UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION OMB Number: 3235-0307
Washington, D.C. 20549 Expires: May 31, 2000
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ]
Amendment No. 16 [X]
(Check appropriate box or boxes)
BARON ASSET FUND
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
767 Fifth Avenue, New York, New York 10153
- -------------------------------------------------------- --------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 212-583-2000
-----------------------------
Linda S. Martinson, c/o Baron Asset Fund, 767 Fifth Avenue, NY, NY 10153
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering immediately
------------------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Omit from the facing sheet reference to the other Act if the Registration
Statement or amendment is filed under only one of the Acts. Include the
"Approximate Date of Proposed Public Offering" and "Title of Securities Being
Registered" only where securities are being registered under the Securities Act
of 1933.
Form N-1A is to be used by open-end management investment companies, except
insurance company separate accounts and small business investment companies
licensed under the United States Small Business Administration, to register
under the Investment Company Act of 1940 and to offer their shares under the
Securities Act of 1933. The Commission has designed Form N-1A to provide
investors with information that will assist them in making a decision about
investing in an investment company eligible to use the Form. The Commission also
may use the information provided on Form N-1A in its regulatory , disclosure
review, inspection, and policy making roles.
A Registrant is required to disclose the information specified by Form
N-1A, and the Commission will make this information public. A Registrant is not
required to respond to the collection of information contained in Form N-1A
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and suggestions for reducing the burden
to Secretary, Securities and Exchange Commission, 450 5th Street, N.W.,
Washington, D.C. 20549-6009. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Sec. 3507.
POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF
INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE
FORM
DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER.
SEC 2052 (5-98)
I-3
<PAGE>
CONTENTS OF FORM N-1A
GENERAL INSTRUCTIONS Page No.
A. Definitions..................................................
B. Filing and Use of Form N-1A..................................
C. Preparation of the Registration Statement....................
D. Incorporation by Reference...................................
PART A: INFORMATION REQUIRED IN A PROSPECTUS....................
Item 1. Front and Back Cover Pages..................................
Item 2. Risk/Return Summary: Investments, Risks, and Performance...
Item 3. Risk/Return Summary: Fee Table..............................
Item 4. Investment Objectives, Principal Investment Strategies, and
Related Risks.................................
Item 5. Management's Discussion of Fund Performance................
Item 6. Management, Organization, and Capital Structure............
Item 7. Shareholder Information....................................
Item 8. Distribution Arrangements..................................
Item 9. Financial Highlights Information...........................
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION....................................
Item 10. Cover Page and Table of Contents...........................
Item 11. Fund History...............................................
Item 12. Description of the Fund and Its Investments and Risks......
Item 13. Management of the Fund.....................................
Item 14. Control Persons and Principal Holders of Securities........
Item 15. Investment Advisory and Other Services.....................
Item 16. Brokerage Allocation and Other Practices...................
Item 17. Capital Stock and Other Securities.........................
Item 18. Purchase, Redemption, and Pricing of Shares................
Item 19. Taxation of the Fund.......................................
Item 20. Underwriters...............................................
Item 21. Calculation of Performance Date............................
Item 22. Financial Statements.......................................
I-5
<PAGE>
Page No.
PART C: OTHER INFORMATION........................................
Item 23. Exhibits...................................................
Item 24. Persons Controlled by or Under Common Control with the Fund
Item 25. Indemnification............................................
Item 26. Business and Other Connections of the Investment Adviser...
Item 27. Principal Underwriters.....................................
Item 28. Location of Accounts and Records...........................
Item 29. Management Services........................................
Item 30. Undertakings...............................................
SIGNATURES..........................................................
<PAGE>
PROSPECTUS
[BARON FUNDS LOGO]
JANUARY 1999
BARON ASSET FUND
BARON GROWTH
& INCOME FUND
BARON SMALL CAP FUND
[REGISTERED GRAPHIC]
<PAGE>
BARON ASSET FUND
BARON GROWTH & INCOME FUND
BARON SMALL CAP FUND
767 Fifth Avenue, New York, New York 10153
1-800-99-BARON o 212-583-2100
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the Commission approves of
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[date]
- ------------------------------------
1 PROSPECTUS
<PAGE>
INTRODUCTION
Before you invest you should consider the following:
o There is no assurance that the Funds will meet their respective investment
goals.
o The Funds are not complete investment programs to which you should commit
all of your investment capital.
o You should read the section entitled "Investment Policies and Risks"
starting on page XX for a discussion of the risks associated with the
Funds.
o Future returns will not necessarily resemble past performance.
BARON ASSET FUND, started in June of 1987, BARON GROWTH & INCOME FUND,
started
in January of 1995, and BARON SMALL CAP FUND, started in October of 1997, are
no-load, open-end, diversified mutual funds. BARON ASSET FUND'S investment
objective is to seek capital appreciation through investments in securities of
small and medium sized companies, with undervalued assets or favorable growth
prospects. BARON GROWTH & INCOME FUND'S investment objective is to seek capital
appreciation with income as a secondary objective. BARON SMALL CAP FUND'S
investment objective is to seek capital appreciation through investments
primarily in securities of small companies. These Funds are described in this
Prospectus and are referred to individually as a "Fund" and collectively as the
"Funds."
The Funds are no-load funds. They sell and redeem their shares at net asset
value without any sales charges or redemption fees. The minimum initial
investment is $2,000. There is no minimum for subsequent purchases. The minimum
for purchases made pursuant to the Funds' Automatic Investment Plan is $500 with
a $50 monthly minimum for subsequent purchases.
<PAGE>
TABLE OF CONTENTS
Information Investment Goals and Strategies x
about the ---------------------------------------------------------
Funds Principal Risks x
---------------------------------------------------------
Past Performance x
---------------------------------------------------------
Fund Expenses x
---------------------------------------------------------
Financial Highlights x
---------------------------------------------------------
Management x
---------------------------------------------------------
Information How Your Shares are Priced x
about your ---------------------------------------------------------
investment How to Purchase Shares x
---------------------------------------------------------
How to Redeem Shares x
---------------------------------------------------------
Distributions and Taxes x
---------------------------------------------------------
General Information
---------------------------------------------------------
Management Discussion and Analysis
---------------------------------------------------------
More
Information Back Cover
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION ABOUT THE FUNDS
INVESTMENT GOALS AND STRATEGIES
The investment goals of the Funds are:
BARON ASSET FUND capital appreciation through investments in securities of
small and medium sized companies with undervalued
assets or favorable growth prospects
BARON GROWTH capital appreciation with income as a secondary objective
& INCOME FUND
BARON SMALL CAP FUND capital appreciation through investments primarily in
securities of small companies
Investment decisions are made by the Funds' investment adviser, BAMCO, Inc. (the
"Adviser").
BARON ASSET FUND and BARON GROWTH & INCOME FUND invest primarily in small
sized
companies with market capitalizations of approximately $100 million to $1
billion and medium sized companies with market values of $1 billion to $2.5
billion. BARON GROWTH & INCOME FUND also invests in debt securities. BARON SMALL
CAP FUND invests at least 65% of its total assets, measured at cost, in the
securities of smaller companies with market values of up to $1 billion.
Although Baron Funds invest primarily in small and medium sized companies, the
Funds will not sell positions just because their market values have increased.
The Funds will add to its positions in a company even though its market
capitalization has increased through appreciation beyond the limits stated, if,
in the Adviser's judgment, the company is still an attractive investment. The
Funds may invest in larger companies if the Adviser perceives an attractive
opportunity in a larger company.
WHAT DOES THE ADVISER LOOK FOR?
In making investment decisions for the Funds the Adviser seeks securities that
the Adviser believes have:
o favorable price to value characteristics based on the Adviser's assessment of
their prospects for future growth and profitability.
o the potential to increase in value at least 50% over two subsequent years.
The Adviser thoroughly researches the companies in which the Funds invest.
Included in the research process are visits and interviews by the Adviser with
company managements and their major competitors. The Adviser looks for special
business niches, unusually favorable business opportunities, the opportunity to
benefit from long lasting economic trends, barriers to entry,
<PAGE>
strong management capabilities, and strong balance sheets. The Funds may take
large positions in the companies in which the Adviser has the greatest
conviction. The Funds have a long term outlook; they are not short-term traders
of securities.
WHAT KINDS OF SECURITIES DO THE FUNDS BUY?
BARON ASSET FUND and BARON SMALL CAP FUND invest primarily in common stocks
but
may also invest in other equity-type securities such as convertible bonds and
debentures, preferred stocks, warrants and convertible preferred stocks.
Securities are selected for their capital appreciation potential, and investment
income is not a consideration.
BARON GROWTH & INCOME FUND invests in equity and debt securities; how much of
each depends entirely on the Adviser's view of then-existing investment
opportunities and economic conditions. The Fund will usually be more heavily
invested in equity securities than debt securities.
The EQUITY SECURITY portion of the portfolios consist primarily of common stocks
and may include convertible securities, preferred stocks, warrants and
convertible preferred stocks. The DEBT SECURITY portion of the portfolio may
include notes, bonds, debentures and money market instruments. Debt securities
represent an obligation of the issuer to repay a loan of money to it, often with
interest. The debt securities in which the Funds may invest include rated and
unrated securities and convertible instruments. There is no minimum rating for
the debt securities that may be purchased for those Funds. Independent rating
organizations make their own independent judgments about a security and its
issuer. but the Funds rely on the Adviser's assessment of the issuer's
securities. BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND may
invest up to
35% of their respective total assets in non-investment grade debt securities.
WHAT ARE SOME OF THE OTHER INVESTMENTS THE FUNDS MAKE?
TEMPORARY INVESTMENTS
When the Adviser determines that opportunities for profitable investments are
limited or that adverse market conditions exist and believes that investing for
temporary defensive purposes is appropriate, all or a portion of the Funds'
assets may be invested in money market instruments, which include U.S.
Government securities, certificates of deposit, bankers' acceptances, short-term
investment grade corporate bonds and other short-term debt instruments, and
repurchase agreements. If the Funds take temporary defensive positions their
investment objectives may not be achieved. The Funds may borrow up to 5% of
their respective net assets for extraordinary or emergency temporary investment
purposes or to meet redemption requests which might otherwise require an
untimely sale of portfolio securities. In addition, BARON GROWTH & INCOME FUND
and BARON SMALL CAP FUND may borrow for other short-term purposes. BARON
GROWTH
& INCOME FUND and BARON SMALL CAP FUND will not borrow in an amount
exceeding
25% of the value of their respective total assets, including the amount
borrowed, as of the time the borrowing is made.
ILLIQUID SECURITIES
BARON ASSET FUND may invest up to 10%, and BARON GROWTH & INCOME FUND
and BARON
SMALL CAP FUND may invest up to 15%, of their respective net assets in
securities that are illiquid.
<PAGE>
SPECIAL SITUATIONS
The Funds may invest in "special situations." A special situation arises when,
in the opinion of the Adviser, the securities of a company will be recognized
and appreciate in value due to a specific anticipated development at that
company. Such developments might include a new product, a management change, an
acquisition or a technological advancement.
OPTIONS AND DERIVATIVES
BARON ASSET FUND may write (sell) call options or buy put options on specific
securities it owns. BARON GROWTH & INCOME FUND and BARON SMALL CAP
FUND may
purchase put and call options and write (sell) covered put and call options on
equity and/or debt securities. A call option gives the purchaser of the options
the right to buy, and when exercised obligates the writer to sell, the
underlying security at the exercise price. A put option gives the purchaser of
the option the right to sell, and when exercised obligates the writer to buy,
the underlying security at the exercise price. The options may be listed or
over-the-counter. The Funds may also enter into equity swap agreements with
approved parties.
REITs
The Funds may invest in the equity securities of real estate investment trusts
("REITs"). A REIT is a corporation or business trust that invests in real estate
and derives its income from rents from real property or interest on loans
secured by mortgages on real property.
OTHER STRATEGIES
The Funds have additional investment strategies and restrictions that govern
their activities. For a list of these restrictions and more information about
the investment strategies, please see the section "Investment Goals, Strategies
and Risks" in the SAI. Those that are identified as "fundamental" may only be
changed with shareholder approval, while the others may be changed by the Board
of Trustees.
PRINCIPAL RISKS
There is no assurance that the Funds will meet their investment goals. The value
of your investment in a Fund will increase as the value of the securities owned
by the Fund increases and will decrease as the Fund's investments decrease in
value. Equity securities fluctuate in value, often based on factors unrelated to
the value of the issuer or its securities.
SMALL AND MEDIUM SIZED COMPANIES
The Adviser believes there is more potential for capital appreciation in smaller
companies and in establishing significant positions in companies in which the
Adviser has the greatest conviction, but there also may be more risk. Securities
of smaller companies may not be well known to most investors and the securities
may be thinly traded. There is more reliance on the skills of a company's
management and on their continued tenure. Investments may be attractively priced
relative to the Adviser's assessment of a company's growth prospects, management
expertise, and business niche, yet have modest or no current cash flows or
earnings. Although the Adviser concentrates on a company's growth prospects, it
also focuses on cash flow, asset value and reported earnings. This investment
approach requires a long-term outlook and may require shareholders to assume
more risk and to have more patience than investing in the securities of larger,
more established companies.
DEBT SECURITIES
Lower rated securities may have a higher yield and the potential for a greater
return than investment grade securities but may also have more risk. Lower rated
securities are
<PAGE>
generally meant for longer-term investing and may be subject to certain risks
with respect to the issuing entity and to market fluctuations. See the SAI for
more information. The Adviser will also evaluate the securities and the ability
of the issuers to pay interest and principal. With lower rated debt securities,
a Fund's ability to achieve its investment objective may be more dependent on
the Adviser's credit analysis than might be the case with higher rated
securities. The market price and yield of lower rated securities are generally
more volatile than those of higher rated securities. Factors adversely affecting
the market price and yield of these securities will adversely affect the Fund's
net asset value. The trading market for these securities may be less liquid than
that of higher rated securities. Companies that issue lower rated securities may
be highly leveraged or may have unstable earnings, and consequently the risk of
the investment in the securities of such issuers may be greater than with higher
rated securities.
