P R O S P E C T U S
BARON CAPITAL FUNDS TRUST
INSURANCE SHARES
BARON CAPITAL ASSET FUND
767 Fifth Avenue, New York, New York 10153
1-800-99-BARON 212-583-2100
BARON CAPITAL FUNDS TRUST (the "Trust") is an open-end, diversified
management investment company, commonly referred to as a mutual fund.
The Trust currently consists of one series, BARON CAPITAL ASSET FUND
(the "Fund"). There are currently two classes of shares. The Fund's
investment objective is to seek capital appreciation through
investments in securities of small and medium sized companies, with
undervalued assets or favorable growth prospects. The Fund has
recently been organized and has no operating history, but the Fund's
investment adviser, BAMCO, Inc., has been an investment advisor to
registered mutual funds for over ten years.
The shares of the Fund offered by this prospectus ("Insurance Shares")
are not offered directly to the public; they are sold only in
connection with investments in and payments under variable annuity
contracts and variable life insurance contracts (collectively
"variable insurance contracts") issued by life insurance companies
("Participating Insurance Companies"). Shares of the Fund are also
offered under a separate prospectus in connection with certain
qualified retirement plans ("Retirement Shares"). The Trust sells and
redeems its shares at net asset value without any sales charges or
redemption fees. The minimum initial investment is $2,000 for each
contract owner allocating money to the Fund. There is no minimum for
subsequent purchases.
This Prospectus sets forth concisely the essential information a
prospective purchaser of a variable insurance contract should consider
before allocating premiums to the Fund. Investors are advised to read
this Prospectus and retain it for future reference and to read the
separate account prospectus of the specific insurance product. A
Statement of Additional Information, dated August 3, 1998, containing
additional and more detailed information about the Fund, has been
filed with the Securities and Exchange Commission and is hereby
incorporated by reference into this Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by
writing or calling the insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 3, 1998
TABLE OF CONTENTS
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT OBJECTIVES AND PHILOSOPHY . . . . . . . . . . . . . . . . . 4
INVESTMENT POLICIES AND RISKS . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . 9
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . 9
DISTRIBUTION PLAN AND OTHER EXPENSES . . . . . . . . . . . . . . . . . 12
PURCHASES AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . 12
DETERMINING YOUR SHARE PRICE . . . . . . . . . . . . . . . . . . . . . 13
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 13
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The net asset value per share and the value of a shareholder's holding in
the Fund will vary with economic and market conditions. The dividends paid
by the Fund will increase or decrease in relation to the income received by
the Fund from its investments and the expenses incurred by the Fund.
Investment in the Fund involves risk, including the possible loss of
principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, nor are they federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
agency.
There is no assurance that the Fund will achieve its respective objective.
The Fund does not purport to offer a complete investment program to which
investors should commit all of their investment capital. Please see the
section entitled "Investment Policies and Risks" starting on page 5 for a
discussion of the risks associated with the Fund.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offer contained in the Prospectus and, if given or made, such
information or representations may not be relied upon as authorized by the
Fund, its Investment Adviser or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy
securities in any state to any person to whom it is unlawful to make such
offer in such state.
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases........................ NONE
Redemption Fee......................................... NONE
Deferred Sales Load.................................... NONE
Exchange Fees.......................................... NONE
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OPERATING
FEES EXPENSES
(AFTER EXPENSE OTHER (AFTER EXPENSE
REIMBURSEMENT) 12B-1 FEES EXPENSES REIMBURSEMENT)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BARON CAPITAL
ASSET FUND 1.00%* 0.25% 0.25% 1.50%*
--------------------------------------------------------------------------------
</TABLE>
Because Baron Capital Asset Fund is a new fund, "other expenses" and
"total operating expenses" are based on estimated amounts for the
current fiscal year.
*The Adviser will reduce its fee to the extent required to limit Baron
Capital Asset Fund's total operating expenses to 1.5% for the first
$250 million of assets in the Fund, 1.35% for the Fund assets over
$250 million and up to $500 million, and 1.25% for Fund assets over
$500 million. Without the expense limitations, the Fund estimates that
actual expenses would be 1.6%.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, (2) the 1.5% expense ratio, and (3) redemption
at the end of each time period:
1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------
Baron Capital Asset Fund $ 15 $ 47 $ 82 $ 179
Owners of variable insurance contracts that invest in the Fund should
refer to the variable insurance contract prospectus for a description
of costs and expenses, as the tables and example do not reflect
deductions at the separate account level or contract level for any
charges that may be incurred under a contract. This information should
not be considered a representation of past or future expenses, as
actual expenses fluctuate and may be greater or less than those shown.
The example assumes a 5% annual return as required by SEC regulations
applicable to all mutual funds. The actual performance of the Fund
will vary and may result in an actual return greater or less than 5%.
