ck0001282693-20221231
BAIRD
FUNDS, INC.
Statement
of Additional Information
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| Taxable
Bond Funds |
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Baird
Ultra Short Bond Fund |
(Institutional
Class: BUBIX)
(Investor Class: BUBSX) |
|
Baird
Short‑Term Bond Fund |
(Institutional
Class: BSBIX)
(Investor Class: BSBSX) |
|
Baird
Intermediate Bond Fund |
(Institutional
Class: BIMIX)
(Investor Class: BIMSX) |
|
Baird
Aggregate Bond Fund |
(Institutional
Class: BAGIX)
(Investor Class: BAGSX) |
|
Baird
Core Plus Bond Fund |
(Institutional
Class: BCOIX)
(Investor Class: BCOSX) |
| Municipal
Bond Funds |
|
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Baird
Short‑Term Municipal Bond Fund |
(Institutional
Class: BTMIX)
(Investor Class: BTMSX) |
|
Baird
Strategic Municipal Bond Fund |
(Institutional
Class: BSNIX)
(Investor Class: BSNSX) |
|
Baird
Quality Intermediate Municipal Bond Fund |
(Institutional
Class: BMBIX)
(Investor Class: BMBSX) |
|
Baird
Core Intermediate Municipal Bond Fund |
(Institutional
Class: BMNIX)
(Investor Class: BMNSX) |
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Baird
Municipal Bond Fund |
(Institutional
Class: BMQIX)
(Investor Class: BMQSX) |
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
Ultra Short Bond Fund (the “Ultra Short Bond Fund”), the Baird Short‑Term Bond
Fund (the “Short‑Term Bond Fund”), the Baird Intermediate Bond Fund (the
“Intermediate Bond Fund”), the Baird Aggregate Bond Fund (the “Aggregate Bond
Fund”), the Baird Core Plus Bond Fund (the “Core Plus Bond Fund”), the Baird
Short‑Term Municipal Bond Fund (the “Short‑Term Municipal Bond Fund”), the Baird
Strategic Municipal Bond Fund (the “Strategic Municipal Bond Fund”), the Baird
Quality Intermediate Municipal Bond Fund (the “Quality Intermediate Municipal
Bond Fund”), the Baird Core Intermediate Municipal Bond Fund (the “Core
Intermediate Municipal Bond Fund”) and the Baird Municipal Bond Fund (the
“Municipal Bond 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 five equity funds that are described in a separate
Prospectus and SAI.
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.
Ratings.
The ratings of Standard & Poor’s (“S&P”), Moody’s Investors Service,
Inc. (“Moody’s”), Fitch Ratings (“Fitch”) and other nationally recognized
statistical rating organizations represent their opinions as to the quality of
debt obligations. Investment grade debt obligations are obligations that are of
medium to high quality and are rated in any of the four highest long term rating
categories by at least one nationally recognized statistical rating organization
(“NRSRO”) (e.g.,
BBB- or above by S&P, BBB- or above by Fitch or Baa3 or above by Moody’s).
It should be emphasized, however, that ratings are general and are not absolute
standards of quality, and debt obligations with the same maturity, interest rate
and rating may have different yields while debt obligations of the same maturity
and interest rate with different ratings may have the same yield.
The
payment of principal and interest on most debt obligations purchased by a Fund
will depend upon the ability of the issuers to meet their obligations. An
issuer’s obligations under its debt obligations are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. The power or ability of an issuer to meet its obligations
for the payment of interest on, and principal of, its debt obligations may be
materially adversely affected by litigation or other conditions.
Subsequent
to its purchase by a Fund, a rated debt obligation may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. Robert W. Baird & Co. Incorporated (the “Advisor”) will consider such
an event in determining whether a Fund should continue to hold the debt
obligation.
Money
Market Instruments.
As a non-principal investment strategy (with the exception of the Ultra Short
Bond Fund which may invest in money market instruments as part of its 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.
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 a Fund will invest in money market obligations of foreign
banks or foreign branches of U.S. banks only where the Advisor 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-2 by
S&P, Prime-2 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 at the time of purchase to be of comparable quality to rated
instruments that may be acquired by a Fund as previously described.
Each
Fund 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. A Fund will invest in variable
amount master demand notes only when the Advisor deems the investment to involve
minimal credit risk.
Repurchase
Agreements.
As a non‑principal investment strategy, each Fund may agree to purchase
securities from financial institutions subject to the seller’s agreement to
repurchase them at an agreed upon time and price (“repurchase agreements”).
During the term of the repurchase agreement, the Advisor will continue to
monitor the creditworthiness of the seller and will require the seller to
maintain the value of the securities subject to the repurchase agreement at not
less than 102% of the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible loss because of adverse market action
or delay in connection with the disposition of the underlying securities. The
securities held subject to a repurchase agreement may have stated maturities
exceeding one year, provided the repurchase agreement itself matures in less
than one year.
The
repurchase price under the repurchase agreements generally equals the price paid
by a Fund plus interest negotiated on the basis of current short‑term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Funds’ custodian or in the Federal Reserve/Treasury book‑entry system or
other authorized securities depository. Repurchase agreements are considered to
be loans under the Investment Company Act of 1940, as amended (the “1940
Act”).
Investment
Companies and ETFs.
As a non-principal investment strategy, each Fund may invest in securities
issued by other investment companies, including mutual funds, exchange-traded
funds
(“ETFs”),
closed-end funds, and other affiliated Baird 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. A Fund may
purchase shares of unaffiliated money market funds, ETFs and other mutual funds,
as well as affiliated Baird Funds, in excess of these limits as permitted by the
1940 Act and the “fund of funds” rules promulgated thereunder, including Rule
12d1-4. A Fund may acquire ETFs and other investment companies in excess of
these limitations as a means of investing cash temporarily in instruments
consistent with the Fund’s investment objective. These other investment
companies will generally consist of money market mutual funds as well as mutual
funds and ETFs that primarily invest in fixed income securities or are related
to a bond related index. Other unaffiliated investment companies may also invest
in a Fund in excess of the 3%/5%/10% limits as permitted by the “fund of fund”
rules under the 1940 Act, including Rule 12d1-4. The Company has entered
into participation agreements with unaffiliated fund companies, which permit the
fund companies to invest in one or more of the Funds in excess of the limits set
forth above, subject to various conditions designed to prevent undue influence
by the investing fund company and layering of fees in compliance with Rule
12d1-4.
As
a shareholder of another investment company, a Fund 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 the Fund’s shareholders. These expenses would be in addition to
the advisory and other expenses that a Fund bears directly in connection with
its own operations. To the extent that a Fund invests in other Baird Funds, the
Advisor will waive its advisory fee in an amount equal to the advisory fee paid
to the Advisor by the other Baird Fund in respect of Fund assets so
invested.
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
securities held by the ETF. 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. An investment in an ETF generally
presents the same primary risks as an investment in a mutual fund, and will have
costs and expenses that will be passed on to a Fund, thereby increasing the
Fund’s expenses. ETFs are also subject to additional risks including: (i) the
market price of an ETF’s shares may trade at a discount to net asset value,
causing the ETF to experience greater price volatility; (ii) an active trading
market for an ETF’s shares may not develop or be maintained at a sufficient
volume; (iii) the exchange on which an ETF’s shares are listed may deem it
appropriate to halt the trading of such shares; (iv) ETF shares may be delisted
from the exchange on which they trade, or “circuit breakers” (which are tied to
large decreases in stock prices used by the exchange) may temporarily halt
trading in the ETF shares; (v) there may be legal limitations and other
conditions imposed by the SEC on the amount of ETF shares that a Fund may
acquire or redeem; and (vi) an ETF may be terminated and need to liquidate its
portfolio securities at a time when the prices for those securities are
falling.
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. See “Mortgage-Backed and Asset-Backed Debt
Obligations” below.
Bank
Obligations.
For purposes of the Funds’ investment policies with respect to bank obligations,
the assets of a bank or savings institution will be deemed to include the assets
of its domestic and foreign branches. A Fund’s investments in the obligations of
foreign branches of U.S. banks and of foreign banks may subject the Fund to
investment risks that are different in some respects from those of investments
in obligations of U.S. domestic issuers. Such risks include future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
of such obligations. In addition, foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and record keeping standards than those
applicable to domestic branches of U.S. banks.
Illiquid
and Restricted Obligations.
As a non-principal investment strategy, each Fund may invest up to 15% of its
net assets in securities that are illiquid. “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. These holdings may
present a high degree of liquidity risk, which can result in substantial
losses
if
the Fund is forced to sell the illiquid security quickly. A Fund may have
difficulty valuing these holdings and may be unable to sell these holdings at
the time or price desired. In the event a Fund’s holdings in illiquid securities
should exceed 15% of its net assets, the Fund will not purchase additional
illiquid securities and will take other appropriate steps under its liquidity
risk management program to reduce the percentage of illiquid securities, such as
disposing of illiquid assets, and will make notices as required by SEC
rules.
Each
Fund may also invest in restricted securities. Restricted securities may include
Rule 144A securities as well as Section 4(a)(2) commercial paper. Rule 144A
securities are restricted securities that are eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, as amended (the “1933 Act”). Section
4(a)(2) commercial paper is a short-term debt instrument issued by a corporation
to institutional and other accredited investors in a transaction or series of
transactions exempt from registration pursuant to Section 4(a)(2) of the 1933
Act. A Fund may treat a Rule 144A security or Section 4(a)(2) commercial paper
as liquid if so classified under the Funds’ liquidity risk management
program.
Borrowings
and Reverse Repurchase Agreements.
As a non-principal investment strategy, each Fund may borrow money to the extent
allowed (as described below) to meet shareholder redemptions from banks or
through reverse repurchase agreements. Any borrowing by a Fund may not remain
outstanding for more than 15 business days and may not be made for leveraging
purposes. If the securities held by a Fund should decline in value while
borrowings are outstanding, the 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, a
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, their
custodian bank, by which each Fund may borrow money for temporary or emergency
purposes. Each Fund may pledge assets to secure bank borrowings, which are
limited to 33⅓% 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
the Funds.
In
accordance with Rule 18f-4, the Funds have determined to treat reverse
repurchase agreements as borrowings under the 1940 Act and, accordingly will
maintain asset coverage for such transactions in accordance with Section 18 of
the 1940 Act. At the time a Fund enters into a reverse repurchase agreement (an
agreement under which the Fund sells portfolio debt obligations and agrees to
repurchase them at an agreed upon date and price), the Fund may cover the
transactions with an offsetting position, or may segregate or “earmark” on the
Fund’s records U.S. government debt obligations or other liquid debt obligations
having a value equal to or greater than the repurchase price (including accrued
interest). The cover must be at least equal to the Fund’s potential exposure
from the transaction. Reverse repurchase agreements involve the risks that the
interest income earned by a Fund (from the investment of the proceeds) will be
less than the interest expense of the transaction, that the market value of the
debt obligations sold by the Fund may decline below the price of the debt
obligations it is obligated to repurchase and that the debt obligations may not
be returned to the Fund. Reverse repurchase agreements are a form of leverage,
which also may increase the volatility of a Fund’s investments.
Defaulted
Debt Obligations.
As a non‑principal investment strategy, each Fund may hold debt obligations that
are in partial or full default. Defaulted debt obligations are considered
speculative and are subject to greater risk of loss of income and principal than
higher rated securities. A Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal of or
interest on its portfolio holdings. The repayment of defaulted debt obligations
is subject to significant uncertainties and, in some cases there may be no
recovery of repayment. In any reorganization or liquidation proceeding relating
to a defaulted debt obligation, a Fund may lose its entire investment or may be
required to accept cash or securities with a value less than its original
investment. Defaulted debt obligations and any securities received in exchange
for defaulted debt obligations may be subject to restrictions on
resale.
Equity
Securities.
As a non‑principal investment strategy, each Fund, other than the Municipal Bond
Funds, may invest up to 5% of its net assets in equity securities, including
common stocks, preferred stocks, depositary receipts, warrants to purchase
common and preferred stocks and securities convertible or exchangeable into
common or preferred stocks. Equity securities are susceptible to general stock
market fluctuations and volatile changes in value due to market and
company-specific factors.
Preferred
Stocks.
As a non‑principal investment strategy, each Fund, other than the Municipal Bond
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
obligations, 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. Each Fund will limit its
investments in preferred stock to no more than 5% of their respective net
assets.
When-Issued
Purchases, Delayed Delivery and Forward Commitments.
As a principal investment strategy of the Municipal Bond Funds and as a
non‑principal investment strategy of the Funds other than the Municipal Bond
Funds, the Funds may purchase or sell particular debt obligations with payment
and delivery taking place at a later date. The price or yield obtained in a
transaction may be less favorable than the price or yield available in the
market when the debt obligations delivery takes place. When‑issued and forward
commitment transactions involve the risk that the price or yield obtained in a
transaction (and therefore the value of a debt obligation) may be less favorable
than the price or yield (and therefore the value of a debt obligation) available
in the market when the debt obligations delivery takes place. Certain
when-issued and forward commitment transactions are treated as derivatives
transactions and are included in the 10% limit on derivatives exposure for
purposes of each Fund’s status as a limited derivatives user.
Each
Fund will make commitments to purchase debt obligations on a when‑issued basis
or to purchase or sell debt obligations on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the debt obligations. If deemed advisable as a matter of investment strategy,
however, a Fund may dispose of or renegotiate a commitment after it is entered
into, and may sell debt obligations it has committed to purchase before those
debt obligations are delivered to the Fund on the settlement date. In these
cases, a Fund may realize capital gains or losses.
When
a Fund engages in when‑issued,
delayed delivery and forward commitment transactions, the Fund relies on the
other party to consummate the trade. Failure of such party to do so may result
in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The
market value of the debt obligations underlying a when‑issued
purchase or a forward commitment to purchase debt obligations, and any
subsequent fluctuations in their market value, are taken into account when
determining the net asset value of a Fund starting on the day the Fund agrees to
purchase the debt obligations. A Fund does not earn interest on the debt
obligations the Fund has committed to purchase until they are paid for and
delivered on the settlement date. When a Fund makes a forward commitment to sell
debt obligations it owns, the proceeds to be received upon settlement are
included in the Fund’s assets. Fluctuations in the market value of the
underlying debt obligations are not reflected in a Fund’s net asset value as
long as the commitment remains in effect.
