Registration No. 2-89614; 811-3977
- ----------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No.
--
Post-Effective Amendment No. 14 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 16 x
(Check appropriate box or boxes.)
---------------------------------
BAIRD CAPITAL DEVELOPMENT FUND, INC.
------------------------------------------
(Exact name of Registrant as Specified in Charter)
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
-------------------- -----
(Address of Principal Executive (Zip Code)
Offices)
(414) 765-3500
---------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Glen F. Hackmann
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
----------------------------------------
(Name and Address of Agent for Service)
Copy to:
Conrad G. Goodkind
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective. REGISTRANT REQUESTS ACCELERATION OF
EFFECTIVENESS OF THIS FILING SO THAT IT WILL BECOME EFFECTIVE ON JANUARY 22,
1996, OR AS SOON THEREAFTER AS PRACTICABLE.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940, and filed its required Rule 24f-2 Notice for the Registrant's fiscal year
ended September 30, 1995 on November 29, 1995.
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
x on January 22, 1996, pursuant to paragraph (a)(3)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485
BAIRD CAPITAL DEVELOPMENT FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 495 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A and
B of Form N-1A.)
Caption or Subheading in Prospectus or
Item No. on Form N-1A Statement of Additional Information
--------------------- -----------------------------------
Part A - INFORMATION REQUIRED IN PROSPECTUS
- ------ ----------------------------------
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Financial Highlights; Performance
Information Information
4. General Description of Introduction; Recent Developments;
Registrant Investment Objectives and Policies;
Portfolio Securities and Investment
Practices
5. Management of the Fund Management of the Funds; Financial
Highlights; Purchase of Shares
5A. Management's Discussion of Management's Discussion of Performance of
Fund Performance the Funds
6. Capital Stock and Other Dividend Reinvestment; Dividends,
Securities Distributions and Taxes; Capital Structure;
Shareholder Reports
7. Purchase of Securities Cover Page; Management of the Funds;
Being Offered Determination of Net Asset Value; Purchase
of Shares; Reinstatement Privilege; Dividend
Reinvestment; Directed Reinvestment;
Exchange Privilege; Individual Retirement
Account and Simplified Employee Pension
Plan; Defined Contribution Retirement and
401(k) Plan
8. Redemption or Repurchase Redemption and Repurchase of Shares;
Systematic Withdrawal Plan; Automatic
Exchange Plan
9. Legal Proceedings *<F1>
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
- ------ -----------------------------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Recent Developments; also included in
History Prospectus under "Introduction" and "Recent
Developments"
13. Investment Objectives and Investment Restrictions
Policies
14. Management of the Directors and Officers of the Fund
Registrant
15. Control Persons and Directors and Officers of the Fund
Principal Holders of
Securities
16. Investment Advisory and Directors and Officers of the Fund;
Other Services Investment Adviser and Sub-Adviser;
Distribution ofShares; Custodian;
Independent Accountants
17. Brokerage Allocation and Allocation of Portfolio Brokerage
Other Practices
18. Capital Stock and Other Included in Prospectus under "Capital
Securities Structure" and Shareholder Meetings
19. Purchase, Redemption and Included in Prospectus under "Determination
Pricing of Securities Being of Net Asset Value; "Purchase of Shares";
Offered "Dividend Reinvestment"; "Directed
Reinvestment"; "Exchange Privilege";
"Systematic Withdrawal Plan"; "Automatic
Exchange Plan"; "Individual Retirement
Account and Simplified Employee Pension
Plan"; "Defined Contribution Retirement
and 401(k) Plan";Determination of Net Asset
Value and Performance
20. Tax Status Taxes
21. Underwriters Distribution of Shares
22. Calculations of Performance Determination of Net Asset Value
Data and Performance
23. Financial Statements Financial Statements
*<F1> Answer negative or inapplicable
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
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
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
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
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>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)
BCD Fund 5.75%
BBC Fund 5.75%
BQB Fund 4.00%
*<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)
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)
BCD Fund .74% .27% .33% 1.34%
BBC Fund .74% .27% .30% 1.31%
BQB Fund .50% .25% .25% 1.00%
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:
Period (in years)
Fund 1 3 5 10
BCD Fund $71 $100 $132 $219
BBC Fund $71 $ 99 $129 $215
BQB Fund $50 $ 72 $ 95 $162
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>
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<CAPTION>
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)
----- ----- ----- ----- ----- ------ ----- ----- ----- -----
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%
*<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>
<TABLE>
Baird Blue Chip Fund, Inc.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987+<F4>
------ ------ ------ ------ ------ ------ ------ ------ ------
<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%
+<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
September 30, 1988 and a maximum .45% distribution fee beginning October 1,
1988.
***<F7>Total return does not include the sales load.
</TABLE>
<TABLE>
BAIRD QUALITY BOND FUND
<CAPTION>
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%
*<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.
</TABLE>
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
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 10.5%
5-YEAR 17.4%
10-YEAR 12.8%
date Baird Capital Development Fund Nasdaq Composite Index
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
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%
date Baird Blue Chip Fund S&P 500 Index
2/4/87*<F12> 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
Past performance is not predictive of future performance.
*<F12> inception date
<TABLE>
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%
<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
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
Past performance is not predictive of future performance.
*<F13> inception date
</TABLE>
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
*<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.
</TABLE>
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
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
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
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
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
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
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
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
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
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.
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.
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
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
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
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
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-
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
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
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.
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
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
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
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
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
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:
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
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%
The following sales charges are applicable to purchases of the BQB Fund:
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
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%
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
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
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
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
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)
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
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
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
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
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.
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.''
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
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
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
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
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.
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.**<F16>DATE OF BIRTH
CO-OWNER/OTHER / / / /
- -------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.**<F16>DATE OF BIRTH
ADDRESS
- --------------------------------------------------------------------
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)
-----------------------------------------------------
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
--------------------------
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
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
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
- -------------------------------- ---------------------------------------
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
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
STATEMENT OF ADDITIONAL INFORMATION January 22, 1996
- -----------------------------------
BAIRD CAPITAL DEVELOPMENT FUND, INC.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of Baird Capital Development
Fund, Inc. dated January 22, 1996. Requests for copies of the prospectus should
be made by writing to Baird Capital Development Fund, Inc., 777 East Wisconsin
Avenue, Milwaukee, Wisconsin, Attn: Corporate Secretary or by calling (414)
765-3500.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
TABLE OF CONTENTS
-----------------
Page No.
-------
RECENT DEVELOPMENTS........................................... 1
INVESTMENT RESTRICTIONS....................................... 1
DIRECTORS AND OFFICERS OF THE FUND............................ 3
PRINCIPAL SHAREHOLDERS........................................ 5
INVESTMENT ADVISER AND SUB-ADVISER............................ 6
DISTRIBUTION OF SHARES........................................ 8
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE.............. 9
EXCHANGE PRIVILEGE............................................ 10
ALLOCATION OF PORTFOLIO BROKERAGE............................. 12
CUSTODIAN..................................................... 13
TAXES......................................................... 13
SHAREHOLDER MEETINGS.......................................... 15
INDEPENDENT ACCOUNTANTS....................................... 16
FINANCIAL STATEMENTS.......................................... 17
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS............... A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated January 22, 1996 and, if given or made,
such information or representations may not be relied upon as having been
authorized by Baird Capital Development Fund, Inc. or Robert W. Baird & Co.
Incorporated.
This Statement of Additional Information does not constitute an offer
to sell securities.
RECENT DEVELOPMENTS
As stated in the Prospectus for Baird Capital Development Fund, Inc. (the
"Fund") dated January 22, 1996, the Fund has entered into an Agreement and Plan
of Reorganization dated December 20, 1995 pursuant to which substantially all of
the assets of the Fund will be sold to AIM Capital Development Fund, a newly-
created series of AIM Equity Funds, Inc. In exchange, each shareholder of the
Fund will receive shares of AIM Capital Development Fund with an aggregate net
asset value equal to the total net asset value of the Fund's shares held by such
shareholder immediately prior to the transaction. In connection with the
transaction, the Fund will take steps to pay any outstanding liabilities and
dissolve its corporate existence. The transaction is subject to approval of the
Fund's shareholders and, if so approved, will be completed in late March 1996.
The AIM Capital Development Fund will be managed by AIM Advisors, Inc., a
registered investment adviser managing or advising 39 investment company
portfolios with total assets of approximately $42 billion as of
December 1, 1995.
INVESTMENT RESTRICTIONS
The primary investment objective of the Fund is to produce long-term
capital appreciation. The 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 a secondary objective. Consistent with its
investment objective, the Fund has adopted the following investment restrictions
which are matters of fundamental policy and cannot be changed without approval
of the holders of the lesser of: (i) 67% of the Fund's shares present or
represented at a shareholders meeting at which the holders of more than 50% of
such shares are present or represented; or (ii) more than 50% of the outstanding
shares of the Fund.
1. The Fund will not purchase securities on margin, participate in a
joint-trading account, sell securities short, or write or invest in put or call
options. The Fund's investments in warrants, valued at the lower of cost or
market, will not exceed 5% of the value of the Fund's net assets. Included
within such 5%, but not to exceed 2% of the value of the Fund's net assets, may
be warrants which are not listed on either the New York Stock Exchange or the
American Stock Exchange.
2. The Fund will not borrow money or issue senior securities, except
for temporary bank borrowings (not in excess of 5% of the value of its assets)
for emergency or extraordinary purposes, and will not pledge any of its assets
except to secure borrowings and only to an extent not greater than 10% of the
value of the Fund's net assets.
3. The Fund will not lend money (except by purchasing publicly
distributed debt securities or entering into repurchase agreements provided that
repurchase agreements maturing in more than seven days plus all other illiquid
securities will not exceed 10% of the Fund's total assets) and will not lend its
portfolio securities.
4. The Fund will not purchase securities of other investment
companies except (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders of the Fund or (b) securities of
registered closed-end investment companies on the open market where no
commission or profit results, other than the usual and customary broker's
commission and where as a result of such purchase the Fund would hold less than
3% of any class of securities, including voting securities, of any registered
closed-end investment company and less than 5% of the Fund's assets, taken at
current value, would be invested in securities of registered closed-end
investment companies.
5. The Fund will not make investments for the purpose of exercising
control or management of any company.
6. The Fund will not purchase securities of any issuer (other than
the United States or an instrumentality of the Units States) if, as a result of
such purchase, the Fund would hold more than 10% of any class of securities,
including voting securities, of such issuer or more than 5% of the Fund's
assets, taken at current value, would be invested in securities of such issuer.
7. The Fund will not concentrate more than 25% of the value of its
assets, determined at the time an investment is made, exclusive of government
securities, in securities issued by companies primarily engaged in the same
industry.
8. The Fund will not acquire or retain any security issued by a
company, an officer or director of which is an officer or director of the Fund
or an officer, director or other affiliated person of its investment adviser.
9. The Fund will not acquire or retain any security issued by a
company if any of the directors or officers of the Fund, or directors, officers
or other affiliated persons of its investment adviser beneficially own more than
1/2% of such company's securities and all of the above persons owning more than
1/2% own together more than 5% of its securities.
10. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund and will not purchase any securities
which are restricted from sale to the public without registration under the
Securities Act of 1933, as amended.
11. The Fund will not purchase any interest in any oil, gas or any
other mineral exploration or development program.
12. The Fund will not purchase or sell real estate, interests in real
estate or real estate mortgage loans and will not make any investments in real
estate limited partnerships.
13. The Fund will not purchase or sell commodities or commodities
contracts.
14. The Fund will not invest more than 5% of the Fund's total assets
in securities of issuers which have a record of less than three years continuous
operation, including the operation of any predecessor business of a company
which came into existence as a result of a merger, consolidation, reorganization
or purchase of substantially all of the assets of such predecessor business.
DIRECTORS AND OFFICERS OF THE FUND
DIRECTORS. The name, address, principal occupations during the past
---------
five years and other information with respect to each of the directors of the
Fund are as set forth below. Each of the individuals listed below serve in the
same capacities for the Baird Blue Chip Fund and The Baird Funds, Inc., which is
comprised of the Baird Quality Bond Fund and the Baird Adjustable Rate Income
Fund.
JAMES D. BELL*<F2>
- -------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
Mr. Bell is a Managing Director, the Chief Administrative Officer and
a Director of Robert W. Baird & Co. Incorporated ("Baird"), the Fund's
sub-adviser and distributor, and a Director of Baird Financial Corporation, the
corporate parent of Baird.
REVEREND ALBERT J. DIULIO, S.J.
- -------------------------------
O'Hara Hall
Marquette University
Milwaukee, Wisconsin
Reverend DiUlio is President of Marquette University. From 1986 to
1990 Reverend DiUlio was President of Xavier University, Cincinnati, Ohio, and
from 1984 to 1986, Associate Dean, College of Business, Marquette University.
GEORGE C. KAISER
- ----------------
929 North Astor #2501
Milwaukee, Wisconsin
Mr. Kaiser is sole proprietor of George Kaiser & Co. and the Chairman
and Chief Executive Officer of Hanger Tight Company. From 1985 to 1988 Mr.
Kaiser was President and from 1984 to 1987 was Executive Vice President of
Arandell-Schmidt Co. He is also a director of Roundy's Inc.
ALLAN H. SELIG
- --------------
201 South 46th Street
Milwaukee, Wisconsin
Mr. Selig is President and Chief Executive Officer of the Milwaukee
Brewers Baseball Club, Inc. Mr. Selig is also a director of Oil-Dri Corporation
of America.
EDWARD J. ZORE*<F2>
- --------------
720 East Wisconsin Avenue
Milwaukee, Wisconsin
Mr. Zore is Executive Vice President of The Northwestern Mutual Life
Insurance Company. Mr. Zore is also a director of MGIC Investment Corporation
and Baird Financial Corporation, the corporate parent of Baird.
During the fiscal year ended September 30, 1995 the Fund paid $3,000
in directors' fees to the Fund's disinterested directors. The Fund's current
method of compensating directors is to pay each disinterested director a fee of
$250 for each meeting of the Board of Directors attended.
*<F2>Messrs. Bell and Zore are directors who are "interested persons" of the
Fund as that term is defined in the Investment Company Act of 1940.
OFFICERS. The name, address, principal occupation during the past
--------
five years and other information with respect to each of the officers of the
Fund who are not directors are as set forth below. Each of the individuals
listed below serve in the same capacities for the Baird Blue Chip Fund, Inc. and
The Baird Funds, Inc. which is comprised of the Baird Quality Bond Fund and the
Baird Adjustable Rate Income Fund.
MARCUS C. LOW, JR.
- ------------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(PRESIDENT OF THE FUND)
Mr. Low is a Managing Director and Director of Baird and has been
employed by Baird in various capacities since 1965.
LAURA H. GOUGH
- --------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(VICE PRESIDENT OF THE FUND)
Ms. Gough is a First Vice President of Baird and the director of
Baird's Retirement Plan Department. Prior to joining Baird in 1991, she was
general manager of the pension operations of Aetna Life & Casualty, in
Pittsburgh, Pennsylvania.
MARY ANN TAYLOR
- ---------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(VICE PRESIDENT OF THE FUND)
Ms. Taylor is a First Vice President of Baird and the director of
Baird's Equity and Fixed Income Mutual Funds Department and has been employed by
Baird in various capacities since 1980.
GLEN F. HACKMANN
- ----------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(SECRETARY AND TREASURER OF THE FUND)
Mr. Hackmann is a Managing Director, the Secretary and General Counsel
and a Director of Baird and has been General Counsel since September, 1984.
PRINCIPAL SHAREHOLDERS
As of December 31, 1995, Robert W. Baird & Co. Incorporated, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202, owned of record 49.0% of the
outstanding shares of the Fund. Of the shares owned of record by Baird, 109,722
shares, or 5.26% of the total shares outstanding, are owned either beneficially
or of record by Baird Capital Participation Plan, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. To the knowledge of the Fund, no other person
owned beneficially 5% or more of the outstanding shares of the Fund as of
December 31, 1995.
As of December 31, 1995 the Fund's officers and directors as a group
(9 persons) beneficially owned less than 1% of the outstanding shares of the
Fund.
INVESTMENT ADVISER AND SUB-ADVISER
The investment adviser to the Fund is Fiduciary Management, Inc. (the
"Adviser"). The Adviser is wholly-owned by Ted D. Kellner, its Chairman and
Chief Executive Officer, and Donald S. Wilson, its President and Treasurer. The
Adviser's executive officers include Messrs. Kellner and Wilson, Mr. Gary G.
Wagner, Executive Vice President, Ms. Maria Blanco, Senior Vice President and
Secretary, Mr. Patrick English, Senior Vice President, Mr. Jeff Bryden, Senior
Vice President, Ms. Camille Wildes, Vice President and Ms. Judy Koteski, Vice
President. The directors of the Adviser are Messrs. Kellner and Wilson.
Pursuant to the investment advisory agreement between the Fund and the
Adviser (the "Advisory Agreement") the Adviser furnishes continuous investment
advisory services to the Fund. During the fiscal years ended September 30,
1995, September 30, 1994 and September 30, 1993, the Fund paid the Adviser fees
of $225,719, $221,153 and $186,363, respectively.
The sub-adviser to the Fund is Baird. Baird is also the Fund's
distributor. Baird is an indirect partially-owned subsidiary of, and controlled
by, The Northwestern Mutual Life Insurance Company. The Fund and Baird have
entered into a Sub-Advisory Agreement (the "Sub-Advisory Agreement") pursuant to
which Baird provides research services to the Adviser. During the fiscal years
ended September 30, 1995, September 30, 1994 and September 30, 1993, the Fund
paid Baird fees of $179,231, $175,603 and $147,963, respectively, pursuant to
the Sub-Advisory Agreement.
