THE BAUPOST FUND
ANNUAL REPORT
OCTOBER 31, 1996
This report and the financial statements contained herein are submitted for the
general information of the shareholders of The Baupost Fund. The report is not
authorized for distribution to prospective investors in The Baupost Fund unless
preceded or accompanied by the current prospectus.
THE BAUPOST FUND
ANNUAL REPORT
OCTOBER 31, 1996
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
Management's Discussion of Performance.........................................................1
Report of Independent Auditors.................................................................6
Audited Financial Statements:
Statement of Assets and Liabilities as of October 31, 1996 ...................................7
Statement of Operations for the year ended October 31, 1996...................................8
Statement of Changes in Net Assets for the years ended October 31, 1996
and October 31, 1995.............................................................9
Schedule of Investments as of October 31, 1996..............................................10
Schedule of Forward Foreign Currency Contracts as of October 31, 1996.......................19
Schedule of Securities Sold Short as of October 31, 1996....................................20
Notes to Financial Statements.................................................................21
Financial Highlights..........................................................................26
</TABLE>
THE BAUPOST GROUP, INC.
44 Brattle Street
P.O. Box 389125
Cambridge, Massachusetts 02238-9125
(617) 497-6680
Fax (617) 876-0930
December 17, 1996
Dear Baupost Fund Shareholder,
We are pleased to report a gain of 22.51% for the year ended October
31, 1996. Due to our significant underinvestment in the U.S. stock market (a
topic to which we will return shortly) this gratifying result comes in spite of,
rather than as the result of, similarly robust results for the U.S. equity
markets. We are chagrined that we could have achieved approximately the same
returns had we initiated the Baupost Index Fund a year ago. We are pleased,
however, that we managed to do so with a vastly lower risk profile.
As we reflect back at fiscal year end, let us reiterate that Baupost's
investment philosophy has remained consistent over time: bottom up, risk averse,
absolute value oriented. In making tradeoffs among competing alternatives, we
have distinguished ourselves from other professional investors in several ways:
our willingness to hold cash balances, sometimes substantial, awaiting
opportunities; our preference for investments with a catalyst for the
realization of underlying value; our willingness to accept varying degrees of
illiquidity in exchange for incremental return; and our flexibility in pursuing
opportunities in new areas.
Baupost has long enjoyed a very flexible investment charter, one that
has permitted us to depart considerably from our initial conception as US equity
and high quality debt investors. This flexibility has been, we believe, at the
core of our investment success over the years. Like Baskin Robbins ice cream,
opportunities come in dozens of flavors, not all of which are served at the same
time. (Like Haagen Dazs, some of these flavors are fantastic.) Investors who
find an overly narrow niche to inhabit prosper for a time but then usually
stagnate. Those who move on when the world changes at least have the chance to
adapt successfully.
Our flexibility has served us very well over the years, allowing us to
move into areas of temporary and compelling opportunity (usually characterized
by falling prices, distressed or uninformed sellers, and/or decreased liquidity)
and away from areas of full or excessive valuation, thereby enhancing return
while simultaneously reducing risk. The same flexibility that led us into a
heavy concentration in thrift conversions in the mid 1980's and distressed
corporate debt in the mid-late 1980's, and a smaller hedging bet on Japanese
stock market puts in the late 1980s, has led us into a moderate investment in
Russian stocks earlier this year, and an important position in European holding
companies in 1995-1996.
1
The primary risk of entering new investment areas is unfamiliarity
itself: the rules of the game might be unfamiliar or changing; others that have
been in the area longer might have a significant advantage; and to paraphrase
Warren Buffett, if you look around the poker table and cannot identify the
patsy, it is probably you. Cognizant of this risk, we have worked diligently to
understand new areas as well as existing participants do before we enter,
utilizing external resources when necessary. We have entered timidly, probably
foregoing some opportunities but ensuring that we had time to gain comfort and
any expertise we were lacking.
Risk is also mitigated by both our constant emphasis on investment
fundamentals and on knowing why each investment we make is available at a
seeming bargain price. We regard investing as an arrogant act; an investor who
buys is effectively saying that he or she knows more than the seller and the
same or more than other prospective buyers. We counter this necessary arrogance
(for indeed, a good investor must pull confidently on the trigger) with an
offsetting dose of humility, always asking whether we have an apparent advantage
over other market participants in any potential investment. If the answer is
negative, we do not invest.
We have always told you that we invest the Fund's assets as if it were
our own money (which, of course, a portion of it is). We thus enter a new area
only when we gain conviction that our analytical, valuation and risk assessment
skills will be useful in that area, and that we understand the potential risks
and returns of specific opportunities in that area; then, we manage the size of
the investment based upon our degree of conviction, assessment of risk, and
opportunity for diversification within the area. Typically, a new area is not a
wild leap from anything we have done before, but rather a smaller step from
something we already do, with only one variable changing.
One of the consequences of entering new areas has been an increase in
the portion of our assets invested in opportunities outside the U.S. This has
not been the result of some top down asset allocation strategy, but rather the
outcome of a bottom up, investment by investment search for opportunity. Like
the underlying businesses, markets, too, have become more global over time. Most
companies compete globally, capital flows are global, and many companies now
maintain listings in more than one market. Popular US companies like Coca Cola
earn well over half their profits overseas, while large European and Asian
enterprises often have substantial US subsidiaries. Thus the most important
investment criterion for us is not where a company does business, or where it is
listed, but an understanding of the factors that might cause a company or
security to be particularly undervalued in the market.
Of course, it seems reasonable that at this time we would be finding
more opportunities overseas than at home. The U.S. stock market has been in a
protracted bull market. With more and more very sophisticated pools of money
pursuing opportunities in the U.S., we believe the market has become more
efficient than ever (and even when for some reason a stock is not priced
efficiently, it is nonetheless considerably more likely to be overvalued than
undervalued). The number of sizable, highly sophisticated, professional
investors in overseas foreign markets is far fewer, making those markets more
fertile fields to till.
