-----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, HlEdnlj89sPVI8dUmvRE51jQx6zOlrmwkWoNflqjEwsd0TFEDbOB6dXnMX142ulI ptUc8xWeVD29dK6s8+Gn6g== 0001017918-07-000098.txt : 20070510 0001017918-07-000098.hdr.sgml : 20070510 20070510162754 ACCESSION NUMBER: 0001017918-07-000098 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20070510 DATE AS OF CHANGE: 20070510 EFFECTIVENESS DATE: 20070510 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/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-05032 FILM NUMBER: 07838210 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 0000810902 S000000582 BARON ASSET FUND C000001635 BARON ASSET FUND BARAX 0000810902 S000000583 BARON GROWTH FUND C000001636 BARON GROWTH FUND BGRFX 0000810902 S000000584 BARON SMALL CAP FUND C000001637 BARON SMALL CAP FUND BSCFX 0000810902 S000000585 BARON iOPPORTUNITY FUND C000001638 BARON iOPPORTUNITY FUND BIOPX 0000810902 S000000586 BARON FIFTH AVENUE GROWTH FUND C000001639 BARON FIFTH AVENUE GROWTH FUND BFTHX N-CSR/A 1 annualreport0904.txt AMENDMENT TO FORM N-CSR OF BARON INVESTMENT FUNDS TRUST UNITED STATES OMB APPROVAL SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235 -0570 Washington, D.C. 20549 Expires: October 31, 2006 Estimated average burden hours per response... FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-8032 BARON 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, 2004 -------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17CRF 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 5th Street, NW, Washington, D.C. 20549-6009. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 2569 (3-03) Item 1. Baron Asset Fund Semi-Annual Report for the period ended September 30, 2004.
[registered castle logo] B A R O N ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2004 F U N D S (r) DEAR BARON FUNDS SHAREHOLDER: BARON FUNDS Attached you will find audited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth MANAGEMENT DISCUSSION OF Avenue Growth Fund for their fiscal years ended September 30, 2004. The FUND PERFORMANCE: Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. BARON ASSET FUND............... 2 We thank you for choosing to join us as fellow shareholders in Baron Funds. We BARON GROWTH FUND.............. 4 will continue to work hard to justify your confidence. BARON SMALL CAP FUND........... 6 Sincerely, BARON iOPPORTUNITY FUND........ 8 /s/Ronald Baron ----------------- BARON FIFTH AVENUE Ronald Baron GROWTH FUND.................. 10 Chairman and CEO BAMCO, Inc. FUND EXPENSES.................... 12 November 15, 2004 STATEMENT OF NET ASSETS.......... 14 /s/Peggy Wong ----------------- STATEMENTS OF ASSETS Peggy Wong AND LIABILITIES................ 22 Treasurer and CFO BAMCO, Inc. STATEMENTS OF November 15, 2004 OPERATIONS..................... 23 A description of the Funds' proxy voting policies and procedures is available STATEMENTS OF CHANGES without charge on the Funds' website, www.BaronFunds.com, or by calling IN NET ASSETS.................. 24 ------------------ 1-800-99-BARON and on the SEC's website at www.sec.gov. ----------- NOTES TO FINANCIAL The Funds file their complete schedule of portfolio holdings with the SEC for STATEMENTS..................... 25 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 REPORT OF INDEPENDENT also be reviewed and copied at the SEC's Public Reference Room in Washington, REGISTERED PUBLIC ACCOUNTING DC; information on the operation of the SEC's Public Reference Room may be FIRM........................... 33 obtained by calling 800-SEC-0330. ---------------- MANAGEMENT OF THE FUNDS 34 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 NY, NY 10153 principal value of an investment will fluctuate; an investor's shares, when 212.583.2100 redeemed, may be worth 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* [Graph Omitted] Year Baron Asset Fund** Russell 2000* Russell 2500* - -------------------------------------------------------------------------------- 6/12/87 $10,000 $10,000 $10,000 1987 11,950 10,530 10,655 1988 13,234 9,400 9,692 1989 18,521 11,421 12,039 1990 12,838 8,322 9,114 1991 17,760 12,077 13,394 1992 19,484 13,155 14,770 1993 26,595 17,521 19,218 1994 28,728 17,980 19,766 1995 38,003 22,187 24,812 1996 46,098 25,101 28,740 1997 61,656 33,432 38,600 1998 51,946 27,074 32,264 1999 67,092 32,237 39,292 2000 82,418 39,778 50,893 2001 56,741 31,342 41,339 2002 53,301 28,429 38,257 2003 64,210 38,802 51,873 2004 76,779 46,086 61,478 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED SEPTEMBER 30, 2004 Since Inception One Year Five Years Ten Years 06/12/87 - ----------------------------------------------------------------------- Baron Asset Fund ** 19.58% 2.73% 10.33% 12.50% Russell 2000* 18.77% 7.41% 9.87% 9.23% Russell 2500* 18.52% 9.37% 12.02% 11.07% - --------------------- * 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, 2004 - ------------------------------------------------------------------------------- % of Net Assets - ------------------------------------------------------------------------------- ChoicePoint, Inc. 9.8% Wynn Resorts, Ltd. 6.6% Apollo Group, Inc., Cl A 5.3% Kerzner Intl., Ltd. 5.3% Charles Schwab Corp. 4.3% XTO Energy, Inc. 3.9% Alexander's, Inc. 3.1% Vail Resorts, Inc. 2.7% Anthem, Inc. 2.6% Chicago Mercantile Exchange Holdings, Inc. 2.6% - ------------------------------------------------------------------------------- 46.2% - ------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2004 (AS A PERCENTAGE OF NET ASSETS) [Pie Chart Omitted] Recreation and Resorts 14.6% Business and Services 12.8% Education 7.8% Financial Services-Brokerage and Exchanges 6.9% Energy Services 5.7% Retail-Specialty Stores 5.2% Financial Services-Insurance 3.7% Hotels and Lodging 3.6% Real Estate Services 3.5% Healthcare Products 3.3% Other 31.5% Cash and cash equivalents 1.4% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Asset Fund performed well in the fiscal year ended September 30, 2004, gaining 19.58%, which was slightly 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 18.77% and the Russell 2500 gained 18.52% in the year ended September 30, 2004. According to Morningstar*, the composite average for its small cap growth category (consisting of 719 funds as of September 30, 2004) gained 11.36%, and its mid-cap growth category (consisting of 810 funds as of September 30, 2004) gained 11.06% in the year ending September 30, 2004. Baron Asset Fund continued to significantly outperform its peer group for the three years ending September 30, 2004. The Fund gained 10.61% per year, compared to gains of 7.59% and 5.42% per year, respectively for the Morningstar composites for the small cap growth (consisting of 652 funds) and mid-cap growth (consisting of 747 funds) categories for that time period. BARON ASSET FUND INVESTS IN SMALL AND MEDIUM SIZED GROWTH COMPANIES FOR THE LONG-TERM. After a three-year bear market, stock prices of small and mid-cap growth companies appreciated sharply in the 2004 fiscal year following a strong 2003. Baron Asset Fund invests in growth businesses while utilizing value oriented purchase and sell disciplines. The Fund seeks to invest in companies that it believes have significant long-term growth prospects at, what we believe, are reasonable prices. In fiscal 2004 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 time legacy holdings. We believe the Fund is invested in businesses that have the potential to 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 half of the fiscal year, (+17.85%), but weak in the second half of the fiscal year, (+1.46%). The performance of the market indices was similarly strong in the first half of the fiscal year and weaker in the second half. Baron Asset Fund's performance was not uniform across industry sectors. The Fund's best performing sector was Recreation & Resorts. The Fund performed well with its Business Services, Education, Energy, Hotels & Lodging and Real Estate holdings. The Fund was negatively impacted by its holdings in Restaurants and Retail-Specialty Stores. In fiscal year 2005, the Fund will continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and ability to sustain superior levels of profitability. The companies will continue to be identified through our independent research efforts. Companies in which we invest will have, what we believe, is the potential to increase in price at least 100% over the next four years. The Fund will remain diversified not only by industry and investment theme, but also by external factors we have identified that could affect company performance. This approach to investing in companies, not trading of stocks, we believe, will allow the Fund to produce above average rates of return while keeping an attractive risk profile. - ------------- * The Morningstar composites are not weighted and represent the straight average total 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* [Graph Omitted] Year Baron Growth Fund** Russell 2000* - -------------------------------------------------------------------------------- 12/31/94 $10,000 $10,000 1995 14,770 12,573 1996 18,575 14,224 1997 25,469 18,945 1998 20,855 15,341 1999 29,868 18,267 2000 35,431 22,541 2001 33,286 17,760 2002 34,956 16,108 2003 42,333 21,988 2004 50,463 26,115 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2004 Since Inception One Year Five Years 12/31/94 - --------------------------------------------------------------------- Baron Growth Fund ** 19.20% 11.06% 18.06% Russell 2000* 18.77% 7.41% 10.35% - --------------- * 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, 2004 - ------------------------------------------------------------------------------- % of Net Assets - ------------------------------------------------------------------------------- Wynn Resorts, Ltd. 5.9% AMERIGROUP Corp. 3.4% Chicago Mercantile Exchange Holdings, Inc. 3.1% Station Casinos, Inc. 2.8% Four Seasons Hotels, Inc. 2.6% Kerzner Intl., Ltd. 2.5% Encore Acquisition Co. 2.4% Charles River Laboratories Intl., Inc. 2.3% Strayer Education, Inc. 2.3% First Marblehead Corp. 2.2% - ------------------------------------------------------------------------------- 29.5% - ------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2004 (AS A PERCENTAGE OF NET ASSETS) [Pie Chart Omitted] Recreation and Resorts 13.5% Retail-Specialty Stores 6.0% Education 5.9% Energy Services 5.7% Healthcare Services-Insurance 5.6% Restaurants 5.4% Financial Services-Brokerage and Exchanges 4.8% Healthcare Facilities 4.8% Hotels and Lodging 4.0% Healthcare Services 3.9% Other 34.1% Cash and cash equivalents 6.3% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Growth Fund performed well in the fiscal year ended September 30, 2004, gaining 19.20%, which was slightly better than the performance of the Russell 2000, (+18.77%), and significantly better than its small cap growth peers. According to Morningstar*, the composite average for its small cap growth category (consisting of 719 funds as of September 30, 2004) gained 11.36% in the year ending September 30, 2004. 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, while small cap growth stocks lagged small cap value stocks. 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 it believes, are great businesses that can be purchased opportunistically at attractive prices. The Fund's performance was not uniform across the year. Baron Growth Fund's performance was strong in the first half of the fiscal year, (+16.45%), but weak in the second half of the fiscal year, (+2.37%). The performance of the market indices was similarly strong in the first half of the fiscal year and weaker in the second half. Baron Growth Fund's performance was not uniform across industry sectors. The Fund's best performing sector was Recreation & Resorts. The Fund performed well with its Communications, Education, Energy, Financial Services, Heath Services/Insurance and Hotels & Lodging holdings. The Fund was negatively impacted by its holdings in Restaurants and Retail-Specialty Stores. In fiscal 2005 the Fund will continue to be invested in small companies that we believe 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 total 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* [Graph Omitted] Year Baron Small Cap Fund** Russell 2000* - ------------------------------------------------------------------------------- 09/30/97 $10,000 $10,000 1998 8,610 8,098 1999 13,370 9,643 2000 16,050 11,898 2001 13,027 9,375 2002 14,095 8,503 2003 18,210 11,606 2004 20,236 13,785 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2004 Since Inception One Year Five Years 09/30/97 - ---------------------------------------------------------------------- Baron Small Cap Fund ** 11.12% 8.64% 10.59% Russell 2000* 18.77% 7.41% 4.69% - ----------------- * 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, 2004 - ------------------------------------------------------------------------------- % of Net Assets - ------------------------------------------------------------------------------- Eagle Materials, Inc., Cl B 3.1% American Tower Corp. 2.9% Career Education Corp. 2.8% Immucor, Inc. 2.8% Anteon Intl. Corp. 2.5% Wynn Resorts, Ltd. 2.5% Gaylord Entertainment 2.4% Strayer Education, Inc. 2.4% United Surgical Partners Intl., Inc. 2.4% Alamosa Hldgs., Inc. 2.4% - ------------------------------------------------------------------------------- 26.2% - ------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2004 (AS A PERCENTAGE OF NET ASSETS) [Pie Chart Omitted] Education 10.1% Retail-Specialty Stores 8.4% Communications 8.3% Media 6.4% Recreation and Resorts 6.3% Government Services 5.9% Restaurants 5.1% Business Services 5.0% Medical Equipment 4.6% Printing and Publishing 3.8% Other 27.7% Cash and cash equivalents 8.4% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Small Cap Fund's performance in the fiscal year ended September 30, 2004 was satisfactory on an absolute basis, (+11.12%). The Fund lagged the Russell 2000, (+18.77%), and performed similarly to the Morningstar composite average for its small cap growth category (+11.36%) for that period which consists of 719 funds. According to Morningstar*, the Fund has significantly outperformed its small cap growth peers in the three year period ending September 30, (+15.81%) per year versus (+7.59%) per year (with 652 funds in the category), and in the five year period ending September 30, (+8.64%) per year versus (+3.08%) per year (with 520 funds in the category). BARON SMALL CAP FUND INVESTS IN SMALL CAP GROWTH COMPANIES. Small cap growth stocks continued to perform well in the 2004 fiscal year following a strong 2003 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 followed the same pattern as the small cap market averages. Baron Small Cap Fund's performance wasstrong in the first half of the fiscal year, (+15.30%), but weak in the second half of the fiscal year, (-3.62%). The performance of Baron Small Cap Fund was not uniform across sectors. The Fund experienced strong performance in Communications, Government Services, Medical Equipment and Recreation & Resorts. The Fund performed well with its investments in Business Services, Consulting, Health Care Facilities and Home Building. The Fund did not perform well with its investments in Consumer Products, Education and Transportation holdings. In fiscal year 2005, the Fund will 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 will continue to