UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235-0307
Washington, D.C. 20549 Expires: May 31, 2000
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 2 [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ]
Amendment No. 3 [ ]
(Check appropriate box or boxes)
BARON CAPITAL FUNDS TRUST
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
767 Fifth Avenue, New York, New York 10153
- -------------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 212-583-2000
----------------------------
Linda S. Martinson, c/o Baron Capital Funds Trust, 767 Fifth Ave, NY, NY 10153
- -------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering immediately
----------------------------------
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Omit from the facing sheet reference to the other Act if the Registration
Statement or amendment is filed under only one of the Acts. Include the
"Approximate Date of Proposed Public Offering" and "Title of Securities Being
Registered" only where securities are being registered under the Securities Act
of 1933.
Form N-1A is to be used by open-end management investment companies, except
insurance company separate accounts and small business investment companies
licensed under the United States Small Business Administration, to register
under the Investment Company Act of 1940 and to offer their shares under the
Securities Act of 1933. The Commission has designed Form N-1A to provide
investors with information that will assist them in making a decision about
investing in an investment company eligible to use the Form. The Commission also
may use the information provided on Form N-1A in its regulatory , disclosure
review, inspection, and policy making roles.
A Registrant is required to disclose the information specified by Form
N-1A, and the Commission will make this information public. A Registrant is not
required to respond to the collection of information contained in Form N-1A
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SEC 2052 (5-98)
I-3
<PAGE>
PROSPECTUS
BARON CAPITAL FUNDS
APRIL 1999
Baron Capital
Asset Fund: Insurance Shares
[registered castle logo]
<PAGE>
BARON CAPITAL FUNDS TRUST
BARON CAPITAL ASSET FUND: INSURANCE SHARES
767 Fifth Avenue, New York, New York 10153
1-800-99-BARON 212-583-2100
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the Commission has
approved or disapproved them or determined whether this prospectus is accurate
or complete. Anyone who tells you otherwise is committing a crime.
April 15, 1999
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1 PROSPECTUS
<PAGE>
TABLE OF CONTENTS
INFORMATION Investment Goals and Strategies. . . . . . . 3
ABOUT THE
FUND Principal Risks . . . . . . . . . . . . . 3
Past Performance. . . . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . . 4
Other Investment Strategies. . . . . . . . 5
Management . . . . . . . . . . . . . . . 6
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INFORMATION How Your Shares are Priced. . . . . . . . . 8
ABOUT YOUR
INVESTMENT How to Purchase Shares . . . . . . . . . . 8
How to Redeem Shares . . . . . . . . . . . 8
Distributions and Taxes. . . . . . . . . . . 8
General Information . . . . . . . . . . . . 8
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MORE
INFORMATION Back Cover
2 PROSPECTUS
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Information About the Fund
INVESTMENT GOALS AND STRATEGIES
THE INVESTMENT GOALS OF BARON CAPITAL ASSET FUND: capital appreciation through
investments in securities of small and medium sized companies with undervalued
assets or favorable growth prospects
Investment decisions are made by the Fund's investment adviser, BAMCO, Inc. (the
"Adviser").
The Fund invests primarily in small sized companies with market capitalizations
of approximately $100 million to $1.5 billion and medium sized companies with
market values of $1.5 billion to $5 billion. Although the Fund invests primarily
in small and medium sized companies, the Fund will not sell positions just
because their market values have increased. The Fund will add to its positions
in a company even though its market capitalization has increased through
appreciation beyond the limits stated, if, in the Adviser's judgment, the
company is still an attractive investment. The Fund may invest in larger
companies if the Adviser perceives an attractive opportunity in a larger
company.
WHAT DOES THE ADVISER LOOK FOR?
In making investment decisions for the Fund the Adviser seeks securities that
the Adviser believes have:
1. favorable price to value characteristics based on the Adviser's assessment
of their prospects for future growth and profitability.
2. the potential to increase in value at least 50% over two subsequent years.
The Adviser thoroughly researches the companies in which the Fund invests.
Included in the research process are visits and interviews by the Adviser with
company managements and their major competitors. The Adviser looks for special
business niches, unusually favorable business opportunities, the opportunity to
benefit from long lasting economic trends, barriers to entry, strong management
capabilities, and strong balance sheets. The Fund may take large positions in
the companies in which the Adviser has the greatest conviction. The Fund has a
long term outlook; it is not a short-term trader of securities. There is no
assurance that the Fund will meet its investment goals.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
The Fund invests primarily in common stocks but may also invest in other
equity-type securities such as convertible bonds and debentures, preferred
stocks, warrants and convertible preferred stocks. Securities are selected for
their capital appreciation potential, and investment income is not a
consideration.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
GENERAL STOCK MARKET RISK o The Fund's principal risks are those of investing in
the stock market. The value of your investment in the Fund will increase as the
stock market prices of the securities owned by the Fund increase and will
decrease as the Fund's investments decrease in market value. Equity securities
fluctuate in value, often based on factors unrelated to the value of the issuer,
such as political, economic or general market conditions. Because the stock
values fluctuate, when you sell your investment you may receive more or less
money than you originally invested.
SMALL AND MEDIUM SIZED COMPANIES o The Adviser believes there is more potential
for capital appreciation in smaller companies and in establishing significant
positions in companies in which the Adviser has the greatest conviction, but
there also may be more risk. Securities of smaller companies may not be well
known to most investors and the securities may be thinly
3 PROSPECTUS
<PAGE>
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.
CONVERTIBLE SECURITIES o Since convertible securities combine the investment
characteristics of both bonds and common stocks, the Fund's convertible
securities investments absorb 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 and usually less
volatile than common stocks. Because of these factors, convertible securities
are likely to perform differently than broadly-based measures of the stock and
bond markets.
PAST PERFORMANCE
The Fund started trading on October 1, 1998, and therefore has been in operation
for less than one year. How the Fund has performed in the past is not
necessarily an indication of how it will perform in the future. 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period indicated. Certain information reflects
financial results for a single Fund share. The "total return" shows how much
your investment in the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
financial highlights have been audited by PricewaterhouseCoopers LLP, the Fund's
independent accountants, whose report, along with the Fund's financial
statements, is included in the annual report.
INSURANCE SHARES:
1998*
Net asset value, beginning of period $ 10.00
--------
Income from investment operations
Net investment income 0.02
Net realized and unrealized gains on investments 3.23
--------
Total from investment operations 3.25
--------
Net asset value, end of year $13.25
========
Total Return 32.5%
--------
Ratios/Supplemental Data
Net assets (in thousands), end of year $806.3
Ratio of total expenses to average net assets 7.62%**
Less: expense reimbursement by investment adviser (6.17%)**
---------
Ratio of net expenses to average net assets 1.45%**
=========
Ratio of net investment income to average net assets 0.99%**
Portfolio turnover rate 37.11%
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* For the period October 1, 1998 (commencement of operations) to December 31,
1998.
** Annualized.
4 PROSPECTUS
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OTHER INVESTMENT STRATEGIES
WHAT ARE SOME OF THE OTHER INVESTMENTS THE FUND MAKES?
DEBT SECURITIES o The debt security portion of the portfolio may include notes,
bonds, debentures and money market instruments. Debt securities represent an
obligation of the issuer to repay a loan of money to it, often with interest.
The debt securities in which the Fund may invest include rated and unrated
securities and convertible instruments. There is no minimum rating for the debt
securities that may be purchased for the Fund. The Fund relies on the Adviser's
assessment of the issuer's securities and does not use independent ratings
organizations.
Temporary Investments 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, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements. If the Fund takes a temporary
defensive position its investment objectives may not be achieved. The Fund may
borrow up to 30% of the value of its total assets, including the amount
borrowed, as of the time the borrowing is made for temporary, emergency or other
purposes.
Illiquid Securities The Fund may invest up to 15% of its net assets in
securities that are illiquid. An illiquid security is one that cannot be
disposed of in the ordinary course of business within seven days.
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.
Options and Derivatives The Fund may write (sell) put options and covered call
options and purchase 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 options may be listed or over-the-counter. The Fund may also
enter into equity swap agreements with approved parties.
REITs The Fund may invest in the equity securities of real estate investment
trusts ("REITs"). A REIT is a corporation or business trust that invests in real
estate and derives its income from rents from real property or interest on loans
secured by mortgages on real property.
Other Strategies The Fund has additional investment strategies and restrictions
that govern its activities. For a list of these restrictions and more
information about the investment strategies, please see the section "Investment
Goals, Strategies and Risks" in the Statement of Additional Information. Those
that are identified as "fundamental"may only be changed with shareholder
approval, while the others may be changed by the Board of Trustees.
WHAT ARE SOME ADDITIONAL RISK FACTORS?
Debt Securities 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. See the SAI for more information. The Adviser will also evaluate
the securities and the ability of the issuers to pay interest and principal.
With lower rated debt securities, 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
5 PROSPECTUS
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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.
The interest bearing features of debt 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.
Options and Derivatives 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 and derivatives depend on the Adviser's ability to
anticipate correctly the direction of stock prices, interest rates, and other
economic factors. The dealer who takes the other side of a derivative
transaction could fail. Where a liquid secondary market does not exist, the Fund
would likely be unable to control losses by closing its position.
Borrowings To the extent the Fund borrows, it must maintain continuous asset
coverage of 300% of the amount borrowed. 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.
Illiquid Securities 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.
Real Estate Investment Trusts The market value of REITs may 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 and by defaults by
borrowers or tenants.
Special Situations Investments in special situations have the risk that the
anticipated development does not occur or does not attract the expected
attention.
Potential Conflicts of Interest The Insurance Shares are available only to
variable annuity and variable life separate accounts of insurance companies that
are not affiliated with the Adviser, and the Retirement Shares are available
only to certain participant directed qualified retirement plans. There is a
possibility that a material conflict of interest may arise, although the Fund
does not anticipate that will happen. It is possible that a qualified plan
investing in the Retirement Shares might lose its qualified tax status, which
could have adverse tax effects on insurance company separate accounts investing
in the Fund. If a material disadvantage or conflict should occur, the Trustees
may require one or more insurance company separate accounts or plans to withdraw
its investment in the Fund. If this were to occur, the Fund might have to sell
securities at disadvantageous prices.
MANAGEMENT OF THE FUND
The Board of Trustees oversees the management of the Fund. A list of the Board
members and of the Fund's officers may be found in the Statement of Additional
Information. BAMCO, Inc., the Adviser, is located at 767 Fifth Avenue, New York,
New York 10153, and is responsible for portfolio management. It is a 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 subsidiary of BCG. Ronald Baron is the founder, president, chief executive
officer and chairman of the Adviser and BCG and is the principal owner of BCG.
Morty Schaja is the chief operating officer of the Adviser and BCG.
6 PROSPECTUS
<PAGE>
Mr. Baron has been the portfolio manager of the Fund since its inception. He has
been the portfolio manager for two other mutual funds, Baron Asset Fund and
Baron Growth & Income Fund, since their inceptions in 1987 and 1995,
respectively, and he has managed money for others since 1975. The portfolio
manager is primarily responsible for the day-to-day management of the portfolio.
The Adviser also serves as portfolio manager for other products offered by
affiliates that could conflict with the Adviser's responsibilities to the Fund.
The Adviser keeps the books of account of the Fund and calculates daily the
income and net asset value per share of the Fund. For its services, the Adviser
receives a fee payable monthly from the assets of the Fund equal to 1% per annum
of the Fund's average daily net asset value. The Adviser is contractually
obligated to 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 Fund assets over $250 million, and 1.25% for Fund assets
over $500 million.
Brokerage transactions for the Fund in exchange-listed securities are executed
primarily by or through the Adviser's affiliate, Baron Capital, when consistent
with trying to obtain the best net results for the Fund. Baron Capital is a
registered broker-dealer and a member of the NASD. Please see the Statement of
Additional Information for more information about trade executions.
Year 2000
Fund operations and shareholders could be adversely affected if the computer
systems used by BAMCO, the Fund's other service providers, or other entities
with computer systems linked to the Fund do not properly process and calculate
date-related information from and after January 1, 2000. BAMCO is working to
avoid these problems and to obtain assurances from other service providers that
they are taking similar steps. To the extent that operations of issuers of
securities held by the Fund are impaired by date-related problems or prices
decline as a result of real or perceived date-related problems of issuers held
by the Fund or generally, the net asset value of the Fund will decline.
12b-1 PLAN
The Fund has adopted a plan under rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of the Insurance Shares and for
services provided to Insurance Share holders. Because the fees are paid out of
the assets of the Fund with respect to the Shares on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges. The 12b-1 plan authorizes the Fund to
pay Baron Capital a distribution fee equal on an annual basis to 0.25% of the
Fund's average daily net assets. Baron Capital may from time-to-time pay
Participating Insurance Companies or their affiliates whose customers hold the
Insurance Shares for providing a variety of administrative services. See the
Statement of Additional Information for a more detailed listing of the expenses
and types of services covered by the Distribution Plan.
7 PROSPECTUS
<PAGE>
INFORMATION ABOUT YOUR INVESTMENT
HOW YOUR SHARES ARE PRICED
The purchase or sale price for your shares is the Fund's net asset value per
share, which is generally calculated as of the close of trading of the New York
Stock Exchange (usually 4:00 p.m. Eastern time) on each day the Exchange is
open. Your purchase or sale will be priced at the next net asset value
calculated after the order has been received and accepted by the Fund's transfer
agent. The Fund's investments are valued based on the last sale price or where
market quotations are not readily available, based on fair value as determined
by the Adviser, using procedures established by the Board of Trustees. The Fund
may change the time at which orders are priced if the Exchange closes at a
different time or an emergency exists.
HOW TO PURCHASE SHARES
The Insurance Shares are offered only to separate accounts of Participating
Insurance Companies and the Retirement Shares are offered through qualified
retirement plans. The Fund does not offer its shares to investors directly. You
should read the applicable separate account prospectus or your plan documents
for information on how to purchase shares of t he Fund.
At present, only U.S. citizens and non-U.S. citizens with a tax identification
number who reside in the U.S. may purchase shares of the Fund.
HOW TO REDEEM SHARES
You may not redeem your shares of the Fund directly. You should read the
applicable separate account prospectus or your plan documents for information on
how to redeem your shares, surrender a contract, or change existing allocations.
