<PAGE> 1
As filed with the Securities and Exchange Commission on January 26, 1996
Registration No. 33-65511
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. 1 Post-effective Amendment No. ____
(Check appropriate box or boxes)
AIM FUNDS GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 1919
Houston, TX 77046
----------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
CAROL F. RELIHAN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll
11 Greenway Plaza 1735 Market Street, 51st Floor
Suite 1919 Philadelphia, PA 19103
Houston, TX 77046
CONRAD G. GOODKIND, ESQUIRE
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
No filing fee is required because Registrant has registered an indefinite
number of shares under the Securities Act of 1933 pursuant to Rule 24f-2 under
the Investment Company Act of 1940. Registrant will file its notice pursuant
to Rule 24f-2 for the fiscal year ending December 31, 1995 on or before
February 29, 1996. Registrant is filing a copy of its notice under Rule 24f-2
as an exhibit to this Registration Statement. Pursuant to Rule 429 under the
Securities Act of 1933, this Registration Statement relates to shares
previously registered on Form N-1A (Registration No. 2-27334).
It is proposed that this filing will become effective on February 25, 1996
pursuant to Rule 488.
<PAGE> 2
Registrant hereby incorporates by reference herein its initial
filing on Form N-14 dated December 29, 1995 (the "Initial Filing"), except that:
1. All references in the Initial Filing to the prospectus of Baird Quality
Bond Fund dated January 31, 1995 are hereby replaced with reference to the
Baird Quality Bond Fund dated January 22, 1996; and
2. Exhibit 14(b) and Exhibit 17(c) of Item 16 of Part C of the Initial
Filing are restated as follows:
14(b) Consent of Price Waterhouse LLP is filed herewith
electronically as Exhibit 14(b).
17(c) Prospectus of Baird Quality Bond Fund dated January 22, 1996
is filed herewith electronically as Exhibit 17(c).
<PAGE> 3
SIGNATURES
As required by the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to the Registration Statement has been signed on behalf of the
Registrant, in the City of Houston and State of Texas, on the 26th day of
January, 1996.
AIM FUNDS GROUP
By: /s/ Robert H. Graham
------------------------------------
Robert H. Graham
President and Trustee
As required by the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to the Registration has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles T. Bauer* Chairman and Trustee January 26, 1996
- ------------------------------
Charles T. Bauer
/s/ Robert H. Graham President and Trustee January 26, 1996
- ------------------------------ (Principal Executive Officer)
Robert H. Graham
/s/ Bruce L. Crockett* Trustee January 26, 1996
- ------------------------------
Bruce L. Crockett
/s/ Owen Daly II* Trustee January 26, 1996
- ------------------------------
Owen Daly II
/s/ Carl Frischling* Trustee January 26, 1996
- -------------------------------
Carl Frischling
/s/ John F. Kroeger* Trustee January 26, 1996
- ------------------------------
John F. Kroeger
/s/ Lewis F. Pennock* Trustee January 26, 1996
- ------------------------------
Lewis F. Pennock
/s/ Ian W. Robinson* Trustee January 26, 1996
- ------------------------------
Ian W. Robinson
/s/ Louis S. Sklar* Trustee January 26, 1996
- ------------------------------
Louis S. Sklar
/s/ John J. Arthur* Senior Vice President January 26, 1996
- ------------------------------ and Treasurer
John J. Arthur (Principal Financial
and Accounting Officer)
</TABLE>
* By Robert H. Graham pursuant to Power of Attorney included on signature
page of the Initial Filing.
<PAGE> 4
EXHIBIT INDEX
14(b) Consent of Price Waterhouse LLP is filed herewith electronically as
Exhibit 14(b).
17(c) Prospectus of Baird Quality Bond Fund dated January 22, 1996 is filed
herewith electronically as Exhibit 17(c).
<PAGE> 1
Exhibit 14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this registration statement on Form N-14, as amended (the
"Registration Statement"), of our report dated November 2, 1995, relating to
the financial statements and financial highlights of Baird Quality Bond Fund,
which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Proxy Statement/Prospectus
which constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Financial Information" in such Proxy
Statement/Prospectus. We also consent to the reference to us under the heading
"Financial Highlights" in the Prospectus of Baird Quality Bond Fund dated
January 22, 1996, constituting part of the Post-Effective Amendment No. 4 to
the registration statement on Form N-1A, which Prospectus is incorporated by
reference into the Registration Statement, and to the incorporation by
reference of our report into such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 25, 1996
<PAGE> 1
EXHIBIT 17(c)
PROSPECTUS
BAIRD CAPITAL DEVELOPMENT FUND
BAIRD BLUE CHIP FUND
BAIRD QUALITY BOND FUND
(Baird Logo)
Prospectus
January 22, 1996
BAIRD CAPITAL DEVELOPMENT FUND
BAIRD BLUE CHIP FUND
BAIRD QUALITY BOND FUND
The Baird Mutual Funds consist of three separate open-end diversified management
investment companies, the Baird Capital Development Fund, Inc., the Baird Blue
Chip Fund, Inc. and the Baird Quality Bond Fund. Each Baird Mutual Fund has
entered into an agreement and plan of reorganization under which substantially
all of the assets of the Baird Mutual Fund would be sold to a corresponding
mutual fund managed by A I M Advisors, Inc. and, in exchange therefor, the
shareholders of the Baird Mutual Fund would receive shares of the corresponding
AIM fund. The transactions are subject to approval by the Baird Mutual Fund
shareholders and if so approved are expected to be completed in late March 1996.
See "Recent Developments."
BAIRD CAPITAL DEVELOPMENTY FUND. The primary investment objective of the Baird
Capital Development Fund is to produce long-term capital appreciation. This Fund
will invest principally in common stocks believed by the Fund's investment
adviser to be underpriced relative to future growth prospects. Current income is
<PAGE> 2
a secondary objective.
BAIRD BLUE CHIP FUND. The primary investment objective of the Baird Blue Chip
Fund is to produce long-term growth of capital and income. This Fund will invest
principally in dividend paying common stocks rated A+, A or A- by Standard &
Poor's Corporation. Current income is a secondary objective.
BAIRD QUALITY BOND FUND. The investment objective of the Baird Quality Bond Fund
is to provide a high level of current income. This Fund will invest principally
in a diversified portfolio of investment grade debt securities.
There can be no assurance that the Baird Mutual Funds will meet their respective
investment objectives and investment in the Funds involves certain risks. See
"Investment Objectives and Policies" and "Portfolio Securities and Investment
Practices."This Prospectus sets forth concisely the information about the
Baird Mutual Funds that prospective investors should know before investing.
Investors are advised to read this Prospectus and retain it for future
reference. This Prospectus does not set forth all of the information included in
the Registration Statements and Exhibits thereto with respect to the Baird
Mutual Funds which has been filed with the Securities and Exchange Commission.
Statements of Additional Information, dated January 22, 1996, which are a part
of such Registration Statements, are incorporated by reference in this
Prospectus. Copies of the Statements of Additional Information will be provided
without charge to each person to whom a Prospectus is delivered upon written or
oral request made to the Funds' Distributor, Robert W. Baird & Co. Incorporated
("Baird"), by writing to 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
or calling (414) 765-3500.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(Baird Logo)
Mutual Funds
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statements
of Additional Information dated January 22, 1996 and, if given or made, such
information or representations may not be relied upon as having been authorized
<PAGE> 3
by the Baird Mutual Funds or Baird. This Prospectus does not constitute an offer
to sell securities in any state or jurisdiction in which such offering may not
lawfully be made.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Information 1
Financial Highlights 2
Performance Information 4
Management's Discussion of Performance of the Funds 6
Introduction 7
Recent Developments 8
Investment Objectives and Policies 9
Portfolio Securities and Investment Practices 13
Management of the Funds 21
Determination of Net Asset Value 23
Purchase of Shares 23
Redemption and Repurchase of Shares 27
Reinstatement Privilege 29
Dividend Reinvestment 29
Directed Reinvestment 30
Systematic Withdrawal Plan 30
Automatic Exchange Plan 31
Exchange Privileges 31
Individual Retirement Account and Simplified Employee Pension Plan 32
Defined Contribution Retirement and 401(k) Plan 33
Dividends, Distributions and Taxes 33
Capital Structure 34
Shareholder Reports 35
Account Application 37
Automatic Investment Plan Application 39
</TABLE>
EXPENSE INFORMATION
The following information is provided in order to assist the investor in
understanding the various costs and expenses that investors in the Baird Mutual
Funds bear directly or indirectly. The Baird Capital Development Fund, Inc. is
hereinafter referred to as the "BCD Fund", the Baird Blue Chip Fund, Inc. is
hereinafter referred to as the "BBC Fund" and the Baird Quality Bond Fund is
hereinafter referred to as the "BQB Fund." The BCD Fund, BBC Fund and BQB
Fund are sometimes individually referred to herein as the "Fund" or a "Baird
Mutual Fund"and collectively as the "Funds" or the "Baird Mutual Funds".
SHAREHOLDER TRANSACTION EXPENSES*(F17)
<PAGE> 4
<TABLE>
<CAPTION>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)
<S> <C>
BCD Fund 5.75%
BBC Fund 5.75%
BQB Fund 4.00%
</TABLE>
*(F17) The Baird Mutual Funds do not charge redemption fees or exchange fees.
Broker-dealers, including Baird, may charge a service fee for redemptions or
repurchases of shares effected through them. See "Redemption and Repurchase of
Shares."The Baird Mutual Funds charge a 1% contingent deferred sales load in
certain limited situations as described under "Redemption and Repurchase of
Shares', none of which involve purchases where a sales load is charged.
Reinvested dividends are exempt from the sales loads.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Total Operating
Management Other Expenses
Fee 12b-1 Fee Expenses (Net of Waivers and
Fund (Net of Waiver) (Net of Waiver) (After Reimbursement) (After Reimbursement)
<S> <C> <C> <C> <C>
BCD Fund .74% .27% .33% 1.34%
BBC Fund .74% .27% .30% 1.31%
BQB Fund .50% .25% .25% 1.00%
</TABLE>
The information in the chart indicates actual expenses incurred during the
fiscal year ended September 30, 1995, except that the information for the BQB
Fund has been restated to reflect current fees. Commencing January 1, 1996,
Baird, the BQB Fund's investment adviser and distributor, has agreed to waive
fees and/or reimburse expenses as necessary so that the BQB Fund's total
operating expenses as a percentage of average net assets do not exceed 1.00% for
calendar year 1996. Without waivers and reimbursements, the total operating
expenses for the BQB Fund for the fiscal year ended September 30, 1995 would
have been 1.41%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Period (in years)
Fund 1 3 5 10
<S> <C> <C> <C> <C>
BCD Fund $71 $100 $132 $219
BBC Fund $71 $ 99 $129 $215
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C>
BQB Fund $50 $ 72 $ 95 $162
</TABLE>
The Example is based on the Annual Fund Operating Expenses described above.
Please remember that the Example should not be considered a representation of
past or future expenses and that actual expenses may be greater or less than
those shown. The Example assumes a 5% annual rate of return and the reinvestment
of all dividends and distributions pursuant to requirements of the Securities
and Exchange Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of the Baird Mutual Funds.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of each Fund outstanding throughout each period)
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Statement of Additional Information. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto also included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
BAIRD CAPITAL DEVELOPMENT FUND, INC.
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning
of year $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33
Income from investment operations:
Net investment income (loss) 0.07 0.04 0.04 0.11 0.13 0.19 0.14 (0.03) (0.04) (0.12)
Net realized and unrealized
gains (losses)
on investments**(F2) 3.78 0.80 3.54 2.17 6.77 (3.86) 4.21 (2.54) 3.19 4.28
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 3.85 0.84 3.58 2.28 6.90 (3.67) 4.35 (2.57) 3.15 4.16
Less distributions:
Dividends from net
investment income (0.02) (0.04) (0.08) (0.10) (0.20) (0.11) - - - -
Distributions from net
realized gains (1.12) (0.53) (1.90) (1.86) (0.73) - - (1.12) (0.09) (2.05)
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (1.14) (0.57) (1.98) (1.96) (0.93) (0.11) - (1.12) (0.09) (2.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year $26.25 $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN***(F3) 17.2% 3.7% 17.9% 11.6% 47.8% (19.3%) 29.4% (12.8%) 20.6% 35.8%
Ratios/Supplemental Data
Net assets, end of year
(in 000's $) 58,646 53,807 52,169 38,236 26,713 18,454 21,372 18,868 23,052 10,233
Ratio of expenses to average
net assets*(F1) 1.3% 1.4% 1.4% 1.6% 1.7% 1.7% 1.7% 2.3% 2.5% 2.1%
Ratio of net investment income
(loss) to average net assets 0.3% 0.2% 0.2% 0.5% 0.7% 1.1% 0.3% (0.6%) (0.4%) (0.5%)
Portfolio turnover rate 20.4% 29.5% 25.2% 47.7% 64.1% 63.8% 50.5% 55.6% 80.1% 41.9%
</TABLE>
*(F1) Includes a maximum 1% distribution fee through December 12, 1985, a
maximum .75% distribution fee from June 21, 1986 through September 30, 1988 and
a maximum .45% distribution fee beginning October 1, 1988.
**(F2) On a per share basis this amount may not agree with the net realized and
unrealized gains (losses) experienced on the portfolio securities for the period
because of the timing of sales and repurchases of the Fund's shares in relation
to fluctuating market values of the portfolio.
***(F3) Total return does not include the sales load.
<TABLE>
<CAPTION>
Baird Blue Chip Fund, Inc.
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987+(F4)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10 $10.00
Income from investment operations:
Net investment income 0.14 0.15 0.19 0.20 0.23 0.25 0.24 0.12 0.01
Net realized and unrealized gains
(losses) on investments 5.05 1.24 0.63 1.48 3.19 (0.20) 2.25 (1.68) 3.09
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 5.19 1.39 0.82 1.68 3.42 0.05 2.49 (1.56) 3.10
Less distributions:
Dividends from net
investment income (0.12) (0.21) (0.17) (0.21) (0.25) (0.27) (0.15) (0.02) -
Distributions from net
realized gains (0.46) (0.85) - - - - - (0.04) -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (0.58) (1.06) (0.17) (0.21) (0.25) (0.27) (0.15) (0.06) -
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $23.83 $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN***(F7) 27.8% 7.7% 4.5% 10.1% 25.5% 0.3% 22.0%(11.8%) 13.5%*(F5)
Ratios/Supplemental Data
Net assets, end of
period (in 000's $) 71,324 60,115 65,112 61,601 46,958 31,706 21,170 18,681 16,917
Ratio of expenses to average
net assets**(F6) 1.3% 1.4% 1.3% 1.4% 1.5% 1.6% 1.7% 2.2% 2.6%*(F5)
Ratio of net investment income
to average net assets 0.7% 0.8% 1.0% 1.2% 1.6% 2.0% 1.9% 3.3% 0.2%*(F5)
Portfolio turnover rate 16.7% 12.7% 24.9% 5.4% 8.8% 12.2% 14.8% 14.8% 9.0%
</TABLE>
+(F4) For the period from December 31, 1986 (commencement of operations) to
September 30, 1987.
*(F5) Annualized.
**(F6) Includes a maximum .75% distribution fee from December 31, 1986 through
<PAGE> 8
September 30, 1988 and a maximum .45% distribution fee beginning October 1,
1988.
