ck0001282693-20221231
BAIRD
FUNDS, INC.
Statement
of Additional Information
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| Baird
Mid Cap Growth Fund |
Baird
Chautauqua International Growth Fund |
| (Investor
Class: BMDSX) |
(Investor
Class: CCWSX) |
| (Institutional
Class: BMDIX) |
(Institutional
Class: CCWIX) |
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| Baird
Small/Mid Cap Growth Fund |
Baird
Chautauqua Global Growth Fund |
| (Investor
Class: BSGSX) |
(Investor
Class: CCGSX) |
| (Institutional
Class: BSGIX) |
(Institutional
Class: CCGIX) |
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| Baird
Equity Opportunity Fund |
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| (Investor
Class: BSVSX) |
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| (Institutional
Class: BSVIX) |
|
May 1,
2023
This
Statement of Additional Information (“SAI”) is not a prospectus and should be
read in conjunction with the Prospectus dated May 1, 2023, of the Baird Mid
Cap Growth Fund (the “Mid Cap Growth Fund”), the Baird Small/Mid Cap Growth Fund
(the “Small/Mid Cap Growth Fund”), the Baird Equity Opportunity Fund (the
“Equity Opportunity Fund”), the Baird Chautauqua International Growth Fund (the
“International Growth Fund”) and the Baird Chautauqua Global Growth Fund (the
“Global Growth Fund”) (each a “Fund” and collectively the “Funds”). Each Fund is
a series of Baird Funds, Inc. (the “Company”). This SAI contains additional
information about principal strategies and risks already described in the
Prospectus, as well as descriptions of non-principal strategies not described in
the Prospectus. Copies of the Funds’ Prospectus may be obtained, free of charge,
by written request via mail (Baird Funds, Inc. c/o U.S. Bank Global Fund
Services, P.O. Box 701, Milwaukee, WI 53201-0701), overnight delivery (Baird
Funds, Inc. c/o U.S. Bank Global Fund Services, 615 E. Michigan Street, Third
Floor, Milwaukee, WI 53202-5207), by calling (toll-free) 1-866-442-2473, or on
the Funds’ website at www.bairdfunds.com. You should read this SAI together with
the Prospectus and retain it for further reference.
The
audited financial statements for the Funds for the year ended December 31,
2022 are incorporated herein by reference to the Funds’ 2022 Annual
Report.
A copy of the Annual Report may be obtained without charge by calling the Funds
(toll‑free) at 1‑866‑442-2473.
The
Company is an open-end, diversified management investment company. Each Fund is
a series of common stock of the Company, a Wisconsin corporation that was
incorporated on June 9, 2000. The Company is authorized to issue shares of
common stock in series and classes. Each series of the Company is currently
divided into two classes, an Investor Class and an Institutional Class. The
Company also offers ten fixed income funds that are described in a separate
Prospectus and SAI.
General
Information Regarding the Funds.
The investment advisor to each Fund is Robert W. Baird & Co. Incorporated
(the “Advisor”). The sub-advisor to the Equity Opportunity Fund is Greenhouse
Funds LLLP (“Greenhouse” or the “Subadvisor”).
As
a principal investment strategy, the Mid Cap Growth Fund principally invests in
the following equity securities: common stocks, preferred stocks and securities
convertible into common stocks.
As
a principal investment strategy, the Small/Mid Cap Growth Fund primarily invests
in common stocks of domestic companies with small-to-medium market
capitalizations. As a non-principal investment strategy, the Small/Mid Cap
Growth Fund may also invest in preferred stocks, exchange-traded funds (“ETFs”)
and other investment companies, U.S. Government securities and money market
instruments.
As
a principal investment strategy, the Equity Opportunity Fund invests primarily
in equity securities of companies with small- to medium-market capitalizations,
which may include common stocks, preferred stocks, American Depositary Receipts
(“ADRs”) or other depositary shares or receipts, rights, warrants,
exchange-traded funds (“ETFs”), and options whose reference asset is an equity
security or equity securities index.
As
a principal investment strategy, the International Growth Fund and Global Growth
Fund invest primarily in equity securities of both U.S. and non-U.S. companies
with medium- to large-market capitalizations.
The
Funds may also invest in common or ordinary shares of foreign companies and
American Depositary Receipts (“ADRs”) representing common or ordinary shares of
foreign companies that are traded on U.S. exchanges.
Non-Diversification.
The Equity Opportunity Fund is a non-diversified fund under the Investment
Company Act of 1940, as amended (the “1940 Act”), which means that the Fund is
permitted to invest its assets in a more limited number of issuers than
diversified investment companies. However, the Fund intends to diversify its
assets to the extent necessary to qualify for tax treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
“Code”). To so qualify, at the close of each quarter of the Fund’s taxable year,
(i) not more than 25% of the total value of the Fund’s total assets may be
invested in (a) the securities (other than U.S. government securities or the
securities of other regulated investment companies (“RICs”)) of any one issuer,
(b) the securities (other than the securities of other RICs) of two or more
issuers which the Fund controls and which are determined, pursuant to
regulations under the Code, to be engaged in the same, similar or related trades
or businesses, or (c) the securities of one or more qualified publicly traded
partnerships, and (ii) with respect to 50% of the total value of the Fund’s
total assets (a) not more than 5% of its total assets may be invested in the
securities of any one issuer (other than U.S. government securities and the
securities of other regulated investment companies) and (b) the Fund may not own
more than 10% of the outstanding voting securities
of
any one issuer (other than U.S. government securities and the securities of
other regulated investment companies).
Note
on Percentage Limitations.
Whenever an investment objective, policy or strategy of a Fund set forth in the
Fund’s Prospectus or this SAI states a maximum (or minimum) percentage of the
Fund’s assets that may be invested in any type of security or asset class, the
percentage is determined immediately after the Fund’s acquisition of that
investment, except with respect to percentage limitations on borrowing and
illiquid investments. Accordingly, any later increase or decrease resulting from
a change in the market value of a security or in the Fund’s assets (e.g.,
due to net sales or redemptions of Fund shares) will not cause the Fund to
violate a percentage limitation. As a result, due to market fluctuations, cash
inflows or outflows or other factors, a Fund may exceed such percentage
limitations from time to time.
Sector
Exposure and Industry Limitations.
The Funds’ investments could be concentrated in one or more economic sectors.
Similarly, it is also possible the Funds will have no exposure to one or more
economic sectors. An economic sector refers to a large segment of the general
economy and is comprised of multiple industries that operate in that segment.
Under the Global Industry Classification Standards (“GICS”), an industry
classification system developed by Morgan Stanley Capital International in
collaboration with S&P Dow Jones Indices, there are 11 economic sectors that
comprise nearly all business activity within the economy, including energy,
materials, industrials, consumer discretionary, consumer staples, health care,
financials, information technology, real estate, communication services and
utilities. Within each economic sector, there are numerous industries and
sub-industries. An industry is a group of companies that conduct similar
business activities. Each Fund is subject to industry limitations as set forth
under “Fundamental Investment Limitations,” below.
Significant
exposure to a particular economic sector will present the Funds with special
risks associated with that sector. The performance of a particular sector may be
vulnerable to general economic conditions, changes in prevailing interest rates,
political developments, adverse laws and regulations and their enforcement,
social and reputational changes, and the performance of industries and companies
within the sector.
Real
Estate Investment Trusts.
The Funds may invest in real estate investment trusts (“REITs”). A REIT is a
corporation or business trust (that would otherwise be taxed as a regular
corporation) which meets certain definitional requirements of the Code. The Code
permits a qualifying REIT to deduct its dividend payments from taxable income,
thereby effectively eliminating corporate level federal income tax to the extent
dividends are paid. To meet the definitional requirements of the Code, a REIT
must, among other things: invest substantially all of its assets in interests in
real estate (including mortgages and other REITs), cash and government
securities; derive most of its income from rents from real property or interest
on loans secured by mortgages on real property; and, in general, distribute
annually 90% or more of its taxable income (other than net capital gains) to
shareholders.
REITs
are sometimes informally characterized as Equity REITs and Mortgage REITs. An
Equity REIT invests primarily in the fee ownership or leasehold ownership of
land and buildings (e.g.,
commercial equity REITs and residential equity REITs); a Mortgage REIT invests
primarily in mortgages on real property, which may secure construction,
development or long-term loans.
REITs
may be affected by changes in underlying real estate values, which may have an
exaggerated effect to the extent that REITs in which a Fund invests may
concentrate investments in particular geographic regions or property types.
Additionally, rising interest rates may cause investors in REITs to demand a
higher annual yield from future distributions, which may in turn decrease market
prices for equity
securities
issued by REITs. Rising interest rates also generally increase the costs of
obtaining financing, which could cause the value of the Fund’s investments to
decline. During periods of declining interest rates, certain Mortgage REITs may
hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by such Mortgage REITs. In addition,
Mortgage REITs may be affected by the ability of borrowers to repay when due the
debt extended by the REIT and Equity REITs may be affected by the ability of
tenants to pay rent.
Certain
REITs have relatively small market capitalizations, which may tend to increase
the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs. REITs depend generally on their ability to generate cash
flow to make distributions to shareholders.
In
addition to these risks, Equity REITs may be affected by changes in the value of
the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Equity and Mortgage REITs are also subject to heavy cash flow dependency
defaults by borrowers and self-liquidation. In addition, Equity and Mortgage
REITs could possibly fail to qualify for the favorable U.S. federal income tax
treatment generally available to REITs under the Code or fail to maintain their
exemptions from registration under the 1940 Act. The above factors may also
adversely affect a borrower’s or a lessee’s ability to meet its obligations to
the REIT. In the event of default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments.
In
general, qualified REIT dividends that an investor receives directly from a REIT
are automatically eligible for the 20% qualified business income deduction. The
IRS has issued final Treasury Regulations that permit a dividend or part of a
dividend paid by a RIC and reported as a “section 199A dividend” to be treated
by the recipient as a qualified REIT dividend for purposes of the 20% qualified
business income deduction, if certain holding period and other requirements have
been satisfied by the recipient with respect to its Fund shares.
ETFs,
Other Investment Companies and Index-Based Investments.
The Funds may invest in securities issued by other investment companies,
including mutual funds, ETFs and closed-end funds, to the extent permitted by
the 1940 Act and the rules and regulations thereunder. Under the 1940 Act, a
fund generally may not acquire (1) more than 3% of the voting stock of any one
investment company, (2) securities of an investment company with a value in
excess of 5% of the fund’s total assets or (3) securities of all investment
companies with a value in excess of 10% of the fund’s total assets. The Funds
may purchase shares of unaffiliated money market funds, ETFs and other mutual
funds in excess of these limits as permitted by the 1940 Act and the “fund of
funds” rules promulgated thereunder, including Rule 12d1-4. The Funds may invest
in money market mutual funds when the stock markets are expected to decline or
when attractive equity investments are otherwise unavailable. The Funds may
acquire ETFs and other investment companies as a means of investing cash
temporarily in instruments consistent with a Fund’s investment
objective.
ETFs
are investment companies that are bought and sold on a securities exchange. Each
share of an ETF represents an undivided ownership interest in the portfolio of
stocks held by an ETF. Investments in index-based investments are subject to the
same risks as investments in the securities that comprise the
index.
Index-based, or “passive”, ETFs acquire and hold either (i) shares of all of the
companies that are represented by a particular index in the same proportion that
is represented in the index itself; or (ii) shares of a sampling of the
companies that are represented by a particular index in a proportion meant to
track the performance of the entire index. Accordingly, the market price of
index-based investments fluctuates in relation to changes in the value of the
underlying portfolio of securities.
Index-based
ETFs are intended to provide investment results that, before expenses, generally
correspond to the price and yield performance of the ETF’s underlying index, and
the value of their shares should, under normal circumstances, closely track the
value of the underlying index’s component securities. ETFs generally do not buy
or sell securities, except to the extent necessary to conform their portfolios
to the corresponding index. Because an ETF has operating expenses and
transaction costs, while an index does not, ETFs that track particular indices
typically will be unable to match the performance of the index
exactly.
In
connection with their investments in ETF shares or shares of another investment
company, the Funds will incur various costs. As a shareholder of another
investment company, the Funds would bear, along with other shareholders, a
pro-rata portion of the other investment company’s expenses, including advisory
fees, and such fees and other expenses will be borne indirectly by a Fund’s
shareholders. Generally, those fees include, but are not limited to, trustees’
fees, operating expenses, licensing fees, registration fees and marketing
expenses, each of which will be reflected in the net asset value of an
investment company or ETF and, therefore, the shares representing a beneficial
interest therein. These expenses would be in addition to the advisory and other
expenses that the Funds bear directly in connection with their own operations.
The Funds may also realize capital gains or losses when shares of the other
investment company are sold, and the purchase and sale of the ETF shares may
include a brokerage commission that may result in costs.
As
a principal investment strategy for the Equity Opportunity Fund, the
International Growth Fund and the Global Growth Fund and as a non-principal
investment strategy for the Mid Cap Growth Fund and Small/Mid Cap Growth Fund,
the Funds may invest in investment companies or vehicles (such as ETFs) that
seek to track the composition and performance of a specific index.
Money
Market Instruments.
As a non-principal investment strategy, the Funds may invest from time to time
in “money market instruments,” a term that includes, among other things, U.S.
government obligations, repurchase agreements, cash, bank obligations,
commercial paper, variable amount master demand notes, corporate bonds with
remaining maturities of 13 months or less and money market funds. These
investments are used to help meet anticipated redemption requests or if other
suitable securities are unavailable.
Bank
obligations include bankers’ acceptances, negotiable certificates of deposit and
non-negotiable time deposits, including U.S. dollar-denominated instruments
issued or supported by the credit of U.S. or foreign banks or savings
institutions. Although the Funds will invest in money market obligations of
foreign banks or foreign branches of U.S. banks only where the Advisor or
Subadvisor determines the instrument to present minimal credit risks, such
investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. All investments in
bank obligations are limited to the obligations of financial institutions having
more than $1 billion in total assets at the time of purchase, and
investments by a Fund in the obligations of foreign banks and foreign branches
of U.S. banks will not exceed 20% of the Fund’s net assets at the time of
purchase. Each Fund may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its net
assets.
Investments
by a Fund in commercial paper will consist of issues rated at the time A-1 by
S&P, Prime-1 by Moody’s or a similar short-term credit rating by another
nationally recognized statistical rating organization. In addition, the Funds
may acquire unrated commercial paper and corporate bonds that are determined by
the Advisor or Subadvisor at the time of purchase to be of comparable quality to
rated instruments that may be acquired by a Fund as previously
described.
The
Funds may also purchase variable amount master demand notes which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate. Although the notes are not normally
traded and there may be no secondary market in the notes, a Fund may demand
payment of the principal of the instrument at any time. The notes are not
typically rated by credit rating agencies, but issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable amount master demand note defaulted
on its payment obligation, a Fund might be unable to dispose of the note because
of the absence of a secondary market and might, for this or other reasons,
suffer a loss to the extent of the default. The Funds invest in variable amount
master demand notes only when the Advisor or Subadvisor deems the investment to
involve minimal credit risk.
U.S.
Government Obligations.
As a non-principal investment strategy, the Funds may invest in a variety of
U.S. Treasury obligations including bonds, notes and bills that mainly differ
only in their interest rates, maturities and time of issuance.
The
Funds may also invest in other securities issued, sponsored or guaranteed by the
U.S. government, its agencies and instrumentalities, such as obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”),
commonly referred to as “Fannie Mae,” General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation (“FHLMC”),
commonly referred to as “Freddie Mac,” Federal Intermediate Credit Banks,
Maritime Administration, and Resolution Trust Corp.
No
assurance can be given that the U.S. government will provide financial support
to U.S. government-sponsored agencies or instrumentalities where it is not
obligated to do so by law.
For
instance, securities issued by GNMA are supported by the full faith and credit
of the United States, while securities issued by FNMA and FHLMC are supported
only by the discretionary authority of the U.S. government. FNMA and FHLMC were
placed into a conservatorship in 2008 at the direction of the Federal Housing
Finance Agency, an independent regulator, and continue to operate as going
concern while in conservatorship.
Borrowings.
As a non-principal investment strategy, the Funds may borrow money from banks to
the extent allowed (as described below) to meet shareholder redemptions or for
other temporary or emergency purposes.
Any
borrowings by the Funds may not remain outstanding for more than 15 business
days.
If
the securities held by a Fund should decline in value while borrowings are
outstanding, a Fund’s net asset value will decline in value by proportionately
more than the decline in value suffered by the Fund’s securities.
As
a result, the Fund’s net asset value may be subject to greater fluctuation until
the borrowing is paid off.
The
Funds have established a line of credit with U.S. Bank, the Funds’ custodian
bank, by which the Fund may borrow money for temporary or emergency
purposes.
The
Fund may pledge assets to secure bank borrowings which are limited to 33 1/3% of
the Fund’s total assets.
An
unsecured line of credit is available to the Funds for any period during which
U.S. Bank is an affiliate of a Fund.
Preferred
Stocks.
The Funds may invest in preferred stocks. Preferred stocks are securities that
represent an ownership interest providing the holder with claims on the issuer’s
earnings and assets before common stock but after bond owners. Unlike debt
securities, the obligations of an issuer of preferred stock, including dividend
and other payment obligations, may not typically be accelerated by the holders
of such preferred stock on the occurrence of an event of default (such as a
covenant default or filing of a bankruptcy petition) or other non-compliance by
the issuer with the terms of the preferred stock. Often, however, on the
occurrence of any such event of default or non-compliance by the issuer,
preferred stockholders will be entitled to gain representation on the issuer’s
board of directors or increase their existing board representation. In addition,
preferred stockholders may be granted voting rights with respect to certain
issues on the occurrence of any event of default.
Derivatives.
The following discussion of options and futures contracts relates to the Funds’
use of derivatives. Rule 18f-4 under the 1940 Act permits mutual funds such as
the Funds to enter into derivatives transactions and certain other transactions
notwithstanding the restrictions on the issuance of “senior securities” under
Section 18 of the 1940 Act. As of the date of this SAI, each Fund either does
not engage in derivatives transactions or qualifies as a “limited derivatives
user.” A Fund is considered a “limited derivatives user” if it limits the Fund’s
derivatives exposure to no more than 10% of its net assets, calculated in
accordance with Rule 18f-4, and adopts written policies and procedures
reasonably designed to manage the Fund’s derivatives risks. If a Fund invests in
derivatives and does not qualify as a “limited derivatives user,” the Fund must
adopt a written derivatives risk management program, adhere to an outer limit on
leverage based on value-at-risk (“VaR”) and designate a “derivatives risk
manager” who would report directly to the Company’s Board of
Directors.
