N-CSR/A 1 ar0307.txt CERTIFIED SHAREHOLDER REPORT FOR BARON INVESTMENT FUNDS TRUST ------------------------------ UNITED STATES |OMB APPROVAL | SECURITIES AND EXCHANGE COMMISSION |OMB Number: 3235 - 0570 | Washington, D.C. 20549 |Expires: April 30, 2008 | |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: March 31, 2007 -------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17CRF 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 5th Street, NW, Washington, D.C. 20549-6009. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 2569 (01-05) Item 1. Baron Investment Fund Trust Semi-Annual Financial Report for the period ended March 31, 2007. Baron Asset Fund Baron Growth Fund Baron Small Cap Fund Baron iOpportunity Fund Baron Fifth Avenue Growth Fund Baron Funds -------------------------------------------------------------------------------- March 31, 2007 -------------------------------------------------------------------------------- Baron Asset Fund --------------------------------------- Performance 2 Top 10 Holdings 3 Top Ten Industry Groups 3 Discussion of Fund Performance 3 --------------------------------------- Baron Growth Fund --------------------------------------- Performance 4 Top 10 Holdings 5 Top Ten Industry Groups 5 Discussion of Fund Performance 5 --------------------------------------- Baron Small Cap Growth --------------------------------------- Performance 6 Top 10 Holdings 7 Top Ten Industry Groups 7 Discussion of Fund Performance 7 --------------------------------------- Baron iOpportunity Fund --------------------------------------- Performance 8 Top 10 Holdings 9 Top Ten Industry Groups 9 Discussion of Fund Performance 9 --------------------------------------- Baron Fifth Avenue Growth Fund --------------------------------------- Performance 10 Top 10 Holdings 11 Top Ten Industry Groups 11 Discussion of Fund Performance 11 --------------------------------------- Fund Expenses 12 --------------------------------------- Financial Statements --------------------------------------- Statements of Net Assets 13 Statements of Assets and Liabilities 22 Statements of Operations 23 Statements of Changes in Net Assets 24 Notes to Financial Statements 25 --------------------------------------- Disclosure Regarding Approval of Investment Advisory Contracts 34 --------------------------------------- 767 Fifth Avenue NY, NY 10153 212.583.2100 1.800.99. BARON BaronFunds.com SEMI-ANNUAL FINANCIAL REPORT -------------------------------------------------------------------------------- Dear Baron Funds Shareholder: In this report you will find the unaudited financial statements for Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund for the six months ended March 31, 2007. The Securities and Exchange Commission requires mutual funds to furnish these statements semi-annually to their shareholders. We hope you find these statements informative and useful. We thank you for choosing to join us as fellow shareholders in Baron Funds. We will continue to work hard to justify your confidence. Sincerely, /s/ Ronald Baron /s/ Linda S. Martinson /s/ Peggy Wong Ronald Baron Linda S. Martinson Peggy Wong Chief Executive Officer and Chief President, Chief Operating Officer Treasurer and Chief Investment Officer and General Counsel May 25, 2007 Financial Officer May 25, 2007 May 25, 2007
-------- This Semi Annual Financial Report is for the Baron Investment Funds Trust which currently has five series: the Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund series. If you are interested in the Baron Select Funds which contains the Baron Partners Fund series, please visit the Funds' website www.BaronFunds.com or contact us at 1-800-99-BARON. A description of the Funds' proxy voting policies and procedures is available without charge on the Funds' website, www.BaronFunds.com, or by calling 1-800-99-BARON and on the SEC's website at www.sec.gov. The Funds' most current proxy voting record, Form N-PX, is also available on the Funds' website, www.BaronFunds.com and on the SEC's website at www.sec.gov. The Funds file their complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's website 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 without notice based on market and other conditions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The investment return and principal value of an investment will fluctuate; an investor's shares, when redeemed, may be worth more or less than their original cost. For more complete information [REGISTERED about Baron Funds, including charges and expenses, call or write CASTLE for a prospectus. Read it carefully before you invest or send LOGO] 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 B A R O N accompanied or preceded by the Funds' current prospectus. F U N D S(r) Baron Asset Fund -------------------------------------------------------------------------------- ----------------------------------------- Baron Asset Fund ----------------------------------------- Performance 2 Top 10 Holdings 3 Top Ten Industry Groups 3 Discussion of Fund Performance 3 ----------------------------------------- Ticker Symbol: BARAX ----------------------------------------- [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) 1.800.99.BARON www.BaronFunds.com -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON ASSET FUND(1),(2),(3) IN RELATION TO THE S&P 500(2), and the Russell MidCap Growth(2) Indexes [LINE GRAPH] Baron Russell S&P Asset Fund Midcap Growth 500 ---------- ------------- ------- 06/12/87 $ 10,000 $10,000 $10,000 09/30/87 11,950 11,082 10,866 09/30/88 13,234 9,486 9,519 09/30/89 18,521 12,477 12,655 09/30/90 12,838 10,483 11,480 09/30/91 17,760 15,608 15,055 09/30/92 19,484 17,048 16,718 09/30/93 26,595 20,497 18,890 09/30/94 28,728 20,994 19,583 09/30/95 38,003 27,222 25,402 09/30/96 46,098 31,667 30,566 09/30/97 61,656 41,054 42,925 09/30/98 51,946 37,208 46,799 09/30/99 67,092 51,046 59,801 09/30/00 82,418 81,864 67,730 09/30/01 56,741 39,485 49,680 09/30/02 55,301 33,365 39,501 09/30/03 64,210 46,341 49,125 09/30/04 76,779 52,679 55,924 09/30/05 96,135 65,045 62,786 09/30/06 107,231 69,619 69,547 03/31/07 118,502 77,402 74,703 Information Presented by Fiscal Year as of September 30 and for the Six Months ended March 31, 2007 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2007
Six Months Since Inception (Not Annualized) One Year Three Years Five Years Ten Years (June 12, 1987) ---------------------------------------------------------------------------------------------------------- Baron Asset Fund(1),(2),(3) 10.51% 7.89% 16.13% 10.14% 10.05% 13.30% S&P 500(1),(2) 7.41% 11.82% 10.06% 6.26% 8.19% 10.69% Russell MidCap Growth(1),(2) 11.18% 6.90% 12.41% 9.45% 9.44% 10.89% Russell 2000(1),(2) 11.02% 5.91% 12.00% 10.95% 10.23% 10.03% Russell 2500(1),(2) 12.56% 8.23% 13.26% 12.15% 12.03% 11.82%
-------- (1) The Adviser believes that the Russell 2000 and the Russell 2500 are no longer appropriate comparison indexes for the Fund. The Russell 2000 measures the performance of small companies and the Russell 2500 of small to mid-sized companies. Prior to February 15, 2007, the Fund's strategy was to invest in small- and mid-sized growth companies. Since then, the Fund's investment strategy has shifted to mid-sized companies. The Adviser believes that the Russell MidCap Growth is more representative of the Fund's current investment objective. We will continue to provide the comparison to the smaller cap indexes for a one-year period. (2) The Russell MidCap Growth and the S&P 500 are unmanaged indexes. The Russell MidCap Growth measures the performance of those Russell MidCap mid-sized companies that are classified as growth and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2500, the Russell MidCap Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (3) Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 2 March 31, 2007 Baron Asset Fund -------------------------------------------------------------------------------- TOP 10 HOLDINGS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) --------------------------------------------------- % of Net Assets --------------------------------------------------- Wynn Resorts, Ltd. 4.5% Vail Resorts, Inc. 4.1% Charles Schwab Corp. 4.0% Chicago Mercantile Exchange Holdings, Inc. 3.4% ChoicePoint, Inc. 3.4% Alexander's, Inc. 3.2% XTO Energy, Inc. 2.7% Polo Ralph Lauren Corp., Cl A 2.3% Manor Care, Inc. 2.2% Arch Capital Group, Ltd. 2.0% --------------------------------------------------- 31.8% --------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Recreation and Resorts 11.2% Business Services 9.3% Financial Services - Brokerage & Exchanges 8.7% Energy Services 6.9% Healthcare Services 5.6% Financial Services - Asset Management 5.3% Real Estate - REITs 4.9% Financial Services - Insurance 4.2% Healthcare Facilities 3.9% Real Estate 3.5% Other 31.7% Cash and Cash Equivalents 4.8% Baron Asset Fund performed well for the six-month period ended March 31, 2007, gaining 10.51%. These results are in-line with the returns of the Fund's comparative indexes. The Russell Midcap gained 12.38% and the Russell Midcap Growth gained 11.18% for the six months ended March 31, 2007. The Fund's results are in-line with those of its mid-cap peers. According to Morningstar(1), its mid-cap growth category (consisting of 1,025 funds at March 31, 2007) gained 11.22% for the six-months ended March 31, 2007. Baron Asset Fund outperformed its Morningstar peer group of mid-cap growth funds for the one-, three-, five- and ten-year periods ended March 31, 2007. For the one-year ended March 31, 2007, the Fund gained 7.89% per year versus 4.10% per year for its mid-cap growth peers (consisting of 991 funds at March 31, 2007). For the three years ended March 31, 2007, the Fund gained 16.13% per year as compared to 10.74% per year for the Morningstar mid-cap growth category (consisting of 829 funds at March 31, 2007). For the five years ended March 31, 2007, the Fund gained 10.14% per year as compared to 7.65% per year for the Morningstar mid-cap growth category (consisting of 679 funds at March 31, 2007). For the ten years ended March 31, 2007, the Fund gained 10.05% per year as compared to 9.47% per year for the Morningstar mid-cap growth category (consisting of 274 funds at March 31, 2007). Baron Asset Fund invests in medium-sized growth companies for the long-term while using value-oriented purchase and sell disciplines(2). The Fund purchases companies that the Adviser believes have sustainable competitive advantages and strong financial characteristics, operating in industries with favorable macroeconomic trends, led by strong management. The Adviser continues its strategy of further diversifying the Fund's investment portfolio by adding what we believe to be well-financed, well-managed mid-cap growth businesses. We rely on our research team to determine what these businesses might earn in four years, and we purchase these securities at valuations that we believe will allow for their share price to double within four years. The Fund's best performing industry was Recreation and Resorts. Wynn Resorts' stock performed exceptionally well as investors remained excited by the September 2006 opening of its $1.2 billion hotel and casino in Macau. The Fund's performance was also strong in the Energy Services and Real Estate-REITs industries. The Fund was negatively impacted by the Retail-Consumer Staples industry. Whole Foods Market, the only security in the Retail-Consumer Staples industry, performed poorly after the company reported a slowdown in same-store sales. The company attributed the slow down at least in part to increasing competition from other supermarket chains entering the organic food sector more aggressively. The Fund was also negatively impacted by its holdings in the Consulting and Distribution sectors. The Adviser expects to continue to invest in companies that, in our opinion, are undervalued relative to their long-term growth prospects and have the ability to sustain superior levels of profitability. We intend to continue to identify companies through our independent research efforts. We expect the Fund will remain diversified not only by industry and investment theme, but also by external factors we believe could affect company performance. This approach to investing in companies, not trading of stocks, we believe will allow the Fund to produce above-average rates of return while keeping an attractive risk profile. --------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. (2) Prior to February 15, 2007, the Fund's strategy was also to invest in small- and mid-sized growth companies. 3 Baron Growth Fund -------------------------------------------------------------------------------- ----------------------------------------- Baron Growth Fund ----------------------------------------- Performance 4 Top 10 Holdings 5 Top Ten Industry Groups 5 Discussion of Fund Performance 5 ----------------------------------------- Ticker Symbol: BGRFX ----------------------------------------- [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) 1.800.99.BARON www.BaronFunds.com -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON GROWTH FUND(1),(2) IN RELATION TO THE RUSSELL 2000(1), THE RUSSELL 2000 GROWTH(1) AND THE S&P 500(1) Indexes [LINE GRAPH] Russell 2000 Baron Growth Fund Russell 2000 Growth S&P 500 ----------------- ------------ ------------ ---------- 12/31/94 $10,000 $10,000 $10,000 $10,000 09/30/95 14,770 12,573 12,913 12,974 09/30/96 18,575 14,224 14,542 15,611 09/30/97 25,469 18,945 17,938 21,924 09/30/98 20,855 15,342 13,483 23,903 09/30/99 29,868 18,268 17,882 30,543 09/30/00 35,431 22,541 23,187 34,593 09/30/01 33,286 17,760 13,313 25,374 09/30/02 34,956 16,108 10,895 20,175 09/30/03 42,333 21,988 15,441 25,090 09/30/04 50,463 26,115 17,282 28,563 09/30/05 59,591 30,803 20,387 32,068 09/30/06 63,976 33,860 21,586 35,521 03/31/07 72,991 37,592 24,060 38,155 Information Presented by Fiscal Year as of September 30 and for Six Months ended March 31, 2007 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2007
Six Months Since Inception (Not Annualized) One Year Three Years Five Years Ten Years (December 31, 1994) ---------------------------------------------------------------------------------------------------------- Baron Growth Fund(1),(2) 14.09% 6.70% 13.98% 11.92% 14.41% 17.62% Russell 2000(1) 11.02% 5.91% 12.00% 10.95% 10.23% 11.42% Russell 2000 Growth(1) 11.46% 1.56% 9.41% 7.88% 6.31% 7.43% S&P 500(1) 7.41% 11.82% 10.06% 6.26% 8.19% 11.55%
