 2.515%, 09/25/2036 §
    604,276       534,497          
Series 2007-A1, Class 2A3, 2.465%, 02/25/2037
    5,147,179       5,146,973          
CHL Mortgage Pass-Through Trust,
                       
Series 2005-6, Class 2A1, 5.500%, 04/25/2035
    1,228,175       1,153,963          
Citicorp Mortgage Securities Trust,
                       
Series 2007-2, Class 1A3, 6.000%, 02/25/2037
    2,670,540       2,728,931          
Citicorp Residential Mortgage Trust,
                       
Series 2007-1, Class A6, 5.702%, 03/25/2037
    520,953       540,609          
Citigroup Mortgage Loan Trust, Inc.,
                       
Series 2005-9, Class 2A2, 5.500%, 11/25/2035 §
    160,144       158,904          
Citigroup Mortgage Loan Trust. Inc.:
                       
Series 2006-AR1, Class 1A1, 2.500%, 10/25/2035
    13,789,570       13,673,724          
Series 2005-9, Class 22A2, 6.000%, 11/25/2035
    8,100,117       7,694,188          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-7, Class 3A1, 5.000%, 08/25/2020
    578,422       577,854          
Deutsche Alt-A Securities Inc Mortgage Loan Trust,
                       
Series 2005-3, Class 4A5, 5.250%, 06/25/2035
    3,105,233       3,166,835          
Deutsche Alt-A Securities Mortgage Loan Trust,
                       
Series 2006-AR5, Class 21A, 6.000%, 10/25/2021 §
    459,826       399,696          
First Frankin Mortgage Loan Trust,
                       
Series 2006-FF3, Class A2B, 0.570%, 02/25/2036
    21,582,632       20,745,247          
First Horizon Alternative Mortgage Securities Trust:
                       
Series 2006-FA6, Class 3A1, 5.750%, 11/25/2021
    228,815       227,064          
Series 2005-AA2, Class 2A1, 2.248%, 04/25/2035
    5,805,726       5,690,093          
Series 2006-FA8, Class 2A1, 5.750%, 02/25/2037 §
    851,749       738,877          
GSR Mortgage Loan Trust:
                       
Series 2004-15F, Class 5A1, 5.500%, 01/25/2020
    1,410,979       1,446,769          
Series 2005-3F, Class 2A4, 6.000%, 03/25/2035
    7,656,180       7,899,608          
J.P. Morgan Alternative Loan Trust:
                       
Series 2005-S1, Class 3A1, 5.500%, 10/25/2020
    2,669,822       2,654,046          
Series 2006-A1, Class 2A1, 2.584%, 03/25/2036 §
    167,395       136,508          
Series 2006-S3, Class A3A, 6.000%, 08/25/2036 §
    200,225       189,841          
J.P. Morgan Mortgage Trust:
                       
Series 2006-S3, Class 2A3, 5.000%, 08/25/2021 §
    412,381       410,833          
Series 2006-A2, Class 2A1, 2.609%, 04/25/2036 §
    3,688,295       3,381,174          
Series 2006-A2, Class 3A3, 5.076%, 04/25/2036 §
    4,427,649       4,155,247          
Series 2006-A7, Class 2A2, 2.695%, 01/25/2037 §
    5,409,206       4,938,302          
Series 2006-A7, Class 2A4R, 2.695%, 01/25/2037 §
    4,018,566       3,637,357          
Series 2007-A2, Class 2A3, 2.539%, 04/25/2037
    10,562,454       9,459,914          
Series 2007-A4, Class 2A3, 2.801%, 06/25/2037 §
    11,943,132       10,929,327          
MASTR Alternative Loan Trust:
                       
Series 2004-1, Class 1A1, 5.000%, 01/25/2019
    154,455       156,920          
Series 2004-5, Class 4A1, 5.500%, 07/25/2019
    454,858       473,183          
Series 2005-3, Class 4A1, 5.500%, 03/25/2020
    913,143       946,901          
Series 2003-5, Class 6A1, 6.000%, 08/25/2033
    67,084       71,485          
Series 2004-2, Class 2A1, 6.000%, 02/25/2034
    6,141,370       6,703,109          
Series 2004-8, Class 2A1, 6.000%, 09/25/2034
    5,290,371       5,416,213          
Series 2005-6, Class 1A5, 5.500%, 12/25/2035
    6,121,743       5,465,082          
Merrill Lynch Mortgage Investors Trust,
                       
