-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N+36KwvRIAyEtI/eKFJWL6JOf64z1sXIH63Z09OuHSH2gj38zO6NwzMu8Xbztl+V /XkuGwYRHG+3sLgq9TL4Kw== 0001017918-07-000074.txt : 20070305 0001017918-07-000074.hdr.sgml : 20070305 20070302173343 ACCESSION NUMBER: 0001017918-07-000074 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20070305 DATE AS OF CHANGE: 20070302 EFFECTIVENESS DATE: 20070305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARON INVESTMENT FUNDS TRUST (f/k/a BARON ASSET FUND) CENTRAL INDEX KEY: 0000810902 IRS NUMBER: 136891420 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-05032 FILM NUMBER: 07668977 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2125832000 MAIL ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10153 FORMER COMPANY: FORMER CONFORMED NAME: BARON ASSET FUND DATE OF NAME CHANGE: 19920703 0000810902 S000000582 BARON ASSET FUND C000001635 BARON ASSET FUND BARAX 0000810902 S000000583 BARON GROWTH FUND C000001636 BARON GROWTH FUND BGRFX 0000810902 S000000584 BARON SMALL CAP FUND C000001637 BARON SMALL CAP FUND BSCFX 0000810902 S000000585 BARON iOPPORTUNITY FUND C000001638 BARON iOPPORTUNITY FUND BIOPX 0000810902 S000000586 BARON FIFTH AVENUE GROWTH FUND C000001639 BARON FIFTH AVENUE GROWTH FUND BFTHX N-CSR/A 1 ar0906.txt AMENDMENT TO N-CSR FOR THE PERIOD ENDED SEPTEMBER 30, 2006 ------------------------------ UNITED STATES |OMB APPROVAL | SECURITIES AND EXCHANGE COMMISSION |OMB Number: 3235 - 0570 | Washington, D.C. 20549 |Expires: September 31, 2007| |Estimated average burden | |hours per response... 19.4 | ------------------------------ FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-8032 BARON INVESTMENT FUNDS TRUST f/k/a BARON ASSET FUND - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 767 Fifth Avenue, 49th Floor New York, NY 10153 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Linda S. Martinson, Esq. c/o Baron Investment Funds Trust 767 Fifth Avenue,49th Floor New York, New York 10153 - -------------------------------------------------------------------------------- (Name and Address of Agent for Service) Registrant's Telephone Number, including Area Code 212-583-2000 ----------------------------- Date of fiscal year end: September 30 --------------- Date of reporting period: September 30, 2006 -------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17CRF 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 5th Street, NW, Washington, D.C. 20549-6009. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 2569 (01-05) Item 1. Baron Asset Fund Annual Report for the period ended September 30, 2006. [registered castle logo] B A R O N F U N D S(R) BARON FUNDS MANAGEMENT DISCUSSION OF FUND PERFORMANCE: BARON ASSET FUND........................................................ 2 BARON GROWTH FUND....................................................... 4 BARON SMALL CAP FUND.................................................... 6 BARON iOPPORTUNITY FUND................................................. 8 BARON FIFTH AVENUE GROWTH FUND.......................................... 10 FUND EXPENSES.............................................................. 12 STATEMENT OF NET ASSETS.................................................... 13 STATEMENTS OF ASSETS AND LIABILITIES....................................... 21 STATEMENTS OF OPERATIONS................................................... 22 STATEMENTS OF CHANGES IN NET ASSETS........................................ 23 NOTES TO FINANCIAL STATEMENTS.............................................. 24 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................... 34 DISCLOSURE REGARDING APPROVAL OF INVESTMENT ADVISORY CONTRACTS............. 35 UNAUDITED TAX INFORMATION.................................................. 36 MANAGEMENT OF THE FUNDS.................................................... 36 767 Fifth Avenue NY, NY 10153 212.583.2100 1.800.99.BARON BaronFunds.com ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2006 DEAR BARON FUNDS SHAREHOLDER: Attached you will find audited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund for their fiscal years ended September 30, 2006. The Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. We thank you for choosing to join us as fellow shareholders in Baron Funds. We will continue to work hard to justify your confidence. Sincerely, /s/ Ronald Baron - ------------------------------------- Ronald Baron CEO and Chief Investment Officer November 27, 2006 /s/ Peggy Wong - ------------------------------------- Peggy Wong Treasurer and CFO November 27, 2006 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 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 1-800-992-2766. 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 Company only through the end of the period stated in this report. The views are not intended as recommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. 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. BARON ASSET FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON ASSET FUND** IN RELATION TO THE RUSSELL 2500* AND THE RUSSELL 2000* [LINE CHART] - ------------------------------------------------------------------------- Date Baron Asset Fund Russell 2000 Russell 2500 - ------------------------------------------------------------------------- 6/12/1987 10,000 10,000 10,000 9/30/1987 11,950 10,530 10,655 9/30/1988 13,234 9,400 9,692 9/30/1989 18,521 11,421 12,039 9/30/1990 12,838 8,322 9,114 9/30/1991 17,760 12,077 13,394 9/30/1992 19,484 13,155 14,770 9/30/1993 26,595 17,521 19,218 9/30/1994 28,728 17,980 19,766 9/30/1995 38,003 22,187 24,812 9/30/1996 46,098 25,101 28,740 9/30/1997 61,656 33,432 38,600 9/30/1998 51,946 27,074 32,264 9/30/1999 67,092 32,237 39,292 9/30/2000 82,418 39,778 50,893 9/30/2001 56,741 31,342 41,339 9/30/2002 55,301 28,429 38,257 9/30/2003 64,210 38,802 51,873 9/30/2004 76,779 46,086 61,478 9/30/2005 96,135 54,359 74,566 9/30/2006 107,231 59,753 81,130 Information Presented by Fiscal Year as of September 30 Baron Asset Fund Russell 2500 Russell 2000 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2006 SINCE INCEPTION ONE YEAR FIVE YEARS TEN YEARS 06/12/87 - ------------------------------------------------------------------- Baron Asset Fund ** 11.54% 13.58% 8.81% 13.08% Russell 2000* 9.92% 13.78% 9.06% 9.70% Russell 2500* 8.80% 14.44% 10.94% 11.46% - ---------- * The Russell 2000 and the Russell 2500 are unmanaged indexes. The Russell 2000 measures the performance of small companies and the Russell 2500 of small to mid-sized companies. The Russell 2500, Russell 2000, and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the indexes. ** Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. - -------------------------------------------------------------------------------- 2 BARON ASSET FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Charles Schwab Corp. 4.7% Wynn Resorts, Ltd. 4.5% ChoicePoint, Inc. 4.5% Chicago Mercantile Exchange Holdings, Inc., Cl A 3.6% Vail Resorts, Inc. 3.6% XTO Energy, Inc. 2.9% Alexander's, Inc. 2.9% Manor Care, Inc. 2.3% Polo Ralph Lauren Corp., Cl A 2.0% C.H. Robinson Worldwide, Inc. 2.0% - -------------------------------------------------------------------------------- 33.0% - -------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2006 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Cash and Cash Equivalents 7.8% Recreation and Resorts 10.9% Business Services 9.6% Financial Services - Brokerage and Exchanges 9.2% Healthcare Services 5.6% Energy Services 5.5% Financial Services - Insurance 5.2% Financial Services - Asset Management 4.8% Real Estate - REITs 4.1% Healthcare Facilities 4.2% Transportation 3.2% Other 29.9% Baron Asset Fund performed well in the fiscal year ended September 30, 2006, gaining 11.54%. These results compared favorably with the return of the Fund's comparative indexes. The Russell 2000 gained 9.92% and the Russell 2500 gained 8.80% in the year ended September 30, 2006. The Fund's results also compared favorably with those of its small- and mid-cap peers. According to Morningstar*, its small-cap growth category (consisting of 787 funds at September 30, 2006) gained 4.19% and the mid-cap growth category (consisting of 989 funds at September 30, 2006) gained 5.23% in the year ending September 30, 2006. Baron Asset Fund continued to significantly outperform its Morningstar peer group of small- and mid-cap growth funds for the three and five year periods ended September 30, 2006, and to outperform its peer groups for the ten year period ended September 30, 2006. For the three years ended September 30, 2006, the Fund gained 18.64% per year as compared to 12.41% per year for the Morningstar mid-cap growth category (consisting of 821 funds at September 30, 2006) and 10.93% per year for the Morningstar small-cap growth category (consisting of 658 funds as of September 30, 2006). For the five years ended September 30, 2006, the Fund gained 13.58% per year as compared to 8.84% per year for the Morningstar mid-cap growth category (consisting of 637 funds at September 30, 2006) and 9.07% per year for the Morningstar small-cap growth category (consisting of 518 funds as of September 30, 2006). For the ten years ended September 30, 2006, the Fund gained 8.81% per year as compared to 7.46% per year for the Morningstar mid-cap growth category (consisting of 232 funds at September 30, 2006) and 7.13% per year for the Morningstar small-cap growth category (consisting of 200 funds at September 30, 2006). Baron Asset Fund invests in small- and medium-sized growth companies for the long-term while using value-oriented purchase and sell disciplines. The Fund purchases companies that we believe have sustainable competitive advantages and strong financial characteristics, operating in industries with favorable macroeconomic trends, led by strong managements. In fiscal 2006, the Fund continued its strategy of further diversifying its investment portfolio by adding what we believe to be well-financed, well-managed small and mid-cap growth businesses. We rely on our research team to determine what these businesses may earn in four to five 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 not uniform across the year. Baron Asset Fund's performance was strong in the first and second fiscal quarters, up 4.51% and 9.33% respectively, down 2.62% in the third fiscal quarter and up 0.25% in the fourth fiscal quarter. The performance of the market indexes was weaker than that of the Fund in the first and third fiscal quarters, relatively stronger in the second fiscal quarter, and slightly better for the fourth fiscal quarter of the year. Baron Asset Fund's performance was not uniform across industries either. 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. The Fund's gaming investments, most notably Wynn Resorts and Kerzner International, added to the strong performance of the Recreation and Resorts' industry. The gaming industry interests us because it offers communities not just entertainment for their residents but economic development, jobs and enhanced tax revenues. The Fund's performance was also strong in Financial Services (Brokerage and Exchanges, Asset Management, Insurance, and Miscellaneous) and Transportation. The Fund was most negatively impacted by the Real Estate - Home Building industry. The share price of home building stocks fell as new home orders dropped considerably from last year's peak levels. New order rates were affected by various factors, including the elimination of investors and speculators from the market, increased mortgage rates and the associated implications for home affordability, and that many true buyers may be waiting on the sidelines until they perceive the market has stabilized. We believe that the sector is still reasonably attractive, as most companies in our view are selling at a modest premium to their book values. The Fund was also negatively impacted by its holdings in Energy Services. In fiscal year 2007, the Fund 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. - ---------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 3 BARON GROWTH FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON GROWTH FUND** IN RELATION TO THE RUSSELL 2000* [LINE CHART] - ------------------------------------------------------ Date Baron Growth Fund Russell 2000 - ------------------------------------------------------ 1/3/1995 10,000 10,000 9/30/1995 14,770 12,573 9/30/1996 18,575 14,224 9/30/1997 25,469 18,945 9/30/1998 20,855 15,341 9/30/1999 29,868 18,267 9/30/2000 35,431 22,541 9/30/2001 33,286 17,760 9/30/2002 34,956 16,108 9/30/2003 42,333 21,988 9/30/2004 50,463 26,115 9/30/2005 59,591 30,803 9/30/2006 63,976 33,860 Information Presented by Fiscal Year as of September 30 Baron Growth Fund Russell 2000 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2006 SINCE INCEPTION ONE YEAR FIVE YEARS TEN YEARS 12/31/94 - -------------------------------------------------------------------- Baron Growth Fund ** 7.36% 13.96% 13.16% 17.11% Russell 2000* 9.92% 13.78% 9.06% 10.94% - ---------- * The Russell 2000 is an unmanaged index that measures the performance of small companies. The Russell 2000 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the Russell 2000. ** Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. - -------------------------------------------------------------------------------- 4 BARON GROWTH FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Wynn Resorts, Ltd. 3.0% Jefferies Group, Inc. 2.6% CB Richard Ellis Group, Inc., Cl A 2.3% Four Seasons Hotels, Inc. 2.2% Dicks Sporting Goods, Inc. 2.1% AMERIGROUP Corp. 2.1% Arch Capital Group, Ltd. 2.0% The First Marblehead Corp. 1.8% Station Casinos, Inc. 1.8% Manor Care, Inc. 1.8% - -------------------------------------------------------------------------------- 21.7% - -------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2006 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Cash and Cash Equivalents 2.7% Retail- Specialty Stores 10.2% Recreation and Resorts 10.1% Energy Services 6.4% Restaurants 4.8% Healthcare Services - Insurance 4.6% Financial Services - Banking 4.6% Financial Services - Brokerage and Exchanges 4.6% Healthcare Facilities 3.9% Financial Services - Miscellaneous 3.8% Business Services 3.6% Other 40.7% Baron Growth Fund performed well in the fiscal year ended September 30, 2006 in absolute terms and compared to its small-cap growth peers, but its performance was weak relative to the Fund's indexes. In the fiscal year ending September 30, 2006, the Fund gained 7.36%, the Russell 2000, an index of small-cap stocks, gained 9.92% and the S&P 500 gained 10.77%. According to Morningstar*, its small cap growth category (consisting of 787 funds at September 30, 2006) gained 4.19% in the year ending September 30, 2006. According to Morningstar*, the Fund has significantly outperformed its small- cap growth peers in the three, five and ten year periods ending September 30, 2006. For the three year period ended September 30, 2006, the Fund was up 14.76% per year versus 10.93% per year for its small-cap growth category peers (consisting of 658 funds as of September 30, 2006). For the five year period ended September 30, 2006, the Fund was up 13.96% per year versus 9.07% per year for its small-cap growth category peers (consisting of 518 funds as of September 30, 2006). For the ten year period ended September 30, 2006, the Fund was up 13.16% per year versus 7.13% for its small-cap growth category peers (consisting of 200 funds as of September 30, 2006). Baron Growth Fund is a long-term investor in small-sized growth companies. The Fund, 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 and five years. We purchase securities that we believe will double in value within four years. The Fund invests in businesses we believe have long-term sustainable competitive advantages that can be purchased at what we believe are attractive prices. The Fund's performance was not uniform across the year. Baron Growth Fund's performance was up in the first fiscal quarter, 3.20%, and its performance was strong in the second fiscal quarter, up 11.23%, but its performance was weak the second half of the fiscal year. The performance of the Russell 2000 was weaker than that of the Fund in the first and third fiscal quarters, stronger in the second fiscal quarter, and rebounding slightly in the fourth fiscal quarter. Baron Growth Fund's performance was not uniform across industries either. Below we discuss the most positive and negative contributors to the Fund's performance during the past year. The Fund's best performing industries were Retail - Specialty Stores and Recreation & Resorts. The Fund's gaming investments, most notably Wynn Resorts and Kerzner International, added to the strong performance of the Recreation and Resorts' industry. The gaming industry interests us because it offers communities not just entertainment for their residents but economic development, jobs and enhanced tax revenues. J. Crew Group, a relatively new addition to the Fund's portfolio, was the best performing security in the Retail - Specialty Stores industry for the year. J. Crew is a nationally recognized apparel and accessories brand that we believe embraces a high standard of style, quality and customer service, traits we often look for in our specialty stores investments. The Fund also performed well with its Financial Services (Miscellaneous, Brokerage & Exchanges and Asset Management), Communications, Real Estate and Health Services - Insurance industries. The Fund was most negatively impacted by the Energy Services industry. The Fund's Energy investments performed poorly, as falling commodity prices depressed valuations throughout the sector. We believe oil and natural gas prices fell due to the combination of rising oil inventories and fears of a slowing economy. Despite the decline in the price of oil and natural gas, we remain optimistic about our energy investments. The Fund was also negatively impacted by its holdings in Real Estate - Home Building. In fiscal 2007 the Fund intends to continue to invest in small businesses that we believe have the potential to grow substantially in the years ahead. - ---------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 