1940 Act File No. 811-6714
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 X
(Check appropriate box or boxes.)
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THE BAIRD FUNDS, INC.
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(Exact name of Registrant as Specified in Charter)
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 765-3500
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Glen F. Hackmann
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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(Name and Address of Agent for Service)
Copies to:
Conrad G. Goodkind
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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In Amendment No. 9 filed with the Commission on January 29, 1997, the
Registrant terminated its declaration filed pursuant to Rule 24f-2(a)(1)
regarding the registration of an indefinite number of shares because the
Registrant is closed to new investment and does not offer its securities for
sale.
PART A
INFORMATION REQUIRED IN A PROSPECTUS
GENERAL
The Baird Adjustable Rate Income Fund (the "Fund") is closed to new
investments and is not offering its securities for sale. The Registration
Statement of which this Part A is a part is filed only under the Investment
Company Act of 1940 (the "1940 Act") and not under the Securities Act of 1933.
This Part A is, therefore, not a prospectus but includes the information
required by the Securities and Exchange Commission. The date of this Part A is
January 29, 1999.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
Pursuant to an agreement which became effective on January 13, 1995 (the
"Agreement"), 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, except to the extent sales of assets are required to meet
redemptions. When a sale of portfolio securities is necessary to meet
redemptions, the Fund will seek to select securities for disposition with the
objective of minimizing the extent to which any such sale increases or decreases
the average discount from par of the remaining assets of the Fund. The Fund
also seeks to maximize return of capital to investors by making distributions of
substantially all returns of capital and revenues (subject to the policy of
retaining cash and cash equivalents in an amount not to exceed $5,000,000 or 10%
of the Fund's net assets, whichever is less). Until a distribution is made,
accumulated revenues, including returns of capital to the Fund will be held in
cash or cash equivalents. The daily investment income of the Fund is declared
as a dividend each day to shareholders of record and paid monthly.
The investment objective and policies of the Fund may not be changed
without the approval of 70% of all Settling Investors (as defined in the
Agreement).
The Fund invests exclusively in mortgage-backed securities and short-term
investments. Currently, the Fund's investment in mortgage-backed securities
consist of CMO Floaters (as described below) and its short-term investments
consist of repurchase agreements (as described below)
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. Mortgage-backed securities include guaranteed
government agency mortgage-backed securities, which represent participation
interests in pools of residential mortgage loans originated by U.S. governmental
or private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies or instrumentalities. Guaranteed
government agency mortgage-backed securities 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.
Collateralized mortgage obligations ("CMOs") are a form or mortgage-backed
securities. CMOs are securities collateralized by mortgages or other mortgage-
backed securities. In a CMO, a series of bonds or certificates is issued in
multiple classes. Each class of a CMO, often referred to as a "tranche," is
issued at a specific fixed or floating coupon (or interest) rate and has a
stated maturity or final distribution date. Because CMO tranches typically
provide for the periodic payment of principal and are subject to principal
prepayment, the actual duration of a CMO typically will be significantly less
than the stated maturity or final distribution date. In addition, principal
prepayments on the underlying collateral may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
The principal of and interest on the underlying collateral may be allocated
among the several classes of a CMO series in many different ways, some of which
bear substantially more risk than others.
Certain CMO tranches provide for the payment of floating rates of interest
("CMO Floaters"). As of December 31, 1998, approximately 90% of the Fund's net
assets consisted of CMO Floaters issued by agencies or instrumentalities of the
U.S. Government. The CMO Floaters in the Fund's portfolio as of December 31,
1998 all had coupon rates that reset monthly and had stated maturities or final
distribution dates ranging from June 25, 2008 to May 25, 2023. 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. COFI stands for Eleventh District
Cost of Funds Index. These indexes are described in Part B/Statement of
Additional Information.
CMO Floaters typically are reissued with lifetime caps and floors on their
coupon rates. 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. 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 of December 31, 1998, the average dollar
weighted coupon rate cap of the CMO Floaters in the Fund's portfolio was
approximately 9.75% and the average dollar weighted current coupon rate on such
securities was approximately 4.41%.
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
security's stated coupon rate cap and floor. Accordingly, the Fund's net asset
value should fluctuate in a 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. If 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. This will likely result 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. If the coupon rate
on a CMO Floater is so capped, the value of the 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 non-callable fixed-rate instruments.
Risks. The yield characteristics of mortgage-backed securities differ from
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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. Conversely,
for securities purchased at a 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 various 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 prepayment 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 and yield to maturity in the foregoing situations than are fixed
rate CMOs. In addition, 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.