Series 2004-F, Class A1B, 0.790%, 12/25/2029
    20,118,658       19,384,146          
RALI Trust:
                       
Series 2004-QS3, Class CB, 5.000%, 03/25/2019
    1,681,893       1,724,509          
Series 2004-QS13, Class CB, 5.000%, 09/25/2019
    1,454,192       1,484,972          
Series 2004-QS5, Class A5, 4.750%, 04/25/2034
    7,330       7,507          
Series 2004-QS16, Class 1A1, 5.500%, 12/25/2034
    4,537,480       4,630,807          
Series 2005-QS2, Class A1, 5.500%, 02/25/2035
    510,132       504,788          
Series 2005-QS5, Class A1, 0.570%, 04/25/2035 §
    5,112,311       3,869,191          
Series 2005-QS9, Class A2, 0.670%, 06/25/2035 §
    2,551,762       2,056,080          
Series 2005-QS11, Class A2, 0.670%, 07/25/2035
    9,049,223       7,655,516          
Sequoia Mortgage Trust,
                       
Series 2013-6, Class A2, 3.000%, 05/25/2043
    18,334,620       17,950,730          
Structured Asset Securities Corp.,
                       
Series 2003-31A, Class 2A7, 2.437%, 10/25/2033
    3,802,443       3,743,718          
Structured Asset Securities Corp. Mortgage Loan Trust,
                       
Series 2005-7XS, Class 1A4B, 5.440%, 04/25/2035
    534,781       563,334          
WaMu Mortgage Pass-Through Certificates:
                       
Series 2004-CB1, Class 5A, 5.000%, 06/25/2019
    68,700       70,481          
Series 2004-CB2, Class 5A, 5.000%, 07/25/2019
    62,583       63,918          
Series 2004-CB2, Class 7A, 5.500%, 08/25/2019
    141,997       146,150          
Series 2004-CB3, Class 4A, 6.000%, 10/25/2019
    41,260       43,311          
Series 2004-CB4, Class 22A, 6.000%, 12/25/2019
    203,220       212,240          
Series 2004-CB3, Class 1A, 6.000%, 10/25/2034
    10,152,690       10,810,300          
Series 2004-CB3, Class 2A, 6.500%, 10/25/2034
    7,837,780       8,559,867          
Series 2005-3, Class 1CB3, 0.620%, 05/25/2035
    12,275,863       9,826,878          
Wells Fargo Alternative Loan Trust,
                       
Series 2007-PA1, Class A4, 6.000%, 03/25/2037 §
    118,274       101,104          
Wells Fargo Mortgage Backed Securities:
                       
Series 2005-AR16, Class 4A2, 2.609%, 10/25/2035
    8,437,707       8,466,639          
Series 2006-AR14, Class 2A3, 2.617%, 10/25/2036 §
    7,423,908       6,980,886          
Wfrbs Coml Mtg Tr 2014-c24,
                       
Series 2014-C24, Class A5, 3.607%, 11/15/2047
    20,000,000       20,834,580          
                325,346,783       4.8 %
Asset Backed Securities
                       
ABFC Trust,
                       
Series 2006-OPT1, Class A3C2, 0.320%, 09/25/2036
    13,981,467       12,060,777          
Accredited Mortgage Loan Trust,
                       
Series 2005-4, Class A2D, 0.490%, 12/25/2035
    16,015,065       15,227,700          
ACE Securities Corp Home Equity Loan Trust,
                       
Series 2006-OP1, Class A2C, 0.320%, 04/25/2036
    18,915,809       17,855,748          
AMRESCO Residential Securities Corp Mortgage Loan Trust,
                       
Series 1998-2, Class A6, 6.405%, 12/25/2027
    4,331       4,233          
Banc of America Funding Trust,
                       
Series 2005-C, Class A1, 0.405%, 05/20/2035
    18,893,827       17,449,470          
Bayview Financial Acquisition Trust,
                       
Series 2007-A, Class 1A2, 6.205%, 05/28/2037
    800,779       847,713          
Bayview Financial Mortgage Pass-Through Trust,
                       
Series 2007-B, Class 1A2, 6.831%, 08/28/2047
    150,000       123,700          
Bear Stearns Asset Backed Securities I Trust,
                       
Series 2007-HE4, Class 1A1, 0.290%, 05/25/2037 §
    622,366       821,554          
Carrington Mortgage Loan Trust:
                       
