Baird Quarterly Market Review - Q3 2011

d kQ3 2011 Baird Market ReviewQ3 2011 Baird Market ReviewQB i d P i t W lth M tBaird Private Wealth Managementg

Wealth Management | Capital Markets – Investment Banking | Private Equity | Asset ManagementWealth Management | Capital Markets Investment Banking | Private Equity | Asset Management

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1G i h A i t U S E it I t S ll/Mid C p F d Ap il 2011 S d t d ith 98 U S ll p d id p f dRobert W Baird & Co

1Greenwich Associates U.S. Equity Investors – Small/Mid-Cap Funds, April 2011. Surveys conducted with 98 U.S. small-cap and mid-cap fund Robert W. Baird & Co.managers. Rankings based on top 10 research firms in survey. Greenwich Associates is the leading consulting firm in the institutional and sell-side research

2Baird Market Reviewg g p f y g g f

market 2market.

Hi hli ht f th Q3 2011 B i d M k t R iHighlights from the Q3 2011 Baird Market ReviewHighlights from the Q3 2011 Baird Market Review

Economy and Market • Quality: High quality stocks outperformed Fixed IncomeEconomy and Market Quality: High quality stocks outperformed low quality stocks on average (Page 15)

Fixed IncomeAt a Glance: The global stock markets were

low quality stocks, on average. (Page 15)Taxable Bonds: In a flight to quality • At a Glance: The global stock markets were

S t Th l f f • Taxable Bonds: In a flight to quality

decidedly negative in Q3 due to increased • Sector: There was a clear preference for environment Treasury bonds were the top dec ded y egat e Q3 due to c easedconcerns about the health of various defensive sectors with Utilities, Consumer

e o e t easu y bo ds e e t e topperforming bond segment Overall taxable concerns about the health of various

i (P 6)defensive sectors with Utilities, Consumer Staples and Telecomm outperforming

performing bond segment. Overall, taxable b d t t ith th ti economies. (Page 6) Staples and Telecomm outperforming. bond returns were strong with the exception ( g )

i h fEconomically-sensitive sectors were hit hard

g pof High Yield (Page 25)• Economic Growth: Q1 GDP figures were

yin Q3 (Page 17)

of High Yield. (Page 25)Q grevised lower and Q2’s release showing

in Q3. (Page 17)• Municipal Bonds: Municipals bonds revised lower and Q2 s release showing

1 0% li d th f i l • Active Fund Management: The average • Municipal Bonds: Municipals bonds

ti d t f ll i Q3 lik l 1.0% annualized growth was fairly • Active Fund Management: The average t l f d i h d i d

continued to perform very well in Q3, likely lackluster. (Page 7) mutual fund once again had mixed success. due to limited supply and increased demand. lackluster. (Page 7) g

Small Cap and Large Value appear to be due to limited supply and increased demand. On a tax equivalent basis municipals • Employment: Unemployment remains

Small Cap and Large Value appear to be areas of strength while Large Growth and

On a tax-equivalent basis, municipals f d bl b d b dEmployment: Unemployment remains

stubbornly high despite government efforts areas of strength while Large Growth and outperformed taxable bonds by a wide stubbornly high despite government efforts International were difficult areas to add

p ymargin (Page 25)to create jobs. (Page 8) value (Page 19)margin. (Page 25)j ( g ) value. (Page 19)

• Maturity and Credit Quality: Higher yields • Volatility: Q3 was marked by large swings • Maturity and Credit Quality: Higher yields d t t l t d ith l d t d Volatility: Q3 was marked by large swings

in stock prices as volatility surged largely a and total return occurred with longer-dated in stock prices as volatility surged, largely a l f i i E d h International Equity bonds, both in the taxable and municipal result of uncertainty in Europe and other International Equity bonds, both in the taxable and municipal

markets Higher quality taxable bonds y pfactors (Page 9) • Market Cap and Style: Most international markets. Higher quality taxable bonds factors. (Page 9) Market Cap and Style: Most international

markets underperformed the U S outperformed, while that trend is less clear • Commodities: Oil retreated to its lowest markets underperformed the U.S. p ,

with municipal bonds (Page 26)• Commodities: Oil retreated to its lowest l l i 2011 ld fi i h d th t ith Furthermore, an appreciation of the dollar with municipal bonds. (Page 26)levels in 2011; gold finished the quarter with Furthermore, an appreciation of the dollar

led to even lower results for U S investors • Yield Curve: Yields fell across maturities as a positive return but experienced a led to even lower results for U.S. investors. (P 21)

• Yield Curve: Yields fell across maturities as d d f U S T i i d R t a positive return but experienced a

substantial drop in September (Page 10) (Page 21) demand for U.S. Treasuries increased. Rates substantial drop in September. (Page 10) ( g )on a 10-year Treasury are now at all-time • Developed versus Emerging Markets: In on a 10 year Treasury are now at all time lows Spreads of major bond types widened p g g

an environment where less risky assets lows. Spreads of major bond types widened Domestic Equity

an environment where less risky assets t f d E i M k t l d relative to last quarter, with the most Domestic Equity outperformed, Emerging Markets lagged e at e to ast qua te , t t e ost

pronounced move occurring in High Yield • Market Cap and Style: Large Cap Developed Countries, on average. (Page 22) pronounced move occurring in High Yield.

(P 27/28)• Market Cap and Style: Large Cap i ifi tl t f d S ll C L

Developed Countries, on average. (Page 22) (Page 27/28)significantly outperformed Small Cap. Large • Country: European countries were under

( g )

Growth was the best performing U.S. equity Country: European countries were under great stress pushing stock markets Growth was the best performing U.S. equity

asset class (Page 13)great stress, pushing stock markets

asset class. (Page 13) considerably lower. Conversely, the y y,conservativeness often associated with conservativeness often associated with J h l d it t b l ti Japan helped it to be a relative outperformer. (Page 23)outperformer. (Page 23)

Robert W Baird & CoOpinions and factors are subject to change See important disclosures and definitions included with this publication Robert W. Baird & Co.Opinions and factors are subject to change. See important disclosures and definitions included with this publication. 3Baird Market Review 3

Econom & MarketEconomy & MarketEconomy & Market

The Markets at a GlanceThe Markets at a Glance…Last Qtr YTDLast Qtr YTD

Asset Class Return (%) Return (%) BenchmarkAsset Class Return (%) Return (%) Benchmark

U.S. Stocks

Large Cap Value (16.2) (11.2) Russell 1000® Valueg p ( ) ( )

Large Cap Growth (13.1) (7.2) Russell 1000® Growthg p ( ) ( )

Mid Cap (18.9) (12.3) Russell Midcap®

S ll C (21 9) (17 0) R ll 2000® Small Cap (21.9) (17.0) Russell 2000®

International StocksInternational Stocks

Developed Markets (19 0) (14 6) MSCI EAFE (Gross) Developed Markets (19.0) (14.6) MSCI EAFE (Gross)

BondsBonds

Short-Term Taxable 0 3 1 3 BarCap 1-3 Yr Govt/Credit Short Term Taxable 0.3 1.3 BarCap 1 3 Yr Govt/Credit

Intermediate-Term Taxable 2.4 4.9 BarCap Intermed. Govt/Credit Intermediate Term Taxable 2.4 4.9 BarCap Intermed. Govt/Credit

Short-Term Tax-Exempt 0.5 1.9 BarCap 1-3 Yr Municipal Short Term Tax Exempt 0.5 1.9 BarCap 1 3 Yr Municipal

Intermediate-Term Tax-Exempt 2.0 5.4 BarCap 5 Yr Municipalp p p

Cash

Cash/Cash Equivalents 0 0 0 0 Citi 3 Month T bills Cash/Cash Equivalents 0.0 0.0 Citi 3 Month T-bills

Satellite

High Yield (6.3) (1.7) BoA ML High Yield Master II

R l E t t (15 3) (6 8) DJ US REIT Real Estate (15.3) (6.8) DJ US REIT

C diti (11 3) (13 6) DJ UBS C dit Commodities (11.3) (13.6) DJ UBS Commodity

Emerging Markets (22 5) (21 7) MSCI Emerging Mkts (Gross) Emerging Markets (22.5) (21.7) MSCI Emerging Mkts (Gross)

Source: Morningstar Direct See important disclosures in appendix Robert W Baird & CoSource: Morningstar Direct. See important disclosures in appendix. Robert W. Baird & Co.6Baird Market Review | Economy & Market 6Baird Market Review | Economy & Market

I fl ti d GDP Gr thInflation and GDP GrowthInflation and GDP GrowthHistoric CPI Level (Last 20 Years)Historic CPI Level (Last 20 Years)

6

4)%

)I (

%PI

2r Cea

rYe

01-Y

0

ng 1

lin Current: 3 8%

rai Current: 3.8%

Average: 2 5%2Tr Average: 2.5%

-2

4 Consumer Price Index -4A 91 A 93 A 95 A 97 A 99 A 01 A 03 A 05 A 07 A 09 A 11

Consumer Price Index (CPI)Aug-91 Aug-93 Aug-95 Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 (CPI)Measuring the change in the Measuring the change in the CPI provides an estimate for CPI provides an estimate for inflation. The CPI tracks the GDP Growth (Last 20 Years) inflation. The CPI tracks the price of a basket of consumer

GDP Growth (Last 20 Years)9 price of a basket of consumer

goods and services. High goods and services. High inflation or deflation

6inflation or deflation

6(negative inflation) can be (negative inflation) can be signs of economic o

3%) signs of economic worry.

3

(%h

(

Gross Domestic Product

wth Gross Domestic Product

0ow (GDP)

Gro

( )GDP is a basic measure of

P G GDP is a basic measure of

-3DP U.S. economic output. 3

GD

Q l GDP li d

pAlternatively it can be Quarterly GDP, annualized Alternatively, it can be

6thought of as the final value

-6g

of all goods and services of all goods and services produced within the U.S.

-9pPositive GDP growth signals

1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1

Positive GDP growth signals

n-9

c-9

n-9

c-9

n-9

c-9

n-9

c-9

n-9

c-9

n-9

c-9

n-9

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un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un Dec un

p g y

J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D J D JSource: Factset; Baird Analysis GDP figures lag one quarter CPI figures lag one month See important disclosures and Robert W Baird & CoSource: Factset; Baird Analysis. GDP figures lag one quarter, CPI figures lag one month. See important disclosures and Robert W. Baird & Co.