Mortgage-Backed
and Asset-Backed Debt Obligations.
As a principal investment strategy of the Ultra Short Bond Fund,
Short‑Term
Bond Fund, Intermediate Bond Fund, Aggregate Bond Fund, Core Plus Bond Fund, and
as a non-principal investment strategy of the Municipal Bond Funds, the Funds
may purchase residential and commercial mortgage‑backed
as well as other asset‑backed
debt obligations (collectively called “asset‑backed
debt obligations”) that are secured or backed by automobile loans, installment
sale contracts, credit card receivables or other assets and are issued by
entities such as GNMA, FNMA, FHLMC, commercial banks, trusts, financial
companies, finance subsidiaries of industrial companies, savings and loan
associations, mortgage banks and investment banks. These debt obligations
represent interests in pools of assets in which periodic payments of interest
and/or principal on the debt obligations are made, thus, in effect passing
through periodic payments made by the individual borrowers on the assets that
underlie the debt obligations, net of any fees paid to the issuer or guarantor
of the debt obligations.
There
are a number of important differences among the agencies and instrumentalities
of the U.S. government that issue mortgage‑backed
debt obligations and among the debt obligations that they issue.
Mortgage‑backed
debt obligations guaranteed by GNMA, “Ginnie Mae,” include GNMA Mortgage
Pass‑Through
Certificates (also known as “Ginnie Maes”) which are guaranteed as to the timely
payment of principal and interest by GNMA and such guarantee is backed by the
full faith and credit of the United States. GNMA is a wholly owned U.S.
government corporation within the Department of Housing and Urban Development.
Ginnie Maes also are supported by the authority of GNMA to borrow funds from the
U.S. Treasury to make payments under its guarantee. Mortgage‑backed
debt obligations issued by FNMA, “Fannie Mae,” include FNMA Guaranteed Mortgage
Pass‑Through
Certificates (also known as “Fannie Maes”) which are guaranteed as to timely
payment of principal and interest by Fannie Mae. Mortgage‑backed
debt obligations issued by the FHLMC, “Freddie Mac,” include FHLMC Mortgage
Participation Certificates (also known as “Freddie Macs” or “PCs”). Freddie Mac
entitles the holder to timely payment of interest, which is guaranteed by
Freddie Mac. Freddie Macs generally do not entitle the holder to timely payments
of principal.
Mortgage-backed
debt obligations issued by Fannie Mae and Freddie Mac are solely the obligations
of Fannie Mae or Freddie Mac, as the case may be, and are not backed by or
entitled to the full faith and credit of the U.S. government; rather, these
agencies are supported by the right of the issuer to borrow money from the U.S.
Treasury.
In
2008, the Federal Housing Finance Agency (“FHFA”) placed Fannie Mae and Freddie
Mac in conservatorship. Fannie Mae and Freddie Mac are continuing to operate as
going concerns while in conservatorship and each remain liable for all of its
obligations, including its guaranty obligations, associated with its
mortgage-backed securities. Although the U.S. government has provided financial
support to Fannie Mae and Freddie Mac, there can be no assurance that the U.S.
government will support these or other government-sponsored agencies in the
future and therefore, these U.S. government-sponsored agencies may not have
enough funds to meet their payment obligations. While these agencies remain
under the conservatorship of the FHFA as of the date of this SAI, long-term,
continued operation in government-run conservatorship may not be
sustainable.
The
average life of a mortgage‑backed instrument may be substantially less than the
original maturity of the mortgages underlying the debt obligations as the result
of scheduled principal payments and mortgage prepayments. The rate of such
mortgage prepayments, and hence the life of the debt obligation, will be a
function of current market rates and current conditions in the relevant housing
and commercial markets. In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During such periods, the reinvestment of
prepayment proceeds by a Fund will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid. As a result, the
relationship between mortgage prepayments and interest rates may give some
high‑yielding
mortgage‑related
debt obligations less potential for growth in value than non‑callable
bonds with comparable maturities. In calculating the average weighted maturity
of a Fund, the maturity of mortgage‑backed
debt obligations will be based on estimates of average life. There can be no
assurance that these estimates will be exact.
Each
Fund may purchase mortgage‑backed
debt obligations such as collateralized mortgage obligations (“CMOs”). CMOs
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage‑backed
debt obligations. CMOs are issued in multiple classes and their relative payment
rights may be structured in many ways. In many cases, however, payments of
principal are applied to the CMO classes in order of their respective sequential
expected maturities, so that no principal payments will be made on a CMO class
until all other classes having an earlier expected maturity date are paid in
full. The classes may include accrual certificates (also known as “Z‑Bonds”),
which do not accrue interest at a specified rate until other specified classes
have been retired and are
converted
thereafter to interest‑paying
debt obligations. They may also include planned amortization classes (“PACs”)
which generally require, within certain limits, that specified amounts of
principal be applied to each payment date, and generally exhibit less yield and
market volatility than other classes. Prepayments on mortgage‑backed
securities generally increase with falling interest rates and decrease with
rising interest rates; furthermore, prepayment rates are influenced by a variety
of economic and social factors.
The
yield characteristics of asset‑backed debt obligations differ from traditional
debt obligations. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets
(i.e.,
loans) generally may be prepaid at any time. As a result, if an asset‑backed
debt obligation is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset‑backed debt obligation is purchased at a discount,
faster than expected prepayments may increase, while slower than expected
prepayments may decrease, yield to maturity. Moreover, asset‑backed debt
obligations may involve certain risks that are not presented by mortgage‑backed
debt obligations arising primarily from the nature of the underlying assets
(i.e.,
credit card and automobile loan receivables as opposed to real estate
mortgages).
Asset‑backed
debt obligations may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, while the secondary market for
asset‑backed debt obligations is ordinarily quite liquid, in times of financial
stress the secondary market may not be as liquid as the market for other types
of debt obligations, which could result in a Fund experiencing difficulty in
liquidating such debt obligations.
In
general, the collateral supporting non‑mortgage asset‑backed debt obligations is
of shorter maturity than mortgage loans. Like other fixed‑income debt
obligations, when interest rates rise the value of an asset‑backed debt
obligation generally will decline; however, when interest rates decline, the
value of an asset‑backed debt obligation with prepayment features may not
increase as much as that of other fixed‑income debt obligations.
Non‑mortgage
asset‑backed debt obligations do not have the benefit of the same debt
obligation in the collateral as mortgage‑backed debt obligations. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to reduce the balance due on the credit cards. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying receivables. If the servicer were to sell these receivables to
another party, there is the risk that the purchaser would acquire an interest
superior to that of the holders of related automobile receivables. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective debt obligation interest in all
of the obligations backing such receivables. Therefore, there is a possibility
that payments on the receivables together with recoveries on repossessed
collateral may not, in some cases, be able to support payments on these debt
obligations.
Bank
Loans.
As part of its non‑principal investment strategies, the Ultra Short Bond Fund
may invest in secured and unsecured participations in bank loans (“bank loans”).
The Ultra Short Bond Fund’s investments in bank loans and assignments of such
loans may create substantial risk. In making investments in such loans, which
banks or other financial intermediaries make to borrowers, the Ultra Short Bond
Fund will depend primarily upon the creditworthiness of the borrower for payment
of principal and interest. If the Ultra Short Bond Fund does not receive
scheduled interest or principal payments on such indebtedness, its share price
could be adversely affected. The Ultra Short Bond Fund
may
invest in loan participations that are rated by a NRSRO or are unrated, and may
invest in loan participations of any credit quality, including “distressed”
companies with respect to which there is a substantial risk of losing the entire
amount invested. In addition, certain bank loans in which the Ultra Short Bond
Fund may invest may be illiquid and, therefore, difficult to value and/or sell
at a price that is beneficial to the Fund.
LIBOR
Transition Risk.
A Fund may invest in securities that use the London Inter-Bank Offered Rate
(“LIBOR”) as a benchmark or reference rate. The U.S. dollar (USD) LIBOR,
formerly known as the London Interbank Offered Rate, will cease after June 30,
2023. The Adjustable Interest Rate (LIBOR) Act passed by the U.S. Congress on
March 15, 2022 replaces references to LIBOR for U.S. contracts that will not
mature before June 30, 2023 with one of five benchmark replacements based on the
Secured Overnight Financing Rate (SOFR). SOFR is a broad measure of the cost of
borrowing cash overnight collateralized by US. Treasury securities that is
published daily by the Federal Reserve Bank of New York (FRBNY). However, there
is no assurance that the composition or characteristic of any alternative
reference rate will be similar to or produce the same value or economic
equivalence as LIBOR or that instruments using an alternative reference rate
will have the same volume or liquidity. The transition process to an alternative
reference rate might lead to increased volatility and reduced liquidity in
markets that currently rely on LIBOR to determine interest rates. LIBOR’s
discontinuation may adversely affect the value of some LIBOR-based investments
and result in additional costs incurred in connection with closing out positions
and entering into new trades. Because the usefulness of LIBOR as a reference
rate could deteriorate during the transition period, these effects could occur
prior to the discontinuation of LIBOR.
Variable
Rate Medium Term Notes.
As a non‑principal investment strategy, each of the Ultra Short Bond Fund,
Short-Term Bond Fund, Intermediate Bond Fund, Aggregate Bond Fund and Core Plus
Bond Fund may purchase variable rate medium term notes that provide for periodic
adjustments in the interest rates. The adjustments in interest rates reflect
changes in an index or an applicable money rate such as the LIBOR. Each of the
Municipal Bond Funds may also invest in variable rate instruments as discussed
under “Municipal Obligations and Related Investments.”
Stripped
Securities.
As a non‑principal investment strategy, the Funds, other than the Municipal Bond
Funds, may purchase participations in trusts that hold U.S. Treasury and agency
securities (such as TIGRs and CATs) and also may purchase Treasury receipts and
other “stripped” securities that evidence ownership in either the future
interest payments or the future principal payments of U.S. government
obligations. These participations are issued at a discount to their “face
value,” and may (particularly in the case of stripped mortgage‑backed
securities) exhibit greater price volatility than ordinary debt obligations
because of the manner in which their principal and interest are returned to
investors.
Bond
Index.
In an effort to make a Fund’s duration and return comparable to those of its
respective bond index, the Advisor will monitor the Fund’s portfolio and market
changes. The calculation of a Fund’s duration and average portfolio maturity
will be based on certain estimates relating to the duration and maturity of the
debt obligations held by the Fund. There can be no assurance that these
estimates will be accurate or that the duration or average portfolio maturity of
a Fund will always remain within the maximum limits disclosed on its Prospectus.
The value of a Fund’s portfolio, as is generally the case with each bond index,
can be expected to vary inversely from changes in prevailing interest
rates.
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 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 non-principal investment strategy, the Funds (other than the Municipal Bond
Funds) may purchase and sell put options and call options on securities and
indices for speculative purposes. A Fund will purchase and sell (write) options
in standardized contracts listed on securities exchanges. A 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.
Each Fund, other than the Municipal Bond 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.
Each Fund, other than the Municipal Bond 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.
To
the extent a Fund invests in options, it will limit its derivatives exposure,
including the exposure for written or sold options, to 10% of the Fund’s net
assets in accordance with the “limited derivatives user” exception under 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
- Futures Contracts and Related Options.
As a principal investment strategy for the Strategic Municipal Bond Fund and as
a non-principal investment strategy for the other Funds, each Fund may invest in
U.S. Treasury futures contracts. As a non-principal investment strategy, each
Fund may purchase or sell futures contracts, or options thereon, including
interest rate futures contracts, to manage the portfolio’s duration or interest
rate risk, to manage changes resulting from market conditions in the value of
the securities held by the Fund, or of securities which the Fund intends to
purchase to maintain liquidity, to have fuller exposure to price movements in
the respective bond index or to reduce transaction costs. For example, a Fund
may enter into transactions involving a bond or stock index futures contract,
which is a bilateral agreement pursuant to which the parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value (which assigns relative values to the
securities included in the index) at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying bonds or stocks in the index is made. A Fund
may also purchase or sell interest rate futures contracts, or options thereon,
which provide for the future delivery of specified fixed income
securities.
A
bond or stock index assigns relative values to the securities included in the
index and the index fluctuates with changes in the market values of the
securities included. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission (the “CFTC”). Transactions
on such exchanges are cleared through a clearing corporation, which guarantees
the performance of the parties to each contract.
Each
Fund may sell index futures contracts. A Fund may do so either to hedge the
value of its portfolio, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, each Fund
may purchase index futures contracts. In a substantial majority of these
transactions, a Fund will purchase such securities upon termination of the long
futures position, but a long futures position may be terminated without a
corresponding purchase of securities.
In
addition, each Fund may utilize index futures contracts in anticipation of
changes in the composition of their portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of
sale.
Positions
in futures contracts may be closed out only on an exchange that provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if a
Fund has insufficient cash, it may have to sell portfolio holdings to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, a Fund may be required to make delivery of the instruments underlying
futures contracts it holds. The inability to close options and futures positions
also could have an adverse impact on a Fund’s ability to effectively
hedge.
Successful
use of futures by the Funds is also subject to the Advisor’s ability to
correctly predict movements in the direction of the market. For example, if a
Fund has hedged against the possibility of a decline in the market adversely
affecting securities held by it and securities prices increase instead, the Fund
will lose part or all of the benefit to the increased value of its securities
which it has hedged because the Fund will have approximately equal offsetting
losses in its futures positions. In addition, in some situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices that reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
Unlike
when the Funds purchase or sell a security, no price is paid or received by a
Fund upon the purchase or sale of a futures contract. Initially, in accordance
with the terms of the exchange on which such 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 security or index 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 market values of the securities held
by a Fund and the prices 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 securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. 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’s investments in futures
contracts and written or sold options on futures are subject to a limit on each
Fund’s derivatives exposure, which is 10% of its net assets, calculated in
accordance with Rule 18f-4.
