File No. 33-12112
File No. 811-5032
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 14 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 15 [X]
Baron Asset Fund
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(Exact Name of Registrant as Specified in Charter)
767 Fifth Avenue, 24th Floor
New York, New York 10153
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(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code: (212) 583-2000
Linda S. Martinson
BARON ASSET FUND
767 Fifth Avenue
24th Floor
New York, New York 10153
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of rule 485
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
Registrant has registered an indefinite number of shares of beneficial interest,
$0.01 par value, of securities of the Fund, now existing or hereafter
established, under the Securities Act of 1933. The Rule 24f-2 Notice for
Registrant's most recent fiscal year was filed on November 28, 1997.
The Registrant proposes that this amendment will become effective pursuant to
Rule 485(a)(2) under the Securities Act of 1933.
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BARON ASSET FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
---------------------------
PART A
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Caption in
Item No. Item Caption Prospectus
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<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis FUND EXPENSES
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description of INVESTMENT OBJECTIVE AND
Registrant PHILOSOPHY; INVESTMENT
POLICIES AND RISKS; GENERAL
POLICIES; DISTRIBUTION PLAN;
INVESTMENT PERFORMANCE;
GENERAL INFORMATION
5. Management of the Fund MANAGEMENT OF THE FUNDS;
INVESTMENT OBJECTIVES AND
PHILOSOPHY; INVESTMENT
POLICIES AND RISKS; GENERAL
POLICIES; FUND EXPENSES
6. Capital Stock and Other DIVIDENDS AND DISTRIBUTIONS;
Securities TAXES; GENERAL INFORMATION
7. Purchase of Securities HOW TO PURCHASE SHARES;
Being Offered DETERMINING YOUR SHARE PRICE;
DISTRIBUTION PLAN; GENERAL
INFORMATION
8. Redemption or Repurchase HOW TO REDEEM SHARES;
DETERMINING YOUR SHARE PRICE;
GENERAL INFORMATION
9. Pending Legal Proceedings NOT APPLICABLE
</TABLE>
<PAGE>
PART B
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<TABLE>
<CAPTION>
Caption in Statement of
Item No. Item Caption Additional Information
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<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and NOT APPLICABLE
History
13. Investment Objectives and INVESTMENT OBJECTIVES AND
Policies POLICIES
14. Management of the MANAGEMENT OF THE FUNDS
Registrant
15. Control Persons and MANAGEMENT OF THE FUNDS
Prinicipal Holders of
Securities
16. Investment Advisory and MANAGEMENT OF THE FUNDS
Other Services
17. Brokerage Allocation and MANAGEMENT OF THE FUNDS
Other Practices
18. Capital Stock and Other ORGANIZATION AND
Securities CAPITALIZATION
19. Purchase, Redemption and MANAGEMENT OF THE FUNDS;
REDEMPTION OF SHARES; NET
ASSET VALUE
20. Tax Status NOT APPLICABLE
21. Underwriters MANAGEMENT OF THE FUNDS
22. Calculation of Performance CALCULATION OF PERFORMANCE
Data DATA
23. Financial Statements FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997
</TABLE>
<PAGE>
PROSPECTUS
[BARON FUNDS LOGO]
JANUARY 1998
BARON ASSET FUND
BARON GROWTH
& INCOME FUND
BARON SMALL CAP FUND
[GRAPHIC]
<PAGE>
[PHOTO OF RONALD BARON]
<PAGE>
WELCOME TO BARON FUNDS:
Many investment strategies can be successful. Twenty-eight years
experience as a securities analyst and twenty-three years as a
portfolio manager have taught me there are many ways to be a
successful investor. Baron Funds has chosen to be a long term investor
in publicly owned businesses. Baron Funds is not a short term trader
of common stocks. Baron Funds focuses on the long term fundamental
prospects for the businesses in which we are investors. The Funds have
often remained shareholders of companies, part owners of their
businesses, for years. Regardless of stock market fluctuations. We
don't even try to predict what the market will do. This because since
I became interested in investing while I was still in school, I have
never known or observed anyone who has been able to forecast broad
market trends accurately.
Baron Asset Fund, our first mutual fund, was founded in June 1987. It
has been a shareholder in discount broker, mutual fund distributor
Charles Schwab since 1992, in nursing homeowner/operator Manor Care
since 1989, in casino hotel owner/operator Mirage Resorts since 1987,
in specialized temporary help provider Robert Half since 1991 and in
private college DeVry, also since 1991. Baron Asset Fund's long term
performance, more than six fold appreciation since its inception, has
benefited from the very strong growth experienced by these businesses
during the past several years. The stock prices of all these companies
have appreciated several fold since our initial purchases. We believe
the prospects for these businesses, and therefore for their stocks,
continue to be favorable. Past performance is no guarantee of future
results.
Baron Funds does not rely upon brokerage firm research, computer-based
stock selections or so-called momentum investing. Baron Funds does not
seek to emulate popular market indexes. The Funds' investment
decisions are based upon our independent, fundamental analyses of
businesses. Basics. Company visits; management, employee, customer and
competitor interviews; our opinions of management talent, integrity,
honesty and business strategies; and our assessments of industry
prospects. Baron Funds believes management is a most critical element
in determining the success of a business. We choose to invest in
people, not just in buildings. We believe my long experience as a
securities analyst, as well as the exten-
NOT PART OF THE PROSPECTUS
<PAGE>
sive experience of our five senior analysts, Cliff Greenberg, Susan
Robbins, Mitch Rubin, Matt Ervin and Morty Schaja, offer our Funds
significant competitive advantage in studying, understanding and
analyzing businesses and their managements.
[GROUP PHOTO]
Once we qualitatively identify great businesses and managements in
which we would like to invest, we value those businesses
quantitatively. Baron Funds seeks to purchase either debt or equity
issued by companies with compelling investment characteristics before
their business prospects are widely recognized. Baron Funds seeks to
purchase securities at prices which offer our shareholders the
potential to earn a return of at least 50% over a two-year period. We
are willing to invest in income producing securities such as real
estate investment trusts or convertible bonds which offer us the
potential to earn at least 30% over a two-year period. We will accept
a lower potential return on income generating securities because we
regard these securities as less risky. Baron Asset Fund's long term
performance has so far met our stated objective of doubling our
shareholders money every three to five years. Of course, we cannot
guarantee that we will continue to be able to achieve these results.
Baron Funds invests in growing, well managed, very profitable
businesses. Baron Funds focuses its investments in businesses managed
by hardworking, ethical, entrepreneurial executives. These companies
are usually small and mid-sized. They are nearly always growing their
businesses' intrinsic values, e.g. earnings, cash flow or asset value,
at least 15-20% per year. These companies are in emerging, job
creating sunrise industries, industries in which our children are
likely to work, not industries in which our parents and grandparents
were employed. Baron Funds currently has significant investments in
health care, education, financial services, government privatization
services, communications, media and entertainment, casino gaming,
temporary help and other outsourced business services. These
industries are favorably impacted by strong ""megatrends," long
lasting economic trends often caused by demographics, societal changes
and legislative initiatives and programs. These areas of investment
focus represent several of our investment themes. Because investors
have differing investment needs and risk tolerances, we currently
offer three Funds to help you achieve your long term financial goals.
NOT PART OF THE PROSPECTUS
<PAGE>
BARON ASSET FUND, A NO-LOAD, SMALL CAP FUND
Baron Asset Fund, founded June 12, 1987, invests primarily in small
and mid-sized companies. We believe the market is least efficient when
valuing assets and growth prospects of these companies. This is
because most investors and securities analysts are most interested in
larger companies. They also seem to be most interested in current
events and company earnings results for the next three months,
information they believe will influence stock prices in the near term.
This provides our Fund with investment opportunity since we focus,
instead, on the prospects for businesses over the long term, e.g. at
least three to five years. Baron Asset Fund is suitable for investors
seeking long term capital appreciation.
BARON GROWTH & INCOME FUND, A NO-LOAD, GROWTH AND INCOME FUND
Baron Growth & Income Fund, founded January 3, 1995, also invests
primarily in common stocks of well managed, fast growing, small and
mid-sized companies. In addition, it currently invests 25-30% of its
assets in convertible debt securities and dividend paying common
stocks which offer both attractive yields and growth. A large portion
of these income producing securities are currently real estate
investment trusts. Baron Growth & Income Fund could achieve higher
returns than most growth and income funds due to its investments in
fast growing smaller companies; it should be less volatile than most
small cap growth funds due to its significant investments in income
producing securities. This Fund is suitable for investors seeking
capital appreciation but who desire less risk than is usually
associated with investing in small cap funds.
BARON SMALL CAP FUND, A NO-LOAD, SMALL CAP FUND
Baron Small Cap Fund, founded October 1, 1997, invests primarily in
small companies. The Fund's investments fall into three categories:
small cap stocks that have significant long-term growth prospects that
can be purchased at attractive prices because their prospects have not
yet been appreciated by investors; smaller companies that have strong
long-term franchises but have disappointed investors with short-term
results and can be currently purchased at value prices; and special
situations, including spin-offs and recapitalizations, where
significant shareholder displacement and a lack of investor awareness
create opportunities to purchase great businesses at discount prices.
Baron Small Cap Fund is suitable for investors seeking long term
capital appreciation who understand the risks associated with
investing in smaller companies.
NOT PART OF THE PROSPECTUS
<PAGE>
1997 WAS AN EVENTFUL YEAR FOR BARON FUNDS
Baron Funds performed well in 1997. Assets under management in the
Funds increased substantially during the year. We attribute increased
in shareholder interest in our Funds to the strong long term
performance of our Funds; significant favorable media attention to our
Funds; increased interest by financial planners in our Funds; and, the
ability of investors to conveniently purchase our Funds without any
fees through mutual fund marketplaces, most importantly Charles
Schwab's Mutual Fund OneSource and Fidelity's FundsNetwork. In
October, Baron Funds successfully introduced Baron Small Cap Fund, the
firm's third, no-load, mutual fund. The new fund was sold by
subscription during September to customers of Charles Schwab's
OneSource. It has since been made available broadly to all investors.
401(k) plans increase investments in Baron Asset Fund. During the past
two years, a number of large companies have begun to offer their
employees the option to invest their 401(k) plan retirement assets in
Baron Asset Fund. Employees of Northern Telecom have invested more
than $120 million in Baron Asset Fund and are now the Fund's largest
shareholder. In September, Bechtel Corporation became the second large
corporation to make a significant investment in Baron Asset Fund on
behalf of its employees' 401(k) retirement plan. Cincinnati Bell,
Nokia, Hershey Foods, VF Corporation, Scotts, Allegience, Jostens,
Apria and Spear, Leeds & Kellogg, have also recently added Baron Asset
Fund as an investment option for their employees' 401(k) plans. The
Fund is now also available to plan sponsors through programs at
Charles Schwab, Fidelity, Vanguard, American Express, Scudder Stevens
& Clark, Sunguard and New York Life. On September 30, 1997, about 11%
of Baron Asset Fund's shares were owned by employee retirement plans.
BARON FUNDS RECEIVES VERY FAVORABLE MEDIA COVERAGE
During the past year, we have been mentioned in more articles than at
any time I can remember. Most coverage has been quite favorable. We
believe heightened press interest has been helpful by allowing our
shareholders to learn more about Baron Funds, to assist them, as do,
we hope, our shareholder letters, quarterly conference calls with
financial advisors and annual investment conferences, ""kick the
tires" of their investments in Baron Funds.
Recent articles' coverage can be broadly classified into four topics:
mutual fund supermarkets; Baron Funds' investment process; the
introduction of the new Baron Small Cap Fund; and top performing
mutual funds. Crain's New York; USA Today; Smart Money; The New York
Times; and Fund Marketing Alert described mutual fund ""supermarkets"
and the rapid growth of this dis-
NOT PART OF THE PROSPECTUS
<PAGE>
tribution channel. Baron Funds was featured prominently since it was
frequently described as a prime beneficiary of Schwab's OneSource and
Fidelity's FundsNetwork. Baron Asset Fund has been included on
Schwab's Select List virtually since that list's inception.
Investor's Business Daily, Forbes, and Smart Money wrote about our
investment process, how we choose businesses in which to invest. Both
described our reliance upon long lived ""megatrends" and investment
themes.
The introduction of Baron Small Cap Fund on September 30, 1997
received amazingly broad coverage. The Street.com; Dow Jones Newswire;
The Wall Street Journal; Barron's; Money; Reuters; Sage.AOL; Fundsnet;
Bloomberg News and Smart Money Interactive all wrote about our new
fund and its portfolio manager, Cliff Greenberg.
Baron Asset Fund was also mentioned in recent articles in Consumers
Digest; Funds Net Digest; Entrepreneur; Your Money; Fortune; Forbes;
USA Today; and Money.
Finally, Smart Money Interactive on October 31, in an outlying
article, wrote about Baron Funds' annual investment conference in an
article modestly titled, ""Mr. Popularity."
NEARLY 700 SHAREHOLDERS ATTEND
SIXTH ANNUAL BARON INVESTMENT CONFERENCE,
NEW YORK CITY, OCTOBER 24
[PHOTO OF BAND]
[GROUP PHOTO]
The First Annual Baron Investment Conference in 1992 had about 80
guests...65 of whom were family and friends I had to nearly beg to
attend. Attendance at the Sixth Annual Baron Investment Conference on
October 24th in New York City by shareholders and financial planners
exceeded 700 persons, a significant increase from last year. Again,
shareholders came from both near and far, this year from as far away
as Hawaii and Europe. We greatly appreciate your interest.
NOT PART OF THE PROSPECTUS
<PAGE>
OUTLOOK FOR 1998
Although we do not believe it is possible to predict how the stock
market will perform either next year or any other year, we believe
Baron Funds' 1998 investment performance could approximate the profits
growth of the businesses in which we are shareholders. In the long
term, we believe that prices of securities mirror the value of their
underlying businesses. While the U.S. economy is currently growing
moderately, we expect most companies in which we are shareholders to
achieve strong profits growth in 1998. We are therefore optimistic
that 1998 could be another favorable year for Baron Funds. Of course,
investing in small cap stocks is inherently risky. Please see pages
9-17 of the prospectus for a discussion of the investment risks. Our
past performance should not be considered a predictor of future
results.
[PHOTO OF RONALD BARON]
THANK YOU FOR INVESTING IN BARON FUNDS
We recognize it cannot be an easy decision for most individuals and
their families when choosing mutual funds in which to invest. It must
be especially difficult when you must consider how to invest your hard
earned savings to fund your retirement, your children's education or a
new home. We understand the task must be even more daunting since
there are now more mutual funds than there are stocks. We hope our
shareholder letters, interviews in the press and annual investment
conferences have made it easier for you to determine if Baron Funds
represents an appropriate investment for you and your family.
We want to thank you for choosing to join us as fellow shareholders in
Baron Funds. We will continue to work hard to justify your confidence.
Please feel free to write of call if you have any questions or
comments. We are looking forward to a successful 1998.
Sincerely,
Ronald Baron
President
January 16, 1998
Past performance is no guarantee of future results. The investment
return and principal value of an investment will fluctuate; an
investor's shares, when redeemed, may be worth more or less than their
original cost. Please see the prospectus regarding special risks
associated with investing in small companies.
NOT PART OF THE PROSPECTUS
<PAGE>
BARON ASSET FUND
BARON GROWTH & INCOME FUND
BARON SMALL CAP FUND
767 Fifth Avenue, New York, New York 10153
1-800-99-BARON 212-583-2100
BARON ASSET FUND, started in June of 1987, BARON GROWTH & INCOME
FUND, started in January of 1995, and BARON SMALL CAP FUND, started
in September of 1997, are no-load, open-end, diversified management
investment companies, commonly referred to as mutual funds. BARON
ASSET FUND'S investment objective is to seek capital appreciation
through investments in securities of small and medium sized
companies, with undervalued assets or favorable growth prospects.
BARON GROWTH & INCOME FUND'S investment objective is to seek
capital appreciation with income as a secondary objective. 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' or 'Baron 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.
This Prospectus sets forth concisely the essential information a
prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference.
A Statement of Additional Information, dated January 28, 1998,
containing additional and more detailed information about the
Funds, has been filed with the Securities and Exchange Commission
and is hereby incorporated by
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
January 28, 1998
1 PROSPECTUS
<PAGE>
(continued from previous page)
reference into this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by writing or
calling the Funds at the address and telephone number set forth
above.
A copy of this Prospectus and the Statement of Additional
Information is also available through the Funds' website at
http://www.baronfunds.com. The Securities and Exchange Commission
maintains a web site (http://www.sec.gov) that contains the
Prospectus, the Statement of Additional Information, material
incorporated by reference, and other information regarding the
Funds.
2 PROSPECTUS
[FN]
Baron Asset Fund is a Massachusetts business trust. All persons dealing with the
trust must look solely to the property of this trust for the enforcement of any
claims against this trust. Neither the trustees, officers, agents nor
shareholders of the trust assume any personal liability in connection with its
business or assume any personal liability for obligations entered into on its
behalf.
</FN>
<PAGE>
TABLE OF CONTENTS
Fund Expenses............................................................ 4
Financial Highlights..................................................... 6
Investment Objective and Philosophy...................................... 8
Investment Policies and Risks............................................ 9
Investment Performance................................................... 18
Management of the Fund................................................... 19
Distribution Plan........................................................ 23
How to Purchase Shares................................................... 23
How to Redeem Shares..................................................... 25
Determining Your Share Price............................................. 28
Dividends and Distributions.............................................. 29
Taxes.................................................................... 29
General Information...................................................... 30
Management Discussion and Analysis....................................... 32
The net asset value per share and the value of a shareholder's
holding in the Funds will vary with economic and market conditions.
The dividends paid by each Fund will increase or decrease in
relation to the income received by that Fund from its investments
and the expenses incurred by that Fund.
There is no assurance that the Funds will achieve their respective
objectives. The Funds do not purport to offer a complete investment
program to which investors should commit all of their investment
capital. Please see the section entitled 'Investment Policies and
Risks' starting on page 8 for a discussion of the risks associated
with the Funds.
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus
in connection with the offer contained in the Prospectus and, if
given or made, such information or representations may not be
relied upon as authorized by the Funds, their Investment Adviser or
any affiliate thereof. This Prospectus does not constitute an offer
to sell or a solicitation of any offer to buy securities in any
state to any person to whom it is unlawful to make such offer in
such state.
The Funds have registered some or all of the shares intended to be
sold pursuant to this Prospectus under state securities laws.
3 PROSPECTUS
<PAGE>
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases..................................... NONE
Redemption Fee...................................................... NONE
Deferred Sales Load................................................. NONE
Exchange Fees....................................................... NONE
There are additional charges associated with retirement accounts
and wire transfers. Purchases and redemptions may also be made
through broker-dealers or others who may charge a commission or
other transaction fee for their services. (See 'How to Purchase
Shares' and 'How to Redeem Shares')
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net
assets):
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TOTAL
MANAGEMENT OTHER OPERATING
FEES 12B-1 FEES EXPENSES EXPENSES
<S> <C> <C> <C> <C>
BARON ASSET FUND 1.00% 0.25% 0.10% 1.35%
BARON GROWTH
& INCOME FUND 1.00% 0.25% 0.15% 1.40%*
BARON SMALL CAP
FUND 1.00% 0.25% 0.25% 1.50%*
</TABLE>
The expenses set forth in the table above for Baron Asset Fund and
Baron Growth & Income Fund are based on actual expenses incurred
for the fiscal year ended September 30, 1997. Because Baron Small
Cap Fund is a new fund, 'other expenses' is based on estimated
amounts for the current fiscal year.
*The Adviser will reduce its fee to the extent required to limit
Baron Growth & Income Fund's and Baron Small Cap Fund's operating
expenses to 1.5%.
4 PROSPECTUS
<PAGE>
EXAMPLE
A Shareholder would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return, and (2) redemption at
the end of each time period:
YEAR 1 3 5 10
BARON ASSET FUND $14 $43 $74 $162
BARON GROWTH & INCOME FUND $14 $44 $77 $168
BARON SMALL CAP FUND $15 $47 $82 $179
This information is provided to assist an investor in understanding
the various costs and expenses that an investor will bear, directly
or indirectly, as a shareholder of each of the Funds. This
information should not be considered a representation of past or
future expenses, as actual expenses fluctuate and may be greater or
less than those shown. The example assumes a 5% annual return as
required by SEC regulations applicable to all mutual funds. The
actual performance of the Funds will vary and may result in an
actual return greater or less than 5%. The Funds have a plan of
distribution pursuant to Rule 12b-1 pursuant to which the Funds pay
the Distributor a fee for distribution-related services at the
annual rate of .25% of the respective Fund's average daily net
assets. As a result, long-term shareholders of the Funds may pay
more than the economic equivalent of the maximum front-end sales
load permitted by the rules of the National Association of
Securities Dealers, Inc. ('NASD'). For a description of the various
costs and expenses incurred in the operation of the Funds, as well
as any expense reimbursement or reduction arrangements, see
'Management of the Funds' and 'Distribution Plan.'
5 PROSPECTUS
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables show, on a per share basis, the changes in net asset value,
total return and ratios/supplemental data for a share of beneficial interest of
Baron Asset Fund and Baron Growth & Income Fund for each period. The information
was audited by Coopers & Lybrand L.L.P., the Funds' independent accountants.
Their report and the Financial Statements for the Funds are included in the
Funds' Annual Report and the Statement of Additional Information, which are
available from the Distributor. The following information should be read in
conjunction with the Financial Statements and related notes.
BARON ASSET FUND
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<CAPTION>
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YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987*
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of Year...... $ 35.50 $ 29.30 $22.82 $21.91 $16.20 $14.80 $10.88 $17.22 $12.98 $11.95 $10.00
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)................. (0.14) (0.06) (0.09) (0.14) (0.13) (0.08) 0.07 0.21 0.13 0.05 0.07
Net Realized and
Unrealized Gains
(Losses) on
Investments............ 12.11 6.29 7.23 1.82 6.00 1.52 4.05 (5.14) 4.81 1.18 1.88
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............. 11.97 6.23 7.14 1.68 5.87 1.44 4.12 (4.93) 4.94 1.23 1.95
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income...... 0.00 0.00 0.00 0.00 0.00 (0.04) (0.20) (0.16) (0.05) (0.03) 0.00
Distributions from Net
Realized Gains......... (0.04) (0.03) (0.66) (0.77) (0.16) 0.00 0.00 (1.25) (0.65) (0.17) 0.00
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions..... (0.04) (0.03) (0.66) (0.77) (0.16) (0.04) (0.20) (1.41) (0.70) (0.20) 0.00
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Year................... $ 47.43 $ 35.50 $29.30 $22.82 $21.91 $16.20 $14.80 $10.88 $17.22 $12.98 $11.95
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN............ 33.8% 21.3% 32.3% 8.0% 36.5% 9.7% 38.3% (30.7%) 39.9% 10.7% 19.5%
------ -------- ------ ------ ------ ------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net Assets (in
millions), End of
Year................... $ 3,224.5 $1,166.1 $290.0 $ 80.3 $ 59.9 $ 43.8 $ 47.4 $ 40.0 $ 47.7 $ 11.7 $ 3.9
Ratio of Expenses to
Average Net Assets..... 1.3% 1.4% 1.4% 1.6% 1.8% 1.7% 1.7% 1.8% 2.1% 2.5% 2.8%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... (0.5%) (0.3%) (0.5%) (0.7%) (0.7%) (0.5%) 0.5% 1.5% 1.3% 0.5% 1.9%**
Portfolio Turnover
Rate................... 13.2% 19.3% 35.2% 55.9% 107.9% 95.5% 142.7% 97.8% 148.9% 242.4% 84.7%
Average per share
commission rate
paid***................ $ 0.0600 $ 0.0600
- ----------------------------------------------------------------------------------------
* For the period June 12, 1987 (commencement of operations) to September 30, 1987.
** Annualized.
*** Disclosure required for fiscal years beginning after September 1, 1995.
BARON ASSET FUND'S Adviser and/or Baron Capital reimbursed Baron Asset Fund for
expenses aggregating $8,561 (less than $.01 per share) in 1990, $27,315 ($.01
per share) in 1989, $83,219 ($.11 per share) in 1988, and $36,330 ($.20 per
share) in 1987. The reimbursement amounts are excluded from the expense data
above.
</TABLE>
6 PROSPECTUS
<PAGE>
BARON GROWTH & INCOME FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995*
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Beginning of Year $ 18.40 $ 14.77 $10.00
---------- ---------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................... 0.06 0.11 0.04
Net Realized and Unrealized Gains
on Investments......................................... 6.68 3.66 4.73
---------- ---------- ------
Total from Investment Operations......................... 6.74 3.77 4.77
---------- ---------- ------
LESS DISTRIBUTIONS
Dividends from Net Investment Income..................... (0.09) (0.04) 0.00
Distributions from Net Realized Gains.................... (0.16) (0.10) 0.00
---------- ---------- ------
Total Distributions...................................... (0.25) (0.14) 0.00
---------- ---------- ------
Net Asset Value, End of Year............................. $ 24.89 $ 18.40 $14.77
---------- ---------- ------
TOTAL RETURN............................................. 37.1% 25.8% 47.7%
---------- ---------- ------
RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of Year.................... $390.8 $207.2 $28.6
Ratio of Expenses to Average Net Assets.................. 1.4% 1.5% 2.0%**
Ratio of Net Investment Income to Average Net Assets..... 0.4% 1.2% 1.1%**
Portfolio Turnover Rate.................................. 25.2% 40.3% 40.6%
Average per share commission rate paid***................ $ 0.0600 $ 0.0600
- ----------------------------------------------------------------------------------------
* For the period January 3, 1995 (commencement of operations) to September 30, 1995.
** Annualized.
*** Disclosure required for fiscal years beginning after September 1, 1995.
Baron Growth & Income 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>
BARON SMALL CAP FUND (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1997*
- ----------------------------------------------------------------------------------------
<S> <C>
Net Asset Value Beginning of Period........................................... $ 10.00
---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss........................................................... (0.01)
Net Realized and Unrealized Gains on Investments.............................. 0.32
---------
Total from Investment Operations.............................................. 0.31
---------
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 Period................................................ $ 10.31
---------
TOTAL RETURN.................................................................. 3.1%
---------
RATIOS/SUPPLEMENTAL DATA
Net Assets (in millions), End of Period....................................... $285.3
Ratio of Expenses to Average Net Assets....................................... 1.5%
Ratio of Net Investment Income to Average Net Assets.......................... (0.4%)
Portfolio Turnover Rate....................................................... 13.0%
Average per share commission rate paid........................................ $ 0.0600
- ----------------------------------------------------------------------------------------
* For the period October 1, 1997 (commencement of operations) to December 31, 1997.
</TABLE>
7 PROSPECTUS
<PAGE>
INVESTMENT OBJECTIVES AND PHILOSOPHY
The investment objective of BARON ASSET FUND is to seek capital
appreciation through investments in securities of small and medium
sized companies with undervalued assets or favorable growth
prospects. Production of income, if any, is incidental to this
objective. The investment objective of BARON GROWTH & INCOME FUND
is to seek capital appreciation with income as a secondary
objective. The investment objective of BARON SMALL CAP FUND is to
seek capital appreciation through investments primarily in
securities of small companies. These investment objectives are
fundamental and, as such, may not be changed without the approval
of a majority of the respective Fund's outstanding shares. There is
no assurance that the Funds will achieve their investment
objectives. Investment decisions are made by the Funds' investment
adviser, BAMCO, Inc. (the 'Adviser').
BARON ASSET FUND and BARON SMALL CAP FUND seek to achieve their
investment objectives by investing their assets in diversified
portfolios of primarily common stocks. BARON GROWTH & INCOME FUND
seeks to achieve its investment objective by investing in equity
and debt securities. BARON ASSET FUND and BARON GROWTH & INCOME
FUND invest primarily in the securities of small sized companies
with market capitalizations of approximately $100 million to $1
billion and medium sized companies with market values of $1 billion
to $2 billion. BARON SMALL CAP FUND will invest 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 other kinds of investments each Fund makes and the
risks associated therewith are discussed starting on page 9 in
connection with the Funds' investment policies.
The Funds seek to purchase securities judged by their Adviser to
have favorable price to value characteristics based on the
Adviser's assessment of their prospects for future growth and
profitability. The Adviser seeks securities that the Adviser
believes have the potential to increase in value at least 50% over
two subsequent years, although that goal may not be achieved. As a
guide in selecting such investments, the Adviser studies and
considers such fundamentals as business profitability, balance
sheet strength, undervalued and unrecognized assets, price
multiples of free cash flow and income, perceived management
skills, unit growth, and the potential to capitalize upon
anticipated economic trends. Securities are selected for investment
after thorough research of the issuers, the
8 PROSPECTUS
<PAGE>
industries in which they operate, and their managements. The Funds
invest principally in businesses for the long term; they are not
short-term traders of securities.
When the Adviser determines that opportunities for profitable
investments are limited or that adverse market conditions exist and
believes that investing for temporary defensive purposes is
appropriate, all or a portion of the Funds' assets may be invested
in money market instruments, which include U.S. Government
securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other
short-term debt instruments, and repurchase agreements. Investment
grade obligations would be classified at the time of the investment
within the four highest ratings of Standard & Poor's Corporation
('S&P') or Moody's Investor's Service, Inc. ('Moody's'), or, if
unrated, would be determined by the Adviser to be of comparable
high quality and liquidity. The Funds may also invest in money
market instruments in anticipation of investing cash positions or
of meeting redemptions. To the extent the Funds are so invested
their investment objectives may not be achieved.
INVESTMENT POLICIES AND RISKS
BARON ASSET FUND AND BARON SMALL CAP FUND
In seeking to achieve their investment objective of capital
appreciation, BARON ASSET FUND and BARON SMALL CAP FUND invest
primarily in common stocks but may also invest in other equity-like
securities such as convertible bonds and debentures, preferred
stocks, warrants and convertible preferred stocks. Securities are
selected solely for their capital appreciation potential, and
investment income is not a consideration.
BARON GROWTH & INCOME FUND
BARON GROWTH & INCOME FUND seeks capital appreciation and income by
investing in equity and debt securities. The proportion of BARON
GROWTH & INCOME FUND'S assets invested in each type of security
will vary depending entirely on the Adviser's view of then-existing
investment opportunities and economic conditions. The Fund will
usually be more heavily invested in equity securities than debt
securities, but at other times may have a large portion of its
assets invested in debt securities, often with equity
characteristics. The portion of the portfolio invested in equity
securities is comprised of common stocks and other equity-like
securities such as convertible bonds and debentures, preferred
stocks, warrants and convertible preferred stocks. The debt
security portion of
9 PROSPECTUS
<PAGE>
the portfolio may include notes, bonds, and money market
instruments. The debt securities generally will have equity-like
characteristics but may consist of all varieties of corporate debt,
including the debt of financially distressed companies, debt
convertible into equity, and debt issued or guaranteed by the U.S.
government or its agencies or instrumentalities, without
restriction as to duration. There is no minimum rating for debt
securities. Equity securities are purchased for their capital
appreciation potential, but may also be purchased for income
purposes because of their dividends. Debt securities are purchased
for both their income potential and their capital appreciation
opportunities.
GENERAL POLICIES
SMALL AND MEDIUM SIZED COMPANIES
BARON ASSET FUND and BARON GROWTH & INCOME FUND invest primarily in
small to medium sized companies with market values between $100
million and $2 billion. BARON SMALL CAP FUND invests in primarily
smaller sized companies with market values up to $1 billion,
although the Fund may increase the market capitalization in the
future. The Adviser believes there is more potential for capital
appreciation in smaller companies, but there also may be more risk.
Securities of smaller companies may not be well known to most
investors and may be thinly traded. There is more reliance on the
skills of a company's management and on their continued tenure.
Investments may be attractively priced relative to the Adviser's
assessment of a company's growth prospects, management expertise,
and business niche, yet have modest or no current cash flows or
earnings. Although the Adviser concentrates on a company's growth
prospects, it also focuses on cash flow, asset value and reported
earnings. This investment approach requires a long-term outlook and
may require shareholders to assume more risk and to have more
patience than investing in the securities of larger, more
established companies. From time to time the Adviser may purchase
securities of larger, more widely followed companies for any of the
Funds if it believes such investments meet the Adviser's investment
criteria and the Funds' investment objectives. The Funds may invest
up to 35% of their respective total assets in larger companies if
the Adviser perceives an attractive opportunity in a larger
company. The Funds may continue to make investments in a company
even though its market capitalization has increased beyond the
limits stated, if, in the Adviser's judgment, the company is still
an attractive investment.