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. The Fund invests its accumulated revenues and
returns of capital in short-term investments until such revenues and returns of
capital are distributed to the Fund's shareholders. Short-term investments are
debt securities or other instruments having a remaining fixed maturity of six
(6) 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 December 31, 1998, approximately 10% of the Fund's net
assets consisted of repurchase agreements involving 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. U.S. Government agency or
instrumentalities include securities which are supported 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. The U.S. Government, its agencies and
instrumentalities do not guarantee the market value of their securities and
consequently the values of them will fluctuate.
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 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.
Risks. When the Fund enters into repurchase agreements, it relies on the
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seller to repurchase the securities. Failure to do so may result in loss for
the Fund if the market value for those securities is less than the repurchase
price. In the event of default by the seller of the repurchase agreement, 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. The Fund will not invest in
repurchase agreements that mature in more than seven days.
MANAGEMENT
Robert W. Baird & Co. Incorporated is the investment adviser to the Fund.
As of December 31, 1998, Baird, through its various investment advisory
departments, managed in excess of $4 billion in assets for individuals, trusts,
estates, corporations and other institutional clients such as employee benefit
plans and foundations. 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. Under the Agreement, Baird has agreed to waive all
advisory fees to which it might otherwise be entitled. Its advisory agreement
with the Fund provided for a monthly fee of 1/12th of 0.50% (0.50% per annum) of
the daily net assets of the Fund.
PORTFOLIO MANAGEMENT. 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.
EXPENSES
The Fund's total annual operating expenses for fiscal year 1998 were 0.37%
after fee waivers and expense reimbursements, or 0.87% without giving effect to
such waivers and reimbursements. Total annual operating expenses are expected
to be higher in fiscal year 1999 as a result of a smaller asset base.
SHAREHOLDER INFORMATION
NO PURCHASES. The Fund has been closed to new investments since December
23, 1994 and is not offering its securities for sale.
HOW TO REDEEM SHARES. You may require the Fund to redeem your shares in
whole or in part at any time. Your redemption request must be made in writing
and directed to:
Baird Mutual Funds
Attention: Glen F. Hackmann
777 East Wisconsin Avenue
Milwaukee, WI 53202
Your redemption request should specify the number of shares or dollar
amount to be redeemed, your name and account number, and the additional
requirements listed below that apply to the particular account.
TYPE OF REGISTRATION REQUIREMENTS
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Individual, Joint Tenants, Redemption request signed by person(s)
Sole Proprietor, Custodial required to sign for the account, exactly
(Uniform Gift to Minors Act), as it is registered.
General Partners
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 you are not included in any of the above registration categories (e.g.
executors, administrators, conservators or guardians), you should call the
transfer agent, Firstar Trust Company (414-765-4124), for further redemption
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 you have a certificate 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. See "Determination of Net Asset Value" above. 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. The Fund reserves the right to pay redemption
proceeds with its portfolio securities.
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.
SUSPENSION OF REDEMPTIONS. 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.
REPURCHASES THROUGH BAIRD. 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. 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.
INVOLUNTARY REDEMPTIONS OF SMALL ACCOUNTS. The Fund 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.
REDEMPTIONS IN KIND. The Fund may redeem shares in cash or in kind.
DETERMINATION OF NET ASSET VALUE. The per share net asset value of the
Fund is determined by dividing the total value of its net assets (meaning its
assets minus 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.
The Fund's portfolio securities are generally valued at their market
prices. In some cases, securities may be valued on the basis of valuations
provided by a pricing service approved by the Fund's 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 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 a 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 60 days or less when purchased
and debt securities originally purchased with maturities in excess of 60 days
but which currently have maturities of 60 days or less or valued at cost
adjusted for amortization of premiums and accretion of discounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES. Dividends from the net investment
income of the Fund are declared each day and paid monthly. Distributions of net
realized gains, if any, for the Fund are declared at least once per year. All
of the Fund's dividends and distributions will be paid in cash and are subject
to tax.
Dividends of net investment income will be taxed as ordinary income.
Capital gain distributions may be taxed at different rates depending on the
length of time the Fund has held the securities sold. Distributions made by the
Fund will consist primarily of ordinary income unless portfolio securities are
sold.
OTHER INFORMATION. Fiduciary Management, Inc. is the administrator of the
Fund. Firstar Bank Milwaukee, N.A. is the Fund's custodian, and Firstar Mutual
Funds Services, LLP is its transfer, dividend disbursing and shareholder
servicing agent.
You will be provided at least semi-annually with a report showing the
Fund's portfolio and other information and annually after the close of the
Fund's September 30 fiscal year with an annual report containing audited
financial statements. Inquiries may be made to the Fund in writing addressed
to: The Baird Funds, Inc., Attention: Glen F. Hackmann, 777 East Wisconsin
Avenue, Milwaukee, WI 53202.