-------- (1) The Russell 2000, the Russell 2000 Growth and the S&P 500 are unmanaged indexes. The Russell 2000 measures the performance of 2000 small companies; the Russell 2000 Growth measures the performance of 2000 small growth companies; and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2000 Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 4 March 31, 2007 Baron Growth Fund -------------------------------------------------------------------------------- TOP 10 HOLDINGS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) ------------------------------------- % of Net Assets ------------------------------------- CB Richard Ellis Group, Inc. 2.6% Wynn Resorts, Ltd. 2.4% Station Casinos, Inc. 2.3% Dick's Sporting Goods, Inc. 2.2% Four Seasons Hotels, Inc. 2.2% Jefferies Group, Inc. 2.1% J. Crew Group, Inc. 1.8% Arch Capital Group, Ltd. 1.7% WellCare Health Plans, Inc. 1.7% DeVry, Inc. 1.7% ------------------------------------- 20.7% ------------------------------------- TOP TEN INDUSTRY GROUPS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Recreation & Resorts 11.2% Retail - Specialty Stores 9.9% Energy Services 6.1% Healthcare Services 5.2% Financial Services - Banking 4.9% Financial Services - Brokerage & Exchanges 4.4% Healthcare Facilities 3.5% Real Estate 3.4% Restaurants 3.3% Healthcare Services - Insurance 3.3% Other 38.0% Cash and Cash Equivalents 6.8% Baron Growth Fund performed well for the six-months ended March 31, 2007 in absolute terms and compared to its small-cap growth peers and comparative indexes. For the six-months ended March 31, 2007, the Fund gained 14.09%, the Russell 2000 gained 11.02% and the S&P 500 gained 7.41%. According to Morningstar(1), its small cap growth category (consisting of 806 funds at March 31, 2007) gained 11.16% for the six-months ended March 31, 2007. According to Morningstar, the Fund has significantly outperformed its small-cap growth peers for the one-, three-, five- and ten-year periods ending March 31, 2007. For the one-year period ended March 31, 2007, the Fund was up 6.70% per year versus 1.14% per year for its small-cap growth category peers (consisting of 758 mutual funds at March 31, 2007). For the three-year period ended March 31, 2007, the Fund was up 13.98% per year versus 9.04% per year for its small-cap growth category peers (consisting of 621 mutual funds at March 31, 2007). For the five-year period ended March 31, 2007, the Fund was up 11.92% per year versus 7.26% per year for its small-cap growth category peers (consisting of 513 mutual funds at March 31, 2007). For the ten-year period ended March 31, 2007, the Fund was up 14.41% per year versus 9.50% for its small-cap growth category peers (consisting of 220 mutual funds at March 31, 2007). Baron Growth Fund is a long-term investor in small-sized growth companies. The Adviser, through its own independent research of companies, utilizes an investment approach that it believes allows it to look beyond the current market environment and develop conviction in the potential profitability of a business, and therefore its value in the future. We rely on our research team to determine what these businesses may earn in four and five years. We purchase securities that the Adviser believes will double in value within four years and double again in the following four or five years. The Fund invests in businesses the Adviser believes have long-term sustainable competitive advantages that can be purchased at what we believe are attractive prices. The Fund's best performing industry was Recreation and Resorts. Wynn Resorts' stock performed exceptionally well as investors remained excited by the September 2006 opening of its $1.2 billion hotel and casino in Macau. The Fund also performed well with its Health Services-Insurance, Retail-Specialty Stores, and Energy Services investments. The Fund was negatively impacted by its holdings in the Chemical, Gaming Services, and Distribution sectors. The Adviser intends to continue to invest in small businesses that we believe have the potential to grow substantially in the years ahead. --------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 5 Baron Small Cap Fund -------------------------------------------------------------------------------- ----------------------------------------- Baron Small Cap Fund ----------------------------------------- Performance 6 Top 10 Holdings 7 Top Ten Industry Groups 7 Discussion of Fund Performance 7 ----------------------------------------- Ticker Symbol: BSCFX ----------------------------------------- [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) 1.800.99.BARON www.BaronFunds.com -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON SMALL CAP FUND(1),(2) IN RELATION TO THE RUSSELL 2000(1), RUSSELL 2000 GROWTH(1) AND THE S&P 500(1) Indexes [LINE GRAPH] Russell 2000 Baron Small Cap Fund Russell 2000 Growth S&P 500 -------------------- ------------ ------------ --------- 09/30/97 $10,000 $10,000 $10,000 $10,000 09/30/98 8,610 8,098 7,517 10,902 09/30/99 13,370 9,643 9,969 13,931 09/30/00 16,050 11,898 12,926 15,779 09/30/01 13,027 9,375 7,422 11,573 09/30/02 14,095 8,503 6,074 9,202 09/30/03 18,210 11,606 8,608 11,444 09/30/04 20,236 13,785 9,634 13,028 09/30/05 25,003 16,260 11,365 14,627 09/30/06 26,385 17,873 12,034 16,202 03/31/07 30,096 19,843 13,413 17,403 Information Presented by Fiscal Year as of September 30 and for the Six Months ended March 31, 2007 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2007
Six Months Since Inception (Not Annualized) One Year Three Years Five Years (September 30, 1997) ---------------------------------------------------------------------------------------------------- Baron Small Cap Fund(1),(2) 14.07% 4.34% 12.75% 12.07% 12.30% Russell 2000(1) 11.02% 5.91% 12.00% 10.95% 7.48% Russell 2000 Growth(1) 11.46% 1.56% 9.41% 7.88% 3.14% S&P 500(1) 7.41% 11.82% 10.06% 6.26% 6.01%
-------- (1) The Russell 2000, the Russell 2000 Growth and the S&P 500 are unmanaged indexes. The Russell 2000 measures the performance of 2000 small companies; the Russell 2000 Growth measures the performance of 2000 small growth companies; and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The Russell 2000, the Russell 2000 Growth, the S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 6 March 31, 2007 Baron Small Cap Fund -------------------------------------------------------------------------------- TOP 10 HOLDINGS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) --------------------------------------------- % of Net Assets --------------------------------------------- CB Richard Ellis Group, Inc. 2.6% SBA Communications, Corp., Cl A 2.5% Gaylord Entertainment Co. 2.2% Wynn Resorts, Ltd. 2.1% American Tower Corp., Cl A 2.1% SunPower Corp., Cl A 2.0% FLIR Systems, Inc. 1.9% Brookdale Senior Living, Inc. 1.9% Eagle Materials, Inc. 1.9% United Surgical Partners Intl., Inc. 1.9% --------------------------------------------- 21.1% --------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Recreation & Resorts 8.9% Retail - Specialty Stores 6.7% Communications 5.5% Medical Equipment 4.9% Transportation 4.8% Government Services 4.8% Restaurants 4.7% Manufacturing 4.3% Energy Services 4.3% Healthcare Facilities 3.8% Other 45.1% Cash and Cash Equivalents 2.2% Baron Small Cap Fund performed well for the six-month period ended March 31, 2007 in both absolute terms and when compared to its small-cap growth peers and comparative indexes. For the six-months ended March 31, 2007, the Fund gained 14.07%, the Russell 2000, gained 11.02% and the S&P 500 gained 7.41%. According to Morningstar(1), its small-cap growth category (consisting of 806 funds at March 31, 2007) gained 11.16% for the six-months ended March 31, 2007. According to Morningstar, the Fund has significantly outperformed its small-cap growth peers in the one-, three- and five-year periods ending March 31, 2007. For the one-year period ended March 31, 2007, the Fund was up 4.34% per year versus 1.14% per year for its small-cap growth category peers (consisting of 758 mutual funds at March 31, 2007). For the three-year period ended March 31, 2007, the Fund was up 12.75% per year versus 9.04% per year for its small-cap growth category peers (consisting of 621 mutual funds at March 31, 2007). For the five-year period ended March 31, 2007, the Fund was up 12.07% per year versus 7.26% for its small-cap growth category peers (consisting of 513 mutual funds at March 31, 2007). 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 we believe represent a significant discount to our assessment of true value. We rely on our research team to determine what these businesses might earn in two years, and we attempt to purchase these businesses at valuations that allow their share price to increase 50% within two years. The Fund's best performing industry was Recreation and Resorts. Wynn Resorts' stock performed exceptionally well as investors remained excited by the September 2006 opening of its $1.2 billion hotel and casino in Macau. The Fund also performed well with its Transportation, Medical Equipment, Government Services, and Manufacturing investments. The Fund was negatively impacted by the Distribution industry. Pool Corporation, the largest wholesale distributor of pool and related backyard products in the U.S., and Beacon Roofing Supply, the third largest roofing materials distributor in the U.S., both performed poorly for the period as residential new construction has slowed considerably in the last six months. The Fund was also negatively impacted by its holdings in the Healthcare Services and Leisure sectors. Baron Small Cap's investments fall into three categories: Growth Stocks, Fallen Angels and Special Situations. The Adviser 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. --------------- (1) The Morningstar composites are not weighted and represent the straight average of the annualized returns of each of the funds in the categories. 7 Baron iOpportunity Fund -------------------------------------------------------------------------------- ----------------------------------------- Baron iOpportunity Fund ----------------------------------------- Performance 8 Top 10 Holdings 9 Top Ten Industry Groups 9 Discussion of Fund Performance 9 ----------------------------------------- Ticker Symbol: BIOPX ----------------------------------------- [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) 1.800.99.BARON www.BaronFunds.com -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON iOPPORTUNITY FUND(1),(2) IN RELATION TO THE S&P 500(1) and NASDAQ Composite(1) Indexes [LINE GRAPH] Baron iOpportunity Fund NASDAQ Composite S&P 500 ----------------------- ---------------- ------- 2/29/00 $10,000 $10,000 $10,000 9/30/00 8,760 7,820 10,582 9/30/01 4,105 3,191 7,760 9/30/02 3,643 2,496 6,173 9/30/03 6,503 3,805 7,673 9/30/04 7,607 4,039 8,737 9/30/05 9,193 4,581 9,809 9/30/06 10,086 4,808 10,865 3/31/07 11,531 5,156 11,671 Information Presented by Fiscal Year as of September 30 and for Six Months ended March 31, 2007 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2007
Six Months Since Inception (Not Annualized) One Year Three Years Five Years (February 29, 2000) ------------------------------------------------------------------------------------------------------ Baron iOpportunity Fund(1),(2) 14.33% 10.06% 12.64% 15.92% 2.03% NASDAQ Composite(1) 7.23% 3.50% 6.69% 5.59% (8.93%) S&P 500(1) 7.41% 11.82% 10.06% 6.26% 2.21%
-------- (1) The NASDAQ Composite and the S&P 500 are unmanaged indexes. The NASDAQ Composite tracks the performance of market-value weighted common stocks listed on NASDAQ and the S&P 500 measures the performance of larger-cap equities in the stock market in general. The NASDAQ Composite is without dividends. The S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. Performance data also does not reflect the imposition of a short-term trading fee of 1% on redemptions of the Fund shares held for less than six months. 8 March 31, 2007 Baron iOpportunity Fund -------------------------------------------------------------------------------- TOP 10 HOLDINGS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) --------------------------------------------------- % of Net Assets --------------------------------------------------- Apple, Inc. 3.8% Equinix, Inc. 3.7% Charles Schwab Corp. 3.6% Google, Inc., Cl A 3.2% Chicago Mercantile Exchange Holdings, Inc. 3.1% Research in Motion, Ltd. 2.9% Monster Worldwide, Inc. 2.9% E*TRADE Financial Corp. 2.8% Comcast Corp., Cl A 2.8% Electronic Arts, Inc. 2.6% --------------------------------------------------- 31.4% --------------------------------------------------- TOP TEN INDUSTRY GROUPS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Communications 16.6% Financial Services - Brokerage & Exchanges 12.9% Media 12.0% Advertising Services 8.4% Business Services 7.7% Communications Equipment 4.9% Consumer Services 4.5% Real Estate 4.2% Leisure 3.9% Computer Technology 3.8% Other 12.2% Cash and Cash Equivalents 8.9% Baron iOpportunity Fund's performance was strong for the six-months ended March 31, 2007, gaining 14.33%. The Fund's relative indexes, the S&P 500 and NASDAQ Composite, gained 7.41% and 7.23%, respectively. According to Morningstar(1), an average fund in the mid-cap growth category, which includes the Fund (consisting of 1,025 funds at March 31, 2007) gained 11.22% for the six-months ended March 31, 2007. Baron iOpportunity Fund outperformed the Morningstar peer group of mid-cap growth funds for the three years ending March 31, 2007, and significantly outperformed the peer group for the one- and five-year periods ended March 31, 2007. For the one-year period ended March 31, 2007, the Fund gained 10.06% per year as compared to 4.10% per year for the Morningstar mid-cap growth category (consisting of 991 funds at March 31, 2007). For the three-year period ended March 31, 2007, the Fund gained 12.64% per year as compared to 10.74% per year for the Morningstar mid-cap growth category (consisting of 829 funds at March 31, 2007). For the five-year period ended March 31, 2007, the Fund gained 15.92% per year as compared to 7.65% per year for the Morningstar mid-cap growth category (consisting of 679 funds at March 31, 2007). 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 best performing industry was Communications. Two top performers were our network-neutral data center operators, Equinix and Terremark Worldwide. Equinix and Terremark each own and operate state-of-the-art data centers that act as on-ramps to the Internet and provide safe and secure environments for their customers to power and cool their information-technology infrastructure. Due, we believe, to the continued strong adoption of digital media, the on-going shift to Internet-delivered software applications, and the significant demand for facilities that can deliver enough power and cooling to run current generation IT equipment, Equinix and Terremark continued to experience robust growth. The Fund's performance was also strong in the Business Services, Communication Equipment, Media, and Consumer Services industries. The Fund was negatively impacted by the Energy Services industry due to the poor performance of Medis Technologies. According to our research, Medis is the only company in the world to have developed portable, micro fuel cells that can be used to charge a variety of handheld consumer electronic devices, including cell phones, PDA's, Blackberry's, iPods, and digital cameras. With the physical limitations of lithium ion batteries coupled with the growing need for power demanded by today's feature rich handheld devices, we believe Medis' products will fill a significant void in the market. The Fund was also negatively affected by its holdings in the Financial Services-Brokerage & Exchanges, Retail-Specialty Stores, and Enterprise Hardware sectors. The Adviser expects to continue to invest in both Internet-related businesses, as well as established companies that we believe have significant and scalable information technology growth opportunities. We believe the Fund distinguishes itself from other Internet funds because of its value orientation and industry diversification. --------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 9 Baron Fifth Avenue Growth Fund -------------------------------------------------------------------------------- ------------------------------------------------- Baron Fifth Avenue Growth Fund ------------------------------------------------- Performance 10 Top 10 Holdings 11 Top Ten Industry Groups 11 Discussion of Fund Performance 11 ------------------------------------------------- Ticker Symbol: BFTHX ------------------------------------------------- [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) 1.800.99.BARON www.BaronFunds.com -------------------------------------------------------------------------------- COMPARISON OF THE CHANGE IN VALUE OF $10,000 INVESTMENT IN BARON FIFTH AVENUE GROWTH FUND(1),(2) IN RELATION TO THE S&P 500(1) INDEX [LINE GRAPH] Baron Fifth Avenue Growth Fund S&P 500 ------------------------------ ------- 4/30/04 $10,000 $10,000 9/30/04 9,890 10,131 9/30/05 11,560 11,380 9/30/06 12,220 12,605 3/31/07 13,240 13,540 Information Presented by Fiscal Year as of September 30 and for the Six Months ended March 31, 2007 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2007
Six Months Since Inception (Not Annualized) One Year (April 30, 2004) ----------------------------------------------------------------------------------- Baron Fifth Avenue Growth Fund(1),(2) 8.35% 6.86% 10.10% S&P 500(1) 7.41% 11.82% 10.95%
