Registration No. 33-48892; 811-6714
- -----------------------------------
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. 4 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 7 x
(Check appropriate box or boxes.)
---------------------------------
THE BAIRD FUNDS, INC.
---------------------
(Exact name of Registrant as Specified in Charter)
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
-------------------- -----
(Address of Principal (Zip Code)
Executive 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)
Copies 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
THE BAIRD FUNDS, 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
Item No. on Form N-1A or 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 Management's Discussion of Performance of
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 Fund;
Being Offered Determination of Net Asset Value; Purchase
of Shares; Reinstatement Privilege; Dividend
Reinvestment; Directed Distributions;
Exchange Privileges; Individual Retirement
Account and Simplified Employee Pension
Caption or Subheading in Prospectus
Plan; Defined Contribution Retirement Plan
8. Redemption or Repurchase Redemption and Repurchase of Shares;
Systematic Withdrawal Plan; Systematic
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 the
History Prospectus under "Introduction" and "Recent
Developments"
13. Investment Objectives and Investment Restrictions
Policies
14. Management of the Directors and Officers of the Funds
Registrant
15. Control Persons and Directors and Officers of the Funds;
Principal Holders of Principal Shareholders
Securities
16. Investment Advisory and Directors and Officers of the Funds;
Other Services Investment Adviser and Administrator;
Distribution of Shares; 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 of net Asset Value"; "Purchase of Shares";
Being Offered "Dividend Reinvestment"; "Directed
Distribution"; "Exchange Privileges";
"Systematic Withdrawal Plan"; "Systematic
Exchange Plan"; "Individual Retirement
Account and Simplified Employee Pension
Plan"; "Defined Contribution Retirement
Plan"; Determination of Net Asset Value and
Performance
20. Tax Status Taxes
21. Underwriters Distribution of Shares
22. Calculations of Determination of Net Asset Value and
Performance Data 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 QUALITY BOND FUND
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 Quality Bond Fund, a
separate portfolio of The Baird Funds, Inc. dated January 22, 1996. Requests
for copies of the prospectus should be made by writing to The Baird Funds, Inc.,
777 East Wisconsin Avenue, Milwaukee, Wisconsin, Attn: Corporate Secretary or
by calling (414) 765-3500.
BAIRD QUALITY BOND FUND
Table of Contents
-----------------
Page No.
-------
RECENT DEVELOPMENTS........................................... 1
INVESTMENT RESTRICTIONS....................................... 1
INVESTMENT POLICIES AND TECHNIQUES............................ 4
DIRECTORS AND OFFICERS OF THE COMPANY......................... 14
PRINCIPAL SHAREHOLDERS........................................ 17
INVESTMENT ADVISER AND ADMINISTRATOR.......................... 17
DISTRIBUTION OF SHARES........................................ 19
DETERMINATION OF NET ASSET VALUE AND PERFORMANCE.............. 21
EXCHANGE PRIVILEGE............................................ 22
ALLOCATION OF PORTFOLIO BROKERAGE............................. 24
CUSTODIAN..................................................... 25
TAXES......................................................... 25
SHAREHOLDER MEETINGS.......................................... 28
INDEPENDENT ACCOUNTANTS....................................... 29
FINANCIAL STATEMENTS.......................................... 29
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 Quality Bond Fund, The Baird Funds, 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 Baird Prospectus for Baird Quality Bond 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 Income Fund, an existing
portfolio of AIM Funds Group. In exchange, each shareholder of the Fund will
receive shares of AIM Income Fund with an aggregate net asset value equal to the
total net asset value of the Fund's shares held by such shareholder or
immediately prior to the transaction. In connection with the transaction, the
Fund will take steps to pay any outstanding liabilities and terminate its status
as a separate portfolio of The Baird Funds, Inc. (the "Company"). The
transaction is subject to approval of the Fund's shareholders and, if so
approved, will be completed in late March 1996. AIM Income Fund is 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
As set forth in the Fund's Prospectus dated January 22, 1996 under the
caption "Investment Objectives and Policies" the investment objective of the
Fund is to provide a high level of current income. The Fund will invest
principally in a diversified portfolio of investment grade debt securities.
Consistent with this 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 that
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 or sell securities short (except for such short term
credits as are necessary for the clearance of transactions); provided, however,
that the Fund may enter into interest rate swap transactions and may (i)
purchase or sell futures contracts, (ii) make initial and variation margin
payments in connection with purchases or sales of futures contracts or options
on futures contracts, (iii) write or invest in put or call options and (iv)
enter into foreign currency exchange contracts.
2. The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940; provided, however, the Fund may enter
into options, futures, options on futures and foreign currency exchange
contracts, and the Fund may enter into interest rate swap transactions.
3. The Fund will not lend money (except by purchasing debt
securities or entering into repurchase agreements) or lend portfolio securities.
4. The Fund shall not, with respect to seventy-five percent (75%) of
its total assets, purchase the securities of any issuer if such purchase would
cause more than five percent (5%) of the value of the Fund's total assets to be
invested in the securities of any one issuer (except securities of the U.S.
government or any agency or instrumentality thereof), or purchase more than ten
percent (10%) of the outstanding voting securities of any one issuer.
5. The Fund will not concentrate 25% or more of the value of its
total assets, determined at the time an investment is made, exclusive of U.S.
government securities, in securities issued by companies primarily engaged in
the same industry.
6. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund except to the extent that a Fund's
participation as part of a group in bidding, or by bidding alone, for the
purchase of permissible investments directly from an issuer for the Fund's own
portfolio, may be deemed to be an underwriting and except to the extent the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended, by
virtue of disposing of portfolio securities.
7. The Fund will not purchase any interest in any oil, gas or any
other mineral exploration or development program, including any oil, gas or
mineral leases.
8. 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, but the Fund may purchase and sell securities that
are backed by real estate or issued by companies that invest or deal in real
estate. The Fund may purchase mortgage-backed securities and similar securities
in accordance with its investment objectives and policies.
9. The Fund will not borrow money except for temporary bank
borrowings (not in excess of five percent (5%) of the value of its total 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 ten percent
(10%) of the value of the Fund's net assets; provided, however, the Fund may
enter into interest rate swap transactions and options, futures, options on
futures and forward foreign currency exchange contracts.
10. The Fund will not purchase or sell commodities or commodities
contracts (except that the Fund may enter into futures contracts and options on
futures contracts).
The following investment limitations are not fundamental, and may be
changed without shareholder approval or notification.
1. The Fund will not purchase warrants.
2. The Fund will not purchase securities of other investments
companies except as a part of a plan of merger, consolidation or reorganization
approved by the shareholders of the Fund or securities of money market mutual
funds investing in U.S. government securities.
3. The Fund will not make investments for the purpose of exercising
control or management of any company except that the Funds may vote portfolio
securities in the Company's discretion.
4. The Fund will not invest in securities of issuers which have a
record of less than three (3) 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.
5. 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.
6. The Fund will not acquire or retain any security issued by a
company in which directors or officers of the Company, or directors or officers
of its investment adviser, individually owning more than 1/2% of such company's
securities, in the aggregate own more than 5% of the securities of such company.
7. The Fund will not invest in illiquid securities.
8. The Fund will not (a) sell futures contracts, purchase put
options or write call options if, as a result, more than 25% of the Fund's total
assets would be hedged with futures and options; (b) purchase futures contracts
or write put options if, as a result, the Fund's total obligations upon
settlement or exercise of purchased futures contracts and written put options
would exceed 25% of its total assets; (c) purchase put or call options if, as a
result, the amount of all premiums paid for unexpired options purchased by the
Fund would exceed 5% of the Fund's total assets. During the fiscal year ending
September 30, 1996, the Fund will not purchase, sell or write futures contracts
or put or call options.
If a percentage restriction is adhered to at the time of investment,
the later change in percentage resulting from a change in values or assets will
not constitute a violation of any of the foregoing restrictions except with
respect to the Fund's restriction on borrowing funds as set forth in Investment
Restriction 9 above.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of shares of the Fund in certain states.
Should the Fund determine that a commitment is no longer in the best interest of
the Fund and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state involved.
INVESTMENT POLICIES AND TECHNIQUES
In addition to the policies described above and in the Prospectus, the
investment policies and techniques described below have been adopted by the
Fund.
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: (I) Guaranteed
Government Agency Mortgage-Backed Securities; (ii) Privately-Issued Mortgage-
Backed Securities; (iii) collateralized mortgage obligations and multiclass
pass-through securities; and (iv) stripped mortgage-backed securities. These
securities are described below.
GUARANTEED GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES. Mortgage-
-------------------------------------------------------
Backed Securities include Guaranteed Government Agency Mortgage-Backed
Securities, which represent participation interests in pools of residential
mortgage loans originated by United States governmental or private lenders and
guaranteed, to the extent provided in such securities, by the United States
government or one of its agencies or instrumentalities. Such securities, with
the exception of collateralized mortgage obligations, are 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.
The Guaranteed Government Agency Mortgage-Backed Securities in which
the Fund will invest will 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"). As more fully described below, these securities may include
collateralized mortgage obligations, multiclass pass-through securities and
stripped mortgage-backed securities.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration Act, or Title V of the
Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans' Administration
under the Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by
pools of other eligible mortgage loans. The Housing Act provides that the full
faith and credit of the United States government is pledged to the payment of
all amounts that may be required to be paid under any guarantee. To meet its
obligations under such guarantee, Ginnie Mae is authorized to borrow from the
United States Treasury with no limitations as to amount.
Fannie Mae Certificates. Fannie Mae is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a United States government agency to provide supplemental liquidity to the
mortgage market and was transformed into a stockholder owned and privately
managed corporation by legislation enacted in 1968. Fannie Mae provides funds
to the mortgage market primarily by purchasing home mortgage loans from local
lenders, thereby replenishing their funds for additional lending. Fannie Mae
acquires funds to purchase home mortgage loans from many capital market
investors that ordinarily may not invest in mortgage loans directly, thereby
expanding the total amount of funds available for housing.
Each Fannie Mae Certificate will entitle the registered holder thereof
to receive amounts representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such Fannie Mae Certificate's pass-
through rate, which is net of any servicing and guarantee fees on the underlying
mortgage loans), and any principal prepayments, on the mortgage loans in the
pool represented by such Fannie Mae Certificate and such holder's proportionate
interest in the full principal amount of any foreclosed or otherwise finally
liquidated mortgage loan. The full and timely payment of principal of and
interest on each Fannie Mae Certificate will be guaranteed by Fannie Mae, which
guarantee is not backed by the full faith and credit of the United States
government.
Freddie Mac Certificates. Freddie Mac is a corporate instrumentality
of the United States created pursuant to the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). Freddie Mac was established primarily for the
purpose of increasing the availability of mortgage credit for the financing of
needed housing. The principal activity of Freddie Mac currently consists of the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily Freddie Mac
Certificates.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate, whether or not received. Freddie Mac also guarantees
to each registered holder of a Freddie Mac Certificate ultimate collection of
all principal of the related mortgage loans, without any offset or deduction,
but, generally, does not guarantee the timely payment of scheduled principal.
Freddie Mac may remit the amount due on account of its guarantee of collection
of principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (I) foreclosure sale, (ii) payment of claim by any
mortgage insurer, or (iii) the expiration of any right of redemption, whichever
occurs later, but in any event no later than one year after demand has been made
upon the mortgagor for accelerated payment of principal. The obligations of
Freddie Mac under its guarantee are obligations solely of Freddie Mac and are
not backed by the full faith and credit of the United States government.
PRIVATELY-ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-Backed
-------------------------------------------
Securities include Privately-Issued Mortgage-Backed Securities, which are issued
by private issuers and represent an interest in or are collateralized by (I)
Mortgage-Backed Securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities ("Privately-Issued Agency Mortgage-Backed
Securities"), or (ii) whole mortgage loans or non-Agency collateralized
Mortgage-Backed Securities ("Privately-Issued Non-Agency Mortgage-Backed
Securities"). These securities are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Privately-Issued Agency
Mortgage-Backed Securities usually are backed by a pool of Ginnie Mae, Fannie
Mae and Freddie Mac Certificates. Privately-Issued Non-Agency Mortgage-Backed
Securities usually are backed by a pool of conventional fixed rate or adjustable
rate mortgage loans that are not guaranteed by an entity having the credit
status of Ginnie Mae, Fannie Mae or Freddie Mac, and generally are structured
with one or more types of credit enhancement. As more fully described below,
these securities may include collateralized mortgage obligations, multiclass
pass-through securities and stripped mortgage-backed securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
---------------------------------------------------------------
SECURITIES. Mortgage-Backed Securities include collateralized mortgage
- ----------
obligations or "CMOs," which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but also may be
collateralized by other Mortgage-Backed Securities or whole loans (such
collateral collectively hereinafter referred to as "Mortgage Assets"). CMOs
include multiclass pass-through securities, which can be equity interests in a
trust composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass pass-
through securities. CMOs may be issued by agencies or instrumentalities of the
United States government, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit.
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. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on classes of the CMOs on a
monthly, quarterly or semiannual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a CMO series in
innumerable ways. Generally, the more predictable the cash flow of a particular
CMO class, the lower the anticipated yield at the time of issuance of the class
will be. As part of the process of creating more predictable cash flows on
certain CMO classes, other classes generally must be created that absorb a
greater portion of the volatility in the cash flows of the Mortgage Assets. The
yields on such classes generally are higher than those of CMO classes with more
predictable cash flows. Because of the uncertainty of the cash flows of these
classes and the sensitivity thereof to changes in prepayment rates on the
Mortgage Assets, the market prices and yields on these classes tend to be more
volatile.