2
The key to increasing our international exposure in recent years was
gaining comfort that we understood the potential risks and returns of foreign
markets, something we could only achieve over time by immersing ourselves in a
flow of information about companies and markets, by meeting directly with
managements, and by making some toehold investments and observing their success
or failure over time. We did all of this over the past seven years. The
increased size and capability of our investment team allowed us to better
analyze foreign opportunities; the increase in our assets under management (as
compound returns were reinvested over the years) gained the attention of foreign
brokers and analysts. We were also able to utilize our existing network of
friends on the buy side to gain an ongoing exchange of information. Thus late
last year when European holding companies sank to record-wide discounts to
underlying asset values, which themselves were quite depressed, we were in a
position to act.
Similarly, when we identified the opportunity unfolding in the former
Soviet Union, we were able to dispatch three different analysts to cover the
area, spending several man-months on the ground there and building relationships
with brokers, analysts, and other emerging market investors. Our total assets
under management demonstrated that we had the potential to be a very important
client to a number of brokerage firms, and we did indeed become among the
largest customers of several.
A key component of our investment strategy is sufficient but not
excessive diversification. Rather than own a little bit of everything, we have
always tended to place our eggs in a few dozen baskets and watch them closely.
These bargain-priced opportunities are selected one at a time, bottom up, which
provides a margin of safety in case of error, bad luck or disappointing business
results. However, we are always conscious of whether these different investments
involve essentially the same bet or very different bets. If each of our holdings
turned out to involve similar bets (inflation hedges, interest rate sensitive,
single market or asset type, etc.), we would be exposed to dramatic and sudden
reversals in our entire portfolio were investor perceptions of the macroeconomic
environment to change. Since we are not able to predict the future (it is hard
enough to understand the present), we cannot risk such concentrated exposures.
The same is true for securities, even of very different companies,
trading in a single stock market. Owning a diverse portfolio in one market may
greatly reduce the risk associated with a single company hitting a bump in the
road but will not at all reduce the risk of being in that market. If that market
runs into a pothole, its components could all break down at once. This is
particularly true if that market is trading at record levels of valuation,
supported more by money flows than by fundamentals, as happens sometimes (read
"U.S. equity market"). Exposure to a myriad of markets and asset classes will
mitigate certain risks that even broadly diversified exposure in a single market
cannot. (Of course, diversification is for us only the starting point for risk
reduction. Solid fundamental research, emphasis on catalysts, value discipline,
preference for tangible assets, hedged short selling, market put options and
other strategies combine to create an overall portfolio safety net for our
portfolio that we believe is second to none).
3
During fiscal 1996, the Fund posted numerous healthy gains and only one
substantial loss, that being on stock market put options which we buy as
insurance against a steep market decline. Our largest gains and losses for the
fiscal year, both realized and unrealized, are presented in Table 1 below.
Table 1
The Baupost Fund
Largest Gains and Losses
For the Twelve Months Ended 10/31/96
($ in millions)
<TABLE>
<CAPTION>
Largest Gains Largest Losses
------------- --------------
<S> <C> <C> <C>
Maxwell notes $3.0 Market put options ($1.6)
Lukoil common 2.8 Chargeurs/Pathe/BSkyB(hedged equities) (0.5)
Mosenergo common 2.1 RJR Nabisco common and options (0.4)
RIT Capital Partners common 1.4 Adam & Harvey common (0.4)
Allmerica Financial common 1.3 Imperial Oil common (0.3)
Semi Tech Global common 1.2 Northwestern Steel common (0.2)
Emcor common and notes 1.2 Dun & Bradstreet common & options (0.2)
Pullman common 1.1 Eagle Picher debt (0.2)
Fourteen other investments 0.8 - 0.3 each
</TABLE>
We believe that we are well positioned as we enter 1997, with
attractive, well diversified long positions, a healthy balance in cash and cash
equivalents, and a material position in market put options to protect against a
serious decline. Many of our positions have either full or partial catalysts for
the realization of underlying value. We continue to find attractive
opportunities for our portfolio, increasingly outside of the frenzied U.S. stock
market.
We are grateful for your ongoing confidence and support, and are
working diligently to remain worthy of it.
Very Truly Yours,
/S/Seth A. Klarman
--------------------
Seth A. Klarman
President
4
================================================================================
AVERAGE ANNUAL TOTAL RETURNS(1) 1 LIFE OF FUND
For Periods Ended 10/31/96 YEAR (SINCE 12/14/90)
---- ----------------
THE BAUPOST FUND 22.51% 16.17%
================================================================================
Total return is an historical measure of past performance and is not intended to
indicate future performance. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
(1) Assumes reinvestment of all dividends.
GROWTH OF AN ASSUMED $50,000 INVESTMENT
IN THE BEAUPOST FUND FROM 12/14/90 THROUGH 10/31/96
<TABLE>
<CAPTION>
FUND S&P BF BF S&P S&P
---- --- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
12/14/90 $50,000.00 $50,000.00 50000 $50,000.00 50000 $50,000.00
10/31/91 $59,787.48 $61,807.01 0.195749690050321 $59,787.48 0.23614010906 $61,807.01
10/31/92 $65,471.71 $67,963.62 0.309434297184303 $65,471.71 0.35927247435 $67,963.62
10/31/93 $82,134.71 $78,116.01 0.642694247972622 $82,134.71 0.56232030643 $78,116.02
10/31/94 $91,217.43 $81,134.73 0.82435 $91,217.43 0.62269479514 $81,134.74
10/31/95 $98,430.31 $102,587.46 0.96861 $98,430.31 1.0517491977 $102,587.46
10/31/96 $120,585.06 $127,306.16 1.41170 $120,585.06 1.5461232049 $127,306.16
</TABLE>
(1) Assumes reinvestment of all dividends.
5
Report of Independent Auditors
To the Trustees and Shareholders of
The Baupost Fund
We have audited the accompanying statement of assets and liabilities of The
Baupost Fund, including the schedule of investments, schedule of securities sold
short and schedule of forward foreign currency contracts, as of October 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Baupost Fund at October 31, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
December 4, 1996
6
THE BAUPOST FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
ASSETS:
Investments in securities - at value $ 108,955,788
(Notes A and C) (cost $97,297,169)
Cash 147,725
Receivable for investments sold 108,875
Receivable for investments sold short 4,132,636
Accrued investment income 221,189
Other assets 96,813
-------------
Total Assets 113,663,026
LIABILITIES:
Payable for investments purchased 216,075
Payable to The Baupost Group, Inc. (Note B) 339,451
Payable for securities sold short 3,901,329
(Notes A and C) (proceeds $4,132,636)
Unrealized depreciation on forward foreign
currency contracts sold 168,092
Other payables and accrued expenses 250,037
-------------
Total Liabilities 4,874,984
-------------
NET ASSETS $ 108,788,042
=============
COMPOSITION OF NET ASSETS:
Paid in capital $ 86,275,184
Distributions in excess of net investment
income (Note A) (99,004)
Accumulated undistributed net realized
gain on investments and foreign
currency transactions 10,890,028
Net unrealized appreciation on investments
and assets & liabilities in foreign currencies 11,721,834
-------------
NET ASSETS $ 108,788,042
=============
NET ASSET VALUE:
Offering and redemption price per share
($108,788,042 / 7,072,861.728) $ 15.38
=============
See notes to financial statements.