5 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON SMALL CAP FUND** IN RELATION TO THE RUSSELL 2000* [LINE CHART] - ------------------------------------------------------ Date Baron Small Cap Fund Russell 2000 - ------------------------------------------------------ 9/30/1997 10,000 10,000 9/30/1998 8,610 8,098 9/30/1999 13,370 9,643 9/30/2000 16,050 11,898 9/30/2001 13,027 9,375 9/30/2002 14,095 8,503 9/30/2003 18,210 11,606 9/30/2004 20,236 13,785 9/30/2005 25,003 16,260 9/30/2006 26,385 17,873 Information Presented by Fiscal Year as of September 30 Baron Small Cap Fund Russell 2000 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2006 SINCE INCEPTION ONE YEAR FIVE YEARS 09/30/97 - ----------------------------------------------------------- Baron Small Cap Fund ** 5.52% 15.16% 11.38% Russell 2000* 9.92% 13.78% 6.67% - ---------- * The Russell 2000 is an unmanaged index that measures the performance of small companies. The Russell 2000 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the Russell 2000. ** Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. - -------------------------------------------------------------------------------- 6 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- CB Richard Ellis Group, Inc., Cl A 2.5% American Tower Corp., Cl A 2.5% SBA Communications, Corp., Cl A 2.3% Brookdale Senior Living, Inc. 2.2% Gaylord Entertainment Co. 2.1% FLIR Systems, Inc. 2.0% Wynn Resorts, Ltd. 2.0% Eagle Materials, Inc. 1.8% Covanta Holding Corp. 1.8% Penn National Gaming, Inc. 1.8% - -------------------------------------------------------------------------------- 21.0% - -------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2006 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Cash and Cash Equivalents 3.2% Recreation and Resorts 9.0% Retail - Specialty Stores 7.1% Communications 5.8% Restaurants 5.2% Medical Equipment 5.1% Manufacturing 4.7% Transportation 4.4% Healthcare Facilities 3.9% Government Services 3.7% Energy Services 3.7% Other 44.2% Baron Small Cap Fund performed well in the fiscal year ended September 30, 2006 in both absolute terms and when compared to its small-cap growth peers, but its performance was weaker than that of its comparative indexes. In the fiscal year ending September 30, 2006, the Fund gained 5.52%, the Russell 2000, an index of small cap stocks, gained 9.92% and the S&P 500 gained 10.77%. According to Morningstar*, its small-cap growth category (consisting of 787 funds at September 30, 2006) gained 4.19% in the year ending September 30, 2006. According to Morningstar*, the Fund has significantly outperformed its small-cap growth peers in the three and five year periods ending September 30, 2006. For the three year period ended September 30, 2006, the Fund was up 13.16% per year versus 10.93% per year for its small-cap growth category peers (consisting of 658 funds as of September 30, 2006). For the five year period ended September 30, 2006, the Fund was up 15.16% per year versus 9.07% for its small-cap growth category peers (consisting of 518 funds as of September 30, 2006). Baron Small Cap Fund invests in small-cap growth companies. The Fund is a long-term investor in what we believe are well run small-cap growth businesses that can be purchased at prices that represent a significant discount to our assessment of true value. We rely on our research team to determine what these businesses may earn in four and five years, and we attempt to purchase these businesses at valuations that allow their share price to double within four years. The Fund's performance was not uniform across the year. Baron Small Cap Fund's performance was up in the first fiscal quarter, 3.64% and its performance was strong in the second fiscal quarter, up 11.31%, but its performance was weak in the second half of the fiscal year. The performance of the Russell 2000 was weaker than that of the Fund in the first fiscal quarter and stronger in the last three fiscal quarters. Baron Small Cap Fund's performance was not uniform across industries either. 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 Communications. American Tower and SBA Communications were the two best performing securities in the Communications industry. We have long been believers in the strong growth of wireless communication services and the associated need for tower space. We have always liked the tower business model, where solid revenue growth and fixed costs have been leveraged into significant incremental profits. The Fund also performed well with its Recreation and Resorts, Medical Equipment, Retail- Specialty Stores, Healthcare Facilities, and Real Estate investments. The Fund was most negatively impacted by the Education industry. We believe that the Education industry is still reasonably attractive and we think that proprietary colleges like Apollo Group and Strayer Education (two of the Fund's holdings) can provide affordable and quality education and make a profit doing so. The Fund was also negatively impacted by its holdings in Media and Real Estate - Home Building. In fiscal 2007 the Fund intends to continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and ability to sustain superior levels of profitability. Baron Small Cap's investments fall into three categories: Growth Stocks, Fallen Angels and Special Situations. The Fund intends to continue to invest in "Growth Stocks" that we believe have significant long-term growth prospects and can be purchased at what we believe are attractive prices because their prospects have not yet been appreciated by investors. "Fallen Angels" are companies that 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. - ---------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 7 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON iOPPORTUNITY FUND** IN RELATION TO THE S&P 500* AND NASDAQ COMPOSITE* [LINE CHART] - ------------------------------------------------------------------------- Date Baron iOpportunity Fund S & P 500 Nasdaq - ------------------------------------------------------------------------- 2/29/2000 10,000 10,000 10,000 9/30/2000 8,760 10,582 7,820 9/30/2001 4,105 7,760 3,191 9/30/2002 3,643 6,173 2,496 9/30/2003 6,503 7,673 3,805 9/30/2004 7,607 8,737 4,039 9/30/2005 9,193 9,809 4,581 9/30/2006 10,086 10,865 4,808 Information Presented by Fiscal Year as of September 30 Baron iOpportunity Fund S&P 500 NASDAQ Composite AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2006 SINCE INCEPTION ONE YEAR FIVE YEARS 02/29/00 - -------------------------------------------------------------- Baron iOpportunity Fund ** 9.72% 19.70% 0.13% NASDAQ Composite* 4.96% 8.55% (10.53%) S&P 500* 10.77% 6.96% 1.27% - ---------- * The NASDAQ Composite and the S&P 500 are unmanaged indexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The NASDAQ Composite is without dividends. The S&P 500 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the S&P 500. ** Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. Performance data also does not reflect the imposition of a short-term trading fee of 1% on redemptions of the Fund's shares held for less than six months. - -------------------------------------------------------------------------------- 8 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- Charles Schwab Corp. 4.1% Apple Computer, Inc. 4.1% Research in Motion, Ltd. 3.8% Equinix, Inc. 3.8% E*TRADE Financial Corp. 3.8% Google, Inc., Cl A 3.7% Chicago Mercantile Exchange Holdings, Inc., Cl A 3.3% Comcast Corp., Cl A 3.1% Electronic Arts, Inc. 3.0% Best Buy Co., Inc. 2.8% - -------------------------------------------------------------------------------- 35.5% - -------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2006 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Communications 22.4% Financial Services - Brokerage & Exchanges 14.6% Media 12.2% Advertising Services 8.3% Consumer Services 5.1% Real Estate 4.4% Leisure 4.2% Enterprise Hardware 4.1% Computer Technology 4.1% Business Services 3.9% Other 11.6% Cash and Cash Equivalents 5.1% Baron iOpportunity Fund's performance was strong in the fiscal year ended September 30, 2006, gaining 9.72%. The Fund's relative indexes, the S&P 500 and NASDAQ Composite, were also strong during this period, gaining 10.77% and 4.96%, respectively. According to Morningstar*, its mid-cap growth category (consisting of 989 funds at September 30, 2006) gained 5.23% in the year ending September 30, 2006. Baron iOpportunity Fund outperformed its Morningstar peer group of mid-cap growth funds for the three years ending September 30, 2006, and significantly outperformed its peer group for the five years ending September 30, 2006. For the three year period ended September 30, 2006, the Fund gained 15.75% per year as compared to 12.41% per year for the Morningstar mid-cap growth category (consisting of 821 funds at September 30, 2006). For the five year period ended September 30, 2006, the Fund gained 19.70% per year as compared to 8.84% per year for the Morningstar mid-cap growth category (consisting of 637 funds at September 30, 2006). Baron iOpportunity Fund, like the other Baron Funds, utilizes value purchase disciplines while investing in growth companies that we believe have significant long-term information technology opportunities. We believe that our independent research will identify investment opportunities that are attractively priced relative to their future prospects. We further believe that many Internet businesses are at an early stage of development and that most Internet opportunities have yet to be discerned. The Fund's performance was not uniform across the year. Baron iOpportunity Fund's performance was strong in the first and second fiscal quarters, up 6.11% and 7.41% respectively, lost 6.13% in the third fiscal quarter and up 2.55% in the fourth fiscal quarter. The performance of the NASDAQ was weaker than the Fund's performance in the first three fiscal quarters, and stronger in the last fiscal quarter. Baron iOpportunity Fund's performance was not uniform across industry sectors either. 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 Communications. American Tower and SBA Communications were two of the best performing securities in the industry. We have long been believers in the strong growth of wireless communication services and the associated need for tower space. We have always liked the tower business model, where solid revenue growth and fixed costs have been leveraged into significant incremental profits. The Fund's performance was also strong in Financial Services - Brokerage and Exchanges, Business Services, Computer Technology, and Consumer Services industries. The Fund was most negatively impacted by the Enterprise Hardware industry. Dell and Intel were the two worst performing securities in the Enterprise Hardware industry. Dell's revenue growth lagged as computer buying patterns shifted from corporate desktops to consumer laptops, where Dell's direct distribution model is less meaningful. Dell also suffered from poor customer service. Intel lost share to competitor AMD and had to lower prices to clear inventory of older chips, which hurt its gross margins. Since fiscal year end, we have sold our Dell position out of the Fund and sold down our position in Intel. The Fund was also negatively affected by its holdings in Media and Advertising Services. In fiscal year 2007, 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. - ---------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 9 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPARISION OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON FIFTH AVENUE GROWTH FUND** IN RELATION TO THE S&P 500* [LINE CHART] - ---------------------------------------------------------------- Date Baron Fifth Avenue Growth Fund S & P 500 - ---------------------------------------------------------------- 4/30/2004 10,000 10,000 9/30/2004 9,890 10,131 9/30/2005 11,560 11,380 9/30/2006 12,220 12,605 Information Presented by Fiscal Year as of September 30 Baron Fifth Avenue Growth Fund S&P 500 AVERAGE ANNUAL TOTAL RETURNS for the periods ended September 30, 2006 SINCE INCEPTION ONE YEAR 04/30/2004 - -------------------------------------------------------- Baron Fifth Avenue Growth Fund** 5.71% 8.65% S&P 500* 10.77% 10.05% - ---------- * The S&P 500 is an unmanaged index that measures the performance of larger-cap equities in the stock market in general. The S&P 500 and the Fund are with dividends. The inclusion of dividends positively impacts the performance results of the Fund and the S&P 500. ** Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. - -------------------------------------------------------------------------------- 10 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- TOP 10 HOLDINGS (AS A PERCENTAGE OF NET ASSETS) AS OF SEPTEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF NET ASSETS - -------------------------------------------------------------------------------- The Procter & Gamble Co. 4.3% American Express Co. 4.2% Microsoft Corp. 3.7% PepsiCo, Inc. 3.4% Las Vegas Sands Corp. 3.3% Charles Schwab Corp. 3.3% Diageo Plc 3.2% Johnson & Johnson 3.2% Walt Disney Co. 3.1% Apple Computer, Inc. 2.8% - -------------------------------------------------------------------------------- 34.5% - -------------------------------------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF SEPTEMBER 30, 2006 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Cash and Cash Equivalents (1.5%) Consumer Products 12.3% Financial Services - Brokerage & Exchanges 9.6% Recreation and Resorts 7.2% Retail - Consumer Staples 8.1% Media 9.6% Energy Services 4.9% Business Services 5.0% Healthcare Services - Insurance 5.2% Retail - Specialty Stores 4.8% Computer Technology 6.5% Other 28.3% Baron Fifth Avenue Growth Fund gained 5.71% in the fiscal year ended September 30, 2006. The Fund's relative index, the S&P 500, with a 10.77% return was stronger during the same period. Baron Fifth Avenue Growth Fund outperformed its Morningstar peer group of large-cap growth funds for the one- year period ending September 30, 2006. According to Morningstar*, the large- cap growth category (consisting of 1,693 funds at September 30, 2006) gained 4.59% in the year ending September 30, 2006. 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. Baron 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 Fund believes it can gain an investment advantage through its independent and exhaustive research of businesses. The Fund attempts to purchase what it believes are great large-cap companies with exciting prospects at attractive prices when we think prospects are misunderstood, markets react to short-term events, or experts are wrong. The Fund's performance was not uniform across the fiscal year. Baron Fifth Avenue Growth Fund's performance was up in the first and second fiscal quarters, up 2.94% and 4.12% respectively, lost 4.20% in the third fiscal quarter and up 2.95% in the fourth fiscal quarter. The performance of the comparative index was weaker in the first fiscal quarter than the Fund's performance and relatively stronger in the last three quarters. The Fund's performance was not uniform across industries either. 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 Financial Services - Brokerage and Exchanges. We believe the strong performance of the Financial Services - Brokerage and Exchanges industry reflected investors' increased optimism about macro factors of economic growth, such as, lower interest rates and new highs in the stock market. The Fund's performance was also strong in Recreation and Resorts, Computer Technology, Consumer Products, Media, Real Estate - REITs, Retail - Consumer Staples, and Financial Services - Banking industries. The Fund's performance was most negatively impacted by the Real Estate - Home Building industry. The share price of home-building stocks fell as new home orders dropped considerably from last year's peak levels. New-order rates were affected by various factors, including the elimination of investors and speculators from the market, increased mortgage rates and the associated implications for home affordability, and that many true buyers may be waiting on the sidelines until they perceive the market has stabilized. The Fund was also negatively impacted by its holdings in Consumer Services, Enterprise Hardware, and Energy Services. In fiscal 2007, the Fund intends to invest in what we believe are some of the best companies in America. Baron Fifth Avenue Growth 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 which often dominate their industries. The companies often have strong franchises and brand names, and, we think, avoid fads and other short- term, unsustainable trends. We target companies that are the low-cost operators in their industries having, 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. - ---------- * The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 11 BARON FUNDS - -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDTED) - -------------------------------------------------------------------------------- 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, 2006 and held for six months ended September 30, 2006. 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 you 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, 2006*
EXPENSES BEGINNING ENDING ANNUALIZED PAID ACTUAL TOTAL ACCOUNT VALUE ACCOUNT VALUE EXPENSE DURING THE RETURN APRIL 1, 2006 SEPTEMBER 30, 2006 RATIOS PERIOD # ------------ ------------- ------------------ ---------- ---------- BARON ASSET FUND (2.37%) $1,000.00 $976.28 1.32% $6.54 BARON GROWTH FUND (6.48%) 1,000.00 935.25 1.31% 6.36 BARON SMALL CAP FUND (8.53%) 1,000.00 914.70 1.33% 6.38 BARON iOPPORTUNITY FUND (3.74%) 1,000.00 962.64 1.43% 7.04 BARON FIFTH AVENUE GROWTH FUND (1.37%) 1,000.00 986.28 1.39% 6.92
- ---------- * Assumes all reinvestment of dividends and capital gain distributions, if any. # Expenses are equal to each Fund's respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent Fiscal half-year, then divided by 365. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below titled "Based on Hypothetical Total Return" provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the 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, 2006