Each
Fund’s commodities transactions, which include futures contracts and related
options, must be made for bona fide hedging purposes as defined by the CFTC. 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.
Foreign
Securities.
As part of their principal investment strategy, the Funds, other than the
Municipal Bond Funds, may invest in dollar‑denominated securities of foreign
corporations and governments. Such securities may be subject to greater
fluctuations in price than securities of domestic corporations and may be
subject to foreign withholding taxes. 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.
There
is still considerable uncertainty regarding the potential consequences of Brexit
(the United Kingdom’s (UK) withdrawal from the European Union (EU)). There is
significant market uncertainty regarding Brexit’s longer term ramifications, and
the range of possible political, regulatory, economic and
market
outcomes are difficult to predict. The uncertainty surrounding the UK’s economy
may continue to be a source of instability and cause considerable disruption in
securities markets, including increased volatility and illiquidity, as well as
currency fluctuations in the British pound’s exchange rate against the U.S.
dollar.
Zero-Coupon
Bonds.
As a principal investment strategy of the Municipal Bond Funds and as a
non‑principal investment strategy of the Funds other than the Municipal Bond
Funds, the Funds may invest in zero‑coupon
debt obligations. Zero‑coupon
obligations have greater price volatility than coupon obligations of the same
maturity and will not result in the payment of interest until maturity, provided
that a Fund will purchase such zero‑coupon
obligations only if the likely relative greater price volatility of such
zero‑coupon
obligations is not inconsistent with the Fund’s investment objective. Although
zero‑coupon
securities pay no cash income to holders prior to maturity, accrued interest on
these securities must be reported as income to a Fund and distributed to its
shareholders on an annual basis. Accordingly, a Fund may be required to dispose
of its portfolio investments under disadvantageous circumstances in order to
satisfy the distribution requirements applicable to regulated investment
companies under the federal tax law. Additional income producing securities may
not be able to be purchased with cash used to make such distributions and its
current income ultimately may be reduced as a result.
Guaranteed
Investment Contracts.
As a non‑principal
investment strategy, the Funds, except the Municipal Bond Funds, may make
limited investments in guaranteed investment contracts (“GICs”) issued by highly
rated U.S. insurance companies. A GIC is usually a general account obligation of
the issuing insurance company. A Fund will only purchase GICs from issuers
which, at the time of purchase, are rated A or higher by Moody’s or S&P,
have assets of $1 billion or more and meet quality and credit standards
established by the Advisor. Generally, GICs are not assignable or transferable
without the permission of the issuing insurance companies, and an active
secondary market in GICs does not currently exist. Therefore, GICs are
considered by the Fund to be subject to the 15% limitation on illiquid
investments. Generally, a GIC allows a purchaser to buy an annuity with the
money accumulated under the contract; however, a Fund will not purchase any such
annuities. Investments in GICs are subject to the risks associated with debt
instruments generally, and are specifically subject to the credit risk
associated with an investment in the issuing insurance company.
Small
Capitalization Companies and Unseasoned Issuers.
As a non‑principal
investment strategy, the Funds other than the Municipal Bond Funds may invest in
small companies. Small companies in which the Funds may invest may have limited
product lines, markets, or financial resources, or may be dependent upon a small
management group, and their securities may be subject to more abrupt or erratic
market movements than larger, more established companies, both because their
securities are typically traded in lower volume and because the issuers are
typically subject to a greater degree of change in their earnings and
prospects.
Environmental,
Social and Governance (ESG) Considerations.
As a non-principal investment strategy, the Advisor considers ESG risk factors
as part of its investment process and fiduciary duty to the Funds. The Advisor
integrates ESG related risk factors as inputs in determining a bond issuer’s
ultimate creditworthiness, the valuation of the securities it issues and the
issuer’s long-term sustainability. Examples of ESG risk factors include an
issuer’s corporate governance structure, climate change risks, supply chain
integrity, labor practices and human resource management. There are no
universally accepted ESG risk factors and the Advisor will consider them at its
discretion. As part of the Funds’ general management risks, the Advisor may err
in its choices of debt obligations or portfolio allocations,
including
through the integration of ESG factors. Such errors could result in a negative
return and a loss to a Fund and its shareholders.
Cash
or Similar Investments; Temporary Strategies.
As a non-principal investment strategy, under normal market conditions, each
Fund, other than the Ultra Short Bond Fund, may invest up to 20% of its net
assets in cash or similar short‑term,
investment grade debt obligations such as U.S. government securities, money
market funds, repurchase agreements, commercial paper, money market instruments
or certificates of deposit. The Ultra Short Bond Fund invests in cash and money
market instruments, including money market funds, as part of its principal
investment strategy. 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 may invest
up to 100% of the total assets of each of the Short‑Term
Bond Fund, Intermediate Bond Fund, Aggregate Bond Fund, Core Plus Bond Fund,
Short‑Term Municipal Bond Fund, Strategic Municipal Bond Fund, Quality
Intermediate Municipal Bond Fund, Core Intermediate Municipal Bond Fund and
Municipal Bond Fund in cash or similar investments set forth above.
From
time to time, on a temporary defensive basis due to market conditions, the
Municipal Bond Funds may hold without any limitation uninvested cash reserves
and invest without any limitations in high quality, short-term taxable money
market obligations in such proportions as in the opinion of the Advisor,
prevailing market or economic conditions warrant. Uninvested cash reserves will
not earn income. Under normal market conditions, short-term taxable obligations
acquired by a Municipal Bond Fund will not exceed 20% of the Fund’s net assets
at the time of purchase.
When
a Fund takes a temporary position, the Fund may not achieve its investment
objective.
Put
Bonds.
As a non-principal investment strategy, each of the Municipal Bond Funds may
invest in long-term variable and floating rate bonds that may be redeemed or
sold back (“put”) to the issuer of the security or a third party prior to their
stated maturity (“put bonds”). Such securities will normally trade as if
maturity is the earlier put date, even though stated maturity is longer. The
option to “put” the bond back to the issuer before the stated final maturity can
cushion the price decline of the bond in a rising interest rate environment.
However, the premium paid, if any, for an option to put will have the effect of
reducing the yield otherwise payable on the underlying security.
Municipal
Obligations and Related Investments.
Each Fund may invest in municipal obligations and related investments, as
described below. A Fund’s cash balances may be invested in short‑term municipal
notes and tax‑exempt commercial paper or variable rate demand obligations, as
well as municipal bonds with remaining maturities of thirteen months or less and
securities issued by other investment companies which invest in high quality,
short‑term municipal debt obligations. The value of each Fund’s portfolio can be
expected to vary inversely to changes in prevailing interest rates.
Municipal
obligations which may be acquired by each Fund include debt obligations issued
by states, possessions and territories of the U.S., including political
subdivisions (such as counties, cities, towns and school and other districts),
agencies and authorities thereof. Municipal obligations are issued by such
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities, not-for-profit organizations,
businesses and developers. The Funds may invest in municipal obligations that
are subject to federal and state income tax. Types of municipal obligations in
which a Fund may invest include, but are not limited to, the
following:
General
Obligation Bonds.
General obligation bonds are supported by the issuer’s full faith and credit and
taxing authority. The issuer must levy and collect taxes sufficient to pay
principal and interest on the bonds. However, in some cases the issuer’s
authority to levy additional taxes may be limited by its charter or state
law.
Revenue
Bonds.
Revenue bonds are payable solely from specific income or revenues received by
the issuer, often from its operation of a governmental enterprise or authority
such as an electric or water utility, sewer system, parks, hospitals or other
health authority, bus, train, subway, highway, airport or other transportation
system, or housing authority. Some revenue bonds may be issued for other public
purposes, such as financing the development of an industrial park or commercial
district or construction of a new stadium, parking structure or stadium. The
revenues may consist of specific taxes, assessments, tolls, fees, or other types
of municipal revenues. Although issued by municipal authorities, revenue bonds
are generally not secured by the taxing power of the municipality but by the
revenues of the authority derived from payments by users of the services or
owners and operators of the facility financed with the proceeds of the bonds.
Bonds or other obligations of housing financing authorities may have various
forms of security, such as reserve funds, insured or subsidized mortgages and
net revenues from projects, but they are not backed by a pledge of the issuer’s
credit. The credit quality of revenue bonds is usually related to the credit
standing of the enterprise being financed but can, if applicable, be tied to the
credit worthiness of an institution which provides a guarantee, letter of credit
or other credit enhancement for the bond issue.
Private
Activity Bonds.
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy or to enable a college or university,
not-for-profit organization or hospital to construct new or expanded facilities.
The municipality would lend the proceeds to the company or other entity, and the
company or other entity would agree to make loan payments sufficient to repay
the bonds. The bonds would be payable solely from the borrower’s loan payments,
and not from any other revenues of the municipality. Therefore, any default on
the loan normally would result in a default on the bonds. The interest on many
types of private activity bonds is subject to the federal alternative minimum
tax (“AMT”) for a non-corporate shareholder. The Funds may invest in bonds
subject to the federal AMT. Each Fund is limited by its fundamental investment
limitation in the amount it can invest in securities that may be subject to
federal AMT (see “Investment Objectives and Limitations”).
Anticipation
Notes.
Anticipation notes are securities issued in anticipation of the receipt of
taxes, grants, bond proceeds, or other municipal revenues. These may be in the
form of bond anticipation notes, tax anticipation notes, tax and revenue
anticipation notes, and revenue anticipation notes. For example, many
municipalities collect property taxes once a year. Such municipalities may issue
tax anticipation notes to fund their operations prior to collecting these taxes.
The issuers then repay the tax anticipation notes at the end of their fiscal
year, either with collected taxes or proceeds from newly issued notes or bonds.
Bond anticipation notes are notes that are intended to be refinanced through a
subsequent offering of longer term bonds.
Tax
Increment Financing Bonds.
Tax increment financing bonds are payable from increases in taxes or other
revenues attributable to higher valuations on the businesses benefitting from
improvements made to a particular area or district financed by the bonds. For
example, a municipality may issue these bonds to redevelop a commercial area.
The tax increment financing bonds would be payable solely from any increase in
sales taxes collected from merchants in the area or in property taxes collected
from property
owners.
The bonds could default if merchants’ sales or owners’ property valuations, and
related tax collections, failed to increase as anticipated.
Municipal
obligations also include municipal commercial paper and other short-term notes,
variable rate demand obligations, industrial revenue bonds, pre-refunded or
advance refunding bonds, municipal lease obligations, construction loan notes
insured by the Federal Housing Administration and financed by FNMA or GNMA, and
participation, trust and partnership interests in any of the
foregoing.
Opinions
relating to the validity of municipal obligations and to the exemption of
interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor the Advisor
will review the proceedings relating to the issuance of municipal obligations or
the basis for such opinions. There can be no assurance that the Internal Revenue
Service (“IRS”) will agree with a bond counsel’s opinion concluding that
interest on a particular obligation is exempt from federal income
tax.
Certain
of the municipal obligations held by a Fund may be insured at the time of
issuance as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the municipal obligation at
the time of its original issuance. In the event that the issuer defaults on
interest or principal payment, the insurer will be notified and will be required
to make payment to the bondholders. There is, however, no guarantee that the
insurer will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors, including credit downgrades, supply and demand. Each Municipal Bond
Fund may, from time to time, invest more than 25% of its assets in municipal
obligations covered by insurance policies.
The
payment of principal and interest on most debt obligations purchased by the
Funds will depend upon the ability of the issuers to meet their obligations.
Municipal obligations may be adversely affected by political and economic
conditions and developments (for example, legislation reducing state aid to
local governments.) An issuer’s obligations under its municipal obligations are
also subject to the provisions of bankruptcy, insolvency, and other laws
affecting the rights and remedies of creditors, such as the Federal Bankruptcy
Code, and laws, if any, which may be enacted by federal or state legislatures
extending the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its municipal
obligations may be materially adversely affected by litigation or other
conditions.
Certain
types of municipal obligations (private activity bonds) have been or are issued
to obtain funds to provide privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued on behalf of privately held or publicly owned corporations in the
financing of commercial or industrial facilities. State and local governments
are authorized in most states to issue private activity bonds for such purposes
in order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
Municipal
obligations purchased by a Fund may be backed by letters of credit issued by
foreign and domestic banks and other financial institutions. Such letters of
credit are not necessarily subject to federal deposit insurance and adverse
developments in the banking industry could have a negative effect on the credit
quality of the Fund’s portfolio debt obligations and its ability to maintain a
stable net asset value
and
share price. Letters of credit issued by foreign banks, like other obligations
of foreign banks, may involve certain risks in addition to those of domestic
obligations.
Each
Fund may purchase put options on municipal obligations. A put gives a Fund the
right to sell a municipal obligation at a specified price at any time before a
specified date. A put will be sold, transferred or assigned only with the
related municipal obligation. A Fund will acquire puts only to enhance
liquidity, shorten the maturity of the related municipal debt obligation or
permit the Fund to invest its assets at more favorable rates. The aggregate
price of a debt obligation subject to a put may be higher than the price which
otherwise would be paid for the debt obligation without such an option, thereby
increasing the debt obligation’s cost and reducing its yield.
From
time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
municipal obligations. For example, under the Internal Revenue Code of 1986, as
amended (the “Code”), interest on certain private activity bonds must be
included in a non-corporate investor’s alternative minimum taxable income. The
Company cannot, of course, predict what legislation, if any, may be proposed in
the future as regards the income tax status of interest on municipal
obligations, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
municipal obligations for investment by the Municipal Bond Funds and the
liquidity and value of their portfolios. In such an event, the Company would
reevaluate the Municipal Bond Funds’ investment objectives and policies and
consider possible changes in their structure or possible
dissolution.
Municipal
Lease Obligations.