-------- (1) The S&P 500 is an unmanaged index that measures the performance of larger-cap equities in the stock market in general. The S&P 500 and the Fund are with dividends, the inclusion of which positively impacts their performance results. (2) Past performance is not predictive of future performance. The performance data does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. 10 March 31, 2007 Baron Fifth Avenue Growth Fund -------------------------------------------------------------------------------- TOP 10 HOLDINGS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) ----------------------------------------- % of Net Assets ----------------------------------------- The Procter & Gamble Co. 4.2% Microsoft Corp. 3.6% Federated Department Store, Inc. 3.5% Diageo Plc 3.4% American Express Co. 3.4% AllianceBernstein Holding L.P. 3.3% Comcast Corp., Cl A 3.0% PepsiCo, Inc. 3.0% Las Vegas Sands Corp. 2.9% WellPoint, Inc. 2.8% ----------------------------------------- 33.1% ----------------------------------------- TOP TEN INDUSTRY GROUPS AS OF MARCH 31, 2007 (AS A PERCENTAGE OF NET ASSETS) [PIE CHART] Consumer Products 12.6% Media 10.7% Retail - Consumer Staples 8.5% Financial Services - Brokerage & Exchanges 8.2% Recreation & Resorts 6.6% Retail - Specialty Stores 6.4% Healthcare Services - Insurance 5.6% Computer Technology 5.4% Energy Services 5.1% Financial Services - Asset Management 4.4% Other 22.1% Cash and Cash Equivalents 4.4% Baron Fifth Avenue Growth Fund gained 8.35% for the six-months ended March 31, 2007. The Fund's relative index, the S&P 500, returned 7.41% during the same period. Baron Fifth Avenue Growth Fund outperformed its Morningstar(1) peer group of large-cap growth funds for the six-month and one-year periods ended March 31, 2007. According to Morningstar, the large-cap growth category (consisting of 1,712 funds at March 31, 2007) gained 6.93% in the six-months ended March 31, 2007. For the one-year period ended March 31, 2007, the Fund gained 6.86% per year as compared to 4.46% per year for the Morningstar large-cap growth category (consisting of 1,678 funds at March 31, 2007). Baron Fifth Avenue Growth Fund focuses on the long-term fundamental prospects of the businesses in which it invests. This contrasts with other investors' focus on historical operating results or current earnings expectations. 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 Adviser believes it can gain an investment advantage through its independent and exhaustive research of businesses. The Fund attempts to purchase what the Adviser believes are great large-cap companies with exciting prospects at attractive prices when we think prospects are misunderstood, markets react to short-term events, or experts are wrong. The Fund's best performing industry was Recreation and Resorts. Wynn Resorts' stock performed exceptionally well as investors remained excited by the September 2006 opening of its $1.2 billion hotel and casino in Macau. The Fund's performance was also strong in the Retail -- Specialty Stores and Media industries. The Fund's performance was negatively impacted by the Healthcare Services industry. Caremark performed poorly after the company announced its agreement to merge with CVS. Caremark's decision to "sell" the company at almost no premium seemed to indicate a lack of confidence by management in the company's future growth prospects. We were not convinced by the company's strategic rationale for the transaction and sold Caremark out the Fund. The Fund was also negatively impacted by the Pharmaceutical industry. The Adviser intends to invest in what we believe are some of the best companies in America. The Fund is positioned, in our view, in blue chip, best-of-breed growth companies with a strong emphasis on quality to reduce risk. We believe the key to long-term stock appreciation is consistent earnings growth. We invest in those companies that are market share leaders who dominate their industry, companies with strong franchises and a strong brand name avoiding fads, in our view, and other short-term, unsustainable trends. We target companies that are the low-cost operators in their industry with, in our view, high barriers to entry. We also try to invest in growth companies that are positioned in industries that are themselves growing as opposed to industries that are stagnant or structurally challenged. --------------- (1) The Morningstar composites are not weighted and represent the straight average of annualized returns of each of the funds in the categories. 11 Baron Funds -------------------------------------------------------------------------------- FUND EXPENSES (UNAUDITED) -------------------------------------------------------------------------------- As a shareholder of the Funds, you may incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include advisory fees, 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 October 1, 2006 and held for six months ended March 31, 2007. ACTUAL EXPENSES The table below titled "Based on Actual Total Return" provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading titled "Expenses Paid During the Period". BASED ON ACTUAL TOTAL RETURN FOR THE SIX MONTHS ENDED MARCH 31, 2007(1)
Actual Beginning Ending Annualized Expenses Total Account Value Account Value Expense Paid During Return October 1, 2006 March 31, 2007 Ratios the Period(2) ------ --------------- -------------- ---------- -------------- Baron Asset Fund 10.51% $1,000.00 $1,105.08 1.35% $7.09 Baron Growth Fund 14.09% 1,000.00 1,140.95 1.31% 6.99 Baron Small Cap Fund 14.07% 1,000.00 1,140.69 1.31% 6.99 Baron iOpportunity Fund 14.33% 1,000.00 1,143.28 1.42% 7.59 Baron Fifth Avenue Growth Fund 8.35% 1,000.00 1,083.47 1.36% 7.06
-------- 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 MARCH 31, 2007
Hypothetical Beginning Ending Annualized Expenses Annualized Account Value Account Value Expense Paid During Total Return October 1, 2006 March 31, 2007 Ratios the Period/(2)/ ------------ --------------- -------------- ---------- -------------- Baron Asset Fund 5.00% $1,000.00 $1,018.20 1.35% $6.79 Baron Growth Fund 5.00% 1,000.00 1,018.40 1.31% 6.59 Baron Small Cap Fund 5.00% 1,000.00 1,018.40 1.31% 6.59 Baron iOpportunity Fund 5.00% 1,000.00 1,017.85 1.42% 7.14 Baron Fifth Avenue Growth Fund 5.00% 1,000.00 1,018.15 1.36% 6.84
-------- (1) Assumes all reinvestment of dividends and capital gain distributions, if any. (2) Expenses are equal to each Fund's respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent Fiscal half-year, then divided by 365. 12 Baron Asset Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value --------- ------------------------------------- -------------- -------------- Common Stocks (94.88%) ----------------------------------------------------------------------------- Apparel (2.32%) 1,050,000 Polo Ralph Lauren Corp., Cl A $ 22,642,344 $ 92,557,500 Business Services (9.29%) 1,850,000 Brown & Brown, Inc. 42,447,904 50,042,500 3,600,000 ChoicePoint, Inc.(1)(3) 40,136,347 134,748,000 450,000 FactSet Research Systems, Inc. 24,919,426 28,282,500 2,900,000 Iron Mountain, Inc.(1) 63,076,798 75,777,000 1,150,000 Robert Half Intl., Inc. 1,202,006 42,561,500 650,000 SEI Investments Co. 24,895,335 39,149,500 -------------- -------------- 196,677,816 370,561,000 Consulting (1.20%) 400,000 Corporate Executive Board Co. 36,430,789 30,384,000 280,000 Moody's Corp. 7,256,123 17,376,800 -------------- -------------- 43,686,912 47,760,800 Consumer Products (0.58%) 650,000 Bare Escentuals, Inc.(1) 22,467,703 23,315,500 Distribution (1.90%) 1,300,000 Fastenal Co. 52,781,214 45,565,000 850,000 Pool Corp. 36,909,946 30,430,000 -------------- -------------- 89,691,160 75,995,000 Education (0.94%) 1,275,000 DeVry, Inc. 7,614,587 37,421,250 Energy Services (6.87%) 900,000 Covanta Holding Corp.(1) 21,110,824 19,962,000 1,200,000 Helmerich & Payne, Inc. 38,464,161 36,408,000 325,000 Petroplus Holdings AG(1)(4) 20,276,368 23,132,135 500,000 SEACOR Holdings, Inc.(1) 14,322,278 49,200,000 550,000 SunPower Corp., Cl A(1)(7) 23,223,259 25,025,000 200,000 Ultra Petroleum Corp.(1) 4,847,419 10,626,000 2,000,000 XTO Energy, Inc. 13,602,027 109,620,000 -------------- -------------- 135,846,336 273,973,135 Financial Services -- Asset Management (5.33%) 600,000 AllianceBernstein Holding L.P. 26,965,809 53,100,000 1,775,000 Eaton Vance Corp. 45,179,298 63,261,000 478,400 Fortress Investment Group, LLC, Cl A 8,850,400 13,720,512 950,000 Nuveen Investments, Inc., Cl A 34,005,739 44,935,000 800,000 T. Rowe Price Group, Inc. 21,584,167 37,752,000 -------------- -------------- 136,585,413 212,768,512 Financial Services -- Banking (1.06%) 575,000 City National Corp. 41,581,092 42,320,000 Financial Services -- Brokerage and Exchanges (8.75%) 8,800,000 Charles Schwab Corp. 21,422,499 160,952,000 255,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 18,498,370 135,777,300 1,815,000 Jefferies Group, Inc. 51,452,427 52,544,250 -------------- -------------- 91,373,296 349,273,550 Financial Services -- Insurance (4.17%) 1,150,000 Arch Capital Group, Ltd.(1) 43,777,256 78,441,500 850,000 Assurant, Inc. 28,107,969 45,585,500 250,000 Axis Capital Holdings, Ltd. 5,933,495 8,465,000 1,100,000 HCC Insurance Holdings, Inc. 34,706,474 33,880,000 -------------- -------------- 112,525,194 166,372,000
Shares Cost Value --------- --------------------------------------- ------------- -------------- Financial Services -- Miscellaneous (0.92%) 300,000 The First Marblehead Corp. $ 6,114,749 $ 13,467,000 125,000 The Student Loan Corp. 17,812,742 23,240,000 ------------- -------------- 23,927,491 36,707,000 Gaming Services (1.03%) 1,250,000 Scientific Games Corp., Cl A(1) 37,230,604 41,037,500 Government Services (1.00%) 2,300,000 SAIC, Inc.(1) 40,746,636 39,836,000 Healthcare Facilities (3.93%) 850,000 Brookdale Senior Living, Inc. 36,345,847 37,961,000 900,000 Community Health Systems, Inc.(1) 24,384,740 31,725,000 1,600,000 Manor Care, Inc. 38,297,714 86,976,000 ------------- -------------- 99,028,301 156,662,000 Healthcare Products (2.46%) 1,130,000 DENTSPLY International, Inc. 24,654,030 37,007,500 800,000 Henry Schein, Inc.(1) 22,796,151 44,144,000 200,000 Zimmer Holdings, Inc.(1) 6,087,903 17,082,000 ------------- -------------- 53,538,084 98,233,500 Healthcare Services (5.29%) 725,000 Covance, Inc.(1) 42,974,645 43,021,500 475,000 IDEXX Laboratories, Inc.(1) 39,045,064 41,624,250 550,000 Stericycle, Inc.(1) 33,158,008 44,825,000 850,000 Thermo Fisher Scientific, Inc.(1) 24,522,276 39,737,500 1,150,000 VCA Antech, Inc.(1) 38,569,603 41,756,500 ------------- -------------- 178,269,596 210,964,750 Healthcare Services -- Insurance (1.42%) 700,000 WellPoint, Inc.(1) 17,819,752 56,770,000 Hotels and Lodging (2.01%) 850,000 Choice Hotels Intl., Inc. 4,185,563 30,115,500 625,000 Four Seasons Hotels, Inc. 23,375,834 50,187,500 ------------- -------------- 27,561,397 80,303,000 Information Technology Services (1.02%) 1,100,000 CheckFree Corp.(1) 42,703,876 40,799,000 Manufacturing (0.86%) 750,000 Embraer-Empresa Brasileira de Aeronautica S.A. 30,771,710 34,395,000 Media (1.78%) 1,125,000 Lamar Advertising Co., Cl A(1) 62,817,724 70,841,250 Real Estate (3.54%) 2,150,000 CB Richard Ellis Group, Inc., Cl A(1) 29,735,448 73,487,000 212,766 Corrections Corp. of America(1) 1,418 11,236,172 500,000 Forest City Enterprises, Inc., Cl A 24,352,392 33,090,000 450,000 The St. Joe Company 29,682,429 23,539,500 ------------- -------------- 83,771,687 141,352,672 Real Estate -- Home Building (1.53%) 200,000 M.D.C. Holdings, Inc. 12,301,352 9,614,000 30,000 NVR, Inc.(1) 9,896,096 19,950,000 1,150,000 Toll Brothers, Inc.(1) 24,329,617 31,487,000 ------------- -------------- 46,527,065 61,051,000
See Notes to Financial Statements. 13 Baron Asset Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (continued) -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value --------- ------------------------------------------ -------------- -------------- Common Stocks (continued) ---------------------------------------------------------------------------------- Real Estate -- REITs (4.87%) 314,000 Alexander's, Inc.(1)(5) $ 20,453,936 $ 129,273,800 80,000 AvalonBay Communities, Inc. 8,451,711 10,400,000 800,000 Douglas Emmett, Inc. 17,052,243 20,424,000 250,000 SL Green Realty Corp. 21,214,463 34,295,000 -------------- -------------- 67,172,353 194,392,800 Recreation and Resorts (11.18%) 1,100,000 Boyd Gaming Corp. 45,168,552 52,404,000 5,200,000 Kerzner Intl. Holdings, Ltd., Cl A(1)(2) 52,000,000 52,000,000 3,000,000 Vail Resorts, Inc.(1)(5) 61,273,805 162,990,000 500,000 Wynn Resorts, Ltd.(1) 3,500,356 47,430,000 1,459,408 Wynn Resorts, Ltd.(1)(2) 21,345,164 131,517,471 -------------- -------------- 183,287,877 446,341,471 Restaurants (0.87%) 1,300,000 The Cheesecake Factory, Inc.(1) 30,439,703 34,645,000 Retail -- Consumer Staples (1.40%) 1,250,000 Whole Foods Market, Inc. 41,811,475 56,062,500 Retail -- Specialty Stores (2.86%) 1,100,000 CarMax, Inc.(1) 14,518,495 26,994,000 850,000 O'Reilly Automotive, Inc.(1) 24,294,099 28,135,000 1,300,000 Tiffany & Co. 43,343,180 59,124,000 -------------- -------------- 82,155,774 114,253,000 Transportation (2.79%) 1,550,000 C. H. Robinson Worldwide, Inc. 30,028,921 74,012,500 900,000 Expeditors International of Washington, Inc. 21,676,121 37,188,000 -------------- -------------- 51,705,042 111,200,500 Utility Services (1.71%) 2,250,000 Southern Union Co. 28,662,596 68,377,500 -------------- -------------- Total Common Stocks 2,130,640,596 3,786,543,690 -------------- --------------
Shares Cost Value ----------- -------------------------------------- -------------- -------------- Convertible Preferred Stocks (0.28%) --------------------------------------------------------------------------------- Education (0.01%) 105,264 Apollo International, Inc. S-A CV Pfd.(1)(2)(5) $ 1,800,014 $ 400,003 Healthcare Services (0.27%) 6,841 Somerford Corp. S-A Conv. Pfd.(1)(2) 10,951,004 10,951,002 -------------- -------------- Total Convertible Preferred Stocks 12,751,018 11,351,005 -------------- -------------- Principal Amount -------------------------------------------------- -------------- -------------- Short Term Investments (4.84%) --------------------------------------------------------------------------------- Short Term Money Market Instruments (2.59%) $48,099,999 Chesham Finance Ltd. 5.32% due 04/02/2007 48,099,999 48,099,999 279,876 Citigroup Funding, Inc. 5.30% due 04/02/2007(6) 279,876 279,876 34,984,338 Intesa Funding LLC 5.37% due 04/02/2007 34,984,338 34,984,338 19,991,050 Swiss Re Financial Products Corp. 5.37% due 04/02/2007 19,991,050 19,991,050 -------------- -------------- 103,355,263 103,355,263 U.S. Government Agencies (2.25%) 89,962,600 Federal Home Loan Bank 5.00% due 04/02/2007 89,962,600 89,962,600 -------------- -------------- Total Short Term Investments 193,317,863 193,317,863 -------------- -------------- Total Investments (100.00%) $2,336,709,477 3,991,212,558 ============== Liabilities Less Cash and Other Assets (0.00%) (186,242) -------------- Net Assets (Equivalent to $61.53 per share based on 64,861,261 shares outstanding) $3,991,026,316 ==============
---------------- % Represents percentage of net assets (1) Non-income producing securities (2) See Note 7 regarding restricted and fair valued securities. (3) Represents securities, or a portion thereof, in segregated custodian account. See Note 10. (4) Foreign domiciled corporation (5) See Note 9 regarding "Affiliated" Companies. (6) Investment from cash collateral received for loaned security. (7) Represents securities, or a portion thereof, on loan as of March 31, 2007. See Notes to Financial Statements. 14 Baron Growth Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value ---------- ----------------------------------- ------------ ------------ Common Stocks (91.32%) ------------------------------------------------------------------------ Advertising Services (0.34%) 450,000 Harte-Hanks, Inc. $ 7,987,320 $ 12,415,500 375,000 National CineMedia, Inc.(1) 9,378,314 10,012,500 ------------ ------------ 17,365,634 22,428,000 Apparel (2.09%) 2,900,000 Carter's, Inc.(1) 39,178,712 73,486,000 1,225,000 Under Armour, Inc., Cl A(1) 40,384,710 62,842,500 ------------ ------------ 79,563,422 136,328,500 Automotive Parts (0.49%) 11,000,000 Delphi Corp.(1) 19,109,820 31,900,000 Business Services (2.89%) 600,000 Brown & Brown, Inc. 9,830,330 16,230,000 1,592,000 ChoicePoint, Inc.(1)(3) 35,519,748 59,588,560 2,725,000 Copart, Inc.(1) 69,029,357 76,327,250 40,000 FactSet Research Systems, Inc. 2,040,491 2,514,000 870,000 Macquarie Infrastructure Company Trust 29,029,878 34,191,000 ------------ ------------ 145,449,804 188,850,810 Chemical (0.58%) 700,000 Senomyx, Inc.(1) 6,340,864 8,666,000 1,650,000 Symyx Technologies, Inc.(1)(5) 26,885,343 29,238,000 ------------ ------------ 33,226,207 37,904,000 Communications (2.15%) 1,050,000 Equinix, Inc.(1) 34,189,968 89,911,500 1,700,000 SBA Communications Corp., Cl A(1) 6,533,038 50,235,000 ------------ ------------ 40,723,006 140,146,500 Consumer Products (1.37%) 289,228 Bare Escentuals, Inc.(1) 8,147,677 10,374,608 1,575,000 Church & Dwight Co., Inc. 58,038,013 79,301,250 ------------ ------------ 66,185,690 89,675,858 Consumer Services (1.96%) 1,350,000 Chemed Corp.(5) 51,815,546 66,096,000 1,200,000 Morningstar, Inc.(1) 26,102,655 61,968,000 ------------ ------------ 77,918,201 128,064,000 Distribution (0.65%) 668,750 Beacon Roofing Supply, Inc.(1) 15,389,819 10,820,375 875,000 Pool Corp. 34,074,625 31,325,000 ------------ ------------ 49,464,444 42,145,375 Education (3.07%) 3,700,000 DeVry, Inc.(5) 62,024,339 108,595,000 100,000 New Oriental Education & Technology Group, Inc.(1) 3,638,128 4,053,000 700,000 Strayer Education, Inc. 57,859,739 87,500,000 ------------ ------------ 123,522,206 200,148,000 Energy Services (6.11%) 400,000 Core Laboratories N.V.(1) 19,417,274 33,532,000 800,000 Dresser-Rand Group, Inc.(1) 19,155,509 24,368,000 3,100,000 Encore Acquisition Co.(1)(5) 51,499,113 74,989,000 975,000 EXCO Resources, Inc.(1) 13,274,990 16,165,500 1,100,000 FMC Technologies, Inc.(1) 25,188,996 76,736,000 1,050,000 Helmerich & Payne, Inc. 24,393,872 31,857,000 637,500 PHI, Inc.(1) 18,390,290 17,250,750 487,500 Range Resources Corp. 8,333,342 16,282,500 440,000 SEACOR Holdings, Inc.(1) 17,768,097 43,296,000 850,000 SunPower Corp., Cl A(1) 24,439,815 38,675,000 650,000 Whiting Petroleum Corp.(1) 22,550,925 25,616,500 ------------ ------------ 244,412,223 398,768,250
