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File No. 33-12112
File No. 811-5032
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 11 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 12 [X]
BARON ASSET FUND
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(Exact Name of Registrant as Specified in Charter)
450 Park Avenue Suite 2802
New York, New York 10022
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(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code: (212) 759-7700
Linda S. Martinson
BARON ASSET FUND
450 Park Avenue
Suite 2802
New York, New York 10022
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(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)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
Registrant has registered an indefinite number of shares of beneficial interest,
$0.01 par value, of securities of the Fund, now existing or hereafter
established, under the Securties Act of 1933. The Rule 24f-2 Notice for
Registrant's most recent fiscal year was filed on October 30, 1995.
The Registrant proposes that this amendment will become effective pursuant to
Rule 485(b) under the Securities Act of 1933.
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BARON ASSET FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
PART A
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<CAPTION>
Caption in
Item No. Item Caption Prospectus
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<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description INVESTMENT OBJECTIVE AND
of Registrant PHILOSOPHY;INVESTMENT
POLICIES AND RISKS; GENERAL
INFORMATION
5. Management of the MANAGEMENT OF THE FUNDS;
Fund GENERAL INFORMATION; FUND
EXPENSES
6. Capital Stock and DIVIDENDS AND
Other Securities DISTRIBUTIONS; TAXES;
GENERAL INFORMATION
7. Purchase of Securities HOW TO PURCHASE SHARES;
Being Offered DETERMINING YOUR SHARE
PRICE; DISTRIBUTION PLAN
8. Redemption or HOW TO REDEEM SHARES;
Repurchase DETERMINING YOUR SHARE
PRICE
9. Pending Legal NOT APPLICABLE
Proceedings
PART B
Caption in Statement
Item No. Item Caption of Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information NOT APPLICABLE
and History
13. Investment Objectives INVESTMENT OBJECTIVE AND
and Policies POLICIES
14. Management of the MANAGEMENT OF THE FUNDS
Registrant
15. Control Persons and MANAGEMENT OF THE FUNDS
Principal Holders of
Securities
16. Investment Advisory MANAGEMENT OF THE FUNDS
and Other Services
17. Brokerage Allocation MANAGEMENT OF THE FUNDS
18. Capital Stock and ORGANIZATION AND
Other Securities CAPITALIZATION
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Caption in Statement
Item No. Item Caption of Additional Information
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19. Purchase, Redemption MANAGEMENT OF THE FUNDS;
and Pricing of REDEMPTION OF SHARES;
Securities Being NET ASSET VALUE
Offered
20. Tax Status NOT APPLICABLE
21. Underwriters MANAGEMENT OF THE FUNDS
22. Calculation of CALCULATION OF
Performance Data PERFORMANCE DATA
23. Financial Statements FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995
(AUDITED)
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THE BARON FUNDS
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[Photo]
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WELCOME TO THE BARON FUNDS:
THERE ARE MANY SOUND INVESTMENT STRATEGIES
Twenty six years experience as a securities analyst and twenty one years as a
portfolio manager have taught me there are many ways to be a successful
investor. The Baron Funds are long term investors in publicly owned businesses,
not short term traders of common stocks. The Baron Funds do not rely upon
brokerage firm research, computer-based stock selections or so-called momentum
investing. The Funds do not seek to emulate popular market indexes. The Funds'
investment decisions are based upon our independent, fundamental analyses of
businesses. Basics. Company visits; management, employee, customer and
competitor interviews; our opinions and judgments of management talent, honesty
and business strategies; and our assessments of industry prospects.
Once we qualitatively identify great businesses in which we would like
to invest, we value these businesses quantitatively. The Baron Funds seek to
purchase either debt or equity issued by companies with compelling investment
characteristics before their business prospects are widely recognized. The Funds
seek to purchase securities at prices which offer our shareholders the potential
to earn a return of at least 50% over a two year period. Of course, we cannot
guarantee that we can achieve these results.
THE BARON FUNDS INVEST IN GROWING, WELL MANAGED, VERY PROFITABLE
BUSINESSES
The Baron Funds focus their investments in well managed, fast growing, small and
mid-sized companies. These companies are in emerging, job creating "sunrise"
industries, industries in which our children are likely to work, not industries
in which our parents and grandparents were employed. The Funds currently have
significant investments in health care, education, financial services,
government "privatization" services, communications, media and entertainment,
temporary
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Not part of the Prospectus.
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THE BARON FUNDS
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help and casino gaming, industries favorably impacted by both demographics and
legislative programs. These represent our "investment themes."
Because investors have differing investment needs and risk tolerances, we offer
two Funds to help them achieve their long term financial goals:
BARON ASSET FUND, A NO-LOAD, SMALL CAP FUND
BARON ASSET FUND, founded June 12, 1987, invests primarily in small and
mid-sized companies. We believe the market is least efficient when valuing
assets and growth prospects of these companies. This offers us investment
opportunity. Baron Asset Fund is suitable for investors seeking capital
appreciation.
BARON GROWTH & INCOME FUND, A NO-LOAD, GROWTH AND INCOME FUND
BARON GROWTH & INCOME FUND, founded January 3, 1995, also invests
primarily in common stocks of well managed, fast growing, small and mid-sized
companies. In addition, it currently invests nearly 40% of its assets in debt
securities and dividend paying common stocks which offer both attractive yields
and growth. This Fund could achieve higher returns than most growth and income
funds due to its investments in fast growing smaller companies; it should be
less volatile than most small cap growth funds due to its significant
investments in income producing securities. This Fund is suitable for investors
seeking capital appreciation but who desire less risk than is usually incurred
by investing in small cap funds.
OUTLOOK FOR 1996
Although it is not possible to predict how the stock market will perform either
next year or any other year, we believe our Funds' 1996 investment performance
could approximate the profits growth of the businesses in which we are
shareholders. While the U.S. economy is currently growing slowly, we expect most
companies in which we are shareholders to achieve strong profits growth in 1996.
We are therefore optimistic that 1996 could be another strong year for The Baron
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Not part of the Prospectus.
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Funds. Of course, investing in small cap stocks is inherently risky. Please see
page 8 of the Prospectus for a discussion of the investment risks. Our past
performance (see pages 4-5 of the Prospectus) should not be considered a
predictor of future results.
WE APPRECIATE YOUR CONFIDENCE IN THE BARON FUNDS
Individuals have numerous choices when they decide to invest in mutual funds. We
want to thank our fellow shareholders of The Baron Funds for choosing to invest
with us. We also appreciate the interest in The Baron Funds shown by many other
potential investors. We want to assure both our new and our long term
shareholders that we will remain disciplined and will continue to work hard to
provide superior returns and service. Please feel free to write or call if you
have any questions or comments. We are looking forward to a successful 1996.
Sincerely,
Ronald Baron
President
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Not part of the Prospectus.
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THE BARON FUNDS
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<CAPTION>
BARON BARON
ASSET GROWTH &
FUND INCOME FUND
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<S> <C> <C>
FUND CATEGORY Small cap fund. Growth and income fund.
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OBJECTIVE Capital appreciation. Capital appreciation with income as a secondary
objective.
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INVESTOR PROFILE Long-term growth stock investor. Long-term investor seeking capital appreciation with less risk.
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STRATEGY Invests in: Similar, except:
small cap companies with $100 - $500 mean market capitalization of companies will
million market values. tend to be somewhat larger than that of Baron
Asset Fund.
mid-sized companies with $500 million - $1.5 significant investments in convertible
billion market values. bonds, dividend paying stocks, real
estate investment trusts and publicly
traded partnerships for income and
appreciation.
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PHILOSOPHY Value orientation towards growth. Similar. In addition, the Fund seeks to research
Not all stocks are efficiently priced. and purchase at attractive
Investors can gain an investment advantage prices debt and dividend paying equity
through intense research. This is especially securities with growth prospects.
true for smaller companies.
The Fund seeks to purchase at attractive
prices companies with compelling investment
characteristics before their growth prospects
and assets have been properly valued by other
investors.
Not part of the Prospectus.
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BARON ASSET FUND
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BARON GROWTH & INCOME FUND
450 Park Avenue, New York, New York 10022 1-800-99-BARON 212-759-7700
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BARON ASSET FUND, started in June of 1987, and BARON GROWTH & INCOME FUND,
started in January of 1995, are no-load, open-end, diversified management
investment companies, commonly referred to as mutual funds. BARON ASSET 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. BARON GROWTH & INCOME FUND'S investment objective
is to seek capital appreciation with income as a secondary objective. Both of
these Funds are described in this Prospectus and are referred to individually
as a "Fund" and collectively as the "Funds."
The Funds are no-load funds. They sell and redeem their shares at net asset
value without any sales charges or redemption fees. The minimum
initial investment is $2,000. There is no minimum for subsequent purchases. The
minimum for purchases made pursuant to the Fund's Automatic Investment Plan
is $500 with a $50 monthly minimum for subsequent purchases.
This Prospectus sets forth concisely the essential information a prospective
investor should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. A Statement of Additional
Information, dated January 2, 1996, containing additional and more
detailed information about the Funds, has been filed with the Securities
and Exchange Commission and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be
obtained without charge by writing or calling the Funds at the address
and telephone number set forth above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
January 2, 1996
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1 PROSPECTUS
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THE BARON FUNDS
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TABLE OF CONTENTS
PAGE
Fund Expenses 3
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Financial Highlights 4
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Investment Performance 6
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Investment Objective and Philosophy 6
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Investment Policies and Risks 7
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Management of the Fund 12
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Distribution Plan 16
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Shareholder Manual 16
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How to Purchase Shares 16
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How to Redeem Shares 17
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Determining Your Share Price 19
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Dividends and Distributions 20
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Taxes 20
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General Information 21
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FOR MISSOURI RESIDENTS: THIS PROSPECTUS CONTAINS DISCLOSURES
ABOUT RISKS ASSOCIATED WITH THE FOLLOWING INVESTMENT TECHNIQUES
ON THE PAGES INDICATED: SMALL CAP DOMESTIC OR FOREIGN COMPANIES (P.7
& 10), FINANCIALLY DISTRESSED DOMESTIC OR FOREIGN COMPANIES (P.7,
8 & 10), "JUNK BONDS" (P.7 & 8), LEVERAGE (P.9), AND SHORT-TERM TRADING (P.10).
PLEASE READ THESE SECTIONS CAREFULLY.
The net asset value per share and the value of a shareholder's holding in the
Funds will vary with economic and market conditions. The dividends paid by each
Fund will increase or decrease in relation to the income received by that Fund
from its investments and the expenses incurred by that Fund.
There is no assurance that the Funds will achieve their respective objectives.
Neither Fund purports to offer a complete investment program to which investors
should commit all of their investment capital. Please see the section entitled
"Investment Policies and Risks" starting on page 7 for a discussion of the risks
associated with the Funds.
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer contained in the Prospectus and, if given or made, such information or
representations may not be relied upon as authorized by the Funds, their
Investment Adviser or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of any offer to buy securities in any state
to any person to whom it is unlawful to make such offer in such state.
The Funds have registered some or all of the shares intended to be sold pursuant
to this Prospectus under State securities laws. Some of the states have set
conditions to the registration, which are set forth in the Statement of
Additional Information.
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THE BARON FUNDS
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FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
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Sales Load Imposed on Purchases................ NONE
Redemption Fee................................. NONE
Deferred Sales Load............................ NONE
Exchange Fees.................................. NONE
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There are additional charges associated with retirement accounts
and wire transfers. Purchases and redemptions may also be made
through broker-dealers or others who may charge a commission
or other transaction fee for their services. (See "How to Purchase
Shares" and "How to Redeem Shares")
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets):
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<CAPTION>
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Management 12b-1 Other Total Operating
Fees Fees Expenses Expenses
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<S> <C> <C> <C> <C>
BARON ASSET 1.00% .25% .19% 1.44%
FUND
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BARON 1.00% .25% .75% 2.00%
GROWTH &
INCOME FUND
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</TABLE>
The expenses set forth in the table above for the Funds are based on actual
expenses incurred for the fiscal year ended September 30, 1995. The Adviser will
reduce its fee to the extent required to limit total Fund operating expenses to
certain limits pursuant to applicable state laws. The Adviser has agreed to
reduce its fee so that total operating expenses do not exceed 2.0%.
EXAMPLE
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A Shareholder would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return, and (2) redemption at the end of each time
period:
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<S> <C> <C> <C> <C>
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YEAR 1 3 5 10
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BARON ASSET FUND $15 $46 $79 $172
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BARON GROWTH &
INCOME FUND $20 $63 $108 $233
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</TABLE>
This information is provided to assist an investor in understanding the various
costs and expenses that an investor will bear, directly or indirectly, as a
shareholder of each of the Funds. This information should not be considered a
representation of past or future expenses, as actual expenses fluctuate and may
be greater or less than those shown. The example assumes a 5% annual return as
required by SEC regulations applicable to all mutual funds. The actual
performance of the Funds will vary and may result in an actual return greater or
less than 5%. The Funds have a plan of distribution pursuant to Rule 12b-1
pursuant to which the Funds pay the Distributor a fee for distribution-related
services at the annual rate of .25% of the respective Fund's average daily net
assets. As a result, long-term shareholders of the Funds may pay more than the
economic equivalent of the maximum front-end sales load permitted by the rules
of the National Association of Securities Dealers, Inc. ("NASD"). For a
description of the various costs and expenses incurred in the operation of the
Funds, as well as any expense reimbursement or reduction arrangements, see
"Management of the Funds" and "Distribution Plan."
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THE BARON FUNDS
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FINANCIAL HIGHLIGHTS
The following tables show, on a per share basis, the changes in net asset value,
total return and ratios/supplemental data for a share of beneficial interest of
the Funds for each period. The information was audited by Coopers & Lybrand
L.L.P., the Funds' independent auditors. Their report and the Financial
Statements for the Funds are included in the Funds' Annual Report and the
Statement of Additional Information, which are available from the Distributor.
The following information should be read in conjunction with the Financial
Statements and related notes.
<TABLE>
<CAPTION>
BARON ASSET FUND
Year Ended September 30
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1995 1994 1993 1992 1991 1990 1989 1988 1987*
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Year... $22.82 $21.91 $16.20 $14.80 $10.88 $17.22 $12.98 $11.95 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)........ (0.09) (0.14) (0.13) (0.08) 0.07 0.21 0.13 0.05 0.07
Net Realized and Unrealized Gains
(Losses) on Investments........... 7.23 1.82 6.00 1.52 4.05 (5.14) 4.81 1.18 1.88
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations.... 7.14 1.68 5.87 1.44 4.12 (4.93) 4.94 1.23 1.95
LESS DISTRIBUTIONS
Dividends from Net Investment
Income............................ 0 0 0 (0.04) (0.20) (0.16) (0.05) (0.03) 0
Distributions from Net Realized
Gains............................. (0.66) (0.77) (0.16) 0 0 (1.25) (0.65) (0.17) 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions................. (0.66) (0.77) (0.16) (0.04) (0.20) (1.41) (0.70) (0.20) 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year........ $29.30 $22.82 $21.91 $16.20 $14.80 $10.88 $17.22 $12.98 $11.95
------ ------ ------ ------ ------ ------ ------ ------ ------
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TOTAL RETURN........................ 32.3% 8.0% 36.5% 9.7% 38.3% (30.7%) 39.9% 10.7% 19.5%
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------ ------ ------ ------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of
Year.............................. $290.0 $80.3 $59.9 $43.8 $47.4 $40.0 $47.7 $11.7 $3.9
Ratio of Expenses to Average Net
Assets............................ 1.4% 1.6% 1.8% 1.7% 1.7% 1.8% 2.1% 2.5% 2.8%**
Ratio of Net Investment Income
(Loss) to Average Net Assets...... (0.5%) (0.7%) (0.7%) (0.5%) 0.5% 1.5% 1.3% 0.5% 1.9%**
Portfolio Turnover Rate............. 35.2% 55.9% 107.9% 95.5% 142.7% 97.8% 148.9% 242.4% 84.7%
</TABLE>
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* For the period June 12, 1987 (commencement of operations) to September
30, 1987.
** Annualized.
BARON ASSET FUND'S Adviser and/or Baron Capital reimbursed Baron Asset Fund for
expenses aggregating $8,561 (less than $.01 per share) in 1990, $27,315 ($.01
per share) in 1989, $83,219 ($.11 per share) in 1988, and $36,330 ($.20 per
share) in 1987. The reimbursement amounts are excluded from the expense data
above to the benefit of the Fund's shareholders. The Distributor may from time
to time voluntarily assume certain Fund expenses while retaining the ability to
be reimbursed by the Fund for those amounts. This has the effect of lowering the
overall expense ratio and of increasing yield to investors, or the converse, at
the time amounts are assumed or reimbursed.
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THE BARON FUNDS
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<TABLE>
<CAPTION>
BARON GROWTH & INCOME FUND
Year Ended September 30
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1995
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<S> <C>
Net Asset Value Beginning of Year............................................................................ $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)................................................................................. 0.04
Net Realized and Unrealized Gains (Losses) on Investments.................................................... 4.73
------
Total from Investment Operations............................................................................. 4.77
LESS DISTRIBUTIONS
Dividends from Net Investment Income......................................................................... 0
Distributions from Net Realized Gains........................................................................ 0
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Total Distributions.......................................................................................... 0
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Net Asset Value, End of Year................................................................................. $14.77
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TOTAL RETURN................................................................................................. 47.7%
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RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of Year........................................................................ $28.6
Ratio of Expenses to Average Net Assets...................................................................... 2.0%**
Ratio of Net Investment Income (Loss) to Average Net Assets.................................................. 1.1%**
Portfolio Turnover Rate......................................................................................40.6%
</TABLE>
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* For the period January 3, 1995 (commencement of operations) to September 30,
1995.
