SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Baupost Fund
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
THE BAUPOST FUND
44 Brattle Street
Cambridge, Massachusetts 02138
December 5, 1997
Dear Shareholder:
You are cordially invited to attend a Meeting of Shareholders of The
Baupost Fund (the "Fund") to be held on Monday, December 22, 1997, at 10:00 a.m.
(Boston time), at the offices of The Baupost Group, Inc. ("BGI"), 44 Brattle
Street, Cambridge, Massachusetts.
BGI, a Massachusetts corporation and the current investment adviser to
the Fund, has informed the Fund's Board of Trustees that it plans to undergo a
corporate restructuring involving several transactions that will result, among
other things, in the transfer of all of BGI's assets and liabilities to a new
operating entity, The Baupost Group, L.L.C., a limited liability company. As
described in greater detail in the accompanying Proxy Statement, these
transactions will result in the termination of the existing Investment Advisory
Agreement between the Fund and BGI as required by the Investment Company Act of
1940. As a result, at the Meeting, the Fund's Board of Trustees will be asking
shareholders to approve a new Investment Advisory Agreement between The Baupost
Group, L.L.C. and the Fund. The terms of the new Investment Advisory Agreement
are substantially identical to the terms of the existing Investment Advisory
Agreement, including the terms relating to the services to be provided and the
fees paid by the Fund.
In addition, shareholders will be asked to amend or eliminate certain
of the Fund's fundamental investment restrictions that have heretofore limited
the scope of the Fund's activities. Some of these restrictions were previously
required by certain state securities laws which are no longer applicable to the
Fund due to recent federal legislation that effectively eliminated the ability
of states to impose investment limitations on registered investment companies
like the Fund. The Trustees of the Fund recommend the amendment or elimination
of these restrictions to provide the Fund with the maximum investment
flexibility permitted under current law. Of course, whether the Fund takes
advantage of this flexibility for its investments is dependent on the investment
adviser's assessment of future investment opportunities. In addition, any use of
such increased flexibility would be subject to the oversight of the Fund's Board
of Trustees. The Trustees do not expect that approval of the proposed changes
will materially alter the manner in which the Fund is currently managed but
rather will allow the Fund to respond to changes in market conditions in the
future.
Whether or not you plan to be present at the Meeting, your vote is
needed. PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THIS PURPOSE.
-1-
If you return your proxy card promptly you can help the Fund avoid the
expense of follow-up mailings to achieve a quorum so that the meeting can be
held. If you decide between now and the meeting that you can attend the meeting
in person, you can revoke your proxy at that time and vote your shares at the
meeting.
Jo-An Bosworth and I are available at any time to answer any questions
you may have.
Sincerely,
Seth A. Klarman
President
SHAREHOLDERS ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE SO AS TO BE REPRESENTED AT THE MEETING.
THE BAUPOST FUND
44 Brattle Street
Cambridge, Massachusetts 02138
-----------------------------------
NOTICE OF MEETING OF SHAREHOLDERS
-----------------------------------
A Meeting of Shareholders of The Baupost Fund (the "Fund") will be held
in the offices of The Baupost Group, Inc., 44 Brattle Street, Cambridge,
Massachusetts, on Monday, December 22, 1997, at 10:00 a.m. (Boston time), for
the following purposes:
1. To approve or disapprove a new Investment Advisory Agreement
between The Baupost Group, L.L.C. and the Fund, as described
in the attached Proxy Statement;
2. To approve or disapprove an amendment to the Fund's
fundamental investment restriction with respect to investments
in real estate;
3. To approve or disapprove the elimination of the Fund's
fundamental investment restriction with respect to investments
in certain oil, gas or mineral interests;
4. To approve or disapprove an amendment to the Fund's
fundamental investment restriction with respect to making
loans;
5. To approve or disapprove the elimination of the Fund's
fundamental investment restriction with respect to pledging
assets;
6. To approve or disapprove an amendment to the Fund's
fundamental investment restriction with respect to borrowing;
7. To approve or disapprove an amendment to the Fund's
fundamental investment restriction with respect to investments
in commodities; and
8. To consider and act upon such other matters as may properly
come before the Meeting.
Shareholders of record as of the close of business on November 25, 1997
are entitled to notice of and to vote at the Meeting.
By order of the Trustees,
Jo-An Bosworth
Assistant Clerk
December 5, 1997
THE BAUPOST FUND
44 Brattle Street
Cambridge, Massachusetts 02138
-----------------------------------
PROXY STATEMENT
-----------------------------------
The enclosed proxies are solicited by the Board of Trustees of The
Baupost Fund (the "Fund") for use at the Meeting of Shareholders of the Fund to
be held in the offices of The Baupost Group, Inc., 44 Brattle Street, Cambridge,
Massachusetts, at 10:00 a.m. (Boston time) on Monday, December 22, 1997, and at
any adjournment thereof. Shareholders of record at the close of business on
November 25, 1997 (the "Record Date") are entitled to vote at the Meeting or any
adjourned session. These proxy materials are first being made available to
shareholders on or about December 5, 1997.
Shares represented by duly executed proxies will be voted in accordance
with the specification made. If no specification is made, shares will be voted
in accordance with the recommendation of the Board of Trustees. You may revoke a
proxy at any time before it is exercised by sending or delivering a written
revocation to the Clerk of the Fund (which will be effective when it is received
by the Clerk), by properly executing a later-dated proxy or by attending the
Meeting, requesting return of your proxy, and voting in person.
Copies of the Annual Report of the Fund for the fiscal year ended
October 31, 1996 may be obtained without charge by calling the Fund at
1-800-241-6680 or writing to the Fund at P.O. Box 381288, 44 Brattle Street,
Cambridge, Massachusetts 02238.
On November 25, 1997 there were 8,948,897.155 shares of beneficial
interest of the Fund issued and outstanding. Each whole share of beneficial
interest is entitled to one vote and each fractional share is entitled to a
proportionate fractional vote.
