BAIRD FUNDS INC, POS AMI, 1996-01-26

BAIRD FUNDS INC
POS AMI, 1996-01-26

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File No. 811-6714

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1996
------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
----

Post-Effective Amendment No.
----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x

Amendment No. 8 x
(Check appropriate box or boxes.)
---------------------------------

THE BAIRD FUNDS, INC.
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(Exact name of Registrant as Specified in Charter)
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
-------------------- -----
(Address of Principal Executive Offices) (Zip Code)

(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

PART A

INFORMATION REQUIRED IN A PROSPECTUS

Item 1. Not Required.

Item 2. Not Required.

Item 3. Not Required.

Item 4. General Description of Registrant.
---------------------------------

(a) through (c) The Baird Funds, Inc. (the "Company"), a corporation
which consists of the Baird Quality Bond Fund (the "BQB Fund") and the Baird
Adjustable Rate Income Fund (the "Fund"), was incorporated under the laws of
Wisconsin on June 26, 1992. The Company is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund is closed to new investments and is not
offering its securities for sale. The registration statement of which this Part
A forms a part is filed only under the 1940 Act and not under the Securities Act
of 1933, as amended. This Part A, which is dated January 26, 1996, is not a
prospectus. The Company (on behalf of the Fund), shareholders representing
approximately 99% of the Fund's outstanding shares as of August 10, 1994 and
Robert W. Baird & Co. Incorporated ("Baird"), the Fund's investment adviser,
have entered into an agreement (the "Agreement") that became effective on
January 13, 1995. Pursuant to the Agreement, among other things, the investment
objective and certain policies of the Fund have been revised and Baird has,
among other things, made a payment of $4,616,549 (or $.40 per share) to the Fund
with respect to all issued and outstanding shares held in the Fund on the date
of such payment, which was made on February 10, 1995. Such payment has been
made as a reimbursement of capital losses realized by the Fund. The payment was
credited directly to the Fund's additional paid-in capital. Legal expenses
incurred by the Fund in connection with the Agreement totalling $126,878 (or
$0.01 per share) were also charged directly against additional paid-in capital.
This net contribution of $4,489,671 was treated as a capital gain for tax
purposes. In accordance with the Agreement, the Fund seeks to maximize returns
of capital to shareholders by making distributions of substantially all returns
of capital and revenues (subject to retention of cash or cash equivalents not to
exceed the lesser of $5,000,000 or 10% of net assets). Such a return of capital
distribution was paid on September 26, 1995 in the amount of $10,441,551 (or
$1.00 per share).

Subject to compliance with regulatory requirements, including applicable
rules regarding returns of capital and other distributions of revenues and
requirements and limitations imposed in connection with qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), the investment objective of the Fund is to hold
its existing portfolio securities to maturity or until such time as sales become
available at prices consistent with the ability to liquidate securities at their
respective "par" values (i.e, the full amount of the current face value of a
---
security). To the extent that the sale of portfolio securities is necessary in
order for the Fund to satisfy redemptions or to make other distributions
pursuant to the requirements of the Code or other applicable regulations, the
policy of the Fund is to seek, in the sole discretion of Baird as investment
adviser to the Fund, to select securities for disposition with the objective of
minimizing the degree to which any such disposition would increase or decrease
the average discount from par value of the remaining assets of the Fund. Subject
to compliance with regulatory requirements, the Fund seeks to maximize return of
capital to investors by making distributions of substantially all returns of
capital and revenues to the Fund, subject to a policy of
retaining cash or Short-Term Investments (as defined below) in an
amount not in excess of the lesser of $5 million or ten percent (10%) of the
Fund's net assets. Pending distribution, accumulated revenues,
including returns of capital to the Fund, will be held in cash or invested in
Short-Term Investments. The daily net investment income of the Fund is declared
as a dividend each day to shareholders of record and paid monthly. See Item 6,
paragraphs (f) and (g).

The Fund's investment objective may be changed without a vote of the
holders of a majority of the Fund's voting securities. The Fund intends,
however, to provide notice to all of its shareholders at least 30 days prior to
making a material change to its investment objective. The Fund has no present
intention of changing its investment objective.

The Fund invests exclusively in mortgage-backed securities and Short-Term
Investments. Below is a brief discussion of mortgage-backed securities and
Short-Term Investments.

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 securi-
ties 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. Such 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 pre-
payments) 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. Such securities also may be issued in multiple
classes each of which may be allocated fixed or variable amounts of the
principal and interest payments on the underlying mortgage loans or other
mortgage-backed securities and which allocation may be subject to priorities
among the classes. Guaranteed government agency mortgage-backed securities
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"). Certain
of these guaranteed government agency mortgage-backed securities are backed only
by the credit of the government agency or instrumentality and not by the full
faith and credit of the U.S. government. See Item 13.

Mortgage-backed securities include collateralized mortgage obligations
("CMOs"). CMOs are securities collateralized by mortgages or other
mortgage-backed securities. Although CMOs may be issued by governmental or non-
governmental entities such as banks and other mortgage lenders, the Fund does
not own CMOs issued by non-governmental entities.

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 dis-
tribution 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 substan-
tially 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.

CMO Floaters -- Certain CMO tranches ("CMO Floaters") provide for the
payment of floating rates of interest. As of January 22, 1996, approximately
92.5% of the Fund's net assets consisted of CMO Floaters issued by agencies or
instrumentalities of the United States government. The CMO Floaters in the
Fund's portfolio as of January 22, 1996 all had coupon rates that reset monthly
and had stated maturities or final distribution dates ranging from 5/25/2008 to
4/15/2024. The coupon rates on CMO Floaters reset periodically at a specified
increment over or decrement under an index, such as COFI or 10 year CMT. See
Item 13 for a description of these indices. As of January 22, 1996,
approximately 41.3% and 51.2% of the Fund's net assets consisted of CMO Floaters
the coupon rates on which were determined by reference to COFI and 10 year CMT,
respectively. Certain interest rate indices upon which the coupon rates of CMO
Floaters in the Fund's portfolio are based may lag changes in current market
rates of interest. CMO Floaters may be backed by fixed rate or adjustable rate
mortgages, although to date fixed rate mortgages have been more commonly used
for this purpose.

CMO Floaters typically are issued with lifetime caps and floors on the
coupon rate thereon. Caps represent a ceiling beyond which the coupon rate on a
CMO Floater may not be increased regardless of increases in the interest rate
index with respect to which the CMO Floater's coupon rate is reset. As of
January 22, 1996, the average dollar weighted coupon rate cap of the CMO
Floaters in the Fund's portfolio was approximately 9.6% and the average dollar
weighted current coupon rate on such securities was approximately 5.56%. As of
January 22, 1996, the CMO Floaters in the Fund's portfolio were subject to
coupon rate caps ranging from 9.5% to 10.5%. The current coupon rates on such
securities ranged from 4.98% to 6.42% as of January 22, 1996. Floors represent
a floor below which the coupon rate on a CMO Floater may not be decreased
regardless of decreases in the interest rate index with respect to which the CMO
Floater's coupon rate is reset.

