0001017918-07-000133.txt : 20120816 0001017918-07-000133.hdr.sgml : 20120816 20071207164604 ACCESSION NUMBER: 0001017918-07-000133 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071207 DATE AS OF CHANGE: 20080528 EFFECTIVENESS DATE: 20071207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARON INVESTMENT FUNDS TRUST (f/k/a BARON ASSET FUND) CENTRAL INDEX KEY: 0000810902 IRS NUMBER: 136891420 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05032 FILM NUMBER: 071293088 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 1 newafr0907a.txt FORM N-CSR FOR THE PERIOD ENDED SEPTEMBER 30, 2007 ------------------------------ UNITED STATES |OMB APPROVAL | SECURITIES AND EXCHANGE COMMISSION |OMB Number: 3235 - 0570 | Washington, D.C. 20549 |Expires: August 31, 2010| |Estimated average burden | |hours per response... 18.9 | ------------------------------ 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) Patrick M. Patalino, 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, 2007 -------------------- 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 (05-07) Item 1. Baron Investment Funds Trust Annual Report for the period ended September 30, 2007. BARON ASSET FUND | BARON GROWTH FUND | BARON SMALL CAP FUND | BARON iOPPORTUNITY FUND | BARON FIFTH AVENUE GROWTH FUND | BARON FUNDS(r) -------------------------------- SEPTEMBER 30, 2007 | ANNUAL FINANCIAL REPORT -------------------------------------------------------------------------------- ----------------------------------------------------------- BARON ASSET FUND Ticker Symbol: BARAX ----------------------------------------------------------- Performance 2 Top 10 Holdings 3 Top Ten Industries 3 Management's Discussion of Fund Performance 3 ----------------------------------------------------------- BARON GROWTH FUND Ticker Symbol: BGRFX ----------------------------------------------------------- Performance 4 Top 10 Holdings 5 Top Ten Industries 5 Management's Discussion of Fund Performance 5 ----------------------------------------------------------- BARON SMALL CAP FUND Ticker Symbol: BSCFX ----------------------------------------------------------- Performance 6 Top 10 Holdings 7 Top Ten Industries 7 Management's Discussion of Fund Performance 7 ----------------------------------------------------------- BARON iOPPORTUNITY FUND Ticker Symbol: BIOPX ----------------------------------------------------------- Performance 8 Top 10 Holdings 9 Top Ten Industries 9 Management's Discussion of Fund Performance 9 ----------------------------------------------------------- BARON FIFTH AVENUE GROWTH FUND Ticker Symbol: BFTHX ----------------------------------------------------------- Performance 10 Top 10 Holdings 11 Top Ten Industries 11 Management's Discussion of Fund Performance 11 ----------------------------------------------------------- FUND EXPENSES 12 ----------------------------------------------------------- FINANCIAL STATEMENTS ----------------------------------------------------------- Statements of Net Assets 13 Statements of Assets and Liabilities 24 Statements of Operations 25 Statements of Changes in Net Assets 26 Notes to Financial Statements 28 ----------------------------------------------------------- FINANCIAL HIGHLIGHTS 35 ----------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 38 ----------------------------------------------------------- UNAUDITED TAX INFORMATION 39 ----------------------------------------------------------- MANAGEMENT OF THE FUNDS 39 ----------------------------------------------------------- DEAR BARON FUNDS SHAREHOLDER: In this report you will find audited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund for their fiscal year ended September 30, 2007. The Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. We hope you find these statements informative and useful. We thank you for choosing to join us as fellow shareholders in Baron Funds. We will continue to work hard to justify your confidence. Sincerely,
/s/ Ronald Baron /s/Linda S. Martinson /s/ Peggy Wong Ronald Baron Linda S. Martinson Peggy Wong Chief Executive Officer and President and Treasurer and Chief Investment Officer Chief Operating Officer Chief Financial Officer November 28, 2007 November 28, 2007 November 28, 2007
This Annual Financial Report is for the Baron Investment Funds Trust which currently has five series: Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund. If you are interested in the Baron Select Funds which contains the Baron Partners Fund series, please visit the Funds' website www.BaronFunds.com or contact us at 1 -800-99-BARON. A description of the Funds' proxy voting policies and procedures is available without charge on the Funds' website, www.BaronFunds.com, or by calling 1-800-99-BARON and on the SEC's website at www.sec.gov. The Funds' most current proxy voting record, Form N-PX, is also available on the Funds' website, www.BaronFunds.com and on the SEC's website at www.sec.gov. The Funds file their complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's website at www.sec.gov. The Funds' Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC; information on the operation of the SEC's Public Reference Room may be obtained by calling 800-SEC-0330. A copy of the Funds' Forms N-Q may also be obtained upon request by contacting Baron Funds at 1-800-99-BARON. Schedules of portfolio holdings current to the most recent quarter are also available at www.BaronFunds.com. Some of the 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 Adviser 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 without notice based on market and other conditions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. For more complete information about Baron Funds, including charges and expenses, call or write for a prospectus. Read it carefully before you invest or send money. This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of Baron Funds unless accompanied or preceded by the Funds'current prospectus. [Registered Castle Logo] B A R O N (r) BARON ASSET FUND SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- ------------------------------------------------ BARON ASSET FUND Ticker Symbol: BARAX ------------------------------------------------ Performance 2 Top 10 Holdings 3 Top 10 Industries 3 Management's Discussion of Fund Performance 3 ------------------------------------------------ [Registered Castle Logo] B A R O N (r) 1.800.99. BARON WWW.BARONFUNDS.COM (C)2007 ALL RIGHTS RESERVED 2 COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON ASSET FUND(1),(2),(3) IN RELATION TO THE S&P 500(2) AND THE RUSSELL MIDCAP GROWTH(2)INDEXES [LINE GRAPH] Information Presented by Fiscal Year as of September 30 RUSSELL MIDCAP Date BAF GROWTH S&P 500 ----------------------------------------------- 06/12/1987 10,000 10,000 10,000 09/30/1987 11,950 11,082 10,866 09/30/1988 13,234 9,486 9,519 09/30/1989 18,521 12,477 12,655 09/30/1990 12,838 10,483 11,480 09/30/1991 17,760 15,607 15,055 09/30/1992 19,484 17,047 16,718 09/30/1993 26,595 20,495 18,890 09/30/1994 28,728 20,992 19,583 09/30/1995 38,003 27,219 25,402 09/30/1996 46,098 31,665 30,566 09/30/1997 61,656 41,051 42,925 09/30/1998 51,946 37,205 46,799 09/30/1999 67,092 51,042 59,801 09/30/2000 82,418 81,856 67,730 09/30/2001 56,741 39,481 49,680 09/30/2002 55,301 33,362 39,501 09/30/2003 64,210 46,337 49,125 09/30/2004 76,779 52,674 55,924 09/30/2005 96,135 65,039 62,786 09/30/2006 107,231 69,613 69,547 09/30/2007 128,209 84,387 80,971 ----------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2007
-------------------------------------------------------------------------------------------------------------------- SINCE INCEPTION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS 06/12/1987 -------------------------------------------------------------------------------------------------------------------- Baron Asset Fund(1),(2),(3) 19.56% 18.64% 18.31% 7.60% 13.39% S&P 500(2) 16.43% 13.13% 15.44% 6.55% 10.85% Russell MidCap Growth(1),(2) 21.22% 17.01% 20.39% 7.47% 11.08% Russell 2000(1),(2) 12.34% 13.36% 18.75% 7.22% 9.83% Russell 2500(1),(2) 15.17% 14.97% 19.55% 9.24% 11.64% --------------------------------------------------------------------------------------------------------------------
(1) The Adviser believes that the Russell 2000 and the Russell 2500 are no longer appropriate comparison indexes for the Fund. The Russell 2000 measures the performance of small companies and the Russell 2500 of small to mid-sized companies. Prior to February 15, 2007, the Fund's strategy was to invest in small- and mid-sized growth companies. Since then, the Fund's investment strategy has shifted to mid-sized companies. The Adviser believes that the Russell MidCap Growth is more representative of the Fund's current investment objective. We will provide the comparison to the smaller cap indexes for a one-year period from the date of the strategy change. (2) The Russell MidCap Growth and the S&P 500 are unmanaged indexes. The Russell MidCap Growth measures the performance of those Russell MidCap mid-sized companies that are classified as growth and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2500, the Russell MidCap Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (3) 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. SEPTEMBER 30, 2007 BARON ASSET FUND -------------------------------------------------------------------------------- TOP TEN HOLDINGS AS OF SEPTEMBER 30, 2007 ---------------------------------------------------------------------------- % OF NET BARON ASSET FUND ASSETS ---------------------------------------------------------------------------- Wynn Resorts, Ltd. 5.4% Charles Schwab Corp. 4.3% Vail Resorts, Inc. 4.2% CME Group, Inc. 3.3% ChoicePoint, Inc. 2.8% XTO Energy, Inc. 2.8% Alexander's, Inc. 2.7% Manor Care, Inc. 2.3% Arch Capital Group, Ltd. 2.2% Iron Mountain, Inc. 2.0% --------------------------------------------------------------------------- 32.0% --------------------------------------------------------------------------- [PIE CHART] TOP 10 INDUSTRIES AS OF SEPTEMBER 30, 2007 (as a percentage of net assets) ------------------------------------------------------------ Recreation and Resorts 12.0 % Business Services 9.6 Financial Services - Brokerage and Exchanges 9.4 Energy Services 7.5 Healthcare Services 7.4 Financial Services - Asset Management 5.3 Healthcare Facilities 4.3 Real Estate - REITs 3.7 Retail - Specialty Stores 3.7 Financial Services - Insurance 3.5 Other 30.1 Cash and Cash Equivalents 3.5 ------------------------------------------------------------ 100.0 % ============================================================ MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Baron Asset Fund performed well in the fiscal year ended September 30, 2007, gaining 19.56%. These results compared favorably with the S&P 500 which gained 16.43%, but was outperformed by the Russell MidCap Growth which gained 21.22% in the fiscal year ended September 30, 2007. The Fund's performance was weaker than that of its mid-cap peers. According to Morningstar(1), its mid-cap growth category (consisting of 986 funds at September 30, 2007) gained 24.64% in the fiscal year ended September 30,2007. Baron Asset Fund continued to outperform its Morningstar peer group of mid-cap growth funds for the three- and five-year periods ended September 30, 2007, and was in-line with its peer group for the ten-year period ended September 30, 2007. For the three-year period ended September 30,2007, the Fund gained 18.64% per year compared to 16.49% per year for the Morningstar mid-cap growth category (consisting of 816 funds at September 30, 2007). For the five-year period ended September 30, 2007, the Fund gained 18.31% per year compared to 17.68% per year for the Morningstar mid-cap growth category (consisting of 675 funds at September 30, 2007). For the ten-year period ended September 30,2007, the Fund gained 7.60% per year as compared to 7.70% per year for the Morningstar mid-cap growth category (consisting of 275 funds at September 30, 2007). Baron Asset Fund invests in medium-sized growth companies for the long-term while using value-oriented purchase and sell disciplines(2). The Fund purchases companies that the Adviser believes have sustainable competitive advantages and strong financial characteristics, operating in industries with favorable macroeconomic trends, led by strong management. The Adviser continues its strategy of further diversifying the Fund's investment portfolio by adding what we believe to be well-financed, well-managed mid-cap growth businesses. We rely on our research team to determine what these businesses might earn in four years, and we purchase these securities at valuations that we believe will allow for their share price to double within four years. The Fund's performance was positive across all four fiscal quarters: 7.40% for the quarter ended December 31, 2006; 2.89% for the quarter ended March 31, 2007; 5.57% for the quarter ended June 30, 2007; and 2.48% for the quarter ended September 30,2007. The Fund outperformed the Russell MidCap Growth in both the first and fourth quarters. Below we discuss the most positive and negative contributors to the Fund's performance during the past year. The Fund's best-performing industry was Recreation & Resorts, mostly attributable to the performance of Wynn Resorts. Wynn benefited from the increased volume in Macau following the opening of Las Vegas Sand's Venetian Macau Cotai. We think that Wynn is close to announcing its own strategy on Cotai, which we think will provide an additional boost to the stock. The Fund's performance was also strong in the Energy Services and Financial Services (Brokerage & Exchanges) Industries. The Fund was most negatively affected by its holding in Retail (Consumer Staples). After a strong first half of fiscal year 2007, the broader retail sector underperformed during the second half of the fiscal year as weakening consumer sentiment affected many of the consumer-related names. The Fund was also negatively affected by its holdings in Consulting. The Adviser expects to continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and have the ability to sustain superior levels of profitability. We intend to continue to identify companies through our independent research efforts. We expect the Fund will remain diversified not only by industry and investment theme, but also by external factors we believe 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. ---------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. (2) Prior to February 15, 2007, the Fund's strategy was also to invest in small- and mid-sized growth companies. 3 BARON GROWTH FUND SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- ------------------------------------------------ BARON GROWTH FUND Ticker Symbol: BGRFX ------------------------------------------------ Performance 4 Top 10 Holdings 5 Top 10 Industries 5 Management's Discussion of Fund Performance 5 ------------------------------------------------ [Registered Castle Logo] B A R O N (r) 1.800.99. BARON WWW.BARONFUNDS.COM (C)2007 ALL RIGHTS RESERVED 4 COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON GROWTH FUND(1),(2) IN RELATION TO THE RUSSELL 2000(1), THE RUSSELL 2000 GROWTH(1) AND THE S&P 500(1) INDEXES [LINE GRAPH] Information Presented by Fiscal Year as of September 30 RUSSELL S&P RUSSELL 2000 DATE BGF 2000 500 GROWTH --------------------------------------------------------------- 12/31/1994 10,000 10,000 10,000 10,000 09/30/1995 14,770 12,573 12,974 12,913 09/30/1996 18,575 14,224 15,611 14,542 09/30/1997 25,469 18,945 21,924 17,938 09/30/1998 20,855 15,342 23,903 13,483 09/30/1999 29,868 18,268 30,543 17,882 09/30/2000 35,431 22,541 34,593 23,187 09/30/2001 33,286 17,760 25,374 13,313 09/30/2002 34,956 16,108 20,175 10,895 09/30/2003 42,333 21,988 25,090 15,441 09/30/2004 50,463 26,115 28,563 17,282 09/30/2005 59,591 30,803 32,068 20,387 09/30/2006 63,976 33,860 35,521 21,586 09/30/2007 77,676 38,038 41,356 25,673 -------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2007
------------------------------------------------------------------------------------------------------------------ SINCE INCEPTION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS 12/31/1994 ------------------------------------------------------------------------------------------------------------------ Baron Growth Fund(1)(2) 21.41% 15.46% 17.32% 11.80% 17.44% Russell 2000(1) 12.34% 13.36% 18.75% 7.22% 11.05% Russell 2000 Growth(1) 18.94% 14.10% 18.70% 3.65% 7.68% S&P 500(1) 16.43% 13.13% 15.44% 6.55% 11.78% ------------------------------------------------------------------------------------------------------------------
(1) The Russell 2000, the Russell 2000 Growth and the S&P 500 are unmanaged indexes. The Russell 2000 measures the performance of 2000 small companies; the Russell 2000 Growth measures the performance of 2000 small growth companies; and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2000 Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) 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 SEPTEMBER 30, 2007 BARON GROWTH FUND -------------------------------------------------------------------------------- TOP TEN HOLDINGS AS OF SEPTEMBER 30, 2007 ----------------------------------------------------------------------------- % OF NET BARON GROWTH FUND ASSETS ----------------------------------------------------------------------------- Dick's Sporting Goods, Inc. 2.4% Wynn Resorts, Ltd. 2.3% Station Casinos, Inc. 2.1% CB Richard Ellis Group, Inc., Cl A 1.9% DeVry, Inc. 1.9% Jefferies Group, Inc. 1.9% FMC Technologies, Inc. 1.8% WellCare Health Plans, Inc. 1.8% Arch Capital Group, Ltd. 1.7% AECOM Technology Corp. 1.7% ----------------------------------------------------------------------------- 19.5% ----------------------------------------------------------------------------- [PIE CHART] TOP TEN INDUSTRIES AS OF SEPTEMBER 30,2007 (as a percentage of net assets) ----------------------------------------------------------- Recreation and Resorts 12.0 % Retail - Specialty Stores 9.7 Energy Services 8.1 Healthcare Services 5.5 Financial Services - Banking 4.3 Education 3.6 Healthcare Services-Insurance 3.4 Healthcare Facilities 3.1 Financial Services - Brokerage & Exchanges 3.0 Real Estate 2.9 Other 37.6 Cash and Cash Equivalents 6.8 ------------------------------------------------------------ 100.00 % ============================================================ MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Baron Growth Fund performed well in the fiscal year ended September 30, 2007, gaining 21.41%, outperforming both the Russell 2000 and the S&P 500, which were up 12.34% and 16.43%, respectively. According to Morningstar(1), its small-cap growth category (consisting of 816 funds at September 30,2007) gained 20.32% in the fiscal year ended September 30, 2007. According to Morningstar, the Fund has outperformed its small-cap growth peers in the three-year period, performed in-line with its peers in the five-year period and significantly outperformed its peers in the ten-year period ended September 30,2007. For the three-year period ended September 30,2007, the Fund was up 15.46% per year versus 14.19% per year for its small-cap growth category peers (consisting of 656 mutual funds as of September 30, 2007). For the five-year period ended September 30, 2007, the Fund was up 17.32% per year versus 17.60% per year for its small-cap growth category peers (consisting of 548 mutual funds as of September 30, 2007). For the ten-year period ended September 30, 2007, the Fund was up 11.80% peryear versus 6.84% for its small-cap growth category peers (consisting of 246 mutual funds as of September 30,2007). Baron Growth Fund is a long-term investor in small-sized growth companies. The Adviser, through its own independent research of companies, utilizes an investment approach that it believes allows it to look beyond the current market environment and develop conviction in the potential profitability of a business, and therefore its value in the future. We rely on our research team to determine what these businesses may earn in four or five years. We purchase securities that the Adviser believes will double in value within four years and then double again in the following four or five years. The Fund invests in businesses the Adviser believes have long-term sustainable competitive advantages that can be purchased at what the Adviser believes are attractive prices. The Fund's performance was positive across all four fiscal quarters: 11.02% for the quarter ended December 31, 2006; 2.77% for the quarter ended March 31,2007; 4.06% for the quarter ended June 30, 2007; and 2.27% for the quarter ended September 30, 2007. The performance of the Russell 2000 was weaker than that of the Fund in all quarters except the third. Below we discuss the most positive and negative contributors to the Fund's performance during the past year. The Fund's best-performing industry was Recreation & Resorts, mostly attributable to the performance of Wynn Resorts. Wynn benefited from the increased volume in Macau following the opening of Las Vegas Sand's Venetian Macau Cotai. We think that Wynn is close to announcing its own strategy on Cotai, which we think will provide an additional boost to the stock. Performance was also strong in the Energy Services Industry. The Fund was most negatively affected by the Real Estate (Home Building) Industry as inventory and demand conditions continued to worsen. Most geographic markets remained dramatically oversupplied and we think inventory will continue to grow due to the expected increase in foreclosures and the liquidations of land. Demand has continued to be low as many buyers have had difficulty securing mortgages and/or selling their existing homes. Poor consumer sentiment has also negatively affected demand. The Fund was also negatively impacted by its holdings in the Restaurants Industry. The Adviser intends to continue to invest in small businesses that we believe have the potential to grow substantially in the years ahead. ----------------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 5 BARON SMALL CAP FUND SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- ----------------------------------------------- BARON SMALL CAP FUND Ticker Symbol: BSCFX ----------------------------------------------- Performance 6 Top 10 Holdings 7 Top 10 Industries 7 Management's Discussion of Fund Performance 7 ----------------------------------------------- [Registered Castle Logo] B A R O N (r) 1.800.99. BARON WWW.BARONFUNDS.COM (C)2007 ALL RIGHTS RESERVED 6 COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON SMALL CAP FUND(1),(2) IN RELATION TO THE RUSSELL 2000(1), THE RUSSELL 2000 GROWTH(1) AND THE S&P 500(1) INDEXES [LINE GRAPH] Information Presented by Fiscal Year as of September 30 RUSSELL S&P RUSSELL 2000 DATE BSC 2000 500 GROWTH -------------------------------------------------------------------------- 09/30/1997 10,000 10,000 10,000 10,000 09/30/1998 8,610 8,098 10,902 7,517 09/30/1999 13,370 9,643 13,931 9,969 09/30/2000 16,050 11,898 15,779 12,926 09/30/2001 13,027 9,375 11,573 7,422 09/30/2002 14,095 8,503 9,202 6,074 09/30/2003 18,210 11,606 11,444 8,608 09/30/2004 20,236 13,785 13,028 9,634 09/30/2005 25,003 16,260 14,627 11,365 09/30/2006 26,385 17,873 16,202 12,034 09/30/2007 32,330 20,079 18,863 14,312 -------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2007