-1-
I. APPROVAL OR DISAPPROVAL OF A
NEW INVESTMENT ADVISORY AGREEMENT
The Baupost Group, Inc. ("BGI"), a Massachusetts corporation and the
current investment adviser to the Fund, has informed the Fund's Board of
Trustees that it plans to undergo a corporate restructuring involving several
transactions that will result in the transfer of all of BGI's assets and
liabilities to a new operating entity. Upon consummation of these transactions
(which is currently expected to occur on or about January 2, 1998) the new
operating entity, The Baupost Group, L.L.C. ("BGLLC"), will continue the
business operations currently being conducted by BGI. (In this Proxy Statement
this series of transactions is referred to as the "Restructuring" and the
business conducted by BGI that is to be transferred to BGLLC is referred to as
the "Advisory Business".) As a result of the Restructuring, several additional
employees of BGI will hold equity interests of BGLLC.
The Board of Trustees is recommending that shareholders of the Fund
approve a new Investment Advisory Agreement between the Fund and BGLLC (the "New
Agreement"), the text of which is attached as Exhibit A to this Proxy Statement.
Your approval of the New Agreement is being sought because the completion of the
Restructuring will result in an "assignment" (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the current investment
advisory agreement between the Fund and BGI (the "Current Agreement") which,
according to the terms of the Current Agreement and the 1940 Act, would result
in its automatic termination. The terms of the New Agreement are substantially
identical to the terms of the Current Agreement, including the terms relating to
the services to be provided and the fees paid by the Fund. Further information
about the Current Agreement, the New Agreement and other services provided by
BGI is provided below.
CURRENT STRUCTURE OF BGI. BGI is currently owned by five shareholders.
Seth A. Klarman, a co-founder and President of BGI and President of the Fund,
owns 51.35% of BGI's outstanding stock. As President, Mr. Klarman is responsible
for the day-to-day operations of BGI, including the Advisory Business, which
includes BGI's role as investment adviser to the Fund. Three other co-founders
of BGI, William J. Poorvu, a Trustee and the Vice Chairman, Clerk and Treasurer
of the Fund, Howard H. Stevenson, a Trustee and Chairman of the Fund, and Jordan
A. Baruch (the "Founding Directors"), collectively own 43.65% of BGI's
outstanding stock and David Abrams, a Vice President of BGI, owns the
-2-
remaining 5%. These five shareholders are party to a Stockholders' Agreement
(the "Stockholders' Agreement") that, among other things, entitles each
shareholder to a seat on BGI's Board of Directors, which has ultimate
responsibility for overseeing BGI's operations. In addition, under the
Stockholders' Agreement certain extraordinary transactions involving BGI, such
as a sale of assets or merger, require a vote of shareholders holding at least
80% of the outstanding shares of BGI.
CURRENT STRUCTURE OF BGLLC. BGLLC is a limited liability company that
was organized on November __, 1997 under the laws of The Commonwealth of
Massachusetts. Under Massachusetts law, a limited liability company is
constituted of members who have an equity interest in the company, and the
company is typically governed by one or more managers (who may be, but are not
required to be, members). The sole initial members of BGLLC are Mr. Klarman and
SAK Corporation ("SAK"), a Massachusetts corporation that is wholly-owned by Mr.
Klarman. SAK is the sole manager of BGLLC, and as such, will have sole
decision-making authority over the management and operation of BGLLC. BGLLC
currently conducts no business activities and SAK has informed the Trustees that
it does not anticipate that BGLLC will conduct any activities prior to the
consummation of the Restructuring.
THE RESTRUCTURING. As currently contemplated, the Restructuring will
involve the sale by the Founding Directors to Mr. Klarman of 23.65% of BGI's
stock, which is currently held by the Founding Directors, for approximately
$[ ]. Following this sale, Mr. Klarman will own 75% of BGI's outstanding stock,
Mr. Poorvu will own 15%, Mr. Stevenson will own 2.5%, Mr. Baruch will own 2.5%
and Mr. Abrams will own the remaining 5%.
Concurrent with the sale of BGI stock by the Founding Directors to Mr.
Klarman, BGI will transfer all of its assets and liabilities to BGLLC in return
for an economic interest in a portion of BGLLC's future earnings. BGLLC will
take over the Advisory Business, which will include succeeding to BGI's
registration as an investment adviser under the Investment Advisers Act of 1940,
as amended, and, subject to approval by the Fund's shareholders, acting as
investment adviser to the Fund. The economic interest in BGLLC to be received by
BGI will consist of the right to receive a percentage of BGLLC's net operating
profits attributable to the advisory business
-3-
which interest will decline over time, through December 31, 2003. On December
31, 2003, BGI will also receive a final payment from BGLLC. Following this
payment BGI will cease to have any economic interest in BGLLC. BGI's interest in
BGLLC is subject to reduction in the event that any of the BGI shareholders have
their interest in BGLLC redeemed pursuant to the terms of BGLLC's limited
liability company agreement.
STRUCTURE OF BGLLC AND THE ADVISORY BUSINESS AFTER THE RESTRUCTURING.
As a result of the Restructuring all the employees of BGI will become employees
of BGLLC. BGI and BGLLC have informed the Trustees that they anticipate that
there will be no changes in the day-to-day management and operations of the
Advisory Business, including in the personnel managing the Fund and the other
services and business activities relating to the Fund. Neither BGI nor BGLLC
anticipates that the Restructuring will cause any reduction in the quality of
services now provided to the Fund, or have any adverse effect on BGLLC's ability
to fulfill its obligations to the Fund.
SAK will continue to serve as the manager of BGLLC following the
Restructuring and, pursuant to the terms of BGLLC's governing documents, will
have sole decision-making authority over the management and operation of BGLLC.
Consequently, SAK may be deemed to control BGLLC. Similarly, Mr. Klarman,
because of his ownership of SAK, may also be deemed to control BGLLC. Mr.
Klarman will continue to serve as the President of BGLLC.
Following the Restructuring, it is anticipated that each of the
Founding Directors and Mr. Abrams will join Mr. Klarman as equity members of
BGLLC and will receive an economic interest in all of its revenues derived from
management fees, including the fee paid by the Fund. In addition, SAK has
informed the Trustees that several key employees of BGLLC may also become
members of BGLLC following the Restructuring. Certain members of BGLLC,
including Messrs. Abrams, Baruch, Klarman, Poorvu and Stevenson, will serve on
an Advisory Board of BGLLC following the Restructuring to offer advice to the
manager on the course and direction of BGLLC's business. It is anticipated that
Mr. Poorvu will serve as Chairman of such Advisory Board. However, SAK, as the
manager, will retain ultimate decision making authority over the operations of
BGLLC.