The interest bearing features of debt securities carry a promise of income flow,
but the price of the securities are inversely affected by changes in interest
rates and are therefore subject to the risk of market price fluctuations. The
market values of debt securities may also be affected by changes in the credit
ratings or financial condition of the issuers.
CONVERTIBLE SECURITIES
Since convertible securities combine the investment characteristics of both
bonds and common stocks, the Funds' convertible securities investments absorb
the market risks of both stocks and bonds. The combination does, however, make
the investment less sensitive to interest rate changes than straight bonds of
comparable maturity and quality and usually less volatile than common stocks.
Because of these factors, convertible securities are likely to perform
differently than broadly-based measures of the stock and bond markets.
OPTIONS AND DERIVATIVES
Options may fail as hedging techniques in cases where the price movements of the
securities underlying the options do not follow the price movements of the
portfolio securities subject to the hedge. Gains on investments in options and
derivatives depend on the Adviser's ability to anticipate correctly the
direction of stock prices, interest rates, and other economic factors. The
dealer who takes the other side of a derivative transaction could fail. Where a
liquid secondary market does not exist, the Fund would likely be unable to
control losses by closing its position.
BORROWINGS
To the extent a Fund borrows, it must maintain continuous asset coverage of 300%
of the amount borrowed. Such borrowing has special risks. Any amount borrowed
will be subject to interest costs that may or may not exceed the appreciation of
the securities purchased.
ILLIQUID SECURITIES
The absence of a trading market could make it difficult to ascertain a market
value for illiquid positions. A Fund's net asset value could be adversely
affected if there were no ready buyer at an acceptable price at the time the
Fund decided to sell. Time-consuming negotiations and expenses could occur in
disposing of the shares.
REAL ESTATE INVESTMENT TRUSTS
The market value of REITs may be affected by changes in the tax laws or by their
inability to qualify for the tax-free pass-through of their income. The REIT
portion of the portfolio may also be affected by general fluctuations in real
estate values and by defaults by borrowers or tenants.
<PAGE>
SPECIAL SITUATIONS
Investments in special situations have the risk that the anticipated development
does not occur or does not attract the expected attention.
PAST PERFORMANCE
The two tables below show the Funds' annual returns and their long term
performance. The information provides some indications of the risks of
investing. The first table shows you how the performance for each Fund has
varied from year to year. The second compares the Funds' performance over time
to that of the Russell 2000, a widely recognized unmanaged index of small
companies. How the Funds have performed in the past is not necessarily an
indication of how they will perform in the future. The annual report contains
additional performance information which is available upon request without
charge by writing or calling the Funds at the address and telephone number set
forth on the back of this Prospectus.
YEAR BY YEAR TOTAL RETURN as of 12/31 of each year (%)
[BAR CHART]
BAF 25.0 -18.5 34.0 13.9 23.5 7.4 35.3 22.0 33.9 x
BGI 52.5 27.7 31.1 x
BSC 3.1* x
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
*For the period 10/1/97-12/31/97
BAF BGIF BSCF
Best Quarter: +19.3% +17.8% +14.8%
6/30/97 3/31/95 3/31/98
Worst Quarter: -24.0% -22.1% -28.1%
9/30/90 9/30/98 9/30/98
AVERAGE ANNUAL TOTAL RETURN as of 12/31/98
1 Year 5 Years 10 Years
BAF x x x
BGIF x
BSCF x
RUSSELL 2000 x x x
FUND EXPENSES
The table below describes the fees and expenses that you would pay if you buy
and hold shares of the Funds. Shareholder fees are paid directly from your
investment. Annual fund operating expenses are paid out of the applicable Fund
assets, so their effect is included in the per share price.
<PAGE>
SHAREHOLDER TRANSACTION FEES:
% of transaction amount none
ANNUAL FUND OPERATING EXPENSES
% of average daily net assets
<TABLE>
<CAPTION>
MANAGEMENT FEES 12B-1 FEE OTHER EXPENSES TOTAL
<S> <C> <C> <C> <C>
BAF 1.0% 0.25% 0.07% 1.32%
BGIF 1.0% 0.25% 0.12% 1.37%
BSCF 1.0% 0.25% 0.14% 1.39%
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Funds' operating expenses
remain the same. The figures shown would be the same whether you sold your
shares at the end of a period or kept them. Because actual return and expenses
will be different, the example is for comparison only.
- -----------------------------------------------------------------------
YEAR 1 3 5 10
- -----------------------------------------------------------------------
BARON ASSET FUND $13 $42 $ 72 $159
- -----------------------------------------------------------------------
BARON GROWTH &
INCOME FUND $14 $43 $ 75 $165
- -----------------------------------------------------------------------
BARON SMALL CAP FUND $14 $44 $ 76 $167
- -----------------------------------------------------------------------
There are additional charges if you have retirement accounts and wire transfers.
You also may purchase and redeem your shares through broker-dealers or others
who may charge a commission or other transaction fee for their services. (See
"How to Purchase Shares" and "How to Redeem Shares") The Adviser will reduce its
management fee to the extent required to limit Baron Small Cap's Fund operating
expenses to 1.5%.
The 12b-1 fee is paid to Baron Capital, Inc. for shareholder and distribution
services. Because the fee is paid out of the Funds' assets on an ongoing basis,
over time it will increase the cost of your investment and may cost you more
than paying other types of sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single fund share. The "total return" shows how
much your investment in the Fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
financial highlights have been audited by PricewaterhouseCoopers, LLP, the
Funds' independent accountants, whose report, along with the Funds' financial
statements, is included in the annual report.
BARON ASSET FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- --------------
Year Ended September 30
1998 1997 1996 1995 1994 1993 1992 1991 1990
1989 1988
- ----------------------------------------------------------------------------------------------------------------------
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
NET ASSET VALUE BEGINNING OF YEAR $47.43 $35.50 $29.30 $22.82 $21.91
$16.20 $14.80 $10.88 $17.22 $12.98 $11.95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)..... 0.04 (0.14) (0.06) (0.09) (0.14) (0.13) (0.08) 0.07
0.21 0.13 0.05
Net Realized and Unrealized Gains
(Losses) on Investments........ (7.51) 12.11 6.29 7.23 1.82 6.00 1.52 4.05
(5.14) 4.81 1.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
TOTAL FROM INVESTMENT OPERATIONS. (7.47) 11.97 6.23 7.14 1.68 5.87
1.44 4.12 (4.93) 4.94 1.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
LESS DISTRIBUTIONS
Dividends from Net Investment
Income......................... 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) (0.20) (0.16)
(0.05) (0.03)
Distributions from Net Realized
Gains.......................... 0.00 (0.04) (0.03) (0.66) (0.77) (0.16) 0.00 0.00 (1.25)
(0.65) (0.17)
------ ------ ------ ------ ------ ------- ------ ------- ------- ------- -------
TOTAL DISTRIBUTIONS.............. 0.00 (0.04) (0.03) (0.66) (0.77) (0.16) (0.04)
(0.20) (1.41) (0.70) (0.20)
------ ------ ------ ------ ------ ------- ------ ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR..... $39.96 $47.43 $35.50 $29.30 $22.82 $21.91
$16.20 $14.80 $10.88 $17.22 $12.98
====== ====== ====== ====== ====== ====== ======
====== ====== ====== =======
TOTAL RETURN..................... (15.7%) 33.8% 21.3% 32.3% 8.0% 36.5% 9.7%
38.3% (30.7%) 39.9% 10.7%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of
Year........................... $4,410.5 $3,224.5 $1,166.1 $290.0 $80.3 $59.9 $43.8 $47.4
$40.0 $47.7 $11.7
Ratio of Expenses to Average Net
Assets......................... 1.32% 1.35% 1.40% 1.44% 1.59% 1.85% 1.68% 1.70%
1.78% 2.06% 2.47%
Ratio of net investment income
(Loss) to Average Net Assets..... 0.11% (0.52%) (0.29%) (0.55%) (0.71%) (0.69%)
(0.53%) 0.49% 1.53% 1.29% 0.53%
Portfolio Turnover Rate.......... 23.43% 13.23% 19.34% 35.15% 55.87% 107.94%
95.45% 142.73% 97.81% 148.88% 242.40%
- ----------------------------------------------------------------------------------------------------------------------
- --------------
The Fund's adviser and/or Baron Capital reimbursed the Fund for expenses
aggregating $8,561 (less than $.01 per share) in 1990, $27,315 ($.01 per share)
in 1989 and $83,219 ($.11 per share) in 1988. The reimbursement amounts are
excluded from the expense data above.
</TABLE>
<PAGE>
BARON GROWTH & INCOME FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- --------------
Year Ended September 30
1998 1997 1996 1995*
- ----------------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR........... $24.89 $18.40 $14.77 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)................ 0.05 0.06 0.11 0.04
Net Realized and Unrealized Gains
(Losses) on Investments.................... (4.55) 6.68 3.66 4.73
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS............ (4.50) 6.74 3.77 4.77
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income..................................... (0.02) (0.09) (0.04) 0.00
Distributions from Net Realized
Gains...................................... (0.05) (0.16) (0.10) 0.00
------ ------ ------ ------
TOTAL DISTRIBUTIONS......................... (0.07) (0.25) (0.14) 0.00
------ ------ ------ ------
NET ASSET VALUE, END OF YEAR................ $20.32 $24.89 $18.40 $14.77
====== ====== ====== ======
TOTAL RETURN................................ (18.1%) 37.1% 25.8% 47.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of
Year....................................... $315.6 $390.8 $207.2 $28.6
Ratio of Expenses to Average Net
Assets..................................... 1.43% 1.40% 1.54% 1.99%**
Ratio of expenses to Average Net
Assets exclusive of interest expense....... 1.37% ---- ---- ----
Ratio of net investment income to
(Loss) to Average Net Assets............... 0.20% 0.37% 1.20% 1.13%**
Portfolio Turnover Rate..................... 40.39% 25.17% 40.27% 40.56%
- ----------------------------------------------------------------------------------------------------------------------
- --------------
* For the period January 3, 1995 (commencement of operations) to September 30,
1995.
** Annualized.
The Fund's custodian offset custody fees of $5,252(less than $0.01 per share) in
1996 and $12,003(less than $0.01 per share) in 1995. The expense offset amount
is included in the expense data above.
</TABLE>
<PAGE>
BARON SMALL CAP FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended September 30
1998*
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF YEAR........... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)................ (0.02)
Net Realized and Unrealized Gains
(Losses) on Investments.................... (1.37)
------
TOTAL FROM INVESTMENT OPERATIONS............ (1.39)
------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income..................................... 0.00
Distributions from Net Realized
Gains...................................... 0.00
------
TOTAL DISTRIBUTIONS......................... 0.00
------
NET ASSET VALUE, END OF YEAR................ $ 8.61
======
TOTAL RETURN................................ (13.9%)
------
RATIOS/SUPPLEMENTAL DATA
Net Assets(in millions), End of
Year....................................... $403.7
Ratio of Expenses to Average
Net Assets................................. 1.39%
Ratio of net investment income to
(Loss) to Average Net Assets............... (0.29%)
Portfolio Turnover Rate..................... 55.47%
- --------------------------------------------------------------------------------
* For the period October 1, 1997 (commencement of operations) to September 30,
1998.
</TABLE>
<PAGE>
MANAGEMENT OF THE FUND
The Board of Trustees oversees the management of the Funds. A list of the Board
members and of the Funds' officers may be found in the SAI. BAMCO, Inc., the
Adviser, is located at 767 Fifth Avenue, New York, New York 10153, and is
responsible for portfolio management. It is a subsidiary of Baron Capital Group,
Inc. ("BCG"). Baron Capital, Inc. ("Baron Capital"), a registered broker-dealer
and the distributor of the shares of the Funds, is also a subsidiary of BCG.
Ronald Baron is the founder, president, chief executive officer and chairman of
the Adviser and BCG and is the principal owner of BCG. Morty Schaja is the chief
operating officer of the Adviser and BCG.
Mr. Baron has been the portfolio manager of BARON ASSET FUND and BARON GROWTH
&
INCOME FUND since their inception. He has managed money for others since 1975.
Clifford Greenberg has been the portfolio manager of BARON SMALL CAP FUND since
its inception. Mr. Greenberg joined Baron Funds in January of 1997. Prior to
that he was a general partner and portfolio manager at HPB Associates, L.P., an
investment partnership. The portfolio managers are primarily responsible for the
day-to-day management of the portfolios. They also may serve as portfolio
managers or analysts for other products offered by affiliates that could
conflict with their responsibilities to the Funds. The Adviser also keeps the
books of account of each Fund, and calculates daily the income and net asset
value per share of each Fund. For its services, the Adviser receives a fee
payable monthly from the assets of each Fund equal to 1% per annum of each
Fund's respective average daily net asset value.
Brokerage transactions for the Funds in exchange-listed securities are executed
primarily by or through the Adviser's affiliate, Baron Capital, when consistent
with trying to obtain the best net results for the Funds. Baron Capital is a
registered broker-dealer and a member of the NASD. Please see the SAI for more
information about trade executions.
YEAR 2000
Fund operations and shareholders could be adversely affected if the computer
systems used by BAMCO, the Funds' other service providers, and other entities
with computer systems linked to the Fund do not properly process and calculate
date-related information from and after January 1, 2000. BAMCO is working to
avoid these problems and to obtain assurances from other service providers that
they are taking similar steps. In addition, to the extent that operations of
issuers of securities held by the Funds are impaired by date-related problems or
prices decline as a result of real or perceived date-related problems of issuers
held by the Fund or generally, the net asset value of the Funds will decline.
12b-1 PLAN
The Funds have adopted a plan under rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of their shares and for services
provided to shareholders. Because the fees are paid out of the Funds' assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. The
12b-1 plan authorizes the Fund to pay Baron Capital a distribution fee equal on
an annual basis to 0.25% of each Fund's average daily net assets. See the SAI
for a more detailed listing of the expenses covered by the Distribution Plan.