Redemptions will not be made until all of the requirements for redemption are
met.
Redemptions are priced at the net asset value next calculated after your
redemption request is received and accepted by the transfer agent in proper
form.
The Fund may suspend the normal redemption process if trading on the New York
Stock Exchange is suspended or if an emergency exists that reasonably precludes
the valuation of the Fund's net assets.
DISTRIBUTIONS AND TAXES
The Fund pays its shareholders dividends from its net investment income and
distributes any net realized capital gains once each year. Your distributions
will be automatically reinvested in the Fund. After every distribution, the
value of a share is automatically reduced by the amount of the distribution.
Because the Insurance Shares may be purchased only through variable insurance
contracts and the Retirement Shares may be purchased only through qualified
plans, any dividends derived from net investment income and distributions of
capital gains will not be currently taxable if left to accumulate in the
variable insurance contract or qualified plan. Generally, if you withdraw money
from a variable insurance contract you may be subject to ordinary income tax
and, if made before age 59 , a 10% penalty tax. Please read your separate
account prospectus for additional information.
GENERAL INFORMATION
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, New York 10015 is the custodian
for the Fund's cash and securities. DST Systems, Inc. serves as transfer agent
and dividend disbursing agent. They are not responsible for investment decisions
for the Fund.
8 PROSPECTUS
<PAGE>
SHAREHOLDER INFORMATION
If you have questions about general Fund information please call the Fund's
office at 1-800-99-BARON or 212-583-2100.
As a Delaware business trust, annual shareholder meetings are not required. The
Fund sends unaudited semi-annual reports and audited annual reports to owners of
variable insurance contracts and plan participants.
9 PROSPECTUS
<PAGE>
[REGISTERED CASTLE LOGO]
BARON
CAPITAL
FUNDS
767 Fifth Avenue
NY, NY 10153
212-583-2100
1-800-99-BARON
FOR MORE INFORMATION
Investors who want more information about Baron Capital Asset Fund may obtain
the following documents free upon request at the numbers or address below.
Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
reports to shareholders. The Fund's annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during the last fiscal year.
Statement of Additional Information
Additional information is also contained in the Statement of Additional
Information dated April 15,1999. A current Statement of Additional Information
is on file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference. You may obtain the Statement of Additional
Information and the shareholder reports without charge by writing or
calling the Fund or by contacting your plan administrator or separate
account administrator.
TO OBTAIN INFORMATION
By telephone
Call 1-800-992-2766
By mail
Write to: Baron Capital, Inc.
767 Fifth Avenue
New York, NY 10153
By e-mail
Send your request to:
[email protected]
On the internet
Text-only versions of Baron Capital Asset Fund documents can be viewed
on-line or downloaded from:
http://www.sec.gov
Other
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (phone 1- 800-SEC-0330). Copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.
SEC file number: 811-8505
<PAGE>
PROSPECTUS
BARON CAPITAL FUNDS
APRIL 1999
Baron Capital
Asset Fund: Retirement Shares
[registered castle logo]
<PAGE>
BARON CAPITAL FUNDS TRUST
Baron Capital Asset Fund: Retirement Shares
767 Fifth Avenue, New York, New York 10153
1-800-99-BARON 212-583-2100
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the Commission has
approved or disapproved them or determined whether this prospectus is accurate
or complete. Anyone who tells you otherwise is committing a crime.
April 15, 1999
- ------------------------------------
1 PROSPECTUS
<PAGE>
TABLE OF CONTENTS
Information Investment Goals and Strategies. . . . . . 3
about the
Fund Principal Risks . . . . . . . . . . . . 3
Past Performance. . . . . . . . . . . . . 4
Fund Expenses. . . . . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . 5
Other Investment Strategies . . . . . . . . 5
Management . . . . . . . . . . . . . . . . 7
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Information How Your Shares are Priced. . . . . . . . 9
about your
investment How to Purchase Shares . . . . . . . . . 9
How to Redeem Shares . . . . . . . . . . 9
Distributions and Taxes. . . . . . . . . 9
General Information . . . . . . . . . . 9
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More
Information Back Cover
2 PROSPECTUS
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Information About the Fund
INVESTMENT GOALS AND STRATEGIES
The investment goals of Baron Capital Asset Fund: capital appreciation through
investments in securities of small and medium sized companies with undervalued
assets or favorable growth prospects
Investment decisions are made by the Fund's investment adviser, BAMCO, Inc. (the
"Adviser").
The Fund invests primarily in small sized companies with market capitalizations
of approximately $100 million to $1.5 billion and medium sized companies with
market values of $1.5 billion to $5 billion. Although the Fund invests primarily
in small and medium sized companies, the Fund will not sell positions just
because their market values have increased. The Fund will add to its positions
in a company even though its market capitalization has increased through
appreciation beyond the limits stated, if, in the Adviser's judgment, the
company is still an attractive investment. The Fund may invest in larger
companies if the Adviser perceives an attractive opportunity in a larger
company.
What does the Adviser look for?
In making investment decisions for the Fund the Adviser seeks securities that
the Adviser believes have:
1. favorable price to value characteristics based on the Adviser's assessment
of their prospects for future growth and profitability.
2. the potential to increase in value at least 50% over two subsequent years.
The Adviser thoroughly researches the companies in which the Fund invests.
Included in the research process are visits and interviews by the Adviser with
company managements and their major competitors. The Adviser looks for special
business niches, unusually favorable business opportunities, the opportunity to
benefit from long lasting economic trends, barriers to entry, strong management
capabilities, and strong balance sheets. The Fund may take large positions in
the companies in which the Adviser has the greatest conviction. The Fund has a
long term outlook; it is not a short-term trader of securities. There is no
assurance that the Fund will meet its investment goals.
What kinds of securities does the Fund buy?
The Fund invests primarily in common stocks but may also invest in other
equity-type securities such as convertible bonds and debentures, preferred
stocks, warrants and convertible preferred stocks. Securities are selected for
their capital appreciation potential, and investment income is not a
consideration.
What are the principal risks of investing in the Fund?
General Stock Market Risk The Fund's principal risks are those of investing in
the stock market. The value of your investment in the Fund will increase as the
stock market prices of the securities owned by the Fund increase and will
decrease as the Fund's investments decrease in market value. Equity securities
fluctuate in value, often based on factors unrelated to the value of the issuer,
such as political, economic or general market conditions. Because the stock
values fluctuate, when you sell your investment you may receive more or less
money than you originally invested.
Small And Medium Sized Companies The Adviser believes there is more potential
for capital appreciation in smaller companies and in establishing significant
positions in companies in which the Adviser has the greatest conviction, but
there also may be more risk. Securities of smaller companies may not be well
known to most investors and the securities may be thinly traded. There is more
reliance on the skills of a company's management and on their continued
3 PROSPECTUS
<PAGE>
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.
Convertible Securities Since convertible securities combine the investment
characteristics of both bonds and common stocks, the Fund's convertible
securities investments absorb 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 and usually less
volatile than common stocks. Because of these factors, convertible securities
are likely to perform differently than broadly-based measures of the stock and
bond markets.
PAST PERFORMANCE
The Fund started trading on October 1, 1998, although the Retirement Shares
began trading on November 25, 1998, and therefore has been in operation for less
than one year. How the Fund has performed in the past is not necessarily an
indication of how it will perform in the future. 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.
FUND EXPENSES
The table below describes the fees and expenses that you would pay if you buy
and hold shares of the Fund.
Annual Fund Operating Expenses
(Expenses that are deducted from the Fund's assets)
Retirement
Shares
----------
Management Fees 1.00%
Other Expenses 6.38%
------
Total Annual Fund Operating
Expenses 7.38%
Expense Reduction 6.17%*
------
Net Expenses 1.21%
======
________________
* The Adviser is contractually obligated to reduce its fee to the extent
required to limit Baron Capital Asset Fund's total operating expenses to
1.25% of net assets. The initial advisory contract is for a period of two
years and it is renewable for one year periods thereafter.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses for
the first two years will be capped at 1.25% and 7.38% for the third year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years
------ ------
Baron Capital
Asset Fund $123 $1,044
4 PROSPECTUS
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period indicated. Certain information reflects
financial results for a single Fund share. The "total return" shows how much
your investment in the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
financial highlights have been audited by PricewaterhouseCoopers LLP, the Fund's
independent accountants, whose report, along with the Fund's financial
statements, is included in the annual report.
Retirement Class:
1998*
Net asset value, beginning of period $12.06
------
Income from investment operations
Net investment income 0.02
Net realized and unrealized gains on investments 1.18
------
Total from investment operations 1.20
Net asset value, end of period $13.26
======
Total Return 10.0%
------
Ratios/Supplemental Data
Net assets (in thousands), end of year $2,638.5
Ratio of total expenses to average net assets 7.38%**
Less: expense reimbursement by investment adviser (6.17%)**
---------
Ratio of net expenses to average net assets 1.21%**
=========
Ratio of net investment income to average net assets 1.34%**
Portfolio turnover rate 37.11%
- ----------------------------
* For the period November 25,1998 (commencement of operations) to December
31, 1998.
** Annualized.
OTHER INVESTMENT STRATEGIES
What are some of the other investments the Fund makes?
Debt Securities The debt security portion of the portfolio may include notes,
bonds, debentures and money market instruments. Debt securities represent an
obligation of the issuer to repay a loan of money to it, often with interest.
The debt securities in which the Fund may invest include rated and unrated
securities and convertible instruments. There is no minimum rating for the debt
securities that may be purchased for the Fund. The Fund relies on the Adviser's
assessment of the issuer's securities and does not use independent ratings
organizations.
Temporary Investments 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, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements. If the Fund takes a temporary
defensive position its investment objectives may not be achieved. The Fund may
borrow up to 30% of the value of its total assets, including the amount
borrowed, as of the time the borrowing is made for temporary, emergency or other
purposes. Illiquid Securities The Fund may invest up to 15% of its net assets in
securities that are illiquid. An illiquid security is one that cannot be
disposed of in the ordinary course of business within seven days.
5 PROSPECTUS
<PAGE>
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.
Options and Derivatives The Fund may write (sell) put options and covered call
options and purchase 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 options may be listed or over-the-counter. The Fund may also
enter into equity swap agreements with approved parties.
REITs The Fund may invest in the equity securities of real estate investment
trusts ("REITs"). A REIT is a corporation or business trust that invests in real
estate and derives its income from rents from real property or interest on loans
secured by mortgages on real property.
Other Strategies The Fund has additional investment strategies and restrictions
that govern its activities. For a list of these restrictions and more
information about the investment strategies, please see the section "Investment
Goals, Strategies and Risks" in the Statement of Additional Information. Those
that are identified as "fundamental"may only be changed with shareholder
approval, while the others may be changed by the Board of Trustees.
What Are some additional risk factors?
Debt Securities 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. See the SAI for more information. The Adviser will also evaluate
the securities and the ability of the issuers to pay interest and principal.
With lower rated debt securities, 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.
The interest bearing features of debt 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.
Options and Derivatives 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 and derivatives depend on the Adviser's ability to
anticipate correctly the direction of stock prices, interest rates, and other
economic factors. The dealer who takes the other side of a derivative
transaction could fail. Where a liquid secondary market does not exist, the Fund
would likely be unable to control losses by closing its position.
Borrowings To the extent the Fund borrows, it must maintain continuous asset
coverage of 300% of the amount borrowed. 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.
Illiquid Securities 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.
6 PROSPECTUS
<PAGE>
Real Estate Investment Trusts The market value of REITs may 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 and by defaults by
borrowers or tenants.
Special Situations Investments in special situations have the risk that the
anticipated development does not occur or does not attract the expected
attention.
Potential Conflicts of Interest The Retirement Shares are available only to
certain participant directed qualified retirement plans and the Insurance Shares
are available only to variable annuity and variable life separate accounts of
insurance companies that are not affiliated with the Adviser. There is a
possibility that a material conflict of interest may arise, although the Fund
does not anticipate that will happen. It is possible that a qualified plan
investing in the Retirement Shares might lose its qualified tax status, which
could have adverse tax effects on insurance company separate accounts investing
in the Fund. If a material disadvantage or conflict should occur, the Trustees
may require one or more insurance company separate accounts or plans to withdraw
its investment in the Fund. If this were to occur, the Fund might have to sell
securities at disadvantageous prices.
MANAGEMENT OF THE FUND
The Board of Trustees oversees the management of the Fund. A list of the Board
members and of the Fund's officers may be found in the Statement of Additional
Information. BAMCO, Inc., the Adviser, is located at 767 Fifth Avenue, New York,
New York 10153, and is responsible for portfolio management. It is a 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 subsidiary of BCG. Ronald Baron is the founder, president, chief executive
officer and chairman of the Adviser and BCG and is the principal owner of BCG.
Morty Schaja is the chief operating officer of the Adviser and BCG.
Mr. Baron has been the portfolio manager of the Fund since its inception. He has
been the portfolio manager for two other mutual funds, Baron Asset Fund and
Baron Growth & Income Fund, since their inceptions in 1987 and 1995,
respectively, and he has managed money for others since 1975. The portfolio
manager is primarily responsible for the day-to-day management of the portfolio.
The Adviser also serves as portfolio manager for other products offered by
affiliates that could conflict with the Adviser's responsibilities to the Fund.
The Adviser keeps the books of account of the Fund and calculates daily the
income and net asset value per share of the Fund. For its services, the Adviser
receives a fee payable monthly from the assets of the Fund equal to 1% per annum
of the Fund's average daily net asset value. The Adviser is contractually
obligated to reduce its fee to the extent required to limit the Retirement
Shares' total operating expenses to 1.25%.
Brokerage transactions for the Fund in exchange-listed securities are executed
primarily by or through the Adviser's affiliate, Baron Capital, when consistent
with trying to obtain the best net results for the Fund. Baron Capital is a
registered broker-dealer and a member of the NASD. Please see the Statement of
Additional Information for more information about trade executions.
