BARON ASSET FUND, N-30D, 1997-06-10

BARON ASSET FUND
N-30D, 1997-06-10

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[GRAPHIC OMITTED]

BARON ASSET FUND
HIGHLIGHTS

PERFORMANCE ...............................................................1

INVESTMENT THEMES .........................................................3

RECENT DEVELOPMENTS.........................................................4

PORTFOLIO ADDITIONS.........................................................6

OTHER DEVELOPMENTS .........................................................8

BARON GROWTH
& INCOME FUND
HIGHLIGHTS

PERFORMANCE ...............................................................9

REAL ESTATE INVESTMENT
TRUST NEWS ...............................................................11

OTHER DEVELOPMENTS.........................................................11

767 Fifth Avenue
NY, NY 10153
212-583-2100
1-800-99-BARON

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BARON ASSET FUND
QUARTERLY REPORT o MARCH 31, 1997

Dear Baron Asset
Fund Shareholder:
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PERFORMANCE

Recent performance of Baron Asset Fund has been inconsistent . . .
Table I. Baron Asset Fund's 1997 Monthly Performance

Month Pctg Chng YTD Chng
- ---------- ----------- ---------
January 4.8% 4.8%
February (1.9%) 2.7%
March (6.0%) (3.5%)
April 0.7% (2.8%)
May 11.5% 8.4%

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Over the long term, the performance of Baron Asset Fund has been strong and
satisfactory. However, the Fund's performance during the past year has been
inconsistent. During the first five months of calendar 1997, the performance of
Baron Asset Fund has been especially volatile. This can be easily seen from
Table I.

. . . but the businesses in which we are shareholders continue to grow
steadily.

It is difficult, however, to attribute this volatility to fundamental
developments within the businesses in which we are part owners. Although their
share prices have been volatile, the businesses in which we have invested
continue to grow steadily.

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ONE PERFORMANCE FROM SINCE INCEPTION PERFORMANCE FROM
YEAR 4/1/96 THROUGH 3/31/97 (CUMULATIVE) 6/12/87 THROUGH 3/31/97

20 19.8% 400
| 355%
| |
| 300 |
| | 231%
10 | | |
| 200 | |
| | | 149%
| 5.1% | | |
2.6% | | | | |
| | | | | |
0 | | | 0 | | |

BARON S&P RUSSELL BARON S&P RUSSELL
ASSET FUND 500 2000* ASSET FUND 500 2000*

* THE S&P 500 AND RUSSELL 2000 ARE UMNANAGED INDEXES. THE S&P MEASURES THE
PERFORMANCE OF THE STOCK MARKET IN GENERAL; THE RUSSELL 2000 OF SMALL AND
MID-SIZED COMPANIES.
===============================================================================

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B A R O N A S S E T F U N D
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The entire U.S. mutual fund industry has added about $16 billion new assets per
month, $80 billion during the first five months of 1997. These very strong
results, not far from last year's record numbers, have been in spite of unusual
stock market volatility. Charles Schwab's customers, new and existing, have
added an estimated $5 billion per month in 1997, $25 billion year to date, to
their investments at Schwab. This is record activity. Schwab's earnings are
dependent upon the level of customer assets held at the firm. Customer assets
held at Schwab have grown 40% per year for the past eight years.

Schwab continues to invest nearly $150 million per year in new systems and
technologies to provide more robust services to its customers. It also spends
more than $120 million per year for advertising and marketing. Schwab's
OneSource mutual fund marketplace continues to grow strongly; its e.Schwab
electronic trading is growing explosively. Baron Asset Fund has been a Schwab
shareholder since 1992. Schwab's share price has increased more than six times
since our initial purchases.

Robert Half's temporary accountants business grew nearly 34% in its existing
offices during the first quarter when compared to last year. Half's temp
accountants business has increased more than 20% in its comparable offices for
each of the past six years. Half's RH Consults' temporary programmers and
systems analysts business more than doubled from year ago levels, as it has
every quarter for the past three years, to $35.6 million. RH Consults
represented about 12.6% of Half's revenues in the first quarter. Due to
expenses associated with its extremely rapid growth, Consults currently
represents a smaller portion of Half's earnings. Consults was started in 1994.
Robert Half's earnings should continue to grow 30-40% per year for the next
several years. Baron Asset Fund has been a shareholder of Robert Half since
1991. Its share price has increased more than 15 times since our initial
purchases.

Manor Care's earnings in the fiscal quarter ended February were ahead 16% from
the prior year. The company continues to physically expand the number of its
nursing home/assisted living units about 18-20% per year, a very strong growth
rate. The company's newly constructed assisted living units were expected to
break even in about 18 months. Most, in reality, have reached break-
even in less than 12 months. Manor Care is better positioned than any other
long term health care provider due to its reliance upon private pay patients,
not those dependent upon government funding. Baron Asset Fund has been a
shareholder of Manor Care since 1989. Manor Care's shares have increased in
value more than four times since our initial purchases.

DeVry's private colleges are continuing to increase their enrollments, enhance
their curriculum and open new schools. Its profits are continuing to increase
nearly 25% per year. Baron Asset Fund has been a shareholder since 1991.
DeVry's share price has increased more than seven times since our initial
purchase. American Radio completed its acquisition of EZ Communications.
American Radio's same station revenue in the first quarter jumped 17%. Baron
Asset Fund has been a shareholder for about two years. American Radio's share
price has more than doubled since our initial purchase. Learning Tree has
continued to accelerate the introduction of CBT titles to supplement its
classroom training of computer and MIS professionals. The company recently
received a large contract to train General Motors' North American sales
organization that could become a model to render services to other Fortune 500
businesses. Learning Tree's earnings are increasing more than 40% per year.
Baron Asset Fund has been a shareholder for more than two years. Learning
Tree's share price has more than quadrupled since our initial purchases. Fifty
year old Mirage Resorts will double the size of its business during the next
eighteen months. Baron Asset Fund has been a shareholder since 1987. Mirage's
stock price has increased more than tenfold during that period.
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There have also been favorable developments in virtually all the other
businesses in which we are part owners. We expect nearly all the stocks of
companies in which we invest or in which we consider investing from time to
time to decline in price 20-30% with little apparent cause. It is unusual,
however, that many of these declines occur simultaneously, as they have done in
June-July 1996 and during March-April of this year. Our investments' share
prices have recently largely recovered from their springtime declines. But, we
believe their stock prices, in most instances, still do not reflect the
favorable long term prospects of their businesses. They continue to trail the
performance of larger companies' securities.

Over the long term, we expect the share prices of these companies to reflect
the growth of their businesses. As a long term investor in these businesses,
Baron Asset Fund should benefit from this projected growth.

Long term performance of Baron Asset Fund significantly beats S&P500, Russell
2000. Recent performance of Baron Asset Fund parallels Russell 2000, lags S&P
500; attractive current values in smaller companies could help Baron Asset.

For the nearly ten years ended May 29, 1997, Baron Asset Fund's per share net
asset value increased more than five times. Its annualized rate of return
approximates 17.8%. The S&P 500 during the same period increased about 14.1%
per year, the Russell 2000, 10.8% per year. During the past 36 months, Baron
Asset Fund increased its per share value 95.7%, close to the 99.7% gain of the
large cap S&P 500, and substantially ahead of the 60.2% increase by the small
cap Russell 2000. Baron Asset Fund was able to achieve these gains although its
investments are focused principally in small and mid sized, non-technology
businesses. The Fund's performance ranks in the top 2% of all mutual funds
since its inception. The Fund is on Schwab's Select List

Baron Asset Fund's per share value increased 22.0% in 1996. Its per share value
increased an additional 8.4% in the five months

2
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B A R O N A S S E T F U N D
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through May 1997. Its return from May 1996 through May 1997, however, has been
less than stellar. During the twelve months ended May 1997, Baron Asset Fund's
per share value increased only 6.4%. The last twelve months have included two
periods, June-July 1996 and March-April 1997, when small company stocks
significantly under-performed shares of the larger companies included in the
Dow Jones Industrial Average and the S&P 500. The Russell 2000 increased 5.2%
during the past twelve months; the S&P 500 jumped 29.2%. This represents,
according to The New York Times and other observers, "the greatest disparity"
in investment performance between large and small companies in history.

We always expect Baron Asset Fund to perform well due to its investments in
well managed, fast growing, small and mid-sized businesses that we have
purchased carefully at attractive prices. This, regardless of whether big
company stocks or small company stocks are in vogue. We long ago learned this
will not always be the case. I have been a securities analyst since 1970 and
have managed investment portfolios for others since 1975. One of the more
important lessons I have learned has been that, over the long term, securities
prices normally reflect the value of their underlying businesses. In the short
and even intermediate term, however, stocks often under perform their
businesses. The trick to successful investing, we believe, is to first identify
through intense research the businesses and, as importantly, the managements in
which you would like to invest. Value those businesses. Don't buy shares unless
you have the opportunity to earn a good return. In our case, we won't invest in
a business unless we believe we have the potential to earn at least a 50%
return on that investment within two years. In our opinion, the under-
performance of small and mid-sized companies' stocks during the last three
years, and the severe under performance of these securities during the past
twelve months, has created very good value and corresponding investment
opportunity.

Baron Asset Fund takes advantage of small cap stock correction in March, April;
significantly increases current holdings, makes new investments

At the trough of the small cap stock market correction on April 28, nearly 60%
of the stocks in our portfolio had declined 20-40% from their peak prices
achieved within the past twelve months. Baron Asset Fund's per share net asset
value had fallen 6.3% from its December 31 level. The underlying businesses in
which we had invested, however, had grown substantially larger during the past
year, on average more than 20% larger. Stock valuations relative to earnings of
our businesses were near parity with the slower growing, more economically
sensitive, lower return and, in our opinion, less attractive S&P 500
businesses. Our businesses then offered, and continue to offer, attractive
value relative to larger companies, and compelling absolute value when cash
flows and their growth rates were compared to the "riskless" returns provided
by long term government interest rates. As can be seen from the table below,
Baron Asset Fund took advantage of this small cap stock market decline. The
Fund significantly increased its investments in attractive businesses at very
favorable prices during the past five months. It was able to make these
purchases at favorable prices largely due to our shareholders' significant
purchases of Baron Asset Fund throughout 1997, an occurrence we find especially
noteworthy since the purchases were made when small companies' stocks were
under-performing.
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Table II. Significant Stock Purchases During 1997
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Purchase Net Current Pct
Shares Security Price Amount Price Change
3,319,000 Vail Resorts $20.24 $71.2 million $23.875 18.0%
895,000 Heftel Brdcast 40.63 36.4 million 49.50 26.8
1,277,800 Manor Care 24.34 31.1 million 28.375 16.6
816,400 Bristol Hotel 37.29 30.4 million 36.75 (1.5)
742,500 Sun Intl 34.92 25.9 million 37.875 8.5
1,040,000 Mirage Resorts 21.47 22.3 million 23.875 11.2
300,000 Charles Schwab 36.35 10.9 million 40.50 11.4
570,000 Cross Timbers 18.00 10.3 million 19.375 7.6
275,000 Promus Hotel 33.67 9.3 million 36.125 7.3
325,000 Corrections Crp 27.12 8.9 million 36.25 33.7
183,000 Seacor Smit 45.92 8.4 million 51.75 12.7
245,000 Stewart Ent 33.78 8.3 million 33.75 (0.1)
227,000 Dollar Tree 35.84 8.1 million 48.00 33.9
275,000 Sylvan Learning 27.84 7.7 million 35.875 28.9
285,000 DeVry 20.35 5.8 million 27.625 35.7
195,000 OM Group 26.89 5.2 million 31.50 17.1
130,000 Robert Half 35.74 4.6 million 42.875 20.0
215,000 Cox Radio 19.68 4.2 million 22.375 13.7
145,000 Stein Mart 20.10 2.9 million 30.25 50.5
175,000 USA Truck 9.10 1.6 million 10.25 12.6
70,001 Delta Pine 22.75 1.6 million 30.375 33.5
45,000 Amer Radio 30.88 1.4 million 37.25 20.6
65,000 Budget Group 21.00 1.4 million 27.875 32.7
102,000 Choice Hotel 13.25 1.4 million 15.75 18.9

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INVESTMENT THEMES

Baron Funds' investments remain focused in businesses that could benefit from
what we believe to be "mega-trends," long lasting economic trends that are
often caused by demographic factors, political programs or societal changes.
Mega-trends often create long lasting demand for products and services and, of
course, boost the long term profits of businesses providing these products and
services. Our "investment themes" focus upon job creating businesses in
"sunrise" industries that are beneficiaries of our perceived mega-trends.
Several investment themes of current interest follow.