***(F7) Total return does not include the sales load.
<TABLE>
<CAPTION>
BAIRD QUALITY BOND FUND
YEARS ENDED SEPTEMBER 30, FOR THE YEAR FROM
--------------------------- OCTOBER 1, 1992*(F8)
1995 1994 TO SEPTEMBER 30, 1993
------ ------ ---------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year $9.00 $10.31 $10.00
Income investment of operations:
Net investment income 0.64 0.67 0.63
Net realized and unrealized
gain (loss) on investments 0.46 (1.20) 0.31
------ ------- ------
Total from investment operations 1.10 (0.53) 0.94
Less distributions:
Dividends from net investment income (0.64) (0.67) (0.63)
Distribution from net realized gains - (0.11) -
------ ------- ------
Total from distributions (0.64) (0.78) (0.63)
------ ------- ------
Net asset value, end of year $ 9.46 $ 9.00 $10.31
------ ------ ------
------ ------ ------
TOTAL INVESTMENT RETURN****(F11) 12.6% (5.4%) 9.8%
Ratios/Supplemental Data
Net assets, end of year (in 000's $) 7,701 7,961 6,240
Ratio of expenses (after reimbursement)
to average net assets**(F9) 0.6% 0.6% 0.4%
Ratio of net investment income
to average net assets***(F10) 7.0% 7.0% 6.2%
Portfolio turnover rate 197.5% 99.6% 124.1%
</TABLE>
<PAGE> 9
*(F8) Commencement of Operations.
**(F9) Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would have
been 1.4%, 1.7% and 2.1%, respectively, for the years ended September 30, 1995,
1994 and 1993.
***(F10) The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended September 30,
1995, 1994 and 1993 would have been 6.2%, 5.9% and 4.5%, respectively.
****(F11) Total return does not include the sales load.
PERFORMANCE INFORMATION
The Baird Mutual Funds may provide from time to time in advertisements, reports
to shareholders and other communications with shareholders their average annual
compounded rates of return. An average annual compounded rate of return refers
to the rate of return which, if applied to an initial investment at the
beginning of a stated period and compounded over the period, would result in the
redeemable value of the investment at the end of the stated period assuming
reinvestment of all dividends and distributions and reflecting the effect of all
recurring fees. In addition, the BQB Fund may provide yield data from time to
time in advertisements, reports to shareholders and other communications with
shareholders. The yield of the BQB Fund is determined by dividing the Fund's net
investment income for a 30-day (or one month) period by the average number of
shares of the Fund outstanding during the period, and expressing the result as a
percentage of the Fund's share price on the last day of the 30-day or one month
period. This percentage is then annualized. Capital gains and losses are not
included in the yield calculation. The yield of the BQB Fund will be affected if
the BQB Fund experiences a net inflow of new money which is invested at interest
rates different from those being earned on its then-current investments. An
investor's principal in the BQB Fund and the BQB Fund's net asset value and
return are not guaranteed and will fluctuate. Yield information may be useful in
reviewing the performance of the BQB Fund and for providing a basis for
comparison with other investment alternatives. However, since net investment
income of the BQB Fund changes in response to fluctuations in interest rates and
the BQB Fund's expenses, any given yield quotation should not be considered
representative of the BQB Fund's yield for any future period. An investor should
also be aware that there are differences in investments other than yield.
The foregoing total return information includes changes in share price and
reinvestment of dividends and capital gains as well as the maximum sales load
imposed on purchases (5.75% for the BCD Fund and the BBC Fund and 4.00% for the
BQB Fund).
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD CAPITAL DEVELOPMENT FUND AND NASDAQ COMPOSITE INDEX
<PAGE> 10
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 10.5%
5-YEAR 17.4%
10-YEAR 12.8%
<TABLE>
<CAPTION>
date Baird Capital Development Fund Nasdaq Composite Index
<S> <C> <C>
9/30/85 9,425 10,000
9/30/86 12,799 12,510
9/30/87 15,436 15,850
9/30/88 13,460 13,821
9/30/89 17,417 16,848
9/30/90 14,056 12,266
9/30/91 20,774 18,754
9/30/92 23,184 20,779
9/30/93 27,334 27,200
9/30/94 28,345 27,255
9/30/95 33,221 37,203
</TABLE>
Past performance is not predictive of future performance.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD BLUE CHIP FUND AND S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 20.5%
5-YEAR 13.4%
Since Inception 2/4/87*(F12) 10.3%
<TABLE>
<CAPTION>
date Baird Blue Chip Fund S&P 500 Index
<S> <C> <C>
2/4/87* 9,425 10,000
9/30/87 10,867 11,710
9/30/88 9,585 10,235
9/30/89 11,693 13,581
9/30/90 11,728 12,318
9/30/91 14,719 16,186
9/30/92 16,206 17,983
9/30/93 16,935 20,321
9/30/94 18,239 21,052
9/30/95 23,310 27,325
</TABLE>
Past performance is not predictive of future performance.
*(F12) inception date
<PAGE> 11
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BAIRD QUALITY BOND FUND,
MERRILL DOMESTIC MASTER INDEX AND MORNINGSTAR GOVERNMENT BOND MUTUAL
FUND/CORPORATE BOND, GENERAL
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 8.1%
Since Inception 10/1/92*(F13) 3.9%
<TABLE>
<CAPTION>
date Baird Quality Bond Fund Baird Quality Bond Fund Merrill Domestic Master Index Morningstar Government Bond Mutual
(At Public Offering Price (At Net Asset Value) Fund/Corporate Bond, General
4% Sales Charge)
<S> <C> <C> <C> <C>
10/1/92*(F13) $9,600 $10,000 $10,000 $10,000
10/31/92 $9,350 $9,742 $9,874 $9,854
11/30/92 $9,333 $9,725 $9,871 $9,855
12/31/92 $9,520 $9,920 $10,024 $9,995
1/31/93 $9,747 $10,156 $10,214 $10,187
2/28/93 $9,934 $10,351 $10,392 $10,382
3/31/93 $9,953 $10,371 $10,442 $10,441
4/30/93 $9,990 $10,410 $10,518 $10,515
5/31/93 $9,971 $10,390 $10,526 $10,529
6/30/93 $10,203 $10,632 $10,721 $10,725
7/31/93 $10,268 $10,699 $10,783 $10,795
8/31/93 $10,453 $10,892 $10,977 $10,997
9/30/93 $10,537 $10,979 $11,017 $11,038
10/31/93 $10,576 $11,020 $11,060 $11,094
11/30/93 $10,497 $10,938 $10,968 $11,001
12/31/93 $10,566 $11,009 $11,029 $11,052
1/31/94 $10,728 $11,178 $11,175 $11,199
2/28/94 $10,568 $11,012 $10,973 $11,006
3/31/94 $10,285 $10,716 $10,724 $10,755
4/30/94 $10,151 $10,578 $10,628 $10,648
5/31/94 $10,072 $10,495 $10,630 $10,630
6/30/94 $10,003 $10,423 $10,610 $10,604
7/31/94 $10,207 $10,635 $10,805 $10,753
8/31/94 $10,191 $10,619 $10,822 $10,783
9/30/94 $9,970 $10,388 $10,670 $10,665
10/31/94 $9,926 $10,343 $10,660 $10,642
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
11/30/94 $9,908 $10,324 $10,636 $10,604
12/31/94 $10,017 $10,438 $10,717 $10,644
1/31/95 $10,177 $10,604 $10,926 $10,795
2/28/95 $10,402 $10,838 $11,178 $11,015
3/31/95 $10,466 $10,905 $11,253 $11,081
4/30/95 $10,580 $11,025 $11,408 $11,235
5/31/95 $10,906 $11,364 $11,856 $11,632
6/30/95 $11,006 $11,469 $11,946 $11,707
7/31/95 $11,020 $11,483 $11,920 $11,683
8/31/95 $11,131 $11,599 $12,059 $11,812
9/30/95 $11,230 $11,701 $12,176 $11,921
</TABLE>
Past performance is not predictive of future performance.
*(F13) inception date
The results below show the value of an assumed initial investment of $10,000
made in each of the Baird Mutual Funds for the period shown through December 31,
1995, assuming the applicable sales charge (see page 1) and reinvestment of all
dividends and distributions.
<TABLE>
<CAPTION>
BCD BBC BQB
------------------------- ------------------------- -------------------------
VALUE OF VALUE OF VALUE OF
OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE
DECEMBER 31 INVESTMENT % CHANGE INVESTMENT % CHANGE INVESTMENT % CHANGE
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1984 $10,291*(F14) +2.9%*(F14)
1985 14,264 +42.6
1986 16,301 +63.0
1987 15,274 +52.7 $ 8,954*(F14) -10.5%*(F14)
1988 17,788 +77.9 9,622 -3.8
1989 22,116 +121.2 12,242 +22.4
1990 20,394 +103.9 12,611 +26.1
1991 29,916 +199.2 16,434 +64.3
1992 34,094 +240.9 16,868 +68.7 $ 9,520*(F14) -4.8%*(F14)
1993 38,023 +280.2 17,644 +76.4 10,566 +5.7
1994 37,923 +279.2 18,468 +84.7 10,017 +0.2
1995 45,658 +356.6 24,377 +143.8 11,555 +15.6
</TABLE>
<PAGE> 13
*(F14) The BCD Fund commenced operations on July 2, 1984. The BBC Fund
commenced operations on February 4, 1987. The BQB Fund commenced operations on
October 1, 1992.
The foregoing performance results are based on historical earnings and should
not be considered as representative of the performance of a Fund in the future.
An investment in a Fund will fluctuate in value and at redemption its value may
be more or less than the initial investment. The Baird Mutual Funds may compare
their performance to other mutual funds with similar investment objectives and
to the industry as a whole, as reported by Lipper Analytical Services, Inc.,
Morningstar, Inc., Money, Forbes, Business Week and Barron's magazines and The
Wall Street Journal. (Lipper Analytical Services, Inc. and Morningstar, Inc. are
independent ranking services that rank mutual funds based upon total return
performance.) The Baird Mutual Funds may also compare their performance to the
Dow Jones Industrial Average, Nasdaq Composite Index, Nasdaq Industrials Index,
Value Line Composite Index, the Standard & Poor's 500 Stock Index, the Merrill
Lynch Domestic Master Index and the Consumer Price Index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE OF THE FUNDS
BAIRD CAPITAL DEVELOPMENT FUND - A very good stock market through June turned
even better in the third quarter of calendar year 1995. Strong advances in all
sectors of the market were again dominated by the technology stocks. Forty
stocks, mostly technology and less than 1% of the 4,800 NASDAQ stocks, accounted
for half of the NASDAQ performance. Net asset value per share of the BCD Fund
increased 17.1% during the nine months ended September 30, 1995. In the last
quarter of calendar 1995, some of the most visible of the large technology
stocks underwent fairly sizable declines, and disappointing earnings forecasts
by some of the more economically sensitive companies have raised concerns about
the effect of the slowing economy on corporate earnings. In an environment of
slowing corporate earnings increases, we feel that the Fund's portfolio should
exhibit above average fundamentals and should perform well in the market.
BAIRD BLUE CHIP FUND - The BBC Fund's total return for the year ended September
30, 1995 (without giving effect to the 5.75% front-end sales load) was 27.8%.
According to data compiled and published by Morningstar, Inc., this return
placed the Fund's one-year performance in the top quartile of growth & income
funds and exceeded the average one-year return of those funds by more than four
percentage points.
The Fund's strong performance relative to its growth & income peer group was due
in part to several factors. Large capitalization and growth-oriented stocks -
both heavily represented in the Fund's portfolio - generally outperformed the
<PAGE> 14
broader market during the year. Also contributing to the Fund's strong
performance was the Fund's relatively heavy weighting in a number of industry
groups - pharmaceuticals, hospital supplies, computer software and
telecommunications equipment - that turned in better-than-market performances.
Issue selection was very important, and the A+, A and A- rated stocks in the
Fund's portfolio (about 75-80% of total equity holdings) outperformed the
average of other high quality, similarly situated securities in the market.
BAIRD QUALITY BOND FUND - The bond markets staged a remarkable recovery during
1995 after a very difficult 1994. The yield on the benchmark thirty-year
Treasury bond, which increased from 6% on September 30, 1993 to 7.80% by
September 30, 1994, fell back to around 6.50% by September 30, 1995, the end of
the Fund's fiscal year. As a result, the net asset value of the Fund, which was
$9.00 on September 30, 1994, rose to $9.46 on September 30, 1995.
This turnaround in the bond market was sparked by a slowdown in economic growth
and a significant improvement in the outlook for inflation. Through most of
1994, the Federal Reserve was pushing interest rates upward out of concern that
the economy could be overheating and inflation accelerating. That Fed
tightening apparently had the intended impact sooner than anticipated. In 1995,
the economy has been growing much slower and the rate of inflation has dropped
to around 2% or less. In response to these bullish economic fundamentals, bond
prices regained virtually all of the ground lost in 1994.
The consensus economic forecast for 1996 calls for a continuation of these
favorable economic fundamentals. If the consensus forecast proves to be
correct, bond yields would be expected to fluctuate in a relatively narrow
range. Consequently, interest income rather than price changes should account
for most of the total return produced by fixed income securities in 1996. The
types of securities that typically produce above-average interest income are
corporate issues, callable Federal agency notes and mortgage-backed securities.
Those are the issues that represented the bulk of the BQB Fund's portfolio at
the beginning of 1996.
INTRODUCTION
The BCD Fund was incorporated under the laws of Wisconsin on February 21, 1984.
The BBC Fund was incorporated under the laws of Wisconsin on October 16, 1986.
The Baird Funds, Inc., of which the BQB Fund is a portfolio, was incorporated
under the laws of Wisconsin on June 26, 1992. The BCD Fund, BBC Fund and The
Baird Funds, Inc. are open-end, diversified management investment companies
registered under the Investment Company Act of 1940,as amended (the "1940 Act").
As open-end investment companies they obtain their assets by continuously
selling shares of their common stock to the public. Proceeds from such sales
are invested by the Funds in securities of other companies. In this manner, the
resources of many investors are combined and each individual investor has an
<PAGE> 15
interest in every one of the securities owned by the Fund in which he has
invested. The Funds provide each individual investor with diversification by
investing in the securities of many different companies in a variety of
industries and furnish experienced management to select and watch over its
investments. As open-end investment companies, the Baird Mutual Funds will
redeem any of their outstanding shares on demand of the owner at their net
asset values.
Shares of each Fund will be sold by Baird, the Funds' Distributor, in accordance
with both Distribution Plans and related Distribution Assistance Agreements
adopted pursuant to Rule 12b-1 under the 1940 Act, and Distribution Agreements
between each of the Baird Mutual Funds and Baird. Pursuant to the Distribution
Agreements investors may purchase shares of any Baird Mutual Fund's common stock
at net asset value plus a maximum sales charge ranging from 4.00% to 5.75% of
the offering price. Reduced sales charges apply to purchases of $50,000 or more
for the BCD Fund and the BBC Fund and $100,000 or more for the BQB Fund with
no sales charges applicable to certain purchases. See "Purchase of Shares."
RECENT DEVELOPMENTS
On December 20, 1995, following unanimous approval by their boards of directors,
each of the Baird Mutual Funds entered into an Agreement and Plan of
Reorganization pursuant to which each Baird Mutual Fund would transfer
substantially all of its net assets to a corresponding mutual fund managed,
administered and distributed by A I M Advisors, Inc. and its affiliates (each,
an "AIM Fund"). A brief description of the corresponding AIM Funds is set
forth below. In the transaction, shareholders of each Baird Mutual Fund would
receive, in exchange for their Baird Mutual Fund shares, shares of the
corresponding AIM Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholders' Baird Mutual Fund shares
immediately prior to the transaction. The Baird Mutual Fund shareholders would
not pay any load or sales commission on the shares of the AIM Fund they receive.
Each transaction would be structured to qualify as a tax-free reorganization,
and if it so qualifies the Baird Mutual Fund shareholders would not recognize
taxable gain or loss as a result of the exchange of their shares. Each
transaction is subject to normal and customary closing conditions and to
approval by the Baird Mutual Fund shareholders at a special meeting to be called
and held for that purpose in March 1996. Shareholders of each Baird Mutual Fund
will receive a separate proxy statement/prospectus in connection with the
special meeting.