Options
on Securities and Indices.
As a principal investment strategy, the Equity Opportunity Fund may purchase and
sell (write) put options and call options on securities or indices to hedge its
portfolio or to enhance returns. As a non-principal investment strategy, the
other Funds may purchase and sell put options and call options for speculative
purposes. The Fund will purchase and sell (write) options in standardized
contracts listed on securities exchanges.
The
Fund may also purchase and sell (write) over-the-counter (“OTC”) put options and
call options.
A
call option gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security or index at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is in consideration
for undertaking the obligations under the option contract. A put option gives
the purchaser the right to sell the underlying security or index at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security or index.
In
contrast to an option on a particular security, an option on an index provides
the holder with the right to make or receive a cash settlement upon exercise of
the option. The amount of this settlement will be equal to the difference
between the closing price of the index at the time of exercise and the exercise
price of the option expressed in dollars, times a specified
multiple.
Purchasing
Put and Call Options.
The Funds may purchase put options on portfolio securities or indices. By buying
a put, a Fund limits the risk of loss from a decline in the market value of the
security or index until the put expires. Any appreciation in the value of and
yield otherwise available from the underlying security or index, however, will
be partially offset by the amount of the premium paid for the put option and any
related transaction costs.
Call
options may be purchased by a Fund in order to acquire the underlying security
at a later date at a price that avoids any additional cost that would result
from an increase in the market value of the security. A call option may also be
purchased to increase a Fund’s return to investors at a time when the call is
expected to increase in value due to anticipated appreciation of the underlying
security or index. Prior to its expiration, a purchased put or call option may
be sold in a “closing sale transaction” (a sale by a Fund, prior to the exercise
of the option that the Fund has
purchased,
of an option of the same series), and profit or loss from the sale will depend
on whether the amount received is more or less than the premium paid for the
option plus the related transaction costs.
The
aggregate premiums paid for option purchases by a Fund will not exceed 5% of the
Fund’s total assets.
Writing
Put and Call Options.
The Funds may sell put and call options on securities or indices.
Writing
options may permit the Funds to generate additional income in the form of the
premium received for writing the option. The writer of an option may have no
control over when the underlying reference instruments must be sold (in the case
of a call option) or purchased (in the case of a put option) because the writer
may be notified of exercise at any time prior to the expiration of the option
(for American style options). In general, though, options are infrequently
exercised prior to expiration. Whether or not an option expires unexercised, the
writer retains the amount of the premium.
A
Fund’s obligations under a call option written by the Fund may be terminated
prior to the expiration date of the option by the Fund executing a closing
purchase transaction, which is effected by purchasing on an exchange an option
of the same series (i.e.,
same underlying security or index, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the writing
of a new option containing different terms. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event a Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A call option writer, unable to effect a closing purchase
transaction, will not be able to sell an underlying security until the option
expires or the underlying security is delivered upon exercise with the result
that the writer in such circumstances will be subject to the risk of market
decline during such period.
By
writing a call option on a security, a Fund foregoes the opportunity to profit
from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents such a profit, and it is
not able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. Except to the extent that a written call option on an
index is covered by an option on the same index purchased by a Fund, movements
in the index may result in a loss to the Fund; however, such losses may be
mitigated by changes in the value of securities held by the Fund during the
period the option was outstanding.
If
a call option on a security is exercised, a Fund may deliver the underlying
security held by the Fund or purchase the underlying security in the open
market. In either event, the proceeds of the sale will be increased by the net
premium originally received, and the Fund will realize a gain or loss.
As
the writer of a put option, a Fund has a risk of loss should the underlying
reference instrument decline in value. If the value of the underlying reference
instrument declines below the exercise price of the put option and the put
option is exercised, a Fund, as the writer of the put option, will be required
to buy the instrument at the exercise price, which will exceed the market value
of the underlying reference instrument at that time. A Fund will incur a loss to
the extent that the current market value of the underlying reference instrument
is less than the exercise price of the put option. However, the loss will be
offset in part by the premium received from the buyer of the put. If a put
option written by a Fund expires unexercised, the Fund will realize a gain in
the amount of the premium received.
When
a Fund writes (sells) options, the Fund is generally required to post collateral
with its custodian under an escrow or tri-party agreement for the benefit of its
counterparty.
As
of the date of this SAI, only the Equity Opportunity Fund writes put and call
options on securities or indices. The Fund qualifies as a “limited derivatives
user” and limits its “derivatives exposure”, including exposure to written or
sold options, to 10% of the Fund’s net assets as calculated in accordance with
Rule 18f-4.
Other
Risks Associated with Investing in Options.
Options
may be more volatile than the underlying securities or indices, and therefore,
on a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities. Investing in
options is a highly specialized activity that entails greater than ordinary
investment risks, including the complete loss of the amount paid as premiums to
the writer of the option. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer’s risk is
limited to the amount of the original investment for the purchase of the option.
The option writer, however, has unlimited economic risk because its potential
loss, except to the extent offset by the premium received when the option was
written, is equal to the amount the option is “in-the-money” at the expiration
date.
Other
risks include (i) an imperfect correlation between the change in market value of
the securities or indices a Fund holds and the prices of options relating to the
securities or indices purchased or sold by the Fund; and (ii) the possible lack
of a liquid secondary market for an option. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and a
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
The
Funds will engage in unlisted OTC options only with broker-dealers deemed
creditworthy by the Advisor.
Closing
transactions in certain options are usually effected directly with the same
broker-dealer that effected the original option transaction. A Fund bears the
risk that the broker-dealer will fail to meet its obligations. There is no
assurance that a liquid secondary trading market will exist for closing out an
unlisted option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.
Derivatives
- Foreign Currency Futures Contracts and Related Options.
As
a non-principal investment strategy, the International Growth and the Global
Growth Funds may purchase or sell foreign currency future contracts, or options
thereon.
A
futures contract is an agreement between two parties to buy or sell a specific
amount of an underlying reference instrument (such as a security, currency or
commodity) for a specified price on a specified future date.
These
contracts are traded on exchanges so that, in most cases, either party can close
out its position on the exchange for cash without delivering the security,
currency or commodity, or other underlying reference instrument.
An
option on a futures contract (futures option) gives the holder of the option the
right to buy or sell a position in a futures contract to the writer of the
option at a specified price and on or before a specified expiration
date.
A
foreign currency futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a foreign currency at a
specified price and time.
A
public market exists in futures contracts covering a number of foreign
currencies, including the Australian dollar, the Canadian dollar, the British
pound, the Japanese yen, the Swiss franc, the Mexican peso and certain
multinational currencies, such as the euro.
Initially,
in accordance with the terms of the exchange on which a futures contract is
traded, a Fund may be required to deposit with a futures commission merchant
(FCM) an amount of cash or cash equivalents,
the
value of which may vary but is generally equal to 10% or less of the value of
the contract.
This
amount is known as initial margin.
The
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied.
Subsequent
payments, called variation margin, to and from the FCM, will be made on a daily
basis as the price of the underlying foreign currency fluctuates making the long
and short positions in the futures contract more or less valuable, a process
known as marking to the market.
The
risk of loss in trading futures contracts in some strategies can be substantial,
due both to the low margin deposits required, and extremely high degree of
leverage involved in futures pricing.
As
a result, a relatively small price movement in a futures contract may result in
immediate and substantial loss (as well as gain) to the investor.
For
example, if at the time of purchase, 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed
out.
A
15% decrease would result in a loss equal to 150% of the original margin
deposit, before any deduction for the transaction costs, if the contract were
closed out.
Thus,
a purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Risks
associated with the use of futures contracts and options on futures include (a)
imperfect correlation between the change in value of the foreign currencies held
by a Fund and the price of related futures contracts and options on futures
purchased or sold by the Fund; and (b) the possible lack of a liquid secondary
market for futures contracts (or related options) and the resulting inability of
the Fund to close open futures positions, which could have an adverse impact on
the Fund’s ability to hedge.
Most
futures exchanges limit the amount of fluctuation permitted in futures contract
prices during a single trading day.
The
daily limit establishes the maximum amount that the price of a futures contract
may vary either up or down from the previous day’s settlement price at the end
of a trading session.
Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
Utilization
of futures transactions by a Fund involves the risk of loss by the Fund of
margin deposits in the event of bankruptcy of a broker with whom the Fund has an
open position in a futures contract or related option. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
The
purchase or sale of an option also entails the risk that changes in the value of
the underlying futures contract will not be fully reflected in the value of the
option purchased.
Depending
on the pricing of the option compared to either the futures contract upon which
it is based, or upon the price of the foreign currency being hedged, an option
may or may not be less risky than ownership of the futures contract or such
foreign currency.
In
general, the market prices of options can be expected to be more volatile than
the market prices on the underlying futures contract.
Compared
to the purchase or sale of futures contracts, however, the purchase of call or
put options on futures contracts may frequently involve less
potential
risk to a Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs).
The
regulation of futures and options in the U.S. is a rapidly changing area of law
and is subject to change by governmental or regulatory action. Each Fund limits
its “derivatives exposure,” including exposure to futures contracts and written
or sold options on futures, to 10% of the Fund’s net assets, as calculated in
accordance with Rule 18f-4.
Each
Fund’s commodities transactions, which includes futures contracts and related
options, must be made solely for bona fide hedging purposes as defined by the
Commodities Futures Trading Commission.
In
addition, the Fund may invest in commodity interests for other than bona fide
hedging purposes if it meets either the 5% trading de minimis test (the “5%
Test”) or a test based on the net notional value of the Fund’s commodities
transactions (the “Notional Test”).
Under
the 5% Test, the aggregate initial margin and premiums required to establish
positions in commodity futures, commodity options or swaps may not exceed 5% of
the Fund’s net asset value. Under the Notional Test, the aggregate net notional
value of commodity futures, commodity options or swaps not used solely for bona
fide hedging purposes may not exceed 100% of the Fund’s net asset
value.
The
Advisor on behalf of each Fund has filed a notice of eligibility for exclusion
from the definition of the term “commodity pool operator” in accordance with
Rule 4.5 under the Commodity Exchange Act (the “CEA”) and, therefore, is not
subject to registration or regulation as a commodity pool operator under the
CEA. Each Fund intends to limit its transactions in futures contracts and
related options so that it complies with the 5% Test.
Derivatives
- Forward Foreign Currency Exchange Contracts.
As a non-principal investment strategy, the International Growth and the Global
Growth Funds may engage in forward foreign currency exchange contracts. A
forward contract involves an obligation to purchase or sell a specific currency
on a specific date in the future. For example, a forward contract may require a
Fund to exchange a certain amount of U.S. dollars for a certain amount of
Japanese yen at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. Forward foreign currency exchange contracts are traded in an
interbank market conducted directly between currency traders (typically,
commercial banks or other financial institutions) and their customers, often
have deposit or initial margin requirements, and are consummated without payment
of any commissions. The Funds may engage in a forward contract that involves
transacting in a currency whose changes in value are considered to be linked (a
proxy) to a currency or currencies in which some or all of the Funds’ portfolio
securities are or are expected to be denominated.
At
or before the maturity of a forward foreign currency exchange contract, a Fund
may either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund will obtain,
on the same maturity date, the same amount of the currency which it is obligated
to deliver. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward foreign currency exchange contract prices. Should forward
prices decline during the period between the Fund’s entering into a forward
contract for the sale of a currency and the date that it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency that it has agreed to sell
exceeds the price of the currency that it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency that it has
agreed to sell.
Upon
maturity of a forward foreign currency exchange contract, a Fund may (a) pay for
and receive, or deliver and be paid for, the underlying currency, (b) negotiate
with the dealer to roll over the contract into
a
new forward foreign currency exchange contract with a new future settlement date
or (c) negotiate with the dealer to terminate the forward contract by entering
into an offset with the currency trader whereby the parties agree to pay for and
receive the difference between the exchange rate fixed in the contract and the
then-current exchange rate. A Fund also may be able to negotiate such an offset
prior to maturity of the original forward contract. There can be no assurance
that new forward contracts or offsets will be available to the
Funds.
The
cost to a Fund of engaging in currency transactions varies with factors such as
the currency involved, the length of the contract period and the market
conditions then prevailing.
Because
transactions in currency exchange are usually conducted on a principal basis, no
fees or commissions are typically involved.
The
use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future.
In
addition, although forward foreign currency exchange contracts limit the risk of
loss due to a decline in the value of a hedged currency, at the same time, they
limit any potential gain that might result should the value of the currency
increase.
A
Fund’s ability to dispose of its positions in forward foreign currency exchange
contracts will depend on the availability of active markets in such
instruments.
It
is impossible to predict the amount of trading interest that may exist in
various types of forward foreign currency exchange contracts.
Foreign
Securities and ADRs.
As a principal investment strategy, the Mid Cap Growth Fund, Small/Mid Cap
Growth Fund and Equity Opportunity Fund may each invest up to 15% of its total
assets in foreign equity securities including common stocks, ordinary shares and
ADRs. As a principal investment strategy, the International Growth Fund and the
Global Growth Fund may each invest up to 100% of its total assets in foreign
equity securities including common stocks, ordinary shares and ADRs. In
determining whether a company is a U.S. or non-U.S. company, the Advisor
considers a number of factors, including the company’s jurisdiction of
incorporation or organization, the location of the company’s corporate or
operational headquarters or principal place of business, the location of the
principal trading market for the company’s common stock, the location(s) of a
majority of the company’s assets or production of its goods and services, and
the locations of the primary sources of the company’s revenues or profits. The
Funds may invest in sponsored and unsponsored ADRs. ADRs are receipts issued by
a bank or trust company evidencing ownership of underlying securities issued by
a foreign issuer. ADRs in which the Funds may invest will be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars; the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in foreign securities and ADRs also involve certain inherent risks,
such as political or economic instability of the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, or diplomatic
developments, which could affect investment in those countries.
While
“sponsored” and “unsponsored” ADR programs are similar, there are differences
regarding ADR holders’ rights and obligations and the practices of market
participants. A depositary may establish an unsponsored facility without
participation by (or acquiescence of) the underlying issuer; typically,
however,
the depositary requests a letter of non-objection from the underlying issuer
prior to establishing the facility. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility. The depositary usually charges fees upon the
deposit and withdrawal of the underlying securities, the conversion of dividends
into U.S. dollars, the disposition of non-cash distribution, and the performance
of other services. The depositary of an unsponsored facility frequently is under
no obligation to distribute shareholder communications received from the
underlying issuer or to pass through voting rights to ADR holders in respect of
the underlying securities.
Sponsored
ADR facilities are created in generally the same manner as unsponsored
facilities, except that sponsored ADRs are established jointly by a depositary
and the underlying issuer through a deposit agreement. The deposit agreement
sets out the rights and responsibilities of the underlying issuer, the
depositary and the ADR holders. With sponsored facilities, the underlying issuer
typically bears some of the costs of the ADR (such as dividend payment fees of
the depositary), although ADR holders may bear costs such as deposit and
withdrawal fees. Depositories of most sponsored ADRs agree to distribute notices
of shareholder meetings, voting instructions, and other shareholder
communications and information to the ADR holders at the underlying issuer’s
request.
Although
the Funds’ investments in foreign companies will primarily consist of companies
located in industrialized or developed countries, some foreign companies may be
domiciled in or derive substantial revenues from countries in emerging markets,
which may be more susceptible to political, social or economic instability in
those countries and greater price volatility. As a non-principal investment
strategy, the Small/Mid Cap Growth Fund may invest up to 5% of its net assets in
equity securities of companies that are domiciled or headquartered in, or derive
most of their revenues from, countries in emerging markets.
Illiquid
Securities.
Each Fund may hold up to 15% of the value of its net assets in illiquid
securities. “Illiquid security” is defined as a security that a Fund reasonably
expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly changing the
market value of the security. Securities that are not registered under the
federal securities laws and cannot be sold to the U.S. public because of SEC
regulations (known as “restricted securities”) generally are regarded as
illiquid securities unless otherwise classified as liquid under the Funds’
liquidity risk management program. If a Fund should hold more than 15% of its
net assets in illiquid securities, the Advisor or Subadvisor will consider
appropriate steps under the Funds’ liquidity risk management program to protect
maximum liquidity, including the orderly sale of illiquid securities, and will
make notices as required by SEC rules. Please note that a considerable period
may elapse between a decision to sell illiquid securities and the time when such
securities can be sold. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
Cash
or Similar Investments; Temporary Strategies.
As a non-principal investment strategy, under normal market conditions, each
Fund may invest up to 20% of its net assets in cash or similar short-term,
investment grade securities such as U.S. government securities, money market
funds, repurchase agreements, commercial paper, money market instruments or
certificates of deposit. In addition, in limited circumstances, to retain the
flexibility to respond promptly to changes in market, economic or political
conditions or in the case of unusually large cash inflows or redemptions, the
Advisor or Subadvisor may invest up to 100% of a Fund’s total assets in such
investments. When a Fund takes a temporary position, the Fund may not achieve
its investment objective.
Portfolio
Turnover.
The portfolio turnover rate for a Fund is calculated by dividing the lesser of
amounts of purchases or sales of portfolio securities for the reporting period
by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities, including options,
whose maturities or expiration dates at the time of acquisition are one year or
less. Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions, and the Funds may engage in short-term trading to achieve their
respective investment objectives.
Each
Fund may sell a portfolio investment soon after its acquisition if the Advisor
or Subadvisor believes that such a disposition is consistent with attaining the
investment objective of a Fund. Portfolio investments may be sold for a variety
of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover (over 100%) may involve
correspondingly greater transaction costs, which must be borne directly by a
Fund and ultimately by its shareholders. High portfolio turnover may result in
the realization of substantial net capital gains. To the extent net short-term
capital gains are realized, distributions attributable to such gains will be
taxed to Fund shareholders at ordinary income rates for federal income tax
purposes. The table below shows the portfolio turnover rate for each Fund for
the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Portfolio
Turnover Rate
During Fiscal Years Ended December 31, |
|
| 2022 |
| 2021 |
|
| Mid
Cap Growth Fund |
26 |
% |
| 31 |
% |
|
| Small/Mid
Cap Growth Fund |
39 |
% |
| 50 |
% |
|
| Equity
Opportunity Fund |
72 |
% |
| 67 |
% |
(1) |
| International
Growth Fund |
23 |
% |
| 14 |
% |
|
| Global
Growth Fund |
12 |
% |
| 13 |
% |
|
(1) The
cost of purchases and proceeds from sales of securities that were incurred by
the Fund subsequent to Greenhouse’s appointment as sub-advisor to the Baird
Equity Opportunity Fund that related to the alignment of the Fund’s portfolio
with Greenhouse’s investment style are excluded from the portfolio turnover rate
calculation. If such amounts had not been excluded, the portfolio turnover rate
would have been 189% for the year ended December 31, 2021.