invest in smaller "Growth Companies" that we believe have significant long-term growth prospects and can be purchased at attractive prices because their prospects, in our view, 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 a buying opportunity; and "Special Situations," including spin-offs and recapitalizations, where, in our view, lack of investor awareness creates opportunities to purchase strong businesses at attractive prices. - ----------------- * The Morningstar composites are not weighted and represent the straight average total 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*, NASDAQ COMPOSITE* & MORGAN STANLEY INTERNET INDEX* [Graph Omitted] Year Baron iOpportunity Fund** S&P 500* NASDAQ* Morgan Stanley Index - -------------------------------------------------------------------------------- 2/29/00 $10,000 $10,000 $10,000 $10,000 2000 8,760 10,582 7,820 5,798 2001 4,105 7,760 3,191 769 2002 3,643 6,173 2,496 503 2003 6,503 7,673 3,805 1,050 2004 7,607 8,737 4,039 1,072 Information Presented by Fiscal Year as of September 30 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2004 Since Inception One Year 02/29/00 - ---------------------------------------------------------- Baron iOpportunity Fund ** 16.98% -5.79% NASDAQ Composite* 6.15% -17.95% S&P 500* 13.87% -2.90% Morgan Stanley Internet Index* 2.10% -38.56% - ----------------- The Adviser believes that the Morgan Stanley Internet Index is no longer an appropriate comparison index for the Fund. The scope of the MOX had narrowed to approximately 20 companies primarily creating pure Internet technology, while the Fund's scope includes companies utilizing technology and the Internet. Going forward, the Adviser will use the S&P 500, which it feels is more representative of the securities in the Fund's portfolio. * The NASDAQ Composite, the Morgan Stanley Internet Index and the S&P 500 are unmanaged indexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ; the Morgan Stanley Internet Index of actively traded, high market cap Internet stocks drawn from nine Internet subsectors; 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 Morgan Stanley Internet Index, the S&P 500 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund, the Morgan Stanley Internet Index 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, 2004 - ------------------------------------------------------------------------------- % of Net Assets - ------------------------------------------------------------------------------- eBay, Inc. 3.8% Monster Worldwide, Inc. 3.7% Yahoo! Inc. 3.5% Flextronics Intl., Ltd. 3.5% E*TRADE Group, Inc. 3.4% Getty Images, Inc. 3.3% Provide Commerce, Inc. 3.2% Dell, Inc. 3.1% Qualcomm, Inc. 2.9% American Tower Corp. 2.9% - ------------------------------------------------------------------------------- 33.3% - ------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2004 (AS A PERCENTAGE OF NET ASSETS) [Pie Chart Omitted] Business Services 15.6% Communications 9.3% Media 9.3% Enterprise Hardware 7.5% Advertising Services 6.2% Financial Services-Brokerage & Exchanges 6.1% Consumer Services 5.4% Education 5.2% Retail-Specialty Stores 4.6% Cable 4.1% Other 20.8% Cash and cash equivalents 5.9% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron iOpportunity Fund's performance was strong, +16.98%, on an absolute basis in the fiscal year ending September 30, 2004. The Fund's relative performance was also strong during this period. The S&P 500 gained 13.87% and the Nasdaq Composite gained 6.15% for year ended September 30, 2004. The Morningstar*, composite average for its mid-cap growth category (consisting of 810 funds as of September 30, 2004), to which Morningstar compares the Fund, gained 11.06% in the year ending September 30, 2004. The market continued to recover from the three-year bear market after a strong 2003. 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, 2004. 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 half of the fiscal year, (+24.07%); but weak in the second half of the year, (-5.72%). While the Fund performed similarly to the market in the first fiscal quarter, it dramatically outperformed the market in the second quarter, and performed weakly as did the market in the second half 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 the Communications, Media and Business Services. The Fund was positively impacted by its investments in Advertising, Real Estate and Retail-Specialty Stores. The Fund was negatively impacted by its holdings in Consumer Products, Enterprise Hardware, Specialized Financial Services and Hotels & Lodging. In fiscal 2005 the Fund plans to continue to invest in both new Internet-related businesses, as well as established companies, that we believe, have significant and scalable information technology growth opportunities. - -------------- * The Morningstar composites are not weighted and represent the straight average total annualized returns of each of the funds in the categories. 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* [Graphic Omitted] Year Baron Fifth Avenue Growth Fund S&P 500 - -------------------------------------------------------------------------------- 04/30/04 $10,000 $10,000 09/2004 9,890 10,131 Information Presented by Fiscal Year as of September 30 TOTAL RETURNS (NOT ANNUALIZED) FOR THE PERIODS ENDED SEPTEMBER 30, 2004 Since Inception 04/30/2004 - -------------------------------------------------- Baron Fifth Avenue Growth Fund** -1.10% S&P 500* 1.31% - --------------- * 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, 2004 - ------------------------------------------------------------------------------- % of Net Assets - ------------------------------------------------------------------------------- Countrywide Financial Corp. 2.4% XTO Energy, Inc. 2.3% International Game Technology 2.3% Flextronics Intl., Ltd. 2.2% Yahoo! Inc. 2.1% Kinder Morgan, Inc. 2.1% Carnival Corp. 2.1% Qualcomm, Inc. 2.1% Accenture, Ltd. 2.1% MGM Mirage, Inc. 2.0% - ------------------------------------------------------------------------------- 21.7% - ------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2004 (AS A PERCENTAGE OF NET ASSETS) [Pie Chart Omitted] Retail-Specialty Stores 9.1% Media 8.8% Retail-Consumer Staples 7.2% Business Services 5.6% Energy & Energy Services 4.4% Enterprise Hardware 4.3% Financial Services-Insurance 4.2% Recreation and Resorts 4.1% Pharmaceutical 3.9% Healthcare Services-Insurance 3.6% Other 36.3% Cash and cash equivalents 8.5% MANAGEMENT DISCUSSION OF FUND PERFORMANCE Baron Fifth Avenue Growth Fund was launched on April 30, 2004. In its initial stub quarter it gained 0.10% and lagged the S&P 500 Index which gained 3.33% in the two months ending June 30, 2004. In the fiscal fourth quarter the Fund lost 1.20% while the S&P 500 Index lost 1.96%. Baron Fifth Avenue Growth Fund's performance was not uniform across industry sectors. The Fund has performed well with its investments in Advertising, Communication Equipment, Energy, Financial Services/Miscellaneous, Recreation & Resorts and Real Estate holdings. The Fund was negatively impacted by its investments in Education, Enterprise Hardware and Pharmaceutical investments. 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 the stocks of these businesses 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 less than six months old we are pleased with its launch. The Fund is fully invested and has been performing well in recent months. We are cautiously optimistic that fiscal 2005 will prove to be a good year for Baron Fifth Avenue Growth Fund. 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, 2004 and held for the six months ended September 30, 2004. 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 ANNUALIZED PAID ACTUAL TOTAL BEGINNING ENDING ACCOUNT EXPENSES DURING THE RETURN ACCOUNT VALUE VALUE RATIOS PERIOD # ------------ ------------- -------------- ---------- ---------- BARON ASSET FUND 1.46% $1,000 $1,015 1.33% $6.70 BARON GROWTH FUND 2.37% 1,000 1,024 1.34% 6.78 BARON SMALL CAP FUND -3.62% 1,000 964 1.34% 6.58 BARON iOPPORTUNITY FUND -5.72% 1,000 943 1.50% 7.29 BARON FIFTH AVENUE GROWTH FUND+ -1.10% 1,000 989 1.40% 5.82
- --------------- * For the six months ended September 30, 2004. 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 366. + For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. 12 BARON FUNDS - -------------------------------------------------------------------------------- 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 EXPENSES DURING THE TOTAL RETURN APRIL 1, 2004 SEPTEMBER 30, 2004 RATIOS PERIOD # ------------ ------------- ------------------ ---------- ---------- BARON ASSET FUND 5.00% $1,000 $1,018 1.33% $6.71 BARON GROWTH FUND 5.00% 1,000 1,018 1.34% 6.76 BARON SMALL CAP FUND 5.00% 1,000 1,018 1.34% 6.76 BARON iOPPORTUNITY FUND 5.00% 1,000 1,018 1.50% 7.57 BARON FIFTH AVENUE GROWTH FUND+ 5.00% 1,000 1,015 1.40% 5.90
- --------------- * For the six months ended September 30, 2004. # 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 366. + For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. 13 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - ------------------------------------------------------------------------------------------- COMMON STOCKS (97.92%) - ------------------------------------------------------------------------------------------- BUSINESS SERVICES (12.84%) 350,000 Brown & Brown, Inc. $ 13,121,847 $ 15,995,000 4,600,000 ChoicePoint, Inc.*# 53,405,887 196,190,000 450,000 Iron Mountain, Inc.* 11,049,990 15,232,500 1,150,000 Robert Half Intl., Inc.* 1,202,006 29,635,500 -------------- -------------- 78,779,730 257,053,000 CONSULTING (1.83%) 1,000,000 Hewitt Associates, Inc.* 24,669,272 26,460,000 140,000 Moody's Corp. 7,256,123 10,255,000 -------------- -------------- 31,925,395 36,715,000 CONSUMER SERVICES (1.43%) 225,000 H&R Block, Inc. 9,513,606 11,119,500 450,000 Weight Watchers Intl., Inc.* 12,953,988 17,469,000 -------------- -------------- 22,467,594 28,588,500 EDUCATION (7.81%) 1,450,000 Apollo Group, Inc., Cl A* 14,614,607 106,386,500 1,000,000 DeVry, Inc.* 2,392,707 20,710,000 1,100,000 Education Mgmt. Corp.* 6,886,519 29,304,000 -------------- -------------- 23,893,833 156,400,500 ENERGY SERVICES (5.69%) 325,000 Premcor, Inc.* 11,157,824 12,512,500 500,000 Seacor Holdings, Inc.* 14,322,278 23,375,000 2,400,000 XTO Energy, Inc. 27,970,775 77,952,000 -------------- -------------- 53,450,877 113,839,500 FINANCIAL SERVICES - ASSET MANAGEMENT (1.06%) 275,000 Eaton Vance Corp. 10,246,348 11,107,250 200,000 T. Rowe Price Group, Inc. 9,739,136 10,188,000 -------------- -------------- 19,985,484 21,295,250 FINANCIAL SERVICES - BANKING (2.21%) 800,000 Commerce Bancorp, Inc. 44,069,440 44,160,000 FINANCIAL SERVICES - BROKERAGE AND EXCHANGES (6.89%) 9,400,000 Charles Schwab Corp. 23,571,677 86,386,000 320,000 Chicago Mercantile Exchange Holdings, Inc. 23,540,404 51,616,000 -------------- -------------- 47,112,081 138,002,000 FINANCIAL SERVICES - INSURANCE (3.70%) 1,000,000 Arch Capital Group, Ltd.* 33,841,383 38,940,000 1,350,000 Axis Capital Holdings, Ltd. 34,853,219 35,100,000 -------------- -------------- 68,694,602 74,040,000 FINANCIAL SERVICES - MISCELLANEOUS (1.51%) 300,000 First Marblehead Corp.* 11,680,677 13,920,000 115,000 The Student Loan Corp. 16,218,589 16,301,250 -------------- -------------- 27,899,266 30,221,250 GAMING SERVICES (0.27%) 150,000 International Game Technology 3,316,841 5,392,500 HEALTHCARE FACILITIES (3.20%) 800,000 Community Health Systems, Inc.* 20,710,259 21,344,000 1,425,000 Manor Care, Inc. 30,442,203 42,693,000 -------------- -------------- 51,152,462 64,037,000 HEALTHCARE PRODUCTS (3.28%) 530,000 DENTSPLY International, Inc. 22,808,877 27,528,200 360,000 Henry Schein, Inc.* 20,425,894 22,431,600 200,000 Zimmer Holdings, Inc.* 6,087,903 15,808,000 -------------- -------------- 49,322,674 65,767,800
Shares Cost Value - ------------------------------------------------------------------------------------------- HEALTHCARE SERVICES (2.66%) 400,000 Caremark Rx, Inc.* $ 8,628,525 $ 12,828,000 500,000 Charles River Laboratories Intl., Inc.* 14,951,698 22,900,000 300,000 Fisher Scientific Intl., Inc* 17,341,334 17,499,000 -------------- -------------- 40,921,557 53,227,000 HEALTHCARE SERVICES - INSURANCE (2.61%) 600,000 Anthem, Inc.* 33,488,049 52,350,000 HOME BUILDING (3.15%) 64,000 NVR, Inc.* 22,534,495 35,264,000 600,000 Toll Brothers, Inc.* 24,270,884 27,798,000 -------------- -------------- 46,805,379 63,062,000 HOTELS AND LODGING (3.58%) 800,000 Choice Hotels Intl., Inc. 8,329,220 46,072,000 400,000 Four Seasons Hotels, Inc. 10,216,158 25,640,000 -------------- -------------- 18,545,378 71,712,000 INFORMATION SERVICES (0.43%) 240,000 NAVTEQ Corp.* 7,183,821 8,553,600 MEDIA (2.78%) 480,000 Cox Radio, Inc., Cl A* 2,930,292 7,161,600 260,000 Radio One, Inc., Cl A* 2,068,065 3,715,400 500,000 Radio One, Inc., Cl D* 3,360,585 7,115,000 1,000,000 Saga Comm., Inc., Cl A*# 4,282,731 16,950,000 360,000 Univision Comm., Inc., Cl A* 2,737,466 11,379,600 300,000 XM Satellite Radio Holdings, Inc., Cl A* 6,673,739 9,306,000 -------------- -------------- 22,052,878 55,627,600 REAL ESTATE SERVICES (3.37%) 314,000 Alexander's, Inc.*# 20,453,936 62,517,400 141,844 Corrections Corp. of America* 1,418 5,015,604 -------------- -------------- 20,455,354 67,533,004 RECREATION AND RESORTS (14.60%) 2,400,000 Kerzner Intl., Ltd.*# 77,808,281 105,528,000 3,000,000 Vail Resorts, Inc.*# 61,273,805 54,210,000 1,178,600 Wynn Resorts, Ltd.* 16,159,795 60,921,834 1,459,408 Wynn Resorts, Ltd.*@ 30,030,772 71,664,960 -------------- -------------- 185,272,653 292,324,794 RESTAURANTS (1.08%) 500,000 The Cheesecake Factory, Inc.* 15,604,748 21,700,000 RETAIL - CONSUMER STAPLES (2.06%) 480,000 Whole Foods Market, Inc. 23,163,847 41,179,200 RETAIL - SPECIALTY STORES (5.22%) 1,500,000 Dollar Tree Stores, Inc.* 10,065,955 40,425,000 800,000 Ethan Allen Interiors, Inc. 22,610,641 27,800,000 1,000,000 Polo Ralph Lauren Corp., Cl A 19,737,919 36,370,000 -------------- -------------- 52,414,515 104,595,000 TRANSPORTATION (2.51%) 750,000 C. H. Robinson Worldwide, Inc. 27,854,391 34,792,500 300,000 Expeditors Intl. of Washington, Inc. 13,852,823 15,510,000 -------------- -------------- 41,707,214 50,302,500 UTILITY SERVICES (2.15%) 2,100,000 Southern Union Co.* 27,564,041 43,050,000 -------------- -------------- TOTAL COMMON STOCKS 1,057,249,713 1,960,728,998 -------------- --------------
See Notes to Financial Statements. 14 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - -------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.49%) - -------------------------------------------------------------------------------------------- EDUCATION (0.04%) 105,264 Apollo International, Inc. S-A CV Pfd.*@# $ 2,000,016 $ 849,996 HEALTHCARE SERVICES (0.45%) 5,753 Somerford Corp. S-A Conv. Pfd.* @ 9,000,000 8,999,993 -------------- -------------- TOTAL CONVERTIBLE PREFERRED STOCKS 11,000,016 9,849,989 -------------- -------------- ------------------------------------------------------------------------------------------- WARRANTS (0.08%) REAL ESTATE SERVICES 70,922 Corrections Corporation of America Warrants Exp 09/29/2005*@ 0 1,507,802 -------------- -------------- Principal Amount ------------------------------------------------------------------------------------------- CORPORATE BONDS (0.15%) HEALTHCARE SERVICES $3,000,000 Somerford Corp. 8.50% Sub. Conv. Deb. due 04/23/2006@ 3,000,000 3,000,000 -------------- -------------- ------------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (1.97%) 24,500,624 Exxon Asset Management Co. 1.50% due 10/01/2004 24,500,624 24,500,624 14,999,375 UBS Finance 1.50% due 10/01/2004 14,999,375 14,999,375 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 39,499,999 39,499,999 -------------- -------------- TOTAL INVESTMENTS (100.61%) $1,110,749,728 2,014,586,788 ============== LIABILITIES LESS CASH AND OTHER ASSETS (-0.61%) (12,193,952) -------------- NET ASSETS (EQUIVALENT TO $47.89 PER SHARE BASED ON 41,812,162 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $2,002,392,836 ==============