** Annualized.
The Fund's Custodian offset custody fees of $12,003 (less than $0.01 per share)
in 1995. The expense offset amount is included in the expense data above. The
Distributor may from time to time voluntarily assume certain Fund expenses while
retaining the ability to be reimbursed by the Fund for those amounts. This has
the effect of lowering the overall expense ratio and of increasing yield to
investors, or the converse, at the time amounts are assumed or reimbursed.
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THE BARON FUNDS
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INVESTMENT PERFORMANCE
The investment results of each Fund quoted in advertisements and other sales
literature may refer to average annual total return and actual return. Average
annual total return assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of a
stated period of time, after giving effect to the reinvestment of all dividends
and distributions during the period at the net asset value on the reinvestment
date. The return is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the investment
at the end of the period. Because average annual returns are annualized they
tend to even out variations in the returns, and are not the same as actual
year-by-year results. The actual return performance calculations, which also may
be quoted in advertising, reflect the results of a continuous shareholder who
does not redeem. It measures the percentage change between the net asset value
of a hypothetical $1,000 investment in each Fund at the beginning of a period
and the net asset value of that investment at the end of a period, assuming
reinvestment of all dividend and capital gain distributions at the net asset
value on the reinvestment date. The performance of major market indices such as
the Dow Jones Industrial Average, Russell 2000, and Standard & Poor's 500 may
also be included in advertising so that each Fund's results may be compared with
those of groups of unmanaged securities widely regarded by investors as measures
of market performance. Brokerage fees are not factored into the performance of
the indices. The performance data of the Funds include all recurring fees such
as brokerage and investment advisory fees. Data and rankings from Lipper
Analytical Services, Inc., CDA Investment Technologies, Morningstar or other
industry publications may also be used in advertising. See the Statement of
Additional Information.
Performance results represent past performance and are not necessarily
representative of future results. Investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
The annual report contains additional performance information which is available
upon request without charge by writing or calling the Funds at the address and
telephone number set forth on the cover of this Prospectus.
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INVESTMENT OBJECTIVES AND
PHILOSOPHY
The investment objective of BARON ASSET FUND is to seek capital appreciation
through investments in securities of small and medium sized companies with
undervalued assets or favorable growth prospects. Production of income, if any,
is incidental to this objective. The investment objective of BARON GROWTH &
INCOME FUND is to seek capital appreciation with income as a secondary
objective. These investment objectives are fundamental and, as such, may not be
changed without the approval of a majority of the respective Fund's outstanding
shares. There is no assurance that the Funds will achieve their investment
objectives.
BARON ASSET FUND seeks to achieve its investment objective by investing its
assets in a diversified portfolio of primarily common stocks. BARON GROWTH &
INCOME FUND seeks to achieve its investment objective by investing in equity and
debt securities. Both invest primarily in the securities of small sized
companies with market values of approximately $100 - $500 million and medium
sized companies with market values of $500 million to $1.5 billion, although the
mean market capitalization of BARON GROWTH & INCOME
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THE BARON FUNDS
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FUND'S portfolio will tend to be higher than BARON ASSET FUND'S. The other kinds
of investments each Fund makes and the risks associated therewith are discussed
below in connection with the Funds'investment policies.
The Funds seek to purchase securities judged by their Adviser to have favorable
price to value characteristics based on the Adviser's assessment of their
prospects for future growth and profitability. The Adviser seeks securities that
the Adviser believes have the potential to increase in value at least 50% over
two subsequent years, although that goal may not be achieved. As a guide in
selecting such investments, the Adviser studies and considers such fundamentals
as business profitability, strong balance sheets, undervalued and unrecognized
assets, low multiples of free cash flow and income, perceived management skills,
unit growth, and the potential to capitalize upon anticipated economic trends.
Securities are selected for investment after thorough research of the issuers
and the industries in which they operate.
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 Funds'
assets may be invested in money market instruments, which include U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements. Investment grade obligations would
be classified at the time of the investment within the four highest ratings of
Standard & Poor's Corporation ("S&P") or Moody's Investor's Service, Inc.
("Moody's"), or, if unrated, would be determined by the Adviser to be of
comparable high quality and liquidity. The Funds may also invest in money market
instruments in anticipation of investing cash positions or of meeting
redemptions. To the extent the Funds are so invested their investment objectives
may not be achieved.
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INVESTMENT POLICIES AND RISKS
BARON ASSET FUND
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In seeking its investment objective of capital appreciation, BARON ASSET 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 solely for their
capital appreciation potential, and investment income is not a consideration.
BARON GROWTH & INCOME FUND
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BARON GROWTH & INCOME FUND seeks capital appreciation and income by investing
in equity and debt securities. The proportion of BARON GROWTH & INCOME FUND'S
assets invested in each type of security will vary depending entirely on
the Adviser's view of then-existing investment opportunities and economic
conditions. The Fund will sometimes be more heavily invested in equity
securities and at other times more heavily invested in debt securities. The
portion of the portfolio invested in equity securities is comprised of common
stocks and other equity-type securities such as convertible bonds and
debentures, preferred stocks, warrants and convertible
preferred stocks. The debt security portion of the portfolio includes notes,
bonds, and money market instruments. The debt securities consist of all
varieties of corporate debt, including the debt of financially distressed
companies, and debt issued or guaranteed by the U.S. government or its agencies
or instrumentalities, without restriction as to duration. Equity securities are
purchased
7 ----------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
for their capital appreciation potential, but may also be purchased for income
purposes because of their dividends. Debt securities are purchased for both
their income potential and their capital appreciation opportunities.
GENERAL POLICIES
- ---------------------------------------------------------
SMALL AND MEDIUM SIZED COMPANIES
Both Funds invest primarily in small to medium sized companies with market
values between $100 million and $1.5 billion. The mean market capitalization of
BARON GROWTH & INCOME FUND'S portfolio will tend to be higher than the mean of
BARON ASSET FUND'S. Although the Adviser believes there is more potential for
capital appreciation in smaller companies, there also may be more risk.
Securities of smaller companies may not be well known to most investors and may
be thinly traded. There is more reliance on the skills of a company's management
and on their continued tenure. Investments may be attractively priced relative
to the Adviser's assessment of a company's growth prospects, management
expertise, and business niche, yet have modest or no current cash flows or
earnings. Although the Adviser concentrates on a company's growth prospects, it
also focuses on cash flow, asset value and reported earnings. This investment
approach requires a long-term outlook and may require shareholders to assume
more risk and to have more patience than investing in the securities of larger,
more established companies. From time to time the Adviser may purchase
securities of larger, more widely followed companies if it believes such
investments meet the Adviser's investment criteria and the Funds' investment
objectives. The Funds will invest in larger companies if the Adviser judges the
securities of smaller companies to be overpriced or where it perceives an
attractive opportunity in a larger company.
Equity securities may fluctuate in value, often based on factors unrelated to
the value of the issuer or its securities. Since convertible securities combine
the investment characteristics of both bonds and common stocks, the Funds 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. Because of these factors, convertible
securities are likely to perform differently than broadly-based measures of the
stock and bond markets.
DEBT SECURITIES
The debt securities in which the Funds may invest include rated and unrated
securities and convertible instruments. In making investment selections, the
Adviser, in addition to using nationally recognized statistical rating
organizations ("NRSROs"), also makes its own independent judgments about a
security and its issuer. BARON GROWTH & INCOME FUND may invest up to 35% of its
assets in non-investment grade debt securities, commonly referred to as "junk
bonds." Lower rated securities may have a higher yield and the potential for a
greater return than investment grade securities but may also have more risk.
Lower rated securities are generally meant for longer-term investing and may be
subject to certain risks with respect to the issuing entity and to market
fluctuations. The NRSROs may characterize these securities as speculative, with
moderate or little protection as to the payment of interest and principal. See
the Statement of Additional Information for a general description of NRSRO
ratings of debt obligations. The ratings by these NRSROs represent their
opinions as to the quality of the debt obligations which they undertake to rate.
It should be emphasized that ratings are relative and subjective, and although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value
8 ----------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
risks of these securities. The Adviser will also evaluate the securities and the
ability of the issuers to pay interest and principal. The Fund's ability to
achieve its investment objective may be more dependent on the Adviser's credit
analysis than might be the case with higher rated securities. The market price
and yield of lower rated securities are generally more volatile than those of
higher rated securities. Factors adversely affecting the market price and yield
of these securities will adversely affect the Fund's net asset value. The
trading market for these securities may be less liquid than that of higher rated
securities. Companies that issue lower rated securities may be highly leveraged
or may have unstable earnings, and consequently the risk of the investment in
the securities of such issuers may be greater than with higher rated securities.
With respect to debt securities generally, the interest bearing features of
such securities carry a promise of income flow, but the price of the securities
are inversely affected by changes in interest rates and are therefore subject to
the risk of market price fluctuations. The market values of debt securities may
also be affected by changes in the credit ratings or financial condition of the
issuers.
BARON GROWTH & INCOME FUND from time to time may also purchase indebtedness and
participations therein, both secured and unsecured, of debtor companies in
reorganization or financial restructuring. Such indebtedness may be in the form
of loans, notes, bonds or debentures. Participations normally are made available
only on a nonrecourse basis by financial institutions, such as banks or
insurance companies, or by governmental institutions, such as the Resolution
Trust Corporation or the Federal Deposit Insurance Corporation or the Pension
Benefit Guaranty Corporation. When the Fund purchases a participation interest
it assumes the credit risk associated with the bank or other financial
intermediary as well as the credit risk associated with the issuer of any
underlying debt instrument. The Fund may also purchase trade and other claims
against, and other unsecured obligations of, such debtor companies, which
generally represent money due a supplier of goods or services to such company.
Some debt securities, purchased by the Fund may have very long maturities. The
length of time remaining until maturity is one factor the Adviser considers in
purchasing a particular indebtedness. The purchase of indebtedness of a troubled
company always involves a risk as to the creditworthiness of the issuer and the
possibility that the investment may be lost. The Adviser believes that the
difference between perceived risk and actual risk creates the opportunity for
profit which can be realized through thorough analysis. There are no established
markets for some of this indebtedness and it is less liquid than more heavily
traded securities. Indebtedness of the debtor company to a bank are not
securities of the banks issuing or selling them. The Fund may purchase loans
from national and state chartered banks as well as foreign ones. The Fund
normally invests 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 the
Fund's assets in trade and other claims.
BARON GROWTH & INCOME 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
9 ----------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
interest rates to a greater degree than interest-paying securities of comparable
term and quality.
OPTIONS
BARON ASSET FUND may, in certain market conditions, use options to defer
recognition of unrealized gains in the portfolio and to take advantage of
perceived investment opportunities. BARON ASSET FUND may write (sell) call
options or buy put options on specific securities BARON ASSET FUND owns where,
in the Adviser's judgment, there may be temporary downward pressure on the
security. The Adviser does not expect options transactions to be a significant
part of BARON ASSET FUND'S investment program. BARON GROWTH & INCOME FUND may
purchase put and call options and write (sell) covered put and call options on
equity and/or debt securities. A call option gives the purchaser of the options
the right to buy, and when exercised obligates the writer to sell, the
underlying security at the exercise price. A put option gives the purchaser of
the option the right to sell, and when exercised obligates the writer to buy,
the underlying security at the exercise price. The writing of put options will
be limited to situations where the Adviser believes that the exercise price is
an attractive price at which to purchase the underlying security. A put option
sold by BARON GROWTH & INCOME FUND would be considered covered by placing cash
or liquid securities in a segregated account with the custodian in an amount
necessary to fulfill the obligation undertaken.
BARON GROWTH & INCOME FUND
may engage in options transactions on specific securities that may be listed on
national securities exchanges or traded in the over-the-counter market. Options
not traded on a national securities exchange are treated as illiquid securities
and may be considered to be "derivative securities." Options transactions will
not exceed 25% of BARON GROWTH & INCOME FUND'S net assets, as measured by the
securities covering the options, or 5% of net assets, as measured by the
premiums paid for the options, at the time the transactions are entered into.
The Funds will engage in options transactions only to the extent permitted
by state securities laws and regulations in states where shares of the Funds are
qualified for offer and sale.
BORROWINGS
BARON GROWTH & INCOME FUND and BARON ASSET FUND may borrow up to 5% of their
respective net assets for extraordinary or emergency temporary investment
purposes or to meet redemption requests which might otherwise require an
untimely sale of portfolio securities. In addition, BARON GROWTH & INCOME FUND
may borrow for other short-term purposes. To the extent a Fund borrows, it must
maintain continuous asset coverage of 300% of the amount borrowed. BARON GROWTH
& INCOME FUND will not borrow in an amount exceeding 25% of the value of its
total assets, including the amount borrowed, as of the time the borrowing is
made. Such borrowing has special risks. Any amount borrowed for leveraging will
be subject to interest costs that may or may not exceed the appreciation of the
securities purchased.
As a form of borrowing BARON GROWTH & INCOME FUND may engage in reverse
repurchase agreements with certain banks or non-bank dealers, where it sells a
security and simultaneously agrees to buy it back later at a mutually agreed
upon price. If it engages in reverse repurchase agreements BARON GROWTH & INCOME
FUND 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.
10 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
SHORT SALES AGAINST THE BOX
For the purpose of either protecting or deferring unrealized gains on portfolio
securities, BARON GROWTH & INCOME FUND may make short sales "against the box"
where it sells short a security it already owns or has the right to obtain
without payment of additional consideration an equal amount of the same type of
securities sold. The proceeds of the short sale will be held by the broker until
the settlement date, at which time BARON GROWTH & INCOME FUND delivers the
security to close the short position. If the Fund sells securities short against
the box, it may protect unrealized gains, but will lose the opportunity to
profit on such securities if the price rises. BARON GROWTH & INCOME FUND will
not sell short against the box in excess of 25% of its net assets.
LENDING
Both of the Funds may lend their portfolio securities to broker-dealers and
other institutions as a means of earning additional income. In lending their
portfolio securities, the Funds 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 Funds deem the other party to be of good standing
and determines that the income justifies the risk. The Funds will not lend more
than 25% of their respective total assets.
ILLIQUID SECURITIES
BARON ASSET FUND may invest up to 10%, and BARON GROWTH & INCOME FUND may invest
up to 15%, of their total respective assets in securities that are not readily
marketable or are otherwise restricted. The absence of a trading market could
make it difficult to ascertain a market value for illiquid positions. A Fund's
net asset value could be adversely affected if there were no ready buyer at an
acceptable price at the time the Fund decided to sell. Time consuming
negotiations and expenses could occur in disposing of the shares.
FOREIGN SECURITIES
BARON ASSET FUND and BARON GROWTH & INCOME FUND may invest up to 10% of their
respective 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 Funds' assets in foreign securities, including both direct
investments and investments made through depositary receipts. These securities
may involve additional risks not associated with securities of domestic
companies, including exchange rate fluctuations, political or economic
instability, the imposition of exchange controls, or expropriation or
confiscatory taxation. Issuers of foreign securities are subject to different,
often less detailed, accounting, reporting and disclosure requirements than are
domestic issuers.
SHORT-TERM TRADING AND TURNOVER
Both Funds will engage in short-term trading where the Adviser believes that the
anticipated gains outweigh the costs of short-term trading. The Adviser expects
that the average turnover rate of BARON ASSET FUND'S and BARON GROWTH & INCOME
FUND'S portfolios should not exceed 150% and 100%, respectively. The turnover
rate may vary from year to year depending on how the Adviser anticipates
portfolio securities will perform. Short-term trading will increase the amount
of brokerage commissions paid by each Fund and the amount of possible short-term
capital gains. The amount of portfolio activity will not be a limiting factor in
making portfolio decisions.
11 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Both Funds may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement the Fund buys a security at one price, and at
the time of sale, the seller agrees to repurchase that security at a mutually
agreed upon time and price. Repurchase agreements could involve certain risks in
the event of the failure of the seller to repurchase the securities as agreed,
which may cause a fund to suffer a loss, including loss of interest on or
principal of the security, and costs associated with delay and enforcement of
the repurchase agreement. Repurchase agreements with a duration of more than
seven days are considered illiquid securities and are subject to the
restrictions stated above.
MORTGAGE-BACKED SECURITIES
BARON GROWTH & INCOME FUND may invest up to 5% of its assets in mortgage-backed
securities that are issued or guaranteed by U.S. government agencies or
instrumentalities, such as the Government National Mortgage Association and the
Federal National Mortgage Association. Mortgage-backed securities represent
direct or indirect participation in, or are secured by and payable from,
mortgage loans secured by real property. These securities are subject to the
risk that prepayments on the underlying mortgages will cause the principal and
interest on the mortgage-backed securities to be paid prior to their stated
maturities. Mortgage prepayments are more likely to accelerate during periods of
declining long-term interest rates. If a prepayment occurs, BARON GROWTH &
INCOME FUND may have unanticipated proceeds which it may then have to invest at
a lower interest rate, and may be penalized by not having participated in a
comparable security not subject to prepayment.
