<PAGE>
Baker, Fentress & Company
[ARTWORK]
Annual Report 1997
<PAGE>
BAKER FENTRESS AT A GLANCE
Baker, Fentress & Company, founded in 1891, is a domestic equity closed-end fund
that invests primarily for capital appreciation and for income consistent with
capital preservation. The Company's principal investments include: 1) a
portfolio of publicly-traded securities; 2) John A. Levin & Co., Inc. (Levco), a
wholly-owned subsidiary; 3) a majority interest in Consolidated-Tomoka Land Co.;
and 4) a portfolio of illiquid private placements. Levco manages the portfolio
of publicly-traded securities. The balance of the portfolio is internally
managed by the Company's officers under the supervision of its board of
directors.
The Company's portfolio includes:
.Publicly-traded companies with a focus on long-term
appreciation and capital preservation.
.Illiquid private placements and controlled affiliates.
.Historic investments with significant unrealized appreciation.
The Company has a policy of distributing annually to shareholders amounts equal
to at least 8% of the Company's average net assets. For 1997, the actual
distribution was 12.1% and the 1998 targeted distribution is 12%; after 1998,
distributions are likely to return to the 8% level.
1997 Performance and Distributions
<TABLE>
<CAPTION>
Total Return
------------
<S> <C>
Portfolio Performance...... 15.2%
Shareholder Return......... 25.2
S&P 500 Index.............. 33.4
</TABLE>
============================================
<TABLE>
<CAPTION>
Ordinary Capital
Income Gain
-------- -------
<S> <C> <C>
June 6............... $0.20 $ --
December 5........... 0.34 2.23
-------- -------
$0.54 $2.23
======== =======
Total Distributions $2.77
=======
</TABLE>
Portfolio Sectors*
<TABLE>
<CAPTION>
<S> <C>
Public Portfolio........ 63.76%
Levco................... 16.76%
Consolidated-Tomoka..... 11.34%
Private Placements...... 8.13%
</TABLE>
* Based on percentage of total portfolio market value. Information as of
December 31, 1997 and includes both publicly-traded and illiquid holdings.
Top Ten Holdings
Our top ten holdings as a percent of net assets at December 31, 1997 were:
<TABLE>
<CAPTION>
<S> <C>
Levin Management (with its subsidiaries, including Levco),
Investment advisor.......................................... 16.7%
Consolidated-Tomoka, Florida real estate and citrus......... 11.6
Citadel Communications, Radio broadcasting.................. 2.9
Duke Energy, Electric and gas utility....................... 2.6
Echlin, Automotive parts.................................... 2.6
Aetna, Insurance and financial services..................... 2.1
Pfizer, Pharmaceuticals and health care products............ 2.1
Tribune, Publishing and broadcasting........................ 1.8
Security Capital U.S. Realty, Real estate investment trust.. 1.8
Long Island Lighting, Electric and gas utility.............. 1.8
----
Total....................................................... 46.0%
====
</TABLE>
<PAGE>
To Our Fellow Shareholders:
1997 was an important year of transition for Baker, Fentress & Company (BKF). It
marked our first full year of operations with John A. Levin & Co., Inc.
(Levco) as a wholly-owned subsidiary.
Our shift to a large capitalization value investment strategy in the public
portfolio is nearing completion, with significant changes in the structure of
that sector of our portfolio. Further, we have decided not to make additional
investments in illiquid private placements and to transfer the funds to the
public portfolio as the current private placements mature.
FINANCIAL HIGHLIGHTS
For the fiscal year ended December 31, 1997, BKF's net assets grew to $783.7
million. This represents a total return on net asset value of 15.2%. During the
same period, the total return for the Dow Jones Industrial Average was 24.9%,
and 33.4% for the S&P 500. Performance for each sector of the Company's
portfolio was: Public Portfolio 19.8%, Private Placements 17.4%, Consolidated-
Tomoka Land Co. 12.3%, and Levco 5.0%. As discussed later in the report, the
board of directors has determined that the carrying value of Levco remained
unchanged during 1997. The 5% return on Levco represents interest paid to Baker
Fentress.
In 1997, total shareholder return as measured by the price of the Company's
common stock on The New York Stock Exchange was 25.2%. Average annual total
return for the most recent three- and five-year periods was 23.5% and 15.9%
based on net asset value, and 24.4% and 17.0% based on market price.
Distributions paid in 1997 totaled $94.3 million, or $2.77 per share. This
represents 12.1% of average net assets and 14.7% of average market value for the
year. These higher than normal distributions include a combination of net
investment income and realized capital gain. While we anticipate distributions
of at least 12% of average net assets again in 1998, the restructuring of our
portfolio should be completed by the end of the year and distributions are
likely to return to the normal 8% level thereafter. The board of directors will
determine the actual amount of future distributions based on the Company's net
investment income and net realized capital gain.
LEVCO
In 1997, Levco assets under management grew to $7.4 billion compared to $6.5
billion at the end of 1996. For the 12 months ended December 31, 1997, Levco's
revenue increased to $39.2 million, an 11% increase over 1996. Unaudited
operating income (before interest and taxes) was $16.2 million compared to $16.3
million in the previous year. In terms of assets under management, 72% of
Levco's clients are institutional and 28% are individuals.
In June 1997, Jessica M. Bibliowicz, formerly Executive Vice President of
Smith Barney, joined Levco as President and Chief Operating Officer. Jessica's
expertise in managing a growing business is permitting John A. Levin, Levco's
Chairman and CEO, and Jeffrey A. Kigner, Levco's Chief Investment
Baker, Fentress & Company Annual Report 1997 1
---------------------------------------------
<PAGE>
To Our Fellow Shareholders Continued
[PHOTO OF JAMES P. GORTER CHAIRMAN OF THE BOARD APPEARS HERE]
Officer, to focus their attention on securities analysis and portfolio
management.
As Levco seeks to grow, a top priority will be to develop new business around
its core investment discipline -- large capitalization equity value. This
investment approach emphasizes preservation of capital, risk avoidance, and
control of volatility. Levco's goal is to consistently augment investment
capital, to avoid major losses, and to capture high rates of return -- while
remaining invested in the market. The current team of 14 investment
professionals will continue to work exclusively on this product.
Building around its core discipline, Levco plans to add separate groups of
investment professionals with expertise in different investment strategies. This
decision to enhance its product line should prove attractive to both existing
and potential clients. Such a strategy may also provide vehicles for the
diversification of BKF's public portfolio. Levco is currently exploring the
possibility of hiring a fixed-income team and a small--mid cap equity team, as
well as international analysts. Creating new teams for each of these investment
strategies will complement Levco's large capitalization value approach, without
diverting resources away from its core strategy.
As part of its plan for growth, Levco is in the process of building a first-
rate marketing and client servicing team. This team will serve their existing
base of blue chip clients and play a crucial role in bringing Levco's products
to a larger number of institutional and individual clients.
Levco's program of hiring new investment and marketing professionals has had
and most likely will continue to have a negative, short-term earnings impact.
Based on this and other factors, the board determined it was appropriate to
leave the carrying value of our Levco investment unchanged until the investment
in human capital begins to contribute to the Company's operating results. We
believe, however, that product diversification and marketing support are the
keys to Levco's long-term growth and earnings stability. Furthermore, we expect
that Levco will be the engine that drives the rise in the Company's value by
successfully managing the Baker Fentress public portfolio and by proving to be a
valuable investment in its own right. Based on demographic trends and increasing
savings, the investment management business is expected to experience strong
growth. We are building Levco's professional staff to position it to take full
advantage of this environment.
PRIVATE PLACEMENTS
Total return on our private placement portfolio was 17.4% in 1997. As reported
in our third quarter report, we have decided to withdraw from this business.
Over the last two years, the private placement market has been flooded with new
capital. Competition for transactions is intense and prices, in our opinion, are
extremely high. Given the risk and illiquidity of this type of investment, we
have, therefore, made a decision not to pursue further private investment
opportunities.
Our portfolio of illiquid private investments had a total value of $34.9
million at December 31, 1997. As our present portfolio matures, we plan to
invest the proceeds in publicly-traded securities.
In December 1997, the carrying value of Citadel Communications was raised
from $11.9 million to $22.4 million, reflecting the company's continuing
progress.
2 Baker, Fentress & Company Annual Report 1997
---------------------------------------------
<PAGE>
CONSOLIDATED-TOMOKA LAND CO.
Consolidated-Tomoka Land Co. (CTO) is a Florida-based company primarily engaged
in two lines of business - citrus production and land development. BKF owns
79.9% of CTO's shares.
In 1997, CTO increased its cash dividend from $0.55 to $0.65 per share, an
increase of 18%. In addition to the $4.1 million paid in dividends, CTO also
increased its cash and liquid short-term investments by $8.5 million and reduced
its outstanding debt by $4.4 million.
The citrus industry is currently influenced by the negative effects of a
worldwide imbalance in supply and demand. CTO's citrus operations for calendar
1997 were profitable but disappointing.
At the Ladies Professional Golf Association (LPGA) project, CTO's major
real estate activity, responsibility for the operations of the LPGA
International golf courses was transferred from the City of Daytona Beach to a
wholly-owned subsidiary of CTO. The agreement with the City provides for a
second golf course and a clubhouse to be constructed by CTO in return for a
long-term lease from the City on both golf courses. The first course was
constructed at the expense of the City.