-7-
THE BAUPOST FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
INVESTMENT INCOME:
INCOME:
Interest $ 2,195,944
Dividends (net of foreign withholdings of $114,425) 1,532,435
Other income 10,010
-------------
Total Investment Income 3,738,389
EXPENSES:
Investment management fee (Note B) 991,872
Administrative fee (Note B) 247,968
Custodian fees 78,354
Legal fees 57,995
Audit fees 36,000
Registration and filing fees 28,081
Directors' fees 25,500
Amortization of organization costs 6,048
Miscellaneous 15,085
-------------
Total Expenses 1,486,903
NET INVESTMENT INCOME 2,251,486
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on:
Investments 12,172,296
Short sales (1,764,472)
Foreign currency transactions (40,459)
-------------
10,367,365
Change in unrealized appreciation/(depreciation) on:
Investments 7,454,022
Short sales 204,566
Foreign currency transactions (242,619)
-------------
7,415,969
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 17,783,334
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 20,034,820
=============
See notes to financial statements.
-8-
THE BAUPOST FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
------------------ ------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,251,486 $ 1,368,087
Net realized gain on investments and foreign
currency transactions 10,367,365 4,176,280
Change in unrealized appreciation of investments
and foreign currency transactions 7,415,969 1,080,207
------------------ ------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 20,034,820 6,624,574
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,825,419) (1,430,985)
In excess of net investment income (432,464)
From net realized gain on investments (4,283,665) (8,459,115)
CAPITAL SHARE TRANSACTIONS (NOTE E) 5,422,927 11,350,535
------------------ ------------------
INCREASE IN NET ASSETS 19,348,663 7,652,545
NET ASSETS AT BEGINNING OF PERIOD 89,439,379 81,786,834
------------------ ------------------
NET ASSETS AT END OF PERIOD
(including distributions in excess of
net investment income of $99,004
and $30,449, respectively)
$ 108,788,042 $ 89,439,379
================== ==================
</TABLE>
See notes to financial statements.
-9-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C> <C>
COMMON STOCKS - 63.81%
UNITED STATES - 28.71%
FINANCIAL INSTITUTIONS - 7.52%
197,800 Allmerica Financial Corporation $ 6,008,175
110 Fidelity Federal Savings Bank Florida 1,801
132 First Federal Savings Bank of Siouxland 3,300
100 Harbor Federal Savings Bank 3,163
1,949 Mid-Central Financial Corporation 31,184
808 Mid-Coast Bancorp Inc. 14,948
95,000 Mississippi View Holding Company 1,163,750
1,800 Shelby County Bancorp 28,800
65,000 Trenton Savings Bank FSB 926,250
--------------------------
8,181,371
WHOLESALE - FOOD-5.24%
228,200 TLC Beatrice International Holdings 5,705,000
AUTO & HOME SUPPLY - 4.63%
53,000 Dart Group Corporation - Class A 5,035,000 ~
ALUMINUM - 2.78%
72,050 Maxxam, Inc. 3,026,100 *
FIRE, MARINE & CASUALTY INSURANCE - 2.26%
23,800 Farm Family Holdings, Inc. 473,025 *
78,400 Chartwell RE Corporation 1,989,400
--------------------------
2,462,425
LESSORS OF REAL PROPERTY - 1.34%
833,959 MBO Properties, Inc. 1,459,428 *
CEREAL BREAKFAST FOOD - 1.25%
65,000 Ralcorp Holdings, Inc. 1,365,000 *
-10-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
STEEL WORKS - 1.14%
247,400 Northwestern Steel & Wire Company $ 1,237,000 *
PHARMACEUTICALS - 1.11%
116,200 Therapeutic Discovery 1,205,575
PHOTOGRAPHIC PORTRAIT STUDIOS - 0.93%
53,100 CPI Corporation 1,008,900
MISCELLANEOUS - 0.51%
154,240 Louise's Inc. 1,542 +*
33,700 Noel Group, Inc. 219,050
938,000 Regency Equities 14,070
10,000 RSI Holdings, Inc. 600 *
1,105 The Homestake Oil & Gas Company 99,450 +
1,579 The Homestake Royalty Corporation 205,270 +
1,000 Trak Auto Corporation 16,250 *
--------------------------
556,232
TOTAL COMMON STOCKS - UNITED STATES $ 31,242,031
(Total Cost $27,151,146) ==========================
FRANCE - 14.51%
DIVERSIFIED HOLDING COMPANIES - 11.56%
5,891 Compagnie Generale D'Industrie et de Partcipations $ 1,312,943
2,161 Financiere et Industrielle Gaz et Eaux 908,430
2,100 Fonciere Financiere et de Participation SA 67,213
5,990 Pathe SA 1,612,063 *
1,152 Sidel SA 76,688
5,308 Societe Eurafrance SA 2,315,258
102,000 Thomson CSF 3,175,059
--------------------------
9,467,654
-11-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
FIRE, MARINE AND CASUALTY INSURANCE - 2.95%
108,900 Assurances Generales de France $ 3,204,941
TEXTILES - 2.86%
71,835 Chargeurs International SA 3,112,289
--------------------------
TOTAL COMMON STOCKS - FRANCE $ 15,784,884
==========================
(Total Cost $14,164,224)
HONG KONG - 7.38%
ELECTRONIC & OTHER ELECTRICAL EQUIP. - 5.91%
42,400 Semi-Tech Global Co. - ADR $ 371,000
3,394,887 Semi-Tech Global Co. Ltd. 6,059,319
--------------------------
6,430,319
MANUFACTURING - TOYS & DOLLS - 1.47%
6,288,700 Playmates Toys Holdings Ltd. 1,602,310
--------------------------
TOTAL COMMON STOCKS - HONG KONG $ 8,032,629
(Total Cost $9,028,767) ==========================
RUSSIA - 5.02%
OIL & GAS FIELD EXPLORATION SERVICES - 5.02%