The Fund has a plan of distribution pursuant to Rule 12b-1 pursuant to
which the Fund pays the Distributor a fee for distribution-related
services at the annual rate of .25% of the Fund's average daily net
assets. The Distributor may use any part or all of the distribution
fee to pay other parties for administrative services relating to the
shareholder accounts. Because of the distribution fee, long-term
shareholders of the Fund may pay more than the economic equivalent of
the maximum front-end sales load permitted by the rules of the
National Association of Securities Dealers, Inc. ("NASD"). For a
description of the various costs and expenses incurred in the
operation of the Fund, as well as any expense reimbursement or
reduction arrangements, see "Management of the Fund" and "Distribution
Plan."
INVESTMENT OBJECTIVES AND PHILOSOPHY
The investment objective of BARON CAPITAL ASSET FUND is to seek
capital appreciation through investments in securities of small and
medium sized companies with undervalued assets or favorable growth
prospects. Production of income, if any, is incidental to this
objective. The investment objective and philosophy of the Fund is
similar to those of Baron Asset Fund, a publicly offered "retail" fund
managed by the Fund's adviser. Although it is anticipated that the
Fund and the corresponding retail fund will hold similar securities,
differences in asset size and cash flow needs resulting from purchases
and redemptions of Fund shares may result in different security
selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio securities.
The Fund's stated fundamental policies and other non-fundamental
policies may differ from Baron Asset Fund's, but it presently
anticipates that the investment selections made for the Fund will be
similar to those made by Baron Asset Fund. Expenses of the Fund and
its corresponding retail fund are also expected to differ. The
performance results are also expected to differ. The variable
insurance contract owner will also bear various insurance-related
costs at the insurance company level and should refer to the
accompanying separate account prospectus for a summary of contract
fees and expenses. The investment objective is fundamental and, as
such, may not be changed without the approval of a majority of the
Fund's outstanding shares. There is no assurance that the Fund will
achieve its investment objective. Investment decisions are made by the
Fund's investment adviser, BAMCO, Inc. (the "Adviser").
The Fund seeks to achieve its investment objective by investing its
assets in a diversified portfolio of primarily common stocks. The Fund
invests primarily in the securities of small sized companies with
market capitalizations of approximately $100 million to $1 billion and
medium sized companies with market values of $1 billion to $2 billion.
Although the Fund invests primarily in small and medium sized
companies, it will not sell positions just because their market values
have increased. The other kinds of investments the Fund makes and the
risks associated therewith are discussed starting on page 5 in
connection with the Fund's investment policies.
The Fund seeks to purchase securities judged by their Adviser to have
favorable price to value characteristics based on the Adviser's
assessment of their prospects for future growth and profitability. The
Adviser seeks securities that the Adviser believes have the potential
to increase in value at least 50% over two subsequent years, although
that goal may not be achieved. As a guide in selecting such
investments, the Adviser studies and considers such fundamentals as
business profitability, balance sheet strength, undervalued and
unrecognized assets, price multiples of free cash flow and income,
perceived management skills, unit growth, and the potential to
capitalize upon anticipated economic trends. Securities are selected
for investment after thorough research of the issuers, the industries
in which they operate, and their managements. The Fund invests
principally in businesses for the long term; it is not a short-term
trader of securities.
When the Adviser determines that opportunities for profitable
investments are limited or that adverse market conditions exist and
believes that investing for temporary defensive purposes is
appropriate, all or a portion of the Fund's assets may be invested in
money market instruments, which include U.S. Government securities,
certificates of deposit, time deposits, bankers' acceptances,
short-term investment grade corporate bonds and other short-term debt
instruments, and repurchase agreements. Investment grade obligations
would be classified at the time of the investment within the four
highest ratings of Standard & Poor's Corporation ("S&P") or Moody's
Investor's Service, Inc. ("Moody's"), or, if unrated, would be
determined by the Adviser to be of comparable high quality and
liquidity. The Fund may also invest in money market instruments in
anticipation of investing cash positions or of meeting redemptions. To
the extent the Fund is so invested its investment objectives may not
be achieved.
INVESTMENT POLICIES AND RISKS
In seeking to achieve its investment objective of capital
appreciation, the Fund invests primarily in common stocks but may also
invest in other equity-like securities such as convertible bonds and
debentures, preferred stocks, warrants and convertible preferred
stocks. Securities are selected solely for their capital appreciation
potential, and investment income is not a consideration.
GENERAL POLICIES SMALL AND MEDIUM SIZED COMPANIES
The Fund invests primarily in small to medium sized companies with
market values between $100 million and $2 billion. The Adviser
believes there is more potential for capital appreciation in smaller
companies, but there also may be more risk. Securities of smaller
companies may not be well known to most investors and may be thinly
traded. There is more reliance on the skills of a company's management
and on their continued tenure. Investments may be attractively priced
relative to the Adviser's assessment of a company's growth prospects,
management expertise, and business niche, yet have modest or no
current cash flows or earnings. Although the Adviser concentrates on a
company's growth prospects, it also focuses on cash flow, asset value
and reported earnings. This investment approach requires a long-term
outlook and may require shareholders to assume more risk and to have
more patience than investing in the securities of larger, more
established companies. From time to time the Adviser may purchase
securities of larger, more widely followed companies for the Fund if
it believes such investments meet the Adviser's investment criteria
and the Fund's investment objective. The Fund may invest up to 35% of
its total assets in larger companies if the Adviser perceives an
attractive opportunity in a larger company. The Fund may continue to
make investments in a company even though its market capitalization
has increased beyond the limits stated, if, in the Adviser's judgment,
the company is still an attractive investment.