On December 29, 1997, CTO completed the sale of approximately 11,000 acres
of land on the western border of its Daytona Beach-area land holdings for
approximately $10 million. The land sold was not designated for development in
the near term, and since it was acquired for conservation purposes, a new
competitor for future land sales was not created.
Also during 1997, an additional 66 acres of land were sold for
approximately $2 million. Land sales would have been considerably greater except
for the delay of several closings to the first half of 1998 at the buyers'
option.
[PHOTO OF JOHN A. LEVIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, APPEARS HERE]
NEW BOARD
MEMBERS ELECTED
In June, concurrent with her appointment as Levco President and Chief Operating
Officer, Jessica M. Bibliowicz was elected by the board as a Director of BKF. In
November, Dean J. Takahashi, Senior Director of Endowment Management of Yale
University, also was elected to the Company's board. Dean brings a wealth of
investment experience to us, and we welcome both of our new directors.
1998 ANNUAL MEETING
In November, BKF applied to the Securities & Exchange Commission (SEC) for
exemptive relief to allow both BKF and Levco to offer equity-based incentive
compensation to their professional employees. Since any plan approved by the SEC
must also be approved by BKF shareholders, and since the process will take
several months, we are planning to hold the annual meeting later than the usual
April date. The exact date will be communicated to shareholders as soon as it is
determined.
/s/ James P. Gorter
James P. Gorter
Chairman of the Board
/s/ John A. Levin
John A. Levin
President and Chief Executive Officer
Baker, Fentress & Company/Annual Report 1997 3
-----------------------------------------------
<PAGE>
JOHN A. LEVIN & CO., INC.
AN INTERVIEW WITH JESSICA M. BIBLIOWICZ
- ---------------------------------------
President and Chief Operating Officer
[PHOTO OF JESSICA M. BIBLIOWICZ APPEARS HERE]
Levco's singular focus on large cap value equity investing has provided clients
with style consistency through full market cycles and delivered long-term
performance.
HOW DO YOU DESCRIBE LEVCO TO PROSPECTIVE CLIENTS?
Levco is an investment management company that serves a wide range of clients -
from institutions, endowment funds, and foundations to individuals - with a core
investment discipline.
Levco's singular focus on large cap value equity investing has provided
clients with style consistency through full market cycles and delivered long-
term performance. Our investment professionals have an average of more than 12
years of investment experience and have operated together as a team for many of
those years.
HOW IS THE COMPANY ORGANIZED?
We are organized into clearly defined groups of investment, marketing, and
operating professionals. The investment team is the key to the success of our
business. The company is organized to ensure that the investment process runs
smoothly and efficiently so that our team of 14 investment professionals, led by
John Levin, our CEO, and Jeff Kigner, our Chief Investment Officer, can focus on
our core product.
My focus is on new product development, marketing, and operations. We have
a large, well-run operations team and we are taking steps to build up our newly-
formed marketing group.
All that being said, I have found that one of the strongest features of
Levco has been the close cooperation between the different sides of the business
in developing products and addressing operational issues. This is an integrated
firm and it is my job to keep in continuous contact with people in every aspect
of the business so that our integration will remain strong even as we grow.
4 Baker, Fentress & Company Annual Report 1997
---------------------------------------------
<PAGE>
WHAT ARE YOUR PLANS FOR FUTURE PRODUCT DISTRIBUTION?
We would like to establish a solid presence in a number of areas. First, we must
always remember our roots - high net worth individuals and their families for
whom the preservation of capital is a high priority. Second, we will continue to
target institutional clients, such as foundations, universities, non-profit
organizations, and pension plans, that are looking for core equity managers with
low volatility. About 72% of our business today comes from this market. Third,
we would like to increase our strategic penetration of retail markets through
subadvisory relationships with pooled investment funds, participation in broker
consulting programs, and our entry into variable life and variable annuity
products. The addition of new investment products should open new avenues of
distribution, further enhancing our market share.
HOW DO YOU SEE LEVCO IN THE BKF STRUCTURE?
Levco provides two very important catalysts for the growth of Baker Fentress
that we believe will lead to increases in shareholder value. First, of course,
Levco manages BKF's public portfolio, utilizing our large capitalization value
approach. In the future we may also use other investment strategies that become
available as Levco expands its product line. Second, as our organization grows,
increased revenues and profits should be reflected in a higher valuation of
Levco.
[INSERT PHOTO]
Seated: Glenn A. Aigen,
Chief Financial Officer and
Director of Operations.
Standing: Carol L. Novak,
Corporate Secretary and
Director of Administration.
[INSERT PHOTO]
Daniel M. Theriault,
Senior Portfolio Manager/Analyst.
[INSERT PHOTO]
Broker Consulting Department.
Seated (left to right):
Michael P. Ackerman,
Sandra P. Hannon, and
Joseph A. Austin.
Standing (left to right):
Ana F. Pinkerton,
Joyce Chang, Andrew Nam,
and Joanne Furlong.
Baker, Fentress & Company Annual Report 1997 5
---------------------------------------------
<PAGE>
JOHN A. LEVIN & CO., INC.
AN INTERVIEW WITH JEFFREY A. KIGNER
- -----------------------------------
Chief Investment Officer
[PHOTO OF JEFFREY A. KIGNER APPEARS HERE]
Uncovering information through an intensive research process is a key to our
success.
[INSERT PHOTO]
Trading Desk.
Seated: Kathleen A. Knox.
Standing (left to right): Daniel E. Aron,
Keri M. Hills, and Jeffrey A. Malkus.
WHAT IS LEVCO'S INVESTMENT PHILOSOPHY?
Our investment philosophy emphasizes the preservation of capital, risk
avoidance, and control of volatility. Over the long term, our goal is to
consistently augment investment capital, avoid major losses, and capture high
rates of return while remaining invested in the market. We believe that by
seeking to create a portfolio that will generally decline less than the broader
market and will participate in rising markets, we should be able to maximize
shareholder value over the long term.
We believe in bottom-up value investing, designed to achieve superior
returns over a market cycle. As value investors, we do not exclude companies
with new products or growth characteristics out of hand. Sometimes we find value
in those situations when the market fails to recognize unique businesses or
products, and a catalyst exists to change market perception.
HOW HAS JESSICA BIBLIOWICZ'S ARRIVAL AT LEVCO HELPED YOU?
Jessica is a skilled business manager and she has assumed responsibility for our
growth strategy. This has been a tremendous help, as both John Levin and I can
focus all of our energy on investment activities, including the team process of
initiating new investment ideas and developing and implementing the firm's
investment strategy.
HOW HAVE YOU STRUCTURED YOUR TEAM TO CARRY OUT THE INVESTMENT PROCESS?
At least two people from the investment team work together on each opportunity.
Uncovering information through an intensive research process is a key to our
success. We believe we increase our ability to succeed by having more than one
person assessing each company, reviewing financial and technical documents,
discussing the company with corporate management, and talking to a company's
competitors, suppliers, and customers. Essentially, we create an information
network around a company.
6 Baker, Fentress & Company Annual Report 1997
- ------------------------------------------------
<PAGE>
HOW DO YOU THEN SELECT
STOCKS FOR THE PORTFOLIO?
We believe liquidity is an essential element of risk control. We focus on
securities that generally are highly liquid, most of which trade on The New York
Stock Exchange. We also look for companies with proprietary products or
services, companies selling at a discount to their private market value, and/or
companies with new products or developments.
Continuous monitoring is part of the process - not only the initial
research process required to add securities to a portfolio, but the ongoing
process of evaluating each security's fundamentals throughout its holding
period. We attempt to avoid concentrating in any one stock or industry group, or
exposure to other factors that may have broad correlation across the portfolio,
e.g., foreign or domestic economic risks.
We often invest in paired positions, i.e., two or more undervalued
securities whose price movements would be inversely correlated based on a
specific event occurring. When successfully implementing this strategy we can
reduce risks associated with these paired stocks. The objective is to construct
a portfolio with a number of paired positions, thereby reducing the volatility
of the entire portfolio.
WHAT IS YOUR OUTLOOK FOR 1998?
We believe that current expectations for equity rates of return are too high.
American companies have strengthened themselves recently, but we believe it is
going to be more difficult for them to continue at the growth rates we have seen
over the past few years. We expect profit gains to be lower in an increasingly
challenging corporate environment.
Companies without innovative new products and developments are going to
have difficulty maintaining high growth rates. In this economic environment,
stock selection will play an even more important role. We believe our strategy
will prove effective in a difficult market.
The Investment Professionals
[INSERT PHOTO]
Seated (left to right):
Henry A. Levin and Frank F. Rango.
Standing (left to right):
Jeffrey A. Kigner, Joseph A. Austin, and Jack W. Murphy.
[INSERT PHOTO]
Barton G. Ice
[INSERT PHOTO]
Ping Chen,
Patricia P. Lea,
Aracely Kuszel, and
Warren Empey.
Baker, Fentress & Company Annual Report 1997 7
------------------------------------------------
<PAGE>
Review of Operations
In 1997, portfolio performance as measured by net asset value total return was
15.2%. Over the same period, shareholder total return, which is based on the per
share market price of BKF, was 25.2%.