Each Fund may acquire municipal lease obligations that are issued by a state or
local government authority to acquire land and a wide variety of equipment and
facilities. These obligations typically are not fully backed by the
municipality’s credit, and their interest may become taxable if the lease is
assigned. If the funds are not appropriated for the following year’s lease
payments, the lease may terminate, with the possibility of default on the lease
obligation and significant loss to a Fund. Certificates of participation in
municipal lease obligations or installment sale contracts entitle the holder to
a proportionate interest in the lease‑purchase
payments made. The Advisor determines and monitors the liquidity of municipal
lease obligations (including certificates of participation) under the Funds’
liquidity risk management program. The Advisor will evaluate the credit quality
of such obligations and consider the nature of and the Funds’ trading experience
in the municipal lease market. Municipal lease obligations that are not readily
marketable and transferable will be treated as illiquid. In making a
determination that a municipal lease obligation is liquid, the Advisor may
consider, among other things, whether the lease can be canceled, the likelihood
that the assets represented by the lease can be sold, the strength of the
lessee’s general credit, the likelihood that the municipality will discontinue
appropriating funds for the leased property because the property is no longer
deemed essential to the operations of the municipality and availability of legal
recourse in the event of failure to appropriate.
Stand‑By
Commitments.
A Fund may acquire “stand‑by
commitments” with respect to municipal obligations held in its portfolio. Under
a “stand‑by
commitment” a dealer agrees to buy from a Fund, at the Fund’s option, specified
municipal obligations at a specified price. A “stand‑by
commitment” acquired by a Fund may also be referred to in this SAI as a “put”
option.
The
amount payable to a Fund upon its exercise of a “stand‑by
commitment” is normally (i) the Fund’s acquisition cost of the municipal
obligations (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the debt obligations;
plus (ii) all interest accrued on the debt
obligations
since the last interest payment date during that period. A stand‑by
commitment may be sold, transferred or assigned by the Funds only with the
instrument involved.
The
Funds expect that “stand‑by
commitments” will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, a Fund may pay for a
“stand‑by
commitment” either separately in cash or by paying a higher price for the
portfolio debt obligations which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same debt
obligations). The total amount paid in either manner for outstanding
“stand‑by
commitments” held by a Fund will not exceed 1/2 of 1% of the value of its total
assets calculated immediately after each “stand‑by
commitment” is acquired.
Each
Fund intends to enter into “stand‑by
commitments” only with dealers, banks and broker‑dealers
which, in the Advisor’s opinion, present minimal credit risks. A Fund’s reliance
upon the credit of these dealers, banks and broker‑dealers
is secured by the value of the underlying municipal obligations that are subject
to a commitment.
A
Fund would acquire “stand‑by
commitments” solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. The acquisition of a
“stand‑by
commitment” would not affect the valuation or assumed maturity of the underlying
municipal debt obligations, which would continue to be valued in accordance with
the ordinary method of valuation employed by the Funds. “Stand‑by
commitments” acquired by the Funds would be valued at zero in determining net
asset value. Where a Fund paid any consideration directly or indirectly for a
“stand‑by
commitment” its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by a Fund.
Variable
and Floating Rate Instruments.
Municipal obligations purchased by each Fund may include variable and floating
rate instruments issued by industrial development authorities and other
governmental entities.
With
respect to the variable and floating rate instruments that may be acquired by a
Fund, the Advisor will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such instruments and, if the
instrument is subject to a demand feature, will monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will usually be deemed to have a maturity equal to the longer of
the period remaining to the next interest rate adjustment or the time a Fund can
recover payment of principal as specified in the instrument. Variable U.S.
government obligations held by a Fund, however, will be deemed to have
maturities equal to the period remaining until the next interest rate
adjustment.
Other
Investment Considerations — Principal Investment Strategies — Ultra Short Bond
Fund, Core Plus Bond Fund, Short-Term Municipal Bond Fund, Strategic Municipal
Bond Fund, Core Intermediate Municipal Bond Fund and Municipal Bond
Fund
Non-Investment
Grade Debt Obligations (High Yield or Junk Bonds).
The Ultra Short Bond Fund, Short-Term Municipal Bond Fund and Core Intermediate
Municipal Bond Fund may invest up to 10% of their net assets at the time of
purchase in non‑investment grade debt obligations, the Municipal Bond Fund may
invest up to 15% of its net assets at the time of purchase in non‑investment
grade debt obligations, the Core Plus Bond Fund may invest up to 20% of its net
assets at the time of purchase in non‑investment grade debt obligations and the
Strategic Municipal Bond Fund may invest up to 30% of its net assets at the time
of purchase in non‑investment grade debt obligations. While generally offering
higher yields
than
investment grade debt with similar maturities, non‑investment grade debt
obligations involve greater risks, including the possibility of default or
bankruptcy. They are regarded as predominantly speculative with respect to the
issuer’s capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these debt obligations are
discussed below.
Effect
of Interest Rates and Economic Changes.
All
interest‑bearing debt obligations typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of non‑investment grade debt obligations tend to reflect individual
corporate developments to a greater extent than do higher‑rated debt
obligations, which react primarily to fluctuations in the general level of
interest rates. Non‑investment grade debt obligations also tend to be more
sensitive to economic conditions than are higher‑rated obligations. As a result,
they generally involve more credit risks than debt obligations in the
higher‑rated categories. During an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of non‑investment grade debt
obligations may experience financial stress and may not have sufficient revenues
to meet their payment obligations. The risk of loss due to default by an issuer
of these debt obligations is significantly greater than issuers of higher‑rated
debt obligations because such debt obligations are generally unsecured and are
often subordinated to other creditors. Further, if the issuer of a
non‑investment grade debt obligation defaulted, the Ultra Short Bond Fund, Core
Plus Bond Fund, Short‑Term Municipal Bond Fund, Strategic Municipal Bond Fund,
Core Intermediate Municipal Bond Fund and Municipal Bond Fund might incur
additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of these debt obligations and thus in the Funds’ NAV.
Payment
Expectations.
Non‑investment grade debt obligations typically contain redemption, call or
prepayment provisions which permit the issuer of such obligations containing
such provisions to redeem the obligations at its discretion. During periods of
falling interest rates, issuers of these obligations are likely to redeem or
prepay the obligations and refinance them with debt obligations with a lower
interest rate. To the extent an issuer is able to refinance the obligations, or
otherwise redeem them, the Ultra Short Bond Fund, Core Plus Bond Fund,
Short‑Term Municipal Bond Fund, Strategic Municipal Bond Fund, Core Intermediate
Municipal Bond Fund and Municipal Bond Fund may have to replace the debt
obligations with a lower yielding debt obligation, which could result in a lower
return for the Funds.
Credit
Ratings.
Credit ratings issued by credit‑rating agencies evaluate the safety of principal
and interest payments of rated debt obligations. They do not, however, evaluate
the market value risk of non‑investment
grade debt obligations and, therefore, may not fully reflect the true risks of
an investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the debt obligation. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in non‑investment
grade debt obligations will be more dependent on the Advisor’s credit analysis
than would be the case with investments in investment grade debt obligations.
The Advisor employs its own credit research and analysis, which includes a study
of existing debt, capital structure, ability to service debt and to pay
dividends, the issuer’s sensitivity to economic conditions, its operating
history and the current trend of earnings. The Advisor continually monitors the
Ultra Short Bond Fund, Core Plus Bond Fund, Short‑Term Municipal Bond Fund,
Strategic Municipal Bond Fund, Core Intermediate Municipal Bond Fund and
Municipal Bond Fund’s investments and carefully evaluates whether to dispose of
or to retain non‑investment
grade debt obligations whose credit ratings or credit quality may have
changed.
Liquidity
and Valuation.
The Ultra Short Bond Fund, Core Plus Bond Fund, Short‑Term Municipal Bond Fund,
Strategic Municipal Bond Fund, Core Intermediate Municipal Bond Fund and
Municipal Bond Fund may have difficulty disposing of certain non‑investment
grade debt obligations because there may
be
a thin trading market for such debt obligations. Because not all dealers
maintain markets in all non‑investment
grade debt obligations there is no established retail secondary market for many
of these debt obligations. The Funds anticipate that such debt obligations could
be sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market does exist, it is generally not as liquid as
the secondary market for higher‑rated
debt obligations. The lack of a liquid secondary market may have an adverse
impact on the market price of the debt obligation. The lack of a liquid
secondary market for certain debt obligations may also make it more difficult
for the Funds to obtain accurate market quotations for purposes of valuing the
Funds. Market quotations are generally available on many non‑investment
grade debt obligations issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of non‑investment grade debt obligations, especially in a
thinly traded market.
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
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 |
| Ultra
Short Bond Fund |
104% |
96% |
|
Short‑Term
Bond Fund |
77% |
67% |
| Intermediate
Bond Fund |
47% |
51% |
| Aggregate
Bond Fund |
43% |
39% |
| Core
Plus Bond Fund |
29% |
45% |
| Short‑Term
Municipal Bond Fund |
64% |
44% |
| Strategic
Municipal Bond Fund |
89% |
55% |
| Quality
Intermediate Municipal Bond Fund |
33% |
18% |
| Core
Intermediate Municipal Bond Fund |
59% |
31% |
| Municipal
Bond Fund |
76% |
38% |
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
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.
2.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 33⅓% 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 33⅓% 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 33⅓% of the Fund’s total
assets. The Fund may also borrow money from other persons to the extent
permitted by applicable laws.
3.May
not issue senior securities, except as permitted under the 1940
Act.
4.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 1933
Act, in connection with the purchase and sale of portfolio
securities.
5.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).
6.May
not make loans if, as a result, more than 33⅓% 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.
7.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; provided,
however, that with regard to the Municipal Bond Funds, 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 and
repurchase agreements secured by such instruments.
8.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).
9.With
respect to the Municipal Bond Funds, may not invest less than 80% of its net
assets in securities the interest on which is exempt from federal income tax,
except during defensive periods or during unusual market conditions. For
purposes of this fundamental policy, municipal obligations that are subject to
federal alternative minimum tax are considered taxable.
With
respect to Fundamental Investment Limitation No. 2, “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. 7, the Advisor determines
industry classifications for the Funds 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 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 may classify an issuer accordingly. Thus, the
composition of an industry may change from time to time. Each Fund may be
concentrated in a sector but will not be concentrated in any industry. For
purposes of Fundamental Investment Limitation No. 7, 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. With
regard to the Municipal Bond Funds, 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.
With
respect to Fundamental Investment Limitation No. 8, as it relates to the
Municipal Bond Funds, real estate shall include real estate
mortgages.
Although
the foregoing investment limitations would permit the Municipal Bond Funds to
engage in securities lending, the Municipal Bond Funds do not currently intend
to lend portfolio securities. Prior to engaging in any such transactions, the
Municipal Bond Funds will provide their shareholders with notice and add any
additional disclosure to the Prospectus and this SAI as may be
required.
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 or the
Fund’s assets 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.With
respect to each of the Ultra Short Bond Fund, Short‑Term
Bond Fund, Intermediate Bond Fund, Aggregate Bond Fund and the Core Plus Bond
Fund, 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
written notice.
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 a Fund’s Prospectus or this SAI 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 or a
Fund’s assets 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.
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 a price
provided by a pricing service is identified as not being fully evaluated, the
price from such pricing service will not be used to value the debt security.
Debt obligations purchased with a remaining maturity of 60 days or less are
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.
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.
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.
To
calculate their NAVs, the Funds typically use evaluated bid prices for debt
securities held by the Funds determined as of the same time their respective
benchmark indices calculate performance for a given day, generally, 4:00 p.m.,
Eastern time or, on the day before certain holidays, 1:00 p.m., Eastern time.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the NYSE (normally, 4:00 p.m.
Eastern 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, administrative, sub‑transfer
agency or other 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). 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 (ten 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 |
|
|
| |
| Investor
Class |
Ultra
Short Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Short‑Term
Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Intermediate
Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Aggregate
Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Core
Plus Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Short‑Term
Municipal Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Strategic
Municipal Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Quality
Intermediate Municipal Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Core
Intermediate Municipal Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
|
|
| |
| Investor
Class |
Municipal
Bond Fund |
Indefinite |
| Institutional
Class |
| Indefinite |
The
remaining series of common stock representing currently outstanding interests in
six 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 debt obligations held by the
Fund instead of investing indirectly in such debt obligations through the
Fund.
The
Municipal Bond Funds intend to invest substantially all of their assets in
qualifying municipal debt obligations, the interest on which is generally exempt
from the regular federal income tax and the federal AMT. For a Fund to pay
tax-exempt distributions for any taxable year, at least 50% of the aggregate
value of its assets at the close of each quarter of its taxable year must
consist of municipal obligations that qualify under Section 103(a) of the Code.
All or a portion of a tax-exempt distribution declared by the Municipal Bond
Funds may consist of income attributable to certain private activity bonds which
are treated as preference items and must be taken into account in calculating a
non-corporate shareholder’s AMT. Tax-exempt distributions may also be subject to
state or local income taxes.
The
Municipal Bond Funds are designed to provide investors with current tax‑exempt
interest income. The Municipal Bond Funds are not intended to constitute a
balanced investment program and are not designed for investors seeking capital
appreciation or maximum tax‑exempt income irrespective of fluctuations in
principal. Shares of the Municipal Bond Funds may not be suitable for tax‑exempt
institutions, or for retirement plans qualified under Section 401 of the Code,
H.R. 10 (Keogh) plans and individual retirement accounts (“IRAs”) because such
plans and accounts are generally tax‑exempt or tax‑deferred and, therefore,
would gain no additional benefit from the Municipal Bond Funds’ distributions
being tax‑exempt, and such distributions ultimately would be taxable to the
beneficiaries when distributed to them. In addition, the Municipal Bond Funds
may not be an appropriate investment for entities that are “substantial users”
of facilities financed by private activity bonds or “related persons” thereof.