-------------------------------------------------------------------------------------------------------------------- SINCE INCEPTION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS 09/30/1997 -------------------------------------------------------------------------------------------------------------------- Baron Small Cap Fund(1)(2) 22.54% 16.90% 18.06% 12.45% 12.45% Russell 2000(1) 12.34% 13.36% 18.75% 7.22% 7.22% Russell 2000 Growth(1) 18.94% 14.10% 18.70% 3.65% 3.65% S&P 500(1) 16.43% 13.13% 15.44% 6.55% 6.55% --------------------------------------------------------------------------------------------------------------------
(1) The Russell 2000, the Russell 2000 Growth and the S&P 500 are unmanaged indexes. The Russell 2000 measures the performance of 2000 small companies; the Russell 2000 Growth measures the performance of 2000 small growth companies; and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2000 Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) 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. SEPTEMBER 30, 2007 BARON SMALL CAP FUND -------------------------------------------------------------------------------- TOP TEN HOLDINGS AS OF SEPTEMBER 30,2007 ---------------------------------------------------------------------------- % OF NET BARON SMALL CAP FUND ASSETS ---------------------------------------------------------------------------- SunPower Corp., Cl A 3.1% SBA Communications, Corp., Cl A 2.7% Wynn Resorts, Ltd. 2.7% Intuitive Surgical, Inc. 2.6% FLIR Systems, Inc. 2.6% Penn National Gaming, Inc. 2.3% Iconix Brand Group, Inc. 2.2% American Tower Corp., Cl A 2.2% Flowserve Corp. 2.2% Strayer Education, Inc. 2.1% --------------------------------------------------------------------------- 24.7% --------------------------------------------------------------------------- TOP TEN INDUSTRIES AS OF SEPTEMBER 30,2007 (as a percentage of net assets) [PIE CHART] ------------------------------------------------------------ Recreation and Resorts 10.5 % Medical Equipment 7.3 Government Services 6.2 Energy Services 5.9 Communications 5.8 Manufacturing 4.7 Retail - Specialty Stores 4.2 Education 4.0 Transportation 3.6 Restaurants 3.5 Other 40.5 Cash and Cash Equivalents 3.8 ------------------------------------------------------------ 100.00 % ============================================================ MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Baron Small Cap Fund performed well in the fiscal year ended September 30,2007 in both absolute terms and when compared to its small-cap growth peers and comparative indexes. In the fiscal year ended September 30,2007, the Fund gained 22.54%, the Russell 2000, an index of small-cap stocks, gained 12.34% and the S&P 500 gained 16.43%. According to Morningstar(1), its small-cap growth category (consisting of 816 funds at September 30,2007) gained 20.32% in the year ended September 30,2007. According to Morningstar, the Fund has outperformed its small-cap growth peers in the three-, five- and ten-year periods ended September 30,2007. For the three-year period ended September 30, 2007, the Fund was up 16.90% per year versus 14.19% per year for its small-cap growth category peers (consisting of 656 mutual funds at September 30, 2007). For the five-year period ended September 30, 2007, the Fund was up 18.06% per year versus 17.60% for its small-cap growth category peers (consisting of 548 mutual funds at September 30, 2007). For the ten-year period ended September 30,2007, the Fund was up 12.45% peryear versus 6.84% for its small-cap growth category peers (consisting of 246 mutual funds at September 30, 2007). Baron Small Cap Fund invests in small-cap growth companies. The Fund is a long-term investor in what the Adviser believes are well-run small-cap growth businesses that can be purchased at prices that represent a significant discount to ourassessment of true value. We rely on our research team to determine what these businesses may earn in two years, and we attempt to purchase these businesses at valuations that allow their share price to increase 50% within two years. The Fund's performance was positive each fiscal quarter: 9.83% for the quarter ended December 31,2006; 3.85% for the quarter ended March 31,2007; 6.12% forthe quarter ended June 30,2007; and 1.23% for the quarter ended September 30, 2007. The performance of the Russell 2000 was weaker than that of the Fund in all four fiscal quarters. Below we discuss the industries that were the most positive and negative contributors to the Fund's performance during the past year. The Fund's best-performing industry was Recreation & Resorts, mostly attributable to the performance of Wynn Resorts. Wynn benefited from the increased volume in Macau following the opening of Las Vegas Sand's Venetian Macau Cotai. We think that Wynn is close to announcing its own strategy on Cotai, which we think will provide an additional boost to the stock. The Fund also performed well with its Energy Services, Government Services and Medical Equipment investments. The Fund was most negatively affected by the Retail (Specialty Stores) Industry. DSW, Design Within Reach, Casual Male, Build-A-Bear Workshop, and Penske Automotive were all down. After a strong first half of fiscal year 2007, the broader retail sector underperformed during the second half of the fiscal year as signs of a weakening consumer sentiment affected many of the consumer-related names. The Fund was also negatively affected by its holdings in Distribution, Leisure, and Financial Services (Miscellaneous). Baron Small Cap's investments fall into three categories: Growth Stocks, Fallen Angels and Special Situations. The Fund intends to invest in "Growth Stocks" which we believe have significant long-term growth prospectsand can be purchased at what we believe are attractive prices because their prospects have not yet been appreciated by investors. "Fallen Angels" are companies which we believe have strong long-term franchises but have disappointed investors with short-term results, creating what we believe is a buying opportunity. "Special Situations" include spin-offs and recapitalizations, where lack of investor awareness creates opportunities to purchase what we believe are strong businesses at attractive prices. ---------------- (1) The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 7 BARON iOPPORTUNITY FUND SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- --------------------------------------------- BARON iOPPORTUNITY FUND Ticker Symbol: BIOPX --------------------------------------------- Performance 8 Top 10 Holdings 9 Top 10 Industries 9 Management's Discussion of Fund Performance 9 --------------------------------------------- [Registered Castle Logo] B A R O N (r) 1.800.99. BARON WWW.BARONFUNDS.COM (C)2007 ALL RIGHTS RESERVED 8 COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON IOPPORTUNITY FUND(1),(2) IN RELATION TO THE NASDAQ COMPOSITE(1) AND THE S&P 500(1) INDEXES [LINE GRAPH] Information Presented by Fiscal Year as of September 30 Date BIO S&P NASDAQ 500 Composite ------------------------------------------------- 02/29/2000 10,000 10,000 10,000 09/30/2000 8,760 10,582 7,820 09/30/2001 4,105 7,762 3,191 09/30/2002 3,643 6,171 2,496 09/30/2003 6,503 7,675 3,805 09/30/2004 7,607 8,737 4,039 09/30/2005 9,193 9,809 4,581 09/30/2006 10,086 10,865 4,809 09/30/2007 13,057 12,650 5,752 ------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2007
-------------------------------------------------------------------------------------------------------------- SINCE INCEPTION ONE YEAR THREE YEARS FIVE YEARS 02/29/2000 -------------------------------------------------------------------------------------------------------------- Baron iOpportunity Fund(1),(2) 29.45% 19.73% 29.08% 3.58% NASDAQ Composite(1) 19.62% 12.51% 18.18% -7.03% S&P 500(1) 16.43% 13.13% 15.44% 3.15% --------------------------------------------------------------------------------------------------------------
(1) The NASDAQ Composite and the S&P 500 are unmanaged indexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The NASDAQ Composite is without dividends. The S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) 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 shares held for less than six months. SEPTEMBER 30, 2007 BARON iOPPORTUNITY FUND -------------------------------------------------------------------------------- TOP TEN HOLDINGS AS OF SEPTEMBER 30, 2007 ------------------------------------------------------------------------------ % OF NET BARON iOPPORTUNITY FUND ASSETS ------------------------------------------------------------------------------ Equinix, Inc. 4.1% Apple, Inc. 4.0% Research in Motion, Ltd. 3.9% Charles Schwab Corp. 3.9% CME Group, Inc. 3.6% Google, Inc., Cl A 3.5% SBA Communications, Corp., Cl A 3.0% American Tower Corp., Cl A 2.9% Monster Worldwide, Inc. 2.6% Nii Holdings, Inc. 2.5% ------------------------------------------------------------------------------ 34.0% ------------------------------------------------------------------------------ TOP TEN INDUSTRIES AS OF SEPTEMBER 30, 2007 (as a percentage of net assets) [PIE CHART] ------------------------------------------------------------ Communications 20.6 % Financial Services - Brokerage & Exchanges 11.2 Media 11.0 Business Services 7.5 Communications Equipment 5.6 Advertising Services 5.2 Consumer Services 4.7 Computer Technology 4.0 Software 3.9 Leisure 3.8 Other 17.2 Cash and Cash Equivalents 5.3 ------------------------------------------------------------ 100.00 % ============================================================ MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Baron iOpportunity Fund's performance was strong in the fiscal year ended September 30, 2007, gaining 29.45%. The Fund outperformed both the S&P 500 and NASDAQ Composite, which were up 16.43% and 19.62%, respectively. According to the Morningstar(1) mid-cap growth category (consisting of 986 funds and including the Fund at September 30, 2007), an average fund gained 24.64% in the year ended September 30,2007. For the three-year period ended September 30,2007, the Fund gained 19.73% per year compared to 16.49% per year for the Morningstar mid-cap growth category (consisting of 816 funds at September 30, 2007). For the five-year period ended September 30, 2007, the Fund gained 29.08% per year compared to 17.68% per year for the Morningstar mid-cap growth category (consisting of 675 funds at September 30,2007). Baron iOpportunity Fund, like the other Baron Funds, utilizes value purchase disciplines while investing in growth companies that the Adviser believes have significant long-term information technology opportunities. The Adviser believes that its independent research will identify investment opportunities that are attractively priced relative to their future prospects. The Adviser further believes that many Internet businesses are at an early stage of development and that most Internet opportunities have yet to be discerned. Baron iOpportunity Fund's performance was up in each of the four fiscal quarters: 8.46% for the quarter ended December 31, 2006; 5.41% for the quarter ended March 31, 2007; 6.44% for the quarter ended June 30,2007; and 6.38% for the quarter ended September 30, 2007. The performance of the NASDAQ was weaker than the Fund's performance in each fiscal quarter except for the third. Below we discuss the most positive and negative contributors to the Fund's performance during the past year. The Fund's best-performing industry, Communications, was led by Cogent Communications Group. Its on-net business has continued to accelerate as demand for Cogent's Internet bandwidth products has remained strong, driven by increased adoption of Internet video, file sharing, online backup, web hosting, and social networking. The Fund was also positively affected by Communications Equipment, Consumer Services, Advertising Services and Computer Technology Industries. The Fund was most negatively impacted by the Energy Services Industry, solely attributable to Medis Technologies. According to the Adviser's research, Medis is the only company in the world to have developed portable, micro-fuel cells that can be used to charge handheld electronic devices. However, Medis is an early-stage company and has not yet begun full-scale production of these fuel cells. Because of this, Medis' stock has been extremely volatile. The Fund was also negatively affected by its holdings in Real Estate. The Fund expects to continue to invest in both Internet-related businesses, as well as established companies that we believe have significant and scalable information technology growth opportunities. We believe the Fund distinguishes itself from other Internet Funds because of its value orientation and industry diversification. ---------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 9 BARON FIFTH AVENUE GROWTH FUND SEPTEMBER 30,2007 -------------------------------------------------------------------------------- ----------------------------------------------- BARON FIFTH AVENUE GROWTH FUND Ticker Symbol: BFTHX ----------------------------------------------- Performance 10 Top 10 Holdings 11 Top 10 Industries 11 Management's Discussion of Fund Performance 11 ----------------------------------------------- [Registered Castle Logo] B A R O N (r) 1.800.99. BARON WWW.BARONFUNDS.COM (C)2007 ALL RIGHTS RESERVED 10 COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON FIFTH AVENUE GROWTH FUND(1),(2) IN RELATION TO THE S&P500(1)INDEX [LINE GRAPH] Information Presented by Fiscal Year as of September 30 Date BARON FIFTH AVENUE GROWTH FUND S&P 500 ----------------------------------------------------------------- 04/30/2004 10,000 10,000 09/30/2004 9,890 10,136 09/30/2005 11,560 11,380 09/30/2006 12,220 12,605 09/30/2007 14,120 14,676 ----------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED SEPTEMBER 30, 2007
------------------------------------------------------------------------------------------------------------ SINCE INCEPTION ONE YEAR THREE YEARS 04/30/2004 ------------------------------------------------------------------------------------------------------------ Baron Fifth Avenue Growth Fund(1),((2)) 15.55% 12.60% 10.63% S&P 500(1) 16.43% 13.13% 11.88% ------------------------------------------------------------------------------------------------------------
---------- (1) 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 which positively impacts their performance results. (2) 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. SEPTEMBER 30, 2007 BARON FIFTH AVENUE GROWTH FUND -------------------------------------------------------------------------------- TOP TEN HOLDINGS AS OF SEPTEMBER 30, 2007 ------------------------------------------- % OF NET BARON FIFTH AVENUE GROWTH FUND ASSETS ------------------------------------------- Diageo plc, ADR 4.2% Diamond Offshore Drilling, Inc. 4.0% Transocean, Inc. 3.8% American Express Co. 3.8% PepsiCo, Inc. 3.7% Procter & Gamble Co. 3.6% American Tower Corp., Cl A 3.3% Las Vegas Sands Corp. 3.2% Google, Inc., Cl A 3.1% pple, Inc. 3.1% ------------------------------------------ 35.8% ------------------------------------------ TOP TEN INDUSTRIES AS OF SEPTEMBER 30,2007 (as a percentage of net assets) [PIE CHART] ------------------------------------------------------------ Consumer Products 14.3 % Energy Services 9.5 Retail - Consumer Staples 9.3 Recreation and Resorts 7.7 Media 7.0 Business Services 6.1 Financial Services - Brokerage & Exchanges 5.6 Retail - Specialty Stores 5.4 Communications 5.3 Computer Technology 5.1 Other 23.4 Cash and Cash Equivalents 1.3 ------------------------------------------------------------ 100.00 % ============================================================ MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Baron Fifth Avenue Growth Fund gained 15.55% in the fiscalyear ended September 30, 2007. The Fund's relative index, the S&P 500, gained 16.43% during the same period. Baron Fifth Avenue Growth Fund underperformed its Morningstar(1) peer group of large-cap growth funds for the one-year period ended September 30, 2007. According to Morningstar, an average fund in the large cap growth category (consisting of 1,708 funds at September 30, 2007) gained 20.57% in the fiscalyear ended September 30, 2007. According to Morningstar, the Fund performed in-line with its large-cap peers in the three-year period ended September 30, 2007. The Fund was up 12.60% versus 12.93% for its large-cap growth category peers (consisting of 1,443 funds as of September 30,2007). Baron Fifth Avenue Growth Fund focuses on the long-term fundamental prospects of the businesses in which it invests. This contrasts with other investors' focus on historical operating results or current earnings expectations. The Adviser believes that historical results and the outlook for near-term earnings are often not indicative of superior longer-term prospects that can be identified through research efforts. The Adviser believes it can gain an investment advantage through its independent and exhaustive research of businesses. The Fund attempts to purchase what the Adviser believes are great large-cap companies with exciting prospects at attractive prices when the Adviser thinks prospects are misunderstood, markets react to short-term events, or experts are wrong. The Fund's performance was positive for each fiscal quarter: 7.28% for the quarter ended December 31, 2006; 0.99% for the quarter ended March 31, 2007; 2.49% for the quarter ended June 30, 2007; and 4.05% for the quarter ended September 30,2007. The performance of the comparative index was weaker than the Fund's performance in the first, second, and fourth quarters, and stronger in the third quarter. Below we discuss the most positive and negative contributors to the Fund's performance during the past year. The Fund's best-performing industry was Recreation & Resorts, mostly due to Wynn Resorts and Las Vegas Sands. Investor enthusiasm for these two companies began in July and continued through the month of September largely on the heels of a strong opening for the highly-anticipated Venetian property for Las Vegas Sands. Early signs suggest that the success seems to be positively affecting the Macau markets and benefiting Venetian's casino operators in addition to Las Vegas Sands. We expect the growth in Macau revenues to continue to accelerate, even from this already high level. The Fund was also positively affected by its holdings in Energy Services, Consumer Products and Computer Technology. The Fund's performance was most negatively affected by the Retail (Consumer Staples) industry. Macy's, Whole Foods Market and Wal-Mart were all down. After a strong first half of fiscal year 2007, the broader retail sector underperformed during the second half of the fiscal year as signs of weakening consumer sentiment affected many of the consumer-related names. The Fund was also negatively affected by its holdings in Healthcare Services. The Adviser intends to invest in what we believe are some of the best large cap companies. The Fund is positioned, in our view, in blue-chip, best-of-breed growth companies with a strong emphasis on quality to reduce risk. We believe the key to long-term stock appreciation is consistent earnings growth. We invest in those companies that are market share leaders who dominate their industry, companies with strong franchises and a strong brand name, avoiding fads and other short-term, unsustainable trends. We target companies that are the low-cost operators in their industry with, in our view, high barriers to entry. We also try to invest in growth companies that are positioned in industries that are themselves growing as opposed to industries that are stagnant or structurally challenged. --------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 11 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) -------------------------------------------------------------------------------- As a shareholder of the Funds, you may incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include advisory fess, distribution and service (12b-1) fees and other Fund expenses. Due to the payment of Rule 12b-1 fees, long-term shareholders may indirectly pay more than the maximum permitted front-end sales charge. 