7definitions included with this publication. Baird Market Review | Economy & Market 7f p Baird Market Review | Economy & Market

U S Empl m tU.S. EmploymentU.S. EmploymentHistoric Unemployment Rate (Last 30 Years)Historic Unemployment Rate (Last 30 Years)

1212

)%

)

9(%te

Current: 9 1%

Rat Current: 9.1%

Average: 6 3%

t R Average: 6.3%

nt

6

me

ymlo

ym

pl

3em 3ne

Un

00

Monthly Jobs Gained/Lost (Last 10 Years)Monthly Jobs Gained/Lost (Last 10 Years)

600Unemployment Rate

600Unemployment Rate Calculated monthly by the ) Calculated monthly by the 4000

s)

Bureau of Labor Statistics, 400

00

Bureau of Labor Statistics, the nemplo ment ate is a (0 the unemployment rate is a 200ls

(

gauge of the health of the oll

gauge of the health of the U S l b k t Hi h 0yr

o

U.S. labor market. High 0

Pay

unemployment can stifle the

m P unemployment can stifle the

th f th 200rm growth of the economy-200

far

onf

Monthly Jobs Gained/Lost-400No

Monthly Jobs Gained/Lost400

n N

Based on changes in monthly e in g y

nonfarm payroll this -600ge

nonfarm payroll, this

ang

indicator shows whether ha

companies have been adding -800Ch companies have been adding or reducing employees.g p y

Source: BLS; Baird Analysis BLS data will lag one month and are subject to revision Employment figures are seasonally Robert W Baird & CoSource: BLS; Baird Analysis. BLS data will lag one month and are subject to revision. Employment figures are seasonally Robert W. Baird & Co.8adjusted. See important disclosures and definitions included with this publication. Baird Market Review | Economy & Market 8j p f p Baird Market Review | Economy & Market

M rk t V l tilit ( f 9/30/11)Market Volatility (as of 9/30/11)Market Volatility (as of 9/30/11)Historic VIX Level (Last 10 Years)Historic VIX Level (Last 10 Years)

8080

6060

Current: 43 0l Current: 43.0Average: 21 8

ve

Average: 21.8

ev 40LeIX

V

IV

2020

0 VIX (CBOE Volatility Index)0 VIX (CBOE Volatility Index)Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 The VIX measures the implied p p p p p p p p p p p The VIX measures the implied

volatility of S&P 500 future volatility of S&P 500 future Quarterly S&P 500 Trading Volatility (Last 10 Years)

00%options. Simply put, it

Q y g y ( )

100%options. Simply put, it measures the expected measures the expected volatility of the S&P 500 Index volatility of the S&P 500 Index over the next 30 days The 80%s

over the next 30 days. The

ys +/- 1% or greater move higher the index, the higher

Day +/ 1% or greater move higher the index, the higher

the e pected olatilit It is

g D +/- 2% or greater move the expected volatility. It is

60%ng / g

also commonly referred to as 60%

di also commonly referred to as

th “f i d ”rad the “fear index.”

f T

40%of S&P Trading Volatility40%

nt S&P Trading Volatility

cen Rather than focus on implied

erc p

volatility this measures actual 20%P

e volatility, this measures actual 20% trading volatility. Trading days g y g y

where the S&P 500 Index where the S&P 500 Index

0%closes up/down more than 1%

0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

p/or 2% are reported on a Q

3 Q

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or 2% are reported on a

20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 quarterly basis.001001002002002002003003003003004004004004005005005005006006006006007007007007008008008008009009009009010010010010011011011

q y

1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1

Source: Yahoo! Finance; Baird Analysis See important disclosures and definitions included with this publication Robert W Baird & CoSource: Yahoo! Finance; Baird Analysis. See important disclosures and definitions included with this publication. Robert W. Baird & Co.9Baird Market Review | Economy & Market 9Baird Market Review | Economy & Market

C mm dit Pri ( f 9/30/11)Commodity Prices (as of 9/30/11)Commodity Prices (as of 9/30/11)Oil Prices (Last 10 Years) Oil Prices (This Year)

$ 20$

Oil Prices (Last 10 Years) Oil Prices (This Year)$120 $160

)$140

bl)$140

C t $79 $110 bb

bl) Current: $79

$$

$/b$120 bb Average: $61

($

$

$/b

es

$100($

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es

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il P$80Pri

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ud

e

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$40Cru

$80WTI$40

I C

$80 W

WTI

$20 W

$70$ $70 $-

Gold Prices (Last 10 Years) Gold Prices (This Year)Gold Prices (Last 10 Years)$1 900

Gold Prices (This Year)

$2,000 $1,900 $ ,

$1,800 $ ,

z) Current: $1 620 $1,800 z)

$1,600 oz Current: $1,620A $715

$ ,

/oz

$ ,

$/ Average: $715 $/

$1,400

x($ $1 700x ($

Fix $1,700

Fix

$1,200

d F d F

$ 000old

$1 600old

$1,000 Go $1,600 Go

$800M G

M G

$800 PM

$1 500

PM

$600n P $1,500

on

$600

don do

$400nd

ond

$400

Lon

$1,400 Lo

$200

L $ ,L

$200

$0 $1 300$0 $1,300

Source: U S Dept of Energy; London PM Gold Fix Index; Baird Analysis See important disclosures and definitions included Robert W Baird & CoSource: U.S. Dept of Energy; London PM Gold Fix Index; Baird Analysis. See important disclosures and definitions included Robert W. Baird & Co.10with this publication. Baird Market Review | Economy & Market 10p Baird Market Review | Economy & Market

M t l F d d ETF Fl ( f 8/31/11)Mutual Fund and ETF Flows (as of 8/31/11)Mutual Fund and ETF Flows (as of 8/31/11)Annual Mutual Fund and ETF Flows ($millions)Annual Mutual Fund and ETF Flows ($millions)

Y t D t Fl Calendar Year Flows ($M)Year-to-Date Flows Calendar Year Flows ($M)($M)($ )

Total Assets Quarter- Year-to- 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001($B) to-Date Date 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001($B) to Date Date

Money Market $2,551 (32,666) (147,562) (457,104) (361,888) 576,020 332,296 214,437 108,960 (92,043) (357,087) (40,415) 356,758 y $ , ( , ) ( , ) ( , ) ( , ) , , , , ( , ) ( , ) ( , ) ,

Municipal Bond $485 (860) (22,511) 13,518 76,387 11,494 11,242 17,147 6,725 (8,509) (5,172) 14,278 7,784 p $ ( ) ( , ) , , , , , , ( , ) ( , ) , ,

Taxable Bond $2,164 4,718 111,161 248,461 345,891 54,716 113,862 50,126 36,760 19,667 45,489 109,831 62,670

B l d $768 (3 782) 20 430 14 203 4 013 (19 975) 46 291 28 810 49 852 63 725 48 235 19 692 12 753Balanced $768 (3,782) 20,430 14,203 4,013 (19,975) 46,291 28,810 49,852 63,725 48,235 19,692 12,753

U S St k $3 793 (33 692) (560) (28 463) (21 399) 17 703 50 254 52 966 77 418 149 859 136 241 59 049 82 462U.S. Stock $3,793 (33,692) (560) (28,463) (21,399) 17,703 50,254 52,966 77,418 149,859 136,241 59,049 82,462

Inte national Stock $1 516 (9 726) 19 910 82 983 58 260 (51 104) 183 007 169 178 133 812 83 442 35 611 9 593 (10 308)International Stock $1,516 (9,726) 19,910 82,983 58,260 (51,104) 183,007 169,178 133,812 83,442 35,611 9,593 (10,308)

Alternative $161 5 867 21 679 26 921 32 574 23 447 14 852 13 806 5 299 5 963 4 527 2 594 635Alternative $161 5,867 21,679 26,921 32,574 23,447 14,852 13,806 5,299 5,963 4,527 2,594 635

Commodities $179 3 786 8 796 25 070 36 070 12 066 6 677 8 809 8 018 6 248 1 393 73 1Commodities $179 3,786 8,796 25,070 36,070 12,066 6,677 8,809 8,018 6,248 1,393 73 1

Annual Fund FlowsAnnual Fund FlowsTh i ti f l The examination of annual

Biggest % Gainers/Losers by Asset Classmutual fund and ETF flows shows

Biggest % Gainers/Losers by Asset Classmutual fund and ETF flows shows th i t t tt f th the investment pattern of the Top 10 In-Flows Trailing 1-Year Top 10 Out-Flows Trailing 1-Yearaverage investor by broad asset

op 0 o s a g ea

( % f t ) G th R t

op 0 Out o s a g ea

( % f t ) G th R t average investor by broad asset l F l i 2008

(as a % of assets) Growth Rate (as a % of assets) Growth Rateclass. For example, in 2008 Bank Loan 69 3% Europe Stock -16 2%investors exited stocks when the

Bank Loan 69.3%k

Europe Stock -16.2%d d investors exited stocks when the

k t f ll I 2009 l Japan Stock 63.0% Trading-Leveraged Equity -13.8%

markets fell. In 2009, large p

Emerging Markets Bond 58 7%g g q y

China Region -12 0%amounts of capital went to fixed

Emerging Markets Bond 58.7%C 53 4%

China Region 12.0%M M k T F 11 3% amounts of capital went to fixed

i b t littl fl d b k t Currency 53.4% Money Market Tax Free -11.3%

income, but little flowed back to Multialternative 44 0% Aggressive Allocation -10 3%stocks

Multialternative 44.0%C diti B d B k t 39 5%

Aggressive Allocation 10.3%M i N ti l L 9 9% stocks.Commodities Broad Basket 39.5% Muni National Long -9.9%

Miscellaneous Sector 31 0% Long Government -9 6%Gainers/Losers

Miscellaneous Sector 31.0%W ld B d 29 0%

Long Government 9.6%M i Si l St t I t 9 6%

/These tables depict individual

World Bond 29.0% Muni Single State Interm -9.6%These tables depict individual

Natural Res 29 0% Muni Single State Long -9 4%asset classes that have exhibited

Natural Res 29.0%C tibl 26 9%

Muni Single State Long 9.4%Hi h Yi ld M i 8 9%

the greatest positive or negative Convertibles 26.9% High Yield Muni -8.9%

the greatest positive or negative percentage change in assets.pe ce tage c a ge assets

