N-CSR 1 n-csr.txt BARON ASSET FUND'S FORM N-CSR FOR PERIOD ENDED 09/30/03 UNITED STATES OMB APPROVAL SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235 -0570 Washington, D.C. 20549 Expires: October 31, 2006 Estimated average burden hours per response... FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-8032 BARON ASSET FUND -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 767 Fifth Avenue, 49th Floor New York, NY 10153 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Linda S. Martinson, Esq. c/o Baron Asset Fund 767 Fifth Avenue,49th Floor New York, New York 10153 -------------------------------------------------------------------------------- (Name and Address of Agent for Service) Registrant's Telephone Number, including Area Code 212-583-2000 ----------------------------- Date of fiscal year end: September 30 --------------- Date of reporting period: September 30, 2003 -------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17CRF 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 5th Street, NW, Washington, D.C. 20549-6009. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 2569 (3-03) [Registered Castle Design] B A R O N F U N D S BARON FUNDS MANAGEMENT DISCUSSION OF FUND PERFORMANCE: BARON ASSET FUND ...........................................................2 BARON GROWTH FUND ..........................................................3 BARON SMALL CAP FUND .......................................................4 BARON iOPPORTUNITY FUND.....................................................5 STATEMENT OF NET ASSETS.......................................................6 STATEMENTS OF ASSETS AND LIABILITIES............................................................13 STATEMENTS OF OPERATIONS.................................................................14 STATEMENTS OF CHANGES IN NET ASSETS..............................................................15 NOTES TO FINANCIAL STATEMENTS.................................................................16 REPORT OF INDEPENDENT AUDITORS...................................................................23 MANAGEMENT OF THE FUNDS......................................................24 767 Fifth Avenue NY, NY 10153 212.583.2100 1.800.99.BARON BaronFunds.com ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2003 DEAR BARON FUNDS SHAREHOLDER: Attached you will find audited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund and Baron iOpportunity Fund for their fiscal years ended September 30, 2003. The Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. We thank you for choosing to join us as fellow shareholders in Baron Funds. We will continue to work hard to justify your confidence. Sincerely, /s/ Ronald Baron ---------------- Ronald Baron Chairman and Portfolio Manager November 21, 2003 /s/ Peggy Wong -------------- Peggy Wong Treasurer and CFO November 21, 2003 A description of the Funds' proxy voting policies and procedures is available without charge on the Funds' website, www.BaronFunds.com, or by calling 1-800- ------------------ 99-BARON and on the SEC's website at www.sec.gov. ----------- --------------- Some of our comments are based on current management expectations and are considered "forward-looking statements." Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as "estimate", "may", "expect", "should", "could", "believe", "plan" and other similar terms. We cannot promise future returns and our opinions are a reflection of our best judgment at the time this report is compiled. The views expressed in this report reflect those of the Company only through the end of the period stated in this report. The views are not intended as recommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. BARON ASSET FUND -------------------------------------------------------------------------------- [Line Graph] COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON ASSET FUND** IN RELATION TO THE RUSSELL 2500* AND THE RUSSELL 2000*
DATE BAF** RUSSELL 2000* RUSSELL 2500* -------- --------- -------------- -------------- 06/12/1987 $10,000 $10,000 $10,000 09/30/1987 11,950 10,530 10,655 09/30/1988 13,234 9,400 9,692 09/30/1989 18,521 11,421 12,039 09/30/1990 12,838 8,322 9,114 09/30/1991 17,760 12,077 13,394 09/30/1992 19,484 13,155 14,770 09/30/1993 26,595 17,521 19,218 09/30/1994 28,728 17,980 19,766 09/30/1995 38,003 22,187 24,812 09/30/1996 46,098 25,101 28,740 09/30/1997 61,656 33,432 38,600 09/30/1998 51,946 27,074 32,264 09/30/1999 67,092 32,237 39,292 09/30/2000 82,418 39,778 50,893 09/30/2001 56,741 31,342 41,339 09/30/9002 55,301 28,429 38,257 09/30/2003 64,210 38,802 51,873
Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2003
Since Inception One Year Five Years Ten Years 06/12/87 ---------------------------------------------------------------------------------------- Baron Asset Fund** 16.11% 4.33% 9.21% 12.08% Russell 2000* 36.50% 7.46% 8.28% 8.67% Russell 2500* 35.59% 9.96% 10.44% 10.63% -------------
Past performance is not predictive of future performance. * The Russell 2000 and the Russell 2500 are unmanaged indexes. The Russell 2000 measures the performance of small companies and the Russell 2500 of small to mid-sized companies. ** The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Asset Fund gained 16.11% in the fiscal year ended September 30, 2003. The Russell 2000 gained 36.50% and the S&P 500 gained 24.30% in the same period. According to Morningstar, the average mid-cap growth fund (consisting of 742 funds as of September 30, 2003) gained 27.78% in the year ending September 30, 2003. While underperforming its peers in the current fiscal year, Baron Asset Fund outperformed its peer group mutual funds for the three years ending September 30 by losing less than they did. Baron Asset Fund lost 7.98% per year during the three years ended September 30, 2003, compared to losses per year of 16.82% for the average mid-cap growth fund. Many competitive mid-cap growth funds hold investments in volatile technology and Internet businesses, which helped their performance in 2003 but negatively impacted their results for the three-year period. Baron Asset Fund has chosen to avoid these investments. Since the quarter ended December 31, 2002, Baron Asset Fund has further diversified its investment portfolio by adding what we believe are several well-financed, well-managed, mid-cap growth businesses while reducing its investments in long time legacy holdings. Since December, the Fund has increased its investments from 43 holdings to 59 and reduced its investment in its top ten holdings from 63% of assets to 46.5% of assets. The median market capitalization of the Fund's portfolio during the period increased from $1.8 billion to $2.8 billion, both from appreciation of our investments as well as from new purchases of slightly larger businesses. In the fourth quarter, as we have described in our last quarterly shareholder letter, we appointed Andrew Peck, my associate for the past five years, as co-portfolio manager of Baron Asset Fund. Andrew has been a major influence in helping us to restructure the Fund. We believe the Fund is now well positioned. BARON ASSET FUND INVESTS IN SMALL AND MEDIUM SIZED GROWTH COMPANIES FOR THE LONG-TERM. After a three-year bear market, stock prices of small and mid-cap growth companies appreciated sharply in the 2003 fiscal year. Baron Asset Fund invests in growth businesses utilizing value oriented purchase and sell disciplines. The Fund seeks to invest in companies that it believes have significant long-term growth prospects at what we believe are reasonable prices. It is our belief that many businesses in which we are shareholders are likely to experience rapid profit growth and are currently undervalued. The Fund's performance was not uniform throughout last year. Baron Asset Fund's performance was weak in the first half of the fiscal year, -7.29%, but strong in the second half of the fiscal year, +25.23%. Baron Asset Fund's investments in most sectors performed well. The Fund's best performing sector was Education. The Fund was positively impacted by its positions in Hotels & Lodging, Consumer Services, Financials, Recreation and Retail. The Fund was negatively impacted by its holdings in the Chemical industry. In fiscal year 2004, the Fund expects to continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and ability to sustain superior levels of profitability. The companies will continue to be identified through our independent research efforts. The Fund will remain diversified not only by industry and investment themes, but also by external risk factors we have identified that could affect company performance. This approach to investing in companies, not trading of stocks, we believe will allow the Fund to produce above average rates of return while keeping an attractive risk profile. In our view, the attractive valuation levels of growth companies, in general, the likelihood of accelerated profit growth in many of our largest positions, and the relatively low current prices of a few of our longer-term core positions should lead to a successful 2004. 2 BARON GROWTH FUND -------------------------------------------------------------------------------- [Line Graph] COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON GROWTH FUND** IN RELATION TO THE RUSSELL 2000*
DATE BGF** RUSSELL 2000* -------- --------- -------------- 01/03/1995 $10,000 $10,000 09/30/1995 14,770 12,573 09/30/1996 18,575 14,224 09/30/1997 25,469 18,945 09/30/1998 20,855 15,341 09/30/1999 29,868 18,267 09/30/2000 35,431 22,541 09/30/2001 33,286 17,760 09/30/2002 34,956 16,108 09/30/2003 42,333 21,988
Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2003
Since Inception One Year Five Years 01/03/95 ------------------------------------------------------------------------ Baron Growth Fund** 21.11% 15.21% 17.93% Russell 2000* 36.50% 7.46% 9.42% -------------
Past performance is not predictive of future performance. * The Russell 2000 is a unmanaged indexes that measures the performance of small companies. ** The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Growth Fund performed well in the fiscal year ended September 30, 2003 in absolute terms, but its performance was disappointing relative to the Fund's peer group. In the fiscal year ending September 30, 2003, the Fund gained 21.11%, the Russell 2000, an index of small cap stocks, gained 36.50% and the S&P 500, gained 24.30%. According to Morningstar, the small-cap growth category (consisting of 663 mutual funds as of September 30, 2003) gained 34.13% in the year ended September 30, 2003. According to Morningstar, the Fund has significantly outperformed its small-cap growth peers in the three year period ending September 30, +6.11% per year versus -10.58% per year for its peers, and in the five year period ending September 30, +15.21% per year versus +8.05% per year for its peers. BARON GROWTH FUND INVESTS IN SMALL CAP GROWTH COMPANIES. The stock prices of growth stocks rebounded sharply in the 2003 fiscal year after a three-year bear market. Baron Growth Fund is a long term investor in businesses. The Fund utilizes an investment approach that allows it to look beyond the current environment and develop conviction, through its own independent research of companies, in the potential profitability of a business, and therefore its potential value in the future. The Fund normally invests in what it believes are great businesses that can be purchased opportunistically at attractive prices. The Fund's performance was not uniform throughout the year. The Fund's performance was weak in the first half of the fiscal year, -2.71%, but strong in the second half, +24.48%. The performance of Baron Growth Fund was not uniform across sectors in the 2003 fiscal year. The Fund was impacted positively by its investments in Education, Financials, Health Care Services, Hotels and Lodging, Recreation, and Retail. The Fund's best performing sector was Education. The Fund was not significantly negatively impacted by its holdings in any single sector. We believe the Fund is invested in businesses that will grow rapidly as the economy recovers over the next year. 3 BARON SMALL CAP FUND -------------------------------------------------------------------------------- [Line Graph] COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON SMALL CAP FUND** IN RELATION TO THE RUSSELL 2000*