Net asset value total return is a measure of portfolio performance using
industry standard methodology that provides a total return that can be directly
compared to the return on the S&P 500. Shareholder total return is based on
market price. It is the actual return if all distributions had been reinvested
during the year. It is calculated on a per share basis. Expenses are deducted in
the calculation of shareholder return, but are not considered in net asset
return.
The S&P 500 Index posted record performance again in 1997, the stock
market's seventh consecutive year of positive returns. The last three years were
the strongest consecutive three-year period for the S&P 500 Index since the
1930s.
In 1997, the discount between the Company's net asset value and its market
price narrowed from 22.5% at December 31, 1996 to 16.2% at December 31, 1997. As
a result, the market price of the Company's stock generally kept pace with the
broad market, although the net asset value increase trailed the market advance.
In 1997, we continued to restructure our public portfolio to reflect
Levco's large cap value strategy. As discussed earlier, the public portfolio
generated a total return of 19.8% for 1997. This was below the S&P 500 return of
33.4%. This difference can be attributed to the following principal factors:
. Overall, domestic equity funds trailed the S&P 500 return by significant
margin.
. The Levco portfolio trailed the market advance due to its emphasis on risk
control and protection of capital.
. A significant amount of cash was generated from portfolio sales and was
conservatively invested in money market instruments in order to fund
shareholder distributions.
LEVCO OPERATING RESULTS
In 1997, Levco assets under management grew to $7.4 billion compared to $6.5
billion at the end of 1996. For the 12 months ended December 31, 1997, revenue
increased to $39.3 million, an 11% increase over 1996. Unaudited operating
results are shown in the table below.
Comparative Operating Results
<TABLE>
<CAPTION>
(Unaudited) Years ended December 31,
1996 1997
--------- ------
<S> <C> <C>
Assets under mgmt.(a) $6,489(b) $7,359
Revenue (a) 35.4(b) 39.2
Operating income (a) 16.3(b) 16.2
</TABLE>
(a) Stated in millions
(b) Adjusted to include BKF assets and management fee income as if the
acquisition of Levco had taken place on January 1, 1996.
8 Baker, Fentress & Company Annual Report 1997
- ------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Total Return on $10,000 Investment in BKF
For 12 Months Ended December 31, 1997
Reinvested Distributions
Market Per Reinvest New Total Market
Date Description Price Share $ Amount Price Shares Shares Value
- ---- ----------- ------ ----- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 MV 16.8750 592.59 10,000.00
1/31/97 MV 17.7500 592.59 10,518.52
2/28/97 MV 17.7500 592.59 10,518.52
3/31/97 MV 17.8750 592.59 10,592.59
4/30/97 MV 18.0000 592.59 10,666.67
5/31/97 MV 18.5000 592.59 10,962.96
6/30/97 MV 19.7500 598.85 11,827.25
7/31/97 MV 20.7500 598.85 12,426.10
8/31/97 MV 19.8750 598.85 11,902.11
9/30/97 MV 20.8750 598.85 12,500.96
10/31/97 MV 20.0625 598.85 12,014.39
11/30/97 MV 18.0625 598.85 10,816.70
12/31/97 MV 18.2500 685.76 12,515.17
Total Return for 1997 25.16%
</TABLE>
This chart shows that a shareholder who invested $10,000 at the beginning of
1997 in BKF and reinvested all dividends and distributions, would have had
shares with a market value of $12,515 at the end of 1997, resulting in a total
return of 25.2% for the year.
Comparative Total Returns for 1997 - BKF Versus Benchmarks
For 12 Months Ended December 31, 1997
[GRAPH APPEARS HERE]
15.2% BKF NAV
25.2% BKF MarketValue
33.4% S&P 500
24.9% Dow Jones Industrial
22.2% Nasdaq Composite
This chart compares the Baker Fentress total returns, both net asset value and
shareholder (market value), for the 12 months ended December 31, 1997 and the
total returns for certain common broad market indices over the same year.
Baker, Fentress & Company Annual Report 1997 9
-------------------------------------------------
<PAGE>
Review of Public Portfolio
Changing the direction of a portfolio is not a quick and simple task. Our
strategy to shift the management of the public portfolio to Levco and to change
the investment approach will take time to implement and show results.
We believe that our current strategy is sound and will contribute to long-term
gains for shareholders.
Levco took over management of the public portfolio in July 1996 and made
significant changes in the last six months of that year. Because of the low cost
basis, extreme volatility, and lack of liquidity of some of the issues then held
in the portfolio, all of the planned portfolio changes were not made in 1996 and
1997. Thus, the portfolio restructuring will continue to have an impact on
results in 1998. As a result of gains generated by the shift in management
style, annual distributions were temporarily raised from a rate of 8% of average
net assets to 12% for 1997 and 1998.
In 1997, our large cap value style trailed the strong growth of the market as
measured by the S&P 500 Index. Levco's investment approach emphasizes capital
protection and control of volatility, and attempts to outperform the market over
a full cycle. Thus, the underperformance of the public portfolio was not
surprising, considering the record market levels and limited volatility during
the year.
While the restructuring of the public portfolio is not complete, there have
been significant changes in the portfolio. The table below shows the change
in the top ten positions from year-end 1996 to year-end 1997.
PORTFOLIO MANAGERS-
PUBLIC PORTFOLIO
John A. Levin and Jeffrey A. Kigner are co-managers of the Company's portfolio
of publicly-traded securities, supported by a 12-person investment team. Mr.
Levin is Chairman and Chief Executive Officer of Levin Management Co. and Levco,
and was President and Chief Executive Officer of the companies (and of Levco's
predecessor) prior to July 1997. Mr. Kigner has been Co-Chairman of Levin
Management Co. and of Levco since July 1997 and
Public Portfolio -- Top Ten Holdings
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1997
Percent of Percent of
Investment Public Portfolio Investment Public Portfolio
- ----------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
Barnett Banks 3.5% Duke Energy 4.1%
MCI 3.5 Aetna 3.5
T. Rowe Price 3.5 Pfizer 3.4
PanEnergy* 3.4 Tribune 2.9
Harnischfeger 3.3 Long Island Lighting 2.8
United HealthCare 2.9 Minnesota Mining & Mfg. 2.4
Newell 2.7 Boeing 2.4
Boeing 2.7 Bell Atlantic 2.4
Aon 2.2 IBM 2.3
York International 2.1 First Data 2.2
---- ----
Total 29.8% Total 28.4%
==== ====
</TABLE>
*Acquired by Duke Energy in 1997.
10 Baker, Fentress & Company Annual Report 1997
- -------------------------------------------------
<PAGE>
Chief Investment Officer of Levco since September 1997. He was Executive Vice
President of those companies from June 1996 to July 1997, and Portfolio Manager
for Levco's predecessor company prior to June 1996.
As noted in our third quarter 1997 report, on October 27, 1997, Daniel M.
Theriault began managing a portion of the Company's public portfolio, investing
in insurance and specialty financial services stocks. Mr. Theriault re-joined
Levco as Senior Portfolio Manager/Analyst in October 1997. From February 1995 to
October 1997, Mr. Theriault was Vice President/Insurance and Financial Services
Analyst for T. Rowe Price Associates. He was a securities analyst with Levco
from January 1994 to February 1995, and with First Manhattan Co. (a securities
broker-dealer) from November 1990 to January 1994.
<TABLE>
<CAPTION>
PORTFOLIO CHANGES EXCEEDING $2.5 MILLION
Quarter Ended December 31, 1997
Purchases Cost
- --------- ------------
<S> <C>
First Data Corporation.......................................... $ 10,368,772
Aetna Inc....................................................... 9,925,346
Unocal Corporation.............................................. 9,501,269
Rockwell International Corporation.............................. 8,862,222
Bell Atlantic Corporation....................................... 8,287,864
Minnesota Mining and Manufacturing Company...................... 8,150,838
Hewlett-Packard Company, Zero Coupon Conv. Bond due 10/14/2017.. 6,303,620
Endesa, S.A. (ADR).............................................. 4,606,740
Amerada Hess Corporation........................................ 3,880,805
Fortune Brands, Inc............................................. 3,838,899
EXEL Limited.................................................... 2,664,580
------------
$ 76,390,955
============
Sales Proceeds
- ----- ------------
Rockwell International Corporation.............................. $ 10,820,810
Newell Co....................................................... 9,450,555
United HealthCare Corporation................................... 9,244,882
WMX Technologies, Inc........................................... 8,103,449
National Semiconductor Corporation,
6.50% Convertible Bond due 10/01/2002......................... 7,133,677
Varian Associates, Inc.......................................... 6,934,687
Barnett Banks, Inc.............................................. 6,830,771
MCI Communications Corporation.................................. 5,830,149
Corning Incorporated............................................ 5,311,601
Alza Corporation, 5.00% Convertible Bond due 05/01/2006......... 4,911,527
T. Rowe Price Associates, Inc................................... 4,597,856
Endesa, S.A. (ADR).............................................. 4,570,805
Aon Corporation................................................. 4,284,177
Seagate Technology, Inc......................................... 4,227,061
Crown Cork & Seal Company, Inc.................................. 4,063,107
General Re Corporation.......................................... 4,046,518
USG Corporation................................................. 3,832,860
Tellabs, Inc.................................................... 3,713,299
Baxter International Inc........................................ 3,340,965
Owens Corning................................................... 3,323,270
Nextel Communications, Class A.................................. 3,194,581
Kellogg Company................................................. 2,991,611
IMC Global Inc.................................................. 2,950,098
Woolworth Corporation........................................... 2,506,370
------------
$126,214,686
============
</TABLE>
Baker, Fentress & Company Annual Report 1997 11
--------------------------------------------------
<PAGE>
Baker, Fentress & Company Illustration of $10,000 Investment
Total Return on $10,000 Investment
For 20 Years Ended December 31, 1997
This chart and accompanying table illustrate the annual and cumulative
20-year record of a $10,000 investment made at the beginning of 1977.