Source: Morningstar Direct; Baird Analysis Asset classes with less than $10 billion invested were excluded from the analysis Robert W Baird & CoSource: Morningstar Direct; Baird Analysis. Asset classes with less than $10 billion invested were excluded from the analysis. Robert W. Baird & Co.11See important disclosures and definitions included with this publication. Baird Market Review | Economy & Market 11p f p Baird Market Review | Economy & Market

Domestic Eq itDomestic EquityDomestic Equity

D ti A t Cl P f ( f 9/30/11)Domestic Asset Class Performance (as of 9/30/11)Domestic Asset Class Performance (as of 9/30/11)( )Latest Quarter Return (%) By Market Cap Year to Date Return (%) By Market CapQ ( ) y p ( ) y p

00 00

55 -5-5

-8 7-10

%)-10

%)

8.7

(%(%

12 3n (

n (

-12.3-15urn

13 9-15urn

15

etu-13.915

etu

Re

Re

-17.02020 -20-18.9-20

-21.9-25-25

Large Cap Mid Cap Small CapLarge Cap Mid Cap Small Cap Large Cap Mid Cap Small CapLarge Cap Mid Cap Small Cap

Latest Quarter Return (%) By Style Year to Date Return (%) By StyleLatest Quarter Return (%) By Style Year to Date Return (%) By Style

0 0

-5 -55 5

-7 210)

-7.210)-10

%) -10

%)

(% (%

rn

-11.2 -11 6rn

13 1ur

13 011.6

ur

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Re

15 6

15R

e

-16 2 -15.616.2

-18 520 -18 52018.5-19.3-20 18.5-20

-21.522 2-22.2

-25 -25Large Large Mid Mid Small Small Large Large Mid Mid Small SmallLarge Value

Large Growth

Mid Value

Mid Growth

Small Value

Small Growth

Large Value

Large Growth

Mid Value

Mid Growth

Small Value

Small GrowthValue Growth Value Growth Value Growth Value Growth Value Growth Value Growth

Source: Vestek; Russell indices; Standard & Poors; Baird Analysis. Asset classes are represented by the following benchmarks: S&P 500 (Large k; d ; d d ; d y p d y f g k ( gCap) Russell Midcap® (Mid Cap) Russell 2000® (Small Cap) Russell 1000 Value® (Large Value) Russell 1000 Growth® (Large Growth) Robert W Baird & CoCap), Russell Midcap® (Mid Cap), Russell 2000® (Small Cap), Russell 1000 Value® (Large Value), Russell 1000 Growth® (Large Growth),

® ® ®Robert W. Baird & Co.

13Russell Midcap Value® (Mid Value), Russell Midcap Growth® (Mid Growth), Russell 2000 Value® (Small Value), and Russell 2000 Baird Market Review | Domestic Equity 13p ( ) p ( ) ( )Growth® (Small Growth) See important disclosures and definitions included with this publication

Baird Market Review | Domestic EquityGrowth® (Small Growth). See important disclosures and definitions included with this publication.

I tm t St l P rf rm O r TimInvestment Style Performance Over TimeInvestment Style Performance Over TimeMega Cap vs. Small CapMega Cap vs. Small Cap

1010

l al

l

Mega Cap Outperforms

ma Mega Cap Outperforms

Sm

5vs.

5

p v

%)

ap (%Ca

s (

ge rn

0arg

tur

La Ret

I t t St ln

p R Investment Style

e i

ap Performance of different types 5n

ce Ca Performance of different types

f k ill i A -5en of stocks will vary over time. A

er common way to characterize a

ffe common way to characterize a

k i b i ( l Di stock is by size (e.g., large cap Small Cap Outperforms

-10 or small cap) or style (e g Small Cap Outperforms

-10

1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1

or small cap) or style (e.g., l h)00

1

002

002

003

003

004

004

005

005

006

006

007

007

008

008

009

009

010

010

011

011 value or growth).

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Mega Cap vs Small CapQ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Mega Cap vs. Small CapLarge companies tend to be Large companies tend to be more established companies Value vs. Growth more established companies Value vs. Growth

15 and therefore exhibit lower

and therefore exhibit lower volatility Over an extended

h volatility. Over an extended

10wth period of time, expected returns Value Outperforms10

ow

period of time, expected returns of small cap companies a e

Gro of small cap companies are

5. G often higher due to the risks 5

vs%

) often higher due to the risks i t d ith ll l e

v(%

associated with smaller, less

0lue

s (

established companies.0

Val rns established companies.

n V

tur

5 in et Value vs. Growth-5ce

R Value companies typically trade

enc Value companies typically trade

G h O f

ere at discount valuations and may Growth Outperforms

-10ffe y

pay a dividend Growth

Dif pay a dividend. Growth

D companies are those that are -15

pexperiencing greater earnings

01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11

experiencing greater earnings

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

201

201

201

201 acceleration growth prospects.

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2 g p p

Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

S M i Di R ll B h k B i d A l i B h k i f ll R ll T 200 (L C ) R ll 2000Source: Morningstar Direct; Russell Benchmarks; Baird Analysis. Benchmark proxies are as follows: Russell Top 200 (Large Cap), Russell 2000 Robert W Baird & CoIndex (Small Cap), Russell 3000 Value Index (Value), and Russell 3000 Growth Index (Growth). See important disclosures and definitions Robert W. Baird & Co.

14Index (Small Cap), Russell 3000 Value Index (Value), and Russell 3000 Growth Index (Growth). See important disclosures and definitions i l d d ith thi p bli ti Baird Market Review | Domestic Equity 14included with this publication. Baird Market Review | Domestic Equity

Quality Impact over TimeQuality Impact over TimeQ y p

Quality Spread Analysis (High Quality vs. Low Quality Stock Performance)Q y p y ( g Q y Q y )

1010Company Quality

%) Company Quality

8(% Many companies are available

n ( a y o pa a a a ab

for investment including those 6u

rn for investment including those Highest Quality 6

etu

considered to be of high or low Outperforms

Re considered to be of high or low

quality Higher quality p

4y R quality. Higher quality

4

lity companies tend to be more

ual

companies tend to be more profitable and have less debt 2Q

u profitable and have less debt.

w Q Lower quality companies tend

0ow

Lower quality companies tend to have uncertain earnings and 0

-Lo to have uncertain earnings and

y - riskier business prospects.

-2ity riskier business prospects.

Many active investment 2

al Many active investment

Qu managers have a bias towards

-4h Q

managers have a bias towards high quality companiesLowest Quality

gh high quality companies.Lowest Quality

Outperforms6H

ig Outperforms-6H

Quality Spread AnalysisQuality Spread Analysis

-8 To determine whether high or 8

01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11

glow quality stocks are in favor

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

201

201

201

201 low quality stocks are in favor,

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2

1 2

3 2 Baird examines three variables

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

that distinguish quality These that distinguish quality. These include operating efficiency p g y(return on equity) profitability (return on equity), profitability (profit margin), and debt levels (p g ),(debt to equity) This chart (debt-to-equity). This chart represents the difference in preturns between the highest returns between the highest and lowest quality stocks.q y

S V k R ll B h k B i d A l i S k i hi h R ll 3000® I d d b i fi i d d bSource: Vestek; Russell Benchmarks; Baird Analysis. Stocks within the Russell 3000® Index are sorted by return on equity, profit margin, and debt-Robert W Baird & Coto-equity. Each stock is ranked in quintiles and the return of the average top two quartiles and bottom two quartiles stock is determined. The quality Robert W. Baird & Co.

15to equity. Each stock is ranked in quintiles and the return of the average top two quartiles and bottom two quartiles stock is determined. The quality p d l i p t th diff i t b t th t t i S i p t t di l d d fi iti i l d d ith thi p bli ti Baird Market Review | Domestic Equity 15spread analysis represents the difference in return between the two categories. See important disclosures and definitions included with this publication. Baird Market Review | Domestic Equity

Rolling Asset Class ReturnsRolling Asset Class ReturnsgANNUAL RETURNS QUARTERLY RETURNS

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q4 2010 Q1 2011 Q2 2011 Q3 20112001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

Taxable Bonds Municipal Bonds Small Cap International Satellite International Large Cap Growth Taxable Bonds Satellite Small Cap Small Cap Small Cap Municipal Bonds Taxable Bonds 9.0% 10.3% 47.3% 20.7% 18.3% 26.9% 11.8% 5.1% 46.8% 26.9% 16.3% 7.9% 3.3% 3.8%

Municipal Bonds Taxable Bonds Mid Cap Satellite International Large Cap Value International Municipal Bonds Mid Cap Mid Cap Mid Cap Mid Cap Taxable Bonds Municipal BondsMunicipal Bonds 5 2%

Taxable Bonds 9 8%

Mid Cap 40 0%

Satellite 20 1%

International 14 0%

Large Cap Value 22 3%

International 11 6%

Municipal Bonds 4 6%

Mid Cap 40 5%

Mid Cap 25 5%

Mid Cap 13 1%

Mid Cap 7 6%

Taxable Bonds 2 3%

Municipal Bonds 3 1%5.2% 9.8% 40.0% 20.1% 14.0% 22.3% 11.6% 4.6% 40.5% 25.5% 13.1% 7.6% 2.3% 3.1%

Cash Satellite International Mid Cap Mid Cap Satellite Satellite Cash Large Cap Growth Satellite Large Cap Growth Large Cap Value International CashCash 4.1%

Satellite 5.3%

International 39.2%

Mid Cap 20.2%

Mid Cap 12.7%

Satellite 20.5%

Satellite 9.0%

Cash 1.8%

Large Cap Growth 37.2%

Satellite 19.5%

Large Cap Growth 11.8%

Large Cap Value 6.5%

International 1.8%

Cash 0.0%4.1% 5.3% 39.2% 20.2% 12.7% 20.5% 9.0% 1.8% 37.2% 19.5% 11.8% 6.5% 1.8% 0.0%

Small Cap Cash Satellite Small Cap Large Cap Value Small Cap Taxable Bonds Small Cap International Large Cap Growth Large Cap Value Large Cap Growth Large Cap Growth Large Cap Growth 2.5% 1.7% 36.2% 18.3% 7.1% 18.4% 7.4% ‐33.8% 32.5% 16.7% 10.5% 6.0% 0.8% ‐13.1%

S lli C l C l C l C G h id C id C C l S ll C C l S lli S lli id C S lliSatellite 1 2%