Series 2006-NC1, Class A3, 0.380%, 01/25/2036
    9,613,202       9,196,402          
Series 2006-OPT1, Class A3, 0.350%, 02/25/2036
    12,263,663       11,885,894          
Series 2006-NC2, Class A2, 0.260%, 06/25/2036
    6,552,942       6,447,702          
Series 2007-FRE1, Class A2, 0.370%, 02/25/2037
    45,098,518       41,230,328          
Series 2007-HE1, Class A1, 0.270%, 06/25/2037
    733,669       726,682          
Citibank Credit Card Issuance Trust,
                       
Series 2007-A3, Class A3, 6.150%, 06/15/2039
    6,100,000       8,175,470          
Citicorp Residential Mortgage Trust,
                       
Series 2006-3, Class A4, 5.703%, 11/25/2036
    4,681,871       4,901,067          
Citigroup Mortgage Loan Trust, Inc.,
                       
Series 2007-WFH1, Class A3, 0.320%, 01/25/2037
    6,861,363       6,735,875          
Citigroup Mortgage Loan Trust. Inc.,
                       
Series 2006-WFH3, Class A3, 0.320%, 10/25/2036
    752,100       750,596          
Conseco Financial Corp.:
                       
Series 1993-4, Class A5, 7.050%, 01/15/2019
    3,620       3,718          
Series 1997-1, Class A5, 6.860%, 03/15/2028
    405       406          
Series 1997-4, Class A5, 6.880%, 02/15/2029
    10,968       11,242          
Series 1997-5, Class A6, 6.820%, 05/15/2029
    36,969       37,145          
Series 1998-3, Class A5, 6.220%, 03/01/2030
    388,004       410,584          
Series 1998-4, Class A5, 6.180%, 04/01/2030
    170,555       174,912          
Countrywide Asset-Backed Certificates:
                       
Series 2005-1, Class AF4, 5.147%, 02/25/2033
    649,410       653,651          
Series 2004-12, Class AF6, 4.634%, 03/25/2035
    454,450       461,080          
Series 2004-15, Class AF6, 4.613%, 04/25/2035
    414,230       416,668          
Series 2005-7, Class AF6, 4.693%, 10/25/2035
    1,264,068       1,257,798          
Series 2005-11, Class AF3, 4.778%, 02/25/2036
    1,361,262       1,382,570          
Series 2005-10, Class AF6, 4.835%, 02/25/2036
    3,023,457       2,992,524          
Series 2005-13, Class 3AV3, 0.405%, 04/25/2036
    3,452,713       3,418,097          
Series 2005-13, Class AF3, 5.000%, 04/25/2036
    1,382,654       1,165,899          
Series 2006-S9, Class A3, 5.728%, 08/25/2036
    145,278       143,051          
Series 2006-13, Class 1AF3, 4.896%, 01/25/2037 §
    151,211       183,031          
Series 2006-10, Class 1AF3, 4.933%, 09/25/2046 §
    1,253,490       959,985          
Series 2006-9, Class 1AF3, 5.297%, 10/25/2046 §
    521,114       406,524          
Series 2007-4, Class A3, 5.628%, 04/25/2047 §
    527,844       433,668          
Credit-Based Asset Servicing and Securitization LLC,
                       
Series 2005-CB8, Class AF2, 4.184%, 12/25/2035
    1,545,296       1,531,585          
CWHEQ Home Equity Loan Trust,
                       
Series 2007-S1, Class A6, 5.693%, 11/25/2036
    72,022       69,331          
GE Capital Mortgage Services Inc. Trust,
                       
Series 1999-HE1, Class A7, 6.265%, 04/25/2029
    1,541       1,554          
GSAA Home Equity Trust,
                       
Series 2004-6, Class A1, 0.970%, 06/25/2034
    5,542,342       5,405,192          
Home Equity Asset Trust,
                       
Series 2006-4, Class 2A3, 0.340%, 08/25/2036
    974,207       956,219          
HSI Asset Securitization Corp Trust:
                       
Series 2006-OPT4, Class 2A3, 0.330%, 03/25/2036
    6,912,392       6,368,601          
Series 2007-WF1, Class 2A3, 0.340%, 05/25/2037
    6,113,521       5,912,716          
J.P. Morgan Mortgage Acquisition Trust:
                       
Series 2007-CH1, Class AV5, 0.395%, 11/25/2036
    10,000,000       9,585,680          
Series 2007-CH3, Class A3, 0.320%, 03/25/2037
    13,751,210       13,558,927          
Long Beach Mortgage Loan Trust,
                       