Year 2000
Fund operations and shareholders could be adversely affected if the computer
systems used by BAMCO, the Fund's other service providers, or other entities
with computer systems linked to the Fund do not properly process and calculate
date-related information from and after January 1, 2000. BAMCO is working to
avoid these problems and to obtain assurances from other service providers that
they are taking similar steps. To the extent that operations of issuers of
securities held by the Fund are impaired by date-related problems or prices
decline as a result of real or perceived date-related problems of issuers held
by the Fund or generally, the net asset value of the Fund will decline.
7 PROSPECTUS
<PAGE>
Distribution and Administrative Services
The Fund's Retirement Shares are distributed by Baron Capital. From time to time
the Adviser may compensate plan administrators or their affiliates whose
participants hold the Retirement 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 paid to the other parties would be for
administrative services to existing accounts only, the Adviser will not pay
other parties for selling-related activities. The compensation may be paid as
wither a per account fee or a percentage of daily assets invested by the
retirement plan. The compensation would be paid by the Adviser.
8 PROSPECTUS
<PAGE>
Information About Your Investment
HOW YOUR SHARES ARE PRICED
The purchase or sale price for your shares is the Fund's net asset value per
share, which is generally calculated as of the close of trading of the New York
Stock Exchange (usually 4:00 p.m. Eastern time) on each day the Exchange is
open. Your purchase or sale will be priced at the next net asset value
calculated after the order has been received and accepted by the Fund's transfer
agent. The Fund's investments are valued based on the last sale price or where
market quotations are not readily available, based on fair value as determined
by the Adviser, using procedures established by the Board of Trustees. The Fund
may change the time at which orders are priced if the Exchange closes at a
different time or an emergency exists.
HOW TO PURCHASE SHARES
The Retirement Shares are offered only through qualified retirement plans and
the Insurance Shares are offered only to separate accounts of Participating
Insurance Companies. The Fund does not offer its shares to investors directly.
You should read your plan documents or the applicable separate account
prospectus for information on how to purchase shares of the Fund.
At present, only U.S. citizens and non-U.S. citizens with a tax identification
number who reside in the U.S. may purchase shares of the Fund.
HOW TO REDEEM SHARES
You may not redeem your shares of the Fund directly. You should read the
applicable plan documents or separate account prospectus for information on how
to redeem your shares, change existing allocations, or surrender a contract.
Redemptions will not be made until all of the requirements for redemption are
met.
Redemptions are priced at the net asset value next calculated after your
redemption request is received and accepted by the transfer agent in proper
form.
The Fund may suspend the normal redemption process if trading on the New York
Stock Exchange is suspended or if an emergency exists that reasonably precludes
the valuation of the Fund's net assets.
DISTRIBUTIONS AND TAXES
The Fund pays its shareholders dividends from its net investment income and
distributes any net realized capital gains once each year. Your distributions
will be automatically reinvested in the Fund. After every distribution, the
value of a share is automatically reduced by the amount of the distribution.
Because the Retirement Shares may be purchased only through qualified plans and
the Insurance Shares may be purchased only through variable insurance contracts,
any dividends derived from net investment income and distributions of capital
gains will not be currently taxable if left to accumulate in the variable
insurance contract or qualified plan. You should read your plan documents for
all relevant tax and withdrawal information. Generally, if you withdraw money
from a retirement plan prematurely you may be subject to ordinary income tax
and/or a penalty tax.
GENERAL INFORMATION
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, New York 10015 is the custodian
for the Fund's cash and securities. DST Systems, Inc. serves as transfer agent
and dividend disbursing agent. They are not responsible for investment decisions
for the Fund.
SHAREHOLDER INFORMATION
If you have questions about general Fund information please call the Fund's
office at 1-800-99-BARON or 212-583-2100.
As a Delaware business trust, annual shareholder meetings are not required. The
Fund sends unaudited semi-annual reports and audited annual reports to owners of
variable insurance contracts and plan participants.
9 PROSPECTUS
<PAGE>
[REGISTERED CASTLE LOGO]
BARON
CAPITAL
FUNDS
767 Fifth Avenue
NY, NY 10153
212-583-2100
1-800-99-BARON
FOR MORE INFORMATION
Investors who want more information about Baron Capital Asset Fund may obtain
the following documents free upon request at the numbers or address below.
Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
reports to shareholders. The Fund's annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during the last fiscal year.
Statement of Additional Information
Additional information is also contained in the Statement of Additional
Information dated April 15,1999. A current Statement of Additional Information
is on file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference. You may obtain the Statement of Additional
Information and the shareholder reports without charge by writing or calling the
Fund or by contacting your plan administrator or separate account administrator.
TO OBTAIN INFORMATION
By telephone
Call 1-800-992-2766
By mail
Write to: Baron Capital, Inc.
767 Fifth Avenue
New York, NY 10153
By e-mail
Send your request to:
[email protected]
On the internet
Text-only versions of Baron Capital Asset Fund documents can be viewed
on-line or downloaded from:
http://www.sec.gov
Other
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (phone 1-800-SEC-0330). Copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549- 6009.
SEC file number: 811-8505
<PAGE>
BARON CAPITAL FUNDS TRUST
BARON CAPITAL ASSET FUND
Insurance Shares
767 Fifth Avenue
New York, New York 10153
(800) 99-BARON
212-583-2100
------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1999
------------------------------
This Statement of Additional Information ("SAI") is not a prospectus. The Fund's
Prospectus, dated April 15, 1999, may be obtained without charge by writing or
calling the Funds at the address and telephone number above.
------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this SAI or in the related
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page in
Statement
of
Additional Page in
Information Prospectus
FUND HISTORY AND CLASSIFICATION. . . . . . . . . . 3
Investment Goals, Strategies and Risks. . . . . 3 3,5
Options Transactions and Swaps . . . . . . . . 5 6
Use of Segregated and Other Special Accounts. . 7
Investment Restrictions . . . . . . . . . . . . 7
Turnover Rate . . . . . . . . . . . . . . . . . 8
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . 8 6
Board of Trustees and Officers. . . . . . . . . 9
Principal Holders of Shares . . . . . . . . . . 11
Investment Adviser. . . . . . . . . . . . . . . 11 6
Distribution Plan . . . . . . . . . . . . . . . 13 7
Brokerage . . . . . . . . . . . . . . . . . . . 14 6
Custodian, Transfer Agent and Dividend Agent. . 16 8
REDEMPTION OF SHARES . . . . . . . . . . . . . . . 16 8
NET ASSET VALUE. . . . . . . . . . . . . . . . . . 16 8
TAXES. . . . . . . . . . . . . . . . . . . . . . . 16 8
ORGANIZATION AND CAPITALIZATION. . . . . . . . . . 17
General . . . . . . . . . . . . . . . . . . . . 17 8
Shareholder and Trustee Liability . . . . . . . 17
OTHER INFORMATION. . . . . . . . . . . . . . . . . 17 Back Page
<PAGE>
FUND HISTORY AND CLASSIFICATION
Baron Capital Funds Trust is a no-load, open-end, diversified management
investment company organized as a series fund and established under the laws of
the State of Delaware on November 20, 1997. There is one series currently
available (the "Fund"): Baron Capital Asset Fund, started October 1, 1998.
INVESTMENT GOALS, STRATEGIES AND RISKS
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 invests primarily in small sized
companies with market capitalizations of approximately $100 million to $1.5
billion and medium sized companies with market values of $1.5 billion to $5
billion.
In addition to the principal investment strategies of the Fund described in the
Prospectus on pages 3, 5 and 6, the Fund may use the additional strategies
described below. These investment strategies are not fundamental policies and
may be changed by the Fund's Board of Trustees. Shareholders would be notified
of any material changes. Some of the strategies discussed below are mentioned in
the Prospectus, but are explained in more detail here.
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. The Fund may invest in securities commonly known as American
Depository Receipts ("ADRs"), and in European Depository Receipts ("EDRs") or
other securities convertible into securities of foreign issuers. ADRs are
certificates issued by a United States bank or trust company and represent the
right to receive securities of a foreign issuer deposited in a domestic bank or
foreign branch of a United States bank and traded on a United States exchange or
in an over-the- counter market. EDRs are receipts issued in Europe generally by
a non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic
securities. Generally, ADRs are in registered form and EDRs are in bearer form.
There are no fees imposed on the purchase or sale of ADR's or EDRs although the
issuing bank or trust company may impose fees on the purchase of dividends and
the conversion of ADRs and EDRs into the underlying securities. Investment in
ADRs has certain advantages over direct investment in the underlying non-U.S.
securities, since (i) ADRs are U.S. dollar denominated investments which are
easily transferable and for which market quotations are readily available and
(ii) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. EDRs
are not necessarily denominated in the currency of the underlying security.
Lending The Fund may lend its portfolio securities to 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.
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
-3-
<PAGE>
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.
Medium And Lower Rated Corporate Debt Securities The Fund may invest in up to
35% of its total assets in securities that are rated in the medium to lowest
rating categories by S&P and Moody's, some of which may be known as "junk
bonds."
The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating debt securities. The Adviser believes that the difference between
perceived risk and actual risk creates the opportunity for profit which can be
realized through thorough analysis. Ratings by S&P and Moody's evaluate only the
safety of principal and interest payments, not market value risk. Because the
creditworthiness of an issuer may change more rapidly than is able to be timely
reflected in changes in credit ratings, the Adviser monitors the issuers of
corporate debt securities held in the Fund's portfolio. The credit ratings
assigned by a rating agency to a security are not considered by the Adviser in
selecting a security. The Adviser examines the intrinsic value of a security in
light of market conditions and the underlying fundamental values. Because of the
nature of medium and lower rated corporate debt securities, achievement by the
Funds of its investment objective when investing in such securities is dependent
on the credit analysis of the Adviser. The Adviser could be wrong in its
analysis. If the Fund purchased primarily higher rated debt securities, risks
would be substantially reduced.
A general economic downturn or a significant increase in interest rates could
severely disrupt the market for medium and lower grade corporate debt securities
and adversely affect the market value of such securities. The ability of issuers
of medium and lower grade corporate debt securities to repay principal and to
pay interest, to meet projected business goals and to obtain additional
financing may be adversely affected by economic conditions. Such consequences
could lead to an increased incidence of default for such securities and
adversely affect the value of the corporate debt securities in the Fund's
portfolio. The secondary market prices of medium and lower grade corporate debt
securities are more sensitive to adverse economic changes or individual
corporate developments than are higher rated debt securities. Adverse publicity
and investor perceptions, whether or not based on rational analysis, and periods
of economic uncertainty may also affect the value and liquidity of medium and
lower grade corporate debt securities, although such factors also present
investment opportunities when prices fall below intrinsic values. Yields on debt
securities in the portfolio that are interest rate sensitive can be expected to
fluctuate over time.
To the extent that there is no established market for some of the medium or low
grade corporate debt securities in which the Fund may invest, there may be thin
or no trading in such securities and the ability of the Adviser to value
accurately such securities may be adversely affected. Further, it may be more
difficult for the Fund to sell securities for which no established retail market
exists as compared with securities for which such a market does exist. During
periods of reduced market liquidity and in the absence of readily available
market quotations for medium and lower grade corporate debt securities held in
the Fund's portfolio, the responsibility of the Adviser to value the Fund's
securities becomes more difficult and the Adviser's judgment may play a greater
role in the valuation of the Fund's securities due to a reduced availability of
reliable objective data.
To the extent that the Fund purchases illiquid securities or securities which
are restricted as to resale, the Fund may incur additional risks and costs.
Illiquid and restricted securities may be particularly difficult to value and
their disposition may require greater effort and expense than more liquid
securities. The Fund may be required to incur costs in connection with the
registration of restricted securities in order to dispose of such securities,
although under Rule 144A under the Securities Act of 1933 certain securities may
be determined to be liquid pursuant to procedures adopted by the Board of
Trustees under applicable guidelines. The Fund may invest in securities of
distressed issuers when the intrinsic values of such securities, in the opinion
of the Adviser, warrant such investment.
-4-
<PAGE>
Other Debt Securities The Fund may invest in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular interest payments. Zero-coupon and step-coupon securities are sold at a
deep discount to their face value; pay-in-kind securities pay interest through
the issuance of additional securities. The market value of these debt securities
generally fluctuates in response to changes in interest rates to a greater
degree than interest-paying securities of comparable term and quality. The
secondary market value of corporate debt securities structured as zero coupon
securities or pay-in-kind securities may be more volatile in response to changes
in interest rates than debt securities which pay interest periodically in cash.
Because such securities do not pay current interest, but rather, income is
accrued, to the extent that the Fund does not have available cash to meet
distribution requirements with respect to such income, it could be required to
dispose of portfolio securities that it otherwise would not. Such disposition
could be at a disadvantageous price. Investment in such securities also involves
certain tax considerations.
The Fund may 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. 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.
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.
As a form of borrowing, the Fund may engage in reverse repurchase agreements
with certain banks or non-bank dealers, where the Fund sells a security and
simultaneously agrees to buy it back later at a mutually agreed upon price. To
the extent the Fund engages in reverse repurchase agreements it will maintain a
segregated account consisting of liquid assets or highly marketable securities
to cover its obligations. Reverse repurchase agreements may expose the Fund to
greater fluctuations in the value of its assets.
OPTIONS TRANSACTIONS AND SWAPS
The Fund may (write) sell put and covered call options and purchase put and call
options on equity and/or debt securities. The Fund may also enter into equity
swap transactions. All calls sold by the Fund must be "covered" (i.e., a Fund
must own the underlying securities) or must meet the asset segregation
requirements described below as long as the call is outstanding. the option to
possible loss of opportunity
-5-
<PAGE>
to realize appreciation in the market price of the underlying se have sold.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation, when exercised, to buy, the
underlying security, at the exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller if
exercised, the obligation to sell, the underlying security at the exercise
price. An American style put or call option may be exercised at any time during
a fixed period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto, and the Fund may engage
in either style option. The Fund is authorized to engage in transactions with
respect to exchange-listed options, over-the-counter options ("OTC options") and
other derivative investments. Exchange-listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
Rather than taking or making delivery of the underlying security through the
process of exercising the option, listed options are usually closed by entering
into offsetting purchase or sale transactions that do not result in ownership of
the new option. The Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange-listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms. The
hours of trading for listed options may not coincide with the hours during which
the underlying instruments are traded. To the extent that the option markets
close before the markets for the underlying instruments, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option are negotiated by the parties. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Equity swap transactions are entered into with financial institutions through a
direct agreement with the Counterparty, generally an ISDA Master Agreement, the
specific terms of which are negotiated by the parties. The Funds may use equity
swaps, or other derivative instruments, for hedging purposes against potential
adverse movements in security prices or for non-hedging purposes such as seeking
to enhance return. The Fund may be required to post collateral for such
transactions.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option or derivatives, including swaps. As a result, if the
Counterparty fails to make or take delivery of the security, or other instrument
or fails to make a cash settlement payment due in according with the option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. The Adviser must assess the creditworthiness of each
Counterparty to determine the likelihood that the terms of the OTC option or the
derivative will be satisfied. The Fund will engage in OTC option transactions
and derivatives only with previously approved Counterparties. The staff of the
SEC currently takes the position that OTC options purchased by a fund, and
portfolio securities "covering" the amount of the fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any,) are illiquid, and are subject to a fund's limitations on
investments in illiquid securities.