Changes in Government Programs and Policies

Government Privatization. We believe that few services can be provided better
or more efficiently by governments than by private enterprise. U.S. voters are
forcing our government to reduce its tax rates as a percent of our citizens'
incomes. To continue to provide desired services, more and more of these
services must be provided by privately owned businesses. We have invested in

3
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B A R O N A S S E T F U N D
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companies that manage private prisons and detention facilities. These companies
provide required services for lower cost than the government; employee moral is
better; and, recidivism of prisoners, after they are released, is lower due to
more effective job training and education provided in the facilities. We have
also invested in businesses that will benefit as Medicare risk programs are
privatized.

Education. The President believes that better education of our citizens is
critical for individuals to obtain better jobs and higher living standards. It
is also a key to our country's competitive standing. The President has proposed
enhanced government student loans and grants. The number of high school
graduates per year will increase more than 20% during the next four years. The
Department of Commerce projects that, by the year 2000, 80% of all jobs will
require training beyond secondary school. Baron Funds has invested in private
colleges that provide an accredited degree, technical training and nearly
certain job placement after graduation. The Funds have invested in companies
providing computer education and training.

Deregulation. Changed government regulations offer significant opportunity.
Legislation deregulating the telecommunications industry last year has
permitted significant consolidation in the radio industry. Mergers and
acquisitions throughout this industry have provided radio businesses with
significant cost reduction, program improvement and marketing opportunities, as
well as the opportunity to substantially increase profitability. Baron Funds
has invested in radio companies able, with capable management and strong
financial capacity, to take advantage of opportunities that have been created.

Changes in Population Demographics

The United States' Hispanic population is growing five times as rapidly as our
Caucasian population. We have invested in Hispanic media businesses, both
television and radio. Studies demonstrate that Spanish language advertising is
more effective than English with this population segment. Rates charged for
these ads have not yet reached parity relative to ratings achieved with English
language media. We expect ratings to increase with population growth and rates
charged per viewer or listener to improve as well. We have also invested in
retail businesses providing services in urban, Hispanic communities. We have
invested in businesses providing educational services and training to
Hispanics.

The elderly population, those 85 years and older, is increasing three times as
fast as the general population. As individuals age, more healthcare is
required. Baron Funds has invested in nursing homes, institutional pharmacies,
assisted living facilities and hospitals, businesses which provide efficient
and effective healthcare to the elderly.
<PAGE>

The "baby boomers," of which I am one, are our largest population segment. This
population segment is also our wealthiest, and is in the midst of peak
earnings, diminishing family financial obligations and peak savings. Boomers
are starting to consider how to invest the money they will begin to inherit in
the next decade. Boomers are also increasing their retirement savings. We have
invested in businesses providing financial services to boomers (and to others,
of course). We have also lately significantly increased our investments in
leisure, vacation and travel activities and services. More affluent boomers
should increasingly use these services. It's been fun for me to visit, for
business, spectacularly scenic ski mountains, beach resorts that simulate the
lost continent of Atlantis and fantasy casino hotels with their magic shows,
dolphins, sharks, pirate battles, pyramids and huge lakes in the middle of the
Mojave Desert. It's certainly more enjoyable and a welcome change from our more
usual tours of nursing homes, hospitals, prisons, cemeteries, cotton fields in
mid-August in Mississippi and, cranberry bogs in Wisconsin in February.

Societal Changes

Outsourcing. During the past several years, United States businesses have
attempted to lower fixed operating costs by hiring a greater percentage of
their workers on a temporary or seasonal basis, "just in time" to perform
required services. Businesses have also, increasingly, sought to outsource
services like information technology that are not core competencies. Some
professionals, like information technology workers, seem to prefer varied
assignments in varied locales from disparate businesses to a permanent job
assignment. Baron Funds has invested in businesses providing highly specialized
temporary workers, accountants, systems analysts and programmers, lab
assistants, highly skilled, computer literate office workers and lawyers and
paralegals.

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RECENT DEVELOPMENTS

Amusement and Recreation

Choice Hotels

Choice Hotels was a subsidiary of nursing home owner/operator Manor Care. It
was given as a tax free dividend to shareholders of Manor Care in the fall of
1996. Manor Care is part of the S & P 500 Index; Choice Hotels is not. When
Manor Care's index fund shareholders received shares of Choice Hotels as a
dividend, they were compelled to sell the shares. This is without regard to
whether or not Choice's shares were attractively priced. In addition, most
investors in Manor Care had purchased stock in that company to own a nursing
home business. Most health care investors, when they received Choice's shares,
also attempted to immediately sell those shares. Finally, when Choice became a
publicly owned business, it did so without the services of investment bankers.
As a result, few investment analysts then, and to date, follow the company.
This is despite the fact that Choice is the United States' second largest hotel
franchisor. The lack of usual and customary investment information about the
com-

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B A R O N A S S E T F U N D
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pany, coupled with obvious natural sellers, has caused Choice's shares to
remain undervalued, in both our opinion and that of the company's management.
Choice Hotels has so far authorized the repurchase of six million of its
shares, about 10% of its total outstanding. To date Choice has repurchased
about half the shares it has been authorized to buy.

On April 29, Choice Hotels announced that later this summer its shareholders
would receive a tax free dividend, this time of the Choice Hotels' brands
franchise services company. The Choice Hotels' franchise business had cash flow
of approximately $74 million in the fiscal year ending May 31, 1997. Its cash
flow should increase to $90-94 million in the fiscal year starting June 1 and
should grow at least 20-25% annually for the next several years. Higher room
rates, higher occupancies and more franchised units are the principal factors
boosting Choices' revenues. Choice Hotels' franchising operations will have
about $75 million long term debt.

About 20% of all new hotels currently under construction in this country are
being built by Choice franchisees. The company also has significant additional
revenue enhancement as well as cost reduction opportunities. The Choice Hotels'
franchising business has no important capital requirements. As a result, it
should be able to both continue to repurchase its stock and, at the same time,
offer its larger franchisees credit enhancements to encourage their more rapid
development of Choice branded properties.

The Choice hotel development company will own and operate 81 hotels that have
been acquired, principally during the past five years, as distress properties
from financial intermediaries. Most of the acquired properties have been
subsequently renovated and repositioned. These hotels have a current stated
book value of about $275 million. Cash flow should approximate $45 million in
the fiscal year ended May 31, 1997 and could reach $50-55 million next fiscal
year. The hotel development company will have about $250 million in long term
debt. This company is expected to develop new Choice branded hotels, initially
about 20 per year. Current development will focus on Choice's extended stay
Main Stay Suites, budget priced Sleep Inns and moderate priced Comfort Inns.

Since we believe the Choice brands franchising business is likely to double its
cash flow within three years, and no apparent value is presently being accorded
its hotel development business by investors, Baron Asset Fund bought an
additional 102,000 shares of Choice at an average cost of $13.02 per share
during the past few months. Choice's stock price was $17 5/8 at December 31,
1996. Baron Asset Fund currently owns 6,270,000 Choice Hotels' shares purchased
for about $14.36 per share.

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Business Services

Budget Group, Inc.

"We invest in people, not just in buildings." We have often used this phrase to
describe our desire to invest with executives we not only like, but who, we
believe, have personal characteristics we regard as important to the financial
success of a business. Drive, intelligence, integrity, entrepreneurial vision,
passion and honesty, not in any special order of importance, are key. Focus on
the people aspects of businesses has enabled us to identify and invest with
executives like Chuck Schwab, Rick Scott, Steve Wynn, Stewart Bainum, Max
Messmer and Jay Pritzker when Charles Schwab, Columbia HCA, Mirage Resorts,
Manor Care, Robert Half and Hyatt Hotels were small cap companies.

We have also used the "people, not just buildings" phrase to describe the
occasional investment we make that cannot be easily justified by conventional
securities analysis at the time of our investment. Budget Group, Inc. is one of
those investments. Budget Group made its initial public offering in August
1994. It was then called Team Rental. Equity offerings are often very favorably
priced to investors during July, and especially favorably priced during August.
If you've ever visited our financial capital during the summer, we're sure you
would appreciate the difficulty bankers have filling an IPO lunch with
portfolio managers and analysts for anything but an opportunity to meet Demi
Moore, Cindy Crawford and Bruce Willis (Planet Hollywood). Investors are on
vacation.

Another instance where summer doldrums worked to our benefit occurred during
July 1991. MGM Grand was then compelled to sell shares to obtain the necessary
equity capital to build a new Las Vegas casino. The MGM deal was so difficult
to complete due to lack of investor interest that it had to be backstopped by
Kirk Kerkorian, MGM's principal shareholder. We were among the largest
purchasers of MGM's shares during that offering. MGM's shares quintupled during
the next two years.

During Team Rental's initial public stock offering, two of our friends and
ourselves were the largest purchasers of Team's newly issued shares. We, in
fact, helped the underwriter price the transaction...we told them what we would
be willing to pay, $9.50 per share. We were accommodated and Baron Asset Fund
became one of the company's largest shareholders. To be fair, Team Rental was a
difficult transaction for investors to become excited about and not just
because the seasonal calendar was unfavorable. Team was a newly formed business
that intended to acquire Budget Rent-a-Car franchisees, boost their revenues,
operate those entities more efficiently and lower their financing expense, a
very important cost element. The businesses could be acquired for nominal
consideration, perhaps 2-3 times adjusted operating income. Revenues were
expected to be increased by adding suburban offices to their base airport
locations. The new offices were intended to rent not only cars, but small
trucks as well. The new offices were expected to stimulate weekend rentals from
local residents. This demand was intended to supplement usual weekday airport
businessperson sales and permit more efficient fleet utilization. Lower
financing costs would result from access to public financing arranged through
the firm's underwriter. And the addition of used car lot sales would enable
more efficient use of real estate locations.

5
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The problem? Too many moving parts, too much economic sensitivity and too much
leverage. Car prices, fuel costs, interest costs, rental rates and demand for
the services offered all had to be considered. And, there was no public company
operating history. So, why did we make this investment? It was based simply
upon our assessment of the strength of the company's management, and especially
on the force of Chairman Sandy Miller's personality. The three person top
management group led by Sandy had borrowed $2 million in 1980 for their private
company and used those funds and substantial additional leverage to acquire
Budget Rent-a-Car franchisees. The profitability of the businesses they
purchased was increased significantly and, the acquired companies were sold to
Budget, the parent franchisor, in 1989 for $25 million. Sandy and his team were
seeking public financing in the summer of 1994 to do it again, this time on a
much larger scale. Sandy indicated at the time that he felt that there could be
an opportunity in a few years to acquire the then marginally profitable $1
billion plus annual revenues Budget Group, the parent franchisor, from Ford.
Sandy felt that if he could buy Budget Group properly, Team could earn back the
cost of its acquisition within two years. Sandy explained that if Team could
become Budget's largest franchisee, it could probably prevent Budget from being
sold to anyone but Team. This statement from an executive who, if he completed
the transactions that had been announced before the initial public offering,
would have annual revenues of just $62.5 million!