Series 2006-WL2, Class 2A3, 0.370%, 01/25/2036
    2,754,381       2,672,271          
Luminent Mortgage Trust,
                       
Series 2005-1, Class A1, 0.430%, 11/25/2035
    19,724,349       17,742,821          
MASTR Asset Backed Securities Trust,
                       
Series 2006-NC1, Class A4, 0.470%, 01/25/2036
    7,175,000       6,877,324          
Morgan Stanley Capital I Inc. Trust:
                       
Series 2006-HE1, Class A3, 0.350%, 01/25/2036
    2,930,527       2,911,637          
Series 2006-NC2, Class A2C, 0.350%, 02/25/2036
    516,069       513,980          
Morgan Stanley Home Equity Loan Trust,
                       
Series 2006-2, Class A3, 0.340%, 02/25/2036
    5,370,309       5,329,935          
MortgageIT Trust,
                       
Series 2005-5, Class A1, 0.430%, 12/25/2035
    11,247,777       10,317,744          
Nationstar Home Equity Loan Trust:
                       
Series 2006-B, Class AV3, 0.340%, 09/25/2036
    3,846,619       3,838,684          
Series 2007-C, Class 2AV2, 0.300%, 06/25/2037
    20,882,054       20,013,862          
Oakwood Mortgage Investors, Inc.,
                       
Series 1999-B, Class A3, 6.450%, 11/15/2017
    25,455       26,092          
Option One Mortgage Loan Trust,
                       
Series 2005-4, Class A3, 0.430%, 11/25/2035
    481,366       474,903          
RAMP Trust:
                       
Series 2002-RS3, Class AI5, 5.572%, 06/25/2032
    2,910,447       2,885,682          
Series 2003-RS10, Class AI7, 4.850%, 11/25/2033
    27,383       27,540          
Series 2004-RS4, Class AI6, 5.072%, 04/25/2034
    1,974,649       2,019,147          
RASC Series Trust,
                       
Series 2006-EMX2, Class A2, 0.370%, 02/25/2036
    8,492,271       8,366,075          
RASC Series Trust,
                       
Series 2003-KS5, Class AI6, 3.620%, 07/25/2033
    44,944       43,640          
RASC Trust,
                       
Series 2003-KS9, Class AI6, 4.710%, 11/25/2033
    80,562       77,679          
Renaissance Home Equity Loan Trust:
                       
Series 2005-1, Class AF6, 4.970%, 05/25/2035
    122,578       124,366          
Series 2005-3, Class AF3, 4.814%, 11/25/2035
    1,768,809       1,791,573          
Series 2006-2, Class AF3, 5.797%, 08/25/2036
    16,479,123       10,562,722          
Series 2006-3, Class AF2, 5.580%, 11/25/2036
    10,921,352       6,732,806          
Series 2007-1, Class AF2, 5.512%, 04/25/2037
    486,104       255,700          
Series 2007-1, Class AF3, 5.612%, 04/25/2037
    291,663       156,213          
Series 2007-2, Class AF2, 5.675%, 06/25/2037
    1,473,962       766,842          
Soundview Home Loan Trust:
                       
Series 2005-OPT4, Class 2A3, 0.690%, 12/25/2035
    12,083,175       11,875,973          
Series 2006-OPT4, Class 2A3, 0.320%, 06/25/2036
    7,483,857       6,925,838          
Series 2006-OPT5, Class 2A3, 0.320%, 07/25/2036
    20,123,219       17,436,065          
Specialty Underwriting & Residential Finance Trust,
                       
Series 2004-BC4, Class A1A, 0.840%, 10/25/2035
    4,240,382       4,125,365          
Springleaf Mortgage Loan Trust,
                       
Series 2012-2A, Class A, 2.220%, 10/25/2057 (Acquired 07/31/2012, Cost $2,743,838) *
    2,744,149       2,780,945          
                360,016,693       5.4 %
Commercial Mortgage Backed Securities
                       
Bear Stearns Commercial Mortgage Securities Trust,
                       
Series 2005-PWR9, Class A4A, 4.871%, 09/11/2042
    15,593,186       15,817,727          
CD Commercial Mortgage Trust,
                       
Series 2005-CD1, Class A4, 5.226%, 07/15/2044
    17,619,769       17,904,470          
Citigroup Commercial Mortgage Trust,
                       
Series 2014-GC19, Class A3, 3.753%, 03/10/2047
    5,000,000       5,269,850          
COMM Mortgage Trust:
                       