DATE BSC** RUSSELL 2000* -------- --------- -------------- 09/30/1997 10,000 10,000 09/30/1998 8,610 8,098 09/30/1999 13,370 9,643 09/30/2000 16,050 11,898 09/30/2001 13,027 9,375 09/30/2002 14,095 8,503 09/30/2003 18,210 11,606
Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2003
Since Inception One Year Five Years 09/30/97 ------------------------------------------------------------------------ Baron Small Cap Fund** 29.20% 16.16% 10.51% Russell 2000* 36.50% 7.46% 2.51% -------------
Past performance is not predictive of future performance. * The Russell 2000 is a unmanaged indexes that measures the performance of small companies. ** The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Small Cap Fund's performance in the fiscal year ended September 30, 2003 was strong on an absolute basis, +29.20%. The Fund lagged the Russell 2000, +36.50%, and the small cap growth fund category (consisting of 663 mutual funds as of September 30, 2003) which, according to Morningstar, rose 34.13% for the twelve months ending September 30, 2003. According to Morningstar, the Fund significantly outperformed its small cap growth peers in the three year period ending September 30, +4.30% per year versus -10.58% per year for its peers, and the five-year period ending September 30, +16.16% per year versus +8.05% per year for its peers. BARON SMALL CAP FUND INVESTS IN SMALL CAP GROWTH COMPANIES. Small cap growth stocks rebounded sharply in the 2003 fiscal year following a three-year bear market. During the year stock prices presumably benefited from both depressed valuation levels and the belief by investors that the recession had ended. The Fund has investments in companies it believes will prosper in the years ahead. The Fund's performance was not uniform throughout the year. The Fund's performance followed the same pattern across the year as the small cap market averages. The Fund was nearly unchanged in the first half of the fiscal year, +0.30%, and was very strong in the second half of the fiscal year, +28.81%. The performance of Baron Small Cap Fund was not uniform across sectors. The Fund experienced strong performance in the Education and Retail sectors. The Fund performed well with its investments in Business Services, Communications and Transportation. The Fund was not significantly negatively impacted by its holdings in any single sector. In fiscal year 2004, the Fund expects to continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and ability to sustain superior levels of profitability. The Fund historically invests in smaller "Growth Companies" that have what we believe are significant long-term growth prospects that can be purchased at attractive prices because their prospects have not yet been appreciated by investors; "Fallen Angels" that what we believe have strong long-term franchises but have disappointed investors with short-term results, creating a buying opportunity; and "Special Situations", including spin-offs and recapitalizations, where lack of investor awareness creates what we believe are opportunities to purchase strong businesses at attractive prices. 4 BARON IOPPORTUNITY FUND -------------------------------------------------------------------------------- [LINE GRAPH] COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON iOPPORTUNITY FUND** IN RELATION TO THE MORGAN STANLEY INTERNET INDEX* & NASDAQ COMPOSITE*
DATE BiO** MOX* NASDAQ -------- --------- ----------- ------------- 02/29/2000 $10,000 $10,000 $10,000 09/30/2000 8,610 5,798 7,820 09/30/2001 4,105 769 3,191 09/30/2002 3,643 503 2,496 09/30/2003 6,503 1,050 3,805
Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2003
Since Inception One Year 02/29/00 ------------------------------------------------------------------------ Baron iOpportunity Fund** 78.51% -11.31% NASDAQ Composite* 52.46% -23.64% Morgan Stanley Internet Index* 108.95% -46.68% -------------
Past performance is not predictive of future performance. * The NASDAQ Composite and the Morgan Stanley Internet Index are unmanaged idexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ; the Morgan Stanley Internet Index of actively traded, high market cap Internet stocks drawn from nine Internet subsectors. ** The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron iOpportunity Fund's performance was very strong, +78.51%, on an absolute basis in the fiscal year ending September 30, 2003. The Fund's relative performance was satisfactory during this period. The Morgan Stanley Internet index gained 108.95% and the Nasdaq Composite gained 52.46% for year ended September 30, 2003. Both indexes had fallen further during the bear market then Baron iOpportunity Fund. According to Morningstar the mid-cap growth category (consisting of 742 funds as of September 30, 2003) to which Morningstar compares the Fund gained 27.78% in the year ending September 30, 2003. Internet-related stocks and growth stocks in general experienced sharp price increases in the year ending September 30, 2003. Baron iOpportunity Fund, like the other Baron Funds, utilizes value purchase disciplines while investing in growth companies that we believe have significant information technology opportunities. We believe the severe bear market experienced by technology investors in recent years has created unusual opportunities to purchase great businesses for the long term at attractive valuations. The Fund's performance was strong throughout the year. By quarter in the Fiscal year ended September 30, 2003, the Fund gained 14.60%, 4.33%, 31.80% and 13.29% and outperformed the Nasdaq Composite in each quarter. The performance of Baron iOpportunity Fund was strong across most sectors. The Fund invests across industries in companies benefiting from the Internet and the rapidly changing information technology environment. The Fund realized very strong gains in its investments in Consumer Services, Education, Financial and Retail sectors. The Fund was positively impacted by its investments in Advertising, Business Services, Cable, Communications, Hotels & Lodging, Leisure and Media. The Fund was not significantly negatively impacted by its holdings in any single sector. In fiscal 2004 the Fund expects to continue to invest in both new Internet-related businesses and established companies that we believe have significant and scalable information technology growth opportunities. 5 BARON ASSET FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS ---------------------------------------------------------------------------- September 30, 2003
Shares Cost Value --------------------------------------------------------------------------- COMMON STOCKS (95.83%) BUSINESS SERVICES (12.12%) 5,360,000 ChoicePoint, Inc.*# $63,890,317 $179,560,000 225,000 Fair Isaac Corp. 12,334,678 13,266,000 300,000 Iron Mountain, Inc.* 11,049,990 10,770,000 1,725,000 Robert Half Intl., Inc.* 2,260,245 33,637,500 ---------- ---------- 89,535,230 237,233,500 CONSULTING (1.06%) 850,000 Hewitt Associates, Inc.* 20,245,336 20,697,500 CONSUMER SERVICES (1.89%) 1,169,995 Sotheby's Hldgs., Inc., Cl A* 0 12,026,379 600,000 Weight Watchers Intl., Inc.* 19,585,075 24,960,000 ---------- ---------- 19,585,075 36,986,379 EDUCATION (12.27%) 2,525,000 Apollo Group, Inc., Cl A* 26,076,951 166,725,750 1,400,000 DeVry, Inc.* 4,655,650 33,124,000 700,000 Education Mgmt. Corp.* 5,378,680 40,369,000 ---------- ---------- 36,111,281 240,218,750 ENERGY (3.43%) 750,000 Seacor Smit, Inc.* 21,989,343 27,127,500 1,905,000 XTO Energy, Inc. 27,637,025 39,985,950 ---------- ---------- 49,626,368 67,113,450 FINANCIAL (13.08%) 1,000,000 Arch Capital Group, Ltd.* 33,841,383 33,010,000 1,100,000 Axis Capital Holdings, Ltd. 27,875,719 27,445,000 200,000 Brown & Brown, Inc. 6,543,137 6,156,000 10,550,000 Charles Schwab Corp. 27,712,406 125,650,500 290,000 Chicago Mercantile Exchange Holdings, Inc. 21,515,138 19,954,900 250,000 Endurance Specialty Holdings, Ltd. 5,882,806 7,300,000 525,000 Federated Investors, Inc. 15,384,748 14,542,500 330,000 H&R Block, Inc. 14,202,869 14,239,500 140,000 Moody's Corp. 7,256,123 7,695,800 ---------- ---------- 160,214,329 255,994,200 GAMING SERVICES (0.23%) 160,000 International Game Technology 3,460,055 4,504,000 HEALTHCARE FACILITIES (2.84%) 1,850,000 Manor Care, Inc. 38,574,466 55,500,000 HEALTHCARE SERVICES (4.39%) 600,000 Anthem, Inc.* 33,488,049 42,798,000 550,000 Caremark Rx, Inc.* 11,962,618 12,430,000 600,000 Charles River Laboratories Intl., Inc.* 18,168,492 18,414,000 270,000 Lincare Holdings, Inc.* 10,096,619 9,895,500 80,000 WellChoice, Inc.* 1,884,854 2,410,400 ---------- ---------- 75,600,632 85,947,900 HEALTHCARE PRODUCTS (2.37%) 460,000 DENTSPLY International, Inc. 19,666,168 20,626,400 260,000 Henry Schein, Inc.* 14,373,442 14,742,000 200,000 Zimmer Holdings, Inc.* 6,087,903 11,020,000 ---------- ---------- 40,127,513 46,388,400 HOME BUILDING (1.53%) 64,000 NVR, Inc.* 22,534,495 29,856,000 HOTELS AND LODGING (3.60%) 1,400,000 Choice Hotels Intl., Inc.* 15,391,033 40,628,000 500,000 Extended Stay America, Inc.* 7,037,784 7,465,000 450,000 Four Seasons Hotels, Inc. 11,762,130 22,414,500 ---------- ---------- 34,190,947 70,507,500 LEISURE (0.49%) 105,000 Electronic Arts, Inc.* 5,873,145 9,684,150
Shares Cost Value --------------------------------------------------------------------------- MEDIA AND ENTERTAINMENT (4.68%) 750,000 Cox Radio, Inc., Cl A* $ 4,670,488 $ 16,402,500 290,000 Radio One, Inc., Cl A* 2,373,395 4,263,000 600,000 Radio One, Inc., Cl D* 4,476,327 8,616,000 2,400,000 Saga Comm., Inc., Cl A*# 13,192,790 46,440,000 500,000 Univision Comm., Inc., Cl A* 3,830,985 15,965,000 ------------ ------------ 28,543,985 91,686,500 REAL ESTATE AND REITs (1.88%) 315,000 Alexander's, Inc.*# 20,542,256 33,232,500 141,844 Corrections Corp. of America* 1,418 3,499,291 ------------ ------------ 20,543,674 36,731,791 RECREATION AND RESORTS (11.65%) 2,400,000 Kerzner Intl., Ltd.*# 77,808,281 85,392,000 6,685,000 Vail Resorts, Inc.*# 158,401,672 95,595,500 1,200,000 Wynn Resorts, Ltd.* 16,541,988 21,816,000 1,459,408 Wynn Resorts, Ltd.*@ 30,030,772 25,205,436 ------------ ------------ 282,782,713 228,008,936 RETAIL TRADE (10.71%) 1,150,000 99 Cents Only Stores* 31,824,768 37,191,000 1,900,000 Dollar Tree Stores, Inc.* 13,759,079 63,650,000 1,250,000 Ethan Allen Interiors, Inc. 35,670,488 45,000,000 1,350,000 Polo Ralph Lauren Corp., Cl A 27,555,871 36,207,000 500,000 Whole Foods Market, Inc.* 24,184,425 27,590,000 ------------ ------------ 132,994,631 209,638,000 RESTAURANTS (2.68%) 750,000 Krispy Kreme Doughnuts, Inc.* 24,605,840 28,875,000 650,000 The Cheesecake Factory, Inc.* 20,823,946 23,510,500 ------------ ------------ 45,429,786 52,385,500 SOFTWARE (0.58%) 235,000 Intuit, Inc.* 9,865,705 11,336,400 TRANSPORTATION (1.97%) 740,000 C. H. Robinson Worldwide, Inc. 27,409,683 27,535,400 270,000 Ryanair Holdings plc* 11,123,208 10,935,000 ------------ ------------ 38,532,891 38,470,400 UTILITY SERVICES (1.95%) 2,250,000 Southern Union Co.* 31,549,146 38,250,000 WHOLESALE TRADE (0.43%) 300,000 Libbey, Inc. 9,375,069 8,343,000 ------------ ------------ TOTAL COMMON STOCKS 1,195,296,472 1,875,482,256 ------------ ------------ --------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.50%) --------------------------------------------------------------------------- EDUCATION (0.04%) 105,264 Apollo International, Inc. S-A CV Pfd.*@# 2,000,016 849,996 HEALTHCARE SERVICES (0.46%) 5,753 Somerford Corp. S-A Conv. Pfd.* @ 9,000,000 8,999,993 ------------ ------------ TOTAL CONVERTIBLE PREFERRED STOCKS 11,000,016 9,849,989 ------------ ------------