“Substantial user” is defined under U.S. Treasury Regulations to include a
non‑exempt person who regularly uses a part of such facilities in his trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, who occupies more than 5% of the usable area of
such facilities, or for whom such facilities, or a part thereof, were
specifically constructed, reconstructed or acquired. “Related persons” include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
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
As
of December 31, 2022, accumulated net realized capital loss carryovers, if any,
and the year(s) in which the capital loss carryovers expire were:
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|
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|
|
|
|
|
|
|
|
| |
|
| Capital
Loss Carryover |
| Year
of Expiration |
| Fund |
Short-Term |
| Long-Term |
| Short-Term |
| Long-Term |
| Ultra
Short Bond Fund |
$ |
20,191,287 |
|
| $ |
2,281,046 |
|
| Indefinitely |
| Indefinitely |
| Short-Term
Bond Fund |
167,710,572 |
| 83,620,579 |
| Indefinitely |
| Indefinitely |
| Intermediate
Bond Fund |
59,857,275 |
| 120,500,789 |
| Indefinitely |
| Indefinitely |
| Aggregate
Bond Fund |
395,273,909 |
| 442,969,426 |
| Indefinitely |
| Indefinitely |
| Core
Plus Bond Fund |
208,612,464 |
| 286,416,701 |
| Indefinitely |
| Indefinitely |
| Short-Term
Municipal Bond Fund |
25,121,911 |
| 22,059,723 |
| Indefinitely |
| Indefinitely |
| Strategic
Municipal Bond Fund |
8,988,227 |
| 4,314,983 |
| Indefinitely |
| Indefinitely |
| Quality
Intermediate Municipal Bond Fund |
11,352,420 |
| 29,489,441 |
| Indefinitely |
| Indefinitely |
| Core
Intermediate Municipal Bond Fund |
23,842,011 |
| 15,635,213 |
| Indefinitely |
| Indefinitely |
| Municipal
Bond Fund |
1,051,468 |
| 929,223 |
| Indefinitely |
| Indefinitely |
During
the year ended December 31, 2022, the Funds did not utilize short-term or
long-term capital loss carryovers.
To
the extent that a Fund realizes future capital gains, those gains will be
reduced by any unused capital loss carryover, to the extent permitted under the
Code, which may in turn decrease the amount of taxable distributions made by the
Fund. 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
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). |
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. |
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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 |
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).
|
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. |
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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 |
|
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).
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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 |
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.
|
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. Pursuant
to the Administration Agreement discussed under “Investment Advisory and Other
Services” in this SAI, the Advisor assumes and pays all compensation payable to
the Directors for overseeing the Funds. For the fiscal year ended
December 31, 2022, the Directors received the following compensation from
the Funds and other series of the Company:
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| Name
of Director |
Aggregate
Compensation from Funds |
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 |
$0 |
$0 |
$0 |
$235,000 |
| Darren
R. Jackson |
$0 |
$0 |
$0 |
$235,000 |
| David
J. Lubar |
$0 |
$0 |
$0 |
$235,000 |
| Marlyn
J. Spear |
$0 |
$0 |
$0 |
$250,000 |
| Frederick
P. Stratton, Jr. |
$0 |
$0 |
$0 |
$235,000 |
| Cory
L. Nettles |
$0 |
$0 |
$0 |
$235,000 |
(1)During
fiscal 2022, compensation received by the Directors for overseeing the ten Funds
discussed in this SAI totaled $166,670 for Marlyn J. Spear and $156,670 each for
John W. Feldt, Frederick P. Stratton, Jr., Darren R. Jackson, Cory L. Nettles,
and David J. Lubar. Pursuant to an Administration Agreement discussed under
“Investment Advisory and Other Services” in this SAI, the Advisor assumes and
pays all compensation payable to the Directors for overseeing the
Funds.
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):
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| Name
of Fund |
John
W.
Feldt |
Darren
R. Jackson |
David
J. Lubar |
Marlyn
J. Spear |
Frederick
P. Stratton, Jr. |
Cory
L. Nettles |
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| Ultra
Short Bond Fund |
None |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
None |
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| Short-Term
Bond Fund |
None |
None |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
None |
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| Intermediate
Bond Fund |
None |
None |
Over
$100,000 |
None |
None |
None |
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| Aggregate
Bond Fund |
None |
None |
None |
None |
None |
None |
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| Core
Plus Bond Fund |
None |
None |
None |
Over
$100,000 |
None |
None |
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| Short‑Term
Municipal Bond Fund |
None |
None |
Over
$100,000 |
None |
None |
None |
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| Strategic
Municipal Bond Fund |
$50,001
- $100,000 |
Over
$100,000 |
None |
None |
None |
None |
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| Quality
Intermediate Municipal Bond Fund |
None |
None |
None |
None |
Over
$100,000 |
None |
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| Core
Intermediate Municipal Bond Fund |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
None |
None |
None |
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| Municipal
Bond Fund |
None |
None |
None |
None |
None |
None |
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| 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. 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:
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| Ultra
Short Bond Fund |
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Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
49.16% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
| Charles
Schwab & Co., Inc.
Special
Custody A/C FBO Customers
Attn:
Mutual Funds
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
13.25% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
47.33% |
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 |
22.49% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc. FBO
Our
Customers
P.O.
Box 2226
Omaha,
NE 68103-2226
|
Investor |
10.19% |
Record |
N/A |
N/A |
|
Raymond
James
Omnibus
for Mutual Funds
880
Carillon Parkway
St.
Petersburg, FL 33716-1100 |
Investor |
10.08% |
Record |
N/A |
N/A |
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| |
| Short-Term
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
22.23% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
15.54% |
Record |
N/A |
N/A |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Short-Term
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| UBATCO
& Co
FBO
College Savings Group
6811
South 27th Street
Lincoln,
NE 68512-483
|
Institutional |
6.06% |
Record |
N/A |
N/A |
| SEI
Private Trust Company
c/o
Suntrust ID 866
One
Freedom Valley Drive
Oaks,
PA 19456-9989
|
Institutional |
5.39% |
Record |
N/A |
N/A |
| Edward
D. Jones & Co.
For
the Benefit of Customers
12555
Manchester Road
Saint
Louis, MO 63131-3710
|
Institutional |
5.16% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
46.73% |
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 |
20.25% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc. FBO
Our
Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
12.31% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Intermediate
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
|
National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
18.95% |
Record |
N/A |
N/A |
Reliance
Trust Co
FBO Comerica EB R/R
P.O. Box 78446
Atlanta, GA
30357-2446
|
Institutional |
10.45% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
8.56% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Intermediate
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
MITRA
& Co FBO 98
C/O BMO Harris Bank NA
480 Pilgrim Way, Suite
1000
Green Bay, WI 54304-5280
|
Institutional |
6.94% |
Record |
N/A |
N/A |
Mac
& Co
Attn: Mutual Fund Operations
500 Grant Street, Room
151-1010
Pittsburgh, PA 15219-2502
|
Institutional |
6.48% |
Record |
N/A |
N/A |
Saxon
& Co
P.O. Box 94597
Cleveland, OH 44101-4597
|
Institutional |
6.16% |
Record |
N/A |
N/A |
| Keybank
NA
SRP-MIC
AGE 13-17 Fund PRI USD
P.O.
Box 94871
Cleveland,
OH 44101-4871
|
Institutional |
5.70% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
53.07% |
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 |
19.68% |
Record |
N/A |
N/A |
|
PAI
Trust Company Inc
Hanington
Brothers Inc 401(K)
1300
Enterprise Drive
De
Pere, WI 54115-4934
|
Investor |
10.28% |
Record |
N/A |
N/A |
| LPL
Financial
FBO
Customer Accounts
Attn:
Mutual Fund Operations
4707
Executive Drive
San
Diego, CA 92121-3091
|
Investor |
6.52% |
Record |
N/A |
N/A |
Pershing
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
Investor |
6.21% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
29.81% |
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
|
Institutional |
16.60% |
Record |
N/A |
N/A |
| Wells
Fargo Clearing Services LLC
Special
Custody Account for the Exclusive Benefit of Customers
2801
Market Street
Saint
Louis, MO 63103-2523
|
Institutional |
12.75% |
Record |
N/A |
N/A |
| Raymond
James
Omnibus
for Mutual Funds
880
Carillon Parkway
St.
Petersburg, FL 33716-1100
|
Institutional |
5.47% |
Record |
N/A |
N/A |
| SEI
Private Trust Company
Attn:
Mutual Fund Administrator
c/o
Principal Financial ID 636
One
Freedom Valley Drive
Oaks,
PA 19456-9989
|
Institutional |
5.18% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Investor |
30.43% |
Record |
The
Charles Schwab Corporation |
DE |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
29.16% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
| Fascore
LLC
Cnty
Comm Corp Brd of Dir Trustee FBO Cnty Comm Assoc of Ohio DCP
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
10.61% |
Beneficial |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Aggregate
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226
|
Investor |
5.67% |
Record |
N/A |
N/A |
Pershing,
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
Investor |
5.36% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Core
Plus Bond 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 |
23.61% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
18.17% |
Record |
N/A |
N/A |
| Pershing,
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0002
|
Institutional |
13.89% |
Record |
N/A |
N/A |
| SEI
Private Trust Company
c/o
TIAA-SWP
1
Freedom Valley Drive
Oaks,
PA 19456-9989
|
Institutional |
5.94% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
42.68% |
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 |
38.84% |
Record |
The
Charles Schwab Corporation |
DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Short-Term
Municipal Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
21.97% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
21.88% |
Record |
N/A |
N/A |
| Band
& Co
C/O
U.S. Bank NA
P.O.
Box 1787
Milwaukee,
WI 53201-1787
|
Institutional |
14.86% |
Record |
N/A |
N/A |
| Wells
Fargo Clearing Services LLC
Special
Custody Acct for the Exclusive Benefit of Customers
2801
Market Streets
St.
Louis, MO 63103-2523
|
Institutional |
9.23% |
Record |
N/A |
N/A |
| SEI
Private Trust Company
c/o
TIAA-SWP
1
Freedom Valley Drive
Oaks,
PA 19456-9989
|
Institutional |
6.92% |
Record |
N/A |
N/A |
| Pershing,
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0002
|
Institutional |
5.73% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
20.30% |
Record |
N/A |
N/A |
| David
L. Hatcher & Claudia J. Hatcher
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
18.72% |
Beneficial |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Short-Term
Municipal Bond 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 |
16.80% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
6.44% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Strategic
Municipal Bond 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 |
24.14% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional
|
20.91% |
Record |
N/A |
N/A |
| Raymond
James
Omnibus
for Mutual Funds
880
Carillon Parkway
St.
Petersburg, FL 33716-1100
|
Institutional |
15.55% |
Record |
N/A |
N/A |
|
UBS
WM USA
Spec
Custody A/C EBOC UBSFI
1000
Harvor Boulevard
Weehawken,
NJ 07086-6761
|
Institutional |
9.36% |
Record |
N/A |
N/A |
|
Capinco
c/o
US Bank NA
1555
North River Center Drive,
Suite
302
Milwaukee,
WI 53212-3958
|
Institutional |
6.45% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
47.34% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Strategic
Municipal Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Douglas
Johnson & Christin C. Johnson JT TEN WROS
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
28.51% |
Beneficial |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Investor |
11.54% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
5.77% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Quality
Intermediate Municipal Bond Fund |
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| Wells
Fargo Clearing Services
Special
Custody Account for the Exclusive Benefit of Customers
2801
Market Street
St.
Louis, MO 63103-2523
|
Institutional |
25.09% |
Record |
Wells
Fargo Advisors, LLC |
DE |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
22.60% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
20.91% |
Record |
N/A |
N/A |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Investor |
70.25% |
Record |
The
Charles Schwab Corporation |
DE |
National
Financial Services LLC
For the Exclusive Benefit of Our
Customers
Attn: Mutual Funds Dept. 4th Floor
499 Washington
Boulevard
Jersey City, NJ 17310-1995 |
Investor |
12.68% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Core
Intermediate Municipal Bond 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 |
27.55% |
Record |
The
Charles Schwab Corporation |
DE |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
26.00% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
| Pershing,
LLC
1
Pershing Plaza
Jersey
City, NJ 07399-0002
|
Institutional |
9.62% |
Record |
N/A |
N/A |
| SEI
Private Trust Company
c/o
Regions Bank
One
Freedom Valley Drive
Oaks,
PA 19456-9989
|
Institutional |
8.06% |
Record |
N/A |
N/A |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Investor |
65.35% |
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 |
21.15% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
5.98% |
Record |
N/A |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Municipal
Bond Fund |
|
|
|
| |
|
Name
and Address |
Class
of Shares |
%
Ownership |
Type
of Ownership |
Parent
Company |
Jurisdiction |
| National
Financial Services LLC
For
the Exclusive Benefit of Our Customers
Attn:
Mutual Funds Dept. 4th Floor
499
Washington Boulevard
Jersey
City, NJ 17310-1995
|
Institutional |
29.28% |
Record |
Fidelity
Global Brokerage Group, Inc. |
DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Municipal
Bond Fund |
|
|
|
| |
| Charles
Schwab & Co., Inc.
For
the Sole Benefit of its Customers
211
Main Street
San
Francisco, CA 94105-1905
|
Institutional |
26.15% |
Record |
The
Charles Schwab Corporation |
DE |
| Robert
W. Baird & Co. Inc.
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Institutional |
8.62% |
Record |
N/A |
N/A |
| C/O
Frost Bank Trust Dept.
MUIR
& Co
P.O.
Box 2950
San
Antonio, TX 78299-2950
|
Institutional |
6.63% |
Record |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226
|
Institutional |
6.35% |
Record |
N/A |
N/A |
| Baird
Financial Corporation
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Institutional |
5.78% |
Record |
N/A |
N/A |
|
Douglas
Johnson & Christin C. Johnson
JT
TEN WROS
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
55.05% |
Beneficial |
N/A |
N/A |
|
Fred
M. Hansen TTEE
Fred
M. Hansen Trust
c/o
Robert W. Baird & Co. Incorporated
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
Investor |
20.87% |
Beneficial |
N/A |
N/A |
| TD
Ameritrade Inc.
FBO
Our Customers
P.O.
