-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TE9l7dK59LeZdLcQ/UW+efVlJ4o08o/Th7133b9WBDjHWSMliHbuHZW6qiDpC1Tx 1bVowtwt6LwcSzFpRUHJeA== 0001017918-05-000134.txt : 20051208 0001017918-05-000134.hdr.sgml : 20051208 20051208164012 ACCESSION NUMBER: 0001017918-05-000134 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051208 DATE AS OF CHANGE: 20051208 EFFECTIVENESS DATE: 20051208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARON INVESTMENT FUNDS TRUST (f/k/a BARON ASSET FUND) CENTRAL INDEX KEY: 0000810902 IRS NUMBER: 136891420 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05032 FILM NUMBER: 051252822 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2125832000 MAIL ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10153 FORMER COMPANY: FORMER CONFORMED NAME: BARON ASSET FUND DATE OF NAME CHANGE: 19920703 N-CSR 1 annualreport0905.txt BIFT FORM N-CSR FOR THE PERIOD ENDED SEPTEMBER 30, 2005 UNITED STATES OMB APPROVAL SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235 -0570 Washington, D.C. 20549 Expires: September 30, 2007 Estimated average burden hours per response... 19.4 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-8032 BARON INVESTMENT FUNDS TRUST f/k/a 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 Investment Funds Trust 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, 2005 -------------------- 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 (01-05) Item 1. Baron Asset Fund Semi-Annual Report for the period ended September 30, 2005.
[registered castle logo] ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2005 B A R O N F U N D S (r) DEAR BARON FUNDS SHAREHOLDER: BARON FUNDS MANAGEMENT DISCUSSION OF FUND PERFORMANCE: Attached you will find audited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund for BARON ASSET FUND ..........2 their fiscal years ended September 30, 2005. The Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. BARON GROWTH FUND .........4 We thank you for choosing to join us as fellow shareholders in Baron Funds. We will continue BARON SMALL CAP FUND ......6 to work hard to justify your confidence. BARON iOPPORTUNITY FUND....8 Sincerely, BARON FIFTH AVENUE GROWTH FUND..............10 FUND EXPENSES...............12 /s/ Ronald Baron STATEMENT OF NET ASSETS.....13 Ronald Baron Chairman and CEO STATEMENTS OF ASSETS BAMCO, Inc. AND LIABILITIES...........21 November 23, 2005 STATEMENTS OF OPERATIONS................22 /s/ Peggy Wong STATEMENTS OF CHANGES IN NET ASSETS.............23 Peggy Wong Treasurer and CFO NOTES TO FINANCIAL BAMCO, Inc. STATEMENTS................24 November 23, 2005 REPORT OF INDEPENDENT REGISTERED PUBLIC A description of the Funds' proxy voting policies and procedures is available without ACCOUNTING FIRM...........34 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. The Funds' most current proxy MANAGEMENT OF THE FUNDS.....35 voting record, Form N-PX, is also available on the Funds' website, www.BaronFunds.com and on the SEC's website at www.sec.gov. The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's website at www.sec.gov. The Funds' Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC; information on the operation of the SEC's Public Reference Room may be obtained by calling 800-SEC-0330. --------------- 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. 767 Fifth Avenue PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The investment return and principal NY, NY 10153 value of an investment will fluctuate; an investor's shares, when redeemed, may be worth 212.583.2100 more or less than their original cost. 1.800.99.BARON BaronFunds.com
BARON ASSET FUND - ------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON ASSET FUND** IN RELATION TO THE RUSSELL 2500* AND THE RUSSELL 2000* [LINE GRAPH OMITTED] Date BAF Russell 2000 Russell 2500 - -------------------------------------------------------------------------------- 6/12/1987 $10,000 $10,000 $10,000 9/30/1987 11,950 10,530 10,655 9/30/1988 13,234 9,400 9,692 9/30/1989 18,521 11,421 12,039 9/30/1990 12,838 8,322 9,114 9/30/1991 17,760 12,077 13,394 9/30/1992 19,484 13,155 14,770 9/30/1993 26,595 17,521 19,218 9/30/1994 28,728 17,980 19,766 9/30/1995 38,003 22,187 24,812 9/30/1996 46,098 25,101 28,740 9/30/1997 61,656 33,432 38,600 9/30/1998 51,946 27,074 32,264 9/30/1999 67,092 32,237 39,292 9/30/2000 82,418 39,778 50,893 9/30/2001 56,741 31,342 41,339 9/30/2002 55,301 28,429 38,257 9/30/2003 64,210 38,802 51,873 9/30/2004 76,779 46,086 61,478 9/30/2005 96,135 54,359 74,566 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2005 SINCE INCEPTION ONE YEAR FIVE YEARS TEN YEARS 06/12/87 - -------------------------------------------------------------------------------- Baron Asset Fund** 25.21% 3.13% 9.73% 13.16% Russell 2000* 17.95% 6.45% 9.37% 9.69% Russell 2500* 21.29% 7.94% 11.63% 11.60% - ----------- *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 Russell 2500, Russell 2000, and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the indexes. **Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 2 BARON ASSET FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- ChoicePoint, Inc. 7.2% Charles Schwab Corp. 5.0% Kerzner Intl., Ltd. 5.0% XTO Energy, Inc. 4.0% Wynn Resorts, Ltd. 3.8% Apollo Group, Inc., Cl A 3.5% Chicago Mercantile Exchange Holdings, Inc. 3.4% WellPoint, Inc. 3.4% Vail Resorts, Inc. 3.2% Alexander's, Inc. 3.2% - -------------------------------------------------------------------------------- 41.7% - --------------------------------------------------------------------------------
TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2005 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART GRAPHIC OMITTED] Business Services 12.5% Recreation and Resorts 12.3% Financial Services - Brokerage and Exchanges 8.5% Energy Services 6.9% Education 5.7% Real Estate 4.5% Financial Services - Insurance 4.4% Home Building 3.6% Healthcare Products 3.4% Healthcare Services - Insurance 3.4% Other 32.7% Cash and Cash Equivalents 2.1% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Asset Fund performed well in the Fiscal year ended September 30, 2005, gaining 25.21% which was better than the performance of the small and small to mid-cap indices, and significantly better than its small to mid-cap peers. The Russell 2000 gained 17.95% and the Russell 2500 gained 21.29% in the year ended September 30, 2005. According to Morningstar*, the small cap growth category (consisting of 689 funds at September 30, 2005) gained 18.53% and the mid-cap growth category (consisting of 785 funds at September 30, 2005) gained 20.29% in the year ending September 30, 2005. Baron Asset Fund continued to outperform its Morningstar peer group of mid-cap growth funds for the three years ending September 30, 2005, and significantly outperformed the peer group for the five years ending September 30, 2005. The Fund gained 20.24% per year as compared to +19.58% per year for the Morningstar mid-cap growth category (consisting of 655 funds at September 30, 2005) for the three years ended September 30, 2005, and the Fund gained 3.13% per year as compared to -4.36% per year for the Morningstar mid-cap growth category (consisting of 464 funds at September 30, 2005) for the five years ended September 30, 2005. 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 again in the 2005 Fiscal year following strong years in 2003 and 2004. Baron Asset Fund invests in growth businesses while utilizing value oriented purchase and sell disciplines. The Fund seeks to invest in companies that we believe have significant long-term growth prospects at what we believe are reasonable priced. In Fiscal 2005, the Fund continued its program of further diversifying its investment portfolio by adding what we believe are well-financed, well-managed mid-cap growth businesses while reducing its investments in long term legacy holdings. We believe the Fund is invested in businesses that will double in size within four years, and that these companies are selling in the market today at attractive levels. The Fund's performance was not uniform across the year. Baron Asset Fund's performance was strong in the first Fiscal quarter, +16.35%, lost 0.61% in the second Fiscal quarter which was a smaller loss than the market indices, and was up 8.28% in the second half of the Fiscal year. The performance of the market indices was similarly strong in the first Fiscal quarter, weak in the second quarter and strong for the remaining two Fiscal quarters of the Fiscal year. Baron Asset Fund's performance was not uniform across industry sectors. The Fund's performance was strong in the Energy, Financial Services-Brokerage and Exchanges, Home Building and Recreation & Resorts sectors. The Fund performed well with its Business Services, Healthcare Services-Insurance, Healthcare- Facilities, Retail-Consumer Staples and Real Estate sectors. The Fund was not significantly negatively impacted by its holdings in any single sector. In Fiscal year 2006, the Fund intends 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. We intend to continue to identify companies through our independent research efforts. We expect the Fund will remain diversified not only by industry and investment themes, but also by external factors we identify 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. - --------------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 3 BARON GROWTH FUND - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON GROWTH FUND** IN RELATION TO THE RUSSELL 2000* [LINE GRAPH OMITTED] Date BGF Russell 2000 - -------------------------------------------------------------------------------- 1/3/1995 $10,000 $10,000 9/30/1995 14,770 12,573 9/30/1996 18,575 14,224 9/30/1997 25,469 18,945 9/30/1998 20,855 15,341 9/30/1999 29,868 18,267 9/30/2000 35,431 22,541 9/30/2001 33,286 17,760 9/30/2002 34,956 16,108 9/30/2003 42,333 21,988 9/30/2004 50,463 26,115 9/30/2005 59,591 30,803 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2005 SINCE INCEPTION ONE YEAR FIVE YEARS TEN YEARS 12/31/94 - -------------------------------------------------------------------------------- Baron Growth Fund** 18.09% 10.96% 14.97% 18.06% Russell 2000* 17.95% 6.45% 9.37% 11.03% - ----------- *The Russell 2000 is an unmanaged index that measures the performance of small companies. The Russell 2000 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the Russell 2000. **Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 4 BARON GROWTH FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Encore Acquisition Co. 2.9% Wynn Resorts, Ltd. 2.4% Station Casinos, Inc. 2.2% Jefferies Group, Inc. 2.1% Kerzner Intl., Ltd. 2.0% Four Seasons Hotels, Inc. 1.9% Edwards Lifesciences Corp. 1.8% CB Richard Ellis Group, Inc. 1.7% Community Health Systems, Inc. 1.7% Carter's, Inc. 1.6% - -------------------------------------------------------------------------------- 20.3% - --------------------------------------------------------------------------------
TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2005 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART GRAPHIC OMITTED] Recreation and Resorts 9.4% Retail-Specialty Stores 6.8% Energy Services 6.4% Education 5.2% Restaurants 5.1% Financial Services-Banking 4.5% Healthcare Facilities 4.4% Healthcare Services 4.2% Real Estate 3.7% Healthcare Services - Insurance 3.5% Other 38.1% Cash and Cash Equivalents 8.7% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Growth Fund performed well in the Fiscal year ended September 30, 2005 gaining 18.09% which was about the same as the Russell 2000, +17.95% and its small cap growth peers. According to Morningstar*, the small cap growth category (consisting of 689 funds at September 30, 2005) gained 18.53% in the year ending September 30, 2005. BARON GROWTH FUND INVESTS IN SMALL SIZED GROWTH COMPANIES. The stock prices of small cap stocks continued to outperform the performance of larger cap stocks in Fiscal 2005. 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 value in the future. The Fund invests in what we believe are great businesses that can be purchased opportunistically at what we believe are attractive prices. The Fund's performance was not uniform across the year. Baron Growth Fund's performance was strong in the first Fiscal quarter, +15.29%, and its performance was only up marginally for the rest of the Fiscal year. The performance of the market indices was strong in the first Fiscal quarter, but weak in the second quarter, and then strong in the third and fourth quarter of the Fiscal year. Baron Growth Fund's performance was not uniform across industry sectors. The Fund's best performing sectors were Energy and Recreation & Resorts. The Fund performed well with its Apparel, Communications, Healthcare-Facilities, Real Estate and Financial Services-Brokerage investments. The Fund was negatively impacted by its holdings in Financial Services-Miscellaneous, Retail-Specialty Stores and Healthcare-Insurance investments. In Fiscal 2006 the Fund intends to continue to be invested in small companies that have the potential to appreciate in value at least 100% during the next four years. We believe the Fund is invested in businesses that have the potential to grow substantially in the years ahead. - --------------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 5 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON SMALL CAP FUND** IN RELATION TO THE RUSSELL 2000* [LINE GRAPH OMITTED] Date BSC Russell 2000 - -------------------------------------------------------------------------------- 9/30/1997 $10,000 $10,000 9/30/1998 8,610 8,098 9/30/1999 13,370 9,643 9/30/2000 16,050 11,898 9/30/2001 13,027 9,375 9/30/2002 14,095 8,503 9/30/2003 18,210 11,606 9/30/2004 20,236 13,785 9/30/2005 25,003 16,260 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2005 SINCE INCEPTION ONE YEAR FIVE YEARS 09/30/97 - -------------------------------------------------------------------------------- Baron Small Cap Fund ** 23.56% 9.27% 12.14% Russell 2000* 17.95% 6.45% 6.26% - ----------- *The Russell 2000 is an unmanaged index that measures the performance of small companies. The Russell 2000 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the Russell 2000. **Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 6 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Eagle Materials, Inc., Common and Cl B 4.3% Alamosa Hldgs., Inc. 3.4% American Tower Corp., Cl A 2.9% FLIR Systems, Inc. 2.7% United Surgical Partners Intl., Inc. 2.6% Immucor, Inc. 2.4% Brookfield Homes Corp. 2.4% Gaylord Entertainment Co. 2.4% Actuant Corp., Cl A 2.0% Anteon Intl. Corp. 1.9% - -------------------------------------------------------------------------------- 27.0% - --------------------------------------------------------------------------------
TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2005 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART GRAPHIC OMITTED] Communications 10.1% Recreation and Resorts 7.0% Retail - Specialty Stores 6.6% Medical Equipment 6.1% Government Services 5.8% Restaurants 5.7% Education 5.6% Business Services 4.5% Building Materials 4.3% Real Estate 4.2% Other 35.3% Cash and Cash Equivalents 4.8% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Small Cap Fund performed well in the Fiscal year ended September 30, 2005, both on an absolute basis and relative to the market indices and its peers. The Fund was up 23.56% in the year ending September 30, 2005. The Fund outperformed the Russell 2000, +17.95%, and performed significantly better than the small cap growth category (consisting of 689 funds at September 30, 2005) which according to Morningstar* rose 18.53% for the twelve months ending September 30, 2005. According to Morningstar, the Fund has significantly outperformed its small cap growth peers (consisting of 421 funds at September 30, 2005) in the five year period ending September 30, 2005, +9.27% per year versus -1.45% per year. BARON SMALL CAP FUND INVESTS IN SMALL CAP GROWTH COMPANIES. Small cap growth stocks continued to perform well in the 2005 Fiscal year following a strong 2003 and 2004 and before that a three-year bear market. The Fund has investments in companies it believes will prosper and experience substantial growth in the years ahead. The Fund's performance was not uniform across the year. The Fund's performance was strong in the first Fiscal quarter, +18.21%, performed well in the 3rd Fiscal quarter, +3.38%, and was nearly unchanged in the other two quarters of the Fiscal year. The Russell 2000 was strong in the first Fiscal quarter, +14.09%, but weak in the second Fiscal quarter, -5.34%, and then strong again in the last two quarters of the Fiscal year. The performance of Baron Small Cap Fund was not uniform across sectors. The Fund experienced strong performance in Communications, Building Material and Medical Equipment. The Fund performed well with its investments in Consulting, Government Services, Healthcare-Facilities, Healthcare-Products, Home Building and Real Estate. The Fund did not perform well with its investments in Specialty Retail. In Fiscal 2006, the Fund intends 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 intends to continue to invest in smaller "Growth Companies" that have what we believe are significant long-term growth prospects that can be purchased at what we believe are attractive prices because their prospects have not yet been appreciated by investors; "Fallen Angels" that we believe have strong long- term franchises but have disappointed investors with short-term results, creating what we believe is a buying opportunity; and "Special Situations", including spin-offs and recapitalizations, where lack of investor awareness creates opportunities to purchase what we believe are strong businesses at attractive prices. - --------------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 7 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON iOPPORTUNITY FUND** IN RELATION TO THE S&P 500* AND NASDAQ COMPOSITE* [LINE GRAPH OMITTED] Date BiO S & P 500 NASDAQ - -------------------------------------------------------------------------------- 2/29/2000 $10,000 $10,000 $10,000 9/30/2000 8,760 10,582 7,820 9/30/2001 4,105 7,760 3,191 9/30/2002 3,643 6,173 2,496 9/30/2003 6,503 7,673 3,805 9/30/2004 7,607 8,737 4,039 9/30/2005 9,193 9,809 4,581 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2005 SINCE INCEPTION ONE YEAR FIVE YEARS 02/29/00 - -------------------------------------------------------------------------------- Baron iOpportunity Fund ** 20.84% 0.97% -1.50% NASDAQ Composite* 13.44% -10.14% 13.05% S&P 500* 12.27% -1.50% -0.34% - ----------- *The NASDAQ Composite, and the S&P 500 are unmanaged indexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ; and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The NASDAQ Composite is without dividends. The S&P 500 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the S&P 500. **Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. Performance data also does not reflect the imposition of a short-term trading fee of 1% on redemptions of the Fund's shares held for less than six months. 8 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Getty Images, Inc. 4.1% American Tower Corp., Cl A 3.9% Chicago Mercantile Exchange Holdings, Inc. 3.5% Google, Inc. 3.3% Charles Schwab Corp. 3.2% Dell, Inc. 3.2% Monster Worldwide, Inc. 2.9% SBA Communications Corp. 2.9% Time Warner, Inc. 2.8% Flextronics Intl., Ltd. 2.6% - -------------------------------------------------------------------------------- 32.4% - --------------------------------------------------------------------------------
TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2005 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART GRAPHIC OMITTED] Communications 18.3% Financial Services - Brokerage & Exchanges 11.3% Advertising Services 11.2% Business Services 9.9% Media 9.2% Retail-Specialty Stores 5.4% Enterprise Hardware 5.2% Consumer Services 4.7% Real Estate 4.4% Manufacturing 2.7% Other 10.2% Cash and Cash Equivalents 7.5% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron iOpportunity Fund's performance was strong, +20.84%, in the Fiscal year ending September 30, 2005. The Fund's relative performance was also strong during this period. The S&P 500 gained 12.27% and the NASDAQ Composite gained 13.44% for year ended September 30, 2005. The market continued to recover from the three-year bear market after a strong 2003 and 2004. Baron iOpportunity Fund with its investments in technology driven companies across all sectors of the economy outperformed the technology funds and the market in general in the year ending September 30, 2005. Baron iOpportunity Fund, like the other Baron Funds, utilizes value purchase disciplines while investing in growth companies that we believe have significant long term information technology opportunities. The performance of Baron iOpportunity Fund was not uniform across the year. The Fund's performance was strong in the first quarter of the Fiscal year, +19.79%, weak in the second quarter of the year, -10.79% and strong again in the third quarter, +5.19% and fourth quarter, +7.51%. While the Fund lagged the NASDAQ Composite in the second quarter, it significantly outperformed the Composite in the first, third and fourth quarters of the Fiscal year. The performance of Baron iOpportunity Fund was not uniform across sectors. The Fund invests across industries in companies benefiting from the Internet and the rapidly changing information technology environment. The Fund realized strong gains in its investments in Advertising Services, Communications and Financial Services-Brokerage. The Fund was positively impacted by its investments in Leisure and Real Estate. The Fund was negatively impacted by its holdings in Business Services and Gaming Services. In Fiscal 2006, the Fund intends to continue to invest in both Internet- related businesses, as well as established companies that we believe have significant and scalable information technology growth opportunities. 9 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON FIFTH AVENUE GROWTH FUND** IN RELATION TO THE S&P 500* [LINE GRAPH OMITTED] Date BFIFTH S & P 500 - -------------------------------------------------------------------------------- 4/30/2004 $10,000 $10,000 9/30/2004 9,890 10,131 9/30/2005 11,560 11,380 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2005 SINCE INCEPTION ONE YEAR 04/30/2004 - -------------------------------------------------------------------------------- Baron Fifth Avenue Growth Fund** 16.89% 10.77% S&P 500* 12.27% 9.55% - ----------- *The S&P 500 is an unmanaged index that measures the performance of larger-cap equities in the stock market in general. The S&P 500 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the S&P 500. **Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 10 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2005
- -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- American Tower Corp., Cl A 2.6% Iron Mountain, Inc. 2.4% XTO Energy, Inc. 2.4% Dell, Inc. 2.3% MGM Mirage, Inc. 2.3% Getty Images, Inc. 2.2% Carnival Corp. 2.2% Google, Inc. 2.1% Bed Bath & Beyond, Inc. 2.1% T. Rowe Price Group, Inc. 2.0% - -------------------------------------------------------------------------------- 22.6% - --------------------------------------------------------------------------------
TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2005 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART GRAPHIC OMITTED] Media 10.4% Retail - Specialty Stores 8.5% Retail Consumer Staples 6.6% Recreation and Resorts 6.3% Financial Services - Brokerage & Exchanges 6.1% Communications 5.3% Advertising Services 4.4% Energy Services 4.0% Enterprise Hardware 3.7% Financial Services - Insurance 3.5% Other 35.0% Cash and Cash Equivalents 6.2% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Fifth Avenue Growth Fund was launched on April 30, 2004. The Fund performed well in the Fiscal year ending September 30, 2005. The Fund gained 16.89% and outperformed the S&P 500 which gained 12.27% and its large cap growth peers (consisting of 1359 funds at September 30, 2005) which according to Morningstar* gained 13.39% in the twelve months ending September 30, 2005. Baron Fifth Avenue Growth Fund's performance was not uniform across the year. The Fund's performance was strong in the first Fiscal quarter, +10.92%, weak in the second quarter, -4.74%, and strong again in the last two quarters of the Fiscal year, +7.08% and +3.31%, respectively. Baron Fifth Avenue Growth Fund's performance was not uniform across industry sectors. The Fund's performance was led by its strong performance in the Advertising Services, Energy and Brokerage Financial Services sectors. The Fund performed well with its investments in Communication, Healthcare- Insurance, Real Estate, Recreation & Resorts and Specialty Retail. The Fund was not significantly negatively impacted by its investments in any single sector. Baron Fifth Avenue Growth Fund is a long term investor in what we believe are some of the best companies in America. The Fund is invested in larger companies which we believe have significant growth opportunities. We believe growth stocks, in general, and more specifically the stocks of those companies in which the Fund has made investments are selling at attractive prices relative to their long term prospects. As the investment world continues to focus on short term events and short term company fundamentals, we believe the Fund will be able to achieve above average rates of return by opportunistically purchasing what we believe are great companies at attractive prices when short term results are not indicative of long term business prospects. While the Fund is only one and half years old, we are pleased with its performance so far. We are cautiously optimistic that Fiscal 2006 will prove to be another good year for Baron Fifth Avenue Growth Fund. - --------------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 11 BARON FUNDS - -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) - -------------------------------------------------------------------------------- As a shareholder of the Fund, you may incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include advisory fees, distribution and service (12b-1) fees and other Fund expenses. Transaction costs, as in the case of Baron iOpportunity Fund, may include redemption fees. The information on this page is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. This Example is based on an investment of $1,000 invested on April 1, 2005 and held for six months ended September 30, 2005. ACTUAL EXPENSES The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading titled "Expenses Paid During the Period". BASED ON ACTUAL TOTAL RETURN*
EXPENSES BEGINNING ENDING ANNUALIZED PAID ACTUAL TOTAL ACCOUNT VALUE ACCOUNT VALUE EXPENSE DURING THE RETURN APRIL 1, 2005 SEPTEMBER 30, 2005 RATIOS PERIOD # ------------ ------------- ------------------ ---------- ---------- BARON ASSET FUND 8.28% $1,000 $1,083 1.34% $ 7.00 BARON GROWTH FUND 0.99% 1,000 1,010 1.31% 6.60 BARON SMALL CAP FUND 4.06% 1,000 1,041 1.32% 6.75 BARON iOPPORTUNITY FUND 13.09% 1,000 1,131 1.50% 8.01 BARON FIFTH AVENUE GROWTH FUND 10.62% 1,000 1,106 1.40% 7.39
- --------------- * For the six months ended September 30, 2005. Assumes all reinvestment of dividends and capital gain distributions, if any. # Expenses are equal to each Fund's respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent Fiscal half-year, then divided by 365. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account values and expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5% hypothetical example relating to the Fund with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that expenses shown in the table below are meant to highlight your ongoing costs and do not reflect any transactional costs, such as redemption fees, if any. Therefore, the table is useful in comparing ongoing costs only and will not help you determine your relative total costs of owning different mutual funds. In addition, if these transactional costs were included, your costs would have been higher. BASED ON HYPOTHETICAL TOTAL RETURN*
EXPENSES HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE EXPENSE DURING THE TOTAL RETURN APRIL 1, 2005 SEPTEMBER 30, 2005 RATIOS PERIOD # ------------ ------------- ------------------ ---------- ---------- BARON ASSET FUND 5.00% $1,000 $1,018 1.34% $6.78 BARON GROWTH FUND 5.00% 1,000 1,018 1.31% 6.63 BARON SMALL CAP FUND 5.00% 1,000 1,018 1.32% 6.68 BARON iOPPORTUNITY FUND 5.00% 1,000 1,017 1.50% 7.59 BARON FIFTH AVENUE GROWTH FUND 5.00% 1,000 1,018 1.40% 7.08
- --------------- * For the six months ended September 30, 2005. # Expenses are equal to each Fund's respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number days in the most recent Fiscal half-year, then divided by 365. 12 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value ------------------------------------------------------------------------------------- COMMON STOCKS (97.50%) ------------------------------------------------------------------------------------- ADVERTISING SERVICES (0.48%) 150,000 Getty Images, Inc.* $ 10,110,290 $ 12,906,000 APPAREL (1.87%) 1,000,000 Polo Ralph Lauren Corp., Cl A 19,737,919 50,300,000 BUSINESS SERVICES (12.51%) 675,000 Brown & Brown, Inc. 27,801,280 33,540,750 4,500,000 ChoicePoint, Inc.* 52,047,773 194,265,000 1,225,000 Iron Mountain, Inc.* 33,816,735 44,957,500 1,150,000 Robert Half Intl., Inc.* 1,202,006 40,928,500 600,000 SEI Investments Co. 22,537,033 22,548,000 --------------- --------------- 137,404,827 336,239,750 CONSULTING (1.80%) 1,250,000 Hewitt Associates, Inc.* 30,901,952 34,100,000 280,000 Moody's Corp. 7,256,123 14,302,400 --------------- --------------- 38,158,075 48,402,400 CONSUMER SERVICES (1.09%) 250,000 H&R Block, Inc. 5,226,858 5,995,000 450,000 Weight Watchers Intl., Inc.* 12,953,988 23,211,000 --------------- --------------- 18,180,846 29,206,000 EDUCATION (5.68%) 1,400,000 Apollo Group, Inc., Cl A* 14,084,763 92,946,000 1,275,000 DeVry, Inc.* 7,614,588 24,288,750 1,100,000 Education Mgmt. Corp.* 6,886,519 35,464,000 --------------- --------------- 28,585,870 152,698,750 ENERGY SERVICES (6.94%) 165,000 Arch Coal, Inc. 7,836,342 11,137,500 500,000 SEACOR Holdings, Inc.* 14,322,278 36,290,000 200,000 Ultra Petroleum Corp.* 4,847,419 11,376,000 168,815 Valero Energy Corp. 12,116,374 19,086,224 2,400,000 XTO Energy, Inc. 18,213,449 108,768,000 --------------- --------------- 57,335,862 186,657,724 FINANCIAL SERVICES -- ASSET MANAGEMENT (2.97%) 82,900 Alliance Capital Management Holding L.P. 3,897,453 3,966,765 650,000 Eaton Vance Corp. 12,749,664 16,133,000 850,000 Nuveen Investments, Inc. 28,950,827 33,481,500 400,000 T. Rowe Price Group, Inc. 21,584,167 26,120,000 --------------- --------------- 67,182,111 79,701,265 FINANCIAL SERVICES -- BANKING (1.20%) 275,000 City National Corp. 19,920,112 19,274,750 425,000 Commerce Bancorp, Inc. 10,525,979 13,043,250 --------------- --------------- 30,446,091 32,318,000 FINANCIAL SERVICES -- BROKERAGE AND EXCHANGES (8.50%) 9,400,000 Charles Schwab Corp. 23,571,677 135,642,000 275,000 Chicago Mercantile Exchange Holdings, Inc. 20,044,179 92,757,500 --------------- --------------- 43,615,856 228,399,500 FINANCIAL SERVICES -- INSURANCE (4.41%) 1,000,000 Arch Capital Group, Ltd.* 33,841,383 49,590,000 800,000 Assurant, Inc. 25,946,595 30,448,000 1,350,000 Axis Capital Holdings, Ltd. 34,853,219 38,488,500 --------------- --------------- 94,641,197 118,526,500 FINANCIAL SERVICES -- MISCELLANEOUS (2.40%) 200,000 CapitalSource, Inc.* 4,596,873 4,360,000 1,200,000 First Marblehead Corp.* 45,374,185 30,480,000 125,000 The Student Loan Corp. 17,812,742 29,610,000 --------------- --------------- 67,783,800 64,450,000
Shares Cost Value ------------------------------------------------------------------------------------- HEALTHCARE FACILITIES (3.30%) 800,000 Community Health Systems, Inc.* $ 20,710,259 $ 31,048,000 1,500,000 Manor Care, Inc. 32,956,389 57,615,000 --------------- --------------- 53,666,648 88,663,000 HEALTHCARE PRODUCTS (3.44%) 540,000 DENTSPLY International, Inc. 23,319,203 29,170,800 800,000 Henry Schein, Inc.* 22,796,151 34,096,000 200,000 The Cooper Companies, Inc. 13,746,522 15,322,000 200,000 Zimmer Holdings, Inc.* 6,087,903 13,778,000 --------------- --------------- 65,949,779 92,366,800 HEALTHCARE SERVICES (2.46%) 250,000 Caremark Rx, Inc.* 5,389,305 12,482,500 525,000 Charles River Laboratories Intl., Inc.* 16,106,774 22,900,500 425,000 Fisher Scientific Intl., Inc.* 24,522,276 26,371,250 75,000 Stericycle, Inc.* 4,288,398 4,286,250 --------------- --------------- 50,306,753 66,040,500 HEALTHCARE SERVICES -- INSURANCE (3.39%) 1,200,000 WellPoint, Inc.* 33,488,049 90,984,000 HOME BUILDING (3.64%) 50,000 NVR, Inc.* 17,016,424 44,247,500 1,200,000 Toll Brothers, Inc.* 24,270,884 53,604,000 --------------- --------------- 41,287,308 97,851,500 HOTELS AND LODGING (2.59%) 545,500 Choice Hotels Intl., Inc. 5,486,878 35,261,120 600,000 Four Seasons Hotels, Inc. 21,913,206 34,440,000 --------------- --------------- 27,400,084 69,701,120 MEDIA (1.63%) 200,000 Cox Radio, Inc., Cl A* 1,202,695 3,040,000 260,000 Radio One, Inc., Cl A* 2,068,065 3,420,300 400,000 Radio One, Inc., Cl D* 2,671,005 5,260,000 625,000 Saga Comm., Inc., Cl A* 2,476,020 8,312,500 350,000 Univision Comm., Inc., Cl A* 3,148,975 9,285,500 400,000 XM Satellite Radio Holdings, Inc., Cl A* 10,264,436 14,364,000 --------------- --------------- 21,831,196 43,682,300 REAL ESTATE (4.46%) 314,000 Alexander's, Inc.*# 20,453,936 84,780,000 600,000 CB Richard Ellis Group, Inc.* 20,815,727 29,520,000 141,844 Corrections Corp. of America* 1,418 5,631,207 --------------- --------------- 41,271,081 119,931,207 RECREATION AND RESORTS (12.33%) 250,000 Boyd Gaming Corp. 11,330,524 10,780,000 2,400,000 Kerzner Intl., Ltd.*# 77,808,281 133,320,000 3,000,000 Vail Resorts, Inc.*# 61,273,805 86,250,000 850,000 Wynn Resorts, Ltd.* 19,006,090 38,377,500 1,459,408 Wynn Resorts, Ltd.*@ 30,030,772 62,597,657 --------------- --------------- 199,449,472 331,325,157 RESTAURANTS (0.87%) 750,000 The Cheesecake Factory, Inc.* 15,604,748 23,430,000 RETAIL -- CONSUMER STAPLES (2.00%) 400,000 Whole Foods Market, Inc. 19,142,059 53,780,000 RETAIL -- SPECIALTY STORES (2.58%) 550,000 CarMax, Inc.* 14,602,973 17,198,500 100,000 Dollar Tree Stores, Inc.* 506,349 2,165,000 225,000 Ethan Allen Interiors, Inc. 6,129,012 7,053,750 500,000 O'Reilly Automotive, Inc.* 12,587,918 14,090,000 725,000 Tiffany & Co. 23,301,801 28,833,250 --------------- --------------- 57,128,053 69,340,500