The results of two measures of past performance are as follows:
Average Annual
Ending Value Compound Total Return
------------ ---------------------
Shareholder Return $277,508 17.6%
Portfolio Performance 165,062 15.1
Shareholder Return is the actual return a Baker, Fentress &
Company shareholder would have achieved assuming purchase of the
shares at the closing market price on the last day of the previous
year and reinvestment of all distributions at the actual reinvestment
price on the payment date. Returns which include 1993 results assume
all primary shares were purchased during the Company's rights offering
at the actual exercise price. For the years when the Company retained
a portion of net realized capital gain and paid taxes due on behalf of
shareholders, the tax credits were treated as reinvested at the
closing market price of the Company's stock on the last day of that
year. The net asset value of the underlying shares held as of December
31, 1997, was $331,185, and the ending market value was $277,508.
Portfolio Performance is the time-weighted total return of the
Company's total net assets. This provides a measure of performance
comparable to the total return of general market indices, such as the
S&P 500.
This total return calculation assumes monthly compounding of
total net assets, with purchases and sales of portfolio securities
assumed to occur at mid-month. Dividend income is treated as earned on
the ex-date and interest income is accrued monthly. Calculations
reflect adjustments for capital gain distributions, treasury stock
purchases, and taxes paid by the Company in years when a portion of
net realized capital gain was retained, but before deduction of
expenses.
The illustrated results are two measures of past
performance. They are not necessarily indicative of future results.
TOTAL RETURN ON $10,000 INVESTMENT
20 Years Ended December 31, 1997
<TABLE>
<CAPTION>
Baker, Fentress & Company
--------------------------------------------------------------
Shareholder Return Portfolio Performance Standard & Poor's 500
--------------------------- ---------------------------- ---------------------------
As of Cumulative Annual Total Cumulative Annual Total Cumulative Annual Total
December 31 Investment Return Investment Return Investment Return
- ----------- ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1978 $ 11,365 13.7% $ 11,775 17.8% $ 10,657 6.6%
1979 16,455 44.8 16,393 39.2 12,640 18.6
1980 21,885 33.0 20,174 23.1 16,749 32.5
1981 22,881 4.6 20,100 -0.4 15,924 -4.9
1982 30,770 34.5 25,302 25.9 19,355 21.6
- --------------------------------------------------------------------------------------------------------------------------
1983 41,080 33.5 30,397 20.1 23,721 22.6
1984 44,574 8.5 31,622 4.0 25,209 6.3
1985 62,123 39.4 42,798 35.3 33,207 31.7
1986 69,756 12.3 48,220 12.7 39,406 18.7
1987 65,698 -5.8 51,008 5.8 41,475 5.3
- --------------------------------------------------------------------------------------------------------------------------
1988 84,720 29.0 58,556 14.8 48,363 16.6
1989 106,722 26.0 70,205 19.9 63,688 31.7
1990 81,296 -23.8 58,213 -17.1 61,711 -3.1
1991 108,965 34.0 73,747 26.7 80,512 30.5
1992 116,058 6.5 78,893 7.0 86,650 7.6
- --------------------------------------------------------------------------------------------------------------------------
1993 155,865(1) 14.2 91,569 16.1 95,378 10.1
1994 144,152 -7.5 87,588 -4.4 96,637 1.3
1995 192,017 33.2 119,325 36.2 132,951 37.6
1996 221,738 15.5 143,346 20.1 163,478 23.0
1997 277,508 25.2 165,062 15.2 218,019 33.4
(1) Includes $23,345 additional investment to purchase all primary shares in the Company's rights offering.
</TABLE>
12 Baker, Fentress & Company Annual Report 1997
- ------------------------------------------------
<PAGE>
20-YEAR PERFORMANCE SUMMARY
[GRAPH REPRESENTING TABLE ON PAGE 12 APPEARS HERE]
<TABLE>
<CAPTION>
PAST PERFORMANCE
AVERAGE ANNUAL COMPOUND TOTAL RETURN
Years Ended Shareholder Portfolio S&P 500
December 31, 1997 Return Performance Stock Index
- ----------------- ----------- ----------- -----------
<S> <C> <C> <C>
1 year 25.2% 15.2% 33.4%
3 years 24.4 23.5 31.2
5 years 17.0 15.9 20.3
10 years 14.5 12.5 18.1
20 years 17.6 15.1 16.7
</TABLE>
Baker, Fentress & Company Annual Report 1997 13
------------------------------------------------
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
December 31, 1997
-----------------
Assets
Investments, at Value:
Portfolio securities:
Unaffiliated issuers (cost $346,998,377).................. $473,042,941
Controlled affiliates (cost $136,176,517)................. 232,280,368
Non-controlled affiliates (cost $13,110,996).............. 22,892,356
Money market securities (cost $29,755,137).................... 29,755,137
------------
Total Investments (cost $526,041,027)................. 757,970,802
Cash and Cash Equivalents..................................... 33,623,060
Receivable for Securities Sold................................ 2,011,722
Dividends and Interest Receivable............................. 3,194,378
Other Assets.................................................. 610,060
------------
Total Assets.......................................... 797,410,022
------------
Liabilities
Bank Borrowing................................................ 5,000,000
Payable for Securities Purchased.............................. 6,502,179
Payable to Affiliate for Investment Management Fee............ 135,000
Accounts Payable and Accrued Liabilities...................... 2,055,620
------------
Total Liabilities..................................... 13,692,799
------------
Net Assets................................................................ $783,717,223
============
Analysis of Net Assets
Common Stock, $1 par value, authorized - 60,000,000 shares;
issued and outstanding - 35,983,081 shares................ $ 35,983,081
Capital Surplus............................................... 414,410,633
Undistributed Net Realized Gain from Investment Transactions.. 53,578,529
Other Retained Earnings (a)................................... 47,815,205
Unrealized Appreciation of Investments........................ 231,929,775
------------
Net Assets................................................................ $783,717,223
============
Net Asset Value Per Share................................................. $21.78
============
</TABLE>
------------------
(a) Prior to January 1, 1970, operating and other non-portfolio
activities were included in other retained earnings.