Equity securities may fluctuate in value, often based on factors
unrelated to the value of the issuer or its securities. Since
convertible securities
10 PROSPECTUS
<PAGE>
combine the investment characteristics of both bonds and common
stocks, the Funds absorb the market risks of both stocks and bonds.
The combination does, however, make the investment less sensitive
to interest rate changes than straight bonds of comparable maturity
and quality. Because of these factors, convertible securities are
likely to perform differently than broadly-based measures of the
stock and bond markets.
DEBT SECURITIES
The debt securities in which the Funds may invest include rated and
unrated securities and convertible instruments. In making
investment selections, the Adviser, in addition to using nationally
recognized statistical rating organizations ('NRSROs'), also makes
its own independent judgments about a security and its issuer.
Securities which are not rated by an NRSRO are purchased based
solely on the Adviser's assessment of the security and its issuer.
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, commonly referred to as 'junk bonds.' There is no
minimum rating for the debt securities that may be purchased for
those Funds. Lower rated securities may have a higher yield and the
potential for a greater return than investment grade securities but
may also have more risk. Lower rated securities are generally meant
for longer-term investing and may be subject to certain risks with
respect to the issuing entity and to market fluctuations. The
NRSROs may characterize these securities as speculative, with
moderate or little protection as to the payment of interest and
principal. See the Statement of Additional Information for a
general description of NRSRO ratings of debt obligations. The
ratings by these NRSROs represent their opinions as to the quality
of the debt obligations which they undertake to rate. It should be
emphasized that ratings are relative and subjective, and although
ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risks of
these securities. The Adviser will also evaluate the securities and
the ability of the issuers to pay interest and principal. The
Fund's ability to achieve its investment objective may be more
dependent on the Adviser's credit analysis than might be the case
with higher rated securities. The market price and yield of lower
rated securities are generally more volatile than those of higher
rated securities. Factors adversely affecting the market price and
yield of these securities will adversely affect the Fund's net
asset value. The trading market for these securities may be less
liquid than that of higher rated securities. Companies that issue
lower rated securities may be highly leveraged or may have unstable
earnings, and consequently the
11 PROSPECTUS
<PAGE>
risk of the investment in the securities of such issuers may be
greater than with higher rated securities.
With respect to debt securities generally, the interest bearing
features of such securities carry a promise of income flow, but the
price of the securities are inversely affected by changes in
interest rates and are therefore subject to the risk of market
price fluctuations. The market values of debt securities may also
be affected by changes in the credit ratings or financial condition
of the issuers.
BARON GROWTH & INCOME FUND 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. Participations normally are made
available only on a nonrecourse basis by financial institutions,
such as banks or insurance companies, or by governmental
institutions, such as the Resolution Trust Corporation or the
Federal Deposit Insurance Corporation or the Pension Benefit
Guaranty Corporation. When the 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.
12 PROSPECTUS
<PAGE>
BARON GROWTH & INCOME FUND may invest in zero-coupon, step-coupon,
and pay-in-kind securities. These securities are debt securities
that do not make regular interest payments. Zero-coupon and
step-coupon securities are sold at a deep discount to their face
value; pay-in-kind securities pay interest through the issuance of
additional securities. The market value of these debt securities
generally fluctuates in response to changes in interest rates to a
greater degree than interest-paying securities of comparable term
and quality.
OPTIONS
BARON ASSET FUND may, in certain market conditions, use options to
defer recognition of unrealized gains in the portfolio and to take
advantage of perceived investment opportunities. BARON ASSET FUND
may write (sell) call options or buy put options on specific
securities BARON ASSET FUND owns or may be deemed covered where, in
the Adviser's judgment, there may be temporary downward pressure on
the security. The Adviser does not expect options transactions to
be a significant part of BARON ASSET FUND'S investment program.
BARON GROWTH & INCOME FUND 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 option the right to buy, and when exercised obligates the
writer to sell, the underlying security at the exercise price. A
put option gives the purchaser of the option the right to sell, and
when exercised obligates the writer to buy, the underlying security
at the exercise price. The writing of put options will be limited
to situations where the Adviser believes that the exercise price is
an attractive price at which to purchase the underlying security. A
put option sold by a Fund would be considered covered by the Fund's
placing cash or liquid securities in a segregated account with the
custodian in an amount necessary to fulfill the obligation
undertaken. Options may fail as hedging techniques in cases where
the price movements of the securities underlying the options do not
follow the price movements of the portfolio securities subject to
the hedge. Gains on investments in options depend on the Adviser's
ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. The Adviser could be
wrong in its predictions. Where a liquid secondary market does not
exist, the Fund would likely be unable to control losses by closing
its position.
The Funds may engage in options transactions on specific securities
that may be listed on national securities exchanges or traded in
the over-the-counter market. Options not traded on a national
securities exchange are treated as illiquid securities and may be
considered to be 'derivative securities.' Options transactions will
not exceed 25% of BARON GROWTH &
13 PROSPECTUS
<PAGE>
INCOME FUND'S or BARON SMALL CAP FUND'S net assets, as measured by
the securities covering the options, or 5% of net assets, as
measured by the premiums paid for the options, at the time the
transactions are entered into.
BORROWINGS
The 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.
To the extent a Fund borrows, it must maintain continuous asset
coverage of 300% of the amount borrowed. 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. 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.
As a form of borrowing, BARON GROWTH & INCOME FUND may engage in
reverse repurchase agreements with certain banks or non-bank
dealers, where it sells a security and simultaneously agrees to buy
it back later at a mutually agreed upon price. If it engages in
reverse repurchase agreements BARON GROWTH & INCOME FUND will
maintain a segregated account consisting of liquid assets or highly
marketable securities to cover its obligations. Reverse repurchase
agreements may expose the Fund to greater fluctuations in the value
of its assets.
SHORT SALES AGAINST THE BOX
For the purpose of either protecting or deferring unrealized gains
on portfolio securities, BARON GROWTH & INCOME FUND and BARON SMALL
CAP FUND may make short sales 'against the box' where the Fund
sells short a security it already owns or has the right to obtain
without payment of additional consideration an equal amount of the
same type of securities sold. The proceeds of the short sale will
be held by the broker until the settlement date, at which time the
Fund delivers the security to close the short position. If the Fund
sells securities short against the box, it may protect unrealized
gains, but will lose the opportunity to profit on such securities
if the price rises. BARON GROWTH & INCOME FUND and BARON SMALL CAP
FUND will not sell short against the box in excess of 25% of their
respective net assets.
14 PROSPECTUS
<PAGE>
LENDING
The Funds may lend their portfolio securities to broker-dealers and
other institutions as a means of earning additional income. In
lending their portfolio securities, the Funds may incur delays in
recovery of loaned securities or a loss of rights in the
collateral. To minimize such risks, such loans will only be made if
the Funds deem the other party to be of good standing and
determines that the income justifies the risk. BARON ASSET FUND
will not lend more than 10% of its total assets and BARON GROWTH &
INCOME FUND and BARON SMALL CAP FUND will not lend more than 25% of
their respective total assets.
ILLIQUID SECURITIES
BARON ASSET FUND may invest up to 10%, and BARON GROWTH & INCOME
FUND and BARON SMALL CAP FUND may invest up to 15%, of their
respective net assets in securities that are not readily marketable
or are otherwise restricted. The absence of a trading market could
make it difficult to ascertain a market value for illiquid
positions. A Fund's net asset value could be adversely affected if
there were no ready buyer at an acceptable price at the time the
Fund decided to sell. Time-consuming negotiations and expenses
could occur in disposing of the shares.
FOREIGN SECURITIES
The Funds may invest up to 10% of their respective total assets
directly in the securities of foreign issuers which are not
publicly traded in the U.S. and may also invest in foreign
securities in domestic markets through depositary receipts without
regard to this limitation. The Adviser currently intends to invest
not more than 10% of the Funds' assets in foreign securities,
including both direct investments and investments made through
depositary receipts. These securities may involve additional risks
not associated with securities of domestic companies, including
exchange rate fluctuations, political or economic instability, the
imposition of exchange controls, or expropriation or confiscatory
taxation. Issuers of foreign securities are subject to different,
often less detailed, accounting, reporting and disclosure
requirements than are domestic issuers.
SHORT-TERM TRADING AND TURNOVER
The Funds may engage in short-term trading where the Adviser
believes that the anticipated gains outweigh the costs of
short-term trading. The Adviser expects that the average turnover
rate of the Funds' portfolios should not exceed 100%. The turnover
rate may vary from year to year depending on how the Adviser
anticipates portfolio securities will
15 PROSPECTUS
<PAGE>
perform. Short-term trading will increase the amount of brokerage
commissions paid by each Fund and the amount of possible short-term
capital gains. The amount of portfolio activity will not be a
limiting factor in making portfolio decisions.
REAL ESTATE INVESTMENT TRUSTS
The Funds may invest in the equity securities of real estate
investment trusts ('REITs'). A REIT is a corporation or business
trust that invests substantially all of its assets in real estate
and derives most of its income from rents from real property or
interest on loans secured by mortgages on real property. REITs
which meet certain specific requirements of the Internal Revenue
Code effectively do not pay corporate level federal income tax.
REITs may be affected adversely by changes in the value of their
underlying properties and by defaults by borrowers or tenants.
REITs are dependent on the skills of their management and have
limited diversification. REITs also rely on their ability to
generate cash flow to make distributions to shareholders and some
REITs may have self-liquidation provisions allowing mortgages to be
paid in full. The market value of REITs may also be affected by
changes in the tax laws or by their inability to qualify for the
tax-free pass-through of their income. The REIT portion of the
portfolio may also be affected by general fluctuations in real
estate values.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with certain banks
or non-bank dealers. In a repurchase agreement the Fund buys a
security at one price, and at the time of sale, the seller agrees
to repurchase that security at a mutually agreed upon time and
price. Repurchase agreements could involve certain risks in the
event of the failure of the seller to repurchase the securities as
agreed, which may cause a fund to suffer a loss, including loss of
interest on or principal of the security, and costs associated with
delay and enforcement of the repurchase agreement. Repurchase
agreements with a duration of more than seven days are considered
illiquid securities and are subject to the restrictions stated
above.
MORTGAGE-BACKED SECURITIES
BARON GROWTH & INCOME FUND may invest up to 5% of its assets in
mortgage-backed securities that are issued or guaranteed by U.S.
government agencies or instrumentalities, such as the Government
National Mortgage Association and the Federal National Mortgage
Association. Mortgage-backed securities represent direct or
indirect participation in, or are secured by and payable from,
mortgage loans
16 PROSPECTUS
<PAGE>
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
The Funds 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.
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. Investments in special situations may
carry an additional risk of loss in the event that the anticipated
development does not occur or does not attract the expected
attention. The special situation may involve securities of
companies with higher market capitalizations.
17 PROSPECTUS
<PAGE>
INVESTMENT PERFORMANCE
The investment results of each Fund quoted in advertisements and
other sales literature may refer to average annual total return and
actual return. Average annual total return assumes that an
investment in the Fund was purchased with an initial payment of
$1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of all
dividends and distributions during the period at the net asset
value on the reinvestment date. The return is expressed as a
percentage rate which, if applied on a compounded annual basis,
would result in the redeemable value of the investment at the end
of the period. Because average annual returns are annualized they
tend to even out variations in the returns, and are not the same as
actual year-by-year results. The actual return performance
calculations, which also may be quoted in advertising, reflect the
results of a continuous shareholder who does not redeem. It
measures the percentage change between the net asset value of a
hypothetical $1,000 investment in each Fund at the beginning of a
period and the net asset value of that investment at the end of a
period, assuming reinvestment of all dividend and capital gain
distributions at the net asset value on the reinvestment date. The
performance of major market indices such as the Dow Jones
Industrial Average, Russell 2000, and Standard & Poor's 500 may
also be included in advertising so that each Fund's results may be
compared with those of groups of unmanaged securities widely
regarded by investors as measures of market performance. Brokerage
fees are not factored into the performance of the indices. The
performance data of the Funds include all recurring fees such as
brokerage and investment advisory fees. Data and rankings from
Lipper Analytical Services, Inc., CDA Investment Technologies,
Morningstar or other industry publications may also be used in
advertising. See the Statement of Additional Information.
Performance results represent past performance and are not
necessarily representative of future results. Investment return and
principal value will fluctuate so that shares may be worth more or
less than their original cost when redeemed.
The annual report contains additional performance information which
is available upon request without charge by writing or calling the
Funds at the address and telephone number set forth on the back of
this Prospectus.
18 PROSPECTUS
<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
BAMCO, Inc., the Adviser, is located at 767 Fifth Avenue, New York,
New York 10153, and is responsible for portfolio management. It is
a wholly owned subsidiary of Baron Capital Group, Inc. ('BCG').
Baron Capital, Inc. ('Baron Capital'), a registered broker-dealer
and the distributor of the shares of the Funds, is also a wholly
owned subsidiary of BCG.
Under separate Advisory Agreements with each Fund (the 'Advisory
Agreements'), the Adviser furnishes continuous investment advisory
services and management to each Fund. Mr. Ronald Baron is the chief
investment officer of the Adviser and is primarily responsible for
the day-to-day management of the portfolios of BARON ASSET FUND and
BARON GROWTH & INCOME FUND. He has managed the portfolios of these
Funds since their inception. Mr. Clifford Greenberg is primarily
responsible for the day-to-day management of BARON SMALL CAP FUND.
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 Adviser also keeps the books
of account of each series, and calculates daily the income and net
asset value per share of each Fund.
As compensation for the services rendered under each Advisory
Agreement, the Adviser receives a fee payable monthly from the
assets of each Fund equal to 1% per annum of each Fund's respective
average daily net asset value.
BROKERAGE
Brokerage transactions for the Funds are effected chiefly by or
through its Adviser's affiliate, Baron Capital, when consistent
with the policy of obtaining the best net results for the Funds and
subject to the conditions and limitations of the 1940 Act. Baron
Capital is a registered broker-dealer and a member of the NASD. In
determining the best net results for the Fund, the Adviser will
examine factors such as price (including the applicable brokerage
commission or dealer spread), size of order, efficiency and
reliability of execution. The Funds' Board of Trustees has adopted
procedures in conformity with Rule 17e-1 under the 1940 Act to
ensure that all brokerage commissions paid to Baron Capital are
reasonable and fair compared to the commission, fee or other
remuneration received by other brokers in connection with
comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable
period of time. The Funds will also consider sales of their shares
as a factor in the selection of broker-dealers to execute portfolio
transactions. See Statement of Additional Information for a
description of the commissions paid to Baron Capital.
19 PROSPECTUS
<PAGE>
TRUSTEES AND EXECUTIVE OFFICERS
The Funds' Board of Trustees has overall responsibility for the management of
the Funds. The Trustees and executive officers of the Funds and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH BARON FUNDS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald Baron*'D' President, Chief President and Director of: Baron
767 Fifth Avenue Investment Officer Capital, Inc. (1982-Present), Baron
New York, NY 10153 & Trustee Capital Management, Inc. (1983-Present),
Baron Capital Group, Inc.
(1984-Present), BAMCO, Inc.
(1987-Present).
- -------------------------------------------------------------------------------------------
Norman S. Edelcup Trustee Chairman, Item Processing of America
244 Atlantic Isle (1989-Present), (financial institution
N. Miami Beach, FL 33160 service bureau); Director, Valhi, Inc.
(1975-Present) (diversified company);
Director, Artistic Greetings, Inc.(1985-
Present).
- -------------------------------------------------------------------------------------------
Neal M. Elliott Trustee President, Chief Executive Officer and
6001 Indian School Rd., NE Chairman, Horizon/CMS Healthcare Corp.
Albuquerque, NM 87110 (1986-Present) (long-term health care);
Director, LTC Properties, Inc.
(1992-Present) (real estate investment
trust); Director, Frontier Natural Gas
Corp. (1991-Present) (oil and gas
exploration).
- -------------------------------------------------------------------------------------------
Mark M. Feldman Trustee President and Chief Executive Officer,
444 Madison Ave, Ste 703 Cold Spring Group, Inc.(1993-Present)
New York, N.Y. 10022 (reorganization and restructuring
consulting); Chief Restructuring
Officer, various companies
(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).
</TABLE>
20 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH BARON FUNDS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Irwin Greenberg Trustee Chairman (1994-1997) and Director
4303 W. Wyndemere Circle (1991-Present), Lehigh Valley Hospital
Schnecksville, PA 18078 Board, Retail Consultant,
(1990-Present); Director, Cedar Crest
College (1990-Present); Director, Henry
Lehr & Co. Inc. (1996-Present)
(insurance); President and Chief
Executive Officer, Hess's Department
Stores (1976-1990).
- -------------------------------------------------------------------------------------------
Clifford Greenberg Vice President Vice President, Baron Capital, Inc.,
767 Fifth Avenue Baron Capital Group, Inc., BAMCO, Inc.
New York, NY 10153 (1997-Present); General Partner, HPB
Associates, L.P. (1984-1996) (investment
partnership).
- -------------------------------------------------------------------------------------------
Linda S. Martinson*'D' Secretary, General Counsel and Secretary of: Baron
767 Fifth Avenue Vice President Capital, Inc. (1983-Present), BAMCO,
New York, NY 10153 and Trustee Inc. (1987-Present), Baron Capital
Group, Inc. (1984-Present), Baron
Capital Management, Inc. (1983-Present).
- -------------------------------------------------------------------------------------------
Charles N. Mathewson Trustee Chairman of the Board, International
9295 Prototype Road Game Technology (1986-Present)
Reno, NV 89511 (manufacturer of microprocessor-
controlled gaming machines and
monitoring systems).
- -------------------------------------------------------------------------------------------
Harold W. Milner Trustee Retired; President and Chief Executive
2293 Morningstar Drive Officer, Kahler Realty Corporation
Park City, UT 84060 (1985-1997) (hotel ownership and
management).
- -------------------------------------------------------------------------------------------
Raymond Noveck'D' Trustee President, The Medical Information
31 Karen Road Line, Inc. (1997-Present) (health care
Waban, MA 02168 information); President, Strategic
Systems, Inc. (1990-1997) (health care
information); Director, Horizon/CMS
Healthcare Corporation (1987-1997).
- -------------------------------------------------------------------------------------------
</TABLE>
21 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH BARON FUNDS DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Susan Robbins Vice President Senior Analyst, Vice President and
767 Fifth Avenue Director of: Baron Capital, Inc. (1982-
New York, NY 10153 Present), Baron Capital Management, Inc.
(1983-Present), Baron Capital Group,
Inc. (1984-Present).
- -------------------------------------------------------------------------------------------
Morty Schaja* Senior Vice Senior Vice President and Chief
767 Fifth Avenue President, Chief Operating Officer of Baron Capital, Inc.
New York, NY 10153 Operating Officer (1997-Present), Managing Director, Vice
and Trustee President, Baron Capital, Inc. (1991-
Present) and Director, Baron Capital
Group, Inc., Baron Capital Management,
Inc., and BAMCO, Inc. (1997-Present).
- -------------------------------------------------------------------------------------------
Daniel Tisch Trustee Partner, Mentor Partners, L.P. (1987-
500 Park Avenue Present) (investment partnership).
New York, NY 10022
- -------------------------------------------------------------------------------------------
David A. Silverman, M.D. Trustee Physician and Faculty, New York Univ.
239 Central Park West School of Medicine (1976-Present).
New York, NY 10024
- -------------------------------------------------------------------------------------------
Peggy Wong Treasurer and Treasurer and Chief Financial Officer
767 Fifth Avenue Chief Financial of: Baron Capital, Inc., Baron Capital
New York, NY 10153 Officer Group, Inc., BAMCO, Inc., Baron 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.
'D' 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.
</TABLE>
22 PROSPECTUS
<PAGE>
DISTRIBUTION PLAN
The Funds' shares are distributed by Baron Capital, which is the
principal underwriter of the shares of each Fund, pursuant to a
distribution plan under Rule 12b-1 of the 1940 Act ('Distribution
Plan'). The Distribution Plan authorizes the Fund to pay the
Principal Underwriter a distribution fee equal on an annual basis
to 0.25% of each Fund's average daily net assets. The distribution
fee is paid to the Principal Underwriter in connection with its
activities or expenses primarily intended to result in the sale of
shares, including, but not limited to, compensation to registered
representatives or other employees of the Principal Underwriter who
engage in or support the distribution of shares or who service
shareholder accounts; telephone expenses; interest expenses;
preparing, printing and distributing promotional and advertising
material; preparing, printing and distributing the Prospectus and
reports to other than current shareholders; and commissions and
other fees to broker-dealers or other persons (excluding banks) who
have introduced investors to the Funds. See the Statement of
Additional Information for a more detailed listing of the expenses
covered by the Distribution Plan.
HOW TO PURCHASE SHARES
Shares of BARON ASSET FUND, BARON GROWTH & INCOME FUND and BARON
SMALL CAP FUND are offered without any sales load. This means you
may purchase, redeem, or exchange shares directly without paying a
sales charge. An application is included with this prospectus. A
separate application is required to open a regular or Roth
individual retirement account ('IRA') and is available by calling
1-800-99-BARON. Purchase applications are subject to acceptance by
the Funds and the Funds reserve the right to reject any purchase
application in whole or part. All purchase payments will be
invested in full and fractional shares at a price based on the next
calculation of net asset value after the order is received by the
transfer agent. See 'Net Asset Value.'
The minimum initial investment is $2,000 unless you choose to
invest through the Baron InvestPlan (see page 25). There is no
minimum for subsequent purchases. The Adviser may, in its
discretion, waive the minimum investment requirements. The Fund may
redeem the shares of any shareholder who has an account balance of
less than $2,000. See 'How to Redeem Shares.'
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
23 PROSPECTUS
<PAGE>
Funds. Please call the Funds' transfer agent at 1-800-442-3814, if
you have any questions.
No certificates will be issued except upon written request, and no
certificates are issued for fractional shares. The Funds' transfer
agent establishes an account for each shareholder to which all
shares purchased are credited, together with any dividends and
capital gain distributions which may be paid in additional shares.
Whenever a transaction occurs in a shareholder's account, the
transfer agent will mail a statement showing the transaction and
the status of the account.
You may invest the following ways:
BY MAIL
To open a new account send your 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
which Fund. CHECKS MUST BE PAYABLE IN U.S. DOLLARS AND MUST BE
DRAWN ON A U.S. BANK. THIRD PARTY CHECKS, CREDIT CARDS AND CASH
WILL NOT BE ACCEPTED.
If your order to purchase shares of a Fund is canceled because your
check does not clear, you will be responsible for any resulting
loss incurred by the Fund. When making subsequent investments,
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 subsequent investments in the Funds by
wire. To do so: (1) contact the Funds' transfer agent, DST Systems,
Inc., at 1-800-442-3814 to obtain an account number. (2) Complete
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. Your bank may charge you a
fee for sending the wire transfer. (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.
24 PROSPECTUS
<PAGE>
Please be sure to include your name and account number. The Fund
will not be responsible for the consequences of delays in the
wiring process.
BY TELEPHONE
Once your account is open you may make subsequent investments by
telephone and exchange between the Funds if you have elected that
option on the application. By choosing this option you authorize
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 1-800-99-BARON 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 INTERMEDIARIES
You may purchase shares of the Funds through a broker-dealer, bank
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 will generally effect orders received
from these intermediaries at the net asset value next determined
after the Fund's transfer agent has received the order.
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed by any of the methods described
below. If you are selling shares in an IRA account please read the
information in the IRA kit.
BY MAIL
Shares may be sold by executing a written request for redemption,
as described below, and mailing the request to Baron Funds, P.O.
Box 419946, Kansas City, MO 64141-6946.
The redemption request must specify the name of the Fund, the
number of shares, or dollar amount, to be redeemed and the account
number. The request must be signed in exactly the same way the
account is registered, including the signature of each joint owner,
if applicable. A
25 PROSPECTUS
<PAGE>
signature guarantee is required for redemptions greater than
$25,000. See the 'Special Information About Redemptions' section on
page 26. If any certificates have been issued for shares that are
included in the redemption request, the certificates must be
presented in properly endorsed form. Within three days after
receipt of a redemption request by the transfer agent in proper
form, the Fund will normally mail you the proceeds.
BY TELEPHONE
If you have selected the telephone redemption option when you
opened your account, you may redeem your shares by telephone. To
add this option to your account call 1-800-442-3814 for a telephone
redemption form. Once made, your telephone request cannot be
modified or canceled. 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 $25,000, although exceptions may be
made for institutions. 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). If you have a stock certificate, you
must redeem by mail.
The Funds reserve the right to refuse a telephone redemption if
they believe it advisable to do so. Neither the Funds, its
officers, employees and trustees, nor its agents will be
responsible for the authenticity of telephone instructions or for
any losses caused by fraudulent or unauthorized instructions
received over the telephone provided that the Fund reasonably
believes that such instructions are genuine. The Funds and their
transfer agent employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including
recording telephonic instructions and sending written
confirmations. The Funds may incur liability if they do not follow
these procedures.
BY BROKER-DEALER
You may redeem shares through broker-dealers or other institutions
who may charge you a fee. The Funds may have special redemption
procedures with certain broker-dealers.
SPECIAL INFORMATION ABOUT REDEMPTIONS
To protect you and the Funds from fraud, all of the signatures on a
redemption request and/or certificate must be guaranteed by an
'eligible'
26 PROSPECTUS
<PAGE>
guarantor if (1) you want to redeem more than $25,000 in a quarter,
(2) you want the redemption check made out to someone other than
the record owner, (3) you want the redemption check to be mailed to
somewhere other than the record address, or (4) you want the
proceeds to be wired or transferred electronically to a bank
account not previously indicated. A signature guarantee is a widely
accepted way to protect you and the Funds by verifying the
signature on your request. The Funds will honor a signature
guarantee from acceptable financial institutions such as banks,
trust companies, savings and loan associations, credit unions and
broker-dealers. A notary public is not an acceptable guarantor. A
redemption request that requires a signature guarantee should be
sent by mail. No signature guarantee is required for redemptions of
$25,000 or less, per quarter, if proceeds are sent to the address
of record. The Funds may exempt certain institutions from the
signature guarantee requirements.
A corporate resolution, specifying the authorized signatory and
containing the corporate seal, is required for corporations that
are redeeming. Further documentation may be requested from
corporations, administrators, executors, trustees, custodians, or
others who hold shares in a fiduciary or representative capacity to
evidence the authority of the person or entity making the request.
If there are any questions concerning the required documentation,
the transfer agent should be contacted in advance at
1-800-442-3814. Redemptions will not be effective or complete until
all of the foregoing conditions, including receipt of all required
documentation by the transfer agent, have been satisfied.
If you have recently purchased shares please be aware that your
redemption request may not be honored until the purchase check has
cleared your bank, which generally occurs within fifteen calendar
days. Upon receipt of a redemption request in proper form, the
shares will be redeemed at their next computed net asset value
following receipt of redemption requests by the transfer agent. The
net asset value of shares on redemption may be more or less than
the investor's cost depending on the market value of the Fund's
portfolio securities at the time of redemption. A redemption of
shares is a taxable event that may result in recognition of a gain
or loss for tax purposes.
The Funds may suspend the right of redemption or postpone the date
of payment beyond three days during any period when (a) the New
York Stock Exchange is closed other than customary weekend and
holiday closings; (b) trading on the New York Stock Exchange is
restricted; (c) the Securities and Exchange Commission has by order
permitted such suspension; or (d) an emergency, as defined by rules
and regulations of
27 PROSPECTUS
<PAGE>
the Securities and Exchange Commission, exists as a result of which
disposal of portfolio securities or determination of the value of
the Funds' net assets is not reasonably practicable.
If you redeem more than $250,000 or 1% of the net asset value of a
Fund during any 90-day period, the Fund has the right to pay the
redemption price, either totally or partially, by a distribution of
portfolio securities instead of cash. The securities distributed in
such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares
being redeemed or repurchased. If shares are redeemed in kind, the
redeeming investor may incur brokerage costs in converting such
securities to cash.
The Trustees may, in order to reduce the expenses of the Funds,
redeem all of the shares of any shareholder whose account, due to
the redemption of shares, has a net asset value of less than
$2,000. The Funds will give 60 days' prior written notice to
shareholders whose shares are being redeemed to allow them to
purchase sufficient additional shares of the Funds to avoid such
redemption.
DETERMINING YOUR SHARE PRICE
Your purchases, sales or exchanges will be processed at the net
asset value per share of the Fund as of the close of the New York
Stock Exchange (the 'Exchange') (currently 4:00 p.m., New York City
time) on each day that the Exchange is open for trading by dividing
the current market value of the Fund's total assets less all of its
liabilities by the total number of shares outstanding at the time
the determination is made. Valid purchase and redemption orders
placed prior to the close of the Exchange on a day the Exchange is
open for trading are executed at the net asset value determined as
of the close that day, and orders placed after that time are valued
as of the close of the next trading day. The Funds may have
arrangements with certain institutional entities with respect to
the actual receipt of orders. The Funds reserve the right to change
the time at which orders are priced if the Exchange closes at a
different time or an emergency exists.
The Funds' portfolio securities traded on any national stock
exchange or quoted on the NASDAQ National Market System are valued
on the basis of the last sale price on the date of valuation or, in
the absence of any sale on that date, the last sale price on the
date the security last traded. Other securities are valued at the
mean of the most recent bid and asked prices if market quotations
are readily available. Where market quotations are not readily
available the securities are valued at their fair value as
determined in good faith by the Board of Trustees, or by the
Adviser,
28 PROSPECTUS
<PAGE>
pursuant to procedures established by the Board. Money market
instruments and debt securities with a remaining maturity of sixty
days or less are valued by the amortized cost method unless such
method does not represent fair value. Odd lot differentials and
brokerage commissions are excluded in calculating net asset value.
Securities quoted in a foreign currency are valued daily in U.S.
dollars at the foreign currency exchange rates that are prevailing
at the time the daily net asset value per share is determined. If
events that materially affect the value of a Fund's foreign
investments occur, the investments will be valued at their fair
value as determined in good faith by the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute all of its net investment income
and realized capital gains, if any, to its shareholders in a
single, combined distribution by December 31 of each year. After
every distribution, the value of a share is automatically reduced
by the amount of the distribution. You may elect to have all your
dividends and capital gains distributions from the Funds
automatically reinvested in additional shares of that Fund at the
next computed net asset value at the close of business on the
payment date. You may, instead, elect to receive your distributions
in cash, which the Fund will pay by either crediting your bank
account by Electronic Funds Transfer or issuing a check to you
within five business days of the reinvestment date. If no election
is made, all distributions will automatically be reinvested in
shares of the Fund. You may change your election by notifying the
Fund in writing prior to the record date for a particular
distribution. There are no charges in connection with the
reinvestment of distributions. If a shareholder has elected to
receive dividends and/or distributions in cash and the postal or
other delivery service is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution
option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or
redemption checks.
TAXES
Each Fund intends to qualify each year as a regulated investment
company under the Internal Revenue Code of 1986 (the 'Code').
Qualification as a regulated investment company relieves the Fund
of federal income and excise taxes on the portion of its net
ordinary income and net realized capital gain distributed to
shareholders.
You are subject to federal income tax at ordinary income tax rates
on any dividends derived from net investment income and
distributions of net
29 PROSPECTUS
<PAGE>
short-term capital gains, whether received in cash or in additional
shares. A portion of such dividends received by corporate
shareholders may qualify for the dividends-received deduction.
Distributions of net capital gain (the excess of net long-term
capital gains over net short-term capital losses) are taxable to
you as long-term gains regardless of how long you have held your
Fund shares. Dividends and distributions declared by the Fund may
also be subject to state and local taxes.
If you purchase shares shortly before a distribution, you must pay
income taxes on the distribution, even though the value of your
investment (plus cash received, if any) remains the same. The share
price at the time of your purchase may include unrealized gains in
the securities held in the investment portfolio of that Fund. If
these portfolio securities are subsequently sold and the gains are
realized, they will (to the extent not offset by capital losses) be
paid to you as a distribution of capital gains and be taxable to
you.