-4-
The address of BGI, BGLLC, SAK and Mr. Klarman is P.O. Box 381288, 44
Brattle Street, Cambridge, Massachusetts 02238.
THE CURRENT INVESTMENT ADVISORY AGREEMENT. The Current Agreement was
approved by the shareholders of the Fund on January 25, 1991. Under the Current
Agreement, BGI, subject to such policies as the Trustees may determine, selects
and reviews the Fund's investments and provides executive and other personnel
for the management of the Fund. Subject to the authority of the Trustees, BGI
also manages the Fund's other affairs and business. In the event that BGI ceases
to be the investment adviser to the Fund, the right of the Fund to use the
identifying name "Baupost" with respect to the Fund may be withdrawn.
The Fund pays BGI a quarterly management fee at the annual rate of
1.00% of the Fund's average net assets. Under the Current Agreement, for the
purposes of determining the applicable management fee, "average net assets" is
determined at regular intervals throughout the year. BGI has agreed with the
Fund to reduce its management fee by up to .75% to the extent that the Fund's
total annual expenses (including the management fee, the administrative fee
described below and certain other expenses, but excluding brokerage commissions,
transfer taxes, interest and expenses relating to preserving the value of the
Fund's investments) would otherwise exceed 1.50% of the Fund's average net
assets. The Fund paid management fees of $1,353,786 in its 1997 fiscal year.
In addition, the Fund will pay all expenses incurred in connection with
the organization and operation of the Fund, including but not limited to
brokerage commissions and transfer taxes in connection with its portfolio
transactions, all applicable taxes and filing fees, the fees and expenses for
registration or qualification of its shares under the federal or state
securities laws, the compensation of certain Trustees, interest charges, charges
of custodians, administrative and transfer agency expenses, auditing and legal
expenses, expenses of meetings of shareholders, expenses of printing and mailing
prospectuses, financial reports, proxy statements and proxies to existing
shareholders, insurance premiums and professional association dues or
assessments.
The Current Agreement provides that it will continue in effect for an
initial term of two years from its effective date and thereafter only so long as
the Agreement is approved at least annually by (i) the vote, cast in person at a
meeting called for such purpose, of a
-5-
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of BGI or the Fund and by (ii) the majority vote of either the Board
of Trustees or the vote of a majority of the outstanding shares of the Fund.
The Current Agreement provides also that BGI will only be liable to the
Fund or to any shareholder of the Fund in connection with the performance of its
services thereunder in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Current Agreement may be terminated at any time, without penalty,
by either the Fund or by BGI on not more than 60 days', but not less than 30
days', written notice to the other party. The Agreement terminates automatically
in the event of its assignment.
ADMINISTRATIVE FEES. BGI also serves as the Fund's administrator under
an Administrative Services Agreement (the "Agreement") between the Fund and BGI
dated as of October 31, 1997. Pursuant to the Agreement, BGI is paid a quarterly
fee at the annual rate of .25% of the Fund's average net assets. Under the
Agreement, BGI provides, among other things, bookkeeping and certain clerical
services to the Fund and will calculate the total net asset value, total net
income, and net asset value per share of the Fund. The Agreement provides that
it shall continue indefinitely, but that it may be terminated by either party
upon 60 days' notice. The Agreement further provides that BGI will only be
liable to the Fund for loss or damage incurred by the Fund resulting from BGI's
lack of good faith, negligence or willful misconduct and also provides that the
Fund will indemnify BGI against, among other things, loss or damage incurred by
BGI on account of any claim, demand, action or suit arising out of, or in
connection with, its duties under the Agreement, provided that BGI has acted in
good faith and without negligence or willful misconduct. BGLLC has informed the
Trustees that there will be no change in the services provided to the Fund or
the fees paid by the Fund under the Administrative Services Agreement as a
result of the Restructuring.
Prior to October 31, 1997, under a Transfer Agency and Administrative
Services Agreement then in effect, BGI provided, in addition to the services
described above, transfer and dividend disbursing agent services. For such
services, BGI was paid a quarterly fee at the annual rate of .25% of the Fund's
average net assets. The termination, standard of care and indemnification
provisions of the Transfer Agency and Administrative Services Agreement were
identical to the terms of the Administrative Services Agreement described
-6-
above. During its 1997 fiscal year, the Fund paid $338,446 to BGI pursuant to
the Transfer Agency and Administrative Services Agreement.
THE NEW INVESTMENT ADVISORY AGREEMENT. The New Agreement is identical
to the Current Agreement, other than its effective and termination dates and the
fact that BGLLC will be the investment adviser. It provides that BGLLC, subject
to such policies as the Trustees may determine, will select and review the
Fund's investments and provide executive and other personnel for the management
of the Fund, as well as manage the Fund's other affairs and business. The Fund
will pay BGLLC the same quarterly management fee, at an annual rate of up to
1.00% of the Fund's average net assets. All other terms and conditions regarding
fees and expenses will remain the same. As in the Current Agreement, the New
Agreement provides that it will remain in effect for an initial term of two
years from its effective date and thereafter only so long as it is approved
annually by the Trustees who are not "interested persons" and either the Board
of Trustees or the outstanding shares of the Fund. The indemnification and
termination provisions of the New Agreement also are identical to those in the
Current Agreement.
A copy of the New Agreement, marked to show changes from the Current
Agreement, is attached to this proxy statement as Exhibit A.
-7-
OFFICER AND DIRECTOR INFORMATION
The following table provides certain information concerning the
principal executive officer and directors of BGI as well as the individuals who
are anticipated to be the principal executive officer of BGLLC following the
Restructuring.
Name and Address* Position with Fund Principal Occupation
(if any)
- ------------------------- --------------------- -----------------------------------------------
Seth A. Klarman** Trustee and President BGI, President and Director; BGLLC,
President.
William J. Poorvu** Trustee, BGI, Chairman and Director; Massachusetts
Vice Chairman, Financial Services Company Group of Funds,
Clerk and Treasurer Trustee/Director (mutual funds); CBL
Associates Properties, Inc., Director (a public
Real Estate Investment Trust); Harvard
University, Graduate School of Business
Administration, Adjunct Professor; William J.