As the coupon rates on CMO Floaters are reset periodically, the yield
on the Fund's portfolio should gradually align to reflect changes in market
interest rates subject to limitations imposed on coupon rate resets by a
security's stated coupon rate cap and floor. Accordingly, the Fund's net asset
value should fluctuate in response to changes in interest rates less
dramatically than a fund that invests in long-term, fixed-rate debt securities.
However, during periods of rising interest rates, changes in the coupon rate
lag behind changes in the market rate, resulting in a lower value. In the event
that the formula rate (which is based on the prevailing rate of an index) for a
CMO Floater exceeds the security's coupon rate cap, the coupon rate will be
capped at a rate below prevailing market rates, thereby likely resulting in a
lower value until either changes in market interest rates cause the formula rate
to fall below the cap or the duration of the security is sufficiently reduced.
In the event that the coupon rate on a CMO Floater is so capped, the value of
such CMO Floater will react to further increases in interest rates in a manner
similar to that of fixed rate securities of comparable duration. The value of a
CMO Floater may also be adversely affected in anticipation of the possibility
that the stated coupon rate cap will be reached. During periods of greater
fluctuations in interest rates, the Fund's net asset value will fluctuate to a
greater extent.

During periods of declining interest rates the coupon rates on CMO
Floaters generally will readjust downward, resulting in lower yields to the
Fund. Further, because of this feature, the values of CMO Floaters are unlikely
to rise above their par values during periods of declining interest rates to the
same extent as the values of noncallable, fixed-rate instruments.

General. 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 unexpectedly because the underlying mortgage loans generally may be
prepaid at any time. As a result, for a security purchased 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, for securities purchased at
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity.

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. CMO Floaters
typically are backed by fixed rate mortgages, the prepayment rates on which
generally are more sensitive to changes in interest rates than are the prepay-
ment rates on adjustable rate mortgages. Returns of capital available for
distribution by the Fund are likely to be greater during a period of declining
interest rates than during a period of rising interest rates. CMO Floaters are
likely to experience less variation in yield to maturity in the foregoing
situations than are fixed rate CMOs. In addition, as discussed above, CMO
Floaters may have the benefit of coupon rate floors or the detriment of coupon
rate caps, the beneficial or adverse effect of which may be magnified as
prepayment rates fluctuate.

Certain types of 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.
The Fund does not own interest-only, principal-only, inverse floating rate or
residual mortgage-backed securities.

No assurance can be given as to the liquidity of the market for
mortgage-backed securities, including CMO Floaters. Less liquid securities may
be difficult to dispose of promptly, may present difficulties in valuation and
may experience greater volatility than do more liquid securities. The value of
mortgage-backed securities may change because of changes in interest rates,
changes in market conditions, changes in the market's perception of the
creditworthiness of the Federal agency that issued or guaranteed such securities
and other factors.

SHORT-TERM INVESTMENTS - Short-Term Investments are debt
securities or other instruments having a remaining fixed maturity of six months
or less and that are issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities and repurchase agreements involving such
securities. As of January 22, 1996, approximately 6.1% of the Fund's net assets
consisted of Fannie Mae certificates and approximately 1.0% of the Fund's net
assets consisted of U.S. Government security repurchase agreements maturing in
not more than seven days, in the case of Treasury bills, net of securities held
pending payment of redemption proceeds.

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. 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 U.S. Government sponsored agencies or instrumentalities, no assurance
can be given that it will do so since it is not so obligated by law. The U.S.
government, its agencies and instrumentalities do not guarantee the market value
of their securities and consequently the values of such securities will fluctu-
ate.

Repurchase Agreements -- The 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, 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 the 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 the Fund enters into repurchase agreements, it relies on the
seller to repurchase the securities. Failure to do so may result in loss for
the Fund if the market value of the securities is less than the repurchase
price. At the time the 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, the Fund will take into
account the creditworthiness of such party. The Fund 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, the 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. The Fund may invest in repurchase agreements having a duration of
seven days or less without limitation. The Fund will not invest in repurchase
agreements that mature in more than seven days.

See also Item 13.

Item 5. Management of the Fund.
----------------------

(a) As a Wisconsin corporation the business and affairs of the
Company are managed by the Board of Directors who are assisted by the Fund's
officers.

(b) Robert W. Baird & Co. Incorporated, through its Investment
Management Services Group, furnishes investment advisory services to the Fund
pursuant to an investment advisory agreement (the "Advisory Agreement") with the
Company (on behalf of the Fund). Baird's address is 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. Baird's Investment Management Services Group was
organized in 1971 and as of December 31, 1995, managed in excess of $1 billion
in assets for individuals, trusts, estates, corporations, and other
institutional clients such as employee benefit plans and foundations. Baird
through its Investment Management Services Group serves as investment adviser or
investment subadviser to four registered open-end investment companies
(collectively, the "Baird Funds"), including the Fund and the BQB Fund. 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 full service broker-dealer and investment adviser providing brokerage,
research, investment banking and investment advisory services to individuals,
trusts, estates, corporations and other institutional clients.

Baird supervises and manages the investment portfolio of the Fund and,
subject to such policies as the Board of Directors may determine, directs the
purchase or sale of investment securities in the day-to-day management of the
Fund. Under the Advisory Agreement, Baird, at its own expense and without
reimbursement from the Fund, furnishes office space, and all necessary office
facilities, equipment, and executive personnel for managing the Fund and
maintaining its organization. In addition to the services referred to above,
Baird pays the salaries and fees of all officers and directors of the Fund
(except the fees to directors who are not interested persons of the Fund).
Baird has agreed to waive all future advisory fees to which it might otherwise
be entitled under the Advisory Agreement. The Advisory Agreement provides for a
monthly fee of 1/12 of 0.50% (0.50% per annum) of the daily net assets of the
Fund. For the period October 1, 1994 through December 31, 1994, Baird
voluntarily waived approximately $76,177 of the advisory fees otherwise payable
under the Advisory Agreement. Moreover, pursuant to the Agreement discussed in
Item 4 above, Baird permanently waived all future advisory fees due from the
Fund effective January 1, 1995. As a result, advisory fees actually paid to
Baird in the fiscal year ended September 30, 1995 were equal to 0.10% of the
Fund's average net assets.

(c) The day-to-day management of the Fund's portfolio is the
responsibility of a committee consisting of officers of Baird, with no person or
persons being primarily responsible for making recommendations to that
committee.

(d) The Company has entered into an administration agreement with
Fiduciary Management, Inc. ("FMI") pursuant to which FMI supervises all aspects
of the Fund's operations except those performed by Baird. FMI prepares and
maintains the books, accounts and other documents required by the 1940 Act,
determines the Fund's net asset value, responds to shareholder inquiries,
prepares the Fund's financial statements and tax returns, prepares reports and
filings with the Securities and Exchange Commission, furnishes statistical and
research data, clerical, accounting and bookkeeping services and stationery and
office supplies, keeps and maintains the Fund's financial accounts and records
and generally assists in all aspects of the Fund's operations other than
portfolio decisions. FMI, at its own expense and without reimbursement from the
Fund, furnishes office space and all necessary office facilities, equipment and
executive personnel for supervising the Fund's operations. For the foregoing,
FMI receives from the 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.

(e) The Fund's custodian, transfer, dividend disbursing and
shareholder servicing agent is Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202.

(f) The Fund's total expenses as a percentage of average net assets
for the fiscal year ended September 30, 1995 were 0.29% after reimbursements, or
0.70% without giving effect to such reimbursement.

(g) The Fund may pay commissions to a broker which is an affiliated
person of the Fund or of an affiliated person of such person or of the Fund's
investment adviser. The Fund may also allocate brokerage transactions in a
manner that takes into account the sale of shares of Baird Funds. See Item 17.

Item 5A. Not Required.