Shares Cost Value --------- ------------------------------------------- ------------ ------------ Financial Services -- Asset Management (1.98%) 1,850,000 Cohen & Steers, Inc. $ 33,937,752 $ 79,698,000 650,000 Eaton Vance Corp. 11,290,146 23,166,000 283,400 GAMCO Investors, Inc., Cl A 4,723,453 12,279,722 290,000 Nuveen Investments, Inc., Cl A 7,748,686 13,717,000 ------------ ------------ 57,700,037 128,860,722 Financial Services -- Banking (4.92%) 725,000 Cathay General Bancorp 26,411,085 24,635,500 850,000 Center Financial Corp.(5) 18,904,650 16,804,500 800,000 Central Pacific Financial Corp. 28,316,418 29,256,000 1,300,000 First Republic Bank 40,949,131 69,810,000 850,000 Frontier Financial Corp. 20,424,642 21,207,500 1,000,000 Glacier Bancorp, Inc. 24,518,061 24,040,000 537,537 SVB Financial Group(1) 26,031,202 26,118,923 4,000,000 UCBH Holdings, Inc. 80,006,240 74,480,000 158,824 Virginia Commerce Bancorp, Inc.(1) 3,351,135 3,438,540 1,000,000 Western Alliance Bancorporation(1) 34,285,616 31,040,000 ------------ ------------ 303,198,180 320,830,963 Financial Services -- Brokerage & Exchanges (4.41%) 545,000 Evercore Partners, Inc., Cl A(1) 13,790,824 16,998,550 850,000 FCStone Group, Inc./(1)/ 25,031,146 31,722,000 1,750,000 International Securities Exchange Holdings, Inc., Cl A 49,915,686 85,400,000 4,800,000 Jefferies Group, Inc. 73,517,475 138,960,000 760,000 Thomas Weisel Partners Group, Inc./(1)/ 14,201,546 14,455,200 ------------ ------------ 176,456,677 287,535,750 Financial Services -- Insurance (1.72%) 1,650,000 Arch Capital Group, Ltd./(1)/ 51,045,431 112,546,500 Financial Services -- Miscellaneous (1.10%) 1,525,000 National Financial Partners Corp. 81,123,705 71,537,750 Food and Agriculture (1.38%) 1,400,000 Ralcorp Holdings., Inc./(1)(5)/ 53,671,573 90,020,000 Gaming Services (0.65%) 1,300,000 Scientific Games Corp., Cl A/(1)/ 32,010,748 42,679,000 Healthcare Facilities (3.48%) 2,000,000 Community Health Systems, Inc./(1)/ 49,858,102 70,500,000 1,800,000 Manor Care, Inc. 33,815,991 97,848,000 650,000 Sun Healthcare Group, Inc./(1)/ 7,376,250 8,027,500 1,650,000 United Surgical Partners Intl., Inc./(1)/ 23,181,527 50,836,500 ------------ ------------ 114,231,870 227,212,000 Healthcare Products (1.94%) 1,950,000 Depomed, Inc./(1)/ 11,124,661 6,961,500 2,000,000 Edwards Lifesciences Corp./(1)/ 59,602,587 101,400,000 850,000 PSS World Medical, Inc./(1)/ 17,338,615 17,969,000 ------------ ------------ 88,065,863 126,330,500 Healthcare Services (5.22%) 1,050,000 Charles River Laboratories Intl., Inc./(1)/ 30,142,796 48,573,000 7,000,000 Emdeon Corp./(1)/ 99,144,718 105,910,000 800,000 Gen-Probe, Inc./(1)/ 33,725,299 37,664,000 1,150,000 Healthways, Inc./(1)/ 51,980,323 53,762,500 160,000 IDEXX Laboratories, Inc./(1)/ 9,006,923 14,020,800 1,360,832 NightHawk Radiology Holdings, Inc./(1)/ 25,353,535 24,753,534 1,525,000 Odyssey HealthCare, Inc./(1)/ 17,605,293 20,023,250 1,000,000 PRA International/(1)/ 23,112,127 21,560,000 400,700 VCA Antech, Inc./(1)/ 11,830,115 14,549,417 ------------ ------------ 301,901,129 340,816,501
See Notes to Financial Statements. 15 Baron Growth Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (continued) -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value --------- ------------------------------------------ ------------ ------------ Common Stocks (continued) ------------------------------------------------------------------------------ Healthcare Services -- Insurance (3.32%) 2,350,000 AMERIGROUP Corp./(1)/ $ 38,614,120 $ 71,440,000 1,650,000 Centene Corp./(1)/ 13,947,723 34,633,500 1,300,000 WellCare Health Plans, Inc./(1)/ 54,613,234 110,825,000 ------------ ------------ 107,175,077 216,898,500 Hotels and Lodging (3.02%) 1,350,000 Choice Hotels Intl., Inc. 18,679,994 47,830,500 1,800,000 Four Seasons Hotels, Inc. 71,435,019 144,540,000 500,000 Kingdom Hotel Investments/(1)(4)/ 4,545,612 4,500,000 ------------ ------------ 94,660,625 196,870,500 Information Technology Services (0.57%) 1,000,000 CheckFree Corp./(1)/ 18,042,917 37,090,000 Media (1.17%) 600,000 Central European Media Enterprises, Ltd./(1)/ 29,408,871 53,100,000 1,000,000 Netflix, Inc./(1)/ 26,673,225 23,190,000 ------------ ------------ 56,082,096 76,290,000 Medical Equipment (0.51%) 275,000 Intuitive Surgical, Inc./(1)/ 4,029,661 33,431,750 Real Estate (3.41%) 4,950,000 CB Richard Ellis Group, Inc., Cl A/(1)/ 35,102,586 169,191,000 925,000 CoStar Group, Inc./(1)/ 39,770,736 41,329,000 800,000 HFF, Inc., Cl A/(1)/ 14,852,839 12,000,000 ------------ ------------ 89,726,161 222,520,000 Real Estate -- Home Building (1.45%) 1,000,000 Brookfield Homes Corp. 33,671,792 32,100,000 750,000 Hovnanian Enterprises, Inc., Cl A/(1)/ 18,292,979 18,870,000 625,000 M.D.C. Holdings, Inc. 31,144,412 30,043,750 650,000 Standard Pacific Corp. 16,609,100 13,565,500 ------------ ------------ 99,718,283 94,579,250 Real Estate -- REITs (1.99%) 1,000,000 Acadia Realty Trust 27,414,958 26,070,000 118,830 Alexander's, Inc./(1)/ 22,383,502 48,922,311 1,416,667 CBRE Realty Finance, Inc. 21,054,283 18,742,504 2,429,800 Spirit Finance Corp. 27,122,907 36,204,020 ------------ ------------ 97,975,650 129,938,835 Recreation and Resorts (9.51%) 1,850,000 Ameristar Casinos, Inc. 36,589,852 59,403,500 200,000 Boyd Gaming Corp. 5,345,491 9,528,000 1,500,000 Fontainebleau Resorts, LLC/(2)/ 15,000,000 15,000,000 1,250,000 Gaylord Entertainment Co./(1)/ 56,959,872 66,087,500 1,450,000 Isle of Capri Casinos, Inc./(1)/ 30,683,260 37,149,000 7,400,000 Kerzner Intl. Holdings, Ltd., Cl A/(1)(2)/ 74,000,000 74,000,000 575,000 Penn National Gaming, Inc./(1)/ 16,140,523 24,391,500 2,450,000 Pinnacle Entertainment, Inc./(1)/ 78,242,193 71,221,500 1,700,000 Station Casinos, Inc. 39,029,399 147,169,000 1,250,000 Vail Resorts, Inc./(1)/ 21,897,070 67,912,500 537,677 Wynn Resorts, Ltd./(1)(2)/ 7,863,993 48,453,838 ------------ ------------ 381,751,653 620,316,338
Shares Cost Value ----------- ------------------------------------------ -------------- -------------- Restaurants (3.28%) 900,000 California Pizza Kitchen, Inc./(1)/ $ 23,047,680 $ 29,601,000 91,193 Chipotle Mexican Grill, Inc., Cl A/(1)/ 3,795,605 5,663,085 700,000 Panera Bread Co., Cl A/(1)/ 25,727,519 41,342,000 700,000 Peet's Coffee & Tea, Inc./(1)(5)/ 15,273,681 19,334,000 500,000 P.F. Chang's China Bistro, Inc./(1)/ 22,165,448 20,940,000 3,650,000 The Cheesecake Factory, Inc./(1)/ 85,119,904 97,272,500 -------------- -------------- 175,129,837 214,152,585 Retail -- Specialty Stores (9.93%) 875,000 Blue Nile, Inc./(1)(5)/ 26,058,719 35,577,500 1,200,000 Cabela's, Inc., Cl A/(1)/ 26,601,533 29,772,000 3,300,000 CarMax, Inc./(1)/ 34,948,928 80,982,000 2,500,000 Dick's Sporting Goods, Inc./(1)/ 86,074,246 145,650,000 1,375,000 DSW, Inc., Cl A/(1)/ 33,833,387 58,038,750 900,000 Guitar Center, Inc./(1)/ 51,761,075 40,608,000 2,900,000 J. Crew Group, Inc./(1)/ 93,937,342 116,493,000 2,700,000 Select Comfort Corp./(1)(5)/ 38,016,795 48,060,000 625,000 Tractor Supply Co./(1)/ 24,758,679 32,187,500 3,000,000 United Auto Group, Inc. 60,443,870 60,900,000 -------------- -------------- 476,434,574 648,268,750 Software (0.55%) 1,350,000 Allscripts Healthcare Solutions, Inc./(1)/ 37,809,925 36,193,500 Transportation (2.02%) 225,000 AirCastle, Ltd. 7,547,620 7,960,500 400,000 American Railcar Industries, Inc. 9,881,660 11,924,000 175,000 Florida East Coast Industries, Inc. 9,217,829 10,970,750 1,863,750 Genesee & Wyoming, Inc., Cl A/(1)/ 28,652,530 49,594,388 550,000 Landstar System, Inc. 13,610,267 25,212,000 1,050,000 UTI Worldwide, Inc. 24,275,698 25,809,000 -------------- -------------- 93,185,604 131,470,638 Utility Services (2.09%) 2,000,000 ITC Holdings Corp. 57,396,900 86,580,000 1,627,498 Southern Union Co. 19,474,277 49,459,664 -------------- -------------- 76,871,177 136,039,664 -------------- -------------- Total Common Stocks 3,964,939,110 5,958,789,289 -------------- -------------- ------------------------------------------------------------------------------------ Convertible Preferred Stocks (0.21%) ------------------------------------------------------------------------------------ Pharmaceutical (0.17%) 750,000 Reliant Pharmaceuticals LLC Series D/(1)(2)/ 15,000,000 11,250,000 Transportation (0.04%) 234,375 EOS Airlines, Inc., Cl C/(1)(2)/ 2,500,000 2,500,000 -------------- -------------- Total Convertible Preferred Stocks 17,500,000 13,750,000 -------------- -------------- Principal Amount ------------------------------------------------------ -------------- -------------- ------------------------------------------------------------------------------------ Corporate Bonds (1.65%) ------------------------------------------------------------------------------------ Recreation and Resorts $26,000,000 Wynn Resorts, Ltd. 6.00% Sub. Conv. Deb. due 07/15/2015 18,777,955 107,458,000 -------------- --------------
See Notes to Financial Statements. 16 Baron Growth Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (continued) -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Principal Amount Cost Value ---------------------------------------------- -------------- -------------- Short Term Investments (6.51%) ------------------------------------------------------------------------------ Short Term Money Market Instruments (3.45%) $100,199,999 Chesham Finance Ltd. 5.32% due 04/02/2007 $ 100,199,999 $ 100,199,999 50,977,178 Intesa Funding LLC 5.37% due 04/02/2007 50,977,178 50,977,178 23,989,260 Swiss Re Financial Products Corp. 5.37% due 04/02/2007 23,989,260 23,989,260 49,977,417 Swiss Re Financial Products Corp. 5.42% due 04/02/2007 49,977,417 49,977,417 -------------- -------------- 225,143,854 225,143,854 U.S. Government Agencies (3.06%) 199,916,917 Federal Home Loan Bank 5.00% due 04/02/2007 199,916,917 199,916,917 -------------- -------------- Total Short Term Investments 425,060,771 425,060,771 -------------- -------------- Total Investments (99.69%) $4,426,277,836 6,505,058,060 ============== Cash and Other Assets Less Liabilities (0.31%) 20,396,927 -------------- Net Assets (Equivalent to $51.26 per share based on 127,307,918 shares outstanding) $6,525,454,987 ==============
---------------- % Represents percentage of net assets /(1)/Non-income producing securities /(2)/See Note 7 regarding restricted and fair valued securities. /(3)/Represents securities, or a portion thereof, in segregated custodian account. See Note 10. /(4)/Foreign domiciled corporation /(5)/See Note 9 regarding "Affiliated" Companies. See Notes to Financial Statements. 17 Baron Small Cap Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value -------------------------------------------------------------------------------- Common Stocks (97.46%) -------------------------------------------------------------------------------- Advertising Services (2.77%) 1,500,000 National CineMedia, Inc./(1)/ $ 36,466,285 $ 40,050,000 725,000 R.H. Donnelley Corp./(1)/ 26,979,391 51,395,250 -------------- -------------- 63,445,676 91,445,250 Apparel (2.46%) 1,250,000 Carter's, Inc./(1)/ 20,386,238 31,675,000 1,000,000 Fossil, Inc./(1)/ 20,249,122 26,470,000 2,000,000 Quiksilver, Inc./(1)/ 13,019,781 23,200,000 -------------- -------------- 53,655,141 81,345,000 Building Materials (1.89%) 1,400,000 Eagle Materials, Inc. 26,645,472 62,482,000 Business Services (2.70%) 725,000 ChoicePoint, Inc./(1)/ 6,949,762 27,136,750 1,000,000 First Advantage Corp., Cl A/(1)/ 19,177,999 23,970,000 1,462,500 Iron Mountain, Inc./(1)/ 10,010,523 38,215,125 -------------- -------------- 36,138,284 89,321,875 Communications (5.46%) 1,750,000 American Tower Corp., Cl A/(1)(3)/ 6,402,929 68,162,500 2,750,000 SBA Communications Corp., Cl A/(1)/ 27,026,677 81,262,500 1,500,000 Time Warner Telecom, Inc., Cl A/(1)/ 24,518,321 31,155,000 -------------- -------------- 57,947,927 180,580,000 Consulting (1.10%) 275,000 Corporate Executive Board Co. 4,596,431 20,889,000 787,312 Navigant Consulting, Inc./(1)/ 12,705,063 15,557,285 -------------- -------------- 17,301,494 36,446,285 Consumer Products (3.15%) 2,000,000 ACCO Brands Corp./(1)/ 48,493,311 48,180,000 1,625,000 DTS, Inc./(1)(5)/ 34,251,425 39,373,750 600,000 Marvel Entertainment, Inc./(1)/ 11,436,124 16,650,000 -------------- -------------- 94,180,860 104,203,750 Distribution (1.34%) 1,403,600 Beacon Roofing Supply, Inc./(1)/ 35,633,529 22,710,248 600,000 Pool Corp. 22,432,753 21,480,000 -------------- -------------- 58,066,282 44,190,248 Education (2.72%) 3,000,000 SkillSoft plc/(1)/ 21,536,422 25,080,000 444,000 Strayer Education, Inc. 37,452,156 55,500,000 400,000 Universal Technical Institute, Inc./(1)/ 9,741,875 9,232,000 -------------- -------------- 68,730,453 89,812,000 Energy Services (4.35%) 2,500,000 Covanta Holding Corp./(1)/ 38,709,339 55,450,000 857,500 PHI, Inc./(1)/ 24,669,136 23,203,950 1,429,146 SunPower Corp., Cl A/(1)(7)/ 43,322,934 65,026,143 -------------- -------------- 106,701,409 143,680,093 Environmental (1.28%) 410,000 Clean Harbors, Inc./(1)/ 21,987,843 18,540,200 1,000,000 Nalco Holding Co./(1)/ 17,014,844 23,900,000 -------------- -------------- 39,002,687 42,440,200 Financial Services -- Asset Management (0.33%) 250,000 GAMCO Investors, Inc., Cl A 4,356,166 10,832,500 Financial Services -- Insurance (0.89%) 200,000 Arch Capital Group, Ltd./(1)/ 5,515,966 13,642,000 850,000 SeaBright Insurance Holdings, Inc./(1)/ 13,779,508 15,640,000 -------------- -------------- 19,295,474 29,282,000
Shares Cost Value --------------------------------------------------------------------------------- Gaming Services (0.27%) 1,500,000 Cash Systems, Inc./(1)(5)/ $ 10,062,346 $ 8,880,000 Government Services (4.82%) 1,500,000 AeroVironment, Inc./(1)(5)/ 34,673,956 34,290,000 1,800,000 FLIR Systems, Inc./(1)/ 33,465,084 64,206,000 2,500,000 L-1 Identity Solutions, Inc./(1)/ 43,586,514 41,275,000 1,250,000 Stanley, Inc./(1)(5)/ 19,270,106 19,500,000 -------------- ------------- 130,995,660 159,271,000 Healthcare Facilities (3.77%) 1,400,000 Brookdale Senior Living, Inc. 34,154,493 62,524,000 2,017,836 United Surgical Partners Intl., Inc./(1)/ 27,025,370 62,169,527 -------------- ------------- 61,179,863 124,693,527 Healthcare Services (1.62%) 475,000 Gen-Probe, Inc./(1)/ 21,507,724 22,363,000 1,250,000 NightHawk Radiology Holdings, Inc./(1)/ 25,778,221 22,737,500 400,000 PRA International/(1)/ 8,776,118 8,624,000 -------------- ------------- 56,062,063 53,724,500 Healthcare Services -- Devices (0.34%) 499,999 Accuray, Inc./(1)/ 10,574,886 11,119,978 Hotels and Lodging (2.92%) 2,803,400 Kingdom Hotel Investments/(1)(4)/ 25,162,522 25,230,600 7,712,000 Mandarin Oriental International, Ltd./(4)/ 14,632,364 14,498,560 950,000 Orient-Express Hotels, Ltd. 37,075,828 56,829,000 -------------- ------------- 76,870,714 96,558,160 Leisure (1.16%) 1,650,000 MarineMax, Inc./(1)(5)/ 43,423,427 38,247,000 Machinery & Electronics (1.73%) 1,000,000 Flowserve Corp./(1)/ 31,808,128 57,190,000 Manufacturing (4.30%) 850,000 Actuant Corp., Cl A 29,848,706 43,188,500 932,900 HEICO Corp., Cl A 25,105,956 29,246,415 785,000 Koppers Holdings, Inc. 11,120,475 20,143,100 557,000 Measurement Specialties, Inc./(1)/ 13,077,384 12,565,920 1,016,000 TransDigm Group, Inc./(1)/ 23,439,245 36,962,080 -------------- ------------- 102,591,766 142,106,015 Media (1.07%) 1,800,000 CKX, Inc./(1)/ 21,481,595 19,980,000 2,400,000 Radio One, Inc., Cl D/(1)/ 27,663,129 15,504,000 -------------- ------------- 49,144,724 35,484,000 Medical Equipment (4.95%) 1,700,000 American Medical Systems Holdings, Inc./(1)/ 29,885,201 35,989,000 1,600,000 Immucor, Inc./(1)/ 6,462,595 47,088,000 425,000 Intuitive Surgical, Inc./(1)/ 6,162,500 51,667,250 950,000 Kensey Nash Corp./(1)(5)/ 27,605,710 28,975,000 -------------- ------------- 70,116,006 163,719,250 Minerals & Mining (2.74%) 575,000 Kaiser Aluminum Corp./(1)/ 36,144,630 44,850,000 1,039,900 Novelis, Inc. 22,188,082 45,869,989 -------------- ------------- 58,332,712 90,719,989 Printing and Publishing (0.75%) 1,000,000 Interactive Data Corp. 13,502,909 24,750,000