112,500 Chernogorneft - Sponsored ADR $ 1,125,000 *
111,200 Lukoil Oil Co. - Sponsored ADR 4,336,800
--------------------------
TOTAL COMMON STOCKS - RUSSIA $ 5,461,800
(Total Cost $2,676,975) ==========================
ITALY - 2.51%
DIVERSIFIED HOLDING COMPANIES - 2.51%
597,000 IFIL Finanziaria di Partecipazioni ordinary shares $ 1,552,515
733,300 IFIL Finanziaria di Partecipazioni savings shares 1,179,467
--------------------------
TOTAL COMMON STOCKS - ITALY $ 2,731,982
(Total Cost $2,953,751) ==========================
-12-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
BAHAMAS - 2.45%
CRUDE PETROLEUM - 2.45%
5,300 Basic Holdings Ltd. $ 544,114 +*
69,400 Basic Petroleum International Ltd. 2,116,700 *
--------------------------
TOTAL COMMON STOCKS - BAHAMAS $ 2,660,814
(Total Cost $1,919,525) ==========================
SWEDEN - 2.38%
DIVERSIFIED HOLDING COMPANIES - 2.38%
1,300 Investor AB Series A Shares $ 52,834
62,900 Investor AB Series B Shares 2,532,437
--------------------------
TOTAL COMMON STOCKS - SWEDEN $ 2,585,271
(Total Cost $2,236,144) ==========================
UNITED KINGDOM - 0.85%
CABLE & OTHER PAY TELEVISION SERVICES - 0.32%
6,200 British Sky Broadcasting Group PLC sponsored ADR $ 347,975
LUMBER & OTHER CONSTRUCTION MATERIALS - 0.53%
115,000 Adam & Harvey Group PLC 579,954
--------------------------
TOTAL COMMON STOCKS - UNITED KINGDOM $ 927,929
(Total Cost $809,560) ==========================
TOTAL COMMON STOCKS $ 69,427,340
(Total Cost $60,940,092) ==========================
-13-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
CLOSED-END MUTUAL FUNDS - 5.68%
UNITED KINGDOM - 5.25%
1,463,227 RIT Capital Partners PLC $ 5,712,906
--------------------------
TOTAL CLOSED-END MUTUAL FUNDS - UK 5,712,906
(Total Cost $3,498,956)
CZECHLOSLOVAKIA - 0.43%
1,200 Komercni Bank Investicni Fond 28,952
7,300 Restitucni Investicini Fond 203,532 *
18,700 Sporitelni Privatiz Investicni Fond 211,331
1,300 Zivnobanka Investicni Fond 23,777 *
--------------------------
TOTAL CLOSED-END MUTUAL FUNDS - CZECH 467,592
(Total Cost $534,486) --------------------------
TOTAL CLOSED-END MUTUAL FUNDS $ 6,180,498
(Total Cost $4,033,442) ==========================
COLLATERALIZED MORTGAGE OBLIGATIONS - 4.20%
310,602 Guardian S&L 1990-4A FRN due 06/25/20 $ 181,702
470,102 RTC Series 1991-M2 Class A1 principal only due 09/25/20 305,566
2,402,841 RTC Series 1991-M2 Class A3 principal only due 09/25/20 1,561,847
581,462 RTC Series 1991-M2 Class B principal only due 09/25/20 7,268 *
492 RTC Series 1991-M2 Class X1 interest only due 09/25/20 288,665
507 RTC Series 1991-M2 Class X2 interest only due 09/25/20 32,926
791 RTC Series 1991-M2 Class X3 interest only due 09/25/20 71,275
23,695,286 Structured Asset Sec. 1996-CFL Class X1 due 02/25/28 1,229,193
27,415,718 Structured Asset Sec. 1996-CFL Class X2 due 02/25/28 891,011
--------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 4,569,453
==========================
(Total Cost $4,704,588)
OPTIONS - 3.89%
1,028 British Sky Broadcasting Group 7.707 Puts expiring 10/13/97 $ 324,436 +
1,496 British Sky Broadcasting Group 7.920 Puts expiring 10/15/97 523,244 +
65 Chargeurs/Pathe 1400 Calls expiring 12/17/96 260,051 +
50 Gold April 550 Calls expiring 04/07/97 50 +
50 Gold April 555 Calls expiring 04/07/97 50 +
50 Gold May 555 Calls expiring 05/12/97 50 +
-14-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
95 Nasdaq 100 Index 534.936 Puts expiring 08/04/97 $ 53,452 +
53 Nasdaq 100 Index 551.816 Puts expiring 06/04/97 28,090 +
90 Nasdaq 100 Index 552.800 Puts expiring 11/22/96 450 +
44 Nasdaq 100 Index 580.910 Puts expiring 03/18/97 22,543 +
88 Nasdaq 100 Index 583.560 Puts expiring 03/18/97 41,205 +
44 Nasdaq 100 Index 584.950 Puts expiring 03/19/97 23,658 +
52 Nasdaq 100 Index 593.440 Puts expiring 03/25/98 93,096 +
85 Nasdaq 100 Index 606.602 Puts expiring 04/24/97 79,236 +
52 Nasdaq 100 Index 629.330 Puts expiring 09/26/97 104,573 +
86 Nasdaq 100 Index 635.205 Puts expiring 10/06/97 173,707 +
51 Nasdaq 100 Index 635.350 Puts expiring 09/29/97 110,000 +
42 Nasdaq 100 Index 642.290 Puts expiring 10/20/97 95,220 +
50 Nasdaq 100 Index 653.820 Puts expiring 10/15/97 128,840 +
5,100 Pathe BSY Spread Calls expiring 08/29/97 355,577 +
4,900 Pathe BSY Spread Calls expiring 09/21/97 262,126 +
450 Philip Morris 50 Puts expiring 05/19/97 450 +
360 Philip Morris 50 Puts expiring 05/19/97 720 +
295 Philip Morris 50 Puts expiring 05/23/97 295 +
295 Philip Morris 50 Puts expiring 05/23/97 295 +
125 Ralcorp Holdings 20 Calls expiring 12/20/96 20,000 +
6 Ralcorp Holdings 20 Calls expiring 12/21/96 900
516 RJR Nabisco Holdings 25 Calls expiring 07/17/97 268,836 +
330 RJR Nabisco Holdings 25 Calls expiring 11/07/97 193,050 +
253 RJR Nabisco Holdings 25 Calls expiring 11/10/97 140,574 +
400 RJR Nabisco Holdings 25 Calls expiring 11/11/97 226,800 +
330 RJR Nabisco Holdings 25 Calls expiring 11/14/97 184,140 +
30 RJR Nabisco Holdings 25 Calls expiring 01/17/98 17,625
280 RJR Nabisco Holdings 30 Calls expiring 10/10/97 80,500 +
375 RJR Nabisco Holdings 30 Calls expiring 10/13/97 114,750 +
187 S&P 500 Index 582.000 Puts expiring 12/31/96 16,345 +