STRIPPED MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
-----------------------------------
include stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the United States government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
SMBS have greater market volatility than other types of mortgage
securities. SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the Mortgage Assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of the principal
(the principal-only or "PO" class). The yield to maturity on an IO class is
extremely sensitive not only to a change in prevailing interest rates but also
to the rate of principal payments (including prepayments) on the related
underlying Mortgage Assets, and a rapid rate of principal payments have a
material adverse effect on the Fund's yield to maturity. If the underlying
mortgage securities experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the securities are rated in the highest rating category by a
nationally recognized statistical rating organization.
Although SMBS are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet been fully developed and, accordingly, certain issues of
these securities may be illiquid. The Fund will not invest in illiquid
securities. See "Illiquid Securities" below.
MISCELLANEOUS. 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, usually
monthly, 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 Fund
purchases such 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 a Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. SMBS and certain classes of CMOs and other types of
mortgage pass-through securities, including those whose interest rates fluctuate
based on multiples of a stated index, 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.
No assurance can be given as to the liquidity of the market for
certain Mortgage-Backed Securities, such as CMOs, multiclass pass-through
securities and SMBS. Determination as to the liquidity of such securities will
be made in accordance with guidelines established by the Company's Board of
Directors. In accordance with such guidelines, Robert W. Baird & Co.
Incorporated, the Fund's investment adviser ("Baird"), will monitor each Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. The
Funds will not invest in illiquid securities.
Interest rates on variable rate Mortgage-Backed Securities are subject
to periodic adjustment based on changes or multiples of changes in an applicable
index. The Ten-Year Constant Maturity Treasury Index ("10 Year CMT"), Eleventh
District Cost of Funds Index ("COFI") and the London Interbank Offered Rate
("LIBOR") are among the common interest rate indexes. The Ten-Year Constant
Maturity Treasury Index is the figure derived from the average weekly quoted
yield on U.S. Treasury Securities adjusted to a constant ten years. COFI
reflects the monthly weighted average cost of funds of savings and loan
associations and savings banks whose home offices are located in Arizona,
California and Nevada that are member institutions of the Federal Home Loan Bank
of San Francisco (the "FHLB of San Francisco"), as computed from statistics
tabulated and published by the FHLB of San Francisco. The FHLB of San Francisco
normally announces COFI on the last working day of the month following the month
in which the cost of funds was incurred. A number of factors affect the
performance of COFI and may cause COFI to move in a manner different from
indices based upon specific rates, such as the Ten Year CMT. To the extent that
COFI may reflect interest changes on a more delayed basis than other indices, in
a period of rising interest rates, any increase may produce a higher yield to
holders later than would be produced by such other indices, and in a period of
declining interest rates, COFI may remain higher than other market interest
rates. LIBOR is the interest rate that the most creditworthy international
banks dealing in U.S. dollar-denominated deposits and loans charge each other
for large dollar-denominated loans. LIBOR is also commonly the base rate for
large dollar-denominated loans in the international market.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities include Treasury securities which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Ginnie Mae Certificates, are supported by
the full faith and credit of the U.S. Treasury; others only by the credit of the
agency or instrumentality. 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 will always do so since it is not so obligated by
law.
FUTURES AND OPTIONS
Pursuant to the Fund's investment restrictions, the Fund may engage in
various transactions including options, futures and options on futures which
will be used primarily to attempt to minimize adverse principal fluctuations and
unfavorable fluctuations in interest rates. Notwithstanding the foregoing,
during the fiscal year ending September 30, 1996, the Fund will not engage in
any of the foregoing transactions.
FUTURES CONTRACTS. When the Fund purchases a futures contract, it
-----------------
agrees to purchase a specified underlying instrument at a specified future date.
When the Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Fund enters into the contract. Futures can be
held until their delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in
relation to the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase the Fund's exposure to positive and
negative price fluctuations in the underlying instrument. When the Fund sells a
futures contract, by contrast, the value of its futures position will tend to
move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price changes.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures
-----------------------
contract is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker known as a
Futures Commission Merchant (FCM), when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value. If the value
of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In the
event of the bankruptcy of an FCM that holds margin on behalf of the Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
-------------------------------
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). The Fund may
purchase options having various types of underlying instruments, including debt
securities, aggregates of debt securities, financial indices and U.S. Government
securities, and futures contracts on debt securities, aggregates of debt
securities, financial indices and U.S. Government securities. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. If the option is allowed to expire, the Fund will
lose the entire premium it paid. If the Fund exercises the option, it completes
the sale of the underlying instrument at the strike price. The Fund may also
terminate a put option position by closing it out in the secondary market at its
current price, if a liquid secondary market exists. The buyer of a put option
may realize a gain if security prices fall substantially during the option
period. However, if the underlying instrument's price does not fall enough, a
put buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option. Only
exchange listed options will be acquired.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it
----------------------------
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures contract the
Fund will be required to make margin payments to an FCM as described above for
futures contracts. The Fund may seek to terminate its position in a put option
it writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option the
Fund has written, however, the Fund must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes, and
must continue to set aside assets to cover its position. The Fund may write
options having various types of underlying instruments, including debt
securities, aggregates of debt securities, financial indices and U.S. Government
securities and futures contracts.
If security prices rise, a put writer may profit, although its gain
would be limited to the amount of the premium it received. If security prices
remain the same over time, the writer may also profit. If security prices fall,
the put writer would expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the
premium received for writing the option should mitigate the effects of the
decline.
Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument, in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED OPTION POSITIONS. The Fund may purchase and write options in
-------------------------
combination with each other to adjust the risk and return characteristics of the
overall position. For example, the Fund may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
----------------------------
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments. The Fund may invest in options and futures contracts
based on securities or indices which differ from the securities in which it
typically invests -- for example, by hedging its securities investments in a
particular security with a futures contract reflecting a broad range of
securities prices in that market -- which involves a risk that the options or
futures position will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
historical volatility between the contract and the securities, although this may
not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Successful use of these techniques requires skills different from
those needed to select portfolio securities. Baird has limited experience in
the use of these techniques.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
------------------------------------------
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instruments' current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading of a
contract's price moves upward or downward more than the limit in a given day.
On volatile trading days when the price fluctuation limit is reached or a
trading halt is imposed, it may be impossible for the Fund to enter into new
positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially could
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will
------------------------------------------------
comply with guidelines established by the Securities and Exchange Commission
with respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside U.S. Government securities, cash or
liquid high grade debt securities in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be sold while
the futures or option strategy is outstanding, unless they are replaced with
other suitable assets. As a result, there is a possibility that segregation of
a large percentage of the Fund's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund intends to
-----------------------------------------------
file a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission (CFTC)
and the National Futures Association, which regulate trading in the futures
markets, before engaging in any purchases or sales of futures contracts or
options on futures contracts. Pursuant to Section 4.5 of the regulations under
the Commodity Exchange Act and representations made by the Fund in the notice of
eligibility, the Fund will use futures contracts and related options solely for
bona fide hedging purposes within the meaning of CFTC regulations; provided that
the Fund may hold positions in futures contracts and related options that do not
fall within the definition of bona fide hedging transactions if the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the liquidation value of the Fund's assets after taking into account
unrealized profits and losses on any such contract, (subject to limited
exclusions for options that are in-the-money at the time of purchase).
No more than 5% of the Fund's total assets will be subject to
investment techniques utilizing options and futures. As a consequence, and in
addition to the above limitations, the Fund will not (a) sell futures contracts,
purchase put options or write call options if, as a result, more than 5% of the
Fund's total assets would be hedged with futures and options; (b) purchase
futures contracts or write put options if, as a result, the Fund's total
obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 5% of its total assets; and (c) purchase put or
call options if, as a result, the amount of all premiums paid for unexpired
options purchased by the Fund would exceed 5% of the Fund's total assets. These
limitations do not apply to options attached to, or acquired or traded together
with, their underlying securities, and do not apply to securities that
incorporate features similar to options, such as rights, warrants and certain
debt securities and indexed securities.
Possible Tax and CFTC Limitations on Portfolio and Hedging Strategies
- ---------------------------------------------------------------------
The Company intends that the Fund qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code for each taxable year.
In order to so qualify, the Fund must, among other things, derive less than 30%
of its gross income from the sale or other disposition of stock or securities
(or options thereon) held less than three months. Due to this limitation, the
Fund will limit the extent to which it engages in the following investments,
including futures, held for less than three months, whether or not they were
purchased on the exercise of a call; (ii) the writing of calls on investments
held less than three months; (iii) the writing or purchasing of calls or the
purchasing of puts which expire in less than three months; (iv) effecting
closing transactions with respect to calls written or purchased or puts
purchased less than three months previously; and (v) exercising certain puts or
calls held for less than three months.
Special Risks of Hedging and Income Enhancement Strategies
- ----------------------------------------------------------
Participation in the options or futures markets involves investment
risks and transaction costs to which the Fund would not be subject absent the
use of these strategies. If Baird's prediction of movements in the direction of
the securities, foreign currency and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of options and futures
contracts and options on futures contracts include (1) dependence on Baird's
ability to predict correctly movements in the direction of interest rates,
securities prices and currency markets; (2) imperfect correlation between the
price of options and futures contracts and options thereon and movements in the
prices of the securities being hedged; (3) the fact that skills needed to use
these strategies are different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for any particular
instrument at any time; and (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences.
INTEREST RATE SWAP TRANSACTIONS.
Pursuant to the Fund's investment restrictions, the Fund may enter
into rate swap transactions. Notwithstanding the foregoing, during the fiscal
year ending September 30, 1995, the Fund will not engage in interest rate swap
transactions. Interest rate swaps typically involve the exchange among parties
of a fixed rate obligation for a variable or floating rate obligation. The
parties to such an exchange are the "fixed rate payor," which is obligated to
make payments from time to time during the term of the rate swap of amounts
calculated by reference to a fixed rate per annum, and the "floating rate
payor," which is obligated to make payments from time to time during the term of
the rate swap of amounts calculated by reference to a variable or floating rate
per annum. The parties set a "notional amount," which is an amount against
which the variable or floating and fixed rate payments are calculated as well as
the term during which the rate swap will be in effect. In certain cases, this
notional amount may amortize over time. Additionally in certain cases, the
parties may exchange a variable or floating rate obligation for a different
variable or floating rate obligation. No funds are borrowed or repaid pursuant
to interest rate swaps. The Fund bears the risk with each of its interest rate
swaps that the other party to the agreement will default on its obligations.
Additionally the Fund bears the risk that its payment obligation may be greater
than the payment obligation of the other party to the agreement.
The Fund will not participate in an interest rate swap transaction if
the aggregate notional amounts under all swaps would exceed 5% of the Fund's net
assets. Additionally the Fund will only enter into interest rate swap
transactions with parties whose long-term debt rating is in the top three
ratings of either Standard & Poor's Corporation or Moody's Investors Service,
Inc., or if such party's debt is unrated, is of a comparable quality as
determined by Baird.
DIRECTORS AND OFFICERS OF THE COMPANY
DIRECTORS. The name, address, principal occupations during the past
---------
five years and other information with respect to each of the directors of the
Company are as set forth below. Each of the individuals listed below serve in
the same capacities for the Baird Capital Development Fund, Inc. and the Baird
Blue Chip Fund, Inc.
JAMES D. BELL*<F2>
- -------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
Mr. Bell is a Managing Director, the Chief Administrative Officer and
a Director of Baird, the Fund's investment 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 Company paid
$20,350 in directors' fees to the Company's disinterested directors,
including $1,200 in respect of the Fund and $19,500 in respect of the Baird
Adjustable Rate Income Fund, another portfolio of the Company. The
Company's standard method of compensating directors is to cause each of the Fund
and Baird Adjustable Rate Income Fund to pay to each disinterested director
a fee of $100 for each meeting of the Board of Directors attended.
The Company also causes Baird Adjustable Rate Income Fund to pay to each
disinterested director a fee of $250 for each committee meeting of such fund
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
Company who are not directors are as set forth below. Each of the individuals
listed below serve in the same capacities for the Baird Capital Development
Fund, Inc. and the Baird Blue Chip Fund, Inc.
MARCUS C. LOW, JR.
- ------------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(PRESIDENT OF THE COMPANY)
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 COMPANY)
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, PA.
MARY ANN TAYLOR
- ---------------
777 East Wisconsin Avenue
Milwaukee, Wisconsin
(VICE PRESIDENT OF THE COMPANY)
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 COMPANY)
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 81.78% of the
outstanding shares of the Fund. On such date, Clark and Co., P.O. Box 39,
Westerville, Ohio 43086-0039 owned of record 6.42% of the outstanding shares of
the Fund.
With respect to the shares held by Baird, the name, address and
percent ownership of each person who as of December 31, 1995, to the knowledge
of the Company, owned beneficially 5% or more of the outstanding shares of the
Fund:
Percent
Name and Address No. of Shares Owned Owned
---------------- ------------------- -------
Robert W. Baird & Co. Incorporated 50,000 6.33%
777 East Wisconsin Avenue
Milwaukee, WI 53202
R.H. Wagner Foundation, Ltd. 49,336 6.25%
P.O. Box 181
Lyons, WI 53148
Trout and Salmon Foundation 42,657 5.40%
P.O. Box 897
Sheboygan, WI 53082
As of December 31, 1995, the Company's officers and directors as a
group (9 persons) beneficially owned less than 1% of the outstanding shares of
both the Fund and the Company.
INVESTMENT ADVISER AND ADMINISTRATOR
Baird is the investment adviser to the Fund. Baird is also the Fund's
Distributor. Baird is an indirect partially-owned subsidiary of, and controlled
by, The Northwestern Mutual Life Insurance Company. Baird has entered into an
investment advisory agreement (the "Advisory Agreement") with the Fund pursuant
to which Baird 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 Baird advisory fees of $33,618, $29,481 and
$7,106, respectively, and Baird voluntarily waived advisory fees of $8,405,
$9,836 and $8,862, respectively, of advisory fees otherwise payable.
The Fund pays all of its own expenses not assumed by Baird pursuant to
the Advisory Agreement or the Administrator (hereinafter defined) pursuant to
the 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
(the "Act") and any amendments thereto, the expense of registering their 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 having custody of the Fund's 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.