The Fund pays all of its expenses not assumed by the Adviser and Baird
pursuant to the Advisory Agreement, Sub-Advisory Agreement and Administration
Agreement described below, including but not limited to the professional costs
of preparing and printing its registration statements required under the
Securities Act of 1933 and the Investment Company Act of 1940 and any amendments
thereto, the expense of registering its shares with the Securities and Exchange
Commission and in the various states, the printing and distribution cost of
prospectuses mailed to existing shareholders, the cost of stock certificates,
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, brokerage
commissions and expenses in connection with portfolio transactions. The Fund
also pays the fees of directors who are not interested persons of the Fund,
salaries of administrative and clerical personnel, association membership dues,
auditing and accounting services, fees and expenses of any custodian or trustees
having custody of Fund assets, expenses of repurchasing and redeeming shares,
printing and mailing expenses, charges and expenses of dividend disbursing
agents, registrars and stock transfer agents, including the cost of keeping all
necessary shareholder records and accounts and handling any problems related
thereto.
The Adviser and Baird have undertaken to reimburse the Fund to the
extent that the aggregate annual operating expenses, including the investment
advisory fee, sub-advisory and administration fees, but excluding interest,
taxes, brokerage commissions, fees paid pursuant to the Fund's Distribution Plan
and extraordinary items, exceed that percentage of the average net assets of the
Fund for such year, as determined by valuations made as of the close of each
business day of the year, which is the most restrictive percentage provided by
the state laws of the various states in which the Common Stock is qualified for
sale. As of the date of this Statement of Additional Information the percentage
applicable to the Fund is 2-1/2% on the first $30,000,000 of its daily net
assets, 2% on the next $70,000,000 of its daily net assets and 1-1/2% on assets
in excess of $100,000,000. Additionally, commencing with the fiscal year ended
September 30, 1989, Baird will reimburse the Fund to the extent aggregate annual
operating expenses as described above, but including fees paid pursuant to the
Fund's Distribution Plan, exceed 1.8% of the Fund's daily net assets. The Fund
monitors its expense ratio on a monthly basis. If the accrued amount of the
expenses of the Fund exceeds the expense limitation, the Fund creates an account
receivable from the Adviser and Baird for the amount of such excess. In such a
situation the monthly payment of Baird's fee will be reduced by the amount of
such excess (and if the amount of such excess in any month is greater than the
monthly payment of Baird's fee, Baird will pay the Fund the amount of such
difference), subject to adjustment month by month during the balance of the
Fund's fiscal year if accrued expenses thereafter fall below this limit. The
Adviser's fees will be reduced only in the event Baird fails to make any
required reimbursements to the Fund. No reimbursement was required during the
fiscal years ended September 30, 1995, September 30, 1994 and September 30,
1993.
The Adviser is also the administrator to the Fund. Pursuant to an
administration agreement (the "Administration Agreement") between the Fund and
the Adviser, the Adviser prepares and maintains the books, accounts and other
documents required by the Investment Company Act of 1940 (the "Act"), determines
the Fund's net asset value, responds to shareholder inquiries, prepares the
Fund's 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 Fund's financial accounts and records and
generally assists in all aspects of the Fund's operations other than portfolio
management. During the fiscal years ended September 30, 1995, September 30,
1994 and September 30, 1993, the Fund paid the Adviser fees of $42,361, $41,808
and $37,589, respectively, pursuant to the Administration Agreement.
The Administration Agreement, Sub-Advisory Agreement and the Advisory
Agreement will remain in effect as long as their continuance is specifically
approved at least annually, by (i) the Board of Directors of the Fund, or by the
vote of a majority (as defined in the Act) of the outstanding shares of the
Fund, and (ii) by the vote of a majority of the directors of the Fund who are
not parties to the Administration Agreement, Advisory Agreement or Sub-Advisory
Agreement or interested persons of the Adviser or Baird, cast in person at a
meeting called for the purpose of voting on such approval. Each of the
Administration Agreement, Advisory Agreement and the Sub-Advisory Agreement
provide that they may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Fund or by vote of a majority of the
Fund's shareholders, on sixty days written notice to the Adviser or Baird, as
the case may be, and by the Adviser or Baird, as the case may be, on the same
notice to the Fund and that they shall be automatically terminated if they are
assigned.
The Advisory Agreement, the Sub-Advisory Agreement and the
Administration Agreement provide that the Adviser and Baird shall not be liable
to the Fund or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of their obligations or duties.
The Advisory Agreement, the Sub-Advisory Agreement and the Administration
Agreement also provide that the Adviser and Baird and their officers, directors
and employees may engage in other businesses, devote time and attention to any
other business whether of a similar or dissimilar nature, and render services to
others.
DISTRIBUTION OF SHARES
Pursuant to a Distribution Agreement between the Fund and Baird, Baird
acts as underwriter of the shares of Common Stock. The Distribution Agreement
provides that Baird will use its best efforts to distribute the shares of Common
Stock on a continuous basis and will receive commissions on such sales as
described in the Prospectus under "Purchase of Shares." No sales charge is
imposed on sales to retirement plans which purchase at least $500,000 of shares
of the Fund, Baird Blue Chip Fund, Inc. or Baird Quality Bond Fund, sales
pursuant to the reinstatement privilege as described in the Prospectus, and
sales to employees, present and former directors of the Fund, employees and
directors of Baird and the Adviser or to licensed securities representatives of
Baird, and to members of the immediate family of any of the foregoing, because
of the reduced level of sales-related expenses associated with sales to such
groups. The term "members of the immediate family" is defined to mean a
person's parents, brothers and sisters, children and grandchildren.
Additionally Baird does not charge a front-end sales charge on (i) purchases of
$1,000,000 or more, (ii) purchases by investment advisory clients (or affiliates
of investment advisory clients) and (iii) purchases with the proceeds of a
redemption of shares of an unrelated mutual fund but the Fund imposes a
contingent deferred sales load upon the redemption of certain shares so
purchased, which contingent deferred sales load is paid to Baird. During the
fiscal years ended September 30, 1995, September 30, 1994 and September 30,
1993, Baird received approximately $97,000, $173,000 and $281,000, respectively,
in front-end sales commissions, all of which it retained. During the fiscal
years ended September 30, 1995, September 30, 1994 and September 30, 1993,
Baird received $75, $2,164 and $146, respectively, in
deferred sales commissions, all of which it retained. The Distribution
Agreement further provides that Baird bears the costs of advertising
and any other costs attributable to the distribution of the Common
Stock. (A portion of these costs may be reimbursed by the Fund pursuant to the
Fund's Distribution Plan pursuant to Rule 12b-1 under the Act (the "Plan") and
related Distribution Assistance Agreement.) It may receive brokerage
commissions for executing portfolio brokerage for the Fund. See "Allocation of
Portfolio Brokerage."
The Plan was adopted in anticipation that the Fund will benefit from
the Plan through increased sales of shares of Common Stock thereby reducing the
Fund's expense ratio and providing an asset size that allows the Adviser greater
flexibility in management. The Plan may be terminated at any time by a vote of
the directors of the Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 directors") or by a vote of a majority of the
outstanding shares of Common Stock. Reverend DiUlio and Messrs. Kaiser and
Selig are the Rule 12b-1 directors. Any change in the Plan that would
materially increase the distribution expenses of the Fund provided for in the
Plan requires approval of the shareholders and the Board of Directors, including
the Rule 12b-1 directors.
While the Plan is in effect, the selection and nomination of Directors
who are not interested persons of the Fund will be committed to the discretion
of the Directors of the Fund who are not interested persons of the Fund. The
Board of Directors of the Fund must review the amount and purposes of
expenditures pursuant to the Plan quarterly as reported to it by Baird. The
Plan will continue in effect for as long as its continuance is specifically
approved at least annually by the Directors, including the Rule 12b-1 directors.
During the fiscal year ended September 30, 1995 the Fund paid Baird a fee of
$148,437 pursuant to the Plan and the related Distribution Assistance Agreement.
During such year Baird incurred distribution expenses of $148,438, of which
$141,604 was compensation to sales personnel and $6,834 was related to the
printing of the Fund's IRA materials and prospectuses.
During the fiscal ended September 30, 1995, Baird received the
following commissions and other compensation from the Fund:
<TABLE>
<CAPTION>
COMPENSATION ON FEES PURSUANT TO THE
--------------- --------------------
UNDERWRITING REDEMPTION AND BROKERAGE PLAN AND DISTRIBUTION INVESTMENT
------------ -------------- --------- --------------------- ----------
COMMISSIONS REPURCHASES COMMISSIONS ASSISTANCE AGREEMENT ADVISORY FEES
----------- ----------- ----------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
$97,202 $75 $21,221 $148,437 $179,231
</TABLE>
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
The net asset value of the Fund is 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. The New
York Stock Exchange is open for trading Monday through Friday except New Year's
Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange will
not be open for trading on the preceding Friday and when any such holiday falls
on a Sunday, the New York Stock Exchange will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the ending
of a monthly or the yearly accounting period.
Any total rate of return quotation of the Fund will be for a period of
three or more months and will assume the reinvestment of all dividends and
capital gain distributions which were made by the Fund during that period. Any
period total rate of return quotation of the Fund will be calculated by dividing
the net change in the value of a hypothetical shareholder account established by
an initial payment of $1,000 at the beginning of a period by $1,000. The net
change in the value of a shareholder account is determined by subtracting $1,000
from the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period (assuming the maximum sales charge of
5.75%) plus (B) the number of shares purchased during the period with reinvested
dividends and distributions. Any average annual compounded total rate of return
quotation of the Fund will be calculated by dividing the redeemable value at the
end of the period (i.e., the product referred to in the preceding sentence) by
----
$1,000. A root equal to the period, measured in years, in question is then
determined and 1 is subtracted from such root to determine the average annual
compounded total rate of return.
The foregoing computation may also be expressed by the following
formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the stated periods at the end of the
stated periods.
The average annual returns for the Fund for the one-, five- and ten-
year periods ended September 30, 1995 were 10.46%, 17.38% and 12.76%,
respectively.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of Common Stock for shares of Portico
Money Market Fund at their net asset value and at a later date exchange such
shares and shares purchased with reinvested dividends for shares of the Fund,
Baird Blue Chip Fund, Inc. or Baird Quality Bond Fund, at the then net asset
value (without a sales or other service charge). If the shares of Portico Money
Market Fund are not exchanged for shares of the Fund, Baird Blue Chip Fund, Inc.
or Baird Quality Bond Fund, within 24 months after the initial exchange, Baird
reserves the right to terminate the Exchange Privilege. If the Exchange
Privilege is so terminated, any shares of the Fund, Baird Blue Chip Fund, Inc.
or Baird Quality Bond Fund purchased with the proceeds from the redemption of
the Portico Money Market Fund will be purchased at the current offering price,
which includes the sales charge described in the Prospectus. The acquisition of
shares of the Fund, Baird Blue Chip Fund, Inc. or Baird Quality Bond Fund
pursuant to the exercise of the Exchange Privilege will not qualify as a
purchase under the Letter of Intent as qualifying purchases must be at the
current offering price. 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 on
which shares of Portico Money Market Fund are priced. Shares of Portico Money
Market Fund are priced on each day on which both the New York Stock Exchange is
open for trading and the Federal Reserve Bank's Fedline System is open. Shares
of Portico Money Market Fund are not priced on New Year's Day, Martin Luther
King, Jr. Day (observed), Good Friday, President's Day (observed), Memorial Day
(observed), Independence Day, Labor Day, Columbus Day (observed), Veteran's Day
(observed), Thanksgiving Day and Christmas Day. 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.
Shareholders who are interested in exercising the Exchange Privilege
should first contact Baird to obtain instructions and any necessary forms. The
Exchange Privilege does not in any way constitute an offering of, or
recommendation on the part of Baird, the Adviser, the Fund, Baird Blue Chip
Fund, Inc. or Baird Quality Bond Fund of, an investment in Portico Money Market
Fund. Any shareholder who considers making such an investment through the
Exchange Privilege should first obtain and review the Prospectus of Portico
Money Market Fund before exercising the Exchange Privilege.
The Exchange Privilege will not be available if (i) the proceeds from
a redemption of shares of Common Stock are paid directly to the shareholder or
at his direction to any persons other than Portico Money Market Fund, Baird Blue
Chip Fund, Inc. or Baird Quality Bond Fund or (ii) the proceeds from a
redemption of the shares of Portico Money Market Fund are not immediately
reinvested in shares of the Fund, Baird Blue Chip Fund, Inc. or Baird Quality
Bond Fund. Exercise of the Exchange Privilege will be limited to four exchanges
(with each redemption or reinvestment being considered an exchange) in each
calendar year for each investor (without accumulation if not exercised in prior
years). The Exchange Privilege may be terminated at any time by the Fund.
However at the time of termination former shareholders who hold shares of
Portico Money Market Fund acquired pursuant to the Exchange Privilege may
reinvest such monies in shares of the Fund, Baird Blue Chip Fund, Inc. or Baird
Quality Bond Fund at net asset value (without a sales charge) within the 24
month period referred to above.
For federal income tax purposes a redemption of shares of Common Stock
pursuant to the Exchange Privilege will result in a capital gain if the proceeds
received exceed the shareholder's tax-cost basis of the shares of Common Stock
redeemed. Such a redemption may also be taxed under state and local tax laws
which may differ from the Internal Revenue Code.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by the
Adviser subject to review by the Fund's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price in
light of the overall quality of brokerage and research services provided, as
described in this and the following paragraph. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in best
execution at the most favorable price involves a number of largely judgmental
considerations. Among these are the Adviser's evaluation of the broker's
efficiency in executing and clearing transactions, block trading capability
(including the broker's willingness to position securities) and the broker's
financial strength and stability. The most favorable price to the Fund means
the best net price without regard to the mix between purchase or sale price and
commission, if any. Over-the-counter securities are generally purchased and
sold directly with principal market makers who retain the difference in their
cost in the security and its selling price. In some instances, the Adviser
feels that better prices are available from non-principal market makers who are
paid commissions directly. The Adviser may allocate portfolio brokerage on the
basis of whether the broker has sold or is currently selling shares of the
Fund's Common Stock and may also allocate portfolio brokerage to Baird, but, in
each case, only if the Adviser reasonably believes the commissions and
transaction quality are comparable to that available from other qualified
brokers. Under the Act Baird is prohibited from dealing with the Fund as a
principal in the purchase and sale of securities. Since transactions in the
over-the-counter securities market generally involve transactions with dealers
acting as principal for their own account, Baird may not serve as the Fund's
dealer in connection with such transactions. Baird when acting as a broker for
the Fund in any of its portfolio transactions executed on a securities exchange
of which Baird is a member, will act in accordance with the requirements of
Section 11(a) of the Securities Exchange Act of 1934 and the rules of such
exchanges.
In allocating brokerage business for the Fund, the Adviser also takes
into consideration the research, analytical, statistical and other information
and services provided by the broker, such as general economic reports and
information, reports or analyses of particular companies or industry groups,
market timing and technical information, and the availability of the brokerage
firm's analysts for consultation. While the Adviser believes these services
have substantial value, they are considered supplemental to the Adviser's own
efforts in the performance of its duties under the Advisory Agreement and the
efforts of Baird under the Sub-Advisory Agreement. Other clients of the Adviser
may indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser as a
result of transactions for other clients. The Advisory Agreement provides that
the Adviser may cause the Fund to pay a broker which provides brokerage and
research services to the Adviser a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other accounts as to which he exercises investment discretion.
Since Baird provides research services to the Fund pursuant to the Sub-Advisory
Agreement, it will not receive higher commissions because of research services
provided.
Brokerage commissions paid by the Fund during the fiscal year ended
September 30, 1995 to brokers, other than Baird, totaled $23,940 on transactions
involving securities having a total market value of $23,253,942. All of such
brokers provided research services to the Adviser. During such year, the Fund
paid Baird brokerage commissions of $21,221 on transactions involving securities
having a total market value of $6,987,422. Brokerage commissions paid by the
Fund during the fiscal year ended September 30, 1994 to brokers, other than
Baird, totaled $35,592 on transactions involving securities having a total
market value of $25,076,573. All of such brokers provided research services to
the Adviser. During such year, the Fund paid Baird $10,220 on transactions
involving securities having a total market value of $3,074,125. Brokerage
commissions paid by the Fund during the fiscal year ended September 30, 1993 to
brokers, other than Baird, totaled $23,486 on transactions involving securities
having a total market value of $21,385,736. All of such brokers provided
research services to the Adviser. During such year the Fund paid Baird
commissions of $17,040 on transactions involving securities having a total
market value of $5,137,469.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Fund. As such, Firstar Trust Company holds all
securities and cash of the Fund, delivers and receives payment for securities
sold, receives and pays for securities purchased, collects income from
investments and performs other duties, all as directed by officers of the Fund.
Firstar Trust Company does not exercise any supervisory function over the
management of the Fund, the purchase and sale of securities or the payment of
distributions to shareholders.
TAXES
General
- -------
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
it so qualifies, the Fund will not be subject to Federal income tax on its net
investment income and net short-term capital gains, if any, realized during any
fiscal year to the extent that it distributes such income and capital gains to
its shareholders.
The Fund will determine either to distribute or to retain for
reinvestment all or part of any net long-term capital gain. If any such gain is
retained, the Fund will be subject to a tax of 35% of such amount. In that
event, the Fund expects to designate the retained amount as undistributed
capital gain in a notice to its shareholders, each of whom (1) will be required
to include in income for tax purposes as long-term capital gain its share of
such undistributed amount, (2) will be entitled to credit its proportionate
share of the tax paid by the Fund against its Federal income tax liability and
to claim refunds to the extent the credit exceeds such liability, and (3) will
increase its basis in its shares of the Fund by an amount equal to 65% of the
amount of undistributed capital gain included in such shareholder's gross
income.