Poorvu, Proprietor (real estate investments).
Formerly, Trustee of Trammell Crow Real
Estate Investors (real estate) and Director of
Sonesta International Corp. (hotels).
* The address of each person listed in the table is P.O. Box 381288, 44
Brattle Street, Cambridge, Massachusetts 02238.
** Trustees who are "interested persons" (as defined in the 1940 Act) of
the Fund and BGI and who will be "interested persons" of BGLLC.
-8-
Name and Address* Position with Fund Principal Occupation
(if any)
- ------------------------- --------------------- -----------------------------------------------
Howard H. Stevenson** Trustee and Chairman BGI, Vice Chairman, Director and Treasurer;
Harvard University, Graduate School of
Business Administration, Professor, and from
1991-1994, Senior Associate Dean and Director
of Financial and Information System; Camp,
Dresser & McKee, Director (engineering
consultants); Landmark Communications Inc.,
Director (communications); Sheffield Steel
Corp., Director (a steel manufacturer); African
Communications Group, Director (a
communications group); Terry Hinge &
Hardware, Director (a manufacturer); Gulf
States Steel, Director (a steel manufacturer);
Quadra Capital Partners, Director (an
investment advisory marketing firm); Bessemer
Securities Corporation, Director (investments);
Westboro Holdings LP, Director and Treasurer
(investments). Formerly, Director of
Passamaquoddy Technologies (a technology
firm) and Preco Corporation (a paper
manufacturer).
David C. Abrams Vice President BGI, Vice President and Director.
Jordan Baruch N/A BGI, Director.
* The address of each person listed in the table is P.O. Box 381288, 44
Brattle Street, Cambridge, Massachusetts 02238.
** Trustees who are "interested persons" (as defined in the 1940 Act) of
the Fund and BGI and who will be "interested persons" of BGLLC.
-9-
The following table provides certain information regarding officers of the Fund
who are officers and directors of BGI. It is anticipated that these individuals
will hold the same or substantially similar positions with BGLLC following the
Restructuring that they currently hold with BGI. Similar information regarding
Messrs. Klarman, Poorvu, Stevenson and Abrams is provided in the preceding
table.
Name and Address* Position Principal Occupation
- ------------------------- --------------------- -----------------------------------------------
Paul C. Gannon Vice President BGI, Chief Financial and Administrative
Officer and Vice President.
Jo-An B. Bosworth Assistant Clerk BGI, Vice President, Clerk and Secretary.
* The address of each person listed in the table is P.O. Box 381288, 44
Brattle Street, Cambridge, Massachusetts 02238.
TRUSTEE ACTION. The Trustees, including those Trustees who are not
"interested persons" of the Fund, as defined in the 1940 Act (the "Independent
Trustees"), reviewed all materials provided by BGI, BGLLC and SAK, and requested
and received all information which they deemed relevant to form a judgment as to
whether the New Agreement is in the best interests of the Fund.
A primary consideration of the Independent Trustees was the
representation of BGLLC that there will be no diminution in the scope or quality
of advisory and other services provided to the Fund under the New Agreement. The
Independent Trustees considered the fact that the Current Agreement and the New
Agreement are substantially identical, including the terms relating to the
services to be provided and the fees to be paid by the Fund. The Trustees
considered the performance of BGI to date in providing services to the Fund, and
the skills and capabilities of the personnel of BGI who are anticipated to be
employed by BGLLC, as well as the fact that, after the Restructuring, the
ability of BGLLC to attract and retain key personnel may be enhanced by the
prospect of an equity interest in BGLLC. Having considered these factors, the
Independent Trustees concluded that the Restructuring should have no material
adverse effect on the services provided to the Fund.
-10-
Accordingly, the Trustees, including the Independent Trustees, voted to approve
the New Agreement and to recommend to shareholders that they approve the New
Agreement.
REQUIRED VOTE. As provided in the 1940 Act, approval of the New
Agreement requires the affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of the Fund present at the Meeting if more than 50% of
the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO APPROVE THE NEW
AGREEMENT.
If the shareholders do not approve the New Agreement, the Trustees will
take such further action as they may deem to be in the interests of the
shareholders of the Fund.
II. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO
THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN REAL ESTATE
The Trustees are recommending that the Fund's fundamental investment
restriction with respect to investments in real estate be amended in order to
permit the Fund the maximum flexibility to invest in a range of real
estate-related investments. The current restriction states that the Fund may
not:
"Purchase or sell real estate, although it may purchase securities or
limited partnership interests which are secured by or represent
interests in real estate or issued by companies or limited partnerships
which invest in real estate or interests therein, and it may acquire
and dispose of real estate or interests in real estate acquired in
order to protect its investment in such securities or limited
partnership interests. (For the purposes of this restriction,
investments by the Fund in securities that are not readily marketable
of companies whose assets consist substantially of real estate property
and interests therein, including mortgages and other liens, do not
constitute an investment in real estate or interests in real estate.)"
-11-
The proposed amended fundamental investment restriction is set forth
below:
"The Fund may purchase or sell real estate 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."
Although the 1940 Act requires a registered investment company like the
Fund to have a fundamental policy on investing in real estate, it does not
require a registered investment company to restrict its investments in real
estate. The Fund currently has no plans to invest directly in real estate,
especially in light of current tax laws applicable to the Fund which limit the
amount of income it can earn from real estate in order to continue to qualify as
a "regulated investment company" accorded special tax treatment under the Code.
This proposal is therefore anticipated to have little practical effect on the
Fund. However, if this proposal is approved, the Fund may at some future time
determine that investments in real estate are in the best interests of the Fund.
If this proposal is approved, the Fund may, consistent with its
investment objectives and policies and applicable law, invest in real estate.
Investments in real estate and real estate-related securities entail certain
risks due to a variety of factors. Factors affecting the performance of real
estate ventures may include satisfactory completion of construction, excess
supply of real estate in certain markets, prudent management of insurance risks,
sufficient level of occupancy, adequacy of financing available in capital
markets, competent management, adequate rent to cover operating expenses, local
and regional markets for competing assets, changes in applicable laws and
government regulations (including taxes), and social and economic trends.