Investment
Objectives
The
investment objective of a Fund cannot be changed without shareholder approval,
which requires the approval of a “majority of the Fund’s outstanding voting
securities,” as defined below.
Fundamental
Investment Limitations
The
Funds are subject to the fundamental investment limitations enumerated in this
subsection, which may be changed only by a vote of the holders of a majority of
the Fund’s outstanding voting securities. A “majority of the outstanding voting
securities” of a Fund means the lesser of (1) 67% or more of the shares of
common stock of the Fund represented at a meeting at which the holders of more
than 50% of the outstanding shares of the Fund are present in person or by
proxy, or (2) more than 50% of the outstanding shares of the Fund.
Each
of the Mid Cap Growth Fund, Small/Mid Cap Growth Fund, International Growth Fund
and Global Growth Fund:
1.May
not, with respect to 75% of its total assets, purchase the securities of any one
issuer (except securities issued or guaranteed by the U.S. government, or its
agencies or instrumentalities if, as a result, (i) more than 5% of the Fund’s
total assets would be invested in the securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer.
The
Equity Opportunity Fund:
2.May
not, with respect to 50% of its total assets, purchase the securities of any one
issuer (except securities issued or guaranteed by the U.S. government, or its
agencies or instrumentalities and the securities of other regulated investment
companies) if, as a result, (i) more than 5% of the Fund’s total assets would be
invested in the securities of that issuer, or (ii) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
Each
Fund:
3.May
(i) borrow from banks for temporary or emergency purposes (but not for
leveraging or the purchase of investments), and (ii) make other investments or
engage in other transactions permissible under the 1940 Act, which may involve a
borrowing, including borrowing through reverse repurchase agreements, provided
that the combination of (i) and (ii) shall not exceed 33 1/3% of the value
of the Fund’s total assets (including the amount borrowed), less the Fund’s
liabilities (other than borrowings). If the amount borrowed at any time exceeds
33 1/3% of the Fund’s total assets, the Fund will, within three days thereafter
(not including Sundays, holidays and any longer permissible period), reduce the
amount of the borrowings such that the borrowings do not exceed 33 1/3% of the
Fund’s total assets. The Fund may also borrow money from other persons to the
extent permitted by applicable laws.
4.May
not issue senior securities, except as permitted under the 1940
Act.
5.May
not act as an underwriter of another issuer’s securities, except to the extent
that the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended, in connection with the purchase and sale of
portfolio securities.
6.May
not purchase or sell physical commodities unless acquired as a result of
ownership of other securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options, futures contracts or other
derivative instruments, or from investing in securities or other instruments
backed by physical commodities).
7.May
not make loans if, as a result, more than 33 1/3% of the Fund’s total assets
would be lent to other persons, except through (i) purchases of debt securities
or other debt instruments, or (ii) engaging in repurchase
agreements.
8.(For
the Mid Cap Growth, Equity Opportunity, International Growth and Global Growth
Funds): May not purchase the securities of any issuer if, as a result, 25% or
more of the Fund’s total assets would be invested in the securities of issuers,
the principal business activities of which are in the same industry. (For the
Small/Mid Cap Growth Fund): May not purchase the securities of any issuer if, as
a result, 25% or more of the Fund’s total assets would be invested in the
securities of issuers, the principal business activities of which are in the
same industry or group of related industries.
9.May
not purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit the Fund from
purchasing or selling securities or other instruments backed by real estate or
of issuers engaged in real estate activities).
With
respect to Fundamental Investment Limitation No. 3, “any longer permissible
period” means any longer period authorized by the SEC in accordance with Section
18(f)(1) of the 1940 Act and “applicable laws” means the 1940 Act, any rule,
regulation or exemptive order thereunder or SEC staff interpretation
thereof.
Under
the 1940 Act, in addition to borrowing from banks, the Funds may borrow from
other persons an additional amount not exceeding 5% of its total assets for
temporary purposes. The Funds do not intend to borrow from parties other than
banks.
With
respect to Fundamental Investment Limitation No. 8, the Advisor or Subadvisor
determines industry classifications for a Fund in accordance with the Global
Industry Classification Standards, an industry classification system developed
by Morgan Stanley Capital International in collaboration with S&P Dow Jones
Indices, or other classification sources maintained and developed by third
parties. In the absence of such classification, or if the Advisor or Subadvisor
determines in good faith based on its own analysis that the economic
characteristics affecting a particular issuer make it more appropriate to be
considered engaged in a different industry, the Advisor or Subadvisor may
classify an issuer accordingly. Thus, the composition of an industry may change
from time to time. A Fund may be concentrated in a sector but will not be
concentrated in any industry. For purposes of Fundamental Investment Limitation
No. 8, investment companies are not considered to be part of any industry and,
to the extent a Fund invests its assets in underlying investment companies, 25%
or more of the Fund’s total assets may be indirectly exposed to a particular
industry or group of industries through its investment in one or more underlying
investment companies. There is no limitation with respect to instruments issued
or guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions even though the proceeds from the
sale of those instruments by such governmental authorities may be used to fund
projects in particular industries.
Unless
noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in a Fund’s assets (i.e.,
due to cash inflows or redemptions) or in market value of the investment will
not constitute a violation of that restriction. This does not, however, apply to
the borrowing policy set forth above.
Non-Fundamental
Investment Limitations
The
following are the Funds’ non-fundamental operating policies, which may be
changed by the Company’s Board of Directors (the “Board”) without shareholder
approval.
Each
Fund may not:
1.Sell
securities short, unless the Fund owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, or unless the short
sale is otherwise conducted in accordance with the current rules of the SEC, and
provided that transactions in options, futures contracts, options on futures
contracts, or other derivative instruments are not deemed to constitute selling
securities short.
2.Purchase
securities on margin, except that the Fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures
contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3.Purchase
securities of other investment companies except in compliance with the 1940 Act
and applicable state law.
4.Make
any loans, other than loans of portfolio securities, except through (i)
purchases of debt securities or other debt instruments, or (ii) repurchase
agreements.
5.Borrow
money except from banks or through reverse repurchase agreements or mortgage
dollar rolls.
6.Make
any change in the Fund’s investment policy of investing at least 80% of its net
assets in the investments suggested by the Fund’s name without first providing
the Fund’s shareholders with at least a 60-day notice; provided that this
limitation does not apply to the International Growth Fund or the Global Growth
Fund.
Each
Fund’s non-fundamental investment policies listed above may be changed with the
approval of the Board. Unless noted otherwise, if a percentage restriction set
forth in the Funds’ Prospectus or this SAI is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in the Fund’s assets (i.e.,
due to cash inflows or redemptions) or in market value of the investment will
not constitute a violation of that restriction. This does not, however, apply to
the borrowing policy set forth above.
For
purposes of each Fund’s policy to invest a minimum percentage of its assets in
investments suggested by the Fund’s name, “assets” is defined as net assets plus
borrowings for investment purposes.
Shares
of the Funds are sold on a continual basis at the NAV next computed following
receipt of an order in proper form by a dealer, the Funds’ distributor, Robert
W. Baird & Co. Incorporated (the “Distributor”), or U.S. Bancorp Fund
Services, LLC (the “Transfer Agent”).
Shares
of the Funds may be purchased or redeemed only on days the New York Stock
Exchange (“NYSE”) is open.
The
NAV per share for each class of shares of a Fund is determined as of the close
of regular trading on the NYSE (normally, 3:00 p.m., Central time), Monday
through Friday, except on days the NYSE is not open.
The
NYSE is closed on the following holidays: New Year’s Day, Martin Luther King,
Jr. Day, Washington’s Birthday, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
Consistent
with industry practice, the NAV per share of a Fund is calculated separately for
the Investor Class shares and Institutional Class shares by adding the value of
all portfolio securities and other assets per class (including interest or
dividends accrued, but not yet collected), subtracting the liabilities, and
dividing the result by the number of outstanding shares of that
class.
The
result, rounded to the nearest cent (two decimal places), is the NAV per
share.
As
is the case for all mutual funds, rounding the NAV to the nearest cent (two
decimal places) may impact each share Class’s NAV. The results of rounding,
including performance results, may be more pronounced when there are large
purchases or redemptions from either share Class.
When
determining NAV, expenses are accrued and applied daily.
The
Board has adopted Pricing and Valuation Committee Procedures (“Pricing
Procedures”), which specify how a Fund’s investments are to be valued when
calculating the Fund’s NAV. Each
Fund’s portfolio investments are generally valued at current market value using
pricing information provided by a pricing service if the investments have
readily available market quotations.
The
Board has designated the Advisor as the Board’s valuation designee with respect
to determining the fair value of Fund investments for which market quotations
are not readily available, and for performing other prescribed functions under
Rule 2a-5 under the 1940 Act, subject to oversight by the Board.
The
Advisor has designated its Valuation Committee to be responsible for the
implementation of the obligations of the valuation designee under Rule 2a-5 and
the Pricing Procedures.
Equity
securities, including ETFs and closed-end funds, that are listed on a securities
exchange or market (except NASDAQ) are generally valued at the last sale price
at the close of the primary exchange or market (foreign or
domestic).
For
securities traded on NASDAQ, the NASDAQ Official Closing Price will be
used.
If,
on a particular day, an exchange-listed security does not trade, then the
security will be valued at the average of the most recent bid and asked prices.
Over-the-counter equity securities for which reliable quotations are available
are valued at the last quoted sale price or at the average of the most recent
bid and asked prices.
Foreign
equity securities listed on a foreign exchange are generally valued at the last
sale price on the exchange on which the security is primarily traded at the time
of the close of the NYSE. For securities traded in certain countries, market
maker prices are used since they are the most representative of the daily
trading activity. Market maker prices are usually the mean between the bid and
asked prices. Listed foreign equity securities not traded on a particular day
are generally valued at the mean between the last reported bid and the asked
quotes, or the last sale price when appropriate; otherwise, the security will be
priced at fair value by the Valuation Committee. Non-exchange traded foreign
equity and debt securities are generally priced on the basis of valuations
provided by the pricing service or at the mean between the bid and asked quotes.
If no such quotations are available, the security will be priced at fair value
by the Valuation Committee. When pricing foreign equity securities held by the
Equity Opportunity Fund, International Growth Fund and Global Growth Fund that
are traded on markets that have closed prior to the U.S. markets, an evaluated
adjustment factor provided by the fair value pricing service approved by the
Board will generally be applied to the prices of such securities. The use of an
evaluated adjustment factor in such instances is intended to price each such
security at its fair value at the time a Fund calculates its NAV by estimating
the impact of market fluctuation or movement on a security’s value if its local
market were still open for trading alongside the U.S. markets. The fair value
pricing service utilizes statistical data based on historical performance of
securities, markets and other data in developing the evaluated adjustment
factors used to estimate the fair value of a security. An evaluated adjustment
factor will not be applied to securities primarily traded on markets that are
open at the same time as U.S. equity markets are open, or when a reliable
evaluated adjustment factor is unavailable.
Debt
obligations are generally valued using evaluated bid prices provided by a
pricing service. To calculate an evaluated price, a pricing service uses various
market inputs such as benchmark yields, reported trades, broker-dealer quotes,
issuer spreads, comparable securities, bids, offers and reference data, as well
as market indicators, and issuer, industry and economic events.
If
the primary pricing service does not price a particular debt obligation, a Fund
may use an evaluated price provided by a secondary pricing service. If a
secondary pricing service does not price a particular debt obligation, the
Advisor may obtain and use a valuation from a dealer who was the underwriter for
the issuance or who makes a market in that debt obligation or similar debt
obligations. If the Advisor cannot obtain a price provided by such a dealer, the
debt obligation will generally be priced at fair value by the Valuation
Committee.
Debt obligations purchased with a remaining maturity of 60 days or less are
valued at market prices as described above, unless an evaluated price is not
available from a pricing service, in which case such debt obligation is valued
at acquisition cost, plus or minus any amortized discount or premium (“amortized
cost”), or, if the Advisor does not believe amortized cost is reflective of the
fair value of the debt obligation, the debt obligation is priced at fair value
by the Valuation Committee. In prescribed circumstances, such as for new issues
of debt obligations or when a pricing service ceases pricing a debt obligation,
the Advisor may use other methods to value Fund investments, such as obtaining a
valuation from an underwriter or dealer.
Put
and call options purchased by the Fund will be valued at the last sale price or,
in the absence of such a price, at the mean between bid and asked
prices.
Shares
of mutual funds are generally valued at their last calculated NAV.
Futures
contracts are valued using the primary exchange’s daily quoted closing
(settlement) prices.
Exchange-traded
options are valued at the last reported sale price on the exchange on which the
option is primarily traded. Other securities or assets held by a Fund are
generally valued using prices quoted by the exchange on which they are traded or
using other applicable market quotations.
If
pricing information is not readily available from a pricing service or another
permitted source, or if the Advisor deems the pricing information to not
represent “fair value” of the investment, the investment will be priced at its
“fair value” as determined by the Valuation Committee, subject to the oversight
of the Board. In determining fair value of a Fund’s investment, the Valuation
Committee applies valuation methods established by the Advisor and takes into
account relevant factors and available information.
Consequently,
the price of the security used by a Fund to calculate its NAV may differ from
quoted or published prices for the same security. Fair value pricing involves
subjective judgments and there is no single standard for determining a
security’s fair value.
As
a result, different mutual funds could reasonably arrive at a different fair
value for the same security.
It
is possible that the fair value determined for a security is materially
different from the value that could be realized upon the sale of that security
or from the values that other mutual funds may determine. In addition, during
periods of market volatility or illiquidity, the prices determined for any
individual investment on any given day may vary significantly from the amount
that can be obtained in an actual sale of that investment, and the Funds’ NAVs
may fluctuate significantly from day to day or from period to
period.
Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of the NYSE (normally, 3:00 p.m., Central
time), and at other times, may not be reflected in the calculation of NAV of the
Funds.
Fees
for Certain Shareholder Services.
Broker-dealers and other financial intermediaries may be paid by the Advisor or
the Distributor for advertising, distribution or shareholder services. These
payments may be in addition to any amounts paid by the Funds under the
distribution and shareholder servicing plan adopted by the Board (see
“Distribution Plan,” below) or any amounts paid by the Funds for sub-transfer
agency or other administrative services. Depending on the terms of the
particular account, broker-dealers and other financial intermediaries also may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. The
intermediaries
are responsible for providing information concerning these services and any
charges to any customer who must authorize the purchase of Fund shares prior to
such purchase.
Suspension
of Redemption Right.
Under the 1940 Act, the Funds may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC. The Funds may also suspend or postpone the recording of the transfer of
their shares upon the occurrence of any of the foregoing
conditions.
Redemption
in-Kind.
The Company has filed an election pursuant to Rule 18f-1 under the 1940 Act
which provides that, with respect to redemptions which the Company has the right
to satisfy in assets other than cash, each Fund is obligated to redeem shares
solely in cash up to $250,000 or 1% of the NAV of the class of shares of the
Fund being redeemed, whichever is less, for any one shareholder within a 90-day
period. Any redemption beyond this amount may be made in assets other than cash.
If so requested by a redeeming shareholder and subject to the Fund’s approval,
redemptions in-kind may be made entirely in securities. For federal income tax
purposes, redemptions in-kind are taxed in the same manner to a redeeming
shareholder as redemptions made in cash.
Involuntary
Redemptions.
In addition to the situations described in the Funds’ Prospectus under “General
Transaction Policies,” a Fund may redeem shares involuntarily when appropriate
under the 1940 Act, such as to reimburse the Fund for any loss sustained by
reason of the failure of a shareholder to make full payment for shares purchased
by the shareholder or to collect any charge relating to a transaction effected
for the benefit of a shareholder which is applicable to Fund shares as provided
in the Funds’ Prospectus.
Exchange
and Conversion Privileges.
By use of the exchange or conversion privileges, shareholders authorize the
Transfer Agent to act on exchange or conversion instructions received in writing
or by telephone from any person representing himself to be the shareholder, or,
in some cases, the shareholder’s registered representative or account
representative of record, and believed by the Transfer Agent to be genuine. The
Transfer Agent’s records of such instructions are binding. The exchange or
conversion privileges may be modified or terminated at any time upon notice to
shareholders.
With
respect to exchanges, shares in the Baird Fund from which the shareholder is
withdrawing an investment will be redeemed at the NAV per share next determined
on the date of receipt and such redemption will result in a taxable capital gain
or loss for federal income tax purposes unless the shares are held by a
tax‑exempt investor or are held in a tax‑deferred or other tax-advantaged
arrangement such as a 401(k) plan or IRA. Shares of the new Baird Fund into
which the shareholder is investing will be purchased at the NAV per share next
determined after acceptance of the request by the Fund’s Transfer Agent in
accordance with the policies for accepting investments. Conversions will be
executed on the basis of the relative NAV of the shares converted. A conversion
from shares of one class to shares of a different class within the same Baird
Fund is generally not a taxable transaction for federal income tax purposes.
Exchanges and conversions of shares will be available only in states where they
may legally be made.
Automatic
Investment Plan.
The Investor Class and Institutional Class shares of each Fund offer an
Automatic Investment Plan whereby a shareholder may automatically make purchases
of shares of a Fund on a regular, monthly basis ($100 minimum per transaction).
Under the Automatic Investment Plan, a shareholder’s designated bank or other
financial institution debits a preauthorized amount from the shareholder’s
account each month and applies the amount to the purchase of Fund shares. The
Automatic
Investment
Plan must be implemented with a financial institution that is a member of the
Automated Clearing House. No service fee is currently charged by a Fund for
participation in the Automatic Investment Plan.
