THE BAUPOST FUND
ANNUAL REPORT
October 31, 1995
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.
<PAGE>
THE BAUPOST FUND
ANNUAL REPORT
OCTOBER 31, 1995
Contents:
Management's Discussion of Performance............................. 1
Report of Independent Auditors..................................... 6
Audited Financial Statements:
Statement of Assets and Liabilities as of October 31, 1995 ....... 7
Statement of Operations for the year ended October 31, 1995....... 8
Statement of Changes in Net Assets for the years ended October 31,
1995 and October 31, 1994.................................... 9
Schedule of Investments as of October 31, 1995................... 10
Schedule of Forward Foreign Currency Contracts as of October 31,
1995........................................................... 17
Schedule of Securities Sold Short as of October 31, 1995......... 18
Notes to Financial Statements...................................... 19
Financial Highlights............................................... 26
<PAGE>
The Baupost Group, Inc.
44 Brattle Street
P.O. Box 389125
Cambridge, Massachusetts 02238-9125
(617) 497-6680
Fax (617) 876-0930
December 8, 1995
Dear Baupost Fund Shareholder,
We are pleased to report a gain of 7.91% for the year ended October 31, 1995.
This result, while ahead of our self-imposed bogey of exceeding the return on
U.S. treasury bills, falls considerably short of the performance of various U.S.
stock market indices. The primary reason for our underperformance, of course, is
that the Fund has relatively little exposure to the U.S. stock market.
The Baupost Fund is managed with the intention of earning good absolute returns
regardless of how any particular financial market performs. This philosophy is
implemented with a bottom-up value investment strategy whereby we hold only
those securities that are significantly undervalued, and hold cash when we
cannot find better alternatives. Further, we prefer investments, when we can
find them at attractive prices, that involve a catalyst for the realization of
underlying value. This serves to reduce the volatility of our results and
de-emphasizes market movements as the source of our investment returns.
Positions with catalysts tend to lag a rapidly rising stock market (like this
past year's) and outperform a lackluster or declining one (like we used to have
every few years!).
During fiscal 1995, the Fund profited in most areas of the portfolio. Our
largest gains and losses for the fiscal year, both realized and unrealized, are
presented in Table 1 on the next page.
This fiscal year was somewhat unusual for the Fund. While we are gratified with
the number of important gains, only three positions provided profitability in
excess of one million dollars during the year. Maxwell Communications was a
large position in the senior debt of a U.K. insolvency. The value rose
significantly after the company announced the first of three substantial
distributions to creditors. Emcor and MBO both involve securities of
post-bankruptcy companies that initially received little attention in the
market.
We experienced four significant losing positions this year. The largest was a
position in various equity and debt market hedges that mostly expired worthless.
Our policy is to continue to protect ourselves from serious market declines
through the purchase of out-of-the-money put options. While an expensive
proposition in fiscal 1995, the cost was manageable when considered in the
context of the entire portfolio. Obviously, in other market environments, our
hedges will have a very different impact on overall investment results.
<PAGE>
TABLE 1
The Baupost Fund
Largest Gains and Losses
For the Twelve Months Ended 10/31/95
($ in millions)
<TABLE>
<CAPTION>
Largest Gains Largest Losses
<S> <C> <C> <C>
Maxwell Communications debt $2.2 Various equity and debt market hedges $(2.1)
Emcor debt and equity 1.2 Playmates Toys equity (1.2)
MBO equity 1.1 Dep Corporation equity (0.9)
El Paso del Norte debt 0.8 Louise's debt (0.8)
Basic Petroleum equity 0.6 Semi Tech Global equity (0.4)
Todd Shipyards equity 0.6 TLC Beatrice equity (0.4)
Viacom hedged strategy 0.5 Esco Electronics equity (0.3)
QCF Bancorp equity 0.4 C-3 Inc. equity (0.3)
DuPont equity and options 0.4 Carr Gottstein equity (0.1)
Wells Financial equity 0.4 Eagle Picher debt (0.1)
RJR Nabisco equity and options 0.4 Fonciere Financiere equity (0.1)
(net of hedge) Hills Department Store equity & options (0.1)
RIT Capital Partners equity 0.4
</TABLE>
Our Playmates Toys position declined on the heels of disappointing first half
1995 results. We believe this decline will be more than fully reversed in the
future based on improved business performance. At the current level, the shares
trade at a price approximately equal to net current assets; the company is
involved in a number of projects that could very positively impact results in
the second half of 1995 and beyond. Dep Corporation, while statistically cheap,
did not perform in accordance with our expectations. The company overpaid for an
acquisition and their debt load from the acquisition left little operating
flexibility. Louise's was another disappointment; the company failed to take
advantage of a window one year ago to come public, and deteriorating results
caused us to take a writedown on this position. Other leading declines, such as
TLC Beatrice and Semi Tech Global, reflect temporary market fluctuations that
have resulted in these undervalued situations becoming even more undervalued. We
believe that both these situations have great upside potential with little
downside risk. No other investment declines cost us more than 0.5% of our total
market value.