WHEN-ISSUED SECURITIES
BARON GROWTH & INCOME FUND may invest up to 5% of its assets in debt and equity
securities purchased on a when-issued basis. Although the payment and interest
terms of when-issued securities are established at the time the purchaser enters
into the commitment, the actual payment for and delivery of when-issued
securities generally takes place within 45 days. The Fund bears the risk that
interest rates on debt securities at the time of delivery may be higher or lower
than those contracted for on the when-issued security. Failure of the issuer to
deliver the security purchased on a when-issued basis may result in a loss or
missed opportunity to make an alternative investment.
SPECIAL SITUATIONS
Both BARON ASSET FUND and BARON GROWTH & INCOME FUND may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a company will be recognized and appreciate in value due to a
specific anticipated development at that company. Such developments might
include a new product, a management change, an acquisition or a technological
advancement. Investments in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
- ---------------------------------------------------------
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
- ---------------------------------------------------------
The Adviser, located at 450 Park Avenue, New York, New York 10022,
is responsible for portfolio management. It is a wholly owned
subsidiary of Baron Capital Group, Inc. ("BCG"). Baron Capital, Inc.
("Baron Capital"), a registered broker-
12 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
dealer and the distributor of the shares of the Funds, is also a
wholly owned subsidiary of BCG.
Under separate Advisory Agreements with each Fund (the "Advisory Agreements"),
the Adviser furnishes continuous investment advisory services and management to
each Fund. Mr. Ronald Baron is the chief investment officer of the Adviser and
is primarily responsible for the day-to-day management of the portfolios of each
Fund. He has managed BARON ASSET FUND'S portfolio since its inception. The
Adviser also keeps the books of account of each series, and calculates daily the
income and net asset value per share of each Fund.
As compensation for the services rendered under each Advisory Agreement, the
Adviser receives a fee payable monthly from the assets of each Fund equal to 1%
per annum of each Fund's respective average daily net asset value. The advisory
fee is higher than that paid by most investment companies.
BROKERAGE
- ---------------------------------------------------------
Brokerage transactions for the Funds are effected chiefly by or through its
Adviser's affiliate, Baron Capital, when consistent with the policy of obtaining
the best net results for the Funds and subject to the conditions and limitations
of the 1940 Act. Baron Capital is a registered broker-dealer and a member of the
NASD. In determining the best net results for the Fund, the Adviser will examine
factors such as price (including the applicable brokerage commission or dealer
spread), size of order, efficiency and reliability of execution. The Funds'
Board of Trustees has adopted procedures in conformity with Rule 17e-1 under the
1940 Act to ensure that all brokerage commissions paid to Baron Capital are
reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. The Funds will also consider sales of their shares as
a factor in the selection of broker-dealers to execute portfolio transactions.
See Statement of Additional Information for a description of the commissions
paid to Baron Capital.
13 ---------------------------------------------------------------------------
THE BARON FUNDS
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE BARON FUNDS
TRUSTEES AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The Funds' Board of Trustees has overall responsibility for the management of
the Funds. The Trustees and executive officers of the Funds and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
POSITION HELD WITH
NAME AND ADDRESS THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald Baron*+ President & Trustee President and Director of: Baron Capital, Inc.
450 Park Avenue (1982 - Present), Baron Capital Management, Inc.
New York, NY 10022 (1983 - Present), Baron Capital Group, Inc.
(1984 - Present), BAMCO, Inc. (1987 - Present).
- ------------------------------------------------------------------------------------------------------------------------
Norman S. Edelcup Trustee Chairman, Item Processing of America (1989 - Present),
244 Atlantic Isle (financial institution service bureau); Director, Valhi,
N. Miami Beach, FL 33160 Inc. (1975 - Present) (diversified company); Director,
Artistic Greetings, Inc. (1985 - Present).
- ------------------------------------------------------------------------------------------------------------------------
Neal M. Elliott Trustee President, Chief Executive Officer and
6001 Indian School Rd, N.E. Chairman, Horizon/CMS Healthcare Corp.
Albuquerque, NM 87110 (1986-present) (long-term health care);
Director, LTC Properties, Inc. (1992-Present)
(real estate investment trust); Director,
Frontier Natural Gas Corp. (1991-Present) (oil and gas
exploration).
- ------------------------------------------------------------------------------------------------------------------------
Mark M. Feldman Trustee Executive Vice President and Chief Restructuring
245 Park Avenue Officer, Lomas Financial Corp. and Lomas Mortgage USA,
New York, N.Y. 10261 Inc. (1995 - Present) (debtors-in-possession, financial
services); President, Cold Spring Management, Inc.
(1989 - 1995); (general partner of various investment
partnerships); Trustee, Aerospace Creditors Liquidating
Trust (1993 - Present) (administers and liquidates as-
sets); Director, Lomas Financial Corp. (1993 - Present)
(mortgage banking).
- ------------------------------------------------------------------------------------------------------------------------
Irwin Greenberg Trustee Chairman, Lehigh Valley Hospital Board (1991 - Present);
3048 Congress Street Retail Consultant, (1990 - Present); Director, Cedar
Allentown, PA 18101 Crest College (1990 - Present); President and Chief
Executive Officer, Hess's Department Stores
(1976 - 1990).
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
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THE BARON FUNDS
<TABLE>
<CAPTION>
POSITION HELD WITH
NAME AND ADDRESS THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Linda S. Martinson*+ Secretary, General Counsel, Baron Capital, Inc. (1983 -
450 Park Avenue Vice President and Trustee Present); Secretary, and General Counsel,
New York, NY 10022 BAMCO, Inc. (1987 - Present).
- ------------------------------------------------------------------------------------------------------------------------
Charles N. Mathewson Trustee Chairman of the Board, International Game Technology
5270 Neil Road (1986 - Present) (manufacturer of
Reno, NV 89502-4169 microprocessor-controlled gaming machines and monitoring
systems).
- ------------------------------------------------------------------------------------------------------------------------
Harold W. Milner Trustee President and Chief Executive Officer, Kahler
20 2nd Avenue, S.W. Corporation (1985 - Present) (hotel ownership and
Rochester, MN 55901 management).
- ------------------------------------------------------------------------------------------------------------------------
Raymond Noveck+ Trustee President, Strategic Systems, Inc. (1990 - Present)
31 Karen Road (health care information); Director,
Waban, MA 02168 Horizon/CMS Healthcare Corporation
(1987 - Present).
- ------------------------------------------------------------------------------------------------------------------------
Susan Robbins Vice President Senior Analyst, Vice President, Secretary and Director
450 Park Avenue of: Baron Capital, Inc. (1982 - Present), Baron Capital
New York, NY 10022 Management, Inc. (1983 - Present), Baron Capital Group,
Inc. (1984 - Present).
- ------------------------------------------------------------------------------------------------------------------------
Morty Schaja Vice President Managing Director, Vice President, Baron Capital, Inc.
450 Park Avenue (1991 - Present); Executive Vice President, First
New York, NY 10022 Security Management, Inc. (1987 - 1991) (investment
adviser).
- ------------------------------------------------------------------------------------------------------------------------
David A. Silverman, M.D. Trustee Physician (1976 - Present).
239 Central Park West
New York, NY 10024
- ------------------------------------------------------------------------------------------------------------------------
Peggy Wong Treasurer and Chief Treasurer and Chief Financial Officer, Baron Capital,
450 Park Avenue Financial Officer Inc. (1987 - Present).
New York, NY 10022
- --------------------------------------------------------------------------------
*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.
15 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
- ---------------------------------------------------------
DISTRIBUTION PLAN
The Funds' shares are distributed by Baron Capital, which is the principal
underwriter of the shares of each Fund, pursuant to a distribution plan under
Rule 12b-1 of the 1940 Act ("Distribution Plan"). The Distribution Plan
authorizes the Fund to pay the Principal Underwriter a distribution fee equal on
an annual basis to 0.25% of each Fund's average daily net assets. The
distribution fee is paid to the Principal Underwriter in connection with its
activities or expenses primarily intended to result in the sale of shares,
including, but not limited to, compensation to registered representatives or
other employees of the Principal Underwriter who engage in or support the
distribution of shares or who service shareholder accounts; telephone expenses;
interest expenses; preparing, printing and distributing promotional and
advertising material; preparing, printing and distributing the Prospectus and
reports to other than current shareholders; and commissions and other fees to
broker-dealers or other persons (excluding banks) who have introduced investors
to the Funds. See the Statement of Additional Information for a more detailed
listing of the expenses covered by the Distribution Plan.
SHAREHOLDER MANUAL
- ---------------------------------------------------------
HOW TO PURCHASE SHARES
Shares of BARON ASSET FUND and BARON GROWTH & INCOME FUND are offered without
any sales load. This means you may purchase, redeem, or exchange shares directly
without paying a sales charge. An application is included with this prospectus.
A special application is required to open an individual retirement account
("IRA"). Purchase applications are subject to acceptance by the Funds and the
Funds reserve the right to reject any purchase application in whole or part. All
purchase payments will be invested in full and fractional shares at a price
based on the next calculation of net asset value after the order is received by
the transfer agent. See "Net Asset Value."
The minimum initial investment is $2,000 unless you choose to invest through
the Baron InvestPlan (see below). There is no minimum for subsequent
purchases. Shareholders who are employees of the Adviser or its affiliates
and their immediate families are not subject to the minimums. The Fund may
redeem the shares of any shareholder who has an account balance of less than
$2,000. See "How to Redeem Shares."
No certificates will be issued except upon written request, and no certificates
are issued for fractional shares. The Funds' transfer agent establishes an
account for each shareholder to which all shares purchased are credited,
together with any dividends and capital gain distributions which may be paid in
additional shares. Whenever a transaction occurs in a shareholder's account, the
transfer agent will mail a statement showing the transaction and the status of
the account.
You may invest the following ways:
BY MAIL
- ---------------------------------------------------------
To open a new account send your application form with your check payable to THE
BARON FUNDS to:
The Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
Please make sure you indicate how much money you want invested in which Fund.
Checks must be payable in U.S. dollars and must be drawn on a U.S. bank.
Third party checks, credit cards and cash will not be accepted.
When making subsequent investments, complete the additional investment form
provided at the
16 --------------------------------------------------------------------------
<PAGE>
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THE BARON FUNDS
- --------------------------------------------------------------------------------
top of your account statement or purchase confirmation. If you do not have that
form, write a note indicating in which Baron Fund the investment should go and
the account number. Send it to the address above.
BY WIRE
- ---------------------------------------------------------
You can make your initial or subsequent investments in the
Funds by wire. To do so: (1) contact the Funds' transfer agent,
DST Systems, Inc., at 1-800-442-3814 to obtain an account
number. (2) Complete the application form and mail it to The
Baron Funds, P.O. Box 419946, Kansas City, MO 64141-6946.
(3) Instruct your bank to wire funds to the United Missouri Bank
of Kansas City, N.A., ABA No. 1010-0069-5, Account No.
98-7037-101-4. (4) Be sure to specify the following information
in the wire: (a) The Fund you are buying, (b) your account
number, (c) your name, and (d) your wire number.
Please be sure to include your name and account number. The Fund will not be
responsible for the consequences of delays in the wiring process.
BY TELEPHONE
- ---------------------------------------------------------
Once your account is open you may make subsequent investments by telephone and
exchange between the Funds if you have elected that option on the application.
By choosing this option you authorize the Baron Funds to draw on your bank
account. Please note that your accounts must be identically registered. To add
this option to your account, call 1-800-442-3814 for the forms.
BARON INVESTPLAN
- ---------------------------------------------------------
Baron InvestPlan is an automatic investment plan offered by the Funds. The
minimum initial investment is $500 with monthly investments of as little as $50
automatically invested from your checking account. To enroll in the Baron
InvestPlan, complete the Enrollment Form (available by calling 1-800-99-BARON),
attach a voided check and mail them to The Baron Funds, P.O. Box 419946, Kansas
City, MO 64141-6946.
THROUGH BROKER-DEALERS
- ---------------------------------------------------------
You may purchase shares of the Funds through a broker-dealer or other financial
institution that may charge a transaction fee. Investors should be aware that if
you purchase the shares directly from the Funds, no transaction fee is charged.
The Funds will effect purchase orders through broker dealers at the net asset
value next determined after the Fund has received the order from the
broker-dealer.
- ---------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed by any of the methods described below. If
you are selling shares in an IRA account please read the information in the IRA
kit.
BY MAIL
- ---------------------------------------------------------
Shares may be sold by executing a written request for redemption, as described
below, and mailing the request to The Baron Funds, P.O. Box 419946, Kansas
City, MO 64141-6946.
The redemption request must specify the name of the Fund, the number of shares,
or dollar amount, to be redeemed and the account number. The request must be
signed in exactly the same way the account is registered, including the
signature of each joint owner, if applicable. If any certificates have been
issued for shares that are included in the redemption request, the certificates
must be presented in properly endorsed form. Within three days after receipt of
a redemption request by the transfer agent in
17 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
proper form, the Fund will normally mail you the proceeds.
BY TELEPHONE
- ---------------------------------------------------------
If you have selected the telephone redemption option when you
opened your account, you may redeem your shares by telephone.
To add this option to your account call 1-800-442-3814 for a
telephone redemption form. Once made, your telephone request
cannot be modified or cancelled. The minimum amount that you
may redeem by telephone is $1,000. You may receive the
proceeds by any one of the following methods: (a) we will mail a
check to the address to which your account is registered, (b) we
will transmit the proceeds by Electronic Funds Transfer to a
pre-authorized bank account (usually a two banking day
process), or (c) we will wire the proceeds to a pre-authorized
bank account for a $10.00 fee (usually a next banking day process).
The Funds reserve the right to refuse a telephone redemption if they believe it
advisable to do so. Investors will bear the risk of loss from fraudulent or
unauthorized instructions received over the telephone provided that the Fund
reasonably believes that such instructions are genuine. The Funds and their
transfer agent employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, including recording telephonic
instructions and sending written confirmations. The Funds may incur liability if
they do not follow these procedures.
BY BROKER-DEALER
- ---------------------------------------------------------
You may redeem shares through broker-dealers or other institutions who may
charge you a fee.
SPECIAL INFORMATION ABOUT REDEMPTIONS
- ---------------------------------------------------------
If the amount to be redeemed is greater than $25,000, all of the signatures on a
redemption request and/or certificate must be guaranteed by an "eligible"
guarantor. A signature guarantee is a widely accepted way to protect you and the
Funds by verifying the signature on your request. The Funds will honor a
signature guarantee from acceptable financial institutions such as banks, trust
companies, savings and loan associations, credit unions and broker-dealers. A
notary public is not an acceptable guarantor. No signature guarantee is required
for redemptions of $25,000 or less, per quarter, if proceeds are sent to the
address of record. Further documentation may be requested from corporations,
administrators, executors, trustees, custodians, or others who hold shares in a
fiduciary or representative capacity to evidence the authority of the person or
entity making the request. If there are any questions concerning the required
documentation, the transfer agent should be contacted in advance at
1-800-442-3814. Redemptions will not be effective or complete until all of the
foregoing conditions, including receipt of all required documentation by the
transfer agent, have been satisfied.
If you have recently purchased shares please be aware that your redemption
request may not be honored until the purchase check has cleared your bank, which
generally occurs within ten calendar days. Upon receipt of a redemption request
in proper form, the shares will be redeemed at their next computed net asset
value following receipt of redemption requests by the transfer agent. The net
asset value of shares on redemption may be more or less than the investor's cost
depending on the market value of the Fund's portfolio securities at the time of
redemption. A redemption of shares is a taxable event that may result in
recognition of a gain or loss for tax purposes.
The Funds may suspend the right of redemption or postpone the date of payment
beyond three days during any period when (a) the New York Stock Exchange is
closed other than customary
18 ---------------------------------------------------------------------------
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<PAGE>
THE BARON FUNDS
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weekend and holiday closings; (b) trading on the New York Stock Exchange is
restricted; (c) the Securities and Exchange Commission has by order permitted
such suspension; or (d) an emergency, as defined by rules and regulations of the
Securities and Exchange Commission, exists as a result of which disposal of
portfolio securities or determination of the value of the Funds' net assets is
not reasonably practicable.
If you redeem more than $250,000 or 1% of the net asset value of a Fund during
any 90-day period, the Fund has the right to pay the redemption price, either
totally or partially, by a distribution of portfolio securities instead of cash.
The securities distributed in such a distribution would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being redeemed or repurchased. If shares are redeemed in kind, the
redeeming investor may incur brokerage costs in converting such securities to
cash.
The Trustees may, in order to reduce the expenses of the Funds, redeem all of
the shares of any shareholder whose account, due to the redemption of shares,
has a net asset value of less than $2,000. The Funds will give 60 days' prior
written notice to shareholders whose shares are being redeemed to allow them to
purchase sufficient additional shares of the Funds to avoid such redemption.