See accompanying Notes to Financial Statements
14 Baker, Fentress & Company Annual Report 1997
- -------------------------------------------------
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Investment Income:
Dividends from:
Unaffiliated issuers................................... $ 7,089,124
Controlled affiliate................................... 3,250,000
------------
10,339,124
------------
Interest from:
Unaffiliated issuers................................... 4,151,774
Controlled affiliates.................................. 7,442,931
Non-controlled affiliates.............................. 960,000
------------
12,554,705
------------
Total Income....................................... 22,893,829
------------
Expenses:
Investment management fee.................................. 1,536,578
Administration and operations.............................. 1,319,697
Interest on bank borrowing................................. 1,012,447
Investment research........................................ 929,882
Professional fees.......................................... 370,476
Directors' fees and expenses............................... 368,907
Rent....................................................... 309,983
Reports to shareholders.................................... 179,631
Custodian and transfer agent fees.......................... 117,854
Taxes other than income.................................... 91,079
Other...................................................... 520,757
------------
Total Expenses.......................................... 6,757,291
------------
Net Investment Income................................. 16,136,538
------------
Net Realized and Unrealized Gain:
Net realized gain on sales of investments in unaffiliated
issuers, including options purchased and closed short
positions................................................. 100,020,610
Net realized gain on covered call options written.......... 103,416
------------
Net realized gain....................................... 100,124,026
Change in net unrealized appreciation...................... (13,722,353)
------------
Net Realized and Unrealized Gain.................... 86,401,673
------------
Net Increase in Net Assets Resulting from Operations................... $102,538,211
------------
</TABLE>
See accompanying Notes to Financial Statements
Baker, Fentress & Company Annual Report 1997 15
--------------------------------------------------
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations............. $ 102,538,211 $ 115,001,004
Adjustments to reconcile net increase in net assets
resulting from operations to net cash
provided by (used in) operating activities:
Net realized and unrealized (gain) on investments.............. (86,401,673) (104,331,004)
(Increase) decrease in receivable for securities sold.......... (1,614,159) 3,038,797
(Increase) decrease in deposits for securities sold short...... 13,697,890 (13,697,890)
(Increase) in dividends and interest receivable................ (1,344,935) (754,180)
Decrease in other assets....................................... 31,154 330,931
Increase (decrease) in accounts payable and
accrued liabilities......................................... 1,456,807 (7,972)
Increase in payable for investment management fee.............. 15,000 120,000
Increase (decrease) in payable for securities purchased........ 6,502,179 (1,305,000)
Net amortization of (discounts)................................ (216,111) (33,594)
-------------- -------------
Net cash provided by (used in) operating activities......... 34,664,363 (1,638,908)
-------------- -------------
Cash Flows from Investing Activities:
Purchases of portfolio securities and closing
of short positions............................................. (268,551,573) (349,765,816)
Proceeds from sales of portfolio securities
and securities sold short...................................... 331,001,639 423,235,313
Proceeds from options written.................................... 366,138 4,950,712
Cost of options repurchased...................................... (262,721) (6,398,769)
Net realized gain on financial futures transactions.............. -- 1,834,825
(Purchases) and sales/maturities of money
market securities, net......................................... (9,801,287) (18,197,871)
-------------- -------------
Net cash provided by investing activities................... 52,752,196 55,658,394
-------------- -------------
Cash Flows from Financing Activities:
Bank borrowing................................................... -- 38,000,000
Repayment of bank borrowing...................................... (13,000,000) (20,000,000)
Dividends and capital gain distributions......................... (59,967,171) (53,284,608)
-------------- -------------
Net cash used in financing activities.......................... (72,967,171) (35,284,608)
-------------- -------------
Net Increase in Cash and Cash Equivalents.................................. 14,449,388 18,734,878
Cash and Cash Equivalents at the
Beginning of the Year.................................................... 19,173,672 438,794
-------------- -------------
Cash and Cash Equivalents at the End of the Year........................... $ 33,623,060 $ 19,173,672
============== =============
Supplemental Disclosure of
Noncash Investing and Financing Activities:
Issuance of Company stock in exchange for stock of
John A. Levin & Co., Inc..................................... $ -- $ 80,247,302
============== =============
Capital gain distribution reinvestments........................ $ 34,329,668 $ 28,694,067
============== =============
</TABLE>
See accompanying Notes to Financial Statements
16 Baker, Fentress & Company Annual Report 1997
- -------------------------------------------------
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------ ------------
Operations:
<S> <C> <C>
Net investment income................... $ 16,136,538 $ 10,670,000
Net realized gain....................... 100,124,026 83,306,349
Change in net unrealized appreciation... (13,722,353) 21,024,655
------------ ------------
Net increase in net assets resulting
from operations..................... 102,538,211 115,001,004
------------ ------------
Distributions to Shareholders from:
Net investment income................... (15,795,572) (12,684,254)
Net realized gain....................... (78,501,267) (69,294,421)
------------ -------------
Total distributions to shareholders... (94,296,839) (81,978,675)
------------ -------------
Net increase in net assets from
operations after distributions..... 8,241,372 33,022,329
------------ -------------
Capital Share Transactions - Net increase..... 34,329,668 108,941,369
------------ -------------
Total Increase in Net Assets.................. 42,571,040 141,963,698
Net Assets at the Beginning of the Year....... 741,146,183 599,182,485
------------ -------------
Net Assets at the End of the Year............. $783,717,223 $741,146,183
============ ============
</TABLE>
See accompanying Notes to Financial Statements
Baker, Fentress & Company Annual Report 1997 17
------------------------------------------------
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Shares Value
-------- ----------
<S> <C> <C>
INVESTMENTS IN UNAFFILIATED ISSUERS -- 60.36%
Public -- 55.65%
Common Stock -- 54.62%
Basic Materials -- 6.18%
Air Products & Chemicals, Inc............... 98,000 $ 8,060,500
Allegheny Teledyne Incorporated............. 281,000 7,270,875
E.I. du Pont de Nemours and Company......... 164,000 9,850,332
Getchell Gold Corporation (b)............... 225,400 5,409,600
Monsanto Company............................ 176,200 7,400,400
USG Corporation (b)......................... 65,000 3,185,000
W.R. Grace & Co............................. 90,000 7,239,420
-----------
48,416,127
-----------
Capital Goods -- 9.25%
The Boeing Company.......................... 236,436 11,570,705
Electronic Data Systems Corporation......... 107,400 4,718,941
General Electric Company.................... 86,000 6,310,250
Harnischfeger Industries, Inc............... 218,920 7,730,722
Litton Industries, Inc. (b)................. 95,000 5,462,500
Lockheed Martin Corporation................. 78,600 7,742,100
Minnesota Mining and Manufacturing Company.. 145,600 11,948,373
Owens-Illinois, Inc. (b).................... 226,500 8,592,957
Rockwell International Corporation.......... 51,300 2,680,425
York International Corporation.............. 145,000 5,736,659
-----------
72,493,632
-----------
Communication Services -- 2.17%
Bell Atlantic Corporation................... 126,700 11,529,700
MCI Communications Corporation.............. 128,500 5,501,470
-----------
17,031,170
-----------
Consumer Cyclical -- 4.54%
The Black & Decker Corporation.............. 143,500 5,605,540
Cendant Corporation......................... 217,961 7,492,415
General Motors Corporation.................. 100,000 6,075,000
J.C. Penney Company, Inc.................... 35,000 2,110,955
Tribune Company............................. 230,000 14,317,500
-----------
35,601,410
-----------
Consumer Staples -- 2.45%
Fortune Brands, Inc......................... 109,400 4,054,692
Time Warner Inc............................. 130,000 8,060,000
U. S. West Media Group (b).................. 245,000 7,074,375
-----------
19,189,067
-----------
Energy -- 3.01%
Amerada Hess Corporation.................... 101,200 5,553,350
Union Texas Petroleum Holdings, Inc......... 420,000 8,741,460
Unocal Corporation.......................... 238,500 9,256,900
-----------
23,551,710
-----------
</TABLE>
See accompanying Notes to Statement of Investments
18 Baker, Fentress & Company | Annual Report 1997
- ----------------------------------------------------
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Shares Value
------ -----
INVESTMENTS IN UNAFFILIATED ISSUERS (Continued)
Financials - 14.73%
<S> <C> <C>
Ace Ltd.................................................. 7,700 $ 743,050
Aetna Inc................................................ 214,800 15,156,932
Affiliated Managers Group, Inc. (b)...................... 6,300 182,700
H.F. Ahmanson & Company.................................. 3,300 220,895
American Express Company................................. 3,500 312,375
American General Corporation............................. 7,500 405,473
American International Group, Inc........................ 33,000 3,588,750
Aon Corporation.......................................... 175,000 10,259,375
BankBoston Corporation................................... 4,800 450,902
Barnett Banks, Inc....................................... 57,000 4,096,875
Capital Re Corporation................................... 2,700 167,570
The Chase Manhattan Corporation.......................... 59,200 6,482,400
Cigna Corporation........................................ 1,250 216,329
The CIT Group, Class A (b)............................... 20,000 645,000
Citicorp................................................. 44,500 5,626,491
Countrywide Credit Industries, Inc....................... 5,000 214,375
Erie Indemnity Company................................... 10,400 306,800
ESG RE Ltd. (b).......................................... 28,500 669,750
EXEL Limited............................................. 44,400 2,813,850
Fairfax Financial Holdings Ltd. (Stock purchase rights).. 78,000 48,360
First Chicago NBD Corporation............................ 6,000 501,000
First Data Corporation................................... 369,400 10,804,950
First Investors Financial Services Group, Inc. (b)....... 117,300 821,100
First Sierra Financial, Inc. (b)......................... 10,000 177,500
First Union Corporation.................................. 9,750 499,688
Fleet Financial Group, Inc............................... 4,500 338,063
Friedman, Billings, Ramsey Group, Inc. (b)............... 9,300 166,823
General Re Corporation................................... 39,000 8,268,000
Golden West Financial Corporation........................ 3,200 313,002
Horace Mann Educators Corporation........................ 10,000 284,380
INMC Mortgage Holdings, Inc.............................. 17,500 410,165