-6-
<PAGE>
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security or instrument. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities or instruments required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid high
grade securities sufficient to purchase and deliver the securities if the call
is exercised. A put option written requires that the Fund segregate liquid, high
grade assets equal to the exercise price. Hedging transactions may be covered by
other means when consistent with applicable regulatory policies.
INVESTMENT RESTRICTIONS
The Fund has adopted investment restrictions, described below, which are
fundamental policies of the Fund and may not be changed without the approval of
the Fund's shareholders. Unless otherwise noted, all percentage restrictions are
measured as of the time of the investment after giving effect to the
transaction.
Baron Capital Asset Fund may not:
1. Issue senior securities or borrow money or utilize leverage in excess of
25% of its net assets (plus 5% for emergency or other short-term purposes)
from banks from time to time.
2. Except as described in the prospectus, engage in short-sales, purchase
securities on margin or maintain a net short position.
3. Purchase or sell commodities or commodity contracts except for hedging
purposes and in conformity with regulations of the Commodities Futures
Trading Commission such that the Fund would not be considered a commodity
pool.
4. Purchase or sell oil and gas interests or real estate. Debt or equity
securities issued by companies engaged in the oil, gas or real estate
business are not considered oil or gas interests or real estate for
purposes of this restriction. First mortgage loans and other direct
obligations secured by real estate are not considered real estate for
purposes of this restriction.
5. Invest more than 25% of the value of its total assets in any one industry,
except investments in U.S. government securities.
6. Purchase the securities of any one issuer other than the U.S. government or
any of its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to the 5%
and 10% limitations.
7. Underwrite securities of other issuers.
8. Make loans, except to the extent the purchase of debt obligations of any
type (including repurchase agreements and corporate commercial paper) are
considered loans and except that the Fund may lend portfolio securities to
qualified institutional investors in compliance with requirements
established from time to time by the Securities and Exchange Commission and
the securities exchanges where such securities are traded.
9. Participate on a joint, or a joint and several, basis in any securities
trading account.
10. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in
-7-
<PAGE>
connection with options, loans of portfolio securities, or other permitted
borrowings.
11. Purchase securities of any issuer with a record of less than three years'
continuous operations, including predecessors, except obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if
such purchase would cause the investments of the Fund in all such issuers
to exceed 5% of the value of the total assets of the Fund.
12. Invest more than 15% of its net assets in restricted or illiquid
securities, including repurchase agreements maturing in more than seven
days.
As a non-fundamental policy, The Fund will not:
1. Invest in securities of other registered investment companies (except in
connection with a merger, consolidation or other reorganization and except
for the purchase of shares of registered open-end money market funds if
double advisory fees are not assessed), invest more than 5% of the value of
the Fund's total assets in more than 3% of the total outstanding voting
securities of another investment company or more than 10% of the value of
the Fund's total assets in securities issued by other investment companies.
2. Invest more than 5% of its total assets in warrants to purchase common
stock.
3. Purchase the securities of any issuer of which any officer or director of
the Fund owns 2 of 1% of the outstanding securities or in which the
officers and directors in the aggregate own more than 5%.
The Securities and Exchange Commission currently requires that the following
conditions be met whenever portfolio securities are loaned: (1) the Fund must
receive at least 100% cash collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (3) the Fund must be able to terminate the loan at
any time; (4) the Fund must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Fund's trustees must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modifications. The
portfolio of the Fund is valued every day the New York Stock Exchange is open
for trading.
With respect to investments in warrants, the Fund will not invest in excess of
2% of the value of the particular Fund's net assets in warrants that are not
listed on the New York or American Stock Exchanges. Warrants are essentially
options to purchase equity securities at a specified price valid for a specific
period of time. Their prices do not necessarily move parallel to the prices of
the underlying securities. Warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
TURNOVER RATE
The Adviser expects that the average annual turnover rate of the portfolio of
the Fund should not exceed 50%. For the period October 1, 1998 (commencement of
operations) through December 31, 1998, the Fund's portfolio turnover was 37%.
The turnover rate fluctuates depending on market conditions.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES AND OFFICERS
The Board of Trustees oversees 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.
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name, Address & Age With the Fund During Past Five Years
- -------------------- ------------- ---------------------------------------
<S> <C> <C>
Ronald Baron *+ 55 President, Chief Investment President and Director of: Baron
767 Fifth Avenue Officer and Trustee Capital, Inc. (1982-Present), Baron
New York, NY 10153 Capital Management, Inc.(1983-Present) Baron Capital
Group, Inc. (1984-Present), BAMCO, Inc. (1987-Present).
Norman S. Edelcup @ 63 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 47 Trustee President and Chief Executive Officer,
444 Madison Avenue, Ste 703 Cold Spring Group, Inc. (1993-Present)
New York, NY 10020 (reorganization and restructuring consulting); various restructuring
and corporate development engagements(1995-Present) (case
and litigation management); Director, SNL Securities,
Inc. (1997-Present) (publisher of data bases and manager of a bank
and thrift stock portfolio); Trustee, Aerospace Creditors
Liquidating Trust (1993-1997)(administered and liquidated assets).
Irwin Greenberg @ 67 Trustee Chairman (1994-1997) and Director
4303 W. Wyndemere Circle (1991-Present), Lehigh Valley Hospital
Schnecksville, PA 18078 Board; Retail Consultant, 1990-Present); (Director, Cedar Crest
College (1990-Present); Director, Henry Lehr & Co., Inc.
(1996-Present) (insurance); President and Chief Executive Officer,
Hess's Department Stores (1976-1990).
Clifford Greenberg 39 Vice President Vice President, Baron Capital, Inc.,
767 Fifth Avenue Baron Capital Group, Inc., BAMCO, Inc.
New York, NY 10153 (1997-Present); General Partner, HPB Associates, L.P. (1984-1996)
(investment partnership).
Linda S. Martinson*+ 43 Secretary, General Counsel and Secretary of:
767 Fifth Avenue Vice President Baron Capital, Inc. (1983-Present),
New York, NY 10153 and Trustee BAMCO, Inc. (1987-Present), Baron Capital Group, Inc. (1984-Present),
Baron Capital Management, Inc. (1983-Present).
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Charles N. Mathewson 70 Trustee Chairman of the Board, International
9295 Prototype Road Game Technology (1986-Present)
Reno, NV 89511 (manufacturer of microprocessor-controlled gaming machines and
monitoring systems).
Harold W. Milner 64 Trustee Retired; President and Chief Executive
2293 Morningstar Drive Officer, Kahler Realty Corporation
Park City, UT 84060 (1985-1997) (hotel ownership and management).
Raymond Noveck+ 55 Trustee President, The Medical Information
31 Karen Road Line, Inc. (1997-Present) (health care
Waban, MA 02168 information); President, Strategic information); Director, Horizon
/CMS Healthcare Corporation (1987-1997).
Susan Robbins 44 Vice President Senior Analyst, Vice President and
767 Fifth Avenue Director of: Baron Capital, Inc. (1982-
New York, NY 10153 Present), Baron Capital Management, Inc.(1984-Present).
Morty Schaja* 44 Senior Vice Senior Vice President and Chief
767 Fifth Avenue President, Chief Operating Officer of Baron Capital, Inc.
New York, NY 10153 Operating Officer and Trustee (1997-Present), Managing 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. 48 Trustee Physician and Faculty, New York University
239 Central Park West School of Medicine (1976-Present).
New York, NY 10024
Peggy Wong 38 Treasurer and Treasurer and Chief Financial Officer
767 Fifth Avenue Chief Financial Officer of: Baron Capital, Inc., Baron Capital
New York, NY 10153 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.
@ Members of the Audit Committee.
-10-
<PAGE>
The Trustees of the Fund received the following compensation from the Funds for
the period October 1, 1998 (commencement of operations) to December 31, 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Name From the Funds From the Funds Paid to Trustees
<S> <C> <C>
Ronald Baron $0 $0
Norman Edelcup $0 $0
Linda S. Martinson $0 $0
Charles Mathewson $0 $0
Mark Feldman $0 $0
Irwin Greenberg $0 $0
Harold Milner $0 $0
Raymond Noveck $0 $0
Morty Schaja $0 $0
David Silverman $0 $0
TOTALS $0 $0
</TABLE>
PRINCIPAL HOLDERS OF SHARES
As of December 31, 1998, the following persons were known to the Fund to be the
record or beneficial owners of more than 5% of the outstanding Insurance Shares
of the Fund:
Lincoln National Life 100%
The above record owner is a life insurance company that holds stock for the
benefit of its variable life and variable annuity insurance clients. As of
December 31, 1998, none of the officers and Trustees of the Fund beneficially
owned directly or indirectly any shares of the Fund.
INVESTMENT ADVISER
The investment adviser to the Fund is BAMCO, Inc. (the "Adviser"), a New York
corporation with its principal offices at 767 Fifth Avenue, New York, N.Y. 10153
and a subsidiary of Baron Capital Group, Inc. ("BCG"). Mr. Ronald Baron is the
controlling stockholder of BCG and is BAMCO's chief investment officer. Mr.
Baron has over 28 years of experience as a Wall Street analyst and has managed
money for others for over 23 years. He has been a participant in Barron's
Roundtable and has been a featured guest on Wall Street Week, CNN and CNBC/FNN.
Pursuant to an Advisory Agreements with the Fund (the "Advisory Agreement"), the
Adviser furnishes continuous investment advisory services and management to the
Fund, including making the day-to-day investment decisions and arranging
portfolio transactions for the Fund subject to such policies as the Trustees may
determine. The Fund incurred advisory expenses for the period October 1, 1998
(commencement of operations) to December 1, 1998 of $3,244.
Under the Advisory Agreements, the Adviser, at its own expense and without
reimbursement from the Fund, furnishes office space and all necessary office
facilities, equipment and executive personnel for managing the Funds, and pays
the salaries and fees of all officers and Trustees who are interested persons of
the Adviser.
The Fund pays all operating and other expenses not borne by the Adviser such as
audit, accounting and legal fees; custodian fees; expenses of registering and
qualifying its shares with federal and state securities commissions; expenses in
preparing shareholder reports and proxy solicitation materials; expenses
associated with the Fund's shares such as dividend disbursing, transfer agent
and registrar
-11-
<PAGE>
fees; certain insurance expenses; compensation of Trustees who are not
interested persons of the Adviser; and other miscellaneous business expenses.
The Fund also pays the expenses of offering the shares of each respective Fund,
including the registration and filing fees, legal and accounting fees and costs
of printing the prospectus and related documents. The Fund also pays all taxes
imposed on it and all brokerage commissions and expenses incurred in connection
with its portfolio transactions.
The Adviser utilizes the staffs of BCG and its subsidiary Baron Capital
Management, Inc. ("BCM") to provide research. Directors, officers or employees
of the Adviser and/or its affiliates may also serve as officers and/or Trustees
of the Fund. BCM is an investment adviser to institutional and individual
accounts. Clients of BCM have investment objectives which may vary only slightly
from those of each other and of the Fund. BCM invests assets in such clients'
accounts and in the accounts of principals and employees of BCM and its
affiliates in investments substantially similar to, or the same as, those which
constitute the principal investments of the Fund. When the same securities are
purchased for or sold by a Fund and any of such other accounts, it is the policy
of the Adviser and BCM to allocate such transactions in a manner deemed
equitable by the Adviser, and for the principals and employees of the Adviser,
BCM, and affiliates to take either the same or least favorable price of the day.
All trading by employees is subject to the Code of Ethics of the Funds and the
Adviser. In certain circumstances the Adviser may make investments for the Fund
that conflict with investments being made by BCM. The Adviser may also make
investment decisions for the Fund that are inconsistent with the investment
decisions for other funds that is manages.
The Advisory Agreement provides that the Fund may use "Baron" as part of its
name for so long as the Adviser serves as investment adviser to the Fund. The
Fund acknowledges that the word "Baron" in its name is derived from the name of
the entities controlling, directly and indirectly, the Adviser, which derive
their name from Ronald Baron; that such name is the property of the Adviser and
its affiliated companies for copyright and/or other purposes; and that if for
any reason the Adviser ceases to be the Fund's investment adviser, the Fund will
promptly take all steps necessary to change its name to one that does not
include "Baron," absent the Adviser's written consent.
The Advisory Agreement provides that the Adviser shall have no liability to the
Fund or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund; provided, that the Adviser shall not be protected
against liabilities arising by virtue of willful misfeasance, bad faith or gross
negligence, or reckless disregard of the Adviser's obligations under the
Advisory Agreement.
The Advisory Agreement with respect to the Fund was approved by a majority of
the Trustees, including a majority of the Trustees who are not "interested
persons" ( as defined by the Investment Company Act of 1940 ("1940 Act" )) on
April 28, 1998. The Fund's Advisory Agreement is for an initial two year period
but the Advisory Agreements must normally be approved annually by the Trustees
or a majority of the Fund's shares and by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party.
The Advisory Agreement is terminable without penalty by either the Fund (when
authorized by majority vote of either its outstanding shares or the Trustees) or
the Adviser on 60 days' written notice. The Advisory Agreement shall
automatically terminate in the event of its "assignment" (as defined by 1940
Act).
Service Agreements
The Fund may have agreements with various service providers pursuant to which
administrative services such as record keeping, reporting and processing
services are provided to the Fund.