Large Cap Growth 5 3%

Mid Cap 15 3%

Mid Cap 5 6%


Small Cap 27 2%


Satellite 8 3%

Satellite 4 3%

Mid Cap 0 4%

Satellite 13 9%‐1.2% ‐15.5% 30.0% 16.5% 5.3% 15.3% 5.6% ‐36.9% 27.2% 15.5% 8.3% 4.3% 0.4% ‐13.9%

Large Cap Value International Large Cap Growth Large Cap Growth Small Cap Large Cap Growth Municipal Bonds Satellite Large Cap Value International International International Cash Large Cap ValueLarge Cap Value ‐5 6%

International ‐15 7%



Small Cap 4 6%



Satellite ‐38 0%


International 8 2%

International 6 7%

International 3 5%

Cash 0 0%

Large Cap Value ‐16 2%‐5.6% ‐15.7% 29.8% 6.3% 4.6% 9.1% 5.1% ‐38.0% 19.7% 8.2% 6.7% 3.5% 0.0% ‐16.2%

Mid Cap Mid Cap Municipal Bonds Municipal Bonds Cash Cash Cash Large Cap Growth Municipal Bonds Taxable Bonds Cash Municipal Bonds Large Cap Value Mid Cap p‐5.6%

p‐16.2%

p5.4%

p3.2% 3.0% 4.8% 4.7%

g p‐38.4%

p7.6% 6.5% 0.0%

p0.6%

g p‐0.5%

p‐18.9%

Large Cap Growth Small Cap Taxable Bonds Taxable Bonds Municipal Bonds Taxable Bonds Large Cap Value Mid Cap Taxable Bonds Municipal Bonds Taxable Bonds Taxable Bonds Satellite International ‐20.4% ‐20.5% 4.3% 3.0% 1.7% 4.1% ‐0.2% ‐41.5% 5.2% 4.6% ‐1.3% 0.4% ‐1.0% ‐19.0%

International Large Cap Growth Cash Cash Taxable Bonds Municipal Bonds Small Cap International Cash Cash Municipal Bonds Cash Small Cap Small CapInternational 21 2%


Cash 1 1%

Cash 1 2%

Taxable Bonds 1 6%


Small Cap 1 6%

International 43 1%

Cash 0 2%

Cash 0 1%


Cash 0 0%

Small Cap 1 6%

Small Cap 21 9%‐21.2% ‐27.9% 1.1% 1.2% 1.6% 4.0% ‐1.6% ‐43.1% 0.2% 0.1% ‐2.4% 0.0% ‐1.6% ‐21.9%

Source: Baird Advisory Services Research Barclays Capital MSCI Large Growth represented by Russell 1000® Growth Index; measures the performance of those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth valuesSource: Baird Advisory Services Research, Barclays Capital, MSCI. Large Growth represented by Russell 1000® Growth Index; measures the performance of those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values. Large Value represented by Russell 1000® Value Index; measures the performance of those Russell 1000® companies with lower price to book ratios and lower forecasted growth values Mid Cap represented by Russell Midcap® Index; measures the performanceLarge Value represented by Russell 1000® Value Index; measures the performance of those Russell 1000® companies with lower price-to-book ratios and lower forecasted growth values. Mid Cap represented by Russell Midcap® Index; measures the performance f th 800 ll t p i f th R ll 1000® I d hi h p t pp i t l 25% f th t t l k t pit li ti f th R ll 1000® I d S ll C p t d b R ll 2000® I d th p f f th 2 000 ll tof the 800 smallest companies of the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. Small Core represented by Russell 2000® Index; measures the performance of the 2,000 smallest

i i h R ll 3000® I d hi h i l 8% f h l k i li i f h R ll 3000® I d T bl b d d b B l C i l I di G /C di B d I d hi h i i d f i lcompanies in the Russell 3000® Index, which represent approximately 8% of the total market capitalization of the Russell 3000® Index. Taxable bonds represented by Barclays Capital Intermediate Govt/Credit Bond Index which is comprised of approximately 3,500 publicly traded bonds, including U.S. Government and corporate bonds with an average maturity of approximately 4 years. Municipal bonds represented by the Barclays Capital 7-Year Municipal Index which is a subset of the BC Municipal Bond Index that includes maturities of six to eight years. Int’l is represented by The MSCI EAFE Index which is an international index measuring market performance of 21 countries in Europe, Australasia, and the Far East. Cash represented by Citi 3 month T-bills. Satellite is an equally-weighted return of the following indices, rebalanced monthly: BoA ML High Yield Master II (High Yield), DJ US Select REIT (Real Estate), DJ UBS Commodity (Commodities), and MSCI Emerging Markets (Emerging Markets). q y g f f g , y g ( g ), J ( ), J y ( ), g g ( g g )Indices are unmanaged and are used to measure and report performance of various sectors of the market. Past performance is no guarantee of future results and diversification does not ensure against loss. Direct investment in indices is not available. Indices are g p p f f f k p f g f f f gunmanaged The Russell Indices are a trademark of the Frank Russell Company Russell® is a trademark of the Frank Russell Companyunmanaged. The Russell Indices are a trademark of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company.

Robert W Baird & CoRobert W. Baird & Co.16Baird Market Review | Domestic Equity 16Baird Market Review | Domestic Equity

E i S t R t ( f 9/30/11)Economic Sector Returns (as of 9/30/11)Economic Sector Returns (as of 9/30/11)( )Russell 3000 ® Performance by Sector (Latest Quarter)Russell 3000 Performance by Sector (Latest Quarter)

(0 1)Utilities (0.1)Utilities

(4.5)Cons. Staples

( )

(4.5)

T l

Co s Stap es

(9.6)Telecomm

(10 4)Info Tech Sector Weighting (%) in the Russell 3000® Index(10.4)Info. Tech. Sector Weighting (%) in the Russell 3000® Index(11.7)Health Care (11.7)

C Di

Health Care

(15.1)Cons. Disc.T l

(15 3)Russell 3000®Telecomm

(15.3)Russell 3000® 3.0(21 5)Energy Materials(21.5)Energy Materials

3 9(21.6)Financials 3.9

(22 2)

( )

Industrials Info. Tech.Utilities(22.2)Industrials 18.84.1(25 1)Materials

18.84.1(25.1)Materials

Cons. Staples30 25 20 15 10 5 0

Cons. Staples10 1-30 -25 -20 -15 -10 -5 0 10.1

QTR Performance (%)QTR Performance (%)

Fi i lRussell 3000 ® Performance by Sector (Year to Date)

FinancialsEne gRussell 3000 ® Performance by Sector (Year to Date) 14.8Energy10.7

9 4Utilities 9.4 Utilities

3 9Cons Staples 3.9 Cons. Staples

0.7 Health Care Industrials(3 2)Telecomm

Health Care10.8(3.2)Telecomm 12.210.8

(7 7)Info Tech12.2

Cons. Disc.(7.7)Info. Tech. Cons. Disc.11 7(8.1)Cons. Disc. 11.7

(9 9)

( )R ll 3000® (9.9)Russell 3000®

(12 9)Energy (12.9)Energy

(16.4)Industrials

(22 1)

(16.4)M t i l (22.1)Materials

(23 0)Financials (23.0)Financials

30 25 20 15 10 5 0 5 10 15-30 -25 -20 -15 -10 -5 0 5 10 15

YTD Performance (%)YTD Performance (%)

Source: Vestek; Baird Analysis See important disclosures in appendix Robert W Baird & CoSource: Vestek; Baird Analysis. See important disclosures in appendix. Robert W. Baird & Co.17Baird Market Review | Domestic Equity 17Baird Market Review | Domestic Equity

® dRolling Sector Returns (Russell 3000® Index)Rolling Sector Returns (Russell 3000 Index)g ( )

ANNUAL RETURNS QUARTERLY RETURNS2002 2003 2004 2005 2006 2007 2008 2009 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

ANNUAL RETURNS QUARTERLY RETURNS2002 2003 2004 2005 2006 2007 2008 2009 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

I f ti I f ti CConsumer Staples

Information Technology

Energy Energy Telecomm Energy Consumer Staples Information Technology

Consumer Discretionary

Energy Energy Health Care Utilities ‐4.8%

Technology 50 9%

32.8% 33.5% 37.2% 32.0% ‐16.6%Technology

61 8%Discretionary

30 1%22.3% 16.9% 6.9% ‐0.1%

50.9% 61.8% 30.1%

MaterialsConsumer

Utilities Utilities Utilities Materials Health Care Materials Industrials Materials Industrials Consumer Staples Consumer StaplesMaterials ‐8 4%

Discretionary Utilities 23 6%

Utilities 15 2%

Utilities 21 7%

Materials 26 3%

Health Care ‐23 4%

Materials 53 2%

Industrials 27 3%

Materials 19 4%

Industrials 8 7%

Consumer Staples 5 6%

Consumer Staples ‐4 5%8.4%

38.2%23.6% 15.2% 21.7% 26.3% 23.4% 53.2% 27.3% 19.4% 8.7% 5.6% 4.5%

ConsumerEnergy

%Materials

%Industrials

%Health Care

%Energy

%Utilities

%Utilities

%


Materials %

Industrials %

Health Care %

Utilities %

Telecomm %‐8.9% 37.0% 18.4% 8.3% 21.6% 17.5% ‐28.5%

y46.6%

25.3% 13.6% 6.7% 5.1% ‐9.6%

I f ti C C I f tiFinancials Industrials Telecomm Financials Materials

Information Technolog

Telecomm Industrials Energy Consumer

DiscretionarMaterials

Consumer Discretionar

Information Technolog

‐11.4% 32.7% 18.1% 6.4% 20.7%Technology

15 1%‐33.3% 21.8% 21.8%

Discretionary 13 5%

5.6%Discretionary

3 3%Technology

10 4%15.1% 13.5% 3.3% ‐10.4%

Industrials Financials Materials Industrials Financials Consumer Staples Energy Health Care TelecommInformation Consumer

Telecomm Health CareIndustrials ‐20 1%

Financials 32 6%

Materials 17 1%

Industrials 6 0%

Financials 19 7%


Energy ‐37 2%

Health Care 21 8%

Telecomm 17 8%

Technology Discretionary Telecomm

2 4%Health Care

‐11 7%‐20.1% 32.6% 17.1% 6.0% 19.7% 14.1% ‐37.2% 21.8% 17.8%11.4% 4.8%

2.4% ‐11.7%

Consumer Consumer Information ConsumerHealth Care Utilities Financials Consumer Staples