Equity securities may fluctuate in value, often based on factors
unrelated to the value of the issuer or its securities. Since
convertible securities combine the investment characteristics of both
bonds and common stocks, the Fund absorbs the market risks of both
stocks and bonds. The combination does, however, make the investment
less sensitive to interest rate changes than straight bonds of
comparable maturity and quality. Because of these factors, convertible
securities are likely to perform differently than broadly-based
measures of the stock and bond markets.
DEBT SECURITIES
The debt securities in which the Fund may invest include rated and
unrated securities and convertible instruments. In making investment
selections, the Adviser, in addition to using nationally recognized
statistical rating organizations ("NRSROs"), also makes its own
independent judgments about a security and its issuer. Securities
which are not rated by an NRSRO are purchased based solely on the
Adviser's assessment of the security and its issuer. The Fund may
invest up to 35% of its total assets in non-investment grade debt
securities, commonly referred to as "junk bonds." There is no minimum
rating for the debt securities that may be purchased. Lower rated
securities may have a higher yield and the potential for a greater
return than investment grade securities but may also have more risk.
Lower rated securities are generally meant for longer-term investing
and may be subject to certain risks with respect to the issuing entity
and to market fluctuations. The NRSROs may characterize these
securities as speculative, with moderate or little protection as to
the payment of interest and principal. See the Statement of Additional
Information for a general description of NRSRO ratings of debt
obligations. The ratings by these NRSROs represent their opinions as
to the quality of the debt obligations which they undertake to rate.
It should be emphasized that ratings are relative and subjective, and
although ratings may be useful in evaluating the safety of interest
and principal payments, they do not evaluate the market value risks of
these securities. The Adviser will also evaluate the securities and
the ability of the issuers to pay interest and principal. The Fund's
ability to achieve its investment objective may be more dependent on
the Adviser's credit analysis than might be the case with higher rated
securities. The market price and yield of lower rated securities are
generally more volatile than those of higher rated securities. Factors
adversely affecting the market price and yield of these securities
will adversely affect the Fund's net asset value. The trading market
for these securities may be less liquid than that of higher rated
securities. Companies that issue lower rated securities may be highly
leveraged or may have unstable earnings, and consequently the risk of
the investment in the securities of such issuers may be greater than
with higher rated securities. With respect to debt securities
generally, the interest bearing features of such securities carry a
promise of income flow, but the price of the securities are inversely
affected by changes in interest rates and are therefore subject to the
risk of market price fluctuations. The market values of debt
securities may also be affected by changes in the credit ratings or
financial condition of the issuers.
The Fund from time to time may also purchase indebtedness and
participations therein, both secured and unsecured, of debtor
companies in reorganization or financial restructuring. Such
indebtedness may be in the form of loans, notes, bonds or debentures.
Participations normally are made available only on a nonrecourse basis
by financial institutions, such as banks or insurance companies, or by
governmental institutions, such as the Resolution Trust Corporation or
the Federal Deposit Insurance Corporation or the Pension Benefit
Guaranty Corporation. When the Fund purchases a participation interest
it assumes the credit risk associated with the bank or other financial
intermediary as well as the credit risk associated with the issuer of
any underlying debt instrument. The Fund may also purchase trade and
other claims against, and other unsecured obligations of, such debtor
companies, which generally represent money due a supplier of goods or
services to such company. Some debt securities purchased by the Fund
may have very long maturities. The length of time remaining until
maturity is one factor the Adviser considers in purchasing a
particular indebtedness. The purchase of indebtedness of a troubled
company always involves a risk as to the creditworthiness of the
issuer and the possibility that the investment may be lost. The
Adviser believes that the difference between perceived risk and actual
risk creates the opportunity for profit which can be realized through
thorough analysis. There are no established markets for some of this
indebtedness and it is less liquid than more heavily traded
securities. Indebtedness of the debtor company to a bank are not
securities of the banks issuing or selling them. The Fund may purchase
loans from national and state chartered banks as well as foreign ones.
The Fund may invest in senior indebtedness of the debtor companies,
although on occasion subordinated indebtedness may also be acquired.
The Fund may also invest in distressed first mortgage obligations and
other debt secured by real property. The Fund does not currently
anticipate investing more than 5% of its assets in trade and other
claims.
OPTIONS
The Fund may purchase put and call options and write (sell) covered
put and call options on equity and/or debt securities. A call option
gives the purchaser of the options the right to buy, and when
exercised obligates the writer to sell, the underlying security at the
exercise price. A put option gives the purchaser of the option the
right to sell, and when exercised obligates the writer to buy, the
underlying security at the exercise price. The writing of put options
will be limited to situations where the Adviser believes that the
exercise price is an attractive price at which to purchase the
underlying security. A put option sold by the Fund would be considered
covered by the Fund's placing cash or liquid securities in a
segregated account with the custodian in an amount necessary to
fulfill the obligation undertaken. Options may fail as hedging
techniques in cases where the price movements of the securities
underlying the options do not follow the price movements of the
portfolio securities subject to the hedge. Gains on investments in
options depend on the Adviser's ability to predict correctly the
direction of stock prices, interest rates, and other economic factors.