93 S&P 500 Index 616.230 Puts expiring 12/31/96 16,345 +
117 S&P 500 Index 505.575 Puts expiring 01/17/97 2,105 +
104 S&P 500 Index 554.230 Puts expiring 01/06/97 5,632 +
104 S&P 500 Index 556.650 Puts expiring 01/27/97 9,453 +
83 S&P 500 Index 556.750 Puts expiring 01/27/97 8,309 +
104 S&P 500 Index 557.110 Puts expiring 01/27/97 10,380 +
205 S&P 500 Index 581.310 Puts expiring 02/10/97 33,668 +
103 S&P 500 Index 583.990 Puts expiring 03/19/97 25,544 +
102 S&P 500 Index 585.675 Puts expiring 02/10/97 17,408 +
204 S&P 500 Index 585.810 Puts expiring 02/10/97 35,012 +
101 S&P 500 Index 589.500 Puts expiring 02/18/97 21,037 +
94 S&P 500 Index 614.700 Puts expiring 09/19/97 97,141 +
--------------------------
TOTAL OPTIONS $ 4,226,968
(Total Cost $6,217,752) ==========================
-15-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
GOVERNMENT OBLIGATIONS - 3.74%
GBP 2,500,000 United Kingdom Treasury note due 03/11/99 $ 4,063,746
--------------------------
TOTAL GOVERNMENT OBLIGATIONS $ 4,063,746
(Total Cost $4,003,601) ==========================
PARTNERSHIPS - 1.83%
NCH Investors Fund L.P. $ 625,000 +
New Century Capital Partners II L.P. 649,980 +
Sigma/Ukraine LP 721,000 +
--------------------------
TOTAL PARTNERSHIPS $ 1,995,980
(Total Cost $2,024,316) ==========================
PURCHASED BANK DEBT & TRADE CLAIMS - 1.83%
$ 2,453,801 Maxwell Comm. Bank Debt - Baker Nye $ 272,517 +*
5,000,000 Maxwell Comm. Berlitz Obligations 550,000 +*
167,868 Maxwell Comm. Revolving Bank Debt - First Chicago 18,970 +*
943,496 Maxwell Comm. Revolving Bank Debt - Halcyon 106,970 +*
396,015 Maxwell Comm. Revolving Bank Debt - Halcyon II 44,751 +*
875,543 Maxwell Comm. Revolving Bank Debt - Lazard Freres 98,871 +*
264,059 Maxwell Comm. Revolving Bank Debt - Merrill Lynch 29,839 +*
823,981 Maxwell Comm. Revolving Bank Debt - San Paolo 93,383 +*
1,015,000 Maxwell Comm. Revolving Bank Debt - TCC Associates 114,985 +*
579,133 Maxwell Comm. Term Bank Debt - First Chicago 63,705 +*
1,678,704 Maxwell Comm. Term Bank Debt - Halcyon 184,657 +*
702,221 Maxwell Comm. Term Bank Debt - Halcyon II 77,244 +*
426,846 Maxwell Comm. Term Bank Debt - Lazard Freres 46,953 +*
468,269 Maxwell Comm. Term Bank Debt - Merrill Lynch 51,510 +*
325,093 Maxwell Comm. Term Bank Debt - San Paolo 35,760 +*
1,806,952 Maxwell Comm. Term Bank Debt - TCC Associates 198,765 +*
1,750,000 Wheeling-Pittsburgh Nonrestricted Trade Claims 0 +*
--------------------------
TOTAL PURCHASED BANK DEBT & TRADE CLAIMS $ 1,988,880
(Total Cost $44,043) ==========================
COMPANIES IN LIQUIDATION - 1.49%
5,682,800 Antonelli Liquidating Trust $ 22,731 +*
3,150 EHLCO Liquidating Trust 315 +*
-16-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
$ 250,000 Lionel Corp. Subordinated Notes $ 2,500 *
12.375% due 08/01/96
364,000 Lionel Corp. Subordinated Convertible Debentures 3,640 *
8.000% due 07/15/07
DEM 15,000,000 Maxwell Comm. Corp. PLC 6.000% due 06/15/93 1,086,885 *
SFS 5,500,000 Maxwell Comm. Corp. PLC 5.000% due 06/16/95 477,129 *
1 MBO Properties Inc. Liquidating Trust $ 0 +*
100,550 Timber Realization Liquidating Trust 26,143 +*
--------------------------
TOTAL COMPANIES IN LIQUIDATION $ 1,619,343
(Total Cost $188,452) ==========================
BONDS & NOTES IN REORGANIZATION - 0.91%
$ 3,090,000 Eagle-Picher 9.500% due 03/01/17 $ 896,100 *
45,000 Mansfield Ohio IDR Eagle-Picher 12,150 *
9.750% due 10/01/00
90,130 MBL Class 4 Unsecured Claim 15,322 +*
265,000 Port Development Corp. TX Eagle-Picher 71,550 *
9.750% due 10/01/20
--------------------------
TOTAL BONDS AND NOTES IN REORGANIZATION $ 995,122
(Total Cost $1,311,476) ==========================
WARRANTS - 0.11%
13,900 Alza Corporation Warrants Exp. 12/31/99 $ 1,738
60,000 Five Arrows Chile Inv. Trust Warrants Exp. 5/31/99 31,200
240,300 Jardine Strategic Holdings Warrants Exp. 5/02/98 69,687
800 Letchworth Indep Bancshares Warrants Exp. 12/31/97 5,400
11,500 Scania AB-B Warrants Exp. 06/04/99 10,833
--------------------------
TOTAL WARRANTS $ 118,858
(Total Cost $91,362) ==========================
CORPORATE BONDS - 0.01%
$ 11,000 Chartwell Contingent Interest Note 8.000% due 06/30/06 $ 4,702 +
--------------------------
TOTAL CORPORATE BONDS $ 4,702
(Total Cost $5,372) ==========================
-17-
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
TEMPORARY INVESTMENTS - 12.65%
CANADIAN GOVERNMENT OBLIGATIONS - 4.64%
CAD 6,800,000 Canadian Treasury Bill due 01/23/97 $ 5,047,464
U S GOVERNMENT OBLIGATIONS - 4.58%
$ 3,000,000 U S Treasury Bill due 11/14/96 2,994,800 ~
2,000,000 U S Treasury Bill due 12/12/96 1,988,634 ~
--------------------------
4,983,434
REPURCHASE AGREEMENT - 3.43%
2,340,000 Repurchase Agreement with Chase Manhattan Bank
dated 10/31/96; collateralized by U.S. Government
and/or Federal agency securities; rate 5.32%;
matures 11/01/96; repurchase amount $3,734,552 3,734,000
--------------------------
TOTAL TEMPORARY INVESTMENTS $ 13,764,898
(Total Cost $13,732,673) ==========================
TOTAL INVESTMENTS - 100.15% $ 108,955,788
(Total Cost of Investments $97,297,169) ==========================
</TABLE>
* Non-income producing security.