Once again in 1995, the U.S. stock market has delivered investment performance
appreciably ahead of underlying business results. Over the past thirteen years,
the S&P 500 with dividends reinvested has delivered a compound annual return of
15.9%, the best such result ever. For
<PAGE>
the last five years, the S&P 500 has returned 17.2%, while the NASDAQ Composite
Index has returned a staggering 25.7%. Assuming a 10% long term rate of return
from equities, the NASDAQ would need to drop a whopping 49% tomorrow to simply
return to trendline for the latest five year period.
Bulls will patiently explain that "it is different this time", pointing to low
inflation, high corporate profits, increased productivity, world peace (sort
of), reductions in government spending, and the like. Of course, any contrarian
knows that just as a grim present is usually precursor to a better future, a
rosy present may be precursor to a bleaker tomorrow. Without me listing all the
things that could go wrong, simply consider that none of these virtuous factors
are cast in stone. Just as seeds are sown during the seven lean years that allow
the seven fat years to ensue, so does the reverse hold true.
Anecdotally, too, this market is greatly overextended. People with no previous
investment experience are starting hedge funds. Everyone seems to know someone
who owns stock in a company that has just come public, not to mention the
certifiable mania among the general public to own mutual funds and Internet
stocks. Just a few days ago, the last remaining bearish Wall Street market
strategist turned bullish, arguing that the "valuation paradigm" had changed.
Dangerous lessons are being learned by many investors. Warren Buffett has
pointed out that legitimate theories frequently lie at the root of financial
excesses; good ideas are simply carried too far. Today, virtually everyone
"knows" that over the long-run, stocks will outperform other investment
alternatives. Of course, almost no one thought of this as the market made
cyclical lows in 1974 and 1982. So after a record-setting thirteen year bull
market, proponents of this viewpoint are ignoring the high price they must now
pay to purchase equities. Another dangerous notion is that dips in the market
always represent buying opportunities. We firmly believe that one of Baupost's
biggest risks, and, needless to say, that of other investors, is that we will
buy too soon on the way down. Sometimes cheap stocks become a whole lot cheaper;
it simply hasn't happened lately.
(And when that happens, expensive stocks will fare far worse.)
We have said before and will repeat here that you do not really need Baupost to
invest your money in bull markets. An index fund could likely perform better.
The true investment challenge is to perform well in difficult times. It is
unfortunately not possible to reliably predict when those times might be. The
cost of performing well in bad times can be relative underperformance in good
times. We have always judged that a worthwhile price to pay.
We remain surprised by the number of attractive opportunities we continue to
find despite generally overextended market conditions. We believe that what we
own is exceedingly cheap on an absolute basis, and that these holdings will
perform well no matter what the broader market does. A number of our largest
holdings at year-end have catalysts for the realization of underlying value, and
should come to fruition in the relatively near future. Specifically, MBO
Properties and Maxwell Communications remain in liquidation. El Paso is expected
to emerge from Chapter 11 in the first quarter of 1996; we will receive new
equity and debt securities in
<PAGE>
a reorganized company in exchange for our bonds. Carr-Gottstein Foods common
stock and Southland Corp. bonds are both the target of tender offers. RJR
Nabisco is under tremendous pressure by two corporate raiders to spin off its
food business directly to shareholders, something the company indicated
previously that it would likely do anyway. Falcon Cable recently announced that
it was pursuing its sale, a year earlier than expected.
A number of our most undervalued holdings have no immediate catalyst for value
realization. Allmerica Financial, the subject of a recent conversion from a
mutual to stock insurance company, trades at a substantial discount to its
peers. Semi-Tech Global sells at a 60% discount from its unleveraged, mostly
liquid, asset value. TLC Beatrice's thinly traded shares sell at a large
discount to its breakup value, as do the shares of Japan's Kirin Brewery. Recent
legislation allowing Japanese companies to buy back their own shares may greatly
benefit cash-rich Kirin. RIT Capital Partners continues to trade at a 35%
discount from our estimate of net asset value. Several recent thrift
conversions, including Trenton Savings Bank, Mississippi View Holding Company
and Wells Financial, remain bargain-priced compared to their underlying value.
Emcor Group and Envirotest Systems bonds, trading at significant discounts to
par, offer high current yields and good asset protection.
We continue to focus our attention on the avoidance and/or reduction of risk. We
believe this can be done without sacrificing good, even excellent, returns over
time. The return earned by the Fund in fiscal 1995 is well below our long term
expectation, and reflects a combination of uncooperative market conditions for
our type of securities (the cheap became cheaper) and (with the benefit of
perfect hindsight) excessive caution, both in the form of hedging costs and
relatively high cash balances.
We remain grateful for your ongoing interest, support and confidence in us. We
continue to strive to deserve it. Please let any of us know if there is anything
we can do to serve you better.