A distribution will be treated as paid during any calendar year if it
is declared by the Fund in October, November or December of the year, payable
and paid by the Fund during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
received on December 31 of the year the distributions are declared, rather than
when the distributions are received. Under the Code, amounts not distributed on
a timely basis in accordance with a calendar year distribution requirement are
subject to a 4% excise tax. To avoid the tax, the Fund must distribute during
each calendar year an amount equal to at least the sum of (1) 98% of its
ordinary income (not taking onto account any capital gains or losses) for the
calendar year, (2) 98% of its capital gains in excess of its capital losses for
the twelve-month period ending on October 31 of the calendar year, and (3) all
ordinary income and net capital gains for previous years that were not
previously distributed.
Gains or losses on the basis of securities by the Fund will be long-
term capital gains or losses if the securities have been held by the Fund for
more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.
Distributions
- -------------
Distributions of investment company taxable income (which includes
taxable interest income and the excess of net short-term capital gains over
long-term capital losses) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or in additional Fund shares. Dividends paid by the Fund
will qualify for the 70% deduction for dividends received by corporations to the
extent the Fund's income consists of qualified dividends received from U.S.
corporations. Distributions of net capital gain (which consist of the excess of
long-term capital gains over net short-term capital losses), if any, are taxable
as long-term capital gain, whether paid in cash or in shares, regardless of how
long the shareholder has held the Fund's shares, and are not eligible for the
dividends received deduction. Shareholders receiving distributions in the form
of newly issued shares will have a basis in such shares of the Fund equal to the
fair market value of such shares on the distribution date. If the net asset
value of shares is reduced below a shareholder's cost as a result of a
distribution by the Fund, such distribution may be taxable even though it
represents a return of invested capital. The price of shares purchased at any
time may reflect the amount of a forthcoming distribution. Those purchasing
shares just prior to a distribution will receive a distribution which will be
taxable to them even though the distribution represents in part a return of
invested capital.
Sale of Shares
- --------------
Upon a sale or exchange of shares, a shareholder will realize a
taxable gain or loss depending upon the basis in the shares. Such gain or loss
will be treated as a long-term capital gain or loss if the shares have been held
for more than one year. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within a 61-day
period beginning 30 days before and ending 30 days after the date the shares are
disposed of. In such case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by
the shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to such shares.
Backup Withholding
- ------------------
The Fund may be required to withhold Federal income tax at a rate of
31% on all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's Federal
income tax liability.
SHAREHOLDER MEETINGS
The Wisconsin Business Corporation Law permits registered investment
companies, such as the Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the Act. The Fund has adopted the appropriate provisions in its bylaws and
may, at its discretion, not hold an annual meeting in any year in which none of
the following matters is required to be acted upon by the shareholders under the
Act: (i) election of directors; (ii) approval of an investment advisory
agreement; (iii) ratification of the selection of auditors; and (iv) approval of
a distribution agreement.
The Fund's bylaws also contain procedures for the removal of directors
by its shareholders. At any meeting of shareholders, duly called and at which a
quorum is present, the shareholders may, by the affirmative vote of the holders
of a majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Fund shall promptly call a special meeting of shareholders for
the purpose of voting upon the question of removal of any director. Whenever
ten or more shareholders of record who have been such for at least six months
preceding the date of application, and who hold in the aggregate either shares
having a net asset value of at least $25,000 or at least one percent (1%) of the
total outstanding shares, whichever is less, shall apply to the Fund's Secretary
in writing, stating that they wish to communicate with other shareholders with a
view to obtaining signatures to a request for a meeting as described above and
accompanied by a form of communication and request which they wish to transmit,
the Secretary shall within five business days after such application either:
(1) afford to such applicants access to a list of the names and addresses of all
shareholders as recorded on the books of the Fund; or (2) inform such applicants
as to the approximate number of shareholders of record and the approximate cost
of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing
to sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202 currently serves as the independent accountants for
the Fund and has so served since the fiscal year ended September 30, 1989. As
such Price Waterhouse LLP performs an audit of the Fund's financial statements
and considers the Fund's internal control structure. The audited financial
statements of the Fund incorporated by reference into the Fund's Prospectus
and included in this Statement of Additional Information have been so
incorporated or included in reliance on the report of Price Waterhouse LLP,
given on the authority of said firm as experts and auditing in rendering said
report.
FINANCIAL STATEMENTS
The following audited financial statements and notes thereto of the Fund,
together with the report of Price Waterhouse LLP thereon, are included herein.
(1) Report of Independent Accountants.
(2) Statement of Net Assets for the Fund as of September 30, 1995.
(3) Statement of Operations for the Fund for the year ended September 30,
1995.
(4) Statements of Changes in Net Assets for the Fund for the years ended
September 30, 1995 and 1994.
(5) Financial Highlights.
(6) Notes to Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS 100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
(Price Waterhouse LLP Logo)
To the Shareholders and Board of Directors
of Baird Capital Development Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Baird Capital Development Fund, Inc. (the ''Fund'') at September 30, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the ten years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as ''financial statements'') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
October 25, 1995
BAIRD CAPITAL DEVELOPMENT FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1995
Shares or Principal Amount Cost Quoted Market Value
-------------------------- ---- -------------------
LONG-TERM INVESTMENTS 82.4% (A)<F4>
COMMON STOCKS - 77.3% (A)<F4>
BANKS/SAVINGS & LOANS - 2.0%
46,500 Marshall & Ilsley Corp. $ 582,430 $1,168,312
COMPUTERS- 2.0%
45,000 Stratus Computer, Inc.*<F3> 1,403,475 1,181,250
CONSUMER PRODUCTS - DURABLES - 4.8%
40,000 Harley-Davidson, Inc. 265,750 975,000
65,000 Juno Lighting, Inc. 731,000 991,250
30,000 Kimball International, Inc. Cl B 778,379 840,000
--------- ---------
1,775,129 2,806,250
CONSUMER PRODUCTS - NON-DURABLES - 1.2%
28,000 Newell Co. 500,150 693,000
ENERGY/ENERGY SERVICES - 1.6%
25,000 Burlington Resources Inc. 974,125 968,750
FOOD & BEVERAGES - 1.5%
25,000 Universal Foods Corp. 782,860 871,875
HEALTH INDUSTRIES - 11.4%
90,000 Biomet, Inc.*<F3> 1,006,875 1,552,500
35,000 Dentsply International Inc. 1,133,750 1,207,500
10,000 Haemonetics Corp.*<F3> 220,800 230,000
30,000 Sofamor/Danek Group, Inc.*<F3> 480,950 832,500
20,000 St. Jude Medical, Inc.*<F3> 751,500 1,265,000
40,000 Sybron International Corp.*<F3> 998,860 1,610,000
--------- ---------
4,592,735 6,697,500
INDUSTRIAL SERVICES - 1.9%
13,800 Bandag, Inc. 731,120 729,675
7,400 Bandag, Inc. Cl A 319,428 360,750
--------- ---------
1,050,548 1,090,425
INSURANCE- 5.2%
10,000 Poe & Brown, Inc. 246,250 245,000
30,000 Progressive Corp. (Ohio) 1,065,210 1,342,500
35,000 Providian Corp. 809,870 1,452,500
--------- ---------
2,121,330 3,040,000
LEISURE/RESTAURANTS - 4.9%
97,600 Brinker International, Inc.*<F3> 1,699,528 1,451,800
181,200 Ryan's Family Steak Houses, Inc.*<F3> 1,367,125 1,426,950
--------- ---------
3,066,653 2,878,750
MACHINERY/TOOLS - 1.4%
24,000 Harnischfeger Industries, Inc. 599,200 801,000
MISCELLANEOUS-BUSINESS SERVICES - 1.3%
28,500 G & K Services, Inc. 281,625 662,625
5,000 On Assignment, Inc.*<F3> 81,650 126,875
--------- --------
363,275 789,500
MISCELLANEOUS-CONSUMER MANUFACTURING - 2.3%
20,000 Lancaster Colony Corp. 612,500 680,000
35,000 LSI Industries Inc. 372,350 682,500
--------- ---------
984,850 1,362,500
MISCELLANEOUS-FINANCE - 2.3%
13,000 Federal National Mortgage Association 677,710 1,345,500
PAPER/PACKAGING - 2.5%
18,800 Liqui-Box Corp. 652,255 556,950
38,500 Wausau Paper Mills Co. 717,199 933,625
--------- ---------
1,369,454 1,490,575
POLLUTION CONTROL - 2.4%
40,000 Browning-Ferris Industries, Inc. 1,206,207 1,215,000
25,000 Harding Associates, Inc.*<F3> 355,250 171,875
--------- ---------
1,561,457 1,386,875
PRINTING/PUBLISHING/FORMS - 2.3%
17,300 Banta Corp. 562,250 735,250
27,000 CCH INC. Cl B 556,875 600,750
--------- ---------
1,119,125 1,336,000
PRODUCER MANUFACTURING - 5.7%
70,000 Pall Corp. 1,102,096 1,627,500
24,200 Regal-Beloit Corp. 166,980 450,725
50,000 Watts Industries, Inc. 1,108,676 1,243,750
--------- ---------
2,377,752 3,321,975
RETAIL TRADE - 9.3%
90,000 Casey's General Stores, Inc. 844,375 2,036,250
60,000 Elek-Tek, Inc.*<F3> 764,375 285,000
115,000 Family Dollar Stores, Inc. 1,593,200 2,185,000
60,000 Mac Frugal's Bargains Close-outs Inc.*<F3>1,016,230 945,000
--------- ---------
4,218,180 5,451,250
SOFTWARE/SERVICE - 11.3%
15,000 Compuware Corp.*<F3> 607,500 330,000
80,000 Mentor Graphics Corp.*<F3> 802,500 1,670,000
45,000 Policy Management Systems Corp.*<F3> 1,446,368 2,306,250
80,000 SunGard Data Systems Inc.*<F3> 708,605 2,340,000
--------- ---------
3,564,973 6,646,250
WARRANTS- 0.0%
790 Windmere Warrants, 01/19/98*<F3> 0 0
---------- ----------
Total common stocks 33,685,411 45,327,537
U.S. TREASURY NOTES - 5.1% (a)<F4>
$3,000,000 U.S. Treasury Notes, 4.375%, due 8/15/96 3,019,218 2,965,314
---------- ----------
Total long-term investments 36,704,629 48,292,851
SHORT-TERM INVESTMENTS 17.6% (A)<F4>
VARIABLE RATE DEMAND NOTES
$2,665,000 General Mills, Inc. 2,665,000 2,665,000
2,850,000 Pitney Bowes Credit Corp. 2,850,000 2,850,000
1,998,440 Sara Lee Corp. 1,998,440 1,998,440
2,830,000 Wisconsin Electric Power Co. 2,830,000 2,830,000
----------- ----------
Total short-term investments 10,343,440 10,343,440
----------- ----------
Total investments $47,048,069 58,636,291
----------
----------
Cash and receivables, less
liabilities - 0.0% (a)<F4> 9,433
----------
NET ASSETS $58,645,724
----------
----------
Net Asset Value Per Share
($0.01 par value 20,000,000
shares authorized), redemption price
($58,645,724 / 2,234,499
shares outstanding) $ 26.25
----------
----------
Maximum Offering Price Per Share
(net asset value plus 6.10% of the net
asset value or 5.75% of the offering
price calculated as $26.25 x 100 / 94.25) $ 27.85
----------
----------
*<F3>Non-income producing security.
(a)<F4>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
INCOME:
Dividends $ 444,201
Interest 451,181
--------
Total income 895,382
--------
EXPENSES:
Management fees - Adviser 225,719
Management fees - Sub-Adviser 179,231
Distributor fees 148,437
Transfer agent fees 56,552
Administrative services 42,361
Printing and postage expense 32,315
Professional fees 18,196
Custodian fees 12,824
Registration fees 8,937
Other expenses 11,193
--------
Total expenses 735,765
--------
NET INVESTMENT INCOME 159,617
--------
NET REALIZED GAIN ON INVESTMENTS 5,612,531
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 3,054,593
---------
NET GAIN ON INVESTMENTS 8,667,124
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,826,741
---------
---------
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
1995 1994
--------- ---------
OPERATIONS:
Net investment income $ 159,617 $ 91,703
Net realized gain on investments 5,612,531 3,025,462
Net increase (decrease) in unrealized
appreciation on investments 3,054,593 (1,246,508)
--------- ----------
Net increase in net assets
resulting from operations 8,826,741 1,870,657
--------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.02490 and $0.04375 per share, respectively) (56,619) (100,460)
Distributions from net realized gains
($1.1155 and $0.5313 per share, respectively) (2,536,513) (1,221,249)
------------ -----------
Total distributions (2,593,132)**<F6>(1,321,709)*<F5>
------------ -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(195,408 and 395,526 shares, respectively) 4,530,286 9,199,212
Net asset value of shares issued
in distributions
(57,724 and 30,019 shares, respectively) 1,286,104 692,008
Cost of shares redeemed (304,827 and
381,575 shares, respectively) (7,211,431) (8,802,392)
---------- ----------
Net (decrease) increase in net assets
derived from Fund share activities (1,395,041) 1,088,828
---------- ----------
TOTAL INCREASE 4,838,568 1,637,776
NET ASSETS AT THE BEGINNING OF THE YEAR 53,807,156 52,169,380
---------- ----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income
of $159,464 and $56,574, respectively) $58,645,724 $53,807,156
---------- ----------
---------- ----------
*<F5>Total distributions include $997,958 of ordinary income, of which 57% is
eligible for the corporate dividends received deduction.
**<F6>Total distributions include $136,886 of ordinary income, of which 72% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of this
statement.
FINANCIAL HIGHLIGHTS
(Selected Data for each share of each Fund outstanding throughout each period)
<TABLE>
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<CAPTION>
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)
----- ----- ----- ----- ----- ------ ----- ----- ----- -----
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%
*<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>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of
significant accounting policies of the Baird Capital Development Fund, Inc. (the
''Fund''), which is registered under the Investment Company Act of 1940. The
Fund was incorporated under the laws of Wisconsin on February 21, 1984.
(a) Each security, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which are
traded over-the-counter are valued at the latest bid price. Securities for
which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Short-term investments are valued at amortized cost which
approximates quoted market value. Investment transactions are recorded no
later than the first business day after the trade date. Cost amounts, as
reported on the statement of net assets, are the same for Federal income tax
purposes.
(b) Net realized gains and losses on common stock are computed on the basis of
the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a ''regulated investment company'' and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(e) The Fund has significant investments in short-term variable rate demand
notes, which are unsecured instruments. The Fund may be susceptible to credit
risk with respect to these notes to the extent the issuer defaults on its
payment obligation. The Fund's policy is to monitor the creditworthiness of
the issuer and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified to capital stock.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES - The Fund has a management agreement with Fiduciary Management, Inc.
(''FMI''), to serve as investment adviser and manager. Under the terms of the
agreement, the Fund will pay FMI a monthly management fee at the annual rate of
0.4125% of the daily net assets of the Fund. The Fund has an administrative
agreement with FMI to supervise all aspects of the Fund's operations except
those performed by FMI pursuant to the management agreement. Under the terms of
the agreement, the Fund will pay FMI a monthly administrative fee at the annual
rate of 0.1% of the daily net assets up to and including $30,000,000 and 0.05%
of the daily net assets of the Fund in excess of $30,000,000.
The Fund has a sub-advisory agreement with Robert W. Baird &Co. Incorporated
(''RWB''), with whom certain officers and directors of the Fund are affiliated,
to serve as the sub-advisor. Under the terms of the agreement, the Fund will pay
RWB a monthly sub-advisory fee at the annual rate of 0.3275% of the daily net
assets of the Fund.
The Fund has adopted a Distribution Plan (the ''Plan''), pursuant to Rule 12b-1
under the Investment Company Act of 1940, with RWB. The Plan provides that the
Fund may incur certain costs which may not exceed the lesser of a monthly amount
equal to 0.45% per year of the Fund's daily net assets or the actual
distribution costs incurred by RWB during the year. Amounts paid under the Plan
are paid monthly to RWB for any activities or expenses primarily intended to
result in the sale of shares of the Fund.
During the year ended September 30, 1995, the Fund was advised that RWB received
$97,202 from investors representing commissions on sales of Fund shares and
$21,221 from the Fund for brokerage fees on the execution of purchases and sales
of portfolio securities.
(3) DISTRIBUTION TO SHAREHOLDERS - Net investment income and net realized gains
are distributed to shareholders. On October 25, 1995, a dividend from net
investment income of $159,464 ($0.0723 per share) was declared. In addition, the
Fund distributed $5,612,454 ($2.5432 per share) from net long-term realized
gains. The distributions will be paid on October 26, 1995 to shareholders of
record on October 24, 1995. The percentage of ordinary income which is eligible
for the corporate dividends received deduction for this income distribution is
100%.
(4) INVESTMENT TRANSACTIONS - For the year ended September 30, 1995, purchases
and proceeds of sales of investment securities (excluding short-term securities)
were $10,030,374 and $20,210,990, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
Payable to shareholders for redemptions $ 91,302
Payable to FMI and RWB for management,
service and distribution fees 51,861
Other liabilities 10,835
(6) SOURCES OF NET ASSETS - As of September 30, 1995, the sources of net assets
were as follows:
Fund shares issued and outstanding $41,285,584
Net unrealized appreciation on investments 11,588,222
Accumulated net realized gains on investments 5,612,454
Undistributed net investment income 159,464
----------
$58,645,724
----------
----------
Aggregate net unrealized appreciation as of September 30, 1995, consisted of the
following:
Aggregate gross unrealized appreciation $13,226,934
Aggregate gross unrealized depreciation (1,638,712)
----------
Net unrealized appreciation $11,588,222
----------
----------
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment
Objectives and Policies" the Fund may invest in corporate bonds and debentures
assigned one of the highest three ratings of either Standard & Poor's
Corporation or Moody's Investors Service, Inc. A brief description of the
ratings symbols and their meanings follows.