Item 6. Capital Stock and Other Securities.
----------------------------------

(a) The Fund is closed to new investments and is not offering its
securities for sale. The authorized capital stock of the Company consists of
10,000,000,000 shares, of which 300,000,000 are allocated to the Fund. Each
share outstanding entitles a holder to one vote. Generally shares of the Fund
are voted in the aggregate together with shares of the BQB Fund, and not by each
Fund separately, except when class voting by the BQB Fund and the Fund is
required by Wisconsin law or the 1940 Act (e.g., changes in fundamental
investment policies or approval of a new investment advisory agreement). The
shares of each of the BQB Fund and the Fund have the same preferences,
limitations and rights, except that all consideration received from the sale of
shares of each of the BQB Fund and the Fund, 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 in respect to that
fund's share of the general liabilities of the Company, in the proportion that
the total net assets of the respective fund bears to the aggregate net assets of
the BQB Fund and the Fund. The net asset value per share of each of the BQB
Fund and the Fund is based on the assets belonging to the respective fund less
the liabilities charged to that fund, and dividends are paid on shares of each
of the BQB Fund and the Fund only out of lawfully available assets belonging to
the respective fund. In the event of liquidation or dissolution of the Company,
the shareholders of the BQB Fund and the Fund will be entitled, out of the
assets of the Company available for distribution, to the assets belonging to the
respective fund.

There are no conversion or sinking fund provisions applicable to the
shares of the Fund 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 Company voting for the election of
directors of the Company can elect the entire Board of Directors of the Company
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 Company
has adopted the appropriate provisions in its Bylaws and does not anticipate
holding an annual meeting of shareholders to elect directors unless otherwise
required by the 1940 Act. The Company has also adopted provisions in its Bylaws
for the removal of directors by shareholders. The shares are redeemable and are
transferable. All shares issued and sold by the Fund are 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.

(b) As of January 15, 1996, no person controlled the Company or the
Fund.

(d) Not Applicable.

(e) Shareholders will be provided at least semiannually with a report
showing the Fund's portfolio and other information and annually after the close
of the Fund's fiscal year, which ends September 30, with an annual report
containing audited financial statements. Shareholder inquiries may be made to
the Fund in writing addressed to The Baird Funds, Inc., Attn. Glen F. Hackmann,
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

(f) and (g) See also Item 4. The Fund intends to qualify as, and to
elect to be treated as, a regulated investment company under Subchapter M of the
Code. Pursuant to the requirements of the Code, the Fund intends to distribute
substantially all of its net investment income and net realized capital gains,
if any, to shareholders at least annually so as to avoid paying income and
excise tax on its net investment income and net realized capital gains. For
federal income tax purposes, amounts distributed by the Fund will be taxable to
shareholders, except those shareholders that are not subject to tax on their
income.

The net investment income of the Fund is declared as a dividend each
day to shareholders of record and paid monthly. Shares will not participate in
the dividend declared on the date of redemption. For this purpose, the date of
redemption is the settlement date of the transaction. The settlement date is
normally five business days after the trade date or such other period as may be
required by applicable regulations. 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 dividend 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 is the shareholder's basis in such shares, and on
redemption the gain or loss is equal to the difference between such basis and
the redemption price. Shares purchased pursuant to the dividend reinvestment
program have a basis equal to the amount of the reinvested dividends and/or
capital gains distributions reinvested. The Fund has terminated its dividend
reinvestment program. Distributions and redemptions may also be subject to tax
under state and local tax laws, the provisions of which may differ from those of
the Code.

Item 7. Purchase of Securities Being Offered.
------------------------------------

(a) The Fund is closed to new investments and is not offering its
securities for sale. Previously, Baird served as the Fund's principal
underwriter. Baird is the Fund's investment adviser.

(b) The per share net asset value of the 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 value of the Fund will be determined as of 1:00 p.m. Eastern time on
each day that the New York Stock Exchange is open for trading. These
determinations are applicable to all transactions in shares of the Fund prior to
that time and after the previous time as of which net asset values were
determined.

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 securities for which market quotations
are readily available will generally be valued at the most recent bid price.
Alternatively, securities may be valued on the basis of valuations provided by a
pricing service approved by the Board of Directors. 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 Company's Board of Directors. Valuation techniques may include
the use of market quotations for similar securities, transaction prices for the
same or similar securities, prices provided by broker-dealers or estimates of
market values obtained from yield and other data relating to instruments or
securities with similar characteristics in accordance with procedures
established in good faith by the 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 amortiza-
tion of premiums and accretion of discounts. Odd lot differentials and
brokerage commissions will be excluded in calculating values.

(d) Not Applicable.

(e) See Item 7(f).

(f) Effective December 31, 1994, the Board of Directors of the
Company terminated the Fund's distribution plan pursuant to Rule 12b-1 under the
1940 Act and related agreements with Baird. Accordingly, no further 12b-1 pay-
ments are made by the Fund.

Item 8. Redemption or Repurchase.
------------------------

(a) A shareholder may require the Fund to redeem the shareholder's
shares in whole or in part at any time. Redemption requests must be made in
writing and directed to: Baird Mutual Funds, Attn. Glen F. Hackmann, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. If a redemption request is
inadvertently sent to Firstar Trust Company, it will be forwarded to Baird
Mutual Funds, but the effective date of redemption will be delayed until the
request is received by Baird Mutual Funds. Requests which are subject to any
special conditions or which specify an effective date earlier than as provided
herein cannot be honored.

Redemption requests should specify the name of the Fund, the number of
shares or dollar amount to be redeemed, the shareholder's name, account number,
and the additional requirements listed below that apply to the particular
account.

TYPE OF REGISTRATION REQUIREMENTS

Individual, Joint Tenants, Redemption request signed
Sole Proprietor, Custodial by person(s) required to
(Uniform Gift to Minors sign for the account, ex-
Act), General Partners actly 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 case 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 certif-
icates have been issued for any of the shares to be redeemed, the certificate,
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 the Baird Mutual Funds have been satisfied.

The redemption price is the net asset value next determined after
receipt by the Baird Mutual Funds of the written request in proper form with all
required documentation. The amount received will depend on the value of the
investments in the 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 after receipt by the Baird Mutual Funds of the redemption request in
proper form and all required documentation.

Pursuant to the Agreement and in order to treat all investors fairly
by providing Baird as investment adviser to the Fund sufficient time to seek to
obtain the best possible prices in selling portfolio securities, certain
investors that as of December 23, 1994 held 20,000 or more shares of the Fund
have agreed with Baird to provide Baird with at least seven (7) business days
advance written notice of any intention to request redemption. Such notice
automatically becomes a request for redemption prior to 1:00 p.m. Eastern time
on the seventh business day after the notice is received by Baird.

The Fund imposes 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) by an
investment advisory client (or affiliate of an investment advisory client) of
Baird or (ii) with the proceeds of a redemption of shares of another mutual fund
pursuant to purchase procedures previously in effect for the Fund. The
contingent deferred sales charge is imposed in the event of a redemption
transaction occurring within 12 months following such a purchase. The
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 shares due to capital appreciation, or (c) shares which were 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 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 Fund applies 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.

The right to redeem or require repurchase of shares of the Fund 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 Fund to dispose of its securities or fairly to
determine the value of its net assets.