Very truly yours,
Seth A. Klarman
President
<PAGE>
Average Annual Total Returns (1) 1 Life of Fund
For Periods Ended 10/31/95 Year (since 12/14/90)
The Baupost Fund 7.91% 14.91%
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 BAUPOST FUND FROM 12/14/90 THROUGH 10/31/95
[IN THIS PLACE IS A LINE GRAPH SHOWING THE GROWTH OF AN ASSUMED $50,000
INVESTMENT IN THE BAUPOST FUND COMPARED TO THE S&P 500 FROM 12/14/90 THROUGH
10/31/95. THE PLOT POINTS ARE AS FOLLOWS]
THE
S&P BAUPOST FUND
12/14/90 $ 50,000.00 $50,000.00
3/91 $ 58,024.40 $55,771.68
6/91 $ 57,891.29 $59,332.96
9/91 $ 60,987.08 $58,998.31
12/91 $ 66,100.47 $61,485.71
3/92 $ 64,430.83 $63,911.75
6/92 $ 65,659.40 $64,203.91
9/92 $ 67,729.67 $65,059.55
12/92 $ 71,140.30 $70,005.54
3/93 $ 74,243.41 $75,227.59
6/93 $ 74,604.74 $77,707.92
9/93 $ 76,532.54 $80,054.79
10/31/93 $ 78,116.01 $82,134.71
12/93 $ 78,305.62 $83,196.92
3/94 $ 75,335.75 $84,533.67
6/94 $ 75,653.26 $89,244.13
9/94 $ 79,352.03 $88,798.55
10/31/94 $ 81,134.73 $91,217.43
12/94 $ 79,339.62 $89,880.68
3/95 $ 87,064.74 $91,488.30
6/95 $ 95,375.77 $93,607.44
9/95 $102,955.48 $99,526.41
10/31/95 $102,587.46 $98,430.31
(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS.
5
<PAGE>
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,
1995, 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 four years in the period then
ended and for the period from January 1, 1991 to October 31, 1991. 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, 1995, 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, 1995, 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 four years in the
period then ended and for the period from January 1, 1991 to October 31, 1991 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
December 1, 1995
6
<PAGE>
THE BAUPOST FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
ASSETS:
Investments in securities - at value $ 91,706,510
(Notes A and C) (cost $87,501,913)
Receivable for investments sold 1,271,235
Receivable for investments sold short 1,095,674
Unrealized appreciation on forward foreign
currency contracts sold 74,527
Accrued investment income 61,124
Liquidation payments receivable 1,034,411
Other assets 122,584
-------
Total Assets 95,366,065
LIABILITIES:
Payable for investments purchased 4,346,231
Payable to The Baupost Group, Inc. (Note B) 295,879
Payable for securities sold short 1,070,259
(Notes A and C) (proceeds $1,097,000)
Other payables and accrued expenses 214,317
-------
Total Liabilities 5,926,686
---------
NET ASSETS $ 89,439,379
================
COMPOSITION OF NET ASSETS:
Paid in capital $ 80,852,257
Distributions in excess of net investment
income (Note A) (30,449)
Accumulated undistributed net realized
gain on investments and foreign
currency transactions 4,311,706
Net unrealized appreciation on investments
and assets & liabilities in foreign currency 4,305,865
---------
Net Assets $ 89,439,379
================
NET ASSET VALUE:
Offering and redemption price per share
($89,439,379 / 6,640,905.969) $ 13.47
===============
See notes to financial statements.
7
<PAGE>
THE BAUPOST FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME:
INCOME:
Interest $ 1,762,944
Dividends (net of foreign withholdings of
$13,769) 901,762
Other income 16,540
------
Total Investment Income 2,681,246
EXPENSES:
Investment management fee (Note B) 853,905
Administrative fee (Note B) 213,476
Legal fees 51,035
Custodian fees 39,455
Amortization of organization costs 36,192
Audit fees 35,000
Directors' fees 24,500
Registration and filing fees 18,736
Miscellaneous 40,860
------
Total Expenses 1,313,159
NET INVESTMENT INCOME 1,368,087
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on:
Investments 4,008,576
Short sales 368,738
Foreign currency transactions (201,034)
--------
4,176,280
Change in unrealized appreciation on:
Investments 787,776
Short sales 217,904
Foreign currency transactions 74,527
------
1,080,207
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 5,256,487
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,624,574
==============
See notes to financial statements.
8
<PAGE>
THE BAUPOST FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,368,087 $ 1,129,985
Net realized gain on investments and foreign
currency transactions 4,176,280 8,957,318
Change in unrealized appreciation of investments
and foreign currency transactions 1,080,207 (1,527,049)
--------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 6,624,574 8,560,254
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,430,985) (2,363,632)
In excess of net investment income (432,464) -
From net realized gain on investments (8,459,115) (7,387,771)
CAPITAL SHARE TRANSACTIONS (NOTE E) 11,350,535 7,599,783
---------- ---------
INCREASE IN NET ASSETS 7,652,545 6,408,634
NET ASSETS AT BEGINNING OF PERIOD 81,786,834 75,378,200
---------- ----------
NET ASSETS AT END OF PERIOD
(including distributions in excess of
net investment income of ($30,449)
and undistributed net investment
income of $62,898, respectively) $ 89,439,379 $ 81,786,834
============== =============
</TABLE>
See notes to financial statements.