See Notes to Financial Statements. 18 Baron Small Cap Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS (continued) -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value ---------------------------------------------------------------------------------- Common Stocks (continued) ---------------------------------------------------------------------------------- Real Estate (3.33%) 2,500,000 CB Richard Ellis Group, Inc., Cl A/(1)/ $ 24,312,255 $ 85,450,000 1,650,000 HFF, Inc., Cl A/(1)/ 30,542,767 24,750,000 -------------- -------------- 54,855,022 110,200,000 Real Estate -- Home Building (1.21%) 1,250,000 Brookfield Homes Corp. 30,392,566 40,125,000 Real Estate -- REITs (3.39%) 2,250,000 KKR Financial Corp. 57,575,671 61,717,500 1,200,000 Spirit Finance Corp. 11,546,566 17,880,000 1,619,700 U-Store-It Trust 35,118,701 32,588,364 -------------- -------------- 104,240,938 112,185,864 Recreation and Resorts (8.91%) 527,000 Ameristar Casinos, Inc. 17,394,971 16,921,970 1,400,000 Gaylord Entertainment Co./(1)/ 43,928,824 74,018,000 2,884,000 Great Wolf Resorts, Inc./(1)(5)/ 53,906,108 38,155,320 3,500,000 Kerzner Intl. Holdings, Ltd., Cl A/(1)(2)/ 35,000,000 35,000,000 1,401,700 Penn National Gaming, Inc./(1)/ 40,093,264 59,460,114 750,000 Wynn Resorts, Ltd./(1)/ 5,817,058 71,145,000 -------------- -------------- 196,140,225 294,700,404 Restaurants (4.68%) 2,250,000 AFC Enterprises, Inc./(1)(5)/ 36,931,249 45,112,500 300,000 Panera Bread Co., Cl A/(1)/ 8,173,117 17,718,000 3,000,000 Texas Roadhouse, Inc., Cl A/(1)/ 38,035,045 42,750,000 1,850,000 The Cheesecake Factory, Inc./(1)/ 44,427,838 49,302,500 -------------- -------------- 127,567,249 154,883,000 Retail -- Consumer Staples (2.99%) 3,000,000 Iconix Brand Group, Inc./(1)(5)/ 49,681,177 61,200,000 1,500,000 NuCO2, Inc./(1)(5)/ 36,204,728 37,830,000 -------------- -------------- 85,885,905 99,030,000 Retail -- Specialty Stores (6.58%) 1,250,000 Build-A-Bear Workshop, Inc./(1)(5)/ 35,358,280 34,337,500 1,682,503 Casual Male Retail Group, Inc./(1)(5)/ 7,262,924 19,904,011 675,000 Design Within Reach, Inc./(1)/ 9,586,917 3,874,500 1,250,000 DSW, Inc., Cl A/(1)/ 29,475,468 52,762,500 525,000 Gaiam, Inc., Cl A/(1)/ 6,873,221 8,263,500 750,000 Guitar Center, Inc./(1)/ 36,791,851 33,840,000 700,000 J. Crew Group, Inc./(1)/ 23,290,356 28,119,000 1,800,000 United Auto Group, Inc. 34,504,900 36,540,000 -------------- -------------- 183,143,917 217,641,011 Transportation (4.84%) 1,500,000 AirCastle, Ltd. 44,286,116 53,070,000 400,000 American Commercial Lines, Inc./(1)/ 4,484,182 12,580,000 600,000 Florida East Coast Industries, Inc. 32,278,199 37,614,000 600,000 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V./(1)/ 12,630,181 16,266,000 500,000 Grupo Aeroportuario del Pacifico, S.A.B de C.V. 16,830,373 21,500,000 400,000 Grupo Aeroportuario del Sureste, S.A.B. de C.V. 11,806,186 18,888,000 -------------- -------------- 122,315,237 159,918,000 Miscellaneous (0.65%) 472,700 Boulder Specialty Brands, Inc./(1)(5)/ 3,924,657 4,311,024 525,000 Boulder Specialty Brands, Inc., Units/(1)(5)(8)/ 5,795,750 6,436,500 1,000,000 Freedom Acquisition Holdings, Inc., Units/(1)(8)/ 10,000,000 10,840,000 -------------- -------------- 19,720,407 21,587,524 -------------- -------------- Total Common Stocks 2,284,393,995 3,222,795,423 -------------- --------------
Shares Cost Value ------------------------------------------------------------------------------- Warrants (0.39%) ------------------------------------------------------------------------------- Apparel (0.27%) 1,981,100 Endeavor Acquisition Corp. Warrants Exp 12/14/2009/(1)/ $ 5,013,594 $ 8,815,895 Retail -- Specialty Stores (0.11%) 882,353 Casual Male Retail Group, Inc. Warrants Exp 04/26/2007/(1)(2)(5)/ 220,588 2,938,235 100,000 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010/(1)(2)(5)/ 49,000 707,000 -------------- -------------- 269,588 3,645,235 Miscellaneous (0.01%) 129,000 Boulder Specialty Brands, Inc. Warrants Exp 12/16/2009/(1)(5)/ 323,748 405,060 -------------- -------------- Total Warrants 5,606,930 12,866,190 -------------- -------------- Principal Amount ------------------------------------------------------------------------------- Short Term Investments (2.51%) ------------------------------------------------------------------------------- Short Term Money Market Instruments (1.45%) $13,389,999 Chesham Finance Ltd. 5.32% due 04/02/2007 13,389,999 13,389,999 11,809,782 Citigroup Funding, Inc. 5.30% due 04/02/2007/(6)/ 11,809,782 11,809,782 7,996,420 Intesa Funding LLC 5.37% due 04/02/2007 7,996,420 7,996,420 999,552 Swiss Re Financial Products Corp. 5.37% due 04/02/2007 999,552 999,552 13,993,677 Swiss Re Financial Products Corp. 5.42% due 04/02/2007 13,993,677 13,993,677 -------------- -------------- 48,189,430 48,189,430 U.S. Government Agencies (1.06%) 34,985,467 Federal Home Loan Bank 5.00% due 04/02/2007 34,985,467 34,985,467 -------------- -------------- Total Short Term Investments 83,174,897 83,174,897 -------------- -------------- Total Investments (100.36%) $2,373,175,822 3,318,836,510 ============== Liabilities Less Cash and Other Assets (-0.36%) (12,032,589) -------------- Net Assets (Equivalent to $23.71 per share based on 139,451,132 shares outstanding) $3,306,803,921 ==============
---------- % Represents percentage of net assets /(1)/Non-income producing securities /(2)/See Note 7 regarding restricted and fair valued securities. /(3)/Represents securities, or a portion thereof, in segregated custodian account. See Note 10. /(4)/Foreign domiciled corporation /(5)/See Note 9 regarding "Affiliated" Companies. /(6)/Investment from cash collateral received for loaned security. /(7)/Represents securities, or a portion thereof, on loan as of March 31, 2007. /(8)/One unit consists of one common share and one warrant. See Notes to Financial Statements. 19 Baron iOpportunity Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value ------- ------------------------------------------- ------------ ------------ Common Stocks (91.10%) ----------------------------------------------------------------------------- Advertising Services (8.40%) 110,000 aQuantive, Inc./(1)/ $ 2,367,060 $ 3,070,100 60,000 Getty Images, Inc./(1)/ 1,114,684 2,917,800 12,000 Google, Inc., Cl A/(1)/ 1,572,728 5,497,920 110,000 National CineMedia, Inc./(1)/ 2,728,302 2,937,000 ------------ ------------ 7,782,774 14,422,820 Business Services (7.69%) 50,000 ChoicePoint, Inc./(1)/ 1,469,626 1,871,500 385,000 LivePerson, Inc./(1)/ 2,166,148 3,033,800 105,000 Monster Worldwide, Inc./(1)/ 1,586,596 4,973,850 100,000 Navisite, Inc./(1)/ 450,000 601,000 150,000 Switch & Data Facilities Company, Inc./(1)/ 2,550,000 2,718,000 ------------ ------------ 8,222,370 13,198,150 Communications (16.59%) 95,000 American Tower Corp., Cl A/(1)/ 258,400 3,700,250 80,000 Clearwire Corp., Cl A/(1)/ 1,899,009 1,637,600 160,000 Cogent Communications Group, Inc./(1)/ 1,406,600 3,780,800 74,500 Equinix, Inc./(1)/ 2,229,823 6,379,435 60,000 NeuStar, Inc., Cl A/(1)/ 1,859,719 1,706,400 115,000 SBA Communications Corp., Cl A/(1)/ 1,290,179 3,398,250 93,000 Sprint Nextel Corp. 2,060,604 1,763,280 350,000 Terremark Worldwide, Inc./(1)/ 1,737,464 2,821,000 159,000 Time Warner Telecom, Inc., Cl A/(1)/ 2,681,647 3,302,430 ------------ ------------ 15,423,445 28,489,445 Communications Equipment (4.86%) 79,000 QUALCOMM, Inc. 2,983,091 3,370,140 36,500 Research in Motion, Ltd./(1)/ 3,028,305 4,981,885 ------------ ------------ 6,011,396 8,352,025 Computer Technology (3.81%) 70,500 Apple, Inc./(1) /(formerly Apple Computer, Inc.) 3,875,373 6,550,155 Consumer Products (1.07%) 115,000 Shutterfly, Inc./(1)/ 1,736,680 1,844,600 Consumer Services (4.53%) 86,000 eBay, Inc./(1)/ 1,150,197 2,850,900 65,000 priceline.com, Inc./(1)/ 1,345,503 3,461,900 40,000 Travelzoo, Inc./(1)/ 737,778 1,470,800 ------------ ------------ 3,233,478 7,783,600 Energy Services (0.82%) 83,000 Medis Technologies, Ltd./(1)/ 1,866,494 1,403,530 Enterprise Hardware (0.56%) 50,000 Intel Corp. 874,979 956,500 Financial Services -- Brokerage & Exchanges (12.88%) 335,000 Charles Schwab Corp. 3,665,646 6,127,150 10,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 1,829,806 5,324,600 230,000 E*TRADE Financial Corp./(1)/ 1,557,926 4,880,600 9,900 NYMEX Holdings, Inc./(1)/ 999,240 1,344,024 102,000 optionsXpress Holdings, Inc. 2,092,857 2,401,080 162,500 TradeStation Group, Inc./(1)/ 1,744,754 2,045,875 ------------ ------------ 11,890,229 22,123,329 Financial Services -- Insurance (1.42%) 108,000 Admiral Group plc/(3)/ 1,189,310 2,441,696 Gaming Services (1.29%) 67,500 Scientific Games Corp., Cl A/(1)/ 2,322,414 2,216,025 Healthcare Services (0.53%) 60,000 Emdeon Corp./(1)/ 832,918 907,800 Information Technology Services (1.60%) 75,000 VeriFone Holdings, Inc./(1)/ 1,624,149 2,754,750
Shares Cost Value ---------- ------------------------------------------ ------------ ------------ Leisure (3.89%) 120,000 Activision, Inc./(1)/ $ 1,653,134 $ 2,272,800 87,500 Electronic Arts, Inc./(1)/ 4,662,803 4,406,500 ------------ ------------ 6,315,937 6,679,300 Media (12.00%) 30,000 Central European Media Enterprises, Ltd./(1)/ 2,110,846 2,655,000 185,700 Comcast Corp., Cl A/(1)/ 3,030,649 4,729,779 82,000 Netflix, Inc./(1)/ 2,438,297 1,901,580 185,000 News Corp., Cl A 3,269,588 4,277,200 60,000 The Knot, Inc./(1)/ 1,348,860 1,291,800 101,500 Time Warner, Inc. 1,480,641 2,001,580 120,000 Yahoo! Inc./(1)/ 2,120,135 3,754,800 ------------ ------------ 15,799,016 20,611,739 Printing and Publishing (1.00%) 45,000 VistaPrint Limited/(1)/ 1,070,373 1,723,500 Real Estate (4.16%) 62,500 CoStar Group, Inc./(1)/ 2,304,320 2,792,500 785,000 Move, Inc./(1)/ 2,314,380 4,348,900 ------------ ------------ 4,618,700 7,141,400 Retail -- Specialty Stores (0.99%) 35,000 Best Buy Co., Inc. 1,521,319 1,705,200 Software (3.01%) 40,000 Allscripts Healthcare Solutions, Inc./(1)/ 1,094,825 1,072,400 35,000 DivX, Inc./(1)/ 560,000 701,400 160,000 Nuance Communications, Inc./(1)/ 1,958,476 2,449,600 85,000 Salary.com, Inc./(1)/ 892,500 946,050 ------------ ------------ 4,505,801 5,169,450 ------------ ------------ Total Common Stocks 100,717,155 156,475,014 ------------ ------------ ------------------------------------------------------------------------------- Warrants (0.00%) ------------------------------------------------------------------------------- Media 200,000 Loudeye Corp. Warrants Exp 12/23/2010/(1)(2)/ 0 0 ------------ ------------ Principal Amount ----------------------------------------------------- ------------ ------------ Short Term Investments (8.79%) ------------------------------------------------------------------------------- Short Term Money Market Instruments (4.72%) $3,099,999 Chesham Finance Ltd. 5.32% due 04/02/2007 $ 3,099,999 $ 3,099,999 4,997,763 Swiss Re Financial Products Corp. 5.37% due 04/02/2007 4,997,763 4,997,763 ------------ ------------ 8,097,762 8,097,762 U.S. Government Agencies (4.07%) 6,997,088 Federal Home Loan Bank 5.00% due 04/02/2007 6,997,088 6,997,088 ------------ ------------ Total Short Term Investments 15,094,850 15,094,850 ------------ ------------ Total Investments (99.89%) $115,812,005 171,569,864 ============ Cash and Other Assets Less Liabilities (0.11%) 191,553 ------------ Net Assets (Equivalent to $11.49 per share based on 14,944,784 shares outstanding) $171,761,417 ============
---------------- % Represents percentage of net assets /(1)/Non-income producing securities /(2)/See Note 7 regarding restricted and fair valued securities. /(3)/Foreign domiciled corporation See Notes to Financial Statements. 20 Baron Fifth Avenue Growth Fund -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS -------------------------------------------------------------------------------- March 31, 2007 (unaudited)
Shares Cost Value ------- ------------------------------------------- ----------- ------------ Common Stocks (95.58%) ---------------------------------------------------------------------------- Advertising Services (1.08%) 3,000 Google, Inc., Cl A/(1)/ $ 301,280 $ 1,374,480 Business Services (3.11%) 55,000 Automatic Data Processing, Inc. 2,444,533 2,662,000 50,000 Iron Mountain, Inc./(1)/ 1,023,614 1,306,500 ----------- ------------ 3,468,147 3,968,500 Communications (2.45%) 80,000 American Tower Corp., Cl A/(1)/ 1,824,691 3,116,000 Computer Technology (5.43%) 25,000 Apple, Inc./(1) /(formerly Apple Computer, Inc.) 1,153,752 2,322,750 165,000 Microsoft Corp. 3,790,087 4,598,550 ----------- ------------ 4,943,839 6,921,300 Consumer Products (12.62%) 35,000 Cadbury Schweppes plc 1,318,807 1,797,950 54,000 Diageo plc 3,632,159 4,371,300 22,000 Groupe Danone 695,693 785,840 60,000 PepsiCo, Inc. 3,621,494 3,813,600 84,000 The Procter & Gamble Co. 4,688,080 5,305,440 ----------- ------------ 13,956,233 16,074,130 Distribution (0.96%) 35,000 Fastenal Co. 1,309,378 1,226,750 Energy Services (5.11%) 40,000 Diamond Offshore Drilling, Inc. 3,187,667 3,238,000 40,000 Transocean, Inc./(1)/ 3,101,459 3,268,000 ----------- ------------ 6,289,126 6,506,000 Financial Services -- Asset Management (4.44%) 48,000 AllianceBernstein Holding L.P. 2,879,396 4,248,000 15,000 Legg Mason, Inc. 1,595,980 1,413,150 ----------- ------------ 4,475,376 5,661,150 Financial Services -- Banking (3.57%) 100,000 Wells Fargo & Company 3,539,796 3,443,000 13,000 Zions Bancorporation 903,402 1,098,760 ----------- ------------ 4,443,198 4,541,760 Financial Services -- Brokerage & Exchanges (8.21%) 150,000 Charles Schwab Corp. 1,728,189 2,743,500 6,000 Chicago Mercantile Exchange Holdings, Inc., Cl A 1,499,604 3,194,760 15,000 The Bear Stearns Companies, Inc. 1,952,888 2,255,250 11,000 The Goldman Sachs Group, Inc. 1,605,442 2,272,930 ----------- ------------ 6,786,123 10,466,440 Financial Services -- Insurance (1.74%) 10 Berkshire Hathaway, Inc., Cl A/(1)/ 901,366 1,089,900 34,000 W. R. Berkley Corp. 829,142 1,126,080 ----------- ------------ 1,730,508 2,215,980 Financial Services -- Miscellaneous (3.41%) 77,000 American Express Co. 3,997,245 4,342,800 Healthcare Services (0.55%) 14,000 Quest Diagnostics, Inc. 704,629 698,180 Healthcare Services -- Insurance (5.59%) 67,000 UnitedHealth Group, Inc. 2,827,486 3,548,990 44,000 WellPoint, Inc./(1)/ 2,748,974 3,568,400 ----------- ------------ 5,576,460 7,117,390
Shares Cost Value ---------- ---------------------------------- ------------ ------------ Hotels and Lodging (1.27%) 25,000 Starwood Hotels & Resorts Worldwide, Inc. $ 1,429,664 $ 1,621,250 Media (10.70%) 150,000 Comcast Corp., Cl A/(1)/ 3,514,346 3,820,500 21,000 Lamar Advertising Co., Cl A/(1)/ 1,173,781 1,322,370 80,000 News Corp., Cl A 1,231,907 1,849,600 140,000 Time Warner, Inc. 2,690,627 2,760,800 80,000 Walt Disney Co. 1,966,149 2,754,400 36,000 Yahoo! Inc./(1)/ 936,690 1,126,440 ------------ ------------ 11,513,500 13,634,110 Pharmaceutical (2.03%) 43,000 Johnson & Johnson 2,591,912 2,591,180 Real Estate -- REITs (1.46%) 4,000 SL Green Realty Corp. 559,352 548,720 11,000 Vornado Realty Trust 571,310 1,312,740 ------------ ------------ 1,130,662 1,861,460 Recreation and Resorts (6.58%) 42,000 Las Vegas Sands Corp./(1)/ 1,367,024 3,637,620 60,000 Marriott International, Inc., Cl A 1,885,663 2,937,600 19,000 Wynn Resorts, Ltd./(1)/ 1,247,457 1,802,340 ------------ ------------ 4,500,144 8,377,560 Restaurants (0.39%) 16,000 Starbucks Corp./(1)/ 314,833 501,760 Retail -- Consumer Staples (8.48%) 20,000 CVS/Caremark Corp. (formerly CVS Corp.) 464,962 682,800 100,000 Federated Department Stores, Inc. 3,820,049 4,505,000 57,000 Target Corp. 2,695,748 3,377,820 50,000 Whole Foods Market, Inc. 2,721,432 2,242,500 ------------ ------------ 9,702,191 10,808,120 Retail -- Specialty Stores (6.40%) 40,000 Bed Bath & Beyond, Inc./(1)/ 1,416,173 1,606,800 55,000 Coach, Inc./(1)/ 1,232,076 2,752,750 60,000 The Home Depot, Inc. 2,300,158 2,204,400 35,000 Tiffany & Co. 1,108,919 1,591,800 ------------ ------------ 6,057,326 8,155,750 ------------ ------------ Total Common Stocks 97,046,465 121,782,050 ------------ ------------ Principal Amount --------------------------------------------- ------------ ------------ Short Term Investments (4.08%) ----------------------------------------------------------------------- Short Term Money Market Instruments (2.12%) $2,700,000 Chesham Finance Ltd. 5.32% due 04/02/2007 2,700,000 2,700,000 U.S. Government Agencies (1.96%) 2,498,958 Federal Home Loan Bank 5.00% due 04/02/2007 2,498,958 2,498,958 ------------ ------------ Total Short Term Investments 5,198,958 5,198,958 ------------ ------------ Total Investments (99.66%) $102,245,423 126,981,008 ============ Cash and Other Assets Less Liabilities (0.34%) 433,643 ------------ Net Assets (Equivalent to $13.24 per share based on 9,625,170 shares outstanding) $127,414,651 ============
---------------- % Represents percentage of net assets /(1)/Non-income producing securities See Notes to Financial Statements. 21 Baron Funds -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- MARCH 31, 2007 (Unaudited)