The Fund will be required to withhold 31% of all dividends,
distributions and redemption proceeds if you do not provide the
Fund with your valid social security or taxpayer identification
number or are otherwise subject to backup withholding. In addition
to the 31% backup withholding, your account will be charged $50 to
reimburse the Fund for any penalty that the IRS imposes on the Fund
for your failure to provide the required information.
Each shareholder will receive information annually on Form 1099 as
to the federal income tax status of all dividends and other
distributions paid or deemed paid to them for the year.
The foregoing is only a summary of some important tax
considerations generally affecting the Funds and their
shareholders. Prospective shareholders are urged to consult their
tax advisers concerning the tax consequences of this investment.
GENERAL INFORMATION
The Funds are organized as diversified open-end management
investment companies registered under the Investment Company Act of
1940 ('1940 Act') as three series of Baron Asset Fund, a
Massachusetts business trust organized under the laws of The
Commonwealth of Massachusetts on February 19, 1987. The Funds are
each authorized to issue an indefinite number of shares of
beneficial interest. The Declaration of Trust permits the Trustees
to establish additional series. Each share of a Fund has one vote
on all matters for which a shareholder vote is required, and
participates equally in dividend and capital gain distributions
when and if declared by the Fund and in the Fund's net assets upon
liquidation.
30 PROSPECTUS
<PAGE>
Shares are fully paid and non-assessable and there are no
preemptive, conversion or exchange rights. Shares do not have
cumulative voting rights and, as a result, holders of at least 50%
of the shares voting for Trustees can elect all Trustees and the
remaining shareholders would not be able to elect any Trustees.
As a Massachusetts business trust, annual shareholder meetings are
not required. Shareholders have certain rights, as set forth in the
Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of voting on the removal of one or
more Trustees on the written request of not less than 10% of the
outstanding shares. Such removal can be effected upon the action of
two-thirds of the outstanding shares.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, New York 10015 is
the custodian for the Funds' cash and securities. DST Systems, Inc.
serves as transfer agent and dividend disbursing agent for the
shares. In their respective capacities both institutions maintain
certain financial and accounting records pursuant to agreements
with the Funds. They do not assist in and are not responsible for
investment decisions involving assets of the Funds.
SHAREHOLDER INFORMATION
All shareholder inquiries regarding account information or
transactions should be directed to DST Systems, Inc., P.O. Box
419946, Kansas City, MO 64141-6946, or by telephone to
1-800-442-3814.
Shareholder inquiries about general Fund information and requests
for forms should be directed to the Funds' office at 1-800-99-BARON
or 212-583-2100.
Shareholders will be provided semi-annual unaudited and annual
audited reports, including a listing of portfolio securities held.
A single copy of each report will be mailed to an address at which
more than one registered shareholder with the same last name
(except nominees) has indicated mail is to be delivered, unless a
shareholder requests otherwise.
INTERNET ACCESS
The Funds have an internet site on the World Wide Web at
http://www.baronfunds.com.
STOCK SYMBOLS
BARAX Baron Asset Fund
BGINX Baron Growth & Income Fund
BSCFX Baron Small Cap Fund
31 PROSPECTUS
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
BARON ASSET FUND
Baron Asset Fund performed well in the fiscal year ended September
30, 1997. The Fund's 33.8% gain last year improved upon the Fund's
19.3% average annual performance since its inception a little more
than ten years ago.
-------------------------------------------------------------------
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
1987 10,471 11,950
1988 9,339 13,234
1989 11,346 18,521
1990 8,226 12,838
1991 11,993 17,760
1992 13,066 19,484
1993 17,397 26,595
1994 17,892 28,728
1995 22,072 38,002
1996 24,971 46,097
1997 33,259 61,655
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 throughout the year. Baron
Asset Fund under-performed the large cap S&P 500 index in the six
months ended March 1997 while outperforming the small cap Russell
2000 index. During the six months ended September 1997, Baron Asset
gained 35.6% and outperformed both the S&P 500 and the Russell
2000. The Russell 2000 also posted very strong gains. Although the
businesses in which the Fund invested grew strongly during the
first half of the fiscal year, the stock prices of these companies
did not reflect the growth of their underlying businesses. The
second half of the year represented a catch-up period for the stock
prices of our investments.
32 PROSPECTUS
<PAGE>
Baron Asset Fund concentrates its investments in small and mid
sized companies. During this year, and since late 1993, the
performance of market averages that represent small companies
significantly under-performed market averages that represent more
established, large companies. This trend reversed in the second
half of fiscal year 1997 when the Russell 2000 dramatically
outperformed the S&P 500. We believe that small and mid sized
companies currently offer better values than larger companies.
Baron Asset Fund is well positioned if small cap stocks continue to
outperform.
<TABLE>
<CAPTION>
BARON ASSET RUSSELL
FUND S&P 500 2000
----------- ------- -------
<S> <C> <C> <C>
12/31/92 - 9/30/97...................... +186.5% +144.3 % +120.9%
9/30/96 - 4/30/97....................... -0.7% +17.9 % +0.1%
4/30/97 - 9/30/97....................... +34.7% +19.1 % +33.1%
</TABLE>
The performance of Baron Asset Fund was consistent across sectors.
Most of our investments performed well. Performance was strongest
in Education, Financial Services, Media and Entertainment and Real
Estate. Performance lagged in Communications.
In fiscal year 1998, the Fund will continue to invest in companies
that, in our opinion, are undervalued relative to their long term
growth prospects and profitability. The Fund will continue to
invest in businesses with significant growth prospects and
increasing profitability. The companies will continue to be
identified through our independent research efforts. Companies in
which we invest will have the potential to increase 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 in stocks,
could allow the Fund to continue to produce above average rates of
return while keeping an attractive risk profile. We look forward to
a successful 1998.
33 PROSPECTUS
<PAGE>
BARON GROWTH AND INCOME FUND
Baron Growth & Income Fund performed well in the fiscal year ended
September 30, 1997. According to Lipper analytical, the Fund is the
number one ranked growth and income fund since its inception on
January 3, 1995.
-------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN BARON GROWTH & INCOME FUND
& THE RUSSELL 2000
-------------------------------------------------------------------
[CHART]
BARON
GROWTH
RUSSELL AND
2000* INCOME FUND
------- ----------
1995 10,000 10,000
1996 14,223 18,575
1997 18,943 25,468
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 strong performance can be attributed to its investment
strategy of allocating approximately 70% of its portfolio to
rapidly growing, well managed, very profitable small cap companies
that are attractively priced, and the remaining 30% to value
oriented, income producing securities, also principally of smaller
companies.
The growth component of the Fund experienced below average
performance during the first half of the fiscal year even though
the businesses in which the Fund is a shareholder grew steadily.
The strong relative performance of the Fund in the second half of
the fiscal year, a gain of 34.1%, is to a great extent due to the
Fund's investments in rapidly growing businesses and the strong
relative performance of small cap stocks. The Fund performed well
with its investments in Education, Financial Services and Media and
Entertainment. The Fund's investments in Communications
under-performed in 1997 and provide significant opportunities in
fiscal 1998.
The income component of the Fund performed well with its
significant REIT investments. The REIT portion of the Fund gained a
very strong
34 PROSPECTUS
<PAGE>
49.4% for the year. This performance compared extremely well with
other real estate oriented mutual funds. Strong appreciation from
the Fund's income component and substantial current income,
provided the Fund with very attractive relative risk
characteristics for a mutual fund invested primarily in small cap
companies.
In fiscal year 1998, we currently expect the majority of the Fund's
income producing securities to continue to be REITs. The growth
component of the Fund will continue to be invested in stocks that
have the potential to appreciate in value at least 50% during the
next two years.
The Fund's portfolio is well positioned to offer attractive returns
with its fast growing small cap companies. Its investments in
income-producing securities should provide the portfolio with more
stable, although somewhat lesser, returns. We look forward to a
successful 1998.
35 PROSPECTUS
<PAGE>
HOW TO PURCHASE SHARES
(Please consult the Prospectus for more detailed information)
BY MAIL
To open a new account send your application form with your check
payable to:
Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
When making subsequent investments, complete the additional
investment form provided at the bottom of your account statement or
purchase confirmation, or write a note indicating in which Baron
Fund the investment should go and the account number.
BY TELEPHONE
Once your account is open you may make subsequent investments by
telephone and exchange among the 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.
BY WIRE
You can make your initial or subsequent investments in the Funds by
wire. To do so: (1) contact the Funds' transfer agent, DST Systems,
Inc., at 1-800-442-3814 to obtain an account number. (2) Complete
the application form and mail it to:
Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
(3) Instruct your bank to wire funds to the United Missouri Bank of
Kansas City, N.A., ABA No. 1010-0069-5, Account No. 98-7037-101-4.
(4) Be sure to specify the following information in the wire: (a)
the Fund you are buying, (b) your account number, (c) your name,
and (d) your wire number.
BY BROKER-DEALERS
You may purchase shares of the Funds through a broker-dealer or
other financial institution that may charge a transaction fee.
Investors should be aware that if you purchase the shares directly
from the Funds, no transaction fee is charged.
NOT PART OF THE PROSPECTUS
<PAGE>
HOW TO REDEEM SHARES
(Please consult the Prospectus for more detailed information)
BY MAIL
Shares may be sold by executing a written request for redemption,
as described below, and mailing the request to:
Baron Funds
P.O. Box 419946
Kansas City, MO 64141-6946
The redemption request must specify the name of the Fund, the
number of shares, or dollar amount, to be redeemed and the account
number.
BY TELEPHONE
If you have selected the telephone redemption option when you
opened your account, you may redeem up to $25,000 per quarter by
telephone. To add this option to your account call 1-800-442-3814
for a telephone redemption form. Once made, your telephone request
cannot be modified or canceled. The minimum amount that you may
redeem by telephone is $1,000.
BY WIRE
To have redeemed shares wired to you please call 1-800-442-3814 for
instructions.
BY BROKER-DEALERS
You may redeem shares through broker-dealers or other institutions
who may charge you a fee.
SPECIAL INFORMATION ABOUT REDEMPTIONS
If the amount to be redeemed is greater than $25,000, all of the
signatures on a redemption request and/or certificate must be
guaranteed by an 'eligible' guarantor. Corporations and other
entities may have additional requirements.
NOT PART OF THE PROSPECTUS
<PAGE>
[LOGO]
767 Fifth Avenue
NY, NY 10153
212-583-2100
1-800-99-BARON
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as............................... 'D'
<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 28, 1998
________________________
Baron Asset Fund is a no-load, open-end, diversified management investment
company organized as a series fund with 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. Baron Asset Fund's investment
objective is to seek capital appreciation through investments in securities of
small and medium sized companies with under valued assets or favorable growth
prospects. Baron Growth & Income Fund's investment objective is to seek capital
appreciation with income as a secondary objective. Baron Small Cap Fund's
investment objective is to seek capital appreciation through investments
primarily in securities of small companies.
________________________
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Funds'
prospectus dated January 28, 1998 as amended or supplemented from time to time
(the "Prospectus"). This Statement of Additional Information contains additional
and more detailed information than that set forth in the Prospectus and should
be read in conjunction with the Prospectus. Additional copies of the Prospectus
may be obtained without charge by writing or calling the Funds at the address
and telephone number set forth above.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the related Prospectus, in connection
with the offer contained herein, and, if given or made, such other information
or representations must not be relied upon as having been authorized by the
Funds or the Distributor. This Statement of Additional Information and the
related Prospectus do not constitute an offer by the Funds or by the Distributor
to sell or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page in
Statement
of
Additional Page in
Information Prospectus
----------- ----------
<S> <C> <C>
Investment Objectives and Policies . . . . . . . 3 8
Investment Restrictions . . . . . . . . . . 3
Short Sales Against the Box . . . . . . . . 7 14
Option Transactions . . . . . . . . . . . . 8 13
Use of Segregated and Other Special Accounts 10
Depository Receipts . . . . . . . . . . . . 11
Medium and Lower Rated Corporate Debt Securities 12 11
Turnover Rate . . . . . . . . . . . . . . . 14 15
Management of the Funds
Board of Trustees and Officers. . . . . . . 15 20
Principal Holders of Shares . . . . . . . . 17
Investment Adviser. . . . . . . . . . . . . 17 19
Distributor . . . . . . . . . . . . . . . . 19 23
Distribution Plan . . . . . . . . . . . . . 20 23
Brokerage . . . . . . . . . . . . . . . . . 23 19
Custodian, Transfer Agent and
Dividend Agent. . . . . . . . . . . . . . . 26 31
Redemption of Shares . . . . . . . . . . . . . . 26 25
Net Asset Value. . . . . . . . . . . . . . . . . 26 28
Taxes. . . . . . . . . . . . . . . . . . . . . . 27 29
Organization and Capitalization. . . . . . . . . 28 30
General . . . . . . . . . . . . . . . . . . 28
Shareholder and Trustee Liability . . . . . 28
Other Information. . . . . . . . . . . . . . . . 27 30
Independent Accountants . . . . . . . . . . 27 6
Calculation of Performance Data . . . . . . 27 18
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds'
investment objectives and policies set forth on page 8 of the Prospectus.
Unless otherwise specified, the investment programs and restrictions are not
fundamental policies. Such operating policies are subject to change by the
Fund's Board of Trustees without the approval by the shareholders. Shareholders
will, however, be notified prior to any material changes. Fundamental policies
may be changed only with the approval of a majority of the Funds' outstanding
voting securities. Investment Restrictions
Baron Asset Fund, Baron Growth & Income Fund, and Baron Small Cap Fund have
adopted the following investment restrictions, which include those described in
the Prospectus. These restrictions represent fundamental policies of the Funds
and may not be changed without the approval of the Funds' shareholders. Unless
otherwise noted, all percentage restrictions are as of the time of the
investment after giving effect to the transaction.
BARON ASSET FUND MAY NOT:
1. Issue senior securities except in connection with any permitted borrowing
where the Fund is deemed to have issued a senior security;
2. Borrow money except from banks for temporary purposes in an amount not
exceeding 5% of the Fund's total assets less liabilities at the time the
borrowing is made;
3. Purchase securities on margin except for short-term credit necessary for
the clearance of portfolio transactions;
4. Make short sales of securities, maintain a short position, write put
options or buy futures contracts;
5. Purchase or sell commodities or commodity contracts;
6. Purchase or sell real estate or real estate mortgage loans or invest in the
securities of real estate companies unless such securities are publicly
traded;
7. Invest in oil, gas or mineral-related programs or leases;
8. Invest more than 25% of the value of its total assets in any one industry,
except investments in U.S. government securities;
<PAGE>
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 not readily marketable or in repurchase agreements
maturing or terminable in more than seven days;
11. Invest in securities of other open end investment companies (except in
connection with a merger, consolidation or other reorganization and except
for the purchase of shares of registered open-end money market mutual funds
if double advisory fees are not assessed), invest more than 5% of the value
of the Fund's total assets in more than 3% of the total outstanding voting
securities of another investment company or more than 10% of the value of
the Fund's total assets in securities issued by other investment companies;
12. Participate on a joint, or a joint and several, basis in any securities
trading account;
13. Underwrite securities of other issuers;
14. Make loans to other persons, except up to 10% of the value of the Fund's
total assets in loans of portfolio securities and except to the extent that
the purchase of publicly traded debt securities and the entry into
repurchase agreements in accordance with the Fund's investment objective
and policies may be deemed to be loans;
15. Mortgage, pledge or hypothecate any portfolio securities owned or held by
the Fund, except as may be necessary in connection with permitted
borrowing;
16. Invest more than 5% of its total assets in warrants to purchase common
stock;
<PAGE>
17. Purchase securities of any issuer with a record of less than three years'
continuous operation, including predecessors, except obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
such purchase would cause the investments of the Fund in all such issuers
to exceed 5% of the value of the total assets of the Fund; or
18. Purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the
Fund, or is a member, officer or Director of the Adviser, if after the
purchase of the securities of such issuer by the Fund one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities,
or both, all taken at market value, of such issuer, and such persons owning
more than 1/2 of 1% of such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all taken at market
value.
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, 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.
<PAGE>
5. Invest more than 25% of the value of its total assets in any one industry,
except investments in U.S. government securities.
6. Purchase the securities of any one issuer other than the U.S. government or
any of its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to the 5%
and 10% limitations.
7. Underwrite securities of other issuers.
8. Make loans, except to the extent the purchase of debt obligations of any
type (including repurchase agreements and corporate commercial paper) are
considered loans and except that the Fund may lend portfolio securities to
qualified institutional investors in compliance with requirements
established from time to time by the Securities and Exchange Commission and
the securities exchanges where such securities are traded.
9. Participate on a joint, or a joint and several, basis in any securities
trading account.
10. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with options, loans of portfolio securities, or
other permitted borrowings.
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.
<PAGE>
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 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
<PAGE>
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.
SHORT SALES AGAINST THE BOX
Baron Growth & Income Fund and Baron Small Cap Fund may sell short "against
the box" to protect or defer an unrealized gain in a security. At the time of
the short sale, the Funds will either own or have the unconditional right to
acquire at no additional cost the identical security sold short. The Funds may
use this technique in connection with convertible securities as well as common
stock. The Funds may have to pay a fee to borrow securities, which would
partially offset any gain thereon.
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 purpose of writing covered call options is to reduce
the effect of price fluctuations of the securities owned by the Fund (and
involved in the options) on the Fund's net asset value per share. The Funds may
also enter into equity swap transactions.
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation, when exercised, to buy, the
underlying security, at the exercise price. For instance, the Fund's purchase of
a put option on a security might be designed to protect its holdings in the
underlying security against a substantial decline in the market value by giving
the Fund the right to sell such security at the exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller if exercised, the obligation to sell, the underlying security at
the exercise price. The Fund's purchase of a call option on a security might be
intended to protect the Fund against an increase in the price of the underlying
security that it intends to purchase in the future by fixing the price at which
it may purchase such security or to limit the loss to the extent of the premium
for a security it might otherwise purchase. An American style put or call
<PAGE>
option may be exercised at any time during a fixed period while a European style
put or call option may be exercised only upon expiration or during a fixed
period prior thereto, and the Funds may engage in either style option. The Funds
are authorized to engage in transactions with respect to exchange-listed options
and over-the-counter options ("OTC options") and equity swap transactions.
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the OCC as
an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security, although in the future
cash settlement may become available. Rather than taking or making delivery of
the underlying security through the process of exercising the option, listed
options are usually closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange- listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange 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.
<PAGE>
Equity swap transactions are entered into with financial institutions
through a direct agreement with the Counterparty, generally pursuant to an ISDA
Master Agreement. The Funds may use equity swaps, or other derivative
instruments, for hedging purposes against potential adverse movements in
security prices or for non-hedging purposes such as seeking to enhance return.
The Funds may be required to post collateral for such transactions. The risks
involved are similar to the risks for OTC options. Please see the discussion of
risks below.
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 and an equity swap, including terms such as method of settlement,
term, exercise price, premium, guarantees and security, are negotiated by the
parties. The Funds expect generally to enter into OTC options that have cash
settlement provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with a Fund or fails to make a cash settlement payment due in
according with the option, the Fund will lose any premium it paid for the option
as well as any anticipated benefit of the transaction. The Adviser must assess
the creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Funds will engage in OTC option
transactions only with United States securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers" or broker dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligations of which have received) a short-term
credit rating of "A-1" from Standard & Poor's Corporation ("S&P") or "P-1" from
Moody's Investor Services ("Moody's") or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO"). The staff of
the SEC currently takes the position that OTC options purchased by a fund, and
portfolio securities "covering" the amount of the fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any,) are illiquid, and are subject to a fund's limitations on
investments in illiquid securities.
<PAGE>
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities in its portfolio or will increase the Fund's
income. The sale of put options can also provide income.
Baron Growth & Income Fund and Baron Small Cap Fund may purchase and sell
call options, and Baron Asset Fund may sell options, on corporate debt
securities and equity securities (including convertible securities). All calls
sold by the Funds must be "covered" (i.e., a Fund must own the underlying
securities) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though a Fund will receive the option
premium to help protect it against loss, a call sold by a Fund exposes that Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
Baron Growth & Income Fund and Baron Small Cap Fund may purchase and sell
put options, and Baron Asset Fund may buy put options, on corporate debt
securities and equity securities (including convertible securities). All put
options must be covered. In selling put options, there is a risk that the Fund
may be required to buy the underlying security at a disadvantageous price above
the market price.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that
a Fund segregate liquid high grade assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security or instrument. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities or instruments required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require that Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or
<PAGE>
to segregate liquid high grade securities sufficient to purchase and deliver the
securities if the call is exercised. A put option written requires that the Fund
segregate liquid, high grade assets equal to the exercise price. Hedging
transactions may be covered by other means when consistent with applicable
regulatory policies.
OTC options entered into by a Fund will generally provide for cash
settlement. As a result, when the Fund sells these instruments it will only
segregate an amount of assets equal to its accrued net obligations, as there is
no requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a noncash
settled put, the same as an OCC guaranteed listed option sold by the Fund, or
the in-the-money amount plus any sell-back formula amount in the case of a
cash-settled put or call. OCC-issued and exchange-listed options sold by a Fund
other than those above generally settle with physical delivery, or with an
election of either physical delivery, or cash settlement and the Fund will
segregate an amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical delivery
or cash settlement, will be treated the same as other options settling with
physical delivery.
DEPOSITORY RECEIPTS
The Funds may invest in securities commonly known as American Depository
Receipts ("ADRs"), and in European Depository Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. ADRs are certificates
issued by a United States bank or trust company and represent the right to
receive securities of a foreign issuer deposited in a domestic bank or foreign
branch of a United States bank and traded on a United States exchange or in an
over-the- counter market. EDRs are receipts issued in Europe generally by a
non-U.S. bank or trust company that evidence ownership of non-U.S. or domestic
securities. Generally, ADRs are in registered form and EDRs are in bearer form.
There are no fees imposed on the purchase or sale of ADR's or EDRs although the
issuing bank or trust company may impose on the purchase of dividends and the
conversion of ADRs and EDRs into the underlying securities. Investment in ADRs
has certain advantages over direct investment in the underlying non-U.S.
securities, since (i) ADRs are U.S. dollar denominated investments which are
easily transferable and for which market quotations are readily available and
(ii) issuers whose securities are represented by ADRs are subject to the same
auditing, accounting and financial reporting standards as domestic issuers. EDRs
are not necessarily denominated in the currency of the underlying security.
<PAGE>
MEDIUM AND LOWER RATED CORPORATE DEBT SECURITIES
Baron Growth & Income Fund and Baron Small Cap Fund may invest in
securities that are rated in the medium to lowest rating categories by S&P and
Moody's, some of which may be known as "junk bonds." The Funds may invest in
securities of distressed issuers when the intrinsic values of such securities
have, in the opinion of the Adviser, warranted such investment. Corporate debt
securities rated Baa are regarded by Moody's as being neither highly protected
nor poorly secured. Interest payments and principal security appears adequate to
Moody's for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such securities
are regarded by Moody's as lacking outstanding investment characteristics and
having speculative characteristics. Corporate debt securities rated BBB are
regarded by S&P as having adequate capacity to pay interest and repay principal.
Such securities are regarded by S&P as normally exhibiting adequate protection
parameters, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for securities in this rating category than in higher rated categories.
Corporate debt securities which are rated B are regarded by Moody's as
generally lacking characteristics of the desirable investment. In Moody's view,
assurance of interest and principal payments or of maintenance of other terms of
the security over any long period of time may be small. Corporate debt
securities rated BB, B, CCC, CC and C are regarded by S&P on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. In S&P's view,
although such securities likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. BB and B are regarded by S&P as indicating the
two lowest degrees of speculation in this group of ratings. Securities rated D
by S&P or C by Moody's are in default and are not currently performing.
<PAGE>
The Funds will rely on the Adviser's judgment, analysis and experience in
evaluating debt securities. Ratings by S&P and Moody's evaluate only the safety
of principal and interest payments, not market value risk. Because the
creditworthiness of an issuer may change more rapidly than is able to be timely
reflected in changes in credit ratings, the Adviser monitors the issuers of
corporate debt securities held in the Funds' portfolio. The credit ratings
assigned by a rating agency to a security is a factor considered by the Adviser
in selecting a security, but the intrinsic value in light of market conditions
and the Adviser's analysis of the fundamental values underlying the issuer are
of more significance. Because of the nature of medium and lower rated corporate
debt securities, achievement by the Funds of their respective investment
objectives when investing in such securities is dependent on the credit analysis
of the Adviser. 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. Securities
in default are relatively unaffected by such events or by changes in prevailing
interest rates. In addition, in such circumstances, the ability of issuers of
medium and lower grade corporate debt securities to repay principal and to pay
interest, to meet projected business goals and to obtain additional financing
may be adversely affected. Such consequences could lead to an increased
incidence of default for such securities and adversely affect the value of the
corporate debt securities in a Fund's portfolio. The secondary market prices of
medium and lower grade corporate debt securities are less sensitive to changes
in interest rates than are higher rated debt securities, but are more sensitive
to adverse economic changes or individual corporate developments. Adverse
publicity and investor perceptions, whether or not based on rational analysis,
may also affect the value and liquidity of medium and lower grade corporate debt
securities, although such factors also present investment opportunities when
prices fall below intrinsic values. Yields on debt securities in the portfolio
that are interest rate sensitive can be expected to fluctuate over time. In
addition, periods of economic uncertainty and changes in interest rates can be
expected to have an impact on the market price of any medium to lower grade
corporate debt securities in the portfolio and thus could have an effect on the
net asset value of a Fund if other
<PAGE>
types of securities did not show offsetting changes in values. The secondary
market value of corporate debt securities structured as zero coupon securities
or payment-in-kind securities may be more volatile in response to changes in
interest rates than debt securities which pay interest periodically in cash.
Because such securities do not pay current interest, but rather, income is
accrued, to the extent that 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
certain tax considerations.
To the extent that there is no established market for some of the medium or
low grade corporate debt securities in which the 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 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 corporate
debt 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.
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%. A portfolio turnover rate of 100%
would occur if all the securities in the portfolio were replaced in a one year
period. The portfolio turnover rate is calculated by dividing the lesser of
portfolio purchases or sales by the average monthly value of portfolio
securities, excluding short term securities. For the year ended September 30,
1997, Baron Asset Fund's portfolio turnover was 13% and Baron Growth & Income
Fund's was 25%. For the year ended September 30, 1996, Baron Asset Fund's
portfolio turnover was 19% and Baron Growth & Income Fund's portfolio turnover
was 40%. Baron Small Cap Fund has no historical rates to report at this time.
The turnover rate fluctuates depending on market conditions.
<PAGE>
MANAGEMENT OF THE FUNDS
-----------------------
BOARD OF TRUSTEES AND OFFICERS
The Trustees and executive officers of the Funds and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With the Fund During Past Five Years
- ---------------- --------------------------- -------------------------------------------------------
<S> <C> <C>
Ronald Baron *+ President, Chief Investment President and Director of:
767 Fifth Avenue Officer and Trustee Baron Capital, Inc. (1982- Present), Baron Capital
New York, NY 10153 Management, Inc. (1983-Present), Baron Capital Group,
Inc. (1984-Present), BAMCO, Inc. (1987- Present).
Norman S. Edelcup Trustee Chairman, Item Processing of America (1989-Present),
244 Atlantic Isle (financial institution service bureau); Director, Valhi Inc.
N. Miami Beach, FL 33160 (1975-Present) (diversified company); Director, Artistic
Greetings, Inc. (1985-Present).
Neal M. Elliott Trustee President, Chief Executive Officer and Chairman,
6001 Indian School Road, NE Horizon/CMS Healthcare Corp.(1986-Present) (long term
Albuquerque, NM 87110 health care); Director, LTC Properties, Inc.(1992-Present)
(real estate investment trust); Director, Frontier
Natural Gas Corp. (1991-Present) (oil and gas exploration).
Mark M. Feldman Trustee President and Chief Executive Officer, Cold Spring Group,
444 Madison Avenue, Ste 703 Inc. (1993-Present)(reorganization and restructuring consulting);
New York, NY 10020 Chief Restructuring Officer, various companies (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 Valley
4303 W. Wyndemere Circle Hospital Board; Retail Consultant, (1990-Present); Director, Cedar
Schnecksville, PA 18078 Crest College (1990-Present); Director, Henry Lehr & Co., Inc.
(1996-Present) (insurance); President and Chief Executive Officer,
Hess's Department Stores (1976-1990).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With the Fund During Past Five Years
- ---------------- --------------------------- -------------------------------------------------------
<S> <C> <C>
Clifford Greenberg Vice President Vice President, Baron Capital, Inc.,
767 Fifth Avenue Baron Capital Group, Inc., BAMCO, Inc.
New York, NY 10153 (1997-Present); General Partner, HPB
Associates, L.P. (1984-1996) (investment partnership).
Linda S. Martinson*+ Secretary, General Counsel and Secretary of: Baron
767 Fifth Avenue Vice President Capital, Inc. (1983-Present), BAMCO,
New York, NY 10153 and Trustee Inc. (1987-Present), Baron Capital
Group, Inc. (1984-Present), Baron
Capital Management, Inc. (1983-Present).
Charles N. Mathewson Trustee Chairman of the Board, International
9295 Prototype Road Game Technology (1986-Present)
Reno, NV 89511 (manufacturer of microprocessor-
controlled gaming machines and monitoring systems).
Harold W. Milner Trustee Retired; President and Chief Executive
2293 Morningstar Drive Officer, Kahler Realty Corporation
Park City, UT 84060 (1985-1997) (hotel ownership and management).
Raymond Noveck+ Trustee President, The Medical Information
31 Karen Road Line, Inc. (1997-Present) (health care
Waban, MA 02168 information); President, Strategic information); Director, Horizon/CMS
Healthcare Corporation (1987-1997).
Susan Robbins Vice President Senior Analyst, Vice President and
767 Fifth Avenue Director of: Baron Capital, Inc. (1982-
New York, NY 10153 Present), Baron Capital Management, Inc.(1984-Present).
Morty Schaja* Senior Vice Senior Vice President and Chief
767 Fifth Avenue President, Chief Operating Officer of Baron Capital, Inc.
New York, NY 10153 Operating Officer and Trustee (1997-Present), Managing Director, Vice
President, Baron Capital, Inc. (1991-Present) and Director, Baron
Capital Group, Inc., Baron Capital Management, Inc., and BAMCO, Inc.
(1997-Present).
Daniel Tisch Trustee Partner, Mentor Partners, L.P. (1987-
500 Park Avenue Present) (investment partnership).
New York, NY 10022
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With the Fund During Past Five Years
- ---------------- --------------------------- -------------------------------------------------------
<S> <C> <C>
David A. Silverman, M.D. Trustee Physician and Faculty, New York Univ.
239 Central Park West School of Medicine (1976-Present).
New York, NY 10024
Peggy Wong Treasurer and Treasurer and Chief Financial Officer
767 Fifth Avenue Chief Financial Officer of: Baron Capital, Inc., Baron Capital
New York, NY 10153 Group, Inc., BAMCO,Inc., Baron Capital Management, Inc.(1987-Present).
- ---------------------------------
* 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.
</TABLE>
The Trustees who are not affiliated with or interested persons of the
Funds' investment adviser receive fees of $5,000 annually plus an attendance fee
of $500 for each meeting attended in person ($250 for telephone participation).
The Trustees who are interested persons of the Funds' investment adviser receive
no compensation from the Funds. As indicated in the above table, certain
Trustees and officers also hold positions with the Funds' adviser and
distributor.
PRINCIPAL HOLDERS OF SHARES
As of December 31, 1997, 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. 49.8% 45.8% 45.2%
National Financial Services Corp. 11.8% 15.6% 28.4%
</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, 1997, all of the officers and Trustees of Baron Asset Fund as a
group beneficially owned directly or indirectly 0.41% of Baron Asset Fund's
outstanding shares 1.30% of Baron Growth & Income Fund's outstanding shares and
1.22% of Baron Small Cap Fund's outstanding shares.
<PAGE>
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.
Baro-n has over 25 years of experience as a Wall Street analyst and has managed
money for others for over 20 years. He has been a participant in Barron's
Roundtable and has been a featured guest on Wall Street Week, CNN and CNBC/FNN.