Baird has undertaken to reimburse the Fund to the extent that the
aggregate annual operating expenses of the Fund, including the investment
advisory fee and administration fee 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 2.5% on the first $30,000,000 of the Fund's daily net assets, 2% on
the next $70,000,000 of its daily net assets and 1.5% on assets in excess of
$100,000,000. Notwithstanding the most restrictive applicable expense
limitation of state securities commissions described above, during the fiscal
year ended September 30, 1993 Baird voluntarily waived all fees and reimbursed
all other expenses of the Fund through March 31, 1993 and thereafter through
September 30, 1995 made such waivers and reimbursements as were necessary so
that total operating expenses of the Fund did not exceed 0.60% of the Fund's
average net assets. Baird reimbursed the Fund $68,030, $84,915 and $55,806,
respectively (including the waiver of advisory fees), during the fiscal years
ended September 30, 1995, September 30, 1994 and September 30, 1993. Baird has
agreed to make such waivers and reimbursements as necessary so that total
operating expenses of the Fund do not exceed 1.00% of the Fund's average net
assets for the 1996 calendar year. 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 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.
Fiduciary Management, Inc. (the "Administrator") is the administrator
to the Fund. Pursuant to an administration agreement (the "Administration
Agreement") with the Company, the Administrator prepares and maintains the
books, accounts and other documents required by 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. During the fiscal
years ended September 30, 1995, September 30, 1994 and September 30, 1993, the
Fund paid the Administrator $8,359, $7,863 and $2,712, respectively, pursuant to
the Administration Agreement.
The Advisory Agreement between Baird and the Fund will remain in
effect as long as its continuance is specifically approved at least annually, by
(i) the Board of Directors of the Company, 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 Company who are not parties to the
Advisory Agreement or interested persons of Baird, cast in person at a meeting
called for the purpose of voting on such approval. The Administration Agreement
will remain in effect until terminated. The Advisory Agreement provides that it
may be terminated at any time, without the payment of any penalty, by the Board
of Directors of the Company or by vote of a majority of the shares of the Fund
on sixty days' written notice to Baird and by Baird on the same notice to the
Fund and that it shall be automatically terminated if it is assigned. The
Administration Agreement provides that it may be terminated at any time, without
payment of any penalty, by the Board of Directors of the Company on sixty days'
written notice to the Administrator and by the Administrator on the same notice
to the Company.
The Advisory Agreement and the Administration Agreement provide that
Baird and the Administrator 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 and
the Administration Agreement also provide that Baird and the Administrator 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
The Fund has entered into a Distribution Agreement (the "Distribution
Agreement") between the Fund and Baird, pursuant to which Baird acts as
underwriter of the shares of the Fund. The Distribution Agreement provides that
Baird will use its best efforts to distribute the shares of Common Stock of the
Fund on a continuous basis and will receive commissions on such sales as
described in the Prospectus under "Purchase of Shares." No sales charges are
imposed on sales to retirement plans which purchase at least $500,000 of shares
of the Fund, Baird Blue Chip Fund, Inc. or Baird Capital Development Fund, Inc.,
sales pursuant to the reinstatement privilege as described in the Prospectus,
and sales to employees and directors of the Fund, employees and directors of
Baird 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 of the shares of the Fund, (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 $19,586, $67,244
and $122,269, respectively, in front-end sales commissions on purchases of the
Fund, all of which it retained. During the same periods,
Baird received $0, $79 and $0 in deferred sales commissions, respectively,
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 shares of the Fund. (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.) Baird 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 the Fund's shares thereby reducing
the Fund's expense ratio and providing an asset size that allows Baird greater
flexibility in management. The Plan may be terminated at any time by a vote of
the directors of the Company 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 the Fund. 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 Company who are not interested persons of the Fund. The
Board of Directors of the Company 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 a majority of the Directors, including the Rule
12b-1 directors. During the fiscal year ended September 30, 1995, the Fund paid
Baird a fee of $15,518 pursuant to the Plan and the related Distribution
Assistance Agreement. During such year Baird incurred distribution expenses of
$15,517, of which $3,280 was related to the printing of the Fund's IRA materials
and prospectuses, and $12,237 was compensation to sales personnel.
During the fiscal year 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>
$19,586 $0 $0 $15,518 $33,618
</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 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 with respect to shares of 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 4.00%) plus (B) the number of shares of the Fund
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 Fund's average annual total return for the one- and three-year
periods ended September 30, 1995 were 8.08% and 3.95%, respectively.
The Fund commenced operations on October 1, 1992.
The Fund's yield is computed in accordance with a standardized method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the current yield quotation for the Fund is based on a one month or 30-
day period. The Fund's yield is computed by dividing the net investment income
per share earned during the 30-day or one month period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
YIELD = 2[(a-b/cd + 1) - 1]
Where a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The current annualized yield of the Fund for the month ended September
30, 1995 was 5.89%. Yield fluctuations may reflect changes in the Fund's net
income, and portfolio changes resulting from net purchases or net redemptions of
the Fund's shares may affect the yield. Accordingly, the Fund's yield may vary
from day to day, and the yield stated for a particular past period is not
necessarily representative of its future yield. The Fund's yield is not
guaranteed and its principal is not insured.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of the Fund 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 Capital Development Fund, Inc. or Baird Blue Chip Fund, Inc. at 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 Capital Development
Fund, Inc. or Baird Blue Chip Fund, Inc. 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 Capital
Development Fund, Inc. or Baird Blue Chip Fund, Inc. 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
applicable prospectus. The acquisition of shares of the Fund, Baird Capital
Development Fund, Inc. or Baird Blue Chip Fund, Inc. 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
Banks' 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 Fund, Baird Capital Development Fund,
Inc. or Baird Blue Chip Fund, Inc. 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 the Fund are paid directly to the shareholder or at
his discretion to any persons other than the Fund, Baird Capital Development
Fund, Inc., Baird Blue Chip Fund, Inc. or Portico Money Market Fund or, (ii) the
proceeds from redemption of the shares of Portico Money Market Fund are not
immediately reinvested in shares of the Fund, Baird Capital Development Fund,
Inc. or Baird Blue Chip Fund, Inc. through a subsequent exercise of the Exchange
Privilege. 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 Capital Development Fund, Inc.
or Baird Blue Chip Fund, Inc. at net asset value (without a sales or other
service charge) within the 24 month period referred to above.
For federal income tax purposes a redemption of shares of the Fund
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 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 Baird
subject to review by the Company's Board of Directors. In placing purchase and
sale orders for portfolio securities for the Fund, it is the policy of Baird 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 Baird'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, Baird feels that better prices are
available from non-principal market makers who are paid commissions directly.
Baird may allocate portfolio brokerage on the basis of whether the broker has
sold or is currently selling shares of the Fund and may also allocate portfolio
brokerage to itself, but, in each case, only if Baird 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. With respect to any brokerage transactions effected on
a securities exchange by Baird for the Fund, any commissions received by Baird
as a result thereof shall be fair and reasonable compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period.
In allocating brokerage business for the Fund, Baird 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 Baird believes these services have
substantial value, they are considered supplemental to Baird's own efforts in
the performance of its duties under the Advisory Agreements. Other clients of
Baird may indirectly benefit from the availability of these services to Baird,
and the Fund may indirectly benefit from services available to Baird as a result
of transactions for other clients. The Advisory Agreement provides that Baird
may cause the Fund to pay a broker which provides brokerage and research
services to Baird a commission for effecting a securities transaction in excess
of the amount another broker would have charged for effecting the transaction,
if Baird 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 Baird's
overall responsibilities with respect to the Fund and the other accounts as to
which it exercises investment discretion. Baird will not receive higher
commissions because of research services provided.
The Fund paid brokerage commissions of $973 during the fiscal year
ended September 30, 1995 on transactions involving securities having a total
market value of $29,290,409. During such year, the Fund did not pay Baird any
brokerage commissions. The Fund did not pay any brokerage commissions during
the fiscal years ended September 30, 1994 and
September 30, 1993.
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
Company. 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.
Certain options, futures contracts and options on futures contracts
are "section 1256 contracts". Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also section 1256 contracts held by the Fund at the end of each
taxable year are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles"
for U.S. Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Further, the Fund may be required to capitalize, rather than deduct currently,
any interest expense on indebtedness incurred or continued to purchase or cary
any positions that are part of a straddle. The Fund may make one or more of the
elections available under the Code which are applicable to straddles. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected straddle positions will be
determined under rules that vary according to the election(s) made. The rules
applicable under certain of the elections accelerate the recognition of gains or
losses from the affected straddle positions. Because application of the
straddle rules may affect the character and timing of gains, losses or
deductions from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The 30% limitation and the diversification requirements applicable to
the Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, future contracts and options on future contracts.
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
are not expected to qualify for the 70% deduction for dividends received by
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 Company, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the Act. The Company 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 Company'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 Company 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 Company'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 Company; 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 Fund's commencement of operation in
October, 1992. 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 in accounting 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 with respect to the Fund.
(2) Statement of Net Assets as of September 30, 1995 for the Fund.
(3) Statement of Operations for the year ended September 30, 1995 for the
Fund.
(4) Statements of Changes in Net Assets for the years ended September 30,
1995 and 1994 for the Fund.
(5) Financial Data Schedule.
(6) Notes to Financial Statements of the Fund.
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 Quality Bond Fund
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 Quality Bond Fund (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 two years in the period then ended and for the year from October 1, 1992
(commencement of operations) to September 30, 1993, 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
November 2, 1995
BAIRD QUALITY BOND FUND
STATEMENT OF NET ASSETS
September 30, 1995
Principal Amortized Quoted
Amount Cost Market Value
- --------- --------- ------------
LONG-TERM INVESTMENTS 92.0% (A)<F4>
CORPORATE BONDS - 39.1 %
$300,000 Bankers Trust NY Corp., 8.25%, due 05/01/05 $313,143 $323,813
200,000 Wal-Mart Stores, 8.875%, due 06/29/11 209,463 210,375
250,000 Southwestern Bell Telephone,
7.375%, due 05/01/12 256,255 247,500
300,000 Paine Webber Group Inc., 7.625%, due 02/15/14 287,054 288,000
400,000 Lehman Brothers Holdings, 8.50%, due 08/01/15 417,277 422,000
400,000 Becton, Dickinson & Co., 9.25%, due 06/01/16 420,174 420,996
300,000 Kraft Inc., 8.50%, due 02/15/17 310,376 311,078
400,000 Torchmark Corp., 8.625%, due 03/01/17 380,679 413,000
357,000 Southern California Edison Co.,
8.875%, due 05/01/23 375,045 374,927
--------- ---------
Total corporate bonds 2,969,466 3,011,689
FEDERAL AGENCIES - 40.5 %
100,000 Federal Home Loan Mortgage Corp.,
8.193%, due 12/16/97 99,734 100,406
300,000 Federal Home Loan Bank,
6.95%, due 05/24/99 300,000 300,797
300,000 SALLIEMAE, 7.00%, due 06/26/00 300,000 300,000
500,000 Federal Home Loan Mortgage Corp.,
7.90%, due 04/27/05 507,652 513,203
500,000 Federal National Mortgage Association,
7.61%, due 06/06/05 500,000 499,375
900,000 Federal Home Loan Mortgage Corp.,
7.13%, due 09/15/05 900,000 900,510
500,000 Federal Home Loan Bank,
7.40%, due 09/22/05 500,000 500,313
--------- ---------
Total federal agencies 3,107,386 3,114,604
MORTGAGE BACKED SECURITIES - 9.4 %
389,156 Drexel Burnham Lambert CMO Trust, Series J Class 2,
8.00%, due 07/01/17 388,201 389,157
250,000 Federal Home Loan Mortgage Corp. 1101M,
6.95%, due 07/15/21 249,782 239,375
100,000 Federal Home Loan Mortgage Corp. 1508G,
6.75%, due 12/15/21 100,790 97,078
--------- --------
Total mortgage backed securities 738,773 725,610
U.S. TREASURY SECURITIES - 3.0%
600,000 U.S. Principal Strips, 0%, due 11/15/09 230,040 234,040
--------- ---------
Total treasury securities 230,040 234,040
--------- ---------
Total long-term investments 7,045,665 7,085,943
SHORT-TERM INVESTMENTS 7.7% (A)<F4>
VARIABLE RATE DEMAND NOTES
$30,000 General Mills, Inc. 30,000 30,000
25,000 Pitney Bowes Credit Corp. 25,000 25,000
380,000 Sara Lee Corp. 380,000 380,000
79,700 Warner-Lambert Company 79,700 79,700
80,000 Wisconsin Electric Power Company 80,000 80,000
Total short-term investments 594,700 594,700
--------- ---------
Total investments $7,640,365 7,680,643
---------
---------
Cash and receivables,
less liabilities - 0.3% (A)<F4> 20,372
---------
NET ASSETS $7,701,015
---------
---------
Net Asset Value Per Share
($0.01 par value, 300,000,000
shares authorized), redemption price
($7,701,015 / 814,278 shares outstanding) $ 9.46
---------
---------
Maximum Offering Price Per Share
(net asset value plus 4.16% of the
net asset value or 4.00% of the
offering price calculated as
$9.46 x 100 / 96.00) $ 9.85
---------
---------
(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:
Interest $638,344
-------
Total income 638,344
-------
EXPENSES:
Management fees 42,023
Professional fees 18,612
Distributor fees 15,518
Amortization of organizational expenses 9,451
Registration fees 8,905
Administrative services 8,359
Custodian fees 6,592
Printing and postage expense 3,264
Transfer agent fees 2,765
Other expenses 2,968
-------
Total expenses before reimbursement 118,457
Less expenses assumed by adviser (68,030)
-------
Net expenses 50,427
-------
NET INVESTMENT INCOME 587,917
--------
NET REALIZED LOSS ON INVESTMENTS (304,002)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 745,322
--------
NET GAIN ON INVESTMENTS 441,320
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,029,237
---------
---------
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 $587,917 $541,382
Net realized loss on investments (304,002) (173,396)
Net increase (decrease) in unrealized
appreciation on investments 745,322 (829,284)
--------- --------
Net increase (decrease) in net assets
resulting from operations 1,029,237 (461,298)
--------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.64 and $0.67 per share, respectively) (587,917) (541,378)
Distribution from net realized gains
($0.11 per share) - (73,944)
-------- --------
Total distributions (587,917) (615,322)
-------- --------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(191,884 and 370,441 shares, respectively) 1,728,536 3,667,913
Net asset value of shares issued in distributions
(7,938 and 8,204 shares, respectively) 72,434 79,813
Cost of shares redeemed (270,508 and
99,176 shares, respectively) (2,502,561) (949,644)
---------- --------
Net (decrease) increase in net assets
derived from Fund share activities (701,591) 2,798,082
-------- ---------
TOTAL (DECREASE) INCREASE (260,271) 1,721,462
NET ASSETS AT THE BEGINNING OF THE YEAR 7,961,286 6,239,824
--------- ---------
NET ASSETS AT THE END OF THE YEAR $7,701,015 $7,961,286
--------- ---------
--------- ---------
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
FINANCIAL HIGHLIGHTS
(Selected Data for each share of each Fund outstanding throughout each period)
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>
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 Quality Bond Fund (the ''Fund''),
which is one portfolio in a series of two portfolios comprising The Baird Funds,
Inc. (the ''Company''), which is registered under the Investment Company Act of
1940. The assets and liabilities of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which the shareholder owns
shares. The Company was incorporated under the laws of Wisconsin on June 26,
1992 and commenced operations on October 1, 1992.