<PAGE>
INFORMATION ABOUT YOUR INVESTMENT
HOW YOUR SHARES ARE PRICED
The purchase or sale price for your shares is the particular Fund's net asset
value per share ("NAV"), which is generally calculated as of the close of
trading of the New York Stock Exchange (usually 4:00 p.m. Eastern time) on each
day the Exchange is open. Your purchase or sale will be priced at the next NAV
calculated after your order is accepted by the Baron Funds' transfer agent. If
you purchase or sell shares through a brokerage firm, bank or other financial
institution, your transaction will receive the NAV next calculated after the
financial institution receives your order and transmits it to the Funds'
transfer agent. The Funds' investments are valued based on the last sale price
or where market quotations are not readily available, based on fair value as
determined by the Adviser, using procedures established by the Board of
Trustees. The Funds may have arrangements with certain institutions with respect
to the actual receipt of orders. The Funds may change the time at which orders
are priced if the Exchange closes at a different time or an emergency exists.
HOW TO PURCHASE SHARES
You may purchase shares of the Funds directly without paying a sales charge. An
application is included with this prospectus. Special applications are available
to open individual retirement accounts ("IRAs"). The minimum initial investment
is $2,000 unless you choose to invest through the Baron InvestPlan (see page
XX). There is no minimum for subsequent purchases. The Funds may reject any
proposed purchase.
At present, only U.S. citizens and non-U.S. citizens with a tax identification
number who reside in the U.S. may purchase shares of the Funds. Please call the
Funds' transfer agent at 1-800-442-3814, if you have any questions.
You may invest or add to your account using any of the following methods:
BY MAIL
TO OPEN A NEW ACCOUNT send your signed application form with your check payable
to BARON FUNDS to:
Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
PLEASE MAKE SURE YOU INDICATE HOW MUCH MONEY YOU WANT INVESTED
IN EACH FUND.
Checks must be payable in U.S. dollars and must be drawn on a U.S. bank. Third
party checks, credit cards and cash will not be accepted.
<PAGE>
WHEN ADDING TO YOUR ACCOUNT complete the additional investment form provided at
the bottom of your account statement or purchase confirmation. If you do not
have that form, write a note indicating in which Baron Fund the investment
should go and the account number. Send it to the address above.
BY WIRE
You can make your initial or additional investments in the Funds by wire. To do
so: (1) contact the Funds' transfer agent, DST Systems, Inc., at 1-800-442-3814
to obtain an account number. (2) Complete and sign the application form and mail
it to Baron Funds, P.O. Box 419946, Kansas City, MO 64141-6946. (3) Instruct
your bank to wire funds to the United Missouri Bank of Kansas City, N.A., ABA
No. 1010-0069-5, Account No. 98-7037-101-4. (4) Be sure to specify the following
information in the wire: (a) Fund you are buying, (b) your account number, (c)
your name, and (d) your wire number.
Please be sure to include your name and account number. The Fund is not
responsible for delays in the wiring process.
BY TELEPHONE
Once your account is open you may add to your investment by telephone and
exchange among the Baron Funds if you have elected that option on the
application. By choosing this option you authorize Baron Funds to draw on your
bank account. Please note that your accounts must be identically registered. To
add this option to your account, call 1-800-442-3814 for the forms.
BARON INVESTPLAN
Baron InvestPlan is an automatic investment plan offered by the Funds. The
minimum initial investment is $500 with monthly investments of as little as $50
automatically invested from your checking account. To enroll in the Baron
InvestPlan, complete the Enrollment Form (available by calling 1-800-99-BARON),
attach a voided check and mail them to Baron Funds, P.O. Box 419946, Kansas
City, MO 64141-6946.
THROUGH BROKER-DEALERS
You may purchase shares of the Funds through a broker-dealer or other financial
institution that may charge a transaction fee. If you purchase the shares
directly from the Funds, no transaction fee is charged. The Funds also
participate in no transaction fee programs with many national brokerage firms.
HOW TO REDEEM SHARES
You may redeem your shares of the Funds by any of the methods described below.
There are no redemption charges. If you are selling shares in an IRA account
please read the information in the IRA kit. Redemptions will not be made until
all of the requirements for redemption are met.
If you have recently purchased shares your redemption request may not be honored
until the purchase check has cleared your bank, which generally occurs within
ten calendar days.
BY MAIL
Write a letter that includes the following information: the name of the
registered owner(s) of the account, the name of the Fund, the number of shares
or dollar amount to be redeemed, and the account number. The letter must be
signed in exactly the same way the account is registered,
<PAGE>
including the signature of each joint owner, if applicable. Mail the request to
the transfer agent at Baron Funds, P.O. Box 419946, Kansas City, MO 64141-6946.
A signature guarantee is required for redemptions greater than $50,000. See the
"Special Information About Redemptions" section on page XX. Within three days
after receipt of a redemption request by the transfer agent in proper form, the
Fund will normally mail you the proceeds.
BY TELEPHONE
If you have selected the telephone redemption option when you opened your
account, you may redeem your shares by telephone. To add this option to your
account call 1-800-442-3814 for a telephone redemption form. Once made, your
telephone request cannot be changed. The minimum amount that you may redeem by
telephone is $1,000. The maximum amount that you may redeem by telephone in any
quarter is $50,000. You may receive the proceeds by any one of the following
methods: (a) we will mail a check to the address to which your account is
registered, (b) we will transmit the proceeds by electronic funds transfer to a
pre-authorized bank account (usually a two banking day process), or (c) we will
wire the proceeds to a pre-authorized bank account for a $10.00 fee (usually a
next banking day process).
The Funds have the right to refuse a telephone redemption if they believe it
advisable to do so. If you have selected the telephone option you may be
responsible for any fraudulent telephone order as long as the Funds and their
transfer agent use reasonable procedures to confirm that telephone instructions
are genuine.
BY BROKER-DEALER
You may redeem shares through broker-dealers or other institutions who may
charge you a fee. The Funds may have special redemption procedures with certain
broker-dealers.
SPECIAL INFORMATION ABOUT REDEMPTIONS
If the amount to be redeemed is greater than $50,000, all of the signatures on a
redemption request and/or certificate must be guaranteed. If you have changed
your address within 30 days of a redemption request, a signature guarantee is
required. A signature guarantee helps protect you and the Funds from fraud. You
can obtain a signature guarantee from most securities firms or banks, but not
from a notary public. If you are redeeming $50,000 or less per quarter, and if
proceeds are sent to the address of record, no signature guarantee is required.
For joint accounts, each signature must be guaranteed. Please call if you are
unsure of any of the requirements. Please remember that the Funds will not
redeem your shares until the original letter of instruction with the signature
guarantee in proper form has been received by the transfer agent.
Any Fund share certificates that have been issued must be returned with your
redemption request. The transfer agent may require other documentation from
corporations, trustees, executors, and others who hold shares on behalf of
someone else. If you have any questions concerning the requirements, please call
the transfer agent at 1-800-442-3814. Redemptions will not be made until all of
the conditions, including receipt of all required documentation by the transfer
agent, have been satisfied.
<PAGE>
A redemption or exchange of Fund shares may generate a tax liability.
If you redeem more than $250,000 or 1% of the net asset value of a Fund during
any 90-day period, the Fund has the right to pay the redemption price, either
totally or partially, by a distribution of portfolio securities instead of cash.
If your account falls below $2,000 because of withdrawals, the Fund may ask you
to increase your balance. If it is still below $2,000 after 60 days, the Fund
may close your account and send you the proceeds.
The Funds may suspend the normal redemption process if trading on the New York
Stock Exchange is suspended or if an emergency exists that reasonably precludes
the valuation of the Funds' net assets.
DISTRIBUTIONS AND TAXES
Each Fund pays its shareholders dividends from its net investment income and
distributes any net realized capital gains once each year. Your distributions
will be reinvested in the Fund unless you instruct the Fund otherwise. There are
no charges on reinvestments. After every distribution, the value of a share is
automatically reduced by the amount of the distribution. If you elect not to
reinvest and the postal or other delivery service is unable to deliver checks to
your address of record, your distribution will be reinvested in additional
shares. No interest will accrue on amounts represented by uncashed distribution
or redemption checks.
You are subject to federal income tax on Fund distributions, unless your
investment is in an IRA or other tax-advantaged account. The tax status of any
distribution is the same regardless of how long you have invested in the Fund
and whether you reinvest your distributions or take them in cash. Income and
short-term capital gain distributions are taxed at the ordinary income rate.
Long-term capital gains distributions are taxed at either 10% or 20%, depending
on your tax bracket. The tax status of the annual distribution will be detailed
in an annual tax statement from the Fund. Distributions declared by the Fund may
also be subject to state and local taxes. You should consult with your own tax
adviser regarding your personal tax situation.
If you do not provide the Fund with your valid social security or taxpayer
identification number, you will be subject to backup withholding for taxes.
GENERAL INFORMATION
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, New York 10015 is the custodian
for the Baron Funds' cash and securities. DST Systems, Inc. serves as transfer
agent and dividend disbursing agent for the shares. They are not responsible for
investment decisions for the Baron Funds.
<PAGE>
SHAREHOLDER INFORMATION
If you have questions about your account or transactions please contact the
transfer agent, DST Systems, Inc., P.O. Box 419946, Kansas City, MO 64141-6946,
or by telephone to 1-800-442-3814.
If you have questions about general Fund information please call the Baron
Funds' office at 1-800-99-BARON or 212-583-2100.
As a Massachusetts business trust, annual shareholder meetings are not required.
The Funds send quarterly reports to shareholders.
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS
BARON ASSET FUND
Baron Asset Fund's performance in the fiscal year ended September 1998 was
significantly affected by the bear market in small cap stocks. The Fund lost
15.8% during the year while outperforming the Russell 2000 index, which fell
19.0% during this period. The Fund's loss this year is in sharp contrast to the
Fund's more than ten-year performance record of 19.3% per year prior to 1998.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN BARON ASSET FUND & THE RUSSELL 2000
- --------------------------------------------------------------------------------
[CHART]
RUSSELL BARON
2000* ASSET FUND
------- ----------
10,000 10,000
1988 9,353 13,234
1989 11,366 18,521
1990 8,282 12,838
1991 12,018 17,760
1992 13,091 19,484
1993 17,436 26,595
1994 17,892 28,728
1995 22,079 38,002
1996 24,979 46,097
1997 33,269 61,655
1998 26,943 51,944
INFORMATION PRESENTED BY FISCAL YEAR AS OF SEPTEMBER 30
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance
* The Russell 2000 is an unmanaged index of small and mid sized companies
Baron Asset Fund invests in small and medium sized companies. In the
fifteen-year period since 1983 the performance of market averages that represent
small companies has significantly under-performed market averages that represent
more established, large companies. Small cap stocks suffered one of their most
devastating periods ever relative to large cap stocks in the year ending
September 30, 1998. The S&P 500 gained 9.0% while the Russell 2000 fell 19.0%.
The resulting valuations of small cap stocks in general are compelling. Small
cap stocks normally trade at valuations relative to their earnings substantially
above those of large cap stocks reflecting superior growth expectations. Only
twice before have small cap stocks traded at valuations relative to their
earnings equal to large cap companies. In both instances the attractive
valuations led to multi-year small cap rallies. Today, valuations are once again
at those extremely attractive levels.
The Fund's performance was not uniform across the year. Baron Asset Fund
performed extremely well in the first half of the year. The Fund gained 13.3%
and out performed the performance of the Russell 2000, which gained 6.4%. The
Fund performed poorly in the second half of the year losing 25.6% as compared to
a loss for the Russell 2000 of 23.9%.
The performance of Baron Asset Fund was not uniform across sectors. The Fund
realized large losses in Amusement and Recreation, Healthcare Services, Hotels
and Lodging, Real Estate and Retail. The Fund performed well in Communications,
Media and Entertainment and Financial Services.
In fiscal year 1999, the Fund will continue to invest in companies that, in our
opinion, are undervalued relative to their long-term growth prospects and
ability to sustain superior levels of profitability. The companies will continue
to be identified through our independent research efforts. Companies in which we
invest will have the potential to increase in price at least 50% over the next
two years. The Fund will remain diversified not only by industry and investment
theme, but also by external factors we have identified that could affect company
performance. This approach to investing in companies, not trading of stocks,
could allow the Fund to continue to produce above average rates of return while
keeping an attractive risk profile. The extremely attractive valuation levels of
companies within the small cap universe leave us looking forward to a successful
1999.
<PAGE>
BARON GROWTH & INCOME FUND
Baron Growth & Income Fund's performance in the fiscal year ended September1998
was significantly affected by the bear market in small cap stocks. The Fund lost
18.1% during the year as compared to the Russell 2000, which fell 19.0% during
this period.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN BARON GROWTH & INCOME FUND & THE RUSSELL 2000
- --------------------------------------------------------------------------------
[CHART]
RUSSELL BARON GROWTH
2000* & INCOME FUND
------- -------------
10,000 10,000
1995 12,573 14,770
1996 14,224 18,575
1997 18,945 25,469
1998 15,342 20,856
INFORMATION PRESENTED BY FISCAL YEAR AS OF SEPTEMBER 30
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance
* The Russell 2000 is an unmanaged index of small and mid sized companies
While most growth & income funds invest in larger, more mature companies with
high dividends, Baron Growth & Income Fund's approach is to invest in smaller
companies. Approximately 70% of its assets are invested in rapidly growing, well
managed, very profitable small cap companies that are attractively priced, and
the remaining 30% in value oriented, income producing securities, also
principally of smaller companies. This investment approach has resulted in
superior performance for the period since the Fund's inception in January 1995
until the severe downturn we experienced in the small cap universe earlier this
year. The Fund's ranking within the growth and income category has fallen from
its number one ranking to below average.