- ---------------------------------------------------------
DETERMINING YOUR SHARE
PRICE
Your purchases, sales or exchanges will be processed at the net asset value per
share of the Fund as of the close of the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York City time) on each day that the
Exchange is open for trading by dividing the current market value of the Fund's
total assets less all of its liabilities by the total number of shares
outstanding at the time the determination is made. Valid purchase and redemption
orders received prior to the close of the Exchange on a day the Exchange is open
for trading are executed at the net asset value determined as of the close that
day, and orders received after that time are valued as of the close of the next
trading day. The Funds reserve the right to change the time at which orders are
priced if the Exchange closes at a different time or an emergency exists.
The Funds' portfolio securities traded on any national stock exchange or quoted
on the NASDAQ National Market System are valued on the basis of the last sale
price on the date of valuation or, in the absence of any sale on that date, the
last sale price on the date the security last traded. Other securities are
valued at the mean of the most recent bid and asked prices if market quotations
are readily available. Where market quotations are not readily available the
securities are valued at their fair value as determined in good faith by the
Board of Trustees, although the actual calculations may be done by others. Money
market instruments and debt securities with a remaining maturity of sixty days
or less are valued by the amortized cost method unless such method does not
represent fair value. Odd lot differentials and brokerage commissions are
excluded in calculating net asset value. Securities quoted in a foreign currency
are valued daily in U.S. dollars at the foreign currency exchange rates that are
prevailing at the time the daily net asset value per share is determined. If
events that materially affect the value of a Fund's foreign investments occur,
the investments will be valued at their fair value as determined in good faith
by the Board of Trustees.
19 ----------------------------------------------------------------------------
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<PAGE>
THE BARON FUNDS
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DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute all of its net investment income and realized
capital gains, if any, to its shareholders in a single, combined distribution by
December 31 of each year. After every distribution, the value of a share is
automatically reduced by the amount of the distribution. You may elect to have
all your dividends and capital gains distributions from the Funds automatically
reinvested in additional shares of that Fund at the next computed net asset
value at the close of business on the payment date. You may, instead, elect to
receive your distributions in cash, which the Fund will pay by either crediting
your bank account by Electronic Funds Transfer or issuing a check to you within
five business days of the reinvestment date. If no election is made all
distributions will automatically be reinvested in shares of the Fund. You may
change your election by notifying the Fund in writing prior to the record date
for a particular distribution. There are no charges in connection with the
reinvestment of distributions.
- ---------------------------------------------------------
TAXES
Each Fund intends to qualify each year as a regulated investment company under
the Internal Revenue Code of 1986 (the "Code"). Qualification as a regulated
investment company relieves the Fund of federal income and excise taxes on the
portion of its net ordinary income and net realized capital gain distributed to
shareholders. You are subject to federal income tax at ordinary income tax rates
on any dividends derived from net investment income and distributions of net
short-term capital gains, whether received in cash or in additional shares. A
portion of such dividends received by corporate shareholders may qualify for the
dividends-received deduction. Distributions of net capital gain (the excess of
net long-term capital gains over net short-term capital losses) are taxable to
you as long-term gains regardless of how long you have held your Fund shares.
Dividends and distributions declared by the Fund may also be subject to state
and local taxes.
If you purchase shares shortly before a distribution, you must pay income taxes
on the distribution, even though the value of your investment (plus cash
received, if any) remains the same. The share price at the time of your purchase
may include unrealized gains in the securities held in the investment portfolio
of that Fund. If these portfolio securities are subsequently sold and the gains
are realized, they will (to the extent not offset by capital loses) be paid to
you as a distribution of capital gains and be taxable to you.
The Fund will be required to withhold 31% of all dividends, distributions and
redemption proceeds if you do not provide the Fund with your valid social
security or taxpayer identification number or are otherwise subject to backup
withholding. In addition to the 31% backup withholding, your account will be
charged $50 to reimburse the Fund for any penalty that the IRS imposes on the
Fund for your failure to provide the required information.
Each shareholder will receive information annually on Form 1099 as to the
federal income tax status of all dividends and other distributions paid or
deemed paid to them for the year.
The foregoing is only a summary of some important tax considerations generally
affecting the Funds and their shareholders. Prospective shareholders are urged
to consult their tax advisers concerning the tax consequences of this
investment.
20 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
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GENERAL INFORMATION
The Funds are organized as diversified open-end management investment companies
registered under the Investment Company Act of 1940 ("1940 Act") as two series
of Baron Asset Fund, a Massachusetts business trust organized under the laws of
The Commonwealth of Massachusetts on February 19, 1987. The Funds are each
authorized to issue an indefinite number of shares of beneficial interest. The
Declaration of Trust permits the Trustees to establish additional series. Each
share of a Fund has one vote on all matters for which a shareholder vote is
required, and participates equally in dividend and capital gain distributions
when and if declared by the Fund and in the Fund's net assets upon liquidation.
Shares are fully paid and non-assessable and there are no preemptive, conversion
or exchange rights. Shares do not have cumulative voting rights and, as a
result, holders of at least 50% of the shares voting for Trustees can elect all
Trustees and the remaining shareholders would not be able to elect any Trustees.
As a Massachusetts business trust, annual shareholder meetings are not required.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of shareholders for the purpose of voting
on the removal of one or more Trustees on the written request of not less than
10% of the outstanding shares. Such removal can be effected upon the action of
two-thirds of the outstanding shares.
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND AGENT
- ---------------------------------------------------------
The Bank of New York, 48 Wall Street, New York, New York 10015 is the custodian
for the Funds' cash and securities. DST Systems, Inc. serves as transfer agent
and dividend disbursing agent for the shares. In their respective capacities
both institutions maintain certain financial and accounting records pursuant to
agreements with the Funds. They do not assist in and are not responsible for
investment decisions involving assets of the Funds.
SHAREHOLDER INFORMATION
- ---------------------------------------------------------
All shareholder inquiries regarding account information or transactions should
be directed to DST Systems, Inc., P.O. Box 419946, Kansas City, MO 64141-6946,
or by telephone to 1-800-442-3814.
Shareholder inquiries about general Fund information should be directed to the
Funds' office at 1-800-99-BARON or 212-759-7700.
Shareholders will be provided semi-annual unaudited and annual audited reports,
including a listing of portfolio securities held. A single copy of each report
will be mailed to an address at which more than one registered shareholder with
the same last name (except nominees) has indicated mail is to be delivered,
unless a shareholder requests otherwise.
21 ---------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
(Please consult the Prospectus for more detailed information)
BY MAIL
To open a new account send your application form with your check payable to:
The Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
When making subsequent investments, complete the additional investment form
provided at the top of your account statement or purchase confirmation, or write
a note indicating in which Baron Fund the investment should go and the account
number.
HOW TO REDEEM SHARES
(Please consult the Prospectus for more detailed information)
Shares may be sold by executing a written request for redemption, as described
below, and mailing the request to:
The Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
The redemption request must specify the name of the Fund, the number of shares,
or dollar amount, to be redeemed and the account number.
- --------------------------------------------------------------------------------
BY TELEPHONE
Once your account is open you may make subsequent investments by telephone and
exchange between the Funds if you have elected that option on the application.
By choosing this option you authorize the Baron Funds to draw on your bank
account. Please note that your accounts must be identically registered. To add
this option to your account, call 1-800-442-3814 for the forms.
If you have selected the telephone redemption option when you opened your
account, you may redeem your shares by telephone. To add this option to your
account call 1-800-442-3814 for a telephone redemption form. Once made, your
telephone request cannot be modified or canceled. The minimum amount that you
may redeem by telephone is $1,000.
- --------------------------------------------------------------------------------
BY WIRE
You can make your initial or subsequent investments in the Funds by wire. To do
so: (1) contact the Funds' transfer agent, DST Systems, Inc., at 1-800-442-3814
to obtain an account number. (2) Complete the application form and mail it to:
The Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
(3) Instruct your bank to wire funds to the United Missouri Bank of Kansas City,
N.A., ABA No. 1010-0069-5, Account No. 98-7037-101-4. (4) Be sure to specify the
following information in the wire: (a) The Fund you are buying, (b) your account
number, (c) your name, and (d) your wire number.
To have redeemed shares wired to you please call 1-800-442-3814 for
instructions.
- --------------------------------------------------------------------------------
BY BROKER-DEALERS
You may purchase shares of the Funds through a broker-dealer or other financial
institution that may charge a transaction fee. Investors should be aware that if
you purchase the shares directly from the Funds, no transaction fee is charged.
You may redeem shares through broker-dealers or other institutions who may
charge you a fee.
- --------------------------------------------------------------------------------
SPECIAL INFORMATION ABOUT REDEMPTIONS
If the amount to be redeemed is greater than $25,000, all of the signatures on
a redemption request and/or certificate must be guaranteed by an "eligible"
guarantor.
Not part of the Prospectus.
22 -------------------------------------------------------------------------
<PAGE>
<PAGE>
THE BARON FUNDS THE BARON FUNDS
- --------------------------------------------------------------------------------
450 Park Avenue
New York, NY 10022
212-759-7700
1-800-99-BARON
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- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
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1996
- -----------------------------------------------------
BARON
- -----------------------------------------------------
ASSET
- -----------------------------------------------------
FUND
- -----------------------------------------------------
BARON
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GROWTH
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& INCOME
- -----------------------------------------------------
FUND
- -----------------------------------------------------
- -----------------------------------------------
JANUARY 1996
PROSPECTUS
<PAGE>
<PAGE>
BARON ASSET FUND
BARON GROWTH & INCOME FUND
450 Park Avenue
New York, New York 10022
(800) 99-BARON
212-759-7700
-----------
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1996
------------
Baron Asset Fund is a no-load, open-end, diversified management
investment company organized as a series fund with two series currently
available (individually a "Fund" and collectively the "Funds"): Baron Asset
Fund, started in June of 1987, and Baron Growth & Income Fund, started in
January of 1995. Baron Asset Fund's investment objective is to seek capital
appreciation through investments in securities of small and medium sized
companies with under valued assets or favorable growth prospects. Baron Growth &
Income Fund's investment objective is to seek capital appreciation with income
as a secondary objective.
--------------
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Funds'
prospectus dated January 2, 1996 as amended or supplemented from time to time
(the "Prospectus"). This Statement of Additional Information contains additional
and more detailed information than that set forth in the Prospectus and should
be read in conjunction with the Prospectus. Additional copies of the Prospectus
may be obtained without charge by writing or calling the Funds at the address
and telephone number set forth above.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the related Prospectus, in connection
with the offer contained herein, and, if given or made, such other information
or representations must not be relied upon as having been authorized by the
Funds or the Distributor. This Statement of Additional Information and the
related Prospectus do not constitute an offer by the Funds or by the Distributor
to sell or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
<PAGE>
<PAGE>
Table of Contents
- -----------------
</TABLE>
<TABLE>
<CAPTION>
Page in
Statement
of
Additional Page in
Information Prospectus
----------- ----------
<S> <C> <C>
Investment Objective and Policies...............................2 6
Investment Restrictions..................................3 7
Short Sales Against the Box..............................7 11
Option Transactions......................................7 10
Use of Segregated and Other Special Accounts............10 10
Depository Receipts.....................................10
Medium and Lower Rated Corporate Debt Securities...............11 8
Turnover Rate...........................................13 11
Management of the Funds........................................14 12
Board of Trustees and Officers..........................14 14
Principal Holders of Shares.............................16
Investment Adviser......................................16 12
Distributor.............................................19
Distribution Plan.......................................19 16
Brokerage...............................................22 13
Custodian, Transfer Agent and
Dividend Agent..........................................24 21
Redemption of Shares...........................................24 17
Net Asset Value................................................25 19
Taxes..........................................................25 20
Organization and Capitalization................................26
General.................................................26 21
Shareholder and Trustee Liability.......................27
Other Information..............................................27
Independent Accountants.................................27
Calculation of Performance Data.........................27
</TABLE>
Investment Objective and Policies
The following information supplements the discussion of the Funds'
investment objectives and policies set forth on pages 6-12 of the Prospectus.
Unless otherwise specified, the investment programs and restrictions are not
fundamental policies. Such operating policies are subject to change by the
Fund's Board of Trustees without the approval by the shareholders. Shareholders
will, however, be notified prior to any material changes. Fundamental policies
may be changed only with the approval of a majority of the Funds' outstanding
voting securities.
2
<PAGE>
<PAGE>
Investment Restrictions
Baron Asset Fund and Baron Growth & Income Fund have adopted the
following investment restrictions, which include those described in the
Prospectus. These restrictions represent fundamental policies of the Funds and
may not be changed without the approval of the Funds' shareholders. Unless
otherwise noted, all percentage restrictions are as of the time of the
investment after giving effect to the transaction.
Baron Asset Fund may not:
1. Issue senior securities except in connection with any permitted
borrowing where the Fund is deemed to have issued a senior security;
2. Borrow money except from banks for temporary purposes in an amount not
exceeding 5% of the Fund's total assets less liabilities at the time the
borrowing is made;
3. Purchase securities on margin except for short-term credit necessary
for the clearance of portfolio transactions;
4. Make short sales of securities, maintain a short position, write put
options or buy futures contracts;
5. Purchase or sell commodities or commodity contracts;
6. Purchase or sell real estate or real estate mortgage loans or invest
in the securities of real estate companies unless such securities are publicly
traded;
7. Invest in oil, gas or mineral-related programs or leases;
8. Invest more than 25% of the value of its total assets in any one
industry, except investments in U.S. government securities;
9. 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;
3
<PAGE>
<PAGE>
10. Invest more than 10% of the value of the Fund's assets in securities
which are restricted or not readily marketable or in repurchase agreements
maturing or terminable in more than seven days;
11. Invest in securities of other open end 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 mutual 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;
12. Participate on a joint, or a joint and several, basis in any
securities trading account;
13. Underwrite securities of other issuers;
14. Make loans to other persons, except up to 10% of the value of the
Fund's total assets in loans of portfolio securities and except to the extent
that the purchase of publicly traded debt securities and the entry into
repurchase agreements in accordance with the Fund's investment objective and
policies may be deemed to be loans;
15. Mortgage, pledge or hypothecate any portfolio securities owned or
held by the Fund, except as may be necessary in connection with permitted
borrowings;
16. Invest more than 5% of its total assets in warrants to purchase
common stock;
17. Purchase securities of any issuer with a record of less than three
years' continuous operation, 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; or
18. Purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund, or
is a member, officer or Director of the Adviser, if after the purchase of the
securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value.
4
<PAGE>
<PAGE>
Baron Growth & Income 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 connection with options, loans of portfolio securities, or other
permitted borrowings.
5
<PAGE>
<PAGE>
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 assets in restricted or illiquid
securities, including repurchase agreements maturing in more than seven days.
As a non-fundamental policy, Baron Growth & Income 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 1/2 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 portfolios of the Funds are valued every
day the New York Stock Exchange is open for trading.
With respect to investments in warrants, the Funds will not invest in
excess of 2% of the value of the
6
<PAGE>
<PAGE>
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.
In order to permit the sale of shares of the Funds in certain states, the
Funds may make commitments more restrictive than certain of the restrictions set
forth above. Some states require that the Funds limit their investments in or
abstain from investing in certain types of securities. Should a Fund determine
that any such commitment is no longer in the best interests of that Fund and its
shareholders, the Fund may terminate sales of its shares in a particular state.
Should the state change its policy with respect to a certain restrictive
commitment, the Fund would revoke that particular committment.
The state of Ohio takes the position that a fund's investments in
unseasoned issuers and restricted securities together may not exceed 15% of
assets. Baron Growth & Income Fund will include the securities of unseasoned
investors in its 15% limit on restricted securities for so long as Ohio
maintains that position.
Short Sales Against the Box
Baron Growth & Income Fund may sell short "against the box" to protect or
defer an unrealized gain in a security. At the time of the short sale, the Fund
will either own or have the unconditional right to acquire at no additional cost
the identical security sold short. The Fund may use this technique in connection
with convertible securities as well as common stock. The Fund may have to pay a
fee to borrow securities, which would partially offset any gain thereon.
Options Transactions
Baron Asset Fund may write (sell) call options and purchase put options,
and Baron Growth & Income Fund may purchase or write put or call options. The
purpose of writing covered call options is to reduce the effect of price
fluctuations of the securities owned by the Fund (and involved in the options)
on the Fund's net asset value per share.
7
<PAGE>
<PAGE>
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. For instance, the Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying security against a substantial decline in the market value by
giving the Fund the right to sell such 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. The Fund's purchase of a call option on a
security might be intended to protect the Fund against an increase in the price
of the underlying security that it intends to purchase in the future by fixing
the price at which it may purchase such security or to limit the loss to the
extent of the premium for a security it might otherwise purchase. 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 Funds may engage in either style
option. The Funds are authorized to engage in transactions with respect to
exchange-listed options and over-the-counter options ("OTC options").
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.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security, although in the future
cash settlement may become available. 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
8
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<PAGE>
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, including terms such as method of settlement, term, exercise price,
premium, guarantees and security, are negotiated by the parties. The Funds
expect generally to enter into OTC options that have cash settlement provisions,
although they are not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, or other instrument underlying an OTC
option it has entered into with a Fund 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.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Funds will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligations
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Corporation ("S&P") or "P-1" from Moody's Investor Services ("Moody's")
or an equivalent rating from any nationally recognized statistical rating
organization ("NRSRO"). 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.
If a Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the
9
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<PAGE>
option premium, against a decrease in the value of the underlying securities in
its portfolio or will increase the Fund's income. The sale of put options can
also provide income.