Distributor
The Fund has a distribution agreement with Baron Capital, Inc., ("Baron Capital"
or the "Distributor") a New York corporation and a subsidiary of BCG, located at
767 Fifth Avenue, New York, N.Y. 10153.
-12-
<PAGE>
Baron Capital is affiliated with the Adviser. The Distributor acts as the agent
for the Fund for the continuous public offering of its shares on a best efforts
basis pursuant to a distribution plan adopted under Rule 12b-1 under the 1940
Act ("Distribution Plan").
DISTRIBUTION PLAN
The Distribution Plan authorizes the Fund to pay the Distributor a distribution
fee equal on an annual basis to 0.25% of the Fund's average daily net assets.
The distribution fee is paid to the Distributor 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 Distributor; compensation to and expenses of employees of
the Distributor who engage in or support the distribution of shares or who
service shareholder accounts; telephone expenses; preparing, printing and
distributing promotional and advertising material; preparing, printing and
distributing the Prospectus and reports to other than current shareholders;
compensation for certain shareholder services; and commissions and other fees to
broker-dealers or other persons who have introduced investors to the Fund. The
distribution fee is payable to the Distributor regardless of the actual expenses
incurred, although the actual expenses incurred by the Distributor have
historically exceeded the distribution fees received by the Distributor.
If and to the extent the expenses listed below are considered to be primarily
intended to result in the sale of shares within the meaning of Rule 12b-1, they
are not included in the limits above: (a) the costs of preparing, printing or
reproducing and mailing all required reports and notices to shareholders; (b)
the costs of preparing, printing or reproducing and mailing all proxy statements
and proxies (whether or not such proxy materials include any item relating to or
directed toward the sale of shares); (c) the costs of preparing, printing or
reproducing and mailing all prospectuses and statements of additional
information; (d) all legal and accounting fees relating to the preparation of
any such report, prospectus, and proxy materials; (e) all fees and expenses
relating to the qualification of the Funds and/or their shares under the
securities or "Blue Sky" laws of any jurisdiction; (f) all fees under the 1940
Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of Shares; (g)
all fees and assessments, if any, of the Investment Company Institute or any
successor organization, whether or not its activities are designed to provide
sales assistance; (h) all costs of preparing and mailing confirmations of shares
sold or redeemed and reports of share balances; (i) all costs of responding to
telephone or mail inquiries of shareholders or prospective shareholders.
The Distribution Plan requires that while it is in effect the Distributor report
in writing, at least quarterly, the amounts of all expenditures, the identity of
the payees and the purposes for which such expenditures were made for the
preceding fiscal quarter.
For the period October 1, 1998 through December 31, 1999 the Fund accrued
distribution fees of $234. The distribution expenses incurred by the Distributor
for the period were as follows:
Advertising $ 0
Printing and mailing of prospectuses 5,700
to other than current shareholders
Compensation paid or to be paid to 0
broker/dealers
Compensation paid to sales and clerical personnel 0
Other 0
Trustees of the Funds who were not interested persons of the Funds had no direct
or indirect financial interest in the operation of the Distribution Plan or the
Distribution Agreement. All the interested Trustees had such an interest.
-13-
<PAGE>
The Distribution Plan has been approved by the Fund's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements related thereto. In approving the
Distribution Plan, the Trustees considered various factors and determined that
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The anticipated benefits include the following: (i) reduced
expense ratios due to economies of scale, (ii) the ability to purchase larger
blocks of securities, resulting in decreased expenses, and (iii) the
minimization of adverse effects from forced sales of portfolio securities to
meet redemptions.
Baron Capital is authorized to make payments to authorized dealers, banks and
other financial institutions who have rendered distribution assistance and
ongoing shareholder support services, shareholder servicing assistance or record
keeping. Certain states may require that any such person be registered as a
dealer with such state. The Fund may execute portfolio transactions with and
purchase securities issued by depository institutions that receive payments
under the Distribution Plan. No preference will be shown in the selection of
investments for the instruments of such depository institutions. Baron Capital
may also retain part of the distribution fee as compensation for its services
and expenses in connection with the distribution of shares. Baron Capital's
actual expenditures have and will continue to substantially exceed the
distribution fee received by it. If the Distribution Plan is terminated, the
Fund will owe no payments to Baron Capital other than any portion of the
distribution fee accrued through the effective date of termination but then
unpaid.
Unless terminated in accordance with its terms, the Distribution Plan shall
continue in effect until, and from year to year thereafter if, such continuance
is specifically approved at least annually by its Trustees and by a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Distribution Plan or in
any agreements related thereto, such votes cast in person at a meeting called
for the purpose of such vote.
The Distribution Plan may be terminated at any time by the vote of a majority of
the members of the Fund's Board of Trustees who are not interested persons of
the Fund and have no direct or indirect financial interest in the operation of
the Distribution Plan or in any agreements related thereto or by the vote of a
majority of the outstanding shares. The Distribution Plan may not be amended to
increase materially the amount of payments to be made without the approval of a
majority of the shareholders. All material amendments must be approved by a vote
of the Trustees and of the Trustees who are not interested persons of the Fund
and have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements related thereto, such votes cast in
person at a meeting called for the purpose of such vote.
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in business of underwriting, selling or distributing
securities. Accordingly, the Distributor will enter into agreements with banks
only to provide administrative assistance. However, changes in federal or state
statues and regulations pertaining to the permissible activities of banks and
their affiliates, as well as judicial or administrative decisions or
interpretations could prevent a bank from continuing to perform all or a part of
the contemplated services. If a bank were prohibited from so acting, the
Trustees would consider what actions, if any, would be necessary to continue to
provide efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequences as a result of
these occurrences.
BROKERAGE
The Adviser is responsible for placing the portfolio brokerage business of the
Fund with the objective of obtaining the best net results for the Fund, taking
into account prompt, efficient and reliable executions at a favorable price.
Brokerage transactions for the Fund in exchange-listed securities are effected
chiefly by or through the Adviser's affiliate, Baron Capital, when consistent
with this objective and subject to the conditions and limitations of the 1940
Act. Baron Capital is a member of the National Association of
-14-
<PAGE>
Securities Dealers, Inc., but is not a member of any securities exchange.
Transactions in securities that trade on NASDAQ or are otherwise not listed are
effected by broker/dealers other than Baron Capital. The Fund does not deal with
Baron Capital in any portfolio transaction in which Baron Capital acts as
principal.
The Fund's Board of Trustees has adopted procedures pursuant to Rule 17e-1 of
the 1940 Act which are reasonably designed to provide that the 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 Board reviews no
less frequently than quarterly that all transactions effected pursuant to Rule
17e-1during the preceding quarter were effected in compliance with such
procedures. The Fund and the Adviser furnish such reports and maintain such
records as required by Rule 17e-1.
For the period October 1, 1998 through December 31, 1998, of the total $3,678
brokerage commissions paid by the Funds, $3,417 was paid to Baron Capital. The
brokerage commissions paid to Baron Capital represent 92.9% of the aggregate
dollar amount of brokerage commissions paid and 92.3% of the aggregate dollar
amount of transactions involving the payment of commissions for the period
October 1, 1998 through December 31, 1998.
Under the Investment Advisory Agreements and as permitted by Section 28(e) of
the Securities and Exchange Act of 1934, the Adviser may cause the Funds to pay
a broker-dealer (except Baron Capital) which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction for the Funds in excess of the amount other broker-dealers would
have charged for the transaction if the Adviser determines in good faith that
the greater commission is consistent with the Fund's policies and is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Fund or to its other clients. The
term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement. Such research and information may be
used by the Adviser or its affiliates to supplement the services it is required
to perform pursuant to the Advisory Agreement in serving the Fund and/or other
advisory clients of affiliates.
Broker-dealers may be willing to furnish statistical research and other factual
information or services to the Adviser for no consideration other than brokerage
or underwriting commissions. Securities may be bought or sold through such
broker-dealers, but at present, unless otherwise directed by the Fund, a
commission higher than one charged elsewhere will not be paid to such a firm
solely because it provided research to the Adviser. Research provided by brokers
is used for the benefit of all of the Adviser's or its affiliates' clients and
not solely or necessarily for the benefit of the Fund. The Adviser's investment
management personnel attempt to evaluate the quality of research provided by
brokers. Results of this effort are sometimes used by the Adviser as a
consideration the in the selection of brokers to execute portfolio transactions.
Baron Capital acts as broker for, in addition to the Fund, accounts of BCM and
Baron Capital, including accounts of principals and employees of Baron Capital,
BCM and the Adviser. Investment decisions for the Fund and for investment
accounts managed by BCM are made independent of each other in light of differing
considerations for the various accounts. The same investment decision may,
however, be made for two or more of the Adviser's and/or BCM's accounts. In such
event, simultaneous transactions are inevitable. Purchases and sales are
averaged as to price where possible and allocated to account in a manner deemed
equitable by the Adviser in conjunction with BCM. This procedure could have a
detrimental effect upon the price or value of the security for the Fund, but may
have a beneficial effect.
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<PAGE>
The investment advisory fee that the Fund pays to the Adviser is not reduced as
a consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund will exceed those that might
otherwise be paid by an amount that cannot be presently determined. Such
services would be useful and of value to the Adviser in serving both the Fund
and other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would by useful to the Adviser in carrying
out its obligations to the Fund.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, NY, is the custodian for the
Fund's cash and securities. DST Systems, Inc., CT-7 Tower, 1004 Baltimore,
Kansas City, MO 64105, is the transfer agent and dividend agent for the Fund's
shares. Neither institution assists in or is responsible for investment
decisions involving assets of the Fund.
REDEMPTION OF SHARES
The Fund expects to make all redemptions in cash, but have reserved the right to
make payment, in whole or in part, in portfolio securities. Payment will be made
other than all in cash if the Funds' Board of Trustees determines that economic
conditions exist which would make payment wholly in cash detrimental to the
Fund's best interests. Portfolio securities to be so distributed, if any, would
be selected in the discretion of the Fund's Board of Trustees and priced as
described under "Determining Your Share Price" herein and in the Prospectus.
NET ASSET VALUE
As more fully set forth in the Prospectus under "Determining Your Share Price,"
the net asset value per share of each Fund is determined as of the close of the
New York Stock Exchange on each day that the Exchange is open. The Exchange is
open all week days that are not holidays, which it announces annually. The most
recent announcement states it will not be open on New Year's Day, Martin Luther
King, Jr.'s Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Securities traded on more than one national securities exchange are valued at
the last sale price of the day as of which such value is being determined as
reflected at the close of the exchange which is the principal market for such
securities.
U.S. Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. Debt instruments having a
greater remaining maturity 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.
TAXES
The Fund intends to qualify every year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Qualification as
a regulated investment company relieves the Fund of Federal income taxes on the
portion of their net investment income and net realized capital gains
distributed to shareholders. The Fund intends to distribute virtually all of its
net investment income and net realized capital gains at least annually to their
respective shareholders.
A non-deductible 4% excise tax will be imposed on the Fund to the extent that it
does not distribute (including declaration of certain dividends), during each
calendar year, (i) 98% of its ordinary income for such calendar year, (ii) 98%
of its capital gain net income (the excess of short and long term capital gain
-16-
<PAGE>
over short and long term capital loss) for each one-year period ending October
31 and (iii) certain other amounts not distributed in previous years.
Shareholders will be taxed during each calendar year on the full amount of such
dividends distributed (including certain declared dividends not actually paid
until the next calendar year).
For Federal income tax purposes, distributions paid from net investment income
and from any net realized short-term capital gains are taxable to shareholders
as ordinary income, whether received in cash or in additional shares.
Distributions paid from net capital gains are taxable as long-term capital
gains, whether received in cash or shares and regardless of how long a
shareholder has held the shares, and are not eligible for the dividends received
deduction. The Fund will send written notices to shareholders regarding the
Federal income tax status of all distributions made during each calendar year as
ordinary income or capital gain.
The foregoing relates to Federal income taxation. Distributions may also be
subject to state and local taxes. The Fund is organized as a Delaware business
trust. Under current law, so long as the Fund qualifies for the Federal income
tax treatment described above, it is believed that it will not be liable for any
income or franchise tax imposed by Delaware.
Investors are urged to consult their own tax advisers regarding the application
of Federal, state and local tax laws.
ORGANIZATION AND CAPITALIZATION
GENERAL
The Trust is an open-end investment company organized as a series fund and
established under the laws of The State of Delaware by a Declaration of Trust
dated November 20, 1997. The one series currently available is Baron Capital
Asset Fund. Shares entitle their holders to one vote per share. Shares have
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees and, in such
event, the holders of the remaining shares voting for the election of Trustees
will not be able to elect any person or persons as Trustees. Shares have no
preemptive or subscription rights, and are transferable.
SHAREHOLDER AND TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a trustee against liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
OTHER INFORMATION
Independent Accountants
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants of the Fund.
Calculations of Performance Data
Advertisements and other sales literature for the Fund may refer to average
annual total return and actual return. Average annual total return is computed
by finding the average annual compounded rates of return over a given period
that would equate a hypothetical initial investment to the ending redeemable
value thereof, as follows:
-17-
<PAGE>
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n
= number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 investment made at the beginning
of the period
Actual return is computed by measuring 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. The
performance data used in advertisements does not give effect to a 2% contingent
deferred sales charge that is no longer applicable.
All performance calculations assume that dividends and distributions are
reinvested at the net asset value on the appropriate reinvestment dates and
include all recurring fees.
Computed in the manner described above, the performance of the Fund has been:
Total Return
Inception(10/01/98) to 12/31/98 +32.5%
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.