Standard & Poor's Corporation. A Standard & Poor's corporate or
-----------------------------
municipal debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may take into
consideration obligers such as guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform any audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the higher rated
categories.
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large, or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
------------------------------------------
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from A-1 for the highest quality
obligations to D for the lowest. These categories are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However the relative degree of safety is not as high as for
issuers designed "A-1".
A-3. Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt ratings are
-------------------------------
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying
upon support mechanisms such as letters-of-credit and bonds of indemnity are
excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements (all included in Parts A and B)
(1) Report of Independent Accountants
(2) Statement of Net Assets as of September 30, 1995
(3) Statement of Operations for the year ended September 30, 1995
(4) Statements of Changes in Net Assets for the years ended
September 30, 1995 and 1994
(5) Financial Highlights
(6) Notes to Financial Statements
(b) Exhibits
(1) Registrant's Articles of Incorporation; Exhibit 1 to
Registrant's Registration Statement on Form N-1A and Exhibit
1.1 to Amendment No. 5 to Registrant's Registration
Statement on Form N-1A are incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.
(2) Registrant's By-Laws, as amended; Exhibit 2 to Amendment No.
9 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(3) None
(4) Specimen Stock Certificate; Exhibit 4 to Amendment No. 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(5) Investment Advisory Agreement; Exhibit 5 to Amendment No. 1
to Registrant's Registration Statement on Form N-1A and
Exhibit 5.1 to Amendment No. 5 to Registrant's Registration
Statement on Form N-1A are incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.
(5.1) Sub-Advisory Agreement; Exhibit 5.2 to Amendment No. 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(6) Distribution Agreement; Exhibit 6 to Amendment No. 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(7) None
(8) Custodian Agreement with Firstar Trust Company; Exhibit 8 to
Amendment No. 1 to Registrant's Registration Statement on
Form N-1A and Exhibit 8.1 to Amendment No. 5 to Registrant's
Registration Statement on Form N-1A are incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(9) Administration Agreement; Exhibit 9 to Amendment No. 8 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933
(9.1) Agreement and Plan of Reorganization dated December 20, 1995
between the Fund and AIM Equity Funds, Inc.,on behalf of the
AIM Capital Development Fund
(10) Opinion of Foley & Lardner, counsel for Registrant; Exhibit
10 to Amendment No. 9 to Registrant's Registration Statement
on Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933.
(11) Consent of Independent Accountants
(12) None
(13) Subscription Agreement; Exhibit 13 to Amendment No. 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(14.1) Individual Retirement Account; Exhibit 14.1 to Amendment No.
8 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(14.2) Defined Contribution Retirement Plan; Exhibit 14.2 to
Amendment No. 9 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule 411
under the Securities Act of 1933.
(15.1) Registrant's Amended and Restated Distribution Plan; Exhibit
15.1 to Amendment No. 5 to Registrant's Registration
Statement on Form N-1A is incorporated by reference pursuant
to Rule 411 under the Securities Act of 1933.
(15.2) Distribution Assistance Agreement; Exhibit 15.2 to Amendment
No. 5 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(16) Schedule for Computation of Performance Quotations.
(27) Financial Data Schedule
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Registrant is not controlled by any person. Registrant neither
controls any person nor is under common control with any other person.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of December 31, 1995
-------------- -----------------------
Common Stock, $.01 par value 2,409
Item 27. Indemnification
---------------
Pursuant to the authority of the Wisconsin Business Corporation Law,
Registrant's Board of Directors has adopted the following By-Law which is in
full force and effect and has not been modified or canceled:
Article VII
INDEMNIFICATION
7.01 Provision of Indemnification. The corporation shall
----------------------------
indemnify all of its corporate representatives against expenses,
including attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with
the defense of any action, suit or proceeding, or threat or claim of
such action suit or proceeding, whether civil, criminal,
administrative, or legislative, no matter by whom brought, or in any
appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of
the corporation and with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful provided that the
corporation shall not indemnify corporate representatives in relation
to matters as to which any such corporate representative shall be
adjudged in such action, suit or proceeding to be liable for gross
negligence, willful misfeasance, bad faith, reckless disregard of the
duties and obligations involved in the conduct of his office, or when
indemnification is otherwise not permitted by the Wisconsin Business
Corporation Law.
7.02 Determination of Right to Indemnification. In the absence
-----------------------------------------
of an adjudication which expressly absolves the corporate
representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he
has met the applicable standard of conduct set forth in Section 7.01.
Such determination shall be made: (i) by the board of directors, by
a majority vote of a quorum which consists of directors who were not
parties to the action, suit or proceeding nor interested persons of
the corporation as defined in Section 2(a)(19) of the Investment
Company Act of 1940; (ii) if the required quorum is not obtainable or
if a quorum of disinterested directors so direct, by independent legal
counsel in a written opinion; or (iii) by the shareholders. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
was guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard to the duties and obligations involved in the
conduct of his or her office, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct
was unlawful.
7.03 Allowance of Expenses. Expenses, including attorneys' fees,
---------------------
incurred in the preparation of and/or presentation of the defense of a
civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding as authorized in the manner provided in Sections
180.0853 or 180.0856 of the Wisconsin Business Corporation Law and in
accordance with requirements of the Securities and Exchange Commission
upon receipt of an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the
corporation as authorized in this by-law.
7.04 Additional Rights to Indemnification. The indemnification
------------------------------------
provided by this by-law shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under these by-laws,
any agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person subject to the
limitations imposed from time to time by the Investment Company Act of
1940, as amended.
7.05 Insurance. This corporation shall have power to purchase
---------
and maintain insurance on behalf of any corporate representative
against any liability asserted against him or her and incurred by him
or her in such capacity or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him
or her against such liability under this by-law, provided that no
insurance may be purchased or maintained to protect any corporate
representative against liability for gross negligence, willful
misfeasance, bad faith, or reckless disregard of the duties and
obligations involved in the conduct of his or her office.
7.06 Definitions. "Corporate Representative" means an individual
-----------
who is or was a director, officer, agent or employee of the
corporation or who serves or served another corporation, partnership,
joint venture, trust or other enterprise in one of these capacities at
the request of the corporation and who, by reason of his or her
position, is, was or is threatened to be made a party to a proceeding
described herein.
In reference to Article VII, Section 7.01 of the By-laws, Section
180.0851 of the Wisconsin Business Corporation Law provides for mandatory
indemnification (a) if a corporate representative was successful on the merits
or otherwise in the defense of a proceeding, and (b) if the corporate
representative was not successful on the merits or otherwise but the liability
incurred was not the result of a breach or failure to perform a duty which
constituted any of the following: (1) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
corporate representative has a material conflict of interest; (2) a violation of
criminal law, unless the corporate representative had reasonable cause to
believe his or her conduct was lawful or no reasonable cause to believe his or
her conduct was unlawful; (3) a transaction from which the corporate
representative derived an improper personal profit; or (4) willful misconduct.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person or
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Information with respect to Messrs. Bell, Low, Hackmann, Kellner and
Wilson, and Ms. Gough and Ms. Taylor, is incorporated by reference to pages 3-5
of the Statement of Additional Information pursuant to Rule 411 under the
Securities Act of 1933. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of
Baird, reference is made to Baird's current Form ADV (File No. 801-7571) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference pursuant to Rule 411 under the Securities Act of 1933.
Item 29. Principal Underwriters
----------------------
(a) Robert W. Baird & Co. Incorporated, the Fund's principal
underwriter and sub-adviser, is the principal underwriter for, and investment
adviser to, Baird Blue Chip Fund, Inc., Baird Quality Bond Fund and Baird
Adjustable Rate Income Fund.
(b) Incorporated by reference to Item 28 and pages 3-5 of the
Statement of Additional Information pursuant to Rule 411 under the Securities
Act of 1933.
(c) None
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of the Adviser's Treasurer, Ted D.
Kellner, at the Adviser's corporate offices, 225 East Mason Street, Milwaukee,
Wisconsin 53202, or Registrant's Secretary, Glen F. Hackmann, at Registrant's
corporate offices, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
Item 31. Management Services
-------------------
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
------------
Not required.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amended Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amended Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milwaukee and State of
Wisconsin on the 9th day of January, 1996.
-----
BAIRD CAPITAL DEVELOPMENT
FUND, INC.
(Registrant)
By: /s/ Marcus C. Low, Jr.
------------------------------------
Marcus C. Low, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Marcus C. Low, Jr. Principal Executive, Financial January 9, 1996
- ----------------------------- and Accounting Officer
Marcus C. Low, Jr.
/s/ James D. Bell Director January 9, 1996
- -----------------------------
James D. Bell
/s/ Albert J. DiUlio Director January 9, 1996
- -----------------------------
Albert J. DiUlio
/s/ George C. Kaiser Director January 9, 1996
- ----------------------------
George C. Kaiser
/s/ Allan H. Selig Director January 9, 1996
- -----------------------------
Allan H. Selig
/s/ Edward J. Zore Director January 9, 1996
- -----------------------------
Edward J. Zore
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
----------- ------- --------
(1) Registrant's Articles of *<F3>
Incorporation
(2) Registrant's By-Laws *<F3>
(3) None
(4) Specimen Stock Certificate *<F3>
(6) Investment Advisory Agreement *<F3>
(5.1) Sub-Advisory Agreement *<F3>
(6) Distribution Agreement *<F3>
(7) None
(8) Custodian Agreement with Firstar *<F3>
Trust Company
(9) Administration Agreement *<F3>
(9.1) Agreement and Plan of
Reorganization
(10) Opinion of Foley & Lardner *<F3>
(11) Consent of Price Waterhouse LLP
(12) None
(13) Subscription Agreement *<F3>
(14.1) Individual Retirement Account *<F3>
(14.2) Defined Contribution Retirement *<F3>
Plan
(15.1) Registrant's Amended and Restated *<F3>
Distribution Plan
(15.2) Distribution Assistance Agreement *<F3>
(16) Schedule for Computation of
Performance Quotations
(27) Financial Data Schedule
*<F3> Incorporated by reference.
AGREEMENT
and
PLAN OF REORGANIZATION
for
BAIRD CAPITAL DEVELOPMENT FUND, INC.
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS................................................... 2
Section 1.1. Definitions............................... 2
ARTICLE II
TRANSFER OF ASSETS............................................ 5
Section 2.1. Reorganization of Baird Capital Development 5
Section 2.2. Computation of Net Asset Value............ 5
Section 2.3. Excluded Assets........................... 6
Section 2.4. Valuation Date............................ 6
Section 2.5. Delivery.................................. 7
Section 2.6. Dissolution............................... 7
Section 2.7. Issuance of AIM Equity Shares............. 7
Section 2.8. Investment Securities..................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT... 9
Section 3.1. Incorporation: Qualification and
Corporate Authority....................... 9
Section 3.2. Registration and Regulation of Baird Capital
Development............................... 9
Section 3.3. Financial Statements...................... 9
Section 3.4. No Material Adverse Changes;
Contingent Liabilities.................... 10
Section 3.5. BCD Shares; Liabilities................... 10
Section 3.6. Accountants............................... 11
Section 3.7. Binding Obligation........................ 11
Section 3.8. No Breaches or Defaults................... 11
Section 3.9. Authorizations or Consents................ 12
Section 3.10. Permits................................... 12
Section 3.11. No Actions, Suits or Proceedings.......... 12
Section 3.12. Contracts................................. 13
Section 3.13. Properties and Assets..................... 13
Section 3.14. Ineligible Persons........................ 13
Section 3.15. Rule 17e-1................................ 14
Section 3.16. Taxes..................................... 14
Section 3.17. Benefit and Employment Obligations........ 15
Section 3.18. Brokers................................... 15
Section 3.19. Voting Requirements; Dissenter's Rights... 15
Section 3.20. State Takeover Statutes................... 15
Section 3.21. Books and Records......................... 15
Section 3.22. Prospectus................................ 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY.................. 16
Section 4.1. Incorporation: Qualification and
Corporate Authority....................... 16
Section 4.2. Binding Obligation........................ 16
Section 4.3. No Breaches or Defaults................... 16
Section 4.4. Authorizations or Consents................ 17
Section 4.5. Permits................................... 17
Section 4.6. No Actions, Suits or Proceedings.......... 17
Section 4.7. Ineligible Persons........................ 18
Section 4.8. Brokers................................... 18
Section 4.9. Registration and Regulation............... 18
Section 4.10. Registration of Portfolio Shares.......... 19
Section 4.11. Representations Concerning
the Reorganization........................ 19
Section 4.12. Prospectus................................ 20
ARTICLE V
COVENANTS..................................................... 20
Section 5.1. Conduct of Business....................... 20
Section 5.2. Confidentiality and Announcements......... 22
Section 5.3. Expenses.................................. 24
Section 5.4. Further Assurances........................ 24
Section 5.5. Notice of Events.......................... 24
Section 5.6. Access to Information..................... 25
Section 5.7. Consents, Approvals and Filings........... 25
Section 5.8. Submission of Agreement to Shareholders... 25
Section 5.9. Acquisition Proposals..................... 26
Section 5.10. Fiduciary Duties.......................... 26
Section 5.11. Section 15(f) of the 1940 Act............. 27
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION.................... 28
Section 6.1. Conditions Precedent of AIM Equity........ 28
Section 6.2. Mutual Conditions......................... 28
Section 6.3. Conditions Precedent of
Baird Capital Development................. 31
ARTICLE VII
TERMINATION OF AGREEMENT...................................... 32
Section 7.1. Termination............................... 32
Section 7.2. Survival After Termination................ 33
ARTICLE VIII
MISCELLANEOUS................................................. 33
Section 8.1. Nonsurvival of Representations
and Warranties............................ 33
Section 8.2. Law Governing............................. 33
Section 8.3. Binding Effect, Persons Benefiting,
No Assignment............................. 34
Section 8.4. Obligation of AIM Equity Portfolio........ 34
Section 8.5. Amendments................................ 34
Section 8.6. Enforcement............................... 34
Section 8.7. Interpretation............................ 34
Section 8.8. Counterparts.............................. 35
Section 8.9. Entire Agreement; Schedules............... 35
Section 8.10. Notices................................... 35
Schedule 3.12(a) - Contracts
Schedule 6.1(d) - Opinion of Counsel to Baird Capital Development
Schedule 6.2(g) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AIM Equity
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 20, 1995
(this "Agreement"), by and between Baird Capital Development Fund, Inc., a
Wisconsin corporation ("Baird Capital Development"), and AIM Equity Funds, Inc.,
a Maryland corporation ("AIM Equity"), acting on behalf of AIM Capital
Development Fund (the "Portfolio").
WITNESSETH
WHEREAS, Baird Capital Development is an investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act (as defined below); and
WHEREAS, AIM Equity is an investment company registered with the SEC
under the Investment Company Act that offers separate classes of its shares
representing interests in several investment portfolios for sale to the public;
and
WHEREAS, Baird Capital Development owns securities in which the
Portfolio is permitted to invest; and
WHEREAS, Baird Capital Development desires to provide for its
reorganization through the transfer of substantially all of its assets to the
Portfolio in exchange for shares of the Portfolio issued in the manner set forth
in this Agreement; and
WHEREAS, this Agreement is intended to be and is adopted as a Plan
of Reorganization and Liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings of AIM Equity and Baird Capital Development
contained in this Agreement, AIM Equity and Baird Capital Development agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this Agreement,
-----------
the following terms shall have the respective meanings set forth in this Section
-------
1.1 (such definitions to be equally applicable to both the singular and plural
- ---
forms of the terms herein defined):
"Acquisition Proposal" means, except for the transactions contemplated
hereby, any proposal with respect to a merger, reorganization, consolidation,
share exchange or similar transaction involving Baird Capital Development, or
any purchase of all or any significant portion of the assets of Baird Capital
Development, or any equity interest in Baird Capital Development.
"AEF Registration Statement" means the registration statement on Form
N-1A of AIM Equity, as amended, Registration No. 2-25469/811-1424, that is
applicable to the Portfolio.
"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization together
with all schedules and exhibits attached hereto and all amendments hereto and
thereof.
"AIM Equity" means AIM Equity Funds, Inc., a Maryland corporation.
"Baird Capital Development" means Baird Capital Development Fund,
Inc., a Wisconsin corporation.
"BCD Financial Statements" shall have the meaning set forth in Section
-------
3.3 of this Agreement.
- ---
"BCD Shareholders" means the holders of record as of the Closing Date
of the issued and outstanding shares of the capital stock of Baird Capital
Development.
"BCD Shareholders Meeting" means a meeting of the shareholders of
Baird Capital Development convened in accordance with applicable law and the
articles of incorporation of Baird Capital Development to consider and vote upon
the approval of this Agreement and the transactions contemplated by this
Agreement.
"BCD Shares" means the issued and outstanding shares of the capital
stock of Baird Capital Development.
"Benefit Plan" means any material "employee benefit plan" (as defined
in Section 3(3) of ERISA) and any material bonus, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, retirement, profit sharing, welfare plans or other plan,
arrangement or understanding maintained or contributed to by Baird Capital
Development, or otherwise providing benefits to any current or former employee,
officer or director of Baird Capital Development.
"Closing" means the transfer of the assets of Baird Capital
Development against the delivery of Portfolio Shares directly to the
shareholders of Baird Capital Development as described in Section 2.1 of this
-----------
Agreement.