Series 2005-C6, Class A5A, 5.116%, 06/10/2044
    17,581,545       17,769,000          
Series 2012-CR1, Class A3, 3.391%, 05/15/2045
    25,842,000       26,878,419          
Series 2013-CR9, Class A3, 4.022%, 07/10/2045
    19,000,000       20,493,723          
Series 2012-CR2, Class A4, 3.147%, 08/15/2045
    29,950,000       30,681,619          
Series 2014-CCRE18, Class A4, 3.550%, 07/15/2047
    5,000,000       5,177,600          
Credit Suisse First Boston Mortgage Securities Corp.,
                       
Series 2005-C5, Class A4, 5.100%, 08/15/2038
    9,976,252       10,108,677          
DBUBS Mortgage Trust,
                       
Series 2011-LC3A, Class A4, 4.551%, 08/10/2044
    2,000,000       2,219,458          
GE Capital Commercial Mortgage Corp.,
                       
Series 2005-C4, Class A4, 5.312%, 11/10/2045
    12,795,000       12,993,668          
GMAC Commercial Mortgage Securities Inc Trust,
                       
Series 2004-C2, Class A4, 5.301%, 08/10/2038
    52,010       52,080          
GS Mortgage Securities Corp II,
                       
Series 2011-GC5, Class A4, 3.707%, 08/10/2044
    6,256,873       6,619,653          
Series 2012-GCJ9, Class A3, 2.773%, 11/10/2045
    37,485,000       37,264,738          
Series 2014-GC20, Class AAB, 3.655%, 04/10/2047
    13,000,000       13,683,267          
J.P. Morgan Chase Commercial Mortgage Securities Trust:
                       
Series 2005-CB12, Class A4, 4.895%, 09/12/2037
    24,965,000       25,224,012          
Series 2013-LC11, Class A5, 2.960%, 04/15/2046
    22,075,000       22,164,624          
JPMBB Commercial Mortgage Securities Trust,
                       
Series 2013-C17, Class A3, 3.928%, 01/15/2047
    23,700,000       25,382,818          
Series 2014-C25, Class A5, 3.672%, 11/15/2047
    24,000,000       25,070,064          
Morgan Stanley Bank of America Merrill Lynch Trust:
                       
Series 2012-C5, Class A4, 3.176%, 08/15/2045
    27,800,000       28,462,780          
Series 2012-C6, Class A4, 2.858%, 11/15/2045
    30,160,000       30,204,094          
Series 2013-C10, Class A3, 3.968%, 07/15/2046
    31,290,000       33,726,896          
Series 2013-C11, Class A3, 3.960%, 08/15/2046
    19,100,000       20,445,595          
Morgan Stanley Capital I Trust,
                       
Series 2005-HQ7, Class A4, 5.206%, 11/14/2042
    17,546,380       17,823,034          
Wachovia Bank Commercial Mortgage Trust,
                       
Series 2005-C22, Class A4, 5.269%, 12/15/2044
    17,242,890       17,611,008          
Wells Fargo Commercial Mortgage Trust,
                       
Series 2013-LC12, Class A3, 3.986%, 07/15/2046
    13,600,000       14,624,597          
WFRBS Commercial Mortgage Trust:
                       
Series 2012-C6, Class A4, 3.440%, 04/15/2045
    19,016,000       19,867,118          
Series 2014-C23, Class ASB, 3.636%, 10/15/2057
    10,500,000       11,047,671          
                514,588,260       7.7 %
Total Long-Term Investments (Cost $6,492,564,373)
            6,571,929,164       97.8 %
                           
                           
SHORT-TERM INVESTMENTS
 
Shares
                 
Money Market Mutual Funds
                       
Dreyfus Cash Advantage Fund, 0.06% «
    67,643,075       67,643,075          
Short-Term Investments Trust - Liquid Assets Portfolio, 0.07% «
    130,000,000       130,000,000          
Total Short-Term Investments (Cost $197,643,075)
            197,643,075       3.0 %
                           
INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM
                       
SECURITIES LENDING
                       
Investment Companies
                       
Mount Vernon Securities Lending Trust Prime Portfolio, 0.29% «
    180,054,574       180,054,574          
Total Investment Companies (Cost $180,054,574)
            180,054,574       2.7 %
                           
Total Investments Purchased With Cash Proceeds From
                       
Securities Lending (Cost $180,054,574)
            180,054,574       2.7 %
Total Investments (Cost $6,870,262,022)
            6,949,626,813       103.5 %
Liabilities in Excess of Other Assets
            (233,019,902 )     (3.5 )%
TOTAL NET ASSETS
          $ 6,716,606,911       100.0 %
 
Notes to Schedule of Investments
 
*
Restricted security as defined in Rule 144(a) under the Securities Act of 1933 and determined to be liquid. Purchased in a private placement transaction; resale to the public may require registration or may extend only to qualified institutional buyers. At December 31, 2014, the value of these securities total $805,885,552, which represents 12% of total net assets.
 