KeyCorp.................................................. 4,500 318,659
LECG, Inc................................................ 50,000 437,500
Leucadia National Corporation............................ 11,000 379,500
Mellon Bank Corporation.................................. 4,000 242,500
Mid Ocean Limited (ORD).................................. 18,300 992,775
Mutual Risk Management Ltd............................... 14,000 419,132
NAC Re Corp.............................................. 8,000 390,504
NationsBank Corporation.................................. 8,000 486,504
Partner Re Ltd........................................... 56,700 2,629,463
Penncorp Financial Group, Inc............................ 9,000 321,192
Provident Companies, Inc................................. 12,000 463,500
SLM Holding Corporation.................................. 5,600 779,100
Stirling Cooke Brown Holdings Limited (b)................ 7,500 183,750
The St. Paul Companies, Inc.............................. 2,500 205,158
T. Rowe Price Associates, Inc............................ 85,100 5,350,662
Terra Nova Holdings Ltd., Class A........................ 27,800 729,750
TIG Holdings, Inc........................................ 295,000 9,790,460
Tokio Marine and Fire Insurance Company (ADR)............ 125,000 7,218,750
Transamerica Corporation................................. 4,000 426,000
Travelers Group Inc...................................... 12,450 670,744
UICI (b)................................................. 6,000 209,250
Unitrin, Inc............................................. 102,000 6,591,750
UNUM Corporation......................................... 6,200 337,125
Washington Mutual, Inc................................... 6,050 386,069
Willis Corroon Group (ADR)............................... 25,000 307,825
-----------
115,460,545
-----------
</TABLE>
See accompanying Notes to Statement of Investments
Baker, Fentress & Company Annual Report 1997 19
----------------------------------------------------
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Shares or
Principal Amount Value
---------------- ------------
INVESTMENTS IN UNAFFILIATED ISSUERS (continued)
<S> <C> <C>
Health Care - 4.38%
Baxter International Inc......................................... 121,300 $ 6,118,129
Genentech, Inc. (b).............................................. 139,400 8,451,125
Pfizer Inc....................................................... 226,400 16,881,063
Rhone-Poulenc S.A. (ADR)......................................... 67,500 2,982,656
-----------
34,432,973
-----------
Technology - 1.72%
General Motors Corporation, Class H.............................. 62,700 2,316,013
International Business Machines Corporation...................... 107,200 11,215,800
-----------
13,531,813
-----------
Transportation - 0.76%
Union Pacific Corporation........................................ 93,000 5,806,734
-----------
Utilities - 5.43%
Consolidated Edison of New York, Inc............................. 65,700 2,693,700
Duke Energy Corporation.......................................... 365,540 20,241,777
Long Island Lighting Company..................................... 457,900 13,794,238
Texas Utilities Company.......................................... 141,100 5,855,650
-----------
42,585,365
-----------
Total common stock (Cost $314,290,167)....................... 428,100,546
-----------
Preferred Stock - 0.23%
Aetna Inc., 6.25% Class C........................................ 25,000 1,787,500
-----------
Total preferred stock (Cost $1,625,491)........................ 1,787,500
-----------
Convertible Bonds - 0.80%
Hewlett-Packard Company, Zero Coupon Bond
due 10/14/2017 (g).............................................. 11,935,000 6,250,956
-----------
Total convertible bonds (Cost $6,336,820).................... 6,250,956
-----------
Total public portfolio (Cost $322,252,478)................... 436,139,002
-----------
Private Placement - 4.71%
Echlin Inc. - manufacturer of automotive parts and components
Common stock................................................... 553,162 20,017,827
Paracelsus Healthcare Corporation - hospital management company
Common stock (b)(c)(e)......................................... 535,443 1,445,696
Security Capital U.S. Realty - real estate investment trust
Common stock (b)............................................... 983,528 13,966,092
Golder, Thoma, Cressey Fund II Limited Partnership (c)(d)........ $ 209,222 1,446,932
Phillips-Smith Specialty Retail Group Limited Partnership (c)(d). $ 61,021 27,392
-----------
Total private placement portfolio (Cost $24,745,899)......... 36,903,939
-----------
Total investments in unaffiliated issuers (Cost $346,998,377).... 473,042,941
-----------
</TABLE>
See accompanying Notes to Statement of Investments
20 Baker, Fentress & Company Annual Report 1997
- --------------------------------------------------
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Shares or
Principal Amount Value
---------------- -----
<S> <C> <C>
INVESTMENTS IN CONTROLLED AFFILIATES -- 29.64%
Publicly-Traded -- 11.57%
Consolidated-Tomoka Land Co., Common Stock
(majority-owned)--development of Florida real estate;
production and sale of citrus fruit (Cost $5,030,627).................. 5,000,000 $ 90,625,000
------------
Private Placement -- 1.34%
DuroLite International, Inc. -- manufacturer and distributor
of specialized lighting products
Convertible Preferred Stock (b)(c)(d).................................. 2,500 2,627,250
12% Subordinated Note due 11/03/2004 (c)(d)........................... $ 8,000,000 7,872,750
------------
Total private placement portfolio (Cost $10,500,000).............. 10,500,000
------------
Wholly-Owned Subsidiary -- 16.73%
Levin Management Co., Inc. -- investment management
Common Stock (b)(c)(d)................................................. 1,000 66,155,368
9.75% Notes due 06/28/1999 (c)(d)...................................... $65,000,000 65,000,000
------------
Total wholly-owned subsidiary (Cost $120,645,890)................. 131,155,368
------------
Total investments in controlled affiliates (Cost $136,176,517)........... 232,280,368
------------
INVESTMENTS IN NON-CONTROLLED AFFILIATES -- 2.92%
Private Placement -- 2.92%
Citadel Communications Corporation - radio broadcasting
Series A Convertible Preferred Stock (b)(c)(d)......................... 746,412 22,392,356
TBN Holdings Inc. - hazardous waste recycler
12% Subordinated Note due 12/31/2002 (c)(d)(f)......................... $ 8,000,000 500,000
Series C-3 Convertible Preferred Stock (b)(c)(d)....................... 1,511,628 --
Stock Purchase Warrants Expiring 12/31/2002 (c)(d)..................... 1,100,000 --
------------
Total investments in non-controlled affiliates (Cost $13,110,996)........ 22,892,356
------------
MONEY MARKET SECURITIES -- 3.79%
U.S. Treasury Bills -- 5.155% DUE 02/26/1998............................. $30,000,000 29,755,137
------------
Total Investments In Money Market
Securities (Cost $29,755,137).......................................... 29,755,137
------------
Total Investments -- 96.71% (Cost $526,041,027).......................... 757,970,802
------------
Cash and Other Assets, Less Liabilities -- 3.29%......................... 25,746,421
------------
NET ASSETS -- 100.00%.................................................... $783,717,223
============
</TABLE>
See accompanying Notes to Statement of Investments
Baker, Fentress & Company Annual Report 1997 21
-------------------------------------------------
<PAGE>
NOTES TO STATEMENT OF INVESTMENTS
---------------------
(a) Based on the cost of investments of $475,269,870, for federal income
tax purposes at December 31, 1997, net unrealized appreciation was
$282,700,932, which consisted of gross unrealized appreciation of
$297,890,025 and gross unrealized depreciation of $15,189,093.
(b) Non-income producing security.
(c) The following securities are subject to legal or contractual
restrictions on sale. They are valued at cost on the dates of
acquisition and at a fair value determined in good faith by the board
of directors of the Company as of December 31, 1997, based upon all
factors deemed relevant by the board. The quantitative and qualitative
factors considered by the board of directors may include, but are not
limited to, type of securities, nature of business, marketability,
restrictions on disposition, market price of unrestricted securities
of the same issue (if any), comparative valuation of securities of
publicly-traded companies in the same or similar industries, valuation
of recent mergers and acquisitions of similar companies, current
financial condition and operating results, sales and earnings growth,
operating revenues, competitive conditions, and current and
prospective conditions in the overall stock market.
The values determined by the board of directors may not reflect
amounts that could be realized upon immediate sale, nor amounts that
ultimately may be realized. Accordingly, the fair values included in
the statement of investments may differ from the values that would
have been used had a ready market existed for these securities, and
such differences could be significant.
The aggregate value of restricted securities was $167,467,744, or
21.4% of net assets, at December 31, 1997.
<TABLE>
<CAPTION>
No. of Shares or
Security Description Date(s) of Acquisition Principal Amount Cost
- ----------------------------------------------------------- ---------------------- ---------------- ----------
<S> <C> <C> <C>
Citadel Communications Corporation
Series A Convertible Preferred Stock..................... May 1993 746,412 $1,860,996
DuroLite International, Inc.
Convertible Preferred Stock.............................. November 1995 2,500 2,627,250
12% Subordinated Note due 11/03/2004..................... November 1995 $ 8,000,000 7,872,750
Golder, Thoma, Cressey Fund II Limited Partnership......... June 1984-December 1988 $ 209,222 209,222
Levin Management Co., Inc.
Common Stock............................................. June 1996 1,000 55,645,890
9.75% Notes due 6/28/1999................................ June 1996 $65,000,000 65,000,000
Paracelsus Healthcare Corporation
Common Stock............................................. December 1993-May 1996 $ 535,443 4,068,985
Phillips-Smith Specialty Retail Group Limited Partnership.. March 1987-September 1987 $ 61,021 61,021
TBN Holdings Inc.
12% Subordinated Note due 12/31/2002..................... January 1995 $ 8,000,000 8,000,000
Series C-3 Convertible Preferred Stock................... January 1995 1,511,628 3,239,000
Stock Purchase Warrants Expiring 12/31/2002.............. January 1995 1,100,000 11,000
</TABLE>
(d) There were no unrestricted securities of the same issue outstanding on
December 31, 1997 or the dates of acquisition.
(e) Represents 80% of the current market price of unrestricted common
stock of Paracelsus Healthcare Corporation.
(f) Security not current as to payment of interest.
(g) Security exempt from registration requirements under Rule 144A of the
Securities Act of 1993 which permits resales of eligible securities
issued in private placements and other transactions to "Qualified
Institutional Investors."
22 Baker, Fentress & Company Annual Report 1997
- -------------------------------------------------
<PAGE>
NOTES TO STATEMENT OF INVESTMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The Company is registered under the Investment Company Act of 1940 as a non-
diversified closed-end management investment company. The Company invests
primarily for capital appreciation and for income consistent with capital
preservation.
Investment valuation
Investments are stated at "value." Securities traded on securities exchanges or
on the Nasdaq National Market are valued at the last reported sales prices on
the day of valuation; listed and Nasdaq securities for which no sales were
reported on that day and other securities traded in the over-the-counter market
are valued at the mean of closing bid and asked prices on that day. Money market
securities are valued at amortized cost, which approximates market value.
