A group of midwestern community banks that had invested in a now- foundering mutual fund were breathing easier last week after the fund's manager injected enough capital to keep it going.
Robert W. Baird & Co. has agreed with Baird Adjustable Rate Income Fund shareholders, including 70 community banks, to infuse $7.8 million to make up for derivatives losses.
After a 1994 decline in per-share net asset value of the fund, the Milwaukee-based brokerage firm said it would pay 40 cents per share into the fund on behalf of shareholders to compensate for capital losses. About 19.6 million shares have been issued.
Shareholders who redeemed shares after Aug. 9 also may be eligible for a comparable payment from Baird, the company said.
About 70 midwestern banks and thrifts with assets of $50 million to $2 billion had invested in the fund, and they hold about 60% of its shares, said Ron Kruszewski, a managing director at Baird. Their average investment was about $500,000, he said.
Of the 550 shareholders, 120 mostly institutional investors hold about 95% of the fund's shares, he said.
Gene Knoll, president and chief executive officer of $235 million-asset Mid Wisconsin Bank, Medford, represented a number of fund shareholders in the agreement.
However, he said that, as part of the deal, he cannot comment on its specifics or name other investors.
In a Baird press release, Mr. Knoll said: "Baird sat down, discussed the issues, and worked hard to reach a resolution that responded to its shareholders' concerns. We think Baird and the shareholders acted in everyone's collective best interest."
The troubled fund consists primarily of collateralized mortgage obligations whose interest rates reset monthly and are government-agency- guaranteed as to principal at maturity.
Baird president and chief executive Fred Kasten noted in the press release:
"As has been widely known, 1994 has been a difficult year for the fixed- income market and particularly the CMO market. The agreement we have reached reflects Baird's decision to respond positively to the unprecedented market developments that have affected the BAR Fund this year."
The fund was opened in October 1992 and peaked at $270 million of assets in March 1994, Mr. Kruszewski said. It now has $140 million. For the year ended Nov. 30, the fund was down 6#1/4% on a total return basis, he said. After Baird's infusion, it will be down 2%, he said.
Because the securities embody no credit questions, just market valuation issues, the agreement calls for holding current assets to maturity rather than closing the fund, Mr. Kruszewski said.
However, the fund has been closed to new investments as part of the settlement.
None of the other three mutual funds for which Baird acts as investment adviser is affected by the settlement.