(b) The Fund will also repurchase shares through Baird. The Fund
will normally accept orders to repurchase shares by wire or telephone from Baird
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. Neither the Fund nor Baird will charge a fee for this
transaction (other than the contingent deferred sales charge, if applicable).
Written redemption requests and other required documentation in proper form must
be sent to Baird, who will then forward such documentation to the Baird Mutual
Funds. A check in payment for shares repurchased will be mailed to the holder
no later than the seventh day after receipt by the Baird Mutual Funds of the
redemption request in proper form and all required documentation.

(c) The Company may, but is not required to, involuntarily redeem all
shares in the account of any Fund shareholder who owns at the time of such
redemption 500 or fewer shares of the Fund.

(d) Not Applicable.

Item 9. Not Applicable.

PART B

INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

Item 10. Cover Page.
----------

This Statement of Additional Information relates to the Baird
Adjustable Rate Income Fund (the "Fund"), a series of The Baird Funds, Inc. (the
"Company"). This Statement of Additional Information is not a prospectus and
should be read in conjunction with Part A of the Baird Funds, Inc. registration
statement relating to the Fund which is attached hereto and dated the date
hereof. This Statement of Additional Information is dated January 26, 1996.

Item 11. Table of Contents.
-----------------

Item Page
---- ----

Item 12 General Information And History
(Also see Item 4)......................................B-1
Item 13 Investment Objectives And Poli-
cies (Also see Item 4).................................B-1
Item 14 Management of the Fund (Also see
Item 5)................................................B-8
Item 15 Control Persons And Principal
Holders of Securities (Also
see Item 6)...........................................B-11
Item 16 Investment Advisory And Other
Services (Also see Item 5)............................B-11
Item 17 Brokerage Allocation And Other
Practices.............................................B-14
Item 18 Capital Stock And Other Securi-
ties (Also see Items 6 and 8).........................B-16
Item 19 Purchase, Redemption And Pricing
of Securities Being Offered
(Also see Items 7 and 8)..............................B-17
Item 20 Tax Status (Also see Item 6)............................B-18
Item 21 Underwriters (Also see Item 7)..........................B-18
Item 22 Calculation of Performance Data.........................B-18
Item 23 Financial Statements....................................B-19

Item 12. Not Applicable. See Part A, Item 4.

Item 13. Investment Objective and Policies.
---------------------------------

(a) See Part A, Item 4.

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) collateralized mortgage
obligations and multiclass pass-through securities; and (iii) 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.

Guaranteed Government Agency Mortgage-Backed Securities 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.

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 for federal
income tax purposes 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 dis-
tribution date. CMO Floaters are a particular type of CMO tranche. 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
allocate among the several classes of 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"). 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 Fund does not own any IO or PO classes.

GENERAL. 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 unexpectedly because the underlying mortgage loans
generally may be prepaid at any time. 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. Baird will monitor the Fund's investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information.

Interest rates on variable rate mortgage-backed securities, including
CMO Floaters, 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 Inter-Bank Offered Rate ("LIBOR") are among the common interest rate
indices.

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 maturity of ten years.

The Eleventh District Cost of Funds Index 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 the Cost of
Funds Index 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
the Cost of Funds Index and may cause the Cost of Funds Index to move in a
manner different from indices based upon specific rates, such as the Ten Year
Constant Maturity Treasury Index. To the extent that the Cost of Funds Index
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, the Cost of Funds Index may remain higher than other
market interest rates.

LIBOR is the interest rate that the most creditworthy international
banks dealing in U.S. dollar-denom-inated 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.

(b) The Fund has adopted the following investment restrictions which
are matters of fundamental policy and cannot be changed without approval of the
holders of the lesser of: (i) 67% of the Fund's shares present or represented
at a shareholders meeting at which the holders of more than 50% of such shares
are present or represented; or (ii) more than 50% of the outstanding shares of
the Fund.

1. The Fund will not purchase securities on margin, participate
in a joint trading account 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.

2. The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940; provided, however, that 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 provided that the Fund will invest 25% or more of its total
assets in mortgage-backed securities under normal market conditions.

6. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund except to the extent that the 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 objective 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.

10. The Fund will not purchase or sell commodities or
commodities contracts.

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.

(c) 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 Fund 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.

(d) For the fiscal years ended September 30, 1995 and September 30,
1994, the Fund's portfolio turnover rate was 3.6% and 143.8%, respectively. The
Fund anticipates that its portfolio turnover rate may in the future be
significantly less than such rate due to changes in the Fund's investment
objective and policies. The annual portfolio turnover rate indicates changes in
the 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.

Item 14. Management of the Fund.
----------------------

(a) and (b)

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*<F1>
- -------------

777 East Wisconsin Avenue
Milwaukee, Wisconsin

Mr. Bell is a Managing Director, a Director and the Chief
Administrative Officer of Baird, the Funds' investment adviser, 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*<F1>
- --------------

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.

*<F1> Messrs. Bell and Zore are directors who are "interested persons" of the
Fund as that term is defined in the 1940 Act.

During the fiscal year ended September 30, 1995 the Company paid
$20,350 in directors' fees to the Company's disinterested directors, including
$19,150 in respect of the Fund and $1,200 in respect of the BQB Fund. The
Company's standard method of compensating directors is to cause each of the Fund
and the BQB Fund to pay to each disinterested director a fee of $100 for each
regularly scheduled meeting of the Board of Directors attended. The Fund also
pays to each disinterested director a fee of $700 for each special meeting of
the Board of Directors attended which is relevant to the Fund. In addition, the
disinterested director on the Pricing Committee of the Fund is paid a fee of
$250 for each committee meeting attended. Fees with respect to committee
meetings of or with respect to the Fund are paid out of the assets of the Fund.

The Fund maintains a Pricing Committee consisting of directors and
officers of the Company. The Pricing Committee oversees the pricing of the
Fund's portfolio securities pursuant to guidelines adopted by the Fund's Board
of Directors.

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 also serves 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.

Item 15. Control Persons and Principal Holders of Securities.
---------------------------------------------------

(a) Not Applicable.

(b) Listed below is the name, address and percent ownership of each
person, who as of December 31, 1995, owned of record or, to the knowledge of the
Company, beneficially 5% or more of the outstanding equity securities of the
Fund:

Percent
Name Address Owned
- ---- ------- -----

Robert W. Baird & Co. 777 E. Wisconsin Avenue 83.92%
Incorporated Milwaukee, WI 53202

Mutual Savings Bank of 4949 W. Brown Deer Road 17.01%*<F2>
Wisconsin Milwaukee, WI 53223

First Federal Savings 605 State Street 10.79%
Bank LaCrosse, WI 54601

Citizens State Bank 220 Grant Street 5.71%*<F2>
Fort Atkinson, WI 53538

*<F2>Such percentages are included in the percentage owned by Robert W. Baird &
Co. Incorporated.

(c) 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
each of the Fund and the Company.

Item 16. Investment Advisory and Other Services.
--------------------------------------

(a) See Item 5. Baird is the investment adviser to the Fund. 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, 1993, September 30, 1994 and
September 30, 1995, the Fund paid Baird advisory fees of $119,475, $614,312 and
$114,266, respectively, and Baird voluntarily waived approximately $142,167,
$409,541 and $478,521, respectively, of advisory fees otherwise payable. During
the fiscal years ended September 30, 1993, September 30, 1994 and september 30,
1995, Baird voluntarily waived such fees and reimbursed other expenses as were
necessary so that total operating expenses of the Fund did not exceed 0.45%,
0.50% and 0.30%, respectively, of the Fund's average net assets. Baird
reimbursed the Fund $361,815, $892,262 and $510,682, respectively (including the
waiver of advisory fees), during the fiscal years ended September 30, 1993,
September 30, 1994 and September 30, 1995. Pursuant to the Agreement, Baird has
agreed to waive all future advisory fees commencing January 1, 1995.