Baron Growth & Income Fund may purchase and sell call options, and Baron
Asset Fund may sell options, on corporate debt securities and equity securities
(including convertible securities). All calls sold by the Funds must be
"covered" (i.e., a Fund must own the underlying securities) or or must meet the
asset segregation requirements described below as long as the call is
outstanding. Even though a Fund will receive the option premium to help protect
it against loss, a call sold by a Fund exposes that Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold.
Baron Growth & Income Fund may purchase and sell put options, and Baron
Asset Fund may buy put options, on corporate debt securities and equity
securities (including convertible securities). All put options must be covered.
In selling put options, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price above the market price.
Use of Segregated and Other Special Accounts
Many hedging transactions, in addition to other requirements, require
that a 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 that 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.
OTC options entered into by a Fund will generally provide for cash
settlement. As a result, when the Fund
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<PAGE>
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a noncash settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. OCC-issued
and exchange-listed options sold by a Fund other than those above generally
settle with physical delivery, or with an election of either physical delivery,
or cash settlement and the Fund will segregate an amount of assets equal to the
full value of the option. OTC options settling with physical delivery, or with
an election of either physical delivery or cash settlement, will be treated the
same as other options settling with physical delivery.
Depository Receipts
The Funds 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 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.
Medium and Lower Rated Corporate Debt Securities
Baron Growth & Income Fund may invest 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 invest in
11
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<PAGE>
securities of distressed issuers when the intrinsic values of such securities
have, in the opinion of the Adviser, warranted such investment. Corporate debt
securities rated Baa are regarded by Moody's as being neither highly protected
nor poorly secured. Interest payments and principal security appears adequate to
Moody's for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such securities
are regarded by Moody's as lacking outstanding investment characteristics and
having speculative characteristics. Corporate debt securities rated BBB are
regarded by S&P as having adequate capacity to pay interest and repay principal.
Such securities are regarded by S&P as normally exhibiting adequate protection
parameters, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for securities in this rating category than in higher rated categories.
Corporate debt securities which are rated B are regarded by Moody's as
generally lacking characteristics of the desirable investment. In Moody's view,
assurance of interest and principal payments or of maintenance of other terms of
the security over any long period of time may be small. Corporate debt
securities rated BB, B, CCC, CC and C are regarded by S&P on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. In S&P's view,
although such securities likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. BB and B are regarded by S&P as indicating the
two lowest degrees of speculation in this group of ratings. Securities rated D
by S&P or C by Moody's are in default and are not currently performing.
The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating debt securities. 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 is a factor considered by the Adviser
in selecting a security, but the intrinsic value in light of market conditions
and the Adviser's analysis of the fundamental values underlying the issuer are
of more significance. Because of the nature of medium and lower rated corporate
debt securities, achievement by the Fund of its investment objective when
investing in such securities is dependent on the credit
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<PAGE>
analysis of the Adviser. 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. Securities
in default are relatively unaffected by such events or by changes in prevailing
interest rates. In addition, in such circumstances, 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. 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 less sensitive to
changes in interest rates than are higher rated debt securities, but are more
sensitive to adverse economic changes or individual corporate developments.
Adverse publicity and investor perceptions, whether or not based on rational
analysis, 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. In addition, periods of economic uncertainty and changes in interest
rates can be expected to have an impact on the market price of any medium to
lower grade corporate debt securities in the portfolio and thus could have an
effect on the net asset value of the Fund if other types of securities did not
show offsetting changes in values. The secondary market value of corporate debt
securities structured as zero coupon securities or payment-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.
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
accurately value such securities may be adversely affected. Further, it may be
more difficult for the Fund to sell such securities for which no established
retail market exists as compared with the effects on securities
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<PAGE>
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 corporate debt 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. A 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 Fund's Board of
Trustees under applicable guidelines.
Turnover Rate
The adviser expects that the average annual turnover rate of the
portfolio of Baron Asset Fund should not exceed 100% and of Baron Growth &
Income Fund should not exceed 150%. A portfolio turnover rate of 100% would
occur if all the securities in the portfolio were replaced in a one year period.
The portfolio turnover rate is calculated by dividing the lesser of portfolio
purchases or sales by the average monthly value of portfolio securities,
excluding short term securities. For the year ended September 30, 1995, Baron
Asset Fund's portfolio turnover was 35%. For the period January 3, 1995
(commencement of operations) to September 30, 1995, Baron Growth & Income's
portfolio turnover was 41% (54% on an annualized basis). For the year ended
September 30, 1994, Baron Asset Fund's portfolio turnover was 56%. The turnover
rate fluctuates depending on market conditions.
Management of the Funds
Board of Trustees and Officers
The Trustees and executive officers of the Funds and their principal
occupations during the last five years are set forth below.
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<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With the Fund During Past Five Years
- ---------------- ------------- -----------------------
<S> <C> <C>
Ronald Baron *+ President and President and Director of: Baron
450 Park Avenue Trustee Capital, Inc. (1982-Present), Baron
New York, NY 10022 Capital Management, Inc.(1983-
Present), Baron Capital Group, Inc.
(1984-Present), BAMCO, Inc.(1987-Present).
Norman S. Edelcup Trustee Chairman, Item Processing of America
244 Atlantic Isle (1989-Present) (financial institution
N. Miami Beach, FL 33160 service bureau); Partner, E & H
Associates (1983-1990) (financial
management consulting); Director,
Valhi Inc. (1975-Present) (diversified
company); Director, Artistic Greetings,
Inc. (1985-Present).
Neal M. Elliott Trustee President, Chief Executive Officer and
6001 Indian School Road, NE Chairman, Horizon/CMS Healthcare
Albuquerque, NM 87110 Corp. (1986-Present) (long term health
care); Director, LTC Properties, Inc.
(1992-Present) (real estate investment
trust); Director, Frontier Natural
Natural Gas Corp. (1991-Present) (oil
and gas exploration).
Mark M. Feldman Trustee Executive Vice President and Chief Re-
245 Park Avenue structuring Officer, Lomas Financial
New York, NY 10261 Corp. and Lomas Mortgage USA, Inc.
(1995-Present) (debtors-in-possesion,
financial services); President, Cold
Spring Management, Inc. (1989-1995);
(general partner of various investment
partnerships); Trustee, Aerospace Credi-
tors Liquidating Trust (1993-Present)
(administers and liquidates assets); Di-
rector, Lomas Financial Corp. (1993-
Present) (mortgage banking).
Irwin Greenberg Trustee Chairman, Lehigh Valley Hospital Board
3048 Congress Street (1991-Present); Retail Consultant, (1990-
Allentown, PA 1801 Present); Director, Cedar Crest College
(1990-Present); President and Chief Exe-
cutive Officer, Hess's Department Stores
(1976-1990).
Linda S. Martinson *+ Secretary, General Counsel, Baron Capital, Inc.
450 Park Avenue Vice President (1983-Present); Secretary and Gene-
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
New York, NY 10022 and Trustee ral Counsel, BAMCO, Inc. (1987-Pre-
sent).
Charles N. Mathewson Trustee Chairman of the Board, International
5270 Neil Road Game Technology (1986-Present) (ma-
Reno, NV 89502-4169 nufacturer of microprocessor-controlled
gaming machines and monitoring sys-
tems).
Harold W. Milner Trustee President and Chief Executive Offi-
20 2nd Avenue, S.W. cer, Kahler Corporation (1985-Pre-
Rochester, MN 55901 sent) (hotel ownership and manage-
ment).
Raymond Noveck + Trustee President, Strategic Systems, Inc.
31 Karen Road (1990-Present) (health care infor-
Waban, MA 02168 mation); Director, Horizon Health-
Care Corporation (1987-Present).
Susan Robbins Vice President Senior Analyst, Vice President, Secre-
450 Park Avenue tary and Director of: Baron Capital,
New York, NY 10022 Inc. (1982-Present), Baron Capital Ma-
nagement, Inc. (1984-Present), Baron
Capital Group, Inc. (1984-Present).
Morty Schaja Vice President Managing Director, Vice President,
450 Park Avenue Baron Capital, Inc. (1991-Present);
New York, NY 10022 Executive Vice President, First Secu-
rity Management, Inc. (1987-1991)
(investment adviser).
David A. Silverman, M.D. Trustee Physician (1976-Present).
239 Central Park West
New York, N.Y. 10024
Peggy Wong Treasurer Treasurer, Baron Capital, Inc.
450 Park Avenue and Chief (1987-Present).
New York, N.Y. 10022 Financial Officer
</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.
16
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<PAGE>
The Trustees who are not affiliated with or interested persons of the
Funds' investment adviser receive fees of $5,000 annually plus an attendance fee
of $500 for each meeting attended in person ($250 for telephone participation).
The Trustees who are interested persons of the Funds' investment adviser receive
no compensation from the Funds. As indicated in the above table, certain
Trustees and officers also hold positions with the Funds' adviser and
distributor.
Principal Holders of Shares
As of December 18, 1995, the following persons were known to the Funds
to be the record or beneficial owners of more than 5% of the outstanding
securities of the Funds:
Baron Asset Baron Growth
Fund & Income Fund
----------- -------------
Charles Schwab & Co., Inc. 51.7% 51.5%
National Financial Services Corp. 5.7% 9.7%
Both of the above record owners are brokerage firms that hold stock for the
benefit of their respective customers. As of December 18, 1995, all of the
officers and Trustees of Baron Asset Fund as a group beneficially owned directly
or indirectly 1.5% of Baron Asset Fund's outstanding shares and 2.3% of Baron
Growth & Income Fund's outstanding shares.
Investment Adviser
The investment adviser to the Funds is BAMCO, Inc. (the "Adviser"), a New
York corporation with its principal offices at 450 Park Avenue, New York, N.Y.
10022 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 25 years of experience as a Wall Street analyst and has managed
money for others for over 20 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 separate Advisory Agreements with each Fund (the "Advisory
Agreement"), the Adviser furnishes continuous investment advisory services and
management to each Fund, including making the day-to-day investment decisions
and arranging portfolio transactions for the Funds subject to such policies as
17
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<PAGE>
the Trustees may determine. Baron Asset Fund incurred advisory expenses of
$1,549,306 for the year ended September 30, 1995, $674, 234 for the year ended
September 30, 1994, and $499,768 for the year ended September 30, 1993. Baron
Growth & Income Fund incurred advisory expenses of $60,398 for the period
January 3, 1995 (commencement of operations) to September 30, 1995.
Under the Advisory Agreement, the Adviser, at its own expense and without
reimbursement from the Funds, 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 Funds pay 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 each 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 Funds also pay 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. Each Fund also pays all taxes imposed on it and all brokerage
commissions and expenses incurred in connection with its portfolio transactions.
Ronald Baron is the controlling stockholder, President and a Director of
BCG. The Adviser utilizes the staffs of Baron Capital and Baron Capital's
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 or Trustees of the Fund. BCM is an investment adviser to
institutional and individual accounts. Clients of BCM and Baron Capital have
investment objectives which may vary only slightly from those of each other and
of the Fund. BCM and Baron Capital invest assets in such clients' accounts and
in the accounts of principals and employees of BCM and Baron Capital 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 the Fund and any of such other accounts, it is the policy of the
Adviser, BCM and Baron Capital to allocate such transactions in a manner deemed
equitable by the Adviser, and for the Adviser's, BCM's and Baron Capital's
principals and employees to take either the same or least favorable price of the
day.
18
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<PAGE>
Each 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 that Fund.
Each 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 that Fund's investment adviser,
that Fund will promptly take all steps necessary to change its name to one that
does not include "Baron," absent the Adviser's written consent.
Each Advisory Agreement provides that the Adviser shall have no liability
to that Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by that 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 Baron Asset 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 May 11, 1987. The Advisory Agreement with respect to Baron Growth &
Income Fund was approved by a majority of the Trustees, including a majority of
the non-interested Trustees, on October 21, 1994. Baron Growth & Income'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
particular 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. With respect
to Baron Asset Fund, such approval for 1995 was approved at a Board of Trustees
meeting held on April 24, 1995.
The Adviser has agreed that if particular Fund's expenses (exclusive of
interest, taxes, brokerage, extraordinary expenses and amounts paid by that Fund
under its plan of distribution) in any fiscal year exceed the limits prescribed
by any state in which the shares are qualified for sale, the Adviser will reduce
its fees by the amount of any excess, up to the amount of the Adviser's fee
under that Advisory Agreement. The Trustees do not anticipate that the expenses
will exceed 2.0% of the first $100 million of the Fund's average net assets and
1.5% of the remainder in excess of $100 million.
Each Advisory Agreement is terminable without penalty by either the Fund
(when authorized by majority
19
<PAGE>
<PAGE>
vote of either its outstanding shares or the Trustees) or the Adviser on 60
days' written notice. Each Advisory Agreement shall automatically terminate in
the event of its "assignment" (as defined by 1940 Act).
Distributor
The Funds have a distribution agreement with Baron Capital, Inc., ("Baron
Capital" or the "Distributor") a New York corporation and a subsidiary of BCG
(controlled by Ronald Baron), located at 450 Park Avenue, New York, N.Y. 10022.
Baron Capital is affiliated with the Adviser. The Distributor acts as the agent
for the Funds for the continuous public offering of their 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 Funds to pay the Distributor a
distribution fee equal on an annual basis to 0.25% of the Funds' average daily
net assets. The fee was reduced to 0.25% from 0.50% on July 12, 1993. 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; interest expenses; preparing, printing and
distributing promotional and advertising material; preparing, printing and
distributing the Prospectus and reports to other than current shareholders; and
commissions and other fees to broker-dealers or other persons (excluding banks)
who have introduced investors to the Fund.
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 exempted from the limits set forth 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
20
<PAGE>
<PAGE>
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 fiscal year ended September 30, 1995, Baron Asset Fund paid
distribution fees to the Distributor of $387,327 (an additional $351,313 was
incurred but not paid pursuant to the 0.25% limitation) for the period January
3, 1995 (commencement of operations) to September 30, 1995, Baron Growth &
Income Fund paid distribution fees to the Distributor of $15,100 (an additional
$8,236 was incurred but not paid pursuant to the 0.25% limitation). The
distribution expenses incurred by the Distributor for the fiscal year ended
September 30, 1995 with respect to the Funds were as follows:
(a) Advertising $ 15,517
(b) Printing and mailing of 264,076
prospectuses to other
than current shareholders
(c) Compensation paid or to be 209,608
paid to sales personnel
(d) Other 272,774
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. Ronald Baron, an interested person of the Funds,
the Adviser and the Distributor, had such an interest.
Baron Asset Fund received net proceeds of approximately $221,528,465 from
sales of its shares during the fiscal year ended September 30, 1995. The cost of
shares redeemed by the Fund during such year was approximately $62,932,974.
Baron Growth & Income Fund received net proceeds of approximately $27,921,323
from sales of its shares during the period January 3, 1995 (commencement of
operations) to
21
<PAGE>
<PAGE>
September 30, 1995. The cost of shares redeemed by the Fund during such period
was approximately $2,047,773.
The Distribution Plan has been approved by the Funds' Board of Trustees,
including a majority of the Trustees who are not interested persons of the Funds
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.
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 Funds 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 anticipates that its actual expenditures will substantially
exceed the distribution fee received by it during the early years of the Funds,
and that in later years its expenditures may be less than the distribution fee,
thus enabling Baron Capital to realize a profit in those years. For example, if
a Fund's average daily net asset value were $2 million, even if Baron Capital
incurred $50,000 of distribution expenses, it would receive only $10,000 as its
fee. Alternatively, if, the Fund's average daily net assets were $25 million,
and Baron Capital incurred $60,000 of distribution expenses, it would receive
$125,000 as its fee giving Baron Capital a $65,000 profit. If the Distribution
Plan is terminated, the Funds 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
22
<PAGE>
<PAGE>
Funds' Board of Trustees who are not interested persons of the Funds 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 Funds 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 the 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 statutes 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 Funds with the objective of obtaining the best net results for the Funds,
taking into account prompt, efficient and reliable executions at a favorable
price. Brokerage transactions for the Funds 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.
The Funds' 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.
23
<PAGE>
<PAGE>
The Board reviews no less frequently than quarterly that all transactions
effected pursuant to Rule 17e-1 during the preceding quarter were effected in
compliance with such procedures. The Funds and the Adviser furnish such reports
and maintain such records as required by Rule 17e-1. The Funds do not deal with
Baron Capital in any portfolio transaction in which Baron Capital acts as
principal.
For the fiscal year ended September 30, 1995, of the total $369,753
brokerage commissions paid by Baron Asset Fund and Baron Growth & Income Fund,
$341,336 in brokerage commissions were paid to Baron Capital. The brokerage
commissions paid to Baron Capital represent 92.3% of the aggregate dollar amount
of brokerage commissions paid and 89.0% of the aggregate dollar amount of
transactions involving the payment of commissions for the 1995 fiscal year. For
the fiscal year ended September 30, 1994, of the total $131,851 in brokerage
commissions paid by Baron Asset Fund, $118,918 in brokerage commissions were
paid to Baron Capital. For the fiscal year ended September 30, 1993, of the
total $159,470 in brokerage commissions paid by the Fund, $128,742 in brokerage
commissions were paid to Baron Capital. The brokerage commissions paid to Baron
Capital represent 90.2% of the aggregate dollar amount of brokerage commissions
paid and 89.9% of the aggregate dollar amount of transactions involving the
payment of commissions for Baron Asset Fund for the 1994 fiscal year. The
brokerage commissions paid to Baron Capital represent 80.7% of the aggregate
dollar amount of brokerage commissions paid and 78.5% of the aggregate dollar
amount of transactions involving the payment of commissions for the 1993 fiscal
year.