(a) Debt securities are 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 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 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.
(b) Premiums and discounts on securities are amortized to maturity. Investment
transactions are recorded no later than the first business day after the
trade date. Cost amounts, as reported in the statement of net assets, are the
same for Federal income tax purposes.
(c) Net realized gains and losses are computed on the basis of the cost of
specific certificates.
(d) 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. The Fund has $214,202 of net capital losses which
expire September 30, 2003, and $283,586 of 1995 post-October losses, that may
be used to offset capital gains in future years to the extent provided by tax
regulations.
(e) Dividend income (if any) is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
(f) The Fund has 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.
(g) 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 Robert W. Baird & Co.
Incorporated (''RWB''), with whom certain officers and directors of the Fund are
affiliated, to serve as investment adviser and manager. Under the terms of the
agreement, the Fund will pay RWB a monthly management fee at the annual rate of
0.50% of the daily net assets of the Fund. For the year ended September 30,
1995, RWB voluntarily waived approximately $8,405 of the management fees due
from the Fund under the agreement.
RWB reimburses the Fund for annual expenses in excess of the lowest expense
limitation imposed by the states. In addition to the reimbursement required
under the management agreement, RWB has voluntarily reimbursed the Fund for all
expenses over 0.6% for the year ended September 30, 1995 totaling $56,714. These
voluntary reimbursements to the Fund may be modified or discontinued at any time
by RWB.
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. For the year ended September 30, 1995,
RWB waived distribution fees in excess of .15%, totaling $2,911.
During the year ended September 30, 1995, the Company was advised that RWB
received $19,586 from investors of the Fund, representing commissions on sales
of Fund shares and the Fund did not pay any brokerage fees to RWB on the
execution of purchases and sales of portfolio securities.
(3) DISTRIBUTION TO SHAREHOLDERS - Dividends from net investment income for the
Fund are declared daily and paid monthly. Distributions of net realized gains,
if any, for the Fund, will be declared at least once a year.
(4) DEFERRED EXPENSES - Organizational expenses were deferred and are being
amortized on a straight-line basis over a period of not more than five years.
These expenses were advanced by RWB who will be reimbursed by the Fund over a
period of not more than five years. The proceeds of any redemption of the
initial shares by the original shareholder will be reduced by a pro-rata portion
of any then unamortized deferred expenses in the same proportion as the number
of initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption. The unamortized organizational
expenses for the Fund at September 30, 1995 were $18,902.
(5) INVESTMENT TRANSACTIONS - For the year ended September 30, 1995, purchases
and proceeds of sales of investment securities of the Fund (excluding short-term
securities) were $14,652,497 and $14,637,912, respectively, and $938,936 and
$943,558, respectively for short-term U.S. Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
Redemptions payable $57,099
Dividends payable 44,083
Payable to adviser for management and
distributor fees and deferred expenses 22,351
Other liabilities 1,170
(7) SOURCES OF NET ASSETS - As of September 30, 1995, the sources of net assets
were as follows:
Fund shares issued and outstanding $8,158,525
Net unrealized appreciation on investments 40,278
Accumulated net realized loss on investments (497,788)
---------
$7,701,015
---------
---------
Aggregate net unrealized appreciation as of September 30, 1995 consisted of
the following:
Aggregate gross unrealized appreciation $63,894
Aggregate gross unrealized depreciation (23,616)
-------
Net unrealized appreciation $40,278
-------
-------
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment Objective
and Policies" the Fund may invest in securities having specified quality
ratings, or unrated securities that are of a comparable quality. A brief
description of the ratings symbols and their meanings as set forth in the
Prospectus.
Standard & Poor's Corporation Bond Ratings. 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.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Moody's Investors Service, Inc. Bond Ratings.
--------------------------------------------
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.
Baa - Bonds which are rated Baa are considered to be 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.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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 of each series of Registrant(all included in
or incorporated by reference into 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) Articles of Incorporation (Incorporated by reference to
Exhibit 1 of Registrant's Registration Statement on Form N-1A
pursuant to Rule 411 under the Securities Act of 1933)
(2) Bylaws (Incorporated by reference to Exhibit 2 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(3) None
(4.1)Specimen Stock Certificate of Baird Adjustable Rate Income
Fund (Incorporated by reference to Exhibit 4.1 of Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form N-
1A pursuant to Rule 411 under the Securities Act of 1933)
(4.2)Specimen Stock Certificate of Baird Quality Bond Fund
(Incorporated by reference to Exhibit 4.2 of Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form N-
1A pursuant to Rule 411 under the Securities Act of 1933)
(5.1)Investment Advisory Agreement of Baird Adjustable Rate
Income Fund (Incorporated by reference to Exhibit 5.1 of
Registrant's Registration Statement on Form N-1A pursuant to Rule
411 under the Securities Act of 1933)
(5.2)Investment Advisory Agreement of Baird Quality Bond Fund
(Incorporated by reference to Exhibit 5.2 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(6.1)Distribution Agreement for Baird Adjustable Rate Income Fund
(Incorporated by reference to Exhibit 6.1 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(6.2)Distribution Agreement for Baird Quality Bond Fund
(Incorporated by reference to Exhibit 6.2 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(7) None
(8) Custodian Agreement with Firstar Trust Company (Incorporated
by reference to Exhibit 8 of Registrant's Registration Statement
on Form N-1A pursuant to Rule 411 under the Securities Act of
1933)
(9.1)Administration Agreement (Incorporated by reference to
Exhibit 9.1 of Registrant's Registration Statement on Form N-1A
pursuant to Rule 411 under the Securities Act of 1933)
(9.2)Transfer Agent Agreement with Firstar Trust Company
(Incorporated by reference to Exhibit 9.2 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(9.3)Agreement effective January 13, 1995 among Registrant, on
behalf of Baird Adjustable Rate Income Fund, Robert W. Baird &
Co. Incorporated and the prior and existing shareholders party
thereto
(9.4)Agreement and Plan of Reorganization dated December 20, 1995
between Registrant, on behalf of Baird Quality Bond Fund, and AIM
Funds Group, on behalf of AIM Income Fund
(10) Opinion of Foley & Lardner, counsel for Registrant
(Incorporated by reference to Exhibit 10 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(11) Consent of Independent Accountants
(12) None
(13.1)Subscription Agreement for Baird Quality Bond Fund
(Incorporated by reference to Exhibit 13.1 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(13.2)Subscription Agreement for Baird Adjustable Rate Income
Fund (Incorporated by reference to Exhibit 13.2 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(14.1)Individual Retirement Account (Incorporated by reference to
Exhibit 14.1 of Registrant's Registration Statement on Form N-1A
pursuant to Rule 411 under the Securities Act of 1933)
(14.2)Defined Contribution Retirement Plan (Incorporated by
reference to Exhibit 14.2 of Registrant's Registration Statement
on Form N-1A pursuant to Rule 411 under the Securities Act of
1933)
(14.3)Section 403(b)(7) Retirement Plan (Incorporated by
reference to Exhibit 14.3 of Registrant's Registration Statement
on Form N-1A pursuant to Rule 411 under the Securities Act of
1933)
(15.1)Distribution Plan for Baird Adjustable Rate Income Fund
(Incorporated by reference to Exhibit 15.1 of Registrant's
Registration Statement on Form N-1A pursuant to Rule 411 under
the Securities Act of 1933)
(15.2)Distribution Plan for Baird Quality Bond Fund (Incorporated
by reference to Exhibit 15.2 of Registrant's Registration
Statement on Form N-1A pursuant to Rule 411 under the Securities
Act of 1933)
(15.3)Distribution Assistance Agreement for Baird Adjustable Rate
Income Fund (Incorporated by reference to Exhibit 15.3 of
Registrant's Registration Statement on Form N-1A pursuant to Rule
411 under the Securities Act of 1933)
(15.4)Distribution Assistance Agreement For Baird Quality Bond
Fund (Incorporated by reference to Exhibit 15.4 of Registrant's
Registration Statement on Form N-1A 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 person.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Series as of December 31, 1995
------ -----------------------
Quality Bond Fund Common Stock 84
Adjustable Rate Income Fund Common Stock 44
Item 27. Indemnification
---------------
The Wisconsin Business Corporation Law and Article VII of Registrant's
Bylaws provide for the indemnification of Registrant's directors and officers in
a variety of circumstances, which may include liabilities under the Securities
Act of 1933.
The Bylaws provide that any director, officer, agent or employee of
Registrant and any person similarly serving another enterprise at the request of
Registrant is entitled to indemnification against expenses, judgments, fines and
amounts paid in settlement reasonably incurred in any threatened, pending or
completed proceeding if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Registrant,
and with respect to any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful; provided that Registrant may not indemnify any
such person in relation to matters to which such person shall be adjudged in
such action, suit or proceeding to be liable for gross negligence, willful
misfeasance, bad faith or reckless disregard of the duties and obligations
involved in the conduct of his office. Unless ordered by a court, the
determination that indemnification of an individual is proper is to be made by
(i) 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 Registrant as defined in Section 2(a)(19) of the Investment Company
Act of 1940; or (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.
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 Registrant in advance of the final disposition of such
action, suit or proceeding in accordance with the requirements of the Wisconsin
Business Corporation Law and the Securities and Exchange Commission. The
current requirements are: (i) the indemnitee must undertake to repay such
amount unless it shall ultimately be determined that the indemnitee is entitled
to indemnification; and (ii) any of the following is made a condition of the
advance: (A) the indemnitee shall provide a security for his undertaking; (B)
Registrant shall be insured against losses arising by reason of any lawful
advances; or (C) a majority of a quorum of the disinterested non-party directors
of Registrant, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the indemnitee will be
found entitled to indemnification.
Notwithstanding the foregoing, Section 180.0851 of the Wisconsin
Business Corporation Law provides for mandatory indemnification (a) if a
director, officer, employee or agent was successful on the merits or otherwise
in the defense of a proceeding, and (b) if the director, officer, employee or
agent 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 director, officer,
employee or agent has a material conflict of interest; (2) a violation of
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his or her conduct was unlawful; (3) a transaction from which
the director, officer, employee or agent derived an improper personal benefit;
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 of
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 and Ms. Gough
and Ms. Taylor is incorporated by reference to pages 14-16 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 investment adviser, is the principal underwriter for Baird
Capital Development Fund, Inc. and Baird Blue Chip Fund, Inc. and is the sub-
adviser to Baird Capital Development Fund, Inc and adviser to Baird Blue Chip
Fund, Inc.
(b) Incorporated by reference to Item 28 and pages 14-16 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 Registrant's Secretary, Glen F.
Hackmann, at Registrant's corporate offices, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202 or Fiduciary Management, Inc. at its offices at 225
East Mason Street, 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.
THE BAIRD FUNDS, 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 dates indicated.
Name Title Date
---- ----- ----
/s/ Marcus C. Low, Jr.
- ----------------------
Marcus C. Low, Jr. Principal Executive, January 9, 1996
Financial and
Accounting Officer
/s/ James D. Bell
- ---------------------
James D. Bell Director January 9, 1996
/s/ Albert J. DiUlio
- ---------------------
Albert J. DiUlio Director January 9, 1996
/s/ George C. Kaiser
- ---------------------
George C. Kaiser Director January 9, 1996
/s/ Allan H. Selig
- ---------------------
Allan H. Selig Director January 9, 1996
/s/ Edward J. Zore
- ---------------------
Edward J. Zore Director January 9, 1996
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
----------- ------- --------
(1) Registrant's Articles of Incorporation *<F3>
(2) Registrant's By-Laws *<F3>
(3) None
(4.1) Specimen Stock Certificate of Baird *<F3>
Adjustable Rate Income Fund
(4.2) Specimen Stock Certificate of Baird Quality *<F3>
Bond Fund
(5.1) Investment Advisory Agreement of Baird *<F3>
Adjustable Rate Income Fund
(5.2) Investment Advisory Agreement of Baird *<F3>
Quality Bond Fund
(6.1) Distribution Agreement for Baird Adjustable *<F3>
Rate Income Fund
(6.2) Distribution Agreement for Baird Quality *<F3>
Bond Fund
(7) None
(8) Custodian Agreement with Firstar Trust *<F3>
Company
(9.1) Administration Agreement *<F3>
(9.2) Transfer Agent Agreement with Firstar Trust *<F3>
Company
(9.3) Agreement effective January 13, 1995 among *<F3>
Registrant, on behalf of Baird Adjustable
Rate Income Fund, Robert W. Baird & Co.