The AIM Funds are managed by A I M Advisors, Inc. ("AIM"). AIM was organized
in 1976 and presently serves as manager or adviser to 39 separate investment
company portfolios including 21 retail portfolios which comprise "The AIM
Family of Funds." As of December 31, 1995, the total net assets of the
investment company portfolios advised or managed by AIM or its affiliates were
<PAGE> 16
approximately $42 billion. AIM is a wholly-owned subsidiary of A I M
Management Group, Inc. AIM's principal executive offices are located at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
REORGANIZATION OF THE BCD FUND - The BCD Fund will be reorganized into the AIM
Capital Development Fund, a newly-created portfolio of AIM Equity Funds, Inc.
with no operating history.
The AIM Capital Development Fund will seek to produce long-term capital
appreciation through investing in common stocks, convertible securities and
bonds issued primarily by small and medium-sized companies which, based upon
factors considered by AIM, AIM believes are underpriced relative to the
company's future growth prospects. While the AIM Capital Development Fund's
investment program and policies are expected to be similar to those of the BCD
Fund, the AIM Capital Development Fund may employ certain strategies and
techniques that are different from those used by the BCD Fund. Such strategies
and techniques are intended by AIM to facilitate achieving the AIM Capital
Development Fund's objective, and may involve risks that are different in
magnitude and/or nature from the risks associated with an investment in the BCD
Fund.
AIM has committed that, during the two-year period immediately following
consummation of the proposed transaction, it will reimburse expenses or waive
fees as necessary so that the AIM Capital Development Fund's total operating
expense ratio during those two years will not exceed the BCD Fund's expense
ratio for the fiscal year ended September 30, 1995 (after giving effect to
expense reimbursements and fee waivers), or 1.34% of average net assets.
REORGANIZATION OF THE BBC FUND - The BBC Fund will be reorganized into the AIM
Blue Chip Fund, a newly-created portfolio of AIM Equity Funds, Inc. with no
operating history.
The AIM Blue Chip Fund will seek long-term growth of capital (with current
income being a secondary objective) by investing primarily in dividend paying
stocks of "Blue Chip" companies as determined by AIM (i.e., leading market
positions and strong financial fundamentals). While the AIM Blue Chip Fund's
investment program and policies are expected to be similar to those of the BBC
Fund, the AIM Blue Chip Fund may employ techniques and strategies which are
somewhat different from those used by the BBC Fund. These strategies and
techniques are intended by AIM to facilitate achieving the AIM Blue Chip Fund's
objective, and may involve risks that are different in nature and/or magnitude
from those associated with an investment in the BBC Fund.
AIM has committed that, during the two-year period immediately following
consummation of the proposed transaction, it will reimburse expenses or waive
<PAGE> 17
fees as necessary so that the AIM Blue Chip Fund's total operating expense ratio
during those two years will not exceed the BBC Fund's expense ratio for the
fiscal year ended September 30, 1995 (after giving effect to expense
reimbursements and fee waivers), or 1.31% of average net assets.
REORGANIZATION OF THE BQB FUND - The BQB Fund will be reorganized into the AIM
Income Fund, an existing portfolio of AIM Funds Group which had approximately
$295 million in total net assets as of December 31, 1995.
The investment objective of the AIM Income Fund is to achieve a high level of
current income consistent with reasonable concern for safety of principal, by
investing primarily in fixed rate corporate debt and U.S. Government
obligations. In attempting to achieve its objective, the AIM Income Fund is
permitted to invest up to 35% of its net assets in non-investment grade debt
securities. AIM believes this practice, together with other differences between
the investment programs and policies of the AIM Income Fund and the BQB Fund,
offer shareholders of the AIM Income Fund an opportunity for higher yields, but
also involve risks that are different in magnitude and/or nature than risks
associated with an investment in the BQB Fund.
Baird has announced that, for calendar year 1996, it will waive fees and/or
reimburse expenses as necessary to limit the BQB Fund's total annual operating
expenses at a ratio equal to 1.00% of average net assets. The total operating
expenses of the AIM Income Fund as a percentage of average net assets for its
fiscal year ended December 31, 1995 were 0.98%.
INVESTMENT OBJECTIVES AND POLICIES
BAIRD CAPITAL DEVELOPMENT FUND - The primary investment objective of the
BCD Fund is long-term capital appreciation, and securities are selected for its
portfolio primarily on this basis. The major portion of the BCD Fund's portfolio
is ordinarily invested in common stocks. Fiduciary Management, Inc. ("FMI"),
the BCD Fund's investment adviser, purchases those common stocks which it
believes to be underpriced relative to the issuing corporation's future growth
prospects. Such common stocks frequently are issued by smaller and medium
capitalization companies in the growth stage of development. See "Portfolio
Securities and Investment Practices."The BCD Fund also purchases common stocks
where the price is significantly below the estimated market value of the issuing
corporation's assets less its liabilities on a per share basis. In making a
determination that the above criteria is met with respect to a particular common
stock, FMI generally studies the financial statements of the issuing corporation
and other companies in the same industry, market trends and economic conditions
in general. FMI is assisted by Baird which acts as the BCD Fund's sub-adviser.
See "Management of the Funds." Since current income is only a secondary
objective in the selection of investments, a particular issuer's dividend
history is not a primary consideration. As a consequence shares of the BCD Fund
<PAGE> 18
are not suitable investments for investors needing current income. There can be
no assurance that the primary objective of the BCD Fund will be realized or that
any income will be earned. There can be no assurance that the BCD Fund's
portfolio will not decline in value and the BCD Fund's net asset value likely
will be more volatile than that of a fund that invests primarily in common
stocks of larger, more established companies or in investment grade income
securities.
Although the major portion of the BCD Fund's portfolio is ordinarily invested in
common stocks, no minimum or maximum percentage of the BCD Fund's assets is
required to be invested in common stocks or any other type of security. When FMI
believes securities other than common stocks offer opportunity for long-term
capital appreciation, the BCD Fund may invest in publicly distributed corporate
bonds and debentures, preferred stocks, particularly those which are convertible
into or carry rights to acquire common stocks, and warrants. See `Portfolio
Securities and Investment Practices."The BCD Fund limits its investments in
corporate bonds and debentures to those which have been assigned one of the
highest three ratings of either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") and invests in corporate bonds and
debentures only when FMI believes interest rates on such investments may decline
thereby potentially increasing the market value of the corporate bonds and
debentures purchased by the BCD Fund. A description of the foregoing ratings is
set forth in the Statement of Additional Information under the caption
"Description of Bond Ratings." Under normal market conditions, the BCD Fund
has at all times at least 65% of its total assets invested in securities which
FMI believes offer opportunity for growth of capital.
The BCD Fund may invest up to 10% of its assets in securities of foreign
issuers. See "Portfolio Securities and Investment Practices."
BAIRD BLUE CHIP FUND - The primary investment objective of the BBC Fund is to
produce long-term growth of capital and income. Current income is a secondary
objective. The major portion of the BBC Fund's portfolio is ordinarily invested
in dividend-paying common stocks. Baird, the BBC Fund's investment adviser,
purchases common stocks of issuers which it believes to have superior
fundamental characteristics which may include:
an experienced and tested management
a superior and pragmatic growth strategy
leadership positions in their market
proprietary products, processes or services
an above-average record of dividend consistency and growth
a strong balance sheet
In determining that the above characteristics are present with respect to
<PAGE> 19
specific investments, Baird generally studies the financial statements of the
issuing corporations and other companies in the same industry, the issuing
corporation's reports to shareholders and analysts and general economic and
industry reports of brokers. In determining whether an issuer has an above-
average record of dividend consistency and growth, Baird generally compares the
dividend record of the issuer in question with the dividend record of similarly
sized issuers over a period of time which Baird believes covers the full peak-
to-peak range of a business cycle. The BBC Fund, under normal market conditions,
has at least 65% of its total assets invested in common stocks rated A+, A or A-
by S&P. Baird considers common stocks so rated to be "blue chip" stocks. Up to
10% of the BBC Fund's portfolio of common stocks may be unrated or rated below
B+ by S&P.
In rating common stocks S&P primarily considers stability of earnings and
dividends over the most recent 10 years. The dividends and earnings records of
issuers are compared and then aligned with the following order of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D Reorganization
A- Above Average B- Lower
An S&P common stock rating is not a forecast of future market price performance
as it is basically an appraisal of past performance of earnings and dividends,
and relative current standing. The ratings cannot take into account potential
effects of management changes, internal company policies not yet fully reflected
in the earnings and dividend record, public relations standing, recent
competitive shifts, and other factors which may be relevant to investment status
and decisions. Common stocks may be unrated because of insufficient data or
because they are not amenable to the ranking process (i.e., publicly traded for
less than 10 years). A more detailed description of the S&P common stock ratings
as well as a description of the other securities ratings referred to below is
set forth in the Statement of Additional Information under the caption
"Description of Securities Ratings."
The investment philosophy employed by Baird seeks to avoid strategies which
pursue aggressive growth through short-term investment techniques or high-risk
speculation. Substantial emphasis is placed on the fundamental investment
quality (i.e., the earnings, dividends and operations of an issuer) of the
securities purchased. The portfolio is diversified among securities issued by
different companies and is not concentrated in any single industry. Since
current income is only a secondary objective of the BBC Fund, shares of the BBC
Fund may not be an appropriate investment for investors needing current income.
Notwithstanding the foregoing there can be no assurances that the BBC Fund's
investment objectives will be achieved. There can be no assurance that the BBC
Fund's portfolio will not decline in value and the BBC Fund's net asset value
<PAGE> 20
likely will be more volatile than that of a fund that invests primarily in
investment grade income securities.
When Baird believes securities other than common stocks offer opportunity for
long-term growth of capital and income, the BBC Fund may invest in United States
government securities, publicly distributed corporate bonds and debentures and
convertible preferred stocks and debt securities. See "Portfolio Securities and
Investment Practices."The BBC Fund limits its investments in non-convertible
corporate bonds and debentures to those which have been assigned one of the
highest three ratings of either S&P or Moody's. The BBC Fund invests in United
States government securities and corporate bonds and debentures when Baird
believes interest rates on such investments may decline thereby potentially
increasing the market value of the United States government securities and
corporate bonds and debentures purchased by the BBC Fund or to meet the
additional investment objective of producing current income. The BBC Fund limits
its investments in convertible securities to those which have been assigned one
of the highest three ratings of S&P or Moody's and in which the underlying
common stock is a suitable investment for the BBC Fund. Under normal market
conditions, the BBC Fund has at least 80% of its total assets invested in
securities which Baird believes offer opportunity for long-term growth of
capital and income.
BAIRD QUALITY BOND FUND - The investment objective of the BQB Fund is to provide
a high level of current income. The BQB Fund seeks to achieve its investment
objective through investments in a diversified portfolio of investment grade
debt securities. Investment grade securities are (i) bonds, debentures, notes
and other debt instruments rated at least BBB by S&P or Baa by Moody's at the
time of acquisition; (ii) commercial paper and cash equivalents rated A-l by S&P
or Prime-l by Moody's at the time of acquisition; and (iii) any type of unrated
debt security which Baird determines at the time of acquisition to be of a
quality comparable to the foregoing. A description of the foregoing ratings is
set forth in the BQB Fund's Statement of Additional Information under the
caption "Description of Securities Ratings." At least 80% of the BQB Fund's
assets, under normal market conditions, are invested in the following:
U.S. non-convertible debt securities issued by corporations and
municipalities including bonds, debentures and notes;
Debt securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. government securities");
Mortgage-backed securities, collateralized mortgage obligations and other
asset-backed securities;
Commercial paper, repurchase agreements, certificates of deposit, bankers
acceptances and other cash equivalents.
Investments in mortgage-backed securities, collateralized mortgage obligations
<PAGE> 21
and other asset-backed securities must be rated at least either AA by S&P or Aa
by Moody's or unrated but determined by Baird to be of comparable quality. The
BQB Fund has adopted an investment policy pursuant to which it invests, under
normal market conditions, at least 65% of its total assets in U.S. non-
convertible bonds and debentures issued by corporations or municipalities, their
agencies or instrumentalities or issued or guaranteed by the U.S. government or
its agencies or instrumentalities. See "Portfolio Securities and Investment
Practices."
The values of the securities in the BQB Fund are subject to price fluctuations
resulting from various factors, including rising or declining interest rates
("market risks") and the ability of the issuers of such investments to make
scheduled interest and principal payments ("financial risks"). Baird attempts
to manage these risks when selecting investments by taking into account interest
rates, terms and marketability of obligations, as well as such factors as the
capitalization, earnings, liquidity and other indicators of the issuer's
financial condition. The BQB Fund's intention to invest only in investment grade
securities (determined at the time of acquisition) also limits to some degree
financial risks. Obligations rated BBB by S&P and Baa by Moody's, although
investment grade, do exhibit speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher-rated
obligations. Unrated securities, while not necessarily of lower quality than
rated securities, may not have as broad a market as rated securities. In
addition, there may be less publicly available information with respect to
unrated securities and, to the extent that the BQB Fund invests in unrated
securities, it will be more dependent on the research and analyses performed by
Baird. The BQB Fund will not acquire a security rated BBB by S&P or Baa by
Moody's or an unrated security which is determined by Baird to be of comparable
quality if after such acquisition more than 35% of the BQB Fund's total assets
would be invested in such securities. The BQB Fund may retain up to 5% of its
net assets in securities whose ratings or quality have been downgraded to below
investment grade subsequent to their acquisition. Such securities should be
regarded as speculative and may be in default in the payment of interest or
principal.
The value of fixed-income securities generally will tend to decrease when
interest rates rise and increase when interest rates fall. The BQB Fund's share
price generally will react similarly. When Baird believes interest rates will
decline significantly, the BQB Fund generally will emphasize longer-term
securities. Conversely, when interest rates are expected to rise significantly,
the BQB Fund generally will emphasize shorter-term securities. Shorter-term
securities, while offering lower yields, generally provide greater price
stability than longer-term securities and are less affected by changes in
interest rates.The BQB Fund has the flexibility to invest in fixed income
<PAGE> 22
securities without restriction upon the average maturity of the BQB Fund's
securities. To the extent that the BQB Fund invests to a significant degree in
longer-term securities, the net asset value of the BQB Fund may be more
volatile.
The BQB Fund is also authorized to engage in certain futures and option
transactions, although it has no intention of doing so during its fiscal year
ending September 30, 1996. See the BQB Fund's Statement of Additional
Information for a discussion of such transactions and some of the associated
risks.
CERTAIN ADDITIONAL POLICIES OF THE BAIRD MUTUAL FUNDS - Under certain
circumstances each of the BCD Fund, the BBC Fund and the BQB Fund may (a)
temporarily borrow money from banks for emergency or extraordinary borrowings,
(b) pledge its assets to secure borrowings and (c) purchase securities of other
investment companies. Additionally the BCD Fund may (d) invest in warrants and
(e) invest in securities of issuers which have a record of less than three years
of continuous operations. A more complete discussion of the circumstances in
which the Baird Mutual Funds may engage in these activities is included in their
Statements of Additional Information. Except for the investment policies
discussed in this paragraph, the primary investment objective and the other
policies described under this caption are not fundamental policies and may be
changed without shareholder approval.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES - A change in a Baird Mutual
Fund's investment objective may result in a Baird Mutual Fund having investment
objectives different from the objectives which the shareholder considered
appropriate at the time of investment in such Baird Mutual Fund. At least 30
days prior to any change by a Baird Mutual Fund in its investment objectives,
the Baird Mutual Fund will provide written notice to all of its shareholders
regarding the proposed change.
PORTFOLIO SECURITIES AND INVESTMENT PRACTICES
Below is a brief description of the primary types of securities and investment
practices in which the Baird Mutual Funds may invest and engage, together with a
brief discussion of certain of the risks inherent in such investments.