The Adviser could be wrong in its predictions. Where a liquid
secondary market does not exist, the Fund would likely be unable to
control losses by closing its position.
The Fund may engage in options transactions on specific securities
that may be listed on national securities exchanges or traded in the
over-the-counter market. Options not traded on a national securities
exchange are treated as illiquid securities and may be considered to
be "derivative securities." Options transactions will not exceed 25%
of the Fund's net assets, as measured by the securities covering the
options, or 5% of net assets, as measured by the premiums paid for the
options, at the time the transactions are entered into.
BORROWINGS
The Fund may borrow up to 5% of its net assets for extraordinary or
emergency temporary investment purposes or to meet redemption requests
which might otherwise require an untimely sale of portfolio
securities. The Fund may also borrow for other short-term purposes. To
the extent the Fund borrows, it must maintain continuous asset
coverage of 300% of the amount borrowed. The Fund will not borrow in
an amount exceeding 25% of the value of its net assets, including the
amount borrowed, as of the time the borrowing is made. Such borrowing
has special risks. Any amount borrowed will be subject to interest
costs that may or may not exceed the appreciation of the securities
purchased.
SHORT SALES AGAINST THE BOX
For the purpose of either protecting or deferring unrealized gains on
portfolio securities, the Fund may make short sales "against the box"
where the Fund sells short a security it already owns or has the right
to obtain without payment of additional consideration an equal amount
of the same type of securities sold. The proceeds of the short sale
will be held by the broker until the settlement date, at which time
the Fund delivers the security to close the short position. If the
Fund sells securities short against the box, it may protect unrealized
gains, but will lose the opportunity to profit on such securities if
the price rises. The Fund will not sell short against the box in
excess of 25% of its net assets.
LENDING
The Fund may lend its portfolio securities to broker-dealers and other
institutions as a means of earning additional income. In lending its
portfolio securities, the Fund may incur delays in recovery of loaned
securities or a loss of rights in the collateral. To minimize such
risks, such loans will only be made if the Fund deems the other party
to be of good standing and determines that the income justifies the
risk. The Fund will not lend more than 25% of its total assets.
ILLIQUID SECURITIES
The Fund may invest up to 15%, of its net assets in securities that
are not readily marketable or are otherwise restricted. The absence of
a trading market could make it difficult to ascertain a market value
for illiquid positions. The Fund's net asset value could be adversely
affected if there were no ready buyer at an acceptable price at the
time the Fund decided to sell. Time-consuming negotiations and
expenses could occur in disposing of the shares.
FOREIGN SECURITIES
The Fund may invest up to 10% of its total assets directly in the
securities of foreign issuers which are not publicly traded in the
U.S. and may also invest in foreign securities in domestic markets
through depositary receipts without regard to this limitation. The
Adviser currently intends to invest not more than 10% of the Fund's
assets in foreign securities, including both direct investments and
investments made through depositary receipts. These securities may
involve additional risks not associated with securities of domestic
companies, including exchange rate fluctuations, political or economic
instability, the imposition of exchange controls, or expropriation or
confiscatory taxation. Issuers of foreign securities are subject to
different, often less detailed, accounting, reporting and disclosure
requirements than are domestic issuers.
SHORT-TERM TRADING AND TURNOVER
The Fund may engage in short-term trading where the Adviser believes
that the anticipated gains outweigh the costs of short-term trading.
The Adviser expects that the average turnover rate of the Fund's
portfolio should not exceed 100%. The turnover rate may vary from year
to year depending on how the Adviser anticipates portfolio securities
will perform. Short-term trading will increase the amount of brokerage
commissions paid by the Fund and the amount of possible short-term
capital gains. The amount of portfolio activity will not be a limiting
factor in making portfolio decisions.
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in the equity securities of real estate investment
trusts ("REITs"). A REIT is a corporation or business trust that
invests substantially all of its assets in real estate and derives
most of its income from rents from real property or interest on loans
secured by mortgages on real property. REITs which meet certain
specific requirements of the Internal Revenue Code effectively do not
pay corporate level federal income tax. REITs may be affected
adversely by changes in the value of their underlying properties and
by defaults by borrowers or tenants. REITs are dependent on the skills
of their management and have limited diversification. REITs also rely
on their ability to generate cash flow to make distributions to
shareholders and some REITs may have self-liquidation provisions
allowing mortgages to be paid in full. The market value of REITs may
also be affected by changes in the tax laws or by their inability to
qualify for the tax-free pass-through of their income. The REIT
portion of the portfolio may also be affected by general fluctuations
in real estate values.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks or
non-bank dealers. In a repurchase agreement the Fund buys a security
at one price, and at the time of sale, the seller agrees to repurchase
that security at a mutually agreed upon time and price. Repurchase
agreements could involve certain risks in the event of the failure of
the seller to repurchase the securities as agreed, which may cause a
fund to suffer a loss, including loss of interest on or principal of
the security, and costs associated with delay and enforcement of the
repurchase agreement. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to
the restrictions stated above.