See Notes to Financial Statements. 6 BARON ASSET FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS ---------------------------------------------------------------------------- September 30, 2003
Shares Cost Value --------------------------------------------------------------------------- WARRANTS (0.04%) ---------------------------------------------------------------------------- REAL ESTATE AND REITs 70,922 Corrections Corporation of America Warrants Exp 09/29/2005*@ $ 0 $ 749,646 ------------ ------------ Principal Amount ---------------------------------------------------------------------------- CORPORATE BONDS (0.15%) ---------------------------------------------------------------------------- HEALTHCARE SERVICES $ 3,000,000 Somerford Corp. 8.50% Sub. Conv. Deb. due 04/23/2006@ 3,000,000 3,000,000 ------------ ------------ ---------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (4.06%) ---------------------------------------------------------------------------- 79,399,999 Exxon Asset Management Co. 0.76% due 10/01/2003 79,399,999 79,399,999 ------------ ------------ TOTAL INVESTMENTS (100.58%) $ 1,288,696,487 1,968,481,890 ============ LIABILITIES LESS CASH AND OTHER ASSETS (-0.58%) (11,305,812) ------------ NET ASSETS (EQUIVALENT TO $40.05 PER SHARE BASED ON 48,864,063 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 1,957,176,078 ============
-------------- % Represents percentage of net assets @ Restricted securities # Issuers that may be deemed to be "affiliated" * Non-income producing securities See Notes to Financial Statements. 7 BARON GROWTH FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30, 2003
Shares Cost Value --------------------------------------------------------------------------- COMMON STOCKS (85.69%) ---------------------------------------------------------------------------- ADVERTISING SERVICES (0.90%) 360,000 Getty Images, Inc.* $ 7,890,498 $ 12,657,600 375,000 Harte-Hanks, Inc. 6,046,351 6,915,000 ---------- ---------- 13,936,849 19,572,600 BUSINESS SERVICES (4.72%) 1,600,000 ChoicePoint, Inc.* 35,852,211 53,600,000 800,000 Fair Isaac Corp. 31,143,892 47,168,000 300,000 FreeMarkets, Inc.* 2,811,582 2,334,300 ---------- ---------- 69,807,685 103,102,300 CHEMICAL (1.66%) 1,681,000 Symyx Technologies, Inc.*# 28,221,033 36,208,740 Communications (1.74%) 3,000,000 American Tower Corp., Cl A* 13,344,607 30,450,000 800,000 Crown Castle Intl. Corp.* 3,043,909 7,528,000 ---------- ---------- 16,388,516 37,978,000 CONSULTING (0.89%) 800,000 Hewitt Associates, Inc.* 18,618,001 19,480,000 CONSUMER SERVICES (0.39%) 15,395 Sotheby's Hldgs., Inc., Cl A* 0 158,245 200,000 Weight Watchers Intl., Inc.* 5,882,958 8,320,000 ---------- ---------- 5,882,958 8,478,245 EDUCATION (6.31%) 700,000 DeVry, Inc.* 9,001,169 16,562,000 320,000 Education Mgmt. Corp.* 4,266,279 18,454,400 375,000 Strayer Education, Inc. 25,308,946 36,266,250 1,000,000 University of Phoenix Online* 18,358,937 66,580,000 ---------- ---------- 56,935,331 137,862,650 ENERGY SERVICES (2.30%) 300,000 FMC Technologies, Inc.* 6,658,910 6,426,000 1,225,000 Premcor, Inc.* 27,043,646 28,383,250 430,000 Seacor Smit, Inc.* 17,331,488 15,553,100 ---------- ---------- 51,034,044 50,362,350 FINANCIAL (9.75%) 1,550,000 Arch Capital Group, Ltd.*# 46,830,641 51,165,500 350,000 BlackRock, Inc., Cl A 7,036,572 17,150,000 300,000 Brown & Brown, Inc. 9,786,791 9,234,000 350,000 CapitalSource, Inc.* 5,929,502 6,125,000 800,000 CheckFree Corp.* 11,577,726 16,000,000 550,000 Chicago Mercantile Exchange Holdings, Inc. 35,372,238 37,845,500 750,000 Endurance Specialty Holdings, Ltd. 17,449,824 21,900,000 299,000 Gabelli Asset Mgmt., Inc., Cl A* 4,438,566 10,662,340 1,160,000 Jefferies Group, Inc. 24,577,883 33,350,000 100,000 National Financial Partners Corp.* 2,548,446 2,700,000 250,000 Nuveen Investments, Inc. 6,761,103 6,875,000 ---------- ---------- 172,309,292 213,007,340 FOOD AND AGRICULTURE (0.23%) 180,000 Ralcorp Hldgs., Inc.* 3,819,641 4,986,000 GOVERNMENT SERVICES (0.42%) 300,000 Anteon Intl. Corp.* 8,047,621 9,180,000 HEALTHCARE FACILITIES (4.31%) 160,000 AmSurg Corp.* 3,608,647 5,278,400 140,000 Community Health Systems, Inc.* 3,228,091 3,038,000 1,825,000 Manor Care, Inc. 34,345,880 54,750,000 1,100,000 United Surgical Partners Intl., Inc.* 23,181,527 31,130,000 ---------- ---------- 64,364,145 94,196,400
Shares Cost Value --------------------------------------------------------------------------- HEALTHCARE PRODUCTS (1.84%) 850,000 Edwards Lifesciences Corp.* $ 23,455,816 $ 23,018,000 233,000 INAMED Corp.* 16,014,037 17,113,850 ------------ ------------ 39,469,853 40,131,850 HEALTHCARE SERVICES (8.04%) 950,000 AMERIGROUP Corp.* 29,808,486 42,398,500 1,500,000 Centene Corp.*# 27,281,701 45,585,000 1,650,000 Charles River Laboratories Intl., Inc.* 49,190,676 50,638,500 700,000 CTI Molecular Imaging, Inc.* 12,242,158 10,339,000 900,000 Odyssey Healthcare, Inc.* 11,118,748 26,838,000 ------------ ------------ 129,641,769 175,799,000 HOME BUILDING (1.39%) 175,000 Brookfield Homes Corp. 1,637,118 3,242,750 420,000 Hovnanian Enterprises, Inc.* 21,163,983 27,035,400 ------------ ------------ 22,801,101 30,278,150 HOTELS AND LODGING (5.28%) 800,000 Choice Hotels Intl., Inc.* 9,354,699 23,216,000 2,000,000 Extended Stay America, Inc.* 24,867,406 29,860,000 1,250,000 Four Seasons Hotels, Inc. 37,489,146 62,262,500 ------------ ------------ 71,711,251 115,338,500 LEISURE (0.51%) 325,000 Take-Two Interactive Software, Inc.* 8,004,387 11,105,250 MEDIA (5.45%) 725,000 Cumulus Media, Inc.* 13,041,558 12,361,250 500,000 Entravision Comm. Corp., Cl A* 2,952,986 4,750,000 1,500,000 Gray Television, Inc. 12,375,000 17,520,000 2,300,000 LIN TV Corp., Cl A* 51,323,725 48,898,000 275,000 Radio One, Inc., Cl A* 2,801,501 4,042,500 950,000 Radio One, Inc., Cl D* 11,096,721 13,642,000 800,000 Saga Comm., Inc., Cl A* 7,404,392 15,480,000 275,000 Spanish Broadcasting System, Inc., Cl A* 1,380,015 2,337,500 ------------ ------------ 102,375,898 119,031,250 MEDICAL EQUIPMENT (0.92%) 1,000,000 Viasys Healthcare, Inc.* 19,540,935 20,200,000 PRINTING AND PUBLISHING (1.97%) 700,000 Arbitron, Inc.* 23,160,865 24,710,000 525,000 Information Holdings, Inc.* 10,699,116 10,515,750 300,000 ProQuest Co.* 7,976,847 7,890,000 ------------ ------------ 41,836,828 43,115,750 REAL ESTATE AND REITs (0.65%) 75,000 Alexander's, Inc.* 5,683,588 7,912,500 155,000 LNR Property Corp. 5,376,126 6,347,250 ------------ ------------ 11,059,714 14,259,750 RECREATION AND RESORTS (6.93%) 1,450,000 Kerzner Intl., Ltd.*# 34,723,372 51,591,000 1,250,000 Station Casinos, Inc. 25,671,625 38,250,000 1,250,000 Vail Resorts, Inc.* 21,897,070 17,875,000 537,677 Wynn Resorts, Ltd. *@ 11,063,956 9,286,220 1,900,000 Wynn Resorts, Ltd. * 25,775,919 34,542,000 ------------ ------------ 119,131,942 151,544,220
See Notes to Financial Statements. 8 BARON GROWTH FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30, 2003
Shares Cost Value --------------------------------------------------------------------------- COMMON STOCKS (continued) ---------------------------------------------------------------------------- RETAIL TRADE (6.34%) 1,000,000 99 Cents Only Stores* $ 33,141,287 $ 32,340,000 1,000,000 Chico's FAS, Inc.* 9,983,242 30,640,000 650,000 Dollar Tree Stores, Inc.* 9,056,197 21,775,000 585,000 Ethan Allen Interiors, Inc. 15,303,824 21,060,000 900,000 Petco Animal Supplies, Inc.* 17,449,210 28,080,000 441,600 Smart and Final, Inc.* 3,851,376 2,760,000 130,000 The Pep Boys - Manny, Moe and Jack 2,188,644 1,989,000 ------------ ------------ 90,973,780 138,644,000 RESTAURANTS (7.54%) 525,000 California Pizza Kitchen, Inc.* 11,622,997 9,135,000 1,500,000 Krispy Kreme Doughnuts, Inc.* 42,012,319 57,750,000 625,000 Panera Bread Co., Cl A* 20,570,499 25,600,000 325,000 Peet's Coffee & Tea, Inc.* 6,702,703 6,353,750 1,825,000 The Cheesecake Factory, Inc.* 59,281,874 66,010,250 ------------ ------------ 140,190,392 164,849,000 SOFTWARE (1.94%) 500,000 Advent Software, Inc.* 6,619,271 8,045,000 17,800 Barra, Inc.* 623,093 668,390 350,000 Kronos, Inc.* 8,069,835 18,518,500 550,000 The Reynolds & Reynolds Co. 15,565,998 15,152,500 ------------ ------------ 30,878,197 42,384,390 TRANSPORTATION (1.76%) 630,000 JetBlue Airways Corp.* 14,078,462 38,411,100 UTILITY SERVICES (1.13%) 1,460,000 Southern Union Co.* 19,158,693 24,820,000 WHOLESALE TRADE (0.38%) 300,000 Libbey, Inc. 8,601,657 8,343,000 ------------ ------------ TOTAL COMMON STOCKS 1,378,819,975 1,872,669,835 ------------ ------------ Principal Amount --------------------------------------------------------------------------- CORPORATE BONDS (1.26%) --------------------------------------------------------------------------- RECREATION AND RESORTS $ 26,000,000 Wynn Resorts, Ltd. 6.00% Sub. Conv. Deb. due 07/15/2015 25,362,755 27,495,000 ------------ ------------ --------------------------------------------------------------------------- Short Term Money Market Instruments (13.27%) --------------------------------------------------------------------------- 90,004,222 Exxon Asset Mgmt. Co. 0.76% due 10/01/2003 90,004,222 90,004,222 199,995,777 National Australia Funding Inc. 0.76% due 10/01/2003 199,995,777 199,995,777 ------------ ------------ TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 289,999,999 289,999,999 ------------ ------------ TOTAL INVESTMENTS (100.22%) $ 1,694,182,729 2,190,164,834 ============ LIABILITIES LESS CASH AND OTHER ASSETS (-0.22%) (4,761,995) ------------ NET ASSETS (EQUIVALENT TO $32.65 PER SHARE BASED ON 66,934,868 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 2,185,402,839 ============
--------------- % Represents percentage of net assets @ Restricted securities * Non-income producing securities # Issuers that may be deemed to be "affiliated" See Notes to Financial Statements. 9 BARON SMALL CAP FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30, 2003