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 Funds 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 1,2007 and held for the six months ended September 30,2007. 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 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007(
------------------------------------------------------------------------------------------------------------------ ACTUAL BEGINNING ENDING ANNUALIZED EXPENSES TOTAL ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING RETURN APRIL 1,2007 SEPTEMBER 30, 2007 RATIOS THE PERIOD(2) ------------------------------------------------------------------------------------------------------------------ Baron Asset Fund 8.19% $ 1,000.00 $ 1,081.91 1.33% $ 6.94 Baron Growth Fund 6.42% $ 1,000.00 $ 1,064.18 1.31% $ 6.78 Baron Small Cap Fund 7.42% $ 1,000.00 $ 1,074.23 1.31% $ 6.81 Baron iOpportunity Fund 13.23% $ 1,000.00 $ 1,132.29 1.42% $ 7.59 Baron Fifth Avenue Growth Fund 6.65% $ 1,000.00 $ 1,066.47 1.36% $ 7.05
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 Funds' 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 Funds and other funds. To do so, compare the 5% hypothetical example relating to the Funds 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 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007
------------------------------------------------------------------------------------------------------------------------------- HYPOTHETICAL BEGINNING ENDING ANNUALIZED EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE EXPENSE PAID DURING TOTAL RETURN APRIL 1,2007 SEPTEMBER 30, 2007 RATIOS THE PERIOD(2) ------------------------------------------------------------------------------------------------------------------------------- Baron Asset Fund 5.00% $ 1,000.00 $ 1,018.40 1.33% $ 6.73 Baron Growth Fund 5.00% $ 1,000.00 $ 1,018.50 1.31% $ 6.63 Baron Small Cap Fund 5.00% $ 1,000.00 $ 1,018.50 1.31% $ 6.63 Baron iOpportunity Fund 5.00% $ 1,000.00 $ 1,017.95 1.42% $ 7.18 Baron Fifth Avenue Growth Fund 5.00% $ 1,000.00 $ 1,018.25 1.36% $ 6.88
---------------- (1) Assumes all reinvestment of dividends and capital gain distributions, if any. (2) Expenses are equal to each Fund's respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent Fiscal half-year, then divided by 365. 12 SEPTEMBER 30,2007 BARON ASSET FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- SEPTEMBER 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (95.01%) ---------------------------------------------------------------------------------------- APPAREL (1.91%) 1,100,000 Polo Ralph Lauren Corp., Cl A $ 26,528,848 $ 85,525,000 BUSINESS SERVICES (9.60%) 2,000,000 Brown & Brown, Inc. 46,427,538 52,600,000 3,300,000 ChoicePoint, Inc.(1)(4) 36,286,236 125,136,000 865,000 FactSet Research Systems, Inc. 50,660,750 59,295,750 600,000 IHS, Inc., ClA(1) 28,072,414 33,894,000 2,900,000 Iron Mountain, Inc.(1) 63,076,798 88,392,000 1,150,000 Robert Half Intl., Inc. 1,202,006 34,339,000 1,300,000 SEI Investments Co. 24,895,335 35,464,000 -------------- ------------ 250,621,077 429,120,750 COMMUNICATIONS (1.27%) 300,000 Equinix, Inc.(1) 25,506,560 26,607,000 850,000 SBA Communications Corp., Cl A(1) 29,967,658 29,988,000 -------------- ------------ 55,474,218 56,595,000 CONSULTING (2.51%) 550,000 Corporate Executive Board Co. 46,226,914 40,832,000 2,500,000 Gartner, Inc.(1) 62,380,174 61,150,000 200,000 Moody's Corp. 5,136,492 10,080,000 -------------- ------------ 113,743,580 112,062,000 DISTRIBUTION (2.16%) 1,350,000 Fastenal Co. 54,551,049 61,303,500 700,000 MSC Industrial Direct Co., Inc., Cl A 36,638,791 35,413,000 -------------- ------------ 91,189,840 96,716,500 EDUCATION (1.06%) 1,275,000 DeVry, Inc. 7,614,588 47,187,750 ENERGY SERVICES (7.55%) 1,000,000 Covanta Holding Corp.(1) 23,332,488 24,510,000 1,200,000 Helmerich & Payne, Inc. 38,464,161 39,396,000 500,000 Petroplus Holdings AG(1)(2) 34,354,429 44,115,100 500,000 SEACOR Holdings, Inc.(1) 14,322,278 47,550,000 550,000 SunPower Corp., Cl A(1) 23,223,259 45,551,000 200,000 Ultra Petroleum Corp.(1) 4,847,419 12,408,000 2,000,000 XTO Energy, Inc. 13,602,027 123,680,000 -------------- ------------ 152,146,061 337,210,100 FINANCIAL SERVICES - ASSET MANAGEMENT (5.35%) 600,000 AllianceBernstein Holding L.P. 24,584,256 52,842,000 2,000,000 Eaton Vance Corp. 54,244,546 79,920,000 1,000,000 Nuveen Investments, Inc., ClA 36,668,384 61,940,000 800,000 T. Rowe Price Group, Inc. 21,584,167 44,552,000 -------------- ------------ 137,081,353 239,254,000 FINANCIAL SERVICES - BANKING (0.97%) 625,000 City National Corp. 45,241,255 43,443,750 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (9.42%) 8,800,000 Charles Schwab Corp. 21,422,499 190,080,000 255,000 CME Group, Inc. (formerly Chicago Mercantile Exchange Holdings, Inc., ClA) 18,498,370 149,774,250 200,000 IntercontinentalExchange, Inc.(1) 26,174,215 30,380,000 1,815,000 Jefferies Group, Inc. 51,452,427 50,511,450 -------------- ------------ 117,547,511 420,745,700 FINANCIAL SERVICES - INSURANCE (3.49%) 1,300,000 Arch Capital Group, Ltd.(1)(2) 54,246,056 96,733,000 1,000,000 Assurant, Inc. 37,153,168 53,500,000 200,000 HCC Insurance Holdings, Inc. 5,969,756 5,728,000 97,368,980 155,961,000 -------------- ------------ FINANCIAL SERVICES - MISCELLANEOUS (0.74%) 400,000 Redecard SA, GDR 144A(1)(2) 13,641,149 14,882,720 100,000 Student Loan Corp. 13,894,100 18,032,000 -------------- ------------ 27,535,249 32,914,720 GAMING SERVICES (1.26%) 1,500,000 Scientific Games Corp., Cl A(1) 45,507,788 56,400,000 GOVERNMENT SERVICES (1.18%) 2,750,000 SAIC, Inc.(1) 49,157,711 52,772,500 HEALTHCARE FACILITIES (4.28%) 1,150,000 Brookdale Senior Living, Inc. 49,838,022 45,781,500 1,350,000 Community Health Systems, Inc.(1) 40,796,634 42,444,000 1,600,000 Manor Care, Inc. 38,297,714 103,040,000 -------------- ------------ 128,932,370 191,265,500 HEALTHCARE PRODUCTS (2.52%) 1,150,000 DENTSPLY International, Inc. 25,389,865 47,886,000 800,000 Henry Schein, Inc.(1) 22,796,151 48,672,000 200,000 Zimmer Holdings, Inc.(1) 6,087,903 16,198,000 -------------- ------------ 54,273,919 112,756,000 HEALTHCARE SERVICES (7.03%) 850,000 Covance, Inc.(1) 50,799,180 66,215,000 615,000 IDEXX Laboratories, Inc.(1) 51,189,620 67,397,850 1,200,000 Stericycle, Inc.(1) 37,558,043 68,592,000 850,000 Thermo Fisher Scientific, Inc.(1) 24,522,276 49,062,000 1,500,000 VCAAntech, Inc.(1) 52,139,269 62,625,000 -------------- ------------ HEALTHCARE SERVICES - 216,208,388 313,891,850 INSURANCE (1.24%) 700,000 WellPoint, Inc.(1) 17,819,752 55,244,000 HOTELS AND LODGING (0.72%) 850,000 Choice Hotels Intl., Inc. 4,185,563 32,019,500 INFORMATION TECHNOLOGY SERVICES (1.35%) 1,300,000 CheckFree Corp.(1) 50,033,687 60,502,000 MANUFACTURING (0.69%) 700,000 Embraer - Empresa Brasileira de Aeronautica S.A., ADR(1) 28,624,174 30,744,000 MEDIA (1.53%) 1,400,000 Lamar Advertising Co., Cl A(1) 79,142,355 68,558,000 REAL ESTATE (2.21%) 2,150,000 CB Richard Ellis Group, Inc., Cl A(1) 29,735,448 59,856,000 425,532 Corrections Corp. of America(1) 1,418 11,136,173 500,000 Forest City Enterprises, Inc., Cl A 24,352,392 27,580,000 -------------- ------------ 54,089,258 98,572,173
See Notes to Financial Statements. 13 BARON ASSET FUND SEPTEMBER 30,2007 -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- SEPTEMBER 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) ---------------------------------------------------------------------------------------- REAL ESTATE - HOME BUILDING (0.27%) 600,000 Toll Brothers, Inc.(1) $ 11,641,925 $ 11,994,000 REAL ESTATE - REITS (3.67%) 314,000 Alexander's, Inc.(1)(5) 20,453,936 121,047,000 800,000 Douglas Emmett, Inc. 17,052,243 19,784,000 200,000 SL Green Realty Corp. 16,753,741 23,354,000 -------------- -------------- 54,259,920 164,185,000 RECREATION AND RESORTS (10.87%) 1,300,000 Boyd Gaming Corp. 54,856,924 55,705,000 3,000,000 Vail Resorts, Inc.(1)(5) 61,273,805 186,870,000 155,000 Wynn Resorts, Ltd.(1) 1,067,958 24,421,800 1,459,408 Wynn Resorts, Ltd.(1)(3) 21,345,164 218,447,108 -------------- -------------- 138,543,851 485,443,908 RESTAURANTS (0.68%) 1,300,000 Cheesecake Factory, Inc.(1) 30,439,703 30,511,000 RETAIL - CONSUMER STAPLES (1.37%) 1,250,000 Whole Foods Market, Inc. 41,811,475 61,200,000 RETAIL - SPECIALTY STORES (3.67%) 1,500,000 CarMax, Inc.(1) 23,525,616 30,495,000 450,000 Dick's Sporting Goods, Inc.(1) 25,747,718 30,217,500 900,000 O'Reilly Automotive, Inc.(1) 26,139,928 30,069,000 1,400,000 Tiffany & Co. 47,758,983 73,290,000 -------------- -------------- 123,172,245 164,071,500 TRANSPORTATION (2.84%) 1,550,000 C. H. Robinson Worldwide, Inc. 30,028,921 84,149,500 900,000 Expeditors International of Washington, Inc. 21,676,121 42,570,000 -------------- -------------- 51,705,042 126,719,500 UTILITY SERVICES (1.60%) 2,300,000 Southern Union Co. 30,218,480 71,553,000 -------------- -------------- TOTAL COMMOMON STOCKS 2,331,860,166 4,245,139,701 -------------- -------------- ---------------------------------------------------------------------------------------- PRIVATE EQUITY INVESTMENTS (1.52%) ---------------------------------------------------------------------------------------- EDUCATION (0.00%) 105,264 Apollo International, Inc., S-A Conv. Pfd.(1)(3)(5) 800,006 0 HEALTHCARE SERVICES (0.36%) 6,841 Somerford Corp. S-A Conv. Pfd.(1)(3) 10,951,004 15,999,985 RECREATION AND RESORTS (1.16%) 5,200,000 Kerzner Intl. Holdings, Ltd., ClA(1)(2)(3) 52,000,000 52,000,000 -------------- -------------- TOTAL PRIVATE EQUITY INVESTMENTS 63,751,010 67,999,985 -------------- --------------
Principal Amount Cost Value ---------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS (3.47%) ---------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS $ 154,996,649 Repurchase Agreement with Fixed Income Clearing Corp., dated 09/28/2007, 3.85% due 10/01/2007; Proceeds at maturity-$155,046,378; (Fully collateralized by U.S. Treasury Bond, 8.125% due 08/15/2019; Market value- $5,805,725 and U.S. Treasury Bond, 7.25% due 08/15/2022; Market value - $75,675 and U.S. Treasury Note, 4.625% due 02/15/2017; Market value $152,218,138) $ 154,996,649 $ 154,996,649 -------------- -------------- TOTAL INVESTMENTS (100.00%) $2,550,607,825 4,468,136,335 ============== LIABILITIES LESS CASH AND OTHER ASSETS (0.00%) (180,896) -------------- NET ASSETS (EQUIVALENT TO $66.57 PER SHARE BASED ON 67,118,335 SHARES OUTSTANDING) $4,467,955,439 ==============
---------- * Represents percentage of net assets. (1) Non-income producing securities. (2) Foreign domiciled corporation. (3) See Note 7 regarding restricted and fair valued securities. (4) Represents securities or a portion thereof, in segregated custodian account. See Note 10. (5) See Note 9 regarding "Affiliated" Companies. ADR American Depositary Receipt. GDR Global Depositary Receipt. 144A Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted. 14 See Notes to Financial Statements. SEPTEMBER 30,2007 BARON GROWTH FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- SEPTEMBER 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (91.35%) ---------------------------------------------------------------------------------------- ADVERTISING SERVICES (0.30%) 450,000 Harte-Hanks, Inc. $ 7,987,320 $ 8,856,000 550,000 National CineMedia, Inc. 13,700,129 12,320,000 -------------- -------------- 21,687,449 21,176,000 APPAREL (1.80%) 2,700,000 Carter's, Inc.(1) 35,977,020 53,865,000 1,225,000 Under Armour, Inc., Cl A(1) 40,384,710 73,279,500 -------------- -------------- 76,361,730 127,144,500 AUTOMOTIVE PARTS (2.51%) 2,725,000 Copart, Inc.(1) 69,029,357 93,712,750 2,408,658 LKQ Corp.(1) 65,314,216 83,845,385 -------------- -------------- 134,343,573 177,558,135 BUILDING MATERIALS (0.35%) 700,000 Eagle Materials, Inc. 32,545,671 25,018,000 BUSINESS SERVICES (1.43%) 600,000 Brown & Brown, Inc. 9,830,330 15,780,000 1,500,000 ChoicePoint, Inc.(1)(4) 32,039,190 56,880,000 40,000 FactSet Research Systems, Inc. 2,040,491 2,742,000 387,100 IHS, Inc., ClA(1) 15,877,527 21,867,279 1,081,000 Integrated Distribution Services Group, Ltd.(2) 3,761,280 4,178,389 -------------- -------------- 63,548,818 101,447,668 CHEMICAL (0.17%) 700,000 Senomyx, Inc.(1) 6,340,864 8,575,000 400,000 Symyx Technologies, Inc.(1) 4,302,431 3,476,000 -------------- -------------- 10,643,295 12,051,000 COMMUNICATIONS (2.16%) 1,050,000 Equinix, Inc.(1) 34,189,968 93,124,500 1,700,000 SBA Communications Corp., ClA(1) 6,533,038 59,976,000 -------------- -------------- 40,723,006 153,100,500 CONSULTING (0.26%) 750,000 Gartner, Inc.(1) 16,609,455 18,345,000 CONSUMER PRODUCTS (1.20%) 1,575,000 Church & Dwight Co., Inc. 58,038,013 74,088,000 450,000 Marvel Entertainment, Inc.(1) 10,249,991 10,548,000 -------------- -------------- 68,288,004 84,636,000 CONSUMER SERVICES (2.23%) 1,350,000 Chemed Corp.(5) 51,815,546 83,916,000 1,200,000 Morningstar, Inc.(1) 26,102,655 73,680,000 -------------- -------------- 77,918,201 157,596,000 EDUCATION (3.60%) 3,700,000 DeVry, Inc.(5) 62,024,338 136,937,000 700,000 Strayer Education, Inc. 57,859,739 118,041,000 -------------- -------------- 119,884,077 254,978,000 ENERGY SERVICES (8.15%) 550,000 Carrizo Oil & Gas, Inc.(1) 21,415,856 24,673,000 400,000 Core Laboratories N.V.(1)(2) 19,417,274 50,956,000 800,000 Dresser-Rand Group, Inc.(1) 19,155,509 34,168,000 3,100,000 Encore Acquisition Co.(1)(5) 51,499,113 98,115,000 1,450,000 EXCO Resources, Inc.(1) 21,822,215 23,983,000 2,200,000 FMC Technologies, Inc.(1) 25,188,996 126,852,000 1,050,000 Helmerich & Payne, Inc. 24,393,872 34,471,500 637,500 PHI, Inc.(1) 18,390,290 19,214,250 487,500 Range Resources Corp. 8,333,343 19,821,750 475,000 SEACOR Holdings, Inc.(1) 21,065,303 45,172,500 850,000 SunPower Corp., Cl A(1) 24,439,815 70,397,000 650,000 Whiting Petroleum Corp.(1) 22,550,925 28,892,500 -------------- -------------- 277,672,511 576,716,500 FINANCIAL SERVICES - ASSET MANAGEMENT (1.89%) 1,950,000 Cohen & Steers, Inc. 38,355,016 72,208,500 650,000 Eaton Vance Corp. 11,290,146 25,974,000 325,000 GAMCO Investors, Inc., ClA 6,570,340 17,810,000 290,000 Nuveen Investments, Inc., Cl A 7,748,686 17,962,600 -------------- -------------- 63,964,188 133,955,100 FINANCIAL SERVICES - BANKING (4.31%) 700,000 Cathay General Bancorp 25,462,218 22,547,000 646,168 Center Financial Corp. 14,235,004 8,988,197 800,000 Central Pacific Financial Corp. 28,316,418 23,360,000 875,000 Frontier Financial Corp. 20,969,282 20,413,750 1,200,000 Glacier Bancorp, Inc. 28,784,986 27,024,000 1,700,000 SVB Financial Group(1) 85,140,344 80,512,000 4,500,000 UCBH Holdings, Inc. 89,138,096 78,660,000 1,175,000 Virginia Commerce Bancorp, Inc.(1) 22,544,773 16,849,506 1,125,000 Western Alliance Bancorporation(1) 37,506,290 26,516,250 -------------- -------------- 352,097,411 304,870,703 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (3.03%) 863,400 Evercore Partners, Inc., CL A 23,023,249 22,698,786 1,350,000 FCStone Group, Inc.(1) 27,554,759 43,564,500 4,800,000 Jefferies Group, Inc. 73,517,475 133,584,000 1,000,000 Thomas Weisel Partners Group, Inc.(1) 18,884,402 14,510,000 -------------- -------------- 142,979,885 214,357,286 FINANCIAL SERVICES - INSURANCE(1.73%) 1,650,000 Arch Capital Group, Ltd.(1)(2) 51,045,431 122,776,500 FINANCIAL SERVICES - MISCELLANEOUS (1.05%) 1,400,000 National Financial Partners Corp. 73,758,637 74,172,000
See Notes to Financial Statements. 15 BARON GROWTH FUND September 30,2007 -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) ---------------------------------------------------------------------------------------- FOOD AND AGRICULTURE (1.10%) 1,400,000 Ralcorp Holdings, Inc.(1)(5) $ 53,671,573 $ 78,148,000 GAMING SERVICES (0.69%) 1,300,000 Scientific Games Corp., Cl A(1) 32,010,748 48,880,000 HEALTHCARE FACILITIES (3.08%) 2,000,000 Community Health Systems, Inc.(1) 49,858,101 62,880,000 724,600 Emeritus Corp.(1) 21,783,313 19,636,660 1,800,000 Manor Care, Inc. 33,815,991 115,920,000 425,000 Skilled Healthcare Group, Inc., 6,719,973 6,693,750 ClA(1) 750,000 Sun Healthcare Group, Inc.(1) 8,628,484 12,532,500 -------------- ------------ 120,805,862 217,662,910 HEALTHCARE PRODUCTS (1.62%) 2,000,000 Edwards Lifesciences Corp.(1) 59,602,587 98,620,000 850,000 PSS World Medical, Inc.(1) 17,338,615 16,260,500 -------------- ------------ 76,941,202 114,880,500 HEALTHCARE SERVICES (5.50%) 1,050,000 Charles River Laboratories Intl., Inc.(1) 30,142,796 58,957,500 800,000 Gen-Probe, Inc.(1) 33,725,299 53,264,000 1,600,000 Healthways, Inc.(1) 72,538,241 86,352,000 7,000,000 HLTH Corp.(1) 99,144,718 99,190,000 160,000 IDEXX Laboratories, Inc.(1) 9,006,923 17,534,400 800,000 NightHawk Radiology Holdings, Inc.(1) 14,085,701 19,608,000 1,275,000 Odyssey HealthCare, Inc.(1) 14,491,981 12,252,750 850,000 PRA International(1) 19,360,963 24,990,000 400,700 VCAAntech, Inc.(1) 11,830,115 16,729,225 -------------- ------------ 304,326,737 388,877,875 HEALTHCARE SERVICES - INSURANCE (3.43%) 2,500,000 AMERIGROUPCorp.(1) 42,527,141 86,200,000 1,400,000 Centene Corp.(1) 11,768,729 30,114,000 1,200,000 WellCare Health Plans, Inc.(1) 50,177,128 126,516,000 -------------- ------------ 104,472,998 242,830,000 HOTELS AND LODGING (1.06%) 1,875,000 Choice Hotels Intl., Inc. 37,619,577 70,631,250 575,000 Kingdom Hotel Investments, GDR(1)(2) 5,149,127 4,715,000 -------------- ------------ 42,768,704 75,346,250 INFORMATION TECHNOLOGY SERVICES (0.66%) 1,000,000 CheckFree Corp.(1) 18,042,917 46,540,000 INFRASTRUCTURE (2.45%) 3,451,222 AECOM Technology Corp.(1) 77,780,253 120,551,184 1,375,000 Macquarie Infrastructure Co. LLC 48,580,661 53,061,250 126,360,914 173,612,434 -------------- ------------ LEISURE (0.31%) 729,500 Allegiant Travel Co.(1) 23,167,918 22,118,440 MEDIA (0.87%) 600,000 Central European Media Enterprises, Ltd., Cl A(1)(2) 29,408,871 55,026,000 300,000 Netflix, Inc.(1) 7,356,888 6,216,000 -------------- ------------ 36,765,759 61,242,000 MEDICAL EQUIPMENT (0.89%) 275,000 Intuitive Surgical, Inc.(1) 4,029,661 63,250,000 REAL ESTATE (2.88%) 4,950,000 CB Richard Ellis Group, Inc., ClA(1) 35,102,586 137,808,000 925,000 CoStar Group, Inc.(1) 39,770,736 49,441,250 1,000,000 HFF, Inc., ClA(1) 18,032,791 11,870,000 147,854 St. Joe Company 4,939,469 4,969,373 -------------- ----------- 97,845,582 204,088,623 REAL ESTATE - HOME BUILDING (0.64%) 1,050,000 Brookfield Homes Corp. 35,280,148 19,477,500 625,000 M.D.C. Holdings, Inc. 31,144,412 25,587,500 -------------- ----------- 66,424,560 45,065,000 REAL ESTATE - REITS (2.16%) 1,475,000 Acadia Realty Trust 39,458,028 40,016,750 136,838 Alexander's, Inc.(1) 29,189,317 52,751,049 182,214 CBRE Realty Finance, Inc. 2,642,103 1,075,063 1,500,000 Digital Realty Trust, Inc. 54,621,488 59,085,000 -------------- ----------- 125,910,936 152,927,862 RECREATION AND RESORTS (10.37%) 2,850,000 Ameristar Casinos, Inc. 67,561,095 80,085,000 200,000 Boyd Gaming Corp. 5,345,492 8,570,000 1,500,000 Gaylord Entertainment Co.(1) 70,857,828 79,830,000 1,450,000 Isle of Capri Casinos, Inc.(1) 30,683,260 28,202,500 575,000 Penn National Gaming, Inc.(1) 16,140,523 33,936,500 2,900,000 Pinnacle Entertainment, Inc.(1) 91,266,677 78,967,000 1,700,000 Station Casinos, Inc. 39,029,399 148,716,000 877,978 Steiner Leisure, Ltd.(1)(5) 41,430,816 38,104,245 1,250,000 Vail Resorts, Inc.(1) 21,897,070 77,862,500 500,000 Wynn Resorts, Ltd.(1) 8,255,919 78,780,000 537,677 Wynn Resorts, Ltd.(1)(3) 7,863,993 80,480,569 -------------- ------------ 400,332,072 733,534,314