COMMON STOCKS - The BCD Fund and the BBC Fund ordinarily invest in common
stocks. Common stocks represent the residual ownership interest in the issuer
and are entitled to the income and increase in the value of the assets and
business of the entity after all of its obligations and preferred stocks are
satisfied. Common stocks generally have voting rights. Common stocks fluctuate
in price in response to many factors including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
<PAGE> 23
SMALLER CAPITALIZATION AND LESS SEASONED COMPANIES - The BCD Fund may invest in
smaller capitalization companies in the earlier stages of development. Smaller
growth companies may offer greater potential for capital appreciation than
larger companies. Smaller growth companies frequently have new products or
technologies, new distribution methods, rapid changes in industry conditions due
to regulatory or other developments, changes in management or similar
characteristics that may result not only in growth in revenues but in an
accelerated or above average rate of earnings growth. In addition, because they
are less actively followed by stock analysts and less information is available
on which to base stock price evaluations, the market may overlook favorable
trends in particular smaller growth companies, and then adjust its valuation
more quickly once investor interest is developed.
On the other hand, higher market risks are often associated with smaller growth
companies. They may have limited product lines, markets, market share and
financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in more
limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies.
PREFERRED STOCK - The BCD Fund and the BBC Fund may invest in preferred stocks.
Preferred stock has a preference over common stock in liquidation (and generally
dividends as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk, while the market price of convertible preferred stock
generally also reflects some element of conversion value. Because preferred
stock is junior to debt securities and other obligations of the issuer,
deterioration in the credit quality of the issuer will cause greater changes in
the value of a preferred stock than in a more senior debt security with similar
stated yield characteristics. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.
WARRANTS - The BCD Fund may invest in warrants, which are securities permitting,
but not obligating, their holders to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered to be more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
<PAGE> 24
CONVERTIBLE SECURITIES - The BCD Fund and the BBC Fund each may invest in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock or other equity security of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible income
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument.
FOREIGN SECURITIES - The BCD Fund and the BBC Fund may invest in securities of
foreign issuers. These securities may be U.S. dollar-denominated or denominated
in foreign currencies. Investments in securities of foreign issuers involve
risks which are in addition to the usual risks inherent in domestic investments.
In many countries, there is less publicly available information about issuers
than is available in the reports and ratings published about companies in the
United States. Additionally, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards. Foreign markets may be
subject to less regulation, may be less liquid and of smaller capitalization
than U.S. markets and frequently are subject to greater volatility. Dividends
and interest on foreign securities may be subject to foreign withholding taxes
which would reduce a Fund's income without providing a tax credit for the Fund
shareholders. Although the Funds intend to invest in securities of foreign
issuers domiciled in nations in which their respective investment advisers
consider as having stable and friendly governments, there is a possibility of
expropriation, confiscatory taxation, currency blockage or political or social
instability which could affect investments in those nations. With respect to
securities denominated in foreign currencies, the value of such foreign
securities will rise or fall because of changes in currency exchange rates and
the Funds may incur certain costs in converting securities denominated in
foreign securities to U.S. dollars. The Fund's custodian, Firstar Trust Company,
may retain one or more subcustodians to retain custody of all or a portion of
each Fund's foreign securities. Investment in foreign securities also typically
involves greater expenses than investment in U.S. securities.
In an effort to manage exposure to currency fluctuations, the BCD Fund's and BBC
Fund's investment advisers may enter into forward currency exchange contracts
(agreements to exchange one currency for another at a future date) and may
<PAGE> 25
diversify currencies. Currency exchange contracts allow a Fund to fix a definite
price in dollars for securities it has agreed to buy or sell or can be used to
hedge a Fund's foreign investments against adverse exchange rate changes. These
strategies may require a Fund to set aside liquid high grade debt securities in
a segregated custodial account to cover its obligations. This segregated account
will be required whenever the liabilities under contracts involving currencies
exceed the value of securities denominated in that currency. Each Fund has no
specific limitation on the percentage of assets it may commit to foreign
currency exchange contracts, except that a Fund will not enter into a foreign
currency exchange contract if the amount of assets set aside to cover the
contract in the investment adviser's view would impede portfolio management or a
Fund's ability to meet redemption requests.
The BCD Fund and the BBC Fund may hold securities of U.S. and foreign issuers in
the form of American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs") or European Depositary Receipts ("EDRs"). These securities may not
necessarily be denominated in the same currency as the securities for which they
may be exchanged. ADRs and ADSs typically are issued by an American bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. Generally, ADRs and ADSs in registered form are designed
for use in U.S. securities markets. For purposes of the Funds' investment
policies, the Funds' investments in ADRs and ADSs will be deemed to be
investments in equity securities representing the securities of foreign issuers
into which they may be converted.
EDRs, which sometimes are referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or U.S. securities.
Generally, EDRs and CDRs, in bearer form, are designed for use in European
securities markets.
CORPORATE DEBT SECURITIES - Each of the Baird Mutual Funds may invest in
corporate debt securities. Corporations issue debt securities of various types,
including bonds and debentures (which are long-term), notes (which may be short-
or long-term), certificates of deposit (unsecured borrowings by banks), bankers
acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, which may be
fixed or adjustable rate with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a security
<PAGE> 26
is called during a period of declining interest rates, a Fund may be required to
reinvest the proceeds in securities having a lower yield. In addition, in the
event that a security was purchased at a premium over the call price, a Fund
will experience a capital loss if the security is called. Adjustable rate
corporate debt securities may have interest rate caps and floors as well as
other features similar to those of mortgage-backed securities discussed below.
None of the Baird Mutual Funds will invest in corporate debt securities rated
below investment grade by S&P and Moody's or in unrated corporate debt
securities believed by the Fund's investment adviser to be below investment
grade quality. Securities rated in the four highest long-term rating categories
by S&P and Moody's are considered to be "investment grade." S&P's fourth
highest long-term rating category is "BBB", with BBB- being the lowest
investment grade rating. Moody's fourth highest long-term rating category is
"Baa", with Baa3 being the lowest investment grade rating. Publications of S&P
indicate that it assigns securities to the "BBB" rating category when such
securities are "regarded as having an adequate capacity to pay interest and
repay principal. [Such securities] normally exhibit adequate protection
parameters, but adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay,"whereas securities rated AAA by
S&P are regarded as having "capacity to pay interest and repay principal [that]
is extremely strong."Publications of Moody's indicate that it assigns
securities to the "Baa" rating category when such securities "are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well,"whereas securities rated Aaa by Moody's "are judged
to be of the best quality"and "carry the smallest degree of investment
risk."
U.S. GOVERNMENT SECURITIES - All of the Baird Funds may invest in securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities and
times of issuance. U.S. government agency and instrumentality securities include
securities which are supported by the full faith and credit of the U.S.,
securities that are supported by the right of the agency to borrow from the U.S.
Treasury, securities that are supported by the discretionary authority of the
U.S. government to purchase certain obligations of the agency or instrumentality
and securities that are supported only by the credit of such agencies. While the
U.S. government may provide financial support to such U.S. government-sponsored
agencies or instrumentalities, no assurance can be given that it always will do
so. The U.S. government, its agencies and instrumentalities do not guarantee the
<PAGE> 27
market value of their securities and consequently the values of such securities
fluctuate.
ZERO COUPON, DEEP DISCOUNT AND PAYMENT-IN-KIND SECURITIES - Each of the Baird
Mutual Funds may invest in `zero coupon" and other deep discount securities of
governmental or private issuers. Zero coupon securities generally pay no cash
interest (or dividends in the case of preferred stock) to their holders prior to
maturity. Each of the BCD Fund and the BBC Fund may invest in payment-in-kind
securities, which allow the issuer, at its option, to make current interest
payments on such securities either in cash or in additional securities.
Accordingly, such securities usually are issued and traded at a deep discount
from their face or par value and generally are subject to greater fluctuations
of market value in response to changing interest rates than securities of
comparable maturities and credit quality that pay cash interest (or dividends in
the case of preferred stock) on a current basis.
Although a Fund will receive no payments on its zero coupon securities, and may
receive no cash payments on its payment-in-kind securities, prior to their
maturity or disposition, it will be required for federal income tax purposes
generally to include in its dividends each year an amount equal to the annual
income that accrues on its zero coupon securities and any non-cash `interest"
it receives on its payment-in-kind securities. Such dividends will be paid from
the cash assets of the Fund, from borrowings or by liquidation of portfolio
securities, if necessary, at a time that the Fund otherwise would not have done
so. To the extent the proceeds from any such dispositions are used by the Fund
to pay distributions, the Fund will not be able to purchase additional income-
producing securities with such proceeds, and as a result its current income
ultimately may be reduced.
STRIPPED INCOME SECURITIES - Each of the Baird Mutual Funds may invest in
stripped income securities. Stripped income securities or obligations represent
an interest in all or a portion of the income or principal components of an
underlying or related security, a pool of securities or other assets. In the
most extreme case, one class will receive all of the interest, while the other
class will receive all of the principal. The market values of stripped income
securities tend to be more volatile in response to changes in interest rates
than are those of conventional income securities.
PREMIUM SECURITIES - Each of the Baird Mutual Funds may at times invest in
securities bearing coupon rates higher than prevailing market rates. Such
"premium" securities are typically purchased at prices greater than the
principal amounts payable on maturity. If an issuer were to call or redeem
securities held by a Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in securities providing the same
<PAGE> 28
investment return as the securities redeemed. If securities purchased by a Fund
at a premium are called or sold prior to maturity, the Fund generally will
recognize a capital loss to the extent the call or sale price is less than the
Fund's adjusted tax basis in such securities. Similarly, the Fund generally will
recognize a capital loss in the event that such securities are held to maturity.
ADJUSTABLE AND FLOATING RATE SECURITIES - Each of the Baird Mutual Funds may
invest in adjustable and floating rate securities. Adjustable and floating rate
securities are securities having interest rates or dividends which are adjusted
or reset at periodic intervals ranging, in general, from one day to several
years, based on a spread over or under a specific interest rate or interest rate
index or on the results of periodic auctions. Adjustable and floating rate
securities allow a Fund to participate in increases in interest rates through
periodic upward adjustments of the coupon rates of such securities, resulting in
higher yields. During periods of declining interest rates, however, coupon rates
may readjust downward resulting in lower yields. Adjustments in coupon rates on
such securities may, however, lag changes in market rates of interest.
Adjustable and floating rate securities may be subject to caps above which their
interest rates may not be adjusted and floors below which their interest rates
may not be adjusted.
MUNICIPAL SECURITIES - The BQB Fund may invest in debt obligations issued by or
on behalf of the governments of states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities, certain interstate agencies and certain territories of the
United States. The BQB Fund may invest in both taxable and federal income tax-
exempt municipal securities, although it expects that its investments in
municipal securities ordinarily will be taxable. The two principal
classifications of municipal securities are "general obligation" and
"revenue" securities. "General obligation" securities are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. "Revenue" securities are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved. Within these principal classifications of municipal
securities, there are a variety of categories of municipal securities, including
fixed and variable rate securities, municipal bonds, municipal notes, municipal
leases, custodial receipts and participation certificates. Certain of the
municipal securities in which the BQB Fund may invest represent relatively
recent innovations in the municipal securities markets. Because the BQB Fund
does not intend to invest a substantial amount of its assets in municipal
securities, the interest on which is exempt from federal income tax, the BQB
Fund does not expect to be entitled to pass through to its shareholders the tax-
<PAGE> 29
exempt nature of any interest income attributable to investments in municipal
securities.
MORTGAGE-BACKED SECURITIES - The BQB Fund may invest in mortgage-backed
securities. Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans secured by real property. Mortgage-backed securities include
guaranteed government agency mortgage-backed securities, which represent
participation interests in pools of residential mortgage loans originated by
U.S. governmental or private lenders and guaranteed, to the extent provided in
such securities, by the U.S. Government or one of its agencies or
instrumentalities. Guaranteed government agency mortgage-backed securities in
which the Funds may invest include those issued or guaranteed by the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Mortgage-backed securities also include privately issued
mortgage-backed securities, which are not guaranteed by any agency or
instrumentality of the U.S. government. Such securities generally are issued
with some form of credit support. Securities issued by entities other than
governmental entities may offer a higher yield but also may be subject to
greater price fluctuations and credit risk than securities issued by
governmental entities. Mortgage-backed securities may represent ownership
interests in the underlying mortgage loans and provide for monthly payments that
are a "pass-through" of the monthly interest and principal payments (including
any prepayments) made by the individual borrowers on the pooled mortgage loans,
net of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. Mortgage-backed securities also include
collateralized mortgage obligations ("CMOs"). CMOs are securities
collateralized by mortgages or other mortgage-backed securities. In a CMO, a
series of bonds or certificates is issued in multiple classes. Each class of a
CMO, often referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Interest typically is paid or accrues on classes of the CMO on a monthly,
quarterly or semi-annual basis. Because most CMO tranches typically provide for
the periodic payment of principal and are subject to principal prepayment, the
actual duration of a CMO typically will be significantly less than the stated
maturity or final distribution date. In addition, principal prepayments on the
underlying collateral may cause CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. The principal of and
interest on the underlying collateral may be allocated among the several classes
of a CMO series in innumerable ways, some of which bear substantially more risk
than others. CMOs may be issued by governmental or nongovernmental entities such
as banks and other mortgage lenders.
The yield characteristics of mortgage-backed securities differ from traditional
<PAGE> 30
debt securities. Among the major differences are that interest and principal
payments are made more frequently and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time. As a
result, if the BQB Fund purchases a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the BQB Fund purchases the securities at
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. Certain types of derivative
mortgage-backed securities are designed to be highly sensitive to changes in
prepayment and interest rates and can subject the holders thereof to extreme
reductions of yield and possibly loss of principal. Prepayments on a pool of
mortgage loans are influenced by a variety of economic, geographic, social and
other factors. Generally, however, prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates and decrease during a period
of rising interest rates. Accordingly, amounts available for reinvestment by the
BQB Fund are likely to be greater during periods of declining interest rates
and, as a result, likely to be reinvested at lower interest rates. Adjustable
rate mortgages are subject to prepayment risks in a manner similar to fixed rate
mortgages although to a lesser degree.
No assurance can be given as to the liquidity of the market for mortgage-backed
securities. Determination as to the liquidity of such securities will be made in
accordance with guidelines established by the BQB Fund's board of directors. The
values of mortgage-backed securities may change for a variety of reasons in
addition to changes in interest and prepayment rates, including changes in the
market's perception of the creditworthiness of the Federal agency that issued or
guaranteed them and changes in market conditions.
ASSET-BACKED SECURITIES - The BQB Fund also may invest in asset-backed
securities. The securitization techniques used to develop mortgage-backed
securities are now also applied to a broad range of assets, primarily automobile
and credit card receivables. Other types of asset-backed securities may be
developed in the future. In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Asset-backed securities present certain
risks that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the related
collateral as do mortgage-backed securities.
OTHER DEBT OBLIGATIONS - Bank Obligations - Certificates of deposit are
certificates representing the obligation of a bank to repay funds deposited with
it for a specified period of time. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
<PAGE> 31
pay the face amount of the instrument upon maturity. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits which may be held by the Baird
Mutual Funds might not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.
Commercial Paper - Commercial paper consists of short-term, unsecured promissory
note sissued to finance short-term credit needs and includes commercial paper
master notes (which are demand instruments with variable coupon rates).
Commercial paper purchased by the Baird Mutual Funds will consist of direct
obligations issued by domestic entities and will be rated in one of the two
highest rating categories by a nationally recognized rating organization or will
be unrated but determined by the Fund's investment adviser to be of comparable
credit quality.
REPURCHASE AGREEMENTS - Each Baird Mutual Fund may enter into repurchase
agreements with banks and broker-dealers, under which the Fund purchases
securities issued by the U.S. government or its agencies and instrumentalities
or other securities, and agrees to resell the securities at an agreed upon time
and at an agreed upon price. Repurchase agreements may be considered
collateralized loans by a Fund and the difference between the amount the Fund
pays for the securities and the amount it receives upon resale is accrued as
interest and reflected in the Fund's net income. When a Fund enters into
repurchase agreements, it relies on the seller to repurchase the securities.