- --------------- % Represents percentage of net assets @ Restricted securities # Issuers that may be deemed to be "affiliated" * Non-income producing securities See Notes to Financial Statements. 15 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - --------------------------------------------------------------------------------------- COMMON STOCKS (91.49%) - --------------------------------------------------------------------------------------- ADVERTISING SERVICES (0.92%) 350,000 Getty Images, Inc.* $ 7,538,649 $ 19,355,000 375,000 Harte-Hanks, Inc. 6,046,351 9,378,750 ------------ ------------ 13,585,000 28,733,750 APPAREL (1.06%) 1,200,000 Carter's, Inc.* 31,479,913 33,228,000 BUSINESS SERVICES (3.46%) 300,000 Brown & Brown, Inc. 9,830,330 13,710,000 1,600,000 ChoicePoint, Inc.* 35,852,211 68,240,000 600,000 Equinix, Inc.* 17,862,441 18,462,000 525,000 Gevity HR, Inc. 11,334,651 8,074,500 ------------ ------------ 74,879,633 108,486,500 CHEMICAL (1.20%) 1,600,000 Symyx Technologies, Inc.* 25,434,814 37,680,000 COMMUNICATIONS (2.27%) 3,000,000 American Tower Corp., Cl A* 13,344,607 46,050,000 800,000 Crown Castle Intl., Corp.* 3,043,909 11,904,000 1,872,500 SBA Communications Corp.* 7,261,559 13,107,500 ------------ ------------ 23,650,075 71,061,500 CONSULTING (1.43%) 2,600,000 Exult, Inc.* 13,849,625 13,676,000 800,000 Hewitt Associates, Inc.* 18,618,001 21,168,000 600,000 LECG Corp.* 12,477,679 10,146,000 ------------ ------------ 44,945,305 44,990,000 EDUCATION (5.94%) 150,000 Apollo Group, Inc., Cl A* 941,632 11,005,500 2,250,000 DeVry, Inc.* 38,434,008 46,597,500 850,000 Education Mgmt. Corp.* 10,241,611 22,644,000 620,000 Strayer Education, Inc. 49,540,891 71,306,200 1,150,000 Universal Technical Institute, Inc.* 31,350,206 34,707,000 ------------ ------------ 130,508,348 186,260,200 ENERGY SERVICES (5.71%) 2,200,000 Encore Acquisition Co.*# 55,411,065 75,900,000 1,000,000 FMC Technologies, Inc.* 22,078,370 33,400,000 1,275,000 Premcor, Inc.* 28,186,806 49,087,500 440,000 Seacor Holdings, Inc.* 17,768,097 20,570,000 ------------ ------------ 123,444,338 178,957,500 FINANCIAL SERVICES - ASSET MANAGEMENT (2.22%) 350,000 BlackRock, Inc., Cl A 7,036,572 25,721,500 609,400 Cohen & Steers, Inc. 7,936,914 9,409,136 325,000 Eaton Vance Corp. 11,290,146 13,126,750 299,000 Gabelli Asset Mgmt., Inc., Cl A 4,438,566 12,812,150 290,000 Nuveen Investments, Inc. 7,748,686 8,584,000 ------------ ------------ 38,450,884 69,653,536 FINANCIAL SERVICES - BANKING (0.76%) 516,300 First Republicbank Corp. 23,618,963 23,749,800 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (4.76%) 600,000 Chicago Mercantile Exchange Holdings, Inc. 38,776,983 96,780,000 1,300,000 eSpeed, Inc., Cl A* 18,992,933 12,779,000 1,150,000 Jefferies Group, Inc. 24,295,100 39,640,500 ------------ ------------ 82,065,016 149,199,500 FINANCIAL SERVICES - INSURANCE (2.05%) 1,650,000 Arch Capital Group, Ltd.*# 51,045,431 64,251,000
Shares Cost Value - --------------------------------------------------------------------------------------- FINANCIAL SERVICES - MISCELLANEOUS (3.10%) 1,000,000 CheckFree Corp.* $ 18,042,917 $ 27,670,000 1,500,000 First Marblehead Corp.* 44,501,122 69,600,000 ------------ ------------ 62,544,039 97,270,000 FOOD AND AGRICULTURE (0.26%) 225,000 Ralcorp Hldgs., Inc.* 5,144,891 8,122,500 GAMING SERVICES (0.12%) 200,000 Scientific Games Corp.* 3,331,071 3,820,000 GOVERNMENT SERVICES (1.29%) 1,100,000 Anteon Intl., Corp.* 32,750,117 40,315,000 HEALTHCARE FACILITIES (4.80%) 2,200,000 Community Health Systems, Inc.* 55,160,341 58,696,000 1,800,000 Manor Care, Inc. 33,815,991 53,928,000 1,100,000 United Surgical Partners Intl., Inc.* 23,181,527 37,785,000 ------------ ------------ 112,157,859 150,409,000 HEALTHCARE PRODUCTS (2.94%) 775,000 DepoMed, Inc.* 5,286,714 4,045,500 2,000,000 Edwards Lifesciences Corp.* 59,602,587 67,000,000 200,000 Flamel Technologies S.A.* 3,756,746 2,934,000 380,000 INAMED Corp.* 17,467,474 18,114,600 ------------ ------------ 86,113,521 92,094,100 HEALTHCARE SERVICES (3.89%) 1,600,000 Charles River Laboratories Intl., Inc.* 47,564,788 73,280,000 800,000 First Health Group Corp.* 13,363,302 12,872,000 215,000 Inveresk Research Group, Inc.* 4,742,000 7,931,350 1,575,000 Odyssey Healthcare, Inc.* 25,327,143 27,956,250 ------------ ------------ 90,997,233 122,039,600 HEALTHCARE SERVICES-INSURANCE (5.58%) 1,900,000 AMERIGROUP Corp.*# 70,530,101 106,875,000 1,600,000 Centene Corp.*# 30,065,539 68,128,000 ------------ ------------ 100,595,640 175,003,000 HOME BUILDING (1.40%) 150,000 Brookfield Homes Corp. 1,213,559 3,952,500 1,000,000 Hovnanian Enterprises, Inc.* 27,153,147 40,100,000 ------------ ------------ 28,366,706 44,052,500 HOTELS AND LODGING (4.02%) 800,000 Choice Hotels Intl., Inc. 9,354,699 46,072,000 1,250,000 Four Seasons Hotels, Inc. 37,489,146 80,125,000 ------------ ------------ 46,843,845 126,197,000 MEDIA (3.65%) 770,000 Citadel Broadcasting Corp.* 13,883,707 9,871,400 1,100,000 Cumulus Media, Inc.* 19,478,976 15,829,000 500,000 Entravision Comm. Corp., Cl A* 2,952,986 3,805,000 1,250,000 Gray Television, Inc. 10,312,500 14,875,000 2,000,000 LIN TV Corp., Cl A* 43,977,344 38,960,000 250,000 Radio One, Inc., Cl A* 2,371,787 3,572,500 980,000 Radio One, Inc., Cl D* 11,388,696 13,945,400 800,000 Saga Comm., Inc., Cl A* 7,404,392 13,560,000 ------------ ------------ 111,770,388 114,418,300 MEDICAL EQUIPMENT (0.32%) 410,000 Intuitive Surgical, Inc.* 6,650,173 10,147,500 PRINTING AND PUBLISHING (0.74%) 500,000 Information Holdings, Inc.* 9,997,649 13,615,000 375,000 ProQuest Co.* 10,009,425 9,637,500 ------------ ------------ 20,007,074 23,252,500
See Notes to Financial Statements. 16 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - ------------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------------- REAL ESTATE SERVICES (1.87%) 75,000 Alexander's, Inc.* $ 5,683,588 $ 14,932,500 1,285,000 CB Richard Ellis Group, Inc.* 24,890,025 29,683,500 225,000 LNR Property Corp. 9,074,405 13,929,750 -------------- -------------- 39,648,018 58,545,750 RECREATION AND RESORTS (11.48%) 135,000 Ameristar Casinos, Inc. 3,946,644 4,083,750 125,000 Boyd Gaming Corp. 3,213,268 3,518,750 525,000 Gaylord Entertainment Co.* 15,225,311 16,275,000 1,275,000 Isle of Capri Casinos, Inc.* 26,471,095 24,696,750 1,800,000 Kerzner Intl., Ltd.*# 49,095,087 79,146,000 1,760,000 Station Casinos, Inc. 40,877,216 86,310,400 1,250,000 Vail Resorts, Inc.* 21,897,070 22,587,500 537,677 Wynn Resorts, Ltd.*@ 11,063,956 26,402,898 1,878,600 Wynn Resorts, Ltd.* 25,393,808 97,104,834 -------------- -------------- 197,183,455 360,125,882 RESTAURANTS (5.38%) 750,000 Panera Bread Co., Cl A* 25,159,032 28,155,000 450,000 Peet's Coffee & Tea, Inc.* 8,320,843 10,525,500 1,250,000 P.F. Chang's China Bistro, Inc.* 58,814,683 60,612,500 1,600,000 The Cheesecake Factory, Inc.* 51,421,500 69,440,000 -------------- -------------- 143,716,058 168,733,000 RETAIL - SPECIALTY STORES (5.95%) 750,000 Blue Nile, Inc.* 22,558,368 25,260,000 800,000 Cabela's, Inc.* 20,527,992 19,080,000 1,650,000 CarMax, Inc.* 34,948,928 35,557,500 310,000 Dick's Sporting Goods, Inc.* 9,833,431 11,042,200 600,000 Dollar Tree Stores, Inc.* 7,884,538 16,170,000 550,000 Ethan Allen Interiors, Inc. 14,286,910 19,112,500 900,000 Petco Animal Supplies, Inc.* 17,449,210 29,394,000 1,700,000 Select Comfort Corp.* 36,014,112 30,940,000 -------------- -------------- 163,503,489 186,556,200 SOFTWARE (0.71%) 500,000 Kronos, Inc.* 7,446,852 22,145,000 TRANSPORTATION (1.20%) 1,000,000 Genesee & Wyoming, Inc.* 22,137,797 25,320,000 210,000 Landstar System, Inc.* 9,307,733 12,322,800 -------------- -------------- 31,445,530 37,642,800 UTILITY SERVICES (1.01%) 1,549,999 Southern Union Co.* 19,474,294 31,774,979 -------------- -------------- TOTAL COMMON STOCKS 1,972,797,973 2,868,915,897 -------------- -------------- - ------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.25%) - ------------------------------------------------------------------------------------------- PHARMACEUTICAL 750,000 Reliant Pharmaceuticals LLC Series D @ 15,000,000 7,500,000 -------------- --------------
Principal Amount Cost Value - --------------------------------------------------------------------------------------------- CORPORATE BONDS (2.01%) - --------------------------------------------------------------------------------------------- HOME BUILDING (0.02%) $ 675,000 Brookfield Homes Corp. 12.00% Sr. Sub. NT due 06/30/2020 $ 675,000 $ 699,469 RECREATION AND RESORTS (1.99%) 26,000,000 Wynn Resorts 6.00% Sub. Conv. Deb. due 07/15/2015 25,390,244 62,465,000 -------------- -------------- 26,065,244 63,164,469 -------------- -------------- - --------------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (5.55%) - --------------------------------------------------------------------------------------------- 4,007,083 Exxon Asset Mgmt. Co. 1.50% due 10/01/2004 4,007,083 4,007,083 169,992,917 UBS Finance 1.50% due 10/01/2004 169,992,917 169,992,917 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 174,000,000 174,000,000 -------------- -------------- TOTAL INVESTMENTS (99.30%) $2,187,863,217 3,113,580,366 ============== CASH AND OTHER ASSETS LESS LIABILITIES (0.70%) 22,023,593 -------------- NET ASSETS (EQUIVALENT TO $38.92 PER SHARE BASED ON 80,567,272 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $3,135,603,959 ==============
- --------------- % Represents percentage of net assets @ Restricted securities * Non-income producing securities # Issuers that may be deemed to be "affiliated" See Notes to Financial Statements. 17 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - --------------------------------------------------------------------------------------- COMMON STOCKS (91.08%) - --------------------------------------------------------------------------------------- ADVERTISING SERVICES (1.52%) 550,000 R.H. Donnelley Corp.* $ 16,121,330 $ 27,148,000 BUILDING MATERIALS (3.10%) 800,000 Eagle Materials, Inc., Cl B 47,231,684 55,200,000 BUSINESS SERVICES (4.89%) 725,000 ChoicePoint, Inc.* 6,949,762 30,921,250 500,000 First Advantage Corp., Cl A* 9,626,422 8,030,000 963,100 Infocrossing, Inc.* 8,665,967 15,231,426 975,000 Iron Mountain, Inc.* 10,010,523 33,003,750 ------------ ------------ 35,252,674 87,186,426 COMMUNICATIONS (8.34%) 5,550,000 Alamosa Hldgs, Inc.* 32,186,799 42,402,000 3,350,000 American Tower Corp.* 19,090,630 51,422,500 550,000 Arch Wireless, Inc., CL A* 9,667,063 15,801,500 225,000 Metrocall Holdings, Inc.* 14,659,014 14,591,250 1,500,000 SBA Communications Corp.* 6,109,973 10,500,000 3,500,000 UbiquiTel, Inc.* 13,096,692 14,000,000 ------------ ------------ 94,810,171 148,717,250 CONSULTING (2.51%) 275,000 Corporate Executive Board Co.* 4,596,431 16,841,000 1,650,000 LECG Corp.*# 32,939,131 27,901,500 ------------ ------------ 37,535,562 44,742,500 CONSUMER PRODUCTS (2.81%) 1,300,000 Digital Theater Systems, Inc.*# 28,363,801 23,725,000 500,000 Equity Marketing, Inc.*# 7,064,357 4,870,000 1,000,000 NBTY, Inc.* 20,098,569 21,560,000 ------------ ------------ 55,526,727 50,155,000 CONSUMER SERVICES (0.65%) 300,000 Weight Watchers Intl., Inc.* 8,701,916 11,646,000 EDUCATION (10.05%) 500,000 Apollo Group, Inc., Cl A* 4,269,664 36,685,000 1,750,000 Career Education Corp.* 3,986,205 49,752,500 475,000 Educate, Inc. * 5,452,417 5,600,250 1,000,000 SkillSoft PLC* 4,358,448 6,690,000 375,000 Strayer Education, Inc. 30,291,218 43,128,750 1,225,700 Universal Technical Institute, Inc.* 36,549,066 36,991,626 ------------ ------------ 84,907,018 178,848,126 ENERGY SERVICES (0.34%) 500,000 Energy Savings Income Fund 5,095,420 6,001,900 FINANCIAL SERVICES - ASSET MANAGEMENT (0.60%) 250,000 Gabelli Asset Mgmt., Inc., Cl A 4,356,166 10,712,500 FINANCIAL SERVICES - INSURANCE (0.44%) 200,000 Arch Capital Group, Ltd.* 5,515,966 7,788,000 GOVERNMENT SERVICES (5.90%) 1,200,000 Anteon Intl., Corp.* 30,668,294 43,980,000 526,000 Cogent, Inc.* 8,501,569 9,583,720 656,500 FLIR Systems, Inc.* 23,700,312 38,405,250 700,000 Mantech Intl. Corp.* 12,035,637 13,104,000 ------------ ------------ 74,905,812 105,072,970 HEALTH CARE FACILITIES (2.41%) 1,250,000 United Surgical Partners Intl., Inc.* 22,780,745 42,937,500 HEALTH CARE PRODUCTS (1.87%) 700,000 INAMED Corp.* 33,584,626 33,369,000 HEALTH CARE SERVICES (1.81%) 750,000 NeighborCare, Inc.* 14,193,298 19,012,500 750,000 Odyssey Healthcare, Inc.* 12,231,119 13,312,500 ------------ ------------ 26,424,417 32,325,000
Shares Cost Value - --------------------------------------------------------------------------------------- HOME BUILDING (1.83%) 1,050,000 Brookfield Homes Corp. $ 20,854,021 $ 27,667,500 474,000 Champion Enterprises, Inc.* 3,398,383 4,877,460 ------------ ------------ 24,252,404 32,544,960 INFORMATION SERVICES (0.35%) 175,000 NAVTEQ Corp.* 3,850,000 6,237,000 LEISURE (1.51%) 651,300 Marinemax, Inc.* 15,846,889 14,667,276 1,000,000 World Wrestling Entertainment, Inc. 12,106,575 12,220,000 ------------ ------------ 27,953,464 26,887,276 MANUFACTURING (1.17%) 300,000 Actuant Corp., Cl A* 4,844,697 12,363,000 343,700 Measurement Specialties, Inc. * 8,475,915 8,540,945 ------------ ------------ 13,320,612 20,903,945 MEDIA (6.39%) 900,000 AMC Entertainment, Inc.* 7,314,392 17,226,000 1,000,000 Cumulus Media, Inc.* 15,731,181 14,390,000 401,100 DakTronics, Inc.* 9,191,759 9,806,895 1,350,000 Gray Television, Inc. 11,348,508 16,065,000 800,000 LIN TV Corp., Cl A* 17,526,021 15,584,000 1,900,000 Radio One, Inc., Cl D* 20,592,796 27,037,000 380,000 Regal Entertainment Group, Cl A 4,528,833 7,258,000 325,000 Westwood One, Inc.* 3,497,838 6,425,250 ------------ ------------ 89,731,328 113,792,145 MEDICAL EQUIPMENT (4.57%) 1,987,500 Immucor, Inc.*# 20,120,270 49,190,625 750,000 Intuitive Surgical, Inc.* 11,321,688 18,562,500 525,000 Kensey Nash Corp.* 17,121,907 13,749,750 ------------ ------------ 48,563,865 81,502,875 PHARMACEUTICAL (0.32%) 275,000 Noven Pharmaceutical, Inc. 3,288,765 5,731,000 PRINTING AND PUBLISHING (3.64%) 750,000 Bowne & Co., Inc. 12,951,607 9,742,500 400,000 Information Holdings, Inc.* 5,489,320 10,892,000 1,500,000 Interactive Data Corp.* 22,596,629 28,230,000 625,000 ProQuest Co.* 15,858,706 16,062,500 ------------ ------------ 56,896,262 64,927,000 REAL ESTATE SERVICES (1.61%) 1,500,000 Countrywide PLC 8,648,397 8,495,100 325,000 LNR Property Corp. 10,842,681 20,120,750 ------------ ------------ 19,491,078 28,615,850 RECREATION AND RESORTS (6.26%) 1,400,000 Gaylord Entertainment Co.* 41,624,725 43,400,000 550,000 Kerzner Intl., Ltd.* 13,662,714 24,183,500 850,000 Wynn Resorts, Ltd.* 12,016,631 43,936,500 ------------ ------------ 67,304,070 111,520,000 RESTAURANTS (5.11%) 1,000,000 CKE Restaurants, Inc.* 6,743,689 11,050,000 750,000 Krispy Kreme Doughnuts, Inc.* 13,636,878 9,495,000 900,000 Panera Bread Co., Cl A* 29,102,737 33,786,000 200,000 P.F. Chang's China Bistro, Inc.* 8,574,459 9,698,000 625,000 The Cheesecake Factory, Inc.* 19,254,684 27,125,000 ------------ ------------ 77,312,447 91,154,000