9
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
COMMON STOCKS - 41.64%
FINANCIAL INSTITUTIONS - 9.42%
68,500 Allmerica Financial Corporation $ 1,721,062 *
100 Charter Bank S.B. 2,200
100 Commonwealth Federal Savings Bank 2,388
100 Fidelity Federal Savings Bank Florida 1,775
26,200 First Federal Bancorp (Minnesota) 353,700 *
100 First Federal Savings Bank of Colorado 3,775
120 First Federal Savings Bank of Siouxland 3,240
220 First Savings Bank of SLA/NJ 3,135
100 Harbor Federal Savings Bank 2,325
1,949 Mid-Central Financial Corporation 26,555
770 Mid-Coast Bancorp Inc. 12,705
99,000 Mississippi View Holding Company 1,138,500 *
1,300 Mutual Bancompany Inc. 22,100 *
167,500 QCF Bancorp Inc. 2,386,875 *
1,800 Shelby County Bancorp 27,000
59,900 Trenton Savings Bank FSB 771,212
550 Valley Federal Savings Bank 14,300
110 Wayne Savings and Loan Company 2,310
175,209 Wells Financial Corporation 1,927,299 *
---------
8,422,456
FOOD - 6.32%
397,000 Carr-Gottstein Foods Company 3,176,000 *
107,800 TLC Beatrice International Holdings 2,479,400 *
---------
5,655,400
ELECTRICAL EQUIPMENT - 5.59%
75,100 Emcor Group Inc. 610,188 *
39,500 Semi-Tech Global Co. - ADR 306,125
2,608,603 Semi-Tech Global Co. Ltd. 4,085,177
---------
5,001,490
TOBACCO - 4.63%
134,700 RJR Nabisco Holdings Corp. 4,142,025
</TABLE>
10
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
LESSORS OF REAL PROPERTY - 2.56%
832,159 MBO Properties, Inc. $ 2,288,437 *
HOUSEHOLD APPLIANCES - 2.29%
50,500 National Presto Industries, Inc. 2,045,250
MALT BEVERAGES - 2.13%
189,000 Kirin Brewery Co., Ltd. 1,907,968
CRUDE PETROLEUM - 1.60%
5,300 Basic Holdings Ltd. 490,594 +
34,100 Basic Petroleum International Ltd. 937,750 *
-------
1,428,344
LUMBER & OTHER CONSTRUCTION MATERIALS - 1.12%
115,000 Adam & Harvey Group PLC 999,919
MANUFACTURING - TOYS & DOLLS - 1.06%
4,803,700 Playmates Toys Holdings Ltd. 945,032
PHARMACEUTICALS - 0.86%
114,500 Therapeutic Discovery 772,875 *
MOTOR VECHICLE PARTS & ACCESSORIES - 0.78%
69,618 Pullman 696,180 *
REAL ESTATE INVESTMENT TRUSTS - 0.67%
33,000 Essex Property Trust, Inc. 602,250
</TABLE>
11
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
DEFENSE - 0.62%
69,500 ESCO Electronics Corp. $ 556,000 *
PUBLISHING - 0.58%
114,500 News International PLC Special Div. 515,888
MISCELLANEOUS - 1.41%
17,000 Asbestos Corporation Ltd. 99,513 *
12,875 Associated Group, Inc. Class A 222,094 *
15,475 Associated Group, Inc. Class B 266,944 *
1,300 Bau Holding AG 67,895
165,000 Partridge Fine Arts PLC 198,244
7,070 Prospect Group, Inc. 64,514 *
938,000 Regency Equities 18,291
10,000 RSI Holdings, Inc. 800 *
1,105 The Homestake Oil & Gas Company 99,450 +
1,579 The Homestake Royalty Corporation 221,060 +
-------
1,258,805
TOTAL COMMON STOCKS $ 37,238,319
==============
(Total Cost $35,203,035)
CORPORATE BONDS - 8.73%
4,392,200 Emcor Group Inc. Series C Notes
11.000% 12/15/01 $ 2,453,065
1,380,000 Envirotest Systems Senior Notes 9.125%
due 03/15/01 1,076,400
451,519 Guardian S&L 1990-4 0.000% due 06/25/20 266,397
1,205,000 Louise's Inc. Senior Notes 10.500%
due 11/18/98 301,250 +
4,500,000 Southland Corp. Senior Sub. 5.000%
due 12/15/03 3,706,875
---------
TOTAL CORPORATE BONDS $ 7,803,987
(Total Cost $8,186,829) ==============
</TABLE>
12
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
BONDS AND NOTES IN REORGANIZATION - 8.55%
$ 2,125,000 Eagle-Picher Industries Inc 9.500%
due 03/01/17 $ 743,750 *
1,260,000 El Paso del Norte Sec Lease OBL 9.950%
due 01/02/98 796,950 *
1,470,000 El Paso del Norte Sec Lease OBL 11.250%
due 01/02/14 929,775 *
8,000,000 El Paso Funding 10.750% due 04/01/13 5,060,000 *
45,000 Mansfield Ohio IDR Eagle-Picher 16,650 *
9.750% due 10/01/00
265,000 Port Development Corp. TX Eagle-Picher 98,050 *
9.750% due 10/01/20 ------
TOTAL BONDS AND NOTES IN REORGANIZATION $ 7,645,175
(Total Cost $6,964,075) ==============
CLOSED-END MUTUAL FUNDS - 6.16%
6,600 Fonciere Financiere et de Participation SA $ 236,612
2,400 Hungarian Investment Company 132,000 *