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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 29, 1999.
TABLE OF CONTENTS
PAGE
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FUND HISTORY B-2
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS B-2
MANAGEMENT OF THE FUND B-7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES B-10
INVESTMENT ADVISORY AND OTHER SERVICES B-11
BROKERAGE ALLOCATION AND OTHER PRACTICES B-13
CAPITAL STOCK AND OTHER SECURITIES B-14
TAXATION OF THE FUND B-15
UNDERWRITERS B-16
FINANCIAL STATEMENTS B-16
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FUND HISTORY
GENERAL
The Fund is a series of The Baird Funds Inc., a Wisconsin corporation (the
"Company"). The Fund commenced operations on October 1, 1992. The Fund is the
only mutual fund portfolio of the Company. The Company is registered as a
diversified, open-end, management investment company under the Investment
Company Act of 1940 (the "1940 Act").
AGREEMENT
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,
entered into an Agreement (the "Agreement") that became effective on January 13,
1995. The Agreement resolved a dispute arising out of a decline in 1994 of the
Fund's per share net asset value. Pursuant to the Agreement, the investment
objective and certain policies of the Fund were revised and Baird made a payment
of $.40 per share to the Fund with regard to all issued and outstanding shares
on the date of such payment (which was made on February 10, 1995). This payment
was intended to compensate the Fund for capital losses it realized.
Under the Agreement, the Fund was permanently closed to new investments.
In addition, Baird permanently waived all future management fees. In accordance
with the Agreement, 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),
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except to the extent sales of portfolio securities are required to meet
redemptions. If the sale of portfolio securities is necessary to meet
redemptions or to make other distributions, the policy of the Fund is to seek,
in the sole discretion of Baird, to select securities for disposition with the
objective of minimizing the degree to which any such disposition will increase
or decrease the average discount from par value of the remaining assets of the
Fund. 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 million or
10% of net assets).
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund's portfolio securities consist 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 securities include Guaranteed
Government Agency Mortgage-Backed Securities and collateralized mortgage
obligations.
GUARANTEED GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES. Mortgage-backed
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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 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.
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. Mortgage-backed securities include
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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 distribution
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.
GENERAL. The yield characteristics of mortgage-backed securities differ
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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. Certain classes of CMOs 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. 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 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") are some 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.
INVESTMENT RESTRICTIONS
FUNDAMENTAL. 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.
NON-FUNDAMENTAL. 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 % 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.
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.
TURNOVER. For each of the fiscal years ended September 30, 1998 and 1997,
the Fund's portfolio turnover rate was 0%. The Fund anticipates that its
portfolio turnover rate will continue to be low 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.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS. Under applicable law, the Company's Board of
----------------------
Directors is responsible for management of the Fund and provides broad
supervision over its affairs. Baird is responsible for the Fund's investment
management, and the Company's officers are responsible for the Fund's
operations. The directors and officers of the Company and their principal
occupations during the past five years are set forth below. Unless otherwise
indicated, the address of each director and officer of the Company is 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. Asterisks indicate those
directors of the Company who are "interested persons" of the Fund by virtue of
their affiliation with Baird.
<TABLE>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS WITH COMPANY DURING PAST 5 YEARS
- --------------------- ------------- -----------------------
<S> <C> <C>
James D. Bell*, 59 Director Managing Director and a Director of Baird
Reverend Albert J. Diulio, S.J., 55 Director Visiting Professor at Stanford University and Santa Clara University
Jesuit Community (since August 1996); President of Marquette University (from 1992 to
Santa Clara University July, 1996); President of Xavier University (from 1986 to 1990);
500 El Camino Real Associate Dean, College of Business, Marquette University (from 1984
Santa Clara, CA 95053 to 1986); Director of Allen-Edmonds Shoe Company
George C. Kaiser, 66 Director Sole proprietor of George Kaiser & Co.; Chairman and Chief Executive
759 North Milwaukee Street Officer of Hanger Tight Company; Director of Roundy's, Inc., Luitink,
Suite 608 Inc., Bliss Communications, Inc., and PNS Investments; Chairman of the
Milwaukee, WI 53202 Board of International Retail Service Group, Ltd.
Allan H. Selig, 64 Director Commissioner of Major League Baseball; formerly President and Chief
777 East Wisconsin Avenue Executive Officer of the Milwaukee Brewers Baseball Club, Inc.;
Suite 2010 Director of Oil-Dri Corporation of America, Indus Inc., the Green
Milwaukee, WI 53202 Bay Packers and Marcus Corporation
Edward J. Zore*, 53 Director Executive Vice President of The Northwestern Mutual Life Insurance
720 East Wisconsin Avenue Company; Director of Northwestern Mutual Investment Services, LLC, MGIC
Milwaukee, WI 53202 Investment Corporation, Northwestern Mutual Life International,
Northwestern International Holdings, Inc., Northwestern Investment
Management Company and Northwestern Long-Term Care Insurance Company
Marcus C. Low, Jr., 61 President Managing Director of Baird; formerly, President of Baird Blue Chip
Fund, Inc. and Baird Capital Development Fund, Inc.