Industrials Consumer

DiscretionaryEnergy Consumer Staples Financials Telecomm



‐21.4% 26.3% 13.8% 4.5%Discretionary

16.4%12.3%

Discretionary ‐38.7%

17.9% 14.4% 11.1% 4.4%Technology

‐1.3%Discretionary

‐15.1%

C C I f iConsumer Di ti

Energy Consumer

Di tiMaterials Industrials Telecomm Industrials Consumer Staples Financials Telecomm

Information T h l

Industrials Energy Discretionary

23 9%

gy26.0%

Discretionary 13 7%

4.2% 15.2% 10.1% ‐39.8%p

15.7% 13.6% 7.0%Technology

4 4%‐1.3%

gy‐21.5%

‐23.9% 13.7% 4.4%

Utilities Health Care Consumer StaplesInformation

Consumer Staples Health CareInformation

FinancialsInformation

Consumer Staples Utilities Materials FinancialsUtilities ‐25 6%

Health Care 20 0%


Technology Consumer Staples

15 1%Health Care

7 9%Technology

Financials 14 4%

Technology Consumer Staples

6 4%Utilities 4 1%

Materials ‐1 5%

Financials ‐21 6%‐25.6% 20.0% 9.5%

2.2%15.1% 7.9%

‐42.9%14.4%

12.8%6.4% 4.1% ‐1.5% ‐21.6%

Information ConsumerTelecomm Consumer Staples Health Care Telecomm



Materials Telecomm Utilities Health Care Financials Financials Industrials ‐35.0% 14.5% 4.2% ‐2.6%

Technology 8.9%

Discretionary ‐11.7%

‐46.8% 12.7% 7.3% 5.1% 3.5% ‐5.0% ‐22.2%8.9% 11.7%

Information T h l

Telecomm Information T h l

Consumer Di i

Health Care Financials Financials Utilities Health Care Utilities Consumer Staples Energy Materials Technology

39 2%8.2%

Technology 1 4%

Discretionary 4 2%

6.8% ‐17.8% ‐49.8% 12.5% 6.0% 2.2%p

3.1%gy

‐5.1% ‐25.1%‐39.2% 1.4% ‐4.2%

Source: Baird Advisory Services Research, Vestek. Global Industry Classification Standard (GICS) consists of 10 sectors aggregated up from 23 Industry Groups, 59 Industries, and 123 Sub-industries covering almost 6,000 companies globally. GICS sector returns y , y f ( ) f gg g p f y p , , g , p g ybased on the Russell 3000 Index. Energy: construction or provision of oil rigs; drilling equipment & other energy-related service & equipment; or exploration, production, marketing, refining &/or transportation of oil & gas products, coal & other consumable fuels.based on the Russell 3000 Index. Energy: construction or provision of oil rigs; drilling equipment & other energy related service & equipment; or exploration, production, marketing, refining &/or transportation of oil & gas products, coal & other consumable fuels. Materials: manufacture chemicals constructions materials glass paper forest products & related packaging products & metals; minerals & mining companies including producers of steel Industrials: manufacture & distribution of capital goods provision of commercialMaterials: manufacture chemicals, constructions materials, glass, paper, forest products & related packaging products, & metals; minerals & mining companies, including producers of steel. Industrials: manufacture & distribution of capital goods, provision of commercial services & supplies & the provision of transportation services Consumer Discretionary: a manufacturing segment (automotive household durable goods textiles & apparel & leisure equipment) & services segment (hotels restaurants & other leisure facilities mediaservices & supplies & the provision of transportation services. Consumer Discretionary: a manufacturing segment (automotive, household durable goods, textiles & apparel, & leisure equipment) & services segment (hotels, restaurants & other leisure facilities, media p d ti & i & C t ili & i ) C St pl f t & di t ib t f d b & t b & p d d bl h h ld d & p l p d t H lth C f t H lth C ip t & ppli p idproduction & services & Consumer retailing & services). Consumer Staples: manufacture & distribute food, beverages & tobacco & produce non-durable household goods & personal products. Health Care: manufacture Health Care equipment & supplies or provide H l h C l d i h d l d i & k i f h i l & bi h l d Fi i l b ki fi fi i li d fi i b ki & b k & dHealth Care related services; research, development, production, & marketing of pharmaceuticals & biotechnology products. Financials: banking, mortgage finance, consumer finance, specialized finance, investment banking & brokerage, asset management & custody, corporate lending, insurance & financial investment, & real estate. Information Technology: software development or information technology consulting & services; manufacturers & distributors of communications equipment, computers & peripherals, electronic equipment & related instruments, & semiconductors. Telecomm Services: communications services primarily through a fixed-line, cellular, wireless, high bandwidth &/or fiber optic cable network. Utilities: electric, gas, or water utilities; independent producers &/or distributors of f f fpower. GICS is the exclusive property of Morgan Stanley Capital International Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby p p p y f g y p ( ) , f p , ( ) f y yprovided all information "as is" and expressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have any liability. Past performance is no guarantee of future results and diversification does not ensure against loss. provided all information as is and expressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have any liability. Past performance is no guarantee of future results and diversification does not ensure against loss.

Robert W Baird & CoRobert W. Baird & Co.18Baird Market Review | Domestic Equity 18Baird Market Review | Domestic Equity

A i E i F d P fActive Equity Fund PerformanceActive Equity Fund Performanceq yPercent of Funds Outperforming Market Benchmarks (Latest Quarter)p g ( Q )

100%100%

75%

alot

a

50%f To

50%

ofnt

61%cen

49% 52%61% 59%

25%erc

49% 47% 52%25%Pe

26%36% 29% 31%

14%26% 29% 31%

14%0%

Large Large Large Mid Mid Mid Small Small Small Int'lLarge Growth

Large Core

Large Value

Mid Growth

Mid Core

Mid Value

Small Growth

Small Core

Small Value

Int l

Mutual Fund PerformanceGrowth Core Value Growth Core Value Growth Core Value

Mutual Fund Performance% Outperform % Underperform

Active investment managers % Outperform % Underperform

Active investment managers often have a primary objective often have a primary objective

Percent of Funds Outperforming Market Benchmarks (Year to Date) of outperforming a relevant Percent of Funds Outperforming Market Benchmarks (Year to Date)100%

of outperforming a relevant market benchmark based on 100% market benchmark based on the fund’s investment style. In the fund s investment style. In ce tain pe iods acti e

75%certain periods, active

75% managers can find it easier or

l

managers can find it easier or diffi lt t t fta more difficult to outperform.

50%Tot

50%

of T

This chart examines ten main

t o

This chart examines ten main

67%ent

assets classes, detailing what 64% 67%rc

e , gpercentage of mutual fund

46% 51% 51%25%Per percentage of mutual fund

31%46% 40% 38% 37%

25%P managers over- or under-31% 38% 37% g

performed in a given period 16% performed in a given period.

0% This provides useful context 0%L L L Mid Mid Mid S ll S ll S ll I t'l

pwhen assessing mutual funds Large Large Large Mid Mid Mid Small Small Small Int'l when assessing mutual funds

Growth Core Value Growth Core Value Growth Core Value that you may own. y y

% Outperform % Underperformp p

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of y y p f f f d g z d y g f f d g y fSeptember 30 2011: 430 for Large Growth 406 for Large Core 310 for Large Value 220 for Mid Growth 120 for Mid Core 110 for Mid Value Robert W Baird & CoSeptember 30, 2011: 430 for Large Growth, 406 for Large Core, 310 for Large Value, 220 for Mid Growth, 120 for Mid Core, 110 for Mid Value, Robert W. Baird & Co.

19223for Small Growth, 178 for Small Core, 101 for Small Value, and 408 for International. Source: Morningstar Direct; S&P 500 and Russell Baird Market Review | Domestic Equity 19f f f f gbenchmarks; Baird Analysis See important disclosures and definitions included with this publication

Baird Market Review | Domestic Equitybenchmarks; Baird Analysis. See important disclosures and definitions included with this publication.

International Eq itInternational EquityInternational Equity

International Asset Class Performance (as of 9/30/11)International Asset Class Performance (as of 9/30/11)International Asset Class Performance (as of 9/30/11)Latest Quarter Return (%) Year to Date Return (%)Q ( ) ( )

-19 0MSCI EAFE (US$ Return) Currency -14.6MSCI EAFE (US$ Return) Currency19.0MSCI EAFE (US$ Return) yEffect

6( $ ) Currency Effect

-15.7MSCI EAFE (Local Currency Return)Effect

-330 b p -15.2MSCI EAFE (Local Currency Return) Effect+60 b p15.7( y ) 330 b.p. +60 b.p.

19 0MSCI EAFE V l 14 1MSCI EAFE Value-19.0MSCI EAFE - Value -14.1MSCI EAFE - Value

18 9MSCI EAFE Growth -15 2MSCI EAFE - Growth-18.9MSCI EAFE - Growth -15.2MSCI EAFE - Growth

-19 6MSCI EAFE - Large Cap -17.2MSCI EAFE - Large Cap19.6MSCI EAFE Large Cap 17.2g p

-18.9MSCI EAFE - Mid Cap -14.8MSCI EAFE - Mid Cap18.9p

15 2MSCI EAFE S ll C-18.5MSCI EAFE - Small Cap -15.2MSCI EAFE - Small Capp

23 0MSCI Europe 17 8MSCI Europe-23.0MSCI Europe -17.8MSCI Europe

6 4MSCI Japan -10 8MSCI Japan-6.4MSCI Japan 10.8MSCI Japan

-19 7MSCI Pacific ex Japan -17.6MSCI Pacific ex Japan19.7MSCI Pacific ex Japan 17.6p

2MSCI E i M k t-22.5MSCI Emerging Markets -21.7MSCI Emerging Markets

MSCI BRIC

g g

25 9MSCI BRIC-25.8MSCI BRIC -25.9MSCI BRIC

-30 -25 -20 -15 -10 -5 0 -30 -25 -20 -15 -10 -5 0

R t (%)30 25 20 15 10 5 0

Return (%)Return (%) Return (%)

S M i Di MSCI I di B i d A l i (b b i i 1 b i i l 1/100 f )Source: Morningstar Direct ; MSCI Indices; Baird Analysis. (b.p. = basis point; 1 basis point equals 1/100 of a percent). Robert W Baird & CoCurrency effect reflects the gains or losses associated with translating foreign currency to the US Dollar. See important disclosures and Robert W. Baird & Co.