See Notes to Financial Statements. 18 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - ------------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------------- RETAIL - SPECIALTY STORES (8.25%) 650,000 99 Cents Only Stores* $ 15,833,733 $ 9,249,500 500,000 Aeropostale, Inc.* 2,259,604 13,100,000 750,000 Casual Male Retail Group, Inc.*@# 3,187,420 3,930,000 407,503 Casual Male Retail Group, Inc.*# 2,173,692 2,135,316 350,000 Design Within Reach, Inc.* 5,449,697 6,016,500 350,000 Dollar Tree Stores, Inc.* 6,476,891 9,432,500 1,500,000 Hot Topic, Inc.* 25,479,344 25,560,000 800,000 Kenneth Cole Productions, Inc., Cl A 17,156,673 22,512,000 900,000 Provide Commerce, Inc.*# 17,970,834 18,801,000 1,250,000 Quiksilver, Inc.* 17,592,671 31,775,000 250,000 Select Comfort Corp.* 4,630,363 4,550,000 -------------- -------------- 118,210,922 147,061,816 TRANSPORTATION (2.83%) 650,000 JetBlue Airways Corp.* 11,502,058 13,598,000 500,000 Republic Airways Holdings, Inc.* 6,559,801 4,495,000 3,100,000 Westjet Airlines, Ltd* 30,859,041 32,422,280 -------------- -------------- 48,920,900 50,515,280 -------------- -------------- TOTAL COMMON STOCKS 1,151,846,351 1,623,243,319 -------------- -------------- - ------------------------------------------------------------------------------------------- WARRANTS (0.26%) - ------------------------------------------------------------------------------------------- BUSINESS SERVICES (0.10%) 222,575 Infocrossing, Inc. Warrants Exp 10/16/2008*@ 31,784 1,769,471 -------------- -------------- RETAIL - SPECIALTY STORES (0.16%) 1,407,353 Casual Male Retail Group, Inc. Warrants Exp 04/26/2007*@# 2,117,150 2,745,750 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010*@# 49,000 48,000 -------------- -------------- 2,166,150 2,793,750 -------------- -------------- TOTAL WARRANTS 2,197,934 4,563,221 -------------- --------------
Principal Amount Cost Value - --------------------------------------------------------------------------------------------- CORPORATE BONDS (0.29%) - --------------------------------------------------------------------------------------------- HOME BUILDING (0.09%) $ 1,575,000 Brookfield Homes Corp. 12.00% Sr. Sub. NT due 06/30/2020 $ 1,575,000 $ 1,632,094 PRINTING AND PUBLISHING (0.20%) 7,000,000 Penton Media, Inc. 10.375% Sr. Sub. NT due 06/15/2011 4,787,369 3,570,000 -------------- -------------- TOTAL CORPORATE BONDS 6,362,369 5,202,094 -------------- -------------- - --------------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (8.05%) - --------------------------------------------------------------------------------------------- 3,505,833 Exxon Asset Management Co. 1.50% due 10/01/2004 3,505,833 3,505,833 139,994,167 UBS Finance 1.50% due 10/01/2004 139,994,167 139,994,167 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 143,500,000 143,500,000 -------------- -------------- TOTAL INVESTMENTS (99.68%) $1,303,906,654 1,776,508,634 ============== CASH AND OTHER ASSETS LESS LIABILITIES (0.32%) 5,612,912 -------------- NET ASSETS (EQUIVALENT TO $19.18 PER SHARE BASED ON 92,931,733 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $1,782,121,546 ==============
- --------------- % Represents percentage of net assets @ Restricted securities # Issuers that may be deemed to be "affiliated" * Non-income producing securities See Notes to Financial Statements. 19 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - --------------------------------------------------------------------------------------- COMMON STOCKS (93.49%) - --------------------------------------------------------------------------------------- ADVERTISING SERVICES (6.24%) 300,000 Digitas, Inc.* $ 2,587,204 $ 2,319,000 80,000 Getty Images, Inc.* 1,213,286 4,424,000 12,500 Google, Inc.* 1,062,500 1,620,000 ------------ ------------ 4,862,990 8,363,000 BUSINESS SERVICES (15.57%) 199,999 Ariba, Inc.* 2,481,354 1,867,990 85,000 ChoicePoint, Inc.* 2,995,233 3,625,250 70,000 Equinix, Inc.* 1,456,750 2,153,900 55,000 First Data Corp. 2,411,929 2,392,500 100,000 Harris Interactive, Inc.* 664,524 659,000 50,000 InfoSpace, Inc.* 1,225,049 2,369,500 200,000 Monster Worldwide, Inc.* 2,948,697 4,928,000 215,000 Stamps.com, Inc.* 1,814,704 2,859,500 ------------ ------------ 15,998,240 20,855,640 CABLE (4.10%) 90,000 Comcast Corp., Cl A* 1,998,637 2,512,800 90,000 Cox Comm., Inc.* 2,643,470 2,981,700 ------------ ------------ 4,642,107 5,494,500 COMMUNICATIONS (8.67%) 270,000 Alamosa Holdings, Inc.* 1,710,938 2,062,800 250,000 American Tower Corp.* 1,264,040 3,837,500 25,000 Research in Motion, Ltd.* 178,021 1,908,500 400,000 SBA Communications Corp.* 1,377,834 2,800,000 250,000 UbiquiTel, Inc.* 1,074,701 1,000,000 ------------ ------------ 5,605,534 11,608,800 COMMUNICATIONS EQUIP. (2.92%) 100,000 Qualcomm, Inc. 3,472,858 3,904,000 CONSULTING (2.02%) 100,000 Accenture, Ltd.* 2,573,550 2,705,000 CONSUMER PRODUCTS (1.36%) 275,000 TiVo, Inc.* 2,225,636 1,820,500 CONSUMER SERVICES (5.43%) 55,000 eBay, Inc.* 1,572,934 5,056,700 100,000 priceline.com, Inc.* 2,179,733 2,217,000 ------------ ------------ 3,752,667 7,273,700 EDUCATION (5.23%) 49,629 Apollo Group, Inc., Cl A* 451,144 3,641,280 50,000 Career Education Corp.* 1,084,207 1,421,500 290,000 SkillSoft PLC* 1,547,459 1,940,100 ------------ ------------ 3,082,810 7,002,880 ENTERPRISE HARDWARE (7.45%) 60,000 CDW Corp. 3,715,727 3,481,800 115,000 Dell, Inc.* 3,111,683 4,094,000 120,000 Intel Corp. 2,805,370 2,407,200 ------------ ------------ 9,632,780 9,983,000 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (6.11%) 260,000 Charles Schwab Corp. 2,993,075 2,389,400 400,000 E*TRADE Group, Inc.* 2,482,756 4,568,000 124,800 eSpeed, Inc., Cl A* 1,900,331 1,226,784 ------------ ------------ 7,376,162 8,184,184 GAMING SERVICES (2.15%) 80,000 International Game Technology 2,234,945 2,876,000 HOTELS AND LODGING (1.72%) 175,000 LodgeNet Entertainment Corp.* 3,173,515 2,310,000
Shares Cost Value - --------------------------------------------------------------------------------------- LEISURE (3.22%) 50,000 Electronic Arts, Inc.* $ 1,226,359 $ 2,299,500 35,000 JAMDAT Mobile, Inc.* 560,000 807,450 50,000 Shanda Interactive Entertainment, Ltd.* 761,449 1,200,000 ------------ ------------ 2,547,808 4,306,950 MANUFACTURING (3.46%) 350,000 Flextronics Intl., Ltd.* 4,312,284 4,637,500 MEDIA (9.28%) 275,000 iVillage, Inc.* 1,398,264 1,650,000 450,000 LookSmart, Ltd.* 1,002,721 661,500 500,000 Loudeye Corp.* 908,430 540,000 70,000 Netflix, Inc.* 1,431,060 1,079,400 235,000 Time Warner, Inc.* 3,756,499 3,792,900 138,800 Yahoo! Inc.* 2,042,818 4,706,708 ------------ ------------ 10,539,792 12,430,508 REAL ESTATE SERVICES (3.96%) 75,000 CoStar Group, Inc.* 1,859,686 3,689,250 700,000 Homestore, Inc.* 1,869,779 1,617,000 ------------ ------------ 3,729,465 5,306,250 RETAIL - SPECIALTY STORES (4.60%) 325,000 drugstore.com, Inc.* 772,925 1,111,500 206,900 Provide Commerce, Inc.* 3,512,379 4,322,141 110,000 Varsity Group, Inc.* 460,033 720,500 ------------ ------------ 4,745,337 6,154,141 ------------ ------------ TOTAL COMMON STOCKS 94,508,480 125,216,553 ------------ ------------ Principal Amount - --------------------------------------------------------------------------------------- CORPORATE BONDS (0.60%) - --------------------------------------------------------------------------------------- COMMUNICATIONS $ 750,000 SBA Comm. Corp. 10.25% Sr. NT due 02/01/2009 479,554 802,500 ------------ ------------ - --------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (4.78%) 6,399,999 Exxon Asset Management Co. 1.50% due 10/01/2004 6,399,999 6,399,999 ------------ ------------ TOTAL INVESTMENTS (98.87%) $101,388,033 132,419,052 ============ CASH AND OTHER ASSETS LESS LIABILITIES (1.13%) 1,512,743 ------------ NET ASSETS (EQUIVALENT TO $7.58 PER SHARE BASED ON 17,661,930 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $133,931,795 ============
- --------------- % Represents percentage of net assets * Non-income producing securities See Notes to Financial Statements. 20 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
Shares Cost Value - --------------------------------------------------------------------------------------- COMMON STOCKS (91.50%) - --------------------------------------------------------------------------------------- ADVERTISING SERVICES (0.79%) 3,000 Google, Inc.* $ 255,000 $ 388,800 BUSINESS SERVICES (5.61%) 17,170 Cintas Corp. 743,279 721,827 21,000 First Data Corp. 918,556 913,500 20,091 Iron Mountain, Inc.* 626,094 680,080 15,000 Paychex, Inc. 543,152 452,250 ------------ ------------ 2,831,081 2,767,657 CABLE (3.23%) 32,165 Comcast Corp., Cl A* 904,979 898,047 20,905 Cox Comm., Inc., Cl A* 673,319 692,583 ------------ ------------ 1,578,298 1,590,630 COMMUNICATIONS EQUIP. (2.06%) 26,000 Qualcomm, Inc. 908,393 1,015,040 CONSULTING (2.06%) 37,500 Accenture, Ltd., Cl A* 974,864 1,014,375 CONSUMER PRODUCTS (3.48%) 21,870 Avon Products, Inc. 940,874 955,282 12,797 Harley-Davidson, Inc. 730,270 760,654 ------------ ------------ 1,671,144 1,715,936 CONSUMER SERVICES (1.67%) 8,935 eBay, Inc.* 734,205 821,484 EDUCATION (2.43%) 13,261 Apollo Group, Inc., Cl A* 1,072,879 972,960 8,000 Career Education Corp.* 497,497 227,440 ------------ ------------ 1,570,376 1,200,400 ENERGY & ENERGY SERVICES (4.42%) 16,252 Kinder Morgan, Inc. 976,521 1,020,951 35,618 XTO Energy, Inc. 970,406 1,156,873 ------------ ------------ 1,946,927 2,177,824 ENTERPRISE HARDWARE (4.34%) 10,000 CDW Corp. 629,101 580,300 26,985 Dell, Inc.* 948,034 960,666 29,872 Intel Corp. 775,410 599,232 ------------ ------------ 2,352,545 2,140,198 FINANCIAL SERVICES - MISCELLANEOUS (2.40%) 30,000 Countrywide Financial Corp. 1,054,205 1,181,700 FINANCIAL SERVICES - BANKING (3.27%) 12,000 Commerce Bancorp, Inc. 720,867 662,400 8,540 Golden West Financial Corp. 915,959 947,513 ------------ ------------ 1,636,826 1,609,913 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (3.09%) 97,518 Charles Schwab Corp. 960,349 896,190 55,000 E*TRADE Group, Inc.* 618,762 628,100 ------------ ------------ 1,579,111 1,524,290 FINANCIAL SERVICES - INSURANCE (4.16%) 19,085 Axis Capital Holdings, Ltd. 527,823 496,210 8 Berkshire Hathaway, Inc., Cl A* 717,340 693,200 10,151 The Progressive Corp. 860,451 860,297 ------------ ------------ 2,105,614 2,049,707 GAMING SERVICES (2.25%) 30,910 International Game Technology 1,083,038 1,111,214 HEALTH CARE SERVICES/INSURANCE (3.62%) 12,190 UnitedHealth Group, Inc. 786,511 898,891 8,424 WellPoint Health Networks, Inc.* 921,536 885,278 ------------ ------------ 1,708,047 1,784,169 HOTELS AND LODGING (1.11%) 8,530 Four Seasons Hotels, Inc. 461,823 546,773
Shares Cost Value - ---------------------------------------------------------------------------------------- LEISURE (1.21%) 12,960 Electronic Arts, Inc.* $ 650,031 $ 596,030 MANUFACTURING (2.18%) 81,085 Flextronics Intl., Ltd.* 1,188,811 1,074,376 MEDIA (8.78%) 10,000 Lamar Advertising Co.* 422,244 416,100 29,644 The News Corp., Ltd. 946,855 928,747 60,000 Time Warner, Inc.* 1,022,172 968,400 31,092 Univision Communications, Inc., Cl A* 1,024,743 982,818 30,520 Yahoo! Inc.* 845,682 1,034,933 ------------ ------------ 4,261,696 4,330,998 PHARMACEUTICAL (3.94%) 8,560 Amgen, Inc.* 485,567 485,181 10,375 Forest Laboratories, Inc.* 647,866 466,668 10,260 Genentech, Inc.* 600,436 537,829 14,895 Pfizer, Inc. 530,125 455,787 ------------ ------------ 2,263,994 1,945,465 REAL ESTATE SERVICES (3.25%) 15,905 Kimco Realty Corp. 708,782 815,927 12,565 Vornado Realty Trust 663,234 787,574 ------------ ------------ 1,372,016 1,603,501 RECREATION AND RESORTS (4.07%) 21,545 Carnival Corp. 937,383 1,018,863 19,893 MGM Mirage, Inc.* 889,410 987,687 ------------ ------------ 1,826,793 2,006,550 RESTAURANTS (1.82%) 19,729 Starbucks Corp.* 814,850 896,880 RETAIL - CONSUMER STAPLES (7.17%) 20,260 Costco Wholesale Corp. 795,743 842,006 18,500 Target Corp. 809,020 837,125 10,000 Wal-Mart Stores, Inc. 540,263 532,000 15,362 Walgreen Co. 545,046 550,420 9,000 Whole Foods Market, Inc. 742,590 772,110 ------------ ------------ 3,432,662 3,533,661 RETAIL - SPECIALTY STORES (9.09%) 19,910 Bed Bath & Beyond, Inc.* 732,205 738,860 16,560 Best Buy Co., Inc. 853,854 898,214 22,030 Coach, Inc.* 896,085 934,513 18,860 Dollar Tree Stores, Inc.* 511,683 508,277 14,548 Kohl's Corp.* 602,408 701,068 12,923 Lowe's Companies, Inc. 656,528 702,365 ------------ ------------ 4,252,763 4,483,297 ------------ ------------ TOTAL COMMON STOCKS 44,515,113 45,110,868 ------------ ------------ Principal Amount - ---------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (8.12%) - ---------------------------------------------------------------------------------------- $3,999,999 Exxon Asset Management Co. 1.50% due 10/01/2004 3,999,999 3,999,999 ------------ ------------ TOTAL INVESTMENTS (99.62%) $ 48,515,112 49,110,867 ============ CASH AND OTHER ASSETS LESS LIABILITIES (0.38%) 188,574 ------------ NET ASSETS (EQUIVALENT TO $9.89 PER SHARE BASED ON 4,985,550 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $ 49,299,441 ============
- --------------- % Represents percentage of net assets * Non-income producing securities See Notes to Financial Statements. 21 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- SEPTEMBER 30, 2004
BARON ASSET BARON GROWTH BARON SMALL CAP BARON iOPPORTUNITY FUND FUND FUND FUND -------------- -------------- --------------- ------------------ ASSETS: Investments in securities, at value Unaffiliated issuers (Cost $891,525,072, $1,931,715,994, $1,189,920,999, $101,388,033 and $48,515,112, respectively) $1,578,341,392 $2,719,280,366 $1,643,161,443 $132,419,052 "Affiliated" issuers (Cost $219,224,656, $256,147,223, $113,985,655, $0 and $0, respectively) 436,245,396 394,300,000 133,347,191 0 Cash 259,358 2,909,054 490,200 216,422 Dividends and interest receivable 887,768 446,687 352,542 13,901 Receivable for securities sold 2,242,059 25,373,522 10,371,375 1,950,785 Receivable for shares sold 1,306,504 8,763,178 5,610,629 33,168 Prepaid expenses 42,711 0 0 0 Due from adviser 0 0 0 82,946 -------------- -------------- -------------- ------------ 2,019,325,188 3,151,072,807 1,793,333,380 134,716,274 -------------- -------------- -------------- ------------ LIABILITIES: Payable for securities purchased 1,200,806 13,281,419 9,790,767 560,000 Payable for shares redeemed 15,560,050 1,945,813 1,256,307 130,958 Accrued expenses and other payables 171,496 241,616 164,760 93,521 -------------- -------------- -------------- ------------ 16,932,352 15,468,848 11,211,834 784,479 -------------- -------------- -------------- ------------ NET ASSETS $2,002,392,836 $3,135,603,959 $1,782,121,546 $133,931,795 ============== ============== ============== ============ NET ASSETS CONSIST OF: Capital paid-in $ 973,872,217 $2,259,149,973 $1,264,294,752 $199,752,283 Accumulated net realized gain (loss) 124,683,559 (49,263,163) 45,224,814 (96,851,507) Net unrealized appreciation on investments 903,837,060 925,717,149 472,601,980 31,031,019 -------------- -------------- -------------- ------------ NET ASSETS $2,002,392,836 $3,135,603,959 $1,782,121,546 $133,931,795 ============== ============== ============== ============ SHARES OF BENEFICIAL INTEREST OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 41,812,162 80,567,272 92,931,733 17,661,930 ============== ============== ============== ============ NET ASSET VALUE PER SHARE $ 47.89 $ 38.92 $ 19.18 $ 7.58 ============== ============== ============== ============ BARON FIFTH AVENUE GROWTH FUND ------------------ ASSETS: Investments in securities, at value Unaffiliated issuers (Cost $891,525,072, $1,931,715,994, $1,189,920,999, $101,388,033 and $48,515,112, respectively) $49,110,867 "Affiliated" issuers (Cost $219,224,656, $256,147,223, $113,985,655, $0 and $0, respectively) 0 Cash 173,756 Dividends and interest receivable 7,984 Receivable for securities sold 0 Receivable for shares sold 15,729 Prepaid expenses 14,703 Due from adviser 40,416 ----------- 49,363,455 ----------- LIABILITIES: Payable for securities purchased 0 Payable for shares redeemed 3,287 Accrued expenses and other payables 60,727 ----------- 64,014 ----------- NET ASSETS $49,299,441 =========== NET ASSETS CONSIST OF: Capital paid-in $49,083,071 Accumulated net realized gain (loss) (379,385) Net unrealized appreciation on investments 595,755 ----------- NET ASSETS $49,299,441 =========== SHARES OF BENEFICIAL INTEREST OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 4,985,550 =========== NET ASSET VALUE PER SHARE $ 9.89 ===========