Shares Value ------------------------------------------------------------------------------ COMMON STOCKS (91.19%) --------------------------------------------------------------------------- ADVERTISING SERVICES (1.75%) 525,000 R.H. Donnelley Corp.* $ 21,215,250 BUSINESS SERVICES (5.88%) 725,000 ChoicePoint, Inc.* 24,287,500 400,000 Fair Isaac Corp. 23,584,000 650,000 Iron Mountain, Inc.* 23,335,000 ------------ 71,206,500 COMMUNICATIONS (2.73%) 3,250,000 American Tower Corp.* 32,987,500 CONSULTING (2.67%) 275,000 Corporate Executive Board Co.* 12,911,250 800,000 FTI Consulting, Inc.* 13,880,000 300,000 Kroll, Inc.* 5,580,000 ------------ 32,371,250 CONSUMER PRODUCTS (3.85%) 675,000 Digital Theater Systems, Inc.* 19,224,675 500,000 Equity Marketing, Inc.*# 7,549,500 850,000 NBTY, Inc.* 19,847,500 ------------ 46,621,675 CONSUMER SERVICES (1.38%) 400,000 Weight Watchers Intl., Inc.* 16,640,000 EDUCATION (14.04%) 425,000 Apollo Group, Inc., Cl A* 28,062,750 2,300,000 Career Education Corp.* 104,190,000 1,250,000 SkillSoft PLC* 9,312,500 225,000 Strayer Education, Inc. 21,759,750 100,000 University of Phoenix Online* 6,658,000 ------------ 169,983,000 FINANCIAL (4.40%) 225,000 Arch Capital Group, Ltd.* 7,427,250 850,000 CapitalSource, Inc.* 14,875,000 250,000 Gabelli Asset Mgmt., Inc., Cl A* 8,915,000 1,250,000 Interactive Data Corp.* 19,750,000 86,500 National Financial Partners Corp.* 2,335,500 ------------ 53,302,750 GOVERNMENT SERVICES (4.14%) 675,000 Anteon Intl., Corp.* 20,655,000 575,000 Drexler Technology Corp.*# 8,061,500 836,092 FLIR Systems, Inc.* 21,420,677 ------------ 50,137,177 HEALTH CARE FACILITIES (4.12%) 700,000 Community Health Systems, Inc.* 15,190,000 100,000 Select Medical Corp.* 2,880,000 1,125,000 United Surgical Partners Intl., Inc.* 31,837,500 ------------ 49,907,500 HEALTH CARE PRODUCTS (1.37%) 225,000 INAMED Corp.* 16,526,250 HEALTH CARE SERVICES (3.57%) 600,000 Charles River Laboratories Intl., Inc.* 18,414,000 453,375 Odyssey Healthcare, Inc.* 13,519,643 462,500 Rotech Healthcare, Inc.* 11,215,625 ------------ 43,149,268 HOME BUILDING (0.88%) 575,700 Brookfield Homes Corp. 10,667,721 MANUFACTURING (0.70%) 150,000 Actuant Corp., Cl A* 8,422,500 MEDIA AND ENTERTAINMENT (7.44%) 900,000 AMC Entertainment, Inc.* 12,060,000 450,000 Cumulus Media, Inc.* 7,672,500
Shares Value --------------------------------------------------------------------------- MEDIA AND ENTERTAINMENT (continued) 1,350,000 Gray Television, Inc. $ 15,768,000 575,000 LIN TV Corp., Cl A* 12,224,500 1,800,000 Radio One, Inc., Cl D* 25,848,000 360,000 Regal Entertainment Group, Cl A 6,696,000 325,000 Westwood One, Inc.* 9,811,750 ------------ 90,080,750 MEDICAL EQUIPMENT (2.21%) 822,700 Immucor, Inc.*# 22,171,765 225,000 Viasys Healthcare, Inc.* 4,545,000 ------------ 26,716,765 PRINTING AND PUBLISHING (4.03%) 825,000 Information Holdings, Inc.* 16,524,750 700,000 Moore Wallace, Inc.* 9,940,000 850,000 ProQuest Co.* 22,355,000 ------------ 48,819,750 REAL ESTATE AND REITs (1.10%) 325,000 LNR Property Corp. 13,308,750 RECREATION AND RESORTS (2.84%) 495,000 Kerzner Intl., Ltd.* 17,612,100 500,000 The Sports Club Co., Inc.* 1,275,000 850,000 Wynn Resorts, Ltd. * 15,453,000 ------------ 34,340,100 RETAIL TRADE (12.31%) 825,000 99 Cents Only Stores* 26,680,500 400,000 Aeropostale, Inc.* 10,820,000 1,400,000 Casual Male Retail Group, Inc.*@# 10,346,000 150,000 Claire's Stores, Inc. 5,019,000 350,000 Dollar Tree Stores, Inc.* 11,725,000 825,000 Hot Topic, Inc.* 18,595,500 600,000 Kenneth Cole Productions, Inc., Cl A 15,666,000 150,000 Oxford Industries, Inc. 9,630,000 600,000 Petco Animal Supplies, Inc.* 18,720,000 950,000 Quiksilver, Inc.* 15,152,500 1,150,000 Restoration Hardware, Inc.* 6,681,500 ------------ 149,036,000 RESTAURANTS (4.93%) 1,000,000 CKE Restaurants, Inc.* 6,450,000 500,000 Krispy Kreme Doughnuts, Inc.* 19,250,000 300,000 Panera Bread Co., Cl A* 12,288,000 600,000 The Cheesecake Factory, Inc.* 21,702,000 ------------ 59,690,000 TRANSPORTATION (4.85%) 412,500 JetBlue Airways Corp.* 25,150,125 700,000 SkyWest, Inc. 12,124,000 1,002,200 Westjet Airlines, Ltd* 18,048,920 200,000 Westjet Airlines, Ltd*@ 3,421,780 ------------ 58,744,825 ------------ TOTAL COMMON STOCKS (Cost $713,011,235) 1,103,875,281 ------------ --------------------------------------------------------------------------- Warrants (0.34%) --------------------------------------------------------------------------- RETAIL TRADE 1,407,353 Casual Male Retail Group, Inc. Warrants Exp 04/26/2007*@# 3,874,500 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010*@# 263,000 ------------ TOTAL WARRANTS (Cost $2,166,151) 4,137,500 ------------
See Notes to Financial Statements. 10 BARON SMALL CAP FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30, 2003
Principal Amount Value -------------------------------------------------------------------------------- CORPORATE BONDS (1.20%) -------------------------------------------------------------------------------- PRINTING AND PUBLISHING (0.38%) $ 7,000,000 Penton Media, Inc. 10.375% Sr. Sub. NT due 06/15/2011 $ 4,567,500 RETAIL TRADE (0.82%) 7,500,000 Casual Male Retail Group, Inc. 12.00% Senior Sub. Notes due 04/26/2007@ 7,500,000 2,500,000 Casual Male Retail Group, Inc. 12.00% Senior Sub. Notes due 07/01/2010@ 2,500,000 ------------ 10,000,000 ------------ TOTAL CORPORATE BONDS (COST $12,755,472) 14,567,500 ------------ --------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (7.95%) --------------------------------------------------------------------------- 96,200,021 Exxon Asset Management Co. 0.76% due 10/01/2003 (Cost $96,200,021) 96,200,021 ------------ TOTAL INVESTMENTS (100.68%) (COST $824,132,879) 1,218,780,302 LIABILITIES LESS CASH AND OTHER ASSETS (-0.68%) (8,236,670) ------------ NET ASSETS (EQUIVALENT TO $17.26 PER SHARE BASED ON 70,149,032 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 1,210,543,632 ============
--------------- % Represents percentage of net assets @ Restricted securities # Issuers that may be deemed to be "affiliated" * Non-income producing securities See Notes to Financial Statements. 11 BARON iOPPORTUNITY FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30, 2003
Shares Value ------------------------------------------------------------------------------ COMMON STOCKS (88.55%) -------------------------------------------------------------------------------- ADVERTISING SERVICES (5.34%) 500,000 24/7 Real Media, Inc.* $ 624,500 85,000 Getty Images, Inc.* 2,988,600 125,000 NetRatings, Inc.* 1,166,625 40,000 Overture Services, Inc.* 1,059,600 ------------ 5,839,325 BUSINESS SERVICES (8.12%) 50,000 ChoicePoint, Inc.* 1,675,000 270,000 FreeMarkets, Inc.* 2,100,870 125,000 Harris Interactive, Inc.* 880,000 26,200 iPass, Inc.* 615,700 120,000 Monster Worldwide, Inc.* 3,021,600 100,000 Stamps.com, Inc.* 582,000 ------------ 8,875,170 CABLE (5.40%) 125,000 Comcast Corp., Cl A* 3,692,500 70,000 Cox Comm., Inc.* 2,213,400 ------------ 5,905,900 COMMUNICATIONS (5.12%) 300,000 American Tower Corp.* 3,045,000 25,000 Research in Motion, Ltd.* 955,000 500,000 SBA Communications Corp.* 1,600,000 ------------ 5,600,000 CONSULTING (1.02%) 50,000 Accenture, Ltd., Cl A* 1,117,000 CONSUMER SERVICES (8.63%) 100,000 Autobytel, Inc.*@ 952,000 130,000 iDine Rewards Network, Inc.* 2,112,500 120,000 InterActiveCorp* 3,966,000 83,000 priceline.com, Inc.* 2,406,170 ------------ 9,436,670 EDUCATION (9.74%) 80,000 Career Education Corp.* 3,624,000 451,000 SkillSoft PLC* 3,359,950 55,000 University of Phoenix Online* 3,661,900 ------------ 10,645,850 ENTERPRISE HARDWARE (3.75%) 65,000 Dell, Inc. (formerly Dell Computer Corp.)* 2,170,350 70,000 Intel Corp. 1,925,700 ------------ 4,096,050 FINANCIAL (11.12%) 320,000 Ameritrade Holding Corp.* 3,600,000 75,000 Charles Schwab Corp. 893,250 75,000 CheckFree Corp.* 1,500,000 320,000 E*TRADE Group, Inc.* 2,963,200 100,000 E-LOAN, Inc.* 363,000 110,000 eSpeed, Inc.* 2,487,100 50,000 Online Resources Corp.* 352,500 ------------ 12,159,050 GAMING SERVICES (2.31%) 30,000 GTECH Holdings Corp. 1,285,500 44,000 International Game Technology 1,238,600 ------------ 2,524,100 HEALTH CARE SERVICES (1.23%) 150,000 WebMD Corp.* 1,338,000 LEISURE (7.84%) 45,000 Electronic Arts, Inc.* 4,150,350 50,000 Netflix, Inc.* 1,680,500 80,000 Take-Two Interactive Software, Inc.* 2,733,600 ------------ 8,564,450
Shares Value ------------------------------------------------------------------------------ MANUFACTURING (2.27%) 175,000 Flextronics Intl., Ltd.* $ 2,481,500 MEDIA (7.75%) 125,000 AOL Time Warner, Inc.* 1,888,750 700,000 iVillage, Inc.* 1,554,000 125,000 MarketWatch.com, Inc.* 1,045,125 35,000 Sony Corp. ADR 1,218,000 30,000 Yahoo! Inc.* 1,061,400 120 Yahoo Japan Corp.* 1,700,601 ------------ 8,467,876 REAL ESTATE SERVICES (2.96%) 50,000 CoStar Group, Inc.* 1,300,000 700,000 Homestore, Inc.* 1,939,000 ------------ 3,239,000 RETAIL TRADE (5.95%) 150,000 1-800-FLOWERS.COM, Inc., Cl A* 1,128,000 40,000 Amazon.com, Inc.* 1,934,400 100,000 drugstore.com, Inc.* 765,000 50,000 eBay, Inc.* 2,675,500 ------------ 6,502,900 ------------ TOTAL COMMON STOCKS (Cost $66,285,146) 96,792,841 ------------ Principal Amount ------------------------------------------------------------------------------ CORPORATE BONDS (0.63%) ------------------------------------------------------------------------------- COMMUNICATIONS $ 750,000 SBA Comm. Corp. 10.25% Sr. NT due 02/01/2009 (Cost $439,062) 690,000 ------------ ------------------------------------------------------------------------------ SHORT TERM MONEY MARKET INSTRUMENTS (10.43%) ------------------------------------------------------------------------------- 11,399,999 Exxon Asset Management Co. 0.76% due 10/01/2003 (Cost $11,399,999) 11,399,999 ------------ TOTAL INVESTMENTS (99.61%) (COST $78,124,207) 108,882,840 CASH AND OTHER ASSETS LESS LIABILITIES (0.39%) 421,481 ------------ NET ASSETS (EQUIVALENT TO $6.48 PER SHARE BASED ON 16,879,373 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $109,304,321 ============
--------------- % Represents percentage of net assets * Non-income producing securities @ Restricted securities See Notes to Financial Statements. 12 BARON FUNDS -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- SEPTEMBER 30, 2003
BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FUND FUND FUND FUND ASSETS: Investments in securities, at value Unaffiliated issuers (Cost $952,861,155, $1,557,125,982, $779,444,169 and $78,124,207, respectively) $1,527,411,894 $2,005,614,594 $1,166,514,037 $ 108,882,840 "Affiliated" issuers (Cost $335,835,332, $137,056,747, $44,688,710 and $0, respectively) 441,069,996 184,550,240 52,266,265 0 Cash 504,937 1,326,326 497,420 6,470 Dividends and interest receivable 472,473 394,904 432,765 20,548 Receivable for securities sold 19,873,793 28,291,527 3,158,513 356,368 Receivable for shares sold 793,680 5,247,593 2,717,474 114,109 Prepaid expenses 46,393 0 0 0 -------------- -------------- -------------- ------------- 1,990,173,166 2,225,425,184 1,225,586,474 109,380,335 -------------- -------------- -------------- ------------- LIABILITIES: Payable for securities purchased 9,722,337 35,828,078 13,086,874 0 Payable for shares redeemed 23,003,189 3,874,863 1,727,644 51,446 Accrued expenses and other payables 271,562 319,404 228,324 24,568 -------------- -------------- -------------- ------------- 32,997,088 40,022,345 15,042,842 76,014 -------------- -------------- -------------- ------------- NET ASSETS $1,957,176,078 $2,185,402,839 $1,210,543,632 $ 109,304,321 ============== ============== ============== ============= NET ASSETS CONSIST OF: Capital paid-in $1,297,148,646 $1,782,450,152 $ 833,639,886 $ 191,091,410 Accumulated net realized loss (19,757,971) (93,029,418) (17,743,677) (112,545,722) Net unrealized appreciation on investments 679,785,403 495,982,105 394,647,423 30,758,633 -------------- -------------- -------------- ------------- NET ASSETS $1,957,176,078 $2,185,402,839 $1,210,543,632 $ 109,304,321 ============== ============== ============== ============= SHARES OF BENEFICIAL INTEREST OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 48,864,063 66,934,868 70,149,032 16,879,373 ============== ============== ============== ============= NET ASSET VALUE PER SHARE $ 40.05 $ 32.65 $ 17.26 $ 6.48 ============== ============== ============== =============