Certain assets in which the Fund may invest following the elimination
of this restriction may not be readily marketable. Investments in real estate
and real estate-related securities that are not readily marketable entail
additional risks, such as difficulty in pricing the real estate or security for
purposes of determining the Fund's net asset value and the possibility that the
Fund would be unable to sell the real estate or security at a price
approximating its market value when it decides to sell it. As noted above, if
the Fund has rental income or income from the direct disposition of real
property, the receipt
-12-
of such income may adversely affect its ability to retain its status as a
"regulated investment company" for federal income tax purposes.
REQUIRED VOTE. As provided in the 1940 Act, approval of the amendment
to the Fund's fundamental investment restriction with respect to investments in
real estate requires the affirmative vote of a "majority of the outstanding
voting securities" of the Fund, which for this purpose means the affirmative
vote of the lesser of (i) more than 50% of the outstanding shares of the Fund or
(ii) 67% or more of the shares of the Fund present at the Meeting if more than
50% of the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO AMEND THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO INVESTMENTS IN REAL ESTATE.
III. APPROVAL OR DISAPPROVAL OF THE ELIMINATION
OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN CERTAIN
OIL, GAS AND MINERAL INTERESTS
The Trustees are recommending that the Fund's fundamental investment
restriction with respect to investments in oil, gas and mineral leases, rights
or royalty contracts be eliminated. The current restriction states that the Fund
may not:
"Buy or sell oil, gas or other mineral leases, rights or royalty
contracts or any interest in oil, gas or other mineral exploration or
development programs, although it may purchase securities which are
secured by or represent interests in, or issued by companies which
invest in, oil, gas or other mineral leases, rights or royalty
contracts."
The Fund originally adopted this restriction to comply with certain
state securities law requirements which are no longer applicable to the Fund.
The Fund currently has no intention to invest directly in oil, gas or other
mineral interests, and this proposal is therefore anticipated to have little
practical effect on the Fund. However, if this proposal
-13-
is approved, the Fund may, at some future time, determine that investments in
oil, gas and mineral interests are in the best interests of the Fund.
If the proposal is approved, the Fund will be able to invest directly
in oil, gas and mineral interests. Investments in oil, gas and other mineral
leases, rights or royalty contracts, and in securities which derive their value
in part from such instruments, entail certain risks. The prices of these
investments are subject to substantial fluctuations, and may be affected by
unpredictable economic and political circumstances such as social, political or
military disturbances, the taxation and regulatory policies of various
governments, the activities and policies of OPEC (an organization of major oil
producing companies), the existence of cartels in such industries, the discovery
of new reserves and the development of new techniques for producing, refining
and transporting such materials and related products, the development of new
technology, energy conservation practices and the development of alternative
energy sources and alternative uses for such materials and related products. In
addition, in order to enforce its rights in the event of a default of an issuer
of securities which derive their value from such instruments, the Fund may be
required to participate in various legal proceedings or take possession of and
manage assets securing the issuer's obligations. This could increase the Fund's
operating expenses and adversely affect the Fund's net asset value.
REQUIRED VOTE. As provided in the 1940 Act, approval of the elimination
of the Fund's fundamental investment restriction with respect to purchase or
sale of oil, gas or other mineral leases requires the affirmative vote of a
"majority of the outstanding voting securities" of the Fund, which for this
purpose means the affirmative vote of the lesser of (i) more than 50% of the
outstanding shares of the Fund or (ii) 67% or more of the shares of the Fund
present at the Meeting if more than 50% of the outstanding shares are present at
the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO ELIMINATE THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO INVESTMENTS IN CERTAIN OIL,
GAS OR OTHER MINERAL LEASES.
-14-
IV. APPROVAL OR DISAPPROVAL OF AN AMENDMENT
TO THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTION WITH RESPECT TO MAKING LOANS
The Trustees are recommending that the Fund's fundamental investment
restriction with respect to making loans be revised to enhance the Fund's
investment flexibility by permitting the Fund to loan its portfolio securities
and by removing any asset limitations on the Fund's ability to enter into
repurchase agreements. The current restriction states that the Fund may not:
"Make loans, except (i) by purchase of debt obligations in which the
Fund may invest consistent with its investment policies or (ii) by
entering into repurchase agreements with respect to not more than 25%
of its total assets (taken at current value)."
The proposed amended fundamental investment restriction is set forth below:
"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 Commission, as such statute, rules, regulations or orders
may be amended from time to time."
If this proposal is approved, the Fund may, consistent with its
investment objectives and policies and applicable law, loan its portfolio
securities and enter into repurchase agreements without limit. The 1940 Act
permits a fund to make loans only if expressly permitted by the Fund's
investment policies, but never to persons who control or are under common
control with the Fund. Thus, the 1940 Act effectively prohibits a fund from
making loans to certain persons when conflicts of interest or undue influence
are most likely present. The Fund may, however, make other loans which if made
would expose shareholders to certain additional risks. BGI believes the
increased investment flexibility resulting from this amendment could assist the
Fund in achieving its investment objectives.
When the Fund enters into a repurchase agreement it typically purchases
a security for a relatively short period (usually not more than one week), which
the seller
-15-
agrees to repurchase at a fixed time and price, representing the Fund's cost
plus interest. When the Fund enters into a securities loan, it lends certain of
its portfolio securities to broker-dealers or other parties and typically
receives an interest payment in return. These transactions are typically
collateralized, but involve some risk to the Fund if the other party should
default on its obligation. If the other party in these transactions should
become involved in bankruptcy or insolvency proceedings, it is possible that the
Fund may be treated as an unsecured creditor and be required to return the
underlying collateral to the other party's estate.
REQUIRED VOTE. As provided in the 1940 Act, approval of the amendment
to the Fund's fundamental investment restriction with respect to making loans
requires the affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of the Fund present at the Meeting if more than 50% of
the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO AMEND THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO MAKING LOANS.
V. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF
THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO PLEDGING ASSETS
The Trustees are recommending that the Fund's fundamental investment
restriction which limits the Fund's ability to pledge its assets be eliminated
and replaced by a non-fundamental investment restriction. The current
restriction states that the Fund may not:
"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 restriction 1 above."