Options traded on an exchange are valued using the last sale price on the day of
valuation or, if the last sale price falls outside the range of the bid and
asked prices, at the bid or asked price in the case of long options and short
options, respectively. Restricted securities and other securities for which
prices are not readily available, or for which market quotations are considered
not to reflect fair value, are valued at a fair value as determined by the board
of directors, as explained in Note (c) in the Notes to Statement of Investments.
The values determined by the board of directors, including the values of the
Company's investments in Consolidated-Tomoka Land Co. (CTO) and Levin Management
Co., Inc. (Levco), discussed below, may not reflect amounts that could be
realized upon immediate sale, nor amounts that ultimately may be realized.
Accordingly, the fair values included in the Company's financial statements may
differ from the values that would have been used had a ready market existed for
these securities, and such differences could be significant.
The Company may be considered to be a "controlling person" of CTO and Levco
within the meaning of the Securities Act of 1933. A public distribution of
shares of these companies would require registration under the Securities Act.
The shares of CTO are valued by the board of directors at the closing price as
reported by the American Stock Exchange on the day of valuation. The shares of
Levco are not publicly-traded and are valued at a fair value as determined by
the board of directors.
Investment transactions
Investment transactions are accounted for on the trade date. Realized gains and
losses on investment transactions are determined on an identified cost basis.
Investment income
The Company records dividends on the ex-dividend date. Interest income is
recorded on an accrual basis and includes amortization of premium and discount.
Such income is classified based on the affiliation status of the issuer as of
the date of the financial statements.
Cash equivalents
The Company maintains cash balances at its custodian bank in an interest-bearing
demand deposit account.
Federal income taxes, dividends, and distributions to shareholders
In order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes, the Company intends to distribute substantially
all of its taxable net investment income (including net realized short-term
capital gain, if any) within the time limits prescribed by the Internal Revenue
Code. Accordingly, no provision has been made for federal income or excise tax
on such income.
Dividends and distributions payable to shareholders are recorded by the
Company on the ex-dividend date.
NOTE 2. CAPITAL STOCK
Transactions in capital stock for 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Shares Amount
---------------------- --------------------------
1997 1996 1997 1996
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Reinvestment of capital gain distributions................................. 1,940,900 1,639,661 $ 1,940,900 $ 1,639,661
Acquisition of Levin Management Co., Inc. ................................. -- 4,858,879 -- 4,858,879
Increase in capital surplus................................................ 32,388,768 102,442,829
----------- ------------
Net increase............................................................. $34,329,668 $108,941,369
----------- ------------
</TABLE>
The Company may purchase shares of its own stock in open market or private
transactions from time to time and at such prices and amounts as management may
deem advisable. Since such
Baker, Fentress & Company Annual Report 1997 23
-------------------------------------------------
<PAGE>
purchases are made at prices below net asset value, they increase the net asset
value per share of the remaining shares outstanding. The Company made no such
purchases during 1997 or 1996.
NOTE 3. EXPENSES
Aggregate compensation paid or accrued during the year ended December 31, 1997
to officers of the Company amounted to $930,000. Fees of $303,400, excluding
expenses, were incurred during 1997 for directors who were not officers of the
Company.
NOTE 4. FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS
In December of each year, the Company distributes to its shareholders all or a
portion of its net long-term capital gain realized during the year. The capital
gain distribution is paid in additional shares of the Company's stock, or in
cash if so elected by individual shareholders.
In 1997, the Company made a long-term capital gain distribution of $2.23
per share, of which 54.7% is subject to a 20% capital gain tax rate, and 45.3%
is subject to a 28% capital gain tax rate. Approximately 44.1% of the $0.54 per
share of ordinary income dividends paid during 1997 qualified for the corporate
dividends received deduction, and 4.6% represented income earned on U.S.
government obligations.
NOTE 5. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during 1997,
excluding options written and money market investments, aggregated $268,022,245
and $330,683,027, respectively.
NOTE 6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Securities sold short:
Securities sold short represent obligations by the Company to purchase
securities at a future date at then prevailing market prices. These transactions
usually result in off-balance sheet risk, as the ultimate obligation may exceed
the amount shown in the financial statements. This off-balance sheet risk is
offset if the Company owns the underlying securities.
The Company is required to maintain adequate collateral with its broker
based on a specified percentage of the value of all securities sold short. The
Company earns interest, based on agreed upon rates, on cash amounts deposited
with the broker. The Company has no securities sold short as of December 31,
1997.
Options:
The Company may enter into option transactions to limit volatility with respect
to unrealized appreciation and to defer realization of gain. Written options
represent the obligation to receive or deliver the underlying security at a
specified price during a specific time period. Written options result in off-
balance sheet risk, as the ultimate obligation may exceed the amount shown in
the financial statements. This risk is offset to the extent that the Company
owns the underlying securities (i.e., "covered call options"). A summary of
activity relating to written options for the year ended December 31, 1997
follows:
Contracts Premiums
--------- -----------
Outstanding at beginning of year......... -- $ --
Options written.......................... 450 366,138
Options repurchased...................... (450) (366,138)
--------- -----------
Options outstanding at end of year....... -- $ --
NOTE 7. RETIREMENT PLANS AND POST-RETIREMENT HEALTH CARE BENEFITS
The Company maintains a non-contributory money purchase pension plan covering
all employees. Company contributions are based on compensation. Total plan
contributions for 1997 were $180,870.
In anticipation of the acquisition of Levin Management Co., Inc. in 1996,
the Company's board of directors terminated the non-contributory defined benefit
pension plan covering all of its employees, as of December 31, 1995. As a
result, all participants became fully vested and distribution of their accrued
vested benefits under the Plan took place in 1997.
The Company also provides certain health care benefits for retired
employees. All of the Company's employees become eligible for these benefits
upon retirement and the coverage is provided on a contributory basis. These
benefits are subject to deductible and co-payment provisions, medicare
supplements and other limitations. The net expense for post-retirement health
care benefits for 1997 was $75,270.
24 Baker, Fentress & Company Annual Report 1997
--------------------------------------------
<PAGE>
NOTE 8. BANK BORROWING AND LINE OF CREDIT
On June 24, 1996, the Company entered into a $40 million revolving credit
agreement with The Northern Trust Company. The facility expires on June 24,
1999. Borrowings outstanding are at the London Interbank Offered Rate (LIBOR)
plus 0.35%. The commitment fee associated with the unused portion of the
revolving credit agreement is 0.08% per annum.
The amount outstanding at December 31, 1997 was $5.0 million. The interest
rate is reset periodically under the revolving credit facility and the fair
value of the debt at December 31, 1997 approximates its carrying value. The
maximum borrowing and the average daily borrowing balances during the period for
which borrowings were outstanding were $18.0 million and $16.5 million,
respectively. The interest rate at December 31, 1997 and the weighted average
interest rate during 1997 were 6.26% and 5.99%, respectively.
NOTE 9. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
Agreements:
The Company has an investment advisory contract with John A. Levin & Co., Inc.,
a wholly-owned subsidiary of Levin Management Co., Inc., and an indirect wholly-
owned subsidiary of the Company, which provides for payment of a fee at an
annual rate of 0.30%, based on the value of the assets of the public portfolio
of the Company. For the year ended December 31, 1997, the Company incurred
management fees of $1,536,578.
The Company's investments, other than the public portfolio, are managed by
the Company's officers under the supervision of its board of directors. A
summary of transactions with affiliated companies during the year ended December
31, 1997 follows:
<TABLE>
<CAPTION>
Purchases Realized
(Sales) Gain (Loss) Income
--------- ----------- -----------
<S> <C> <C> <C>
Consolidated-Tomoka
Land Co....................... $ -- $ -- $ 3,250,000
DuroLite International
Note....................... -- -- 960,000
Levin Management Co., Inc.
Common stock............... -- -- --
Notes due 6/30/1997
and 6/28/1999............ (3,000,000) -- 6,482,931
TBN Holdings
Note....................... -- -- 960,000
--------- ----------- -----------
$(3,000,000) $ -- $11,652,931
--------- ----------- -----------
</TABLE>
NOTE 10. YEAR 2000 (UNAUDITED)
The Company could be adversely affected if the computer systems used by the
Company and its service providers, including John A. Levin & Co., Inc., do not
properly process and calculate date-related information relating to the Year
2000. The Company is taking steps that it believes are reasonably designed to
address the Year 2000 problem with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by each
of the Company's other major service providers. The Company does not expect to
incur any significant costs in order to address the Year 2000 problem. However,
at this time, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Company.
Baker, Fentress & Company Annual Report 1997 25
--------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS
The following table shows per share operating performance data, total
investment return, ratios and supplemental data for each year in the five-year
period ended December 31, 1997.