The Fund's performance was not uniform across the year. Baron Growth & Income
Fund performed well in the first half of the fiscal year gaining 10.0% and out
performed the performance of the Russell 2000, which gained 6.4%. The Fund
performed poorly in the second half of the fiscal year losing 25.5% as compared
to a loss for the Russell 2000 of 23.9%. The second half results are even more
disappointing because we had expected that the income cushion resulting from our
significant allocation of the Fund in income producing securities would have
cushioned the Fund during adverse market conditions. Unfortunately, the high
concentration of the Fund's assets in REITs within the income producing
component of the Fund also performed poorly at the same time that are small cap
growth companies suffered market declines. Our investment in REITs, which has in
prior years performed better than our expectations and compared well with other
real estate oriented mutual funds, provided no safety in 1998.
The performance of Baron Growth & Income Fund was not uniform across sectors
within the growth component of the Fund. The Fund realized large losses in
Amusement and Recreation, Healthcare Services, Hotels and Lodging and Retail.
The Fund performed relatively well in Communications, Media and Entertainment
and Financial Services.
In fiscal 1999 we expect the majority of the Fund's income producing securities
to remain REITs, which are once again selling on average below replacement
costs. The growth component of the Fund will continue to be invested in small
companies that have the potential to appreciate in value at least 50% during the
next two years. The Fund's portfolio is well positioned to take advantage of the
extremely attractive valuations that now exist within the small cap universe.
<PAGE>
BARON SMALL CAP FUND
Baron Small Cap's performance in the fiscal year ended September 1998, its first
year of operation, was significantly affected by the bear market in small cap
stocks. The Fund lost 13.9% during the year while significantly outperforming
the Russell 2000 index, which fell 19.0% during this period.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN BARON SMALL CAP FUND & THE RUSSELL 2000
- --------------------------------------------------------------------------------
[CHART]
RUSSELL BARON SMALL
2000* CAP FUND
------- ------------
10,000 10,000
1998 8,085 8,610
INFORMATION PRESENTED BY FISCAL YEAR AS OF SEPTEMBER 30
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance
* The Russell 2000 is an unmanaged index of small and mid sized companies
The Fund's performance was not uniform across the year. Baron Small Cap Fund
performed extremely well in each of the first three quarters of the fiscal year,
both on an absolute basis and relative to its small cap peers. During this
nine-month period the Fund gained 19.7% and out performed the performance of the
Russell 2000, which gained only 1.4%. The Fund performed poorly in the September
quarter, losing 28.1% as compared to a loss for the Russell 2000 of 20.2%.
QUARTERLY TABLE
FISCAL YEAR 1997 BARON SMALL CAP FUND RUSELL 2000
4th Qtr 1997 +3.1% -3.3%
1st Qtr 1998 + 14.8% +10.1%
2nd Qtr 1998 +1.1% -4.7%
3rd Qtr 1998 -28.1% -20.2%
Fiscal Year -13.9% -19.0%
The performance of Baron Small Cap Fund was not uniform across sectors. The Fund
realized large losses in Amusement and Recreation, Business Services, Hotels and
Lodging, Manufacturing and Retail. The Fund performed well in the areas of
Communications, and Media and Entertainment.
In fiscal year 1999, the Fund will continue to invest in companies that, in our
opinion, are undervalued relative to their long-term growth prospects and
ability to sustain superior levels of profitability. The companies will continue
to be identified through our independent research efforts. Companies in which we
invest will have the potential to increase in price at least 50% over the next
two years. The Fund will continue to invest in smaller "Growth Companies",
"Fallen Angels" and "Special Situations". The extremely attractive valuation
levels of companies within the small cap universe leave us looking forward to a
successful 1999.
<PAGE>
[this is for back cover page]
FOR MORE INFORMATION
Investors who want more information about the Baron Funds may obtain the
following documents free upon request at the numbers or address below.
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Fund's
quarterly reports to Shareholders. In the Funds' annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Additional information is also contained in the Statement of Additional
Information ("SAI"), dated January xx, 1999. A current SAI is on file with the
Securities and Exchange Commission ("SEC") and is incorporated by reference. You
may obtain the SAI and the shareholder reports without charge by writing or
calling the Funds.
TO OBTAIN INFORMATION
BY TELEPHONE
Call 1-800-992-2766
BY MAIL
Write to: Baron Funds
767 Fifth Avenue
New York, NY 10153
BY E-MAIL
Send your request to:
[email protected]
ON THE INTERNET
Text-only versions of Baron Funds documents can be viewed on-line or
downloaded from:
http://www.baronfunds.com
or from:
http://www.sec.gov
OTHER
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (phone 1-800-SEC-0330). Copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549- 6009.
TICKER SYMBOLS: Baron Asset Fund BARAX
Baron Growth & Income Fund BGINX
Baron Small Cap Fund BSCFX
SEC file number: 811-5032
<PAGE>
BARON ASSET FUND
BARON GROWTH & INCOME FUND
BARON SMALL CAP FUND
767 Fifth Avenue
New York, New York 10153
(800) 99-BARON
212-583-2100
---------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January XX, 1999
---------------------------------------
This Statement of Additional Information ("SAI") is not a prospectus. The Fund's
Prospectus, dated January XX, 1999, may be obtained without charge by writing or
calling the Funds at the address and telephone number above.
---------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this SAI or in the related
Prospectus.
<PAGE>
TABLE OF CONTENTS
- -----------------
Page in
Statement
of
Additional Page in
Information Prospectus
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . .
Investment Restrictions . . . . . . . . . . . .
Option Transactions . . . . . . . . . . . . . .
Use of Segregated and Other Special Accounts. .
Depository Receipts . . . . . . . . . . . . . .
Turnover Rate . . . . . . . . . . . . . . . . .
MANAGEMENT OF THE FUNDS
Board of Trustees and Officers. . . . . . . . .
Principal Holders of Shares . . . . . . . . . .
Investment Adviser. . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . . .
Distribution Plan . . . . . . . . . . . . . . .
Brokerage . . . . . . . . . . . . . . . . . . .
Custodian, Transfer Agent and
Dividend Agent. . . . . . . . . . . . . . . . .
REDEMPTION OF SHARES . . . . . . . . . . . . . . . .
NET ASSET VALUE. . . . . . . . . . . . . . . . . . .
TAXES. . . . . . . . . . . . . . . . . . . . . . . .
ORGANIZATION AND CAPITALIZATION. . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . .
Shareholder and Trustee Liability . . . . . . .
OTHER INFORMATION. . . . . . . . . . . . . . . . .
Independent Accountants . . . . . . . . . . . .
Calculation of Performance Data . . . . . . . .
<PAGE>
FUND HISTORY AND CLASSIFICATION
- -------------------------------
BARON ASSET FUND is a no-load, open-end, diversified management investment
company organized as a series fund and established under the laws of the
Commonwealth of Massachusetts on February 19, 1987. There are three series
currently available (individually a "Fund" and collectively the "Funds"): BARON
ASSET FUND, started in June of 1987, BARON GROWTH & INCOME FUND, started in
January of 1995, and BARON SMALL CAP FUND, started October 1, 1997.
INVESTMENT GOALS, STRATEGIES AND RISKS
- --------------------------------------
BARON ASSET FUND's investment objective is to seek capital appreciation
through investments in securities of small and medium sized companies with
undervalued assets or favorable growth prospects. BARON GROWTH & INCOME FUND's
investment objective is to seek capital appreciation with income as a secondary
objective. BARON SMALL CAP FUND's investment objective is to seek capital
appreciation through investments primarily in securities of small companies.
BARON ASSET FUND and BARON GROWTH & INCOME FUND invest primarily in small
sized
companies with market capitalizations of approximately $100 million to $1
billion and medium sized companies with market values of $1 billion to $2.5
billion. BARON GROWTH & INCOME FUND also invests in debt securities. BARON SMALL
CAP FUND invests at least 65% of its total assets, measured at cost, in the
securities of smaller companies with market values of up to $1 billion.
In addition to the principal investment strategies of the Funds described
in the Prospectus on pages XX-Xx, the Funds may use the additional strategies
described below. These investment strategies are not fundamental policies and
may be changed by the Fund's Board of Trustees. Shareholders would be notified
of any material changes. Some of the strategies discussed below are mentioned in
the Prospectus, but are explained in more detail here.
FOREIGN SECURITIES
- -------------------
The Funds may invest up to 10% of their respective total assets directly in the
-3-
securities of foreign issuers which are not publicly traded in the U.S. and may
also invest in foreign securities in domestic markets through depositary
receipts without regard to this limitation. The Adviser currently intends to
invest not more than 10% of the Funds' assets in foreign securities, including
both direct investments and investments made through depositary receipts. These
securities may involve additional risks not associated with securities of
domestic companies, including exchange rate fluctuations, political or economic
instability, the imposition of exchange controls, or expropriation or
confiscatory taxation. Issuers of foreign securities are subject to different,
often less detailed, accounting, reporting and disclosure requirements than are
domestic issuers. The Funds may invest in securities commonly known as American
Depository Receipts ("ADRs"), and in European Depository Receipts ("EDRs") or
other securities convertible into securities of foreign issuers. ADRs are
certificates issued by a United States bank or trust company and represent the
right to receive securities of a foreign issuer deposited in a domestic bank or
foreign branch of a United States bank and traded on a United States exchange or
in an over-the- counter market. EDRs are receipts issued in Europe generally by
a non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic
securities. Generally, ADRs are in registered form and EDRs are in bearer form.
There are no fees imposed on the purchase or sale of ADR's or EDRs although the
issuing bank or trust company may impose on the purchase of dividends and the
conversion of ADRs and EDRs into the underlying securities. Investment in ADRs
has certain advantages over direct investment in the underlying non-U.S.
securities, since (i) ADRs are U.S. dollar denominated investments which are
easily transferable and for which market quotations are readily available and
(ii) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. EDRs
are not necessarily denominated in the currency of the underlying security.
LENDING
- -------
The Funds may lend their portfolio securities to institutions as a means of
earning additional income. In lending their portfolio securities, the Funds may
incur delays in recovery of loaned securities or a loss of rights in the
collateral. To minimize such risks, such loans will only be made if the Funds
deem the other party to be of good standing and determines that the income
justifies the risk. BARON ASSET FUND will not lend more than 10% of its total
assets and BARON GROWTH & INCOME FUND and BARON
-4-
<PAGE>
SMALL CAP FUND will not lend more than 25% of their respective total assets.
MORTGAGE-BACKED SECURITIES
- --------------------------
BARON GROWTH & INCOME FUND may invest up to 5% of its assets in mortgage-backed
securities that are issued or guaranteed by U.S. government agencies or
instrumentalities, such as the Government National Mortgage Association and the
Federal National Mortgage Association. Mortgage-backed securities represent
direct or indirect participation in, or are secured by and payable from,
mortgage loans secured by real property. These securities are subject to the
risk that prepayments on the underlying mortgages will cause the principal and
interest on the mortgage-backed securities to be paid prior to their stated
maturities. Mortgage prepayments are more likely to accelerate during periods of
declining long-term interest rates. If a prepayment occurs, BARON GROWTH &
INCOME FUND may have unanticipated proceeds which it may then have to invest at
a lower interest rate, and may be penalized by not having participated in a
comparable security not subject to prepayment.
WHEN-ISSUED SECURITIES
- ----------------------
BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND may invest up to
5% of their
respective assets in debt and equity securities purchased on a when-issued
basis. Although the payment and interest terms of when-issued securities are
established at the time the purchaser enters into the commitment, the actual
payment for and delivery of when-issued securities generally takes place within
45 days. The Fund bears the risk that interest rates on debt securities at the
time of delivery may be higher or lower than those contracted for on the
when-issued security. Failure of the issuer to deliver the security purchased on
a when-issued basis may result in a loss or missed opportunity to make an
alternative investment.
MEDIUM AND LOWER RATED CORPORATE DEBT SECURITIES
- -------------------------------------------------
All of the Funds may invest in debt securities. Baron Growth & Income Fund and
Baron Small Cap Fund may invest up to 35% of their respective total assets in
securities that are rated in the medium to lowest rating categories by S&P and
Moody's, some of which may be known as "junk bonds."
The Funds will rely on the Adviser's judgment, analysis and experience in
evaluating debt securities. The Adviser believes that the difference between
perceived risk and actual risk creates the
-5-
opportunity for profit which can be realized through thorough analysis. Ratings
by S&P and Moody's evaluate only the safety of principal and interest payments,
not market value risk. Because the creditworthiness of an issuer may change more
rapidly than is able to be timely reflected in changes in credit ratings, the
Adviser monitors the issuers of corporate debt securities held in the Funds'
portfolio. The credit ratings assigned by a rating agency to a security are not
considered by the Adviser in selecting a security. The Adviser examines the
intrinsic value of a security in light of market conditions and the underlying
fundamental values. Because of the nature of medium and lower rated corporate
debt securities, achievement by the Funds of their respective investment
objectives when investing in such securities is dependent on the credit analysis
of the Adviser. The Adviser could be wrong in its analysis. If the Funds
purchased primarily higher rated debt securities, risks would be substantially
reduced.
A general economic downturn or a significant increase in interest rates
could severely disrupt the market for medium and lower grade corporate debt
securities and adversely affect the market value of such securities. The ability
of issuers of medium and lower grade corporate debt securities to repay
principal and to pay interest, to meet projected business goals and to obtain
additional financing may be adversely affected by economic conditions. Such
consequences could lead to an increased incidence of default for such securities
and adversely affect the value of the corporate debt securities in a Fund's
portfolio. The secondary market prices of medium and lower grade corporate debt
securities are more sensitive to adverse economic changes or individual
corporate developments than are higher rated debt securities. Adverse publicity
and investor perceptions, whether or not based on rational analysis, and periods
of economic uncertainty may also affect the value and liquidity of medium and
lower grade corporate debt securities, although such factors also present
investment opportunities when prices fall below intrinsic values. Yields on debt
securities in the portfolio that are interest rate sensitive can be expected to
fluctuate over time.
To the extent that there is no established market for some of the medium or
low grade corporate debt securities in which the Funds may invest, there may be
thin or no trading in such securities and the ability of the Adviser to value
accurately such securities may be adversely affected. Further, it may be more
difficult for a Fund to sell securities for which no established retail market
exists as compared with
-6-
<PAGE>
securities for which such a market does exist. During periods of reduced market
liquidity and in the absence of readily available market quotations for medium
and lower grade corporate debt securities held in a Fund's portfolio, the
responsibility of the Adviser to value that Fund's securities becomes more
difficult and the Adviser's judgment may play a greater role in the valuation of
the Fund's securities due to a reduced availability of reliable objective data.