Pursuant to separate Advisory Agreements with each Fund (the "Advisory
Agreement"), the Adviser furnishes continuous investment advisory services and
management to each Fund, including making the day-to-day investment decisions
and arranging portfolio transactions for the Funds subject to such policies as
the Trustees may determine. Baron Asset Fund incurred advisory expenses of
$18,573,064 for the year ended September 30, 1997; $6,923,899 for the year ended
September 30, 1996; and $1,549,306 for the year ended September 30, 1995. Baron
Growth & Income Fund incurred advisory expenses of $2,828,391 for the year ended
September 30, 1997; $994,621 for the year ended September 30, 1996; and $60,398
for the period January 3, 1995 (commencement of operations) to September 30,
1995. Baron Small Cap Fund had no operating history as of September 30, 1997.
Under the Advisory Agreement, the Adviser, at its own expense and without
reimbursement from the Funds, furnishes office space and all necessary office
facilities, equipment and executive personnel for managing the Funds, and pays
the salaries and fees of all officers and Trustees who are interested persons of
the Adviser.
The Funds pay all operating and other expenses not borne by the Adviser
such as audit, accounting and legal fees; custodian fees; expenses of
registering and qualifying its shares with federal and state securities
commissions; expenses in preparing shareholder reports and proxy solicitation
materials; expenses associated with each Fund's shares such as dividend
disbursing, transfer agent and registrar fees; certain insurance expenses;
compensation of Trustees who are not interested persons of the Adviser; and
other miscellaneous business expenses. The Funds also pay the expenses of
offering the shares of each respective Fund, including the
<PAGE>
registration and filing fees, legal and accounting fees and costs of printing
the prospectus and related documents. Each Fund also pays all taxes imposed on
it and all brokerage commissions and expenses incurred in connection with its
portfolio transactions.
Ronald Baron is the controlling stockholder, President and a Director of
BCG. The Adviser utilizes the staffs of Baron Capital and Baron Capital's
subsidiary Baron Capital Management, Inc. ("BCM") to provide research.
Directors, officers or employees of the Adviser and/or its affiliates may also
serve as officers or Trustees of the Fund. BCM is an investment adviser to
institutional and individual accounts. Clients of BCM and Baron Capital have
investment objectives which may vary only slightly from those of each other and
of the Fund. BCM and Baron Capital invest assets in such clients' accounts and
in the accounts of principals and employees of BCM and Baron Capital in
investments substantially similar to, or the same as, those which constitute the
principal investments of the Fund. When the same securities are purchased for or
sold by the Fund and any of such other accounts, it is the policy of the
Adviser, BCM and Baron Capital to allocate such transactions in a manner deemed
equitable by the Adviser, and for the Adviser's, BCM's and Baron Capital's
principals and employees to take either the same or least favorable price of the
day.
Each Advisory Agreement provides that the Fund may use "Baron" as part of
its name for so long as the Adviser serves as investment adviser to that Fund.
Each Fund acknowledges that the word "Baron" in its name is derived from the
name of the entities controlling, directly and indirectly, the Adviser, which
derive their name from Ronald Baron; that such name is the property of the
Adviser and its affiliated companies for copyright and/or other purposes; and
that if for any reason the Adviser ceases to be that Fund's investment adviser,
that Fund will promptly take all steps necessary to change its name to one that
does not include "Baron," absent the Adviser's written consent.
Each Advisory Agreement provides that the Adviser shall have no liability
to that Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by that Fund; provided, that the Adviser shall not be
protected against liabilities arising by virtue of willful misfeasance, bad
faith or gross negligence, or reckless disregard of the Adviser's obligations
under the Advisory Agreement.
The Advisory Agreement with respect to Baron Asset Fund and Baron Growth &
Income Fund were approved by a majority of the Trustees, including a majority of
<PAGE>
the Trustees who are not "interested persons" ( as defined by the Investment
Company Act of 1940 ( "1940 Act" ) ) on May 11, 1987, and October 21, 1994,
respectively. The Advisory Agreement with respect to Baron Small Cap Fund was
approved by a majority of the Trustees, including a majority of the non-
interested Trustees, 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 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 1997 was approved at a Board of
Trustees meeting held on April 28, 1997.
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). Distributor
The Funds have a distribution agreement with Baron Capital, Inc., ("Baron
Capital" or the "Distributor") a New York corporation and a subsidiary of BCG
(controlled by Ronald Baron), located at 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; interest expenses;
<PAGE>
preparing, printing and distributing promotional and advertising material;
preparing, printing and distributing the Prospectus and reports to other than
current shareholders; and commissions and other fees to broker-dealers or other
persons (excluding banks) who have introduced investors to the Fund.
If and to the extent the expenses listed below are considered to be
primarily intended to result in the sale of shares within the meaning of Rule
12b-1, they are exempted from the limits set forth above: (a) the costs of
preparing, printing or reproducing and mailing all required reports and notices
to shareholders; (b) the costs of preparing, printing or reproducing and mailing
all proxy statements and proxies (whether or not such proxy materials include
any item relating to or directed toward the sale of shares); (c) the costs of
preparing, printing or reproducing and mailing all prospectuses and statements
of additional information; (d) all legal and accounting fees relating to the
preparation of any such report, prospectus, and proxy materials; (e) all fees
and expenses relating to the qualification of the Funds and/or their shares
under the securities or "Blue Sky" laws of any 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, 1997, Baron Asset Fund paid
distribution fees to the Distributor of $4,643,269 (an additional $577,723 was
incurred but not paid pursuant to the 0.25% limitation), and Baron Growth &
Income Fund paid distribution fees to the Distributor of $707,098 (an additional
$85,998 was incurred but not paid pursuant to the 0.25% limitation).
<PAGE>
The distribution expenses incurred by the Distributor for the fiscal year ended
September 30, 1997with respect to these two Funds were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Advertising $ 4,315
(b) printing and mailing of prospectuses 941,633
to other than current shareholders
(c) Compensation paid or to be paid to 4,022,417
sales personnel
(d) Other 1,055,723
</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. Ronald Baron, an interested person of the Funds,
the Adviser and the Distributor, had such an interest.
Baron Asset Fund received net proceeds of approximately $1,902,643,771 from
sales of its shares during the fiscal year ended September 30, 1997. The cost of
shares redeemed by the Fund during such year was approximately $507,202,614.
Baron Growth & Income Fund received net proceeds of approximately $203,535,325
from sales of1its shares for the fiscal year ended September 30,1997. The cost
of shares redeemed by the Fund during such period was approximately $112,424,286
Baron Small Cap Fund had no operating history as of September 30, 1997.
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
<PAGE>
fee as compensation for its services and expenses in connection with the
distribution of shares.
Baron Capital anticipates that its actual expenditures will substantially
exceed the distribution fee received by its during the early years of the Funds,
and that in later years its expenditures may be less than the distribution fee,
thus enabling Baron Capital to realize a profit in those years. For example, if
a Fund's average daily net asset value were $2 million, even if Baron Capital
incurred $50,000 of distribution expenses, it would receive only $10,000 as its
fee. Alternatively, if, the Fund's daily average net assets were $25 million,
and Baron Capital incurred $60,000 of distribution expenses, it would receive
$125,000 as its fee giving Baron Capital a $65,000 profit. If the Distribution
Plan is terminated, the Funds will owe no payments to Baron Capital other than
any portion of the distribution fee accrued through the effective date of
termination but then unpaid.
Unless terminated in accordance with its terms, the Distribution Plan shall
continue in effect until, and from year to year thereafter if, such continuance
is specifically approved at least annually by its Trustees and by a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Distribution Plan or in
any agreements related thereto, such votes cast in person at a meeting called
for the purpose of such vote.
The Distribution Plan may be terminated at any time by the vote of a
majority of the members of the 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.
<PAGE>
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 reliable executions at a favorable
price. Brokerage transactions for the Funds are effected chiefly by or through
the Adviser's affiliate, Baron Capital, when consistent with this objective and
subject to the conditions and limitations of the 1940 Act. Baron Capital is a
member of the National Association of Securities Dealers, Inc., but is not a
member of any securities exchange.
The Funds' Board of Trustees has adopted procedures pursuant to Rule 17e-1
of the 1940 Act which are reasonably designed to provide that the commissions
paid to Baron Capital are reasonable and fair compared to the commission, fee or
other 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. The Funds do not deal with Baron Capital in
any portfolio transaction in which Baron Capital acts as principal.
For the fiscal year ended September 30, 1997, of the total $3,307,779
brokerage commissions paid by Baron Asset Fund and Baron Growth & Income Fund,
<PAGE>
$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 77.9% of the aggregate dollar amount of brokerage commissions
paid and 76.4% of the aggregate dollar amount of transactions involving the
payment of commissions for the 1997 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. For the fiscal
year ended September 30, 1995, of the total $369,753 brokerage commissions paid
by the Funds, $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
<PAGE>
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 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.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York, 48 Wall Street, New York, NY, is the custodian for
the Funds' cash and securities. DST Systems, Inc., CT-7 Tower, 1004 Baltimore,
Kansas City, MO 64105, is the transfer agent and dividend agent for the Funds'
shares. Neither institution assists in or is responsible for investment
decisions involving assets of the Funds.
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 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.
<PAGE>
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 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 maybe 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.
<PAGE>
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.
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
noncumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees and, in such
event, the holders of the remaining shares voting for the election of Trustees
will not be able to elect any person or persons as Trustees. Shares have no
preemptive or subscription rights, and are transferable. Shareholder and Trustee
Liability
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund or any
series thereof. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by the Funds or
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
<PAGE>
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.
OTHER INFORMATION
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, New York
10019, has been selected as independent accountants of the Funds. 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
<PAGE>
reinvested at the net asset value on the appropriate reinvestment dates and
include all recurring fees.
Computed in the manner described above, the performance of Baron Asset Fund has
been:
<TABLE>
<CAPTION>
Average Annual Total Actual Return (does not
Return (prior to January include the 2%
1, 1992 includes the 2% contingent deferred
contingent deferred sales load)
sales load where
investment is less than
3 years)
<S> <C> <C>
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 12/31/97 +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 12/31/94 +14.9% +185.5%
Inception (06/12/87) to 12/31/93 +16.1% +165.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Actual Return (does not
Return (prior to January include the 2%
1, 1992 includes the 2% contingent deferred
contingent deferred sales load)
sales load where
investment is less than
3 years)
<S> <C> <C>
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 12/31/97 +24.0% +193.0%
FOR BARON GROWTH & INCOME FUND THE PERFORMANCE HAS BEEN:
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 12/31/97 +36.7% +155.4%
(From Inception 01/03/95)
FOR BARON SMALL CAP FUND THE PERFORMANCE HAS BEEN:
Quarter ended 12/31/97 +3.1% +3.1%
</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.
<PAGE>
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.
<PAGE>
BARON ASSET FUND
PART C.OTHER INFORMATION
------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
A. Financial Statements:
Included in Part B of this Registration Statement:
Report of Independent Accountants
Statement of Net Assets at September 30, 1997
Statement of Assets and Liabilities at September 30, 1997
Statement of Operations for the Year Ended to
September 30, 1997
Statement of Changes in Net Assets for the Years Ended
September 30, 1997 and 1996
Notes to the Financial Statements
Supplementary Information (condensed financial information)
(also included in Part A of this Registration Statement)
B. Exhibits:
1. Declaration of Trust dated February 19, 1987.
2. By-laws dated February 19, 1987.
3. Inapplicable.
4. Specimen Share Certificates representing shares of
beneficial interest of $.01 par value.
5. (a) Investment Advisory Agreement between
Baron Asset Fund and BAMCO, Inc.
(b) Investment Advisory Agreement between
Baron Growth & Income Fund and BAMCO, Inc.
(c) Investment Advisory Agreement between
Baron Small Cap Fund and BAMCO, Inc.
6. Distribution Agreement with Baron Capital, Inc.
7. Inapplicable.
8. (a) Custodian Agreement with The Bank of New York.
(b) Fee Schedule for Exhibit 8(a).
9. (a) Transfer Agency Agreement with Supervised Services
Company, Inc.
(b) Fee Schedule for Exhibit 9(a).
10. Opinion and consent of counsel as to legality of shares
being registered (filed with Rule 24f-2 Notice).
11. Consent of Independent Certified Public Accountants.
12. Inapplicable.
13. Letter agreement between the Registrant and the Purchaser
of the Initial Shares.
14. (a) IRA Disclosure Statement.
(b) IRA Account Application.
(c) 5305-A Agreement.
15. Distribution Plan pursuant to Rule 12b-1.
16. Schedule for computation of performance quotations.
17. Power of Attorney.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following diagram indicates the persons under common control with
Registrant, all of which are incorporated in New York.
Ronald Baron
|
|
90%
|
|
Baron Capital Group, Inc.
| |
100% 100%
| |
Baron Capital, Inc. BAMCO, Inc.
|
100%
|
|
Baron Capital Management, Inc.
Baron Capital, Inc. serves as distributor of Registrant's shares and performs
brokerage services for Registrant. BAMCO, Inc. serves as investment adviser to
Registrant. Ronald Baron, President of Registrant, is the controlling
shareholder of Baron Capital Group, Inc. and serves as President of all the
above entities.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF DECEMBER 31, 1997)
(1) (2)
TITLE OF CLASS OF SERIES NUMBER OF SHAREHOLDERS (APPROX)
- -------------------------------- ---------------------------------
Shares of beneficial interest
($.01 par value),
Baron Asset Fund 185,000
Baron Growth & Income Fund 35,000
Baron Small Cap Fund 25,000
ITEM 27. INDEMNIFICATION
Article IV of Registrant's Declaration of Trust states as follows:
SECTION 4.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC.
No shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than to the Trust of
its shareholders, in connection with Trust Property of the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property, or
<PAGE>
to the Property of one or more specific series of the Trust if the claim arises
from the conduct of such Trustee, officer, employee or agent with respect to
only such Series, for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any shareholder, Trustee, officer, employee,
or agent, as such, of the Trust, is made a party to any suit or proceeding to
enforce any such liability of the Trust, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
shareholder harmless from and against all claims and liabilities, to which such
shareholder may become subject by reason of his being or having been a
shareholder, and shall reimburse such shareholder out of the Trust Property for
all legal and other expenses reasonably incurred by him in connection with any
such claim or liability. Indemnification and reimbursement required by the
preceding sentence shall be made only out of assets of the one of more Series
whose shares were held by said shareholder at the time the act or event occurred
which gave rise to the claim against or liability of said shareholder. The
rights accruing to a shareholder under this Section 4.1 be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 4.2. NON-LIABILITY OF TRUSTEES, ETC.
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its shareholders, or to any shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation the
failure to compel in any way any 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 an 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;
<PAGE>
(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 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 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER
The business and other connections of BAMCO, Inc. is summarized under "The
Adviser" in the Prospectus constituting Part A of the Registration Statement,
which summary is incorporated herein by reference.
The business and other connections of the officers and directors of BAMCO,
Inc. is currently listed in the investment adviser registration on Form ADV for
BAMCO, Inc. (File No. 801-29080) and is incorporated herein by reference.
<PAGE>
ITEM 29. 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 and Trustee and
767 Fifth Avenue President President
New York, N.Y. 10153
Collin Baron Director None
855 Main Street
Bridgeport, CT 06604
Susan Robbins Director Vice President
767 Fifth Avenue and Vice President
New York, N.Y. 10153
Peggy Wong Treasurer Treasurer
767 Fifth Avenue
New York, N.Y. 10153
Morty Schaja Vice President Trustee and
767 Fifth Avenue 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 Trustee, Vice
767 Fifth Avenue President and
New York, N.Y. 10153 Secretary
</TABLE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, BAMCO, Inc. and
Baron Capital, Inc., 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.
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Registrant undertakes to file an amendment to the Registration Statement
which includes financial statements (which need not be certified) within four to
six months from the effective date of Registrant's 1933 Act Registration
Statement.
SIGNATURES
----------
Pursuant to the requirement of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
post-effective amendment No. 13 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City and State
of New York, on the day of January 28, 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. 14 to the registration statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
s/ Ronald Baron President (Principal January 28, 1998
- --------------------- Executive Officer) &
Ronald Baron Trustee
*s/ Raymond Noveck Trustee January 28, 1998
- ---------------------
Raymond Noveck
s/ Linda S. Martinson Secretary, January 28, 1998
- --------------------- Vice President & Trustee
Linda S. Martinson
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
s/ Peggy Wong Treasurer (Principal January 28, 1998
- ------------------------ Financial & Accounting
Peggy Wong Officer)
*s/ Mark M. Feldman Trustee January 28, 1998
- ------------------------
Mark M. Feldman
*s/ Norman S. Edelcup Trustee January 28, 1998
- ------------------------
Norman S. Edelcup
*s/ Charles N. Mathewson Trustee January 28, 1998
- ------------------------
Charles N. Mathewson
*s/ Irwin Greenberg Trustee January 28, 1998
- ------------------------
Irwin Greenberg
*s/ Daniel Tisch Trustee January 28, 1998
- ------------------------
Daniel Tisch
*s/ David A. Silverman Trustee January 28, 1998
- ------------------------
David A. Silverman
*s/ N. Elliott Trustee January 28, 1998
- ------------------------
N. Elliott
s/ M. Schaja Vice President & January 28, 1998
- ------------------------ Trustee
M. Schaja
s/ C. Greenberg Vice President January 28, 1998
- ------------------------
C. Greenberg
</TABLE>
*By: s/ Linda S. Martinson
---------------------
Linda S. Martinson
Attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
BARON ASSET FUND
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE OF EXHIBIT PAGE
- ----------- ---------------- ----
<S> <C> <C>
1 Declaration of Trust
2 By-laws *
4 Specimen Certificates ***
Baron Asset Fund
Baron Growth & Income Fund
5(a) Investment Advisory Agreement for **
Baron Asset Fund
5(b) Investment Advisory Agreement for **
Baron Growth & Income Fund
5(c) Investment Advisory Agreement for
Baron Small Cap Fund
6 Distribution Agreement **
8(a) Custodian Contract *
8(b) Fee Schedule for Exhibit 8(a) *
9(a) Transfer Agency Agreement ***
9(b) Fee Schedule for Exhibit 9(a) ***
10 Opinion and consent of counsel as ^
to legality of shares being
registered (filed with Rule
24f-2 Notice)
11 Consent of Independent Accountants
12 Unaudited Financial Statement for
Baron Small Cap Fund
13 Letter agreement relating to *
inital capital
14(a) IRA Disclosure Statement
14(b) IRA Application
15 Distribution Plan pursuant to **
Rule 12b-1
16(a,b,c) Calculation of performance
24 Power of Attorney
27(a) Financial Data Schedule for @
Baron Asset Fund
27(b) Financial Data Schedule for @
Baron Growth & Income Fund
27(c) Financial Data Schedule
Baron Small Cap Fund
* Previously filed with Pre-Effective Amendment No. 1
** Previously filed with Post-Effective Amendment No. 3
*** Previously filed with Post-Effective Amendment No. 5
**** Previously filed with Post-Effective Amendment No. 7
^ Previously filed with Rule 24f-2 Notice 11/97
@ Previously filed with Form NSAR for the period ended 09/30/97
</TABLE>
BARON ASSET FUND
Certificate of Designation Establishing
A Third Series of Baron Asset Fund,
BARON SMALL CAP FUND
The undersigned, being not less than a majority of the Trustees now in
office of Baron Asset Fund (hereinafter referred to as the "Trust"), a trust
with transferable shares of the type commonly called a Massachusetts business
trust, do hereby certify that, pursuant to the authority conferred upon the
Trustees of the Trust by Section 5.11 of the Declaration of Trust, dated
February 19, 1987 (hereinafter referred to as the "Declaration of Trust"), and
by the affirmative vote of not less than a majority of the Trustees, a third
series of shares of beneficial interest of the Trust is hereby established.
1. Without limiting the authority of the Trustees to establish and designate
hereafter other Series of the Trust, the shares of beneficial interest
(each a "Share" and collectively "Shares") of the Trust are hereby divided
into three separate series, designated the "Baron Asset Fund", the "Baron
Growth & Income Fund" and the "Baron Small Cap Fund." All shares of
beneficial interest of the Trust outstanding on the date on which this
Certificate of Designation becomes effective shall be and shall continue to
be shares of the Baron Asset Fund and Baron Growth & Income Fund,
respective series of the Trust.
2. Each Series established and designated hereby shall have the rights and
preferences provided for such Series herein and in the Declaration of
Trust, including without limitation the rights and preferences set forth in
Section 5.11 of the Declaration of Trust. Shareholders of any Series shall
also be considered Shareholders of the Trust, without distinction by
Series, for purposes of receiving reports and notices.
3. Each Series shall be authorized to invest in cash, securities, instruments
and other property as from time to time described in the Trust's
then-effective registration statement under the Securities Act of 1933.
Each Share of each Series shall be redeemable, shall be entitled to one
vote or fraction thereof in respect of a fractional share on matters on
which Shares of that series shall be entitled to vote and shall represent a
pro rata beneficial interest in the assets allocated to that Series and
shall be entitled to receive its pro rata share of net assets of that
Series upon liquidation of that Series, all as provided in the Declaration
of Trust.
4. Shareholders of each Series shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been duly
acted upon with respect to any Series as provided in Rule 18f-2 (or any
successor rule) as from time to time in effect under the Investment Company
Act of 1940, as amended, and the Declaration of Trust.
5. The assets and liabilities of the Trust shall be allocated among the Series
of the Trust as provided in Section 5.11(c) of the Declaration of Trust.
<PAGE>
6. Subject to compliance with requirements of the 1940 Act, the Trustees shall
have the authority to provide that holders of Shares of any Series shall
have the right to convert said Shares into Shares of one or more other
Series of the Trust specified for the purpose in the Trust's Prospectus for
the Series accorded such right, in accordance with such requirements and
procedures as the Trustees may from time to time establish. The
requirements and procedures applicable to such conversion of Shares of any
Series shall be set forth in the Prospectus in effect with respect to such
Shares.
7. Subject to the provisions and limitations of Section 5.9 and Section 8.3 of
the Declaration of Trust and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a majority
of the Trustees (or by any officer of the Trust pursuant to the vote of a
majority of the Trustees), subject to authorization by the vote of the
holders of Shares of any Series to the extent required by and in the manner
provided in Section 8.3 of the Declaration of Trust.
8. All capitalized terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration of Trust filed
with the Secretary of State of the Commonwealth of Massachusetts.
The Trustees further direct that, upon the execution of this Certificate of
Designation, the Trust take all necessary action to file a copy of this
Certificate of Designation with the Secretary of State of The Commonwealth
of Massachusetts and at any other place required by law or by the
Declaration of Trust.
In Witness Whereof, the undersigned have set their hands this 5th day of
September, 1997.
/s/ Ronald Baron /s/ Norman S. Edelcup
- ------------------------------------- ----------------------------------
Ronald Baron Norman S. Edelcup
/s/ Neal M. Elliott /s/ Mark M. Feldman
- ------------------------------------- ----------------------------------
Neal M. Elliott Mark M. Feldman
/s/ Irwin Greenberg /s/ Linda S. Martinson
- ------------------------------------- ----------------------------------
Irwin Greenberg Linda S. Martinson
/s/ Charles N. Mathewson /s/ Harold W. Milner
- ------------------------------------- ----------------------------------
Charles N. Mathewson Harold W. Milner
/s/ Raymond Noveck /s/ Morty Schaja
- ------------------------------------- ----------------------------------
Raymond Noveck Morty Schaja
/s/ David A. Silverman /s/ Daniel Tisch
- ------------------------------------- ----------------------------------
David A. Silverman Daniel Tisch
<PAGE>
ACKNOWLEDGMENT
State of New York )
) ss.
County of New York ) July 29, 1997
Then personally appeared the above named Ronald Baron and acknowledged the
foregoing instrument to be his free act and deed.
Before me,
/s/ Linda S. Martinson
--------------------------
Linda S. Martinson
Notary Public
ADVISORY AGREEMENT
------------------
THIS ADVISORY AGREEMENT, made this 30th day of September, 1997, by and
between BAMCO, Inc., a New York corporation ("BAMCO") and Baron Small Cap Fund
("Client") a series of Baron Asset Fund,
WHEREAS Client is an open-end, diversified management investment company
and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), that wishes to employ BAMCO to manage Client's portfolio (the
"Account"), upon the terms and subject to the conditions hereinafter set forth;
and
WHEREAS BAMCO is an investment adviser registered under the Investment
Advisers Act of 1940, as amended, that is willing to manage the Account in the
manner, upon the terms and subject to the conditions hereinafter set forth;
NOW THEREFORE in consideration of the promises and mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. The Account shall consist of such cash, stocks, bonds and other securities
which, from time to time, Client places under the supervision of BAMCO
and/or which shall become part of the Account as a result of transactions
therein, deposits of cash proceeds from the sale of Client's shares or
otherwise.
2. Subject to the supervision of the Trustees of the Client, BAMCO shall have
full discretion and authority to manage the Account, subject to such
policies as set forth in Client's prospectus. Client shall provide the
Adviser with copies of its current prospectus and statement of additional
information which set forth the investment objectives, policies and
investment restrictions of the Account, Declaration of Trust and By-laws.
BAMCO, as Client's agent and attorney in fact and at Client's expense, is
duly authorized without further approval with respect to the Account,
except as otherwise required by law, (a) to make all investment decisions;
(b) to vote all proxies with respect to portfolio securities in the
Account; (c) to buy, sell and otherwise trade in securities; and (d) in
furtherance of the foregoing, to do anything which BAMCO shall deem
requisite, appropriate or advisable, including, without limitation, the
submission of instructions to the custodian of the Account, and the
selection of such brokers or dealers as BAMCO shall determine.
3.(a)For BAMCO's services as investment adviser to Client, Client shall pay
BAMCO an advisory fee computed daily and payable monthly from Client's
assets equal to 1% per annum of the Client's average daily net asset value.
The fee shall be paid in arrears, within thirty (30) days after the end of
each month. The net asset value is determined as of the close of the New
York Stock Exchange on each day the Exchange is open. Securities traded on
any national stock exchange or quoted on the NASDAQ National Market System
are valued on the basis of the last sale price, or in the absence of any
sale on the date of valuation, the last sale price on the date the security
last traded. Other securities will be valued at the mean of the most recent
bid and asked prices if market quotations are not readily available. Where
market quotations are not readily available the securities will be valued
at their fair value as determined in good faith by Client's Trustees or
their delegate. Odd lot differentials and brokerage commissions will be
excluded in calculating net asset value.
<PAGE>
(b)If BAMCO should serve for less than the whole of any month,its compensation
shall be determined on the basis of the average daily net asset value of
the Account for the month up to and including the date of termination.
(c)If Client's expenses (exclusive of interest, taxes, brokerage,
extraordinary expenses and amounts paid by Client pursuant to its
distribution plan) in any fiscal year exceed the limits prescribed by any
state in which Client's shares of common stock ("Shares") are qualified for
sale, BAMCO shall, at each contract payment date, reduce its fee by the
amount of any excess up to the amount of BAMCO's advisory fee as determined
hereunder. Client undertakes to notify BAMCO of each state in which
Client's Shares are qualified for sale.
4.(a)BAMCO shall furnish office space and all necessary office facilities,
equipment and executive personnel for managing the Account without
reimbursement from Client.
(b)BAMCO shall pay the salaries and fees of all officers and trustees of
Client who are "interested persons" (as defined in the 1940 Act) of BAMCO.
(c)BAMCO shall not be obligated to pay the following expenses: (a) audit,
accounting and legal fees; (b) custodian fees; (c) fees for registering and
qualifying Client's Shares with federal and state securities commissions;
(d) fees for preparing shareholder reports and proxy solicitation
materials; (e) fees associated with Client's Shares such as dividend
disbursing, transfer agent and registrar fees; (f) insurance for [blank];
(g) compensation of Trustees of Client who are not "interested persons" of
BAMCO; (h) miscellaneous business expenses that are not within paragraph
4(a) above; (i) costs associated with the public offering of Client's
Shares, including registration, filing, legal and accounting fees and costs
of printing Client's prospectus and other offering documents; (j) taxes;
and (k) brokerage commissions and fees incurred in connection with
portfolio transactions.
(d)BAMCO shall maintain all books and records with respect to Client's
securities transactions required by subparagraphs (b)(5), (6), (9) and (10)
and paragraph (f) of Rule 31a-1 under the 1940 Act and shall render to
Client's Trustees such periodic and special reports as the Trustees may
reasonably request.
(e)BAMCO shall provide Client's Custodian on each business day with
information relating to the execution of all portfolio transactions
pursuant to standing instructions.
(f)The investment management services provided by the Adviser hereunder are
not to be deemed exclusive, and BAMCO shall be free to render similar
services to others.
<PAGE>
5. Client has delivered to BAMCO copies of each of the following documents and
will deliver to it all future amendments and supplements, if any:
(a)Declaration of Trust of the Trust, filed with the Secretary of The
Commonwealth of Massachusetts (such Declaration of Trust, as in effect on
the date hereof and as amended from time to time, is herein called the
"Declaration of Trust");
(b)By-laws of the Trust (such By-laws, as in effect on the date hereof and as
amended from time to time, are herein called the "By-laws");
(c)Certified resolutions of the Trustees of Client authorizing the appointment
of BAMCO and approving the form of this Agreement;
(d)Registration Statement under the 1940 Act and the Securities Act of 1933,
as amended, on Form N-1A (the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "Commission") relating to Client
and Client's Shares and all amendments thereto;
(e)Notification of Registration of the Client under the 1940 Act on Form N-8A
as filed with the Commission and all amendments thereto; and
(f)Prospectus and Statement of Additional Information of the Trust (such
Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus").
6. BAMCO shall keep Client's books and records required to be maintained by it
pursuant to paragraph 9 hereof. BAMCO agrees that all records which it
maintains for Client are the property of the Client, and it will surrender
promptly to the Client any of such records upon Client's request. BAMCO
further agrees to preserve for the periods prescribed by Rule 31a-2 as
promulgated by the Commission under the 1940 Act any such records as are
required to be maintained by BAMCO pursuant to paragraph 9 hereof.
7.(a)BAMCO understands that it is the policy of Client to obtain the best net
results for Client's shareholders in the execution of brokerage
transactions for the Account. BAMCO shall select all brokers in accordance
with such policy and as set forth below.
(b)BAMCO may use Baron Capital, Inc. ("BCI"), a broker-dealer affiliated with
BAMCO, as broker as long as BCI's execution of transactions is consistent
with Client's policy referred to above.
<PAGE>
(c)Client represents and warrants that it has adopted procedures in conformity
with Rule 17e-1 ("Procedures") of the 1940 Act to ensure that all brokerage
commissions paid to BCI are reasonable and fair. Client shall inform BAMCO
of such Procedures and any amendments thereto. BAMCO shall provide Client
with such information as is required by the Procedures, including, among
other things, a written record of each portfolio transaction effected
pursuant to Rule 17e-1, setting forth the amount and source of the
commission, fee or other remuneration received or to be received; the
identity of the person acting as broker; the terms of the transaction; and,
each quarter, such information as is necessary to enable Client to
determine whether its procedures have been followed.
(d)For BCI's services as broker to Client, Client shall pay to BCI brokerage
commissions consistent with Rule 17e-1 that are fair and reasonable
compared to the commission, fee or other remuneration received by other
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a
comparable period of time.
(e)Where brokers and dealers other than BCI are used to effect portfolio
transactions, BAMCO may pay to those brokers and dealers, in return for
research analysis, advice and similar services and/or promotion of the
Client's Shares, a higher commission or spread than may be charged by BCI
or other brokers or dealers, if BAMCO determines that such commission or
spread is reasonable and consistent with the Client's policies. Client
agrees that such research and information may be used by BAMCO to
supplement the services it is required to perform hereunder. Whether using
BCI or others, BAMCO shall have no obligation to seek the lowest commission
cost to Client. BAMCO's selection of a broker other than BCI will take into
account factors such as: price, reliability, financial responsibility,
commission rates, the ability of the broker to effect particular securities
transactions, and research and similar services, all of which may enhance
general portfolio management capabilities for BAMCO and/or its affiliates,
notwithstanding that Client may not be the direct or exclusive beneficiary
of such services.
8. BAMCO and/or BCI shall direct the clearing broker to send promptly to
Client confirmations of purchases and sales and monthly statements prepared
by the clearing broker. BAMCO shall provide Client with monthly and
quarterly statements. On the written request of Client, BAMCO and/or BCI
will send or direct the sending of any copies of the foregoing to any other
person.