See Notes to Financial Statements. 13 BARON FUNDS -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- For the year ended September 30, 2003
> BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FUND FUND FUND FUND INVESTMENT INCOME: INCOME: Interest $ 1,018,014 $ 2,062,996 $ 3,086,334 $ 220,684 Dividends -- unaffiliated issuers 2,298,782 1,754,474 1,269,505 24,600 Dividends -- "affiliated" issuers 502,530 0 0 0 ------------- ------------ ------------ ----------- Total income 3,819,326 3,817,470 4,355,839 245,284 ------------- ------------ ------------ ----------- EXPENSES: Investment advisory fees 19,539,014 15,244,302 8,973,514 777,395 Distribution fees 4,884,757 3,811,078 2,243,380 194,349 Shareholder servicing agent fees 775,470 612,080 381,330 141,808 Reports to shareholders 1,034,500 767,300 409,650 129,367 Professional fees (427,425) 49,345 41,790 25,000 Registration and filing fees 94,400 65,240 51,150 16,178 Custodian fees 72,260 69,379 36,108 9,288 Trustee fees 39,573 30,324 17,926 1,539 Miscellaneous 122,814 83,021 51,945 4,827 ------------- ------------ ------------ ----------- Total operating expenses 26,135,363 20,732,069 12,206,793 1,299,751 Interest expense 11,500 0 0 0 ------------- ------------ ------------ ----------- Total expenses 26,146,863 20,732,069 12,206,793 1,299,751 Less: Expense reimbursement by investment adviser 0 0 0 (133,658) ------------- ------------ ------------ ----------- Net expenses 26,146,863 20,732,069 12,206,793 1,166,093 ------------- ------------ ------------ ----------- Net investment loss (22,327,537) (16,914,599) (7,850,954) (920,809) ------------- ------------ ------------ ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments sold in unaffiliated issuers 229,732,409 (54,183,199) (13,919,741) 5,663,483 Net realized loss on investments sold in "affiliated" issuers (202,383,136) 0 (2,707,955) 0 Change in net unrealized appreciation of investments 293,259,030 411,381,268 275,662,596 38,669,554 ------------- ------------ ------------ ----------- Net gain on investments 320,608,303 357,198,069 259,034,900 44,333,037 ------------- ------------ ------------ ----------- Net increase in net assets resulting from operations $ 298,280,766 $340,283,470 $251,183,946 $43,412,228 ============= ============ ============ ===========
See Notes to Financial Statements. 14 BARON FUNDS -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Baron Small BARON ASSET FUND BARON GROWTH FUND CAP FUND FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2003 2002 2003 -------------- --------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (22,327,537) $ (31,790,469) $ (16,914,599) $ (8,754,211) $ (7,850,954) Net realized gain (loss) on investments sold 27,349,273 75,515,090 (54,183,199) (37,035,858) (16,627,696) Net change in unrealized appreciation on investments 293,259,030 148,266 411,381,268 12,057,513 275,662,596 -------------- --------------- -------------- -------------- -------------- Increase (decrease) in net assets resulting from operations 298,280,766 43,872,887 340,283,470 (33,732,556) 251,183,946 -------------- --------------- -------------- -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments (67,413,267) (264,562,964) 0 (32,497,044) (20,581,254) -------------- --------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 330,807,954 460,737,296 1,209,913,568 792,799,655 485,593,319 Net asset value of shares issued in reinvestment of dividends 65,673,995 258,527,926 0 31,622,600 19,966,951 Cost of shares redeemed (725,356,209) (1,135,651,332) (395,080,937) (240,205,195) (244,749,792) -------------- --------------- -------------- -------------- -------------- Increase (decrease) in net assets derived from capital share transactions (328,874,260) (416,386,110) 814,832,631 584,217,060 260,810,478 Redemption fees 0 0 0 0 0 -------------- --------------- -------------- -------------- -------------- Net increase (decrease) in net assets (98,006,761) (637,076,187) 1,155,116,101 517,987,460 491,413,170 NET ASSETS: Beginning of year 2,055,182,839 2,692,259,026 1,030,286,738 512,299,278 719,130,462 -------------- --------------- -------------- -------------- -------------- End of year $1,957,176,078 $ 2,055,182,839 $2,185,402,839 $1,030,286,738 $1,210,543,632 ============== =============== ============== ============== ============== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 $ 0 ============== =============== ============== ============== ============== SHARES OF BENEFICIAL INTEREST: Shares sold 9,320,231 10,717,084 42,266,286 26,484,851 33,000,295 Shares issued in reinvestment of dividends 1,871,542 6,328,702 0 1,133,834 1,453,200 Shares redeemed (19,969,210) (26,349,244) (13,543,070) (8,254,587) (16,674,262) -------------- --------------- -------------- -------------- -------------- NET INCREASE (DECREASE) (8,777,437) (9,303,458) 28,723,216 19,364,098 17,779,233 ============== =============== ============== ============== ============== BARON SMALL CAP FUND BARON IOPPORTUNITY FUND FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2003 2002 ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (7,180,679) $ (920,809) $ (984,385) Net realized gain (loss) on investments sold 26,243,596 5,663,483 (22,680,535) Net change in unrealized appreciation on investments 8,344,275 38,669,554 17,847,733 ------------- ------------ ------------ Increase (decrease) in net assets resulting from operations 27,407,192 43,412,228 (5,817,187) ------------- ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments 0 0 0 ------------- ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 376,639,575 33,610,767 8,572,414 Net asset value of shares issued in reinvestment of dividends 0 0 0 Cost of shares redeemed (270,796,868) (25,290,252) (18,994,762) ------------- ------------ ------------ Increase (decrease) in net assets derived from capital share transactions 105,842,707 8,320,515 (10,422,348) Redemption fees 0 123,431 21,169 ------------- ------------ ------------ Net increase (decrease) in net assets 133,249,899 51,856,174 (16,218,366) NET ASSETS: Beginning of year 585,880,563 57,448,147 73,666,513 ------------- ------------ ------------ End of year $ 719,130,462 $109,304,321 $ 57,448,147 ============= ============ ============ ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 ============= ============ ============ SHARES OF BENEFICIAL INTEREST: Shares sold 24,194,618 6,406,971 1,705,661 Shares issued in reinvestment of dividends 0 0 0 Shares redeemed (17,997,975) (5,337,540) (3,923,851) ------------- ------------ ------------ NET INCREASE (DECREASE) 6,196,643 1,069,431 (2,218,190) ============= ============ ============
See Notes to Financial Statements. 15 BARON FUNDS ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ------------------------------------------------------------------------------- (1) ORGANIZATION. Baron Asset Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end management investment company established as a Massachusetts business trust on February 19, 1987. The Trust currently offers four series (individually a "Fund" and collectively the "Funds"): Baron Asset Fund, started in June of 1987, Baron Growth Fund, started in January of 1995, Baron Small Cap Fund, started in October of 1997, and Baron iOpportunity Fund, started in February of 2000. The investment objectives of the Funds are as follows: Baron Asset Fund seeks capital appreciation through long-investments in securities of small and medium sized companies with undervalued assets or favorable growth prospects. Baron Growth Fund seeks capital appreciation through long-term investments primarily in the securities of small growth companies. Baron Small Cap Fund seeks capital appreciation through investments primarily in securities of small companies. Baron iOpportunity Fund seeks capital appreciation through investments in growth business that benefit from technology advances. (2) SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity accounting principles generally accepted in the United States of America. (a) SECURITY VALUATION. Portfolio securities traded on any national stock exchange are valued based on the last sale price. For securities traded on NASDAQ, the Funds use the NASDAQ Official Closing Price. Where market quotations are not readily available, securities are valued based on fair value as determined by the Adviser, using procedures established by the Board of Trustees. Debt instruments having a remaining maturity greater than sixty days will be valued at the highest bid price from the dealer maintaining an active market in that security or on the basis of prices obtained from a pricing service approved by the Board of Trustees. Money market instruments held by the Funds with a remaining maturity of sixty days or less are valued at amortized cost, which approximates value. (b) SECURITIES TRANSACTIONS, INVESTMENT INCOME AND EXPENSE ALLOCATION. Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Common expenses of the Funds are allocated on a basis deemed fair and equitable by the Trustees, usually on the basis of average net assets. Direct expenses are charged to each Fund on a specific identification basis. (c) FEDERAL INCOME TAXES. Each Fund of the Trust is treated as a separate entity for federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute all of its taxable income, including net realized capital gains, if any, to its shareholders. No federal income tax provision is therefore required. (d) RESTRICTED SECURITIES. The Funds invest in securities which are restricted as to public sale in accordance with the Securities Act of 1933. Such assets are valued at fair value as determined in good faith by the Board of Trustees. (e) DISTRIBUTIONS. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. For the year ended September 30, 2003, the following amounts were reclassified for federal income tax purposes:
UNDISTRIBUTED UNDISTRIBUTED FUND NET INVESTMENT INCOME REALIZED GAIN/LOSS CAPITAL-PAID-IN ---- --------------------- ------------------ --------------- Baron Asset Fund $22,327,537 $(46,896,867) $ 24,569,330 Baron Growth Fund 16,914,599 0 (16,914,599) Baron Small Cap Fund 7,850,954 34,941 (7,885,895) Baron iOpportunity Fund 920,809 0 (920,809)
(f) SHORT-TERM TRADING FEE. Baron iOpportunity Fund imposes a 1% short-term trading fee on redemptions and exchanges of shares held for less than 180 days. The fee is retained by Baron iOpportunity for the benefit of the remaining shareholders to offset the administrative costs associated with processing redemptions and exchanges, offset the portfolio transaction costs and facilitate portfolio management. The fee is accounted for as an addition to paid in capital. (g) USE OF ESTIMATES. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the amounts of income and expenses during the period. Actual results could differ from those estimates. 16 BARON FUNDS -------------------------------------------------------------------------------- (3) PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities, other than short term securities, for the year ended September 30, 2003 were as follows:
FUND PURCHASES SALES ---- --------- ----- Baron Asset Fund $ 525,669,970 $999,804,889 Baron Growth Fund $1,082,811,155 $443,677,851 Baron Small Cap Fund $ 450,378,977 $252,655,218 Baron iOpportunity Fund $ 62,199,157 $ 61,721,164
Proceeds from sales for Baron Asset Fund includes $119,470,430 related to securities disposed of in redemptions-in-kind resulting in a realized gain of $46,907,640. (4) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. (a) INVESTMENT ADVISORY FEES. BAMCO, Inc. (the "Adviser"), a wholly owned subsidiary of Baron Capital Group, Inc. serves as investment adviser to the Funds. As compensation for services rendered, the Adviser receives a fee payable monthly from the assets of the Funds equal to 1% per annum of each Fund's average daily net asset value. For Baron iOpportunity Fund, the Adviser has contractually agreed to reduce its fee to the extent required to limit the operating expense to 1.50% of average net assets. (b) DISTRIBUTION FEES. Baron Capital, Inc. ("BCI") is a registered broker- dealer and the distributor of the shares of the Funds pursuant to a distribution plan under Rule 12b-1 of the 1940 Act. The distribution plan authorizes the Funds to pay BCI a distribution fee equal on an annual basis to 0.25% of the Funds' average daily net assets. Brokerage transactions for the Funds may be effected by or through BCI. During the year ended September 30, 2003, BCI earned gross brokerage commissions as follows:
FUND COMMISSIONS ---- ----------- Baron Asset Fund $1,679,723 Baron Growth Fund $1,660,501 Baron Small Cap Fund $ 685,873 Baron iOpportunity Fund $ 237,807
(c) TRUSTEE FEES. Certain Trustees of the Trust may be deemed to be affiliated with or interested persons (as defined by the 1940 Act) of the Funds' Adviser or of BCI. None of the Trustees so affiliated received compensation for his or her services as a Trustee of the Trust. None of the Funds' officers received compensation from the Funds. (5) LINE OF CREDIT. The Funds have entered into a line of credit agreement with the custodian bank to be used for temporary purposes, primarily for financing redemptions. The agreement provides that Baron Asset Fund may borrow up to 5% of the value of its net assets. Baron Growth Fund, Baron Small Cap Fund and Baron iOpportunity Fund may borrow up to 15% of each Fund's respective net assets. The aggregate outstanding principal amount of all loans to any of the Funds may not exceed $100,000,000. Interest is charged to each Fund, based on its borrowings, at a rate per annum equal to the Federal Funds Rate plus a margin of 1.00% to 2.00% depending on the duration of the loan. A commitment fee of 0.10% per annum is incurred on the unused portion of the line of credit and is allocated to the participating Funds. During the year ended September 30, 2003, Baron Asset Fund had minimal borrowings under the line of credit. At September 30, 2003, there were no loans outstanding under the line of credit. 17 BARON FUNDS -------------------------------------------------------------------------------- (6) RESTRICTED SECURITIES. A summary of the restricted securities held at September 30, 2003 follows:
BARON ASSET FUND Acquisition Name of Issuer Date Value -------------- ---- ----- Common Stock Wynn Resorts, Ltd. 04/17/01 $25,205,436 Convertible Preferred Stock Apollo International, Inc. S-A CV Pfd. 07/21/99 849,996 Somerford Corp. S-A Conv. Pfd. 12/03/98 8,999,993 Corporate Bonds Somerford Corp. 8.50% Sub. Conv. Deb Due 04/23/ 2006 04/23/01 3,000,000 Warrants Corrections Corporation of America Warrants Exp 09/29/2005 09/29/00 749,646 ----------- Total Restricted Securities: (Cost $44,030,788) (1.98% of Net Assets) $38,805,071 ===========
BARON GROWTH FUND Acquisition Name of Issuer Date Value -------------- ---- ----- Common Stock Wynn Resorts, Ltd. (Cost $11,063,956) (0.42% of Net Assets) 04/22/02 $ 9,286,220 ===========
BARON SMALL CAP FUND Acquisition Name of Issuer Date Value -------------- ---- ----- Common Stock Casual Male Retail Group, Inc. 05/15/02 $10,346,000 Westjet Airlines, Ltd. 09/26/03 3,421,780 Warrants Casual Male Retail Group, Inc. Warrants Exp 04/26/2007 05/15/02 3,874,500 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 263,000 Corporate Bonds Casual Male Retail Group, Inc. 12.00% Senior Sub. Notes due 04/26/2007 05/15/02 7,500,000 Casual Male Retail Group, Inc. 12.00% Senior Sub. Notes due 07/01/2010 07/03/03 2,500,000 ----------- Total Restricted Securities: (Cost $19,852,027) (2.31% of Net Assets) $27,905,280 ===========
BARON iOPPORTUNITY FUND Acquisition Name of Issuer Date Value -------------- ---- ----- Common Stock Autobytel, Inc. (Cost $540,000) (0.87% of Net Assets) 06/24/03 $ 952,000 ===========
18 BARON FUNDS -------------------------------------------------------------------------------- (7) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. As of September 30, 2003, the components of net assets on a tax basis were as follows:
Baron Asset Baron Growth Baron Small Cap Baron iOpportunity Fund Fund Fund Fund ---- ---- ---- ---- Cost of investments $1,288,823,052 $1,696,603,281 $825,119,704 $ 81,191,751 ============== ============== ============ ============= Gross tax unrealized appreciation 761,625,695 523,757,574 415,414,584 34,747,042 Gross tax unrealized depreciation (81,966,857) (30,196,021) (21,753,986) (7,055,953) -------------- -------------- ------------ ------------- Net tax unrealized appreciation $ 679,658,838 $ 493,561,553 $393,660,598 $ 27,691,089 ============== ============== ============ ============= Under current law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. These deferrals can be used to offset future capital gains at September 30, 2004. The Funds also had capital loss carryforwards. Capital loss carryforward expiring as follows: 2009 -- -- -- (23,974,628) 2010 -- (3,371,187) -- (63,691,646) 2011 (19,631,406) (58,001,961) (1,650,452) (21,811,904) -------------- -------------- ------------ ------------- $ (19,631,406) $ (61,373,148) $ (1,650,452) $(109,478,178) ============== ============== ============ ============= Undistributed long-term capital gain $ -- $ -- $ -- $ -- ============== ============== ============ ============= Post October loss deferral $ -- $ (29,235,718) $(15,106,400) $ -- ============== ============== ============ ============= Net investment loss and realized and unrealized gains and losses differ for financial statement and tax purposes due to differing treatments of wash sale losses deferred, losses realized subsequent to October 31 on the sale of securities, gains on in-kind redemptions and net operating losses. The tax composition of dividends paid during the year ended September 30, 2003 was as follows: Ordinary income $ -- $ -- $ -- $ -- Long-term capital gain 67,413,267 -- 20,581,254 -- -------------- -------------- ------------ ------------- $ 67,413,267 $ -- $ 20,581,254 $ -- ============== ============== ============ =============
19 BARON FUNDS ------------------------------------------------------------------------------- (8) INVESTMENT IN "AFFILIATES"* DURING THE YEAR ENDED SEPTEMBER 30, 2003. BARON ASSET FUND
Balance of Gross Gross Sales Balance of Shares Held on Purchases and Shares Held on Value Name of Issuer Sep. 30, 2002 and Additions Reductions Sep. 30, 2003 Sep. 30, 2003 ------------------------------------------------------------------------------------------------------------------------ Alexander's, Inc. 320,000 5,000 315,000 $ 33,232,500 Apollo International, Inc. S-A CV Pfd. 92,106 13,158 105,264 849,996 Choice Hotels Intl., Inc. 4,500,000 3,100,000 1,400,000 ** ChoicePoint, Inc. 5,725,000 365,000 5,360,000 179,560,000 DeVry, Inc. 3,500,000 2,100,000 1,400,000 ** DVI, Inc. 1,378,600 1,378,600 0 ** Kerzner Intl., Ltd. 2,400,000 2,400,000 85,392,000 Libbey, Inc. 2,270,000 1,970,000 300,000 ** OM Group, Inc. 2,331,000 2,331,000 0 ** Saga Comm., Inc., Cl A 4,420,000 2,020,000 2,400,000 46,440,000 Seacor Smit, Inc. 1,555,000 805,000 750,000 ** Smart and Final, Inc. 2,500,000 2,500,000 0 ** Sotheby's Hldgs., Inc., Cl A 15,592,700 1,169,995 15,592,700 1,169,995 ** Southern Union Co. + 2,790,000 120,000 660,000 2,250,000 ** Vail Resorts, Inc. Cl A 9,300,000 2,615,000 6,685,000 95,595,500 ------------ $441,069,996 ============ Dividend Income Name of Issuer Oct. 1-Sep. 30, 2003 ------------------------------------------------------------- Alexander's, Inc. Apollo International, Inc. S-A CV Pfd. Choice Hotels Intl., Inc. ChoicePoint, Inc. DeVry, Inc. DVI, Inc. Kerzner Intl., Ltd. Libbey, Inc. $502,530 OM Group, Inc. Saga Comm., Inc., Cl A Seacor Smit, Inc. Smart and Final, Inc. Sotheby's Hldgs., Inc., Cl A Southern Union Co. + Vail Resorts, Inc. Cl A -------- $502,530 ========
------------------------------------------------------------------------------- BARON GROWTH FUND
Balance of Gross Gross Sales Balance of Dividend Shares Held on Purchases and Shares Held on Value Income Name of Issuer Sep. 30, 2002 and Additions Reductions Sep. 30, 2003 Sep. 30, 2003 Oct. 1-Sep. 30, 2003 ---------------------------------------------------------------------------------------------------------------------------------- Arch Capital Group, Ltd. 750,000 800,000 1,550,000 $ 51,165,500 Centene Corp. # 450,000 1,050,000 1,500,000 45,585,000 Kerzner Intl., Ltd. 1,060,000 390,000 1,450,000 51,591,000 Symyx Technologies, Inc. 800,000 881,000 1,681,000 36,208,740 ------------ -- $184,550,240 $0 ============ ==
------------------------------------------------------------------------------- BARON SMALL CAP FUND
Balance of Gross Gross Sales Balance of Shares Held on Purchases and Shares Held on Value Name of Issuer Sep. 30, 2002 and Additions Reductions Sep. 30, 2003 Sep. 30, 2003 ----------------------------------------------------------------------------------------------------------------- Casual Male Retail Group, Inc. 2,353,000 953,000 1,400,000 $ 10,346,000 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 1,407,353 1,407,353 3,874,500 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 0 100,000 100,000 263,000 Drexler Technology Corp. 0 575,000 575,000 8,061,500 Equity Marketing, Inc. 500,000 500,000 7,549,500 Immucor, Inc. 0 822,700 822,700 22,171,765 Information Holdings, Inc. 800,000 335,000 310,000 825,000 ** Restoration Hardware, Inc. 1,550,000 400,000 1,150,000 ** ------------- $ 52,266,265 ============= Dividend Income Name of Issuer Oct. 1-Sep. 30, 2003 ------------------------------------------------------ Casual Male Retail Group, Inc. Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 Drexler Technology Corp. Equity Marketing, Inc. Immucor, Inc. Information Holdings, Inc. Restoration Hardware, Inc. -- $0 ==
--------------- * "Affiliated" issuers, as defined in the Investment Company Act of 1940, are issuers in which a Fund held 5% or more of the outstanding voting securities. ** As of September 30, 2003, no longer an affiliate. + Received 120,000 shares from 5% stock dividend. # Received 475,000 shares from 3:2 stock split. 20 BARON FUNDS ------------------------------------------------------------------------------- (9) Financial Highlights BARON ASSET FUND Selected data for a share of beneficial interest outstanding throughout each year:
Year Ended September 30, ----------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- -------- -------- Net asset value, beginning of year $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 $ 47.43 $ 35.50 -------- -------- -------- -------- -------- -------- -------- Income from investment operations Net investment income (loss) (0.46) (0.55) (0.65) (0.76) (0.30) 0.05 (0.14) Net realized and unrealized gains (losses) on investments 6.04 0.05 (17.87) 12.53 11.94 (7.52) 12.11 -------- -------- -------- -------- -------- -------- -------- Total from investment operations 5.58 (0.50) (18.52) 11.77 11.64 (7.47) 11.97 -------- -------- -------- -------- -------- -------- -------- Less distributions Dividends from net investment income 0.00 0.00 0.00 0.00 (0.04) 0.00 0.00 Distributions from net realized gains (1.18) (4.07) (4.61) 0.00 0.00 0.00 (0.04) -------- -------- -------- -------- -------- -------- -------- Total distributions (1.18) (4.07) (4.61) 0.00 (0.04) 0.00 (0.04) -------- -------- -------- -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.01 0.01 0.00 0.00 -------- -------- -------- -------- -------- -------- -------- Net asset value, end of year $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 $ 47.43 ======== ======== ======== ======== ======== ======== ======== Total return 16.1% (2.5%) (31.2%) 22.8%+ 29.2%* (15.7%) 33.8% -------- -------- -------- -------- -------- -------- -------- Ratios/Supplemental data Net assets (in millions), end of year $1,957.2 $2,055.2 $2,692.3 $4,917.4 $5,863.1 $4,410.5 $3,224.5 Ratio of total expenses to average net assets 1.34% 1.35% 1.37% 1.36% 1.31% 1.32% 1.35% Less: Ratio of interest expense to average net assets 0.00% (0.02%) (0.01%) (0.03%) 0.00% 0.00% 0.00% -------- -------- -------- -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.34% 1.33% 1.36% 1.33% 1.31% 1.32% 1.35% ======== ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (1.14%) (1.16%) (1.14%) (1.09%) (0.57%) 0.11% (0.52%) Portfolio turnover rate 27.95% 6.01% 4.33% 2.51% 15.64% 23.43% 13.23% Year Ended September 30, --------------------------- 1996 1995 1994 -------- ------ ------ Net asset value, beginning of year $ 29.30 $22.82 $21.91 -------- ------ ------ Income from investment operations Net investment income (loss) (0.06) (0.09) (0.14) Net realized and unrealized gains (losses) on investments 6.29 7.23 1.82 -------- ------ ------ Total from investment operations 6.23 7.14 1.68 -------- ------ ------ Less distributions Dividends from net investment income 0.00 0.00 0.00 Distributions from net realized gains (0.03) (0.66) (0.77) -------- ------ ------ Total distributions (0.03) (0.66) (0.77) -------- ------ ------ Capital contribution 0.00 0.00 0.00 -------- ------ ------ Net asset value, end of year $ 35.50 $29.30 $22.82 ======== ====== ====== Total return 21.3% 32.3% 8.0% -------- ------ ------ Ratios/Supplemental data Net assets (in millions), end of year $1,166.1 $290.0 $ 80.3 Ratio of total expenses to average net assets 1.40% 1.44% 1.59% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% -------- ------ ------ Ratio of operating expenses to average net assets 1.40% 1.44% 1.59% ======== ====== ====== Ratio of net investment income (loss) to average net assets (0.29%) (0.55%) (0.71%) Portfolio turnover rate 19.34% 35.15% 55.87%
+ Had the adviser not made the capital contribution, the Fund's performance would have been reduced by 0.02%. * Had the adviser not made the capital contribution, the Fund's performance would have been reduced by 0.03%. BARON GROWTH FUND Selected data for a share of beneficial interest outstanding throughout each year:
Year Ended September 30, ---------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 1997 1996 -------- -------- ------ ------ ------ ------ ------ ------ Net asset value, beginning of year $ 26.96 $ 27.18 $32.26 $29.06 $20.32 $24.89 $18.40 $14.77 -------- -------- ------ ------ ------ ------ ------ ------ Income from investment operations Net investment income (loss) (0.25) (0.23) (0.22) (0.26) (0.04) 0.06 0.06 0.11 Net realized and unrealized gains (losses) on investments 5.94 1.65 (1.67) 5.34 8.82 (4.56) 6.68 3.66 -------- -------- ------ ------ ------ ------ ------ ------ Total from investment operations 5.69 1.42 (1.89) 5.08 8.78 (4.50) 6.74 3.77 -------- -------- ------ ------ ------ ------ ------ ------ Less distributions Dividends from net investment income 0.00 0.00 0.00 0.00 (0.04) (0.02) (0.09) (0.04) Distributions from net realized gains 0.00 (1.64) (3.19) (1.88) 0.00 (0.05) (0.16) (0.10) -------- -------- ------ ------ ------ ------ ------ ------ Total distributions 0.00 (1.64) (3.19) (1.88) (0.04) (0.07) (0.25) (0.14) -------- -------- ------ ------ ------ ------ ------ ------ Net asset value, end of year $ 32.65 $ 26.96 $27.18 $32.26 $29.06 $20.32 $24.89 $18.40 ======== ======== ====== ====== ====== ====== ====== ====== Total return 21.1% 5.0% (6.1%) 18.6% 43.2% (18.1%) 37.1% 25.8% -------- -------- ------ ------ ------ ------ ------ ------ Ratios/Supplemental data Net assets (in millions), end of year $2,185.4 $1,030.3 $512.3 $533.4 $439.4 $315.6 $390.8 $207.2 Ratio of total expenses to average net assets 1.36% 1.35% 1.36% 1.36% 1.40% 1.43% 1.40% 1.54% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% (0.03%) (0.06%) 0.00% 0.00% -------- -------- ------ ------ ------ ------ ------ ------ Ratio of operating expenses to average net assets 1.36% 1.35% 1.36% 1.36% 1.37% 1.37% 1.40% 1.54% ======== ======== ====== ====== ====== ====== ====== ====== Ratio of net investment income (loss) to average net assets (1.11%) (1.02%) (0.79%) (0.78%) (0.20%) 0.21% 0.37% 1.20% Portfolio turnover rate 32.63% 18.31% 34.94% 39.00% 53.36% 40.38% 25.17% 40.27% Year Ended September 30, -------------------------------------- 1995* ------ Net asset value, beginning of year $10.00 ------ Income from investment operations Net investment income (loss) 0.04 Net realized and unrealized gains (losses) on investments 4.73 ------ Total from investment operations 4.77 ------ Less distributions Dividends from net investment income 0.00 Distributions from net realized gains 0.00 ------ Total distributions 0.00 ------ Net asset value, end of year $14.77 ====== Total return 47.7% ------ Ratios/Supplemental data Net assets (in millions), end of year $ 28.6 Ratio of total expenses to average net assets 1.99%** Less: Ratio of interest expense to average net assets 0.00% ------ Ratio of operating expenses to average net assets 1.99%** ====== Ratio of net investment income (loss) to average net assets 1.13%** Portfolio turnover rate 40.56%
--------------- * For the period January 3, 1995 (Commencement of Operations) to September 30, 1995. ** Annualized. The Fund's custodian's offset of custody fees amounted to less than $0.01 per share in 1996 and 1995. The expense offset amounts are included in expense data above. 21 BARON FUNDS -------------------------------------------------------------------------------- ------------------------------------------------------------------------------- (9) Financial Highlights (continued) BARON SMALL CAP FUND Selected data for a share of beneficial interest outstanding throughout each year:
Year ended September 30, ------------------------------------------------------- 2003 2002 2001 2000 1999 1998 -------- ------ ------ ------ ------ ------ Net asset value, beginning of year $ 13.73 $12.69 $16.05 $13.37 $ 8.61 $10.00 -------- ------ ------ ------ ------ ------ Income from investment operations Net investment loss (0.11) (0.14) (0.11) (0.16) (0.10) (0.02) Net realized and unrealized gains (losses) on investments 4.02 1.18 (2.87) 2.84 4.86 (1.37) -------- ------ ------ ------ ------ ------ Total from investment operations 3.91 1.04 (2.98) 2.68 4.76 (1.39) -------- ------ ------ ------ ------ ------ Less distributions Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 Distributions from net realized gains (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- ------ ------ ------ ------ ------ Total distributions (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- ------ ------ ------ ------ ------ Net asset value, end of year $ 17.26 $13.73 $12.69 $16.05 $13.37 $ 8.61 ======== ====== ====== ====== ====== ====== Total return 29.2% 8.2% (18.8%) 20.0% 55.3% (13.9% -------- ------ ------ ------ ------ ------ Ratios/Supplemental data Net assets (in millions), end of year $1,210.5 $719.1 $585.9 $879.5 $715.7 $403.7 Ratio of total expenses to average net assets 1.36% 1.36% 1.35% 1.33% 1.34% 1.39% Ratio of net investment loss to average net assets (0.87%) (0.97%) (0.68%) (0.90%) (0.99%) (0.20% Portfolio turnover rate 30.29% 55.07% 55.77% 53.18% 42.69% 59.68%
BARON iOPPORTUNITY FUND Selected data for a share of beneficial interest outstanding throughout each year:
For the year ended September 30, ----------------------------------- 2003 2002 2001 2000* ------ ------ ------- ------ Net asset value, beginning of year $ 3.63 $ 4.09 $ 8.76 $10.00 ------ ------ ------- ------ Income from investment operations Net investment income (loss) (0.05) (0.06) (0.05) 0.03 Net realized and unrealized gains (losses) on investments 2.89 (0.40) (4.59) (1.28) ------ ------ ------- ------ Total from investment operations 2.84 (0.46) (4.64) (1.25) ------ ------ ------- ------ Less distributions Dividends from net investment income 0.00 0.00 (0.03) 0.00 Distributions from net realized gains 0.00 0.00 0.00 0.00 ------ ------ ------- ------ Total distributions 0.00 0.00 (0.03) 0.00 ------ ------ ------- ------ Redemption fees added to paid in capital 0.01 0.00+ 0.00+ 0.01 ------ ------ ------- ------ Net asset value, end of year $ 6.48 $ 3.63 $ 4.09 $ 8.76 ====== ====== ======= ====== Total return ^ 78.5% (11.2%) (53.1%) (12.4% ------ ------ ------- ------ Ratios/Supplemental data Net assets (in millions), end of year $109.3 $ 57.5 $ 73.7 $188.2 Ratio of total expenses to average net assets 1.67% 1.65% 1.55% 1.53% Less: Expense reimbursement by investment adviser (0.17%) (0.15%) (0.05%) (0.03% ------ ------ ------- ------ Ratio of net expenses to average net assets 1.50% 1.50% 1.50% 1.50% ====== ====== ======= ====== Ratio of net investment income (loss) to average net assets (1.18%) (1.20%) (0.75%) 0.46% Portfolio turnover rate 89.72% 96.41% 123.30% 31.47%
--------------- * For the period February 29, 2000 (Commencement of Operations) to September 30, 2000. ** Annualized. + Less than $0.01 per share. ^ The total returns would have been lower had certain expenses not been reduced during the periods shown. 22 BARON FUNDS -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS -------------------------------------------------------------------------------- ---------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF BARON ASSET FUND ---------------------------- In our opinion, the accompanying statements of assets and liabilities and statements of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Baron Asset Fund (comprising, respectively, Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund and Baron iOpportunity Fund (collectively the "Funds")) at September 30, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 13, 2003 23 BARON FUNDS -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) -------------------------------------------------------------------------------- We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end as to the federal tax status of distributions paid by the Funds during such fiscal year. On November 21, 2002, the following distributions were declared and paid to shareholders of record on November 20, 2002, from net realized capital gains.