16 See Notes to Financial Statements. SEPTEMBER 30,2007 BARON GROWTH FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value --------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) --------------------------------------------------------------------------------------- RESTAURANTS (2.85%) 1,350,000 California Pizza Kitchen, Inc.(1) $ 23,047,680 $ 23,719,500 3,675,000 Cheesecake Factory, Inc.(1)(5) 85,772,814 86,252,250 91,193 Chipotle Mexican Grill, Inc., Cl A(1) 3,795,605 10,772,629 1,500,000 Panera Bread Co., Cl A(1) 60,936,852 61,200,000 700,000 Peet's Coffee & Tea, Inc.(1)(5) 15,273,681 19,537,000 -------------- --------------- 188,826,632 201,481,379 RETAIL - SPECIALTY STORES (9.69%) 800,000 Blue Nile, Inc.(1)(5) 23,190,333 75,296,000 1,200,000 Cabela's, Inc., ClA(1) 26,601,533 28,380,000 3,300,000 CarMax, Inc.(1) 34,948,928 67,089,000 2,500,000 Dick's Sporting Goods, Inc.(1) 86,074,246 167,875,000 1,500,000 DSW, Inc., ClA(1) 37,572,261 37,755,000 600,000 Guitar Center, Inc.(1) 33,687,665 35,580,000 2,900,000 J. Crew Group, Inc.(1) 93,937,342 120,350,000 4,500,000 Penske Automotive Group, Inc. (formerly United Auto Group, Inc.) 92,701,894 91,080,000 2,400,000 Select Comfort Corp.(1)(5) 32,702,301 33,480,000 625,000 Tractor Supply Co.(1) 24,758,679 28,806,250 -------------- --------------- 486,175,182 685,691,250 SOFTWARE (0.73%) 1,900,000 Allscripts Healthcare Solutions, Inc.(1) 52,349,487 51,357,000 TRANSPORTATION (2.08%) 600,000 Aircastle, Ltd. 19,420,865 20,052,000 1,000,000 American Railcar Industries, Inc. 24,363,154 22,020,000 2,000,000 Genesee & Wyoming, Inc., Cl A(1) 32,221,169 57,680,000 550,000 Landstar System, Inc. 13,610,267 23,083,500 1,050,000 UTI Worldwide, Inc(.) 24,275,698 24,129,000 -------------- --------------- 113,891,153 146,964,500 UTILITY SERVICES (2.12%) 2,000,000 ITC Holdings Corp. 57,396,900 99,100,000 1,627,498 Southern Union Co. 19,474,277 50,631,463 -------------- --------------- 76,871,177 149,731,463 -------------- --------------- TOTAL COMMON STOCKS 4,176,063,116 6,464,128,692 -------------- --------------- --------------------------------------------------------------------------------------- PRIVATE EQUITY INVESTMENTS (1.83%) --------------------------------------------------------------------------------------- PHARMACEUTICAL (0.21%) 750,000 Reliant Pharmaceuticals LLC, Series D(1)(3) $ 15,000,000 $ 15,000,000 RECREATION AND RESORTS (1.60%) 3,166,666 Fontainebleau Resorts, LLC(1)(1)(3) 34,999,992 37,999,992 8 Island Global Yachting IV L.P.(1)(3)(6) 803,570 803,600 7,400,000 Kerzner Intl. Holdings, Ltd., Cl A(1)(2)(3) 74,000,000 74,000,000 -------------- --------------- 109,803,562 112,803,592 TRANSPORTATION (0.02%) 234,375 EOS Airlines, Inc., Cl C(1)(3) 2,500,000 1,368,984 -------------- --------------- TOTAL PRIVATE EQUITY INVESTMENTS 127,303,562 129,172,576 -------------- --------------- Principal Amount --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS (4.99%) --------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS $ 352,939,911 Repurchase Agreement with Fixed Income Clearing Corp., dated 09/28/2007, 3.85% due 10/01/2007; Proceeds at maturity-$353,053,146; (Fully collateralized by U.S. Treasury Bond, 7.50% due 11/15/2016; Market value - $244,701,594 and U.S. Treasury Note, 4.625% due 02/15/2017; Market value $115,298,300) 352,939,911 352,939,911 -------------- --------------- TOTAL INVESTMENTS (98.17%) $4,656,306,589 6,946,241,179 ============== CASH AND OTHER ASSETS LESS LIABILITIES (1.83%) 129,645,595 --------------- NET ASSETS (EQUIVALENT TO $54.55 PER SHARE BASED ON 129,709,093 SHARES OUTSTANDING) $ 7,075,886,774 ===============
---------- % Represents percentage of net assets. (1) Non-income producing securities. (2) Foreign domiciled corporation. (3) See Note 7 regarding restricted and fair valued securities. (4) Represents securities or a portion thereof, in segregated custodian account. See Note 10. (5) See Note 9 regarding "Affiliated" Companies. (6) Investment in partnership units. To date, invested $803,570 out of a capital commitment of $5,000,000. (GDR) Global Depositary Receipt. See Notes to Financial Statements. 17 BARON SMALL CAP FUND September 30,2007 -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value --------------------------------------------------------------------------------------- COMMON STOCKS (94.87%) --------------------------------------------------------------------------------------- ADVERTISING SERVICES (2.07%) 2,250,000 National CineMedia, $ 54,718,030 $ 50,400,000 Inc.(5) 400,000 R.H. Donnelley Corp.(1) 11,312,482 22,408,000 -------------- ------------- 66,030,512 72,808,000 APPAREL (3.05%) 1,350,000 Carter's, Inc.(1) 22,342,106 26,932,500 750,000 Fossil, Inc.(1) 14,949,784 28,020,000 400,000 Lululemon Athletica, Inc.(1)(2) 7,200,000 16,812,000 2,500,000 Quiksilver, Inc.(1) 20,155,099 35,750,000 -------------- ------------- 64,646,989 107,514,500 BUILDING MATERIALS (1.27%) 1,250,000 Eagle Materials, Inc. 23,694,578 44,675,000 BUSINESS SERVICES (1.89%) 575,000 ChoicePoint, Inc.(1) 5,487,791 21,804,000 1,462,500 Iron Mountain, Inc.(1) 10,010,524 44,577,000 -------------- ------------- 15,498,315 66,381,000 COMMUNICATIONS (5.85%) 1,750,000 American Tower Corp., Cl A(1)(4) 6,402,929 76,195,000 2,750,000 SBA Communications Corp., Cl A(1) 27,026,677 97,020,000 1,500,000 Time Warner Telecom, Inc., Cl A(1) 4,518,321 32,955,000 -------------- ------------- 57,947,927 206,170,000 CONSULTING (2.56%) 650,000 Corporate Executive Board Co. 27,774,515 48,256,000 1,707,100 Gartner, Inc.(1) 38,186,218 41,755,666 -------------- ------------- 65,960,733 90,011,666 CONSUMER PRODUCTS (2.90%) 850,000 ACCO Brands Corp.(1) 19,869,851 19,074,000 1,500,000 DTS, Inc.(1)(5) 30,934,334 45,555,000 1,600,000 Marvel Entertainment, Inc.(1) 36,855,202 37,504,000 -------------- ------------- 87,659,387 102,133,000 CONSUMER SERVICES (0.16%) 150,000 MercadoLibre, Inc.(1)(2) 3,117,500 5,494,500 DISTRIBUTION (0.29%) 1,000,000 Beacon Roofing Supply, Inc.(1) 25,181,338 10,220,000 EDUCATION (3.99%) 553,199 Capella Education Co.(1) 19,794,628 30,929,356 3,880,000 SkillSoft PLC, ADR(1)(2) 28,990,066 34,881,200 444,000 Strayer Education, Inc. 37,452,157 74,871,720 -------------- ------------- 86,236,851 140,682,276 ENERGY SERVICES (5.88%) 2,500,000 Covanta Holding Corp.(1) 38,709,339 61,275,000 100,000 Linn Energy LLC 3,654,627 3,188,000 300,000 Linn Energy LLC(3) 10,050,000 9,085,800 857,500 PHI, Inc.(1) 24,669,136 25,845,050 1,300,000 SunPower Corp., Cl A(1) 38,267,902 107,666,000 -------------- ------------- 115,351,004 207,059,850 ENVIRONMENTAL (1.47%) 500,000 Clean Harbors, Inc.(1) 26,048,277 22,260,000 1,000,000 Nalco Holding Co. 17,014,844 29,650,000 -------------- ------------- 43,063,121 51,910,000 FINANCIAL SERVICES - ASSET MANAGEMENT (1.23%) 1,000,000 Freedom Acquisition Holdings, Inc.(1) 10,635,711 11,250,000 1,300,000 Freedom Acquisition Holdings, Inc. Units(1)(6) 14,215,000 18,395,000 250,000 GAMCO Investors, Inc., ClA 4,356,166 13,700,000 -------------- ------------- 29,206,877 43,345,000 FINANCIAL SERVICES - INSURANCE (0.42%) 200,000 Arch Capital Group, Ltd.(1)(2) 5,515,966 14,882,000
18 See Notes to Financial Statements. September 30,2007 BARON SMALL CAP FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value --------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) --------------------------------------------------------------------------------------- FINANCIAL SERVICES - MISCELLANEOUS (1.37%) 150,000 Bankrate, Inc.(1) $ 7,137,237 $ 6,918,000 2,450,000 KKR Financial Holdings LLC 57,675,141 41,282,500 -------------- ----------- 64,812,378 48,200,500 FOOD AND AGRICULTURE (0.86%) 1,671,000 Smart Balance, Inc.(1)(5) (formerly Boulder Specialty Brands, Inc.) 15,817,134 20,620,140 525,000 Smart Balance, Inc., Units(1)(5)(6) (formerly Boulder Specialty Brands, Inc., Units) 5,795,750 9,723,000 -------------- ----------- 21,612,884 30,343,140 GAMING SERVICES (0.15%) 1,000,000 Cash Systems, Inc.(1)(5) 6,420,000 5,270,000 GOVERNMENT SERVICES (6.18%) 1,500,000 AeroVironment, Inc.(1)(5) 34,673,956 34,515,000 1,650,000 FLIR Systems, Inc.(1) 29,292,833 91,393,500 2,500,000 L-1 Identity Solutions, Inc.(1) 43,586,514 47,125,000 1,623,700 Stanley, Inc.(1)(5) 24,735,335 44,732,935 -------------- ----------- 132,288,638 217,766,435 HEALTHCARE FACILITIES (3.11%) 1,400,000 Brookdale Senior Living, Inc . 34,154,493 55,734,000 1,400,000 Emeritus Corp.(1) 43,171,266 37,940,000 1,000,000 Skilled Healthcare Group, Inc., Cl A(1) 15,718,687 15,750,000 -------------- ----------- 93,044,446 109,424,000 HEALTHCARE SERVICES (1.82%) 112,500 athenahealth, Inc.(1) 2,025,000 3,814,875 475,000 Gen-Probe, Inc.(1) 21,507,724 31,625,500 700,000 NighHawk Radiology Holdings, Inc.(1) 13,542,498 17,157,000 390,000 PRA International(1) 8,536,582 11,466,000 -------------- ----------- 45,611,804 64,063,375 HOTELS AND LODGING (2.73%) 4,250,484 Kingdom Hotel Investments, GDR(1)(2) 37,942,684 34,853,969 17,000,000 Mandarin Oriental International, Ltd.(2) 34,213,762 38,250,000 450,000 Orient-Express Hotels, Ltd., ClA 17,071,357 23,071,500 -------------- ----------- 89,227,803 96,175,469 LEISURE (0.37%) 900,000 MarineMax, Inc.(1) 21,416,444 13,104,000 MACHINERY & ELECTRONICS (2.16%) 1,000,000 Flowserve Corp. 31,808,128 76,180,000 MANUFACTURING (4.72%) 850,000 Actuant Corp., Cl A 29,848,706 55,224,500 932,900 HEICOCorp., ClA 25,105,956 36,849,550 1,625,000 TransDigm Group, Inc.(1) 45,109,665 74,278,750 -------------- ----------- 100,064,327 166,352,800 MEDIA (1.04%) 1,800,000 CKX, Inc.(1) 21,481,596 22,158,000 600,000 Dolan Media(1) 10,869,262 14,580,000 -------------- ----------- 32,350,858 36,738,000
September 30,2007 BARON SMALL CAP FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value ------------------------------------------------------------------------------------------------ Common Stocks (continued) ------------------------------------------------------------------------------------------------ Medical Equipment (7.31%) 2,250,700 American Medical Systems Holdings, Inc.(1) $ 39,846,806 $ 38,149,365 1,600,000 Immucor, Inc.(1) 6,462,595 57,200,000 400,000 Intuitive Surgical, Inc.(1) 5,800,000 92,000,000 715,000 Inverness Medical Innovations, Inc.(1) 33,700,048 39,553,800 878,079 Masimo Corp.(1) 17,678,716 22,531,507 350,000 TomoTherapy, Inc.(1) 7,697,414 8,130,500 --------------- -------------- 111,185,579 257,565,172 Minerals & Mining (1.40%) 100,000 Haynes International, Inc.(1) 7,823,001 8,537,000 575,000 Kaiser Aluminum Corp. 36,144,629 40,577,750 --------------- -------------- 43,967,630 49,114,750 Printing and Publishing (0.27%) 250,000 VistaPrint, Ltd.(1)(2) 8,263,441 9,342,500 Real Estate (2.51%) 2,500,000 CB Richard Ellis Group, Inc., Cl A(1) 24,312,256 69,600,000 1,574,400 HFF, Inc., Cl A(1) 28,957,485 18,688,128 --------------- -------------- 53,269,741 88,288,128 Real Estate - Home Building (0.66%) 1,250,000 Brookfield Homes Corp. 30,392,566 23,187,500 Real Estate - REITs (1.06%) 650,000 Acadia Realty Trust 15,421,317 17,634,500 500,000 Digital Realty Trust, Inc. 18,432,916 19,695,000 --------------- -------------- 33,854,233 37,329,500 Recreation and Resorts (9.53%) 2,000,000 Ameristar Casinos, Inc. 64,188,948 56,200,000 1,250,000 Gaylord Entertainment Co.(1) 37,368,434 66,525,000 2,884,000 Great Wolf Resorts, Inc.(1)(5) 53,906,108 35,646,240 1,401,700 Penn National Gaming, Inc.(1) 40,093,264 82,728,334 600,000 Wynn Resorts, Ltd.(1) 4,348,057 94,536,000 --------------- -------------- 199,904,811 335,635,574 Restaurants (3.50%) 2,250,000 AFC Enterprises, Inc.(1)(5) 36,931,249 33,862,500 1,850,000 Cheesecake Factory, Inc.(1) 44,427,838 43,419,500 270,000 Panera Bread Co., Cl A(1) 7,247,903 11,016,000 3,000,000 Texas Roadhouse, Inc., Cl A(1) 38,035,045 35,100,000 --------------- -------------- 126,642,035 123,398,000 Retail - Consumer Staples (3.29%) 3,250,000 Iconix Brand Group, Inc.(1)(5) 54,910,650 77,317,500 1,500,000 NuCO2, Inc.(1)(5) 36,204,728 38,610,000 --------------- -------------- 91,115,378 115,927,500 Retail - Specialty Stores (4.16%) 1,250,000 Build-A-Bear Workshop, Inc.(1)(5) 35,358,280 22,200,000 2,564,856 Casual Male Retail Group, Inc.(1)(5) 14,983,513 22,981,110 900,000 Design Within Reach, Inc.(1)(5) 10,936,300 4,284,000 1,250,000 DSW, Inc., Cl A(1) 29,475,468 31,462,500 706,200 J. Crew Group, Inc.(1) 23,544,287 29,307,300 1,800,000 Penske Automotive Group, Inc. (formerly United Auto Group, Inc.) 34,504,900 36,432,000 --------------- -------------- 148,802,748 146,666,910
Shares Cost Value ------------------------------------------------------------------------------------------------ Common Stocks (continued) ------------------------------------------------------------------------------------------------ Transportation (3.64%) 1,500,000 Aircastle, Ltd. $ 44,286,116 $ 50,130,000 600,000 Babcock & Brown Air, Ltd., ADR(1)(2) 13,794,250 13,680,000 600,000 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., ADR(2) 12,630,181 17,280,000 500,000 Grupo Aeroportuario del Pacifico, S.A.B. de C.V., ADR(2) 16,830,373 27,300,000 400,000 Grupo Aeroportuario del Sureste, S.A.B. de C.V., ADR(2) 11,806,186 19,848,000 --------------- -------------- 99,347,106 128,238,000 --------------- -------------- Total Common Stocks 2,274,514,076 3,341,598,045 --------------- -------------- ------------------------------------------------------------------------------------------------ Private Equity Investments (0.99%) ------------------------------------------------------------------------------------------------ Recreation and Resorts 3,500,000 Kerzner Intl. Holdings, Ltd., Cl A(1)(2)(3) $ 35,000,000 $ 35,000,000 --------------- -------------- ------------------------------------------------------------------------------------------------ Warrants (0.32%) ------------------------------------------------------------------------------------------------ Apparel (0.29%) 1,981,100 Endeavor Acquisition Corp. Warrants Exp 12/14/2009(1) 5,013,594 10,222,476 Food and Agriculture (0.02%) 129,000 Smart Balance, Inc. (formerly Boulder Specialty Brands, Inc.) Warrants Exp 12/16/2009(1)(5) 323,748 797,220 Retail - Specialty Stores (0.01%) 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010(1)(3)(5) 49,000 420,000 --------------- -------------- Total Warrants 5,386,342 11,439,696 --------------- -------------- Principal Amount ------------------------------------------------------------------------------------------------ Short Term Investments (4.19%) ------------------------------------------------------------------------------------------------ Short Term Money Market Instruments $147,431,694 Repurchase Agreement with Fixed Income Clearing Corp., dated 09/28/2007, 3.85% due 10/01/2007; Proceeds at maturity - $147,478,995; (Fully collateralized by U.S. Treasury Note, 5.125% due 05/15/2016; Market value $150,382,338) 147,431,694 147,431,694 --------------- -------------- Total Investments (100.37%) $ 2,462,332,112 3,535,469,435 =============== Liabilities Less Cash and Other Assets (-0.37%) (13,099,694) Net Assets (Equivalent to $25.47 per -------------- share based on 138,269,976 shares outstanding) $3,522,369,741 ==============
--------------------------------------------------- % Represents percentage of net assets. (1) Non-income producing securities. (2) Foreign domiciled corporation. (3) See Note 7 regarding restricted and fair valued securities. (4) Represents securities or a portion thereof, in segregated custodian account. See Note 10. (5) See Note 9 regarding "Affiliated" Companies. (6) One unit consists of one common share and one warrant. ADR American Depositary Receipt. GDR Global Depositary Receipt. See Notes to Financial Statements. 19 BARON iOPPORTUNITY FUND September 30,2007 -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (94.72%) ---------------------------------------------------------------------------------------- ADVERTISING SERVICES (5.25%) 12,000 Google, Inc., ClA(1) $ 1,572,728 $ 6,807,240 160,000 National CineMedia, Inc. 3,902,852 3,584,000 -------------- ------------- 5,475,580 10,391,240 BUSINESS SERVICES (7.45%) 20,000 FactSet Research Systems, Inc. 1,235,173 1,371,000 50,000 IHS, Inc., ClA(1) 2,184,448 2,824,500 435,000 LivePerson, Inc.(1) 2,420,602 2,679,600 152,500 Monster Worldwide, Inc.(1) 3,373,961 5,194,150 232,500 NaviSite, Inc.(1) 1,354,292 2,043,675 25,000 TaleoCorp., Cl A(1) 496,250 635,250 -------------- ------------- 11,064,726 14,748,175 COMMUNICATIONS (20.61%) 132,500 American Tower Corp., Cl A(1) 1,821,263 5,769,050 127,500 Cogent Communications Group, Inc.(1) 1,749,930 2,975,850 92,000 Equinix, Inc.(1) 3,678,957 8,159,480 100,000 MetroPCS Communications, Inc.(1) 2,300,000 2,728,000 60,000 NII Holdings, Inc.(1) 4,983,987 4,929,000 87,500 SAVVIS, Inc.(1) 3,247,479 3,393,250 167,500 SBA Communications Corp., Cl A(1) 3,051,970 5,909,400 450,000 Terremark Worldwide, Inc.(1) 2,488,228 3,226,500 169,000 Time Warner Telecom, Inc., Cl A(1) 2,856,607 3,712,930 -------------- ------------- 26,178,421 40,803,460 COMMUNICATIONS EQUIPMENT (5.62%) 79,000 QUALCOMM, Inc. 2,983,090 3,338,540 79,000 Research in Motion, Ltd.(1)(2) 2,168,285 7,785,450 -------------- ------------- 5,151,375 11,123,990 COMPUTER TECHNOLOGY (3.95%) 51,000 Apple, Inc.(1) 2,570,902 7,830,540 CONSULTING (2.10%) 170,000 Gartner, Inc.(1) 4,172,561 4,158,200 CONSUMER PRODUCTS (0.89%) 55,000 Shutterfly, Inc.(1) 786,427 1,755,050 CONSUMER SERVICES (4.66%) 86,000 eBay, Inc.(1) 1,150,197 3,355,720 51,500 MercadoLibre, Inc.(1)(2) 927,000 1,886,445 45,000 priceline.com, Inc.(1) 909,613 3,993,750 -------------- ------------- 2,986,810 9,235,915 ENERGY SERVICES (0.54%) 83,000 Medis Technologies, Ltd.(1) 1,866,494 1,079,000 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (11.16%) 360,000 Charles Schwab Corp. 4,114,826 7,776,000 12,250 CME Group, Inc. (formerly Chicago Mercantile Exchange Holdings, Inc., ClA) 3,062,226 7,195,037 19,500 IntercontinentalExchange, Inc.(1) 2,688,873 2,962,050 87,000 optionsXpress Holdings, Inc. 1,629,541 2,274,180 162,500 TradeStation Group, Inc.(1) 1,744,754 1,896,375 -------------- ------------- 13,240,220 22,103,642 FINANCIAL SERVICES - MISCELLANEOUS (2.68%) 65,000 Bankrate, Inc.(1) 2,550,751 2,997,800 62,000 RedecardSA, GDR 144A(1)(2) 2,066,599 2,306,822 -------------- ------------- 4,617,350 5,304,622 GAMING SERVICES (1.38%) 72,500 Scientific Games Corp., Cl A(1) 2,505,845 2,726,000 HEALTHCARE SERVICES (2.04%) 37,500 athenahealth, Inc.(1) 675,000 1,271,625 195,000 HLTH Corp.(1) 2,692,341 2,763,150 -------------- ------------- 3,367,341 4,034,775 INFORMATION SERVICES (1.24%) 17,500 BladeLogic, Inc.(1) 297,500 448,700 195,000 Dice Holdings, Inc.(1) 2,444,111 2,004,600 -------------- ------------- 2,741,611 2,453,300 INFORMATION TECHNOLOGY SERVICES (2.15%) 40,000 Fiserv, Inc.(1) 1,997,284 2,034,400 50,000 VeriFone Holdings, Inc.(1) 1,044,299 2,216,500 -------------- ------------- 3,041,583 4,250,900