"Closing Date" means March 29, 1996, or such other date as the parties
may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth in Section
-------
5.2(a) of this Agreement.
- ------
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of the Portfolio.
"Effective Time" shall mean 2:00 p.m. Central Time on the Closing
Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Excluded Assets" shall have the meaning set forth in Section 2.3 of
-----------
this Agreement.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the National Association of
Securities Dealers, Inc., the Commodities and Futures Trading Commission, the
National Futures Association, the Investment Management Regulatory Organization
Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in
the condition (financial or otherwise), properties, assets or prospects of an
entity having an adverse monetary effect in an amount equal to or greater than
$50,000.
"Person" means an individual or a corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Portfolio" means AIM Capital Development Fund, an investment
portfolio of AIM Equity.
"Portfolio Shares" means shares of common stock of AIM Equity, par
value $.001, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the assets of
Baird Capital Development by the Portfolio in consideration of the issuance of
Portfolio Shares directly to BCD Shareholders as described in this Agreement.
"Required BCD Shareholder Vote" shall have the meaning set forth in
Section 3.19 of this Agreement.
- ------------
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or levy
(including, without limitation, income taxes (including, without limitation,
alternative minimum tax and estimated tax), franchise taxes, transfer taxes or
fees, sales taxes, use taxes, gross receipts taxes, value added taxes,
employment taxes, excise taxes, ad valorem taxes, property taxes, withholding
taxes, payroll taxes, minimum taxes, or windfall profit taxes), together with
any related penalties, fines, additions to tax or interest, imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof.
"Valuation Date" shall have the meaning set forth in Section 2.4 of
-----------
this Agreement.
ARTICLE II
TRANSFER OF ASSETS
Section 2.1. Reorganization of Baird Capital Development. At
-------------------------------------------
the Effective Time, all of the assets of Baird Capital Development, except the
Excluded Assets, shall be delivered to the Custodian for the account of the
Portfolio in exchange for, and against delivery by AIM Equity directly to the
BCD Shareholders at the opening of business on the Closing Date of a number of
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth) having an aggregate net asset value equal to the net value
of the assets of Baird Capital Development so transferred, assigned and
delivered, all determined and adjusted as provided in Section 2.2 below. Upon
-----------
delivery of such assets, the Portfolio will receive good and marketable title to
such assets free and clear of all Liens.
Section 2.2. Computation of Net Asset Value.
------------------------------
(a) The net asset value of the Portfolio Shares and the net value
of the assets of Baird Capital Development subject to this Agreement shall, in
each case, be determined as of the close of business on the NYSE on the
Valuation Date.
(b) The net asset value of the Portfolio Shares shall be computed
in the manner set forth in accordance with the policies and procedures of the
Portfolio as described in the AEF Registration Statement.
(c) The net value of the assets of Baird Capital Development
subject to this Agreement shall be computed by AIM Equity and shall be subject
to adjustment by the amount, if any, agreed to by Baird Capital Development and
AIM Equity. In determining the value of the securities transferred by Baird
Capital Development to the Portfolio, each security shall be priced in
accordance with the policies and procedures of the Portfolio as described in the
AEF Registration Statement. For such purposes, market quotes and the security
characteristics relating to establishing such quotes shall be determined by AIM
Equity, with the approval of Baird Capital Development. Securities for which
market quotes are not available shall be valued as mutually agreed by AIM Equity
and Baird Capital Development, provided that such value is consistent with the
pricing procedures adopted by AIM Equity. All computations shall be made by AIM
Equity in cooperation with the auditors of AIM Equity and the auditors of Baird
Capital Development, who will apply certain procedures agreed to by AIM Equity
and Baird Capital Development to test such computations.
Section 2.3. Excluded Assets. There shall be deducted from the
---------------
assets of Baird Capital Development described in Section 2.1 all organizational
-----------
expenses, any prepaid expenses that would not have value to the Portfolio and
cash in an amount estimated by Baird Capital Development to be sufficient to pay
all the liabilities of Baird Capital Development, including, without limitation,
(I) amounts owed or to be owed to any BCD Shareholder, including declared but
unpaid dividends, (ii) accounts payable, taxes and other accrued and unpaid
expenses, if any, incurred in the normal operation of its business up to and
including the Closing Date and (iii) the costs and expenses incurred by Baird
Capital Development in making and carrying out the transactions contemplated by
this Agreement.
Section 2.4. Valuation Date. The assets of Baird Capital
--------------
Development and the net asset value per share of the Portfolio Shares shall be
valued as of the close of business on the NYSE on the business day next
preceding the Closing Date (the "Valuation Date"). The stock transfer books of
Baird Capital Development will be permanently closed as of the close of business
on the Valuation Date and only requests for the redemption of shares of Baird
Capital Development received in proper form prior to the close of trading on the
NYSE on the Valuation Date shall be accepted by Baird Capital Development.
Redemption requests thereafter received by Baird Capital Development shall be
deemed to be redemption requests for Portfolio Shares (assuming that the
transactions contemplated by this Agreement have been consummated) to be
distributed to BCD Shareholders under this Agreement.
Section 2.5. Delivery.
--------
(a) Assets held by Baird Capital Development shall be delivered by
Baird Capital Development to the Custodian on the Closing Date. No later than
three (3) business days preceding the Closing Date Baird Capital Development
shall instruct its custodian to make such delivery to the Custodian. Baird
Capital Development shall further instruct its custodian that any trade made by
Baird Capital Development during the three day period before the Closing Date
shall settle at the Custodian. The assets so delivered shall be duly endorsed
in proper form for transfer in such condition as to constitute a good delivery
thereof, in accordance with the custom of brokers, and shall be accompanied by
all necessary state stock transfer stamps, if any, or a check for the
appropriate purchase price thereof. Cash held by Baird Capital Development
(other than cash held as part of the Excluded Assets) shall be delivered at the
Effective Time and shall be in the form of currency or wire transfer in Federal
funds, payable to the order of the account of the Portfolio at the Custodian.
(b) If, on the Closing Date, Baird Capital Development is unable
to make delivery in the manner contemplated by Section 2.5(a) of securities held
--------------
by Baird Capital Development for the reason that any of such securities
purchased prior to the Closing Date have not yet been delivered to Baird Capital
Development, its broker or brokers, then, AIM Equity shall waive the delivery
requirements of Section 2.5(a) with respect to said undelivered securities, if
--------------
Baird Capital Development has delivered to the Custodian by or on the Closing
Date and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow agreement and due bills executed on behalf of
said broker or brokers, together with such other documents as may be required by
AIM Equity or the Custodian, including brokers' confirmation slips.
Section 2.6. Dissolution. As soon as reasonably practicable
-----------
after the Closing Date, Baird Capital Development shall pay or make provisions
for all of its debts, liabilities and taxes and distribute all remaining assets
to the BCD Shareholders, and Baird Capital Development shall be dissolved and
deregistered under the Investment Company Act and under applicable state laws,
provided that, in the event that the transactions contemplated herein are not
approved by the BCD Shareholders, Baird Capital Development shall not be
obligated to so dissolve and deregister.
Section 2.7. Issuance of AIM Equity Shares. At the Closing
-----------------------------
Date, Baird Capital Development shall instruct AIM Equity that the pro rata
interest of each of BCD Shareholders of record as of the close of business on
the Valuation Date, as certified by Baird Capital Development's transfer agent,
in the Portfolio Shares be registered on the books of AIM Equity in full and
fractional shares in the name of each BCD Shareholder, and AIM Equity agrees
promptly to comply with said instruction. All issued and outstanding shares of
Baird Capital Development's capital stock shall thereupon be canceled on the
books of Baird Capital Development. AIM Equity shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. AIM Equity shall record on its books the ownership of the Portfolio
Shares by BCD Shareholders and shall forward a confirmation of such ownership to
the BCD Shareholders. No redemption or repurchase of such shares credited to
former BCD Shareholders in respect of Baird Capital Development shares
represented by unsurrendered stock certificates shall be permitted until such
certificates have been surrendered to AIM Equity for cancellation, or if such
certificates are lost or misplaced, until lost certificate affidavits have been
executed and delivered to AIM Equity.
Section 2.8. Investment Securities.
---------------------
(a) It is expressly understood that Baird Capital Development may
hereafter sell any securities owned by it in the ordinary course of its business
as a diversified, open-end, management investment company. Upon written request
by AIM Equity, Baird Capital Development shall (i) prior to the Closing Date,
dispose of equity securities held by it to assure that AIM Equity does not own
ten percent (10%) or more of the outstanding voting securities of any issuer as
a result of the Reorganization, or (ii) cooperate with and assist AIM Equity in
preparing and filing on the Closing Date the notification and report form
required by the Hart-Scott-Rodino Antitrust Improvements Act, in which case the
Closing shall be delayed until the end of the waiting period prescribed by such
act.
(b) On or prior to the Valuation Date, Baird Capital Development
shall deliver a list setting forth the securities it then owns together with the
respective Federal income tax bases thereof. Baird Capital Development shall
provide to AIM Equity on or before the Valuation Date, detailed tax basis
accounting records for each security to be transferred to it pursuant to this
Agreement. Such records shall be prepared in accordance with the requirements
for specific identification tax lot accounting and clearly reflect the bases
used for determination of gain and loss realized on the partial sale of any
security transferred to the Portfolio hereunder. Such records shall be made
available by Baird Capital Development prior to the Valuation Date for
inspection by the Treasurer (or his designee) or the auditors of AIM Equity upon
reasonable request.
2.9. Liabilities and Expenses. The Portfolio shall not assume any
------------------------
liabilities of Baird Capital Development and Baird Capital Development shall use
its reasonable best efforts to discharge all known liabilities, as far as may be
possible, prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT
Baird Capital Development represents and warrants to AIM Equity that:
Section 3.1. Incorporation: Qualification and Corporate Authority.
-----------------------------------------------------
Baird Capital Development has been duly incorporated and is validly existing and
in active status under the laws of the State of Wisconsin with all requisite
corporate power and authority to conduct its business as presently conducted.
Section 3.2. Registration and Regulation of Baird Capital
--------------------------------------------
Development. Baird Capital Development is duly registered with the SEC as an
- -----------
investment company under the Investment Company Act and all BCD Shares which
have been or are being offered for sale have been duly registered under the
Securities Act and have been duly registered, qualified or are exempt from
registration or qualification under the securities laws of each state or other
jurisdiction in which such shares have been or are being offered for sale, and
no action has been taken by Baird Capital Development to revoke or rescind any
such registration or qualification. Baird Capital Development is in compliance
in all material respects with all applicable laws, rules and regulations,
including, without limitation, the Investment Company Act, the Securities Act,
the Exchange Act and all applicable state securities laws. Baird Capital
Development is in compliance in all material respects with the applicable
investment policies and restrictions set forth in its registration statement
currently in effect. The value of the net assets of Baird Capital Development is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Baird Capital Development and all purchases and redemptions of BCD Shares have
been effected at the net asset value per share calculated in such manner.
Section 3.3. Financial Statements. The books of account and related
--------------------
records of Baird Capital Development fairly reflect in reasonable detail its
assets, liabilities and transactions in accordance with generally accepted
accounting principles applied on a consistent basis. The audited financial
statements dated September 30, 1995 of Baird Capital Development previously
delivered to AIM Equity (the "BCD Financial Statements") present fairly in all
material respects the financial position of Baird Capital Development as at the
dates indicated and the results of operations and cash flows for the periods
then ended in accordance with generally accepted accounting principles applied
on a consistent basis for the periods then ended.
Section 3.4. No Material Adverse Changes; Contingent Liabilities.
---------------------------------------------------
Since September 30, 1995, no material adverse change has occurred in the
financial condition, results of operations, business, assets or liabilities of
Baird Capital Development or the status of Baird Capital Development as a
regulated investment company under the Code, other than changes resulting from
any change in general conditions in the financial or securities markets or the
performance of any investments made by Baird Capital Development or occurring in
the ordinary course of business of Baird Capital Development. There are no
contingent liabilities of Baird Capital Development not disclosed in the BCD
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
Section 3.5. BCD Shares; Liabilities.
-----------------------
(a) The BCD Shares have been duly authorized and validly issued and
are fully paid and non-assessable (except as provided in Wisconsin Business
Corporation Law Section 180.0622(2)(b)).
(b) There is no plan or intention by the shareholders of Baird
Capital Development who own five percent (5%) or more of the BCD Shares, and to
the knowledge of Baird Capital Development's management, the remaining BCD
Shareholders have no present plan or intention of selling, exchanging, redeeming
or otherwise disposing of a number of the Portfolio Shares received by them in
connection with the Reorganization that would reduce the BCD Shareholders'
ownership of Portfolio Shares to a number of shares having a value, as of the
Closing Date, of less than fifty percent (50%) of the value of all of the
formerly outstanding BCD Shares as of the same date. For purposes of this
Section 3.5, BCD Shares exchanged for cash or other property or exchanged for
- -----------
cash in lieu of fractional shares of the Portfolio will be treated as
outstanding BCD Shares on the date of the Reorganization. Moreover, BCD Shares
and Portfolio Shares held by BCD Shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Reorganization will be considered in
making this representation, except for BCD Shares or Portfolio Shares which have
been, or will be, redeemed by Baird Capital Development or the Portfolio in the
ordinary course of its business as an open-end, diversified management
investment company (or a series thereof) under the Investment Company Act.
(c) At the time of the Reorganization, Baird Capital Development
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire BCD Shares,
except for the right of investors to acquire BCD Shares at net asset value in
the normal course of its business as an open-end diversified management
investment company operating under the Investment Company Act.
(d) Throughout the five-year period ending on the Closing Date, Baird
Capital Development will have conducted its historic business within the meaning
of Section 1.368-1(d) of the Income Tax Regulations under the Code in a
substantially unchanged manner. In anticipation of the Reorganization, Baird
Capital Development will not dispose of assets that, in the aggregate, will
result in less than fifty percent (50%) of its historic business assets being
transferred to the Portfolio.
(e) Baird Capital Development does not have, and has not had during
the six (6) months prior to the date of this Agreement, any employees, and shall
not hire any employees from and after the date of this Agreement through the
Closing Date.
Section 3.6. Accountants. Price Waterhouse, LLP, which has reported
-----------
upon BCD Financial Statements for the period ended September 30, 1995, are
independent public accountants as required by the Securities Act and the
Exchange Act.
Section 3.7. Binding Obligation. This Agreement has been duly
------------------
authorized, executed and delivered by Baird Capital Development and, assuming
this Agreement has been duly executed and delivered by AIM Equity and approved
by the BCD Shareholder, constitutes the legal, valid and binding obligation of
Baird Capital Development, enforceable against Baird Capital Development in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or similar laws relating to or affecting
creditors' rights generally or by general equity principles (whether applied in
a court of law or a court of equity and including limitations on the
availability of specific performance or other equitable remedies).
Section 3.8. No Breaches or Defaults. The execution and delivery of
----------------------
this Agreement by Baird Capital Development and performance by Baird Capital
Development of its obligations hereunder has been duly authorized by all
necessary corporate action on the part of Baird Capital Development, other than
BCD Shareholder approval, and (i) does not and, on the Closing Date, will not
result in any violation of the articles of incorporation or by-laws of Baird
Capital Development and (ii) does not and, will not on the Closing Date, result
in a breach of any of the terms or provisions of, or constitute (with or without
the giving of notice or the lapse of time or both) a default under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation or imposition of
any Lien upon any property or assets of Baird Capital Development (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Baird Capital Development is a party or by which it may be
bound or to which any of its properties may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Baird Capital Development or any
of its properties. Baird Capital Development is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
Section 3.9. Authorizations or Consents. Other than those which
--------------------------
shall have been obtained or made on or prior to the Closing Date and those that
must be made after the Closing Date to comply with Section 2.6 of this
-----------
Agreement, no authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority will be required to be obtained or made
by Baird Capital Development in connection with the due execution and delivery
by Baird Capital Development of this Agreement and the consummation by Baird
Capital Development of the transactions contemplated hereby.
Section 3.10. Permits. Baird Capital Development has in full force
-------
and effect all Federal, state, local and foreign governmental approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights (collectively, "Permits") necessary for it to conduct its
business as presently conducted, and there has occurred no default under any
Permit, except for the absence of Permits and for defaults under Permits the
absence or default of which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge
of Baird Capital Development there are no proceedings relating to the
suspension, revocation or modification of any Permit, except for such that would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
Section 3.11. No Actions, Suits or Proceedings.
--------------------------------
(a) There is no pending action, litigation or proceeding, nor, to the
knowledge of Baird Capital Development, has any litigation been overtly
threatened in writing or orally, against Baird Capital Development before any
Governmental Authority which questions the validity or legality of this
Agreement or of the actions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
(b) There are no legal, administrative or arbitration actions, suits,
or proceedings instituted or pending or, to the knowledge of Baird Capital
Development, threatened in writing or, if probable of assertion, orally against
Baird Capital Development or affecting any property, asset, interest, or right
of Baird Capital Development, that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. There are not in
existence on the date hereof any plea agreements, judgments, injunctions,
consents, decrees, exceptions or orders that were entered by, filed with or
issued by Governmental Authority relating to the conduct of the business of
Baird Capital Development affecting in any significant respect the conduct of
its business. Baird Capital Development is not, and has not been, to the
knowledge of Baird Capital Development, the target of any investigation by the
SEC or any state securities administrator.
Section 3.12. Contracts.
---------
(a) Except for the contracts and agreements listed on Schedule
--------
3.12(a), Baird Capital Development is not a party to any material contract, debt
- -------
arrangement, futures contract, plan, lease, franchise or permit of any kind or
nature whatsoever.