Long Term Fund Capital Gain Per Share ---- ------------ --------- Baron Asset Fund $67,413,267 $1.177 Baron Small Cap Fund $20,581,254 $0.381
The information and distributions reported may differ from the information and distributions taxable to the shareholders for the calendar year ended December 31, 2003. The information necessary to complete your income tax return for the calendar year ended December 31, 2003 is listed on form 1099- DIV which will be mailed to you in January 2004. MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS The Board of Trustees oversees the management of the Funds. The following table lists the Trustees and executive officers of the Funds, their date of birth, current positions held with the Funds, length of time served, principal occupations during the past five years and other Trusteeships/Directorships held outside the fund complex. Unless otherwise noted, the address of each executive officer and Trustee is Baron Funds, 767 Fifth Avenue, 49th Floor, New York, NY 10153. Trustees who are not deemed to be "interested persons" of the Funds as defined in the 1940 Act are referred to as "Disinterested Trustees." Trustees who are deemed to be "interested persons" of the Funds are referred to as "Interested Trustees." All Trustees listed below, whether Interested or Disinterested, serve as trustee for all four portfolios.
INTERESTED TRUSTEES NAME, ADDRESS & POSITION(S) HELD PRINCIPAL OCCUPATION(S) DATE OF BIRTH WITH THE FUNDS LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS ------------- -------------- --------------------- -------------------------- Ronald Baron*+ Chairman, CEO, 16 years Chairman, CEO, and Director, Baron 767 Fifth Avenue Chief Investment Capital, Inc. (1982-Present), Baron New York, NY 10153 Officer, Trustee and Capital Management, Inc. (1983-Present), DOB: May 23, 1943 Portfolio Manager Baron Capital Group, Inc. (1984-Present), BAMCO, Inc. (1987-Present); Portfolio Manager, Baron Asset Fund (1987-Present) and Baron Growth Fund (1995-Present). Linda S. Martinson*+ Vice President, 16 years General Counsel, Vice President and 767 Fifth Avenue Secretary, General Secretary, Baron Capital, Inc. (1983- New York, NY 10153 Counsel and Trustee Present), BAMCO, Inc. (1987-Present), DOB: February 22, 1955 Baron Capital Group, Inc. (1984-Present), Baron Capital Management, Inc. (1983- Present). Morty Schaja*+ President, Chief 7 years President and Chief Operating Officer, 767 Fifth Avenue Operating Officer and Baron Capital, Inc. (1999-Present); Senior New York, NY 10153 Trustee Vice President and Chief Operating DOB: October 30, 1954 Officer, Baron Capital, Inc. (1997-1999); Managing Director, Vice President, Baron Capital, Inc. (1991-1999); and Director, Baron Capital Group, Inc., Baron Capital Management, Inc., and BAMCO, Inc. (1997- Present). INTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE ------------- ------------------- Ronald Baron*+ None 767 Fifth Avenue New York, NY 10153 DOB: May 23, 1943 Linda S. Martinson*+ None 767 Fifth Avenue New York, NY 10153 DOB: February 22, 1955 Morty Schaja*+ None 767 Fifth Avenue New York, NY 10153 DOB: October 30, 1954
24 BARON FUNDS -------------------------------------------------------------------------------
DISINTERESTED TRUSTEES NAME, ADDRESS & POSITION(S) HELD PRINCIPAL OCCUPATION(S) DATE OF BIRTH WITH THE FUNDS LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS ------------- -------------- --------------------- -------------------------- Norman S. Edelcup+^** Trustee 16 years Senior Vice President and Director, 244 Atlantic Isles Florida Savings Bancorp (2001- Sunny Isles Beach, FL 33160 Present); Mayor (Oct. 2003- DOB: May 8, 1935 Present), Commissioner, Sunny Isles Beach, Florida (2001-2003); Senior Vice President, Item Processing of America (1999-2000) (a subsidiary of The Intercept Group); Chairman, Item Processing of America (1989- 1999) (a financial institution service bureau); Director, Valhi, Inc. (1975-Present) (diversified company); Director, Artistic Greetings, Inc. (1985-1998). Charles N. Mathewson** Trustee 16 years Chairman Emeritus (October 2003- 9295 Prototype Drive Present), Chairman, International Reno, NV 89521 Game Technology, Inc. (1986-2003) DOB: June 12, 1928 (manufacturer of microprocessor- controlled gaming machines and monitoring systems); Chairman, American Gaming Association (1994- 2002). Harold W. Milner^** Trustee 16 years Retired; President and CEO, Kahler 2293 Morningstar Drive Realty Corporation (1985-1997) Park City, UT 84060 motel ownership and management). DOB: November 11, 1934 Raymond Noveck++^** Trustee 16 years Private Investor (1999-Present); 31 Karen Road President, The Medical Information Waban, MA 02168 Line, Inc. (1997-1998) (health care DOB: May 4, 1943 information); President, Strategic Systems, Inc. (1990-1997) (health care information); Director, Horizon/CMS Healthcare Corporation (1987-1997). David A. Silverman, MD ** Trustee 16 years Physician and Faculty, New York 146 Central Park West University School of Medicine New York, NY 10024 (1976-Present). DOB: March 14, 1950 DISINTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE ------------- ------------------- Norman S. Edelcup+^** Director, Florida Savings 244 Atlantic Isles Bancorp (2001-Present); Sunny Isles Beach, FL 33160 Director, Valhi, Inc. (1975- DOB: May 8, 1935 Present) (diversified company) Charles N. Mathewson** None 9295 Prototype Drive Reno, NV 89521 DOB: June 12, 1928 Harold W. Milner^** None 2293 Morningstar Drive Park City, UT 84060 DOB: November 11, 1934 Raymond Noveck++^** None 31 Karen Road Waban, MA 02168 DOB: May 4, 1943 David A. Silverman, MD ** None 146 Central Park West New York, NY 10024 DOB: March 14, 1950
25 BARON FUNDS --------------------------------------------------------------------------------
OFFICERS OF THE FUNDS NAME, ADDRESS & POSITION(S) HELD PRINCIPAL OCCUPATION(S) DATE OF BIRTH WITH THE FUNDS LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS ------------- -------------- --------------------- -------------------------- Clifford Greenberg Senior Vice President 6 years Senior Vice President, Baron Capital, 767 Fifth Avenue and Portfolio Manager Inc., Baron Capital Group, Inc., BAMCO, New York, NY 10153 Inc. (2003-Present) Vice President (1997- DOB: April 30, 1959 2003), Portfolio Manager, Baron Small Cap Fund (1997-Present); General Partner, HPB Associates, LP (1984-1996) (investment partnership). Andrew Peck Vice President and 1 year Vice President, Baron Asset Fund (2003), 767 Fifth Avenue Portfolio Manager Analyst, Baron Capital, Inc. (1998- New York, NY 10153 Present), Co-Portfolio Manager, Baron DOB: March 25, 1969 Asset Fund (2003-Present) Susan Robbins Vice President 16 years Senior Analyst, Vice President and 767 Fifth Avenue Director, Baron Capital, Inc. (1982- New York, NY 10153 Present), Baron Capital Management, Inc. DOB: October 19, 1954 (1984-Present). Mitchell J. Rubin Vice President and 3 years Vice President and Senior Analyst, Baron 767 Fifth Avenue Portfolio Manager Capital, Inc. (1997-Present), Portfolio New York, NY 10153 Manager of Baron iOpportunity Fund (2000- DOB: September 22, 1966 Present). Peggy C. Wong Treasurer and Chief 16 years Treasurer and Chief Financial Officer, 767 Fifth Avenue Financial Officer Baron Capital, Inc., Baron Capital Group, New York, NY 10153 Inc., BAMCO, Inc. and Baron Capital DOB: April 30, 1961 Management, Inc. (1987-Present). OFFICERS OF THE FUNDS NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE ------------- ------------------- Clifford Greenberg None 767 Fifth Avenue New York, NY 10153 DOB: April 30, 1959 Andrew Peck None 767 Fifth Avenue New York, NY 10153 DOB: March 25, 1969 Susan Robbins None 767 Fifth Avenue New York, NY 10153 DOB: October 19, 1954 Mitchell J. Rubin None 767 Fifth Avenue New York, NY 10153 DOB: September 22, 1966 Peggy C. Wong None 767 Fifth Avenue New York, NY 10153 DOB: April 30, 1961
------------------------------------------------------------------------------- * Trustees deemed to be "interested persons" of the Fund as that term is defined in the Investment Company Act of 1940 by reason of their employment with the Funds' Adviser and Distributor. + Members of the Executive Committee, which is empowered to exercise all of the powers, including the power to declare dividends, of the full Board of Trustees when the full Board of Trustees is not in session. + Members of the Audit Committee. ^ Members of the Nominating Committee. ** Members of the Independent Committee. 26 [Registered Castle Design] B A R O N F U N D S c/o UMB Fund Services, Inc. 803 West Michigan Avenue Suite A Milwaukee, WI 53233-2301 SEP03 Item 2. Code of Ethics. Filed pursuant to Item 10(a)(1) of Item 2 to Form N-CSR. EX-99.COE Item 3. Audit Committee Financial Expert. The Board of Trustees of the Fund has determined that Norman S. Edelcup, a member of the Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "Audit Committee Financial Expert" and has designated Mr. Edelcup as the Audit Committee's Financial Expert. Mr. Edelcup is an "idependent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 4. Principal Accountant Fees and Services. Not applicable at this time. This item is applicable to annual reports for the first fiscal year ending December 15, 2003. Item 5. Audit Committee of Listed Registrants. The members of the Fund's Audit Committee are Norman Edelcup and Raymond Noveck, both "idependent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 6. [Reserved]. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. NOT APPLICABLE. Item 8. [Reserved]. Item 9. Controls and Procedures. The Registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the investment company in the reports that it files or submits under the Securities Exchange Act to 1934 is recorded, processed, summarized, and reported within the time periods specified in the Commission's rules and forms. At the date of filing this N-CSR, the Registrant's principal executive office and principal financial officer are aware of no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10. Exhibits. a). EX-99.COE Current copy of the Fund's Code of Ethics pursuant to Item 2 of the Form N-CSR. b). Ex-99.CERT Certification required by Item 10(b) of Form N-CSR. Ex-99.906 CERT Certification pursuant to Section 906 of the Sarbanes Oxley Act. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BARON ASSET FUND By: /s/ Ronald Baron ------------------- Ronald Baron Chairman and Chief Executive Officer Date: December 5, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald Baron -------------------- Ronald Baron Chairman and Chief Executive Officer Date: December 5, 2003 By: /s/ Peggy Wong -------------------- Peggy Wong Treasurer and Chief Financial Officer Date: December 5, 2003 A signed original of this written statement has been provided to Baron Asset Fund and will be retained by Baron Asset and furnished to the Securities and Exchange Commission or its staff upon request.