9. BAMCO shall keep the books of account of the Fund and compute the net asset
value per share of the outstanding Shares. BAMCO shall also calculate daily
the net investment income of the Fund as described in the Fund's currently
effect Prospectus and shall advise the Fund and the transfer agent daily of
the total amounts of such investment income and, if instructed in writing
by an officer of the Fund to do so, shall advise the transfer agent
periodically of the division of such net investment income among its
various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described
from time to time in the Fund's currently effective Prospectus. BAMCO shall
submit to all regulatory and administrative bodies having jurisdiction over
the services provide pursuant to this Agreement, present or future, any
information, reports, or other material which any such body by reason of
this Agreement may request or require pursuant to applicable laws and
regulations. BAMCO shall not disclose or use any records it has prepared by
reason of this Agreement in any manner except as expressly authorized
herein or directed by the Fund and shall keep confidential any information
obtained by reason of this Agreement.
<PAGE>
10. Client understands and agrees that: (a) BAMCO is a wholly owned subsidiary
of Baron Capital Management, Inc. a registered investment adviser; (b)
BAMCO and/or its affiliates will manage accounts and perform advisory
services for others; (c) depending upon investment objectives and cash
availability and requirements, BAMCO and/or its affiliates may direct the
sale of a particular security for certain accounts and direct the purchase
of such security for other accounts, and, accordingly, transactions in
particular accounts may not be consistent with transactions in other
accounts; (d) where there is a limited supply of a security, BAMCO in
conjunction with its affiliates will allocate investment opportunities in a
matter deemed equitable by BAMCO; (e) BAMCO and/or its affiliates,
principals and employees may from time to time have an interest, direct or
indirect, in a security which is purchased, sold or otherwise traded for
the Account, and BAMCO and/or its affiliates may effect transactions in
said security for the Account which may be the same as or different from
the action which BAMCO, its affiliates or such other persons may take with
respect thereto for its or their accounts.
11. Client and BAMCO represent and warrant that each (i) has adopted and
supplied to one another a copy of a written code of ethics complying with
Rule 17j-1 of the Investment Company Act of 1940, and (ii) will obtain such
reports and maintain such records as are specified in Rule 17j-1.
12. Client acknowledges that the word "Baron" in Client's name is derived from
the name of the entities controlling, directly and indirectly, BAMCO, which
derive their names from Mr. Ronald Baron; and that such name is the
property of BAMCO, its affiliated companies and Ronald Baron for copyright
and/or other similar purposes. Client understands and agrees that Client
may use "Baron" as part of its name for so long as BAMCO serves as
investment adviser to Client, and if BAMCO ceases to be Client's investment
adviser, Client will promptly take all steps necessary to change its name
(to the extent it lawfully can) to one that does not include "Baron,"
absent BAMCO's written consent.
<PAGE>
13. BAMCO shall have no liability to Client or its shareholders for any error
of judgment or mistake of law or for any loss suffered by Client, provided
that BAMCO shall not be protected against liabilities arising by virtue of
willful misfeasance, bad faith or gross negligence, or reckless disregard
of BAMCO's obligations hereunder.
14. Nothing in this Agreement shall limit or restrict the right of any of
BAMCO's directors, officers, or employees who may also be a Trustee,
officer or employee of Client to engage in any other business or to devote
his time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or
restrict BAMCO's right to engage in any other business or to render
services of any kind to any other corporation, trust, firm, individual or
association.
15. Except as otherwise provided herein or authorized by the Trustees of Client
from time to time, BAMCO shall for all purposes herein be deemed to be an
independent contractor and shall have no authority to act for or represent
Client in any way or otherwise be deemed an agent of Client.
16. During the term of this Agreement, Client agrees to furnish BAMCO at its
principal office all prospectuses, proxy statements, reports to
shareholders, sales literature or other material prepared for distribution
to shareholders of Client or to the public, which refer to BAMCO in any
way, prior to use thereof and not to use such material if BAMCO reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, Client will continue to furnish to BAMCO copies of any of the
above-mentioned materials which refer in any way to BAMCO. Client shall
furnish or otherwise make available to BAMCO such other information
relating to the business affairs of Client as BAMCO at any time, or from
time to time, reasonably requests in order to discharge its obligations
hereunder.
17. This Agreement shall continue in effect for a period of two years from the
date of its execution, and thereafter only so long as such continuance is
specifically approved at least annually by Client's Trustees or by a vote
of a majority of the Trustees who are not parties to this Agreement or
interested persons of any such party.
18. This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of Client or by vote of a majority of the
outstanding voting Shares of Client (as defined in the 1940 Act) on not
more than sixty days' written notice to BAMCO or by BAMCO on not more than
sixty days' written notice to Client.
19. This Agreement shall terminate automatically in the event of its assignment
(as defined in the 1940 Act) by either party.
<PAGE>
20. This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, to the extent federal law does not apply.
21. BAMCO shall have no responsibility of liability with respect to custody
arrangements or the acts, omissions or other conduct of the custodian.
22. It is understood and expressly stipulated that none of the Trustees,
officers, agents or shareholders of the Fund shall be personally liable
hereunder. The name "Baron Asset Fund" is the designation of the Trustees
for the time being under a Declaration of Trust dated February 19, 1987,
and all persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
23. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to BAMCO at 767 Fifth Avenue, New York, New York
10153; or (2) to the Client at 767 Fifth Avenue, New York, New York 10153.
24. This Agreement contains the entire agreement and may not be amended or
modified in any respect unless in a writing signed by both parties obtained
in conformity with the requirements of the 1940 Act and the Rules
thereunder. In the event that any provision of this Agreement is declared
to be invalid such declaration shall not be deemed to affect the validity
of any of the provisions.
25. Client acknowledges receipt of Part II of BAMCO's Form ADV which is filed
with the Securities and Exchange Commission, and which contains information
concerning BAMCO's services and fees.
Agreed to as of September 30, 1997
New York, New York
BAMCO, INC.
By:
/s/ Peggy C. Wong
-----------------------------------
Peggy C. Wong
Baron Small Cap Fund
By:
/s/ Ronald Baron
-----------------------------------
Ronald Baron
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A (File Nos. 33-12112 and 811-5032) of our
report dated Novemeber 24, 1997, on our audits of the financial statements and
financial highlights of Baron Asset Fund.
We also consent to the reference to our Firm in the Prospectus under the caption
"Financial Highlights" and in the Statement of Additional Information under the
caption "Other Information-Independent Accountants."
/s/ Coopers & Lybrand, L.L.P.
-----------------------------
Coopers & Lybrand, L.L.P.
New York, New York
January 23, 1998
BARON SMALL CAP FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<S> <C>
COMMON STOCKS (96.12%)
AMUSEMENT AND RECREATION SERVICES (15.93%)
522,500 AMF Bowling, Inc.* 13,062,500
1,250,000 Cineplex Odeon Corp.* 1,562,500
250,000 Intrawest Corp. 4,343,750
232,000 Premier Parks, Inc.* 9,396,000
325,000 Regal Cinemas, Inc.* 9,059,375
250,000 Suburban Lodges of America, Inc.* 3,328,125
125,000 Sun Intl. Hotels, Ltd.* 4,703,125
-----------
45,455,375
BUSINESS SERVICES (11.78%)
230,000 Choicepoint, Inc.* 10,982,500
200,000 Culligan Water Tech., Inc.* 10,050,000
760,000 Strategic Distribution, Inc.* 3,420,000
190,000 United Stationers, Inc.* 9,143,750
-----------
33,596,250
COMMUNICATIONS (11.92%)
275,000 Centennial Cellular Corp.* 5,637,500
75,000 Commnet Cellular, Inc.* 2,667,187
335,000 Commonwealth Telephone Enterprises* 8,668,125
400,000 Mobile Telecommunication Technologies Corp* 8,800,000
400,000 Paging Network, Inc.* 4,300,000
300,000 Rural Cellular Corp.* 3,918,750
-----------
33,991,562
CONSUMER PRODUCTS (6.82%)
125,000 Equity Marketing, Inc.* 3,125,000
165,000 Harman International Industries, Inc. 7,053,750
325,000 Unova, Inc.* 5,342,188
250,000 U.S.A. Floral Product, Inc.* 3,937,500
-----------
19,458,438
EDUCATION (0.16%)
25,000 Bright Horizons, Inc.* 468,750
HEALTH SERVICES (11.08%)
275,000 Apple Orthodontix, Inc.* 3,265,625
350,000 Assisted Living Concepts, Inc.* 6,912,500
811,500 Counsel Corp.* 10,549,500
100,000 Emeritus Corp.* 1,275,000
400,000 Medical Resources, Inc.* 3,750,000
300,000 Paragon Health Network, Inc.* 5,868,750
-----------
31,621,375
HOTELS AND LODGING (2.06%)
175,000 Bristol Hotel Co.* 5,085,937
50,000 Choice Hotels Intl. Inc.* 800,000
-----------
5,885,937
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<S> <C>
MACHINERY AND ELECTRONICS (1.29%)
150,000 Coinmach Laundry Corp.* 3,675,000
MANUFACTURING (0.98%)
50,000 Amphenol Corp.* 2,784,375
MEDIA AND ENTERTAINMENT (11.30%)
250,000 Metro Networks, Inc.* 8,187,500
75,000 SFX Broadcasting, Inc.* 6,018,750
235,000 Universal Outdoor Hldgs, Inc.* 12,220,000
150,000 Young Broadcasting, Inc.* 5,812,500
-----------
32,238,750
REAL ESTATE AND REITS (10.72%)
210,000 CCA Prison Realty Trust 9,371,250
155,500 Crescent Operating, Inc.* 3,809,750
300,000 Iron Mountain, Inc.* 10,800,000
100,000 Kimco Realty Corp. 3,525,000
150,000 Pierce Leahy Corp.* 3,075,000
-----------
30,581,000
RETAIL TRADE AND RESTAURANTS (9.96%)
200,000 Kenneth Cole Productions, Inc. * 3,212,500
350,000 Mortons Restaurant Group, Inc.* 7,087,500
170,700 RDO Equipment Co.* 3,125,944
275,000 Sotheby Holdings, Inc. 5,087,500
142,500 West Marine, Inc.* 3,188,437
160,000 Williams-Sonoma, Inc.* 6,700,000
-----------
28,401,881
TRANSPORTATION (2.12%)
175,000 Budget Group, Inc.* 6,048,438
-----------
TOTAL COMMON STOCKS
(Cost $264,085,905) 274,207,131
CONTRACTS
- ---------
OPTIONS PURCHASED (0.48%)
MEDIA AND ENTERTAINMENT (0.48%)
450 American Radio Systems Corp.
Call $45.00 4/18/1998 466,875
1,000 American Radio Systems Corp.
Call $50.00 4/18/1998 562,500
1,650 American Radio Systems Corp.
Call $53.41 3/31/1998 334,950
-----------
TOTAL OPTIONS PURCHASED
(Cost $1,180,362) 1,364,325
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------ -------------
<S> <C>
SHORT TERM MONEY MARKET INSTRUMENTS (3.60%)
10,265,000 American Express Credit Corp. 6.6% Due 01/02/98 10,265,000
-------------
TOTAL SHORT TERM MONEY MARKET INSTRUMENTS
(Cost $10,265,000) 10,265,000
TOTAL INVESTMENTS (100.20%)
(Cost $275,531,267) 285,836,456
------------
OPTIONS WRITTEN (-0.12%)
(1,650) American Radio Systems Corp.
Put $53.41 3/31/1998 (351,037)
------------
TOTAL OPTIONS WRITTEN
(Proceeds $343,200) (351,037)
------------
LIABILITIES LESS
CASH AND OTHER ASSETS (214,495)
------------
NET ASSETS (EQUIVALENT TO $10.31 PER
SHARE BASED ON 27,664,373 SHARES OF
BENEFICIAL INTEREST OUTSTANDING) $285,270,924
============
% Represents percentage of net assets
* Non-income producing securities
** For Federal income tax purposes the cost basis
is identical. Aggregate unrealized appreciation and
depreciation of investments are $23,379,900 and
$13,074,711, respectively.
</TABLE>
<PAGE>
BARON SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (Cost $275,531,267) $285,836,456
Cash 584
Dividends and interest receivable 132,398
Receivable for securities sold 5,659,607
Receivable for shares sold 832,634
Unamortized organization costs (Note 1) 28,951
------------
292,490,630
------------
LIABILITIES:
Options written (Proceeds $ 343,200) 351,037
Payable for securities purchased 6,718,245
Accrued organization costs (Note 1) 28,951
Accrued expenses and other payables (Note 3) 121,473
------------
7,219,706
------------
NET ASSETS $285,270,924
============
NET ASSETS CONSIST OF:
Par value $276,644
Paid-in capital in excess of par value 277,344,815
Accumulated net investment loss (178,240)
Accumulated net realized loss (2,469,647)
Net unrealized appreciation on investments 10,297,352
------------
NET ASSETS $285,270,924
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING
($.01 par value; indefinite shares authorized) 27,664,373
============
NET ASSET VALUE PER SHARE $10.31
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
BARON SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 1, 1997(COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
INCOME:
<S> <C>
Interest $528,012
Dividends 221,624
--------
TOTAL INCOME 749,636
--------
EXPENSES:
Investment advisory fees (Note 3) 626,406
Distribution fees (Note 3) 156,602
Shareholder servicing agent fees 41,860
Custodian fees 18,875
Amortization of organization costs (Note 1) 1,524
Registration and filing fees 63,578
Trustee fees 2,126
Professional fees 7,500
Reports to shareholders 8,250
Insurance 324
Miscellaneous 831
--------
TOTAL EXPENSES 927,876
--------
NET INVESTMENT LOSS (178,240)
--------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
Net realized loss on investments sold (2,469,647)
Change in net unrealized appreciation
of investments 10,297,352
----------
Net gain on investments 7,827,705
----------
Net increase in net assets resulting
from operations $7,649,465
==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
BARON SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 1, 1997
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1997
---------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ($178,240)
Net realized loss on investments sold (2,469,647)
Net change in unrealized appreciation
on investments 10,297,352
----------
Increase in net assets resulting
from operations 7,649,465
----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income 0
Net realized gain on investments 0
----------
0
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from the sale of shares 299,538,551
Net asset value of shares issued in
reinvestment of dividends 0
Cost of shares redeemed (21,917,092)
-----------
Increase in net assets derived from
capital share transactions 277,621,459
-----------
Net increase in net assets 285,270,924
NET ASSETS:
Beginning of period 0
-----------
End of period $285,270,924
===========
UNDISTRIBUTED NET INVESTMENT LOSS AT END OF PERIOD ($178,240)
===========
SHARES OF BENEFICIAL INTEREST:
Shares sold 29,870,458
Shares redeemed (2,206,085)
-----------
Net increase 27,664,373
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
BARON SMALL CAP FUND
Notes to Financial Statements
(1) SIGNIFICANT ACCOUNTING POLICIES
Baron Small Cap Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the"1940 Act"), as a diversified, open-end
management investment company. The Fund is one of three series offered
through Baron Asset Fund (the Trust). The Trust was established on February
19,1987 as a Massachusetts business trust. The following is a summary of
significant accounting policies followed by the Fund. The policies are in
conformity with generally accepted accounting principles.
(a) SECURITY VALUATION
Portfolio securities traded on any national stock exchange or quoted
on the NASDAQ National Market System are valued on the basis of the
last sale price on the date of valuation or, in the absence of any
sale on that date, the last sale price on the date the security last
traded. Other securities are valued at the mean of the most recent bid
and asked prices if market quotations are readily available. Where
market quotations are not readily available the securities are valued
at their fair value as determined in good faith by the Board of
Trustees, although the actual calculations may be done by others.
Money market instruments held by the Fund with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates
value.
(b) OPTION ACCOUNTING PRINCIPLES
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Statement of Assets and
Liabilities as an asset and a corresponding liability. The amount of
the liability is subsequently mark-to-market to reflect the current
value of the option written. The current value of a traded option is
the last offering price, or in the absence of such price, fair value
as determined in good faith by the Board. When an option expires, or
the Fund enters into a closing purchase transaction, the Fund realizes
a gain or loss and the liability related to such option will be
extinguished. When an option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security and the proceeds of sale
are increased by the premium originally received.
(c) RESTRICTED SECURITIES
The Fund invests in securities which are restricted as to public sale
in accordance with the Securities Act of 1933. Such assets are valued
at fair value as determined in good faith by the Board of Trustees.
(d) SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis. Realized
gain and loss from securities transactions are recorded on an
identified cost basis for financial reporting and Federal income tax
purposes. Dividend income is recognized on the ex-dividend date and
interest income is recognized on an accrual basis.
(e) FEDERAL INCOME TAXES
It is the Funds policy to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as
amended, and to distribute all of its taxable income, including net
realized capital gains, if any, to its shareholders. No Federal income
tax provision is therefore required.
<PAGE>
(f) EXPENSE ALLOCATION
Expenses directly attributed to a Fund are charged to that Fund's
operations; expenses which are applicable to all Funds are allocated
on a basis deemed fair and equitable by the Trustees, usually on the
basis of average net assets.
(g) ORGANIZATION COSTS
Costs incurred in connection with the organization and initial
registration of Baron Small Cap Fund have been deferred and are being
amortized on a straight-line basis over a five-year period. Baron
Capital, Inc.("BCI"), a wholly owned subsidiary of Baron Capital
Group, Inc. ("BCG"), agreed to make advances for organization expenses
incurred and will be reimbursed as the costs are amortized.
(h) DISTRIBUTIONS
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses.
2) PURCHASES AND SALES OF SECURITIES
During the the period October 1,1997(Commencement of Operations) to
December 31, 1997, purchases and sales of securities, other than short term
securities, aggregated $299,563,967 and $33,008,447, respectively.
Transactions in written options during the period October 1,
1997(Commencement of Operations) to December 31, 1997 were as follows:
NUMBER OF CONTRACTS PREMIUMS
------------------- ---------
Options outstanding at October 1, 1997 0 0
Options written 1,650 $343,200
Options outstanding at December 31, 1997 1,650 $343,200
(3) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
(a) INVESTMENT ADVISORY FEES
BAMCO, Inc. (the "Adviser"), a wholly owned subsidiary of BCG serves
as investment adviser to the Fund. As compensation for services
rendered, the Adviser receives a fee payable monthly from the assets
of the Fund equal to 1% per annum of each Fund's average daily net
asset value. The Adviser has agreed that if the expenses (exclusive of
interest, taxes, brokerage, extraordinary expenses and amounts paid by
the Fund under the plan of distribution) of the Fund in any fiscal
year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale, the Adviser will reduce its fee by the
amount of any such excess, up to the amount of the Adviser's fee.
(b) DISTRIBUTION FEES
BCI is a registered broker dealer and the distributor of the shares of
the Fund pursuant to a distribution plan under Rule 12b-1 of the 1940
Act. The distribution plan authorizes the Fund to pay BCI a
distribution fee equal on an annual basis to 0.25% of the Funds'
average daily net assets.
Brokerage transactions for the Fund may be effected by or through BCI.
During the period October 1, 1997(Commencement of Operations) to
December 31, 1997, BCI earned $334,200 in brokerage commissions from
Fund transactions.
<PAGE>
(c) TRUSTEE FEES
Certain Trustees of the Trust may be deemed to be affiliated with or
interested persons (as defined by the 1940 Act) of the Fund's Adviser
or of BCI. None of the Trustees so affiliated received compensation
for his services as a Trustee of the Trust. None of the Fund's
officers received compensation from the Fund.
(4) FINANCIAL HIGHLIGHTS
BARON SMALL CAP FUND
Selected data for a share of beneficial interest outstanding:
1997*
--------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.01)
Net realized and unrealized gains
on investments 0.32
--------
TOTAL FROM INVESTMENT OPERATIONS 0.31
--------
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 PERIOD $10.31
========
TOTAL RETURN 3.1%
--------
RATIOS/SUPPLEMENTAL DATA
Net assets ( in millions), end of period $285.3
Ratio of expenses to average net assets 1.5%
Ratio of net investment income to
average net assets (.4%)
Portfolio turnover rate 13.0%
Average per share commission rate paid $0.0600
- ----------------------------------
* For the period October 1, 1997 (commencement of operations) to December 31,
1997.
BARON FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
BARON ASSET FUND
BARON GROWTH & INCOME FUND
BARON SMALL CAP FUND
ENCLOSED ARE THE FOLLOWING DOCUMENTS NEEDED
TO ESTABLISH YOUR BARON FUNDS IRA AS A
REGULAR IRA OR A ROTH IRA:
o Introduction
o Individual Retirement Account Adoption Agreement (Application)
o Authorization to Add an IRA
o Transfer/Rollover/Conversion Authorization
o Disclosure Statement
o Custodial Agreement
HOW TO OPEN A BARON FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
(1) Review carefully the enclosed material, including the Baron Funds
prospectus and the description of the custodian's fees.
(2) Complete, sign and date the Individual Retirement Account Application.
(3) To transfer an existing IRA to Baron Funds, complete, sign and date the
Transfer/Rollover/Conversion Authorization Form in addition to the IRA
Application.
(4) Except for transfers, make your investment check payable to Baron Funds.
The minimum initial contribution is $2,000.
(5) Please note that the Custodian charges annual maintenance fees of $12.00
per IRA Plan. If you have a Roth IRA and a Regular IRA, you would pay
two annual fees. The per account maintenance fee is waived if the assets
in the IRA are over $10,000. There is no fee to establish your IRA.
(6) Send the IRA Application and checks or Transfer/Rollover Authorization
(as applicable) to:
BARON FUNDS
P.O. BOX 419946
KANSAS CITY, MO 64141-6946
(7) If you have any questions, please call the Transfer Agent at
1-800-442-3814.
<PAGE>
BARON FUNDS
IRA Information Kit
INTRODUCTION
- ------------------------------------
WHAT'S NEW IN THE WORLD OF IRAS?
An Individual Retirement Account ("IRA") has always provided an attractive means
to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the new changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which will be available for use after January
1, 1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with very
high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can
be used instead of a Regular IRA, to replace an existing Regular IRA, or
complement a Regular IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to convert
existing IRAs into Roth IRAs. The details on conversion are found in the
description of Roth IRAs in this booklet.
Congress has also made significant changes to Regular IRAs. First, Congress
increased the income levels at which IRA holders who participate in
employer-sponsored retirement plans can make deductible Regular IRA
contributions. Also the rules for deductible contributions by an IRA holder
whose spouse is a participant in an employer-sponsored retirement plan have been
liberalized. Second, the 10% penalty tax for premature withdrawals (before age
59 1/2) will no longer apply in the case of withdrawals to pay certain higher
education expenses or certain first-time homebuyer expenses.
WHAT'S IN THIS KIT?
In this Kit you will find detailed information about Roth IRAs and about the
changes that have been made to Regular IRAs. You will also find everything you
need to establish and maintain either a Regular or Roth IRA, or to convert all
or part of an existing Regular IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you will need
to open a new Regular or Roth IRA, to transfer from another IRA to a Baron Funds
IRA, or to convert a Regular IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure Statement.
The Disclosure Statement is divided into three parts:
Part One describes the basic rules and benefits which are specifically
applicable to your Regular IRA.
Part Two describes the basic rules and benefits which are specifically
applicable to your Roth IRA.
Part Three describes important rules and information applicable to all
IRAs.
The third section of this Kit contains the Universal IRA Custodial Agreement.
The Custodial Agreement is also divided into three parts:
Part One contains provisions specifically applicable to Regular IRAs.
Part Two contains provisions specifically applicable to Roth IRAs.
Part Three contains provisions applicable to all IRAs (Regular and
Roth).
The Universal Individual Retirement Custodial Account Kit contains information
and forms for both Regular IRAs and Roth IRAs. However, you may use the Adoption
Agreement in this Kit to establish only one Regular IRA or one Roth IRA;
separate Adoption Agreements must be completed if you want to establish multiple
(Roth or Regular) IRA accounts.
WHAT'S THE DIFFERENCE BETWEEN A REGULAR IRA AND A ROTH IRA?
With a Regular IRA, an individual can contribute up to $2,000 per year and may
be able to deduct the contribution from taxable income, reducing income taxes.
Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies. With a Roth IRA, the contribution limits are essentially the
same as Regular IRAs,
2
<PAGE>
but there is no tax deduction for contributions. All dividends and investment
growth in the account are tax-free. Most important with a Roth IRA: there is no
income tax on qualified withdrawals from your Roth IRA. Additionally, unlike a
Regular IRA, there is no prohibition on making contributions to Roth IRAs after
turning age 70 1/2, and there's no requirement that you begin making minimum
withdrawals at that age.
The following chart highlights some of the major differences between a Regular
IRA and a Roth IRA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CHARACTERISTICS REGULAR IRA ROTH IRA
<S> <C> <C>
ELIGIBILITY o Individuals (and their spouses) who o Individuals (and their spouses)
receive compensation who receive compensation
o Individuals age 70 1/2 and over may Individuals age 70 1/2 and over
not contribute may contribute
- ------------------------------------------------------------------------------------------------------------------
TAX TREATMENT OF CONTRIBUTIONS o Subject to limitations, contributions o No deduction permitted for
are deductible amounts contributed
- ------------------------------------------------------------------------------------------------------------------
CONTRIBUTION LIMITS o Individuals may contribute up to o Individuals may generally con-
$2,000 annually (or 100% of com- tribute up to $2,000 (or 100%
pensation, if less) of compensation, if less)
o Deductibility depends on income o Ability to contribute phases out
level for individuals who are active at income levels of $95,000 to
participants in an employer- $110,000 (individual taxpayer)
sponsored retirement plan and $150,000 to $160,000 (mar-
ried taxpayers). Overall limit for
contributions to all IRAs (Regu-
lar and Roth combined) is
$2,000 annually (or 100% of
compensation, if less)
- ------------------------------------------------------------------------------------------------------------------
EARNINGS o Earnings and interest are not taxed o Earnings and interest are not
when received by your IRA taxed when received by your
IRA
- ------------------------------------------------------------------------------------------------------------------
ROLLOVER/CONVERSIONS o Individual may rollover amounts o Rollovers from other Roth IRAs
held in employer-sponsored retire- or Regular IRAs only
ment arrangements (401(k), SEP o Amounts rolled over (or con-
IRA, etc.) tax free to Regular IRA verted) from another Regular
IRA are subject to income tax
in the year rolled over or con-
verted
o Tax on amounts rolled over or
converted in 1998 is spread over
four year period (1998-2001)
- ------------------------------------------------------------------------------------------------------------------
WITHDRAWALS o Total (principal + earnings) taxable o Not taxable as long as a quali-
as income in year withdrawn (except fied distribution--generally,
for any prior non-deductible contri- account open non-deductible
butions) contribu tions) for 5 years, and
o Minimum withdrawals must begin age 59 1/2
after age 70 1/2 o Minimum withdrawals not
required after age 70 1/2
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
IS A ROTH OR A REGULAR IRA RIGHT FOR ME?
We cannot act as your legal or tax advisor and so we cannot tell you which kind
of IRA is right for you. The information contained in this Kit is intended to
provide you with the basic information and material you will need if you decide
whether a Regular or Roth IRA is better for you, or if you want to convert an
existing Regular IRA to a Roth IRA. We suggest that you consult with your
accountant, lawyer or other tax advisor, or with a qualified financial planner,
to determine whether you should open a Regular or Roth IRA or convert any or all
of an existing Regular IRA to a Roth IRA. Your tax advisor can also advise you
as to the state tax consequences that may affect whether a Regular or Roth IRA
is right for you.
SEPS AND SIMPLES
The Baron Funds Regular IRA may be used in connection with a simplified employee
pension (SEP) plan maintained by your employer. To establish a Regular IRA as
part of your Employer's SEP plan, complete the Adoption Agreement for a Regular
IRA, indicating in the proper box that the IRA is part of a SEP plan. A Roth IRA
should not be used in connection with a SEP plan.
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. A Regular IRA
may be used, but only after an individual has been participating for two or more
years (for the first two years, only a special SIMPLE IRA may be used). SIMPLE
IRA plans were added by the 1996 tax law to provide an easy and inexpensive way
for small employers to provide retirement benefits for their employees. If you
are interested in a SIMPLE IRA plan at your place of employment, call or write
to the number or address given at the end of the Disclosure Statement portion of
this Kit.
OTHER POINTS TO NOTE
The Disclosure Statement in this Kit provides you with the basic information
that you should know about Baron Funds Regular IRAs and Roth IRAs with Investors
Fiduciary Trust Company. The Disclosure Statement provides general information
about the governing rules for these IRAs and the benefits and features offered
through each type of IRA. However, the Adoption Agreement and the Custodial
Agreement are the primary documents controlling the terms and conditions of your
personal Baron Funds Regular or Roth IRA, and these shall govern in the case of
any difference with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom the Baron
Funds Regular or Roth IRA is established. A Roth IRA is either a Baron Funds
Roth IRA or any Roth IRA established by any other financial institution. A
Regular IRA is any non-Roth IRA offered by Baron Funds or any other financial
institution.
FEES
The annual fee for maintaining each IRA is $12.00. The annual fee is applied to
each plan type. For example, if you have a Roth IRA and a Regular IRA you would
pay two $12.00 fees. The annual maintenance fee is waived for an IRA plan if the
assets in that plan exceed $10,000. There are no fees to establish an IRA or to
terminate one.
4
(APPLICATIONS)
<PAGE>
BARON FUNDS
UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
PART ONE: DESCRIPTION OF REGULAR IRAS
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to Regular
IRAs beginning January 1, 1998. IRAs described in these pages are called
"Regular IRAs" to distinguish them from the new "Roth IRAs" first available
starting in 1998. Roth IRAs are described in Part Two of this Disclosure
Statement.
For Regular IRA contributions for 1997 (including contributions made up to April
15, 1998 but designated as contributions for 1997), there are different rules
for determining the deductibility of your contribution on your federal tax
return. For contributions for 1997, the "active participant" limits on
deductibility (described below) apply if either spouse is an active participant
in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels
for partially deductible or nondeductible Regular IRA contributions (described
below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if
your AGI is above $35,000; and $40,000 for married taxpayers filing jointly,
with no deduction if your AGI is above $50,000). Also, the exceptions to the 10%
early withdrawal penalty for withdrawals to pay certain higher education or
first-time homebuyer expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Regular IRAs. It does not
describe Roth IRAs, a new type of IRA available starting in 1998. Contributions
to a Roth IRA are not deductible (regardless of your AGI), but withdrawals that
meet certain requirements are not subject to federal income tax, so that
dividends and investment growth on amounts held in the Roth IRA can escape
federal income tax. Please see Part Two of this Disclosure Statement if you are
interested in learning more about Roth IRAs.
Regular IRAs described in this Disclosure Statement may be used as part of a
simplified employee pension (SEP) plan maintained by your employer. Under a SEP
your employer may make contributions to your Regular IRA, and these
contributions may exceed the normal limits on Regular IRA contributions. This
Disclosure Statement does not describe IRAs established in connection with a
SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Regular IRAs may be used in connection with a SIMPLE IRA program, but for the
first two years of participation a special SIMPLE IRA (not a Regular IRA) is
required.
YOUR REGULAR IRA
This Part One contains information about your Regular Individual Retirement
Custodial Account with Investors Fiduciary Trust Company as Custodian. A Regular
IRA gives you several tax benefits. Earnings on the assets held in your Regular
IRA are not subject to federal income tax until withdrawn by you. You may be
able to deduct all or part of your Regular IRA contribution on your federal
income tax return. State income tax treatment of your Regular IRA may differ
from federal treatment; ask your state tax department or your personal tax
advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Regular IRA,
investments and prohibited transactions, fees and expenses, and certain tax
requirements.
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A REGULAR IRA?
You are eligible to establish and contribute to a Regular IRA for a year if:
o You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
o You did not reach age 70 1/2 during the year.
5
<PAGE>
CAN I CONTRIBUTE TO A REGULAR IRA FOR MY SPOUSE?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Regular IRA for your spouse, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Regular IRA for your spouse, you must
file a joint tax return for the year with your spouse. For a spousal IRA, your
spouse must set up a different Regular IRA, separate from yours, to which you
contribute.
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A REGULAR IRA?
You may make a contribution to your existing Regular IRA or establish a new
Regular IRA for a taxable year by the due date (not including any extensions)
for your federal income tax return for the year. Usually this is April 15 of the
following year.
HOW MUCH CAN I CONTRIBUTE TO MY REGULAR IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Regular IRAs, each spouse may contribute up
to $2,000 to his or her IRA for a year as long as the combined compensation of
both spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess of the other spouse's compensation over the other spouse's IRA
contribution. However, the maximum contribution to either spouse's Regular IRA
is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions to both
your Regular IRA and a Roth IRA, the combined limit on contributions to both
your (or your spouse's) Regular IRA and Roth IRA for a single calendar year is
$2,000.