To the extent that a Fund purchases illiquid securities or securities which
are restricted as to resale, that Fund may incur additional risks and costs.
Illiquid and restricted securities may be particularly difficult to value and
their disposition may require greater effort and expense than more liquid
securities. A Fund may be required to incur costs in connection with the
registration of restricted securities in order to dispose of such securities,
although under Rule 144A under the Securities Act of 1933 certain securities may
be determined to be liquid pursuant to procedures adopted by the Board of
Trustees under applicable guidelines. The Funds may invest in securities of
distressed issuers when the intrinsic values of such securities, in the opinion
of the Adviser, warrant such investment.
OTHER DEBT SECURITIES
- ---------------------
BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND may invest in
zero-coupon,
step-coupon, and pay-in-kind securities. These securities are debt securities
that do not make regular interest payments. Zero-coupon and step-coupon
securities are sold at a deep discount to their face value; pay-in-kind
securities pay interest through the issuance of additional securities. The
market value of these debt securities generally fluctuates in response to
changes in interest rates to a greater degree than interest-paying securities of
comparable term and quality. The secondary market value of corporate debt
securities structured as zero coupon securities or payment-in-kind securities
may be more volatile in response to changes in interest rates than debt
securities which pay interest periodically in cash. Because such securities do
not pay current interest, but rather, income is accrued, to the extent that a
Fund does not have available cash to meet distribution requirements with respect
to such income, it could be required to dispose of portfolio securities that it
otherwise would not. Such disposition could be at a disadvantageous price.
Investment in such securities also involves
-7-
certain tax considerations.
BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND from time to
time may
also purchase indebtedness and participations therein, both secured and
unsecured, of debtor companies in reorganization or financial restructuring.
Such indebtedness may be in the form of loans, notes, bonds or debentures. When
the Funds purchase a participation interest they assume the credit risk
associated with the bank or other financial intermediary as well as the credit
risk associated with the issuer of any underlying debt instrument. The Funds may
also purchase trade and other claims against, and other unsecured obligations
of, such debtor companies, which generally represent money due a supplier of
goods or services to such company. Some debt securities purchased by the Funds
may have very long maturities. The length of time remaining until maturity is
one factor the Adviser considers in purchasing a particular indebtedness. The
purchase of indebtedness of a troubled company always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. The Adviser believes that the difference between perceived risk and actual
risk creates the opportunity for profit which can be realized through thorough
analysis. There are no established markets for some of this indebtedness and it
is less liquid than more heavily traded securities. Indebtedness of the debtor
company to a bank are not securities of the banks issuing or selling them. The
Funds may purchase loans from national and state chartered banks as well as
foreign ones. The Funds may invest in senior indebtedness of the debtor
companies, although on occasion subordinated indebtedness may also be acquired.
The Funds may also invest in distressed first mortgage obligations and other
debt secured by real property. The Funds do not currently anticipate investing
more than 5% of their respective assets in trade and other claims.
The Funds may enter into repurchase agreements with certain banks or
non-bank dealers. In a repurchase agreement the Fund buys a security at one
price, and at the time of sale, the seller agrees to repurchase that security at
a mutually agreed upon time and price. Repurchase agreements could involve
certain risks in the event of the failure of the seller to repurchase the
securities as agreed, which may cause a fund to suffer a loss, including loss of
interest on or principal of the security, and costs associated with delay and
enforcement of the repurchase agreement. Repurchase agreements with a duration
of more than seven days are considered illiquid securities.
-8-
<PAGE>
As a form of borrowing, BARON GROWTH & INCOME FUND and BARON SMALL CAP
FUND
may engage in reverse repurchase agreements with certain banks or non-bank
dealers, where the Fund sells a security and simultaneously agrees to buy it
back later at a mutually agreed upon price. To the extent a Fund engages in
reverse repurchase agreements it will maintain a segregated account consisting
of liquid assets or highly marketable securities to cover its obligations.
Reverse repurchase agreements may expose the Fund to greater fluctuations in the
value of its assets.
OPTIONS TRANSACTIONS AND SWAPS
- ------------------------------
BARON ASSET FUND may write (sell) call options and purchase put options, and
BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND may purchase or
write put or
call options. The Funds may also enter into equity swap transactions. All calls
sold by the Funds must be "covered" (i.e., a Fund must own the underlying
securities) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though a Fund will receive the option
premium to help protect it against loss, a call sold by a Fund exposes that Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation, when exercised, to buy, the
underlying security, at the exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller if
exercised, the obligation to sell, the underlying security at the exercise
price. An American style put or call option may be exercised at any time during
a fixed period while a European style put or call option may be exercised only
upon expiration or during a fixed period prior thereto, and the Funds may engage
in either style option. The Funds are authorized to engage in transactions with
respect to exchange-listed options, over-the-counter options ("OTC options") and
other derivative investments. Exchange-listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial
-9-
intermediaries.
Rather than taking or making delivery of the underlying security through
the process of exercising the option, listed options are usually closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option. The Fund's ability to close out its position as a
purchaser or seller of an OCC or exchange- listed put or call option is
dependent, in part, upon the liquidity of the option market. Among the possible
reasons for the absence of a liquid option market on an exchange are: (i)
insufficient trading interest in certain options; (ii) restrictions on
transactions imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities including reaching daily price limits; (iv) interruption
of the normal operations of the OCC or an exchange; (v) inadequacy of the
facilities of an exchange or OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the relevant market for
that option on that exchange would cease to exist, although outstanding options
on that exchange would generally continue to be exercisable in accordance with
their terms. The hours of trading for listed options may not coincide with the
hours during which the underlying instruments are traded. To the extent that the
option markets close before the markets for the underlying instruments,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option are negotiated by the parties. The Funds expect generally to enter
into OTC options that have cash settlement provisions, although they are not
required to do so.
Equity swap transactions are entered into with financial institutions
through a direct agreement with the Counterparty, generally an ISDA Master
Agreement, the specific terms of which are negotiated by the parties. The Funds
may use equity swaps, or other derivative instruments, for hedging purposes
against potential adverse movements in security prices or for non-hedging
purposes such
-10-
<PAGE>
as seeking to enhance return. The Funds may be required to post collateral for
such transactions.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option or derivatives, including swaps. As a result, if the
Counterparty fails to make or take delivery of the security, or other instrument
or fails to make a cash settlement payment due in according with the option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. The Adviser must assess the creditworthiness of each
Counterparty to determine the likelihood that the terms of the OTC option or the
derivative will be satisfied. The Funds will engage in OTC option transactions
and derivatives only with previously approved Counterparties. The staff of the
SEC currently takes the position that OTC options purchased by a fund, and
portfolio securities "covering" the amount of the fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any,) are illiquid, and are subject to a fund's limitations on
investments in illiquid securities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
- -----------------------------------------------
Many hedging transactions, in addition to other requirements, require that a
Fund segregate liquid high grade assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security or instrument. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities or instruments required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by a Fund will require that Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid high
grade securities sufficient to purchase and deliver the securities if the call
is exercised. A put option written requires that the Fund segregate liquid, high
grade assets equal to the exercise price. Hedging transactions may be covered by
other means when consistent with applicable regulatory policies.
-11-
INVESTMENT RESTRICTIONS
BARON ASSET FUND, BARON GROWTH & INCOME FUND, and BARON SMALL
CAP FUND have
adopted investment restrictions, described below, which are fundamental policies
of the Funds and may not be changed without the approval of the Funds'
shareholders. Unless otherwise noted, all percentage restrictions are measured
as of the time of the investment after giving effect to the transaction.
BARON ASSET FUND may not:
1. Issue senior securities except in connection with any permitted
borrowing where the Fund is deemed to have issued a senior security;
2. Borrow money except from banks for temporary purposes in an amount not
exceeding 5% of the Fund's net assets at the time the borrowing is
made;
3. Purchase securities on margin except for short-term credit necessary
for the clearance of portfolio transactions;
4. Make short sales of securities, maintain a short position, or write
put options;
5. Purchase or sell commodities or commodity contracts;
6. Purchase or sell real estate or real estate mortgage loans or invest
in the securities of real estate companies unless such securities are
publicly traded;
7. Invest in oil, gas or mineral-related programs or leases;
8. Invest more than 25% of the value of its total assets in any one
industry, except investments in U.S. government securities;
9. Purchase the securities of any one issuer other than the U.S.
government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would own more
than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations;
10. Invest more than 10% of the value of the Fund's total assets in
securities which are restricted or illiquid or in repurchase
agreements maturing or terminable in more than
-12-
<PAGE>
seven days;
11. Invest in securities of other open end investment companies (except in
connection with a merger, consolidation or other reorganization and
except for the purchase of shares of registered open-end money market
mutual funds if double advisory fees are not assessed), invest more
than 5% of the value of the Fund's total assets in more than 3% of the
total outstanding voting securities of another investment company or
more than 10% of the value of the Fund's total assets in securities
issued by other investment companies;
12. Participate on a joint, or a joint and several, basis in any
securities trading account;
13. Underwrite securities of other issuers;
14. Make loans to other persons, except up to 10% of the value of the
Fund's total assets in loans of portfolio securities and except to the
extent that the purchase of publicly traded debt securities and the
entry into repurchase agreements in accordance with the Fund's
investment objective and policies may be deemed to be loans;
15. Mortgage, pledge or hypothecate any portfolio securities owned or held
by the Fund, except as may be necessary in connection with permitted
borrowing;
16. Invest more than 5% of its total assets in warrants to purchase common
stock;
17. Purchase securities of any issuer with a record of less than three
years' continuous operation, including predecessors, except
obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of the value
of the total assets of the Fund; or
18. Purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Fund, or is a member, officer or Director of the Adviser, if after
the purchase of the securities of such issuer by the Fund one or more
of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and
such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5%
-13-
of such shares or securities, or both, all taken at market value.
BARON GROWTH & INCOME FUND and BARON SMALL CAP FUND may not:
1. Issue senior securities or borrow money or utilize leverage in excess
of 25% of its net assets (plus 5% for emergency or other short-term
purposes) from banks from time to time.
2. Except as described in the prospectus or SAI, engage in short-sales,
purchase securities on margin or maintain a net short position.
3. Purchase or sell commodities or commodity contracts except for hedging
purposes and in conformity with regulations of the Commodities Futures
Trading Commission such that the Fund would not be considered a
commodity pool.
4. Purchase or sell oil and gas interests or real estate. Debt or equity
securities issued by companies engaged in the oil, gas or real estate
business are not considered oil or gas interests or real estate for
purposes of this restriction. First mortgage loans and other direct
obligations secured by real estate are not considered real estate for
purposes of this restriction.
5. Invest more than 25% of the value of its total assets in any one
industry, except investments in U.S. government securities.
6. Purchase the securities of any one issuer other than the U.S.
government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would own more
than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations.
7. Underwrite securities of other issuers.
8. Make loans, except to the extent the purchase of debt obligations of
any type (including repurchase agreements and corporate commercial
paper) are considered loans and
-14-
<PAGE>
except that the Fund may lend portfolio securities to qualified
institutional investors in compliance with requirements established
from time to time by the Securities and Exchange Commission and the
securities exchanges where such securities are traded.
9. Participate on a joint, or a joint and several, basis in any
securities trading account.
10. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with options, loans of portfolio securities,
or other permitted borrowings.
11. Purchase securities of any issuer with a record of less than three
years' continuous operations, including predecessors, except
obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of the value
of the total assets of the Fund.
12. Invest more than 15% of its assets in restricted or illiquid
securities, including repurchase agreements maturing in more than
seven days.
As a non-fundamental policy, BARON GROWTH & INCOME FUND and BARON SMALL
CAP FUND
will not:
1. Invest in securities of other registered investment companies (except
in connection with a merger, consolidation or other reorganization and
except for the purchase of shares of registered open-end money market
funds if double advisory fees are not assessed), invest more than 5%
of the value of the Fund's total assets in more than 3% of the total
outstanding voting securities of another investment company or more
than 10% of the value of the Fund's total assets in securities issued
by other investment companies.
2. Invest more than 5% of its total assets in warrants to purchase common
stock.
3. Purchase the securities of any issuer of which any officer or director
of the Fund owns 1/2 of 1% of the outstanding securities or in which
the officers and directors in the aggregate own more than 5%.
The Securities and Exchange Commission currently requires that the
following conditions be met whenever portfolio securities are loaned: (1) the
Fund must receive at least 100% cash
-15-
collateral from the borrower; (2) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (3) the Fund must be able to terminate the loan at any time; (4) the
Fund must receive reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities, and any increase in
market value; (5) the Fund may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's trustees must terminate the loan and regain the right
to vote the securities if a material event adversely affecting the investment
occurs. These conditions may be subject to future modifications. The portfolios
of the Funds are valued every day the New York Stock Exchange is open for
trading.
With respect to investments in warrants, the Funds will not invest in
excess of 2% of the value of the particular Fund's net assets in warrants that
are not listed on the New York or American Stock Exchanges. Warrants are
essentially options to purchase equity securities at a specified price valid for
a specific period of time. Their prices do not necessarily move parallel to the
prices of the underlying securities. Warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
TURNOVER RATE
The adviser expects that the average annual turnover rate of the portfolios
of BARON ASSET FUND and BARON GROWTH & INCOME FUND should not exceed 50%
and of
BARON SMALL CAP FUND should not exceed 100%. For the year ended September 30,
1998, BARON ASSET FUND's portfolio turnover was 23%, BARON GROWTH &
INCOME
FUND's portfolio turnover was 40%, and BARON SMALL CAP FUND's portfolio turnover
was 55%. For the year ended September 30, 1997, BARON ASSET FUND's portfolio
turnover was 13% and BARON GROWTH & INCOME FUND's was 25%. The turnover rate
fluctuates depending on market conditions.