[Restriction 1 allows the Fund to borrow money in an amount equal to up
to 10% of its total assets. In Proposal VI below, the Trustees are
recommending an amendment to Restriction 1 to grant the Fund increased
flexibility in its borrowing.]
-16-
The Fund originally adopted this restriction to comply with certain
state securities law requirements which are no longer applicable to the Fund. If
this proposal is approved, the Trustees intend to adopt a non-fundamental
restriction identical to the existing fundamental investment restriction. This
proposal is therefore anticipated to have little practical effect on the Fund.
However, the Trustees of the Fund will have the ability to modify or eliminate
the non-fundamental restriction without the need for shareholder approval if the
Trustees determine that such modification or elimination is in the best
interests of the Fund.
Pledging assets does entail certain risks. To the extent that the Fund
pledges its assets, the Fund may have less flexibility in liquidating its
assets. If a large portion of the Fund's assets were involved, the Fund's
ability to meet redemption requests or other obligations could be delayed.
REQUIRED VOTE. As provided in the 1940 Act, approval of the elimination
of the Fund's fundamental investment restriction with respect to pledging assets
requires the affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of the Fund present at the Meeting if more than 50% of
the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO ELIMINATE THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO PLEDGING ASSETS.
VI. APPROVAL OR DISAPPROVAL OF AN AMENDMENT
TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO BORROWING
The Trustees are recommending that the Fund's fundamental investment
restriction with respect to borrowing be amended to grant the Fund the maximum
-17-
flexibility permitted by the 1940 Act. If the proposal is adopted, the Trustees
intend to adopt a non-fundamental investment restriction similar to the current
fundamental restriction to supplement the new fundamental investment
restriction. Currently, under the 1940 Act, a registered investment company like
the Fund may borrow up to 33 1/3% of its total assets. The Fund's current
restriction is more restrictive, and states that the Fund may not:
"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
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. Such borrowings will be repaid before any investments are
purchased."
The proposed fundamental investment restriction is set forth below:
"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."
If this proposal is approved, the Trustees intend to adopt the
following non-fundamental investment restriction:
"The Fund may not . . .
"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
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes."
-18-
The proposed non-fundamental investment restriction would eliminate the
final sentence of the existing restriction, which would grant the Fund the
flexibility to pursue its investment objectives while certain of its borrowings
continue to be outstanding. If this proposal is approved, the Fund would
continue to be restricted to borrowing only for redemption requests or for
extraordinary or emergency purposes, but such restriction could be amended or
eliminated by the Trustees without shareholder approval.
BGI recommended to the Trustees that the fundamental policy be amended
to increase the flexibility of the Fund to that permitted under the 1940 Act,
while making a policy similar to the current policy non-fundamental to provide
the Fund with maximum flexibility to modify or eliminate the policy without
shareholder approval if the Trustees determine that such modification or
elimination is in the best interests of the Fund.
Although the new fundamental restriction will not prohibit the Fund
from borrowing for leveraging purposes, the new proposed non-fundamental
restriction will continue to prohibit the Fund from borrowing for such purposes.
Borrowing by a fund allows it to leverage its assets, which exposes it to
certain risks. Leveraging exaggerates the effect of any increase or decrease in
the value of fund securities on a fund's net asset value, and money borrowed
will be subject to interest costs (which may include commitment fees and/or the
cost of maintaining minimum average balances) which may or may not exceed the
interest or dividends received from the securities purchased with borrowed
funds.
REQUIRED VOTE. As provided in the 1940 Act, approval of the amendment
to the Fund's fundamental investment restriction with respect to borrowing
requires the affirmative vote of a "majority of the outstanding voting
securities" of the Fund, which for this purpose means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of the Fund present at the Meeting if more than 50% of
the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO AMEND THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO BORROWING.
-19-
VII. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO
INVESTMENTS IN COMMODITIES
The Trustees are recommending that the Fund's fundamental investment
restriction with respect to investments in commodities be amended in order to
permit the Fund the maximum flexibility to invest in a range of commodities or
investments which might for certain technical reasons be considered to be
commodities. The current restriction states that the Fund may not:
"Purchase or sell commodities unless acquired as a result of ownership
of securities or other instruments, except that the Fund may buy or
sell futures contracts and related options, forward contracts, options
on commodities, securities or other instruments backed by commodities
and options on foreign currencies."
The proposed fundamental investment restriction is set forth below:
"The Fund may purchase or sell commodities, commodities contracts or
futures contracts 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."
The 1940 Act requires a registered investment company like the Fund to
maintain a policy regarding its investments in commodities. The Fund currently
has no intention to expand its investments in commodities, and this proposal is
therefore anticipated to have little current practical effect on the Fund.
However, if this proposal is approved, the Fund may at some future time
determine that further investments in commodities are in the best interests of
the Fund.
If this proposal is approved, the Fund will continue to be able to
engage in a variety of transactions involving the use of financial futures and
options. In addition, the Fund may, consistent with its investment objectives
and policies and applicable law, invest in commodities without limit.
-20-
Investing in commodities may entail certain risks, including the
effects on the future value of the commodity of the activities of market
participants who invest mainly for purposes of hedging or speculating. Other
factors impacting the value of investments in commodities include changes in the
costs associated with the actual storage of a commodity; risks associated with
market changes and their impact on the reinvestment of proceeds; variables such
as drought, floods, weather, livestock disease, embargoes, and tariffs; the
increased leverage typically associated with futures trading which may result in
increased volatility of returns on futures contracts; and the decreased
liquidity and increased liability which may result from swap agreements or other
non-exchange traded instruments that facilitate indirect investment in
commodities.
REQUIRED VOTE. As provided in the 1940 Act, approval of the amendment
to the Fund's fundamental investment restriction with respect to investments in
commodities requires the affirmative vote of a "majority of the outstanding
voting securities" of the Fund, which for this purpose means the affirmative
vote of the lesser of (i) more than 50% of the outstanding shares of the Fund or
(ii) 67% or more of the shares of the Fund present at the Meeting if more than
50% of the outstanding shares are present at the Meeting in person or by proxy.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE TO AMEND THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION WITH RESPECT TO INVESTMENTS IN COMMODITIES.