In addition to advertising average annual and actual return data, comparative
performance information may be used in advertising materials about the Funds,
including data and other information from Lipper Analytical Services, Inc., CDA
Investment Technologies, Morningstar Inc., Money, Forbes, SEI, Ibbotson, No Load
Investor, Growth Fund Guide, Fortune, Barron's, The New York Times, The Wall
Street Journal, Changing Times, Medical Economics, Business Week, Consumer
Digest, Dick Davis Digest, Dickenson's Retirement Letter, Equity Fund Outlook,
Executive Wealth Advisor, Financial World, Investor's Daily, Time, Personal
Finance, Investment Advisor, SmartMoney, Rukeyser, Kiplinger's, NAPFA News, US
News, Bottomline, Investors Business Daily, Bloomberg Radio, CNBC, USA Today,
1998 Mutual Fund Report, Mutual Fund Magazine, The Street.com, Bloomberg
Personal, Worth, Washington Business Journal, Investment News, Hispanic
Magazine, Institutional Investor, Rolling Stone Magazine, Microsoft Investor,
Individual Investor, SmartMoney Interactive, Art & Auction, Dow Jones Newswire,
and/or Dow Jones News. The Fund may also use comparative performance data from
indexes such as the Dow Jones Industrial Average, Standard & Poor's 400, 500,
Small Cap 600, 1,500, or Midcap 400, Value Line Index, Wilshire 4,500, 5000, or
Small Cap; NASDAQ/OTC Composite, New York Stock Exchange; and the Russell 1000,
2000, 2500, 3000, 2000 Growth, 2000 Value, or Midcap. With respect to the rating
services, the Fund may use performance information that ranks the Fund in any of
the following categories: all funds, aggressive growth funds, value funds,
mid-cap funds, small-cap funds, growth and income funds, equity income funds,
and any combination of the above listed categories.
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<PAGE>
BARON CAPITAL FUNDS TRUST
BARON CAPITAL ASSET FUND
Retirement Shares
767 Fifth Avenue
New York, New York 10153
(800) 99-BARON
212-583-2100
------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 15, 1999
------------------------
This Statement of Additional Information ("SAI") is not a prospectus. The Fund's
Prospectus, dated April 15, 1999, may be obtained without charge by writing or
calling the Funds at the address and telephone number above.
------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this SAI or in the related
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page in
Statement
of
Additional Page in
Information Prospectus
FUND HISTORY AND CLASSIFICATION. . . . . . . . . . 3
Investment Goals, Strategies and Risks. . . . . 3 3,5
Options Transactions and Swaps . . . . . . . . 6 6
Use of Segregated and Other Special Accounts. . 7
Investment Restrictions . . . . . . . . . . . . 7
Turnover Rate . . . . . . . . . . . . . . . . . 8
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . 9 7
Board of Trustees and Officers. . . . . . . . . 9
Principal Holders of Shares . . . . . . . . . . 11
Investment Adviser. . . . . . . . . . . . . . . 11 7
Brokerage . . . . . . . . . . . . . . . . . . . 13 7
Custodian, Transfer Agent and Dividend Agent. . 14 9
REDEMPTION OF SHARES . . . . . . . . . . . . . . . 14 9
NET ASSET VALUE. . . . . . . . . . . . . . . . . . 14 9
TAXES. . . . . . . . . . . . . . . . . . . . . . . 15 9
ORGANIZATION AND CAPITALIZATION. . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . 15 9
Shareholder and Trustee Liability . . . . . . . 15
OTHER INFORMATION. . . . . . . . . . . . . . . . . 16 Back Page
<PAGE>
FUND HISTORY AND CLASSIFICATION
Baron Capital Funds Trust is a no-load, open-end, diversified management
investment company organized as a series fund and established under the laws of
the State of Delaware on November 20, 1997. There is one series currently
available (the "Fund"): Baron Capital Asset Fund, started October 1, 1998. The
Fund has two classes of stock, Retirement Shares, which are available to
qualified retirement plans, and Insurance Shares, which are available in
connection with variable annuity contracts and variable life insurance
contracts.
INVESTMENT GOALS, STRATEGIES AND RISKS
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 invests primarily in small sized
companies with market capitalizations of approximately $100 million to $1.5
billion and medium sized companies with market values of $1.5 billion to $5
billion.
In addition to the principal investment strategies of the Fund described in the
Prospectus on pages 3, 5 and 6, the Fund may use the additional strategies
described below. These investment strategies are not fundamental policies and
may be changed by the Fund's Board of Trustees. Shareholders would be notified
of any material changes. Some of the strategies discussed below are mentioned in
the Prospectus, but are explained in more detail here.
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. The Fund may invest in securities commonly known as American
Depository Receipts ("ADRs"), and in European Depository Receipts ("EDRs") or
other securities convertible into securities of foreign issuers. ADRs are
certificates issued by a United States bank or trust company and represent the
right to receive securities of a foreign issuer deposited in a domestic bank or
foreign branch of a United States bank and traded on a United States exchange or
in an over-the- counter market. EDRs are receipts issued in Europe generally by
a non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic
securities. Generally, ADRs are in registered form and EDRs are in bearer form.
There are no fees imposed on the purchase or sale of ADR's or EDRs although the
issuing bank or trust company may impose fees on the purchase of dividends and
the conversion of ADRs and EDRs into the underlying securities. Investment in
ADRs has certain advantages over direct investment in the underlying non-U.S.
securities, since (i) ADRs are U.S. dollar denominated investments which are
easily transferable and for which market quotations are readily available and
(ii) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. EDRs
are not necessarily denominated in the currency of the underlying security.
Lending The Fund may lend its portfolio securities to 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.
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<PAGE>
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.
Medium And Lower Rated Corporate Debt Securities The Fund may invest in up to
35% of its total assets in securities that are rated in the medium to lowest
rating categories by S&P and Moody's, some of which may be known as "junk
bonds."
The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating debt securities. The Adviser believes that the difference between
perceived risk and actual risk creates the opportunity for profit which can be
realized through thorough analysis. Ratings by S&P and Moody's evaluate only the
safety of principal and interest payments, not market value risk. Because the
creditworthiness of an issuer may change more rapidly than is able to be timely
reflected in changes in credit ratings, the Adviser monitors the issuers of
corporate debt securities held in the Fund's portfolio. The credit ratings
assigned by a rating agency to a security are not considered by the Adviser in
selecting a security. The Adviser examines the intrinsic value of a security in
light of market conditions and the underlying fundamental values. Because of the
nature of medium and lower rated corporate debt securities, achievement by the
Funds of its investment objective when investing in such securities is dependent
on the credit analysis of the Adviser. The Adviser could be wrong in its
analysis. If the Fund purchased primarily higher rated debt securities, risks
would be substantially reduced.
A general economic downturn or a significant increase in interest rates could
severely disrupt the market for medium and lower grade corporate debt securities
and adversely affect the market value of such securities. The ability of issuers
of medium and lower grade corporate debt securities to repay principal and to
pay interest, to meet projected business goals and to obtain additional
financing may be adversely affected by economic conditions. Such consequences
could lead to an increased incidence of default for such securities and
adversely affect the value of the corporate debt securities in the Fund's
portfolio. The secondary market prices of medium and lower grade corporate debt
securities are more sensitive to adverse economic changes or individual
corporate developments than are higher rated debt securities. Adverse publicity
and investor perceptions, whether or not based on rational analysis, and periods
of economic uncertainty may also affect the value and liquidity of medium and
lower grade corporate debt securities, although such factors also present
investment opportunities when prices fall below intrinsic values. Yields on debt
securities in the portfolio that are interest rate sensitive can be expected to
fluctuate over time.
To the extent that there is no established market for some of the medium or low
grade corporate debt securities in which the Fund may invest, there may be thin
or no trading in such securities and the ability of the Adviser to value
accurately such securities may be adversely affected. Further, it may be more
difficult for the Fund to sell securities for which no established retail market
exists as compared with securities for which such a market does exist. During
periods of reduced market liquidity and in the absence of readily available
market quotations for medium and lower grade corporate debt securities held in
the Fund's portfolio, the responsibility of the Adviser to value the Fund's
securities becomes more difficult and the Adviser's judgment may play a greater
role in the valuation of the Fund's securities due to a reduced availability of
reliable objective data.
To the extent that the Fund purchases illiquid securities or securities which
are restricted as to resale, the Fund may incur additional risks and costs.
Illiquid and restricted securities may be particularly difficult to value and
their disposition may require greater effort and expense than more liquid
securities. The Fund may be required to incur costs in connection with the
registration of restricted securities in order to
-4-
<PAGE>
dispose of such securities, although under Rule 144A under the Securities Act of
1933 certain securities may be determined to be liquid pursuant to procedures
adopted by the Board of Trustees under applicable guidelines. The Fund may
invest in securities of distressed issuers when the intrinsic values of such
securities, in the opinion of the Adviser, warrant such investment.
Other Debt Securities The Fund may invest in zero-coupon, step-coupon, and
pay-in-kind securities. These securities are debt securities that do not make
regular interest payments. Zero-coupon and step-coupon securities are sold at a
deep discount to their face value; pay-in-kind securities pay interest through
the issuance of additional securities. The market value of these debt securities
generally fluctuates in response to changes in interest rates to a greater
degree than interest-paying securities of comparable term and quality. The
secondary market value of corporate debt securities structured as zero coupon
securities or pay-in-kind securities may be more volatile in response to changes
in interest rates than debt securities which pay interest periodically in cash.
Because such securities do not pay current interest, but rather, income is
accrued, to the extent that the Fund does not have available cash to meet
distribution requirements with respect to such income, it could be required to
dispose of portfolio securities that it otherwise would not. Such disposition
could be at a disadvantageous price. Investment in such securities also involves
certain tax considerations.
The Fund may 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. 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.
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.
As a form of borrowing, the Fund may engage in reverse repurchase agreements
with certain banks or non-bank dealers, where the Fund sells a security and
simultaneously agrees to buy it back later at a mutually agreed upon price. To
the extent the Fund engages in reverse repurchase agreements it will maintain a
segregated account consisting of liquid assets or highly marketable securities
to cover its obligations. Reverse repurchase agreements may expose the Fund to
greater fluctuations in the value of its assets.
-5-
<PAGE>
OPTIONS TRANSACTIONS AND SWAPS
The Fund may (write) sell put and covered call options and purchase put and call
options on equity and/or debt securities. The Fund may also enter into equity
swap transactions. All calls sold by the Fund must be "covered" (i.e., a Fund
must own the underlying securities) or must meet the asset segregation
requirements described below as long as the call is outstanding. the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying se have sold.
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation, when exercised, to buy, the
underlying security, at the exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller if
exercised, the obligation to sell, the underlying security at the exercise
price. An American style put or call option may be exercised at any time during
a fixed period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto, and the Fund may engage
in either style option. The Fund is authorized to engage in transactions with
respect to exchange-listed options, over-the-counter options ("OTC options") and
other derivative investments. Exchange-listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
Rather than taking or making delivery of the underlying security through the
process of exercising the option, listed options are usually closed by entering
into offsetting purchase or sale transactions that do not result in ownership of
the new option. The Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange-listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms. The
hours of trading for listed options may not coincide with the hours during which
the underlying instruments are traded. To the extent that the option markets
close before the markets for the underlying instruments, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option are negotiated by the parties. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Equity swap transactions are entered into with financial institutions through a
direct agreement with the Counterparty, generally an ISDA Master Agreement, the
specific terms of which are negotiated by the parties. The Fund may use equity
swaps, or other derivative instruments, for hedging purposes against potential
adverse movements in security prices or for non-hedging purposes such as seeking
to enhance return. The Fund may be required to post collateral for such
transactions.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option or derivatives, including swaps. As a result, if the
Counterparty fails to make or take delivery of the security, or other instrument
or fails to make a cash settlement payment due in according with the option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. The
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<PAGE>
Adviser must assess the creditworthiness of each Counterparty to determine the
likelihood that the terms of the OTC option or the derivative will be satisfied.
The Fund will engage in OTC option transactions and derivatives only with
previously approved Counterparties. The staff of the SEC currently takes the
position that OTC options purchased by a fund, and portfolio securities
"covering" the amount of the fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any,) are
illiquid, and are subject to a fund's limitations on investments in illiquid
securities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security or instrument. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities or instruments required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid high
grade securities sufficient to purchase and deliver the securities if the call
is exercised. A put option written requires that the Fund segregate liquid, high
grade assets equal to the exercise price. Hedging transactions may be covered by
other means when consistent with applicable regulatory policies.
INVESTMENT RESTRICTIONS
The Fund has adopted investment restrictions, described below, which are
fundamental policies of the Fund and may not be changed without the approval of
the Fund's shareholders. Unless otherwise noted, all percentage restrictions are
measured as of the time of the investment after giving effect to the
transaction.
Baron Capital Asset Fund may not:
1. Issue senior securities or borrow money or utilize leverage in excess of
25% of its net assets (plus 5% for emergency or other short-term purposes)
from banks from time to time.
2. Except as described in the prospectus, engage in short-sales, purchase
securities on margin or maintain a net short position.
3. Purchase or sell commodities or commodity contracts except for hedging
purposes and in conformity with regulations of the Commodities Futures
Trading Commission such that the Fund would not be considered a commodity
pool.
4. Purchase or sell oil and gas interests or real estate. Debt or equity
securities issued by companies engaged in the oil, gas or real estate
business are not considered oil or gas interests or real estate for
purposes of this restriction. First mortgage loans and other direct
obligations secured by real estate are not considered real estate for
purposes of this restriction.
5. Invest more than 25% of the value of its total assets in any one industry,
except investments in U.S. government securities.
6. Purchase the securities of any one issuer other than the U.S. government or
any of its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to the 5%
and 10% limitations.
-7-
<PAGE>
7. Underwrite securities of other issuers.
8. Make loans, except to the extent the purchase of debt obligations of any
type (including repurchase agreements and corporate commercial paper) are
considered loans and except that the Fund may lend portfolio securities to
qualified institutional investors in compliance with requirements
established from time to time by the Securities and Exchange Commission and
the securities exchanges where such securities are traded.
9. Participate on a joint, or a joint and several, basis in any securities
trading account.
10. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with options, loans of portfolio securities, or
other permitted borrowings.
11. Purchase securities of any issuer with a record of less than three years'
continuous operations, including predecessors, except obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if
such purchase would cause the investments of the Fund in all such issuers
to exceed 5% of the value of the total assets of the Fund.
12. Invest more than 15% of its net assets in restricted or illiquid
securities, including repurchase agreements maturing in more than seven
days.