+ Restricted Securities - securities not registered under the
Securities Act of 1933. See Note D in the Notes to Financial
Statements.
~ A portion of the security is serving as collateral or is segregated
for securities sold short.
Foreign Currency Abbreviations
------------------------------
CAD Canadian Dollar
DEM Deutschemark
GBP British Pounds
SFS Swiss Franc
The percentage shown for each investment category is the total value
of that category expressed as a percentage of total net assets of
the Fund.
See notes to financial statements.
-18-
THE BAUPOST FUND
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
MARKET UNREALIZED
VALUE GAIN/(LOSS)
------------------ ------------------
<S> <C> <C> <C> <C>
CONTRACTS TO SELL
GBP 5,609,679 British Pound Sterling due 11/29/96 $ 9,124,255 $ (247,490)
(Receivable amount $8,876,765 )
CAD 6,750,046 Canadian Dollar due 11/29/96 5,050,010 (24,311)
(Receivable amount $5,025,699)
FRF 85,800,000 French Franc due 11/29/96 16,776,260 148,028
(Receivable amount $16,924,288)
ITL 3,839,000,000 Italian Lira due 11/29/96 2,522,171 (4,571)
(Receivable amount $2,517,600)
SEK 17,000,000 Swedish Krona due 12/13/96 2,582,260 (39,748)
(Receivable amount $2,542,512)
------------------ ------------------
TOTAL CONTRACTS TO SELL $ 36,054,956 $ (168,092)
================== ==================
(Receivable amount $35,886,864)
</TABLE>
See notes to financial statements.
-19-
THE BAUPOST FUND
SCHEDULE OF SECURITIES SOLD SHORT
OCTOBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C> <C> <C>
COMMON STOCK - 3.59%
21,975 British Sky Broadcasting ADR (United Kingdom) $ 1,233,347
172,450 Kaiser Aluminum Corporation 1,918,506
23,300 RJR Nabisco Holdings Corp. 672,788
1,152 Sidel SA (France) 76,688
--------------------------
TOTAL SECURITIES SOLD SHORT $ 3,901,329
(Total Proceeds from Securities Sold Short $4,132,636) ==========================
</TABLE>
The percentage shown for each investment
category is the total value of that category
expressed as a percentage of total net assets of
the Fund.
See notes to financial statements.
-20-
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Baupost Fund (the Fund) was established as a Massachusetts business trust
under an Agreement and Declaration of Trust dated June 29, 1990, and is
registered under the Investment Company Act of 1940, as amended, as a no-load,
nondiversified, open-end management investment company. The Fund is the
successor organization to Baupost Limited Partnership 1985 E-1 (the
Partnership).
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that may affect the
reported amounts of assets and liabilities. Actual results could differ from
those estimates.
SECURITY VALUATION: Portfolio securities, options and futures contracts for
which market quotations are available and which are traded on an exchange or on
NASDAQ are valued at the last quoted sales price or, if there is no such
reported sale that day, at the closing bid price. Securities, options and
forward contracts traded in the over-the-counter market (other than those traded
on NASDAQ) and other unlisted securities are valued at the most recent bid price
as obtained from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and on
one or more stock exchanges are valued according to the broadest and most
representative market. To the extent the Fund engages in "naked" short sales
(i.e., it does not own the underlying security or a security convertible into
the underlying security without the payment of any further consideration) the
Fund will value such short position as described above, except that the
valuation, where necessary, will be based on the asked price instead of the bid
price.
Assets for which no quotations are readily available are valued at fair value as
determined in good faith in accordance with procedures adopted by the Trustees
of the Fund. Determination of fair value is based upon such factors as are
deemed relevant under the circumstances, including the financial condition and
operating results of the issuer, recent third-party transactions (actual or
proposed) relating to such securities and, in extreme cases, the liquidation
value of the issuer.
Certain investments held by the Fund are restricted as to public sale in
accordance with the Securities Act of 1933. Whenever possible, such assets are
valued based on bid prices obtained from reputable brokers or market makers as
of the valuation date. For assets not priced by brokers or market makers, fair
value is determined by The Baupost Group, Inc. (Baupost) in accordance with
procedures adopted by the Trustees of the Fund.
SHORT SALES: The Fund is engaged in short-selling which obligates the Fund to
replace the security borrowed by purchasing the security at current market
value. The Fund would incur a loss if the price of the security increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund would realize a gain if the price of the security
declines between those dates. Until the Fund replaces the borrowed security, the
Fund maintains daily, in a segregated account with its custodian, cash or
securities sufficient to cover its short position. At October 31,1996, the Fund
has approximately $4.5 million of U.S. Treasury bills and $3.7 million of common
stock in a segregated account relating to its short positions.