<TABLE>
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year......................... $ 21.77 $ 21.75 $ 17.47 $ 20.42 $ 20.82
-------- ------- ------- ------- -------
Net investment income.................................... 0.72 0.37 0.35 0.35 0.48
Net realized gain (loss) and net change in
unrealized appreciation and other changes............... 2.26 3.31 5.67 (1.36) 2.51
-------- ------- ------- ------- -------
Total investment operations................................ 2.98 3.68 6.02 (1.01) 2.99
Less distributions:
Dividends from net investment income..................... (0.54) (0.78) (0.35) (0.35) (0.48)
Distribution from net realized gain...................... (2.23) (1.78) (1.20) (1.46) (1.76)
-------- ------- ------- ------- -------
Total distributions........................................ (2.77) (2.56) (1.55) (1.81) (2.24)
-------- ------- ------- ------- -------
Dilution (a) resulting from:
Shares issued in acquisition of
Levin Management Co., Inc............................... -- (0.90) -- -- --
Reinvestment of capital gain distribution................ (0.20) (0.20) (0.19) (0.13) (0.16)
Rights offering.......................................... -- -- -- -- (0.99)
-------- ------- ------- ------- -------
Total dilution............................................. (0.20) (1.10) (0.19) (0.13) (1.15)
-------- ------- ------- ------- -------
Net asset value, end of year............................... $21.78 $ 21.77 $ 21.75 $ 17.47 $ 20.42
======== ======= ======= ======= =======
Per share market price, end of year........................ $ 18.25 $ 16.875 $ 16.75 $ 13.75 $ 16.75
Total Investment Return--Shareholder Return................ 25.17% 15.48% 33.20% (7.51)% 14.18%(b)
Ratios to Average Net Assets
Expenses................................................. 87% .90% .78% .75% .83%
Expenses before severance and other non-recurring
acquisition-related costs............ .................. 87% .82% .78% .75% .83%
Net investment income.................................... 2.07% 1.53% 1.79% 1.38% 1.59%
Supplemental Data
Net assets, end of period (000's omitted)................ 783,717 741,146 599,182 461,931 516,890
Portfolio turnover....................................... 33.72% 59.78% 35.89% 41.63% 31.63%
Shares outstanding, end of period (000's omitted)........ 35,983 34,042 27,544 26,442 25,318
Average commission rate paid.............................. $ 0.0582 $ 0.0499 -- -- --
</TABLE>
- ---------------------
(a) Effect of the Company's issuance of shares at a price below net asset
value.
(b) Assumes shareholder exercised all primary rights in rights offering.
26 Baker, Fentress & Company Annual Report 1997
- -----------------------------------------------
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BAKER, FENTRESS & COMPANY:
We have audited the accompanying statement of assets and liabilities of
Baker, Fentress & Company, including the statement of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of cash flows and 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 Company'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 investments owned as of
December 31, 1997, 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
Baker, Fentress & Company at December 31, 1997, the results of its operations
for the year then ended, its cash flows and 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
Chicago, Illinois
January 30, 1998
Baker, Fentress & Company Annual Report 1997 27
---------------------------------------------------
<PAGE>
GENERAL AND HISTORICAL INFORMATION
DISTRIBUTION POLICY
Beginning in 1987, the board of directors adopted a policy of distributing to
shareholders during each calendar year an amount (in a combination of ordinary
income dividends and capital gain distributions) equal to at least 8% of the
month-end average net asset value for the 12 months ended October 31 of that
year.
Although this distribution policy is based on a percentage of net asset value,
Baker Fentress shares have traded at market prices less than net asset values.
The annual distribution as a percentage of market price will exceed 8% so long
as the market price is at a discount from net asset value.
Unless specifically amended by the board of directors, this policy will apply
to future years' total distributions. Decisions to realize capital gain will be
based primarily on investment considerations rather than distribution
requirements.
REINVESTMENT AND CASH PURCHASE PLAN
Baker Fentress has two reinvestment plans which provide shareholders convenient
and economical ways of increasing their holdings of the Company's shares.
Dividend reinvestment and cash purchase plan. The Company's dividend
reinvestment and cash purchase plan allows shareholders to elect to reinvest
cash dividends (consisting of distributions of net investment income and net
realized short-term capital gain, if any) on all or a portion of their Company
shares. Reinvested dividends are subject to income tax to the same extent as if
received in cash.
The plan includes a voluntary cash purchase feature that permits shareholders
to purchase additional shares on a monthly basis. Each voluntary cash purchase
must be at least $100 and not more than $10,000.
The Company delivers dividends payable to participating shareholders, in cash,
to Harris Trust and Savings Bank (the "Bank"), as agent for participants in the
plan. The Bank then uses that money to purchase shares for dividend reinvestment
and for voluntary cash purchases in market transactions. The number of whole and
fractional shares allocated to each participant's account is determined by
dividing the dividend payable to the participant by the average purchase price
per share, including brokerage commissions, paid by the Bank.
There are no service charges to shareholders to participate in the plan and
all costs of administration are paid by the Company. A shareholder pays only a
proportionate share of the brokerage commissions paid by the Bank.
All shareholders are eligible to participate in the plan, including those
whose shares are held through a broker or other nominee. However, some brokers
and nominees may not permit a shareholder to participate in the plan without
first transferring the shareholder's Company shares into the shareholder's name.
A shareholder may terminate participation in the plan by writing to the Bank.
On termination, a shareholder may receive a certificate for the whole shares
held in the shareholder's plan account, with a check for the value of fractional
shares. Alternatively, a shareholder may request that the Bank sell the shares
and send the shareholder a check for the proceeds, less any brokerage
commission.
A complete description of the plan and an authorization card to enroll may be
obtained from the Bank, at the address below:
Baker, Fentress & Company
Dividend Reinvestment Plan
c/o Harris Trust and Savings Bank
Dividend Reinvestment
P.O. Box A3309
Chicago, Illinois 60690
1-800-394-5187
Capital gain reinvestment plan. The Company customarily distributes any net
realized long-term capital gain to shareholders at least annually, in the form
of additional Company shares (with cash paid for fractional shares). Those
shares are newly-issued or treasury shares, and are priced at the then current
market price without commissions.
At the time of each capital gain distribution, shareholders have the
opportunity to elect to receive the distribution entirely in cash, or partly in
cash and partly in shares. Such an election is made by returning to the Company
a card that is sent to all shareholders for that purpose. A shareholder need not
join this plan in advance, nor do anything until the shareholder receives a
notice from the Company of a declaration of a capital gain distribution.
There is no cost to the shareholder of reinvesting a capital gain distribution
in additional Company shares. A reinvested distribution is subject to tax to the
same extent as if received in cash.
28 Baker, Fentress & Company Annual Report 1997
- --------------------------------------------------
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Business Affiliations
Frederick S. Addy Retired; former executive vice president, chief financial
officer and director of Amoco Corporation
Bob D. Allen President and chief executive officer of
Consolidated-Tomoka Land Co.
Jessica M. Bibliowicz President and chief operating officer of John A. Levin &
Co., Inc. and Levin Management Co., Inc.
Eugene V. Fife President, chief executive officer and co-chairman of
Multimedia Medical Systems; limited partner of Goldman,
Sachs & Co.
J. Barton Goodwin* Managing director of BCI Advisors, Inc.
James P. Gorter* Chairman of the board of Baker, Fentress & Company;
limited partner of Goldman, Sachs & Co.
David D. Grumhaus* President of Casey Travel Corporation
Jeffrey A. Kigner Co-chairman and chief investment officer of John A. Levin
& Co., Inc. and Levin Management Co., Inc.
John A. Levin* President and chief executive officer of Baker, Fentress
& Company and chairman and chief executive officer of
John A. Levin & Co., Inc. and Levin Management Co., Inc.
Burton G. Malkiel Professor of Economics, Princeton University
David D. Peterson Retired; former president and chief executive officer of
Baker, Fentress & Company; chairman of Consolidated-
Tomoka Land Co.
William H. Springer Retired; former vice chairman of Ameritech Corp.
Dean J. Takahashi Senior director of endowment management, Yale University
*Member of the Executive Committee
OFFICERS
James P. Gorter Chairman of the Board
John A. Levin President and Chief Executive Officer
James P. Koeneman Executive Vice President and Secretary
Scott E. Smith Executive Vice President
Janet Sandona Jones Vice President, Treasurer and Assistant Secretary
Todd H. Steele Vice President
Lana L. Spence Assistant Treasurer
CORPORATE DATA
TRANSFER AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
Shareholder Communications Team
P.O. Box A3504
Chicago, Illinois 60690-3504
1-800-394-5187 or 312-360-5198
CUSTODIAN
UMB Bank, N.A.
LEGAL COUNSEL
Bell, Boyd & Lloyd
INDEPENDENT AUDITORS
Ernst & Young LLP
NET ASSET VALUE INFORMATION
The Company's net asset value
is listed each week in Monday's
edition of The Wall Street Journal,
in other major metropolitan
newspapers, and in Barron's.
Daily net asset value
information can be obtained
by calling 1-800-BKF-1891 and selecting option 1.
Address of Company
200 West Madison Street
Suite 3510
Chicago, Illinois 60606
312-236-9190 or 1-800-BKF-1891
[RECYCLING LOGO APPEARS HERE]
As a company with historical ties to the lumber industry, Baker Fentress
recognizes the importance of preserving our precious natural resources. The
Company's 1997 Annual Report is printed on recycled paper. We encourage
recycling and use of recycled products.
<PAGE>
Baker, Fentress & Company
Established 1891
SUITE 3510, 200 WEST MADISON STREET
CHICAGO, ILLINOIS 60606
(312) 236-9190 FAX (312) 236-6772