See Notes to Financial Statements. 22 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 2004
BARON ASSET BARON GROWTH BARON SMALL CAP BARON iOPPORTUNITY FUND FUND FUND FUND ------------ ------------ --------------- ------------------ INVESTMENT INCOME: INCOME: Interest $ 582,632 $ 3,391,988 $ 2,317,025 $ 243,733 Dividends -- unaffiliated issuers (net of withholding taxes of $0, $0, $33,608, $0 and $0, respectively) 8,109,926 8,638,392 4,953,631 83,485 ------------ ------------ ------------ ----------- Total income 8,692,558 12,030,380 7,270,656 327,218 ------------ ------------ ------------ ----------- EXPENSES: Investment advisory fees 19,971,130 27,394,586 16,072,603 1,338,401 Distribution fees 4,992,782 6,848,646 4,018,151 334,600 Shareholder servicing agent fees 729,650 719,310 564,820 163,384 Reports to shareholders 995,000 1,201,500 652,000 171,543 Professional fees 52,275 53,130 42,665 23,000 Registration and filing fees (215,040) 76,886 (11,057) 39,818 Custodian fees 60,594 85,110 57,251 11,716 Trustee fees 29,502 40,638 23,849 1,920 Miscellaneous 91,166 116,999 68,165 6,166 ------------ ------------ ------------ ----------- Total expenses 26,707,059 36,536,805 21,488,447 2,090,548 Less: Expense reimbursement by investment adviser 0 0 0 (82,946) ------------ ------------ ------------ ----------- Net expenses 26,707,059 36,536,805 21,488,447 2,007,602 ------------ ------------ ------------ ----------- Net investment loss (18,014,501) (24,506,425) (14,217,791) (1,680,384) ------------ ------------ ------------ ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments sold in unaffiliated issuers 149,419,932 42,232,891 68,521,905 15,694,215 Net realized gain (loss) on investments sold in "affiliated" issuers 1,154,873 1,533,364 (3,712,662) 0 Change in net unrealized appreciation of investments 224,051,657 429,735,044 77,954,557 272,386 ------------ ------------ ------------ ----------- Net gain on investments 374,626,462 473,501,299 142,763,800 15,966,601 ------------ ------------ ------------ ----------- Net increase in net assets resulting from operations $356,611,961 $448,994,874 $128,546,009 $14,286,217 ============ ============ ============ =========== BARON FIFTH AVENUE GROWTH FUND* ------------------ INVESTMENT INCOME: INCOME: Interest $ 24,521 Dividends -- unaffiliated issuers (net of withholding taxes of $0, $0, $33,608, $0 and $0, respectively) 66,843 --------- Total income 91,364 --------- EXPENSES: Investment advisory fees 150,962 Distribution fees 37,741 Shareholder servicing agent fees 11,413 Reports to shareholders 7,359 Professional fees 24,000 Registration and filing fees 16,699 Custodian fees 2,911 Trustee fees 223 Miscellaneous 455 --------- Total expenses 251,763 Less: Expense reimbursement by investment adviser (40,416) --------- Net expenses 211,347 --------- Net investment loss (119,983) --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments sold in unaffiliated issuers (379,385) Net realized gain (loss) on investments sold in "affiliated" issuers 0 Change in net unrealized appreciation of investments 595,755 --------- Net gain on investments 216,370 --------- Net increase in net assets resulting from operations $ 96,387 =========
* For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. See Notes to Financial Statements. 23 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, 2004 2003 2004 2003 2004 -------------- -------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (18,014,501) $ (22,327,537) $ (24,506,425) $ (16,914,599) $ (14,217,791) Net realized gain (loss) on investments sold 150,574,805 27,349,273 43,766,255 (54,183,199) 64,809,243 Net change in unrealized appreciation on investments 224,051,657 293,259,030 429,735,044 411,381,268 77,954,557 -------------- -------------- -------------- -------------- -------------- Increase in net assets resulting from operations 356,611,961 298,280,766 448,994,874 340,283,470 128,546,009 -------------- -------------- -------------- -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments 0 (67,413,267) 0 0 0 -------------- -------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 319,598,701 330,807,954 1,101,986,308 1,209,913,568 841,501,715 Net asset value of shares issued in reinvestment of dividends 0 65,673,995 0 0 0 Cost of shares redeemed (630,993,904) (725,356,209) (600,780,062) (395,080,937) (398,469,810) -------------- -------------- -------------- -------------- -------------- Increase (decrease) in net assets derived from capital share transactions (311,395,203) (328,874,260) 501,206,246 814,832,631 443,031,905 Redemption fees 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Net increase (decrease) in net assets 45,216,758 (98,006,761) 950,201,120 1,155,116,101 571,577,914 -------------- -------------- -------------- -------------- -------------- NET ASSETS: Beginning of year 1,957,176,078 2,055,182,839 2,185,402,839 1,030,286,738 1,210,543,632 -------------- -------------- -------------- -------------- -------------- End of year $2,002,392,836 $1,957,176,078 $3,135,603,959 $2,185,402,839 $1,782,121,546 ============== ============== ============== ============== ============== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 $ 0 ============== ============== ============== ============== ============== SHARES OF BENEFICIAL INTEREST: Shares sold 6,999,058 9,320,231 30,112,173 42,266,286 43,517,215 Shares issued in reinvestment of dividends 0 1,871,542 0 0 0 Shares redeemed (14,050,959) (19,969,210) (16,479,769) (13,543,070) (20,734,514) -------------- -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) (7,051,901) (8,777,437) 13,632,404 28,723,216 22,782,701 ============== ============== ============== ============== ============== BARON SMALL BARON FIFTH AVENUE CAP FUND BARON iOPPORTUNITY FUND GROWTH FUND -------------- ----------------------------- -------------------- FOR THE FOR THE FOR THE FOR THE PERIOD APRIL 30,2004 YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OPERATIONS) TO 2003 2004 2003 SEPTEMBER 30, 2004 -------------- ------------- ------------- -------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (7,850,954) $ (1,680,384) $ (920,809) $ (119,983) Net realized gain (loss) on investments sold (16,627,696) 15,694,215 5,663,483 (379,385) Net change in unrealized appreciation on investments 275,662,596 272,386 38,669,554 595,755 -------------- ------------ ------------ ----------- Increase in net assets resulting from operations 251,183,946 14,286,217 43,412,228 96,387 -------------- ------------ ------------ ----------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments (20,581,254) 0 0 0 -------------- ------------ ------------ ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 485,593,319 72,422,016 33,610,767 50,428,908 Net asset value of shares issued in reinvestment of dividends 19,966,951 0 0 0 Cost of shares redeemed (244,749,792) (62,396,543) (25,290,252) (1,225,854) -------------- ------------ ------------ ----------- Increase (decrease) in net assets derived from capital share transactions 260,810,478 10,025,473 8,320,515 49,203,054 Redemption fees 0 315,784 123,431 0 -------------- ------------ ------------ ----------- Net increase (decrease) in net assets 491,413,170 24,627,474 51,856,174 49,299,441 -------------- ------------ ------------ ----------- NET ASSETS: Beginning of year 719,130,462 109,304,321 57,448,147 0 -------------- ------------ ------------ ----------- End of year $1,210,543,632 $133,931,795 $109,304,321 $49,299,441 ============== ============ ============ =========== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 ============== ============ ============ =========== SHARES OF BENEFICIAL INTEREST: Shares sold 33,000,295 9,311,007 6,406,971 5,111,117 Shares issued in reinvestment of dividends 1,453,200 0 0 0 Shares redeemed (16,674,262) (8,528,450) (5,337,540) (125,567) -------------- ------------ ------------ ----------- NET INCREASE (DECREASE) 17,779,233 782,557 1,069,431 4,985,550 ============== ============ ============ ===========
See Notes to Financial Statements. 24 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 business 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. Where market quotations are not readily available, securities are valued based on fair value as determined by the Adviser, using procedures established by the Board of Trustees. Debt instruments having a remaining maturity greater than sixty days will be valued at the highest bid price from the dealer maintaining an active market in that security or on the basis of prices obtained from a pricing service approved by the Board of Trustees. Money market instruments held by the Funds with a remaining maturity of sixty days or less are valued at amortized cost, which approximates value. (B) SECURITIES TRANSACTIONS, INVESTMENT INCOME AND EXPENSE ALLOCATION. Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Common expenses of the Funds are allocated on a basis deemed fair and equitable by the Trustees, usually on the basis of average net assets. Direct expenses are charged to each Fund on a specific identification basis. (C) FEDERAL INCOME TAXES. Each Fund of the Trust is treated as a separate entity for federal income tax purposes. It is the policy of each Fund to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute all of its taxable income, including net realized capital gains, if any, to its shareholders. No federal income tax provision is therefore required. (D) RESTRICTED SECURITIES. The Funds invest in securities which are restricted as to public sale in accordance with the Securities Act of 1933. Such assets are valued at fair value as determined in good faith by the Board of Trustees. (E) DISTRIBUTIONS. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. For the year ended September 30, 2004, the following amounts were reclassified for federal income tax purposes:
UNDISTRIBUTED UNDISTRIBUTED FUND NET INVESTMENT INCOME REALIZED GAIN/LOSS CAPITAL-PAID-IN - ---- --------------------- ------------------ --------------- Baron Asset Fund $18,014,501 $(6,133,275) $(11,881,226) Baron Growth Fund 24,506,425 -- (24,506,425) Baron Small Cap Fund 14,217,791 (1,840,752) (12,377,039) Baron iOpportunity Fund 1,680,384 -- (1,680,384) Baron Fifth Avenue Growth Fund* 119,983 -- (119,983)
* For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. 25 BARON FUNDS - -------------------------------------------------------------------------------- (F) SHORT-TERM TRADING FEE. Baron iOpportunity Fund imposes a 1% short-term trading fee on redemptions and exchanges of shares held for less than 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. (G) USE OF ESTIMATES. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the amounts of income and expenses during the period. Actual results could differ from those estimates. (H) 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, 2004 were as follows:
FUND PURCHASES SALES - ---- --------- ----- Baron Asset Fund $ 382,823,560 $671,224,596 Baron Growth Fund $1,253,182,605 $687,093,815 Baron Small Cap Fund $ 853,245,555 $483,448,271 Baron iOpportunity Fund $ 115,662,651 $101,948,096 Baron Fifth Avenue Growth Fund* $ 47,423,856 $ 2,529,318
(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 net assets, respectively. The reimbursements for the period ended September 30, 2004 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, 2004, BCI earned gross brokerage commissions as follows:
FUND COMMISSIONS - ---- ----------- Baron Asset Fund $1,109,837 Baron Growth Fund $1,659,403 Baron Small Cap Fund $1,047,784 Baron iOpportunity Fund $ 270,139 Baron Fifth Avenue Growth Fund* $ 50,778
(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, 2004, there were no loans outstanding under the line of credit. * For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. 26 BARON FUNDS - -------------------------------------------------------------------------------- (6) RESTRICTED SECURITIES. A summary of the restricted securities held at September 30, 2004 follows:
BARON ASSET FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- COMMON STOCK Wynn Resorts, Ltd. 04/17/01 $71,664,960 CONVERTIBLE PREFERRED STOCK Apollo International, Inc., S-A CV Pfd. 07/21/99 849,996 Somerford Corp. S-A Conv. Pfd. 12/03/98 8,999,993 CORPORATE BONDS Somerford Corp. 8.50% Sub. Conv. Deb Due 04/23/2006 04/23/01 3,000,000 WARRANTS Corrections Corporation of America Warrants Exp 09/29/2005 09/29/00 1,507,802 ----------- TOTAL RESTRICTED SECURITIES: (Cost $44,030,788) (4.30% of Net Assets) $86,022,751 ===========
BARON GROWTH FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- COMMON STOCK Wynn Resorts, Ltd. 04/22/02 $26,402,898 CONVERTIBLE PREFERRED STOCK Reliant Pharmaceuticals LLC Series D 10/28/03 7,500,000 ----------- TOTAL RESTRICTED SECURITIES: (Cost $26,063,956) (1.08% of Net Assets) $33,902,898 ===========
BARON SMALL CAP FUND ACQUISITION NAME OF ISSUER DATE VALUE - -------------- ---- ----- COMMON STOCK Casual Male Retail Group, Inc. 05/15/02 $ 3,930,000 WARRANTS Casual Male Retail Group, Inc. Warrants Exp 04/26/2007 05/15/02 2,745,750 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 48,000 Infocrossing, Inc. Warrants Exp 10/16/2008 10/16/03 1,769,471 ----------- TOTAL RESTRICTED SECURITIES: (Cost $5,385,354) (0.48% of Net Assets) $ 8,493,221 ===========
(7) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. As of September 30, 2004, 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 $1,112,749,068 $2,200,494,259 $1,306,519,475 $104,432,460 $48,540,874 ============== ============== ============== ============ =========== Gross tax unrealized appreciation 923,669,238 975,904,602 529,715,523 35,232,108 2,331,618 Gross tax unrealized depreciation (21,831,518) (62,818,495) (59,726,364) (7,245,516) (1,761,625) -------------- -------------- -------------- ------------ ----------- Net tax unrealized appreciation $ 901,837,720 $ 913,086,107 $ 469,989,159 $ 27,986,592 $ 569,993 ============== ============== ============== ============ ===========