Baron Asset Baron Growth Baron Small Cap Baron iOpportunity Fund Fund Fund Fund -------------- -------------- --------------- ------------------ Assets: Investments, at value (including collateral on loaned securities) Unaffiliated investments (Cost $2,253,181,722, $4,082,128,077, $1,974,230,643, $115,812,005, and $102,245,423, respectively) $3,698,548,755 $6,016,344,060 $2,898,233,610 $171,569,864 "Affiliated" investments (Cost $83,527,755, $344,149,759, $398,945,179, $0 and $0, respectively) 292,663,803 488,714,000 420,602,900 -- Cash 1,874,045 211,765 34,642 93,590 Dividends and interest receivable 2,214,719 2,029,131 2,243,149 15,453 Receivable for securities sold -- 26,277,101 4,776,194 -- Receivable for shares sold 8,753,576 13,191,722 4,341,267 245,827 Prepaid expenses 47,533 77,869 40,368 2,013 -------------- -------------- -------------- ------------ 4,004,102,431 6,546,845,648 3,330,272,130 171,926,747 -------------- -------------- -------------- ------------ Liabilities: Payable for collateral on loaned securities 279,876 -- 11,809,782 -- Payable for securities purchased 8,635,787 17,853,894 8,922,408 -- Payable for shares redeemed 3,786,981 2,984,746 2,327,785 88,383 Accrued expenses and other payables 373,471 552,021 408,234 76,947 -------------- -------------- -------------- ------------ 13,076,115 21,390,661 23,468,209 165,330 -------------- -------------- -------------- ------------ Net Assets $3,991,026,316 $6,525,454,987 $3,306,803,921 $171,761,417 ============== ============== ============== ============ Net Assets consist of: Capital paid-in $2,273,748,915 $4,385,564,898 $2,288,040,269 $175,557,802 Accumulated net investment income (loss) (3,160,496) (16,191,859) (9,015,581) (610,938) Accumulated net realized gain (loss) 65,934,816 77,301,724 82,118,545 (58,943,306) Net unrealized appreciation on investments 1,654,503,081 2,078,780,224 945,660,688 55,757,859 -------------- -------------- -------------- ------------ Net Assets $3,991,026,316 $6,525,454,987 $3,306,803,921 $171,761,417 ============== ============== ============== ============ Shares Outstanding ($.01 par value; indefinite shares authorized) 64,861,261 127,307,918 139,451,132 14,944,784 ============== ============== ============== ============ Net Asset Value Per Share $ 61.53 $ 51.26 $ 23.71 $ 11.49 ============== ============== ============== ============
Baron Fifth Avenue Growth Fund ------------------ Assets: Investments, at value (including collateral on loaned securities) Unaffiliated investments (Cost $2,253,181,722, $4,082,128,077, $1,974,230,643, $115,812,005, and $102,245,423, respectively) $126,981,008 "Affiliated" investments (Cost $83,527,755, $344,149,759, $398,945,179, $0 and $0, respectively) -- Cash 98,987 Dividends and interest receivable 101,558 Receivable for securities sold 268,206 Receivable for shares sold 66,455 Prepaid expenses 1,620 ------------ 127,517,834 ------------ Liabilities: Payable for collateral on loaned securities -- Payable for securities purchased -- Payable for shares redeemed 29,370 Accrued expenses and other payables 73,813 ------------ 103,183 ------------ Net Assets $127,414,651 ============ Net Assets consist of: Capital paid-in $100,905,509 Accumulated net investment income (loss) 126,213 Accumulated net realized gain (loss) 1,647,344 Net unrealized appreciation on investments 24,735,585 ------------ Net Assets $127,414,651 ============ Shares Outstanding ($.01 par value; indefinite shares authorized) 9,625,170 ============ Net Asset Value Per Share $ 13.24 ============
See Notes to Financial Statements. 22 Baron Funds -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- For the six months ended March 31, 2007 (Unaudited)
Baron Baron Fifth Baron Asset Baron Growth Baron Small Cap iOpportunity Avenue Growth Fund Fund Fund Fund Fund ------------ ------------ --------------- ------------ ------------- Investment income: Income: Interest $ 5,681,727 $ 8,983,417 $ 2,110,995 $ 338,005 $ 85,620 Dividends -- unaffiliated investments (net of withholding taxes of $24,462, $12,623, $2,250, $0 and $0, respectively) 16,002,544 13,201,264 9,286,877 129,382 903,270 Dividends -- "affiliated" investments -- 347,000 -- -- -- Securities lending income 40,731 -- 198,198 54,997 -- ------------ ------------ ------------ ----------- ---------- Total income 21,725,002 22,531,681 11,596,070 522,384 988,890 ------------ ------------ ------------ ----------- ---------- Expenses: Investment advisory fees 18,453,242 29,837,272 15,699,494 798,105 634,405 Distribution fees 4,613,310 7,459,318 3,924,874 199,526 158,601 Shareholder servicing agent fees and expenses 344,116 391,466 241,596 50,810 19,622 Reports to shareholders 470,800 1,071,300 537,600 41,100 17,890 Proxy expenses 773,850 -- -- -- -- Professional fees 54,770 72,875 51,360 18,441 14,122 Registration and filing fees 57,805 95,320 46,345 17,115 11,911 Custodian fees 49,460 73,880 44,580 6,937 3,231 Trustee fees and expenses 43,985 65,730 36,052 1,860 1,472 Miscellaneous 44,461 74,484 41,616 2,628 2,265 ------------ ------------ ------------ ----------- ---------- Total operating expenses 24,905,799 39,141,645 20,623,517 1,136,522 863,519 ------------ ------------ ------------ ----------- ---------- Expense offsets (20,301) (28,806) (11,866) (3,200) (842) ------------ ------------ ------------ ----------- ---------- Net expenses 24,885,498 39,112,839 20,611,651 1,133,322 862,677 ------------ ------------ ------------ ----------- ---------- Net investment income (loss) (3,160,496) (16,581,158) (9,015,581) (610,938) 126,213 ------------ ------------ ------------ ----------- ---------- Realized and unrealized gains (losses) on investments: Net realized gain on investments sold -- unaffiliated investments 66,122,494 74,392,803 105,015,295 1,793,472 3,091,278 Net realized gain (loss) on investments sold -- "affiliated" investments -- 35,582,414 (578,382) -- -- Net change in unrealized appreciation/depreciation of investments 291,932,712 654,339,559 309,199,716 19,320,297 6,728,701 ------------ ------------ ------------ ----------- ---------- Net realized and unrealized gain on investments 358,055,206 764,314,776 413,636,629 21,113,769 9,819,979 ------------ ------------ ------------ ----------- ---------- Net increase in net assets resulting from operations $354,894,710 $747,733,618 $404,621,048 $20,502,831 $9,946,192 ============ ============ ============ =========== ==========
See Notes to Financial Statements. 23 Baron Funds -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
Baron Asset Fund Baron Growth Fund ------------------------------ ------------------------------- For the For the Six Months For the Six Months For the Ended Year Ended Ended Year Ended March 31, September 30, March 31, September 30, 2007 2006 2007 2006 -------------- -------------- -------------- --------------- Increase (Decrease) in Net Assets: Operations: Net investment income (loss) $ (3,160,496) $ (15,197,766) $ (16,581,158) $ (32,610,987) Net realized gain 66,122,494 274,508,929 109,975,217 286,829,531 Net change in unrealized appreciation/depreciation 291,932,712 63,584,112 654,339,559 101,599,114 -------------- -------------- -------------- --------------- Increase in net assets resulting from operations 354,894,710 322,895,275 747,733,618 355,817,658 -------------- -------------- -------------- --------------- Distributions to shareholders from: Net realized gain on investments (266,497,466) (136,438,779) (285,910,925) (222,904,672) -------------- -------------- -------------- --------------- Capital share transactions: Proceeds from the sale of shares 670,075,719 823,269,479 980,249,512 963,307,597 Net asset value of shares issued in reinvestment of dividends 256,514,493 134,216,963 277,672,917 215,723,575 Cost of shares redeemed (389,553,041) (465,792,862) (510,125,964) (1,001,257,192) -------------- -------------- -------------- --------------- Increase (decrease) in net assets derived from capital share transactions 537,037,171 491,693,580 747,796,465 177,773,980 Redemption fees -- -- -- -- -------------- -------------- -------------- --------------- Net increase (decrease) in net assets 625,434,415 678,150,076 1,209,619,158 310,686,966 -------------- -------------- -------------- --------------- Net Assets: Beginning of period 3,365,591,901 2,687,441,825 5,315,835,829 5,005,148,863 -------------- -------------- -------------- --------------- End of period $3,991,026,316 $3,365,591,901 $6,525,454,987 $ 5,315,835,829 ============== ============== ============== =============== Accumulated net investment income (loss) at end of period $ (3,160,496) $ -- $ (16,191,859) $ 389,299 ============== ============== ============== =============== Shares: Shares sold 10,934,691 14,107,703 19,326,066 20,204,279 Shares issued in reinvestment of dividends 4,330,089 2,355,924 5,606,156 4,696,794 Shares redeemed (6,422,933) (7,993,965) (10,185,109) (21,247,341) -------------- -------------- -------------- --------------- Net increase (decrease) 8,841,847 8,469,662 14,747,113 3,653,732 ============== ============== ============== ===============
Baron Fifth Avenue Baron Small Cap Fund Baron iOpportunity Fund Growth Fund ------------------------------ -------------------------- -------------------------- For the For the For the Six Months For the Six Months For the Six Months For the Ended Year Ended Ended Year Ended Ended Year Ended March 31, September 30, March 31, September 30, March 31, September 30, 2007 2006 2007 2006 2007 2006 -------------- -------------- ------------ ------------- ------------ ------------- Increase (Decrease) in Net Assets: Operations: Net investment income (loss) $ (9,015,581) $ (22,100,873) $ (610,938) $ (399,745) $ 126,213 $ (206,651) Net realized gain 104,436,913 366,155,287 1,793,472 22,647,489 3,091,278 118,363 Net change in unrealized appreciation/depreciation 309,199,716 (202,585,115) 19,320,297 (8,631,960) 6,728,701 5,955,961 -------------- -------------- ------------ ------------ ------------ ------------ Increase in net assets resulting from operations 404,621,048 141,469,299 20,502,831 13,615,784 9,946,192 5,867,673 -------------- -------------- ------------ ------------ ------------ ------------ Distributions to shareholders from: Net realized gain on investments (372,128,469) (89,572,056) -- -- -- -- -------------- -------------- ------------ ------------ ------------ ------------ Capital share transactions: Proceeds from the sale of shares 389,984,617 693,848,554 23,158,127 31,391,046 15,993,828 87,338,016 Net asset value of shares issued in reinvestment of dividends 353,557,999 85,550,454 -- -- -- -- Cost of shares redeemed (390,883,297) (738,216,838) (17,287,096) (45,344,656) (21,784,117) (66,484,035) -------------- -------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets derived from capital share transactions 352,659,319 41,182,170 5,871,031 (13,953,610) (5,790,289) 20,853,981 Redemption fees -- -- 17,646 29,348 -- -- -------------- -------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets 385,151,898 93,079,413 26,391,508 (308,478) 4,155,903 26,721,654 -------------- -------------- ------------ ------------ ------------ ------------ Net Assets: Beginning of period 2,921,652,023 2,828,572,610 145,369,909 145,678,387 123,258,748 96,537,094 -------------- -------------- ------------ ------------ ------------ ------------ End of period $3,306,803,921 $2,921,652,023 $171,761,417 $145,369,909 $127,414,651 $123,258,748 ============== ============== ============ ============ ============ ============ Accumulated net investment income (loss) at end of period $ (9,015,581) $ -- $ (610,938) $ -- $ 126,213 $ -- ============== ============== ============ ============ ============ ============ Shares: Shares sold 16,573,044 29,041,647 2,049,171 3,183,604 1,221,210 7,236,439 Shares issued in reinvestment of dividends 15,602,736 3,768,729 -- -- -- -- Shares redeemed (16,563,106) (31,507,553) (1,569,044) (4,615,816) (1,679,817) (5,500,144) -------------- -------------- ------------ ------------ ------------ ------------ Net increase (decrease) 15,612,674 1,302,823 480,127 (1,432,212) (458,607) 1,736,295 ============== ============== ============ ============ ============ ============
See Notes to Financial Statements. 24 Baron Funds -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- (1) Organization. Baron Investment Funds Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company established as a Massachusetts business trust on February 19, 1987. The Trust currently offers five series (individually a "Fund" and collectively the "Funds"): Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund, Baron iOpportunity Fund, and Baron Fifth Avenue Growth Fund. Prior to October 22, 2004, the name of the Trust was Baron Asset Fund. The investment objectives of the Funds are as follows: Baron Asset Fund seeks capital appreciation through long-term investments primarily in securities of medium sized growth companies with undervalued assets or favorable growth prospects. Prior to February 15, 2007, the Fund's objective was to invest in small and medium sized companies. Baron Growth Fund seeks capital appreciation through long-term investments primarily in the securities of small growth companies. Baron Small Cap Fund seeks capital appreciation through investments primarily in securities of small companies. Baron iOpportunity Fund seeks capital appreciation through investments in growth businesses that benefit from technology advances. Baron Fifth Avenue Growth Fund seeks capital appreciation through investments primarily in the securities of larger growth companies. (2) Significant Accounting Policies. The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America. (a) Security Valuation. Portfolio securities traded on any national stock exchange are valued based on the last sale price. For securities traded on NASDAQ, the Funds use the NASDAQ Official Closing Price. Securities traded in foreign markets are valued using prices reported by local foreign markets and translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time the net asset value is determined. Where market quotations are not readily available, or in the Adviser's judgment, they do not accurately reflect fair value of a security, or an event occurs after the market close but before the Funds are priced that materially affects the value of a security, the securities will be valued by the Adviser using procedures established by the Board of Trustees. The Adviser has a fair valuation committee comprised of senior executives and members of the Board. Factors the committee uses include whether a current price is stale, there is recent news, the security is thinly traded, transactions are infrequent, or quotations are genuine. There can be no assurance, however, that a fair valuation used by the Funds on any given day will more accurately reflect the market value of an investment than the closing price of such investment in its market. Debt instruments having a remaining maturity greater than sixty days will be valued at the highest bid price from the dealer maintaining an active market in that security or on the basis of prices obtained from a pricing service approved by the Board of Trustees. Money market instruments held by the Funds with a remaining maturity of sixty days or less are valued at amortized cost, which approximates value. (b) Foreign Currency Translations. Values of investments denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time net asset value is determined. Purchases and sales of investments and dividend income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. (c) Securities Transactions, Investment Income, Expense Allocation and Expense Offsets. Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on an identified cost basis for financial reporting and federal income tax purposes. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis which includes the accretion of discounts and amortization of premiums. The Funds are charged for those expenses that are directly attributable to each Fund, such as advisory and custodian fees. Expenses that are not directly attributable to a Fund are typically allocated among the Funds in proportion to their respective net assets. The Funds' expenses were reduced by expense offsets from an unaffiliated transfer agent. The Funds earned cash management credits which were used to reduce Shareholder servicing agent fees and expenses. These offsets are included in Expense offsets on the Statements of Operations. (d) Securities Lending. The Funds may loan securities to certain brokers. Upon such loans, the Funds receive collateral which is maintained by the custodian. The Funds earn interest on such collateral and earn income in the form of negotiated lenders' fees, both of which are included in Securities lending income in the Statements of Operations. Securities loaned are required to be secured at all times by collateral at least equal to the market value of the securities loaned. Risks may arise upon entering into securities lending to the extent that the value of the collateral is less than the value of the securities loaned due to the changes in the value of collateral or the loaned securities. The Funds may receive collateral in the form of cash or other eligible securities, such as a letter of credit issued by a U.S. bank, or securities issued or guaranteed by the U.S. government having a value at all times not less than 102% of the value of securities loaned. 25 Baron Funds -------------------------------------------------------------------------------- (2) Significant Accounting Policies. (continued) At March 31, 2007, Baron Asset Fund and Baron Small Cap Fund had securities on loan with a value of $263,900 and $11,156,600, respectively and held $279,876 and $11,809,782 of short-term investments as collateral for these loans. For the six months ended March 31, 2007, Baron Asset Fund, Baron Small Cap Fund, and Baron iOpportunity Fund had securities lending income of $40,731, $198,198, and $54,997, respectively which is included in the Statements of Operations. (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 capital paid in. (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. (k) New Accounting Pronouncements. In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of tax positions taken or expected to be taken on a tax return. FIN 48 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. Management is currently evaluating the impact, if any, of applying the various provisions of FIN 48. In September 2006, FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"). SFAS 157, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. SFAS 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact, if any, of applying the various provisions of SFAS 157. (3) Purchases and Sales of Securities. Purchases and sales of securities, other than short term securities, for the six months ended March 31, 2007 were as follows:
Fund Purchases Sales ---- --------- ----- Baron Asset Fund $544,066,275 $204,476,122 Baron Growth Fund 684,261,818 526,715,379 Baron Small Cap Fund 595,571,414 595,973,402 Baron iOpportunity Fund 19,821,586 22,395,082 Baron Fifth Avenue Growth Fund 14,438,019 27,368,588
(4) Investment Advisory Fees and Other Transactions with Affiliates. (a) Investment Advisory Fees. BAMCO, Inc. (the "Adviser"), a wholly owned subsidiary of Baron Capital Group, Inc. ("BCG"), serves as investment adviser to the Funds. As compensation for services rendered, the Adviser receives a fee payable monthly from Baron Asset Fund, Baron Growth Fund, Baron Small Cap Fund and Baron iOpportunity Fund of 1% per annum of the average daily net assets of the respective Funds. Baron Fifth Avenue Growth Fund pays the Adviser 1% per annum for average daily net assets under $1 billion, 0.95% 26 Baron Funds -------------------------------------------------------------------------------- (4) Investment Advisory Fees and Other Transactions with Affiliates. (continued) per annum for average daily net assets greater than $1 billion but less than $2 billion, 0.90% per annum for average daily net assets over $2 billion but less than $3 billion, 0.85% per annum for average daily net assets over $3 billion but less than $4 billion, and 0.80% per annum for average daily net assets greater than $4 billion. For Baron iOpportunity Fund and Baron Fifth Avenue Growth Fund, the Adviser has contractually agreed to reduce its fee to the extent required to limit the operating expense to 1.50% and 1.40% of average daily net assets, respectively. (b) Distribution Fees. Baron Capital, Inc. ("BCI"), a wholly owned subsidiary of BCG, is a registered broker-dealer and the distributor of the shares of the Funds pursuant to a distribution plan under Rule 12b-1 of the 1940 Act. The distribution plan authorizes the Funds to pay BCI a distribution fee equal on an annual basis to 0.25% of the Funds' average daily net assets. (c) Trustee Fees. Certain Trustees of the Trust may be deemed to be affiliated with or interested persons (as defined by the 1940 Act) of the Funds' Adviser or of BCI. None of the Trustees so affiliated received compensation for his or her services as a Trustee of the Trust. None of the Funds' officers received compensation from the Funds. (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 six months ended March 31, 2007, there were no loans outstanding under the line of credit. (6) Litigation. An action is pending in the Southern District of New York brought by a shareholder of Baron Growth Fund and of Baron Small Cap Fund against these two Funds, their Trustees, and the distributor, Baron Capital, Inc. The action alleges improper imposition of 12b-1 fees on Funds that were partially closed to new investors and seeks compensatory damages and to enjoin further 12b-1 fees. A motion to dismiss the complaint is currently pending. Neither the outcome nor the possible liability to these two Funds can be determined at this point. No amounts have been accrued in these financial statements with respect to the damages sought by this litigation. (7) Restricted Securities. At March 31, 2007, investments in securities included securities that are restricted and/or illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At March 31, 2007, the Funds held investments in restricted and illiquid securities that were valued under approved methods as follows: Baron Asset Fund Acquisition Name of Issuer Date Value ---------------- ---- ----- Common Stock Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 $ 52,000,000 Wynn Resorts, Ltd. 04/17/01 131,517,471 Convertible Preferred Stock Apollo International, Inc., S-A CV Pfd. 07/21/99 400,003 Somerford Corp. S-A Conv. Pfd. 12/03/98 10,951,002 ------------ Total Restricted Securities: (Cost $86,096,182) (4.88% of Net Assets) $194,868,476 ============ Baron Growth Fund Acquisition Name of Issuer Date Value ----------------- ---- ----- Common Stock Fontainebleau Resorts, LLC 10/05/05 $ 15,000,000 Kerzner Intl. Holdings, Ltd., Cl A (See Note 10) 09/27/06 74,000,000 Wynn Resorts, Ltd. 04/22/02 48,453,838 Convertible Preferred Stock EOS Airlines, Inc., Cl C 10/27/06 2,500,000 Reliant Pharmaceuticals LLC Series D 10/28/03 11,250,000 ------------ Total Restricted Securities: (Cost $114,363,993) (2.32% of Net Assets) $151,203,838 ============
27 Baron Funds -------------------------------------------------------------------------------- (7) Restricted Securities. (continued)
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 2,938,235 Casual Male Retail Group, Inc. Warrants Exp 07/02/2010 07/03/03 707,000 ----------- Total Restricted Securities: (Cost $35,269,588) (1.17% of Net Assets) $38,645,235 =========== 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 ===========
(8) Income Taxes and Distributions to Shareholders. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Net investment loss and realized and unrealized gains differ for financial statement and tax purposes due to differing treatment of wash sale losses deferred and net investment loss. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. As of March 31, 2007, 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 $2,336,765,241 $4,445,344,181 $2,373,825,132 $118,223,206 $103,027,857 ============== ============== ============== ============ ============ Gross tax unrealized appreciation 1,713,461,627 2,159,612,435 1,037,485,366 56,277,050 25,118,077 Gross tax unrealized depreciation (59,014,310) (99,898,556) (92,473,988) (2,930,392) (1,164,926) -------------- -------------- -------------- ------------ ------------ Net tax unrealized appreciation 1,654,447,317 2,059,713,879 945,011,378 53,346,658 23,953,151 Accumulated net investment income (loss) (3,160,496) (16,191,859) (9,015,581) (610,938) 126,213 Accumulated net realized gain (loss) 65,990,580 96,368,069 82,767,855 (56,532,105) 2,429,778 Capital paid-in 2,273,748,915 4,385,564,898 2,288,040,269 175,557,802 100,905,509 -------------- -------------- -------------- ------------ ------------ Net Assets $3,991,026,316 $6,525,454,987 $3,306,803,921 $171,761,417 $127,414,651 ============== ============== ============== ============ ============
The tax character of distributions paid during the six month period ended March 31, 2007 and the fiscal year ended September 30, 2006 was as follows:
Six Months Ended Year Ended March 31, 2007 September 30, 2006 --------------------- --------------------- Long Term Long Term Fund Ordinary Capital Gain Ordinary Capital Gain ---- -------- ------------ -------- ------------ Baron Asset Fund $ -- $266,497,466 $ -- $136,438,779 Baron Growth Fund -- 285,910,925 -- 222,904,672 Baron Small Cap Fund -- 372,128,469 -- 89,572,056 Baron iOpportunity Fund -- -- -- -- Baron Fifth Avenue Growth Fund -- -- -- --
28 Baron Funds (9) Transactions in "Affiliated" Companies/(1)/ BARON ASSET FUND
Balance of Gross Gross Sales Balance of Dividend Shares Held on Purchases and Shares Held on Value Income Name of Issuer Sept. 30, 2006 and Additions Reductions Mar. 31, 2007 Mar. 31, 2007 Oct. 1-Mar. 31, 2007 --------------------------------------------------------------------------------------------------------------------------------- Alexander's, Inc. 314,000 314,000 $129,273,800 Apollo International, Inc. S-A CV Pfd. 105,264 105,264 400,003 Vail Resorts, Inc. 3,000,000 3,000,000 162,990,000 ------------ -------- Total investment in "affiliates" (7.33% of Net Assets) $292,663,803 $ 0 ============ ========
-------- /(1)/An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the six months ended March 31, 2007. BARON GROWTH FUND
Balance of Gross Gross Sales Balance of Dividend Shares Held on Purchases and Shares Held on Value Income Name of Issuer Sept. 30, 2006 and Additions Reductions Mar. 31, 2007 Mar. 31, 2007 Oct. 1-Mar. 31, 2007 --------------------------------------------------------------------------------------------------------------------------- AMERIGROUP, Corp./(2)/ 3,700,000 1,350,000 2,350,000 Blue Nile, Inc. 875,000 875,000 $ 35,577,500 Centene Corp./(2)/ 3,000,000 1,350,000 1,650,000 Center Financial Corp. 850,000 850,000 16,804,500 Chemed Corp. 1,350,000 1,350,000 66,096,000 $162,000 DeVry, Inc. 3,700,000 3,700,000 108,595,000 185,000 Encore Acquisition Co. 3,400,000 300,000 3,100,000 74,989,000 Peet's Coffee & Tea, Inc. 700,000 700,000 19,334,000 Ralcorp Hldgs. Inc., Cl A 1,400,000 1,400,000 90,020,000 Select Comfort Corp. 2,700,000 2,700,000 48,060,000 Symyx Technologies, Inc. 1,650,000 1,650,000 29,238,000 ------------ -------- Total investment in "affiliates" (7.49% of Net Assets) $488,714,000 $347,000 ============ ========
-------- /(1)/An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the six months ended March 31, 2007. /(2)/As of March 31, 2007, no longer an affiliate. 29 Baron Funds -------------------------------------------------------------------------------- (9) Transactions in "Affiliated" Companies/(1)/ (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, 2006 and Additions Reductions Mar. 31, 2007 Mar. 31, 2007 ------------------------------------------------------------------------------------------------------------------- AFC Enterprises, Inc. 2,250,000 2,250,000 $ 45,112,500 AeroVironment, Inc. 1,500,000 1,500,000 34,290,000 Boulder Specialty Brands, Inc. 472,700 472,700 4,311,024 Boulder Specialty Brands, Inc., Units 525,000 525,000 6,436,500 Boulder Specialty Brands, Inc., Warrants Exp 12/16/2009 129,000 129,000 405,060 Build-A-Bear Workshop, Inc. 1,250,000 1,250,000 34,337,500 Cash Systems, Inc. 1,500,000 1,500,000 8,880,000 Casual Male Retail Group, Inc./(3)/ 1,157,503 525,000 1,682,503 19,904,011 Casual Male Retail Group, Inc., Warrants Exp 04/26/2007/(4)/ 1,407,353 525,000 882,353 2,938,235 Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 100,000 100,000 707,000 DTS, Inc. 1,625,000 1,625,000 39,373,750 Great Wolf Resorts, Inc. 2,750,000 134,000 2,884,000 38,155,320 Iconix Brand Group, Inc. 2,500,000 500,000 3,000,000 61,200,000 Kensey Nash Corp. 950,000 950,000 28,975,000 MarineMax, Inc. 1,650,000 1,650,000 38,247,000 Measurement Specialties, Inc./(2)/ 1,000,000 443,000 557,000 NuCO2, Inc. 1,250,000 250,000 1,500,000 37,830,000 Stanley, Inc. 1,250,000 1,250,000 19,500,000 ------------ Total investment in "affiliates" (12.72% of Net Assets) $420,602,900 ============
Dividend Income Name of Issuer Oct. 1-Mar. 31, 2007 ----------------------------------------------------------------- AFC Enterprises, Inc. AeroVironment, Inc. Boulder Specialty Brands, Inc. Boulder Specialty Brands, Inc., Units Boulder Specialty Brands, Inc., Warrants Exp 12/16/2009 Build-A-Bear Workshop, Inc. Cash Systems, Inc. Casual Male Retail Group, Inc./(3)/ Casual Male Retail Group, Inc., Warrants Exp 04/26/2007/(4)/ Casual Male Retail Group, Inc., Warrants Exp 07/02/2010 DTS, Inc. Great Wolf Resorts, Inc. Iconix Brand Group, Inc. Kensey Nash Corp. MarineMax, Inc. Measurement Specialties, Inc./(2)/ NuCO2, Inc. Stanley, Inc. ---------- Total investment in "affiliates" (12.72% of Net Assets) $ 0 ==========
-------- /(1)/An "Affiliated" Company, as defined in the Investment Company Act of 1940, is a company in which a Fund held 5% or more of the company's outstanding voting securities at any time during the six months ended March 31, 2007. /(2)/As of March 31, 2007, no longer an affiliate. /(3)/Increase due to exercise of warrants. /(4)/Decrease due to exercise of warrants. (10) Commitments and Contingencies. On September 27, 2006, Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund, in connection with its investment in Kerzner International Holdings Limited ("Kerzner"), each agreed to guarantee ("Windstorm Guarantee") its proportionate share (based on each Fund's ownership interests in Kerzner), of certain obligations relating to amounts that may become payable due to wind or storm damage at Kerzner's Bahamian properties to the lenders that financed the Kerzner acquisition. The maximum amounts of potential future payments by each Fund would be $5,317,983 for Baron Asset Fund, $7,555,521 for Baron Growth Fund, and $3,570,865 for Baron Small Cap Fund. The Windstorm Guarantee will expire June 2009. Baron Asset Fund, Baron Growth Fund and Baron Small Cap Fund have segregated securities valued in excess of the guarantee amount to meet these contingencies. In addition, Baron Growth Fund has committed to purchase up to $5,000,000 of Island Global Yachting IV L.P. As of March 31, 2007, no funding has been made on this investment. 30 Baron Funds -------------------------------------------------------------------------------- Financial Highlights -------------------------------------------------------------------------------- BARON ASSET FUND Selected data for a share outstanding throughout each period:
Six Months Ended -------------------------------- March 31, 2007 2006 2005 2004 -------------- -------- -------- -------- Net asset value, beginning of period $ 60.08 $ 56.52 $ 47.89 $ 40.05 -------- -------- -------- -------- Income from investment operations: Net investment income (loss) (0.05)/(5)/ (0.27) (0.46) (0.43) Net realized and unrealized gain (loss) on investments 6.18 6.64 12.08 8.27 -------- -------- -------- -------- Total from investment operations 6.13 6.37 11.62 7.84 -------- -------- -------- -------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments (4.68) (2.81) (2.99) 0.00 -------- -------- -------- -------- Total distributions (4.68) (2.81) (2.99) 0.00 -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.00 -------- -------- -------- -------- Net asset value, end of period $ 61.53 $ 60.08 $ 56.52 $ 47.89 ======== ======== ======== ======== Total return 10.51%/(2)/ 11.54% 25.21% 19.58% ======== ======== ======== ======== Ratios/Supplemental data: Net assets (in millions), end of period $3,991.0 $3,365.6 $2,687.4 $2,002.4 Ratio of total expenses to average net assets 1.35%/(1)(6)/ 1.33% 1.34% 1.34% Less: Ratio of interest expense to average net assets 0.00%/(1)/ 0.00% 0.00% 0.00% -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.35%/(1)/ 1.33% 1.34% 1.34% ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.17%)/(1)/ (0.49%) (0.91%) (0.90%) Portfolio turnover rate 5.87%/(2)/ 21.87% 11.47% 19.57%