Failure to do so may result in a loss for the Fund if the market value of the
securities is less than the repurchase price. At the time a Fund enters into a
repurchase agreement, the value of the underlying security including accrued
interest will be equal to or exceed the value of the repurchase agreement and,
for repurchase agreements that mature in more than one day, the seller will
agree that the value of the underlying security including accrued interest will
continue to be at least equal to the value of the repurchase agreement. In
determining whether to enter into a repurchase agreement with a bank or broker-
dealer, a Fund will take into account the creditworthiness of such party. The
Funds will only enter into repurchase agreements with entities which are primary
dealers in United States government securities or are among the top 100 domestic
banks measured by assets. In the event of default by such party, a Fund may not
have the right to the underlying security and there may be possible delays and
expenses in liquidating the security purchased, resulting in a decline in its
value and loss of interest. Neither the BCD Fund nor the BBC Fund will invest
over 5% of its respective net assets in repurchase agreements. The BQB Fund may
invest in repurchase agreements having a duration of seven days or less without
limitation. Repurchase agreements that mature in more than seven days are
considered illiquid.
<PAGE> 32
SHORT-TERM INVESTMENTS - Each Baird Mutual Fund may invest without limitation in
short-term instruments as a reserve for expenses or anticipated redemptions and
as a temporary defensive measure when the Fund's investment adviser deems
appropriate. The Baird Mutual Funds are not required to employ temporary
defensive techniques and the Fund's respective investment advisers ordinarily do
not actively seek to predict short- to intermediate-term changes in the overall
securities markets. Accordingly, the Funds will not necessarily employ these
techniques in anticipation of or response to a deterioration in the markets in
which they invest. To the extent that a Fund invests to a significant degree in
these instruments, its ability to achieve its primary investment objective may
be adversely effected. Short-term investments are debt securities or other
instruments having a remaining fixed maturity or time until demand feature
effectiveness of 18 months or less and that are issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities or that are rated in one
of the two highest rating categories by a nationally recognized rating
organization or unrated but determined by Baird to be of comparable credit
quality. Short-term investments include treasury bills and other U.S. government
and government agency securities, bank obligations, commercial paper and
repurchase agreements.
WHEN-ISSUED SECURITIES - The BQB Fund may purchase securities on a forward
commitment or when-issued basis, where the price of the security is fixed at the
time the commitment is made. Delivery of and payment for such securities
typically occur 15 to 90 days after the commitment to purchase. These
transactions are subject to market fluctuations; the value of the securities at
delivery may be more or less than their purchase price and yields available on
comparable debt securities at the time of delivery may be higher or lower than
those contracted for on the when-issued security. The BQB Fund will make
commitments to purchase when-issued securities only with the intention of
actually acquiring the securities, but the BQB Fund may sell these securities
before the settlement if Baird deems it advisable. The BQB Fund will not accrue
income in respect to a when-issued security prior to its stated delivery date.
When the BQB Fund purchases securities on a when-issued basis it will maintain
in a segregated account with the Fund's custodian cash or marketable securities
having an aggregate value equal to the amount of the purchase commitment until
payment is made. When-issued securities may decline or increase in value during
the period from the investment commitment to the settlement of the purchase and
involve a degree of investment leverage. Such transactions also involve the risk
that the counterparty to the transaction fails to perform.
ILLIQUID SECURITIES - The BCD Fund and the BBC Fund may invest in illiquid
securities, which may include repurchase agreements maturing in more than seven
days and other securities that can not be sold in seven days at approximately
the price at which they are valued. The BCD Fund and the BBC Fund may not invest
<PAGE> 33
in restricted securities. A Fund will not acquire illiquid securities if, as a
result, they would comprise more than 10% of the value of the Fund's net assets.
The Board of Directors of a Fund or its delegate has the ultimate authority to
determine, to the extent permissible under the federal securities laws, which
securities are liquid or illiquid for purposes of this limitation. Securities
that may be resold pursuant to Rule 144A under the Securities Act may be
considered liquid by the Board of Directors. Risks associated with illiquid
securities include the potential inability of a Fund to promptly sell a
portfolio security after its decision to sell, potential difficulties in
valuation and potentially greater market volatility.
PORTFOLIO TURNOVER - Due to the fact the BCD Fund and the BBC Fund do not intend
to place emphasis on short-term trading, and their investment advisers will
consider an issuer's growth prospects over a three to five year period, the
BCD Fund and the BBC Fund expect usually to have an annual portfolio turnover
rate of less than 65%. As with the BCD Fund and the BBC Fund, the portfolio
turnover rate of the BQB Fund will vary from year to year depending on market
conditions. During the fiscal years ended September 30, 1995 and 1994, the BCD
Fund's portfolio turnover rate was 20.4% and 29.5%, respectively, and the BBC
Fund's portfolio turnover rate was 16.7% and 12.7%, respectively. Baird may vary
the average maturity of the portfolio of the BQB Fund depending on its interest
rate outlook. During the fiscal years ended September 30, 1995 and 1994, the BQB
Fund's portfolio turnover rate was 197.5% and 99.6%, respectively. The annual
portfolio turnover rate indicates changes in a Fund's portfolio and is
calculated by dividing the lesser of purchases or sales of portfolio securities
(excluding securities having maturities at acquisition of one year or less) for
the fiscal year by the monthly average of the value of the portfolio securities
(excluding securities having maturities at acquisition of one year or less)
owned by the Fund during the fiscal year. The annual portfolio turnover rate may
vary widely from year to year depending upon market conditions and prospects.
High turnover in any year may result in the payment by a Fund of above average
amounts of brokerage commissions or dealer mark-ups.
MANAGEMENT OF THE FUNDS
As Wisconsin corporations the business and affairs of the Baird Capital
Development Fund, Inc., Baird Blue Chip Fund, Inc. and The Baird Funds, Inc. are
managed by their Boards of Directors who are assisted by the Funds' officers.
The following are the directors and officers of the Baird Mutual Funds:
DIRECTORS
James D. Bell* Reverend Albert J. DiUlio, S.J. George C. Kaiser
Managing Director and President of Sole Proprietor of
Chief Administrative Marquette University George Kaiser & Co.
Officer of Robert W.
Baird & Co., Incorporated
<PAGE> 34
Allan H. Selig Edward J. Zore*
President and Chief Executive Executive Vice President
Officer of the Milwaukee Brewers of The Northwestern
Baseball Club, Inc. Mutual Life Insurance Co.
OFFICERS
Marcus C. Low, Jr.* Mary Ann Taylor* Laura H. Gough* Glen F. Hackmann*
President Vice President Vice President Secretary and
Treasurer
For more information concerning the Directors and Officers of the Baird Mutual
Funds, see each respective Fund's Statement of Additional Information. Persons
indicated by an asterisk (*) are interested persons of the Funds within the
meaning of the 1940 Act.
BAIRD CAPITAL DEVELOPMENT FUND - Pursuant to an investment advisory agreement
(the "BCD Advisory Agreement") with the BCD Fund, FMI, 225 East Mason Street,
Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services to
the BCD Fund. FMI is an investment adviser to individuals and institutional
clients (including investment companies) with substantial investment portfolios
and as of December 31, 1995, managed approximately $950,000,000 in assets. FMI
was organized in 1980 and is wholly owned by Ted D. Kellner and Donald S.
Wilson. Since that time, Mr. Kellner has served as Chairman of the Board and
Chief Executive Officer and Mr. Wilson has served as President and Treasurer of
FMI. Messrs. Kellner and Wilson are primarily responsible for the day-to-day
management of the BCD Fund's portfolio. They have held this responsibility since
the BCD Fund commenced operations on June 22, 1984.
FMI supervises and manages the investment portfolio of the BCD Fund and subject
to such policies as the Board of Directors of the BCD Fund may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the BCD Fund. Under the BCD Advisory Agreement, FMI, at its own
expense and without reimbursement from the BCD Fund, furnishes office space, and
all necessary office facilities, equipment, and executive personnel for the
performance of the services required to be performed by it under the BCD
Advisory Agreement. For the foregoing, FMI receives a monthly fee of 1/12 of
0.4125% (0.4125% per annum) of the daily net assets of the BCD Fund. The
advisory fees paid to FMI in the fiscal year ended September 30, 1995 were equal
to 0.4125% of the BCD Fund's average net assets.
Pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement") with the
BCD Fund, Baird furnishes regular advice to FMI regarding the value of
securities and the advisability of the BCD Fund purchasing or selling specific
securities as well as regular analyses and reports to FMI concerning issuers,
industries, securities, economic factors and portfolio strategy. Although Baird
<PAGE> 35
furnishes regular advice to FMI, FMI makes the final decision as to the
securities to be purchased and sold for the BCD Fund and the timing of such
purchases and sales. Baird is an indirect partially-owned subsidiary of The
Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin and is
controlled by such firm. Baird is a securities broker-dealer and investment
adviser providing brokerage, research, investment banking and investment
advisory services to individuals, trusts, estates, corporations and other
institutional clients.
In addition to the services referred to above, Baird pays the salaries and fees
of all officers and directors of the BCD Fund (except the fees to directors who
are not interested persons of the BCD Fund). For the foregoing Baird receives a
monthly fee of 1/12 of 0.3275% (0.3275% per annum) of the daily net assets of
the BCD Fund. The advisory fees paid to Baird in the fiscal year ended September
30, 1995 were equal to 0.3275% of the BCD Fund's average net assets.
BAIRD BLUE CHIP FUND AND BAIRD QUALITY BOND FUND - Pursuant to investment
advisory agreements with the BBC Fund (the "BBC Advisory Agreement") and the
BQB Fund (the "BQB Advisory Agreement") (collectively the "Advisory
Agreements") Baird through its Investment Management Services Group, furnishes
continuous investment advisory services to the BBC Fund and the BQB Fund. The
Investment Management Services Group was organized in 1971 and as of December
31, 1995, managed in excess of $1,000,000,000 in assets for individuals, trusts,
estates, corporations, and such other institutional clients as employee benefit
plans and foundations.
Baird supervises and manages the investment portfolio of the BBC Fund and the
BQB Fund and subject to such policies as their respective Boards of Directors
may determine, directs the purchase or sale of investment securities in the
day-to-day management of these Funds. Under the Advisory Agreements, Baird, at
its ownexpense and without reimbursement from the Funds, furnishes office space,
and all necessary office facilities, equipment, and executive personnel for
managing the Funds and maintaining their organizations. In addition to the
services referred to above, Baird pays the salaries and fees of all officers and
directors of these Funds (except the fees to directors who are not interested
persons of these Funds). For the foregoing, Baird receives a monthly fee of 1/12
of 0.74% (0.74% per annum) of the daily net assets of the BBC Fund, and a
monthly fee of 1/12 of 0.50% (0.50% per annum) of the daily net assets of the
BQB Fund. The advisory fees paid to Baird in the fiscal year ended September 30,
1995 were equal to 0.74% of the BBC Fund's average net assets and 0.39% of the
BQB Fund's average net assets.
Robinson Bosworth III and John T. Evans, Portfolio Managers of the BBC Fund, are
primarily responsible for the day-to-day management of such Fund's portfolio.
They have held this responsibility since the BBC Fund commenced operations on
<PAGE> 36
December 31, 1986. Mr. Bosworth joined Baird in 1971 and is a Managing Director
of Baird's Investment Management Services Group. Mr. Evans joined Baird in 1977
and is a Senior Vice President in its Investment Management Services Group.
James Kochan, Portfolio Manager of the BQB Fund, is primarily responsible for
the day-to-day management of the BQB Fund. He has held this responsibility since
such Fund commenced operations on October 1, 1992. Mr. Kochan has served as
First Vice President of Baird's Investment Management Services Group since
August 1990. Prior to that time, he was First Vice President of Merrill Lynch &
Co. from 1980 to 1990.
ADMINISTRATION OF BAIRD MUTUAL FUNDS - Each of the BCD Fund, BBC Fund and The
Baird Funds, Inc. has entered into an administration agreement with FMI pursuant
to which FMI supervises all aspects of each Fund's operations except those
performed by the investment advisers. FMI prepares and maintains the books,
accounts and other documents required by the 1940 Act, determines each Fund's
net asset value, responds to shareholder inquires, prepares the Funds' financial
statements and excise tax returns, prepares reports and filings with the
Securities and Exchange Commission, furnishes statistical and research data,
clerical, accounting and bookkeeping services and stationery and office
supplies, keeps and maintains the Funds' financial accounts and records and
generally assists in all aspects of the Funds' operations other than portfolio
decisions. FMI, at its own expense and without reimbursement from the Funds,
furnishes office space and all necessary office facilities, equipment and
executive personnel for supervising each Fund's operations. For the foregoing,
FMI receives from each of the BCD Fund and the BBC Fund a monthly fee of 1/12 of
0.1% (0.1% per annum) on the first $30,000,000 of each Fund's daily net assets
and 1/12 of 0.05% (0.05% per annum) on the daily net assets over $30,000,000 and
from the BQB Fund a monthly fee of 1/12 of 0.1% (0.1% per annum) on the first
$20,000,000 of the Fund's daily net assets and 1/12 of 0.05% (0.05% per annum)
on the daily net assets over $20,000,000.
DETERMINATION OF NET ASSET VALUE
The per share net asset value of each Fund is determined by dividing the total
value of its net assets (meaning its assets less its liabilities) by the total
number of its shares outstanding at that time. The net asset values of the
BCD Fund, the BBC Fund and the BQB Fund are determined as of the close of
regular trading (currently 4:00 p.m. Eastern time) on the New York Stock
Exchange on each day the New York Stock Exchange is open for trading. These
determinations are applicable to all transactions in shares of the Funds prior
to that time and after the previous time as of which net asset values were
determined.
Equity securities traded on any national securities exchange or quoted on the
<PAGE> 37
Nasdaq National Market System will ordinarily be valued on the basis of the last
sale price on the date of valuation, or, in the absence of any sales on that
date, the most recent bid price. Other equity securities will generally be
valued at the most recent bid price, if market quotations are readily available.
Debt securities will ordinarily be valued on the basis of valuations provided by
broker-dealers (including broker-dealers from whom such securities may have been
purchased) or by a pricing service, approved by the respective Fund's Board of
Directors, which may utilize information with respect to transactions in such
securities, quotations from dealers, market transactions in comparable
securities, various relationships among securities and yield data in determining
values. Securities for which there are no readily available market quotations
and other assets will be valued at their fair value as determined in good faith
in accordance with policies approved by the respective Fund's Board of
Directors. Debt securities having a remaining maturity of sixty days or less
when purchased and debt securities originally purchased with maturities in
excess of sixty days but which currently have maturities of sixty days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts. Odd lot differentials and brokerage commissions will be excluded in
calculating values.
PURCHASE OF SHARES
Baird serves as the distributor and principal underwriter of the Baird Mutual
Funds. Baird's principal business address is 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. Shares of each Baird Mutual Fund are purchased from
Baird or other investment dealers, if any, who have entered into sales
agreements with Baird. Account application forms are included at the back of
this Prospectus. Applications are subject to acceptance by the Baird Mutual
Funds, and are not binding until so accepted. The Baird Mutual Funds reserve the
right to reject applications in whole or in part. The offering price per share
is the next determined per share net asset value after receipt of an application
plus a sales charge which is a percentage of the offering price and varies based
on the amount of the combined concurrent purchases of each Baird Mutual Fund,
together with current holdings under rights of accumulation and/or purchases
indicated under a Letter of Intent. The Board of Directors of each Baird Mutual
Fund has established $1,000 as the minimum initial purchase and $100 as the
minimum for any subsequent purchase (except pursuant to the Automatic Investment
Plan where the minimum monthly or quarterly purchase is $50 or through dividend
reinvestment), which minimum amounts are subject to change at any time.