As a non-fundamental policy, The Fund will not:
1. Invest in securities of other registered investment companies (except in
connection with a merger, consolidation or other reorganization and except
for the purchase of shares of registered open-end money market funds if
double advisory fees are not assessed), invest more than 5% of the value of
the Fund's total assets in more than 3% of the total outstanding voting
securities of another investment company or more than 10% of the value of
the Fund's total assets in securities issued other investment companies.
2. Invest more than 5% of its total assets in warrants to purchase common
stock.
3. Purchase the securities of any issuer of which any officer or director of
the Fund owns 2 of 1% of the outstanding securities or in which the
officers and directors in the aggregate own more than 5%.
The Securities and Exchange Commission currently requires that the following
conditions be met whenever portfolio securities are loaned: (1) the Fund must
receive at least 100% cash collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (3) the Fund must be able to terminate the loan at
any time; (4) the Fund must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Fund's trustees must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modifications. The
portfolio of the Fund is valued every day the New York Stock Exchange is open
for trading.
With respect to investments in warrants, the Fund will not invest in excess of
2% of the value of the particular Fund's net assets in warrants that are not
listed on the New York or American Stock Exchanges. Warrants are essentially
options to purchase equity securities at a specified price valid for a specific
period of time. Their prices do not necessarily move parallel to the prices of
the underlying securities. Warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
TURNOVER RATE
The Adviser expects that the average annual turnover rate of the portfolio of
the Fund should not exceed 50%. For the period October 1, 1998 (commencement of
operations) through December 31, 1998, the
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<PAGE>
Fund's portfolio turnover was 37%. The turnover rate fluctuates depending on
market conditions.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES AND OFFICERS
The Board of Trustees oversees 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 Principal Occupation(s)
Name, Address & Age With the Fund During Past Five Years
- -------------------- ------------- ---------------------------------------
<S> <C> <C>
Ronald Baron *+ 55 President, Chief Investment President and Director of: Baron
767 Fifth Avenue Officer and Trustee Capital, Inc. (1982-Present), Baron
New York, NY 10153 Capital Management, Inc.(1983-Present) Baron Capital
Group, Inc. (1984-Present), BAMCO, Inc. (1987-Present).
Norman S. Edelcup @ 63 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 47 Trustee President and Chief Executive Officer,
444 Madison Avenue, Ste 703 Cold Spring Group, Inc. (1993-Present)
New York, NY 10020 (reorganization and restructuring consulting); various restructuring
and corporate development engagements(1995-Present) (case
and litigation management); Director, SNL Securities,
Inc. (1997-Present) (publisher of data bases and manager of a bank
and thrift stock portfolio); Trustee, Aerospace Creditors
Liquidating Trust (1993-1997)(administered and liquidated assets).
Irwin Greenberg @ 67 Trustee Chairman (1994-1997) and Director
4303 W. Wyndemere Circle (1991-Present), Lehigh Valley Hospital
Schnecksville, PA 18078 Board; Retail Consultant, 1990-Present); (Director, Cedar Crest
College (1990-Present); Director, Henry Lehr & Co., Inc.
(1996-Present) (insurance); President and Chief Executive Officer,
Hess's Department Stores (1976-1990).
Clifford Greenberg 39 Vice President Vice President, Baron Capital, Inc.,
767 Fifth Avenue Baron Capital Group, Inc., BAMCO, Inc.
New York, NY 10153 (1997-Present); General Partner, HPB Associates, L.P. (1984-1996)
(investment partnership).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Linda S. Martinson*+ 43 Secretary, General Counsel and Secretary of:
767 Fifth Avenue Vice President Baron Capital, Inc. (1983-Present),
New York, NY 10153 and Trustee BAMCO, Inc. (1987-Present), Baron Capital Group, Inc. (1984-Present),
Baron Capital Management, Inc. (1983-Present).
Charles N. Mathewson 70 Trustee Chairman of the Board, International
9295 Prototype Road Game Technology (1986-Present)
Reno, NV 89511 (manufacturer of microprocessor-controlled gaming machines and
monitoring systems).
Harold W. Milner 64 Trustee Retired; President and Chief Executive
2293 Morningstar Drive Officer, Kahler Realty Corporation
Park City, UT 84060 (1985-1997) (hotel ownership and management).
Raymond Noveck+ 55 Trustee President, The Medical Information
31 Karen Road Line, Inc. (1997-Present) (health care
Waban, MA 02168 information); President, Strategic information); Director, Horizon
/CMS Healthcare Corporation (1987-1997).
Susan Robbins 44 Vice President Senior Analyst, Vice President and
767 Fifth Avenue Director of: Baron Capital, Inc. (1982-
New York, NY 10153 Present), Baron Capital Management, Inc.(1984-Present).
Morty Schaja* 44 Senior Vice Senior Vice President and Chief
767 Fifth Avenue President, Chief Operating Officer of Baron Capital, Inc.
New York, NY 10153 Operating Officer and Trustee (1997-Present), Managing 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. 48 Trustee Physician and Faculty, New York University
239 Central Park West School of Medicine (1976-Present).
New York, NY 10024
Peggy Wong 38 Treasurer and Treasurer and Chief Financial Officer
767 Fifth Avenue Chief Financial Officer of: Baron Capital, Inc., Baron Capital
New York, NY 10153 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.
@ Members of the Audit Committee.
-10-
<PAGE>
Aggregate Compensation Total Compensation
Name From the Funds From the Funds Paid to Trustees
Ronald Baron $0 $0
Norman Edelcup $0 $0
Linda S. Martinson $0 $0
Charles Mathewson $0 $0
Mark Feldman $0 $0
Irwin Greenberg $0 $0
Harold Milner $0 $0
Raymond Noveck $0 $0
Morty Schaja $0 $0
David Silverman $0 $0
Totals $0 $0
PRINCIPAL HOLDERS OF SHARES
As of December 31, 1998, the following persons were known to the Fund to be the
record or beneficial owners of more than 5% of the outstanding Retirement Shares
of the Fund:
Retirement Plan of the Carmelites, Province of
Most Pure Heart of Mary 100%
The above record owner is a retirement plan that holds stock for the benefit of
its plan participants. As of December 31, 1998, none of the officers and
Trustees of the Fund beneficially owned directly or indirectly any shares of the
Fund.
INVESTMENT ADVISER
The investment adviser to the Fund is BAMCO, Inc. (the "Adviser"), a New York
corporation with its principal offices at 767 Fifth Avenue, New York, N.Y. 10153
and a subsidiary of Baron Capital Group, Inc. ("BCG"). Mr. Ronald Baron is the
controlling stockholder of BCG and is BAMCO's chief investment officer. Mr.
Baron has over 28 years of experience as a Wall Street analyst and has managed
money for others for over 23 years. He has been a participant in Barron's
Roundtable and has been a featured guest on Wall Street Week, CNN and CNBC/FNN.
Pursuant to an Advisory Agreements with the Fund (the "Advisory Agreement"), the
Adviser furnishes continuous investment advisory services and management to the
Fund, including making the day-to-day investment decisions and arranging
portfolio transactions for the Fund subject to such policies as the Trustees may
determine. The Fund incurred advisory expenses for the period October 1, 1998
(commencement of operations) to December 1, 1998 of $3,244.
Under the Advisory Agreements, the Adviser, at its own expense and without
reimbursement from the Fund, furnishes office space and all necessary office
facilities, equipment and executive personnel for managing the Funds, and pays
the salaries and fees of all officers and Trustees who are interested persons of
the Adviser.
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<PAGE>
The Fund pays all operating and other expenses not borne by the Adviser such as
audit, accounting and legal fees; custodian fees; expenses of registering and
qualifying its shares with federal and state securities commissions; expenses in
preparing shareholder reports and proxy solicitation materials; expenses
associated with the Fund's shares such as dividend disbursing, transfer agent
and registrar fees; certain insurance expenses; compensation of Trustees who are
not interested persons of the Adviser; and other miscellaneous business
expenses. The Fund also pays the expenses of offering the shares of each
respective Fund, including the registration and filing fees, legal and
accounting fees and costs of printing the prospectus and related documents. The
Fund also pays all taxes imposed on it and all brokerage commissions and
expenses incurred in connection with its portfolio transactions.
The Adviser utilizes the staffs of BCG and its subsidiary Baron Capital
Management, Inc. ("BCM") to provide research. Directors, officers or employees
of the Adviser and/or its affiliates may also serve as officers and/or Trustees
of the Fund. BCM is an investment adviser to institutional and individual
accounts. Clients of BCM have investment objectives which may vary only slightly
from those of each other and of the Fund. BCM invests assets in such clients'
accounts and in the accounts of principals and employees of BCM and its
affiliates in investments substantially similar to, or the same as, those which
constitute the principal investments of the Fund. When the same securities are
purchased for or sold by a Fund and any of such other accounts, it is the policy
of the Adviser and BCM to allocate such transactions in a manner deemed
equitable by the Adviser, and for the principals and employees of the Adviser,
BCM, and affiliates to take either the same or least favorable price of the day.
All trading by employees is subject to the Code of Ethics of the Funds and the
Adviser. In certain circumstances the Adviser may make investments for the Fund
that conflict with investments being made by BCM. The Adviser may also make
investment decisions for the Fund that are inconsistent with the investment
decisions for other funds that is manages.
The Advisory Agreement provides that the Fund may use "Baron" as part of its
name for so long as the Adviser serves as investment adviser to the Fund. The
Fund acknowledges that the word "Baron" in its name is derived from the name of
the entities controlling, directly and indirectly, the Adviser, which derive
their name from Ronald Baron; that such name is the property of the Adviser and
its affiliated companies for copyright and/or other purposes; and that if for
any reason the Adviser ceases to be the Fund's investment adviser, the Fund will
promptly take all steps necessary to change its name to one that does not
include "Baron," absent the Adviser's written consent.
The Advisory Agreement provides that the Adviser shall have no liability to the
Fund or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund; provided, that the Adviser shall not be protected
against liabilities arising by virtue of willful misfeasance, bad faith or gross
negligence, or reckless disregard of the Adviser's obligations under the
Advisory Agreement.
The Advisory Agreement with respect to the Fund was approved by a majority of
the Trustees, including a majority of the Trustees who are not "interested
persons" ( as defined by the Investment Company Act of 1940 ("1940 Act" )) on
April 28, 1998. The Fund's Advisory Agreement is for an initial two year period
but the Advisory Agreements must normally be approved annually by the Trustees
or a majority of the Fund's shares and by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party.
The Advisory Agreement is terminable without penalty by either the Fund (when
authorized by majority vote of either its outstanding shares or the Trustees) or
the Adviser on 60 days' written notice. The Advisory Agreement shall
automatically terminate in the event of its "assignment" (as defined by 1940
Act).
Service Agreements
The Fund may have agreements with various service providers pursuant to which
administrative services such as record keeping, reporting and processing
services are provided to the Fund.
-12-
<PAGE>
Distributor
The Fund has a distribution agreement with Baron Capital, Inc., ("Baron Capital"
or the "Distributor") a New York corporation and a subsidiary of BCG, located at
767 Fifth Avenue, New York, N.Y. 10153. Baron Capital is affiliated with the
Adviser. The Distributor acts as the agent for the Fund for the continuous
public offering of its shares on a best efforts basis.
BROKERAGE
The Adviser is responsible for placing the portfolio brokerage business of the
Fund with the objective of obtaining the best net results for the Fund, taking
into account prompt, efficient and reliable executions at a favorable price.
Brokerage transactions for the Fund in exchange-listed securities are effected
chiefly by or through the Adviser's affiliate, Baron Capital, when consistent
with this objective and subject to the conditions and limitations of the 1940
Act. Baron Capital is a member of the National Association of Securities
Dealers, Inc., but is not a member of any securities exchange. Transactions in
securities that trade on NASDAQ or are otherwise not listed are effected by
broker/dealers other than Baron Capital. The Fund does not deal with Baron
Capital in any portfolio transaction in which Baron Capital acts as principal.
The Fund's Board of Trustees has adopted procedures pursuant to Rule 17e-1 of
the 1940 Act which are reasonably designed to provide that the 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 Board reviews no
less frequently than quarterly that all transactions effected pursuant to Rule
17e-1during the preceding quarter were effected in compliance with such
procedures. The Fund and the Adviser furnish such reports and maintain such
records as required by Rule 17e-1.
For the period October 1, 1998 through December 31, 1998, of the total $3,678
brokerage commissions paid by the Funds, $3,417 was paid to Baron Capital. The
brokerage commissions paid to Baron Capital represent 92.9% of the aggregate
dollar amount of brokerage commissions paid and 92.3% of the aggregate dollar
amount of transactions involving the payment of commissions for the period
October 1, 1998 through December 31, 1998.
Under the Investment Advisory Agreements and as permitted by Section 28(e) of
the Securities and Exchange Act of 1934, the Adviser may cause the Funds to pay
a broker-dealer (except Baron Capital) which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction for the Funds in excess of the amount other broker-dealers would
have charged for the transaction if the Adviser determines in good faith that
the greater commission is consistent with the Fund's policies and is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Fund or to its other clients. The
term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement. Such research and information may be
used by the Adviser or its affiliates to supplement the services it is required
to perform pursuant to the Advisory Agreement in serving the Fund and/or other
advisory clients of affiliates.
Broker-dealers may be willing to furnish statistical research and other factual
information or services to the Adviser for no consideration other than brokerage
or underwriting commissions. Securities may be bought or sold through such
broker-dealers, but at present, unless otherwise directed by the Fund, a
commission higher than one charged elsewhere will not be paid to such a firm
solely because it provided research to the Adviser. Research provided by brokers
is used for the benefit of all of the Adviser's or its affiliates' clients and
not solely or necessarily for the benefit of the Fund. The Adviser's investment
management
-13-
<PAGE>
personnel attempt to evaluate the quality of research provided by brokers.
Results of this effort are sometimes used by the Adviser as a consideration the
in the selection of brokers to execute portfolio transactions.
Baron Capital acts as broker for, in addition to the Fund, accounts of BCM and
Baron Capital, including accounts of principals and employees of Baron Capital,
BCM and the Adviser. Investment decisions for the Fund and for investment
accounts managed by BCM are made independent of each other in light of differing
considerations for the various accounts. The same investment decision may,
however, be made for two or more of the Adviser's and/or BCM's accounts. In such
event, simultaneous transactions are inevitable. Purchases and sales are
averaged as to price where possible and allocated to account in a manner deemed
equitable by the Adviser in conjunction with BCM. This procedure could have a
detrimental effect upon the price or value of the security for the Fund, but may
have a beneficial effect.