-21-
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Securities sold short at October 31, 1996 and their related market values and
proceeds are set forth in the Schedule of Securities Sold Short.
FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign
currency contracts for the purchase or sale of a specific foreign currency at a
fixed price on a future date. The U.S. dollar value of the currencies the Fund
has committed to buy or sell is shown in the Schedule of Forward Foreign
Currency Contracts. Losses may arise from changes in the value of a foreign
currency relative to the U.S. dollar or from the potential inability of the
counterparties to meet the terms of their contracts. The Fund uses forward
foreign currency contracts to hedge the risks associated with holding securities
denominated in foreign currencies. These contracts are adjusted by the daily
exchange rate of the underlying currency, and any gains or losses are recorded
as unrealized until the contract settlement date.
FOREIGN CURRENCY TRANSLATION: The value of foreign securities is translated into
U.S. dollars at the rate of exchange on the day of valuation. Purchases and
sales of foreign securities, as well as income and expenses relating to such
securities, are translated into U.S. dollars at the exchange rate on the dates
of the transactions. The portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign exchange rates is
not separately disclosed.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Gains and losses on securities sold are determined
using the specific identification method. Dividend income is recorded on the
ex-dividend date or, for certain foreign dividends, as soon as the Fund becomes
aware of the dividends. Interest income, including original issue discount,
where applicable, is recorded on an accrual basis, except for bonds in default
for which there is some concern as to whether interest will be received in cash,
in which case interest is recorded when received.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
institutions that Baupost has determined are creditworthy. Each repurchase
agreement is recorded at cost. The Fund requires that the securities purchased
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
default under the repurchase aggrement.
PURCHASED CALL AND PUT OPTIONS: The Fund may enter into purchased call and put
options for both hedging and non-hedging activities. The Fund's exposure to
market risk relating to the securities is affected by a number of factors
including the size and composition of the options held, the time period during
which the options may be exercised, the volatility of the underlying security or
index, and the relationship between the current market price of the underlying
security or index and the strike or exercise price of the option. Baupost
closely monitors the Fund's exposure to risk. In addition, all positions
involving future settlement are collateralized by cash balances or security
deposits at the broker through which the transaction was performed.
FEDERAL INCOME TAXES AND DISTRIBUTIONS: The Fund is a regulated investment
company, as defined under Subchapter M of the Internal Revenue Code (the Code).
By complying with Code provisions, the
-22-
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Fund is relieved from federal income tax provided that substantially all of its
taxable income is distributed to shareholders. Therefore, no provision has been
made for federal income taxes.
The Fund's income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to different treatment for
certain of the Fund's foreign securities. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits, which result in temporary overdistributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. During the year ended October 31, 1996, $494,622
was reclassified from distributions in excess of net investment income to
accumulated undistributed net realized gain on investments and foreign currency
transactions, due to differences between book and tax accounting for foreign
currency transactions and passive foreign investment companies (PFICs). This
change had no effect on the net asset value per share.
CONCENTRATION OF CREDIT RISK: Concentrations of credit risk exist if a number of
companies in which the Fund has invested are engaged in similar activities and
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. To mitigate its exposure to concentrations of credit risk, the Fund
invests in a variety of industries located in diverse geographic areas. While
the portfolio is not concentrated in any one industry, securities of distressed
companies, many of which are restricted as to resale and which were purchased at
a significant discount, are an important component of the Fund's investments in
bonds.
NOTE B--INVESTMENT MANAGEMENT CONTRACT AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains Baupost as its investment adviser, transfer agent and
administrator. Certain individuals who are officers and trustees of the Fund are
also officers, directors and shareholders of Baupost.
The Fund pays Baupost a quarterly management fee at an annual rate of 1% of
average net assets of the Fund and an administrative fee at an annual rate of
0.25% of average net assets of the Fund, to serve as transfer agent, dividend
disbursing agent and administrator. Baupost has agreed with the Fund to reduce
its management fee by up to 0.75% of the Fund's average net assets until further
notice to the extent that the Fund's total annual expenses (including the
management fee, administrative fee and certain other expenses, but excluding
brokerage commissions, transfer taxes, interest and expenses relating to
preserving the value of the Fund's investments) would otherwise exceed 1.5% of
the Fund's average net assets. For the purpose of determining the applicable
management and administrative fees, average net assets is determined by taking
an average of the determination of such net asset values during each quarter at
the close of business on the last business day of each month during such quarter
before any month-end share purchases or redemptions.
Management and administrative fees for the period November 1, 1995 through
October 31, 1996 amounted to $991,872 and $247,968, respectively.
-23-
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE C--INVESTMENT TRANSACTIONS
Purchases and proceeds from the sale of investment securities (excluding
short-term investments) for the period ended October 31, 1996 aggregated
$106,797,967 and $102,485,242, respectively.