WHEN-ISSUED SECURITIES
The Fund may invest up to 5% of its assets in debt and equity
securities purchased on a when-issued basis. Although the payment and
interest terms of when-issued securities are established at the time
the purchaser enters into the commitment, the actual payment for and
delivery of when-issued securities generally takes place within 45
days. The Fund bears the risk that interest rates on debt securities
at the time of delivery may be higher or lower than those contracted
for on the when-issued security. Failure of the issuer to deliver the
security purchased on a when-issued basis may result in a loss or
missed opportunity to make an alternative investment.
SPECIAL SITUATIONS
The Fund may invest in "special situations." A special situation
arises when, in the opinion of the Adviser, the securities of a
company will be recognized and appreciate in value due to a specific
anticipated development at that company. Such developments might
include a new product, a management change, an acquisition or a
technological advancement. Investments in special situations may carry
an additional risk of loss in the event that the anticipated
development does not occur or does not attract the expected attention.
The special situation may involve securities of companies with higher
market capitalizations.
INVESTMENT PERFORMANCE
The investment results of the Fund quoted in advertisements and other
sales literature may refer to average annual total return and actual
return. Average annual total return assumes that an investment in the
Fund was purchased with an initial payment of $1,000 and that the
investment was redeemed at the end of a stated period of time, after
giving effect to the reinvestment of all dividends and distributions
during the period at the net asset value on the reinvestment date. The
return is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the
investment at the end of the period. Because average annual returns
are annualized they tend to even out variations in the returns, and
are not the same as actual year-by-year results. The actual return
performance calculations, which also may be quoted in advertising,
reflect the results of a continuous shareholder who does not redeem.
It measures the percentage change between the net asset value of a
hypothetical $1,000 investment in the Fund at the beginning of a
period and the net asset value of that investment at the end of a
period, assuming reinvestment of all dividend and capital gain
distributions at the net asset value on the reinvestment date. The
performance of major market indices such as the Dow Jones Industrial
Average, Russell 2000, and Standard & Poor's 500 may also be included
in advertising so that the Fund's results may be compared with those
of groups of unmanaged securities widely regarded by investors as
measures of market performance. Brokerage fees are not factored into
the performance of the indices. The performance data of the Fund
include all recurring fees such as brokerage and investment advisory
fees. Data and rankings from Lipper Analytical Services, Inc., CDA
Investment Technologies, Morningstar or other industry publications
may also be used in advertising. See the Statement of Additional
Information.
Performance results represent past performance and are not necessarily
representative of future results. Investment return and principal
value will fluctuate so that shares may be worth more or less than
their original cost when redeemed.
The annual report contains additional performance information which is
available upon request without charge by writing or calling the Fund
at the address and telephone number set forth on the back of this
Prospectus.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
BAMCO, Inc., the Adviser, is located at 767 Fifth Avenue, New York,
New York 10153, and is responsible for portfolio management. It is a
wholly owned subsidiary of Baron Capital Group, Inc. ("BCG"). Baron
Capital, Inc. ("Baron Capital"), a registered broker-dealer and the
distributor of the shares of the Fund, is also a wholly owned
subsidiary of BCG.
Under an advisory agreement with the Fund (the "Advisory Agreement"),
the Adviser furnishes continuous investment advisory services and
management to the Fund. Mr. Ronald Baron is the chief investment
officer of the Adviser and is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Baron also has primary
responsibility for the investments of two of the retail funds, Baron
Asset Fund and Baron Growth & Income Fund. He has managed the
portfolios of those Funds since their inception. The Adviser also
keeps the books of account of each series, and calculates daily the
income and net asset value per share of each Fund.
As compensation for the services rendered under each Advisory
Agreement, the Adviser receives a fee payable monthly from the assets
of each Fund equal to 1% per annum of each Fund's respective average
daily net asset value. The Adviser has agreed to waive its advisory
fee to the extent necessary so that total operating expenses of the
Fund do not exceed 1.50% for the first $250 million of assets in the
Fund, 1.35% for Fund assets over $250 million and up to $500 million,
and 1.25% for Fund assets over $500 million.
BROKERAGE
Brokerage transactions for the Fund are effected chiefly by or through
its Adviser's affiliate, Baron Capital, when consistent with the
policy of obtaining the best net results for the Fund and subject to
the conditions and limitations of the 1940 Act. Baron Capital is a
registered broker-dealer and a member of the NASD. In determining the
best net results for the Fund, the Adviser will examine factors such
as price (including the applicable brokerage commission or dealer
spread), size of order, efficiency and reliability of execution. The
Fund's Board of Trustees has adopted procedures in conformity with
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions
paid to Baron Capital are reasonable and fair compared to the
commission, fee or other remuneration received by other brokers in
connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable
period of time. The Fund will also consider sales of its shares as a
factor in the selection of broker-dealers to execute portfolio
transactions. See Statement of Additional Information for a
description of the commissions paid to Baron Capital.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Board of Trustees has overall responsibility for the
management of the Fund. The Trustees and executive officers of the
Fund and their principal occupations during the last five years are
set forth below.