See Notes to Financial Statements 13 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------ TRANSPORTATION (2.85%) 750,000 C. H. Robinson Worldwide, Inc. $ 27,854,391 $ 48,090,000 500,000 Expeditors International of Washington, Inc. 24,492,142 28,390,000 --------------- --------------- 52,346,533 76,480,000 UTILITY SERVICES (2.11%) 2,205,000 Southern Union Co.* 27,564,041 56,822,850 --------------- --------------- TOTAL COMMON STOCKS 1,319,618,548 2,620,204,823 --------------- --------------- - ------------------------------------------------------------------------------------ CONVERTIBLE PREFERRED STOCKS (0.35%) - ------------------------------------------------------------------------------------ EDUCATION (0.01%) 105,264 Apollo International, Inc. S-A CV Pfd.*@# 2,000,016 400,000 HEALTHCARE SERVICES (0.34%) 5,849 Somerford Corp. S-A Conv. Pfd.* @ 9,090,399 9,090,397 --------------- --------------- TOTAL CONVERTIBLE PREFERRED STOCKS 11,090,415 9,490,397 --------------- ---------------
Principal Amount Cost Value - -------------------------------------------------------------------------------------- CORPORATE BONDS (0.10%) - -------------------------------------------------------------------------------------- HEALTHCARE SERVICES $ 2,666,667 Somerford Corp. 8.50% Sub. Conv. Deb. due 04/23/2006@ $ 2,666,667 $ 2,666,667 --------------- --------------- - -------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (1.97%) - -------------------------------------------------------------------------------------- 20,000,000 Citicorp 3.65% due 10/03/2005 20,000,000 20,000,000 33,000,000 Steamboat Funding 3.77% due 10/05/2005 33,000,000 33,000,000 --------------- --------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 53,000,000 53,000,000 --------------- --------------- TOTAL INVESTMENTS (99.92%) $ 1,386,375,630 2,685,361,887 =============== CASH AND OTHER ASSETS LESS LIABILITIES (0.08%) 2,079,938 --------------- NET ASSETS (EQUIVALENT TO $56.52 PER SHARE BASED ON 47,549,752 SHARES OUTSTANDING) $ 2,687,441,825 ===============
- --------------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". * Non-income producing securities See Notes to Financial Statements. 14 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (90.07%) - ------------------------------------------------------------------------------------ ADVERTISING SERVICES (1.10%) 350,000 Getty Images, Inc.* $ 7,538,649 $ 30,114,000 950,000 Harte-Hanks, Inc. 21,592,613 25,108,500 --------------- --------------- 29,131,262 55,222,500 APPAREL (1.65%) 1,450,000 Carter's, Inc.*# 39,178,712 82,360,000 BUILDING MACHINERY (0.48%) 525,000 Tractor Supply Co.* 19,687,111 23,966,250 BUSINESS SERVICES (2.94%) 300,000 Brown & Brown, Inc. 9,830,329 14,907,000 1,600,000 ChoicePoint, Inc.* 35,852,211 69,072,000 1,275,000 CoPart, Inc.* 30,167,238 30,434,250 1,200,000 Gevity HR, Inc. 23,307,192 32,688,000 --------------- --------------- 99,156,970 147,101,250 CHEMICAL (1.12%) 925,000 Senomyx, Inc.* 8,395,597 15,752,750 1,550,000 Symyx Technologies, Inc.* 24,306,392 40,486,000 --------------- --------------- 32,701,989 56,238,750 COMMUNICATIONS (2.78%) 2,200,000 American Tower Corp., Cl A* 8,043,690 54,890,000 800,000 Crown Castle Intl. Corp.* 3,043,908 19,704,000 840,000 Equinix, Inc.* 26,832,685 34,986,000 1,900,000 SBA Communications Corp.* 7,524,467 29,355,000 --------------- --------------- 45,444,750 138,935,000 CONSULTING (1.00%) 1,320,000 Hewitt Associates, Inc.* 32,467,626 36,009,600 600,000 LECG Corp.* 12,477,679 13,800,000 --------------- --------------- 44,945,305 49,809,600 CONSUMER SERVICES (1.40%) 825,000 Chemed Corp. 30,319,063 35,755,500 1,075,000 Morningstar, Inc.* 22,528,468 34,400,000 --------------- --------------- 52,847,531 70,155,500 EDUCATION (5.16%) 3,700,000 DeVry, Inc.*# 62,024,338 70,485,000 2,500,000 Education Mgmt. Corp.* 58,705,529 80,600,000 700,000 Strayer Education, Inc. 57,859,739 66,164,000 1,150,000 Universal Technical Institute, Inc.* 31,350,206 40,951,500 --------------- --------------- 209,939,812 258,200,500 ENERGY SERVICES (6.36%) 475,000 Carbo Ceramics, Inc. 29,997,072 31,345,250 3,700,000 Encore Acquisition Co.*# 64,684,811 143,745,000 1,100,000 FMC Technologies, Inc.* 25,188,996 46,321,000 300,000 Foundation Coal Holdings, Inc. 11,010,993 11,535,000 400,000 Petroleum Helicopters, Inc.* 10,077,790 12,408,000 325,000 Range Resources Corp. 8,333,342 12,548,250 440,000 SEACOR Holdings, Inc.* 17,768,097 31,935,200 650,000 Whiting Petroleum Corp.* 22,550,925 28,496,000 --------------- --------------- 189,612,026 318,333,700 FINANCIAL SERVICES -- ASSET MANAGEMENT (1.97%) 350,000 BlackRock, Inc., Cl A 7,036,572 31,017,000 1,400,000 Cohen & Steers, Inc. 20,654,871 28,000,000 650,000 Eaton Vance Corp. 11,290,146 16,133,000 260,000 GAMCO Investors, Inc. (formerly Gabelli Asset Mgmt., Inc., Cl A) 3,811,537 11,921,000 290,000 Nuveen Investments, Inc. 7,748,686 11,423,100 --------------- --------------- 50,541,812 98,494,100
Shares Cost Value - ------------------------------------------------------------------------------------ FINANCIAL SERVICES -- BANKING (4.51%) 2,000,000 Amegy Bancorporation, Inc. $ 38,945,228 $ 45,260,000 650,000 Cathay General Bancorp 23,733,873 23,049,000 850,000 Center Financial Corp.# 18,904,650 19,975,000 525,000 Central Pacific Financial Corp. 18,332,584 18,469,500 1,300,000 First Republic Bank 40,949,132 45,799,000 4,000,000 UCBH Holdings, Inc. 80,006,240 73,280,000 --------------- --------------- 220,871,707 225,832,500 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (2.56%) 1,000,000 International Securities Exchange, Inc.* 27,415,686 23,400,000 2,400,000 Jefferies Group, Inc. 73,517,475 104,520,000 --------------- --------------- 100,933,161 127,920,000 FINANCIAL SERVICES -- INSURANCE (1.63%) 1,650,000 Arch Capital Group, Ltd.* 51,045,431 81,823,500 FINANCIAL SERVICES -- MISCELLANEOUS (2.02%) 1,000,000 CheckFree Corp.* 18,042,917 37,820,000 2,500,000 First Marblehead Corp.* 78,581,847 63,500,000 --------------- --------------- 96,624,764 101,320,000 FOOD AND AGRICULTURE (1.09%) 1,300,000 Ralcorp Hldgs., Inc.* 49,808,236 54,496,000 GAMING SERVICES (1.27%) 650,000 Scientific Games Corp.* 14,358,938 20,150,000 1,650,000 Shuffle Master, Inc.* 45,610,427 43,609,500 --------------- --------------- 59,969,365 63,759,500 GOVERNMENT SERVICES (0.98%) 1,150,000 Anteon Intl. Corp.* 34,526,770 49,174,000 HEALTHCARE FACILITIES (4.38%) 2,200,000 Community Health Systems, Inc.* 55,160,342 85,382,000 1,800,000 Manor Care, Inc. 33,815,991 69,138,000 1,650,000 United Surgical Partners Intl., Inc.* 23,181,527 64,531,500 --------------- --------------- 112,157,860 219,051,500 HEALTHCARE PRODUCTS (2.44%) 1,950,000 DepoMed, Inc.* 11,124,661 12,636,000 2,000,000 Edwards Lifesciences Corp.* 59,602,586 88,820,000 275,000 INAMED Corp.* 12,316,626 20,812,000 --------------- --------------- 83,043,873 122,268,000 HEALTHCARE SERVICES (4.21%) 1,703,200 Charles River Laboratories Intl., Inc.* 52,306,788 74,293,584 750,000 Gen-Probe, Inc.* 31,671,124 37,087,500 160,000 IDEXX Laboratories, Inc.* 9,006,923 10,700,800 650,000 LabOne, Inc.* 22,795,231 28,275,000 1,600,000 Odyssey Healthcare, Inc.* 18,550,503 27,152,000 1,100,000 PRA International* 25,870,873 33,341,000 --------------- --------------- 160,201,442 210,849,884 HEALTHCARE SERVICES -- INSURANCE (3.55%) 3,800,000 AMERIGROUP Corp.*# 70,530,101 72,656,000 3,199,500 Centene Corp.*# 30,057,986 80,083,485 1,100,000 Universal American Financial Corp.* 25,935,107 25,014,000 --------------- --------------- 126,523,194 177,753,485 HOME BUILDING (1.10%) 100,000 Beazer Homes USA, Inc. 3,848,651 5,867,000 150,000 Brookfield Homes Corp. 1,213,559 8,329,500 800,000 Hovnanian Enterprises, Inc.* 19,881,886 40,960,000 --------------- --------------- 24,944,096 55,156,500 HOTELS AND LODGING (2.91%) 795,400 Choice Hotels Intl., Inc. 9,297,751 51,414,656 1,641,000 Four Seasons Hotels, Inc. 62,433,578 94,193,400 --------------- --------------- 71,731,329 145,608,056
See Notes to Financial Statements. 15 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------ MEDIA (1.58%) 480,000 Central European Media Enterprises Ltd.* $ 22,193,721 $ 25,348,800 150,000 Citadel Broadcasting Corp.* 2,228,164 2,059,500 360,000 Cumulus Media, Inc.* 5,918,230 4,496,400 425,000 Entravision Comm. Corp., Cl A* 2,363,340 3,344,750 675,000 Gray Television, Inc. 5,568,750 7,148,250 1,112,500 LIN TV Corp., Cl A* 23,414,430 15,519,375 250,000 Radio One, Inc., Cl A* 2,371,787 3,288,750 850,000 Radio One, Inc., Cl D* 9,027,369 11,177,500 450,500 Saga Comm., Inc., Cl A* 3,021,727 5,991,650 50,000 WorldSpace, Inc.* 1,050,000 704,500 --------------- --------------- 77,157,518 79,079,475 MEDICAL EQUIPMENT (0.40%) 275,000 Intuitive Surgical, Inc.* 4,029,661 20,154,750 PRINTING AND PUBLISHING (1.01%) 1,400,000 ProQuest Co.* 43,683,119 50,680,000 REAL ESTATE (3.71%) 75,000 Alexander's, Inc.* 5,683,589 20,250,000 1,750,000 CB Richard Ellis Group, Inc.* 38,014,092 86,100,000 666,667 CBRE Realty Finance, Inc. 144A*@ 10,000,005 10,000,005 899,600 CoStar Group, Inc.* 38,457,938 42,029,312 2,429,800 Spirit Finance Corp.* 28,350,595 27,335,250 --------------- --------------- 120,506,219 185,714,567 RECREATION AND RESORTS (8.34%) 1,750,000 Ameristar Casinos, Inc. 34,529,101 36,470,000 200,000 Boyd Gaming Corp. 5,345,491 8,624,000 525,000 Gaylord Entertainment Co.* 15,225,311 25,016,250 1,425,000 Isle of Capri Casinos, Inc.* 29,990,333 30,466,500 1,800,000 Kerzner Intl., Ltd.* 49,095,087 99,990,000 102,000 Life Time Fitness, Inc.* 3,319,109 3,380,280 1,700,000 Station Casinos, Inc. 39,029,399 112,812,000 1,250,000 Vail Resorts, Inc.* 21,897,070 35,937,500 925,000 Wynn Resorts, Ltd. * 11,982,289 41,763,750 537,677 Wynn Resorts, Ltd. *@ 11,063,956 23,062,311 --------------- --------------- 221,477,146 417,522,591 RESTAURANTS (5.15%) 950,000 California Pizza Kitchen, Inc.* 24,386,635 27,778,000 750,000 Panera Bread Co., Cl A* 25,159,032 38,385,000 600,000 Peet's Coffee & Tea, Inc.* 12,288,337 18,372,000 1,300,000 P.F. Chang's China Bistro, Inc.* 61,532,458 58,279,000 800,000 Red Robin Gourmet Burgers, Inc.* 45,540,089 36,672,000 2,500,000 The Cheesecake Factory, Inc.* 54,474,009 78,100,000 --------------- --------------- 223,380,560 257,586,000 RETAIL -- SPECIALTY STORES (6.79%) 875,000 Blue Nile, Inc.* 26,058,719 27,685,000 2,000,000 Cabela's, Inc.* 47,957,278 36,740,000 1,650,000 CarMax, Inc.* 34,948,928 51,595,500 2,500,000 Dick's Sporting Goods, Inc.* 86,074,246 75,275,000 1,346,300 DSW, Inc.* 33,033,580 28,541,560 400,000 Ethan Allen Interiors, Inc. 9,975,567 12,540,000 850,000 Guitar Center, Inc.* 49,393,412 46,928,500 1,150,000 PETCO Animal Supplies, Inc.* 23,143,357 24,334,000 1,800,000 Select Comfort Corp.* 38,016,795 35,964,000 --------------- --------------- 348,601,882 339,603,560 SOFTWARE (0.71%) 800,000 Kronos, Inc.* 19,822,296 35,712,000
Shares Cost Value -------------------------------------------------------------------------------------- TRANSPORTATION (2.06%) 1,242,500 Genesee & Wyoming, Inc.* $ 28,652,530 $ 39,387,250 375,000 JetBlue Airways Corp.* 8,508,224 6,600,000 550,000 Landstar System, Inc.* 13,610,268 22,016,500 450,000 UTI Worldwide, Inc. 31,481,477 34,965,000 --------------- --------------- 82,252,499 102,968,750 UTILITY SERVICES (1.71%) 1,500,000 ITC Holdings Corp. 40,425,620 43,470,000 1,627,498 Southern Union Co.* 19,474,277 41,940,623 --------------- --------------- 59,899,897 85,410,623 --------------- --------------- TOTAL COMMON STOCKS 3,206,379,305 4,508,262,391 --------------- --------------- - --------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.15%) - --------------------------------------------------------------------------------------- PHARMACEUTICAL 750,000 Reliant Pharmaceuticals LLC Series D*@ 15,000,000 7,500,000 --------------- --------------- Principal Amount - --------------------------------------------------------------------------------------- CORPORATE BONDS (1.08%) - --------------------------------------------------------------------------------------- RECREATION AND RESORTS $ 26,000,000 Wynn Resorts 6.00% Sub. Conv. Deb. due 07/15/2015 25,440,575 53,899,040 --------------- --------------- - --------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (9.17%) - --------------------------------------------------------------------------------------- 54,217,009 American Express Corp. 3.62% due 10/04/2005 54,217,009 54,217,009 9,992,903 Chevron Texaco Corp. 3.65% due 10/06/2005 9,992,903 9,992,903 74,946,771 Citicorp 3.65% due 10/03/2005 74,946,771 74,946,771 18,807,097 Citicorp 3.65% due 10/06/2005 18,807,097 18,807,097 74,946,771 General Electric Capital Corp. 3.65% due 10/03/2005 74,946,771 74,946,771 51,000,000 Steamboat Funding 3.77% due 10/05/2005 51,000,000 51,000,000 70,906,457 UBS Securities 3.65% due 10/03/2005 70,906,457 70,906,457 104,399,999 UBS Securities 3.65% due 10/05/2005 104,399,999 104,399,999 --------------- --------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 459,217,007 459,217,007 --------------- --------------- TOTAL INVESTMENTS (100.47%) $ 3,706,036,887 5,028,878,438 =============== LIABILITIES LESS CASH AND OTHER ASSETS (-0.47%) (23,729,575) --------------- NET ASSETS (EQUIVALENT TO $45.96 PER SHARE BASED ON 108,907,073 SHARES OUTSTANDING) $ 5,005,148,863 ===============
- --------------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". * Non-income producing securities See Notes to Financial Statements. 16 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (94.78%) - ------------------------------------------------------------------------------------ ADVERTISING SERVICES (1.23%) 550,000 R.H. Donnelley Corp.* $ 16,121,330 $ 34,793,000 APPAREL (1.43%) 650,000 Carter's, Inc.* 21,552,174 36,920,000 250,000 Maidenform Brands, Inc.* 4,250,000 3,437,500 --------------- --------------- 25,802,174 40,357,500 BUILDING MACHINERY (1.21%) 750,000 Tractor Supply Co.* 26,626,906 34,237,500 BUILDING MATERIALS (4.29%) 1,000,000 Eagle Materials, Inc., Cl B# 62,853,442 115,700,000 45,600 Eagle Materials, Inc.# 3,644,792 5,534,472 --------------- --------------- 66,498,234 121,234,472 BUSINESS SERVICES (4.47%) 725,000 ChoicePoint, Inc.* 6,949,762 31,298,250 1,800,000 DX Services plc^ 11,518,326 10,596,600 1,200,000 First Advantage Corp., Cl A* 23,607,916 35,280,000 1,082,000 Infocrossing, Inc.*# 9,903,091 9,943,580 975,000 Iron Mountain, Inc.* 10,010,523 35,782,500 460,200 PeopleSupport, Inc.* 3,849,719 3,612,570 --------------- --------------- 65,839,337 126,513,500 CHEMICAL (0.24%) 550,000 Chemtura Corp. (formerly Crompton Corp.) 8,231,663 6,831,000 COMMUNICATIONS (10.11%) 5,550,000 Alamosa Hldgs., Inc.* 32,186,799 94,960,500 3,350,000 American Tower Corp., Cl A* 19,090,630 83,582,500 600,000 NeuStar, Inc.* 16,030,999 19,194,000 2,000,000 SBA Communications Corp.* 10,934,506 30,900,000 4,250,000 UbiquiTel, Inc.* 17,865,463 37,145,000 750,000 USA Mobility, Inc.* 16,280,379 20,235,000 --------------- --------------- 112,388,776 286,017,000 CONSULTING (3.48%) 275,000 Corporate Executive Board Co.* 4,596,431 21,444,500 400,000 Gartner Group, Inc.* 3,794,060 4,676,000 1,650,000 LECG Corp.*# 32,939,131 37,950,000 1,800,000 Navigant Consulting, Inc.* 31,385,220 34,488,000 --------------- --------------- 72,714,842 98,558,500 CONSUMER PRODUCTS (2.07%) 1,050,000 Acco Brands Corp.* 25,808,682 29,631,000 100,000 Dolby Laboratories, Inc.* 2,035,270 1,600,000 1,625,000 DTS, Inc.*# 34,251,425 27,365,000 --------------- --------------- 62,095,377 58,596,000 EDUCATION (5.61%) 500,000 Apollo Group, Inc., Cl A* 4,269,664 33,195,000 1,000,000 Career Education Corp.* 2,204,026 35,560,000 184,000 Educate, Inc. * 2,024,000 2,760,000 444,000 Strayer Education, Inc. 37,452,157 41,966,880 1,265,700 Universal Technical Institute, Inc.* 37,822,362 45,071,577 --------------- --------------- 83,772,209 158,553,457 ENERGY SERVICES (0.61%) 560,000 Petroleum Helicopters, Inc.* 14,202,259 17,371,200 FINANCIAL SERVICES -- ASSET MANAGEMENT (0.41%) 250,000 GAMCO Investors, Inc. (formerly Gabelli Asset Mgmt., Inc., Cl A) 4,356,166 11,462,500 FINANCIAL SERVICES -- BANKING (0.36%) 1,500,000 Cash Systems, Inc.*# 10,062,346 10,305,000 FINANCIAL SERVICES -- INSURANCE (0.35%) 200,000 Arch Capital Group, Ltd.* 5,515,966 9,918,000
Shares Cost Value - ------------------------------------------------------------------------------------ FINANCIAL SERVICES -- MISCELLANEOUS (0.79%) 1,000,000 KKR Financial Corp.* $ 24,543,895 $ 22,240,000 GOVERNMENT SERVICES (5.76%) 1,252,500 Anteon Intl. Corp.* 32,627,766 53,556,900 2,571,500 FLIR Systems, Inc.* 57,960,481 76,064,970 1,260,749 Mantech Intl. Corp. * 24,467,144 33,296,381 --------------- --------------- 115,055,391 162,918,251 HEALTHCARE FACILITIES (3.49%) 1,353,700 American Retirement Corp.* 15,157,651 25,490,171 1,875,000 United Surgical Partners Intl., Inc.* 22,780,745 73,331,250 --------------- --------------- 37,938,396 98,821,421 HEALTHCARE PRODUCTS (1.61%) 600,000 INAMED Corp.* 29,950,811 45,408,000 HEALTHCARE SERVICES (1.15%) 200,000 Gen-Probe, Inc.* 9,800,735 9,890,000 750,000 PRA International* 17,574,319 22,732,500 --------------- --------------- 27,375,054 32,622,500 HOME BUILDING (2.42%) 1,231,600 Brookfield Homes Corp. 26,689,083 68,390,748 LEISURE (1.71%) 1,000,000 Lakes Entertainment, Inc.* 13,665,909 10,050,000 1,500,000 MarineMax, Inc.*# 39,664,697 38,235,000 --------------- --------------- 53,330,606 48,285,000 MACHINERY & ELECTRONICS (0.96%) 750,000 Flowserve Corp.* 22,465,132 27,262,500 MANUFACTURING (3.36%) 1,232,000 Actuant Corp., Cl A* 49,012,546 57,657,600 503,800 Intermagnetics General Corp.* 12,048,645 14,076,172 1,100,000 Measurement Specialties, Inc. *# 26,507,672 23,320,000 --------------- --------------- 87,568,863 95,053,772 MEDIA (2.95%) 1,250,000 CKX, Inc.* 14,102,674 15,712,500 321,600 DakTronics, Inc.* 7,298,811 7,711,968 1,350,000 Gray Television, Inc. 11,348,508 14,296,500 2,400,000 Radio One, Inc., Cl D* 27,663,129 31,560,000 380,000 Regal Entertainment Group, Cl A 4,528,833 7,615,200 325,000 Westwood One, Inc. 3,497,838 6,464,250 --------------- --------------- 68,439,793 83,360,418 MEDICAL EQUIPMENT (6.12%) 2,500,000 Immucor, Inc.*# 25,081,859 68,600,000 600,000 Intuitive Surgical, Inc.* 8,832,642 43,974,000 941,600 Kensey Nash Corp.*# 28,782,924 28,869,456 660,191 Lifeline Systems, Inc.* 15,537,121 22,070,185 350,000 Wilson Greatbatch Technologies, Inc.* 6,719,443 9,604,000 --------------- --------------- 84,953,989 173,117,641 MINERALS & MINING (0.57%) 750,000 Novelis, Inc. 16,429,106 16,080,000 PRINTING AND PUBLISHING (1.20%) 1,500,000 Interactive Data Corp.* 22,596,628 33,975,000 REAL ESTATE (4.21%) 1,000,000 CB Richard Ellis Group, Inc.* 29,930,479 49,200,000 5,260,000 Countrywide plc^ 30,151,798 36,115,160 3,000,000 Spirit Finance Corp.* 35,601,168 33,750,000 --------------- --------------- 95,683,445 119,065,160