MANAGEMENT OF THE FUNDS
-----------------------
BOARD OF TRUSTEES AND OFFICERS
The Board of Trustees oversees the management of the Funds. The Trustees
and executive officers of the Funds and their principal occupations during the
last five years are set forth below.
-16-
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE WITH THE FUND DURING PAST FIVE
YEARS
- ----------------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C>
Ronald Baron *+ President, Chief Investment President and Director of: Baron
767 Fifth Avenue Officer and Trustee Capital, Inc. (1982-Present), Baron
New York, NY 10153 Capital Management, Inc. (1983-Present),
Baron Capital Group, Inc. (1984-Present),
BAMCO, Inc.(1987-Present).
Norman S. Edelcup # Trustee Chairman, Item Processing of America
(1989-
244 Atlantic Isle Present), (financial institution service bureau);
N. Miami Beach, FL 33160 Director, Valhi Inc. (1975-Present)
(diversified
company); Director, Artistic Greetings, Inc.
(1985-Present).
Mark M. Feldman Trustee President and Chief Executive Officer,
Cold Spring
444 Madison Avenue, Ste 703 Group, Inc.
(1993-Present)(reorganization and
New York, NY 10020 restructuring consulting); various
restructuring and
corporate development engagements (1995-Present)
(case and litigation management); Director,
SNL Securities, Inc. (1997-Present) (publisher of
data
bases and manager of a bank and thrift stock
portfolio);
Trustee, Aerospace Creditors Liquidating Trust
(1993-1997)
(administered and liquidated assets).
Irwin Greenberg # Trustee Chairman (1994-1997) and Director
(1991-Present), Lehigh
4303 W. Wyndemere Circle Valley Hospital Board; Retail
Consultant, (1990-Present);
Schnecksville, PA 18078 Director, Cedar Crest College
(1990-Present); Director,
Henry Lehr & Co., Inc. (1996-Present) (insurance);
President and Chief Executive Officer, Hess's
Department
Stores (1976-1990).
Clifford Greenberg Vice President Vice President, Baron Capital, Inc.,
Baron Capital Group,
767 Fifth Avenue Inc., BAMCO, Inc., (1997-Present); General
Partner, HPB
New York, NY 10153 Associates, L.P. (1984-1996)(investment
partnership).
Linda S. Martinson*+ Secretary, General Counsel and Secretary of:
Baron Capital, Inc.
767 Fifth Avenue Vice President (1983-Present), BAMCO, Inc.
(1987-Present), Baron
New York, NY 10153 and Trustee Capital Group, Inc. (1984-Present),
Baron Capital
Management, Inc.(1983-Present).
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS & AGE WITH THE FUND DURING PAST FIVE
YEARS
- ----------------------------------------------------------------------------------------------------------------------
- -------------
<S> <C> <C>
Charles N. Mathewson Trustee Chairman of the Board, International
Game Technology
9295 Prototype Road (1986-Present) (manufacturer of
microprocessor-controlled
Reno, NV 89511 gaming machines and monitoring systems).
Harold W. Milner Trustee Retired; President and Chief Executive
Officer, Kahler Realty
8229 Turtle Creek Circle Corporation (1985-1997) (hotel ownership
and
Las Vegas, NV 89113 management).
Raymond Noveck+ Trustee President, The Medical Information
Line, Inc. (1997-Present)
31 Karen Road (health care information); President, Strategic
Waban, MA 02168 information); Director, Horizon/CMS
Healthcare
Corporation (1987-1997).
Susan Robbins Vice President Senior Analyst, Vice President and
Director of:
767 Fifth Avenue Baron Capital, Inc. (1982-Present), Baron
Capital
New York, NY 10153 Management, nc.(1984-Present).
Morty Schaja* Senior Vice Senior Vice President and Chief
Operating Officer of
767 Fifth Avenue President, Chief Baron Capital, Inc. (1997-Present),
Managing
New York, NY 10153 Operating Officer and Trustee Director, Vice President,
Baron Capital, Inc.
(1991-Present) and Director, Baron Capital Group,
Inc.,
Baron Capital Management, Inc., and BAMCO, Inc.
(1997-Present).
David A. Silverman, M.D. Trustee Physician and Faculty, New York
University School of Medicine
239 Central Park West (1976-Present).
New York, NY 10024
Peggy Wong Treasurer and Treasurer and Chief Financial Officer of:
Baron Capital, Inc.,
767 Fifth Avenue Chief Financial Officer Baron Capital Group, Inc., BAMCO,
Inc., Baron
New York, NY 10153 Capital Management, Inc.(1987-Present).
- ----------------------------------------------------------------------------------------------------------------------
- --------------
* Trustees deemed to be "interested persons" of the Fund as that term is
defined in the Investment Company Act of 1940.
+ Members of the Executive Committee, which is empowered to exercise all of
the powers, including the power to declare dividends, of the full Board of
Trustees when the full Board of Trustees is not in session.
# Members of the Audit Committee.
</TABLE>
-18-
<PAGE>
The Trustees who are not affiliated with or interested persons of the
Funds' investment adviser receive fees of $2,500 annually plus an attendance fee
of $2,500 for each meeting attended in person ($500 for telephone
participation). Members of the Audit Committee receive an additional $2,500
annually. The Trustees who are interested persons of the Funds' investment
adviser receive no compensation from the Funds. As indicated in the above table,
certain Trustees and officers also hold positions with the Funds' adviser and
distributor.
PRINCIPAL HOLDERS OF SHARES
As of December 31, 1998, the following persons were known to the Funds to
be the record or beneficial owners of more than 5% of the outstanding securities
of the Funds:
<TABLE>
<CAPTION>
BARON ASSET BARON GROWTH BARON SMALL
FUND & INCOME FUND CAP FUND
------------ -------------- ------------
<S> <C> <C> <C>
Charles Schwab & Co., Inc. XX.8% XX.8% XX.2%
National Financial Services Corp. XX.8% XX.6% XX.4%
</TABLE>
All of the above record owners are brokerage firms or other Financial
Institutions that hold stock for the benefit of their respective customers. As
of December 31, 1998, all of the officers and Trustees of BARON ASSET FUND as a
group beneficially owned directly or indirectly 0.XX% of BARON ASSET FUND's
outstanding shares X.X0% of BARON GROWTH & INCOME FUND's outstanding shares and
X.xx% of BARON SMALL CAP FUND's outstanding shares.
INVESTMENT ADVISER
The investment adviser to the Funds is BAMCO, Inc. (the "Adviser"), a New
York corporation with its principal offices at 767 Fifth Avenue, New York, N.Y.
10153 and a subsidiary of Baron Capital Group, Inc. ("BCG"). Mr. Ronald Baron is
the controlling stockholder of BCG and is BAMCO's chief investment officer. Mr.
Baron has over 28 years of experience as a Wall Street analyst and has managed
money for others for over 23 years. He has been a participant in Barron's
Roundtable and has been a featured guest on Wall Street Week, CNN and CNBC/FNN.
Pursuant to separate Advisory Agreements with each Fund (the "Advisory
Agreement"), the Adviser furnishes continuous investment
-19-
advisory services and management to each Fund, including making the day-to-day
investment decisions and arranging portfolio transactions for the Funds subject
to such policies as the Trustees may determine. Baron Asset Fund incurred
advisory expenses of $45,074,474 for the year ended September 30, 1998;
$18,573,064 for the year ended September 30, 1997; and $6,923,899 for the year
ended September 30, 1996. Baron Growth & Income Fund incurred advisory expenses
of $4,310,057 for the year ended September 30, 1998; $2,828,391 for the year
ended September 30, 1997; and $994,621 for the year ended September 30, 1996.
Baron Small Cap Fund incurred advisory expenses of $4.041,420 for the year ended
September 30, 1998, its first year of operation.
Under the Advisory Agreements, the Adviser, at its own expense and without
reimbursement from the Funds, furnishes office space and all necessary office
facilities, equipment and executive personnel for managing the Funds, and pays
the salaries and fees of all officers and Trustees who are interested persons of
the Adviser.
The Funds pay all operating and other expenses not borne by the Adviser
such as audit, accounting and legal fees; custodian fees; expenses of
registering and qualifying its shares with federal and state securities
commissions; expenses in preparing shareholder reports and proxy solicitation
materials; expenses associated with each Fund's shares such as dividend
disbursing, transfer agent and registrar fees; certain insurance expenses;
compensation of Trustees who are not interested persons of the Adviser; and
other miscellaneous business expenses. The Funds also pay the expenses of
offering the shares of each respective Fund, including the registration and
filing fees, legal and accounting fees and costs of printing the prospectus and
related documents. Each Fund also pays all taxes imposed on it and all brokerage
commissions and expenses incurred in connection with its portfolio transactions.
The Adviser utilizes the staffs of BCG and its subsidiary Baron Capital
Management, Inc. ("BCM") to provide research. Directors, officers or employees
of the Adviser and/or its affiliates may also serve as officers or Trustees of
the Funds. BCM is an investment adviser to institutional and individual
accounts. Clients of BCM have investment objectives which may vary only slightly
from those of each other and of the Funds. BCM invests assets in such clients'
accounts and in the accounts of
-20-
<PAGE>
principals and employees of BCM and its affiliates in investments substantially
similar to, or the same as, those which constitute the principal investments of
the Funds. When the same securities are purchased for or sold by a Fund and any
of such other accounts, it is the policy of the Adviser and BCM to allocate such
transactions in a manner deemed equitable by the Adviser, and for the principals
and employees of the Adviser, BCM, and affiliates to take either the same or
least favorable price of the day. All trading by employees is subject to the
Code of Ethics of the Funds and the Adviser. In certain circumstances the
Adviser may make investments for the Funds that conflict with investments being
made by BCM. The Adviser may also make investment decisions for a Fund that are
inconsistent with the investment decisions for another Fund.
Each Advisory Agreement provides that the Fund may use "Baron" as part of
its name for so long as the Adviser serves as investment adviser to that Fund.
Each Fund acknowledges that the word "Baron" in its name is derived from the
name of the entities controlling, directly and indirectly, the Adviser, which
derive their name from Ronald Baron; that such name is the property of the
Adviser and its affiliated companies for copyright and/or other purposes; and
that if for any reason the Adviser ceases to be that Fund's investment adviser,
that Fund will promptly take all steps necessary to change its name to one that
does not include "Baron," absent the Adviser's written consent.
Each Advisory Agreement provides that the Adviser shall have no liability
to that Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by that Fund; provided, that the Adviser shall not be
protected against liabilities arising by virtue of willful misfeasance, bad
faith or gross negligence, or reckless disregard of the Adviser's obligations
under the Advisory Agreement.
The Advisory Agreements were approved by a majority of the Trustees,
including a majority of the Trustees who are not "interested persons" ( as
defined by the Investment Company Act of 1940 ("1940 Act" )) for BARON ASSET
FUND on May 11, 1987, for BARON GROWTH & INCOME FUND on October 21, 1994 and
for
BARON SMALL CAP FUND on July 29, 1997. BARON SMALL CAP FUND's Advisory
Agreement
is for an initial two year period but the Advisory Agreements must normally be
approved annually by the Trustees or a majority of the particular Fund's shares
and by a majority of the Trustees
-21-
who are not parties to the Advisory Agreement or interested persons of any such
party. With respect to BARON ASSET FUND and BARON GROWTH & INCOME FUND,
such
approval for 1998 was approved at a Board of Trustees meeting held on April 28,
1998.
Each Advisory Agreement is terminable without penalty by either the Fund
(when authorized by majority vote of either its outstanding shares or the
Trustees) or the Adviser on 60 days' written notice. Each Advisory Agreement
shall automatically terminate in the event of its "assignment" (as defined by
1940 Act).
SERVICE AGREEMENTS
THE FUNDS HAVE AGREEMENTS WITH VARIOUS SERVICE PROVIDERS
PURSUANT TO WHICH
ADMINISTRATIVE SERVICES SUCH AS RECORD KEEPING, REPORTING AND
PROCESSING
SERVICES ARE PROVIDED TO THE FUNDS.
DISTRIBUTOR
The Funds have a distribution agreement with Baron Capital, Inc., ("Baron
Capital" or the "Distributor") a New York corporation and a subsidiary of BCG,
located at 767 Fifth Avenue, New York, N.Y. 10153. Baron Capital is affiliated
with the Adviser. The Distributor acts as the agent for the Funds for the
continuous public offering of their shares on a best efforts basis pursuant to a
distribution plan adopted under Rule 12b-1 under the 1940 Act ("Distribution
Plan").
DISTRIBUTION PLAN
The Distribution Plan authorizes the Funds to pay the Distributor a
distribution fee equal on an annual basis to 0.25% of the Funds' average daily
net assets. The fee was reduced to 0.25% from 0.50% on July 12, 1993. The
distribution fee is paid to the Distributor in connection with its activities or
expenses primarily intended to result in the sale of shares, including, but not
limited to, compensation to registered representatives or other employees of the
Distributor; compensation to and expenses of employees of the Distributor who
engage in or support the distribution of shares or who service shareholder
accounts; telephone expenses; preparing, printing and distributing promotional
and advertising material; preparing, printing and distributing the Prospectus
and reports to other than current
-22-
<PAGE>
shareholders; compensation for certain shareholder services; and commissions and
other fees to broker-dealers or other persons (excluding banks) who have
introduced investors to the Fund.
If and to the extent the expenses listed below are considered to be
primarily intended to result in the sale of shares within the meaning of Rule
12b-1, they are not included in the limits above: (a) the costs of preparing,
printing or reproducing and mailing all required reports and notices to
shareholders; (b) the costs of preparing, printing or reproducing and mailing
all proxy statements and proxies (whether or not such proxy materials include
any item relating to or directed toward the sale of shares); (c) the costs of
preparing, printing or reproducing and mailing all prospectuses and statements
of additional information; (d) all legal and accounting fees relating to the
preparation of any such report, prospectus, and proxy materials; (e) all fees
and expenses relating to the qualification of the Funds and/or their shares
under the securities or "Blue Sky" laws of any jurisdiction; (f) all fees under
the 1940 Act and the Securities Act of 1933, including fees in connection with
any application for exemption relating to or directed toward the sale of Shares;
(g) all fees and assessments, if any, of the Investment Company Institute or any
successor organization, whether or not its activities are designed to provide
sales assistance; (h) all costs of preparing and mailing confirmations of shares
sold or redeemed and reports of share balances; (i) all costs of responding to
telephone or mail inquiries of shareholders or prospective shareholders.