1,684,527 RIT Capital Partners PLC 5,139,728
---------
TOTAL CLOSED-END MUTUAL FUNDS $ 5,508,340
(Total Cost $4,365,103) ==============
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.75%
2,629,376 RTC Series 1991-M2 Class A3 principal only
due 09/25/20 $ 1,840,563
67,702 RTC Series 1991-M2 Class X1 interest only
due 09/25/20 446,386
60,162 RTC Series 1991-M2 Class X2 interest only
due 09/25/20 58,059
87,256 RTC Series 1991-M2 Class X3 interest only
due 09/25/20 114,171
-------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 2,459,179
(Total Cost $2,432,023) ==============
PARTNERSHIPS - 2.50%
149,200 Falcon Cable Systems Co., L.P. $ 1,492,000
185,579 Russia Partners Company L.P. 185,579 +
556,736 Russia Partners Trust 556,736 +
-------
TOTAL PARTNERSHIPS $ 2,234,315
(Total Cost $1,985,131) ==============
</TABLE>
13
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
OPTIONS - 2.17%
400 Bear Stearns Basket 90.0 Puts expiring 08/16/96 $ 2,000 +
400 Bear Stearns Basket 90.0 Puts expiring 08/28/96 2,800 +
400 Bear Stearns Basket 90.0 Puts expiring 10/11/96 3,600 +
120 E.I. du Pont de Nemours 70 Calls expiring 01/97 45,000
50 Gold April 550 Calls expiring 04/07/97 900 +
50 Gold May 550 Calls expiring 05/12/97 1,400 +
170 Hills Stores Co. 18.15 Calls expiring 08/12/96 0 +
450 Philip Morris 50.00 Puts expiring 05/19/97 6,750 +
360 Philip Morris 50.00 Puts expiring 05/19/97 7,920 +
295 Philip Morris 50.00 Puts expiring 05/23/97 5,310 +
295 Philip Morris 50.00 Puts expiring 05/23/97 4,514 +
330 RJR Nabisco Holdings 25 Calls expiring 11/07/97 270,270 +
330 RJR Nabisco Holdings 25 Calls expiring 11/10/97 249,150 +
400 RJR Nabisco Holdings 25 Calls expiring 11/11/97 312,000 +
330 RJR Nabisco Holdings 25 Calls expiring 11/14/97 249,810 +
177 Russell 2000 Index 263.700 Puts expiring 10/28/96 119,263 +
109 Russell 2000 Index 267.000 Puts expiring 10/28/96 64,634 +
127 Russell 2000 Index 270.675 Puts expiring 10/18/96 99,060 +
122 Russell 2000 Index 277.560 Puts expiring 04/02/96 62,914 +
122 Russell 2000 Index 281.970 Puts expiring 09/23/96 126,575 +
128 S&P 500 Index 482.310 Puts expiring 06/14/96 35,200 +
120 S&P 500 Index 491.085 Puts expiring 07/01/96 39,000 +
119 S&P 500 Index 494.190 Puts expiring 06/27/96 41,650 +
116 S&P 500 Index 505.575 Puts expiring 01/17/97 99,416 +
106 S&P 500 Index 520.020 Puts expiring 10/11/96 90,100 +
------
TOTAL OPTIONS $ 1,939,236
(Total Cost $2,912,379) ==============
PURCHASED BANK DEBT & TRADE CLAIMS - 1.82%
$ 2,453,800 Maxwell Comm. Bank Debt - Baker Nye $ 222,242 *+
5,000,000 Maxwell Comm. Berlitz Obligations 450,000 *+
167,868 Maxwell Comm. Revolving Bank Debt - First Chicago 15,383 *+
943,496 Maxwell Comm. Revolving Bank Debt - Halcyon 86,743 *+
396,015 Maxwell Comm. Revolving Bank Debt - Halcyon II 36,289 *+
875,543 Maxwell Comm. Revolving Bank Debt - Lazard Freres 80,176 *+
264,059 Maxwell Comm. Revolving Bank Debt - Merrill Lynch 24,197 *+
823,981 Maxwell Comm. Revolving Bank Debt - San Paolo 75,725 *+
1,015,000 Maxwell Comm. Revolving Bank Debt - TCC Associates 93,243 *+
579,133 Maxwell Comm. Term Bank Debt - First Chicago 52,122 *+
1,678,704 Maxwell Comm. Term Bank Debt - Halcyon 151,083 *+
</TABLE>
14
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
426,846 Maxwell Comm. Term Bank Debt - Lazard Freres 38,416 *+
468,268 Maxwell Comm. Term Bank Debt - Merrill Lynch $ 42,144 *+
325,093 Maxwell Comm. Term Bank Debt - San Paolo 29,258 *+
1,806,951 Maxwell Comm. Term Bank Debt - TCC Associates 162,626 *+
1,750,000 Wheeling-Pittsburgh Nonrestricted Trade Claims 875 *+
---
TOTAL PURCHASED BANK DEBT & TRADE CLAIMS $ 1,623,722
(Total Cost $1,281,328) ==============
COMPANIES IN LIQUIDATION - 1.73%
5,682,800 Antonelli Liquidating Trust $ 120,760 *+
3,150 EHLCO Liquidating Trust 315 *+
$ 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 06/15/93 959,079 *
CHF 5,500,000 Maxwell Comm. Corp. PLC 5.000% due 06/16/95 435,893 *
0 MBO Properties Inc. Liquidating Trust 0 *+