The
Automatic Investment Plan permits an investor to use “Dollar Cost Averaging” in
making investments. Instead of trying to time market performance, a fixed dollar
amount is invested in Fund shares at predetermined intervals. This may help
investors reduce their average cost per share because the agreed upon fixed
investment amount allows more Fund shares to be purchased during periods of
lower Fund share prices and fewer Fund shares to be purchased during periods of
higher Fund share prices. In order to be effective, Dollar Cost Averaging should
usually be followed on a sustained, consistent basis. Investors should be aware,
however, that Fund shares bought using Dollar Cost Averaging are purchased
without regard to their price on the day of investment or to market trends.
Dollar Cost Averaging does not assure a profit and does not protect against
losses in a declining market. In addition, while investors may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if an investor ultimately
redeems his Fund shares at a price that is lower than their purchase
price.
Systematic
Withdrawal Plan.
The Investor Class and Institutional Class of each Fund offer shareholders a
Systematic Withdrawal Plan, which allows a shareholder who owns shares of a Fund
worth at least $5,000 at current NAV at the time the shareholder initiates the
Systematic Withdrawal Plan to designate that a fixed sum ($50 minimum per
transaction) be distributed to the shareholder or as otherwise directed at
regular intervals.
In-Kind
Payments.
Payment for shares of a Fund may, in the discretion of the Fund, be made in the
form of securities that are permissible investments for the Fund as described in
its Prospectus. For further information about this form of payment, contact the
Funds (toll-free) at 1-866-442-2473. In connection with an in‑kind securities
payment, a Fund will require, among other things, that the securities be valued
on the day of purchase in accordance with the pricing methods used by the Fund;
that the Fund receives satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form for transfer to the Fund; that adequate information be provided to
the Fund concerning certain tax matters relating to the securities; and that the
amount of the purchase be at least $1,000,000. You may realize a taxable capital
gain or loss on the contributed securities at the time of the in-kind securities
payment.
Individual
Retirement Accounts.
The Company has a plan (the “Traditional IRA”) available for use by individuals
with earned income who wish to use shares of a Fund as a funding medium for
individual retirement saving. For contributions made for tax years beginning
after December 31, 2019, the Setting Every Community Up for Retirement
Enhancement (SECURE) Act of 2019 repeals the prohibition on contributions to a
traditional IRA by an individual who has attained age 70 ½.
The
Company also has available a Roth Individual Retirement Account (the “Roth IRA”)
for retirement saving for use by individuals with earned income. For 2023, a
single individual with modified adjusted gross income of less than $153,000 may
contribute to a Roth IRA (for married couples filing jointly, the 2023 modified
adjusted gross income limit is $228,000), and contributions may be made even
after the Roth IRA owner has attained age 70 ½, as long as the account owner has
earned income.
The
Company permits certain employers (including self-employed individuals) to make
contributions to employees’ Traditional IRAs if the employer establishes a
Simplified Employee Pension (“SEP”) plan.
Savings
Incentive Match Plan for Employees of Small Employers (Investor Class
Only).
The Company also has available a simplified tax-favored retirement plan for
employees of small employers (a “SIMPLE
IRA
Plan”). If an employer establishes a SIMPLE IRA Plan, contributions under the
SIMPLE IRA Plan are made to eligible employees’ SIMPLE Individual Retirement
Accounts (“SIMPLE IRAs”). Each eligible employee may choose to defer a
percentage of his or her pre-tax compensation to the employee’s SIMPLE IRA. The
employer must generally make an annual matching contribution to the SIMPLE IRA
of each eligible employee equal to the employee’s salary reduction
contributions, up to a limit of 3% of the employee’s eligible compensation.
Alternatively, the employer may make an annual non-discretionary contribution to
the SIMPLE IRA of each eligible employee equal to 2% of each employee’s eligible
compensation.
In
the SIMPLE IRA Plan and in Traditional and Roth IRAs, distributions of net
investment income and net capital gains will be automatically
reinvested.
The
foregoing brief descriptions are not complete or definitive explanations of the
SIMPLE IRA Plan, the Traditional IRA, or the Roth IRA available for investment
in the Funds. Any person who wishes to establish a retirement plan account may
do so by contacting the Funds (toll-free) at 1-866-442-2473. The complete plan
documents and applications will be provided to existing or prospective
shareholders upon request, without obligation. The Company recommends that
investors consult their attorneys or tax advisors to determine if the retirement
programs described herein are appropriate for their needs.
The
Company’s Articles of Incorporation authorize the Board to issue an indefinite
number of shares of common stock, $.01 par value per share, which is classified
into a total of sixteen series (five of which are listed below) (each, a
“series” or “Fund”). Each series is divided into two classes designated as
Investor Class shares and Institutional Class shares (each, a “Class”) and
consists of the number of shares set forth next to its Fund name in the table
below:
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Class
of
Common
Stock |
Fund
in which Stock
Represents
Interest |
Number
of Authorized
Shares
in Each Series |
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| Investor
Class |
Mid
Cap Growth Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
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| |
| Investor
Class |
Small/Mid
Cap Growth Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
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| |
| Investor
Class |
Equity
Opportunity Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
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| |
| Investor
Class |
International
Growth Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
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| |
| Investor
Class |
Global
Growth Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
The
remaining series of common stock representing currently outstanding interests in
11 other investment portfolios of the Company are described in separate SAIs.
One of these investment portfolios, the Baird Long-Term Credit Bond Fund, is not
currently being offered for sale. The Board may classify or
reclassify
any particular class of shares into one or more additional series or classes.
Each share of common stock of each class is entitled to one vote, and each share
is entitled to participate equally in distributions of net investment income and
net capital gains by the respective class of shares and in the residual assets
of the respective class in the event of liquidation. However, each class of
shares bears its own expenses, and the Investor Class has exclusive voting
rights on matters pertaining to the distribution and shareholder servicing plan
(see “Distribution Plan,” below).
Changes
in income tax laws, potentially with retroactive effect, could impact a Fund’s
investments or the tax consequences to you of investing in a Fund. Some of the
changes could affect the timing, amount and tax treatment of Fund distributions
made to shareholders. Please consult your tax adviser before
investing.
Each
Fund intends to qualify as a regulated investment company under Section 851 of
the Code and to distribute its income to shareholders each year so that the Fund
itself generally will be relieved of federal income and excise taxes. However,
if a Fund were to fail to qualify as a regulated investment company and were
unable to obtain relief from such failure: (1) the Fund would be taxed at
regular corporate rates without any deduction for distributions to shareholders;
and (2) shareholders would be taxed as if they received dividends from a regular
corporation, although corporate shareholders could be eligible for the
dividends-received deduction and non-corporate shareholders could be eligible
for qualified dividend income treatment if available. This double taxation would
increase the cost of investing in a Fund for shareholders and would make it more
economical for shareholders to invest directly in securities held by the Fund
instead of investing indirectly in such securities through the
Fund.
If
more than 50% of the value of a Fund’s total assets at the close of its taxable
year consists of stock and securities in foreign corporations, such Fund will be
eligible to, and may, file an election with the Internal Revenue Service (“IRS”)
that would enable such Fund’s shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any income taxes paid by such Fund to
foreign countries and U.S. possessions. Pursuant to the election, such Fund
would treat those foreign taxes as distributions paid to its shareholders, and
each shareholder would be required to (i) include in gross income, and
treat as paid by him, his proportionate share of those taxes, (ii) treat
his share of those taxes and of any distribution paid by such Fund that
represents income from foreign countries or U.S. possessions as his own income
from those sources, and (iii) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, claim the foreign tax credit
against his federal income tax. If a Fund makes this election, it will report to
its shareholders shortly after each taxable year their respective share of
income from sources within, and taxes paid to, foreign countries and U.S.
possessions. The Code may limit a shareholder’s ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of a Fund’s foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Funds may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale, exchange or redemption of Fund shares paid to (A) certain
“foreign financial institutions” unless such foreign financial institution
agrees to verify, monitor, and report to the IRS the identity of certain of its
accountholders, among other items (or unless such entity is otherwise deemed
compliant under the terms of an intergovernmental agreement between the United
States and the entity’s country of residence), and (B) certain “non-financial
foreign entities” unless such entity certifies to a Fund that it does not have
any substantial U.S. owners or
provides
the name, address, and taxpayer identification number of each substantial U.S.
owner, among other items. In December 2018, the IRS and Treasury Department
released proposed Treasury Regulations that would eliminate FATCA withholding on
Fund distributions of net capital gain and the gross proceeds from a sale,
exchange or redemption of Fund shares. Although taxpayers are entitled to rely
on these proposed Treasury Regulations until final Treasury Regulations are
issued, these proposed Treasury Regulations have not been finalized, may not be
finalized in their proposed form, and are potentially subject to change. This
FATCA withholding tax could also affect a Fund’s return on its investments in
foreign securities or affect a shareholder’s return if the shareholder holds its
Fund shares through a foreign intermediary. You are urged to consult your tax
adviser regarding the application of this FATCA withholding tax to your
investment in a Fund and the potential certification, compliance, due diligence,
reporting, and withholding obligations to which you may become subject in order
to avoid this withholding tax.
Each
Fund is required to report to certain shareholders and the IRS the cost basis of
shares acquired by such shareholders on or after January 1, 2012 (“covered
shares”) when the shareholders sell, exchange or redeem such shares. These
requirements do not apply to shares held through a tax-deferred or other
tax-advantaged arrangement, such as a 401(k) plan or an IRA or to shares held by
tax-exempt organizations, financial institutions, corporations (other than S
corporations), banks, credit unions, and certain other entities and governmental
bodies. Shares acquired before January 1, 2012 (“non-covered shares”) are
treated as if held in a separate account from covered shares. The Funds are not
required to determine or report a shareholder’s cost basis in non-covered shares
and are not responsible for the accuracy or reliability of any information
provided for non-covered shares.
The
cost basis of a share is generally its purchase price adjusted for
distributions, returns of capital, and other corporate actions. Cost basis is
used to determine whether the sale, exchange or redemption of a share results in
a gain or loss. If you sell, exchange or redeem covered shares of a Fund during
any year, then the Fund will report the gain/loss, cost basis, and holding
period of such shares to the IRS and you on Form 1099.
A
cost basis method is the method by which a Fund determines which specific
covered shares are deemed to be sold, exchanged or redeemed when a shareholder
sells, exchanges or redeems less than its entire holding of Fund shares and has
made multiple purchases of Fund shares on different dates at differing net asset
values. If a shareholder does not affirmatively elect a cost basis method, a
Fund will use the average cost method, which averages the basis of all Fund
shares in an account regardless of holding period, and shares sold, exchanged or
redeemed are deemed to be those with the longest holding period first. Each
shareholder may elect in writing (and not over the telephone) any alternate
IRS-approved cost basis method to calculate the cost basis in its covered
shares. The default cost basis method applied by a Fund or the alternate method
elected by a shareholder may not be changed after the settlement date of a sale,
exchange or redemption of Fund shares.
If
you hold Fund shares through a financial intermediary (or another nominee),
please contact that broker or nominee with respect to the reporting of cost
basis and available elections for your account.
You
are encouraged to consult your tax adviser regarding the application of these
cost basis reporting rules and, in particular, which cost basis calculation
method you should elect.
Capital
Loss Carryovers
To
the extent that a Fund realizes future net capital gains, those gains can be
offset by any unused capital loss carryovers, to the extent permitted under the
Code, which may in turn decrease the amount of taxable distributions made by the
Fund. At December 31, 2022, accumulated net realized capital loss
carryovers without expiration were:
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| Capital
Loss Carryover |
Year
of Expiration |
| Fund |
Short-term |
Long-term |
Short-term |
Long-term |
| Mid
Cap Growth Fund |
$45,587,598 |
$
— |
Indefinitely |
N/A |
| Small/Mid
Cap Growth Fund |
11,832,524 |
7,780,463 |
Indefinitely |
Indefinitely |
| International
Growth Fund |
5,686,321 |
3,888,629 |
Indefinitely |
Indefinitely |
| Global
Growth Fund |
520,040 |
1,055,905 |
Indefinitely |
Indefinitely |
During
the year ended December 31, 2022, the Funds did not utilize short-term or
long-term capital loss carryovers. At December 31, 2022, there were no
accumulated net realized capital loss carryovers without expiration for the
Funds.
If
a Fund incurs net capital losses in future taxable years, those losses will be
carried forward to one or more subsequent taxable years without expiration until
used in their entirety, and the losses will retain their character as either
short-term or long-term.
Under
the laws of the State of Wisconsin, the business and affairs of the Company
(including the Funds) are managed under the direction of the Board. The Board is
responsible for acting on behalf of the shareholders.
The
Company does not normally hold shareholders’ meetings except when required by
the 1940 Act or the Wisconsin Business Corporation Law (WBCL). Under the 1940
Act, shareholder meetings are required to vote on director nominees, to approve
an investment advisory agreement and to change fundamental investment policies.
Under the Company’s By-Laws, the Company is not required to hold an annual
meeting in any year in which the 1940 Act does not require a shareholder vote to
elect directors, approve the Company’s investment advisory agreement, ratify the
independent auditors or approve the Company’s distribution
agreement.
Board
Leadership Structure
The
Board is comprised of six Independent Directors – John W. Feldt, Darren R.
Jackson, David J. Lubar, Cory L. Nettles, Frederick P. Stratton, Jr. and Marlyn
J. Spear. Ms. Spear serves as Chair of the Board. The Board has established two
standing committees – the Audit Committee and the Nominating Committee. Mr.
Feldt, an Independent Director, serves as the Chair of the Audit Committee. Mr.
Stratton, an Independent Director, serves as the Chair of the Nominating
Committee. The Audit Committee and the Nominating Committee are each comprised
entirely of Independent Directors. In accordance with the fund governance
standards prescribed by the SEC under the 1940 Act, the Independent Directors on
the Nominating Committee select and nominate all candidates for Independent
Director positions.
Each
Director was appointed to serve on the Board because of his or her experience,
qualifications, attributes and/or skills as set forth in the subsection
“Director Qualifications,” below. The Board reviews its leadership structure
regularly. The Board believes that its leadership structure is appropriate and
effective in light of the size of the Company, the nature of its business and
industry practices.
The
Board’s role is one of oversight rather than management. The Board’s committee
structure assists with this oversight function. The Board’s oversight extends to
the Funds’ risk management processes. Those processes are overseen by Fund
officers, including the President, Treasurer, Secretary and Chief Compliance
Officer (“CCO”), who regularly report to the Board on a variety of matters at
Board meetings.
The
Advisor reports to the Board, on a regular and as-needed basis, on actual and
possible risks affecting the Funds and the Company as a whole. The Advisor
reports to the Board on various elements of risk, including investment, credit,
liquidity, valuation, operational and compliance risks, as well as any overall
business risks that could impact the Funds. The Advisor also oversees the risk
management policies adopted by the Subadvisor.
The
Board has appointed the CCO who meets quarterly in executive session with the
Directors and participates in the Board’s regular meetings. In addition, the CCO
presents an annual report to the Board regarding the operation of the Funds’
compliance policies and procedures and those of the Funds’ principal service
providers. The CCO, together with the other Fund officers, regularly discusses
risk issues affecting the Company during Board meetings. The CCO also provides
updates to the Board on the operation of the Funds’ compliance policies and
procedures and on how these procedures are designed to mitigate risk. Finally,
the CCO and/or representatives of the Advisor’s legal department report to the
Board in the event any significant risk issues arise in between Board
meetings.
Directors
and Officers
Directors
and officers of the Company, together with information as to their principal
business occupations during the last five years and other information, are shown
in the following table. Each officer and Director holds the same positions with
the Company and each Fund. The following table presents information about each
Director of the Company.
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Name,
Address and Age
(as of 1/1/23) |
| Position(s)
Held
with the Company |
| Term
of Office and Length of Time Served |
| Principal
Occupation(s) During Past 5 Years |
| Number
of Portfolios in Fund Complex Overseen by Director |
|
Other
Directorships Held by Director During Past 5 Years |
|
Independent
Directors |
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John
W. Feldt
c/o Robert W. Baird & Co. Incorporated
777 East
Wisconsin Ave
Milwaukee, WI 53202
Age: 80 |
| Audit
Committee Chair and Independent Director |
| Indefinite;
Since September 2000 |
| Retired. |
| 15 |
|
Director
of Thompson Plumb Funds, Inc., a mutual fund complex (3 portfolios)
(1987-2018). |
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Name,
Address and Age
(as of 1/1/23) |
| Position(s)
Held
with the Company |
| Term
of Office and Length of Time Served |
| Principal
Occupation(s) During Past 5 Years |
| Number
of Portfolios in Fund Complex Overseen by Director |
|
Other
Directorships Held by Director During Past 5 Years |
|
Independent
Directors |
|
|
|
|
| |
Darren
R. Jackson
c/o Robert W. Baird & Co. Incorporated
777 East
Wisconsin Ave
Milwaukee, WI 53202
Age: 58
|
| Independent
Director |
| Indefinite;
Since November 2018 |
| Retired.
|
| 15 |
| Director
of Wolfspeed, Inc., a semiconductor company, since 2016; Director of
Fastenal Company, a tool and supply distributor (2012-2020). |
|
|
|
|
|
|
|
|
|
|
| |
David
J. Lubar
833 E. Michigan Street
Suite 1500
Milwaukee, WI
53202
Age: 68 |
| Independent
Director |
| Indefinite;
Since November 2021 |
| President
and CEO, Lubar & Co. Incorporated, a private investment firm
(1983-present). |
| 15 |
| Director
of Hallador Energy Company, since 2018. |
|
|
|
|
|
|
|
|
|
|
| |
Cory
L. Nettles
Generation Growth Capital, Inc.