21Currency effect reflects the gains or losses associated with translating foreign currency to the US Dollar. See important disclosures and d finiti n includ d with thi public ti n Baird Market Review | International Equity 21definitions included with this publication. Baird Market Review | International Equity

I tm t St l P rf rm O r TimInvestment Style Performance Over TimeInvestment Style Performance Over TimeInternational Value vs. International GrowthInternational Value vs. International Growth

10

Value Outperforms

h Value Outperforms

wth

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1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 way to characterize a stock is by size

001

002

002

003

003

004

004

005

005

006

006

007

007

008

008

009

009

010

010

011

011 y y

(e g large cap or small cap) or style

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 20

3 20 (e.g., large cap or small cap) or style

Q3

Q1

Q3

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Q3

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V l G hValue vs. GrowthDeveloped vs. Emerging Market CountriesValue companies typically trade at

Developed vs. Emerging Market CountriesValue companies typically trade at di l i d

15discount valuations and may pay a dividend Growth companies are 10) Developed Markets dividend. Growth companies are h h

10

s.

%

Developed Markets Outperform those that are experiencing greater vs s

(% Outperform

earnings acceleration growth 5d v

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Emerging Markets process of rapid growth and 15

Di

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O t f process of rapid growth and ind t i li tion tho gh e hibit le Em Outperformindustrialization, though exhibit less -20advanced financial and political 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 advanced financial and political

t200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

201

201

201

201

systems.3 2

1 2

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3 2

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1 2

3 2

Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

S M i Di R ll B h k S d d & P B i d A l i B h k i f ll MSCI EAFE V lSource: Morningstar Direct; Russell Benchmarks; Standard & Poors; Baird Analysis. Benchmark proxies are as follows: MSCI EAFE Value Robert W Baird & Co(Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important Robert W. Baird & Co.

22(Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important di l d d fi iti i l d d ith thi p bli ti Baird Market Review | International Equity 22disclosures and definitions included with this publication. Baird Market Review | International Equity

I t ti l R t b C t ( f 9/30/11)International Returns by Country (as of 9/30/11)International Returns by Country (as of 9/30/11)y y ( )International Developed Countries International Emerging MarketsInternational Developed Countries International Emerging Markets

MSCI EAFE Return by Country (Latest Quarter) MSCI EM Return by Country (Latest Quarter)MSCI EAFE Return by Country (Latest Quarter) MSCI EM Return by Country (Latest Quarter)

11 0Indonesia6 4Japan -11.0Indonesia-6.4Japan

16 8South Africa15 4U K -16.8South Africa-15.4U.K.

-17.0Malaysia-17.5Switzerland 17.0Malaysia17.5Switzerland

-17.7Taiwan-19.0MSCI EAFE

19 7M i20 1A t li -19.7Mexico-20.1Australia

19 9India21 8Netherlands -19.9India-21.8Netherlands

-22 5MSCI Em. Mkts-22 1Spain 22.5MSCI Em. Mkts22.1Spain

-23.2South Korea-26.6Sweden

25 2Chi29 8F -25.2China-29.8France

26 9Brazil31 0Germany -26.9Brazil-31.0Germany

-31 0Russia-31 0Italy 31.0Russia31.0Italy

-35 -30 -25 -20 -15 -10 -5 0 5-35 -30 -25 -20 -15 -10 -5 0 35 30 25 20 15 10 5 0 535 30 25 20 15 10 5 0

QTR Performance (%)QTR Performance (%) Q e o a ce(%)Q e o a ce(%)

MSCI EAFE R t b C t (Y t D t ) MSCI EM R t b C t (Y t D t )MSCI EAFE Return by Country (Year to Date) MSCI EM Return by Country (Year to Date)

0 6I d iS i 0.6Indonesia-9.5Spain

10 4Malaysia9 8Switzerland -10.4Malaysia-9.8Switzerland

-16 7South Korea-10 7U K 16.7South Korea10.7U.K.

-19.7Mexico-10.8Japan

T i

10.8

MSCI EAFE

apa

-19.8Taiwan-14.6MSCI EAFE

20 0South Africa17 0Australia -20.0South Africa-17.0Australia

-21 7MSCI Em Mkts-17 2Netherlands 21.7MSCI Em. Mkts-17.2Netherlands

-24.0Russia-18.3France 0

Chi18.3France

-24.4China-20.6Germany

26 7India22 0Sweden

y

-26.7India-22.0Sweden

-28 0Brazil23 0Italy 28.0Brazil-23.0Italy

-35 -30 -25 -20 -15 -10 -5 0 535 30 25 20 15 10 5 0 -35 -30 -25 -20 -15 -10 -5 0 5-35 -30 -25 -20 -15 -10 -5 0

YTD Performance (%)YTD Performance (%) YTD Performance (%)YTD Performance (%)

S M i Di MSCI I di B i d A l i All d i USD MSCI EAFE (D l dSource: Morningstar Direct.; MSCI Indices; Baird Analysis. All returns are reported in USD. MSCI EAFE (Developed Robert W Baird & Comarkets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 10 largest countries Robert W. Baird & Co.

23markets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 10 largest countries b w ighting in th b nch rk S i p rt nt di cl ur nd d finiti n includ d with thi public ti n Baird Market Review | International Equity 23by weighting in the benchmark. See important disclosures and definitions included with this publication. Baird Market Review | International Equity

Fi ed IncomeFixed IncomeFixed Income

Fi d I P f b B d T ( f 9/30/11)Fixed Income Performance by Bond Type (as of 9/30/11)Fixed Income Performance by Bond Type (as of 9/30/11)y yp ( )

Fixed Income Performance (Latest Quarter) Fixed Income Performance (Year to Date)( Q ) ( )

B l U S A t I d 6.7Barclays U.S. Aggregate Index3.8Barclays U.S. Aggregate Indexy gg g

8.8Treasuries6.5Treasuries 6.5Treasuries

TaxableT bl 4 4AgenciesTaxable B d2 4Agencies Taxable 4.4Agencies Bonds2.4Agencies

BondsBonds

5 3Mortgage Backed Securities2 4Mortgage Backed Securities 5.3Mortgage-Backed Securities2.4Mortgage-Backed Securities

6 1I t G d C t2 9I t G d C t 6.1Invest.Grade Corporates2.9Invest.Grade Corporates

-1.4High Yield Corporates-6.1High Yield Corporates g pg p

8.4Barclays Municipal Bond Index3.8Barclays Municipal Bond Index 8.4Barclays Municipal Bond Index3.8Barclays Municipal Bond Index

3 5Prerefunded1 4Prerefunded 3.5Prerefunded1.4Prerefunded

8 4General Obligation3 5General Obligation 8.4General ObligationM i i l

3.5General ObligationMunicipal Municipal

d Bonds4 2I dMunicipal

Bonds 8.8Insured Bonds4.2Insured Bonds

d 8.9Revenue Bonds4.2Revenue Bonds 8.9Revenue Bonds

8 4High Yield3.3High Yield 8.4High Yield3.3g

9 6 3 0 3 6 9 12 15-9 -6 -3 0 3 6 9 12 15 -9 -6 -3 0 3 6 9 12 15-9 -6 -3 0 3 6 9 12 15Return (%) Return (%)Return (%) ( )

Robert W Baird & CoSource: Bloomberg; Baird Analysis. See important disclosures and definitions included with this publication. Robert W. Baird & Co.25

g; y p f pBaird Market Review | Fixed Income 25Baird Market Review | Fixed Income

P f b M t it d C dit Q lit ( f 9/30/11)Performance by Maturity and Credit Quality (as of 9/30/11)Performance by Maturity and Credit Quality (as of 9/30/11)y y y ( )

Performance by Maturity (Latest Quarter) Performance by Credit Quality (Latest Quarter)Performance by Maturity (Latest Quarter) Performance by Credit Quality (Latest Quarter)820

6.4820

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0 -80AAA AA A Baa Below BaaShort Term Intermediate Long Term AAA AA A Baa Below Baa

(High Yield)Short-Term Intermediate Long-Term

(High Yield)Taxable Bonds Municipal BondsTaxable Bonds Municipal Bonds pp

P f b M t it (Y t D t ) P f b C dit Q lit (Y t D t )Performance by Maturity (Year to Date) Performance by Credit Quality (Year to Date)

18 720 1218.72010.4

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Short-Term Intermediate Long-Term AAA AA A Baa Below BaaShort Term Intermediate Long TermT bl B d M i i l B d

AAA AA A Baa Below Baa (High Yield)bl d i i l dTaxable Bonds Municipal Bonds (High Yield)Taxable Bonds Municipal Bonds

S Bl b B i d A l i R ti d fi d b Bl b d p t b d i th BC U S A t B d i d (t bl b d )Robert W Baird & Co

Source: Bloomberg; Baird Analysis. Ratings are as defined by Bloomberg and represent bonds in the BC U.S. Aggregate Bond index (taxable bonds) Robert W. Baird & Co.and BC Municipal Index (municipal bonds). Short-term maturity is defined as 1-3 years, intermediate is 5-7 years for taxable and 6-8 for

26Baird Market Review | Fixed Incomep ( p ) y f y , y f f

municipal long term is 10+ years for taxable and 8 12 years for municipal See important disclosures and definitions included with this publication 26Baird Market Review | Fixed Incomemunicipal, long-term is 10+ years for taxable and 8-12 years for municipal. See important disclosures and definitions included with this publication.