Laura H. Gough, 38 Vice President Senior Vice President of Baird and Director of Baird's Retirement Plan
Department; formerly, Vice President of Baird Blue Chip Fund, Inc. and
Baird Capital Development Fund, Inc.
Mary Ann Taylor, 48 Vice President Senior Vice President of Baird and the Director of Baird's NML Product
Marketing Department; formerly, Vice President of Baird Blue Chip Fund,
Inc. and Baird Capital Development Fund, Inc.
Glen F. Hackmann, 57 Secretary and Treasurer Managing Director, Secretary and General Counsel and a member of the
Board of Directors of Baird; formerly, Secretary and Treasurer of Baird
Blue Chip Fund, Inc. and Baird Capital Development Fund, Inc.
</TABLE>
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.
COMPENSATION. During the fiscal year ended September 30, 1998, the Company
paid $9,950 in director fees to the Company's disinterested directors. The
Company's standard method of compensating directors is to cause the Fund to pay
to each disinterested director a fee of $700 for each meeting of the Board of
Directors attended. In addition, the disinterested director on the Pricing
Committee of the Fund is paid a fee of $250 for each committee meeting attended.
The table below shows fees paid to Directors of the Company for the year
ended September 30, 1998. The Company made no payments to its officers or
directors who are affiliated with Baird.
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ACCRUED ESTIMATED FROM COMPANY
NAME OF PERSON AGGREGATE AS PART OF ANNUAL AND COMPANY
AND POSITION COMPENSATION COMPANY BENEFITS UPON COMPLEX PAID
WITH COMPANY FROM COMPANY EXPENSES RETIREMENT TO DIRECTORS
----------- ----------- -------- ----------- ------------
James D. Bell, 0 0 0 0
Director
Albert J. Diulio, $2,800 0 0 $2,800
S.J., Director
George C. Kaiser, $4,350 0 0 $4,350
Director
Allan H. Selig, $2,800 0 0 $2,800
Director
Edward J. Zore, 0 0 0 0
Director
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) As set forth below, Mutual Savings Bank owned beneficially 67.86% of
the outstanding voting securities of the Fund. On the basis of its stock
ownership, Mutual Savings Bank may be deemed to control the Fund. Although such
stock ownership does not affect the voting rights of other shareholders of the
Fund, it gives Mutual Savings Bank considerable power in determining the outcome
of matters put to a vote of shareholders.
(b) Listed below is the name, address and percent ownership of each
person, who as of December 31, 1998, owned of record or, to the knowledge of the
Company, beneficially 5% or more of the outstanding equity securities of the
Fund:
NAME ADDRESS PERCENT OWNED
- ---- ------- -------------
Robert W. BAIRD & 777 E. WISCONSIN AVENUE 99.33%
CO. INCORPORATED MILWAUKEE, WI 53202
MUTUAL SAVINGS BANK 4949 W. BROWN DEER ROAD 67.86%*<F1>
MILWAUKEE, WI 53223
ABBOTSFORD STATE BANK P.O. BOX 648 13.75%*<F1>
ABBOTSFORD, WI 54405
- --------------------------
*<F1> Such percentages are included in the percentage owned of record by
Robert W. Baird & Co. Incorporated.
As of December 31, 1998, 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.
INVESTMENT ADVISORY AND OTHER SERVICES
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, 1996, September 30, 1997 and September 30, 1998, the Fund paid no
advisory fees to Baird (after fee waivers), and Baird voluntarily waived
approximately $364,969, $151,500 and $109,877, respectively, of advisory fees
otherwise payable. During the fiscal years ended September 30, 1996, September
30, 1997 and September 30, 1998, total operating expenses of the Fund (after
Baird's fee waivers and expense reimbursements) were 0.25%, 0.31% and 0.37%,
respectively, of the Fund's average net assets. Pursuant to the Agreement,
Baird has agreed to waive all future advisory fees commencing January 1, 1995.
Under the Advisory Agreement, 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. 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. Baird also 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).
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 60 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.