Box 2226
Omaha,
NE 68103-2226 |
Investor |
13.18% |
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 and Exchange Act of 1934, as amended) less
than 1% of the outstanding Institutional Class shares of the Short-Term Bond
Fund, Intermediate Bond Fund, Aggregate Bond Fund, Core Plus Bond Fund,
Short-Term Municipal Bond Fund, Strategic Municipal Bond Fund, Quality
Intermediate Municipal Bond Fund, Core Intermediate Municipal Bond Fund and
Municipal Bond Fund and owned 1.69% of the outstanding Institutional Class
shares of the Ultra Short Bond 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.
Debt
obligations 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 debt obligations purchased from
underwriters includes an underwriting commission or concession, and the prices
at which debt obligations 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 debt obligations 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, in its sole discretion,
believes such practice to be in the 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. For
example, the Funds may participate in exchange offers sponsored by Freddie Mac
with respect to mortgage-backed 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.
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 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.
The
investment advisory agreement between the Company and the Advisor provides that,
in executing portfolio transactions and selecting brokers or dealers, the
Advisor 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 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 Agreement authorizes the Advisor to cause
the Funds to pay commissions for brokerage and research services, a practice
commonly referred to as “soft dollars.” The Advisor has adopted a soft dollar
policy requiring it to undertake a three‑step analysis to determine whether a
research product or service falls within the Section 28(e) safe harbor. First,
the Advisor must determine whether the product or service constitutes eligible
research services under Section 28(e). Second, the Advisor must determine
whether the product or service actually provides lawful and appropriate
assistance in the performance of the Advisor’s investment decision‑making
responsibilities. Third, the Advisor must make a good faith determination that
the amount of the commissions paid by the Funds and other clients of the Advisor
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 in
performing its 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 does not currently use soft dollars for the Funds. There are no directed
brokerage arrangements involving the use of commissions for the Funds in
exchange for research services. In considering dealers through which the Advisor
will buy or sell fixed income securities for the Funds, the Advisor will select
the dealers that provide the best price and execution. However, the Advisor may
place a trade for a fixed income debt obligation with a dealer that provides
research services to the Advisor so long as the price to be paid by the dealer
is not worse than prices provided by other dealers for the same debt
obligation.
Supplementary
research information so received from broker-dealers or research providers is in
addition to, and not in lieu of, services required to be performed by the
Advisor and does not reduce the advisory fees payable to it 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 in servicing all of its accounts; not all of such
services may be used by the Advisor 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).
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
debt obligations 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 an affiliated person of the Advisor (as such
term is defined in the 1940 Act), acting as principal. However, pursuant to SEC
rules, the Funds may engage the Advisor or an affiliate of the Advisor 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 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 or an affiliate is a participant in
accordance with the Funds’ affiliated underwriting procedures, which generally
require that the Advisor or the participating affiliate be carved out from any
compensation related to an affiliated Fund participation in the
offering.
The
Advisor manages numerous accounts in addition to the Funds and many of those
accounts hold and invest in the same securities as the Funds. The Advisor
allocates investment opportunities across the Funds and its other similarly
managed accounts so that all such accounts receive fair and equitable
treatment
over time. In making investment allocations, the Advisor considers 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 will, when appropriate, aggregate purchases or sales of securities and
allocate such trades among multiple client accounts, including the Funds. The
Advisor will aggregate orders when it believes 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 based on the needs of the clients
participating in the aggregated order. Each account participating in an
aggregated order will receive the same execution price. The Advisor may conduct
a series of transactions in debt obligations with similar characteristics to
meet the needs of clients not receiving an allocation in a block
transaction.
For
the fiscal periods ended December 31, 2022, 2021 and 2020, excluding
undisclosed dealer commissions or mark‑up/downs, the Funds did not pay any
brokerage commissions. If such undisclosed dealer commissions or mark‑up/downs
were included, the Funds’ brokerage commissions would be higher.
During
the fiscal year ended December 31, 2022, the Funds listed below acquired
securities of their regular brokers or dealers (as defined in Rule 10b-1 under
the 1940 Act). Funds not listed did not acquire securities of their regular
brokers or dealers during the fiscal year.
|
|
|
|
|
|
|
|
| |
| Fund |
Regular
Broker or
Dealer
(or Parent) Issuer |
Value
of Securities
Owned
(as of 12/31/22)* |
|
|
| |
| Ultra
Short Bond Fund |
Wells
Fargo & Co. |
$ |
173,725,374 |
|
|
| JP
Morgan |
161,253,190 |
|
|
| Morgan
Stanley |
133,898,176 |
|
|
| Citigroup |
62,589,252 |
|
|
| Mizuho
Trust & Banking Co. |
43,084,129 |
|
|
| Deutsche
Bank Trust Co. |
42,400,619 |
|
|
| Barclay
Investments Ltd. |
40,879,562 |
|
|
| MUFG
Securities Americas Inc. |
37,344,924 |
|
|
| HSBC
Investment Bank PLC |
37,157,087 |
|
|
| Goldman
Sachs & Co. |
29,744,264 |
|
|
|
| |
| Short‑Term
Bond Fund |
JP
Morgan |
$ |
145,236,316 |
|
|
| Citigroup |
113,794,723 |
|
|
| Wells
Fargo & Co. |
100,564,478 |
|
|
| Morgan
Stanley |
71,529,003 |
|
|
| HSBC
Investment Bank PLC |
56,799,285 |
|
|
| MUFG
Securities Americas Inc. |
56,748,604 |
|
|
| Societe
Generale S.A. |
53,422,460 |
|
|
|
|
|
|
|
|
|
| |
| Fund |
Regular
Broker or
Dealer
(or Parent) Issuer |
Value
of Securities
Owned
(as of 12/31/22)* |
|
|
| |
|
| Santander
US Capital Markets LLC |
51,589,221 |
|
|
| BMO
Capital Markets Corp. |
51,284,737 |
|
|
| Mizuho
Trust & Banking Co. |
50,859,681 |
|
|
|
| |
| Intermediate
Bond Fund |
Wells
Fargo & Co. |
$ |
111,269,776 |
|
|
| Morgan
Stanley |
105,929,912 |
|
|
| JP
Morgan |
100,664,566 |
|
|
| Citigroup |
91,798,854 |
|
|
| Goldman
Sachs & Co. |
58,369,379 |
|
|
| Credit
Suisse |
31,082,806 |
|
|
| Societe
Generale S.A. |
30,810,249 |
|
|
| BNP
Paribas Brokerage Services, Inc. |
25,894,228 |
|
|
| Santander
US Capital Markets LLC |
24,734,748 |
|
|
| Stifel
Nicolaus & Co. |
20,588,581 |
|
|
|
| |
| Aggregate
Bond Fund |
JP
Morgan |
$ |
471,904,662 |
|
|
| Wells
Fargo & Co. |
426,706,211 |
|
|
| Citigroup |
420,826,874 |
|
|
| Bank
of America |
302,019,819 |
|
|
| Morgan
Stanley |
290,983,219 |
|
|
| Goldman
Sachs & Co. |
220,287,533 |
|
|
| Societe
Generale S.A. |
179,031,477 |
|
|
| BNP
Paribas Brokerage Services, Inc. |
166,119,857 |
|
|
| Credit
Suisse |
162,676,561 |
|
|
| Santander
US Capital Markets LLC |
160,453,563 |
|
|
|
| |
| Core
Plus Bond Fund |
JP
Morgan |
$ |
432,546,440 |
|
|
| Wells
Fargo & Co. |
270,427,425 |
|
|
| Citigroup |
250,275,945 |
|
|
| Morgan
Stanley |
247,125,062 |
|
|
| Bank
of America |
161,732,229 |
|
|
| BNP
Paribas Brokerage Services, Inc. |
131,811,952 |
|
|
| Societe
Generale S.A. |
121,984,891 |
|
|
| Santander
US Capital Markets LLC |
120,309,271 |
|
|
| Credit
Suisse |
115,344,467 |
|
|
| Deutsche
Bank Trust Co. |
114,878,780 |
|
*All
of the securities represent corporate debt obligations of the regular
broker-dealer or its affiliate.
Advisory
Services
Pursuant
to an investment advisory agreement, as amended (the “Advisory Agreement”),
Robert W. Baird & Co. Incorporated (“Baird”), 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services
and management 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.
The
Advisory Agreement continues in effect from year-to-year, subject to the annual
approval by (a) a majority of the Independent Directors, and (b) either by 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 a Fund 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 Funds pay to the Advisor a monthly
management fee at the annual rate of 0.25% of the average daily NAV of the
applicable Fund. The Advisor has contractually agreed to waive management fees
in an amount equal to an annual rate of 0.15% of the average daily net assets
for the Ultra Short Bond Fund until April 30, 2024. The agreement may only be
terminated prior to the end of this term by or with the consent of the Board of
Directors. From time to time, the Advisor may voluntarily waive all or a portion
of its management fee for a 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 |
|
|
|
| |
| Ultra
Short Bond Fund |
|
| |
| December
31, 2022 |
$15,231,181 |
$(9,138,708) |
$6,092,473 |
| December
31, 2021 |
$14,988,913 |
$(8,993,348) |
$5,995,565 |
| December
31, 2020 |
$6,960,328 |
$(4,176,197) |
$2,784,131 |
|
|
|
| |
| Short-Term
Bond |
|
| |
| December
31, 2022 |
$24,967,856 |
$0 |
$24,967,856 |
| December
31, 2021 |
$24,542,398 |
$0 |
$24,542,398 |
| December
31, 2020 |
$19,129,986 |
$0 |
$19,129,986 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| Fiscal
Period Ended |
Management
Fee |
Waiver |
Management
Fee after Waiver |
| Intermediate
Bond Fund |
|
| |
| December
31, 2022 |
$17,224,963 |
$0 |
$17,224,963 |
| December
31, 2021 |
$15,259,531 |
$0 |
$15,259,531 |
| December
31, 2020 |
$11,921,551 |
$0 |
$11,921,551 |
|
|
|
| |
| Aggregate
Bond Fund |
|
| |
| December
31, 2022 |
$90,109,491 |
$0 |
$90,109,491 |
| December
31, 2021 |
$90,244,084 |
$0 |
$90,244,084 |
| December
31, 2020 |
$68,333,750 |
$0 |
$68,333,750 |
|
|
|
| |
| Core
Plus Bond Fund |
|
| |
| December
31, 2022 |
$61,094,787 |
$0 |
$61,094,787 |
| December
31, 2021 |
$76,408,398 |
$0 |
$76,408,398 |
| December
31, 2020 |
$66,717,956 |
$0 |
$66,717,956 |
|
|
|
| |
| Short‑Term
Municipal Bond Fund |
| |
| December
31, 2022 |
$5,186,566 |
$0 |
$5,186,566 |
| December
31, 2021 |
$4,832,482 |
$0 |
$4,832,482 |
| December
31, 2020 |
$3,003,976 |
$0 |
$3,003,976 |
|
|
|
| |
| Strategic
Municipal Bond Fund |
|
| |
| December
31, 2022 |
$992,440 |
$0 |
$992,440 |
| December
31, 2021 |
$661,486 |
$0 |
$661,486 |
| December
31, 2020 |
$155,473 |
$0 |
$155,473 |
|
|
|
| |
| Quality
Intermediate Municipal Bond Fund |
| |
| December
31, 2022 |
$3,328,184 |
$0 |
$3,328,184 |
| December
31, 2021 |
$3,937,224 |
$0 |
$3,937,224 |
| December
31, 2020 |
$3,489,076 |
$0 |
$3,489,076 |
|
|
|
| |
| Core
Intermediate Municipal Bond Fund |
| |
| December
31, 2022 |
$4,999,421 |
$0 |
$4,999,421 |
| December
31, 2021 |
$2,946,012 |
$0 |
$2,946,012 |
| December
31, 2020 |
$1,608,719 |
$0 |
$1,608,719 |
|
|
|
| |
| Municipal
Bond Fund |
|
| |
| December
31, 2022 |
$125,520 |
$0 |
$125,520 |
| December
31, 2021 |
$78,303 |
$0 |
$78,303 |
| December
31, 2020 |
$34,266 |
$0 |
$34,266 |
In
addition to the Advisory Agreement, the Company, on behalf of the Funds, has
entered into an administration agreement (the “Administration Agreement”) with
the Advisor. Under the Administration Agreement, the Advisor renders
administrative and supervisory services to the Funds. The Advisor
oversees
the maintenance of all books and records with respect to the Funds’ securities
transactions. The Advisor also arranges for the preservation of journals,
ledgers, corporate documents, brokerage account records and other records which
are required pursuant to Rule 31a‑1 under the 1940 Act. The Advisor is also
responsible for the equipment, staff, office space and facilities necessary to
perform its obligations. The Company has retained U.S. Bancorp Fund Services,
LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”) to
perform administrative services to the Funds. The Advisor is responsible for
paying all fees and expenses of Fund Services. Under the Administration
Agreement, the Advisor assumes and pays all expenses of each Fund, excluding
management fees, borrowing costs, commissions and other costs directly related
to portfolio securities transactions, interest expense and fees and expenses
incurred with respect to investments in other investment companies (to the
extent such expenses, in the aggregate, do not exceed 0.0049% of a Fund’s net
assets) and extraordinary or non‑recurring expenses. Each Fund also pays
expenses which it is authorized to pay pursuant to Rule 12b‑1 under the 1940
Act.
Pursuant
to the Administration Agreement, the Advisor receives a fee that is paid monthly
at an annual rate of 0.05% of the applicable Fund’s average daily net assets.