U S Treasury Yield Curve Over TimeU.S. Treasury Yield Curve Over TimeU.S. Treasury Yield Curve Over Time

U.S. Treasury Yield Curvey

5 05.0

4.5

4 04.0

3.53.5

3 03.0

)

2 5%)

2.5(%ld

2.0iel

Yi

09/30/11 Current Qtr1 5

09/30/11 Current Qtr1.5 06/30/11 Last Qtr06/30/11 Last Qtr

1.0 09/30/10 Last Year

Yield Curve0 5

The yield curve is the 0.5

The yield curve is the relationship between a bond’s 0.0 pyield and time to maturity

0.0yield and time to maturity.

mo

mo yr yr yr 0yr

0yr

Generally, the yield curve is 3m 6m 2y 3y 5y 10 30 y, ypositively sloped meaning M t it positively sloped, meaning Maturityinvestors require a greater

yq g

return (yield) for investing in return (yield) for investing in Hi t i l T Yi ld (%) longer-maturity bonds. Historical Treasury Yields (%) g y

However the yield curve can 3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr However, the yield curve can 3 mo 6 mo 2 yr 3 yr 5 yr 10 yr 30 yr

take other forms including flat, g ,humped and downward 09/30/11 0.02 0.06 0.25 0.42 0.96 1.92 2.90 humped, and downward

06/30/11 0 03 0 10 0 45 0 81 1 76 3 18 4 38 sloping (inverted).06/30/11 0.03 0.10 0.45 0.81 1.76 3.18 4.3809/30/ 0 0 6 0 9 0 2 0 6 2 2 3 3 69

p g ( )09/30/10 0.16 0.19 0.42 0.64 1.27 2.53 3.69

Robert W Baird & CoSource: Bloomberg; Baird Analysis. See important disclosures and definitions included with this publication. Robert W. Baird & Co.27

Source: Bloomberg; Baird Analysis. See important disclosures and definitions included with this publication. Baird Market Review | Fixed Income 27Baird Market Review | Fixed Income

Fi d I Yi ld S d O TiFixed Income Yield Spreads Over TimeFixed Income Yield Spreads Over TimepFi d I Yi ld S dFixed Income Yield Spreads

900807

900807

800800

er

09/30/10 Last Year700ov

e)

09/30/10 Last Year700

d o ts)

06/30/11 Last Qtr600ad n

t 06/30/11 Last Qtr09/30/11 Current Qtr 526 525600

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Op

0O 0Agencies Mortgage backed Securities Invest Grade Corporates High Yield CorporatesAgencies Mortgage-backed Securities Invest. Grade Corporates High Yield Corporates

Historical Fixed Income Yield Spreads (Last 10 Years)1 800

Historical Fixed Income Yield Spreads (Last 10 Years)1,800

ry

1,600sur

1,600

as

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r T

Mortgage backed Securities

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1,200ov s)

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ad o

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pre

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800Sp is additional yield required to

800

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600ste

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dj the difference between the 400-a individual bond types and

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200tio Treasury bonds. When credit 200

Op

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0

O spreads are high, risk is priced 0

1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 at a premium.

-01

-01

02 -02

-02

-02

03 -03

-03

-03

04 -04

-04

-04

05 -05

-05

-05

06 -06

-06

-06

07 -07

-07

-07

08 -08

-08

-08

09 -09

-09

-09

10 -10

-10

-10

11 -11

-11 p

ep-

ec-

ar-

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Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se De

Ma Ju Se

Source: Bloomberg; Baird Analysis One basis point equals 1/100 of a percent See important disclosures and definitions included Robert W Baird & CoSource: Bloomberg; Baird Analysis. One basis point equals 1/100 of a percent. See important disclosures and definitions included Robert W. Baird & Co.28with this publication. Baird Market Review | Fixed Income 28p Baird Market Review | Fixed Income

A i Fi d I F d P fActive Fixed Income Fund PerformanceActive Fixed Income Fund PerformanceP t f F d O t f i M k t B h k (L t t Q t )Percent of Funds Outperforming Market Benchmarks (Latest Quarter)

100%100%

%75%

alot

a

50%f To

88%50%

of

82% 88%

nt

cen

25%erc

25%Pe

37%

P

21%21%

0%0%Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal Mutual Fund PerformanceShort Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal Mutual Fund Performance

Active investment managers Active investment managers

% O f % U d foften have a primary objective

% Outperform % Underperformoften have a primary objective of outperforming a relevant of outperforming a relevant

Percent of Funds Outperforming Market Benchmarks (Year to Date) market benchmark based on Percent of Funds Outperforming Market Benchmarks (Year to Date) market benchmark based on the fund’s investment style In 100% the fund’s investment style. In certain periods, active certain periods, active manage s can find it easie o managers can find it easier or

75% more difficult to outperform.75% more difficult to outperform.

alot

a This chart examines four main 50%To bond assets classes detailing

90%50%

of bond assets classes, detailing

90%

nt o what percentage of mutual

68%en

p gfund managers over- or 68%

25%erce fund managers over- or

49%25%Pe under-performed in a given 37%

P p gperiod This provides useful period. This provides useful context when assessing

0%g

mutual funds that you may 0%Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal

mutual funds that you may Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal own.

% O t f % U d f% Outperform % Underperform

Mutual Fund Style Universe: Style specific universe of mutual funds as categorized by Morningstar Number of funds in each category as ofRobert W Baird & Co

Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of Robert W. Baird & Co.September 30, 2011: 105 for Short-Term Taxable, 308 Intermediate Term, 61 for Short-Term Tax Exempt, and 75 for Intermediate Tax

29Baird Market Review | Fixed Incomep , f , , f p , f

Exempt Source: Morningstar Direct; Barclays Capital benchmarks; Baird Analysis See important disclosures and definitions included with this 29Baird Market Review | Fixed IncomeExempt. Source: Morningstar Direct; Barclays Capital benchmarks; Baird Analysis. See important disclosures and definitions included with this bli ipublication.

AppendiAppendixAppendix

Appendix: Important DisclosuresAppendix: Important Disclosurespp pi l i i d S lDisclaimers Fixed Income Styles

This is not a complete analysis of every material fact regarding any company, industry or security. The Short Term Taxable: Short‐term bond portfolios invest primarily in corporate and other investment‐gradeThis 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

Short Term Taxable: Short term bond portfolios invest primarily in corporate and other investment grade U S fixed‐income issues and have durations of one to 3 5 years Based upon the BC 1‐3 Year Govt/Creditinformation has been obtained from sources we consider to be reliable, but we cannot guarantee the

accuracy Past performance is not a guarantee of future resultsU.S. fixed income issues and have durations of one to 3.5 years. Based upon the BC 1 3 Year Govt/Credit Indexaccuracy. Past performance is not a guarantee of future results. Index.

Equity Styles Intermediate Taxable: Intermediate‐term bond portfolios invest primarily in corporate and other

Large Core: equity securities of large capitalization (generally $7 billion plus market cap) companies having investment‐grade U.S. fixed‐income issues and have durations of 3.5 to six years. Based upon the BC Large Core: equity securities of large capitalization (generally $7 billion plus market cap) companies having growth and value characteristics Based upon the S&P 500 Index

g y pIntermediate Govt/Credit Index.growth and value characteristics. Based upon the S&P 500 Index. /

Sh t T M i i l M i ti l h t tf li i t i b d i d b i t t d l lLarge Growth: equity securities of large capitalization ($7 billion plus market cap) companies having growth Short Term Municipal: Muni national short portfolios invest in bonds issued by various state and local f d bli j Th f li h d i f l h 4 5 B d hstock characteristics (high price to earnings, high return on equity and low dividend yield. Based upon the governments to fund public projects. These portfolios have durations of less than 4.5 years. Based upon the ( g p g , g q y y p

Russell 1000® Growth Index. BC 3 Year Municipal Index.Russell 1000 Growth Index.

L V l it iti f l it li ti ($7 billi l k t ) i h i l Intermediate Term Municipal:Muni national short portfolios invest in bonds issued by various state andLarge Value: equity securities of large capitalization ($7 billion plus market cap) companies having value k h (l f d l b k h h d d d ld)

Intermediate Term Municipal: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects These portfolios have durations of 4 5 to 7 years Based upon thestock characteristics (low forecasted price‐to‐earnings ratio, low price‐to‐book ratio, high dividend yield). local governments to fund public projects. These portfolios have durations of 4.5 to 7 years. Based upon the BC 7 Year Municipal IndexBased upon the Russell 1000® Value Index. BC 7 Year Municipal Index.

Mid Core: equity securities of middle capitalization ($2‐7 billion plus market cap) companies having growth S&P and Russell Domestic Equity BenchmarksMid Core: equity securities of middle capitalization ($2 7 billion plus market cap) companies having growth and value characteristics Based upon the Russell Midcap® Index

S&P and Russell Domestic Equity Benchmarksand value characteristics. Based upon the Russell Midcap® Index.

S&P 500 Index: A representative sample of 500 leading companies in leading industries of the U.S. economy. Mid Growth: equity securities of middle capitalization ($2‐7 billion plus market cap) companies having

p p g p g yConsidered a large‐cap index.

growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Based g p

R ll 3000® I d M th f f th 3 000 l t U S i b d t t l k tg ( g p g , g q y y )upon the Russell Midcap® Growth Index.

Russell 3000® Index: Measures the performance of the 3,000 largest U.S. companies based on total market i li i hi h i l 98% f h i bl U S i k A b d k

upon the Russell Midcap Growth Index.

Mid V l it iti f iddl it li ti ($2 7 billi l k t ) i h i thcapitalization, which represents approximately 98% of the investable U.S. equity market. A broad market

Mid Value: equity securities of middle capitalization ($2‐7 billion plus market cap) companies having growth k h i i (hi h i i hi h i d l di id d i ld) d h

index.stock characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the

Russell Top 50® Index: Measures the performance of the 50 largest companies in the Russell 3000® IndexRussell Midcap® Value Index.

Russell Top 50 Index: Measures the performance of the 50 largest companies in the Russell 3000 Index, representing approximately 40% of the total market capitalization of the Russell 3000® Index A large cap

Small Core: equity securities of small capitalization (<$2 billion plus market cap) companies having growthrepresenting approximately 40% of the total market capitalization of the Russell 3000 Index. A large‐cap indexSmall Core: equity securities of small capitalization (<$2 billion plus market cap) companies having growth

and value characteristics to minimize the risk of a style being out of favor Small capitalization stocks may beindex.

and value characteristics to minimize the risk of a style being out of favor. Small capitalization stocks may be subject to additional risks including illiquidity Based upon the Russell 2000® Index

Russell Top 200® Index: Measures the performance of the 200 largest companies in the Russell 1000® Index, subject to additional risks including illiquidity. Based upon the Russell 2000® Index.

p p g pwhich represents approximately 68% of the total market capitalization of the Russell 1000® Index. A large‐

Small Growth: equity securities of small capitalization (<$2 billion plus market cap) companies having growth p pp y p g

cap index.q y p ( p p) p g gstock characteristics (high price to earnings, high return on equity and low dividend yield). Small

cap index.

R ll 1000® I d M h f f h 1 000 l i i h R ll 3000 I d( g p g , g q y y )

capitalization stock may be subject to additional risks including illiquidity Based upon the Russell 2000®Russell 1000® Index: Measures the performance of the 1,000 largest companies in the Russell 3000 Index,

capitalization stock may be subject to additional risks including illiquidity. Based upon the Russell 2000 Growth Index

which represents approximately 92% of the total market capitalization of the Russell 3000® Index. A large‐Growth Index.