(b) Baird Capital Development is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its assets, business, or operations may be
bound or affected, or under which it or its assets, business or operations
receives benefits, and which default could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect, and, to the knowledge of
Baird Capital Development, there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
Section 3.13. Properties and Assets. Baird Capital Development has
--------------------
good and marketable title to all properties and assets reflected in BCD
Financial Statements as owned by it, free and clear of all Liens except as
described in the BCD Financial Statements.
Section 3.14. Ineligible Persons. Except as previously disclosed to
------------------
AIM Equity, neither Baird Capital Development nor any "Affiliated Person" of
Baird Capital Development has been convicted of any felony or misdemeanor,
described in Section 9(a)(1) of the Investment Company Act, nor has any
Affiliated Person of Baird Capital Development been subject, or presently is
subject, to any disqualification that would be a basis for denial, suspension or
revocation of registration of an investment adviser under Section 203(e) of the
Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section
15 of the Exchange Act, or for disqualification as an investment adviser,
employee, officer or director of an investment company under Section 9 of the
Investment Company Act, and, to Baird Capital Development's knowledge, there is
no proceeding or investigation that is reasonably likely to become the basis for
any such disqualification, denial, suspension or revocation.
Section 3.15. Rule 17e-1. Baird Capital Development has duly adopted
----------
procedures pursuant to Rule 17e-1 under the Investment Company Act, to the
extent applicable, and Baird Capital Development currently complies and will
comply with the requirements of Section 17(e) of the Investment Company Act and
Rule 17e-1 thereunder, to the extent applicable.
Section 3.16. Taxes.
-----
(a) Baird Capital Development has elected to be treated as a
regulated investment company under Subchapter M of the Code. Baird Capital
Development has qualified as such for each taxable year since inception and that
has ended prior to the Closing Date and will have satisfied the requirements of
Section 851(b) of the Code for the period beginning on the first day of its
current taxable year and ending on the Closing Date. In order to (i) insure
continued qualification of Baird Capital Development as a "regulated investment
company" for tax purposes and (ii) eliminate any tax liability of Baird Capital
Development arising by reason of undistributed investment company taxable income
or net taxable gain, Baird Capital Development will declare to the BCD
Shareholders of record on or prior to the Valuation Date a dividend or dividends
that, together with all such previous dividends shall have the effect of
distributing (A) all of its investment company taxable income (determined
without regard to any deductions for dividends paid) for the taxable year ended
September 30, 1995 and for the short taxable year beginning on October 1, 1995
and ending on the Closing Date and (B) all of its net capital gains realized in
its taxable year ended September 30, 1995 and in such short taxable year (after
reduction for any capital loss carryover).
(b) Baird Capital Development has timely filed all Returns required
to be filed by it and all Taxes with respect thereto have been paid, except
where the failure so to file or so to pay, would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. Adequate
provision has been made in the financial statements of Baird Capital Development
for all Taxes in respect of all periods ending on or before the date of such
financial statements, except where the failure to make such provisions would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No deficiencies for any Taxes have been proposed, assessed or
asserted in writing by any taxing authority against Baird Capital Development,
and no deficiency has been proposed, assessed or asserted, in writing, where
such deficiency would reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. No waivers of the time to assess any such
Taxes are outstanding nor are any written requests for such waivers pending and
no Return of Baird Capital Development is currently being or has been audited
since September 30, 1990 with respect to income taxes (and since September 30,
1992 with respect to all other Taxes) by any Federal, state, local, or foreign
Tax authority.
(c) Baird Capital Development's fiscal year has not been changed for
tax purposes since September 30, 1990.
Section 3.17. Benefit and Employment Obligations. Baird Capital
----------------------------------
Development has no obligation to provide any post-retirement or post-employment
benefit to any Person, including but not limited to under any Benefit Plan, and
has no obligation to provide unfunded deferred compensation or other unfunded
or self-funded benefits to any Person.
Section 3.18. Brokers. No broker, finder or similar intermediary has
-------
acted for or on behalf of Baird Capital Development in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with Baird Capital Development or any action taken by it.
Section 3.19. Voting Requirements; Dissenter's Rights. The
---------------------------------------
affirmative votes of a majority of the holders of the outstanding BCD Shares
(the "Required BCD Shareholder Vote") are the only votes of the holders of any
class or series of Baird Capital Development's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement. The
BCD Shareholders may not exercise dissenter's rights granted under the Wisconsin
Business Corporation Law with respect to the Reorganization.
Section 3.20. State Takeover Statutes. No state takeover statute or
-----------------------
similar Statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
Section 3.21. Books and Records. The books and records of Baird
-----------------
Capital Development reflecting, among other things, the purchase and sale of
BCD Shares by BCD Shareholders, the number of issued and outstanding shares
owned by each BCD Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
Section 3.22. Prospectus. The current prospectus and statement of
----------
additional information for Baird Capital Development as of the date on which
they were issued did not contain, and as supplemented by any supplement thereto
dated prior to or on the Closing Date, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
no representation or warranty is made with respect to written information
provided by AIM Equity for inclusion in the prospectus or statement of
additional information of Baird Capital Development, or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY
AIM Equity represents and warrants to Baird Capital Development as
follows:
Section 4.1. Incorporation: Qualification and Corporate Authority.
----------------------------------------------------
AIM Equity has been duly incorporated and is validly existing and in good
standing under the laws of Maryland, with all requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
Section 4.2. Binding Obligation. This Agreement has been duly
------------------
authorized, executed and delivered by AIM Equity and, assuming this Agreement
has been duly executed and delivered by Baird Capital Development, constitutes
the legal, valid and binding obligation of AIM Equity, enforceable against AIM
Equity in accordance with its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization or similar laws relating to or
affecting creditors' rights generally or by general equity principles (whether
applied in a court of law or a court of equity and including limitations on the
availability of specific performance or other equitable remedies).
Section 4.3. No Breaches or Defaults. The execution and delivery of
------------------------
this Agreement by AIM Equity and performance by AIM Equity of its obligations
hereunder have been duly authorized by all necessary corporate action on the
part of AIM Equity and (i) do not, and on the Closing Date will not, result in
any violation of the charter or by-laws of AIM Equity and (ii) does not, and on
the Closing Date will not, result in a breach of any of the terms or provisions
of, or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
the Portfolio (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to adversely affect
the consummation of the Reorganization) under (A) any indenture, mortgage or
loan or any other material agreement or instrument to which AIM Equity is a
party or by which it may be bound which relates to the Portfolio or to which any
properties of the Portfolio may be subject; (B)any Permit; or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over AIM Equity or any of the Portfolio's
properties.
Section 4.4. Authorizations or Consents. Other than those which
--------------------------
shall have been obtained or made on or prior to the Closing Date, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by AIM Equity
in connection with the due execution and delivery by AIM Equity of this
Agreement and the consummation by AIM Equity of the transactions contemplated
hereby.
Section 4.5. Permits. AIM Equity has in full force and effect all
-------
Permits necessary for it to conduct its business as presently conducted as it
relates to the Portfolio, and there has occurred no default under any Permit,
except for the absence of Permits and for defaults under Permits the absence or
default of which would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of AIM Equity there
are no proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
Section 4.6. No Actions, Suits or Proceedings.
--------------------------------
(a) There is no pending action, suit or proceeding, nor, to the
knowledge of AIM Equity, has any litigation been overtly threatened in writing
or, if probable of assertion, orally, against AIM Equity before any Governmental
Authority which questions the validity or legality of this Agreement or of the
transactions contemplated hereby, or which seeks to prevent the consummation of
the transactions contemplated hereby, including the Reorganization.
(b) There are no legal, administrative or arbitration actions, suits,
or proceedings instituted or pending or, to the knowledge of AIM Equity,
threatened in writing or, if probable of assertion, orally against AIM Equity or
affecting any property, asset, interest, or right of the Portfolio, that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by Governmental Authority relating to AIM
Equity's conduct of the business of the Portfolio affecting in any significant
respect the conduct of such business. AIM Equity is not, and has not been, to
the knowledge of AIM Equity, the target of any investigation by the SEC or any
state securities administrator.
Section 4.7. Ineligible Persons. Neither AIM Equity nor any
------------------
"Affiliated Person" of AIM Equity has been convicted of any felony or
misdemeanor, described in Section 9(a)(1) of the Investment Company Act, nor has
any affiliated person of AIM Equity been subject, or presently is subject, to
any disqualification that would be a basis for denial, suspension or revocation
of registration of an investment adviser under Section 203(e) of the Advisers
Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the Investment
Company Act, and, to AIM Equity's knowledge, there is no proceeding or
investigation that is reasonably likely to become the basis for any such
disqualification, denial, suspension or revocation.
Section 4.8. Brokers. No broker, finder or similar intermediary has
-------
acted for or on behalf of AIM Equity in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with AIM Equity or any action taken by AIM Equity.
Section 4.9. Registration and Regulation. AIM Equity is registered
---------------------------
with the SEC under the Investment Company Act as an open-end, management,
series, investment company and the Portfolio has elected to qualify as a
regulated investment company under Section 851 of the Code. On the Closing Date
the Portfolio will be in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. On the Closing Date the Portfolio will be in compliance in all
material respects with the applicable investment policies and restrictions set
forth in its registration statement currently in effect. After the Closing Date
the value of the net assets of the Portfolio will be determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act.
Section 4.10. Registration of Portfolio Shares.
--------------------------------
(a) The authorized capital stock of AIM Equity consists of
7,000,000,000 shares with a par value of $0.001 each.
(b) The Portfolio Shares of AIM Equity to be issued pursuant to
Section 2.7 shall on the Closing Date be duly registered under the Securities
- -----------
Act by a Registration Statement on Form N-14 of AIM Equity then in effect.
(c) The Portfolio Shares to be issued pursuant to Section 2.7 are
-----------
duly authorized and on the Closing Date will be validly issued and fully paid
and non-assessable and will conform in all substantial respects to the
description thereof contained in the Registration Statement on Form N-14 then in
effect. At the time of the Reorganization, the Portfolio shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Portfolio Shares, except for
the right of investors to acquire Portfolio Shares at the public offering price
in the normal course of its business as an open-end diversified management
investment company operating under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus") which forms a part of AIM Equity's Registration Statement
on Form N-14 shall be furnished to Baird Capital Development and BCD
Shareholders entitled to vote at the BCD Shareholders Meeting. The Combined
Proxy Statement/Prospectus and related Statement of Additional Information of
the Portfolio, when they become effective, shall conform in all material
respects to the applicable requirements of the Securities Act and the Investment
Company Act and shall not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not materially misleading, provided, however, that no representation or
warranty is made with respect to written information provided by Baird Capital
Development for inclusion in the Combined Prospectus/Proxy Statement.
(e) The Portfolio Shares which AIM Equity intends to offer for sale
to the public after the Closing Date shall be duly registered under the
Securities Act by the AEF Registration Statement then in effect.
Section 4.11. Representations Concerning the Reorganization.
---------------------------------------------
(a) AIM Equity has no plan or intention to reacquire any of the
Portfolio Shares issued in the Reorganization, except to the extent that the
Portfolio is required by the Investment Company Act to redeem any of its shares
presented for redemption.
(b) The Portfolio has no plan or intention to sell or otherwise
dispose of any of the assets of Baird Capital Development acquired in the
Reorganization, other than in the ordinary course of its business and to the
extent necessary to maintain its status as a "regulated investment company"
under the Code.
(c) Following the Reorganization, the Portfolio will continue the
"historic business" of Baird Capital Development (within the meaning of Section
1.368-1(d) of the Income Tax Regulations under the Code) or use a significant
portion of Baird Capital Development's historic assets in a business.
(d) Upon consummation of the Reorganization, the investment
portfolios of AIM Equity, in the aggregate, will not own ten percent of more of
the voting securities any issuer.
Section 4.12. Prospectus. The prospectus and statement of additional
----------
information for Baird Capital Development that will become effective on the
Closing Date will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that no representation or
warranty is made with respect to written information provided by Baird Capital
Development for inclusion in such prospectus or statement of additional
information, or any supplement thereto.
ARTICLE V
COVENANTS
Section 5.1. Conduct of Business.
-------------------
(a) From the date of this Agreement up to and including the Closing
Date (or, if earlier, the date upon which this Agreement is terminated pursuant
to Article VII), Baird Capital Development shall conduct its businesses only in
-----------
the ordinary course and substantially in accordance with past practices, and
shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations necessary to conduct its businesses in the
ordinary course in all material respects. Without limiting the generality of
the foregoing, Baird Capital Development shall not do any of the following
without the prior written consent of AIM Equity, which consent shall not be
unreasonably withheld:
(i) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock;
(ii) amend its articles of incorporation or by-laws;
(iii) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or any
assets that are material, individually or in the aggregate, to Baird
Capital Development taken as a whole, except purchases of assets in the
ordinary course of business consistent with past practice, and except as
permitted under Sections 5.9 and 5.10;
------------ ----
(iv) sell, lease or otherwise dispose of any of its material
properties or assets, or mortgage or otherwise encumber or subject to any
Lien any of its material properties or assets, other than in the ordinary
course of business;
(v) incur any indebtedness for borrowed money or guarantee any
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Baird Capital
Development, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another Person, or enter into any arrangement having the
economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability or make any
material tax election;
(vii) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business;
(viii) change its methods of accounting, except as required by changes
in generally accepted accounting principles as concurred in by its
independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance, termination,
indemnification or similar payments except pursuant to existing agreements;
or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including the Closing
Date (or, if earlier, the date upon which this Agreement is terminated pursuant
to Article VII), AIM Equity shall conduct the business of the Portfolio only in
-----------
the ordinary course and substantially in accordance with past practices, and
shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations necessary to conduct the business operations of
the Portfolio in the ordinary course in all material respects.
Section 5.2. Confidentiality and Announcements.
---------------------------------
(a) As used herein, "Confidential Information" means all information,
whether oral, written or otherwise (including any information furnished prior to
the execution of this Agreement), furnished to AIM Equity, or its directors,
officers, partners, affiliates, employees, agents, advisors or representatives
(collectively "representatives") by Baird Capital Development or its
representatives relating to Baird Capital Development, and all reports,
analyses, compilations, studies and other materials prepared by AIM Equity or
its representatives (in whatever form maintained, whether documentary, computer
storage or otherwise) containing, reflecting or based upon, in whole or in part,
any such information or reflecting its review or view of, or interest in, Baird
Capital Development, a possible transaction with Baird Capital Development or
the Confidential Information. The term "Confidential Information" does not
include information which (i) is or becomes generally available to the public
other than as a result of disclosure by AIM Equity, its representatives or
anyone to whom AIM Equity or its representatives transmits any Confidential
Information, in breach of this Agreement or (ii) is or becomes known or
available to AIM Equity on a non-confidential basis from a source (other than
Baird Capital Development, or its representatives) who, insofar as is known to
AIM Equity after due inquiry, is not prohibited from transmitting the
information to AIM Equity or its representatives by a contractual, legal,
fiduciary or other obligation.
(b) Subject to Section 5.2(c) below, AIM Equity and its
--------------
representatives shall keep the Confidential Information confidential and shall
not, without prior written consent of Baird Capital Development disclose, in
whole or in part, and will not use, Confidential Information, directly or
indirectly, for any purpose other than in connection with evaluating the
transaction contemplated by this Agreement. Moreover, AIM Equity shall transmit
Confidential Information to its representatives only if and to the extent that
such representatives need to know the Confidential Information for the purpose
of evaluating such transaction and, prior to being furnished any Confidential
Information, are informed by AIM Equity of the confidential nature of the
Confidential Information, are provided with a copy of the provisions of this
Section 5.2 and agree to be bound hereby. In any event, AIM Equity shall be
- -----------
responsible for any actions by its representatives which are not in accordance
with the provisions hereof. AIM Equity agrees that neither AIM Equity nor its
representatives will make inquires of, or conduct any discussions with, any
representative of Baird Capital Development or regarding the Confidential
Information other than with the permission of Marcus C. Low, Jr., Ronald J.
Kruszewski or Glen F. Hackmann.
(c) In the event that AIM Equity, its representatives or anyone
to whom AIM Equity or its representatives supply the Confidential Information
are requested or required to disclose any Confidential Information, AIM Equity
agrees (i) to immediately notify Baird Capital Development of the existence,
terms and circumstances surrounding such a request, (ii) to consult with Baird
Capital Development on the advisability of taking legally available steps to
resist or narrow the Confidential Information which, in the opinion of its
counsel, AIM Equity is legally compelled to disclose and (iii) to cooperate with
any action by Baird Capital Development or to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the Confidential Information; provided, however, that this Section 5.2(c) shall
--------------
not prohibit AIM Equity or its representatives from disclosing Confidential
Information that consists of its or their own work product to persons that have
a need to know such information in the ordinary course of business.
(d) Upon termination of this Agreement pursuant to Article VII,
-----------
and promptly upon request from Baird Capital Development thereafter, AIM Equity
shall redeliver to Baird Capital Development or destroy all tangible
Confidential Information and any other tangible material containing, prepared on
the basis of, or reflecting any information in the Confidential Information
(whether prepared by Baird Capital Development, its advisors or otherwise), and
neither AIM Equity nor its representatives will retain any copies, extracts or
other reproductions in whole or in part of such tangible material. For purposes
of this Agreement, "tangible" Confidential Information shall include, without
limitation, information contained in printed, magnetic or other tangible media,
or in information storage and retrieval systems. At the request of Baird
Capital Development, compliance with the foregoing shall be certified in writing
to Baird Capital Development by an authorized officer supervising the same.