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 Funds' 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 Funds 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
24
<PAGE>
<PAGE>
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 Funds 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 Funds, 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 Funds. 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 in the selection of brokers to execute portfolio transactions.
Baron Capital acts as broker for, in addition to the Funds, accounts of
BCM and Baron Capital, including accounts of principals and employees of Baron
Capital, BCM and the Adviser. Investment decisions for the Funds, for investment
accounts managed by BCM and for accounts of Baron Capital 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,
BCM's and/or Baron Capital's accounts. In such event, simultaneous transactions
are inevitable. Purchases and sales are averaged as to price where possible and
allocated as to account in a manner deemed equitable by the Adviser in
conjunction with BCM and Baron Capital. This procedure could have a detrimental
effect upon the price or value of the security for the Funds, but may have a
beneficial effect.
The investment advisory fee that the Funds pay to the Adviser is not
reduced as a consequence of the Adviser's receipt of brokerage and research
services. To the extent the Funds' portfolio transactions are used to obtain
such services, the brokerage commissions paid by the Funds 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
Funds and other clients and, conversely, such services obtained by the placement
of brokerage business of other clients would be useful to the Adviser in
carrying out its obligations to the Funds.
25
<PAGE>
<PAGE>
Custodian, Transfer Agent and Dividend Agent
The Bank of New York, 48 Wall Street, New York, NY, is the custodian for
the Funds' cash and securities. DST Systems, Inc.,CT-7 Tower, 1004 Baltimore,
Kansas City, MO 64105 is the transfer agent and dividend agent for the Funds'
shares. Neither institution assists in or is responsible for investment
decisions involving assets of the Funds. Both institutions are responsible for
the maintenance of its portfolio and general accounting records, and provide
certain shareholder services.
Redemption of Shares
The Funds expect to make all redemptions in cash, but has 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 a particular 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, 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
26
<PAGE>
<PAGE>
Each 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 Funds of Federal
income taxes on the portion of their net investment income and net realized
capital gains distributed to shareholders. The Funds intend to distribute
virtually all of their 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 a 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. Distributions of investment income (but not distributions of
short-term or long-term capital gains) received by shareholders will qualify for
the 70% dividends received deduction available to corporations to the extent
designated by the Fund in a notice to each shareholder. Unless all of a Fund's
gross income constitutes dividends from domestic corporations qualifying for the
dividends received deduction, a portion of the distributions of investment
income to those holders of that Fund which are corporations will not qualify for
the 70% dividends received deduction. The dividends received deduction for
corporate holders may be further reduced if the shares with respect to which
dividends are received are treated as debt-financed or deemed to have been held
for less than forty-six (46) days.
The Funds 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 and the amount qualifying for the 70% dividends
received deduction.
The foregoing relates to Federal income taxation. Distributions may also
be subject to state and local taxes.
27
<PAGE>
<PAGE>
The Funds are organized as a Massachusetts business trust. Under current law, so
long as the Funds qualify for the Federal income tax treatment described above,
it is believed that they will not be liable for any income or franchise tax
imposed by Massachusetts.
Investors are urged to consult their own tax advisers regarding the
application of Federal, state and local tax laws.
Organization and Capitalization
General
Baron Asset Fund is an open-end investment company organized as a series
fund and established under the laws of The Commonwealth of Massachusetts by a
Declaration of Trust dated February 19, 1987, as amended. The two series
currently available are Baron Asset Fund and Baron Growth & Income Fund. Shares
entitle their holders to one vote per share. Shares have noncumulative 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
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund or any
series thereof. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by the Funds or the
Trustees. The Declaration of Trust provides for indemnification by a Fund for
any loss suffered by a shareholder as a result of an obligation of that Fund.
The Declaration of Trust also provides that a Fund shall, upon request, assume
the defense of any claim made against any shareholder for an act or obligation
of that Fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Trustees believe that, in view of the above, the risk of personal liability
of shareholders is remote.
28
<PAGE>
<PAGE>
The Declaration of Trust further 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
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New York
10019, has been selected as independent accountants of the Funds.
Calculation of Performance Data
Advertisements and other sales literature for the Funds 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:
P (1+T)'pp'n= 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.
29
<PAGE>
<PAGE>
Computed in the manner described above, the performance of Baron Asset
Fund has been:
Average Annual Total Actual Return (does not
Return (prior to January 1, 1992 include the 2% contingent
includes the 2% contingent deferred sales load)
deferred sales load where
investment is less than 3 years)
Year ended +35.3% +35.3%
12/31/95
Year ended +7.4% +7.4%
12/31/94
Year ended +23.5% +23.5%
12/31/93
Year ended +13.9% +13.9%
12/31/92
Year Ended +32.0% +34.0%
12/31/91
Year Ended -20.5% -18.5%
12/31/90
Year Ended +23.0% +25.0%
12/31/89
Year Ended
12/31/88 +32.4% +34.4%
Inception
(6/12/87
to 12/31/95 +17.1% +286.2%
Inception
(6/12/87
to 12/31/94 +14.9% +185.5%
30
<PAGE>
<PAGE>
Inception
(6/12/87)
to 12/31/93 +16.1% +165.8%
Inception
(6/12/87)
to 12/31/92 +14.8% +115.2%
Inception
(6/12/87)
to 12/31/91 +15.0% +89.0%
Inception
(6/12/87)
to 12/31/90 +10.1% +41.0%
Inception
(6/12/87)
to 12/31/89 +23.4% +73.0%
Inception
(6/12/87)
to 12/31/88 +22.1% 38.4%
Five Years Ended
12/31/95 +22.3% +173.9%
For Baron Growth & Income Fund the performance has been:
One Year Ended
12/31/95 (From
Inception 1/3/95) +52.5% +52.5%
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,
Ibbotsen, No Load Investor,
31
<PAGE>
<PAGE>
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 and/or USA Today. 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.
32
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
BARON ASSET FUND
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
- ---------------------------------------------------------------
September 30, 1995
<C> <S> <C> <C>
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE(1) %(2)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
COMMON STOCKS
- ---------------------------------------------------------------
AMUSEMENT & RECREATION SERVICES
250,000 American Classic $ 2,562,500 0.9 %
Voyages Co....................
100,000 Circus Circus Enterprises, 2,800,000 1.0
Inc.*.........................
100,000 Marcus Corp................... 3,537,500 1.2
67,000 Mirage Resorts, Inc.*......... 2,202,625 0.7
------------ ----
11,102,625 3.8
BUSINESS SERVICES
167,500 Equity Corp. Intl.*........... 4,145,625 1.4
307,000 Olsten Corp................... 11,934,625 4.1
550,000 Robert Half Intl., Inc.*...... 18,768,750 6.5
157,500 Stewart Enterprises, Inc. CL 5,709,375 2.0
A.............................
250,000 Team Rental Group, Inc.*...... 2,500,000 0.9
295,700 Wackenhut Corrections
Corp.*........................ 6,801,100 2.3
------------ ----
49,859,475 17.2
CHEMICAL
55,000 OM Group, Inc................. 1,670,625 0.6
COMMUNICATIONS
400,000 American Mobile Satellite 9,575,000 3.3
Corp.*........................
370,000 Cellular Comm. of P.R., 11,285,000 3.9
Inc.*.........................
150,000 Globalstar Telecomm., Ltd*.... 3,206,250 1.1
270,000 Intl. CableTel, Inc.*......... 7,560,000 2.6
50,000 United States Cellular
Corp.*........................ 1,825,000 0.6
------------ ----
33,451,250 11.5
CONSUMER PRODUCTS
25,000 Oakley, Inc.*................. 740,625 0.3
EDUCATION
330,000 DeVry, Inc.*.................. 8,497,500 2.9
45,000 Lancit Media Prods, Ltd.*..... 607,500 0.2
253,000 Westcott Communications,
Inc.*......................... 3,826,625 1.3
------------ ----
12,931,625 4.4
FINANCIAL
640,000 Charles Schwab Corp........... 17,920,000 6.2
500,700 DVI, Inc.*.................... 6,884,625 2.4
80,000 Franklin Resources, Inc....... 4,610,000 1.6
------------ ----
29,414,625 10.2
FOOD AND AGRICULTURE
185,000 Delta & Pine Land Co.......... 6,983,750 2.4
55,000 Pioneer Hi Bred Intl., Inc.... 2,530,000 0.9
250,000 Scotts Co.*................... 5,531,250 1.9
------------ ----
15,045,000 5.2
HEALTH SERVICES
80,000 American Homepatient, Inc.*... 2,040,000 0.7
53,500 Community Health Sys.,
Inc.*......................... 2,160,062 0.7
126,800 Genesis Health Ventures,
Inc.*......................... 4,533,100 1.6
575,000 Manor Care, Inc............... 19,550,000 6.7
133,000 Pediatric Services Of America,
Inc.*......................... 2,560,250 0.9
62,000 Prof. Sports Care Mgt.,
Inc.*......................... 333,250 0.1
361,000 Summit Care Corp.*............ 8,844,500 3.1
100,000 Vitalink Pharmacy Svcs,
Inc.*......................... 1,850,000 0.6
------------ ----
41,871,162 14.4
<CAPTION>
STATEMENT OF NET ASSETS (Continued)
- ---------------------------------------------------------------
September 30, 1995
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE(1) %(2)
<C> <S> <C> <C>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
COMMON STOCKS (Continued)
- ---------------------------------------------------------------
MACHINERY AND ELECTRONICS
40,000 American Superconductor
Corp.*........................ $ 530,000 0.2%
MEDIA AND ENTERTAINMENT
125,000 Big Entertainment, Inc.*...... 781,250 0.3
575,000 Saga Communications, Inc.*.... 9,128,125 3.1
------------ ----
9,909,375 3.4
REAL ESTATE & REIT'S
88,000 Alexander's, Inc.*............ 5,313,000 1.8
80,000 Avatar Holdings, Inc.*........ 2,960,000 1.0
100,000 Vornado Realty Trust.......... 3,750,000 1.3
------------ ----
12,023,000 4.1
RETAIL TRADE & RESTAURANTS
90,000 Cheesecake Factory, Inc.*..... 2,407,500 0.8
410,000 Heilig Meyers, Co............. 9,532,500 3.3
135,000 Nine West Group, Inc.*........ 6,142,500 2.1
125,000 Office Depot, Inc.*........... 3,765,625 1.3
255,000 Petco Animal Supplies, Inc.*.. 6,630,000 2.3
60,000 Proffitt's Inc.*.............. 1,650,000 0.6
832,500 Smart and Final, Inc.......... 16,129,688 5.6
45,000 Sonic Corp.*.................. 1,023,750 0.3
------------ ----
47,281,563 16.3
TRANSPORTATION
145,000 American Freightways Corp.*... 2,175,000 0.8
140,000 USA Trucks, Inc.*............. 1,820,000 0.6
------------ ----
3,995,000 1.4
MISCELLANEOUS.............................. 2,780,109 1.0
------------ ----
TOTAL COMMON STOCKS
(Cost $198,795,006)........................ 272,606,059 94.0%
- ---------------------------------------------------------------
CORPORATE BONDS
- ---------------------------------------------------------------
COMMUNICATIONS
$8,000,000 Intl. CableTel, Inc. 7.25%
Conv. Sub. Notes 4/15/2005.... 9,560,000 3.3
PRINTING AND PUBLISHING
525,000 American City Business 6.00%
Conv. Sub. Debentures
12/31/2011.................... 840,000 0.3
------------ ----
TOTAL CORPORATE BONDS
(Cost $8,486,099).......................... 10,400,000 3.6%
- ---------------------------------------------------------------
SHORT TERM MONEY MARKET INSTRUMENTS
- ---------------------------------------------------------------
10,189,000 Associates Corp. of N.A., 6.4%
Due 10/02/95.................. 10,189,000 3.5
------------ ----
TOTAL SHORT TERM MONEY MARKET INSTRUMENT
(Cost $10,189,000)......................... 10,189,000 3.5
------------ ----
TOTAL INVESTMENTS (Cost $217,470,105**).... 293,195,059 101.1
------------ ----
LIABILITIES LESS
CASH AND OTHER ASSETS...................... (3,221,728) (1.1)
------------ ----
NET ASSETS (Equivalent to $29.30 per share
based on 9,895,597 shares of beneficial
interest outstanding)...................... $289,973,331 100.0%
------------ ----
------------ ----
</TABLE>
- ------------
(1) See Note 1 to Financial Statements
(2) Percentage of Net Assets
* Non-income producing securities
** For Federal income tax purposes the cost basis is $217,715,999. Aggregate
unrealized appreciation and depreciation of investments are $78,063,290 and
$2,584,230, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
BARON GROWTH & INCOME FUND
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
- ---------------------------------------------------------------
September 30, 1995
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE(1) %(2)
---------------------------------------------------------------
- ---------------------------------------------------------------
COMMON STOCKS
- ---------------------------------------------------------------
<C> <S> <C> <C>
AMUSEMENT & RECREATION SERVICES
5,000 American Classic Voyages Co... $ 51,250 0.2%
7,000 Circus Circus Enterprises,
Inc.*......................... 196,000 0.7
7,000 Marcus Corp................... 247,625 0.8
5,000 Mirage Resorts, Inc.*......... 164,375 0.6
----------- -----
659,250 2.3
BUSINESS SERVICES
6,000 Equity Corp. Intl.*........... 148,500 0.5
10,000 Olsten Corp................... 388,750 1.4
36,000 Robert Half Intl., Inc.*...... 1,228,500 4.3
12,000 Stewart Enterprises, Inc. CL
A............................. 435,000 1.5
10,000 Wackenhut Corp................ 156,250 0.5
22,500 Wackenhut Corrections Corp.*.. 517,500 1.8
----------- -----
2,874,500 10.0
COMMUNICATIONS
32,000 American Mobile Satellite
Corp.*........................ 766,000 2.7
8,000 Cellular Comm. Intl.*......... 300,000 1.0
24,000 Cellular Comm. of P.R.,
Inc.*......................... 732,000 2.6
8,000 Globalstar Telecomm., Ltd*.... 171,000 0.6
6,000 Intl. CableTel, Inc.*......... 168,000 0.6
----------- -----
2,137,000 7.5
COMMUNICATIONS EQUIPMENT
24,000 TSX Corp.*.................... 552,000 1.9
EDUCATION
75,000 Industrial Training Corp.*.... 759,375 2.7
40,000 Westcott Communications,
Inc.*......................... 605,000 2.1
----------- -----
1,364,375 4.8
FINANCIAL
50,600 Charles Schwab Corp........... 1,416,800 5.0
38,000 DVI, Inc.*.................... 522,500 1.8
3,000 Franklin Resources, Inc....... 172,875 0.6
3,000 Leucadia National Corp.*...... 175,875 0.6
4,000 Travelers Group, Inc.......... 212,500 0.7
----------- -----
2,500,550 8.7
FOOD AND AGRICULTURE
20,000 Pioneer Hi Bred Intl., Inc.... 920,000 3.2
26,000 Scotts Co.*................... 575,250 2.0
----------- -----
1,495,250 5.2
HEALTH SERVICES
7,000 American Homepatient, Inc.*... 178,500 0.6
22,500 Counsel Corp.*................ 121,640 0.4
32,000 Manor Care, Inc............... 1,088,000 3.8
8,000 Occusystems, Inc.*............ 166,000 0.6
14,000 Pediatric Services Of America,
Inc.*......................... 269,500 1.0
13,000 Summit Care Corp.*............ 318,500 1.1
----------- -----
2,142,140 7.5
MEDIA & ENTERTAINMENT
25,000 American Radio Systems
Corp.*........................ 618,750 2.2
6,000 Moovies, Inc.*................ 117,750 0.4
----------- -----
736,500 2.6
REAL ESTATE & REIT'S
4,000 Alexander's, Inc.*............ 241,500 0.9
26,000 Beacon Properties Corp........ 555,750 1.9
30,000 Cali Realty Corp.............. 607,500 2.1
28,000 Columbus Realty Trust......... 532,000 1.9
<CAPTION>
STATEMENT OF NET ASSETS (Continued)
- ---------------------------------------------------------------
September 30, 1995
SHARES OR MARKET
PRINCIPAL AMOUNT VALUE(1) %(2)
<C> <S> <C> <C>
---------------------------------------------------------------
---------------------------------------------------------------
COMMON STOCKS (Continued)
- ---------------------------------------------------------------
15,000 Crown American Realty Trust... $ 123,750 0.4 %
34,000 Debartolo Realty Corp......... 476,000 1.7
23,000 Highwoods Properties, Inc..... 606,625 2.1
16,000 Kimco Realty Corp............. 640,000 2.2
28,000 Santa Anita Realty
Enterprises, Inc.............. 378,000 1.3
32,000 Storage Equities, Inc......... 596,000 2.1
20,000 Storage USA, Inc.............. 617,500 2.2
20,000 Sun Communities, Inc.......... 520,000 1.8
16,000 Vornado Realty Trust.......... 600,000 2.1
23,000 Wellsford Res Property Trust.. 491,625 1.7
----------- -----
6,986,250 24.4
RETAIL TRADE & RESTAURANTS
12,000 Cheesecake Factory, Inc.*..... 321,000 1.1
14,000 Heilig Meyers, Co............. 325,500 1.1
12,000 Office Depot, Inc.*........... 361,500 1.3
10,000 Petco Animal Supplies,
Inc.*......................... 260,000 0.9
50,000 Smart and Final, Inc.......... 968,750 3.4
----------- -----
2,236,750 7.8
UTILITY SERVICES
29,000 Southern Union Co. New*....... 540,125 1.9
----------- -----
TOTAL COMMON STOCKS (Cost $22,092,035)..... 24,224,690 84.6%
-------------------------------------------------------------
CORPORATE BONDS
- ---------------------------------------------------------------
COMMUNICATIONS
$1,800,000 Cellular Comm. Intl. Units 1
Unit = $1000 0% Sr. Disc.