100,550 Timber Realization Liquidating Trust 27,149 *+
------
TOTAL COMPANIES IN LIQUIDATION $ 1,549,336
(Total Cost $464,755) ==============
WARRANTS AND RIGHTS - 0.21%
60,000 Five Arrows Chile Inv. Trust Warrants
Exp. 5/31/99 $ 40,200
473,000 Jardine Strategic Holdings Warrants
Exp. 5/02/98 125,345
1,000 Letchworth Indep Bancshares Warrants
Exp. 12/31/97 5,000
14 Louise's Inc. Warrants Exp. 11/18/98 0 +
1,089,430 Tomei International Holdings Ltd Rights 21,146
------
TOTAL WARRANTS AND RIGHTS $ 191,691
(Total Cost $197,468) ==============
</TABLE>
15
<PAGE>
THE BAUPOST FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
TEMPORARY INVESTMENTS - 26.29%
U S GOVERNMENT OBLIGATIONS - 22.22%
$ 5,000,000 U S Treasury Bill due 02/01/96 $ 4,932,760
5,000,000 U S Treasury Bill due 11/02/95 5,000,000
10,000,000 U S Treasury Bill due 12/14/95 9,939,450 ~
---------
19,872,210
REPURCHASE AGREEMENT - 4.07%
3,641,000 Repurchase Agreement with Chase Manhattan Bank
dated 10/31/95; collateralized by U.S. Government
and/or Federal agency securities; rate 5.60%;
matures 11/01/95; repurchase amount $3,641,566 3,641,000
---------
TOTAL TEMPORARY INVESTMENTS $ 23,513,210
(Total Cost $23,509,787) ==============
TOTAL INVESTMENTS - 102.55% $ 91,706,510
(Total Cost of Investments $87,501,913) ==============
* 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 $10,000,000 of U.S. Treasury Bills due 12/14/95
($5,300,000) is serving as collateral or is segregated for securities
sold short.
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.
</TABLE>
16
<PAGE>
THE BAUPOST FUND
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
MARKET UNREALIZED
VALUE GAIN/(LOSS)
CONTRACTS TO SELL
<S> <C> <C> <C> <C>
GBP 2,950,000 British Pound Sterling due 11/27/95 $ 4,667,254 $ (2,861)
(Receivable amount $4,664,393)
DEM 1,950,000 Deutschemark due 11/27/95 1,386,099 25,845
(Receivable amount $1,411,944)
FRF 1,400,000 French Franc due 11/27/95 286,524 (489)
(Receivable amount $286,035)
JPY 190,000,000 Japanese Yen due 11/13/95 1,863,900 44,209
(Receivable amount $1,908,109)
CHF 700,000 Swiss Franc due 11/27/95 617,344 7,823
------- -----
(Receivable amount $625,167)
Total Contracts to Sell $ 8,821,121 $ 74,527
(Receivable amount $8,895,648) ============= ===========
</TABLE>
See notes to financial statements.
17
<PAGE>
THE BAUPOST FUND
SCHEDULE OF SECURITIES SOLD SHORT
OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES, MARKET
UNITS OR FACE VALUE ($) VALUE
----------------------- -----
<S> <C> <C>
COMMON STOCK - 1.20%
5,975 Liberty Media Group Series A $ 147,134
18,300 News Corp. LTD Preferred Sponsor ADR 333,975
9,200 News Corp. LTD Sponsored ADR 182,850
23,900 Tele-Communications - Class A 406,300
-------
TOTAL SECURITIES SOLD SHORT $ 1,070,259
(Total Proceeds from Securities Sold ================
Short $1,097,000)
</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.
18
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
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 Fund had no operations from the date of organization, other than those
relating to organizational matters, until October 1, 1990, when shares of
beneficial interest were issued at value, to an individual who serves as a
Trustee and Vice-Chairman of the Fund. Limited operations ensued from October 1,
1990 until the exchange of Fund shares for Partnership net assets on December
31, 1990. Effective on December 31, 1990, all of the assets and liabilities of
the Partnership were transferred to the Fund in exchange for shares of
beneficial interest of the Fund (the Shares). 1,792,452.890 shares (after the
effect of the stock split on October 31, 1993) were received by the Partnership
in the exchange (the Exchange) and distributed pro rata by the Partnership to
its partners in liquidation of the Partnership, after which the Partnership was
dissolved. As a result of the Exchange, each partner of the Partnership became a
shareholder of the Fund. Significant investment activity commenced in January
1991.