Sandy and his two fellow top executives, John Kennedy and Jeff Congdon, were
good to their word. Budget Rent-a-Car franchisees were acquired, one purchase
rapidly following another; suburban rental offices and used car lots were
opened; operations financing was improved; and, profitability was sharply
increased. Team's annual revenues reached $462 million in 1996. Finally, during
1996, Sandy successfully negotiated the purchase of the $1.1 billion revenues
Budget parent. Sandy rechristened Team Rental as Budget Group, Inc. If Sandy
and his executives are able to improve Budget's profitability, we're believers,
Baron Asset Fund could earn further substantial returns on our investment.
Budget Group shares have already about tripled from their initial offering
price in 1994. Baron Asset Fund currently owns 450,000 shares of Budget Group
acquired for about $13.35 per share.
<PAGE>

Media and Entertainment

American Radio

The radio industry's highly targeted demographics, good reach and attractive
rates are allowing it to inexorably take share from competitive newspapers and
television stations. Deregulation has spurred radio industry consolidation and
produced both revenue enhancement and cost reduction opportunities. On April 7,
American Radio (ARS) completed its merger with EZ Communications. The
combination had been announced last fall. ARS is now ranked by Duncan's
American Radio as the United States' fourth largest radio company in terms of
revenue. ARS reported its pre merger first quarter cash flow increased 32%.
Same radio station revenue growth in the quarter was 17% far out pacing strong
industry 11% same station revenue gains. Partially responsible for ARS'
unusually strong same station gains in the first quarter is the company's
ownership of stations with attractive demographics in fast growing, mid sized
markets. Among the growth markets where ARS has a leading position are Las
Vegas, Charlotte, Sacramento, Fresno, Austin, Portland and Seattle. Powering
growth in its more mature markets like Boston and Hartford are improved station
programming and marketing efforts.

Offering ARS strong revenue potential is the large percentage of its 96 radio
stations not yet mature. Seventeen stations are developmental and producing
nominal cash flow; 22 are "sticks" producing no current cash flow. In three to
five years, these stations could produce $2 million annual cash flow per
station. Also offering potential is the company's rapidly growing
communications' towers business which, in four to five years, could produce
$50-75 million in annual cash flow. Wireless communications technologies and
high definition television should provide this business with rapidly growing
demand for its services. Regulatory difficulties permitting and building towers
should protect this business from competition. The towers business is not only
synergistic with radio, but its returns on capital are attractive as well. We
expect ARS' estimated $150 million annual broadcast cash flow in 1997 to about
double by the year 2000. Since the company is leveraged, we expect
stockholders' returns to exceed cash flow growth. Baron Asset Fund owns
1,320,000 shares of American Radio purchased for about $28.86 per share.

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PORTFOLIO ADDITIONS

Amusement and Recreation

Vail Resorts

When I was 12 or 13 my dad, my brother and I planned to ski for the day at Bear
Mountain, New York. I obviously must have felt it was uncool to snowplow my way
down the mountain. On my first, last, and only run of the day I hit a patch of
ice and slid into another skier who had to be carried, bleeding, down the
mountain in a sled by the ski patrol. Until about ten years ago that remained
my only ski experience. My wife then persuaded me that our friends' children
were all beginning to learn to ski and that skiing in the west was a lot
different than skiing in the east. "There is no ice, only long, spectacularly
scenic, uncrowded ski runs," she promised. And, she concluded, "It will be a
great family vacation that we can have with our children and, when they're
grown up, with our grandchildren." Our kids were six and seven at the time. We
planned to travel to Utah with a friend, his wife, their two children and his
wife's then 73 year old father. The skiing was, as advertised, spectacular.
With the help of great instructors, we quickly learned to navigate the terrain
with little

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difficulty. Our friend's 73 year old father taught his grandchildren to ski! I
was hooked. As an aside, the now 83 year old grandfather continues to enjoy
skiing with his grandchildren.

When I learned Vail Resorts was readying to become a publicly owned business, I
was naturally interested. More so since my family and I had twice visited the
Colorado resort and found Vail Village a great place for our kids to safely
wander, unescorted, with their friends. Vail's restaurants were terrific;
nearby Beaver Creek, also owned by Vail Resorts, was as attractive and even
less crowded than Vail; and Vail's Back Bowls skiing offered as challenging an
experience as my wife and I desired. We have since become solid blue skiers,
our sons, advanced black diamond skiers.

Newly introduced parabolic skis have made it much easier to learn to ski,
especially for first time skiers and baby boomers like me. In fact, parabolic
skis have the potential to do for skiing what oversized tennis rackets have
done for tennis and oversized golf club heads made from titanium for golf. The
recent tremendous increase in popularity of snowboarding among teenagers has
boosted interest in family ski vacations as well. The problem with skiing, of
course, is not just that it's difficult. It's expensive. It's not easy to get
there. And, it's perceived that weather can have an important impact each
season.

During Christmas week, Easter and Presidents' Weekend, ski resorts are nearly
always fully booked at regular prices. During "shoulder" periods, the weeks
between Thanksgiving and Christmas, Christmas and Presidents' Weekend and
Presidents' Weekend and Spring Break, ski resort visits are often 30% below
peak. There have historically been no packages of discounted rooms and airfare
available through travel agents to attract groups and individuals to ski
resorts during off peak weeks. Adam Aron, an award winning, top marketing
executive with senior experience at Hyatt, United Airlines and Norwegian Cruise
Lines, was recruited last year as Vail's new chairman. Adam is highly regarded
throughout the travel and leisure industry. Adam's first task after joining the
company during the summer of 1996 was to increase Colorado Front Range resident
skiing at Vail and Beaver Creek. He did this last summer, nearly tripling
Colorado resident season pass sales. His challenge this summer is to design
programs and packages available through travel agents in the east to attract
full price lift ticket guests during off peak periods next winter. Adam intends
to use discounted air fares and hotel rooms as lures. We believe the owners of
empty hotel rooms and empty airplane seats, when asked to do so, will likely
discount their fares to produce attractive ski vacation packages.

The Vail image, its cache, has been well established over thirty years.
Infrastructure and cache, coupled with the area's unspoiled and natural beauty,
provide Vail Resorts with important competitive advantage. Vail will spend
about $20 million this year promoting its resort, many times the marketing
budget of any other ski resort. Off-peak, discounted ski packages; new
interchangeable skier passes among the four Colorado resorts owned by Vail
Resorts, e.g. Vail Mountain, Beaver Creek, Breckenridge and Keystone; and large
infrastructure investments in attractions, ski trails, high speed lifts and new
restaurants should enable the company to boost skier days and guests 20-25%
within the next four years. The four Vail Resorts' mountains currently attract
about 900,000 visitors per year and generate 4.5 million skier days per year.
We estimate Vail's incremental profit margin on lift ticket sales to be 80%, so
success in attracting more visitors should have an important impact on the
company's earnings and cash flow.

<PAGE>

Although eastern and international destination skiers may be charged $50 per
day for lift tickets, Vail Resorts currently realizes only about $30 revenues
per day per skier from lift tickets. This is due principally to discounted
season passes for Colorado's Front Range skiers. Front Range ski discounts
should narrow due to improvements in mountain infrastructure. In addition, a
greater percentage of Vail's guests should be destination skiers paying full
fare. As a result, we believe Vail can improve its average lift ticket
realizations $10 to $15 per skier day within the next four to five years. The
average destination skier currently spends more than $300 per skier day for
airfare, hotel room, meals and lift tickets. It does not seem unreasonable to
think that Vail Resorts, the proprietor of the mountain, the reason most people
visit, should be able to achieve a 3-5% greater share of resort spending
through higher lift ticket fees. The company's substantial investments in new
infrastructure should also produce significant returns.

Vail has been less than convenient to reach. You must fly first to Denver and
book ground transport to travel about 90 minutes to reach the town. Eagle Vail,
less than twenty minutes from the town of Vail, has recently increased its gate
capacity, and scheduled air transport will increase more than 80% this year.
With regard to the perceived weather problem: Colorado's annual snowfall is
substantial and consistent. Annual Colorado snowfall averages more than 300
inches. In the event snow starts late or ends early, Vail is able to compensate
with its own snowmaking capacity.

Vail Resorts' initial public offering occurred in March of this year at $22 per
share. Initial trading for this "hot" deal took place at $24 per share. The
company's share price then fell to as low as $17 5/8 as hedge fund "flippers"
sold their initial share allocations. Vail Resorts' share price has since
recovered to above its initial offering price. All this trading activity
occurred during the past three months when Vail announced only positive
developments. Baron Funds expects Vail to nearly double its annual cash flow in
about four years. Baron Asset Fund currently owns 3,519,000 shares of Vail
Resorts purchased for approximately $20.24 per share.

7
<PAGE>

- --------------------------------------------------------------------------------
B A R O N A S S E T F U N D
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
OTHER DEVELOPMENTS

Baron Sports Teams

The height challenged, Baron Funds' intramural league basketball team, led by
our star REIT, gaming and retail analyst, Mitch "Hakeem the Dream" Rubin, had a
disappointing 3-7 record this past year. But, help is on the way. Concerned
that new uniforms next season could be in jeopardy, Mitch persuaded senior
special situations analyst Morty "Steinbrenner" Schaja to recruit Matt "Oak"
Kelly, a six foot something power forward. Matt doubles during daytime, non
game hours as Baron Funds' liaison with fee based financial planners. Although
we remain unlikely to challenge for the league championship (we still need to
improve our three point shooting), we have strong hopes for our hoopsters next
season.

The Baron co-ed softball team is another story. Ably led by our team captain,
my assistant, Kim "Smokin'" Wilks, a veteran collegiate star, the Baron team
prevailed in its first two outings. The last game pitted our stars against the
trash talking Turner Broadcasting traveling team from Atlanta. With the game
tied 6-6 in the bottom of the sixth, and our colorful pitching star Jim "Irabu"
Robillard tiring (during the day Jim doubles as our chief liaison with Baron
Funds' shareholders), the heroics of summer intern Chris "Reggie" Thayer first
turned the tide and then saved the day. Chris smashed a three run homer during
our last at bat and then, during the Turner team's final turn at bat, Chris,
running from seemingly the farthest reaches of the outfield, made a Willie Mays
like diving catch to save three runs and end the game.

Sixth Annual Baron Investment Conference: October 24, 1997 Essex House, New
York City

The Sixth Annual Baron Investment Conference will take place Friday morning,
breakfast through lunch, October 24, 1997, at the Essex House in New York City.
Please save the date. Our Conference speakers, five chief executives of
companies in which Baron Funds are shareholders, will be announced over the
summer. Each executive will make a 30 minute formal presentation, often using a
slide show, and then take 15 minutes to answer questions from our shareholders.
I will, as always, be the final speaker. Following my presentation, I will also
try to answer any questions posed by our shareholder guests. I will, as usual,
answer questions until our guests tire of asking them.

Before we invest in a business on behalf of our shareholders, we attempt to
obtain as much information about the business in which we are considering
investing as possible. In addition to published financial information about a
business and its competitors, this includes meeting with managements so that we
can judge for ourselves their ability and competency, honesty, integrity and
business strategies. We strongly believe in "kicking the tires" of our
investments. Our annual conferences provide our shareholders with the
opportunity to "kick the tires" of their investment in Baron Funds. We hope you
will be able to attend. There will be no charge, of course.

Thank you for investing in Baron Funds.

We recognize that it cannot be an easy decision for most individuals when
choosing mutual funds in which to invest to save for a home, your childrens'
education or your own retirement. We hope you have found our reports, magazine
and newspaper interviews and annual conferences of help in allowing you to
determine whether Baron Funds represent an appropriate investment for you and
your family.

We know you have literally thousands of mutual funds from which to choose. We
want to thank you for the confidence you have shown in us by joining us as
fellow shareholders in Baron Funds. We will continue to work hard to justify
your confidence. Again, thank you.

Sincerely,

/s/ Ronald Baron
- -----------------

Ronald Baron
President

May 29, 1997

8
<PAGE>

[GRAPHIC OMITTED]

BARON GROWTH
& INCOME FUND
HIGHLIGHTS

PERFORMANCE ...............................................................9

REAL ESTATE INVESTMENT
TRUST NEWS ...............................................................11

OTHER DEVELOPMENTS.........................................................11

<PAGE>

BARON GROWTH & INCOME FUND
QUARTERLY REPORT o MARCH 31, 1997

Dear Baron Growth
Income Shareholder:
- -------------------------------------------------------------------------------
PERFORMANCE

The performance of Baron Growth & Income for the five months ended May 29, 1997
has been inconsistent. This can be readily seen from Table I. The Fund's
volatility cannot be attributed to either the longer term business prospects or
the short term earnings results of the companies in which the Fund is a
shareholder. Although their stocks have gyrated, the businesses in which we
have invested have continued their steady, strong and uninterrupted growth.