20 See Notes to Financial Statements. September 30,2007 BARON iOPPORTUNITY FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value --------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) --------------------------------------------------------------------------------------- LEISURE (3.78%) 120,000 Activision, Inc.(1) $ 1,653,134 $ 2,590,800 87,500 Electronic Arts, Inc.(1) 4,662,803 4,899,125 -------------- ------------- 6,315,937 7,489,925 MEDIA (11.04%) 30,000 Central European Media Enterprises, Ltd., Cl A(1)(2) 2,110,846 2,751,300 200,700 Comcast Corp., Cl A(1) 3,438,499 4,808,772 90,000 Knot, Inc.(1) 1,974,970 1,913,400 40,000 Lamar Advertising Co., Cl A(1) 2,356,381 1,958,800 185,000 News Corp., Cl A 3,269,588 4,068,150 185,400 TechTarget, Inc.(1) 2,474,251 3,133,260 120,000 Yahoo!, Inc.(1) 2,120,135 3,220,800 -------------- ------------- 17,744,670 21,854,482 PRINTING AND PUBLISHING (0.57%) 30,000 VistaPrint, Ltd.(1)(2) 913,893 1,121,100 REAL ESTATE (2.89%) 52,500 CoStar Group, Inc.(1) 1,791,166 2,806,125 1,060,000 Move, Inc.(1) 3,201,955 2,925,600 -------------- ------------- 4,993,121 5,731,725 RETAIL - SPECIALTY STORES (0.81%) 35,000 Best Buy Co., Inc. 1,521,319 1,610,700 SOFTWARE (3.91%) 72,500 Allscripts Healthcare Solutions, Inc.(1) 1,866,700 1,959,675 200,000 Nuance Communications, Inc.(1) 2,571,261 3,862,000 22,500 VMware, Inc., ClA(1) 652,500 1,912,500 -------------- ------------- 5,090,461 7,734,175 -------------- ------------- TOTAL COMMON STOCKS 126,346,647 187,540,916 -------------- ------------- --------------------------------------------------------------------------------------- WARRANTS (0.00%) --------------------------------------------------------------------------------------- MEDIA 200,000 Loudeye Corp. Warrants Exp 12/23/2010(1)(3) $ 0 $ 0 -------------- ------------- Principal Amount --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS (4.60%) --------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS $ 9,116,387 Repurchase Agreement with Fixed Income Clearing Corp., dated 09/28/2007, 3.85% due 10/01/2007; Proceeds at maturity-$9,119,312; (Fully collateralized by U.S. Treasury Note, 4.625% due 02/15/2017; Market value $9,299,225) 9,116,387 9,116,387 -------------- ------------- TOTAL INVESTMENTS (99.32%) $ 135,463,034 196,657,303 ============== ============= CASH AND OTHER ASSETS LESS LIABILITIES (0.68%) 1,346,648 ------------- NET ASSETS (EQUIVALENT TO $13.01 PER SHARE BASED ON 15,216,269 SHARES OUTSTANDING) $ 198,003,951 =============
------------- * Represents percentage of net assets. (1) Non-income producing securities. (2) Foreign domiciled corporation. (3) See Note 7 regarding restricted and fair valued securities. GDR Global Depositary Receipt. 144A Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted. See Notes to Financial Statements. 21 BARON FIFTH AVENUE GROWTH FUND September 30,2007 -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value ---------------------------------------------------------------------------------------- COMMON STOCKS (98.72%) ---------------------------------------------------------------------------------------- ADVERTISING SERVICES (3.09%) 6,000 Google, Inc., Cl A(1) $ 1,842,053 $ 3,403,620 BUSINESS SERVICES (6.13%) 46,000 Automatic Data Processing, Inc. 1,830,909 2,112,780 16,000 Ecolab, Inc. 700,606 755,200 24,000 FedEx Corp. 2,625,349 2,514,000 44,999 Iron Mountain, Inc.(1) 881,809 1,371,569 -------------- ------------- 6,038,673 6,753,549 COMMUNICATIONS (5.30%) 20,000 America Movil S.A.B. de C.V., Series L, ADR(2) 1,251,485 1,280,000 84,000 American Tower Corp., Cl A(1) 1,996,605 3,657,360 11,000 NII Holdings, Inc.(1) 855,064 903,650 -------------- ------------- 4,103,154 5,841,010 COMPUTER TECHNOLOGY (5.07%) 22,000 Apple, Inc.(1) 1,034,805 3,377,880 75,000 Microsoft Corp. 1,706,020 2,209,500 -------------- ------------- 2,740,825 5,587,380 CONSUMER PRODUCTS (14.32%) 35,000 Cadbury Schweppes plc, ADR(2) 1,318,807 1,628,200 53,000 Diageoplc, ADR(2) 3,563,654 4,649,690 88,000 Groupe Danone, ADR(2) 1,435,803 1,385,481 56,000 PepsiCo, Inc. 3,369,336 4,102,560 57,000 Procter & Gamble Co. 3,129,847 4,009,380 -------------- ------------- 12,817,447 15,775,311 CONSUMER SERVICES (0.38%) 20,000 Western Union Co. 433,523 419,400 DISTRIBUTION (1.44%) 35,000 FastenalCo. 1,304,146 1,589,350 ENERGY SERVICES (9.49%) 39,000 Diamond Offshore Drilling, Inc. 3,099,419 4,418,310 37,000 Transocean, Inc.(1) 2,857,092 4,182,850 30,000 XTO Energy, Inc. 1,815,580 1,855,200 -------------- ------------- 7,772,091 10,456,360 FINANCIAL SERVICES - ASSET MANAGEMENT (3.04%) 38,000 AllianceBernstein Holding L.P. 2,073,784 3,346,660 FINANCIAL SERVICES - BANKING (3.20%) 70,000 Wells Fargo & Company 2,464,216 2,493,400 15,000 Zions Bancorporation 1,050,350 1,030,050 -------------- ------------- 3,514,566 3,523,450 FINANCIAL SERVICES - BROKERAGE & EXCHANGES (5.61%) 150,000 Charles Schwab Corp. $ 1,861,969 $ 3,240,000 5,000 CME Group, Inc. (formerly Chicago Mercantile Exchange Holdings, Inc., ClA) 1,121,168 2,936,750 -------------- ------------- 2,983,137 6,176,750 FINANCIAL SERVICES - INSURANCE (1.07%) 10 Berkshire Hathaway, Inc., Cl A(1) 901,365 1,185,100 FINANCIAL SERVICES - MISCELLANEOUS (3.77%) 70,000 American Express Co. 3,682,642 4,155,900 HEALTHCARE SERVICES (0.21%) 4,000 Thermo Fisher Scientific, Inc.(1) 215,295 230,880 HEALTHCARE SERVICES - INSURANCE (4.61%) 51,000 UnitedHealth Group, Inc. 2,022,289 2,469,930 33,000 WellPoint, Inc.(1) 1,957,458 2,604,360 -------------- ------------- 3,979,747 5,074,290 HOTELS AND LODGING (1.27%) 23,000 Starwood Hotels & Resorts Worldwide, Inc. 1,313,981 1,397,250 INDUSTRIAL SERVICES (1.02%) 12,000 3MCo. MEDIA (6.97%) 1,079,098 1,122,960 135,000 Comcast Corp., Cl A(1) 3,103,632 3,234,600 35,000 Lamar Advertising Co., Cl A(1) 1,920,902 1,713,950 55,000 News Corp., ClA 828,958 1,209,450 30,000 Time Warner, Inc. 562,557 550,800 36,000 Yahoo!, Inc.(1) 936,690 966,240 -------------- ------------- 7,352,739 7,675,040 REAL ESTATE - REITS (0.30%) 3,000 Vornado Realty Trust 129,901 328,050 RECREATION AND RESORTS (7.73%) 26,000 Las Vegas Sands Corp.(1) 787,824 3,468,920 40,000 Marriott International, Inc., ClA 1,249,597 1,738,800 -------------- ------------- 21,000 Wynn Resorts, Ltd.(1) 1,427,229 3,308,760 3,464,650 8,516,480
22 See Notes to Financial Statements. September 30,2007 BARON FIFTH AVENUE GROWTH FUND -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) -------------------------------------------------------------------------------- September 30,2007
Shares Cost Value --------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) --------------------------------------------------------------------------------------- RETAIL - CONSUMER STAPLES (9.27%) 70,000 CVS Caremark Corp. $ 2,299,354 $ 2,774,100 85,000 Macy's, Inc. 3,179,515 2,747,200 43,000 Target Corp. 1,968,604 2,733,510 40,000 Whole Foods Market, Inc. 2,092,638 1,958,400 -------------- -------------- 9,540,111 10,213,210 RETAIL - SPECIALTY STORES (5.43%) 6,000 Bed Bath & Beyond, Inc.(1) 199,528 204,720 50,000 Coach, Inc.(1) 1,060,978 2,363,500 65,000 Home Depot, Inc. 2,499,854 2,108,600 25,000 Tiffany & Co. 785,845 1,308,750 -------------- -------------- 4,546,205 5,985,570 -------------- -------------- TOTAL COMMON STOCKS 81,829,133 108,757,570 Principal Amount --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS (0.30%) --------------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS $ 325,631 Repurchase Agreement with Fixed Income Clearing Corp., dated 09/28/2007, 3.85% due 10/01/2007; Proceeds at maturity - $325,735; (Fully collateralized by U.S. Treasury Bond, 8.125% due 08/15/2019; Market value $335,325) 325,631 325,631 -------------- -------------- TOTAL INVESTMENTS (99.02%) $ 82,154,764 109,083,201 ============== ============== CASH AND OTHER ASSETS LESS LIABILITIES (0.98%) 1,081,893 -------------- NET ASSETS (EQUIVALENT TO $14.12 PER SHARE BASED ON 7,800,699 SHARES OUTSTANDING) $ 110,165,094 --------------
------------------ * Represents percentage of net assets. (1) Non-income producing securities. (2) Foreign domiciled corporation. ADR American Depositary Receipt. See Notes to Financial Statements. BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- SEPTEMBER 30, 2007
---------------------------------------------------------------------------------------------------------------------------------- BARON BARON BARON FIFTH BARON ASSET BARON GROWTH SMALL CAP iOPPORTUNITY AVENUE GROWTH FUND FUND FUND FUND FUND ---------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments in securities, at cost Unaffiliated investments $ 2,468,080,078 $ 4,238,926,074 $ 2,045,633,997 $ 135,463,034 $ 82,154,764 "Affiliated" investments 82,527,747 417,380,515 416,698,115 -- -- Investments in securities, at value Unaffiliated investments $ 4,160,219,335 $ 6,296,455,684 $ 3,088,534,790 $ 196,657,303 $ 109,083,201 "Affiliated" investments 307,917,000 649,785,495 446,934,645 -- -- Cash 470,895 1,093,480 2,744,815 922,307 -- Receivable for securities sold 30,556,486 128,445,348 17,154,412 692,535 1,382,518 Receivable for shares sold 3,659,016 11,347,313 3,023,327 364,996 84,789 Dividends and interest receivable 2,401,192 1,898,234 2,418,980 14,025 142,715 Prepaid expenses 20,121 32,968 17,093 858 676 --------------- --------------- --------------- --------------- --------------- 4,505,244,045 7,089,058,522 3,560,828,062 198,652,024 110,693,899 --------------- --------------- --------------- --------------- --------------- LIABILITIES: Payable for securities purchased 7,423,758 5,925,532 33,273,917 -- 325,947 Payable for shares redeemed 29,456,426 6,635,811 4,783,193 556,670 118,470 Due to custodian bank -- -- -- -- 9,260 Accrued expenses and other payables 408,422 610,405 401,211 91,403 75,128 --------------- --------------- --------------- --------------- --------------- 37,288,606 13,171,748 38,458,321 648,073 528,805 --------------- --------------- --------------- --------------- --------------- NET ASSETS $ 4,467,955,439 $ 7,075,886,774 $ 3,522,369,741 $ 198,003,951 $ 110,165,094 --------------- --------------- --------------- --------------- --------------- NET ASSETS CONSIST OF: Capital paid-in $ 2,411,883,668 $ 4,480,545,231 $ 2,258,760,209 $ 178,104,905 $ 76,072,001 Accumulated net investment loss -- (38,925) -- -- (6,725) Accumulated net realized gain (loss) on investments 138,543,261 305,445,878 190,472,209 (41,295,223) 7,171,381 Net unrealized appreciation of investments 1,917,528,510 2,289,934,590 1,073,137,323 61,194,269 26,928,437 --------------- --------------- --------------- --------------- --------------- NET ASSETS $ 4,467,955,439 $ 7,075,886,774 $ 3,522,369,741 $ 198,003,951 $ 110,165,094 --------------- --------------- SHARES OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 67,118,335 129,709,093 138,269,976 15,216,269 7,800,699 --------------- --------------- --------------- --------------- --------------- NET ASSET VALUE PER SHARE $ 66.57 $ 54.55 $ 25.47 $ 13.01 $ 14.12 --------------- --------------- --------------- --------------- ---------------
24 See Notes to Financial Statements. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 2007
----------------------------------------------------------------------------------------------------------------------------------- BARON BARON BARON FIFTH BARON ASSET BARON GROWTH SMALL CAP iOPPORTUNITY AVENUE GROWTH FUND FUND FUND FUND FUND ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: INCOME: Interest $ 10,862,770 $ 19,536,478 $ 4,782,600 $ 710,755 $ 129,131 Dividends - unaffiliated investments 35,931,663 32,911,625 34,350,269 600,485 1,445,678 Dividends - "affiliated" investments -- -- 288,750 -- -- Securities lending income 148,294 -- 637,690 54,996 -- Taxes withheld on dividends (97,987) (12,623) (2,250) -- (3,890) --------------- --------------- --------------- --------------- --------------- Total income 46,844,740 52,435,480 40,057,059 1,366,236 1,570,919 --------------- --------------- --------------- --------------- --------------- EXPENSES: Investment advisory fees 40,033,325 64,180,072 32,879,001 1,691,533 1,232,114 Distribution fees 10,008,331 16,045,018 8,219,750 422,883 308,028 Reports to shareholders 1,139,288 2,271,300 1,068,600 85,750 28,340 Shareholder servicing agent fees and expenses 821,104 968,787 532,015 120,347 43,220 Proxy expenses 1,186,042 -- -- -- -- Professional fees 103,620 142,295 94,805 35,582 30,078 Custodian fees 104,180 174,530 198,860 19,344 13,238 Registration and filing fees 101,175 149,925 91,670 39,180 19,368 Trustee fees and expenses 87,292 137,225 70,002 3,564 2,623 Miscellaneous expenses 87,745 141,231 75,119 4,303 3,595 --------------- --------------- --------------- --------------- --------------- Total operating expenses 53,672,102 84,210,383 43,229,822 2,422,486 1,680,604 Expense offsets (137,439) (198,072) (79,430) (21,307) (5,563) --------------- --------------- --------------- --------------- --------------- Net expenses 53,534,663 84,012,311 43,150,392 2,401,179 1,675,041 --------------- --------------- --------------- --------------- --------------- Net investment loss (6,689,923) (31,576,831) (3,093,333) 1,034,943) (104,122) --------------- --------------- --------------- --------------- --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments sold - unaffiliated investments 138,797,928 308,232,688 228,361,043 19,441,553 8,706,631 Net realized gain (loss) on investments sold - "affiliated" investments -- 29,886,683 (12,477,133) -- -- Net change in unrealized appreciation/ (depreciation) of investments 554,958,141 865,493,925 436,676,351 24,756,707 8,921,553 --------------- --------------- --------------- --------------- --------------- Net gain on investments 693,756,069 1,203,613,296 652,560,261 44,198,260 17,628,184 --------------- --------------- --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 687,066,146 $ 1,172,036,465 $ 649,466,928 $ 43,163,317 $ 17,524,062 --------------- --------------- --------------- --------------- ---------------
See Notes to Financial Statements. 25 BARON FUND SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30
BARON ASSET FUND BARON GROWTH FUND ----------------------------------------------------------------------------------------------------------------------- 2007 2006 2007 2006 ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (6,689,923) $ (15,197,766) $ (31,576,831) $ (32,610,987) Net realized gain 138,797,928 274,508,929 338,119,371 286,829,531 Net change in unrealized appreciation/(depreciation) 554,958,141 63,584,112 865,493,925 101,599,114 --------------- --------------- --------------- --------------- Increase in net assets resulting from operations 687,066,146 322,895,275 1,172,036,465 355,817,658 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments (266,497,466) (136,438,779) (285,910,925) (222,904,672) --------------- --------------- --------------- --------------- Decrease in net assets from distributions to shareholders (266,497,466) (136,438,779) (285,910,925) (222,904,672) --------------- --------------- --------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 1,215,485,090 823,269,479 1,713,788,260 963,307,597 Net asset value of shares issued in reinvestment of dividends 256,514,493 134,216,963 277,672,917 215,723,575 Cost of shares redeemed (790,204,725) (465,792,862) (1,117,535,772) (1,001,257,192) --------------- --------------- --------------- --------------- Increase (decrease) in net assets derived from capital share transactions 681,794,858 491,693,580 873,925,405 177,773,980 Redemption fees -- -- -- -- --------------- --------------- --------------- --------------- Increase (decrease) in net assets 1,102,363,538 678,150,076 1,760,050,945 310,686,966 --------------- --------------- --------------- --------------- NET ASSETS: Beginning of year 3,365,591,901 2,687,441,825 5,315,835,829 5,005,148,863 --------------- --------------- --------------- --------------- End of year $ 4,467,955,439 $ 3,365,591,901 $ 7,075,886,774 $ 5,315,835,829 =============== =============== =============== =============== ACCUMULATED NET INVESTMENT INCOME (LOSS) AT END OF YEAR $ -- $ -- (38,925) $ 389,299 =============== =============== =============== =============== SHARES: Shares sold 19,421,982 14,107,703 33,177,545 20,204,279 Shares issued on reinvestment of dividends 4,330,089 2,355,924 5,606,156 4,696,794 Shares redeemed (12,653,150) (7,993,965) (21,635,413) (21,247,341) --------------- --------------- --------------- --------------- NET INCREASE (DECREASE) 11,098,921 8,469,662 17,148,288 3,653,732 =============== =============== =============== =============== BARON SMALL CAP FUND --------------------------------------------------------------------------------- 2007 2006 --------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (3,093,333) $ (22,100,873) Net realized gain 215,883,910 366,155,287 Net change in unrealized appreciation/(depreciation) 436,676,351 (202,585,115) --------------- --------------- Increase in net assets resulting from operations 649,466,928 141,469,299 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments (372,128,469) (89,572,056) --------------- --------------- Decrease in net assets from distributions to shareholders (372,128,469) (89,572,056) CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 703,299,928 693,848,554 Net asset value of shares issued in reinvestment of dividends 353,558,000 85,550,454 Cost of shares redeemed (733,478,669) (738,216,838) --------------- --------------- Increase (decrease) in net assets derived from capital share transactions 323,379,259 41,182,170 Redemption fees -- -- --------------- --------------- Increase (decrease) in net assets 600,717,718 93,079,413 --------------- --------------- NET ASSETS: 2,921,652,023 2,828,572,610 Beginning of year --------------- --------------- End of year $ 3,522,369,741 $ 2,921,652,023 --------------- --------------- ACCUMULATED NET INVESTMENT INCOME (LOSS) AT END OF YEAR $ -- $ -- SHARES: Shares sold 29,268,472 29,041,647 Shares issued on reinvestment of dividends 15,602,736 3,768,729 Shares redeemed (30,439,690) (31,507,553) --------------- --------------- NET INCREASE (DECREASE) 14,431,518 1,302,823
26 See Notes to Financial Statements. BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Continued) -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30
BARON iOPPORTUNITY FUND BARON FIFTH AVENUE GROWTH FUND ----------------------------------------------------------------------------------------------------------------------- 2007 2006 2007 2006 ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (1,034,943) $ (399,745) $ (104,122) $ (206,651) Net realized gain 19,441,553 22,647,489 8,706,631 118,363 Net change in unrealized appreciation/(depreciation) 24,756,707 (8,631,960) 8,921,553 5,955,961 --------------- --------------- --------------- --------------- Increase in net assets resulting from operations 43,163,317 13,615,784 17,524,062 5,867,673 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments -- -- -- -- --------------- --------------- --------------- --------------- Decrease in net assets from distributions to shareholders -- -- -- -- --------------- --------------- --------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 44,723,954 31,391,046 23,590,508 87,338,016 Net asset value of shares issued in reinvestment of dividends Cost of shares redeemed (35,294,788) (45,344,656) (54,208,224) (66,484,035) --------------- --------------- --------------- --------------- Increase (decrease) in net assets derived from capital share transactions 9,429,166 (13,953,610) (30,617,716) 20,853,981 Redemption fees 41,559 29,348 -- -- --------------- --------------- --------------- --------------- Increase (decrease) in net assets 52,634,042 (308,478) (13,093,654) 26,721,654 --------------- --------------- --------------- --------------- NET ASSETS: Beginning of year 145,369,909 145,678,387 123,258,748 96,537,094 --------------- --------------- --------------- --------------- End of year $ 198,003,951 $ 145,369,909 $ 110,165,094 $ 123,258,748 =============== =============== =============== =============== ACCUMULATED NET INVESTMENT INCOME (LOSS) AT END OF YEAR $ -- $ -- $ (6,725) $ -- =============== =============== =============== =============== SHARES: Shares sold 3,820,656 3,183,604 1,781,515 7,236,439 Shares issued on reinvestment of dividends -- -- -- -- Shares redeemed (3,069,044) (4,615,816) (4,064,593) (5,500,144) --------------- --------------- --------------- --------------- NET INCREASE (DECREASE) 751,612 (1,432,212) (2,283,078) 1,736,295 =============== =============== =============== ===============