The following summarizes significant accounting policies of the Fund.
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. Other 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
19
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 U.S.
Government securities sufficient to cover its short position. At October 31,
1995, the Fund has approximately $5.3 million of U. S. Treasury Bills in a
segregated account relating to its short positions. Securities sold short for
which market quotations are available are valued at the last quoted sales price.
If there is no reported sale on the valuation date the closing asked price is
used. Short securities traded in the over-the-counter market are valued at the
most recent asked price as obtained from one or more dealers that make markets
in the securities. Short 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.
Securities sold short at October 31, 1995 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 the foreign
currency or if the counterparties do not perform under the contracts' terms.
FOREIGN CURRENCY TRANSLATION: The value of foreign securities, when held by the
Fund, 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
20
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- CONT.
default for which there is some concern as to whether interest will be received
in cash, in which case interest is recorded when received.
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 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, 1995, $402,015
was reclassified from accumulated undistributed net realized gain on investments
and foreign currency transactions to distributions in excess of net investment
income, due to differences between book and tax accounting for foreign currency
transactions and passive foreign investment companies (PFIC's). This change had
no effect on the net asset value per share.
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.
Effective January 1, 1991, the Fund began to pay 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.
21
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE B--INVESTMENT MANAGEMENT CONTRACT AND OTHER
TRANSACTIONS WITH AFFILIATES--CONT.
Management and administrative fees for the period November 1, 1994 through
October 31, 1995 amounted to $853,905 and $213,476, respectively.
NOTE C--INVESTMENT TRANSACTIONS
Purchases and proceeds from the sale of investment securities (excluding
short-term investments) for the year ended October 31, 1995 aggregated
$81,216,676 and $66,608,572, respectively.
For federal income tax purposes, the identified cost of investments at October
31, 1995 was $88,829,107. Net unrealized appreciation, on a federal income tax
basis, for all securities and securities sold short was as follows:
Year Ended
October 31, 1995
Gross unrealized appreciation $ 9,479,167
Gross unrealized depreciation (6,575,023)
-----------
Net unrealized appreciation $ 2,904,144
===========
In the normal course of operations, the Fund may enter into various contractual
commitments involving forward settlement including foreign currency contracts,
futures contracts, short sales of securities and the writing of option
contracts. Commitments involving future settlement give rise to off balance
sheet market risk, which represents the potential accounting loss that can be
caused by a change in the market value of a particular investment. The Fund's
exposure to off balance sheet market risk is determined by a number of factors,
including the size, composition and diversification of positions held, market
volatility and relative levels of interest rates and foreign currency exchange
rates, if applicable. For securities such as options, the time period during
which the options may be exercised and the relationship between the current
market price of the underlying instrument and the option's contractual strike or
exercise price may also affect the level of off balance sheet risk.
A significant factor influencing the overall level of off balance sheet market
risk to which the Fund is exposed is its use of hedging strategies to mitigate
such risk which may include the use of purchased index options. The Fund closely
monitors and manages its 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.
22
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE C--INVESTMENT TRANSACTIONS- CONTINUED
The Fund uses forward foreign currency contracts to hedge currency risk (See
Schedule of Forward Foreign Currency Contracts). At October 31, 1995 the Fund
had no open positions in futures contracts which it had written.
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 D--RESTRICTED SECURITIES
At October 31, 1995 the Fund held the following securities which are restricted
as to public sale in accordance with the Securities Act of 1933:
<TABLE>
<CAPTION>
Value at Earliest Acquisition
Cost October 31, 1995 Date
---- ---------------- ----
<S> <C> <C> <C>
Purchased Bank Debt & Trade Claims:
Maxwell Communications Corporate Debt $1,281,328 $1,622,846 11/22/93
Wheeling-Pittsburgh
Nonrestricted Trade Claims 0 875 05/11/89
Corporate Bonds:
Louise's Inc. 10.50% due 11/18/98 1,202,590 301,250 11/18/93