Table I. Baron Growth & Income Fund's 1997 Monthly Performance

Month Pctg Chng YTD Pctg Chng
- ---------- ----------- --------------
January 4.1% 4.1%
February (1.2) 2.9
March (5.2) (2.5)
April 0.5 (1.9)
May 10.4 8.2

Baron Growth & Income Fund is ranked the number one growth and income fund
since its inception by Lipper Analytical. This although, during the five months
ending May 1997, its performance against the growth and income funds' universe
ranks in the third quartile. The Fund would be top ranked among its peers

===============================================================================
ONE PERFORMANCE FROM SINCE INCEPTION PERFORMANCE FROM
YEAR 4/1/96 THROUGH 3/31/97 (CUMULATIVE) 1/3/95 THROUGH 3/31/97

20 19.8% 100
| 90%
| |
11.4% | |
| | | 74%
10 | | | |
| | 50 | |
| | | | 42%
| | 5.1% | | |
| | | | | |
| | | | | |
0 | | | 0 | | |

BARON S&P RUSSELL BARON S&P RUSSELL
GROWTH & 500 2000* GROWTH & 500 2000*
INCOME FUND INCOME FUND

9
<PAGE>

- --------------------------------------------------------------------------------
B A R O N G R O W T H & I N C O M E F U N D
- --------------------------------------------------------------------------------

were it considered a small cap growth fund, both from its inception and for the
last five months.

Lipper Analytical ranks Baron Growth & Income Fund the number one performing
growth and income fund for the 29 months from the Fund's inception through May
29, 1997. Lipper includes 416 funds in this category. Baron Growth & Income
Fund was the number one performing fund of 495 funds in Lipper's growth and
income category in 1995, the Fund's initial year in operation. It was ranked
36th of 522 growth and income funds in 1996, its second year. In the five
months ended May 30, 1997, penalized by its small company investments, Baron
Growth & Income's per share value gained 8.2%, a relatively modest amount. For
the twelve months ended May 1997, the Fund's per share value gained 14.2%, also
a relatively modest gain.

Most growth and income funds, unlike Baron Growth & Income Fund, concentrate
their investments in S&P 500 stocks, large, mature, slower growing,
economically sensitive companies with substantial dividends. S&P 500 companies
usually have less attractive opportunities to invest capital in their own
businesses to earn high rates of return and choose, instead, to return a
significant portion of their profits to their shareholders as dividends. We
expect that, over the long term, our investments in fast growing, very
profitable, small and mid-sized businesses, well managed by entrepreneurs, will
outperform the larger, slower growing, ponderous, less profitable S&P 500
businesses.

Morningstar does classify Baron Growth & Income Fund as a small cap fund. That
firm eliminated its growth and income category last year. In Morningstar's
small cap category, Baron Growth & Income would be a top ranked fund, both from
its inception and this year. Morningstar does not give rankings to mutual funds
less than three years old. Baron Growth & Income will be ranked by Morningstar
in seven months.

Baron Growth & Income Fund is more conservatively managed than most other
small cap funds. This is readily apparent since nearly 30% of our Fund's assets
are invested in income producing securities. Regardless, Baron Growth & Income
Fund would be the number one performing small cap fund since its inception were
it considered by Lipper a small cap growth fund. Past performance is no
guarantee of future results.

Table II. Performance Benchmarks

12/31/96-5/29/97 5/31/96-5/29/97 12/31/94-5/29/97
Baron G&I 8.2% 14.2% 110.8%
(Inception
1/3/95)
Lipper G&I 11.2 22.8 76.7
(655 Funds)
S&P 500 15.4 29.4 95.1
Lipper Small Cap 3.5 3.9 56.0
(429 Funds)
Russell 2000 5.7 7.0 57.9
<PAGE>

Baron Growth & Income Fund takes advantage of March-
April small cap stock market correction. Adds to holdings.

Baron Growth & Income Fund adheres to what can be considered a bifurcated
investment strategy. It invests a significant portion of its assets in income
producing securities, the balance in fast growing small and mid-sized
businesses. The Fund's income generating securities currently comprise real
estate investment trusts, debentures and preferreds convertible into equity
securities and special situations which, if their earnings are passed through
to their shareholders as dividends, are able to avoid corporate tax. Income
producing securities currently comprise about 28% of the Fund's assets. These
securities have represented as much as 35% of Baron Growth & Income Fund's
assets. The Fund's holdings of income producing securities will presumably be
less volatile than our small cap stock investments. This is because a
significant portion of the annual returns achieved by higher yielding
securities can be expected to be derived from more predictable interest and
dividends. Of course, the annual expected total return on income producing
securities will be somewhat less, as well.

First, the income producing securities. When the underlying equity securities
of American Radio and Seacor Smit fell in April, Baron Growth & Income
purchased Seacor Smit convertible debentures and American Radio convertible
preferred. Seacor Smit has also been repurchasing its shares. The Fund reduced
its holdings in certain property REITs following their spectacular performance
last year. We considered the REITs whose shares we sold to be dependent for
growth upon what we considered financial transactions that were taking place at
rapidly escalating prices. We partially replaced these REIT holdings with
investments in enterprises that were creating value through superior property
management and development skills. Included in this category are Spieker
Properties, Healthcare Realty, Reckson Associates, Columbus Realty and Sun
Communities. As we have previously reported, we plan for our investments in
income producing securities to provide our portfolio with stability that is not
normally present in most small cap funds. However, our income producing
investments must be regarded as more speculative than most held by other growth
and income funds.

Baron Growth & Income Fund's more conservative, value oriented, income
producing investments have permitted it to make focused investments in our more
growth oriented investments. The Fund sharply increased its holdings in Choice
Hotels during the past five months. The recently announced spinoff of the
Choice hotel franchise business could produce at least a 20-25% return for
Choice's shareholders within the next twelve months. Choice could double its
operating earnings and cash flow within three years. Choice has been
repurchasing a significant portion of its shares. When casino gaming stocks
fell sharply, i.e., 35-50% below their peak prices achieved within the past
twelve months, we sharply increased our holdings in Mirage Resorts and Sun
International. These share price declines were due to what we

10
<PAGE>

perceived as short term earnings concerns. Mirage could double its cash flow
within two years; Sun International could more than triple its earnings within
four years. Mirage has been aggressively repurchasing its shares. When Heftel,
DeVry and Stein Mart announced secondary offerings, their stocks fell and we
significantly increased our investments in those companies, as well. The Fund
also significantly increased its investment in Smart & Final following the
announcement by that company of a very attractive real estate transaction with
the company's principal shareholder. The Fund also increased its holdings in
two small, rapidly growing businesses, healthcare services provider Counsel
Corporation and the provider of alternative education for troubled youths
Children's Comprehensive Services, when we had the opportunity to do so.

Table III. Significant Stock Purchases During 1997

<TABLE>
<CAPTION>
Shares Purchase Net Current Pct
/Prin. Amt Security Price Amount Price Chng
<S> <C> <C> <C> <C> <C>
1,300,000 Choice Hotel $15.54 $20.2 million $ 15.75 1.4%
310,000 Manor Care 26.30 8.2 million 28.63 8.9
160,000 Vail Resorts 20.51 3.3 million 23.88 16.4
90,000 Spieker Ppty 35.16 3.2 million 36.88 4.9
95,000 Mirage Resorts 22.09 2.1 million 23.88 4.9
50,000 Heftel Brdcst 40.74 2.0 million 49.50 21.5
160,000 Children's Comp 12.58 1.6 million 15.25 21.2
40,000 Robert Half 35.46 1.4 million 42.88 20.9
75,000 Counsel 12.60 1.0 million 14.25 13.0
20,000 Am Rad 7% cvpf 46.75 .9 million 54.25 16.0
30,000 Healthcare Rlty 27.25 .8 million 26.00 (4.6)
36,720 Columbus Rlty 21.36 .8 million 22.00 3.0
700,000 Seacor cv db 948.20 .7 million 1,020.75 7.7
20,000 Sun Intl 36.00 .7 million 37.88 5.2
30,000 Stein Mart 19.83 .6 million 30.25 52.5
30,000 DeVry 19.27 .6 million 27.63 43.4
15,000 Registry 38.26 .6 million 48.25 26.1
15,000 Dollar Tree 36.05 .5 million 48.00 33.1
</TABLE>

- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST NEWS

Since Baron Growth & Income Fund's inception 29 months ago, the Fund has
invested a significant portion of its assets in REITs. In general, the
percentage of our Fund we have allocated to this non-traditional asset class
has approximated 20-25%. REITs' performances have not been closely correlated
to general stock market trends. We had hoped to earn 10-15% per year total
return from these investments. (We try to double our money every three to five
years with our riskier small cap growth stocks investments.) The performance of
REITs in which Baron Growth & Income Fund has invested, however, can only be
characterized as "growth-stock like." During 1995, our REITs generated total
return of about 20%; the return achieved by this portfolio segment in 1996 was
48.5%. The Fund's real estate portfolio segment outperformed all mutual funds
dedicated to investing only in REITs both years. During 1997, our REIT
portfolio segment is ranked third among those mutual funds which invest
exclusively in real estate. Through May the total return earned on our REIT
portfolio approximates 4.6%.

<PAGE>

The Morgan Stanley REIT index, a proxy for the performance of all publicly
owned equity REITs, fell 0.1% from December 31, 1996 through May 29, 1997. What
happened? We think the explanation is relatively straightforward. REITs
achieved very strong gains in the last half of 1996, in many instances
propelling their prices to levels close to or above the replacement value of
their owned real estate. When we had first invested in these businesses, we
were able to easily purchase securities for significantly less than it would
cost to build new buildings. In addition, it was not then possible to
economically justify new construction based upon prevailing rent levels. In
most instances, it still remains difficult to justify and obtain financing for
new construction. But, in more and more instances, interest in new construction
is increasing. Private owners of real estate have also recognized the
relatively high prices that publicly owned real estate companies now command.
Initial public offerings of REITs increased significantly during the first
quarter. In our opinion equity offerings and current high REIT prices have
limited share price gains for these companies this year.

Baron Growth & Income Fund reduced the percentage of its portfolio investments
in REITs from 26.7% at year end 1996 to 20.2% at the end of May. Investments in
office REITs that had performed especially well last year and which were
dependent for their growth upon acquisitions of ever higher priced real estate
were reduced. We have continued to add to our investments in real estate
businesses with strong management capabilities focused on improving internal
performance of owned office properties. (Spieker Properties) We have increased
our investment in a unique urban apartment developer, an imaginative community
developer able to command premium prices for its upscale neighborhood projects.
(Columbus Realty) We have increased our investment in one of the leading owners
and operators of manufactured home communities, a business with significant
zoning barriers to entry. (Sun Communities) We have increased our investment in
an office and industrial real estate business in the New York, New Jersey and
Connecticut suburban sub-markets that has demonstrated a unique,
entrepreneurial approach to acquisition and redevelopment. (Reckson Associates)
We believe that all of the above businesses should be able to grow their
business cash flow in excess of 10% per year. Coupled with their current
dividends, we believe Baron Growth & Income should be able to achieve its total
return objectives with these investments.

- -------------------------------------------------------------------------------
OTHER DEVELOPMENTS

Sections of the preceding Baron Asset Fund quarterly report are relevant to
your investment in Baron Growth & Income Fund

The discussion titled "Investment Themes" is applicable to both mutual funds.
The section titled "Recent Developments" includes comments on Choice Hotels and
American Radio that are also

11
<PAGE>

relevant to your investment in Baron Growth & Income Fund. In addition, the
discussion in "Portfolio Additions" on Vail Resorts is also pertinent. You
might also find our comments in Baron Asset Fund's report titled "Other
Developments" regarding the Baron Sports Teams of interest.

Sixth Annual Baron Investment Conference: October 24, 1997 Essex House, New
York City

Thank you for investing in Baron Funds.

We know you have literally thousands of mutual funds from which to choose. We
want to thank you for the confidence you have shown in us by joining us as
fellow shareholders in Baron Funds.

We will continue to work hard to justify your confidence. Again, thank you.