See Notes to Financial Statements. 27 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- 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 an 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 primarily in securities of medium sized growth companies with undervalued assets or favorable growth prospects. Prior to February 15,2007, the Fund's objective was to invest in small and medium sized companies. Baron Growth Fund seeks capital appreciation through long-term investments primarily in the securities of small growth companies. Baron Small Cap Fund seeks capital appreciation through investments primarily in securities of small companies. Baron iOpportunity Fund seeks capital appreciation through investments in growth businesses that benefit from technology advances. Baron Fifth Avenue Growth Fund seeks capital appreciation through investments primarily in the securities of larger growth companies. 2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America. a) SECURITY VALUATION. Portfolio securities traded on any national stock exchange are valued based on the last sale price. For securities traded on NASDAQ, the Funds use the NASDAQ Official Closing Price. Securities traded in foreign markets are valued using prices reported by local foreign markets and translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time the net asset value is determined. Where market quotations are not readily available, or in the Adviser's judgment, they do not accurately reflect fair value of a security, or an event occurs after the market close but before the Funds are priced that materially affects the value of a security, the securities will be valued by the Adviser using procedures established by the Board of Trustees. The Adviser has a fair valuation committee comprised of senior executives and members of the Board. Factors the committee uses include whether a current price is stale, there is recent news, the security is thinly traded, transactions are infrequent, or quotations are genuine. There can be no assurance, however, that a fair valuation used by the Funds on any given day will more accurately reflect the market value of an investment than the closing price of such investment in its market. Debt instruments having a remaining maturity greater than sixty days will be valued at the highest bid price from the dealer maintaining an active market in that security or on the basis of prices obtained from a pricing service approved by the Board of Trustees. Money market instruments held by the Funds with a remaining maturity of sixty days or less are valued at amortized cost, which approximates value. b) FOREIGN CURRENCY TRANSLATIONS. Values of investments denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time net asset value is determined. Purchases and sales of investments and dividend income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. c) SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSE ALLOCATION AND EXPENSE OFFSETS. Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis which includes the accretion of discounts and amortization of premiums. Distributions received from certain investments held by the Funds may be comprised of dividends, realized gains and return of capital. The Funds originally estimate the expected classification of such payments. The amounts may subsequently be reclassified upon receipt of information from the issuer. The Funds are charged for those expenses that are directly attributable to each Fund, such as advisory and custodian fees. Expenses that are not directly attributable to a Fund are typically allocated among the Funds in proportion to their respective net assets. The Funds' expenses were reduced by expense offsets from an unaffiliated transfer agent. The Funds earned cash management credits which were used to reduce Shareholder servicing agent fees and expenses. These offsets are included in Expense offsets on the Statements of Operations. 28 See Notes to Financial Statements. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED). d) SECURITIES LENDING. The Funds may loan securities to certain brokers. Upon such loans, the Funds receive collateral which is maintained by the custodian. The Funds earn interest on such collateral and earn income in the form of negotiated lenders' fees, both of which are included in Securities lending income in the Statements of Operations. Securities loaned are required to be secured at all times by collateral at least equal to the market value of the securities loaned. Risks may arise upon entering into securities lending to the extent that the value of the collateral is less than the value of the securities loaned due to the changes in the value of collateral or the loaned securities. The Funds may receive collateral in the form of cash or other eligible securities, such as a letter of credit issued by a U.S. bank, or securities issued or guaranteed by the U.S. government having a value at all times not less than 102% of the value of securities loaned. There were no securities on loan as of September 30, 2007. For the year ended September 30, 2007, Baron Asset Fund, Baron Small Cap Fund, and Baron iOpportunity Fund had securities lending income of $148,294, $637,690, and $54,996, respectively which is included in the Statements of Operations. e) REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, which are short-term investments whereby the Funds acquire ownership of a debt security and the seller agrees to repurchase the security at a future date at a specified price. When entering into repurchase agreements, it is the Funds' policy that their custodian or a third party custodian take possession of the underlying collateral securities, the market value of which, at all times, at least equals 102% of the principal amount of the repurchase transaction. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. f) 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. g) 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. h) DISTRIBUTIONS. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for net operating losses, and wash sale losses deferred. i) 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 capital paid-in. j) 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. (k) 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. (l) NEW ACCOUNTING PRONOUNCEMENTS. In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of tax positions taken or expected to be taken on a tax return. Fin 48 will be applicable for the Funds in the first semi-annual report dated March 31, 2008, and is to be applied to all open tax years as of the date of effectiveness. Management is currently evaluating the impact, if any, of applying the various provisions of FIN 48. In September 2006, FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"). SFAS 157, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. SFAS 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact, if any, of applying the various provisions of SFAS 157. See Notes to Financial Statements. 29 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities, other than short term securities, for the year ended September 30, 2007 were as follows:
----------------------------------------------------------------------------------------------------------------- FUND PURCHASES SALES ----------------------------------------------------------------------------------------------------------------- Baron Asset Fund $1,039,296,234 $ 506,653,080 Baron Growth Fund 1,520,326,087 1,286,658,898 Baron Small Cap Fund 1,161,656,895 1,248,500,604 Baron iOpportunity Fund 78,424,593 72,508,489 Baron Fifth Avenue Growth Fund 34,474,168 67,945,222
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 Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund and Baron iOpportunity Fund of 1% per annum of the average daily net assets of the respective Funds. Baron Fifth Avenue Growth Fund pays the Adviser 1% per annum for average daily net assets under $1 billion, 0.95% per annum for average daily net assets greater than $1 billion but less than $2 billion, 0.90% per annum for average daily net assets over $2 billion but less than $3 billion, 0.85% per annum for average daily net assets over $3 billion but less than $4 billion, and 0.80% per annum for average daily net assets greater than $4 billion. For Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund, the Adviser has contractually agreed to reduce its fee to the extent required to limit the operating expense to 1.50% and 1.40% of average daily net assets, respectively. 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. 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. d) FUND ACCOUNTING AND ADMINISTRATION FEES. The Funds have entered into an agreement with the custodian bank to perform accounting and certain administrative services. The custodian bank is compensated for fund accounting based on a percentage of the Funds' net assets, subject to certain minimums plus fixed annual fees for the administrative services. 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. Each Fund may borrow up to the lesser of $100 million or the maximum amount each Fund may borrow under the Investment Company Act of 1940, the limitations included in each Fund's prospectus, or any limit or restriction under any law or regulation to which each Fund was subject or any agreement to which each Fund is a party; provided that 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 0.50%. A commitment fee of 0.08% per annum is incurred on the unused portion of the line of credit and is allocated to the participating Funds. During the year ended September 30, 2007, there were no loans outstanding under the line of credit. 6. LITIGATION. An action is pending in the Southern District of New York brought by a shareholder of Baron Growth Fund and of Baron Small Cap Fund against these two Funds, their Trustees, and the distributor, Baron Capital, Inc. The action alleges improper imposition of 12b-1 fees on Funds that were partially closed to new investors and seeks compensatory damages and to enjoin further 12b-1 fees. A motion to dismiss the complaint is currently pending. Neither the outcome nor the possible liability to these two Funds can be determined at this point. No amounts have been accrued in these financial statements with respect to the damages sought by this litigation. 30 SEE NOTES TO FINANCIAL STATEMENTS. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- 7. RESTRICTED SECURITIES. At September 30, 2007, investments in securities included securities that are restricted and/or illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At September 30, 2007, the Funds held investments in restricted and illiquid securities that were valued under approved methods as follows:
-------------------------------------------------------------------------------------------------------------------------------- BARON ASSET FUND ACQUISITION NAME OF ISSUER DATE(S) VALUE -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS Wynn Resorts, Ltd. 04/17/01 $ 218,447,108 PRIVATE EQUITY INVESTMENTS Apollo International, Inc. S-A CV Pfd. 07/21/99-10/03/02 0 Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 52,000,000 Somerford Corp. S-A Conv. Pfd. 12/03/98-07/01/06 15,999,985 ------------------- TOTAL RESTRICTED SECURITIES: (Cost $85,096,174) (6.41% of Net Assets) $ 286,447,093 ===================
-------------------------------------------------------------------------------------------------------------------------------- BARON GROWTH FUND ACQUISITION NAME OF ISSUER DATE(S) VALUE -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS Wynn Resorts, Ltd. 04/22/02 $ 80,480,569 PRIVATE EQUITY INVESTMENTS EOS Airlines, Inc., Cl C 10/27/06 1,368,984 Fontainebleau Resorts, LLC 10/05/05-06/01/07 37,999,992 Island Global Yachting IV L.P. 06/22/07 803,600 Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 74,000,000 Reliant Pharmaceuticals LLC, Series D 10/28/03 15,000,000 ------------------- TOTAL RESTRICTED SECURITIES: (Cost $135,167,555) (2.96% of Net Assets) $ 209,653,145 ===================
-------------------------------------------------------------------------------------------------------------------------------- BARON SMALL CAP FUND ACQUISITION NAME OF ISSUER DATE(S) VALUE -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS Linn Energy LLC 05/30/07 $ 9,085,800 PRIVATE EQUITY INVESTMENTS Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 35,000,000 WARRANTS Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 420,000 ------------------- TOTAL RESTRICTED SECURITIES: (Cost $45,099,000) (1.26% of Net Assets) $ 44,505,800 ===================
-------------------------------------------------------------------------------------------------------------------------------- BARON iOPPORTUNITY FUND ACQUISITION NAME OF ISSUER DATE(S) VALUE -------------------------------------------------------------------------------------------------------------------------------- WARRANTS Loudeye Corp. Warrants Exp 12/23/2010 12/22/04 $ 0 ------------------- TOTAL RESTRICTED SECURITIES: (Cost $0) (0.00% of Net Assets) $ 0 ===================
SEE NOTES TO FINANCIAL STATEMENTS. 31 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- 8. INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Net investment loss and realized and unrealized gains and losses differ for financial statement and tax purposes due to differing treatment of wash sale losses deferred and net investment losses. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. For the year ended September 30, 2007, the Funds recorded the following permanent reclassifications to reflect tax character. Reclassifications between income, gains and capital paid-in relate primarily to the tax treatment of net investment losses. Results of operations and net assets were not affected by these reclassifications.
-------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED ACCUMULATED NET INVESTMENT NET REALIZED FUND LOSS GAIN/(LOSS) CAPITAL PAID-IN -------------------------------------------------------------------------------------------------------------------------------- Baron Asset Fund $ 6,689,923 $ (66,989) $ (6,622,934) Baron Growth Fund 31,148,607 -- (31,148,607) Baron Small Cap Fund 3,093,333 (3,093,333) -- Baron iOpportunity Fund 1,034,943 2 (1,034,945) Baron Fifth Avenue Growth Fund 97,397 (91,316) (6,081)
As of September 30, 2007, the components of net assets on a tax basis were as follows:
-------------------------------------------------------------------------------------------------------------------------------- BARON BARON BARON FIFTH BARON ASSET BARON GROWTH SMALL CAP IOPPORTUNITY AVENUE GROWTH FUND FUND FUND FUND FUND -------------------------------------------------------------------------------------------------------------------------------- Cost of investments $2,550,662,943 $4,673,988,889 $2,462,972,707 $137,783,007 $ 82,601,954 Gross tax unrealized appreciation $1,972,939,485 $2,437,824,030 $1,222,834,290 $ 63,033,836 $ 27,930,497 Gross tax unrealized depreciation (55,466,093) (165,571,740) (150,337,562) (4,159,540) (1,449,250) -------------- ---------------- -------------- ------------ ------------- Net tax unrealized appreciation 1,917,473,392 2,272,252,290 1,072,496,728 58,874,296 26,481,247 Undistributed net investment income -- -- 15,036,612 -- -- Accumulated net realized gain 138,598,379 323,128,178 176,076,192 -- 7,618,571 Other temporary differences -- (38,925) -- -- (6,725) Capital loss carryforwards -- -- -- (38,975,250) -- Capital paid-in 2,411,883,668 4,480,545,231 2,258,760,209 178,104,905 76,072,001 -------------- ---------------- -------------- ------------- ------------ Net Assets $4,467,955,439 $7,075,886,774 $3,522,369,741 $ 198,003,951 $110,165,094 ============== ================ ============== ==============
The Funds had capital loss carryforward expiring as follows:
-------------------------------------------------------------------------------------------------------------------------------- BARON BARON BARON FIFTH BARON ASSET BARON GROWTH SMALL CAP IOPPORTUNITY AVENUE GROWTH FUND FUND FUND FUND FUND -------------------------------------------------------------------------------------------------------------------------------- 2010 $ -- $ -- $ -- $(17,163,346) $ -- 2011 $ -- $ -- $ -- (21,811,904) -- -------------- ---------------- -------------- ------------ -------------- $ -- $ -- $ -- $(38,975,250) $ -- ============== ================ ============== ============ ============== Capital loss carryforward utilized during the year ended September 30, 2007 $ -- $ -- $ -- $ 19,252,888 $ 661,500 ============== ================ ============== ============ ==============
32 See Notes to Financial Statements. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- (8) INCOME TAXES AND DISTRIBUTIONS TO SHAREHOLDERS (CONTINUED). The tax character of distributions paid during the fiscal years ended September 30, 2007 and September 30, 2006 was as follows:
-------------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 LONG TERM LONG TERM FUND ORDINARY CAPITAL GAIN ORDINARY CAPITAL GAIN -------------------------------------------------------------------------------------------------------------------------------- Baron Asset Fund $ -- $266,497,466 $ -- $136,438,779 Baron Growth Fund -- 285,910,925 -- 222,904,672 Baron Small Cap Fund -- 372,128,469 -- 89,572,056 Baron iOpportunity Fund -- -- -- -- Baron Fifth Avenue Growth Fund -- -- -- --
9. TRANSACTIONS IN "AFFILIATED" COMPANIES(1). BARON ASSET FUND
---------------------------------------------------------------------------------------------------------------------------------- BALANCE OF GROSS GROSS SALES BALANCE OF VALUE DIVIDEND INCOME SHARES HELD PURCHASES AND AND SHARES HELD SEPT. 30, OCT. 1, 2006- NAME OF ISSUER ON SEPT. 30, 2006 ADDITIONS REDUCTIONS ON SEPT. 30, 2007 2007 SEPT. 30, 2007 ---------------------------------------------------------------------------------------------------------------------------------- Alexander's, Inc. 314,000 314,000 $121,047,000 Apollo International, Inc. S-A Conv. Pfd. 105,264 105,264 -- Vail Resorts, Inc. 3,000,000 3,000,000 186,870,000 ----------------- ---------- ----------- --- TOTAL INVESTMENTS IN "AFFILIATES" (6.89% OF NET ASSETS) $307,917,000 $0 ===
-------------- (1) An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the year ended September 30, 2007. BARON GROWTH FUND
---------------------------------------------------------------------------------------------------------------------------------- BALANCE OF GROSS GROSS SALES BALANCE OF VALUE DIVIDEND INCOME SHARES HELD PURCHASES AND AND SHARES HELD SEPT. 30, OCT. 1, 2006- NAME OF ISSUER ON SEPT. 30, 2006 ADDITIONS REDUCTIONS ON SEPT. 30, 2007 2007 SEPT. 30, 2007 ---------------------------------------------------------------------------------------------------------------------------------- AMERIGROUP, Corp.(2) 3,700,000 150,000 1,350,000 2,500,000 -- Blue Nile, Inc. 875,000 75,000 800,000 $ 75,296,000 Centene Corp.(2) 3,000,000 1,600,000 1,400,000 -- Center Financial Corp.(2) 850,000 203,832 646,168 -- Cheesecake Factory, Inc. 3,021,200 653,800 3,675,000 86,252,250 Chemed Corp. 1,350,000 1,350,000 83,916,000 DeVry, Inc. 3,700,000 3,700,000 136,937,000 Encore Acquisition Co. 3,400,000 300,000 3,100,000 98,115,000 Peet's Coffee & Tea, Inc. 700,000 700,000 19,537,000 Ralcorp Holdings, Inc. 1,400,000 1,400,000 78,148,000 Select Comfort Corp. 2,700,000 300,000 2,400,000 33,480,000 Steiner Leisure, Ltd. -- 877,978 877,978 38,104,245 Symyx Technologies, Inc.(2) 1,650,000 1,250,000 400,000 -- ------------- --- TOTAL INVESTMENTS IN "AFFILIATES" (9.18% OF NET ASSETS) $ 649,785,495 $ 0 ============= ===
(1) An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the year ended September 30, 2007. (2) As of September 30, 2007, no longer an affiliate. See Notes to Financial Statements. 33 BARON FUNDS SEPTEMBER 30, 2007 9. TRANSACTIONS IN "AFFILIATED" COMPANIES(1) (CONTINUED). BARON SMALL CAP FUND