EXPENSES HYPOTHETICAL BEGINNING ENDING ANNUALIZED PAID ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE EXPENSE DURING THE TOTAL RETURN APRIL 1, 2006 SEPTEMBER 30, 2006 RATIOS PERIOD # ------------ ------------- ------------------ ---------- ---------- BARON ASSET FUND 5.00% $1,000.00 $1,018.45 1.32% $6.68 BARON GROWTH FUND 5.00% 1,000.00 1,018.50 1.31% 6.63 BARON SMALL CAP FUND 5.00% 1,000.00 1,018.40 1.33% 6.73 BARON iOPPORTUNITY FUND 5.00% 1,000.00 1,017.90 1.43% 7.23 BARON FIFTH AVENUE GROWTH FUND 5.00% 1,000.00 1,018.10 1.39% 7.03
- ---------- # 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 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (91.89%) - -------------------------------------------------------------------------------- ADVERTISING SERVICES (0.72%) 485,000 Getty Images, Inc.* $ 31,224,988 $ 24,094,800 APPAREL (2.02%) 1,050,000 Polo Ralph Lauren Corp., Cl A 22,642,344 67,924,500 BUSINESS SERVICES (9.63%) 1,400,000 Brown & Brown, Inc. 29,309,040 42,784,000 4,190,000 ChoicePoint, Inc.*+ 47,851,592 150,002,000 1,300,000 Iron Mountain, Inc.* 36,556,664 55,822,000 1,150,000 Robert Half Intl., Inc. 1,202,006 39,065,500 650,000 SEI Investments Co. 24,895,335 36,523,500 ------------ ------------ 139,814,637 324,197,000 CONSULTING (0.54%) 280,000 Moody's Corp. 7,256,123 18,306,400 DISTRIBUTION (2.06%) 1,000,000 Fastenal Co. 41,627,382 38,570,000 800,000 Pool Corp. 35,926,379 30,800,000 ------------ ------------ 77,553,761 69,370,000 EDUCATION (1.54%) 500,000 Apollo Group, Inc., Cl A* 4,894,672 24,620,000 1,275,000 DeVry, Inc.* 7,614,588 27,119,250 ------------ ------------ 12,509,260 51,739,250 ENERGY SERVICES (5.51%) 350,000 Arch Coal, Inc. 8,679,590 10,118,500 1,100,000 Helmerich & Payne, Inc. 37,021,701 25,333,000 500,000 SEACOR Holdings, Inc.* 14,322,278 41,250,000 200,000 Ultra Petroleum Corp.* 4,847,419 9,622,000 2,350,000 XTO Energy, Inc. 17,623,932 99,005,500 ------------ ------------ 82,494,920 185,329,000 FINANCIAL SERVICES -- ASSET MANAGEMENT (4.82%) 600,000 AllianceBernstein Holding L.P. 26,965,809 41,394,000 1,350,000 Eaton Vance Corp. 31,740,721 38,961,000 850,000 Nuveen Investments, Inc., Cl A 28,950,827 43,545,500 800,000 T. Rowe Price Group, Inc. 21,584,167 38,280,000 ------------ ------------ 109,241,524 162,180,500 FINANCIAL SERVICES -- BANKING (0.90%) 450,000 City National Corp. 32,695,656 30,177,000 FINANCIAL SERVICES -- BROKERAGE AND EXCHANGES (9.24%) 8,800,000 Charles Schwab Corp. 21,422,499 157,520,000 255,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 18,498,371 121,953,750 1,100,000 Jefferies Group, Inc. 32,080,243 31,350,000 ------------ ------------ 72,001,113 310,823,750 FINANCIAL SERVICES -- INSURANCE (5.19%) 1,000,000 Arch Capital Group, Ltd.* 33,841,383 63,490,000 850,000 Assurant, Inc. 28,107,970 45,398,500 900,000 Axis Capital Holdings, Ltd. 22,637,258 31,221,000 1,050,000 HCC Insurance Holdings, Inc. 33,072,205 34,524,000 ------------ ------------ 117,658,816 174,633,500 FINANCIAL SERVICES -- MISCELLANEOUS (1.79%) 525,000 The First Marblehead Corp. 17,737,524 36,361,500 125,000 The Student Loan Corp. 17,812,742 24,022,500 ------------ ------------ 35,550,266 60,384,000 Shares Cost Value - -------------------------------------------------------------------------------- GAMING SERVICES (0.85%) 900,000 Scientific Games Corp., Cl A* $ 26,324,480 $ 28,620,000 HEALTHCARE FACILITIES (4.16%) 600,000 Brookdale Senior Living, Inc. 24,736,136 27,852,000 900,000 Community Health Systems, Inc.* 24,384,740 33,615,000 1,500,000 Manor Care, Inc. 32,956,389 78,420,000 ------------ ------------ 82,077,265 139,887,000 HEALTHCARE PRODUCTS (2.60%) 1,130,000 DENTSPLY International, Inc. 24,654,030 34,024,300 800,000 Henry Schein, Inc.* 22,796,151 40,112,000 200,000 Zimmer Holdings, Inc.* 6,087,903 13,500,000 ------------ ------------ 53,538,084 87,636,300 HEALTHCARE SERVICES (5.31%) 475,000 Advanced Medical Optics, Inc.* 21,085,718 18,786,250 250,000 Caremark Rx, Inc. 5,389,305 14,167,500 550,000 Covance, Inc.* 32,191,018 36,509,000 425,000 Fisher Scientific Intl., Inc.* 24,522,276 33,252,000 235,000 IDEXX Laboratories, Inc.* 18,500,957 21,417,900 525,000 Stericycle, Inc.* 31,427,789 36,639,750 500,000 VCA Antech, Inc.* 16,903,055 18,030,000 ------------ ------------ 150,020,118 178,802,400 HEALTHCARE SERVICES -- INSURANCE (1.60%) 700,000 WellPoint, Inc.* 17,819,752 53,935,000 HOTELS AND LODGING (2.22%) 850,000 Choice Hotels Intl., Inc. 4,185,563 34,765,000 625,000 Four Seasons Hotels, Inc. 23,375,834 39,906,250 ------------ ------------ 27,561,397 74,671,250 MANUFACTURING (0.58%) 500,000 Embraer-Empresa Brasileira de Aeronautica S.A. 20,320,790 19,635,000 MEDIA (1.27%) 800,000 Lamar Advertising Co., Cl A* 43,414,120 42,728,000 REAL ESTATE (2.95%) 2,000,000 CB Richard Ellis Group, Inc., Cl A* 25,138,061 49,200,000 212,766 Corrections Corp. of America* 1,419 9,202,130 300,000 Forest City Enterprises, Inc., Cl A 13,720,391 16,290,000 450,000 The St. Joe Company 29,682,429 24,691,500 ------------ ------------ 68,542,300 99,383,630 REAL ESTATE -- HOME BUILDING (1.70%) 225,000 M.D.C. Holdings, Inc. 13,857,682 10,451,250 30,000 NVR, Inc.* 9,896,096 16,050,000 1,100,000 Toll Brothers, Inc.* 22,617,686 30,888,000 ------------ ------------ 46,371,464 57,389,250 REAL ESTATE -- REITS (4.09%) 314,000 Alexander's, Inc.*# 20,453,936 97,418,500 80,000 AvalonBay Communities, Inc. 8,451,711 9,632,000 275,000 SL Green Realty Corp. 23,927,991 30,717,500 ------------ ------------ 52,833,638 137,768,000 RECREATION AND RESORTS (10.89%) 1,100,000 Boyd Gaming Corp. 45,168,551 42,284,000 5,200,000 Kerzner Intl. Holdings, Ltd., Cl A*@ 52,000,000 52,000,000 3,000,000 Vail Resorts, Inc.*# 61,273,805 120,060,000 850,000 Wynn Resorts, Ltd.* 19,006,090 57,808,500 1,459,408 Wynn Resorts, Ltd.*@ 30,030,772 94,291,621 ------------ ------------ 207,479,218 366,444,121 See Notes to Financial Statements. 13 BARON ASSET FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - -------------------------------------------------------------------------------- RESTAURANTS (0.83%) 1,025,000 The Cheesecake Factory, Inc.* $ 22,998,875 $ 27,869,750 RETAIL -- CONSUMER STAPLES (1.72%) 975,000 Whole Foods Market, Inc. 29,544,651 57,944,250 RETAIL -- SPECIALTY STORES (2.21%) 550,000 CarMax, Inc.* 14,518,495 22,940,500 500,000 O'Reilly Automotive, Inc.* 12,587,919 16,605,000 1,050,000 Tiffany & Co. 33,934,183 34,860,000 -------------- -------------- 61,040,597 74,405,500 TRANSPORTATION (3.18%) 1,500,000 C. H. Robinson Worldwide, Inc. 27,854,391 66,870,000 900,000 Expeditors International of Washington, Inc. 21,676,121 40,122,000 -------------- -------------- 49,530,512 106,992,000 UTILITY SERVICES (1.77%) 2,250,000 Southern Union Co. 28,662,596 59,422,500 -------------- -------------- TOTAL COMMON STOCKS 1,728,723,265 3,092,693,651 -------------- -------------- - -------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.34%) - -------------------------------------------------------------------------------- EDUCATION (0.02%) 105,264 Apollo International, Inc. S-A CV Pfd.*@# 2,000,016 600,000 HEALTHCARE SERVICES (0.32%) 6,841 Somerford Corp. S-A Conv. Pfd.*@ 10,951,003 10,951,002 -------------- -------------- TOTAL CONVERTIBLE PREFERRED STOCKS 12,951,019 11,551,002 -------------- -------------- Principal Amount Cost Value - -------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (7.91%) - -------------------------------------------------------------------------------- $12,574,350 AGA Capital, Inc. 5.39% due 10/02/2006 $ 12,574,350 $ 12,574,350 38,982,613 Boston Edison Co. 5.35% due 10/02/2006 38,982,613 38,982,613 20,432,886 Cargil Global Funding PLC 5.35% due 10/02/2006 20,432,886 20,432,886 33,720,000 Chesham Finance Ltd. 5.35% due 10/02/2006 33,720,000 33,720,000 49,948,861 Ebury Finance LLC 5.27% due 10/02/2006 49,948,861 49,948,861 49,948,861 Intesa Funding LLC 5.27% due 10/04/2006 49,948,861 49,948,861 557,751 McCormick & Co., Inc. 5.35% due 10/02/2006 557,751 557,751 34,984,308 Mitsui & Co., Inc. 5.38% due 10/02/2006 34,984,308 34,984,308 24,879,229 PB Finance, Inc. 5.29% due 10/10/2006 24,879,229 24,879,229 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 266,028,859 266,028,859 -------------- -------------- TOTAL INVESTMENTS (100.14%) $2,007,703,143 3,370,273,512 ============== LIABILITIES LESS CASH AND OTHER ASSETS (-0.14%) (4,681,611) -------------- NET ASSETS (EQUIVALENT TO $60.08 PER SHARE BASED ON 56,019,414 SHARES OUTSTANDING) $3,365,591,901 ============== - ---------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". * Non-income producing securities + See Note 10 regarding segregated security. See Notes to Financial Statements. 14 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - -------------------------------------------------------------------------------- Common Stocks (95.70%) - -------------------------------------------------------------------------------- ADVERTISING SERVICES (0.32%) 100,000 Getty Images, Inc.* $ 1,681,600 $ 4,968,000 450,000 Harte-Hanks, Inc. 7,987,320 11,857,500 ------------ ------------ 9,668,920 16,825,500 APPAREL (2.36%) 2,900,000 Carter's, Inc.* 39,178,712 76,531,000 1,225,000 Under Armour, Inc., Cl A* 40,384,710 49,024,500 ------------ ------------ 79,563,422 125,555,500 AUTOMOTIVE PARTS (0.30%) 10,000,000 Delphi Corp.* 16,306,970 16,000,000 BUSINESS SERVICES (3.55%) 600,000 Brown & Brown, Inc. 9,830,330 18,336,000 1,592,000 ChoicePoint, Inc.*+ 35,519,748 56,993,600 2,725,000 CoPart, Inc.* 69,029,357 76,817,750 423,000 Gevity HR, Inc. 7,056,045 9,635,940 870,000 Macquarie Infrastructure Company Trust 29,029,878 27,126,600 ------------ ------------ 150,465,358 188,909,890 CHEMICAL (0.86%) 700,000 Senomyx, Inc.* 6,340,864 10,759,000 1,650,000 Symyx Technologies, Inc.*# 26,885,343 34,963,500 ------------ ------------ 33,226,207 45,722,500 COMMUNICATIONS (2.03%) 1,104,820 Equinix, Inc.* 36,440,373 66,399,682 1,700,000 SBA Communications Corp., Cl A* 6,533,039 41,361,000 ------------ ------------ 42,973,412 107,760,682 CONSULTING (0.10%) 275,000 LECG Corp.* 5,088,995 5,159,000 CONSUMER PRODUCTS (1.16%) 1,575,000 Church & Dwight Co., Inc. 58,038,013 61,598,250 CONSUMER SERVICES (1.65%) 1,350,000 Chemed Corp.# 51,815,546 43,551,000 1,200,000 Morningstar, Inc.* 26,102,655 44,280,000 ------------ ------------ 77,918,201 87,831,000 DISTRIBUTION (1.62%) 1,225,000 Beacon Roofing Supply, Inc.* 30,531,977 24,794,000 875,000 Pool Corp. 34,074,625 33,687,500 600,000 Watsco, Inc. 37,766,484 27,606,000 ------------ ------------ 102,373,086 86,087,500 EDUCATION (3.08%) 3,700,000 DeVry, Inc.*# 62,024,339 78,699,000 25,000 New Oriental Education & Technology Group, Inc.* 480,530 606,250 700,000 Strayer Education, Inc. 57,859,739 75,747,000 500,000 Universal Technical Institute, Inc.* 11,928,378 8,945,000 ------------ ------------ 132,292,986 163,997,250 ENERGY SERVICES (6.38%) 350,000 Carbo Ceramics, Inc. 19,239,861 12,610,500 250,000 Complete Production Services, Inc.* 6,005,910 4,935,000 400,000 Core Laboratories N.V.* 19,417,274 25,520,000 975,000 Dresser-Rand Group, Inc.* 23,492,691 19,890,000 3,400,000 Encore Acquisition Co.*# 57,583,578 82,756,000 800,000 EXCO Resources, Inc.* 10,481,220 9,928,000 1,100,000 FMC Technologies, Inc.* 25,188,996 59,070,000 300,000 Foundation Coal Holdings, Inc. 11,010,993 9,711,000 637,500 PHI, Inc.* 18,390,290 19,424,625 487,500 Range Resources Corp. 8,333,343 12,304,500 440,000 SEACOR Holdings, Inc.* 17,768,097 36,300,000 742,300 SunPower Corp., Cl A* 21,058,223 20,591,402 650,000 Whiting Petroleum Corp.* 22,550,925 26,065,000 ------------ ------------ 260,521,401 339,106,027 Shares Cost Value - -------------------------------------------------------------------------------- FINANCIAL SERVICES -- ASSET MANAGEMENT (1.79%) 1,600,000 Cohen & Steers, Inc. $ 24,788,860 $ 51,776,000 650,000 Eaton Vance Corp. 11,290,146 18,759,000 260,000 GAMCO Investors, Inc., Cl A 3,811,537 9,895,600 290,000 Nuveen Investments, Inc., Cl A 7,748,686 14,856,700 ------------ ------------ 47,639,229 95,287,300 FINANCIAL SERVICES -- BANKING (4.60%) 650,000 Cathay General Bancorp 23,709,838 23,465,000 850,000 Center Financial Corp.# 18,904,650 20,213,000 800,000 Central Pacific Financial Corp. 28,316,418 29,264,000 1,300,000 First Republic Bank 40,949,131 55,328,000 570,000 Frontier Financial Corp. 13,098,450 14,785,800 4,000,000 UCBH Holdings, Inc. 80,006,240 69,840,000 955,000 Western Alliance Bancorporation* 32,827,554 31,419,500 ------------ ------------ 237,812,281 244,315,300 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (4.61%) 530,900 Evercore Partners, Inc.* 13,355,542 15,289,920 1,750,000 International Securities Exchange Holdings, Inc., Cl A 49,915,686 82,057,500 4,800,000 Jefferies Group, Inc. 73,517,475 136,800,000 690,000 Thomas Weisel Partners Group, Inc.* 12,945,423 11,074,500 ------------ ------------ 149,734,126 245,221,920 FINANCIAL SERVICES -- INSURANCE (1.97%) 1,650,000 Arch Capital Group, Ltd.* 51,045,431 104,758,500 Financial Services -- MISCELLANEOUS (3.81%) 1,000,000 CheckFree Corp.* 18,042,917 41,320,000 1,525,000 National Financial Partners Corp. 81,123,705 62,570,750 1,425,000 The First Marblehead Corp. 41,701,596 98,695,500 ------------ ------------ 140,868,218 202,586,250 FOOD AND AGRICULTURE (1.27%) 1,400,000 Ralcorp Hldgs., Inc.*# 53,671,573 67,522,000 GAMING SERVICES (1.62%) 1,300,000 Scientific Games Corp., Cl A* 32,010,748 41,340,000 1,650,000 Shuffle Master, Inc.* 45,610,426 44,566,500 ------------ ------------ 77,621,174 85,906,500 HEALTHCARE FACILITIES (3.95%) 2,000,000 Community Health Systems, Inc.* 49,858,102 74,700,000 1,800,000 Manor Care, Inc. 33,815,991 94,104,000 1,650,000 United Surgical Partners Intl., Inc.* 23,181,527 40,969,500 ------------ ------------ 106,855,620 209,773,500 HEALTHCARE PRODUCTS (2.11%) 1,950,000 Depomed, Inc.* 11,124,661 7,956,000 2,000,000 Edwards Lifesciences Corp.* 59,602,587 93,180,000 550,000 PSS World Medical, Inc.* 11,194,327 10,994,500 ------------ ------------ 81,921,575 112,130,500 HEALTHCARE SERVICES (3.48%) 1,050,000 Charles River Laboratories Intl., Inc.* 30,142,796 45,580,500 800,000 Gen-Probe, Inc.* 33,725,299 37,512,000 160,000 IDEXX Laboratories, Inc.* 9,006,923 14,582,400 1,115,107 NightHawk Radiology Holdings, Inc.* 20,734,440 21,331,997 1,525,000 Odyssey HealthCare, Inc.* 17,605,293 21,624,500 1,120,000 PRA International* 26,361,599 29,892,800 400,700 VCA Antech, Inc.* 11,830,115 14,449,242 ------------ ------------ 149,406,465 184,973,439 See Notes to Financial Statements. 15 BARON GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006
Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - -------------------------------------------------------------------------------- HEALTHCARE SERVICES -- INSURANCE (4.58%) 3,700,000 AMERIGROUP Corp.*# $ 68,187,033 $ 109,335,000 3,000,000 Centene Corp.*# 27,176,333 49,320,000 1,500,000 WellCare Health Plans, Inc.* 63,788,253 84,945,000 -------------- -------------- 159,151,619 243,600,000 HOTELS AND LODGING (2.93%) 1,000,000 Choice Hotels Intl., Inc. 5,706,996 40,900,000 1,800,000 Four Seasons Hotels, Inc. 71,435,019 114,930,000 -------------- -------------- 77,142,015 155,830,000 MEDIA (1.19%) 600,000 Central European Media Enterprises, Ltd.* 29,408,871 40,230,000 1,000,000 Netflix, Inc.* 26,673,224 22,780,000 -------------- -------------- 56,082,095 63,010,000 MEDICAL EQUIPMENT (0.55%) 275,000 Intuitive Surgical, Inc.* 4,029,661 28,998,750 REAL ESTATE (3.01%) 4,950,000 CB Richard Ellis Group, Inc., Cl A* 35,102,586 121,770,000 925,000 CoStar Group, Inc.* 39,770,736 38,221,000 -------------- -------------- 74,873,322 159,991,000 REAL ESTATE -- HOME BUILDING (1.91%) 900,000 Brookfield Homes Corp. 30,105,788 25,344,000 750,000 Hovnanian Enterprises, Inc., Cl A* 18,292,979 22,005,000 625,000 M.D.C. Holdings, Inc. 31,144,412 29,031,250 250,000 Meritage Homes Corp.* 13,672,494 10,402,500 625,000 Standard Pacific Corp. 15,938,559 14,687,500 -------------- -------------- 109,154,232 101,470,250 REAL ESTATE -- REITS (1.33%) 75,000 Alexander's, Inc.* 5,683,589 23,268,750 630,000 CBRE Realty Finance, Inc. 9,220,591 9,607,500 666,667 CBRE Realty Finance, Inc. 144A@ 10,000,005 9,658,338 2,429,800 Spirit Finance Corp. 27,122,907 28,209,978 -------------- -------------- 52,027,092 70,744,566 RECREATION AND RESORTS (8.62%) 1,850,000 Ameristar Casinos, Inc. 36,589,852 40,163,500 200,000 Boyd Gaming Corp. 5,345,491 7,688,000 1,500,000 Fontainebleau Resorts, LLC@ 15,000,000 11,600,000 450,000 Gaylord Entertainment Co.* 12,911,388 19,732,500 1,450,000 Isle of Capri Casinos, Inc.* 30,683,260 30,537,000 7,400,000 Kerzner Intl. Holdings, Ltd., Cl A*@ 74,000,000 74,000,000 300,000 Life Time Fitness, Inc.* 9,895,549 13,887,000 575,000 Penn National Gaming, Inc.* 16,140,523 20,999,000 325,000 Pinnacle Entertainment, Inc.* 9,492,155 9,139,000 1,700,000 Station Casinos, Inc. 39,029,399 98,311,000 1,250,000 Vail Resorts, Inc.* 21,897,070 50,025,000 700,000 Wynn Resorts, Ltd.*+ 9,057,288 47,607,000 537,677 Wynn Resorts, Ltd.*@ 11,063,956 34,739,042 -------------- -------------- 291,105,931 458,428,042 RESTAURANTS (4.80%) 950,000 California Pizza Kitchen, Inc.* 24,386,635 28,433,500 91,193 Chipotle Mexican Grill, Inc.* 3,795,605 4,529,556 700,000 Panera Bread Co., Cl A* 25,727,519 40,775,000 700,000 Peet's Coffee & Tea, Inc.*# 15,273,681 17,507,000 1,300,000 P.F. Chang's China Bistro, Inc.* 61,532,458 45,123,000 800,000 Red Robin Gourmet Burgers, Inc.* 45,540,089 36,888,000 3,021,200 The Cheesecake Factory, Inc.* 67,899,393 82,146,428 -------------- -------------- 244,155,380 255,402,484 Shares Cost Value - -------------------------------------------------------------------------------- RETAIL -- SPECIALTY STORES (10.22%) 875,000 Blue Nile, Inc.*# $ 26,058,719 $ 31,806,250 1,200,000 Cabela's, Inc., Cl A* 26,601,533 26,076,000 1,650,000 CarMax, Inc.* 34,948,928 68,821,500 2,500,000 Dick's Sporting Goods, Inc.* 86,074,246 113,800,000 1,375,000 DSW, Inc., Cl A* 33,833,387 43,312,500 935,000 Guitar Center, Inc.* 53,937,552 41,775,800 1,250,000 J. Crew Group, Inc.* 31,929,267 37,587,500 1,200,000 PETCO Animal Supplies, Inc.* 24,210,542 34,368,000 2,700,000 Select Comfort Corp.*# 38,016,795 59,076,000 625,000 Tractor Supply Co.* 24,758,679 30,162,500 2,425,000 United Auto Group, Inc. 47,328,390 56,745,000 -------------- -------------- 427,698,038 543,531,050 TRANSPORTATION (2.19%) 350,000 American Railcar Industries, Inc. 8,421,668 10,188,500 175,000 Florida East Coast Industries, Inc. 9,217,829 9,989,000 1,863,750 Genesee & Wyoming, Inc., Cl A* 28,652,530 43,276,275 550,000 Landstar System, Inc. 13,610,267 23,485,000 1,050,000 UTI Worldwide, Inc. 24,275,698 29,368,500 -------------- -------------- 84,177,992 116,307,275 UTILITY SERVICES (1.75%) 1,600,000 ITC Holdings Corp. 43,215,668 49,920,000 1,627,498 Southern Union Co. 19,474,277 42,982,222 -------------- -------------- 62,689,945 92,902,222 -------------- -------------- TOTAL COMMON STOCKS 3,707,299,985 5,087,243,947 -------------- -------------- - ----------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (0.14%) - ----------------------------------------------------------------------------------- PHARMACEUTICAL 750,000 Reliant Pharmaceuticals LLC Series D*@ 15,000,000 7,500,000 -------------- -------------- Principal Amount - ----------------------------------------------------------------------------------- CORPORATE BONDS (1.46%) - ----------------------------------------------------------------------------------- RECREATION AND RESORTS $26,000,000 Wynn Resorts 6.00% Sub. Conv. Deb. due 07/15/2015 25,483,297 77,480,000 -------------- -------------- - ----------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (3.22%) - ----------------------------------------------------------------------------------- 21,520,330 AGA Capital, Inc. 5.39% due 10/02/2006 21,520,330 21,520,330 31,300,000 Chesham Finance, Ltd. 5.35% due 10/02/2006 31,300,000 31,300,000 49,948,861 Ebury Finance LLC 5.27% due 10/02/2006 49,948,861 49,948,861 8,466,224 McCormick & Co., Inc. 5.35% due 10/02/2006 8,466,224 8,466,224 34,984,308 Mitsui & Co., Inc. 5.38% due 10/02/2006 34,984,308 34,984,308 24,879,229 PB Finance, Inc. 5.29% due 10/10/2006 24,879,229 24,879,229 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 171,098,952 171,098,952 -------------- -------------- TOTAL INVESTMENTS (100.52%) $3,918,882,234 5,343,322,899 ============== LIABILITIES LESS CASH AND OTHER ASSETS (-0.52%) (27,487,070) -------------- NET ASSETS (EQUIVALENT TO $47.23 PER SHARE BASED ON 112,560,805 SHARES OUTSTANDING) $5,315,835,829 ==============