See Notes to Financial Statements. 17 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------ RECREATION AND RESORTS (7.03%) 700,000 Ameristar Casinos, Inc. $ 12,671,576 $ 14,588,000 1,400,000 Gaylord Entertainment Co.* 41,624,724 66,710,000 1,500,000 Great Canadian Gaming Corp.*^ 22,586,203 22,903,200 2,500,000 Great Wolf Resorts, Inc.*# 49,596,418 25,850,000 550,000 Kerzner Intl., Ltd.* 13,662,714 30,552,500 850,000 Wynn Resorts, Ltd. * 12,016,631 38,377,500 --------------- --------------- 152,158,266 198,981,200 RESTAURANTS (5.66%) 1,850,000 AFC Enterprises, Inc.*# 32,016,945 21,349,000 250,000 BJ's Restaurants, Inc.* 3,875,000 5,107,500 350,000 Panera Bread Co., Cl A* 9,869,197 17,913,000 990,000 P.F. Chang's China Bistro, Inc.* 50,496,634 44,381,700 2,700,000 Texas Roadhouse, Inc.* 33,450,103 40,230,000 1,000,000 The Cheesecake Factory, Inc.* 21,235,694 31,240,000 --------------- --------------- 150,943,573 160,221,200 RETAIL -- CONSUMER STAPLES (1.03%) 1,127,364 NuCO2, Inc.*# 28,004,404 29,029,623 RETAIL -- SPECIALTY STORES (6.44%) 700,000 99 Cents Only Stores* 8,091,122 6,475,000 600,000 Aeropostale, Inc.* 9,779,864 12,750,000 1,157,503 Casual Male Retail Group, Inc.*# 5,361,112 7,963,621 1,100,000 Design Within Reach, Inc.*# 17,344,209 9,933,000 1,483,700 DSW, Inc., Cl A* 35,738,298 31,454,440 1,200,000 Fossil, Inc.* 25,931,217 21,828,000 1,300,000 Hot Topic, Inc.* 20,830,936 19,968,000 600,000 Kenneth Cole Productions, Inc., Cl A 10,318,483 16,374,000 500,000 Provide Commerce, Inc.* 9,532,100 12,135,000 3,000,000 Quiksilver, Inc.* 25,050,216 43,350,000 --------------- --------------- 167,977,557 182,231,061 TRANSPORTATION (2.45%) 850,000 Grupo Aeroportuario Del Sureste SA de CV 26,273,985 33,915,000 650,000 JetBlue Airways Corp.* 11,502,058 11,440,000 2,400,000 WestJet Airlines, Ltd.*^ 21,305,466 23,803,920 --------------- --------------- 59,081,509 69,158,920 --------------- --------------- TOTAL COMMON STOCKS 1,845,413,086 2,680,971,044 --------------- --------------- - ------------------------------------------------------------------------------------ WARRANTS (0.14%) - ------------------------------------------------------------------------------------ BUSINESS SERVICES (0.01%) 222,575 Infocrossing, Inc. Warrants Exp 10/16/2008*@# 31,784 296,025 --------------- --------------- RETAIL -- SPECIALTY STORES (0.13%) 1,407,353 Casual Male Retail Group, Inc. Warrants Exp 04/26/2007*@# 2,117,151 3,606,750 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010*@# 49,000 212,000 --------------- --------------- 2,166,151 3,818,750 --------------- --------------- TOTAL WARRANTS 2,197,935 4,114,775 --------------- ---------------
Principal Amount Cost Value - -------------------------------------------------------------------------------------- CORPORATE BONDS (0.23%) - -------------------------------------------------------------------------------------- PRINTING AND PUBLISHING $ 7,000,000 Penton Media, Inc. 10.375% Sr. Sub. NT due 06/15/2011 $ 4,938,711 $ 6,510,000 --------------- --------------- - -------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (4.90%) - -------------------------------------------------------------------------------------- 50,000,000 Exxon Investment Corp. 3.65% due 10/03/2005 50,000,000 50,000,000 28,499,999 Steamboat Funding 3.77% due 10/05/2005 28,499,999 28,499,999 59,999,999 UBS Securities 3.65% due 10/06/2005 59,999,999 59,999,999 --------------- --------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 138,499,998 138,499,998 --------------- --------------- TOTAL INVESTMENTS (100.05%) $ 1,991,049,730 2,830,095,817 =============== LIABILITIES LESS CASH AND OTHER ASSETS (-0.05%) (1,523,207) --------------- NET ASSETS (EQUIVALENT TO $23.08 PER SHARE BASED ON 122,535,635 SHARES OUTSTANDING) $ 2,828,572,610 ===============
- --------------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". ^ Foreign domiciled corporation * Non-income producing securities See Notes to Financial Statements. 18 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (92.46%) - ------------------------------------------------------------------------------------ ADVERTISING SERVICES (11.23%) 125,000 aQuantive, Inc.* $ 2,268,266 $ 2,516,250 75,000 Digitas, Inc.* 489,814 852,000 70,000 Getty Images, Inc.* 2,187,481 6,022,800 15,000 Google, Inc.* 1,781,590 4,746,900 130,000 ValueClick, Inc.* 1,475,165 2,221,700 --------------- --------------- 8,202,316 16,359,650 BUSINESS SERVICES (9.94%) 80,000 Akamai Technologies, Inc.* 1,188,495 1,276,000 150,000 Ariba, Inc.* 922,858 855,000 85,000 ChoicePoint, Inc.* 2,995,233 3,669,450 50,000 InfoSpace, Inc.* 1,473,781 1,193,500 140,000 Monster Worldwide, Inc.* 1,699,667 4,299,400 80,000 Stamps.com, Inc.* 526,302 1,376,800 331,400 Terremark Worldwide, Inc.* 2,289,480 1,454,846 200,000 WindsorTech, Inc.* 746,000 350,000 --------------- --------------- 11,841,816 14,474,996 COMMUNICATIONS (18.30%) 125,000 Alamosa Hldgs., Inc.* 693,344 2,138,750 225,000 American Tower Corp., Cl A* 925,720 5,613,750 116,200 Arbinet-thexchange, Inc.* 1,933,546 836,640 75,000 Equinix, Inc.* 2,246,907 3,123,750 225,000 ibasis, Inc.* 594,600 553,500 75,000 NeuStar, Inc.* 1,650,000 2,399,250 35,000 Research in Motion, Ltd.* 888,051 2,394,000 275,000 SBA Communications Corp.* 936,241 4,248,750 100,000 Sprint Nextel Corp. 2,535,283 2,378,000 225,000 UbiquiTel, Inc.* 962,451 1,966,500 50,000 VeriFone Holdings, Inc.* 1,044,300 1,005,500 --------------- --------------- 14,410,443 26,658,390 COMMUNICATIONS EQUIPMENT (1.53%) 50,000 QUALCOMM, Inc. 1,727,587 2,237,500 COMPUTER TECHNOLOGY (1.29%) 35,000 Apple Computer, Inc.* 1,481,470 1,876,350 CONSUMER PRODUCTS (0.47%) 125,000 TiVo, Inc.* 824,318 686,250 CONSUMER SERVICES (4.75%) 75,000 eBay, Inc.* 925,271 3,090,000 75,000 priceline.com, Inc.* 1,567,179 1,449,000 1,970,000 Tencent Holdings, Ltd.^ 1,475,811 2,387,049 --------------- --------------- 3,968,261 6,926,049 EDUCATION (1.14%) 25,000 Apollo Group, Inc., Cl A* 541,469 1,659,750 ENTERPRISE HARDWARE (5.20%) 135,000 Dell, Inc.* 3,823,084 4,617,000 120,000 Intel Corp. 2,805,370 2,958,000 --------------- --------------- 6,628,454 7,575,000 ENTERPRISE SOFTWARE (1.16%) 150,000 Opsware, Inc.* 762,523 778,500 40,000 Symantec Corp.* 913,369 906,400 --------------- --------------- 1,675,892 1,684,900 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (11.28%) 100,000 Ameritrade Holding Corp.* 1,495,650 2,148,000 325,000 Charles Schwab Corp. 3,517,982 4,689,750 15,000 Chicago Mercantile Exchange Holdings, Inc. 2,770,151 5,059,500 200,000 E*TRADE Financial Corp.* 880,125 3,520,000 100,000 TradeStation Group, Inc.* 896,964 1,014,000 --------------- --------------- 9,560,872 16,431,250
Shares Cost Value - ---------------------------------------------------------------------------------------- FINANCIAL SERVICES -- MISCELLANEOUS (0.78%) 60,000 optionsXpress Holdings, Inc. $ 872,754 $ 1,142,400 HEALTHCARE SERVICES (0.08%) 5,000 WebMD Corp.* 87,500 123,250 HOTELS AND LODGING (0.66%) 65,000 LodgeNet Entertainment Corp.* 1,072,500 957,450 LEISURE (1.99%) 12,500 Electronic Arts, Inc.* 744,996 711,125 40,000 JAMDAT Mobile, Inc.* 657,952 840,000 15,000 NetEase.com, Inc. ADS* 746,597 1,350,150 --------------- --------------- 2,149,545 2,901,275 MANUFACTURING (2.65%) 300,000 Flextronics Intl., Ltd.* 3,193,759 3,855,000 MEDIA (9.18%) 115,000 Comcast Corp., Cl A* 2,762,704 3,309,700 100,000 Netflix, Inc.* 1,824,795 2,599,000 225,000 Time Warner, Inc.* 3,542,759 4,074,750 100,000 Yahoo! Inc.* 1,174,425 3,384,000 --------------- --------------- 9,304,683 13,367,450 PRINTING AND PUBLISHING (1.05%) 100,000 VistaPrint Limited, Inc.* 1,200,000 1,525,000 REAL ESTATE (4.38%) 35,000 CoStar Group, Inc.* 610,743 1,635,200 800,000 homestore, Inc.* 1,462,784 3,480,000 100,000 ZipRealty, Inc.* 1,319,302 1,274,000 --------------- --------------- 3,392,829 6,389,200 RETAIL -- SPECIALTY STORES (5.40%) 35,000 Best Buy Co., Inc. 1,609,897 1,523,550 45,000 Blue Nile, Inc.* 1,242,130 1,423,800 100,000 FTD Group, Inc.* 1,245,860 1,035,000 90,000 InPhonic, Inc.* 1,366,264 1,237,500 57,400 Provide Commerce, Inc.* 809,935 1,393,098 250,000 Varsity Group, Inc.* 1,211,857 1,247,875 --------------- --------------- 7,485,943 7,860,823 --------------- --------------- TOTAL COMMON STOCKS 89,622,411 134,691,933 --------------- --------------- - ---------------------------------------------------------------------------------------- WARRANTS (0.00%) - ---------------------------------------------------------------------------------------- MEDIA 200,000 Loudeye Corp. Warrants Exp 12/23/2010*@ 0 0 --------------- --------------- Principal Amount - ---------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (6.86%) - ---------------------------------------------------------------------------------------- $ 9,999,999 Citicorp 3.60% due 10/03/2005 9,999,999 9,999,999 --------------- --------------- TOTAL INVESTMENTS (99.32%) $ 99,622,410 144,691,932 =============== CASH AND OTHER ASSETS LESS LIABILITIES (0.68%) 986,455 --------------- NET ASSETS (EQUIVALENT TO $9.16 PER SHARE BASED ON 15,896,869 SHARES OUTSTANDING) $ 145,678,387 ===============
- --------------- % Represents percentage of net assets * Non-income producing securities @ See Note 7 regarding restricted and fair valued securities. ^ Foreign domiciled corporation See Notes to Financial Statements. 19 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2005
Shares Cost Value - ------------------------------------------------------------------------------------ COMMON STOCKS (93.82%) - ------------------------------------------------------------------------------------ ADVERTISING SERVICES (4.36%) 25,000 Getty Images, Inc.* $ 1,770,355 $ 2,151,000 6,500 Google, Inc.* 1,114,038 2,056,990 --------------- --------------- 2,884,393 4,207,990 BUSINESS SERVICES (3.34%) 62,500 Iron Mountain, Inc.* 1,937,879 2,293,750 25,000 Paychex, Inc. 891,854 927,000 --------------- --------------- 2,829,733 3,220,750 COMMUNICATIONS (5.32%) 100,000 American Tower Corp., Cl A* 1,811,466 2,495,000 12,500 Research in Motion, Ltd.* 916,133 855,000 75,000 Sprint Nextel Corp. 1,885,046 1,783,500 --------------- --------------- 4,612,645 5,133,500 COMMUNICATIONS EQUIPMENT (1.27%) 27,500 QUALCOMM, Inc. 967,822 1,230,625 COMPUTER TECHNOLOGY (1.11%) 20,000 Apple Computer, Inc.* 854,090 1,072,200 CONSULTING (0.79%) 15,000 Moody's Corp. 653,419 766,200 CONSUMER PRODUCTS (1.69%) 20,000 Nike, Inc., Cl A 1,672,348 1,633,600 CONSUMER SERVICES (1.92%) 45,000 eBay, Inc.* 1,793,898 1,854,000 EDUCATION (0.86%) 12,500 Apollo Group, Inc., Cl A* 893,554 829,875 ENERGY SERVICES (3.97%) 16,252 Kinder Morgan, Inc. 976,521 1,562,792 49,999 XTO Energy, Inc. 1,054,788 2,265,955 --------------- --------------- 2,031,309 3,828,747 ENTERPRISE HARDWARE (3.71%) 65,000 Dell, Inc.* 2,321,563 2,223,000 55,000 Intel Corp. 1,425,875 1,355,750 --------------- --------------- 3,747,438 3,578,750 ENTERPRISE SOFTWARE (0.59%) 25,000 Symantec Corp.* 576,425 566,500 FINANCIAL SERVICES -- ASSET MANAGEMENT (2.03%) 30,000 T. Rowe Price Group, Inc. 1,820,688 1,959,000 FINANCIAL SERVICES -- BANKING (3.29%) 32,500 Golden West Financial Corp. 1,874,549 1,930,175 17,500 Zions Bancorporation 1,226,165 1,246,175 --------------- --------------- 3,100,714 3,176,350 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (6.10%) 50,000 Ameritrade Holding Corp.* 747,825 1,074,000 120,000 Charles Schwab Corp. 1,286,422 1,731,600 5,500 Chicago Mercantile Exchange Holdings, Inc. 1,052,847 1,855,150 70,000 E*TRADE Financial Corp.* 785,415 1,232,000 --------------- --------------- 3,872,509 5,892,750 FINANCIAL SERVICES -- INSURANCE (3.47%) 8 Berkshire Hathaway, Inc., Cl A* 717,341 656,000 12,500 The Progressive Corp. 1,114,764 1,309,625 35,000 W. R. Berkley Corp. 1,290,526 1,381,800 --------------- --------------- 3,122,631 3,347,425 FINANCIAL SERVICES -- MISCELLANEOUS (1.49%) 25,000 American Express Co. 1,440,466 1,436,000 HEALTHCARE SERVICES (1.36%) 11,500 Laboratory Corp. of America Holdings* 544,057 560,165 15,000 Quest Diagnostics, Inc. 746,735 758,100 --------------- --------------- 1,290,792 1,318,265 HEALTHCARE SERVICES -- INSURANCE (3.32%) 30,000 UnitedHealth Group, Inc. 1,050,414 1,686,000 20,000 WellPoint, Inc.* 1,031,914 1,516,400 --------------- --------------- 2,082,328 3,202,400
Shares Cost Value - ------------------------------------------------------------------------------------- HOME BUILDING (2.16%) 15,000 Centex Corp. $ 860,021 $ 968,700 25,000 Toll Brothers, Inc.* 847,538 1,116,750 --------------- --------------- 1,707,559 2,085,450 HOTELS AND LODGING (1.19%) 20,000 Four Seasons Hotels, Inc. 1,182,140 1,148,000 LEISURE (0.59%) 10,000 Electronic Arts, Inc.* 602,486 568,900 MANUFACTURING (1.66%) 125,000 Flextronics Intl., Ltd.* 1,745,651 1,606,250 MEDIA (10.43%) 60,000 Comcast Corp., Cl A* 1,740,997 1,726,800 90,000 News Corp., Cl A 1,463,826 1,403,100 100,000 Time Warner, Inc.* 1,717,049 1,811,000 55,000 Univision Comm., Inc., Cl A* 1,583,382 1,459,150 75,000 Walt Disney Co. 1,863,223 1,809,750 55,000 Yahoo! Inc.* 1,659,022 1,861,200 --------------- --------------- 10,027,499 10,071,000 PHARMACEUTICAL (1.72%) 10,000 Amgen, Inc.* 571,981 796,700 10,260 Genentech, Inc.* 600,436 863,995 --------------- --------------- 1,172,417 1,660,695 REAL ESTATE (3.10%) 40,000 Kimco Realty Corp. 933,241 1,256,800 20,000 Vornado Realty Trust 1,196,066 1,732,400 --------------- --------------- 2,129,307 2,989,200 RECREATION AND RESORTS (6.34%) 42,500 Carnival Corp. 1,997,370 2,124,150 55,000 Las Vegas Sands Corp.* 1,858,518 1,810,050 50,000 MGM Mirage, Inc.* 1,350,450 2,188,500 --------------- --------------- 5,206,338 6,122,700 RESTAURANTS (0.78%) 15,000 Starbucks Corp.* 625,158 751,500 RETAIL -- CONSUMER STAPLES (6.64%) 30,000 Costco Wholesale Corp. 1,225,889 1,292,700 50,000 CVS Corp. 1,281,840 1,450,500 30,000 Target Corp. 1,368,594 1,557,900 20,000 Urban Outfitters, Inc.* 548,388 588,000 10,000 Wal-Mart Stores, Inc. 540,263 438,200 25,000 Walgreen Co. 906,299 1,086,250 --------------- --------------- 5,871,273 6,413,550 RETAIL -- SPECIALTY STORES (8.50%) 50,000 Bed Bath & Beyond, Inc.* 1,907,919 2,009,000 35,000 Best Buy Co., Inc. 1,327,121 1,523,550 47,500 Coach, Inc.* 985,903 1,489,600 25,000 Kohl's Corp.* 1,291,777 1,254,500 30,000 Lowe's Companies, Inc. 1,735,318 1,932,000 --------------- --------------- 7,248,038 8,208,650 TRANSPORTATION (0.72%) 10,000 United Parcel Service, Inc. 756,131 691,300 --------------- --------------- TOTAL COMMON STOCKS 78,521,199 90,572,122 --------------- --------------- Principal Amount - ------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (7.25%) - ------------------------------------------------------------------------------------- $ 6,999,999 Citicorp 3.60% due 10/03/2005 6,999,999 6,999,999 --------------- --------------- TOTAL INVESTMENTS (101.07%) $ 85,521,198 97,572,121 =============== LIABILITIES LESS CASH AND OTHER ASSETS (-1.07%) (1,035,027) --------------- NET ASSETS (EQUIVALENT TO $11.56 PER SHARE BASED ON 8,347,482 SHARES $ 96,537,094 OUTSTANDING) ===============
- --------------- % Represents percentage of net assets * Non-income producing securities 20 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- September 30, 2005
BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FUND FUND FUND FUND -------------- -------------- -------------- ------------ ASSETS: Investments in securities, at value $2,380,611,887 $4,559,573,953 $2,366,033,290 $144,691,932 Unaffiliated investments (Cost $1,224,839,592, $3,420,656,289, $1,582,837,328, $99,622,410 and $85,521,198, respectively) "Affiliated" investments (Cost $161,536,038, $285,380,598, $408,212,402, $0 and $0, respectively) 304,750,000 469,304,485 464,062,527 0 Cash 957,160 425,413 301,786 305,241 Dividends and interest receivable 998,462 1,094,130 337,704 3,796 Receivable for securities sold 16,160,246 3,473,257 12,281,850 2,839,044 Receivable for shares sold 7,951,563 6,101,392 3,080,637 159,538 Prepaid expenses 86,718 0 0 0 Due from adviser (see Note 4) 0 0 0 25,354 -------------- -------------- -------------- ------------ 2,711,516,036 5,039,972,630 2,846,097,794 148,024,905 -------------- -------------- -------------- ------------ LIABILITIES: Payable for securities purchased 11,667,720 25,135,012 14,836,515 2,171,226 Payable for shares redeemed 12,143,805 9,193,424 2,345,965 87,592 Accrued expenses and other payables 262,686 495,331 342,704 87,700 -------------- -------------- -------------- ------------ 24,074,211 34,823,767 17,525,184 2,346,518 -------------- -------------- -------------- ------------ NET ASSETS $2,687,441,825 $5,005,148,863 $2,828,572,610 $145,678,387 ============== ============== ============== ============ NET ASSETS CONSIST OF: Capital paid-in $1,260,122,497 $3,489,908,283 $1,916,320,119 $183,993,133 Accumulated net realized gain (loss) 128,333,071 192,399,029 73,206,404 (83,384,268) Net unrealized appreciation on investments 1,298,986,257 1,322,841,551 839,046,087 45,069,522 -------------- -------------- -------------- ------------ NET ASSETS $2,687,441,825 $5,005,148,863 $2,828,572,610 $145,678,387 ============== ============== ============== ============ SHARES OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 47,549,752 108,907,073 122,535,635 15,896,869 ============== ============== ============== ============ NET ASSET VALUE PER SHARE $ 56.52 $ 45.96 $ 23.08 $ 9.16 ============== ============== ============== ============ BARON FIFTH AVENUE GROWTH FUND ------------------ ASSETS: Investments in securities, at value $97,572,121 Unaffiliated investments (Cost $1,224,839,592, $3,420,656,289, $1,582,837,328, $99,622,410 and $85,521,198, respectively) "Affiliated" investments (Cost $161,536,038, $285,380,598, $408,212,402, $0 and $0, respectively) 0 Cash 87,333 Dividends and interest receivable 24,725 Receivable for securities sold 502,031 Receivable for shares sold 268,172 Prepaid expenses 0 Due from adviser (see Note 4) 33,386 ----------- 98,487,768 ----------- LIABILITIES: Payable for securities purchased 1,897,918 Payable for shares redeemed 5,091 Accrued expenses and other payables 47,665 ----------- 1,950,674 ----------- NET ASSETS $96,537,094 =========== NET ASSETS CONSIST OF: Capital paid-in $86,039,710 Accumulated net realized gain (loss) (1,553,539) Net unrealized appreciation on investments 12,050,923 ----------- NET ASSETS $96,537,094 =========== SHARES OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 8,347,482 =========== NET ASSET VALUE PER SHARE $ 11.56 ===========
See Notes to Financial Statements. 21 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- For the year ended September 30, 2005
BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FUND FUND FUND FUND ------------ ------------ ------------ ----------- INVESTMENT INCOME: INCOME: Interest $ 1,766,183 $ 14,072,725 $ 6,750,730 $ 514,322 Dividends -- unaffiliated investments (net of withholding taxes of $4,783, $16,407, $96,525, $0, and $92, respectively) 8,638,064 11,663,355 6,328,357 180,775 Dividends -- "affiliated" investments 0 98,000 7,797,360 0 Other Income 0 0 0 18,429 ------------ ------------ ------------ ----------- Total income 10,404,247 25,834,080 20,876,447 713,526 ------------ ------------ ------------ ----------- EXPENSES: Investment advisory fees 24,082,420 43,997,569 24,401,721 1,463,915 Distribution fees 6,020,605 10,999,392 6,100,430 365,979 Reports to shareholders 1,068,800 1,486,800 1,052,800 158,703 Shareholder servicing agent fees 678,860 717,510 611,385 141,779 Registration and filing fees 103,311 149,045 108,450 40,609 Professional fees 98,254 143,247 97,702 28,831 Custodian fees 58,099 119,719 83,164 11,809 Trustee fees 61,323 111,633 61,919 3,804 Miscellaneous 89,430 156,792 87,831 5,798 ------------ ------------ ------------ ----------- Total expenses 32,261,102 57,881,707 32,605,402 2,221,227 Less: Expense reimbursement by investment adviser (see Note 4) 0 0 0 (25,354) ------------ ------------ ------------ ----------- Net expenses 32,261,102 57,881,707 32,605,402 2,195,873 ------------ ------------ ------------ ----------- Net investment loss (21,856,855) (32,047,627) (11,728,955) (1,482,347) ------------ ------------ ------------ ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments sold- unaffiliated investments 137,881,069 256,601,157 77,004,600 13,467,239 Net realized gain (loss) on investments sold- "affiliated" investments 6,313,444 (7,904,553) 18,068,904 0 Net change in unrealized appreciation on investments 395,149,197 397,124,402 366,444,107 14,038,503 ------------ ------------ ------------ ----------- Net gain on investments 539,343,710 645,821,006 461,517,611 27,505,742 ------------ ------------ ------------ ----------- Net increase in net assets resulting from operations $517,486,855 $613,773,379 $449,788,656 $26,023,395 ============ ============ ============ =========== BARON FIFTH AVENUE GROWTH FUND ------------------ INVESTMENT INCOME: INCOME: Interest $ 179,315 Dividends -- unaffiliated investments (net of withholding taxes of $4,783, $16,407, $96,525, $0, and $92, respectively) 385,626 Dividends -- "affiliated" investments 0 Other Income 0 ----------- Total income 564,941 ----------- EXPENSES: Investment advisory fees 688,368 Distribution fees 172,092 Reports to shareholders 64,559 Shareholder servicing agent fees 33,765 Registration and filing fees 34,085 Professional fees 25,049 Custodian fees 5,281 Trustee fees 1,747 Miscellaneous 2,929 ----------- Total expenses 1,027,875 Less: Expense reimbursement by investment adviser (see Note 4) (64,160) ----------- Net expenses 963,715 ----------- Net investment loss (398,774) ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments sold- unaffiliated investments (1,174,154) Net realized gain (loss) on investments sold- "affiliated" investments 0 Net change in unrealized appreciation on investments 11,455,168 ----------- Net gain on investments 10,281,014 ----------- Net increase in net assets resulting from operations $ 9,882,240 ===========
See Notes to Financial Statements. 22 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, 2005 2004 2005 2004 2005 -------------- -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (21,856,855) $ (18,014,501) $ (32,047,627) $ (24,506,425) $ (11,728,955) Net realized gain (loss) on investments sold 144,194,513 150,574,805 248,696,604 43,766,255 95,073,504 Net change in unrealized appreciation on investments 395,149,197 224,051,657 397,124,402 429,735,044 366,444,107 -------------- -------------- -------------- -------------- -------------- Increase in net assets resulting from operations 517,486,855 356,611,961 613,773,379 448,994,874 449,788,656 -------------- -------------- -------------- -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments (126,683,892) 0 0 0 (53,166,236) -------------- -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 640,133,068 319,598,701 1,971,578,477 1,101,986,308 1,109,432,440 Net asset value of shares issued in reinvestment of dividends 124,712,972 0 0 0 51,062,420 Cost of shares redeemed (470,600,014) (630,993,904) (715,806,952) (600,780,062) (510,666,216) -------------- -------------- -------------- -------------- -------------- Increase (decrease) in net assets derived from capital share transactions 294,246,026 (311,395,203) 1,255,771,525 501,206,246 649,828,644 Redemption fees 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Net increase in net assets 685,048,989 45,216,758 1,869,544,904 950,201,120 1,046,451,064 -------------- -------------- -------------- -------------- -------------- NET ASSETS: Beginning of year 2,002,392,836 1,957,176,078 3,135,603,959 2,185,402,839 1,782,121,546 -------------- -------------- -------------- -------------- -------------- End of year $2,687,441,825 $2,002,392,836 $5,005,148,863 $3,135,603,959 $2,828,572,610 ============== ============== ============== ============== ============== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 $ 0 ============== ============== ============== ============== ============== SHARES: Shares sold 12,158,705 6,999,058 44,272,338 30,112,173 50,454,999 Shares issued in reinvestment of dividends 2,538,428 0 0 0 2,476,351 Shares redeemed (8,959,543) (14,050,959) (15,932,537) (16,479,769) (23,327,448) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) 5,737,590 (7,051,901) 28,339,801 13,632,404 29,603,902 ============== ============== ============== ============== ============== BARON FIFTH BARON SMALL AVENUE CAP FUND BARON IOPPORTUNITY FUND GROWTH FUND -------------- ----------------------------- ------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2004 2005 2004 2005 -------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (14,217,791) $ (1,482,347) $ (1,680,384) $ (398,774) Net realized gain (loss) on investments sold 64,809,243 13,467,239 15,694,215 (1,174,154) Net change in unrealized appreciation on investments 77,954,557 14,038,503 272,386 11,455,168 -------------- ------------ ------------ ------------ Increase in net assets resulting from operations 128,546,009 26,023,395 14,286,217 9,882,240 -------------- ------------ ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments 0 0 0 0 -------------- ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 841,501,715 38,438,663 72,422,016 50,705,842 Net asset value of shares issued in reinvestment of dividends 0 0 0 0 Cost of shares redeemed (398,469,810) (52,857,573) (62,396,543) (13,350,429) -------------- ------------ ------------ ------------ Increase (decrease) in net assets derived from capital share transactions 443,031,905 (14,418,910) 10,025,473 37,355,413 Redemption fees 0 142,107 315,784 0 -------------- ------------ ------------ ------------ Net increase in net assets 571,577,914 11,746,592 24,627,474 47,237,653 -------------- ------------ ------------ ------------ NET ASSETS: Beginning of year 1,210,543,632 133,931,795 109,304,321 49,299,441 -------------- ------------ ------------ ------------ End of year $1,782,121,546 $145,678,387 $133,931,795 $ 96,537,094 ============== ============ ============ ============ ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 ============== ============ ============ ============ SHARES: Shares sold 43,517,215 4,515,672 9,311,007 4,605,887 Shares issued in reinvestment of dividends 0 0 0 0 Shares redeemed (20,734,514) (6,280,733) (8,528,450) (1,243,955) -------------- ------------ ------------ ------------ NET INCREASE (DECREASE) 22,782,701 (1,765,061) 782,557 3,361,932 ============== ============ ============ ============ BARON FIFTH AVENUE GROWTH FUND --------------------- FOR THE PERIOD APRIL 30, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 --------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (119,983) Net realized gain (loss) on investments sold (379,385) Net change in unrealized appreciation on investments 595,755 ----------- Increase in net assets resulting from operations 96,387 ----------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments 0 ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 50,428,908 Net asset value of shares issued in reinvestment of dividends 0 Cost of shares redeemed (1,225,854) ----------- Increase (decrease) in net assets derived from capital share transactions 49,203,054 Redemption fees 0 ----------- Net increase in net assets 49,299,441 ----------- NET ASSETS: Beginning of year 0 ----------- End of year $49,299,441 =========== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 =========== SHARES: Shares sold 5,111,117 Shares issued in reinvestment of dividends 0 Shares redeemed (125,567) ----------- NET INCREASE (DECREASE) 4,985,550 ===========
See Notes to Financial Statements. 23 BARON FUNDS - -------------------------------------------------------------------------------- Notes to Financial Statements - ------------------------------------------------------------------------------- (1) Organization. Baron Investment Funds Trust (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 five series (individually a "Fund" and collectively the "Funds"): Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund. Prior to October 22, 2004, the name of the Trust was Baron Asset Fund. The investment objectives of the Funds are as follows: Baron Asset Fund seeks capital appreciation through long-term 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 businesses that benefit from technology advances. Baron Fifth Avenue Growth Fund seeks capital appreciation through investments primarily in the securities of larger growth companies. (2) Significant Accounting Policies. The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with 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. Securities traded in foreign markets are valued using prices reported by local foreign markets and translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time the net asset value is determined. Where market quotations are not readily available, or in the Adviser's judgment, they do not accurately reflect fair value of a security, or an event occurs after the market close but before the Funds are priced that materially affects the value of a security, the securities will be valued by the Adviser using procedures established by the Board of Trustees. The Adviser has a fair valuation committee comprised of senior executives and members of the Board. Factors the committee uses include whether the security is thinly traded, transactions are infrequent, or quotations are genuine. There can be no assurance, however, that a fair valuation used by the Funds on any given day will more accurately reflect the market value of an investment than the closing price of such investment in its market. 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) FOREIGN CURRENCY TRANSLATIONS. Values of investments denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time net asset value is determined. Purchases and sales of investments and dividend income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. (C) 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, which includes the accretion of discounts and amortization of premiums. The Funds are charged for those expenses that are directly attributable to each Fund, such as advisory and custodian fees. Expenses that are not directly attributable to a Fund are typically allocated among the Funds in proportion to their respective net assets. (D) 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. (E) 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. (F) DISTRIBUTIONS. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. 24 BARON FUNDS - -------------------------------------------------------------------------------- (G) SHORT-TERM TRADING FEE. Baron iOpportunity Fund imposes a 1% short-term trading fee on redemptions and exchanges of shares held for less than six months. 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. (H) 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. (I) COMMITMENTS AND CONTINGENCIES. In the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnification. The maximum exposure to the Funds under these agreements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. (3) Purchases and Sales of Securities. Purchases and sales of securities, other than short term securities, for the year ended September 30, 2005 were as follows:
FUND PURCHASES SALES - ---- --------- ----- Baron Asset Fund $ 400,668,596 $269,677,414 Baron Growth Fund $1,640,123,442 $611,141,713 Baron Small Cap Fund $1,156,855,014 $549,818,144 Baron iOpportunity Fund $ 110,842,774 $129,821,430 Baron Fifth Avenue Growth Fund $ 64,110,768 $ 28,930,529
(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. ("BCG"), 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 and Baron Fifth Avenue Growth Fund, the Adviser has contractually agreed to reduce its fee to the extent required to limit the operating expense to 1.50% and 1.40% of average daily net assets, respectively. The reimbursements for the year ended September 30, 2005, are included in the Statement of Operations. (B) DISTRIBUTION FEES. Baron Capital, Inc. ("BCI"), a wholly owned subsidiary of BCG, 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, 2005, BCI earned gross brokerage commissions as follows:
FUND COMMISSIONS - ---- ----------- Baron Asset Fund $168,087 Baron Growth Fund $578,158 Baron Small Cap Fund $439,790 Baron iOpportunity Fund $ 98,717 Baron Fifth Avenue Growth Fund $ 32,660
(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, Baron iOpportunity Fund, and Baron Fifth Avenue Growth 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. At September 30, 2005, there were no loans outstanding under the line of credit. 25 BARON FUNDS - -------------------------------------------------------------------------------- (6) Litigation. An action is pending in the Southern District of New York brought by a shareholder of Baron Growth Fund and of Baron Small Cap Fund against these two Funds, their Trustees, the distributor, Baron Capital, Inc., and the adviser, BAMCO, Inc. The action alleges improper imposition of 12b-1 fees on Funds that were partially closed to new investors and seeks compensatory damages and to enjoin further 12b-1 fees. A motion to dismiss the complaint is currently pending. Neither the outcome nor the possible liability to these two Funds can be determined at this point. No amounts have been accrued in these financial statements with respect to the damages sought by this litigation. (7) Restricted Securities. At September 30, 2005, investments in securities included securities that are restricted and/or illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At September 30, 2005, the Funds held investments in restricted and illiquid securities that were valued under approved methods by the Board, as follows:
BARON ASSET FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- COMMON STOCK Wynn Resorts, Ltd. 04/17/01 $62,597,657 CONVERTIBLE PREFERRED STOCK Apollo International, Inc., S-A CV Pfd. 07/21/99 400,000 Somerford Corp. S-A Conv. Pfd. 12/03/98 9,090,397 CORPORATE BONDS Somerford Corp. 8.50% Sub. Conv. Deb Due 04/23/2006 04/23/01 2,666,667 ----------- TOTAL RESTRICTED SECURITIES: (Cost $43,787,854) (2.78% of Net Assets) $74,754,721 ===========
BARON GROWTH FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- COMMON STOCK CBRE Realty Finance, Inc. 144A 06/02/05 $10,000,005 Wynn Resorts, Ltd. 04/22/02 23,062,311 CONVERTIBLE PREFERRED STOCK Reliant Pharmaceuticals LLC Series D 10/28/03 7,500,000 ----------- TOTAL RESTRICTED SECURITIES: (Cost $36,063,961) (0.81% of Net Assets) $40,562,316 ===========
BARON SMALL CAP FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- WARRANTS Casual Male Retail Group, Inc. Warrants Exp 04/26/2007 05/15/02 $ 3,606,750 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 212,000 Infocrossing, Inc. Warrants Exp 10/16/2008 10/16/03 296,025 ----------- TOTAL RESTRICTED SECURITIES: (Cost $2,197,935) (0.14% of Net Assets) $ 4,114,775 ===========
BARON iOPPORTUNITY FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- WARRANTS Loudeye Corp. Warrants Exp 12/23/2010 12/22/04 $ 0 ----------- TOTAL RESTRICTED SECURITIES: (Cost $0) (0.00% of Net Assets) $ 0 ===========
26 BARON FUNDS - -------------------------------------------------------------------------------- (8) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. As of September 30, 2005, the components of net assets on a tax basis were as follows:
BARON BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FIFTH AVENUE GROWTH FUND FUND FUND FUND FUND -------------- -------------- --------------- ------------------ ------------------- Cost of investments $1,388,375,616 $3,728,390,818 $1,992,750,770 $102,987,525 $85,613,712 ============== ============== ============== ============ =========== Gross tax unrealized appreciation 1,326,372,655 1,425,896,902 937,716,223 46,677,043 13,620,533 Gross tax unrealized depreciation (29,386,384) (125,409,282) (100,371,176) (4,972,636) (1,662,124) -------------- -------------- -------------- ------------ ----------- Net tax unrealized appreciation $1,296,986,271 $1,300,487,620 $ 837,345,047 $ 41,704,407 $11,958,409 ============== ============== ============== ============ ===========
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, 2006. The Funds also had capital loss carryforwards. Capital loss carryforward expiring as follows:
BARON BARON ASSET BARON GROWTH BARON SMALL CAP BARON IOPPORTUNITY FIFTH AVENUE GROWTH FUND FUND FUND FUND FUND -------------- ------------- --------------- ------------------ ------------------- 2010 -- -- -- $(58,207,247) -- 2011 -- -- -- (21,811,904) -- 2013 -- -- -- -- (707,614) ------------ ------------- ------------- ------------ --------- $ -- $ -- $ -- $(80,019,151) $(707,614) ============ ============= ============= ============ ========= Undistributed long term capital gain $130,333,056 $ 214,752,954 $ 74,907,444 $ -- $ -- ============ ============= ============= ============ ========= Undistributed ordinary income $ 0 $ 0 $ 0 $ 0 $ 0 ============ ============= ============= ============ ========= Post October loss deferral $ -- $ -- $ -- $ -- $(747,105) ============ ============= ============= ============ ========= Capital loss carryforward utilized during the year ended September 30, 2005 $ -- $ 36,632,125 $ -- $ 13,787,927 $ -- ============ ============= ============= ============ =========
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 and net operating losses. In addition, the Funds utilized earnings and profits distributed to shareholders on redemptions of shares as part of the dividends paid deduction for tax purposes. 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, 2005, the following amounts were reclassified for federal income taxes purposes:
UNDISTRIBUTED UNDISTRIBUTED NET INVESTMENT REALIZED FUND INCOME GAIN/LOSS CAPITAL-PAID-IN - -------------------- -------------- ------------- --------------- Baron Asset Fund $21,856,855 $(13,861,109) $ (7,995,746) Baron Growth Fund 32,047,627 (7,034,412) (25,013,215) Baron Small Cap Fund 11,728,955 (13,925,678) 2,196,723 Baron iOpportunity Fund 1,482,347 (1,482,347) Baron Fifth Avenue Growth Fund 398,774 (398,774)
The tax character of distributions paid during the fiscal years ended September 30, 2005 and September 30, 2004 was as follows:
9/30/2005 9/30/2004 ----------------------- ----------------------- LONG TERM LONG TERM ORDINARY CAPITAL GAIN ORDINARY CAPITAL GAIN -------- ------------ -------- ------------ Baron Asset Fund $ -- $126,683,892 $ -- $ -- Baron Growth Fund -- -- -- -- Baron Small Cap Fund -- 53,166,236 -- -- Baron iOpportunity Fund -- -- -- -- Baron Fifth Avenue Growth Fund -- -- -- --
27 BARON FUNDS - -------------------------------------------------------------------------------- (9) Investment in "Affiliates"* BARON ASSET FUND
BALANCE OF GROSS GROSS SALES BALANCE OF SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE NAME OF ISSUER SEPT. 30, 2004 AND ADDITIONS REDUCTIONS SEPT. 30, 2005 SEPT. 30, 2005 - -------------------------------------------------------------------------------------------------------------------------- Alexander's, Inc. 314,000 314,000 $ 84,780,000 Apollo International, Inc. S-A CV Pfd. 105,264 105,264 400,000 ChoicePoint, Inc. 4,600,000 100,000 4,500,000 --** Kerzner Intl., Ltd. 2,400,000 2,400,000 133,320,000 Saga Comm., Inc., Cl A 1,000,000 375,000 625,000 --** Vail Resorts, Inc. 3,000,000 3,000,000 86,250,000 ------------ TOTAL INVESTMENT IN "AFFILIATES" (11.3% OF NET ASSETS) $304,750,000 ============ DIVIDEND INCOME YEAR ENDED NAME OF ISSUER SEPT. 30, 2005 - -------------------------------------------------------- Alexander's, Inc. Apollo International, Inc. S-A CV Pfd. ChoicePoint, Inc. Kerzner Intl., Ltd. Saga Comm., Inc., Cl A Vail Resorts, Inc. -- TOTAL INVESTMENT IN "AFFILIATES" (11.3% OF NET ASSETS) $0 ==
- --------------- * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2005. ** As of September 30, 2005, no longer an affiliate. BARON GROWTH FUND
BALANCE OF GROSS GROSS SALES BALANCE OF SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE NAME OF ISSUER SEPT. 30, 2004 AND ADDITIONS REDUCTIONS SEPT. 30, 2005 SEPT. 30, 2005 ------------------------------------------------------------------------------------------------------------------- AMERIGROUP, Corp.^ 1,900,000 1,900,000 3,800,000 $ 72,656,000 Arch Capital Group, Ltd. 1,650,000 1,650,000 --** Carter's, Inc. 1,200,000 250,000 1,450,000 82,360,000 Centene Corp. + 1,600,000 1,600,000 500 3,199,500 80,083,485 Center Financial Corp. -- 850,000 850,000 19,975,000 DeVry, Inc. 2,250,000 1,450,000 3,700,000 70,485,000 Encore Acquisition Co.@ 2,200,000 1,500,000 3,700,000 143,745,000 Isle of Capri Casinos, Inc. 1,275,000 225,000 75,000 1,425,000 --** Kerzner Intl., Ltd. 1,800,000 1,800,000 --** Odyssey Healthcare, Inc. 1,575,000 1,020,550 995,550 1,600,000 --** ------------ TOTAL INVESTMENT IN "AFFILIATES" (9.4% OF NET ASSETS) $469,304,485 ============ DIVIDEND INCOME YEAR ENDED NAME OF ISSUER SEPT. 30, 2005 ------------------------------------------------- AMERIGROUP, Corp.^ Arch Capital Group, Ltd. Carter's, Inc. Centene Corp. + Center Financial Corp. $98,000 DeVry, Inc. Encore Acquisition Co.@ Isle of Capri Casinos, Inc. Kerzner Intl., Ltd. Odyssey Healthcare, Inc. ------- TOTAL INVESTMENT IN "AFFILIATES" (9.4% OF NET ASSETS) $98,000 =======
- --------------- ^ Received 1,900,000 shares from 2:1 stock split. + Received 1,600,000 shares from 2:1 stock split. @ Received 1,225,000 shares from 3:2 stock split. * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2005. ** As of September 30, 2005, no longer an affiliate. 28 BARON FUNDS - -------------------------------------------------------------------------------- (9) Investment in "Affiliates"* (continued) BARON SMALL CAP FUND
BALANCE OF GROSS GROSS SALES BALANCE OF SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE NAME OF ISSUER SEPT. 30, 2004 AND ADDITIONS REDUCTIONS SEPT. 30, 2005 SEPT. 30, 2005 - ----------------------------------------------------------------------------------------------------------------------------- AFC Enterprises, Inc. -- 1,850,000 1,850,000 $ 21,349,000 Cash Systems, Inc. -- 1,500,000 1,500,000 10,305,000 Casual Male Retail Group, Inc. 1,157,503 1,157,503 7,963,621 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 1,407,353 1,407,353 3,606,750 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 100,000 100,000 212,000 Design Within Reach, Inc. 350,000 750,000 1,100,000 9,933,000 DTS, Inc. (formerly Digital Theater Systems, Inc.) 1,300,000 325,000 1,625,000 27,365,000 Eagle Materials, Inc., Cl B 800,000 200,000 1,000,000 115,700,000 Eagle Materials, Inc. -- 45,600 45,600 5,534,472 EMAK Worldwide, Inc. 500,000 500,000 -- --** Great Wolf Resorts, Inc. -- 2,500,000 2,500,000 25,850,000 Immucor, Inc. + 1,987,500 1,375,000 862,500 2,500,000 68,600,000 Infocrossing, Inc. 963,100 286,900 168,000 1,082,000 9,943,580 Infocrossing, Inc., Warrants Exp 10/16/2008 222,575 222,575 296,025 Kensey Nash Corp. 525,000 416,600 941,600 28,869,456 LECG Corp. 1,650,000 1,650,000 37,950,000 MarineMax, Inc. 651,300 848,700 1,500,000 38,235,000 Measurement Specialties, Inc. 343,700 762,300 6,000 1,100,000 23,320,000 NuCO2, Inc. -- 1,127,364 1,127,364 29,029,623 PeopleSupport, Inc. -- 1,000,000 539,800 460,200 --** Provide Commerce, Inc. 900,000 400,000 500,000 --** ------------ TOTAL INVESTMENT IN "AFFILIATES" (16.4% OF NET ASSETS) $464,062,527 ============ DIVIDEND INCOME YEAR ENDED NAME OF ISSUER SEPT. 30, 2005 - ----------------------------------------------------------- AFC Enterprises, Inc. $6,720,000 Cash Systems, Inc. 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 Design Within Reach, Inc. DTS, Inc. (formerly Digital Theater Systems, Inc.) Eagle Materials, Inc., Cl B 1,050,000 Eagle Materials, Inc. 27,360 EMAK Worldwide, Inc. Great Wolf Resorts, Inc. Immucor, Inc.++ Infocrossing, Inc. Infocrossing, Inc., Warrants Exp 10/16/ 2008 Kensey Nash Corp. LECG Corp. MarineMax, Inc. Measurement Specialties, Inc. NuCO2, Inc. PeopleSupport, Inc. Provide Commerce, Inc. ---------- TOTAL INVESTMENT IN "AFFILIATES" (16.4% OF NET ASSETS) $7,797,360 ==========
- --------------- ++ Received 875,000 shares from 3:2 stock split. * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2005. ** As of September 30, 2005, no longer an affiliate. 29 BARON FUNDS - -------------------------------------------------------------------------------- (10) Financial Highlights BARON ASSET FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 47.89 $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 -------- -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.46) (0.43) (0.46) (0.55) (0.65) (0.76) (0.30) Net realized and unrealized gains (losses) on investments 12.08 8.27 6.04 0.05 (17.87) 12.53 11.94 -------- -------- -------- -------- -------- -------- -------- TOTAL FROM INVESTMENT OPERATIONS 11.62 7.84 5.58 (0.50) (18.52) 11.77 11.64 -------- -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) Distributions from net realized gains (2.99) 0.00 (1.18) (4.07) (4.61) 0.00 0.00 -------- -------- -------- -------- -------- -------- -------- TOTAL DISTRIBUTIONS (2.99) 0.00 (1.18) (4.07) (4.61) 0.00 (0.04) -------- -------- -------- -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.00 0.00 0.01 0.01 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 56.52 $ 47.89 $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 ======== ======== ======== ======== ======== ======== ======== TOTAL RETURN 25.2% 19.6% 16.1% (2.5%) (31.2%) 22.8%++ 29.2%* ======== ======== ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $2,687.4 $2,002.4 $1,957.2 $2,055.2 $2,692.3 $4,917.4 $5,863.1 Ratio of total expenses to average net assets 1.34% 1.34% 1.34% 1.35% 1.37% 1.36% 1.31% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% (0.02%) (0.01%) (0.03%) 0.00% -------- -------- -------- -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.34% 1.34% 1.34% 1.33% 1.36% 1.33% 1.31% ======== ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.91%) (0.90%) (1.14%) (1.16%) (1.14%) (1.09%) (0.57%) Portfolio turnover rate 11.47% 19.57% 27.95% 6.01% 4.33% 2.51% 15.64% YEAR ENDED SEPTEMBER 30, ------------------------------- 1998 1997 1996 -------- -------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 47.43 $ 35.50 $ 29.30 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) 0.05 (0.14) (0.06) Net realized and unrealized gains (losses) on investments (7.52) 12.11 6.29 -------- -------- -------- TOTAL FROM INVESTMENT OPERATIONS (7.47) 11.97 6.23 -------- -------- -------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 Distributions from net realized gains 0.00 (0.04) (0.03) -------- -------- -------- TOTAL DISTRIBUTIONS 0.00 (0.04) (0.03) -------- -------- -------- Capital contribution 0.00 0.00 0.00 -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 39.96 $ 47.43 $ 35.50 ======== ======== ======== TOTAL RETURN (15.7%) 33.8% 21.3% ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $4,410.5 $3,224.5 $1,166.1 Ratio of total expenses to average net assets 1.32% 1.35% 1.40% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% -------- -------- -------- Ratio of operating expenses to average net assets 1.32% 1.35% 1.40% ======== ======== ======== Ratio of net investment income (loss) to average net assets 0.11% (0.52%) (0.29%) Portfolio turnover rate 23.43% 13.23% 19.34%
- --------------- ++ 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%. 30 BARON FUNDS - -------------------------------------------------------------------------------- (10) Financial Highlights (continued) BARON GROWTH FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 1999 1998 -------- -------- -------- -------- ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 38.92 $ 32.65 $ 26.96 $ 27.18 $32.26 $29.06 $20.32 $24.89 -------- -------- -------- -------- ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.29) (0.30) (0.25) (0.23) (0.22) (0.26) (0.04) 0.06 Net realized and unrealized gains (losses) on investments 7.33 6.57 5.94 1.65 (1.67) 5.34 8.82 (4.56) -------- -------- -------- -------- ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 7.04 6.27 5.69 1.42 (1.89) 5.08 8.78 (4.50) -------- -------- -------- -------- ------ ------ ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) (0.02) Distributions from net realized gains 0.00 0.00 0.00 (1.64) (3.19) (1.88) 0.00 (0.05) -------- -------- -------- -------- ------ ------ ------ ------ TOTAL DISTRIBUTIONS 0.00 0.00 0.00 (1.64) (3.19) (1.88) (0.04) (0.07) -------- -------- -------- -------- ------ ------ ------ ------ NET ASSET VALUE, END OF YEAR $ 45.96 $ 38.92 $ 32.65 $ 26.96 $27.18 $32.26 $29.06 $20.32 ======== ======== ======== ======== ====== ====== ====== ====== TOTAL RETURN 18.1% 19.2% 21.1% 5.0% (6.1%) 18.6% 43.2% (18.1%) ======== ======== ======== ======== ====== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $5,005.1 $3,135.6 $2,185.4 $1,030.3 $512.3 $533.4 $439.4 $315.6 Ratio of total expenses to average net assets 1.31% 1.33% 1.36% 1.35% 1.36% 1.36% 1.40% 1.43% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% (0.03%) (0.06%) -------- -------- -------- -------- ------ ------ ------ ------ Ratio of operating expenses to average net assets 1.31% 1.33% 1.36% 1.35% 1.36% 1.36% 1.37% 1.37% ======== ======== ======== ======== ====== ====== ====== ====== Ratio of net investment income (loss) to average net assets (0.73%) (0.89%) (1.11%) (1.02%) (0.79%) (0.78%) (0.20%) 0.21% Portfolio turnover rate 15.50% 27.15% 32.63% 18.31% 34.94% 39.00% 53.36% 40.38% YEAR ENDED SEPTEMBER 30, --------------- 1997 1996 ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $18.40 $14.77 ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) 0.06 0.11 Net realized and unrealized gains (losses) on investments 6.68 3.66 ------ ------ TOTAL FROM INVESTMENT OPERATIONS 6.74 3.77 ------ ------ LESS DISTRIBUTIONS Dividends from net investment income (0.09) (0.04) Distributions from net realized gains (0.16) (0.10) ------ ------ TOTAL DISTRIBUTIONS (0.25) (0.14) ------ ------ NET ASSET VALUE, END OF YEAR $24.89 $18.40 ====== ====== TOTAL RETURN 37.1% 25.8% ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $390.8 $207.2 Ratio of total expenses to average net assets 1.40% 1.54% Less: Ratio of interest expense to average net assets 0.00% 0.00% ------ ------ Ratio of operating expenses to average net assets 1.40% 1.54% ====== ====== Ratio of net investment income (loss) to average net assets 0.37% 1.20% Portfolio turnover rate 25.17% 40.27%