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS BARON FUNDS PAST FIVE YEARS
--------------------------------------------------------------------------------------
<S> <C> <C>
Ronald Baron*+ President, Chief President and Director of: Baron
767 Fifth Avenue Investment Officer Capital, Inc. (1982-Present),
New York, NY 10153 and Trustee Baron Capital Management, Inc.
(1983-Present), Baron Capital
Group, Inc. (1984-Present), BAMCO,
Inc. (1987-Present).
Norman S. Edelcup Trustee Chairman, Item Processing of
244 Atlantic Isle America (1989-Present), (financial
N. Miami Beach, FL 33160 institution service bureau);
Director, Valhi, Inc. (1975-Present)
(diversified company); Director,
Artistic Greetings, Inc.
(1985-Present).
Mark M. Feldman Trustee President and Chief Executive
444 Madison Ave, Ste 703 Officer, Cold Spring Group, Inc.
New York, N.Y. 10020 (1993-Present) (reorganization and
restructuring consulting);
Executive Vice President and Chief
Restructuring Officer, Lomas
Financial Corp. and subsidiaries
(1995-1996) (reorganizing
debtors-in-possession); Trustee,
Aerospace Creditors Liquidating
Trust (1993-Present) (administers
and liquidates assets).
Irwin Greenberg Trustee Chairman, Lehigh Valley Hospital
3048 Congress Street Board (1991-Present); Retail
Allentown, PA 18101 Consultant, (1990-Present);
Director, Cedar Crest College
(1990-Present); President and Chief
Executive Officer, Hess's Department
Stores (1976-1990).
Clifford Greenberg Vice President Vice President, Baron Capital,
767 Fifth Avenue Inc., Baron Capital Group, Inc.,
New York, NY 10153 BAMCO, Inc. (1997-Present);
General Partner, HPB Associates,
L.P. (1984-1996) (investment
partnership).
Linda S. Martinson*+ Secretary, Vice General Counsel and Secretary of:
767 Fifth Avenue President and Baron Capital, Inc. (1983-Present),
New York, NY 10153 Trustee BAMCO, Inc. (1987-Present), Baron
Capital Group, Inc. (1984-Present),
Baron Capital Management, Inc.
(1983-Present).
Charles N. Mathewson Trustee Chairman of the Board, International
5270 Neil Road Game Technology (1986-Present)
Reno, NV 89502-4169 (manufacturer of microprocessor-
controlled gaming machines and
monitoring systems).
Harold W. Milner Trustee Retired; President and Chief
2293 Morningstar Drive Executive Officer, Kahler Realty
Park City, UT 84060 Corporation (1985-1997) (hotel
ownership and management).
Raymond Noveck+ Trustee President, Strategic Systems, Inc.
31 Karen Road (1990-Present) (health care
Waban, MA 02168 information); Director, Horizon/CMS
Healthcare Corporation
(1987-Present).
Susan Robbins Vice President Senior Analyst, Vice President and
767 Fifth Avenue Director of: Baron Capital, Inc.
New York, NY 10153 (1982-Present), Baron Capital
Management, Inc. (1983-Present),
Baron Capital Group, Inc.
(1984-Present).
Morty Schaja* Senior Vice Senior Vice President and Chief
767 Fifth Avenue President, Chief Operating Officer of Baron Capital,
New York, NY 10153 Operating Officer Inc. (1997-Present), Managing
and Trustee Director, Vice President, Baron
Capital, Inc. (1991-Present) and
Director, Baron Capital Group, Inc.,
Baron Capital Management, Inc., and
BAMCO, Inc. (1997-Present).
David A. Silverman, M.D. Trustee Physician (1976-Present).
239 Central Park West
New York, NY 10024
Peggy Wong Treasurer and Chief Treasurer and Chief Financial
767 Fifth Avenue Financial Officer Officer of: Baron Capital, Inc.,
New York, NY 10153 Baron Capital Group, Inc., BAMCO,
Inc., Baron Capital Management,
Inc. (1987-Present).
</TABLE>
----------------------
* Trustees deemed to be "interested persons" of the Fund as that
term is defined in the Investment Company Act of 1940.
+ Members of the Executive Committee, which is empowered to
exercise all of the powers, including the power to declare
dividends, of the full Board of Trustees when the full Board of
Trustees is not in session.