- ---------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". * Non-income producing securities + See Note 10 regarding segregated securities. See Notes to Financial Statements. 16 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006
Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (96.30%) - -------------------------------------------------------------------------------- ADVERTISING SERVICES (1.31%) 725,000 R.H. Donnelley Corp.* $ 26,979,391 $ 38,352,500 APPAREL (3.34%) 1,500,000 Carter's, Inc.* 26,602,058 39,585,000 1,000,000 Fossil, Inc.* 20,249,122 21,540,000 3,000,000 Quiksilver, Inc.* 24,477,344 36,450,000 ------------ ------------ 71,328,524 97,575,000 BUILDING MATERIALS (1.84%) 1,600,000 Eagle Materials, Inc. 30,800,398 53,888,000 BUSINESS SERVICES (3.50%) 725,000 ChoicePoint, Inc.* 6,949,762 25,955,000 1,650,000 First Advantage Corp., Cl A* 34,451,876 34,419,000 975,000 Iron Mountain, Inc.* 10,010,523 41,866,500 ------------ ------------ 51,412,161 102,240,500 COMMUNICATIONS (5.76%) 2,000,000 American Tower Corp., Cl A*+ 7,561,242 73,000,000 2,750,000 SBA Communications Corp., Cl A* 27,026,676 66,907,500 1,500,000 Time Warner Telecom, Inc., Cl A* 24,518,321 28,515,000 ------------ ------------ 59,106,239 168,422,500 CONSULTING (2.84%) 275,000 Corporate Executive Board Co. 4,596,431 24,725,250 750,000 LECG Corp.* 13,619,728 14,070,000 2,200,000 Navigant Consulting, Inc.* 39,335,041 44,132,000 ------------ ------------ 57,551,200 82,927,250 CONSUMER PRODUCTS (3.51%) 2,000,000 ACCO Brands Corp.* 48,493,311 44,520,000 250,000 Bare Escentuals, Inc.* 6,302,620 6,787,500 1,625,000 DTS, Inc.*# 34,251,425 34,417,500 700,000 Marvel Entertainment, Inc.* 13,386,290 16,898,000 ------------ ------------ 102,433,646 102,623,000 DISTRIBUTION (2.32%) 1,875,000 Beacon Roofing Supply, Inc.* 48,389,257 37,950,000 775,000 Pool Corp. 29,445,993 29,837,500 ------------ ------------ 77,835,250 67,787,500 EDUCATION (2.95%) 500,000 Apollo Group, Inc., Cl A* 4,269,664 24,620,000 444,000 Strayer Education, Inc. 37,452,156 48,045,240 750,000 Universal Technical Institute, Inc.* 19,390,066 13,417,500 ------------ ------------ 61,111,886 86,082,740 ENERGY SERVICES (3.69%) 2,500,000 Covanta Holding Corp.* 38,709,339 53,825,000 857,500 PHI, Inc.* 24,669,136 26,128,025 1,000,000 SunPower Corp., Cl A* 29,773,456 27,740,000 ------------ ------------ 93,151,931 107,693,025 ENVIRONMENTAL (0.63%) 1,000,000 Nalco Holding Co.* 17,014,844 18,520,000 FINANCIAL SERVICES -- ASSET MANAGEMENT (0.33%) 250,000 GAMCO Investors, Inc., Cl A 4,356,166 9,515,000 FINANCIAL SERVICES -- BANKING (0.36%) 1,500,000 Cash Systems, Inc.*# 10,062,346 10,485,000 FINANCIAL SERVICES -- INSURANCE (0.84%) 200,000 Arch Capital Group, Ltd.* 5,515,966 12,698,000 850,000 SeaBright Insurance Holdings, Inc.* 13,779,508 11,874,500 ------------ ------------ 19,295,474 24,572,500 Shares Cost Value - -------------------------------------------------------------------------------- GAMING SERVICES (0.60%) 600,000 WMS Industries, Inc.* $ 17,406,838 $ 17,526,000 GOVERNMENT SERVICES (3.70%) 2,150,000 FLIR Systems, Inc.* 43,830,060 58,394,000 2,283,585 L-1 Identity Solutions, Inc.* (formerly Viisage Technology, Inc.) 40,147,914 29,800,784 600,000 Mantech Intl. Corp., Cl A* 11,308,165 19,806,000 ------------ ------------ 95,286,139 108,000,784 HEALTHCARE FACILITIES (3.88%) 1,400,000 Brookdale Senior Living, Inc. 34,154,493 64,988,000 1,950,000 United Surgical Partners Intl., Inc.* 25,691,822 48,418,500 ------------ ------------ 59,846,315 113,406,500 HEALTHCARE SERVICES (1.69%) 475,000 Gen-Probe, Inc.* 21,507,724 22,272,750 174,900 NightHawk Radiology Holdings, Inc.* 3,368,521 3,345,837 895,000 PRA International* 21,077,668 23,887,550 ------------ ------------ 45,953,913 49,506,137 HOTELS AND LODGING (1.22%) 950,000 Orient-Express Hotels, Ltd. 37,075,828 35,511,000 INDUSTRIAL SERVICES (0.80%) 1,000,000 United Rentals, Inc.* 29,677,855 23,250,000 LEISURE (1.44%) 1,650,000 MarineMax, Inc.*# 43,423,427 41,992,500 MACHINERY & ELECTRONICS (1.73%) 1,000,000 Flowserve Corp.* 31,808,128 50,590,000 MANUFACTURING (4.73%) 1,000,000 Actuant Corp., Cl A 37,247,635 50,100,000 932,900 HEICO Corp., Cl A 25,105,956 27,100,745 919,900 Koppers Holdings, Inc. 13,106,567 17,450,503 1,000,000 Measurement Specialties, Inc.*# 23,936,259 18,650,000 1,016,000 TransDigm Group, Inc.* 23,439,246 24,810,720 ------------ ------------ 122,835,663 138,111,968 MEDIA (1.35%) 1,250,000 CKX, Inc.* 14,102,674 15,562,500 231,500 Gray Television, Inc. 1,792,200 1,483,915 2,400,000 Radio One, Inc., Cl D* 27,663,129 15,000,000 380,000 Regal Entertainment Group, Cl A 4,528,833 7,531,600 ------------ ------------ 48,086,836 39,578,015 MEDICAL EQUIPMENT (5.11%) 1,600,000 American Medical Systems Holdings, Inc.* 28,105,250 29,488,000 2,100,000 Immucor, Inc.* 8,548,093 47,061,000 425,000 Intuitive Surgical, Inc.* 6,162,500 44,816,250 950,000 Kensey Nash Corp.*# 27,605,710 27,806,500 ------------ ------------ 70,421,553 149,171,750 MINERALS & MINING (1.31%) 1,500,000 Novelis, Inc. 33,268,398 38,385,000 PRINTING AND PUBLISHING (0.68%) 1,000,000 Interactive Data Corp.* 13,502,909 19,950,000 REAL ESTATE (2.53%) 3,000,000 CB Richard Ellis Group, Inc., Cl A* 29,930,480 73,800,000 REAL ESTATE -- HOME BUILDING (2.21%) 1,250,000 Brookfield Homes Corp. 30,392,566 35,200,000 3,000,000 Countrywide plc^ 18,160,703 29,421,600 ------------ ------------ 48,553,269 64,621,600 See Notes to Financial Statements. 17 BARON SMALL CAP FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - ------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ------------------------------------------------------------------------------------- REAL ESTATE -- REITS (2.23%) 1,000,000 KKR Financial Corp. $ 24,575,569 $ 24,540,000 3,500,000 Spirit Finance Corp. 39,599,734 40,635,000 -------------- -------------- 64,175,303 65,175,000 RECREATION AND RESORTS (8.99%) 1,400,000 Gaylord Entertainment Co.* 43,928,824 61,390,000 2,357,300 Great Canadian Gaming Corp.*^ 33,290,262 24,253,081 2,750,000 Great Wolf Resorts, Inc.*# 52,151,580 32,890,000 3,500,000 Kerzner Intl. Holdings, Ltd., Cl A*@ 35,000,000 35,000,000 1,401,700 Penn National Gaming, Inc.* 40,093,264 51,190,084 850,000 Wynn Resorts, Ltd.* 12,016,631 57,808,500 -------------- -------------- 216,480,561 262,531,665 RESTAURANTS (5.22%) 2,250,000 AFC Enterprises, Inc.*# 36,931,249 32,490,000 300,000 Panera Bread Co., Cl A* 8,173,117 17,475,000 800,000 P.F. Chang's China Bistro, Inc.* 39,938,504 27,768,000 3,000,000 Texas Roadhouse, Inc., Cl A* 38,035,045 36,840,000 1,400,000 The Cheesecake Factory, Inc.* 32,253,281 38,066,000 -------------- -------------- 155,331,196 152,639,000 RETAIL -- CONSUMER STAPLES (2.53%) 2,500,000 Iconix Brand Group, Inc.*# 40,054,235 40,250,000 1,250,000 NuCO2, Inc.*# 30,876,487 33,625,000 -------------- -------------- 70,930,722 73,875,000 RETAIL -- SPECIALTY STORES (6.71%) 700,000 99 Cents Only Stores* 8,091,122 8,281,000 1,157,503 Casual Male Retail Group, Inc.*# 5,361,112 15,892,516 675,000 Design Within Reach, Inc.* 9,586,917 4,104,000 1,500,000 DSW, Inc., Cl A* 36,083,956 47,250,000 166,500 Gaiam, Inc.* 2,006,325 2,149,515 750,000 Guitar Center, Inc.* 36,791,851 33,510,000 300,000 J. Crew Group, Inc.* 7,005,582 9,021,000 700,000 Tractor Supply Co.* 24,635,320 33,782,000 1,800,000 United Auto Group, Inc. 34,504,900 42,120,000 -------------- -------------- 164,067,085 196,110,031 TRANSPORTATION (4.42%) 650,000 AirCastle, Ltd. 15,918,465 18,889,000 400,000 American Commercial Lines, Inc.* 10,772,593 23,780,000 600,000 Florida East Coast Industries, Inc. 32,278,198 34,248,000 500,000 Grupo Aeroportuario Del Pacifico SA 16,830,373 17,000,000 600,000 Grupo Aeroportuario Del Sureste SA de CV 17,867,166 22,386,000 900,000 JetBlue Airways Corp.* 11,385,882 8,343,000 500,000 WestJet Airlines, Ltd.*^ 3,272,256 4,473,250 -------------- -------------- 108,324,933 129,119,250 -------------- -------------- TOTAL COMMON STOCKS 2,188,826,807 2,813,535,715 -------------- -------------- - ------------------------------------------------------------------------------------- WARRANTS (0.47%) - ------------------------------------------------------------------------------------- BUSINESS SERVICES (0.04%) 222,575 Infocrossing, Inc. Warrants Exp 10/16/2008*@ 31,784 1,235,292 -------------- -------------- RETAIL -- SPECIALTY STORES (0.43%) 1,407,353 Casual Male Retail Group, Inc. Warrants Exp 04/26/2007*@# 2,117,150 11,817,706 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010*@# 49,000 897,000 -------------- -------------- 2,166,150 12,714,706 -------------- -------------- TOTAL WARRANTS 2,197,934 13,949,998 -------------- -------------- Principal Amount Cost Value - -------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (1.88%) - -------------------------------------------------------------------------------- $22,400,000 Chesham Finance, Ltd. 5.35% due 10/02/2006 $ 22,400,000 $ 22,400,000 19,991,083 McCormick & Co., Inc. 5.35% due 10/02/2006 19,991,083 19,991,083 12,439,615 PB Finance, Inc. 5.29% due 10/10/2006 12,439,615 12,439,615 -------------- -------------- TOTAL SHORT TERM MONEY MARKET INSTRUMENTS 54,830,698 54,830,698 -------------- -------------- TOTAL INVESTMENTS (98.65%) $2,245,855,439 2,882,316,411 ============== CASH AND OTHER ASSETS LESS LIABILITIES (1.35%) 39,335,612 -------------- NET ASSETS (EQUIVALENT TO $23.59 PER SHARE BASED ON 123,838,458 SHARES OUTSTANDING) $2,921,652,023 ==============
- ---------- % Represents percentage of net assets @ See Note 7 regarding restricted and fair valued securities. # See Note 9 regarding "affiliated investments". ^ Foreign domiciled corporation * Non-income producing securities + See Note 10 regarding segregated security. See Notes to Financial Statements. 18 BARON iOPPORTUNITY FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (94.89%) - -------------------------------------------------------------------------------- ADVERTISING SERVICES (8.25%) 110,000 aQuantive, Inc.* $ 2,367,059 $ 2,598,200 80,000 Getty Images, Inc.* 2,400,659 3,974,400 13,500 Google, Inc., Cl A* 2,160,607 5,425,650 ------------ ------------ 6,928,325 11,998,250 BUSINESS SERVICES (3.85%) 50,000 ChoicePoint, Inc.* 1,469,626 1,790,000 105,000 Monster Worldwide, Inc.* 1,586,596 3,799,950 ------------ ------------ 3,056,222 5,589,950 COMMUNICATIONS (22.38%) 95,000 American Tower Corp., Cl A* 258,400 3,467,500 239,100 Cogent Communications Group, Inc.* 2,146,053 2,771,169 92,000 Equinix, Inc.* 2,855,331 5,529,200 60,000 NeuStar, Inc., Cl A* 1,859,719 1,665,000 75,000 NTELOS Holdings Corp.* 1,033,002 957,750 54,000 Research in Motion, Ltd.* 4,514,734 5,543,640 115,000 SBA Communications Corp., Cl A* 1,290,179 2,797,950 93,000 Sprint Nextel Corp. 2,060,604 1,594,950 547,500 Terremark Worldwide, Inc.* 3,143,063 3,038,625 159,000 Time Warner Telecom, Inc., Cl A* 2,681,647 3,022,590 75,000 VeriFone Holdings, Inc.* 1,624,149 2,141,250 ------------ ------------ 23,466,881 32,529,624 COMMUNICATIONS EQUIPMENT (1.98%) 79,000 QUALCOMM, Inc. 2,983,090 2,871,650 COMPUTER TECHNOLOGY (4.11%) 77,500 Apple Computer, Inc.* 4,422,459 5,969,825 CONSUMER PRODUCTS (0.96%) 90,000 Shutterfly, Inc.* 1,400,252 1,399,500 CONSUMER SERVICES (5.09%) 136,000 eBay, Inc.* 3,207,636 3,856,960 65,000 priceline.com, Inc.* 1,345,503 2,391,350 40,000 Travelzoo, Inc.* 737,778 1,152,800 ------------ ------------ 5,290,917 7,401,110 ENERGY SERVICES (1.41%) 83,000 Medis Technologies, Ltd.* 1,866,494 2,050,930 ENTERPRISE HARDWARE (4.06%) 80,000 Dell, Inc.* 1,787,528 1,827,200 85,000 Intel Corp. 1,740,545 1,748,450 85,000 Rackable Systems, Inc.* 2,664,407 2,326,450 ------------ ------------ 6,192,480 5,902,100 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (14.58%) 335,000 Charles Schwab Corp. 3,665,646 5,996,500 10,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 1,829,806 4,782,500 230,000 E*TRADE Financial Corp.* 1,557,926 5,501,600 102,000 optionsXpress Holdings, Inc. 2,092,857 2,843,760 137,500 TradeStation Group, Inc.* 1,357,472 2,072,125 ------------ ------------ 10,503,707 21,196,485 FINANCIAL SERVICES -- INSURANCE (1.15%) 108,000 Admiral Group plc^ 1,189,310 1,676,484 GAMING SERVICES (1.48%) 67,500 Scientific Games Corp., Cl A* 2,322,414 2,146,500 LEISURE (4.21%) 120,000 Activision, Inc.* 1,653,134 1,812,000 77,500 Electronic Arts, Inc.* 4,152,637 4,315,200 ------------ ------------ 5,805,771 6,127,200 Shares Cost Value - -------------------------------------------------------------------------------- MEDIA (12.19%) 30,000 Central European Media Enterprises, Ltd.* $ 2,110,846 $ 2,011,500 123,800 Comcast Corp., Cl A* 3,030,649 4,557,078 82,000 Netflix, Inc.* 2,438,297 1,867,960 185,000 News Corp., Cl A 3,269,588 3,635,250 101,500 Time Warner, Inc. 1,480,641 1,850,345 150,000 Yahoo! Inc.* 3,146,344 3,792,000 ------------ ------------ 15,476,365 17,714,133 PRINTING AND PUBLISHING (1.43%) 80,000 VistaPrint Limited* 1,988,192 2,075,200 REAL ESTATE (4.43%) 62,500 CoStar Group, Inc.* 2,304,320 2,582,500 785,000 Move, Inc.* 2,314,380 3,854,350 ------------ ------------ 4,618,700 6,436,850 RETAIL -- SPECIALTY STORES (2.76%) 75,000 Best Buy Co., Inc. 3,425,600 4,017,000 SOFTWARE (0.57%) 35,000 DivX, Inc.* 560,000 831,950 ------------ ------------ TOTAL COMMON STOCKS 101,497,179 137,934,741 ============ ============ - -------------------------------------------------------------------------------- WARRANTS (0.00%) - -------------------------------------------------------------------------------- MEDIA 200,000 Loudeye Corp. Warrants Exp 12/23/2010*@ 0 0 ------------ ------------ Principal Amount - -------------------------------------------------------------------------------- SHORT TERM MONEY MARKET INSTRUMENTS (5.50%) - -------------------------------------------------------------------------------- $8,000,000 Chesham Finance, Ltd. 5.35% due 10/02/2006 8,000,000 8,000,000 ------------ ------------- TOTAL INVESTMENTS (100.39%) $109,497,179 145,934,741 ============ LIABILITIES LESS CASH AND OTHER ASSETS (-0.39%) (564,832) ------------ NET ASSETS (EQUIVALENT TO $10.05 PER SHARE BASED ON 14,464,657 SHARES OUTSTANDING) $145,369,909 ============ - ---------- % Represents percentage of net assets * Non-income producing securities @ See Note 7 regarding restricted and fair valued securities. ^ Foreign domiciled corporation See Notes to Financial Statements. 19 BARON FIFTH AVENUE GROWTH FUND - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 2006 Shares Cost Value - -------------------------------------------------------------------------------- COMMON STOCKS (101.46%) - -------------------------------------------------------------------------------- ADVERTISING SERVICES (1.14%) 3,500 Google, Inc., Cl A* $ 390,060 $ 1,406,650 BUSINESS SERVICES (4.98%) 57,000 Automatic Data Processing, Inc. 2,538,521 2,698,380 60,000 ChoicePoint, Inc.* 2,718,600 2,148,000 30,000 Iron Mountain, Inc.* 881,830 1,288,200 ------------ ------------ 6,138,951 6,134,580 COMMUNICATIONS (2.52%) 85,000 American Tower Corp., Cl A* 2,000,626 3,102,500 COMPUTER TECHNOLOGY (6.47%) 45,000 Apple Computer, Inc.* 2,424,327 3,466,350 165,000 Microsoft Corp. 3,790,087 4,509,450 ------------ ------------ 6,214,414 7,975,800 CONSUMER PRODUCTS (12.27%) 40,000 Cadbury Schweppes plc 1,515,835 1,710,800 55,000 Diageo plc 3,700,665 3,907,200 65,000 PepsiCo, Inc. 3,937,739 4,241,900 85,000 The Procter & Gamble Co. 4,748,840 5,268,300 ------------ ------------ 13,903,079 15,128,200 ENERGY SERVICES (4.94%) 36,000 Diamond Offshore Drilling, Inc. 2,954,277 2,605,320 36,000 Transocean, Inc.