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, 2005. The Funds also had capital loss carryforwards. 27 BARON FUNDS - -------------------------------------------------------------------------------- (7) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. (CONTINUED)
BARON BARON ASSET BARON GROWTH BARON SMALL CAP BARON iOPPORTUNITY FIFTH AVENUE GROWTH FUND FUND FUND FUND FUND ---- ---- ---- ---- ---- Capital loss carryforward expiring as follows: 2009 (8,303,528) 2010 (63,691,646) 2011 (36,632,125) (21,811,904) ------------ ------------ ----------- ------------ $ -- $(36,632,125) $ -- $(93,807,078) --------- ============ ============ =========== ============ $ -- Undistributed long term capital gain $126,682,899 $ -- $47,837,635 $ -- ========= ============ ============ =========== ============ $ -- Post October loss deferral $ -- $ -- $ -- $ -- ========= ============ ============ =========== ============ $(353,623) Capital loss carryfoward utilized during ========= the year ended September 30, 2004 $ 19,631,406 $ 24,741,023 $ 1,650,452 $ 15,671,100 $ 0 ============ ============ =========== ============ =========
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 utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividend paid deduction for tax purposes. - -------------------------------------------------------------------------------- (8) 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, 2003 AND ADDITIONS REDUCTIONS SEPT. 30, 2004 SEPT. 30, 2004 - -------------------------------------------------------------------------------------------------------------------------- Alexander's, Inc. 315,000 1,000 314,000 $ 62,517,400 Apollo International, Inc. S-A CV Pfd. 105,264 105,264 849,996 ChoicePoint, Inc. 5,360,000 760,000 4,600,000 196,190,000 Kerzner Intl., Ltd. 2,400,000 2,400,000 105,528,000 Saga Comm., Inc., Cl A 2,400,000 1,400,000 1,000,000 16,950,000 Vail Resorts, Inc., Cl A 6,685,000 3,685,000 3,000,000 54,210,000 ------------ $436,245,396 ============ DIVIDEND INCOME NAME OF ISSUER OCT. 1-SEPT. 30, 2004 - --------------------------------------------------------------- Alexander's, Inc. Apollo International, Inc. S-A CV Pfd. ChoicePoint, Inc. Kerzner Intl., Ltd. Saga Comm., Inc., Cl A Vail Resorts, Inc., Cl A -- $0 ==
- ------------------------------------------------------------------------------- BARON GROWTH FUND
BALANCE OF GROSS GROSS SALES BALANCE OF SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE NAME OF ISSUER SEPT. 30, 2003 AND ADDITIONS REDUCTIONS SEPT. 30, 2004 SEPT. 30, 2004 - ------------------------------------------------------------------------------------------------------------ AMERIGROUP, Corp. 950,000 950,000 1,900,000 $106,875,000 Arch Capital Group, Ltd. 1,550,000 150,000 50,000 1,650,000 64,251,000 Centene Corp. 1,500,000 100,000 1,600,000 68,128,000 Encore Acquisition Co. -- 2,200,000 2,200,000 75,900,000 Kerzner Intl., Ltd. 1,450,000 350,000 1,800,000 79,146,000 Symyx Technologies, Inc. 1,681,000 244,000 325,000 1,600,000 --** ------------ $394,300,000 ============ DIVIDEND INCOME NAME OF ISSUER OCT. 1-SEPT. 30, 2004 ------------------------------------------------ AMERIGROUP, Corp. Arch Capital Group, Ltd. Centene Corp. Encore Acquisition Co. Kerzner Intl., Ltd. Symyx Technologies, Inc. -- $0 ==
28 BARON FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (8) 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, 2003 AND ADDITIONS REDUCTIONS SEPT. 30, 2004 SEPT. 30, 2004 - ------------------------------------------------------------------------------------------------------------------- Alamosa Hldgs., Inc. -- 5,550,000 5,550,000 $ --** Casual Male Retail Group, Inc. 1,400,000 407,503 650,000 1,157,503 6,065,316 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 1,407,353 1,407,353 2,745,750 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 100,000 100,000 48,000 Digital Theater Systems, Inc. 675,000 875,000 250,000 1,300,000 23,725,000 Drexler Technology Corp. 575,000 263,853 838,853 -- -- Equity Marketing, Inc. 500,000 500,000 4,870,000 Immucor, Inc. + 822,700 1,187,500 22,700 1,987,500 49,190,625 LECG Corp. -- 1,650,000 1,650,000 27,901,500 Provide Commerce, Inc. -- 900,000 900,000 18,801,000 ------------ $133,347,191 ============ DIVIDEND INCOME NAME OF ISSUER OCT. 1-SEPT. 30, 2004 - -------------------------------------------------------- Alamosa Hldgs., 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 Digital Theater Systems, Inc. Drexler Technology Corp. Equity Marketing, Inc. Immucor, Inc. + LECG Corp. Provide Commerce, Inc. -- $0 ==
- --------------- * Affiliated issuers, as defined in the Investment Company Act of 1940, are issuers in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2004. ** As of September 30, 2004, no longer an affiliate. + Received 1,062,500 shares from 3:2 stock split. - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS BARON ASSET FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------------- 2004 2003 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 $ 47.43 -------- -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.43) (0.46) (0.55) (0.65) (0.76) (0.30) 0.05 Net realized and unrealized gains (losses) on investments 8.27 6.04 0.05 (17.87) 12.53 11.94 (7.52) -------- -------- -------- -------- -------- -------- -------- TOTAL FROM INVESTMENT OPERATIONS 7.84 5.58 (0.50) (18.52) 11.77 11.64 (7.47) -------- -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 (0.04) 0.00 Distributions from net realized gains 0.00 (1.18) (4.07) (4.61) 0.00 0.00 0.00 -------- -------- -------- -------- -------- -------- -------- TOTAL DISTRIBUTIONS 0.00 (1.18) (4.07) (4.61) 0.00 (0.04) 0.00 -------- -------- -------- -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.00 0.01 0.01 0.00 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 47.89 $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 ======== ======== ======== ======== ======== ======== ======== TOTAL RETURN 19.6% 16.1% (2.5%) (31.2%) 22.8%+ 29.2%* (15.7%) ======== ======== ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $2,002.4 $1,957.2 $2,055.2 $2,692.3 $4,917.4 $5,863.1 $4,410.5 Ratio of total expenses to average net assets 1.34% 1.34% 1.35% 1.37% 1.36% 1.31% 1.32% Less: Ratio of interest expense to average net assets 0.00% 0.00% (0.02%) (0.01%) (0.03%) 0.00% 0.00% -------- -------- -------- -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.34% 1.34% 1.33% 1.36% 1.33% 1.31% 1.32% ======== ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.90%) (1.14%) (1.16%) (1.14%) (1.09%) (0.57%) 0.11% Portfolio turnover rate 19.57% 27.95% 6.01% 4.33% 2.51% 15.64% 23.43% YEAR ENDED SEPTEMBER 30, ----------------------------- 1997 1996 1995 -------- -------- ------ NET ASSET VALUE, BEGINNING OF YEAR $ 35.50 $ 29.30 $22.82 -------- -------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.14) (0.06) (0.09) Net realized and unrealized gains (losses) on investments 12.11 6.29 7.23 -------- -------- ------ TOTAL FROM INVESTMENT OPERATIONS 11.97 6.23 7.14 -------- -------- ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 Distributions from net realized gains (0.04) (0.03) (0.66) -------- -------- ------ TOTAL DISTRIBUTIONS (0.04) (0.03) (0.66) -------- -------- ------ Capital contribution 0.00 0.00 0.00 -------- -------- ------ NET ASSET VALUE, END OF YEAR $ 47.43 $ 35.50 $29.30 ======== ======== ====== TOTAL RETURN 33.8% 21.3% 32.3% ======== ======== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $3,224.5 $1,166.1 $290.0 Ratio of total expenses to average net assets 1.35% 1.40% 1.44% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% -------- -------- ------ Ratio of operating expenses to average net assets 1.35% 1.40% 1.44% ======== ======== ====== Ratio of net investment income (loss) to average net assets (0.52%) (0.29%) (0.55%) Portfolio turnover rate 13.23% 19.34% 35.15%
- --------------- + 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%. 29 BARON FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS (CONTINUED) BARON GROWTH FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------ 2004 2003 2002 2001 2000 1999 1998 1997 -------- -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 32.65 $ 26.96 $ 27.18 $32.26 $29.06 $20.32 $24.89 $18.40 -------- -------- -------- ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.30) (0.25) (0.23) (0.22) (0.26) (0.04) 0.06 0.06 Net realized and unrealized gains (losses) on investments 6.57 5.94 1.65 (1.67) 5.34 8.82 (4.56) 6.68 -------- -------- -------- ------ ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 6.27 5.69 1.42 (1.89) 5.08 8.78 (4.50) 6.74 -------- -------- -------- ------ ------ ------ ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 (0.04) (0.02) (0.09) Distributions from net realized gains 0.00 0.00 (1.64) (3.19) (1.88) 0.00 (0.05) (0.16) -------- -------- -------- ------ ------ ------ ------ ------ TOTAL DISTRIBUTIONS 0.00 0.00 (1.64) (3.19) (1.88) (0.04) (0.07) (0.25) -------- -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF YEAR $ 38.92 $ 32.65 $ 26.96 $27.18 $32.26 $29.06 $20.32 $24.89 ======== ======== ======== ====== ====== ====== ====== ====== TOTAL RETURN 19.2% 21.1% 5.0% (6.1%) 18.6% 43.2% (18.1%) 37.1% -------- -------- -------- ------ ------ ------ ------ ------ RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $3,135.6 $2,185.4 $1,030.3 $512.3 $533.4 $439.4 $315.6 $390.8 Ratio of total expenses to average net assets 1.33% 1.36% 1.35% 1.36% 1.36% 1.40% 1.43% 1.40% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% 0.00% (0.03%) (0.06%) 0.00% -------- -------- -------- ------ ------ ------ ------ ------ Ratio of operating expenses to average net assets 1.33% 1.36% 1.35% 1.36% 1.36% 1.37% 1.37% 1.40% ======== ======== ======== ====== ====== ====== ====== ====== Ratio of net investment income (loss) to average net assets (0.89%) (1.11%) (1.02%) (0.79%) (0.78%) (0.20%) 0.21% 0.37% Portfolio turnover rate 27.15% 32.63% 18.31% 34.94% 39.00% 53.36% 40.38% 25.17% YEAR ENDED SEPTEMBER 30, --------------- 1996 1995* ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $14.77 $10.00 ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) 0.11 0.04 Net realized and unrealized gains (losses) on investments 3.66 4.73 ------ ------ TOTAL FROM INVESTMENT OPERATIONS 3.77 4.77 ------ ------ LESS DISTRIBUTIONS Dividends from net investment income (0.04) 0.00 Distributions from net realized gains (0.10) 0.00 ------ ------ TOTAL DISTRIBUTIONS (0.14) 0.00 ------ ------ NET ASSET VALUE, END OF YEAR $18.40 $14.77 ====== ====== TOTAL RETURN 25.8% 47.7%+ ------ ------ RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $207.2 $ 28.6 Ratio of total expenses to average net assets 1.54% 1.99%** Less: Ratio of interest expense to average net assets 0.00% 0.00% ------ ------ Ratio of operating expenses to average net assets 1.54% 1.99%** ====== ====== Ratio of net investment income (loss) to average net assets 1.20% 1.13%** Portfolio turnover rate 40.27% 40.56%+
- --------------- * For the period December 31, 1994 (initial public offering of Fund shares) to September 30, 1995. The Fund commenced investment trading on January 3, 1995. ** Annualized. + Not Annualized. The Fund's custodian's offset of custody fees amounted to less than $0.01 per share in 1996 and 1995. The expense offset amounts are included in expense data above. 30 BARON FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS (CONTINUED) BARON SMALL CAP FUND Selected data for a share of beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------- 2004 2003 2002 2001 2000 1999 1998 -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 17.26 $ 13.73 $12.69 $16.05 $13.37 $ 8.61 $10.00 -------- -------- ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.15) (0.11) (0.14) (0.11) (0.16) (0.10) (0.02) Net realized and unrealized gains (losses) on investments 2.07 4.02 1.18 (2.87) 2.84 4.86 (1.37) -------- -------- ------ ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 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 Distributions from net realized gains 0.00 (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- -------- ------ ------ ------ ------ ------ TOTAL DISTRIBUTIONS 0.00 (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- -------- ------ ------ ------ ------ ------ NET ASSET VALUE, END OF YEAR $ 19.18 $ 17.26 $13.73 $12.69 $16.05 $13.37 $ 8.61 ======== ======== ====== ====== ====== ====== ====== TOTAL RETURN 11.1% 29.2% 8.2% (18.8%) 20.0% 55.3% (13.9%) -------- -------- ------ ------ ------ ------ ------ RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $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% 1.36% 1.36% 1.35% 1.33% 1.34% 1.39% Ratio of net investment loss to average net assets (0.88%) (0.87%) (0.97%) (0.68%) (0.90%) (0.99%) (0.20%) Portfolio turnover rate 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:
FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------------------- 2004 2003 2002 2001 2000* ------ ------ ------ ------- ------ NET ASSET VALUE, BEGINNING OF YEAR $ 6.48 $ 3.63 $ 4.09 $ 8.76 $10.00 ------ ------ ------ ------- ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.10) (0.05) (0.06) (0.05) 0.03 Net realized and unrealized gains (losses) on investments 1.18 2.89 (0.40) (4.59) (1.28) ------ ------ ------ ------- ------ TOTAL FROM INVESTMENT OPERATIONS 1.08 2.84 (0.46) (4.64) (1.25) ------ ------ ------ ------- ------ LESS DISTRIBUTIONS Dividends from net investment income 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 ------ ------ ------ ------- ------ TOTAL DISTRIBUTIONS 0.00 0.00 0.00 (0.03) 0.00 ------ ------ ------ ------- ------ Redemption fees added to paid in capital 0.02 0.01 0.00+ 0.00+ 0.01 ------ ------ ------ ------- ------ NET ASSET VALUE, END OF YEAR $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 ====== ====== ====== ======= ====== TOTAL RETURN ^ 17.0% 78.5% (11.2%) (53.1%) (12.4%)+ ------ ------ ------ ------- ------ RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $133.9 $109.3 $ 57.5 $ 73.7 $188.2 Ratio of total expenses to average net assets 1.56% 1.67% 1.65% 1.55% 1.53%** Less: Expense reimbursement by investment adviser (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%** ====== ====== ====== ======= ====== Ratio of net investment income (loss) to average net assets (1.25%) (1.18%) (1.20%) (0.75%) 0.46%** Portfolio turnover rate 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. 31 BARON FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (9) FINANCIAL HIGHLIGHTS (CONTINUED) BARON FIFTH AVENUE GROWTH FUND Selected data for a share of beneficial interest outstanding throughout the period:
FOR THE PERIOD APRIL 30, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 ---------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.02) Net realized and unrealized gains (losses) on investments (0.09) ------ TOTAL FROM INVESTMENT OPERATIONS (0.11) ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 Distributions from net realized gains 0.00 ------ TOTAL DISTRIBUTIONS 0.00 ------ NET ASSET VALUE, END OF PERIOD $ 9.89 ====== TOTAL RETURN ^ (1.1%)+ ------ RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of period $ 49.3 Ratio of total expenses to average net assets 1.67%** Less: Expense reimbursement by investment adviser (0.27%)** ------ Ratio of net expenses to average net assets 1.40%** ====== Ratio of net investment loss to average net assets (0.79%)** Portfolio turnover rate 7.58%+