The Distribution Plan requires that while it is in effect the Distributor
report in writing, at least quarterly, the amounts of all expenditures, the
identity of the payees and the purposes for which such expenditures were made
for the preceding fiscal quarter.
For the fiscal year ended September 30, 1998, BARON ASSET FUND paid
distribution fees to the Distributor of $11,268,627 (an additional $1,307,832
was absorbed by the Distributor and/or its affiliates and not paid by the Fund
pursuant to the 0.25% limitation); BARON GROWTH & INCOME FUND paid distribution
fees to the Distributor of $2,144,840 (an additional $71,246 was absorbed by the
Distributor and/or its affiliates and not paid by the Fund pursuant to the 0.25%
limitation); and BARON SMALL CAP FUND paid distribution fees to the Distributor
of $$1,010.356 (an additional $318,263 was absorbed by the Distributor and/or
its affiliates and not paid by the Fund pursuant to the 0.25% limitation).
-23-
The distribution expenses incurred by the Distributor for the fiscal year ended
September 30, 1998 with respect to the three Funds in the aggregate were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Advertising $ 4,900
(b) printing and mailing of prospectuses 2,144,840
to other than current shareholders
(c) Compensation paid or to be paid to 10,713,599
broker/dealers
(d) Compensation paid to sales and clerical personnel 1,388,560
(e) Other 801,940
</TABLE>
Trustees of the Funds who were not interested persons of the Funds had no
direct or indirect financial interest in the operation of the Distribution Plan
or the Distribution Agreement. All the interested Trustees had such an interest.
The Distribution Plan has been approved by the Funds' Board of Trustees,
including a majority of the Trustees who are not interested persons of the Funds
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements related thereto. In approving the
Distribution Plan, the Trustees considered various factors and determined that
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders.
Baron Capital is authorized to make payments to authorized dealers, banks
and other financial institutions who have rendered distribution assistance and
ongoing shareholder support services, shareholder servicing assistance or record
keeping. Certain states may require that any such person be registered as a
dealer with such state. The Funds may execute portfolio transactions with and
purchase securities issued by depository institutions that receive payments
under the Distribution Plan. No preference will be shown in the selection of
investments for the instruments of such depository institutions. Baron Capital
may also retain part of the distribution fee as compensation for its services
and expenses in connection with the distribution of shares. Baron Capital's
actual expenditures have and will continue to substantially exceed the
distribution fee received by it. If the Distribution Plan is terminated, the
Funds will owe no payments to Baron Capital other than any portion of the
distribution fee accrued through the effective date of termination but then
unpaid.
-24-
<PAGE>
Unless terminated in accordance with its terms, the Distribution Plan shall
continue in effect until, and from year to year thereafter if, such continuance
is specifically approved at least annually by its Trustees and by a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Distribution Plan or in
any agreements related thereto, such votes cast in person at a meeting called
for the purpose of such vote.
The Distribution Plan may be terminated at any time by the vote of a
majority of the members of the Funds' Board of Trustees who are not interested
persons of the Funds and have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreements related thereto or by
the vote of a majority of the outstanding shares. The Distribution Plan may not
be amended to increase materially the amount of payments to be made without the
approval of a majority of the shareholders. All material amendments must be
approved by a vote of the Trustees and of the Trustees who are not interested
persons of the Funds and have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreements related thereto, such
votes cast in person at a meeting called for the purpose of such vote.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in business of underwriting, selling or
distributing securities. Accordingly, the Distributor will enter into agreements
with banks only to provide administrative assistance. However, changes in
federal or state statues and regulations pertaining to the permissible
activities of banks and their affiliates, as well as judicial or administrative
decisions or interpretations could prevent a bank from continuing to perform all
or a part of the contemplated services. If a bank were prohibited from so
acting, the Trustees would consider what actions, if any, would be necessary to
continue to provide efficient and effective shareholder services. It is not
expected that shareholders would suffer any adverse financial consequences as a
result of these occurrences.
BROKERAGE
The Adviser is responsible for placing the portfolio brokerage business of
the Funds with the objective of obtaining the best net results for the Funds,
taking into account prompt, efficient and
-25-
reliable executions at a favorable price. Brokerage transactions for the Funds
in exchange-listed securities are effected chiefly by or through the Adviser's
affiliate, Baron Capital, when consistent with this objective and subject to the
conditions and limitations of the 1940 Act. Baron Capital is a member of the
National Association of Securities Dealers, Inc., but is not a member of any
securities exchange. Transactions in securities that trade on NASDAQ or are
otherwise not listed are effected by broker/dealers other than Baron Capital.
The Funds do not deal with Baron Capital in any portfolio transaction in which
Baron Capital acts as principal.
The Funds' Board of Trustees has adopted procedures pursuant to Rule 17e-1
of the 1940 Act which are reasonably designed to provide that the commissions
paid to Baron Capital are reasonable and fair compared to the commission, fee or
other enumeration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Board reviews no
less frequently than quarterly that all transactions effected pursuant to Rule
17e-1 during the preceding quarter were effected in compliance with such
procedures. The Funds and the Adviser furnish such reports and maintain such
records as required by Rule 17e-1.
For the fiscal year ended September 30, 1998, of the total $8,178,614
brokerage commissions paid by the Funds, $5,435,764 were paid to Baron Capital.
For the fiscal year ended September 30, 1997, of the total $3,307,779 brokerage
commissions paid by BARON ASSET FUND and BARON GROWTH & INCOME FUND,
$2,575,700
brokerage commissions were paid to Baron Capital. For the fiscal year ended
September 30, 1996, of the total $1,576,882 brokerage commissions paid by BARON
ASSET FUND and BARON GROWTH & INCOME FUND, $1,383,564 brokerage commissions
were
paid to Baron Capital. The brokerage commissions paid to Baron Capital represent
66.5% of the aggregate dollar amount of brokerage commissions paid and 59.1% of
the aggregate dollar amount of transactions involving the payment of commissions
for the 1998 fiscal year. The brokerage commissions paid to Baron Capital
represent 87.7% of the aggregate dollar amount of brokerage commissions paid and
58.4% of the aggregate dollar amount of transactions involving the payment of
commissions for the 1996 fiscal year. Transactions in which Baron Capital acted
as broker represents 39% of the aggregate dollar amount of all principal and
agency transactions for the Funds for the 1998 fiscal year.
-26-
<PAGE>
$341,336 in brokerage commissions were paid to Baron Capital. The brokerage
commissions paid to Baron Capital represent 92.3% of the aggregate dollar amount
of brokerage commissions paid and 89.0% of the aggregate dollar amount of
transactions involving the payment of commissions for the 1995 fiscal year.
BARON SMALL CAP FUND had no operating history as of September 30, 1997.
Under the Investment Advisory Agreements and as permitted by Section 28(e)
of the Securities and Exchange Act of 1934, the Adviser may cause the Funds to
pay a broker-dealer (except Baron Capital) which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction for the Funds in excess of the amount other broker-dealers would
have charged for the transaction if the Adviser determines in good faith that
the greater commission is consistent with the Funds' policies and is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Funds or to its other clients. The
term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement. Such research and information may be
used by the Adviser or its affiliates to supplement the services it is required
to perform pursuant to the Advisory Agreement in serving the Funds and/or other
advisory clients of affiliates.
Broker-dealers may be willing to furnish statistical research and other
factual information or services to the Adviser for no consideration other than
brokerage or underwriting commissions. Securities may be bought or sold through
such broker-dealers, but at present, unless otherwise directed by the Funds, a
commission higher than one charged elsewhere will not be paid to such a firm
solely because it provided research to the Adviser. Research provided by brokers
is used for the benefit of all of the Adviser's or its affiliates' clients and
not solely or necessarily for the benefit of the Funds. The Adviser's investment
management personnel attempt to evaluate the quality of research provided by
brokers. Results of this effort are sometimes used by the Adviser as a
consideration the in the
-27-
selection of brokers to execute portfolio transactions.
Baron Capital acts as broker for, in addition to the Funds, accounts of BCM
and Baron Capital, including accounts of principals and employees of Baron
Capital, BCM and the Adviser. Investment decisions for the Funds for investment
accounts managed by BCM and for accounts of Baron Capital are made independent
of each other in light of differing considerations for the various accounts. The
same investment decision may, however, be made for two or more of the Adviser's,
BCM's and/or Baron Capital's accounts. In such event, simultaneous transactions
are inevitable. Purchases and sales are averaged as to price where possible and
allocated to account in a manner deemed equitable by the Adviser in conjunction
with BCM and Baron Capital. This procedure could have a detrimental effect upon
the price or value of the security for the Funds, but may have a beneficial
effect.
The investment advisory fee that the Funds pay to the Adviser is not
reduced as a consequence of the Adviser's receipt of brokerage and research
services. To the extent the Funds' portfolio transactions are used to obtain
such services, the brokerage commissions paid by the Funds will exceed those
that might otherwise be paid by an amount that cannot be presently determined.
Such services would by useful and of value to the Adviser in serving both the
Funds and other clients and, conversely, such services obtained by the placement
of brokerage business of other clients would by useful to the Adviser in
carrying out its obligations to the Funds.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, NY, is the custodian for
the Funds' cash and securities. DST Systems, Inc., CT-7 Tower, 1004 Baltimore,
Kansas City, MO 64105, is the transfer agent and dividend agent for the Funds'
shares. Neither institution assists in or is responsible for investment
decisions involving assets of the Funds.
REDEMPTION OF SHARES
--------------------
The Funds expect to make all redemptions in cash, but have reserved the
right to make payment, in whole or in part, in portfolio securities. Payment
will be made other than all in cash if the Funds' Board of Trustees determines
that economic conditions exist which would make payment wholly in cash
detrimental to a particular fund's best interests. Portfolio securities to be so
distributed, if
-28-
<PAGE>
any, would be selected in the discretion of the Funds' Board of Trustees and
priced as described under "Determining Your Share Price" herein and in the
Prospectus.
NET ASSET VALUE
---------------
As more fully set forth in the Prospectus under "Determining Your Share
Price," the net asset value per share of each Fund is determined as of the close
of the New York Stock Exchange on each day that the Exchange is open. The
Exchange is open all week days that are not holidays, which it announces
annually. The most recent announcement states it will not be open on New Year's
Day, Martin Luther King, Jr.'s Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Securities traded on more than one national securities exchange are valued
at the last sale price of the day as of which such value is being determined as
reflected at the close of the exchange which is the principal market for such
securities.
U.S. Government obligations and other debt instruments having sixty days or
less remaining until maturity are stated at amortized cost. Debt instruments
having a greater remaining maturity will be valued at the highest bid price from
the dealer maintaining an active market in that security or on the basis of
prices obtained from a pricing service approved by the Board of Trustees.
TAXES
-----
Each Fund intends to qualify every year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code").
Qualification as a regulated investment company relieves the Funds of Federal
income taxes on the portion of their net investment income and net realized
capital gains distributed to shareholders. The Funds intend to distribute
virtually all of their net investment income and net realized capital gains at
least annually to their respective shareholders.
A non-deductible 4% excise tax will be imposed on a Fund to the extent that
it does not distribute (including declaration of certain dividends), during each
calendar year, (i) 98% of its ordinary income for
-29-
such calendar year, (ii) 98% of its capital gain net income (the excess of short
and long term capital gain over short and long term capital loss) for each
one-year period ending October 31 and (iii) certain other amounts not
distributed in previous years. Shareholders will be taxed during each calendar
year on the full amount of such dividends distributed (including certain
declared dividends not actually paid until the next calendar year).
For Federal income tax purposes, distributions paid from net investment
income and from any net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Distributions paid from net capital gains are taxable as long-term
capital gains, whether received in cash or shares and regardless of how long a
shareholder has held the shares, and are not eligible for the dividends received
deduction. Distributions of investment income (but not distributions of
short-term or long-term capital gains) received by shareholders will qualify for
the 70% dividends received deduction available to corporations to the extent
designated by the Fund in a notice to each shareholder. Unless all of a Fund's
gross income constitutes dividends from domestic corporations qualifying for the
dividends received deduction, a portion of the distributions of investment
income to those holders of that Fund which are corporations will not qualify for
the 70% dividends received deduction. The dividends received deduction for
corporate holders may be further reduced if the shares with respect to which
dividends are received are treated as debt-financed or deemed to have been held
for less than forty-six (46) days.
The Funds will send written notices to shareholders regarding the Federal
income tax status of all distributions made during each calendar year as
ordinary income or capital gain and the amount qualifying for the 70% dividends
received deduction.
The foregoing relates to Federal income taxation. Distributions may also be
subject to state and local taxes. The Funds are organized as a Massachusetts
business trust. Under current law, so long as the Funds qualify for the Federal
income tax treatment described above, it is believed that they will not be
liable for any income or franchise tax imposed by Massachusetts.
Investors are urged to consult their own tax advisers regarding the
application of Federal, state and local tax laws.
-30-
<PAGE>
ORGANIZATION AND CAPITALIZATION
-------------------------------
GENERAL
BARON ASSET FUND is an open-end investment company organized as a series
fund and established under the laws of The Commonwealth of Massachusetts by a
Declaration of Trust dated February 19, 1987, as amended. The three series
currently available are BARON ASSET FUND, BARON GROWTH & INCOME FUND, and
BARON
SMALL CAP FUND. Shares entitle their holders to one vote per share. Shares have
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees and, in such
event, the holders of the remaining shares voting for the election of Trustees
will not be able to elect any person or persons as Trustees. Shares have no
preemptive or subscription rights, and are transferable.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund or any
series thereof. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by the Funds or
Trustees. The Declaration of Trust provides for indemnification by a Fund for
any loss suffered by a shareholder as a result of an obligation of that Fund.