Thank you for investing in Baron Growth & Income Fund

Sincerely,

/s/ Ronald Baron
- -----------------
Ronald Baron
President

May 29, 1997

12
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Table I
- --------------------------------------------------------------------------------
Portfolio Market Capitalization
- --------------------------------------------------------------------------------

The Funds invest primarily in small and medium sized companies. Table I ranks
the Funds' investments by market capitalization and displays the percentage of
the Funds' portfolios invested in each market capitalization category. At times
the Funds will invest in companies with market capitalizations greater than
$2.0 billion. These larger cap companies have increased in value since the
Funds first invested in them and still offer attractive opportunities for
further appreciation.

Baron Asset Fund
- -------------------------------------------------------------------------------

Equity % of
Company Market Cap Portfolio
- -------------------------------------------------------------------------
('000s)
Large Capitalization
- -------------------------------------------------------------------------
Charles Schwab Corp. ........................ 5,602,176 5.4%
Mirage Resorts, Inc. ........................ 3,795,739 0.9
Globalstar Telecomm., Ltd .................. 2,996,000 0.2
Public Storage, Inc. ........................ 2,883,731 0.4
Circus Circus Enterprises, Inc. ............... 2,466,412 2.6
Starwood Lodging Trust ..................... 2,269,800 0.9
Robert Half Intl., Inc. ..................... 2,093,302 2.9
-----
13.4%
Medium Capitalization
- --------------------------------------------------------------------------
Corrections Corp. of America ............... 1,818,896 1.7%
Vornado Realty Trust ........................ 1,772,079 0.5
Promus Hotel Corp. ........................... 1,709,881 0.4
Nine West Group, Inc. ........................ 1,601,737 0.5
La Quinta Inns, Inc. ........................ 1,590,329 0.4
Manor Care, Inc. ........................... 1,545,594 5.6
Quorum Health Group, Inc. ..................... 1,511,825 2.3
Stewart Enterprises, Inc. CL A ............... 1,475,367 2.2
Industrie Natuzzi SPA ........................ 1,345,738 0.2
Highwoods Properties, Inc. .................. 1,201,243 0.2
Kimco Realty Corp. ........................... 1,177,540 0.5
Sun Intl. Hotels, Ltd ........................ 1,099,070 1.0
Genesis Health Ventures, Inc. ............... 1,091,281 1.9
Proffitt's Inc. .............................. 1,061,870 0.3
Storage USA, Inc. ........................... 1,034,491 0.3
-----
18.0%
Small Capitalization
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc. ..................... 960,224 2.3%
American Radio Systems Corp. Class A . 896,700 2.0
Choice Hotels Intl. Inc. ..................... 847,854 5.0
Heftel Broadcasting Corp. ..................... 761,577 4.6
DeVry, Inc. ................................. 759,044 1.6
Williams-Sonoma, Inc. ........................ 734,390 0.2
Bristol Hotel Co. ........................... 720,621 1.7
Seacor Holdings, Inc. ........................ 702,327 0.9
NTL, Inc. (Formerly Intl. CableTel, Inc.) . 688,150 3.3
<PAGE>

- --------------------------------------------------------------------------
Equity % of
Company Market Cap Portfolio
- --------------------------------------------------------------------------
('000s)
Small Capitalization (Continued)
- --------------------------------------------------------------------------
Stein Mart, Inc. ..................... 657,495 1.1%
Delta and Pine Land Co. ............ 655,627 1.0
Vail Resorts, Inc. .................. 649,331 2.4
Learning Tree Intl., Inc. ......... 615,860 0.9
OM Group, Inc. ..................... 608,006 1.5
Sylvan Learning Systems, Inc. ...... 606,771 0.2
Cox Radio, Inc. ..................... 587,529 0.8
Redwood Trust, Inc. .................. 545,658 0.7
Sun Communities, Inc. ............... 510,720 0.6
Vitalink Pharmacy Svcs, Inc. ...... 510,471 0.6
The Registry, Inc. .................. 496,113 1.3
Premier Parks, Inc. ............... 473,538 0.9
Libbey, Inc. ........................ 470,656 0.5
Petco Animal Supplies, Inc. ......... 437,100 0.8
Equity Corp. Intl. .................. 434,616 0.3
Smart and Final, Inc. ............... 432,476 2.6
Cross Timbers Oil Co. ............... 419,016 2.3
Metro Networks, Inc. ............... 380,650 1.7
Team Rental Group, Inc. ............ 353,220 0.5
Palmer Wireless, Inc. ............... 347,851 0.6
Alexander's, Inc. .................. 346,319 0.6
Rainforest Cafe, Inc. ............... 341,004 0.2
American HomePatient, Inc. ......... 328,143 0.4
Education Management Corp. ......... 327,395 0.9
Avatar Holdings, Inc. ............... 305,819 1.5
Young Broadcasting, Inc. ............ 295,338 1.2
Shaw Group, Inc. .................. 282,735 0.7
American Mobile Satellite Corp. ...... 282,353 2.3
Flextronics Intl. Ltd. ............ 269,942 1.8
Columbus Realty Trust ............... 262,833 0.2
Marcus Corp. ........................ 238,416 0.6
CoreComm, Inc. (Formerly Cellular
Comm. of P.R.) ..................... 189,573 1.0
Chartwell Leisure, Inc. ............ 156,254 0.7
Saga Communications, Inc. ............ 147,076 2.1
Youth Services Intl., Inc. ......... 139,725 1.2
DVI, Inc. ........................... 118,103 0.9
Pediatric Services of America, Inc. 118,082 1.0
Summit Care Corp. .................. 90,589 0.4
USA Truck, Inc. ..................... 77,212 0.1
-----
60.3%

13
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Baron Growth & Income Fund
- --------------------------------------------------------------------------------

Equity % of
Company Market Cap Portfolio
- --------------------------------------------------------------------------
('000s)
Large Capitalization
- --------------------------------------------------------------------------
Franklin Resources, Inc. ..................... 6,430,845 1.1%
Charles Schwab Corp. ........................ 5,602,176 6.0
Mirage Resorts, Inc. ........................ 3,795,739 0.7
Public Storage, Inc. ........................ 2,883,731 1.8
Crescent Real Estate Equities, Inc. ......... 2,496,417 0.5
Circus Circus Enterprises, Inc. ............... 2,466,412 2.1
Starwood Lodging Trust ..................... 2,269,800 3.1
Robert Half Intl., Inc. ..................... 2,093,302 2.2
-----
17.5%
Medium Capitalization
- --------------------------------------------------------------------------
Beacon Properties Corp. ..................... 1,825,718 0.8%
Corrections Corp. of America .................. 1,818,896 2.0
Vornado Realty Trust ........................ 1,772,079 1.6
Spieker Properties, Inc. ..................... 1,692,834 1.2
Manor Care, Inc. ........................... 1,545,594 6.4
Quorum Health Group, Inc. ..................... 1,511,825 1.4
Stewart Enterprises, Inc. CL A ............... 1,475,367 1.5
Highwoods Properties, Inc. .................. 1,201,243 1.5
Kimco Realty Corp. ........................... 1,177,540 1.4
Cali Realty Corp. ........................... 1,173,504 0.6
Sun Intl. Hotels, Ltd. ........................ 1,099,070 2.2
Genesis Health Ventures, Inc. ............... 1,091,281 0.9
Storage USA, Inc. ........................... 1,034,491 2.0
-----
23.6%
Small Capitalization
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc. ..................... 960,224 1.8%
American Radio Systems Corp. ............... 896,700 3.6
Choice Hotels Intl., Inc. ..................... 847,854 7.9
Reckson Associates Realty Corp. ............ 790,790 0.5
Heftel Broadcasting Corp. ..................... 761,577 3.4
DeVry, Inc. ................................. 759,044 1.4
Seacor Holdings .............................. 702,327 0.4
NTL, Inc. (Formerly Intl. CableTel, Inc.) . 688,150 2.6
Stein Mart, Inc. .............................. 657,495 0.8
Delta and Pine Land Co. ..................... 655,627 1.1
Vail Resorts, Inc. ........................... 649,331 0.9
Learning Tree Intl., Inc. .................. 615,860 0.5
OM Group, Inc. .............................. 608,006 1.4
Arden Realty Group, Inc. ..................... 590,780 1.0
CBL & Associates Properties .................. 587,363 0.8
Multicare Companies, Inc. ..................... 581,010 1.0
Redwood Trust, Inc. ........................... 545,658 2.7
Healthcare Realty Trust, Inc. ............... 526,367 1.1
Sun Communities, Inc. ........................ 510,720 2.2
The Registry, Inc. ........................... 496,113 0.2
Petco Animal Supplies, Inc. .................. 437,100 0.6

<PAGE>

14
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Table II
- --------------------------------------------------------------------------------

Portfolio Risk Characteristics
- --------------------------------------------------------------------------------

The Funds are diversified not only by industry, but also by external factors
that might impact the companies in which the Funds invest. Table II displays
some of the risk factors that are currently monitored and the percentage of
each portfolio considered exposed to these factors. The Funds use this tool to
avoid concentration of risk within the portfolios.

Baron Asset Baron Growth
Fund & Income Fund
------------- --------------
% of % of
Portfolio Portfolio
------------- --------------
Oil Price Sensitivity ......... 23.2% 25.1%
Leverage (Debt (Greater Than) 40%
of Market Cap) ................ 23.0 25.1
Foreign Sales Dependent
(Sales (Greater Than) 10%) ..... 14.5 13.8
Volatility (Beta
(Greater Than) 1.2) .......... 18.8 18.2
Over-the-Counter Securities....... 36.3 29.1
Unseasoned Securities
(Publicly owned for
(Less Than) 3 years) .......... 32.3 36.1
(Publicly owned for
(Less Than) 1 year)............. 12.1 13.8
Turnarounds ..................... 0.5 0.0
Development Companies ......... 7.1 5.6

15
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Table III
- --------------------------------------------------------------------------------
Historical Information
- --------------------------------------------------------------------------------

Table III displays on a quarterly basis the Funds' closing net assets and net
asset value per share, dividend distributions and the value of $10,000 invested
in a Fund at the time of its inception.

Baron Asset Fund
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Net Asset Value of Shares
Value Owned, if Initial
Date Fund Net Assets Per Share Dividends Investment was $10,000*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
06/12/87 $ 108,728 $10.00 $10,000
- --------------------------------------------------------------------------------------
06/30/87 1,437,521 10.71 10,710
- --------------------------------------------------------------------------------------
09/30/87 3,905,221 11.95 11,950
- --------------------------------------------------------------------------------------
12/31/87 4,406,972 10.10 $0.197 10,298
- --------------------------------------------------------------------------------------
03/31/88 6,939,435 11.56 11,786
- --------------------------------------------------------------------------------------
06/30/88 9,801,677 12.68 12,928
- --------------------------------------------------------------------------------------
09/30/88 11,734,509 12.98 13,234
- --------------------------------------------------------------------------------------
12/31/88 15,112,031 12.87 0.701 13,843
- --------------------------------------------------------------------------------------
03/31/89 22,269,578 14.75 15,864
- --------------------------------------------------------------------------------------
06/30/89 31,397,929 16.06 17,273
- --------------------------------------------------------------------------------------
09/30/89 47,658,616 17.22 18,521
- --------------------------------------------------------------------------------------
12/31/89 49,007,084 14.66 1.409 17,299
- --------------------------------------------------------------------------------------
03/31/90 50,837,946 13.87 16,367
- --------------------------------------------------------------------------------------
06/30/90 54,413,786 14.32 16,898
- --------------------------------------------------------------------------------------
09/30/90 40,002,612 10.88 12,838
- --------------------------------------------------------------------------------------
12/31/90 42,376,625 11.75 0.198 14,100
- --------------------------------------------------------------------------------------
03/31/91 47,104,889 13.88 16,656
- --------------------------------------------------------------------------------------
06/30/91 45,600,730 13.81 16,572
- --------------------------------------------------------------------------------------
09/30/91 47,409,180 14.80 17,760
- --------------------------------------------------------------------------------------
12/31/91 46,305,042 15.71 0.035 18,895
- --------------------------------------------------------------------------------------
03/31/92 48,011,634 16.72 20,109
- --------------------------------------------------------------------------------------
06/30/92 42,289,409 15.28 18,377
- --------------------------------------------------------------------------------------
09/30/92 43,816,305 16.20 19,484
- --------------------------------------------------------------------------------------
12/31/92 47,955,530 17.73 0.162 21,522
- --------------------------------------------------------------------------------------
03/31/93 50,015,244 18.82 22,845
- --------------------------------------------------------------------------------------
06/30/93 52,432,090 19.70 23,912
- --------------------------------------------------------------------------------------
09/30/93 59,916,570 21.91 26,595
- --------------------------------------------------------------------------------------
12/31/93 64,069,114 21.11 0.774 26,576
- --------------------------------------------------------------------------------------
03/31/94 63,099,109 20.69 26,047
- --------------------------------------------------------------------------------------
06/30/94 68,880,300 20.40 25,682
- --------------------------------------------------------------------------------------
09/30/94 80,258,542 22.82 28,728
- --------------------------------------------------------------------------------------
12/31/94 87,058,228 22.01 0.656 28,547
- --------------------------------------------------------------------------------------
03/31/95 160,603,528 24.29 31,505
- --------------------------------------------------------------------------------------
06/30/95 202,259,502 25.79 33,450
- --------------------------------------------------------------------------------------
09/30/95 289,973,331 29.30 38,003
- --------------------------------------------------------------------------------------
12/31/95 353,095,409 29.74 0.034 38,618
- --------------------------------------------------------------------------------------
03/31/96 638,297,904 34.14 44,332
- --------------------------------------------------------------------------------------
06/30/96 1,124,647,802 36.65 47,591
- --------------------------------------------------------------------------------------
09/30/96 1,166,057,654 35.50 46,098
- --------------------------------------------------------------------------------------
12/31/96 1,326,321,785 36.23 0.039 47,097
- --------------------------------------------------------------------------------------
03/31/97 1,663,347,667 34.98 45,472
- --------------------------------------------------------------------------------------
</TABLE>

