<PAGE> 1
THE BAUPOST FUND (THE "FUND")
Supplement dated December 30, 1997 to the Prospectus
dated February 28, 1997
At a meeting of the shareholders of the Fund held on December 22, 1997,
shareholders voted to approve a Management Contract between the Fund and The
Baupost Group, L.L.C. The Management Contract is substantially identical to the
current Management Contract with The Baupost Group, Inc. The Management Contract
is anticipated to take effect January 2, 1998. All references in the Prospectus
to "Baupost" or the "adviser" will refer to The Baupost Group, L.L.C. at such
time.
****************
The section of the Prospectus entitled "Custodians" is replaced
with the following:
"State Street Bank and Trust Company acts as the Fund's principal
custodian. State Street has contracted with certain foreign banks and
depositories to hold portfolio securities outside of the United States
on behalf of the Fund. The custodian has no part in determining the
Fund's investment policies or which securities are to be purchased or
sold for the Fund."
All references in the Prospectus to "Chase Manhattan Bank, N.A." are replaced
with "State Street Bank and Trust Company."
****************
The Section of the Prospectus entitled "Transfer and Dividend Disbursing
Agent and Administrator" is replaced with the following:
ADMINISTRATOR
Baupost acts as the Fund's administrator under an Administrative
Services Agreement. Under the agreement with the Fund, Baupost
furnishes pricing and bookkeeping services to the Fund and determines
the net asset value of the Fund's shares. For these services, the Fund
pays Baupost a quarterly fee at the annual rate of .25% of the Fund's
average net asset value.
TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company acts as the Fund's transfer
agent and dividend disbursing agent under a Transfer Agency and Service
Agreement. Under the Agreement with the Fund, State Street provides
customary transfer agency services to the Fund.
<PAGE> 2
THE BAUPOST FUND (THE "FUND")
Supplement dated December 30, 1997 to the Statement
of Additional Information (the "SAI") dated February 28, 1997
At a meeting of the Trustees of the Fund on December 5, 1997, the
Trustees recommended that the shareholders of the Fund vote to amend or
eliminate certain of the Fund's fundamental investment restrictions. At meetings
September 12, 1997 and December 5, 1997, the Trustees approved the amendment or
addition of certain non-fundamental investment restrictions, subject in certain
cases to the approval of the amendment or elimination of certain of the Fund's
fundamental investment restrictions by the shareholders of the Fund. At a
meeting of shareholders of the Fund on December 22, 1997, the shareholders voted
to approve the elimination or amendment of certain of the Fund's fundamental
investment restrictions. The section of the SAI titled "Investment Restrictions"
is replaced in its entirety with the following:
INVESTMENT RESTRICTIONS
The Fund is restricted by the following fundamental investment
restrictions, which may not be changed without a vote of a majority of its
outstanding voting securities. The Investment Company Act of 1940 (the "1940
Act") provides that a "vote of a majority of the outstanding voting securities"
means the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares present at a meeting if more
than 50% of the outstanding shares are represented at the meeting in person or
by proxy.
(1) The Fund may borrow money to the extent permitted by the 1940
Act, the rules or regulations thereunder or applicable orders of
the Securities and Exchange Commission, as such statute, rules,
regulations or orders may be amended from time to time.
(2) The Fund may purchase or sell real estate to the extent
permitted by the 1940 Act, the rules or regulations thereunder
or applicable orders or the Securities and Exchange Commission,
as such statute, rules, regulations or orders may be amended
from time to time.
(3) The Fund may purchase or sell commodities, commodities
contracts, futures contracts or options to the extent permitted
by the 1940 Act, the rules or regulations thereunder or
applicable orders of the Securities and Exchange Commission, as
such statute, rules, regulations or orders may be amended from
time to time.
(4) The Fund may make loans to the extent permitted by the 1940 Act,
the rules or regulations thereunder or applicable orders of the
Securities and Exchange
<PAGE> 3
Commission, as such statute, rules, regulations or orders may be
amended from time to time.
As fundamental investment restrictions which may not be changed without
a vote of a majority of the outstanding voting securities of the Fund, the Fund
may not and will not:
(5) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(6) Invest 25% or more of the value of its total assets in any one
industry. (U.S. Government Securities, including securities
issued by agencies or instrumentalities of the U.S. Government,
and securities backed by the credit of a U.S. governmental
entity will not be considered to represent an industry.)
(7) Issue senior securities, except as appropriate to evidence
indebtedness that the Fund is permitted to incur consistent with
restriction 1 above.
It is contrary to the Fund's present policy, which may be changed by the
Trustees without shareholder approval, to:
(1) Invest more than 15% of its assets in illiquid securities.
(2) Purchase securities on margin, except that the Fund may obtain
short-term credits as may be necessary for the clearance of
purchases and sales of securities, and except that it may make
margin payments in connection with financial futures contracts
or options.
(3) Invest more than 5% (taken at the lower of cost or market value)
of its net assets in warrants (provided that of this 5%, no more
than 2% may be warrants not listed on the New York Stock
Exchange or the American Stock Exchange). For purposes of this
restriction, warrants acquired by the Fund as part of a unit or
attached to securities at the time of purchase are deemed to be
without value.
(4) Borrow money in excess of 10% of the value (taken at the lower
of cost or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made, and then
only from banks as a temporary measure to facilitate the meeting
of redemption requests which might otherwise require the
untimely disposition of portfolio investments or for
extraordinary or emergency purposes.
<PAGE> 4
(5) Pledge, hypothecate, mortgage or otherwise encumber its assets
in excess of 15% of its total assets (taken at current value) in
connection with borrowings permitted by the Fund's investment
restrictions.
With respect to fundamental investment restriction 1 concerning
borrowing, a registered investment company like the Fund may borrow up to
33 1/3% of its total assets under the 1940 Act. With respect to fundamental
investment restrictions 2 and 3, the 1940 Act provides no limits on the
applicable investment activities. With respect to fundamental investment
restriction 4 concerning making loans, the 1940 Act permits a fund to make loans
if expressly permitted by a fund's investment policies, but never to persons who
control or are under common control with that fund. Thus, the 1940 Act
effectively prohibits the Fund from making loans to certain persons when
conflicts of interest or undue influence are most likely present.
For the purposes of fundamental investment restriction 6 concerning
investments in any one industry, the Fund will consider all relevant factors in
determining who is the issuer of a loan participation. These factors will
include the credit quality of the borrower, the amount and quality of the
collateral, the terms of the loan agreement and other relevant agreements
(including inter-creditor agreements), the degree to which the credit of any
person interpositioned between the Fund and the borrower was deemed material to
the decision to purchase the participation interest, the interest rate
environment, and general economic conditions applicable to the borrower and such
interpositioned person.
For the purposes of certain diversification criteria imposed by federal
tax laws, the Fund will consider the borrower to be the issuer of a loan
participation. In addition, with respect to loan participations under which the
Fund does not have privity of contract with the borrower or would not have a
direct cause of action against the borrower in the event of its failure to pay
scheduled principal or interest, the Fund will also consider each person
interpositioned between the Fund and the borrower to be an issuer of a loan
participation.
Except as otherwise noted, all percentage limitations on investments
will apply at the time of the making of an investment and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of such investment.
****************
At a meeting of the shareholders of the Fund held on December 22, 1997,
shareholders voted to approve a Management Contract between the Fund and The
Baupost Group, L.L.C. The Management Contract is substantially identical to the
current Management Contract with The Baupost Group, Inc. The Management Contract
is anticipated to take effect January 2, 1998. All references in the SAI to
"Baupost" or the "adviser" will refer to The Baupost Group, L.L.C. at such time.