The Declaration of Trust also provides that a Fund shall, upon request, assume
the defense of any claim made against any shareholder for an act or obligation
of that Fund and satisfy any judgement thereon. Thus, the risk of a shareholder
incurring financial loss on account or shareholder liability is limited to
circumstances in which the Fund itself would be unable to meets its obligations.
The Trustees believe that, in view of the above, the risk of personal liability
of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgement or mistakes of fact or law, but nothing in the
Declaration of trust protects a trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
-31-
OTHER INFORMATION
-----------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1301 Avenue of the Americas, New York, New York
10019, has been selected as independent accountants of the Funds.
CALCULATIONS OF PERFORMANCE DATA
Advertisements and other sales literature for the Funds may refer to
average annual total return and actual return. Average annual total return is
computed by finding the average annual compounded rates of return over a given
period that would equate a hypothetical initial investment to the ending
redeemable value thereof, as follows:
P(1+T)^ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
^ = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 investment made at the beginning
of the period
Actual return is computed by measuring the percentage change between the
net asset value of a hypothetical $1,000 investment in the Fund at the beginning
of a period and the net asset value of that investment at the end of a period.
The performance data used in advertisements does not give effect to a 2%
contingent deferred sales charge that is no longer applicable.
All performance calculations assume that dividends and distributions are
reinvested at the net asset value on the appropriate reinvestment dates and
include all recurring fees.
-32-
<PAGE>
Computed in the manner described above, the performance of BARON ASSET FUND
has been:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ACTUAL
RETURN*
(PRIOR TO JANUARY 1, 1992
INCLUDES THE 2% CONTINGENT
DEFERRED SALES LOAD WHERE
INVESTMENT IS LESS THAN 3 YEARS)
<S> <C> <C>
Year ended 12/31/98
Year ended 12/31/97 +33.9% +33.9%
Year ended 12/31/96 +22.0% +22.0%
Year ended 12/31/95 +35.3% +35.3%
Year ended 12/31/94 + 7.4% + 7.4%
Year ended 12/31/93 +23.5% +23.5%
Year ended 12/31/92 +13.9% +13.9%
Year ended 12/31/91 +32.0% +34.0%
Year ended 12/31/90 -20.5% -18.5%
Year ended 12/31/89 +23.0% +25.0%
Year ended 12/31/88 +32.4% +34.4%
Inception(06/12/87) to 12/31/98
Inception (06/12/87) to 12/31/97 +19.1% +530.6%
Inception (06/12/87) to 12/31/96 +17.6% +371.0%
Inception (06/12/87) to 12/31/95 +17.1% +286.2%
Inception (06/12/87) to 12/31/9 +14.9% +185.5%
Inception (06/12/87) to 12/31/93 +16.1% +165.8%
Inception (06/12/87) to 12/31/92 +14.8% +115.2%
Inception (06/12/87) to 12/31/91 +15.0% + 89.0%
Inception (06/12/87) to 12/31/90 +10.1% + 41.0%
Inception (06/12/87) to 12/31/89 +23.4% + 73.0%
Inception (06/12/87) to 12/31/88 +22.1% + 38.4%
Five Years Ended 12/31/98 % %
* Does not include the 2% contingent deferred sales load which applied only
prior to 1/1/92.
</TABLE>
-33-
<PAGE>
For BARON GROWTH & INCOME FUND the Performance Has Been:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ACTUAL RETURN
<S> <C> <C>
Year Ended 12/31/98
Year Ended 12/31/97 +31.1% + 31.1%
Year Ended 12/31/96 +27.7% + 27.7%
Year Ended 12/31/95 +52.5% + 52.5%
Three Years Ended 12/31/98 % %
(From Inception 01/03/95)
</TABLE>
For BARON SMALL CAP FUND the Performance Has Been:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ACTUAL RETURN
<S> <C> <C>
Year Ended 12/31/98 % %
</TABLE>
Performance results represent past performance and are not necessarily
representative of future results. Investment return and principal value will
fluctuate so that shares may be worth more or less than their original cost when
redeemed.
In addition to advertising average annual and actual return data,
comparative performance information may be used in advertising materials about
the Funds, including data and other information from Lipper Analytical Services,
Inc., CDA Investment Technologies, Morningstar Inc., Money, Forbes, SEI,
Ibbotson, No Load Investor, Growth Fund Guide, Fortune, Barron's, The New York
Times, The Wall Street Journal, Changing Times, Medical Economics, Business
Week, Consumer Digest, Dick Davis Digest, Dickenson's Retirement Letter, Equity
Fund Outlook, Executive Wealth Advisor, Financial World, Investor's Daily, Time,
Personal Finance, Investment Advisor, Smartmoney, Rukeyser, Kiplinger's, NAPFA
News, US News, Bottomline, Investors Business Daily, Bloomberg Radio, CNBC,
and/or USA Today. The Fund may also use comparative performance data from
indexes such as the Dow Jones Industrial Average, Standard & Poor's 400, 500,
Small Cap 600, 1,500, or Midcap 400, Value Line Index, Wilshire 4,500, 5000, or
Small Cap; NASDAQ/OTC Composite, New York Stock Exchange; and the Russell 1000,
2000, 2500, 3000, 2000 Growth, 2000 Value, or Midcap. With respect to the rating
services, the Fund may use performance information that ranks the Fund in any of
the following categories: all funds, aggressive growth funds, value funds,
mid-cap funds, small-cap funds, growth and income funds, equity income funds,
and any combination of the above listed categories.
-34-
<PAGE>
ITEM 22. FINANCIAL STATEMENTS
--------------------
<PAGE>
BARON ASSET FUND
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
--------
a. Declaration of Trust dated February 19, 1987.*
b. By-laws dated February 19, 1987.*
c. Specimen Share Certificates representing shares of
beneficial interest of $.01 par value.*
d.(1) Investment Advisory Agreement between
Baron Asset Fund and BAMCO, Inc.*
(2) Investment Advisory Agreement between
Baron Growth & Income Fund and BAMCO, Inc.*
(3) Investment Advisory Agreement between
Baron Small Cap Fund and BAMCO, Inc.*
e. Distribution Agreement with Baron Capital, Inc.*
f. Inapplicable.
g.(1) Custodian Agreement with The Bank of New York.*
(2) Fee Schedule for Exhibit 8(a).*
h. Inapplicable.
i. Opinion and consent of counsel as to legality of shares
being registered (filed with Rule 24f-2 Notice).*
j. Consent of Independent Certified Public Accountants.
k. Inapplicable.
l. Letter agreement between the Registrant and the Purchaser
of the Initial Shares.*
m. Distribution Plan pursuant to Rule 12b-1.*
n.(1) Financial Data Schedule for Baron Asset Fund
(2) Baron Growth & Income Fund
(3) Baron Small Cap Fund
o. Rule 18f-3Plan*
*Previously filed.
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
-------------------------------------------------------------
The following diagram indicates the persons under common control with
Registrant, all of which are incorporated in New York.
Ronald Baron
controls : Baron Capital Group, Inc.
and owns 100% of: Baron Capital, Inc.
BAMCO, Inc.
Baron Capital Management, Inc.
Baron Capital, Inc. serves as distributor of Registrant's shares and performs
brokerage services for Registrant. BAMCO, Inc. serves as investment adviser to
Registrant. Baron Capital Management, Inc. is an affiliated investment adviser.
All of the above corporate entities file consolidated financial statements.
Ronald Baron, President of Registrant, is the controlling shareholder of Baron
Capital Group, Inc. and serves as President of all the above entities.
ITEM 25. INDEMNIFICATION
---------------
Article IV of Registrant's Declaration of Trust states as follows:
Section 4.1. No Personal Liability Of Shareholders, Trustees, Etc.
------------ ----------------------------------------------------------
No shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than to the Trust of its shareholders, in connection with Trust Property of
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with
respect to such Person; and all such Persons shall look solely to the Trust
Property, or to the Property of one or more specific series of the Trust if
the claim arises from the conduct of such Trustee, officer, employee or
agent with respect to only such Series, for satisfaction of claims of any
nature arising in connection with the affairs of the Trust. If any
shareholder, Trustee, officer, employee, or agent, as such, of the Trust,
is made a party to any suit or proceeding to enforce any such liability of
the Trust, he shall not, on account thereof, be held to any personal
liability. The Trust shall indemnify and hold each shareholder harmless
from and against all claims and liabilities, to which such shareholder may
become subject by reason of his being or having been a shareholder, and
shall reimburse such shareholder out of the Trust Property for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability. Indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one of more
Series whose shares were held by said shareholder at the time the act or
event occurred which gave rise to the claim against or liability of said
shareholder. The rights accruing to a shareholder under this Section 4.1 be
lawfully entitled, nor shall anything herein contained restrict the right
of the Trust to indemnify or reimburse a shareholder in any appropriate
situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc.
------------ -------------------------------
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its shareholders, or to any shareholder, Trustee, officer, employee,
or agent thereof for any
<PAGE>
action or failure to act (including without limitation the failure to
compel in any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification.
------------ --------------------------
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust, or by one or more Series
thereof if the claim arises from his or her conduct with respect to
only such Series to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or
other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or a Series thereof or the
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not the have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or a Series
thereof;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the Non-
interested Trustees acting on the matter (provided that a
majority of the Non-interested Trustees then in office act on the
matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who
<PAGE>
has ceased to be such Trustee or officer and shall inure to the benefit of
the heirs, executors, administrators and assigns of such a person. Nothing
contained herein shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of
this Section 4.3 may be advanced by the Trust or a Series thereof prior to
final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he
is not entitled to indemnification under this Section 4.3, provided that
either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who is not
(i) an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or proceeding.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER
---------------------------------------------------
The business and other connections of BAMCO, Inc. is summarized under
"Management of the Fund" in the Prospectus constituting Part A of the
Registration Statement, which summary is incorporated herein by reference.
The business and other connections of the officers and directors of BAMCO,
Inc. is currently listed in the investment adviser registration on Form ADV for
BAMCO, Inc. (File No. 801-29080) and is incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
----------------------
(a) Inapplicable.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
<S> <C> <C>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- ------------------ --------------- -------------
Ronald Baron Director, Trustee,
767 Fifth Avenue President and President and
New York, N.Y. 10153 Chairman CEO
Susan Robbins Director Vice President
767 Fifth Avenue and Vice President
New York, N.Y. 10153
<PAGE>
Peggy Wong Treasurer and CFO Treasurer and CFO
767 Fifth Avenue
New York, N.Y. 10153
Morty Schaja Vice President and Trustee and
767 Fifth Avenue COO Vice President
New York, N.Y. 10153
Clifford Greenberg Vice President Vice President
767 Fifth Avenue
New York, N.Y. 10153
Linda S. Martinson Secretary, Vice President Trustee, Vice President
767 Fifth Avenue and General Counsel and Secretary
New York, N.Y. 10153
(c) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
Certain accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, BAMCO, Inc. and
Baron Capital, Inc., 767 Fifth Avenue, New York, NY 10153. Records relating to
the duties of the Registrant's transfer agent are maintained by DST Systems,
Inc. 1004 Baltimore Avenue, Kansas City, MO 64105 and of the Registrant's
custodian are maintained by The Bank of New York, 48 Wall Street, New York, N.Y.
10015.
ITEM 29. MANAGEMENT SERVICES
-------------------
Inapplicable.
ITEM 30. UNDERTAKINGS
------------
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund (certifies that it meets all of the
requirement for effectiveness of this registration statement under rule 485(b)
under the Securities Act and) has duly caused this post -effective amendment No.
15 to the registration statement to be signed on its behalf by the undersigned,
duly authorized, in the City of New York, and the State of New York on the day
of November, 1998.
BARON ASSET FUND
By: s/ Ronald Baron
----------------
Ronald Baron, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment No. 16 to the registration statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
s/ Ronald Baron President (Principal November , 1998
- --------------- Executive Officer) &
Ronald Baron Trustee
*s/ Raymond Noveck Trustee November , 1998
- ------------------
Raymond Noveck
s/ Linda S. Martinson Secretary, November , 1998
- --------------------- Vice President & Trustee
Linda S. Martinson
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
s/ Peggy Wong Treasurer (Principal November , 1998
- ------------- Financial & Accounting
Peggy Wong Officer)
*s/ Mark M. Feldman Trustee November , 1998
- -------------------
Mark M. Feldman
*s/ Norman S. Edelcup Trustee November , 1998
- ---------------------
Norman S. Edelcup
*s/ Charles N. Mathewson Trustee November , 1998
- ------------------------
Charles N. Mathewson
*s/ Irwin Greenberg Trustee November , 1998
- -------------------
Irwin Greenberg
*s/ David A. Silverman Trustee November , 1998
- ----------------------
David A. Silverman
s/ M. Schaja Trustee November 1998
- ------------ Vice President &
M. Schaja
*By: s/ Linda S. Martinson
---------------------
Linda S. Martinson
Attorney-in-fact pursuant to a power of attorney previously filed.
Dated:
<PAGE>
APPENDIX B
BAR CHART AND PERFORMANCE TABLE
-------------------------------
The following table provides an indication of the risks of investing in the
Baron Funds by showing changes in the Funds' performance from year to year, over
a 10-year period and by showing how the Funds' average annual returns for one,
five and ten years compared to those of the Russell 2000, a broad-based
securities market index. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.
50%
40%
30%
20% [bar chart]
10%
0%
10%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter
was: % (quarter ending ) and the lowest return for a quarter was % (quarter
ending ).
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURNS
(for the period ending
December 31, 1998) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
BARON ASSET FUNDS
- ---------------------------------------------------------------------------------
BARON GROWTH &
INCOME FUND
- ---------------------------------------------------------------------------------
BARON SMALL CAP FUND
- ---------------------------------------------------------------------------------
RUSSELL 2000*
=====================================================================
============
</TABLE>
* The Russell 2000 is a widely recognized unmanaged index of small
capitalization stocks.