* Assumes all dividends were reinvested and no shares were
redeemed.
<PAGE>

- -------------------------------------------------------------------------------
Baron Growth & Income Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value of Shares
Value Owned, if Initial
Date Fund Net Assets Per Share Dividends Investment was $10,000*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/03/95 $ 741,000 $10.00 $10,000
- --------------------------------------------------------------------------------------
03/31/95 3,425,507 11.78 11,780
- --------------------------------------------------------------------------------------
06/30/95 7,231,619 13.18 13,180
- --------------------------------------------------------------------------------------
09/30/95 28,632,467 14.77 14,770
- --------------------------------------------------------------------------------------
12/31/95 41,043,705 15.11 0.142 15,254
- --------------------------------------------------------------------------------------
03/31/96 77,337,831 16.90 17,061
- --------------------------------------------------------------------------------------
06/30/96 172,070,435 18.20 18,373
- --------------------------------------------------------------------------------------
09/30/96 207,234,494 18.40 18,575
- --------------------------------------------------------------------------------------
12/31/96 243,983,507 19.04 0.255 19,483
- --------------------------------------------------------------------------------------
03/31/97 273,907,177 18.57 19,002
- --------------------------------------------------------------------------------------
</TABLE>

* Assumes all dividends were reinvested and no shares were redeemed.

- -------------------------------------------------------------------------------
Performance Information
- -------------------------------------------------------------------------------

BARON ASSET FUND'S
AVERAGE ANNUAL RETURN

Period ended March 31, 1997
<TABLE>

<S> <C>
One year 2.6%
- --------------------------------------------------------------------------------
Two years 20.1%
- --------------------------------------------------------------------------------
Three years 20.4%
- --------------------------------------------------------------------------------
Four years 18.8%
- --------------------------------------------------------------------------------
Five years 17.7%
- --------------------------------------------------------------------------------
Since inception June 12, 1987 16.7%
- --------------------------------------------------------------------------------
</TABLE>

BARON GROWTH & INCOME FUND'S
AVERAGE ANNUAL RETURN

Period ended March 31, 1997
<TABLE>

<S> <C>
One year 11.4%
- --------------------------------------------------------------------------------
Two years 27.0%
- --------------------------------------------------------------------------------
Since inception January 3, 1995 33.0%
- --------------------------------------------------------------------------------
</TABLE>

The performance data represents past performance. Investment returns and
principle value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their cost. For more complete information about The
Baron Funds including charges and expenses, call or write for a prospectus.
Read it carefully before you invest or send money. This report is not
authorized for use as an offer of sale or a solicitation of an offer to buy
shares of The Baron Funds unless accompanied or preceded by the Funds' current
prospectus.

16
<PAGE>

- --------------------------------------------------------------------------------
B A R O N A S S E T F U N D
- --------------------------------------------------------------------------------

STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
March 31, 1997 (Unaudited)

Market
Shares Value
- --------------------------------------------------------------------------------
Common Stocks (93.40%)
- --------------------------------------------------------------------------------
Amusement and Recreation Services (16.67%)
640,000 Bristol Hotel Co.* $27,840,000
124,071 Chartwell Leisure, Inc.* 1,736,994
658,929 Chartwell Leisure, Inc.* + 9,225,006
6,168,000 Choice Hotels Intl. Inc.*# 83,268,000
1,672,000 Circus Circus Enterprises, Inc.* 43,472,000
320,000 La Quinta Inns, Inc. 6,560,000
445,000 Marcus Corp. 9,734,375
735,000 Mirage Resorts, Inc.* 15,618,750
609,500 Premier Parks, Inc.* 15,770,812
210,000 Promus Hotel Corp.* 6,982,500
470,000 Sun Intl. Hotels, Ltd* 16,450,000
2,085,000 Vail Resorts, Inc.*# 40,657,500
------------
277,315,937
Business Services (7.18%)
240,000 Equity Corp. Intl.* 5,040,000
592,500 The Registry, Inc.* 21,033,750
1,390,000 Robert Half Intl., Inc.* 48,476,250
999,250 Stewart Enterprises, Inc. CL A 36,472,625
400,000 Team Rental Group, Inc.* 8,400,000
------------
119,422,625
Chemical (1.49%)
882,000 OM Group, Inc. 24,806,250
Communications (5.41%)
3,407,600 American Mobile Satellite Corp.*# 38,335,500
1,094,900 CoreComm, Inc.(Formerly Cellular
Comm. of P.R.)*# 15,876,050
75,000 Globalstar Telecomm., Ltd* 4,012,500
1,030,000 NTL, Inc.(Formerly Intl.
CableTel, Inc.)* 22,145,000
780,000 Palmer Wireless, Inc.* 9,555,000
------------
89,924,050
Education (3.56%)
1,192,500 DeVry, Inc.* 26,235,000
633,000 Education Management Corp.* 14,400,750
526,500 Learning Tree Intl., Inc.* 14,742,000
156,000 Sylvan Learning Systems, Inc.* 3,861,000
------------
59,238,750
Energy (3.26%)
2,480,000 Cross Timbers Oil Co.# 38,750,000
290,000 Seacor Holdings, Inc.* 15,551,250
------------
54,301,250
Financial (6.30%)
2,800,000 Charles Schwab Corp. 89,250,000
1,375,000 DVI, Inc.*# 15,468,750
------------
104,718,750
Food and Agriculture (0.98%)
525,000 Delta and Pine Land Co. 16,275,000
Government Services (2.35%)
1,148,000 Corrections Corp. of America* 27,839,000
750,000 Youth Services Intl., Inc.*# 11,250,000
------------
39,089,000
<PAGE>
- -------------------------------------------------------------------------
March 31, 1997 (Unaudited)
Market
Shares Value
- -------------------------------------------------------------------------
Health Services (12.24%)
284,000 American HomePatient, Inc.* $ 6,319,000
1,026,500 Genesis Health Ventures, Inc.* 32,078,125
3,825,000 Manor Care, Inc.# 93,234,375
925,000 Pediatric Services of America, Inc.*# 17,459,375
1,230,000 Quorum Health Group, Inc.* 37,976,250
456,500 Summit Care Corp.*# 6,105,687
522,000 Vitalink Pharmacy Svcs, Inc.* 10,505,250
------------
203,678,062
Manufacturing (2.48%)
1,485,000 Flextronics Intl. Ltd.*# 29,514,375
515,000 Shaw Group, Inc.* 11,780,625
------------
41,295,000
Media and Entertainment (12.72%)
1,300,000 American Radio Systems Corp.
Class A*# 39,650,000
640,000 Cox Radio, Inc.*# 13,280,000
1,635,000 Heftel Broadcasting Corp.*# 76,027,500
1,215,000 Metro Networks, Inc.*# 27,945,000
1,669,500 Saga Communications, Inc.*# 34,642,125
831,500 Young Broadcasting, Inc.*# 20,059,938
------------
211,604,563
Real Estate REIT's (6.36%)
145,000 Alexander's, Inc.* 10,041,250
732,800 Avatar Holdings, Inc.*# 24,640,400
125,000 Columbus Realty Trust 2,515,625
120,000 Highwoods Properties, Inc. 4,020,000
250,000 Kimco Realty Corp. 8,125,000
212,000 Public Storage, Inc. 6,148,000
250,000 Redwood Trust, Inc. 11,562,500
400,000 Starwood Lodging Trust 15,600,000
140,000 Storage USA, Inc. 5,162,500
310,000 Sun Communities, Inc. 9,920,000
120,000 Vornado Realty Trust 8,010,000
------------
105,745,275
Retail Trade & Restaurants (7.89%)
1,016,000 Dollar Tree Stores, Inc.* 37,592,000
185,000 Nine West Group, Inc.* 8,278,750
556,000 Petco Animal Supplies, Inc.* 13,066,000
140,000 Proffitt's Inc.* 5,285,000
160,000 Rainforest Cafe, Inc.* 3,160,000
2,185,000 Smart and Final, Inc.# 42,880,625
615,000 Stein Mart, Inc.* 17,527,500
122,000 Williams-Sonoma, Inc.* 3,507,500
------------
131,297,375
Transportation (0.29%)
200,000 American Freightways Corp.* 2,787,500
240,000 USA Truck, Inc.* 1,980,000
------------
4,767,500
Wholesale Trade (0.68%)
125,000 Industrie Natuzzi SPA 2,984,375
265,000 Libbey, Inc. 8,281,250
------------
11,265,625

17
<PAGE>

- --------------------------------------------------------------------------------
B A R O N A S S E T F U N D
- --------------------------------------------------------------------------------

STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------

March 31, 1997 (Unaudited)
Shares or Market
Principal Amount Value
- --------------------------------------------------------------------------------
Miscellaneous (3.54%) $ 58,891,686
--------------
Total Common Stocks
(Cost $1,400,561,369) 1,553,636,698
--------------
- --------------------------------------------------------------------------------
Convertible Preferred (0.57%)
- --------------------------------------------------------------------------------
Media and Entertainment (0.57%)
200,000 American Radio Systems
Corp. 7% Conv. +
(Cost $10,000,000) 9,400,000
- --------------------------------------------------------------------------------
Corporate Bonds (2.45%)
- --------------------------------------------------------------------------------
Communications (1.95%)
$20,500,000 Intl. CableTel, Inc. 7.25%
Conv. Sub. Notes 04/15/2005+ 20,295,000
14,000,000 Intl. CableTel, Inc. 7.0%
Conv. Sub. Notes 06/15/2008 12,110,000
--------------
32,405,000
Government Services (0.47%)
6,000,000 Youth Services Intl. Inc. 7.00%
Conv. Sub. Deb. 02/01/2006 7,800,000
Health Care Services (0.03%)
500,000 Occusystems, Inc. 6.0%
Conv. Sub Notes 12/15/2001 502,500
--------------
Total Corporate Bonds
(Cost $42,470,215) 40,707,500
--------------

- ----------------------------------------------------------------------
March 31, 1997 (Unaudited)

Market
Principal Amount Value
- ----------------------------------------------------------------------
Short Term Money Market Instruments (4.72%)
- ----------------------------------------------------------------------
American Express Credit Corp. 5.9%
30,000,000 Due 04/04/97 $ 30,000,000
Prudential Funding Corp. 6.0%
48,495,000 Due 04/01/97 48,495,000
--------------
Total Short Term Money Market
Instruments (Cost $78,495,000) 78,495,000
--------------
Total Investments
(Cost $1,531,526,584**) 1,682,239,198
--------------
Liabilities Less
Cash and Other Assets (18,891,531)
--------------
Net Assets (Equivalent to $34.98 per
share based on 47,552,985 shares of
beneficial interest outstanding) $1,663,347,667
==============

% Represents percentage of Net Assets
+ Restricted Securities
# Affiliated Issuers
* Non-income producing securities
** For Federal income tax purposes the cost basis is $1,531,403,608. Aggregate
unrealized appreciation and depreciation of investments are $264,103,625
and $113,268,035, respectively.