Year Ended September 30, ------------------------------------------------------------------------ 2003 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 $ 47.43 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income (loss) (0.46) (0.55) (0.65) (0.76) (0.30) 0.05 Net realized and unrealized gain (loss) on investments 6.04 0.05 (17.87) 12.53 11.94 (7.52) -------- -------- -------- -------- -------- -------- Total from investment operations 5.58 (0.50) (18.52) 11.77 11.64 (7.47) -------- -------- -------- -------- -------- -------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 (0.04) 0.00 Net realized gain on investments (1.18) (4.07) (4.61) 0.00 0.00 0.00 -------- -------- -------- -------- -------- -------- Total distributions (1.18) (4.07) (4.61) 0.00 (0.04) 0.00 -------- -------- -------- -------- -------- -------- Capital contribution 0.00 0.00 0.00 0.01 0.01 0.00 -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 40.05 $ 35.65 $ 40.22 $ 63.35 $ 51.57 $ 39.96 ======== ======== ======== ======== ======== ======== Total return 16.11% (2.54%) (31.16%) 22.84%/(3)/ 29.16%/(4)/ (15.75%) ======== ======== ======== ======== ======== ======== Ratios/Supplemental data: Net assets (in millions), end of period $1,957.2 $2,055.2 $2,692.3 $4,917.4 $5,863.1 $4,410.5 Ratio of total expenses to average net assets 1.34% 1.35% 1.37% 1.36% 1.31% 1.32% Less: Ratio of interest expense to average net assets 0.00% (0.02%) (0.01%) (0.03%) 0.00% 0.00% -------- -------- -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.34% 1.33% 1.36% 1.33% 1.31% 1.32% ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (1.14%) (1.16%) (1.14%) (1.09%) (0.57%) 0.11% Portfolio turnover rate 27.95% 6.01% 4.33% 2.51% 15.64% 23.43%
-------- /(1)/Annualized /(2)/Not annualized /(3)/Had the Adviser not made the capital contribution, the Fund's performance would have been reduced by 0.02%. /(4)/Had the Adviser not made the capital contribution, the Fund's performance would have been reduced by 0.03%. /(5)/Based on average shares outstanding. /(6)/Benefit of expense reduction rounds to less than 0.01%. 31 Baron Funds -------------------------------------------------------------------------------- Financial Highlights (continued) -------------------------------------------------------------------------------- BARON GROWTH FUND Selected data for a share outstanding throughout each period:
Six Months Ended -------------------------------- March 31, 2007 2006 2005 2004 -------------- -------- -------- -------- Net asset value, beginning of period $ 47.23 $ 45.96 $ 38.92 $ 32.65 -------- -------- -------- -------- Income from investment operations: Net investment income (loss) (0.14)/(3)/ (0.29) (0.29) (0.30) Net realized and unrealized gain (loss) on investments 6.71 3.61 7.33 6.57 -------- -------- -------- -------- Total from investment operations 6.57 3.32 7.04 6.27 -------- -------- -------- -------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments (2.54) (2.05) 0.00 0.00 -------- -------- -------- -------- Total distributions (2.54) (2.05) 0.00 0.00 -------- -------- -------- -------- Net asset value, end of period $ 51.26 $ 47.23 $ 45.96 $ 38.92 ======== ======== ======== ======== Total return 14.09%/(2)/ 7.36% 18.09% 19.20% ======== ======== ======== ======== Ratios/Supplemental data: Net assets (in millions), end of period $6,525.5 $5,315.8 $5,005.1 $3,135.6 Ratio of total expenses to average net assets 1.31%/(1)(4)/ 1.31% 1.31% 1.33% Less: Ratio of interest expense to average net assets 0.00%/(1)/ 0.00% 0.00% 0.00% -------- -------- -------- -------- Ratio of operating expenses to average net assets 1.31%/(1)/ 1.31% 1.31% 1.33% ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets (0.55%)/(1)/ (0.61%) (0.73%) (0.89%) Portfolio turnover rate 9.32%/(2)/ 21.27% 15.50% 27.15%
Year Ended September 30, --------------------------------------------------------- 2003 2002 2001 2000 1999 1998 -------- -------- ------ ------ ------ ------- Net asset value, beginning of period $ 26.96 $ 27.18 $32.26 $29.06 $20.32 $ 24.89 -------- -------- ------ ------ ------ ------- Income from investment operations: Net investment income (loss) (0.25) (0.23) (0.22) (0.26) (0.04) 0.06 Net realized and unrealized gain (loss) on investments 5.94 1.65 (1.67) 5.34 8.82 (4.56) -------- -------- ------ ------ ------ ------- Total from investment operations 5.69 1.42 (1.89) 5.08 8.78 (4.50) -------- -------- ------ ------ ------ ------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 (0.04) (0.02) Net realized gain on investments 0.00 (1.64) (3.19) (1.88) 0.00 (0.05) -------- -------- ------ ------ ------ ------- Total distributions 0.00 (1.64) (3.19) (1.88) (0.04) (0.07) -------- -------- ------ ------ ------ ------- Net asset value, end of period $ 32.65 $ 26.96 $27.18 $32.26 $29.06 $ 20.32 ======== ======== ====== ====== ====== ======= Total return 21.11% 5.02% (6.06%) 18.63% 43.21% (18.11%) ======== ======== ====== ====== ====== ======= Ratios/Supplemental data: Net assets (in millions), end of period $2,185.4 $1,030.3 $512.3 $533.4 $439.4 $ 315.6 Ratio of total expenses to average net assets 1.36% 1.35% 1.36% 1.36% 1.40% 1.43% Less: Ratio of interest expense to average net assets 0.00% 0.00% 0.00% 0.00% (0.03%) (0.06%) -------- -------- ------ ------ ------ ------- Ratio of operating expenses to average net assets 1.36% 1.35% 1.36% 1.36% 1.37% 1.37% ======== ======== ====== ====== ====== ======= Ratio of net investment income (loss) to average net assets (1.11%) (1.02%) (0.79%) (0.78%) (0.20%) 0.21% Portfolio turnover rate 32.63% 18.31% 34.94% 39.00% 53.36% 40.38%
-------- /(1)/Annualized /(2)/Not annualized /(3)/Based on average shares outstanding. /(4)/Benefit of expense reduction rounds to less than 0.01%. BARON SMALL CAP FUND Selected data for a share outstanding throughout each period:
Six Months Ended -------------------------------- March 31, 2007 2006 2005 2004 -------------- -------- -------- -------- Net asset value, beginning of period $ 23.59 $ 23.08 $ 19.18 $ 17.26 -------- -------- -------- -------- Income from investment operations: Net investment loss (0.07)/(3)/ (0.18) (0.10) (0.15) Net realized and unrealized gain (loss) on investments 3.25 1.43 4.55 2.07 -------- -------- -------- -------- Total from investment operations 3.18 1.25 4.45 1.92 -------- -------- -------- -------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments (3.06) (0.74) (0.55) 0.00 -------- -------- -------- -------- Total distributions (3.06) (0.74) (0.55) 0.00 -------- -------- -------- -------- Net asset value, end of period $ 23.71 $ 23.59 $ 23.08 $ 19.18 ======== ======== ======== ======== Total return 14.07%/(2)/ 5.52% 23.56% 11.12% ======== ======== ======== ======== Ratios/Supplemental data: Net assets (in millions), end of period $3,306.8 $2,921.7 $2,828.6 $1,782.1 Ratio of operating expenses to average net assets 1.31%/(1)(4)/ 1.33% 1.33% 1.33% Ratio of net investment loss to average net assets (0.57%)/(1)/ (0.73%) (0.48%) (0.88%) Portfolio turnover rate 19.44%/(2)/ 39.99% 24.68% 32.92%
Year ended September 30, -------------------------------------------------------- 2003 2002 2001 2000 1999 1998 -------- ------ ------- ------ ------ ------- Net asset value, beginning of period $ 13.73 $12.69 $ 16.05 $13.37 $ 8.61 $ 10.00 -------- ------ ------- ------ ------ ------- Income from investment operations: Net investment loss (0.11) (0.14) (0.11) (0.16) (0.10) (0.02) Net realized and unrealized gain (loss) on investments 4.02 1.18 (2.87) 2.84 4.86 (1.37) -------- ------ ------- ------ ------ ------- Total from investment operations 3.91 1.04 (2.98) 2.68 4.76 (1.39) -------- ------ ------- ------ ------ ------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 Net realized gain on investments (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- ------ ------- ------ ------ ------- Total distributions (0.38) 0.00 (0.38) 0.00 0.00 0.00 -------- ------ ------- ------ ------ ------- Net asset value, end of period $ 17.26 $13.73 $ 12.69 $16.05 $13.37 $ 8.61 ======== ====== ======= ====== ====== ======= Total return 29.20% 8.20% (18.83%) 20.04% 55.28% (13.90%) ======== ====== ======= ====== ====== ======= Ratios/Supplemental data: Net assets (in millions), end of period $1,210.5 $719.1 $ 585.9 $879.5 $715.7 $ 403.7 Ratio of operating expenses to average net assets 1.36% 1.36% 1.35% 1.33% 1.34% 1.39% Ratio of net investment loss to average net assets (0.87%) (0.97%) (0.68%) (0.90%) (0.99%) (0.20%) Portfolio turnover rate 30.29% 55.07% 55.77% 53.18% 42.69% 59.68%
-------- /(1)/Annualized /(2)/Not annualized /(3)/Based on average shares outstanding. /(4)/Benefit of expense reduction rounds to less than 0.01%. 32 Baron Funds -------------------------------------------------------------------------------- Financial Highlights (continued) -------------------------------------------------------------------------------- BARON iOPPORTUNITY FUND Selected data for a share outstanding throughout each period:
Six Months For the year ended September 30, Ended -------------------------------------------------------------------------------- March 31, 2007 2006 2005 2004 2003 2002 2001 -------------- ------ ------ ------ ------ ------- ------- Net asset value, beginning of period $10.05 $ 9.16 $ 7.58 $ 6.48 $ 3.63 $ 4.09 $ 8.76 ------ ------ ------ ------ ------ ------- ------- Income from investment operations: Net investment income (loss) (0.04)/(6)/ (0.03) (0.09) (0.10) (0.05) (0.06) (0.05) Net realized and unrealized gain (loss) on investments 1.48 0.92 1.66 1.18 2.89 (0.40) (4.59) ------ ------ ------ ------ ------ ------- ------- Total from investment operations 1.44 0.89 1.57 1.08 2.84 (0.46) (4.64) ------ ------ ------ ------ ------ ------- ------- Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 (0.03) Net realized gain on investments 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 0.00 (0.03) ------ ------ ------ ------ ------ ------- ------- Redemption fees added to capital paid in 0.00/(4)/ 0.00/(4)/ 0.01 0.02 0.01 0.00/(4)/ 0.00/(4)/ ------ ------ ------ ------ ------ ------- ------- Net asset value, end of period $11.49 $10.05 $ 9.16 $ 7.58 $ 6.48 $ 3.63 $ 4.09 ====== ====== ====== ====== ====== ======= ======= Total return 14.33%/(2)/ 9.72% 20.84%/(5)/ 16.98%/(5)/ 78.51%/(5)/ (11.25%)/(5)/ (53.14%)/(5)/ ====== ====== ====== ====== ====== ======= ======= Ratios/Supplemental data: Net assets (in millions), end of period $171.8 $145.4 $145.7 $133.9 $109.3 $ 57.5 $ 73.7 Ratio of operating expenses to average net assets 1.42%/(1)(7)/ 1.45% 1.52% 1.56% 1.67% 1.65% 1.55% Less: Expense reimbursement by investment adviser 0.00%/(1)/ 0.00% (0.02%) (0.06%) (0.17%) (0.15%) (0.05%) ------ ------ ------ ------ ------ ------- ------- Ratio of net expenses to average net assets 1.42%/(1)/ 1.45% 1.50% 1.50% 1.50% 1.50% 1.50% ====== ====== ====== ====== ====== ======= ======= Ratio of net investment income (loss) to average net assets (0.76%)/(1)/ (0.26%) (1.01%) (1.25%) (1.18%) (1.20%) (0.75%) Portfolio turnover rate 13.53%/(2)/ 67.25% 83.64% 86.35% 89.72% 96.41% 123.30%
-------- 2000/(3)/ -------- Net asset value, beginning of period $ 10.00 ------- Income from investment operations: Net investment income (loss) 0.03 Net realized and unrealized gain (loss) on investments (1.28) ------- Total from investment operations (1.25) ------- Less distributions to shareholders from: Net investment income 0.00 Net realized gain on investments 0.00 ------- Total distributions 0.00 ------- Redemption fees added to capital paid in 0.01 ------- Net asset value, end of period $ 8.76 ======= Total return (12.40%)/(2)(5)/ ======= Ratios/Supplemental data: Net assets (in millions), end of period $ 188.2 Ratio of operating expenses to average net assets 1.53%/(1)/ Less: Expense reimbursement by investment adviser (0.03%)/(1)/ ------- Ratio of net expenses to average net assets 1.50%/(1)/ ======= Ratio of net investment income (loss) to average net assets 0.46%/(1)/ Portfolio turnover rate 31.47%/(2)/
-------- /(1)/Annualized /(2)/Not annualized /(3)/For the period February 29, 2000 (Commencement of Operations) to September 30, 2000. /(4)/Less than $0.01 per share. /(5)/The total returns would have been lower had certain expenses not been reduced during the periods shown. /(6)/Based on average shares outstanding. /(7)/Benefit of expense reduction rounds to less than 0.01%. BARON FIFTH AVENUE GROWTH FUND Selected data for a share outstanding throughout each period:
Six Months Year Ended September 30, Ended ------------------------------ March 31, 2007 2006 2005 2004/(3)/ -------------- ------- ------ -------- Net asset value, beginning of period $12.22 $ 11.56 $ 9.89 $10.00 ------ ------- ------ ------ Income from investment operations: Net investment income (loss) 0.01/(5)/ (0.02) (0.05) (0.02) Net realized and unrealized gain (loss) on investments 1.01 0.68 1.72 (0.09) ------ ------- ------ ------ Total from investment operations 1.02 0.66 1.67 (0.11) ------ ------- ------ ------ Less distributions to shareholders from: Net investment income 0.00 0.00 0.00 0.00 Net realized gain on investments 0.00 0.00 0.00 0.00 ------ ------- ------ ------ Total distributions 0.00 0.00 0.00 0.00 ------ ------- ------ ------ Net asset value, end of period $13.24 $ 12.22 $11.56 $ 9.89 ====== ======= ====== ====== Total return 8.35%/(2)/ 5.71% 16.89%/(4)/ (1.10%)/(2)(4)/ ====== ======= ====== ====== Ratios/Supplemental data: Net assets (in millions), end of period $127.4 $ 123.3 $ 96.5 $ 49.3 Ratio of operating expenses to average net assets 1.36%/(1)(6)/ 1.39% 1.49% 1.67%/(1)/ Less: Expense reimbursement by investment adviser 0.00%/(1)/ 0.00% (0.09%) (0.27%)/(1)/ ------ ------- ------ ------ Ratio of net expenses to average net assets 1.36%/(1)/ 1.39% 1.40% 1.40%/(1)/ ====== ======= ====== ====== Ratio of net investment income (loss) to average net assets 0.20%/(1)/ (0.16%) (0.58%) (0.79%)/(1)/ Portfolio turnover rate 11.73%/(2)/ 105.77% 46.71% 7.58%/(2)/
-------- /(1)/Annualized. /(2)/Not annualized /(3)/For the period April 30, 2004 (Commencement of Operations) to September 30, 2004. /(4)/The total returns would have been lower had certain expenses not been reduced during the periods shown. /(5)/Based on average shares outstanding. /(6)/Benefit of expense reduction rounds to less than 0.01%. 33 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 15, 2007, 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 peer group 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. After considering all the information, the Board concluded that the Funds and their shareholders were benefiting from the Adviser's investment management of each 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 pooled investment vehicles managed by the Adviser and other mutual fund accounts for which the Adviser serves as a sub-adviser. While the fees for the 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, were reasonable in light of the services provided and the performance of each of the Funds achieved by the Adviser over various time periods, and that the other expenses of the Funds were also reasonable. 34 Baron Funds -------------------------------------------------------------------------------- Disclosure Regarding the Approval of the Investment Advisory Contracts (continued) -------------------------------------------------------------------------------- 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 size increased in size. The Board considered other components of the services provided by the Adviser with respect to economies of scale achieved as asset sizes increase. The Board concluded that each Fund's management fee structure was reasonable with respect to economies achieved for the benefit of shareholders. The Board will continue to assess economies of scale. 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 Funds' investment advisory agreements was in the best interests of the Funds and their shareholders. 35 [REGISTERED CASTLE LOGO] B A R O N F U N D S(r) MAR07 Item 2. Code of Ethics. Not applicable at this time. This item is applicable to annual reports. Item 3. Audit Committee Financial Expert. Not applicable at this time. This item is applicable to annual reports. Item 4. Principal Accountant Fees and Services. Not applicable at this time. This item is applicable to annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable at this time. This item is applicable to annual reports. 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 Not applicable at this time. This item is applicable to annual reports. b). Ex-99.CERT Certification pursuant to Item 10(b) of the Form N-CSR. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BARON INTVESTMENT FUNDS TRUST By: /s/ Ronald Baron ------------------- Ronald Baron Chief Executive Officer Date: June 8, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald Baron -------------------- Ronald Baron Chief Executive Officer Date: June 8, 2007 By: /s/ Peggy Wong -------------------- Peggy Wong Treasurer and Chief Financial Officer Date: June 8, 2007 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.