111 East Kilbourn Ave
Suite 2800
Milwaukee, WI 53202
Age: 52 |
| Independent
Director |
| Indefinite;
Since January 2008 |
| Managing
Director, Generation Growth Capital, Inc., a private equity fund, since
March 2007.
|
| 15 |
|
Director
of Weyco Group, Inc., a men’s footwear distributor, since 2007; Director
of Associated Banc‑Corp, since 2013. |
|
|
|
|
|
|
|
|
|
|
| |
Marlyn
J. Spear, CFA
c/o Robert W. Baird & Co. Incorporated
777 East
Wisconsin Ave
Milwaukee, WI 53202
Age: 69 |
| Chair
of the Board and Independent Director |
| Indefinite;
Since January 2008 |
| Retired. |
| 15 |
|
Management
Trustee of AFL‑CIO Housing Investment Trust, a mutual fund complex (1
portfolio) (1995-2018). |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address and Age
(as of 1/1/23) |
| Position(s)
Held
with the Company |
| Term
of Office and Length of Time Served |
| Principal
Occupation(s) During Past 5 Years |
| Number
of Portfolios in Fund Complex Overseen by Director |
|
Other
Directorships Held by Director During Past 5 Years |
|
Independent
Directors |
|
|
|
|
| |
Frederick
P. Stratton, Jr.
c/o Robert W. Baird & Co. Incorporated
777
East Wisconsin Ave
Milwaukee, WI 53202
Age: 83 |
| Nominating
Committee Chair and Independent Director |
| Indefinite;
Since May 2004 |
| Retired;
Chairman Emeritus, Briggs & Stratton Corporation, a manufacturing
company, (2003-2020). |
| 15 |
|
Director
of Weyco Group, Inc., a men’s footwear distributor, since
1976. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address and Age
(as of 1/1/23) |
| Position(s)
Held with the Company |
| Term
of Office and Length of Time Served |
| Principal
Occupation(s) During Past 5 Years |
|
Officers |
Mary
Ellen Stanek
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
66 |
| President |
| Re‑elected
by Board annually; Since September 2000 |
| Co-Chief
Investment Officer, Baird Advisors, a department of the Advisor, since
October 2021; Chief Investment Officer, Baird Advisors (March 2000-October
2021); Managing Director, the Advisor since March 2000.
|
Charles
B. Groeschell
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
69 |
| Vice
President |
| Re‑elected
by Board annually; Since January 2010
|
| Managing
Director, the Advisor, and Senior Portfolio Manager, Baird Advisors, a
department of the Advisor, since February 2000.
|
Angela
M. Palmer
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
50 |
| Chief
Compliance Officer and AML Compliance Officer |
| Re‑elected
by Board annually; Since March 2014 |
| Chief
Compliance Officer, the Advisor, since March 2014; Anti‑Money Laundering
Compliance Officer since May 2015; Managing Director, the Advisor, since
January 2022; Director, the Advisor (July 2014-December
2021).
|
Dustin
J. Hutter
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
46 |
| Treasurer |
| Re‑elected
by Board annually; Since April 2021 |
| Senior
Business Analyst, the Advisor, since September 2017; Managing Director,
the Advisor, since January 2020; Director, the Advisor (July 2014-December
2019).
|
Charles
M. Weber
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
59 |
| Secretary |
| Re‑elected
by Board annually; Since September 2005 |
| Senior
Associate General Counsel, the Advisor, since January 2013; Managing
Director, the Advisor, since January
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address and Age
(as of 1/1/23) |
| Position(s)
Held with the Company |
| Term
of Office and Length of Time Served |
| Principal
Occupation(s) During Past 5 Years |
|
Officers |
Peter
J. Hammond
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
59
|
| Vice
President |
| Re‑elected
by Board annually; Since August 2012 |
| Managing
Director, the Advisor, since January 2016.
|
Mandy
L. Hess
777 East Wisconsin Ave Milwaukee, WI 53202
Age: 53 |
| Assistant
Treasurer |
| Re-elected
by Board annually; Since April 2021 |
| Senior
Vice President, the Advisor, since November 2019; Director of Finance and
Assistant Treasurer, The Lynde and Harry Bradley Foundation, Inc. (a
private grantmaking foundation) (December 2005 - July
2019).
|
Andrew
D. Ketter
777 East Wisconsin Ave Milwaukee, WI 53202
Age:
48 |
| Assistant
Secretary |
| Re‑elected
by Board annually; Since February 2011 |
| Managing
Director, the Advisor, since January 2022; Associate General Counsel, the
Advisor, since September 2010; Director, the Advisor, (July 2014-December
2021). |
Director
Qualifications
The
following is a brief discussion of the experience, qualifications, attributes
and/or skills that led to the Board’s conclusion that each individual identified
below is qualified to serve as a Director of the Company.
John
W. Feldt.
Mr. Feldt has served as a Director of the Company since September 2000 and is
Chair of the Audit Committee. Mr. Feldt has been designated as an “audit
committee financial expert.” He served as an independent director of Thompson
Plumb Funds, Inc., a mutual fund complex with three portfolios, from 1987 to
2018. He also served as an independent trustee of Nakoma Mutual Funds, a mutual
fund complex with one portfolio, from March 2006 to November 2011. While
employed with the University of Wisconsin Foundation, Mr. Feldt served as Senior
Vice President‑Finance from 1985 to 2006, as Vice President‑Finance from 1980 to
1985 and as Associate Director from 1967 to 1980. Through his experience as a
director and trustee of mutual funds and his business experience, Mr. Feldt is
experienced with financial, accounting, regulatory and investment
matters.
Darren
R. Jackson. Mr.
Jackson has served as a Director of the Company since November 15, 2018.
Mr. Jackson has been designated as an “audit committee financial expert.”
Mr. Jackson served as a director and CEO of Advance Auto Parts, Inc. from 2008
to 2016. Prior to that, he served as the Executive Vice President and Chief
Financial Officer of Best Buy Co., Inc. and held various senior positions with
Nordstrom Full Line Department Stores, Inc. and Carson Pirie Scott &
Company. Mr. Jackson began his career at KPMG LLP. Mr. Jackson has previous and
current public company directorship experience and also currently serves on the
boards of one private company as well as several non-profit organizations. Mr.
Jackson brings significant audit, financial reporting, business and directorship
experience to the Board.
David
J. Lubar.
Mr. Lubar has served as a Director of the Company since November 2021 and
previously served as a Director of the Company in 2018. Mr. Lubar has been
designated as an “audit committee financial expert.” He serves as President, CEO
and Director of Lubar & Co., a private investment firm.
He
began his career in 1977 at Norwest Bank (n/k/a Wells Fargo Bank), where he
spent six years in commercial and correspondent banking. Mr. Lubar joined Lubar
& Co. in 1983. He serves on the board of directors of Hallador Energy
Company and Ixonia Bancshares as well as the Milwaukee Brewers and several other
private companies. He also serves in many community leadership positions
throughout the Milwaukee area. Through his board, investment and business
experience, Mr. Lubar is experienced with financial, accounting, regulatory and
investment matters.
Cory
L. Nettles.
Mr. Nettles has served as a Director of the Company since January 2008. He
serves as an independent director of Weyco Group, Inc., a men’s footwear
distributor, and Associated Banc‑Corp. He previously served as a director of The
PrivateBank, a financial institution, from January 2007 to October 2010. Mr.
Nettles has served as Managing Director of Generation Growth Capital, Inc., a
private equity fund, since 2007. He was Of Counsel at Quarles & Brady LLP, a
law firm, from 2005 to 2016. Mr. Nettles served as Secretary of the Wisconsin
Department of Commerce from 2003 to 2005. Through his experience with investment
funds and public companies, his employment experience and his legal training and
practice, Mr. Nettles is experienced with financial, accounting, legal,
regulatory and investment matters.
Frederick
P. Stratton, Jr.
Mr. Stratton has served as a Director of the Company since May 2004 and is Chair
of the Nominating Committee. Mr. Stratton has been designated as an “audit
committee financial expert.” He also serves as an independent director of Weyco
Group, Inc., a men’s footwear distributor. He served as an independent director
of Wisconsin Energy Corporation and its subsidiaries, Wisconsin Electric Power
Company and Wisconsin Gas LLC from 1987 to 2012. Mr. Stratton has served as
Chairman Emeritus of Briggs & Stratton Corporation, a manufacturing company,
from 2003 to 2020. At Briggs & Stratton Corporation, he also served as
Chairman from 2001 to 2002 and Chairman and CEO from 1986 to 2001. While at
Briggs & Stratton Corporation, Mr. Stratton had management responsibilities
for the company’s retirement trust assets. In addition, prior to joining Briggs
& Stratton Corporation, he spent eight years as an investment analyst and
was a CFA charterholder. Through his board experience with mutual funds and
public companies and his business experience, Mr. Stratton is experienced with
financial, accounting, regulatory and investment matters.
Marlyn
J. Spear, CFA.
Ms. Spear has served as a Director of the Company since January 2008 and is
Chair of the Board. She previously served as Chair of the Audit Committee from
2014 to 2018. Ms. Spear has been designated as an “audit committee financial
expert.” She served as Management Trustee of AFL‑CIO Housing Investment Trust, a
mutual fund complex with one portfolio, from 1995 to 2018 and served as Chief
Investment Officer of the Building Trades United Pension Trust Fund from 1989 to
2017. She served as Investment Officer of Northwestern Mutual Financial Network
from 1988 to 1989, as Assistant Vice President of Firstar Trust Company from
1978 to 1987 and as Financial Analyst of Harco Holdings, Inc. from 1976 to 1978.
Ms. Spear has earned the Chartered Financial Analyst designation. Through her
experience as a director and trustee of mutual funds and her business
experience, Ms. Spear is experienced with financial, accounting, regulatory and
investment matters.
Board
Committees
The
Board has two standing committees — an Audit Committee and a Nominating
Committee. The Audit Committee is responsible for advising the full Board with
respect to accounting, auditing and financial matters affecting the Company and
meets at least semi‑annually. During the fiscal year ended December 31,
2022, the Audit Committee met two times. John W. Feldt, Darren R. Jackson, David
J. Lubar, Cory L. Nettles, Frederick P. Stratton, Jr. and Marlyn J. Spear, all
of whom are Independent Directors, comprise the Audit Committee.
The
Nominating Committee is responsible for seeking and reviewing candidates for
consideration as nominees to serve as Directors of the Company and meets as
often as it deems necessary. During the fiscal year ended December 31,
2022, the Nominating Committee met once. John W. Feldt, Darren R. Jackson, David
J. Lubar, Cory L. Nettles, Frederick P. Stratton, Jr. and Marlyn J. Spear, each
of whom is an Independent Director, comprise the Nominating Committee. The
Nominating Committee will consider properly qualified candidates for the Board
submitted by shareholders. Shareholders who wish to recommend a Director nominee
may do so by submitting the appropriate information about the candidate to the
Company’s Secretary.
Board
Compensation
Each
Director receives an annual retainer of $175,000, plus $12,000 per Board meeting
attended ($6,000 per meeting attended by telephone or other electronic means).
In addition, each Director is reimbursed by the Company for travel and other
expenses incurred in connection with attendance at such meetings. Committee
members do not receive additional compensation for committee meetings attended.
Ms. Spear receives an additional $15,000 in annual compensation in recognition
of her service as Chair of the Board. Officers of the Funds receive no
compensation or expense reimbursement from the Company or the Advisor for
serving in such capacity, except that the Advisor pays compensation to Angela M.
Palmer for her services as Chief Compliance Officer of the Funds. Neither the
Company nor the Funds maintain any deferred compensation, pension or retirement
plans, and no pension or retirement benefits are accrued as part of Company or
Fund expenses. For the fiscal year ended December 31, 2022, the Directors
received the following compensation from the Funds and other series of the
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Director |
Aggregate
Compensation from each Fund |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Compensation from Funds and Fund Complex Paid to Directors(1) |
| John
W. Feldt |
$15,667 |
$0 |
$0 |
$235,000 |
| Darren
R. Jackson |
$15,667 |
$0 |
$0 |
$235,000 |
| David
J. Lubar |
$15,667 |
$0 |
$0 |
$235,000 |
| Marlyn
J. Spear |
$16,667 |
$0 |
$0 |
$250,000 |
| Frederick
P. Stratton, Jr. |
$15,667 |
$0 |
$0 |
$235,000 |
| Cory
L. Nettles |
$15,667 |
$0 |
$0 |
$235,000 |
(1)During
fiscal 2022, compensation received by the Directors for overseeing the five
Funds discussed in this SAI totaled $83,333 for Marlyn J. Spear and $78,333 each
for John W. Feldt, Frederick P. Stratton, Jr., Darren R. Jackson, Cory L.
Nettles and David J. Lubar.
Board
Ownership of the Funds
As
of December 31, 2022, none of the Independent Directors of the Funds owned
securities beneficially or of record in the Advisor, Distributor or any of its
affiliates. As of December 31, 2022, the Directors beneficially owned the
following amounts (by dollar range) in the Fund Complex (Note:
the Directors only own Institutional Class shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Fund |
John
W. Feldt |
| Darren
R. Jackson |
| David
J. Lubar |
| Marlyn
J. Spear |
| Frederick
P. Stratton, Jr. |
| Cory
L. Nettles |
|
|
|
|
|
|
|
|
|
|
|
| |
| Mid
Cap Growth Fund |
Over
$100,000 |
| Over
$100,000 |
| None |
| $10,001
- $50,000 |
| Over
$100,000 |
| Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
| |
| Small/Mid
Cap Growth Fund |
Over
$100,000 |
| None |
| None |
| None |
| None |
| None |
|
|
|
|
|
|
|
|
|
|
|
| |
| Equity
Opportunity Fund |
Over
$100,000 |
| Over
$100,000 |
| None |
| None |
| Over
$100,000 |
| $10,001
- $50,000 |
|
|
|
|
|
|
|
|
|
|
|
| |
| International
Growth Fund |
None |
| None |
| None |
| None |
| Over
$100,000 |
| Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
Growth Fund |
Over
$100,000 |
| None |
| None |
| $10,001
- $50,000 |
| $10,001
- $50,000 |
| Over
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate
Dollar Range of Equity Securities Beneficially Owned in All Registered
Investment Companies Overseen by Director in Family of Investment
Companies |
Over
$100,000 |
| Over
$100,000 |
| Over
$100,000 |
| Over
$100,000 |
| Over
$100,000 |
| Over
$100,000 |
A
control person is one who owns, beneficially or through controlled companies,
more than 25% of the voting securities of a Fund or who acknowledges the
existence of control. Shareholders with a controlling interest could affect the
outcome of proxy voting or the direction of the management of a Fund. As of
March 31, 2023, the Advisor, in its capacity as sponsor of the Baird Profit
Sharing & Savings Plan and the Baird Non-Qualified Compensation Plan, and
the Baird Foundation, an entity related to the Advisor, on a combined basis,
owned a controlling ownership in the Baird Equity Opportunity Fund (a combined
ownership of 69%).
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a class of a Fund. As of April 1, 2023,
the following shareholders are known by the Funds to own of record or to
beneficially own 5% or more of the outstanding shares of a class of a
Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Mid
Cap Growth Fund |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services Corp.
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Fund Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 07310-1995
|
Institutional |
26.61% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Mid
Cap Growth Fund |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of Its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
14.33% |
Record |
N/A |
N/A |
| Merrill
Lynch Pierce, Fenner & Smith
For
the Sole Benefit of Its Customers
4800
Deer Lake Drive E
Jacksonville,
FL 32246-6484
|
Institutional |
7.37% |
Record |
N/A |
N/A |
| Attn
NPO Trade Desk
DCGT
as TTEE and/or Cust
FBO
PLIC Various Retirement Plans Omnibus
711
High Street
Des
Moines, IA 50392-0001
|
Institutional |
5.28% |
Record |
N/A |
N/A |
| National
Financial Services Corp.
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Fund Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 07310-1995
|
Investor |
40.41% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of Its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Investor |
20.44% |
Record |
N/A |
N/A |
| Pershing
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0002
|
Investor |
12.38% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
9.59% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Small/Mid
Cap Growth Fund |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Attn
NPO Trade Desk
DCGT
as TTEE and/or Cust
FBO
PLIC Various Retirement Plans Omnibus
711
High Street
Des
Moines, IA 50392-0001
|
Institutional |
13.71% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Small/Mid
Cap Growth Fund |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
|
Dorothy
K. Hyde TTEE
Dorothy
K. Hyde Survivors Trust
U/A
DTD 05/14/04
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
26.49% |
Beneficial |
N/A |
N/A |
|
Dorothy
K. Hyde TTEE
James
& Dorothy REV Trust
U/A
DTD 05/14/04
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
26.49% |
Beneficial |
N/A |
N/A |
| Bradford
J. Bomba Jr. & Angee A. Bomba JT TEN
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
15.84% |
Beneficial |
N/A |
N/A |
| Raymond
James
Omnibus
for Mutual Funds
House
Acct Fir, 92500015
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202 |
Investor |
9.34% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Equity
Opportunity Fund |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Robert
W. Baird & Company, Inc.
777
East Wisconsin Avenue
Milwaukee,
WI 53202-5300
|
Institutional |
33.35% |
Record |
Baird
Holding Company |
WI |
| Attn
NPIO Trade Desk
DCGT
as TTEE and/or CUST
FBO
PLIC Various Retirement Plans
711
High Street
Des
Moines, IA 50392-0001
|
Institutional |
31.73% |
Record |
The
Principal Financial Group |
DE |
| Reik
Read TOD Per Beneficiary Designation U/A DTD 01/22/2020
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202 |
Investor |
100% |
Beneficial |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| International
Growth Fund |
| Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services Corp.
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Fund Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 07310-1995
|
Institutional |
13.06% |
Record |
N/A |
N/A |
| Northern
TR CO CUST FBO Strada Education NTWRK INC TR
P.O.
Box 92956
Chicago,
IL 60675-2956
|
Institutional |
12.04% |
Beneficial |
N/A |
N/A |
| Attn
NPIO Trade Desk
DCGT
as TTEE and/or Cust
FBO
PLIC Various Retirement Plans
711
High Street
Des
Moines, IA 50392-0001
|
Institutional |
5.37% |
Record |
N/A |
N/A |
| Lincoln
Retirement Services Company
FBO
Wycliffe Bible Translator 403B
P.O.
Box 7876
Fort
Wayne, IN 46801-7876
|
Investor |
86.00% |
Record |
Lincoln
National Life Insurance Company |
IN |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of Its Customers
211
Main Street
San
Francisco, CA 94105-1905 |
Investor |
6.84% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
Growth Fund |
| Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Attn
NPIO Trade Desk
DCGT
as TTEE and/or Cust
FBO
PLIC Various Retirement Plans
711
High Street
Des
Moines, IA 50392-0001
|
Institutional |
9.06% |
Record |
N/A |
N/A |
| Marjorie
B. Walker TOD
Per
Beneficiary Designation
U/A
DTD 04/22/21
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
21.16% |
Beneficial |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226
|
Investor |
15.07% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Global
Growth Fund |
| Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of Its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Investor |
12.47% |
Record |
N/A |
N/A |
| Morgan
Stanley Smith Barney LLC
For
the Exclusive Benefit of Its Customers
1
New York Plaza, SC1 FL 39th
New
York, NY 10004-1932 |
Investor |
5.42% |
Record |
N/A |
N/A |
As
of March 31, 2023, the officers and Directors of the Company did not own any
Investor Class shares of any Fund and beneficially owned (as the term is defined
in Section 13(d) under the Securities Exchange Act of 1934, as amended)
less than 1% of the outstanding Institutional Class shares of the Mid Cap Growth
Fund, Small/Mid Cap Growth Fund, Global Growth Fund and International Growth
Fund and owned 5.62% of the outstanding Institutional Class shares of the Equity
Opportunity Fund.