- --------------- The Fund's custodian's offset of custody fees amounted to less than $0.01 per share in 1996. The expense offset amount is included in expense data above. 31 BARON FUNDS - -------------------------------------------------------------------------------- (10) Financial Highlights (continued) BARON SMALL CAP FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------ 2005 2004 2003 2002 2001 2000 1999 1998 -------- -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 19.18 $ 17.26 $ 13.73 $12.69 $16.05 $13.37 $ 8.61 $10.00 -------- -------- -------- ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.10) (0.15) (0.11) (0.14) (0.11) (0.16) (0.10) (0.02) Net realized and unrealized gains (losses) on investments 4.55 2.07 4.02 1.18 (2.87) 2.84 4.86 (1.37) -------- -------- -------- ------ ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 4.45 1.92 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 0.00 0.00 Distributions from net realized gains (0.55) 0.00 (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- -------- -------- ------ ------ ------ ------ ------ TOTAL DISTRIBUTIONS (0.55) 0.00 (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF YEAR $ 23.08 $ 19.18 $ 17.26 $13.73 $12.69 $16.05 $13.37 $ 8.61 ======== ======== ======== ====== ====== ====== ====== ====== TOTAL RETURN 23.6% 11.1% 29.2% 8.2% (18.8%) 20.0% 55.3% (13.9%) ======== ======== ======== ====== ====== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $2,828.6 $1,782.1 $1,210.5 $719.1 $585.9 $879.5 $715.7 $403.7 Ratio of expenses to average net assets 1.33% 1.33% 1.36% 1.36% 1.35% 1.33% 1.34% 1.39% Ratio of net investment loss to average net assets (0.48%) (0.88%) (0.87%) (0.97%) (0.68%) (0.90%) (0.99%) (0.20%) Portfolio turnover rate 24.68% 32.92% 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:
YEAR ENDED SEPTEMBER 30, ---------------------------------------------------------- 2005 2004 2003 2002 2001 2000* ------ ------ ------ ------ ------- ------ NET ASSET VALUE, BEGINNING OF YEAR $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 $10.00 ------ ------ ------ ------ ------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.09) (0.10) (0.05) (0.06) (0.05) 0.03 Net realized and unrealized gains (losses) on investments 1.66 1.18 2.89 (0.40) (4.59) (1.28) ------ ------ ------ ------ ------- ------ TOTAL FROM INVESTMENT OPERATIONS 1.57 1.08 2.84 (0.46) (4.64) (1.25) ------ ------ ------ ------ ------- ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 (0.03) 0.00 Distributions from net realized gains 0.00 0.00 0.00 0.00 0.00 0.00 ------ ------ ------ ------ ------- ------ TOTAL DISTRIBUTIONS 0.00 0.00 0.00 0.00 (0.03) 0.00 ------ ------ ------ ------ ------- ------ Redemption fees added to paid in capital 0.01 0.02 0.01 0.00++ 0.00++ 0.01 ------ ------ ------ ------ ------- ------ NET ASSET VALUE, END OF YEAR $ 9.16 $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 ====== ====== ====== ====== ======= ====== TOTAL RETURN ^ 20.8% 17.0% 78.5% (11.2%) (53.1%) (12.4%)+ ====== ====== ====== ====== ======= ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $145.7 $133.9 $109.3 $ 57.5 $ 73.7 $188.2 Ratio of total expenses to average net assets 1.52% 1.56% 1.67% 1.65% 1.55% 1.53%** Less: Expense reimbursement by investment adviser (0.02%) (0.06%) (0.17%) (0.15%) (0.05%) (0.03%)** ------ ------ ------ ------ ------- ------ Ratio of net expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%** ====== ====== ====== ====== ======= ====== Ratio of net investment income (loss) to average net assets (1.01%) (1.25%) (1.18%) (1.20%) (0.75%) 0.46%** Portfolio turnover rate 83.64% 86.35% 89.72% 96.41% 123.30% 31.47%+
- --------------- * For the period February 29, 2000 (Commencement of Operations) to September 30, 2000. ** Annualized. + Not Annualized ++ Less than $0.01 per share. ^ The total returns would have been lower had certain expenses not been reduced during the periods shown. 32 BARON FUNDS - -------------------------------------------------------------------------------- (10) Financial Highlights (continued) BARON FIFTH AVENUE GROWTH FUND Selected data for a share of beneficial interest outstanding throughout the year:
FOR THE PERIOD FOR THE YEAR APRIL 30, 2004 ENDED (COMMENCEMENT OF OPERATIONS) 2005 TO SEPTEMBER 30, 2004 ------------ ---------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 9.89 $10.00 ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.05) (0.02) Net realized and unrealized gains (losses) on investments 1.72 (0.09) ------ ------ TOTAL FROM INVESTMENT OPERATIONS 1.67 (0.11) ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 Distributions from net realized gains 0.00 0.00 ------ ------ TOTAL DISTRIBUTIONS 0.00 0.00 ------ ------ NET ASSET VALUE, END OF YEAR $11.56 $ 9.89 ====== ====== TOTAL RETURN ^ 16.9% (1.1%)+ ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $ 96.5 $ 49.3 Ratio of total expenses to average net assets 1.49% 1.67%** Less: Expense reimbursement by investment adviser (0.09%) (0.27%)** ------ ------ Ratio of net expenses to average net assets 1.40% 1.40%** ====== ====== Ratio of net investment loss to average net assets (0.58%) (0.79%)** Portfolio turnover rate 46.71% 7.58%+
- --------------- ** Annualized. + Not Annualized ^ The total returns would have been lower had certain expenses not been reduced during the periods shown. 33 BARON FUNDS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------- TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF BARON INVESTMENT FUNDS TRUST - -------------------------------- In our opinion, the accompanying statements of assets and liabilities, including the 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 Investment Funds Trust, comprising, respectively, Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund (collectively the "Funds") at September 30, 2005, and the results of each of their operations, the changes in each of their net assets 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2005, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 23, 2005 34 B A R O N F U N D S(r) > Baron Asset Fund > Baron Growth Fund > Baron Small Cap Fund > Baron iOpportunity Fund > Baron Fifth Avenue Growth Fund As of September 30, 2005 DISCLOSURE REGARDING THE APPROVAL OF THE INVESTMENT ADVISORY CONTRACTS FOR EACH OF THE SERIES BY THE BOARD OF TRUSTEES The Board of Trustees (the "Board") of Baron Investment Funds Trust (the "Trust") met on May 3, 2005 to discuss the selection of BAMCO, Inc. as the adviser ("Adviser") and the approval of the advisory fee for each series of the Trust ( a "Fund" or collectively the "Funds"). The members of the Board who are not affiliated with the Funds' Adviser (the "Independent Trustees") met in separate session to discuss and consider the renewals of the advisory contracts for each Fund. An independent consultant provided reports to the Board and attended the May Board meeting. The Trustees received a substantial amount of information from the Adviser and from the consultant. Based on its evaluation of this and other information, the Board, including a majority of the Independent Trustees, approved the continuation of the advisory agreements for each Fund for an additional one year period. Except that for the Baron Fifth Avenue Growth Fund, approval for an initial term of two years, was given at a meeting of the Board held on May 3, 2004. In considering the advisory agreements and in reaching its determination, the Board reviewed and analyzed various factors that it deemed relevant, including the factors listed below. 1. NATURE, EXTENT AND QUALITY OF SERVICES As part of their consideration of the services provided by the Adviser, the Independent Trustees relied on information received and knowledge gained throughout the year. The Board considered the Adviser's resources and the Board's confidence in the Adviser's senior personnel and portfolio management staff. The Board paid particular attention to the quality of the services provided by the Adviser and the nature of those services, including the extensive devotion to research efforts by the Adviser. The Board also considered the level of performance of other services provided by the Adviser, including selection of broker/dealers for Fund portfolio transactions, relationships with and supervision of third party service providers, including the Funds' custodian and transfer agent, the quality of the shareholder reports, and the ability to monitor adherence to investment guidelines and restrictions. The Board also considered the support services provided to the Board and the legal and accounting services provided to the Funds. The Board concluded that the nature, extent and quality of the services provided by the Adviser to each Fund were appropriate and that each Fund was likely to continue to benefit from those services provided under the contracts with the Adviser. 2. INVESTMENT PERFORMANCE OF THE FUNDS AND THE ADVISER The Board's analysis of the investment performance of the Funds took into account reports prepared by an independent consultant and data supplied by independent data service providers. Performance of the Funds was compared to performance of similar funds managed by other advisers over comparable periods, as well as to the expenses of those other funds. The independent analysis considered total return and risk ratios of the Funds and of similar funds, and a comparison of annualized total return over one, three, five and ten year periods, where applicable, against expense group and performance universe averages. The Board considered the performance of each Fund as measured against its peers and against other Funds managed by the Adviser. After considering all the information, the Board concluded that the Funds and their shareholders were benefitting from the Adviser's investment management of each Fund, although noted that past performance is no guarantee of future results. 3. Costs of Services Provided and Profits to be Realized by the Adviser The Board examined the fees charged by the Adviser as compared to the fees charged by comparable funds, based on information provided by the Adviser and by the independent consultant. The information considered by the Board compared various fees and expenses, as well as total expense ratios, of the Funds against the same fees and expenses of other funds of similar size, character and investment strategies. Although the total expense ratios for the Funds were not the lowest, they were not the highest either. The Board noted that total expense ratios for the Funds had continued to decrease since the inception of the Funds. The Board considered the Adviser's management fees for other mutual fund accounts for which the Adviser serves as a sub-adviser. While the fees for those sub-advised accounts are lower than the fees for the Funds, the Adviser performs only portfolio management services for those accounts, and does not provide the many other services provided by the Adviser to the Funds. The Board discussed and considered those other services, which include accounting, oversight of service providers, legal, regulatory, risk management, and trustee support. The Board also considered the costs of portfolio management, including the types of investments made for the Funds, the personnel and systems necessary to implement investment strategies, and the pre-tax profits realized by the Adviser and its affiliates from their relationship with the Funds. The Board considered benefits that enured to affiliates, including brokerage fees earned by an affiliated broker/dealer. The Board also considered the financial condition of the Adviser and its affiliates. The Board concluded that the management fee, as well as the total expenses paid by each Fund to the Adviser and its affiliates, were reasonable in light of the services provided and the performance of each Fund achieved by the Adviser over various time periods, and that the other expenses of the Funds were also reasonable. 4. ECONOMIES OF SCALE AND BENEFITS TO INVESTORS The Board considered the extent to which each Fund's management fee reflected economies of scale for the benefit of Fund shareholders. The Board considered that the Funds do not have breakpoint fees, except the large cap Baron Fifth Avenue Growth Fund. The Board considered that the small and mid cap investment strategy required more attention by the Adviser than a strategy that involved other types of investing, particularly as the asset size increased in size. The Board considered other components of the services provided by the Adviser with respect to economies of scale achieved as asset sizes increase. The Board concluded that each Fund's management fee structure was reasonable with respect to economies achieved for the benefit of shareholders. 5. BENEFITS TO THE ADVISER AND ITS AFFILIATES The Board considered benefits that accrue to the Adviser and its affiliates from their relationship with the Funds. The Board acknowledged that an affiliated broker/dealer served as one of the brokers used by the Adviser for Fund transactions. The Board considered that the rates paid to the affiliated broker were less than the rates paid to other brokers and considered a best execution analysis performed by an outside independent consultant with respect to the transactions by the affiliate. Based on its reviews of information provided quarterly throughout the year regarding affiliated brokerage, the Board concluded that the use of the affiliated broker to execute portfolio transactions was appropriate and consistent with established procedures adopted by the Board. However, the Adviser reported that the affiliated broker would cease acting as such before the end of the calendar year. After due consideration of the above enumerated factors, and additional factors, the Board, including a majority of the Independent Trustees, concluded that approval of each Funds' investment advisory agreement was in the best interests of the Funds and their shareholders. BARON FUNDS - -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- We are required by the Internal Revenue Code to advise you within 60 days of the Funds' fiscal year end as to the federal tax status of distributions paid by the Funds during such fiscal year. During the fiscal year ended September 30, 2005, Baron Asset Fund, Baron Growth Fund, and Baron Small Cap Fund designated the following redemption distribution as long-term capital gain dividend: BARON ASSET FUND BARON GROWTH FUND BARON SMALL CAP FUND ---------------- ----------------- -------------------- $132,195,893 $7,034,412 $56,665,787 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 five 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 *+ President, Chief 18 years Chairman, CEO, and Director, Baron 767 Fifth Avenue Executive Officer, Capital, Inc. (1982-Present), Baron New York, NY 10153 Chief Investment Capital Management, Inc. (1983-Present), DOB: May 23, 1943 Officer, Trustee and Baron Capital Group, Inc. (1984-Present), Portfolio Manager BAMCO, Inc. (1987-Present); Portfolio Manager, Baron Asset Fund (1987-Present), Baron Growth Fund (1995-Present); President (2004-Present), Chairman (1999- 2004), CIO and Trustee (1987-Present), Baron Investment Funds Trust; President (2004-Present), Chairman (1997-2004), CIO and Trustee (1997-Present), Baron Capital Funds Trust; President (2004-Present), Chairman (2003-2004), CIO and Trustee (2003-Present), Baron Select Funds. Linda S. Martinson*+ Vice President, 18 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); Vice President, Secretary, General Counsel and Trustee, Baron Investment Funds Trust (1987-Present); Vice President, Secretary, General Counsel and Trustee, Baron Capital Funds Trust (1997-Present); Vice President, General Counsel, Secretary and Trustee, Baron Select Funds (2003-Present). INTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE - ------------- ------------------- Ronald Baron *+ None outside the Baron Funds 767 Fifth Avenue Complex. New York, NY 10153 DOB: May 23, 1943 Linda S. Martinson*+ None outside the Baron Funds 767 Fifth Avenue Complex. New York, NY 10153 DOB: February 22, 1955
35 BARON FUNDS - --------------------------------------------------------------------------------
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 - ------------- -------------- --------------------- -------------------------- Morty Schaja*+ Executive Vice 9 years President and Chief Operating Officer, 767 Fifth Avenue President, Chief Baron Capital, Inc. (1999-Present); Senior New York, NY 10153 Operating Officer and Vice President and Chief Operating DOB: October 30, 1954 Trustee 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); Executive Vice President (2004- Present), President (1999-2004), COO (1999-Present) and Trustee (1996-Present), Baron Investment Funds Trust; Executive Vice President (2004-Present), President (1999-2004), COO (1999-Present) and Trustee (1997-Present) Baron Capital Funds Trust; Executive Vice President (2004- Present), President, COO and Trustee (2003-Present), Baron Select Funds. INTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE - ------------- ------------------- Morty Schaja*+ None outside the Baron Funds 767 Fifth Avenue Complex. New York, NY 10153 DOB: October 30, 1954
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 - ------------- -------------- --------------------- -------------------------- Steven B. Dodge^** Trustee 1 year CEO, Windover Development 239 Summer Street (Elected 10/22/04) Corporation (2004-Present) (private Manchester, MA 01944 real estate development company); DOB: July 12, 1945 Founder and Chairman, American Tower Corporation (1998-Present); Founder, Chairman and CEO, American Radio Systems (1988-1998); Founder, Chairman and CEO, American Cablesystems (1978-1988); Chairman of Audit Committee, member of executive and Special Independent Committees, Sotheby's Holdings, Inc. (2000-Present); Chairman of Audit Committee, Nextel Partners, Inc. (2000-Present); Trustee (2004- Present) Baron Investment Funds Trust; Trustee (2004-Present) Baron Capital Funds Trust; and Trustee (2004-Present) Baron Select Funds. DISINTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE - ------------- ------------------- Steven B. Dodge^** Chairman of the Audit Committee, 239 Summer Street Member of Executive and Special Manchester, MA 01944 Independent DOB: July 12, 1945 Committees, Sotheby's Holdings, Inc. (2000- Present); Chairman of Audit Committee, Nextel Partners, Inc. (2000-Present)