* 2,852,036 2,636,280 20,000 XTO Energy, Inc. 386,823 842,600 ------------ ------------ 6,193,136 6,084,200 FINANCIAL SERVICES -- ASSET MANAGEMENT (4.44%) 50,000 AllianceBernstein Holding L.P. 3,006,460 3,449,500 20,000 Legg Mason, Inc. 2,202,364 2,017,200 ------------ ------------ 5,208,824 5,466,700 FINANCIAL SERVICES -- BANKING (3.48%) 90,000 Wells Fargo & Company 3,176,709 3,256,200 13,000 Zions Bancorporation 903,403 1,037,530 ------------ ------------ 4,080,112 4,293,730 FINANCIAL SERVICES -- BROKERAGE & EXCHANGES (9.59%) 17,000 Bear Stearns Companies, Inc. 2,216,928 2,381,700 225,000 Charles Schwab Corp. 2,869,501 4,027,500 6,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 1,499,604 2,869,500 15,000 The Goldman Sachs Group, Inc. 2,198,393 2,537,550 ------------ ------------ 8,784,426 11,816,250 FINANCIAL SERVICES -- INSURANCE (1.78%) 10 Berkshire Hathaway, Inc., Cl A* 901,365 958,000 35,000 W. R. Berkley Corp. 853,529 1,238,650 ------------ ------------ 1,754,894 2,196,650 FINANCIAL SERVICES -- MISCELLANEOUS (4.23%) 93,000 American Express Co. 4,867,653 5,215,440 HEALTHCARE SERVICES (3.84%) 30,000 Caremark Rx, Inc. 1,565,895 1,700,100 23,000 Laboratory Corp. of America Holdings* 1,221,502 1,508,110 25,000 Quest Diagnostics, Inc. 1,376,060 1,529,000 ------------ ------------ 4,163,457 4,737,210 HEALTHCARE SERVICES -- INSURANCE (5.15%) 60,000 UnitedHealth Group, Inc. 2,481,628 2,952,000 44,000 WellPoint, Inc.* 2,748,973 3,390,200 ------------ ------------ 5,230,601 6,342,200 MEDIA (9.60%) 85,000 Comcast Corp., Cl A* 2,904,901 3,128,850 21,000 Lamar Advertising Co., Cl A* 1,173,781 1,121,610 80,000 News Corp., Cl A 1,231,907 1,572,000 125,000 Walt Disney Co. 3,177,022 3,863,750 85,000 Yahoo! Inc.* 2,336,677 2,148,800 ------------ ------------ 10,824,288 11,835,010 Shares Cost Value - -------------------------------------------------------------------------------- PHARMACEUTICAL (3.16%) 60,000 Johnson & Johnson $ 3,644,517 $ 3,896,400 REAL ESTATE (1.30%) 28,000 Starwood Hotels & Resorts Worldwide, Inc. 1,603,188 1,601,320 REAL ESTATE -- REITs (1.68%) 19,000 Vornado Realty Trust 1,123,470 2,071,000 RECREATION AND RESORTS (7.23%) 60,000 Las Vegas Sands Corp.* 2,060,798 4,101,000 77,000 Marriott International, Inc., Cl A 2,439,322 2,975,280 27,000 Wynn Resorts, Ltd.* 1,961,323 1,836,270 ------------ ------------ 6,461,443 8,912,550 RESTAURANTS (0.69%) 25,000 Starbucks Corp.* 496,483 851,250 RETAIL -- CONSUMER STAPLES (8.13%) 55,000 CVS Corp. 1,435,268 1,766,600 65,000 Federated Department Stores, Inc. 2,394,510 2,808,650 60,000 Target Corp. 2,856,184 3,315,000 19,000 Wal-Mart Stores, Inc. 903,262 937,080 20,000 Whole Foods Market, Inc. 1,250,934 1,188,600 ------------ ------------ 8,840,158 10,015,930 RETAIL -- SPECIALTY STORES (4.84%) 56,000 Bed Bath & Beyond, Inc.* 2,009,055 2,142,560 63,000 Coach, Inc.* 1,511,075 2,167,200 50,000 Tiffany & Co. 1,602,536 1,660,000 ------------ ------------ 5,122,666 5,969,760 ------------ ------------ TOTAL INVESTMENTS (101.46%) $107,046,446 125,053,330 ============ LIABILITIES LESS CASH AND OTHER ASSETS (-1.46%) (1,794,582) ------------ NET ASSETS (EQUIVALENT TO $12.22 PER SHARE BASED ON 10,083,777 SHARES OUTSTANDING) $123,258,748 ============ - ---------- % Represents percentage of net assets * Non-income producing securities See Notes to Financial Statements. 20 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- SEPTEMBER 30, 2006
BARON BARON ASSET BARON GROWTH BARON SMALL iOPPORTUNITY BARON FIFTH AVENUE FUND FUND CAP FUND FUND GROWTH FUND -------------- -------------- -------------- ------------ ------------------ ASSETS: Investments in securities, at value $3,152,195,012 $4,748,574,149 $2,581,102,689 $145,934,741 $125,053,330 Unaffiliated investments (Cost $1,923,975,386, $3,473,284,644, $1,939,035,459, $109,497,179, and $107,046,446, respectively) "Affiliated" investments (Cost $83,727,757, $445,597,590, $306,819,980, $0 and $0, respectively) 218,078,500 594,748,750 301,213,722 0 0 Cash 201,190 0 11,597 547,263 291,364 Dividends and interest receivable 1,941,396 1,243,232 1,229,503 35,661 130,609 Receivable for securities sold 7,041,199 1,264,105 47,435,210 900,778 134,063 Receivable for shares sold 4,538,099 7,280,236 5,067,263 14,116 22,756 Prepaid expenses 19,310 33,989 19,807 1,089 936 -------------- -------------- -------------- ------------ ------------ 3,384,014,706 5,353,144,461 2,936,079,791 147,433,648 125,633,058 -------------- -------------- -------------- ------------ ------------ LIABILITIES: Payable for securities purchased 16,539,364 15,310,841 9,998,478 1,868,588 212,904 Payable for shares redeemed 1,478,224 21,668,917 4,073,518 109,606 2,076,146 Due to custodian bank 0 35,493 0 0 0 Accrued expenses and other payables 405,217 293,381 355,772 85,545 85,260 -------------- -------------- -------------- ------------ ------------ 18,422,805 37,308,632 14,427,768 2,063,739 2,374,310 -------------- -------------- -------------- ------------ ------------ NET ASSETS $3,365,591,901 $5,315,835,829 $2,921,652,023 $145,369,909 $123,258,748 ============== ============== ============== ============ ============ NET ASSETS CONSIST OF: Capital paid-in $1,736,711,744 $3,637,768,433 $1,935,380,950 $169,669,125 $106,695,798 Undistributed net investment income 0 389,299 0 0 0 Accumulated net realized gain (loss) 266,309,788 253,237,432 349,810,101 (60,736,778) (1,443,934) Net unrealized appreciation on investments 1,362,570,369 1,424,440,665 636,460,972 36,437,562 18,006,884 -------------- -------------- -------------- ------------ ------------ NET ASSETS $3,365,591,901 $5,315,835,829 $2,921,652,023 $145,369,909 $123,258,748 ============== ============== ============== ============ ============ SHARES OUTSTANDING ($.01 PAR VALUE; INDEFINITE SHARES AUTHORIZED) 56,019,414 112,560,805 123,838,458 14,464,657 10,083,777 ============== ============== ============== ============ ============ NET ASSET VALUE PER SHARE $ 60.08 $ 47.23 $ 23.59 $ 10.05 $ 12.22 ============== ============== ============== ============ ============
See Notes to Financial Statements. 21 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 2006
BARON BARON BARON BARON ASSET BARON GROWTH SMALL CAP iOPPORTUNITY FIFTH AVENUE FUND FUND FUND FUND GROWTH FUND ------------ ------------ ------------- --------------- ------------ INVESTMENT INCOME: INCOME: Interest $ 4,466,090 $ 17,131,613 $ 5,932,129 $ 952,839 $ 324,351 Dividends -- unaffiliated investments (net of withholding taxes of $21,263, $25,841, $97,724, $19,821 and $142, respectively) 21,139,626 19,824,670 9,824,105 884,514 1,293,300 Dividends -- "affiliated" investments 0 366,766 1,923,213 0 0 Securities lending income 0 0 493,947 0 0 ------------ ------------ ------------- ----------- ---------- Total income 25,605,716 37,323,049 18,173,394 1,837,353 1,617,651 ------------ ------------ ------------- ----------- ---------- EXPENSES: Investment advisory fees 30,729,535 53,223,049 30,244,958 1,538,749 1,307,613 Distribution fees 7,682,384 13,305,762 7,561,240 384,687 326,903 Shareholder servicing agent fees 707,140 805,240 575,930 126,095 46,349 Reports to shareholders 1,249,100 1,883,000 1,409,500 123,300 69,168 Professional fees 91,513 138,780 103,575 29,196 30,095 Registration and filing fees 99,385 162,460 109,666 10,148 22,583 Custodian fees 84,440 136,830 109,635 15,539 10,854 Trustee fees 74,929 129,440 73,780 3,780 3,166 Miscellaneous 85,056 149,475 85,983 5,604 7,571 ------------ ------------ ------------- ----------- ---------- Total expenses 40,803,482 69,934,036 40,274,267 2,237,098 1,824,302 ------------ ------------ ------------- ----------- ---------- Net investment loss (15,197,766) (32,610,987) (22,100,873) (399,745) (206,651) ------------ ------------ ------------- ----------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments sold -- unaffiliated investments 148,434,283 282,708,778 317,758,297 22,647,489 118,363 Net realized gain on investments sold -- "affiliated" investments 126,074,646 4,120,753 48,396,990 0 0 Net change in unrealized appreciation of investments 63,584,112 101,599,114 (202,585,115) (8,631,960) 5,955,961 ------------ ------------ ------------- ----------- ---------- Net gain on investments 338,093,041 388,428,645 163,570,172 14,015,529 6,074,324 ------------ ------------ ------------- ----------- ---------- Net increase in net assets resulting from operations $322,895,275 $355,817,658 $ 141,469,299 $13,615,784 $5,867,673 ============ ============ ============= =========== ==========
See Notes to Financial Statements. 22 BARON FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
BARON ASSET FUND BARON GROWTH FUND BARON SMALL CAP FUND ------------------------------ ------------------------------- ------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2006 2005 2006 2005 2006 2005 -------------- -------------- --------------- -------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (15,197,766) $ (21,856,855) $ (32,610,987) $ (32,047,627) $ (22,100,873) $ (11,728,955) Net realized gain (loss) on investments sold 274,508,929 144,194,513 286,829,531 248,696,604 366,155,287 95,073,504 Net change in unrealized appreciation of investments 63,584,112 395,149,197 101,599,114 397,124,402 (202,585,115) 366,444,107 -------------- -------------- --------------- -------------- -------------- -------------- Increase in net assets resulting from operations 322,895,275 517,486,855 355,817,658 613,773,379 141,469,299 449,788,656 -------------- -------------- --------------- -------------- -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments (136,438,779) (126,683,892) (222,904,672) 0 (89,572,056) (53,166,236) -------------- -------------- --------------- -------------- -------------- -------------- CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 823,269,479 640,133,068 963,307,597 1,971,578,477 693,848,554 1,109,432,440 Net asset value of shares issued in reinvestment of dividends 134,216,963 124,712,972 215,723,575 0 85,550,454 51,062,420 Cost of shares redeemed (465,792,862) (470,600,014) (1,001,257,192) (715,806,952) (738,216,838) (510,666,216) -------------- -------------- --------------- -------------- -------------- -------------- Increase (decrease) in net assets derived from capital share transactions 491,693,580 294,246,026 177,773,980 1,255,771,525 41,182,170 649,828,644 Redemption fees 0 0 0 0 0 0 -------------- -------------- --------------- -------------- -------------- -------------- Net increase (decrease) in net assets 678,150,076 685,048,989 310,686,966 1,869,544,904 93,079,413 1,046,451,064 -------------- -------------- --------------- -------------- -------------- -------------- NET ASSETS: Beginning of year 2,687,441,825 2,002,392,836 5,005,148,863 3,135,603,959 2,828,572,610 1,782,121,546 -------------- -------------- --------------- -------------- -------------- -------------- End of year $3,365,591,901 $2,687,441,825 $ 5,315,835,829 $5,005,148,863 $2,921,652,023 $2,828,572,610 ============== ============== =============== ============== ============== ============== ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 389,299 $ 0 $ 0 $ 0 ============== ============== =============== ============== ============== ============== SHARES: Shares sold 14,107,703 12,158,705 20,204,279 44,272,338 29,041,647 50,454,999 Shares issued in reinvestment of dividends 2,355,924 2,538,428 4,696,794 0 3,768,729 2,476,351 Shares redeemed (7,993,965) (8,959,543) (21,247,341) (15,932,537) (31,507,553) (23,327,448) -------------- -------------- --------------- -------------- -------------- -------------- NET INCREASE (DECREASE) 8,469,662 5,737,590 3,653,732 28,339,801 1,302,823 29,603,902 ============== ============== =============== ============== ============== ============== BARON FIFTH AVENUE BARON iOPPORTUNITY FUND GROWTH FUND ---------------------------- ---------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (399,745) $ (1,482,347) $ (206,651) $ (398,774) Net realized gain (loss) on investments sold 22,647,489 13,467,239 118,363 (1,174,154) Net change in unrealized appreciation of investments (8,631,960) 14,038,503 5,955,961 11,455,168 ------------ ------------ ------------ ------------ Increase in net assets resulting from operations 13,615,784 26,023,395 5,867,673 9,882,240 ------------ ------------ ------------ ------------ DIVIDENDS TO SHAREHOLDERS FROM: Net realized gain on investments 0 0 0 0 ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from the sale of shares 31,391,046 38,438,663 87,338,016 50,705,842 Net asset value of shares issued in reinvestment of dividends 0 0 0 0 Cost of shares redeemed (45,344,656) (52,857,573) (66,484,035) (13,350,429) ------------ ------------ ------------ ------------ Increase (decrease) in net assets derived from capital share transactions (13,953,610) (14,418,910) 20,853,981 37,355,413 Redemption fees 29,348 142,107 0 0 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets (308,478) 11,746,592 26,721,654 47,237,653 ------------ ------------ ------------ ------------ NET ASSETS: Beginning of year 145,678,387 133,931,795 96,537,094 49,299,441 ------------ ------------ ------------ ------------ End of year $145,369,909 $145,678,387 $123,258,748 $ 96,537,094 ============ ============ ============ ============ ACCUMULATED NET INVESTMENT INCOME AT END OF YEAR $ 0 $ 0 $ 0 $ 0 ============ ============ ============ ============ SHARES: Shares sold 3,183,604 4,515,672 7,236,439 4,605,887 Shares issued in reinvestment of dividends 0 0 0 0 Shares redeemed (4,615,816) (6,280,733) (5,500,144) (1,243,955) ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) (1,432,212) (1,765,061) 1,736,295 3,361,932 ============ ============ ============ ============
See Notes to Financial Statements. 23 BARON FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) ORGANIZATION. Baron Investment Funds Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end management investment company established as a Massachusetts business trust on February 19, 1987. The Trust currently offers five series (individually a "Fund" and collectively the "Funds"): Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund. Prior to October 22, 2004, the name of the Trust was Baron Asset Fund. The investment objectives of the Funds are as follows: Baron Asset Fund seeks capital appreciation through long-term investments in securities of small and medium sized companies with undervalued assets or favorable growth prospects. Baron Growth Fund seeks capital appreciation through long-term investments primarily in the securities of small growth companies. Baron Small Cap Fund seeks capital appreciation through investments primarily in securities of small companies. Baron iOpportunity Fund seeks capital appreciation through investments in growth businesses that benefit from technology advances. Baron Fifth Avenue Growth Fund seeks capital appreciation through investments primarily in the securities of larger growth companies. (2) SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America. (a) SECURITY VALUATION. Portfolio securities traded on any national stock exchange are valued based on the last sale price. For securities traded on NASDAQ, the Funds use the NASDAQ Official Closing Price. Securities traded in foreign markets are valued using prices reported by local foreign markets and translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time the net asset value is determined. Where market quotations are not readily available, or in the Adviser's judgment, they do not accurately reflect fair value of a security, or an event occurs after the market close but before the Funds are priced that materially affects the value of a security, the securities will be valued by the Adviser using procedures established by the Board of Trustees. The Adviser has a fair valuation committee comprised of senior executives and members of the Board. Factors the committee uses include whether 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 AND EXPENSE ALLOCATION. Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis which includes the accretion of discounts and amortization of premiums. The Funds are charged for those expenses that are directly attributable to each Fund, such as advisory and custodian fees. Expenses that are not directly attributable to a Fund are typically allocated among the Funds in proportion to their respective net assets. (d) SECURITY 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 Statement 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, 2006. For the year ended September 30, 2006, Baron Small Cap Fund had securities lending income of $493,947, which is included in the Statement of Operations. 24 BARON FUNDS - -------------------------------------------------------------------------------- (e) 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. (f) 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. (g) 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. 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. (h) SHORT-TERM TRADING FEE. Baron iOpportunity Fund imposes a 1% short-term trading fee on redemptions and exchanges of shares held for less than six months. The fee is retained by Baron iOpportunity for the benefit of the remaining shareholders to offset the administrative costs associated with processing redemptions and exchanges, offset the portfolio transaction costs and facilitate portfolio management. The fee is accounted for as an addition to paid in capital. (i) 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. (j) COMMITMENTS AND CONTINGENCIES. In the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnification. The maximum exposure to the Funds under these agreements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. (3) PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities, other than short term securities, for the year ended September 30, 2006 were as follows: FUND PURCHASES SALES - ------------------------------ -------------- -------------- Baron Asset Fund $ 799,091,642 $ 654,406,760 Baron Growth Fund 1,292,245,767 1,065,493,547 Baron Small Cap Fund 1,164,793,046 1,168,063,328 Baron iOpportunity Fund 91,091,289 101,844,755 Baron Fifth Avenue Growth Fund 157,722,826 129,194,559 (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% of the daily average net assets of the respective Funds. Baron Fifth Avenue Growth Fund pays the Adviser 1% for daily average net assets under $1 billion, 0.95% for daily average net assets greater than $1 billion but less than $2 billion, 0.90% for daily average net assets over $2 billion but less than $3 billion, 0.85% for daily average net assets over $3 billion but less than $4 billion, and 0.80% for daily average 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. During the period October 1, 2005 to October 13, 2005, the Funds affected certain portfolio transactions through BCI. BCI earned gross brokerage commissions on these transactions as follows: FUND COMMISSIONS - ------------------------------ ----------- Baron Asset Fund $ 8,403 Baron Growth Fund 14,768 Baron Small Cap Fund 12,521 Baron iOpportunity Fund 886 Baron Fifth Avenue Growth Fund 985 On October 14, 2005, BCI ceased its broker-dealer business and the Funds have conducted no further trading with BCI since that date. 25 BARON FUNDS - -------------------------------------------------------------------------------- (c) TRUSTEE FEES. Certain Trustees of the Trust may be deemed to be affiliated with or interested persons (as defined by the 1940 Act) of the Funds' Adviser or of BCI. None of the Trustees so affiliated received compensation for his or her services as a Trustee of the Trust. None of the Funds' officers received compensation from the Funds. (5) LINE OF CREDIT. The Funds have entered into a line of credit agreement with the custodian bank to be used for temporary purposes, primarily for financing redemptions. The agreement provides that Baron Asset Fund may borrow up to 5% of the value of its net assets. Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund may borrow up to 15% of each Fund's respective net assets. The aggregate outstanding principal amount of all loans to any of the Funds may not exceed $100,000,000. Interest is charged to each Fund, based on its borrowings, at a rate per annum equal to the Federal Funds Rate plus a margin of 1.00% to 2.00% depending on the duration of the loan. A commitment fee of 0.10% per annum is incurred on the unused portion of the line of credit and is allocated to the participating Funds. During the year ended September 30, 2006, there were minimal borrowings under the line of credit. At September 30, 2006, 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. 26 BARON FUNDS - -------------------------------------------------------------------------------- (7) RESTRICTED SECURITIES. At September 30, 2006, 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, 2006, the Funds held investments in restricted and illiquid securities that were valued under approved methods by the Board, as follows: BARON ASSET FUND ACQUISITION NAME OF ISSUER DATE VALUE - --------------------------------------------------- ----------- ------------ COMMON STOCK Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 $ 52,000,000 Wynn Resorts, Ltd. 04/17/01 94,291,621 CONVERTIBLE PREFERRED STOCK Apollo International, Inc., S-A CV Pfd. 07/21/99 600,000 Somerford Corp., S-A Conv. Pfd. 12/03/98 10,951,002 ------------ TOTAL RESTRICTED SECURITIES: (Cost $94,981,791) (4.69% of Net Assets) $157,842,623 ============ BARON GROWTH FUND ACQUISITION NAME OF ISSUER DATE VALUE - --------------------------------------------------- ----------- ------------ COMMON STOCK CBRE Realty Finance, Inc. 144A 06/02/05 $ 9,658,338 Fontainebleau Resorts, LLC 10/05/05 11,600,000 Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 74,000,000 Wynn Resorts, Ltd. 04/22/02 34,739,042 CONVERTIBLE PREFERRED STOCK Reliant Pharmaceuticals LLC, Series D 10/28/03 7,500,000 ------------ TOTAL RESTRICTED SECURITIES: (Cost $125,063,961) (2.59% of Net Assets) $137,497,380 ============ BARON SMALL CAP FUND ACQUISITION NAME OF ISSUER DATE VALUE - --------------------------------------------------- ----------- ------------ COMMON STOCK Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 $35,000,000 WARRANTS Casual Male Retail Group, Inc. Warrants Exp 04/26/2007 05/15/02 11,817,706 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 897,000 Infocrossing, Inc. Warrants Exp 10/16/2008 10/16/03 1,235,292 ----------- TOTAL RESTRICTED SECURITIES: (Cost $37,197,934) (1.68% of Net Assets) $48,949,998 =========== BARON iOPPORTUNITY FUND ACQUISITION NAME OF ISSUER DATE VALUE - --------------------------------------------------- ----------- ------------ WARRANTS Loudeye Corp. Warrants Exp 12/23/2010 12/22/04 $ 0 ---------- TOTAL RESTRICTED SECURITIES: (Cost $0) (0.00% of Net Assets) $ 0 ========== 27 BARON FUNDS - -------------------------------------------------------------------------------- (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. 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, 2006, the Funds recorded the following permanent reclassifications to reflect tax character. Reclassifications between income, realized gains and paid-in-capital relate primarily to the tax treatment of net investment losses. Results of operations and net assets were not affected by these reclassifications. UNDISTRIBUTED ACCUMULATED NET INVESTMENT REALIZED FUND INCOME GAIN/LOSS CAPITAL PAID-IN - ------------------------------- -------------- ----------- --------------- Baron Asset Fund $15,197,766 $ (93,433) $(15,104,333) Baron Growth Fund 33,000,286 (3,086,456) (29,913,830) Baron Small Cap Fund 22,100,873 20,466 (22,121,339) Baron iOpportunity Fund 399,745 1 (399,746) Baron Fifth Avenue Growth Fund 206,651 (8,758) (197,893) As of September 30, 2006, the components of net assets on a tax basis were as follows:
BARON BARON ASSET BARON GROWTH BARON SMALL CAP BARON iOPPORTUNITY FIFTH AVENUE GROWTH FUND FUND FUND FUND FUND -------------- -------------- --------------- ------------------ ------------------- Cost of investments $2,007,868,349 $3,941,539,704 $2,246,504,747 $112,005,819 $107,828,880 ============== ============== ============== ============ ============ Gross tax unrealized appreciation $1,422,846,007 $1,568,707,464 $ 781,994,640 $ 39,138,796 $ 19,074,468 Gross tax unrealized depreciation (60,440,844) (166,924,269) (146,182,976) (5,209,874) (1,850,018) -------------- -------------- -------------- ------------ ------------ Net tax unrealized appreciation 1,362,405,163 1,401,783,195 635,811,664 33,928,922 17,224,450 Undistributed Long-Term Capital Gains 266,474,994 276,284,201 350,459,409 -- -- Capital Loss Carryforwards -- -- -- (58,228,138) (661,500) Paid-in Capital 1,736,711,744 3,637,768,433 1,935,380,950 169,669,125 106,695,798 -------------- -------------- -------------- ------------ ------------ Net Assets $3,365,591,901 $5,315,835,829 $2,921,652,023 $145,369,909 $123,258,748 ============== ============== ============== ============ ============
The Funds had Capital loss carryforwards expiring as follows:
BARON BARON ASSET BARON GROWTH BARON SMALL CAP BARON iOPPORTUNITY FIFTH AVENUE GROWTH FUND FUND FUND FUND FUND ----------- ------------ --------------- ------------------ ------------------- 2010 $ -- $ -- $ -- $(36,416,234) $ -- 2011 -- -- -- (21,811,904) 0 2013 -- -- -- 0 (661,500) --------- --------- --------- ------------ --------- $ -- $ -- $ -- $(58,228,138) $(661,500) ========= ========= ========= ============ ========= Capital loss carryforwards utilized during the year ended September 30, 2006 $ -- $ -- $ -- $ 21,791,013 $ 46,114 ========= ========= ========= ============ =========
The tax character of distributions paid during the fiscal years ended September 30, 2006 and September 30, 2005 was as follows:
9/30/2006 9/30/2005 ------------------------ ----------------------- LONG TERM LONG TERM FUND ORDINARY CAPITAL GAIN ORDINARY CAPITAL GAIN - ------------------------------ --------- ------------ -------- ------------ Baron Asset Fund $ -- $136,438,779 $-- $126,683,892 Baron Growth Fund -- 222,904,672 -- -- Baron Small Cap Fund -- 89,572,056 -- 53,166,236 Baron iOpportunity Fund -- -- -- -- Baron Fifth Avenue Growth Fund -- -- -- --
28 BARON FUNDS - -------------------------------------------------------------------------------- (9) INVESTMENTS IN "AFFILIATES"* DURING THE YEAR ENDED SEPTEMBER 30, 2006. BARON ASSET FUND
DIVIDEND BALANCE OF GROSS GROSS SALES BALANCE OF INCOME SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE OCT. 1, 2005 - NAME OF ISSUER SEPT. 30, 2005 AND ADDITIONS REDUCTIONS SEPT. 30, 2006 SEPT. 30, 2006 SEPT. 30, 2006 - -------------------------------- -------------- ------------- ----------- -------------- -------------- -------------- Alexander's, Inc. 314,000 314,000 $ 97,418,500 Apollo International, Inc., S-A CV Pfd. 105,264 105,264 600,000 ChoicePoint, Inc. 4,500,000 310,000 4,190,000 --** Kerzner Intl., Ltd. 2,400,000 2,400,000 -- --** Vail Resorts, Inc. 3,000,000 3,000,000 120,060,000 ------------ ---- TOTAL INVESTMENT IN "AFFILIATES" (6.48% OF NET ASSETS) $218,078,500 $ 0 ============ ====
- --------------- * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2006. ** As of September 30, 2006, no longer an affiliate. BARON GROWTH FUND
DIVIDEND BALANCE OF GROSS GROSS SALES BALANCE OF INCOME SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE OCT. 1, 2005 - NAME OF ISSUER SEPT. 30, 2005 AND ADDITIONS REDUCTIONS SEPT. 30, 2006 SEPT. 30, 2006 SEPT. 30, 2006 - -------------------------------- -------------- ------------- ----------- -------------- -------------- -------------- AMERIGROUP, Corp. 3,800,000 100,000 3,700,000 $109,335,000 Blue Nile, Inc. 875,000 875,000 31,806,250 Carter's, Inc.^ 1,450,000 1,450,000 2,900,000 --** Centene Corp. 3,199,500 199,500 3,000,000 49,320,000 Center Financial Corp. 850,000 850,000 20,213,000 $136,000 Chemed Corp. 825,000 525,000 1,350,000 43,551,000 230,766 DeVry, Inc. 3,700,000 3,700,000 78,699,000 Encore Acquisition Co. 3,700,000 300,000 3,400,000 82,756,000 Peet's Coffee & Tea, Inc. 600,000 100,000 700,000 17,507,000 Ralcorp Hldgs., Inc., Cl A 1,300,000 100,000 1,400,000 67,522,000 Select Comfort Corp.++ 1,800,000 900,000 2,700,000 59,076,000 Symyx Technologies, Inc. 1,550,000 100,000 1,650,000 34,963,500 ------------ -------- TOTAL INVESTMENT IN "AFFILIATES" (11.19% OF NET ASSETS) $594,748,750 $366,766 ============ ========
- --------------- ^ Received 1,450,000 shares from 2:1 stock split. ++ Received 900,000 shares from 3:2 stock split. * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2006. ** As of September 30, 2006, no longer an affiliate. 29 BARON FUNDS - -------------------------------------------------------------------------------- (9) INVESTMENTS IN "AFFILIATES"* DURING THE YEAR ENDED SEPTEMBER 30, 2006 (CONTINUED) BARON SMALL CAP FUND
BALANCE OF GROSS GROSS SALES BALANCE OF SHARES HELD ON PURCHASES AND SHARES HELD ON VALUE NAME OF ISSUER SEPT. 30, 2005 AND ADDITIONS REDUCTIONS SEPT. 30, 2006 SEPT. 30, 2006 - ------------------------------------------ -------------- ------------- ----------- -------------- -------------- AFC Enterprises, Inc. 1,850,000 400,000 2,250,000 $ 32,490,000 Cash Systems, Inc. 1,500,000 1,500,000 10,485,000 Casual Male Retail Group, Inc. 1,157,503 1,157,503 15,892,516 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 1,407,353 1,407,353 11,817,706 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 100,000 100,000 897,000 Design Within Reach, Inc. 1,100,000 75,000 500,000 675,000 --** DTS, Inc. 1,625,000 1,625,000 34,417,500 Eagle Materials, Inc. (formerly Eagle Materials, Inc., Cl B) + 1,000,000 2,000,000 1,400,000 1,600,000 --** Eagle Materials, Inc. 45,600 45,600 -- --** Great Wolf Resorts, Inc. 2,500,000 250,000 2,750,000 32,890,000 Iconix Brand Group, Inc. -- 2,500,000 2,500,000 40,250,000 Immucor, Inc. O 2,500,000 1,000,000 1,400,000 2,100,000 --** Infocrossing, Inc. 1,082,000 1,082,000 -- --** Infocrossing, Inc., Warrants Exp 10/16/ 2008 222,575 222,575 --** Kensey Nash Corp. 941,600 108,400 100,000 950,000 27,806,500 Koppers Holdings, Inc. -- 1,095,000 175,100 919,900 --** L-1 Identity Solutions, Inc. (formerly Viisage Technology, Inc.)++ -- 2,283,585 2,283,585 --** LECG Corp. 1,650,000 900,000 750,000 --** MarineMax, Inc. 1,500,000 150,000 1,650,000 41,992,500 Measurement Specialties, Inc. 1,100,000 100,000 1,000,000 18,650,000 NuCO2, Inc. 1,127,364 122,636 1,250,000 33,625,000 ------------ TOTAL INVESTMENT IN "AFFILIATES" (10.31% OF NET ASSETS) $301,213,722 ============ DIVIDEND INCOME OCT. 1, 2005 - NAME OF ISSUER SEPT. 30, 2006 - ----------------------------------------------------------- AFC Enterprises, Inc. Cash Systems, Inc. Casual Male Retail Group, Inc. Casual Male Retail Group, Inc., Warrants Exp 04/26/2007 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 Design Within Reach, Inc. DTS, Inc. Eagle Materials, Inc. (formerly Eagle Materials, Inc., Cl B) + $1,457,500 Eagle Materials, Inc. 13,680 Great Wolf Resorts, Inc. Iconix Brand Group, Inc. Immucor, Inc. O Infocrossing, Inc. Infocrossing, Inc., Warrants Exp 10/16/ 2008 Kensey Nash Corp. Koppers Holdings, Inc. 452,033 L-1 Identity Solutions, Inc. (formerly Viisage Technology, Inc.)++ LECG Corp. MarineMax, Inc. Measurement Specialties, Inc. NuCO2, Inc. ---------- TOTAL INVESTMENT IN "AFFILIATES" (10.31% OF NET ASSETS) $1,923,213 ==========
- --------------- + Received 2,000,000 shares from 3:1 stock split. ++ Received 163,185 shares from stock merger. O Received 1,000,000 shares from 3:2 stock split. * Affiliated investments, as defined in the Investment Company Act of 1940, are investments in which a Fund held 5% or more of the outstanding voting securities during the year ended September 30, 2006. ** As of September 30, 2006, no longer an affiliate. (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 Intl. Holdings Ltd., CL A ("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 amount of potential future payments would be $5,318,000, $7,555,500 and $3,570,900 for Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund, respectively. The Windstorm Guarantee will expire June 2009. In addition, each of these Funds agreed to commit to purchase up to its proportionate share (based on each Fund's ownership interests in Kerzner) of up to 1.2672 billion Singapore Dollars (approximately $33,200,000, $47,300,000 and $22,400,000 for Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund, respectively). The commitment relates to a proposed development project that Kerzner is considering. The commitment will terminate not later than September 27, 2007 unless Kerzner is successful in its bid for the development project. Accordingly, Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund have segregated securities valued at $60,616,560, $86,924,801 and $40,901,900 respectively, to meet these contingencies. 30 BARON FUNDS - -------------------------------------------------------------------------------- (11) FASB INTERPRETATION NO. 48. In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("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 is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Funds are currently evaluating the impact, if any, of applying the various provisions of FIN 48. (12) SUBSEQUENT EVENT. On October 12, 2006, a proxy statement was filed in connection with a proposed change in the investment goal of Baron Asset Fund. Baron Asset Fund currently invests in small and mid sized growth companies. Shareholders were asked to consider and vote to approve or disapprove a change to the investment goal of Baron Asset Fund to invest principally in mid-sized growth companies, which are currently defined as having a market capitalization of $2.5 billion to $8 billion. The shareholder meeting is scheduled to take place on December 5, 2006. - -------------------------------------------------------------------------------- (13) FINANCIAL HIGHLIGHTS BARON ASSET FUND Selected data for a share outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2006 2005 2004 2003 2002 2001 2000 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 56.52 $ 47.89 $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 -------- -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.27) (0.46) (0.43) (0.46) (0.55) (0.65) (0.76) Net realized and unrealized gains (losses) on investments 6.64 12.08 8.27 6.04 0.05 (17.87) 12.53 -------- -------- -------- -------- -------- -------- -------- TOTAL FROM INVESTMENT OPERATIONS 6.37 11.62 7.84 5.58 (0.50) (18.52) 11.77 -------- -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Distributions from net realized gains (2.81) (2.99) 0.00 (1.18) (4.07) (4.61) 0.00 -------- -------- -------- -------- -------- -------- -------- TOTAL DISTRIBUTIONS (2.81) (2.99) 0.00 (1.18) (4.07) (4.61) 0.00 -------- -------- -------- -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.00 0.00 0.00 0.01 -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 60.08 $ 56.52 $ 47.89 $ 40.05 $ 35.65 $ 40.22 $ 63.35 ======== ======== ======== ======== ======== ======== ======== TOTAL RETURN 11.54% 25.21% 19.58% 16.11% (2.54%) (31.16%) 22.84%+ ======== ======== ======== ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $3,365.6 $2,687.4 $2,002.4 $1,957.2 $2,055.2 $2,692.3 $4,917.4 Ratio of total expenses to average net assets 1.33% 1.34% 1.34% 1.34% 1.35% 1.37% 1.36% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% (0.02%) (0.01%) (0.03%) -------- -------- -------- -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.33% 1.34% 1.34% 1.34% 1.33% 1.36% 1.33% ======== ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.49%) (0.91%) (0.90%) (1.14%) (1.16%) (1.14%) (1.09%) Portfolio turnover rate 21.87% 11.47% 19.57% 27.95% 6.01% 4.33% 2.51% YEAR ENDED SEPTEMBER 30, -------------------------------- 1999 1998 1997 -------- -------- -------- NET ASSET VALUE, BEGINNING OF YEAR $ 39.96 $ 47.43 $ 35.50 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.30) 0.05 (0.14) Net realized and unrealized gains (losses) on investments 11.94 (7.52) 12.11 -------- -------- -------- TOTAL FROM INVESTMENT OPERATIONS 11.64 (7.47) 11.97 -------- -------- -------- LESS DISTRIBUTIONS Dividends from net investment income (0.04) 0.00 0.00 Distributions from net realized gains 0.00 0.00 (0.04) -------- -------- -------- TOTAL DISTRIBUTIONS (0.04) 0.00 (0.04) -------- -------- -------- Capital contribution 0.01 0.00 0.00 -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 51.57 $ 39.96 $ 47.43 ======== ======== ======== TOTAL RETURN 29.16%* (15.75%) 33.75% ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $5,863.1 $4,410.5 $3,224.5 Ratio of total expenses to average net assets 1.31% 1.32% 1.35% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% -------- -------- -------- Ratio of operating expenses to average net assets 1.31% 1.32% 1.35% ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.57%) 0.11% (0.52%) Portfolio turnover rate 15.64% 23.43% 13.23%