ADMINISTRATIVE SERVICES
Fiduciary Management, Inc. ("FMI") supervises all aspects of the Fund's
operations except those performed by Baird pursuant to an Administration
Agreement. 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 investment 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
administrative operations. For the foregoing, FMI receives from the Fund a
monthly fee of 1/12th 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 Fund's daily
net assets over $20,000,000. During the fiscal years ended September 30, 1996,
September 30, 1997 and September 30, 1998, the Fund paid FMI $46,631, $25,189
and $20,991, respectively, pursuant to the Administration Agreement.
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).
UNDERWRITER. 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
makes no further payments pursuant to the Plan.
During the fiscal years ended September 30, 1996, 1997 and 1998, the Fund
paid no Baird fees pursuant to the Plan and the related Distribution Assistance
Agreement. During such years Baird incurred no distribution expenses.
CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING
AGENT. Firstar Bank Milwaukee, N.A., 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. Firstar Mutual Fund Services,
LLC, 615 East Michigan Street, Third Floor, Milwaukee, Wisconsin 53202 serves as
transfer, dividend disbursing and shareholder servicing agent for the Fund.
ACCOUNTANTS. PricewaterhouseCoopers 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, PricewaterhouseCoopers performs an audit of the Fund's
financial statements and considers the Fund's internal control structure.
BROKERAGE ALLOCATION AND OTHER PRACTICES
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. The Fund did not pay any
brokerage commissions during the fiscal years ended September 30, 1996,
September 30, 1997 and September 30, 1998 on transactions involving securities
having a total market value of $29,064,933, $22,689,038 and $2,188,299,
respectively.
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.
All brokers (if any) utilized by the Fund during the fiscal years ended
September 30, 1996, 1997 and 1998 provided research services to Baird.
CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Company consists of 10,000,000,000
shares of Common Stock, of which 300,000,000 are allocated to the Fund. The
Fund is currently the only series of the Company. Each share outstanding
entitles a holder to one vote. 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 are voting for the election of directors can elect for 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. 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.
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.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
The Fund is closed to new investments and is not offering its securities
for sale. Shares may be redeemed in the manner described in Part A.
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.
TAXATION OF THE FUND
The Fund intends to qualify as, and to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. Pursuant to
the requirements of the Internal Revenue 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. If the Fund were to fail to qualify as a regulated investment company
under the Internal Revenue Code, it would be treated as a regular corporation
whose net taxable income (including dividends and net capital gains) would be
subject to income tax at the corporate level and distributions to shareholders
would be subject to a second tax at the shareholder level.
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.
UNDERWRITERS
The Fund has been closed to new investments since December 23, 1994 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, 1996, 1997 and 1998, Baird received no front-end sales commissions
on purchases of Fund shares and no deferred sales commissions relating to the
Fund.
During the fiscal year ended September 30, 1998, Baird received the
following commissions and other compensation from the Fund:
FEES PURSUANT TO
THE PLAN AND
COMPENSATION DISTRIBUTION OTHER
UNDERWRITING ON REDEMPTION BROKERAGE ASSISTANCE (INVESTMENT
COMMISSIONS AND REPURCHASE COMMISSIONS AGREEMENT ADVISORY FEES)
---------- -------------- ----------- --------- --------------
$0 $0 $0 $0 $0
FINANCIAL STATEMENTS
The following audited financial statements and notes thereto of the Fund,
together with the report of PricewaterhouseCoopers LLP thereon, are included
herein:
(a) Report of Independent Accountants.
(b) Statement of Net Assets as of September 30, 1998.
(c) Statement of Operations for the year ended September 30, 1998.
(d) Statements of Changes in Net Assets for the years ended September 30,
1998 and 1997.
(e) Financial Highlights.