Incorporated and the prior and existing
shareholders party thereto
(9.4) Agreement and Plan of Reorganization between
Registrant, on behalf of Baird Quality Bond
Fund, and AIM Funds Group, on behalf of AIM
Income Fund
(10) Opinion of Foley & Lardner *<F3>
(11) Consent of Price Waterhouse LLP
(12) None
(13.1) Subscription Agreement for Baird Quality *<F3>
Bond Fund
(13.2) Subscription Agreement for Baird Adjustable *<F3>
Rate Income Fund
(14.1) Individual Retirement Account *<F3>
(14.2) Defined Contribution Retirement Plan *<F3>
(14.3) Section 403(b)(7) Retirement Plan *<F3>
(15.1) Distribution Plan for Baird Adjustable Rate *<F3>
Income Fund
(15.2) Distribution Plan for Baird Quality Bond *<F3>
Fund
(15.3) Distribution Assistance Agreement for Baird *<F3>
Adjustable Rate Income Fund
(15.4) Distribution Assistance Agreement for Baird *<F3>
Quality Bond Fund
(16) Schedule for Computation of Performance
Quotations
(27) Financial Data Schedule
*<F3> Incorporated by reference.
AGREEMENT
and
PLAN OF REORGANIZATION
for
BAIRD QUALITY BOND FUND
a Portfolio of
THE BAIRD FUNDS, INC.
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ........................................ 2
Section 1.1.Definitions.................................. 2
ARTICLE IITRANSFER OF ASSETS ................................. 5
Section 2.1.Reorganization of Baird Quality Bond......... 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..................................... 6
Section 2.6.Dissolution.................................. 7
Section 2.7.Issuance of AFG Shares....................... 7
Section 2.8.Investment Securities........................ 8
Section 2.9 Liabilities and Expenses..................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TBFI .......... 8
Section 3.1.Incorporation: Qualification and
Corporate Authority .......................... 9
Section 3.2.Registration and Regulation of TBFI.......... 9
Section 3.3.Financial Statements......................... 9
Section 3.4.No Material Adverse Changes;
Contingent Liabilities ...................... 9
Section 3.5.BQB Shares; Liabilities; Business Operations. 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.................................. 13
Section 3.16.Taxes....................................... 14
Section 3.17.Benefit and Employment Obligations.......... 15
Section 3.18.Brokers..................................... 15
Section 3.19.Voting Requirements......................... 15
Section 3.20.State Takeover Statutes..................... 15
Section 3.21.Books and Records........................... 15
Section 3.22.Prospectus.................................. 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AFG ............ 16
Section 4.1.Organization; Authority...................... 16
Section 4.2.Binding Obligation........................... 16
Section 4.3.Financial Statements......................... 16
Section 4.4.No Material Adverse Changes;
Contingent Liabilities ...................... 16
Section 4.5.No Breaches or Defaults ..................... 17
Section 4.6.Accountants.................................. 17
Section 4.7.Authorizations or Consents................... 17
Section 4.8.Permits...................................... 17
Section 4.9.No Actions, Suits or Proceedings............. 18
Section 4.10.Ineligible Persons.......................... 18
Section 4.11.Taxes....................................... 18
Section 4.12.Brokers..................................... 19
Section 4.13.Registration and Regulation of Company...... 19
Section 4.14.Registration of Portfolio Shares............ 20
Section 4.15.Representations Concerning
the Reorganization ......................... 21
Section 4.16.Prospectus.................................. 21
ARTICLE V COVENANTS .......................................... 21
Section 5.1.Conduct of Business.......................... 21
Section 5.2.Confidentiality and Announcements............ 23
Section 5.3.Expenses..................................... 25
Section 5.4.Further Assurances........................... 25
Section 5.5.Notice of Events............................. 25
Section 5.6.Access to Information........................ 25
Section 5.7.Consents, Approvals and Filings.............. 26
Section 5.8.Submission of Agreement to Shareholders...... 26
Section 5.9.Acquisition Proposals........................ 26
Section 5.10.Fiduciary Duties............................ 27
Section 5.11.Section 15(f) of the 1940 Act............... 28
Section 5.12.Sales Charges............................... 28
ARTICLE VI CONDITIONS PRECEDENT TO THE REORGANIZATION ....... 28
Section 6.1.Conditions Precedent of AFG.................. 28
Section 6.2.Mutual Conditions............................ 29
Section 6.3.Conditions Precedent of TBFI................. 32
ARTICLE VII TERMINATION OF AGREEMENT......................... 32
Section 7.1.Termination.................................. 32
Section 7.2.Survival After Termination................... 33
ARTICLE VIII MISCELLANEOUS ................................ 34
Section 8.1.Nonsurvival of Representations and Warranties 34
Section 8.2.Law Governing................................ 34
Section 8.3.Binding Effect, Persons Benefiting,
No Assignment ............................... 34
Section 8.4.Obligations of AFG and TBFI.................. 34
Section 8.5.Amendments................................... 35
Section 8.6.Enforcement.................................. 35
Section 8.7.Interpretation............................... 35
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 Quality Bond
Schedule 6.2(f) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AFG
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 20, 1995
(this "Agreement"), by and between The Baird Funds, Inc., a Wisconsin
corporation ("TBFI"), acting on behalf of Baird Quality Bond Fund ("Baird
Quality Bond"), and AIM Funds Group, a Delaware business trust ("AFG"), acting
on behalf of AIM Income Fund (the "Portfolio").
WITNESSETH
WHEREAS, TBFI is an investment company registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
(as defined below) that offers separate classes of its shares representing
interests in two investment portfolios, including Baird Quality Bond, for sale
to the public; and
WHEREAS, AFG 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, including the
Portfolio, for sale to the public; and
WHEREAS, Baird Quality Bond owns securities in which the Portfolio
is permitted to invest; and
WHEREAS, Baird Quality Bond 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 contained in this Agreement, AFG and TBFI 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 Quality Bond, or any
purchase of all or any significant portion of the assets of Baird Quality Bond,
or any equity interest in Baird Quality Bond.
"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and all rules and regulations of the SEC adopted pursuant thereto.
"AFG Registration Statement" means the registration statement on Form
N-1A of AFG, as amended, Registration No. 2-27334, that is applicable to the
Portfolio.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"AFG" means AIM Funds Group, a Delaware business trust.
"Agreement" means this Agreement and Plan of Reorganization, together
with all schedules and exhibits attached hereto and all amendments hereto and
thereof.
"Baird Quality Bond" means Baird Quality Bond Fund, a portfolio of
TBFI.
"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 TBFI on behalf of
Baird Quality Bond, or otherwise providing benefits to any current or former
employee, officer or director of TBFI.
"BQB Financial Statements" shall have the meaning set forth in Section
-------
3.3 of this Agreement.
- ---
"BQB Shareholders" means the holders of record as of the Closing Date
of the issued and outstanding shares of the capital stock of Baird Quality Bond.
"BQB Shareholders Meeting" means a meeting of the shareholders of
Baird Quality Bond convened in accordance with applicable law and the articles
of incorporation of TBFI to consider and vote upon the approval of this
Agreement and the transactions contemplated by this Agreement.
"BQB Shares" means the issued and outstanding shares of the capital
stock of Baird Quality Bond.
"Closing" means the transfer of the assets of Baird Quality Bond
against the delivery of Portfolio Shares directly to the shareholders of Baird
Quality Bond 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 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 Income Fund, an investment portfolio of AFG.
"Portfolio Financial Statements" shall have the meaning set forth in
Section 4.3 of this Agreement.
- -----------
"Portfolio Shares" means Class A Shares of the Portfolio issued by
AFG, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the assets of
Baird Quality Bond by the Portfolio in consideration of the issuance of
Portfolio Shares directly to BQB Shareholders as described in this Agreement.
"Required BQB 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.
"TBFI" means The Baird Funds, Inc., a Wisconsin corporation.
"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 Quality Bond. At the
------------------------------------
Effective Time, all of the assets of Baird Quality Bond, except the Excluded
Assets, shall be delivered to the Custodian for the account of the Portfolio, in
exchange for, and against delivery by AFG directly to the BQB 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 Quality Bond 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 Quality Bond 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 AFG Registration Statement.
(c) The net value of the assets of Baird Quality Bond subject to
this Agreement shall be computed by AFG and shall be subject to adjustment by
the amount, if any, agreed to by TBFI and AFG. In determining the value of the
securities transferred by Baird Quality Bond to the Portfolio, each security
shall be priced in accordance with the policies and procedures of the Portfolio
as described in the AFG Registration Statement. For such purposes, market
quotes and the security characteristics relating to establishing such quotes
shall be determined by AFG, with the approval of TBFI. Securities for which
market quotes are not available shall be valued as mutually agreed by AFG and
TBFI, provided that such value is consistent with the pricing procedures adopted
by AFG. All computations shall be made by AFG in cooperation with the auditors
of AFG and the auditors of TBFI, who will apply certain procedures agreed to by
AFG and TBFI to test such computations.
Section 2.3. Excluded Assets. There shall be deducted from the
---------------
assets of Baird Quality Bond 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 TBFI to be sufficient to pay all the liabilities
of Baird Quality Bond, including, without limitation, (i) amounts owed or to be
owed to any BQB 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 Quality Bond in making
and carrying out the transactions contemplated by this Agreement.
Section 2.4. Valuation Date. The assets of Baird Quality Bond
--------------
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 Quality Bond
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Baird Quality Bond received in
proper form prior to the close of trading on the NYSE on the Valuation Date
shall be accepted by Baird Quality Bond. Redemption requests thereafter
received by Baird Quality Bond 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 BQB Shareholders under this
Agreement.
Section 2.5. Delivery.
--------
(a) Assets held by Baird Quality Bond shall be delivered by TBFI
to the Custodian on the Closing Date. No later than three (3) business days
preceding the Closing Date, TBFI shall instruct Baird Quality Bond's custodian
to make such delivery to the Custodian. TBFI shall further instruct Baird
Quality Bond's custodian that any trade made by Baird Quality Bond 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 Quality Bond (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, TBFI is unable to make delivery in
the manner contemplated by Section 2.5(a) of securities held by Baird Quality
--------------
Bond for the reason that any of such securities purchased prior to the Closing
Date have not yet been delivered to Baird Quality Bond, its broker or brokers,
then, AFG shall waive the delivery requirements of Section 2.5(a) with respect
--------------
to said undelivered securities, if Baird Quality Bond 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 AFG or the Custodian, including brokers'
confirmation slips.
Section 2.6. Dissolution. As soon as reasonably practicable
-----------
after the Closing Date, Baird Quality Bond shall pay or make provisions for all
of its debts, liabilities and taxes and distribute all remaining assets to the
BQB Shareholders, and Baird Quality Bond's status as a designated series of
shares of TBFI shall be terminated, provided that, in the event that the
transactions contemplated herein are not approved by the BQB Shareholders, TBFI
shall not be obligated to so terminate Baird Quality Bond's designation as a
series of shares.
Section 2.7. Issuance of AFG Shares. At the Closing Date, TBFI
----------------------
shall instruct AFG that the pro rata interest of each of BQB Shareholders of
record as of the close of business on the Valuation Date, as certified by Baird
Quality Bond's transfer agent, in the Portfolio Shares be registered on the
books of AFG in full and fractional shares in the name of each BQB Shareholder,
and AFG agrees promptly to comply with said instruction. All issued and
outstanding shares of Baird Quality Bond's capital stock shall thereupon be
canceled on the books of TBFI. AFG 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. AFG shall
record on its books the ownership of the Portfolio Shares by BQB Shareholders
and shall forward a confirmation of such ownership to the BQB Shareholders. No
redemption or repurchase of such shares credited to former BQB Shareholders in
respect of Baird Quality Bond shares represented by unsurrendered stock
certificates shall be permitted until such certificates have been surrendered to
AFG for cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to AFG.
Section 2.8. Investment Securities.
---------------------
(a) It is expressly understood that TBFI may hereafter sell any
securities owned by Baird Quality Bond in the ordinary course of its business as
a diversified, open-end, management investment company. Upon written request by
AFG, TBFI shall (i) prior to the Closing Date, dispose of equity securities held
by Baird Quality Bond to assure that AFG 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 AFG 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, TBFI shall deliver a list
setting forth the securities Baird Quality Bond then owns together with the
respective Federal income tax bases thereof. TBFI shall provide to AFG 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 TBFI prior to the Valuation
Date for inspection by the Treasurer (or his designee) or the auditors of AFG
upon reasonable request.
Section 2.9 Liabilities and Expenses. The Portfolio shall not
------------------------
assume any liability of Baird Quality Bond and Baird Quality Bond shall use its
reasonable best efforts to discharge all known liabilities, so far as may be
possible, prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TBFI
TBFI, on behalf of Baird Quality Bond, represents and warrants to AFG
that:
Section 3.1. Incorporation: Qualification and Corporate Authority.
----------------------------------------------------
TBFI 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 TBFI. TBFI is duly
-----------------------------------
registered with the SEC as an investment company under the Investment Company
Act and all BQB 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 TBFI to revoke or
rescind any such registration or qualification. Baird Quality Bond 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 Quality Bond 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 Quality Bond 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 Quality Bond and all purchases and redemptions of BQB 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 Quality Bond 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 Quality Bond previously delivered to AFG (the
"BQB Financial Statements") present fairly in all material respects the
financial position of Baird Quality Bond 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 Quality Bond or the status of Baird Quality Bond 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 Quality Bond or occurring in the ordinary course of
business of Baird Quality Bond or TBFI. There are no contingent liabilities of
Baird Quality Bond not disclosed in the BQB Financial Statements which are
required to be disclosed in accordance with generally accepted accounting
principles.