- --------------- ** Annualized. + Not Annualized ^ The total returns would have been lower had certain expenses not been reduced during the period shown. 32 BARON FUNDS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- - ---------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF BARON INVESTMENT FUNDS TRUST (FORMERLY BARON ASSET FUND): - ---------------------------- In our opinion, the accompanying statements of assets and liabilities and statements of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Baron Investment Funds Trust (formerly Baron Asset Fund), 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, 2004, 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 15, 2004 33 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, 2004, Baron Asset Fund and Baron Small Cap Fund designated the following redemption distribution as long-term capital gain dividend:
BARON ASSET FUND BARON SMALL CAP FUND ---------------- -------------------- $6,133,275 $1,840,752
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 17 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 Funds Trust; President (2004-Present), Chairman (2003-2004), CIO and Trustee (2003- Present), Baron Select Funds. Linda S. Martinson*+ Vice President, 17 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
34 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 8 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 Elected 10/22/04 CEO, Windover Development 239 Summer Street 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). 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 os 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)
35 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 17 years Senior Vice President and Director, 244 Atlantic Isles Florida Savings Bancorp (2001- Sunny Isles Beach, FL 33160 Present); 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 Elected 10/22/04 Director (1987-Present), Chairman 701 Tern Point Circle (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). Charles N. Mathewson^** Chairman and Trustee 17 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 244 Atlantic Isles Bancorp (2001-Present); Sunny Isles Beach, FL 33160 Director, Valhi, Inc. (1975- DOB: May 8, 1935 Present) (diversified 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
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 - ------------- -------------- --------------------- -------------------------- Harold W. Milner^** Trustee 17 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 17 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 17 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
37 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 8 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 2 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 17 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 4 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 17 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. 38 [Registered Castle Logo] B A R O N F U N D S SEP04 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, 2003 to September 30, 2004 (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, 2004: Audit Fees Tax Fees ----------- --------- Baron Asset $43,087 $6,500 Baron Growth Fund 42,037 6,500 Baron Small Cap Fund 36,782 5,000 Baron iOpportunity Fund 18,917 5,000 Baron Fifth Avenue Growth Fund n/a n/a 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. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. NOT APPLICABLE. Item 9. Submission of Matters to a Vote of Security Holders. NOT APPLICABLE> Item 10. Controls and Procedures. The Registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the investment company in the reports that it files or submits under the Securities Exchange Act to 1934 is recorded, processed, summarized, and reported within the time periods specified in the Commission's rules and forms. At the date of filing this N-CSR, the Registrant's principal executive office and principal financial officer are aware of no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 11. 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-99.906 CERT 3 sec9060904.txt SECTION 906 CERTIFICATIONS CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT The undersigned hereby certifies, to the best of his knowledge, that: 1. The Form N-CSR of BARON INVESTMENT FUNDS TRUST (the "Issuer") and its separate series for the period ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. By: /s/ Ronald Baron Date: December 8, 2004 --------------------------- Ronald Baron Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT The undersigned hereby certifies, to the best of her knowledge, that: 1. The Form N-CSR of BARON INVESTMENT FUNDS TRUST (the "Issuer") and its separate series for the period ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. By: /s/ Peggy Wong Date: December 8, 2004 ----------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CERT 4 n-csrcertifications0904.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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosures 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 in those entities, particularly during the period in which this report is being prepared; b) omitted; c) evaluated the effectiveness of the registrant's disclosure controls 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 registrants' internal control over financial reporting that occurred during the registrant's most recent fiscal half year (the registrant's second fiscal half-year in the case of an annual 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 trustees 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, 2004 /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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosures 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 in those entities, particularly during the period in which this report is being prepared; b) omitted; c) evaluated the effectiveness of the registrant's disclosure controls 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 registrants' internal control over financial reporting that occurred during the registrant's most recent fiscal half year (the registrant's second fiscal half-year in the case of an annual 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 trustees 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, 2004 /s/ Peggy Wong ------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CODE ETH 5 codeofethics0104.txt CODE OF ETHICS BARON ASSET FUND BARON CAPITAL FUNDS BARON SELECT FUNDS BAMCO, INC. BARON CAPITAL, INC. CODE OF ETHICS EFFECTIVE: JANUARY 30, 2004 A INTRODUCTION ------------ Rule 17j-1(a)(1) under the Investment Company Act of 1940 (the "1940 Act") makes it unlawful for certain persons in connection with the purchase or sale, directly or indirectly, by such persons of a security held or to be acquired by any series of Baron Asset Fund, Baron Capital Funds Trust, or Baron Select Funds, (collectively and individually a "Fund"): 1. To employ any device, scheme, or artifice to defraud a Fund; 2. To make to a Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Fund; or 4. To engage in any manipulative practice with respect to a Fund. In view of the foregoing, the Board of Trustees of the Funds has determined to adopt this Code of Ethics ("Code") to specify and prohibit certain types of personal securities transactions deemed to create conflicts of interest and to establish reporting requirements and enforcement procedures. The provisions of this Code are applicable to all employees of the Funds; BAMCO, Inc. ("BAMCO"), the Funds' adviser; and Baron Capital, Inc. ("BCI"), the Funds' principal underwriter. Any material amendments to this Code must be approved by the Board no later than six months after adoption of a material change. It is the judgment of the Funds' Boards of Trustees and of BAMCO and BCI that as a matter of policy a code of ethics should not inhibit responsible personal investment within boundaries reasonably necessary to ensure compliance with applicable laws with respect to the Funds. The Funds' Boards of Trustees believe that as a matter of general fiduciary responsibility the following three principles must govern personal investment activities. First, the interests of the Fund's shareholders must and shall come first. In any decision relating to personal investment, all persons subject to this Code must scrupulously avoid serving personal interests ahead of the shareholders'. For example, it would be a violation of the Code of Ethics for a portfolio manager to purchase a security for his own account that he believes a Fund managed by that portfolio manager may subsequently purchase. Second, personal investments should comport with the Code and should avoid any actual or potential conflicts of interest. The Boards of Trustees are committed to avoiding situations involving any real or possible impropriety, and persons subject to the Code should avoid conduct that creates a potential for problems. For example, it would be a violation of the Code of Ethics for a portfolio manager to purchase a security that would be an appropriate investment for a Fund managed by him/her for his/her personal account instead of for a Fund. Third, Fund personnel should not take inappropriate advantage of their position with or on behalf of a Fund. It is imperative that those who work for or on behalf of a Fund avoid any situation that might compromise, or call into question, their exercise of fully independent judgment in the interests of shareholders. For example, a portfolio manager should not receive an investment opportunity from persons seeking or doing business with a Fund. This Code does not cover all possible areas of potential liability under the 1940 Act. Technical compliance with the Code will not automatically insulate from scrutiny trades by a person which show a pattern of abuse of the persons fiduciary duties to the Funds. Persons subject to this Code should review this Code carefully before engaging in any transactions other than the purchase or redemption of Fund shares if the transaction directly or indirectly involves themselves or family members and a Fund. B. DEFINITIONS ----------- 1. "ADVISER" means BAMCO, Inc. 2. "ACCESS PERSON" means any trustee other than a Disinterested trustee (as defined herein), officer, director, employee or advisory person of the Funds, the Adviser, or BCI. 3. "ADVISORY PERSON" means (i) any access person of the Funds or the Adviser or any company in a control relationship to the Funds or the Adviser who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Funds or the Adviser who obtains information concerning the recommendations made to a Fund with regard to the purchase or sale of a security. 4. "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect Page 2 of 12 beneficial ownership shall apply to all securities which an access person has or acquires. A person shall be deemed to beneficially own securities held by a spouse, minor child, or other person living with or financially supported by that person. 5. "CONTROL" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. 6. "DESIGNATED PERSON" means an individual or individuals appointed from time to time by the Funds' Board of Trustees for the purpose of this Code of Ethics. 7. "DISINTERESTED TRUSTEE" means a Trustee of the Funds who is not an interested person of the Funds within the meaning of Section 2(a)(19) of the 1940 Act. 8. "INVESTMENT COMPANY" means a company registered as such under the 1940 Act and for which the Adviser is the investment adviser. 9. "INVESTMENT-RELATED EMPLOYEE" means research analysts, research assistants, traders and trading assistants. 10. "PORTFOLIO MANAGER" means any employee who has primary direct responsibility and authority to make investment decisions affecting a Fund. 11. "PURCHASE OR SALE OF A SECURITY" includes, inter alia, the writing of an option to purchase or sell a security and the direct or indirect acquisition, or disposition, of beneficial ownership of such security. 12. "SECURITY" shall have the meaning set forth in Section 2(a)(36) of the Act, except that it shall not include money market funds, bank or brokerage cash sweep accounts or other cash or cash-equivalent co-mingled accounts, direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt instruments, including repurchase agreements. Exchange traded funds are considered securities. 13. "SECURITY HELD OR TO BE ACQUIRED" means (i) any security which, within the most recent 15 days (1) is or has been held by a Fund, or (2) is being or has been considered by the Fund or its investment adviser for purchase by a Fund, and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a security, including warrants to purchase or sell the security. 14. "SECURITY BEING CONSIDERED FOR PURCHASE OR SALE" occurs when a recommendation to purchase or sell a security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. 15. "UNIVERSE" means, with respect to a portfolio manager of a Fund, securities in the Universe for which that portfolio manager has primary Page 3 of 12 direct investment responsibility and authority. The Designated Persons, acting in consultation with Ron Baron and/or the Board of Trustees, shall determine from time to time the industries and/or market cap ranges included in a Universe. C. RESTRICTIONS ------------ 1. No access person or Disinterested trustee shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to his or her actual knowledge at the time of such purchase or sale is (i)being considered for purchase or sale by a Fund, or (ii) being purchased or sold by a Fund. 2. Purchases, sales or other dispositions of securities a. HELD BY A FUND. (i) General Rule. No access person may purchase or sell, directly ------------ or indirectly, any security held by a Fund or any security that is being considered for purchase or sale by a Fund. An access person who owns a security that is held by the Fund must hold that position for a minimum of one year. A portfolio manager who owns a security that is subsequently owned by a Fund may not sell that security until the Fund has sold its entire position in that security. (ii) Short Sales. A security that is held by any Fund may not be ----------- sold short by any access person. A security sold short by an access person that is subsequently purchased by a Fund must be covered by the access person immediately upon discovery that a Fund is purchasing the security. Such purchases will be exempt from the restrictions of subparagraph d herein, but no access person may receive a better intra-day price than any Fund. b. NOT HELD BY A FUND. (i) Portfolio Managers No Portfolio Manager may purchase or sell, ------------------ directly or indirectly, any security that is in his or her Universe. (ii) Non-Portfolio Managers Access Persons who are not portfolio ---------------------- managers may purchase securities in the Universe if such purchase is consistent with paragraph 1 and the other restrictions of this paragraph 2, subject to the requirements of paragraph F hereof. Page 4 of 12 INVESTMENT-RELATED EMPLOYEES must first pitch the security to any portfolio manager who covers the Universe of the security, and the portfolio managers must decline interest prior to approval being granted. If the portfolio manager is interested, paragraph (C)(1) controls. (iii) Holding Periods The minimum holding period is six months. --------------- If a Fund should subsequently purchase the security, the holding period is increased to one year from the time of purchase. If all Funds have sold their entire positions, the minimum holding period will be reduced to six months. Portfolio managers are subject to the additional restrictions of paragraph (C )(2)(a)(i) above. If an access person has entered into a legitimate HEDGING TRANSACTION, as long as the underlying security has been held for a minimum of six months, the hedge may be closed in less than six months, upon receipt of the appropriate approvals. 