VIII. MISCELLANEOUS
OTHER BUSINESS. The Trustees know of no other business to be brought
before the Meeting. However, if any other matters properly come before the
Meeting, it is the Trustees' intention that proxies which do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
QUORUM. Forty percent of the shares entitled to vote -- present in
person or represented by proxy -- constitutes a quorum for the transaction of
business with respect to any proposal at the meeting (unless otherwise noted in
the Proxy Statement).
-21-
SOLICITATION OF PROXIES. In addition to the solicitation of proxies by
mail, Trustees of the Fund and employees of BGI may solicit proxies in person or
by telephone. Persons holding shares as nominees will, upon request, be
reimbursed for their reasonable expenses in sending soliciting material to their
principals. The cost of the solicitation will be borne by the Fund.
TABULATION OF VOTES. Votes cast by proxy or in person at the Meeting
will be counted by persons appointed by the Fund to act as tellers for the
Meeting. The tellers will count the total number of votes cast "for" approval of
each proposal for purposes of determining whether sufficient affirmative votes
have been cast. As stated above, shares represented by duly executed proxies
will be voted in accordance with the specification made. If no specification is
made, shares will be voted in accordance with the recommendation of the Board of
Trustees. The tellers will count shares represented by proxies that withhold
authority to vote or that reflect abstentions or "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on a particular
matter) as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum. Abstentions and broker
non-votes will have the effect of negative votes on the proposal to approve the
New Agreement and the proposals to amend or eliminate certain of the Fund's
fundamental investment restrictions.
DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS FOR SUBSEQUENT MEETINGS OF
SHAREHOLDERS. The Fund's Agreement and Declaration of Trust does not provide for
annual meetings of shareholders and the Fund does not currently intend to hold
such a meeting in 1998. Shareholder proposals for inclusion in the Fund's proxy
statement for any subsequent meeting must be received by the Fund a reasonable
period of time prior to any such meeting.
ADJOURNMENT. In the event that sufficient votes in favor of any of the
proposals set forth in the Notice of the Meeting are not received by the time
scheduled for the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting for a reasonable time after the date set for the
original Meeting to permit further solicitation of proxies with respect to any
of such proposals. In addition, if, in the judgment of the persons named as
proxies, subsequent developments make it advisable
-22-
to defer action on one or more proposals, but not all proposals, the persons
named as proxies may propose one or more adjournments of the Meeting for a
reasonable time in order to defer action on such proposals as they deem
advisable. Any such adjournments will require the affirmative vote of a majority
of the votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned, as required by the Fund's Agreement and Declaration of
Trust and Bylaws. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of such
proposals in respect of which such adjournment is proposed. They will vote
against any such adjournment all other proxies. The costs of any such additional
solicitation and of any adjourned session will be borne by the Fund.
OWNERSHIP OF FUND SHARES. At October 31, 1997, the Trustees of the Fund
owned of record or beneficially shares of the Fund in the following amounts, and
as indicated, owned of record or beneficially the following percentages of the
outstanding shares of the Fund: Mr. Ackerman owned 41,547.199 shares, 0.46%; Mr.
Auerbach owned 49,763.373 shares, 0.56%; Mr. Klarman owned 174,437.918 shares,
1.95%; Mr. Light owned 46,810.989 shares, 0.52%; Mr. Plimpton owned 82,664.034
shares, 0.92%; and Mr. Stevenson owned 188,753.304 shares, 2.11%. Information
concerning the share ownership of Mr. Poorvu is provided below. At October 31,
1997, the officers and Trustees of the Fund as a group owned of record or
beneficially [ %] of the outstanding shares of the Fund. To the knowledge of the
Fund no person owned of record or beneficially 5.0% or more of the shares of the
Fund, except Mr. Poorvu, who owned of record and beneficially 56,815.666
shares, which constitutes 0.64% of the shares of the Fund, and as trustee for
various trusts beneficially owned 743,133.696 shares, which constitutes 8.30% of
the shares of the Fund. The foregoing shareholders may be trustees for the same
trust, in which case each person serving as trustee of such trust is deemed to
be a beneficial owner of the shares.
-23-
EXHIBIT A
MANAGEMENT CONTRACT
Management Contract ("Contract") executed as of January [ ], 1998,
between The Baupost Fund, a Massachusetts business trust (the "Fund"), and The
Baupost Group, L.L.C., a Massachusetts limited liability company (the
"Manager").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO THE TRUST.
(a) Subject always to the control of the Trustees of the Fund
and to such policies as the Trustees may determine, the Manager will,
at its expense, (i) furnish continuously an investment program for the
Fund and make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of the Fund's portfolio securities and
(ii) furnish office space and equipment, and pay all salaries, fees and
expenses of officers and Trustees of the Fund who are affiliated with
the Manager. The Manager will not furnish to the Fund under this
Contract the following services: determinations of the net assets, the
net asset value of the Fund and the offering price per share of shares
of the Fund, maintenance of the Fund's accounts, books and records as
required by Section 31(a) of the Investment Company Act of 1940, as
amended, and shareholder accounting. In the performance of its duties,
the Manager will comply with the provisions of the Agreement and
Declaration of Trust and By-laws of the Fund and the Fund's stated
investment objectives, policies and restrictions.
(b) In placing orders for the portfolio transactions of the
Fund, the Manager will seek the best price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions for brokerage and research services as described below. In
using its best efforts to obtain for the Fund the most favorable price
and execution available, the Manager shall consider all factors it
deems relevant, including, without limitation, the overall net economic
cost to the Fund (including price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large
block is involved, the availability of the broker to stand ready to
execute possibly difficult transactions in the future and the financial
strength and stability of the broker. Subject to such policies as the
Trustees may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Fund to pay a
broker or dealer that provides brokerage and research services to the
Manager an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the
Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Manager's overall responsibilities
with respect to the Fund and to other clients of the Manager as to
which the Manager exercises investment discretion.
(c) The Manager shall not be obligated under this agreement to
pay any expenses of or for the Fund not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in Section 3.