SALES CHARGES - The following sales charges are applicable to purchases of the
BCD Fund and the BBC Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
<S> <C> <C>
</TABLE>
<PAGE> 38
<TABLE>
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $50,000 5.75% 6.10%
At least $50,000 but less than $100,000 4.50% 4.71%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
The following sales charges are applicable to purchases of the BQB Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $100,000 4.00% 4.16%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
The Baird Mutual Funds impose a 1% contingent deferred sales charge with respect
to purchases of shares of the BCD Fund, BBC Fund, or the BQB Fund, of $1,000,000
and over in the event of a redemption transaction occurring within 12 months
following such purchase as described under `Redemption and Repurchase of
Shares."In connection with purchases of $1,000,000 and over Baird pays its
investment officers a fee, which is not reimbursable under the Plan. Baird
receives, however, any contingent deferred sales charges paid in connection with
such purchase. Shares purchased at net asset value and subject to the contingent
deferred sales charge must be registered in the name of Baird as nominee for the
shareholder.
Each Baird Mutual Fund receives the net asset value of all of its shares sold.
Baird retains the sales charge from which it may allow discounts from the
applicable public offering price to investment dealers which are uniform for all
dealers. As of the date of this Prospectus, Baird is not party to any agreement
pursuant to which such discounts are allowed. Each Baird Mutual Fund may pay to
Baird a percentage of such Baird Mutual Fund's daily net assets to reimburse
Baird for costs incurred by it in distributing shares of such Baird Mutual
Funds' common stock. See "Rule 12b-1 Plan" below.
In effecting purchases and sales of each Baird Mutual Fund's portfolio
securities, FMI or Baird, as the case may be, may place orders with, and pay
brokerage commissions to, Baird or investment dealers, if any, with which Baird
executes sales agreements when they reasonably believe the commissions and the
<PAGE> 39
transaction quality are comparable to that available from other qualified
brokers. In selecting among firms to handle a particular transaction the
investment advisers may take into account whether the firm has sold, or is
selling, shares of any of the Baird Mutual Funds.
RULE 12B-1 PLAN - Each Baird Mutual Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Each Plan provides that the
Baird Mutual Funds may incur certain costs which may not exceed a maximum
monthly percentage of each respective Baird Mutual Funds' daily net assets. The
applicable maximum monthly percentage is 1/12 of 0.45% (0.45% per annum).
Amounts paid under each Plan are paid to Baird as reimbursement for the costs
and expenses it incurs as distributor of the shares of each Baird Mutual Fund
pursuant to Distribution Assistance Agreements between each Baird Mutual Fund
and Baird and may be spent by Baird on any activities or expenses primarily
intended to result in the sale of shares, including but not limited to,
compensation to, and expenses (including overhead and telephone expenses) of,
employees of Baird who engage in or support distribution of the shares, printing
of prospectuses and reports for other than existing shareholders, advertising
and preparation and distribution of sales literature. Allocation of overhead
(rent, utilities, etc.) and salaries will be based on the percentage of
utilization in, and time devoted to, distribution activities. (The Plans for the
BCD Fund and the BBC Fund permit these Funds to incur distribution costs up to
0.75% per annum but Baird has determined to limit payments pursuant to such
Plans to 0.45% per annum.) From such amounts Baird will pay to each of its
investment officers an amount equal to 0.25% of the average daily net assets of
the BCD, BBC and BQB Fund attributable to shares of such Funds sold by such
investment officer. Baird will directly bear all sales and promotional expenses
of the Baird Mutual Funds, other than expenses incurred in complying with laws
regulating the issue or sale of securities. (The Baird Mutual Funds will
indirectly bear sales and promotional expenses to the extent they make payments
under the Plans.) If payments made by Baird for such activities or expenses
during any fiscal year exceed the maximums under the Distribution Plan for such
year, a Fund will not be liable for any such difference.
NET ASSET VALUE PURCHASES - Shares of each Baird Mutual Fund may be purchased at
net asset value (without a sales charge) by such Baird Mutual Fund's employees,
present and former directors, employees and directors of Baird and employees and
directors of such Baird Mutual Fund's investment adviser, by licensed investment
officers of Baird and by members of the immediate family of any of the
foregoing. The term "employee" includes an employee's spouse (including the
surviving spouse of a deceased employee), children of the employee and retired
employees. The term "members of the immediate family" is defined to mean a
person's parents, brothers and sisters, children and grandchildren. Subject to
certain limitations, each Baird Mutual Fund may also issue shares without a
sales charge in connection with any merger or consolidation with, or acquisition
<PAGE> 40
of the assets of, any investment company and pursuant to the exchanges described
under "Exchange Privileges." Shares of each Baird Mutual Fund may also be
purchased at net asset value (without a sales charge) by retirement plans (i.e.
plans qualifying under Sections 401(a), 401(k), 403(a) and 457 of the Internal
Revenue Code, as amended (the "Code"), but not Individual Retirement Accounts
or Simplified Employee Pension Plans) which purchase at least $500,000 of shares
of the Baird Mutual Funds.
CONTINGENT DEFERRED SALES CHARGE - The Baird Mutual Funds impose a 1% contingent
deferred sales charge upon the redemption of certain shares initially purchased
without a front-end sales load in the event of a redemption transaction
occurring within 12 months following such purchase. See "Redemption and
Repurchase of Shares"for a discussion of the application of the contingent
deferred sales charge, including circumstances under which the contingent
deferred sales charge is waived. In connection with purchases described in the
following paragraph on which no front-end sales load is imposed Baird pays its
investment officers a fee, which is not reimbursable under the Plan. Baird
receives, however, any contingent deferred sales charge paid in connection with
such purchases.
No front-end sales load is imposed on purchases of shares of the Baird Mutual
Funds by investment advisory clients (or affiliates of investment advisory
clients) of Baird and by shareholders using the proceeds from the redemption of
shares of an unrelated mutual fund provided the following conditions are met. If
the unrelated mutual fund imposes a front-end sales load, the redemption must
have been made within 90 days of the purchase of the shares of the Baird Mutual
Funds and the account application must be accompanied either by the redemption
check (or a copy of such check) or a copy of the account activity statement
reflecting the redemption. If the unrelated mutual fund does not impose a front-
end sales load, the redemption must have been made within 90 days of the
purchase of the shares of the Baird Mutual Funds and the account application
must be accompanied by (i) the redemption check (or a copy of such check) or a
copy of the account activity statement reflecting the redemption, and (ii) an
account activity statement or statements or other evidence indicating (A) that
the shareholder had previously owned the unrelated mutual fund, if other than a
money market fund, for at least 60 days or (B) if the unrelated mutual fund is a
money market fund, that the shares of the money market fund were purchased with
the proceeds of a mutual fund, other than a money market fund, that either had
been owned by the shareholder for at least 60 days or for which a front-end
sales load had been paid. Shares purchased at net asset value as described above
and subject to the contingent deferred sales charge must be registered in the
name of Baird as nominee for the shareholder.
RIGHT OF ACCUMULATION - Reduced sales charges are applicable through a right of
<PAGE> 41
accumulation under which purchasers may add to their investments in the Baird
Mutual Funds by purchasing shares at the offering price applicable to the total
of (a) the dollar amount then being purchased of all Baird Mutual Funds plus (b)
an amount equal to the then current net asset value of the shares of all Baird
Mutual Funds then held by the purchaser. (A "purchaser" is defined to include
an individual, as well as certain employee benefit plans for such individual
such as the individual's Individual Retirement Accounts, individual-type 403(b)
plan or a single participant Keogh-type plan, his or her spouse and their
children.)
LETTER OF INTENT - Reduced sales charges also apply to the aggregate amount of
purchases of shares of the Baird Mutual Funds made by any purchaser within a 13-
month period beginning with a date not earlier than 90 days prior to the date of
receipt by Baird of an executed Letter of Intent ("Letter") provided by Baird.
After execution of the Letter each purchase of shares of any Baird Mutual Fund
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. If the actual total investments under the Letter exceed
the intended amount and thereby qualify for a lower sales charge, a retroactive
price adjustment will be made with respect to each purchase of shares of any of
the Baird Mutual Funds and the difference will be used to purchase additional
shares of such Fund(s). If the total amount of shares purchased during the
thirteen month period does not equal the amount stated in the Letter, the
purchaser will be notified and required to pay within 20 days of the expiration
of the Letter the difference between the sales charge applicable to the shares
of the Baird Mutual Funds purchased at the reduced rate and the sales charge
applicable to the shares actually purchased pursuant to the Letter. Pursuant to
the Letter, which imposes no obligation to purchase additional shares, the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase and 5% of the amount of the intended purchase will be held
in escrow in the form of shares pending completion of the intended purchase. The
escrowed shares may be redeemed to cover additional sales charges payable if the
intended purchases are not completed and an additional sales charge not paid
within the aforementioned 20 day period. (Again a "purchaser" is defined to
include an individual, as well as certain employee benefit plans for such
individual such as the individual's Individual Retirement Accounts, individual-
type 403(b) plan or a single participant Keogh-type plan, his or her spouse, and
their children.)
DIRECT PURCHASES BY MAIL OR WIRE - An account application is included at the
back of this Prospectus. Additional account applications may be obtained from
Baird. Account applications should be mailed directly to Baird Mutual Funds, c/o
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If using
overnight delivery use the following address: Baird Mutual Funds, c/o Firstar
Trust Company, 615 E. Michigan Street, 3rd Floor, Milwaukee, Wisconsin 53202.
ALL APPLICATIONS MUST BE ACCOMPANIED BY PAYMENT IN THE FORM OF A CHECK OR MONEY
<PAGE> 42
ORDER MADE PAYABLE TO BAIRD MUTUAL FUNDS, OR BY DIRECT WIRE TRANSFER. All
purchases must be made in U.S. dollars and checks must be drawn on U.S. banks.
Neither cash nor 3rd party checks will be accepted. Firstar Trust Company will
charge a $15 fee against a shareholder's account for any payment check returned
to the custodian. THE SHAREHOLDER WILL ALSO BE RESPONSIBLE FOR ANY LOSSES
SUFFERED BY THE BAIRD MUTUAL FUNDS AS A RESULT. Funds should be wired to Firstar
Bank Milwaukee, N.A., 777 East Wisconsin Avenue, Milwaukee, Wisconsin, ABA #0750
00022, Firstar Trust Company, Account #112-952-137, for "name of Baird Mutual
Fund", "name of shareholder and existing account number, if any." The
establishment of a new account by wire transfer should be preceded by a phone
call to Baird, (414) 765-3500, to provide information for the setting up of the
account. A follow up application should be sent for all new accounts opened by
wire transfer. Telephone orders for purchase of shares may be placed with Baird
in which event the purchase will be made at the offering price next determined
after the placement of the order.
AUTOMATIC INVESTMENT PLAN - Each Baird Mutual Fund has in effect an Automatic
Investment Plan pursuant to which shareholders may invest a fixed dollar amount
automatically on or about the 5th day of each month or calendar quarter. The
minimum purchase per transaction is $50. To use this service a shareholder must
authorize Firstar Trust Company to transfer funds from the shareholder's bank
checking or NOW account by completing the Automatic Investment Plan application
included at the back of this Prospectus.
REDEMPTION AND REPURCHASE OF SHARES
A shareholder may require any Baird Mutual Fund to redeem the shareholder's
shares in whole or part at any time. Redemption requests must be made in writing
and directed to: Baird Mutual Funds, c/o Firstar Trust Company, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701. If a redemption request is inadvertently sent
to the Baird Mutual Funds, it will be forwarded to Firstar Trust Company, but
the effective date of redemption will be delayed until the request is received
by Firstar Trust Company. Requests for redemption by telephone or telegram and
requests which are subject to any special conditions or which specify an
effective date other than as provided herein cannot be honored.
Redemption requests should specify the name of the Baird Mutual Fund, the number
of shares or dollar amount to be redeemed, shareholder's name, account number,
and the additional requirements listed below that apply to the particular
account.
TYPE OF REGISTRATION REQUIREMENTS
Individual, Joint Tenants, Sole Redemption request signed by person(s)
<PAGE> 43
Proprietor, Custodial (Uniform required to sign for the account,
Gift to Minors Act), General Partners exactly as it is
registered.
Corporations, Associations Redemption request and a corporate
resolution, signed by person(s)
required to sign for the account,
accompanied by signature guarantee(s)
Trusts Redemption request signed by the
trustee(s) with a signature guarantee.
(If the trustee's name is not registered
on the account, a copy of the
trust document certified within the last
60 days is also required.)
Redemption requests from shareholders in an IRA must include instructions
regarding federal income tax withholding. Unless otherwise indicated, these
redemptions, as well as redemptions of other retirement plans not involving a
direct rollover to an eligible plan, will be subject to federal income tax
withholding.
If a shareholder is not included in any of the above registration categories
(e.g. executors, administrators, conservators or guardians), the shareholder
should call the transfer agent, Firstar Trust Company, (414-765-4124), for
further instructions. Signatures need not be guaranteed unless otherwise
indicated above or the proceeds of redemption are requested to be (a) sent by
wire transfer, (b) sent to a person other than the registered holder or holders
of the shares to be redeemed, or (c) mailed to other than the address of record,
in which cases each signature on the redemption request must be guaranteed by a
commercial bank or trust company in the United States, a member firm of the New
York Stock Exchange or other qualified guarantor. If certificates have been
issued for any of the shares to be redeemed, the certificates, properly endorsed
or accompanied by a properly executed stock power, must accompany the request
for redemption. Redemptions will not be effective or complete until all of the
foregoing conditions, including receipt of all required documentation by Firstar
Trust Company in its capacity as transfer agent, have been satisfied.
The redemption price is the net asset value next determined after receipt by
Firstar Trust Company in its capacity as transfer agent of the written request
in proper form with all required documentation. The amount received will depend
on the market value of the investments in the Baird Mutual Fund's portfolio at
the time of determination of net asset value, and may be more or less than the
cost of the shares redeemed. A check in payment for shares redeemed will be
mailed to the holder no later than the seventh day (or such lesser period of
<PAGE> 44
time as may be required by applicable regulation) after receipt of the
redemption request in proper form and all required documentation.
The Baird Mutual Funds impose a contingent deferred sales charge upon the
redemption of certain shares initially purchased without a sales charge. A
contingent deferred sales charge is imposed upon the redemption of shares
initially purchased without a sales charge because the purchase was (i)
$1,000,000 or more, (ii) by an investment advisory client (or affiliate of an
investment advisory client) of Baird, or (iii) with the proceeds of a redemption
of shares of an unrelated mutual fund, as described in "Purchase of Shares."
The contingent deferred sales charge is imposed in the event of a redemption
transaction occurring within 12 months following such a purchase. This
contingent deferred sales charge is equal to 1% of the lesser of the net asset
value of such shares at the time of purchase or at the time of redemption. No
contingent deferred sales charge is imposed when an investor redeems (a) shares
held for longer than 12 months, (b) amounts representing an increase in the
value of Baird Mutual Fund shares due to capital appreciation, or (c) shares
purchased through reinvestment of dividends or capital gain distributions. In
determining whether a contingent deferred sales charge is payable, shares that
are not subject to any deferred sales charge are redeemed first, and other
shares are then redeemed in the order purchased.
The contingent deferred sales charge is waived in connection with purchases
described under the captions "Net Asset Value Purchases" and "Reinstatement
Privilege."In addition, the contingent deferred sales charge is waived in the
event of (a) the death or disability (as defined in Section 72(m)(7) of the
Code) of the shareholder, (b) a lump sum distribution from a benefit plan
qualified under the Employee Retirement Income Security Act of 1974 ("ERISA"),
or (c) systematic withdrawals for ERISA plans if the shareholder is at least 59-
1/2 years old. The Baird Mutual Funds apply the waiver for death or disability
to shares held at the time of death or the initial determination of disability
of either an individual shareholder or one who owns the shares as a joint tenant
with the right of survivorship or as a tenant in common.