Notes 8/15/2000 and 1
Warrant....................... 990,000 3.5
1,400,000 Intl. CableTel, Inc. 7.25%
Conv. Sub. Notes 4/15/2005.... 1,673,000 5.8
1,200,000 Scandinavian Broadcasting
7.25% Conv. Bd 8/01/2005...... 1,344,000 4.7
----------- -----
4,007,000 14.0
FINANCIAL
245,000 Waterhouse Inv. Svcs, Inc.,
6.0% Sub Note Conv.
12/15/2003.................... 269,500 0.9
----------- -----
TOTAL CORPORATE BONDS
(Cost $3,991,031).......................... 4,276,500 14.9%
-------------------------------------------------------------
SHORT TERM MONEY MARKET INSTRUMENT
- ---------------------------------------------------------------
1,372,000 Associates Corp. of N.A., 6.4%
Due 10/02/95.................. 1,372,000 4.8
----------- -----
TOTAL SHORT TERM MONEY MARKET INSTRUMENT
(Cost $1,372,000).......................... 1,372,000 4.8
----------- -----
TOTAL INVESTMENTS (Cost $27,455,066**)..... 29,873,190 104.3
----------- -----
LIABILITIES LESS CASH AND OTHER ASSETS..... (1,240,723) (4.3)
----------- -----
NET ASSETS (Equivalent to $14.77 per share
based on 1,938,601 shares of beneficial
interest outstanding)...................... $28,632,467 100.0%
----------- -----
----------- -----
</TABLE>
- ------------
(1) See Note 1 to Financial Statements
(2) Percentage of Net Assets
* Non-income producing securities
** For Federal income tax purposes the cost basis is $27,463,842. Aggregate
unrealized appreciation and depreciation of investments are $2,628,121 and
$218,773, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE BARON FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
ASSETS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BARON BARON GROWTH &
ASSET FUND INCOME FUND
------------ --------------
<S> <C> <C>
Investments in securities, at value (Cost $217,470,105
and $27,455,066, respectively)......................... $293,195,059 $ 29,873,190
Cash................................................... 191,682 14,052
Dividends and interest receivable...................... 282,920 120,450
Receivable for securities sold......................... 394,029 263,434
Receivable for shares sold............................. 967,621 151,698
Unamortized organization costs (Note 1)................ 0 27,942
Prepaid expenses....................................... 3,114 0
------------ -----------
295,034,425 30,450,766
------------ -----------
------------ -----------
- ----------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for securities purchased....................... 4,971,632 1,758,632
Accrued organization costs (Note 1).................... 0 27,942
Accrued expenses and other payables (Note 3)........... 89,462 31,725
------------ -----------
5,061,094 1,818,299
------------ -----------
NET ASSETS............................................. $289,973,331 $ 28,632,467
------------ -----------
------------ -----------
- ----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------
Par value.............................................. $ 98,956 $ 19,386
Paid-in capital in excess of par value................. 214,000,737 25,854,164
Undistributed net investment income.................... 0 69,347
Undistributed net realized gains....................... 148,684 271,446
Net unrealized appreciation on investments............. 75,724,954 2,418,124
------------ -----------
NET ASSETS............................................. $289,973,331 $ 28,632,467
------------ -----------
------------ -----------
SHARES OF BENEFICIAL INTEREST OUTSTANDING ($.01 par
value; indefinite shares authorized)................... 9,895,597 1,938,601
------------ -----------
------------ -----------
NET ASSET VALUE PER SHARE.............................. $ 29.30 $ 14.77
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
September 30, 1995
<TABLE>
<CAPTION>
BARON GROWTH &
INCOME FUND
FOR THE PERIOD
JANUARY 3, 1995
BARON ASSET FUND (COMMENCEMENT OF
FOR THE OPERATIONS) TO
YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, 1995 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------
INCOME:
Interest............................................... $ 843,926 $ 76,347
Dividends.............................................. 537,131 103,161
Miscellaneous.......................................... 1,638 60
------------ ----------
Total income........................................... 1,382,695 179,568
------------ ----------
- ------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------
Investment advisory fees (Note 3)...................... 1,549,306 60,398
Distribution fees (Note 3)............................. 387,327 15,100
Custodian fees......................................... 63,892 13,745
Shareholder servicing agent fees....................... 70,690 9,937
Amortization of organization costs (Note 1)............ 0 4,931
Registration and filing fees........................... 50,298 1,500
Trustee fees........................................... 34,012 988
Professional fees...................................... 30,000 12,000
Reports to shareholders................................ 23,294 419
Insurance.............................................. 8,860 262
Miscellaneous.......................................... 16,754 2,944
------------ ----------
Total expenses......................................... 2,234,433 122,224
------------ ----------
Custodian fees paid indirectly......................... 0 (12,003)
------------ ----------
Net expenses........................................... 2,234,433 110,221
------------ ----------
Net investment income (loss)........................... (851,738) 69,347
------------ ----------
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------
Net realized gain on investments sold.................. 149,491 271,446
Change in net unrealized appreciation of investments... 54,335,827 2,418,124
------------ ----------
Net gain on investments................................ 54,485,318 2,689,570
------------ ----------
Net increase in net assets resulting from operations... $ 53,633,580 $2,758,917
------------ ----------
------------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE BARON FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
September 30, 1995
<TABLE>
<CAPTION>
BARON GROWTH &
INCOME FUND
FOR THE PERIOD
JANUARY 3, 1995
BARON ASSET FUND (COMMENCEMENT OF
FOR THE FOR THE OPERATIONS) TO
YEAR ENDED YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 1995
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income (loss)............ $ (851,738) $ (479,086) $ 69,347
Net realized gain on investment sold.... 149,491 2,551,609 271,446
Net change in unrealized appreciation on
investments............................. 54,335,827 3,658,293 2,418,124
------------ ------------ ------------
Increase in net assets resulting from
operations.............................. 53,633,580 5,730,816 2,758,917
------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gain on investments........ (2,514,282) (2,252,930) 0
------------ ------------ ------------
(2,514,282) (2,252,930) 0
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from the sale of shares........ 219,118,186 29,376,138 27,921,323
Net asset value of shares issued in
reinvestment of dividends............... 2,410,279 2,168,806
Cost of shares redeemed................. (62,932,974) (14,680,858) (2,047,773)
------------ ------------ ------------
Increase in net assets derived from
capital share transactions.............. 158,595,491 16,864,086 25,873,550
------------ ------------ ------------
Net increase in net assets.............. 209,714,789 20,341,972 28,632,467
- -------------------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------------------
Beginning of year....................... 80,258,542 59,916,570 0
------------ ------------ ------------
End of year............................. $289,973,331 $ 80,258,542 $ 28,632,467
------------ ------------ ------------
------------ ------------ ------------
Undistributed net investment income at
end of year............................. $ 0 $ 0 $ 69,347
------------ ------------ ------------
------------ ------------ ------------
- -------------------------------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST:
- -------------------------------------------------------------------------------------------------------
Shares sold............................. 8,798,265 1,367,817 2,094,005
Shares issued in reinvestment
dividends............................... 111,227 104,019
Shares redeemed......................... (2,531,541) (688,887) (155,404)
------------ ------------ ------------
Net increase............................ 6,377,951 982,949 1,938,601
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
20
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------------
Baron Asset Fund (the 'Trust') is registered under the Investment Company Act of
1940, as amended (the '1940 Act'), as a diversified, open-end management
investment company established as a Massachusetts business trust on February 19,
1987. The Trust currently offers two series (individually a 'Fund' and
collectively the 'Funds'): Baron Asset Fund, started in June of 1987, and Baron
Growth & Income Fund, started in January of 1995. The following is a summary of
significant accounting policies followed by the Funds. The policies are in
conformity with generally accepted accounting principles.
(A) SECURITY VALUATION. Portfolio securities traded on any national stock
exchange or quoted on the NASDAQ National Market System are valued on the basis
of the last sale price on the date of valuation or, in the absence of any sale
on that date, the last sale price on the date the security last traded. Other
securities are valued at the mean of the most recent bid and asked prices if
market quotations are readily available. Where market quotations are not readily
available the securities are valued at their fair value as determined in good
faith by the Board of Trustees, although the actual calculations may be done by
others. Money market instruments held by the Funds with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates value.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on an identified cost basis for financial reporting
and Federal income tax purposes. Dividend income is recognized on the ex-
dividend date and interest income is recognized on an accrual basis.
(C) FEDERAL INCOME TAXES. Each Fund of the Trust is treated as a separate entity
for Federal income tax purposes. It is the policy of each Fund to continue to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, and to distribute all of its taxable income, including net
realized capital gains, if any, to its shareholders. No federal income tax
provision is therefore required.
(D) EXPENSE ALLOCATION. Expenses directly attributed to a Fund are charged to
that Fund's operations; expenses which are applicable to both Funds are
allocated on a basis deemed fair and equitable by the Trustees, usually on the
basis of average net assets.
(E) ORGANIZATION COSTS. Costs incurred in connection with the organization and
initial registration of Baron Growth & Income Fund have been deferred and are
being amortized on a straight-line basis over a five-year period. Baron Capital,
Inc.('BCI'), a wholly owned subsidiary of Baron Capital Group, Inc. ('BCG'),
agreed to make advances for organization expenses incurred and will be
reimbursed as the costs are amortized.
(F) DISTRIBUTIONS. Income distributions and capital gains distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses. During the year ended September
30, 1995, Baron Asset Fund reclassified a net operating loss of $851,738 to
Additional Paid-In-Capital.
- ---------------------------------------------------------------
(2) PURCHASES AND SALES OF SECURITIES
- ---------------------------------------------------------------
Purchases and sales of securities, other than short term securities, aggregated
$202,598,746 and $54,111,447, respectively for Baron Asset Fund for the year
ended September 30, 1995, and $29,597,844 and $3,800,611, respectively for Baron
Growth & Income Fund for the period January 3, 1995 (commencement of operations)
to September 30, 1995.
- ---------------------------------------------------------------
(3) INVESTMENT ADVISORY FEES
AND OTHER TRANSACTIONS WITH AFFILIATES
- ---------------------------------------------------------------
(A) INVESTMENT ADVISORY FEES. BAMCO, Inc. (the 'Adviser'), a wholly owned
subsidiary of BCG serves as investment adviser to the Funds. As compensation for
services rendered, the Adviser receives a fee payable monthly from the assets of
the Funds equal to 1% per annum of each Fund's average daily net asset value.
The Adviser has agreed that if the expenses (exclusive of interest, taxes,
brokerage, extraordinary expenses and amounts paid by the Funds under the plan
of distribution) of either Fund in any fiscal year exceed the limits prescribed
by any state in which that Fund's shares are qualified for sale, the Adviser
will reduce its fee by the amount of any such excess, up to the amount of the
Adviser's fee. The Trustees do not anticipate that the expenses will exceed 2.0%
of the first $100 million and 1.5% of the remainder in excess of $100 million of
each Fund.
(B) DISTRIBUTION FEES. BCI is a registered broker dealer and the distributor of
the shares of the Funds pursuant to a distribution plan under Rule 12b-1 of the
1940 Act. The distribution plan authorizes the Funds to pay BCI a distribution
fee equal on an annual basis to 0.25% of the Funds' average daily net assets.
Brokerage transactions for the Funds may be effected by or through BCI. BCI
earned $301,249 in brokerage
- --------------------------------------------------------------------------------
21
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE BARON FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
commissions from Baron Asset Fund for the year ended September 30, 1995, and
$39,987 from Baron Growth & Income Fund for period January 3, 1995
(commencement of operations) to September 30, 1995.
(C) TRUSTEE FEES. Certain Trustees of the Trust may be deemed to be affiliated
with or interested persons (as defined by the 1940 Act) of the Funds' Adviser or
of BCI. None of the Trustees so affiliated received compensation for his
services as a Trustee of the Trust. None of the Funds' officers received
compensation from the Funds.
- --------------------------------------------------------------------------------
(4) FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BARON ASSET FUND
Selected data for a share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....................... $22.82 $21.91 $16.20 $14.80 $10.88 $17.22 $12.98
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............................. (0.09) (0.14) (0.13) (0.08) 0.07 0.21 0.13
Net realized and unrealized gains (losses) on
investments.............................................. 7.23 1.82 6.00 1.52 4.05 (5.14) 4.81
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS..................... 7.14 1.68 5.87 1.44 4.12 (4.93) 4.94
LESS DISTRIBUTIONS
Dividends from net investment income..................... 0 0 0 (0.04) (0.20) (0.16) (0.05)
Distributions from net realized gains.................... (0.66) (0.77) (0.16) 0 0 (1.25) (0.65)
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.................................. (0.66) (0.77) (0.16) (0.04) (0.20) (1.41) (0.70)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR............................. $29.30 $22.82 $21.91 $16.20 $14.80 $10.88 $17.22
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN......................................... 32.3% 8.0% 36.5% 9.7% 38.3% (30.7%) 39.9%
------ ------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets (in millions), end of year.................... $290.0 $ 80.3 $ 59.9 $ 43.8 $ 47.4 $ 40.0 $ 47.7
Ratio of expenses to average net assets.................. 1.4% 1.6% 1.8% 1.7% 1.7% 1.8% 2.1%
Ratio of net investment income (loss) to average net
assets................................................. (0.5%) (0.7%) (0.7%) (0.5%) 0.5% 1.5% 1.3%
Portfolio turnover rate.................................. 35.2% 55.9% 107.9% 95.5% 142.7% 97.8% 148.9%
<CAPTION>
1988 1987
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....................... $11.95 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............................. 0.05 0.07
Net realized and unrealized gains (losses) on
investments.............................................. 1.18 1.88
------ ------
TOTAL FROM INVESTMENT OPERATIONS..................... 1.23 1.95
LESS DISTRIBUTIONS
Dividends from net investment income..................... (0.03) 0
Distributions from net realized gains.................... (0.17) 0
------ ------
TOTAL DISTRIBUTIONS.................................. (0.20) 0
------ ------
NET ASSET VALUE, END OF YEAR............................. $12.98 $11.95
------ ------
------ ------
TOTAL RETURN......................................... 10.7% 19.5%
------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets (in millions), end of year.................... $ 11.7 $ 3.9
Ratio of expenses to average net assets.................. 2.5% 2.8%**
Ratio of net investment income (loss) to average net
assets................................................. 0.5% 1.9%**
Portfolio turnover rate.................................. 242.4% 84.7%
</TABLE>
- ------------------
* For the period from June 12, 1987 (commencement of operations) to September
30, 1987.
** Annualized.
The Fund's adviser and/or Baron Capital reimbursed the Fund for expenses
aggregating $8,561 (less than $0.01 per share) in 1990, $27,315 ($0.01 per
share) in 1989, $83,219 ($0.11 per share) in 1988, and $36,330 ($0.20 per share)
in 1987. The reimbursement amounts are excluded from the expense data above.
BARON GROWTH & INCOME FUND
Selected data for a share of beneficial interest outstanding:
<TABLE>
<CAPTION>
1995*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................................................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................................................................................................... 0.04
Net realized and unrealized gains on investments........................................................................ 4.73
------
TOTAL FROM INVESTMENT OPERATIONS.................................................................................... 4.77
LESS DISTRIBUTIONS
Dividends from net investment income.................................................................................... 0
Distributions from net realized gains................................................................................... 0
------
TOTAL DISTRIBUTIONS................................................................................................. 0
------
NET ASSET VALUE, END OF PERIOD.......................................................................................... $14.77
------
------
TOTAL RETURN........................................................................................................ 47.7%
------
RATIOS/SUPPLEMENTAL DATE
Net assets (in millions), end of period................................................................................. $ 28.6
Ratio of expenses to average net assets................................................................................. 2.0%**
Ratio of net investment income to average net assets.................................................................... 1.1%**
Portfolio turnover rate................................................................................................. 40.6%
</TABLE>
- ------------------
* For the period January 3, 1995 (commencement of operations) to September 30,
1995.
** Annualized.
The Fund's Custodian offset custody fees of $12,003 (less than $0.01 per share)
in 1995. The expense offset amount is included in the expense data above.