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 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 Advisory Agreement provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties under the Advisory Agreement on the part of Baird, Baird shall not be
subject to liability to the Fund or to any shareholder of the Fund for any act
or omission in the course of, or connected with, rendering services thereunder,
or for any losses that may be sustained in the purchase, holding or sale of any
security. The Advisory Agreement also provides that Baird and its 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.

(b) See Item 5.

(c) The Fund pays all of its own expenses not assumed by Baird
pursuant to the Advisory Agreement or FMI pursuant to the administration
agreement including, but not limited to, the professional costs of preparing and
printing its registration statements required under the Securities Act of 1933,
if any, and the 1940 Act and any amendments thereto, the expense, if any, of
registering its shares with the Securities and Exchange Commission and in the
various states, the printing and distribution cost, if any, 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.
Also see Item 16(d).

(d) See Item 5. FMI is the administrator to the Fund. Pursuant to an
administration agreement (the "Administration Agreement") with the Company, FMI
prepares and maintains the books, accounts and other documents required by the
1940 Act, determines the Fund's net asset value, responds to shareholder
inquiries, prepares the Fund's financial statements and excise tax returns,
prepares reports and filings with the Securities and Exchange Commission,
furnishes statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, keeps and maintains the Fund's
financial accounts and records and generally assists in all aspects of the
Fund's operations other than portfolio decisions. During the fiscal years ended
September 30, 1993, September 30, 1994 and September 30, 1995, the Fund paid FMI
$28,066, $107,684 and $69,577, respectively, pursuant to the Administration
Agreement.

(e) Not Applicable.

(f) Prior to December 27, 1994, the Fund had in place a Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") and a related
Distribution Assistance Agreement with Baird. Effective December 27, 1994, the
Company terminated the Distribution Plan with respect to the Fund and the
related Distribution Assistance Agreement with Baird. Accordingly, the Fund
will make no further payments pursuant to the Plan. The Plan provided that the
Fund could incur certain costs which did not exceed a maximum monthly percentage
of the Fund's daily net assets. The applicable maximum monthly percentage was
1/12 of 0.30% for the Fund (0.30% per annum). Amounts paid under the Plan were
paid to Baird as compensation for its services as distributor of the shares of
the Fund pursuant to the Distribution Assistance Agreement and 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 engaged in or supported
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 were
based on the percentage of utilization in, and time devoted to, distribution
activities.

During the fiscal years ended September 30, 1993, September 30, 1994
and September 30, 1995, the Fund paid Baird fees of $59,738, $307,156 and
$57,133, respectively, pursuant to the Plan and the related Distribution
Assistance Agreement. During such years Baird incurred distribution expenses of
$156,985, $479,135 and $59,963, respectively, of which $4,235, $4,859 and
$1,671, respectively, were related to the printing of the Fund's IRA materials
and prospectuses, $122,167, $167,120 and $0, respectively, were related to costs
incurred with respect to various forms of marketing and $30,583, $307,156 and
$58,292, respectively, were compensation to sales personnel.

(g) Not Applicable.

(h) Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. 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.

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 performs an audit of the Fund's
financial statements and considers the Fund's internal control structure.

(i) Not Applicable.

Item 17. Brokerage Allocation and Other Practices.
----------------------------------------

(a) Over-the-counter securities may be purchased and sold directly
with principal market makers or secondary market participants 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. Brokerage commissions paid by
the Fund during the fiscal years ended September 30, 1993, September 30, 1994
and September 30, 1995 to brokers, other than Baird, totaled $7,500, $9,531 and
$0, respectively, on transactions involving securities having a total market
value of $243,577,058, $617,844,765 and $83,921,051, respectively. During such
years, the Fund paid Baird no brokerage commissions.

(b) Not Applicable.

(c) 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.
Baird may allocate portfolio brokerage on the basis of whether the broker has
sold or is currently selling shares of Baird Funds 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 1940 Act Baird is prohibited
from dealing with the Fund as a principal in the purchase and sale of
securities. Transactions in the over-the-counter securities market frequently
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 issuers 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 Agreement. 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.

(d) All brokers utilized by the Fund during the fiscal years ended
September 30, 1993, and September 30, 1994 and September 30, 1995 provided
research services to Baird.

(e) Not Applicable.

Item 18. Capital Stock and Other Securities.
----------------------------------

(a) See Items 6 and 8. 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 1940 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 1940 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 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.

(b) Not Applicable.

Item 19. Purchase Redemption and Pricing of Securities Being Offered.
--------------------------------------------------- -------

(a) The Fund is closed to new investments and is not offering its
securities for sale.

(b) See Item 7. The net asset value of the Fund is determined as of
1:00 P.M. Eastern time on each day that 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.

Item 20. Tax Status.
----------

See Item 6 (f) and (g). Distributions of the Fund's net investment
income and net realized capital gains are taxable to shareholders as ordinary
income or capital gains, respectively.

The Fund may be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption proceeds if a
shareholder fails to furnish the Fund with his or her social security or other
tax identification number and certify under penalty of perjury that such number
is correct and that he or she is not subject to backup withholding due to the
under-reporting of income.

Item 21. Underwriters.
------------

(a) The Fund is closed to new investments and is not offering its
securities for sale. Baird previously served as the principal underwriter of
the Fund's shares pursuant to a Distribution Agreement between Baird and the
Company (on behalf of the Fund). For the fiscal years ended September 30, 1993,
September 30, 1994 and September 30, 1995, Baird received $84,799, $59,906 and
$112, respectively, in front-end sales commissions on purchases of Fund shares,
all of which it retained, and $570, $1,937 and $1,340, respectively, in deferred
sales commissions relating to the Fund, all of which it retained.

(b) During the fiscal year ended September 30, 1995, Baird received
the following commissions and other compensation from the Fund:

Fees Pursuant
to the Plan
Compensation and Other
Underwriting On Redemption Brokerage Distribution (Investment
Commissions and Repurchase Commissions Assistance Advisory Fees)
- ----------- -------------- ----------- Agreement --------------
------------

$112 $1,340 $0 $57,133 $114,266

Item 22. Not Applicable

Item 23. Financial Statements.
--------------------

The following audited financial statements and notes thereto of the
Fund, together with the report of Price Waterhouse thereon, are included herein:

(a) Report of Independent Accountants.

(b) Statement of Assets and Liabilities as of September 30, 1995.

(d) Statement of Operations for the year ended September 30, 1995.

(e) Statements of Changes in Net Assets for the years ended
September 30, 1995 and 1994.

(f) Financial Highlights.

(g) Notes to Financial Statements.

REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202

(Price Waterhouse Logo)

To the Shareholders and Board of Directors
of Baird Adjustable Rate Income Fund

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, 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 Adjustable Rate Income 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 ADJUSTABLE RATE INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995

ASSETS:
Investments in securities, at value
(amortized cost $87,892,094) $83,950,283
Receivable from investments sold 6,000,000
Interest receivable 385,337
Cash 17,344
Deferred organizational expenses 19,995
-----------
Total assets $90,372,959
-----------
-----------
LIABILITIES:
Dividends payable 510,769
Payable to adviser for deferred expenses 19,995
Other liabilities 37,366
-------
Total liabilities 568,130
-------
NET ASSETS:
Capital Stock, $0.01 par value;
300,000,000 shares authorized;
10,441,551 shares outstanding 103,030,768
Net unrealized depreciation on investments (3,941,811)
Accumulated net realized loss on investments (9,284,128)
-----------
Net assets 89,804,829
-----------
Total liabilities and net assets $90,372,959
-----------
-----------
CALCULATION OF REDEMPTION PRICE:
Net asset value and redemption price per share
($89,804,829 / 10,441,551 shares outstanding) $8.60
-----------
-----------

The accompanying notes to financial statements are an integral part of this
statement.

<TABLE>
SCHEDULE OF INVESTMENTS
September 30, 1995

Principal Amortized Quoted
Amount Cost Market Value
- --------- --------- ------------
LONG-TERM INVESTMENTS 88.1% (A)<F1>
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 88.1 % (B)<F2>
$2,000,000 FNMA 93-72F, 6.044%, due 05/25/08,
(indexed to COFI plus 90bp subject to 10% cap) $2,000,000 $1,926,250

2,954,317 FNMA 93-101FA, 5.994%, due 06/25/08,
(indexed to COFI plus 85bp subject to 10% cap) 2,948,183 2,832,452

4,111,173 FNMA 93-107F, 5.994%, due 06/25/08,
(indexed to COFI plus 85bp subject to 10% cap) 3,683,480 3,942,872

10,000,000 FNMA 92-206FA, 5.40%, due 06/25/18,
(indexed to T10Y minus 75bp subject to 9.5% cap) 9,993,328 9,450,000

5,000,000 FNMA 93-127FA, 5.40%, due 10/25/21,
(indexed to T10Y minus 75bp subject to 9.5% cap) 4,988,134 4,709,375

5,000,000 FNMA 92-33FPAC, 5.70%, due 03/25/22,
(indexed to T10Y minus 45bp subject to 10% cap) 5,011,329 4,729,688

1,000,000 FNMA 92-204FE, 5.65%, due 10/25/22,
(indexed to T10Y minus 50bp subject to 9.5% cap) 1,000,000 909,375

265,799 FHLMC 1433FD, 6.444%, due 11/15/22,
(indexed to COFI plus 130bp subject to 10.5% cap) 265,900 254,337

2,895,511 FNMA G93-17FL, 6.20%, due 04/25/23,
(indexed to T10Y minus 25bp subject to 9.5% cap) 2,895,511 2,756,165

3,000,000 FNMA G93-19FD, 5.50%, due 04/25/23,
(indexed to T10Y minus 65bp subject to 9.5% cap) 2,993,302 2,714,063

5,000,000 FHLMC G10I, 6.02%, due 05/25/23,
(indexed to T10Y minus 55bp subject to 9.5% cap) 4,984,328 4,517,187

11,000,000 FHLMC 1608FD, 6.114%, due 06/15/23,
(indexed to COFI plus 97bp subject to 9.5% cap) 10,971,116 10,501,562

4,509,447 FNMA 93-99F, 6.394%, due 07/25/23,
(indexed to COFI plus 125bp subject to 10% cap) 4,519,941 4,340,344

7,355,168 FNMA 93-182FA, 5.50%, due 09/25/23,
(indexed to T10Y minus 65bp subject to 10% cap) 7,328,214 6,725,383

9,428,129 FHLMC 1614TA, 6.144%, due 11/15/23,
(indexed to COFI plus 100bp subject to 9.5% cap) 9,424,948 9,012,702

4,994,771 FHLMC 1717N, 6.07%, due 04/15/24,
(indexed to T10Y minus 50bp subject to 9.5% cap) 4,848,588 4,593,628
---------- ----------
Total long-term investments 77,856,302 73,915,383

SHORT-TERM INVESTMENTS 11.9% (A)<F1>

FEDERAL AGENCIES - 11.7 %
$10,000,000 FHLB, 5.55%, due 12/29/95 9,862,792 9,861,900
---------- ---------
Total federal agencies 9,862,792 9,861,900

REPURCHASE AGREEMENTS - 0.2 %
173,000 Firstar Trust Company Repurchase Agreement,
5.00%, dated 09/29/95; maturing 10/02/95
(secured by $180,000 U.S. Treasury Note,
5.625%, due 08/31/97) 173,000 173,000
---------- ---------
Total repurchase agreements 173,000 173,000
---------- ----------
Total short-term investments 10,035,792 10,034,900
----------- -----------
TOTAL INVESTMENTS - 100% $87,892,094 $83,950,283
---------- ----------
---------- ----------
(a)<F1>Percentages for the various classifications relate to total investments.
(b)<F2>The coupon rate shown on adjustable rate securities represents the rate
at period end. All coupon rates reset monthly.

COFI = Cost of Funds Index
T10Y = 10 Year Treasury
bp = basis points
FHLB = Federal Home Loan Bank
FHLMC= Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association

The accompanying notes to financial statements are an integral part of this
schedule.

</TABLE>

STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995

INCOME:
Interest $7,904,136
---------
Total income 7,904,136
---------
EXPENSES:
Management fees 592,787
Administrative services 69,577
Distributor fees 59,962
Professional fees 45,419
Custodian fees 31,325
Board of Director fees 19,150
Transfer agent fees 12,289
Amortization of organizational expenses 9,998
Printing and postage expense 3,036
Registration fees 1,115
Other expenses 12,463
--------
Total expenses before reimbursement 857,121

Less expenses assumed by adviser (510,682)
--------
Net expenses 346,439
--------
NET INVESTMENT INCOME 7,557,697
---------
NET REALIZED LOSS ON INVESTMENTS (6,057,608)

NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 6,283,289
----------
NET GAIN ON INVESTMENTS 225,681
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,783,378
---------
---------

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 $7,557,697 $9,697,819
Net realized loss on investments (6,057,608) (7,697,690)
Net increase (decrease) in unrealized
appreciation on investments 6,283,289 (10,375,656)
---------- -----------
Net increase (decrease) in net assets
resulting from operations 7,783,378 (8,375,527)
---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.59 and $0.47 per share, respectively) (7,557,697) (9,706,352)
Distribution from net realized gains
($0.00 per share) - (13,226)
Return of capital distribution
($1.00 per share) (10,441,551) -
----------- ----------
Total distributions (17,999,248) (9,719,578)
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(130,733 and 27,123,674 shares, respectively) 1,173,191 268,605,440
Capital contribution from
Robert W. Baird & Co. Incorporated 4,489,671 -
Net asset value of shares issued in distributions
(11,046 and 42,829 shares, respectively) 99,542 419,409
Cost of shares redeemed (8,154,600 and
23,006,889 shares, respectively) (73,161,040) (225,797,709)
----------- ------------
Net (decrease) increase in net assets
derived from Fund share activities (67,398,636) 43,227,140
----------- -----------
TOTAL (DECREASE) INCREASE (77,614,506) 25,132,035

NET ASSETS AT THE BEGINNING OF THE YEAR 167,419,335 142,287,300
----------- -----------
NET ASSETS AT THE END OF THE YEAR $89,804,829 $167,419,335
----------- -----------
----------- -----------

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

FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)