---------------------------------------------------------------------------------------------------------------------------------- BALANCE OF GROSS GROSS SALES BALANCE OF VALUE DIVIDEND INCOME SHARES HELD PURCHASES AND AND SHARES HELD SEPT. 30, OCT. 1, 2006- NAME OF ISSUER ON SEPT. 30, 2006 ADDITIONS REDUCTIONS ON SEPT. 30, 2007 2007 SEPT. 30, 2007 ---------------------------------------------------------------------------------------------------------------------------------- AeroVironment, Inc. -- 1,500,000 1,500,000 $ 34,515,000 AFC Enterprises, Inc. 2,250,000 2,250,000 33,862,500 Build-A-Bear Workshop, Inc. -- 1,250,000 1,250,000 22,200,000 Cash Systems, Inc. 1,500,000 500,000 1,000,000 5,270,000 Casual Male Retail Group, Inc.(3) 1,157,503 1,407,353 2,564,856 22,981, 110 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007(4) 1,407,353 1,407,353 -- -- Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 100,000 100,000 420,000 Design Within Reach, Inc. 675,000 225,000 900,000 4,284,000 DTS, Inc. 1,625,000 125,000 1,500,000 45,555,000 Great Wolf Resorts, Inc. 2,750,000 134,000 2,884,000 35,646,240 Iconix Brand Group, Inc. 2,500,000 750,000 3,250,000 77,317,500 Kensey Nash Corp. 950,000 950,000 -- -- MarineMax, Inc.(2) 1,650,000 750,000 900,000 -- Measurement Specialties, Inc. 1,000,000 1,000,000 -- -- National CineMedia, Inc. -- 2,250,000 2,250,000 50,400,000 $ 288,750 NuCO2, Inc. 1,250,000 250,000 1,500,000 38,610,000 Smart Balance, Inc. (formerly Boulder Specialty Brands, Inc.) -- 1,671,000 1,671,000 20,620,140 Smart Balance, Inc., Units (formerly Boulder Specialty Brands, Inc., Units) -- 525,000 525,000 9,723,000 Smart Balance, Inc. (formerly Boulder Specialty Brands, Inc.) Warrants Exp 12/16/2009 -- 129,000 129,000 797,220 Stanley, Inc. -- 1,623,700 1,623,700 44,732,935 ------------- --------- TOTAL INVESTMENTS IN "AFFILIATES" (12.69% OF NET ASSETS) $ 446,934,645 $ 288,750 ------------- ---------
---------- (1) An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the year ended September 30, 2007. (2) As of September 30, 2007, no longer an affiliate. (3) Increase due to exercise of warrants. (4) Decrease due to exercise of warrants. 10. COMMITMENTS AND CONTINGENCIES. On September 27, 2006, Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund, in connection with its investment in Kerzner International Holdings Limited ("Kerzner"), each agreed to guarantee ("Windstorm Guarantee") its proportionate share (based on each Fund's ownership interests in Kerzner), of certain obligations relating to amounts that may become payable due to wind or storm damage at Kerzner's Bahamian properties to the lenders that financed the Kerzner acquisition. The maximum amounts of potential future payments by each Fund would be $4,450,483 for Baron Asset Fund, $6,323,021 for Baron Growth Fund, and $2,988,365 for Baron Small Cap Fund. The Windstorm Guarantee will expire June 2009. Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund have segregated securities valued in excess of the guarantee amount to meet these contingencies. In addition, Baron Growth Fund has committed to purchase up to $5,000,000 of Island Global Yachting IV L.P. As of September 30, 2007, Baron Growth Fund has funded $803,570 against this commitment. 34 See Notes to Financial Statements. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- BARON ASSET FUND Selected data for a share outstanding throughout each year:
-------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------- 2007 2006 2005 2004 2003 2002 -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 60.08 $ 56.52 $ 47.89 $ 40.05 $ 35.65 $ 40.22 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.10)(1) (0.27) (0.46) (0.43) (0.46) (0.55) Net realized and unrealized gain (loss) on investments 11.27 6.64 12.08 8.27 6.04 0.05 --------- --------- --------- --------- --------- --------- TOTAL FROM INVESTMENT OPERATIONS 11.17 6.37 11.62 7.84 5.58 (0.50) --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 Net realized gain on investments (4.68) (2.81) (2.99) 0.00 (1.18) (4.07) --------- --------- --------- --------- --------- --------- TOTAL DISTRIBUTIONS (4.68) (2.81) (2.99) 0.00 (1.18) (4.07) --------- --------- --------- --------- --------- --------- Capital contribution 0.00 0.00 0.00 0.00 0.00 0.00 --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF YEAR $ 66.57 $ 60.08 $ 56.52 $ 47.89 $ 40.05 $ 35.65 TOTAL RETURN 19.56% 11.54% 25.21% 19.58% 16.11% (2.54%) --------- --------- --------- --------- --------- --------- RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 4,468.0 $ 3,365.6 $ 2,687.4 $ 2,002.4 $ 1,957.2 $ 2,055.2 Ratio of total expenses to average net assets 1.34%(2) 1.33% 1.34% 1.34% 1.34% 1.35% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% 0.00% (0.02%) --------- --------- --------- --------- --------- --------- Ratio of operating expenses to average net assets 1.34% 1.33% 1.34% 1.34% 1.34% 1.33% --------- --------- --------- --------- --------- --------- Ratio of net investment income (loss) to average net assets (0.17%) (0.49%) (0.91%) (0.90%) (1.14%) (1.16%) Portfolio turnover rate 13.39% 21.87% 11.47% 19.57% 27.95% 6.01% ---------------------------------------------------------------------------------------------------------- -------------------------------------------------- 2001 2000 1999 1998 ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 63.35 $ 51.57 $ 39.96 $ 47.43 --------- --------- --------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.65) (0.76) (0.30) 0.05 Net realized and unrealized gain (loss) on investments (17.87) 12.53 11.94 (7.52) --------- --------- --------- -------- TOTAL FROM INVESTMENT OPERATIONS (18.52) 11.77 11.64 (7.47) --------- --------- --------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 (0.04) 0.00 Net realized gain on investments (4.61) 0.00 0.00 0.00 --------- --------- --------- -------- TOTAL DISTRIBUTIONS (4.61) 0.00 (0.04) 0.00 --------- --------- --------- -------- Capital contribution 0.00 0.01 0.01 0.00 --------- --------- --------- -------- NET ASSET VALUE, END OF YEAR 40.22 $ 63.35 $ 51.57 $ 39.96 TOTAL RETURN (31.16%) 22.84%(3) 29.16%(4) (15.75%) --------- --------- --------- -------- RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 2,692.3 $ 4,917.4 $ 5,863.1 $4,410.5 Ratio of total expenses to average net assets 1.37% 1.36% 1.31% 1.32% Less: Ratio of interest expense to average net assets (0.01%) (0.03%) 0.00% 0.00% --------- --------- --------- -------- Ratio of operating expenses to average net assets 1.36% 1.33% 1.31% 1.32% --------- --------- --------- -------- Ratio of net investment income (loss) to average net assets (1.14%) (1.09%) (0.57%) 0.11% Portfolio turnover rate 4.33% 2.51% 15.64% 23.43%
------------- (1) Based on average shares outstanding. (2) Benefit of expense reduction rounds to less than 0.01%. (3) Had the Adviser not made the capital contribution, the Fund's performance would have been reduced by 0.02%. (4) Had the Adviser not made the capital contribution, the Fund's performance would have been reduced by 0.03%. See Notes to Financial Statements. 35 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- BARON GROWTH FUND Selected data for a share outstanding throughout each year:
-------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------- 2007 2006 2005 2004 2003 2002 -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 47.23 $ 45.96 $ 38.92 $ 32.65 $ 26.96 $ 27.18 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (0.25)(1) (0.29) (0.29) (0.30) (0.25) (0.30) Net realized and unrealized gain (loss) on investments 10.11 3.61 7.33 6.57 5.94 1.65 --------- --------- --------- --------- --------- --------- Total from investment operations 9.86 3.32 7.04 6.27 5.69 1.42 --------- --------- --------- --------- --------- --------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 Net realized gain on investments (2.54) (2.05) 0.00 0.00 0.00 (1.64) --------- --------- --------- --------- --------- --------- Total distributions (2.54) (2.05) 0.00 0.00 0.00 (1.64) --------- --------- --------- --------- --------- --------- Net asset value, end of year $ 54.55 47.23 $ 45.96 $ 38.92 $ 32.65 $ 26.96 --------- --------- --------- --------- --------- --------- Total return 21.41% 7.36% 18.09% 19.20% 21.11% 5.02% Ratios/Supplemental data: Net assets (in millions), end of year $ 7,075.9 5,315.8 5,005.1 3,135.6 $ 2,185.4 $ 1,030.3 Ratio of total expenses to average net assets 1.31%(2) 1.31% 1.31% 1.31% 1.40% 1.36% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% --------- --------- --------- --------- --------- --------- Ratio of operating expenses to average net assets 1.31% 1.31% 1.31% 1.31% 1.37% 1.36% --------- --------- --------- --------- --------- --------- Ratio of net investment income (loss) to average net assets (0.49%) (0.61%) (0.73%) (0.89%) (1.11%) (1.02%) Portfolio turnover rate 21.37% 21.27% 15.50% 27.15% 32.63% 18.31% .50% --------------------------------------------------------------------------------------------------------- ------------------------------------------------- 2001 2000 1999 1998 --------------------------------------------------------------------------------------------------------- Net asset value, beginning of year $ 32.26 $ 29.06 $ 20.32 $ 24.89 --------- ------- -------- -------- Income from investment operations: Net investment income (loss) (0.29) (0.26) (0.04) 0.06 Net realized and unrealized gain (loss) on investments (1.67) 5.34 8.82 (4.56) Total from investment operations (1.89) 5.08 8.78 (4.50) Less distributions to shareholders from: --------- ------- -------- -------- Net investment income 0.00 0.00 (0.04) (0.02) --------- ------- -------- -------- Net realized gain on investments (3.19) (1.88) 0.00 (0.05) --------- ------- -------- -------- Total distributions (3.19) (1.88) (0.07) (0.07) --------- ------- -------- -------- Net asset value, end of year $ 27.18 $ 32.26 $ 29.06 $ 20.32 --------- ------- -------- -------- Total return (6.06%) 18.63% 18.11%) (18.11%) --------- ------- -------- -------- Ratios/Supplemental data: Net assets (in millions), end of year 512.3 $ 533.4 $ 439.4 $ 315.6 --------- ------- -------- -------- Ratio of total expenses to average net assets 1.40% 1.40% 1.40% 1.43% Less: Ratio of interest expense to average net assets 0.00% 0.00% (0.03%) (0.06%) Ratio of operating expenses to average net assets 1.37% 1.37% 1.37% 1.37% Ratio of net investment income (loss) to average net assets (0.89%) (0.89%) (0.79%) 0.21% --------- ------- -------- -------- Portfolio turnover rate 34.94% 39.00% 53.36% 40.38%
---------- (1) Based on average shares outstanding. (2) Benefit of expense reduction rounds to less than 0.01% BARON SMALL CAP FUND Selected data for a share outstanding throughout each year: BARON SMALL CAP FUND Selected data for a share outstanding throughout each year:
---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------- 2007 2006 2005 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 23.59 23.08 $ 19.18 $ 17.26 $ 13.37 12.69 INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.02)(1) (0.18) (0.10) (0.15) (0.10) (0.10) Net realized and unrealized gain (loss) on investments 4.96 1.43 4.55 2.07 4.02 1.18 TOTAL FROM INVESTMENT OPERATIONS 4.94 1.25 4.45 1.92 3.91 1.04 LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 Net realized gain on investments (3.06) (0.74) (0.55) 0.00 (0.38) 0.00 TOTAL DISTRIBUTIONS (3.06) (0.74) (0.55) 0.00 (0.38) 0.00 NET ASSET VALUE, END OF YEAR $ 25.47 23.59 $ 23.08 $ 19.18 $ 17.26 13.73 TOTAL RETURN 22.54% 5.52% 23.56% 11.12% 29.20% 8.20% RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 3,522.4 $ 2,921.7 $2,828.6 $2,828.6 $ 1,210.5 $ 719.1 Ratio of operating expenses to average net assets 1.31%(2) 1.33% 1.33% 1.33% 1.36% 1.36% Ratio of net investment loss to average net assets (0.09%) (0.73%) (0.48%) (0.88%) (0.87%) (0.73%) Portfolio turnover rate 36.51% 42.69% 59.68% 32.92% 30.29% 55.07% ------------------------------------------------------------------------------------------------------ --------------------------------------------- 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 16.05 $ 13.37 $ 2.69 $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment loss (0.10) (0.16) (0.10) (0.02) Net realized and unrealized gain (loss) on investments (2.87) 2.84 4.86 (1.37) TOTAL FROM INVESTMENT OPERATIONS (2.98) 2.68 4.76 (1.39) LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments (0.38) 0.00 0.00 0.00 TOTAL DISTRIBUTIONS (0.38) 0.00 0.00 0.00 NET ASSET VALUE, END OF YEAR $ 12.69 $ 16.05 $ 13.37 $ 8.61 TOTAL RETURN (18.83%) 20.04% 55.28% (13.90%) RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 585.9 $ 879.5 $ 715.7 $ 403.7 Ratio of operating expenses to average net assets 1.35% 1.33% 1.34% 1.39% Ratio of net investment loss to average net assets (0.68%) (0.73%) (0.97%) (0.20%) Portfolio turnover rate 55.77% 53.18% 42.69% 59.68%
----------- (1) Based on average shares outstanding. (2) Benefit of expense reduction rounds to less than 0.01% 36 See Notes to Financial Statements. SEPTEMBER 30, 2007 BARON FUNDS -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- BARON iOPPORTUNITY FUND Selected data for a share outstanding throughout each year:
---------------------------------------------------------------------------------------------------------- Year Ended September 30, ------------------------------------------------------ 2007 2006 2005 2004 ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 10.05 $ 9.16 $ 7.58 $ 6.48 ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.07)(1) (0.03) (0.09) (0.10) Net realized and unrealized gain (loss) on investments 3.03 0.92 1.66 1.18 ---------- ---------- ---------- ---------- TOTAL FROM INVESTMENT OPERATIONS 2.96 0.89 1.57 1.08 ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: ---------- ---------- ---------- ---------- Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments 0.00 0.00 0.00 0.00 TOTAL DISTRIBUTIONS 0.00 0.00 0.00 0.00 Redemption fees added to capital paid-in 0.00(3) 0.00(3) 0.01 0.02 NET ASSET VALUE, END OF YEAR $ 13.01 $ 10.05 $ 6.48 $ 7.58 ---------- ---------- ---------- ---------- TOTAL RETURN 29.45%(4) 9.72% 20.84%(4) 16.98%(4) ---------- ---------- ---------- ---------- RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 198.0 $ 145.4 $ 145.7 $ 133.9 ---------- ---------- ---------- ---------- Ratio of operating expenses to average net assets 1.43% 1.45% 1.52% 1.56% Less: Expense reimbursements and/or offsets (0.01%) 0.00% (0.02%) (0.06%) ---------- ---------- ---------- ---------- Ratio of net expenses to average net assets 1.42% 1.45% 1.50% 1.50% Ratio of net investment income (loss) to average net assets (0.61%) (0.26%) (1.01%) (1.25%) Portfolio turnover rate 46.20% 67.25% 83.64% 86.35% 2003 2002 2001 2000(2) ---------- ---------- -------- ---------- NET ASSET VALUE, BEGINNING OF YEAR $ 3.63 $ 4.09 $ 8.76 $ 10.0 ---------- ---------- -------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.05) (0.06) (0.05) 0.03 Net realized and unrealized gain (loss) on investments 2.89 (0.40) (4.59) (1.28) ---------- ---------- -------- ---------- TOTAL FROM INVESTMENT OPERATIONS 2.84 (0.46) (4.64) (1.25) ---------- ---------- -------- ---------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 (0.03) 0.00 Net realized gain on investments 0.00 0.00 0.00 0.00 TOTAL DISTRIBUTIONS 0.00 0.00 (0.03) 0.00 Redemption fees added to capital paid-in 0.01 0.00(3) 0.00(3) 0.01 NET ASSET VALUE, END OF YEAR $ 6.48 $ 3.63 $ 4.09 $ 8.76 ---------- ---------- -------- ---------- TOTAL RETURN 78.51%(4) (11.25%)(4) (53.14%)(4) (12.40%)(4)(5) ---------- ---------- -------- ---------- RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 109.3 $ 57.5 $ 73.7 $ 188.2 Ratio of operating expenses to average net assets 1.67% 1.65% 1.55% 1.53%(6) Less: Expense reimbursements and/or offsets (0.03%) (0.15%) (0.15%) (0.03%)(6) ---------- ---------- -------- --------- Ratio of net expenses to average net assets 1.50% 1.50% 1.50% 1.50%(6) Ratio of net investment income (loss) to average net assets (1.18%) (1.01%) (0.75%) 0.46%(6) Portfolio turnover rate 89.72% 96.41% 123.30% 31.47%(5)
------------ (1) Based on average shares outstanding. (2) For the period February 29, 2000 (Commencement of Operations) to September 30, 2000. (3) Less than $0.01 per share. (4) The total returns would have been lower had certain expenses not been reduced during the periods shown. (5) Not Annualized. (6) Annualized. BARON FIFTH AVENUE GROWTH FUND -------------------------------------------------------------------------------- Selected data for a share outstanding throughout each year:
------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, -------------------------------------------------- 2007 2006 2005 2004(2) ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 12.22 $ 11.56 $ 9.89 $ 10.00 INCOME FROM INVESTMENT OPERATIONS: ---------- ---------- --------- --------- Net investment loss (0.01)(1) (0.02) (0.05) (0.02) Net realized and unrealized gain (loss) on investments 1.91 0.68 1.72 (0.09) ---------- ---------- --------- --------- TOTAL FROM INVESTMENT OPERATIONS 1.90 0.66 1.67 (0.11) ---------- ---------- --------- --------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments 0.00 0.00 0.00 0.00 ---------- ---------- --------- --------- TOTAL DISTRIBUTIONS 0.00 0.00 0.00 0.00 ---------- ---------- --------- --------- NET ASSET VALUE, END OF YEAR $ 14.12 $ 12.22 $ 11.56 $ 9.89 ---------- ---------- --------- --------- TOTAL RETURN 15.55% 5.71% 16.89%(3) (1.10%)(3)(4) ---------- ---------- --------- --------- RATIOS/SUPPLEMENTAL DATA: Net assets (in millions), end of year $ 110.2 $ 123.3 $ 96.5 $ 49.3 Ratio of operating expenses to average net assets 1.36%(5) 1.39% 1.49% 1.67%(6) Less: Expense reimbursements and/or offsets 0.00% 0.00% (0.09%) (0.27%)(6) ---------- ---------- --------- --------- Ratio of net expenses to average net assets 1.36% 1.39% 1.40% 1.40%(6) ---------- ---------- --------- --------- Ratio of net investment loss to average net assets (0.08%) (0.16%) (0.58%) (0.79%)(6) Portfolio turnover rate 28.75% 105.77% 46.71% 7.58%(4)
------------- (1) Based on average shares outstanding. (2) For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. (3) The total returns would have been lower had certain expenses not been reduced during the periods shown. (4) Not Annualized. (5) Benefit of expense reduction rounds to less than 0.01%. (6) Annualized. See Notes to Financial Statements. 37 BARON FUNDS SEPTEMBER 30, 2007 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of Baron Investment Funds Trust In our opinion, the accompanying statements of assets and liabilities, including the statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Baron Investment Funds Trust, comprising, respectively, Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund (collectively the "Funds") at September 30, 2007, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 28, 2007 38 SEPTEMBER 30, 2007 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, 2007, Baron Asset Fund, Baron Growth Fund, and Baron Small Cap Fund designated the following distributions, as long-term capital gain dividend:
BARON ASSET FUND BARON GROWTH FUND BARON SMALL CAP FUND $266,497,466 $285,910,925 $372,128,469
MANAGEMENTOF 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.
----------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ DIRECTORSHIPS NAME,ADDRESS& POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) HELD BY DATE OF BIRTH WITH THE FUNDS TIME SERVED DURINGTHE PAST FIVE YEARS THE TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES: RONALD BARON (1)(2) Chief Executive Officer, 20 years Chairman, CEO and Director: Baron None outside the 767 Fifth Avenue Chief Investment Officer, Capital, Inc. (1982-Present), Baron Baron Funds New York, NY 10153 Trustee and Portfolio Capital Management, Inc. (1983-Present), Complex. DOB: May 23, 1943 Manager Baron Capital Group, Inc. (1984-Present), BAMCO, Inc. (1987-Present); President: Baron Capital, Inc. (03/06-06/07), Baron Capital Management, Inc. (03/06-06/07), Baron Capital Group, Inc. (03/06-06/07), BAMCO, Inc. (03/06-06/07); President (2004- 02/07), Chairman (1999-2004), CIO and Trustee (1987-Present): Baron Investment Funds Trust; President (2004-02/07), Chairman (1997-2004), CIO and Trustee (1997-06/07): Baron Capital Funds Trust; President (2004-02/07), Chairman (2003-2004), CIO and Trustee (2003-Present): Baron Select Funds; CIO and Portfolio Manager: Baron Managed Funds plc (2005-Present); Baron USA Partners Fund, Ltd. (1993-Present).