(f) Notes to Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS 100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
(PricewaterhouseCoopers Logo)
To the Shareholders and Board of Directors
of Baird Adjustable Rate Income Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Baird Adjustable Rate Income Fund (the "Fund") at September 30, 1998, 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 five 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, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ PricewaterhouseCoopers LLP
October 27, 1998
BAIRD ADJUSTABLE RATE INCOME FUND
STATEMENT OF NET ASSETS
September 30, 1998
<TABLE>
Principal Amortized Market
Amount Cost Value
-------- -------- ------
<C> <C> <C>
LONG-TERM INVESTMENTS 99.3% (A)<F2>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 99.3% (B)<F3>
$2,954,317 FNMA 93-101FA, 5.761%, due 06/25/08,
(indexed to COFI plus 85bp subject to 10% cap) $2,950,116 $2,905,387
4,111,173 FNMA 93-107F, 5.761%, due 06/25/08,
(indexed to COFI plus 85bp subject to 10% cap) 3,819,822 4,039,228
5,000,000 FNMA 93-127FA, 4.08%, due 10/25/21,
(indexed to T10Y minus 75bp subject to 9.50% cap) 4,992,192 4,746,875
5,000,000 FNMA 92-33FPAC, 4.38%, due 03/25/22,
(indexed to T10Y minus 45bp subject to 10% cap) 5,008,029 4,825,000
5,000,000 FHLMC G10I, 4.84%, due 05/25/23,
(indexed to T10Y minus 55bp subject to 9.50% cap) 4,986,908 4,607,812
----------- -----------
Total long-term investments 21,757,067 21,124,302
SHORT-TERM INVESTMENTS 0.9% (A)<F2>
REPURCHASE AGREEMENTS -- 0.9%
192,000 Firstar Bank Milwaukee Repurchase Agreement,
3.50%, dated 09/30/98; maturing 10/01/98,
(collateralized by $196,508 U.S. Treasury Note,
7.88%, due 08/15/01) 192,000 192,000
----------- -----------
Total short-term investments 192,000 192,000
----------- -----------
Total investments $21,949,067 21,316,302
-----------
-----------
Liabilities, less cash and
receivables (0.2%) (A)<F2> (39,381)
-----------
Net Assets $21,276,921
-----------
-----------
Net Asset Value Per Share ($0.01 par value,
300,000,000 shares authorized), redemption price
($21,276,921 / 2,437,375 shares outstanding) $8.73
-----------
-----------
</TABLE>
(a)<F2>Percentages for the various classifications relate to net assets.
(b)<F3>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
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
The accompanying notes to financial statements are an integral part of this
statement.
BAIRD ADJUSTABLE RATE INCOME FUND
STATEMENTOFOPERATIONS
For the Year Ended September 30, 1998
INCOME:
Interest $1,255,936
----------
Total income 1,255,936
----------
EXPENSES:
Management fees 109,877
Professional fees 21,892
Administrative services 20,991
Transfer agent fees 12,032
Board of Director fees 9,950
Custodian fees 8,009
Printing and postage expense 3,355
Other expenses 5,437
----------
Total expenses before management fee waiver 191,543
Less fee waived by adviser (109,877)
----------
Net expenses 81,666
----------
NET INVESTMENT INCOME 1,174,270
----------
NET REALIZED LOSS ON INVESTMENTS (77,541)
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (410)
----------
NET LOSS ON INVESTMENTS (77,951)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,096,319
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
BAIRD ADJUSTABLE RATE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
1998 1997
------------ ------------
OPERATIONS:
Net investment income $ 1,174,270 $ 1,770,920
Net realized loss on investments (77,541) (884,829)
Net (decrease) increase in
unrealized appreciation on investments (410) 1,293,219
------------ ------------
Net increase in net assets
resulting from operations 1,096,319 2,179,310
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
($0.47 and $0.51 per share, respectively) (1,174,270) (1,770,920)
------------ ------------
FUND SHARE ACTIVITIES:
Cost of shares redeemed (357,373 and
2,602,800 shares, respectively) (3,126,266) (22,694,642)
------------ ------------
Net decrease in net assets
derived from Fund share activities (3,126,266) (22,694,642)
------------ ------------
TOTAL DECREASE (3,204,217) (22,286,252)
NET ASSETS AT THE BEGINNING OF THE YEAR 24,481,138 46,767,390
------------ ------------
NET ASSETS AT THE END OF THE YEAR $ 21,276,921 $ 24,481,138
------------ ------------
------------ ------------
The accompanying notes to financial statements are an integral part of these
statements.
BAIRD ADJUSTABLE RATE INCOME FUND
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
<TABLE>
FOR THE YEAR FROM
OCTOBER 1, 1992*<F4>
FOR THE YEARS ENDED SEPTEMBER 30, TO SEPTEMBER 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year $ 8.76 $ 8.66 $ 8.60 $ 9.07 $ 9.95 $10.00
Income from investment operations:
Net investment income 0.47 0.51 0.50 0.59 0.47 0.46
Net realized and unrealized gain
(loss) on investments (0.03) 0.10 0.06 0.14 (0.88) (0.05)
------- ------- ------- ------- ------- -------
Total from investment operations 0.44 0.61 0.56 0.73 (0.41) 0.41
Capital contribution from
Robert W. Baird & Co. Incorporated -- -- -- 0.39 -- --
Less distributions:
Dividends from net
investment income (0.47) (0.51) (0.50) (0.59) (0.47) (0.46)
Distribution from net realized gains -- -- -- -- (0.00) --
Return of capital distribution -- -- -- (1.00) -- --
------- ------- ------- ------- ------- -------
Total from distributions (0.47) (0.51) (0.50) (1.59) (0.47) (0.46)
------- ------- ------- ------- ------- -------
Net asset value, end of year $ 8.73 $ 8.76 $ 8.66 $ 8.60 $ 9.07 $ 9.95
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN****<F7> 5.1% 7.2% 6.7% 12.8% (4.3%) 4.2%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 21,277 24,481 46,767 89,805 167,419 142,287
Ratio of expenses (after waiver
and/or reimbursement)
to average net assets**<F5> 0.37% 0.31% 0.25% 0.29% 0.51% 0.38%
Ratio of net investment income
to average net assets*** <F6> 5.34% 5.86% 5.85% 6.37% 4.82% 4.31%
Portfolio turnover rate 0.0% 0.0% 0.0% 3.6% 143.8% 79.4%
</TABLE>
*<F4> Commencement of operations.