The investment advisory fee that the Fund pays to the Adviser is not reduced as
a consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund will exceed those that might
otherwise be paid by an amount that cannot be presently determined. Such
services would be useful and of value to the Adviser in serving both the Fund
and other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would by useful to the Adviser in carrying
out its obligations to the Fund.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, NY, is the custodian for the
Fund's cash and securities. DST Systems, Inc., CT-7 Tower, 1004 Baltimore,
Kansas City, MO 64105, is the transfer agent and dividend agent for the Fund's
shares. Neither institution assists in or is responsible for investment
decisions involving assets of the Fund.
REDEMPTION OF SHARES
The Fund expects to make all redemptions in cash, but have reserved the right to
make payment, in whole or in part, in portfolio securities. Payment will be made
other than all in cash if the Funds' Board of Trustees determines that economic
conditions exist which would make payment wholly in cash detrimental to the
Fund's best interests. Portfolio securities to be so distributed, if any, would
be selected in the discretion of the Fund's Board of Trustees and priced as
described under "Determining Your Share Price" herein and in the Prospectus.
NET ASSET VALUE
As more fully set forth in the Prospectus under "Determining Your Share Price,"
the net asset value per share of each Fund is determined as of the close of the
New York Stock Exchange on each day that the Exchange is open. The Exchange is
open all week days that are not holidays, which it announces annually. The most
recent announcement states it will not be open on New Year's Day, Martin Luther
King, Jr.'s Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Securities traded on more than one national securities exchange are valued at
the last sale price of the day as of which such value is being determined as
reflected at the close of the exchange which is the principal market for such
securities.
U.S. Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. Debt instruments having a
greater remaining maturity will be valued at the
-14-
<PAGE>
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.
TAXES
The Fund intends to qualify every year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Qualification as
a regulated investment company relieves the Fund of Federal income taxes on the
portion of their net investment income and net realized capital gains
distributed to shareholders. The Fund intends to distribute virtually all of its
net investment income and net realized capital gains at least annually to their
respective shareholders.
A non-deductible 4% excise tax will be imposed on the Fund to the extent that it
does not distribute (including declaration of certain dividends), during each
calendar year, (i) 98% of its ordinary income for such calendar year, (ii) 98%
of its capital gain net income (the excess of short and long term capital gain
over short and long term capital loss) for each one-year period ending October
31 and (iii) certain other amounts not distributed in previous years.
Shareholders will be taxed during each calendar year on the full amount of such
dividends distributed (including certain declared dividends not actually paid
until the next calendar year).
For Federal income tax purposes, distributions paid from net investment income
and from any net realized short-term capital gains are taxable to shareholders
as ordinary income, whether received in cash or in additional shares.
Distributions paid from net capital gains are taxable as long-term capital
gains, whether received in cash or shares and regardless of how long a
shareholder has held the shares, and are not eligible for the dividends received
deduction. The Fund will send written notices to shareholders regarding the
Federal income tax status of all distributions made during each calendar year as
ordinary income or capital gain.
The foregoing relates to Federal income taxation. Distributions may also be
subject to state and local taxes. The Fund is organized as a Delaware business
trust. Under current law, so long as the Fund qualifies for the Federal income
tax treatment described above, it is believed that it will not be liable for any
income or franchise tax imposed by Delaware.
Investors are urged to consult their own tax advisers regarding the application
of Federal, state and local tax laws.
ORGANIZATION AND CAPITALIZATION
GENERAL
The Trust is an open-end investment company organized as a series fund and
established under the laws of The State of Delaware by a Declaration of Trust
dated November 20, 1997. The one series currently available is Baron Capital
Asset Fund. Shares entitle their holders to one vote per share. Shares have
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees and, in such
event, the holders of the remaining shares voting for the election of Trustees
will not be able to elect any person or persons as Trustees. Shares have no
preemptive or subscription rights, and are transferable.
SHAREHOLDER AND TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a trustee against liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
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<PAGE>
OTHER INFORMATION
Independent Accountants
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants of the Fund.
Calculations of Performance Data
Advertisements and other sales literature for the Fund may refer to average
annual total return and actual return. Average annual total return is computed
by finding the average annual compounded rates of return over a given period
that would equate a hypothetical initial investment to the ending redeemable
value thereof, as follows:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n
= number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 investment made at the beginning
of the period
Actual return is computed by measuring 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. The
performance data used in advertisements does not give effect to a 2% contingent
deferred sales charge that is no longer applicable.
All performance calculations assume that dividends and distributions are
reinvested at the net asset value on the appropriate reinvestment dates and
include all recurring fees.
Computed in the manner described above, the performance of the Fund has been:
Total Return
Inception(10/01/98) to 12/31/98 +10.0%
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.
In addition to advertising average annual and actual return data, comparative
performance information may be used in advertising materials about the Funds,
including data and other information from Lipper Analytical Services, Inc., CDA
Investment Technologies, Morningstar Inc., Money, Forbes, SEI, bbotson, No Load
Investor, Growth Fund Guide, Fortune, Barron's, The New York Times, The Wall
Street Journal, Changing Times, Medical Economics, Business Week, Consumer
Digest, Dick Davis Digest, Dickenson's Retirement Letter, Equity Fund Outlook,
Executive Wealth Advisor, Financial World, Investor's Daily, Time, Personal
Finance, Investment Advisor, SmartMoney, Rukeyser, Kiplinger's, NAPFA News, US
News, Bottomline, Investors Business Daily, Bloomberg Radio, CNBC, USA Today,
1998 Mutual Fund Report, Mutual Fund Magazine, The Street.com, Bloomberg
Personal, Worth, Washington Business Journal, Investment News, Hispanic
Magazine, Institutional Investor, Rolling Stone Magazine, Microsoft Investor,
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<PAGE>
Individual Investor, SmartMoney Interactive, Art & Auction, Dow Jones Newswire,
and/or Dow Jones News. The Fund may also use comparative performance data from
indexes such as the Dow Jones Industrial Average, Standard & Poor's 400, 500,
Small Cap 600, 1,500, or Midcap 400, Value Line Index, Wilshire 4,500, 5000, or
Small Cap; NASDAQ/OTC Composite, New York Stock Exchange; and the Russell 1000,
2000, 2500, 3000, 2000 Growth, 2000 Value, or Midcap. With respect to the rating
services, the Fund may use performance information that ranks the Fund in any of
the following categories: all funds, aggressive growth funds, value funds,
mid-cap funds, small-cap funds, growth and income funds, equity income funds,
and any combination of the above listed categories.
<PAGE>
BARON CAPITAL FUNDS TRUST
PART C. OTHER INFORMATION
Item 23. Exhibits
a. Declaration of Trust dated November 20, 1997*
b. By-laws dated November 20, 1997*
c. Specimen Share Certificates representing shares of
beneficial interest of $.01 par value.*
d. Investment Advisory Agreement between
Baron Capital Funds Trust and BAMCO, Inc.*
e. Distribution Agreement with Baron Capital, Inc.*
f. Inapplicable.
g. (1) Custodian Agreement with The Bank of New York.*
(2) Fee Schedule for Exhibit 8(a).*
h. Inapplicable.
i. Opinion and consent of counsel as to legality of shares
being registered (filed with Rule 24f-2 Notice).*
j. Consent of Independent Certified Public Accountants.
k. Inapplicable.
l. Letter agreement between the Registrant and the Purchaser
of the Initial Shares.*
m. Distribution Plan pursuant to Rule 12b-1.*
n. (1) Financial Data Schedule for Baron Capital Asset Fund*
o. Rule 18f-3Plan*
*Previously filed.
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
The following diagram indicates the persons under common control with
Registrant, all of which are incorporated in New York.
Ronald Baron
controls : Baron Capital Group, Inc.
and owns 100% of: Baron Capital, Inc.
BAMCO, Inc.
Baron Capital Management, Inc.
Baron Capital, Inc. serves as distributor of Registrant's shares and performs
brokerage services for Registrant. BAMCO, Inc. serves as investment adviser to
Registrant. Baron Capital Management, Inc. is an affiliated investment adviser.
All of the above corporate entities file consolidated financial statements.
Ronald Baron, President of Registrant, is the controlling shareholder of Baron
Capital Group, Inc. and serves as President of all the above entities.
Item 25. Indemnification
Article IV of Registrant's Declaration of Trust states as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
------------------------------------------------------------------
No shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than to the Trust of its shareholders, in connection with Trust Property of
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with
respect to such Person; and all such Persons shall look solely to the Trust
Property, or to the Property of one or more specific series of the Trust if
the claim arises from the conduct of such Trustee, officer, employee or
agent with respect to only such Series, for satisfaction of claims of any
nature arising in connection with the affairs of the Trust. If any
shareholder, Trustee, officer, employee, or agent, as such, of the Trust,
is made a party to any suit or proceeding to enforce any such liability of
the Trust, he shall not, on account thereof, be held to any personal
liability. The Trust shall indemnify and hold each shareholder harmless
from and against all claims and liabilities, to which such shareholder may
become subject by reason of his being or having been a shareholder, and
shall reimburse such shareholder out of the Trust Property for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability. Indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one of more
Series whose shares were held by said shareholder at the time the act or
event occurred which gave rise to the claim against or liability of said
shareholder. The rights accruing to a shareholder under this Section 4.1 be
lawfully entitled, nor shall anything herein contained restrict the right
of the Trust to indemnify or reimburse a shareholder in any appropriate
situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc.
--------------------------------------------
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its
<PAGE>
shareholders, or to any shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any
breach of trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4.3. Mandatory Indemnification.
---------------------------------------
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust, or by one or more Series
thereof if the claim arises from his or her conduct with respect to
only such Series to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or
other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or a Series thereof or the
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not the have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or a Series
thereof;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Non- interested Trustees acting on the
matter (provided that a majority of the Non-interested
Trustees then in office act on the matter) or (y) written
opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any
<PAGE>
Trustee or officer may now or hereafter be entitled, shall continue as to a
person who has ceased to be such Trustee or officer and shall inure to the
benefit of the heirs, executors, administrators and assigns of such a
person. Nothing contained herein shall affect any rights to indemnification
to which personnel of the Trust other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of
this Section 4.3 may be advanced by the Trust or a Series thereof prior to
final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he
is not entitled to indemnification under this Section 4.3, provided that
either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who is not
(i) an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
---------------------------------------------------
The business and other connections of BAMCO, Inc. is summarized under
"Management of the Fund" in the Prospectus constituting Part A of the
Registration Statement, which summary is incorporated herein by reference.
The business and other connections of the officers and directors of BAMCO, Inc.
is currently listed in the investment adviser registration on Form ADV for
BAMCO, Inc. (File No. 801-29080) and is incorporated herein by reference.
Item 27. Principal Underwriters
----------------------
(a) Inapplicable.
(b)
<PAGE>
(1) (2) (3)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ --------------- ---------------
Ronald Baron Director, Trustee,
767 Fifth Avenue President and President and
New York, N.Y. 10153 Chairman CEO
Susan Robbins Director Vice President
767 Fifth Avenue and Vice President
New York, N.Y. 10153
Peggy Wong Treasurer and CFO Treasurer and CFO
767 Fifth Avenue
New York, N.Y. 10153
Morty Schaja Vice President and Trustee and
767 Fifth Avenue COO Vice President
New York, N.Y. 10153
Clifford Greenberg Vice President Vice President
767 Fifth Avenue
New York, N.Y. 10153
Linda S. Martinson Secretary, Vice President Trustee, Vice
767 Fifth Avenue and General Counsel President and
New York, N.Y. 10153 Secretary
(c) Inapplicable.
Item 28. Location of Accounts and Records
--------------------------------
Certain accounts, books and other documents required to be maintained by Section
31 (a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, BAMCO, Inc. and
Baron Capital, Inc., 767 Fifth Avenue, New York, NY 10153. Records relating to
the duties of the Registrant's transfer agent are maintained by DST Systems,
Inc. 1004 Baltimore Avenue, Kansas City, MO 64105 and of the Registrant's
custodian are maintained by The Bank of New York, 48 Wall Street, New York, N.Y.
10015.
Item 29. Management Services
-------------------
Inapplicable.
Item 30. Undertakings
------------
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
<PAGE>
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
----------
Pursuant to the requirement of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund (certifies that it meets all of the requirement
for effectiveness of this registration statement under rule 485(b) under the
Securities Act and) has duly caused this post -effective amendment No. 2 to the
registration statement to be signed on its behalf by the undersigned, duly
authorized, in the City of New York, and the State of New York on the day of
April 13, 1999.
BARON CAPITAL FUNDS TRUST
By: s/ Ronald Baron
----------------
Ronald Baron, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment No. 2 to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
- ----------- --------- ----------
s/ Ronald Baron President (Principal April 13, 1999
- ----------------- Executive Officer) &
Ronald Baron Trustee
*s/ Raymond Noveck Trustee April 13, 1999
- ------------------
Raymond Noveck
s/ Linda S. Martinson Secretary, April 13, 1999
- ---------------------- Vice President & Trustee
Linda S. Martinson
<PAGE>
Signatures Title Date
- ---------- ---------- -----------
s/ Peggy Wong Treasurer (Principal April 13, 1999
- -------------- Financial & Accounting
Peggy Wong Officer)
*s/ Mark M. Feldman Trustee April 13, 1999
- --------------------
Mark M. Feldman
*s/ Norman S. Edelcup Trustee April 13, 1999
- ----------------------
Norman S. Edelcup
*s/ Charles N. Mathewson Trustee April 13, 1999
- -------------------------
Charles N. Mathewson
*s/ Irwin Greenberg Trustee April 13, 1999
- ---------------------
Irwin Greenberg
*s/ David A. Silverman Trustee April 13, 1999
- -----------------------
David A. Silverman
s/ M. Schaja Vice President April 13, 1999
- -------------- & Trustee
M. Schaja
*By: s/ Linda S. Martinson
----------------------
Linda S. Martinson
Attorney-in-fact pursuant to a power of attorney previously filed.
Dated: April 13, 1999