-1-
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Fund may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any person
controlled by or under common control with the Manager, and that the Manager and
any person controlled by or under common control with the Manager may have an
interest in the Fund. It is also understood that the Manager and persons
controlled by or under common control with the Manager have and may have
advisory, management service, distribution or other contracts with other
organizations and persons, and may have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered and for the facilities furnished and the expenses borne by the
Manager pursuant to Section 1, a fee, computed and paid quarterly at the annual
rate of 1.00% of the Fund's average net asset value. Such average net asset
value of the Fund shall be determined by taking an average of all of the
determinations of such net asset value during such quarter at the close of
business on the last business day of each month during such quarter while this
Contract is in effect. Such fee shall be payable for each quarter within five
(5) business days after the end of such quarter.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by reduction or refund
thereof. In addition, the Manager will reduce its management fee by up to .75%
to the extent that the Fund's total annual expenses (including all fees payable
by the Fund to the Manager pursuant to this Contract or any other agreement, but
excluding brokerage commissions, transfer taxes, interest, and expenses relating
to preserving the value of the Fund's investments) would otherwise exceed 1.50%
of the Fund's average net assets.
If the Manager shall serve for less than the whole of a quarter, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment and this Contract shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Fund who are not interested persons of the Fund or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract by not more than sixty days' but no less than 30 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
other party; or
(b) If (i) the Trustees of the Fund by majority vote or the
shareholders by the affirmative vote of a majority of the outstanding
shares of the Fund, and (ii) a majority of the Trustees of the
-2-
Fund who are not interested persons of the Fund or of the Manager, by
vote cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Contract, then this Contract shall automatically
terminate at the close of business on the second anniversary of its
execution, or upon the expiration of one year from the effective date
of the last such continuance, whichever is later; provided, however,
that if the continuance of this Contract is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Contract as provided herein, the
Manager may continue to serve hereunder in a manner consistent with the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder (collectively, the "1940 Act").
Action by the Fund under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority
of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting are present in person or by proxy, or (b)
of the holders of more than 50% of the outstanding shares of the Fund entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act; and the
phrase "specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act.
7. NONLIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, or to
any shareholder of the Fund, for any act or omission in the course of, or
connected with, rendering services hereunder.
8. THE NAME "BAUPOST".
The Manager owns the right to use the name "Baupost" in connection with
investment-related series or products, and such name may be used by the Fund
only with the consent of the Manager. The Manager consents to the use by the
Fund of the name "The Baupost Fund" or to the use by the Fund of any other name
embodying the name "Baupost", in such forms as the Manager shall in writing
approve, but only on condition and so long as (i) this Contract shall remain in
full force and (ii) the Fund shall fully perform, fulfill and comply with all
provisions of this Contract expressed herein to be performed, fulfilled or
complied with by it. No such name shall be used by the Fund at any time or in
any place or for any purposes or under any condition except as in this section
provided. The foregoing authorization by the Manager to the Fund to use the said
name "Baupost" as part of a business or name is not exclusive of the right of
the Manager itself to use, or to authorize others to use, the same; the Fund
acknowledges and agrees that as between the Manager and the Fund, the Manager
has the exclusive right so to use, or to authorize others to use, said name and
the Fund agrees to take such action as may reasonably be requested by the
Manager to give full effect to the provisions of this section (including,
without limitation, consenting to such
-3-
use of said name). Without limiting the generality of the foregoing, the Fund
agrees that, upon any termination of this Contract by either party or upon the
violation of any of its provisions by the Fund, the Fund will, at the request of
the Manager made within six months after the Manager has knowledge of such
termination or violation, use its best efforts to change the name of the Fund so
as to eliminate all reference, if any, to the name "Baupost" and will not
thereafter transact any business in a name containing the name "Baupost" in any
form or combination whatsoever, or designate itself as the same entity as or
successor to an entity of such name, or otherwise use the name "Baupost" or any
other reference to the Manager. Such covenants on the part of the Fund shall be
binding upon it, its Trustees, officers, stockholders, creditors and all other
persons claiming under or through it.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Fund is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders individually
but are binding only upon the assets and property of the Fund.
IN WITNESS WHEREOF, The Baupost Fund and The Baupost Group, L.L.C. have
each caused this instrument to be signed in duplicate on its behalf by its duly
authorized representative, all as of the day and year first above written.
THE BAUPOST FUND
By
--------------------------
Title: President
THE BAUPOST GROUP, L.L.C.
By
--------------------------
Title: Vice President
-4-
THE BAUPOST FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES
PROXY FOR MEETING OF SHAREHOLDERS
DECEMBER 22, 1997
The undersigned hereby appoints [Seth A. Klarman, William J. Poorvu, and Howard
H. Stevenson], and each of them separately, proxies, with power of substitution
to each, and hereby authorizes them to represent and to vote, as designated
below, at the Meeting of Shareholders of the Fund, on December 22, 1997 at 10:00
a.m., Boston time, and at any adjournments thereof, all of the shares of The
Baupost Fund which the undersigned would be entitled to vote if personally
present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH OF THE PROPOSALS BELOW.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING. THE BOARD OF TRUSTEES RECOMMENDS A VOTE
FOR EACH PROPOSAL.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: o KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
THE BAUPOST FUND
FOR AGAINST ABSTAIN
1. Proposal to approve a new Investment Advisory Agreement for the Fund. o o o
2. Proposal to amend the Fund's fundamental investment restriction with respect
to investments in real estate. o o o
3. Proposal to eliminate the Fund's fundamental investment restriction with
respect to investments in certain oil, gas and mineral interests. o o o
4. Proposal to amend the Fund's fundamental investment restriction with
respect to making loans. o o o
5. Proposal to eliminate the Fund's fundamental investment restriction with
respect to pledging assets. o o o
6. Proposal to amend the Fund's fundamental investment restriction with
respect to borrowing. o o o
7. Proposal to amend the Fund's fundamental investment restriction with
respect to investments in commodities. o o o
Please sign your name exactly as it appears on this card. If you are a joint
owner, each owner should sign. When signing as executor, administrator,
attorney, trustee, or guardian, or as custodian for a minor, please give your
full title as such. If you are signing for a corporation, please sign the full
corporate name and indicate the signer's office. If you are a partner, sign in
the partnership name.
- --------------------------------- ------------------- ------------------------------------ ---------------------
Signature Date Signature (Joint Owners) Date