**<F5> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been 0.87%, 0.81%, 0.75%, 0.72%, 0.95% and 1.07%,
respectively, for the years ended September 30, 1998, 1997, 1996,
1995, 1994 and 1993.
***<F6> The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended
September 30, 1998, 1997, 1996, 1995, 1994 and 1993 would have been
4.84%, 5.35%, 5.35%, 5.94%, 4.38% and 3.62%, respectively.
****<F7> 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 this
statement.
BAIRD ADJUSTABLE RATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- The following is a summary of
significant accounting policies of the Baird Adjustable Rate Income Fund (the
"Fund"), a portfolio of The Baird Funds, Inc. (the "Company"), which is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940. The Company was incorporated under the laws of
Wisconsin on June 26, 1992 and the Fund commenced operations on October 1, 1992.
In accordance with the terms of the Agreement discussed in Note 1(a), 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 except to the
extent sales of assets are required to meet redemptions.
(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.
Effective January 13, 1995, Robert W. Baird &Co. Incorporated ("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.
(b) Premiums and discounts on Collateralized Mortgage Obligations held by the
Fund are amortized to weighted average life. Premiums and discounts on
other securities are amortized to maturity. For financial reporting
purposes, investment transactions are recorded on trade date. Cost amounts,
as reported in the statement of net assets, are the same for Federal income
tax purposes.
(c) Net realized gains and losses are computed on the identified cost basis.
(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 net investment company taxable income and net
capital gains 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, $1,062,523, $1,740,857 and $578,247 of net capital
losses which expire September 30, 2003, 2004, 2005 and 2006, respectively.
The Fund has $41 of post-October losses. These amounts 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 differences
between income for financial reporting and tax purposes be reclassified in
the capital accounts.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES -- The Fund has a management agreement with RWB, with whom certain
officers and directors of the Fund are affiliated, to serve as investment
adviser and manager. Under the terms of the management 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. In accordance with the terms of the Agreement, RWB has
permanently waived all future management fees due from the Fund effective
January 1, 1995. For the year ended September 30, 1998, RWB waived $109,877 of
management fees.
During the year ended September 30, 1998, the Company was advised that the
Fund did not pay any brokerage fees to RWB on the execution of purchases and
sales of portfolio securities.
(3) DISTRIBUTION TO SHAREHOLDERS -- Dividends from net investment income for the
Fund are declared daily and paid monthly. Distributions of net realized gains,
if any, for the Fund, will be declared at least once a year.
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 not paid for the year ended September 30,
1998.
(4) INVESTMENT TRANSACTIONS -- For the year ended September 30, 1998, purchases
and proceeds from sales of investment securities of the Fund (excluding short-
term securities) were $- 0 - and $2,188,299, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES -- As of September 30, 1998,
liabilities of the Fund included the following:
Other liabilities $12,675
(6) SOURCES OF NET ASSETS -- As of September 30, 1998, the sources of net assets
were as follows:
Fund shares issued and outstanding $ 33,512,959
Net unrealized depreciation on investments (632,765)
Accumulated net realized loss on investments (11,603,273)
-------------
$ 21,276,921
-------------
-------------
Aggregate net unrealized depreciation as of September 30, 1998 consisted of
the following:
Aggregate gross unrealized appreciation $ 219,406
Aggregate gross unrealized depreciation (852,171)
-------------
Net unrealized depreciation $ (632,765)
-------------
-------------
BAIRD LOGO)
A NORTHWESTERN MUTUAL COMPANY
Robert W. Baird & Co. Incorporated
777 E. Wisconsin Avenue, Milwaukee, WI 53202
Phone 414 765-3500. Toll Free 1-800-RW-BAIRD
(c)1998 Robert W. Baird & Co. Incorporated
PART C
OTHER INFORMATION
Item 23.
(a) Articles of Incorporation (Incorporated by reference to Exhibit 1 of
the Company's Registration Statement on Form N-1A (File No. 811-6714) filed June
26, 1992.)
(b) Bylaws (Incorporated by reference to Exhibit 2 of the Company's
Registration Statement on Form N-1A (File No. 811-6714) filed June 26, 1992.)