(e) Notwithstanding the other provisions of this Section 5.2,
-----------
promptly following execution and delivery of this Agreement, Baird Capital
Development and AIM Equity shall agree upon and release a mutually acceptable
press release and Baird Capital Development shall give any and all notices
required to be given by law. Except as described in the preceding sentence and
as required by law, prior to the Closing Date, none of Baird Capital
Development, AIM Equity or the parent or any affiliate of either will issue any
press release or make any other public statement with respect to this Agreement,
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld.
(f) The provisions of this Section 5.2 shall terminate on the
-----------
closing of the Reorganization.
Section 5.3. Expenses. Baird Capital Development and AIM Equity
--------
shall each bear their respective direct and indirect expenses incurred in
connection with this Agreement, the Reorganization and the other transactions
contemplated hereby.
Section 5.4. Further Assurances. Each of the parties hereto shall
------------------
execute such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date,
use its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
Section 5.5. Notice of Events. AIM Equity shall give prompt notice
----------------
to Baird Capital Development, and Baird Capital Development shall give prompt
notice to AIM Equity, of (i) the occurrence or nonoccurrence of any event of
which to the knowledge of AIM Equity or to the knowledge of Baird Capital
Development, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (x) in the case of AIM Equity, Sections
--------
6.1 and 6.2 or (y) in the case of Baird Capital Development, Sections 6.2 and
- --- --- ------------
6.3, not being satisfied so as to permit the consummation of the Reorganization
- ---
and (ii) any material failure on its part, or on the part of the other party
hereto of which it has knowledge, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.5
- ------------------ -----------
shall not limit or otherwise affect the remedies available hereunder to any
party.
Section 5.6. Access to Information.
---------------------
(a) Baird Capital Development will, during regular business hours and
on reasonable prior notice, allow AIM Equity and its authorized representatives
reasonable access to employees, books and records of Baird Capital Development;
provided, however, that any such access shall not significantly interfere with
- ------------------
the business or operations of Baird Capital Development.
(b) Any information made available to or obtained by AIM Equity or its
authorized representatives pursuant to subsection (a) above, or otherwise in
connection with this Agreement, shall be subject to the confidentiality
provisions described in Section 5.2 above.
-----------
(c) AIM Equity will, during regular business hours and on reasonable
prior notice, allow Baird Capital Development and its authorized representatives
reasonable access to the books and records of AIM Equity pertaining to the
assets of the Portfolio and to employees of AIM Equity with knowledge thereof,
provided, however, that any such access shall not significantly interfere with
- ------------------
the business or operations of AIM Equity.
Section 5.7. Consents, Approvals and Filings. Each of Baird Capital
-------------------------------
Development and AIM Equity shall make all necessary filings, as soon as
reasonably practicable, including, without limitation, those required under the
Securities Act, the Exchange Act, the Investment Company Act and the Advisers
Act, in order to facilitate prompt consummation of the Reorganization and the
other transactions contemplated by this Agreement. In addition, each of Baird
Capital Development and AIM Equity shall use its reasonable best efforts, and
shall cooperate fully with each other (i) to comply as promptly as reasonably
practicable with all requirements of Governmental Authorities applicable to the
Reorganization and the other transactions contemplated herein and (ii) to obtain
as promptly as reasonably practicable all necessary permits, orders or other
consents of Governmental Authorities and consents of all third parties necessary
for the consummation of the Reorganization and the other transactions
contemplated herein. Each of Baird Capital Development and AIM Equity shall use
reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
Section 5.8. Submission of Agreement to Shareholders. Baird Capital
---------------------------------------
Development shall take all action necessary in accordance with applicable law
and its articles of incorporation and by-laws to convene the BCD Shareholders
Meeting. Baird Capital Development shall, through its Board of Directors,
recommend to the BCD Shareholders approval of this Agreement and the other
transactions contemplated by this Agreement, except to the extent provided in
Section 5.10 hereof. Baird Capital Development shall use its reasonable best
- ------------
efforts to hold the BCD Shareholders Meeting as soon as practicable after the
date hereof.
Section 5.9. Acquisition Proposals. Baird Capital Development shall
---------------------
not, nor shall it authorize any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of Baird Capital
Development to, directly or indirectly (i) solicit, initiate or encourage the
submission of any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, and Baird Capital Development shall promptly terminate any
such discussions with any Person that has expressed or expresses an interest in
acquiring Baird Capital Development or negotiations pending at the date of this
Agreement provided, however, Baird Capital Development or any officer, director
------------------
or employee of, or any investment banker, attorney or other adviser or
representative of Baird Capital Development may, following the receipt of an
Acquisition Proposal that the Board of Directors of Baird Capital Development
determines in good faith, after consultation with outside counsel, would permit
the Board of Directors to take any of the actions referred to in Section 5.10,
------------
participate in negotiations regarding such Acquisition Proposal. Baird Capital
Development shall promptly notify AIM Equity, orally and in writing, of the
receipt by it after the date hereof of any Acquisition Proposal or any inquiry
from a potential acquiror of Baird Capital Development which could reasonably be
expected to lead to any Acquisition Proposal, the material terms and conditions
of such Acquisition Proposal or inquiry and the identity of the Person making
any such Acquisition Proposal or inquiry, except to the extent Baird Capital
Development's Board of Directors concludes, after consultation with outside
counsel, that the disclosure of any such information would be a breach of a duty
of confidentiality imposed on Baird Capital Development with respect to such
information. Subject to the foregoing, Baird Capital Development shall keep AIM
Equity informed of the status and details of any such Acquisition Proposal or
inquiry.
Section 5.10. Fiduciary Duties. The Board of Directors of Baird
----------------
Capital Development shall not (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to AIM Equity, its approval or recommendation of
this Agreement or the Reorganization, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) authorize Baird Capital
Development to enter into any agreement with respect to any Acquisition
Proposal, unless Baird Capital Development receives an Acquisition Proposal and
------
the Board of Directors of Baird Capital Development determines in good faith,
after consultation with outside counsel, that in order to comply with its
fiduciary duties to the shareholders of Baird Capital Development under
applicable law, the Board of Directors of Baird Capital Development should
withdraw or modify its approval or recommendation of this Agreement or the
Reorganization, approve, recommend or enter into negotiations concerning such
Acquisition Proposal, or authorize Baird Capital Development to enter into an
agreement with respect to such Acquisition Proposal or terminate this Agreement.
Nothing contained in this Section 5.10 shall prohibit Baird Capital Development
------------
from making any disclosure to the BCD Shareholders which, in the good faith and
reasonable judgment of the Board of Directors of Baird Capital Development based
on the advice of outside counsel, is required under applicable law.
Notwithstanding any provision of this Agreement to the contrary, any action by
the Board of Directors of Baird Capital Development permitted by this Section
-------
5.10 shall not constitute a breach of this Agreement by Baird Capital
- ----
Development.
Section 5.11. Section 15(f) of the 1940 Act.
-----------------------------
(a) Each of AIM Equity and Baird Capital Development shall use its
reasonable best efforts to assure compliance with the conditions of
Section 15(f) of the Investment Company Act as it applies to the transactions
contemplated by this Agreement.
(a) AIM Equity shall for a period of not less than three years after
the Closing Date, use its reasonable best efforts to assure that no more than
25% of the members of the board of directors AIM Equity shall be "interested
persons" (as defined in the Investment Company Act) of the investment adviser of
Baird Capital Development or any entity that served as investment advisor to
Baird Capital Development or any Person that before or after the Closing Date
was or is an Affiliated Person of any of the foregoing. Without limiting the
generality of the foregoing, AIM Equity will not take, recommend or endorse any
action that would cause more than 25% of the number of members of its board of
directors to be such "interested persons."
(b) AIM Equity represents and warrants that there is no express or
implied understanding, arrangement or intention on its part to impose an "unfair
burden" within the meaning of Section 15(f) of the Investment Company Act on the
Portfolio as a result of the transactions contemplated hereby, and that for a
period of not less than two years after the Closing Date, it shall not take or
recommend any act that would constitute an "unfair burden" on the Portfolio.
Section 5.12. Sales Charges. Baird Capital Development shall deliver
-------------
to AIM Equity on the Closing Date a certificate showing (a) the Remaining Amount
and Balance for Interest relating to Asset Based Sales Charges, as such terms
are used in NASD Notice to Members 93-12 at page 56, and (b) the total sales
charges, and the components thereof, paid by Baird Capital Development
shareholders, collected by Baird Capital Development or paid by Baird Capital
Development in connection with sales of its shares since July 1, 1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AIM Equity. The obligation of
----------------------------------
AIM Equity to consummate the Reorganization is subject to the satisfaction, at
or prior to the Closing Date, of all of the following conditions, any one or
more of which may be waived in writing by AIM Equity.
(a) The representations and warranties of Baird Capital Development
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Baird Capital Development shall have complied with and satisfied
in all material respects all agreements and all conditions set forth herein on
its part to be performed or satisfied at or prior to the Closing Date.
(c) AIM Equity shall have received at the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of Baird Capital
Development on behalf of Baird Capital Development, in such individual's
capacity as an officer of Baird Capital Development and not as an individual, to
the effect that the conditions specified in Section 6.1(a) and (b) have been
----------------------
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary of Baird Capital Development certifying as to
the accuracy and completeness of the attached articles of incorporation and by-
laws, and resolutions, consents and authorizations with respect to the execution
and delivery of this Agreement and the transactions contemplated hereby.
(d) AIM Equity shall have received the signed opinion of Quarles &
Brady, counsel to Baird Capital Development, or other counsel reasonably
acceptable to AIM Equity, in form and substance reasonably acceptable to counsel
for AIM Equity, as to the matters set forth in Schedule 6.1(d).
---------------
Section 6.2. Mutual Conditions. The obligation of Baird Capital
-----------------
Development and AIM Equity to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following further
conditions, any one or more may be waived in writing by Fund and AIM Equity, but
only if and to the extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with,
and all consents, approvals, permits and authorizations required to be obtained
on or prior to the Closing Date from Governmental Authorities, in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Baird Capital Development and AIM Equity
shall have been made or obtained, as the case may be; provided, however, that
------------------
such consents, approvals, permits and authorizations may be subject to
conditions that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(b) This Agreement, the Reorganization and related corporate matters
shall have been approved and adopted at the BCD Shareholders Meeting by the
shareholders of Baird Capital Development on the record date by the Required BCD
Shareholder Vote.
(c) The assets of Baird Capital Development to be acquired by the
Portfolio shall constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of Baird
Capital Development immediately prior to the Reorganization. For these
purposes, assets used by Baird Capital Development to pay the expenses it incurs
in connection with this Agreement and the Reorganization and to effect all
shareholder redemptions and distributions (other than regular, normal dividends
and regular, normal redemptions pursuant to the Investment Company Act, and not
in excess of the requirements of Section 852 of the Code, occurring in the
ordinary course Baird Capital Development's business as an open-end diversified
management investment company) after the date of this Agreement shall be
included as assets of Baird Capital Development immediately prior to the
Reorganization.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
- ------------------
reasonable efforts to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by AIM Equity with
respect to the Portfolio Shares to be issued to BCD Shareholders in connection
with the Reorganization shall have become effective under the Securities Act and
no stop orders suspending the effectiveness thereof shall have been issued and,
to the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) A post-effective amendment to the AEF Registration Statement
filed by AIM Equity to register Portfolio Shares to be offered to the public
shall have become effective under the Securities Act and no stop orders
suspending the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated under the
Securities Act.
(g) Baird Capital Development and AIM Equity shall have received on
or before the Closing Date an opinion of Ballard Spahr Andrews and Ingersoll in
form, scope and substance satisfactory to Baird Capital Development and AIM
Equity, set forth on Schedule 6.2(g).
---------------
(h) The transactions contemplated by that certain Agreement and Plan
of Reorganization dated December 20, 1995, between Baird Blue Chip Fund, Inc.
and AIM Equity acting on behalf of AIM Blue Chip Fund, and that certain
Agreement and Plan of Reorganization dated December 20, 1995 between The Baird
Funds, Inc., acting on behalf of Baird Quality Bond Fund, and AIM Funds Group,
acting on behalf of AIM Income Fund, shall be consummated on the Closing Date.
(i) The dividend or dividends described in the last sentence of
Section 3.16(b) shall have been declared.
(j) A I M Advisors, Inc. ("AIM") shall have executed and delivered to
Baird Capital Development a certificate to the effect that:
(i) its balance sheet as of December 31, 1994 has been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis and fairly reflects the financial condition of AIM as of the
date indicated; since December 31, 1994 there has not been any change in AIM's
financial condition, assets, liabilities or business that would have a material
adverse effect upon its ability to provide investment advisory services to the
Portfolio and the other funds advised by AIM (the "AIM Funds").
(ii) AIM is, and on the Closing Date shall be, registered as an
investment adviser under the Investment Advisers Act and, registered as an
investment adviser in all states where it is required to be a so
registered.
(iii) AIM is in compliance in all material respects with all
laws, rules and regulations applicable to its business of providing
investment advisory services to the Portfolio and the AIM Funds, including,
without limitation, federal and state securities laws.
(iv) Neither AIM nor any affiliated person of AIM is ineligible
to serve an employee, officer, director, member of an advisory board, investment
adviser, depositor or principal underwriter of any investment company registered
under the Investment Company Act by reason of any conviction of a felony or
misdemeanor, described in Section 9(a)(1) of the Investment Company Act, and is
not subject to any order issued by the SEC under Section 9(b) of the Investment
Company Act. To the best of AIM's knowledge, no facts exist with respect to
AIM, or any Affiliated Person of AIM, which would form a basis for any such
conviction or the issuance of any such order, judgment or decree.
(v) No litigation, proceeding or governmental investigation or
inquiry is pending or, to the best of AIM's knowledge, threatened, against
AIM that, if determined against AIM would be reasonably likely to have a
material adverse effect on the Portfolio or a material adverse effect on
AIM's ability to provide investment advisory services to the Portfolio or
any of the AIM Funds.
(k) The transactions contemplated by that certain Acquisition
Agreement dated December 20, 1995 between Robert W. Baird & Co. Incorporated and
A I M Advisors, Inc. shall be consummated on the Closing Date.
Section 6.3. Conditions Precedent of Baird Capital Development. The
-------------------------------------------------
obligation of Baird Capital Development to consummate the Reorganization is
subject to the satisfaction, at or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived in writing by Baird
Capital Development.
(a) The representations and warranties of AIM Equity on behalf of the
Portfolio set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date with the
same effect as though all such representations and warranties had been made as
of the Closing Date.
(b) AIM Equity shall have complied with and satisfied in all material
respects all agreements and all conditions set forth herein on its part to be
performed or satisfied at or prior to the Closing Date.
(c) Baird Capital Development shall have received on the Closing Date
(i) a certificate, dated as of the Closing Date, from an officer of AIM Equity,
in such individual's capacity as an officer of AIM Equity and not as an
individual, to the effect that the conditions specified in Section 6.3(a) and
------------------
(b) have been satisfied and (ii) a certificate, dated as of the Closing Date, of
- ---
AIM Equity, certifying as to the accuracy and completeness of the attached
articles of incorporation and by-laws, and resolutions, consents and
authorizations with respect to the execution and delivery of this Agreement and
the transactions contemplated hereby.
(d) Baird Capital Development shall have received the signed opinion
of Ballard Spahr Andrews & Ingersoll, counsel to AIM Equity, or other counsel
reasonably acceptable to Baird Capital Development, in form and substance
reasonably acceptable to special counsel for Baird Capital Development, as to
the matters set forth on Schedule 6.3(d).
---------------
ARTICLE VII
TERMINATION OF AGREEMENT
Section 7.1. Termination.
-----------
(a) This Agreement may be terminated on or prior to the Closing Date
as follows:
(i) by mutual written consent of Baird Capital Development and AIM
Equity; and
(ii) at the election of Baird Capital Development or AIM Equity:
(A) if the Closing Date shall not be on or before June 30,
1996, or such later date as the parties hereto may agree
upon, unless the failure to consummate the Reorganization is
the result of a willful and material breach of this
Agreement by the party seeking to terminate this Agreement;
(B) if, upon a vote at BCD Shareholders Meeting or any
adjournment thereof, the Required BCD Shareholder Vote shall
not have been obtained as contemplated by Section 5.8; or
-----------
(C) if any Governmental Authority shall have issued an
order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting
the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iii) by Baird Capital Development in the event Baird Capital
Development receives an Acquisition Proposal and the Board of Directors of Baird
Capital Development determines in good faith, after consultation with outside
counsel, that, in order to comply with its fiduciary duties to the stockholders
of Baird Capital Development under applicable law, the Board of Directors of
Baird Capital Development should authorize Baird Capital Development to
terminate this Agreement; or
(iv) by AIM Equity 45 days following the date on which Baird Capital
Development first actively participates in any discussions on negotiations
regarding, or furnishes to any Person any confidential information with respect
to, any Acquisition Proposal, unless prior to the expiration of such 45 day
period Baird Capital Development notifies AIM Equity that such Acquisition
Proposal has been rejected and any such negotiations have been terminated.
(b) The termination of this Agreement shall be effectuated by the
delivery by the terminating party to the other party of a written notice of such
termination. If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 7.2.
-----------
Section 7.2. Survival After Termination. If this Agreement is
--------------------------
terminated in accordance with Section 7.1 hereof and the transactions
-----------
contemplated hereby are not consummated, this Agreement shall become void and of
no further force and effect, except for the provisions of Section 5.2 and
-----------
Section 5.3.
- -----------
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and Warranties. Except
---------------------------------------------
as set forth below, none of the representations, warranties or covenants in this
Agreement or in any certificate or instrument delivered pursuant to this
Agreement shall survive the Closing Date and no party shall, therefore, have any
recourse therefor against any other party in connection therewith. This Section
-------
8.1 shall not limit any covenant or agreement of the parties which by its terms
- ---
contemplates performance after the Closing Date.