For the fiscal periods ended December 31, 2022, 2021 and 2020, the Funds
paid the following administration fees to the Advisor under the Administration
Agreement:
|
|
|
|
|
|
|
|
|
|
|
| |
Administration
Fees
Paid During Fiscal Periods Ended December 31, |
|
| 2022 |
2021 |
2020 |
| Ultra
Short Bond Fund |
$ |
3,046,236 |
| $ |
2,997,783 |
| $ |
1,392,066 |
|
| Short‑Term
Bond |
4,993,571 |
| 4,908,480 |
| 3,825,997 |
|
| Intermediate
Bond Fund |
3,444,992 |
| 3,051,906 |
| 2,384,310 |
|
| Aggregate
Bond Fund |
18,021,898 |
| 18,048,817 |
| 13,666,750 |
|
| Core
Plus Bond Fund |
12,218,957 |
| 15,281,680 |
| 13,343,591 |
|
| Short‑Term
Municipal Bond Fund |
1,037,313 |
| 966,496 |
| 600,795 |
|
| Strategic
Municipal Bond Fund |
198,488 |
| 132,297 |
| 31,095 |
|
| Quality
Intermediate Municipal Bond Fund |
665,637 |
| 787,445 |
| 697,815 |
|
| Core
Intermediate Municipal Bond Fund |
999,884 |
| 589,203 |
| 321,744 |
|
| Municipal
Bond Fund |
25,104 |
| 15,661 |
| 6,853 |
|
The
Advisor may act as an investment adviser and administrator to other persons,
firms, or corporations (including investment companies), and may have numerous
advisory clients in addition to the Funds.
Proxy
Voting Policies
The
Funds generally do not vote proxies because they invest in bonds and other fixed
income debt obligations which are not entitled to vote. In the event a Fund
invests in voting securities, 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 to retain
a third party proxy voting service, such as Institutional Shareholder Services,
Inc. (“ISS”), to provide recommendations on proxy votes. The Board has approved
the proxy voting policies and procedures of the Advisor for the Funds it
manages. The Board monitors the implementation of these policies and procedures
to ensure that the Advisor’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.
Code
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.
Administration
Pursuant
to an administration agreement between Fund Services, the Advisor and the
Company (the “U.S. Bancorp Administration Agreement”), Fund Services provides
administrative personnel and services (including blue‑sky services) to the
Company and the Funds. Administrative services include, but are not limited to,
providing equipment, telephone facilities, various personnel, including clerical
and supervisory, and computers as is necessary or beneficial to provide
compliance services to the Funds and the Company. All fees and expenses due to
Fund Services under the U.S. Bancorp Administration Agreement are paid by the
Advisor, not the Funds, pursuant to the Administration Agreement discussed
above.
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 a Fund’s 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. All fees and expenses
due to U.S. Bank under the Custody Agreement are paid by the Advisor, not the
Funds.
Transfer
Agent
U.S.
Bancorp Fund Services, LLC (“Fund Services”), 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. All fees and expenses due to Fund Services under the Transfer Agent
Servicing Agreement are paid by the Advisor, not the Funds.
Fund
Accounting
In
addition, the Funds have entered into a fund accounting servicing agreement (the
“Accounting Agreement”) with Fund Services pursuant to 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. For the
fiscal periods ended December 31, 2022, 2021 and 2020, Fund Services did
not receive any fees from the Funds under the Accounting Agreement because Fund
Services was paid for its services by the Advisor pursuant to the Administration
Agreement between Fund Services and the Advisor, as described under “Fund
Administration,” above.
Financial
Intermediaries
From
time to time, the Advisor or Distributor 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.
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.
Other
Accounts Managed by the Portfolio Managers of the Funds
As
described in the Prospectus under “The Investment Management Team,” Mary Ellen
Stanek, Charles B. Groeschell, Warren D. Pierson, M. Sharon deGuzman, Meghan H.
Dean, Jeffrey L. Schrom, Jay E. Schwister, Patrick W. Brown, Andrew J. O’Connell
and Abhishek Pulakanti are jointly responsible for the day‑to‑day management of
the Ultra Short Bond Fund, Short‑Term Bond Fund, Intermediate Bond Fund,
Aggregate Bond Fund and Core Plus Bond Fund. Duane A. McAllister, Erik R.
Schleicher, Lyle J. Fitterer, Joseph J. Czechowicz and Gabe G. Diederich are
jointly responsible for the day‑to‑day management of the Short‑Term Municipal
Bond Fund, Strategic Municipal Bond Fund, Quality Intermediate Municipal Bond
Fund, Core Intermediate Municipal Bond Fund and Municipal Bond Fund. Each
Portfolio Manager is jointly responsible for the day‑to‑day management of the
other accounts set forth in the following table.
The
following provides information regarding other accounts managed by the portfolio
managers as of December 31, 2022.
Other
Accounts Managed by the Portfolio Managers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
| Total
Number of Accounts Managed |
| Total
Assets in Accounts Managed
(in millions) |
| Number
of Accounts for which Advisory Fee is Based on Performance |
| Assets
in Accounts for which Advisory Fee is Based on Performance
(in
millions) |
|
|
|
|
|
|
|
|
| |
| Mary
Ellen Stanek |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Charles
B. Groeschell |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Warren
D. Pierson |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Lyle
J. Fitterer |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| M.
Sharon deGuzman |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Duane
A. McAllister |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
| Total
Number of Accounts Managed |
| Total
Assets in Accounts Managed
(in millions) |
| Number
of Accounts for which Advisory Fee is Based on Performance |
| Assets
in Accounts for which Advisory Fee is Based on Performance
(in
millions) |
| Erik
R. Schleicher |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Joseph
J. Czechowicz |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Meghan
H. Dean |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Jeffrey
L. Schrom |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Jay
E. Schwister |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Patrick
W. Brown |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Category
of Account |
| Total
Number of Accounts Managed |
| Total
Assets in Accounts Managed
(in millions) |
| Number
of Accounts for which Advisory Fee is Based on Performance |
| Assets
in Accounts for which Advisory Fee is Based on Performance
(in
millions) |
| Andy
J. O’Connell |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Abhishek
Pulakanti |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
|
|
|
|
|
|
|
|
| |
| Gabe
G. Diederich |
|
|
|
|
|
|
| |
| Other
Registered Investment Companies |
| 1 |
| $3,118 |
| — |
| $0 |
| Other
Pooled Investment Vehicles |
| 3 |
| $697 |
| — |
| $0 |
| Other
Accounts |
| 145 |
| $23,864 |
| 1 |
| $1,138 |
The
Advisor and its individual portfolio managers advise multiple accounts for
numerous clients. In addition to the Funds, these accounts include other mutual
funds managed on a subadvisory basis, separate accounts, collective trusts, and
a portion of a state 529 education savings plan portfolio. The Advisor manages
potential conflicts of interest between a Fund and other types of accounts
through trade allocation policies and oversight by the Advisor’s investment
management departments and compliance department. 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’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 annual incentive bonus is based primarily on the
pre‑tax
investment
performance
of the accounts managed by the portfolio manager, including the Funds, and the
revenues and overall profitability of the Advisor. A Fund’s performance is
measured relative to the performance of the benchmark index listed in the Funds’
prospectus and is measured on a one‑three‑five‑year
basis (or such shorter time as the portfolio manager has managed a Fund), as
applicable, with greater weight given to long‑term
performance.
Portfolio
managers may own and may be offered an opportunity to purchase or sell common
stock in BFG. Portfolio managers 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
As
of December 31, 2022, the portfolio managers beneficially owned the
following amounts (by dollar range)
in the Funds:
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Ultra
Short Bond Fund |
|
| Mary
Ellen Stanek |
Over
$1,000,000 |
|
| Warren
D. Pierson |
Over
$1,000,000 |
|
| Charles
B. Groeschell |
$100,001
- $500,000 |
|
| Jay
E. Schwister |
Over
$1,000,000 |
|
| M.
Sharon deGuzman |
$100,001
- $500,000 |
|
| Jeffrey
L. Schrom |
Over
$1,000,000 |
|
| Meghan
H. Dean |
$100,001
- $500,000 |
|
| Patrick
W. Brown |
$100,001
- $500,000 |
|
| Andrew
J. O’Connell |
$10,001
- $50,000 |
|
| Abhishek
Pulakanti |
$1
- $10,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Short-Term
Bond Fund |
|
| Mary
Ellen Stanek |
Over
$1,000,000 |
|
| Warren
D. Pierson |
Over
$1,000,000 |
|
| Charles
B. Groeschell |
Over
$1,000,000 |
|
| Jay
E. Schwister |
Over
$1,000,000 |
|
| M.
Sharon deGuzman |
$100,001
- $500,000 |
|
| Jeffrey
L. Schrom |
Over
$1,000,000 |
|
| Meghan
H. Dean |
$500,001
- $1,000,000 |
|
| Patrick
W. Brown |
$100,001
- $500,000 |
|
| Andrew
J. O’Connell |
$50,001
- $100,000 |
|
| Abhishek
Pulakanti |
$100,001
- $500,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Intermediate
Bond Fund |
|
| Mary
Ellen Stanek |
Over
$1,000,000 |
|
| Warren
D. Pierson |
Over
$1,000,000 |
|
| Charles
B. Groeschell |
Over
$1,000,000 |
|
| Jay
E. Schwister |
Over
$1,000,000 |
|
| M.
Sharon deGuzman |
$500,001
- $1,000,000 |
|
| Jeffrey
L. Schrom |
$100,001
- $500,000 |
|
| Meghan
H. Dean |
$100,001
- $500,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Intermediate
Bond Fund |
|
| Patrick
W. Brown |
$100,001
- $500,000 |
|
| Andrew
J. O’Connell |
$50,001
- $100,000 |
|
| Abhishek
Pulakanti |
$10,001
- $50,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Aggregate
Bond Fund |
|
| Mary
Ellen Stanek |
Over
$1,000,000 |
|
| Warren
D. Pierson |
Over
$1,000,000 |
|
| Charles
B. Groeschell |
$100,001
- $500,000 |
|
| Jay
E. Schwister |
Over
$1,000,000 |
|
| M.
Sharon deGuzman |
$100,001
- $500,000 |
|
| Jeffrey
L. Schrom |
$100,001
- $500,000 |
|
| Meghan
H. Dean |
$100,001
- $500,000 |
|
| Patrick
W. Brown |
$100,001
- $500,000 |
|
| Andrew
J. O’Connell |
$50,001
- $100,000 |
|
| Abhishek
Pulakanti |
$50,001
- $100,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Core
Plus Bond Fund |
|
| Mary
Ellen Stanek |
Over
$1,000,000 |
|
| Warren
D. Pierson |
Over
$1,000,000 |
|
| Charles
B. Groeschell |
$500,001
- $1,000,000 |
|
| Jay
E. Schwister |
Over
$1,000,000 |
|
| M.
Sharon deGuzman |
$100,001
- $500,000 |
|
| Jeffrey
L. Schrom |
$100,001
- $500,000 |
|
| Meghan
H. Dean |
$500,001
- $1,000,000 |
|
| Patrick
W. Brown |
$100,001
- $500,000 |
|
| Andrew
J. O’Connell |
$100,001
- $500,000 |
|
| Abhishek
Pulakanti |
$10,001
- $50,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Short-Term
Municipal Bond Fund |
|
| Duane
A. McAllister |
Over
$1,000,000 |
|
| Lyle
J. Fitterer |
Over
$1,000,000 |
|
| Erik
R. Schleicher |
$100,001
- $500,000 |
|
| Joseph
J. Czechowicz |
$50,001
- $100,000 |
|
| Gabe
G. Diederich |
$50,001
- $100,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Strategic
Municipal Bond Fund |
|
| Duane
A. McAllister |
Over
$1,000,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Strategic
Municipal Bond Fund |
|
| Lyle
J. Fitterer |
Over
$1,000,000 |
|
| Erik
R. Schleicher |
$100,001
- $500,000 |
|
| Joseph
J. Czechowicz |
$100,001
- $500,000 |
|
| Gabe
G. Diederich |
$500,001
- $1,000,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Quality
Intermediate Municipal Bond Fund |
|
| Duane
A. McAllister |
$100,001
- $500,000 |
|
| Lyle
J. Fitterer |
$100,001
- $500,000 |
|
| Erik
R. Schleicher |
$10,001
- $50,000 |
|
| Joseph
J. Czechowicz |
$10,001
- $50,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
| |
| Core
Intermediate Municipal Bond Fund |
|
| Duane
A. McAllister |
Over
$1,000,000 |
|
| Lyle
J. Fitterer |
Over
$1,000,000 |
|
| Erik
R. Schleicher |
$10,001
- $50,000 |
|
| Joseph
J. Czechowicz |
$100,001
- $500,000 |
|
| Gabe
G. Diederich |
$100,001
- $500,000 |
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the: |
|
|
| |
| Municipal
Bond Fund |
|
| Duane
A. McAllister |
Over
$1,000,000 |
|
| Lyle
J. Fitterer |
Over
$1,000,000 |
|
| Erik
R. Schleicher |
$100,001
- $500,000 |
|
| Joseph
J. Czechowicz |
$100,001
- $500,000 |
|
| Gabe
G. Diederich |
Over
$1,000,000 |
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, as determined by the Board. 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:
|
|
|
|
|
|
|
|
| |
| Fund |
12b‑1
Payments Paid |
| Ultra
Short Bond Fund |
$285,833 |
|
| Short‑Term
Bond Fund |
$585,407 |
|
| Intermediate
Bond Fund |
$111,677 |
|
| Aggregate
Bond Fund |
$1,881,997 |
|
| Core
Plus Bond Fund |
$3,143,902 |
|
| Short‑Term
Municipal Bond Fund |
$218,054 |
|
| Strategic
Municipal Bond Fund |
$21,047 |
|
| Quality
Intermediate Municipal Bond Fund |
$127,907 |
|
| Core
Intermediate Municipal Bond Fund |
$100,916 |
|
| Municipal
Bond Fund |
$8,399 |
|
Of
the amounts paid, payments were made for the following activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
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 |
|
|
|
|
|
|
|
| |
| Ultra
Short Bond Fund |
$0 |
$0 |
$0 |
$285,833 |
$0 |
$0 |
$285,833 |
|
|
|
|
|
|
|
| |
| Short‑Term
Bond Fund |
$0 |
$0 |
$0 |
$585,407 |
$0 |
$0 |
$585,407 |
|
|
|
|
|
|
|
| |
| Intermediate
Bond Fund |
$0 |
$0 |
$0 |
$111,677 |
$0 |
$0 |
$111,677 |
|
|
|
|
|
|
|
| |
| Aggregate
Bond Fund |
$0 |
$0 |
$0 |
$1,881,997 |
$0 |
$0 |
$1,881,997 |
|
|
|
|
|
|
|
| |
| Core
Plus Bond Fund |
$0 |
$0 |
$0 |
$3,143,902 |
$0 |
$0 |
$3,143,902 |
|
|
|
|
|
|
|
| |
| Short‑Term
Municipal Bond Fund |
$0 |
$0 |
$0 |
$218,054 |
$0 |
$0 |
$218,054 |
|
|
|
|
|
|
|
| |
| Strategic
Municipal Bond Fund |
$0 |
$0 |
$0 |
$21,047 |
$0 |
$0 |
$21,047 |
|
|
|
|
|
|
|
| |
| Quality
Intermediate Municipal Bond Fund |
$0 |
$0 |
$0 |
$127,907 |
$0 |
$0 |
$127,907 |
|
|
|
|
|
|
|
| |
| Core
Intermediate Municipal Bond Fund |
$0 |
$0 |
$0 |
$100,916 |
$0 |
$0 |
$100,916 |
|
|
|
|
|
|
|
| |
| Municipal
Bond Fund |
$0 |
$0 |
$0 |
$8,399 |
$0 |
$0 |
$8,399 |
|
|
|
|
|
|
|
| |
(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
and principal underwriter of Fund shares, 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, out of its 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.