FOR THE YEAR FROM
OCTOBER 1, 1992*<F3>
FOR THE YEARS ENDED SEPTEMBER 30, TO SEPTEMBER 30,
---------------------------------
1995 1994 1993
---- ---- -----
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year $9.07 $9.95 $10.00
Income from investment operations:
Net investment income 0.59 0.47 0.46
Net realized and unrealized gain
(loss) on investments 0.14 (0.88) (0.05)
---- ----- -----
Total from investment operations 0.73 (0.41) 0.41
Capital contribution from
Robert W. Baird & Co. Incorporated 0.39 - -
Less distributions:
Dividends from net investment income (0.59) (0.47) (0.46)
Distribution from net realized gains (0.00) -
Return of capital distribution (1.00) - -
----- ----- -----
Total from distributions (1.59) (0.47) (0.46)
----- ----- -----
Net asset value, end of year $8.60 $9.07 $9.95
------- ------- -------
------- ------- -------

TOTAL INVESTMENT RETURN****<F6> 12.8% (4.3%) 4.2%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 89,805 167,419 142,287
Ratio of expenses (after reimbursement)
to average net assets**<F4> 0.3% 0.5% 0.4%
Ratio of net investment income
to average net assets***<F5> 6.4% 4.8% 4.3%
Portfolio turnover rate 3.6% 143.8% 79.4%

*<F3>Commencement of Operations.
**<F4>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would have
been 0.7%, 0.9% and 1.1%, respectively, for the years ended September 30,
1995, 1994 and 1993.
***<F5>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 5.9%, 4.4% and 3.6%, respectively.
****<F6>Total return does not include the sales load which existed when the
Fund was open to new investments. The total return for the year ended
September 30, 1995 is computed after giving effect to the capital contribution
from Robert W. Baird & Co. Incorporated. If the Fund had not received this
capital contribution, the total return would have been 8.4% for the year ended
September 30, 1995.

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

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 Adjustable Rate Income 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. In
accordance with the terms of the Agreement discussed in Note 2, the Fund was
closed to new investments effective December 23, 1994. The investment objective
of the Fund is to hold its existing portfolio securities to maturity or until
such time as sales become available at prices consistent with the ability to
liquidate securities at their respective par values.

(a)Securities for which market quotations are readily available are valued at
the most recent bid price. Securities for which there are no readily
available market quotations and other assets are valued at their fair value
as determined in good faith in accordance with policies approved by the
Company's Board of Directors. Valuation techniques may include the use of
market quotations for similar securities, transaction prices for the same or
similar securities, prices provided by broker-dealers or estimates of market
values obtained from yield and other data relating to instruments or
securities with similar characteristics in accordance with procedures
established in good faith by the 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 Collateralized Mortgage Obligations in the Fund
are amortized to weighted average life. Premiums and discounts on other
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 schedule of investments, 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 $8,221,605 of net capital losses which
expire September 30, 2003 and $1,062,523 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)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 was to pay RWB a monthly management fee at the annual rate
of 0.50% of the daily net assets of the Fund. For the period October 1, 1994
through December 31, 1994, RWB voluntarily waived approximately $76,177 of the
management fees due from the Fund under the agreement. In accordance with the
terms of the Agreement discussed below, RWB has permanently waived all future
management fees due from the Fund effective January 1, 1995 (for the period
January 1, 1995 through September 30, 1995, approximately $402,344).

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 0.3% for the year ended September 30, 1995 totaling $29,332. These
voluntary reimbursements to the Fund may be modified or discontinued at any time
by RWB.

The Fund had adopted a Distribution Plan (the ''Plan''), pursuant to Rule 12b-
1 under the Investment Company Act of 1940 with RWB. The Plan provided that the
Fund incur certain costs not to exceed the lesser of a monthly amount equal to
0.30% 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 were paid monthly
to RWB for any activities or expenses primarily intended to result in the sale
of shares of the Fund. For the period October 1, 1994 through December 27, 1994,
RWB voluntarily waived approximately $2,829 of the distribution fees due from
the Fund under the Plan. The Fund terminated the Plan effective December 27,
1994.

During the year ended September 30, 1995, the Company was advised that RWB
received $112 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.

Effective January 13, 1995, RWB and shareholders representing approximately
99% of the Fund's shares outstanding as of August 10, 1994 entered into an
agreement (''Agreement'') resolving a dispute arising out of the 1994 decline in
the Fund's per share net asset value. In accordance with the terms of the
Agreement, RWB made a payment of $4,616,549 ($0.40 per share on the funding
date, February 10, 1995) directly to the Fund on behalf of the Fund shareholders
to compensate the Fund for capital losses realized by the Fund. The payment was
credited directly to the Fund's additional paid-in capital. Legal expenses
incurred by the Fund in conjunction with the Agreement totaling $126,878 or
$0.01 per share were also charged directly against additional paid-in capital.
This net contribution of $4,489,671 was treated as a capital gain for tax
purposes.

(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.

In accordance with the terms of the Agreement, the Fund will seek to maximize
returns of capital to investors by making distributions of substantially all
returns of capital and revenues (subject to retention of cash or cash
equivalents not to exceed the lesser of $5,000,000 or 10% of net assets). Such a
return of capital distribution was paid on September 26, 1995 in the amount of
$10,441,551 ($1.00 per share).

(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 $19,995.

(5) INVESTMENT TRANSACTIONS - For the year ended September 30, 1995, purchases
and proceeds from sales of investment securities of the Fund (excluding short-
term securities) were $3,648,667 and $80,272,384, respectively, and $142,827,428
and $119,205,390, respectively, of short-term U.S. Government Securities.

(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
Dividends payable $510,769
Payable to adviser for deferred expenses 19,995
Other liabilities 37,366

(7) SOURCES OF NET ASSETS - As of September 30, 1995, the sources of net assets
were as follows:
Fund shares issued and outstanding $103,030,768
Net unrealized depreciation on investments (3,941,811)
Accumulated net realized loss on investments (9,284,128)
-----------
$89,804,829
-----------
-----------

Aggregate net unrealized depreciation as of September 30, 1995 consisted of
the following:
Aggregate gross unrealized appreciation $259,392
Aggregate gross unrealized depreciation (4,201,203)
-----------
Net unrealized depreciation $(3,941,811)
-----------
-----------

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.
---------------------------------

(a) Financial Statements

The following financial statements with respect to the Fund are
audited and are included in Part B:

Report of Independent Accountants with respect to Baird
Adjustable Rate Income Fund.

Statement of Assets and Liabilities as of September 30,
1995 for Baird Adjustable Rate Income Fund.

Schedule of Investments as of September 30, 1995 for
Baird Adjustable Rate Income Fund.

Statement of Operations for the year ended September
30, 1995 for Baird Adjustable Rate Income Fund.

Statements of Changes in Net Assets for the years ended
September 30, 1995 and 1994 for Baird Adjustable Rate Income
Fund.

Financial Highlights for Baird Adjustable Rate Income
Fund.
Notes to Financial Statements of Baird Adjustable Rate
income Fund.

(b) Exhibits

(1) Articles of Incorporation (Incorporated by
reference to Exhibit 1 of Registrant's Registration
Statement on Form N-1A (File No. 811-6714) filed June 26,
1992.)

(2) Bylaws (Incorporated by reference to Exhibit 2 of
Registrant's Registration Statement on Form N-1A (File No.
811-6714) filed June 26, 1992.)

(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 (File No. 811-6714)
filed September 10, 1992.)

(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 (File No. 811-6714) filed September
10, 1992.)

(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 (File
No. 811-6714) filed June 26, 1992.)

(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 (File No.
811-6714) filed June 26, 1992.)