Section 8.2. Law Governing. This Agreement shall be construed and
-------------
interpreted according to the laws of the State of Maryland applicable to
contracts made and to be performed wholly within such state.
Section 8.3. Binding Effect, Persons Benefiting, No Assignment.
-------------------------------------------------
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and the respective successors and assigns of the parties and such
Persons. Nothing in this Agreement is intended or shall be construed to confer
upon any entity or Person other than the parties hereto and their respective
successors and permitted assigns any right, remedy or claim under or by reason
of this Agreement or any part hereof. Without the prior written consent of the
parties hereto, this Agreement may not be assigned by any of the parties hereto.
Section 8.4. Obligation of AIM Equity Portfolio. Baird Capital
----------------------------------
Development and AIM Equity hereby acknowledge and agree that the Portfolio is a
separate investment portfolio of AIM Equity, that AIM Equity is executing this
Agreement on behalf of the Portfolio, and that any amounts payable by AIM Equity
under or in connection with this Agreement shall be payable solely from the
revenues and assets of the Portfolio.
Section 8.5. Amendments. This Agreement may not be amended, altered
----------
or modified except by a written instrument executed by Baird Capital Development
and AIM Equity.
Section 8.6. Enforcement. The parties agree irreparable damage
-----------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.7. Interpretation. When a reference is made in this
--------------
Agreement to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". Each representation and warranty contained in Article III or IV
----------- --
that relates to a general category of a subject matter shall be deemed
superseded by a specific representation and warranty relating to a subcategory
thereof to the extent of such specific representation or warranty.
Section 8.8. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
Section 8.9. Entire Agreement; Schedules. This Agreement, including
---------------------------
the Schedules, certificates and lists referred to herein, and any documents
executed by the parties simultaneously herewith or pursuant thereto, constitute
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, written or oral, between the parties with respect to such
subject matter.
Section 8.10. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall he deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to AIM Equity:
AIM Equity Funds, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attn: William H. Rheiner, Esq.
Fax: (215) 864-8999
(b) If to Baird Capital Development:
Baird Capital Development Fund, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Glen F. Hackmann, Esq.
Fax: (414) 765-3662
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Conrad G. Goodkind, Esq.
Fax: (414) 271-3552
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
By: /s/ M.C. LOW, JR.
AIM EQUITY FUNDS, INC., acting
on behalf of AIM Capital Development Fund
By: /s/ ROBERT H. GRAHAM
Schedule 3.12(a)
LIST OF CONTRACTS AND AGREEMENTS
1. Investment Advisory Agreement dated June 25, 1984 between
Baird Growth Settlement Fund, Inc. (now named Baird Capital
Development Fund, Inc.) ("BCD Fund") and Fiduciary Management,
Inc. ("FMI").
2. Amendment to Investment Advisory Agreement Dated June 21, 1986
between BCD Fund and FMI.
3. Sub-Advisory Agreement dated December 12, 1986 between BCD
Fund and Robert W. Baird & Co. Incorporated ("Baird").
4. Administration Agreement dated December 19, 1988 between BCD
Fund and Baird.
5. Amended and Restated Distribution Plan of BCD Fund.
6. Distribution Agreement dated June 21, 1986 between BCD Fund
and Baird.
7. Distribution Assistance Agreement dated June 21, 1986 between
BCD Fund and Baird.
8. Custodian Agreement dated June 25, 1984 between BCD Fund and
First Wisconsin Trust Company (now named Firstar Trust Company)
("Firstar").
9. Amendment to Custodian Agreement dated June 21, 1986 between
BCD Fund and Firstar.
10.Transfer Agent Agreement dated July 20, 1990 between BCD Fund
and Firstar.
11.License Agreement dated March 31, 1987 between BCD Fund and
Baird.
12.Agreement dated September 14, 1994, as amended, among the BCD
Fund, The Baird Funds, Inc. and Baird Blue Chip Fund, Inc.
regarding allocation of fidelity bond coverage, pursuant to Rule
17g-1(f) under the Investment Company Act of 1940.
13.$1,600,000 Fidelity Bond issued by Reliance Insurance Company.
14.Articles of Incorporation of BCD Fund.
15.Bylaws of BCD Fund.
16.Order under Section 6(c) of the Investment Company Act of
1940, dated February 27, 1991, granting an exemption from
Sections 2(a)(32), 2(a)(35), 22(c) and 22(d) of the Act and Rule
22c-1 thereunder.
Schedule 6.1(d)
OPINION OF COUNSEL TO BAIRD CAPITAL DEVELOPMENT
1.Baird Capital Development is a corporation duly incorporated and
validly existing under the laws of the State of Wisconsin.
2.Baird Capital Development is an open-end management investment
company registered under the Investment Company Act of 1940.
3.The execution, delivery and performance of the Agreement by Baird
Capital Development have been duly authorized and approved by all
requisite corporate action on the part of Baird Capital
Development. The Agreement has been duly executed and delivered
by Baird Capital Development and constitutes the valid and
binding obligation of Baird Capital Development.
4.The BCD Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and are non-
assessable (subject to Wisconsin Business Corporation Law Section
180.0622(2)(b)).
5.Baird Capital Development is not required to submit any notice,
report or other filing with or obtain any authorization consent
or approval from any governmental authority or self regulatory
organization prior to the consummation of the transactions
contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each
lawyer who is the current primary contact for Baird Capital Development or who
has devoted substantive attention on behalf of Baird Capital Development during
the preceding twelve months and who is still currently employed by or is
currently a member of this firm, no litigation or governmental proceeding is
pending or threatened in writing against Baird Capital Development (i) with
respect to the Agreement or (ii) which involves in excess of $500,000 in
damages.
Schedule 6.2(g)
Tax Opinions.
-------------
(i) The transfer of the assets of Baird Capital Development
to the Portfolio in exchange for the Portfolio Shares distributed directly
to the BCD Shareholders, as provided in the Agreement, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that
Baird Capital Development and AIM Equity will each be a "party to a
reorganization" within the meaning of 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1)
of the Code, no gain or loss will be recognized by Baird Capital
Development as a result of such transaction.
(iii) In accordance with Section 1032 of the Code, no gain or
loss will be recognized by the Portfolio upon the receipt of assets of
Baird Capital Development in exchange for Portfolio Shares issued directly
to the BCD Shareholders
(iv) In accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized by BCD Shareholders on issuance by AIM
Equity of Portfolio Shares in exchange for their BCD Shares.
(v) In accordance with Section 362(b) of the Code, the basis
to the Portfolio of the assets of Baird Capital Development transferred to
it will be the same as the basis of such assets in the hands of Baird
Capital Development immediately prior to the exchange.
(vi) In accordance with Section 358(a) of the Code, a BCD
Shareholder's basis for Portfolio Shares issued to such BCD Shareholder
pursuant to Section 2.7 of the Agreement ("Issued Shares") will be the same
-----------
as his basis for BCD Shares.
(vii) In accordance with Section 1223(1) of the Code, a BCD
Shareholder's holding period for Portfolio Shares will be determined by
including said BCD Shareholder's holding period for BCD Shares exchanged
therefor, provided that BCD Shareholder held such BCD Shares as a capital
asset.
(viii) In accordance with Section 1223(2) of the Code, the
holding period with respect to the assets of Baird Capital Development
transferred to the Portfolio will include the holding period for such
assets in the hands of Baird Capital Development.
(ix) In accordance with Section 381(a)(2) of the Code, the
Portfolio will succeed to and take into account the items of Baird Capital
Development described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381 through 384 of the
Code and the Internal Revenue Service regulations thereunder.
Schedule 6.3(d)
OPINION OF COUNSEL TO AIM EQUITY
1.AIM Equity is a corporation duly incorporated and validly existing
under the laws of the State of Maryland.
2.AIM Equity is an open-end, management investment company
registered under the Investment Company Act of 1940.
3.The execution, delivery and performance of the Agreement by AIM
Equity have been duly authorized and approved by all requisite
corporate action on the part of AIM Equity. The Agreement has
been duly executed and delivered by AIM Equity and constitutes
the valid and binding obligation of the Portfolio.
4.The Portfolio Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and are non-
assessable.
5.AIM Equity is not required to submit any notice, report or other
filing with or obtain any authorization consent or approval from
any governmental authority or self regulatory organization prior
to the consummation of the transactions contemplated by the
Agreement.
We confirm to you that to our knowledge after inquiry of each lawyer
who is the current primary contact for AIM Equity or who has devoted substantive
attention on behalf of AIM Equity during the preceding twelve months and who is
still currently employed by or is currently a member of this firm, no litigation
or governmental proceeding is pending or threatened in writing against the
Portfolio (i) with respect to the Agreement or (ii) which involves in excess of
$500,000 in damages.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 14 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
October 25, 1995, relating to the financial statements and financial highlights
of Baird Capital Development Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" and
"Financial Statements" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 9, 1996
EXHIBIT 16
Schedule for Computation of Performance Quotation
- -------------------------------------------------
BAIRD CAPITAL DEVELOPMENT FUND
1. Initial (September 30, 1994) Offering Price = $24.98
2. Number of hypothetical shares purchased =
$1,000 divided by $24.98 = 40.032 shares
3. Amount of dividends and distributions =
10/25/94 - $0.0249 per share 40.032 = $ 1.00 /$22.28 = 0.045 shares
10/25/94 - $ 1.1155 per share 40.032 = $44.66 /$22.28 = 2.004 shares
Total = 2.049 shares
4. Fees charged to shareholder accounts = 0
5. Ending(September 30, 1995) Net Asset Value = $26.25
6. Ending Redeemable value of hypothetical investment =
40.032 + 2.049 = 42.081 x $26.25 = $1,104.63
7. Total Return = ($1104.63 - $1,000) divided by $1,000 = + 10.46%
8. Annualized Compounded Return = 10.46%
Number of years = 1
Schedule for Computation of Performance Quotation
- -------------------------------------------------
BAIRD CAPITAL DEVELOPMENT FUND
1. Initial(September 30, 1990) Offering Price = $16.32
2. Number of hypothetical shares purchased =
$1,000 divided by $16.32 = 61.275 shares
3. Amount of dividends and distributions =
10/24/90 - $ 0.14 per share 61.275 = $ 8.58 /$14.32 = 0.599 shares
10/24/90 - $ 0.5683 per share 61.275 = $34.82 /$14.32 = 2.432 shares
12/28/90 - $ 0.065 per share 64.306 = $ 4.18 /$15.62 = 0.268 shares
12/28/90 - $ 0.157 per share 64.306 = $10.10 /$15.62 = 0.647 shares
10/24/91 - $ 0.0641 per share 65.221 = $ 4.18 /$19.68 = 0.212 shares
10/24/91 - $ 1.7269 per share 65.221 = $112.63 /$19.68 = 5.723 shares
12/30/91 - $ 0.105 per share 71.156 = $ 7.47 /$20.86 = 0.358 shares
12/30/91 - $ 0.06 per share 71.156 = $ 4.27 /$20.86 = 0.205 shares
10/23/92 - $ 0.07 per share 71.719 = $ 5.02 /$20.24 = 0.248 shares
10/23/92 - $ 1.5852 per share 71.719 = $113.69 /$20.24 = 5.617 shares
12/30/92 - $ 0.01 per share 77.584 = $ 0.78 /$21.64 = 0.036 shares
12/30/92 - $ 0.319 per share 77.584 = $24.75 /$21.64 = 1.144 shares
10/25/93 - $ 0.02875 per share 78.764 = $ 2.26 /$22.77 = 0.099 shares
10/25/93 - $ 0.3213 per share 78.764 = $25.31 /$22.77 = 1.112 shares
12/30/93 - $ 0.015 per share 79.975 = $ 1.20 /$23.50 = 0.051 shares
12/30/93 - $ 0.21 per share 79.975 = $16.79 /$23.50 = 0.714 shares
10/25/94 - $ 0.0249 per share 80.740 = $ 2.01 /$22.28 = 0.090 shares
10/25/94 - $ 1.1155 per share 80.740 = $90.07 /$22.28 = 4.043 shares
Total =23.598 shares
4. Fees charged to shareholder accounts = 0
5. Ending (September 30, 1995) Net Asset Value = $26.25
6. Ending Redeemable value of hypothetical investment =
61.275 + 23.598 = 84.873 x $26.25 = $2,227.92
7. Total Return = ($2227.92 - $1,000) divided by $1,000 = + 122.79%
8. Annualized Compounded Return = 17.38%
Number of years = 5
Schedule for Computation of Performance Quotation
- -------------------------------------------------
BAIRD CAPITAL DEVELOPMENT FUND
1. Initial (September 30, 1985) Offering Price = $14.14
2. Number of hypothetical shares purchased =
$1,000 divided by $14.14 = 70.721 shares
3. Amount of dividends and distributions =
11/5/85 - $ 0 per share 70.721 = $ 0.00 /$11.83 = 0.000 shares
11/5/85 - $ 2.045 per share 70.721 = $144.62 /$11.83 = 12.225 shares
10/23/86 - $ 0 per share 82.946 = $ 0.00 /$15.60 = 0.000 shares
10/23/86 - $ 0.0936 per share 82.946 = $ 7.76 /$15.60 = 0.497 shares
10/23/87 - $ 0 per share 83.443 = $ 0.00 /$13.33 = 0.000 shares
10/23/87 - $ 0.6148 per share 83.443 = $51.30 /$13.33 = 3.848 shares
12/29/87 - $ 0 per share 87.291 = $ 0.00 /$12.41 = 0.000 shares
12/29/87 - $ 0.5082 per share 87.291 = $44.36 /$12.41 = 3.575 shares
10/24/89 - $ 0.0554 per share 90.866 = $ 5.03 /$18.59 = 0.271 shares
10/24/89 - $ 0 per share 90.866 = $ 0.00 /$18.59 = 0.000 shares
12/28/89 - $ 0.05 per share 91.137 = $ 4.56 /$17.99 = 0.253 shares
12/28/89 - $ 0 per share 91.137 = $ 0.00 /$17.99 = 0.000 shares
10/24/90 - $ 0.14 per share 91.390 = $12.79 /$14.32 = 0.893 shares
10/24/90 - $ 0.5683 per share 91.390 = $51.94 /$14.32 = 3.627 shares
12/28/90 - $ 0.065 per share 95.910 = $ 6.23 /$15.62 = 0.399 shares
12/28/90 - $ 0.157 per share 95.910 = $15.06 /$15.62 = 0.964 shares
10/24/91 - $ 0.0641 per share 97.273 = $ 6.24 /$19.68 = 0.317 shares
10/24/91 - $ 1.7269 per share 97.273 = $167.98 /$19.68 = 8.536 shares
12/30/91 - $ 0.105 per share 106.126 = $11.14 /$20.86 = 0.534 shares
12/30/91 - $ 0.06 per share 106.126 = $ 6.37 /$20.86 = 0.305 shares
10/23/92 - $ 0.07 per share 106.965 = $ 7.49 /$20.24 = 0.370 shares
10/23/92 - $ 1.5852 per share 106.965 = $169.56 /$20.24 = 8.377 shares
12/30/92 - $ 0.01 per share 115.712 = $ 1.16 /$21.64 = 0.054 shares
12/30/92 - $ 0.319 per share 115.712 = $36.91 /$21.64 = 1.706 shares
10/25/93 - $ 0.02875 per share 117.472 = $ 3.38 /$22.77 = 0.148 shares
10/25/93 - $ 0.3213 per share 117.472 = $37.74 /$22.77 = 1.657 shares
12/30/93 - $ 0.015 per share 119.277 = $ 1.79 /$23.50 = 0.076 shares
12/30/93 - $ 0.21 per share 119.277 = $25.05 /$23.50 = 1.066 shares
10/25/94 - $ 0.0249 per share 120.419 = $ 3.00 /$22.28 = 0.135 shares
10/25/94 - $ 1.1155 per share 120.419 = $134.33 /$22.28 = 6.029 shares
Total = 55.862 shares
4. Fees charged to shareholder accounts = 0
5. Ending (September 30, 1995) Net Asset Value = $26.25
6. Ending Redeemable value of hypothetical investment =
70.721 + 55.862 = 126.583 x $26.25 = 3,322.80
7. Total Return = ($3322.80 - $1,000) divided by $1,000 = + 232.28%
8. Annualized Compounded Return = 12.76%
Number of years = 10
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 47,048,069
<INVESTMENTS-AT-VALUE> 58,636,291
<RECEIVABLES> 163,430
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 58,799,722
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,998
<TOTAL-LIABILITIES> 153,998
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,285,584
<SHARES-COMMON-STOCK> 2,234,499
<SHARES-COMMON-PRIOR> 2,286,194
<ACCUMULATED-NII-CURRENT> 159,464
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,612,454
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,588,222
<NET-ASSETS> 58,645,724
<DIVIDEND-INCOME> 444,201
<INTEREST-INCOME> 451,181
<OTHER-INCOME> 0
<EXPENSES-NET> 735,765
<NET-INVESTMENT-INCOME> 159,617
<REALIZED-GAINS-CURRENT> 5,612,531
<APPREC-INCREASE-CURRENT> 3,054,593
<NET-CHANGE-FROM-OPS> 8,826,741
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56,619
<DISTRIBUTIONS-OF-GAINS> 2,536,513
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 195,408
<NUMBER-OF-SHARES-REDEEMED> 304,827
<SHARES-REINVESTED> 57,724
<NET-CHANGE-IN-ASSETS> 4,838,568
<ACCUMULATED-NII-PRIOR> 56,574
<ACCUMULATED-GAINS-PRIOR> 2,536,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 404,950
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 735,765
<AVERAGE-NET-ASSETS> 54,712,072
<PER-SHARE-NAV-BEGIN> 23.54
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 3.78
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 1.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.25
<EXPENSE-RATIO> 1.3
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