$cap index.

Small Value: equity securities of small capitalization (<$2 billion plus market cap) companies having value Russell 1000® Growth Index:Measures the performance of those Russell 1000® Index companies with higher

stock characteristics (low price‐to‐earnings ratio, low price‐to‐book ratio, high dividend yield). Small Russell 1000 Growth Index: Measures the performance of those Russell 1000 Index companies with higher price to book ratios and higher forecasted growth values A large cap index

capitalization stocks may be subject to additional risks including illiquidity. Based upon the Russell 2000® price‐to‐book ratios and higher forecasted growth values. A large‐cap index.

p y j g q y pValue Index. Russell 1000® Value Index:Measures the performance of those Russell 1000® Index companies with lower Value Index.

I t ti l f fl t dj t d k t it li ti i d th t i d i d t d l dprice to‐ book ratios and lower forecasted growth values. A large‐cap index.

International: a free float‐adjusted market capitalization index that is designed to measure developed k f l d h d f d l d k d

p g g p

Russell Midcap® Index:Measures the performance of the 800 smallest companies of the Russell 1000®market equity performance, excluding the US & Canada, consisting of 21 developed market country indices. Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® I d hi h t i t l 31% f th t t l k t it li ti f th R ll 1000® I d ABased upon the MSCI EAFE Index. Index, which represent approximately 31% of the total market capitalization of the Russell 1000® Index. A

Satellite: these asset classes as defined by Baird include commodities real estate high yield bonds andmid‐cap index.

Satellite: these asset classes, as defined by Baird, include commodities, real estate, high yield bonds and emerging markets Russell Midcap® Growth Index: Measures the performance of those Russell Midcap® Index companies withemerging markets. Russell Midcap Growth Index: Measures the performance of those Russell Midcap Index companies with

higher price‐to‐book and higher forecasted growth values The stocks are also member of the Russell 1000®higher price‐to‐book and higher forecasted growth values. The stocks are also member of the Russell 1000 Index A midcap indexIndex. A midcap index.

Investors should consider the investment objectives risks charges and expenses of a fund Investors should consider the investment objectives, risks, charges and expenses of a fund Robert W Baird & Cocarefully before investing. This and other information is found in the prospectus. For a prospectus, Robert W. Baird & Co.

31y g p p p p ,

contact your Baird Financial Advisor Please read the prospectus carefully before investing Baird Market Review | Disclosures 31contact your Baird Financial Advisor. Please read the prospectus carefully before investing. Baird Market Review | Disclosures

Appendix: Important DisclosuresAppendix: Important Disclosurespp pll id ® l d h f f h ll id i i h l SC C di SC C d li d i i h k i id ifi dRussell Midcap® Value Index: Measures the performance of those Russell Midcap companies with lower MSCI Country Indices: To construct an MSCI Country Index, every listed security in the market is identified.

price‐to book and lower forecasted growth values. The stocks are also member of the Russell 1000® Index. A Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard mid‐cap index. (GICS®), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion

Russell 2000® Index:Measures the performance of the 2 000 smallest companies in the Russell 3000® Index 85% of the free float adjusted market capitalization in each industry group, within each country. By targeting Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index A small cap

j p y g p, y y g g85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalizationwhich represent approximately 10% of the total market capitalization of the Russell 3000® Index. A small‐cap

i d

85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalization while it accurately reflects the economic diversity of the market This includes the MSCI Japan Indexindex. while it accurately reflects the economic diversity of the market. This includes the MSCI Japan Index. International indices

Russell 2000® Growth Index: Measures the performance of those Russell 2000® Index companies with higher International indices.

p p gprice‐to‐book ratios and higher forecasted growth values A small‐cap index MSCI EAFE Small Cap Index: Target 40% of the eligible Small Cap universe within each industry group, within price to book ratios and higher forecasted growth values. A small cap index.

R ll 2000® V l I d M h f f h R ll 2000® I d i i h leach country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in

Russell 2000® Value Index: Measures the performance of those Russell 2000® Index companies with lower y p p

the range of USD200‐1,500 million. An international index.price‐to‐ book ratios and lower forecasted growth values. A small‐cap index.

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MSCI V l d G th I di C th f ll f d l d i d All C t MSCI E itRussell Microcap® Index:Measures the performance of the microcap segment of the U S equity market It

MSCI Value and Growth Indices: Cover the full range of developed, emerging and All Country MSCI Equity I di A f h l f M 30 2003 MSCI i l d h d h d l f h MSCI Gl b lRussell Microcap Index: Measures the performance of the microcap segment of the U.S. equity market. It

makes up less than 3% of the U S equity market It includes 1000 of the smallest securities in the small capIndices. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global

makes up less than 3% of the U.S. equity market. It includes 1000 of the smallest securities in the small‐cap Russell 2000® Index based on a combination of their market cap and current index membership and it

Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and Russell 2000® Index based on a combination of their market cap and current index membership and it i l d th t 1 000 iti A i i d

growth securities are categorized using different attributes ‐ three for value and five for growth including includes the next 1,000 securities. A micro‐cap index. forward looking variables. The objective of the index design is to divide constituents of an underlying MSCI g j g y g

Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted

The Russell Indices are a trademark of the Frank Russell Company Russell® is a trademark of the Frank

Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index Country Value/Growth indices are then aggregatedThe Russell Indices are a trademark of the Frank Russell Company. Russell® is a trademark of the Frank

R ll C

market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices Prior to May 30 2003 the indices used Price/Book Value (P/BV) ratios toRussell Company. into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices Includes the MSCI EAFE Value and

GICSdivide the standard MSCI country indices into value and growth indices. Includes the MSCI EAFE Value and G th I diGICS Growth Indices.

The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley Capital Barclays Capital Fixed Income BenchmarksThe Global Industry Classification Standard ( GICS ) is the exclusive property of Morgan Stanley Capital International Inc ("MSCI") and Standard & Poor's a division of The McGraw‐Hill Companies Inc ("S&P") and

Barclays Capital Fixed Income BenchmarksInternational Inc. ( MSCI ) and Standard & Poor s, a division of The McGraw Hill Companies, Inc. ( S&P ) and is licensed for use by Robert W Baird & Co Inc MSCI and S&P hereby provided all information "as is" and Barclays Capital Aggregate Bond Index: Comprised of approximately 6,000 publicly traded bonds, including is licensed for use by Robert W. Baird & Co. Inc. MSCI and S&P hereby provided all information as is and expressly disclaim all warranties Without limiting any of the foregoing in no event shall MSCI or S&P have

y p gg g p pp y , p y , gU S Government mortgage‐backed corporate and Yankee bonds with an average maturity ofexpressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have

li bilit

U.S. Government, mortgage backed, corporate, and Yankee bonds with an average maturity of approximately 10 yearsany liability. approximately 10 years.

MSCI International Equity BenchmarksBarclays Capital 1‐3 Yr Government/Credit Bond Index: Includes bonds covered by the Barclays

MSCI International Equity Benchmarks Government/Credit Index, with maturities from 1 up to (but not including) 3 years.MSCI EAFE Index: A free float‐adjusted market capitalization index that is designed to measure developed Barclays Capital Intermediate Government/Credit Bond Index: Composed of approximately 3 500 publiclyj p g pmarket equity performance excluding the US & Canada As of June 2006 the MSCI EAFE Index consisted of

Barclays Capital Intermediate Government/Credit Bond Index: Composed of approximately 3,500 publicly issued corporate and U S government debt issues rated Baa or better with at least one year to maturity andmarket equity performance, excluding the US & Canada. As of June 2006 the MSCI EAFE Index consisted of

the following 21 developed market country indices: Australia Austria Belgium Denmark Finland Franceissued corporate and U.S. government debt issues rated Baa or better, with at least one year to maturity and t l t $1 illi t t di Th i d i i ht d b th k t l f th i i l d d i ththe following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France,

Germany Greece Hong Kong Ireland Italy Japan the Netherlands New Zealand Norway Portugalat least $1 million par outstanding. The index is weighted by the market value of the issues included in the d h d h d f l l d l l h l hGermany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,

Si S i S d S it l d d th U it d Ki d A i t ti l i dindex. The Index has duration of a little over 3 years and a maturity equal to slightly more than 4 years.

Singapore, Spain, Sweden, Switzerland and the United Kingdom. An international index.Barclays Capital Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an outstanding

MSCI Europe Index: A free float‐adjusted market capitalization index that is designed to measure developed Barclays Capital Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an outstanding par value of at least $3 million part of a transaction of at least $50 million issued after December 31 1990p j p g p

market equity performance in Europe. As of June 2006, the MSCI Europe Index consisted of the following 16par value of at least $3 million, part of a transaction of at least $50 million, issued after December 31, 1990 and have a year or longer remaining maturitymarket equity performance in Europe. As of June 2006, the MSCI Europe Index consisted of the following 16

developed market country indices: Austria Belgium Denmark Finland France Germany Greece Irelandand have a year or longer remaining maturity.

developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy the Netherlands Norway Portugal Spain Sweden Switzerland and the United Kingdom An Barclays Capital 3 Year Muni Bond Index: Includes bonds that have a minimum credit rating of BAA3, are Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. An international index issued as part of a deal of at least $50 million, have a minimum maturity of 2 years and a maximum maturity international index. p $ , y y y

of 4 years, and have been issued after December 31, 1990.MSCI Pacific ex Japan Index: A free float‐adjusted market capitalization index designed to measure equity

of 4 years, and have been issued after December 31, 1990.

B l C it l 7 Y M i B d I d Thi i d i b t f th BC M i i l B d I d It i l dp j p g q y

market performance in the Pacific region, minus Japan. As of June 2006, the MSCI Pacific ex Japan Index Barclays Capital 7 Year Muni Bond Index: This index is a subset of the BC Municipal Bond Index. It includes i i f i i h

p g , p , pconsisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore. maturities of six to eight years.consisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore. An international indexAn international index.

Robert W Baird & CoRobert W. Baird & Co.©2011 Robert W Baird & Co 800-RW-BAIRD www rwbaird com32Baird Market Review | Disclosures

©2011 Robert W. Baird & Co. 800 RW BAIRD www.rwbaird.com32Baird Market Review | Disclosures

Baird Quarterly Market Review - Q3 2011

Economy & Finance

Transcript of Baird Quarterly Market Review - Q3 2011