Section 3.5. BQB Shares; Liabilities; Business Operations.
--------------------------------------------
(a) The BQB 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
Quality Bond who own five percent (5%) or more of the BQB Shares, and to the
knowledge of TBFI's management, the remaining BQB 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 BQB 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 BQB
Shares as of the same date. For purposes of this representation, BQB Shares
exchanged for cash or other property or exchanged for cash in lieu of fractional
shares of the Portfolio will be treated as outstanding BQB Shares on the date of
the Reorganization. Moreover, BQB Shares and Portfolio Shares held by BQB
Shareholders and otherwise sold, redeemed or disposed of prior or subsequent to
the Reorganization will be considered in making this representation, except for
BQB Shares or Portfolio Shares which have been, or will be, redeemed by Baird
Quality Bond 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 Quality Bond shall not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any Person could acquire BQB Shares, except for the
right of investors to acquire BQB 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) From the date it commenced operations on October 1, 1992 and
ending on the Closing Date, Baird Quality Bond 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 Quality Bond 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) TBFI 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 BQB 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 TBFI on behalf of Baird Quality Bond and,
assuming this Agreement has been duly executed and delivered by AFG and approved
by the BQB Shareholders, constitutes the legal, valid and binding obligation of
TBFI, enforceable against TBFI in accordance with its terms from and with
respect to the revenues and assets of Baird Quality Bond, 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 TBFI on behalf of Baird Quality Bond and performance of its
obligations hereunder has been duly authorized by all necessary corporate action
on the part of TBFI, other than BQB 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 TBFI 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 Quality
Bond (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 TBFI is a party or by which it may be bound and
which relates to the assets of Baird Quality Bond or to which any of Baird
Quality Bond's 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 TBFI or any of Baird Quality Bond's
properties. TBFI 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 TBFI in connection with the due execution and delivery by TBFI of this
Agreement and the consummation by TBFI of the transactions contemplated hereby.
Section 3.10. Permits. TBFI 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 as it relates to Baird Quality Bond, 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 TBFI 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 TBFI, has any litigation been overtly threatened in writing or
orally, against TBFI 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 TBFI, threatened in
writing or, if probable of assertion, orally against TBFI affecting any
property, asset, interest, or right of Baird Quality Bond, that could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Baird Quality Bond. 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 TBFI's conduct of the business of Baird Quality Bond
affecting in any significant respect the conduct of such business. TBFI is not,
and has not been, to the knowledge of TBFI, the target of any investigation by
the SEC or any state securities administrator with respect to its conduct of the
business of Baird Quality Bond.
Section 3.12. Contracts.
---------
(a) Except for the contracts and agreements listed on Schedule
--------
3.12(a), TBFI is not a party to any material contract, debt arrangement, futures
- -------
contract, plan, lease, franchise or permit of any kind or nature whatsoever
which involves or affects the business of Baird Quality Bond.
(b) TBFI is not in default under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party
and which involves or affects the assets of Baird Quality Bond, by which the
assets, business, or operations of Baird Quality Bond may be bound or affected,
or under which it or the assets, business or operations of Baird Quality Bond
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
TBFI, 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 Quality Bond has good and
---------------------
marketable title to all properties and assets reflected in the BQB Financial
Statements as owned by it, free and clear of all Liens, except as described in
the BQB Financial Statements.
Section 3.14. Ineligible Persons. Except as previously disclosed to
------------------
AFG, neither TBFI nor any "Affiliated Person" of TBFI 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 TBFI 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
Advisors 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 TBFI'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. TBFI has duly adopted procedures pursuant
----------
to Rule 17e-1 under the Investment Company Act, to the extent applicable, and
TBFI 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 to Baird Quality Bond.
Section 3.16. Taxes.
-----
(a) Baird Quality Bond has elected to be treated as a regulated
investment company under Subchapter M of the Code. Baird Quality Bond 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 Quality Bond as a "regulated investment company" for tax
purposes and (ii) eliminate any tax liability of Baird Quality Bond arising by
reason of undistributed investment company taxable income or net taxable gain,
TBFI will declare to the BQB Shareholders of record on or prior to the Valuation
Date, a dividend or dividends that, together with all previous such dividends
shall have the effect of distributing (A) all of Baird Quality Bond's 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 Baird Quality Bond's 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 Quality Bond 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 Quality Bond 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 Quality Bond, 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 Quality Bond 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 Quality Bond's fiscal year has not been changed for tax
purposes since October 1, 1992, the date on which it commenced operations.
Section 3.17. Benefit and Employment Obligations. Baird Quality Bond
----------------------------------
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 TBFI or Baird Quality Bond 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 TBFI 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 BQB Shares
(the "Required BQB Shareholder Vote") are the only votes of the holders of any
class or series of Baird Quality Bond's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement. The BQB
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 TBFI
-----------------
relating to Baird Quality Bond, reflecting, among other things, the purchase and
sale of BQB Shares by BQB Shareholders, the number of issued and outstanding
shares owned by each BQB 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 Quality Bond 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 AFG for inclusion in the prospectus or statement of additional
information of Baird Quality Bond, or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG
AFG, on behalf of the Portfolio, represents and warrants to TBFI as
follows:
Section 4.1. Organization; Authority. AFG is duly organized,
-----------------------
validly existing and in good standing under the Business Trust Act of the State
of Delaware, with all requisite trust 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 AFG and, assuming this Agreement has been
duly executed and delivered by TBFI, constitutes the legal, valid and binding
obligation of AFG, enforceable against AFG in accordance with its terms from and
with respect to the revenues and assets of the Portfolio, 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 or law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
Section 4.3. Financial Statements. The books of account and related
--------------------
records of the Portfolio 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 December 31, 1994 of the Portfolio previously delivered to TBFI (the
"Portfolio Financial Statements") present fairly in all material respects the
financial position of the Portfolio 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 4.4. No Material Adverse Changes; Contingent Liabilities.
---------------------------------------------------
Since December 31, 1994, no material adverse change has occurred in the
financial condition, results of operations, business, assets or liabilities of
the Portfolio or the status of the Portfolio 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 the Portfolio or occurring in the ordinary course of
business of the Portfolio or AFG. There are no contingent liabilities of the
Portfolio not disclosed in the Portfolio Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
Section 4.5. No Breaches or Defaults. The execution and delivery of
-----------------------
this Agreement by AFG and performance by AFG of its obligations hereunder have
been duly authorized by all necessary trust action on the part of AFG and (i) do
not, and on the Closing Date will not, result in any violation of the Agreement
and Declaration of Trust, as amended, or by-laws, as amended, of AFG 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 AFG 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 AFG or any of the
Portfolio's properties.
Section 4.6. Accountants. KPMG Peat Marwick LLP, which has reported
-----------
upon the Portfolio Financial Statements for the period ended December 31, 1994,
are independent public accountants as required by the Securities Act and the
Exchange Act.
Section 4.7. 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 AFG in
connection with the due execution and delivery by AFG of this Agreement and the
consummation by AFG of the transactions contemplated hereby.
Section 4.8. Permits. AFG 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 AFG 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 4.9. No Actions, Suits or Proceedings.
--------------------------------
(a) There is no pending action, suit or proceeding, nor, to the
knowledge of AFG, has any litigation been overtly threatened in writing or, if
probable of assertion, orally, against AFG 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 AFG, threatened in
writing or, if probable of assertion, orally against AFG 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 with respect
to the Portfolio. 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
AFG's conduct of the business of the Portfolio affecting in any significant
respect the conduct of such business. AFG is not, and has not been, to the
knowledge of AFG, the target of any investigation by the SEC or any state
securities administrator with respect to its conduct of the business of the
Portfolio.
Section 4.10. Ineligible Persons. Neither AFG nor any "Affiliated
------------------
Person" of AFG 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
AFG 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 Advisors 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 AFG'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 4.11. Taxes.
-----
(a) The Portfolio has elected to be treated as a regulated investment
company under Subchapter M of the Code. The Portfolio has qualified as such for
each taxable year since inception that has ended prior to the Closing Date.
(b) The Portfolio 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 the Portfolio 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 the Portfolio, 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 the
Portfolio is currently being or has been audited since December 31, 1989 with
respect to income taxes (and since December 31, 1991 with respect to all other
Taxes) by any Federal, state, local, or foreign Tax authority.
(c) The Portfolio's fiscal year has not been changed for tax purposes
since December 31, 1989.
Section 4.12. Brokers. No broker, finder or similar intermediary has
-------
acted for or on behalf of AFG or the Portfolio 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 AFG or any action taken by AFG.
Section 4.13. Registration and Regulation of Company. AFG 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. The Portfolio
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. The
Portfolio 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 the Portfolio is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act.
Section 4.14. Registration of Portfolio Shares.
--------------------------------
(a) The shares of beneficial interest of AFG are divided into nine
portfolios, including the Portfolio. The Portfolio has two classes of shares,
Class A Shares and Class B Shares. Under the Delaware Business Trust Act and
its Agreement and Declaration of Trust, as amended, AFG is authorized to issue
an unlimited number of shares of any class representing an investment in each of
its portfolios, including the Portfolio.
(b) The Portfolio Shares of AFG 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 AFG 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 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 net asset value in the normal course of its business as an
open-ended 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 AFG's Registration Statement on
Form N-14 shall be furnished to TBFI and BQB Shareholders entitled to vote at
the BQB Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of the Portfolio, when they become
effective, shall conform 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 TBFI for inclusion in the Combined Prospectus/Proxy Statement.
(e) The shares of the Portfolio which have been or are being offered
for sale (other than Portfolio Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the AFG
Registration Statement then in effect 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 AFG to revoke or rescind any
such registration or qualification.
Section 4.15. Representations Concerning the Reorganization.
---------------------------------------------
(a) AFG 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 Quality Bond 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 Quality Bond (within the meaning of Section 1.368-
1(d) of the Income Tax Regulations under the Code) or use a significant portion
of Baird Quality Bond's historic business assets in a business.
Section 4.16. Prospectus. The current prospectus and statement of
----------
additional information for the Portfolio 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.
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), TBFI shall conduct the business of Baird Quality Bond 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 of Baird
Quality Bond in the ordinary course in all material respects. Without limiting
the generality of the foregoing, TBFI shall not do any of the following with
respect to Baird Quality Bond without the prior written consent of AFG, 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
Quality Bond 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 Quality
Bond, 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), AFG 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 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 AFG, or its directors, officers,
partners, affiliates, employees, agents, advisors or representatives
(collectively "representatives") by TBFI or Baird Quality Bond or their
respective representatives relating to TBFI or Baird Quality Bond, and all
reports, analyses, compilations, studies and other materials prepared by AFG 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, TBFI
or Baird Quality Bond, a possible transaction with TBFI or Baird Quality Bond 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 AFG, its representatives or anyone to
whom AFG or its representatives transmits any Confidential Information, in
breach of this Agreement or (ii) is or becomes known or available to AFG on a
non-confidential basis from a source (other than TBFI or Baird Quality Bond or
their respective representatives) who, insofar as is known to AFG after due
inquiry, is not prohibited from transmitting the information to AFG or its
representatives by a contractual, legal, fiduciary or other obligation.
(b) Subject to Section 5.2(c) below, AFG and its representatives
--------------
shall keep the Confidential Information confidential and shall not, without
prior written consent of TBFI 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, AFG 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 AFG 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, AFG shall be responsible for any actions by its representatives which are
not in accordance with the provisions hereof. AFG agrees that neither AFG nor
its representatives will make inquires of, or conduct any discussions with, any
representative of TBFI or Baird Quality Bond 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 AFG, its representatives or anyone to whom
AFG or its representatives supply the Confidential Information are requested or
required to disclose any Confidential Information, AFG agrees (i) to immediately
notify TBFI of the existence, terms and circumstances surrounding such a
request, (ii) to consult with TBFI on the advisability of taking legally
available steps to resist or narrow the Confidential Information which, in the
opinion of its counsel, AFG is legally compelled to disclose and, (iii) to
cooperate with any action by TBFI or Baird Quality Bond 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 AFG 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 TBFI thereafter, AFG shall redeliver to TBFI 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 TBFI or Baird Quality Bond, its
advisors or otherwise), and neither AFG 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 TBFI, compliance with the foregoing shall be certified in writing to
TBFI 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, TBFI and AFG shall
agree upon and release a mutually acceptable press release and TBFI 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
TBFI, AFG 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 Quality Bond and the Portfolio shall
--------
each bear the expenses it incurs in connection with this Agreement and the
Reorganization and 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. AFG shall give prompt notice to
----------------
TBFI, and TBFI shall give prompt notice to AFG, of (i) the occurrence or
nonoccurrence of any event of which to the knowledge of AFG or to the knowledge
of TBFI, the occurrence or non-occurrence of which would be likely to result in
any of the conditions specified in (x) in the case of AFG, Sections 6.1 and 6.2
------------ ---
or (y) in the case of TBFI, 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) TBFI will, during regular business hours and on reasonable prior
notice, allow AFG and its authorized representatives reasonable access to the
books and records of TBFI pertaining to the assets of Baird Quality Bond and to
employees of TBFI knowledgeable thereof; provided, however, that any such access
------------------
shall not significantly interfere with the business or operations of TBFI.
(b) Any information made available to or obtained by AFG 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) AFG will, during regular business hours and on reasonable notice,
allow TBFI and its authorized representatives reasonable access to the books and
records of AFG pertaining to the assets of the Portfolio and to employees of AFG
knowledge thereof; provided, however, that any such access shall not
-------- -------
significantly interfere with the business or operations of AFG.