18
<PAGE>

- -------------------------------------------------------------------------------
B A R O N G R O W T H & I N C O M E F U N D
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
March 31, 1997 (Unaudited)

Market
Shares Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks (96.11%)
- -------------------------------------------------------------------------------------
Amusement and Recreation Services (14.44%)
1,610,000 Choice Hotels Intl., Inc.* $21,735,000
220,000 Circus Circus Enterprises, Inc.* 5,720,000
80,000 Marcus Corp. 1,750,000
90,000 Mirage Resorts, Inc.* 1,912,500
172,500 Sun Intl. Hotels, Ltd.* 6,037,500
122,500 Vail Resorts, Inc.* 2,388,750
----------
39,543,750
Business Services (3.89%)
15,000 The Registry, Inc.* 532,500
175,000 Robert Half Intl., Inc.* 6,103,125
110,000 Stewart Enterprises, Inc. CL A 4,015,000
----------
10,650,625
Chemical (1.44%)
140,000 OM Group, Inc. 3,937,500
Communications (4.73%)
640,000 American Mobile Satellite Corp.* 7,200,000
100,000 CoreComm, Inc. (Formerly Cellular
Comm. of P.R.)* 1,450,000
160,000 NTL, Inc. (Formerly Intl.
CableTel, Inc.)* 3,440,000
70,000 Palmer Wireless, Inc.* 857,500
----------
12,947,500
Education (3.00%)
140,000 Children's Comprehensive Services,
Inc.* 1,610,000
175,000 DeVry, Inc.* 3,850,000
58,000 Education Management Corp.* 1,319,500
51,000 Learning Tree Intl., Inc.* 1,428,000
----------
8,207,500
Financial (10.38%)
513,000 Charles Schwab Corp. 16,351,875
215,000 DVI, Inc.* 2,418,750
60,000 Franklin Resources, Inc. 3,060,000
365,000 Medallion Financial Corp. 6,615,625
----------
28,446,250
Food and Agriculture (1.13%)
100,000 Delta and Pine Land Co. 3,100,000
Government Services (2.47%)
230,000 Corrections Corp. of America* 5,577,500
80,000 Youth Services Intl., Inc.* 1,200,000
----------
6,777,500
Health Services (12.09%)
270,000 Counsel Corp.* 3,476,250
80,000 Genesis Health Ventures, Inc.* 2,500,000
715,000 Manor Care, Inc. 17,428,125
145,000 Multicare Companies, Inc.* 2,736,875
165,000 Pediatric Services of America, Inc. 3,114,375
125,000 Quorum Health Group, Inc.* 3,859,375
----------
33,115,000
Manufacturing (1.41%)
195,000 Flextronics Intl. Ltd.* 3,875,625

<PAGE>
- -------------------------------------------------------------------------------------
March 31, 1997 (Unaudited)

Market
Shares Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
Media & Entertainment (8.51%)
230,000 American Radio Systems Corp.* $ 7,015,000
200,000 Heftel Broadcasting Corp.* 9,300,000
110,000 Metro Networks, Inc.* 2,530,000
215,000 Saga Communications, Inc.* 4,461,250
------------
23,306,250
Real Estate & REIT's (25.19%)
16,000 Alexander's, Inc.* 1,108,000
100,000 Arden Realty Group, Inc. 2,725,000
35,000 Avatar Holdings, Inc.* 1,176,875
70,000 Beacon Properties Corp. 2,318,750
50,000 Cali Realty Corp. 1,600,000
90,000 CBL & Associates Properties 2,205,000
210,000 Columbus Realty Trust 4,226,250
50,000 Crescent Real Estate Equities, Inc. 1,337,500
110,000 Healthcare Realty Trust, Inc. 3,011,250
125,000 Highwoods Properties, Inc. 4,187,500
120,000 Kimco Realty Corp. 3,900,000
170,000 Public Storage, Inc. 4,930,000
30,000 Reckson Associates Realty Corp. 1,383,750
160,000 Redwood Trust, Inc. 7,400,000
85,000 Spieker Properties, Inc. 3,315,000
215,000 Starwood Lodging Trust 8,385,000
150,000 Storage USA, Inc. 5,531,250
185,000 Sun Communities, Inc. 5,920,000
65,000 Vornado Realty Trust 4,338,750
------------
68,999,875
Retail Trade & Restaurants (5.26%)
130,000 Dollar Tree Stores, Inc.* 4,810,000
65,000 Petco Animal Supplies, Inc.* 1,527,500
295,000 Smart and Final, Inc. 5,789,375
80,000 Stein Mart, Inc.* 2,280,000
------------
14,406,875
Utility Services (2.17%)
260,000 Southern Union Co.* 5,947,500
------------
Total Common Stocks
(Cost $239,179,454) 263,261,750
------------
- -------------------------------------------------------------------------------------
Convertible Preferred (1.03%)
- -------------------------------------------------------------------------------------
Media and Entertainment (1.03%)
60,000 American Radio Systems 7% Conv.
Corp.+
(Cost $2,955,000) 2,820,000
</TABLE>

19
<PAGE>

STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------

March 31, 1997 (Unaudited)

Market
Principal Amount Value
- ----------------------------------------------------------------------
Corporate Bonds (2.80%)
- ----------------------------------------------------------------------
Communications (1.84%)
Cellular Comm. Intl. Units
1 Unit = $1000 0% Sr. Disc. Notes
$1,800,000 8/15/2000 and 1 Warrant $1,314,000
Intl. CableTel, Inc. 7.25% Conv. Sub.
2,000,000 Notes 4/15/2005+ 1,980,000
Intl. CableTel, Inc. 7.0% Conv. Sub.
2,000,000 Notes 6/15/2008 1,730,000
-----------
5,024,000
Energy (0.38%)
Seacor Holdings 5.375% Conv. Due
1,000,000 11/15/2006+ 1,045,000
Government Services (0.57%)
Youth Services Intl. Inc. 7.0% Conv. Sub.
1,200,000 Deb. 02/01/2006 1,560,000
-----------
Real Estate & REITs (0.01%)
Avatar Holdings, Inc. 8.0% Sr Deb
36,800 10/01/2000 33,212
-----------
Total Corporate Bonds
(Cost $7,556,555) $7,662,212
-----------

- --------------------------------------------------------------------------------
March 31, 1997 (Unaudited)
Market
Value
- --------------------------------------------------------------------------------
Total Investments
(Cost $249,691,009**) 273,743,962
-------------
Cash and Other Assets
Less Liabilities 163,215
-------------
Net Assets (Equivalent to $18.57
per share based on 14,750,740
shares of beneficial interest
outstanding) $273,907,177
=============

% Represents percentage of Net Assets
* Non-Income producing securities
+ Restricted Securities
** For Federal income tax purposes the cost basis is $249,417,208. Aggregate
unrealized appreciation and depreciation of investments are $41,808,793 and
$17,482,039, respectively.

20
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
March 31, 1997 (Unaudited)

<TABLE>
<CAPTION>
BARON ASSET BARON GROWTH
FUND & INCOME FUND
---------------- --------------
<S> <C> <C>
Assets:
Investments in securities, at value
Unaffiliated Issuers
(Cost $853,326,520 and $249,691,009, respectively) ...... $1,013,193,998 $273,743,962
Affiliated Issuers (Cost $678,200,064) .................. 669,045,200 0
Cash ................................................... 567,539 0
Dividends and interest receivable ........................ 1,672,754 637,041
Receivable for securities sold ........................... 1,659,057 662,940
Receivable for shares sold .............................. 1,530,042 87,198
Unamortized organization costs (Note 1) .................. 0 18,080
Prepaid expenses ....................................... 31,671 0
-------------- ------------
1,687,700,261 275,149,221
-------------- ------------
Liabilities:
Payable for securities purchased ........................ 24,018,474 586,775
Accrued organization costs (Note 1) ..................... 0 18,080
Accrued expenses and other payables (Note 3) ............ 334,120 637,189
-------------- ------------
24,352,594 1,242,044
-------------- ------------
Net Assets ................................................ $1,663,347,667 $273,907,177
============== ============
Net Assets consist of:
Par value ................................................ $ 475,530 $ 147,507
Paid-in capital in excess of par value .................. 1,535,803,774 252,243,634
Undistributed net investment income(loss) ............... (3,233,931) 713,635
Accumulated net realized loss ........................... (20,410,320) (3,250,552)
Net unrealized appreciation on investments ............... 150,712,614 24,052,953
-------------- ------------
Net Assets ................................................ $1,663,347,667 $273,907,177
============== ============
Shares of Beneficial Interest Outstanding
($.01 par value; indefinite shares authorized) ............ 47,552,985 14,750,740
============== ============
Net Asset Value Per Share ................................. $ 34.98 $ 18.57
============== ============
</TABLE>

See Notes to Financial Statements.

21
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Statements of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1997 (Unaudited)

<TABLE>
<CAPTION>
BARON ASSET BARON GROWTH
FUND & INCOME FUND
---------------- --------------
<S> <C> <C>
Investment income:
Income:
Interest ............................................................ $ 3,182,243 $ 404,406
Dividends -- Unaffiliated Issuers ................................. 2,838,933 2,082,798
Dividends -- Affiliated Issuers .................................... 398,480 0
Miscellaneous ...................................................... 50 325
------------- -----------
Total income ...................................................... 6,419,706 2,487,529
------------- -----------
Expenses:
Investment advisory fees (Note 3) ................................. 7,036,464 1,250,011
Distribution fees (Note 3) .......................................... 1,759,117 312,503
Custodian fees ...................................................... 70,200 33,540
Shareholder servicing agent fees .................................... 244,400 71,955
Amortization of organization costs (Note 1) ........................ 0 3,271
Registration and filing fees ....................................... 193,099 37,760
Trustee fees ...................................................... 24,630 4,200
Professional fees ................................................... 22,750 11,190
Reports to shareholders ............................................. 284,300 47,565
Insurance ......................................................... 5,604 1,004
Miscellaneous ...................................................... 13,073 5,676
------------- -----------
Total expenses ...................................................... 9,653,637 1,778,675
------------- -----------
Net investment income (loss) ....................................... (3,233,931) 708,854
------------- -----------
Realized and unrealized gain(loss) on investments:
Net realized loss on investments sold in Unaffiliated Issuers ...... (19,532,218) (3,255,280)
Net realized loss on investments sold in Affiliated Issuers ......... (766,353)
Change in net unrealized appreciation of investments ............... (20,648,664) 5,502,821
------------- -----------
Net gain(loss) on investments ....................................... (40,947,235) 2,247,541
------------- -----------
Net increase(decrease) in net assets resulting from operations ...... ($ 44,181,166) $ 2,956,395
============= ===========
</TABLE>

See Notes to Financial Statements.