- --------------- + Had the adviser not made the capital contribution, the Fund's performance would have been reduced by 0.02%. * Had the adviser not made the capital contribution, the Fund's performance would have been reduced by 0.03%. 31 BARON FUNDS - ------------------------------------------------------------------------------- (13) FINANCIAL HIGHLIGHTS (CONTINUED) BARON GROWTH FUND Selected data for a share outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------------- 2006 2005 2004 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- ------ ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 45.96 $ 38.92 $ 32.65 $ 26.96 $ 27.18 $32.26 $29.06 $20.32 -------- -------- -------- -------- -------- ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.29) (0.29) (0.30) (0.25) (0.23) (0.22) (0.26) (0.04) Net realized and unrealized gains (losses) on investments 3.61 7.33 6.57 5.94 1.65 (1.67) 5.34 8.82 -------- -------- -------- -------- -------- ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 3.32 7.04 6.27 5.69 1.42 (1.89) 5.08 8.78 -------- -------- -------- -------- -------- ------ ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) Distributions from net realized gains (2.05) 0.00 0.00 0.00 (1.64) (3.19) (1.88) 0.00 -------- -------- -------- -------- -------- ------ ------ ------ TOTAL DISTRIBUTIONS (2.05) 0.00 0.00 0.00 (1.64) (3.19) (1.88) (0.04) -------- -------- -------- -------- -------- ------ ------ ------ NET ASSET VALUE, END OF YEAR $47.23 $ 45.96 $ 38.92 $ 32.65 $ 26.96 $27.18 $32.26 $29.06 ======== ======== ======== ======== ======== ====== ====== ====== TOTAL RETURN 7.36% 18.09% 19.20% 21.11% 5.02% (6.06%) 18.63% 43.21% ======== ======== ======== ======== ======== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $5,315.8 $5,005.1 $3,135.6 $2,185.4 $1,030.3 $512.3 $533.4 $439.4 Ratio of total expenses to average net assets 1.31% 1.31% 1.33% 1.36% 1.35% 1.36% 1.36% 1.40% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% (0.03%) -------- -------- -------- -------- -------- ------ ------ ------ Ratio of operating expenses to average net assets 1.31% 1.31% 1.33% 1.36% 1.35% 1.36% 1.36% 1.37% ======== ======== ======== ======== ======== ====== ====== ====== Ratio of net investment income (loss) to average net assets (0.61%) (0.73%) (0.89%) (1.11%) (1.02%) (0.79%) (0.78%) (0.20%) Portfolio turnover rate 21.27% 15.50% 27.15% 32.63% 18.31% 34.94% 39.00% 53.36% YEAR ENDED SEPTEMBER 30, ------------------- 1998 1997 ------- ------- NET ASSET VALUE, BEGINNING OF YEAR $ 24.89 $ 18.40 ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) 0.06 0.06 Net realized and unrealized gains (losses) on investments (4.56) 6.68 ------- ------- TOTAL FROM INVESTMENT OPERATIONS (4.50) 6.74 ------- ------- LESS DISTRIBUTIONS Dividends from net investment income (0.02) (0.09) Distributions from net realized gains (0.05) (0.16) ------- ------- TOTAL DISTRIBUTIONS (0.07) (0.25) ------- ------- NET ASSET VALUE, END OF YEAR $ 20.32 $ 24.89 ======= ======= TOTAL RETURN (18.11%) 37.11% ======= ======= RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $ 315.6 $ 390.8 Ratio of total expenses to average net assets 1.43% 1.40% Less: Ratio of interest expense to average net assets (0.06%) 0.00% ------- ------- Ratio of operating expenses to average net assets 1.37% 1.40% ======= ======= Ratio of net investment income (loss) to average net assets 0.21% 0.37% Portfolio turnover rate 40.38% 25.17%
BARON SMALL CAP FUND Selected data for a share outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------- 2006 2005 2004 2003 2002 2001 2000 1999 -------- -------- -------- -------- ------ ------- ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 23.08 $ 19.18 $ 17.26 $ 13.73 $12.69 $ 16.05 $13.37 $ 8.61 -------- -------- -------- -------- ------ ------- ------ ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.18) (0.10) (0.15) (0.11) (0.14) (0.11) (0.16) (0.10) Net realized and unrealized gains (losses) on investments 1.43 4.55 2.07 4.02 1.18 (2.87) 2.84 4.86 -------- -------- -------- -------- ------ ------- ------ ------ TOTAL FROM INVESTMENT OPERATIONS 1.25 4.45 1.92 3.91 1.04 (2.98) 2.68 4.76 -------- -------- -------- -------- ------ ------- ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Distributions from net realized gains (0.74) (0.55) 0.00 (0.38) 0.00 (0.38) 0.00 0.00 -------- -------- -------- -------- ------ ------- ------ ------ TOTAL DISTRIBUTIONS (0.74) (0.55) 0.00 (0.38) 0.00 (0.38) 0.00 0.00 -------- -------- -------- -------- ------ ------- ------ ------ NET ASSET VALUE, END OF YEAR $23.59 $ 23.08 $ 19.18 $ 17.26 $13.73 $ 12.69 $16.05 $13.37 ======== ======== ======== ======== ====== ======= ====== ====== TOTAL RETURN 5.52% 23.56% 11.12% 29.20% 8.20% (18.83%) 20.04% 55.28% ======== ======== ======== ======== ====== ======= ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $2,921.7 $2,828.6 $1,782.1 $1,210.5 $719.1 $ 585.9 $879.5 $715.7 Ratio of expenses to average net assets 1.33% 1.33% 1.33% 1.36% 1.36% 1.35% 1.33% 1.34% Ratio of net investment loss to average net assets (0.73%) (0.48%) (0.88%) (0.87%) (0.97%) (0.68%) (0.90%) (0.99%) Portfolio turnover rate 39.99% 24.68% 32.92% 30.29% 55.07% 55.77% 53.18% 42.69% YEAR ENDED SEPTEMBER 30, ------------- 1998 ------- NET ASSET VALUE, BEGINNING OF YEAR $ 10.00 ------- INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.02) Net realized and unrealized gains (losses) on investments (1.37) ------- TOTAL FROM INVESTMENT OPERATIONS (1.39) ------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 Distributions from net realized gains 0.00 ------- TOTAL DISTRIBUTIONS 0.00 ------- NET ASSET VALUE, END OF YEAR $ 8.61 ======= TOTAL RETURN (13.90%) ======= RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $ 403.7 Ratio of expenses to average net assets 1.39% Ratio of net investment loss to average net assets (0.20%) Portfolio turnover rate 59.68%
32 BARON FUNDS - ------------------------------------------------------------------------------- (13) FINANCIAL HIGHLIGHTS (CONTINUED) BARON iOPPORTUNITY FUND Selected data for a share outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ 2006 2005 2004 2003 2002 2001 2000* ------ ------ ------ ------ ------- ------- ------- NET ASSET VALUE, BEGINNING OF YEAR $ 9.16 $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 $ 10.00 ------ ------ ------ ------ ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.03) (0.09) (0.10) (0.05) (0.06) (0.05) 0.03 Net realized and unrealized gains (losses) on investments 0.92 1.66 1.18 2.89 (0.40) (4.59) (1.28) ------ ------ ------ ------ ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS 0.89 1.57 1.08 2.84 (0.46) (4.64) (1.25) ------ ------ ------ ------ ------- ------- ------- LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 (0.03) 0.00 Distributions from net realized gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ------ ------ ------ ------ ------- ------- ------- TOTAL DISTRIBUTIONS 0.00 0.00 0.00 0.00 0.00 (0.03) 0.00 ------ ------ ------ ------ ------- ------- ------- Redemption fees added to paid in capital 0.00+ 0.01 0.02 0.01 0.00+ 0.00+ 0.01 ------ ------ ------ ------ ------- ------- ------- NET ASSET VALUE, END OF YEAR $10.05 $ 9.16 $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 ====== ====== ====== ====== ======= ======= ======= TOTAL RETURN 9.72% 20.84%^ 16.98%^ 78.51%^ (11.25%)^ (53.14%)^ (12.40%)^+ ====== ====== ====== ====== ======= ======= ======= RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $145.4 $145.7 $133.9 $109.3 $ 57.5 $ 73.7 $ 188.2 Ratio of total expenses to average net assets 1.45% 1.52% 1.56% 1.67% 1.65% 1.55% 1.53%** Less: Expense reimbursement by investment adviser 0.00% (0.02%) (0.06%) (0.17%) (0.15%) (0.05%) (0.03%)** ------ ------ ------ ------ ------- ------- ------- Ratio of net expenses to average net assets 1.45% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%** ====== ====== ====== ====== ======= ======= ======= Ratio of net investment income (loss) to average net assets (0.26%) (1.01%) (1.25%) (1.18%) (1.20%) (0.75%) 0.46%** Portfolio turnover rate 67.25% 83.64% 86.35% 89.72% 96.41% 123.30% 31.47%+
- ---------- * For the period February 29, 2000 (Commencement of Operations) to September 30, 2000. ** Annualized. + Not annualized. + Less than $0.01 per share. ^ The total returns would have been lower had certain expenses not been reduced during the periods shown. BARON FIFTH AVENUE GROWTH FUND Selected data for a share outstanding throughout each year:
YEAR ENDED SEPTEMBER 30, ------------------------- 2006 2005 2004* ------- ------ ------ NET ASSET VALUE, BEGINNING OF YEAR $ 11.56 $ 9.89 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.02) (0.05) (0.02) Net realized and unrealized gains (losses) on investments 0.68 1.72 (0.09) ------- ------ ------ TOTAL FROM INVESTMENT OPERATIONS 0.66 1.67 (0.11) ------- ------ ------ LESS DISTRIBUTIONS Dividends from net investment income 0.00 0.00 0.00 Distributions from net realized gains 0.00 0.00 0.00 ------- ------ ------ TOTAL DISTRIBUTIONS 0.00 0.00 0.00 ------- ------ ------ NET ASSET VALUE, END OF YEAR $ 12.22 $11.56 $ 9.89 ======= ====== ====== TOTAL RETURN 5.71% 16.89%^ (1.10%)^+ ======= ====== ====== RATIOS/SUPPLEMENTAL DATA Net assets (in millions), end of year $ 123.3 $ 96.5 $ 49.3 Ratio of total expenses to average net assets 1.39% 1.49% 1.67%** Less: Expense reimbursement by investment adviser 0.00% (0.09%) (0.27%)** ------- ------ ------ Ratio of net expenses to average net assets 1.39% 1.40% 1.40%** ======= ====== ====== Ratio of net investment loss to average net assets (0.16%) (0.58%) (0.79%)** Portfolio turnover rate 105.77% 46.71% 7.58%+
- ---------- * For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. ** Annualized. + Not annualized. ^ The total returns would have been lower had certain expenses not been reduced during the periods shown. 33 BARON FUNDS - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of Baron Investment Funds Trust In our opinion, the accompanying statements of assets and liabilities, including the 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, 2006, 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, 2006, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York November 27, 2006 34 BARON FUNDS - -------------------------------------------------------------------------------- DISCLOSURE REGARDING THE APPROVAL OF THE INVESTMENT ADVISORY CONTRACTS FOR EACH OF THE SERIES BY THE BOARD OF TRUSTEES The Board of Trustees (the "Board") of Baron Investment Funds Trust (the "Trust") met on May 23, 2006, to discuss the selection of BAMCO, Inc. as the adviser ("Adviser") and the approval of the advisory fee for each series of the Trust (a "Fund" or collectively, the "Funds"). The members of the Board who are not affiliated with the Funds' Adviser (the "Independent Trustees") met in separate session to discuss and consider the renewal of the advisory contracts for each Fund. An independent consultant provided reports to the Board and attended the May Board meeting. The Trustees received a substantial amount of information from the Adviser and from the consultant. Based on its evaluation of this and other information, the Board, including a majority of the Independent Trustees, approved the continuation of the advisory agreements for each Fund for an additional one year period. In considering the advisory agreements and in reaching its determination, the Board reviewed and analyzed various factors that it deemed relevant, including the factors listed below. 1. NATURE, EXTENT AND QUALITY OF SERVICES As part of their consideration of the services provided by the Adviser, the Independent Trustees relied on information received and knowledge gained throughout the year. The Board considered the Adviser's resources and the Board's confidence in the Adviser's senior personnel and portfolio management staff. The Board paid particular attention to the quality of the services provided by the Adviser and the nature of those services, including the extensive devotion to research efforts by the Adviser and the long-term approach to portfolio management. The Board also considered the level of performance of other services provided by the Adviser, including selection of broker/dealers for Fund portfolio transactions, relationships with and supervision of third party service providers, including the Funds' custodian and transfer agent, the ability to monitor adherence to risk profiles, investment guidelines and restrictions. The Board also considered the support services provided to the Board and the legal and accounting services provided to the Funds. The Board concluded that the nature, extent and quality of the services provided by the Adviser to the Funds were appropriate and that the Funds were likely to continue to benefit from those services provided under the contracts with the Adviser. 2. INVESTMENT PERFORMANCE OF THE FUND AND THE ADVISER The Board's analysis of the investment performance of the Funds took into account reports prepared by an independent consultant and data supplied by independent data service providers. Performance of the Funds was compared to performance of similar funds managed by other advisers over comparable periods, as well as to the expenses of those other funds. The independent analysis considered total return and risk ratios of the Funds and of similar funds, and a comparison of annualized total return over one, three, five, and ten year periods, where applicable, against expense group and performance universe averages. The Board considered the performance of the Funds as measured against its peers and against other Funds managed by the Adviser. After considering all the information, the Board concluded that the Funds and their shareholders were benefitting from the Adviser's investment management of the Funds, although noted that past performance is no guarantee of future results. 3. COSTS OF SERVICES PROVIDED AND PROFITS TO BE REALIZED BY THE ADVISER The Board examined the fees charged by the Adviser as compared to the fees charged by comparable funds, based on information provided by the Adviser and by the independent consultant. The information considered by the Board compared various fees and expenses, as well as total expense ratios, of the Funds against the same fees and expenses of other funds of similar size, character and investment strategies. Although the total expense ratios for the Funds were not the lowest, they were not the highest either. The Board noted that total expense ratios for the Funds had continued to decrease since the inception of the Funds. The Board considered the Adviser's management fees for other mutual fund accounts for which the Adviser serves as a sub-adviser. While the fees for those sub-advised accounts are lower than the fees for the Funds, the Adviser performs only portfolio management services for those accounts, and does not provide the many other services provided by the Adviser to the Funds. The Board discussed and considered those other services, which include accounting, oversight of service providers, legal, regulatory, risk management, and trustee support. The Board also considered the costs of portfolio management, including the types of investments made for the Funds, the personnel and systems necessary to implement investment strategies, and the pre-tax profits realized by the Adviser and its affiliates from their relationship with the Funds. The Board also considered the financial condition of the Adviser and its affiliates. The Board concluded that the management fee, as well as the total expenses paid by the Funds to the Adviser and its affiliates, were reasonable in light of the services provided and the performance of the Funds achieved by the Adviser over various time periods, and that the other expenses of the Funds were also reasonable. 4. ECONOMIES OF SCALE AND BENEFITS TO INVESTORS The Board considered the extent to which each Fund's management fee reflected economies of scale for the benefit of Fund shareholders. The Board considered that the Funds do not have breakpoint fees, except the large cap Baron Fifth Avenue Growth Fund. The Board considered that the small and mid cap investment strategy required more attention by the Adviser than a strategy that involved other types of investing, particularly as the assets managed increased in size. The Board considered other components of the services provided by the Adviser with respect to economies of scale achieved as asset sizes increase. The Board concluded that each Fund's management fee structure was reasonable with respect to economies achieved for the benefit of shareholders. After due consideration of the above enumerated factors, and additional factors, the Board, including a majority of the Independent Trustees, concluded that approval of the Fund's investment advisory agreement was in the best interests of the Fund and its shareholders. 35 BARON FUNDS - -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end as to the federal tax status of distributions paid by the Funds during such fiscal year. During the fiscal year ended September 30, 2006, 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 - ---------------- ----------------- -------------------- $136,438,779 $222,904,672 $89,572,056 MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS The Board of Trustees oversees the management of the Funds. The following table lists the Trustees and executive officers of the Funds, their date of birth, current positions held with the Funds, length of time served, principal occupations during the past five years and other Trusteeships/Directorships held outside the Fund complex. Unless otherwise noted, the address of each executive officer and Trustee is Baron Funds, 767 Fifth Avenue, 49th Floor, New York, NY 10153. Trustees who are not deemed to be "interested persons" of the Funds as defined in the 1940 Act are referred to as "Disinterested Trustees." Trustees who are deemed to be "interested persons" of the Funds are referred to as "Interested Trustees." All Trustees listed below, whether Interested or Disinterested, serve as trustee for all five portfolios.