Section 5.7. Consents, Approvals and Filings. Each of TBFI and AFG
-------------------------------
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 TBFI and AFG 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 TBFI and AFG 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. TBFI shall
---------------------------------------
take all action necessary in accordance with applicable law and its articles of
incorporation and by-laws to convene the BQB Shareholders Meeting. TBFI shall,
through its Board of Directors, recommend to the BQB Shareholders approval of
this Agreement and the other transactions contemplated by this Agreement, except
to the extent provided in Section 5.10 hereof. TBFI shall use its reasonable
------------
best efforts to hold the BQB Shareholders Meeting as soon as practicable after
the date hereof.
Section 5.9. Acquisition Proposals. TBFI shall not, nor shall it
---------------------
authorize any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of TBFI 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 TBFI shall promptly
terminate any such discussions with any Person that has expressed or expresses
an interest in acquiring Baird Quality Bond or negotiations pending at the date
of this Agreement provided, however, TBFI or any officer, director or employee
------------------
of, or any investment banker, attorney or other adviser or representative of
TBFI may, following the receipt of an Acquisition Proposal that the Board of
Directors of TBFI 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. TBFI shall promptly notify AFG, 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 Quality Bond 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 TBFI's Board of Directors
concludes, after consultations with outside counsel, that the disclosure of any
such information would be a breach of a duty of confidentiality imposed on TBFI
with respect to such information. Subject to the foregoing, TBFI shall keep AFG
informed of the status and details of any such Acquisition Proposal or inquiry.
Section 5.10. Fiduciary Duties. The Board of Directors of TBFI shall
----------------
not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to AFG, 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 TBFI to enter into any agreement
with respect to any Acquisition Proposal, unless TBFI receives an Acquisition
------
Proposal and the Board of Directors of TBFI determines in good faith, after
consultation with outside counsel, that in order to comply with its fiduciary
duties to the shareholders of Baird Quality Bond under applicable law, the Board
of Directors of TBFI 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 TBFI to enter
into an agreement with respect to such Acquisition Proposal or terminate this
Agreement. Nothing contained in this Section 5.10 shall prohibit TBFI from
------------
making any disclosure to the BQB Shareholders which, in the good faith and
reasonable judgment of the Board of Directors of TBFI 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 TBFI
permitted by this Section 5.10 shall not constitute a breach of this Agreement
------------
by TBFI.
Section 5.11. Section 15(f) of the 1940 Act.
-----------------------------
(a) Each of AFG and TBFI 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.
(b) AFG 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 trustees of AFG shall be "interested persons" (as
defined in the Investment Company Act) of the investment adviser of Baird
Quality Bond or any entity that served as investment advisor to Baird Quality
Bond 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, AFG will not take, recommend or endorse any action that would cause
more than 25% of the number of members of its board of trustees to be such
"interested persons."
(c) AFG 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. TBFI shall deliver to AFG 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 Quality Bond shareholders, collected by Baird Quality
Bond or paid by Baird Quality Bond in connection with sales of its shares since
July 1, 1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AFG. The obligation of AFG 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 AFG.
(a) The representations and warranties of TBFI on behalf of Baird
Quality Bond 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) TBFI shall have complied with and satisfied in all material
respects all agreements and conditions set forth herein on its part to be
performed or satisfied at or prior to the Closing Date.
(c) AFG shall have received at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of TBFI on behalf of TBFI, in such
individual's capacity as an officer of TBFI 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 TBFI 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) AFG shall have received the signed opinion of Quarles & Brady,
counsel to TBFI, or other counsel reasonably acceptable to AFG, in form and
substance reasonably acceptable to counsel for AFG, as to the matters set forth
in Schedule 6.1(d).
---------------
Section 6.2. Mutual Conditions. The obligation of TBFI and AFG 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 TBFI and AFG, 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 TBFI and AFG 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 BQB Shareholders Meeting by the
shareholders of Baird Blue Chip on the record date by the Required BQB
Shareholder Vote.
(c) The assets of Baird Quality Bond 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 held by Baird Quality
Bond immediately prior to the Reorganization. For purposes of this Section
6.2(c), assets used by Baird Quality Bond 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 of Baird Quality Bond's business as an open-end diversified
management investment company) after the date of this Agreement shall be
included as assets of Baird Quality Bond 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 AFG with respect
to the Portfolio Shares to be issued to BQB 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) TBFI and AFG shall have received on or before the Closing Date an
opinion of Ballard Spahr Andrews & Ingersoll in form, scope and substance
satisfactory to TBFI and AFG, set forth on Schedule 6.2(f).
(g) The transactions contemplated by that certain Agreement and Plan
of Reorganization dated December 20, 1995, between Baird Blue Chip Fund, Inc.
and AIM Equity Funds, Inc. acting on behalf of AIM Blue Chip Fund, and that
certain Agreement and Plan of Reorganization dated December 20, 1995 between
Baird Capital Development Fund, Inc. and AIM Equity Funds, Inc., acting on
behalf of AIM Capital Development Fund, shall be consummated on the Closing
Date.
(h) The dividend or dividends described in the last sentence of
Section 3.16(b) shall have been declared.
(i) A I M Advisors, Inc. ("AIM") shall have executed and delivered to
TBFI a certificate to the effect that:
(i) its balance sheet as at 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 at
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 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 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 and
the AIM Funds.
(j) 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 TBFI. The obligation of TBFI
----------------------------
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 TBFI.
(a) The representations and warranties of AFG 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) AFG shall have complied with and satisfied in all material
respects all agreements and conditions set forth herein on its part to be
performed or satisfied at or prior to the Closing Date.
(c) TBFI shall have received on the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of AFG, in such individual's
capacity as an officer of AFG 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 AFG, certifying as to the accuracy
and completeness of the attached Agreement and Declaration of Trust, as amended,
and by-laws, as amended, and resolutions, consents and authorizations with
respect to the execution and delivery of this Agreement and the transactions
contemplated hereby.
(d) TBFI shall have received the signed opinion of Ballard Spahr
Andrews & Ingersoll, counsel to AFG, or other counsel reasonably acceptable to
TBFI, in form and substance reasonably acceptable to counsel for TBFI, 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 TBFI and AFG; and
(ii) at the election of TBFI or AFG:
(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 BQB Shareholders Meeting or any
adjournment thereof, the Required BQB 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 TBFI in the event TBFI receives an Acquisition
Proposal and the Board of Directors of TBFI determines in good faith, after
consultation with outside counsel, that, in order to comply with its
fiduciary duties to the BQB Shareholders under applicable law, the Board of
Directors of TBFI should authorize TBFI to terminate this Agreement; or
(iv) by AFG 45 days following the date on which TBFI 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
TBFI notifies AFG 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 Delaware 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. Obligations of AFG and TBFI.
---------------------------
(a) TBFI and AFG hereby acknowledge and agree that the Portfolio is a
separate investment portfolio of AFG, that AFG is executing this Agreement on
behalf of the Portfolio, and that any amounts payable by AFG under or in
connection with this Agreement shall be payable solely from the revenues and
assets of the Portfolio. TBFI further acknowledges and agrees that this
Agreement has been executed by an authorized officer of AFG in his or her
capacity as an officer of AFG intending to bind AFG as provided herein, and that
no officer, trustee or shareholder of AFG shall be personally liable for the
liabilities or obligations of AFG incurred hereunder.
(b) TBFI and AFG hereby acknowledge and agree that Baird Quality Bond
is a separate investment portfolio of TBFI, that TBFI is executing this
Agreement on behalf of Baird Quality Bond and that any amounts payable by TBFI
under or in connection with this Agreement shall be payable solely from the
revenues and assets of Baird Quality Bond.
Section 8.5. Amendments. This Agreement may not be amended, altered
----------
or modified except by a written instrument executed by TBFI and AFG.
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 AFG:
AIM Funds Group
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 TBFI:
The Baird Funds, 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.
THE BAIRD FUNDS, INC., acting
on behalf of Baird Quality
Bond Fund
By: /S/ M. C. LOW, JR.
AIM FUNDS GROUP, acting
on behalf of AIM Income Fund
By: /S/ ROBERT H. GRAHAM
Schedule 3.12(a)
List of Contracts and Agreements.
---------------------------------
1. Investment Advisory Agreement dated September 16, 1992 between The
Baird Funds, Inc. ("TBFI") and Robert W. Baird & Co. Incorporated
("Baird"), for the Quality Bond Fund ("BQB Fund").
2. Administration Agreement dated October 1, 1992 between TBFI and
Fiduciary Management, Inc.
3. Distribution Plan of BQB Fund.
4. Distribution Agreement dated September 16, 1992 between TBFI and
Baird for the BQB Fund.
5. Distribution Assistance Agreement dated September 16, 1992 between
TBFI and Baird for the BQB Fund.
6. Custodian Agreement dated October 1, 1992 between TBFI and Firstar
Trust Company ("Firstar").
7. Transfer Agent Agreement dated October 1, 1992 between TBFI and
Firstar.
8. Agreement dated September 14, 1994, as amended, among TBFI, Baird
Blue Chip Fund, Inc. and Baird Capital Development Fund, Inc.
regarding allocation of fidelity bond coverage, pursuant to Rule
17g-1(f) under the Investment Company Act of 1940.
9. $1,600,000 Fidelity Bond issued by Reliance Insurance Company.
10. Articles of Incorporation of TBFI.
11. Bylaws of TBFI.
Schedule 6.1(d)
OPINION OF COUNSEL TO TBFI
1. TBFI is a corporation duly incorporated and validly existing under
the laws of the State of Wisconsin.
2. TBFI 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 TBFI
have been duly authorized and approved by all requisite corporate
action on the part of TBFI. The Agreement has been duly executed and
delivered by TBFI and constitutes the valid and binding obligation of
Baird Quality Bond.
4. The BQB 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. TBFI 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 TBFI or who has devoted substantive attention
on behalf of TBFI 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 Quality Bond (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 Quality Bond
to the Portfolio in exchange for the Portfolio Shares distributed directly
to the BQB Shareholders, as provided in the Agreement, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that
Baird Quality Bond and AFG 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 Quality
Bond 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 Quality Bond in exchange for Portfolio Shares issued directly to
the BQB Shareholders
(iv) In accordance with Section 354(a)(1) of the Code,
no gain or loss will be recognized by BQB Shareholders on issuance by AFG
of Portfolio Shares in exchange for their BQB Shares.
(v) In accordance with Section 362(b) of the Code, the
basis to the Portfolio of the assets of Baird Quality Bond transferred to
it will be the same as the basis of such assets in the hands of Baird
Quality Bond immediately prior to the exchange.
(vi) In accordance with Section 358(a) of the Code, a
BQB Shareholder's basis for Portfolio Shares issued to such BQB Shareholder
pursuant to Section 2.7 of the Agreement ("Issued Shares") will be the same
-----------
as his basis for BQB Shares.
(vii) In accordance with Section 1223(1) of the Code, a
BQB Shareholder's holding period for Portfolio Shares will be determined by
including said BQB Shareholder's holding period for BQB Shares exchanged
therefor, provided that BQB Shareholder held such BQB 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 Quality Bond
transferred to the Portfolio will include the holding period for such
assets in the hands of Baird Quality Bond.
(ix) In accordance with Section 381(a)(2) of the Code,
the Portfolio will succeed to and take into account the items of Baird
Quality Bond 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 AFG
1. AFG is duly organized and validly existing as a business trust
under the Business Trust Law of the State of Delaware.