No contingent deferred sales charge is imposed on an exchange of shares
described under "Exchange Privileges." When shares of a Baird Mutual Fund have
been so exchanged, the date of the purchase of the shares of the fund exchanged
into, for purposes of any future deferred sales charge, will be assumed to be
the date on which the shares tendered for exchange were originally purchased. If
the shares being tendered for exchange have been held for less than 12 months
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
Each Baird Mutual Fund will also repurchase shares through Baird or investment
dealers, if any, with which Baird has executed sales agreements. The Baird
<PAGE> 45
Mutual Funds will normally accept orders to repurchase shares by wire or
telephone from Baird or such other investment dealer at the net asset value next
computed after receipt of the order, provided the request for repurchase is
received prior to the close of business on the New York Stock Exchange. The
Baird Mutual Funds will not charge a fee for this transaction (other than the
contingent deferred sales charge, if applicable) but Baird will charge a $40
service fee. Other investment dealers may also charge service fees, which may be
different from the fee charged by Baird. Written redemption requests in proper
form must be sent to Baird or the investment dealer after making the repurchase
request. A check in payment for shares repurchased will be mailed to the holder
no later than the seventh day after receipt of the redemption request in proper
form and all required documentation.
The right to redeem or repurchase shares of the Baird Mutual Funds will be
suspended for any period during which the New York Stock Exchange is closed
because of financial conditions or any other extraordinary reason and may be
suspended for any period during which (a) trading on the New York Stock Exchange
is restricted pursuant to rules and regulations of the Securities and Exchange
Commission, (b) the Securities and Exchange Commission has by order permitted
such suspension or (c) an emergency, as defined by rules and regulations of the
Securities and Exchange Commission, exists as a result of which it is not
reasonably practicable for the Baird Mutual Funds to dispose of their securities
or fairly to determine the value of their net assets. Additionally when the
Baird Mutual Funds are requested to redeem or repurchase shares for which they
have not received good payment, any Baird Mutual Fund may delay or cause to be
delayed the mailing of a redemption check until it has assured itself that good
payment has been collected for the purchase of such shares. (It will normally
take up to 3 days to clear local personal or corporate checks and up to 7 days
to clear other personal and corporate checks.)
REINSTATEMENT PRIVILEGE
Former shareholders of any of the Funds may reinvest the proceeds from a
redemption of any of the Funds or a dividend or capital gain distribution from
any of the Funds in shares of any of the Funds at net asset value; provided such
reinvestment is made within 90 days of the redemption, dividend or distribution.
When making a purchase at net asset value pursuant to the Reinstatement
Privilege the former shareholder's account application must be accompanied by a
copy of the account activity statement showing the prior redemption, dividend or
distribution. The tax status of any gain realized on a redemption will not be
affected by exercise of the Reinstatement Privilege, but a loss may be nullified
if the former shareholder reinvests in the same Fund within 30 days. See
"Dividends, Distributions and Taxes" for additional tax considerations in
exercising the Reinstatement Privilege.
DIVIDEND REINVESTMENT
<PAGE> 46
Each Baird Mutual Fund has in effect a dividend reinvestment plan pursuant to
which shareholders may elect to have all income dividends and/or capital gains
distributions reinvested. Shareholders may also elect to have dividends and/or
capital gains distributions paid in cash. See the account application forms
included at the back of this Prospectus for further information. If the
shareholder does not specify an election, all income dividends and capital gains
distributions will automatically be reinvested in full and fractional shares,
calculated to the nearest 1,000th of a share. Shares are purchased at the net
asset value in effect on the business day after the dividend record date
(without a sales charge) and are credited to the shareholder's account on the
dividend payment date. As in the case of normal purchases, stock certificates
are not issued unless requested. Shareholders will be advised of the number of
shares purchased and the price following each reinvestment. An election to
reinvest or receive dividends and distributions in cash will apply to all shares
registered in the same name, including those previously purchased. See
"Dividends, Distributions and Taxes" for a discussion of the federal income
tax consequences of participating in the dividend reinvestment plan.
A shareholder may change an election at any time by notifying the appropriate
Baird Mutual Fund in writing. If such a notice is received between a dividend
declaration date and payment date, it will become effective on the day following
each payment date. Each Baird Mutual Fund may modify or terminate its dividend
reinvestment program at any time on thirty days' notice to participants.
DIRECTED REINVESTMENT
In addition to having income dividends and/or capital gains distributions
reinvested in shares of the Baird Mutual Fund from which such distributions are
paid, shareholders may elect the directed reinvestment option and have dividends
and capital gains distributions automatically invested in one or more of the
other Baird Mutual Funds. Distributions can only be directed to an existing
Baird Mutual Fund account (which account must meet the minimum investment
requirement) with a registration identical to the account on which the
distributions are paid. Directed reinvestments may be used to invest funds from
a regular account to another regular account, from a qualified plan account to
another qualified plan account, or from a qualified plan account to a regular
account. Directed reinvestments from a qualified plan account to a regular
account may have adverse tax consequences including imposition of a penalty tax
and therefore shareholders should consult their own advisors before commencing
these transactions.
No service fee is currently charged by Baird for effecting directed reinvestment
transactions. There are also no sales charges payable on directed reinvestment
transactions. Additional information regarding this service may be obtained from
Baird. Directing distributions from either the BCD or BBC Fund to the BQB Fund
will ordinarily not be the most cost effective means to invest in the BQB Fund
<PAGE> 47
because the sales charges applicable to investments in the BCD and BBC Fund are
generally higher than those applicable to investment in the BQB Fund.
SYSTEMATIC WITHDRAWAL PLAN
Each Baird Mutual Fund has available to shareholders a Systematic Withdrawal
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be distributed to the
shareholder at regular intervals. To participate in the Systematic Withdrawal
Plan, a shareholder deposits shares with the appropriate Baird Mutual Fund and
appoints it as the shareholder's agent to effect redemptions of the shares held
in the account for the purpose of making monthly or quarterly withdrawal
payments of a fixed amount to the shareholder out of the account. To utilize the
Systematic Withdrawal Plan, the shares cannot be held in certificate form. The
Systematic Withdrawal Plan does not apply to shares held in Individual
Retirement Accounts or defined contribution retirement plans. An application for
participation in the Systematic Withdrawal Plan is provided in the account
application or may be obtained by writing to the Baird Mutual Funds or by
calling (414) 765-3500.
The minimum amount of a withdrawal payment is $100. These payments will be made
from the proceeds of periodic redemption of shares in the account at net asset
value. Redemptions will be made on the 19th day of each month or, if that day is
a holiday, on the preceding business day. Participation in the Systematic
Withdrawal Plan constitutes an election by the shareholder to participate in the
dividend reinvestment plan and shares acquired pursuant to the reinvestment of
dividends on shares held in the account will be added to such account. The
shareholder may deposit additional shares in the account at any time. However,
the periodic purchase of additional shares while participating in the Systematic
Withdrawal Plan will ordinarily be disadvantageous to the shareholder because
the shareholder will be paying a sales charge on the purchase of such shares at
the same time the shareholder is redeeming shares upon which a sales charge may
have already been paid.Withdrawal payments cannot be considered as yield or
income on the shareholder's investment, since portions of each payment will
normally consist of a return of capital. Depending on the size or the frequency
of the disbursements requested, and the fluctuation in the value of the
applicable Baird Mutual Fund's portfolio, redemptions for the purpose of making
such disbursements may reduce or even exhaust the shareholder's account.
Withdrawals, as in the case of other redemptions, are sales of shares for
federal income tax purposes, and may result in capital gains or losses. See
"Dividends, Distributions and Taxes."
The shareholder may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's address,
by notifying Firstar Trust Company.
<PAGE> 48
AUTOMATIC EXCHANGE PLAN
Each Baird Mutual Fund also has available to shareholders an Automatic Exchange
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be exchanged from such
Fund to one or more other Baird Mutual Funds at regular intervals. The Automatic
Exchange Plan operates in a manner similar to the Systematic Withdrawal Plan
(See "Systematic Withdrawal Plan" above) except that a fixed sum is exchanged
for shares of another Baird Mutual Fund rather than distributed in cash to the
shareholder at regular intervals. The minimum exchange transaction is $50.
Exchanges will be made on the 19th day of each month, or, if that day is a
holiday, on the preceding business day. The shareholder may deposit additional
shares in the shareholder's account of the Fund from which exchanges are to be
made at any time. Exchanging shares pursuant to the Automatic Exchange Plan from
either the BCD or BBC Fund to the BQB Fund will ordinarily not be the most cost
effective means to invest in the BQB Fund because the sales charges applicable
to investments in the BCD and BBC Fund are generally higher than those
applicable to investment in the BQB Fund.
Exchanges may only be made to an existing Baird Mutual Fund Account with a
registration identical to the account from which the exchanges are made.
Exchanges pursuant to the Automatic Exchange Plan may only be made if shares of
the Baird Mutual Fund to which the exchanges are to be made are offered in the
shareholder's state of residence. An exchange transaction is a sale and purchase
of shares for federal income tax purposes and may result in a capital gain or
loss. Both the redemption and purchase of shares will be effected at the
respective net asset values of the Baird Mutual Funds.
EXCHANGE PRIVILEGES
Shareholders of a Baird Mutual Fund may redeem all of their shares or a portion
of their shares having a net asset value of at least $1,000 and use the proceeds
to purchase shares of any other Baird Mutual Fund, if such shares are offered in
the shareholder's state of residence. Both the redemption and purchase of shares
will be effected at the respective net asset values of the Baird Mutual Funds.
An exchange transaction is a sale and purchase of shares for federal income tax
purposes and may result in a capital gain or loss. The registration of both the
account from which the exchange is being made and the account to which the
exchange is made must be identical.
Exchange requests must be made in writing. Requests should include the account
numbers for both Baird Mutual Funds if an account is already opened, and the
amount of the exchange. If a new account is to be opened by the exchange, the
registration must be identical to that of the original account. If certificates
for shares are held, they must be delivered properly endorsed as described in
"Redemption and Repurchase of Shares."
<PAGE> 49
Each Baird Mutual Fund reserves the right, at any time without prior notice, to
suspend, limit, modify or terminate this exchange privilege or its use in any
manner by any person or class. In particular, since an excessive number of
exchanges may be disadvantageous to the Baird Mutual Funds, each Baird Mutual
Fund reserves the right to terminate the exchange privilege of any shareholder
who makes more than four exchanges of shares in a year or three in a calendar
quarter (except for exchanges pursuant to the Automatic Exchange Plan).
Each Baird Mutual Fund has entered into an arrangement with Portico Money Market
Fund pursuant to which shareholders may exchange their shares of the Baird
Mutual Funds for those of the Portico Money Market Fund at their net asset
values, and, at a later date, exchange such shares and shares purchased with
reinvested dividends for shares of any Baird Mutual Fund at net asset value
(without a sales charge). The minimum amount of exchange transactions with the
Portico Money Market Fund is $1,000. Exchanges of shares of the Baird Mutual
Funds for shares of Portico Money Market Fund and exchanges of shares of Portico
Money Market Fund for shares of the Baird Mutual Funds may only be made on days
both the New York Stock Exchange is open for trading and the Federal Reserve
Banks' Fedline System is open. Such exchanges must comply with the applicable
initial and subsequent purchase minimums as established by the fund whose shares
are being acquired pursuant to the exchange. Refer to the prospectus of the
Portico Money Market Fund and under the heading "Purchase of Shares" in this
prospectus for the current minimum amounts for initial and subsequent purchases.
Additional information about this exchange privilege is contained in the
Statement of Additional Information. Baird receives certain payments from
Portico Money Market Fund in connection with exchanges of shares of the Baird
Mutual Funds for those of the Portico Money Market Fund. Refer to the prospectus
of the Portico Money Market Fund for information regarding these payments.
INDIVIDUAL RETIREMENT ACCOUNT AND SIMPLIFIED EMPLOYEE PENSION PLAN
INDIVIDUAL RETIREMENT ACCOUNTS - Individual shareholders may establish their own
tax-sheltered Individual Retirement Account ("IRA"). The Baird Mutual Funds
have a prototype IRA plan using IRS Form 5305-A. An individual may contribute to
the IRA an annual amount equal to the lesser of 100% of annual earned income or
$2,000 ($2,250 maximum in the case of a married couple where one spouse is not
working and certain other conditions are met in which event two IRAs are
established).
Earnings on amounts held under the IRA accumulate free of federal income taxes.
Distributions from the IRA may begin at age 59-1/2, and must begin by April 1
following the calendar year end in which a person reaches age 70-1/2. Excess
contributions, certain distributions prior to age 59-1/2 and failure to begin
distributions after age 70-1/2 may result in adverse tax consequences.
Under current IRS regulations an IRA applicant must be furnished a disclosure
<PAGE> 50
statement containing information specified by the IRS. The applicant has the
right to revoke the applicant's account within seven days after receiving the
disclosure statement in accordance with IRS regulations and obtain a full refund
of the applicant's contribution should the applicant so elect. The custodian
may, in its discretion, hold the initial contribution uninvested until the
expiration of the seven-day revocation period. The custodian anticipates that it
will not so exercise its discretion but reserves the right to do so.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the IRA plan as required by ERISA. The custodian
invests all cash contributions, dividends and capital gains distributions in
shares. For such services, the following fees, which are subject to change, will
be charged against each account of the participants: $12.50 annual maintenance
fee; $15 for transferring to a successor trustee; $15 for distribution(s) to a
participant; and $15 for refunding any contribution in excess of the deductible
limit.
SIMPLIFIED EMPLOYEE PENSION PLAN - The Baird Mutual Funds' prototype IRA plan
may also be used to establish a Simplified Employee Pension Plan ("SEP/IRA").
The SEP/IRA is available to employers and employees, including self-employed
individuals, who wish to purchase shares with tax deductible contributions not
exceeding annually for any one participant the lesser of $30,000 or 15% of
earned income; provided that no more than $9,500 annually (as adjusted for cost-
of-living increases) may be contributed through elective deferrals.
Requests for information and forms concerning the IRA and SEP/IRA should be
directed to Baird. Included with the forms is a disclosure statement which the
IRS requires to be furnished to individuals who are considering an IRA or
SEP/IRA. Consultation with a competent financial and tax adviser regarding the
IRA and SEP/IRA is recommended.
DEFINED CONTRIBUTION RETIREMENT AND 401(k) PLAN
A prototype defined contribution retirement plan is available for employers who
wish to purchase shares of the Baird Mutual Funds with tax-deductible
contributions not exceeding annually the lesser of $30,000 or 25% of earned
income. This plan includes a cash or deferred 401(k) arrangement for employers
who wish to allow employees to elect to reduce their compensation and have such
amounts contributed to the plan, not to exceed $9,500 annually (as adjusted for
cost-of-living increases). The Baird Mutual Funds have received an opinion
letter from the Internal Revenue Service that the prototype defined contribution
retirement plan is acceptable for use under Section 401 of the Code.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the retirement plan. The custodian invests all
cash contributions, dividends and capital gains distributions in shares. For
<PAGE> 51
such services, the following fees, which are subject to change, will be charged
against each account of the participants: $12.50 for annual maintenance fee per
participant account; $15 for a transfer to successor trustee; $15 for
distribution(s) to a participant; and $15 for a refund of an excess
contribution.
Requests for information and forms concerning the retirement plan should be
directed to Baird. Consultation with a competent financial and tax adviser
regarding the retirement plan is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Baird Mutual Funds intend to qualify annually as, and elect tax treatment
as, a regulated investment company under Subchapter M of the Code. Pursuant to
the requirements of the Code, the Baird Mutual Funds intend to distribute
substantially all of their net investment income and net capital gain, if any,
to their shareholders annually so as not to be required to pay significant
amounts of federal income or excise tax on their net investment income or net
realized capital gain. Net investment income and net realized capital gain will
typically be paid by the BCD Fund and the BBC Fund in October and December. Net
realized capital gain will typically be paid by the BQB Fund in October and
December and net investment income will be paid as described in the following
paragraph. For federal income tax purposes, the amount of the distributions paid
by the Baird Mutual Funds to shareholders, whether invested in additional shares
pursuant to the dividend reinvestment plan or received in cash, will be taxable
to each Baird Mutual Fund's shareholder except those shareholders that are not
subject to tax on their income.