(6.1) Not applicable

(6.2) Not applicable

(7) None

(8) Custodian Agreement with Firstar Trust Company
(Incorporated by reference to Exhibit 8 of Registrant's
Registration Statement on Form N-1A (File No. 811-6714)
filed June 26, 1992.)

(9.1) Administration Agreement (Incorporated by refer-
ence to Exhibit 9.1 of Registrant's Registration Statement
on Form N-1A (File No. 811-6714) filed June 26, 1992.)

(9.2) Transfer Agent Agreement with Firstar Trust Com-
pany (Incorporated by reference to Exhibit 9.2 of
Registrant's Registration Statement on Form N-1A (File No.
811-6714) filed June 26, 1992.)

(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 (Incorporated by
reference to Exhibit 9.3 of Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 811-6714)
filed on January 31, 1995.)

(9.4) Agreement and Plan of Reorganization dated
December 20, 1995 between Registrant, on behalf of Baird
Quality Bond Fund, and AIM Funds Group, in behalf of AIM
Income Fund (Incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-48892; 811-6714) filed on January
11, 1996.)

(10) Not applicable

(11) Not applicable

(12) Not applicable

(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 (File No.
811-6714) filed June 26, 1992.)

(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 (File
No. 811-6714) filed June 26, 1992.)

(14.1) Individual Retirement Account (Incorporated by
reference to Exhibit 14.1 of Registrant's Registration
Statement on Form N-1A (File No. 811-6714) filed June 26,
1992.)

(14.2) Defined Contribution Retirement Plan (Incorpo-
rated by reference to Exhibit 14.2 of Registrant's
Registration Statement on Form N-1A (File No. 811-6714)
filed June 26, 1992.)

(14.3) Section 403(b)(7) Retirement Plan
(Incorporated by reference to Exhibit 14.3 of Registrant's
Registration Statement on Form N-1A (File No. 811-6714)
filed June 26, 1992.)

(15.1)None

(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 (File No. 811-6714)
filed June 26, 1992.)

(15.3)None

(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 (File
No. 811-6714) filed June 26, 1992.)

(16) Schedule for Computation of Performance
Quotations with respect to Baird Quality Bond Fund
(Incorporated by reference to Post-Effective Amendment No. 4
to Registrant's Registration Statement on Form N-1A (File
Nos. 33-48892; 811-6714) filed on January 11, 1996.)

(27) Financial Data Schedule for Baird Quality Bond
Fund (Incorporated by reference to Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form N-1Q
(File Nos. 33-48892; 811-6714) filed on January 11, 1996.)

(27.1) Financial Data Schedule for Baird Adjustable
Rate Income Fund.

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 be-
lieve 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 directs, by independent legal counsel in a written
opinion.
Expenses, including attorney's 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 by 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 Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the pay-
ment 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 Act of 1933 registered under the Securities Act
of 1933, 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 Securities Act of 1933 and will be governed by the
final adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser.
----------------------------------------------------

Information regarding the business of the investment adviser is
incorporated by reference to Item 5 in Part A and Item 16 in Part B. For
information as to the business, profession, vocation and employment of a
substantial nature of directors and officers of the investment adviser reference
is made to the investment advisers current Form ADV (File No. 801-7571) filed
under the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.

Item 29. Principal Underwriters.
----------------------
(a) Robert W. Baird & Co. Incorporated, the Baird Quality Bond Fund's
principal underwriter and investment adviser, is the principal underwriter for
Baird Capital Development Fund, Inc. and Baird Blue Chip, Inc. and is the sub-
adviser to Baird Capital Development Fund, Inc. and adviser to Baird Blue Chip
Fund, Inc. and Baird Adjustable Rate Income Fund.

(b) Incorporated by reference to Items 5, 16 and 28.

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 in this Registration Statement.

Item 32. Not Required.

SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly cause 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 26th day of January, 1996.

THE BAIRD FUNDS, INC.
(REGISTRANT)

By: /s/ Marcus C. Low, Jr.
-----------------------------
Marcus C. Low, Jr., President

EXHIBIT INDEX

Exhibit No. Exhibit Page No.
- ----------- ------- --------

(1) Registrant's Articles of Incorporation *<F3>

(2) Registrant's By-Laws *<F3>

(3) None *<F3>

(4.1) Specimen Stock Certificate of Baird Adjustable
Rate Income Fund *<F3>

(4.2) Specimen Stock Certificate of Baird Quality
Bond Fund *<F3>

(5.1) Investment Advisory Agreement of Baird Ad-
justable Rate Income Fund *<F3>

(5.2) Investment Advisory Agreement of Baird Quality
Bond Fund *<F3>

(6.1) Not applicable *<F3>

(6.2) Not applicable *<F3>

(7) None *<F3>

(8) Custodian Agreement with Firstar Trust Company *<F3>

(9.1) Administration Agreement *<F3>

(9.2) Transfer Agent Agreement with Firstar
Trust Company *<F3>

(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 dated *<F3>
December 20, 1995 between Registrant, on behalf
of Baird Quality Bond Fund, and AIM Funds Group,
on behalf of AIM Income Fund

(10) Not applicable

(11) Not applicable

(12) None

(13.1) Subscription Agreement for Baird Quality
Bond Fund *<F3>

(13.2) Subscription Agreement for Baird Adjustable Rate
Income Fund *<F3>

(14.1) Individual Retirement Account *<F3>

(14.2) Defined Contribution Retirement Plan *<F3>

(14.3) Section 403(b)(7) Retirement Plan *<F3>

(15.1) None

(15.2) Distribution Plan for Baird Quality Bond Fund *<F3>

(15.3) None

(15.4) Distribution Assistance Agreement for Baird
Quality Bond Fund *<F3>

(16) Schedule for Computation of Performance
Quotations for Baird Quality Bond Fund *<F3>

(27) Financial Data Schedule for Baird Quality
Bond Fund *<F3>

(27.1) Financial Data Schedule for Baird Adjustable
Rate Income Fund

*<F3>Incorporated by reference as indicated under Part C, Item 24(b) of this
Registration Statement.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BAIRD ADJUSTABLE RATE INCOME 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> 87,892,094
<INVESTMENTS-AT-VALUE> 83,950,283
<RECEIVABLES> 6,385,337
<ASSETS-OTHER> 37,339
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,372,959
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 568,130
<TOTAL-LIABILITIES> 568,130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,030,768
<SHARES-COMMON-STOCK> 10,441,551
<SHARES-COMMON-PRIOR> 18,454,372
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,284,128)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,941,811)
<NET-ASSETS> 89,804,829
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,904,136
<OTHER-INCOME> 0
<EXPENSES-NET> 346,439
<NET-INVESTMENT-INCOME> 7,557,697
<REALIZED-GAINS-CURRENT> (6,057,608)
<APPREC-INCREASE-CURRENT> 6,283,289
<NET-CHANGE-FROM-OPS> 7,783,378
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,557,697
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 10,441,551
<NUMBER-OF-SHARES-SOLD> 130,733
<NUMBER-OF-SHARES-REDEEMED> 8,154,600
<SHARES-REINVESTED> 11,046
<NET-CHANGE-IN-ASSETS> (77,614,506)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (10,262)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 592,787
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 857,121
<AVERAGE-NET-ASSETS> 118,557,452
<PER-SHARE-NAV-BEGIN> 9.07
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 1.00
<PER-SHARE-NAV-END> 8.60
<EXPENSE-RATIO> .003
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>