22
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
BARON ASSET FUND BARON GROWTH & INCOME FUND
------------------------------------- --------------------------------
For the For the
Six Months For the Six Months For the
Ended Year Ended Ended Year Ended
March 31, 1997 September 30, March 31, 1997 September 30,
(Unaudited) 1996 (Unaudited) 1996
------------------ ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) ..................... ($ 3,233,931) ($ 2,017,953) $ 708,854 $ 1,198,083
Net realized gain(loss) on investments sold ...... (20,298,571) 3,537,309 (3,255,280) 2,050,709
Net change in unrealized appreciation on
investments .................................... (20,648,664) 95,636,324 5,502,821 16,132,008
-------------- -------------- ------------ ------------
Increase(decrease) in net assets resulting from
operations .................................... (44,181,166) 97,155,680 2,956,395 19,380,800
-------------- -------------- ------------ ------------
Dividends to shareholders from:
Net investment income ........................... 0 0 (1,142,621) (98,552)
Net realized gain on investments .................. (1,419,734) (399,312) (2,059,229) (279,674)
-------------- -------------- ------------ ------------
(1,419,734) (399,312) (3,201,850) (378,226)
-------------- -------------- ------------ ------------
Capital share transactions:
Proceeds from the sale of shares .................. 785,773,753 1,084,282,947 115,406,388 203,114,578
Net asset value of shares issued in reinvestment
of dividends .................................... 1,352,665 386,670 3,077,823 368,158
Cost of shares redeemed ........................... (244,235,505) (305,341,662) (51,566,073) (43,883,283)
-------------- -------------- ------------ ------------
Increase in net assets derived from capital
share transactions ........................... 542,890,913 779,327,955 66,918,138 159,599,453
-------------- -------------- ------------ ------------
Net increase in net assets ........................ 497,290,013 876,084,323 66,672,683 178,602,027
Net assets:
Beginning of period .............................. 1,166,057,654 289,973,331 207,234,494 28,632,467
-------------- -------------- ------------ ------------
End of year of period ........................... $1,663,347,667 $1,166,057,654 $273,907,177 $207,234,494
============== ============== ============ ============
Undistributed net investment income(loss) at end of
period ............................................. ($ 3,233,931) $ 0 $ 713,635 $ 1,147,402
============== ============== ============ ============
Shares of Beneficial Interest:
Shares sold ....................................... 21,414,332 32,101,812 6,032,485 11,899,055
Shares issued in reinvestment dividends ......... 37,932 13,224 164,325 24,692
Shares redeemed ................................. (6,741,834) (9,168,078) (2,707,922) (2,600,496)
-------------- -------------- ------------ ------------
Net increase .................................... 14,710,430 22,946,958 3,488,888 9,323,251
============== ============== ============ ============
</TABLE>

See Notes to Financial Statements.

23
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

(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) Restricted Securities. The Funds invest in securities which are restricted
as to public sale in accordance with the Securities Act of 1933. Such assets
are valued at fair value as determined in good faith by the Board of Trustees.

(c) 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.

(d) 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.

(e) 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.

(f) 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.
<PAGE>

(g) 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.

2) Purchases and Sales of Securities.

During the six months ended March 31, 1997, purchases and sales of securities,
other than short term securities, aggregated $622,279,316 and $112,953,559,
respectively for Baron Asset Fund, and $101,387,624 and $33,120,894,
respectively for Baron Growth & Income Fund.

(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.

(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.

24
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

Brokerage transactions for the Funds may be effected by or through BCI. During
the six months ended March 31, 1997, BCI earned $1,001,134 in brokerage
commissions from Baron Asset Fund, and $231,036 from Baron Growth & Income
Fund.

(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) Investment in Affiliates*

BARON ASSET FUND

<TABLE>
<CAPTION>
Balance of Gross Gross sales
Shares Held on Purchases and
Name of Issuer Sep. 30, 1996 and Additions Reductions
- --------------------------------------- ---------------- --------------- -------------
<S> <C> <C> <C>
American Mobile Satellite Corp. ...... 1,660,000 1,747,600
American Radio Systems Corp. Class A 600,000 700,000
Avatar Holdings ..................... 480,000 252,800
Choice Hotels Intl. Inc.** ............ 0 6,168,000
CoreComm, Inc. ..................... 870,000 224,900
Cox Radio, Inc. ..................... 390,000 250,000
Cross Timbers Oil Co.*** ............ 1,325,000 1,155,000
DVI, Inc. ........................... 1,305,000 70,000
Flextronics Intl. Ltd. ............... 1,270,000 215,000
Heftel Broadcasting Corp. ............ 615,000 1,020,000
Manor Care, Inc. ..................... 3,400,000 425,000
Metro Networks, Inc. ............... 0 1,215,000
Pediatric Services of America, Inc. 634,000 291,000
Saga Communications, Inc. ............ 1,560,300 109,200
Smart and Final, Inc. ............... 1,940,000 245,000
Summit Care Corp. .................. 483,000 65,500 92,000
Vail Resorts, Inc. .................. 0 2,085,000
Young Broadcasting, Inc. ............ 0 831,500
Youth Services Intl., Inc. ......... 588,750 161,250

<CAPTION>
Balance of Dividend
Shares Held on Value Income
Name of Issuer March 31, 1997 March 31, 1997 Oct. 1-Mar. 31, 1997
- --------------------------------------- ---------------- ---------------- ---------------------
<S> <C> <C> <C>
American Mobile Satellite Corp. ...... 3,407,600 $ 38,335,500
American Radio Systems Corp. Class A 1,300,000 39,650,000
Avatar Holdings ..................... 732,800 24,640,400
Choice Hotels Intl. Inc.** ............ 6,168,000 83,268,000
CoreComm, Inc. ..................... 1,094,900 15,876,050
Cox Radio, Inc. ..................... 640,000 13,280,000
Cross Timbers Oil Co.*** ............ 2,480,000 38,750,000 $101,250
DVI, Inc. ........................... 1,375,000 15,468,750
Flextronics Intl. Ltd. ............... 1,485,000 29,514,375
Heftel Broadcasting Corp. ............ 1,635,000 76,027,500
Manor Care, Inc. ..................... 3,825,000 93,234,375 91,980
Metro Networks, Inc. ............... 1,215,000 27,945,000
Pediatric Services of America, Inc. 925,000 17,459,375
Saga Communications, Inc. ............ 1,669,500 34,642,125
Smart and Final, Inc. ............... 2,185,000 42,880,625 205,250
Summit Care Corp. .................. 456,500 6,105,687
Vail Resorts, Inc. .................. 2,085,000 40,657,500
Young Broadcasting, Inc. ............ 831,500 20,059,938
Youth Services Intl., Inc. ......... 750,000 11,250,000
------------- ---------
$669,045,200 $398,480
============= =========
</TABLE>

- ----------
* Affiliated issuers, as defined in the Investment Company Act of 1940, are
issuers in which the Baron Asset Fund held 5% or more of the outstanding
voting securities.
** 3,400,000 shares received from Manor Care spin-off. 2,768,000 shares
purchased after spin-off.
*** 810,000 shares received from 3:2 split.

25
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

(5) Financial Highlights

BARON ASSET FUND
Selected data for a share of beneficial interest outstanding throughout each
period:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended September 30,
Six Months
ended
March, 31, 1997
(Unaudited) 1996 1995 1994 1993
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 35.50 $ 29.30 $ 22.82 $ 21.91 $ 16.20
---------- ---------- ---------- ---------- ----------
Income from investment operations
Net investment income (loss) ............... (0.07) (0.06) (0.09) (0.14) (0.13)
Net realized and unrealized gains (losses) on
investments ............................... (0.41) 6.29 7.23 1.82 6.00
---------- ----------- ---------- ---------- ----------
Total from investment operations .......... (0.48) 6.23 7.14 1.68 5.87
Less distributions
Dividends from net investment income ......... 0.00 0.00 0.00 0.00 0.00
Distributions from net realized gains ...... (0.04) (0.03) (0.66) (0.77) (0.16)
---------- ----------- ---------- ---------- ----------
Total Distributions ...................... (0.04) (0.03) (0.66) (0.77) (0.16)
---------- ----------- ---------- ---------- ----------
Net asset value, end of period ............... $ 34.98 $ 35.50 $ 29.30 $ 22.82 $ 21.91
========== =========== ========== ========== ==========
Total Return ............................... (1.4%) 21.3% 32.3% 8.0% 36.5%
---------- ----------- ---------- ---------- ----------
Ratios/Supplemental Data
Net assets (in millions), end of period .... $ 1,663.3 $1,166.1 $ 290.0 $ 80.3 $ 59.9
Ratio of expenses to average net assets ...... 1.4%** 1.4% 1.4% 1.6% 1.8%
Ratio of net investment income (loss) to
average net assets ......................... (0.5%)** (0.3%) (0.5%) (0.7%) (0.7%)
Portfolio turnover rate ..................... 8.3% 19.3% 35.2% 55.9% 107.9%
Average per share commission rate paid*** . 0.0600 0.0600

<PAGE>

<CAPTION>
1992 1991 1990 1989 1988 1987*
----------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 14.80 $ 10.88 $ 17.22 $ 12.98 $ 11.95 $ 10.00
---------- ------- ---------- ------- ------- ----------
Income from investment operations
Net investment income (loss) ............... (0.08) 0.07 0.21 0.13 0.05 0.07
Net realized and unrealized gains (losses) on
investments ............................... 1.52 4.05 (5.14) 4.81 1.18 1.88
---------- ------- ---------- ------- ------- ----------
Total from investment operations .......... 1.44 4.12 (4.93) 4.94 1.23 1.95
Less distributions
Dividends from net investment income ......... (0.04) (0.20) (0.16) (0.05) (0.03) 0.00
Distributions from net realized gains ...... 0.00 0.00 (1.25) (0.65) (0.17) 0.00
---------- ------- ---------- ------- ------- ----------
Total Distributions ...................... (0.04) (0.20) (1.41) (0.70) (0.20) 0.00
---------- ------- ---------- ------- ------- ----------
Net asset value, end of period ............... $ 16.20 $ 14.80 $ 10.88 $ 17.22 $ 12.96 $ 11.95
========== ======= ========== ======= ======= ==========
Total Return ............................... 9.7% 38.3 % (30.7%) 39.9% 10.7% 19.5%
---------- ------- ---------- ------- ------- ----------
Ratios/Supplemental Data
Net assets (in millions), end of period .... $ 43.8 $ 47.4 $ 40.0 $ 47.7 $ 11.7 $ 3.9
Ratio of expenses to average net assets ...... 1.7% 1.7% 1.8% 2.1% 2.5% 2.8%**
Ratio of net investment income (loss) to
average net assets ......................... (0.5%) 0.5% 1.5% 1.3% 0.5% 1.9%**
Portfolio turnover rate ..................... 95.5% 142.7% 97.8% 148.9% 242.4% 87.7%
Average per share commission rate paid*** .
</TABLE>

- ----------
* For the period June 12, 1987 (commencement of operations) to September 30,
1987.
** Annualized.
*** Disclosure required for fiscal years beginning after September 1, 1995.

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.

26
<PAGE>

- --------------------------------------------------------------------------------
B A R O N F U N D S
- --------------------------------------------------------------------------------

BARON GROWTH & INCOME FUND

Selected data for a share of beneficial interest outstanding throughout each
period:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Year Ended September 30,
ended
March, 31, 1997
(Unaudited) 1996 1995*
---------------- ----------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ..................... $18.40 $14.77 $ 10.00
---------- --------- ----------
Income from investment operations
Net investment income .................................... 0.04 0.11 0.04
Net realized and unrealized gains on investments ......... 0.38 3.66 4.73
---------- --------- ----------
Total from investment operations ........................ 0.42 3.77 4.77
Less distributions .......................................
Dividends from net investment income ..................... (0.09) (0.04) 0.00
Distributions from net realized gains ..................... (0.16) (0.10) 0.00
---------- --------- ----------
Total Distributions .................................... (0.25) (0.14) 0.00
---------- --------- ----------
Net asset value, end of period ........................... $18.57 $18.40 $ 14.77
========== ========= ==========
Total Return ............................................. 2.3% 25.8% 47.7%
---------- --------- ----------
Ratios/Supplemental Data
Net assets (in millions), end of period ................... $273.9 $207.2 $ 28.6
Ratio of expenses to average net assets .................. 1.4%** 1.5% 2.0%**
Ratio of net investment income to average net assets ...... .6%** 1.2% 1.1%**
Portfolio turnover rate .................................... 13.4% 40.3% 40.6%
Average per share commission rate paid*** .................. 0.0600 0.0600
</TABLE>

- ----------

* For the period January 3, 1995 (commencement of operations) to September 30,
1995.
** Annualized.
*** Disclosure required for fiscal years beginning after September 1, 1995.

The Fund's custodian offset custody fees of $5,252 (less than $.01 per share)
in 1996 and $12,003 (less than $0.01 per share) in 1995. The expense offset
amounts are included in expense data above.