The daily net investment income of the BQB Fund is declared as a dividend each
day to shareholders of record and paid monthly. Shares of the BQB Fund will
begin earning dividends the day the purchase becomes effective and will not
participate in the dividend declared on the date of redemption. For these
purposes, the date of purchase and the date of redemption is the settlement date
of the transaction. If all shares in an account (other than an account
registered in the name of Baird's nominee) are redeemed, dividends credited to
the account since the beginning of the dividend period through the date of
redemption will be paid with the redemption proceeds. If less than all such
shares are redeemed (or if all shares of an account registered in the name of
Baird's nominee are redeemed), all dividends accrued but unpaid on the redeemed
shares will be distributed on the next payment date. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Income earned on weekends, holidays and
other days on which the net asset value is not calculated will be declared as a
dividend in advance on the preceding business day.
Shareholders will be notified annually as to the sources of dividends and
<PAGE> 52
distributions. For federal income tax purposes, the original cost for a
shareholder's shares constitutes the shareholder's basis in the shares and on
redemption (including redemptions pursuant to the Exchange Privilege and the
Systematic Withdrawal Plan) the shareholder will recognize gain or loss equal to
the difference between such basis and the redemption price; provided, that if
shares of a Baird Mutual Fund are exchanged within 90 days of purchase pursuant
to the Exchange Privilege or redeemed within 90 days of purchase and the
proceeds reinvested pursuant to the Reinstatement Privilege, for federal income
tax purposes (a) the basis of the shares initially purchased will not include
the sales charge paid with respect thereto and (b) such sales charge will be
added to the basis of the shares purchased pursuant to the Exchange Privilege or
the Reinstatement Privilege. Furthermore, any loss recognized on a sale of
shares will be disallowed if the shares sold are replaced within a 61-day period
beginning 30 days before and ending 30 days after the disposition of the shares.
In such case, the basis of the acquired shares will be adjusted to reflect the
disallowed loss. Shares purchased pursuant to the dividend reinvestment plan
will have a basis equal to the amount of the dividends and/or capital gains
distributions reinvested. Distributions and redemptions may also be subject to
tax under state or local tax laws the provisions of which may differ from those
of the Code.
CAPITAL STRUCTURE
Each of the BCD Fund and the BBC Fund have authorized capital stock consisting
of 20,000,000 shares of common stock. The authorized capital stock of The Baird
Funds, Inc. consists of 10,000,000,000 shares, of which 300,000,000 are
allocated to the BQB Fund. Shareholders of the BCD Fund and the BBC Fund are
entitled: (i) to one vote per full share of common stock; (ii) to such
distributions as may be declared by the Fund's Board of Directors out of funds
legally available; and (iii) upon liquidation, to participate ratably in the
assets available for distribution. With respect to the BQB Fund, each share
outstanding entitles a holder to one vote. Generally shares of the BQB Fund and
of any other portfolios of The Baird Funds, Inc. are voted in the aggregate and
not by each Fund, except when class voting by the BQB Fund and any such other
portfolios is required by Wisconsin law or the Investment Company Act of 1940
(E.G., change in investment policy or approval of an investment advisory
agreement). The shares of each of the BQB Fund and any such other portfolios
have the same preferences, limitations and rights, except that all consideration
received from the sale of shares of each of the BQB Fund and any such other
portfolios, together with all other income, earnings, profits and proceeds
thereof, belong to the respective fund and are charged with the liabilities in
respect to that fund and of that fund's share of the general liabilities of The
Baird Funds, Inc., in the proportion that the total net assets of the respective
fund bears to the aggregate net assets of The Baird Funds, Inc. The net asset
value per share of each of the BQB Fund and the other portfolios of The Baird
Funds, Inc. is based on the assets belonging to that fund less the liabilities
<PAGE> 53
charged to that fund, and dividends are paid on shares of each fund only out of
lawfully available assets belonging to that fund. In the event of liquidation or
dissolution of The Baird Funds, Inc., the shareholders of the BQB Fund and the
other portfolios of The Baird Funds, Inc. will be entitled, out of the assets of
The Baird Funds, Inc. available for distribution, to the assets belonging to
such fund. As of the date of this prospectus, The Baird Funds, Inc. consisted of
the BQB Fund and one other portfolio, the Baird Adjustable Rate Income Fund,
which is not accepting new investments.
There are no conversion or sinking fund provisions applicable to the shares of
the Baird Mutual Funds and the holders have no preemptive rights and may not
accumulate their votes in the election of directors. Consequently the holders of
more than 50% of the shares of the BCD Fund, the BBC Fund and The Baird Funds,
Inc. voting for the election of directors of the respective corporation can
elect the entire Board of Directors of the respective corporation and in such
event the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the Board of Directors. The
Wisconsin Business Corporation Law permits registered investment companies to
operate without an annual meeting of shareholders under specified circumstances
if an annual meeting is not required by the 1940 Act. The Baird Mutual Funds
have adopted the appropriate provisions in their Bylaws and do not anticipate
holding an annual meeting of shareholders to elect directors unless otherwise
required by the 1940 Act. The Baird Mutual Funds have also adopted provisions
in their Bylaws for the removal of directors by their shareholders.
The shares are redeemable and are transferable. All shares issued and sold by
each Baird Mutual Fund will be fully paid and non-assessable except as provided
in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law. Fractional
shares entitle the holder to the same rights as whole shares, on a proportionate
basis. Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin
53202 acts as each Baird Mutual Fund's transfer agent and dividend disbursing
agent.
The BCD Fund and the BBC Fund will not issue certificates evidencing shares
purchased unless so requested in writing. Shares of the BQB Fund will be
evidenced only by bookkeeping entries. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and the
need to deliver them upon redemption. Written confirmations are issued for all
purchases. Any shareholder may deliver certificates to Firstar Trust Company and
direct that the shareholder's account be credited with the shares. A shareholder
of the BCD Fund or the BBC Fund may direct Firstar Trust Company at any time to
issue a certificate for the shareholder's shares without charge.
<PAGE> 54
The BCD Fund, the BBC Fund and The Baird Funds, Inc. are separately incorporated
investment companies. Each Baird Mutual Fund is described in this Prospectus in
order to help investors understand the similarities and differences between the
Baird Mutual Funds. Because the Baird Mutual Funds share this Prospectus there
is a possibility that one Baird Mutual Fund might become liable for a
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the other Baird Mutual Fund.
SHAREHOLDER REPORTS
Shareholders will be provided at least semi-annually with a report showing the
applicable Baird Mutual Funds' portfolio and other information and annually
after the close of the Baird Mutual Funds' fiscal year, which ends September 30,
with an annual report containing audited financial statements. Shareholders who
have questions about the Baird Mutual Funds should call Firstar Trust Company at
(414) 765-4124 or write to Baird Mutual Funds, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, Attention: Corporate Secretary.
Account Application
My Baird Investment Officer is:
Name
--------------------------
Number
------------------------
Check One:
BAIRD CAPITAL DEVELOPMENT FUND BAIRD QUALITY BOND FUND
BAIRD BLUE CHIP FUND
NAME ACCOUNT REGISTRATION Please print or type
In case of two or more co-owners, the account will be registered "Joint Tenants
with Right of Survivorship"unless otherwise specified.
SHAREHOLDER / / / /
- -------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.** DATE OF BIRTH
CO-OWNER/OTHER / / / /
- -------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.** DATE OF BIRTH
ADDRESS
<PAGE> 55
- --------------------------------------------------------------------
STREET
- --------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------
TELEPHONE
- --------------------------------------------------------------------
BUSINESS HOME
MAIL TO: FOR OVERNIGHT OR EXPRESS MAIL:
Baird Mutual Funds
c/o Firstar Trust Co. Baird Mutual Funds
P.O. Box 701 c/o Firstar Trust Co.
Milwaukee, Wisconsin 53201-0701 615 East Michigan St., 3rd Floor
(414) 765-4124 Milwaukee, Wisconsin 53202
Enclosed is my check or money order made payable to the "Baird Mutual Funds"
for $ (Initial purchase $1,000 minimum, except for Automatic
------------
Investment Plans, $50 minimum per transaction.) made payable to Baird Capital
Development Fund, Baird Blue Chip Fund or Baird Quality Bond Fund, for the
purchase of shares in accordance with the provisions in the Baird Mutual Funds'
Prospectus, the receipt of which is hereby acknowledged. I represent that I am
of legal age and have legal capacity to make this purchase.
DISTRIBUTION OPTION
If none checked, Option A will be assigned.
A. Dividends reinvested; capital gains in additional
shares.
B. Dividends in cash; capital gains in additional shares.
C. Dividends reinvested; capital gains in cash.
D. Dividends in cash; capital gains in cash.
E. Reinvest dividends and capital gains into (name of
Fund)
--------------------------
Directed reinvestment is available only when the minimum investment requirement
of the receiving Fund has been met.
AUTOMATIC EXCHANGES
Automatic exchanges are available only on account balances of $10,000 or more at
the time automatic exchanges are commenced.
Exchange $ ($50 minimum)
----------------------
into (name of Fund)
-----------------------------------------------------
<PAGE> 56
Account Number
----------------------------------------------------------
from (name of Fund)
------------------------------------------------
Account Number
-----------------------------------------------------
Please make exchanges Monthly
Quarterly (M,J, S, D)
Exchanges will be made on the (*(F15)) or preceding business day.
*(F15) Date to be determined by Firstar.
**(F16) The Fund is required to withhold taxes if a Social Security number or
Tax Identification number is not delivered to the Fund within 7 days.
RIGHT OF ACCUMULATION DISCOUNTS
I qualify for the Right of Accumulation as
described in the Baird Mutual Funds' Prospectus.
Below are listed all the accounts in Baird
Capital Development Fund, Baird Blue Chip Fund and
Baird Quality Bond Fund which should be credited
to my Statement of Intention or combined with the
account listed above.
ACCOUNT NUMBERS:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
LETTER OF INTENT (OPTIONAL)
I agree to be bound by the description of the Letter of Intent in the
Prospectus and to escrow certain of my shares in accordance herewith.
Although I am not obligated to do so, it is my intention to invest over a 13-
month period in shares of Baird Capital Development Fund, Baird Blue Chip
Fund and/or Baird Quality Bond Fund an aggregate amount (including shares
currently held) at least equal to that which is checked below:
$50,000 to $99,999 $100,000 to $249,999
$250,000 to $499,999 $500,000 to $999,999
$1,000,000 or more
If a previous purchase has been made within 90 days,
please check this box and provide account number.
Account number
--------------------------
<PAGE> 57
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
Systematic withdrawals are available only on account balances of $10,000 or more
at the time systematic withdrawals are commenced.
Mail a check for $ ($100 or more) prior to the last day of
-----------------
each:
Month
Quarter
First check to be mailed in month of to person(s) and
-------------------------
address shown in account registration.
SHAREHOLDER AUTHORIZATION AND CERTIFICATION
(Must be certified by first shareholder, signing below)
I authorize any instruction contained herein and
certify, under penalties of perjury
- --------------------------------------
Signature of the Shareholder Date
1. That the social security or other taxpayer
identification number is correct, and
(Strike if not true)
- -------------------------------
Signature of Co-Owner (if any)
2. That I am not subject to backup withholding
either because I have not been notified that I am
subject to backup withholding as a result of a
failure to report all interest or dividends, or I
was subject to backup withholding and the Internal
Revenue Service has notified me that I am no
longer subject to backup withholding.
- ------------------------------------------------
Corp. Officer/partner/Trustee Title
- ------------------------------------------------
Corp. Officer/partner/Trustee Title
- ------------------------------------------------
Corp. Officer/partner/Trustee Title
<PAGE> 58
APPLICATION
My Baird Investment Officer is:
Name
-------------------------
Number
-----------------------
AUTOMATIC INVESTMENT PLAN
$50 minimum per month or quarter
Use this form to establish your automatic investment plan with The Baird Mutual
Funds. You can purchase shares regularly by requesting electronic transfer of
assets from your checking or NOW account to any of the Baird Mutual Funds.
GUIDELINES
Your bank must be a member of Automated Clearing House (ACH).
The application MUST be accompanied by a "voided" check.
Application must be received at least 14 days prior to the initial
transaction.
Your Baird Mutual Fund account must be established before the Plan goes into
effect. ($50 minimum)
A $15 service fee will be assessed, if the automatic purchases cannot be made
for any reason.
The Plan will be terminated upon redemption of all shares. (This includes
exchanges to other Funds.)
Termination must be in writing to the Firstar Trust Company. Allow 5 business
days to become effective.
All contributions made to a Baird Mutual Fund IRA through the Automatic
Investment Plan will be recorded as current year contributions.
Contributions will be made on or about the 5th day of each month or quarter
depending on the option selected.
Complete this form and return to:
Baird Mutual Funds, c/o Firstar Trust Company, P.O. Box 701, Milwaukee, WI
53201-0701
<PAGE> 59
AUTHORIZATION TO MY BANK
I (we) authorize you via the ACH Network to honor all debit entries initiated by
me from time to time through Firstar Bank of Milwaukee, N.A. on behalf of the
Firstar Trust Company. All such debits are subject to sufficient collected funds
in my account to pay the debit when presented.
I (we) agree that your treatment of each entry, and your rights to respect it,
shall be the same as if it were signed personally by me (or either of us). I
(we) further agree that if any such entries are dishonored with good and
sufficient cause, you shall be under no liability whatsoever.
I (we) have read and understand the conditions of The Baird Mutual Fund
Automatic Investment Plan. I (we) also understand that the Plan may be
terminated or modified at any time without notice by The Baird Mutual Funds or
Firstar Trust Company.
MONTHLY OPTION
Monthly amount to be invested $ ($50 minimum) commencing
-------------
, 199 .
- ------------ --
QUARTERLY OPTION (APRIL, JULY, OCTOBER AND JANUARY)
Quarterly amount to be invested $ ($50 minimum) commencing
-------------
, 199 .
- ----------- --
Check One:
BAIRD CAPITAL DEVELOPMENT FUND BAIRD QUALITY BOND FUND
BAIRD BLUE CHIP FUND
- -------------------------------- ---------------------------------------
FUND NAME NAME OF YOUR BANK
- -------------------------------- ---------------------------------------
ACCOUNT NUMBER NAME(S) ON YOUR BANK OR NOW ACCOUNT
- -------------------------------- ---------------------------------------
NAME(S) ON ACCOUNT YOUR BANK ADDRESS
<PAGE> 60
- -------------------------------- ---------------------------------------
YOUR ADDRESS CITY STATE ZIP
( )
- -------------------------------- ---------------------------------------
CITY STATE ZIP YOUR DAYTIME PHONE NUMBER
- -------------------------------- ---------------------------------------
SIGNATURE OF OWNER DATE SIGNATURE OF JOINT OWNER (IF ANY)
DO NOT DETACH
AUTHORIZATION TO MY BANK
- --------------------------------------------------------------------------
NAME(S) ON YOUR BANK ACCOUNT ACCOUNT NUMBER SIGNATURE(S) OF OWNER
-----------------------------
SIGNATURE(S) OF OWNER
- -----------------------------------------------
BANK NAME
- -----------------------------------------------
BANK ADDRESS
- -----------------------------------------------
CITY STATE ZIP
DISTRIBUTOR
ROBERT W. BAIRD & CO.
INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INVESTMENT ADVISERS
INVESTMENT MANAGEMENT
SERVICES GROUP
ROBERT W. BAIRD & CO. INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
<PAGE> 61
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER,
DIVIDEND DISBURSING AND
SHAREHOLDER SERVICING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
414-765-4124
(Baird Logo)
A NORTHWESTERN
MUTUAL COMPANY
Robert W. Baird & Co. Incorporated
777 E. Wisconsin Avenue, Milwaukee, WI 53202
Phone 414-765-3500. Toll Free 1-800-RW-BAIRD
Copyright 1996 Robert W. Baird & Co. Incorporated