Subject
to the general supervision of the Board, the Advisor is responsible for, makes
decisions with respect to, and places orders for all purchases and sales of
portfolio securities for each Fund, with the exception of the Equity Opportunity
Fund. Subject to the general supervision of the Board and the Advisor, the
Subadvisor is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of portfolio securities for the Equity
Opportunity Fund.
Equity
securities are generally bought and sold in brokerage transactions placed on
U.S. stock exchanges or in the over-the-counter market in exchange for
negotiated brokerage commissions. Accordingly, the cost of transactions may vary
among different brokers. With respect to over-the-counter transactions, the
Advisor or Subadvisor will normally deal directly with dealers who make a market
in the securities involved except in those circumstances where better prices and
execution are available elsewhere.
Fixed
income securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e.,
without commission) through dealers, or otherwise involve transactions directly
with the issuer of an instrument. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer’s
mark-up or mark-down.
The
Funds may participate, if and when practicable, in bidding for the purchase of
portfolio securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor or Subadvisor, in its sole
discretion, believes such practice to be in a Fund’s interests. The Funds may
also participate in exchange offers directly with the issuers of securities
pursuant to which a Fund will receive new securities and, if applicable,
additional compensation in exchange for eligible securities held by the
Funds. Issuer exchange offers may be subject to risks of settlement delays
and counterparty risks, among other risks applicable to the particular security
being acquired.
The
investment advisory or sub-advisory agreement between the Company and the
Advisor or Subadvisor provides that, in executing portfolio transactions and
selecting brokers or dealers, the Advisor or Subadvisor, will seek to obtain the
most favorable prices and at reasonable commission rates. In assessing the best
overall terms available for any transaction, the Advisor or Subadvisor, shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commissions,
if any, both for the specific transaction and on a continuing basis. In
addition, as permitted by Section 28(e) of the Securities Exchange Act of 1934,
the advisory agreement authorizes the Advisor or Subadvisor to cause the Funds
to pay commissions for research and brokerage services, a practice commonly
referred to as “soft dollars.” The Advisor and Subadvisor have each adopted a
soft dollar policy requiring it to undertake an analysis to determine whether a
research product or service falls within the Section 28(e) safe harbor. First,
the Advisor or Subadvisor must determine whether the product or service
constitutes eligible research services under Section 28(e). Second, the Advisor
or Subadvisor must determine whether the product or service actually provides
lawful and appropriate assistance in the performance of the Advisor or
Subadvisor’s investment decision-making responsibilities. Third, the Advisor or
Subadvisor must make a good faith determination that the amount of the
commissions paid by the Funds and other clients of the Advisor or Subadvisor is
reasonable in light of the value of the research and brokerage products and
services provided by the broker-dealer effecting the transaction.
The
types of research services that generally are considered eligible under Section
28(e) and that provide lawful and appropriate assistance to the Advisor or
Subadvisor in performing their investment decision-making responsibilities may
consist of advice, either directly or through publications or writings, as to
the value of securities or the advisability of purchasing or selling securities;
or analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy, as well as political factors and other
topics related to securities and financial markets. Typical items that qualify
as eligible research include: research reports analyzing the historical or
prospective performance of a particular company or stock; discussions with
research analysts regarding the advisability of investing in securities;
meetings with corporate executives arranged by a broker-dealer to obtain oral
reports on the performance of a company; seminars and conferences to the extent
they provide substantive content relating to issuers, industries or securities;
portfolio analysis software; financial, trade, industry and investment-related
publications marketed to a narrow audience; and market, economic, political,
company-specific and other data providing substantive content. The research
services may be proprietary research offered by the broker or dealer executing a
trade or research offered by third parties through the executing broker or
dealer. The Advisor and Subadvisor have determined that all of the research
products and services purchased through the use of commissions paid out of the
Funds’ and other clients’ accounts constitute eligible research services under
Section 28(e), and provide lawful and appropriate assistance to the Advisor or
Subadvisor, in the performance of its investment decision-making
responsibilities with respect to those accounts.
The
table below shows aggregate total commissions paid by each Fund to
broker-dealers that provided research services to the Advisor and Subadvisor, as
applicable, for the year ended December 31, 2022 and the aggregate total
principal value of those transactions.
|
|
|
|
|
|
|
|
| |
| Fund |
Aggregate
Total Research Commissions Paid to Broker-Dealers |
Aggregate
Total Principal Value of Research Transactions |
| Mid
Cap Growth Fund |
$333,129 |
$1,115,576,445 |
| Small/Mid
Cap Growth Fund |
$79,290 |
$145,382,504 |
| Equity
Opportunity Fund |
$78,582 |
$84,126,548 |
| Chautauqua
International Growth Fund |
$170,858 |
$329,936,651 |
| Chautauqua
Global Growth Fund |
$51,625 |
$86,194,264 |
Some
broker-dealers indicate the amount of commissions they expect to receive in
exchange for the provision of a particular research service. Although the
Advisor and Subadvisor do not agree to direct a specific amount of commissions
to a firm in that circumstance, each firm maintains internal procedures
(described in the paragraphs below) to identify the broker-dealers that provide
the Advisor or Subadvisor with research services and the value of those research
services, and seek to direct sufficient commissions to ensure the continued
receipt of research services they feel are valuable.
The
Advisor and Subadvisor seek to allocate brokerage commissions to broker-dealers
in a way that, in the Advisor or Subadvisor’s judgment, reflects the quality and
consistency of service provided by broker-dealers and research service
providers. At the beginning of each year, a commission budget is established by
the Advisor. The Advisor’s investment professionals then jointly determine which
broker-dealers will be eligible to execute client transactions and establish a
target commission amount for each such broker-dealer based upon the total
commission budget. The Advisor’s or Subadvisor’s investment professionals
periodically conduct broker evaluations or broker votes to assist in evaluating
the research and execution services received from each broker-dealer. The
Advisor’s investment professionals generally take into consideration the
following criteria: execution quality, trade errors, quality of research, and
access to analysts and company management. The Advisor then makes adjustments to
target commission amounts, if any, and adds or removes broker-dealers based upon
the voting results. The Advisor’s managed account trading desk takes the
commission budget and voting into consideration, as part of the Advisor’s
obligation to seek best execution, when selecting broker-dealers to execute
portfolio transactions for the Funds and the Advisor other clients. To the
extent more than one broker-dealer is considered capable of providing best
execution for a particular transaction, the Advisor or Subadvisor may direct the
transaction to a broker-dealer based upon the target commission amounts then in
effect. In seeking best execution for the Equity Opportunity Fund, the
Subadvisor considers the full range of the broker’s services, including the
value of research provided and execution capability, commission rate, financial
responsibility and responsiveness.
Supplementary
research information received from broker-dealers or research providers is in
addition to, and not in lieu of, services required to be performed by the
Advisor or Subadvisor and does not reduce the advisory fees payable to them by
the Funds. The Board will periodically review the commissions paid by the Funds
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds.
Research services furnished by firms through which a Fund effects its securities
transactions may be used by the Advisor or Subadvisor, in servicing all of the
firm’s accounts; not all of such services may be used by the Advisor or
Subadvisor in connection with the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other accounts for which investment discretion is exercised. Conversely, a
Fund may be the primary beneficiary of the research or services received as a
result of portfolio transactions effected for such other account(s).
Additionally, a Fund may pay a higher brokerage commission to brokers than might
be charged by a different broker, in recognition of the value of the research or
services received.
Brokerage
may not be allocated based on the sale of Fund shares. The Board, including a
majority of the Independent Directors, has adopted policies and procedures
designed to ensure that the selection of brokers is not influenced by
considerations about the sale of Fund shares.
Portfolio
securities will not be purchased from or sold to (and savings deposits will not
be made in and repurchase and reverse repurchase agreements will not be entered
into with) the Advisor or Subadvisor, or an affiliated person of the Advisor or
Subadvisor (as such term is defined in the 1940 Act), acting as principal.
However, pursuant to SEC rules, the Funds may engage the Advisor or Subadvisor
or an affiliate of the Advisor or Subadvisor to act as broker in connection with
purchases or sales of portfolio securities effected on an agency basis. To date,
the Funds have not done so. The Funds will not purchase securities during the
existence of any underwriting or selling group relating thereto of which the
Advisor, Subadvisor or an affiliated person is a member, except to the extent
permitted by the SEC. The Funds may purchase securities through underwritings in
which the Advisor, Subadvisor or an affiliate is a participant in accordance
with the Funds’ affiliated underwriting procedures, which generally require that
the Advisor, Subadvisor or the participating affiliate be carved out from any
compensation related to an affiliated Fund participation in the
offering.
The
Advisor and Subadvisor manage other accounts in addition to the Funds and many
of those accounts hold and invest in the same securities as the Funds. The
Advisor or Subadvisor allocate investment opportunities across the Funds and the
firm’s other similarly managed accounts in a fair and equitable manner, with no
account(s) being favored over others. In making investment allocations, the
Advisor or Subadvisor consider the clients’ investment goals and restrictions,
uninvested cash, sector and issuer diversification, anticipated cash flows, risk
tolerances, portfolio size and other relevant factors.
The
Advisor or Subadvisor may, when appropriate, aggregate purchases or sales of
securities and allocate such trades among multiple client accounts, including
the Funds. The Advisor or Subadvisor will aggregate orders when they believe it
will be advantageous to do so, such as the possibility of obtaining more
favorable execution and prices. However, in some instances, bunching an order
for a Fund with orders for other client accounts may adversely affect the price
paid or received by the Fund or the size of the position obtained or sold by the
Fund because the Fund’s order is being shared with other accounts. Aggregated
orders that can only be partially filled will typically be allocated on a pro
rata basis, subject to de minimis requirements. Each account participating in an
aggregated order will receive the same average price.
For
the fiscal periods ended December 31, 2022, 2021 and 2020, the following
brokerage commissions were paid by the Funds:
|
|
|
|
|
|
|
|
|
|
|
| |
Brokerage
Commissions
Paid During Fiscal Periods Ended December 31, |
|
| 2022 |
2021 |
2020 |
| Mid
Cap Growth Fund |
$333,585 |
$422,209 |
$656,983 |
| Small/Mid
Cap Growth Fund |
$79,290 |
$71,553 |
$24,690 |
| Equity
Opportunity Fund |
$79,916 |
$140,834 |
$67,284 |
| International
Growth Fund |
$170,976 |
$142,664 |
$169,452 |
| Global
Growth Fund |
$51,661 |
$78,858 |
$51,966 |
The
Funds did not pay any commissions to brokers who were affiliated with the Funds
or the Advisor during the past three fiscal years.
The
Funds are required to identify any securities of their “regular brokers or
dealers” that a Fund has acquired during its most recent fiscal year. The Funds
did not acquire securities of their regular brokers or dealers or their parents
during fiscal year 2022.
Advisory
Services
Investment
Advisor
Robert
W. Baird & Co. Incorporated
Robert
W. Baird & Co. Incorporated (“Baird”), located at 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, is the investment advisor to the Funds. The Advisor
is an investment advisory and brokerage firm formed in the state of Wisconsin on
December 29, 1919. Baird is owned indirectly by its employees through several
holding companies. Baird is owned directly by Baird Financial Corporation
(“BFC”). BFC is, in turn, owned by Baird Financial Group, Inc. (“BFG”), which is
the ultimate parent company of Baird. Employees of Baird own substantially all
of the outstanding stock of BFG.
Baird
serves as the investment advisor to the Mid Cap Growth Fund, Small/Mid Cap
Growth Fund, International Growth Fund and Global Growth Fund pursuant to an
investment advisory agreement dated September 29, 2000, as amended, and to the
Equity Opportunity Fund pursuant to an investment advisory agreement dated
December 12, 2021 (each, the “Advisory Agreement”).
Each
Advisory Agreement continues from year-to-year, subject to the annual approval
(a) by a majority of the Independent Directors and (b) by either the full Board
or by the Fund’s shareholders. The Advisory Agreement terminates in the event of
assignment and generally may be terminated by either party if certain conditions
are met, without penalty, on a 60-day notice.
Under
the terms of the Advisory Agreement, the Advisor supervises the management of
the Funds’ investments and business affairs, subject to the supervision of the
Board. The Advisor has agreed to pay all expenses incurred by it in connection
with its advisory activities. These expenses do not include the cost of
securities and other investments purchased or sold for the Funds and do not
include brokerage commissions and any other transaction charges. Brokerage
commissions and other transaction charges are included in the cost basis of the
securities and other investments.
As
compensation for its advisory services, the Mid Cap Growth Fund, Small/Mid Cap
Growth Fund, International Growth Fund and Global Growth Fund pay to the Advisor
a monthly management fee at the annual rate of 0.75%. Prior to December 12,
2021, under the previous investment advisory agreement, the Advisor received a
management fee from the Equity Opportunity Fund at the annual rate of 0.85% of
the Fund’s average daily net assets. At a special meeting of shareholders held
on December 7, 2021, shareholders of the Equity Opportunity Fund (formerly known
as the Baird SmallCap Value Fund) approved a new investment advisory agreement
with a higher investment advisory fee due to the retention of Greenhouse and the
implementation of a sub-advised management structure. Effective December 12,
2021, the Equity Opportunity Fund pays a monthly management fee at the annual
rate of 1.25% of the Fund’s average daily net assets. From time to time, the
Advisor may voluntarily waive all or a portion of its management fee for the
Funds.
As
described in the Prospectus, the Advisor has contractually agreed to waive its
management fee and/or reimburse Fund expenses so as to limit the total annual
fund operating expenses, including fees and expenses incurred by each Fund in
connection with a Fund’s investments in other investment companies and interest
expense, but excluding taxes, brokerage commissions and extraordinary items of
the Mid Cap Growth Fund, Small/Mid Cap Growth Fund, Equity Opportunity Fund,
International Growth Fund and Global Growth Fund to an annual rate of 0.85%,
0.85%, 1.25%, 0.80% and 0.80%, respectively, for the Institutional Class and
1.10%, 1.10%, 1.50%, 1.05% and 1.05%, respectively, for the Investor Class,
through at least April 30, 2024 for the Mid Cap Growth Fund, Small/Mid Cap
Growth Fund, International Growth Fund and Global Growth Fund, and through at
least April 30, 2025 for the Equity Opportunity Fund. The Advisor’s obligation
to assume the fees and expenses incurred by the Funds in connection with their
investment in other investment companies applies to the extent such amounts, in
aggregate, exceed 0.0049% of a Fund’s average daily net assets on an annual
basis. Under a previous expense limitation agreement, the Advisor contractually
agreed to waive management fees and/or reimburse other expenses to limit the
Equity Opportunity Fund’s total annual fund operating expenses to 1.20% of
average daily net assets for the Investor Class shares and 0.95% of average
daily net assets for the Institutional Class shares. With respect to the Mid Cap
Growth, Small/Mid Cap Growth, International Growth and Global Growth Funds, the
Advisor can recapture any expenses or fees it has waived or reimbursed within a
three-year period, provided that the aggregate amount actually paid by the Fund
toward the operating expenses in any month (taking into account the recoupment)
will not cause the Fund to exceed the lesser of: (1) the expense cap in
place at the time of the fee waiver and/or expense reimbursement; or
(2) the expense cap in place at the time of the recoupment. However, the
Funds are not obligated to pay any such waived fees more than three years after
the fees were waived or reimbursed. The Advisor is not entitled to recoup any
fees waived and/or expenses reimbursed under the new expense limitation
agreement for the Equity Opportunity Fund.
For
the fiscal years ended December 31, 2022, 2021 and 2020, the Funds paid the
following management fees to the Advisor under the Advisory
Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Fiscal
Period Ended |
Management
Fee |
| Waiver |
| Management
Fee after Waiver |
|
|
|
|
|
| |
| Mid
Cap Growth Fund |
|
|
|
| |
| December
31, 2022 |
$ |
15,372,761 |
|
| $ |
0 |
|
| $ |
15,372,761 |
|
| December
31, 2021 |
$ |
18,052,323 |
|
| $ |
0 |
|
| $ |
18,052,323 |
|
| December
31, 2020 |
$ |
14,508,524 |
|
| $ |
0 |
|
| $ |
14,508,524 |
|
|
|
|
|
|
| |
| Small/Mid
Cap Growth Fund |
|
|
|
| |
| December
31, 2022 |
$ |
1,135,432 |
|
| $ |
(189,890) |
|
| $ |
945,542 |
|
| December
31, 2021 |
$ |
821,884 |
|
| $ |
(161,354) |
|
| $ |
660,530 |
|
| December
31, 2020 |
$ |
225,664 |
|
| $ |
(174,146) |
|
| $ |
51,518 |
|
|
|
|
|
|
| |
| Equity
Opportunity Fund |
|
|
|
| |
| December
31, 2022 |
$ |
720,409 |
|
| $ |
(274,931) |
|
| $ |
445,478 |
|
| December
31, 2021 |
$ |
321,821 |
|
| $ |
(200,927) |
|
| $ |
120,894 |
|
| December
31, 2020 |
$ |
224,344 |
|
| $ |
(182,269) |
|
| $ |
42,075 |
|
|
|
|
|
|
| |
| International
Growth Fund |
|
|
|
| |
| December
31, 2022 |
$ |
3,473,871 |
|
| $ |
(315,901) |
|
| $ |
3,157,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Fiscal
Period Ended |
Management
Fee |
| Waiver |
| Management
Fee after Waiver |
|
|
|
|
|
| |
| December
31, 2021 |
$ |
3,137,538 |
|
| $ |
(265,579) |
|
| $ |
2,871,959 |
|
| December
31, 2020 |
$ |
1,631,915 |
|
| $ |
(211,480) |
|
| $ |
1,420,435 |
|
|
|
|
|
|
| |
| Global
Growth Fund |
|
|
|
| |
| December
31, 2022 |
$ |
2,048,150 |
|
| $ |
(317,746) |
|
| $ |
1,730,404 |
|
| December
31, 2021 |
$ |
1,788,419 |
|
| $ |
(295,197) |
|
| $ |
1,493,222 |
|
| December
31, 2020 |
$ |
647,641 |
|
| $ |
(209,335) |
|
| $ |
438,306 |
|
The
Advisor may act as an investment advisor and administrator to other persons,
firms or corporations (including investment companies), and may have numerous
advisory clients in addition to the Funds.