36 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 18 years Director (2001-Present), and Senior 244 Atlantic Isles Vice President (2001-2004), Florida Sunny Isles Beach, FL 33160 Savings Bank; Mayor (October 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); Trustee (1987-Present), Baron Investment Funds Trust; Trustee (1997-Present), Baron Capital Funds Trust; Trustee (2003-Present) Baron Select Funds. David I. Fuente^** Trustee 1 year Director (1987-Present), Chairman 701 Tern Point Circle (Elected 10/22/04) (1987-2001) and CEO (1987-2000) Boca Raton, FL 33431 Office Depot; Director, Ryder DOB: September 10, 1945 Systems, Inc. (1998-Present); Director, Dick's Sporting Goods, Inc. (1993-Present); Trustee (2004- Present) Baron Investment Funds Trust; Trustee (2004-Present) Baron Capital Funds Trust; and Trustee (2004-Present) Baron Select Funds. Charles N. Mathewson^** Chairman and Trustee 18 years; Elected as Chairman Emeritus (October 2003- 9295 Prototype Road Chairman 08/04 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); Chairman (2004-Present) Trustee (1987-Present) Baron Investment Funds Trust; Chairman (2004-Present), Trustee (1997- Present) Baron Capital Funds Trust; Chairman (2004-Present) Trustee (2003-Present) Baron Select Funds. DISINTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE - ------------- ------------------- Norman S. Edelcup+^** Director, Florida Savings Bank 244 Atlantic Isles (2001-Present); Director, Valhi, Sunny Isles Beach, FL 33160 Inc. (1975-Present) (diversified DOB: May 8, 1935 company). David I. Fuente^** Director (1987-Present) Office 701 Tern Point Circle Depot; Director, Ryder System, Boca Raton, FL 33431 Inc. (1998-Present); Director, DOB: September 10, 1945 Dick's Sporting Goods, Inc. (1993-Present). Charles N. Mathewson^** None outside the Baron Funds 9295 Prototype Road Complex. Reno, NV 89521 DOB: June 12, 1928
37 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 - ------------- -------------- --------------------- -------------------------- Harold W. Milner^** Trustee 18 years Retired; President and CEO, Kahler 2293 Morningstar Drive Realty Corporation (1985-1997) Park City, UT 84060 (hotel ownership and management); DOB: November 11, 1934 Trustee (1987-Present) Baron Investment Funds Trust; Trustee (1997-Present) Baron Capital Funds Trust; Trustee (2003-Present) Baron Select Funds. Raymond Noveck+++^** Trustee 18 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); Trustee (1987-Present) Baron Investment Funds Trust; Trustee (1997-Present) Baron Capital Funds Trust; Trustee (2003- Present) Baron Select Funds. David A. Silverman, MD^** Trustee 18 years Physician and Faculty, New York 146 Central Park West University School of Medicine New York, NY 10024 (1976-Present)Trustee (1987- DOB: March 14, 1950 Present) Baron Investment Funds Trust; Trustee (1997-Present) Baron Capital Funds Trust; Trustee (2003- Present) Baron Select Funds. DISINTERESTED TRUSTEES NAME, ADDRESS & OTHER TRUSTEE/DIRECTORSHIPS DATE OF BIRTH HELD BY THE TRUSTEE - ------------- ------------------- Harold W. Milner^** None outside the Baron Funds 2293 Morningstar Drive Complex. Park City, UT 84060 DOB: November 11, 1934 Raymond Noveck++^** None outside the Baron Funds 31 Karen Road Complex. Waban, MA 02168 DOB: May 4, 1943 David A. Silverman, MD^** Director, New York Blood Center 146 Central Park West (1999-Present). New York, NY 10024 DOB: March 14, 1950
38 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 9 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 3 years Vice President and Co-Portfolio Manager, 767 Fifth Avenue Co-Portfolio Manager Baron Asset Fund (2003-Present), Analyst, New York, NY 10153 Baron Capital, Inc. (1998-Present). DOB: March 25, 1969 Susan Robbins Vice President 18 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 5 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); Portfolio Manager of Baron Fifth Avenue Growth Fund (2004-Present). Peggy C. Wong Treasurer and Chief 18 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. 39 [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) SEP05 Item 2. Code of Ethics. Filed herewith pursuant to Item 10(a) (1) of Item 2 to Form N-CSR. The Funds will provide a copy of the Code of Ethics to any person without charge, upon written request to info@baronfunds.com or by calling 1-800-992-2766. Item 3. Audit Committee Financial Expert. The Board of Trustees of the Fund has determined that Norman S. Edelcup, and Raymond Noveck, both members of the Audit Committee, possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as "Audit Committee Financial Expert" and has designated both Mr. Edelcup and Raymond Noveck as the Audit Committee's Financial Experts. Both Mr. Noveck and Mr. Edelcup is an "idependent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 4. Principal Accountant Fees and Services. The following table shows the fees paid to PricewaterhouseCoopers, LLP, the registrant's prinicpal accounting firm during the fiscal year October 1, 2004 to September 30, 2005 (a) for profesional services rendered for the audit of the registrant's annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements ("Audit Fees"), (b) for assurance and related services that are reasonably related to the performance of the audit and are not included as Audit Fees ("Audit-Related Fees"), (c) for professional services rendered for tax compliance, tax advice and tax planning ("Tax Fees"), and (d) for products and services provided by such accounting firm that are not included in (a), (b) or (c) above ("All Other Fees"). For the Fiscal Year Ended September 30, 2005: Audit Fees Tax Fees ----------- --------- Baron Asset $42,239 $7,000 Baron Growth Fund 43,376 6,500 Baron Small Cap Fund 36,713 5,400 Baron iOpportunity Fund 19,016 5,400 Baron Fifth Avenue Growth Fund 18,006 5,000 Pursuant to its charter, the Audit Committee shall pre-approve all audit and non-audit services provided by the independent auditors and in connection therewith to review and elvaluate the qualifications, independence and performance of the Fund's independent auditors. 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. Schedule of Investments. Please see Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. NOT APPLICABLE. Item 8. Portfolio Managers of Closed-End Management Investment Companies. NOT APPLICIABLE. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. NOT APPLICABLE. Item 10. Submission of Matters to a Vote of Security Holders. NOT APPLICABLE> Item 11. Controls and Procedures. (a) The Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no significant changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the Registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 12. Exhibits. a). Ex-99.COE Current copy of the Funds Code of Ethics pursuant to Item 2 of the Form N-CSR. b). Ex-99.CERT Certification pursuant to Item 10(b) of the Form N-CSR. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BARON INVESTMENT FUNDS TRUST By: /s/ Ronald Baron ------------------- Ronald Baron President and Chief Executive Officer Date: December 8, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, 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 President and Chief Executive Officer Date: December 8, 2004 By: /s/ Peggy Wong -------------------- Peggy Wong Treasurer and Chief Financial Officer Date: December 8, 2004 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. EX-99.CERT 3 n-csrcertifications0905.txt N-CSR CERTIFICATIONS I, RONALD BARON, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over finanicial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over finanical reporting. Date: December 8, 2005 /s/ Ronald Baron --------------------------------- Ronald Baron President and Chief Executive Officer I, Peggy Wong, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over finanicial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over finanical reporting. Date: December 8, 2005 /s/ Peggy Wong ------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CODE ETH 4 proceduresfinoffcoe.txt CODE OF ETHICS FOR CFO & CEO BARON INVESTMENT FUNDS TRUST BARON CAPITAL FUNDS TRUST BARON SELECT FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS The Board of Trustees of Baron Capital Funds Trust, Baron Investment Funds Trust and Baron Select Funds and all their respective series (each a und and collectively, the "Funds"), have adopted the following Code of Ethics (the ode applicable to the Funds principal executive and senior financial officers ( overed Officers . The Funds Covered Officers include the President and Chief Executive Officer, Treasurer and Chief Financial Officer, and any person who performs similar functions, each of whom are listed on Schedule A hereto. I. INTRODUCTION The Sarbanes-Oxley Act of 2002 (the ct effected sweeping corporate disclosure and financial reporting reform on public companies, including mutual funds. The purpose of the Act is to address corporate malfeasance and assure investors that the companies in which they invest are accurately disclosing financial information. Under the Act, all public companies (including the Funds) must either have a code of ethics for their Covered Officers, or disclose why it does not. The Funds have chosen to adopt this Code to encourage the Covered Officers to act in a manner consistent with the principals of ethical conduct. II. SEPARATE CODE BAMCO, Inc., the Funds investment adviser (the dviser , has previously adopted a Compliance Manual (the ompliance Manual that sets forth certain fundamental principles and key policies and procedures that govern the conduct of all of the Adviser employees, including the Covered Officers. In addition, the Funds and the Adviser have previously adopted a code of ethics, in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the dvisers Act and Rule 17j-1 under the Investment Company Act of 1940 (the 940 Act , that governs the conduct of all of the Adviser employees, including the Covered Officers. The code of ethics under Rule 204A-1 and Rule 17j-1 and the Compliance Manual are superceded by this Code to the extent that such principles, policies and procedures conflict with the provisions of this Code. The code of ethics under Rule 204A-1 and Rule 17j-1 and the Compliance Manual are separate requirements applying to the Covered Officers and others, and are not part of this Code. In addition, the 1940 Act and the Advisers Act and rules promulgated thereunder contain many specific provisions designed to protect the Funds from conflicts of interest and overreaching. Any conduct by Covered Officers required by specific 1940 Act or Advisers Act provisions or the rules thereunder is presumed to be in compliance with this Code. III. PURPOSES OF THE CODE The purposes of this Code are: 1. To promote honest and ethical conduct by the Funds Covered Officers, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. To assist the Covered Officers in recognizing and avoiding conflicts of interest, including disclosing to an appropriate person any material transaction or relationship that reasonably could be expected to give rise to such conflict; 3. To promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission (the EC and in other public communications made by the Funds; 4. To promote compliance with applicable governmental laws, rules and regulations; 5. To encourage prompt internal reporting to an appropriate person of suspected material violations of this Code, including violations of securities laws or other laws, rules, and regulations applicable to the Funds; and 6. To establish accountability for adherence to this Code. IV. Questions About this Code The General Counsel of the Adviser shall oversee the implementation and administration of this Code. Any questions about this Code should be directed to the General Counsel. V. Conduct Guidelines The Funds have adopted the following guidelines under which the Funds Covered Officers must perform their official duties and conduct the business affairs of the Funds. 1. Ethical and honest conduct is an overarching principle of this Code. ---------------------------------------------------------------------- The Funds Covered Officers must act with honesty and integrity and avoid violations of this Code, including the avoidance of actual or apparent conflicts of interest with the Funds in personal and professional relationships. The personal interests of a Covered Officers should not be placed improperly before the interests of the Funds. The Covered Officers should not use their personal influence or personal relationships to influence investment decisions or financial reporting by a Fund whereby the Covered Officers would benefit personally (directly or indirectly) to the detriment of a Fund. 2. Covered Officers must disclose material transactions or relationships. --------------------------------------------------------------------- The Funds Covered Officers must disclose to the General Counsel any actual or apparent conflicts of interest the Covered Officers may have with the Funds that reasonably could be expected to give rise to any violation of this Code. Such conflicts of interest may arise as a result of material transactions or business or personal relationships to which the Covered Officers may be a party. If a Covered Officer is unsure whether a particular transaction gives rise to a conflict of interest, or whether a particular transaction or relationship is aterial, he or she should bring the matter to the attention of the General Counsel. 3. Disclosure requirements applicable to the Funds. ----------------------------------------------- Each Covered Officer is required to be familiar with the disclosure requirements applicable to the Funds and must not knowingly misrepresent or fail to disclose, or cause others to misrepresent or fail to disclose, material facts about the Funds to others, including but not limited to officers and counsel to the Adviser, its affiliates, and the Funds and their service providers, independent trustees, independent auditors and governmental regulators. The Funds Covered Officers must seek to provide information that is accurate, complete, objective, relevant, timely and understandable. The Funds Covered Officers must at all times endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Funds periodic reports. 4. Maintain confidentiality of information. --------------------------------------- Each Covered Officer must act with integrity and must respect and protect the information acquired during the course of his or her duties except when authorized by a Fund to disclose it, or where disclosure is mandated by law, regulation or rule. Each Covered Officer must maintain the confidentiality of non-public information where required by law or the Adviser policies. The Covered Officers may not disclose or use material non-public knowledge pertaining to a Fund for personal advantage. 5. Compliance with laws. -------------------- The Funds Covered Officers must comply with the federal securities laws and other laws and rules applicable to the Funds, such as the Internal Revenue Code. 6. Standard of Care. ---------------- The Funds Covered Officers must at all times act in good faith and with due care, competence, and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated. The Funds Covered Officers must conduct the affairs of the Fund in a responsible manner, consistent with this Code. 7. Standards for recordkeeping. --------------------------- The Funds Covered Officers must at all times endeavor to ensure that the Funds financial books and records are thoroughly and accurately maintained to the best of their knowledge in a manner consistent with applicable laws and this Code. VI. Affirmation of the Code Upon adoption of the Code, each Covered Officer is required: (i) upon receipt of the Code, to sign and submit to the General Counsel an acknowledgment stating that he or she has received, read and understands the Code; (ii) annually thereafter to submit a statement to the General Counsel confirming that he or she has received, read and understands the Code and has complied with the requirements of the Code; (iii) to not retaliate against any employee subordinate to the Covered Officer for reports of potential violations that are made in good faith; and (iv) to notify the General Counsel of the Adviser, as appropriate, if the Covered Officer observes any irregularities or violations of this Code. VII. Amendments and Waivers Except with respect to Schedule A hereto, which may be updated at any time, this Code may be amended only by the Board of Trustees of the Funds at a meeting of the Board of Trustees duly called for that purpose. Any Covered Officer may request a waiver of a provision of this Code by submitting his/her request in writing to the General Counsel for appropriate review. The General Counsel, in consultation with the Trustees who are not nterested persons of the Fund, as defined in the 1940 Act, will decide whether to grant a waiver. All waivers of the Code must be disclosed as required by the SEC rules. N ovem ber 14, 2005 SCHEDULE A Covered Officers ---------------- Name Title - ---- ----- Ronald Baron President and Chief Executive Officer Peggy Wong Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----