HOW DO I KNOW IF MY CONTRIBUTION IS TAX DEDUCTIBLE?
The deductibility of your contribution depends upon whether you are an active
participant in any employer-sponsored retirement plan. If you are not an active
participant, the entire contribution to your Regular IRA is deductible.
If you are an active participant in an employer-sponsored plan, your Regular IRA
contribution may still be completely or partly deductible on your tax return.
This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Regular IRA for your spouse
depends upon whether your spouse is an active participant in any
employer-sponsored retirement plan. If your spouse is not an active participant,
the contribution to your spouse's Regular IRA will be deductible. If your spouse
is an active participant, the Regular IRA contribution will be completely,
partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married taxpayers,
where one spouse is an active participant in an employer-sponsored retirement
plan and the other spouse is not. A contribution to the non-active participant
spouse's Regular IRA will be only partly deductible at an adjusted gross income
level on the joint tax return of $150,000, and the deductibility will be phased
out as described below over the next $10,000 so that there will be no deduction
at all with an adjusted gross income level of $160,000 or higher.
HOW DO I DETERMINE MY OR MY SPOUSE'S "ACTIVE PARTICIPANT" STATUS?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse) were an
active participant in an employer-sponsored retirement plan for a year. If you
have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your Regular
IRA if you and your spouse file separate tax returns for the taxable year and
you lived apart at all times during the taxable year.
WHAT ARE THE DEDUCTION RESTRICTIONS FOR ACTIVE PARTICIPANTS?
If you (or your spouse) are an active participant in an employer plan during a
year, the contribution to your Regular IRA (or your spouse's Regular IRA) may be
completely, partly or not deductible depending upon your filing status and your
amount of adjusted gross income ("AGI"). If AGI is any amount up to the lower
limit, the contribution is deductible. If your AGI falls between the lower limit
and the upper limit, the contribution is partly deductible. If your AGI falls
above the upper limit, the contribution is not deductible.
6
<PAGE>
<TABLE>
<CAPTION>
FOR ACTIVE PARTICIPANTS - 1998
IF YOU ARE IF YOU ARE THEN YOUR REGULAR
SINGLE MARRIED FILING JOINTLY IRA CONTRIBUTION IS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to Lower Limit Up to Lower Limit Fully
($30,000 for 1998) ($50,000 for 1998) Deductible
-----------------------------------------------------------------------------------------------------------
ADJUSTED More than Lower Limit More than Lower Limit Partly
GROSS but less than but less than Deductible
INCOME Upper Limit Upper Limit
(AGI) ($40,000 for 1998) ($60,000 for 1998)
LEVEL -----------------------------------------------------------------------------------------------------------
Upper Limit or more Upper Limit or more Not
Deductible
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit is always zero and your Upper Limit is
always $10,000).
<TABLE>
<CAPTION>
TABLE OF LOWER AND UPPER LIMITS
- ---------------------------------------------------------------------------------------------------------------------
YEAR SINGLE MARRIED FILING JOINTLY
- ---------------------------------------------------------------------------------------------------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $31,000 $41,000 $51,000 $ 61,000
2000 $32,000 $42,000 $52,000 $ 62,000
2001 $33,000 $43,000 $53,000 $ 63,000
2002 $34,000 $44,000 $54,000 $ 64,000
2003 $40,000 $50,000 $60,000 $ 70,000
2004 $45,000 $55,000 $65,000 $ 75,000
2005 $50,000 $60,000 $70,000 $ 80,000
2006 $50,000 $60,000 $75,000 $ 85,000
2007 and Later $50,000 $60,000 $80,000 $100,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
HOW DO I CALCULATE MY DEDUCTION IF I FALL IN THE "PARTLY DEDUCTIBLE" RANGE?
If your AGI falls in the partly deductible range, you must calculate the portion
of your contribution that is deductible. To do this, multiply your contribution
by a fraction. The numerator is the amount by which your AGI exceeds the lower
limit (for 1998: $30,000 if single, or $50,000 if married filing jointly). The
denominator is $10,000 (note that the denominator for married joint filers is
$20,000 starting in 2007). Subtract this from your contribution and then round
down to the nearest $10. The deductible amount is the greater of the amount
calculated or $200 (provided you contributed at least $200). If your
contribution was less than $200, then the entire contribution is deductible.
For example, assume that you make a $2,000 contribution to your Regular IRA in
1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
7
<PAGE>
1. The amount by which your AGI exceeds the lower limit of the partly -
deductible range: ($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555 = 0.7555 $10,000
3. Multiply this by your contribution limit: 0.7555 x $2,000 = $1,511
4. Subtract this from your contribution: ($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Regular IRA (and your spouse may contribute to your spouse's
Regular IRA) up to the limit on contributions. When you file your tax return for
the year, you must designate the amount of non-deductible contributions to your
Regular IRA for the year. See IRS Form 8606.
HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY REGULAR IRA?
The maximum contribution you can make to a Regular IRA generally is $2,000 or
100% of compensation or earned income, whichever is less. Any amount contributed
to the IRA above the maximum is considered an |P`excess contribution.|P' The
excess is calculated using your contribution limit, not the deductible limit. An
excess contribution is subject to excise tax of 6% for each year it remains in
the IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. A deduction should not be taken for
any excess contribution. The earnings must be included in your income for the
tax year for which the contribution was made and may be subject to a 10%
premature withdrawal tax if you have not reached age 59 1/2.
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution not withdrawn by the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each subsequent
year the excess remains in your account. Under limited circumstances, you may
correct an excess contribution after tax filing time by withdrawing the excess
contribution (leaving the earnings in the account). This withdrawal will not be
includable in income nor will it be subject to any premature withdrawal penalty
if (1) your contributions to all Regular IRAs do not exceed $2,000 and (2) you
did not take a deduction for the excess amount (or you file an amended return
(Form 1040X) which removes the excess deduction).
HOW ARE EXCESS CONTRIBUTIONS TREATED IF NONE OF THE PRECEDING RULES APPLY?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution for
the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent that
you contribute less than your maximum amount. As the prior excess contribution
is reduced or eliminated, the 6% excise tax will become correspondingly reduced
or eliminated for subsequent tax years. Also, you may be able to take an income
tax deduction for the amount of excess that was reduced or eliminated, depending
on whether you would be able to take a deduction if you had instead contributed
the same amount.
ARE THE EARNINGS ON MY REGULAR IRA FUNDS TAXED?
Any dividends on or growth of the investments held in your Regular IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Regular IRA is revoked (this is
described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A REGULAR IRA?
Almost all distributions from employer plans or 403(b)arrangements (for
employees of tax-exempt employers) are eligible for rollover to a Regular IRA.
The main exceptions are:
8
<PAGE>
o payments over the lifetime or life expectancy of the participant (or
participant and a designated beneficiary),
o installment payments for a period of 10 years or more,
o required distributions (generally the rules require distributions starting
at age 70 1/2 or for certain employees starting at retirement, if later),
and
o payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Regular IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Regular IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer contributions and
earnings distributed. You may not roll over any after-tax employee contributions
you made to the employer retirement plan. If you are over age 70 1/2 and are
required to take minimum distributions under the tax laws, you may not roll over
any amount required to be distributed to you under the minimum distribution
rules. Also, if you are receiving periodic payments over your or your and your
designated beneficiary's life expectancy or for a period of at least 10 years,
you may not roll over these payments. A rollover to a regular IRA must be
completed within 60 days after the distribution from the employer retirement
plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF YOUR
DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover. Your
plan or 403(b) sponsor is required to provide you with information about direct
and traditional rollovers and withholding taxes before you receive your
distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
advisor or the IRS if you have a question about rollovers.
ONCE I HAVE ROLLED OVER A PLAN DISTRIBUTION INTO A REGULAR IRA, CAN I
SUBSEQUENTLY ROLL OVER INTO ANOTHER EMPLOYER'S QUALIFIED RETIREMENT PLAN?
Yes. Part or all of an eligible distribution received from a qualified plan may
be transferred from the Regular IRA holding it to another qualified plan.
However, the IRA must have no assets other than those which were previously
distributed to you from the qualified plan. Specifically, the IRA cannot contain
any contributions by you (or your spouse). Also, the new qualified plan must
accept rollovers. Similar rules apply to Regular IRAs established with rollovers
from 403(b) arrangements.
CAN I MAKE A TRADITIONAL ROLLOVER FROM MY REGULAR IRA TO ANOTHER REGULAR IRA?
You may make a rollover from one Regular IRA to another Regular IRA you have or
you establish to receive the rollover. Such a rollover must be completed within
60 days after the withdrawal from your first Regular IRA. After making a
traditional rollover from one Regular IRA to another, you must wait a full year
(365 days) before you can make another such rollover. (However, you can instruct
a Regular IRA custodian to transfer amounts directly to another Regular IRA
custodian; such a direct transfer does not count as a rollover.)
WHAT HAPPENS IF I COMBINE ROLLOVER CONTRIBUTIONS WITH MY NORMAL CONTRIBUTIONS IN
ONE IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Regular IRAs by completing two
Adoption Agreements and two sets of forms. You should consult a tax advisor
before making your annual contribution to the IRA you established with rollover
contributions (or make a rollover contribution to the IRA to which you make your
annual contributions). This is because combining your annual contributions and
rollover contributions originating from an employer plan distribution would
prohibit the future rollover out of the IRA into another qualified plan. If
despite this, you still wish to combine a rollover contribution and the IRA
holding your annual contributions, you should establish the account as a Regular
IRA on the Adoption Agreement (not a Rollover IRA or Direct Rollover IRA) and
make the contributions to that account.
HOW DO ROLLOVERS AFFECT MY CONTRIBUTION OR DEDUCTION LIMITS?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
WHAT ABOUT CONVERTING MY REGULAR IRA TO A ROTH IRA?
The rules for converting a Regular IRA to a new Roth IRA, or making a rollover
from a Regular IRA to a new Roth IRA, are described in Part Two below.
9
<PAGE>
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY REGULAR IRA?
You may withdraw from your Regular IRA at any time. However, withdrawals before
age 59 1/2 may be subject to a 10% penalty tax in addition to regular income
taxes (see below).
WHEN MUST I START MAKING WITHDRAWALS?
If you have not withdrawn your entire IRA by the April 1 following the year in
which you reach 70 1/2, you must make minimum withdrawals in order to avoid
penalty taxes. The rule allowing certain employees to postpone distributions
from an employer qualified plan until actual retirement (even if this is after
age 70 1/2) does not apply to Regular IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
Regular IRA (or IRAs) by your life expectancy or the combined life expectancy of
you and your designated beneficiary. The minimum withdrawal rules are complex.
Consult your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal amount
and your actual withdrawals during a year. The IRS may waive or reduce the
penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
HOW ARE WITHDRAWALS FROM MY REGULAR IRA TAXED?
Amounts withdrawn by you are includable in your gross income in the taxable year
that you receive them, and are taxable as ordinary income. Lump sum withdrawals
from a Regular IRA are not eligible for averaging treatment currently available
to certain lump sum distributions from qualified employer retirement plans.
Since the purpose of a Regular IRA is to accumulate funds for retirement, your
receipt or use of any portion of your Regular IRA before you attain age 59 1/2
generally will be considered as an early withdrawal and subject to a 10% penalty
tax.
The 10% penalty tax for early withdrawal will not apply if:
o The distribution was a result of your death or disability.
o The purpose of the withdrawal is to pay certain higher education expenses
for yourself or your spouse, child, or grandchild. Qualifying expenses
include tuition, fees, books, supplies and equipment required for
attendance at a post-secondary educational institution. Room and board
expenses may qualify if the student is attending at least half-time.
o The withdrawal is used to pay eligible first-time homebuyer expenses. These
are the costs of purchasing, building or rebuilding a principal residence
(including customary settlement, financing or closing costs). The purchaser
may be you, your spouse, or a child, grandchild, parent or grandparent of
you or your spouse. An individual is considered a |P`first-time
homebuyer|P' if the individual (or the individual's spouse, if married) did
not have an ownership interest in a principal residence during the two-year
period immediately preceding the acquisition in question. The withdrawal
must be used for eligible expenses within 120 days after the withdrawal.
(If there is an unexpected delay, or cancellation of the home acquisition,
a withdrawal may be redeposited as a rollover).
o There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
o The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives or
life expectancies of you and your beneficiary).
o If there is an adjustment to the scheduled series of payments, the 10%
penalty tax may apply. The 10% penalty will not apply if you make no change
in the series of payments until the end of five years or until you reach
age 59 1/2, whichever is later. If you make a change before then, the
penalty will apply. For example, if you begin receiving payments at age 50
under a withdrawal program providing for substantially equal payments over
your life expectancy, and at age 58 you elect to receive the remain ing
amount in your Regular IRA in a lump-sum, the 10% penalty tax will apply to
the lump sum and to the amounts previously paid to you before age 59 1/2.
o The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2% of your adjusted gross
income for that year).
o The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
10
<PAGE>
HOW ARE NONDEDUCTIBLE CONTRIBUTIONS TAXED WHEN THEY ARE WITHDRAWN?
A withdrawal of nondeductible contributions (not including earnings) will be
tax-free. However, if you made both deductible and nondeductible contributions
to your Regular IRA, then each distribution will be treated as partly a return
of your nondeductible contributions (not taxable) and partly a distribution of
deductible contributions and earnings (taxable). The nontaxable amount is the
portion of the amount withdrawn which bears the same ratio as your total
nondeductible Regular IRA contributions bear t o the total balance of all your
Regular IRAs (including rollover IRAs and SEPs, but not including Roth IRAs).
For example, assume that you made the following Regular IRA contributions:
<TABLE>
<CAPTION>
Year Deductible Nondeductible
- --------------------------------------------------------------------------------
<S> <C> <C>
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
______ ______
$5,000 $2,000
</TABLE>
In addition assume that your Regular IRA has total investment earnings through
1998 of $1,000. During 1998 you withdraw $500. Your total account balance as of
12-31-98 is $7,500 as shown below.
Deductible Contributions $ 5,000
Nondeductible Contributions $ 2,000
Earnings On IRA $ 1,000
Less 1998 Withdrawal $ 500
Total Account Balance as of 12/31/98 $ 7,500
To determine the nontaxable portion of your 1998 withdrawal, the total 1998
withdrawal ($500) must be multi-plied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total
account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or
$8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
__________________________________
Total Account Balance$8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your taxable
income. The remaining $375 will be taxable for 1998. In addition, for future
calculations the remaining nondeductible contribution total will be $2,000 minus
$125, or $1,875.
A loss in your Regular IRA investment may be deductible. You should consult your
tax advisor for further details on the appropriate calculation for this
deduction if applicable.
IS THERE A PENALTY TAX ON CERTAIN LARGE WITHDRAWALS OR ACCUMULATIONS IN MY IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals from
all retirement accounts (including IRAs, 401(k) or other employer retirement
plans, 403(b) arrangements and others) in a year exceeding a specified amount
(initially $150,000 per year). Also, there was a 15% estate tax penalty on
excess accumulations remaining in IRAs and other tax-favored arrangements upon
your death. These 15% penalty taxes have been repealed.
IMPORTANT: Please see Part Three below which contains important information
applicable to ALL Baron Funds IRAs with Investors Fiduciary Trust Company.
11
<PAGE>
PART TWO: DESCRIPTION OF ROTH IRAS
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally applicable to
Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth
IRA are not tax-deductible, but withdrawals that meet certain requirements are
NOT subject to federal income taxes. This makes the dividends on and growth of
the investments held in your Roth IRA tax-free for federal income tax purposes
if the requirements are met.
Regular IRAs, which have existed since 1975, are still available. Contributions
to a Regular IRA may be tax-deductible. Earnings and gains on amounts while held
in a Regular IRA are tax-deferred. Withdrawals are subject to federal income tax
(except for prior after-tax contributions which may be recovered without
additional federal income tax).
This Part Two does not describe Regular IRAs. If you wish to review information
about Regular IRAs, please see Part One of this Disclosure Statement.
This Disclosure Statement also does not describe IRAs established in connection
with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained
by your employer. Roth IRAs may not be used in connection with a SIMPLE IRA
program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA
are not deductible, dividends on and growth of the assets held in your Roth IRA
are not subject to federal income tax. Withdrawals by you from your Roth IRA are
excluded from your income for federal income tax purposes if certain
requirements (described below) are met. State income tax treatment of your Roth
IRA may differ from federal treatment; ask your state tax department or your
personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Roth IRA, investments
and pro-hibited transactions, fees and expenses and certain tax requirements.
ELIGIBILITY
WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR A ROTH IRA?
Starting with 1998, you are eligible to establish and contribute to a Roth IRA
for a year if you received compensation (or earned income if you are self
employed) during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Regular IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
CAN I CONTRIBUTE TO A ROTH IRA FOR MY SPOUSE?
Starting with 1998, if you meet the eligibility requirements you can not only
contribute to your own Roth IRA, but also to a separate Roth IRA for your spouse
out of your compensation or earned income, regardless of whether your spouse had
any compensation or earned income in that year. This is called a |P`spousal Roth
IRA.|P' To make a contribution to a Roth IRA for your spouse, you must file a
joint tax return for the year with your spouse. For a spousal Roth IRA, your
spouse must set up a different Roth IRA, separate from yours, to which you
contribute.
Of course, if your spouse has compensation or earned income, your spouse can
establish his or her own Roth IRA and make contributions to it in accordance
with the rules and limits described in this Part Two of the Disclosure
Statement.
CONTRIBUTIONS
WHEN CAN I MAKE CONTRIBUTIONS TO A ROTH IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA for a
taxable year by the due date (not including any extensions) for your federal
income tax return for the year. Usually this is April 15 of the following year.
For example, you will have until April 15, 1999 to establish and make a
contribution to a Roth IRA for 1998.
CAUTION: Since Roth IRAs are available starting January 1, 1998, you may not
make a contribution by April 15, 1998 to a Roth IRA for 1997.
HOW MUCH CAN I CONTRIBUTE TO MY ROTH IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). Annual contributions may be made only to a Roth IRA annual
contribution account which does not contain converted or transferred funds from
a Regular IRA.
12
<PAGE>
Your Roth IRA limit is reduced by any contributions for the same year to a
Regular IRA. For example, assuming you have at least $2,000 in compensation or
earned income, if you contribute $500 to your Regular IRA for 1998, your maximum
Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may contribute up to
$2,000 to his or her Roth IRA for a year as long as the combined compensation of
both spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess of the other spouse's compensation over the other spouse's Roth IRA
contribution. However, the maximum contribution to either spouse's Roth IRA is
$2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any contributions for
the same calendar year to a Regular IRA maintained by you or your spouse.
For taxpayers with high income levels, the contribution limits may be reduced
(see below).
ARE CONTRIBUTIONS TO A ROTH IRA TAX DEDUCTIBLE?
Contributions to a Roth IRA are not deductible. This is a major difference
between Roth IRAs and Regular IRAs. Contributions to a Regular IRA may be
deductible on your federal income tax return depending on whether or not you are
an active participant in an employer-sponsored plan and on your income level.
ARE THE EARNINGS ON MY ROTH IRA FUNDS TAXED?
Any dividends on or growth of investments held in your Roth IRA are generally
exempt from federal income taxes and will not be taxed until withdrawn by you,
unless the tax exempt status of your Roth IRA is revoked. If the withdrawal
qualifies as a tax-free withdrawal (see below), amounts reflecting earnings or
growth of assets in your Roth IRA will not be subject to federal income tax.
WHICH IS BETTER, A ROTH IRA OR A REGULAR IRA?
This will depend upon your individual situation. A Roth IRA may be better if you
are an active participant in an employer-sponsored plan and your adjusted gross
income is too high to make a deductible IRA contribution (but not too high to
make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a Regular
IRA may depend upon a number of other factors including: your current income tax
bracket vs. your expected income tax bracket when you make withdrawals from your
IRA, whether you expect to be ab le to make nontaxable withdrawals from your
Roth IRA (see below), how long you expect to leave your contributions in the
IRA, how much you expect the IRA to earn in the meantime, and possible future
tax law changes.
Consult a qualified tax or financial advisor for assistance on this question.
ARE THERE ANY RESTRICTIONS ON CONTRIBUTIONS TO MY ROTH IRA?
Taxpayers with very high income levels may not be able to contribute to a Roth
IRA at all, or their contribution may be limited to an amount less than $2,000.
This depends upon your filing status and the amount of your adjusted gross
income (AGI). The following table shows how the contribution limits are
restricted:
13
<PAGE>
ROTH IRA CONTRIBUTION LIMITS
<TABLE>
<CAPTION>
IF YOU ARE IF YOU ARE THEN YOU MAY MAKE
SINGLE TAXPAYER MARRIED FILING JOINTLY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to Up to
$95,000 $150,000 Full Contribution
Adjusted ---------------------------------------------------------------------------------------------
Gross More than $95,000 More than $150,000 Reduced Contribution
Income but less than but less than (see explanantion
(AGI) $110,000 $160,000 below)
LEVEL ---------------------------------------------------------------------------------------------
$110,000 $160,000 Zero (No Contribution)
and up and up
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Note: If you are a married taxpayer filing separately, your maximum Roth IRA
contribution limit phases out over the first $15,000 of adjusted gross income.
If your AGI is $15,000 or more not contribute to a Roth IRA for the year. (Note:
Pending legislation in Congress may reduce this number from $15,000 to $10,000.
Consult your tax adviser or te IRS for the latest developments.)
HOW DO I CALCULATE MY LIMIT IF I FALL IN THE "REDUCED CONTRIBUTION" RANGE?
If your AGI falls in the reduced contribution range, you must calculate your
contribution limit. To do this, multiply your normal contribution limit ($2,000
or your compensation if less) by a fraction. The numerator is the amount by
which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to th e nearest $10. The contribution
limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are married,
filing jointly. You would calculate your Roth IRA contribution limit this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range: ($157,555-$150,000) = $7,555
2. Divide this by $10,000: $7,555 $10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit: ($2,000 - $1,551) = $489
5. Round this down to the nearest $10 = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
HOW DO I DETERMINE MY AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth IRA
contribution limits. First, if you are making a deductible contribution for the
year to a Regular IRA, your AGI is reduced by the amount of the deduction.
Second, if you are converting a Regular IRA to a Roth IRA in a year (see below),
the amount includable in your income as a result of the conversion is not
considered AGI when computing your Roth IRA contribution limit for the year.
(Note: a bill pending in Congress might affect the first rule -- consult your
tax advisor or the IRS for the latest developments.)
WHAT HAPPENS IF I CONTRIBUTE MORE THAN ALLOWED TO MY ROTH IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or 100%
of compensation or earned income, whichever is less. As noted above, your
maximum
14
<PAGE>
is reduced by the amount of any contribution to a Regular IRA for the same year
and may be further reduced if you have high AGI. Any amount contributed to the
Roth IRA above the maximum is considered an "excess contribution."
An excess contribution is subject to excise tax of 6% for each year it remains
in the Roth IRA.
HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. The earnings must be included in
your income for the tax year for which the contribution was made and may be
subject to a 10% premature withdrawal tax if you have not reached age 59 1/2
(unless an exception to the 10% penalty tax ap plies).
WHAT HAPPENS IF I DON'T CORRECT THE EXCESS CONTRIBUTION BY THE TAX RETURN DUE
DATE?
Any excess contribution not withdrawn by the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each subsequent
year the excess remains in your account.
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty.
For subsequent years you may reduce the excess contributions in your account by
making a withdrawal equal to the excess. Earnings need not be withdrawn. To the
extent that no earnings are withdrawn, the withdrawal will not be subject to
income taxes or possible penalties for premature withdrawals before age 59 1/2.
Excess contributions may also be corrected in a subsequent year to the extent
that you contribute less than your Roth IRA contribution limit for the
subsequent year. As the prior excess contribu tion is reduced or eliminated, the
6% excise tax will become correspondingly reduced or eliminated for subsequent
tax years.
CONVERSION OF EXISTING REGULAR IRA
CAN I CONVERT AN EXISTING REGULAR IRA INTO A ROTH IRA?
Yes, starting in 1998 you can convert an existing Regular IRA into a Roth IRA if
you meet the adjusted gross income (AGI) limits described below. Conversion may
be accomplished either by establishing a Roth IRA and then transferring the
amount in your Regular IRA you wish to convert to the new Roth IRA. Or, if you
want to convert an existing Regular IRA with Investors Fiduciary Trust as
custodian to a Roth IRA, you may give us directions to convert.
You are eligible to convert a Regular IRA to a Roth IRA if, for the year of the
conversion, your AGI is $100,000 or less. The same limit applies to married and
single taxpayers, and the limit is not indexed to cost-of-living increases.
Married taxpayers are eligible to convert a Regular IRA to a Roth IRA only if
they file a joint income tax return; married taxpayers filing separately are not
eligible to convert.
Note: No contributions other than Roth IRA conversion contributions made during
the same tax year may be deposited in a single Roth IRA conversion account.
CAUTION: You should be extremely cautious in converting an existing IRA into a
Roth IRA early in a year if there is any possibility that your AGI for the year
will exceed $100,000. Although a bill pending in Congress would permit you to
transfer amounts back to your Regular IRA if your AGI exceeds $100,000, under
the current rules, if you have already converted during a year and you turn out
to have more than $100,000 of AGI, there may be adverse tax results for you.
Consult your tax advisor or the IRS for the latest developments.
WHAT ARE THE TAX RESULTS FROM CONVERTING?
The taxable amount in your Regular IRA you convert to a Roth IRA will be
considered taxable income on your federal income tax return for the year of the
conversion. All amounts in a Regular IRA are taxable except for your prior
non-deductible contributions to the Regular IRA.
If you make the conversion during 1998, the taxable income is spread over four
years. In other words, you would include one quarter of the taxable amount on
your federal income tax return for 1998, 1999, 2000 and 2001.
SHOULD I CONVERT MY REGULAR IRA TO A ROTH IRA?
Only you can answer this question, in consultation with your tax or financial
advisors. A number of factors, including the following, may be relevant.
Conversion may be advantageous if you expect to leave the converted funds on
deposit in your Roth IRA for at least five years and to be able to withdraw the
funds under circumstances that will not be taxable (see below). The benefits of
converting will also depend on whether you expect to be in the same tax bracket
when you withdraw from your Roth IRA as you
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are now. Also, conversion is based upon an assumption that Congress will not
change the tax rules for withdrawals from Roth IRAs in the future, but this
cannot be guaranteed.
TRANSFERS/ROLLOVERS
CAN I TRANSFER OR ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S
RETIREMENT PLAN INTO A ROTH IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b)
arrangements (for employees of tax-exempt employers) are not eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances it
may be possible to make a direct rollover of an eligible distribution to a
Regular IRA and then to convert the Regular IRA to a Roth IRA (see above).
Consult your tax or financial advisor for further information on this
possibility.
CAN I MAKE A ROLLOVER FROM MY ROTH IRA TO ANOTHER ROTH IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or you
establish to receive the rollover. Such a rollover must be completed within 60
days after the withdrawal from your first Roth IRA. After making a rollover from
one Roth IRA to another, you must wait a full year (365 days) before you can
make another such rollover. (However, you can instruct a Roth IRA custodian to
transfer amounts directly to another Roth IRA custodian; such a direct transfer
does not count as a rollover.)
HOW DO ROLLOVERS AFFECT MY ROTH IRA CONTRIBUTION LIMITS?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another even
during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
WITHDRAWALS
WHEN CAN I MAKE WITHDRAWALS FROM MY ROTH IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets the
requirements discussed below, it is tax-free. This means that you pay no federal
income tax even though the withdrawal includes earnings or gains on your
contributions while they were held in your Roth IRA.
WHEN MUST I START MAKING WITHDRAWALS?
There are no rules on when you must start making withdrawals from your Roth IRA
or on minimum required withdrawal amounts for any particular year during your
lifetime. Unlike Regular IRAs, you are not required to start making withdrawals
from a Roth IRA by the April 1 following the year in which you reach age 70 1/2.
After your death, there are IRS rules on the timing and amount of distributions.
In general, the amount in your Roth IRA must be distributed by the end of the
fifth year after your death. However, distributions to a designated beneficiary
that begin by the end of the year following the year of your death and that are
paid over the life expectancy of the beneficiary satisfy the rules. Also, if
your surviving spouse is your designated beneficiary, the spouse may defer the
start of distributions until you wou ld have reached age 70 1/2 had you lived.
WHAT ARE THE REQUIREMENTS FOR A TAX-FREE WITHDRAWAL?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements.
First, the Roth IRA must have been open for 5 or more years before the
withdrawal. Second, at least one of the following conditions must be satisfied:
o You are age 59 1/2 or older when you make the withdrawal.
o The withdrawal is made by your beneficiary after you die.
o You are disabled (as defined in IRS rules) when you make the withdrawal.
o You are using the withdrawal to cover eligible first time homebuyer
expenses. These are the costs of purchasing, building or rebuilding a
principal residence (including customary settlement, financing or closing
costs). The purchaser may be you, your spouse or a child, grandchild,
parent or grandparent of you or your spouse. An individual is considered a
|P`first-time homebuyer|P' if the individual (or the individual's spouse,
if married) did not have an ownership interest in a principal residence
duri ng the two-year period immediately preceding the acquisition in
question. The withdrawal must be used for eligible expenses within 120 days
after the withdrawal (if there is an unexpected delay, or cancellation of
the home acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of $10,000
per individual.
For a Roth IRA that you set up with amounts rolled over or converted from a
Regular IRA, the 5 year period begins with the year in which the conversion or
rollover was made. (Note: a bill pending in Congress might affect this rule --
consult your tax advisor or the IRS for the latest developments.)
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For a Roth IRA that you started with a normal contribution, the 5 year period
starts with the year for which you make the initial normal contribution.
HOW ARE WITHDRAWALS FROM MY ROTH IRA TAXED IF THE TAX-FREE REQUIREMENTS ARE NOT
MET?
If the qualified withdrawal requirements are not met, a withdrawal consisting of
your own prior contribution amounts to your Roth IRA will not be considered
taxable income in the year you receive it, nor will the 10% penalty apply. To
the extent that the nonqualified withdrawal consists of dividends or gains while
your contributions were held in your Roth IRA, the withdrawal is includable in
your gross income in the taxable year you receive it, and may be subject to the
10% withdrawal penalty. All amounts withdrawn from your Roth IRA are considered
withdrawals of your contributions until you have withdrawn the entire amount you
have contributed. After that, all amounts withdrawn are considered taxable
withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution is
includable in income, all of your Roth IRA accounts are considered as one single
account. Amounts withdrawn from any one Roth IRA account are deemed to be
withdrawn from contributions first. Since all your Roth IRAs are considered to
be one account for this purpose, withdrawals from Roth IRA accounts are not
considered to be from earnings or interest until an amount equal to ALL
contributions made to ALL of an individual's Roth IRA accounts is withdrawn. The
following example illustrates this:
A single individual contributes $1,000 a year to his Baron Funds Roth IRA
account and $1,000 a year to the Brand X Roth IRA account over a period of ten
years. At the end of 10 years his account balances are as follows:
Principal
Contributions Earnings
- --------------------------------------------------------------------------------
Baron Funds Roth IRA $10,000 $10,000
Brand X Roth IRA $10,000 $10,000
_______ _______
Total $20,000 $20,000
At the end of 10 years, this person has $40,000 in both Roth IRA accounts, of
which $20,000 represents his contributions (aggregated) and $20,000 represents
his earnings (aggregated). This individual, who is 40, withdraws $15,000 from
his Brand X Roth IRA (not a qualified withdrawal). We look to the aggregate
amount of all principal contributions - in this case $20,000 - to determine if
the withdrawal is from contributions, and thus non-taxable. In this example,
there is no ($0) taxable income as a result of this withdrawal because the
$15,000 withdrawal is less than the total amount of aggregated contributions
($20,000). If this individual then withdrew $15,000 from his Baron Funds Roth
IRA, $5,000 would not be taxable (the remaining aggregate contributions) and
$10,000 would be treated as taxable income for the year of the withdrawal,
subject to regular income taxes and the 10% premature withdrawal penalty (unless
an exception applies).