Subadvisor
Greenhouse
Funds LLLP
The
Advisor has entered into an investment sub-advisory agreement with Greenhouse
Funds LLLP, a Delaware limited liability limited partnership located at 605
South Eden Street, Suite 250, Baltimore, MD 21231, on behalf of the Equity
Opportunity Fund. Management and control of the Subadvisor are vested
exclusively in its general partner (Greenhouse GP LLC), subject to certain
consent rights of BFC, which has a minority ownership interest in the Subadvisor
and representation on the board of managers of its general partner. Joseph
Milano owns a minority ownership interest in the Subadvisor and 100% of its
general partner. Therefore, BFC and Mr. Milano may be deemed to control
Greenhouse. In addition, through BFC’s ownership of the Subadvisor,
representation on the board of managers of the Subadvisor’s general partner and
certain consent rights, the Advisor and Subadvisor are affiliated.
Under
the sub-advisory agreement, the Subadvisor manages the investment and
reinvestment of the Equity Opportunity Fund’s assets subject to the general
supervision of the Advisor and the Board of Directors. For its services to the
Fund, the Subadvisor receives compensation from the Advisor at an annual rate of
1.00% of the Fund’s average daily net assets. The Advisor pays the sub-advisory
fees out of its own advisory fee.
The
sub-advisory agreement will remain in effect for an initial two-year period
beginning on its effective date and from year to year thereafter, subject to the
annual approval by (a) the vote of a majority of the Board, including a majority
of the directors who are not “interested persons,” as defined under the 1940 Act
or (b) the vote of a majority of the outstanding “voting securities,” as defined
under the 1940 Act, of the Equity Opportunity Fund. The sub-advisory agreement
may be terminated at any time, without payment of a penalty, (a) by the vote of
a majority of the Board, by the vote of a majority of outstanding voting
securities of the Fund or by the Subadvisor, in each case upon not more than 60
days’ written notice or (b) by the Subadvisor upon not less than 120 days’
written notice to the Advisor, the Company, and the Fund. The sub-advisory
agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act.
The
Advisor and Subadvisor have entered into a services agreement with respect to
the Equity Opportunity Fund. The agreement provides that the Subadvisor’s
investment personnel will provide marketing assistance to the Advisor with
respect to the Fund and sets forth the parties’ compliance
obligations
and provisions related to trade allocation and the Subadvisor’s right to close
the Fund to new investors or additional investments if needed to effectively
provide subadvisory services to the Fund.
Potential
Conflicts of Interest
The
Advisor and Greenhouse are affiliates, which may present certain potential
conflicts of interest. The Advisor’s retention of Greenhouse presents a
potential conflict of interest because the Advisor may have financial and
non-financial incentives for selecting Greenhouse over other subadvisors. An
investment adviser may be inclined to act in its own interest by recommending to
shareholders the services of an affiliated subadvisor that provide benefits to
the investment advisor, instead of recommending the services of a subadvisor
that is in the best interest of the shareholders. Greenhouse will benefit from
increased advisory fees paid to the Advisor by receiving subadvisory fees. In
addition, the Advisor or its affiliates will benefit from the net advisory fee
retained by the Advisor and also indirectly from the subadvisory fee paid by the
Advisor to Greenhouse. However, the Advisor, in recommending to the Board the
appointment of Greenhouse, has a fiduciary duty to act in the best interests of
its clients, including the Equity Opportunity Fund and its shareholders. The
Advisor has a duty to recommend that Greenhouse be selected, retained, or
replaced only when the Advisor believes it is in the best interests of the
Fund’s shareholders. In addition, the Board of Directors of the Company
maintains ultimate oversight over the Fund and its advisory and subadvisory
arrangements.
Proxy
Voting Policies
The
Board has adopted proxy voting policies and procedures that delegate the
authority to vote proxies to the Advisor, subject to the supervision of the
Board. The Board has authorized the Advisor and Subadvisor to retain a
third-party proxy voting service, such as Institutional Shareholder Services,
Inc. (“ISS”), to provide recommendations on proxy votes should they choose to do
so. The Board has approved the proxy voting policies and procedures of the
Advisor and Subadvisor for the Funds it manages. The Board monitors the
implementation of these policies and procedures to ensure that the Advisor and
Subadvisor’s voting decisions:
•are
consistent with the Advisor’s fiduciary duty to the Funds and their
shareholders;
•seek
to maximize shareholder return and the value of Fund investments;
•promote
sound corporate governance; and
•are
consistent with each Fund’s investment objective and policies.
Each
Fund’s proxy voting record for the most recent 12‑month period ended June 30, if
applicable, is available without charge, either upon request, by calling toll
free, 1‑866‑442-2473, or by accessing the Funds’ website at www.bairdfunds.com,
or both; and by accessing the SEC’s website at http://www.sec.gov.
Proxy
Voting Policies – Advisor
The
Advisor’s proxy voting policies and procedures provide that the Advisor will
typically vote proxies in accordance with the recommendations made by the
independent proxy voting service, and in the best interest of clients and Fund
shareholders. However, because the independent proxy voting service’s guidelines
are not exhaustive, do not address all potential voting issues and do not
necessarily correspond with the opinions of the portfolio managers, there may be
instances where the Advisor may not vote strictly according to the ISS’
guidelines. In such a case, the Advisor submits the matter to its proxy voting
committee.
In
situations where there is a potential conflict of interest and the independent
proxy voting service does not provide a recommendation or there is a proxy
challenge, Baird’s Proxy Voting Committee will determine the nature and
materiality of the conflict.
•If
the conflict is determined to not be material, the Committee will vote the proxy
in a manner the Committee believes is in the best interests of the client and
without consideration of any benefit to Baird or its affiliates.
•If
the potential conflict is determined to be material, Baird’s Proxy Voting
Committee will take one of the following steps to address the potential
conflict:
(1)cast
the vote in accordance with the recommendations of an independent third party,
such as ISS;
(2)refer
the proxy to the client or to a fiduciary of the client for voting purposes;
(3)suggest
that the client engage another party to determine how the proxy should be voted;
(4)if
the matter is not addressed by the independent proxy voting service, vote in
accordance with management’s recommendation; or
(5)abstain
from voting.
Proxy
Voting Policies – Subadvisor
The
Subadvisor has adopted Proxy Voting Policies and Procedures (the "Procedures")
that are designed to ensure that in cases where the Subadvisor votes proxies
with respect to client securities, such proxies are voted in the best interests
of its clients. In voting proxies, the Subadvisor generally votes in favor of
routine corporate housekeeping proposals, including election of directors (where
no corporate governance issues are implicated). Generally, the Subadvisor will
vote against proposals that make it more difficult to replace members of a board
of directors. For all other proposals, the Subadvisor will determine whether a
proposal is in the best interests of its clients and may take into account the
following factors, among others: (i) whether the proposal was recommended by
management and Subadvisor’s opinion of management; (ii) whether the proposal
acts to entrench existing management; and (iii) whether the proposal fairly
compensates management for past and future performance.
The
Procedures also require that the Subadvisor identify and address conflicts of
interest between the Subadvisor and its clients. In situations where the
Subadvisor’s interests conflict, or appear to conflict, with client interests,
the Subadvisor will take one of the following steps to resolve the
conflict:
•Vote
the securities in accordance with a pre-determined policy based upon the
recommendations of an independent third party;
•Refer
the proxy to the client or a fiduciary of the client for voting
purposes;
•Vote
the securities in accordance with the best interest of clients, as determined in
good faith by the Subadvisor, without consideration of any benefit to the
Subadvisor, or its affiliates; or
•If
the securities are held by a registered investment company account, disclose the
conflict to the registered investment company’s Board and obtain their direction
as to how to vote the proxies.
Codes
of Ethics
The
Company, the Advisor and the Distributor have adopted a joint written Code of
Ethics under Rule 17j-1 of the 1940 Act. The Code of Ethics governs the personal
securities transactions of directors, officers and employees who may have access
to current trading information of the Funds. The Code of Ethics permits such
persons to invest in securities for their personal accounts, including
securities that may be purchased or held by the Funds, subject to certain
restrictions. The Code of Ethics includes pre-clearance, reporting and other
procedures to monitor personal transactions and ensure that such transactions
are consistent with the best interests of the Funds.
The
Code of Ethics also includes confidentiality and fiduciary provisions applicable
to Directors and officers of the Company. From time to time, Directors of the
Company may serve on the board of directors of public companies in which the
Funds invest. The Code of Ethics provides that Directors are required to notify
the Funds’ CCO before they accept a directorship of a public company, and
Directors are required to refrain from discussing such company or sharing any
non-public information learned in the Director’s capacity as a director of
another company with any personnel of the Company.
The
Subadvisor has adopted a written Code of Ethics under Rule 17j-1 of the 1940
Act. The Code is designed to address certain potential conflicts of interest
that may arise in connection with the operation of the Subadvisor’s investment
advisory activities, including conflicts arising in connection with the personal
trading activities of the Subadvisor’s personnel. The Code applies to any
member, director, officer or employee of the Subadvisor who has access to
nonpublic information regarding the portfolio holdings of the Equity Opportunity
Fund. The Code allows such persons to invest in certain securities for their
personal accounts, including securities that may be purchased or held by the
Funds in limited circumstances, subject to certain restrictions. The Code also
imposes pre-clearance requirements under certain circumstances and includes
reporting requirements designed to ensure that such transactions are consistent
with the Subadvisor’s fiduciary obligations.
Fund
Accounting and Fund Administration
The
Funds have entered into a fund accounting servicing agreement and a fund
administration servicing agreement with U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services (“Fund Services”), under which Fund
Services has agreed to maintain the financial accounts and records of the Funds
in compliance with the 1940 Act and to provide other accounting services to the
Funds. Fund Services also provides administration services (including blue sky
services) to the Funds. Administration services include, but are not limited to,
day-to-day administration of matters necessary to the Funds’ operations,
maintenance of their records, financial and tax reporting, preparation of
reports, compliance testing of the Funds’ activities and preparation of periodic
updates of the registration statement under federal and state laws. For fund
accounting and fund administration services, Fund Services receives from each
Fund a fee, calculated daily and paid monthly. From time to time, Fund Services
may be an affiliated person of an affiliated person of the Company due to the
affiliation with U.S. Bank described below.
For
the fiscal years ended December 31, 2022, 2021 and 2020, the Funds paid the
following fund accounting and administration fees to Fund Services:
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|
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|
|
|
| |
Fund
Accounting and Administration Fees
Paid During Fiscal Periods Ended
December 31, |
|
| 2022 |
2021 |
2020 |
| Mid
Cap Growth Fund |
$141,217 |
$172,683 |
$168,328 |
| Small/Mid
Cap Growth Fund |
$41,789 |
$39,483 |
$32,150 |
| Equity
Opportunity Fund |
$34,106 |
$36,140 |
$35,393 |
| International
Growth Fund |
$65,754 |
$64,153 |
$54,329 |
| Global
Growth Fund |
$58,501 |
$51,876 |
$45,985 |
Custodian
U.S.
Bank, 1555 North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212,
serves as custodian of the Funds’ assets. From time to time, U.S. Bank may be
considered an “affiliated person” of the Company for purposes of the 1940 Act as
a result of certain of U.S. Bank’s fiduciary accounts for which it has
investment authority and/or voting authority collectively acquiring 5% or more
of the shares of one or more series of the Company. Under the custody agreement
between U.S. Bank and the Funds (the “Custody Agreement”), U.S. Bank has agreed
to (i) maintain separate accounts in the name of the Funds; (ii) make receipts
and disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds’ portfolio
investments; (iv) respond to correspondence from shareholders, security brokers
and others relating to its duties; and (v) make periodic reports to the Company
concerning the Funds’ operations. U.S. Bank may, at its own expense, open and
maintain a custody account or accounts on behalf of the Funds with other banks
or trust companies, provided that U.S. Bank shall remain liable for the
performance of all of its duties under the Custody Agreement notwithstanding any
delegation. U.S. Bank and Fund Services are affiliates. U.S. Bank and its
affiliates may participate in revenue sharing arrangements with service
providers of mutual funds in which the Funds may invest. Sub-custodians may
provide custodial services for assets of the Funds held outside the
U.S.
For
the fiscal years ended December 31, 2022, 2021 and 2020, the Funds paid the
following custody fees to U.S. Bank:
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| |
Custody
Fees
Paid During Fiscal Periods Ended December 31, |
|
| 2022 |
2021 |
2020 |
| Mid
Cap Growth Fund |
$19,464 |
$29,027 |
$26,812 |
| Small/Mid
Cap Growth Fund |
$4,349 |
$9,745 |
$8,361 |
| Equity
Opportunity Fund |
$9,109 |
$2,016 |
$1,423 |
| International
Growth Fund |
$69,493 |
$94,112 |
$46,984 |
| Global
Growth Fund |
$30,873 |
$58,505 |
$24,801 |
Transfer
Agent
U.S.
Bancorp Fund Services, LLC or Fund Services, as defined above, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, serves as transfer agent and dividend
disbursing agent for the Funds under
a
transfer agent servicing agreement (the “Transfer Agent Servicing Agreement”).
As transfer and dividend disbursing agent, Fund Services has agreed to (i) issue
and redeem shares of the Funds; (ii) make dividend payments and other
distributions to shareholders of the Funds; (iii) respond to correspondence by
Fund shareholders and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Funds.
For
the fiscal years ended December 31, 2022, 2021 and 2020, the Funds paid the
following transfer agency fees to Fund Services:
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|
|
|
|
|
|
|
|
|
| |
Transfer
Agency Fees
Paid During Fiscal Periods Ended December 31, |
|
| 2022 |
2021 |
2020 |
| Mid
Cap Growth Fund |
$813,629 |
$744,681 |
$803,153 |
| Small/Mid
Cap Growth Fund |
$30,742 |
$23,142 |
$17,885 |
| Equity
Opportunity Fund |
$21,914 |
$24,004 |
$28,417 |
| International
Growth Fund |
$127,782 |
$88,303 |
$60,680 |
| Global
Growth Fund |
$52,624 |
$49,529 |
$32,327 |
Financial
Intermediaries
In
addition to the fees that the Funds pay to the Transfer Agent, from time to
time, the Funds pay, directly or indirectly, amounts to financial intermediaries
that provide transfer-agent type and/or other administrative services relating
to the Funds to their customers or other persons who beneficially own interests
in the Funds (collectively, “sub-transfer agent services”) whose shares are held
of record in omnibus, networked, or other group accounts or accounts traded
through registered securities clearing agents, up to annual limits approved by
the Board. Sub-transfer agent services may include, among other things,
sub-accounting services, transfer agent-type services, recordkeeping, answering
inquiries relating to the Funds, transmitting, on behalf of the Funds, proxy
statements, annual reports, updated prospectuses and other communications
regarding the Funds, and related services as the Funds or the intermediaries’
customers or such other persons may reasonably request.
Sub-transfer
agent fees paid by the Funds are included in the total amount of “Other
Expenses” listed in the Funds’ Fees and Expenses table in the
Prospectus.
Other
Accounts Managed by the Portfolio Managers of the Funds
As
described in the Prospectus under “Portfolio Managers”, Charles F. Severson and
Kenneth M. Hemauer are co-portfolio managers of the Mid Cap Growth Fund and are
jointly responsible for the day-to-day management of the Mid Cap Growth Fund.
Unless otherwise indicated, they are jointly responsible for the day-to-day
management of the other accounts set forth in the following table. Jonathan Good
is the portfolio manager of the Small/Mid Cap Growth Fund. Joseph Milano is the
portfolio manager of the Equity Opportunity Fund. Jesse A. Flores, Haicheng Li
and Nathaniel R. Velarde are portfolio managers of the International Growth Fund
and the Global Growth Fund and are jointly responsible for the day-to-day
management of the International Growth Fund and the Global Growth Fund.
The
following provides information regarding other accounts managed by the portfolio
managers as of December 31, 2022. The number of accounts listed in the
following table includes accounts managed by the Advisor on a wrap-fee
basis.
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|
| |
|
| Category
of Account |
| Total
Number of Accounts Managed |
| Total
Assets in Accounts Managed |
| Number
of Accounts for which Advisory Fee is Based on Performance |
| Assets
in Accounts for which Advisory Fee is Based on Performance |
| Mid
Cap Growth Fund |
| Charles
F. Severson |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| 1 |
| $484,195,525 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| — |
| $0 |
| — |
| $0 |
|
|
Other
Accounts(1) |
| 626 |
| $868,304,916 |
| — |
| $0 |
| Kenneth
M. Hemauer |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| 1 |
| $484,195,525 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| — |
| $0 |
| — |
| $0 |
|
|
Other
Accounts(2) |
| 624 |
| $875,434,487 |
| — |
| $0 |
| Small/Mid
Cap Growth Fund |
| Jonathan
Good |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| — |
| $0 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| — |
| $0 |
| — |
| $0 |
|
| Other
Accounts |
| 21 |
| $7,248,023 |
| — |
| $0 |
| Equity
Opportunity Fund |
| Joseph
Milano |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| — |
| $0 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| 5 |
| $714,000,000 |
| 5 |
| $714,000,000 |
|
| Other
Accounts |
| 4 |
| $334,000,000 |
| 4 |
| $334,000,000 |
| International
Growth Fund & Global Growth Fund |
| Jesse
A. Flores |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| 1 |
| $110,651,190 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| 3 |
| $144,206,331 |
| 1 |
| $141,609,711 |
|
| Other
Accounts |
| 2 |
| $950,662 |
| — |
| $0 |
| Haicheng
Li |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| 1 |
| $110,651,190 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| 3 |
| $144,206,331 |
| 1 |
| $141,609,711 |
|
| Other
Accounts |
| 2 |
| $950,662 |
| — |
| $0 |
|
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|
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| |
|
| Category
of Account |
| Total
Number of Accounts Managed |
| Total
Assets in Accounts Managed |
| Number
of Accounts for which Advisory Fee is Based on Performance |
| Assets
in Accounts for which Advisory Fee is Based on Performance |
| Nathaniel
R. Velarde |
|
|
|
|
|
|
| |
|
| Other
Registered Investment Companies |
| 1 |
| $110,651,190 |
| — |
| $0 |
|
| Other
Pooled Investment Vehicles |
| 3 |
| $144,206,331 |
| 1 |
| $141,609,711 |
|
| Other
Accounts |
| 2 |
| $950,662 |
| — |
| $0 |
(1)Includes
accounts that Mr. Severson manages jointly with other portfolio managers of the
Advisor.