DISTRIBUTION PLAN AND OTHER EXPENSES
The Fund's Insurance Shares are distributed by Baron Capital, which is
the principal underwriter of the shares of the Baron retail funds,
pursuant to a distribution plan under Rule 12b-1 of the 1940 Act
("Distribution Plan"). The Distribution Plan authorizes the Fund to
pay the Principal Underwriter a distribution fee equal on an annual
basis to 0.25% of each Fund's average daily net assets. The
distribution fee is paid to the Principal Underwriter in connection
with its activities or expenses primarily intended to result in the
sale of shares, including, but not limited to, compensation to
registered representatives or other employees of the Principal
Underwriter who engage in or support the distribution of shares or who
service shareholder accounts; telephone expenses; interest expenses;
preparing, printing and distributing promotional and advertising
material; preparing, printing and distributing the Prospectus and
reports to other than current shareholders; and commissions and other
fees to broker-dealers or other persons (excluding banks) who have
introduced investors to the Funds. See the Statement of Additional
Information for a more detailed listing of the expenses covered by the
Distribution Plan.
From time to time the Distributor may compensate Participating
Insurance Companies or their affiliates whose customers hold the
Insurance Shares for providing a variety of administrative services,
such as record-keeping and accounting, and investor support services,
such as responding to inquiries and preparing mailings to
shareholders. The compensation may be paid as either a per account
fee or a percentage of the average daily assets invested by the
participating Insurance Company. Such compensation would be paid
out of the 12b-1 fee paid to the Distributor.
The Fund pays a fee to its custodian, the Bank of New York, 48 Wall
Street, New York, NY 10015. The Fund also pays a fee to its transfer
and dividend distributing agent, DST Systems, Inc. P.O. Box 419946,
Kansas City, MO 64141. In their respective capacities both
institutions maintain certain financial and accounting records
pursuant to agreements with the Trust. They do not assist in and are
not responsible for investment decisions involving assets of the Fund.
PURCHASES AND REDEMPTIONS
The Insurance Shares of the Fund are offered on a continuous basis to
separate accounts of Participating Insurance Companies and the
Retirement Shares are offered on a continuous basis through qualified
plans. Investors may not purchase or redeem shares of the Fund
directly, but only through variable insurance contracts offered
through the separate accounts of Participating Insurance Companies or
through qualified retirement plans. You should refer to the applicable
Separate Account Prospectus or your plan documents for information on
how to purchase or surrender a contract, make partial withdrawals of
contract values, or change existing allocations.
All investments in the Fund are credited to a Participating Insurance
Company's separate account or a qualified plan immediately upon
acceptance of the investment by the Transfer Agent. Investments will
be processed at the net asset value next determined after an order is
received and accepted by the Transfer Agent. The Fund reserves the
right to reject any purchase order.
Redemptions are processed at the net asset value next calculated after
receipt and acceptance of the redemption order by the Transfer Agent.
Redemption proceeds will normally be wired to the qualified plan the
business day following receipt of the redemption order, but in no
event later than seven days after receipt of such order.
DETERMINING YOUR SHARE PRICE
Your purchases, sales or exchanges will be processed at the net asset
value per share of the Fund as of the close of the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m., New York City time) on
each day that the Exchange is open for trading by dividing the current
market value of the Fund's total assets less all of its liabilities by
the total number of shares outstanding at the time the determination
is made. Valid purchase and redemption orders placed prior to the
close of the Exchange on a day the Exchange is open for trading are
executed at the net asset value determined as of the close that day,
and orders placed after that time are valued as of the close of the
next trading day. The Fund may have arrangements with certain
institutional entities with respect to the actual receipt of orders.
The Fund reserves the right to change the time at which orders are
priced if the Exchange closes at a different time or an emergency
exists.
The Fund's portfolio securities traded on any national stock exchange
or quoted on the NASDAQ National Market System are valued on the basis
of the last sale price on the date of valuation or, in the absence of
any sale on that date, the last sale price on the date the security
last traded. Other securities are valued at the mean of the most
recent bid and asked prices if market quotations are readily
available. Where market quotations are not readily available the
securities are valued at their fair value as determined in good faith
by the Board of Trustees, or by the Adviser, pursuant to procedures
established by the Board. Money market instruments and debt securities
with a remaining maturity of sixty days or less are valued by the
amortized cost method unless such method does not represent fair
value. Odd lot differentials and brokerage commissions are excluded in
calculating net asset value. Securities quoted in a foreign currency
are valued daily in U.S. dollars at the foreign currency exchange
rates that are prevailing at the time the daily net asset value per
share is determined. If events that materially affect the value of the
Fund's foreign investments occur, the investments will be valued at
their fair value as determined in good faith by the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and
realized capital gains, if any, to its shareholders in a single,
combined distribution by December 31 of each year. After every
distribution, the value of a share is automatically reduced by the
amount of the distribution. All your dividends and capital gains
distributions from the Fund are automatically reinvested in additional
shares of the Fund at the next computed net asset value at the close
of business on the payment date.
TAXES
The Fund intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986 (the "Code").
Qualification as a regulated investment company relieves the Fund of
federal income and excise taxes on the portion of its net ordinary
income and net realized capital gain distributed to shareholders. The
Fund also intends to qualify under the Code with respect to the
diversification requirements for tax deferral with respect to
insurance company separate accounts.