3. RESTRICTED PERIODS. No access person may buy or sell a security within fifteen calendar days after a Fund trades in that security. If a Fund purchases or sells a security within seven days after an access person purchases or sells such security, the Fund must receive the better price, pursuant to paragraph E(3) and (4) hereof. 4. PUBLIC OFFERINGS. No access person may acquire any security in any initial or secondary public offering. 5. PRIVATE OFFERINGS. No access person may acquire any securities in a private placement without prior approval. The Designated Persons shall consider, among other things, whether the investment opportunity should be reserved for a Fund and its shareholders and whether the opportunity is being offered to an individual by virtue of his or her position with the Funds, the Adviser or BCI. Should the acquisition be authorized and should a Fund subsequently consider an investment in such issuer, the acquisition must be disclosed and the decision to purchase the securities of that issuer should be subject to an independent review by a person with no personal interest in the issuer. 6. TRANSACTIONS IN BARON MUTUAL FUNDS. Access persons shall report all transactions in Baron mutual funds, consistent with the reporting provisions contained in paragraph G below. Any investment in any Baron mutual fund by an access person must be held for a minimum of six months. All sales of Baron mutual funds must be approved in advance, in Page 5 of 12 accordance with the pre-clearance provisions of paragraph F herein. Purchases do not require pre-clearance. Access persons must arrange to have duplicate confirms sent to the legal department. 7. An access person becomes subject to this Code of Ethics upon commencement of his or her employment with Baron Capital. Securities positions acquired prior to employment with the firm are subject to the restrictions of the Code of Ethics as of commencement of employment. D. EXEMPTIONS ---------- 1. The prohibitions of paragraph C of this Code shall not apply to: a. Purchases or sales effected in any account over which the access person has no direct or indirect influence or control. b. Purchases or sales that are non-volitional on the part of the access person. c. Purchases which are part of an automatic dividend reinvestment plan. d. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 2. SPECIAL EXCEPTIONS. Notwithstanding the prohibitions of paragraph C hereof, purchases or sales by access persons which receive the prior written approval of the Designated Persons which are only remotely potentially harmful to a Fund because: a. they would be very unlikely to affect a highly institutional market, b. they clearly are not related economically to the securities to be purchased, sold or held by a Fund, or c. special circumstances exist and the grant of special approval for a transaction would not be inconsistent with the general purposes of this Code of Ethics. 3. TRANSACTIONS BY SPOUSES AND CHILDREN. Spouses and non-dependent children who make their own investment decisions may be exempt from the holding periods in any stock (i) which was not owned by any of the Funds as of the last published report or (ii) which is not otherwise known by the spouse to be owned by the Funds, subject to the conditions set forth in paragraph (F)(4). All access persons are responsible for ensuring that their respective spouses or children who effect transactions in securities have knowledge that the Funds holdings, which are publicly available every quarter (on the Funds web site or quarterly shareholder letters). Page 6 of 12 E. ADDITIONAL PROHIBITIONS; PENALTIES ---------------------------------- 1. No access person may receive any gift or other thing of more than DE MINIMIS value from any person or entity that does business with or on behalf of the Funds without the advance approval of the Designated Persons. 2. No advisory person may serve on the board of directors of a publicly traded company absent prior authorization based upon a determination that the board service would be consistent with the interests of the Funds and their shareholders. Where board service is authorized, advisory persons serving as directors generally should be isolated from making investment decisions with respect to those companies. 3. If a Fund purchases or sells a security within seven days of an access person's purchase or sale in that security, the Fund must receive the better price or the equivalent thereof. 4. Any profits realized on transactions in violation of this Code of Ethics must be disgorged within five days of notification of the amount by the Designated Persons. F. PRE-CLEARANCE AND BROKERAGE --------------------------- All access and advisory persons and any other person so designated must preclear all securities transactions subject to this Code using the firms pre-clearance form as follows. All necessary approvals must be obtained before any transaction orders are entered. The pre-clearance requirement applies to all securities beneficially owned or that will be beneficially owned as a result of the transaction (including transactions for or on behalf of a spouse, dependant or the account of any entity controlled by the access or advisory person or of which such access or advisory person or immediate family member is a direct or indirect beneficiary or any account over which the access person exercises investment discretion). 1. For securities subject to this Code, a fully completed pre-clearance form must be signed by both of the Designated Persons. If a Designated Person is not available in person, a verbal instructions may be given. 2. All access persons must effect all personal securities transactions through a broker-dealer designated by the Board of Trustees. Exceptions may be granted by the Board of Trustees or the Designated Persons upon good cause shown in a written memo. 3. The approval is valid only for the day on which it is given. A continuance for a limited period of time may be granted by the Designated Persons, in writing, upon good cause shown. 4. Transactions by spouses or children. A limited exemption to the preclearance requirement applies to purchases or sales by an access persons spouse or child who makes his/her own investment decisions, subject to the following conditions. Page 7 of 12 a. Unless the spouse or child is employed by a broker/dealer or other financial institution that requires a personal account be maintained at such firm, all transactions must be placed through an account established at a designated brokerage firm or at a firm that provides electronic access to the account on terms acceptable to the Funds. b. This exemption shall not be available if such spouse knows or reasonably should know that a Fund either owns the security or is considering purchasing or selling the security. c. The pre-clearance exemption shall not apply to any transaction in any security held by a Fund as reported in a Fund's most recently published holdings report. All access persons are responsible for ensuring that their respective spouses or children who effect transactions in securities have knowledge that the Funds holdings, which are publicly available every quarter (on the Funds web site or quarterly shareholder letters). d. This exemption shall not exempt any spouse or child from compliance with the reporting provisions of paragraph G of this Code. G. REPORTING --------- 1. Every access person shall report to the Funds, or to a person designated by the Funds' Board of Trustees for this purpose, the information described herein with respect to securities in which such person has or acquires any direct or indirect beneficial ownership in the security; provided, however, that such reporting person shall not be required to make reports with respect to any account and/or transaction over which such person does not have any direct or indirect influence; or where it would duplicate information recorded pursuant to Rules 204-2(a)(12) or (13) under the Investment Advisers Act of 1940. 2. DUPLICATE CONFIRMS Every access persons is required to have duplicate copies of all relevant brokerage statements sent to the legal department at Baron Capital. Duplicate copies of all Baron mutual fund transactions must also be arranged. Duplicate confirms must be provided by all persons subject to this Code of Ethics (including spouses, dependent children and trusts). 3. A DISINTERESTED TRUSTEE need only report a transaction in a security if such Trustee, at the time of the transaction, knew or, in the ordinary course of fulfilling his official duties as a Trustee of the Funds, should have known that, during the 15-day period immediately preceding the date of the transaction by the Trustee, such security was purchased or sold by a Fund Page 8 of 12 or was being considered for purchase or sale by the Adviser. 4. QUARTERLY REPORTS. Not later than 10 days after the end of the calendar quarter in which a transaction was effected, each access person shall report the following information with respect to any security, in which the access person had any direct or indirect beneficial ownership: a. the date of the transaction, the title and the number of shares, and the principal amount of each security involved; b. the nature of the transaction (i.e., purchase, sale or other type of acquisition or disposition); c. the price at which the transaction was effected; d. the name of the broker, dealer or bank with or through whom the transaction was effected; and e. the date that the report is submitted by the access person. f. each access person shall also report every transactions in the Baron funds (except automatic dividend re-investments), specifying the account, date of transaction, number of shares and total dollar amount of the transaction. 5. HOLDINGS REPORTS. In addition to the quarterly reports, all access persons shall be required to disclose all personal securities accounts and all personal securities holdings of which the access person is the direct or indirect beneficial owner, including mutual funds and securities held by or for the account of an immediate family member (spouse, dependants) and for the account of any entity controlled by the access person or of which such access person or immediate family member is a direct or indirect beneficiary, within 10 days of commencement of employment and thereafter on an annual basis as of September 30 of each year and/or at any other time as requested by the firm. The information in the reports must be current as of a date no more than 30 days before the report is submitted. The reports must contain the title, number of shares and principal amount of each security and the name of any broker, dealer or bank with whom the access person maintained an account in which any securities were held. All such reports must be provided within the time specified in the request. All violations shall be reported to the Board of Trustees. 6. CAPITAL GAINS REPORTS. Each access person shall be required to submit annually a copy of Schedule D of his or her federal tax return at the time of the filing thereof. The Schedule D must be accompanied by a signed statement representing that the Schedule D is a true and correct copy of the Schedule D as filed with that such persons federal tax return for that Page 9 of 12 calendar year. Persons who file tax returns pursuant to an extension request after April 15 should submit a signed statement to that effect by April 15 and undertake therein to submit the Schedule D no later than the federal due date. Every access person must report securities transactions for any account of an immediate family member (spouse, dependants) and for the account of any entity controlled by an access person or of which such access person or immediate family member is a direct or indirect beneficiary. Excluded from the reporting requirements are transactions for the account of an access person or immediate family member over which the access person or immediate family member has no direct or indirect control with respect to the selection of the securities therefor. 7. Any of the reports may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. 8. All reports required to be filed pursuant to subparagraphs 4, 5 and 6 of this paragraph G shall be reviewed by the persons listed in Part III of the Supplement to the Code of Ethics. 9. The Funds, BAMCO and BCI shall furnish to the Funds' Boards of Trustees, and the Boards of Trustees must consider, a written report that (i) describes any issues arising under the Code or procedures since the last report to the Board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations; and (ii) certifies that the Funds, BAMCO and BCI, as applicable, have adopted procedures reasonably necessary to prevent access persons from violating the Code. H. CERTIFICATION OF COMPLIANCE --------------------------- All access persons and Disinterested Trustees shall be required to certify annually that they have read and understand the Code and recognize that they are subject thereto, that they have complied with the requirements of the Code, and that they have disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code. I. SANCTIONS --------- Upon discovering a violation of this Code, the Board of Trustees of the Funds may impose such sanctions as it deems appropriate, including, inter alia, a letter of censure or suspension or termination of the employment of the violator and/or a disgorging of any profits. Page 10 of 12 BARON ASSET FUND BARON CAPITAL FUNDS BARON SELECT FUNDS BAMCO, INC BARON CAPITAL, INC. Code of Ethics I fully understand and hereby agree to be bound by the Firms Code of Ethics dated January 30, 2004. Signature: -------------------------------- Print Name: -------------------------------- Date: ------------------------- Page 11 of 12 BARON ASSET FUND BARON CAPITAL FUNDS BARON SELECT FUNDS BAMCO, INC. BARON CAPITAL, INC. SUPPLEMENT TO THE CODE OF ETHICS I "UNIVERSE" as described in Section B (14) of the Code of Ethics includes all securities that may be considered for investment for a particular Fund portfolio. II DESIGNATED PERSONS & Broker The following individuals are currently the DESIGNATED PERSONS under the Code of Ethics: Linda Martinson Morty Schaja NOTE: ---- The signatures of both Designated Persons are required to be in compliance ---- with the pre-clearance procedures of the Code of Ethics. The DESIGNATED BROKERS are Charles Schwab, and in some limited circumstances, Baron Capital. Employees who want to trade through another broker must submit a written request and get authorization from the Designated Persons or the Board of Trustees. III REVIEW PERSONNEL The following individuals are currently assigned to review the reports required pursuant to paragraph H of the Code of Ethics: Archina D'Agostino Sally Kusactay who report to Linda Martinson Dated: January 30, 2004 Page 12 of 12 -----END PRIVACY-ENHANCED MESSAGE-----