(2)Includes
accounts that Mr. Hemauer manages jointly with other portfolio managers of the
Advisor.
The
Advisor, Subadvisor and their individual portfolio managers advise multiple
accounts for numerous clients. In addition to the Funds, these accounts include
separate accounts, collective trusts, private funds and a portion of a state 529
education savings plan portfolio. The Advisor and Subadvisor manage potential
conflicts of interest between a Fund and other types of accounts through trade
allocation policies and oversight by the Advisor and Subadvisor’s investment
management departments and compliance departments. Allocation policies are
designed to address potential conflicts of interest in situations where two or
more Funds and/or other accounts participate in investment transactions
involving the same securities.
Compensation
of Portfolio Managers
The
following is a description of the Advisor and Subadvisor’s portfolio manager
compensation as of December 31, 2022. The Advisor compensates portfolio
managers with a base salary and an annual incentive bonus. A portfolio manager’s
base salary is generally a fixed amount based on level of experience and
responsibilities. A portfolio manager’s bonus is generally based on the
investment performance of accounts managed by the portfolio manager, including
the Funds, the revenues and overall profitability of the Advisor, asset inflows
and retention of assets under the portfolio manager’s management. A Fund’s
performance is measured relative to its peer group and/or the performance of the
benchmark index listed in the Fund’s prospectus and is measured on a three-year
and/or five-year basis. The Subadvisor portfolio manager’s annual compensation
consists of a base salary and a percentage (equal to his ownership of the
Subadvisor) of the Subadvisor’s overall profitability (consisting of all
management, advisory and sub-advisory fees received from accounts including the
Fund managed by the Subadvisor less expenses, plus performance fees for all
accounts managed by the Subadvisor that pay such fees).
Portfolio
managers of the Advisor also may own and may be offered an opportunity to
purchase or sell common stock in BFG. Portfolio managers of the Advisor may also
own and may be offered an opportunity to purchase or sell shares in private
equity offerings sponsored by the Advisor.
Ownership
of Fund Shares by Portfolio Managers
The
table below sets forth the dollar range of equity securities in the Funds
beneficially owned as of December 31, 2022 with respect to each of the
other portfolio managers:
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| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| Mid
Cap Growth Fund |
|
| Kenneth
M. Hemauer |
Over
$1,000,000 |
|
| Charles
F. Severson |
Over
$1,000,000 |
|
| |
| Small/Mid
Cap Growth Fund |
|
| Jonathan
Good |
$500,001
- $1,000,000 |
|
|
| |
| Equity
Opportunity Fund |
|
| Joseph
Milano |
$500,001
- $1,000,000 |
|
| |
| International
Growth Fund |
|
| Haicheng
Li |
Over
$1,000,000 |
|
| Nathaniel
R. Velarde |
Over
$1,000,000 |
|
| Jesse
A. Flores |
$100,001
- $500,000 |
|
| |
| Global
Growth Fund |
|
| Haicheng
Li |
$500,001
- $1,000,000 |
|
| Nathaniel
R. Velarde |
$500,001
- $1,000,000 |
|
| Jesse
A. Flores |
$100,001
- $500,000 |
The
above ownership information relates only to the Institutional Class shares of
the Funds.
Robert
W. Baird & Co. Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, also serves as the principal underwriter and distributor for shares of
the Funds pursuant to a Distribution Agreement with the Company dated September
26, 2000, as amended (the “Distribution Agreement”). The Distributor is
registered as a broker-dealer under the Securities Exchange Act of 1934 and each
state’s securities laws and is a member of the Financial Industry Regulatory
Authority (“FINRA”). The offering of the Funds’ shares is continuous. The
Distribution Agreement provides that the Distributor, as agent in connection
with the distribution of Fund shares, will use its best efforts to distribute
the Funds’ shares. As compensation for its services under the Distribution and
Shareholder Servicing Plan (the “Plan”), discussed below, the Distributor may
retain all or a portion of the Rule 12b-1 fees payable under the
Plan.
During
each of the fiscal years ended December 31, 2022, 2021 and 2020, the
Distributor did not receive any net underwriting discounts or commissions on the
sale of Fund shares, any compensation on the redemptions or repurchases of Fund
shares, or any brokerage commissions from the Funds. The Distributor retained a
portion of the Rule 12b-1 fees, as described below.
The
Board, including a majority of the Independent Directors, adopted the Plan for
the Investor Class shares of the Funds pursuant to Rule 12b-1 under the 1940
Act. The Plan authorizes payments by a Fund
in
connection with the distribution of Investor Class shares at an annual rate of
0.25% of the Fund’s average daily NAV attributable to the Investor Class.
Payments may be made by a Fund under the Plan for the purpose of financing any
activity primarily intended to result in the sale of Investor Class shares of
the Fund. Such activities typically include advertising; compensation for sales
and sales marketing activities of financial service agents and others, such as
dealers or distributors; shareholder account servicing; and production and
dissemination of prospectuses and sales and marketing materials. To the extent
any activity is one which a Fund may finance without the Plan, the Fund may also
make payments to finance such activity outside of the Plan and not subject to
its limitations. The Plan is a “compensation plan” which means that payments
under the Plan are based upon a percentage of average daily net assets
attributable to the Investor Class regardless of the amounts actually paid or
expenses actually incurred by the Distributor; however, in no event, may such
payments exceed the maximum allowable fee. It is, therefore, possible that the
Distributor may realize a profit in a particular year as a result of these
payments. The Plan increases the Investor Class’s expenses from what they would
otherwise be. A Fund may engage in joint distribution activities with other
Baird Funds and to the extent the expenses are not allocated to a specific Baird
Fund, expenses will be allocated based on the Fund’s net assets.
Administration
of the Plan is regulated by Rule 12b-1 under the 1940 Act, which requires that
the Board receive and review at least quarterly reports concerning the nature
and qualification of expenses which are made and that the Plan may be continued
from year-to-year only if the Board, including a majority of the Independent
Directors, concludes at least annually that continuation of the Plan is likely
to benefit shareholders.
Amounts
Expensed Under the Plan
For
the fiscal year ended December 31, 2022, the following amounts were paid by
the Funds pursuant to the Plan:
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|
| |
| Fund |
12b-1
Payments Paid |
|
| Mid
Cap Growth Fund |
$414,395 |
| |
| Small/Mid
Cap Growth Fund |
$1,978 |
| |
| Equity
Opportunity Fund |
$7 |
| |
| International
Growth Fund |
$12,685 |
| |
| Global
Growth Fund |
$2,114 |
| |
Of
the amounts paid, payments were made for the following activities:
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Actual
Rule 12b‑1 Expenditures Incurred by the Funds
During
the Fiscal Year Ended December 31, 2022 |
| Fund |
Advertising/Marketing |
Printing/Postage |
Payment
to Distributor |
Payment
to Dealers(1) |
Compensation
to Sales Personnel |
Other |
Total |
|
|
|
|
|
|
|
| |
| Mid
Cap Growth Fund |
$0 |
$0 |
$0 |
$414,395 |
$0 |
$0 |
$414,395 |
| Small/Mid
Cap Growth Fund |
$0 |
$0 |
$0 |
$1,978 |
$0 |
$0 |
$1,978 |
| Equity
Opportunity Fund |
$0 |
$0 |
$0 |
$7 |
$0 |
$0 |
$7 |
|
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| |
|
Actual
Rule 12b‑1 Expenditures Incurred by the Funds
During
the Fiscal Year Ended December 31, 2022 |
| Fund |
Advertising/Marketing |
Printing/Postage |
Payment
to Distributor |
Payment
to Dealers(1) |
Compensation
to Sales Personnel |
Other |
Total |
| International
Growth Fund |
$0 |
$0 |
$0 |
$12,685 |
$0 |
$0 |
$12,685 |
| Global
Growth Fund |
$0 |
$0 |
$0 |
$2,114 |
$0 |
$0 |
$2,114 |
(1)Includes
payments to Baird as a dealer.
Interests
of Certain Persons
With
the exception of the Advisor, in its capacity as the Funds’ investment advisor,
principal underwriter and a selling dealer of Fund shares, and the Subadvisor,
in its capacity as the Fund’s investment sub-advisor, no “interested person” of
a Fund, as defined in the 1940 Act, and no director of the Company has or had a
direct or indirect financial interest in the Plan or any related
agreement.
Anticipated
Benefits to the Funds
The
Plan will continue in effect only if such continuance is approved annually by
the Board, including a majority of the directors who are not interested persons
(as defined in the 1940 Act) of the Funds and have no direct or indirect
financial interest in the Plan or any related agreements. The Board has
determined that the Plan is likely to benefit Investor Class shares by providing
an incentive for brokers, dealers and other financial intermediaries to engage
in sales and marketing efforts on behalf of the Funds and to provide enhanced
services to Investor Class shareholders. The Board also determined that the Plan
is expected to enhance the Funds’ ability to sell Investor Class shares and
access important distribution channels.
Shareholder
Servicing and Revenue Sharing Payments
The
Advisor or Distributor, out of their own resources and without additional cost
to the Funds or their shareholders, may provide additional cash payments or
other compensation to broker-dealers and other financial intermediaries who
market and sell shares of the Funds and/or who provide various administrative,
sub-accounting and shareholder services. These payments are in addition to the
12b-1 fees payable out of Fund assets to firms that sell Investor Class shares.
The payments may specifically be made in connection with the inclusion of the
Funds in certain programs offered by broker-dealers or other financial
intermediaries, invitations to conferences and seminars held or sponsored by
those firms, access to branch offices and sales representatives of those firms
and opportunities to make presentations and provide information to them.
Payments may be structured as a flat fee, a percentage of net sales or net
assets (or a combination thereof) or a fee based on the number of underlying
client accounts. The Distributor currently has agreements with the following
firms, under which the Advisor or Distributor makes ongoing payments in lieu of,
or in addition to, the 12b-1 fee: American Enterprise Investment Services Inc.,
Benefit Plans Administrators (BPA), BMO Harris Bank, BNY Mellon, Charles Schwab,
Edward Jones & Co., Fidelity (National Financial), Great West Life, John
Hancock Life Insurance, J.P. Morgan, LPL Financial, Morgan Stanley Smith Barney,
Merrill Lynch (Financial Data Services), National Rural Electric Cooperative
Association, Newport Trust, OneAmerica, Pershing, PNC Investments, Principal
Life, Prudential, Raymond James, TD Ameritrade, TIAA CREF, T. Rowe, UBS, U.S.
Bank National Association, Vanguard, Voya and Wells Fargo. In some
circumstances, the Funds may directly pay the intermediary for performing
sub-transfer agency and related services to customers of financial
intermediaries who hold shares of the Funds through omnibus
accounts.
The
Advisor may also pay cash or non-cash compensation to sales representatives of
broker-dealers and other financial intermediaries in the form of occasional
gift, meals and entertainment, and pay for exhibit space or sponsorships at
regional or national events of broker-dealers and other financial
intermediaries.
Referral
Program
As
indicated in the Prospectus, the Distributor has a referral program under which
it may pay compensation to registered representatives of the Distributor for
their efforts in selling Institutional Class shares of the Funds. Such
compensation will not exceed 0.10% per year of the value of the Institutional
Class share accounts for which the registered representative is responsible.
Such compensation is only paid for referrals of non-ERISA institutional accounts
and generally over a five-year period. In addition, registered representatives
of the Distributor may receive payments under the Plan with respect to
distribution and shareholder services for Investor Class shares of the
Funds.
The
prospect of receiving, or the receipt of additional payments or other
compensation as described above may provide the Distributor’s registered
representatives with an incentive to favor sales of shares of the Funds and
other mutual funds whose affiliates offer similar compensation over the sale of
shares of mutual funds that do not make such payments.
The
Funds do not provide or permit others to provide information about the Funds’
portfolio holdings to any third party on a selective basis, except as permitted
by the Company’s policy regarding disclosure of portfolio holdings (the
“Disclosure Policy”). Pursuant to the Disclosure Policy, the Company or the
Advisor and the Subadvisor may disclose information about the Funds’ portfolio
holdings only in the following circumstances:
•Each
Fund publicly discloses its portfolio holdings in its semi-annual and annual
reports to shareholders, which are filed with the SEC on a semi-annual basis on
Form N-CSR and mailed to shareholders approximately two months after the end of
the fiscal year and six-month period.
•The
Funds also file a complete schedule of portfolio holdings with the SEC for the
first and third quarters of the Funds’ fiscal year on Part F of Form N-PORT.
Portfolio holdings included in Part F of Form N-PORT become publicly available
on the SEC’s website within 60 days after the end of that fiscal quarter.
•The
Mid Cap Growth and Small/Mid Cap Growth Funds full portfolio holdings (showing
number of shares and dollar values) as of month-end are posted on the Company’s
website no earlier than five (5) business days after month-end.
•The
Equity Opportunity Fund’s full portfolio holdings (showing number of shares and
dollar values) as of quarter-end are posted on the Company’s website no earlier
than forty-five (45) calendar days after quarter-end.
•The
International Growth Fund’s and the Global Growth Fund’s full portfolio holdings
(showing number of shares and dollar values) as of quarter-end are posted on the
Company’s website no earlier than thirty (30) calendar days after
quarter-end.
•The
Funds may also provide portfolio holdings information to various ratings
agencies, consultants, broker-dealers, investment advisers, financial
intermediaries, investors and others, upon request, so long as such information,
at the time it is provided, is posted on the Company’s website or otherwise
publicly available.
A
Fund may elect to not post its portfolio holdings on the Company’s website as
described above if the Fund has a valid business reason for doing so. If a Fund
makes such an election, the Fund’s portfolio holdings cannot be selectively
disclosed to any person until such information is filed with the SEC or posted
to the Company’s website.
In
limited circumstances, for the business purposes described below, the Funds’
portfolio holdings may be disclosed to, or known by, certain third parties in
advance of being filed with the SEC or their publication on the Company’s
website.
•The
Advisor or Subadvisor may disclose Fund portfolio holdings to the Funds’ service
providers (administrator, fund accountant, custodian, transfer agent and
independent pricing service) in connection with the fulfillment of their duties
to the Funds. These service providers are required by contract with the Funds to
keep such information confidential and not use it for any purpose other than the
purpose for which the information was disclosed.
•The
Advisor or Subadvisor may disclose Fund portfolio holdings to its vendors
(including, without limitation, portfolio accounting system, proxy voting
services, pricing services, attribution and analytics systems) in connection
with the fulfillment of its duties to the Funds. These service providers are
required by contract with the Advisor to keep such information confidential and
not use it for any purpose other than the purpose for which the information was
disclosed.
•The
Advisor may disclose Fund portfolio holdings to persons who owe a fiduciary duty
or other duty of trust or confidence to the Funds, such as the Funds’ legal
counsel and independent registered public accounting firm.
•Disclosure
of portfolio holdings as of a particular date may be made in response to
inquiries from consultants, prospective clients or other persons, provided that
the recipient signs a confidentiality agreement prohibiting disclosure and
misuse of the holdings information.
The
Company is prohibited from entering into any other arrangements with third
parties to disclose information regarding the Funds’ portfolio securities
without (1) prior approval of the Advisor’s legal and compliance departments;
and (2) the execution of a confidentiality agreement by the third parties. No
compensation or other consideration may be received by the Funds or the Advisor
or the Subadvisor in connection with the disclosure of portfolio holdings in
accordance with this policy.
The
Board has delegated to the CCO the responsibility to monitor the foregoing
policy and to address any violations thereof. The CCO reports to the Board and
the Board reviews any disclosures of Fund portfolio holdings outside of the
permitted disclosures described above on a quarterly basis to ensure that
disclosure of information about portfolio holdings is in the best interest of
Fund shareholders and to address any conflicts between the interests of Fund
shareholders and those of the Advisor, the Subadvisor or any other Fund
affiliate.
The
Company has established an Anti-Money Laundering Compliance Program (the
“Program”) as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
“USA PATRIOT Act”). In order to ensure compliance with this law, the Program
provides for the development of internal practices, procedures and controls, the
designation of an anti-money laundering compliance officer, an ongoing training
program, an independent audit function to determine the effectiveness of the
Program and a customer identification program.
Procedures
to implement the Program include, but are not limited to, determining that the
Funds’ Distributor and transfer agent have established proper anti-money
laundering procedures that require the reporting of suspicious and/or fraudulent
activity, verifying the identity and beneficial owners, if applicable, of the
new shareholders, checking shareholder names against designated government
lists, including the Office of Foreign Asset Control (“OFAC”), and undertaking a
complete and thorough review of all new account applications. The Company will
not transact business with any person or legal entity whose identity and
beneficial owners, if applicable, cannot be adequately verified.
Pursuant
to the USA PATRIOT Act and the Program, a Fund may be required to “freeze” the
account of a shareholder if the shareholder appears to be involved in suspicious
activity or if certain account information matches information on government
lists of known terrorists or other suspicious persons, or a Fund may be required
to transfer the account or proceeds of the account to a governmental
agency.
Cohen
& Company, Ltd. (“Cohen”), 342 North Water Street, Suite 830, Milwaukee,
Wisconsin 53202, has been selected as independent registered public accounting
firm of the Funds. Cohen audits and reports on the Funds’ annual financial
statements, reviews certain regulatory reports and the Funds’ federal income tax
returns, and performs other auditing and tax services for the Funds when engaged
to do so.
The
audited financial statements for the Funds for the fiscal year ended
December 31, 2022, together with the report of Cohen, independent
registered public accounting firm, that appear in the Funds’ Annual
Report
for the fiscal year ended December 31, 2022 are incorporated herein by
reference.
Godfrey
& Kahn, S.C., 833 East Michigan Street, Suite 1800, Milwaukee, Wisconsin
53202, serves as legal counsel to the Company and to the Independent Directors
and has passed upon the legality of the shares offered by the
Funds.
From
time to time, the yield and total return of Investor Class shares and
Institutional Class shares of a Fund may be quoted in advertisements,
shareholder reports or other communications to shareholders. Performance
information is generally available by calling the Funds (toll-free) at
1-866-442-2473.