- --------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS DATE OF BIRTH WITH THE FUNDS TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE - --------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES: Ronald Baron*+ President, Chief 19 years Chairman, Chief Executive Officer, and None outside the Baron 767 Fifth Avenue, 49th fl Executive Officer, Director, Baron Capital, Inc. Funds Complex. New York, NY 10153 Chief Investment (1982-Present); Baron Capital DOB: May 23, 1943 Officer, Portfolio Management, Inc. (1983-Present); Baron Manager and Trustee Capital Group, Inc. (1984-Present); BAMCO, Inc. (1987- Present); Portfolio Manager, Baron Asset Fund (1987-Present); Portfolio Manager, Baron Growth Fund (1995-Present); President (2004-Present), Chairman (1999-2004), Chief Investment Officer and Trustee (1987-Present), Baron Investment Funds Trust; President (2004-Present), Chairman (1997-2004), Chief Investment Officer and Trustee (1997-Present), Baron Capital Funds Trust; President (2004-Present), Chairman (2003-2004), Chief Investment Officer and Trustee (2003- Present), Baron Select Funds. Linda S. Martinson*+ Chief Operating 19 years Chief Operating Officer None outside the Baron 767 Fifth Avenue, 49th fl Officer, Vice (2006-Present), General Counsel, Vice Funds Complex. New York, NY 10153 President, Secretary, President and Secretary, Baron DOB: February 23, 1955 General Counsel and Capital, Inc. (1983-Present), BAMCO, Trustee Inc. (1987- Present), Baron Capital Group, Inc. (1984- Present), Baron Capital Management, Inc. (1983- Present); Vice President, Secretary, General Counsel and Trustee, Baron Investment Funds Trust (1987-Present); Vice President, Secretary, General Counsel and Trustee, Baron Capital Funds Trust (1997-Present); Vice President, General Counsel, Secretary and Trustee, Baron Select Funds (2003-Present). 36 BARON FUNDS - ----------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS DATE OF BIRTH WITH THE FUNDS TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE - ----------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES: Norman S. Edelcup(++)^** Trustee, 19 years Director (2006-Present) Compx Director (2006-Present), 244 Atlantic Isles Audit Committee International; Mayor (2003-Present), Compx International; Sunny Isles Beach, Member Commissioner (2001-2003), Sunny Director (1975-Present), FL 33160 Isles Beach, Florida; Senior Vice Valhi, Inc. DOB: May 8, 1935 President (2001-2004) and Director (2001-2006), Florida Savings Bank; Senior Vice President (1999-2000), Item Processing of America (a subsidiary of The Intercept Group); Chairman (1989-1999), Item Processing of America (a financial institution service bureau); Director (1975-Present), Valhi, Inc. (diversified company); Director (1985-1998), Artistic Greetings, Inc.; Trustee (1987-Present), Baron Investment Funds Trust; Trustee (1997-Present), Baron Capital Funds Trust; Trustee (2003- Present), Baron Select Funds. David I. Fuente^** Trustee 2 years Director (1987-Present), Chairman, Director (1987-Present), 701 Tern Point Circle (Elected 2004) (1987-2002), and Chief Executive Office Depot; Director Boca Raton, FL 33431 Officer (1987-2000), Office Depot; (1998-Present), Ryder DOB: September 10, 1945 Director (1998-Present), Ryder Systems, Inc.; Director Systems, Inc.; Director (1993-Present), Dick's (1993-Present), Dick's Sporting Sporting Goods, Inc. Goods, Inc.; Trustee (2004-Present), Baron Investment Funds Trust, Baron Capital Funds Trust, and Baron Select Funds. Charles N. Mathewson^** Chairman and Trustee Chairman since Chairman Emeritus (2003-Present), None outside the Baron 9295 Prototype Drive 2004 and Trustee Chairman (1986-2003), International Funds Complex. Reno, NV 89521 19 years Game Technology, Inc. (manufacturer DOB: June 12, 1928 of microprocessor-controlled gaming machines and monitoring systems); Chairman (1994-2002), American Gaming Association; Chairman (2004-Present), Trustee (1987-Present), Baron Investment Funds Trust; Chairman (2004-Present) Trustee (1997-Present), Baron Capital Funds Trust; Chairman (2004- Present), Trustee (2003-Present), Baron Select Funds. Harold W. Milner^** Trustee 19 years Retired; President and Chief None outside the Baron 2293 Morningstar Drive Executive Officer (1985-1997), Funds Complex. Park City, UT 84060 Kahler Realty Corporation (hotel DOB: September 11, 1934 ownership and management); Trustee (1987- Present), Baron Investment Funds Trust; Trustee (1997-Present), Baron Capital Funds Trust; Trustee (2003-Present), Baron Select Funds. 37 BARON FUNDS - ---------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS DATE OF BIRTH WITH THE FUNDS TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES: Raymond Noveck(++)^** Trustee 19 years Private Investor (1999-Present); President None outside the Baron 31 Karen Road (1997-1998), The Medical Information Line, Funds Complex. Waban, MA 02168 Inc. (health care information); President DOB: May 4, 1943 (1990-1997), Strategic Systems, Inc. (health care information); Director (1987- 1997), Horizon/CMS Healthcare Corporation; Trustee (1987-Present), Baron Investment Funds Trust; Trustee (1997-Present), Baron Capital Funds Trust; Trustee (2003- Present), Baron Select Funds. David A. Silverman, MD^** Trustee 19 years Physician and Faculty (1976-Present), New Director (1999-Present), 146 Central Park West York University School of Medicine; New York Blood Center. New York, NY 10024 Trustee (1987-Present), Baron Investment DOB: March 14, 1950 Funds Trust; Trustee (1997-Present), Baron Capital Funds Trust; Trustee (2003- Present), Baron Select Funds. Alex Yemenidjian^** Trustee 1 year Trustee (2000-Present), American Film Trustee (2006-Present), 1925 Century Park East Institute; Trustee (2006-Present), Baron American Film Institute; Suite 1975 Investment Funds Trust; Chairman and Chief Director (2005- Los Angeles, CA 90067 Executive Officer (2005-Present), Armenco Present), Guess?, Inc.; DOB: December 27, 1955 Holdings, LLC (investment company); Director (2005-Present), Director (2005-Present), Guess?, Inc. Regal Entertainment (retail); Director (2005-Present), Regal Group; Director Entertainment Group (entertainment (1989-Present), The company); Director (1989-Present), The Lincy Foundation; Lincy Foundation; Director (1989-Present) Director (1989- The United Armenian Fund; Director, (2005- Present), The United Present) USC Marshall School of Business Armenian Fund; Director Board of Leaders; Co-chair of Imagine the (2005-Present), USC Arts Campaign (2005-Present) California Marshall School of State University-Northridge; Chairman and Business Board of Chief Executive Officer (1999-2005), Leaders; Co-chair of Metro-Goldwyn-Mayer, Inc.; Director and Imagine the Arts member of Executive Committee (1989-2005), Campaign (2005- MGM MIRAGE, Inc.; President and Chief Present), California Operating Officer (1989-1999), MGM Grand, State Inc. (now MGM MIRAGE, Inc.); Managing University-Northridge. Partner (1984-1989), Parks, Palmer, Turner & Yemenidjian (certified public accounting firm). 38 BARON FUNDS - -------------------------------------------------------------------------------- OFFICERS - ---------------------------------------------------------------------------------------------------------------------------------- OTHER TRUSTEE/ NAME, ADDRESS & POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DIRECTORSHIPS DATE OF BIRTH WITH THE FUNDS TIME SERVED DURING THE PAST FIVE YEARS HELD BY THE TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL OFFICERS OF THE FUNDS: Clifford Greenberg Senior Vice President 10 years Director (2000-Present), Baron Capital, None 767 Fifth Avenue, 49th fl Inc. and Baron Capital Group, Inc.; New York, NY 10153 Director (2003-Present), BAMCO, Inc. and DOB: April 30, 1959 Baron Capital Management, Inc.; Senior Vice President (2003-Present), Baron Capital Inc., Baron Capital Group, Inc., and BAMCO, Inc.; Portfolio Manager (1997- Present), Baron Small Cap Fund; Vice President (1997-2003), Baron Capital, Inc., Baron Capital Group, Inc., and BAMCO, Inc.; General Partner (1984-1996), HPB Associates, LP (investment partnership). Gretta Heaney Chief Compliance 2 years Vice President, Assistant General Counsel, None 767 Fifth Avenue, 49th fl Officer Chief Compliance Officer: Baron Capital, New York, NY 10153 Inc. (2002-Present), Baron Capital DOB: July 10, 1960 Management, Inc., BAMCO, Inc. (2004- Present); Chief Compliance Officer: Baron Investment Funds Trust, Baron Capital Funds Trust, Baron Select Funds (2004- Present); Chief Compliance Officer: Baron Managed Funds plc (2005-Present); Vice President, Goldman Sachs (2000-2002); Vice President, Associate Counsel, Hoenig & Co., Inc. (1995-2000). Andrew Peck Vice President 4 years Vice President and Co-Portfolio Manager None 767 Fifth Avenue, 49th fl (2003-Present), Baron Asset Fund; Analyst New York, NY 10153 (1998-Present), Baron Capital, Inc. DOB: March 25, 1969 Susan Robbins Vice President 19 years Senior Analyst, Vice President and None 767 Fifth Avenue, 49th fl Director (1982-Present), Baron Capital, New York, NY 10153 Inc.; Senior Analyst, Vice President and DOB: October 19, 1954 Director (1984-Present), Baron Capital Management, Inc. Peggy C. Wong Treasurer and Chief 19 years Treasurer and Chief Financial Officer None 767 Fifth Avenue, 49th fl Financial Officer (1987-Present), Baron Capital, Inc., Baron New York, NY 10153 Capital Group, Inc., BAMCO, Inc. and Baron DOB: April 30, 1961 Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------
* Trustees deemed to be "interested persons" of the Fund as that term is defined in the Investment Company Act of 1940 by reason of their employment with the Funds' Adviser and Distributor. + Members of the Executive Committee, which is empowered to exercise all of the powers, including the power to declare dividends, of the full Board of Trustees when the full Board of Trustees is not in session. (++) Members of the Audit Committee. ^ Members of the Nominating Committee. ** Members of the Independent Committee. 39 [registered castle logo] B A R O N F U N D S(R) SEP06 Item 2. Code of Ethics. Filed herewith pursuant to Item 10(a) (1) of Item 2 to Form N-CSR. The Funds will provide a copy of the Code of Ethics to any person without charge, upon written request to info@baronfunds.com or by calling 1-800-992-2766. Item 3. Audit Committee Financial Expert. The Board of Trustees of the Fund has determined that Norman S. Edelcup, and Raymond Noveck, both members of the Audit Committee, possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as "Audit Committee Financial Expert" and has designated both Mr. Edelcup and Raymond Noveck as the Audit Committee's Financial Experts. Both Mr. Noveck and Mr. Edelcup is an "idependent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. Item 4. Principal Accountant Fees and Services. The following table shows the fees paid to PricewaterhouseCoopers, LLP, the registrant's prinicpal accounting firm during the fiscal year October 1, 2005 to September 30, 2006 (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, 2006: Audit Fees Tax Fees ----------- --------- Baron Asset $42,000 $7,400 Baron Growth Fund 43,000 6,900 Baron Small Cap Fund 38,000 5,800 Baron iOpportunity Fund 21,000 5,800 Baron Fifth Avenue Growth Fund 18,000 5,800 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. PREVIOUSLY FILED. 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 (the "1940 Act")) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 15d-15(b) under the Securities Exchange Act of 1934, as amended. (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 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 President and Chief Executive Officer Date: December 7, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald Baron -------------------- Ronald Baron President and Chief Executive Officer Date: December 7, 2006 By: /s/ Peggy Wong -------------------- Peggy Wong Treasurer and Chief Financial Officer Date: December 7, 2006 A signed original of this written statement has been provided to Baron Capital Funds Trust and will be retained by Baron Capital Funds Trust and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.906 CERT 3 bift906cert0906.txt 906 CERTIFICATIONS [Registered Castle Logo] B A R O N F U N D S(r) 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, 2006 (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, 2006 ---------------------------- Ronald Baron Chief Executive Officer 767 Fifth Avenue 49th Floor New York, NY 10153 TEL (212) 583-2000 FAX (212) 583-2014 [Registered Castle Logo] B A R O N F U N D S(r) 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, 2006 (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, 2006 ---------------------------------------- Peggy Wong Treasurer and Chief Financial Officer 767 Fifth Avenue 49th Floor New York, NY 10153 TEL (212) 583-2000 FAX (212) 583-2014 EX-99.CERT 4 ncsrcertifications0906.txt 302 CERTIFICATIONS I, RONALD BARON, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing 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, 2006 /s/ Ronald Baron --------------------------------- Ronald Baron President and Chief Executive Officer I, Peggy Wong, certify that: 1. I have reviewed this report on Form N-CSR of Baron Investment Funds Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing 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, 2006 /s/ Peggy Wong ------------------------------------- Peggy Wong Treasurer and Chief Financial Officer EX-99.CODE ETH 5 proceduresfinoffcoe06.txt CODE OF ETHICS BARON INVESTMENT FUNDS TRUST BARON CAPITAL FUNDS TRUST BARON SELECT FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS The Board of Trustees of Baron Capital Funds Trust, Baron Investment Funds Trust and Baron Select Funds and all their respective series (each a und and collectively, the "Funds"), have adopted the following Code of Ethics (the ode applicable to the Funds principal executive and senior financial officers ( overed Officers . The Funds Covered Officers include the President and Chief Executive Officer, Treasurer and Chief Financial Officer, and any person who performs similar functions, each of whom are listed on Schedule A hereto. I. INTRODUCTION The Sarbanes-Oxley Act of 2002 (the ct effected sweeping corporate disclosure and financial reporting reform on public companies, including mutual funds. The purpose of the Act is to address corporate malfeasance and assure investors that the companies in which they invest are accurately disclosing financial information. Under the Act, all public companies (including the Funds) must either have a code of ethics for their Covered Officers, or disclose why it does not. The Funds have chosen to adopt this Code to encourage the Covered Officers to act in a manner consistent with the principals of ethical conduct. II. SEPARATE CODE BAMCO, Inc., the Funds investment adviser (the dviser , has previously adopted a Compliance Manual (the ompliance Manual that sets forth certain fundamental principles and key policies and procedures that govern the conduct of all of the Adviser employees, including the Covered Officers. In addition, the Funds and the Adviser have previously adopted a code of ethics, in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the dvisers Act and Rule 17j-1 under the Investment Company Act of 1940 (the 940 Act , that governs the conduct of all of the Adviser employees, including the Covered Officers. The code of ethics under Rule 204A-1 and Rule 17j-1 and the Compliance Manual are superceded by this Code to the extent that such principles, policies and procedures conflict with the provisions of this Code. The code of ethics under Rule 204A-1 and Rule 17j-1 and the Compliance Manual are separate requirements applying to the Covered Officers and others, and are not part of this Code. In addition, the 1940 Act and the Advisers Act and rules promulgated thereunder contain many specific provisions designed to protect the Funds from conflicts of interest and overreaching. Any conduct by Covered Officers required by specific 1940 Act or Advisers Act provisions or the rules thereunder is presumed to be in compliance with this Code. III. PURPOSES OF THE CODE The purposes of this Code are: 1. To promote honest and ethical conduct by the Funds Covered Officers, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. To assist the Covered Officers in recognizing and avoiding conflicts of interest, including disclosing to an appropriate person any material transaction or relationship that reasonably could be expected to give rise to such conflict; 3. To promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission (the EC and in other public communications made by the Funds; 4. To promote compliance with applicable governmental laws, rules and regulations; 5. To encourage prompt internal reporting to an appropriate person of suspected material violations of this Code, including violations of securities laws or other laws, rules, and regulations applicable to the Funds; and 6. To establish accountability for adherence to this Code. IV. Questions About this Code The General Counsel of the Adviser shall oversee the implementation and administration of this Code. Any questions about this Code should be directed to the General Counsel. V. Conduct Guidelines The Funds have adopted the following guidelines under which the Funds Covered Officers must perform their official duties and conduct the business affairs of the Funds. 1. Ethical and honest conduct is an overarching principle of this Code. ---------------------------------------------------------------------- The Funds Covered Officers must act with honesty and integrity and avoid violations of this Code, including the avoidance of actual or apparent conflicts of interest with the Funds in personal and professional relationships. The personal interests of a Covered Officers should not be placed improperly before the interests of the Funds. The Covered Officers should not use their personal influence or personal relationships to influence investment decisions or financial reporting by a Fund whereby the Covered Officers would benefit personally (directly or indirectly) to the detriment of a Fund. 2. Covered Officers must disclose material transactions or relationships. --------------------------------------------------------------------- The Funds Covered Officers must disclose to the General Counsel any actual or apparent conflicts of interest the Covered Officers may have with the Funds that reasonably could be expected to give rise to any violation of this Code. Such conflicts of interest may arise as a result of material transactions or business or personal relationships to which the Covered Officers may be a party. If a Covered Officer is unsure whether a particular transaction gives rise to a conflict of interest, or whether a particular transaction or relationship is aterial, he or she should bring the matter to the attention of the General Counsel. 3. Disclosure requirements applicable to the Funds. ----------------------------------------------- Each Covered Officer is required to be familiar with the disclosure requirements applicable to the Funds and must not knowingly misrepresent or fail to disclose, or cause others to misrepresent or fail to disclose, material facts about the Funds to others, including but not limited to officers and counsel to the Adviser, its affiliates, and the Funds and their service providers, independent trustees, independent auditors and governmental regulators. The Funds Covered Officers must seek to provide information that is accurate, complete, objective, relevant, timely and understandable. The Funds Covered Officers must at all times endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Funds periodic reports. 4. Maintain confidentiality of information. --------------------------------------- Each Covered Officer must act with integrity and must respect and protect the information acquired during the course of his or her duties except when authorized by a Fund to disclose it, or where disclosure is mandated by law, regulation or rule. Each Covered Officer must maintain the confidentiality of non-public information where required by law or the Adviser policies. The Covered Officers may not disclose or use material non-public knowledge pertaining to a Fund for personal advantage. 5. Compliance with laws. -------------------- The Funds Covered Officers must comply with the federal securities laws and other laws and rules applicable to the Funds, such as the Internal Revenue Code. 6. Standard of Care. ---------------- The Funds Covered Officers must at all times act in good faith and with due care, competence, and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated. The Funds Covered Officers must conduct the affairs of the Fund in a responsible manner, consistent with this Code. 7. Standards for recordkeeping. --------------------------- The Funds Covered Officers must at all times endeavor to ensure that the Funds financial books and records are thoroughly and accurately maintained to the best of their knowledge in a manner consistent with applicable laws and this Code. VI. Affirmation of the Code Upon adoption of the Code, each Covered Officer is required: (i) upon receipt of the Code, to sign and submit to the General Counsel an acknowledgment stating that he or she has received, read and understands the Code; (ii) annually thereafter to submit a statement to the General Counsel confirming that he or she has received, read and understands the Code and has complied with the requirements of the Code; (iii) to not retaliate against any employee subordinate to the Covered Officer for reports of potential violations that are made in good faith; and (iv) to notify the General Counsel of the Adviser, as appropriate, if the Covered Officer observes any irregularities or violations of this Code. VII. Amendments and Waivers Except with respect to Schedule A hereto, which may be updated at any time, this Code may be amended only by the Board of Trustees of the Funds at a meeting of the Board of Trustees duly called for that purpose. Any Covered Officer may request a waiver of a provision of this Code by submitting his/her request in writing to the General Counsel for appropriate review. The General Counsel, in consultation with the Trustees who are not nterested persons of the Fund, as defined in the 1940 Act, will decide whether to grant a waiver. All waivers of the Code must be disclosed as required by the SEC rules. SCHEDULE A Covered Officers ---------------- Name Title - ---- ----- Ronald Baron President and Chief Executive Officer Peggy Wong Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----