Options:
Bear Stearns Basket #1 90 Put
Expiring 08/16/96 130,000 2,000 02/16/95
Bear Stearns Basket #2 90 Put
Expiring 08/28/96 142,000 2,800 03/01/95
Bear Stearns Basket #3 90 Put
Expiring 10/11/96 208,000 3,600 04/12/95
Gold 550 Call Expiring 04/07/97 19,000 900 04/06/95
Gold 550 Call Expiring 05/12/97 10,750 1,400 05/11/95
Hills Stores Co. 18.15 Call Expiring 08/12/96 74,357 0 08/11/95
Philip Morris 50 Put Expiring 05/19/97 61,200 6,750 05/19/95
Philip Morris 50 Put Expiring 05/19/97 52,830 7,920 05/19/95
Philip Morris 50 Put Expiring 05/23/97 33,335 5,310 05/24/95
</TABLE>
23
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE D--RESTRICTED SECURITIES--CONTINUED
<TABLE>
<CAPTION>
Options: (continued) Value at Earliest Acquisition
- ------------------- Cost October 31, 1995 Date
---- ---------------- ----
<S> <C> <C> <C>
Philip Morris 50 Put Expiring 05/23/97 35,990 4,514 05/24/95
RJR Nabisco 25 Call Expiring 11/07/97 221,173 270,270 05/08/95
RJR Nabisco 25 Call Expiring 11/10/97 229,680 249,150 05/10/95
RJR Nabisco 25 Call Expiring 11/11/97 298,000 312,000 05/11/95
RJR Nabisco 25 Call Expiring 11/14/97 231,660 249,810 05/17/95
Russell 2000 281.97 Put Expiring 09/23/96 87,913 126,575 09/21/95
Russell 2000 270.675 Put Expiring 10/18/96 105,037 99,060 10/17/95
Russell 2000 277.56 Put Expiring 04/02/96 45,421 62,915 10/02/95
Russell 2000 267.00 Put Expiring 10/28/96 82,884 64,634 10/25/95
Russell 2000 263.70 Put Expiring 10/28/96 135,200 119,263 10/26/95
S & P 500 Index 482.31 Put
Expiring 06/14/96 130,331 35,200 06/13/95
S & P 500 Index 491.085 Put
Expiring 07/01/96 117,860 39,000 06/30/95
S & P 500 Index 494.19 Put
Expiring 06/27/96 118,271 41,650 06/26/95
S & P 500 Index 505.575 Put
Expiring 01/17/97 170,820 99,416 07/17/95
S & P 500 Index 520.02 Put
Expiring 10/11/96 113,307 90,100 10/11/95
Partnerships:
Russia Partners Company, L.P. 157,834 185,579 02/28/95
Russia Partners Trust 556,736 556,736 02/28/95
Common Stock:
Basic Holdings Limited 346,885 490,595 07/06/95
The Homestake Oil & Gas Company 113,815 99,450 02/10/94
The Homestake Royalty Corporation 241,587 221,060 02/10/94
Companies in Liquidation:
Antonelli Liquidating Trust 362,177 120,760 12/02/93
Ehlco Liquidating Trust 1,047 315 01/30/89
MBO Properties Inc. Liquidating Trust 0 0 11/25/92
Timber Realization Liquidating Trust 0 27,148 08/03/87
</TABLE>
24
<PAGE>
THE BAUPOST FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE D--RESTRICTED SECURITIES--CONTINUED
Warrants and Rights:
Louise's Inc. Warrants Expiring 11/18/98 2,410 0 11/18/93
------- ------
TOTAL RESTRICTED SECURITIES $7,121,428 $5,520,851
(6.17% of Net Assets) ========== ==========
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, 1995 October 31, 1994
---------------- ----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 1,160,287.242 $14,670,652 1,895,347.378 $25,966,736
Shares issued in
reinvestment of
dividends 798,660.448 9,823,524 746,090.528 9,751,403
Shares redeemed (1,026,796.162) (13,143,641) (2,036,627.325) (28,118,356)
--------------- ------------ --------------- ------------
NET INCREASE 932,151.528 $11,350,535 604,810.581 $7,599,783
=========== =========== =========== ==========
</TABLE>
25
<PAGE>
THE BAUPOST FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 PERIOD ENDED
--------------------- OCTOBER 31,
SELECTED PER SHARE DATA (A) 1995 1994 1993 1992 1991(d)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $14.33 $14.77 $12.56 $11.97 $10.04
------ ------ ------ ------ ------
Income from Investment Operations
Net investment income 0.25 0.22 0.28 0.24 0.47
Net realized and unrealized gain (loss) 0.71 1.23 2.76 0.88 1.46
---- ---- ---- ---- ----
Total from investment operations 0.96 1.45 3.04 1.12 1.93
---- ---- ---- ---- ----
Less Distributions
From net investment income 0.25 0.46 0.22 0.53 -
In excess of net investment income 0.08 - - - -
From net realized gain 1.49 1.43 0.61 - -
---- ---- ---- ---- ----
Total distributions 1.82 1.89 0.83 0.53 -
---- ---- ---- ---- ----
Net Asset Value, end of period $13.47 $14.33 $14.77 $12.56 $11.97
====== ====== ====== ====== ======
TOTAL RETURN 7.91% 11.06% 25.45% 9.51% 19.21%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, end of period (in thousands) 89,439 81,787 75,378 46,942 35,054
Ratio of expenses to average net assets 1.54% 1.53% 1.52% 1.50% 1.50%(c)
Total expenses to average net assets 1.54% 1.55% 1.63% 1.72% 2.01%(c)
Ratio of net investment income to
average net assets 1.60% 1.32% 2.29% 2.07% 5.33%(c)
Ratio of net investment income excluding
waiver of management fee to average
net assets 1.60% 1.30% 2.17% 1.85% 4.82%(c)
Portfolio Turnover rate 106% 161% 183% 137% 144%
</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) Total returns for periods of less than one year are not annualized.
(c) Annualized.
(d) For the period January 1, 1991 - October 31, 1991. For the period from
June 29, 1990 (date of organization) to December 31, 1990, net income of
$2,993, or $1.50 per share, was distributed to the Fund's sole
shareholder. Such distributions represented the net income of the Fund
prior to the date shares of beneficial interest were issued.
26