(c) Specimen Stock Certificate of the Fund (Incorporated by reference to
Exhibit 4.1 of Pre-Effective Amendment No. 1 of the Company's Registration
Statement on Form N-1A (File No. 811-6714) filed September 10, 1992.)
(d) Investment Advisory Agreement of the Fund (Incorporated by reference
to Exhibit 5.1 of the Company's Registration Statement on Form N-1A (File No.
811-6714) filed June 26, 1992.)
(e) Not applicable
(f) None
(g) 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.)
(h)(1) Administration Agreement (Incorporated by reference to Exhibit
9.1 of Registrant's Registration Statement on Form N-1A (File No. 811-6714)
filed June 26, 1992.)
(h)(2) Transfer Agent Agreement with Firstar Trust Company (Incorporated
by reference to Exhibit 9.2 of Registrant's Registration Statement on Form N-1A
(File No. 811-6714) filed June 26, 1992.)
(i) Not applicable
(j) Not applicable
(k) Not applicable
(l) 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.)
(m) None.
(n) Financial Data Schedule for the Fund.
Item 24. Persons Controlled by or under Common Control with the Fund.
------------------------------------------------------------
The Fund is not controlled by any person. The Fund neither controls any
person nor is under common control with any person. However, Mutual Savings
Bank beneficially owns 67.86% of the outstanding shares of the Fund and may be
deemed to control the Fund.
Item 25. Indemnification.
----------------
The Wisconsin Business Corporation Law and Article VII of the Company's
Bylaws provide for the indemnification of the Company'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 the
Company and any person similarly serving another enterprise at the request of
the Company 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 the
Company, and with respect to any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful; provided that the Company 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 the Company 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 the Company 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)
the Company 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 the Company, 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 the Company pursuant to the foregoing provisions or
otherwise, the Company 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 payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company 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, the Company 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 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
Robert W. Baird & Co. Incorporated ("Baird") is investment adviser for the
Fund. Information regarding the business of Baird is incorporated by reference
to Part A and Part B. For information as to the business, profession, vocation
and employment of a substantial nature of directors and officers of Baird
reference is made to Baird's current Form ADV (File No. 801-7571) filed under
the Investment Advisers Act of 1940, as amended, incorporated herein by
reference.
Item 27. Principal Underwriters.
-----------------------
(a) None. The Fund is closed to new investments and is not offering its
securities for sale. Robert W. Baird & Co. Incorporated, the Fund's investment
adviser, previously served as the principal underwriter for the Fund.
(b) Not applicable.
(c) Not applicable.
Item 28. Location of Accounts and Records.
---------------------------------
All accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the physical possession of the Company's Secretary, Glen F.
Hackmann, at the Company'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 29. Not applicable.
Item 30. Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act, the Company has
duly cause this 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 29th day of January, 1999.
THE BAIRD FUNDS, INC.
By:----------------------------------------
Glen F. Hackman, Secretary and Treasurer
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE NO.
- ---------- ------- --------
(a) Registrant's Articles of Incorporation *<F8>
(b) Registrant's Bylaws *<F8>
(c) Specimen Stock Certificate of Baird Adjustable
Rate Income Fund *<F8>
(d) Investment Advisory Agreement of Baird
Adjustable Rate Income Fund *<F8>
(e) Not applicable
(f) None
(g) Custodian Agreement with Firstar Trust Company *<F8>
(h)(1) Administration Agreement *<F8>
(h)(2) Transfer Agent Agreement with Firstar Trust Company *<F8>
(i) Not applicable
(j) Not applicable
(k) Not applicable
(l) Subscription Agreement for Baird Adjustable
Rate Income Fund *<F8>
(m) None
(n) Financial Data Schedule for Baird Adjustable
Rate Income Fund
*<F8> Incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889165
<NAME> THE BAIRD FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> BAIRD ADJUSTABLE RATE INCOME FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21,923
<INVESTMENTS-AT-VALUE> 21,290
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,290
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 13
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,513
<SHARES-COMMON-STOCK> 2,437
<SHARES-COMMON-PRIOR> 2,795
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,603)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (633)
<NET-ASSETS> 21,277
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,256
<OTHER-INCOME> 0
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> 1,174
<REALIZED-GAINS-CURRENT> (77)
<APPREC-INCREASE-CURRENT> (1)
<NET-CHANGE-FROM-OPS> 1,096
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,174
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 358
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,204)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,526)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 110
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192
<AVERAGE-NET-ASSETS> 21,975
<PER-SHARE-NAV-BEGIN> 8.76
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (.03)
<PER-SHARE-DIVIDEND> .47
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.73
<EXPENSE-RATIO> .37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