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 0.0625% 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 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
Funds’ full portfolio holdings as of month-end are posted on the Company’s
website within fifteen (15) calendar days after month-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 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 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
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 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.
S&P
Global Ratings Issue Credit Rating Definitions
An
S&P Global Ratings (“S&P”) issue credit rating is a forward-looking
opinion about the creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and commercial
paper programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The opinion
reflects S&P’s view of the obligor’s capacity and willingness to meet its
financial commitments as they come due, and this opinion may assess terms, such
as collateral security and subordination, which could affect ultimate payment in
the event of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are
generally assigned to those obligations considered short-term in the relevant
market, typically with an original maturity of no more than 365 days. Short-term
ratings are also used to indicate the creditworthiness of an obligor with
respect to put features on long-term obligations. A long-term issue credit
rating is typically assigned to an obligation with an original maturity of
greater than 365 days. However, the ratings assigned to certain instruments may
diverge from these guidelines based on market practices. Medium-term notes are
assigned long-term ratings.
Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the rating addresses the likelihood of repayment of
principal and interest as due, and the second component of the rating addresses
only the demand feature. S&P may also assign qualifiers to ratings when
appropriate. These qualifiers limit the scope of a rating. A qualifier appears
as a suffix and is part of the rating.
S&P’s
Short-Term Issue Credit Ratings
|
|
|
|
|
| |
| A-1 |
A
short-term obligation rated ‘A-1’ is rated in the highest category by
S&P. The obligor’s capacity to meet its financial commitments on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitments on these obligations is
extremely strong.
|
| A-2 |
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitments on the obligation is
satisfactory.
|
| A-3 |
A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to weaken an obligor’s capacity to meet its financial commitments
on the obligation.
|
| B |
A
short-term obligation rated ‘B’ denotes weak protection parameters and is
vulnerable to adverse business, financial or economic
conditions.
|
|
|
|
|
|
| |
| C |
A
short-term obligation rated ‘C’ denotes doubtful capacity for
payment.
|
| D |
A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is
used when payments on an obligation are not made on the date due, unless
S&P believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days
will be treated as five business days. The ‘D’ rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action
and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if
it is subject to a distressed exchange
offer. |
S&P’s
Municipal Short-Term Note Ratings
An
S&P U.S. municipal note rating reflects S&P’s opinion about the
liquidity factors and market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt
rating. In determining which type of rating, if any, to assign, S&P’s
analysis will review the following considerations:
•Amortization
schedule-the larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and
•Source
of payment-the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
S&P’s
municipal short-term note rating symbols are as follows:
|
|
|
|
|
| |
| SP-1 |
Strong
capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+)
designation.
|
| SP-2 |
Satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the
notes.
|
| SP-3 |
Speculative
capacity to pay principal and interest.
|
| D |
‘D’
is assigned upon failure to pay the note when due, completion of a
distressed debt restructuring, or the filing of a bankruptcy petition or
the taking of similar action and where default on an obligation is a
virtual certainty, for example due to automatic stay
provisions. |
S&P’s
Long-Term Issue Credit Ratings
Issue
credit ratings are based, in varying degrees, on S&P’s analysis of the
following considerations:
•Likelihood
of payment - the capacity and willingness of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the
obligation;
•Nature
and provisions of the financial obligation and the promise S&P imputes;
and
•Protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors’ rights.
An
issue rating is an assessment of default risk but may incorporate an assessment
of relative seniority or ultimate recovery in the event of default. Junior
obligations are typically rated lower than senior obligations, to reflect lower
priority in bankruptcy, as noted above. (Such differentiation may apply when an
entity has both senior and subordinated obligations, secured and unsecured
obligations, or operating company and holding company obligations.)
|
|
|
|
|
| |
| AAA |
An
obligation rated ‘AAA’ has the highest rating assigned by S&P. The
obligor’s capacity to meet its financial commitment on the obligation is
extremely strong.
|
| AA |
An
obligation rated ‘AA’ differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on
the obligation is very strong.
|
| A |
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong.
|
| BBB |
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
weaken the obligor’s capacity to meet its financial commitment on the
obligation.
|
| BB;
B; CCC; CC; and C |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of
speculation and ‘C’ the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse
conditions.
|
| BB |
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial
commitment on the obligation.
|
| B |
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations
rated ‘BB’, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or
willingness to meet its financial commitment on the
obligation.
|
| CCC |
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
|
| CC |
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The
‘CC’ rating is used when a default has not yet occurred, but S&P
expects default to be a virtual certainty, regardless of the anticipated
time to default.
|
|
|
|
|
|
| |
| C |
An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared with obligations that are rated higher.
|
| D |
An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or the next 30 calendar days. The ‘D’ rating also will be used upon
the filing of a bankruptcy petition or the taking of similar action and
where default on an obligation is a virtual certainty, for example due to
automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it
is subject to a distressed exchange offer.
|
| NR |
This
indicates that a rating has not been assigned or is no longer
assigned. |
*The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
Moody’s
Investors Service, Inc.’s (“Moody’s”) Credit Rating Definitions
Ratings
assigned on Moody’s global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial obligations
issues by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Long-term
ratings are assigned to issuers or obligations with an original maturity of
eleven months or more and reflect both on the likelihood of a default or
impairment on contractual financial obligations and the expected financial loss
suffered in the event of default or impairment. Short-term ratings are assigned
to obligations with an original maturity of thirteen months or less and reflect
both on the likelihood of a default or impairment on contractual financial
obligations and the expected financial loss suffered in the event of default or
impairment.
Moody’s
Short-Term Obligation Ratings
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
|
|
|
|
|
| |
| Prime
Scale |
| P-1 |
Issuers
(or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
|
| P-2 |
Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
|
| P-3 |
Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.
|
| NP |
Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories. |
The
global short-term Prime rating scale (the “Prime Scale”), immediately above, is
used for commercial paper issued by U.S. Municipalities and nonprofits. These
commercial paper programs may be backed by external letters of credit or
liquidity facilities, or by an issuer’s self-liquidity. For other short-term
municipal obligations, Moody’s uses one of two other short-term rating scales,
the Municipal Investment Grade (MIG) and Variable Municipal Investment Grade
(VMIG) scales discussed below.
Moody’s
U.S. Municipal Short-Term Obligation Ratings
The
MIG scale is used for U.S. municipal cash flow notes, bond anticipation notes
and certain other short-term obligations, which typically mature in three years
or less. Under certain circumstances, Moody’s uses the MIG scale for bond
anticipation notes with maturities of up to five years.
|
|
|
|
|
| |
| MIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for
refinancing.
|
|
|
|
|
|
| |
| MIG
2 |
This
designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
|
| MIG
3 |
This
designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less well-established.
|
| SG |
This
designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of
protection. |
Moody’s
Demand Obligation Ratings
In
the case of variable rate demand obligations (VRDOs), a two-component rating is
assigned: a long-term rating and a short-term payment obligation rating. The
long-term rating addresses the issuer’s ability to meet scheduled principal and
interest payments. The short-term payment obligation rating addresses the
ability of the issuer or the liquidity provider to meet any purchase price
payment obligation resulting from optional tenders (“on demand”) and/or
mandatory tenders of the VRDO. The short-term payment obligation rating uses the
VMIG scale. Transitions of VMIG ratings of demand obligations with conditional
liquidity support differ from transitions on the Prime Scale to reflect the risk
that external liquidity support will terminate if the issuer’s long-term rating
drops below investment grade.
The
VMIG short-term demand obligation rating is typically assigned if the frequency
of the demand feature is less than every three years. If the frequency of the
demand feature is less than three years but the purchase price is payable only
with remarketing proceeds, the short-term demand obligation rating is
“NR.”
|
|
|
|
|
| |
| VMIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections.
|
| VMIG
2 |
This
designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and
structural and legal protections.
|
| VMIG
3 |
This
designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections.
|
| SG |
This
designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does
not have a sufficiently strong short-term rating or may lack the
structural or legal protections. |
Moody’s
Long-Term Obligation Ratings
|
|
|
|
|
| |
| Aaa |
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk.
|
| Aa |
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk.
|
|
|
|
|
|
| |
| A |
Obligations
rated A are considered upper-medium grade and are subject to low credit
risk.
|
| Baa |
Obligations
rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative
characteristics.
|
| Ba |
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk.
|
| B |
Obligations
rated B are considered speculative and are subject to high credit
risk.
|
| Caa |
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk.
|
| Ca |
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest.
|
| C |
Obligations
rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or
interest. |
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Hybrid
Indicator (hyb)
The
hybrid indicator (hyb) is appended to all ratings of hybrid securities issued by
banks, insurers, finance companies, and securities firms. By their terms, hybrid
securities allow for the omission of scheduled dividends, interest, or principal
payments, which can potentially result in impairment if such an omission occurs.
Hybrid securities may also be subject to contractually allowable write-downs of
principal that could result in impairment. Together with the hybrid indicator,
the long-term obligation rating assigned to a hybrid security is an expression
of the relative credit risk associated with that security.
Fitch’s
National Credit Ratings
National
scale ratings express creditworthiness across the full range of the credit
rating scale, using similar symbols to those used for international ratings.
However, to assure differentiation between the two scales, a two- or
three-letter suffix (the ISO international country code) is appended to the
national rating to reflect the specific nature of the national scale to the
country concerned. For ease of reference, Fitch uses the suffix of (xxx) to
indicate a national rating.
Fitch’s
National Short-Term Credit Ratings
|
|
|
|
|
| |
| F1(xxx)* |
Indicates
the strongest capacity for timely payment of financial commitments
relative to other issuers or obligations in the same country. This rating
is assigned to the lowest default risk relative to others in the same
country or monetary union. Where the liquidity profile is particularly
strong, a “+” is added to the assigned rating.
|
| F2(xxx) |
Indicates
a good capacity for timely payment of financial commitments relative to
other issuers or obligations in the same country or monetary union.
However, the margin of safety is not as great as in the case of the higher
ratings.
|
| F3(xxx) |
Indicates
an adequate capacity for timely payment of financial commitments relative
to other issuers or obligations in the same country or monetary
union.
|
| B(xxx) |
Indicates
an uncertain capacity for timely payment of financial commitments relative
to other issuers or obligations in the same country or monetary
union.
|
| C(xxx) |
Indicates
a highly uncertain capacity for timely payment of financial commitments
relative to other issuers or obligations in the same country or monetary
union.
|
| RD(xxx) |
Restricted
default:
Indicates an entity that has defaulted on one or more of its financial
commitments, although it continues to meet other financial obligations.
Applicable to entity ratings only.
|
| D(xxx) |
Indicates
a broad-based default event for an entity, or the default of a short-term
obligation. |
*Note:
A
“+” may be appended to the ‘F1(xxx)’ Short-Term National Rating category to
denote relative status within the category
Fitch’s
National Long-Term Credit Ratings*
|
|
|
|
|
| |
| AAA(xxx) |
Denotes
the highest rating assigned by the ratings scale for that country. This
rating is assigned to issuers or obligations with the lowest expectation
of default risk relative to all other issuers or obligations in the same
country or monetary union.
|
| AA(xxx) |
Denotes
expectations of a very low level of default risk relative to other issuers
or obligations in the same country or monetary union. The default risk
inherent differs only slightly from that of the country’s highest rated
issuers or obligations.
|
|
|
|
|
|
| |
| A(xxx) |
Denotes
expectations of a low level of default risk relative to other issuers or
obligations in the same country or monetary union.
|
| BBB(xxx) |
Denotes
a moderate default risk relative to other issuers or obligations in the
same country or monetary union.
|
| BB(xxx) |
Denotes
an elevated default risk relative to other issuers or obligations in the
same country or monetary union.
|
| B(xxx) |
Denotes
a significantly elevated level of default risk relative to other issuers
or obligations in the same country or monetary union.
|
| CCC(xxx) |
Denotes
very high level of default risk relative to other issuers or obligations
in the same country or monetary union.
|
| CC(xxx) |
Denotes
the level of default risk is among the highest relative to other issuers
or obligations in the same country or monetary union.
|
| C(xxx) |
A
default or default-like process has begun.
|
| RD(xxx) |
Restricted
default: ‘RD’
ratings indicate an issuer that, in Fitch Ratings’ opinion, has
experienced an uncured payment default on a bond, loan or other material
financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up
procedure, and has not otherwise ceased business.
|
| D(xxx) |
Denotes
an issuer that has entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up procedure or that has
otherwise ceased business. |
*Note:
“+”
or “-” may be appended to a National Rating to denote relative status within a
major rating category. Such suffixes are not added to the ‘AAA(xxx)’ Long-Term
National Rating category or to categories below ‘CCC(xxx).’