Note: If passed, a bill currently pending in Congress will change the rules and
the results discussed above. Under the proposed legislation, in general,
separate Roth IRAs established for annual contributions and conversions for
separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax adviser for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated as
ordinary income. Withdrawals of taxable amounts from a Roth IRA are not eligible
for averaging treatment currently available to certain lump sum distributions
from qualified employer-sponsored retirement plans, nor are such withdrawals
eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you attain age
59 1/2 generally will be considered as an early withdrawal and subject to a 10%
penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the following
exceptions applies:
o The withdrawal was a result of your death or disability.
o The withdrawal is one of a scheduled series of substantially equal periodic
payments for your life or life expectancy (or the joint lives or life
expectancies of you and your beneficiary). If there is an adjustment to the
scheduled series of payments, the 10% penalty tax will apply. For example,
if you begin receiving payments at age 50 under a withdrawal program
providing for substantially equal payments over your life expectancy, and
at age 58 you elect to withdraw the remaining amount in your Roth I RA in a
lump-sum, the 10% penalty tax will apply to the lump sum and to the amounts
previously paid to you before age 59 1/2 to the extent they were includable
in your taxable income.
o The withdrawal is used to pay eligible higher education expenses. These are
expenses for tuition, fees, books, and supplies required to attend an
institution for post-secondary education. Room and board expenses are also
eligible for a student attending at least half-time. The student may be
you, your spouse, or your child or grandchild. However, expenses that are
paid for with a scholarship or other educational assistance payment are not
eligible expenses.
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o The withdrawal is used to cover eligible first time homebuyer expenses (as
described above in the discussion of tax-free withdrawals).
o The withdrawal does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2% of your adjusted gross
income for that year).
o The withdrawal does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
WHAT ABOUT THE 15 PERCENT PENALTY TAX?
The rule imposing a 15% penalty tax on very large withdrawals from tax-favored
arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been REPEALED. This 15% tax no longer applies.
IMPORTANT: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, Roth IRAs are
new under the tax laws, and the IRS has not issued regulations or rulings on the
operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation
now pending in Congress will change some of the rules. Therefore, you should
consult your tax advisor for the latest developments or for advice about how
maintaining a Roth IRA will affect your p ersonal tax or financial situation.
Also, please see Part Three below which contains important information
applicable to ALL Baron Funds IRAs with Investors Fiduciary Trust Company.
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PART THREE:
RULES FOR ALL IRAS
(REGULAR AND ROTH)
GENERAL INFORMATION
IRA REQUIREMENTS
All IRAs must meet certain requirements. Contributions generally must be made in
cash. The IRA trustee or custodian must be a bank or other person who has been
approved by the Secretary of the Treasury. Your contributions may not be
invested in life insurance or collectibles or be commingled with other property
except in a common trust or investment fund. Your interest in the account must
be nonforfeitable at all times. You may obtain further information on IRAs from
any district office of the Internal Revenue Service.
MAY I REVOKE MY IRA?
You may revoke a newly established Regular or Roth IRA at any time within seven
days after the date on which you receive this Disclosure Statement. A Regular or
Roth IRA established more than seven days after the date of your receipt of this
Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
HOW ARE MY IRA CONTRIBUTIONS INVESTED?
You control the investment and reinvestment of contributions to your Regular or
Roth IRA. Investments must be in one or more of the Baron Funds available from
time to time as listed in the Adoption Agreement for your Regular or Roth IRA or
in an investment selection form provided with your Adoption Agreement. You
direct the investment of your IRA by giving your investment instructions to the
Distributor or Service Company for the Fund(s). Since you control the investment
of your Regular or Roth IRA, you are responsible for any losses; neither the
Custodian, the Distributor nor the Service Company has any responsibility for
any loss or diminution in value occasioned by your exercise of investment
control. Transactions for your Regular or Roth IRA will generally be at the
applicable public offering price or net asset value for shares of the Fund(s)
involved next established after the Distributor or the Service Company
(whichever may apply) receives proper investment instructions from you; consult
the current prospectus for the Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus for any Fund
you are considering as an investment for your Regular IRA or Roth IRA. The
prospectus will contain information about the Fund's investment objectives and
policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or Roth IRA
and because mutual fund shares fluctuate in value, the growth in value of your
Regular or Roth IRA cannot be guaranteed or projected.
ARE THERE ANY RESTRICTIONS ON THE USE OF MY IRA ASSETS?
The tax-exempt status of your Regular or Roth IRA will be revoked if you engage
in any of the prohibited transactions listed in Section 4975 of the tax code.
Upon such revocation, your Regular or Roth IRA is treated as distributing its
assets to you. The taxable portion of the amount in your IRA will be subject to
income tax (unless, in the case of a Roth IRA, the requirements for a tax-free
withdrawal are satisfied). Also, you may be subject to a 10% penalty tax on the
taxable amount as a premature withdrawal if you have not yet reached the age of
59 1/2.
Any investment in a collectible (for example, rare stamps) by your Regular or
Roth IRA is treated as a withdrawal; the only exception involves certain types
of government-sponsored coins or certain types of precious metal bullion.
WHAT IS A PROHIBITED TRANSACTION?
Generally, a prohibited transaction is any improper use of the assets in your
Regular or Roth IRA. Some examples of prohibited transactions are:
o Direct or indirect sale or exchange of property between you and your
Regular or Roth IRA.
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o Transfer of any property from your Regular or Roth IRA to yourself or from
yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use all or part
of your interest in your Regular or Roth IRA as security for a loan or borrow
any money from your Regular or Roth IRA. Any portion of your Regular or Roth IRA
used as security for a loan will be treated as a distribution in the year in
which the money is borrowed. This amount may be taxable and you may also be
subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
CUSTODIAN'S FEES
The fees charged by the Custodian for maintaining either a Regular IRA or a Roth
IRA are listed in the Adoption Agreement. General Fee Policies Fees may be paid
by you directly, or the Custodian may deduct them from your Regular or Roth IRA.
Fees may be changed upon 30 days written notice to you.
The full annual maintenance fee will be charged for any calendar year during
which you have a Regular or Roth IRA with us. This fee is not prorated for
periods of less than one full year.
If provided for in this Disclosure Statement or the Adoption Agreement,
termination fees are charged when your account is closed whether the funds are
distributed to you or transferred to a successor custodian or trustee.
The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
OTHER CHARGES
There may be sales or other charges associated with the purchase or redemption
of shares of a Fund in which your Regular IRA or Roth IRA is invested. Before
investing, be sure to read carefully the current prospectus of any Fund you are
considering as an investment for your Regular IRA or Roth IRA for a description
of applicable charges.
TAX MATTERS
WHAT IRA REPORTS DOES THE CUSTODIAN ISSUE?
The Custodian will report all withdrawals to the IRS and the recipient on the
appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and the
amount of any rollover (including conversions of a Regular IRA to a Roth IRA) or
regular contribution made during a calendar year, as well as the tax year for
which a contribution is made. Unless the Custodian receives an indication from
you to the contrary, it will treat any amount as a contribution for the tax year
in which it is received. It is most important that a contribution between
January and April 15th for the prior year be clearly designated as such.
WHAT TAX INFORMATION MUST I REPORT TO THE IRS?
You must file Form 5329 with the IRS for each taxable year for which you made an
excess contribution or you take a premature withdrawal that is subject to the
10% penalty tax, or you withdraw less than the minimum amount required from your
Regular IRA. If your beneficiary fails to make required minimum withdrawals from
your Regular or Roth IRA after your death, your beneficiary may be subject to an
excise tax and be required to file Form 5329.
For Regular IRAs, you must also report each nondeductible contribution to the
IRS by designating it a nondeductible contribution on your tax return. Use Form
8606. In addition, for any year in which you make a nondeductible contribution
or take a withdrawal, you must include additional information on your tax
return. The information required includes: (1) the amount of your nondeductible
contributions for that year; (2) the amount of withdrawals from Regular IRAs in
that year; (3) the amount by which your total nondeductible contributions for
all the years exceed the total amount of your distributions previously excluded
from gross income; and (4) the total value of all your Regular IRAs as of the
end of the year. If you fail to report any of this information, the IRS will
assume that all your contributions were deductible. This will result in the
taxation of the portion of your withdrawals that should be treated as a
nontaxable return of your nondeductible contributions.
WHICH WITHDRAWALS ARE SUBJECT TO WITHHOLDING?
ROTH IRA
Federal income tax will be withheld at a flat rate of 10% of any taxable
withdrawal from your Roth IRA, unless you elect not to have tax withheld.
Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
REGULAR IRA
Federal income tax will be withheld at a flat rate of 10% from any withdrawal
from your Regular IRA, unless you
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elect not to have tax withheld. Withdrawals from a Regular IRA are not subject
to the mandatory 20% income tax withholding that applies to most distributions
from qualified plans or 403(b) accounts that are not directly rolled over to
another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form (or other withdrawal
instructions in a form acceptable to the Custodian), or a transfer authorization
form, to:
BARON FUNDS
P.O. BOX 419946
KANSAS CITY, MO 64141-6946
Your Regular IRA or Roth IRA with Investors Fiduciary Trust will terminate upon
the first to occur of the following:
o The date your properly executed withdrawal form or instructions (as
described above) withdrawing your total Regular IRA or Roth IRA balance is
received and accepted by the Custodian or, if later, the termination date
specified in the withdrawal form.
o The date the Regular IRA or Roth IRA ceases to qualify under the tax code.
This will be deemed a termination.
o The transfer of the Regular IRA or Roth IRA to another custodian/trustee.
o The rollover of the amounts in the Regular IRA or Roth IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA upon termination of the account will be
treated as a withdrawal, and thus the rules relating to Regular IRA or Roth IRA
withdrawals will apply. For example, if the IRA is terminated before you reach
age 59 1/2, the 10% early withdrawal penalty may apply to the taxable amount you
receive.
IRA DOCUMENTS
REGULAR IRA
The terms contained in Articles I to VII of Part One of the Investors Fiduciary
Trust Company Universal Individual Retirement Custodial Account document have
been promulgated by the IRS in Form 5305-A for use in establishing a Regular IRA
Custodial Account that meets the requirements of Code Section 408(a) for a valid
Regular IRA. This IRS approval relates only to the form of Articles I to VII and
is not an approval of the merits of the Regular IRA or of any investment
permitted by the Regular IRA.
ROTH IRA
The terms contained in Articles I through VII of Part Two of the Universal
Individual Retirement Account Custodial Agreement have been promulgated by the
IRS in Form 5305-RA for use in establishing a Roth IRA Custodial Account that
meets the requirements of Code Section 408A for a valid Roth IRA. This IRS
approval relates only to the form of Articles I to VII and is not an approval of
the merits of the Roth IRA or of any investment permitted by the Roth IRA.
Based on our legal advice relating to current tax laws and IRS meetings, the
Custodian believes that the use of a Universal Individual Retirement Account
Information Kit such as this, containing information and documents for both a
Regular IRA or a Roth IRA, will be acceptable to the IRS. However, if the IRS
makes a ruling, or if Congress enacts legislation, regarding the use of
different documentation, the Custodian will forward to you a Regular IRA or a
Roth IRA Kit (as appropriate) for you to read and, if necessary, an appropriate
new Adoption Agreement to sign. By adopting a Regular IRA or a Roth IRA using
these materials, you acknowledge this possibility and agree to this procedure if
necessary. In all cases, to the extent permitted, Investors Fiduciary Trust will
treat your IRA as being opened on the date your account was opened using the
Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
BARON FUNDS
P.O. BOX 419946
KANSAS CITY, MO 64141-6946
1-800-442-3814
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BARON FUNDS
UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL AGREEMENT
PART ONE: PROVISIONS APPLICABLE TO REGULAR
IRAS
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-A for use in establishing an individual
retirement custodial account.
ARTICLE I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
ARTICLE II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver and platinum
coins, coins issued under the laws of any state, and certain bullion.
ARTICLE IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70 1/2.
By that date, the Depositor may elect, in a manner acceptable to the
Custodian, to have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
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(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph
3.
(b) If the Depositor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Depositor or, if
the Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the Depositor's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Depositor would have
turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually have
been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies.) In the case
of distributions under paragraph 3, determine the initial life expectancy
(or joint life and last survivor expectancy) using the attained ages of the
Depositor and designated beneficiary as of their birthdays in the year the
Depositor reaches age 70 1/2. In the case of a distribution in accordance
with paragraph 4(b)(ii), determine life expectancy using the attained age
of the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
ARTICLE V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Adoption Agreement.
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PART TWO: PROVISIONS APPLICABLE TO ROTH IRAS
See Section 25 of Part Three for information about the following provisions of
Articles I to VII.
ARTICLE I.
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum
amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will
be accepted.
ARTICLE IA.
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver, and
platinum coins, coins issued under the laws of any state, and certain
bullion.
ARTICLE IV.
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth anniversary
of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the
Depositor's death.
If distributions do not begin by the date described in (b), distribution method
(a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using
the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence and subtract 1
for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date
of death, such spouse will then be treated as the Depositor.
ARTICLE V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under Sections 408(i) and
408A(d)(3)(E), and Regulations Section 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other amendments
may be made with the consent of the persons whose signatures appear below.
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PART THREE: PROVISIONS APPLICABLE TO BOTH
REGULAR IRAS AND ROTH IRAS
ARTICLE VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either event,
Part Three of this Investors Fiduciary Trust Company Universal Individual
Retirement Account Custodial Agreement and the Adoption Agreement signed by the
Depositor. The Account may be a Regular Individual Retirement Account or a Roth
Individual Retirement Account, as specified by the Depositor. See Section 24
below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored or
distributed by Sponsor; provided, however, that such a mutual fund or registered
investment company must be legally offered for sale in the state of the
Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to serve as
distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to the
Distributor may be performed by the Fund(s) or by an entity that has a contract
to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned hereunder to
the Service Company will be performed by the Distributor (if any) or by an
entity specified in the second preceding paragraph.
"Sponsor" means Baron Funds and/or Baron Asset Fund, a Massachussets business
trust.
2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian
within seven days after the Depositor receives the Disclosure Statement
related to the Custodial Account. Mailed notice is treated as given to the
Custodian on date of the postmark (or on the date of Post Office
certification or registration in the case of notice sent by certified or
registered mail). Upon timely revocation, the Depositor's initial
contribution will be returned, without adjustment for administrative
expenses, commissions or sales charges, fluctuations in market value or
other changes.
The Depositor may certify in the Adoption Agreement that the Depositor received
the Disclosure Statement related to the Custodial Account at least seven days
before the Depositor signed the Adoption Agreement to establish the Custodial
Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and reinvested
in full and fractional shares of one or more Funds. Such investments shall
be made in such proportions and/or in such amounts as Depositor from time
to time in the Adoption Agreement or by other written notice to the Service
Company (in such form as may be acceptable to the Service Company) may
direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Funds hereunder to the Funds' transfer agent for execution. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, the contribution
will be returned to the Depositor, or will be held uninvested (or invested in a
money market fund if available) pending clarification or completion by the
Depositor, in either case without liability for interest or for loss of income
or appreciation. If any other directions or other orders by the Depositor with
respect to the sale or purchase of shares of one or more Funds for the Custodial
Account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum initial or
additional investment or minimum balance rules applicable to a Fund as described
in its prospectus.
All dividends and capital gains or other distributions received on the shares of
any Fund held in the Depositor's
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Account shall be (unless received in additional shares) reinvested in full and
fractional shares of such Fund (or of any other Fund offered by the Sponsor, if
so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of
the shares of a Fund in the Depositor's Account for shares and fractional
shares of one or more other Funds. The Depositor shall give such directions
by written notice acceptable to the Service Company, and the Service
Company will process such directions as soon as practicable after receipt
thereof (subject to the second paragraph of Section 3 of this Article
VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's
Account will be effected at the public offering price or net asset value of
such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or from
the Depositor's Account will be subject to any applicable sales, redemption or
other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial Account.
Any account maintained in connection herewith shall be in the name of the
Custodian for the benefit of the Depositor. All assets of the Custodial
Account shall be registered in the name of the Custodian or of a suitable
nominee. The books and records of the Custodian shall show that all such
investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the Account
hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the Custodian
with any information the Custodian requires to carry out the Custodian's
recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with
respect to the investment and reinvestment of Depositor's Custodial
Account, nor shall such parties be liable for any loss or diminution in
value which results from Depositor's exercise of investment control over
his Custodial Account. Depositor shall have and exercise exclusive
responsibility for and control over the investment of the assets of his
Custodial Account, and neither Custodian nor any other such party shall
have any duty to question his directions in that regard or to advise him
regarding the purchase, retention or sale of shares of one or more Funds
for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until
written notice to the contrary is received by the Custodian and the Service
Company. While an investment advisor's appointment is in effect, the
investment advisor may issue investment directions or may issue orders for
the sale or purchase of shares of one or more Funds to the Service Company,
and the Service Company will be fully protected in carrying out such
investment directions or orders to the same extent as if they had been
given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed to be
instructions to the Custodian and the Service Company to pay such investment
advisor's fees to the investment advisor from the Custodial Account hereunder
without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be made at such
time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor
acknowledges that any distribution of a taxable amount from the Custodial
Account (except for distribution on account of Depositor's disability or
death, return of an "excess contribution" referred to in Code Section 4973,
or a "rollover" from this Custodial Account) made earlier than age 59 1/2
may subject Depositor to an "additional tax on early distributions" under
Code Section 72(t) unless an exception to such additional tax is
applicable. For that purpose, Depositor will be considered disabled if
Depositor can prove, as provided in Code Section 72(m)(7), that Depositor
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or be of long-continued and indefinite duration. It is
the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above
are met. If the Depositor (or Beneficiary) does not direct the Custodian to
make distributions from the Custodial Account by the time that such
distributions are required to commence in accordance with such distribution
requirements, the Custodian (and Service Company) shall assume that the
Depositor (or Beneficiary) is meeting the minimum distribution requirements
from
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another individual retirement arrangement maintained by the Depositor (or
Beneficiary) and the Custodian and Service Company shall be fully protected in
so doing. The Depositor (or the Depositor's surviving spouse) may elect to
comply with the distribution requirements in Article IV using the recalculation
of life expectancy method, or may elect that the life expectancy of the
Depositor and/or the Depositor's surviving spouse, as applicable, will not be
recalculated; any such election may be in such form as the Depositor (or
surviving spouse) provides (including the calculation of minimum distribution
amounts in accordance with a method that does not provide for recalculation of
the life expectancy of one or both of the Depositor and surviving spouse and
instructions for withdrawals to the Custodian in accordance with such method).
Notwithstanding paragraph 2 of Article IV, unless an election to have life
expectancies recalculated annually is made by the time distributions are
required to begin, life expectancies shall not be recalculated. Neither the
Custodian nor any other party providing services to the Custodial Account
assumes any responsibility for the tax treatment of any distribution from the
Custodial Account; such responsibility rests solely with the person ordering the
distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any
and all applications, certificates, tax waivers, signature guarantees and
other documents (including proof of any legal representative's authority)
deemed necessary or advisable by Custodian, but Custodian shall not be
responsible for complying with any order or instruction which appears on
its face to be genuine, or for refusing to comply if not satisfied it is
genuine, and Custodian has no duty of further inquiry. Any distributions
from the Account may be mailed, first-class postage prepaid, to the last
known address of the person who is to receive such distribution, as shown
on the Custodian's records, and such distribution shall to the extent
thereof completely discharge the Custodian's liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as such
by the "designating person" (as defined below) on a form acceptable to the
Custodian for use in connection with the Custodial Account, signed by the
designating person, and filed with the Custodian. The form may name
individuals, trusts, estates, or other entities as either primary or
contingent beneficiaries. However, if the designation does not effectively
dispose of the entire Custodial Account as of the time distribution is to
commence, the term "Beneficiary" shall then mean the designating person's
estate with respect to the assets of the Custodial Account not disposed of
by the designation form. The form last accepted by the Custodian before
such distribution is to commence, provided it was received by the Custodian
(or deposited in the U.S. Mail or with a reputable delivery service) during
the designating person's lifetime, shall be controlling and, whether or not
fully dispositive of the Custodial Account, thereupon shall revoke all such
forms previously filed by that person. The term "designating person" means
Depositor during his/her lifetime; after Depositor's death, it also means
Depositor's spouse, but only if the spouse elects to treat the Custodial
Account as the spouse's own Custodial Account in accordance with applicable
provisions of the Code.
(b) When and after distributions from the Custodial Account to Depositor's
Beneficiary commence, all rights and obligations assigned to Depositor
hereunder shall inure to, and be enjoyed and exercised by, Beneficiary
instead of Depositor.
12. (a) The Depositor agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to prepare
any reports required under Section 408(i) or Section 408A(d)(3)(E) of the
Code and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the Internal
Revenue Service and the Depositor at such time and manner and containing
such information as is prescribed by the Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to each other
such information relevant to the Custodial Account as may be required under
the Code and any regulations issued or forms adopted by the Treasury
Department thereunder or as may otherwise be necessary for the
administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service which
are required of him by law (including Form 5329), and neither the Custodian
nor Service Company shall have any duty to advise Depositor concerning or
monitor Depositor's compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account document in
any respect at any time, effective on a stated date which shall be at least
60
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days after giving written notice of the amendment (including its exact
terms) to Custodian by registered or certified mail, unless Custodian
waives notice as to such amendment. If the Custodian does not wish to
continue serving as such under this Custodial Account document as so
amended, it may resign in accordance with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to amend,
provided (i) the Custodian does not change the investments available under
this Custodial Agreement and (ii) the Custodian amends in the same manner
all agreements comparable to this one, having the same Custodian,
permitting comparable investments, and under which such power has been
delegated to it; this includes the power to amend retroactively if
necessary or appropriate in the opinion of the Custodian in order to
conform this Custodial Account to pertinent provisions of the Code and
other laws or successor provisions of law, or to obtain a governmental
ruling that such requirements are met, to adopt a prototype or master form
of agreement in substitution for this Agreement, or as otherwise may be
advisable in the opinion of the Custodian. Such an amendment by the
Custodian shall be communicated in writing to Depositor, and Depositor
shall be deemed to have consented thereto unless, within 30 days after such
communication to Depositor is mailed, Depositor either (i) gives Custodian
a written order for a complete distribution or transfer of the Custodial
Account, or (ii) removes the Custodian and appoints a successor under
Section 17 below.
Pending the adoption of any amendment necessary or desirable to conform this
Custodial Account document to the requirements of any amendment to any
applicable provision of the Internal Revenue Code or regulations or rulings
thereunder, the Custodian and the Service Company may operate the Depositor's
Custodial Account in accordance with such requirements to the extent that the
Custodian and/or the Service Company deem necessary to preserve the tax benefits
of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's right to
substitute fee schedules in the manner provided by Section 16 below, and no
such substitution shall be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement is
terminated or if, within 30 days (or such longer time as Custodian may
agree) after resignation or removal of Custodian under Section 17,
Depositor or Sponsor, as the case may be, has not appointed a successor
which has accepted such appointment. Termination of the Custodial Account
shall be effected by distributing all assets thereof in a single payment in
cash or in kind to Depositor, subject to Custodian's right to reserve funds
as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account document
shall have no further force and effect (except for Sections 15(f), 17(b)
and (c) hereof which shall survive the termination of the Custodial Account
and this document), and Custodian shall be relieved from all further
liability hereunder or with respect to the Custodial Account and all assets
thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more contractors or
service providers to carry out any of its functions and may compensate them
from the Custodial Account for expenses attendant to those functions. In
the event of such appointment, all rights and privileges of the Custodian
under this Agreement shall pass through to such contractors or service
providers who shall be entitled to enforce them as if a named party.
(b) The Service Company shall be responsible for receiving all instructions,
notices, forms and remittances from Depositor and for dealing with or
forwarding the same to the transfer agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian or
Service Company (or any other party providing services to the Custodial
Account), and none shall be implied. Neither shall be liable (or assumes
any responsibility) for the collection of contributions, the proper amount,
time or tax treatment of any contribution to the Custodial Account or the
propriety of any contributions under this Agreement, or the purpose, time,
amount (including any minimum distribution amounts), tax treatment or
propriety of any distribution hereunder, which matters are the sole
responsibility of Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or after the
Custodian's resignation or removal), the Custodian or Service Company shall
file with Depositor a written report or reports
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reflecting the transactions effected by it during such period and the
assets of the Custodial Account at its close. Upon the expiration of 60
days after such a report is sent to Depositor (or Beneficiary), the
Custodian or Service Company shall be forever released and discharged from
all liability and accountability to anyone with respect to transactions
shown in or reflected by such report except with respect to any such acts
or transactions as to which Depositor shall have filed written objections
with the Custodian or Service Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to Depositor
all notices, prospectuses, financial statements and other reports to
shareholders, proxies and proxy soliciting materials relating to the shares
of the Funds(s) credited to the Custodial Account. No shares shall be
voted, and no other action shall be taken pursuant to such documents,
except upon receipt of adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor, the
Fund(s), Sponsor and Custodian and save them harmless from any and all
liability whatsoever which may arise either (i) in connection with this
Agreement and the matters which it contemplates, except that which arises
directly out of the Service Company's, Distributor's, Fund's, Sponsor's or
Custodian's bad faith, gross negligence or willful misconduct, (ii) with
respect to making or failing to make any distribution, other than for
failure to make distribution in accordance with an order therefor which is
in full compliance with Section 10, or (iii) actions taken or omitted in
good faith by such parties. Neither Service Company nor Custodian shall be
obligated or expected to commence or defend any legal action or proceeding
in connection with this Agreement or such matters unless agreed upon by
that party and Depositor, and unless fully indemnified for so doing to that
party's satisfaction.
(g) The Custodian and Service Company shall each be responsible solely for
performance of those duties expressly assigned to it in this Agreement, and
neither assumes any responsibility as to duties assigned to anyone else
hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and shall
be protected in acting upon any written order from Depositor or
Beneficiary, or any investment advisor appointed under Section 8, or any
other notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed, and so
long as it acts in good faith, in taking or omitting to take any other
action in reliance thereon. In addition, Custodian will carry out the
requirements of any apparently valid court order relating to the Custodial
Account and will incur no liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this Agreement,
shall receive the fees specified on the applicable fee schedule. The fee
schedule originally applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The Custodian may
substitute a different fee schedule at any time upon 30 days' written
notice to Depositor. The Custodian shall also receive reasonable fees for
any services not contemplated by any applicable fee schedule and either
deemed by it to be necessary or desirable or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any kind
whatsoever, including transfer taxes incurred in connection with the
investment or reinvestment of the assets of the Custodial Account, that may
be levied or assessed in respect to such assets, and all other
administrative expenses incurred by the Custodian in the performance of its
duties (including fees for legal services rendered to it in connection with
the Custodial Account) shall be charged to the Custodial Account. If the
Custodian is required to pay any such amount, the Depositor (or
Beneficiary) shall promptly upon notice thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged to the
Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option of
the person entitled to collect such amounts) to the extent possible under
the circumstances by the conversion into cash of sufficient shares of one
or more Funds held in the Custodial Account (without liability for any loss
incurred thereby). Notwithstanding the foregoing, the Custodian or Service
Company may make demand upon the Depositor for payment of the amount of
such fees, taxes and other administrative expenses. Fees which remain
outstanding after 60 days may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be,
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may remove it from its office hereunder. Such notice, to be effective,
shall designate a successor custodian and shall be accompanied by the
successor's written acceptance. The Custodian also may at any time resign
upon 30 days' prior written notice to Sponsor, whereupon the Sponsor shall
notify the Depositor (or Beneficiary) and shall appoint a successor to the
Custodian. In connection with its resignation hereunder, the Custodian may,
but is not required to, designate a successor custodian by written notice
to the Sponsor or Depositor (or Beneficiary), and the Sponsor or Depositor
(or Beneficiary) will be deemed to have consented to such successor unless
the Sponsor or Depositor (or Beneficiary) designates a different successor
custodian and provides written notice thereof together with such a
different successor's written acceptance by such date as the Custodian
specifies in its original notice to the Sponsor or Depositor (or
Beneficiary) (provided that the Sponsor or Depositor (or Beneficiary) will
have a minimum of 30 days to designate a different successor).
(b) The successor custodian shall be a bank, insured credit union, or other
person satisfactory to the Secretary of the Treasury under Code Section
408(a)(2). Upon receipt by Custodian of written acceptance by its successor
of such successor's appointment, Custodian shall transfer and pay over to
such successor the assets of the Custodial Account and all records (or
copies thereof) of Custodian pertaining thereto, provided that the
successor custodian agrees not to dispose of any such records without the
Custodian's consent. Custodian is authorized, however, to reserve such sum
of money or property as it may deem advisable for payment of all its fees,
compensation, costs, and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the Custodial Account or
on or against the Custodian, with any balance of such reserve remaining
after the payment of all such items to be paid over to the successor
custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including
successors to such sections.
19. Except where otherwise specifically required in this Agreement, any notice
from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to
anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to
any seizure, attachment, execution or other legal process in respect
thereof except to the extent required by law. At no time shall it be
possible for any part of the assets of the Custodial Account to be used for
or diverted to purposes other than for the exclusive benefit of the
Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be
construed and administered in accordance with the laws of the state where
the principal offices of the Custodian are located. Any action involving
the Custodian brought by any other party must be brought in a state or
federal court in such state.
If in the Adoption Agreement, Depositor designates that the Custodial Account is
a Regular IRA, this Agreement is intended to qualify under Code Section 408(a)
as an individual retirement Custodial Account and to entitle Depositor to the
retirement savings deduction under Code Section 219 if available. If in the
Adoption Agreement Depositor designates that the Custodial Account is a Roth
IRA, this Agreement is intended to qualify under Code Section 408A as a Roth
individual retirement Custodial Account and to entitle Depositor to the tax-free
withdrawal of amounts from the Custodial Account to the extent permitted in such
Code section.
If any provision hereof is subject to more than one interpretation or any term
used herein is subject to more than one construction, such ambiguity shall be
resolved in favor of that interpretation or construction which is consistent
with the intent expressed in whichever of the two preceding sentences is
applicable.
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and Depositor is referred
to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal
consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the Custodial Account, and
ordering Custodian to make distributions from the Account. Depositor
acknowledges that Custodian and Service Company (and any company associated
therewith) are prohibited by law from rendering such advice.
30
<PAGE>
23. If any provision of any document governing the Custodial Account provides
for notice, instructions or other communications from one party to another
in writing, to the extent provided for in the procedures of the Custodian,
Service Company or another party, any such notice, instructions or other
communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed
satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Regular IRA under Code Section 408(a), the provisions of Part One and
Part Three of this Agreement and the provisions of the Adoption Agreement
are the legal documents governing the Depositor's Custodial Account.
(b) If in the Adoption Agreement the Depositor designated the Custodial Account
as a Roth IRA under Code Section 408A, the provisions of Part Two and Part
Three of this Agreement and the provisions of the Adoption Agreement are
the legal documents governing the Depositor's Custodial Account.
(c) In the Adoption Agreement the Depositor must designate the Custodian
Account as either a Roth IRA or a Regular IRA, and a separate account will
be established for such IRA. One Custodial Account may not serve as a Roth
IRA and a Regular IRA (through the use of subaccounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-A, the Custodian will amend this Agreement
correspondingly.
Articles I through VII of Part Two of this Agreement are in the form promulgated
by the Internal Revenue Service as Form 5305-RA. It is anticipated that, if and
when the Internal Revenue Service promulgates changes to Form 5305-RA, the
Custodian will amend this Agreement correspondingly.
The Internal Revenue Service has endorsed the use of documentation permitting a
Depositor to establish either a Regular IRA or Roth IRA (but not both using a
single Adoption Agreement), and this Kit complies with the requirements of the
IRS guidance for such use. If the Internal Revenue Service subsequently
determines that such an approach is not permissible, or that the use of a
"combined" Adoption Agreement does not establish a valid Regular IRA or a Roth
IRA (as the case may be), the Custodian will furnish the Depositor with
replacement documents and the Depositor will if necessary sign such replacement
documents. Depositor acknowledges and agrees to such procedures and to cooperate
with Custodian to preserve the intended tax treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), Depositor may convert or transfer such other IRA to a Roth
IRA under Code section 408A using the terms of this Agreement and the
Adoption Agreement by completing and executing the Adoption Agreement and
giving suitable directions to the Custodian and the custodian or trustee of
such other IRA. Alternatively, the Depositor may convert or transfer such
other IRA to a Roth IRA by use of a reply card or by telephonic, computer
or electronic means in accordance with procedures adopted by the Custodian
or Service Company intended to meet the requirements of Code section 408A,
and the Depositor will be deemed to have executed the Adoption Agreement
and adopted the provisions of this Agreement and the Adoption Agreement in
accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the current
prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account.