- --------------------------------------------------------------------------------
22
<PAGE>
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN BAF AND THE RUSSELL 2000
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
Fiscal Russell 200C BAF
10000 10000
1987 10471 11950
1988 9339 13234
1989 11346 18521
1990 8266 12838
1991 11993 17760
1992 13066 19484
1993 17397 26595
1994 17892 28728
1995 22072 38002
INFORMATION PRESENTED BY FISCAL YEAR AS OF SEPTEMBER 30
(UNAUDITED)
17.5%
32.3% 24.9% 24.2% Inception
1 Year 3 Year 5 Year to Date
AVERAGE ANNUAL TOTAL RETURN
Past performance is not predictive of future performance
- ------------------------------------------
BARON ASSET FUND'S
MANAGEMENT
DISCUSSION AND ANALYSIS
- ------------------------------------------
Baron Asset Fund performed well in the fiscal year ended September 30, 1995,
both absolutely and relative to other equity funds and the market averages. The
Fund's one year performance of 32.3% was significantly better than its 17.4%
average annual performance since inception. Baron Asset Fund ranks among the top
2% of all taxable equity funds since its inception in June 1987.
Fiscal year 1995 was a catch-up year for Baron Asset Fund. Although the Fund
performed well relative to its peers and the market averages in 1994, its
performance was below the long-term objectives of the Fund. During 1994, the
businesses in which the Fund invested grew rapidly, their fundamentals improved,
yet stock prices on-average were little changed. In 1995, as these businesses
continued to grow, their stock prices increased to reflect the results of both
1995 and 1994.
Baron Asset Fund's performance was strong throughout most of our portfolio.
Investments in financial services, temporary help, communications, long term
healthcare and specialty retail all contributed to our performance. The Fund
either established or increased its investment holdings opportunistically
throughout the year. The Fund's position in financial services was increased
when there was concern about an inevitable bear market; in communications, when
there was concern about increased competition; in temporary help, when there was
concern about a slowing economy; in long term healthcare, when there was concern
about government reimbursements; and in specialty retail, when there was concern
regarding price competition as a result of sluggish consumer demand.
The environment for stocks in 1995 was favorable. Slow economic growth combined
with low inflation and favorable interest rates propelled market averages to
record highs. We anticipate 1996 will be another favorable year for stocks
- --------------------------------------------------------------------------------
23
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THE BARON FUNDS
with an environment similar to 1995. In addition, 1996 is an election year,
usually a good year for stocks. If the economy continues to grow slowly and if
the dollar maintains its recent relative strength, it could be a particularly
good year for small-cap investors and stock pickers who can identify companies
able to grow regardless of the general economic environment. The Fund is well
positioned for this environment.
In Fiscal year 1996, the Fund will continue to invest in companies that are
undervalued with significant growth prospects and increasing profitability. The
companies will continue to be identified through our independent research
efforts. Companies in which we invest will have the potential to increase at
least 50% over the next two years. The Fund will remain diversified not only by
industry but also by external factors that we have identified which could affect
company performance. This approach to investing should allow the Fund to
continue to produce above average performance with an attractive risk profile.
We are looking forward to a successful 1996.
- ------------------------------------------
BARON GROWTH &
INCOME FUND'S
MANAGEMENT
DISCUSSION AND ANALYSIS
- ------------------------------------------
Baron Growth & Income Fund performed well in the nine months ending September
30, 1995. The Fund's inception was on January 3, 1995. The Fund's performance
was strong not only on an absolute basis but also relative to other similarly
managed funds. The Fund is the number one ranked growth & income fund in 1995
year to date.
The Fund's strong performance can be attributed to its investment strategy of
allocating approximately 60% of its portfolio to rapidly growing, well managed,
very profitable small-cap companies that are attractively priced, and the
remaining 40% to value oriented, income producing securities, also principally
of smaller companies.
The growth component of the Fund performed very well. The Fund achieved
particularly strong gains with its investments in financial services, temporary
help, long term healthcare and communications.
The performance of the Fund's fixed income component lagged that of the growth
component. However, the performance of this portfolio segment was strong
relative to comparable funds and relative indices. Approximately 25% of the
Fund's portfolio was invested in real estate investment trusts. The Fund's REIT
portfolio gained 15.9% for the nine months. This is approximately double the
performance of other REIT funds during the same period. The Fund's fixed income
securities, most of which are convertibles, also performed well. Convertibles
of companies in the communications industry not only provided attractive yields
but also appreciated significantly in price.
In fiscal 1996, the Fund's portfolio should continue to be structured as it is
at fiscal year end 1995. Approximately 40% of its portfolio will likely remain
invested in income producing securities. We currently expect more than half of
this portfolio segment to be invested in REITs. We expect the income component
of the Fund to produce annual returns of approximately 15%. This is a
combination of attractive yields and moderate business growth. The growth
component of the portfolio, like that of Baron Asset Fund, is fully invested in
stocks that have the opportunity to appreciate in value at least 50% during the
next two years.
The Fund's portfolio is well positioned to offer attractive returns by investing
in small cap companies with significant growth potential while mitigating risk
because of the cushion provided by its investments in income producing
securities. We are looking forward to a successful 1996.
- --------------------------------------------------------------------------------
24
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
- ------------------------------------------
TO THE SHAREHOLDERS
AND BOARD OF TRUSTEES OF
BARON ASSET FUND:
- ------------------------------------------
We have audited the accompanying statements of net assets and assets and
liabilities of Baron Asset Fund (comprising Baron Asset Fund and Baron Growth &
Income Fund) as of September 30, 1995, the related statement of operations and
changes in net assets for the year then ended for Baron Asset Fund and for the
period January 3, 1995 (commencement of operations) to September 30, 1995 for
Baron Growth & Income Fund, the statement of changes in net assets for the year
ended September 30, 1994 for Baron Asset Fund, the financial highlights for each
of the eight years in the period ended September 30, 1995 and for the period
from June 12, 1987 (commencement of operations) to September 30, 1987 with
respect to Baron Asset Fund and for the period January 3, 1995 (commencement
of operations) to September 30, 1995 with respect to Baron Growth & Income Fund.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of September 30, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective series constituting Baron Asset Fund as of September 30, 1995,
the results of their operations, the changes in their net assets and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
November 14, 1995
- --------------------------------------------------------------------------------
25
<PAGE>
<PAGE>
BARON ASSET FUND
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements:
Included in Part B of this Registration Statement:
For Baron Asset Fund:
Report of Independent Accountants
Financial Statements for the Fiscal Year Ended September
30, 1995 (Audited);
Supplementary Information (condensed financial
information) (also included in Part A of this
Registration Statement)
b. Exhibits:
1. Declaration of Trust dated February 19, 1987.
2. By-laws dated February 19, 1987.
3. Inapplicable.
4. Specimen Share Certificates representing shares of
beneficial interest of $.01 par value.
5. (a) Investment Advisory Agreement between Baron Asset
Fund and BAMCO, Inc.
(b) Investment Advisory Agreement between Baron Growth
& Income Fund and BAMCO, Inc.
6. Distribution Agreement with Baron Capital, Inc.
7. Inapplicable.
8. (a) Custodian Agreement with The Bank of New York.
(b) Fee Schedule for Exhibit 8(a).
9. (a) Transfer Agency Agreement with Supervised Services
Company, Inc.
(b) Fee Schedule for Exhibit 9(a).
10.Opinion and consent of counsel as to legality of
shares being registered (filed with Rule 24f-2
Notice).
11.Consent of Independent Certified Public Accountants.
12.Inapplicable.
13.Letter agreement between the Registrant and the
Purchaser of the Initial Shares.
14.(a) IRA Disclosure Statement.
(b) IRA Account Application.
(c) 5305-A Agreement.
15.Distribution Plan pursuant to Rule 12b-1.
16.Schedule for computation of performance quotations.
Power of Attorney.
2
<PAGE>
<PAGE>
Item 25. Persons Controlled by or under Common Control
with Registrant
The following diagram indicates the persons under common control with
Registrant, all of which are incorporated in New York.
Ronald Baron
|
90%
|
Baron Capital Group, Inc.
| |
100% 100%
| |
Baron Capital, Inc. BAMCO, Inc.
|
100%
|
Baron Capital Management, Inc.
Baron Capital, Inc. serves as distributor of Registrant's shares and performs
brokerage services for Registrant. BAMCO, Inc. serves as investment adviser to
Registrant. Ronald Baron, President of Registrant, is the controlling
shareholder of Baron Capital Group, Inc. and serves as President of all the
above entities.
Item 26. Number of Holders of Securities (as of December 21, 1995)
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Shareholders
---------------- ----------------------
<S> <C>
Shares of beneficial
interest ($.01 par value),
Baron Asset Fund 5,935
Baron Growth & Income Fund 936
</TABLE>
3
<PAGE>
<PAGE>
Item 27. 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 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
4
<PAGE>
<PAGE>
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
5
<PAGE>
<PAGE>
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 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
6
<PAGE>
<PAGE>
(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 28. Business or Other Connections of Investment Adviser
The business and other connections of BAMCO, Inc. is summarized under
"The Adviser" 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 29. Principal Underwriters
(a) Inapplicable.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ -------------- ------------------
<S> <C> <C>
Ronald Baron Director and Trustee and
450 Park Avenue President President
New York, N.Y. 10022
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ -------------- ------------------
<S> <C> <C>
Collin Baron Director None
855 Main Street
Bridgeport, CT 06604
Susan Robbins Director, Secretary Vice President
450 Park Avenue and Vice President
New York, N.Y. 10022
Peggy Wong Treasurer Treasurer
450 Park Avenue
New York, N.Y. 10022
</TABLE>
(c) Inapplicable.
Item 30. 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., 450 Park Avenue, Suite 2800, New York, N.Y. 10022.
Records relating to the duties of the Registrant's transfer agent are maintained
by Supervised Service Company, Inc. 811 Main Street, 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 31. Management Services
Inapplicable.
Item 32. 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
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
8
<PAGE>
<PAGE>
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 Registrant has duly caused this
post-effective amendment No.11 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and State of
New York, on the 28th day of December, 1995.
BARON ASSET FUND
By s/Ronald Baron
---------------------------
Ronald Baron, President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment No. 10 to the registration statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
s/ Ronald Baron President (Principal December 28, 1995
- ------------------------ Executive Officer) &
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Ronald Baron Trustee
* s/Raymond Noveck Trustee December 28, 1995
- ------------------------
Raymond Noveck
s/ Linda S. Martinson Secretary, December 28, 1995
- ------------------------ Vice Presdident & Trustee
Linda S. Martinson
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
s/ Peggy Wong Treasurer (Principal December 28, 1995
- ----------------------- Financial & Accounting
Peggy Wong Officer)
* s/Mark M. Feldman Trustee December 28, 1995
- -----------------------
Mark M. Feldman
* s/Norman S. Edelcup Trustee December 28, 1995
- -----------------------
Norman S. Edelcup
* s/Charles N. Mathewson Trustee December 28, 1995
- ------------------------
Charles N. Mathewson
* s/Irwin Greenberg Trustee December 28, 1995
- ----------------------
Irwin Greenberg
* s/Harold W. Milner Trustee December 28, 1995
- ----------------------
Harold W. Milner
* s/David A. Silverman Trustee December 28, 1995
- ----------------------
David A. Silverman
</TABLE>
11
<PAGE>
<PAGE>
*By:s/ Linda S. Martinson
----------------------
Linda S. Martinson
Attorney-in-fact pursuant to a power of attorney previously filed.
12
STATEMENT OF DIFFERENCES
------------------------
Mathematical powers normally expressed as superscript shall be preceded by 'pp'
<PAGE>
<PAGE>
BARON ASSET FUND
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit Page
- ----------- ---------------- ------
<S> <C> <C>
1 Declaration of Trust *
2 By-laws *
4 Specimen Certificates
Baron Asset Fund ***
Baron Growth & Income Fund
5(a) Investment Advisory Agreement for Baron Asset **
Fund
5(b) Investment Advisory Agreement for Baron Growth
& Income Fund
6 Distribution Agreement **
8(a) Custodian Contract *
8(b) Fee Schedule for Exhibit 8(a) *
9(a) Transfer Agency Agreement ***
9(b) Fee Schedule for Exhibit 9(a) ***
10 Opinion and consent of counsel as to legality of
shares being registered (filed with Rule 24f-2
Notice)
11 Consent of Independent Accountants
13 Letter agreement relating to initial capital *
14(a) IRA Disclosure Statement <
14(b) IRA Account Application <
15 Distribution Plan pursuant to Rule 12b-1 **
16 Calculation of performance
27 Financial Data Schedule
Baron Asset Fund
27(a) Financial Data Schedule
Baron Growth & Income Fund
Power of Attorney.
</TABLE>
- -----------------------
* Previously filed with Pre-Effective Amendment No. 1
** Previously filed with Post-Effective Amendment No. 3
*** Previously filed with Post-Effective Amendment No. 5
**** Previously filed with Post-Effective Amendment No. 7
< Previously filed with Post-Effective Amendment No. 10
<PAGE>
<PAGE>
EX-11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 11 to the
Registration Statement of Baron Asset Fund on Form N1-A of our report dated
November 14, 1995 on our audit of the financial statements and financial
highlights of Baron Asset Fund. We also consent to the references to our Firm
in the Prospectus under the caption "Financial Highlights" and in the Statement
of Additional Information under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
New York, New York
December 27, 1995
<PAGE>
<PAGE>
EXHIBIT 16
For the periods January 3, 1995 (commencement of operations) through
December 31, 1995, Baron Growth & Income Fund's performance was calculated based
on the following:
(1) Dividend Information
<TABLE>
<CAPTION>
Dividend Per Share Per Share No. of
Ex Dividend Reinvestment Reinvested
Date Amount Price Shares
---------- ---------- ------------- -----------
<S> <C> <C> <C>
12/27/95 $ 0.142 14.91 0.952
</TABLE>
(2) Valuation Information:
Assuming $1,000 initial investment at inception at $10 per share (100
shares):
<TABLE>
<CAPTION>
Total Shares NAV Total
Date Owned Per Share Value
---------- ------------ -------------- ---------
<S> <C> <C> <C>
12/31/95 100.952 15.11 1525.38
</TABLE>
(3) Calculation of Average Annual Total Return:
n ERV
-----
Using the formula: T = P - 1
assuming P = $1.000
For the period 1/3/95 (commencement of operations) - 12/31/95
n = 1.0000
ERV = 1525.38
T = 52.54
(4) Calculation of Actual Return
Assuming a $1,000 investment,
NAV per share at 1/3/95 = $10.00 at 100 shares. Value =$1,000.
NAV per share at 12/31/95 = $15.11 at 100.952 shares. Value =$1525.38.
Since Inception
Performance for the period 1/3/95 - 12/31/95 is 1525.38 / 1000 = +52.54%.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810902
<NAME> BARON ASSET FUND
<SERIES>
<NUMBER> 01
<NAME> BARON ASSET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 217,470,105
<INVESTMENTS-AT-VALUE> 293,195,059
<RECEIVABLES> 1,644,570
<ASSETS-OTHER> 194,796
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295,034,425
<PAYABLE-FOR-SECURITIES> 4,971,632
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,462
<TOTAL-LIABILITIES> 5,061,094
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214,099,693
<SHARES-COMMON-STOCK> 9,895,597
<SHARES-COMMON-PRIOR> 3,517,646
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 148,684
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 75,724,954
<NET-ASSETS> 289,973,331
<DIVIDEND-INCOME> 537,131
<INTEREST-INCOME> 843,926
<OTHER-INCOME> 1,638
<EXPENSES-NET> 2,234,433
<NET-INVESTMENT-INCOME> (851,738)
<REALIZED-GAINS-CURRENT> 149,491
<APPREC-INCREASE-CURRENT> 54,335,827
<NET-CHANGE-FROM-OPS> 53,633,580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,514,282
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,798,265
<NUMBER-OF-SHARES-REDEEMED> 2,531,541
<SHARES-REINVESTED> 111,227
<NET-CHANGE-IN-ASSETS> 209,714,789
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,513,475
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,549,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,234,433
<AVERAGE-NET-ASSETS> 155,653,237
<PER-SHARE-NAV-BEGIN> 22.82
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> 7.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.66)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.30
<EXPENSE-RATIO> 1.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810902
<NAME> BARON ASSET FUND
<SERIES>
<NUMBER> 02
<NAME> BARON GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-03-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 27,455,066
<INVESTMENTS-AT-VALUE> 29,873,190
<RECEIVABLES> 535,582
<ASSETS-OTHER> 41,994
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,450,766
<PAYABLE-FOR-SECURITIES> 1,758,632
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,667
<TOTAL-LIABILITIES> 1,818,299
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,873,550
<SHARES-COMMON-STOCK> 1,938,601
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 69,347
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 271,446
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,418,124
<NET-ASSETS> 28,632,467
<DIVIDEND-INCOME> 103,161
<INTEREST-INCOME> 76,347
<OTHER-INCOME> 60
<EXPENSES-NET> 110,221
<NET-INVESTMENT-INCOME> 69,347
<REALIZED-GAINS-CURRENT> 271,446
<APPREC-INCREASE-CURRENT> 2,418,124
<NET-CHANGE-FROM-OPS> 2,758,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,094,005
<NUMBER-OF-SHARES-REDEEMED> 155,404
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 28,632,467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 122,224
<AVERAGE-NET-ASSETS> 8,190,443
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 4.73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.77
<EXPENSE-RATIO> 2.0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