2. AFG 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 AFG
have been duly authorized and approved by all requisite trust action
on the part of AFG. The Agreement has been duly executed and
delivered by AFG 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. AFG 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 AFG or who has devoted substantive attention
on behalf of AFG 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. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 2, 1995, relating to the financial statements and financial highlights
of Baird Quality Bond Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references 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, 1995
EXHIBIT 16
Schedule for Computation of Performance Quotation
- -------------------------------------------------
BAIRD QUALITY BOND FUND
1. Initial (September 30, 1994) Offering Price = $9.38
2. Number of hypothetical shares purchased =
$1,000 divided by $9.38 = 106.610 shares
<TABLE>
<CAPTION>
3. Amount of dividends and distributions =
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/94 - $ 0.05104769220 per share 106.610 = $ 5.44 /$ 8.91 = 0.611 shares
10/31/94 - $ 0.00000000000 per share 106.610 = $ 0.00 /$ 8.91 = 0.000 shares
11/30/94 - $ 0.05349180789 per share 107.221 = $ 5.74 /$ 8.84 = 0.649 shares
11/30/94 - $ 0.00000000000 per share 107.221 = $ 0.00 /$ 8.84 = 0.000 shares
12/31/94 - $ 0.05748221865 per share 107.870 = $ 6.20 /$ 8.88 = 0.698 shares
12/31/94 - $ 0.00000000000 per share 107.870 = $ 0.00 /$ 8.88 = 0.000 shares
1/31/95 - $ 0.05114119161 per share 108.568 = $ 5.55 /$ 8.97 = 0.619 shares
1/31/95 - $ 0.00000000000 per share 108.568 = $ 0.00 /$ 8.97 = 0.000 shares
2/28/95 - $ 0.04830349797 per share 109.187 = $ 5.27 /$ 9.12 = 0.578 shares
2/28/95 - $ 0.00000000000 per share 109.187 = $ 0.00 /$ 9.12 = 0.000 shares
3/31/95 - $ 0.05636576647 per share 109.765 = $ 6.19 /$ 9.12 = 0.679 shares
3/31/95 - $ 0.00000000000 per share 109.765 = $ 0.00 /$ 9.12 = 0.000 shares
4/30/95 - $ 0.04966212982 per share 110.444 = $ 5.48 /$ 9.17 = 0.598 shares
4/30/95 - $ 0.00000000000 per share 110.444 = $ 0.00 /$ 9.17 = 0.000 shares
5/31/95 - $ 0.05252124449 per share 111.042 = $ 5.83 /$ 9.40 = 0.620 shares
5/31/95 - $ 0.00000000000 per share 111.042 = $ 0.00 /$ 9.40 = 0.000 shares
6/30/95 - $ 0.05641762468 per share 111.662 = $ 6.30 /$ 9.43 = 0.668 shares
6/30/95 - $ 0.00000000000 per share 111.662 = $ 0.00 /$ 9.43 = 0.000 shares
7/31/95 - $ 0.05202532500 per share 112.330 = $ 5.84 /$ 9.39 = 0.622 shares
7/31/95 - $ 0.00000000000 per share 112.330 = $ 0.00 /$ 9.39 = 0.000 shares
8/31/95 - $ 0.05435635400 per share 112.952 = $ 6.14 /$ 9.43 = 0.651 shares
8/31/95 - $ 0.00000000000 per share 112.952 = $ 0.00 /$ 9.43 = 0.000 shares
9/30/95 - $ 0.05347808800 per share 113.603 = $ 6.08 /$ 9.46 = 0.643 shares
9/30/95 - $ 0.00000000000 per share 113.603 = $ 0.00 /$ 9.46 = 0.000 shares
Total = 7.636
</TABLE>
4. Fees charged to shareholder accounts = 0
5. Ending (September 30, 1995) Net Asset Value = $9.4
6. Ending Redeemable value of hypothetical investment =
106.610 + 7.636 = 114.246 x $9.46 = $1,080.77
7. Total Return = ($1080.77 - $1,000) divided by $1,000 = + 8.08%
8. Annualized Compounded Return = + 8.08%
Number of years = 1
Schedule for Computation of Performance Quotation
- -------------------------------------------------
BAIRD QUALITY BOND FUND
1. Initial (October 1, 1992) Offering Price = $10.42
2. Number of hypothetical shares purchased =
$1,000 divided by $10.42 = 95.969 shares
<TABLE>
<CAPTION>
3. Amount of dividends and distributions =
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/1/92 - $ 0.00000000000 per share 95.969 = $ 0.00 /$ 10.00 = 0.000 shares
10/1/92 - $ 0.00000000000 per share 95.969 = $ 0.00 /$ 10.00 = 0.000 shares
10/31/92 - $ 0.03231311506 per share 95.969 = $ 3.10 /$ 9.71 = 0.319 shares
10/31/92 - $ 0.00000000000 per share 95.969 = $ 0.00 /$ 9.71 = 0.000 shares
11/30/92 - $ 0.05306784914 per share 96.288 = $ 5.11 /$ 9.64 = 0.530 shares
11/30/92 - $ 0.00000000000 per share 96.288 = $ 0.00 /$ 9.64 = 0.000 shares
12/31/92 - $ 0.06277803600 per share 96.818 = $ 6.08 /$ 9.77 = 0.622 shares
12/31/92 - $ 0.00000000000 per share 96.818 = $ 0.00 /$ 9.77 = 0.000 shares
1/31/93 - $ 0.05266529158 per share 97.440 = $ 5.13 /$ 9.95 = 0.516 shares
1/31/93 - $ 0.00000000000 per share 97.440 = $ 0.00 /$ 9.95 = 0.000 shares
2/28/93 - $ 0.05136010866 per share 97.956 = $ 5.03 /$ 10.09 = 0.499 shares
2/28/93 - $ 0.00000000000 per share 97.956 = $ 0.00 /$ 10.09 = 0.000 shares
3/31/93 - $ 0.05961356066 per share 98.455 = $ 5.87 /$ 10.05 = 0.584 shares
3/31/93 - $ 0.00000000000 per share 98.455 = $ 0.00 /$ 10.05 = 0.000 shares
4/30/93 - $ 0.05699341942 per share 99.039 = $ 5.64 /$ 10.03 = 0.562 shares
4/30/93 - $ 0.00000000000 per share 99.039 = $ 0.00 /$ 10.03 = 0.000 shares
5/31/93 - $ 0.05095981754 per share 99.601 = $ 5.08 /$ 9.96 = 0.510 shares
5/31/93 - $ 0.00000000000 per share 99.601 = $ 0.00 /$ 9.96 = 0.000 shares
6/30/93 - $ 0.05200139906 per share 100.111 = $ 5.21 /$ 10.14 = 0.514 shares
6/30/93 - $ 0.00000000000 per share 100.111 = $ 0.00 /$ 10.14 = 0.000 shares
7/31/93 - $ 0.05416996066 per share 100.625 = $ 5.45 /$ 10.15 = 0.537 shares
7/31/93 - $ 0.00000000000 per share 100.625 = $ 0.00 /$ 10.15 = 0.000 shares
8/31/93 - $ 0.05270435511 per share 101.162 = $ 5.33 /$ 10.28 = 0.518 shares
8/31/93 - $ 0.00000000000 per share 101.162 = $ 0.00 /$ 10.28 = 0.000 shares
9/30/93 - $ 0.05273463735 per share 101.680 = $ 5.36 /$ 10.31 = 0.520 shares
9/30/93 - $ 0.00000000000 per share 101.680 = $ 0.00 /$ 10.31 = 0.000 shares
10/25/93 - $ 0.00000000000 per share 102.200 = $ 0.00 /$ 10.20 = 0.000 shares
10/25/93 - $ 0.08250000000 per share 102.200 = $ 8.43 /$ 10.20 = 0.826 shares
10/31/93 - $ 0.05504068006 per share 103.026 = $ 5.67 /$ 10.21 = 0.555 shares
10/31/93 - $ 0.00000000000 per share 103.026 = $ 0.00 /$ 10.21 = 0.000 shares
11/30/93 - $ 0.05403464467 per share 103.581 = $ 5.60 /$ 10.08 = 0.556 shares
11/30/93 - $ 0.00000000000 per share 103.581 = $ 0.00 /$ 10.08 = 0.000 shares
12/30/93 - $ 0.00000000000 per share 104.137 = $ 0.00 /$ 10.05 = 0.000 shares
12/30/93 - $ 0.03000000000 per share 104.137 = $ 3.12 /$ 10.05 = 0.310 shares
12/31/93 - $ 0.06566472375 per share 104.447 = $ 6.86 /$ 10.05 = 0.683 shares
12/31/93 - $ 0.00000000000 per share 104.447 = $ 0.00 /$ 10.05 = 0.000 shares
1/31/94 - $ 0.04388678664 per share 105.130 = $ 4.61 /$ 10.16 = 0.454 shares
1/31/94 - $ 0.00000000000 per share 105.130 = $ 0.00 /$ 10.16 = 0.000 shares
2/28/94 - $ 0.04879596337 per share 105.584 = $ 5.15 /$ 9.96 = 0.517 shares
2/28/94 - $ 0.00000000000 per share 105.584 = $ 0.00 /$ 9.96 = 0.000 shares
3/31/94 - $ 0.06299201777 per share 106.101 = $ 6.68 /$ 9.63 = 0.694 shares
3/31/94 - $ 0.00000000000 per share 106.101 = $ 0.00 /$ 9.63 = 0.000 shares
4/30/94 - $ 0.05528947728 per share 106.795 = $ 5.90 /$ 9.45 = 0.624 shares
4/30/94 - $ 0.00000000000 per share 106.795 = $ 0.00 /$ 9.45 = 0.000 shares
5/31/94 - $ 0.05627021673 per share 107.419 = $ 6.04 /$ 9.32 = 0.648 shares
5/31/94 - $ 0.00000000000 per share 107.419 = $ 0.00 /$ 9.32 = 0.000 shares
6/30/94 - $ 0.05561595351 per share 108.067 = $ 6.01 /$ 9.20 = 0.653 shares
6/30/94 - $ 0.00000000000 per share 108.067 = $ 0.00 /$ 9.20 = 0.000 shares
7/31/94 - $ 0.05773128605 per share 108.720 = $ 6.28 /$ 9.33 = 0.673 shares
7/31/94 - $ 0.00000000000 per share 108.720 = $ 0.00 /$ 9.33 = 0.000 shares
8/31/94 - $ 0.05572716319 per share 109.393 = $ 6.10 /$ 9.26 = 0.659 shares
8/31/94 - $ 0.00000000000 per share 109.393 = $ 0.00 /$ 9.26 = 0.000 shares
9/30/94 - $ 0.05876507545 per share 110.052 = $ 6.47 /$ 9.00 = 0.719 shares
9/30/94 - $ 0.00000000000 per share 110.052 = $ 0.00 /$ 9.00 = 0.000 shares
10/31/94 - $ 0.05104769220 per share 110.771 = $ 5.65 /$ 8.91 = 0.634 shares
10/31/94 - $ 0.00000000000 per share 110.771 = $ 0.00 /$ 8.91 = 0.000 shares
11/30/94 - $ 0.05349180789 per share 111.405 = $ 5.96 /$ 8.84 = 0.674 shares
11/30/94 - $ 0.00000000000 per share 111.405 = $ 0.00 /$ 8.84 = 0.000 shares
12/31/94 - $ 0.05748221865 per share 112.079 = $ 6.44 /$ 8.88 = 0.725 shares
12/31/94 - $ 0.00000000000 per share 112.079 = $ 0.00 /$ 8.88 = 0.000 shares
1/31/95 - $ 0.05114119161 per share 112.804 = $ 5.77 /$ 8.97 = 0.643 shares
1/31/95 - $ 0.00000000000 per share 112.804 = $ 0.00 /$ 8.97 = 0.000 shares
2/28/95 - $ 0.04830349797 per share 113.447 = $ 5.48 /$ 9.12 = 0.601 shares
2/28/95 - $ 0.00000000000 per share 113.447 = $ 0.00 /$ 9.12 = 0.000 shares
3/31/95 - $ 0.05636576647 per share 114.048 = $ 6.43 /$ 9.12 = 0.705 shares
3/31/95 - $ 0.00000000000 per share 114.048 = $ 0.00 /$ 9.12 = 0.000 shares
4/30/95 - $ 0.04966212982 per share 114.753 = $ 5.70 /$ 9.17 = 0.622 shares
4/30/95 - $ 0.00000000000 per share 114.753 = $ 0.00 /$ 9.17 = 0.000 shares
5/31/95 - $ 0.05252124449 per share 115.375 = $ 6.06 /$ 9.40 = 0.645 shares
5/31/95 - $ 0.00000000000 per share 115.375 = $ 0.00 /$ 9.40 = 0.000 shares
6/30/95 - $ 0.05641762468 per share 116.020 = $ 6.55 /$ 9.43 = 0.695 shares
6/30/95 - $ 0.00000000000 per share 116.020 = $ 0.00 /$ 9.43 = 0.000 shares
7/31/95 - $ 0.05202532500 per share 116.715 = $ 6.07 /$ 9.39 = 0.646 shares
7/31/95 - $ 0.00000000000 per share 116.715 = $ 0.00 /$ 9.39 = 0.000 shares
8/31/95 - $ 0.05435635400 per share 117.361 = $ 6.38 /$ 9.43 = 0.677 shares
8/31/95 - $ 0.00000000000 per share 117.361 = $ 0.00 /$ 9.43 = 0.000 shares
9/30/95 - $ 0.05347808800 per share 118.038 = $ 6.31 /$ 9.46 = 0.667 shares
9/30/95 - $ 0.00000000000 per share 118.038 = $ 0.00 /$ 9.46 = 0.000 shares
Total = 22.736
</TABLE>
4. Fees charged to shareholder accounts = 0
5. Ending (September 30, 1995) Net Asset Value = $9.46
6. Ending Redeemable value of hypothetical investment =
95.969 + 22.736 = 118.705 x $9.46 = $1,122.95
7. Total Return = ($1122.95 - $1,000) divided by $1,000 = + 12.30%
8. Annualized Compounded Return = + 3.94%
Number of years = 2 and 364/365 days = 2.9972603
ENDING DATE: 9/30/95
BEGIN DATE: 10/1/92
ENTER #DAYS IN YEAR 364
2
0.9972603
2.9972603
Schedule for Computation of 30-Day Yield Quotation
- --------------------------------------------------
BAIRD QUALITY BOND FUND
1. Bond and Note interest income (for 9/95) $35,762
2. Common Stock imcome (for 9/95) 0
3. Mortgage-backed securities income (for 9/95 7,395
4. Total dividends and interest earned during 9/95 $44,596
(item "a" for formula calculation)
5. Expenses accrued for 9/95 (net of reimbursements) 3,762
(item "b" for formula calculation)
6. Net income (a - b) $40,834
7. Average daily shares outstanding for 9/95 854,178
(item "c" for formula calculation)
8. Maximum offering price on 9/30/95 $9.85416
(item "d" for formula calculation)
9. FORMULA
((a-b/cd)+1 = e 1.00485124
e raised to the 6th power = f 1.02946274
f minus 1 = g 0.02946274
g times 2 = YIELD 0.05892548
10. 30-DAY YIELD FOR PERIOD ENDED 9/30/95 5.89%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BAIRD QUALITY BOND FUND
<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> 7,640,365
<INVESTMENTS-AT-VALUE> 7,680,643
<RECEIVABLES> 126,172
<ASSETS-OTHER> 18,902
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 7,825,718
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 124,703
<TOTAL-LIABILITIES> 124,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,158,525
<SHARES-COMMON-STOCK> 814,278
<SHARES-COMMON-PRIOR> 884,964
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (497,788)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,278
<NET-ASSETS> 7,701,015
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 638,344
<OTHER-INCOME> 0
<EXPENSES-NET> 50,427
<NET-INVESTMENT-INCOME> 587,917
<REALIZED-GAINS-CURRENT> (304,002)
<APPREC-INCREASE-CURRENT> 745,322
<NET-CHANGE-FROM-OPS> 1,029,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 587,917
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 191,884
<NUMBER-OF-SHARES-REDEEMED> 270,508
<SHARES-REINVESTED> 7,938
<NET-CHANGE-IN-ASSETS> (260,271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 10,262
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 118,457
<AVERAGE-NET-ASSETS> 8,423,774
<PER-SHARE-NAV-BEGIN> 9.00
<PER-SHARE-NII> .64
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .64
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.46
<EXPENSE-RATIO> .6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