**
Illiquid Security
 
@
This security or portion of this security is out on loan at December 31, 2014.
 
f
Foreign Security
 
«
7-Day Yield
 
§
Security in Default
 
Priced at Fair Value by the Valuation Committee as delegated by the Baird Funds' Board of Directors.
 
 
 
Report of Independent Registered Public
Accounting Firm
 
Board of Directors and Shareholders
Baird Funds, Inc.
 
 
We have audited the accompanying statements of assets and liabilities of Baird Ultra Short Bond Fund, Baird Short-Term Bond Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Aggregate Bond Fund and Baird Core Plus Bond Fund (six of the nine funds constituting Baird Funds, Inc.) (collectively the “Funds”), including the summary schedules of investments, as of December 31, 2014, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended (as to the Baird Ultra Short Bond Fund, for the year ended December 31, 2014) (collectively, the "financial statements"), the financial highlights for each of the five years in the period then ended (as to the Baird Ultra Short Bond Fund, for the year ended December 31, 2014) (the financial statements and financial highlights are included in Item 1 of this Form N-CSR), and the schedules of investments as of December 31, 2014 (included in Item 6 of this Form N-CSR). These financial statements, financial highlights, and schedules of investments are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements, financial highlights, and schedules of investments based on our audits.
 
 
We conducted our audits 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, financial highlights, and schedules of investments are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules of investments. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 
In our opinion, the financial statements, financial highlights, and schedules of investments referred to above present fairly, in all material respects, the financial position of each of the aforementioned Funds of Baird Funds, Inc. as of December 31, 2014, and the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.
Chicago, Illinois
February 26, 2015
 
 
(b)
Not applicable
 
 
 

 
 
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable because the Registrant is not a closed-end management investment company.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable because the Registrant is not a closed-end management investment company.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable because the Registrant is not a closed-end management investment company.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of directors.

Item 11. Controls and Procedures.

(a)  
The Registrant’s management, with the participation of its principal executive and principal financial officers, has evaluated the effectiveness of the Registrant's 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.  Based on such evaluation, the Registrant's principal executive and principal financial officers have concluded that the design and operation of the Registrant's disclosure controls and procedures are effective in providing reasonable assurance that the information required to be disclosed on Form N-CSR is recorded, processed, summarized and reported within the applicable time periods.

(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.

(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons.  Not applicable because the Registrant is not a closed-end management investment company.

(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:       March 9, 2015



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:       March 9, 2015


By:          /s/Dominick Zarcone
Dominick Zarcone, Treasurer

Date:       March 9, 2015


EX-99.CERT 2 baird-ex99cert302.htm CERTIFICATION 302 baird-ex99cert302.htm
CERTIFICATIONS

I, Mary Ellen Stanek, certify that:

 
1.  
I have reviewed this report on Form N-CSR of Baird Funds, Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
 
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
 
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 


Date:      March 9, 2015
 
/s/Mary Ellen Stanek
Mary Ellen Stanek, President

 

 
 
 

 
 
CERTIFICATIONS

I, Dominick Zarcone, certify that:

 
1.  
I have reviewed this report on Form N-CSR of Baird Funds, Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
 
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)  
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
 
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 


Date:      March 9, 2015
 
/s/Dominick Zarcone
Dominick Zarcone, Treasurer



EX-99.906 CERT 3 baird-ex99cert906.htm CERTIFICATION 906 baird-ex99cert906.htm
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Baird Funds, Inc. does hereby certify, to such officer’s knowledge, that the report on Form N-CSR of Baird Funds, Inc. for the period ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of Baird Funds, Inc. for the stated period.


/s/Mary Ellen Stanek
Mary Ellen Stanek
President, Baird Funds, Inc.
 
/s/Dominick Zarcone
Dominick Zarcone
Treasurer, Baird Funds, Inc.
Dated:      March 9, 2015
 


This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by Baird Funds, Inc. for purposes of the Securities Exchange Act of 1934.
 
 


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