Because the Insurance Shares may be purchased only through variable
insurance contacts and the Retirement Shares may be purchased only
through qualified plans, it is anticipated that any dividends derived
from net investment income and distributions of capital gains will be
exempt from current taxation if left to accumulate within the variable
insurance contract or qualified plan. Generally, withdrawals from such
contracts may be subject to ordinary income tax and, if made before
age 591/2, a 10% penalty tax. The tax status of your investment in the
Insurance Shares depends on the features of the variable insurance
contracts purchased from a Participating Insurance Company. Please see
the separate account prospectus for additional information.
The foregoing is only a summary of some important tax considerations
generally affecting the Fund and its shareholders. Prospective
shareholders are urged to consult their tax advisers concerning the
tax consequences of this investment.
GENERAL INFORMATION
The Trust is a diversified open-end management investment company
registered under the Investment Company Act of 1940 ("1940 Act"), it
was organized as a Delaware business trust on November 20, 1997. The
Trust is authorized to have separate series, but currently has only
the Fund. It is authorized to issue an indefinite number of shares of
beneficial interest. The Declaration of Trust permits the Trustees to
establish additional series. The Fund currently offers two classes of
shares, one of which, the Insurance Shares offered through
Participating Insurance Companies, are offered pursuant to this
Prospectus. The shares offered hereby are available only in connection
with investments in and payments under variable contracts and life
insurance contracts. Retirement Shares of the Fund are also available
to participant directed plans through a separate prospectus. Because
the expenses of each class may differ, the performance of each class
is expected to differ. Each share of the Fund has one vote on all
matters for which a shareholder vote is required, and participates
equally in dividend and capital gain distributions when and if
declared by the Fund and in the Fund's net assets upon liquidation.
Shares are fully paid and non-assessable and there are no preemptive,
conversion or exchange rights. Shares do not have cumulative voting
rights and, as a result, holders of at least 50% of the shares voting
for Trustees can elect all Trustees and the remaining shareholders
would not be able to elect any Trustees.
As a Delaware business trust, annual shareholder meetings are not
required. Shareholders have certain rights, as set forth in the
Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or more
Trustees on the written request of not less than 10% of the
outstanding shares. Such removal can be effected upon the action of
two-thirds of the outstanding shares. An insurance company issuing a
variable contract invested in the Fund requests voting instructions
from the variable contract holders. Under current law, the insurance
company must vote all shares of the Fund held by the Separate Accounts
in proportion to the voting instructions received.
CONFLICTS OF INTEREST
Each Portfolio's Shares are available only to variable annuity and
variable life separate accounts of insurance companies that are
unaffiliated with the Adviser and to certain qualified retirement
plans. The Retirement Shares, offered through a separate prospectus,
are available to certain participant directed qualified plans.
Although the Fund currently does not anticipate any disadvantages to
policy owners or plan participants arising out of the fact that the
Fund offers its shares to such entities, there is a possibility that a
material conflict may arise. The Trustees monitor events in order to
identify any anticipated disadvantages or material irreconcilable
conflicts to determine what action, if any, should be taken in
response. If a material disadvantage or conflict occurs, the Trustees
may require one or more insurance company separate accounts or plans
to withdraw its investments in the Fund. If this occurs, the Fund may
be forced to sell securities at disadvantageous prices. The Trustees
may refuse to sell shares of the Fund to any separate account or
qualified plan or may suspend or terminate the offering of a Fund's
shares if such action is required by law or regulatory authority or is
in the best interests of the Fund's shareholders. It is possible that
a qualified plan investing in the Retirement Shares of the Fund could
lose its qualified plan status under the Internal Revenue Code, which
could have adverse tax consequences on insurance company separate
accounts investing in the Fund. The Adviser intends to monitor such
qualified plans and the Fund may discontinue sales to a qualified plan
and require plan participants with existing investments in the
retirement shares to redeem those investments if a plan loses (or in
the opinion of the Adviser is at risk losing) its qualified plan
status.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Fund's or any future
series' investment objective by investing all of that series' assets
in another investment company having the same investment objective and
substantially the same investment policies and restrictions as those
applicable to that series. It is expected that any such investment
company would be managed by the Adviser in substantially the same
manner as the existing series. The initial shareholder(s) of each
series voted to vest the authority to convert to a master/feeder
structure in the sole discretion of the Trustees. No further approval
of the shareholders of the series of the Trust is required. You will
receive at least 30 days' prior notice of any such investment. Such
investment would be made only if the Trustees determine it to be in
the best interests of a series and its shareholders. In making that
determination, the Trustees will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although the Adviser believes the
Trustees will not approve an arrangement that is likely to result in
higher costs, no assurance is given that costs will be materially
reduced if this option is implemented.
SHAREHOLDER INFORMATION
Shareholder inquiries about general Fund information should be
directed to the Funds' office at 1-800-99-BARON or 212-583-2100.
Owners of variable insurance contracts and plan participants will be
provided semi-annual unaudited and annual audited reports, including
the financial statements of the Fund. Each report will include a
listing of portfolio securities held. The Trust's fiscal year ends
September 30.