39 BARON FUNDS SEPTEMBER 30, 2007 --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ DIRECTORSHIPS NAME,ADDRESS& POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) HELD BY DATE OF BIRTH WITH THE FUNDS TIME SERVED DURINGTHE PAST FIVE YEARS THE TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- LINDA S. MARTINSON (1)(2) President, Chief 20 years President: Baron Capital Group, Inc., None outside the Baron 767 Fifth Avenue Operating Officer, Baron Capital, Inc., BAMCO, Inc., Baron Funds Complex. New York, NY 10153 Secretary, Capital Management, Inc. DOB: February 23,1955 and Trustee (06/07-Present); Chief Operating Officer: Baron Capital Group, Inc., Baron Capital, Inc., BAMCO, Inc., and Baron Capital Management, Inc. (05/06-Present); General Counsel: Baron Capital, Inc., Baron Capital Management, Inc. (1983-2007), Baron Capital Group, Inc. (1984-2007), and BAMCO, Inc. (1987-2007); Director: BAMCO, Inc. (1988-1996, 2003-Present), Baron Capital Group, Inc., Baron Capital, Inc., Baron Capital Management, Inc. (2003-Present); Secretary: BAMCO, Inc. (1987-Present), Baron Capital, Inc., Baron Capital Management, Inc., Baron Capital Group, Inc. (1997-Present); President (02/07-Present), Vice President (1987-02/07), Secretary, Trustee, (1987-Present) General Counsel (1987-2007) Baron Investment Funds Trust; President (02/07-06/07), Vice President (1998-02/07), Secretary, Trustee, (1998-06/07) General Counsel (1998-2007): Baron Capital Funds Trust; President (02/07-Present) Vice President (2003-02/07), Secretary, Trustee, (2003-Present) General Counsel: (2003-2007) Baron Select Funds; Director, Baron Managed Funds plc (2005-Present), Baron USA Partners Fund, Ltd. (2006-Present). Has acted as Treasurer: BAMCO, Inc. (1987-1993); Vice President: BAMCO, Inc. (1993-06/07), Baron Capital, Inc., Baron Capital Management, Inc. (1998-06/07), Baron Capital Group, Inc. (1999-06/07). DISINTERESTED TRUSTEES: NORMAN S. EDELCUP(3)(4)(5) Trustee 20 years Director: Marquis Bank (2007-Present); Director: Marquis Bank City of Sunny Isles Beach Director: CompX International, Inc. (2007-Present); Director: 18070 Collins Avenue (diversified manufacturer of engineered CompX International, Inc. Sunny Isles Beach, FL 33160 components) (2006-Present); Mayor: (diversified manufacturer DOB: May 8, 1935 (2003-Present), Commissioner: of engineered components) (2001-2003), Sunny Isles Beach, Florida; (2006-Present); Director: Director: (2001-2006), Senior Vice Valhi, Inc., (diversified President: (2001-2004), Florida Savings company) (1975-Present). Bank; Senior Vice President: Item Processing of America (a subsidiary of The Intercept Group) (1999-2000); Chairman: Item Processing of America (a financial institution service bureau) (1989-1999); Director: Valhi, Inc. (diversified company) (1975-Present); Director: Artistic Greetings, Inc. (1985-1998); Trustee: Baron Investment Funds Trust (1987-Present), Baron Capital Funds Trust (1997-06/07), Baron Select Funds (2003-Present). DAVID I. FUENTE (4)(5) Trustee 3 years Director: (1987-Present), Chairman: Director: Office Depot 701 Tern Point Circle (1987-2001), CEO: (1987-2000) Office (1987-Present); Boca Raton, FL 33431 Depot; Director: Ryder Systems, Inc. Director: Ryder DOB: September 10, 1945 (1998-Present); Director: Dick's Systems, Inc. (1998- Sporting Goods, Inc. (1993-Present); Present); Director: Trustee: Baron Capital Funds Trust Dick's Sporting Goods, (2004-06/07), Baron Investment Funds Inc. (1993-Present). Trust, Baron Select Funds (2004-Present).
40 SEPTEMBER 30, 2007 BARON FUNDS --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- POSITION(S) OTHER TRUSTEE/ HELD DIRECTORSHIPS NAME,ADDRESS& WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) HELD BY DATE OF BIRTH FUNDS TIME SERVED DURINGTHE PAST FIVE YEARS THE TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- CHARLES N. MATHEWSON (4)(5) Chairman and 20 years; Chairman Emeritus: (October None outside the Baron 9295 Prototype Drive Trustee Elected as 2003-Present), Chairman: (1986-2003), Funds Complex. Reno, NV 89521 Chairman 08/04 International Game Technology, Inc. DOB: June 12, 1928 (manufacturer of microprocessor-controlled gaming machines and monitoring systems); Chairman: American Gaming Association (1994-2002); Chairman: Baron Capital Funds Trust (2004-06/07), Baron Investment Funds Trust, Baron Select Funds (2004-Present); Trustee: Baron Investment Funds Trust (1987-Present), Baron Capital Funds Trust (1997-06/07), Baron Select Funds (2003-Present). HAROLD W. MILNER (4)(5) Trustee 20 years Retired; President and CEO: Kahler None outside the Baron 2293 Morningstar Drive Realty Corporation (hotel ownership and Funds Complex. Park City, UT 84060 management) (1985-1997); Trustee: Baron DOB: November 11, 1934 Investment Funds Trust (1987-Present), Baron Capital Funds Trust (1997-06/07), Baron Select Funds (2003-Present). RAYMOND NOVECK (3)(4)(5) Trustee 20 years Private Investor (1999-Present); None outside the Baron 31 Karen Road President: The Medical Information Line, Funds Complex. Waban, MA 02168 Inc. (healthcare information) DOB: May 4, 1943 (1997-1998); President: Strategic Systems, Inc. (healthcare information) (1990-1997); Director: Horizon/CMS Healthcare Corporation (1987-1997); Trustee: Baron Investment Funds Trust (1987-Present), Baron Capital Funds Trust (1997-06/07), Baron Select Funds (2003-Present). DAVID A. SILVERMAN, MD (4)(5) Trustee 20 years Physician and Faculty: New York Director: 146 Central Park West University School of Medicine New York Blood Center New York, NY 10024 (1976-Present); Trustee: Baron (1999-Present). DOB: March 14, 1950 Investment Funds Trust (1987-Present), Baron Capital Funds Trust (1997-06/07), Baron Select Funds (2003-Present). ALEX YEMENIDJIAN(4)(5) Trustee 2 years Chairman and CEO: Armenco Director: Guess?, Inc. 1925 Century Park East Holdings, LLC (investment company) (2005-Present); Suite 1975 (2005-Present); Director: Guess?, Director: Regal Los Angeles, CA 90067 Inc. (retail) (2005-Present); Entertainment Group DOB: December 27, 1955 Director: Regal Entertainment (2005-Present); Group (ente-tainment company) Director: USC Marshall (2005-Present); Director: USC School of Business Marshall School of Business Board Board of Leaders of Leaders (2005-Present); (2005-Present); Co-chair of Imagine the Arts Co-chair of Imagine Campaign (2005-Present), the Arts Campaign: California State California State University-Northridge; Trustee: University- Northridge American Film Institute (2005-Present); (2000-2007); Chairman and CEO: Trustee: American Film Metro-Goldwyn- Mayer, Inc. Institute (2007); (1999-2005); Director: The Lincy Director: The Lincy Foundation (1989-Present); Foundation Director: The United Armenian Fund (1989-Present); (1989-Present); Director and Director: The United member of Executive Committee: MGM Armenian Fund MIRAGE, Inc. (1989-2005); (1989-Present); President and COO: MGM Grand, Inc. Director and member of (now MGM MIRAGE, Inc.) Executive Committee: (1989-1999); Managing Partner: MGM MIRAGE, Parks, Palmer, Turner & Yemenidjian (certified public accounting firm) (1984-1989); Trustee: Baron Investment Funds Trust (2006-Present), Baron Capital Funds Trust (12/06-06/07), Baron Select Funds (12/06-Present). ADDITIONAL OFFICERS OF THE FUNDS: CLIFFORD GREENBERG Senior Vice 11 years Director: BAMCO, Inc., Baron Capital None 767 Fifth Avenue President Management, Inc. (2003-Present); Director: New York, NY 10153 Baron Capital Group, Inc., Baron Capital, Inc. (2000-Present); Senior Vice President: Baron Capital Group, Inc., Baron Capital, Inc., Baron Capital Management, Inc., and BAMCO, Inc. (2003-Present); Vice President: Baron Capital, Inc. (1997-2003); Portfolio Manager: Baron Small Cap Fund (1997-Present); General Partner: HPB Associates, L.P. (1984-1996).
41 BARON FUNDS SEPTEMBER 30, 2007 --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ DIRECTORSHIPS NAME,ADDRESS& POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) HELD BY DATE OF BIRTH WITH THE FUNDS TIME SERVED DURINGTHE PAST FIVE YEARS THE TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- GRETTA J. HEANEY Chief Compliance Officer 4 years Chief Compliance Officer: Baron USA Partners Fund, Ltd None 767 Fifth Avenue (2006-Present), Baron Managed Funds plc (2005-Present), New York, NY 10153 Baron Capital Funds Trust (2004-06/07), Baron Investment DOB: July 10, 1960 Funds Trust, Baron Select Funds (2004-Present); Assistant General Counsel: (2004-2007), Vice President, Chief Compliance Officer: Baron Capital Management, Inc., BAMCO, Inc. (2004 -Present), Baron Capital, Inc. (2002-Present); Vice President, Goldman Sachs (2000-2002); Vice President, Associate Counsel, Hoenig & Co., Inc. (1995-2000). PATRICK M. PATALINO Vice President and 1 year Vice President and Chief Legal Officer: Baron Capital None 767 Fifth Avenue Chief Legal Officer Group, Inc., Baron Capital, Inc., BAMCO, Inc., Baron New York, NY 10153 Capital Management, Inc. (08/07-Present), Baron DOB: May 3, 1968 Investment Funds Trust, Baron Select Funds (11/07-Present), Baron Managed Funds plc, Baron USA Partners Fund, Ltd. (08/07-Present); Managing Director and Chief Operating Officer of the Legal and Compliance Division, Morgan Stanley (2006-2007); Director of Regulatory Matters, Credit Suisse Securities (USA) (2004-2006); Counsel to Vice Chairman, Credit Suisse Securities (USA) (2002-2004). ANDREW PECK Vice President and 5 years Vice President: BAMCO, Inc. (2003-Present); Vice None 767 Fifth Avenue Co-Portfolio Manager President: Baron Investment Funds Trust (2003-Present); New York, NY 10153 Vice President, Research Analyst: Baron Capital, Inc. DOB: March 25, 1969 (1998-Present); Co-Portfolio Manager: Baron Asset Fund (2003-Present); Co-Portfolio Manager (mid cap accounts): Baron Capital Management, Inc. (04/06-Present). SUSAN ROBBINS Vice President 20 years Director, Vice President and Senior Analyst: Baron None 767 Fifth Avenue Capital Management, Inc. (1982-Present), Baron Capital, New York, NY 10153 Inc. (1982-Present), BAMCO, Inc. (1997-Present), Baron DOB: October 19, 1954 Capital Group, Inc. (1982-Present); Vice President: Baron Investment Funds Trust (1994-Present), Baron Capital Funds Trust (1998-06/07), Baron Select Funds (2003-Present). PEGGY C.WONG Treasurer and 20 years Chief Financial Officer: Baron Capital Group, Inc., None 767 Fifth Avenue Chief Financial Officer Baron Capital, Inc., BAMCO, Inc., Baron Capital New York, NY 10153 Management, Inc., Baron Investment Funds Trust DOB: April 30, 1961 (1987-Present); Treasurer: Baron Capital, Inc. (1988-Present), Baron Capital Group, Inc. and Baron Capital Management, Inc. (1990-Present), BAMCO, Inc. (1993-Present), Baron Investment Funds Trust (1992-Present); Chief Financial Officer, Treasurer: Baron Capital Funds Trust (1998-06/07), Baron Select Funds (2003-Present), Baron Managed Funds plc. (2005-Present), Baron USA Partners Fund, Ltd. (1993-Present).
------------------- (1) 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. (2) 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. (3) Members of the Audit Committee. (4) Members of the Nominating Committee. (5) Members of the "Non-Interested" Committee. 42 [BARON LOG0] 1.800.99.BARON www.BaronFunds.com (C)2007 All Rights Reserved [registered castle logo] B A R O N F U N D S(R) SEP07 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 Mr. 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, 2006 to September 30, 2007 (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, 2007: Audit Fees Tax Fees ----------- --------- Baron Asset $42,000 $20,500 Baron Growth Fund 45,000 8,000 Baron Small Cap Fund 42,000 8,000 Baron iOpportunity Fund 22,000 8,000 Baron Fifth Avenue Growth Fund 19,000 8,000 Pursuant to its charter, the Audit Committee shall pre-approve all audit and non-audit services provided by the independent auditors and in connection therewith to review and elvaluate the qualifications, independence and performance of the Fund's independent auditors. Item 5. Audit Committee of Listed Registrants. The members of the Fund's Audit Committee are Norman Edelcup and Raymond Noveck, both "idependent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 6. Schedule of Investments. Please see Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. NOT APPLICABLE. Item 8. Portfolio Managers of Closed-End Management Investment Companies. NOT APPLICIABLE. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. NOT APPLICABLE. Item 10. Submission of Matters to a Vote of Security Holders. NOT APPLICABLE. Item 11. Controls and Procedures. (a) The Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 12. Exhibits. a). Ex-99.COE Current copy of the Funds' Code of Ethics pursuant to Item 2 of the Form N-CSR. b). Ex-99.CERT Certification pursuant to Item 10(b) of the Form N-CSR. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BARON INTVESTMENT FUNDS TRUST By: /s/ Ronald Baron ------------------- Ronald Baron Chief Executive Officer Date: December 7, 2007 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 Chief Executive Officer Date: December 7, 2007 By: /s/ Peggy Wong -------------------- Peggy Wong Treasurer and Chief Financial Officer Date: December 7, 2007 A signed original of this written statement has been provided to Baron Investment Funds Trust and will be retained by Baron Investment Funds Trust and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.906 CERT 3 ncsr906.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, 2007 (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 7, 2007 --------------------------- 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, 2007 (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 7, 2007 ----------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CERT 4 ncsrcert07.txt FORM N-CSR CERTIFICATIONS I, RONALD BARON, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial 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 financial reporting. Date: December 7, 2007 /s/ Ronald Baron ----------------------------- Ronald Baron CEO and Chief Investment Officer I, PEGGY WONG, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial 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 financial reporting. Date: December 7, 2007 /s/ Peggy Wong ------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CODE ETH 5 proceduresfinoffcoe07a.txt PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICER COE BARON INVESTMENT FUNDS TRUST BARON SELECT FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS The Board of Trustees of Baron Investment Funds Trust and Baron Select Funds and all their respective series (each a "Fund" and collectively, the "Funds"), have adopted the following Code of Ethics (the "Code") (the code applicable to the Funds principal executive and senior financial officers ("Covered Officers"). The Funds' Covered Officers include the Chief Executive Officer, the President and Chief Operating Officer, the Treasurer and Chief Financial Officer, and any person who performs similar functions, each of whom are listed on Schedule A hereto. I. INTRODUCTION The Sarbanes-Oxley Act of 2002 (the "Act") effected sweeping corporate disclosure and financial reporting reform on public companies, including mutual funds. The purpose of the Act is to address corporate malfeasance and assure investors that the companies in which they invest are accurately disclosing financial information. Under the Act, all public companies (including the Funds) must either have a code of ethics for their Covered Officers, or disclose why they do not. The Funds have chosen to adopt this Code to encourage the Covered Officers to act in a manner consistent with the principles of ethical conduct. II. SEPARATE CODE BAMCO, Inc., the Funds' investment adviser (the "Adviser") , has previously adopted a Compliance Manual (the "Compliance Manual") that sets forth certain fundamental principles and key policies and procedures that govern the conduct of all of the Adviser employees, including the Covered Officers. In addition, the Funds and the Adviser have previously adopted a code of ethics, in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") and Rule 17j-1 under the Investment Company Act of 1940 (the "1940 Act"), that governs the conduct of all of the Adviser employees, including the Covered Officers. The Adviser's code of ethics under Rule 204A-1 and Rule 17j-1 and the Compliance Manual are superceded by this Code to the extent that such principles, policies and procedures conflict with the provisions of this Code. The Adviser's code of ethics and the Compliance Manual contain separate requirements applying to the Covered Officers and others, and are not part of this Code. In addition, the 1940 Act and the Advisers Act and rules promulgated thereunder contain many specific provisions designed to protect the Funds from conflicts of interest and overreaching. Any conduct by Covered Officers required by specific 1940 Act or Advisers Act provisions or the rules thereunder is presumed to be in compliance with this Code. III. PURPOSES OF THE CODE The purposes of this Code are: 1. To promote honest and ethical conduct by the Funds' Covered Officers, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. To assist the Covered Officers in recognizing and avoiding conflicts of interest, including disclosing to an appropriate person any material transaction or relationship that reasonably could be expected to give rise to such conflict; 3. To promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the Funds; 4. To promote compliance with applicable governmental laws, rules and regulations; 5. To encourage prompt internal reporting to an appropriate person of suspected material violations of this Code, including violations of securities laws or other laws, rules, and regulations applicable to the Funds; and 6. To establish accountability for adherence to this Code. IV. QUESTIONS ABOUT THIS CODE The Chief Legal Officer of the Adviser shall oversee the implementation and administration of this Code. Any questions about this Code should be directed to the Chief Legal Officer. V. CONDUCT GUIDELINES The Funds have adopted the following guidelines under which the Funds' Covered Officers must perform their official duties and conduct the business affairs of the Funds. 1. ETHICAL AND HONEST CONDUCT IS AN OVERARCHING PRINCIPLE OF THIS CODE. ------------------------------------------------------------------- The Funds' Covered Officers must act with honesty and integrity and avoid violations of this Code, including the avoidance of actual or apparent conflicts of interest with the Funds in personal and professional relationships. The personal interests of Covered Officers should not be placed improperly before the interests of the Funds. The Covered Officers should not use their personal influence or personal relationships to influence investment decisions or financial reporting by a Fund, whereby the Covered Officers would benefit personally (directly or indirectly) to the detriment of a Fund. 2. COVERED OFFICERS MUST DISCLOSE MATERIAL TRANSACTIONS OR RELATIONSHIPS. --------------------------------------------------------------------- The Funds' Covered Officers must disclose to the Chief Legal Officer any actual or apparent conflicts of interest the Covered Officers may have with the Funds that reasonably could be expected to give rise to any violation of this Code. Such conflicts of interest may arise as a result of material transactions or business or personal relationships to which the Covered Officers may be a party. If a Covered Officer is unsure whether a particular transaction gives rise to a conflict of interest, or whether a particular transaction or relationship is material, he or she should bring the matter to the attention of the Chief Legal Officer. 3. DISCLOSURE REQUIREMENTS APPLICABLE TO THE FUNDS. ----------------------------------------------- Each Covered Officer is required to be familiar with the disclosure requirements applicable to the Funds and must not knowingly misrepresent or fail to disclose, or cause others to misrepresent or fail to disclose, material facts about the Funds to others, including but not limited to officers and counsel of the Adviser, its affiliates, and the Funds and their service providers, independent trustees, independent auditors and governmental regulators. The Funds' Covered Officers must seek to provide information that is accurate, complete, objective, relevant, timely and understandable. The Funds' Covered Officers must at all times endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Funds periodic reports. 4. MAINTAIN CONFIDENTIALITY OF INFORMATION. --------------------------------------- Each Covered Officer must act with integrity and must respect and protect the information acquired during the course of his or her duties except when authorized by a Fund to disclose it, or where disclosure is mandated by law, regulation or rule. Each Covered Officer must maintain the confidentiality of material non-public information where required by law or the Adviser policies. The Covered Officers may not disclose or use material non-public information pertaining to a Fund for personal advantage. 5. COMPLIANCE WITH LAWS. -------------------- The Funds' Covered Officers must comply with the federal securities laws and other laws and rules applicable to the Funds, such as the Internal Revenue Code. 6. STANDARD OF CARE. ---------------- The Funds' Covered Officers must at all times act in good faith and with due care, competence, and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated. The Funds' Covered Officers must conduct the affairs of the Fund in a responsible manner, consistent with this Code. 7. STANDARDS FOR RECORDKEEPING. --------------------------- The Funds' Covered Officers must at all times endeavor to ensure that the Funds financial books and records are thoroughly and accurately maintained to the best of their knowledge in a manner consistent with applicable laws and this Code. VI. AFFIRMATION OF THE CODE Upon adoption of the Code, each Covered Officer is required: (i) upon receipt of the Code, to sign and submit to the Chief Legal Officer an acknowledgment stating that he or she has received, read and understands the Code; (ii) annually thereafter to submit a statement to the Chief Legal Officer confirming that he or she has received, read and understands the Code and has complied with the requirements of the Code; (iii) to not retaliate against any employee subordinate to the Covered Officer for reports of potential violations that are made in good faith; and (iv) to notify the Chief Legal Officer of the Adviser, as appropriate, if the Covered Officer observes any irregularities or violations of this Code. VII. AMENDMENTS AND WAIVERS Except with respect to Schedule A hereto, which may be updated at any time, this Code may be amended only by the Board of Trustees of the Funds at a meeting of the Board of Trustees duly called for that purpose. Any Covered Officer may request a waiver of a provision of this Code by submitting his/her request in writing to the Chief Legal Officer for appropriate review. The Chief Legal Officer, in consultation with the Trustees who are not Interested persons of the Fund, as defined in the 1940 Act, will decide whether to grant a waiver. All waivers of the Code must be disclosed as required by the SEC rules. SCHEDULE A COVERED OFFICERS NAME TITLE ---- ----- Ronald Baron Chief Executive Officer Linda S. Martinson President and Chief Operating Officer Peggy Wong Treasurer and Chief Financial Officer Patrick M. Patalino Chief Legal Officer COVER 6 filename6.txt [Registered Castle Logo] B A R O N F U N D S(r) December 7, 2007 VIA - EDGARLINK Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Form N-CSRS Baron Investment Funds Trust - File No. 811-12112 Dear Sirs: Attached for filing pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended, please find a copy of Form N-CSR filed on behalf of Baron Investment Funds Trust and all series thereof for the period ended September 30, 2007. If you should have any questions, please call me at 212-583-2119. Thank you. Very truly yours, /s/Patrick M. Patalino --------------------- Patrick M. Patalino Chief Legal Officer PMP/ms att. 767 Fifth Avenue 49th Floor New York, NY 10153 TEL (212) 583-2000 FAX (212) 583-2014