For federal income tax purposes, the identified cost of investments at October
31, 1996 was $99,721,467. Net unrealized appreciation, on a federal income tax
basis, for all securities and securities sold short was as follows:
Year Ended
October 31, 1996
----------------
Gross unrealized appreciation $14,671,154
Gross unrealized depreciation (5,230,845)
-----------
Net unrealized appreciation $ 9,440,309
===========
NOTE D--RESTRICTED SECURITIES
At October 31, 1996 the Fund held the following securities which are restricted
as to public sale in accordance with the Securities Act of 1933:
<TABLE>
<CAPTION>
Earliest
Value at Acquisition
Purchased Bank Debt & Trade Claims: Cost October 31, 1996 Date
- ---------------------------------- ---- ---------------- ----
<S> <C> <C> <C>
Maxwell Communications Corporate Debt $ 44,044 $1,988,881 11/22/93
Wheeling-Pittsburgh
Nonrestricted Trade Claims 0 0 05/11/89
Corporate Bonds:
- ----------------
Chartwell Inc. 8.00% due 06/30/06 5,372 4,702 12/21/95
Options:
- --------
British Sky Broadcasting Puts Expiring
10/13/97 - 10/15/97 588,122 847,680 10/11/96
Chargeurs/Pathe Call Expiring 12/17/96 199,402 260,051 09/17/96
Gold Calls Expiring 04/07/97 - 05/12/97 6,275 150 11/06/95
Nasdaq 100 Puts Expiring 11/22/96 - 10/20/97 1,271,424 954,070 05/24/96
Pathe/BSY Spread Calls Expiring 08/29/97 - 09/21/97 787,800 617,703 08/27/96
Philip Morris Puts Expiring 05/19/97 - 05/23/97 183,355 1,760 05/19/95
Ralcorp Holdings, Inc. Call Expiring 12/20/96 45,375 20,000 06/24/96
RJR Nabisco Calls Expiring 07/17/97- 11/14/97 1,583,425 1,208,650 05/08/95
S & P 500 Index Puts Expiring 12/31/96 - 09/19/97 1,529,440 298,379 07/17/95
</TABLE>
-24-
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE D--RESTRICTED SECURITIES -- CONTINUED
<TABLE>
<CAPTION>
Earliest
Value at Acquisition
Cost October 31, 1996 Date
---- ---------------- ----
<S> <C> <C> <C>
Partnerships:
- -------------
NCH Investors Fund, L.P. $ 651,806 $ 625,000 12/18/95
New Century Capital Partners II, L.P. 651,510 649,980 11/30/95
Sigma Ukraine, LP 721,000 721,000 05/14/96
Common Stock:
- -------------
Basic Holdings Limited 346,885 544,114 07/06/95
Louise's, Inc. 0 1,542 07/15/96
The Homestake Oil & Gas Company 113,815 99,450 02/10/94
The Homestake Royalty Corporation 241,587 205,270 02/10/94
Companies in Liquidation:
- -------------------------
Antonelli Liquidating Trust 86,490 22,731 12/02/93
Ehlco Liquidating Trust 431 315 01/30/89
MBO Properties Inc. Liquidating Trust 0 0 11/25/92
Timber Realization Liquidating Trust 0 26,143 08/03/87
Bonds & Notes in Reorganization:
- --------------------------------
MBL Class 4 usecured claim 0 15,322 06/18/96
---------- ----------
TOTAL RESTRICTED SECURITIES $9,057,558 $9,112,893
(8.38% Net Assets) ========== ==========
</TABLE>
The Fund does not have the right to demand that such securities be registered.
The Fund does not anticipate any significant costs associated with the
disposition of these securities.
NOTE E--CAPITAL SHARE TRANSACTIONS
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
October 31, 1996 October 31, 1995
---------------- ----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 1,109,681.050 $15,369,110.78 1,160,287.242 $14,670,652
Shares issued in
reinvestment of
dividends 454,829.173 5,799,072.03 798,660.448 9,823,524
Shares redeemed (1,132,554.464) (15,745,255.86) (1,026,796.162) (13,143,641)
-------------- -------------- -------------- -----------
NET INCREASE 431,955.759 $ 5,422,926.95 932,151.528 $11,350,535
=========== ============== =========== ===========
</TABLE>
-25-
THE BAUPOST FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA (a)
Net Asset Value, beginning of period $13.47 $14.33 $14.77 $12.56 $11.97
------ ------ ------ ------ ------
Income from investment operations
Net Investment income 0.41 0.25 0.22 0.28 0.24
Net realized and unrealized gain 2.43 0.71 1.23 2.76 0.88
---- ---- ---- ---- ----
Total from investment operations 2.84 0.96 1.45 3.04 1.12
---- ---- ---- ---- ----
Less distributions
From net investment income 0.28 0.25 0.46 0.22 0.53
In excess of net investment income - 0.08 - - -
From net realized gain 0.65 1.49 1.43 0.61 -
---- ---- ---- ---- ----
Total distributions 0.93 1.82 1.89 0.83 0.53
---- ---- ---- ---- ----
Net Asset Value, end of period $15.38 $13.47 $14.33 $14.77 $12.56
====== ====== ====== ====== ======
Total Return 22.51% 7.91% 11.06% 25.45% 9.51%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $108,788 $89,439 $81,787 $75,378 $46,942
Ratio of expenses to average net assets 1.50% 1.54% 1.53% 1.52% 1.50%
Total expenses to average net assets 1.50% 1.54% 1.55% 1.63% 1.72%
Ratio of net investment income to
average net assets 2.27% 1.60% 1.32% 2.29% 2.07%
Ratio of net investment income
excluding waiver of management
fee to average net assets 2.27% 1.60% 1.30% 2.17% 1.85%
Portfolio turnover rate 120% 106% 161% 183% 137%
Average commission rate (b) $.0271
</TABLE>
(a) All per share amounts reflect the effect of the ten-for-one share split as
of the close of business October 31, 1993
(b) For fiscal years beginning after Sept. 1, 1995 a fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
-26-
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Baupost Fund's audited financial statements at 10/31/96 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 97,297,169
<INVESTMENTS-AT-VALUE> 108,955,788
<RECEIVABLES> 4,241,511
<ASSETS-OTHER> 465,727
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 113,663,026
<PAYABLE-FOR-SECURITIES> 4,117,404
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 757,580
<TOTAL-LIABILITIES> 4,874,984
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,275,184
<SHARES-COMMON-STOCK> 7,072,862
<SHARES-COMMON-PRIOR> 6,640,906
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 99,004
<ACCUMULATED-NET-GAINS> 10,890,028
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,721,834
<NET-ASSETS> 108,788,042
<DIVIDEND-INCOME> 1,532,435
<INTEREST-INCOME> 2,195,944
<OTHER-INCOME> 10,010
<EXPENSES-NET> 1,486,903
<NET-INVESTMENT-INCOME> 2,251,486
<REALIZED-GAINS-CURRENT> 10,367,365
<APPREC-INCREASE-CURRENT> 7,415,969
<NET-CHANGE-FROM-OPS> 20,034,820
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,825,419
<DISTRIBUTIONS-OF-GAINS> 4,283,665
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,109,681
<NUMBER-OF-SHARES-REDEEMED> 1,132,554
<SHARES-REINVESTED> 454,829
<NET-CHANGE-IN-ASSETS> 19,348,663
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,311,706
<OVERDISTRIB-NII-PRIOR> 30,449
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 991,872
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,486,903
<AVERAGE-NET-ASSETS> 98,289,342
<PER-SHARE-NAV-BEGIN> 13.47
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> .65
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.38
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