The Depositor represents under penalties of perjury that his or her Social
Security number (or other Taxpayer Identification Number) as stated in the
Adoption Agreement is correct.
31
INDIVIDUAL RETIREMENT ACCOUNT ADOPTION AGREEMENT
FOR NEW IRAS
Use this form to open a new IRA, IRA R/O (Conduit), Roth IRA, Roth Conversion
IRA, SEP IRA, and/or SAR SEP. If you have an existing IRA of one of the types
listed above invested in the BARON FUNDS group of funds, you may open an
additional IRA of a different type by completion of a shorter form,
"AUTHORIZATION TO ADD AN IRA".(Do not use this application to open a SIMPLE IRA
or Education IRA.)Please use one application form for each IRA type.
For information or to request forms call 1-800-442-3814.
SEND ALL COMPLETED DOCUMENTATION TO: BARON FUNDS, P.O. BOX 419946, KANSAS CITY,
MO 64141-6946 ANNUAL MAINTENANCE FEE FOR ACCOUNTS LESS THAN $10,000 IS $12.
PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
First Name Initial Last Name
- --------------------------------- -----------------------
Social Security # Date of Birth
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
City State Zip Code
- -----------------------------------------------------------------------------
Daytime Phone Number Home Phone Number
- ------------------------------------------------------------------------------
Name and Firm of Representative Representative's Phone Number
NEW ACCOUNT INFORMATION
Please select one IRA type, mark investment type, and complete requested
investment information.
<TABLE>
<CAPTION>
DOLLARS CONTRIBUTION SPECIAL
IRA TYPE INVESTMENT TYPE INVESTED TAX YEAR FORM
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Regular IRA
o IRA deductible or nondeductible Contribution $------ -------
o Direct Transfer from existing IRA $------ [ ]
o Rollover within 60 days of receipt from a regular IRA $------
- ---------------------------------------------------------------------------------------------------------------
o Rollover IRA (Conduit)
o Direct Rollover payable to IFTC from 403(b)
or employer qualified plan $------
o Direct Transfer from existing Conduit IRA $------ [ ]
o Rollover within 60 days of receipt from 403(b) or
employer qualified plan $------
- ---------------------------------------------------------------------------------------------------------------
o Roth IRA
o Roth IRA nondeductible Contribution $------ -------
o Direct Transfer from existing Roth IRA
with original start date --/--/-- $------ [ ]
o Rollover within 60 days from Roth IRA
with original start date --/--/-- $------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOLLARS CONTRIBUTION SPECIAL
IRA TYPE INVESTMENT TYPE INVESTED TAX YEAR FORM
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Roth Converted IRA
o Convert my existing NonBaron Funds to a
regular IRA to a Roth Converted IRA $------- [ ]
o Convert my existing Baron Funds IRA to a
Roth Converted IRA
o Direct Transfer from existing Roth Converted IRA
with original start date --/--/-- $------- [ ]
o Rollover within 60 days from Roth Converted IRA
with original start date --/--/-- $-------
- ----------------------------------------------------------------------------------------------------------------
o SEP IRA
o SEP Employer (or self employed) Contribution $------- -------
o Direct Transfer from existing SEP IRA $------- [ ]
o Rollover within 60 days of receipt from a SEP IRA $-------
- ----------------------------------------------------------------------------------------------------------------
o SAR SEP IRA plan established before 1997
o SEP Employee Salary Reduction $------- -------
o Direct Transfer from existing SAR SEP IRA $------- [ ]
o Rollover within 60 days of receipt from a SAR SEP IRA $-------
</TABLE>
[ ] COMPLETE AND ENCLOSE "AUTHORIZATION FOR IRA TRANSFER, DIRECT ROLLOVER &
CONVERSION". Please call 1-800-442-3814 to request Authorization forms.
INVESTMENT INSTRUCTIONS
PLEASE ALLOCATE MY PURCHASE AS FOLLOWS:
If opening more than one type of IRA with this form, please give the reference
number of the account beside the investment instruction.
NAME OF FUND AMOUNT
BARON ASSET FUND ------------------------------------------------
BARON GROWTH & INCOME FUND ------------------------------------------------
BARON SMALL CAP FUND ------------------------------------------------
DESIGNATION OF BENEFICIARIES
I designate the individual(s) named below the Beneficiary(ies) of this IRA. I
revoke all prior IRA Beneficiary designations, if any, made by me for these
assets. I understand that I may change or add Beneficiaries at any time by
written notice to the Custodian. If I am not survived by any Beneficiary, my
Beneficiary shall be my estate. (If no percentage is specified, primary
beneficiaries will share the account balance equally.)
PRIMARY BENIFICIARY(IES)
- --------------------------------------------------- ------------------------
First Name Initial Last Name Relationship
- ----------------------------- --------------- --------------------
Social Security Number Date of Birth % of Account
- --------------------------------------------------------------------------------
Address
<PAGE>
- --------------------------------------------------- ------------------------
First Name Initial Last Name Relationship
- ----------------------------- --------------- --------------------
Social Security Number Date of Birth % of Account
- --------------------------------------------------------------------------------
Address
CONTINGENT BENIFICIARY(IES)
- --------------------------------------------------- ------------------------
First Name Initial Last Name Relationship
- ----------------------------- --------------- --------------------
Social Security Number Date of Birth % of Account
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------- ------------------------
First Name Initial Last Name Relationship
- ----------------------------- --------------- --------------------
Social Security Number Date of Birth % of Account
- --------------------------------------------------------------------------------
Address
SPOUSAL CONSENT
(This section should be reviewed if the accountholder is married, is a resident
of a community property or marital property state, and designates a beneficiary
other than the spouse. It is the accountholder's responsibility to determine if
this section applies. The accountholder may need to consult with legal counsel.
Neither the Custodian nor the Sponsor are liable for any consequences resulting
from a failure of the accountholder to provide proper spousal consent.)
I am the spouse of the above named accountholder. I acknowledge that I have
received full and reasonable disclosure of my spouse's property and financial
obligations. Due to any possible consequences of giving up my community property
interest in this IRA, I have been advised to see a tax professional or legal
advisor.
I hereby consent to the beneficiary designation(s) indicated above. I assume
full responsibility for any adverse consequence that may result. No tax or legal
advice was given to me by the Custodian or Sponsor.
- --------------------------------------------------------------------------------
Signature of Spouse Date
- --------------------------------------------------------------------------------
Signature of Witness for Spouse Date
CERTIFICATION AND SIGNATURES
If the Depositor has indicated a Regular IRA Rollover or Direct Rollover above,
Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible employee
contributions) or 403(b) arrangement; if the distribution is from another
Regular IRA, that Depositor has not made another rollover within the oneyear
period immediately preceding this rollover; that such distribution was received
within 60 days of making the rollover to this Account; and that no portion of
the amount rolled over is a required minimum distribution under the required
distribution rules.
If Depositor has indicated a Conversion or a Rollover of an existing Regular IRA
to a Roth IRA, Depositor acknowledges that the amount converted will be treated
as taxable income (except for prior nondeductible contributions) for federal
income tax purposes. If Depositor has indicated a Rollover from another Roth
IRA, Depositor certifies that the information given above is correct and
acknowledges that adverse tax consequences or penalties could result from giving
incorrect information.
<PAGE>
Depositor has received and read the applicable sections of the "Universal
Individual Retirement Account Disclosure Statement" relating to this Account.
The Custodial Account document, and the "Instructions" pertaining to this
Adoption Agreement.
Depositor acknowledges and understands that the beneficiaries named herein may
be changed or revoked at any time by filing a new designation in writing with
the Custodian. All forms must be acceptable to the Custodian and dated and
signed by the Depositor.
If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise the
powers and duties of the Depositor.
- --------------------------------------------------------------------------------
Signature of Depositor Date
CUSTODIAN ACCEPTANCE: Investors Fiduciary Trust Company will accept appointment
as Custodian of the Depositor's Account. However, this Agreement is not binding
upon the Custodian until the Depositor has received a statement of the
transaction. Receipt by the Depositor of a confirmation of the purchase of the
Fund shares indicated above will serve as notification of Investors Fiduciary
Trust Company's acceptance of appointment as Custodian of the Depositor's
Account.
INVESTORS FIDUCIARY TRUST COMPANY, CUSTODIAN
- --------------------------------------------------------------------------------
Signature of Custodian
RETAIN A PHOTOCOPY OF THIS FORM FOR YOUR RECORDS
<PAGE>
AUTHORIZATION TO ADD AN IRA
USE THIS FORM TO OPEN AN ADDITIONAL IRA IF YOU HAVE AN EXISTING IFTC IRA
INVESTED IN THE BARON FUNDS.(THIS FORM IS NOT REQUIRED TO OPEN AN INVESTMENT
ACCOUNT IN AN ADDITIONAL FUND OF THE SAME FUND GROUP IN THE SAME TYPE IRA.) DO
NOT USE FORM TO OPEN A SIMPLE IRA. FOR SIMPLE IRA INFORMATION CALL
18004423814.SEND ALL COMPLETED DOCUMENTATION TO: BARON FUNDS, P.O. BOX 419946,
KANSAS CITY, MO 641416946
REQUEST FOR ADDITIONAL IRA
Please open an additional Individual Retirement Account (IRA) for which I
authorize the identical mutual fund for investment, address, accountholder
birthdate, social security number, and beneficiary information as that shown on
the existing account referenced below. For information on how to make future
changes to your IRA, call 18004423814. Annual Maintenance Fee for accounts less
than $10,000 is $12.
EXISTING ACCOUNT INFORMATION
- -------------------------------------------------------------------------------
Existing IRA account number Fund
- -------------------------------------------------------------------------------
Social Security #
- -------------------------------------------------------------------------------
First Name Initial Last Name (on existing IRA)
- -------------------------------------------------------------------------------
Daytime Phone Number Home Phone Number
NEW ACCOUNT INVESTMENT INFORMATION
Please select one IRA type, mark investment type, and complete requested
investment information.
<TABLE>
<CAPTION>
DOLLARS CONTRIBUTION SPECIAL
IRA TYPE INVESTMENT TYPE INVESTED TAX YEAR FORM
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o Regular IRA
o IRA deductible or nondeductible Contribution $------ ------
o Direct Transfer from existing IRA $------ [ ]
o Rollover within 60 days of receipt from a regular IRA $------
- ---------------------------------------------------------------------------------------------------------------
o Rollover IRA (Conduit)
o Direct Rollover payable to IFTC from
403(b) or employer qualified plan $------
o Direct Transfer from existing Conduit IRA $------ [ ]
o Rollover within 60 days of receipt from 403(b)
or employer qualified plan $------
- ----------------------------------------------------------------------------------------------------------------
o Roth IRA
o Roth IRA nondeductible Contribution $------ -------
o Direct Transfer from existing Roth IRA
with original start date --/--/-- $------ [ ]
o Rollover within 60 days from Roth IRA
with original start date --/--/-- $------
- -----------------------------------------------------------------------------------------------------------------
o Roth Converted IRA
o Convert my existing regular IRA to Roth Converted IRA $------ [ ]
o Direct Transfer from existing Roth Converted IRA
with original start date --/--/-- $------ [ ]
o Rollover within 60 days from Roth Converted IRA
with original start date --/--/-- $------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOLLARS CONTRIBUTION SPECIAL
IRA TYPE INVESTMENT TYPE INVESTED TAX YEAR FORM
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
o SEP IRA
o SEP Employer (or self employed) Contribution $------ ---------
o Direct Transfer from existing SEP IRA $------ [ ]
o Rollover within 60 days of receipt from a SEP IRA $------
- ------------------------------------------------------------------------------------------------------------------
o SAR SEP IRA plan established before 1997
o SEP Employee Salary Reduction $------ ---------
o Direct Transfer from existing SAR SEP IRA $------ [ ]
o Rollover within 60 days of receipt from a SAR SEP IRA $------
</TABLE>
[ ]Complete and enclose "Authorization to Transfer/Direct Rollover/Convert IRA
to Roth IRA". Please call 18004423814 to request Authorization forms.
CERTIFICATION AND SIGNATURES
If the Depositor has indicated a Regular IRA Rollover or Direct Rollover above,
Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible employee
contributions) or 403(b)arrangement; if the distribution is from another Regular
IRA, that Depositor has not made another rollover within the oneyear period
immediately preceding this rollover; that such distribution was received within
60 days of making the rollover to this Account; and that no portion of the
amount rolled over is a required minimum distribution under the required
distribution rules.
If Depositor has indicated a Conversion or a Rollover of an existing Regular IRA
to a RothIRA, Depositor acknowledges that the amount converted will be treated
as taxable income(except for prior nondeductible contributions) for federal
income tax purposes. If Depositor has indicated a Rollover from another Roth
IRA, Depositor certifies that the information given above is correct and
acknowledges that adverse tax consequences or penalties could result from giving
incorrect information.
Depositor has received and read the applicable sections of the "Universal
Individual Retirement Account Disclosure Statement" relating to this Account.
The Custodial Account document, and the "Instructions" pertaining to this
Adoption Agreement.
Depositor acknowledges and understands that the beneficiaries named herein may
be changed or revoked at any time by filing a new designation in writing with
the Custodian. All forms must be acceptable to the Custodian and dated and
signed by the Depositor.
If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise the
powers and duties of the Depositor.
- --------------------------------------------------------------------------------
SIGNATURE (AND TITLE IF APPLICABLE) DATE
CUSTODIAN ACCEPTANCE: Investors Fiduciary Trust Company will accept appointment
as Custodian of the Depositor's Account. However, this Agreement is not binding
upon the Custodian until the Depositor has received a statement of the
transaction. Receipt by the Depositor of a confirmation of the purchase of the
Fund shares indicated above will serve as notification of Investors Fiduciary
Trust Company's acceptance of appointment as Custodian of the Depositor's
Account.
INVESTORS FIDUCIARY TRUST COMPANY, CUSTODIAN
- --------------------------------------------------------------------------------
SIGNATURE OF CUSTODIAN
RETAIN A PHOTOCOPY OF THIS FORM FOR YOUR RECORDS
<PAGE>
ACCOUNT APPLICATION
AUTHORIZATION FOR IRA TRANSFER,
DIRECT ROLLOVER & CONVERSION
You may use this form to effect a direct transfer from an IRA to an IRA with
another Custodian; a direct rollover from a Qualified Plan or 403(b) to an IRA;
or a conversion from a regular IRA to a Roth IRA. The assets may be from another
fund family or within the BARON Funds. Make sure you attach a copy of your
existing account statement, any other forms required by your current
custodian/trustee, and an IRA Application or "Authorization to Add an IRA" form
if you do not have an existing IRA of the type necessary to receive the assets.
Send all completed documentation to: BARON FUNDS,P.O. Box 419946, Kansas City,
MO 64141-6946 ANNUAL MAINTENANCE FEE IS $12.
PARTICIPANT INFORMATION
- --------------------------------------------------------------------------------
First Name Initial Last Name
- --------------------------------- -----------------------
Social Security # Date of Birth
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
City State Zip Code
- -----------------------------------------------------------------------------
Daytime Phone Number Home Phone Number
- ------------------------------------------------------------------------------
Name and Firm of Representative Representative's Phone Number
CURRENT CUSTODIAN ACCOUNT INFORMATION
- ----------------------------------------- ------------------------------------
Custodian Name Current Fund Name/Class
- ----------------------------------------- ------------------------------------
Custodian Address Current Account Number
- ----------------------------------------- ------------------------------------
Additional Fund Name/Class
- ----------------------------------------- ------------------------------------
Custodian Telephone Number Additional Account Number
INSTRUCTIONS TO MY CURRENT CUSTODIAN
I have established a Baron Funds Individual Retirement Account with Investors
Fiduciary Trust Company as Custodian. Please transferinkind or withdraw assets
from my account in your custody in the following manner and send a check payable
to Investors Fiduciary Trust Company (IFTC) Individual Retirement Account FBO my
name and social security number. Mail to Baron Funds, P.O. Box 419946, Kansas
City, MO 64141-6946
TYPE OF ACCOUNT TO BE TRANSFERRED (CHECK ONE)*
o IRA
o Conduit IRA (direct rollover from my current qualified plan or 403(b))
o Roth Contributory Account (Account start date --/--/--)
o Roth Conversion Account (Account start date --/--/--)
o SEP IRA
o SARSEP IRA (For plans established prior to 1/1/97)
o SIMPLE IRA transfer to a SIMPLE IRA
o Employers Qualified Plan, 403(b), 401(k), etc..
* Note: You may not transfer from a Roth IRA or a simplified employee pension
(SEP)IRA. Transfers to a Regular IRA or SEP IRA may be made from another
Regular IRA or SEP IRA, qualified employer plan, 403(b) arrangement, or a
SIMPLE IRA account (but not until at least 2 years after the first
contribution to your SIMPLE IRA account).
<PAGE>
Transfers to a Roth IRA are possible only from another Roth IRA or from a
Regular IRA, not from other types of taxdeferred accounts. A transfer from a
Regular IRA will trigger federal income tax on the taxable amount transferred
from the Regular IRA. Transfers to a SIMPLE IRA may be made only from another
SIMPLE IRA. During the first two years after a SIMPLE IRA may be made only from
another SIMPLE IRA; after two years, transfers may be made from a SIMPLE IRA to
a Regular IRA..
PORTION OF ACCOUNT TO BE TRANSFERRED (CHECK ONE):
o All of the assets in my account OR $--- or --- % of my account.
o Transfer of Baron Fund shares in kind. Check here to authorize a
transferinkind of Baron Fund shares only from your existing
trustee/custodian to Investors Fiduciary Trust Company.
IF YOU ARE TRANSFERRING A CERTIFICATE OF DEPOSIT IRA CHOOSE ONE OPTION:
o Liquidate prior to maturity date. I am aware that I may incur a penalty for
early withdrawal.
o Liquidate at maturity. (Maturity date must be within 60 days. If the
maturity date is less than 15 days from the date of this request, you may
want to contact your custodian bank to prevent automatic reinvestment of
the account.)
INSTRUCTIONS TO INVESTORS FIDUCIARY TRUST COMPANY
Invest my assets into the IRA and investment type indicated below.
<TABLE>
<CAPTION>
IRA TYPES: (CHOOSE ONE) INVESTMENT TYPES: (CHOOSE ONE)
<S> <C>
o Regular IRA o Direct Transfer from existing IRA
o Rollover IRA (Conduit) o Direct Rollover payable to IFTC from 403(b) or employer qualified plan
o Direct Transfer from existing Conduit IRA
o Roth IRA o Direct Transfer from existing Roth IRA-original start date --/--/--
o Roth Conversion IRA o Convert my existing regular IRA to a Roth Conversion IRA
o Direct Transfer from existing Roth Conversion IRA-
original start date of --/--/--
o SEP IRA o Direct Transfer from existing SEP IRA
o SAR SEP IRA plan o Direct Transfer from existing SAR SEP IRA established before 1997 ------
o SIMPLE IRA o Direct Transfer from existing SIMPLE IRA
</TABLE>
PLEASE ALLOCATE MY PURCHASE AS FOLLOWS:
NAME OF FUND ACCOUNT NUMBER AMOUNT
BARON ASSET FUND ------------------- ------------------------
BARON GROWTH & INCOME FUND ------------------- ------------------------
BARON SMALL CAP FUND ------------------- ------------------------
SIGNATURE OF DEPOSITOR
The undersigned certifies to the present IRA custodian or trustee that the
undersigned has established a successor Individual Retirement Custodial Account
meeting the requirements of Internal Revenue Code Section 408(a), 408(p) or 408A
(as the case may be) to which assets will be transferred, and certifies to
Investors Fiduciary Trust Company that the IRA from which assets are being
transferred meets the requirements of Internal Revenue Code Section 408(a),
408(p) or 408A (as the case may be).
- --------------------------------------------------------------------------------
Signature Date
SIGNATURE GUARANTEE (only if required by current Custodian or Trustee).
Signature guaranteed by:
- --------------------------------------------------------------------------------
Name of Bank or Dealer Firm
- --------------------------------------------------------------------------------
Signature of Officer and Title
ACCEPTANCE BY NEW CUSTODIAN
Investors Fiduciary Trust Company agrees to accept transfer of the above amount
for deposit to the Depositor's Investors Fiduciary Trust Company Individual
Retirement Custodial Account, and requests the liquidation and transfer of
assets as indicated above.
INVESTORS FIDUCIARY TRUST COMPANY
- --------------------------------------------------------------------------------
Signature of Custodian Date
EXHIBIT 16.a
COMPUTATION OF PERFORMANCE DATA
-------------------------------
Performance data, as described in the Prospectus and the Statement of Additional
Information, is calculated on an average annual total return and an actual
return basis.
For the period ended December 31, 1997, the Baron Asset Fund's performance was
calculated based on the following:
<TABLE>
<CAPTION>
(1) DIVIDEND INFORMATION
--------------------
DIVIDEND PER SHARE PER SHARE NO. OF
EX DIVIDEND REINVESTMENT REINVESTED
DATE AMOUNT PRICE SHARES
-------- --------- ------------ ----------
<S> <C> <C> <C>
12/23/87 $0.197 $10.06 1.96
12/28/88 0.701 12.77 5.60
12/28/89 1.409 14.51 10.44
12/27/90 0.198 11.67 2.00
12/27/91 0.035 15.60 0.27
12/29/92 0.162 17.49 1.11
12/28/93 0.774 20.85 4.51
12/28/94 0.656 21.67 3.81
12/27/95 0.034 29.24 0.15
12/27/96 0.039 36.66 0.14
12/29/97 None
</TABLE>
(2) VALUATION INFORMATION:
----------------------
Assuming $1,000 initial investment at inception at $10 per share (100
shares):
<TABLE>
<CAPTION>
TOTAL SHARES NAV TOTAL
DATE OWNED PER SHARE VALUE
-------- ------------ --------- ---------
<S> <C> <C> <C>
12/31/87 101.96 $10.10 $1,029.80
12/31/88 107.56 12.87 1,384.23
12/31/89 118.00 14.66 1,729.87
12/31/90 120.00 11.75 1,410.01
12/31/91 120.27 15.71 1,889.45
12/31/92 121.38 17.73 2,152.14
12/31/93 125.89 21.11 2,657.54
12/31/94 129.70 22.01 2,854.72
12/31/95 129.85 29.74 3,861.80
12/31/96 129.99 36.23 4,709.68
12/31/97 129.99 48.51 6,306.01
</TABLE>
<PAGE>
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN:
- -------------------------------------------
ERV
n ---
Using the formula: T = [root] /P - 1
assuming P = $1.000
(A) For the one year ended 12/31/97
n = 1.00000
ERV = 1.33892
T = +33.9%
(B) For the five year period 12/31/91 - 12/31/97
n = 5.00000
ERV = 2.93015
T = 24.0%
(C) For the period 6/12/87 (inception) - 12/31/97
n = 10.55616
ERV = 6.30601
T = 19.1%
(4) Calculation of Actual Return
Assuming a $1,000 investment,
NAV per share at 6/12/87 = $10.00 at 100 shares. Value =$1,000.
NAV per share at 12/31/87 = $10.10 at 101.96 shares (includes 1.96 reinvested
shares). Value =$1,029.80.
NAV per share at 12/31/88 = $12.87 at 107.56 shares (includes 1.96 + 5.60
reinvested shares). Value =$1,384.23.
NAV per share at 12/31/89 = $14.66 at 118.00 shares (includes 1.96 + 5.60 +
10.44 reinvested shares). Value = $1,729.87.
NAV per share at 12/31/90 =$11.75 at 120.00 shares (includes 1.96 + 5.60 +
10.44 + 2.00 reinvested shares). Value = $1,410.01.
NAV per share at 12/31/91 = $15.71 at 120.27 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 reinvested shares). Value = $1,889.45.
NAV per share at 12/31/92 = $17.73 at 121.38 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 reinvested shares). Value = $2,152.14.
NAV per share at 12/31/93 = $21.11 at 125.89 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 + 4.51 reinvested shares). Value = $2,657.54.
NAV per share at 12/31/94 = $22.01 at 129.70 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 + 4.51 + 3.81 reinvested shares).
Value = $2,854.72.
NAV per share at 12/31/95 = $29.74 at 129.85 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 + 4.51 + 3.81 + 0.15 reinvested shares).
Value = $3,861.80.
NAV per share at 12/31/96 = $36.23 at 129.99 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 + 4.51 + 3.81 + 0.15 + 0.14 reinvested shares).
Value = $4,709.68.
NAV per share at 12/31/97 = $48.51 at 129.99 shares (includes 1.96 + 5.60 +
10.44 + 2.00 + 0.27 + 1.11 + 4.51 + 3.81 + 0.15 + 0.14 reinvested shares).
Value = $6,306.01.
<PAGE>
ONE YEAR
- --------
Performance for the year ended 12/31/97 is 6306.01/4709.68 = +33.89%
FIVE YEARS
- ----------
Performance for the period 12/31/92 - 12/31/97 is 6306.01/2152.14 = +193.01%
SINCE INCEPTION
- ---------------
Performance for the period 06/12/87 - 12/31/97 is 6306.01/1000 = +530.60%
<PAGE>
EXHIBIT 16.b
For the period ended December 31, 1997, Baron Growth & Income Fund's performance
was calculated based on the following:
(1) DIVIDEND INFORMATION
--------------------
<TABLE>
<CAPTION>
DIVIDEND PER SHARE PER SHARE NO. OF
EX DIVIDEND REINVESTMENT REINVESTED
DATE AMOUNT PRICE SHARES
-------- --------- ------------ ----------
<S> <C> <C> <C>
12/27/95 $ 0.142 $ 14.91 0.952
12/27/96 $ 0.255 $ 18.73 1.374
12/29/97 $ 0.073 $ 24.23 0.308
</TABLE>
(2) VALUATION INFORMATION
---------------------
Assuming $1,000 initial investment at inception at $10 per share (100
shares):
<TABLE>
<CAPTION>
TOTAL SHARES NAV TOTAL
DATE OWNED PER SHARE VALUE
------- ------------ --------- -------
<S> <C> <C> <C>
12/31/95 100.952 15.11 1525.38
12/31/96 102.326 19.04 1948.29
12/31/97 102.634 24.88 2553.53
</TABLE>
(3) CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
------------------------------------------
ERV
n ----
Using the formula: T = [root] P - 1
assuming P = $1.000
For the one year ended 12/31/97
n = 1.00000
ERV = 1.31065
T = 31.1%
For the period 1/3/95 (commencement of operations) - 12/31/97
n = 2.0000
ERV = 2.55353
T = 36.7%
<PAGE>
(4) CALCULATION OF ACTUAL RETURN
----------------------------
Assuming a $1,000 investment,
NAV per share at 01/03/95 = $10.00 at 100 shares Value = $1,000.
NAV per share at 12/31/95 = $15.11 at 100.952 shares (includes 0.952
reinvested shares) Value = $1525.38.
NAV per share at 12/31/96 = $19.04 at 102.326 shares (includes 0.952 + 1.374
reinvested shares) Value = $1948.29.
NAV per share at 12/31/97 = $24.88 at 102.634 shares (includes 0.952 + 1.374
+ 0.308 reinvested shares) Value = $2553.53.
ONE YEAR
- --------
Performance for the year ended 12/31/97 is 2553.53/1948.29 = +31.1%
SINCE INCEPTION
- ---------------
Performance for the period 01/03/95 - 12/31/97 is 2553.53/1000 = +155.35%.
<PAGE>
EXHIBIT 16.c
For the period ended December 31, 1997, Baron Small Cap Fund's performance was
calculated based on the following:
(1) DIVIDEND INFORMATION
--------------------
<TABLE>
<CAPTION>
DIVIDEND PER SHARE PER SHARE NO. OF
EX DIVIDEND REINVESTMENT REINVESTED
DATE AMOUNT PRICE SHARES
-------- --------- ------------ ----------
<S> <C> <C> <C>
12/29/97 None
</TABLE>
(2) VALUATION INFORMATION
---------------------
Assuming $1,000 initial investment at inception at $10 per share (100
shares):
<TABLE>
<CAPTION>
TOTAL SHARES NAV TOTAL
DATE OWNED PER SHARE VALUE
------- ------------ --------- -------
<S> <C> <C> <C>
12/31/97 100 $10.31 $1031.00
</TABLE>
(3) CALCULATION OF ACTUAL RETURN
----------------------------
Assuming a $1,000 investment,
NAV per share at 10/01/97 = $10.00 at 100 shares Value = $1,000.
NAV per share at 12/31/97 = $10.31 at 100 shares Value = $1031.00.
SINCE INCEPTION
- ---------------
Performance for the period 10/01/97 - 12/31/97 is 1031/1000 = +3.1%.
BARON ASSET FUND
POWER OF ATTORNEY
-----------------
The undersigned in his or her capacity as a Trustee or officer, or both, as
the case may be, of the Baron Asset Fund (the "Trust") does hereby appoint Linda
S. Martinson and Ronald Baron, and each of them, severally, his or her true and
lawful attorney and agent to execute in his or her name, place and stead (in
such capacity) any and all amendments to the Registration Statement of the Trust
and any post-effective amendments thereto and all instruments necessary or
desirable in connection therewith, to attest the seal of the Trust thereon and
to file the same with the Securities and Exchange Commission; and any and all
other instruments or documents necessary or desirable in connection with the
establishment of a new series of the Trust or any other corporate action
authorized by the Board of Trustees. Each of said attorneys and agents have
power and authority of do and perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever necessary or
advisable to be done in the premises as fully and to all intents and purposes as
each of the undersigned might or could do in person, hereby ratifying and
approving the act of said attorneys and agents and each of them.
Signature Title Date
- --------- ----- ----
/s/ Ronald Baron President and Trustee November 4, 1997
- -------------------------
Ronald Baron
/s/ Norman S. Edelcup Trustee November 4, 1997
- -------------------------
Norman S. Edelcup
/s/ Neal M. Elliott Trustee November 4, 1997
- -------------------------
Neal M. Elliott
/s/ Mark M. Feldman Trustee November 4, 1997
- -------------------------
Mark M. Feldman
/s/ Irwin Greenberg Trustee November 4, 1997
- -------------------------
Irwin Greenberg
/s/ Linda S. Martinson Secretary, Trustee November 4, 1997
- -------------------------
Linda S. Martinson
/s/ Charles N. Mathewson Trustee November 4, 1997
- -------------------------
Charles N. Mathewson
/s/ Harold W. Milner Trustee November 4, 1997
- -------------------------
Harold W. Milner
<PAGE>
Signature Title Date
- --------- ----- -----
/s/ Raymond Noveck Trustee November 4, 1997
- -----------------------
Raymond Noveck
/s/ Morty Schaja Senior Vice President November 4, 1997
- ----------------------- and Trustee
Morty Schaja
/s/ David A. Silverman Trustee November 4, 1997
- -----------------------
David A. Silverman
/s/ Daniel Tisch Trustee November 4, 1997
- -----------------------
Daniel Tisch
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810902
<NAME> BARON ASSET FUND
<SERIES>
<NUMBER> 3
<NAME> BARON SMALL CAP FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 275,531,267
<INVESTMENTS-AT-VALUE> 285,836,456
<RECEIVABLES> 6,624,639
<ASSETS-OTHER> 29,535
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 292,490,630
<PAYABLE-FOR-SECURITIES> 6,718,245
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 501,461
<TOTAL-LIABILITIES> 7,219,706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 277,621,459
<SHARES-COMMON-STOCK> 27,664,373
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (178,240)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,469,647)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,297,352
<NET-ASSETS> 285,270,924
<DIVIDEND-INCOME> 221,624
<INTEREST-INCOME> 528,012
<OTHER-INCOME> 0
<EXPENSES-NET> 927,876
<NET-INVESTMENT-INCOME> (178,240)
<REALIZED-GAINS-CURRENT> (2,469,647)
<APPREC-INCREASE-CURRENT> 10,297,352
<NET-CHANGE-FROM-OPS> 7,649,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,870,458
<NUMBER-OF-SHARES-REDEEMED> (2,206,085)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 285,270,924
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 626,406
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 927,876
<AVERAGE-NET-ASSETS> 251,103,935
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 1.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
